<PAGE> FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: September 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from: to:
Commission file number: 1-8979
HONDO OIL & GAS COMPANY
(Exact name of registrant as specified in its charter)
Delaware 95-1998768
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification
Number)
410 E. College Blvd., Roswell, New Mexico 88201
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (505) 625-8700
Securities registered pursuant to Section 12(b) of the Act:
Name of each
exchange
Title of each class on which registered
------------------- -------------------
Common stock, par American Stock
value $1 per share Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(continued)
1
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 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 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (section 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 any amendment to this Form
10-K. [ ]
The aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant on December 8, 1994 based on the
closing price on the American Stock Exchange of such stock on such date
was $34,674,912.
Registrant's Common Stock outstanding at December 8, 1994 was
13,039,776 shares.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the proxy statement
for the annual shareholders meeting are incorporated by reference into
Part III.
2
HONDO OIL & GAS COMPANY
INDEX TO ANNUAL REPORT ON FORM 10-K
Caption Page
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . 4
Item 2. Properties . . . . . . . . . . . . . . . . . . . 12
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . 14
Item 4. Submission of Matters to a Vote of Security
Holders . . . . . . . . . . . . . . . . . . . . 14
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . 15
Item 6. Selected Financial Data . . . . . . . . . . . . . 16
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . 18
Item 8. Financial Statements and Supplementary Data . . . 24
Item 9. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . 54
PART III
Item 10. Directors and Executive Officers of
the Registrant . . . . . . . . . . . . . . . . . 54
Item 11. Executive Compensation . . . . . . . . . . . . . 54
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . 54
Item 13. Certain Relationships and Related Transactions . 54
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . . . 54
3
PART I
As used in this report, unless the context otherwise requires, the terms
"Registrant", "the Company" and "Hondo Oil" refer to Hondo Oil & Gas
Company and its consolidated subsidiaries.
Item 1. BUSINESS
(a) General Development of Business
The Company is an independent oil and gas company, presently focusing on
international oil and gas exploration and development. The Company was
incorporated as Pauley Petroleum Inc. ("Pauley") in 1958. In January
1988, The Hondo Company ("Hondo") acquired a controlling interest in
Pauley in exchange (the "Exchange") for all of the outstanding stock of
Hondo's subsidiary, Hondo Oil & Gas Company. In March 1988, the Company
acquired Fletcher Oil and Refining Company ("Fletcher" or the "Fletcher
refinery"). In January 1990, Pauley merged ("the Merger") with the
wholly-owned subsidiary acquired in the Exchange, Hondo Oil & Gas
Company. In conjunction with the Merger, Pauley Petroleum Inc., the
surviving corporation, changed its name to Hondo Oil & Gas Company.
On December 15, 1989, the Company permanently suspended operations at
its wholly-owned subsidiary, Newhall Refining Co., Inc. ("Newhall
refinery"). On March 14, 1990, the Company sold its wholly-owned
subsidiary, Blacktop Materials Co., effective March 1, 1990. During
1991, Hondo Oil adopted plans of disposal for both its refining and
marketing operations and its real estate operations (primarily the land
underlying the Newhall refinery). The Company suspended operations at
its Fletcher refinery on October 1, 1992 and completed a sale of
substantially all of the refining and marketing operations on October 1,
1993.
In June 1992, the Company completed a sale of substantially all of its
domestic oil and gas assets and repaid a substantial portion of its
long-term debt with the proceeds.
The Company's principal assets now consist of its exploration concession
in Colombia and its discontinued real estate in California.
(b) Financial Information About Industry Segments
See Note 12 to the Consolidated Financial Statements in Item 8. The
Company presently operates in one segment.
(c) Narrative Description of Business
INTERNATIONAL OPERATIONS
The Company's wholly-owned subsidiary, Hondo Magdalena Oil & Gas Limited
("Hondo Magdalena"), participates in the Opon Association Contract (the
"Opon Contract") with Empresa Colombiana de Petroleos ("Ecopetrol"),
Opon Development Company ("ODC") and Amoco Colombia Petroleum Company
("Amoco Colombia"). Ecopetrol is a quasi-governmental corporate
organization wholly-owned by the government of Colombia. The Opon
4
Contract was entered into between Ecopetrol and ODC in 1987, and
approved by the Ministry of Mines and Energy in 1988, to explore and
develop an area of approximately 190 square miles located in the Middle
Magdalena Basin about 125 miles north of Bogota, Colombia.
The Opon Contract provides for an exploration period of up to six years,
which commenced in July 1988. If, at the end of the exploration period,
no hydrocarbon accumulation of potential commercial significance has
been discovered, the Opon Contract will terminate. The Opon Contract
requires the associate parties (Amoco Colombia, Hondo Magdalena and ODC)
to perform certain minimum work obligations each year of the exploration
period. The minimum work obligations for each of the first five years
of the exploration period have been completed. Ecopetrol has granted
extensions of the exploration period from time to time, and, at present,
commencement of the sixth-year exploration obligation has been extended
until July 13, 1995. The associate parties plan to fulfill the sixth-
year obligation by drilling a well to the La Paz formation (the Opon No.
4 well). The Opon Contract does not prescribe work obligations after
the completion of the exploration period. At the end of the exploration
period, the associate parties may seek to declare the field(s) capable
of producing hydrocarbons to be commercial (capable of repaying
investment and expenses and returning a profit). The associate parties
would then present an application to Ecopetrol to declare the field
commercial. Ecopetrol has 90 days to respond to the associate parties'
application. If Ecopetrol agrees, then the field(s) are declared to be
commercial and production may commence. If Ecopetrol does not agree, it
may indicate to the associate parties the additional work it deems
necessary to demonstrate that the field(s) are commercial. The
additional work may take up to one year, and the exploration period
would be extended for the period necessary to complete the additional
work. If Ecopetrol does not agree that the field(s) are commercial
after the completion of the additional work, the associate parties may
proceed to develop and exploit the property, with Ecopetrol
participating after the associate parties recover 200% of their costs.
An application for commerciality may be submitted by the associate
parties as early as the time the Opon No. 4 well is completed and
favorable results to support such an application are obtained from the
well. However, an application may be delayed for extended production
testing and/or further seismic assessment if Ecopetrol agrees to same
and grants further extensions.
Upon the designation of an area or field as commercial, Ecopetrol has
the right to acquire a 50% interest in such area or field and will
reimburse the associate parties 50% of the direct exploration costs for
each commercial discovery. Thereafter, Ecopetrol will pay 50% of all
subsequent costs and will receive 50% of all production. Hondo
Magdalena's interest in the Opon Contract will be reduced by one-half to
15%, if Ecopetrol becomes a party. A declaration of commerciality will
allow Hondo Magdalena to share in the sale of production during the
exploitation period. Prior to a declaration of commerciality, except
for extended production tests, the associate parties may not sell
hydrocarbons from the property. The interest of each of the parties who
participate in production from the Opon Contract area is subject to a
20% royalty, which is paid to the Colombian government.
5
At the end of the exploration period, if a field capable of producing
hydrocarbons in commercial quantities has been discovered, the Opon
Contract area will be reduced by 50 percent. Two years thereafter, the
Opon Contract area will be further reduced to 25 percent of the original
area. Two years thereafter, the Opon Contract area will be reduced to
the area of the commercial field or fields that are in production or
development, plus a reserve zone of five kilometers in width around the
productive limit of each field. The commercial fields plus the zone
surrounding each field will become the area of exploitation. The
associate parties designate the acreage to be released. The reductions
in the Opon Contract area will reduce the areas available to the
associate parties for further exploration. The Company believes that
the first acreage reduction will not cause the loss of material
exploration opportunities. Additional seismic assessment of the Opon
Contract area will be necessary to evaluate the effects of subsequent
acreage reductions.
Hondo Magdalena acquired its interest in the Opon Contract from ODC.
Prior to fiscal 1993, Hondo Magdalena drilled four wells to the shallow
Mugrosa formation. Following extended production and pressure testing,
one of these wells was declared a dry hole. In fiscal 1993, Hondo
Magdalena drilled the Lilia No. 10 well to the La Paz formation at its
sole cost. The well was drilled to a total depth of 10,003 feet. The
well encountered mechanical problems after the logs were run, and it was
temporarily plugged and suspended. The well may be re-entered at a
future date. By completing these operations, Hondo Magdalena acquired
an 80% interest in the Opon Contract.
Under a Farmout Agreement dated August 9, 1993, Amoco Colombia earned a
50% participating interest from Hondo Magdalena in the Opon Contract.
Hondo Magdalena retains a 30% interest. Amoco Colombia paid $3.0
million in cash and paid Hondo Magdalena's costs related to the fifth-
year obligation under the Opon Contract, a well to the La Paz formation
(the Opon No. 3 well). Amoco Colombia has an option to conduct further
seismic evaluation of the Opon Contract area at its expense. Under the
Farmout Agreement, Amoco Colombia paid Hondo Magdalena an additional
$5.0 million in October 1994 and will pay all but $2.0 million of Hondo
Magdalena's costs related to the sixth-year obligations under the Opon
Contract (the Opon No. 4 well). Amoco Colombia will again have the
option to withdraw and relinquish its interests after the drilling of
the sixth-year obligation well. ODC is also a party to the Farmout
Agreement and has assigned a 10% interest in the Opon Contract to Amoco
Colombia. As a result, Amoco Colombia, Hondo Magdalena and ODC have
interests of 60%, 30% and 10%, respectively, in the Opon Contract and
Amoco Colombia is operator.
The Opon No. 3 well began on October 12, 1993. The Opon No. 3 well was
drilled to a total depth of 12,710 feet and penetrated a full section of
the La Paz formation. Testing of the Opon No. 3 was completed in
September 1994 and indicated the presence of potentially significant
hydrocarbon reserves. The well tested at a rate of 45 million cubic
feet of natural gas and 2,000 barrels of condensate per day through a
42/64-inch opening at the surface with 6,000 pounds-per-square-inch
flowing tubing pressure. The natural gas and condensate came from 1,118
feet of perforations over the interval from 10,018 feet to 12,348 feet
6
within the La Paz formation. Amoco Colombia noted that downhole
restrictions prevented the well from testing at higher rates.
Additional wells and seismic data will be necessary in order to assess
the size of the hydrocarbon resources associated with the discovery.
Drilling of the sixth-year obligation well, the Opon No. 4 well, is
expected to commence in February 1995. This well is located
approximately three-quarters of a mile from the Opon No. 3 well.
Prior to Hondo Magdalena's participation, eight wells had been drilled
to various depths in the Opon Contract area. All of these wells are the
property of Ecopetrol, and are not considered to be included in the Opon
Contract area. None of these wells are currently producing and none of
the former contract holders have any rights in the Opon Contract.
The principal objective at Opon is to confirm and commercially develop
hydrocarbons from the La Paz formation. However, geologic and
geophysical modeling indicates that, in addition to the potentially
significant hydrocarbons discovered in the Opon No. 3 well, other
potential hydrocarbon-bearing traps may lie within the Opon Contract
area. Other traps and formations, including Cretaceous age formations
lying below the Tertiary age La Paz formation, are possible objectives
of further exploration efforts.
Operations in the Opon Contract area are subject to the operating risks
normally associated with exploration for, and production of, oil and
gas, including blowouts, cratering, and fires, each of which could
result in damage to, or destruction of, the oil and gas wells,
formations or production facilities or properties. In addition, there
are greater than normal mechanical drilling risks at the Opon Contract
area associated with high pressures in the La Paz and other formations.
These pressures may: cause collapse of the well bore, impede the drill
string while drilling, or cause difficulty in completing a well with
casing and cement. These potential problems were overcome in the
drilling of the Opon No. 3 well by the use of a top-drive drilling rig,
heavy-weight drilling fluids and other technical drilling enhancements.
Production is subject to political risks inherent in all foreign
operations, including: (i) loss of revenue, property, and equipment as a
result of unforeseen events such as expropriation, nationalization, war
and insurrection, (ii) risks of increases in taxes and governmental
royalties, (iii) renegotiation of contracts with governmental entities,
as well as, (iv) changes in laws and policies governing operations of
foreign-based companies in Colombia. In the past, guerilla activity in
Colombia has disrupted the operation of oil and gas projects, including
site preparation at the Opon Contract area during fiscal 1991. Security
in the area has been significantly improved and the associate parties
have taken steps to enhance relations with the local population through
a community relations program initiated in 1991. Since that time,
operations have not been impeded. The government also continues its
efforts through negotiation and legislation to ameliorate the problems
and effects of insurgent groups, including regulations containing
sanctions such as impairment or loss of contract rights on companies and
contractors if found to be giving aid to such groups. Hondo Magdalena
will continue to cooperate with the government, and does not expect that
future guerilla activity will have a material impact on the exploration
7
and development of the Opon Project. However, there can be no assurance
that such activity will not occur or have such an impact and no opinion
can be given on what steps the government may take in response to any
such activity.
Marketing arrangements for the sale of oil and natural gas will have to
be made. The government of Colombia has recently established a natural
gas policy and is pursuing a program to maximize the utilization of
natural gas throughout the country, including the industrial cities of
Medellin, Cali and Bogota, where developed markets and infrastructure do
not currently exist. The Colombian government's policy on natural gas
is intended to increase the consumption of natural gas in order to
provide a more balanced use of energy resources. The policy includes
the use of natural gas in place of higher cost electricity and in place
of wood to reduce deforestation. The government intends to encourage
the development of markets for natural gas and is pursuing the
development of pipeline transportation systems for new markets.
Colombia's largest refinery is located at Barrancabermeja, 30 miles
north of the Opon Contract area. The proximity of the Opon Contract
area to these potential gas markets will be an advantage for marketing
the natural gas. Amoco Colombia is now pursuing discussions for the
sale of natural gas in order to establish an early market for production
from the Opon No. 3 well and expected production from the Opon No. 4
well.
Development of the Opon Project will require significant future capital
expenditures. See Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources in
Item 7.
U.S OIL AND GAS OPERATIONS
In January 1987, Hondo Oil & Gas Company (prior to the Exchange and
subsequent Merger), acquired a number of oil and gas properties from
Atlantic Richfield Company. Prior to the Exchange, Pauley owned certain
oil and gas properties located primarily on the West Coast. The Company
explored for, developed and produced oil and gas in approximately 13
states until 1992.
In June 1992, the Company completed a sale of substantially all of its
domestic oil and gas assets. The Company's departure from the domestic
oil and gas business was in part driven by management's believe that
more profitable exploration and production opportunities exist abroad.
DISCONTINUED OPERATIONS
Refining and Marketing Operations
On October 1, 1993, the Company completed the sale of the common stock
of its Fletcher refinery and the assets of the Hilo, Hawaii asphalt
terminal. The Company's 41,000 bbl asphalt barge was sold in May 1993.
An asphalt terminal in Honolulu, Hawaii and two gasoline stations
acquired through bankruptcy proceedings against a former customer of
8
Fletcher were disposed of in 1994. There are no remaining assets of the
refining and marketing operations. See Note 3 to the Consolidated
Financial Statements in Item 8.
Real Estate Operations
On December 15, 1989, the Company suspended operations at its Newhall
refinery. Subsequently, the Company adopted a plan of disposition which
included dismantling the refinery, effecting environmental remediation
of the land and further developing the land to a condition where it may
be sold. Execution of the plan was suspended in September 1993 and the
Company is now marketing the site in its current condition and with
existing land-use entitlements. The Newhall refinery site consists of
approximately 105 acres located adjacent to a major freeway intersection
in northern Los Angeles County. See Management's Discussion and
Analysis of Financial Condition and Results of Operations in Item 7 and
Note 3 to the Consolidated Financial Statements in Item 8.
The Company owns in fee simple approximately 11 acres of undeveloped
land located in eastern Los Angeles County. The Company has executed a
contract for sale of this acreage for a minimum purchase price of $2.8
million. The sale is subject to certain contingencies and is scheduled
to close in 1995.
Each of the above real properties is subject to a mortgage in favor of
Lonrho Plc. See Note 6 to the Consolidated Financial Statements in Item
8.
COMPETITIVE FACTORS
Because of the sale of substantially all of the Company's domestic oil
and gas properties in 1992 and the sale of substantially all of its
discontinued refining and marketing assets in 1993, the only competition
the Company currently faces is from other parties offering undeveloped
raw land for sale in Los Angeles County and for participation in oil and
gas concessions around the world. Many of the Company's competitors are
large integrated oil companies having diverse operations and stronger
capitalization.
OTHER FACTORS AFFECTING THE COMPANY'S BUSINESS
Environmental matters
The Company's operations are subject to certain federal, state and local
laws and regulations governing the management of hazardous materials,
the discharge of pollutants into the environment and the handling and
disposal of solid and hazardous waste.
(1) General
Minor spillage or discharge of petroleum and related substances are
a common occurrence at oil refineries and at oil and gas production
and drilling facilities. Such spills and discharges could create
liability under various federal, state and local environmental laws
and regulations. As is the case with other companies engaged in
9
oil and gas exploration, production and refining, the Company faces
exposure from potential claims and lawsuits involving environmental
matters. These matters may involve alleged soil and water
contamination and air pollution. The Company's policy is to accrue
environmental and clean-up costs when it is probable that a
liability has been incurred and the amount of the liability is
reasonably estimable. However, future environmental related
expenditures cannot be reasonably quantified in many circumstances
due to the conjectural nature of remediation and clean-up cost
estimates and methods, the imprecise and conflicting data regarding
the characteristics of various types of waste, the number of other
potentially responsible parties involved and changing environmental
laws and interpretations. The reduced scope of the Company's
operations following the sale of the Company's domestic oil and gas
properties and the Fletcher refinery has significantly reduced the
Company's potential exposure to environmental liability.
(2) Newhall Refinery Site
Operations at the Newhall refinery site ceased on December 15,
1989. Above ground facilities at the refinery have been dismantled
and the site has been evaluated to determine the impact of refining
activities on the environment. The Company has conducted an
environmental assessment of the refinery site and a remediation
plan for the site has been submitted to the Regional Water Quality
Control Board and has received staff approval. The Company
estimates that $2.0 million would be incurred in executing the
approved remediation plan; however, the Company expects to sell the
property without incurring these costs by reducing the purchase
price. The Company's estimate of the net realizable value of this
property has been reduced by the estimated remediation costs in
determining the carrying value of the property and therefore the
remediation costs will not affect future results of operations.
The Company has requested changes in the approved plan that will
reduce estimated remediation costs. See Note 3 to the Consolidated
Financial Statements in Item 8.
(3) Fletcher Refinery
Generators of hazardous substances found in disposal sites at which
environmental problems are alleged to exist, as well as the owners
of those sites and certain other classes of persons, are subject to
claims brought by state and federal regulatory agencies. Fletcher
has been notified by the EPA that it is a potentially responsible
party in a proceeding under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"). The notice
relates to the Operating Industries, Inc. ("OII") dump site in
Monterey Park, California. During fiscal 1993, the Company sold
the Fletcher refinery in a stock sale through which the purchaser
assumed environmental liabilities of Fletcher, known and unknown.
Any liability related to OII (to which Fletcher has asserted the
defense of bankruptcy discharge and with respect to which Fletcher
entered into a settlement with certain potentially responsible
parties at the time of the bankruptcy) remains a liability of
Fletcher and is no longer a liability of the Company. However, the
10
statutes impose liability on "owners" and "operators," and these
statutes have been used to assert claims against controlling
shareholders of corporations involved in claims under CERCLA and
related statutes. The Company is sole shareholder of Pauley
Pacific Inc. which was sole shareholder of Fletcher. The assertion
of such a claim against the Company in the case of OII is
considered by management to be remote, since the Company was not an
owner of Fletcher until after the events occurred that are the
basis of the notice to Fletcher on the OII dump site.
Government Regulations and Legislative Proposals
The Company is subject to governmental regulations which include various
controls on the exploration for, production, export, import and
transportation of crude oil and natural gas in Colombia, where the
Company is participating in exploration operations. See International
Operations above. A number of foreign, federal and state legislative
proposals, if enacted, may have a significant adverse effect on
companies in the petroleum industry, including Hondo Oil. These
proposals involve, among other matters, the imposition of additional
taxes, price controls, land use controls and other restrictive measures.
The Company cannot determine to what extent future operations and
earnings may be affected by new regulations or changes in current
regulations.
EMPLOYEES
The Company employed 6 full-time personnel as of September 30, 1994.
(d) Financial Information About Foreign Operations
Prior to the sale of substantially all of the Company's oil and gas
properties in 1992, all of the Company's crude oil and natural gas was
produced in the United States, and all crude oil, natural gas and
refined products were delivered and sold in the United States. The
Company has an interest in a foreign concession to explore for and
develop oil and gas in Colombia. However, no production had occurred as
of September 30, 1994. See Note 12 to the Consolidated Financial
Statements in Item 8.
11
Item 2. PROPERTIES
OIL AND GAS PROPERTIES
The Company uses the successful efforts method of accounting for its oil
and gas producing activities. All significant producing properties and
proved oil and gas reserves located in the United States were sold
during 1992. The Company is continuing its efforts to develop its
Colombian exploration concession. As of September 30, 1994 the Company
had no producing wells or proved reserves in Colombia. See
International Operations in Item 1.
(1) For estimated net quantities of proved developed oil and gas
reserves, results of operations from oil and gas producing
activities and the standardized measure of discounted future net
cash flows relating to proved oil and gas reserve quantities for
the years ended September 30, 1994, 1993 and 1992, as applicable,
see Supplementary Information about Oil and Gas Producing
Activities and Reserves (Unaudited) following the Consolidated
Financial Statements in Item 8.
(2) The only estimates of total proved net oil and gas reserves filed
with any federal agency during the fiscal year are those contained
in this Annual Report on Form 10-K. This information has been
filed with the Securities and Exchange Commission only.
(3) Production income and cost per unit for the years ended September
30 (all domestic), were as follows:
Oil Gas
(per bbl) (per mcf)
--------- ---------
Average Sales Price Per Unit:
1994 - -
1993 - -
1992 $ 17.55 $ 1.40
Average Lifting Cost Per Equivalent Barrel of Production (a) (b):
1994 -
1993 -
1992 $ 8.30
(a) The common unit of production is based upon approximate
relative energy content with six mcf of natural gas equivalent
to one barrel of crude oil.
(b) Lifting (production) costs do not include lease acquisition
costs, exploration and development costs, or depreciation,
depletion and amortization of capitalized assets relating to
producing activities, and make no provision for federal income
taxes. Depreciation, depletion and amortization of
capitalized acquisition, exploration and development costs are
a part of the ultimate cost of the oil and gas produced.
12
(4) The Company had no domestic productive wells or developed acreage
at September 30, 1994.
(5) Undeveloped acreage at September 30, 1994, all located in Colombia,
consists of 123,658 gross acres, or 37,097 net acres, contained
within the Opon Association Contract area.
(6) Net wells completed for the years ended September 30:
1994 (a) 1993 (a) 1992 (b)
-------- -------- --------
Productive exploratory 1 - 0.7
Dry exploratory - 1 3.3
Productive development - - 1.9
Dry development - - 1.5
(a) Located in Colombia, South America.
(b) The wells completed were located in the states of New Mexico,
North Dakota, Oklahoma and Texas.
(7) Present activity at September 30, 1994:
As of September 30, 1994, the Company had no wells in process in
the United States and 4 (1.2 net) wells in process in Colombia.
