As Filed with the Securities and Exchange Commission on January 10, 1997
Registration No. 33-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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PEASE OIL AND GAS COMPANY
(Name of registrant as specified in its charter)
Nevada
(State or other jurisdiction of incorporation or organization)
87-0285520
(I.R.S. Employer Identification No.)
751 Horizon Court, Suite 203
P.O. Box 60219
Grand Junction, Colorado 81506-8758
(970) 245-5917
(Address, including zip code, and telephone number,
including area code, of registrant's principal
executive offices)
Willard H. Pease, Jr.
751 Horizon Court, Suite 203
P.O. Box 60219
Grand Junction, Colorado 81506-8758
(970) 245-5917
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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With Copies to:
Alan W. Peryam, Esq.
1610 Wynkoop Street, Suite 200
Denver, Colorado 80202
(303) 892-6123
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Amount to be Offering Price Aggregate Registration
Securities To Be Registered(3) Registered Per Share Offering Price Fee
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<S> <C> <C> <C> <C> <C> <C>
Common Stock............................ 5,781,660 Shares(1) $ 2.7344(2) $ 15,809,371(2)4 $4,790.72(2)
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(1) Includes 1,666,000 shares of Common Stock into which currently
outstanding convertible debentures are convertible which were issued
in a private placement; 2,500,000 shares of Common Stock underlying
Common Stock Purchase Warrants which are exercisable at $1.25 per
share and were issued in a private placement; 223,500 shares of Common
Stock underlying Common Stock Purchase Warrants exercisable at $2.00
per share which were issued in a private placement; 1,040,000 shares
of Common Stock underlying Common Stock Purchase Warrants exercisable
at $0.75 per share which were issued under consulting arrangements;
315,000 shares of Common Stock issued in a private placement in
connection with the acquisition of an oil and gas interest under a
Purchase and Sale Agreement dated December 31, 1996; and 36,500 shares
of Common Stock held by five employees and a consultant which were
granted for past services to the Company.
(2) The registration fee was calculated in accordance with Rule 457 (c)
and (g)(1) and is based on the average of the high and low prices of
Registrant's Common Stock, as reported on the NASDAQ Small-Cap Market
on January 7, 1997.
(3) In accordance with Rule 416, there are hereby being registered an
indeterminate number of additional shares of Common Stock which may be
issued as a result of the anti-dilution provisions of the Warrants and
Convertible Debentures or as a result of any future stock split or
stock dividend.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
(ii)
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SUBJECT TO COMPLETION DATED JANUARY 10, 1997
PROSPECTUS
PEASE OIL AND GAS COMPANY
5,781,660 Shares of Common Stock
This Prospectus relates to the resale by the holders (the "Selling
Securityholders") named herein of, or the exercise or conversion of other
securities of Pease Oil and Gas Company ("Company") for, up to 5,781,660 shares
of the $0.10 par value common stock ("Common Stock") of the Company, which are
either currently issued and outstanding, or which are issuable upon conversion
of outstanding convertible debentures ("Convertible Debentures") or the exercise
of warrants ("Warrants") to purchase shares of Common Stock, which Warrants and
Convertible Debentures are currently outstanding. The shares of Common Stock
being offered for resale includes 1,666,000 shares of Common Stock into which
currently outstanding convertible debentures are convertible which were issued
in a private placement; 2,500,000 shares of Common Stock underlying Common Stock
Purchase Warrants which are exercisable at $1.25 per share and were issued in a
private placement; 223,500 shares of Common Stock underlying Common Stock
Purchase Warrants exercisable at $2.00 per share which were issued in a private
placement; 1,040,000 shares of Common Stock underlying Common Stock Purchase
Warrants exercisable at $0.75 per share which were issued under consulting
Agreements dated March 9, 1996; 315,000 shares of Common Stock issued in a
private placement in connection with the acquisition of an oil and gas interest
under a Purchase and Sale Agreement dated December 31, 1996; and 36,500 shares
of Common Stock held by five employees and a consultant which were granted for
past services to the Company. See "Selling Securityholders."
The Company will not receive any proceeds from the sale of shares by the
Selling Securityholders and will not receive any proceeds upon the conversion of
the Convertible Debentures which are convertible without payment of additional
consideration into Common Stock. If all of the Warrants are exercised, of which
there is no assurance, the Company will receive proceeds of up to approximately
$4,352,000. There is no assurance that all or any portion of the Warrants will
be exercised. However, the holders of the Warrants will have to exercise the
Warrants in order to sell the shares of Common Stock offered for resale hereby
by holders of Warrants.
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FOR INFORMATION CONCERNING CERTAIN FACTORS WHICH SHOULD BE CONSIDERED
BY PURCHASERS OF THE COMMON STOCK OFFERED HEREBY AND BY PERSONS WHO CONVERT
THEIR PREFERRED STOCK OR CONVERTIBLE DEBENTURES OR WHO EXERCISE WARRANTS, SEE
"RISK FACTORS" COMMENCING ON PAGE 4 OF THIS PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is January __, 1997
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"), and in accordance with the Exchange
Act files periodic reports and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and other
information filed by the Company with the Commission can be inspected and copied
(at prescribed rates) at the Commission's Public Reference Section, Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Regional Offices of the Commission located at Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade
Center, 13th Floor, New York, New York 10048. The commission maintains a Web
site at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding the Company. In addition, reports,
proxy statements and other information concerning the Company can be inspected
and copied at the office of the National Association of Securities Dealers,
Inc., 9513 Key West Avenue, Rockville, Maryland 20850-3389.
The Company has filed with the Commission a registration statement (the
"Registration Statement") under the Securities Act of 1933 (the "Securities
Act") with respect to the Common Stock offered hereby. This Prospectus, which is
part of the Registration Statement, does not contain all the information set
forth in the Registration Statement and the exhibits and schedules thereto,
certain items of which are omitted in accordance with the rules and regulations
of the Commission. For further information with respect to the Company and the
Common Stock, reference is hereby made to the Registration Statement and such
exhibits and schedules.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated in this Prospectus by reference.
(a) Annual Report on Form 10-KSB for the year ended December 31, 1995 (the
"Annual Report on Form 10-KSB"); and
(b) Quarterly Report on Form 10-QSB for the Quarter ended September 30,
1996 (the "Third Quarter Report").
All documents filed after December 31, 1996, by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination
of the Offering shall be deemed to be incorporated by reference into this
Prospectus.
Any statement contained in the above-referenced documents shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent that
a statement contained in this Prospectus modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
Copies of any documents or portions of such other documents incorporated in
this Prospectus, not including exhibits to the information that is incorporated
by reference, unless such exhibits are specifically incorporated by reference in
this Prospectus, may be obtained at no charge by any person (including any
beneficial owner) to whom this Prospectus is delivered by a written or oral
request to Patrick J. Duncan, Corporate Secretary, 751 Horizon Court, P.O. Box
60219, Grand Junction, Colorado 81506-8758, telephone (970) 245-5917.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and related notes appearing elsewhere in
this Prospectus or contained in other reports and documents of the Company which
are incorporated by reference in this Prospectus.
The Company
Pease Oil and Gas Company ("Company"), a Nevada corporation, has been
engaged in the oil and gas exploration, development and production business
since 1972. The Company's operations have been conducted primarily in Colorado,
Nebraska, Utah and Wyoming. In late 1996, the Company acquired interests in
producing oil and gas properties in Louisiana and intends to focus substantial
efforts on the Gulf Coast area of the southeastern United States.
The Company's business strategy is to expand its reserve base and cash flow
primarily through:
o Raising significant capital to take advantage of leading edge technologies
such as horizontal drilling and 3-D seismic exploration projects;
o Positioning itself with strategic sources of capital and partners that can
react to opportunities in the oil and gas business when they present
themselves;
o Developing alliances with major oil and gas finders that have been trained
by the major oil companies;
o Participating in projects that have opportunities involving relatively
small amounts of capital that could potentially generate significant rates
of return. These projects include areas with large field potentials in the
Rocky Mountains, Transition Zone Louisiana, and the Gulf of Mexico;
o Implementing the Company's investment strategy to carefully consider,
analyze, and exploit the potential value of the Company's existing assets
to increase the rate of return to its shareholders;
o Reinvesting operating cash flows into development drilling and recompletion
activities;
o Expanding the Company's operations outside the D-J Basin;
o Continuing the implementation of asset rationalization and operating
efficiencies designed to improve operating margins and lower per unit
operating cost;
o Acquiring properties that build upon and enhance the Company's existing
asset base;
o Developing a long term track record regarding stock price performance and a
reasonable rate of return to the shareholder.
As of December 31, 1996, the Company had varying ownership interests in 151
gross productive wells (133 net) located in four states. The Company operates
143 of the wells (132 net wells), with the other wells being operated by
independent operators under contracts that are standard in the industry.
In 1995, the Company restructured its operations by substantially
downsizing its oil field service and supply store operations as well as closing
its administrative office in Denver, Colorado. In the restructuring, the Company
terminated 40 of 71 employees.
Beginning in December 1994, the Board of Directors of the Company voted not
to declare the quarterly dividend and to suspend indefinitely the payment of
future dividends on the Company's outstanding Series A Cumulative Preferred
Stock ("Preferred Stock"). Dividends accrue on the outstanding Preferred Stock
on a monthly basis. At December 31, 1996 there were outstanding 179,938 shares
of Preferred Stock.
Pursuant to the Company's Articles of Incorporation, the Preferred
Stockholders elected two directors to the Company's Board of Directors at the
Company's annual meeting in August 1996. Holders of outstanding shares of
Preferred Stock shall have the right to elect two directors so long as there are
accrued unpaid dividends outstanding. As of December 31, 1996, there were
$404,861 in dividends in arrears, or $2.25 per share.
The Company's address is 751 Horizon Court, Suite 203, Grand Junction,
Colorado 81506-8718 and its telephone number is (970) 245-5917.
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RISK FACTORS
Company's Continuing Losses and Financial Condition. As described in the
financial statements contained in the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1995 and the Third Quarter Report, the
Company has sustained operating losses during each of the last five fiscal years
and for the nine months ended September 30, 1996. The Company had net losses of
approximately $1,707,000, $765,000 and $510,000 for the fiscal years ended
December 31, 1994, 1995 and the nine months ended September 30, 1996,
respectively, and net losses applicable to common shares of $2,865,000,
$2,609,000 and $662,000 for fiscal years 1994, 1995 and for the nine months
ended September 30, 1996, respectively. Although the Company's current assets
and the estimated present value of the Company's oil and gas reserves exceeded
the Company's liabilities by $8.58 million as of December 31, 1995, there can be
no assurance that the Company can produce the oil and gas reserves or otherwise
liquidate those assets during the times or at the prices assumed in valuing
those reserves. In addition, no assurance can be made that the Company will
generate cash flows from operations or operate profitably in the future as an
oil and gas exploration, development and production company. Any likelihood of
future profitability of the Company must be considered in light of the problems,
expenses, difficulties, complications and delays frequently encountered in
connection with the oil and natural gas exploration, development and production
business in which the Company will be engaged.
Need for Additional Capital. The Company's ability to complete its planned
drilling and development programs which is intended to expand its reserve base
and diversify its operations, is dependent upon the Company's ability to obtain
the necessary capital. The Company's cash flow and borrowing capacity, together
with any proceeds from this offering, will not be sufficient for the Company to
complete its planned drilling and development programs. Additional sources of
financing will be needed and there can be no assurance that additional sources
of financing will be available at all or at a reasonable cost. See "Management's
Discussion and Analysis" in Third Quarter Report.
Development Risks and Production. A portion of the Company's oil and gas
reserves are proved undeveloped reserves. Successful development and production
of such reserves, although they are categorized as "proved," cannot be assured.
Additional drilling will be necessary in future years both to maintain
production levels and to define the extent and recoverability of existing
reserves. There is no assurance that present oil and gas wells of the Company
will continue to produce at current or anticipated rates of production, that
development drilling will be successful, that production of oil and gas will
commence when expected, that there will be favorable markets for oil and gas
which may be produced in the future or that production rates achieved in early
periods can be maintained.
Convertible Debenture Repayment Priority. As of December 31, 1996, the
Company's obligations under the Convertible Debentures, in the principal amount
of $5,000,000, together with interest thereon, is secured by a first priority
security interest in substantially all of the Company's oil and gas reserves in
Larimer and Weld Counties, Colorado, which reserves totaled approximately 50% of
all the Company's reserves at December 31, 1995. If the Company's obligations
under the Convertible Debentures are ever declared immediately due and payable,
the holders of the Convertible Debentures would have a first lien on the
Company's major assets and might sell a significant portion of the assets to
repay the Convertible Debentures.
Price Volatility. The revenues generated by the Company and estimated
future net revenue are highly dependent upon the prices of oil, natural gas and
natural gas liquids. The energy market makes it difficult to estimate future
prices of oil, natural gas and natural gas liquids. For instance, the price of
oil dropped from approximately $18.00 per barrel as of December 31, 1992, to
less than $12.00 per barrel as of December 31, 1993. The Company's average
collected price for oil in 1994 was $15.94 per barrel and for natural gas was
$1.36 per thousand cubic feet ("mcf"), for 1995 was $16.77 and $1.18,
respectively and through November 1996, $19.81 and $1.15, respectively. On
December 31, 1996, the posted price for oil and natural gas in the Company's
producing areas was approximately $25 per barrel for oil and for natural gas was
approximately $3.50 per mcf. The reserve valuations shown in the Company's
Annual Report on Form 10-KSB are based on the December 31, 1995 prices of $17.66
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per barrel of oil and $1.71 per mcf of natural gas. Various factors beyond the
control of the Company affect prices of oil and natural gas, including worldwide
and domestic supplies of, and demand for, oil and natural gas, the ability of
the members of the Organization of Petroleum Exporting Countries ("OPEC") to
agree to and maintain oil price and production controls, political instability
or armed conflict in oil-producing regions, the price of foreign imports, the
level of consumer demand, the price and availability of alternative fuels, the
availability of pipeline capacity and changes in existing federal regulation and
price controls. As in the past, it is likely that oil and gas prices will
continue to fluctuate in the future which may adversely affect the Company's
business.
Limitations on Accuracy of Reserve Estimates and Future Net Revenue. This
Prospectus contains estimates of the Company's oil and gas reserves and the
future net revenue therefrom which have been prepared by independent petroleum
engineers. These estimates are based on various assumptions and, therefore, are
inherently imprecise. Estimates of reserves and of future net revenue prepared
by different petroleum engineers may vary substantially depending, in part, on
the assumptions made and may be subject to adjustment either up or down in the
future. Actual future production, revenue, taxes, development expenditures,
operating expenses and quantities of recoverable oil and gas reserves may vary
substantially from those assumed in the estimates. In addition, the Company's
reserves may be subject to downward or upward revision, based upon production
history, results of future exploration and development, prevailing oil and gas
prices and other factors. If these estimates of quantities, prices and costs
prove inaccurate, the Company is unsuccessful in expanding its oil and gas
reserves base with its capital expenditure program, and/or declines in and
instability of oil and natural gas prices occur, then writedowns in the
capitalized costs associated with the Company's oil and gas assets may be
required. Purchasers should note the different categories of reserves and that
the category of "probable" reserves carries substantially more risk than the
category of "proved" reserves.
Risks Inherent in Oil and Gas Operations The search for oil and gas is a
highly speculative activity that may be marked by numerous unproductive efforts.
