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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
COMMISSION FILE NUMBER: 0-02517
TOREADOR ROYALTY CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 75-0991164
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4809 COLE AVENUE
SUITE 108
DALLAS, TEXAS 75205
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 369-0080
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
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Title of each Class: Name of each exchange on which registered:
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COMMON STOCK, PAR VALUE $.15625 PER SHARE NASDAQ NATIONAL MARKET SYSTEM
PREFERRED STOCK PURCHASE RIGHTS NASDAQ NATIONAL MARKET SYSTEM
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ].
The aggregate market value of the voting stock of the registrant held by
non-affiliates, computed by reference to the closing sales price of such stock,
as of March 17, 1999 was $7,714,901. (For purposes of determination of the
foregoing amount, only directors, executive officers and 10% or greater
stockholders have been deemed affiliates.)
The number of shares outstanding of the registrant's Common Stock, par
value $.15625, as of March 17, 1999, was 5,205,671 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for the 1999 Annual Meeting
of Stockholders, expected to be filed on or prior to April 30, 1999, are
incorporated by reference into Part III of this Form 10-K.
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TABLE OF CONTENTS
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Page
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PART I ...............................................................................................................-1-
ITEM 1. BUSINESS..............................................................................................-1-
ITEM 2. PROPERTIES...........................................................................................-11-
ITEM 3. LEGAL PROCEEDINGS....................................................................................-18-
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................................................-18-
PART II ..............................................................................................................-18-
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS..............................................................................................-18-
ITEM 6. SELECTED FINANCIAL DATA..............................................................................-19-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.................................................................................-21-
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...........................................-25-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..........................................................-25-
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.................................................................................-26-
PART III ..............................................................................................................-27-
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. ..............................................-27-
ITEM 11. EXECUTIVE COMPENSATION. ..........................................................................-27-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. ..................................-27-
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. ..................................................-27-
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. ..................................-28-
INDEX TO EXHIBITS......................................................................................................-28-
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PART I
FORWARD-LOOKING STATEMENTS
Before you invest in the Common Stock of Toreador Royalty Corporation, you
should be aware that there are various risks associated with an investment,
including the risks described below and risks that we highlighted in other
sections of this report. You should consider carefully these risk factors
together with all of the other information included in this report before you
decide to purchase shares of our Common Stock.
Some of the information in this report may contain forward-looking
statements. We use words such as "may," "will," "expect," "anticipate,"
"estimate," "believe," "continue," or other similar words to identify
forward-looking statements. You should read statements that contain these words
carefully because they: (1) discuss future expectations; (2) contain
projections of results, operations or of our financial conditions; or (3) state
other "forward-looking" information. We believe that it is important to
communicate our future expectations to our investors. However, there may be
events in the future that we are unable to accurately predict or over which we
have no control. When considering our forward-looking statements, you should
keep in mind the risk factors and other cautionary statements in this report.
The risk factors noted in this section and other factors noted throughout this
report, provide example of risks, uncertainties and events that may cause our
actual results to differ materially from those contained in any forward-looking
statement.
ITEM 1. BUSINESS.
GENERAL
Toreador Royalty Corporation, a Delaware corporation, ("Toreador" or the
"Company") is an independent oil and gas company engaged in oil and gas
exploration, development, production and acquisition activities. We principally
conduct our business through our ownership of perpetual mineral and royalty
interests in approximately 2,579,000 gross (1,356,000 net) acres. These
properties include 804,000 gross (480,000 net) acres located in the Texas
Panhandle and West Texas. Collectively we refer to these properties as the
"Texas Holdings." In Alabama, Mississippi and Louisiana, we own 1,775,000 gross
(876,000 net) acres that we collectively describe as the "Southeastern States
Holdings." For a more detailed description of these properties please see "Item
2. Properties."
We acquired the Southeastern States Holdings on December 16, 1998. These
new properties significantly increased our cash flow and added to our proven
reserve base. These properties are located in geologic provinces that are much
more likely to produce natural gas as opposed to oil. As a result, we were able
to improve our reserve mix to a point that is now approximately 60% natural gas
versus 40% oil. Our new holdings will provide us with growth potential, cash
flow and proved reserves that are more evenly balanced so as to enable us to
more successfully weather severe downturns in the price of crude oil. In
addition, by purchasing minerals located in every county of Alabama and
Mississippi, we have added both geological and geographical diversity to our
asset base.
See "Glossary of Selected Oil and Natural Gas Oil Terms" at the end of this
Item 1 for a definition of certain terms defined in this report.
HISTORY
Toreador Royalty Corporation was incorporated in 1951. The history of our
Texas Holdings dates back to the formation of the Matador Land & Cattle Company
in 1882. Scottish investors assembled approximately one million acres of land
that was located in what is now the Texas Panhandle and West Texas. When this
property was sold in 1951, Toreador was formed and assigned 50% of the mineral
rights under the ranch acreage. Later, we acquired an additional 25% of the
mineral rights under a number of the original ranch properties.
As of December 31, 1998, a total of 201 exploration and development wells
had been drilled on our Texas Holdings. Overall, well density is approximately
one well per 4,400 acres. In certain sections, well density is less than one
well per 20,000 acres.
BUSINESS STRATEGY
After a change in senior management in July 1998, our board of directors
joined with management in redefining our operating strategy. This shift in
strategic focus was made both as a response to the steep drop in crude oil
prices then underway and the desire to broaden the base of our operations. The
principal elements of our present strategic focus are as follows:
o Continue to promote exploration and development activity on our
Texas Holdings, but in doing so, limit the participation of our
Company to that of a mineral interest owner.
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o Expand the level of direct working interest participation as a
non-operator by our Company in exploration projects that provide
exposure in drilling opportunities for both multiple prospects
and multiple pay zones. We expect these to be generated by
experienced third party operators using current generation
three-dimensional ("3-D") seismic technology.
o Pursue opportunities to make high quality property acquisitions
that are often unique to depressed product price environments.
o Identify and dispose of non-strategic assets, focusing first on
those properties in our Texas Holdings.
DEVELOPMENTS DURING 1998
MANAGEMENT CHANGE
G. Thomas Graves III was elected President and Chief Executive Officer at
the conclusion of our annual shareholder meeting which was held on July 23,
1998. Other changes included the election of four new members of the board of
directors.
NEW PROJECTS
As part of our strategy to participate in third party generated and
operated 3-D seismic projects in geologic regions outside of our Texas
Holdings, our Company is engaged in two 3-D seismic projects that could add
significant gas reserves.
SOUTH ORANGE GROVE 3-D PROJECT. The Company has acquired a 12.5% working
interest and an approximate 9.5% net revenue interest in a 44 square mile 3-D
seismic project in Jim Wells County, Texas. This project, which is located 35
miles west-northwest of Corpus Christi, Texas, is designed to identify and test
shallow, fault- bounded structural closures as well as stratigraphic
complexities in the Miocene, Frio, Vicksburg and deeper Yegua horizons in and
around existing fields. These existing fields are older and contain relatively
few modern exploratory wells. The project is targeting gas reserves from depths
ranging from 800 feet to 8,100 feet. As of March 17, 1999, the operator, who has
had good exploration success in the same general area, had completed the
acquisition of 3-D seismic data and was in the processing phase of the project.
The interpretation phase is expected to be completed by May 1999 and, assuming
positive results from the interpretation of the data, drilling could commence as
early as the latter portion of the second quarter of 1999.
KIRBY HILLS 3-D PROJECT. The Company has acquired a 12.5% working interest
and an approximate 9.4% net revenue interest in a 20 square mile 3-D seismic
project in Solano County, California. This project, which is located in the
Sacramento Basin of northern California, is designed to identify structural
closures within in an established gas producing area. The objective formations,
the Wagenet, Domengine and Nortonville, range in depth from 1,500 feet to 5,400
feet. As of March 17, 1999, the operator's lease acquisition program was still
underway. Acquisition of seismic data is expected to begin May 1999. Processing
and interpretation should take approximately two months once data acquisition
is complete. Assuming positive results from the interpretation of the data,
drilling could begin as early as the third quarter of 1999.
ACQUISITIONS
As part of our strategy to actively pursue high quality property
acquisition opportunities, we reviewed a number of prospective candidates
during the third and fourth quarters of 1998.
HOWELL MINERAL ACQUISITION. On December 16, 1998, we purchased certain
oil, gas and other mineral and royalty interests located in Alabama, Louisiana
and Mississippi from Howell Petroleum Corporation. The purchase price before
final closing adjustments for these interests was $13.0 million. The purchase
price was funded with our cash ($4.4 million) and loans from Compass Bank,
Dallas ($8.6 million). The properties acquired consist of those previously
described as "Southeastern States Holdings." Non-producing acreage comprises
approximately 98% of the total properties acquired. The producing interests,
that make up the remaining 2% of the total, include interests in approximately
400 oil and gas wells. This acquisition had an effective date of November 1,
1998 and the acquired interests were estimated to contain 7.95 Bcfe of proved
reserves as of that date. During the evaluation of our total proved reserves as
of December 31, 1998, our outside consulting engineering, Harlan Consulting,
increased the original estimate of total proved reserves acquired to 9.56 Bcfe.
This latest evaluation shows the acquired reserves are a mix of approximately
71% gas and 29% oil.
FINANCING ACTIVITIES
A portion of the purchase price of the Howell property acquisition was
financed through a private placement of $4.0 million of the Company's Series
"A" Convertible Preferred Stock. This was sold pursuant to a securities
purchase agreement effective December 16, 1998 to various outside investors
that included four directors
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of the Company. These preferred shares were sold for a face value of $25.00.
The annual dividend paid is $2.25, which results in an annual yield of 9.0%. At
the option of the holder, a preferred share can be converted into shares of the
Company's common stock at a price of $4.00 per common share. For additional
information regarding the terms of the preferred stock, please see "Item 5.
Market for Registrant's Common Equity and Related Stockholder Matters."
MARKETS AND COMPETITION
Our oil and gas production is sold to various purchasers typically in the
areas where the oil or gas is produced. Generally, we do not refine or process
any of the oil and gas we produce. We are currently able to sell, under
contract or in the spot market through the operator, substantially all of the
oil and the gas we are capable of producing at current market prices.
Substantially all of our oil and gas is sold under short-term contracts or
contracts providing for periodic adjustments or in the spot market; therefore,
our revenue streams are highly sensitive to changes in current market prices.
Our gas markets are pipeline companies as opposed to end users. See "Item 1.
Business -- Risk Factors -- Volatility of Oil and Natural Gas Prices" for a
discussion of the risks of commodity price fluctuations.
The oil and natural gas industry is highly competitive. We encounter
strong competition from other independent operators and from major oil
companies in acquiring properties, in contracting for drilling equipment and in
securing trained personnel. Many of these competitors have financial and
technical resources and staffs substantially larger than those available to us.
As a result, our competitors may be able to pay more for desirable leases and
they may pay more to evaluate, bid for and purchase a greater number of
properties or prospects than our financial or personnel resources will permit
us.
We are also affected by competition for drilling rigs and the availability
of tubular goods and certain other equipment. While the oil and natural gas
industry has experienced shortages of drilling rigs and equipment, pipe and
personnel in the past, we are not presently experiencing any shortages and do
not foresee any such shortages in the near future. We are unable to predict how
long current market conditions will continue.
Competition for attractive oil and natural gas producing properties,
undeveloped leases and drilling rights is also strong, and we cannot assure you
that we will be able to compete satisfactorily in acquiring properties. Many
major oil companies have publicly indicated their decisions to concentrate on
overseas activities and have been actively marketing certain producing
properties for sale to independent producers. We cannot assure you that we will
be successful in acquiring any such properties.
REGULATION
General Federal and State Regulation
From time to time political developments and federal and state laws and
regulations affect our operations in varying degrees. Price control, tax and
other laws relating to the oil and natural gas industry, changes in such laws
and changing administrative regulations affect our oil and natural gas
production, operations and economics. There are currently no price controls on
oil, condensate or natural gas liquids. To the extent price controls remain
applicable after the enactment of the Natural Gas Wellhead Decontrol Act of
1989, we are of the opinion that price controls will not have a significant
impact on the prices received by us for natural gas produced in the near
future.
We review legislation affecting the oil and natural gas industry for
amendment or expansion. The legislative review frequently increases our
regulatory burden. Also, numerous departments and agencies, both federal and
state, are authorized by statute to issue and have issued rules and regulations
binding on the oil and natural gas industry and its individual members,
compliance with which is often difficult and costly and certain of which may
carry substantial penalties if we were to fail to comply. We cannot predict how
existing regulations may be interpreted by enforcement agencies or the courts,
nor whether amendments or additional regulations will be adopted, nor what
effect such interpretations and changes may have on our business or financial
conditions.
Matters subject to regulation include:
o discharge permits for drilling operations;
o drilling and abandonment bonds or other financial responsibility
requirements;
o reports concerning operations;
o the spacing of wells;
o unitization and pooling of properties; and
o taxation.
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Natural Gas Regulation and the Effect on Marketing
Historically, interstate pipeline companies generally acted as wholesale
merchants by purchasing natural gas from producers and reselling the natural
gas to local distribution companies and large end users. Commencing in late
1985, the Federal Energy Regulatory Commission (the "FERC") issued a series of
orders that have had a major impact on interstate natural gas pipeline
operations, services, and rates, and thus have significantly altered the
marketing and price of natural gas. The FERC's key rule making action, Order
No. 636, issued in April 1992, required each interstate pipeline to, among
other things, "unbundle" its traditional bundled sales services and create and
make available on an open and nondiscriminatory basis numerous constituent
services (such as gathering services, storage services, firm and interruptible
transportation services, and standby sales and natural gas balancing services),
and to adopt a new rate-making methodology to determine appropriate rates for
those services. To the extent the pipeline company or its sales affiliate makes
natural gas sales as a merchant in the future, it does so pursuant to private
contracts in direct competition with all other sellers, such as Toreador;
however, pipeline companies and their affiliates were not required to remain
"merchants" of natural gas, and most of the interstate pipeline companies have
become "transporters only." In subsequent orders, the FERC largely affirmed the
major features of Order No. 636 and denied a stay of the implementation of the
new rules pending judicial review. By the end of 1994, the FERC had concluded
the Order No. 636 restructuring proceedings, and, in general, accepted rate
filings implementing Order No. 636 on every major interstate pipeline. However,
even through the implementation of Order No. 636 on individual interstate
pipelines is essentially complete, many of the individual pipeline
restructuring proceedings, as well as orders on rehearing of Order No. 636
itself and the regulations promulgated thereunder, are subject to pending
appellate review and could possibly be changed as a result of future court
orders. We cannot predict for you whether the FERC's orders will be affirmed on
appeal or what the effects will be on our business.
We own indirect interests in certain natural gas facilities that we believe
meet the traditional tests the FERC has used to establish a company's status as
a gatherer not subject to FERC jurisdiction under the Natural Gas Act of 1938.
Moreover, recent orders of the FERC have been more liberal in their reliance
upon or use of the traditional tests, such that in many instances, what was once
classified as "transmission" may now be classified as "gathering." We transport
our own natural gas through these facilities. We also transport a portion of our
natural gas through gathering facilities owned by others, including interstate
pipelines, and the cost and availability of that transportation also could be
affected by the developments referred to in the following paragraph.
In recent years the FERC also has pursued a number of other important
policy initiatives which could significantly affect the marketing of natural
gas. Some of the more notable of these regulatory initiatives include:
o a series of orders in individual pipeline proceedings articulating a
policy of generally approving the voluntary divestiture of interstate
pipeline owned gathering facilities by interstate pipelines to their
affiliates (the so-called "spin down" of previously regulated
gathering facilities to the pipeline's nonregulated affiliate) and to
non-affiliates (a so called "spin off"), a number of which have been
approved and implemented;
o the completion of a rule making involving the regulation of pipelines
with marketing affiliates under Order No. 497;
o the FERC's ongoing efforts to promulgate standards for pipeline
electronic bulletin boards and electronic data exchange;
o a generic inquiry into the pricing of interstate pipeline capacity;
o efforts to refine the FERC's regulations controlling operation of the
secondary market for released pipeline capacity; and
o a policy statement regarding market based rates and other
non-cost-based rates for interstate pipeline transmission and storage
capacity.
Several of these initiatives are intended to enhance competition in natural gas
markets, although some, such as "spin downs" may have the adverse effect of
increasing the cost of doing business to some in the industry if the new,
unregulated owners of those facilities monopolize them. The FERC has attempted
to address some of these concerns in its orders authorizing such "spin downs"
by requiring nondiscriminatory access and prohibiting "tying" access to
pipeline transportation to other services of an affiliate, imposing certain
contract requirements, and retaining jurisdiction if an affiliate undermines
open and nondiscriminatory access to the interstate pipeline. The FERC also has
imposed additional requirements on interstate pipelines seeking to abandon
facilities certificated under the Natural Gas Act of 1938 and to terminate
service from both certificated and uncertificated activities. It remains to be
seen what effect these activities will have on access to markets and the cost
of doing business. Further, some of the orders and regulations of the FERC
establishing these initiatives and approving actions thereunder have been
appealed and remain subject to further action by an appellate court and the
FERC. We cannot predict what the ultimate effect of these and other orders of
the FERC will have on our production and marketing, or whether the FERC's
orders on these matters will be affirmed by an appellate court. As to all of
these recent FERC
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initiatives, the ongoing, or in some instances, preliminary evolving nature of
these regulatory initiatives also makes it impossible at this time for us to
predict their ultimate impact on our business.
Federal Taxation
The federal government may propose tax initiatives that affect us. We are
unable to determine what effect, if any, future proposals would have on product
demand or our results of operations.
State Regulation
The various states in which we conduct activities regulate our drilling,
operation and production of oil and natural gas wells, including the method of
developing new fields, spacing of wells, the prevention and cleanup of
pollution, and maximum daily production allowables based on market demand and
conservation considerations.
Environmental Regulation
Exploration, development and production of oil and gas, including
operation of saltwater injection and disposal wells, are subject to various
federal, state and local environmental laws and regulations. Such laws and
regulations can increase the costs of planning, designing, installing and
operating oil and gas wells. Our domestic activities are subject to a variety
of environmental laws and regulations, including, but not limited to:
o the Oil Pollution Act of 1990;
o the Clean Water Act;
o the Comprehensive Environmental Response, Compensation and Liability
Act;
o the Resource Conservation and Recovery Act;
o the Clean Air Act; and
o the Safe Drinking Water Act,
as well as state regulations promulgated under comparable state statutes. These
laws and regulations:
o require the acquisition of a permit before drilling commences;
o restrict the types, quantities and concentration of various
substances that can be released into the environment in connection
with drilling and production activities;
o limit or prohibit drilling activities on certain lands lying within
wilderness, wetlands and other protected areas; and
o impose substantial liabilities for pollution that might result from
our operations.
We also are subject to regulations governing the handling, transportation,
storage and disposal of naturally occurring radioactive materials that are
found in our oil and gas operations. Civil and criminal fines and penalties may
be imposed for non-compliance with these environmental laws and regulations.
Additionally, these laws and regulations require the acquisition of permits or
other governmental authorizations before undertaking certain activities, limit
or prohibit other activities because of protected areas or species and impose
substantial liabilities for cleanup of pollution.
Under the Oil Pollution Act, a release of oil into water or other areas
designated by the statue could result in Toreador being held responsible for
the costs of remediating such a release, specified damages and natural resource
damages. The extent of that liability could be extensive, as set forth in the
statute, depending on the nature of the release. A release of oil in harmful
quantities or other materials into water or other specified areas could also
result in Toreador being held responsible under the Clear Water Act for the
cost of remediation, and civil and criminal fines and penalties.
CERCLA and comparable state statutes, also known as "Superfund" laws, can
impose joint, several and retroactive liability, without regard to fault or the
legality of the original conduct, on certain classes of persons for the release
of a "hazardous substance" into the environment. In practice, cleanup costs are
usually allocated among various responsible parties. Potentially liable parties
include site owners or operators, past owners or operators under certain
conditions and entities that arrange for the disposal or treatment of, or
transport of hazardous substances found at the site. Although CERCLA, as
amended, currently exempts petroleum, including, but not limited to, crude oil,
gas and natural gas liquids from the definition of hazardous substance, our
operations may involve the use or handling of other materials that may be
classified as hazardous substances under CERCLA. Furthermore, there can be no
assurance that the exemption will be preserved in future amendments of the act,
if any.
RCRA and comparable state and local requirements impose standards for the
management, including treatment, storage and disposal of both hazardous and
nonhazardous solid wastes. We generate hazardous and non hazardous solid waste
in connection with our routine operations. From time to time, proposals have
been made that would reclassify certain oil and gas wastes, including wastes
generated during pipeline, drilling and production operations, as "hazardous
wastes" under RCRA which would make such solid wastes subject to much more
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stringent handling, transportation, storage, disposal and clean-up
requirements. This development could have a significant impact on our operating
costs. While state laws vary on this issue, state initiatives to further
regulate oil and gas wastes could have a similar impact on our operations.
Because oil and gas exploration and production, and possibly other
activities, have been conducted at some of our properties by previous owners
and operators, materials from these operations remain on some of our properties
and in some instances require remediation. In addition, we have agreed to
indemnify the sellers of producing properties from whom we have acquired
reserves against certain liabilities for environmental claims associated with
such properties. While we do not believe the costs to be incurred by us for
compliance and remediating previously or currently owned or operated properties
will be material, we cannot guarantee that these potential costs will not
result in material expenditures.
Additionally, in the course of our routine oil and gas operations, surface
spills and leaks, including casing leaks, of oil or other materials occur, and
we may incur costs for waste handling and environmental compliance.
Notwithstanding our lack of control over wells controlled by others, the failure
of the operator to comply with applicable environmental regulations may, in
certain circumstances, be attributable to us.
It is not anticipated that we will be required in the near future to
expend amounts that are material in relation to our total capital expenditures
program by reason of environmental laws and regulations, but inasmuch as such
laws and regulations are frequently changed, we are unable to predict the
ultimate cost of compliance. There can be no assurance that more stringent laws
and regulations protecting the environment will not be adopted or that we will
not otherwise incur material expenses in connection with environmental laws and
regulations in the future.
Other Proposed Legislation
The recent trend toward stricter standards in environmental legislation
and regulation is likely to continue. For instance, legislation has been
proposed in Congress from time to time that would reclassify certain crude oil
and natural gas exploitation and production wastes as "hazardous wastes" which
would make the reclassified wastes subject to much more stringent handling,
disposal and clean-up requirements. If such legislation were to be enacted, it
could have a significant impact on our operating costs, as well as the oil and
natural gas industry in general. Initiatives to further regulate the disposal
of crude oil and natural gas wastes are also pending in certain states, and
these various initiatives could have a similar impact on us. We could incur
substantial costs to comply with environmental laws and regulations. In
addition to compliance costs, government entities and other third parties may
assert substantial liabilities against owners and operators of oil and natural
gas properties for oil spills, discharge of hazardous materials, remediation
and clean-up costs and other environmental damages, including damages caused by
previous property owners. As a result, substantial liabilities to third parties
or governmental entities may be incurred, the payment of which could reduce or
eliminate the funds available for project investment or result in loss of our
properties. Although we maintain insurance coverage we consider to be customary
in the industry, we are not fully insured against certain of these risks,
either because such insurance is not available or because of high premium
costs. Accordingly, we may be subject to liability or may lose substantial
portions of properties due to hazards that cannot be insured against or have
not been insured against due to prohibitive premium costs or for other reasons.
The imposition of any such liabilities on us could have a material adverse
effect on our financial condition and results of operations.
EMPLOYEES
As of March 17, 1999, we employed seven full-time employees. None of our
employees are represented by unions or covered by collective bargaining
agreements. To date, we have not experienced any strikes or work stoppages due
to labor problems and we consider our relations with our employees to be good.
As needed, we also utilize the services of independent consultants on a
contract basis.
RISK FACTORS
Effects of Indebtedness
At December 31, 1998, Toreador's debt to equity ratio was 102%. We may
incur additional indebtedness in the future as we execute our acquisition and
exploration strategy. See "-- Potential Need for Additional Financing for
Continued Growth."
Our ability to meet our debt service obligations will be dependent upon
our future performance, which will be subject to oil and natural gas prices,
our level of production, general economic conditions and to financial, business
and other factors affecting our operations, many of which are beyond our
control. There can be no assurance that our future performance will not be
adversely affected by some or all of these factors. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operation
- -Liquidity and Capital Resources."
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Our level of indebtedness will have several important effects on our future
operations, including:
o a substantial portion of our cash flow from operations must be
dedicated to the payment of principal and interest on our
indebtedness and will not be available for other purposes,
o covenants contained in our debt obligations will require us to meet
certain financial tests, and other restrictions will limit our
ability to borrow additional funds or to dispose of assets and may
affect our flexibility in planning for, and reacting to, changes in
our businesses, including possible acquisition activities, and
o our ability to obtain additional financing in the future may be
impaired.
A default under our credit facility would permit the lender to accelerate
repayments of the loan and to foreclose on the collateral securing the loan,
including certain oil and gas properties. See "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operation -- Liquidity and
Capital Resources."
Volatility of Oil and Natural Gas Prices
Our future financial condition and results of operations depend upon the
prices we receive for our oil and natural gas and the costs of acquiring,
developing and producing oil and natural gas. Currently, oil and natural gas
prices are depressed. Historically, oil and natural gas prices have been
volatile and are subject to fluctuations in response to changes in supply,
market uncertainty and a variety of additional factors that are also beyond our
control. These factors include, without limitation:
o the level of domestic production;
o the availability of imported oil and natural gas;
o actions taken by foreign oil and natural gas producing nations;
o the availability of transportation systems with adequate capacity;
o the availability of competitive fuels;
o fluctuating and seasonal demand for natural gas;
o conservation and the extent of governmental regulation of production,
weather, foreign and domestic government relations;
o the price of domestic and imported oil and natural gas; and
o the overall economic environment.
A substantial or extended decline in oil and/or natural gas prices could have a
material adverse effect on the estimated value of our natural gas and oil
reserves, and on our financial position, results of operations and access to
capital. Our ability to maintain or increase our borrowing capacity, to repay
current or future indebtedness and to obtain additional capital on attractive
terms is substantially dependent upon oil and natural gas prices.
Past Losses
We had net losses applicable to common shares of $261,746 and $51,366 for
the years ended December 31, 1998 and 1997, respectively. We may continue to
incur net losses and, to the extent that natural gas and crude oil prices are
low, such losses may be substantial.
Potential Inability to Develop Additional Reserves
Our future success as an oil and natural gas producer, as is generally the
case in the industry, depends upon our ability to find, develop and acquire
additional oil and natural gas reserves that are profitable. If we are unable
to conduct successful development activities or acquire properties containing
proved reserves, our proved reserves will generally decline as reserves are
produced. We cannot assure you that we will be able to locate additional
reserves or that we will drill economically productive wells or acquire
properties containing proved reserves.
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<PAGE> 10
Capability to Identify All Acquisition Risks
Generally, it is not feasible for us to review in detail every individual
risk involved in an acquisition. Our business strategy includes future
acquisitions of producing oil and natural gas properties. Any future
acquisitions will require an assessment of recoverable reserves, future oil and
natural gas prices, operating costs, potential environmental and other
liabilities and other similar factors. Ordinarily, review efforts are focused
on the higher- valued properties. However, even a detailed review of certain
properties and records may not reveal existing or potential problems, nor will
it permit us to become sufficiently familiar with the properties to assess
fully their deficiencies and capabilities. Inspections are not always performed
on every well, and potential problems, such as mechanical integrity of
equipment and environmental conditions that may require significant remedial
expenditures, are not necessarily observable even when an inspection is
undertaken. Even if we identify problems, the seller may be unwilling or unable
to provide effective contractual protection against all or part of such
problems.
The Howell Mineral Acquisition represents a major step in our growth
strategy. However, our increased size and scope of operations will present us
with significant challenges due to the increased time and resources required in
our management effort. Accordingly, there can be no assurance that our future
operations can be effectively managed to realize the goals anticipated of the
property acquisitions.
