<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended March 31, 1998 Commission File No. 0-6694
MEXCO ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
COLORADO 84-0627918
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
214 W. TEXAS AVENUE, SUITE 1101 79701
MIDLAND, TEXAS (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (915) 682-1119
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class Name of Exchange on Which Registered
------------------- ------------------------------------
Common Stock, $.50 par value None
Indicate by check-mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve (12) months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past ninety (90) days.
Yes X No
------ --------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ((S)229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or an amendment to this Form 10-K. [_]
The aggregate market value of the common stock of the Registrant held by non-
affiliates was approximately $1,646,573 based upon the closing bid price of the
registrant's common stock as of June 3, 1998.
As of June 3, 1998 the registrant had outstanding 1,623,289 shares of common
stock.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Item 601 of Regulation S-K with respect to this
Form 10-K has either been included or omitted because of non-applicability.
The index to the Exhibits is located on page 22 herein.
2
<PAGE>
PART I
ITEM NO. 1. BUSINESS
--------
Mexco Energy Corporation (the "Company"), a Colorado corporation, was
organized in 1972, and maintains its principal office at 214 W. Texas, Suite
1101, Midland, Texas. Since its incorporation, the Company has been engaged in
the acquisition, exploration and development of oil and gas properties located
in the United States. The bulk of its activities are, and have been since its
incorporation, conducted in the State of Texas.
The Company's corporate name was formerly Miller Oil Company. In 1980 the
shareholders of the Company amended the Articles of Incorporation ("Articles")
of the Company to change the corporate name to Mexco Energy Corporation. Also
at that time, the shareholders of the Company approved amendments to the
Articles resulting in a one-for-fifty reverse stock split of the Company's
common stock ($0.50 par value). The corporate name change and reverse stock
split became effective April 30, 1980.
The Company's operations are not divided into industry segments. Since its
inception, the Company's entire business has been acquiring, and developing oil
and gas properties and producing oil and gas within the oil and gas industry.
All sales of oil and gas are to unaffiliated customers. See the Company's
financial statements and notes thereto for an account of the Company's past
operating results attributable to its oil and gas operations.
The Company acquires interests in producing and non-producing oil and gas
leases purchased from landowners and leaseholders in areas considered favorable
for oil and gas exploration and production by the Company. In addition, oil and
gas prospects are acquired by joining with other oil and gas operators in
drilling prospects which such third parties have generated. The Company employs
a combination of the above methods of obtaining producing acreage and related
prospects. In recent years, the Company has placed primary emphasis on
evaluation and purchase of producing oil and gas properties.
As of March 31, 1998, the Company held leasehold rights covering in excess
of 214,112 gross acres (3,871 net acres), all of which have producing oil and
gas wells located thereon. The Company is the operator of five (5) of the
producing wells in which it owns an interest and other companies operate one
thousand five hundred thirty-six (1,536) of the remaining producing wells.
Approximately 74% of the Company's present value discounted at ten percent
per annum of future net revenues of total proved reserves is concentrated in
three (3) principal fields, the Lazy JL, Viejos and Gomez fields. See Note L of
the Notes to Financial Statements herein. The Company owns 3,964 gross (1,512
net) acres in the Lazy JL Field located in Garza County, Texas. The Company owns
2,594 gross (197 net) acres in the Viejos Field and 14,476 gross (72 net) acres
in the Gomez Field both fields located in Pecos County, Texas.
The Company's oil and gas activities involve oil and gas drilling, which
carries high risk including the risk that no commercial oil or gas production
will be obtained. The cost of drilling, completing and operating wells is often
uncertain. Further, drilling may be curtailed or delayed as a result of many
factors, including title problems, weather conditions, delivery delays, and
shortage of pipe and equipment.
3
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The Company is subject to all the risks inherent in the exploration for,
and development and production of, oil and gas, including blowouts, fires, and
other casualties. The Company maintains insurance coverage but losses can occur
from uninsured risks or in amounts in excess of existing insurance coverage.
The occurrence of an event which is not insured or not fully insured could have
an adverse impact upon the Company.
The oil and gas industry in which the Company is engaged is a highly
competitive and speculative business. Competitors include well-capitalized oil
and gas companies and other companies having financial and other resources
greater than those of the Company. The Company's ability to locate and produce
oil and gas reserves is essential to the ultimate realization of income and
value from the Company's properties and, therefore, may be considered to be a
raw material essential to the Company's business. The availability of drilling
rigs, fuel, tubular goods and other drilling and production equipment is also
essential to the Company's business. The Company relies on the acquisition of
leases and other oil and gas interests on which to explore for, develop and/or
produce oil and gas. The availability of such property is essential to the
Company's continuing business.
Crude oil and condensate produced from the properties in which the Company
owns an interest are sold to oil companies and pipeline companies at prices
posted by the principal purchasers in the Company's producing area. As of March
31, 1998 the principal purchasers (percentage purchased) of the Company's crude
oil production were Navajo Crude Oil Marketing Company (62%) and Sun Refining
and Marketing Company (12%).
Natural gas obtained from the properties in which the Company has an
interest is sold pursuant to contracts negotiated between operators of producing
wells and purchasers of natural gas (subject to the Natural Gas Policy Act). As
of March 31, 1998 the principal purchasers (percentage purchased) of the
Company's natural gas production were approximately: Aquila Southwest Pipeline
Corporation (32%) and Chevron USA Production Company (12%). The Company does not
believe that the loss of any of these purchasers would have a material impact on
Company's business because of the demand for oil, gas and casinghead gas
production. Oil and gas production is transported by trucks and pipelines,
respectively. The Company does not own any bulk storage facilities or
pipelines.
As of March 31, 1998, the Company employed two full-time and one part-time
persons. The Company believes that relations with these employees are generally
satisfactory. The Company's employees are not covered by collective bargaining
arrangements.
The Company, by nature of its oil and gas operations, is subject to
compliance with federal, state and local provisions regulating the discharge of
materials into the environment or otherwise relating to the protection of the
environment. At the present time, however, such compliance does not require any
substantial capital expenditures, does not materially affect the Company's
earnings and in the Company's opinion will not materially affect future
operations.
The Company is not engaged in operations in foreign countries, and no
portion of sales or revenues is derived from customers in foreign countries.
4
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ITEM NO. 2. PROPERTIES
----------
Office Facilities
- - -----------------
The Company occupies its principal offices at 214 W. Texas, Suite 1101,
Midland, Texas pursuant to a lease which terminates in less than one (1) year.
Oil and Gas Properties and Reserves
- - -----------------------------------
The Company owns and operates 100% of four (4) producing oil wells and one
(1) well which is currently shut-in. The Company also owns partial interests in
an additional one thousand five hundred forty-two (1,542) wells located in the
states of Texas, New Mexico, Oklahoma, Louisiana, Arkansas, Wyoming, Kansas,
Colorado, Alabama, Montana, North Dakota and Utah. Of the wells, one thousand
five hundred thirty-seven (1,537) are producing. The Company operates one (1)
water injection well and owns partial interests in two additional injection
wells. Additional information concerning these properties and the oil and gas
reserves of the Company is provided as follows.
Oil and Gas Properties
- - ----------------------
The following table indicates the net oil and gas production of the Company
in each of the last five (5) years, all of which is located within the United
States.
<TABLE>
<CAPTION>
Year Oil (Bbls) Gas (MCF)
---- ---------- ---------
<S> <C> <C>
1998 63,800 432,343
1997 39,363 236,034
1996 29,058 186,419
1995 21,844 140,010
1994 13,390 77,126
</TABLE>
The following table indicates the Company's total gross and net productive
oil and gas wells and the total gross and net producing acreage as of March 31,
1998.
<TABLE>
<CAPTION>
Wells Producing
--------------------------- --------------
Oil Gas Acreage (a)
------------- ------------ --------------
Gross Net Gross Net Gross Net
----- ------ ----- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Texas 1,086 22.078 81 1.472 89,642 3,469
New Mexico 64 .331 41 .237 16,954 172
Oklahoma 12 .050 51 .171 36,358 126
Wyoming 7 .040 10 .020 4,750 21
Louisiana 48 .013 10 .010 20,469 25
Arkansas 1 .001 - - 320 -
Kansas 3 .010 13 .040 9,160 27
Colorado - - 2 .010 240 -
Alabama 5 .010 - - 800 2
Montana 21 .020 - - 7,189 4
North Dakota 86 .080 - - 24,464 16
Utah 6 .010 - - 3,766 9
----- ------ --- ----- ------- -----
TOTALS 1,339 22.643 208 1.960 214,112 3,871
</TABLE>
5
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(a) A gross well or acre is one in which an interest is owned. A net well or
acre indicates the percentage of interest of the gross well or acre owned by
the Company.
(b) Of these wells, one is shut in pending evaluation and two are shut in
pending possible conversion to water injection wells.
The following table sets forth the results of the drilling activity by the
Company for the years ended March 31, 1998, 1997 and 1996.
Net Net Net Net
Gross Productive Dry Productive Dry/(1)/
Year Wells Exploratory Exploratory Development Development
- - ---- ----- ----------- ----------- ----------- -----------
1998 8 0 0 2.560 .881
1997 12 0 .167 2.550 0
1996 9 0 .063 .815 0
- - -------------
/(1)/ Of the net dry development wells, 2 gross wells (.776 net) were converted
to injection wells.
The following table presents, for the periods indicated, the average sales
price per unit and average production costs per unit attributable to the
Company's interest in producing oil and gas properties.
Year Ended March 31,
----------------------
1998 1997 1996
------ ------ ------
Average sales price
per product:
Oil (per bbl.) $17.70 $22.09 $17.45
Gas (per MCF) 2.22 2.47 1.57
Average production costs per
barrel equivalent (gas con-
verted to barrel equivalent
to 6 MCF per barrel of oil) 4.88 4.41 4.54
Production cost per dollar
of sales .32 .24 .35
Oil and Gas Reserves
- - --------------------
See Note L of the Notes to Financial Statements herein for information
regarding the estimated quantities of proved oil and gas reserves owned by the
Company. The oil and gas reserves have been estimated in accordance with
regulations promulgated by the Securities and Exchange Commission.
The following table indicates estimates by the Company's Independent
Petroleum Engineers, T. Scott Hickman & Associates, Inc., of Midland, Texas, of
the availability to the
6
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Company of proved oil and gas reserves, all of which are located in the United
States. For 1998, T. Scott Hickman & Associates, Inc. has estimated 245,860
barrels of oil and 3,196,594 MCF of gas for a combined $3,892,533 of future net
revenue discounted at ten percent (10%) per annum. According to SEC guidelines
no provisions were made for changes in product prices and costs; therefore, the
Company does not believe that these estimates of reserves and future net
revenues fully reflect potential future revenue values. Estimates of oil and gas
reserves are projections based on engineering information and data. There are
uncertainties inherent in the interpretation of such data, and there can be no
assurance that the reserves set forth below will be ultimately realized.
Proved Developed and Undeveloped Reserves
-----------------------------------------
<TABLE>
<CAPTION>
Present Worth of
Future Net Revenues
Oil (bbls) Gas (MCF) Discounted at 10%
---------- --------- -------------------
<S> <C> <C> <C>
March 31, 1998 245,860 3,196,594 $3,892,533
March 31, 1997 436,289 2,956,219 $5,320,610
March 31, 1996 424,737 1,920,107 $4,627,526
</TABLE>
Except for a sharp decline in crude oil prices, no major discovery or other
favorable or adverse event has caused a material change in the estimated proved
reserves since March 31, 1998 except for the increase in the Company's proved
oil and gas reserves as of March 31, 1998 due primarily to purchases and
development of producing properties and except for normal production declines,
price and related adjustments.
The Company has not filed any oil or gas reserve estimates or included any
such estimates in reports to any other federal or foreign governmental authority
or agency within the past twelve (12) months.
The Company has no foreign operations and has no agreements with foreign
governments.
As of March 31, 1998, the Company was participating in the drilling of five
(5) wells, four (4) of which have subsequently been successfully completed.
There were no other operations of material importance to Company such as
waterfloods and pressure maintenance projects being installed by the Company,
except a pilot two injection well water flood projection in the Lazy JL Field,
Garza County, Texas and commencement of planning for a gas recycling operation
in the Viejos Field, Pecos County, Texas.
Title to Oil and Gas Properties
- - -------------------------------
Substantially all of the Company's properties are currently mortgaged under
a deed of trust to secure funding through a revolving line of credit. The
Company's properties are generally subject to the customary royalty and
overriding royalty interests, liens incident to operating agreements, liens for
current taxes and other burdens and minor encumbrances, easements and
restrictions. The Company believes that none of such burdens materially detract
from the value
7
<PAGE>
of such properties or materially interferes with their use in the operation of
the Company's business.
As is common industry practice, little or no investigation of title is made
at the time of acquisition of undeveloped properties, other than preliminary
review of local mineral records. Title investigations, in most cases including
obtaining a title opinion of local counsel, are made before commencement of
drilling operations. The Company believes that its methods of investigating
title to its properties are consistent with practices customary in the oil and
gas industry in connection with the acquisition of such properties, and that
such practices are adequately designed to enable it to acquire good title to
such properties.
Undeveloped Acreage
- - -------------------
The Company currently does not own any material inventory of non-productive
acreage in partially developed prospects except those located in the Viejos
Devonian Field of Pecos County, Texas and the Lazy JL Spraberry Field of Garza
County, Texas. The Company owns from 8.31% to 12.02% working and royalty
interests (net revenue interests 6.42% to 9.01%) in the Viejos Field of Pecos
County, Texas, consisting of 2,594 gross acres and twenty (20) wells.
The Company owns from 35% to 45% working interests (net revenue interests
from 26.25% to 33.84%) in twenty-three (23) wells in the Lazy JL (Lower
Spraberry) Field of Garza County, Texas, consisting of 3,964 gross acres. The
Company is unable to determine the extent of future development, if any, in
these two (2) fields.
ITEM NO. 3. LEGAL PROCEEDINGS
-----------------
The Company is not involved in any pending or threatened legal proceedings.
ITEM NO. 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matter has been submitted to a vote of security holders during the fourth
quarter of the fiscal year being reported upon.
8
<PAGE>
PART II
-------
ITEM NO. 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
-------------------------------------------------------------
MATTERS.
-------
"Common Stock"
- - --------------
The Company's common stock is traded in the over-the-counter market. The
high and low bid quotations for the calendar periods indicated are shown on the
following table.
Bid Price
----------------
High Low
---- ---
1998 April - June 1997 $5.50 $5.50
July - September 1997 7.50 5.50
October - December 1997 7.75 7.50
January - March 1998 7.75 7.50
1997 April - June 1996 $4.50 $3.50
July - September 1996 4.25 3.50
October - December 1996 4.50 4.50
January - March 1997 5.50 5.50
Bid quotations representing prices between dealers do not include retail
mark up, mark down or commissions, and do not necessarily represent actual
transactions.
Number of Shareholders
- - ----------------------
As of March 31, 1998, there were approximately 1,443 shareholders of record
of the Company's common stock.
Dividends
- - ---------
The Company has not paid any dividends on its common stock, and the payment
of any dividends at a future date would be dependent upon the earnings,
financial condition and capital needs of the Company at such time. Payment of
dividends is currently restricted by the terms of the Company's bank loan
agreement.
9
<PAGE>
ITEM NO. 6. SELECTED FINANCIAL DATA
-----------------------
<TABLE>
<CAPTION>
Years Ended March 31,
------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Oil & gas income $ 2,090,117 $1,453,124 $ 798,589 $ 543,267 $ 374,322
Proceeds from settlement of
litigation - - - - 1,160,933
Administrative service charges and
reimbursements 5,112 5,009 7,380 10,123 26,553
Other income 13,230 7,774 28,104 20,531 18,071
Net income (loss) (1,323,657) 377,867 200,606 104,843 1,028,718
Net Income (loss) per share - basic ( .83) .27 .15 .09 .88
Net Income (loss) per share - diluted ( .83) .27 .15 .09 .88
Net Income (loss) from continuing
operations (1,323,657) 377,867 200,606 104,843 1,028,718
Net Income (loss) from continuing
operations per share ( .83) .27 .15 .09 .88
EBITDA/(1)/ $ 1,252,539 1,006,119 474,697 285,548 1,308,300
Operating Cash flow/(1)/ 1,118,566 866,931 396,409 255,649 1,302,760
Total Assets $ 4,542,486 5,109,199 2,612,039 1,951,896 1,868,369
Total Long-Term Debt 1,822,000 1,637,000 - - -
Weighted average shares
outstanding 1,594,752 1,423,229 1,342,628 1,173,229 1,173,229
Dividends - - - - -
</TABLE>
/(1)/ EBITDA represents earnings before interest expense, income taxes,
depreciation, depletion and amortization. Management of the Company
believes that EBITDA and operating cash flow may provide additional
information about the Company's ability to meet its future
requirements for debt service, capital expenditures and working
capital. EBITDA and operating cash flow are financial measures
commonly used in the oil and gas industry and should not be
considered in isolation or as a substitute for net income, operating
income, cash flows from operating activities or any other measure of
financial performance presented in accordance with generally accepted
accounting principles or as a measure of the Company's profitability
or liquidity.
10
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ITEM NO. 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Liquidity and Capital Resources and Commitments
- - -----------------------------------------------
As indicated by the Statements of Cash Flows for the past three fiscal
years, the Company has funded its operations, acquisitions, exploration and
development expenditures from cash generated by operating activities, bank
borrowings and issuance of common stock.
The Company has a $3,000,000 revolving line of credit with a borrowing base
of $2,200,000 which is reduced by $50,000 each month throughout the term of the
loan. The loan is reviewed by the bank annually and matures on August 15, 1999.
The Company currently has outstanding borrowings of $1,822,000 against the line.