See Note 4 to the Consolidated Financial Statements in Item 8.
(8) Delivery Commitments:
None
OTHER PROPERTIES
Refer to Item 1 for descriptions of properties owned by the Company
other than those described in Item 2, above.
13
Item 3. LEGAL PROCEEDINGS
The Company is involved in a number of legal and administrative
proceedings incident to the ordinary course of its business. In the
opinion of management, any liability to the Company relative to the
various proceedings will not have a material adverse effect on the
Company's operations or financial condition.
The Company has evaluated the Newhall Refinery site to determine the
impact of refining activities on the environment. The Company has
conducted an environmental assessment of the refinery site and a
remediation plan for the site has been submitted to the Regional Water
Quality Control Board and has received staff approval. The Company
estimates that $2.0 million would be incurred in executing the approved
remediation plan; however, the Company expects to sell the property
without incurring these costs by reducing the purchase price. The
Company's estimate of the net realizable value of this property has been
reduced by the estimated remediation costs in determining the carrying
value of the property and therefore the remediation costs will not
affect future results of operations. The Company has requested changes
in the approved plan that will reduce estimated remediation costs. See
Note 3 to the Consolidated Financial Statements in Item 8.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year.
14
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Closing stock price ranges for the quarterly periods during the fiscal
years ended September 30, 1994 and 1993, as reported by the American
Stock Exchange Monthly Market Statistics reports, were as follows:
December 31 March 31 June 30 September 30
----------- --------- ------- ------------
Fiscal 1994:
Low $ 5.75 $ 5.88 $ 6.00 $ 9.75
High $ 8.38 $ 7.63 $ 12.50 $ 19.88
Fiscal 1993:
Low $ 6.25 $ 7.13 $ 7.63 $ 6.00
High $ 9.75 $ 10.88 $ 10.50 $ 10.13
The common stock is listed on the American Stock Exchange under the
symbol HOG. The Company does not fully meet all of the guidelines of
the American Stock Exchange for continued listing of its shares. The
delisting policies and procedures of the Exchange provide guidelines
under which the Exchange will normally give consideration to suspending
dealings in, or removing, a security from listing. Among those
guidelines that may be applicable to the Company are: (i) having
stockholders' equity of less than $2,000,000 if such company has
sustained losses from continuing operations and/or net losses in two of
its three most recent fiscal years; or (ii) having sustained losses
which are so substantial in relation to its overall operations or its
existing financial resources, or its financial condition has become so
impaired that it appears questionable, in the opinion of the Exchange,
as to whether such company will be able to continue operations and/or
meet its obligations as they mature; or (iii) having sold or otherwise
disposed of its principal operating assets or has ceased to be an
operating company or has discontinued a substantial portion of its
operations of business for any reason whatsoever. Where the company has
substantially discontinued the business that it conducted at the time it
was listed or admitted to trading, and has become engaged in ventures of
promotions which have not developed to a commercial stage or the success
of which is problematical, it shall not be considered an operating
company for the purposes of continued trading and listing on the
Exchange.
The number of shareholders of record on December 8, 1994 was 835.
DIVIDEND POLICY
The Company has not paid a dividend on its common stock in the two most
recent fiscal years, nor has it ever done so. The Company's loan
agreement with Thamesedge, Ltd. restricts the payment of dividends to
35% of the Company's Consolidated Net Adjusted Income (as defined in the
loan agreement) plus $2.0 million. Since the Company has incurred net
losses during this fiscal year and prior years, the payment of dividends
is restricted.
15
ITEM 6 - SELECTED FINANCIAL DATA
<TABLE>
<HEADING>
For the Fiscal Year Ended September 30,
---------------------------------------------------------
1994 1993 1992 a 1991 1990
--------- --------- --------- --------- ---------
(In Thousands Except Per Share Data)
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Revenue $728 $980 $50,557 $81,764 $79,447
Gain (loss) on sale
of assets (1,240) (8) 21,403 1,376 11,986
Operating expenses 2,880 5,910 38,687 59,055 48,974
Depreciation, depletion
and amortization 220 365 16,230 18,998 19,244
Interest expense 4,605 3,411 9,939 12,790 14,346
Provision for income taxes (199) (46) (285) 1,116 (4,044)
--------- --------- --------- --------- ---------
Income (loss) from
continuing operations (8,018) (8,668) 7,389 (8,819) 12,913
Loss from discontinued
operations (3,038) b (15,176) c (64,147) d (37,511) ($279)
--------- --------- --------- --------- ---------
Net income (loss) ($11,056) ($23,844) ($56,758) ($46,330) $12,634
========= ========= ========= ========= =========
Earnings (loss) per share:
Continuing operations ($0.62) ($0.67) $0.57 ($0.68) $1.00
Discontinued operations (0.23) (1.16) (4.94) (2.90) (0.02)
--------- --------- --------- --------- ---------
($0.85) ($1.83) ($4.37) ($3.58) $0.98
========= ========= ========= ========= =========
Weighted average common
shares outstanding 13,009 13,007 13,001 12,931 12,930
========= ========= ========= ========= =========
</TABLE>
16
<TABLE>
<HEADING>
For the Fiscal Year Ended September 30,
---------------------------------------------------------
1994 1993 1992 a 1991 1990
--------- --------- --------- --------- ---------
(In Thousands)
<S> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA
Working capital (deficit) $2,413 $1,729 $8,142 ($31,447) $1,011
========= ========= ========= ========= =========
Properties, net $10,855 $15,910 $10,758 $118,795 $125,112
========= ========= ========= ========= =========
Net assets of
discontinued operations $6,851 b $7,750 c $24,129 d $51,546 $59,299
========= ========= ========= ========= =========
Total assets $24,908 $30,142 $59,532 $196,039 $211,334
========= ========= ========= ========= =========
Long-term debt $81,888 $78,828 $67,005 $114,348 $116,085
========= ========= ========= ========= =========
Shareholders'
equity (deficit) ($66,681) ($55,815) ($31,971) $23,354 $69,660
========= ========= ========= ========= =========
</TABLE>
a In June 1992, the Company sold substantially all of its domestic oil
and gas operations and repaid significant portions of its debt with
the proceeds from the sale.
b The Company recorded valuation provisions against the carrying
value of its discontinued real estate operations and accrued for a
contingent liability arising from its discontinued refining and
marketing operations in 1994.
c The Company completed the sale of substantially all of its
discontinued refining and marketing segment and recorded valuation
provisions against the carrying value of its discontinued real estate
segment in 1993.
d The Company recorded valuation provisions against the carrying value
of its discontinued segments in 1992.
17
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL DISCUSSION
The Company's principal asset is its interest in the Opon Association
Contract (the "Opon Contract"), an exploration concession for an area in
the Middle Magdalena Valley in Colombia, South America. The objectives
for the Company in fiscal 1994 have been i) to confirm management's
belief that significant hydrocarbon resources are contained in the Opon
Contract area ii) to position the Company to move forward with
exploration of the Opon Contract area iii) to minimize general and
administrative expense and limit cash outflows for other domestic
business activities and iv) to dispose of discontinued assets.
Opon Exploration
----------------
Hondo Magdalena Oil & Gas Limited ("Hondo Magdalena"), a wholly-owned
subsidiary, became involved in the Opon Contract through a farmout
agreement with Opon Development Company ("ODC") in 1991. During 1991,
1992 and 1993, Hondo Magdalena and ODC drilled four shallow oil wells to
the Mugrosa formation, one of which was a dry hole, and one deep gas
well to the La Paz formation. These efforts met with limited success.
In August 1993, Hondo Magdalena and ODC entered into a Farmout Agreement
under which Amoco Colombia Petroleum Company ("Amoco Colombia") earned a
participating interest in the Opon Contract. To earn the interest,
Amoco Colombia paid $3.0 million in cash in 1993 and paid all of the
costs related to drilling the Opon No. 3 well, a deep gas well drilled
to the La Paz formation. Amoco Colombia, Hondo Magdalena and ODC have
interests of 60%, 30% and 10%, respectively. Amoco Colombia assumed the
role of operator from Hondo Magdalena on March 1, 1994.
To retain a 5% interest in the Opon Contract in accordance with the
terms of the Farmout Agreement, Amoco Colombia paid Hondo Magdalena an
additional $5.0 million in October 1994. Amoco Colombia will pay all
but $2.0 million of Hondo Magdalena's costs related to the sixth-year
obligations under the Opon Contract, a La Paz formation well which must
commence by July 13, 1995. Site preparation for this well, the Opon No.
4 well, has begun and drilling is expected to commence in February 1995
Amoco Colombia will have an option to withdraw and relinquish its
interests after the drilling of the Opon No. 4 well.
In September 1994, Amoco Colombia and Hondo Magdalena announced the test
results of the Opon No. 3 well. The well tested at a rate of 45 million
cubic feet of natural gas and 2,000 barrels of condensate daily through
a 42/64-inch opening at the surface with 6,000 pounds-per-square-inch
flowing tubing pressure. The well was drilled to a depth of 12,710 feet
and produced from 1,118 feet of perforations over the interval from
10,018 feet to 12,348 feet within the La Paz formation. Downhole
restrictions prevented the well from testing at higher rates.
18
Management is pleased with the test results of the Opon No. 3 well.
This discovery of potentially significant reserves of natural gas and
condensate has confirmed management's beliefs. With completion of this
well, the first obstacle in securing the Company's future has been
overcome. However, timely and successful completion of the Opon No. 4
well, assessment of the size of the hydrocarbon resources, obtaining
facilities for processing and transporting the production, securing
contracts for sale of the production, and further exploration and
development activities, all remain to be accomplished. Refer to
Liquidity and Capital Resources.
Domestic Activities
-------------------
In 1994, the Company continued to reduce the scope of its domestic
operations. This process began in 1993 following the sale of the
Company's U.S. oil and gas assets in June 1992. The Company has further
reduced its employee count from fifteen at September 30, 1993 to the
present level of six. The Company's principal office facilities in
Roswell, New Mexico were sold in May 1994. The Company continues to
lease a portion of the space at this location from the buyer. The
Company has suspended activities of McKenzie Porcupine Pipeline Company
related to a proposed pipeline right-of-way in the State of Alaska.
In 1965, the Company (then Pauley Petroleum Inc.) acquired a
nonoperating contractor's interest in the Long Beach Unit, Wilmington
Oil Field, California ("THUMS"). The principal economic benefit of the
interest was the right to receive approximately 4,000 barrels per day of
THUMS crude oil for use at the Company's refineries. Following the sale
of the Fletcher refinery in October 1993, the Company's interest in the
Unit, which had been marginally profitable at best, became a potentially
severe cash drain due to a decline in crude oil prices.
On February 2, 1994, the Company entered into an agreement whereby the
Company and the City of Long Beach released each other from their
respective rights and obligations under the THUMS contracts, effective
January 1, 1994. The agreement also provides that amounts due the City
of Long Beach of approximately $1.5 million will be paid on or before
January 1, 1997, or prior to that date, if the Company has free
available cash flow from the Opon No. 3 well or any other assets. The
amount due is not subject to interest charges.
In November 1994, the Company obtained extensions of the maturities of
its debts to Lonrho Plc, an owner of the Company's majority shareholder.
The maturities of all loans from Lonrho Plc have been extended from 1995
to not earlier than October 1, 1996.
Discontinued Operations
-----------------------
The Company began an effort to sell its refining and marketing assets in
April 1991. On October 1, 1993 the Company completed a transaction for
the sale of its Fletcher refinery and asphalt terminal in Hilo, Hawaii.
The Company received net proceeds of $1.1 million in 1994. Further
19
proceeds, currently estimated at $0.4 million, are to be received when
certain components of the refinery equipment are sold by the buyer. The
Company completed disposal of the remaining minor portions of the
refining and marketing assets during 1994.
In the agreement for the sale of the Fletcher refinery, the Company
indemnified the buyer as to liabilities in excess of $0.3 million for
certain federal and state excise taxes arising from periods prior to the
sale. In September 1994, the Company accrued a contingent liability of
$1.4 million for the indemnification because of an audit for California
Motor Vehicle Fuels Tax. The audit could result in a liability
different from the amount accrued, when concluded. See Liquidity and
Capital Resources, below. The Company also reduced the value of its
receivable for its share of proceeds from the pending sale of certain
components of the Fletcher refinery equipment by $0.6 million, bringing
total refining and marketing discontinued losses for the year to $2.0
million. See Note 3 to the Consolidated Financial Statements in Item 8.
Included in the Company's discontinued real estate operations are two
parcels of real estate in California: the 105 acre Valley Gateway
property in the City of Santa Clarita and the 11 acre Via Verde Bluffs
property in the City of San Dimas. Management began an effort to sell
these properties in 1991. The Company executed a contract for the sale
of Via Verde Bluffs effective September 30, 1994 for a minimum purchase
price of $2.8 million. The transaction is subject to certain
contingencies and is scheduled to close in the summer of 1995.
In 1993, the Company suspended a development plan for the Valley Gateway
property, a former refinery site, due to the Company's limited cash
resources and poor market conditions in California. The Company listed
the Valley Gateway property with a broker during 1994. The Company has
had several inquiries, but no offers have been received. The Company
recorded additional loss provisions of $1.4 million for its discontinued
real estate operations in June 1994 as a result of continued soft local
market conditions, the sale agreement for the Via Verde Bluffs property,
and extended holding periods for both properties. See Note 3 to the
Consolidated Financial Statements in Item 8.
Other
-----
Because of continuing losses and decreases in shareholders' equity, the
Company does not fully meet all of the guidelines of the American Stock
Exchange for continued listing of its shares. See Item 5, Market For
Registrant's Equity and Related Shareholder Matters. Management has
kept the Exchange fully informed regarding the Company's present status
and future plans. Although the Company does not or may not meet all of
the guidelines, to date, the American Stock Exchange has chosen to allow
the Company's shares to remain listed. However, no assurances can be
given that the Company's shares will remain listed on the Exchange in
the future.
The Company is subject to various federal, state and local environmental
laws and regulations. As is the case with other companies engaged in
20
oil and gas exploration, production and refining, the Company faces
exposure from actual or potential claims and lawsuits involving
environmental matters. These matters may involve alleged soil and water
contamination and air pollution. Future environmental related
expenditures cannot be reasonably quantified in many circumstances due
to the conjectural nature of remediation and clean-up cost estimates and
methods, the imprecise and conflicting data regarding the
characteristics of various types of waste, the number of other
potentially responsible parties involved and changing environmental laws
and interpretations. The reduced scope of the Company's operations
following the sale of the Company's domestic oil and gas properties and
the Fletcher refinery have significantly reduced the Company's potential
exposure to environmental liability. The Company will continue to
closely monitor and administer its compliance with environmental
matters.
RESULTS OF OPERATIONS
Results of operations for the year ended September 30, 1994 amounted to
a loss of $11.0 million, or 85 cents per share, of which $8.0 million
arose from continuing operations and $3.0 million resulted from
discontinued operations. The Company reported a net loss of $23.8
million, or $1.83 per share, for the year ended September 30, 1993. The
1993 loss included discontinued loss provisions of $15.1 million and a
loss of $8.7 million from continuing operations. In 1992, the Company
reported a net loss of $56.7 million, or $4.37 per share, which included
losses from discontinued operations of $64.1 million and a profit of
$7.4 million from continuing operations which included a gain on sale of
exploration and production assets of $21.4 million.
Due to the sale of substantially all of the Company's domestic oil and
gas operations in June 1992 and continuing reductions in the scope of
those operations since that time, the results of continuing operations
are not comparable and may not be indicative of the Company's future
operating results and financial condition. The customary analysis of
significant variances in the components of results of operations for
continuing operations has been omitted for 1993 compared to 1992.
1994 vs 1993
------------
Operating revenues, other income and operating costs are primarily
comprised of non-recurring transactions in both periods.
The decrease in general and administrative expense of $2.2 million
between the years arises primarily from reductions in the number of
employees, offices and aircraft. Costs of exploration and exploratory
dry holes include a charge of $1.0 million in 1993 for the write-off of
the Lilia No. 9, a shallow oil well in the Opon project. No comparable
expenses have been incurred in the current period. Loss on sale of
assets for 1994 includes $0.9 million from the sale of the Company's New
Mexico office facilities as described previously.
21
Total interest expense for 1994 of $4.6 million is less than total
interest expense for 1993 of $6.7 million. The net decrease of $2.1
million between the periods arises primarily from lower interest rates,
offset by an increase in outstanding debt of $9.3 million. The amounts
reported in the consolidated statements of operations increased by $1.2
million because $3.3 million of interest was allocated to discontinued
operations in 1993.
The Company implemented disposal accounting for its refining and
marketing and real estate segments during 1991. In 1994, the Company
recorded loss provisions of $2.0 million and $1.4 million for its
refining and marketing and real estate segments, respectively, as
described previously. Results for the Company's discontinued operations
in 1993 include loss provisions of $3.0 million and $5.7 million for the
refining and marketing and real estate operations, respectively, as well
as a loss of $6.4 million from the sale of substantially all of the
discontinued refining and marketing operations recorded in the fourth
quarter. The 1992 loss from discontinued operations includes loss
provisions totalling $47.0 million for the refining and marketing
segment and $17.1 million for the real estate segment.
Operating losses of $0.4 million, $11.7 million, and $17.0 million for
1994, 1993, and 1992, respectively, from the Company's discontinued
operations were charged against loss provisions established in earlier
periods. The Fletcher refinery was operated by the Company in October
and November 1991 and processed crude oil for a third party from April
1992 through September 1992. The refinery was shut down in October
1992. A portion of the refinery's storage capacity was used as a
facility for storage and distribution of crude oil and petroleum
products belonging to third parties during 1993. The refinery was sold
in September 1993. Accordingly, the operating losses of the periods are
not comparable.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1994, cash inflows of $2.0 million, $1.0 million, and $0.2
million arose from the sale of assets, borrowings from Lonrho Plc under
existing loan agreements, and issuance of common stock as a result of
the exercise of stock options, respectively. The Company utilized cash
of $1.0 million and $0.5 million to finance continuing and discontinued
operations, respectively, and made scheduled debt repayments of $0.2
million. In addition, the Company expended $0.7 million and $0.2
million on capital projects for continuing and discontinued real estate
operations, respectively. At September 30, 1994, the Company had cash
balances of $1.1 million.
In October 1994, the Company received $4.8 million, net of withholding
taxes, from Amoco Colombia in accordance with the Farmout Agreement, as
previously described. Also in October 1994, the Company paid $5.0
million to Lonrho Plc to reduce the balance of outstanding loans from
Lonrho Plc, and related interest expense. At the same time, Lonrho Plc
made available $5.0 million in the form of a facility loan that may be
drawn as needed by the Company. This facility loan will be used to fund
Hondo Magdalena's $2.0 million contribution to the costs of drilling the
22
Opon No. 4 well, to satisfy the accrued contingent liability arising
from the sold Fletcher refinery described above if determined to be due
during fiscal 1995, and for other business activities.
In December 1993, the Company restructured the terms of its debts to
Lonrho Plc. The revised terms included reduction of interest rates to a
fixed rate of 6% and provisions allowing the Company to offer payment of
future interest in shares of its common stock, and allowing Lonrho Plc
to either accept such payment in kind or add the amount of the interest
due to principal. The ability to pay interest in kind or capitalize
interest allows the Company to service its debt while cash resources are
scarce. In November 1994, the Company obtained extensions of the
maturity of its debts to Lonrho Plc. The maturity of all loans from
Lonrho Plc has been extended from 1995 to not earlier than October 1,
1996. See Note 6 to Consolidated Financial Statements in Item 8.
Approximately $49.0 million of the Company's long-term debt now becomes
due in fiscal year 1997. The Company does not have funds to meet these
obligations, or subsequent long-term debt obligations, at present.
Management believes that the Company will be able to repay, refinance,
or restructure these amounts subsequent to establishing proven reserves
and production at the Opon project.
Based upon the Company's budget and current information, existing cash
and available facilities are projected to be sufficient to finance the
Company's capital expenditure obligations under the Opon Contract and
the Farmout Agreement, and other business activities, during fiscal
1995. However, subsequent to the completion of the Opon No. 4 well
(estimated in the summer of 1995), significant additional funds will be
required for the Company's share of future capital expenditures for
facilities for processing and transporting the production, operator's
overhead costs, and further exploration and development activities.
Cash from operations are not expected to be a source of funds until the
Opon Project begins commercial production.
Management has held preliminary discussions with a number of lenders
regarding financing of the Company's future obligations for the Opon
project. The Company's management believes that, subject to successful
completion of the Opon No. 4 well and securing a market for the Opon
project's production, additional debt or equity funds will become
available to the Company. Obtaining additional sources of funds is
vital to the Company's long-term ability to successfully develop the
Opon Project.
The Company believes that the Opon Project has significant potential to
be developed in conjunction with Colombia's planned natural gas
transmission network and that the Company's future revenues will be
derived from this source. A number of challenges remain, the most
important of which is obtaining permanent financing, before the
Company's long-term future is secure. There can be no assurance that
the Opon Project will be successfully developed or that additional debt
or equity funds will become available in the future.
23
Item 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
HONDO OIL & GAS COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Report of Independent Auditors 25
Financial Statements:
Consolidated Balance Sheets as of
September 30, 1994 and 1993 26
Consolidated Statements of Operations for the years ended
September 30, 1994, 1993 and 1992 27
Consolidated Statements of Shareholders' Equity (Deficit)
for the years ended September 30, 1994, 1993 and 1992 28
Consolidated Statements of Cash Flows for the years ended
September 30, 1994, 1993 and 1992 29
Notes to Consolidated Financial Statements 31
Supplementary Information about Oil & Gas Producing
Activities and Reserves (Unaudited) 51
24
<AUDIT-REPORT>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Hondo Oil & Gas Company
Roswell, New Mexico
We have audited the accompanying consolidated balance sheets of Hondo Oil
& Gas Company as of September 30, 1994 and 1993, and the related
consolidated statements of operations, shareholders' equity (deficit),
and cash flows for each of the three years in the period ended September
30, 1994. Our audits also included the financial statement schedules
listed in the Index at Item 14(a). These financial statements and
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules 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.
As more fully described in Note 1, the Company has no significant
operating assets which are presently generating cash to fund its operating
and capital expenditure requirements. In addition, at September 30,
1994, the Company had a deficiency in net assets. The Company is
currently exploring for oil and natural gas under the Opon Association
Contract in Colombia. The future of the Company is largely dependent
upon the successful exploitation of its rights under this contract.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Hondo Oil & Gas Company at September 30, 1994 and 1993, and
the consolidated results of its operations and its cash flows for each of
the three years in the period ended September 30, 1994, in conformity
with generally accepted accounting principles. Also, in our opinion, the
related financial statement schedules, when considered in relation to the
basic financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Denver, Colorado
November 9, 1994
</AUDIT-REPORT>
25
HONDO OIL & GAS COMPANY
CONSOLIDATED BALANCE SHEETS
(In Thousands Except Share Information)
September 30,
1994 1993
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $1,141 $601
Accounts receivable (Notes 2 and 3) 5,477 4,266
Inventory -- 770
Prepaid expenses and other 33 165
------------- -------------
Total current assets 6,651 5,802
Properties, net (Notes 1 and 4) 10,855 15,910
Net assets of discontinued
operations (Note 3) 6,851 7,750
Other assets 551 680
------------- -------------
$24,908 $30,142
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $196 $1,871
Current portion of long-term debt (Note 6) 220 210
Accrued expenses and other (Note 5) 3,822 1,992
------------- -------------
Total current liabilities 4,238 4,073
Long-term debt, including $77,755 and
$74,505, respectively, payable to a
related party (Note 6) 81,888 78,828
Deferred taxes (Note 11) -- 561
Other liabilities, including $2,354 in
1994 payable to a related party (Note 7) 5,463 2,495
------------- -------------
91,589 85,957
Contingent liabilities (Note 9)
Shareholders' equity (deficit):
Preferred stock (Note 10) -- --
Common stock, $1 par value, 30,000,000
shares authorized; shares issued and
outstanding: 13,032,276 and
13,006,892, respectively 13,032 13,007
Additional paid-in capital 43,972 43,807
Accumulated deficit (123,685) (112,629)
------------- -------------
(66,681) (55,815)
------------- -------------
$24,908 $30,142
============= =============
The accompanying notes are an integral part of these financial statements.