Many wells will be dry, and productive wells may not produce enough oil or gas
to produce a profit or even return the invested capital. The Company must
continually acquire and explore for and develop new oil and gas reserves to
replace those being depleted by production. Without successful drilling or
acquisition ventures, the Company's assets, properties and revenues will
decline. Oil and gas exploration and development are speculative, involve a high
degree of risk and are subject to all the hazards typically associated with the
search for, development of, and production of oil and gas. The Company's
operations are subject to all of the risks incident to exploration for and
production of oil and gas including blow-outs, cratering, pollution and fires,
each of which could result in damage to or destruction of oil and gas wells or
production facilities or damage to persons and property. The Company's insurance
may not fully cover certain of these risks and the occurrence of a significant
event not fully insured against could have a material adverse effect on the
Company's financial position. The process of drilling for oil and gas can be
hazardous and carry the risk that no commercially viable oil or gas production
will be obtained. The cost of drilling, completing and operating wells is often
uncertain. Moreover, drilling may be curtailed, delayed or canceled as the
result of many factors, including title problems, weather conditions, shortages
of or delays in delivery of equipment, as well as the financial instability of
well operators, major working interest owners and well servicing companies. The
availability of a ready market for the Company's oil and gas depends on numerous
factors beyond its control, including the demand for and supply of oil and gas,
the proximity of the Company's natural gas reserves to pipelines, the capacity
of such pipelines, fluctuations in production and seasonal demand, the effects
of inclement weather and governmental regulation. New gas wells may be shut-in
for lack of a market until a gas pipeline or gathering system with available
capacity is extended into the area. New oil wells may have production curtailed
until production facilities and delivery arrangements are acquired or developed.
The Company's business will always be subject to these types of risks.
Exploration Risks. The Company intends to pursue a significant number of
wildcat projects in southern Louisiana, Texas and the Gulf Coast. The
exploration of such projects involves an extremely high degree of risk that no
commercial production will be obtained or that the production will be
insufficient to recover drilling and completion costs. The costs of drilling,
completing and operating wells is, at best, uncertain. Drilling operations may
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be curtailed, delayed or cancelled as a result of numerous factors, including
title problems, weather conditions, compliance with governmental regulations and
shortages and delays in the delivery of equipment. Furthermore, completion of a
well does not assure a profit on the investment or a recovery of drilling,
completion and operating costs.
Risks of Purchasing Interests in Oil and Gas Properties. The Company
expects to continue to make acquisitions of producing and exploratory oil and
gas properties in the future. The Company often will not control the operation
of properties in which an interest is acquired. It is generally not feasible for
the Company to review in-depth every property it purchases and all records with
respect to such properties. However, even an in-depth review of properties and
records may not necessarily reveal existing or potential problems, nor will it
permit the Company to become familiar enough with the properties to assess fully
their deficiencies and capabilities. Evaluation of future recoverable reserves
of oil, gas and natural gas liquids, which is an integral part of the property
selection process, is a process that depends upon evaluation of existing
geological, engineering and production data, some or all of which may prove to
be unreliable or not indicative of future performance. To the extent the seller
does not operate the properties, obtaining access to properties and records may
be more difficult. Even when problems are identified, the seller may not be
willing or financially able to give contractual protection against such
problems, and the Company may decide to assume environmental and other
liabilities in connection with acquired properties.
Loss of Revenue from Take-or-Pay Contract. A "take-or-pay" contract with
Public Service Company of Colorado which called for PSCo to purchase annually a
minimum of 2.92 billion cubic feet (BCF) of natural gas from the Company expired
June 30, 1996. Historically, the price paid by PSCo under that contract had been
at a premium above the market and therefore allowed for the "marketing and
trading" activities which represented gas purchased from third parties and sold
to PSCo under the terms of the contract. The expiration of this contract has and
will have a material negative impact on the Company's future operations since
the activity generated gross margin between $500,000 and $600,000 annually
through the date that the contract expired.
Competition. The oil and gas industry is highly competitive in many
respects, including identification of attractive oil and gas properties for
acquisition, drilling and development, securing financing for such activities
and obtaining the necessary equipment and personnel to conduct such operations
and activities. In seeking suitable opportunities, the Company competes with a
number of other companies, including large oil and gas companies and other
independent operators with greater financial resources and, in some cases, with
more experience. Many other oil and gas companies in the industry have financial
resources, personnel and facilities substantially greater than those of the
Company and there can be no assurance that the Company will continue to be able
to compete effectively with these larger entities.
Shortage of Equipment, Services, and Supplies. The Company is involved in
intense competition for scarce drilling and completion equipment, services and
supplies, and there can be no assurance that sufficient drilling and completion
equipment, services and supplies will be available when needed. The likelihood
of shortages is greater at the present time than in the past because of the
recent increase in oil and gas prices causing an increase in drilling activity
and a resulting decrease in available material and equipment. Any such shortages
could delay the proposed exploration, development, and sales activities of the
Company and could cause a material adverse affect to the financial condition of
the Company.
Dependence on Key Personnel. The success of the Company will largely be
dependent upon the efforts and active participation of Willard H. Pease, Jr. the
President of the Company, James N. Burkhalter, the Vice President of Engineering
and Production of the Company and Patrick J. Duncan the Chief Financial Officer
of the Company. The loss of the services of any of its officers may adversely
affect the Company's business.
Government Regulation and Environmental Risks. The production and sale of
gas and oil are subject to a variety of federal, state and local government
regulations, including regulations concerning the prevention of waste, the
discharge of materials into the environment, the conservation of natural gas and
oil, pollution, permits for drilling operations, drilling bonds, reports
concerning operations, the spacing of wells, the unitization and pooling of
properties, and various other matters, including taxes. Many jurisdictions have
at various times imposed limitations on the production of gas and oil by
restricting the rate of flow for gas and oil wells below their actual capacity
to produce. In addition, many states have raised state taxes on energy sources
and additional increases may occur, although increases in state energy taxes
would have no predictable effect on natural gas and oil prices. The Company
believes it is in substantial compliance with applicable environmental and other
government laws and regulations, however, there can be no assurance that
significant costs for compliance will not be incurred in the future.
The production and sale of oil and natural gas are subject to various
federal, state and local governmental regulations, which may be changed from
time to time in response to economic or political conditions. Matters subject to
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regulation include discharge permits for drilling operations, drilling bonds,
reports concerning operations, the spacing of wells, unitization and pooling of
properties, taxation and environmental protection. From time to time, regulatory
agencies have imposed price controls and limitations on production by
restricting the rate of flow of oil and gas wells below actual production
capacity in order to conserve supplies of oil and gas. From time to time,
regulatory agencies have also reviewed certain aspects of the operations of oil
and gas companies in the D-J Basin to determine if additional regulations or
regulatory action is necessary. State statutes, rules and regulations affecting
oil and gas companies may, if changed as proposed by certain interest groups,
render drilling in certain locations more expensive or uneconomical due to
increased surface owner compensation and bonding requirements or environmental
regulatory constraints. The Colorado Oil and Gas Conservation Commission
recently enacted and is considering stricter regulation of matters such as oil
conservation, land reclamation, fluid disposal and bonding of oil and gas
companies. Additionally, various cities and counties in which the Company
operates have conducted and continue to conduct hearings to review their
ordinances to determine the level of regulatory authority they should assert
over such matters. At present, it cannot be determined to what degree stricter
regulations would adversely impact the Company's operations.
Various federal, state and local laws and regulations covering the
discharge of materials into the environment, or otherwise relating to the
protection of the public health and the environment, may affect the Company's
operations, expenses and costs. Moreover, the recent trend toward stricter
standards in environmental legislation and regulations is likely to continue.
Legislation and regulations concerning the disposal of oil and gas waste were
adopted by the Colorado Oil and Gas Conservation Commission during the summer of
1993. The Colorado Air Quality Control Commission has adopted regulations to
implement the federal Clean Air Act. These regulations generally exempt oil and
gas exploration and production activities, except from certain routine filings.
These governmental agencies may impose further regulatory restrictions and
reporting requirements which could adversely impact the Company's operating
costs. However, at present the Company cannot predict if or to what degree its
costs and operations will be impacted.
Anti-Takeover Protections. The Company's Articles of Incorporation and
Bylaws include certain provisions, the effect of which may be to inhibit a
change of control of the Company. These include the authorization for issuance
of additional classes of Preferred Stock and classification of the Board of
Directors so that approximately one-third of the Company's directors are elected
annually. In addition, certain of the Company's officers have entered into
employment contracts providing for certain payments to be made upon termination.
These provisions may discourage a third party from attempting to obtain control
of the Company.
Preferred Stock. The Company is authorized to issue 2,000,000 shares of
preferred stock. The shares of preferred stock may be issued from time to time
in one or more series as may be determined by the Board of Directors without
stockholder approval. Further, the voting powers and preferences, the relative
rights of each such series, and the qualifications, limitations and restrictions
may be established by the Board of Directors without stockholder approval. The
Company has previously issued Preferred Stock, 179,938 shares of which are
outstanding as of December 31, 1996 and are convertible into 562,306 shares of
Common Stock and 562,306 Warrants. Any issuance of additional Preferred Stock
could affect the rights of the holders of Common Stock and therefore reduce the
value of the Common Stock. Holders of the shares of outstanding Preferred Stock
are entitled, and holders of any Preferred Stock issued in the future would
probably be entitled, to preferences ahead of holders of Common Stock as to
dividends and at liquidation and any such preferences could affect the value of
the Common Stock. Such preferences will be lost if the holders of the
outstanding shares of Preferred Stock having conversion rights convert their
Preferred Stock into Common Stock and Warrants.
Dividend Policy. Holders of outstanding shares of Preferred Stock are
entitled to receive cumulative cash dividends at an annual rate of $1.00 per
share annually, payable quarterly in arrears, when, as and if declared by the
- 7 -
<PAGE>
Board of Directors of the Company out of funds at the time legally available
therefor. Payment of dividends is subject to declaration by the Board of
Directors and if not declared, dividends will cumulate from quarter to quarter
without interest until declared and paid. Unpaid dividends increase the number
of shares of Common Stock into which Preferred Stock may be converted. As of
December 31, 1996, there was $404,861, or $2.25 per share, of preferred stock
dividends in arrears. The Company does not currently pay cash dividends on its
Common Stock (into which the Preferred Stock is convertible) and does not
anticipate paying such dividends in the foreseeable future.
Election of Additional Directors by Preferred Stockholders. The Company's
Articles of Incorporation provide that whenever dividends on the Preferred Stock
(or any outstanding shares of Parity Stock, as defined) have not been paid in an
aggregate amount equal to at least six quarterly dividends on such shares
(whether or not consecutive), the number of directors of the Company will be
increased by two, and the holders of the Preferred Stock, voting separately as a
class, will be entitled to elect such two additional directors to the Board of
Directors at any meeting of stockholders of the Company at which directors are
to be elected held during the period such dividends remain in arrears. Such
voting rights will terminate when all such dividends accrued and in default have
been paid in full or set apart for payment. The term of office of all directors
so elected will terminate immediately upon such payment or setting apart for
payment. Two directors were elected by the Preferred Stockholders at the
Company's 1996 Annual Meeting in August 1996.
Outstanding Options and Warrants. As of December 31, 1996, the Company has
outstanding options and warrants to purchase a total of 7,926,556 shares of the
Company's Common Stock. The exercise prices of the outstanding options and
warrants range from $.70 per share to $6.00 per share. The holders of the
outstanding options and warrants might have the opportunity to profit from a
rise in the market price (of which there is no assurance) of the shares of the
Company's Common Stock underlying the options and warrants, and their exercise
may dilute the ownership interest in the Company held by other stockholders.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of shares by the
Selling Securityholders and will not receive any proceeds upon the conversion of
the Convertible Debentures, which are convertible without payment of additional
consideration into Common Stock. If all of the Warrants are exercised, of which
there is no assurance, the Company would receive proceeds of up to approximately
$4,352,000. Any proceeds from the exercise of Warrants will be used by the
Company for general corporate purposes.
- 8 -
<PAGE>
SELLING SECURITYHOLDERS
The following table sets forth certain information regarding the shares of
Common Stock beneficially owned as of December 31, 1996, by each Selling
Securityholder herein as adjusted to reflect the sale by all Selling
Securityholders of the shares offered hereby by each Selling Securityholder.
This list indicates the number of Common Shares owned by such Selling
Securityholder prior to the offering, the maximum number of shares to be offered
for such Selling Securityholder's account, the amount of the class owned by the
Selling Securityholder after completion of the offering (assuming the Selling
Securityholder sold the maximum number of shares of Common Stock) and any
position, office or other material relationship with the Company that the
Selling Securityholder had within the past three (3) years. The Selling
Securityholders are not required, and may choose not, to sell any of their
shares of Common Stock.