At the current level of borrowing principal payments will be due beginning
September 5, 1998. The obligations under the loan agreement are secured by
substantially all of the oil and gas properties of the Company and the stock of
its subsidiary. The loan agreement contains certain covenants relating to the
financial condition of the Company. Interest is payable monthly at the prime
rate as established by the bank.
The Company also has a letter of credit with NationsBank of Texas, N.A.,
Midland, Texas, which provides for unsecured borrowings up to $25,000 in lieu of
a plugging bond with the Railroad Commission covering properties operated by the
Company.
During the first quarter, the Company increased capital by $1,000,000 from
the issuance of 200,000 shares of common stock at $5.00 per share through a
private placement. $500,000 of these proceeds were used to reduce the principal
borrowings under the line of credit and the remaining proceeds were used for
property acquisitions and drilling activity.
The Company believes that it will have sufficient capital available from
borrowings along with cash flows from operations to fund any future capital
expenditures and to meet its financial obligations.
In past years, the oil and gas industry from time to time has suffered
because of price decreases for oil. An oversupply of petroleum in both the
domestic and international markets appeared to be the reason for the price
decline. The Company is unable to predict price changes or the possible effects
on the Company at this time. Past changes in tax laws and the decline in oil
prices have had the effect industry-wide of limiting funds available for oil and
gas exploration.
Results of Operations
- - ---------------------
Business Segment
----------------
The Company only has a single line of business which is oil and gas
acquisition, exploration and production.
11
<PAGE>
Fiscal 1998 Compared to Fiscal 1997
-----------------------------------
During the year the Company participated in the successful drilling and
completion of six (6) producing wells (each with approximately 43% working
interest and 32% net revenue interest) in the Lazy JL Field, Garza County,
Texas. The Company also participated in the drilling of one (1) well which has
been converted to a water injection well and one (1) well which is currently
shut in pending possible conversion to a water injection well or a salt water
disposal well.
A decrease in working capital of $124,061 for fiscal 1998, compared to a
decrease of $124,050 for fiscal 1997 was the result of increased acquisition,
drilling and development costs.
Gross revenue from oil and gas production increased in 1998 compared to
1997 by $636,993 (44%). Revenues increased due to the increase in oil and gas
production from acquisition and development of oil and gas properties. The
average 1998 price for crude oil is $17.70 per barrel compared to the 1997 price
of $22.09. Average prices received per MCF of gas for 1998 and 1997 were $2.22
and $2.47, respectively.
Production costs increased $316,760 (91%) from 1997. Of this increase,
$43,920 is attributable to increased production taxes relating to the increase
in production and revenues as stated above with the remaining $272,840 being
attributable to increased operating expenses due to the acquisition and
development of new wells in 1998.
Interest income decreased $5,045 (70%) due to the reduced funds invested in
a money market account.
Other income increased $10,501 primarily due to the recovery of a bad debt.
Overall, costs and expenses increased in 1998 by $2,851,280 (300%).
Depreciation, depletion and amortization increased in 1998 as compared to 1997
by $2,330,923 (488%) primarily due to an impairment of oil and gas properties
which resulted from significantly lower oil prices and the related downward
adjustment of estimated reserves. General and administrative expenses increased
$79,372 (70%) primarily due to increased salaries, legal fees, accounting fees
and engineering costs.
Fiscal 1997 Compared to Fiscal 1996
-----------------------------------
The Company participated in the drilling of twelve (12) gross (2.717 net)
wells, of which nine (9) were productive oil wells in fiscal 1997 and one well
which has been converted to a water injection well.
A decrease in working capital of $124,050 for fiscal 1997, compared to an
increase of $20,300 for fiscal 1996 was the result of increased acquisition,
drilling and development costs.
Gross revenue from oil and gas production increased in 1997 compared to
1996 by $654,535 (82%) and the Company reflected net earnings of $377,867 which
is an increase of $177,261 (88%). Revenues increased due to the increase in oil
and gas production from acquisition and development of oil and gas properties
and the increase in oil and gas prices during
12
<PAGE>
the current year. The average 1997 price for crude oil is $22.09 per barrel
compared to the 1996 price of $17.45. Average prices received per MCF of gas
for 1997 and 1996 were $2.47 and $1.57, respectively.
Administrative services income and reimbursement to the Company decreased
$2,371 (32%) due to the plugging and abandonment of two operated wells during
the prior year.
Production costs increased $73,873 (27%) from 1996. Of this increase,
$37,897 is attributable to increased production taxes relating to the increase
in production and revenues as stated above with the remaining $35,976 being
attributable to increased operating expenses due to the acquisition and
development of new wells in 1997. Production costs per barrel equivalent
actually declined by 3%.
Interest income decreased $10,120 (59%) due to the reduced funds invested
in a money market account.
Overall, costs and expenses increased in 1997 by $328,637 (53%).
Depreciation, depletion and amortization increased in 1997 as compared to 1996
by $215,438 (82%) due to increased production, acquisition and development of
oil and gas properties. General and administrative expenses increased $26,539
(31%) primarily due to increased salaries, legal fees, accounting fees and
engineering costs.
Other Matters
- - -------------
Forwarding-Looking Statements
-----------------------------
Certain statements in this Form 10-K may be deemed to be "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). All statements, other than statements
of historical facts, included in this Form 10-K that address activities, events
or developments that the Company expects, projects, believes or anticipates will
or may occur in the future, including such matters as oil and gas reserves,
future drilling and operations, future production of oil and gas, future net
cash flows, future capital expenditures and other such matters, are forward-
looking statements. These statements are based on certain assumptions and
analysis made by management of the Company in light of its experience and its
perception of historical trends, current conditions, expected future
developments and other factors it believes are appropriate in the circumstances.
Such statements are subject to a number of assumptions, risks and uncertainties,
including general economic and business conditions, prices of oil and gas, the
business opportunities (or lack thereof) that may be presented to and pursued by
the Company, changes in laws or regulations and other factors, many of which are
beyond the control of the Company.
Recently Issued Accounting Standards
------------------------------------
The Company adopted the provisions of Statement of Financial Accounting
Standard No. 128, Earnings Per Share, during the quarter ended December 31,
1997. Since the Company has only Common Stock outstanding the adoption had no
effect on the Company's financial statements at March 31, 1998.
13
<PAGE>
Year 2000 Issue
---------------
The Company's third-party software vendor is currently modifying the system
to accurately handle the year 2000 issue with all necessary changes scheduled to
be completed by December 31, 1998. There will be no additional costs to the
Company for these modifications as the updates are included in the monthly
support contract. Therefore, the Company has determined that the year 2000
issues directly related to its information systems will not have a material
impact on its business, operations, nor its financial position. The Company
cannot determine the effect, if any, that the year 2000 issues will have on its
vendors, customers, other businesses and governmental entities.
ITEM NO. 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
-----------------------------------------------------------
The Company is not subject to market risk as to currency exchange since the
Company does not deal in foreign currency. The Company also has not dealt in
derivatives. However, the Company is subject to significant changes in
connection with sales of crude oil and natural gas.
ITEM NO. 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- - --------------------------------------------------------
See Index to Financial Statements elsewhere herein.
ITEM NO. 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURES
--------------------
There were no changes or disagreements.
14
<PAGE>
PART III
--------
Compliance with Section 16(a) of the Securities Exchange Act of 1934
- - --------------------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent
(10%) of a registered class of the Company's equity securities, to file with the
Securities and Exchange Commission and the National Association of Securities
Dealers, Inc. initial reports of ownership and reports of changes in ownership
of Common Stock and other equity securities of the Company. Officers, Directors
and greater than ten percent (10%) shareholders are required by SEC regulation
to furnish the Company with copies of all Section 16(a) forms they file.
Ownership of and transactions in Company stock by executive officers and
Directors of the Company are required to be reported to the Securities and
Exchange Commission pursuant to Section 16(a) of the Securities Exchange Act of
1934. On June 24, 1998, Terry L. Cox and Donna Gail Yanko each filed a Form 4
to report stock options which were granted on April 2, 1998. Also on June 24,
1998 Thomas R. Craddick, Thomas Graham, Jr., Jack D. Ladd and Gerald Martin each
filed a Form 3 to report the initial number of shares owned upon their election
as directors. Thomas Graham, Jr. also reported stock options which were granted
on April 2, 1998 on his Form 3.
ITEM NO. 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
Name Age Position
---- --- --------
Thomas R. Craddick 54 Director
William G. Duncan, Jr. 55 Director
Thomas Graham, Jr. 64 Chairman of the Board of Directors
Jack D. Ladd 48 Director
Gerald R. Martin 52 Director
Nicholas C. Taylor 60 Director, President and Treasurer
Donna Gail Yanko 54 Director, Vice President and Secretary
On March 2, 1998, the above persons were elected to serve on the Board of
Directors for a term of one year and until their successors are duly elected and
qualified.
The following is a brief account of the business experience during the last
five years of each director and executive officer:
Thomas R. Craddick, 54, was elected to the Board of Directors of the
------------------
Company in 1997 and is a member of the Compensation Committee. Since 1968 to
the present, Mr. Craddick has served as State Representative for the State of
Texas. Throughout his tenure of the past 15 sessions of the Legislature,
Representative Craddick has served on various committees and conferences, most
recently serving on the Legislative Budget Board, Legislative Audit Committee,
the State Affairs Committee and the Revenue & Public Education Funding, Select
Committee, along with serving as Chairman of the House Ways and Means Committee
and Chairman of the Republican Legislative Caucus. For more than the past five
years Mr. Craddick has been Sales Representative for Mustang Mud, Inc., as well
as the owner of Craddick Properties and Owner and President of Craddick, Inc.
both of which invest in oil and gas properties and real estate.
15
<PAGE>
William G. Duncan, 55, since April 1995, has been the President of
-----------------
Southeastern Financial Services, Louisville, Kentucky, prior to which he had
served as Senior Vice President and Chief Investment Officer since October 1991.
For the previous twenty-five (25) years, he held several positions at Liberty
National Bank and Trust Company, Louisville, Kentucky, serving as Senior Vice
President and Manager of the bank's Personal Trust Investment Section, member of
Liberty's Trust Executive Committee, and several positions in Liberty's
Commercial Banking Division. Mr. Duncan was appointed to the position of
Director on July 22, 1994, after the resignation of Thomas Graham, Jr. to become
a United States Ambassador, and was elected a Director in 1994.
Thomas Graham, Jr., 64, was appointed Chairman of the Board of Directors by
------------------
the Directors of the Company, effective July 1997, having served as a director
from 1990 through 1994. From 1994 through May 1997, Mr. Graham served as a
United States Ambassador. For more than five years prior thereto, Mr. Graham
served as the General Counsel, United States Arms Control and Disarmament
Agency, as well as Acting Director and as Acting Deputy Director of such agency
successively, in 1993 and 1994. He has served as President of the Lawyers
Alliance for World Security since mid 1997.
Jack D. Ladd, 48, was elected to the Board of Directors of the Company in
------------
1997 and is a member of the Compensation Committee. Mr. Ladd is currently a
shareholder of the law firm of Stubbeman, McRae, Sealy, Laughlin & Browder, Inc.
Mr. Ladd is also a partner in various real estate partnerships, an arbitrator
for the National Association of Securities Dealers, and a mediator certified by
the Attorney Mediation Institute. Mr. Ladd has served as a director and
advisory director of other oil and gas corporations.
Gerald R. Martin, 52, co-founded River Hill Capital, LLC in June 1996. The
----------------
prior twenty-three (23) years, Mr. Martin had worked for J.J.B. Hilliard, W. L.
Lyons, Inc., seventeen (17) years were spent as Senior Vice President of
Investment Banking. Mr. Martin has experience as a financial consultant or
advisor to several local government agencies and non-profit organizations
including Louisville Water Company and Louisville's Municipal Transit System.
In December 1996, he completed fifteen years of volunteer service as Vice
Chairman of the Board of Commissioners of the Housing Assistance Corporation
(LHAC). Mr. Martin is a director of Orr Safety Corporation and National
Healthcare Services, Inc., both in Louisville. He was elected to the Board of
Directors of the Company in 1997 and is a member of the Compensation Committee.
Nicholas C. Taylor, 60, was elected President, Treasurer and Director of
------------------
the Company in 1983 and serves in such capacities on a part time basis, as
required. From 1974 to 1993, he was a director and shareholder of the law firm
of Stubbeman, McRae, Sealy, Laughlin & Browder, Inc., Midland, Texas, and a
partner of the predecessor firm. Since 1993 he has been engaged in the practice
of law and investments, primarily in oil and gas. In 1995 he was appointed by
the Governor of Texas to serve as a member and currently serves as Chairman of
the State Securities Board.
Donna Gail Yanko, 54, has worked as part-time administrative assistant to
----------------
the President and controlling shareholder for the past nine years. She served as
Assistant Secretary of the Company from 1986 to 1992 and was elected a Director
and appointed Vice President of the Company in 1990 and Secretary in 1992.
16
<PAGE>
ITEM NO. 11. EXECUTIVE COMPENSATION
----------------------
The following table sets forth all cash compensation received by the
executive officers and directors of the Company as a group setting forth
individually executive officers and directors who received in excess of $60,000,
including cash bonuses.
Summary Compensation Table/(1)/
-------------------------------
<TABLE>
<CAPTION>
Name and
Principal Position Year Salary
-------------------- ---- -------
<S> <C> <C>
5 Officers & 1998 $44,825
Directors 1997 $52,381
as a group 1996 $38,400
</TABLE>
- - ------------
/(1)/ Directors are paid $100 per meeting of which there were five (5) for the
period.
ITEM NO. 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The following table sets forth as of March 31, 1998 the owners of five
percent (5%) or more of its common stock:
<TABLE>
<CAPTION>
(1) Title (2) Name and (3) Amount and (4) Percent
of Class Address of Nature of Beneficial of Class
Beneficial Owner Ownership
- - ----------------------------------------------------------------------------
<S> <C> <C> <C>
Common Nicholas C. Taylor/(1)/ 1,110,770/(2)/ 68.43%
214 West Texas
Suite 1101
Midland, TX 79701
Common Howard E. Cox, Jr. 194,000 11.95%
One Federal Street
26th Floor
Boston, MA 02110
</TABLE>
- - -------------
/(1)/ Mr. Taylor, by virtue of his share of ownership, may be deemed to be a
"parent" of the Company as defined under Rule 405 promulgated by the
Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933 as amended (the "Securities Act").
/(2)/ Includes 1,079,770 shares which are held by Mr. and Mrs. Taylor as
community property and 31,000 shares held as custodian for their minor
daughter. Mr. and Mrs. Taylor disclaim any beneficial ownership of 46,000
shares owned by each of their two adult children.
17
<PAGE>
The information set forth below shows as of June 1, 1998, all shares of the
Company's common stock beneficially or indirectly owned by all directors, and
all directors and officers as a group.
The following table sets forth the ownership of executive officers and
directors of the Company.
<TABLE>
<CAPTION>
(1) Title (2) Name and (3) Amount and (4) Percent
of class Address of Nature of Bene- of Class
Beneficial Owner ficial Ownership
- - ---------------------------------------------------------------------
<S> <C> <C> <C>
Common Nicholas C. Taylor 1,110,770/(1)/ 68.43%
Thomas Graham, Jr. 77,000 4.74%
Gerald R. Martin 15,040 .93%
Donna Gail Yanko 7,340 .45%
Thomas R. Craddick 5,000 .31%
Jack D. Ladd 1,478 .09%
Terry L. Cox 200 .01%
All Directors and
Officers as a Group 1,215,828 74.90%
</TABLE>
- - ------------
/(1)/ Includes 1,079,770 shares which are held by Mr. and Mrs. Taylor as
community property and 31,000 shares held as custodian for their minor
daughter. Mr. and Mrs. Taylor disclaim any beneficial ownership of 46,000
shares owned by each of their two adult children.
ITEM NO. 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The Company's principal shareholder owns working interests varying from
93.75% to 100% in certain wells which it operates. The Company operates these
wells on a contract basis charging the same or greater administrative fees as
the previous operator. See Note I of the Notes to Financial Statements.
18
<PAGE>
PART IV
-------
ITEM NO. 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
(a) Financial Statements, Schedules and Exhibits
1. Financial Statements
2. Financial Statement Schedules
All schedules are omitted because of the absence of conditions
under which they are required or because the information is
included in the financial statements or notes thereto.
3. Exhibits
The exhibits and financial statement schedules filed as a part of
this report are listed below according to the number assigned to it in
the exhibit table of Item 601 of Regulation S-K:
(3)(i) Articles of Incorporation - See exhibit E-1.
(ii) Bylaws - incorporated by reference to the Company's Annual
Report to the Securities and Exchange Commission on Form
10K dated June 23, 1995.
(4) Instruments defining the rights of security holders,
including indentures - None.
(9) Voting Trust Agreement - None, consequently, omitted.
(10) Material Contracts:
Stock Option Plan - incorporated by reference to the
Amendment to Schedule 14C Information Statement filed on
August 13, 1997.
Bank Line of Credit - See Exhibit E-2.
(11) Statement regarding computation of per share earnings -Not
Applicable.
(12) Statement regarding computation of ratios - Not
Applicable.
19
<PAGE>
(13) Annual Report to security holders, Form 10-Q or quarterly
report to security holders - Not Applicable.
(18) Letter regarding change in accounting principles - No
change during fiscal 1998.
(19) Previously unfiled documents - No documents have been
executed or in effect during the reporting period which
should have been filed, consequently, this exhibit has
been omitted.
(22) Subsidiaries of the Company -
Name of Subsidiary: Forman Energy Corporation
Other Name Under Which Subsidiary Conducts Business: None
Jurisdiction of Incorporation: New York
(23) Published report regarding matters submitted to vote of
security holders - None, consequently omitted.
(24) Consent of experts - Not applicable.
(25) Power of Attorney - There are no signatures contained
within this report pursuant to a power of attorney,
consequently, this exhibit has been omitted.
(28) Additional Exhibits - None.