26
<TABLE>
<CAPTION>
HONDO OIL & GAS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands Except Share and Per Share Data)
For the years ended
---------------------------------------------
September 30,
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
REVENUES
Sales and operating revenue $369 $145 $48,960
Gain on sale of assets (Note 2) -- -- 21,403
Other income 359 835 1,597
------------- ------------- -------------
728 980 71,960
------------- ------------- -------------
COSTS AND EXPENSES
Operating costs 668 471 20,498
Depreciation, depletion, and amortization 220 365 16,230
General and administrative 2,210 4,427 14,045
Costs of exploration, exploratory dry holes,
and impaired leases 2 1,012 4,144
Interest on indebtedness including $4,604,
$3,400 and $8,340, respectively, to a
related party (Note 6) 4,605 3,411 9,939
Loss on sale of assets (Note 2) 1,240 8 --
------------- ------------- -------------
8,945 9,694 64,856
------------- ------------- -------------
Income (loss) from continuing operations
before income taxes (8,217) (8,714) 7,104
Income tax benefit (Note 11) (199) (46) (285)
------------- ------------- -------------
Income (loss) from continuing operations (8,018) (8,668) 7,389
Loss from discontinued operations (Note 3) (3,038) (15,176) (64,147)
------------- ------------- -------------
Net Loss ($11,056) ($23,844) ($56,758)
============= ============= =============
Income (loss) per share:
Continuing operations ($0.62) ($0.67) $0.57
Discontinued operations (0.23) (1.16) (4.94)
------------- ------------- -------------
Net loss per share ($0.85) ($1.83) ($4.37)
============= ============= =============
Weighted average common shares outstanding 13,009,174 13,006,967 13,000,805
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<TABLE>
<CAPTION>
HONDO OIL & GAS COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(In Thousands Except Common Shares)
Common Stock Retained
----------------------------- Additional Earnings
Paid-In (Accumulated
Shares Amount Capital Deficit)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance at October 1, 1991 12,931,342 $12,931 $42,450 ($32,027)
Exercise of stock options 75,550 76 1,357 --
Net loss -- -- -- (56,758)
------------- ------------- ------------- -------------
Balance at September 30, 1992 13,006,892 13,007 43,807 (88,785)
Net loss -- -- -- (23,844)
------------- ------------- ------------- -------------
Balance at September 30, 1993 13,006,892 13,007 43,807 (112,629)
Exercise of stock options 25,384 25 165 --
Net loss -- -- -- (11,056)
------------- ------------- ------------- -------------
Balance at September 30, 1994 13,032,276 $13,032 $43,972 ($123,685)
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<TABLE>
<CAPTION>
HONDO OIL & GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
For the years ended
---------------------------------------------
September 30,
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Pretax income (loss) from continuing operations ($8,217) ($8,714) $7,104
Adjustments to reconcile pretax income (loss) from
continuing operations to net cash used by continuing
operations:
Depreciation, depletion and amortization 220 365 16,230
(Gain) loss on sale of assets 1,240 8 (21,403)
Costs of exploratory dry holes and impaired leases -- 1,051 3,479
Accrued interest added to long-term debt 2,250 6,033 --
Changes in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable 1,735 947 2,124
Inventory 770 (770) 978
Prepaid expenses and other 132 (284) 1,399
Other assets 121 (71) 727
Increase (decrease) in:
Accounts payable (1,675) (2,002) (4,715)
Accrued expenses and other (577) (3,417) (9,447)
Other liabilities 2,968 584 (1,570)
------------- ------------- -------------
Net cash used by continuing operations (1,033) (6,270) (5,094)
------------- ------------- -------------
Pretax loss from discontinued operations (3,400) (15,070) (64,147)
Adjustments to reconcile pretax loss from discontinued
operations to net cash used by discontinued operations:
Depreciation and amortization 3 3,047 5,214
Gain on sale of assets (81) (436) --
Provision for losses, net of utilization 2,967 3,677 45,651
Decrease in operating assets -- 8,134 20,142
Decrease in operating liabilities -- (9,748) (21,572)
------------- ------------- -------------
Net cash used by discontinued operations (511) (10,396) (14,712)
Income taxes paid (Note 11) -- -- (500)
------------- ------------- -------------
Net cash used by operating activities (1,544) (16,666) (20,306)
------------- ------------- -------------
</TABLE>
(Continued)
29
<TABLE>
<CAPTION>
HONDO OIL & GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
For the years ended
---------------------------------------------
September 30,
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from investing activities:
Sale of assets 1,971 3,714 130,351
Capital expenditures (897) (13,588) (11,929)
------------- ------------- -------------
Net cash provided (used) by investing activities 1,074 (9,874) 118,422
------------- ------------- -------------
Cash flows from financing activities:
Proceeds from long-term borrowings 1,000 6,000 28,626
Principal payments on long-term debt (180) (248) (112,888)
Issuance of stock 190 -- 1,433
------------- ------------- -------------
Net cash provided (used) by financing activities 1,010 5,752 (82,829)
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents
from all operations 540 (20,788) 15,287
Less net increase (decrease) in cash and cash equivalents
from discontinued operations -- (914) 199
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents
from continuing operations 540 (19,874) 15,088
Cash and cash equivalents at the beginning of the year 601 20,475 5,387
------------- ------------- -------------
Cash and cash equivalents at the end of the year $1,141 $601 $20,475
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
(All Dollar Amounts in Thousands)
1) Summary of Significant Accounting Policies
------------------------------------------
(a) Basis of Consolidation and Presentation
---------------------------------------
The consolidated financial statements of Hondo Oil & Gas Company
(hereinafter referred to as "Hondo Oil" or "the Company") include the
accounts of all subsidiaries, all of which are wholly owned. All
significant intercompany transactions have been eliminated. The Hondo
Company, hereinafter referred to as "Hondo", owns 78% of Hondo Oil's
common stock.
Effective March 31 and September 4, 1991, the Company adopted plans
of disposal for its refining and marketing and its real estate
segments, respectively. Accordingly, the results of operations and
the net assets of the discontinued segments have been reclassified to
discontinued operations for all periods presented. Assets of
discontinued operations are recorded at the lower of cost or net
realizable value. On October 1, 1993, the Company completed the sale
of substantially all of its refining and marketing assets. Refer to
Note 3.
As described in Note 2, during 1992 the Company sold substantially
all of its domestic oil and gas properties to Devon Energy
Corporation. As a result, the Company's cash resources are limited
to cash on hand, advances under lines of credit from a related party
(See Note 6) and the proceeds of sales of certain assets. Cash from
operations is not expected to be a source of funds unless and until
the Company's Colombian Opon Association Contract begins production.
The Company's future is dependent upon successful exploitation of its
rights under the Opon Association Contract. During 1993, the Company
entered into a Farmout Agreement with Amoco Colombia Petroleum
Company ("Amoco Colombia") relating to the Opon Contract in which the
Company sold a partial interest. As part of the consideration for
this interest, Amoco Colombia has or will provide funds for certain
capital expenditures required by the contract during fiscal 1994 and
1995. Management estimates its available cash is sufficient to meet
its cash needs for the next fiscal year assuming no material adverse
changes to budgeted plans occur.
31
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
(All Dollar Amounts in Thousands)
1) Summary of Significant Accounting Policies (continued)
------------------------------------------------------
(a) Basis of Consolidation and Presentation (continued)
---------------------------------------------------
The Company now owns a 30% interest in the Opon Contract which
drilled the Opon No. 3 well in Colombia in 1994 and will soon begin
drilling of the Opon No. 4 well. The Opon No. 3 well discovered
potentially significant reserves of natural gas and condensate.
However, delivering these reserves to market is dependent upon
successful completion of another well and subsequently obtaining
financing for further development of the Opon Contract area. At
September 30, 1994, exploration under the Opon Contract represents
substantially all of the Company's current business operations.
While the Opon No. 3 well has discovered potentially significant
quantities of hydrocarbons, substantial contingencies must still be
resolved before recovery of the Company's investment in Colombia, by
production of the reserves, can be assured.
(b) Cash Equivalents
----------------
Cash equivalents represent highly liquid investments with maturities
of three months or less when purchased.
(c) Inventory
---------
Inventory, which consists entirely of lease and well equipment in
Colombia, is valued at the lower of cost or net realizable value.
(d) Oil and Gas Properties
----------------------
Oil and gas properties are accounted for using the successful efforts
method. Under this method, property acquisition costs are
capitalized when incurred and exploratory geological and geophysical
costs and delay rentals are expensed as incurred. The Company does
not capitalize salaries, or other general and administrative costs,
pertaining to oil and gas acquisition, exploration, and development
activities. The costs of drilling exploratory wells are capitalized
pending determination of whether the wells have found proved
reserves. If proved reserves are not discovered, such dry hole costs
are expensed. All developmental drilling costs, including intangible
drilling and equipment costs incurred on unsuccessful wells, are
capitalized.
32
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
(All Dollar Amounts in Thousands)
1) Summary of Significant Accounting Policies (continued)
------------------------------------------------------
(d) Oil and Gas Properties (continued)
----------------------------------
Acquisition costs of unproved properties which are considered to be
individually significant are periodically assessed for impairment on
a property-by-property basis. Individually insignificant properties
are assessed for impairment as a group. Any decline in value is
included in the statement of operations in costs of exploration,
exploratory dry holes, and lease impairment.
Intangible drilling and development costs and tangible equipment are
depleted by the units-of-production method using proved developed
reserves on a field basis. Leasehold costs are also depleted on a
field basis using total proved reserves. Estimates of proved
reserves are based upon reports of Company and independent petroleum
engineers.
(e) Other Fixed Assets
------------------
Other fixed assets are recorded at historical cost and are
depreciated by the straight-line method using useful lives of 7 to
10 years.
(f) Earnings Per Share
------------------
Net income per share amounts are computed using the weighted average
number of common shares and dilutive common equivalent shares
outstanding. The effect of common stock equivalents is not included
for periods with losses. Fully diluted per share amounts are the
same as primary per share amounts, and accordingly, are not presented.
(g) Income Taxes
------------
As required by the provisions of SFAS No. 109, the Company changed
its method of accounting for income taxes from the provisions of SFAS
No. 96, "Accounting For Income Taxes", to the provisions of SFAS No.
109, "Accounting For Income Taxes", effective October 1, 1993. The
change in accounting method had no material effect on the Company's
financial position, results of operations, or components of income
tax expense for the current or previous fiscal years. Accordingly,
no cumulative effect of a change in accounting principle has been
recognized.
33
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
(All Dollar Amounts in Thousands)
1) Summary of Significant Accounting Policies (continued)
------------------------------------------------------
(g) Income Taxes (continued)
------------------------
Under Statement 109, the liability method is used in accounting for
income taxes. Deferred tax assets and liabilities are determined
based on reversals of differences between financial reporting and tax
bases of assets and liabilities and are measured using the enacted
effective tax rates and laws that will be in effect when the
differences are expected to reverse. Prior to the adoption of
Statement 109, income tax expense was determined using the liability
method prescribed by Statement 96, which has been superseded by
Statement 109. Among other changes, Statement 109 changes the
recognition and measurement criteria for deferred tax assets included
in Statement 96.
Investment tax credits are accounted for by the flow-through method
which recognizes related benefits in the year realized.
(h) Loan Fees
---------
Capitalized loan fees pertaining to long-term loans are included in
other assets. The loan fees are stated at cost and are amortized by
the straight-line method, which approximates the level yield method,
over the life of the related loan.
(i) New Accounting Standards
------------------------
In December 1991 the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 107,
"Disclosures About Fair Value of Financial Instruments". SFAS No.
107 requires disclosure of information relating to fair market values
of financial instruments and is effective for fiscal years ending
after December 15, 1995, for companies with total assets of less than
$150,000. Accordingly, the difference between fair market values and
carrying values of the Company's financial instruments has not been
determined.
(j) Foreign Currency Translation
----------------------------
The Company's Colombian business is conducted in a highly
inflationary economic environment. Accordingly, the financial
statements of the Company's foreign subsidiary are remeasured as if
the functional currency were the U.S. dollar using historical
exchange rates. Exchange gains and losses, which have been
immaterial to date, are included in other income.
34
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
(All Dollar Amounts in Thousands)
2) Accounts Receivable; Disposal of Oil and Gas Assets
---------------------------------------------------
Under the terms of the Farmout Agreement with Amoco Colombia (See
Note 1), Amoco Colombia had an option to withdraw from the Opon
Contract following completion of the Opon No. 3 well. On September
26, 1994, Amoco Colombia notified the Company it had elected to
proceed, and accordingly, incurred an obligation to the Company of
$5,000. The $5,000 receivable accrued by the Company at September
30, 1994 was collected on October 14, 1994. No gain was recognized
on the transaction, rather the full amount was used to reduce the
balance of the Company's drilling in progress. See Notes 4 and 5.
The accounts receivable balances reported in the consolidated balance
sheets are net of allowances for doubtful receivables of $399 and
$555 for September 30, 1994 and 1993, respectively.
On March 18, 1992, the Company executed an agreement to sell
substantially all of its domestic oil and gas properties to Devon
Energy Corporation for a contractual price of $139,175. The purchase
price was subject to various adjustments, including adjustments for
the cash operating profit of the properties and capital expenditures
pertaining to the properties from December 31, 1991 through the date
of closing, June 25, 1992. Proceeds from the sale were $126,668 and
the gain arising from the transaction was $23,588. The proceeds were
used to reduce short-term and long-term debt by $94,080 and to repay
accrued interest and expenses of $7,726. The remainder was retained
to fund the ongoing operations of the Company. The reported 1992 gain
of $21,403 also includes net losses from the disposal of domestic oil
and gas properties excluded from the transaction described above and
the disposal of fixed assets.
Since the time of the transaction described above, the Company has
not owned any significant domestic oil and gas properties and has
continued to dispose of the few remaining insignificant domestic
properties and excess fixed assets. Loss on sale of assets for 1994
includes $935 from the sale of the Company's office building and
certain furniture and equipment in Roswell, N.M.
35
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
(All Dollar Amounts in Thousands)
3) Discontinued Operations
-----------------------
Effective March 31 and September 4, 1991, respectively, the Company
adopted plans of disposal for its refining and marketing and real
estate segments. Revenues of the refining and marketing segment for
1994, 1993 and 1992 were $64, $1,213 and $68,175 respectively. A
summary, by segment, of the results of discontinued operations is as
follows:
<TABLE>
<HEADING>
For the years ended
---------------------------------------------
September 30,
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Refining and marketing ($2,000) ($9,370) ($47,000)
Real estate (1,400) (5,700) (17,147)
Income tax expense (benefit) (362) 106 --
------------- ------------- -------------
($3,038) ($15,176) ($64,147)
============= ============= =============
Per share ($0.23) ($1.16) ($4.94)
============= ============= =============
</TABLE>
In October 1992, the Fletcher refinery was placed in a cold shut-down
and subsequently the facility was used to terminal crude oil and
petroleum products for third parties. On September 15, 1993, the
Company executed an agreement for the sale of its Fletcher refinery
and its asphalt terminal in Hilo, Hawaii. These assets represent the
material portion of the Company's refining and marketing segment.
The transaction closed on October 1, 1993 at which time $992 of the
net accrued proceeds of $1,992 were received.
Refining and marketing losses for 1993 include $6,370 resulting from
the sale and operating loss provisions of $3,000. The Company
recorded a $44,000 valuation provision and a provision for future
operating losses of $3,000 in 1992 in respect of the refining and
marketing segment. Additional loss provisions of $2,000 have been
required in 1994 for the reasons described below.
36
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
(All Dollar Amounts in Thousands)
3) Discontinued Operations (continued)
-----------------------------------
The agreement for the sale of Fletcher included a provision allowing
the Company to share in the proceeds from the sale of certain
components of the refinery equipment which the buyer planned to sell.
Based on estimates of a broker of used refinery equipment, the
Company recorded $1,000 as the estimated realizable value at the time
of the transaction. The buyer and the Company have not succeeded in
selling this equipment during the ensuing year. In September 1994,
the Company reduced the carrying value of the receivable by $600 on
the basis of an offer from the buyer for the Company's share of
equipment sale proceeds.
In the agreement for the sale of the Fletcher refinery, the Company
indemnified the buyer as to liabilities in excess of $300 for certain
federal and state excise taxes arising from periods prior to the
sale. Fletcher notified the Company in July 1994 that an audit for
California Motor Vehicle Fuels Tax was underway and a preliminary
review by present Fletcher employees indicated that a significant
liability might exist. The Company retained a consultant to evaluate
the contingent liability. In September 1994, the Company accrued
$1,400 as a result of the consultant's evaluation. The State of
California's audit is still in process and could result in a
liability different from the amount accrued when concluded.
On December 15, 1989, the Company permanently suspended operations at
its Newhall refinery because of expectations of continued operating
losses. As of September 30, 1990, the Company reclassified the cost
of Newhall's dismantled properties to the real estate segment. All
costs incurred subsequent to December 15, 1989 have been capitalized.
In September 1993, the Company suspended execution of a development
plan for the property, now referred to as Valley Gateway, which
included dismantling the refinery, effecting environmental
remediation of the land and further developing the land to a
condition where it could be sold as land ready for construction.
This decision was made as a result of continued declines in the local
real estate market and the Company's limited cash resources.
Management now believes that a sale of the property in its present
condition with existing entitlements is the best course of action.
Accordingly, the carrying value of the property was further reduced
by $5,700 in 1993 and prior accruals of environmental remediation and
development costs of $9,174 were netted against the carrying value of
the property.
37
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
(All Dollar Amounts in Thousands)
3) Discontinued Operations (continued)
-----------------------------------
In addition to the Valley Gateway property, the Company owns the 11
acre Via Verde Bluffs property, carried at $2,575 and $2,995 at
September 30, 1994 and 1993, respectively. Both properties were
listed with brokers during 1994. The Company has executed a sale
agreement for the Via Verde Bluffs property which is subject to
certain contingencies and is scheduled to close in the summer of 1995.
In 1994, the carrying value of the real estate was further reduced by
$1,400 as a result of local market conditions, current sale
negotiations, and the timing of possible sales. It is management's
belief that the market value of the property is equal to or in excess
of the Company's carrying value, as adjusted.
Changes in the balance of real estate are as follows:
September 30,
1994 1993
------------- -------------
Beginning balance $7,750 $20,500
Development and dismantlement costs 168 1,606
Accrued future development costs:
Short-term -- (2,870)
Long-term -- (6,304)
Valuation provisions established (1,400) (5,700)
Valuation provisions used 333 518
------------- -------------
Ending balance $6,851 $7,750
============= =============
Remaining acres 116 116
============= =============
Interest expense included in the losses from discontinued operations
pertains only to debt directly attributable to the discontinued
segments. Interest of $2,522 and $4,184 for 1993 and 1992,
respectively, was allocated to refining and marketing operations.
Allocations of interest to the real estate operations were $285, $295
and $304 for 1994, 1993 and 1992 respectively. Interest expense
allocated to discontinued operations also includes $2,514 and $2,370
attributable to Lonrho Plc for the years ended September 30, 1993 and
1992, respectively.
38
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
(All Dollar Amounts in Thousands)
4) Properties
----------
Properties, at cost, consist of the following:
September 30,
1994 1993
------------- -------------
Proved oil and gas properties (domestic) $3 $1,742
Accumulated depreciation,
depletion and amortization (3) (1,493)
------------- -------------
0 249
Drilling in progress (a),(b) 10,696 13,629
------------- -------------
Oil and gas properties, net 10,696 13,878
------------- -------------
Other fixed assets 267 2,693
Accumulated depreciation (108) (661)
------------- -------------
Other properties, net 159 2,032
------------- -------------
$10,855 $15,910
============= =============
(a) As of September 30, 1994, drilling in progress represents the
cost of four of the five wells the Company drilled in Colombia
prior to fiscal 1994. The fifth well was expensed as a dry
hole in fiscal 1993. Assignment of proved reserves to these
costs is dependent upon further exploration work which is now
in progress. If the additional capital expenditures fail to
establish proved reserves, these capitalized costs could be
written off during fiscal 1995.
(b) See Notes 2 and 5 regarding accruals at September 30, 1994
which affect this balance.
39
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
(All Dollar Amounts in Thousands)
4) Properties (continued)
----------------------
Total costs incurred (both capitalized and expensed) in oil and
gas producing activities were:
<TABLE>
<HEADING>
September 30,
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Property acquisition costs $-- $536 $300
============= ============= =============
Exploration costs (a) $2,068 $7,184 $8,890
============= ============= =============
Development costs $-- -- $2,848
============= ============= =============
</TABLE>
(a) See Note 5 regarding accruals at September 30, 1994 which
affect the 1994 amount.
5) Accrued expenses
----------------
Accrued expenses consist of the following:
September 30,
1994 1993
------------- -------------
Drilling costs (a) $2,000 $600
Refining and marketing costs (Note 3) 1,544 500
Ad valorem taxes -- 229
Other 278 663
------------- -------------
$3,822 $1,992
============= =============
(a) Under the terms of the Farmout Agreement with Amoco Colombia
(See Note 1), Amoco Colombia had an option to withdraw from
the Opon Contract following completion of the Opon No. 3 well.
On September 26, 1994, Amoco Colombia notified the Company it
had elected to proceed. Amoco Colombia's election obligates
Amoco Colombia to proceed with the drilling of Opon No. 4 well
and, in turn, obligates the Company to pay $2,000 of the
drilling costs for Opon No. 4 well. As of September 30, 1994,
the Company has accrued its obligations for the Opon No. 4
well and increased the balance of drilling in progress.
40
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
(All Dollar Amounts in Thousands)
6) Long-Term Debt
--------------
Long-term debt consists of the following:
September 30,
1994 1993
------------- -------------
Notes payable to Lonrho Plc (a),(b):
Note A (c) $3,181 $3,087
Note B (c) 4,144 3,050
Note C (d) 35,302 34,274
Note D (d),(e) 35,128 34,094
Pollution Control Revenue Bonds (f) 2,930 3,140
Industrial Development Revenue Bonds (f) 1,000 1,000
Other 423 393
------------- -------------
82,108 79,038
Less current maturities (220) (210)
------------- -------------
$81,888 $78,828
============= =============
Maturities are as follows for the years ending September 30:
1995 $220
1996 235
1997 49,033
1998 13,497
1999 13,513
Thereafter 5,610
-------------
$82,108
=============
Hondo Oil paid interest of $260, $4,031 and $16,259 for the years
ended September 30, 1994, 1993 and 1992, respectively. Interest of
$829 and $814, all of which pertained to discontinued operations, was
capitalized for the years ended September 30, 1993 and 1992,
respectively. Capitalized interest for the year ended September 30,
1993 arose from amounts owed to Lonrho Plc.