<TABLE>
<CAPTION>
Shares Owned Shares Owned
Prior Shares Being After
Name to Offering Offered Offering
- ------------------------------------------------------ ----------- ------------ ------------
<S> <C> <C>
Allen, Gylan C. & Mary H. Allen Family Trust,
Gylan C. Allen Trustee....................... 20,833 20,833(1) --
American Energy Mgmt Profit Sharing Plan,
DTD 12/20/84, Jerry Spilsbury TTEE........... 83,333 83,333(1) --
Awerbuch, Wilma....................................... 20,833 20,833(1) --
Barnett, O. Lee....................................... 12,500 12,500(1) --
Barstow, Hal IRA Roll--Over............................ 41,667 41,667(1) --
Benson, Lloyd K....................................... 16,667 16,667(1) --
Bluto, Paul M......................................... 25,000 25,000(1) --
Bobzin, Paul A........................................ 20,833 20,833(1) --
Boyack, Wallace T. Pension & Profit
Sharing Trust DTD 1/1/81..................... 20,833 20,833(1) --
Boyd, Harry E. & Gloria S............................. 20,833 20,833(1) --
Bradford, William L. & Ruth A......................... 20,833 20,833(1) --
Broadbent, Robert C.& Helen H. Broadbent TTEES
of the Broadbent Family Trust DTD 4/26/95.... 25,000 25,000(1) --
Broschart Family Trust UAD 8/24/92,
James & Gloria TTEES......................... 20,833 20,833(1) --
Byrne, Raymond and Jacquelyn.......................... 8,333 8,333(1) --
Carty, Everett C. & Joan M. TTEES UTD 2/26/96,
FBO the Carty Living Trust................... 20,833 20,833(1) --
Casey, Larry W. & Suanne B., TTEES
FBO the Casey Family Trust................... 20,833 20,833(1) --
Catelli, Anne R. Trust U/A DTD 1/9/96
Thomas R. Villone TTEE....................... 41,667 41,667(1) --
Cavin, William J. (Jr) and M. Janice.................. 41,667 41,667(1) --
- 9 -
<PAGE>
<CAPTION>
Shares Owned Shares Owned
Prior Shares Being After
Name to Offering Offered Offering
- ------------------------------------------------------ ----------- ------------ ------------
<S> <C> <C>
Cox, David C.......................................... 41,667 41,667(1) --
Curry, Patrick G...................................... 20,833 20,833(1) --
Cutler, Stanley....................................... 20,833 20,833(1) --
D'Asaro, Michael A.................................... 20,833 20,833(1) --
Davidson, Janice...................................... 66,667 66,667(1) --
Dawes, Steven A....................................... 41,667 41,667(1) --
Delta Financial Resources, Inc........................ 41,667 41,667(1) --
Demuth, Irene Esther Trust............................ 20,833 20,833(1) --
Doctors Financial Mgmt. Co., Inc..................... 139,583 83,333(2) 56,250
Elhaj, Abed K......................................... 104,166 104,166(1) --
Engs, John A. and Alexandra........................... 20,833 20,833(1) --
Fine Revokable Trust.................................. 333,333 333,333(1) --
Foster, Leita Revokable Trust......................... 16,667 16,667(1) --
Fredson, Ronald A. & Margaret......................... 41,667 41,667(1) --
Frey, Philip Jr....................................... 41,667 41,667(1) --
Galbraith, Jack H., TTEE of the Jack H. Galbraith
Living Trust U/A dated 5/25/95............... 8,333 8,333(1) --
Georgeson, Mrs. Jill T................................ 20,833 20,833(1) --
Gilman, Robert........................................ 83,334 83,334(1) --
Gleave, Barton........................................ 20,833 20,833(1) --
Wasatch Family Denter Care PC Pension Plan, U/A DTD
1/1/95 FBO Rodney S. Gleave Family........... 20,833 20,833(1) --
Godfrey, Gary B. Family Revocable Trust, Dated 7/1/93,
Gary B. Godfrey TTEE......................... 16,667 16,667(1) --
Gordon, Kilbourn III.................................. 8,333 8,333(1) --
Grobe, Charles........................................ 208,333 208,333(1) --
Grobe, Charles and Ila 1973 Trust, The Separate Property of
Ila Grobe.................................... 20,833 20,833(1) --
Hafer, Edward......................................... 62,500 62,500(1) --
Hagerty, FBO William Kelly, IRA, Delaware Charter
Guarantee & Trust Co.TTEE.................... 20,833 20,833(1) --
- 10 -
<PAGE>
<CAPTION>
Shares Owned Shares Owned
Prior Shares Being After
Name to Offering Offered Offering
- ------------------------------------------------------ ----------- ------------ ------------
<S> <C> <C>
Harris, Bonnie F. & Alfred Fletcher TTEES, UTD 6/14/91
FBO the Harris Trust......................... 25,000 25,000(1) --
Hartunian Family Trust DTD 3/8/95..................... 41,667 41,667(1) --
Harvey, Patrick L..................................... 41,667 41,667(1) --
Heiman, R. Feed Yard, Inc............................. 16,667 16,667(1) --
Houlihan, Richard..................................... 281,483 20,833(3) 260,650
Hughes, Betty R., TTEE, FBO R.P. & B.R. Hughes
DTD 11-30-71................................. 41,667 41,667(1) --
Jamett, Evelyn Louise................................. 20,833 20,833(1) --
Jones, Carroll S...................................... 20,833 20,833(1) --
Kanne, Charles R. Jr.................................. 166,666 166,666(1) --
Keiser, Charles....................................... 16,667 16,667(1) --
Kennedy, Eileen Mary IRA.............................. 20,833 20,833(1) --
Kennedy, Thomas James IRA............................. 20,833 20,833(1) --
Khayyam, Mansour & Victoria........................... 41,667 41,667(1) --
Kirby, Thomas B....................................... 8,333 8,333(1) --
Kirby Trust, Thomas B. Kirby TTEE..................... 16,667 16,667(1) --
Kulick 1984 Trust DTD 10/23/84
Edward L. Kulick TTEE........................ 58,333 58,333(1) --
Lawler, Doris Gene.................................... 41,667 41,667(1) --
Lewis Family Trust DTD 5/6/82
Phillis & Clair Lewis TTEES.................. 8,333 8,333(1) --
Madaien, Hanna........................................ 83,333 83,333(1) --
Martin, Jim H. IRA................................... 41,667 41,667(1) --
McDonald, Thomas James................................ 20,833 20,833(1) --
McLeod, Daniel V...................................... 103,333 103,333(4) --
Mencinger, Micholas & Julie Johnson................... 41,667 41,667(1) --
Meyer, Dennis C....................................... 16,667 16,667(1) --
Modglin, Donald L. & Grace M. Modglin
Co TTEES to Trust............................ 20,833 20,833(1) --
Moore, John Temple TTEE, John Temple Moore Living Trust,
UA DTD 11/16/94.............................. 41,667 41,667(1) --
- 11 -
<PAGE>
<CAPTION>
Shares Owned Shares Owned
Prior Shares Being After
Name to Offering Offered Offering
- ------------------------------------------------------ ----------- ------------ ------------
<S> <C> <C>
North County Pulmonary Medical Group Inc.
Profit Sharing Plan.......................... 25,000 25,000(1) --
Pacific States Capital Corporation.................... 280,000 280,000(5) --
Paul, Geraldine W..................................... 20,833 20,833(1) --
Pierce, Don D. and Juanita J.......................... 41,667 41,667(1) --
Pum, Dr. Franz J. IRA................................ 8,333 8,333(1) --
Rabinowitz, Milton.................................... 41,667 41,667(1) --
Ramey, William K...................................... 20,833 20,833(1) --
Reott, Lavina G....................................... 41,667 41,667(1) --
FBO Rosenwasser, Stuart N.,
D.R. Technologies, Inc. PSP.................. 41,667 41,667(1) --
Santa Fe Exploration.................................. 16,667 16,667(1) --
Schubert, Steve....................................... 41,667 41,667(1) --
Schwab, Wayne......................................... 41,666 41,666(1) --
Schwartz Family Revocable Trust, Earl D. Schwartz, TTEE 8,333 8,333(1) --
Shonyo Revocable Living Trust, Kenneth W. Shonyo, TTEE,
UAD 6/30/91.................................. 62,500 62,500(1) --
Smith, Andrew D. Profit Sharing Plan
FBO A. Smith................................. 20,833 20,833(1) --
Smith, Jeff........................................... 8,333 8,333(1) --
Sproul, David E....................................... 16,667 16,667(1) --
Sproul, David E.as Custodian for
Lindsey M. Sproul (Minor).................... 8,333 8,333(1) --
Stauffer Family Revocable Living Trust
UTAD 3/2/93.................................. 20,833 20,833(1) --
Stock, Lincoln F. and Helen M. TTEES for the Lincoln F.
and Helen M. Stock Revocable Trust........... 41,667 41,667(1) --
Swarts Family Trust Dated 2/9/95...................... 25,000 25,000(1) --
Tamar Properties Inc. Profit Sharing Plan............. 20,833 20,833(1) --
Tejeda, Rennie C. and Kathleen........................ 41,667 41,667(1) --
Thompson, W. Gayle TTEE, FBO W. Gayle Thompson
Employee Benefit Trust....................... 41,667 41,667(1) --
Totman, James W. TTEE UTD 12/18/86
FBO James W. Totman Trust.................... 41,667 41,667(1) --
- 12 -
<PAGE>
<CAPTION>
Shares Owned Shares Owned
Prior Shares Being After
Name to Offering Offered Offering
- ------------------------------------------------------ ----------- ------------ ------------
<S> <C> <C>
Tully Family Trust UTD 5/25/84........................ 8,333 8,333(1) --
Warner, Julian R...................................... 20,833 20,833(1) --
Warner, Wayne IRA..................................... 20,833 20,833(1) --
White, Harold L. and Sandra R......................... 41,667 41,667(1) --
Wilson, Guy B. and Jeanette TTEES
FBO the Wilson Family Trust.................. 20,833 20,833(1) --
Witkowski, John J. and Carolyn A...................... 20,833 20,833(1) --
Witwer, James, MD..................................... 149,583 83,333(6) --
Yamamoto Trust UTD 1/15/88............................ 20,833 20,833(1) 66,250
Zucker, Steven S., IRA................................ 41,667 41,667(1) --
Zucker, Steven S...................................... 16,667 16,667(1) --
Steve Antry c/o Signal Securities, Inc................ 664,442 11,137(7) 653,305
Jenni Buys c/o Coleman and Company Securities, Inc.... 900 900 --
Thomas Carey c/o Tradeway Securities Group, Inc....... 3,500 3,500 --
Carib Financial Group Ltd............................. 26,250 26,250 --
Christopher Huey c/o Coleman and
Company Securities Inc....................... 4,500 4,500 --
Coleman and Company Securities Inc.................... 3,600 3,600 --
Fox & Company Investments Inc......................... 17,814 17,814 --
GBS Financial Corp.................................... 5,813 5,813 --
Donald G. Gloisten and Mary J. Gloisten Family Trust
UTD 11/30/96 c/o GBS Financial Corp.......... 3,000 3,000 --
Scott H. Gulbranson
c/o Fox & Company Investments Inc............ 625 625 --
Hagerty, Stewart & Associates......................... 1,125 1,125 --
William Kelly Hagerty c/o Hagerty, Stewart & Associates 6,375 6,375 --
Bill Herndon c/o Reidl & Co........................... 6,500 6,500 --
Brian Houlihan c/o Signal Securities, Inc............. 4,000 4,000 --
Gary K. Jamett c/o Signal Securities, Inc............. 2,000 2,000 --
JTM Consulting, Inc. c/o Signal Securities, Inc....... 5,000 5,000 --
Peter Koonce c/o GBS Financial Corp................... 32,937 32,937 --
- 13 -
<PAGE>
<CAPTION>
Shares Owned Shares Owned
Prior Shares Being After
Name to Offering Offered Offering
- ------------------------------------------------------ ----------- ------------ ------------
<S> <C> <C>
Meridian Capital Group, Inc........................... 2,000 2,000 --
Michael T. Michelas c/o Presidential Brokerage, Inc... 5,000 5,000 --
Presidential Brokerage Inc............................ 18,125 18,125 --
Richard K. Roberts c/o Fox & Company Investments, Inc. 1,718 1,718 --
Travis K. Roberts c/o Fox & Company Investments, Inc.. 1,718 1,718 --
Ronald Schiff c/o Fox & Company Investments, Inc...... 625 625 --
Delbert C. Schilling and Gloria B. Schilling,
JTWROS c/o Signal Securities Inc............. 4,638 4,638 --
Signal Securities, Inc................................ 4,725 4,725 --
Lincoln Stock c/o Presidential Brokerage, Inc......... 2,500 2,500 --
Jamal R. Taha c/o Tradeway Securities Group, Inc...... 5,000 5,000 --
Waldron & Co., Inc.................................... 7,500 7,500 --
Charles J. Weschler
c/o Fox and Company Investments, Inc......... 1,250 1,250 --
Western Pacific Securities............................ 20,000 20,000 --
Cynthia D. Williams c/o Meridian Capital Group, Inc... 3,000 3,000 --
Antry, Lisa........................................... 664,442 600,000(7) 64,442
Carib Financial....................................... 20,000 20,000 --
Cohee, Gary........................................... 10,000 10,000 --
Stephen L. Fischer.................................... 213,400 205,000(8) 8,400
GBS Financial Corp.................................... 3,000 3,000 --
Hilywa, John and Cynthia.............................. 2,500 2,500 --
85,000(3195,233rd..................................... 280,233
Jones, Fred........................................... 10,000 10,000 --
Kavanau, Chris........................................ 1,250 1,250 --
Koonce, J. Peter & Marilyn C. JTWROS.................. 17,000 17,000 --
McDerott, Kevin....................................... 1,250 1,250 --
Richard K. Roberts.................................... 2,376 2,376 --
Rogers, Travis K...................................... 2,376 2,376 --
Walker, Clemons F..................................... 358,248 90,873(9) 267,357
- 14 -
<PAGE>
<CAPTION>
Shares Owned Shares Owned
Prior Shares Being After
Name to Offering Offered Offering
- ------------------------------------------------------ ----------- ------------ ------------
<S> <C> <C>
Atocha Exploration, Inc............................... 141,750 141,750 --
Browning Oil Company, Inc............................. 47,250 47,250 --
Potosky Oil and Gas, Inc.............................. 126,000 126,000 --
Adams, Marilyn........................................ 22,000 3,500(10) 18,500
Burkhalter, James N................................... 130,710 5,000(11) 125,710
Duncan, Patrick J..................................... 125,635 5,000(12) 120,635
Hu, Gounong........................................... 21,000 6,000(13) 15,000
McCartney, Jack A..................................... 15,000 15,000(14) --
Ratcliff, John........................................ 7,000 2,000(15) 5,000
--------- ---------- ---------
Totals....................................... 7,638,410 5,781,660 1,856,750
========= ========= =========
</TABLE>
- ------------------------
(1) Of Shares being offered, 40% will be issued upon conversion of
outstanding Convertible Debentures at $3.00 per share and 60% will be
issued upon exercise of a warrant to purchase the Common Stock of the
Company at $1.25 per share. These securities were issued in a private
placement by the Company.
(2) The Trustee for this account, Leroy W. Smith, has been a director of
the Company since August 1996, and is therefore deemed to have
indirect beneficial ownership of the underlying shares. Accordingly,
this includes 5,000 shares that are held by Mr. Smith's wife, 10,000
shares underlying presently exercisable options held directly by Mr.
Smith, and 31,250 shares underlying convertible preferred stock the is
held directly by Mr. Smith, his wife and another entity whereby Mr.
Smith is the Trustee. The remaining amount of 83,333 consists of
33,333 shares underlying a convertible debenture and 50,000 shares
underlying a warrant to purchase the Companys Common Stock issued in a
private placement.
(3) Mr. Houlihan is a director of the Company and is also the Chairman of
the Company's Audit Committee. In addition, prior to joining the Board
of Directors in August 1996, a consulting firm of which Mr. Houlihan
is a principal, prepared a due diligence study dated May 1996 for the
Company and was paid a fee of $35,000 plus $5,776 for expenses. The
amount shown in the table includes 85,000 shares underlying presently
exercisable options held directly by Mr. Houlihan and 24,500 shares
held by an entity of which Mr. Houlihan is the Trustee and is deemed
to have indirect beneficial ownership. The remaining amount of 20,833
consists of 8,333 shares underlying a convertible debenture and 12,500
shares underlying a warrant to purchase the Company's Common Stock in
a private placement.
(4) The amount includes 53,333 shares underlying Convertible Debentures
and 50,000 presently exercisable warrants.
(5) The amount includes 100,000 shares underlying Convertible Debentures
and 180,000 presently exercisable warrants.
(6) The Trustee for this account, Leroy W. Smith, has been a director of
the Company since August 1996, and is therefore deemed to have
indirect beneficial ownership of the underlying shares. Accordingly,
- 15 -
<PAGE>
this includes 5,000 shares that are held by Mr. Smith's wife, 10,000
shares underlying presently exercisable options held directly by Mr.
Smith, and 41,250 shares underlying convertible preferred stock the is
held directly by Mr. Smith, his wife and another entity whereby Mr.
Smith is the Trustee. The remaining amount of 83,333 consists of
33,333 shares underlying a convertible debenture and 50,000 shares
underlying a warrant to purchase the Common Stock in a private
placement.
(7) Mr. Antry has been a director of the Company since August 1996 and is
the President of Beta Capital Group, Inc. ("Beta"). The Company
entered into a three year consulting agreement with Beta in March 1996
that requires minimum monthly cash payments of $17,500 for fees plus
reimbursement of out-of-pocket expenses. The agreement also requires
the Company to pay Beta 2% of the gross proceeds received from any
private or public financing and 7% of the gross proceeds received from
any exercise of warrants. In addition to the cash compensation, the
Company also agreed to grant Beta, or its assignees, warrants to
purchase 1,000,000 shares of the Company's Common Stock at $0.75 per
share. These warrants expire in March 2001. Beta Capital retained
ownership of 600,000 of these warrants, which are assigned to Lisa
Antry, Mr. Antry's wife, and assigned the other 400,000 warrants to
other parties. Accordingly, this number includes 600,000 shares
underlying the warrants assigned to Mrs. Antry, 50,000 shares
underlying presently exercisable warrants held directly by Mr. Antry
and 625 shares underlying convertible preferred stock held directly by
Mr. Antry. Mr. Antry is also an associated person of Signal
Securities, Inc., which also received warrants and commissions from
the Company in connection with a private placement by the Company.
(8) Mr. Fischer works for Beta as an independent contractor. Included in
this amount is 205,000 shares underlying presently exercisable
warrants.