(b) Reports on Form 8-K.
No report on Form 8-K was filed by the Company during the last quarter of
the period covered by this report.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
behalf of the undersigned thereunto duly authorized.
MEXCO ENERGY CORPORATION
By: /s/ Nicholas C. Taylor
-----------------------------
Nicholas C. Taylor, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
/s/ Nicholas C. Taylor President, June 24, 1998
- - ------------------------- Treasurer,
Nicholas C. Taylor Director
/s/ Donna Gail Yanko Vice President, June 24, 1998
- - ------------------------- Director
Donna Gail Yanko
/s/ Jack D. Ladd Director June 24, 1998
- - -------------------------
Jack D. Ladd
/s/ Thomas R. Craddick Director June 24, 1998
- - -------------------------
Thomas R. Craddick
/s/ Terry L. Cox Controller June 24, 1998
- - ------------------------
Terry L. Cox
21
<PAGE>
EXHIBIT INDEX
-------------
Number Exhibit Page
- - ------ ------- ----
(1) *
(2) *
(3)(i) Articles of Incorporation E-1
(ii) Bylaws **
(4) Instruments defining the rights of security
holders, including indentures Omit
(5) *
(6) *
(7) *
(8) *
(9) Voting Trust Agreement Omit
(10) Material Contracts
(a) Stock Option Plan ***
(b) Bank Line of Credit E-2
(11) Statement regarding computation of per
share earnings Omit
(12) Statement regarding computation of ratios Omit
(13) Annual Report to security holders, Form 10-Q,
or quarterly report to security holders Omit
(14) *
(15) *
(16) *
(17) *
(18) Letter regarding change in accounting
principles Omit
(19) Previously unfiled documents Omit
(20) *
(21) *
(22) Subsidiaries of the Company Omit
(23) Published report regarding matters submitted
to vote of security holders Omit
(24) Consent of experts Omit
(25) Power of Attorney Omit
(26) *
(27) *
(28) Additional Exhibits Omit
* This exhibit is not required to be filed in accordance with Item 601 of
Regulation S-K.
** Incorporated by reference to the Company's Annual Report to the Securities
& Exchange Commission on Form 10-K, dated June 23, 1995.
*** Incorporated by reference to the Amendment to Schedule 14C Information
Statement filed on August 13, 1998.
22
<PAGE>
MEXCO ENERGY CORPORATION & SUBSIDIARY
INDEX TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
--------------------
<TABLE>
<CAPTION>
Page
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-2
CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 1998 AND 1997 F-3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
MARCH 31, 1998, 1997, AND 1996 F-4
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE YEARS
ENDED MARCH 31, 1998, 1997, AND 1996 F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
MARCH 31, 1998, 1997, AND 1996 F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-8
</TABLE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
Board of Directors
Mexco Energy Corporation
We have audited the accompanying consolidated balance sheets of Mexco Energy
Corporation and Subsidiary, as of March 31, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended March 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Mexco Energy
Corporation and Subsidiary, as of March 31, 1998 and 1997, and the consolidated
results of their operations and their consolidated cash flows for each of the
three years in the period ended March 31, 1998 in conformity with generally
accepted accounting principles.
GRANT THORNTON LLP
Oklahoma City, Oklahoma
May 15, 1998
F-2
<PAGE>
MEXCO ENERGY CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
March 31,
<TABLE>
<CAPTION>
ASSETS 1998 1997
------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 241,348 $ 40,813
Accounts receivable, including $8,473 in 1998 and $6,042 in 1997
from a related party (note I) 207,900 291,254
Prepaid expenses 15,185 -
----------- ----------
Total current assets 464,433 332,067
PROPERTY AND EQUIPMENT - AT COST (notes F and L)
Oil and gas properties, using the full cost method of
accounting 9,915,701 7,819,986
Other 20,252 6,293
----------- ----------
9,935,953 7,826,279
Less accumulated depreciation, depletion, and amortization 5,857,900 3,049,147
----------- ----------
4,078,053 4,777,132
----------- ----------
$ 4,542,486 $5,109,199
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 121,131 $ 167,913
Income taxes payable - 40,093
Current maturities of bank line of credit (note C) 322,000 -
----------- ----------
Total current liabilities 443,131 208,006
BANK LINE OF CREDIT, less current maturities (note C) 1,500,000 1,637,000
DEFERRED INCOME TAXES (note D) - 341,181
----------- ----------
Total liabilities 1,943,131 2,186,187
STOCKHOLDERS' EQUITY
Common stock - $.50 par value; authorized, 40,000,000
shares in 1998 and 5,000,000 shares in 1997; issued and outstanding,
1,623,289 shares in 1998 and 1,423,229 shares in 1997 (note G) 811,644 711,614
Preferred stock - $1.00 par value; authorized, 10,000,000 shares in
1998 (note G) - -
Additional paid-in capital 2,875,399 1,975,429
Retained earnings (accumulated deficit) (1,087,688) 235,969
----------- ----------
2,599,355 2,923,012
----------- ----------
$ 4,542,486 $5,109,199
=========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
MEXCO ENERGY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended March 31,
<TABLE>
<CAPTION>
1998 1997 1996
------------ ---------- ----------
<S> <C> <C> <C>
Revenues
Oil and gas $ 2,090,117 $1,453,124 $ 798,589
Administrative service charges and reimbursements 5,112 5,009 7,380
Interest 2,121 7,166 17,285
Other income 11,109 608 10,819
----------- ---------- ----------
2,108,459 1,465,907 834,073
Costs and expenses
Production 663,525 346,765 272,892
Depreciation, depletion, and amortization (note F) 2,808,753 477,830 262,392
General and administrative 192,395 113,023 86,484
Interest 137,012 12,787 -
----------- ---------- ----------
3,801,685 950,405 621,768
----------- ---------- ----------
Earnings (loss) before income taxes (1,693,226) 515,502 212,305
Income tax expense (benefit) (note D) (369,569) 137,635 11,699
----------- ---------- ----------
NET EARNINGS (LOSS) $(1,323,657) $ 377,867 $ 200,606
=========== ========== ==========
Basic and diluted earnings (loss) per share $(.83) $.27 $.15
=========== ========== ==========
Weighted average outstanding shares, basic and diluted 1,594,752 1,423,229 1,342,628
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
MEXCO ENERGY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years ended March 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
Retained
Common stock Additional earnings Total
---------------------- paid-in (accumulated stockholders'
Shares Amount capital deficit) equity
------------ -------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at April 1, 1995 1,173,229 $586,614 $1,600,429 $ (342,504) $ 1,844,539
Net earnings - - - 200,606 200,606
Issuance of common stock 250,000 125,000 375,000 - 500,000
--------- -------- ---------- ----------- -----------
Balance at March 31, 1996 1,423,229 711,614 1,975,429 (141,898) 2,545,145
Net earnings - - - 377,867 377,867
--------- -------- ---------- ----------- -----------
Balance at March 31, 1997 1,423,229 711,614 1,975,429 235,969 2,923,012
Net loss - - - (1,323,657) (1,323,657)
Issuance of common stock (note G) 200,060 100,030 899,970 - 1,000,000
--------- -------- ---------- ----------- -----------
Balance at March 31, 1998 1,623,289 $811,644 $2,875,399 $(1,087,688) $ 2,599,355
========= ======== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
MEXCO ENERGY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended March 31,
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ----------
<S> <C> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities
Cash received from oil and gas operations $ 2,178,583 $ 1,275,462 $ 769,367
Cash paid for oil and gas operating expenses (713,690) (293,332) (276,430)
Cash paid for general and administrative expenses (194,554) (113,023) (86,484)
Interest received 2,121 7,166 17,285
Interest paid (140,272) (7,298) -
Income taxes paid (24,731) (2,652) (38,148)
Other receipts 11,109 608 10,819
----------- ----------- ---------
Net cash provided by operating activities 1,118,566 866,931 396,409
Cash flows from investing activities
Capital expenditures for oil and gas properties (2,089,136) (1,294,556) (969,271)
Proceeds from sale of assets 64 32,449 24,000
Payments for purchase of other property (13,959) (3,791) -
Payments for purchase of Forman Energy Corporation - (1,369,332) -
----------- ----------- ---------
Net cash used in investing activities (2,103,031) (2,635,230) (945,271)
Cash flows from financing activities
Borrowings 685,000 1,637,000 -
Payments on debt (500,000) - -
Proceeds from issuance of common stock 1,000,000 - 500,000
----------- ----------- ---------
Net cash provided by financing activities 1,185,000 1,637,000 500,000
----------- ----------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 200,535 (131,299) (48,862)
Cash and cash equivalents at beginning of year 40,813 172,112 220,974
----------- ----------- ---------
Cash and cash equivalents at end of year $ 241,348 $ 40,813 $ 172,112
=========== =========== =========
</TABLE>
F-6
<PAGE>
MEXCO ENERGY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Year ended March 31,
<TABLE>
<CAPTION>
1998 1997 1996
------------ ---------- ----------
<S> <C> <C> <C>
Reconciliation of Net Earnings (Loss) to Net Cash
Provided by Operating Activities
Net earnings (loss) $(1,323,657) $ 377,867 $200,606
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities
Depreciation, depletion, and amortization 2,808,753 477,830 262,392
Deferred income taxes (341,181) 94,890 2,573
(Increase) decrease in
Accounts receivable 83,354 (182,671) (36,602)
Recoverable income taxes - - 9,126
Prepaid expenses (15,185) - 1,350
Increase (decrease) in
Accounts payable (53,425) 58,922 (4,888)
Income taxes payable (40,093) 40,093 (38,148)
----------- --------- --------
Net cash provided by operating activities $ 1,118,566 $ 866,931 $396,409
=========== ========= ========
</TABLE>
Noncash investing and financing activities:
- - ------------------------------------------
Included in trade accounts payable at March 31, 1998 are purchases of oil and
gas properties totaling $83,050.
Included in trade accounts payable at March 31, 1997 are purchases of oil and
gas properties and a liability related to the Forman Energy Corporation
acquisition totaling $76,407.
The purchase of Forman Energy Corporation on February 25, 1997 resulted in the
assumption of a deferred tax liability and account payable as follows:
<TABLE>
<CAPTION>
<S> <C>
Assets acquired $1,591,000
Cash paid 1,369,000
----------
Liabilities assumed $ 222,000
==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
MEXCO ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998, 1997, and 1996
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES
The major operations of Mexco Energy Corporation and Subsidiary (the
"Company") consist of exploration, production, and sale of crude oil and
natural gas in the United States with an area of concentration in Texas.
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows.
1. Principles of Consolidation
---------------------------
The Company consolidates the accounts of its wholly-owned subsidiary
Forman Energy Corporation ("Forman"), eliminating all intercompany
balances and transactions.
2. Oil and Gas Properties
----------------------
The full cost method of accounting is used to account for oil and gas
properties. Under this method of accounting, all costs incident to the
acquisition, exploration, and development of properties (both developed
and undeveloped), including costs of abandoned leaseholds, lease
rentals, unproductive wells, and well drilling and equipment costs, are
capitalized. Costs are amortized using the units-of-production method
based primarily on estimates of reserve quantities. Due to uncertainties
inherent in this estimation process, it is at least reasonably possible
that reserve quantities will be revised significantly in the near term.
If the Company's unamortized costs exceed the cost center ceiling
(defined as the sum of the present value, discounted at 10%, of
estimated unescalated future net revenues from proved reserves, less
related income tax effects), the excess is charged to expense in the
year in which the excess occurs. Generally, no gains or losses are
recognized on the sale or disposition of oil and gas properties.
3. Depreciation
------------
Depreciation of office furniture, fixtures, and equipment is provided on
the straight-line method over estimated useful lives of five to ten
years.
4. Production Costs and Administrative Service Arrangements
--------------------------------------------------------
Production costs include lease operating expenses and production taxes.
Reimbursements related to administrative service arrangements are
recorded as revenues.
5. Earnings (Loss) Per Share
-------------------------
Basic and diluted earnings (loss) per share are calculated using the
weighted average number of shares outstanding during each year. Basic
and diluted earnings (loss) per share are the same for all periods
presented.
6. Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid debt instruments purchased with
a maturity of three months or less and money market funds to be cash
equivalents.
F-8
<PAGE>
MEXCO ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1998, 1997, and 1996
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES - CONTINUED
6. Cash and Cash Equivalents - Continued
-------------------------------------
The Company maintains its cash in bank deposit accounts and money market
funds, some of which are not federally insured. The Company has not
experienced any losses in such accounts and believes it is not exposed
to any significant credit risk.
7. Income Taxes
------------
The Company accounts for income taxes using the liability method. Under
the liability method of accounting for income taxes, deferred taxes are
recognized for the tax consequences of temporary differences by applying
enacted tax rates applicable to future years to differences between the
carrying amounts and the tax bases of existing assets and liabilities.
8. Use of Estimates
----------------
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates based on management's
knowledge and experience. Due to their prospective nature, actual
results could differ from those estimates.
NOTE B - BUSINESS COMBINATION
On February 25, 1997, Mexco acquired Forman who is engaged in the
exploration, production, and sale of crude oil and natural gas. The
acquisition has been accounted for using the purchase method, and the
operations of the acquired company are included subsequent to February
1, 1997. The purchase price of approximately $1,591,000 was allocated to
the assets, primarily oil and gas properties, acquired on the basis of
their estimated fair value.
The following summarized pro forma, unaudited, information assumes the
acquisition of Forman had occurred on April 1, 1995:
<TABLE>
<CAPTION>
Year ended March 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Revenues $1,831,031 $1,151,912
Net earnings 476,948 107,993
Basic and diluted earnings per share .34 .08
</TABLE>
F-9
<PAGE>
MEXCO ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1998, 1997, and 1996
NOTE C - BANK LINE OF CREDIT
The Company has a $3,000,000 revolving line of credit with NationsBank
of Texas, N.A. at March 31, 1998. The borrowing base of the line is
reduced by $50,000 each month beginning in February 1998 and continuing
throughout the term of the loan. At March 31, 1998, the borrowing base
is $2,100,000. The line of credit may be drawn down through August 15,
1999. Required principal payments will begin in September 1998 based on
the current level of debt. The required payments for the year ended
March 31, 1999 are reflected as a current liability in the financial
statements. Interest is payable monthly at prime rate (8.5% at March 31,
1998) as established by the bank. The line of credit is collateralized
by the common stock of Forman and oil and gas properties.
NOTE D - INCOME TAXES
Income tax expense (benefit) for years ended March 31 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- -------- --------
<S> <C> <C> <C>
Current expense (benefit)
Federal $ (28,388) $ 40,994 $ 9,126
State - 1,751 -
--------- -------- --------
(28,388) 42,745 9,126
Deferred expense (benefit)
Federal (301,814) 83,941 2,150
State (39,367) 10,949 423
--------- -------- --------
(341,181) 94,890 2,573
--------- -------- --------
$(369,569) $137,635 $11,699
========= ======== ========
</TABLE>
The income tax provision reconciled to the tax computed at the statutory
federal rate for years ended March 31 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- --------- ---------
<S> <C> <C> <C>
Tax expense (benefit) at statutory rate $(575,697) $175,271 $ 72,184
Increase (decrease) in valuation allowance 135,890 (3,072) (5,806)
State income taxes - 8,215 1,461
Prior year overaccrual (28,388) (4,794) (16,308)
Effect of graduated rates 130,450 (41,241) (34,194)
Other (31,824) 3,256 (5,638)
--------- -------- --------
$(369,569) $137,635 $ 11,699
========= ======== ========
</TABLE>
F-10
<PAGE>
MEXCO ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1998, 1997, and 1996
NOTE D - INCOME TAXES - CONTINUED
Amounts of deferred tax assets, valuation allowance, and liabilities at
March 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Deferred tax assets
Percentage depletion carryforwards $ 142,218 $ 97,794
Net operating loss carryforwards 101,780 -
Valuation allowance (135,890) -
--------- ---------
108,108 97,794
Deferred tax liabilities
Excess financial accounting bases over tax bases of property
and equipment (108,108) (438,975)
--------- ---------
Net deferred tax assets (liabilities) $ - $(341,181)
========= =========
Increase (decrease) in valuation allowance for the year $ 135,890 $ (3,072)
========= =========
</TABLE>
As of March 31, 1998, the Company has statutory depletion carryforwards
of approximately $547,000 which do not expire and operating loss
carryforwards of approximately $391,000 that expire in 2018.
NOTE E - SEGMENT INFORMATION AND MAJOR CUSTOMERS
The Company operates exclusively within the United States in the onshore
exploration and production of oil and gas. In the normal course of
business, the Company extends credit to customers in the oil and gas
industry and therefore has significant credit risk in this sector of the
economy. Historically, the Company has not had significant bad debts
and, as such, no allowance for doubtful accounts has been provided in
the accompanying financial statements.
Customers which accounted for 10% or more of revenues are as follows:
<TABLE>
<CAPTION>
Year ended March 31,
-----------------------
1998 1997 1996
------- ------ ------
<S> <C> <C> <C>
Navajo Crude Oil Marketing Company 33% 46% 40%
Sun Refining and Marketing Company - 10% 13%
Aquila Southwest Pipeline Corporation 15% 24% -
</TABLE>
The Company does not believe the loss of any of the above customers
would result in any material adverse effect on its business.