41
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
(All Dollar Amounts in Thousands)
6) Long-Term Debt (continued)
--------------------------
(a) In December 1993, the Company restructured its debts to Lonrho
Plc, a shareholder of Hondo, effective September 30, 1993.
The following terms apply to each of the four notes:
(1) Interest is payable semiannually at a rate of 6%.
(2) If management determines sufficent cash is not available
to pay interest, management may offer to issue the Company's
unregistered stock valued at the American Stock Exchange
closing price on the interest due date as payment in kind.
Lonrho may choose to either add the accrued interest to the
balance of the debt outstanding or accept the payment in kind.
(3) Accrued interest of $2,354, $2,250 and $6,005 has been
added to the outstanding debt as of October 1, 1994, April 1,
1994 and September 30, 1993, respectively.
(4) As consideration for past deferrals of interest and
principal payments due under the terms of the four notes, the
Company has granted Lonrho Plc a 5% share of the Company's net
profits, as defined, under the Opon Contract. Following
repayment of the four notes, Lonrho's entitlement will be
reduced by half.
(5) Net proceeds from asset sales are to be applied to the
reduction of Notes C and D.
(b) In November 1994, the Company and Lonrho agreed to defer
commencement of principal amortization for each of the four
loans. The maturity terms noted below reflect the revisions.
(c) Notes A and B are secured by the Company's real estate
included in discontinued operations. Absent repayment in full
as a result of the sale of the securing real estate, principal
amortization in ten equal semiannual installments will
commence October 1, 1996. Note A is secured by the Company's
Via Verde Bluffs real estate. Note B is secured by the
Company's Valley Gateway real estate. An additional $1,000
was drawn under the terms of Note B during 1994.
(d) Notes C and D are secured by the Company's Valley Gateway real
estate. Note C is to be amortized in three equal annual
installments beginning November 1, 1996. Note D is due
October 1, 1996. Notes C and D are subordinated to the
Company's other indebtedness existing at September 30, 1994.
(e) In October 1994, the Company received $4,800, net of
withholding taxes, from Amoco Colombia under the terms of the
Farmout Agreement (See Notes 1 and 2). Also in October 1994,
the Company paid $5,000 to Lonrho Plc to reduce the balance of
Note D and the related interest expense. At the same time,
Lonrho Plc made available $5,000 in the form of a facility
loan that may be drawn as needed by the Company.
42
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
(All Dollar Amounts in Thousands)
6) Long-Term Debt (continued)
--------------------------
(f) Both issues of these tax-exempt bonds were issued under the
authority of the California Pollution Control Financing
Authority. The Pollution Control Revenue bonds bear interest
at an average rate of 6.11%, payable semiannually, and
mature serially through November 1, 2003. The Industrial
Development Revenue Bonds bear interest at a rate of 7.5%,
payable semiannually, and mature September 1, 2011. Both bond
issues are collateralized by certain refinery facilities and
equipment located at Valley Gateway and the Fletcher refinery.
The collateral at the Fletcher refinery is leased to the
buyer for a nominal annual fee. The trustee of the bonds has
been notified of these changes in the collateral. No
substitute collateral has been provided. The Company has
received no correspondence from the Trustee related to these
events.
According to the terms of the various credit agreements, the Company
is restricted in its ability to: (a) incur additional debt; and (b)
pay dividends on and/or redeem capital stock.
7) Other Liabilities
-----------------
During 1994, the Company entered into an agreement with the City of
Long Beach which provides, among other things, that payment of
amounts due to the City of Long Beach arising from the Company's
interest in the Long Beach Unit, Wilmington Oil Field, California
(THUMS), including $542 classified as a current liability at
September 30, 1993, will be deferred. Accordingly, all liabilities
to the City of Long Beach are now classified as long-term. Other
liabilities consist of the following:
September 30,
1994 1993
------------- -------------
Interest payable to Lonrho Plc (Note 6) $2,354 $ --
City of Long Beach 1,534 1,332
Other 1,575 1,163
------------- -------------
$5,463 $2,495
============= =============
43
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
(All Dollar Amounts in Thousands)
8) Retirement Plans
----------------
The Company has made available to all full-time administrative
employees, who have completed at least one year of service, a defined
contribution profit-sharing plan (401(k) Plan). Qualifying employees
may contribute up to 10.00% of their annual earnings, but not in
excess of the maximum amount allowed by the Internal Revenue Service,
and the Company will match the employee contribution up to a maximum
5.00% of an employee's annual earnings. The Company's matching
contributions for the years ended September 30, 1994, 1993 and 1992
were $27, $121 and $232, respectively.
In addition, the Company has a defined benefit pension plan covering
certain former officers of the Company. The plan was created to
provide pension benefits greater than the amounts allowable (in
accordance with IRS regulations) under the former defined benefit
plan (terminated in 1989) available to all full-time non-union
employees. The benefits of the continuing plan are based on years of
service and compensation during the last five years of service as in
the terminated plan, less the pension benefit determined under the
terminated plan. The plan is unfunded. The weighted average
discount rates used in determining the actuarial present value of the
projected benefit obligation were 7.50% and 6.75% for September 30,
1994 and 1993, respectively. The following table sets forth the
plan's funded status and amounts recognized in the Company's balance
sheet:
September 30,
1994 1993
------------- -------------
Actuarial present value of projected
(fully accumulated) benefit obligation,
fully vested $625 $683
Plan assets at fair value -- --
------------- -------------
Projected benefit obligation in excess
of plan assets 625 683
Unrecognized net loss from past
experience different from that assumed
and effects of changes in assumptions (215) (268)
Unrecognized prior service cost (58) (64)
Unrecognized net transition obligation (145) (159)
Adjustment required to recognize minimum
liability 418 491
------------- -------------
Accrued pension cost included in
other long-term liabilities $625 $683
============= =============
44
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
(All Dollar Amounts in Thousands)
8) Retirement Plans (continued)
----------------------------
Net pension cost included the following components:
<TABLE>
<HEADING>
For the years ended
---------------------------------------------
September 30,
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Interest cost on projected obligation $45 $46 $47
Net amortization and deferral 25 35 34
------------- ------------- -------------
$70 $81 $81
============= ============= =============
</TABLE>
9) Contingent liabilities
----------------------
The Company is involved in a number of legal and administrative
proceedings incident to the ordinary course of its business. In the
opinion of management, any liability to the Company relative to the
various proceedings will not have a material adverse effect on the
Company's operations or financial condition.
The Company is subject to various environmental laws and regulations
of the United States. As is the case with other companies engaged in
similar industries, the Company faces exposure from actual or
potential claims and lawsuits involving environmental matters. These
matters may involve alleged soil and water contamination and air
pollution. The Company's policy is to accrue environmental and
clean-up costs when it is probable that a liability has been incurred
and the amount of the liability is reasonably estimable. However,
future environmental related expenditures cannot be reasonably
quantified in many circumstances due to the conjectural nature of
remediation and clean-up cost estimates and methods, the imprecise
and conflicting data regarding the characteristics of various types
of waste, the number of other potentially responsible parties
involved, and changing environmental laws and interpretations. The
reduced scope of the Company's operations following the sale of the
Company's domestic oil and gas properties and the Fletcher refinery
have significantly reduced the Company's potential exposure to
environmental liability, including potential Superfund claims against
Fletcher, which liability, in the opinion of management, is not
material.
45
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
(All Dollar Amounts in Thousands)
10) Shareholders' Equity
--------------------
In addition to its common shares, the Company has authorized
10,000,000 shares of one dollar par value preferred stock. No
preferred shares have been issued as of September 30, 1994.
The Company has two stock option plans under which options to
purchase common shares of the Company are granted to certain
officers, directors and key employees. The options are priced equal
to or greater than the market price in effect at the date of grant.
Accordingly, no compensation expense in connection with the plan is
recognized. The 1982 Stock Option Plan has been terminated except
for 74,700 outstanding options priced at $19.00 per share which
expire in May 1997. Options granted, exercised and outstanding at
September 30, 1994 under the 1993 Stock Incentive Plan were all
priced at $7.50 per share.
The following table summarizes certain information relative to
the stock option plans:
Share
Options
-------------
Outstanding at October 1, 1993 75,200
Granted 171,000
Exercised (25,384)
Expired or terminated (500)
-------------
Outstanding at September 30, 1994 220,316
=============
Additional options of 179,000 are available for future grants at
September 30, 1994. No additional options were available at
September 30, 1993. Of the 220,316 options outstanding at September
30, 1994, 136,816 were exercisable at that date.
46
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
(All Dollar Amounts in Thousands)
11) Income Taxes
------------
Until 1992, Hondo Oil was included in the consolidated tax return of
Hondo because Hondo owned greater than 80% of Hondo Oil's shares.
Hondo's ownership of Hondo Oil became less than 80% in 1992. Hondo
Oil had a tax allocation agreement with Hondo whereby Hondo Oil
reimbursed Hondo for the use of Hondo's tax attributes to the extent
these attributes were applied against taxable income generated by
Hondo Oil in the consolidated tax return. Under the terms of this
agreement, Hondo Oil paid $500 to Hondo in 1992. This payment was
made to reimburse Hondo for alternative minimum tax net operating
losses utilized by Hondo Oil in the consolidated tax return filed for
the year ended September 30, 1990.
The components of income tax benefit from continuing operations are
as follows:
<TABLE>
<HEADING>
For the years ended
---------------------------------------------
September 30,
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Deferred:
Federal ($190) ($30) ($186)
State (9) (16) (99)
------------- ------------- -------------
($199) ($46) ($285)
============= ============= =============
</TABLE>
47
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
(All Dollar Amounts in Thousands)
11) Income Taxes (continued)
------------------------
Significant components of the Company's deferred tax assets and
liabilities are as follows:
September 30,
1994 1993
------------- -------------
Deferred tax assets, long-term:
Net operating loss carryforwards $38,734 $35,223
Valuation allowances (38,734) (26,992)
------------- -------------
-- 8,231
------------- -------------
Deferred tax liabilities, long-term:
Financial reporting basis of real
estate in excess of income tax basis -- 8,671
Income tax depreciation in excess of
financial reporting depreciation -- 121
------------- -------------
-- 8,792
------------- -------------
Net deferred tax liability $-- $561
============= =============
The differences between income tax benefit from continuing operations
and the amount computed by applying the statutory Federal income tax
rate to income (loss) from continuing operations before income taxes
are as follows:
<TABLE>
<HEADING>
For the years ended
---------------------------------------------
September 30,
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Tax (benefit) computed at the effective
statutory rate ($2,794) ($2,963) $2,415
Reduction of future reversals by
utilization of net operating loss
carryforwards 93 -- (2,794)
State taxes, net (9) (16) (99)
Alternative minimum tax (190) (30) (186)
Losses from foreign operations 137 482 379
Net operating loss for which no benefit
is recognized 2,564 2,481 --
------------- ------------- -------------
($199) ($46) ($285)
============= ============= =============
</TABLE>
48
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
(All Dollar Amounts in Thousands)
11) Income Taxes (continued)
------------------------
At September 30, 1994, the Company had the following net operating
loss and investment tax credit carryforwards for financial statement
and income tax reporting purposes:
<TABLE>
<HEADING>
Alternative
Book Net Tax Net Minimum Net Investment
Operating Operating Tax Operating Tax
Year of Expiration Loss Loss Loss Credit
------------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Consolidated Carryforwards:
2003 $2,960 $3,167 --
2004 12,469 12,469 $10,917
2005 2,803 2,803 --
2006 26,612 26,612 22,012
2007 15,781 15,781 30,041
2008 25,551 25,551 23,919
2009 11,604 11,604 11,604
------------- ------------- -------------
$97,780 $97,987 $98,493
============= ============= =============
Separate Carryforwards (a)
1995 -- -- -- $1,600
1996 -- -- -- 766
1997 -- -- -- 612
1998 -- -- -- 259
1999 $12,397 $12,397 $12,397 144
2000 -- -- -- 210
2001 6,101 6,101 6,101 74
2002 6,648 6,714 10,715 --
------------- ------------- ------------- -------------
$25,146 $25,212 $29,213 $3,665
============= ============= ============= =============
</TABLE>
(a) These separate carryforwards can only be used against future
income and tax liabilities of the company within the
consolidated group which generated the carryforwards.
In conjunction with the sale of the Fletcher refinery in 1993 as
described in Note 3, unrestricted net operating loss carryforwards of
$59,658 and separate net operating loss carryforwards of $23,983
pertaining to the Fletcher refinery were reattributed to Hondo Oil.
49
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
(All Dollar Amounts in Thousands)
12) Segment information
-------------------
Following reclassification of the Company's refining and marketing
and real estate segments to discontinued operations in 1991, the
Company's operations have been concentrated in one industry segment:
the exploration for and production of reserves of oil and natural
gas. In 1992, the Company sold substantially all of its domestic oil
and gas reserves. The Company's continuing activities are presently
limited to exploration for oil and gas reserves located in Colombia.
Currently, no proven reserves have been established and the Company
has no foreign sales as yet, and no export sales. As a result of the
asset sale noted above, the Company has no significant customers
(comprising more than 10% of continuing operation's revenue) with
which it will do business in the foreseeable future. Information
segregating the Company's continuing domestic and foreign operations
is as follows:
<TABLE>
<HEADING>
For the years ended
---------------------------------------------
September 30,
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Sales and operating revenue:
United States $369 $145 $48,960
Foreign -- -- --
------------- ------------- -------------
$369 $145 $48,960
============= ============= =============
Operating profit (loss):
United States $155 ($728) $2,317
Foreign (283) (1,434) (1,109)
------------- ------------- -------------
Operating profit (loss): (128) (2,162) 1,208
Gain (loss) on sale of assets (1,240) (8) 21,403
Interest expense (4,605) (3,411) (9,939)
Corporate expense and other (2,244) (3,133) (5,568)
------------- ------------- -------------
Income (loss) from continuing
operations before income taxes ($8,217) ($8,714) $7,104
============= ============= =============
Identifiable assets:
United States $9,175 $15,637 $52,096
Foreign 15,733 14,505 7,436
------------- ------------- -------------
$24,908 $30,142 $59,532
============= ============= =============
</TABLE>
50
HONDO OIL & GAS COMPANY
SUPPLEMENTARY INFORMATION ABOUT OIL AND GAS PRODUCING
ACTIVITIES AND RESERVES (UNAUDITED)
September 30, 1994
(All Dollar Amounts in Thousands)
In September 1994, the Company announced the discovery of potentially
significant reserves of natural gas and condensate in an exploratory
well recently drilled on the Opon Association Contract area in
Colombia. Results of testing of this well indicate the well is
capable of producing 45 million cubic feet of natural gas and 2,000
barrels of condensate daily. The Company has a 30% interest in the
well. Ecopetrol, the Colombian national oil company, has the right
to a 50% working interest participation after the contract area is
declared commercial. No definitive assessment of the size of the
hydrocarbon resources associated with the discovery can presently be
made and no proven reserves have been assigned.
The following supplemental information regarding the oil and gas
activities of Hondo Oil is presented pursuant to the disclosure
requirements promulgated by the Securities and Exchange Commission
(SEC) and Statement of Financial Accounting Standards (SFAS) No. 69,
"Disclosures About Oil and Gas Producing Activities."
Due to the sale of substantially all of the Company's oil and gas
properties during 1992 (See Note 2 to the Consolidated Financial
Statements), certain of the disclosure provisions referenced above
are not presently applicable. Disclosures regarding proved oil and
gas reserve quantities are presented only for 1992. The standardized
measure of discounted future net cash flows (and the changes therein)
has been omitted. Disclosures regarding capitalized costs relating
to oil and gas producing activities and costs incurred for property
acquisition, exploration, and development activities are included in
Note 4 to the consolidated financial statements.
Estimates of oil and gas proved reserves and production, all located
in the United States, were as follows:
Oil Gas
(MBBLS) (MMCF)
------------- -------------
Proved reserves, October 1, 1991 14,452 83,745
Revisions in previous estimates -- --
Sale of producing properties (12,701) (75,399)
Extensions, discoveries and purchases 266 1,353
Production (2,017) (9,699)
------------- -------------
Proved reserves, September 30, 1992 0 0
============= =============
Proved reserves at October 1, 1991 include proved developed reserves
of 13,503 MBBLS and 74,174 MMCF.
51
HONDO OIL & GAS COMPANY
SUPPLEMENTARY INFORMATION ABOUT OIL AND GAS PRODUCING
ACTIVITIES AND RESERVES (UNAUDITED)
September 30, 1994
(All Dollar Amounts in Thousands)
The following table sets forth the results of operations from oil and
gas producing and exploration activities. Income tax expense was
computed using the statutory tax rate for the period adjusted for
utilization of net operating loss carryforwards, permanent
differences, tax credits and allowances.
<TABLE>
<HEADING> For the years ended
---------------------------------------------
September 30,
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Revenues $369 $145 $48,960
Production costs (386) (1,042) (29,703)
Exploration expenses (2) (1,012) (4,144)
Depreciation, depletion and amortization -- -- (13,905)
------------- ------------- -------------
(19) (1,909) 1,208
Income tax expense (benefit) (7) (743) 470
------------- ------------- -------------
Results of operations from exploration
and production activities (excluding
corporate overhead and interest) ($12) ($1,166) $738
============= ============= =============
</TABLE>
52
<TABLE>
<HEADING>
HONDO OIL & GAS COMPANY
Schedule VIII - VALUATION AND QUALIFYING ACCOUNTS
September 30, 1994
(All Dollar Amounts in Thousands)
Additions
Balance at charged to Balance
beginning costs and at end
of period expenses Write-offs of period
------------- ------------- ------------- -------------
Allowance for doubtful receivables:
<S> <C> <C> <C> <C>
Continuing operations:
1994 $555 $61 ($217) $399
============= ============= ============= =============
1993 $812 $156 ($413) $555
============= ============= ============= =============
1992 $119 $775 ($82) $812
============= ============= ============= =============
Discontinued operations:
1994 $-- $-- $-- $--
============= ============= ============= =============
1993 $1,078 $-- ($856) $222
============= ============= ============= =============
1992 $951 $559 ($432) $1,078
============= ============= ============= =============
</TABLE>
Note: The balance of $222 for discontinued operations as of September
30, 1993 was included in the assets of a subsidiary which was
sold as of that date.
53
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There has been no change in the Company's auditors during the two most
recent fiscal years.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item will be contained in the Company's
Proxy Statement to be filed within 120 days after fiscal year end and is
incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
The information required by this item will be contained in the Company's
Proxy Statement to be filed within 120 days after fiscal year end and is
incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item will be contained in the Company's
Proxy Statement to be filed within 120 days after fiscal year end and is
incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item will be contained in the Company's
Proxy Statement to be filed within 120 days after fiscal year end and is
incorporated herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements: See the Index to Financial Statements
in Item 8 hereof.
(2) Financial Statement Schedules: Page
VIII. Valuation and Qualifying Accounts 53
Schedules other than those listed above are omitted because
they are not required or not applicable, or because the
information required in a schedule is otherwise included in
the Notes to Consolidated Financial Statements.
(3) Exhibits filed with this report: See Item (c) below.
54
(b) Reports on Form 8-K:
The Company filed two Forms 8-K during the quarter ended September
30, 1994, dated September 12, 1994 and September 30, 1994. The first
announced test results of an exploratory well recently completed in
Colombia in which the Company has an interest. The second reported
that Amoco Colombia elected to proceed with drilling of the
sixth-year obligation well and to pay Hondo Magdalena $5,000,000
under the Farmout Agreement dated August 9, 1993.
(c) Exhibits: See Exhibit Index on page 57 for exhibits required by Item
601 of Regulation S-K.
(d) Financial statement schedules required by Regulation S-X which are
excluded from the annual report to shareholders by Rule 14a-3 (b)(1):
See Item (a)(2) above.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
HONDO OIL & GAS COMPANY
Date: December 29, 1994 By:/s/Stanton J. Urquhart
-----------------------
Stanton J. Urquhart
Vice President and
Chief Financial Officer
(continued)
55
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
registrant in the capacities and on the dates indicated.
<TABLE>
<HEADING>
Signature Title Date
-------------------------------------- ----------------------------- ----------------
<S> <C> <C>
Chairman of the Board,
-------------------------------------- Director
ROBERT O. ANDERSON
/s/ John J. Hoey President, Chief Executive December 29, 1994
-------------------------------------- Officer, and Director
JOHN J. HOEY
/s/ Dieter Bock Director December 29, 1994
--------------------------------------
DIETER BOCK
/s/ Deborah Gudgeon Director December 29, 1994
--------------------------------------
DEBORAH GUDGEON
/s/ C.B. McDaniel Secretary, Director December 29, 1994
--------------------------------------
C.B. MCDANIEL
/s/ Douglas G. McNair Director December 29, 1994
--------------------------------------
DOUGLAS G. MCNAIR
/s/ John F. Price Director December 29, 1994
--------------------------------------
JOHN F. PRICE
Director
--------------------------------------
R.W. ROWLAND
/s/ Robert K. Steer Director December 29, 1994
--------------------------------------
ROBERT K. STEER
/s/ R.E. Whitten Director December 29, 1994
--------------------------------------
R.E. WHITTEN
/s/ Stanton J. Urquhart Vice President, Chief December 29, 1994
-------------------------------------- Financial Officer, Principal
STANTON J. URQUHART Accounting Officer
</TABLE>
56
EXHIBIT INDEX
Exhibit
Number Subject
------- ---------------------------------------------------------------
3.1 Revised Certificate of Incorporation.
3.2 Bylaws.
*4.1 Documents relating to the $1 million principal amount of
California Pollution Control Authority, 7 1/2% Industrial
Development Revenue Bonds (Newhall Refining Co., Inc. Project)
including Installment Sale Agreement and Indenture of Trust.
*4.2 Documents relating to the $5 million principal amount of
California Pollution Control Financing Authority Pollution
Control Revenue Bonds (Newhall Refining Co., Inc. Project),
including Pollution Control Facilities Lease Agreement,
Indenture, U.S. Small Business Administration Pollution
Control Facility Payment Guaranty and Reimbursement Agreement.
*10.1 Note Purchase Agreement and Letter Agreement dated November
28, 1988, between the Company and Thamesedge, Ltd.
**10.2 Letter Agreement dated December 18, 1992, between the Company
and Thamesedge, Ltd., amending Note Purchase Agreement
(Exhibit 10.1, above) (incorporated by reference to Exhibit
10.2 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1992, filed with the
Securities and Exchange Commission on December 28, 1992).
**10.3 Loan Agreement dated December 20, 1991, by and between Hondo
Oil & Gas Company and Lonrho Plc, including the Promissory
Notes and Letter Agreement related thereto (incorporated by
reference to Exhibit 10.13 to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1991, filed
with the Securities and Exchange Commission on January 13,
1992).
**10.4 Letter Agreement dated December 18, 1992, between the Company
and Lonrho Plc, amending Loan Agreement (Exhibit 10.3, above)
(incorporated by reference to Exhibit 10.4 to the Company's
Annual Report on Form 10-K for the fiscal year ended September
30, 1992, filed with the Securities and Exchange Commission on
December 28, 1992).