(9) Mr. Walker has been a director of the Company since August 1996.
Through a broker-dealer with which he is affiliated and individually,
Mr. Walker assisted the Company in raising in excess of $2.5 million
dollars in various private placements since 1992. Mr. Walker received
commissions and broker warrants commensurate with the industry norm
for those efforts. In addition, Mr. Walker has acted in the capacity
of an advisor to the Company since 1992 and from time-to-time received
both cash and/or warrants to purchase Common Stock for those services.
The number of shares owned includes 254,353 shares underlying
presently exercisable warrants and 625 shares underlying convertible
preferred stock held directly by Mr. Walker.
(10) Mrs. Adams is the Company's Accounting Supervisor. The number of
shares owned includes 17,500 shares underlying presently exercisable
options.
(11) Mr. Burkhalter has been a director of the Company as well as the
Company's Vice President of Engineering and Production since August
1993. The number of shares owned includes 115,000 shares underlying
presently exercisable options.
(12) Mr. Duncan is a director of the Company's as well as the Company's
Chief Financial Officer, Treasurer and Corporate Secretary. Mr. Duncan
joined the Company as its Controller in April 1994. The number of
shares owned includes 105,000 shares underlying presently exercisable
options.
(13) Mr. Hu is the Company's Geologist. The number of shares owned includes
15,000 shares underlying presently exercisable options.
(14) Mr. McCartney is a consultant to the Company who received the shares
for services performed in 1996.
(15) Mr. Ratcliff is an accountant for the Company. The number of shares
owned includes 5,000 shares underlying presently exercisable options.
- 16 -
<PAGE>
PLAN OF DISTRIBUTION
The shares of Common Stock issuable upon exercise of the Warrants and the
shares of Common Stock issuable upon conversion of Convertible Debentures will
be issued directly by the Company to the Warrant holders or holders of
Convertible Debentures upon surrender of the particular Warrants together with
the exercise price or upon surrender of the Convertible Debentures to the
Company. The exercise or conversion are subject to the terms of the Warrants and
Convertible Debentures, and such Warrants and Convertible Debentures may be
exercisable or convertible during different periods of time. Shares issued upon
exercise of Warrants or options or conversion of Convertible Debentures will be
restricted securities as defined in Rule 144 adopted under the Securities Act of
1933, as amended, while held by the person exercising a Warrant or converting a
Convertible Debenture.
The Selling Securityholders intend to sell their shares directly, through
agents, dealers, or underwriters, in the over-the-counter market, or otherwise,
on terms and conditions determined at the time of sale by the Selling
Securityholders or as a result of private negotiations between buyer and seller.
Sales of the shares of Common Stock may be made pursuant to this Prospectus and
pursuant to Rule 144 adopted under the Securities Act of 1933, as amended. No
underwriting arrangements exist as of the date of this Prospectus for the
Selling Securityholders to sell their shares. Upon being advised of any
underwriting arrangements that may be entered into by a Selling Securityholder
after the date of this Prospectus, the Company will prepare a supplement to this
Prospectus to disclose such arrangements. It is anticipated that the per share
selling price for the shares will be at or between the "bid" and "asked" prices
of the Company's Common Stock as quoted in the over-the-counter market
immediately preceding the sale. Expenses of any such sale will be borne by the
parties as they may agree.
LEGAL MATTERS
The validity of the Common Stock will be passed upon for the Selling
Securityholders by Alan W. Peryam, Denver, Colorado.
EXPERTS
The consolidated financial statements as of December 31, 1995, and for each
of the two years in the period ended December 31, 1995, incorporated by
reference in this Prospectus, have been audited by HEIN + ASSOCIATES LLP,
independent auditors, as stated in their report, which is incorporated herein by
reference, and have been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
- 17 -
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
No dealer, salesperson or other person has been authorized
to give any information or to make any representation not
contained in this Prospectus and, if given or made, such PEASE OIL AND GAS COMPANY
information or representation must not be relied upon as
having been authorized by the Company or any Selling
Securityholder. This Prospectus does not constitute an 5,781,660 SHARES OF COMMON STOCK
offer to sell or a solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction to any
persons to whom it is unlawful to make such offer in such
jurisdiction.
-----------------------------------
---------------------
Page No.
PROSPECTUS
---------------------
AVAILABLE INFORMATION................................. 2
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE.............................. 2
PROSPECTUS SUMMARY.................................... 3
RISK FACTORS.......................................... 4
USE OF PROCEEDS....................................... 8
SELLING SECURITYHOLDERS............................... 9
PLAN OF DISTRIBUTION.................................. 17
LEGAL MATTERS......................................... 17
January 10, 1997
EXPERTS............................................... 17
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Expenses payable by Registrant in connection with the issuance and
distribution of the securities being registered hereby are as follows:
SEC Registration Fee*................................ $6,170
Accounting Fees and Expenses*........................ 4,000
Legal Fees and Expenses*............................. 11,000
Printing, Freight and Engraving*..................... 2,500
Miscellaneous*....................................... 1,330
------
Total....................................... $ 25,000
=======
- -----------------
* Estimated.
Item 15. Indemnification of Directors and Officers.
Article VII of the Registrant's Articles of Incorporation provides that no
director or officer of the Registrant shall be personally liable to the
Registrant or any of its stockholders for damages for breach of fiduciary duty
as a director or officer, except that such provision will not eliminate or limit
the liability of a director or officer for any act or omission which involves
intentional misconduct, fraud or a knowing violation of law or for the payment
of any dividend in violation of Section 78.300 of the Nevada Revised Statutes.
Section 78.751 of the Nevada Revised Statutes permits the Registrant to
indemnify its directors, officers, employees and agents if such person acted in
good faith and in a manner which he reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any criminal
action or proceeding, has no reasonable cause to believe his conduct was
unlawful.
To the extent that a director, officer, employee or agent of a corporation
has been successful on the merits or otherwise in defense of any action, the
corporation must provide indemnification against expenses, including attorneys'
fees, actually and reasonably incurred by him in connection with the defense.
Section 43 of the Registrant's Bylaws provides that the Registrant shall
provide indemnification to Registrant's officers, directors and employees to the
fullest extent permitted under the Nevada General Corporation Law.
Item 16. Exhibits.
In addition to the exhibits previously filed by Registrant, the following
is a list of all exhibits filed as part of this Registration Statement or, as
noted, incorporated by reference to this Registration Statement:
II-1
<PAGE>
Exhibit No. Description and Method of Filing
- ---------- --------------------------------
(5) Opinion of Company counsel
(10.23) Agreement between Beta Capital Group, Inc. and Pease Oil and
Gas Company dated March 9, 1996, incorporated by reference to the
Registrant's 1995 Annual Report on Form 10-KSB as Exhibit No.
10.22.
(10.25) Form of $50,000 Five Year 10% Collateralized Convertible
Debenture issuable by Registrant in connection with its 1996
private placement, incorporated by reference to Exhibit 10.25 to
Registration Statement No. 33-44536.
(10.26) Form of Warrant to Purchase Common Stock issuable in
connection with Registrant's 1996 private placement, incorporated
by reference to Exhibit 10.26 to Registration Statement No.
33-44536.
(10.27) Purchase and Sale Agreement to acquire oil and gas properties
dated December 31, 1996.
(23.1) Consent of Alan W. Peryam.
(23.2) Consent of HEIN + ASSOCIATES LLP Independent Certified Public
Accountants.
Item 17. Undertakings
The undersigned registrant hereby undertakes that it will:
(1) File, during any period in which Registrant offers or sells securities,
a post-effective amendment to this registration statement to include any
material information on the plan of distribution.
(2) For determining liability under the Securities Act, treat such
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time shall be deemed to be
the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Grand Junction, Mesa County, State of Colorado, on
January 10, 1997.
PEASE OIL AND GAS COMPANY
By: /s/ Willard H. Pease, Jr.
----------------------------
Willard H. Pease, Jr.
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the capacity
and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Steve Antry Director January 10, 1997
- ---------------------------------------------------
Steve Antry
/s/ James N. Burkhalter Director January 10, 1997
- ---------------------------------------------------
James N. Burkhalter
/s/ Patrick J. Duncan Director January 10, 1997
- ---------------------------------------------------
Patrick J. Duncan
/s/ Richard A. Houlihan Director January 10, 1997
- ---------------------------------------------------
Richard A. Houlihan
/s/ Homer C. Osborne Director January 10, 1997
- ---------------------------------------------------
Homer C. Osborne
/s/ Willard H. Pease, Jr. Director January 10, 1997
- ---------------------------------------------------
Willard H. Pease, Jr.
/s/ James C. Ruane Director January 10, 1997
- ---------------------------------------------------
James C. Ruane
/s/ LeRoy W. Smith Director January 10, 1997
- ---------------------------------------------------
LeRoy W. Smith
/s/ Robert V. Timlin Director January 10, 1997
- ---------------------------------------------------
Robert V. Timlin
/s/ Clemons F. Walker Director January 10, 1997
- ---------------------------------------------------
Clemons F. Walker
/s/ William F. Warnick Director January 10, 1997
- ---------------------------------------------------
William F. Warnick
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
Exhibit Description Page No.
- ------- ----------- --------
(5) Opinion of Company counsel
(10.25) Agreement between Beta Capital Group, Inc. and N/A
Pease Oil and Gas Company dated March 9, 1996,
incorporated by reference to the Registrant's 1995
Annual Report on Form 10-KSB as Exhibit No. 10.22.
(10.25) Form of $50,000 Five Year 10% Collateralized N/A
Convertible Debenture issuable by Registrant in
connection with its 1996 private placement,
incorporated by reference to Exhibit 10.25 to
Registration Statement No. 33-44536.
(10.26) Form of Warrant to Purchase Common Stock issuable N/A
in connection with Registrant's 1996 private
placement, incorporated by reference to Exhibit 10.26
to Registration Statement No. 33-44536.
(10.27) Purchase and Sale Agreement to acquire oil and gas
properties dated December 31, 1996.
(23.1) Consent of Alan W. Peryam.
(23.2) Consent of HEIN + ASSOCIATES LLP Independent
Certified Public Accountants.
ALAN W. PERYAM
Attorney at Law
1610 Wynkoop Street, Suite 200
Denver, Colorado 80202-1135
Telephone:(303) 892-6123
Facsimile:(303) 892-0926
January 10, 1997
Pease Oil and Gas Company
751 Horizon Court, Suite 203
Grand Junction, Colorado 81506-8758
Gentlemen:
You have requested our opinion as to the legality of 5,781,660 shares of
the $0.10 par value common stock ("Common Stock") of Pease Oil and Gas Company
("Company") to be registered pursuant to a Registration Statement on Form S-3
that is being filed by the Company with the United States Securities and
Exchange Commission.
I have reviewed the Articles of Incorporation, as amended, of the Company,
the Bylaws of the Company, minutes of meetings of the Board of Directors and of
the shareholders of the Company, and such other documents that I considered
necessary in order to render this opinion. As a result of my review, I am of the
opinion that the Securities of the Company to be registered for resale by the
Registration Statement on Form S-3 have been, or will be upon conversion of
outstanding debentures or exercise of outstanding warrants, legally authorized
by the Board of Directors of the Company and that the shares of Common Stock,
when sold as described in the Registration Statement, will be legally issued,
fully paid and nonassessable.
Sincerely,
/s/ Alan W. Peryam
---------------------------------
Alan W. Peryam
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (this "Agreement") is entered into
effective as of the "Agreement Date," as that term is hereinafter defined,
between ATOCHA EXPLORATION, INC., a Louisiana corporation, 1201 Louisiana, Suite
1050, Houston, Texas 77002, BROWNING OIL COMPANY, INC., a Nevada corporation,
8080 N. Central Expressway, Suite 780, Dallas, Texas 75206, and POTOSKY OIL AND
GAS, INC., a Texas corporation, 10410 Memorial Drive, Houston, Texas 77024
(collectively "Sellers") and PEASE OIL AND GAS COMPANY, a Nevada corporation,
751 Horizon Court, Suite 203, Grand Junction, Colorado 81506-8718 ("Buyer")
(Sellers and Buyer, when referred to collectively, are hereinafter referred to
as the "Parties").
ARTICLE I
PURCHASE AND SALE
Subject to the terms and conditions of, and for the consideration set forth
in, this Agreement, Sellers agree to sell and convey and Buyer agrees to
purchase and pay for, effective as of midnight, Central Standard Time, December
31, 1996 (the "Effective Time"), SUBJECT TO THE EXCLUSION OF THE OVERRIDING
ROYALTY INTEREST AS PROVIDED FOR ON EXHIBIT "A," the following (the
"Properties"):
1.1 Oil and Gas Properties. All properties described on Exhibit "A,"
whether such properties are in the nature of servitudes, fee interests,
leasehold interests, licenses, concessions, working interests, farmout rights,
other contractual rights, royalty, overriding royalty, other non-working or
carried interests, operating rights or other mineral rights of every nature, and
any rights that arise by operation of law or otherwise, in all properties and
lands pooled, unitized, communitized or consolidated with such properties (the
"Oil and Gas Properties").
1.2 Wells. All oil, condensate or natural gas wells, water source
wells, and water and other types of injection wells, either located on the Oil
and Gas Properties or held for use in connection with the Oil and Gas Properties
under a Surface Contract (as hereinafter defined), whether producing, operating,
shut-in or temporarily abandoned, but excluding all permanently abandoned wells
and all wells that, prior to the Effective Time, must be plugged and abandoned
in accordance with the rules or regulations of any regulatory authority (the
"Wells").
<PAGE>
1.3 Severed Substances. All severed crude oil, natural gas, casinghead
gas, drip gasoline, natural gasoline, petroleum, natural gas liquids,
condensate, products, liquids and other hydrocarbons and other minerals or
materials of every kind and description produced from the Oil and Gas Properties
and either (a) in storage tanks at the Effective Time or (b) sold at or after
the Effective Time (the "Hydrocarbons").
1.4 Surface Contracts. All leases, easements, privileges, right-of-way
agreements, licenses or other agreements relating to the use or ownership of
surface and subsurface properties and structures that are used or held for use
in connection with the exploration and production of Substances from the Oil and
Gas Properties (the "Surface Contracts").
1.5 Equipment. All physical facilities or interests therein, including
but not limited to platforms, tanks and tank batteries, gas plants, disposal
facilities, storage facilities, buildings, structures, field separators and
liquid extractors, compressors, pumps, pumping units, valves, fittings,
machinery and parts, engines, boilers, meters, apparatus, implements, tools,
appliances, cables, wires, towers, casing, tubing and rods, gathering lines or
other pipelines, field gathering systems, field offices and the furniture and
fixtures and equipment of every type and description to the extent that the same
are used or held for use in connection with the ownership or operation of the
properties described in Sections 1.1 through 1.4, inclusive, whether located on
or off such properties (the "Equipment").
1.6 Information and Data. All (a) abstracts, title opinions, title
reports, title policies, lease and land files, surveys, analyses, compilations,
correspondence, filings with regulatory agencies, tax returns, financial
compilations, and other documents and instruments that in any manner relate to
the properties described in Sections 1.1 through 1.5, inclusive; (b) magnetic
tapes or reproducible copies of computer software and computer databases that
are owned by or licensed to Sellers that in any manner relate to the properties
described in Sections 1.1 through 1.5, inclusive; (c) geological, engineering,
exploration, production and other technical data, magnetic field recordings,
digital processing tapes, field prints, summaries, reports, maps,
interpretations, studies and other analyses, whether written or in
electronically reproducible form, that are in the possession of Sellers and in
any manner relate to the properties described in Section 1.1; and (d) all other
books, records, files and magnetic tapes containing financial, title or other
information that are in the possession of Sellers and in any manner relate to
the properties described in Sections 1.1 through 1.5, inclusive (the "Data").