F-11
<PAGE>
MEXCO ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1998, 1997, and 1996
NOTE F - OIL AND GAS COSTS
The costs related to the oil and gas activities of the Company were
incurred as follows:
<TABLE>
<CAPTION>
Year ended March 31,
------------------------------
1998 1997 1996
---------- -------- --------
<S> <C> <C> <C>
Property acquisition costs $ 751,160 $562,363 $650,496
Development costs $1,261,569 $808,600 $318,775
</TABLE>
The Company had the following aggregate capitalized costs relating to
the Company's oil and gas property activities at March 31:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Proved oil and gas properties $9,854,099 $7,698,866 $4,900,230
Unproved oil and gas properties 61,602 121,120 -
Less accumulated depreciation, depletion, and
amortization 5,853,458 3,046,602 2,569,291
---------- ---------- ----------
$4,062,243 $4,773,384 $2,330,939
========== ========== ==========
</TABLE>
Depreciation, depletion, and amortization expense, which included a full
cost ceiling write-down of approximately $1,742,000 recorded in the
fourth quarter of the year ended March 31, 1998 due to declines in oil
and gas prices. Depreciation, depletion, and amortization amounted to
$20.66, $6.02, and $4.35 per equivalent barrel of production for the
years ended March 31, 1998, 1997, and 1996, respectively.
NOTE G - STOCKHOLDERS' EQUITY
In May 1997, the Company completed a private placement consisting of
200,000 shares of common stock at $5.00 per share. The proceeds of
$1,000,000 were used to pay down debt and finance property acquisitions.
In September 1997, the shareholders approved an amendment to the
Articles of Incorporation to increase the number of authorized shares
from 5,000,000 shares of common stock to 40,000,000 shares of common
stock and 10,000,000 shares of preferred stock. The common stockholders
maintain the exclusive right to vote for the election of directors and
for all other purposes. The preferred stock may be issued in a series
with certain rights as determined by the Board of Directors.
NOTE H - EMPLOYEE BENEFIT PLAN
The Company adopted an employee incentive stock plan effective September
15, 1997. Under the plan, 350,000 shares are available for distribution.
Awards, granted at the discretion of a committee of the Board, include
stock options or restricted stock. Stock options may be an incentive
stock option or a nonqualified stock option. The exercise price of each
option will not be less than the market price of the Company's stock on
the date of grant. The maximum term of the options is ten years.
Restricted stock may be granted with a condition to attain a specified
goal. The purchase price will be at least $5.00 per share of restricted
stock. The awards of restricted stock must be accepted within sixty days
and will vest as determined by agreement. Holders of restricted stock
have all rights of a shareholder of the Company. At March 31, 1998, no
stock or stock options had been granted under the plan.
F-12
<PAGE>
MEXCO ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1998, 1997, and 1996
NOTE I - RELATED PARTY TRANSACTIONS
The Company serves as operator of properties in which the majority
stockholder has interests and, in that capacity, bills the majority
stockholder for lease operating expenses on a monthly basis subject to
usual trade terms. The billings totaled approximately $50,097, $112,657,
and $106,198 for the years ended March 31, 1998, 1997, and 1996,
respectively. Accounts receivable include $8,473 and $6,042 due from the
majority stockholder at March 31, 1998 and 1997, respectively.
NOTE J - FINANCIAL INSTRUMENTS
The following table includes estimated fair value information as of
March 31, 1998 and 1997, as required by Statement of Financial
Accounting Standards ("SFAS") No. 107. Such information, which pertains
to the Company's financial instruments, is based on the requirements set
forth in that Statement and does not purport to represent the aggregate
net fair value of the Company. All of the financial instruments are held
for purposes other than trading.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable
to estimate that value.
Cash and Cash Equivalents - The carrying amount approximates fair value
-------------------------
because of the contractual right to receive the deposits upon demand.
Bank Line of Credit - The carrying amount approximates fair value
-------------------
because floating interest rates approximate current market rates.
Financial instruments and the estimated fair values are as follows:
<TABLE>
<CAPTION>
March 31, 1998
--------------------------------------------
Carrying amount of Estimated fair value of
assets (liabilities) assets (liabilities)
-------------------- -----------------------
<S> <C> <C>
Cash and cash equivalents $ 241,348 $ 241,348
Bank line of credit 1,822,000 1,822,000
</TABLE>
<TABLE>
<CAPTION>
March 31, 1997
--------------------------------------------
Carrying amount of Estimated fair value of
assets (liabilities) assets (liabilities)
-------------------- -----------------------
<S> <C> <C>
Cash and cash equivalents $ 40,813 $ 40,813
Bank line of credit (1,637,000) (1,637,000)
</TABLE>
NOTE K - SUBSEQUENT EVENT
On April 2, 1998, the Board of Directors granted stock options for
40,000 shares of common stock at $7.75 per share which vest at 25% on
each annual anniversary date and expire ten years from date of grant.
The Company will account for the options under the intrinsic value
method pursuant to APB Opinion 25.
F-13
<PAGE>
MEXCO ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1998, 1997, and 1996
NOTE L - OIL AND GAS RESERVE DATA (UNAUDITED)
In accordance with SFAS No. 69 and Securities and Exchange Commission
("SEC") rules and regulations, the following information is presented
with regard to the Company's proved oil and gas reserves, all of which
are located in the United States. Information for oil is presented in
barrels ("Bbls") and for gas in thousand cubic feet ("Mcf").
The SEC has adopted SFAS No. 69 disclosure guidelines for oil and gas
producers. These rules require the Company to include as a supplement to
the basic financial statements a standardized measure of discounted
future net cash flows relating to proved oil and gas reserves.
The standardized measure, in management's opinion, should be examined
with caution. The basis for these disclosures is an independent
petroleum engineer's reserve study which contains imprecise estimates of
quantities and rates of production of reserves. Revision of prior year
estimates can have a significant impact on the results. Also,
exploration costs in one year may lead to significant discoveries in
later years and may significantly change previous estimates of proved
reserves and their valuation. Values of unproved properties and
anticipated future price and cost increases or decreases are not
considered. Therefore, the standardized measure is not necessarily a
"best estimate" of the fair value of the Company's oil and gas
properties or of future net cash flows.
The following summaries of changes in reserves and standardized measure
of discounted future net cash flows were prepared from estimates of
proved reserves developed by independent petroleum engineers.
Summary of Changes in Proved Reserves
(Unaudited)
<TABLE>
<CAPTION>
1998 1997 1996
--------------------- --------------------- --------------------
Bbls Mcf Bbls Mcf Bbls Mcf
--------- ---------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Proved developed and undeveloped
reserves
Beginning of year 436,000 2,956,000 425,000 1,920,000 207,000 1,567,000
Revision of previous estimates (132,000) 268,000 (113,000) 411,000 11,000 29,000
Purchase of minerals in place 6,000 405,000 89,000 902,000 111,000 352,000
Extensions and discoveries - - 75,000 83,000 126,000 217,000
Production (64,000) (432,000) (40,000) (236,000) (29,000) (188,000)
Sales of minerals in place - - - (124,000) (1,000) (57,000)
-------- --------- -------- --------- ------- ---------
End of year 246,000 3,197,000 436,000 2,956,000 425,000 1,920,000
======== ========= ======== ========= ======= =========
Proved developed reserves
Beginning of year 281,000 2,400,000 209,000 1,593,000 183,000 1,472,000
End of year 219,000 2,941,000 281,000 2,400,000 209,000 1,593,000
</TABLE>
F-14
<PAGE>
MEXCO ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 1998, 1997, and 1996
NOTE L - OIL AND GAS RESERVE DATA (UNAUDITED) - CONTINUED
Standardized Measure of Discounted Future Net Cash Flows
Relating to Proved Oil and Gas Reserves
(Unaudited)
<TABLE>
<CAPTION>
March 31,
----------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Future oil and gas revenues $ 9,794,000 $13,901,000 $12,239,000
Future production and development costs (3,791,000) (5,678,000) (4,576,000)
Future income tax expense (612,000) (1,348,000) (740,000)
----------- ----------- -----------
Future net cash flows 5,391,000 6,875,000 6,923,000
Discounted at 10% for estimated timing of cash flows (1,896,000) (2,427,000) (2,742,000)
----------- ----------- -----------
Standardized measure of discounted future net cash flows $ 3,495,000 $ 4,448,000 $ 4,181,000
=========== =========== ===========
</TABLE>
Changes in Standardized Measure of Discounted Future Net Cash Flows
Related to Proved Oil and Gas Reserves
(Unaudited)
<TABLE>
<CAPTION>
Year ended March 31,
--------------------------------------------
1998 1997 1996
------------- ------------- --------------
<S> <C> <C> <C>
Sales and transfers of oil and gas produced, net of
production costs $(1,427,000) $(1,106,000) $(526,000)
Net changes in prices and production costs (519,000) (582,000) 734,000
Extensions and discoveries, less related costs - 678,000 954,000
Revisions of previous quantity estimates (428,000) (237,000) 95,000
Accretion of discount 532,000 463,000 203,000
Net change due to purchases and sales of minerals in place 456,000 1,338,000 1,150,000
Net change in income taxes 475,000 (425,000) (254,000)
Other (42,000) 138,000 (11,000)
---------- ---------- -----------
Net increase (decrease) (953,000) 267,000 2,345,000
Balance at beginning of year 4,448,000 4,181,000 1,836,000
---------- ---------- -----------
Balance at end of year $3,495,000 $4,448,000 $ 4,181,000
========== ========== ===========
</TABLE>
F-15
<PAGE>
EXHIBIT 3(i)
E-1
RESTATED ARTICLES OF INCORPORATION
ARTICLE ONE
MEXCO ENERGY CORPORATION, pursuant to the provisions of Article 7-2-107 of
the Colorado Corporation Code, hereby adopts Restated Articles of Incorporation
which accurately copy the Articles of Incorporation and all amendments thereto
that are in effect to date and as further amended by such Restated Articles of
Incorporation as hereinafter set forth and which contain no other change in any
provision thereof.
ARTICLE TWO
The Articles of Incorporation of the corporation are amended by the
Restated Articles of Incorporation as follows:
The Articles of Incorporation are deleted in their entirety and the
Restated Articles of Incorporation set out in Exhibit I attached hereto
are substituted therefor.
ARTICLE THREE
Each such amendment made by these Restated Articles of Incorporation has
been effected in conformity with the provisions of the Colorado Corporation Code
and such Restated Articles of Incorporation and each such amendment made by the
Restated Articles of Incorporation were duly adopted by the shareholders of the
corporation on the 15/th/ day of September, 1997.
------ ---------
ARTICLE FOUR
The number of shares outstanding was 1,623,229, and the number of shares
entitled to vote on the Restated Articles of Incorporation as so amended was
1,623,229, the holders of which
PAGE 1
<PAGE>
have signed a written consent to the adoption of such Restated Articles of
Incorporation as so amended.
ARTICLE FIVE
The Articles of Incorporation and all amendments and supplements thereto
are hereby superseded by the following Restated Articles of Incorporation which
accurately copy the entire text thereof and as amended as above set forth are as
set out in Exhibit I attached hereto.
DATED SEPTEMBER 15, 1997.
-------------
MEXCO ENERGY CORPORATION
By: /s/ NICHOLAS TAYLOR
-----------------------------
President
By: /s/ TERRY COX
----------------------------
Asst. Secretary
PAGE 2
<PAGE>
THE STATE OF TEXAS (S)
(S)
COUNTY OF MIDLAND (S)
BEFORE ME, a Notary Public, on this day personally appeared Nicholas
-------------
C. Taylor , known to me to be the person whose name is subscribed to the
- - ----------
foregoing document and, being by me first duly sworn, declared that the
statements therein contained are true and correct.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this the 15/th/ day of
------
September, 1997.
- - ---------
[NOTARY SEAL APPEARS HERE] CAROL ANN JOHNSTON /s/ CAROL ANN JOHNSTON
MY COMMISSION EXPIRES -------------------------
February 4, 2001 NOTARY PUBLIC
THE STATE OF TEXAS (S)
(S)
COUNTY OF MIDLAND (S)
BEFORE ME, a Notary Public, on this day personally appeared Terry Cox ,
--------------
known to me to be the person whose name is subscribed to the foregoing document
and, being by me first duly sworn, declared that the statements therein
contained are true and correct.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this the 15/th/ day of September,
------ ---------
1997.
[NOTARY SEAL APPEARS HERE] CAROL ANN JOHNSTON /s/ CAROL ANN JOHNSTON
MY COMMISSION EXPIRES -------------------------
February 4, 2001 NOTARY PUBLIC
PAGE 3
<PAGE>
EXHIBIT I
RESTATED ARTICLES OF INCORPORATION OF
MEXCO ENERGY CORPORATION
ARTICLE ONE
The name of the corporation is MEXCO ENERGY CORPORATION.
ARTICLE TWO
The period of duration is perpetual.
ARTICLE THREE
The purpose for which this corporation is organized are:
To engage in any lawful activity or business and to promote and conduct
any legitimate object of purpose or purposes permitted under the laws of
the State of Colorado.
and to enable the corporation to accomplish such purposes, the corporation shall
have and possess and exercise all of the rights, powers and privileges granted
to or conferred upon corporations by the Colorado Business Corporation Act or by
any other law of the State of Colorado or by these Articles of Incorporation,
together with all other rights, powers and privileges incident thereto that
shall or may be necessary or convenient to the conduct of such activities and
business and the achievement of such purposes.
ARTICLE FOUR
The total number of shares of stock which the corporation shall have
authority to issue is fifty million (50,000,000) divided into two classes:
A. One class designated as common stock shall consist of Forty Million
(40,000,000) shares having a par value of Fifty Cents ($.50) per
share; and the other class designated as preferred shares shall
consist of Ten Million (10,000,000) shares having a par value of One
Dollar ($1.00) per share.
PAGE 4
<PAGE>
B. The preferences, qualifications, limitations, restrictions in the
special or relative right in respect to the shares are as follows:
1. Shares of Preferred Stock may be issued from time to time in one
or more series to have distinctive serial designations, as shall
hereafter be determined in the resolution or resolutions
providing for the issue of such Preferred Stock from time to
time adopted by the Board of Directors pursuant to authority as
so to do which is hereby vested in the Board of Directors.
2. Each series of Preferred Stock:
a. may have such number of shares;
b. may not have voting powers without the prior approval
of the holders of a majority of the Common Stock
except when dividends are in arrears for twelve (12)
months;
c. may be subject to redemption at such time or times and
at such prices;
d. may be entitled to receive dividends (which may be
cumulative or noncumulative) at such rate or rates, on
such conditions, from such date or dates, and at such
times, and payable in preference to, or in relation
to, the dividends payable on any other class or
classes or series of stock;
e. may have such rights upon the dissolution of, or upon
any distribution of the assets of, the corporation;
f. may be made convertible at not less than book value
into, or exchangeable for, shares of any other class
or classes (except a class having prior or superior
rights and preferences as to dividends or distribution
of assets upon liquidation) or of any other series of
the same or any other class or classes of stock of the
corporation at such price or prices or at such rates
of exchange, and which such adjustments without the
approval of the holders of a majority of the Common
Stock;
g. may be entitled to the benefit of a sinking fund or
purchase fund to be applied to the purchase or
redemption of shares of such series in such amount or
amounts;
PAGE 5
<PAGE>
h. may be entitled to the benefit of conditions and
restrictions upon the creation of indebtedness of the
Corporation or any subsidiary, upon the issue of any
additional stock (including additional shares of such
series or of any other series) and upon the payment of
dividends or the making of other distributions on, and
the purchase, redemption or other acquisition by the
Corporation or any subsidiary of any outstanding stock
of the Corporation; and
i. may have such other relative, participating, optional
or other special rights, and qualifications,
limitations or restrictions thereof;
all as shall be stated in said resolution or resolutions
providing for the issue of such Preferred Stock. Except where
otherwise set forth in the resolution or resolutions adopted by
the Board of Directors providing for the issue of any series of
Preferred Stock, the number of shares comprising such series may
be increased or decreased (but not below the number of shares
then outstanding) from time to time by like action of the Board
of Directors.
3. Shares of any series of Preferred Stock which have been redeemed
(whether through the operation of a sinking fund or otherwise)
or purchased by the Corporation, or which, if convertible or
exchangeable, have been converted into or exchanged for shares
of stock of any other class or classes shall have the status of
authorized and unissued shares of Preferred Stock and may be
reissued as a part of the series of which they were originally a
part or may be reclassified and reissued as part of a new series
of Preferred Stock to be created by resolution or resolutions
adopted by the Board of Directors providing for the issue of
any series of Preferred Stock and to any filing required by law.
4. Except as otherwise provided by law or by the resolution or
resolutions of the Board of Directors providing for the issue of
any series of the Preferred Stock, the Common Stock shall have
the exclusive right to vote for the election of Directors and
for all other purposes, each holder of the Common Stock being
entitled to one vote for each share held.
Subject to all of the rights of the Preferred Stock or any series
thereof, the holders of the Common Stock shall be entitled to receive,
when, as and if declared by the Board of Directors, out of funds legally
available therefor, dividends payable in case, stock or otherwise.
Upon any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, and after the holders of the Preferred
Stock of each series shall have been paid in full the amounts to which
they respectively shall be
PAGE 6
<PAGE>
entitled or a sum sufficient for such payment in full shall have been
set aside, the remaining net assets of the corporation shall be
distributed pro rata to the holders of the Common Stock in accordance
with their respective rights and interests, to the exclusion of the
holders of the Preferred Stock
C. Each of the 1,623,229 shares of the corporation previously issued having
a par value of Fifty Center ($0.50) per share, shall be equal to one (1)
fully paid and nonassessable common share of the corporation having a
par value of Fifty Cents ($0.50) per share authorized to be issued under
the Articles of Incorporation as hereby amended. Certificates for common
shares previously issued and outstanding as of the date of these
Restated Articles of Incorporation shall remain issued and outstanding
hereafter.
No stockholder of this corporation shall, by reason of his/her holding
shares of any class, have any pre-emptive or preferential right to purchase or
subscribe to any shares of any class of this corporation, now or hereafter to be
authorized, or any notes, debentures, bond or other securities convertible into
or carrying options or warrants to purchase shares of any class, now or
hereafter to be authorized, whether or not the issuance of any such shares, or
such notes, debentures, bonds or other securities, would adversely affect the
dividend or voting rights of such stockholder, other than such rights, if any,
as the Board of Directors, in its discretion from time to time may grant, and at
such price as the Board of Directors in its discretion may fix; and the Board of
Directors may issue shares of any class of this corporation, or any notes,
debentures, bonds or other securities convertible into or carrying options or
warrants to purchase shares of any class, without offering any such shares of
any class, either in whole or in part, to the existing stockholders of any
class.