Potential Need for Additional Financing for Continued Growth
The growth of our business will require substantial capital on a
continuing basis. We may be unable to obtain additional capital on satisfactory
terms and conditions. Thus, we may lose opportunities to acquire oil and
natural gas properties and businesses. In addition, our pursuit of additional
capital could result in incurring addition indebtedness or potential dilutive
issuances of additional equity securities. We also may utilize the capital
currently expected to be available for our present operations. The amount and
timing of our future capital requirements, if any, will depend upon a number of
factors, including:
o drilling costs;
o transportation costs;
o equipment costs;
o marketing expenses;
o staffing levels and competitive conditions; and
o any purchases or dispositions of assets.
Our failure to obtain any required additional financing could materially and
adversely affect our growth, cash flow and earnings.
Drilling Risks
Our drilling involves numerous risks, including the risk that no
commercially productive oil or natural gas reservoirs will be encountered. We
may incur significant expenditures for the identification and acquisition of
properties and for the drilling and completion of wells. The cost of drilling,
completing and operating wells is often uncertain, and drilling operations may
be curtailed, delayed or canceled as a result of a variety of factors,
including unexpected drilling conditions, pressure or irregularities in
formations, equipment failures or accidents, weather conditions and shortages
or delays in the delivery of equipment. In addition, any use by us of 3-D
seismic and other advanced technology to explore for oil and natural gas
requires greater pre-drilling expenditures than traditional drilling
strategies. We cannot assure the success of our future drilling activities.
Nature of Property Interests
On the Southeastern States Holdings, we own interests in minerals that
include executive rights as well as rights to receive portions of lease
bonuses, delay rentals and royalties. On the Texas Holdings, we own interests
in minerals that include rights to receive portions of lease bonuses, delay
rentals and royalties, except, unlike our Southeastern States Holdings, we
generally do not own the executive rights -- the rights to sign leases -- which
are typically held by surface owners. Therefore, we must rely on the owners of
the executive rights to execute leases of the acreage. In situations in which
we have acquired working interests in acreage where we have mineral rights, we
have acquired those interests through the signing of leases by holders of the
executive rights. While the majority of the owners holding those executive
rights have worked closely with us in the past, each acts independently of us
in deciding to execute leases. In addition, since our interests are in the
form of mineral interests, royalty interests or non-operator working interests,
we do not have control over drilling or operating decisions on the properties
in which we have an interest.
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<PAGE> 11
Estimates of Oil and Natural Gas Reserves
Numerous uncertainties are inherent in estimating quantities of proved oil
and natural gas reserves, including many factors beyond our control. This
report contains an estimate of our proved oil and natural gas reserves and the
estimated future net cash flows and revenue generated by the proved oil and
natural gas reserves based upon reports of our independent petroleum engineers.
Such reports rely upon various assumptions, including assumptions required by
the Securities and Exchange Commission, as to constant oil and natural gas
prices, drilling and operating expenses, capital expenditures, taxes and
availability of funds, and such reports should not be construed as the current
market value of the estimated proved reserves. The process of estimating oil
and natural gas reserves is complex, requiring significant decisions and
assumptions in the evaluation of available geological, engineering and economic
data for each property. As a result, such estimates are inherently an imprecise
evaluation of reserve quantities and future net revenue. Our actual future
production, revenue, taxes, development expenditures, operating expenses and
quantities of recoverable oil and natural gas reserves may vary substantially
from those we have assumed in the estimate. Any significant variance in our
assumptions could materially affect the estimated quantity and value of
reserves set forth in this report. In addition, our reserves may be subject to
downward or upward revision, based upon production history, results of future
exploitation and development, prevailing oil and natural gas prices and other
factors.
Operating Hazards and Uninsured Risks
Our operations are subject to the risks inherent in the oil and natural
gas industry, including the risks of:
o fire, explosions, and blowouts;
o pipe failure;
o abnormally pressured formations; and
o environmental accidents such as oil spills, gas leaks, ruptures or
discharges of toxic gases, brine or well fluids into the environment
(including groundwater contamination).
The occurrence of any of these events could result in substantial losses
to Toreador due to:
o injury or loss of life;
o severe damage to or destruction of property, natural resources and
equipment;
o pollution or other environmental damage;
o clean-up responsibilities;
o regulatory investigation; and
o penalties and suspension of operations.
In accordance with customary industry practice, we maintain insurance against
some, but not all, of the risks described above. We cannot assure you that any
insurance maintained by us will be adequate to cover any such losses or
liabilities. Further, we cannot predict the continued availability of
insurance, or availability at commercially acceptable premium levels. We do not
carry business interruption insurance. Losses and liabilities arising from
uninsured or under-insured events could have a material adverse effect on our
financial condition and operations.
From time to time, due primarily to contract terms, pipeline interruptions
or weather conditions, the producing wells in which we own an interest have
been subject to production curtailments. The curtailments range from production
being partially restricted to wells being completely shut-in. The duration of
curtailments varies from a few days to several months. In most cases we are
provided only limited notice as to when production will be curtailed and the
duration of such curtailments. We are not currently experiencing any material
curtailment on our production.
Stock Price Volatility
Because the volume of trades of shares of our Common Stock held by the
public has been low historically, the sale of a substantial number of shares of
the Common Stock in a short period of time could adversely affect the market
price of the Common Stock.
Dividends
We have never paid cash dividends on our Common Stock and do not
anticipate paying cash dividends on our Common Stock in the foreseeable future.
Our Common Stock is not a suitable investment for persons requiring current
income.
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<PAGE> 12
Marketing Risks
The marketing of our oil and natural gas production principally depends
upon those facilities operated by others.
Control by Certain Stockholders
As of January 31, 1999, the current officers and directors of the Company
as a group held a beneficial interest in approximately 55% of our Common Stock
(including shares issuable upon exercise of stock options for Common Stock or
conversion of the Company's Series A Preferred Stock held by affiliates of
certain directors). In addition, certain officers and directors holding or
controlling an aggregate of 52% of the Common Stock have entered into a
Stockholder Voting Agreement whereby such persons have agreed to vote their
shares together or refrain from voting their shares under certain
circumstances, including the election of directors, merger transactions in
respect of the Company and other possible change of control events.
Consequently, these stockholders are in a position to effectively control the
affairs of the Company, including the election of all of the Company's
directors and the approval or prevention of certain corporate transactions
which require majority stockholder approval.
Key Personnel
We are substantially dependent upon G. Thomas Graves III, President, Chief
Executive Officer and Director, Edward C. Marhanka, Vice President, and other
key personnel, including Douglas W. Weir, Vice President - Finance and
Treasurer. Because we are engaged in a new business strategy, the loss of any
one of these individuals for any reason may have a material adverse impact upon
us.
GLOSSARY OF SELECTED OIL AND NATURAL GAS TERMS
Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume, used herein
in reference to crude oil or other liquid hydrocarbons.
Bcf. One billion cubic feet of natural gas.
Bcfe. One billion cubic feet of natural gas equivalents, converting one
Bbl of oil to six Mcf of natural gas.
BOE. Barrel of oil equivalent converting six Mcf of natural gas to one
barrel of oil.
"development well." A well drilled within the proved boundaries of an oil
or natural gas reservoir with the intention of completing the stratigraphic
horizon known to be productive.
"dry well." A development or exploratory well found to be incapable of
producing either oil or natural gas in sufficient quantities to justify
completion as an oil or natural gas well.
"exploratory well." A well drilled to find and produce oil or natural gas
in an unproved area, to find a new reservoir in a field previously found to be
productive of oil or natural gas in another reservoir, or to extend a known
reservoir.
"gross acres" or "gross wells." The total number of acres or wells, as the
case may be, in which a working or any type of royalty interest is owned.
Mcf. One thousand cubic feet of natural gas.
Mcfe. One thousand cubic feet of natural gas equivalents, converting one
Bbl of oil to six Mcf of natural gas.
MMcf. One million cubic feet of natural gas.
"net acres" or "net wells." The sum of the fractional working or any type
of royalty interests owned in gross acres or gross wells.
"producing well" or "productive well." A well that is producing oil or
natural gas or that is capable of production.
"proved developed reserves" or "proved developed producing." Proved
developed reserves are oil and natural gas reserves that can be expected to be
recovered through existing wells with existing equipment and operating methods.
Additional oil and natural gas expected to be obtained through the application
of fluid injection or other improved recovery techniques for supplementing the
natural forces and mechanisms of primary recovery
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<PAGE> 13
should be included as "proved developed reserves" only after testing by a pilot
project or after the operation of an installed program has confirmed through
production response that increased recovery will be achieved.
"proved reserves." The estimated quantities of crude oil, natural gas and
natural gas liquids 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 undeveloped reserves." Reserves are oil and natural gas reserves
that are expected to be recovered from new wells on undrilled acreage, or from
existing wells where a relatively major expenditure is required for
recompletion. Reserves on undrilled acreage shall be limited to those drilling
units offsetting productive units that are reasonably certain of production
when drilled. Proved reserves for other undrilled units can be claimed only
where it can be demonstrated with certainty that there is continuity of
production from the existing productive formation. Under no circumstances
should estimates for proved undeveloped reserves be attributable to any acreage
for which an application of fluid injection or other improved recovery
techniques is contemplated, unless such techniques have been proved effective
by actual tests in the area and in the same reservoir.
"royalty interest." An interest in an oil and natural gas property
entitling the owner to a share of oil and natural gas production free of costs
of production.
"SEC PV-10." The present value of proved reserves is an estimate of the
discounted future net cash flows from each property at December 31, 1998, or as
otherwise indicated. Net cash flow is defined as net revenues less, after
deducting production and ad valorem taxes, future capital costs and operating
expenses, but before deducting federal income taxes. As required by rules of the
Securities and Exchange Commission, the future net cash flows have been
discounted at an annual rate of 10% to determine their "present value." The
present value is shown to indicate the effect of time on the value of the
revenue stream and should not be construed as being the fair market value of the
properties. In accordance with Securities and Exchange Commission rules,
estimates have been made using constant oil and natural gas prices and operating
costs, at December 31, 1998, or as otherwise indicated.
"Standardized Measure." Under the Standardized Measure, future cash flows
are estimated by applying year-end prices, adjusted for fixed and determinable
escalations, to the estimated future production of year-end proved reserves.
Future cash inflows are reduced by estimated future production and development
costs based on period-end costs to determine pretax cash inflows. Future income
taxes are computed by applying the statutory tax rate to the excess inflows
over the Company's tax basis in the associated properties. Tax credits, net
operating loss carryforwards, and permanent differences are also considered in
the future tax calculation. Future net cash inflows after income taxes are
discounted using a 10% annual discount rate to arrive at the Standardized
Measure.
"undeveloped acreage." Lease acreage on which wells have not been drilled
or completed to a point that would permit the production of commercial
quantities of oil and natural gas regardless of whether such acreage contains
proved reserves.
"working interest." The operating interest which gives the owner the right
to drill, produce and conduct operating activities on the property and a share
of production, subject to all royalties, overriding royalties and other burdens
and to all costs of exploration to, development and operations and all risks in
connection therewith.
ITEM 2. PROPERTIES.
The Company owns perpetual oil and gas mineral and royalty interests
comprised of the Texas Holdings and the Southeastern States Holdings that total
approximately 2,579,000 gross acres.
TEXAS HOLDINGS
Our Texas Holdings are comprised of the Northern Ranch Minerals and the
Southern Ranch Minerals and equal approximately 804,000 gross acres.
NORTHERN RANCH MINERALS
We own mineral interests under approximately 334,000 gross acres located in
Oldham and Hartley Counties, Texas. These minerals are all located in the
geologic province commonly known as the Southern Dalhart Basin.
SOUTHERN DALHART BASIN. In January 1995, we leased approximately 13,000
acres on the Smith Ranch (formerly the Proctor Ranch) in Hartley County, Texas
with the intent of accelerating third party interest in various projects which
we generated. In January 1997, we entered into a farmout agreement with Corlena
Oil Company (the operator) covering approximately 1,900 acres of our leasehold.
In March 1997, we participated for a 25% working interest in drilling the first
well to test Pennsylvanian age Granite Wash reservoirs. This initial exploratory
well was plugged and
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<PAGE> 14
abandoned after testing water and non-commercial quantities of oil. The
operator then conducted a 3-D seismic survey covering approximately 2,700 acres
of our 13,000 acre leasehold. In January 1998, the operator drilled a new oil
field discovery well, the #2-A Smith Ranch, to open the Pedarosa (Granite Wash)
Field at approximately 5,500 feet. In addition to our working interest, we have
a 15% net royalty interest. In March and April 1998 the Company participated in
the drilling of two wells, both of which were dry.
In January 1999, we sold approximately 66,300 gross (49,700 net) mineral
acres for $750,000. This acreage is commonly referred to as the Scharbauer
Ranch acreage in Oldham County, Texas. This sale was a result of our new
business strategy to divest the company's non-strategic assets. We plan to
continue this divestment strategy as long as we receive what we believe are
viable offers for our non-strategic minerals. See further discussion in Note 6
of the Notes to the Consolidated Financial Statements.
SOUTHERN RANCH MINERALS
The Company owns mineral interests under an aggregate of approximately
470,000 gross acres located in three geologic provinces commonly known as the
Palo Duro Basin, the Matador Arch, and the Eastern Shelf.
PALO DURO BASIN. The Palo Duro Basin, where we own mineral interests under
approximately 195,000 gross acres located in Motley and Cottle Counties, Texas,
is a moderate depth depression between the Matador Arch on the south and the
Amarillo uplift complex to the north. There was no leasing or drilling activity
in 1998.
MATADOR ARCH. The Matador Arch, where we own mineral interests under
approximately 90,000 gross acres, is a prominent east-west structural positive
traversing North Texas and southern Oklahoma.
In January 1998, the Company participated in the testing and completion of
a well as an extension to an existing field. Upon completion, this well was
pumping at a daily rate of 36 Bbls of oil and three Bbls of water. Later in the
first quarter of 1998, the Company participated in drilling one exploration
well in the same field resulting in a dry well.
EASTERN SHELF. The Eastern Shelf of the Midland Basin, where we own
mineral interests under approximately 185,000 gross acres located primarily in
Dickens County, Texas, is prospective for shallow Permian age oil accumulations
in the Tannehill Sand and possible deeper objectives in the Pennsylvanian
section.
In the first quarter of 1998, the Company participated in drilling seven
wells with the operator, resulting in two producing wells and five dry wells.
During the month of January 1999, these two producing wells combined pumped at
an average daily rate of 161 Bbls of oil.
SOUTHEASTERN STATES HOLDINGS
In December 1998, the Company acquired approximately 1,775,000 gross acres
located in Mississippi, Alabama and Louisiana. Most of the Company's activity
is generated along the southern half of each of these three states. Unlike our
Texas Holdings, our mineral spread here is diversified over several geologic
provinces and not highly concentrated and dense in one specific area.
Conversely, we own a mineral position in every county in Mississippi and
Alabama.
MISSISSIPPI
The Company owns perpetual mineral and royalty interests for oil, gas and
other minerals in approximately 1,137,000 gross acres in Mississippi. The
largest concentration of activity for our Southeastern States Holdings is in
the geologic province commonly known as the Mississippi Salt Basin. This
province primarily stretches from northeastern Louisiana across the southern
half of Mississippi and just into the southwestern portions of Alabama. In
another province of more recent importance is the development of a Deep Knox
Gas discovery in northeastern Mississippi located just southwest and adjacent
to the Black Warrior Basin. This basin extends from northeastern Mississippi
into northwestern Alabama.
MISSISSIPPI SALT BASIN
Within the Mississippi Salt Basin, there are two major areas of activity
which are currently providing us with the opportunity to gain significant
reserve potential. They are in the areas of Piercement Salt Domes and Salt
Ridges.
PIERCEMENT SALT DOMES. The Piercement Salt Dome activity is currently
focused in the south-central portion of Mississippi in Jefferson Davis and
Covington Counties, Mississippi. These geologic features have several target
pay zones ranging from primary objectives in several Hosston Sandstones at
depths of over 15,000 feet to secondary objectives in the Paluxy formation at
approximately 12,000 feet. In Mississippi there are over five
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<PAGE> 15
(5) dozen salt domes alone. The success of this activity to date is greatly
dependent and attributed to the advances of 3- D seismic technology.
In Jefferson Davis County, Mississippi, for instance, we are benefitting
directly from the use of the latest 3- D seismic technology to exploit this
activity. In June 1997, the Oakvale Dome Field was discovered in which the
initial well was completed in the Hosston "Harper" Sand and is currently flowing
for an average daily rate of approximately 10 MMcf of natural gas. In March
1999, a second well in the field was completed and recently tested at a daily
rate flowing as high as 20 MMcf of natural gas from the commingling of the
Hosston "Booth" Sand and the Hosston "H-1" and "H-2" Sands. Operations are
underway to increase pipeline capacity from the current daily rate of
approximately 15 MMcf of natural gas to a rate that allows the operator to
produce at a daily rate in excess of 30 MMcf of natural gas. We own a 3.125%
royalty interest in each of these wells and as a royalty owner do not bear the
burden of any expenses in developing these fields. In addition, the operator is
currently drilling its third well in the field and has permitted with the state
the location for a fourth well which the operator has indicated that it plans to
initiate drilling operations in the third quarter of 1999.
SALT RIDGES. Salt Ridge activity is currently underway in Wayne, Jones,
Perry and Greene Counties, Mississippi. The primary objectives are the Cotton
Valley, Smackover and Norphlet formations ranging from 12,000 feet to 18,000
feet. The use of 3-D seismic technology has been critical to the success of
this activity.
This activity was initiated by the discovery of the Crawford Creek Field
in Wayne County, Mississippi in 1994. As of December 1998 this field has
produced nearly 3 million barrels of oil and 1.5 Bcf of natural gas from 15
wells out of the Cotton Valley and Hosston Sands.
Some of our acreage is in a favorable position to be leased and included
in some units currently being formed by various operators which is near the
most recent discovery well that tested for a daily rate of approximately 3 MMcf
and 500 barrels of condensate.
DEEP KNOX GAS. Current activity is centered in Oktibbeha County,
Mississippi, adjacent to the Black Warrior Basin, where a 15,000 foot Knox Gas
well was completed in June 1998 and flowed for an average daily rate in January
1999 of six MMcf. We own a 0.35% royalty interest in this well. The operator is
currently drilling a delineation well where we will own a royalty interest of
approximately 2.9%.
Very few wells have been drilled to the Knox in this region near or in the
Black Warrior Basin, thus giving new promise to the area. With the use of 3-D
seismic technology, this well revitalizes the Maben Field which was originally
discovered in 1970.
ALABAMA
The Company owns perpetual oil and gas mineral and royalty interests in
approximately 622,000 gross acres in Alabama. Just as in Mississippi, we own a
mineral position in every county in Alabama.
The major producing property for the Company in Alabama is the North
Frisco City Fieldwide Unit located in the North Frisco City Field of Monroe
County, Alabama.
LOUISIANA
The Company owns oil and gas mineral and royalty interests in approximately
16,000 gross acres in Louisiana. Unlike the other states where we own perpetual
minerals, the laws in Louisiana are such that the minerals prescribe to the
surface owner after 10 years have passed without any production or drilling on
said lands. Since we do not own the surface rights in any of the properties that
were acquired in December 1998, the consequences are that we do not maintain
many of our mineral rights after production ceases for that period of 10 years.
TITLE TO OIL AND NATURAL GAS PROPERTIES
We have acquired interests in producing and non-producing acreage in the
form of working interests, mineral interests, royalty interests and overriding
royalty interests. Substantially all of our property interests are leased to
third parties. The leases grant the lessee the right to explore for and extract
oil and natural gas from specified areas. Consideration for a lease usually
consists of a lump sum payment (i.e., bonus) and a fixed annual charge (i.e.,
delay rental) prior to production (unless the lease is paid up) and, once
production has been established, a royalty based generally upon the proceeds
from the sale of oil and natural gas. Once wells are drilled, a lease generally
continues so long as production of oil and natural gas continues. In some
cases, leases may be acquired in exchange for a commitment to drill or finance
the drilling of a specified number of wells to predetermined depths. We receive
annual delay rentals from lessees of certain properties in order to prevent the
leases from terminating. Title to leasehold properties is subject to royalty,
overriding royalty, carried, net profits and other similar interests and
contractual arrangements customary in the oil and natural gas industry, and to
liens incident to operating
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<PAGE> 16
agreements, liens relating to amounts owed to the operator, liens for current
taxes not yet due and other encumbrances. A substantial portion of our
exploration and production properties are pledged as collateral under our
credit facility, including a major portion of the Howell Mineral Acquisition.
As is common industry practice, we conduct little or no investigation of
title at the time we acquire undeveloped properties, other than a preliminary
review of local mineral records. However, we do conduct title investigations
and, in most cases, obtain a title opinion of local counsel before commencement
of drilling operations. We believe that the methods we utilize for
investigating title prior to acquiring any property is consistent with
practices customary in the oil and gas industry and that such practices are
adequately designed to enable us to acquire good title to such properties. Some
title risks, however, cannot be avoided, despite the use of customary industry
practices.
Our properties are generally subject to:
o customary royalty and overriding royalty interests;
o liens incident to operating agreements; and
o liens for current taxes and other burdens and minor encumbrances,
easements and restrictions.
We believe that none of these burdens either materially detract from the value
of our properties or materially interfere with their use in the operation of
our business.
On the Southeastern States Holdings, we own interests in minerals that
include executive rights as well as rights to receive portions of lease bonuses,
delay rentals and royalties. On the Texas Holdings, we own interests in minerals
that include rights to receive portions of lease bonuses, delay rentals and
royalties, except, unlike our Southeastern States Holdings, we generally do not
own the executive rights -- the rights to sign leases -- which are typically
held by surface owners. Therefore, we must rely on the owners of the executive
rights to execute leases of the acreage. In situations in which we have acquired
working interests in acreage where we have mineral rights, we have acquired
those interests through the signing of leases by holders of the executive
rights. While the majority of the owners holding those executive rights have
worked closely with us in the past, each acts independently of us in deciding to
execute leases. In addition, since our interests are in the form of mineral
interests, royalty interests or non-operator working interests, we do not have
control over drilling or operating decisions on the properties in which we have
an interest. In situations where we acquire a working interest we do not seek to
become the operator. We currently operate and own a 100% working interest in one
oil well.
OIL AND GAS RESERVES
The following tables summarize certain information regarding our estimated
proved oil and gas reserves as of December 31, 1998, 1997, and 1996. All such
reserves are located in the United States. The estimates relating to our proved
oil and gas reserves and future net revenues of oil and gas reserves at
December 31, 1998 and December 31, 1996 are based upon reports prepared by
Harlan Consulting. The estimates at December 31, 1997 included in this report
are based upon reports prepared by another outside engineering firm. In
accordance with guidelines of the Securities and Exchange Commission, the
estimates of future net cash flows from proved reserves and their SEC PV-10 are
made using oil and gas sales prices in effect as of the dates of such estimates
and are held constant throughout the life of the properties. For the three
years ended December 31, our estimates of proved reserves, future net cash
flows and SEC PV-10 for the life of the properties were estimated using the
weighted average prices shown below for the life of the properties, before
deduction of production, severance and ad valorem taxes. Included in the table
is the percent change in the weighted-average price from the prior year.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------
% INCREASE % INCREASE
1998 (DECREASE) 1997 (DECREASE) 1996
----- ---------- ---- ----------- ------
<S> <C> <C> <C> <C> <C>
Gas ($ per Mcf)...................... $1.86 (17) $ 2.25 (33) $ 3.34
Oil ($ per Bbl)...................... $9.74 (39) $15.87 (36) $24.62
</TABLE>
Reserve estimates are imprecise and may be expected to change as
additional information becomes available. Furthermore, estimates of oil and gas
reserves, of necessity, are projections based on engineering data, and there
are uncertainties inherent in the interpretation of such data as well as the
projection of future rates of production and the timing of development
expenditures. Reservoir engineering is a subjective process of estimating
underground accumulations of oil and gas that cannot be measured in an exact
way, and the accuracy of any reserve estimate is a function of the quality of
available data and of engineering and geological interpretation and judgement.
Reserve reports of other engineers might differ from the reports contained
herein. Results of drilling, testing, and production subsequent to the date of
the estimate may justify revision of such estimate. Future prices received for
the sale of oil and gas may be different from those used in preparing these
reports. The amounts and timing of future operating and development costs may
also differ from those used. Accordingly, there can be no assurance that the
reserves set forth herein will ultimately be produced nor can there be
assurance that the proved undeveloped reserves will be developed within the
periods anticipated. We emphasize with respect to the estimates prepared by
independent petroleum engineers that the discounted future net cash inflows
should not be construed as
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<PAGE> 17
representative of the fair market value of the proved oil and gas properties
belonging to us, since discounted future net cash inflows are based upon
projected cash inflows which do not provide for changes in oil and gas prices
nor for escalation of expenses and capital costs. The meaningfulness of such
estimates is highly dependent upon the accuracy of the assumptions upon which
they were based.
All reserves are evaluated at contract temperature and pressure which can
affect the measurement of natural gas reserves. Operating costs, development
costs and certain production-related and ad valorem taxes were deducted in
arriving at the estimated future net cash flows. No provision was made for
income operating methods and existing conditions at the prices and operating
costs prevailing at the dates indicated above. The estimates of the SEC PV-10
from future net cash flows differ from the Standardized Measure set forth in
Note 17 of the Notes to the Consolidated Financial Statements of the Company,
which is calculated after provision for future income taxes. There can be no
assurance that these estimates are accurate predictions of future net cash
flows from oil and natural gas reserves or their present value.
For additional information concerning our oil and natural gas reserves and
estimates of future net revenues attributable thereto, see Note 17 of the Notes
to the Consolidated Financial Statements.
Company Reserves
The following tables set forth our proved reserves of oil and gas and the
SEC PV-10 thereof on an actual basis for each year in the three-year period
ended December 31, 1998.
PROVED OIL AND GAS RESERVES (1)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------
% Increase % Increase
1998(1) (Decrease) 1997 (Decrease) 1996
----------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
GAS RESERVES (MCF):
Proved Developed Producing Reserves.......... 8,500,655 242 2,487,574 (19) 3,052,940
Proved Developed Non-Producing Reserves...... 0 0 0 0 0
Proved Undeveloped Reserves.................. 1,289,785 1,576 76,966 N/A 0
----------- --------- --------- --------- ---------
Total Proved Reserves of gas............. 9,790,440 282 2,564,540 (16) 3,052,940
----------- --------- --------- --------- ---------
OIL RESERVES (BBL):
Proved Developed Producing Reserves.......... 1,094,454 143 450,646 (43) 791,272
Proved Developed Non-Producing Reserves...... 0 (100) 51,080 N/A 0
Proved Undeveloped Reserves.................. 19,051 (63) 51,452 N/A 0
----------- --------- --------- --------- ---------
Total Proved Reserves of oil............. 1,113,505 101 553,178 (30) 791,272
----------- --------- --------- --------- ---------
TOTAL PROVED RESERVES (MCFE)...................... 16,471,470 180 5,883,608 (25) 7,800,572
=========== ========= ========= ========= =========
</TABLE>
- ----------
(1) Reflects the addition of reserves acquired in the Howell Mineral
Acquisition.
SEC PV-10 OF PROVED RESERVES
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------
% INCREASE % INCREASE
1998(2) (DECREASE) 1997 (DECREASE) 1996
-------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
SEC PV-10 (thousands) (1):...................
Proved Developed Producing Reserves.......... $ 11,780 121 $ 5,342 (53) $ 11,345
Proved Developed Non-Producing Reserves.. 0 (100) 514 N/A 0
Proved Undeveloped Reserves.................. 1,454 380 303 N/A 0
-------- ---- -------- ---- --------
Total SEC PV-10.............................. $ 13,234 115 $ 6,159 (46) $ 11,345
======== ==== ======== ==== ========
</TABLE>
- ----------
(1) SEC PV-10 differs from the Standardized Measure set forth in the Notes to
the Consolidated Financial Statements of the Company, which is calculated
after provision for future income taxes.
(2) Reflects the addition of reserves acquired in the Howell Mineral
Acquisition.
-15-
<PAGE> 18
Except for the effect of changes in oil and gas prices, no major discovery
or other favorable or adverse event is believed to have caused a significant
change in these estimates of our proved reserves since December 31, 1998.