**10.5 Net Profits Share Agreement dated December 18, 1992, among the
Company, Lonrho Plc, Thamesedge, Ltd. (incorporated by
reference to Exhibit 10.5 to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1992, filed
with the Securities and Exchange Commission on December 28,
1992).
57
EXHIBIT INDEX (continued)
Exhibit
Number Subject
------- ---------------------------------------------------------------
**10.6 Note Dated April 30, 1993, for $3,000,000, from Via Verde
Development Company to Lonrho Plc; Guaranty of the Company
(incorporated by reference to Exhibit 19.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1993, filed with the Securities and Exchange Commission on May
17, 1993).
**10.7 Note dated June 25, 1993 for $4,000,000 from the Company to
Lonrho Plc; Letter Agreement relating to same (incorporated by
reference to Exhibit 10.7 to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1993, filed
with the Securities and Exchange Commission on December 28,
1993).
**10.8 Letter Agreement dated December 17, 1993, by and among the
Company, Via Verde Development Company, Newhall Refining Co.,
Inc., Lonrho Plc and Thamesedge Ltd. and Note Amendments,
amending prior loan agreements and notes (Exhibits 10.1 through
10.7, above),(incorporated by reference to Exhibit 10.8 to
the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1993, filed with the Securities and
Exchange Commission on December 28, 1993).
**10.9 Letter Agreement dated November 10, 1994, by and among the
Company, Via Verde Development Company, Newhall Refining Co.,
Inc., Lonrho Plc and Thamesedge Ltd. and Note Amendments
(excluding Exhibit E to the Letter Agreement filed as Exhibit
10.10, below) amending prior loan agreements and notes
(Exhibits 10.1 through 10.8, above),(incorporated by reference
to Exhibit 10.1 to the Company's Current Report on Form 8-K
dated November 29, 1994, filed with the Securities and
Exchange Commission on November 29, 1994).
**10.10 Promissory Note dated October 31, 1994, in the original
principal amount of $5,000,000, from the Company to Lonrho Plc
(additional loan facility),(incorporated by reference to
Exhibit 10.2 to the Company's Report on Form 8-K dated
November 29, 1994, filed with the Securities and Exchange
Commission on November 29, 1994).
*10.11 Employee Capital Appreciation Savings Plan, effective January
1, 1985.
**10.12 Form of Indemnity Agreement between Pauley and its directors
and officers, approved January 27, 1987 (incorporated by
reference to Exhibit 10.10 to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1992, filed
with the Securities and Exchange Commission on December 28,
1992).
58
EXHIBIT INDEX (continued)
Exhibit
Number Subject
------- ---------------------------------------------------------------
**10.13 Opon Association Contract (translation) dated July 15, 1987,
between Ecopetrol and Opon Development Company, excluding
exhibits and attachments (incorporated by reference to Exhibit
10.22 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1991, filed with Securities
and Exchange Commission on January 13, 1992).
**10.14 Farmout Agreement among Hondo Magdalena Oil & Gas Limited,
Opon Development Company and Amoco Colombia Petroleum Company
dated August 9, 1993, excluding exhibits (incorporated by
reference to Exhibit 19.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993, filed with the
Securities and Exchange Commission on August 16, 1993).
**10.15 New Operating Agreement dated as of August 9, 1993, among
Amoco Colombia Petroleum Company, Hondo Magdalena Oil & Gas
Limited and Opon Development Company (incorporated by
reference to Exhibit 10.15 to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1993, filed
with Securities and Exchange Commission on December 28, 1993).
**10.16 Stock and Asset Purchase Agreement between Signal Oil &
Refining Company, Inc. and the Company and Pauley Pacific Inc.
dated September 15, 1993, excluding exhibits (incorporated by
reference to Exhibit 99.1 to the Company's Current Report on
Form 8- K dated October 12, 1993, filed with the Securities
and Exchange Commission on October 12, 1993).
**10.17 Letter Agreement dated February 2, 1994 between the Company
and the City of Long Beach, excluding exhibits (incorporated
by reference to Exhibit 10.1 to the Company's Quarterly Report
on Form 10-Q for the quarter ended December 31, 1993, filed
with the Securities and Exchange Commission on February 14,
1994).
**10.18 Hondo Oil & Gas Company 1993 Stock Incentive Plan, excluding
exhibits (incorporated by reference to Exhibit A to the
Company's Proxy Statement on Schedule 14A filed with the
Securities and Exchange Commission on January 28, 1994.
10.19 Agreement for Purchase and Sale of Real Estate and Escrow
Instructions between Via Verde Development Company and Kaufman
and Broad -- Coastal Valleys, Inc., excluding exhibits.
59
EXHIBIT INDEX (continued)
Exhibit
Number Subject
------- ---------------------------------------------------------------
21 Subsidiaries of the Company.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedules.
--------------------------------------
* These exhibits, which were previously incorporated by reference to the
Company's reports which have now been on file with the Commission for
more than 5 years, are not filed with this Annual Report pursuant to
17 C.F.R. 229.601(b)(4)(iii)(A). The Company agrees to furnish these
documents to the Commission upon request.
** Incorporated by reference
60
RESTATED CERTIFICATE OF INCORPORATION OF
HONDO OIL & GAS COMPANY
Hondo Oil & Gas Company, a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
1. The name of corporation is Hondo Oil & Gas Company and the name under
which the corporation was originally incorporated is Pauley Petroleum
Inc. The date of filing of its original Certificate of Incorporation
was June 2, 1958.
2. This Restated Certificate of Incorporation only restates and
integrates and does not further amend the provisions of the
Certificate of Incorporation of this corporation as heretofore amended
or supplemented; there is no discrepancy between those provisions and
the provisions of this Restated Certificate of Incorporation. The
restatement of the articles of incorporation does not contain an
amendment of the articles of incorporation that requires shareholder
approval.
3. The text of the Certificate of Incorporation as amended or
supplemented heretofore is hereby restated, without further amendments
or changes, to read as set forth in Exhibit A hereto.
4. This Restated Certificate of Incorporation was duly adopted by the
Board of Directors of the corporation in accordance with Section 245
of the Delaware General Corporation Law.
Dated: November 10, 1994 Hondo Oil & Gas Company
By:/s/ John J. Hoey
--------------------------
John J. Hoey
President and Chief Executive Officer
By:/s/ C.B. McDaniel
---------------------------
C.B. McDaniel
Secretary
Exhibit A
RESTATED
CERTIFICATE OF INCORPORATION
OF
HONDO OIL & GAS COMPANY
FIRST: The name of the corporation is Hondo Oil & Gas Company.
SECOND: Its principal office in the State of Delaware is located at
Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801.
The name and address of its resident agent is The Corporation Trust
Company, Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware
19801.
THIRD: The nature of the business, or objects or purposes to be
transacted, promoted or carried on are:
To purchase, or otherwise acquire or invest in, own, mortgage,
pledge, sell, assign, transfer, or otherwise dispose of, in whole or
in part, oil, gas and mineral leases; oil, gas and mineral
concessions, rights or interests granted or created by any government
or any subdivision thereof; oil, gas and mineral rights; any interest
of any type in any of the foregoing, including expressly interests
known as oil payments, gas payments and production payments; fee
lands; mineral interests in lands; mining claims; applications or
options to acquire oil, gas or mineral leases, concessions or rights;
royalty interests; overriding royalty interests; net profits interests
and any other interest in lands or any rights or interests created by
contract or otherwise which entitle the owner or owners thereof to
participate in any way in, or obtain any advantage from, the
production or sale of oil, gas or other minerals.
To operate, maintain, improve and develop oil, gas or other
mineral properties, to explore for oil, gas or other minerals by any
means, including the drilling of wells for such purposes, and to
purchase and sell oil, gas or other minerals and all products and by-
products thereof.
To enter into, maintain, operate or carry on in any or all of its
branches the business of exploring for, producing, developing, mining,
processing, refining, treating, handling, marketing or dealing in,
petroleum, oil, natural gas, asphalt, bituminous rock and any and all
other mineral and hydrocarbon substances, and any and all products or
by-products which may be derived from such substances, or any of them;
and for all or any of such purposes to acquire, own, lease, operate or
otherwise deal in or with oil or gas wells, tanks, storage facilities,
gathering systems, pipelines, processing plants, mines, refineries,
smelters, crushers, mills, wharves, watercraft, aircraft, tank cars,
communication systems, machinery, equipment and any and all other
kinds and types of real or personal property that may in anywise be
1
deemed necessary, convenient or advisable in connection with the
carrying on of such business or any branch thereof.
To acquire, own, store, transport, buy and sell salt brine and
other mineral solutions and sand and clay for the manufacture and sale
of clay products.
To buy, exchange, contract for, lease, and in any and all other
ways, acquire, take, hold and own, and to deal in, sell, mortgage,
lease or otherwise dispose of real property, and rights and interests
in and to real property, and to manage, operate, maintain, improve,
and develop the same.
To manufacture, purchase or otherwise acquire, invest in, own,
mortgage, pledge, sell, assign and transfer or otherwise dispose of,
trade, deal in and deal with machinery, equipment, pipe, appliances,
building materials, goods, wares and merchandise and personal property
of every class and description.
To acquire, and pay for in cash, stock, or bonds of the
corporation or otherwise, the good will, rights, assets and property,
and to undertake or assume the whole or any part of the obligations or
liabilities, of any person, firm, association or corporation.
To acquire, hold, use, sell, assign, lease, grant licenses in
respect of, mortgage or otherwise dispose of letters patent of the
United States or any foreign country, patent rights, licenses and
privileges, inventions, improvements and processes, copyrights,
trademarks and trade-names, relating to or useful in connection with
any business of this corporation.
To acquire by purchase, subscription or otherwise, and to
receive, hold, own, guarantee, sell, assign, exchange, transfer,
mortgage, pledge or otherwise dispose of or deal in or with any of the
shares of capital stock, or any voting trust certificates in respect
of shares of capital stock, or any scrip, warrants, rights, bonds,
debentures, notes, trust receipts, obligations, evidences of
indebtedness or interest or other securities or choses in action,
issued or created by any corporations, joint stock companies,
syndicates, associations, firms, trusts or persons, public or private,
or by the government of the United States of America, or by any
foreign government, or by any state, territory, province, municipality
or other political subdivision or by any governmental agency, and as
owner thereof to possess and exercise all the rights, powers and
privileges of ownership, including the right to execute consents and
vote thereon, and to do any and all acts and things necessary or
advisable for the preservation, protection, improvement and
enhancement in value thereof.
To enter into, make and perform contracts of every kind and
description with any person, firm, association, corporation,
municipality, county, state, body politic or government or colony or
dependency thereof.
To borrow or raise moneys for any of the purposes of the
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corporation and, from time to time, without limit as to amount, to
draw, make, accept, endorse, execute and issue promissory notes,
drafts, bills of exchange, warrants, bonds, debentures and other
negotiable or non-negotiable instruments and evidences of
indebtedness, and to secure the payment of any thereof and of the
interest thereon by mortgage upon or pledge, conveyance or assignment
in trust of the whole or any part of the property of the corporation,
whether at the time owned or thereafter acquired, or by assignment of
the proceeds, applicable to the corporation's interest, in any and all
oil, gas and other hydrocarbons or minerals produced from any
properties in which the corporation may own any interest, or by
assignment of any moneys owing or to be owing to the corporation, or
otherwise and to sell, pledge or otherwise dispose of such bonds or
other obligations of the corporation for its corporate purposes.
To buy, sell or otherwise deal in notes, open accounts, and other
similar evidences of debt, or to loan money and take notes, open
accounts, and other similar evidences of debt as collateral security
therefor.
To purchase, hold, sell and transfer the shares of its own
capital stock; provided it shall not use its funds or property for the
purchase of its own shares of capital stock when such use would cause
any impairment of its capital except as otherwise permitted by law,
and provided further that shares of its own capital stock belonging to
it shall not be voted upon directly or indirectly.
To have one or more offices, to carry on all or any of its
operations and business and, without restriction or limit as to
amount, to purchase or otherwise acquire, hold, own, mortgage, sell,
convey or otherwise dispose of real and personal property of every
class and description in any of the States, Districts, Territories or
Colonies of the United States, and in any and all foreign countries,
subject to the laws of such State, District, Territory, Colony or
Country.
In general, to carry on any other business in connection with the
foregoing, and to have and exercise all the powers conferred by the
laws of Delaware upon corporations formed under the act hereinafter
referred to, and to do any or all of the things hereinbefore set forth
to the same extent as natural persons might or could do; provided,
however, that nothing herein contained shall be deemed to authorize
this corporation to carry on within the State of Delaware any public
utility business.
The objects and purposes specified in the foregoing clauses
shall, except where otherwise expressed, be in nowise limited or
restricted by reference to, or inference from, the terms of any other
clause in this certificate of incorporation, but the objects and
purposes specified in each of the foregoing clauses of this article
shall be regarded as independent objects and purposes.
FOURTH: The total number of shares of all classes of stock which the
corporation shall have authority to issue is forty million (40,000,000)
shares, divided into ten million (10,000,000) shares of Preferred Stock, of
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the par value of one dollar ($1.00) per share (herein called "Preferred
Stock"), and thirty million (30,000,000) shares of Common Stock, of the par
value of one dollar per share (herein called "Common Stock").
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The following is a statement of the designations and the powers,
preferences and rights, and the qualifications, limitations or restrictions
thereof, of the classes of stock of the corporation:
I.
1. The Preferred Stock may be issued in one or more series. The
designations, powers, preferences and relative, participating,
optional, and other special rights, and the qualifications,
limitations and restrictions thereof, of the Preferred Stock of each
series shall be such as are stated and expressed herein and to the
extent not stated and expressed herein, shall be such as may be fixed
by the Board of Directors (authority so to do being hereby expressly
granted) and stated and expressed in a resolution or resolutions
adopted by the Board of Directors providing for the issue of Preferred
Stock of such series. Such resolution or resolutions shall (a)
specify the series to which such Preferred Stock shall belong, (b) fix
the dividend rate therefor, (c) fix the amount which the holders of
the Preferred Stock of such series shall be entitled to be paid in the
event of a voluntary or involuntary liquidation, dissolution or
winding up of the corporation, (d) state whether or not the Preferred
Stock of such series shall be redeemable and at what times and under
what conditions and the amount or amounts payable thereon in the event
of redemption; and may, in a manner not inconsistent with the
provisions of this Article Fourth, (i) limit the number of shares of
such series which may be issued, (ii) provide for a sinking fund for
the purchase or redemption or a purchase fund for the purchase of
shares of such series and the terms and provisions governing the
operation of any such fund and the status as to reissuance of shares
of Preferred Stock purchased or otherwise re-acquired or redeemed or
retired through the operation thereof, (iii) grant voting rights to
the holders of shares of such series, (iv) impose conditions or
restrictions upon the creation of indebtedness of the corporation or
upon the issue of additional Preferred Stock or other capital stock
ranking equally therewith or prior thereto as to dividends or
distributions of assets on liquidation, (v) impose conditions or
restrictions upon the payment of dividends upon, or the making of
other distributions to, or the redemption, purchase or acquisition of
shares of capital stock ranking junior to the Preferred Stock as to
dividends or distribution of assets upon liquidation (referred to in
this Article Fourth as "junior stock"), (vi) grant to the holders of
the Preferred Stock of such series the right to convert such stock
into other shares of the corporation, and (vii) grant such other
special rights to the holders of shares of such series as the
directors may determine. The term "fixed for such series" and similar
terms shall mean stated and expressed in this Article Fourth or in a
resolution or resolutions adopted by the Board of Directors providing
for the issue of Preferred Stock of the series referred to.
2. The holders of the Preferred Stock of the respective series
shall be entitled to receive, when and as declared by the Board of
Directors, out of any funds legally available therefor, cumulative
preferential dividends in cash, at the rate per annum fixed for such
series, and no more, payable quarter-yearly on the first days of
February, May, August and November to stockholders of record on a
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date, not exceeding fifty days preceding each such dividend payment
date fixed for the purpose by the Board of Directors in advance of
payment of each particular dividend. Dividends on shares of the
Preferred Stock shall accrue from the dividend payment date
immediately preceding the date of issuance (unless the date of
issuance shall be a dividend payment date, in which case they shall
accrue from that date), or from such other date or dates as may be
fixed by the Board of Directors for any series, and shall be
cumulative.
3. Except as by law expressly provided and except as may be
provided for any series of Preferred Stock by the resolution of the
Board of Directors providing for the issuance thereof as herein
permitted, the Preferred Stock shall have no right or power to vote on
any question or in any proceeding or to be represented at or to
receive notice of any meeting of stockholders.
4. Preferred Stock redeemed or otherwise retired by the
corporation shall assume the status of authorized but unissued
preferred stock and may thereafter, subject to the provisions of this
Article Fourth and of any restrictions contained in any resolution of
the Board of Directors providing for the issue of any particular
series of Preferred Stock, be reissued in the same manner as other
authorized but unissued Preferred Stock:
II.
Subject to and on the conditions set forth in any resolution of
the Board of Directors providing for the issuance of any particular
series of Preferred Stock, and not otherwise, such dividends (payable
in cash, stock or otherwise) as may be determined by the Board of
Directors may be declared and paid on the Common Stock from time to
time out of any funds legally available therefor.
The holders of the Common Stock shall be entitled to one vote for
each share held at all meetings of the stockholders of the
corporation.
FIFTH: The minimum amount of capital with which the corporation will
commence business is $1,000.
SIXTH: The names and places of residence of the incorporators are as
follows:
Names Residences
H. K. Webb Wilmington, Delaware
H. C. Broadt Wilmington, Delaware
A. D. Atwell Wilmington, Delaware
SEVENTH: The corporation is to have perpetual existence.
EIGHTH: The private property of the stockholders shall not be subject to
the payment of corporate debts to any extent whatever.
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NINTH: No holder of stock of the corporation of any class authorized
hereby or which may hereafter be authorized, or any series of any such
class, shall as such holder and because of his ownership of such stock have
any preemptive or other right to purchase or subscribe for any shares of
stock of the corporation of any class, or of any series of any class, or
for any notes, debentures, bonds, obligations or instruments which the
corporation may issue or sell that are convertible into or exchangeable for
or entitle the holders thereof to subscribe for or purchase any shares of
stock of the corporation of any class, or of any series of any class. Any
part of the stock of the corporation and any part of any notes, debentures,
bonds, obligations, or instruments convertible into or carrying options or
warrants to purchase stock of the corporation of any class authorized
hereby, or which may hereafter be authorized, may at any time be issued,
optioned for sale and sold or otherwise disposed of pursuant to resolutions
of the Board of Directors to such persons, upon such terms and conditions
and for such lawful consideration, as may to the Board of Directors seem
proper and advisable, without first offering said stock or such other
securities, or any part thereof, to any holders of stock of the
corporation.
TENTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
To make, alter or repeal the by-laws of the corporation.
To authorize and cause to be executed mortgages and liens upon
the real and personal property of the corporation.
To set apart out of any of the funds of the corporation available
for dividends a reserve or reserves for any proper purpose and to
abolish any such reserve in the manner in which it was created.
By resolution or resolutions passed by a majority of the whole
Board to designate one or more committees, each committee to consist
of two or more of the directors of the corporation, which, to the
extent provided in said resolution or resolutions or in the by-laws of
the corporation, shall have and may exercise the powers of the Board
of Directors in the management of the business and affairs of the
corporation, and may have power to authorize the seal of the
corporation to be affixed to all papers which may require it. Such
committee or committees shall have such name or names as may be stated
in the by-laws of the corporation or as may be determined from time to
time by resolution adopted by the Board of Directors.
When and as authorized by the affirmative vote of the holders of
a majority of the stock issued and outstanding having voting power
given at a stockholders' meeting duly called for that purpose, or when
authorized by the written consent of the holders of a majority of the
voting stock issued and outstanding, to sell, lease or exchange all of
the property and assets of the corporation, including its good will
and its corporate franchises, upon such terms and conditions and for
such consideration, which may be in whole or in part shares of stock
in, and/or other securities of, any other corporation or corporations,
as its Board of Directors shall deem expedient and for the best
interests of the corporation.
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ELEVENTH: No contract or other transaction between the corporation and any
other corporation shall be affected or invalidated by the fact that any one
or more of the directors of this corporation is or are interested in or is
or are a director or directors or officer or officers of such other
corporation, and no contract or other transaction between the corporation
and any other person or firm shall be affected or invalidated by the fact
that any one or more directors of this corporation is a party to, or are
parties to, or interested in, such contract or transaction; provided that
in each such case the nature and extent of the interest of such director or
directors in such contract or other transaction and/or the fact that such
director or directors is or are a director or directors or officer or
officers of such other corporation is disclosed at the meeting of the Board
of Directors at which such contract or other transaction is authorized.
TWELFTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application
in a summary way of this corporation or of any creditors or stockholders
thereof, or on the application of any receiver or receivers appointed for
this corporation under the provisions of section 291 of Title 8 of the
Delaware Code or on the application of trustees in dissolution or of any
receiver or receivers appointed for this corporation under the provisions
of section 279 of Title 8 of the Delaware Code order a meeting of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, to be summoned in
such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this corporation, as
the case may be, agree to any compromise or arrangement and to any
reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been
made, be binding on all the.creditors or class of creditors, and/or on all
the stockholders or class of stockholders, of this corporation, as the case
may be, and also on this corporation.
THIRTEENTH: Meetings of stockholders may be held without the State of
Delaware, if the by-laws so provide. The books of the corporation may be
kept (subject to any provision contained in the statutes) outside of the
State of Delaware at such place or places as may be from time to time
designated by the Board of Directors or in the by-laws of the corporation.
FOURTEENTH: The corporation reserves the right to amend, alter, change or
repeal any provision contained in this certificate of incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
FIFTEENTH: To the fullest extent permitted by the General Corporation Law
of the State of Delaware as the same exists or may hereafter be amended, a
director of the corporation shall not be liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as director.
Any repeal or modification of this Article shall not result in any
liability for a director with respect to any action or omission occurring
prior to such repeal or modification.
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HONDO OIL & GAS COMPANY
BYLAWS
ARTICLE I
Offices
Section 1. Principal Office. The principal office of the
Corporation shall be located in the City of Wilmington, County of New
Castle, State of Delaware, and the name of the resident agent in charge
thereof shall be The Corporation Trust Company.
Section 2. Other Offices. The Corporation may also have
offices at such other places, within or without the State of Delaware, as
the Board of Directors may from time to time appoint or the business of the
Corporation may require.
ARTICLE II
Seal
The corporate seal shall be circular in form and shall contain
the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware".
ARTICLE III
Meeting of Stockholders
Section 1. Place of Meeting. Meetings of the stockholders for
the selection of directors shall be held at such place within the State of
New Mexico, or such other place, as the Board of Directors may fix,
provided that at least ten (10) days' notice be given to stockholders
entitled to vote thereat of the place so fixed. Each other meeting of the
stockholders may be held at such place, either within or without the State
of Delaware, as may be stated in the notice or waiver of notice of such
meeting.
Section 2. Annual Meetings. The Annual Meeting of
Stockholders shall be held on such date and at such time each year as shall
be designated from time to time by the Board of Directors and stated in the
notice of the meeting, at which meeting the stockholders shall elect
directors by a plurality vote and shall transact such other business as may
properly be brought before the meeting.