A cumulative voting by the stockholders of the corporation at any election
for directors is expressly prohibited. The shareholders entitled to vote for
directors in such election shall be entitled to cast one vote per directorship
for each share held, and no more.
PAGE 7
<PAGE>
ARTICLE FIVE
The corporation will not commence business until it has received for
issuance of its shares consideration of the value of One Thousand Dollars
($1,000.00), consisting of money, labor done, or property actually received,
which sum is not less than One Thousand Dollars ($1,000.00).
ARTICLE SIX
The post office address of its registered agent is 4988 W. Fair Avenue
Littleton, Colorado, and the name of its registered agent at such address is
Aims McGuinness.
PAGE 8
<PAGE>
EXHIBIT 10
E-2
NationsBank of Texas, N.A.
Date: December 24, 1997
LOAN AGREEMENT
This Loan Agreement (the "Agreement") dated as of December 24, 1997, by
and between NationsBank of Texas, N.A., a national banking association ("Bank")
and the Borrowers described below.
In consideration of the Loan or Loans described below and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, Bank and Borrowers agree as follows:
1. DEFINITIONS AND REFERENCE TERMS. In addition to any other terms defined
-------------------------------
herein, the following terms shall have the meaning set forth with respect
thereto:
A. BORROWERS. Borrowers means collectively MEXCO ENERGY CORPORATION,
A COLORADO CORPORATION ("Mexco") and FORMAN ENERGY CORPORATION, A NEW YORK
CORPORATION ("Forman"). Borrower means either one of the Borrowers.
B. BORROWERS' ADDRESS:
214 W. Texas Avenue, Suite 1101
Midland County
Midland, Texas 79701
C. HAZARDOUS MATERIALS. Hazardous Materials include all materials
defined as hazardous materials or substances under any local, state or federal
environmental laws, rules or regulations, and petroleum, petroleum products, oil
and asbestos.
D. LOAN. Any loan described in Section 2 hereof.
E. LOAN DOCUMENTS. Loan Documents means this Loan Agreement and any
and all promissory notes executed by Borrowers in favor of Bank and all other
documents, instruments, guarantees, certificates, deeds of trust, security
agreements and agreements executed and/or delivered by either Borrower, any
guarantor or third party in connection with any Loan.
F. ACCOUNTING TERMS. All accounting terms not specifically defined
or specified herein shall have the meanings generally attributed to such terms
under generally accepted accounting principles ("GAAP"), as in effect from time
to time, consistently applied, with respect to the financial statements
referenced in Section 3.H. hereof.
2. LOANS.
-----
A. LOAN. Subject to the terms hereof, Bank hereby agrees to make (or
has made) one or more loans to Borrowers in the aggregate principal face amount
of $3,000,000.00. The obligation to repay the loans is evidenced by a promissory
note dated of even date herewith in the original principal amount of $3,000,000
(the promissory note together with any and all renewals, extensions or
rearrangements thereof being hereafter collectively referred to as the "Note")
having a maturity date, repayment terms and interest rate as set forth in the
Note. The Note is given in renewal, extension and rearrangement, but not in
extinguishment or novation, of (i) that certain promissory note dated
February 25, 1997, in the original principal amount of $1,750,000, executed by
Borrowers and payable to the order of Bank, and (ii) that certain promissory
note dated September 25, 1997, in the original principal amount of $720,000,
executed by Borrowers and payable to the order of Bank (collectively, the "Prior
Notes").
i. REVOLVING CREDIT FEATURE. The Loan provides for a revolving
line of credit (the "Line") under which Borrowers may from time to time, borrow,
repay and re-borrow funds. The funds borrowed under the Line shall never exceed
at any one time outstanding the lesser of (a) $3,000,000.00, or (b) the
Borrowing Base from time to time in effect.
ii. BORROWING BASE. The Line is subject to the following
Borrowing Base agreement: the Borrowing Base is the amount of the loan value
which Bank assigns, in the exercise of its sole discretion, to the collateral
pledged by Borrowers to Bank under the Deed of Trust (defined below). The
Borrowing Base is initially set at the amount of $2,200,000.00, but shall
automatically reduce by the sum of $50,000.00 on the 5/th/ day of each month,
beginning February 5, 1998, and continue on the 5/th/ day of each month
thereafter during the term of the Note. In the event that the unpaid principal
balance of the Note shall be in excess of the Borrowing Base on the date of any
such automatic Borrowing Base reduction, Borrowers shall pay such excess to
Bank, in addition to the payment of accrued interest due, on such date. Further,
the Borrowing Base shall be redetermined on an annual basis, on or about
August 1 of each year, or at any time that it appears to Bank, in its sole
discretion, that there has been a material change in the value of the collateral
securing the Note. In the event that the unpaid principal of the Note shall, at
any time, be in excess of the Borrowing Base as a result of the annual or any
discretionary Borrowing Base redetermination made by Bank hereunder (but not as
a result of an automatic Borrowing Base reduction as provided for above),
Borrowers shall, within fifteen (15) days thereafter (a) by instruments
satisfactory in form and substance to Bank, provide Bank with additional
collateral with value in amounts satisfactory to Bank in order to increase the
Borrowing Base by an amount at least equal to such excess, or (b) prepay the
principal of the Note in an amount at least equal to such excess. As used
herein, the term "Deed of Trust" shall mean that certain Deed of Trust,
Mortgage, Assignment, Security Agreement and Financing Statement dated
February 25, 1997, executed by Mexco to Michael F. Hord, as Trustee for the
benefit of Bank, as such Deed of Trust may be amended, modified, supplemented,
renewed and/or extended.
3. REPRESENTATIONS AND WARRANTIES. Borrowers hereby jointly and severally
------------------------------
represent and warrant to Bank as follows:
A. GOOD STANDING. Mexco is a corporation duly organized, legally
existing and in good standing under the laws of the State of Colorado, and has
qualified as a foreign corporation and is in good standing in the State of Texas
and in each other state or jurisdiction wherein its operations, transaction of
business, or ownership of property makes such qualification necessary. Forman is
a corporation duly organized, legally existing and in good standing under the
laws of the State of New York, and has qualified as a foreign corporation in the
State of Texas and in each other state or jurisdiction wherein its operations,
transaction of business, or ownership of property makes such qualification
necessary. Each Borrower has all requisite power and authority to own its
respective properties and to carry on its respective businesses as presently
conducted.
NationsBank Loan Agreement
Texas [Commercial] -1- 2/96
<PAGE>
NationsBank of Texas, N.A.
B. AUTHORITY AND COMPLIANCE. Each Borrower has full power and
authority to execute and deliver the Loan Documents and to incur and perform the
obligation provided for therein, all of which have been duly authorized by all
proper and necessary action of the appropriate governing body of each Borrower.
No consent or approval of any public authority or other third party is required
as a condition to the validity of any Loan Document, and each Borrower is in
compliance with all laws and regulatory requirements to which it is subject.
C. BINDING AGREEMENT. This Agreement and the other Loan Documents
executed by Borrowers constitute valid and legally binding obligations of
Borrowers, enforceable in accordance with their terms.
D. LITIGATION. There is no proceeding involving either Borrower
pending or, to the knowledge of Borrowers, threatened before any court or
governmental authority, agency or arbitration authority, except as disclosed to
Bank in writing and acknowledged by Bank prior to the date of this Agreement.
E. NO CONFLICTING AGREEMENTS. There is no charter, bylaw, stock
provision, partnership agreement or other document pertaining to the
organization, power or authority of either Borrower and no provision of any
existing agreement, mortgage, indenture or contract binding on either of them or
affecting their properties, which would conflict with or in any way prevent the
execution, delivery or carrying out of the terms of this Agreement and the other
Loan Documents.
F. OWNERSHIP OF ASSETS. Borrowers have good title to their
respective assets, free and clear of liens, except those granted to Bank and as
disclosed to Bank in writing prior to the date of this Agreement. Mexco owns all
of the issued and outstanding capital stock of Forman.
G. TAXES. All taxes and assessments due and payable by either
Borrower have been paid or are being contested in good faith by appropriate
proceedings and each Borrower has filed all tax returns which it is required to
file.
H. FINANCIAL STATEMENTS. The financial statements of Mexco
heretofore delivered to Bank have been prepared in accordance with GAAP applied
on a consistent basis throughout the period involved and fairly present Mexco's
financial condition as of the date or dates thereof, and there has been no
material adverse change in Mexco's financial condition or operations since
December 31, 1996. Forman had no liabilities of any nature, contingent or
otherwise on December 31, 1996, and there has been no material adverse change in
Foreman's financial condition or operations since December 31, 1996. All factual
information furnished by Borrowers to Bank in connection with this Agreement and
the other Loan Documents is and will be accurate and complete on the date as of
which such information is delivered to Bank and is not and will not be
incomplete by the omission of any material fact necessary to make such
information not misleading.
I. PLACE OF BUSINESS. Borrowers' chief executive office is located
at
214 West Texas Avenue, Suite 1101
---------------------------------
Midland County
--------------
Midland, Texas 79701
--------------------
J. ENVIRONMENTAL. The conduct of Borrowers' business operations and
the condition of Borrowers' property does not and will not violate any federal
laws, rules or ordinances for environmental protection, regulations of the
Environmental Protection Agency, any applicable local or state law, rule,
regulation or rule of common law or any judicial interpretation thereof relating
primarily to the environment or Hazardous Materials.
K. CONTINUATION OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made under this Agreement shall be deemed to be
made at and as of the date hereof and at and as of the date of any advance under
any Loan.
4. AFFIRMATIVE COVENANTS. Until full payment and performance of all
---------------------
obligations of Borrowers under the Loan Documents, Borrowers will, unless Bank
consents otherwise in writing (and without limiting any requirement of any other
Loan Document):
A. FINANCIAL STATEMENTS AND OTHER INFORMATION. Maintain a system of
accounting satisfactory to Bank and in accordance with GAAP applied on a
consistent basis throughout the period involved, permit Bank's officers or
authorized representatives to visit and inspect Borrowers' books of account and
other records at such reasonable times and as often as Bank may desire, and pay
the reasonable fees and disbursements of any accountants or other agents of Bank
selected by Bank for the foregoing purposes. Unless written notice of another
location is given to Bank, Borrowers' books and records will be located at
Borrowers' chief executive office set forth above. All financial statements
called for below shall be prepared in form and content acceptable to Bank.
In addition, Borrowers will:
i. Furnish to Bank audited consolidated financial statements of Mexco for
--------------------
each fiscal year of Mexco, within 120 days after the close of each such fiscal
---
year.
ii. Furnish to Bank unaudited consolidated financial statements (including
----------------------
a balance sheet and profit and loss statement) of Mexco for each fiscal quarter
------ -------
of each fiscal year of Mexco, within 45 days after the close of each such
--
period.
iii. Furnish to Bank annually Mexco's SEC Form 10-K, within 120 days after
the close of each fiscal year of Mexco.
iv. Furnish to Bank quarterly Mexco's SEC Form 10-Q, within 45 days after
the close of each fiscal quarter of Mexco.
v. Furnish to Bank a compliance certificate in the form of Exhibit "A"
-----------
hereto for (and executed by an authorized representative of) Borrowers
concurrently with and dated as of the date of delivery of each of the financial
statements as required in paragraphs i and ii above, containing (a) a
certification that the financial statements of even date are true and correct
and that the Borrowers are not in default under the terms of this Agreement, and
(b) computations and conclusions, in such detail as Bank may request, with
respect to compliance with this Agreement, and the other Loan Documents,
including computations of all quantitative covenants.
NationsBank Loan Agreement
Texas (Commercial) -2- 2/96
<PAGE>
NationsBank of Texas, N.A.
vi. Furnish to Bank promptly such additional information, reports and
statements respecting the business operations and financial condition of
Borrowers, from time to time, as Bank may reasonably request.
B. INSURANCE. Maintain insurance with responsible insurance
companies on such of their properties, in such amounts and against such risks as
is customarily maintained by similar businesses operating in the same vicinity,
specifically to include fire and extended coverage insurance covering all
assets, business interruption insurance, workers compensation insurance and
liability insurance, all to be with such companies and in such amounts as are
satisfactory to Bank and providing for at least 30 days prior notice to Bank of
any cancellation thereof. Satisfactory evidence of such insurance will be
supplied to Bank prior to funding under the Loan(s) and 30 days prior to each
policy renewal.
C. EXISTENCE AND COMPLIANCE. Maintain their existence, good standing
and qualification to do business, where required and comply with all laws,
regulations and governmental requirements including, without limitation,
environmental laws applicable to either of them or to any of their respective
property, business operations and transactions.
D. ADVERSE CONDITIONS OR EVENTS. Promptly advise Bank in writing of
(i) any condition, event or act which comes to their attention that would or
might materially adversely affect their financial condition or operations or
Bank's rights under the Loan Documents, (ii) any litigation filed by or against
either Borrower, (iii) any event that has occurred that would constitute an
event of default under any Loan Documents, (iv) any uninsured or partially
uninsured loss through fire, theft, liability or property damage, and (v) any
new contingent or actual liability in excess of $50,000.
E. TAXES AND OTHER OBLIGATIONS. Pay all of their taxes, assessments
and other obligations, including, but not limited to taxes, costs or other
expenses arising out of this transaction, as the same become due and payable,
except to the extent the same are being contested in good faith by appropriate
proceedings in a diligent manner.
F. MAINTENANCE. Maintain all of their tangible property in good
condition and repair and make all necessary replacements thereof, and preserve
and maintain all licenses, trademarks, privileges, permits, franchises,
certificates and the like necessary for the operation of their businesses.
G. ENVIRONMENTAL. Immediately advise Bank in writing of (i) any and
all enforcement, cleanup, remedial, removal, or other governmental or regulatory
actions instituted, completed or threatened pursuant to any applicable federal,
state, or local laws, ordinances or regulations relating to any Hazardous
Materials affecting either Borrower's business operations; and (ii) all claims
made or threatened by any third party against either Borrower relating to
damages, contribution, cost recovery, compensation, loss or injury resulting
from any Hazardous Materials. Borrowers shall immediately notify Bank of any
remedial action taken by either Borrower with respect to such Borrower's
business operations. Borrowers will not use or permit any other party to use any
Hazardous Materials at any of either Borrower's places of business or at any
other property owned by either Borrower except such materials as are incidental
to Borrowers' normal course of business, maintenance and repairs and which are
handled in compliance with all applicable environmental laws. Borrowers agree to
permit Bank, its agents, contractors and employees to enter and inspect any of
Borrowers' places of business or any other property of Borrowers at any
reasonable times upon three (3) days prior notice for the purposes of conducting
an environmental investigation and audit (including taking physical samples) to
insure that Borrowers are complying with this covenant and Borrowers shall
reimburse Bank on demand for the costs of any such environmental investigation
and audit. Borrowers shall provide Bank, its agents, contractors, employees and
representatives with access to and copies of any and all data and documents
relating to or dealing with any Hazardous Materials used, generated,
manufactured, stored or disposed of by either Borrower's business operations
within five (5) days of the request therefore.
H. LIENS ON OTHER ASSETS. If requested by Bank, Borrowers shall
execute and deliver to Bank one or more mortgages, deeds of trust, assignments
of production, security agreements and financing statements in favor of Bank
covering every interest in every oil and gas property owned by either Borrower,
whether now owned or hereafter acquired.
I. USE OF PROCEEDS. Borrowers will use the proceeds of the Loan for
refinancing the existing indebtedness of Borrowers to Bank and for oil and gas
acquisition and development well costs.
5. NEGATIVE COVENANTS. Until full payment and performance of all
------------------
obligations of Borrowers under the Loan Documents, Borrowers will not, without
the prior written consent of Bank (and without limiting any requirement of any
other Loan Documents):
A. TRANSFER OF ASSETS OR CONTROL. Sell, lease, assign or otherwise
dispose of or transfer any assets, except in the normal course of their
respective businesses, or enter into any merger or consolidation, or transfer
control of either Borrower or form or acquire any subsidiary.
B. LIENS. Grant, suffer or permit any contractual or noncontractual
lien on or security interest in their respective assets, except in favor of
Bank, or fail to promptly pay when due all lawful claims, whether for labor,
materials or otherwise; or grant, suffer or permit any contractual or
noncontractual lien on or security interest in any assets owned by joint
ventures in which either Borrower owns a joint venture interest, except in
accordance with past practice for the financing of oil and gas well completion
costs.
C. EXTENSIONS OF CREDIT. Make or permit any subsidiary to make, any
loan or advance to any person or entity, or purchase or otherwise acquire, or
permit any subsidiary to purchase or otherwise acquire, any capital stock,
assets, obligations, or other securities of, make any capital contribution to,
or otherwise invest in or acquire any interest in any entity, or participate as
a partner or joint venturer with any person or entity, except for the purchase
of direct obligations of the United States or any agency thereof with maturities
of less than one year.
D. BORROWINGS. Create, incur, assume or become liable in any manner
for any indebtedness (for borrowed money, deferred payment for the purchase of
assets, lease payments, as surety or guarantor for the debt for another, or
otherwise) other than to Bank, except for normal trade debts incurred in the
ordinary course of Borrower's business, and except for existing indebtedness
disclosed to Bank in writing and acknowledged by Bank prior to the date of this
Agreement.
NationsBank Loan Agreement
Texas [Commercial] 2/96
-3-
<PAGE>
NationsBank of Texas, N.A.
E. DIVIDENDS AND DISTRIBUTIONS. Make any distribution (other than
dividends payable in capital stock of Borrowers) on any shares of any class of
their capital stock, or apply any of their property or assets to the purchase,
redemption or other retirement of any shares of any class of capital stock of
either Borrower.
