UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
[ x ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [Fee Required] For the fiscal year ended DECEMBER 31, 1995
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [No Fee Required]
Commission file number: 0-14731
HALLADOR PETROLEUM COMPANY
(Name of small business issuer in its charter)
COLORADO 84-1014610
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
1660 Lincoln Street, Suite 2700, Denver, Colorado 80264-2701
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 303.839.5504 FAX 303.832.3013
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under to Section 12(g) of the Exchange Act:
COMMON STOCK, $.01 PAR VALUE
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to the filing requirements for the past 90 days.
Yes [x] No [ ]
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $4,578,000
As of March 28, 1996, approximately 71 million shares of the registrant's
common stock were outstanding and the aggregate market value of such common
stock held by non-affiliates was approximately $555,000 based on the average
of the bid ($.07) and ask ($.18) prices on that date of $.125.
Exhibit table is on page 22.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for its 1996
Meeting of Shareholders (to be filed with the Securities and Exchange
Commission on or before April 29, 1996) are incorporated by reference into
Part III.
TABLE OF CONTENTS
1995 FORM 10-KSB ANNUAL REPORT
HALLADOR PETROLEUM COMPANY
<TABLE>
<CAPTION>
PART I:
<S> <C>
Item 1. Description of Business. . . . . . . . . . . . . . . . . 3
Item 2. Description of Property. . . . . . . . . . . . . . . . . 5
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . 7
Item 4. Submission of Matters to a Vote of Security Holders . . . 7
PART II:
Item 5. Market for Common Equity and Related Stockholder Matters . 8
Item 6. Management's Discussion and Analysis or Plan of Operation 8
Item 7. Financial Statements . . . . . . . . . . . . . . . . . . 13
Item 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure. . . . . . . . . . . 22
PART III:
The management information required by Items 9 through 12 is
incorporated by reference from the Company's Proxy Statement for its
1996 Meeting of Shareholders. The Proxy Statement will be filed
with the Securities and Exchange Commission before April 29, 1996.
PART IV:
Item 13. Exhibits and Reports on Form 8-K . . . . . . . . . 22
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
2<PAGE>
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Hallador Petroleum Company, a Colorado corporation, is the successor to
Kimbark Oil & Gas Company (organized in 1949) and Hallador Exploration
Company (organized by its predecessor in 1979). Hallador Petroleum Company
and its principal operating subsidiaries, Hallador Exploration Company and
Hallador Production Company (collectively referred to as the "Company"), are
engaged in the exploration, development and production of oil and natural
gas. The principal and administrative offices of the Company are located at
1660 Lincoln Street, Suite 2700, Denver, Colorado 80264, phone 303.839.5504,
fax 303.832.3013. The Company's field office is located in New Cuyama,
California.
Substantially all of the Company's revenue and reserves are attributable
to the South Cuyama Field (the "Field") located in Santa Barbara County,
California, approximately 75 miles southwest from Bakersfield, California.
The Company owns 92% of Santa Barbara Partners (SBP), an Oklahoma general
partnership, which has an 84% working interest (69% net revenue interest) in
the Field subject to an 18% net profits interest, resulting in an approximate
63% working interest (52% net revenue interest). The Field's oil reserves
consist of light oil at 31 degree gravity.
The Company operates oil and natural gas properties for its own account
and for the account of others. The Company also reviews and evaluates
producing oil and natural gas properties, companies, or other entities which
meet certain guidelines for acquisition purposes. In addition, the Company
engages in the trading and acquisition of non-producing oil and gas mineral
leases and fee-simple minerals.
MARKETS
The Company's products are sold to various purchasers in the geographic
area of the properties. Natural gas, after processing, is distributed
through pipelines. Oil and natural gas liquids (NGLs) are distributed
through pipelines or hauled by trucks. The principal uses for oil and
natural gas are heating, manufacturing, power and transportation.
Now that Congress has passed and the President has signed Senate Bill
S-395 to allow the export of Alaskan North Slope (ANS) crude oil to foreign
countries, the Company believes California crude prices more fairly
represents free market prices.
On February 10, 1996, the President signed into law a bill which
authorizes the sale, within two years, of the Elk Hills Naval Petroleum
Reserve located in Kern County, California. The Company believes the sale
may result in a significant concentration of the ownership of the light crude
oil used as blending stock for the heavy crude oil produced in the San
Joaquin Valley. If such concentrations were to occur, it is possible the
Company will experience a favorable impact on its oil prices.
The Field's natural gas is sold to Atlantic Richfield Company (ARCO)
pursuant to a "spot market" contract which runs through December 31, 1997.
The average price per MCF received during 1995 was $1.42; the year-end price
was $1.61 and the March 28, 1996 estimated price was $1.53.
NGLS are also sold to ARCO pursuant to a "spot market" contract which
can be canceled by either party with 60 days notice. The average price per
barrel received during 1995 was $11.40; the year-end price was $13.05, and
the March 28, 1996 estimated price was $11.76.
At the present time, ARCO owns the only pipeline in the area. The loss
of this outlet for the Company's natural gas could have an adverse affect on
the Company's operations. There are other purchasers for the NGLs
production.
3
The Field's oil is sold to KOCH Oil Company (KOCH) pursuant to a
contract which pays a $.30 per barrel premium, cancelable by either party
upon 180 days notice. The average price per barrel received during 1995 was
$15.90; the year-end price was $15.91, and the March 28, 1996 price was
$19.88. The loss of KOCH would not have an adverse effect on the Company's
operations as there are several other companies competing to purchase the
oil.
COMPETITION
The oil and gas industry is highly competitive. The Company encounters
competition from major and independent oil companies in acquiring
economically desirable producing properties, drilling prospects, and even the
equipment and labor needed to drill, operate and maintain its properties.
Competition is intense with respect to the acquisition of producing and
partially developed properties. The Company competes with companies having
financial resources and technical staffs significantly larger than its own.
The Company does not own any refining or retail outlets and has minimal
control over the prices of its products. Generally, higher costs, fees and
taxes assessed at the producer level cannot be passed on to the Company's
customers.
The Company also faces competition from imported products as well as
alternative sources of energy such as coal, nuclear, hydro-electric power,
and a growing trend toward solar. The Company could incur delays or
curtailments of the purchase of its available production. It may also
encounter increasing costs of production and transportation while sales
prices remain stable or decline. Any of these competitive factors could have
an adverse affect on the operating results of the Company.
ENVIRONMENTAL AND OTHER REGULATIONS
The operations of the Company are affected in varying degrees by
federal, state, regional and local laws and regulations, including, but not
limited to, laws governing allowable rates of production, well spacing, air
emissions, water discharges, endangered species, marketing, prices and taxes.
The Company is further affected by changes in such laws and by constantly
changing administrative regulations.
Most natural gas pricing is presently deregulated and the remaining
regulation has no material impact on prices received by the Company. It is
not possible to predict the long-term impact of future natural gas price
regulation or deregulation.
The Company, as an owner and operator of oil and natural gas properties,
is subject to various federal, state, regional and local laws and regulations
relating to discharge of materials into, and protection of, the environment.
These laws and regulations may, among other things, impose liability on the
owner or the lessee for the cost of pollution clean-up resulting from
operations, subject the owner or lessee to liability for pollution damages,
require suspension or cessation of operations in affected areas or impose
restrictions on injection into subsurface aquifers that may contaminate
groundwater. Such regulation has increased the resources required in, and
costs associated with, planning, designing, drilling, installing, operating
and abandoning the Company's oil and natural gas wells and other facilities.
The Company spends a significant amount of technical and managerial time to
comply with environmental regulations and permitting requirements.
The Company has made and will continue to make expenditures to comply
with these requirements, which it believes are necessary business costs.
Although environmental requirements do have a substantial impact upon the
energy industry, generally these requirements do not appear to affect the
Company any differently or to any greater or lesser extent than other
companies in California.
Although it is not fully insured against all environmental and other
risks, the Company maintains insurance coverage which it believes is
customary in the industry. The Company is not aware of any environmental
claims which could have a material impact upon the Company's financial
condition. Compliance with federal, state, regional and local provisions
relating to protection of the environment have an impact on the Company.
4
During 1995, the aggregate amount incurred by the Company to comply with
environmental regulations was approximately $138,000. The Company estimates
that such expenditures for 1996 will be approximately $145,000 and the same
amount for each year thereafter in the foreseeable future. The Company will
continue to use its best efforts to comply with all applicable environmental
laws and regulations.
To the extent these environmental expenditures reduce funds available
for increasing the Company's reserves of oil and natural gas, future
operations could be adversely impacted. Despite the fact that all the
Company's competitors are having to comply with similar regulations, many are
much larger and have greater resources with which to deal with these
regulations.
OTHER
There are no significant patents, trademarks, licenses, franchises or
concessions held by the Company.
The oil and natural gas business is not generally seasonal in nature,
although unusual weather extremes for extended periods may increase or
decrease demand for oil and NGLs. Natural gas prices tend to increase in the
fall and winter months and to decrease in the spring and summer.
The Company has 27 employees; five are located at its executive office
in Denver and 22 are located at the Field in New Cuyama, California. The
Company also engages independent consulting petroleum engineers,
environmental professionals, geologists, geophysicists, landmen and attorneys
on a fee basis.
ITEM 2. DESCRIPTION OF PROPERTY
LOCATION AND GENERAL CHARACTER
The Company's principal producing area is in Santa Barbara County,
California with minor producing natural gas properties in the San Juan Basin
of New Mexico.
The Company holds its working interests in oil and natural gas
properties either through recordable assignments, leases or contractual
arrangements such as operating agreements. Consistent with industry
practices, the Company does not make a detailed examination of title when it
acquires undeveloped acreage. Title to such properties is examined by legal
counsel prior to commencement of drilling operations. This method of title
examination is consistent with industry practices. The Company believes that
it holds satisfactory title to its properties.
In the acquisition and operation of oil and natural gas properties,
burdens such as royalty, overriding royalty, liens incident to operating
agreements, liens by taxing authorities, as well as other burdens and minor
encumbrances are customarily created. The Company believes that no such
burdens materially affect the value or use of its properties.
PROVED OIL AND GAS RESERVES
Information concerning estimates of the Company's reserves is set forth
in Note 6 to the financial statements. The Company's December 31, 1995 and
1994 reserve estimates for the Field were prepared by the Midland, Texas
office of Williamson Petroleum Consultants, Inc. (Williamson). No
independent reserve report was prepared for the Company's other immaterial
properties. All of the Company's oil and gas reserves are located onshore.