Section 3. Special Meeting. Special meetings of the
stockholders for any purpose or purposes, unless otherwise prescribed by
statute or by the Certificate of Incorporation, may be called by the
Chairman of the Board of Directors, the President or by the Board of
Directors (either by written instrument signed by a majority or by
resolution adopted by a vote of the majority), and special meetings shall
be called by the Chairman, the President or the Secretary whenever
stockholder owning a majority of the capital stock issued, outstanding and
entitled to vote so request in writing. Such request shall state the
purpose or purposes of the proposed meeting.
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Section 4. Notice. Written or printed notice of every meeting
of stockholders, annual or special, stating the time and place thereof,
and, if a special meeting, the purpose or purposes in general terms for
which the meeting is called shall not less than ten (10) days before such
meeting be served upon or mailed to each stockholder entitled to vote
thereat, at his address as it appears upon the stock records of the
Corporation or, if such stockholder shall have filed with the Secretary of
the Corporation a written request that notices intended for him be mailed
to some other address, then to the address designated in such request.
Notice of the time, place and/or purpose of any meeting of
stockholders may be dispensed with if every stockholder entitled to vote
thereat shall attend either in person or by proxy, or if every absent
stockholder entitled to such notice shall in writing, filed with the
records of the meeting, either before or after the holding thereof, waive
such notice.
SECTION 5. Quorum. Except as otherwise provided by law or by
the Certificate of Incorporation, the presence in person or by proxy at any
meeting of stockholders of the holders of a majority of the shares of the
capital stock of the Corporation issued and outstanding and entitled to
vote thereat, shall be requisite and shall constitute a quorum. If,
however, such majority shall not be present or represented at any meeting
of the stockholders regularly called, the holders of a majority of the
shares present or represented and entitled to vote thereat shall have power
to adjourn the meeting to another time, or to another time and place,
without notice other than announcement of adjournment at the meeting, and
there may be successive adjournment for like cause and in like manner until
the requisite amount of shares entitled to vote at such meeting shall be
represented. At such adjourned meeting at which the requisite amount of
shares entitled to vote thereat shall be present or represented, any
business may be transacted which might have been transacted at the meeting
as originally notified.
SECTION 6. Votes. Proxies. At each meeting of stockholders,
every stockholder shall have one vote for each share of capital stock
entitled to vote which is registered in his name on the books of the
Corporation on the date on which the transfer books were closed, if closed,
or on the date set by the Board of Directors for the determination of
stockholders entitled to vote at such meeting. At each such meeting every
stockholder shall be entitled to vote in person, or by proxy appointed by
an instrument in writing subscribed by such stockholder and bearing a date
not more than three years prior to the meeting in question, unless said
instrument provides for a longer period during which it is to remain in
force.
All elections of directors shall be held by ballot. If the
Chairman of the meeting shall so determine, a vote may be taken upon any
other matter by ballot, and shall be so taken upon the request of any
stockholder entitled to vote on such matter.
At elections of directors, the Chairman shall appoint two
inspectors of election, who shall first take and subscribe an oath or
affirmation faithfully to execute the duties of inspector at such meeting
with strict impartiality and according to the best of their ability and who
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shall take charge of the polls and after the balloting shall make a
certificate of the result of the vote taken; but no director or candidate
for the office of director shall be appointed as such inspector.
A nomination for the position of director shall be accepted,
and votes cast for a proposed nominee shall be counted, by the inspectors
of election only if the Secretary of the Company has received at least 30
days prior to the meeting a statement over the signature of the proposed
nominee that he consents to being a nominee and, if elected, intends to
serve as a director. Such statement shall also contain the number of
shares of stock of the Corporation held by the nominee, occupations and
business history for the previous five years, other directorships, names of
business entities in which the proposed nominee owns a 10 percent or more
equity interest, listing of any criminal convictions including federal or
state securities violations, and all other information required by the
federal proxy rules in effect at the time the proposed nominee submits said
statement.
SECTION 7. Organization. The Chairman of the Board, if there
be one, or in his absence the President, or in the absence of both the
Chairman of the Board and the President, a Vice President, shall call
meetings of the stockholders to order and shall act as chairman thereof.
The Secretary of the Corporation, if present, shall act as secretary of all
meetings of stockholders and, in his absence, the presiding officer may
appoint a secretary.
ARTICLE IV
Directors
SECTION 1. Number. The business and property of the
Corporation shall be conducted and managed by a Board of Directors
consisting of not less than three (3) nor more than eleven (11) directors,
none of whom need be a stockholder. The Board of Directors of the
Corporation shall initially be composed of five (5) directors, but the
Board may at any time by resolution increase or decrease the number of
directors to not more than eleven (11) or less than three (3), and the
vacancies resulting from any such increase shall be filled as provided in
Section 3 of this Article IV.
SECTION 2. Term of Office. Each director shall hold office
until the next annual meeting of stockholders and until his successor is
duly elected and qualified or until his earlier death or resignation,
subject to the right of the stockholders at any time to remove any director
or directors as provided in Section 4 of this Article.
SECTION 3. Vacancies. If any vacancy shall occur among the
directors, or if the number of directors shall at any time be increased,
the directors in office, although less than a quorum, by a majority vote
may fill the vacancies or newly created directorships, or any such
vacancies or newly created directorships may be filled by the stockholders
at any meeting.
SECTION 4. Removal by Stockholders. The holders of record of
the capital stock of the Corporation entitled to vote for the election of
directors may in their discretion at any meeting duly called for the
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purpose, by a majority vote, remove any director or directors and elect a
new director or directors in place thereof.
SECTION 5. Meetings. Meetings of the Board of Directors shall
be held at such place within or without the State of Delaware, as may from
time to time be fixed by resolution of the Board or as may be specified in
the notice or waiver of notice of any meeting. Meetings may be held at any
time upon the call of the Chairman, the President or the Secretary or any
two (2) or the directors by oral, telegraphic, or written notice, duly
served or sent or mailed to each director not less than two (2) days before
such meeting. Meetings may be held at any time and place without notice if
all the directors are present or if those not present shall, in writing or
by telegram, waive notice thereof. A regular meeting of the Board may be
held without notice immediately following the annual meeting of
stockholders at the place where such annual meeting is held or at such
other place, as determined by the directors. Regular meetings of the Board
may also be held without notice at such time and place as shall from time
to time be determined by resolution of the Board.
SECTION 6. Action Without a Meeting. Unless otherwise
restricted by the Certificate of Incorporation or these bylaws, any action
required or permitted to be taken at any meeting of the Board of Directors
or of any committee thereof may be taken without a meeting, if all members
of the Board or committee, as the case may be, consent thereto in writing,
and the writing or writings are filed with the minutes of proceedings of
the Board or committee.
SECTION 7. Telephone Meetings. Subject to the provisions of
applicable law and these Bylaws regarding notice of meetings, members of
the Board of Directors or members of any committee designated by such Board
may, unless otherwise restricted by the Certificate of Incorporation or
these Bylaws, participate in and hold a meeting of such Board of Directors
or committee by using conference telephone or similar communications
equipment by means of which all persons participating in the meeting can
hear each other, and participation in a meeting pursuant to this Section
shall constitute presence in person at such meeting, except when a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting was not lawfully
called or convened.
SECTION 8. Quorum. A majority of the directors shall
constitute a quorum for the transaction of business. If at any meeting of
the Board there shall be less than a quorum present, a majority of those
present may adjourn the meeting from time to time without notice other than
announcement of the adjournment at the meeting, and at such adjourned
meeting at which a quorum is present any business may be transacted which
might have been transacted at the meeting as originally noticed.
SECTION 9. Compensation. Directors, as such, shall not
receive any stated compensation for their services, but by resolution of
the Board of Directors, a fixed sum, and expenses of attendance, if any,
may be allowed for attendance at each regular or special meeting thereof.
By resolution of the Board of Directors, outside directors who do not
receive compensation from the Corporation in any other capacity may receive
compensation for their services. Nothing in this Section shall be
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construed to preclude a director from serving the Corporation in any other
capacity and receiving compensation therefor.
ARTICLE V
Executive Committee
SECTION 1. Executive Committee. The Board of Directors may
appoint an Executive Committee of three (3) or more members (with such
alternates, if any, as may be deemed desirable), to serve during the
pleasure of the Board, to consist of such directors as the Board may from
time to time designate. The Chairman of the Executive Committee shall be
designated by the Board of Directors.
SECTION 2. Procedure. The Executive Committee, by a vote of a
majority of its members, shall fix its own times and places of meeting,
shall determine the number of its members constituting a quorum for the
transaction of business, and shall prescribe its own rules or procedure; no
change in which shall be made save by a majority vote to its members.
SECTION 3. Powers. During the intervals between the meetings
of the Board of Directors, the Executive Committee shall possess and may
exercise all the powers of the Board in the management and direction of the
business and affairs of the Corporation.
SECTION 4. Reports. The Executive Committee shall keep
regular minutes of its proceedings and all action by the Executive
Committee shall be reported promptly to the Board of Directors. Such
action shall be subject to review by the Board, provided that no rights of
third parties shall be affected by such review.
ARTICLE VI
Other Committee of the Board of Directors
The Board of Directors may designate one or more directors
(with such alternate, if any, as may be deemed desirable) to constitute
another committee or committees for any purpose; provided, that any such
other committee or committees shall have and may exercise only the power of
recommending action to the Board of Directors and the Executive Committee
and of carrying out and implementing and instruction or any policies, plans
and programs theretofore approved, authorized and adopted by the Board of
Directors or the Executive Committee.
ARTICLE VII
Officers
SECTION 1. Officers. The Board of Directors shall elect, as
executive officers, a Chairman of the Board of Directors (who may also
occupy the office of President), a President, a Secretary and a Treasurer,
one or more Vice Presidents (in the case of each such Vice President, with
such descriptive title, if any, as the Board of Directors may deem
appropriate), and one or more Assistant Secretaries and Assistant
Treasurers. The Chairman of the Board of Directors or the President may
also be the Chief Executive Officer, as designated by the Board of
Directors.
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SECTION 2. Vacancies. Any vacancy in any office may be
filled for the unexpired portion of the term by the Board of Directors, at
any regular or special meeting.
SECTION 3. President. The President may be a member of the
Board of Directors and the chief operating officer of the Corporation.
Subject to the directions of the Board of Directors, he shall have any
exercise direct charge of and general supervision over the business and
affairs of the Corporation and shall perform all duties incident to the
office of a president of a corporation, and such other duties as from time
to time may be assigned to him by the Board of Directors.
SECTION 4. Chairman of the Board. The Chairman of the Board,
if elected, shall be a member of the Board of Directors and shall preside
at its meetings. He shall keep in close touch with the administration of
the affairs of the Corporation, shall advise and counsel with the
President, and, in his absence, with other executives of the Corporation,
and shall perform such other duties as may from time to time be assigned to
him by the Board of Directors.
SECTION 5. Vice Presidents. Each Vice President, if elected,
shall be and exercise such powers and shall perform such duties as from
time to time may be conferred upon or assigned to him by the Board of
Directors, or as may be delegated to him by the President.
SECTION 6. Secretary. The Secretary shall keep the minutes of
all meetings of the stockholders and of the Board of Directors in books
provided for the purpose; he shall see that all notices are duly given in
accordance with the provisions of law and these bylaws; he shall be
responsible for the custody and safekeeping of the records, and of the
corporate seal or seals of the Corporation; he shall see that the corporate
seal is affixed to all documents, the execution of which, on behalf of the
Corporation, under its seal, is duly authorized and when the seal is so
affixed he may attest the same; he may sign, with the President or Vice
President, certificates of stock of the Corporation; and in general, he
shall perform all duties incident to the office of a secretary of a
corporation, and such other duties as from time to time may be assigned to
him by the Board of Directors.
SECTION 7. Assistant Secretaries. The Assistant Secretaries
shall, in the absence or disability or at the direction of the Secretary,
perform the duties and exercise the powers of the Secretary and shall
perform such other duties as the Board of Directors shall prescribe.
SECTION 8. Treasurer. The Treasurer shall have charge of and
be responsible for all funds, securities, receipts and disbursements of the
Corporation, and shall deposit, or cause to be deposited, in the name of
the Corporation, all moneys or other valuable effects in such banks, trust
companies or other depositaries as shall, from time to time, be selected by
the Board of Directors; he may indorse for collection on behalf of the
Corporation, checks, notes and other obligations; he may sign receipts and
vouchers for payments made to the Corporation; singly or jointly with
another person as the Board of Directors may authorize, he may sign checks
of the Corporation and pay out and dispose of the proceeds under the
direction of the Board; he shall render to the President and to the Board
6
of Directors, whenever requested, an account of the financial condition of
the Corporation; he may sign, with the President or a Vice President,
certificates of stock of the Corporation; and in general, shall perform
all the duties incident to the office of a treasurer of a corporation, and
such other duties as from time to time may be assigned to him by the Board
of Directors.
SECTION 9. Assistant Treasurers. The Assistant Treasurers
shall, in the absence or disability or at the direction of the Treasurer,
perform the duties and exercise the powers of the Treasurer and shall
perform such other duties as the Board of Directors shall prescribe.
SECTION 10. Subordinate Officers. The Board of Directors may
appoint such subordinate officers as it may deem desirable. Each such
officer shall hold office for such period, have such authority and perform
such duties as the Board of Directors may prescribe. The Board of
Directors may, from time to time, authorize any officer to appoint and
remove subordinate officers and to prescribe the powers and duties thereof.
SECTION 11. Compensation. The Board of Directors shall have
power to fix the compensation of all officers of the Corporation. It may
authorize any officer, upon whom the power of appointing subordinate
officers may have been conferred, to fix the compensation of such
subordinate officers.
SECTION 12. Removal. Any officer of the Corporation may be
removed, with or without cause, by a majority vote of the Board of
Directors at a meeting called for that purpose.
SECTION 13. Bonds. The Board of Directors may require any
officer of the Corporation to give a bond to the Corporation, conditional
upon the faithful performance of his duties, with one or more sureties and
in such amount as may be satisfactory to the Board of Directors.
ARTICLE VIII
Certificates of Stock
SECTION 1. Form and Execution of Certificates. The interest
of each stockholder of the Corporation shall be evidenced by a certificate
or certificates for shares of stock in such form as the Board of Directors
may from time to time prescribe. The certificates of stock of each class
and series shall be consecutively numbered and signed by the President or
Vice President and by the Secretary or an Assistant Secretary or the
Treasurer or an Assistant Treasurer of the Corporation, and may be
countersigned and registered in such manner as the Board of Directors may
by resolution prescribe, and shall bear the corporate seal or a printed or
engraved facsimile thereof. Where any such certificate is signed by a
transfer agent or transfer clerk acting on behalf of the Corporation and by
a registrar, the signatures of any such President, Vice President,
Treasurer, Assistant Treasurer, Secretary or Assistant Secretary may be
facsimiles, engraved or printed. In case any officer or officers who shall
have signed, or whose facsimile signature or signatures shall have been
used on, any such facsimile signature or signature shall have been used on,
any such certificate or certificates shall cease to be such officer or
officers, whether because of death, resignation or otherwise, before such
7
certificate or certificates shall have been delivered by the Corporation,
such certificate or certificates may nevertheless be issued and delivered
by the Corporation as though the person or persons who signed such
certificate or certificates or whose facsimile signature or signatures
shall have been used thereon had not ceased to be such officer or officers.
SECTION 2. Transfer of Shares. Subject to any applicable
restrictions contained in the Certificate of Incorporation, the shares of
the stock of the Corporation shall be transferred on the books of the
Corporation by the holder thereof in person or by his attorney lawfully
constituted, upon surrender for cancellation of certificates for the same
number of shares, with an assignment and power of transfer endorsed thereon
or attached thereto, duly executed, with such proof or guaranty of the
authenticity of the signature as the Corporation or its agents may
reasonably require. The Corporation shall be entitled to treat the holder
of record of any share or shares of stock as the holder in fact thereof and
accordingly shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person whether
or not it shall have express or other notice thereof, save as expressly
provided by law or by the Certificate of Incorporation.
SECTION 3. Closing of Transfer Books. The stock transfer
books of the Corporation may, if deemed expedient by the Board of
Directors, be closed for such length of time not exceeding sixty (60) days
as the Board may determine, preceding the date of any meeting of
stockholders or the date for the payment of any dividend or the date for
the allotment of rights or the date when any issuance, change, conversion
or exchange of capital stock shall go into effect, during which time no
transfer of stock on the books of the Corporation may be made.
SECTION 4. Dates of Record. If deemed expedient, the Board of
Directors may fix in advance a date for such length of time not exceeding
sixty (60) days as the Board may determine, preceding the date of any
meeting of stockholders, or the date for the payment of any dividend, or
the date for the allotment of rights or the date when any issuance, change,
conversion or exchange or capital stock shall go into effect, as a record
date for the determination of the stockholders entitled to notice of, and
to vote at, any such meeting or entitled to receive payment of any such
dividend or to any such allotment of rights, or to exercise the rights in
respect of any such issuance, change, conversion or exchange of capital
stock, as the case may be, and in such case only such stockholders as shall
be stockholders of record on the date so fixed shall be entitled to such
notice of, and to vote at, such meeting, or to receive payment of such
dividend, or to receive such allotment of rights, or to exercise such
rights, as the case may be, notwithstanding any transfer of any stock on
the books of the Corporation after any record date fixed as aforesaid;
provided, however, that no record date for the determination of the
stockholders entitled to notice of, and to vote at, any meeting of
stockholders shall be fixed on a date less than ten (10) days before the
date of such meeting.
SECTION 5. Lost or Destroyed Certificates. In case of the
loss or destruction of any certificate of stock, a new certificate may be
issued upon the following conditions:
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The owner of said certificate shall file with the Secretary of
the Corporation an affidavit giving the facts in relations to the
ownership, and in relation to the loss or destruction of said certificate,
stating its number and the number of shares represented thereby; such
affidavit to be in such form and contain such statements as shall satisfy
the President and Secretary that said certificate has been accidentially
destroyed or lost, and that a new certificate ought to be issued in lieu
thereof. Upon being so satisfied, the President and Secretary shall
require such owner to file with the Secretary a bond in such penal sum and
in such form as they may deem advisable, and with a surety or sureties
approved by them, to indemnify and save harmless the Corporation from any
claim, loss, damage or liability which may be occasioned by the issuance of
a new certificate in lieu thereof. Upon such bond being so filed a new
certificate for the same number of shares shall be issued to the owner of
the certificate so lost or destroyed; and the transfer agent and registrar
of stock shall countersign and register such new certificate upon receipt
of a written order signed by the said President and Secretary, and
thereupon the Corporation will save harmless said transfer agent and
registrar in the premise. A Vice President may act hereunder in the stead
of the President, and an Assistant Secretary in the stead of the Secretary.
In case of the surrender of the original certificate, in lieu of which a
new certificate has been issued, or the surrender of such new certificate,
for cancellation, the bond or indemnity given as a condition of the issue
of such new certificate may be surrendered.
ARTICLE IX
Checks, Notes, Etc.
SECTION 1. Execution of Checks, Notes Etc. All checks and
drafts on the Corporation's bank accounts and all bills of exchange and
promissory notes, and all acceptances, obligations and other instruments
for the payment of money, shall be signed by such officer or officers,
agent or agents, as shall be thereunto authorized from time to time by the
Board of Directors.
SECTION 2. Execution of Contracts, Assignments, Etc. All
contracts, agreements, endorsements, assignments, transfers, stock powers,
or other instruments shall be signed by the President, the Chairman of the
Board, or any Vice President or by such other officer of officers, agent or
agents, as shall be thereunto authorized from time to time by the Board of
Directors; and, when necessary or appropriate, shall be attested by the
Secretary or any Assistant Secretary or the Treasurer or any Assistant
Treasurer.
SECTION 3. Execution of Proxies. The President or the
Chairman of the Board or, in their absence or disability, a Vice President,
may authorize from time to time the signature and issuance of proxies to
vote shares of stock of other companies standing in the name of the
Corporation. All such proxies shall be signed in the name of the
Corporation by the President, the Chairman of the Board or a Vice President
and by the Secretary or an Assistant Secretary.
9
ARTICLE X
Waivers and Consents
Whenever any notice is required to be given by law, or under
the provisions of the Certificate of Incorporation, or of these bylaws,
such notice may be waived, in writing, signed by the person or persons
entitled to such notice, or by his attorney or attorneys thereunto
authorized, whether before or after the event or action to which such
notice relates.
Whenever the vote of stockholders at a meeting thereof is
required or permitted to be taken in connection with any corporate action
by any provision of law or of the Certificate of Incorporation or of these
bylaws, the meeting and vote of stockholders may be dispensed with if all
the stockholders who would have been entitled to vote upon the action if
such meeting were held shall consent in writing to such action being taken.
Any action required or permitted to be taken at any meeting of
the Board of Directors or of any Committee of the Board of Directors may be
taken without a meeting, if prior to such action a written consent thereto
is signed by all members of the Board of Directors or of such Committee as
the case may be, and such written consent is filed with the minutes of
proceedings of the Board of Directors or of such Committee.
ARTICLE XI
Dividends
Except as otherwise provided by law or by the Certificate of
Incorporation, the Board of Directors may declare dividends out of the
surplus of the Corporation at such times and in such amounts as it may from
time to time designate.
Before crediting net profits to surplus in any year, there may
be set aside out of the net profits of the Corporation for that year such
sum or sums as the Board of Directors from time to time in its absolute
discretion may deem proper as a reserve fund or funds to meet contingencies
or for equalizing dividends or for repairing or maintaining any property of
the Corporation or for such other purpose as the Board of Directors shall
deem conducive to the interests of the Corporation.
ARTICLE XII
Indemnification and Insurance
SECTION 1. Right to Indemnification. Each person who was or
is a party or is threatened to be made a party to or is involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he
or she, or a person of whom he or she is the legal representative, is or
was a director or officer of the Corporation or is or was serving at the
request of the Corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans,
whether the basis of such proceeding is alleged action or inaction in an
official capacity or in any other capacity while serving as a director,
officer, employee or agent, shall be indemnified and held harmless by the
10
Corporation to the fullest extent permitted by the laws of Delaware, as the
same exist or may hereafter be amended, against all costs, charges,
expenses, liabilities and losses (including attorneys' fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by such person in connection
therewith, and such indemnification shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of his or her heirs, executors and administrators; provided,
however, that, except as provided in Section 2 hereof, the Corporation
shall indemnify any such person seeking indemnification in connection with
a proceeding (or part thereof) initiated by such person only if such
proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation. The right to indemnification conferred in this Article
shall be a contract right and shall include the right to be paid by the
Corporation the expenses incurred in defending any such proceeding in
advance of its final disposition; provided, however, that, if the Delaware
General Corporation Law requires, the payment of such expenses incurred by
a director or officer in his or her capacity as a director or officer (and
not in any other capacity in which service was or is rendered by such
person while a director or officer, including, without limitation, service
to an employee benefit plan) in advance of the final disposition of a
proceeding, shall be made only upon delivery to the Corporation of an
undertaking, by or on behalf of such director of officer, to repay all
amounts so advanced if it shall ultimately be determined that such director
or officer is not entitled to be indemnified under this Section or
otherwise. The Corporation may, by action of its Board of Directors,
provide indemnification to employees and agents of the Corporation with the
same scope and effect as the foregoing indemnification of directors and
officers.