F. CHARACTER OF BUSINESS. Change the general character of either of
their businesses as conducted at the date hereof, or engage in any type of
business not reasonably related to their respective businesses as presently
conducted.
G. MANAGEMENT CHANGE. Make any substantial change in either
Borrower's present executive or management personnel.
6. DEFAULT. Borrowers shall be in default under this Agreement and under
-------
each of the other Loan Documents if either Borrower shall default in the payment
of any amounts due and owing under the Loan or should either Borrower or any
other party thereto fail to timely and properly observe, keep or perform any
term, covenant, agreement or condition in any Loan Document or in any other loan
agreement, promissory note, security agreement, deed of trust, deed to secure
debt, mortgage, assignment or other contract securing, guaranteeing or
evidencing payment of any indebtedness of either Borrower to Bank or any
affiliate or subsidiary of NationsBank Corporation.
7. REMEDIES UPON DEFAULT. If an event of default shall occur, Bank shall
---------------------
have all rights, powers and remedies available under each of the Loan Documents
as well as all rights and remedies available at law or in equity.
8. NOTICES. All notices, requests or demands which any party is required
-------
or may desire to give to any other party under any provision of this Agreement
must be in writing delivered to the other party at the following address:
Borrowers:
MEXCO ENERGY CORPORATION AND FORMAN ENERGY CORPORATION
214 West Texas Avenue, Suite 1101
Midland, Texas 79701
Attention: Nicholas C. Taylor
Bank:
NATIONSBANK OF TEXAS, N.A.
303 West Wall
Midland, Texas 79701
Attention: Larry Holden
or to such other address as any party may designate by written notice to the
other party. Each such notice, request and demand shall be deemed given or made
as follows:
A. If sent by mail, upon the earlier of the date of receipt or five
(5) days after deposit in the U.S. Mail, first class postage prepaid;
B. If sent by any other means, upon delivery.
9. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrowers shall pay to Bank
-----------------------------------
immediately upon demand the full amount of all costs and expenses, including
reasonable attorneys' fees (to include outside counsel fees and all allocated
costs of Bank's in-house counsel if permitted by applicable law) and engineering
fees, incurred by Bank in connection with (a) the Loan and the negotiation and
preparation of this Agreement and each of the Loan Documents, and (b) all other
costs and attorneys' fees incurred by Bank for which Borrowers are obligated to
reimburse Bank in accordance with the terms of the Loan Documents.
10. MISCELLANEOUS. Borrowers and Bank further covenant and agree as
-------------
follows, without limiting any requirement of any other Loan Document:
A. CUMULATIVE RIGHTS AND NO WAIVER. Each and every right granted to
Bank under any Loan Document, or allowed it by law or equity shall be cumulative
of each other and may be exercised in addition to any and all other rights of
Bank, and no delay in exercising any right shall operate as a waiver thereof,
nor shall any single or partial exercise by Bank of any right preclude any other
or future exercise thereof or the exercise of any other right. Borrowers
expressly waive any presentment, demand, protest or other notice of any kind,
including but not limited to notice of intent to accelerate and notice of
acceleration. No notice to or demand on Borrowers in any case shall, of itself,
entitle Borrowers to any other or future notice or demand in similar or other
circumstances.
B. APPLICABLE LAW. This Loan Agreement and the rights and
obligations of the parties hereunder shall be deemed to have been made in the
State of Texas at Bank's address set forth in this Loan Agreement and shall be
governed by, and construed in accordance with, the laws of the State of Texas,
and is performable in the City and County of Texas at the Bank's address
indicated in this Loan Agreement.
C. AMENDMENT. No modification, consent, amendment or waiver of any
provision of this Loan Agreement, nor consent to any departure by Borrowers
therefrom, shall be effective unless the same shall be in writing and signed by
an officer of Bank, and then shall be effective only in the specified instance
and for the purpose for which given. This Loan Agreement is binding upon
Borrowers, their respective successors and assigns, and inures to the benefit of
Bank, its successors and assigns; however, no assignment or other transfer of
either Borrower's rights or obligations hereunder shall be made or be effective
without Bank's prior written consent, nor shall it relieve either Borrower of
any obligations hereunder. There is no third party beneficiary of this Loan
Agreement.
D. DOCUMENTS. All documents, certificates and other items required
under this Loan Agreement to be executed and/or delivered to Bank shall be in
form and content satisfactory to Bank and its counsel.
NationsBank Loan Agreement
Texas [Commercial] 2/96
-4-
<PAGE>
NationsBank of Texas, N.A.
E. PARTIAL INVALIDITY. The unenforceability or invalidity of any
provision of this Loan Agreement shall not affect the enforceability or validity
of any other provision herein and the invalidity or unenforceability of any
provision of any Loan Document to any person or circumstance shall not affect
the enforceability or validity of such provision as it may apply to other
persons or circumstances.
F. INDEMNIFICATION. Notwithstanding anything to the contrary
contained in Section 10(G), Borrowers, jointly and severally, shall indemnify,
defend and hold Bank and its successors and assigns harmless from and against
any and all claims, demands, suits, losses, damages, assessments, fines,
penalties, costs or other expenses (including reasonable attorneys' fees and
court costs) arising from or in any way related to any of the transactions
contemplated hereby, including but not limited to actual or threatened damage to
the environment, agency costs of investigation, personal injury or death, or
property damage, due to a release or alleged release of Hazardous Materials,
arising from either Borrower's business operations, any other property owned by
either Borrower or in the surface or ground water arising from either Borrower's
business operations, or gaseous emissions arising from either Borrower's
business operations or any other condition existing or arising from either
Borrower's business operations resulting from the use or existence of Hazardous
Materials, whether such claim proves to be true or false. Each Borrower further
agrees that its indemnity obligations shall include, but are not limited to,
liability for damages resulting from the personal injury or death of an employee
of such Borrower, regardless of whether such Borrower has paid the employee
under the workmen's compensation laws of any state or other similar federal or
state legislation for the protection of employees. The term "property damage" as
used in this paragraph includes, but is not limited to, damage to any real or
personal property of a Borrower, the Bank, and of any third parties. The
Borrowers' obligations under this paragraph shall survive the repayment of the
Loan and any deed in lieu of foreclosure or foreclosure of any Deed to Secure
Debt, Deed of Trust, Security Agreement or Mortgage securing the Loan.
G. SURVIVABILITY. All covenants, agreements, representations and
warranties made herein or in the other Loan Documents shall survive the making
of the Loan and shall continue in full force and effect so long as the Loan is
outstanding or the obligation of the Bank to make any advances under the Line
shall not have expired.
11. CONDITIONS PRECEDENT. The obligations of Bank hereunder shall be
subject to satisfaction of each of the following conditions precedent:
A. There shall have been executed, where appropriate, and delivered
by Borrowers (and/or any other requisite party thereto) the following documents,
all of which shall be in form and substance satisfactory to Bank and its
counsel, and such other documents or instruments as Bank may reasonably require:
(i) this Loan Agreement;
(ii) the Note;
(iii) Pledge Agreement of Mexco pledging all outstanding capital
stock of Forman, together with original stock certificate, blank stock power and
related financing statement for filing with the Texas Secretary of State;
(iv) An Amendment to the Deed of Trust;
(v) Certificates of Corporate Resolutions and Incumbency for
Mexco and Forman;
(vi) Certificates of Existence and Good Standing for Mexco and
Forman issued by the states of their incorporation and the State of Texas;
(vii) Copies of Articles of Incorporation and bylaws (as amended
to date) of Mexco and Forman, certified by their respective secretaries; and
(viii) Opinion of Borrowers' counsel respecting the matters set
forth in Sections 3.A., 3.B., 3.C., 3.D., 3.E. and 3G of this Loan Agreement.
B. No material adverse change shall have occurred in the financial
condition, assets or business prospects of either Borrower since December 31,
1996.
C. Mexco shall have paid all accrued and unpaid interest on the
Prior Notes up to the date hereof.
12. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES
-----------
HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR
DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL
BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND
PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR
ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN
THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON
ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY
TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING AN ACTION, INCLUDING A
SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR
CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH
ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE COUNTY
-------------
OF ANY BORROWER'S DOMICILE AT THE TIME OF THE EXECUTION OF THIS INSTRUMENT,
AGREEMENT OR DOCUMENT AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN
ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE
ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL
ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR
ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE
PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60
DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION
---------------------
SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE
STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT,
AGREEMENT OR DOCUMENT; OR (II) BE A WAIVER BY BANK OF THE PROTECTION AFFORDED TO
IT BY 12 U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III)
LIMIT THE RIGHT OF BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT
NOT LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL
PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY
REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR
THE APPOINTMENT OF A RECEIVER. BANK MAY EXERCISE SUCH SELF HELP RIGHTS,
FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES
NationsBank Loan Agreement
Texas [Commercial] 2/96
-5-
<PAGE>
NationsBank of Texas, N.A.
BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT
PURSUANT TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS EXERCISE OF
SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR
FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF
THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE
THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
13. NOTICE OF FINAL AGREEMENT. THIS WRITTEN LOAN AGREEMENT AND THE OTHER LOAN
------------------------------------------------------------------------
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
- - --------------------------------------------------------------------------
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
- - --------------------------------------------------------------------------------
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
- - --------------------------------------------------------------------------
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized representatives as of the date first
above written.
BORROWERS: BANK:
MEXCO ENERGY CORPORATION NATIONSBANK OF TEXAS, N.A.
By: /s/ NICHOLAS C. TAYLOR By: /s/ LARRY HOLDEN
----------------------------- ---------------------------
Nicholas C. Taylor, President Larry Holden, President
FORMAN ENERGY CORPORATION
By: /s/ NICHOLAS C. TAYLOR
-----------------------------
Nicholas C. Taylor, President
NationsBank Loan Agreement
Texas [Commercial] 2/96
-6-
<PAGE>
NationsBank of Texas, N.A.
PROMISSORY NOTE
<TABLE>
<CAPTION>
Date: December 24, 1997 [ ] New [X] Renewal Amount: $3,000,000.00 Maturity Date: August 15, 1999
======================================================================================================
<S> <C>
Bank: Borrower:
NationsBank of Texas, N.A. Mexco Energy Corporation and
Banking Center: Midland Forman Energy Corporation
303 West Wall Street 214 W. Texas Avenue, Suite 1101
Midland County Midland County
Midland, Texas 79701 Midland, Texas 79701
(Street address including county) (Name and street address, including county)
======================================================================================================
</TABLE>
FOR VALUE RECEIVED, the undersigned Borrower unconditionally (and jointly and
severally, if more than one) promises to pay to the order of Bank, its
successors and assigns, without setoff, at its offices indicated at the
beginning of this Note, or at such other place as may be designated by Bank, the
principal amount of THREE MILLION AND NO/100 DOLLARS ($3,000,000.00), or so much
thereof as may be advanced from time to time in immediately available funds,
together with interest computed daily on the outstanding principal balance
hereunder, at an annual interest rate, and in accordance with the payment
schedule, indicated below.
[THIS NOTE CONTAINS SOME PROVISIONS PRECEDED BY BOXES. IF A BOX IS MARKED, THE
PROVISION APPLIES TO THIS TRANSACTION; IF IT IS NOT MARKED, THE PROVISION DOES
NOT APPLY TO THIS TRANSACTION.]
1. RATE.
[X] PRIME RATE. The Rate shall be the Prime Rate, plus 0.00, per annum. The
"Prime Rate" is the fluctuating rate of interest established by Bank from time
to time, at its discretion, whether or not such rate shall be otherwise
published. The Prime Rate is established by Bank as an index and may or may not
at any time be the best or lowest rate charged by Bank on any loan.
[ ] FIXED RATE. The Rate shall be fixed at ________________________ percent
per annum.
[ ] OTHER. ____________________________________________________________________
________________________________________________________________________________
Notwithstanding any provision of this Note, Bank does not intend to charge and
Borrower shall not be required to pay any amount of interest or other charges in
excess of the maximum permitted by applicable law. Borrower agrees that during
the full term hereof, the maximum lawful interest rate for this Note as
determined under Texas law shall be the indicated rate ceiling as specified in
Article 5069-1.04 of VATS. Further, to the extent that any other lawful rate
ceiling exceeds the rate ceiling so determined then the higher rate ceiling
shall apply. Any payment in excess of such maximum shall be refunded to Borrower
or credited against principal, at the option of Bank.
2. ACCRUAL METHOD. Unless otherwise indicated, interest at the Rate set forth
above will be calculated by the 365/360 day method (a daily amount of interest
is computed for a hypothetical year of 360 days; that amount is multiplied by
the actual number of days for which any principal is outstanding hereunder). If
interest is not to be computed using this method, the method shall
be:_____________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
3. RATE CHANGE DATE. Any Rate based on a fluctuating index or base rate will
change, unless otherwise provided, each time and as of the date that the index
or base rate changes. If the Rate is to change on any other date or at any other
interval, the change shall be:__________________________________________________
________________________________________________________________________________
In the event any index is discontinued, Bank shall substitute an index
determined by Bank to be comparable, in its sole discretion.
4. PAYMENT SCHEDULE. All payments received hereunder shall be applied first to
the payment of any expense or charges payable hereunder or under any other loan
documents executed in connection with this Note, then to interest due and
payable, with the balance applied to principal, or in such other order as Bank
shall determine at its option.
[ ] PRINCIPAL PLUS ACCRUED INTEREST. Principal shall be paid in consecutive
equal installments of $____________________, plus accrued interest, payable [ ]
monthly, [ ] quarterly or [ ] ____________________, commencing on ___________,
19__, and continuing on the [ ] same day, [ ] last day of each successive month,
quarter or other period (as applicable) thereafter, with a final payment of all
unpaid principal and accrued interest due on ______________, 19_____.
[ ] FIXED PRINCIPAL AND INTEREST. Principal and interest shall be paid in
consecutive equal installments of $ ____________, payable [ ] monthly, [ ]
quarterly or [ ] _______________, commencing on ______________, 19__ , and
continuing on the [ ] same day, [ ] last day of each successive month, quarter
or other period (as applicable) thereafter, with a final payment of all unpaid
principal and interest due thereon on ________________, 19__. If, on any payment
date, accrued interest exceeds the installment amount set forth above, Borrower
will also pay such excess as and when billed.
NationsBank Promissory Note
Texas [Commercial] 2/96
-1-
<PAGE>
[X] SINGLE PRINCIPAL PAYMENT. Principal shall be paid in full in a single
payment on August 15, 1999. Interest thereon shall be paid [ ] at maturity, or
---------------
else [X] monthly, [ ] quarterly or [ ]________________________________,
commencing on February 5, 1998, and continuing on the [X] same day, [ ] last
-----------------
day of each successive month, quarter or other period (as applicable)
thereafter, with a final payment of all unpaid interest at the stated maturity
of this Note.
Availability under this Note will decline by $50,000 monthly beginning on
February 5, 1998, and on the 5th day of each month thereafter until the maturity
of this Note on August 15, 1999. Such reductions in availability under this
Note may result in mandatory prepayments as provided in that certain Loan
Agreement dated of even date herewith between Borrowers and Bank, as amended.
5. REVOLVING FEATURE.
[X] Borrower may borrow, repay and reborrow hereunder at any time, up to a
maximum aggregate amount outstanding at any one time equal to the principal
amount of this Note, provided that Borrower is not in default under any
provision of this Note, any other documents executed in connection with this
Note, or any other note or other loan documents now or hereafter executed in
connection with any other obligation of Borrower to Bank, and provided that
the borrowings hereunder do not exceed any borrowing base or other
limitation on borrowings by Borrower. Bank shall incur no liability for its
refusal to advance funds based upon its determination that any conditions of
such further advances have not been met. Bank records of the amounts
borrowed from time to time shall be conclusive proof thereof.
[ ] UNCOMMITTED FACILITY. Borrower acknowledges and agrees that,
notwithstanding any provisions of this Note or any other documents
executed in connection with this Note, Bank has no obligation to make
any advance, and that all advances are at the sole discretion of Bank.
[ ] OUT-OF-DEBT PERIOD. For a period of at least _______________________
consecutive days during [ ] each fiscal year, [ ] any consecutive 12-
month period, Borrower shall fully pay down the balance of this Note, so
that no amount of principal or interest and no other obligation under
this Note remains outstanding.
6. AUTOMATIC PAYMENT.
[ ] Borrower has elected to authorize Bank to effect payment of sums due under
this Note by means of debiting Borrower's account number ______________________.
This authorization shall not affect the obligation of Borrower to pay such sums
when due, without notice, if there are insufficient funds in such account to
make such payment in full on the due date thereof, or if Bank fails to debit the
account.
7. WAIVERS, CONSENTS AND COVENANTS. Borrower, any indorser or guarantor hereof,
or any other party hereto (individually an "Obligor" and collectively
"Obligors") and each of them jointly and severally: (a) waive presentment,
demand, protest, notice of demand, notice of intent to accelerate, notice of
acceleration of maturity, notice of protest, notice of nonpayment, notice of
dishonor, and any other notice required to be given under the law to any Obligor
in connection with the delivery, acceptance, performance, default or enforcement
of this Note, any indorsement or guaranty of this Note, or any other documents
executed in connection with this Note or any other note or other loan documents
now or hereafter executed in connection with any obligation of Borrower to Bank
(the "Loan Documents"); (b) consent to all delays, extensions, renewals or other
modifications of this Note or the Loan Documents, or waivers of any term hereof
or of the Loan Documents, or release or discharge by Bank of any of Obligors, or
release, substitution or exchange of any security for the payment hereof, or the
failure to act on the part of Bank, or any indulgence shown by Bank (without
notice to or further assent from any of Obligors), and agree that no such
action, failure to act or failure to exercise any right or remedy by Bank shall
in any way affect or impair the obligations of any Obligors or be construed as a
waiver by Bank of, or otherwise affect, any of Bank's rights under this Note,
under any indorsement or guaranty of this Note or under any of the Loan
Documents; and (c) agree to pay, on demand, all costs and expenses of collection
or defense of this Note or of any indorsement or guaranty hereof and/or the
enforcement or defense of Bank's rights with respect to, or the administration,
supervision, preservation, or protection of, or realization upon, any property
securing payment hereof, including, without limitation, reasonable attorney's
fees, including fees related to any suit, mediation or arbitration proceeding,
out of court payment agreement, trial, appeal, bankruptcy proceedings or other
proceeding, in such amount as may be determined reasonable by any arbitrator or
court, whichever is applicable.