VOLUMES, PRICES AND COSTS
The following table sets forth certain information regarding volumes of
our production of oil and natural gas, our average sales price per Bbl of crude
oil and average sales price per Mcf of natural gas, together with our average
production cost per BOE for each of the three years ended December 31, 1998 from
producing interests:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
% INCREASE % INCREASE
1998 (1) (DECREASE) 1997 (DECREASE) 1996
-------- ---------- ---- ---------- ----
<S> <C> <C> <C> <C> <C>
Production
Oil (Bbls)................................. 90,097 29 69,903 2 68,318
Gas (Mcf).................................. 394,849 (7) 425,854 22 348,539
Oil equivalent (BOE)....................... 155,905 11 140,879 11 126,408
Average Sales Price
Oil ($/Bbl)................................ $ 13.48 (29) $ 19.04 (11) $ 21.51
Gas ($/Mcf)................................ 1.91 (18) 2.33 (3) 2.40
Oil equivalent ($/BOE)..................... 12.63 (23) 16.50 (10) 18.25
Average production cost (lifting cost) BOE...... $ 3.74 (24) $ 4.93 6 $ 4.63
</TABLE>
- ----------
(1) The data presented for the year ended December 31, 1998 would include
only one-half month of production from the Howell Mineral Acquisition
since the closing date was December 16, 1998.
DRILLING ACTIVITY
All of the activity described below occurred on our Texas Holdings.
The Howell Mineral Acquisition was not completed until December 1998 and
therefore the Company did not include any drilling activity on these properties
prior to the date of the acquisition. The following table sets forth for each
of the last three years the number of net exploratory and development wells
drilled by us or on our behalf. An exploratory well is a well drilled to find
and produce oil or gas in an unproved area, to find a new reservoir in a field
previously found to be productive of oil or gas in another reservoir, or to
extend a known reservoir. A development well is a well drilled within the
proved area of an oil or gas reservoir to the depth of a stratigraphic horizon
known to be productive. The number of wells drilled refers to the number of
wells completed at any time during the respective year, regardless of when
drilling was initiated; and "completion" refers to the installation of
permanent equipment for the production of oil or gas, or, in the case of a dry
well, to the reporting of the plugging date to the appropriate state regulatory
agency.
<TABLE>
<CAPTION>
NET EXPLORATORY WELLS
----------------------------------------
PRODUCTIVE (1) DRY (2)
------------------ ------------------
YEAR ENDED
DECEMBER 31,
<S> <C> <C>
1996........................... 0.50 0.98
1997........................... 0.57 (3) 0.46
1998........................... 0.00 0.57
</TABLE>
<TABLE>
<CAPTION>
NET EXPLORATORY WELLS
----------------------------------------
PRODUCTIVE (1) DRY (2)
------------------ ------------------
YEAR ENDED
DECEMBER 31,
<S> <C> <C>
1996........................... 0.03 0.00
1997........................... 0.55 (4) 0.11
1998........................... 0.22 0.90
</TABLE>
- ----------
(1) A productive well is an exploratory or a development well that is not a
dry well.
(2) A dry well is an exploratory or development well found to be incapable of
producing either oil or gas in sufficient quantities to justify completion
as an oil or gas well.
-16-
<PAGE> 19
(3) One (1) gross (0.25 net) exploratory well, which was a producer, was
drilled in December 1997 but completed in January 1998.
(4) One (1) gross (0.44 net) development well, which was a producer, was
drilled in December 1997 but completed in January 1998.
PRODUCING WELLS AND ACREAGE
The following table sets forth the gross and net producing oil and gas
wells in which we owned an interest and the developed and undeveloped gross and
net leasehold acreage held by us as of December 31, 1998. A "gross" well or
acre is a well or acre in which we have a working interest or royalty interest.
The number of gross wells is the total number of wells in which a working
interest or royalty interest is owned. A "net" well or acre is deemed to exist
when the sum of fractional ownership working interests and/or royalty interests
in a gross well or acre equals one. The number of net wells or acres is the sum
of the fractional working interests and/or royalty interests owned in gross
wells or acres expressed as whole numbers and fractions thereof.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998 (1)
--------------------------------
<S> <C>
Oil Wells (2)
Working Interest
Gross ............................................. 678
Net ............................................... 8.61
Average working interest (%) ...................... 1.27
Royalty Interest
Gross ............................................. 3,351
Net ............................................... 6.72
Average royalty interest (%) ...................... 0.20
Gas Wells (2)
Working Interest
Gross ............................................. 50
Net ............................................... 5.06
Average working interest (%) ...................... 10.11
Royalty Interest
Gross ............................................. 133
Net ............................................... 2.29
Average royalty interest (%) ...................... 1.73
Acreage (2)
Developed
Gross ............................................. 115,031
Net ............................................... 15,751
Undeveloped (3)
Gross ............................................. 149,468
Net ............................................... 122,316
</TABLE>
- -------------
(1) Includes the properties from the Howell Mineral Acquisition. Does not
include wells that are considered to have a minor value on an
individual basis.
(2) Excludes wells or acres in which we own less than a 1% working or
royalty interest and are considered to have minor value.
-17-
<PAGE> 20
(3) Undeveloped acreage is considered to be only those leased acres on
which wells have not been drilled or completed to a point that would
permit the production of commercial quantities of oil and gas
regardless of whether or not the acreage contains proved reserves.
PRESENT ACTIVITIES
For the period January 1, 1999 through March 17, 1999, we participated in
drilling one gross (0.03 net) development well not on our mineral holdings and
it was successfully completed as a gas well.
OFFICE LEASE
We occupy approximately 2,500 square feet of office space at 4809 Cole
Avenue, Suite 108, Dallas, Texas 75205 under a sublease from Wilco Properties,
Inc.
ITEM 3. LEGAL PROCEEDINGS.
During 1998 we were not a party to any legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the last three months of the fiscal year ended December 31, 1998,
we did not submit any matter to a vote by our stockholders through the
solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION
Our shares of Common Stock, par value $.15625 per share are traded on the
Nasdaq National Market System under the trading symbol "TRGL." The following
table sets forth the high and low sale prices per share for the Common Stock
for each quarterly period during the past two fiscal years as reported by
Nasdaq based upon quotations which reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions.
<TABLE>
<CAPTION>
1998 High Low
- -----------------------------------------------------------------------
<S> <C> <C>
First Quarter 4 1/2 2 15/16
Second Quarter 4 1/2 3 1/8
Third Quarter 3 3/8 2
Fourth Quarter 4 1/8 2
1997 High Low
- -----------------------------------------------------------------------
First Quarter 3 1/8 2 3/8
Second Quarter 3 1/2 2 1/4
Third Quarter 4 5/8 3
Fourth Quarter 4 13/16 4
</TABLE>
HOLDERS AND CLOSING PRICE
As of March 17, 1999, there were 5,205,671 shares of Common Stock
outstanding held of record by 491 holders (inclusive of those brokerage firms,
clearing houses, banks and other nominee holders holding Common Stock for
clients, with all such nominees being considered as one holder).
The closing price of the Common Stock on the Nasdaq National Market System
on March 17, 1999 was $2.6875.
DIVIDENDS
Dividends on the Common Stock may be declared and paid out of funds legally
available when and as determined by our board of directors. No cash dividends
have been paid on our Common Stock to date. Our board of directors plans to
continue our policy of holding and investing corporate funds on a conservative
basis and thus we do not anticipate paying cash dividends on our Common Stock in
the foreseeable future. In addition, under the terms of the credit facility
described in "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation -- Liquidity and Capital Resources," we are
prohibited from paying dividends on the Common Stock (other than dividends
payable in shares of Common Stock).
-18-
<PAGE> 21
SERIES A PREFERRED STOCK
A portion of the Howell Mineral Acquisition purchase price was financed
through a private placement of $4.0 million of Series A Preferred Stock, which
was sold pursuant to a securities purchase agreement effective December 16,
1998, between Toreador and certain individuals.
-19-
<PAGE> 22
The Series A Preferred Stock is governed by a Certificate of Designation
as supplemented by a letter agreement with all of the holders of the Series A
Preferred Stock. The Series A Preferred Stock was sold for a face value of
$25.00 per share, and pays an annual cash dividend of $2.25 per share that
results in an annual yield of 9.0%. At the option of the holder, the Series A
Preferred Stock may be converted into common shares at a price of $4.00 per
common share. The Series A Preferred Stock is redeemable at our option, in
whole or in part, at any time on or after December 1, 2004. In connection with
the securities purchase agreement, the parties entered into a Registration
Rights Agreement effective December 16, 1998, among Toreador and the persons
party thereto which provides for certain demand and piggyback registration
rights in respect of the Common Stock issuable upon conversion of the Series A
Preferred Stock.
We have agreed to effect the registration of the Common Stock into which
the Series A Preferred Stock is convertible under the Securities Exchange Act
of 1933 (the "Securities Act"), as amended, upon the occurrence of certain
events set out in the Registration Rights Agreement. The sale of the Series A
Preferred Stock was effected in reliance upon the exemption from securities
registration afforded by the provisions of Section 4(2) of the Securities Act
and Regulation D as promulgated by the Securities and Exchange Commission under
the Securities Act.
ITEM 6. SELECTED FINANCIAL DATA.
The following table summarizes certain selected financial data with
respect to our financial condition and results of operations for the periods
indicated. The selected financial data should be read in conjunction with the
financial statements and related notes set forth in "Item 8. Financial
Statements and Supplementary Data." of this Part II.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
INCOME STATEMENT DATA (1):
<S> <C> <C> <C> <C> <C>
Revenues:
Oil and gas sales ........................ $ 1,968,638 $ 2,325,148 $ 2,306,791 $ 1,378,390 $ 1,323,129
Lease bonuses and rentals ................ 168,664 287,604 118,430 138,804 396,106
Interest and other income ................ 171,338 149,841 162,297 213,464 222,527
Gain on sale of marketable ............... -- 26,171 526,567 -- --
------------ ------------ ------------ ------------ ------------
securities and other assets
Total revenues ...................... 2,308,640 2,788,764 3,114,085 1,730,658 1,941,762
------------ ------------ ------------ ------------ ------------
Costs and Expenses:
Lease operating expense .................. 583,441 695,007 585,732 380,888 347,058
Dry holes and abandonments ............... 133,113 166,710 130,647 358,210 125,838
Depreciation, depletion and
amortization ........................... 514,071 539,346 273,026 233,709 247,654
Geological and geophysical ............... 517,870 546,634 227,744 297,047 235,719
General and administrative ............... 999,548 802,723 907,086 1,078,171 886,547
Loss on settlement of benefit plans ...... -- 173,971 -- -- --
Interest Expense ......................... 36,120 -- -- -- --
------------ ------------ ------------ ------------ ------------
Total costs and expenses ............ 2,784,163 2,924,391 2,124,235 2,348,025 1,842,816
------------ ------------ ------------ ------------ ------------
Income (loss) before federal
income taxes ........................... (475,523) (135,627) 989,850 (617,367) 98,946
Provision (benefit) for federal
income taxes ........................... (233,277) (84,261) 263,100 (206,936) (26,638)
------------ ------------ ------------ ------------ ------------
Net income (loss) ........................ $ (242,246) $ (51,366) $ 726,750 $ (410,431) $ 125,584
============ ============ ============ ============ ============
Dividend on preferred shares ............. 19,500 -- -- -- --
Income (loss) attributable to common shares .. $ (261,746) $ (51,366) $ 726,750 $ (410,431) $ 125,584
============ ============ ============ ============ ============
Basic income (loss) per common share ..... $ (0.05) $ (0.01) $ 0.14 $ (0.08) $ 0.02
Diluted income (loss) per common share ... $ (0.05) $ (0.01) $ 0.14 $ (0.08) $ 0.02
Weighted average shares outstanding
Basic ............................... 5,125,063 5,022,216 5,216,941 5,334,190 5,028,610
Diluted ............................. 5,125,603 5,022,216 5,216,941 5,334,190 5,064,258
CASH FLOW DATA:
Net cash provided (used) by
operating activities ................ $ 276,624 $ 830,643 $ 609,364 $ (10,963) $ 418,885
Capital expenditures for oil and gas
property and equipment ................. $(13,951,981) $ (717,481) $ (893,418) $ (1,048,757) $ (553,020)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
BALANCE SHEET DATA: (1)
<S> <C> <C> <C> <C> <C>
Working capital .......................... $ 1,987,764 $ 3,007,121 $ 3,383,668 $ 3,538,206 $ 4,646,688
Oil and gas properties, net .............. 16,209,631 3,210,074 3,306,020 3,201,283 2,733,101
Total assets ............................. 19,782,262 6,526,785 7,008,924 7,051,052 7,649,904
Long-term debt ........................... 7,880,000 -- -- -- --
Stockholders' equity ..................... 10,594,508 6,217,195 6,624,180 6,810,485 7,261,761
</TABLE>
- ----------
(1) The balance sheet data at December 31, 1998, reflects the completion of
the Howell Mineral Acquisition in December 1998. However, the income
statement data for the twelve months ended December 31, 1998, only
includes income and expense items from the closing date of the Howell
Mineral Acquisition which was December 16, 1998.
-20-
<PAGE> 23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
INTRODUCTION
In Management's Discussion and Analysis, we explain our general financial
condition and the results of operations including:
o what factors affect our business,
o what our earnings and costs were in 1998, 1997, and 1996.
o why those earnings and costs were different from the year before,
o where our earnings came from,
o how all of this affects our overall financial condition,
o what our expenditures for capital projects were in 1996 through 1998
and what we expect them to be in 1999,
o where cash will come from to pay for future capital expenditures, and
o what our progress is as to Year 2000 compliance.
As you read Management's Discussion and Analysis, it may be helpful to
refer to the Company's Consolidated Statements of Income on page F-4, which
present the results of our operations for 1998, 1997, and 1996. In Management's
Discussion and Analysis, we analyze and explain the annual changes in the
specific line items in the Consolidated Statements of Income. Our analysis may
be important to you in making decisions about your investments in Toreador.
The Company follows the successful efforts method of accounting for oil
and gas exploration and development expenditures. Under this method, costs of
successful exploratory wells and all development wells are capitalized. Costs
to drill exploratory wells which do not find proved reserves are expensed.
Significant costs associated with the acquisition of oil and gas properties are
capitalized. Acquisition costs of mineral interests in oil and gas properties
remain capitalized until they are impaired or a determination has been made to
discontinue exploration of the lease, at which time all related costs are
charged to expense. Impairment of unproved properties is assessed and recorded
on a property-by-property basis. Upon sale or abandonment of units of property
or the disposition of miscellaneous equipment, the cost is removed from the
asset account, the related reserves relieved of the accumulated depreciation or
depletion and the gain or loss is credited to or charged against operations.
Maintenance and repairs are charged to expense; betterments of property are
capitalized as described below.
The Company evaluates the carrying value of its long-lived assets,
consisting primarily of oil and gas properties, when events or changes in
circumstances indicate that the carrying value of such assets may be impaired.
The determination of impairment is based upon expectations of undiscounted
future cash flows of the related asset pursuant to Statement of Financial
Accounting Standard No. 121 (SFAS 121) "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of." There was
impairment during 1998 in the amount of $19,649 primarily due to the decrease
in oil and gas prices. The impairment is included in the "Depreciation,
depletion and amortization" category of the consolidated statement of
operations.
LIQUIDITY AND CAPITAL RESOURCES
Historically, most of the exploration activity on our acreage has been
funded and conducted by other oil companies. Exploration activity by third
party oil companies typically generates lease bonus and option income to us. If
such drilling is successful, we receive royalty income from the oil or gas
production but bear none of the capital or operating costs. Since the middle of
1996, we have successfully accelerated the evaluation of several areas of our
mineral acreage as well as increased our ownership in any reserves that were
discovered by acquiring working interests of selected 3-D seismic projects and
any wells drilled as a result of such geological activity.
-21-
<PAGE> 24
While we continue to actively pursue exploration and development
opportunities on our own mineral acreage, the current depressed level of crude
oil prices is likely to reduce the number of third party proposals we receive
with regard to these properties. As a result, we will expand our drilling focus
to geologic regions, particularly those areas with proven and attractive gas
reserves, that can provide potentially better rates of return on our capital
resources. We also plan to evaluate 3-D seismic projects or drilling prospects
generated by third party operators. If judged geologically and financially
attractive by our management, we will enter into joint ventures on those third
party projects or prospects which are within the capital exploration budget
approved by our board of directors.
Our 1999 capital and exploratory budget, excluding any acquisitions we may
make, could range from $700,000 to $1,000,000, depending on the timing of any
new seismic surveys and drilling of exploratory and development wells in which
we may hold a working interest position.
We also intend to actively evaluate opportunities to acquire producing
properties that for reasons related to the negative impact of current crude oil
prices represent unique opportunities for us to add additional reserves to our
reserve base. Any such acquisitions will be financed using cash on hand, third
party sources, existing credit facilities or any combination thereof.
At the present time, the primary source of capital for financing our
operations is our cash flow from operations. During 1998 on a historical basis,
cash flow provided by operating activities totaled $276,624. We anticipate that
cash flow provided by operating activities for 1999 will be materially higher
reflecting the Howell Mineral Acquisition.
The Howell Mineral Acquisition was funded with proceeds from our revolving
credit facility, a $5.9 million term loan, and the issuance of $4.0 million of
our Series A Preferred Stock. For further details of the terms of the Series A
Preferred Stock, see "Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters - Series A Preferred Stock."
On November 13, 1997, we obtained a $10.0 million revolving credit
facility from Compass Bank. This credit facility has a current borrowing base
limitation of $2.7 million which was fully drawn as of December 31, 1998. The
borrowing base is determined by the lender based upon the oil and gas
properties pledged thereunder.
Under the terms of the revolving credit facility, as amended from time to
time, the interest rate is dependent on the Principal Debt (as defined) then
outstanding. For Principal Debt equal to or less than 80% of the Borrowing Base
then in effect, the unpaid principal balance of the Note is subject to a
fluctuating interest rate (per annum) equal to the fluctuating CBIR Rate (or
prime) less 0.5%. For Principal Debt greater than 80% of the Borrowing Base
then in effect, the unpaid principal balance of the Note is subject to a
fluctuating interest rate (per annum) equal to the fluctuating CBIR Rate.
Unpaid balances are paid quarterly commencing January 1, 1998. Borrowings up to
$1.5 million are unsecured. The revolving credit facility contains a Letter of
Credit subfeature which imposes a fee of 0.875% per annum on the face amount of
the Letter of Credit, with a minimum of $350. We are subject to an Unused
Commitment Fee computed at the rate of 0.375% per annum on the average daily
unused portion of the commitment. Such fee is payable quarterly in arrears
beginning January 1, 1998. This facility matures on October 1, 2000.
The revolving credit facility contains various affirmative and negative
covenants. These covenants, among other things, limit additional indebtedness,
the sale of assets and the payment of dividends, change of control and
management and require Tormin to meet certain financial tests. Tormin must
maintain a ratio of current assets to current liabilities of at least 1:1.
Tormin must also maintain a debt service coverage ratio of not less than 1.25:1.
The $5.9 million term loan arranged to fund the Howell Mineral Acquisition
matures on June 1, 2000 and bears fluctuating interest at prime plus .25%.
Tormin is required to pay to the lender monthly the greater of (i) 95% of the
net cash flow from the Howell Mineral Acquisition or (ii) $60,000 plus interest.
Aggregate principal reductions are $720,000 in 1999 and $7,880,000 in 2000.
We are currently negotiating to extend the payment terms of the term loan.
-22-
<PAGE> 25
We may reinvest proceeds from option and lease bonuses by taking a working
interest in 3-D seismic projects or in wells. To the extent cash flow from
operations does not significantly increase and external sources of capital are
limited or unavailable, our ability to make the capital investment to
participate in 3-D seismic surveys and increase our interest in projects on our
acreage will be limited. Future funds are expected to be provided through
production from existing producing properties and new producing properties that
may be discovered through exploration of our acreage by third parties or by
ourselves. Funds may also be provided through external financing in the form of
debt or equity. There can be no assurance as to the extent and availability of
these sources of funding.
We maintain our excess cash funds in interest-bearing deposits and in
marketable securities. In addition to the properties described above, we also
may acquire other producing oil and gas assets, which could require the use of
debt, including the aforementioned credit facility or other forms of financing.
Our management believes that sufficient funds are available from internal
sources and other third party sources to meet anticipated capital requirements
for fiscal 1999.
From October 10, 1995 through December 31, 1998 we have used $1,137,946 of
our cash reserves to purchase 432,700 shares of our Common Stock pursuant to
three share repurchase programs approved by the board of directors. On July
23, 1998, our board of directors suspended the policy of share repurchases for
the time being to instead use the Company's excess cash resources toward
funding our participation in third party operated 3-D projects or drilling
prospects and acquisition of producing oil and gas properties. On March 23,
1999, our board of directors reinstated the common stock repurchase program
enabling the Company to purchase the remaining 117,300 shares available under
the third stock repurchase plan from time to time and depending on market
conditions.
During 1998, we received a total of $790,266 as a result of the exercise
of stock options to purchase our Common Stock by two former employees and two
former consultants. Those options related to 200,000, 31,500, and 45,000 shares
of Common Stock with exercise prices of $3.00, $2.46875, and $2.50 per share,
respectively. As of December 31, 1998, only two of the former consultants held
the right to exercise options for additional shares of our Common Stock. Funds
received from the exercise of these stock options were added to our working
capital and used for general corporate purposes.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 VERSUS YEAR ENDED DECEMBER 31, 1997
Total revenues for 1998 were $2,308,640 compared with $2,788,764 in 1997.
Revenues from oil and gas sales decreased to $1,968,638 in 1998 from $2,325,148
in 1997. This 15.3% decrease reflects a 10.7% increase in volume on a BOE basis
(principally reflecting the benefit of nearly a full year of revenue from wells
completed in 1997 and early 1998) offset by a 23.5% decrease on a price per BOE
basis. Our net oil production increased 28.9% to 90,097 Bbls in 1998 from
69,903 Bbls in 1997. Net natural gas production decreased 7.3% to 394,849 Mcf
of natural gas in 1998 from 425,854 Mcf of natural gas in 1997. Lease bonuses
and rentals were $168,664 in 1998, down from $287,604 in 1997.
Interest and other income was $171,338 in 1998 versus $149,841 in 1997.
Total costs and expenses were $2,784,163 in 1998 as compared with
$2,924,391 in 1997 representing a 4.8% decrease. The largest decrease came from
lease operating expenses where expenses decreased 16.1% to $583,441 in 1998
versus $695,007 in 1997. This reflects the effort of operators to decrease
costs on wells due to lower oil and gas prices in 1998. Dry holes and
abandonments decreased 20.2% to $133,113 in 1998 from $166,710 in 1997, despite
our increased level of participation in drilling exploratory and development
wells on our mineral holdings in the first quarter of 1998 and early portions
of the second quarter of 1998. Depreciation, depletion and amortization
decreased 4.7% to $514,071 from $539,346 reflecting a downward revision to the
proved developed reserves created by lower oil and gas prices. Geological and
geophysical expenses decreased 5.3% to $517,870 in 1998 versus $546,634 in
1997. Our general and administrative expenses increased $196,825 or 24.5% to
$999,548 in 1998 from $802,723 in 1997, primarily resulting from increased
legal fees and other costs
-23-
<PAGE> 26
related to the change in management. During 1998, we incurred interest expense
of $36,120 which was a result of debt incurred for the Howell Mineral
Acquisition.
Total net loss applicable to common shares for 1998 was $261,746 or $0.05
per share compared to a net loss of $51,366 or $0.01 per share.
YEAR ENDED DECEMBER 31, 1997 VERSUS YEAR ENDED DECEMBER 31, 1996
Total revenues for 1997 were $2,788,764 compared with $3,114,085 in 1996.
Revenues from oil and gas sales increased slightly to $2,325,148 in 1997 from
$2,306,791 in 1996. This 0.8% increase reflects an 11.4% increase in volume on
a BOE basis offset by a 9.6% decrease on a price per BOE basis. Our net oil
production increased 2.3% to 69,903 Bbls in 1997 from 68,318 Bbls in 1996. Net
natural gas production increased 22.2% to 425,854 Mcf in 1997 from 348,539 Mcf
in 1996. Lease bonuses and rentals were $287,604 in 1997, up from $118,430 in
1996.
Interest income was $147,237 in 1997 versus $138,720 in 1996. A gain
resulting from the sale of marketable securities decreased from $516,867 in
1996 to none in 1997. This reflects our sale of 100% of our units in the San
Juan Basin Royalty Trust which was completed in August 1996.
Total costs and expenses were $2,924,391 in 1997 as compared with
$2,124,235 in 1996 representing a 37.7% increase. The largest increase came from
geological and geophysical expenses where expenses increased 140% to $546,634 in
1997 versus $227,744 in 1996. This reflects our increased level of participation
in 3-D seismic surveys conducted on our mineral holdings in 1997. Depreciation,
depletion and amortization increased 97.5% to $539,346 from $273,026 reflecting
a downward revision to the proved developed reserves created by a combination of
some underperforming properties and lower oil and gas prices. Dry holes and
abandonments increased 27.6% to $166,710 in 1997 from $130,647 in 1996,
reflecting our increased level of participation in drilling exploratory and
development wells on our mineral holdings. Lease operating expenses increased
18.7% to $695,007 in 1997 versus $585,732 in 1996, as a result of our acquiring
more working interest properties in 1996 and 1997. Our general and
administrative expenses decreased $104,363 or 11.5% to $802,723 in 1997 from
$907,086 in 1996, of which $114,277 reflects a reduction in salary to our former
chairman and chief executive officer. During 1997, we incurred a loss of
$173,971 which has been recorded as a loss on settlement of benefit plans. This
loss consists of a 100% settlement of the pension benefit for $87,654 and a
payment of $88,617 for settlement of the supplemental executive retirement plan.
There were no losses on settlement of benefit plans in 1996.
Total net loss for 1997 was $51,366 or $0.01 per share compared to net
income of $726,750 or $0.14 per share in 1996. Included in 1996 total net
income is a $386,607 after tax gain from the sale of marketable securities and
other assets or $0.07 per share.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement requires companies to record
derivatives on the balance sheet as assets and liabilities, measured at fair
value. Gains and losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. This statement is not expected to
have a material impact on our consolidated financial statements. This statement
is effective for all fiscal quarters of all fiscal years beginning after June
15, 1999, with earlier adoption encouraged.
YEAR 2000 COMPLIANCE
Project. Many computer software systems, as well as certain hardware and
equipment using date-sensitive data, were structured to use a two-digit field
meaning that they may not be able to properly recognize dates in the year 2000.
This problem would most typically be caused by erroneous data calculations,
which results from using two digits to signify a year (century implied),
handling leap years incorrectly or the use of "special" values that can be
confused with legitimate calendar dates. We have developed a plan to address
this issue and are taking steps to
-24-
<PAGE> 27
review various information technology systems, such as computer hardware and
software, as well as non-information technology systems, including computer
controlled equipment involved in processing and interpreting 3-D seismic data.
We have completed the initial phases of the plan by identifying all
computerized systems and completing an inventory of our equipment and component
parts. Both information technology and non-information technology systems may
contain embedded technology, which complicates our Year 2000 identification,
assessment, remediation and testing efforts. We are also currently reviewing all
of our systems to determine which are not Year 2000 compliant and will need to
be replaced or modified. This current phase includes comparisons of inventory to
manufacture's information and/or performance testing. If problems are
identified, we will undertake remediation, replacement or alternative procedures
for non-compliant equipment or facilities on a business priority basis. Our
identification and assessment efforts to date have not identified any computer
equipment or software currently being used which will require replacement or
modification. In addition, in the ordinary course of replacing computer
equipment and software, we intend to obtain replacements that are Year 2000
compliant. We currently anticipate that our identification, assessment,
remediation and testing efforts will continue and depending upon the results of
the assessment efforts, be completed by the end of the second quarter of 1999.
As of December 31, 1998, all costs incurred by us in connection with our
Year 2000 compliance efforts were included within our normal general and
administrative expenses. In 1998 those costs were approximately $12,000. We are
currently expensing, as incurred, all costs related to the assessment and
remediation of the Year 2000 issue and funding such expenses through operating
cash flow. However, in certain instances, we may determine that it would be
more practical to replace existing equipment. An accurate cost cannot be
determined prior to the completion of such testing, but we do not expect that
such costs will exceed $25,000.