SECTION 2. Right of Claimant to Bring Suit. If a claim under
Section 1 of this Article is not paid in full by the Corporation within
thirty days after a written claim has been received by the Corporation, the
claimant may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim and, if successful in whole or in
part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other
than an action brought to enforce a claim for expenses incurred in
defending and proceeding in advance of its final disposition where the
required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has failed to meet a standard of conduct
which makes it permissible under Delaware law for the Corporation to
indemnify the claimant for the amount claimed. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel,
or its stockholders) to have made a determination prior to the commencement
of such action that indemnification of the claimant is permissible in the
circumstances because he or she has met such standard or conduct, nor an
actual determination by the Corporation (including its Board of Directors,
independent legal counsel, or its stockholder) that the claimant has not
met such standard or conduct, shall be a defense to the action or create a
presumption that the claimant has failed to meet such standard of conduct.
SECTION 3. Non-Exclusivity or Rights. The right to
indemnification and the payment of expenses incurred in defending a
proceeding in advance of its final disposition conferred in this Article
11
shall not be exclusive or any other right which any person may have or
hereafter acquire under any statute, provision of the Certificate of
Incorporation, bylaw, agreement, vote of stockholders or disinterested
directors or otherwise.
SECTION 4. Insurance. The Corporation may maintain insurance,
at its expense, to protect itself and any director, officer, employee or
agent of the Corporation or another corporation, partnership, joint
venture, trust or other enterprise against any such expense, liability or
loss, whether or not the Corporation would have the power to indemnify such
person against such expense, liability or loss under Delaware law.
SECTION 5. Expenses as a Witness. To the extent that any
director, officer, employee or agent of the Corporation is by reason of
such position, or a position with another entity at the request of the
Corporation, a witness in any action, suit or proceeding, he shall be
indemnified against all costs and expenses actually and reasonably incurred
by him or her or on his or her behalf in connection therewith.
SECTION 6. Indemnity Agreements. The Corporation may enter
into agreements with any director, officer, employee or agent of the
Corporation providing for indemnification to the full extent permitted by
Delaware law.
ARTICLE XIII
Inspection of Books
The Board of Directors shall determine from time to time
whether, and if allowed, when and under what conditions and regulations,
the accounts and books of the Corporation (except such as may be
specifically open to inspection) or any of them, shall be open to the
inspection of the stockholders and the stockholders' rights in this respect
are and shall be restricted and limited accordingly.
ARTICLE XIV
Fiscal Year
The fiscal year of the Corporation shall end on such dates as
the Board of Directors may by resolution specify and the Board of Directors
may by resolution change such date for future fiscal years at any time or
from time to time.
ARTICLE XV
Amendments
These Bylaws may be altered, amended or repealed and new Bylaws
adopted by the stockholders or by the Board of Directors by a majority vote
at any meeting called for that purpose.
12
AGREEMENT FOR PURCHASE AND SALE OF
REAL PROPERTY AND ESCROW INSTRUCTIONS
THIS AGREEMENT FOR PURCHASE AND SALE OF REAL PROPERTY AND ESCROW
INSTRUCTIONS ("Agreement") is made and entered into as of September 30,
1994, by and between Via Verde Development Company, a California
corporation ("Seller"), and Kaufman and Broad--Coastal Valleys, Inc., a
California corporation ("Buyer").
R E C I T A L S
A. Seller is the owner of that certain real property (the
"Property") located in the City of San Dimas ("City"), County of Los
Angeles ("County"), State of California ("State"), as more particularly
described on Exhibit A attached hereto. The Property consists of
approximately 11.5 acres of vacant land which the parties anticipate will
be subdivided into at least forty (40) single family residential lots of
size and dimension acceptable to Buyer in its sole discretion
(collectively, the "Lots" and individually, a "Lot").
B. Seller desires to sell and Buyer desires to purchase the Property
in accordance with the terms and conditions contained in this Agreement.
A G R E E M E N T
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged by Seller, Buyer
and Seller hereby agree as follows:
1. PURCHASE AND SALE.
1.1 Agreement to Purchase and Sell. Subject to the terms and
conditions set forth in this Agreement, Seller agrees to sell and convey
the Property to Buyer, and Buyer agrees to acquire and purchase the
Property from Seller. As used in this Agreement, the "Property" shall
include all of Seller's right, title and interest in and to all
entitlements, easements, rights and privileges appurtenant thereto and all
improvements located thereon.
1.2 Purchase Price. The purchase price for the Property shall
be Two Million Eight Hundred Thousand Dollars ($2,800,000) (the "Purchase
Price"), which is equal to Seventy Thousand Dollars ($70,000) per Lot
multiplied by the minimum number of Lots (40) within the Property.
However, if Buyer obtains, as of the Close of Escrow (as hereinafter
defined), "Entitlements" (as hereinafter defined) for more than forty (40)
Lots, the Purchase Price shall be increased by Seventy Thousand Dollars
($70,000) for each additional Lot, but if Buyer obtains, as of the Close of
Escrow, Entitlements for less than forty (40) lots, the Purchase Price
shall not be reduced; and if Buyer elects to close Escrow without having
obtained Entitlements and after Close of Escrow obtains Entitlements for
more than forty (40) lots, Buyer shall pay to Seller, outside of Escrow,
$70,000 for each additional lot.
1
1.3 Payment of Purchase Price. The Purchase Price for the
Property shall be payable in cash as follows:
(a) Deposit. Upon the opening of Escrow (as hereinafter
defined), Buyer shall deliver to Escrow Holder (as hereinafter defined) the
sum of Fifty Thousand Dollars ($50,000) (the "Deposit"), which Escrow
Holder shall invest in an interest bearing account with interest accruing
for the benefit of Buyer. Provided that Seller is not in default
hereunder, the Initial Deposit shall be non-refundable after delivery of
both the Title Notice (as hereinafter defined) and the Feasibility Notice
(as hereinafter defined). The Initial Deposit and all interest accrued
thereon shall be applied to the Purchase Price at the Close of Escrow and
shall serve as liquidated damages in the event of Buyer's material breach
or default hereunder.
(b) Additional Deposit. Upon Buyer's election to extend
the Close Escrow for one or more Extension Periods (as hereinafter
defined), Buyer shall deliver to Escrow Holder the sum of Seventy Five
Thousand Dollars ($75,000) for each Extension Period (individually, an
"Additional Deposit" and collectively, the "Additional Deposits"), which
Escrow Holder shall invest in an interest bearing account with interest
accruing for the benefit of Buyer. The Additional Deposits and all
interest accrued thereon shall be applied to the Purchase Price at the
Close of Escrow and shall serve as liquidated damages in the event of
Buyer's material breach or default hereunder.
(c) Balance of Purchase Price. One (1) day prior to the
Close of Escrow, Buyer shall deposit with Escrow Holder by cash, cashier's
check, or other immediately available funds, the balance of the Purchase
Price, together with Buyer's escrow charges and other cash charges as set
forth in Paragraph 2.2 hereof. The Purchase Price shall be released to
Seller at the Close of Escrow.
1.4 Seller's Buy-Out Option. In the event that within the six
(6) month period after delivery of the last of the Title Notice and the
Feasibility Notice by Buyer, another party offers to purchase the Property
from Seller for no less than $2,550,000 cash with close of escrow to occur
within sixty (60) days, for commercial development purposes (but not for
residential development purposes) with the current zoning entitlements
(which includes the current zoning designation, "AP," in the City of San
Dimas), Seller shall have the right to terminate this Agreement during such
six (6) month period by (a) causing the Escrow Holder to return the Initial
Deposit to Buyer and (b) paying to Buyer the sum of (i) One Hundred Fifty
Thousand Dollars ($150,000), plus (ii) Buyer's actual out-of-pocket costs
(excluding Buyer's internal overhead costs) incurred to the date of
termination in connection with this Agreement including, without
limitation, its investigations as contemplated by Paragraph 3 hereof and
its processing as contemplated by Paragraph 5 hereof, and provided further,
that Seller is not in default hereunder. Any such sale shall be on the
strict condition that for a period of two (2) years from and after the date
this Agreement is so terminated, the Property shall not be used for, nor
shall entitlements be sought by Seller or any purchaser or successor
thereof (other than Buyer or its affiliates) to develop the Property for,
residential purposes.
2
BUYER AND SELLER EACH AGREE THAT IN THE EVENT THE FOREGOING
RESTRICTION ON THE USE OF THE PROPERTY IS VIOLATED, BUYER WILL SUFFER
MATERIAL DAMAGES THEREFROM. HOWEVER, THE AMOUNT OF SUCH DAMAGES ARE
EXTREMELY DIFFICULT AND IMPRACTICABLE TO ASCERTAIN, AND THEREFORE, THE
PARTIES HAVE AGREED THAT UPON SUCH VIOLATION, SELLER AND ITS PARENT
COMPANY, HONDO OIL & GAS COMPANY, SHALL PAY TO BUYER THE SUM OF $500,000 AS
LIQUIDATED DAMAGES, AS A REASONABLE ESTIMATE OF THE DAMAGES TO BUYER.
RECEIPT OF SUCH SUM SHALL BE BUYER'S SOLE AND EXCLUSIVE REMEDY AGAINST
SELLER IN THE EVENT OF SUCH A VIOLATION, AND BUYER WAIVES ANY AND ALL RIGHT
TO INJUNCTIVE RELIEF FOR SUCH A VIOLATION.
Seller's Initials: /s/CBM Buyer's Initials: /s/ MLB
-------- --------
2. ESCROW AND CLOSING.
2.1 Opening of Escrow. Upon the execution of this Agreement by
the last of Buyer and Seller, Buyer shall open an escrow (the "Escrow")
with First American Title Company of Los Angeles ("Escrow Holder") and
deposit with Escrow Holder the fully executed Agreement, or executed
counterparts thereof. Escrow Holder shall sign the Agreement on Page 17
hereof. The escrow instructions shall incorporate this Agreement as a part
thereof and shall contain such other standard and usual provisions as may
be required by Escrow Holder; provided, however, that no escrow
instructions shall modify or amend any provision of this Agreement, unless
expressly set forth in writing by mutual consent of Buyer and Seller. If
there is a conflict between any such standard or usual provisions and the
provisions of this Agreement, the provisions of this Agreement shall
control. As used in this Agreement, the "Close of Escrow" shall mean the
date a grant deed for the Property (the "Grant Deed") is recorded in the
Official Records of the County.
2.2 Escrow Fees and Other Charges. Seller shall pay: (a) the
cost of the Title Policy (as hereinafter defined), (b) all documentary
transfer taxes and (c) one-half (1/2) of Escrow Holder's fees. Buyer shall
pay: (a) all recording fees and (b) one-half (1/2) of Escrow Holder's fees.
All other costs related to the transaction shall be paid by the parties in
the manner consistent with common practice in the County.
2.3 Closing Date. The Close of Escrow shall occur upon the
earlier of (a) ten (10) business days after Approval (as hereinafter
defined) of the Final Map (as hereinafter defined) for the Property, so
that the Final Map can be recorded immediately prior to the Close of Escrow
or (b) twelve (12) months after the opening of Escrow (the "Closing Date");
provided, however, if Buyer is unable to obtain the Final Map within twelve
(12) months after the opening of Escrow, Buyer shall have the option, in
its sole and absolute discretion, to (a) waive the condition that such
Approval of the Final Map shall have been obtained, and proceed to the
Close of Escrow or (b) elect to extend the Close of Escrow for up to two
(2) additional three (3) month periods (individually, an "Extension Period"
and collectively, the "Extension Periods"). If Buyer elects to extend the
Close of Escrow, Buyer shall, for each Extension Period, deliver written
notice of such election to Seller and Escrow Holder and deliver an
Additional Deposit to Escrow Holder as set forth in Paragraph 1.3(b).
3
2.4 Closing Deposits. The parties shall deposit the following
with Escrow Holder prior to the Close of Escrow:
(a) Buyer shall deposit the balance of the Purchase Price,
plus Buyer's escrow and other cash charges, in accordance with
Paragraphs 1.3 and 2.2 hereof.
(b) Seller shall deposit:
(i) the Grant Deed conveying fee title to the Property
subject only to the Permitted Exceptions (as hereinafter defined);
(ii) an affidavit or qualifying statement, which
satisfies the requirements of Section 1445 of the Internal Revenue Code of
1986, as amended, and the regulations thereunder (the "Non-Foreign
Affidavit"); and
(iii) an assignment and bill of sale of all of Seller's
right, title and interest in and to any and all entitlements and plans
pertaining to the Property, and any personal property comprising the
Property (the "Assignment"), in form attached hereto as Exhibit B.
(c) Seller and Buyer shall each deposit such other
instruments as are reasonably required by Escrow Holder or otherwise
required to proceed to the Close of Escrow and consummate the purchase and
sale of the Property in accordance with the terms of this Agreement.
2.5 Conditions to Closing. The parties' obligations to
consummate the purchase and sale transaction described herein on the
Closing Date are subject to and conditioned upon the following:
(a) Seller's obligation is subject to the following
conditions, any or all of which may be waived by Seller in its sole
discretion:
(i) Buyer's performance of its obligations described
in this Agreement;
(ii) Buyer's approval or waiver of the Feasibility
Matters on or before the time, and in the manner, described herein;
(iii) The non-occurrence of any breach of any
representation, warranty or covenant of Buyer hereunder; and
(iv) Buyer's approval or waiver of title pursuant to
Paragraph 3.1 hereof.
(b) Buyer's obligation is subject to the following
conditions, any or all of which may be waived by Buyer in its sole
discretion:
(i) Buyer's approval or waiver of the Feasibility
Matters on or before the time, and in the manner, described herein;
4
(ii) The Title Company (as hereinafter defined) being
obligated and committed to issuing the Title Policy;
(iii) Seller's performance of its obligations described
in this Agreement, on or before the times, and in the manner described
herein;
(iv) The non-occurrence of any breach of any
representation, warranty or covenant of Seller hereunder;
(v) Buyer's approval or waiver of the state of title
to the Property pursuant to Paragraph 3.1 hereof;
(vi) Approval of Final Map as required by this
Agreement; and
(vii) The non-occurrence of any moratorium, prohibition
or any other measure, rule, regulation or restriction, including, without
limitation, any moratorium on the provision of or hook-up to public
utilities, the effect of which would be to preclude any inspections, or the
issuance of any building or other permits, or construction, sale and
occupancy of single family homes on the Property as contemplated by Buyer.
(c) In the event that the conditions to a party's
obligation to consummate the purchase and sale of the Property are not
satisfied or waived or otherwise do not occur at the times or in the manner
described herein, and provided that such party is not in default with
respect to its obligations under this Agreement, then without limiting any
of its rights hereunder or at law or in equity, such party may terminate
the Escrow by delivering written notice of termination to the other party
and Escrow Holder specifying the condition or conditions not satisfied or
waived, and Escrow shall thereafter be terminated pursuant to Paragraph 2.7
hereof, unless, within three (3) business days of receipt of said notice,
the condition or conditions shall be satisfied or waived.
2.6 Closing.
(a) On the Closing Date, Escrow Holder shall (i) record the
Grant Deed in the Office of the County Recorder, (ii) pay any transfer
taxes, (iii) instruct the County Recorder to return said Grant Deed to
Buyer, (iv) distribute to Seller the Purchase Price, less Seller's escrow
and cash charges, if any, and (v) deliver to Buyer the Assignment and the
Title Policy covering the Property.
(b) Current non-delinquent real property taxes and
assessments shall be prorated as of the Close of Escrow on the basis of the
most recent tax information. Said prorations shall be based on a three
hundred sixty (360) day year.
(c) Upon the Close of Escrow, title to the Property shall
be conveyed to Buyer, subject only to the Permitted Exceptions.
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2.7 Failure to Close; Termination.
(a) If the Close of Escrow does not occur on the Closing
Date for any reason other than Seller's or Buyer's breach or default of its
respective obligations hereunder, or if this Agreement is terminated as
otherwise set forth herein, then the Escrow shall be automatically
terminated and of no force and effect, Buyer and Seller shall each pay one-
half (1/2) of any Escrow cancellation charges, and Escrow Holder shall,
with no further instructions from the parties hereto, (a) return to the
depositor thereof any funds (other than the Deposit) or documents
previously delivered to Escrow Holder and either (b) return the Deposit to
Buyer if the Agreement is terminated for any reason except as set forth in
Paragraph 5(b) hereof or (c) release the Deposit and all Additional
Deposits, if any, to Seller if the Agreement is terminated for the reasons
set forth in Paragraph 5(b) hereof.
(b) In the event of Buyer's material default or material
breach of this Agreement, this Agreement shall be terminated automatically
and the Deposit and all Additional Deposits, if any, shall constitute
liquidated damages as provided in Paragraph 7 hereof.
(c) In the event the Close of Escrow does not occur on the
Closing Date because of a breach of this Agreement by Seller, the Escrow
shall not be terminated automatically, but only upon Buyer's delivery to
Escrow Holder and Seller of written notice of termination, in which event
Escrow Holder shall return to Buyer the Deposit, all Additional Deposits,
if any, and all other sums deposited by Buyer, and Buyer shall be entitled
to pursue any and all remedies available to it against Seller, including,
without limitation, specific performance of this Agreement, and Buyer may
record a notice of pendency of action against the Property.
(d) In the event Close of Escrow does not occur because of
the default of one of the parties, the defaulting party shall bear the sole
and full liability for paying any escrow cancellation charges.
3. DUE DILIGENCE.
3.1 Title Report. Within fifteen (15) days after the execution
of this Agreement by the last of Buyer and Seller, Seller shall, at its
sole cost and expense, furnish Buyer with a Preliminary Title Report (the
"PTR") on the Property, issued by First American Title Company of Los
Angeles (the "Title Company"), together with legible copies of all
documents referenced therein as exceptions to title. Buyer shall provide
Seller written acknowledgment of receipt of the PTR promptly upon such
receipt. Buyer shall have fifteen (15) days after receipt of the PTR to
(a) review, in its sole and absolute discretion, any exceptions to title
appearing on the PTR or any of the underlying documents relating thereto
and (b) deliver to Seller and Escrow Holder written notice of Buyer's
approval or waiver of such exceptions to title (the "Title Notice") or,
alternatively, written notice of Buyer's disapproval. Failure by Buyer to
timely deliver written notice of its approval, waiver, or disapproval of
such exceptions to title shall be deemed disapproval thereof. All
exceptions to title disapproved, or deemed disapproved, by Buyer are
referred to herein as the "Disapproved Exceptions". Seller shall have ten
(10) days after receipt of Buyer's notice of disapproval or Buyer's deemed
6
disapproval to (a) cause the Disapproved Exceptions to be removed from
title or cause the Title Company to endorse over the Disapproved Exceptions
as of or before the Close of Escrow and (b) deliver to Buyer and Escrow
Holder written notice of those Disapproved Exceptions which have been or
will be removed on or before the Close of Escrow.
If, despite Seller's best efforts to remove or to cause the Title
Company to endorse over a Disapproved Exception (other than a monetary lien
or encumbrance, or claim to fee title or leasehold interest in or to the
Property, as to which Seller's obligation to remove or cause the Title
Company to endorse over is absolute and a failure to do so is a breach of
this Agreement), Seller is unable to do so, Buyer shall have the option,
within five (5) days after Buyer's receipt of Seller's notice, to (a)
terminate this Agreement by written notice to Seller and Escrow Holder or
(b) waive its objection to the Disapproved Exceptions in question by
delivering the Title Notice to Seller and Escrow Holder and proceed to the
Close of Escrow. If Buyer terminates this Agreement, then the parties
shall have no further obligation to one another, Escrow Holder shall
immediately return the Deposit to Buyer without additional instructions
from Seller, Buyer and Seller shall share any Escrow cancellation charges,
and the Escrow shall be terminated.
"Permitted Exceptions" shall mean all exceptions appearing on the
PTR which are: (i) standard printed exceptions in the Title Policy issued
by Title Company; (ii) general and special real property taxes and
assessments, a lien not yet due and payable; and (iii) any other liens,
easements, encumbrances, covenants, conditions and restrictions of record
approved, or waived if a Disapproved Exception, by Buyer pursuant to this
Paragraph 3.1. Any exceptions to title shown on any supplement to the PTR
that may be issued from time to time by the Title Company must be removed
by Seller at or prior to the Close of Escrow, or Seller shall cause the
Title Company to endorse over such exceptions at the Close of Escrow,
unless such exceptions are expressly approved by Buyer in writing or unless
such exceptions constitute Permitted Exceptions.
A. Title Policy. Buyer's obligation to proceed to the Close of
Escrow shall be conditioned upon the commitment by Title Company to issue a
CLTA owner's policy of title insurance (the "Title Policy"), dated as of
the Closing Date, in an amount equal to the Purchase Price, insuring fee
title to the Property vested in Buyer subject only to the Permitted
Exceptions. Buyer may elect to obtain an ALTA owner's policy of title
insurance provided Close of Escrow is not delayed thereby, and provided
further that Buyer shall be responsible for payment of all costs (including
survey costs) for such policy which exceed the cost of the CLTA owner's
title policy.
3.3 Investigation of the Property. Within five (5) days after
the opening of Escrow, Seller shall provide Buyer with complete copies of
all studies, reports, agreements, documents, plans, permits and
entitlements in Seller's possession, or readily obtainable by Seller,
concerning the Property and its improvement and development (the "Seller
Documents") and Seller shall instruct its engineers and outside consultants
to share any such Seller Documents with Buyer. Buyer and Buyer's
engineers, contractors, consultants and advisors shall have forty-five (45)
days from the opening of Escrow (the "Feasibility Period") to (a) review,
7
in its sole and absolute discretion, the suitability of the Property for
Buyer's use and development, including, without limitation, any
governmental land regulations, zoning ordinances, development costs,
financial and market feasibility, all covenant, conditions and restrictions
affecting the Property, and the physical condition of the Property,
including, without limitation, soil and geological assessments and a
general environmental assessment (the "Feasibility Matters") and (b)
deliver to Seller and Escrow Holder written notice of Buyer's approval or
waiver of the Feasibility Matters (the "Feasibility Notice") or,
alternatively, written notice of Buyer's disapproval. Failure by Buyer to
timely deliver written notice of its approval, waiver or disapproval of the
Feasibility Matters within the Feasibility Period shall be deemed
disapproval thereof. If Buyer disapproves of the Feasibility Matters, then
this Agreement shall terminate, the parties shall have no further
obligation to one another, Escrow Holder shall immediately return the
Deposit to Buyer without any additional instructions from Seller, Buyer and
Seller shall share any Escrow cancellation charges, and the Escrow shall be
terminated.
3.4 Access. From and after the date of this Agreement, Buyer,
its agents, assignees, employees, servants and nominees shall have the
right to enter the Property as and when Buyer deems necessary, upon
reasonable prior notice to Seller, for the purposes of conducting such
investigations, inspections and tests thereof as Buyer deems necessary in
order to determine the condition and suitability of the Property. Buyer
agrees to furnish Seller a list of Buyer's personnel, consultants and/or
agents who will be entering the Property, prior to any such entry. Buyer
hereby agrees to indemnify and hold Seller harmless from and against any
and all loss, expense, claim, damage and injury to person or property
resulting from the negligent acts of Buyer and its employees, consultants,
engineers, authorized agents and subcontractors on the Property in
connection with the performance of any investigation thereof as
contemplated herein, and Buyer agrees to repair promptly any damage to the
Property caused by Buyer's investigations so as to restore the Property to
the condition in which it would have been had Buyer not entered therein.