8. PREPAYMENTS. Prepayments may be made in whole or in part at any time on any
loan for which the Rate is based on the Prime Rate. All prepayments of principal
shall be applied in the inverse order of maturity, or in such other order as
Bank shall determine in its sole discretion. No prepayment of any other loan
shall be permitted without the prior written consent of Bank. Notwithstanding
such prohibition, if there is a prepayment of any such loan, whether by consent
of Bank, or because of acceleration or otherwise, Borrower shall, within 15
days of any request by Bank, pay to Bank any loss or expense which Bank may
incur or sustain as a result of such prepayment. For the purposes of calculating
the amounts owed only, it shall be assumed that Bank actually funded or
committed to fund the loan through the purchase of an underlying deposit in an
amount and for a term comparable to the loan, and such determination by Bank
shall be conclusive, absent a manifest error in computation.
9. EVENTS OF DEFAULT. The following are events of default hereunder: (a) the
failure to pay or perform any obligation, liability or indebtedness of any
Obligor to Bank, or to any affiliate or subsidiary of NationsBank Corporation,
whether under this Note or any Loan Documents, as and when due (whether upon
demand, at maturity or by acceleration); (b) the failure to pay or perform any
other obligation, liability or indebtedness of any Obligor to any other party;
(c) the death of any Obligor (if an individual); (d) the resignation or
withdrawal of any partner or a material owner/guarantor of Borrower, as
determined by Bank in its sole discretion; (e) the commencement of a proceeding
against any Obligor for dissolution or liquidation, the voluntary or involuntary
termination or dissolution of any Obligor or the merger or consolidation of any
Obligor with or into another entity; (f) the insolvency of, the business failure
of, the appointment of a custodian, trustee, liquidator or receiver for or for
any of the property of, the assignment for the benefit of creditors
NationsBank Promissory Note
Texas (Commercial) 2/96
-2-
<PAGE>
by, or the filing of a petition under bankruptcy, insolvency or debtor's relief
law or the filing of a petition for any adjustment of indebtedness, composition
or extension by or against any Obligor; (g) the determination by Bank that any
representation or warranty made to Bank by any Obligor in any Loan Documents or
otherwise is or was, when it was made, untrue or materially misleading; (h) the
failure of any Obligor to timely deliver such financial statements, including
tax returns, other statements of condition or other information, as Bank shall
request from time to time; (i) the entry of a judgment against any Obligor which
Bank deems to be of a material nature, in Bank's sole discretion; (j) the
seizure or forfeiture of, or the issuance of any writ of possession, garnishment
or attachment, or any turnover order for any property of any Obligor; (k) the
determination by Bank that it is insecure for any reason; (l) the determination
by Bank that a material adverse change has occurred in the financial condition
of any Obligor; or (m) the failure of Borrower's business to comply with any law
or regulation controlling its operation.
10. REMEDIES UPON DEFAULT. Whenever there is a default under this Note (a) the
entire balance outstanding hereunder and all other obligations of any Obligor to
Bank (however acquired or evidenced) shall, at the option of Bank, become
immediately due and payable and any obligation of Bank to permit further
borrowing under this Note shall immediately cease and terminate, and/or (b) to
the extent permitted by law, the Rate of interest on the unpaid principal shall
be increased at Bank's discretion up to the maximum rate allowed by law, or if
none, 25% per annum (the "Default Rate"). The provisions herein for a Default
Rate shall not be deemed to extend the time for any payment hereunder or to
constitute a "grace period" giving Obligors a right to cure any default. At
Bank's option, any accrued and unpaid interest, fees or charges may, for
purposes of computing and accruing interest on a daily basis after the due date
of the Note or any installment thereof, be deemed to be a part of the principal
balance, and interest shall accrue on a daily compounded basis after such date
at the Default Rate provided in this Note until the entire outstanding balance
of principal and interest is paid in full. Upon a default under this Note, Bank
is hereby authorized at any time, at its option and without notice or demand, to
set off and charge against any deposit accounts of any Obligor (as well as any
money, instruments, securities, documents, chattel paper, credits, claims,
demands, income and any other property, rights and interests of any Obligor),
which at any time shall come into the possession or custody or under the control
of Bank or any of its agents, affiliates or correspondents, any and all
obligations due hereunder. Additionally, Bank shall have all rights and remedies
available under each of the Loan Documents, as well as all rights and remedies
available at law or in equity.
11. NON-WAIVER. The failure at any time of Bank to exercise any of its options
or any other rights hereunder shall not constitute a waiver thereof, nor shall
it be a bar to the exercise of any of its options or rights at a later date. All
rights and remedies of Bank shall be cumulative and may be pursued singly,
successively or together, at the option of Bank. The acceptance by Bank of any
partial payment shall not constitute a waiver of any default or of any of Bank's
rights under this Note. No waiver of any of its rights hereunder, and no
modification or amendment of this Note, shall be deemed to be made by Bank
unless the same shall be in writing, duly signed on behalf of Bank; each such
waiver shall apply only with respect to the specific instance involved, and
shall in no way impair the rights of Bank or the obligations of Obligors to Bank
in any other respect at any other time.
12. APPLICABLE LAW, VENUE AND JURISDICTION. Borrower agrees that this Note
shall be deemed to have been made in the State of Texas at Bank's address
indicated at the beginning of this Note and shall be governed by, and construed
in accordance with, the laws of the State of Texas and is performable in the
City and County of Texas indicated at the beginning of this Note. In any
litigation in connection with or to enforce this Note or any indorsement or
guaranty of this Note or any Loan Documents, Obligors, and each of them,
irrevocably consent to and confer personal jurisdiction on the courts of the
State of Texas or the United States courts located within the State of Texas.
Nothing contained herein shall, however, prevent Bank from bringing any action
or exercising any rights within any other state or jurisdiction or from
obtaining personal jurisdiction by any other means available under applicable
law.
13. PARTIAL INVALIDITY. The unenforceability or invalidity of any provision of
this Note shall not affect the enforceability or validity of any other provision
herein and the invalidity or unenforceability of any provision of this Note or
of the Loan Documents to any person or circumstance shall not affect the
enforceability or validity of such provision as it may apply to other persons or
circumstances.
14. BINDING EFFECT. This Note shall be binding upon and inure to the benefit of
Borrower, Obligors and Bank and their respective successors, assigns, heirs and
personal representatives, provided, however, that no obligations of Borrower or
Obligors hereunder can be assigned without prior written consent of Bank.
15. CONTROLLING DOCUMENT. To the extent that this Note conflicts with or is in
any way incompatible with any other document related specifically to the loan
evidenced by this Note, this Note shall control over any other such document,
and if this Note does not address an issue, then each other such document shall
control to the extent that it deals most specifically with an issue.
16. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR
DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL
BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND
PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR
ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN
THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON
ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY
TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING AN ACTION, INCLUDING A
SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR
CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH
ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE COUNTY OF ANY
BORROWER'S DOMICILE AT THE TIME OF THE EXECUTION OF THIS INSTRUMENT, AGREEMENT
OR DOCUMENT AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF
J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN
THE AMERICAN ARBITRATION ASSOCIATION WILL
NationsBANK Promissory Note
Texas [Commercial] 2/96
-3-
<PAGE>
SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND
FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE
PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60
DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION SHALL BE DEEMED
---------------------
TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT, AGREEMENT OR
DOCUMENT; OR (II) BE A WAIVER BY BANK OF THE PROTECTION AFFORDED TO IT BY 12
U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE
RIGHT OF BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED
TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY
COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH
AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT
OF A RECEIVER. BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH
PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR
AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS EXERCISE OF SELF HELP REMEDIES
NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL
OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY,
INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE
CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
BORROWER REPRESENTS TO BANK THAT THE PROCEEDS OF THIS LOAN ARE TO BE USED
PRIMARILY FOR BUSINESS, COMMERCIAL OR AGRICULTURAL PURPOSES. BORROWER
ACKNOWLEDGES HAVING READ AND UNDERSTOOD, AND AGREES TO BE BOUND BY, ALL TERMS
AND CONDITIONS OF THIS NOTE.
17. RENEWAL AND EXTENSION. This Promissory Note is executed in renewal,
extension and rearrangement, but not in extinguishment or novation, of (i) that
certain promissory note dated February 25, 1997, in the original principal
amount of $1,750,000, executed by Borrower and payable to the order of Bank, and
(ii) that certain promissory note dated September 25, 1997, in the original
principal amount of $720,000 executed by Borrower and payable to the order of
Bank.
NOTICE OF FINAL AGREEMENT:
THIS WRITTEN PROMISSORY NOTE REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES,
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
BANK: BORROWER:
NATIONSBANK OF TEXAS, N A. MEXCO ENERGY CORPORATION, A COLORADO CORPORATION
By: /s/ Larry Holden By: /s/ Nicholas Taylor
----------------------- ----------------------------------------------
Larry Holden, President Nicholas C. Taylor, President
FORMAN ENERGY CORPORATION, A NEW YORK CORPORATION
By: /s/ Nicholas Taylor
----------------------------------------------
Nicholas C. Taylor, President
NationsBank Promissory Note
Texas [Commercial] -4- 2/96
<PAGE>
NationsBank of Texas, N.A.
Date: December 24, 1997
-----------------
PLEDGE AGREEMENT
================================================================================
BANK/SECURED PARTY: PLEDGOR(S)/DEBTOR(S):
NationsBank of Texas, N.A. Mexco Energy Corporation
Banking Center: Midland 214 W. Texas Avenue, Suite 1101
Midland County
303 West Wall Street Midland, Texas 79701
Midland County
Midland, Texas 79701
(Name and street address including county)
(Street address including county)
================================================================================
Pledgor/Debtor is: [ ] Individual [X] Corporation [ ] Partnership [ ] Other
Address is Pledgor's/Debtors: [ ] Residence [X] Place of Business [ ] Chief
Executive Office if more than one place of business
================================================================================
[THIS PLEDGE AGREEMENT ("AGREEMENT") CONTAINS SOME PROVISIONS PRECEDED BY BOXES.
IF A BOX IS MARKED, THE PROVISION APPLIES TO THIS TRANSACTION; IF IT IS NOT
MARKED, THE PROVISION DOES NOT APPLY TO THIS TRANSACTION.]
1. SECURITY INTEREST. For good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Pledgor/Debtor (hereinafter referred
to as "Pledgor") pledges, assigns and grants to Bank a security interest and
lien in the Collateral (hereinafter defined) to secure the payment and the
performance of the Obligation (hereinafter defined).
2. COLLATERAL. The security interest is granted in the following collateral
(the "Collateral"):
A. DESCRIPTION OF COLLATERAL.
[X] SPECIFIC INVESTMENT PROPERTY/SECURITIES: The following investment property
and/or securities, together with all investment property and/or securities
hereafter delivered to Bank in substitution therefor or in addition thereto:
9 shares of the Class A Common Capital Stock of Forman Energy Corporation, a
New York corporation, represented by Stock Certificate No. 6, and 81 shares
of Class B Common Capital Stock of Forman Energy Corporation, a New York
corporation, represented by Stock Certificate No. 7.
[ ] AGENCY ACCOUNT: Securities and/or commodities account(s) number ____________
(the "Account") held by ________________("Agent") as agent or custodian for
Pledgor under an agreement for custody, investment management, investment
advisory or similar services between Pledgor and Agent, together with all
property now or hereafter held in the Account, specifically including but not
limited to all investment property, documents, instruments, ordinary goods,
certificates of title, general intangibles, chattel paper, mineral interests,
certificated and uncertificated securities, securities in book-entry form,
commodity contracts, mutual funds, U.S. government and state obligations,
deposit accounts and cash (but excluding collective investment funds managed by
Bank and anything construed as real property under applicable state law).
[ ] BROKERAGE ACCOUNT: Securities and/or commodities account(s) number _________
______________________________ (the "Account") held by _________________________
("Broker") pursuant to the terms of any agreement for custody, investment
management, investment advisory or similar services between Broker and Pledgor,
together with all property now or hereafter held in the Account, specifically
including but not limited to all investment property, documents, instruments,
general intangibles, certificated and uncertificated securities, securities in
book-entry form, commodity contracts, mutual funds, U.S. government and state
obligations, deposit accounts and cash.
[ ] TRUST ASSETS: All assets now or hereafter held in account(s) number ________
__________________________________________ (the "Account") by __________________
("Trustee") as Trustee or Co-Trustee under that certain Trust Agreement dated
________, 19__,including but not limited to all investment property, documents,
instruments, ordinary goods, certificates of title, general intangibles, chattel
paper, mineral interests, certificated and uncertificated securities, securities
in book-entry form, mutual funds, U.S. government and state obligations, deposit
accounts and cash (but excluding collective investment funds managed by Bank and
anything construed as real property under applicable state law).
[ ] OTHER: _____________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
B. PROCEEDS. All additions, substitutes and replacements for and proceeds of
the above Collateral (including all income and benefits resulting from any of
the above, such as dividends payable or distributable in cash, property or
stock; interest, premium and principal payments; redemption proceeds and
subscription rights; and shares or other proceeds of conversions or splits of
any securities in the Collateral). Any investment property and/or securities
received by Pledgor, which shall comprise such additions, substitutes and
replacements for, or proceeds of, the Collateral, shall be held in trust for
Bank and shall be delivered immediately to Bank. Any cash proceeds shall be held
in trust for Bank and upon request shall be delivered immediately to Bank.
C. DEPOSIT ACCOUNTS. The balance of every deposit account of Pledgor
maintained with Bank and any other claim of Pledgor against Bank, now or
hereafter existing, liquidated or unliquidated, and all money, instruments,
investment property, securities, documents, chattel paper, credits, claims,
demands, income, and any other property, rights and interests of Pledgor which
at any time shall come into the possession or custody or under the control of
Bank or any of its agents or affiliates, for any purpose, and the proceeds of
any thereof. Bank shall be deemed to have possession of any of the Collateral in
transit to or set apart for it or any of its agents or affiliates.
1
<PAGE>
3. OBLIGATION.
A. DESCRIPTION OF OBLIGATION. The following obligations ("Obligation") are
secured by this Agreement:
i. [X] ALL DEBT: All debts, obligations, liabilities and agreements of
Pledgor and/or Forman Energy Corporation to Bank, now or hereafter
-------------------------------
existing, arising directly or indirectly between Pledgor and Bank whether
absolute or contingent, joint or several, secured or unsecured, due or not due,
liquidated or unliquidated, arising by operation of law or otherwise, and all
renewals, extensions and rearrangements of any of the above;
[X] PROMISSORY NOTE: All debt arising under promissory note dated of
even date herewith in the principal face amount of $3,000,000.00 executed by
Pledgor and Forman Energy Corporation and payable to the order of Bank, and any
and all renewals, extensions and rearrangements thereof;
ii. All costs and expenses incurred by Bank, including attorney's
fees, to obtain, preserve, perfect, enforce and defend this Agreement and
maintain, preserve, collect and realize upon the Collateral, together with
interest thereon at the highest rate allowed by law, or if none, 25% per annum;
iii. All amounts which may be owed to Bank pursuant to all other loan
documents executed in connection with the indebtedness described in subpart i.
above.
In the event any amount paid to Bank on any Obligation is subsequently recovered
from Bank in or as a result of any bankruptcy, insolvency or fraudulent
conveyance proceeding involving an obligor of the Obligation other than Pledgor,
Pledgor shall be liable to Bank for the amounts so recovered up to the fair
market value of the Collateral whether or not the Collateral has been released
or the security interest terminated. In the event the Collateral has been
released or the security interest terminated, the fair market value of the
Collateral shall be determined, at Bank's option, as of the date the Collateral
was released, the security interest terminated, or said amounts were recovered.
B. USE OF PROCEEDS. The proceeds of any indebtedness or obligation secured by
the Collateral (check one box) [ ] MAY BE
[X] WILL NOT BE
used directly or indirectly to purchase or carry any "margin stock" as that term
is defined in Regulation U of the Board of Governors of the Federal Reserve
System, or extend credit to or invest in other parties for the purpose of
purchasing or carrying any such "margin stock," or to reduce or retire any
indebtedness incurred for such purpose or otherwise in a manner which would
violate Regulations G, T or U.
4. PLEDGOR'S WARRANTIES. Pledgor hereby represents and warrants to Bank as
follows:
A. FINANCING STATEMENTS. Except as may be noted by schedule attached hereto
and incorporated herein by reference, no financing statement covering the
Collateral is or will be on file in any public office, except the financing
statements relating to this security interest, and no security interest, other
than the one herein created, has attached or been perfected in the Collateral or
any part thereof.
B. OWNERSHIP. Pledgor owns, or will use the proceeds of any loans by Bank to
become the owner of, the Collateral free from any setoff, claim, restriction,
lien, security interest or encumbrance except liens for taxes not yet due and
payable and the security interest hereunder.
C. POWER AND AUTHORITY. Pledgor has full power and authority to make this
Agreement, and all necessary consents and approvals of any persons, entities,
governmental or regulatory authorities and securities exchanges have been
obtained to effectuate the validity of this Agreement.