The following table summarizes the current overall status of the project
with anticipated completion dates:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Phase
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Component Inventory Assessment/Prioritization Remediation/Contingency
- ----------------------------------------------------------------------------------------
Software Complete Complete Complete
Hardware Complete Complete Complete
Business Partners Complete 4/30/99 6/30/99
</TABLE>
Risks/Contingency. The failure to remediate critical systems (software,
hardware or embedded systems), or the failure of a material business partner to
resolve critical Year 2000 issues could have a serious adverse impact on our
ability to continue operations and meet obligations. Material contingencies
include the risk that gas pipelines to which our gas wells are connected
suspend operations due to Year 2000 problems or operations and other payors to
the Company are unable to calculate or make payment of our share of revenues
from production. However, until all assessment phases have been completed, it
is impossible to accurately identify the risks, quantify potential impacts or
establish a contingency plan. We have not yet clearly identified the most
likely worst case scenario if we and our material business partners do not
achieve Year 2000 compliance on a timely basis. We currently intend to complete
our contingency planning by June 30, 1999.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Report of Independent Accountants and Consolidated Financial
Statements are set forth beginning on page F-1 of this Annual Report on Form
10-K and are incorporated herein.
The financial statement schedules have been omitted because they are not
applicable or the required information is shown in the Consolidated Financial
Statements or the Notes to the Consolidated Financial Statements.
-25-
<PAGE> 28
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
-26-
<PAGE> 29
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information relating to our directors, nominees for directors and
executive officers will be set forth under the heading "Election of Directors"
in the Company's Proxy Statement relating to the Annual Meeting of Stockholders
to be held May 20, 1999, which will be filed with the Securities and Exchange
Commission on or prior to April 30, 1999, and which is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information relating to executive compensation will be set forth under the
heading "Executive Compensation and Other Transactions" in the Company's Proxy
Statement relating to the Annual Meeting of Stockholders to be held May 20,
1999, which will be filed with the Securities and Exchange Commission on or
prior to April 30, 1999, and which is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information relating to security ownership of certain beneficial owners
and management will be set forth under the heading "Security Ownership of
Certain Beneficial Owners and Management" in the Company's Proxy Statement
relating to the Annual Meeting of Stockholders to be held May 20, 1999, which
will be filed with the Securities and Exchange Commission on or prior to April
30, 1999, and which is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information relating to certain relationships and related transactions
will be set forth under the heading "Executive Compensation and Other
Transactions" in the Company's Proxy Statement relating to the Annual Meeting
of Stockholders to be held May 20, 1999, which will be filed with the
Securities and Exchange Commission on or prior to April 30, 1999, and which is
incorporated herein by reference.
-27-
<PAGE> 30
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
1. Index to Consolidated Financial Statements
Report of Independent Accountants
Consolidated Balance Sheet as of December 31, 1998 and 1997
Consolidated Statement of Operations for the three years ended December
31, 1998 Consolidated Statement of Changes in Stockholders' Equity for the
three years ended December 31, 1998 Consolidated Statement of Cash
Flows for the three years ended December 31, 1998 Notes to Consolidated
Financial Statements
2. The financial statement schedules have been omitted because they are
not applicable or the required information is shown in the Consolidated
Financial Statements or the Notes to Consolidated Financial Statements.
3. Exhibits:
3.1* - Certificate of Incorporation, as amended, of Toreador Royalty
Corporation.
3.2* - Amended and Restated Bylaws, as amended, of Toreador Royalty
Corporation.
3.3 - Amendment to Bylaws of Toreador Royalty Corporation, dated April
21, 1997 (previously filed as Exhibit 3.7 to Toreador Royalty
Corporation Annual Report on Form 10-K for the year ended December
31, 1997, and incorporated herein by reference).
3.4 - Amendment to Bylaws of Toreador Royalty Corporation, dated June 25,
1998 (previously filed as Exhibit 3.1 to Toreador Royalty
Corporation Current Report on Form 8-K filed with the Securities
and Exchange Commission on July 1, 1998, and incorporated herein by
reference).
3.5 - Certificate of Designations of Series A Junior Participating
Preferred Stock of Toreador Royalty Corporation, dated April 3, 1995
(previously filed as Exhibit 3 to Toreador Royalty Corporation
Quarterly Report on Form 10-Q for the quarterly period ended June
30, 1995, and incorporated herein by reference).
3.6 - Certificate of Designation of Series A Convertible Preferred Stock
of Toreador Royalty Corporation, dated December 14, 1998 (previously
filed as Exhibit 10.3 to Toreador Royalty Corporation Current Report
on Form 8-K filed with the Securities and Exchange Commission on
December 31, 1998, and incorporated herein by reference).
4.1* - Form of Letter Agreement regarding Series A Convertible Preferred
Stock, dated as of March 15, 1999, between Toreador Royalty
Corporation and the holders of Series A Convertible Preferred Stock.
4.2 - Rights Agreement, dated as of April 3, 1995, between Toreador
Royalty Corporation and Continental Stock Transfer & Trust Company
(previously filed as Exhibit 1 to Toreador Royalty Corporation
Current Report on Form 8-K filed with the Securities and Exchange
Commission on April 3, 1995, and incorporated herein by reference).
4.3 - Amendment No. 1 to Rights Agreement, dated June 25, 1998, between
Toreador Royalty Corporation and Continental Stock Transfer & Trust
Company (previously filed as Exhibit 99.1 to Toreador Royalty
Corporation Registration on Form 8-A/A filed with the Securities and
Exchange Commission on July 1, 1998, and incorporated herein by
reference).
-28-
<PAGE> 31
4.4 - Registration Rights Agreement, effective December 16, 1998, among
Toreador Royalty Corporation and persons party thereto (previously
filed as Exhibit 10.2 to Toreador Royalty Corporation Current Report
on Form 8-K filed with the Securities and Exchange Commission on
December 31, 1998, and incorporated herein by reference).
4.5 - Settlement Agreement, dated June 25, 1998, among the Gralee
Persons, the Dane Falb Persons and Toreador Royalty Corporation
(previously filed as Exhibit 10.1 to Toreador Royalty Corporation
Current Report on Form 8-K filed with the Securities and Exchange
Commission on July 1, 1998, and incorporated herein by reference).
4.6 - Stockholder Voting Agreement, dated June 25, 1998, among the Gralee
Persons, the Dane Falb Persons and Current Management (previously
filed as Exhibit 10.2 to Toreador Royalty Corporation Current Report
on Form 8-K filed with the Securities and Exchange Commission on
July 1, 1998, and incorporated herein by reference).
10.1+ - Form of Stock Option Agreement, between Toreador Royalty
Corporation and Donald E. August, John V. Ballard, J. W. Bullion,
John Mark McLaughlin, and Jack L. Woods (previously filed as
Exhibit 4.6 to Toreador Royalty Corporation Form S-8
(No. 333-14145) filed with the Securities and Exchange Commission
on October 15, 1996, and incorporated herein by reference).
10.2+ - Stock Option Agreement, dated February 17, 1994, between Toreador
Royalty Corporation and Thomas P. Kellogg, Jr. (previously filed as
Exhibit 4.7 to Toreador Royalty Corporation Form S-8 (No. 333-14145)
filed with the Securities and Exchange Commission on October 15,
1996, and incorporated herein by reference).
10.3+ - Form of Stock Option Agreement, between Toreador Royalty
Corporation and Edward C. Marhanka and Earl V. Tessem, as amended
(previously filed as Exhibit 4.8 to Toreador Royalty Corporation
Form S-8 (No. 333-14145) filed with the Securities and Exchange
Commission on October 15, 1996, and incorporated herein by
reference).
10.4+ - Incentive Stock Option, dated as of May 15, 1997, between Toreador
Royalty Corporation and Edward C. Marhanka (previously filed as
Exhibit 10.4 to Toreador Royalty Corporation Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997, and incorporated
herein by reference).
10.5+ - Employment Agreement, dated as of May 1, 1997, between Toreador
Royalty Corporation and Edward C. Marhanka (previously filed as
Exhibit 10.5 to Toreador Royalty Corporation Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997, and incorporated
herein by reference).
10.6* - Joint Venture Agreement, dated March 1, 1989, among Toreador
Royalty Corporation, Bandera Petroleum, et al, as amended.
10.7+ - Toreador Royalty Corporation 1990 Stock Option Plan (previously
filed as Exhibit 10.7 to Toreador Royalty Corporation Annual Report
on Form 10-K for the year ended December 31, 1994, and incorporated
herein by reference).
10.8+ - Amendment to Toreador Royalty Corporation 1990 Stock Option Plan,
effective as of May 15, 1997 (previously filed as Exhibit 10.14 to
Toreador Royalty Corporation Annual Report on Form 10-K for the year
ended December 31, 1997, and incorporated herein by reference).
-29-
<PAGE> 32
10.9+ - Toreador Royalty Corporation 1994 Non-Employee Director Stock
Option Plan, as amended (previously filed as Exhibit 10.12 to
Toreador Royalty Corporation Annual Report on Form 10-K for the year
ended December 31, 1995, and incorporated herein by reference).
10.10+ - Toreador Royalty Corporation Amended and Restated 1990 Stock
Option Plan, effective as of September 24, 1998 (previously filed as
Exhibit A to Toreador Royalty Corporation Preliminary Proxy
Statement filed with the Securities and Exchange Commission on March
12, 1999, and incorporated herein by reference).
10.11 - Warrant for the Purchase of Shares of Common Stock issued to
Petrie Parkman & Co., dated May 23, 1994 (previously filed as
Exhibit 10.1 to Toreador Royalty Corporation Registration on Form
S-3, and incorporated herein by reference (No. 33-80572) filed with
the Securities and Exchange Commission on June 22, 1994, and
incorporated herein by reference).
10.12+ - Form of Indemnification Agreement, dated as of April 25, 1995,
between Toreador Royalty Corporation and each of the members of our
Board of Directors (previously filed as Exhibit 10 to Toreador
Royalty Corporation Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1995, and incorporated herein by reference).
10.13*+ - Toreador Royalty Corporation Amended and Restated 1990 Stock
Option Plan Nonqualified Stock Option Agreement, dated September 24,
1998, between Toreador Royalty Corporation and G. Thomas Graves III.
10.14*+ - Toreador Royalty Corporation Amended and Restated 1990 Stock
Option Plan Nonqualified Stock Option Agreement, dated September 24,
1998, between Toreador Royalty Corporation and John Mark McLaughlin.
10.15 - Securities Purchase Agreement, effective December 16, 1998, among
Toreador Royalty Corporation and the Purchasers party thereto
(previously filed as Exhibit 10.1 to Toreador Royalty Corporation
Current Report on Form 8-K filed with the Securities and Exchange
Commission on December 31, 1998, and incorporated herein by
reference).
10.16 - Purchase and Sale Agreement, effective November 1, 1998, between
Howell Petroleum Corporation and the J.T. Philip Company, as amended
(previously filed as Exhibit 10.4 to Toreador Royalty Corporation
Current Report on Form 8-K filed with the Securities and Exchange
Commission on December 31, 1998, and incorporated herein by
reference).
10.17* - Loan Agreement, effective November 13, 1997, between Toreador
Royalty Corporation and Toreador Exploration & Production Inc and
Compass Bank.
10.18* - First Amendment to Loan Agreement, dated September 22, 1998,
between Toreador Royalty Corporation and Toreador Exploration &
Production Inc and Compass Bank.
10.19* - Second Amendment to Loan Agreement, dated December 15, 1998,
between Toreador Royalty Corporation and Toreador Exploration &
Production Inc and Compass Bank.
10.20 - Credit Agreement, effective December 15, 1998, between Compass
Bank and Tormin, Inc. (previously filed as Exhibit 10.5 to Toreador
Royalty Corporation Current Report on Form 8- K filed with the
Securities and Exchange Commission on December 31, 1998, and
incorporated herein by reference).
21.1* - Subsidiaries of Toreador Royalty Corporation.
-30-
<PAGE> 33
23.1* - Consent of PricewaterhouseCoopers LLP.
23.2* - Consent of Harlan Consulting.
27.1* - Financial Data Schedule.
- --------------
* Filed herewith.
+ Management contract or compensatory plan
(b) Reports on Form 8-K:
During the last quarter of the fiscal year ended December 31, 1998, we
filed a Current Report on Form 8-K dated December 16, 1998, as amended by
Current Report on Form 8-K/A filed on March 1, 1999, with the Securities and
Exchange Commission to report the acquisition of certain oil, gas and other
mineral and royalty interests from Howell Petroleum Corporation under Items 2
and 7.
-31-
<PAGE> 34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
TOREADOR ROYALTY CORPORATION
Date: April 14, 1999
By: /s/ G. THOMAS GRAVES III
-------------------------------------
G. Thomas Graves III, President,
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY IN WHICH SIGNED DATE
--------- ------------------------ ----
<S> <C> <C>
/s/ G. THOMAS GRAVES III President, Chief Executive Officer and April 14, 1999
- -------------------------------- Director
G. Thomas Graves III
/s/ J.W. BULLION Secretary and Director April 14, 1999
- --------------------------------
J.W. Bullion
/s/ EDWARD NATHAN DANE Director April 14, 1999
- --------------------------------
Edward Nathan Dane
/s/ PETER L. FALB Director April 14, 1999
- --------------------------------
Peter L. Falb
/s/ THOMAS P. KELLOGG, JR Director April 14, 1999
- --------------------------------
Thomas P. Kellogg, Jr.
/s/ WILLIAM I. LEE Director April 14, 1999
- --------------------------------
William I. Lee
/s/ JOHN MARK McLAUGHLIN Chairman and Director April 14, 1999
- --------------------------------
John Mark McLaughlin
/s/ DOUGLAS WEIR Vice President - Finance and Treasurer April 14, 1999
- -------------------------------- (Principal Financial and Accounting Officer)
Douglas Weir
</TABLE>
-32-
<PAGE> 35
TOREADOR ROYALTY CORPORATION
ITEM 14(a)(1) and (2)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants..................................................................... F-2
Financial Statements: ................................................................................
Consolidated Balance Sheet as of December 31, 1998 and 1997.................................. F-3
Consolidated Statement of Operations for the three years ended December 31, 1998............. F-4
Consolidated Statement of Changes in Stockholders' Equity for the three years
ended December 31, 1998.................................................................. F-5
Consolidated Statement of Cash Flows for the three years ended December 31, 1998............. F-7
Notes to Consolidated Financial Statements................................................... F-8
</TABLE>
All financial statement schedules have been omitted as all required information
has been included in the consolidated financial statements and notes thereto.
F-1
<PAGE> 36
TOREADOR ROYALTY CORPORATION
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Toreador Royalty Corporation
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) and (2) on page F-1 present fairly, in all
material respects, the financial position of Toreador Royalty Corporation and
its subsidiaries at December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
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 of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
April 9, 1999
F-2
<PAGE> 37
TOREADOR ROYALTY CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
-----------------------------
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 726,187 $ 2,876,652
Short term investments.................................. 1,218,291 --
Accounts receivable..................................... 517,442 334,851
Marketable securities................................... 374,915 --
Federal income tax receivable........................... 63,064 62,307
Assets held for sale.................................... 334,489 --
Deferred tax benefit.................................... -- 15,945
Other................................................... 61,130 26,956
------------ ------------
Total current assets.................................. 3,295,518 3,316,711
------------ ------------
Properties and equipment, less accumulated
depreciation, depletion and amortization............ 16,209,631 3,210,074
Other assets................................................ 78,873 --
Deferred tax benefit........................................ 198,240 --
------------ ------------
Total assets.......................................... $ 19,782,262 $ 6,526,785
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities................ $ 587,754 $ 309,590
Current portion of long term debt....................... 720,000 --
------------ ------------
Total current liabilities............................. 1,307,754 309,590
Long term debt.............................................. 7,880,000 --
------------ ------------
Total liabilities..................................... 9,187,754 309,590
------------ ------------
Stockholders' equity:
Preferred stock, $1.00 par value, 4,000,000
shares authorized; 160,000 and 0 issued............ 160,000 --
Common stock, $0.15625 par value, 10,000,000 shares
authorized; 5,644,071 and 5,367,571 shares issued... 881,886 838,683
Capital in excess of par value.......................... 8,202,862 3,646,834
Retained earnings....................................... 2,529,371 2,791,117
Accumulated other comprehensive income (loss)........... (24,922) --
------------ ------------
11,749,197 7,276,634
Treasury stock at cost:
438,400 and 408,400 shares.......................... (1,154,689) (1,059,439)
------------ ------------
Total stockholders' equity............................ 10,594,508 6,217,195
------------ ------------
Total liabilities and stockholders' equity............ $ 19,782,262 $ 6,526,785
============ ============
</TABLE>
The Company uses the successful efforts method of accounting for its oil and
gas producing activities.
See accompanying notes to the consolidated financial statements.
F-3
<PAGE> 38
TOREADOR ROYALTY CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Oil and gas sales............................ $ 1,968,638 $ 2,325,148 $ 2,306,791
Lease bonuses and rentals.................... 168,664 287,604 118,430
Interest and other income.................... 171,338 149,841 162,297
Gain on sale of marketable securities
and other assets..................... -- 26,171 526,567
------------ ------------ ------------
Total revenues 2,308,640 2,788,764 3,114,085
------------ ------------ ------------
Costs and expenses:
Lease operating expense...................... 583,441 695,007 585,732
Dry holes and abandonments................... 133,113 166,710 130,647
Depreciation, depletion and amortization..... 514,071 539,346 273,026
Geological and geophysical................... 517,870 546,634 227,744
General and administrative................... 999,548 802,723 907,086
Loss on settlement of benefit plans.......... -- 173,971 --
Interest expense............................. 36,120 -- --
------------ ------------ ------------
Total costs and expenses................... 2,784,163 2,924,391 2,124,235
------------ ------------ ------------
Net income (loss) before federal income taxes.... (475,523) (135,627) 989,850
Provision (benefit) for federal income taxes..... (233,277) (84,261) 263,100
------------ ------------ ------------
Net income (loss)................................ (242,246) (51,366) 726,750
------------ ------------ ------------
Dividends on preferred shares.................... 19,500 -- --
------------ ------------ ------------
Net income (loss) applicable to common shares.... $ (261,746) $ (51,366) $ 726,750
============ ============ ============
Basic income (loss) per share.................... $ (0.05) $ (0.01) $ 0.14
============ ============ ============
Diluted income (loss) per share.................. $ (0.05) $ (0.01) $ 0.14
============ ============ ============
Weighted average shares outstanding
Basic............................................ 5,125,063 5,022,216 5,216,941
Diluted.......................................... 5,125,063 5,022,216 5,216,941
</TABLE>
See accompanying notes to the consolidated financial statements.
F-4
<PAGE> 39
TOREADOR ROYALTY CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
CAPITAL IN OTHER
PREFERRED COMMON STOCK EXCESS OF RETAINED COMPREHENSIVE
STOCK SHARES AMOUNT PAR VALUE EARNINGS INCOME (LOSS)
--------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 ............... $ -- 5,349,071 $ 835,792 $3,560,042 $ 2,115,733 $ 353,268
Issuance of common stock ................... -- 7,500 1,172 17,343 -- --
Purchase of treasury stock ................. -- -- -- -- -- --
Comprehensive income
Net income .............................. -- -- -- -- 726,750 --
Other comprehensive income, net of tax
Unrealized (losses) on securities ....
Minimum pension liability ............
Other comprehensive income .............. (441,811)
Comprehensive income .......................
--------- ----------- ----------- ---------- ----------- -----------
Balance at December 31, 1996 ............... -- 5,356,571 836,964 3,577,385 2,842,483 (88,543)
Issuance of common stock ................... -- 11,000 1,719 69,449 --
Purchase of treasury stock ................. -- -- -- -- --
Comprehensive income
Net loss ................................ -- -- -- -- (51,366) --
Other comprehensive income, net of tax
Minimum pension liability ............
Other comprehensive income .............. 88,543
Comprehensive income .......................
--------- ----------- ----------- ---------- ----------- -----------
Balance at December 31, 1997 ............... -- 5,367,571 838,683 3,646,834 2,791,117 --
Issuance of common stock ................... -- 276,500 43,203 766,809 --
Issuance of preferred stock ................ 160,000 -- -- 3,789,219 --
Dividends on preferred stock ............... -- -- -- -- (19,500)
Purchase of treasury stock ................. -- -- -- -- --
Comprehensive income (loss)
Net loss ................................ -- -- -- -- (242,246) --
Other comprehensive income (loss), net of tax
Unrealized (losses) on securities .... (24,922)
Other comprehensive income (loss)........
Comprehensive income (loss).................
--------- ----------- ----------- ---------- ----------- -----------
Balance at December 31, 1998 ............... $ 160,000 5,644,071 $ 881,886 $8,202,862 $ 2,529,371 $ (24,922)
========= =========== =========== ========== =========== ===========
<CAPTION>
TOTAL
COMPREHENSIVE TREASURY STOCKHOLDERS'
INCOME (LOSS) STOCK EQUITY
------------- ------------ -------------
<S> <C> <C> <C>
Balance at December 31, 1995 ............... $ (54,350) 6,810,485
Issuance of common stock ................... -- -- 18,515
Purchase of treasury stock ................. -- (489,759) (489,759)
Comprehensive income
Net income .............................. $ 726,750 -- 726,750
-----------
Other comprehensive income, net of tax
Unrealized (losses) on securities .... (353,268) (353,268)
Minimum pension liability ............ (88,543) (88,543)
-----------
Other comprehensive income (loss) ....... (441,811)
-----------
Comprehensive income ....................... 284,939
===========
--------- -----------
Balance at December 31, 1996 ............... (544,109) 6,624,180
-----------
Issuance of common stock ................... -- 71,168
Purchase of treasury stock ................. -- (515,330) (515,330)
Comprehensive income (loss)
Net loss ................................ (51,366) -- (51,366)
-----------
Other comprehensive income, net of tax
Minimum pension liability ............ 88,543 88,543
-----------
Other comprehensive income (loss) ....... 88,543
-----------
Comprehensive income ....................... 37,177
===========
------------ -----------
Balance at December 31, 1997 ............... (1,059,439) 6,217,195
Issuance of common stock ................... -- 810,012
Issuance of preferred stock ................ -- -- 3,949,219
Dividends on preferred stock ............... -- -- (19,500)
Purchase of treasury stock ................. -- (95,250) (95,250)
Comprehensive income
Net loss ................................ (242,246) -- (242,246)
-----------
Other comprehensive income, net of tax
Unrealized (losses) on securities .... (24,922) (24,922)
-----------
Other comprehensive income ........... (24,922)
-----------
Comprehensive income ....................... (267,168)
===========
------------ -----------
Balance at December 31, 1998 ............... $ (1,154,689) $10,594,508
============ ===========
</TABLE>
F-5
<PAGE> 40
TOREADOR ROYALTY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996
------------ ------------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) .............................................. $ (242,246) $ (51,366) $ 726,750
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, depletion and amortization ..................... 514,071 539,346 273,026
Dry holes and abandonments ................................... 133,113 166,710 130,647
Gain on sale of marketable securities and other assets ....... -- (26,171) (526,567)
Decrease (increase) in accounts receivable ................... (182,591) 173,942 (340,047)
Decrease (increase) in federal income tax receivable ........ (757) (7,408) 32,551
Decrease in pension obligation ............................... -- 88,543 29,782
Decrease (increase) in other current assets .................. (34,174) 38,145 (42,929)
Increase in accounts payable and accrued liabilities ......... 258,664 53,290 63,060
Increase (decrease) in federal income taxes payable .......... -- (62,938) 62,938
Deferred tax expense (benefit) ............................... (169,456) (81,453) 200,161
------------ ------------ ------------
Net cash provided by operating activities .................... 276,624 830,640 609,372
------------ ------------ ------------
Cash flows from investing activities:
Expenditures for oil and gas property and equipment ........... (797,438) (717,478) (893,426)
Acquisition of oil and gas properties ......................... (13,154,543) -- --
Proceeds from lease bonuses and rentals ....................... -- 77,583 415,074
Purchase of short term investments ............................ (1,218,291) -- --
Purchases of marketable securities ............................ (412,676) -- --
Proceeds from sale of marketable securities and other assets .. -- 56,065 652,826
Purchase of furniture and fixtures ............................ (29,249) (107) (30,066)
------------ ------------ ------------
Net cash provided (used) by investing activities .............. (15,612,197) (583,937) 144,408
------------ ------------ ------------
Cash flows from financing activities:
Payment for debt issue costs ................................... (78,873) -- --
Proceeds from issuance of common stock ......................... 810,012 71,168 18,515
Proceeds from issuance of preferred stock, net ................. 3,949,219 -- --
Proceeds from credit facilities ................................ 8,600,000 -- --
Purchase of treasury stock ..................................... (95,250) (515,330) (489,759)
------------ ------------ ------------
Net cash provided (used) by financing activities ............... 13,185,108 (444,162) (471,244)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents ............... (2,150,465) (197,459) 282,536
Cash and cash equivalents, beginning of year ....................... 2,876,652 3,074,111 2,791,575
------------ ------------ ------------
Cash and cash equivalents, end of year ............................. $ 726,187 $ 2,876,652 $ 3,074,111
============ ============ ============
Supplemental schedule of cash flow information:
Cash paid (received) during the period for:
Income taxes .................................................... $ (63,064) $ 4,475 $ --
</TABLE>
See accompanying notes to the consolidated financial statements.
F-6
<PAGE> 41
TOREADOR ROYALTY CORPORATION
Notes to Consolidated Financial Statements
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Toreador Royalty Corporation (the "Company") is an independent oil
and gas company engaged in domestic oil and gas exploration,
development, production and acquisition activities. The Company owns
in excess of 1,300,000 net mineral acres located primarily in
Mississippi, Texas and Alabama. In addition, the Company owns working
or royalty interests in Mississippi, Texas, Alabama, New Mexico,
Oklahoma, Louisiana and Arkansas. The Company's business activities
are with industry partners located within the United States.
PERVASIVENESS OF ESTIMATES
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
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
CONSOLIDATION
The consolidated financial statements include the accounts of
Toreador Royalty Corporation and its wholly-owned subsidiaries,
Toreador Exploration & Production Inc. and Tormin, Inc. All
intercompany accounts and transactions have been eliminated. Tormin,
Inc. was formed in 1998 and therefore has not been included in
previous periods' consolidated financial statements.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, amounts due from
banks and all highly liquid investments with original maturities of
three months or less. The Company maintains its cash in bank deposit
accounts which, at times, may exceed federally insured limits. The
Company has not experienced any losses in such accounts and believes
it is not exposed to any significant risk on cash.
SHORT TERM INVESTMENTS AND MARKETABLE SECURITIES
Short term investments include amounts held in managed funds which
invest in securities scheduled to mature within 12 months or less.
These investments are carried at cost which approximates fair value.
Marketable debt and equity securities are reported at fair value,
except for those debt securities that management has the intent and
ability to hold to maturity. Investments in available for sale
securities are classified based upon management's intent to sell the
security and changes in fair value are reported net of tax as a
separate component of accumulated other comprehensive income. Trading
investments are classified as current assets and changes in fair value
are reported in the statement of operations.
F-7
<PAGE> 42
TOREADOR ROYALTY CORPORATION
Notes to Consolidated Financial Statements
OIL AND GAS PROPERTIES
The Company follows the successful efforts method of accounting for
oil and gas exploration and development expenditures. Under this
method, costs of successful exploratory wells and all development
wells are capitalized. Costs to drill exploratory wells which do not
find proved reserves are expensed. Significant costs associated with
the acquisition of oil and gas properties are capitalized. Upon sale
or abandonment of units of property or the disposition of
miscellaneous equipment, the cost is removed from the asset account,
the related reserves relieved of the accumulated depreciation or
depletion and the gain or loss is credited to or charged against
operations. Maintenance and repairs are charged to expense;
betterments of property are capitalized and depreciated as described
below.
DEPRECIATION, DEPLETION AND AMORTIZATION
The Company provides for depreciation, depletion and amortization of
its investment in producing oil and gas properties on the
unit-of-production method, based upon independent reserve engineers'
estimates of recoverable oil and gas reserves from the property.