2
<PAGE>
1.7 Contracts. All contracts, commitments, agreements, arrangements
that in any way relate to the properties described in Sections 1.1 through 1.6,
inclusive, including the production, storage, treatment, transportation,
processing, purchase, sale or other disposal of Hydrocarbons therefrom or in
connection therewith, and any and all amendments, ratifications or extensions of
the foregoing, together with (i) all rights, privileges, and benefits of Sellers
thereunder arising on or after the Effective Time and (ii) all claims for
take-or-pay or other similar payments arising before or after the Effective Time
that have not been disclosed in any Exhibit (the "Contracts").
1.8 Payment Rights. All (a) accounts, instruments and general
intangibles (as such terms are defined in the Uniform Commercial Code of
Louisiana) and (b) liens and security interests in favor of Sellers under any
law, rule or regulation or under the Contracts arising from the sale or other
disposition at or after the Effective Time of any of the properties described in
Sections 1.1 through 1.7, inclusive (the "Payments Rights").
ARTICLE II
PURCHASE PRICE
2.1 Purchase Price; Base Purchase Price. The purchase price for the
Properties shall be One Million Seven Hundred Fifty Thousand and No/100
($1,750,000.00) Dollars (the "Base Purchase Price"), which shall be adjusted as
provided in Article 2.2 hereof to arrive at the "Final Purchase Price."
2.2 Final Purchase Price. In arriving at the "Final Purchase Price" the
Base Purchase Price shall be adjusted downward by the cost incurred by Buyer in
bringing title to the Oil and Gas Properties forward by updating title to the
working interest covered by the Title Opinions furnished to Buyer by Sellers
covering the lands of Schwing, Inc., Wilbert Funeral Home, Inc., and Wilbert's
Sons Ltd. Partnership, and the State Leases covering portions of Tract 29181
containing 10 acres and 141 acres, respectively, awarded to National Energy,
Inc., and W & T Offshore, Inc., respectively, and by providing copies of the
assignments consummating the acquisition of the Bayou Sorrel Field by National
Energy Group, Inc., from PANACO, Inc. and W & T Offshore, Inc. The Base Purchase
Price as adjusted pursuant to this Article shall be referred to as the "Final
Purchase Price."
3
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Sellers. Sellers represent and
warrant to Buyer the following:
3.1.1 Organization. Atocha Exploration, Inc., is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Louisiana and is duly qualified to carry on its business in the State of
Louisiana. Browning Oil Company, Inc., is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada and is duly
qualified to carry on its business in the State of Louisiana. Potosky Oil and
Gas, Inc., is a corporation duly organized, validly existing and in good
standing under the laws of the State of Texas.
3.1.2 Corporate Power. Sellers have full corporate power and authority
under the laws of their respective states to conduct their business as presently
conducted, to perform their obligations under this Agreement, and are entitled
to own the Properties.
3.1.3 Conflicts. The consummation of the transactions contemplated by
this Agreement will not violate, be in conflict with, or constitute a default
under any provision of the articles of incorporation, bylaws or governing
documents of any Seller, any provision of any agreement or instrument to which
or by which any Seller is a party or by which it is bound, or any judgment,
decree, judicial or administrative order, award, writ, injunction, statute, rule
or regulation applicable to any Seller or the Properties.
3.1.4 Authorization. The execution, delivery and performance of this
Agreement and the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action, including any necessary board or
shareholder approval, by Sellers or any third parties owning any equitable or
beneficial interest in the Properties.
3.1.5 Enforceability. This Agreement has been duly executed and
delivered on behalf of Sellers, and at the "Closing," as that term is
hereinafter defined, all documents and instruments required to be executed and
delivered by Sellers in order to consummate the purchase and sale provided for
in to this Agreement shall be executed and delivered. This Agreement does, and
such documents and instruments shall, constitute legal, valid and binding
obligations of Sellers enforceable in accordance with their terms.
4
<PAGE>
3.1.6 Broker's Fees. Sellers have incurred no liability, contingent or
otherwise, for broker's or finder's fees relating to the transactions
contemplated by this Agreement for which Buyer shall have any responsibility
whatsoever.
3.1.7 Litigation and Claims. To the best of Sellers' information,
knowledge and belief, no lawsuit, action, claim, demand, filing, cause of
action, administrative proceeding or other litigation or proceeding is pending
or threatened before any court or governmental agency as of the date of this
Agreement that might result in impairment, loss or diminution of Sellers' title
to the Properties or hinder or impede their ownership or operation. No written
or oral notice from any governmental body or any other entity has been received
by any Seller (i) claiming any violation or repudiation of the Properties or any
violation of any law or any environmental, conservation or other ordinance,
code, rule or regulation or (ii) requiring, or calling attention to the need
for, any work, repairs, construction, alterations or installations on or in
connection with the Properties with which such Seller has not complied.
3.1.8 Evaluation Data. To the best of Sellers' knowledge and belief,
each of the maps, and all of the geological and production data, pricing data,
reserve data or other data or documentation heretofore furnished by Sellers to
Buyer ("Evaluation Data"), was complete, and the information reported therein
was correct, in all material respects as of the date of such delivery.
3.1.9 Default. To the best of Sellers' knowledge and belief, no Seller
is in default or violation of (a) any law, order, writ, injunction, ordinance,
code, rule, regulation or decree of any governmental body, agency or court or of
any commission or other administrative agency or (b) any agreement or obligation
to which it is a party or by which it is bound or to which it or the Properties
may be subject. With respect to the ownership, operation, production and sale of
hydrocarbons and carrying on the business of Sellers, Sellers have complied with
all laws, rules and regulations applicable thereto.
3.1.10 Tax Compliance. To the best of Sellers' knowledge and belief,
Sellers have timely filed or caused to be filed all federal, state, local and
foreign tax and information returns required under all applicable statutes,
rules and regulations, and all taxes with respect to the Properties (other than
those being contested in good faith for which adequate provisions will be made)
shown on said returns to be due and additional assessments which are due and
payable have been paid.
5
<PAGE>
3.1.11 Marketable Title. Sellers have or will have at the Effective
Time, Marketable Title to the Properties. "Marketable Title" shall mean such
title as is free and clear of all Encumbrances other than Permitted Encumbrances
and which entitles Sellers to (i) a Net Revenue Interest in each well, lease or
unit no less than, and (ii) a Working Interest in each well, lease or unit no
greater than, the relevant percentages set forth in Exhibit "A," throughout the
productive life of such well, lease or unit, free of Permitted Encumbrances. The
foregoing provisions of this paragraph notwithstanding, the Assignment, as
attached hereto, shall warrant title by, through, and under Sellers, but not
otherwise. "Encumbrance" shall mean any mortgage, lien, security interest,
pledge, charge, encumbrance, claim, limitation, irregularity, burden or defect.
"Permitted Encumbrances" shall mean any or all of the following:
(a) Encumbrances that arise under operating agreements to secure
payment of amounts not yet delinquent and are of a type and nature customary in
the oil and gas industry;
(b) Encumbrances that arise as a result of pooling and unitization
agreements, declarations, orders or laws to secure payment of amounts not yet
delinquent;
(c) Encumbrances securing payments to mechanics and materialmen and
Encumbrances securing payment of taxes or assessments that are, in either case,
not yet delinquent or, if delinquent, are being contested in good faith in the
normal course of business;
(d) lessor's royalties, overriding royalties, division orders,
reversionary interests and other similar burdens that do not operate to reduce
the Net Revenue Interest of Sellers in and to the Properties to less than the
amount set forth in Exhibit "A";
(e) consents to assignment by governmental authorities that are
obtained on or prior to the Closing Date;
(f) conventional rights of reassignment obligating Sellers to reassign
their interests in any portion of the Properties to a third party in the event
it intends to release or abandon such interest prior to the expiration of the
primary term or other termination of such interest;
6
<PAGE>
(g) easements, rights-of-way, servitudes, permits, surface leases,
surface use restrictions and other surface uses and impediments on, over or in
respect of any of the Properties that, as of the Effective Time, appear of
record in the public records of the parish wherein the Properties are located,
provided that they do not interfere materially with the ownership, operation,
value or use of the Properties, taken as a whole; and
(h) rights reserved to or vested in any municipality or governmental,
tribal, statutory or public authority to control or regulate any of the
Properties in any manner, and all applicable laws, rules and order of any
municipality or governmental or tribal authority.
3.1.12 Sellers' Interest. The interests described in Exhibit "A"
constitute all of Sellers' interest in the Oil and Gas Properties and Wells, it
being Sellers' intent to sell to Buyer all of Sellers' right, title and interest
in the Oil and Gas Properties and Wells, except as otherwise specifically set
forth in Exhibit "A".
3.1.13 Status of the Leases. To the best of Sellers' knowledge and
belief, with respect to the Leases described in Exhibit "A" (the "Leases"):
(a) The Leases have been maintained according to their terms, in
compliance with the agreements to which the Leases are subject;
(b) The Leases are presently in full force and effect, and all other
oil and gas leases covering the lands described in the Leases have expired and
are no longer of any force or effect;
(c) Sellers and their predecessors-in-title, or the respective
designees of any of them, have made or caused to be made all payments, including
royalties, delay rentals and shut-in royalties provided for in the Leases;
(d) No other Party with an interest in any of the Leases at any time
is in breach or default with respect to any of its obligations thereunder;
(e) There has not occurred any event, fact or circumstance which with
the lapse of time or the giving of notice, or both, would constitute a breach or
default on behalf of any of the Sellers, any of their predecessors-in-title or
any other parties;
(f) Neither Sellers nor any other party with an interest in any of the
Leases nor any of the Lessors at any time have given or threatened to give
notice of any action to terminate, cancel rescind or procure a judicial
reformation of any of the Leases or any provisions thereof.
7
<PAGE>
3.1.14 Contracts and Agreements. To the best of Sellers' knowledge and
belief, all of the contracts or agreements which will burden or encumber the
Properties or to which the Properties will be subject after Closing (the
"Contracts") are set forth on Exhibit "A." To the best of Sellers' knowledge and
belief, all of the Contracts and other obligations of Sellers that relate to the
Properties are in full force and effect. To the best of Sellers' knowledge and
belief, no Seller or any other party to the Contracts (a) is in breach of or
default, or with the lapse of time or the giving of notice, or both, would be in
breach or default, with respect to any of its obligations thereunder to the
extent that such breaches or defaults have an adverse impact on any of the
Properties or (b) has given or threatened to give notice of any default under or
inquiry into any possible default under, or action to alter, terminate, rescind
or procure a judicial reformation of any Contract. Sellers do not anticipate
that any other party to a Contract will be in breach of or default under or
repudiate any of its obligations thereunder to the extent that such breach or
default will have an adverse impact on any of the Properties. The Contracts are
consistent with, and do not give rise to breaches of the representations and
warranties of Sellers herein.
3.1.15 Operations. To the best of Sellers' knowledge and belief, all
of the Wells have been drilled and completed within the boundaries of the Leases
or within the limits otherwise permitted by contract, pooling or unit agreement,
and by law, and all drilling and completion, and plugging and abandonment, of
the Wells and all development and operations on the Properties have been
conducted in compliance with all applicable laws, ordinances, rules, regulations
and permits, judgments, orders and decrees of any court or governmental body or
agency. No Well is subject to any penalty or liability because of any
overproduction or any other violation of applicable laws, rules, regulations or
permits or judgments, orders or decrees of any court, governmental body or
agency which would prevent any of the Wells from being entitled to its full
legal and regular allowable.
3.1.16 Accuracy of Representations and Warranties. None of the
statements, representations or warranties made by Sellers in this agreement or
in any exhibit or certificate delivered pursuant to this Agreement contains any
untrue statement or any material fact or omits to state any material fact
necessary to be stated in order to make the statements, representations or
warranties contained herein or therein not misleading. Sellers have no knowledge
or belief of any matter which materially and adversely affects (or may
materially and adversely affect) the operations, prospects, value or condition
of any of the Properties, which has not been set forth in this Agreement or the
Exhibits hereto.
8
<PAGE>
3.1.17 AFE's and Commitments. Except as otherwise indicated on Exhibit
"A", there are no authorizations for expenditure ("AFE's") or other oral or
written commitments ("Commitments") to drill or rework Wells or for capital
expenditures pursuant to any of the Contracts, applicable to the Properties.
3.1.18 Approvals and Preferential Rights. There are no approvals
required to be obtained by Sellers as a result of this Agreement or the
transactions provided for herein, except those that are obtained by Sellers at
or prior to Closing, and there are no preferential purchase rights that affect
the Properties, except those for which Sellers provide waivers at or prior to
Closing.
3.1.19 Production Burdens, Taxes, Expenses and Revenues. To the best
of Sellers' knowledge and belief, all rentals, royalties, excess royalty,
overriding royalty interests and other payments due under or with respect to the
Properties have been properly and timely paid. All ad valorem taxes, property
taxes, production taxes, severance taxes and other taxes based on or measured by
the ownership of the Properties or the production of Hydrocarbons therefrom have
been properly and timely paid. All expenses payable under the terms of the
Contracts and attributable to the Properties have been properly and timely paid
except for such expenses as are being currently paid prior to delinquency in the
ordinary course of business. All of the proceeds from the sale of Hydrocarbons
are being properly and timely paid to Sellers by the purchasers of production
without suspense.
3.1.20 Pricing. To the best of Sellers' knowledge and belief, the
prices being received for the production of Hydrocarbons do not violate any
Contract, law or regulation. Where applicable, all of the Wells and production
of Hydrocarbons therefrom have been properly classified under appropriate
governmental regulations.
3.1.21 Gas Regulatory Matters. All necessary rate and collection
filings and all necessary applications for well determinations under the Natural
Gas Act of 1938, as amended, the Natural Gas Policy Act of 1978, as amended, and
the rules and regulations of the Federal Energy Regulatory Commission (the
"FERC") thereunder have been filed with the appropriate state and federal
agencies, and each such application has been approved by or is pending before
the appropriate state or federal agency. "Good Faith Negotiations" have been
neither initiated nor waived, nor has the right to initiate such re-negotiations
been compromised in any manner, pursuant to FERC Order No. 451 or any revisions
thereof, or any orders predicated thereon, under any gas sale or purchase
contract in effect on July 18, 1986 covering any of the Properties. None of the
Properties is subject to any offer of take-or-pay credits for gas transported
pursuant to FERC Order No. 500. None of the Properties have been abandoned under
FERC Order No. 490 or any revisions thereof.
9
<PAGE>
3.1.22 Production Balances. To the best of Sellers' knowledge and
belief, none of the purchasers under any production sales contracts or
prepayment agreements are entitled to "make-up" or otherwise receive deliveries
of Hydrocarbons at any time after the Effective Time without paying at such time
the full contract price therefor. No one is entitled to receive any portion of
the interest of any Sellers in any Hydrocarbons or to receive cash or other
payments to "balance" any disproportionate allocation of Hydrocarbons under any
operating agreement, gas balancing and storage agreement, gas processing or
dehydration agreement, or other similar agreements.
3.1.23 Environmental Matters. To the best of Sellers' knowledge and
belief, none of the Properties are subject to, or in a condition which could
subject them to, any claims or demands, whether for injury or death to persons
or damages to property, any claim, injury, action, loss, cost, expense,
liability, penalty, charge or damage, including without limitation reasonable
attorney fees, and all costs and expenses of all actions, suits, proceedings,
demands, assessments, claims and judgments, whether direct, pending, threatened,
contingent or otherwise, related to the generation, treatment, storage,
transportation, discharge, emission or disposal of hydrocarbons and of hazardous
materials, pollutants, contaminants or wastes on or from the Properties, as such
terms are defined and used by, and any other substances affected by, the
Comprehensive Environmental Response Compensation and Liability Act, the
Resource Conservation and Recovery Act, the Toxic Substances Control Act, the
Emergency Planning and Right-To-Know Act, the Hazardous Materials Transportation
Act, the Oil Pollution Act, the Clean Water Act, the Safe Drinking Water Act, or
the Clean Air Act, all as they have been or may be amended from time to time, or
any other applicable federal, state or local statute, rule, regulation or
ordinance.