REVISIONS TO NATURAL GAS RESERVES
See Item 6 - Management's Discussion and Analysis.
5
THE SOUTH CUYAMA FIELD
Discovered in 1949 in the Cuyama Valley, Santa Barbara County,
California, the Field became the largest oil field found to date in the
valley. The Field is located approximately 75 miles southwest from
Bakersfield. By 1951, the field contained 200 wells producing approximately
40,000 barrels of oil per day. Gas production peaked in 1963 at 125,000
MCFD.
Since inception, the Field is estimated to have produced and sold over
214 million barrels of crude oil. March, 1996 production to the 100%
averaged (i) 1,130 barrels per day (ii) 2,438 MCFD, of which 792 MCFD are
being sold; the difference of 1,646 MCFD is consumed in field operations and
shrinkage associated with NGL extraction and (iii) 203 barrels per day of
NGLs. Currently, there are 92 producing wells in the Field and 167 inactive
wells. The wells produce from a depth range of 3,900 to 4,600 feet.
The remaining recoverable oil reserves assigned to the Field are less
than 1% of the original recoverable oil reserves in place. The current oil
production levels approximate 3% of the peak production levels experienced
in the 1950s. Due to the enormity of the original oil reserves in place and
the complexity of the reservoir, it is not unreasonable to assume that the
estimated remaining oil reserves could be understated by a factor of 1% of
the original recoverable oil reserves in place. If such were the case, the
Company's share of these additional oil reserves would approximate 1,000,000
barrels which translates to an additional $9,000,000 in PV10 value without
considering income taxes. However, caution is warranted in using this data
because no such reserves have been assigned and such additional reserves, if
any, could be attributable solely to serendipity.
LIQUIDS AND NATURAL GAS PRODUCTION, SALES PRICE AND PRODUCTION COST
- -------------------------------------------------------------------
Liquids and natural gas production, average sales prices and average
production costs per equivalent barrel of production are shown in the
following table for each of the two years in the period ended December 31,:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Production:
Oil (MBLs). . . . . . . . . . 225 235
Gas (MMCF). . . . . . . . . . 325 527
NGLs (MBLs) . . . . . . . . . 44 51
Average Sales Price:
Oil (per BBL) . . . . . . . . $15.87 $14.31
Gas (per MCF) . . . . . . . . 1.42 1.73
NGLs (per BBL). . . . . . . . 11.10 9.86
Average Production Cost (1). . .. 8.29 7.21
</TABLE>
___________________
(1) Operating costs, including production tax, per equivalent barrel (six
MCF of gas is equivalent to one barrel of oil). Lower gas production caused
the increase in the average production cost.
PRODUCING WELLS IN THE FIELD
- ----------------------------
As of December 31, 1995, the Company has a working interest in 80 gross
(51 net) oil wells and 12 gross (7.62 net) gas wells.
6
ACREAGE
- -------
The Company owns undeveloped leasehold in Converse County, Wyoming of
5,254 net and 6,170 gross acres; this acreage expires between 1999 and 2005.
In addition, the Company owns undeveloped leasehold in Dunn County, North
Dakota of 500 net and 2,720 gross acres which expires during 1998 and 1999.
As of December 31, 1995, the Company has an interest in 2,504 gross
(2,001 net) developed acres in the Field.
DRILLING ACTIVITY
- -----------------
See Item 6 - Management's Discussion and Analysis for a review of 1995
fracture treatments performed in the Field.
There has been no significant drilling activity during 1994, 1995 and
through March 28, 1996.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
* * * * * * * * * * *
The Company's last shareholders' meeting was held November 3, 1993.
There were no shareholders meetings in 1995 or 1994. The 1996 Meeting of
Shareholders will be held on Wednesday, May 29 in the Company's office.
7
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the OTC Bulletin Board. The
following table sets forth the range of high and low BID quotations of the
Company's common stock (symbol "HPET") obtained from Sherwood Securities, one
of the Company's market makers, for the periods indicated:
<TABLE>
<CAPTION>
High Low
---- -----
<S> <C> <C>
1996
First quarter (through March 28) $.07 $.07
1995:
First through third quarter .0625 .0625
Fourth quarter .07 .0625
1994:
First quarter .125 .125
Second through fourth quarter .0625 .0625
</TABLE>
The quotations reflect inter-dealer prices, without retail mark-up,
mark- downs or commissions and may not represent actual transactions.
During the last two years no dividends have been paid. The Company's
Board of Directors has no present intention to pay any dividends in the
foreseeable future.
As of March 28, 1996 there were approximately 1,550 holders of record
of the Company's common stock. Management estimates that there are about
2,500 beneficial owners.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The consolidated financial statements of the Company and the notes
thereto contain detailed information that should be referred to in conjunction
with this discussion. Substantially all of the Company's operations are
attributable to the South Cuyama Field. The value of the Company depends
ultimately on the estimated future cash flows from the Field. Management
intends to maximize cash flow by continuing to increase oil production and
keeping operating expenses low. The South Cuyama Field is located in Santa
Barbara County, California 75 miles southwest of Bakersfield. Future
operations will also be affected by the results of the lease play business
as discussed below.
The profitability of the Company's operations in any particular
accounting period will be directly related to: (i) prices, (ii) production,
and (iii) lifting costs. Accordingly, the results of operations of the
Company may fluctuate from period to period based on the these factors, among
others.
LEASE PLAY BUSINESS
- -------------------
As a result of the Company's reorganization in November 1995 and the
related additional cash proceeds of approximately $2.8 million, management
intends to engage in the buying and selling of undeveloped oil and gas
mineral leases. The Company's CEO, Victor Stabio, heads up the lease play
activities. Mr. Stabio was in the lease play business during the late 1970s
and early 1980s. He plans to limit the lease play business to the Rocky
Mountain region, his area of expertise, but could expand the business to
other areas.
8
Through March 28, 1996, the Company has invested approximately $100,000
in the Rocky Mountain region. These costs, which may or may not generate
revenue, are required to be capitalized and amortized under the Company's
full-cost accounting method; likewise, any success from the lease play
business are required to be capitalized; meaning no gain or losses will be
recognized in the Company's statement of operations even though for federal
and state income tax purposes gain and loses will be recognized. Through
March 28, 1996, approximately $50,000 in lease options have expired.
During 1996 or 1997 the Company may change its accounting method from
full-cost to successful-efforts in order to give income statement recognition
to its lease play activities.
LIQUIDITY AND CAPITAL RESOURCES
REORGANIZATION
In late November 1995, the Company completed a reorganization. Through
a private offering, the Company sold 28 million shares to an investor group
affiliated with Dillon, Read & Co. Inc. for $2.8 million. Concurrently, the
convertible debt and accrued interest due the Hardie family and certain others
was converted to common stock at $.15 per share, resulting in 35.3 million
shares being issued. The Hardie family owns approximately 53% of the common
stock and the Dillon, Read group owns approximately 38%.
Shares outstanding approximate 71 million; the Company plans to propose
what will result in a 1 for 10 reverse split at the May 1996 annual meeting.
The Hardie family and Dillon, Read intend to vote for the reverse split, thus
the proposal is assured of passing.
Through the reorganization the Company increased its cash position by
$2.8 million and has no debt, other than the $7 million non-recourse debt due
Trust Company of the West (TCW). Cash on hand and cash to be provided from
operations is expected to enable the Company to meet its obligations as they
become due during the next several years.
TCW DEBT
The South Cuyama Field (the "Field"), the Company's principal asset, is
pledged by non-recourse debt to TCW. Eighty-five percent of the Company's
share of cash flow from the property is pledged to service the TCW debt.
Interest, at 9%, and principal are paid monthly. Using March 1996 prices,
the Company expects to receive approximately $30,000 per month of the cash
flow after payment to TCW.
9
RESULTS OF OPERATIONS
NONRECURRING ITEM RECORDED DURING THE 1995 FOURTH QUARTER
During the fourth quarter 1995, the Company accepted an offer for
$150,000 from an insurance company representing the two hunters who were
responsible for starting a brush fire in the Field during July 1994. The
fire required the Company to close the Field for a few days, resulting in
lost production, and to repair or replace certain damaged machinery and
equipment. In December the Company received a $36,000 prepayment.
The $150,000 is reflected as a reduction in 1995 lease operating expense
(LOE). Excluding the $150,000, the Company would have incurred a loss of
$145,000 for 1995 as compared to a small profit of $5,000.
PROPERTIES SOLD IN JULY
In July 1995, the Company sold substantially all its Texas properties
for $354,000. LOE for these properties in 1994 was $115,000 and through the
1995 sale were $64,000. Oil and gas revenue for these properties in 1994
were $98,000 and $155,000, respectively; and through the 1995 sale were
$49,000 and $57,000, respectively. Oil and gas sales volume for these
properties in 1994 were 6,360 barrels and 74,500 MCF and through the 1995
sale were 2,900 barrels and 34,700 MCF.
1995 VS. 1994
Revenue decreased primarily to a decline in the Field's gas production,
lower gas prices and the property sale as discussed above. Other than the
expected natural decline in the Field's gas production, management does not
expect further substantial declines. See "Revisions to Natural Gas Reserves"
set forth below.
<TABLE>
<CAPTION>
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <S> <C> <C>
Production: Average Sales Price:
Oil (MBBLs) 225 235 Oil (per BBL) $15.87 $14.31
Gas (MMCF) 325 527 Gas (per MCF) 1.42 1.73
NGLs (MBLs) 44 51 NGLs (per BBL) 11.10 9.86
</TABLE>
LOE decreased primarily because of the $150,000 in insurance proceeds
discussed above. Offsetting such decrease were fracture treatments incurred
in 1995 in excess of workovers incurred in 1994. Furthermore, as discussed
above, the property sales in July 1995 reduced LOE.
General and administrative expenses decreased due to a reduction in
compensation costs as a result of the resignation of the Company's Chief
Operating Officer in 1994 and such position has since been eliminated.
1996 OUTLOOK
The Company expects to report a $35,000 loss for the first quarter and
a profit for the nine month period ending December 31, 1996, assuming current
prices and production levels do not change. As of March 28, 1996, the
Company is receiving approximately $20 per barrel for its California oil
production, a five-year high, which may or may not continue throughout 1996.