Depreciation expense for fixed assets is generally calculated on a
straight-line basis based upon estimated useful lives of five years.
IMPAIRMENT OF ASSETS
Producing property costs are evaluated for impairment and reduced to
fair value if the sum of expected undiscounted future cash flows is
less than net book value pursuant to Statement of Financial
Accounting Standard No. 121 (SFAS 121) "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
Impairment of nonproducing leasehold costs and undeveloped mineral
and royalty interests are assessed periodically on a property by
property basis, and any impairment in value is currently charged to
expense. There was an impairment during 1998 on producing properties
in the amount of $19,649 primarily due to the decrease in oil and gas
prices. The impairment is included in the "Depreciation, depletion
and amortization" category of the consolidated statement of
operations.
REVENUE RECOGNITION
Oil and natural gas revenues are accounted for using the sales
method. Under this method, sales are recorded on all production sold
by the Company regardless of the Company's ownership interest in the
respective property. Imbalances result when sales differ from the
seller's net revenue interest in the particular property's reserves
and are tracked to reflect the Company's balancing position. At
December 31, 1998 and 1997, the imbalance and related value were
immaterial.
LEASE BONUSES
The Company defers bonuses received from leasing minerals in which
unrecovered costs remain by recording the bonuses as a reduction of
the unrecovered costs. Bonuses received from leasing mineral
interests previously expensed are taken into income. For federal
income tax purposes, lease bonuses are regarded as advance royalties
(ordinary income).
F-8
<PAGE> 43
TOREADOR ROYALTY CORPORATION
Notes to Consolidated Financial Statements
FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments including cash and cash
equivalents, short-term investments, accounts receivable, marketable
securities, accounts payable and accrued liabilities and long-term
debt approximate fair value, unless otherwise stated, as of
December 31, 1998 and 1997.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the
anticipated future tax effects of temporary differences between the
financial statement basis and the tax basis of the Company's assets
and liabilities using enacted tax rates in effect at year end. A
valuation allowance for deferred tax assets is recorded when it is
more likely than not that the benefit from the deferred tax asset
will not be realized.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, ("SFAS 123")
"Accounting for Stock-Based Compensation," encourages, but does not
require, the adoption of a fair value-based method of accounting for
employee stock-based compensation transactions. The Company has
elected to apply the provisions of Accounting Principles Board
Opinion No. 25 ("Opinion 25"), "Accounting for Stock Issued to
Employees," and related interpretations, in accounting for its
employee stock-based compensation plans. Under Opinion 25,
compensation cost is measured as the excess, if any, of the quoted
market price of the Company's stock at the date of the grant above
the amount an employee must pay to acquire the stock.
NET INCOME PER COMMON SHARE
Basic earnings (loss) per common share amounts were computed by
dividing net income (loss) after deduction of dividends on preference
shares by the weighted average number of common shares outstanding
during the period. Diluted earnings (loss) per common share assumes
the conversion of all securities that are exercisable or convertible
into common shares that would dilute the basic earnings per
common share during the period. There were no differences in the
weighted average common shares used in the basic and diluted earnings
per share computations due to antidilution.
2. ACQUISITION OF OIL AND GAS PROPERTIES
On December 16, 1998, Tormin, Inc., a wholly owned subsidiary of
Toreador Royalty Corporation purchased, effective November 1, 1998,
certain oil, gas and other mineral and royalty interests located in
Alabama, Louisiana and Mississippi (the "Properties") from Howell
Petroleum Corporation ("Howell"), a wholly owned subsidiary of Howell
Corporation, pursuant to a Purchase and Sale Agreement (the "Howell
Agreement") dated October 28, 1998 by and between Howell and J.T.
Philp Company ("JTP"). Tormin acquired JTP's rights under the Howell
Agreement through an assignment of JTP's rights and paid a transaction
fee of 1.5% of the purchase price of the Properties.
The purchase price for the Properties before adjustments was $13
million. The Properties are comprised of approximately 1,775,000 gross
(876,000 net) acres. Producing interests, which make up approximately
2% of the total net acres, are held in approximately 400 oil and gas
wells. The acquisition of the Properties was accounted for under the
purchase method and closed on December 16, 1998. The allocation of the
purchase price is presented below:
F-9
<PAGE> 44
TOREADOR ROYALTY CORPORATION
Notes to Consolidated Financial Statements
<TABLE>
<S> <C>
Purchase Price..................................................... $ 13,000,000
Purchase price adjustments, including:
Distributions of cash flows generated from lease bonuses from
October 15, 1998 to the closing date, December 16, 1998........ (68,250)
Net oil and gas revenue earned from November 1, 1998 to the
closing date, December 16, 1998................................ (157,462)
Other acquisition costs........................................ 380,255
-------------
Total Purchase Price.... $ 13,154,543
=============
Purchase Allocation :
Producing royalty interests.................................... 5,883,911
Undeveloped mineral and royalty interests...................... 7,270,632
-------------
Total Purchase Price.... $ 13,154,543
=============
</TABLE>
The purchase price was allocated to producing royalty interests and
undeveloped mineral and royalty interests based upon engineering
estimates.
The purchase price of the Properties was funded with proceeds received
from a private placement of $4 million of the Company's Series A 9%
Convertible Preferred Stock (the "Preferred Securities"), utilization of
Company's existing credit facility ($2.7 million), utilization of a
new term facility ($5.9 million), and cash on hand. See notes 13 and 15
for further discussion regarding these financial instruments.
The following summarized unaudited pro forma financial information assumes
the acquisition of the Properties occurred on January 1 of each year:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1998 1997
---- ----
<S> <C> <C>
Revenues................................... $4,093,757 $5,816,317
Net income................................. $ 231,982 $1,024,506
Net income applicable to common shares..... $ (128,018) $ 664,506
Net income per share - basic............... $ (.02) $ .13
Net income per share - diluted............. $ (.02) $ .13
</TABLE>
The pro forma results do not necessarily represent results that would have
occurred if the transaction had taken place on the basis assumed above,
nor are they indicative of the results of future combined operations.
3. MARKETABLE SECURITIES
During 1996, the Company sold all shares in the San Juan Basin Royalty
Trust for proceeds of $643,125 resulting in a gain of $516,867.
Marketable securities at December 31,1998 consist of several issues of
preferred stock with a fair market value of $374,915 as of December 31,
1998. The net unrealized loss related to these securities before taxes is
$37,761 ($24,922 net of tax). The Company has designated these investments
as "securities available for sale" pursuant to Statement of Financial
Accounting Standards No. 115.
F-10
<PAGE> 45
TOREADOR ROYALTY CORPORATION
Notes to Consolidated Financial Statements
4. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Oil and gas............................... $ 417,442 $ 334,851
Receivable from preferred shareholders.... 100,000 --
----------- -----------
$ 517,442 $ 334,851
=========== ===========
</TABLE>
Oil and gas receivables are due from companies engaged principally in oil
and gas activities, with payment terms on a short-term basis and in
accordance with industry standards. The receivable from preferred
shareholders was received in January 1999.
5. PROPERTIES AND EQUIPMENT
Properties and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
Undeveloped mineral and royalty interests ............. $ 7,270,632 $ 334,489
Nonproducing leaseholds ............................... 122,267 26,911
Producing leaseholds .................................. 3,607,307 3,152,332
Producing royalty interests ........................... 7,306,423 1,422,512
Lease and well equipment .............................. 417,382 303,388
Furniture and fixtures and other assets ............... 108,268 79,019
------------ ------------
18,832,279 5,318,651
Accumulated depreciation, depletion and amortization .. (2,622,648) (2,108,577)
------------ ------------
$ 16,209,631 $ 3,210,074
============ ============
</TABLE>
6. ASSETS HELD FOR SALE
Assets held for sale consist of undeveloped mineral and royalty interests
which the Company is currently marketing. In January 1999 the Company
sold a portion of the acreage for $750,000 resulting in a gain of $356,187
net of tax and closing costs.
F-11
<PAGE> 46
TOREADOR ROYALTY CORPORATION
Notes to Consolidated Financial Statements
7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Professional fees.......................................... $ 6,980 $ 3,251
Lease operating expense.................................... 94,290 92,430
Trade accounts payable..................................... 140,809 19,894
Brokerage fees............................................ 45,516 --
Drilling costs............................................. 40,130 194,015
Howell acquisition costs................................... 260,029 --
----------- -----------
$ 587,754 $ 309,590
=========== ===========
</TABLE>
8. INTEREST AND OTHER INCOME
Interest and other income consists of:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
---------- ---------- ---------
<S> <C> <C> <C>
Interest - Certificates of deposit
U.S. Treasury bills, and money market accounts....... $ 152,789 $ 147,237 $ 138,720
Distribution from San Juan Basin Royalty Trust................ -- -- 12,253
Dividends from marketable securities.......................... 7,720 -- --
Other......................................................... 10,829 2,604 11,324
---------- ---------- ---------
$ 171,338 $ 149,841 $ 162,297
========== ========== =========
</TABLE>
9. GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses incurred by the Company are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Salaries .............................. $ 208,226 $ 213,000 $ 327,277
Professional fees ..................... 329,481 161,745 139,794
Insurance ............................. 49,338 57,730 57,005
Retirement expense .................... 9,992 69,188 69,050
Rent expense .......................... 43,676 34,297 30,913
Directors' fees and travel expenses ... 75,988 78,963 40,334
Shareholder relations ................. 122,688 53,126 77,166
Travel and entertainment .............. 8,613 21,800 52,726
Telephone and utilities ............... 19,755 16,588 19,908
Taxes, other than income .............. 35,268 37,747 38,285
Other ................................. 96,523 58,539 54,628
------------ ------------ ------------
$ 999,548 $ 802,723 $ 907,086
============ ============ ============
</TABLE>
F-12
<PAGE> 47
TOREADOR ROYALTY CORPORATION
Notes to Consolidated Financial Statements
10. INCOME TAXES
The Company's provision (benefit) for income taxes was comprised of the
following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Federal:
Current ....................... $ (63,821) $ (2,808) $ 62,939
Deferred ...................... (169,456) (81,453) 200,161
---------- ---------- ----------
Provision (benefit) for income taxes ... $ (233,277) $ (84,261) $ 263,100
========== ========== ==========
</TABLE>
The primary reasons for the difference between tax expense at the
statutory federal income tax rate and the Company's provision for income
taxes were:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Theoretical tax at 34% ...................... $ (161,678) $ (46,113) $ 336,703
Surtax or rate difference ................... -- (958) (8,973)
Statutory depletion in excess of tax basis .. (69,979) (38,013) (64,317)
Other ....................................... (1,620) 823 (313)
------------ ------------ ------------
Provision (benefit) for income taxes ........ $ (233,277) $ (84,261) $ 263,100
============ ============ ============
</TABLE>
Net operating loss generated in 1995 totaling $516,064 was carried
forward and used in 1996. In 1998, the net operating loss for tax
purposes totaled $641,176, of which $185,482 will be carried back to
be used against prior year taxable income. The remaining net operating
loss will be carried forward to be used against future taxable income.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of
December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Deferred tax liabilities:
Intangible drilling and development costs ......... $ (210,104) $ (117,774)
Lease and well equipment .......................... (13,949) (12,619)
Leasehold costs ................................... (2,260) (16,596)
------------ ------------
Gross deferred tax liabilities ........... (226,313) (146,989)
------------ ------------
Deferred tax assets:
Depletion carryforwards ........................... 115,172 49,528
Net operating tax loss carryforward ............... 154,936 --
Geological and geophysical costs
78,179 53,832
Alternative minimum tax credit carryforwards ...... 63,427 59,574
Unrealized loss on marketable securities .... 12,839 --
------------ ------------
Gross deferred tax assets................. 424,553 162,934
------------ ------------
Net deferred tax assets .................................... $ 198,240 $ 15,945
============ ============
</TABLE>
F-13
<PAGE> 48
TOREADOR ROYALTY CORPORATION
Notes to Consolidated Financial Statements
Of the change in deferred taxes, $12,839 was credited to net
unrealized loss on marketable securities in stockholders' equity for 1998.
The tax credit carryforwards and depletion carryforwards are available
indefinitely.
11. BENEFIT PLANS
The Company has a noncontributory defined benefit pension plan which
covers all Company employees. The benefits are based on years of service
and the employee's compensation. Contributions are intended to provide not
only for benefits attributed to service to date but also for those
expected to be earned in the future.
In 1996, the Company established a Supplemental Executive Retirement Plan
("SERP") covering certain key employees. The SERP provides for incremental
pension payments from the Company's funds so that retirement benefit
payments are equal to amounts that would have been payable from the
Company's principal pension plan if it were not for limitations on those
payments imposed by income tax regulations.
During 1997, the Company settled its benefit plan obligations with certain
employees resulting in a loss of $173,971 which has been recorded as a
loss on settlement of benefit plans in the consolidated statement of
operations. The loss consists of a 100% settlement of the pension benefit
for $87,654 and a payment of $88,617 for settlement of the SERP. The loss
is primarily attributable to the settlement of benefit plans upon the
resignation of the then Chairman and Chief Executive Officer of the
Company.
The status of the pension plan follows:
Change in benefit obligation:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Benefit obligation at beginning of year........... $ 4,365 $ 463,933
Service cost...................................... 13,825 55,212
Interest on pension benefit obligation............ 306 15,401
Actuarial loss (gain)............................. 7,068 (42,340)
Benefits paid..................................... -- (487,841)
------------ ------------
Benefit obligation at end of year................. $ 25,564 $ 4,365
Change in plan assets:
Fair value of plan assets at beginning of year.... $ 5,020 $ 387,158
Actual return on plan assets...................... 1,477 25,777
Employer contributions............................ 27,750 79,927
Benefits paid..................................... -- (487,842)
------------ ------------
Fair value of plan assets at end of year.......... 34,247 5,020
------------ ------------
Funded status..................................... 8,683 655
Unrecognized net actuarial loss................... 6,914 104,902
------------ ------------
Prepaid pension cost.............................. $ 15,597 $ 105,557
============ ============
</TABLE>
F-14
<PAGE> 49
TOREADOR ROYALTY CORPORATION
Notes to Consolidated Financial Statements
Weighted average assumptions at measurement date:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Discount rate 7% 7%
Expected long-term rate of return on assets 7% 7%
Rate of increase in compensation levels 3% 3.5%
</TABLE>
The following table sets forth the net periodic costs for the plan as of
December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Service cost........................... $ 13,825 $ 55,212 $ 54,452
Interest cost.......................... 306 15,401 26,828
Expected return on assets.............. (1,323) (12,824) (25,899)
Amortization of transition (asset)..... -- (2,875) (2,874)
Recognized net actuarial loss (gain)... -- 8,129 8,211
------------ ------------ ------------
$ 12,808 $ 63,043 $ 60,718
============ ============ ============
</TABLE>
12. LEASE AND OTHER COMMITMENTS
In November 1993, the Company signed a lease agreement to lease new office
space for a period of sixty-three months, beginning January 6, 1994 and
ending March 31, 1999. Rentals paid in 1999 through the termination of the
lease were $9,561.
13. LONG TERM DEBT
In November 1997, the Company obtained a $10,000,000 credit facility (the
"Facility"). In December 1998, the Company borrowed $2,700,000 against the
Facility which was used to finance the Howell Mineral Acquisition. The
Company obtained an additional $5,900,000 term loan (the "Loan") which was
used in this acquisition. As of December 31, 1998, the outstanding balance
of the facility and loan were $2,700,000 and $5,900,000, respectively.
The Facility is a revolving line of credit collateralized by various oil
and gas interests owned by the Company. The interest rate is equal to the
prime rate as long as the amount borrowed is greater than 80% of the
borrowing base as defined by the lender ($2,700,000 at December 31, 1998).
The rate will drop to prime less one-half percent if the amount borrowed
drops below 80% of the borrowing base. In addition the Facility has a
commitment fee of .375% per annum on unused amounts and a letter of credit
fee of .875% per annum. The interest rate on the Facility at December 31,
1998 was 7.5%, and the Company is currently not subject to any fees. The
maturity date is October 1, 2000.
The Facility contains various affirmative and negative covenants. These
covenants, among other things, limit additional indebtedness, the sale of
assets and the payment of dividends on common stock, change of control and
management and require us to meet certain financial requirements.
Specifically, the Company must maintain a current ratio of 1.00 to 1.00
and a debt service coverage ratio of not less than 1.25 to 1.00.
The Loan is a credit agreement collateralized by various oil and gas
interests owned by the Company. The interest rate is equal to the prime
rate plus one-quarter percent. The interest rate on the loan was 7.75% at
December 31,1998. The maturity date is June 1, 2000.
F-15
<PAGE> 50
TOREADOR ROYALTY CORPORATION
Notes to Consolidated Financial Statements
The Loan contains various affirmative and negative covenants. These
covenants, among other things, limit additional indebtedness, the sale of
assets and the payment of dividends, change of control and management and
require Tormin to meet certain financial requirements. Specifically, Tormin
must maintain a current ratio of 1.25 to 1.00 after deducting the current
portion of the Loan and general and administrative costs are limited to
$50,000 per each calendar quarter. Tormin is committed to repay interest on
a monthly basis plus principal equal to the greater of 95% of net cash flow
or $60,000.
Each of the above described debt issues is controlled by its respective
borrowing bases. The amount of debt outstanding at any time is not allowed
to exceed the borrowing base as determined by the lender. The borrowing
base is subject to evaluation every six months and can be adjusted either
up or down. The Company and Tormin are required to repay any principal
which exceeds the revised borrowing base.
Aggregate principal reductions are as follows for each year ended December
31:
1999 ...............$ 720,000
2000 ............... 7,880,000
The Company is currently negotiating to extend the payment terms of the
Loan.
14. STOCK COMPENSATION PLANS
The Company has granted stock options to key employees, directors and
certain consultants of the Company which are described below.
In May 1990, the Company adopted the 1990 Stock Option Plan ("the Plan").
The aggregate number of shares of common stock issuable under the Plan as
amended and subject to shareholder approval is 500,000. The Plan provides
for the granting of stock options at exercise prices equal to the market
price of the stock at the date of the grant.
In September 1994, the Company adopted the 1994 Nonemployee Director Stock
Option Plan ("Nonemployee Director Plan"). The number of shares of common
stock issuable under the Nonemployee Director Plan is 200,000 shares in
the aggregate. The Nonemployee Director Plan provides for the granting of
stock options at exercise prices equal to the market price of the stock at
the grant date.
Options under the Plan and the Nonemployee Director Plan are granted
periodically throughout the year and are generally exercisable in equal
increments over a three-year period and have a maximum term of 10 years.
In September 1998, our board of directors authorized Toreador to enter into
stock option agreements with G. Thomas Graves III and John Mark McLaughlin
under the Amended and Restated Stock Option Plan, subject to stockholder
approval of the Amended and Restated Stock Option Plan, for options to
purchase 250,000 and 45,000 shares of common stock, respectively.
Pursuant to SFAS No. 123, the Company recorded an expense of $19,747 and
$44,011 during 1998 and 1997, respectively, for stock options granted to
certain consultants to the Company.
F-16
<PAGE> 51
TOREADOR ROYALTY CORPORATION
Notes to Consolidated Financial Statements
A summary of stock option transactions are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- ---------
WEIGHTED- WEIGHTED- WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
-------- --------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year .... 469,000 $ 2.97 452,500 $ 3.16 470,000 $ 3.15
Granted ............................. 340,000 4.38 117,500 2.50 -- --
Exercised ........................... (276,500) 2.86 (11,000) 2.47 (7,500) 2.47
Forfeited ........................... (70,000) 3.11 (90,000) 3.36 (10,000) 3.25
-------- --------- ------- --------- --------- ---------
Outstanding at end of year .......... 462,500 $ 4.05 469,000 $ 2.97 $ 452,500 $ 3.16
======== ========= ======= ========= ========= =========
Exercisable at end of year .......... 100,833 $ 3.28 411,500 $ 3.02 402,500 $ 3.13
======== ========= ======= ========= ========= =========
</TABLE>
For stock options granted during 1998 the following represents the
weighted-average exercise prices and the weighted-average fair value based upon
whether or not the exercise price of the option was greater than, less than or
equal to the market price of the stock on the grant date:
<TABLE>
<CAPTION>
Option type Weighted- Weighted-Average
Average Fair
Exercise Price Value
-------------- -------------
<S> <C> <C>
Exercise price greater than market price.....$ 5.00 $ .35
Exercise price less than market price........ 2.75 1.11
Exercise price equal to market price......... 2.50 .92
</TABLE>
The following table summarizes information about the fixed price stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------- ----------------------------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
PRICES AT 12/31/98 LIFE PRICE AT 12/31/98 PRICE
--------------- ------------ ----------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
$ 2.50 72,500 7.1 Years $ 2.50 20,833 $ 2.50
2.75 60,000 9.8 Years 2.75 0 0
3.25 - 3.50 50,000 5.7 Years 3.40 50,000 3.40
3.63 30,000 2.4 Years 3.63 30,000 3.63
5.00 250,000 9.8 Years 5.00 0 0
--------------- ------------ ----------- ------------ ---------- ------------
$ 2.50 - 5.00 462,500 8.4 Years $ 4.05 100,833 $ 3.28
=============== ============ =========== ============ ========== ============
</TABLE>
At December 31, 1998, 202,500 shares were available for grant under the Plan
and 140,000 shares were available for grant as options under the Nonemployee
Director Plan.
F-17
<PAGE> 52
TOREADOR ROYALTY CORPORATION
Notes to Consolidated Financial Statements
Had compensation costs for employees under the Company's two stock-based
compensation plans been determined based on the fair value at the grant
dates under those plans consistent with the method prescribed by SFAS No.
123, the Company's pro forma net income and earnings per share would have
been reduced to the pro forma amounts listed below:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C> <C>
Net income (loss) As reported $ (242,246) $ (51,366) $ 726,750
Pro forma $ (272,077) $ (82,515) $ 726,750
Basic earnings per share As reported $ (0.05) $ (0.01) $ 0.14
Pro forma $ (0.05) $ (0.02) $ 0.14
Diluted earnings per share As reported $ (0.05) $ (0.01) $ 0.14
Pro forma $ (0.05) $ (0.02) $ 0.14
</TABLE>
There were no options granted during 1996. The fair value of each option
granted during 1997 is estimated on the date of grant using the
Black-Scholes Option-Pricing model with the following assumptions
respectively: dividend yield of $0/share; expected volatility of 39%;
risk-free interest rate of 6.4%; and expected lives of 5 years. The fair
value of each option granted during 1998 is estimated on the date of grant
using the Black-Scholes Option-Pricing model with the following
assumptions respectively: dividend yield of $0/; expected volatility of
27%; risk-free interest rate of 6.4%; and expected lives of 5 years.
15. CAPITAL
In connection with the private placement in 1994, the Company's placement
agent received a five-year warrant to purchase 106,867 shares of common
stock at a price of $4.375 per share and the right to participate in
registered offerings of common stock by the Company. The Company paid
$25,000 to the placement agent in December 1998 in order to terminate the
warrant.
The Company adopted a stockholder rights plan on April 3, 1995 designed to
assure that the Company's stockholders receive fair and equal treatment in
the event of any proposed takeover of the Company and to guard against
partial tender offers and other abusive takeover tactics to gain control
of the Company without paying all stockholders a fair price. Under the
rights plan, the Company declared a dividend of one right ("Right") on
each share of Company common stock. Each Right will entitle the holder to
purchase one one-hundredth of a share of a new Series A Junior
Participating Preferred Stock, par value $1.00 per share, at an exercise
price of $12.00. The Rights are not currently exercisable and will become
exercisable only in the event a person or group acquires beneficial
ownership of 20 percent or more of Toreador's outstanding common stock or
announces a tender offer or exchange offer to acquire such ownership
level. The Rights are subject to redemption by the Company for $.01 per
Right at any time prior to the tenth day after the first public
announcement of the acquisition by any person or group of beneficial
ownership of 20 percent or more of Company common stock. The dividend
distribution was made on April 13, 1995 to stockholders of record at the
close of business on that date. The rights will expire on April 13, 2005.
F-18
<PAGE> 53
TOREADOR ROYALTY CORPORATION
Notes to Consolidated Financial Statements
In October 1995, the Company's Board of Directors authorized the repurchase
of up to 100,000 shares of the Company's common stock. This repurchase was
completed in April 1996. In April 1996, the Company's Board of Directors
authorized the repurchase of an additional 150,000 shares of the Company's
common stock. This repurchase was completed in April 1997.
In April 1997, the Company's board of directors authorized the repurchase
of an additional 300,000 shares of the Company's common stock. On July 23,
1998, the Company's board of directors suspended the policy of share
repurchases for the time being to instead use the Company's excess cash
resources toward funding the Company's participation in third party
operated 3-D projects or drilling prospects and acquisition of producing
oil and gas properties. On March 23, 1999, the Company's board of directors
reinstated the common stock repurchase program enabling the Company to
purchase the remaining 117,300 shares available under the April 1997 stock
repurchase plan from time to time and depending on market conditions. As of
December 31, 1998, the Company had repurchased 182,700 shares of its common
stock under the third repurchase program. Management anticipates that any
future repurchases of the Company's common stock will be funded from the
Company's cash flow from operations and working capital.
In December 1998, the Company sold 160,000 shares of Series A Preferred
Stock for $4,000,000. The sale was made through a private placement. At
the option of the holder, the preferred stock may be converted into common
shares at a price of $4 per common share. The Company, at its option, may
redeem the preferred stock at its stated value of $25 per share on or
after December 1, 2004. The preferred stock accrues dividends at an annual
rate of $2.25 per share payable quarterly in cash. The proceeds from the
sale were used in part to finance the Howell mineral acquisition.
Under the original agreement, the Company was required to redeem all
outstanding Series A Preferred Stock on December 1, 2008. On March 15,
1999, the Company and the holders of the Series A Preferred Stock agreed to
remove the mandatory redemption feature in exchange for certain other
modifications. As a result, the Series A Preferred Stock has been
classified as a component of equity at December 31, 1998.
16. RELATED PARTY TRANSACTIONS
The Company entered into a technical services agreement with Wilco
Properties, Inc. ("Wilco") effective October 1, 1998 whereby Wilco
provides accounting and geological management services for a monthly fee
of $7,250. The Company cancelled the technical services agreement in
February 1999 and entered into a new technical services agreement whereby
the Company employed the Wilco personnel directly and agreed to provide
accounting and geological management services to Wilco for a monthly fee
of $7,250.
17. OIL AND GAS INFORMATION (UNAUDITED)
The following information is presented pursuant to SFAS No. 69,
Disclosures about Oil and Gas Producing Activities:
RESULTS OF OPERATIONS
Results of operations from oil and gas producing activities were as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Crude oil, condensate and natural gas ............ $ 1,968,638 $ 2,325,148 $ 2,306,791
Lease bonuses and delay rentals .................. 168,664 287,604 118,430
------------ ------------ ------------
Total revenues .......................... 2,137,302 2,612,752 2,425,221
------------ ------------ ------------
Costs and expenses:
Lease operating costs ................... 583,441 695,007 585,732
Exploration costs ....................... 650,983 713,344 358,391
Depreciation and depletion .............. 510,775 539,346 273,026
------------ ------------ ------------
Income before income taxes ....................... 392,103 665,055 1,208,072
Income tax expense ............................... 133,315 226,119 410,744
------------ ------------ ------------
Results of operations from producing activities
(excluding corporate overhead)........... $ 258,788 $ 438,936 $ 797,328
============ ============ ============
</TABLE>
F-19
<PAGE> 54
TOREADOR ROYALTY CORPORATION
Notes to Consolidated Financial Statements
CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Unproved properties (a) ................ $ 7,727,388 $ 361,400 $ 457,861
Proved leaseholds ...................... 10,913,730 4,574,844 4,161,956
Lease and well equipment ............... 417,382 303,388 151,243
------------ ------------ ------------
19,058,500 5,239,632 4,771,060
------------ ------------ ------------
Less: Accumulated depreciation,
depletion and amortization ... (2,608,905) (2,036,912) (1,507,553)
------------ ------------ ------------
Capitalized costs ...................... $ 16,449,595 $ 3,202,720 $ 3,263,507
============ ============ ============
</TABLE>
(a) Unproved properties for 1998 includes $334,489 classified as "Assets
held for sale".