Regardless of whether Close of Escrow occurs, provided Seller is not in
default hereunder, Buyer shall provide to Seller copies of any and all non-
proprietary reports prepared by or on behalf of Buyer in connection with
its investigation of the Property (except for any reports or studies which
are protected by attorney-client privilege, or any proprietary material
produced by Buyer, including, without limitation, market studies, cost
studies and architectural house plans).
4. REPRESENTATIONS AND WARRANTIES.
4.1 Seller's Representations and Warranties. In addition to the
representations and warranties of Seller contained in other sections of
this Agreement, Seller hereby represents and warrants to Buyer as follows:
(a) Seller is a corporation duly formed, validly existing
and in good standing in the State of California, is the sole owner in fee
simple absolute of the Property and has the full right, capacity, power and
authority to enter into and carry out the terms of this Agreement. Each
individual executing this Agreement on behalf of Seller has the full right,
8
capacity, power and authority to enter into and carry out the terms of this
Agreement on behalf of Seller. Except as disclosed in the PTR, Seller has
not alienated, encumbered, transferred, leased, assigned or otherwise
conveyed any interest in the Property or any portion thereof, nor entered
into any agreement to do so, nor shall Seller do so prior to the Close of
Escrow. The entering into and performance by Seller of the transactions
contemplated by this Agreement will not violate or breach any other
agreement, covenant or obligation binding on Seller. No consent is
required from any third party before entering into this Agreement or before
the Property may be conveyed to Buyer. This Agreement has been duly
authorized and executed by Seller, and upon delivery to and execution by
Buyer shall be a valid and binding agreement of Seller.
(b) No mechanic's or materialman's liens or similar claims
or liens have been asserted against the Property for work performed or
commenced prior to the date hereof which liens or claims presently or in
the future may affect the Property. Seller shall timely satisfy and
discharge any and all obligations relating to work performed on or
conducted at or materials delivered to the Property from time to time in
order to prevent the filing of any claim or mechanic's lien with respect
thereto.
(c) The Property is not in violation, nor to the best of
Seller's knowledge, has been, nor is currently under investigation for
violation of any federal, state or local law, ordinance or regulation
relating to industrial hygiene, worker health and safety, or to the
environmental conditions in, at, on, under or about the Property including,
but not limited to, soil and groundwater conditions; the Property has not
been subject to, and to the best of Seller's knowledge, is not within 2,000
feet of, a deposit of any Hazardous Substance; neither Seller nor any third
party has used, generated, manufactured, stored or disposed in, at, on,
under or about the Property or transported to or from the Property any
Hazardous Substance; there is not now, nor, to the best of Seller's
knowledge, has there been any discharge, migration or release of any
Hazardous Substance from, into, on, under or about the Property; and there
is not now, nor, to the best of Seller's knowledge, has there ever been on
or in the Property underground storage tanks or surface impoundments, any
asbestos-containing materials or any polychlorinated biphenyls used in
hydraulic oils, electrical transformers or other equipment or otherwise.
Seller hereby assigns to Buyer as of the Close of Escrow all claims,
counterclaims, defenses or actions, whether at common law, or pursuant to
any other applicable federal or state or other laws which Seller may have
against any third parties relating to the existence of any Hazardous
Substance in, at, on, under or about the Property. For purposes of this
Agreement, the term "Hazardous Substance" shall be defined as set forth on
Exhibit C attached hereto.
(d) Seller has no knowledge or notice that any endangered
or threatened species, whether so designated by the federal or State
government, or protected natural habitat, flora or fauna are located on the
Property, or that any areas of the Property are or could be designated as
wetlands.
9
(e) There is no suit, action or arbitration, or legal,
administrative, or other proceeding or governmental investigation, formal
or informal, including but not limited to eminent domain, condemnation,
assessment district or zoning change proceeding, pending or, to the best of
Seller's knowledge, threatened, or any judgment, moratorium or other
government policy or practice which affect the Property or Buyer's
anticipated development of the Property, or which would or could adversely
affect Seller's ability to perform hereunder, nor does Seller know of any
fact which might give rise to any such action, investigation or proceeding.
(f) Seller has no knowledge of any seismic safety problems
relating to the Property, any recent seismic activity affecting the
Property or any active fault bisecting, underlying or adjacent to the
Property.
(g) Seller has not made any commitment or representation to
any government authority, or any adjoining or surrounding property owner,
which would in any way be binding on Buyer or would interfere with Buyer's
ability to develop and improve the Property as a residential development,
and will not make any such commitment or representation which would affect
the Property or any portion thereof prior to the Close of Escrow, without
Buyer's written consent.
(h) Neither Seller nor any entity or person that directly
or indirectly owns or controls Seller is bankrupt or insolvent under any
applicable Federal or state standard, or has filed for protection or relief
under any applicable bankruptcy or creditor protection statute or has been
threatened by creditors with an involuntary application of any applicable
bankruptcy or creditor protection statute. Seller is not entering into the
transactions described in this Agreement with an intent to defraud any
creditor or to prefer the rights of one creditor over any other. Seller
and Buyer have negotiated this Agreement at arms-length and the
consideration to be paid represents fair value for the assets to be
transferred.
(i) Each of the representations made by Seller in this
Agreement, or in any Exhibit, or on any document or instrument delivered
pursuant hereto shall be true and correct on the date hereof, shall be
deemed to be made again as of the Close of Escrow and shall then be true
and correct in all respects, and shall survive the Close of Escrow for a
period of three (3) years. If prior to Close of Escrow Buyer learns that
any of Seller's representations herein are untrue or materially misleading,
Buyer shall inform Seller thereof, and Seller shall have fifteen (15) days
to cure such default, if such default is capable of being cured. If Buyer
nevertheless elects to close Escrow with the knowledge that a
representation of Seller herein is untrue or materially misleading, Buyer
shall be deemed to have waived such default. The truth and accuracy of
each of the representations, and the performance of all covenants of Seller
contained in this Agreement, are conditions precedent to the Close of
Escrow.
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4.2 Buyer's Representations and Warranties. Buyer represents
and warrants that it is a corporation duly organized, validly existing and
in good standing in the State of California, and has the capacity and full
power and authority to enter into and carry out the agreements contained
in, and the transactions contemplated by, this Agreement, and that this
Agreement has been duly authorized and executed by Buyer and, upon delivery
to and execution by Seller, shall be a valid and binding agreement of
Buyer.
5. ACQUISITION OF APPROVALS AND PERMITS.
(a) Buyer shall have the right, at its sole cost and
expense, to process all applications, plans, maps, agreements, documents,
and other instruments necessary or appropriate to subdivide and develop the
Property as contemplated by Buyer. Buyer shall regularly apprise Seller of
the status of Buyer's processing and seeking of Entitlements. If Buyer
elects to terminate this Agreement, Seller shall retain all rights to the
entitlement work product generated by Buyer, including all engineering and
infrastructure plans; provided, however, Seller shall not have the right to
obtain any proprietary material produced by Buyer, including, without
limitation, market studies, cost studies, and architectural house plans.
(b) After delivery of the Title Notice and the Feasibility
Notice, Buyer shall, at its sole cost and expense, attempt in good faith,
and in a prompt and diligent manner, to obtain approval from the City and
other appropriate governmental agencies of all necessary entitlements to
subdivide and develop the Property as contemplated by Buyer (the
"Entitlements"), including, without limitation, Approval of a zone change,
general plan amendment, specific plan, tentative subdivision map (the
"Tentative Map") and final subdivision map (the "Final Map") subdividing
the Property in form, shape and substance suitable to Buyer, in its sole
and absolute discretion. Seller shall and shall cause its affiliates and
lenders and any other persons with an interest in the Property to cooperate
with Buyer in connection with Buyer's processing of and seeking
Entitlements, including without limitation, executing any maps,
applications, permits, filings or other documents which Buyer deems
necessary or appropriate within three (3) days after Buyer's request. If
Buyer determines at any time, after the delivery of the Title Notice and
Feasibility Notice, in its sole and absolute discretion prior to the date
twelve (12) months after opening of Escrow (as it may be extended pursuant
to Paragraph 2.3 hereof), that Buyer will be unable to obtain the
Entitlements, Buyer shall have the right to terminate Escrow, and if Buyer
so terminates Escrow, Buyer and Seller shall share any Escrow cancellation
charges, the Escrow shall be terminated and Escrow Holder shall immediately
release the Deposit and all Additional Deposits, if any, to Seller, and
Seller's receipt and retention of the Deposit and all Additional Deposits,
if any, shall be Seller's sole and exclusive remedy and right in the event
of such termination by Buyer. As used herein, "Approval" shall mean as to
any approval or authorization given by an appropriate government agency or
entity, final approval that cannot be appealed, or if appealed, that the
government authority to which such appeal has been made has affirmed the
prior, appealed decision without any additional conditions imposed thereon,
and no further right of appeal exists.
11
6. CONDEMNATION; CASUALTY.
6.1 Condemnation. If prior to the Close of Escrow, any portion
of the Property is subject to an actual or threatened taking by any entity
by condemnation or with the power of eminent domain, or if the access
thereto is reduced or restricted thereby (or is the subject of a pending
taking which has not yet been consummated) (collectively, "Condemnation"),
Seller shall immediately notify Buyer of such fact. In such event Buyer
shall have the right, in its sole discretion upon written notice to Seller
and Escrow Holder not later than seven (7) days after receipt of Seller's
written notice, to terminate this Agreement and the Escrow. In the case of
any such termination, the parties shall have the rights and obligations set
forth in Paragraph 2.7(a) hereof. Alternatively, the Agreement shall, at
Buyer's sole election, remain in effect. Thereafter, upon the Close of
Escrow, if awards have previously been made in connection with the
Condemnation, the Purchase Price shall be reduced by an amount equal to the
total amount of such award. If, as of the Close of Escrow, no award has
yet been made in connection with the Condemnation, Seller shall assign and
turn over to Buyer, and Buyer shall be entitled to receive and keep, any
and all such awards.
6.2 Damage or Destruction. Prior to the Close of Escrow the
entire risk of loss of damage by earthquake, flood, landslide, fire or
other casualty is borne and assumed by Seller. If, prior to the Close of
Escrow, any part of the Property is damaged or destroyed by earthquake,
flood, landslide, fire or other casualty, Seller shall promptly inform
Buyer of such fact in writing and advise Buyer as to the extent of the
damage. In such event Buyer shall have the right, in its sole discretion
upon written notice to Seller and Escrow Holder, not later than seven (7)
days after receipt of Seller's written notice, to terminate this Agreement
and the Escrow. In the case of any such termination, the parties shall
have the rights and obligations set forth in Paragraph 2.7(a) hereof.
Alternatively, the Agreement shall, at Buyer's sole election, remain in
effect, except that the Purchase Price shall be reduced by the value
reasonably allocated by Buyer and Seller to the damaged portion of the
Property, and this transaction shall close pursuant to the terms of this
Agreement. If Buyer and Seller do not agree on a reduced Purchase Price,
Buyer's sole remedy shall be to terminate this Agreement and the parties
shall have the rights and obligations set forth in Paragraph 2.7(a) hereof.
7. LIQUIDATED DAMAGES.
BUYER AND SELLER EACH AGREE THAT IN THE EVENT OF A MATERIAL DEFAULT OR
MATERIAL BREACH HEREUNDER BY BUYER, THE DAMAGES TO SELLER WOULD BE
EXTREMELY DIFFICULT AND IMPRACTICABLE TO ASCERTAIN, AND THAT THEREFORE, IN
THE EVENT OF A MATERIAL DEFAULT OR MATERIAL BREACH BY BUYER, WHICH DEFAULT
OR BREACH IS NOT CURED WITHIN FIVE (5) DAYS AFTER WRITTEN NOTICE IS GIVEN
BY SELLER TO BUYER, THE INITIAL DEPOSIT, AND THE ADDITIONAL DEPOSIT(S) (IF
ANY) SHALL SERVE AS LIQUIDATED DAMAGES FOR SUCH BREACH OR DEFAULT BY BUYER,
AS A REASONABLE ESTIMATE OF THE DAMAGES TO SELLER, INCLUDING COSTS OF
NEGOTIATING THIS AGREEMENT, COSTS OF COOPERATING IN SATISFYING CONDITIONS
TO CLOSING, COSTS OF SEEKING ANOTHER BUYER, OPPORTUNITY COSTS IN KEEPING
THE PROPERTY OUT OF THE MARKETPLACE, AND OTHER COSTS INCURRED IN CONNECTION
HEREWITH. RETENTION OF THE INITIAL DEPOSIT AND THE ADDITIONAL DEPOSIT(S)
12
(IF ANY) SHALL BE SELLER'S SOLE AND EXCLUSIVE REMEDY AGAINST BUYER IN THE
EVENT OF A MATERIAL DEFAULT OR MATERIAL BREACH BY BUYER, AND SELLER WAIVES
ANY AND ALL RIGHT TO SPECIFIC PERFORMANCE.
Seller's Initials: /s/ CBM Buyer's Initials: /s/ MLB
-------- --------
8. BROKERS.
Seller has been represented in connection with this agreement by
John Minervini of Cushman and Wakefield ("Minervini"), and Buyer has been
represented in connection with this transaction by Bill Toth of Grubb and
Ellis ("Toth"). Seller shall pay all brokerage fees or commission payable
to Minervini and, in accordance with a separate agreement between Minervini
and Toth, Minervini shall pay a brokerage commission to Toth, as well as
any other commission payable any broker or agent with whom Minervini has
dealt. Seller and Buyer each represents and warrants to the other that it
has not dealt with or been represented by any brokers or finders in
connection with the purchase and sale of the Property other than Minervini
and Toth. Buyer and Seller each agree to indemnify and hold harmless the
other against any loss, liability, damage, cost, claim or expense
(including reasonable attorneys' fees) incurred by reason of any brokerage
fee, commission or finder's fee which is payable or alleged to be payable
to any broker or finder by the indemnifying party. The representations,
warranties, indemnities and agreements contained in this Paragraph 8 shall
survive Close of Escrow or earlier termination of this Agreement.
9. GENERAL PROVISIONS.
9.1 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which,
taken together, shall constitute one and the same instrument.
9.2 Further Assurances. Each of the parties agrees to execute
and deliver such other instruments and perform such acts, in addition to
the matters herein specified, as may be appropriate or necessary to
effectuate the agreements of the parties, whether the same occurs before or
after the Close of Escrow.
9.3 Entire Agreement. This Agreement, together with all
Exhibits hereto and documents referred to herein, if any, constitute the
entire agreement among the parties hereto with respect to the subject
matter hereof, and supersede all prior understandings or agreements. This
Agreement may be modified only by a writing signed by both parties. All
exhibits to which reference is made in this Agreement are deemed
incorporated in this Agreement whether or not actually attached.
9.4 Headings. Headings used in this Agreement are for
convenience of reference only and are not intended to govern, limit, or
aide in the construction of any term or provision hereof.
9.5 Choice of Law. This Agreement and each and every related
document are to be governed by, and construed in accordance with, the laws
of the State of California.
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9.6 Severability. If any term, covenant, condition or provision
of this Agreement, or the application thereof to any person or
circumstance, shall to any extent be held by a court of competent
jurisdiction or rendered by the adoption of a statute by the State of
California or the United States invalid, void or unenforceable, the
remainder of the terms, covenants, conditions or provisions of this
Agreement, or the application thereof to any person or circumstance, shall
remain in full force and effect and shall in no way be affected, impaired
or invalidated thereby.
9.7 Waiver of Covenants, Conditions or Remedies. The waiver by
one party of the performance of any covenant, condition or promise, or of
the time for performing any act, under this Agreement shall not invalidate
this Agreement nor shall it be considered a waiver by such party of any
other covenant, condition or promise, or of the time for performing any
other act required, under this Agreement. The exercise of any remedy
provided in this Agreement shall not be a waiver of any remedy provided by
law, and the provisions of this Agreement for any remedy shall not exclude
any other remedies unless they are expressly excluded.
9.8 Legal Advice. Each party has received independent legal
advice from its attorneys with respect to the advisability of executing
this Agreement and the meaning of the provisions hereof. The provisions of
this Agreement shall be construed as to the fair meaning and not for or
against any party based upon any attribution of such party as the sole
source of the language in question.
9.9 Time of the Essence. Time shall be of the essence as to all
dates and times of performance, whether they are contained herein or
contained in any escrow instructions to be executed pursuant to this
Agreement, and all escrow instructions shall contain a provision to this
effect. Unless business days are expressly provided for, all references to
"days" herein shall refer to consecutive calendar days. If any day on or
by which an action is to be taken or a notice shall be delivered or any
other date or time period provided for in this Agreement is or ends on a
Saturday, Sunday or federal, state or legal holiday, then such date shall
automatically be extended to the next day which is not a Saturday, Sunday
or federal, state or legal holiday.
9.10 Relationship of Parties. The parties agree that their
relationship is that of seller and buyer, and that nothing contained herein
shall constitute either party, the agent or legal representative of the
other for any purpose whatsoever, nor shall this Agreement be deemed to
create any form of business organization between the parties hereto, nor is
either party granted the right or authority to assume or create any
obligation or responsibility on behalf of the other party, nor shall either
party be in any way liable for any debt of the other.
9.11 Attorneys' Fees. In the event that any party hereto
institutes an action or proceeding for a declaration of the rights of the
parties under this Agreement, for injunctive relief, for an alleged breach
or default of, or any other action arising out of, this Agreement, or the
transactions contemplated hereby, or in the event any party is in default
of its obligations pursuant thereto, whether or not suit is filed or
prosecuted to final judgment, the non-defaulting party or prevailing party
14
shall be entitled to its actual attorneys' fees and to any court costs
incurred, in addition to any other damages or relief awarded.
9.12 Assignment. The parties hereto may not assign their
respective rights or delegate their respective obligations hereunder
without the prior written consent of the other, which consent shall not be
unreasonably withheld or delayed. Notwithstanding the foregoing, Buyer may
assign this Agreement and its rights and obligations hereunder without
obtaining Seller's prior written consent to any corporate or partnership
entity which (a) is controlled by or is a subsidiary of Kaufman and Broad
Home Corporation, a Delaware corporation ("KBHC"); (b) controls or is
controlled by Buyer or (c) results from the merger or consolidation with
Buyer or KBHC. Upon any such assignment by Buyer, Buyer shall have no
further obligations with respect to this Agreement. In any event, this
Agreement shall be binding upon and shall inure to the benefit of the
successors and permitted assigns of the parties to this Agreement.
9.13 Notices. All notices and demands which either party is
required or desires to give to the other shall be given in writing by
certified mail, return receipt requested with appropriate postage paid, by
personal delivery, by facsimile or by private overnight courier service to
the address or facsimile number set forth below for the respective party,
provided that if any party gives notice of a change of name or address or
number, notices to that party shall thereafter be given as demanded in that
notice. All notices and demands so given shall be effective upon receipt
by the party to whom notice or demand is being given, or upon the second
attempt except that any notice given by certified mail shall be deemed
delivered five (5) days after deposit in the United States mails.
If to Seller: Via Verde Development Company
c/o Hondo Oil and Gas Company
410 East College
Roswell, New Mexico 88201
Attention: C. B. McDaniel, Esq.
Facsimile: (505) 625-6829
If to Buyer: Kaufman and Broad--Coastal Valleys, Inc.
21900 Burbank Boulevard, Suite 300
Woodland Hills, California 91367
Attention: Mark Beisswanger
Telephone: (818) 887-5599
Telecopy No.: (818) 704-7713
With a copy
to: Kaufman and Broad Home Corporation
10877 Wilshire Boulevard
Los Angeles, California 90024
Attention: Jacqueline Boggs, Esq.
Facsimile No.: (310) 443-8098
15
If to
Escrow Holder: First American Title Insurance Company
520 North Central Avenue
Glendale, California 91203
Attention: Tricia Pewthers
Telephone: (818) 242-5800
Telecopy No.: (818) 242-2507
B. Joinder. Hondo Oil & Gas Company ("Hondo"), the parent
company of Seller, shall and does execute this Agreement for the purpose of
joining in the representations and warranties of Seller hereunder and the
covenants of Seller contained in Paragraph 1.4 hereof and such
representations and warranties and covenants shall be deemed jointly and
severally made by Seller and Hondo for all purposes.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
SELLER:
Via Verde Development Company,
a California corporation
By: /s/ C. B. McDaniel
-------------------------
Its: Secretary
Hondo Oil & Gas Company,
a Delaware corporation
By: /s/ C.B. McDaniel
-------------------------
Its: Secretary and Counsel
BUYER:
Kaufman and Broad-Coastal Valleys,
Inc., a California corporation
By: /s/ Mark Beisswanger
-------------------------
Its: President
16
SUBSIDIARIES OF THE COMPANY
State/Country
Name* of
Incorporation
----- ---------------
-
Hondo Magdalena Oil & Gas Limited Jersey/UK
Mackenzie Porcupine Pipeline Company Delaware
Newhall Refining Co., Inc. Delaware
Pauley Pacific Inc. Delaware
Pauley Transportation Delaware
Red-E-Crete, Inc. California
The Anderson Company New Mexico
Via Verde Development Company California
* None of the Company's subsidiaries use trade or other names
under which the do business.
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
on Form S-3, File No. 33-52496, as amended on October 25,1994, of Hondo Oil
and Gas Company and in the related Prospectus of our report dated November
9, 1994, with respect to the consolidated financial statements and
schedules of Hondo Oil & Gas Company included in the Annual Report on Form
10-K for the year ended September 30, 1994.
We also consent to the incorporation by reference in the Registration
Statements on Form S-8 pertaining to the Pauley Petroleum Inc. 1982 Stock
Option Plan, as amended and restated March 15, 1988, and the 1993 Stock
Incentive Plan of Hondo Oil & Gas Company (formerly Pauley Petroleum Inc.)
of our report dated November 9, 1994, with respect to the consolidated
financial statements and schedules of Hondo Oil & Gas Company included in
the Annual Report on Form 10-K for the year ended September 30, 1994.
/s/ ERNST & YOUNG LLP
Denver, Colorado
December 28, 1994
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial
information extracted from Hondo Oil & Gas
Company's Form 10-K for the period identified
below. This information is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-END> SEP-30-1994
<PERIOD-TYPE> YEAR
<CASH> 1,141
<SECURITIES> 0
<RECEIVABLES> 5,876
<ALLOWANCES> 399
<INVENTORY> 0
<CURRENT-ASSETS> 6,651
<PP&E> 10,855
<DEPRECIATION> 0
<TOTAL-ASSETS> 24,908
<CURRENT-LIABILITIES> 4,238
<BONDS> 81,888
0
0
<COMMON> 13,032
<OTHER-SE> (79,713)
<TOTAL-LIABILITY-AND-EQUITY> 24,908
<SALES> 369
<TOTAL-REVENUES> 728
<CGS> 0
<TOTAL-COSTS> 668
<OTHER-EXPENSES> 3,672
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,605
<INCOME-PRETAX> (8,217)
<INCOME-TAX> (199)
<INCOME-CONTINUING> (8,018)
<DISCONTINUED> (3,038)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,056)
<EPS-PRIMARY> (0.85)
<EPS-DILUTED> (0.85)
</TABLE>