10
CALIFORNIA OIL PRICES
Now that Congress has passed and the President has signed Senate Bill
S-395 to allow the export of Alaskan North Slope (ANS) crude oil to foreign
countries, the Company believes California crude prices more fairly
represents free market prices.
On February 10, 1996, the President signed into law a bill which
authorizes the sale, within two years, of the Elk Hills Naval Petroleum
Reserve located in Kern County, California. The Company believes the sale
may result in a significant concentration of the ownership of the light crude
oil used as blending stock for the heavy crude oil produced in the San
Joaquin Valley. If such concentrations were to occur, it is possible the
Company will experience a favorable impact on its oil prices.
FRACTURE TREATMENTS PROJECT
The Company initiated a study to fracture certain wells in the Field as
reported in the 1994 Form 10-KSB. Through year-end 1995, six wells received
fracture treatments. Although results from the first and last fracture
treatments were encouraging; the results from the other four were not. Such
costs approximated $200,000 and were accounted for as LOE in the accompanying
Statement of Operations.
ENVIRONMENTAL
The Company is directly affected by changing environmental rules and
regulations. Although the Company believes its operations and facilities are
in compliance with applicable environmental regulations, risk of substantial
cost and liability resulting from an unintentional breach of environmental
regulations are inherent to oil and gas operations. It is possible that
other developments, such as increasingly strict environmental laws,
regulations and enforcement policies or claims for damages could result in
significant cost and liability in the future.
REVISIONS TO NATURAL GAS RESERVES
In preparing the 1995 reserve report, management and Williamson, the
Company's independent petroleum engineers, agreed that the natural gas
reserves should be reduced by approximately 40%. During 1994, the natural
gas reserves were significantly reduced; however, during the 1995 second
quarter management concluded to further reduce the gas reserves by 20% as
previously reported in such quarter's Form 10-QSB and another 20% reduction
in gas reserves was taken during the 1995 fourth quarter. These changes in
estimates resulted in a total downward revision to gas reserves since January
1, 1994 of 60%. Management does not expect further significant downward
revisions in gas reserves.
HEDGING ACTIVITIES
The Company continues to evaluate hedging strategies for its oil
production but has never entered into such transactions and at this time does
not expect to.
11
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In 1995, the FASB issued SFAS No. 121, dealing with impairment of long-
lived assets and SFAS No. 123, dealing with stock option accounting. Both
of these statements are effective beginning in 1996. With regard to oil and
gas companies, Statement No. 121 will have a more significant impact on those
companies following the successful efforts method of accounting, as Statement
No. 121 revises the "ceiling test" for such companies. Statement No. 121
does not affect the ceiling test for companies such as Hallador who follow
the full cost method of accounting. Therefore, such statement is not
expected to have a material impact on the Company's future operations. With
regard to the Company's stock options granted, no accounting is made until
such time as the options are exercised. At that time, the proceeds are added
to stockholders' equity, and no expense is recognized. Statement No. 123
provides companies with the option of expensing the "fair value" of stock
options granted. The Company will not change its current accounting method
regarding stock options, and therefore Statement No. 123 will not impact the
Company's future operating results.
INFORMATION PERTAINING TO THE COMPANY'S COMMON STOCK PRICE
Because of the limited trading in the Company's common stock on the OTC
Bulletin Board, such prices may or may not reflect the fair market value of
the Company's common stock. The following data is provided solely for
information purposes and is only one of many considerations that could be
used in an investment decision relating to the Company's securities.
Due partially to the SEC's ceiling test under full-cost accounting
rules, the Company has an accumulated deficit. Companies are prohibited from
increasing or reinstating the carrying costs of their oil and gas properties
when prices improve. If the Company was allowed to reinstate the carrying
value of its oil and gas properties to the ceiling limit amount disclosed in
Note 6 to the financial statements of $16 million (based on March 1996
prices), the Company's equity would increase by $8.5 million and the book
value per share would increase to $.18 from $.06. The fair value of the
Company's oil and gas properties could vary significantly, either more or
less, from the PV10 amount of $16 million.
12
ITEM 7. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Hallador Petroleum Company:
We have audited the accompanying consolidated balance sheet of Hallador
Petroleum Company as of December 31, 1995 and the related consolidated
statements of operations, cash flows and changes in stockholders' equity for
each of the two years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Hallador
Petroleum Company as of December 31, 1995 and the consolidated results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1995, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
/S/ ARTHUR ANDERSEN LLP
Denver, Colorado
March 18, 1996
13
HALLADOR PETROLEUM COMPANY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995
(in thousands, except share data)
<TABLE>
<CAPTION>
ASSETS
<S>
<C>
Current assets:
Cash and cash equivalents $ 3,459
Accounts receivable-
Oil and gas sales 419
Well operations 331
Insurance claim received in January 1996 114
-------
Total current assets 4,323
-------
Oil and gas properties (full cost accounting), at cost:
Evaluated properties 39,562
Less - accumulated depreciation,
depletion, amortization and impairment (32,118)
-------
7,444
-------
Other assets 159
-------
$ 11,926
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 185
Oil and gas sales payable 39
Debt with recourse only to the South Cuyama Field 670
-------
Total current liabilities 894
-------
Debt with recourse only to the South Cuyama Field 6,203
-------
Deferred Bonus Plan (Note 4) 127
-------
Other 65
-------
Stockholders' equity:
Common stock, $.01 par value;
100,000,000 shares authorized;
70,982,723 shares issued 710
Preferred stock, $.10 par value;
10,000,000 shares authorized;
no shares issued
Additional paid-in capital 17,428
Accumulated deficit (13,501)
-------
4,637
-------
$ 11,926
=======
</TABLE>
See accompanying notes.
14
HALLADOR PETROLEUM COMPANY
Consolidated Statement Of Operations
(in thousands)
<TABLE>
<CAPTION>
Year ended December 31,
1995 1994
---------- ---------
<S> <C> <C>
Revenue:
Oil $3,577 $3,364
Gas 462 910
NGL 493 507
Interest and other 46 21
------ ------
4,578 4,802
------ ------
Costs and expenses:
Lease operating, net of insurance
proceeds of $150 in 1995 2,684 2,699
Depreciation, depletion and amortization 606 667
General and administrative 373 464
Interest 910 1,000
------ ------
4,573 4,830
------ ------
Net income (loss) $ 5 $ (28)
------ ------
Per shares amounts are not meaningful.
</TABLE>
See accompanying notes.
15
HALLADOR PETROLEUM COMPANY
Consolidated Statement of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Year ended December 31,
1995 1994
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 5 $ (28)
Depreciation, depletion, and
amortization 606 667
Convertible debt interest paid in stock 223 235
Change in accounts receivable (109) 83
Change in payables and accrued liabilities (127) (173)
Convertible debt interest accrued 64
Other (9) (3)
------- ------
Net cash provided by operating activities 589 845
------- ------
Cash flows from investing activities:
Oil and gas properties (97) (112)
Unproved properties (113)
Proceeds from property sales 354
Other assets 4 (1)
------- ------
Net cash provided by (used in)
investing activities 148 (113)
------- ------
Cash flows from financing activities:
Repayment of borrowings (484) (663)
Issuance of common stock, net 2,768
------- ------
Net cash provided by (used in)
financing activities 2,284 (663)
------ ------
Net increase in cash and
cash equivalents 3,021 69
Cash and cash equivalents,
beginning of year 438 369
------- ------
Cash and cash equivalents,
end of year $ 3,459 $ 438
======= ======
Interest paid $ 687 $ 704
See accompanying notes.
17
HALLADOR PETROLEUM COMPANY
Consolidated Statement of Changes in Stockholders' Equity
(in thousands)
</TABLE>
<TABLE>
<CAPTION>
Additional
Common Paid-in Accumulated
Stock Shares Capital Deficit
------ --------- ----------- --------
<S> <C> <C> <C> <C>
Balance at December 31, 1993 $ 65 6,488 $ 9,772 $(13,478)
Net loss (28)
Issuance of shares
in lieu of interest 12 1,173 223
Balance at December 31, 1994 77 7,661 9,995 (13,506)
Net income 5
Issuance of shares
in lieu of interest 25 2,470 345
Issuance of shares
in November for cash
(less issuance cost of $32) 280 28,000 2,488
Issuance of shares in
November for debt conversion 328 32,851 4,600
Balance at December 31, 1995 $710 70,982 $17,428 $(13,501)
See accompanying notes.
17
HALLADOR PETROLEUM COMPANY
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of Hallador Petroleum Company and its wholly-owned subsidiaries, collectively
referred to herein as the "Company". All significant intercompany accounts
and transactions have been eliminated. The Company is engaged in the
exploration, development and production of oil and natural gas primarily in
California. The Company also engages in the trading and acquisition of
non-producing oil and gas mineral leases and fee-simple minerals in the Rocky
Mountain Region.
The Company is a 92% partner in Santa Barbara Partners (SBP),a general
partnership, and accounts for its investment using the proportionate
consolidation method.
OIL AND GAS PROPERTIES
The Company accounts for its oil and gas activities using the full-cost
method of accounting. Accordingly, all costs associated with property
acquisition, exploration and development of oil and gas reserves are
capitalized in one cost center. Such costs are limited as required by the
SEC.
Depreciation, depletion and amortization of the cost center is computed
on a composite units-of-production method based on estimated proved reserves
attributable to the cost center. The amount of such amortization per
equivalent barrel for 1995 and 1994 was $1.87 and
$1.78, respectively.
Unless a significant amount (generally 25% or more) of reserves is
involved, gain or loss upon sale or disposition of proved oil and gas
properties is not recognized; rather, the sales proceeds are credited to the
full cost center.
STATEMENT OF CASH FLOWS
All of the Company's short-term cash investments are of a highly liquid
nature and are considered to be cash equivalents.
Other than the 1995 related party debt conversion of $4.9 million, there
were no significant non-cash activities during 1995 and 1994.
INCOME TAXES
Income taxes are provided based on the liability method of accounting
pursuant to SFAS No. 109, "Accounting for Income Taxes". The provision for
income taxes is based on pretax financial accounting income. Deferred tax
assets and liabilities are recognized for the future expected tax
consequences of temporary differences between income tax and financial
reporting and principally relate to differences in the tax basis of assets
and liabilities and their reported amounts, using enacted tax rates in effect
for the year in which differences are expected to reverse. If it is more
likely than not that some portion or all of a deferred tax asset will not be
realized, a valuation allowance is recognized.