10
<PAGE>
3.2 Representations And Warranties Of Buyer. Buyer represents and warrants
to Sellers the following:
3.2.1 Organization. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada.
3.2.2 Corporate Power. Buyer has all requisite power and authority to
carry on its business as presently conducted, to enter into this Agreement, to
purchase the Properties on the terms described in this Agreement, and to perform
its other obligations under this Agreement.
3.2.3 Conflicts. The consummation of the transactions contemplated by
this Agreement will not violate, be in conflict with, or constitute a default
under any provision of the articles of incorporation, bylaws or governing
documents of Buyer, any provision of any agreement or instrument to which or by
which Buyer is a party or by which it is bound or any judgment, decree, judicial
or administrative order, award, writ, injunction statute, rule or regulation
applicable to Buyer or the Properties.
3.2.4 Enforceability. This Agreement has been duly executed and
delivered on behalf of Buyer, and at the Closing all documents and instruments
required to be executed and delivered by Buyer in order to consummate this sale
and purchase pursuant to this agreement, shall be executed and delivered. This
Agreement does, and such documents and instrument shall, constitute legal, valid
and binding obligations of Buyer enforceable in accordance with their terms.
3.2.5 Broker's Fees. Buyer has incurred no liability, contingent or
otherwise, for broker's or finder's fees relating to the transactions
contemplated by this Agreement for which Sellers shall have any responsibility
whatsoever.
3.2.6 Accuracy of Representations and Warranties. None of the
statements, representations or warranties made by Buyer in this agreement or in
any exhibit or certificate delivered pursuant to this Agreement contains any
untrue statement of any material fact or omits to state any material fact
necessary to be stated in order to make the statements, representations or
warranties contained herein or therein not misleading.
3.3 Survival of Representations and Warranties. The representations and
warranties of Sellers in this Article III and the representations and warranties
of Buyer in this Article III shall apply as of the time of Closing. The
following shall survive the Closing: (a) Sellers' representations and warranties
in paragraphs 3.1.1 through 3.1.4; (b) Sellers' warranty of title in paragraph
3.1.11 by, through, and under Sellers, but not otherwise; and (c) Buyer's
representations and warranties in paragraphs 3.2.1 and 3.2.2.
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ARTICLE IV
COVENANTS
4.1 Closing Conditions. Sellers shall cause all the representations and
warranties of Sellers contained in this Agreement to be true and correct on and
as of the Closing Date. To the extent the conditions precedent to the
obligations of Buyer are within the control of Sellers, Sellers shall cause such
conditions to be satisfied on or prior to the Closing Date and, to the extent
the conditions precedent to the obligations of Buyer are not within the control
of Sellers, Sellers shall use their best efforts to cause such conditions to be
satisfied on or prior to the Closing Date.
4.2 Registration Statement. Buyer covenants and agrees to use reasonable
commercial efforts to file a registration statement on Form S-3 or other
appropriate form on or before January 10, 1997, but in no event on or before
Closing, with the United States Securities and Exchange Commission, registering
the shares of the $0.10 par value per share common stock of Buyer to be
delivered to Sellers at Closing, for resale as provided for in Paragraph 6.3.6
and to have the registration statement declared effective within a reasonable
time thereafter.
ARTICLE V
CONDITIONS TO CLOSING
5.1 Sellers' Conditions. The obligations of Sellers at the Closing are
subject to the satisfaction at or prior to the Closing of the following
conditions:
5.1.1 Buyer's Representations and Warranties Shall Be True At Closing.
All representations and warranties of Buyer contained in this Agreement shall be
true in all material respects at and as of the Closing as if such
representations and warranties were made at and as of the Closing Date, and
Buyer shall have performed and satisfied all material agreements in all material
respects required by this Agreement to be performed and satisfied by Buyer at or
prior to the Closing.
5.1.2 No Restraining or Prohibiting Orders. No order shall have been
entered by any court or governmental agency having jurisdiction over the Parties
or the subject matter of this contract that restrains or prohibits the purchase
and sale contemplated by this Agreement and which remains in effect at the
Closing Date.
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5.2 Buyer's Conditions. The obligations of Buyer at the Closing are
subject at the option of Buyer, to the satisfaction at or prior to the Closing
of the following conditions:
5.2.1 Sellers' Representations and Warranties Shall Be True at
Closing. All representations and warranties of Sellers contained in this
Agreement shall be true in all material respects at and as of the Closing as if
such representations were made at and as of the Closing Date, and Sellers shall
have performed and satisfied all material agreements in all material respects
required by this Agreement to be performed and satisfied by Sellers at or prior
to the Closing.
5.2.2 No Restraining or Prohibiting Orders. No order shall have been
entered by any court or governmental agency having jurisdiction over the Parties
or the subject matter of this Agreement that restrains or prohibits the
transaction contemplated by this Agreement and which remains in effect at the
Closing Date.
5.2.3 Adverse Material Changes. In Buyer's sole, good faith judgment,
there shall not occur, prior to Closing, adverse material change or difference
from information furnished by Sellers to Buyer, or relied upon by Buyer in
making its offer with respect to the Properties, Sellers' interest in the
Properties, the value of the Properties, Sellers' financial condition, or the
condition of the Properties (except depletion through normal production within
authorized allowables and rates of production), and none of the Properties shall
have suffered any material destruction, damage or loss.
5.2.4 Operational Condition of the Equipment. Buyer has fully
satisfied itself that all Equipment owned or used by Sellers with respect to
ownership and/or operation of the Properties is in good repair, working order
and operating condition and is adequate for the operation of the Properties.
5.2.5 Evidence of Release of Liens and Encumbrances. Sellers shall
furnish Buyer evidence that all liens and encumbrances not expressly identified
herein as Permitted Encumbrances have been released prior to or simultaneously
with closing, said evidence to be satisfactory to Buyer in its sole discretion.
5.2.6 Consents and Approvals. All consents and approvals required to
be obtained for the assignment of the Properties to Buyer shall have been
obtained, and all preferential purchase rights arising in connection with the
assignment of the Properties to Buyer shall have been waived or shall have
expired.
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5.2.7 Compliance. Sellers shall have performed and complied in all
material respects with each of the covenants and conditions required by this
Agreement of which performance or compliance is required prior to or at the
Closing.
5.2.8 No Pending Suits. No suit, action or other proceeding before any
court or governmental agency shall be pending or threatened in which it is
sought to restrain or prohibit the performance of or to obtain damages or other
relief in connection with this Agreement or the consummation of the transactions
contemplated hereby.
5.2.9 Approval of Title. Buyer shall have approved Sellers' Marketable
Title to the Properties.
5.2.10. Prospect Costs. Sellers shall deliver to Buyer a written
statement signed by W & T Offshore, Inc., identifying in reasonable detail all
prospect costs as of September 30, 1996, to be considered in the calculation of
"Prospect Payout," as that term is defined in the letter agreement described as
item 1. in C. of Exhibit "A" to this Agreement.
5.2.11 Additional Letters. Sellers shall deliver to Buyer letters in
the forms attached hereto as Exhibit "C" fully executed by the parties
identified thereon.
5.2.12 Board Approval. The board of directors of Buyer shall have
approved the transactions contemplated by this Agreement.
ARTICLE VI
CLOSING
6.1 Closing Date. Unless the Parties hereto mutually agree otherwise, and
subject to the conditions stated in this Agreement, the consummation of the
transactions contemplated hereby (herein called the "Closing") shall be held at
or before 5:00 p.m., Central Standard Time, December 31, 1996, or at such other
time as Buyer and Sellers may agree in writing. The date Closing actually occurs
is herein called the "Closing Date." Time shall be of the essence of this
Agreement.
6.2 Place Of Closing. The Closing shall be held at the offices of
- -----------------------------, or at such other place as Buyer and Sellers may
agree in writing.
14
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6.3 Closing Obligations. At the Closing, the following events shall occur,
each being a condition precedent to the others and each being deemed to have
occurred simultaneously with the others:
6.3.1 Assignment. Sellers shall execute, acknowledge and deliver to
Buyer an assignment, bill of sale and conveyance (in sufficient counterparts to
facilitate recording) substantially in form and substance as set forth in
Exhibit "B" hereto (the "Assignment"), conveying the Properties to Buyer.
6.3.2 Declaration of Agreement for Exploitation of Mineral Interests.
If no declaration in compliance with ss. 2731 et seq. of Title 9 of the
Louisiana Revised Statues sufficient to bind third persons acquiring an interest
in the Oil and Gas Properties has been filed of record in the office of the
Clerk of Court of Iberville Parish, Louisiana, Sellers shall execute,
acknowledge, and deliver to Buyer such a declaration.
6.3.3 Agreements To Be Subject To Sellers' Interest in the Oil and Gas
Properties. In the event that Buyer's investigation of the title to the Oil and
Gas Properties indicates to Buyer in its sole discretion that any third party
has acquired any interest in the Oil and Gas Properties which was originally
burdened by Sellers' interest in the Oil and Gas Properties but which, due to
the absence of an appropriate agreement or the absence of a Declaration as
described above, is no longer subject to Sellers' interest, Sellers shall
furnish Buyer an agreement from such third party or parties to be subject to
Sellers' interest in the Oil and Gas Properties.
6.3.4 Satisfactory Evidence of Release of Liens and Encumbrances.
Sellers shall furnish Buyer evidence that all liens and encumbrances not
constituting Permitted Encumbrances have been released, said evidence to be
satisfactory to Buyer in Buyer's sole discretion.
6.3.5 Delivery of Possession. Sellers shall deliver to Buyer exclusive
possession of Sellers' interest in and to the Properties.
6.3.6 Payment of Purchase Price. Against delivery of the documents and
materials described above, Buyer shall (a) pay to each Seller separately by
certified check or wire transfer its proportionate share of the sum of the EIGHT
HUNDRED SEVENTY-FIVE THOUSAND AND NO/100 DOLLARS ($875,000.00), each Seller to
receive the amount set out next to its name as follows:
15
<PAGE>
Atocha Exploration, Inc. $393,750
Browning Oil Company, Inc. $350,000
Potosky Oil and Gas, Inc. $131,250
and (b) deliver to each Seller separately its proportionate share of 315,000
shares of the $0.10 par value per share common stock of Buyer, each Seller to
receive the number set out next to its name as follows:
Atocha Exploration, Inc. 141,750
Browning Oil Company, Inc. 126,000
Potosky Oil and Gas, Inc. 47,250
Each certificate shall bear the following restrictive legend:
The securities represented by this certificate may not be offered
for sale, sold or otherwise transferred except pursuant to an
effective registration statement under the securities Act of 1933
(the "Act"), or pursuant to an exemption from registration under
the Act, the availability of which is to be established to the
satisfaction of the Company.
Prior to the time Sellers assign, sell or otherwise dispose of their respective
shares, the restrictive legend cannot be removed. The registration statement
referred to in Paragraph 4.2 will register the shares "for resale." Accordingly,
the restrictive legend will only be removed at the time Sellers assign, sell or
otherwise dispose of those shares. Sellers, or their agents effecting the
transaction, will be required to contact the Company's transfer agent to
determine the procedure that is best to follow to have their shares transferred
without a restrictive legend upon the assignment, sale or other disposition of
Sellers' shares.
6.3.7 Prospect Costs. Sellers shall deliver to Buyer a written
statement signed by Sellers and National Energy Group, Inc., identifying in
reasonable detail all prospect costs as of September 30, 1996, to be considered
in the calculation of "Prospect Payout," as that term is defined in the letter
agreement described as item 1. in C. of Exhibit "A" to this Agreement.
6.3.8 Additional Letters. Sellers shall deliver to Buyer fully
executed letters in the forms attached hereto as Exhibit "C."
16
<PAGE>
ARTICLE VII
POST-CLOSING OBLIGATIONS
7.1 Files And Records. Within fifteen (15) days after the Closing Date,
Sellers shall, upon the request of Buyer, deliver to Buyer such copies of files
and records relating to the Properties as are in Sellers' possession or subject
to Sellers' control.
7.2 Sales Taxes And Recording Fees. Sellers shall pay any sales taxes
occasioned by the sale of the Properties. Buyer shall pay all documentary,
filing and recording fees required in connection with the filing and recording
of any assignments.
7.3 Indemnification. After the Closing and to the extent permitted by law,
Sellers and Buyer shall indemnify each other as follows:
7.3.1 Sellers' Indemnities. Sellers shall defend, indemnify and save
and hold Buyer harmless against all claims, costs, damages, losses, expenses,
obligations and liabilities with respect to the Properties, which arise from
occurrence or nonoccurrences taking place either in whole or in part prior to
the Effective Time.
7.3.2 Buyer' s Indemnities. Buyer shall defend, indemnify and save and
hold Sellers harmless against all claims, costs, damages, losses, expenses,
obligations and liabilities with respect to the Properties which arise from
events or occurrences taking place after the Effective Time.
7.4 Survival. All representations, warranties, covenants, agreements, and
indemnities of or by the Parties shall survive the execution and delivery of any
of the instruments to be delivered at closing.
7.5. Stock Adjustment. If, on the date the registration statement described
in Paragraph 4.2 becomes effective (the "Registration Date"), the average of the
reported closing bid and asked prices (the "Effective Price") for the stock
described in Paragraph 6.3.6 is less than TWO AND 78/100 ($2.78) DOLLARS per
share, the difference in value shall be accounted for by Buyer to Sellers either
by (i) the payment of cash equal to the difference or (ii) the delivery to
Sellers of the number of shares of the $0.10 par value common stock of Buyer
with an aggregate Effective Price on the Registration Date equal to such
difference. The method by which Buyer accounts to Sellers shall be within the
sole discretion of Buyer. If Buyer elects to deliver additional shares, Buyer
shall register those shares for resale at the time the next registration
statement for securities of Buyer is filed by Buyer with the Securities Exchange
Commission.
17
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7.6 Further Assurances. After Closing, Sellers and Buyer shall execute,
acknowledge and deliver or cause to be executed, acknowledged and delivered such
instruments and take such other action as may be necessary or advisable to carry
out their obligations under this Agreement and under any document, certificate
or other instrument delivered pursuant hereto.
ARTICLE VIII
TERMINATION OF AGREEMENT
8.1 Termination Without Liability. The Parties may terminate this Agreement
and the transactions contemplated herein without any liability to each other
whatsoever in the following instances:
8.1.1 Termination by Sellers. By Sellers if the conditions to their
obligations at Closing as set forth in this Agreement are not satisfied in all
material respects or waived as of the Closing Date.
8.1.2 Termination by Buyer. By Buyer if the conditions to its
obligations at Closing as set forth in this Agreement are not satisfied in all
material respects or waived as of the Closing Date or in the event of a
"Casualty Loss," as that term is hereinafter defined. "Casualty Loss" shall
mean, with respect to all or any portion of the Properties, any destruction by
fire, blowout, storm, or other casualty or any taking, or pending or threatened
taking, in condemnation or expropriation or under the right of eminent domain of
any of the Properties, prior to Closing.
8.1.3 Termination by Mutual Agreement. At any time by the mutual
written agreement of the Parties.