COSTS INCURRED IN OIL AND GAS PROPERTY ACQUISITION, EXPLORATION, AND
DEVELOPMENT ACTIVITIES:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Acquisition of properties
Proved...................................... $ 5,883,911 $ 192,670 $ 371,761
Unproved.................................... 7,365,988 56,245 69,838
Exploration costs............................... 133,113 166,710 130,647
Development costs............................... 568,969 301,853 321,180
----------- ---------- ----------
Costs incurred.................................. $13,951,981 $ 717,478 $ 893,426
=========== ========== ==========
</TABLE>
OIL AND GAS RESERVES
The following table identifies the Company's net interest in estimated
quantities of proved oil and gas reserves and changes in such estimated
quantities. Reserve estimates were prepared by independent petroleum engineers
and such estimates were reviewed by Company management. The Company emphasizes
that reserve estimates are inherently imprecise and that estimates of new
discoveries are more imprecise than those of producing oil and gas properties.
Accordingly, the estimates are expected to change as future information becomes
available. Estimated proved developed and undeveloped oil and gas reserves at
December 31, 1998, 1997 and 1996 are tabulated below. Crude oil includes
condensate and natural gas liquids and is stated in barrels (bbl). Natural gas
is stated in thousands of cubic feet (mcf).
F-20
<PAGE> 55
TOREADOR ROYALTY CORPORATION
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
OIL(BBL) GAS(MCF)
------------ ------------
<S> <C> <C>
PROVED DEVELOPED AND UNDEVELOPED RESERVES
December 31, 1995 ................................ 569,281 2,607,436
Purchases of reserves in place ................... 219,268 266,899
Revisions of previous estimates .................. 35,082 372,202
Extensions, discoveries, and other additions ..... 35,959 154,942
Production ....................................... (68,318) (348,539)
------------ ------------
December 31, 1996 ................................ 791,272 3,052,940
Purchases of reserves in place ................... 5,410 265,316
Revisions of previous estimates .................. (317,393) (471,860)
Extensions, discoveries, and other additions ..... 143,792 143,998
Production ....................................... (69,903) (425,854)
------------ ------------
December 31, 1997 ................................ 553,178 2,564,540
Purchases of reserves in place ................... 457,953 6,714,493
Revisions of previous estimates .................. 180,310 813,717
Extensions, discoveries, and other additions ..... 12,161 92,539
Production ....................................... (90,097) (394,849)
------------ ------------
December 31, 1998 ................................ 1,113,505 9,790,440
============ ============
PROVED DEVELOPED RESERVES
December 31, 1997 ................................ 501,726 2,487,574
============ ============
December 31, 1998 ................................ 1,095,798 8,631,968
============ ============
</TABLE>
There were no proved undeveloped reserves at December 31, 1996 .
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL
AND GAS REVENUES
Pursuant to SFAS No. 69, the Company has developed the following information
titled "Standardized Measure of Discounted Future Net Cash Flows Relating to
Proved Oil and Gas Quantities" (Standardized Measure). Accordingly, the
Standardized Measure has been prepared assuming year-end selling prices
adjusted for future fixed and determinable contractual price changes, year-end
development and production costs, year-end statutory tax rates adjusted for
future tax rates already legislated and a 10% annual discount rate. The
Standardized Measure does not purport to be an estimate of the fair market
value of the Company's reserves. An estimate of fair value would also have
taken into account, among other things, the expected recovery of reserves in
excess of proved reserves, anticipated changes in future prices and costs and a
discount factor representative of the time value of money and risks inherent in
producing oil and gas.
F-21
<PAGE> 56
TOREADOR ROYALTY CORPORATION
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Future cash inflows ........................................ $ 29,011,780 $ 14,558,500 $ 29,686,583
Future production costs .................................... 5,110,313 4,096,800 9,594,044
Future development costs ................................... 44,279 366,900 --
------------ ------------ ------------
Future net cash flows before income taxes .................. 23,857,188 10,094,800 20,092,539
Future income tax expense .................................. 5,375,278 2,628,421 6,001,855
------------ ------------ ------------
Future net cash flows ...................................... 18,481,910 7,466,379 14,090,684
10% annual discount for estimated timing of cash flows ..... 7,011,003 2,597,628 5,773,051
------------ ------------ ------------
Standardized measure of discounted future net cash
flows relating to proved oil and gas reserves ..... $ 11,470,907 $ 4,868,751 $ 8,317,633
============ ============ ============
</TABLE>
The average oil and gas prices used to calculate future net cash inflows at
December 31, 1998 were $9.74 per barrel and $1.86 per mcf, respectively. At
December 31, 1998 and March 17, 1999, respectively, the NYMEX price for oil was
$12.05 per barrel and $15.24 per barrel and the NYMEX price for gas was $1.945
per MMBtu and $1.699 per MMBtu.
CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH RELATING TO
PROVED OIL AND GAS RESERVES
The following are the principal sources of change in the standardized measure:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Balance at January 1 ........................ $ 4,868,751 $ 8,317,633 $ 4,710,135
Sales of oil and gas produced, net .......... (1,385,196) (1,630,141) (1,721,059)
Net changes in prices and production costs .. (2,206,776) (2,968,223) 3,393,314
Extensions and discoveries .................. 181,087 1,432,864 884,206
Revisions of previous quantity estimates .... 1,813,841 (3,720,824) 719,335
Net change in income taxes .................. (473,300) 1,737,609 (1,726,595)
Accretion of discount ....................... 486,875 831,763 601,140
Purchases of reserves ....................... 8,304,398 494,526 371,761
Other ....................................... (118,773) 373,544 1,085,396
------------ ------------ ------------
Balance at December 31 ...................... $ 11,470,907 $ 4,868,751 $ 8,317,633
============ ============ ============
</TABLE>
F-22
<PAGE> 57
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3.1* - Certificate of Incorporation, as amended, of Toreador Royalty
Corporation.
3.2* - Amended and Restated Bylaws, as amended, of Toreador Royalty
Corporation.
3.3 - Amendment to Bylaws of Toreador Royalty Corporation, dated April
21, 1997 (previously filed as Exhibit 3.7 to Toreador Royalty
Corporation Annual Report on Form 10-K for the year ended December
31, 1997, and incorporated herein by reference).
3.4 - Amendment to Bylaws of Toreador Royalty Corporation, dated June
25, 1998 (previously filed as Exhibit 3.1 to Toreador Royalty
Corporation Current Report on Form 8-K filed with the Securities
and Exchange Commission on July 1, 1998, and incorporated herein
by reference).
3.5 - Certificate of Designations of Series A Junior Participating
Preferred Stock of Toreador Royalty Corporation, dated April 3,
1995 (previously filed as Exhibit 3 to Toreador Royalty
Corporation Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1995, and incorporated herein by
reference).
3.6 - Certificate of Designation of Series A Convertible Preferred Stock
of Toreador Royalty Corporation, dated December 14, 1998
(previously filed as Exhibit 10.3 to Toreador Royalty Corporation
Current Report on Form 8-K filed with the Securities and Exchange
Commission on December 31, 1998, and incorporated herein by
reference).
4.1* - Form of Letter Agreement regarding Series A Convertible Preferred
Stock, dated as of March 15, 1999, between Toreador Royalty
Corporation and the holders of Series A Convertible Preferred
Stock.
4.2 - Rights Agreement, dated as of April 3, 1995, between Toreador
Royalty Corporation and Continental Stock Transfer & Trust
Company (previously filed as Exhibit 1 to Toreador Royalty
Corporation Current Report on Form 8-K filed with the Securities
and Exchange Commission on April 3, 1995, and incorporated herein
by reference).
4.3 - Amendment No. 1 to Rights Agreement, dated June 25, 1998, between
Toreador Royalty Corporation and Continental Stock Transfer &
Trust Company (previously filed as Exhibit 99.1 to Toreador
Royalty Corporation Registration on Form 8-A/A filed with the
Securities and Exchange Commission on July 1, 1998, and
incorporated herein by reference).
</TABLE>
<PAGE> 58
<TABLE>
<S> <C>
4.4 - Registration Rights Agreement, effective December 16, 1998, among
Toreador Royalty Corporation and persons party thereto
(previously filed as Exhibit 10.2 to Toreador Royalty Corporation
Current Report on Form 8-K filed with the Securities and Exchange
Commission on December 31, 1998, and incorporated herein by
reference).
4.5 - Settlement Agreement, dated June 25, 1998, among the Gralee
Persons, the Dane Falb Persons and Toreador Royalty Corporation
(previously filed as Exhibit 10.1 to Toreador Royalty Corporation
Current Report on Form 8-K filed with the Securities and Exchange
Commission on July 1, 1998, and incorporated herein by
reference).
4.6 - Stockholder Voting Agreement, dated June 25, 1998, among the
Gralee Persons, the Dane Falb Persons and Current Management
(previously filed as Exhibit 10.2 to Toreador Royalty Corporation
Current Report on Form 8-K filed with the Securities and Exchange
Commission on July 1, 1998, and incorporated herein by
reference).
10.1+ - Form of Stock Option Agreement, between Toreador Royalty
Corporation and Donald E. August, John V. Ballard, J. W. Bullion,
John Mark McLaughlin, and Jack L. Woods (previously filed as
Exhibit 4.6 to Toreador Royalty Corporation Form S-8 (No.
333-14145) filed with the Securities and Exchange Commission on
October 15, 1996, and incorporated herein by reference).
10.2+ - Stock Option Agreement, dated February 17, 1994, between Toreador
Royalty Corporation and Thomas P. Kellogg, Jr. (previously filed
as Exhibit 4.7 to Toreador Royalty Corporation Form S-8 (No.
333-14145) filed with the Securities and Exchange Commission on
October 15, 1996, and incorporated herein by reference).
10.3+ - Form of Stock Option Agreement, between Toreador Royalty
Corporation and Edward C. Marhanka and Earl V. Tessem, as amended
(previously filed as Exhibit 4.8 to Toreador Royalty Corporation
Form S-8 (No. 333-14145) filed with the Securities and Exchange
Commission on October 15, 1996, and incorporated herein by
reference).
10.4+ - Incentive Stock Option, dated as of May 15, 1997, between Toreador
Royalty Corporation and Edward C. Marhanka (previously filed as
Exhibit 10.4 to Toreador Royalty Corporation Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997, and incorporated
herein by reference).
10.5+ - Employment Agreement, dated as of May 1, 1997, between Toreador
Royalty Corporation and Edward C. Marhanka (previously filed as
Exhibit 10.5 to Toreador Royalty Corporation Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997, and incorporated
herein by reference).
10.6* - Joint Venture Agreement, dated March 1, 1989, among Toreador
Royalty Corporation, Bandera Petroleum, et al, as amended.
10.7+ - Toreador Royalty Corporation 1990 Stock Option Plan (previously
filed as Exhibit 10.7 to Toreador Royalty Corporation Annual
Report on Form 10-K for the year ended December 31, 1994, and
incorporated herein by reference).
10.8+ - Amendment to Toreador Royalty Corporation 1990 Stock Option Plan,
effective as of May 15, 1997 (previously filed as Exhibit 10.14
to Toreador Royalty Corporation Annual Report on Form 10-K for
the year ended December 31, 1997, and incorporated herein by
reference).
</TABLE>
<PAGE> 59
<TABLE>
<S> <C>
10.9+ - Toreador Royalty Corporation 1994 Non-Employee Director Stock
Option Plan, as amended (previously filed as Exhibit 10.12 to
Toreador Royalty Corporation Annual Report on Form 10-K for the
year ended December 31, 1995, and incorporated herein by
reference).
10.10+ - Toreador Royalty Corporation Amended and Restated 1990 Stock
Option Plan, effective as of September 24, 1998 (previously filed
as Exhibit A to Toreador Royalty Corporation Preliminary Proxy
Statement filed with the Securities and Exchange Commission on
March 12, 1999, and incorporated herein by reference).
10.11 - Warrant for the Purchase of Shares of Common Stock issued to
Petrie Parkman & Co., dated May 23, 1994 (previously filed as
Exhibit 10.1 to Toreador Royalty Corporation Registration on Form
S-3, and incorporated herein by reference (No. 33-80572) filed
with the Securities and Exchange Commission on June 22, 1994, and
incorporated herein by reference).
10.12+ - Form of Indemnification Agreement, dated as of April 25, 1995,
between Toreador Royalty Corporation and each of the members of
our Board of Directors (previously filed as Exhibit 10 to
Toreador Royalty Corporation Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1995, and incorporated herein
by reference).
10.13*+ - Toreador Royalty Corporation Amended and Restated 1990 Stock
Option Plan Nonqualified Stock Option Agreement, dated September
24, 1998, between Toreador Royalty Corporation and G. Thomas
Graves III.
10.14*+ - Toreador Royalty Corporation Amended and Restated 1990 Stock
Option Plan Nonqualified Stock Option Agreement, dated September
24, 1998, between Toreador Royalty Corporation and John Mark
McLaughlin.
10.15 - Securities Purchase Agreement, effective December 16, 1998, among
Toreador Royalty Corporation and the Purchasers party thereto
(previously filed as Exhibit 10.1 to Toreador Royalty Corporation
Current Report on Form 8-K filed with the Securities and Exchange
Commission on December 31, 1998, and incorporated herein by
reference).
10.16 - Purchase and Sale Agreement, effective November 1, 1998, between
Howell Petroleum Corporation and the J.T. Philip Company, as
amended (previously filed as Exhibit 10.4 to Toreador Royalty
Corporation Current Report on Form 8-K filed with the Securities
and Exchange Commission on December 31, 1998, and incorporated
herein by reference).
10.17* - Loan Agreement, effective November 13, 1997, between Toreador
Royalty Corporation and Toreador Exploration & Production Inc and
Compass Bank.
10.18* - First Amendment to Loan Agreement, dated September 22, 1998,
between Toreador Royalty Corporation and Toreador Exploration &
Production Inc and Compass Bank.
10.19* - Second Amendment to Loan Agreement, dated December 15, 1998,
between Toreador Royalty Corporation and Toreador Exploration &
Production Inc and Compass Bank.
10.20 - Credit Agreement, effective December 15, 1998, between Compass
Bank and Tormin, Inc. (previously filed as Exhibit 10.5 to
Toreador Royalty Corporation Current Report on Form 8- K filed
with the Securities and Exchange Commission on December 31, 1998,
and incorporated herein by reference).
21.1* - Subsidiaries of Toreador Royalty Corporation.
</TABLE>
<PAGE> 60
<TABLE>
<S> <C>
23.1* - Consent of PricewaterhouseCoopers LLP.
23.2* - Consent of Harlan Consulting.
27.1* - Financial Data Schedule.
</TABLE>
- --------------
* Filed herewith.
+ Management contract or compensatory plan
(b) Reports on Form 8-K:
During the last quarter of the fiscal year ended December 31, 1998, we
filed a Current Report on Form 8-K dated December 16, 1998, as amended by
Current Report on Form 8-K/A filed on March 1, 1999, with the Securities and
Exchange Commission to report the acquisition of certain oil, gas and other
mineral and royalty interests from Howell Petroleum Corporation under Items 2
and 7.
<PAGE> 1
EXHIBIT 3.1
================================================================================
CERTIFICATE OF INCORPORATION
OF
TOREADOR ROYALTY CORPORATION
----------><----------
DATED JULY 13, 1951
================================================================================
<PAGE> 2
CERTIFICATE OF INCORPORATION
OF
TOREADOR ROYALTY CORPORATION
-----------------
FIRST: The name of the Corporation is Toreador Royalty Corporation.
SECOND: Its principal office in the State of Delaware is to be located
at 129 South State Street, City of Dover, County of Kent and its resident agent
is United States Corporation Company whose address is 129 South State Street in
said city of Dover.
THIRD: The nature of the business of the Corporation and the objects
and purposes proposed to be transacted, promoted and carried on, are as follows:
To establish and maintain an oil business with authority to contract
for the lease and purchase of the right to prospect for, develop and use coal
and other minerals, petroleum and gas; also the right to erect, build and own
all necessary oil tanks, cars and pipes necessary for the operation of the
business of the same.
To acquire, bring together, hold, dispose of and deal in royalty and
other interests in minerals, and to manage, control and exploit said mineral
interests, and to collect the revenue arising therefrom.
To purchase, acquire, hold and dispose of the stocks, bonds and other
evidences of indebtedness of any corporation, domestic or foreign, and to issue
in exchange therefor the stocks, bonds, or other obligations of the Corporation
or to make payment therefor by any other lawful means of payment whatsoever, and
to exercise all the privileges of ownership, including voting upon the
securities so held.
To enter into and carry out partnerships of every kind and description,
whether general, mining or special, with any persons, firms, trusts,
associations or any other corporations whatsoever for operating and developing
mines, oil wells, gas wells and interests therein, whether owned jointly by the
Corporation and such persons, firms, trusts, associations and other corporations
or otherwise, and for exercising any other powers of the Corporation.
To enter into and carry out contracts of every kind pertaining to the
business of the Corporation.
<PAGE> 3
To borrow or raise money for any of the purposes of this Corporation,
and from time to time without limit as to amount to draw, make, accept, endorse,
execute or issue promissory notes, drafts, bills of exchange, warrants, bonds,
debentures and other negotiable or non-negotiable instruments and evidences of
indebtedness, and any other obligations or securities convertible into any one
or more classes of capital stock of the Corporation; to secure the payment
thereof and of the interest thereon by mortgage, pledge, conveyance or
assignment in trust of the whole or any part of the property of this
Corporation, real or personal, including contract rights, whether at the time
owned or thereafter acquired; and to sell, pledge or otherwise dispose of such
obligations of the Corporation for its corporate purposes.
To purchase or otherwise acquire, hold, sell, redeem, assign, pledge,
transfer, reissue, cancel or otherwise dispose of any shares of the capital
stock or other obligations of the Corporation, except insofar as otherwise
provided in this Certificate of Incorporation, and provided that the Corporation
shall not use its funds or property for the purchase of shares of its own
capital stock when such use would cause any impairment of its capital, and
provided further that shares of its own capital stock belonging to it shall not
be voted upon directly or indirectly.
To acquire, use, sell, grant or otherwise dispose of letters patent of
the United States or any foreign country, patent rights, licenses, privileges,
inventions, improvements, processes, copyrights, trademarks and trade names
relating to or useful in connection with any business of the Corporation.
To carry on its business and have offices and agencies therefor in all
parts of the world and to hold, purchase, mortgage and convey real and personal
property in all parts of the world.
To acquire all or any part of the good will, rights, property and
business of any person, partnership, firm, trust, association or corporation
heretofore or hereafter engaged in any business similar to that which the
Corporation has the power to conduct, to pay for the same in cash or in stock,
bonds or other obligations of the Corporation or otherwise; to hold, utilize and
in any manner dispose of the whole or any part of the rights and property so
acquired; to assume in connection therewith any liabilities of any such person,
partnership, firm, trust, association or corporation; and to conduct the whole
or any part of the business thus acquired.
To do everything necessary, proper, and advisable for the
accomplishment of any of the purposes or the attainment of any of the objects
hereinbefore set forth and to have and exercise all of the powers conferred by
the laws of the State of Delaware upon corporations formed under the laws
thereof and to do any or all of the things hereinbefore set forth to the same
extent as natural persons could do, and in any part
<PAGE> 4
of the world, as principal, agent or otherwise, and either alone or in company
with others.
The objects and purposes specified in the foregoing clauses of this
Article Third shall, except where otherwise expressed in this Article, be in no
wise limited or restricted by reference to, or inference from the terms of any
other clause of this or any other Article in this Certificate of Incorporation
but shall be regarded as independent objects and purposes and shall be construed
as powers as well as objects and purposes.
The Corporation shall be authorized to exercise and enjoy all other
powers, rights and privileges granted to corporations of this character by the
laws of the State of Delaware, as in force from time to time, so far as not in
conflict herewith, and the enumeration of certain powers as herein specified is
not intended as exclusive of, or as a waiver of, any of the powers, rights or
privileges granted or conferred by said laws now or hereafter in force;
provided, however, that the Corporation shall not in any state, territory,
district, possession or country carry on any business or exercise any powers
which a corporation organized under the laws thereof may not carry on or
exercise.
FOURTH: The total number of shares of capital stock which the
Corporation shall have authority to issue shall be 1,760,000, of which 960,000
shares shall be Preferred Stock of the par value of 62 1/2 cents per share and
800,000 shares shall be Common Stock of the par value of 62 1/2 cents per share.
The designations, preferences, privileges and voting powers of the
capital stock and the restrictions or qualifications thereof are as follows:
1. The Preferred Stock of the par value of 62 1/2 cents per share shall
be called "4% Preferred Stock." The holders of the 4% Preferred Stock shall be
entitled to receive, when and as declared by the Board of Directors of the
Corporation, dividends in cash commencing on October 1, 1951, from the surplus
of the Corporation or from the net profits arising from its business at the rate
of Four per cent (4%) per annum and no more, payable in or for each year on such
date or dates as the Board of Directors may determine. Dividends on the 4%
Preferred Stock for the remaining portion of the year 1951 and for each calendar
year thereafter shall be cumulative but only to the extent that "net profits",
as that term is herein defined, are earned in the applicable dividend period.
Dividends at the rate of Four per cent (4%) per annum shall be paid or set apart
for payment in or for any of such periods before any dividends on the Common
Stock shall be paid or set apart for payment or any Common Stock acquired for a
consideration by the Corporation in that period. If dividends at the rate of
Four per cent (4%) per annum shall not have been paid or set apart for
payment on the 4% Preferred Stock in or with respect to any period although
there shall have been net profits earned in such period, such dividends shall be
cumulative and shall be fully paid or set apart for payment, but not in an
aggregate amount exceeding such net profits, before any dividend
<PAGE> 5
on the Common Stock shall be paid or set apart for payment or any Common Stock
acquired for a consideration by the Corporation.
The term "surplus" shall, for the purposes of this Article Fourth, mean
the net assets of the Corporation in excess of its capital. The tern "net
profits" of the Corporation shall, for the purposes of this Article Fourth, mean
the net income of the Corporation as determined by the Board of Directors for
the period from October 1, 1951 to the end of the year 1951 and for each
calendar year thereafter (such portion of 1951 and each calendar year thereafter
being herein sometimes called a dividend period) in accordance with generally
accepted principles of accounting.
2. If with respect to any dividend period, there shall remain any
surplus or net profits after (1) all cumulative dividends upon the 4% Preferred
Stock shall have been paid or set apart for payment in or for each previous
dividend period in which such dividends shall have been earned and (2) dividends
upon the 4% Preferred Stock shall have been paid or set apart for payment in
full for the current dividend period, then any and all such surplus or net
profits, not in the opinion of the Board of Directors required to be retained in
the business, shall be applicable to dividends on the Common Stock when and if
from time to time the same shall be declared by the Board of Directors, and the
Board of Directors may declare, and out of such surplus or net profits may pay,
dividends upon the Common Stock of the Corporation.
3. In the event of any dissolution, liquidation or winding up of the
Corporation, voluntary or involuntary, the holders of the 4% Preferred Stock
then outstanding shall be entitled to receive out of the assets of the
Corporation, before any distribution or payment shall be made to the holders of
the Common Stock, an amount equal to 62 1/2 cents per share plus all cumulative
dividends not declared and paid or set aside for payment, and an amount computed
at the annual dividend rate of 4% on the shares from the period from the
beginning of the current year to the effective date for such dissolution,
liquidation or winding up of the Corporation, less any dividends paid during
such period with respect to the current year, and no more. If such payment shall
have been made in full to the holders of the 4% Preferred Stock, the remaining
assets of the Corporation shall be distributed among the holders of the Common
Stock pro rata in accordance with their respective holdings.
4. No holder of 4% Preferred Stock or of Common Stock shall be
entitled, as such, as a matter of right, to subscribe for or purchase any part
of any new or additional issue of stock of any class whatsoever or of securities
convertible into or exchangeable for stock of any class whatsoever, whether now
or hereafter authorized, or whether issued for cash or other consideration or by
way of dividend.
5. Except when otherwise by statute specifically provided, without the
affirmative vote of the holders of at least a majority in interest of the 4%
Preferred Stock
<PAGE> 6
at the time outstanding, given in person or by proxy, either in writing or by
resolution adopted at a special meeting called for the purpose, at which the
holders of the 4% Preferred Stock shall have voted separately as a class, the
Corporation will not (1) create any other class or classes of stock ranking
prior to or on a parity with the 4% Preferred Stock either as to dividends or
upon liquidation, or increase the authorized number of shares of any such other
class of stock, or (2) amend, alter or repeal any of the provisions relating to
the 4% Preferred Stock so as adversely to affect the preferences, privileges,
rights or powers of the 4% Preferred Stock, or (3) merge or consolidate with any
other corporation or sell all or substantially all of the Corporation's property
or assets, or (4) voluntarily dissolve.
6. Except when otherwise by statute specifically provided the holders
of the 4% Preferred Stock shall have with respect to the election of Directors
the exclusive right, voting separately as a class, to elect two Directors of the
Corporation. Each holder of Preferred Stock of the Corporation shall be entitled
to one vote for each share of such stock standing in the name of such holder on
the books of the Corporation for the election of such Directors.
At all times (subject to the limited and special voting rights and
powers of the 4% Preferred Stock herein above set forth) each holder of Common
Stock of the Corporation shall be entitled to one vote for each share of such
stock standing in the name of such holder on the books of the Corporation and
except as herein otherwise provided the holders of the Preferred Stock shall not
be entitled to vote.
7. The Corporation at the option of the Board of Directors may redeem
the 4% Preferred Stock at the time outstanding, in whole at any time or in part
from time to time, upon notice duly given as hereinafter provided, at the price
of 63 3/4 cents per share, together with all cumulative dividends not declared
and paid or set aside for payment and an amount computed at the annual dividend
rate of 4% on the shares for the period from the beginning of the current year
to the date fixed for redemption, less any dividends paid during such period
with respect to the current year.
At least 30 days previous notice of such redemption shall be mailed to
the holders of records of the shares to be redeemed at their respective
addresses as the same shall appear on the books of the Corporation.
In case of redemption of part only of the 4% Preferred Stock at the
time outstanding, the Corporation shall designate by lot the shares so to be
redeemed. The Board of Directors shall have full power and authority to
prescribe the manner in which drawings by lot shall be conducted and, subject to
the limitations and the provisions herein contained, the terms and conditions
upon which the 4% Preferred Stock shall be redeemed from time to time.
<PAGE> 7
If such notice of redemption shall have been duly given, and if on or
before the redemption date specified therein the funds necessary for such
redemption shall have been set aside by the Corporation, separate and apart from
its other funds, in trust for the pro rata benefit of the holders of the shares
so called for redemption, so as to be and continue to be available therefor,
then notwithstanding that any certificate for shares so called for redemption
shall not have been surrendered for cancellation, all shares of the 4% Preferred
Stock so called for redemption shall no longer be deemed to be outstanding on
and after such redemption date, and all rights with respect to such shares shall
forthwith on such redemption date terminate, except only the right of the
holders thereof to receive the amount payable on redemption thereof, without
interest.
Notwithstanding the foregoing provisions of this paragraph 7, the
Corporation may not redeem the 4% Preferred Stock in whole or in part if as a
result of such redemption the majority of its Capital Stock of all classes in
number and aggregate par value is legally or equitably owned by aliens
prohibited by law from owning land in Texas.
FIFTH: The minimum amount of capital with which this Corporation will
commence business is one thousand dollars ($1,000.00).
SIXTH: This Corporation is to have perpetual existence.
SEVENTH: The private property of the stockholders shall not be subject
to the payment of corporate debts to any extent whatsoever.
EIGHTH: In furtherance and not in limitation of the powers conferred by
the laws of the State of Delaware, the Board of Directors is, subject to any
conditions specifically imposed in this Certificate of Incorporation, expressly
authorized:
Without the consent or vote of the stockholders, to authorize, issue
and sell bonds, debentures or other obligations of the Corporation, whether
secured or unsecured, to include therein such provisions as to redemption,
conversion rights into the capital stock of the Corporation or otherwise, as the
Board of Directors in its discretion may determine, and to authorize the
mortgaging or pledging of any property of the Corporation, real or personal,
including after-acquired property.