18
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the
reporting period. Actual amounts could differ from those estimates.
(2) DEBT
REORGANIZATION
In late November 1995, the Company completed a reorganization. Through
a private offering, the Company sold 28 million shares to an investor group
affiliated with Dillon, Read & Co. Inc. for $2.8 million. Concurrently, the
convertible debt and accrued interest due the Hardie family and certain
others was converted to common stock at $.15 per share, resulting in 35.3
million shares being issued. The Hardie family owns over 53% of the common
stock and the Dillon, Read group owns approximately 38%.
Shares outstanding approximate 71 million; the Company plans to propose
what will result in a 1 for 10 reverse split at the May 1996 annual meeting.
The Hardie family and Dillon, Read intend to vote for the reverse split, thus
the proposal is assured of passing.
TCW DEBT
The South Cuyama Field (the "Field"), the Company's principal asset, is
pledged by non- recourse debt to Trust Company of the West (TCW).
Eighty-five percent of the Company's share of cash flow from the property is
pledged to service the TCW debt. Interest, at 9%, and principal are paid
monthly.
(3) INCOME TAXES
The Company has the following tax carryforwards at December 31, 1995 (in
thousands):
</TABLE>
<TABLE>
<S> <C>
Statutory depletion $ 3,500
Tax net operating losses (NOLs),
utilization limited
(expires in 1999-2004) 6,300
Tax NOLs, utilization not limited
(expires in 2005-2009) 4,300
</TABLE>
The Company has fully reserved its net deferred tax asset account of
approximately $3,000,000.
(4) STOCK OPTIONS AND BONUS PLANS
STOCK OPTION PLAN
The Company currently maintains a stock option plan under which
7,500,000 options may be issued. As of December 31, 1995, there were
6,845,000 options granted at $.10 per share of which 4,117,000 are
exercisable.
19
401-(k) PLAN
The Company maintains a 401-(k) Plan which all full-time employees are
able to participate in after six months of service. The Company matches
dollar-for-dollar up to 4% of all employee contributions and vesting occurs
immediately. The Company's contribution for 1995 and 1994 totalled $24,000
for each year.
DEFERRED BONUS PLAN
At present, Mr. Stabio, CEO, is the only participant in the deferred
bonus plan. Bonuses are computed based on cash flow attributed to the South
Cuyama Field. Bonuses accrued for 1995 and 1994 were approximately $25,000
and $39,000, respectively. As of December 31, 1995, the amounts owing Mr.
Stabio are $127,000. The amounts owing will not be paid until the earliest
to occur of the following: (i) termination of the participant's employment;
(ii) the merger of the Company into another entity or the sale by the Company
of substantially all of its assets; or (iii) the exercise by a participant
of any stock option issued by the Company which requires a payment by
the participant of more than $100,000. The amounts accrued are unfunded and
unsecured.
(5) MAJOR CUSTOMERS
Over 92% of the Company's revenue is attributable to the Field. For
1995 and 1994, the Field's oil production was sold to KOCH and the gas and
NGLs were sold to ARCO.
(6) OIL AND GAS RESERVE DATA (UNAUDITED)
The following reserve estimates were prepared by independent petroleum
engineers based on data supplied by management. The Company cautions that
there are many uncertainties inherent in estimating proved reserve quantities
and in projecting future production rates.
Proved oil and gas reserves are the estimated quantities of crude oil,
natural gas and NGLs which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions. Proved developed oil and
gas reserves are those reserves expected to be recovered through existing
wells with existing equipment and operating methods.
The following reserve quantity and value information have been reduced
to reflect the 18% NPI in favor of TCW.
ANALYSIS OF CHANGES IN PROVED RESERVES
(in thousands)
<TABLE>
<CAPTION>
Oil Gas NGLs
(BBLs) (MCF) (BBLs)
------ ----- ------
<S> <C> <C> <C>
Balance at December 31, 1993 3,287 6,792 718
Revisions of previous estimates 195 (2,662) (145)
Production (235) (527) (51)
------ ------ ------
Balance at December 31, 1994 3,247 3,603 522
Revisions of previous estimates (9) (1,450) 5
Production (225) (325) (44)
------ ------ ------
Balance at December 31, 1995 3,013 1,828 483
====== ====== ======
</TABLE>
There are no significant proved undeveloped reserves.
20
The following table sets forth a standardized measure of the discounted
future net cash flows attributable to the Company's proved oil and gas
reserves (hereinafter referred to as "SMOG"). Future cash inflows were
computed using December 31, 1995 and March 1996 product prices. The
Company is currently receiving a $.30 per barrel premium in California which
management believes will continue indefinitely. This agreement can be
canceled by the purchaser with 180 days notice. The $.30 premium was used
in the preparation of the SMOG data for the life of the property. Future
production costs represent the estimated future expenditures to be incurred
in producing the reserves, assuming continuation of economic conditions
existing at year end. Discounting the annual net cash inflows at 10%
illustrates the impact of timing on these future cash inflows.
<TABLE>
<CAPTION>
1995* 1995 1994
------ ------ ------
(in millions, except prices)
<S> <C> <C> <C>
Future cash inflows $ 67 $ 57 $ 63
Future cash outflows
- production costs (40) (40) (40)
----- ----- -----
Future net cash flows (1) 27 17 23
10% discount factor (11) (7) (10)
----- ----- -----
SMOG $ 16 $ 10 $ 13
===== ===== =====
Year-end oil price $15.91 $15.00
Year-end gas price 1.61 1.75
Year-end NGLs prices 13.05 14.70
March 28, 1996 oil price $19.88
March 28, 1996 gas price
(estimated) 1.53
March 28, 1996 NGLs price
(estimated) 11.76
</TABLE>
______________
(1) Future tax deductions and NOLs are in excess of discounted future
taxable income. * Based on March 28, 1996 prices. The Company is currently
receiving a $0.30/barrel premium over postings for its oil. This agreement
will continue indefinitely until further notice by the purchaser. The $1.53
gas price is management's best estimate.
The following table summarizes the principal factors comprising the
changes in SMOG:
<TABLE>
<CAPTION>
1995 1994
------ ------
(In millions)
<S> <C> <C>
SMOG, beginning of period $ 13 $ 9
Sales of oil and gas, net of production costs (2) (2)
Net changes in prices and production costs 1 9
Revisions of previous quantity estimates (2) (4)
Accretion of discount 1 1
Changes in production rates and other (1)
-- --
SMOG, end of period $10 $13
== ==
</TABLE>
21
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
ITEM 10. EXECUTIVE COMPENSATION
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Items 9 through 12 is incorporated by
reference from the Company's Proxy Statement for its 1996 Meeting of
Shareholders. The Proxy Statement will be filed with the Securities and
Exchange Commission on or before April 29, 1996.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits (Management contracts or compensatory plans are indicated by
an asterisk.)
3.1 -- Restated Articles of Incorporation of Kimbark Oil and Gas
Company, effective September 24, 1987. (1)
3.2 -- Articles of Amendment to Restated Articles of Incorporation of
Kimbark Oil & Gas Company, effective December 14, 1989, to
effect change of name to Hallador Petroleum Company and to
change the par value and number of authorized shares of
common stock. (1)
3.3 -- Amendment to Articles of Incorporation dated December 31, 1990
to effect the one-for-ten reverse stock split. (2)
3.4 -- By-laws of Hallador Petroleum Company, effective November 9,
1993. (6)
10.1 -- Composite Agreement and Plan of Merger dated as of July 17,
1989, as amended as of August 24, 1989, among Kimbark Oil & Gas
Company, KOG Acquisition, Inc., Hallador Exploration Company
and Harco Investors, with Exhibits A, B, C and D. (1)
10.2 -- *Hallador Petroleum Company 1993 Stock Option Plan. (5)
22
10.3 -- Agreement, dated September 18, 1991, among Cuyama Oil & Gas
Company, Stream Energy, Inc. and Hallador Production Company,
including Exhibit A, Agreement Regarding Term Loan Agreement,
among Santa Barbara Partners, Hallador Production Company, Trio
Petroleum, Inc., and Trust Company of the West, and Exhibit B,
Assignment of Partnership Interest, between Cuyama Oil & Gas
Company and Hallador Production Company. (3)
10.4 -- Modifications to the TCW loan agreement were filed on a Form
8 Amendment dated April 24, 1992 to the 1991 Form 10-K. (4)
10.5 -- *Hallador Petroleum Company Key Employee Bonus Compensation
Plan. (5)
10.6 -- First Amended Loan Agreement. (7)
10.7 -- First Amended Loan Agreement with related parties dated
September 30, 1992. (5)
10.8 -- ARCO Gas Agreement. (7)
10.9 -- ARCO NGL Agreement. (7)
10.10-- KOCH Oil Contract. (7)
10.11-- *First Amendment to the 1993 Stock Option Plan. (8)
10.12-- *First Amendment to Key Employee Bonus Compensation Plan. (8)
10.13-- Stock Purchase Agreement dated November 15, 1995. (8)
21.1 -- List of Subsidiaries. (2)
27.1 -- Financial Data Schedule. (8)
(1) Incorporated by reference to the 1989 Form 10-K.
(2) Incorporated by reference to the 1990 Form 10-K.
(3) Incorporated by reference to Form 8-K dated October 15, 1991.
(4) Incorporated by reference to the 1991 Form 10-K, as amended.
(5) Incorporated by reference to the 1992 Form 10-KSB.
(6) Incorporated by reference to the 1993 Form 10-KSB.
(7) Incorporated by reference to the 1994 Form 10-KSB.
(8) Filed herewith.
Stockholders may obtain a copy of any listed exhibit by writing to Teressa
Jones, Secretary of the Company. Reasonable expenses will be charged for
copies and postage.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the 1995 fourth quarter.
23
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
HALLADOR PETROLEUM COMPANY
BY:/S/ VICTOR P. STABIO
--------------------
VICTOR P. STABIO, CEO
Dated: March 28, 1996
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the dates indicated.