8.1.4 Termination For Failure of Timely Closing. By Sellers and/or
Buyer if the Closing shall not have occurred by the Closing Date provided,
however, that a Party cannot so terminate if it is in breach of this Agreement.
8.2 Liabilities Upon Termination. Except as otherwise provided in this
Agreement, if this Agreement is terminated for any reason or is breached,
nothing contained herein shall be construed to limit Sellers' or Buyer' s legal
or equitable remedies, including damages for the breach of failure of any
representation, warranty, covenant or agreement contained herein or the right to
specific performance of this Agreement.
18
<PAGE>
ARTICLE IX
MISCELLANEOUS
9.1 Exhibits. The exhibits referred to in this Agreement are hereby
incorporated into this Agreement by reference and constitute a part of this
Agreement.
9.2 Notices. All notices and communications required or permitted under
this Agreement shall be in writing, and any communication or delivery hereunder
shall be deemed to have been duly made when personally delivered to the
individual indicated below, or if mailed or telecopied, when received by the
Party charged with such notice, however, that such notice should be addressed as
follows:
If to Buyer:
Pease Oil and Gas Company
751 Horizon Court, Suite 203
Grand Junction, Colorado 81506-8718
Attn: Willard H. Pease, Jr., President
fax: (970) 243-8840
If to Atocha Exploration, Inc.:
Atocha Exploration, Inc.
1201 Louisiana, Suite 1050
Houston, Texas 77002
Attn: W. David Willig, President
fax: (713) 654-5018
If to Browning Oil Company, Inc.:
Browning Oil Company, Inc.
8080 N. Central Expressway, Suite 780
Dallas, Texas 75206
Attn: Michael R. McWilliams, President
fax: (214) 739-4458
If to Potosky Oil and Gas, Inc.:
Potosky Oil and Gas, Inc.
10410 Memorial Drive
Houston, Texas 77024
Attn: Robert Potosky, President
fax: (713) 654-5018
19
<PAGE>
Any Party may, by written notice so delivered to the others in compliance with
this paragraph, change the address provided for above.
9.3 Amendments. This Agreement may not be amended except by a written
instrument signed by all Parties hereto.
9.4 Alienability. Neither Sellers nor Buyer may assign their rights or
obligations hereunder without the written consent of all Parties. Subject to the
foregoing, this Agreement shall be binding upon the Parties hereto and their
respective successors and assigns.
9.5 Third-Party Beneficiaries. Nothing in this Agreement shall entitle
anyone other than Sellers and Buyer to any claim, cause of action, remedy or
right of any kind.
9.6 Counterparts. This Agreement may be executed by Buyer and Sellers in
any number of counterparts, each of which shall be deemed an original
instrument, but all of which together shall constitute but one and the same
instrument.
9.7 Governing Law. This Agreement and the transactions contemplated hereby
shall be construed in accordance with, and governed by, the laws of the State of
Louisiana.
9.8 Entire Agreement. This Agreement, including the exhibits hereto,
constitutes the entire understanding among the Parties with respect to the
subject matter hereof, superseding all negotiations, prior discussions and prior
agreements and understandings relating to such subject matter. In conformity
with the Doctrines of Merger and Contractual Integration, the letters of intent
among the Parties dated November 19, 1996, giving rise to this Agreement shall
merge with this Agreement on the Agreement Date, and the letters of intent shall
thereafter have no force and effect.
9.9 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect.
9.10 Waiver. No waiver of any of the provisions of this Agreement shall
constitute or be deemed a waiver of any other provision hereof, whether or not
similar, nor shall such waiver constitute a continuing waiver unless otherwise
expressly provided.
20
<PAGE>
9.11 Captions. The captions in this Agreement are for convenience only and
shall not be considered a part of or affect the construction or interpretation
of any provision of this Agreement.
9.12 "Including". In this Agreement, the word "including" means "including,
but not limited to."
9.13 Construction. In construing this Agreement, no consideration shall be
given to the fact or presumption that one Party had a greater or lesser hand in
its drafting.
9.14 Costs. Each Party shall pay its own costs, including fees and expenses
of its own counsel, consultants and accountants, in connection with the purchase
and sale of the Properties, except as otherwise provided for herein. Sellers
shall discharge all Encumbrances other than the Permitted Encumbrances. Sellers
shall pay all sales and other transfer taxes, if any, incurred in connection
with the transaction contemplated by this Agreement. Buyer shall pay all
documentary, filing and recording fees.
9.15 Publicity. Sellers and Buyer shall consult with each other with regard
to all publicity and other releases issued at or prior to the Closing concerning
this Agreement and the transactions contemplated by it, and except as required
by applicable law or the applicable rules or regulations of any governmental
body or stock exchange, no Party shall issue any such publicity or other release
without the prior written consent of the other Parties.
9.16 Gender And Number. As used in this Agreement, the masculine, feminine
or neuter gender and the plural or singular number shall each be deemed to
include the others whenever the context so indicates.
This Agreement has been duly executed by Buyer and Sellers this ------ day
of ----------- 19--- (the "Agreement Date").
SELLERS:
ATOCHA EXPLORATION, INC.
/s/ W. David Willig
--------------------------------
W. David Willig, President
BROWNING OIL COMPANY, INC.
/s/ Michael R. McWilliams
--------------------------------
Michael R. McWilliams, President
21
<PAGE>
POTOSKY OIL AND GAS, INC.
/s/ Robert Potosky
--------------------------------
Robert Potosky, President
BUYER:
PEASE OIL AND GAS COMPANY
/s/ Willard H. Pease, Jr.
--------------------------------
Willard H. Pease, Jr., President
STATE OF
ss. ------------------
ss.
COUNTY OF
ss. ------------------
This instrument was acknowledged before me on this ------ day of
- ---------------, 19----, by W. David Willig, President of ATOCHA EXPLORATION,
INC., a Louisiana corporation, on behalf of said corporation.
- --------------------------------------
Notary Public
22
<PAGE>
STATE OF
ss. --------------
ss.
COUNTY OF
ss. -------------
This instrument was acknowledged before me on this ------ day of
- ---------------, 19----, by Michael R. McWilliams, President of BROWNING OIL
COMPANY, INC., a Nevada corporation, on behalf of said corporation.
- --------------------------------------
Notary Public
STATE OF
ss. -------------
ss.
COUNTY OF
ss. -------------
This instrument was acknowledged before me on this ------ day of
- ---------------, 19----, by Robert Potosky, President of POTOSKY OIL AND GAS,
INC., a Texas corporation, on behalf of said corporation.
- --------------------------------------
Notary Public
23
<PAGE>
STATE OF
ss. -------------
ss.
COUNTY OF
ss. -------------
This instrument was acknowledged before me on this ------ day of
- ---------------, 19----, by Willard H. Pease, Jr., President of PEASE OIL AND
GAS COMPANY, a Nevada corporation, on behalf of said corporation.
- --------------------------------------
Notary Public
24
<PAGE>
EXHIBIT "A"
TO
PURCHASE AND SALE AGREEMENT
This Exhibit "A" sets forth the description of the property interests
covered by the Purchase and Sale Agreement to which this Exhibit "A" is
attached. All of the terms defined in the Purchase and Sale Agreement and used
in this Exhibit "A" have the same meanings given therein.
This Exhibit "A" and the Purchase and Sale Agreement cover and include the
following:
(a) All of Sellers' right, title and interest in and to the oil, gas and
mineral leases described herein or subject to any of the pooled units described
herein, as such leases and pooled units have been or may be modified from time
to time, and/or lands described in and subject to such oil, gas and mineral
leases (regardless, as to such leases and/or lands, of any surface acreage
and/or depth limitations set forth in any description of any of such oil, gas
and mineral leases), except as otherwise provided for herein, and all of
Sellers' right, title and interest in and to any of the oil, gas and minerals
in, on or under the lands, if any, described on this Exhibit, including, without
limitation, all contractual rights, servitudes, fee interests, leasehold
interests, overriding royalty interests, non-participating royalty interests,
mineral interests, production payments, net profits interests, or any other
interest measured by or payable out of production of oil, gas or other minerals
from the oil, gas and mineral leases and/or lands described herein, except as
otherwise provided for herein;
(b) All of the foregoing interests of Sellers as such interests may be
enlarged by the discharge of any payments out of production or by the removal of
any charges or encumbrances together with Sellers' interests in, to and under or
derived from all renewals and extensions of any oil, gas and mineral leases
described herein, it being specifically intended hereby that any new oil and gas
lease (i) in which an interest is acquired by Sellers after the termination or
expiration of any oil and gas lease, the interests of Sellers in, to and under
or derived from which are subject to the lien and security interest hereof, and
(ii) that covers all or any part of the property described in and covered by
such terminated or expired leases, shall, to the extent, and only to the extent
such new oil and gas lease may cover such property, be considered a renewal or
extension of such terminated or expired lease;
(c) All right, title and interest of Sellers in, to and under or derived
from any operating, participation, exploration, letter, farmout, and bidding
agreements, assignments and subleases, whether described in this Exhibit "A," to
the extent, and only to the extent, that such agreements, assignments and
subleases cover or include (i) any of Sellers' present or future right, title
and interest in and to the wells, leases, units and/or lands described in this
Exhibit "A," (ii) any of Sellers' present or future right, title, and interest
in and to wells, leases, units and/or lands described in or covered by any such
agreements, assignments and subleases specifically described in this Exhibit
"A," or (iii) cover or include any other undivided interests now or hereafter
held by Sellers in, to and under the described wells, leases, units and/or
lands, including, without limitation, any future operating, participation,
exploration, letter, farmout and bidding agreements, assignments, subleases and
pooling, unitization and communitization agreements and the units created
thereby (including, without limitation, all units formed under orders,
regulations, rules or other official acts of any governmental body or agency
having jurisdiction) to the extent and only to the extent that such agreements,
assignments, subleases, or units cover or include the described wells, leases,
units and/or lands;
(d) All right, title, and interest of Sellers in, to and under or derived
from all presently existing and future advance payment agreements, oil,
casinghead gas and gas sales, exchange, and processing contracts and agreements
including, without limitation, any of those contracts and agreements that are
described on this Exhibit "A" to the extent, and only to the extent, those
contracts and agreements cover or include the described leases and/or lands
herein; and
<PAGE>
(e) All right, title and interest of Sellers in, to and under or derived
from all existing and future permits, licenses, easements and similar rights and
privileges that relate to or are appurtenant to any of the described leases
and/or lands.
Notwithstanding the intention of this Purchase and Sale Agreement to cover
all of the right, title and interest of Sellers in and to the described wells,
leases, units and Lands, except as otherwise provided for herein, Sellers hereby
specifically warrant and represent that the interests covered by this Exhibit
are not greater than the working interest nor less than the net revenue
interest, overriding royalty interest, net profit interest, production payment
interest, royalty interest or other interest payable out of or measured by
production set forth in connection with each oil and gas well, lease and unit
described in this Exhibit. In the event Sellers own any other or greater
interest, such additional interest shall also be covered by and included in this
Purchase and Sale Agreement, except as otherwise provided for herein.
The designation "Working Interest" or "W.I." means an interest owned in an
oil, gas, and mineral lease that determines the cost bearing percentage of the
owner of such interest. The designation "Net Revenue Interest" or "N.R.I." means
net revenue interest, or that portion of the production attributable to the
owner of a working interest after deduction for all royalty burdens, overriding
royalty burdens, or other burdens on production, except severance, production,
windfall profits and other similar taxes. The designation "Overriding Royalty
Interest" or "O.R.R.I." means an interest in production which is free of any
obligation for the expense of exploration, development and production, bearing
only its prorata share of severance, production, windfall profits and other
similar taxes and, in instances where the document creating the overriding
royalty interest so provides, costs associated with compression, dehydration,
other treating or processing or transportation of production of oil, gas or
other minerals relating to the marketing of such production. The designation
"Royalty Interest" or "R.I." means an interest in production which results from
an ownership in the mineral fee estate or royalty estate in the relevant land
and which is free of any obligation for the expense of exploration, development
and production, bearing only its prorata share of severance, production,
windfall profits and other similar taxes and, in instances where the document
creating the royalty interest so provides, costs associated with compression,
dehydration, other treating or processing or transportation of production of
oil, gas or other minerals relating to the marketing of such production.
"A.P.P.O." shall mean after prospect payout as that term is defined by the
contracts and agreements described in item C. below and any letters or
agreements required by this Purchase and Sale Agreement.
A. LEASES
1. Oil, Gas and Mineral Lease dated January 10, 1994, filed February
16, 1994, recorded in COB 467, Folio 474, Entry No. 71, Iberville
Parish, Louisiana, from Schwing, Inc., as agent for Virginia Campbell
Becker, et al., to UMC Petroleum Corporation, covering the lands more
particularly described therein.
A.P.P.O.W.I. - 7.8125%
A.P.P.O.N.R.I. - 5.625%
2. Oil, Gas and Mineral Lease dated December 27, 1995, effective
December 14, 1995, filed February 21, 1996, recorded in COB 485, Folio
364, Entry No. 99, from Wilbert Funeral Home, Inc., to W & T Offshore,
Inc., covering the lands more particularly described therein.
A-2
<PAGE>
A.P.P.O.W.I. - 7.8125%
A.P.P.O.N.R.I. - 5.625%
3. Oil, Gas and Mineral Lease dated June 14, 1996, filed July 1, 1996,
recorded in COB 489, Folio 158, Entry No. 75, from Wilbert's Sons
Limited Partnership, to W & T Offshore, Inc., covering the lands more
particularly described therein.
A.P.P.O.W.I. - 7.8125%
A.P.P.O.N.R.I. - 5.625%
A-3
<PAGE>
4. That certain Lease awarded August 14, 1996, from the State of
Louisiana to National Energy Group, Inc., covering a portion of State
Lease Tract 29181, described as Tract A, containing 10 acres, more or
less, being more particularly described therein.
A.P.P.O.W.I. - 7.8125%
A.P.P.O.N.R.I. - 5.234375%
5. That certain Lease awarded August 14, 1996, from the State of
Louisiana to W & T Offshore, Inc., covering a portion of State Lease
Tract 29181, described as Tract B, containing 141 acres, more or less,
being more particularly described therein.
A.P.P.O.W.I. - 7.8125%
A.P.P.O.N.R.I. - 5.8203125%
B. UNITS
1. The W & T Offshore, Inc. - CIB. HAZ. 3 Sand, Reservoir A, Unit as
created by Order No. 374-U of the Office of Conservation of the State
of Louisiana dated December 5, 1996, but effective on October 22,
1996.
A.P.P.O.W.I. - -----------%
A.P.P.O.N.R.I. - ------------%
2. The W & T Offshore, Inc. - CIB. HAZ. 2 Zone, Reservoir B. Unit as
created by Order No. 374-P-1 of the Office of Conservation of the
State of Louisiana dated December 5, 1996, but effective on October
22, 1996.
A.P.P.O.W.I. - -----------%
A.P.P.O.N.R.I. - ------------%
C. CONTRACTS
1. Letter agreement dated December 15, 1995, among Supply Development
Group, Inc., Transworld Exploration & Production, Inc., Atocha
Exploration, Inc., Potosky Oil & Gas, Inc., Liberty Energy
Corporation, Fortune Petroleum Corporation d/b/a Fortune Natural
Resources Corporation, Browning Oil Company, Inc., UMC Petroleum
Corporation, Bonray, Inc., and National Energy Group, Inc., regarding
participation in the East Bayou Sorrel Prospect, Iberville Parish,
Louisiana.