To remove at any time, with or without cause, any officer elected or
appointed by the Board of Directors, but only by the affirmative vote of the
majority of the members of the Board of Directors then in office, and to remove,
with or without cause, any other officer or employee of the Corporation or to
confer such power on any committee or officer.
<PAGE> 8
To make, alter, amend and repeal the Bylaws of the Corporation,
subject, however, to the power of the stockholders to alter, amend or repeal any
action so taken by the Board of Directors.
To set apart out of any funds of the Corporation available for
dividends a reserve or reserves for any proper purpose, and to abolish any such
reserve in the manner in which it was created.
By resolution or resolutions adopted by a majority of the members of
the Board of Directors then in office to designate one or more committees, each
committee to consist of two or more of the Directors of the Corporation, which,
to the extent provided in said resolution or resolutions or in the Bylaws of the
Corporation, shall have and may exercise the powers of the Board of Directors in
the management of the business and affairs of the Corporation, and may have
power to authorize the seal of the Corporation to be affixed to all papers which
may require it. Such committee or committees shall have such name or names as
may be stated in the Bylaws of the Corporation or as may be determined from time
to time by resolution adopted by a majority of the members of the Board of
Directors then in office.
NINTH: So long as the 4% Preferred Stock shall be outstanding, the
Corporation shall have seven Directors, two of whom shall be elected by the
holders of the 4% Preferred Stock. At such time as the 4% Preferred Stock shall
cease to be outstanding, the number of Directors shall be fixed by the Bylaws.
Any Director elected or appointed by the stockholders of the
Corporation or by the Board of Directors may be removed at any time, with or
without cause, by the affirmative vote of the holders of a majority of the
shares of the class of stock entitled to vote for the election of such Director
or Directors, at a special meeting of such class of stockholders of the
Corporation held for the purpose; provided, however, that such proposed action
is stated in the notice of such special meeting.
TENTH: The names and residences of each of the incorporators are:
<TABLE>
<CAPTION>
NAMES RESIDENCES
<S> <C>
Charles N. Caldwell........................160 Broadway, New York 38, N. Y.
Harry B. Davis..............................160 Broadway, New York 38, N. Y.
Garvin P. Kiernan...........................160 Broadway, New York 38, N. Y.
</TABLE>
ELEVENTH: The Corporation may enter into contracts or transact business
with one or more of its Directors, or with any firm in which one or more of its
Directors is a
<PAGE> 9
partner, or with any corporation or association in which any one or more of its
Directors is a stockholder, Director or officer, and such contract or
transaction shall not be invalidated or in any wise affected by the fact that
such Director or Directors have or may have interests therein which are or might
be adverse to the interests of the Corporation, even though the vote of the
Director or Directors having such adverse interests shall have been necessary to
obligate the Corporation upon such contract or transaction; and no Director or
Directors having such adverse interests shall be liable to the Corporation or to
any shareholder or creditor thereof, or to any other person, for any loss
incurred by it under or by reason of any such contract or transaction; nor shall
any such Director or Directors be accountable for any gains or profits realized
thereon; always provided, however, that such contract or transaction shall at
the time at which it was entered into have been a reasonable one to have been
entered into and shall have been upon terms that at that time were fair. Nothing
herein contained, however, shall protect or purport to protect any Director or
officer of the Corporation against any liability to the Corporation or to its
security holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
Any contract, transaction or act of the Corporation or of the Board of
Directors which shall be ratified by the holders of a majority of the stock
entitled to vote at any annual meeting or at any special meeting called for that
purpose shall be as valid and binding as though ratified by every stockholder of
the Corporation; provided, however, that any failure to submit any such
contract, transaction or act to the stockholders for approval or ratification or
any failure of the stockholders to approve or ratify such contract, transaction
or act, when submitted, shall not be deemed in any way to invalidate the same or
to deprive the Corporation, its Directors or officers, of their right to proceed
with such contract, transaction or action.
TWELFTH: The Corporation shall indemnify every Director or officer, his
heirs, executors and administrators, against expenses reasonably incurred by him
in connection with any action, suit or proceeding to which he may be made a
party by reason of his being or having been a Director or officer of the
Corporation, or at its request of any other corporation of which it is a
stockholder or creditor and from which he is not entitled to be indemnified,
except in relation to matters as to which he shall be finally adjudged in such
action, suit or proceeding to be liable for negligence or misconduct in the
performance of his duties as such Director or officer; in the event of a
settlement, indemnification shall be provided only in connection with such
matters covered by the settlement as to which the Corporation is advised by
counsel that the person to be indemnified did not commit such a breach of duty.
The foregoing right of indemnification shall not be exclusive of other rights to
which he may be entitled.
THIRTEENTH: Meetings of stockholders may be held without the State of
Delaware if the Bylaws so provide. The books of the Corporation may be kept
(subject
<PAGE> 10
to any provisions contained in the Delaware statutes or in the statutes of any
state in which the Corporation may qualify) outside of the State of Delaware at
such place or places as may be from time to time designated by the Board of
Directors or in the Bylaws of the Corporation.
FOURTEENTH: Except as limited herein, the Corporation reserves the
right to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, in the manner now or hereafter prescribed by
statute, and all rights conferred upon stockholders herein are granted subject
to this reservation.
WE, THE UNDERSIGNED, being all of the incorporators hereinbefore named,
for the purpose of forming a corporation under the provisions of the General
Corporation Law of the State of Delaware, do make and file this Certificate of
Incorporation, hereby declaring and certifying that the facts herein stated are
true, and accordingly have hereunto set our hands and seals this 13th day of
July, 1951.
/s/ CHARLES N. CALDWELL
----------------------------------
CHARLES N. CALDWELL
/s/ HARRY B. DAVIS
----------------------------------
HARRY B. DAVIS
/s/ GARVIN P. KIERNAN
----------------------------------
GARVIN P. KIERNAN
<PAGE> 11
STATE OF NEW YORK, )
COUNTY OF NEW YORK, ) ss.:
BE IT REMEMBERED that on this 13th day of July, 1951, personally came
before me Catherine E. McNealy, a Notary Public for the State of New York,
CHARLES N. CALDWELL, HARRY B. DAVIS, and GARVIN P. KIERNAN, all of the parties
to the foregoing Certificate of Incorporation, known to me personally to be
such, and severally acknowledged the said Certificate to be the act and deed of
the signers, respectively, and that the facts therein stated are truly set
forth.
Given under my hand and seal of office the day and year aforesaid.
{SEAL}
/s/ CATHERINE E. MCNEALY
--------------------------------
Notary Public, State of New York
<PAGE> 12
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
TOREADOR ROYALTY CORPORATION
* * * * * * *
ADOPTED IN ACCORDANCE WITH THE PROVISIONS OF
SECTION 242 OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE.
* * * * * * *
WE, JACK FROST, President and JOHN MACKENZIE, JR., Secretary of
Toreador Royalty Corporation, a corporation existing under the laws of the State
of Delaware, do hereby certify under the seal of the said corporation as
follows:
1. That the Certificate of Incorporation of said corporation has been
amended as follows:
(a) By striking out the first paragraph of Article Fourth
thereof as it now exists and inserting in lieu thereof a new first paragraph,
reading as follows:
"The total number of shares of capital stock which the
Corporation shall have authority to issue shall be 2,960,000, of which
960,000 shares shall be Preferred Stock of the par value of 62 1/2
cents per share and 2,000,000 shares shall be Common Stock of the par
value of 62 1/2 cents per share."
(b) By striking out the first paragraph of Article Ninth
thereof as it now exists and inserting in lieu thereof a new first paragraph,
reading as follows:
"So long as the 4% Preferred Stock shall be outstanding, the
Corporation shall have ten Directors, two of whom shall be elected by
the holders of the 4% Preferred Stock. At such time as the 4% Preferred
Stock shall cease to be outstanding, the number of Directors shall be
fixed by the Bylaws."
2. That such amendment has been duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
<PAGE> 13
IN WITNESS WHEREOF, WE, JACK FROST, President, and JOHN MACKENZIE, JR.,
Secretary of Toreador Royalty Corporation, have signed this Certificate and
caused the corporate seal of the corporation to be hereunto affixed this 13th
day of January, 1958.
/s/ JACK FROST
--------------------------------
(President)
/s/ JOHN MACKENZIE, JR.
--------------------------------
(Secretary)
<PAGE> 14
STATE OF NEW YORK, )
COUNTY OF NEW YORK, ) ss.:
BE IT REMEMBERED that on this 13th day of January, 1958, personally
came before me, Truman G. Oakley, a Notary Public in and for the County and
State aforesaid, duly commissioned and sworn to take acknowledgments or proofs
of deeds, Jack Frost, President of Toreador Royalty Corporation, a corporation
of the State of Delaware, the corporation described in the foregoing
Certificate, known to me personally to be such, and he the said Jack Frost, as
such President, acknowledged the said Certificate to be his act and deed and
made on behalf of said corporation; that the signature of said President and of
the Secretary of said corporation to said foregoing Certificate are in the
handwriting of the said President and of the Secretary of said corporation,
respectively, and that the seal affixed to said Certificate is the common or
corporate seal of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the
day and year aforesaid.
/s/ TRUMAN G. OAKLEY
--------------------------------
Truman G. Oakley
Notary Public, State of New York
<PAGE> 15
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
TOREADOR ROYALTY CORPORATION
* * * * * * *
ADOPTED IN ACCORDANCE WITH THE PROVISIONS OF
SECTION 242 OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE.
* * * * * * *
WE, EARL E. WESTMORELAND, President and JOHN MACKENZIE, JR., Secretary
of Toreador Royalty Corporation, a corporation existing under the laws of the
State of Delaware, do hereby certify under the seal of the said corporation as
follows:
1. That the Certificate of Incorporation of said corporation has been
amended as follows:
By striking out the first paragraph of Article Ninth thereof
as it now exists and inserting in lieu thereof a new first paragraph, reading as
follows:
"So long as the 4% Preferred Stock shall be outstanding, the
Corporation shall have eleven Directors, two of whom shall be elected
by the holders of the 4% Preferred Stock. At such time as the 4%
Preferred Stock shall cease to be outstanding, the number of Directors
shall be fixed by the Bylaws."
2. That such amendment has been duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
<PAGE> 16
IN WITNESS WHEREOF, WE, EARL E. WESTMORELAND, President, and JOHN
MACKENZIE, JR., Secretary of Toreador Royalty Corporation, have signed this
Certificate and caused the corporate seal of the corporation to be hereunto
affixed this _____ day of June, 1958.
/s/ EARL E. WESTMORELAND
--------------------------------
(President)
JOHN MACKENZIE, JR.
--------------------------------
(Secretary)
<PAGE> 17
STATE OF NEW YORK, )
COUNTY OF NEW YORK, ) ss.:
BE IT REMEMBERED that on this 28th day of August, 1958, personally came
before me, Eileen E. Pate, a Notary Public in and for the County and State
aforesaid, duly commissioned and sworn to take acknowledgments or proofs of
deeds, Earl E. Westmoreland, President of Toreador Royalty Corporation, a
corporation of the State of Delaware, the corporation described in the foregoing
Certificate, known to me personally to be such, and he, the said Earl E.
Westmoreland, as such President acknowledged the said Certificate to be his act
and deed and made on behalf of said corporation; that the signature of said
President and of the Secretary of said corporation to said foregoing Certificate
are in the handwriting of the said President and of the Secretary of said
corporation, respectively, and that the seal affixed to said Certificate is the
common or corporate seal of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the
day and year aforesaid.
/s/ EILEEN E. PATE
--------------------------------
Eileen E. Pate
Notary Public, State of New York
<PAGE> 18
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
TOREADOR ROYALTY CORPORATION
* * * * * * *
Adopted in accordance with the provisions of
Section 242 of the General Corporation Law
of the State of Delaware.
* * * * * * *
WE, EARL E. WESTMORELAND, President and NORMA GENE SMITH, Assistant
Secretary of Toreador Royalty Corporation, a corporation existing under the laws
of the State of Delaware, do hereby certify under the seal of the said
corporation as follows:
1. That the Certificate of Incorporation of said corporation has been
amended as follows:
By striking out the first paragraph of Article Ninth thereof
as it now exists and inserting in lieu thereof a new first paragraph, reading as
follows:
"So long as the 4% Preferred Stock shall be outstanding, the
Corporation may have eleven Directors, two of whom shall be elected
by the holders of the 4% Preferred Stock. At such time as the 4%
Preferred Stock shall cease to be outstanding, the number of Directors
shall be fixed by the Bylaws."
2. That such amendment has been duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
<PAGE> 19
IN WITNESS WHEREOF, WE, EARL E. WESTMORELAND, President, and NORMA GENE
SMITH, Assistant Secretary of Toreador Royalty Corporation, have signed this
Certificate and caused the corporate seal of the corporation to be hereunto
affixed this 19th day of December, 1963.
ATTEST: TOREADOR ROYALTY CORPORATION
/s/ NORMA GENE SMITH /s/ EARL E. WESTMORELAND
--------------------- ------------------------
Assistant Secretary President
<PAGE> 20
STATE OF TEXAS, )
COUNTY OF DALLAS, ) ss.:
BE IT REMEMBERED that on this 19th day of December, A.D. 1963,
personally came before me a Notary Public in and for the County and State
aforesaid, Earl E. Westmoreland, President of Toreador Royalty Corporation, a
corporation of the State of Delaware, the corporation described in and which
executed the foregoing certificate, known to me personally to be such, and he,
the said Earl E. Westmoreland, as such President duly executed said certificate
before me and acknowledged the said certificate to be his act and deed and the
act and deed of said corporation; that the signatures of the said President and
of the Assistant Secretary of said corporation to said foregoing certificate are
in the handwriting of the said President and Assistant Secretary of said
corporation, respectively, and that the seal affixed to said certificate is the
common or corporate seal of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the
day and year aforesaid.
--------------------------------
Notary Public
<PAGE> 21
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION, AS AMENDED, OF
TOREADOR ROYALTY CORPORATION
-----------------------------------------------
TOREADOR ROYALTY CORPORATION, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware
(hereinafter called the "Company"), DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Company, at a meeting duly
held, adopted resolutions proposing and declaring advisable the following
amendment to the Certificate of Incorporation, as amended, of the Company, and
calling a meeting of the stockholders of the Company for consideration thereof:
RESOLVED, That the Certificate of Incorporation, as amended,
of the Company be amended by changing the first paragraph of Article
Fourth thereof so that, as amended, said first paragraph of Article
Fourth shall be and read as follows:
"FOURTH: The total number of shares of capital stock which the
Corporation shall have authority to issue shall be 5,960,000,
of which 960,000 shares shall be Preferred Stock of the par
value of 62-1/2 cents per share and 5,000,000 shares shall be
the Common Stock of the par value of 15.625 cents per share."
SECOND: Each share of Common Stock, par value 62.5 cents per share, of
the Corporation which shall be issued immediately prior to the close of business
on the date on which this Certificate of Amendment becomes effective shall, at
the close of business on that date be changed and reclassified into four (4)
shares of Common Stock, par value 15.625 cents per share. Each certificate
representing shares of Common Stock issued immediately prior to the close of
business on the date on which this Certificate of Amendment becomes effective,
shall thereafter represent the same number of shares of Common Stock, and the
Corporation shall issue to, or upon the order of, each person who holds shares
of Common Stock of record immediately prior to the close of business on the date
on which this Certificate of Amendment becomes effective, a new certificate or
certificates representing three (3) additional shares of Common Stock, par value
15.625 cents per share, for each share of Common Stock, par value 62.5 cents per
share (as previously classified), so held of record by that holder.
THIRD: That thereafter, pursuant to resolution of the Board of
Directors of the Company, a special meeting of the stockholders of the Company
was duly called and
<PAGE> 22
held, at which meeting the necessary number of shares as required by statute
were voted in favor of the said amendment.
FOURTH: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FIFTH: That the capital of the Company will not be reduced under or by
reason of said amendment.
IN WITNESS WHEREOF, said TOREADOR ROYALTY CORPORATION has caused its
corporate seal to be hereunto affixed and this Certificate to be signed by Earl
E. Westmoreland, its President, and Norma Gene Harkins, its Assistant Secretary,
this 12th day of March, 1981.
ATTEST: TOREADOR ROYALTY CORPORATION
/s/ NORMA GENE HARKINS /s/ EARL E. WESTMORELAND
----------------------------- --------------------------------
Norma Gene Harkins, Assistant Earl E. Westmoreland, President
Secretary
<PAGE> 23
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION, AS AMENDED, OF
TOREADOR ROYALTY CORPORATION
--------------------------------------------------
TOREADOR ROYALTY CORPORATION, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware
(hereinafter called the "Company"), DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Company, at a meeting duly
held, adopted resolutions proposing and declaring advisable the following
amendment to the Certificate of Incorporation, as amended, of the Company, and
calling a meeting of the stockholders of the Company for consideration thereof:
RESOLVED, That the Certificate of Incorporation, as amended,
of the Company be amended by changing Article Twelfth thereof so that,
as amended, said Article Twelfth shall be and read as follows:
"TWELFTH:
A. LIMITATION OF CERTAIN LIABILITY OF
DIRECTORS.
No Director or former Director of the Corporation
shall have any personal liability to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty
as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of
law, (iii) for paying a dividend or approving a stock
repurchase in violation of Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit. The provisions
of this Article Twelfth shall not have any effect on the
availability to the stockholders, the Corporation, or the
Board of Directors of equitable remedies, such as injunctive
relief or rescission, for the breach or threatened breach of
fiduciary duty by a director of the Corporation. The foregoing
elimination of certain liability of Directors or former
Directors shall not be deemed exclusive of any other rights or
limitation of liability to which a Director or former Director
may be entitled under any bylaw provision,
<PAGE> 24
agreement, vote of stockholders and/or disinterested
directors, or otherwise.
Any repeal or modification of this Article Twelfth by
the stockholders of the Corporation shall not adversely affect
any right or protection of a director of the Corporation
existing at the time of such repeal or modification.
B. INDEMNIFICATION.
The Corporation shall indemnify a person who was or
is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the
right of the Corporation to procure a judgment in its favor,
by reason of the fact that the person is or was a director,
officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director,
officer, partner, venturer, proprietor, trustee, employee,
agent, or similar functionary of another foreign or domestic
corporation, partnership, joint venture, sole proprietorship,
trust, employee benefit plan, or other enterprise against
expenses (including attorney's fees), judgments, penalties
(including excise and similar taxes), fines and settlements
actually incurred by such person to the full extent authorized
by the Bylaws of the Corporation, the Delaware General
Corporation Law, by indemnification contract, or otherwise."
SECOND: That thereafter, pursuant to resolution of the Board of
Directors of the Company, a meeting of the stockholders of the Company was duly
called and held, at which meeting the necessary number of shares as required by
statute were voted in favor of the said amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
<PAGE> 25
IN WITNESS WHEREOF, said TOREADOR ROYALTY CORPORATION has caused its
corporate seal to be hereunto affixed and this Certificate to be signed by
CONLEY R. GOODRUM, its President, and Anna R. Santucci, its (Assistant)
Secretary, this 29th day of May, 1987.
TOREADOR ROYALTY CORPORATION
/s/ CONLEY R. GOODRUM
-------------------------------
CONLEY R. GOODRUM, President
[SEAL]
ATTEST:
/s/ ANNA R. SANTUCCI
-------------------------
Anna R. Santucci,
(Assistant) Secretary
<PAGE> 26
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION, AS AMENDED, OF
TOREADOR ROYALTY CORPORATION
TOREADOR ROYALTY CORPORATION, a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware
(the "Company"), DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Company, at a meeting duly held,
adopted resolutions proposing and declaring advisable the following amendments
to the Certificate of Incorporation, as amended, of the Company, and called a
meeting of the Stockholders of the Company for consideration thereof:
"RESOLVED, that the Board of Directors deems it advisable that the
Certificate of Incorporation, as amended, of the Corporation be amended so
that the existing Article Fourth shall be amended by deleting the existing
text in its entirety, and inserting the following text, so that Article
Fourth shall read in its entirety as follows:
FOURTH: The total number of shares of capital stock which the
Corporation shall have authority to issue shall be 10,000,000 shares,
all of which shall be Common Stock with a par value of $.15625 per
share. Each share of stock shall have identical rights and privileges
in every respect. No holder of Common Stock shall have any preemptive
rights. At all times each holder of Common Stock shall be entitled to
one vote for each share of Common Stock standing in the name of such
holder on the books of the Corporation.
FURTHER RESOLVED, that the Board of Directors deems it advisable that
the Certificate of Incorporation, as amended, of the Corporation be amended
so that the Article Ninth shall be deleted in its entirety.
SECOND: That thereafter, pursuant to resolution of the Board of Directors
of the Company, a meeting of the stockholders of the Company was duly called and
held, at which meeting the necessary number of shares as required by statute
were voted in favor of the said amendments.
THIRD: That said amendments were duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
<PAGE> 27
IN WITNESS WHEREOF, said TOREADOR ROYALTY CORPORATION has caused its
corporate seal to be hereunto affixed and this certificate to be signed by Peter
R. Vig, its President, and James S. Blair, its Assistant Secretary, this 21st
day of June, 1990.
TOREADOR ROYALTY CORPORATION
By: /s/ PETER R. VIG
-------------------------
Peter R. Vig, President
[SEAL]
ATTEST:
By: /s/ JAMES S. BLAIR
-----------------------
James S. Blair
Assistant Secretary
<PAGE> 28
CERTIFICATE OF AMENDMENT TO THE
CERTIFICATE OF INCORPORATION OF
TOREADOR ROYALTY CORPORATION
TOREADOR ROYALTY CORPORATION, a corporation organized and existing under
the General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify:
FIRST: That the Board of Directors of the Corporation duly adopted,
pursuant to a unanimous written consent dated as of April 13, 1992, the
following resolution providing for the following amendment to the Certificate of
Incorporation of the Corporation;
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors hereby
recommends that the Certificate of Incorporation of the Corporation be
amended by striking the current Article Fourth thereof and replacing it
with the following Article Fourth so that, as amended, said Article Fourth
shall be and read in its entirety as follows:
"FOURTH:
Section 1. The total number of shares of all classes of stock
which the Corporation shall have authority to issue is 14,000,000,
consisting of (1) 4,000,000 shares of Preferred Stock, par value $1.00
per share ("Preferred Stock"), and (2) 10,000,000 shares of Common
Stock, par value $.15625 per share ("Common Stock").
Section 2. The Board of Directors is hereby expressly authorized,
by resolution or resolutions, to provide, out of the unissued shares
of Preferred Stock, for series of Preferred Stock. Before any shares
of any such series are issued, the Board of Directors shall fix, and
hereby is expressly empowered to fix, by resolution or resolutions,
the following provisions of the shares thereof:
(a) the designation of such series, the number of shares to
constitute such series and the stated value thereof if different
from the par value thereof;
<PAGE> 29
(b) whether the shares of such series shall have voting
rights, in addition to any voting rights provided by law, and, if
so, the terms of such voting rights, which may be general or
limited;
(c) the dividends, if any, payable on such series, whether
any such dividends shall be cumulative, and, if so, from what
dates, the conditions and dates upon which such dividends shall
be payable, the preference or relation which such dividends shall
bear to the dividends payable on any shares of stock of any other
class or any other series of this class;
(d) whether the shares of such series shall be subject to
redemption by the Corporation, and, if so, the times, prices and
other conditions of such redemption;
(e) the amount or amounts payable upon shares of such series
upon, and the rights of the holders of such series in, the
voluntary or involuntary liquidation, dissolution or winding up,
or upon any distribution of the assets, of the Corporation;
(f) whether the shares of such series shall be subject to
the operation of a retirement or sinking fund and, if so, the
extent to and manner in which any such retirement or sinking fund
shall be applied to the purchase or redemption of the shares of
such series for retirement or other corporate purposes and the
terms and provisions relative to the operation thereof;
(g) whether the shares of such series shall be convertible
into, or exchangeable for, shares of stock of any other class or
any other series of this class or any other securities and, if
so, the price or prices or the rate or rates of conversion or
exchange and the method, if any,
<PAGE> 30
of adjusting the same, and any other terms and conditions of
conversion or exchange;
(h) the limitations and restrictions, if any, to be
effective while any shares of such series are outstanding upon
the payment of dividends or the making of other distributions on,
and upon the purchase, redemption or other acquisition by the
Corporation of, the Common Stock or shares of stock of any other
class or any other series of this class;
(i) the conditions or restrictions, if any, upon the
creation of indebtedness of the Corporation or upon the issue of
any additional stock, including additional shares of such series
or of any other series of this class or of any other class; and
(j) any other powers, preferences and relative,
participating, optional and other special rights, and any
qualifications, limitations and restrictions thereof.
The powers, preferences and relative, participating optional and
other special rights of each series of Preferred Stock, and the
qualifications, limitations or restrictions thereof, if any, may
differ from those of any and all other series at any time outstanding.
All shares of any one series of Preferred Stock shall be identical in
all respects with all other shares of such series, except that shares
of any one series issued at different times may differ as to the dates
from which dividends thereon shall be cumulative.
Section 3. Each holder of Common Stock shall be entitled to one
vote for each share of Common Stock held of record on all matters on
which stockholders generally are entitled to vote. Subject to the
provisions of law and the rights of the holders of any class or series
of stock having a preference as to dividends over the Common Stock
then outstanding, dividends may be paid on the Common Stock at such
times and in such amounts as the Board of Directors shall determine.
Upon the dissolution, liquidation or winding up of the Corporation,
after any preferential amounts to be distributed to the holders of any
class or series of stock having a preference over the Common Stock
then outstanding have been paid or declared and set apart for payment,
the holders of the Common Stock shall be entitled to receive all the
remaining assets of the
<PAGE> 31
Corporation available for distribution to its stockholders ratably in
proportion to the number of shares held by them, respectively."
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, the foregoing amendment to the Corporation's Certificate of
Incorporation was submitted to the stockholders of said corporation for their
approval at the 1992 annual meeting thereof.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said Toreador Royalty Corporation has caused this
certificate to be signed by Peter R. Vig, its President, and J. W. Bullion, its
Secretary, this 10th day of August, 1992.
TOREADOR ROYALTY CORPORATION
By: /s/ PETER R. VIG
-----------------------
Peter R. Vig, President
ATTEST:
By: /s/ J. W. BULLION
------------------------
J. W. Bullion, Secretary
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
TOREADOR ROYALTY CORPORATION
BYLAWS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I OFFICES
1.01 Registered Offices
1.02 Other Offices
ARTICLE II SHAREHOLDERS
2.01 Place and Manner of Meetings
2.02 Annual Meeting
2.03 Voting List
2.04 Special Meetings
2.05 Notice
2.06 Quorum
2.07 Majority Vote; Withdrawal of Quorum
2.08 Method of Voting
2.09 Record Date; Closing Transfer Books
2.10 Action Without Meeting
ARTICLE III DIRECTORS
3.01 Management
3.02 Number; Qualification; Election; Term
3.03 Change in Number
3.04 Removal
3.05 Vacancies
3.06 Election of Directors
3.07 Place and Manner of Meetings
3.08 First Meetings
3.09 Regular Meetings
3.10 Special Meetings
3.11 Action Without Meeting
3.12 Quorum; Majority Vote
3.13 Compensation
3.14 Procedure
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
3.15 Interested Directors, Officers and Shareholders
ARTICLE IV EXECUTIVE COMMITTEE
4.01 Designation
4.02 Authority
4.03 Procedure
4.04 Removal
4.05 Responsibility
ARTICLE V OTHER COMMITTEES
5.01 Designation
5.02 Procedure
5.03 Removal
ARTICLE VI NOTICE
6.01 Method
6.02 Waiver
ARTICLE VII OFFICERS AND AGENTS
7.01 Number
7.02 Election
7.03 Other Officers
7.04 Term
7.05 Removal
7.06 Vacancies
7.07 Compensation
7.08 Chairman of the Board
7.09 President
7.10 Vice-President
7.11 Secretary
7.12 Assistant Secretary
7.13 Treasurer
7.14 Assistant Treasurer
7.15 Filling of Offices
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE VIII CERTIFICATES AND SHAREHOLDERS
8.01 Certificates
8.02 Replacement of Lost or Destroyed Certificates
8.03 Transfer of Shares
8.04 Registered Shareholders
8.05 Preemptive Rights
ARTICLE IX INDEMNIFICATION
9.01 Policy of Indemnification and Advancement of Expenses
9.02 Definitions
9.03 Non-Exclusive; Continuation
9.04 Insurance or Other Arrangement
9.05 Indemnification of Employees or Agents
ARTICLE X GENERAL PROVISIONS
10.01 Dividends and Reserves
10.02 Books and Records
10.03 Checks and Notes
10.04 Fiscal Year
10.05 Seal
10.06 Resignation
10.07 Amendment of Bylaws
10.08 Table of Contents; Headings
10.09 Construction
</TABLE>
<PAGE> 4
AMENDED AND RESTATED
BYLAWS
OF
TOREADOR ROYALTY CORPORATION
ARTICLE I
OFFICES
1.01 REGISTERED OFFICES AND AGENT. The registered office and registered
agent of the corporation shall be as designated with the Secretary of State of
the State of Delaware and the office of the Recorder of the County of such
county, as they may be changed from time to time.