/S/ DAVID HARDIE Chairman March 28, 1996
- -------------------
DAVID HARDIE
/S/ VICTOR P. STABIO CEO, Principal Financial March 28, 1996
- -------------------- and Accounting Officer and
VICTOR P. STABIO Director
/S/ BRYAN LAWRENCE Director March 28, 1996
- ---------------------
BRYAN LAWRENCE
24
Exhibit 10.11
AMENDMENT NO. 1
TO
HALLADOR PETROLEUM COMPANY
KEY EMPLOYEE BONUS COMPENSATION PLAN
The Compensation Committee of the Board of Directors of Hallador
Petroleum Company does hereby adopt the following amendments to the Hallador
Petroleum Company's Key Employee Bonus Compensation Plan, effective as of
November 1, 1995:
1. Section 2.3 is hereby eliminated in its entirety and the remaining
portions of Section 2 are hereby renumbered accordingly.
2. Sections 5.2 and 5.3 are hereby eliminated in their entirety and the
following substituted in lieu thereof:
"5.2 ACCRUAL OF BONUS COMPENSATION POOL. The Bonus Compensation
Pool shall accrue without interest commencing on the Effective
Date. Amounts added to the Bonus Compensation Plan for any fiscal
year of the Company shall be adjusted within 10 days after
issuance of, and based on, the Company's audited financial
statements for such year.
5.3 PAYMENT OF AWARDS. The Company shall pay an award to a
participant at the earliest to occur of the following:
(a) Termination of the participant;
(b) The merger of the Company into another entity or the
sale by the Company of substantially all of its assets; or
(c) The exercise by a participant of any stock option issued
by the Company which requires a payment by the participant of
more than $100,000."
3. Section 6.2 is hereby deleted in its entirety.
4. Attachment A is hereby amended by deleting that portion related to
Walter D. Lowry and Donald E. Hockaday.
IN WITNESS WHEREOF, the Chairman of the Compensation Committee has
hereunto set his hand as of the date first above written.
/s/David C. Hardie
David C. Hardie
Exhibit 10.12
AMENDMENT NO. 1
TO
HALLADOR PETROLEUM COMPANY
KEY EMPLOYEE BONUS COMPENSATION PLAN
The Compensation Committee of the Board of Directors of Hallador
Petroleum Company does hereby adopt the following amendments to the
Hallador Petroleum Company's Key Employee Bonus Compensation Plan, effective
as of November 1, 1995:
1. Section 2.3 is hereby eliminated in its entirety and the remaining
portions of Section 2 are hereby renumbered accordingly.
2. Sections 5.2 and 5.3 are hereby eliminated in their entirety and the
following substituted in lieu thereof:
"5.2 ACCRUAL OF BONUS COMPENSATION POOL. The Bonus
Compensation Pool shall accrue without interest
commencing on the Effective Date. Amounts added to the
Bonus Compensation Plan for any fiscal year of the
Company shall be adjusted within 10 days after issuance
of, and based on, the Company's audited financial
statements for such year.
5.3 PAYMENT OF AWARDS. The Company shall pay an award
to a participant at the earliest to occur of the
following:
(a) Termination of the participant;
(b) The merger of the Company into another entity
or the sale by the Company of substantially all of
its assets; or
(c) The exercise by a participant of any stock
option issued by the Company which requires a
payment by the participant of more than $100,000."
3. Section 6.2 is hereby deleted in its entirety.
4. Attachment A is hereby amended by deleting that portion related
to Walter D. Lowry and Donald E. Hockaday.
IN WITNESS WHEREOF, the Chairman of the Compensation Committee has hereunto
set his hand as of the date first above written.
/s/ David C. Hardie
David C. Hardie
Exhibit 10.13
HALLADOR PETROLEUM COMPANY
PURCHASE AGREEMENT
This Purchase Agreement (the "Agreement") is entered into as of November
15, 1995 by and among Hallador Petroleum Company, a Colorado corporation (the
"Company"), and each of those persons and entities, severally and not
jointly, whose names are set forth on the Schedule of Purchasers attached
hereto (which persons and entities are hereinafter collectively referred to
as the "Purchasers" and each individually as the "Purchaser").
RECITALS
A. The Company has authorized the issuance of 28,000,000 shares of its
Common Stock (referred to herein as the "Common Stock" or the "Shares"), par
value $0.01 per share.
B. The Purchasers desire to purchase 28,000,000 Shares and the Company
desires to sell such Shares, all on the terms and conditions hereinafter set
forth.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
1. AGREEMENT TO SELL AND PURCHASE UNITS.
(a) PURCHASE AND SALE. Subject to the terms and conditions of the
Agreement, the Company agrees to issue and sell to each Purchaser at the
Closing, and each Purchaser agrees to purchase from the Company at the
Closing, that number of Shares listed beside such Purchaser's name on the
Schedule of Purchasers attached hereto for a price of $.10 per Share.
2. DELIVERY AND PAYMENT; CLOSING.
(a) The Closing. The sale and purchase of the Shares shall take
place at the offices of the Company at 10:00 a.m. Denver time on November 28,
1995, or at such other time and place as the Company and a majority in
interest of the Purchasers shall agree (the "Closing").
(b) Delivery of Shares and Payment. At the Closing, the Company
shall deliver to each Purchaser that number of Shares which each Purchaser
is buying against payment of the full purchase price for such Shares by
certified check or wire transfer of funds.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as set forth in the Disclosure Schedule attached hereto as
EXHIBIT A (the "DISCLOSURE SCHEDULE"), the Company represents and warrants
to each Purchaser as follows, which representations and warranties, except
as otherwise indicated below, are true and complete on the date hereof and
shall be true and complete on the date of the Closing:
(a) ORGANIZATION, GOOD STANDING AND RELATED MATTERS. The Company
has been duly incorporated and is validly existing as a corporation in good
standing under the laws of the State of Colorado. The Company is duly
qualified to do business as a foreign corporation in each jurisdiction in
which such qualification is required except where failure to so qualify would
not have a material adverse effect on the Company or its business. The
Company has no subsidiaries nor any interest in any other corporation,
partnership, joint venture, association or other business entity, except as
set forth in the Financial Statements, as hereinafter defined. The Company
has all requisite corporate power and authority to own its properties and
conduct its business as presently being conducted.
(b) CAPITALIZATION. Immediately prior to the Closing, the Company
will have an authorized capitalization consisting of (i) 100,000,000 shares
of Common Stock, of which approximately 43,083,000 shares will be outstanding
as of the Closing assuming conversion of the Company's outstanding notes, as
contemplated in the Shareholders' Agreement, defined below, all of which
shall be duly authorized, validly issued, fully paid and non-assessable; and
(ii) 10,000,000 shares of Preferred Stock, none of which shall be issued or
outstanding. There will be at the Closing no outstanding options, warrants,
preemptive rights or other rights to purchase or otherwise acquire authorized
and unissued shares of any capital stock of the Company, nor any outstanding
securities convertible into shares of capital stock of the Company, except
options granted under the Company's Stock Option Plan.
(c) AUTHORIZATION. The execution, delivery and performance by the
Company of the Agreement and the Shareholders' Agreement attached as EXHIBIT
B (the "Shareholders' Agreement") have been duly authorized by all necessary
corporate action of the Company. The Shares to be issued hereunder have been
duly authorized by all necessary corporate action of the Company and, upon
issuance and payment therefor, will be validly issued, fully paid and non-
assessable. The Shares to be issued hereunder are not subject to any
preemptive rights or rights of first refusal that have not been waived.
(d) BINDING OBLIGATION. The Agreement and the Shareholders'
Agreement have been duly executed and delivered by the Company and constitute
legal, valid and binding obligations of the Company, enforceable in
accordance with their terms except as limited (i) by bankruptcy, insolvency,
moratorium, and other laws of general application affecting the enforcement
of creditors' rights and (ii) by general principles of equity.
(e) NO CONFLICTS. The execution and delivery of the Agreement and
the Shareholders' Agreement and the consummation of the transactions
contemplated herein and therein will not (i) conflict with or result in a
breach of any of the terms, provisions or conditions of any material
contract, note, lease, agreement or other instrument or obligation to which
the Company is a party or of the Articles of Incorporation or Bylaws of the
Company, as in effect immediately prior to the Closing, or (ii) violate any
law, order, judgment, rule or regulation applicable to the Company.
(f) APPROVALS AND CONSENTS. No approval, consent or authorization
of any natural person, firm, corporation, court or federal or state
governmental authority which has not heretofore been obtained is necessary
for the execution or delivery of the Agreement or the Shareholders' Agreement
or for the performance by the Company of any of the terms or conditions
thereof, except (i) the filing of a Notice of Sale of Securities Pursuant to
Regulation D with the Securities and Exchange Commission under the Securities
Act of 1933, as amended (the "Securities Act") within the applicable time
period, and (ii) such filings as may be required under applicable state
securities laws, all of which will be timely filed within the applicable
periods therefor.
(g) LITIGATION. There is no action, proceeding, or investigation
pending or, to the best knowledge of the Company, threatened against the
Company before any court or administrative agency, nor any writ, order or
judgment of any court or administrative agency, that questions the validity
of the Agreement or the Shareholders' Agreement or the right of the Company
to enter into such agreements, or to consummate the transactions contemplated
hereby or thereby, or that might result in the aggregate in any material
adverse change in the business, prospects, condition, affairs, operations,
properties, or assets of the Company or in any material liability on the part
of the Company. The Company does not currently intend to initiate any legal
action against any person or entity.
(h) COMPLIANCE WITH LAW. The Company, to the best of its
knowledge is in compliance with all applicable statutes, laws, regulations
and executive orders of the United States of America and all states, foreign
countries, and other governmental bodies and agencies having jurisdiction
over its business or properties, and the Company has received no notice of
any material violation of such statutes, laws, regulations or orders which
has not been remedied prior to the date hereof.
(i) AGREEMENTS, CONTRACTS. The Company has not breached, nor does
it have knowledge of any claim or threat that it has breached, any of the
terms or conditions of any material agreement, contract, lease, license,
instrument or commitment that in the aggregate could have a material adverse
effect on the business, properties, prospects, financial condition or results
of operations of the Company, nor is the Company in violation of any term of
its Articles of Incorporation or Bylaws, as now in effect. The execution,
delivery and performance of and compliance with the Agreement, and the
issuance of the Shares will not result in any violation of, or conflict with,
or constitute a default under, any of the foregoing, or result in the
creation of any mortgage, pledge, lien, encumbrance or charge upon any of the
properties or assets of the Company. To the Company's knowledge no party to
any of its material contracts is in material default of any such contract.