2. Operating agreement dated December 15, 1995, for the East Bayou
Sorrel Contract Area, Iberville Parish, Louisiana, among W & T
Offshore, Inc., as Operator, and Supply Development Group, Inc.,
National Energy Group, Inc., Liberty Energy Corporation, Fortune
Petroleum Company d/b/a Fortune Natural Resources Corporation,
Transworld Exploration & Production, Inc., Browning Oil Company, Inc.,
Potosky Oil & Gas, Inc., Atocha Exploration, Inc., and Bonray, Inc.,
as Non-Operators.
A-4
<PAGE>
3. Letter agreement dated April 19, 1996, among Atocha Exploration,
Inc., Potosky Oil & Gas, Inc., and National Energy Group, Inc.,
regarding the optional back-in interest in the East Bayou Sorrel
Prospect, Iberville Parish, Louisiana.
4. Letter agreement dated July 18, 1996, among Atocha Exploration,
Inc., Potosky Oil & Gas, Inc., and Browning Oil Company, Inc.,
regarding the A.P.P.O. back-in interest, East Bayou Sorrel Prospect.
5. Letter agreement dated July 30, 1996, among W & T Offshore, Inc.,
Supply Development Group, Inc., Transworld Exploration & Production,
Inc., Atocha Exploration, Inc., Bonray, Inc., Potosky Oil & Gas, Inc.,
Liberty Energy Corporation, Fortune Petroleum Corporation d/b/a
Fortune Natural Resources, Inc., Browning Oil Company, Inc., and
National Energy Group, Inc., regarding the area of interest for the
East Bayou Sorrel Prospect, Iberville Parish, Louisiana.
D. EXCLUSION
Notwithstanding any other provision to the contrary contained in this
Exhibit "A," the Purchase and Sale Agreement does not cover or include that
certain overriding royalty interest of Sandefer Oil & Gas, Inc., W. David
Willig, and Robert A. Potosky equal to 3% of 8/8ths of production in the
Area of Interest provided for in the Agreements, including the interest
provided for in Exhibit "A" of the letter agreement described in C. above
as item 1, to the extent Sandefer Oil & Gas, Inc., W. David Willig, and
Robert A. Potosky are entitled to receive such an interest, the parties not
intending to create such an interest by this Purchase and Sale Agreement.
A-5
<PAGE>
EXHIBIT "B"
TO
PURCHASE AND SALE AGREEMENT
[ASSIGNMENT FORM]
ASSIGNMENT OF INTEREST IN OIL, GAS AND MINERAL LEASES
STATE OF LOUISIANA '
' KNOW ALL PERSONS BY THESE PRESENTS:
PARISH OF IBERVILLE '
THAT, ATOCHA EXPLORATION, INC., a Louisiana corporation, 1201 Louisiana,
Suite 1050, Houston, Texas 77002, BROWNING OIL COMPANY, INC., a Nevada
corporation, 8080 N. Central Expressway, Suite 780, Dallas, Texas 75206, and
POTOSKY OIL AND GAS, INC., a Texas corporation, 10410 Memorial Drive, Houston,
Texas 77024 (collectively, "Assignors") for and in consideration of the sum of
TEN AND NO/100 ($10.00) DOLLARS and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged and confessed, has
granted, sold, transferred, assigned and conveyed and does hereby GRANT, SELL,
TRANSFER, ASSIGN and CONVEY to PEASE OIL AND GAS COMPANY, a Nevada corporation,
751 Horizon Court, Suite 203, Grand Junction, Colorado 81506-8718 a Delaware
corporation ("Assignee") all of their right, title and interest, except for the
overriding royalty interest provided for in Exhibit "A" of item 1 below, under
the following agreements (the "Agreements"):
1. Letter agreement dated December 15, 1995, among Supply Development
Group, Inc., Transworld Exploration & Production, Inc., Atocha
Exploration, Inc., Potosky Oil & Gas, Inc., Liberty Energy
Corporation, Fortune Petroleum Corporation d/b/a Fortune Natural
Resources Corporation, Browning Oil Company, Inc., UMC Petroleum
Corporation, Bonray, Inc., and National Energy Group, Inc., regarding
participation in the East Bayou Sorrel Prospect, Iberville Parish,
Louisiana.
2. Operating agreement dated December 15, 1995, for the East Bayou
Sorrel Contract Area, Iberville Parish, Louisiana, among W & T
Offshore, Inc., as Operator, and Supply Development Group, Inc.,
National Energy Group, Inc., Liberty Energy Corporation, Fortune
Petroleum Company d/b/a Fortune Natural Resources Corporation,
Transworld Exploration & Production, Inc., Browning Oil Company, Inc.,
Potosky Oil & Gas, Inc., Atocha Exploration, Inc., and Bonray, Inc.,
as Non-Operators.
3. Letter agreement dated April 19, 1996, among Atocha Exploration,
Inc., Potosky Oil & Gas, Inc., and National Energy Group, Inc.,
regarding the "After Prospect Payout Interest," as that term is
hereinafter defined.
4. Letter agreement dated July 18, 1996, among Atocha Exploration,
Inc., Potosky Oil & Gas, Inc., and Browning Oil Company, Inc.,
regarding the "After Prospect Payout Interest," as that term is
hereinafter defined.
5. Letter agreement dated July 30, 1996, among W & T Offshore, Inc.,
Supply Development Group, Inc., Transworld Exploration & Production,
Inc., Atocha Exploration, Inc., Bonray, Inc., Potosky Oil & Gas, Inc.,
Liberty Energy Corporation, Fortune Petroleum Corporation d/b/a
Fortune Natural Resources, Inc., Browning Oil Company, Inc., and
National Energy Group, Inc., regarding the area of interest for the
East Bayou Sorrel Prospect, Iberville Parish, Louisiana.
<PAGE>
6. Letter agreement dated December 10, 1996, among Atocha Exploration,
Inc., Potosky Oil & Gas, Inc., Browning Oil Company, Inc., Supply
Development Group, Inc., Liberty Energy Corporation, Bonray, Inc., and
Transworld Exploration & Production, Inc., regarding the East Bayou
Sorrel Prospect, Iberville Parish, Louisiana.
7. Letter agreement dated ______________, 19____, between National
Energy Group, Inc., and Pease Oil; and Gas Company regarding the East
Bayou Sorrel Prospect, Iberville Parish, Louisiana.
The rights herein assigned include, but are not limited to, and Assignors
do hereby GRANT, SELL, TRANSFER, ASSIGN and CONVEY to Assignee, the option to
acquire in accordance with the Agreements an undivided 7.8125% of 8/8ths
interest, effective upon the occurrence of "Prospect Payout," as that term is
defined in the Agreements (the "After Prospect Payout Interest"), with a net
revenue interest in each Lease and Unit not less than the net revenue interest
(the "NRI") identified for the Lease or Unit in parentheses following the
description of such Lease or Unit, in and to the following Oil, Gas and Mineral
Leases and Units:
1. Oil, Gas and Mineral Lease dated January 10, 1994, filed February
16, 1994, recorded in COB 467, Folio 474, Entry No. 71, Iberville
Parish, Louisiana, from Schwing, Inc., as agent for Virginia Campbell
Becker, et al., to UMC Petroleum Corporation, covering the lands more
particularly described therein (5.625% NRI).
2. Oil, Gas and Mineral Lease dated December 27, 1995, effective
December 14, 1995, filed February 21, 1996, recorded in COB 485, Folio
364, Entry No. 99, from Wilbert Funeral Home, Inc., to W & T Offshore,
Inc., covering the lands more particularly described therein (5.625%
NRI).
3. Oil, Gas and Mineral Lease dated June 14, 1996, filed July 1, 1996,
recorded in COB 489, Folio 158, Entry No. 75, from Wilbert's Sons
Limited Partnership, to W & T Offshore, Inc., covering the lands more
particularly described therein (5.625% NRI).
4. State Lease No 15357 dated August 19, 1996, recorded in COB 491,
Folio 860, Entry No. 123, from the State of Louisiana to W & T
Offshore, Inc., covering the lands more particularly described therein
(5.234375% NRI).
5. State Lease No. 15358 dated August 19, 1996, recorded in COB 492,
Page 57, Entry No. 9, from the State of Louisiana to National Energy
Group, Inc., covering the lands more particularly described therein
(5.8203125% NRI).
6. The W & T Offshore, Inc. - CIB. HAZ. 3 Sand, Reservoir A Unit, in
the Bayou Sorrel Field, as created by Order No. 374-U of the Office of
Conservation of the State of Louisiana dated December 5, 1996, but
effective on October 22, 1996 (_________ NRI).
7. The W & T Offshore, Inc. - CIB. HAZ. 2 Zone, Reservoir B Unit, in
the Bayou Sorrel Field, as created by Order No. 374-P-1 of the Office
of Conservation of the State of Louisiana dated December 5, 1996, but
effective on October 22, 1996 (_____________ NRI).
C-2
as well as any and all other Leases in which the Agreements entitle the
Assignors to the After Prospect Payout Interest, in the Areas of Interest
described as follows:
1. BEGINNING at a point which is the Southwest corner of Section 24,
Township 10 South, Range 11 East Iberville Parish, Louisiana;
THENCE in an Easterly direction to a point which is the Southeast
corner of the West Half of Section 33 of said Township and Range;
THENCE in a Northerly direction to a point which is the point of
intersection of the Northeast, Northwest, Southeast and Southwest
Quarters of Section 21 of said Township and Range;
THENCE in a Westerly direction to a point which is the Northeast
corner of Lot or Tract 10, Section 19 of said Township and Range;
THENCE in a Southerly direction along the Easterly boundaries of
Lots or Tracts 10 and 11 of said Section to a point which is the
Southeast corner of said Lot or Tract 11, said point being in the
Northerly line of Section 30 of said Township and Range;
THENCE in an Easterly direction to a point which is the
Northeastern corner of Section 10 of said Township and Range;
THENCE in a Southerly direction along the line between Sections 9
and 10 of said Township and Range 4500 feet to a point on said line;
THENCE West to a point in the Westerly line of Section 11 of said
Township and Range;
THENCE in a Southerly direction along the Western boundaries of
Sections 11 and 24 of said Township and Range to a point which is the
Southwest corner of said Section 24;
THENCE in an Easterly direction along the Southerly boundaries of
Sections 24, 25, 31, 32, and 33 to a point which is the Southeast
corner of the West Half of Section 33 of said Township and Range, and
the point of beginning.
2. BEGINNING at a point which is the Northwest corner of the Southeast
Quarter of Section 21, Township 10 South, Range 11 East, Iberville
Parish, Louisiana;
THENCE in an Easterly direction to a point on the East line of
said Section which is the Northeast corner of the Southeast Quarter of
said section;
THENCE South along the Eastern boundary of said section as called
for in conflict with the Western boundaries of Sections 73, 74, and 75
of said Township and Range and along the Eastern boundary of Sections
28 and 33 of said Township and Range to a point which is the Southeast
corner of the Northeast Quarter of Section 33 of said Township and
Range;
C-3
<PAGE>
THENCE in a Westerly direction to a point which is the Southwest
corner of the Northeast Quarter of said Section;
THENCE in a Northerly direction to the point of beginning.
TO HAVE AND TO HOLD the above described property and premises, together
with all and singular the rights and appurtenances thereto in any way belonging,
unto Assignee and its successors and assigns, and Assignors do hereby bind
themselves and their successors and assigns to warrant and forever defend all
and singular the said property and premises unto Assignee and its successors and
assigns against every person whomsoever lawfully claiming or to claim the same
or any part thereof, by, through or under Assignors, but not otherwise.
This Assignment is made subject to the following terms, conditions,
reservations and limitations:
1. This Assignment is made pursuant to, in accordance with, and subject to
the terms, covenants, and conditions of, that certain Purchase and Sale
Agreement dated --------------, 19--, by and between Assignors and Assignee.
2. This Assignment is made subject to the terms, covenants and conditions
of the Leases and the Agreements.
3. The interests assigned herein shall bear, on and after the time of, but
not before, Prospect Payout, their proportionate share of all royalties,
overriding royalties, and other similar lease burdens in effect, whether or not
of record, as of the effective date of this Assignment.
4. This Assignment and its terms, covenants and conditions shall be binding
upon and inure to the benefit of Assignors and Assignee, and their respective
heirs, devisees, legal representatives, successors and assigns.
IN WITNESS WHEREOF, this instrument is executed the ----- day of
- ----------------, 19----, but effective as of midnight, Central Standard Time,
December 31, 1996.
ATOCHA EXPLORATION, INC.
/s/ W. David Willig
--------------------------------
W. David Willig, President
C-4
<PAGE>
BROWNING OIL COMPANY, INC.
/s/ Michael R. McWilliams
--------------------------------
Michael R. McWilliams, President
POTOSKY OIL AND GAS, INC.
/s/ Robert Potosky
--------------------------------
Robert Potosky, President
STATE OF ss.
--------------------- ss.
COUNTY/PARISH OF ss.
--------------
On this ----- day of -----------------, 199--, before me appeared W. David
Willig, to me personally known, who, being by me duly sworn did say that he is
the President of ATOCHA EXPLORATION, INC., a Louisiana corporation, and that the
instrument was signed in behalf of the corporation by authority of its Board of
Directors; and that he acknowledged the instrument to be the free act and deed
of the corporation.
------------------------------------
Notary Public
C-5
<PAGE>
STATE OF ss.
--------------------- ss.
COUNTY/PARISH OF ss.
--------------
On this ----- day of -----------------, 199--, before me appeared Michael
R. McWilliams, to me personally known, who, being by me duly sworn did say that
he is the President of BROWNING OIL COMPANY, INC., a Nevada corporation, and
that the instrument was signed in behalf of the corporation by authority of its
Board of Directors; and that he acknowledged the instrument to be the free act
and deed of the corporation.
------------------------------------
Notary Public
STATE OF ss.
--------------------- ss.
COUNTY/PARISH OF ss.
--------------
On this ----- day of -----------------, 199--, before me appeared Robert A.
Potosky, to me personally known, who, being by me duly sworn did say that he is
the President of POTOSKY OIL AND GAS, INC., a Texas corporation, and that the
instrument was signed in behalf of the corporation by authority of its Board of
Directors; and that he acknowledged the instrument to be the free act and deed
of the corporation.
------------------------------------
Notary Public
C-6
<PAGE>
EXHIBIT "C"
TO
PURCHASE AND SALE AGREEMENT
[ADDITIONAL LETTERS]
<PAGE>
[LETTER AGREEMENT BETWEEN NATIONAL ENERGY GROUP, INC., AND PEASE OIL AND GAS
COMPANY ON TERMS TO BE AGREED UPON BY THE PARTIES THERETO]
CONSENT OF ATTORNEY
Reference is made to the Registration Statement on Form S-3 pursuant to
which certain Selling Securityholders described therein propose to sell a
maximum of 5,781,660 shares of the $0.10 par value common stock ("Common Stock")
of the Company. Reference is also made to the opinion dated January 10, 1997
included as Exhibit (5) to the Registration Statement relating to the legality
of the securities proposed to be issued and to be sold.
I hereby consent to the filing of the opinion dated January 10, 1997, as an
exhibit to the Company's Registration Statement on Form S-3 and reference to the
undersigned in the Registration Statement under the caption "Legal Matters."
/s/ Alan W. Peryam
---------------------------------
Alan W. Peryam
Denver, Colorado
Dated: January 10, 1997
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT'S CONSENT
We consent to the incorporation by reference in the Registration
Statement of Pease Oil and Gas Company on Form S-3 of our report dated March 2,
1996 on our audits of the consolidated financial statements of Pease Oil and Gas
Company as of December 31, 1995, and for the years ended December 31, 1995 and
1994, which report is included in the Annual Report of Pease Oil and Gas Company
on Form 10-KSB.
HEIN + ASSOCIATES LLP
Denver, Colorado
January 9, 1997