5. PLEDGOR'S COVENANTS. Until full payment and performance of all of the
Obligation and termination or expiration of any obligation or commitment of Bank
to make advances or loans to Pledgor, unless Bank otherwise consents in writing:
A. OBLIGATION AND THIS AGREEMENT. Pledgor shall perform all of its agreements
herein and in any other agreements between it and Bank.
B. OWNERSHIP OF COLLATERAL. Pledgor shall defend the Collateral against all
claims and demands of all persons at any time claiming any interest therein
adverse to Bank. Pledgor shall keep the Collateral free from all liens and
security interests except those for taxes not yet due and payable and the
security interest hereby created. Pledgor shall furnish to Bank on or before
February 15th of each year proof of payment of any ad valorem taxes payable on
the Collateral.
C. BANK'S COSTS. Pledgor shall pay all costs necessary to obtain, preserve,
perfect, defend and enforce the security interest created by this Agreement,
collect the Obligation, and preserve, defend, enforce and collect the
Collateral, including but not limited to taxes, assessments, reasonable
attorney's fees, legal expenses and expenses of sales. Whether the Collateral is
or is not in Bank's possession, and without any obligation to do so and without
waiving Pledgor's default for failure to make any such payment, Bank at its
option may pay any such costs and expenses and discharge encumbrances on the
Collateral, and such payments shall be a part of the Obligation and bear
interest at the rate set out in the Obligation. Pledgor agrees to reimburse Bank
on demand for any costs so incurred.
D. INFORMATION AND INSPECTION. Pledgor shall (i) promptly furnish Bank any
information with respect to the Collateral requested by Bank; (ii) allow Bank or
its representatives to inspect and copy, or furnish Bank or its representatives
with copies of, all records relating to the Collateral and the Obligation; and
(iii) promptly furnish Bank or its representatives with any other information
Bank may reasonably request.
E. ADDITIONAL DOCUMENTS. Pledgor shall sign and deliver any papers furnished
by Bank which are necessary or desirable in the judgment of Bank to obtain,
maintain and perfect the security interest hereunder and to enable Bank to
comply with any federal or state law in order to obtain or perfect Bank's
interest in the Collateral or to obtain proceeds of the Collateral.
F. NOTICE OF CHANGES. Pledgor shall notify Bank immediately of (i) any
material change in the Collateral, (ii) a change in Pledgor's residence or
location, (iii) a change in any matter warranted or represented by Pledgor in
this Agreement, or in any of the loan documents relating to the Obligation or
furnished to Bank pursuant to this Agreement, and (iv) the occurrence of an
Event of Default as defined herein.
G. POSSESSION OF COLLATERAL. Pledgor shall deliver a copy of this Agreement
(or other notice acceptable to Bank) to any Broker, financial intermediary, or
any other person in possession of any of the Collateral or on whose books the
interest of Pledgor in the Collateral appears, and such delivery shall
constitute notice to such person of Bank's security interest in the Collateral
and shall constitute Pledgor's instruction to such person to note Bank's
security interest on their books and records, or deliver to Bank certificates or
other evidence of the Collateral promptly upon Bank's request.
2
<PAGE>
Pledgor shall deliver all investment securities and other instruments and
documents which are a part of the Collateral and in Pledgor's possession to Bank
immediately, or if hereafter acquired, immediately following acquisition, in a
form suitable for transfer by delivery or accompanied by duly executed
instruments of transfer or assignment in blank with signatures appropriately
guaranteed in form and substance suitable to Bank.
H. CHANGE OF NAME/STATUS. Pledgor shall not change its name, change its
corporate status, use any trade name or engage in any business not reasonably
related to its business as presently conducted.
I. POWER OF ATTORNEY. Pledgor appoints Bank and any officer thereof as
Pledgor's attorney-in-fact with full power in Pledgor's name and on Pledgor's
behalf to do every act which Pledgor is obligated to do or may be required to do
hereunder; however, nothing in this paragraph shall be construed to obligate
Bank to take any action hereunder nor shall Bank be liable to Pledgor for
failure to take any action hereunder. This appointment shall be deemed a power
coupled with an interest and shall not be terminable as long as the Obligation
is outstanding and shall not terminate on the disability or incompetence of
Pledgor. Without limiting the generality of the foregoing, Bank shall have the
right and power to receive, indorse and collect all checks and other orders for
the payment of money made payable to Pledgor representing any dividend, interest
payment or other distribution payable in respect of the Collateral or any part
thereof.
J. OTHER PARTIES AND OTHER COLLATERAL. No renewal or extensions of or any
other indulgence with respect to the Obligation or any part thereof, no
modification of the document(s) evidencing the Obligation, no release of any
security, no release of any person (including any maker, indorser, guarantor or
surety) liable on the Obligation, no delay in enforcement of payment, and no
delay or omission or lack of diligence or care in exercising any right or power
with respect to the Obligation or any security therefor or guaranty thereof or
under this Agreement shall in any manner impair or affect the rights of Bank
under any law, hereunder, or under any other agreement pertaining to the
Collateral. Bank need not file suit or assert a claim for personal judgment
against any person for any part of the Obligation or seek to realize upon any
other security for the Obligation, before foreclosing or otherwise realizing
upon the Collateral. Pledgor waives any right that can be waived to the benefit
of or to require or control application of any other security or proceeds
thereof, and agrees that Bank shall have no duty or obligation to Pledgor to
apply to the Obligation any such other security or proceeds thereof.
K. WAIVERS BY PLEDGOR. Pledgor waives notice of the creation, advance,
increase, existence, extension or renewal of, and of any indulgence with respect
to, the Obligation; waives presentment, demand, notice of dishonor, and protest;
waives notice of the amount of the Obligation outstanding at any time, notice of
any change in financial condition of any person liable for the Obligation or any
part thereof, notice of any Event of Default, and all other notices respecting
the Obligation; and agrees that maturity of the Obligation and any part thereof
may be accelerated, extended or renewed one or more times by Bank in its
discretion, without notice to Pledgor. Pledgor waives any right to require that
any action be brought against any other person or to require that resort be had
to any other security or to any balance of any deposit account. Pledgor further
waives any right of subrogation or to enforce any right of action against any
other pledgor until the Obligation is paid in full.
L. ADDITIONAL PROVISIONS. If one or more Riders to this Agreement are
executed by Pledgor, the covenants and provisions of each such Rider shall be
incorporated by reference into this Agreement (check applicable boxes).
[_] COLLATERAL MAINTENANCE RIDER: Pledgor agrees to maintain the Collateral
in accordance with the terms of the Collateral Maintenance Rider attached hereto
and made a part hereof for all purposes.
[_] RULE 144 RIDER: The Collateral is comprised in whole or in part of
control and/or restricted securities, which shall be subject to the additional
terms and provisions described on the Rule 144 Rider attached hereto and made a
part hereof for all purposes.
6. RIGHTS AND POWERS OF BANK.
A. GENERAL. Bank, before or after default, without liability to Pledgor may:
take control of proceeds, including stock received as dividends or by reason of
stock splits; release the Collateral in its possession to any Pledgor,
temporarily or otherwise; require additional Collateral; reject as
unsatisfactory any property hereafter offered by Pledgor as Collateral; take
control of funds generated by the Collateral, such as cash dividends, interest
and proceeds, and use same to reduce any part of the Obligation and exercise all
other rights which an owner of such Collateral may exercise, except the right to
vote or dispose of the Collateral before an Event of Default; and at any time
transfer any of the Collateral or evidence thereof into its own name or that of
its nominee. Bank shall not be liable for failure to collect any account or
instruments, or for any act or omission on the part of Bank, its officers,
agents or employees, except for its or their own willful misconduct or gross
negligence. The foregoing rights and powers of Bank will be in addition to, and
not a limitation upon, any rights and powers of Bank given by law, elsewhere in
this Agreement, or otherwise.
B. CONVERTIBLE COLLATERAL. Bank may present for conversion any Collateral
which is convertible into any other instrument or investment security or a
combination thereof with cash, but Bank shall not have any duty to present for
conversion any Collateral unless it shall have received from Pledgor detailed
written instructions to that effect at a time reasonably far in advance of the
final conversion date to make such conversion possible.
7. DEFAULT.
A. EVENT OF DEFAULT. An event of default ("Event of Default") shall occur
(a) if Pledgor or any other obligor on all or part of the Obligation shall fail
to timely and properly pay or observe, keep or perform any term, covenant,
agreement or condition in this Agreement or in any other agreement between
Pledgor and Bank or between Bank and any other obligor on the Obligation,
including but not limited to any other note or instrument, loan agreement,
security agreement, deed of trust, mortgage, promissory note, assignment or
other agreement or instrument concerning the Obligation; or (b) if Pledgor or
such other obligor shall fail to timely and properly pay or observe, keep or
perform any term, covenant, agreement or condition in any agreement between such
party and any affiliate or subsidiary of NationsBank Corporation.
B. RIGHTS AND REMEDIES. If any Event of Default shall occur, then, in each
and every such case, Bank may, without (a) presentment, demand, or protest, (b)
notice of default, dishonor, demand, non-payment, or protest, (c) notice of
intent to accelerate all or any part of the Obligation, (d) notice of
acceleration of all or any part of the Obligation, or (e) notice of any other
kind, all of which Pledgor hereby expressly waives (except for any notice
required under this Agreement, any other loan document or which may not be
waived under applicable law), at any time thereafter exercise and/or enforce any
of the following rights and remedies, at Bank's option:
i. ACCELERATION. The Obligation shall, at Bank's option, become
immediately due and payable, and the obligation, if any, of Bank to permit
further borrowings under the Obligation shall at Bank's option immediately cease
and terminate.
ii. LIQUIDATION OF COLLATERAL. Sell, or instruct any Agent or Broker to
sell, all or any part of the Collateral in a public or private sale, direct any
Agent or Broker to liquidate all or any part of any Account and deliver all
proceeds
3
<PAGE>
thereof to Bank, and apply all proceeds to the payment of any or all of the
Obligation in such order and manner as Bank shall, in its discretion, choose.
iii. UNIFORM COMMERCIAL CODE. All of the rights, powers and remedies of a
secured creditor under the Uniform Commercial Code ("UCC") as adopted in the
jurisdiction to which Bank is subject under this Agreement.
iv. RIGHT OF SET OFF. Without notice or demand to Pledgor, set off and
apply against any and all of the Obligation any and all deposits (general or
special, time or demand, provisional or final) and any other indebtedness, at
any time held or owing by Bank or by any of Bank's affiliates or correspondents
to or for the credit of the account of Pledgor or any guarantor or indorser of
Pledgor's Obligation.
Pledgor specifically understands and agrees that any sale by Bank of all or part
of the Collateral pursuant to the terms of this Agreement may be effected by
Bank at times and in manners which could result in the proceeds of such sale as
being significantly and materially less than might have been received if such
sale had occurred at different times or in different manners, and Pledgor hereby
releases Bank and its officers and representatives from and against any and all
obligations and liabilities arising out of or related to the timing or manner of
any such sale.
If, in the opinion of Bank, there is any question that a public sale or
distribution of any Collateral will violate any state or federal securities law,
Bank may offer and sell such Collateral in a transaction exempt from
registration under federal securities law, and any such sale made in good faith
by Bank shall be deemed "commercially reasonable."
8. GENERAL.
A. PARTIES BOUND. Bank's rights hereunder shall inure to the benefit of its
successors and assigns, and in the event of any assignment or transfer of any of
the Obligation or the Collateral, Bank thereafter shall be fully discharged from
any responsibility with respect to the Collateral so assigned or transferred,
but Bank shall retain all rights and powers hereby given with respect to any of
the Obligation or the Collateral not so assigned or transferred. All
representations, warranties and agreements of Pledgor if more than one are joint
and several and all shall be binding upon the personal representatives, heirs,
successors and assigns of Pledgor.
B. WAIVER. No delay of Bank in exercising any power or right shall operate as
a waiver thereof; nor shall any single or partial exercise of any power or right
preclude other or further exercise thereof or the exercise of any other power or
right. No waiver by Bank of any right hereunder or of any default by Pledgor
shall be binding upon Bank unless in writing, and no failure by Bank to exercise
any power or right hereunder or waiver of any default by Pledgor shall operate
as a waiver of any other or further exercise of such right or power or of any
further default. Each right, power and remedy of Bank as provided for herein or
in any of the loan documents related to the Obligation, or which shall now or
hereafter exist at law or in equity or by statute or otherwise, shall be
cumulative and concurrent and shall be in addition to every other such right,
power or remedy. The exercise or beginning of the exercise by Bank of any one or
more of such rights, powers or remedies shall not preclude the simultaneous or
later exercise by Bank of any or all other such rights, powers or remedies.
C. AGREEMENT CONTINUING. This Agreement shall constitute a continuing
agreement. If the Obligation consists of All Debt, this Agreement shall apply to
all future as well as existing transactions, whether or not of the character
contemplated at the date of this Agreement, and if all transactions between Bank
and Pledgor shall be closed at any time, shall be equally applicable to any new
transactions thereafter. Provisions of this Agreement, unless by their terms
exclusive, shall be in addition to other agreements between the parties. Time is
of the essence of this Agreement.
D. DEFINITIONS. Unless the context indicates otherwise, definitions in the UCC
apply to words and phrases in this Agreement; if UCC definitions conflict,
Article 8 and/or 9 definitions apply.
E. NOTICE. Notice shall be deemed reasonable if mailed postage prepaid at
least 5 days before the related action (or if the UCC elsewhere specifies a
longer period, such longer period) to the address of Pledgor given above. Each
notice, request and demand shall be deemed given or made, if sent by mail, upon
the earlier of the date of receipt or five (5) days after deposit in the U.S.
Mail, first class postage prepaid, or if sent by any other means, upon delivery.
F. MODIFICATIONS. No provision hereof shall be modified or limited except by a
written agreement expressly referring hereto and to the provisions so modified
or limited and signed by Pledgor and Bank. The provisions of this Agreement
shall not be modified or limited by course of conduct or usage of trade.
G. PARTIAL INVALIDITY. The unenforceability or invalidity of any provision of
this Agreement shall not affect the enforceability or validity of any other
provision herein, and the invalidity or unenforceability of any provision of any
loan document related to the Obligation to any person or circumstance shall not
affect the enforceability or validity of such provision as it may apply to other
persons or circumstances.
H. APPLICABLE LAW AND VENUE. This Agreement has been delivered in the State of
Texas and shall be construed in accordance with the laws of that State. It is
performable by Pledgor in the county or city of Bank's address set out above and
Pledgor expressly waives any objection as to venue in any such location.
Wherever possible each provision of this Agreement shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Agreement shall be prohibited by or invalid under applicable law, such
provision shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provisions or the remaining
provisions of this Agreement.
I. FINANCING STATEMENT. To the extent permitted by applicable law, a carbon,
photographic or other reproduction of this Agreement or any financing statement
covering the Collateral shall be sufficient as a financing statement.
J. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR
DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL
BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND
PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR
ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN
THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON
ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY
TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING AN ACTION, INCLUDING A
SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR
CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH
ACTION.
i. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE COUNTY OF ANY
-------------
BORROWER'S DOMICILE AT THE TIME OF THE EXECUTION OF THIS INSTRUMENT, AGREEMENT
OR DOCUMENT AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF
J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN
THE AMERICAN ARBITRATION ASSOCIATION WILL
4
<PAGE>
SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND
FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE
PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60
DAYS.
ii. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION SHALL BE
---------------------
DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT, AGREEMENT OR
DOCUMENT; OR (II) BE A WAIVER BY BANK OF THE PROTECTION AFFORDED TO IT BY 12
U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE
RIGHT OF BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED
TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY
COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH
AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT
OF A RECEIVER. BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH
PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR
AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS EXERCISE OF SELF HELP REMEDIES
NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL
OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY,
INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE
CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
K. CONTROLLING DOCUMENT. To the extent that this Agreement conflicts with or
is in any way incompatible with any other loan document concerning the
Obligation, any promissory note shall control over any other document, and if
such promissory note does not address an issue, then each other loan document
shall control to the extent that it deals most specifically with an issue.
NOTICE OF FINAL AGREEMENT.
THIS WRITTEN AGREEMENT AND ANY OTHER DOCUMENTS EXECUTED IN CONNECTION HEREWITH
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their duly authorized representatives as of the date first above
written.
BANK/SECURED PARTY: PLEDGOR(S)/DEBTOR(S):
NATIONSBANK OF TEXAS, N.A. MEXCO ENERGY CORPORATION
By: /s/ LARRY HOLDEN By: /s/ NICHOLAS C. TAYLOR
--------------------------- ----------------------------
Larry Holden Nicholas C. Taylor
President President
5
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<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> MAR-31-1998 MAR-31-1997
<PERIOD-START> APR-01-1997 APR-01-1996
<PERIOD-END> MAR-31-1998 MAR-31-1997
<CASH> 241,348 40,813
<SECURITIES> 0 0
<RECEIVABLES> 207,900 291,254
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 464,433 332,067
<PP&E> 9,935,953 7,826,279
<DEPRECIATION> 5,857,900 3,049,147
<TOTAL-ASSETS> 4,542,486 5,109,199
<CURRENT-LIABILITIES> 443,131 208,006
<BONDS> 0 0
0 0
0 0
<COMMON> 811,614 711,614
<OTHER-SE> 1,787,711 2,211,398
<TOTAL-LIABILITY-AND-EQUITY> 4,542,486 5,109,199
<SALES> 2,090,117 1,453,124
<TOTAL-REVENUES> 2,108,459 1,465,907
<CGS> 663,525 346,765
<TOTAL-COSTS> 663,525 346,765
<OTHER-EXPENSES> 3,138,160 590,853
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 137,012 12,787
<INCOME-PRETAX> (1,693,226) 515,502
<INCOME-TAX> (369,569) 137,635
<INCOME-CONTINUING> (1,323,657) 377,867
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,323,657) 377,867
<EPS-PRIMARY> .830 .265
<EPS-DILUTED> 0 0
</TABLE>