(j) FINANCIAL STATEMENTS; CHANGES. The Company has delivered to
the Purchasers its unaudited Consolidated Statement of Income for the three
months and nine months ended September 30, 1995 and Consolidated Balance
Sheet at such date (collectively referred to as the "Financial Statements").
The Financial Statements have been prepared, except to extent otherwise
permitted by the rules of SEC for quarterly reports, in accordance with
generally accepted accounting principles and fairly present the financial
condition of the Company as of the date thereof, and the operating results
of the Company for the period indicated therein. The Company has no
indebtedness other than that set forth in the Financial Statements or
Disclosure Schedule.
(k) ABSENCE OF CHANGE. Except as set forth in the Disclosure
Schedule and the Financial Statements, since the date of the Financial
Statements (i) the Company has not entered into any material transaction
which was not in the ordinary course of its business; (ii) there has been no
material adverse change in the condition (financial or otherwise), business,
property, prospects, assets, or liabilities of the Company; (iii) there has
been no damage to, destruction of or loss of physical property of the Company
(whether or not covered by insurance) materially adversely affecting the
condition (financial or otherwise), business, property, prospects, assets or
liabilities of the Company; (iv) the Company has not declared or paid any
dividend or made any distribution on its capital stock; (v) there has been
no material change, except in the ordinary course of business, in the
contingent obligations of the Company by way of guaranty, endorsement,
indemnity, warranty or otherwise; (vi) there has been no waiver or compromise
by the Company of a valuable right or of a material debt owed to it;
(vii) there has been no increase in the compensation of any employees,
officers or directors who earn compensation at an annual rate of more than
$40,000; and (viii) there has been no agreement or commitment by the Company
to do or perform any of the acts described in this Section 3(k).
(l) TITLE TO AND CONDITION OF PROPERTIES AND ASSETS. As of the
date of Closing, the Company has good and marketable title to, or a valid
leasehold interest in, all material properties and assets used in its
business, and all such properties, assets and leasehold interests owned by
the Company are free and clear of all material liens and mortgages, of any
nature whatsoever, except liens held by Trust Company of the West as set
forth in the Financial Statements or Disclosure Schedule.
(m) EMPLOYEES AND CONSULTANTS. The Company, except as set forth
in the Financial Statement or the Disclosure Schedule, does not maintain or
contribute to any plan or arrangement which constitutes an "employee pension
benefit plan" as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended, and is not obligated to contribute to or
accrue or pay benefits under any deferred compensation or retirement funding
arrangement except under the Company's Key Employee Bonus Compensation Plan.
(n) INTERESTED PARTY TRANSACTIONS. Except as set forth in the
Financial Statements and the Disclosure Schedule, there are no material
transactions between the Company and any officers or directors of the
Company, or any entity controlled directly or indirectly by any officer or
director of the Company, other than the obligation on the part of the Company
to pay the officers' salaries and the issuance by the Company of shares of
Common Stock in connection with the conversion of notes of the Company,
cancellation of warrants of the Company and issuance of stock options of the
Company, except those transactions undertaken in the ordinary course of
business, including, but not limited to, the reimbursement by the Company of
business expenses incurred by the officers and directors and directors' fees.
(o) REGISTRATION RIGHTS. There are no outstanding rights to
register any of the Company's securities under the Securities Act.
(p) BROKERS OR FINDERS. The Company has not incurred, and will
not incur, directly or indirectly, any liability for brokerage or finders'
fees or agents' commissions or any similar charges. The Company has been
informed that the Purchasers may owe a fee or commission to Dillon, Read &
Co. Inc. ("Dillon Read") in connection with the Agreement or the transactions
contemplated hereby.
(q) TAX RETURNS, PAYMENTS AND ELECTIONS. The Company has filed
all federal, state, local and foreign tax returns and reports as required by
law. These returns and reports are, to the knowledge of the Company, true
and correct in all material respects. The Company has paid all taxes and
other assessments due. The Company has not elected pursuant to the Internal
Revenue Code of 1986, as amended (the "Code"), to be treated as an S
corporation nor has it made any other elections pursuant to the Code (other
than elections that relate solely to methods of accounting, depreciation, or
amortization) that would have a material effect on the business, properties,
prospects, or financial condition of the Company. The Company has never had
in the last three years any tax deficiency proposed or assessed against it
and has not executed any waiver of any statute of limitations on the
assessment or collection of any tax or governmental charge. The Company's
federal income tax returns have been audited, but not closed, through 1993
and none of its state income or franchise tax or sales or use tax returns has
ever been audited by governmental authorities.
(r) INSURANCE. The Company has in full force and effect the
insurance policies described in EXHIBIT C.
(s) INVESTMENT COMPANY ACT AND INVESTMENT ADVISERS ACT STATUS.
Neither the Company nor any Subsidiary is an "investment company" or a
company directly or indirectly "controlled" by or acting on behalf of an
"investment company", as such terms are defined in the Investment Company Act
of 1940, as amended, or an "investment adviser" within the meaning of the
meaning of the Investment Adviser Act of 1940, as amended.
(t) Regulation G, etc. Neither the Company nor any Subsidiary
owns, will use all or any part of the proceeds of the sale of the Shares to
acquire, or has any intention of acquiring any "margin stock" within the
meaning of Regulation G (12 CFR Part 207) of the Board of Governors of the
Federal Reserve System (herein called a "margin security"). None of the
proceeds from the sale of the Shares will be used, directly or indirectly,
for the purpose of purchasing or carrying any margin security for the purpose
of reducing or retiring any indebtedness which was originally incurred to
purchase or carry any margin security or for any other purpose which might
constitute the transactions contemplated hereby a "purpose credit" within the
meaning of said Regulation G or cause this Agreement to violate Regulation
G, Regulation T, Regulation U, Regulation X, or any other regulation of the
Board of Governors of the Federal Reserve System, or the Exchange Act, each
as now in effect.
(u) Disclosure. Neither this Agreement nor any other document,
certificate or statement furnished to the Purchasers by the Company in
connection with the transactions contemplated hereby, contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein and therein not misleading in
the light of the circumstances under which such statements were made. There
is no fact known to the Company which materially adversely affects or in the
future may (so far as the Company can now reasonably foresee) materially
adversely affect the condition (financial or otherwise), operations,
management or prospects of the Company or any of its subsidiaries which has
not been disclosed to Dillon Read as Agent.
(v) Voting Provisions. The Company is not nor, to the best of the
Company's knowledge, is any stockholder of the Company, a party to any
agreement or subject to any requirement (other than the Shareholders'
Agreement and the provisions of the Company's Articles of Incorporation)
which relates to the voting of the Company's capital stock or contains any
provision requiring a higher voting requirement with respect to action taken
by the Company's Board of Directors and the holder of its capital stock than
that which would apply in the absence of such provision.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASERS.
Each Purchaser severally, and not jointly, represents, warrants and
covenants to the Company as follows, which representations and warranties
shall be true and complete on the date hereof and on the date of Closing.
In the case of Dillon Read as agent, it is understood that the Shares are
being acquired for the account of certain of its officers and employees who
have each delivered to the Company or its counsel an investment
representation letter acceptable to such counsel. References to the term
"Purchaser" throughout the Agreement shall be deemed to refer to such
officers and employees, in addition to the Purchasers that have executed the
Agreement.
(a) REQUISITE POWER AND AUTHORITY. Upon their execution and
delivery, the Agreement and the Shareholders' Agreement will be valid and
binding obligations of the Purchaser, enforceable in accordance with their
terms, except as limited (i) by applicable bankruptcy, insolvency,
moratorium, or other laws of general application affecting enforcement of
creditors' rights and (ii) by general principles of equity.
(b) INVESTMENT REPRESENTATIONS. The Purchaser understands that
the Shares acquired by the Purchaser under the Agreement (all of which shall
sometimes be hereinafter collectively referred to as the "Restricted
Securities") have not been registered under the Securities Act or qualified
under the Colorado Corporate Securities Law, as amended (the "Securities
Law"). The Purchaser also understands that the Restricted Securities are
being offered and sold pursuant to exemptions from registration and
qualification contained in the Securities Act and the Securities Law based
in part upon the Purchaser's representations contained in the Agreement. The
Purchaser hereby further represents and warrants to the Company as follows:
(i) PURCHASER BEARS ECONOMIC RISK. The Purchaser understands
that it must bear the economic risk of investment in the Restricted
Securities indefinitely unless and until some or all of the Restricted
Securities are registered pursuant to the Securities Act and applicable state
securities laws, or an exemption from registration is available. In
particular, the Purchaser is aware that the Restricted Securities may not be
sold pursuant to Rule 144 promulgated under the Securities Act unless all of
the conditions of that Rule are met. The Purchaser understands that the
Company has no present intention of registering any of the Restricted
Securities. The Purchaser understands that it has no registration rights
with respect to the Restricted Securities and that there is no assurance that
any exemption from registration under the Securities Act will be available
to permit the Purchaser to transfer or dispose of the Restricted Securities
and that, even if available, such exemption may not allow the Purchaser to
transfer all or any portion of the Restricted Securities under the
circumstances, in the amounts or at the times the Purchaser might propose.
(ii) ACQUISITION FOR OWN ACCOUNT. The Purchaser is acquiring
the Restricted Securities for the Purchaser's own account for investment
purposes only and not with a view to, or for resale in connection with, any
distribution or public offering of such Restricted Securities within the
meaning of the Securities Act. The Purchaser is not a corporation, trust or
partnership specifically formed for the purpose of consummating this
transaction.
(iii) PURCHASER CAN PROTECT ITS INTERESTS. The Purchaser
represents that, by reason of its business or financial experience, the
Purchaser has the capacity to evaluate the merits and risks of an investment
in the Restricted Securities and to protect its own interests in connection
with the transactions contemplated in the Agreement. The Purchaser has not
seen any advertisement in connection with the transactions contemplated in
the Agreement.
(iv) COMPANY INFORMATIOn. Dillon Read as agent for the
Purchaser has received and reviewed the Company's filings under the Federal
securities laws and has had an opportunity to discuss the Company's business,
management and financial affairs with directors, officers and management of
the Company and has had the opportunity to review the Company's operations
and facilities. Dillon Read as agent for the Purchaser has also had the
opportunity to ask questions of, and receive answers from, the Company and
its management regarding the terms and conditions of this investment.
(v) ACCREDITED INVESTOR. The Purchaser is an "accredited
investor" within the meaning of Regulation D of the Securities and Exchange
Commission.
(c) LIMITATION ON DISPOSITION.
(i) The Purchaser covenants and agrees that it will not make
any disposition of any of its Restricted Securities except pursuant to a
registration under the Securities Act, unless and until it shall have
furnished the Company with an opinion of counsel or other written evidence
reasonably satisfactory to the Company to the effect that such disposition
will not require registration of such Restricted Securities under the
Securities Act and the disposition is permissible under the Securities Law
and other applicable securities laws and regulations or that appropriate
action necessary for compliance with the Securities Act, the Securities Law
and other applicable securities laws and regulations has been taken.
Notwithstanding the foregoing, each Purchaser which is a partnership, limited
partnership or corporation may transfer any of its Restricted Securities to
its partners, retired partners or shareholders, as applicable, if such
transfer is not deemed to be a change in beneficial ownership under
applicable laws without providing an opinion of counsel in accordance with
the provisions of this paragraph.
(ii) The Purchaser acknowledges and agrees that the Company
may issue appropriate stop-transfer instructions to the Company's transfer
agent and may make appropriate notations to the same effect in the Company's
books and records to ensure compliance with the provisions of this Section.
(d) RESTRICTIVE LEGENDS.
(i) Each certificate representing the Restricted Securities
shall (unless otherwise permitted by the provisions of the Agreement) be
stamped or otherwise imprinted with a legend substantially similar to the
following (in addition to any legend required under applicable state
securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT")
AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED
UNDER THE ACT OR, IN THE OPINION OF COUNSEL OR BASED ON
OTHER WRITTEN EVIDENCE IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH
OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS NOT
REQUIRED TO BE SO REGISTERED BY VIRTUE OF AN APPLICABLE
EXEMPTION THEREFROM.
(ii) The Company shall be obligated promptly to reissue
unlegended certificates at the request of any holder of such certificates if
such holder shall have delivered to the Company: (A) an opinion of counsel
reasonably acceptable to the Company and its counsel to the effect that the
securities proposed to be disposed of may lawfully be so disposed of without
registration, qualification or legend, or (B) with respect only to removal
of the legend set forth in subsection (i) above, a certificate signed by the
holder reasonably acceptable to the Company and its counsel containing a
representation that the holder is legally able to freely transfer the
securities represented by such certificate without restriction pursuant to
subparagraph (k) of Rule 144 under the Securities Act (or any successor
provision thereto) and setting forth in detail the factual basis for such
representation.
(iii) Any legend endorsed on a certificate pursuant to
applicable state securities laws, and the stop transfer instructions with
respect to such securities, shall be removed upon receipt by the Company of
an order of the appropriate blue sky authority authorizing such removal.
5. COVENANTS OF THE COMPANY.
The Company covenants and agrees that simultaneously with the
Closing, the Company's Board of Directors shall take all appropriate actions
to ensure that the membership of the Board shall consist of David C. Hardie,
Steven Hardie, Victor P. Stabio, Bryan H. Lawrence and Cortland Dietler.
6. CONDITIONS TO THE PURCHASERS' OBLIGATIONS.
The obligations of each Purchaser to purchase Shares hereunder at
the Closing shall be subject to the following conditions precedent:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES OF COMPANY. The
representations and warranties of the Company contained herein (subject to
the exceptions thereto set forth in the Disclosure Schedule) shall be true
and correct as of the applicable Closing as if made at and as of the Closing.
(b) NO BREACH OF COVENANTS OF COMPANY. The Company shall not have
breached or failed to comply with any covenant or material provision of the
Agreement.
? NO MATERIAL CHANGE. There shall have been no material adverse
change in the business, properties, prospects, financial condition or results
of operations of the Company which could materially impair the value of the
Shares to be purchased hereunder.
(d) OPINION OF COUNSEL FOR THE COMPANY. The Company shall have
furnished to the Purchaser at the Closing the written opinion, dated as of
the Closing, of Heppenstall, Savage, Hillyard & Muller, LLC, counsel for the
Company, substantially in the form attached hereto as Exhibit D.
(e) SHAREHOLDERS' AGREEMENT EFFECTIVE. The Shareholders' Agreement
shall have been executed and tendered for delivery by the Company and shall
be in full force and effect at the Closing.
(f) OFFICER'S COMPLIANCE CERTIFICATE. The Company shall have
delivered to the Purchasers a certificate dated the date of the Closing,
executed by the President of the Company certifying that the conditions
specified in Sections 6(a), 6(b) and 6(c) have been fulfilled.
7. CONDITIONS TO THE COMPANY'S OBLIGATIONS.
The obligations of the Company hereunder at the Closing shall be
subject to the following conditions precedent:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of each Purchaser contained in the Agreement
shall be true as of the Closing as if made at such Closing and delivery of
the purchase price for the Shares purchased hereunder by or on behalf of each
Purchaser shall be deemed confirmation of such fact.
(b) SHAREHOLDERS' AGREEMENT EFFECTIVE. The Shareholders' Agreement
shall have been executed and tendered for delivery by the parties thereto
(other than the Company) and shall be in full force and effect at the
Closing.
8. AMENDMENT.
The Agreement may be amended after the date hereof by the written
consent of the Company and the proposed or actual Purchasers of more than
two-thirds (2/3) of the Shares. Any such amendment shall be binding on all
Purchasers.
9. GENERAL PROVISIONS.
(a) NOTICES. Any notice, request or other communication required
or permitted hereunder shall be in writing and shall be deemed to have been
duly given if personally delivered or telecopied, or if mailed, by certified
mail return receipt requested, postage prepaid, as follows:
(i) if to a Purchaser, at such Purchaser's respective address
as set forth on the Schedule of Purchasers attached hereto;
(ii) if to the Company, at 1660 Lincoln, Suite 2700
Denver, CO 80264;
Any party hereto may by ten (10) days advance notice so given change its
address for future notice hereunder. Notice shall conclusively be deemed to
have been given when personally delivered, when telecopied to the Purchasers
or when deposited in the mail in the manner set forth above.
(b) ENTIRE AGREEMENT. The Agreement (including the exhibits and
schedules hereto, which are incorporated herein by this reference) and the
Shareholders' Agreement constitute and contain the entire agreement of the
parties with respect to the subject matter hereof and supersede any and all
prior negotiations, correspondence, understandings, agreements, duties or
obligations between the parties respecting the subject matter hereof.
(c) SURVIVAL OF TERMS. All representations, warranties, covenants
and agreements contained in the Agreement or in any certificate or other
instrument delivered by or on behalf of the parties hereto shall survive the
execution and delivery of the Agreement and the Closing for a period of
twelve months after the Closing, except for Sections 3, 4 and 5, which shall
survive for a period of twenty-four months.
(d) BROKER'S FEES. Except as set forth in Section 3(p), each
party represents and warrants that no agent, broker, investment banker,
person or firm acting on behalf of or under the authority of such party
hereto is or will be entitled to any broker's or finder's fee or any other
commission directly or indirectly in connection with the transactions
contemplated herein. Each party agrees that if such entity or person acting
on behalf of such party claims it is entitled to any such broker's or
finder's fee, such party shall indemnify and hold harmless the other parties
to the Agreement from any costs incurred, including attorneys' fees, in
connection with such broker's or finder's fees.
(e) GOVERNING LAW. The Agreement shall be governed by and
construed in accordance with the laws of the State of Colorado, excluding
that body of law relating to conflict of laws.
(f) THIRD PARTIES. Nothing in the Agreement, express or implied,
is intended to confer upon any person, other than the parties hereto and
their successors and assigns, any rights or remedies under or by reason of
the Agreement.
(g) SUCCESSORS AND ASSIGNS. The provisions of the Agreement shall
inure to the benefit of, and shall be binding upon, the successors and
permitted assigns of the parties hereto. If any Purchaser sells or transfers
some or all of its Restricted Securities, then any transferee of such
Purchaser shall be entitled to all rights under the Agreement as the
Purchaser would have if it owned the securities so transferred.
(h) CAPTIONS. The captions to sections of the Agreement have been
inserted for identification and reference purposes only and shall not be used
to construe or interpret the Agreement.
(i) COUNTERPARTS. The Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same agreement.
(j) WAIVER. Any provision or condition herein may be waived in
writing by the party entitled to the benefit of such provision or whose
obligations are subject to such condition, and any such provision or
condition (except a provision or condition of any Exhibit hereto which may
be waived as provided in such Exhibit) may be waived on behalf of all
Purchasers by the proposed or actual Purchasers of more than two-thirds (2/3)
of the Shares.
(k) COSTS AND ATTORNEYS' FEES. In the event that any action, suit
or other proceeding is instituted concerning or arising out of the Agreement
or any transaction contemplated hereunder, the prevailing party shall recover
from the opposing party all of such party's costs and attorneys' fees
incurred in each such action, suit or other proceeding, including any and all
appeals thereof.
<TABLE>
<CAPTION>
THE COMPANY
<S> <C>
Address: HALLADOR PETROLEUM COMPANY
1660 Lincoln, Suite 2700
Denver, CO 80264
By /S/ VICTOR P. STABIO
Victor P. Stabio
President
PURCHASERS
c/o Dillon, Read & Co. Inc. YORKTOWN ENERGY PARTNERS II, L.P.
535 Madison Avenue By Yorktown II Corp.,
New York, NY 10022 its General Partner
By /S/ BRYAN H. LAWRENCE
Bryan H. Lawrence
c/o Dillon, Read & Co. Inc. LEXINGTON PARTNERS IV, L.P.
535 Madison Avenue By DRMC Inc.,
New York, NY 10022 its General Partner
By /S/ BRYAN H. LAWRENCE
Bryan H. Lawrence
Managing Director
DILLON, READ & CO. INC., as
agent
535 Madison Avenue
New York, NY 10022
By /S/ BRYAN H. LAWRENCE
Bryan H. Lawrence
Managing Director
PINNACLE ENGINE COMPANY LLC
370 17th Street, Suite 900 By /S/ CORTLANDT S. DIETLER
Denver, CO 80202 Cortlandt S. Dietler
1660 Lincoln, Suite 2700
Denver, CO 80264 By /S/ VICTOR P. STABIO
Victor P. Stabio
SCHEDULE OF PURCHASERS
</TABLE>
<TABLE>
<CAPTION>
Amount of Number of
NAME AND ADDRESS INVESTMENT SHARES
- ---------------- ----------- ----------
<S> <C> <C>
Yorktown Energy Partners II, L.P. $2,278,500 22,785,000
c/o Dillon, Read & Co. Inc.
535 Madison Avenue
New York, NY 10022
Lexington Partners IV, L.P. $ 10,000 100,000
c/o Dillon, Read & Co. Inc.
535 Madison Avenue
New York, NY 10022
Dillon, Read & Co. Inc., $ 411,500 4,115,000
as Agent
535 Madison Avenue
New York, NY 10022
Pinnacle Engine Company LLC $ 100,000 1,000,000
Attn: Cortlandt S. Dietler
370 17th Street, Suite 900
Denver, CO 80202
__________ __________
Totals $2,800,000 28,000,000
========== ==========
</TABLE>
LIST OF EXHIBITS
A. Disclosure Schedule
B. Shareholders' Agreement
C. List of Insurance Policies
D. Form of Opinion of Heppenstall, Savage, Hillyard &
Muller, LLC
EXHIBIT A
DISCLOSURE SCHEDULE
None.
EXHIBIT B
SHAREHOLDERS' AGREEMENT
This Agreement is made as of November 15, 1995 by and among Hallador
Petroleum Company, a Colorado corporation (the "Company"), members of the
Robert C. Hardie family and certain other shareholders of the Company set
forth below (collectively referred to as the "Shareholders" and each
individually as a "Shareholder") and certain investors in the Company set
forth below (the "Purchasers").
RECITALS:
A. The Shareholders currently own a majority of the Company's
Common Stock.
B. The Purchasers are purchasing from the Company 28,000,000
shares of the Company's common stock pursuant to the Purchase Agreement,
dated the date hereof, by and among the Company and the Purchasers (the
"Purchase Agreement").
C. The parties hereto desire to enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual promises herein
contained, and for other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto agree as follows:
SECTION 1. CONVERSION OF NOTES AND CANCELLATION OF WARRANTS.
Each of the Shareholders hereby represents and warrants that he, she
or it has not transferred any of the Company's notes or warrants to
purchase common stock of the Company since January 1, 1995. Each
Shareholder does hereby, simultaneous with the Closing, as defined in the
Purchase Agreement:
(i) exercise the conversion rights contained in such note or
notes so that such note or notes will be cancelled as of the Closing and
converted into the number of shares of the Company's common stock provided
by the terms of such notes; and
(ii) cancel all of such warrants to purchase common stock of the
Company.
SECTION 2. BOARD OF DIRECTORS.
2.1 AGREEMENT TO CONSTITUTE BOARD. Each of the parties hereby
agrees and covenants, for itself and for its representatives as defined
below, to take all steps necessary to constitute the members of the
Company's Board of Directors as set forth below as of the closing date of
the Purchase Agreement and thereafter to maintain such members or their
successors:
(a) two persons nominated by Dillon, Read & Co. Inc. (the
"Purchaser Representatives"); and
(b) three persons nominated by the Shareholders (the
"Shareholders' Representatives").
Each of the parties agrees to vote all of the Company's voting securities
then held at any meeting of shareholders or by written consent in lieu of
meeting to elect or cause to be elected or appointed to the Board of
Directors of the Company the Purchaser Representatives and the
Shareholders' Representatives.
2.2 REMOVAL OR REPLACEMENT. Any vacancy occurring on the Board
of Directors of the Company shall be filled by the remaining directors
acting at a meeting or by written consent in lieu thereof under the
guidelines set forth in Section 2.1 hereof.
SECTION 3. SALE OF SHARES. Each of the parties hereto hereby
agrees that it will not transfer, without the written consent of the
Company, any shares of the Company which he, she or it owns until January
1, 1999. For purposes of this Section 3. "transfer" means and includes any
sale, assignment, encumbrance, hypothecation, pledge, conveyance in trust,
gift, transfer by bequest, devise or descent, or other transfer or
disposition of any kind, directly or indirectly.
The provisions of this Section 3 shall not override any provisions
restricting transferability set forth in the Purchase Agreement.
SECTION 4. SUCCESSORS, TRANSFERS AND LEGENDING OF SHARES. The
terms of this Agreement shall be binding upon and inure to the benefit of
the heirs, personal representatives, successors and assigns of the
parties. Each transferee or assignee of the Shares shall become subject
to the terms hereof and shall agree in writing to all the terms of this
Agreement. The Company shall not permit the transfer of any of the
Company's shares subject to this Agreement on its books or issue a new
certificate representing any such shares unless and until such transferee
shall have complied with the terms of this Section. Each certificate
representing the shares subject to this Agreement shall be endorsed by the
Company with a legend reading as follows:
THE SHARES EVIDENCED HEREBY ARE SUBJECT TO AN AGREEMENT
DATED AS OF NOVEMBER 15, 1995 (A COPY OF WHICH MAY BE
OBTAINED FROM THE SECRETARY OF THE CORPORATION) AND BY
ACCEPTING SUCH SHARES, EACH HOLDER HEREOF SHALL BE
DEEMED TO AGREE TO AND SHALL BECOME BOUND BY ALL THE
PROVISIONS OF SUCH AGREEMENT."
SECTION 5. TERMINATION. This Agreement shall terminate upon
the earlier of (a) ten (10) years from the date hereof, or (b) a public
offering of securities of the Company which generates at least $6,500,000
of gross proceeds without deduction of selling commissions and expenses.
SECTION 6. AMENDMENT AND WAIVERS. Any term hereof may be
amended and the observance of any term hereof may be waived (either
generally or in a particular instance, and either retroactively or
prospectively), only with the written consent of the Company, the
Purchasers, the Shareholders or their assignees holding not less than
2/3rds of the Company's shares of common stock, and shall be binding upon
them.
SECTION 7. SEVERABILITY. Whenever possible, each provision of
this Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Agreement shall
be held to be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement.
SECTION 8. SPECIFIC PERFORMANCE. Since damages are not easily
measurable with respect to the terms and conditions hereof, each of the
parties hereto agree that the other, if aggrieved, shall be entitled to
the remedy of specific performance to cause compliance with the terms
hereof. Said remedy of specific performance shall be available from time
to time during the term hereof, shall be cumulative, not exclusive and
shall be in addition to any other remedies which the parties hereto may
have at law or otherwise.
SECTION 9. GOVERNING LAW. This Agreement shall be governed by
and construed under the laws of the State of Colorado excluding that body
of law relating to its conflict of laws rules.
SECTION 10. COUNTERPARTS. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
SECTION 11. NOTICES. Any notice required under this Agreement
shall be given in writing and shall be deemed effectively given upon
personal delivery to the party to be notified or upon deposit with the
United States Post Office by registered or certified mail, postage prepaid
(or with an equivalent independent postal service) and addressed to the
party at the address last shown on the books of the Company for such
purpose or such other address as may be designated by a party by ten (10)
days' advance notice to the Company.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year hereinabove first written.
<TABLE>
<CAPTION>
THE COMPANY
<S> <C>
Address: HALLADOR PETROLEUM COMPANY
1660 Lincoln, Suite 2700
Denver, CO 80264
BY /S/ VICTOR P. STABIO
Victor P. Stabio
President
PURCHASERS
c/o Dillon, Read & Co. Inc. YORKTOWN ENERGY PARTNERS IV, L.P.
535 Madison Avenue By Yorktown II Corp.
New York, NY 10022 its General Partner
BY /S/ BRYAN H. LAWRENCE
Bryan H. Lawrence
c/o Dillon, Read & Co. Inc. LEXINGTON ENERGY PARTNERS IV,
535 Madison Avenue L.P.
New York, NY 10022 By DRMC Inc.
its General Partner
BY /S/ BRYAN H. LAWRENCE
Bryan H. Lawrence
Managing Director
DILLON, READ & CO. INC.,
as agent
535 Madison Avenue
New York, NY 10022
BY /S/ BRYAN H. LAWRENCE
Bryan H. Lawrence
Managing Director
PINNACLE ENGINE COMPANY LLC
370 17th Street, Suite 900 BY /S/ CORTLANDT S. DIETLER
Denver, CO 80202 Cortlandt S. Dietler
SHAREHOLDERS
P.O. Box 9 /S/ JOHN L. KEMMBERER, JR.
Chatham, NJ 07928 John L. Kemmerer, Jr.
740 University Avenue /S/ DAVID C. HARDIE
Sacramento, CA 95825 David C. Hardie
740 University Avenue HARDIE DECENDENT'S TRUST
Sacramento, CA 95825
By /S/ DAVID C. HARDIE
Authorized Person(s)
740 University Avenue ROBERT C. HARDIE SEPARATE
Sacramento, CA 95825 PROPERTY TRUST
By /S/ DAVID C. HARDIE
Authorized Person(s)
740 University Avenue JANE H. HARDIE SEPARATE
Sacramento, CA 95825 PROPERTY TRUST
BY /S/ DAVID C. HARDIE
Authorized Person(s)
740 University Avenue HALLADOR, INC.
Sacramento, CA 95825
BY /S/ DAVID C. HARDIE
Authorized Officer
740 University Avenue JINSRO LTD.
Sacramento, CA 95825
By /S/ DAVID C. HARDIE, general
partner
By___________________________
Partner
740 University Avenue HARCO INVESTORS
Sacramento, CA 95825
By /S/ DAVID C. HARDIE
Authorized Person(s)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets and Consolidated Statement of Operations found
on pages 14 and 15 of the Company's Form 10-KSB for the year-to-date,
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000788965
<NAME> HALLADOR PETROLEUM COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 3459
<SECURITIES> 0
<RECEIVABLES> 864
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4323
<PP&E> 39562
<DEPRECIATION> 32118
<TOTAL-ASSETS> 11926
<CURRENT-LIABILITIES> 894
<BONDS> 6203
0
0
<COMMON> 710
<OTHER-SE> 3927
<TOTAL-LIABILITY-AND-EQUITY> 11926
<SALES> 0
<TOTAL-REVENUES> 4578
<CGS> 0
<TOTAL-COSTS> 4573
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 910
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>Per share amounts are not meaningful.
</FN>
</TABLE>