1.02 OTHER OFFICES. The corporation may also have offices at such other
places both within and without the State of Delaware, as the board of directors
may from time to time determine, or as the business of the corporation may
require.
ARTICLE II
SHAREHOLDERS
2.01 PLACE AND MANNER OF MEETINGS. All meetings of the shareholders
shall be held at such time and place, within or without the State of Delaware,
as shall be stated in the notice of the meeting or in a duly executed waiver of
notice thereof.
2.02 ANNUAL MEETING. An annual meeting of the shareholders, commencing
with the year following the adoption of these bylaws, shall be held on the
fourth Friday during the month of May, if not a legal holiday, and if a legal
holiday, then on the next secular day following, at 11:00 o'clock A.M., or at
such other date and time as shall be designated from time to time by the board
of directors and stated in the notice of the meeting, at which time the
shareholders shall elect a board of directors, and transact such other business
as may properly be brought before the meeting.
2.03 VOTING LIST. At least ten days before each meeting of shareholders
a complete list of the shareholders entitled to vote at the meeting, arranged in
alphabetical order, with the residence of each and the number of voting shares
held by each, shall be prepared by the officer or agent having charge of the
stock transfer books. Such list, for a period of ten days prior to the meeting,
shall be kept on file at a place within the city where the meeting is to be held
and shall be subject to inspection by any shareholder for any purpose germane to
the meeting, at any time during usual business hours. Such list shall also be
produced and kept open at the time and place of the meeting during the
1
<PAGE> 5
whole time thereof, and shall be subject to the inspection of any shareholder
who may be present.
2.04 SPECIAL MEETINGS. Special meetings of the shareholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the
certificate of incorporation, or by these bylaws, may be called by the Chairman
of the Board, the president, the board of directors, or the holders of not less
than one-tenth of all the shares entitled to vote at the meetings. Any request
shall state the time and purpose or purposes of the proposed special meeting.
Business transacted at all special meetings shall be confined to the objects
stated in the notice of the meeting.
2.05 NOTICE. Written or printed notice stating the place, day and hour
of the meeting and, in case of a special meeting, the purpose or purposes for
which, the meeting is called, shall be delivered not less than ten nor more than
sixty days before the date of the meeting either personally or by mail, by or at
the direction of the Chairman of the Board, the president, the secretary or the
officer or person calling the meeting, to each shareholder of record entitled to
vote at the meeting, provided that such notice may be waived as provided in
Section 6.02 of these bylaws. If mailed, such notice shall be deemed to be
delivered when deposited in the mail addressed to the shareholder at his address
as it appears on the stock transfer books of the corporation, with postage
thereon prepaid.
2.06 QUORUM. The holders of not less than one-third of the shares
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy shall be requisite and shall constitute a quorum at all
meetings of the shareholders for the transaction of business except as otherwise
provided by statute, by the certificate of incorporation or by these bylaws. If
a quorum is not present or represented at a meeting of the shareholders, the
shareholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, until a quorum
is present or represented. At such adjourned meeting at which a quorum is
present or represented, any business may be transacted which might been
transacted at the meeting as originally notified.
2.07 MAJORITY VOTE; WITHDRAWAL OF QUORUM. When a quorum is present at
any meeting, the vote of the holders of a majority of the shares having voting
power, present in person or represented by proxy, shall decide any question
brought before such meeting, unless the question is one upon which, by express
provision of the statutes or of the certificate of incorporation, or of these
bylaws, a different vote is required, in which case such express provision shall
govern and control the decision of such question. The shareholders present at a
duly organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.
2
<PAGE> 6
2.08 METHOD OF VOTING. Each outstanding share, regardless of class,
shall be entitled to one vote on each matter submitted to a vote at a meeting of
shareholders, except to the extent that the voting rights of the shares of any
class or classes are limited or denied by the certificate of incorporation. At
any meeting of the shareholders each shareholder having the right to vote may
vote either in person or by proxy executed in writing by the shareholder or by
his duly authorized attorney-in-fact, and being dated not more than eleven
months prior to said meeting, unless said proxy shall provide for a longer
period. Each proxy shall be revocable unless expressly provided therein to be
irrevocable and unless otherwise made irrevocable by law. Each proxy shall be
filed with the secretary of the corporation prior to or at the time of the
meeting. Voting for directors shall be in accordance with Section 3.06 of these
bylaws. Any vote may be taken viva voce or by show of hands unless someone
entitled to vote objects, in which case written ballots shall be used.
2.09 RECORD DATE; CLOSING TRANSFER BOOKS. The board of directors may
fix in advance a record date for the purpose of determining shareholders
entitled to notice of or to vote at a meeting of the shareholders, the record
date to be not less than ten nor more than sixty days prior to said meeting; or
the board of directors may close the stock transfer books for such purpose for a
period of not less than ten nor more than fifty days prior to such meeting. In
the absence of any action by the board of directors, the date upon which the
notice of the meeting is mailed shall be the record date.
2.10 ACTION WITHOUT MEETING. Any action required by statute to be taken
at a meeting of the shareholders, or any action which may be taken at a meeting
of the shareholders, may be taken without a meeting if a consent in writing
setting forth the action so taken, shall be signed by shareholders entitled to
vote with respect to the subject matter thereof having not less than the minimum
number of votes necessary to authorize or take such action if a meeting thereon
were held. To be effective a consent must be dated within sixty days of the
earliest consent authorizing such action. The corporation shall give notice of
the taking of action by written consent as requested by Delaware law.
ARTICLE III
DIRECTORS
3.01 MANAGEMENT. The business and affairs of the corporation shall be
managed by the board of directors who may exercise all such powers of the
corporation and do all such lawful acts and things as are not by statute or by
the certificate of incorporation or by these bylaws directed or required to be
exercised or done by the shareholders.
3
<PAGE> 7
3.02 NUMBER; QUALIFICATION; ELECTION; TERM. The number of directors
which shall constitute the whole board shall be not less than seven (7) nor more
than fifteen (15). The directors need not be stockholders of the corporation.
The term of office of each director shall be from the time of his election and
qualification until the next annual meeting of shareholders next succeeding his
election and until his successor shall have been duly elected and shall have
qualified. The number of directors which shall constitute the board of directors
on the date of adoption of these amended and restated bylaws shall be ten (10).
Thereafter, within the limits above specified, the number of directors shall be
determined by resolution of the board of directors.
3.03 CHANGE IN NUMBER. The number of directors may be increased or
decreased from time to time as provided for in Section 3.02 by amendment to
these bylaws but no decrease shall have the effect of shortening the term of any
incumbent director. Any directorship to be filled by reason of an increase in
the number of directors may be filled by an affirmative vote of a majority of
the directors then in office, though less than a quorum of the board of
directors. A director elected to fill a newly created directorship shall be
elected for a term until the next meeting of shareholders at which directors are
elected.
3.04 REMOVAL. Any director may be removed either for or without cause
at any special or annual meeting of shareholders, by the affirmative vote of a
majority in number of shares of the shareholders present in person or by proxy
at such meeting and entitled to vote for the election of such director if notice
of intention to act upon such matter shall have been given in the notice calling
such meeting.
3.05 VACANCIES. Any vacancy occurring in the board of directors (by
death, resignation, retirement, removal or otherwise) may be filled by an
affirmative vote of a majority of the directors then in office, though less than
a quorum of the board of directors. A director elected to fill a vacancy shall
be elected for the unexpired term of his predecessor in office.
3.06 ELECTION OF DIRECTORS. Directors shall be elected by plurality
vote by ballots cast in writing. Cumulative voting shall not be permitted.
3.07 PLACE AND MANNER OF MEETINGS. Meetings of the board of directors,
regular or special, may be held either within or without the State of Delaware.
Members of the board of directors may participate in such meetings by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other and participation in a
meeting as provided herein shall constitute presence in person at such meeting,
except where a person participates in the meeting for the express purpose of
objecting to the transaction of any business on the ground that the meeting is
not lawfully called or convened.
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3.08 FIRST MEETINGS. The first meeting of each newly elected board
shall be held without further notice immediately following the annual meeting of
shareholders, and at the same place, unless by unanimous consent of the
directors then elected and serving such time or place shall be changed.
3.09 REGULAR MEETINGS. Regular meetings of the board of directors may
be held without notice at such time and place as shall from time to time be
determined by the board.
3.10 SPECIAL MEETINGS. Special meetings of the board of directors may
be called by the Chairman of the Board or the president on four days' notice to
each director, either personally or by mail or on two days' notice if by
telegram. Special meetings shall be called by the Chairman of the Board or the
president or secretary in like manner and on like notice on the written request
of two directors. Except as otherwise expressly provided by statute, or by the
certificate of incorporation, or by these bylaws, neither the business to be
transacted at, nor the purpose of, any special meeting need be specified in a
notice or waiver of notice.
3.11 ACTION WITHOUT MEETING. Any action required by statute to be taken
at a meeting of the board of directors, or any action which may be taken at a
meeting of the board of directors, may be taken without a meeting if a consent
in writing, setting forth the action so taken, shall be signed by all the
members of the board of directors. Such consent shall have the same force and
effect as a unanimous vote at a meeting.
3.12 QUORUM; MAJORITY VOTE. At all meetings of the board of directors a
majority of the number of directors fixed by these bylaws shall constitute a
quorum for the transaction of business unless a greater number is required by
law or by the certificate of incorporation. The act of a majority of the
directors present at any meeting at which a quorum is present shall be the act
of the board of directors unless the act of a greater number is required by
statute, by the certificate of incorporation or by these bylaws. If a quorum
shall not be present at any meeting or the board of directors, the directors
present thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum is present.
3.13 COMPENSATION. By resolution of the board of directors, the
directors may be paid their expenses, if any, of attendance at each meeting of
the board of directors and may be paid a fixed sum for attendance at each
meeting of the board of directors or a stated salary as director. No such
payment shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor. Members of the executive committee
or of special or standing committees may, by resolution of the board of
directors, be allowed like compensation for attending committee meetings.
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3.14 PROCEDURE. The board of directors shall keep regular minutes of
its proceedings. The minutes shall be placed in the minute book of the
corporation.
3.15 INTERESTED DIRECTORS, OFFICERS AND SHAREHOLDERS.
(A) Validity. Any contract of other transaction between the corporation
and any of its directors, officers or shareholders (or any corporation or firm
in which any of them are directly or indirectly interested) shall be valid for
all purposes notwithstanding the presence of such director, officer or
shareholder at the meeting authorizing such contract or transaction or his
participation in such meeting or authorization.
(B) Disclosure, Approval. The foregoing shall, however, apply only if
the interest of each such director, officer or shareholder is known or
disclosed:
1. To the board of directors and it nevertheless authorizes or
ratifies the contract or transaction by a majority of the directors present,
each such interested director to be counted in determining whether a quorum is
present but not in calculating the majority necessary to carry the vote; or
2. To the shareholders and they nevertheless authorize or
ratify the contract or transaction by a majority of the shares present, each
such interested person to be counted for quorum and voting purposes.
(C) Non-Exclusive. This provision shall not be construed to invalidate
any contract or transaction which would be valid in the absence of this
provision.
ARTICLE IV
EXECUTIVE COMMITTEE
4.01 DESIGNATION. The board of directors may, by resolution adopted by
a majority of the whole board, designate an executive committee, to consist of
two or more of the directors of the corporation.
4.02 AUTHORITY. The executive committee, to the extent provided in such
resolution, shall have and may exercise all of the authority of the board of
directors in the management of the business and affairs of the corporation,
except where action of the full board of directors is required by statute or by
the certificate of incorporation, and shall have power to authorize the seal of
the corporation to be affixed to all papers which may require it.
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4.03 PROCEDURE. The executive committee shall keep regular minutes of
its proceedings and report the same to the board of directors when required.
4.04 REMOVAL. Any member of the executive committee may be removed by
the board of directors by the affirmative vote of a majority of the whole board,
whenever in its judgment the best interests of the corporation will be served
thereby.
4.05 RESPONSIBILITY. The designation of an executive committee and the
delegation of authority to it shall not operate to relieve the board of
directors, or any member thereof, of any responsibility imposed upon it or him
by law.
ARTICLE V
OTHER COMMITTEES
5.01 DESIGNATION. The board of directors may, from time to time, by
resolution adopted by a majority of the whole board, designate other committees
to consist of two or more of the directors of the corporation, which shall have
such powers and the members of which shall hold office for such periods as the
board of directors may determine.
5.02 PROCEDURE. Any committee so designated shall keep regular minutes
of its proceedings and report the same to the board of directors when required.
5.03 REMOVAL. Any members of any committee so designated may be removed
by the board of directors by the affirmative vote of a majority of the whole
board, whenever in its judgment the best interests of the corporation will be
served thereby.
ARTICLE VI
NOTICE
6.01 METHOD. Whenever by statute or the certificate of incorporation or
these bylaws, notice is required to be given to any shareholder or director, and
no provision is made as to how the notice shall be given, it shall not be
construed to mean personal notice, but any such notice may be given in writing,
postage prepaid, addressed to the director or shareholder at the address
appearing on the books of the corporation, or by any other method permitted by
law. Any notice required or permitted to be given by mail shall be deemed given
at the time when the same is thus deposited in the mails. Notice to directors
may also be given by telegram, with such notice being deemed to have been given
when the telegram is delivered to the telegraph company.
6.02 WAIVER. Whenever, by statute or the certificate of incorporation
or these bylaws, notice is required to be given to any shareholder or director,
a waiver thereof in
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writing signed by the person or persons entitled to such notice, whether before
or after the time stated in such notice, shall be equivalent to the giving of
such notice. Attendance of a director at a meeting shall constitute a waiver of
notice of such meeting, except where a director attends for the express purpose
of objecting to the transaction of any business on the grounds that the meeting
is not lawfully called or convened.
ARTICLE VII
OFFICERS
7.01 NUMBER. Subject to Section 7.03, the officers of the corporation
shall consist of a chairman of the board, a president, one or more
vice-presidents, a secretary and a treasurer, each of whom shall be elected by
the Board of Directors . The chairman of the board and the president shall be
chosen from among the directors. Any two or more offices may be held by the same
person.
7.02 ELECTION. The board of directors, at its first meeting after each
annual meeting of shareholders, shall elect officers for the ensuing year or
until their successors are elected, none of whom need be a member of the board,
a shareholder, or a resident of Delaware.
7.03 OTHER OFFICERS. The board of directors may elect or appoint such
other officers and agents as it shall deem necessary, who shall be appointed for
such terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the board.
7.04 TERM. Each officer of the corporation shall hold office until his
successor is chosen and qualified in his stead or until his death or until his
resignation or removal from office.
7.05 REMOVAL. Any officer or agent or member of a committee elected or
appointed by the board of directors may be removed by the board of directors
whenever in its judgment the best interests of the corporation will be served
thereby, but such removal shall be without prejudice to the contract rights, if
any, of the person so removed. Election or appointment of an officer or agent of
member of a committee shall not of itself create contract rights.
7.06 VACANCIES. Any vacancy in any office because of death,
resignation, removal or otherwise, may be filled by the board of directors for
the unexpired portion of the term.
7.07 COMPENSATION. The compensation of all officers and agents shall be
fixed by the board of directors.
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7.08 CHAIRMAN OF THE BOARD. The chairman of the board shall be the
chief executive officer of the corporation, shall perform all the duties, and
shall have all the powers commonly incident to that office, shall in general
supervise and control all of the business and affairs of the corporation, and
shall have such other powers and perform such other duties as may be assigned to
him by the board of directors. The Chairman of the Board, when present, shall
preside at all meetings of the shareholders and shall preside at all meetings of
the board of directors.
7.09 PRESIDENT. The president shall be the chief operating officer of
the corporation and shall have such powers and perform such duties as shall from
time to time be specified by the board of directors. The president shall be
under the supervision of the chairman of the board. Subject to the control of
the board of directors, the president shall, in the absence or disability of the
chairman of the board, supervise and control all of the business and affairs of
the corporation and shall see that all orders and resolutions of the board are
carried into effect. He shall, in the absence of the chairman of the board,
preside at all meetings of the shareholders and of the board of directors. The
president may execute, with the secretary or any other proper officer of the
corporation thereunto authorized by the board of directors, certificates for
shares of the corporation, any deeds, mortgages, bonds, contracts or other
instruments which the board of directors has authorized to be executed, except
in cases where the signing and execution thereof shall be expressly delegated by
the board of directors or by these bylaws to some other officer or agent of the
corporation, or shall be required by law to be otherwise signed or executed, and
in general shall perform all duties incident to the office of president, and
such other duties as may be prescribed by the board of directors from time to
time.
7.10 VICE-PRESIDENT. The vice-presidents in the order of their
seniority, unless otherwise determined by the board of directors shall, in the
absence or disability of the Chairman of the Board and the president, perform
the duties and have the authority and exercise the powers of the Chairman of the
Board and the president. They shall perform such other duties and have such
other authority and powers as the board of directors may from time to time
prescribe or as the president may from time to time delegate.
7.11 SECRETARY. The secretary shall attend all sessions of the board of
directors and all meetings of the shareholders and record all votes and the
minutes of all proceedings in a book to be kept for that purpose and shall
perform like duties for the executive committee when required, or any other
committee, if requested. The secretary shall give, or cause to be given, notice
of the meetings of the board of directors and shareholders where such notices
are required by these bylaws to be given. The secretary shall keep in safe
custody the seal of the corporation, and when authorized by the board or the
executive committee, affix the same to any instrument requiring it and, when so
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affixed, it shall be attested by the signature of the secretary or by the
signature of the treasurer or an assistant secretary. The secretary shall be
under the supervision of the president. He shall perform such other duties and
have such other authority and powers as the board of directors may from time to
time prescribe or as the president may from time to time delegate.
7.12 ASSISTANT SECRETARY. The assistant secretaries in the order of
their seniority unless otherwise determined by the board of directors, shall, in
the absence or disability of the secretary, perform the duties and have the
authority and exercise the powers of the secretary. They shall perform such
other duties and have such other powers as the board of directors may from time
to time prescribe, or as the president may from time to time delegate.
7.13 TREASURER.
(A) The treasurer shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements of the corporation, and shall deposit all moneys and other
valuable effects in the name and to the credit of the corporation, in such
depositories as may be designated by the board of directors.
(B) He shall disburse the funds of the corporation as may be ordered by
the board of directors, taking proper vouchers for such disbursements, and shall
render to the president and directors, at the regular meetings of the board, or
whenever they may require it, an account of all his transactions as treasurer
and of the financial condition of the corporation.
(C) If required by the board of directors, he shall give the
corporation a bond in such form, in such sum and with such surety or sureties as
shall be satisfactory to the board for the faithful performance of the duties of
his office and for the restoration to the corporation, in case of his death,
resignation, retirement or removal from office, of all books, papers, vouchers,
money, or other property of whatever kind in his possession or under his control
belonging to the corporation.
(D) He shall perform such other duties and have such other authority
and powers as the board of directors may from time to time prescribe, or as the
president may from time to time delegate.
7.14 ASSISTANT TREASURER. The assistant treasurers in the order of
their seniority, unless otherwise determined by the board of directors, shall,
in the absence or disability of the treasurer, perform the duties and have the
authority and exercise the powers of the treasurer. They shall perform such
other duties and have such other
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powers as the board of directors may from time to time prescribe or the
president may from time to time delegate.
7.15 FILLING OF OFFICES. The board of directors of the corporation
shall not be required to fill the offices of vice-president, assistant
secretary, and assistant treasurer, or to name an executive committee or any
other committee until, in the opinion of the board, there is a need for such
offices, committees, or any of them, to be filled.
ARTICLE VIII
CERTIFICATES AND SHAREHOLDERS
8.01 CERTIFICATES. Certificates in the form determined by the board of
directors shall be delivered representing all shares to which shareholders are
entitled. Such certificates shall be consecutively numbered, and shall be
entered in the books of the corporation as they are issued. Each certificate
shall state on the face thereof the holder's name, the number and class of
shares, the par value of shares or a statement that such shares are without par
value, and such other matters as may be required by the laws of the State of
Delaware. They shall be signed by the president or a vice-president and the
secretary or assistant secretary, and may be sealed with the seal of the
corporation or a facsimile thereof. If any certificate is countersigned by a
transfer agent or registered by a registrar other than the corporation or an
employee of the corporation, the signature of such officer may be a facsimile.
In the event any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent, or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if he were such
officer, transfer agent or registrar at the date of issue.
8.02 REPLACEMENT OF LOST OR DESTROYED CERTIFICATES. The board of
directors may direct a new certificate representing shares to be issued in place
of any certificate theretofore issued by the corporation alleged to have been
lost or destroyed upon the making of an affidavit of that fact by the person
claiming the certificate to be lost or destroyed. When authorizing such issue of
a new certificate, the board of directors, in its discretion and as a condition
precedent to the issuance thereof, may prescribe such terms and conditions as it
deems expedient, and may require such indemnities as it deems adequate, to
protect the corporation from any claim that may be made against it with respect
to any such certificate alleged to have been lost or destroyed.
8.03 TRANSFER OF SHARES. Shares of stock shall be transferable only on
the books of the corporation by the holder thereof in person or by his duly
authorized attorney. Upon surrender, to the corporation or its transfer agent,
of a certificate representing shares duly endorsed or accompanied by proper
evidence of succession,
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assignment or authority to transfer, the corporation or its transfer agent shall
issue a new certificate to the person entitled thereto, cancel the old
certificate and record the transaction upon its books.
8.04 REGISTERED SHAREHOLDERS. The corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder in fact
thereof, and accordingly shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it has express or other notice thereof, except as otherwise
provided by law.
8.05 PREEMPTIVE RIGHTS. No shareholder or any other person shall have
any preemptive right whatsoever.
ARTICLE IX
INDEMNIFICATION
9.01 POLICY OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES. To the full
extent permitted by the Delaware General Corporation Law, as amended from time
to time, the corporation shall indemnify any Representative against judgments,
penalties (including excise and similar taxes), fines, settlements, and
reasonable expenses (including court costs and attorneys' fees) actually
incurred by any such person who was, is, or is threatening to be made a named
defendant or respondent in a Proceeding because the person is or was a
Representative and shall advance to such person such reasonable expenses as are
incurred by such person in connection therewith.
9.02 DEFINITIONS. For purposes of this Article IX:
(a) "REPRESENTATIVE" means (i) any person who is or was a
Director and any person who, while a Director, is or was serving at the request
of the corporation as a director, officer, partner, venturer, proprietor,
trustee, employee, agent, or similar functionary of the corporation or of
another foreign or domestic association, partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise or (ii) any
person who is or was an officer and any person who, while an officer, is or was
serving at the request of the corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent, or similar functionary of the
corporation or of another foreign or domestic association, partnership, joint
venture, sole proprietorship, trust, employee benefit plan, or other enterprise.
(b) "PROCEEDING" means any threatened, pending, or completed
action, suit or proceeding, whether civil, criminal, administrative,
arbitrative, or investigative, any appeal in such an action, suit, or
proceeding, and any inquiry or investigation that could lead to such an action,
or proceeding.
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9.03 NON-EXCLUSIVE; CONTINUATION. The indemnification provided by this
Article IX shall not be deemed exclusive of any other rights to which the person
claiming indemnification may be entitled under any agreement, any vote of
shareholders, or disinterested Directors or otherwise both as to any action in
his official capacity and as to any action in another capacity while holding
such office, and shall continue as to a person who shall have ceased to be a
Representative engaged in any other enterprise at the request of the corporation
and shall inure to the benefit of the heirs, executors, and administrators of
such person.
9.04 INSURANCE OR OTHER ARRANGEMENT. The corporation shall have the
power to purchase and maintain insurance or to the extent permitted by
applicable law another arrangement on behalf of any person who is or was a
Representative, employee, or agent of the corporation, or who is or was serving
at the request of the corporation as a director, officer, employee, or agent or
any other capacity in another association, or a partnership, joint venture,
trust, or other enterprise against any liability asserted against such person
and incurred by such person in such capacity, arising out of such person's
status as such, whether or not such person is indemnified against such liability
by the provisions of this Article IX.
9.05 INDEMNIFICATION OF EMPLOYEES OR AGENTS. The corporation may
indemnify and advance expenses to an employee or agent who is not a director or
officer to such further extent, consistent with law, as may be provided by
general or specific action of the Board, by contract, or as permitted or
required by common law.
ARTICLE X
GENERAL PROVISIONS
10.01 DIVIDENDS AND RESERVES.
(A) Declaration and Payment. Subject to statute and the certificate of
incorporation, dividends may be declared by the board of directors at any
regular or special meeting and may be paid in cash, in property, or in shares of
the corporation. The declaration and payment shall be at the discretion of the
board of directors.
(B) Record Date. The board of directors may fix in advance a record
date for the purpose of determining shareholders entitled to receive payment of
any dividend, such record date to be not more than fifty (50) days prior to the
payment date of such dividend. In the absence of any action by the board of
directors, the date upon which the board of directors adopts the resolution
declaring the dividend shall be the record date.
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(C) Reserves. By resolution the board of directors may create such
reserve or reserves out of the earned surplus of the corporation as the
directors from time to time, in their discretion, think proper to provide for
contingencies, or to equalize dividends, or to repair or maintain any property
of the corporation, or for any other purpose they think beneficial to the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
10.02 BOOKS AND RECORDS. The corporation shall keep correct and
complete books and records of account and shall keep minutes of the proceedings
of its shareholders and board of directors, and shall keep at its registered
office or principal place of business, or at the office of its transfer agent or
registrar, a record of its shareholders, giving the names and addresses of all
shareholders and the number and class of the shares held by each.
10.03 CHECKS AND NOTES. All checks or demands for money and notes of
the corporation shall be signed by such officer or officers or such other person
or persons as the board of directors may from time to time designate.
10.04 FISCAL YEAR. The fiscal year of the corporation shall be fixed by
resolution of the board of directors.
10.05 SEAL. The corporate seal shall have inscribed thereon the name of
the corporation and shall be in such form as the board of directors may
prescribe. Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
10.06 RESIGNATION. Any director, officer or agent may resign by giving
written notice to the president or the secretary. The resignation shall take
effect at the time specified therein. Unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
10.07 AMENDMENT OF BYLAWS. These bylaws may be repealed, altered or
amended at any meeting of the board of directors at which a quorum is present,
by the affirmative vote of a majority of the directors present at such meeting,
provided notice of the proposed repeal, alteration or amendment is contained in
the notice of such meeting.
10.08 TABLE OF CONTENTS; HEADINGS. The table of contents and headings
used in these bylaws have been inserted for convenience only and do not
constitute matter to be construed in interpretation.
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10.09 CONSTRUCTION. Whenever the context so requires, the masculine
shall include the feminine and neuter, and the singular shall include the
plural, and conversely. If any portion of these bylaws shall be invalid or
inoperative, then, so far as is reasonable and possible;
(A) The remainder of these bylaws shall be considered valid and
operative; and
(B) Effect shall be given to the intent manifested by the portion held
invalid or inoperative.
The undersigned hereby certifies that the foregoing Amended and Restated Bylaws
were unanimously adopted by the board at a meeting of said board held on the
______ day of ________________, 19__, TO WITNESS WHICH I have hereunto affixed
my signature.
------------------------
Secretary
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FOR ATTACHMENT TO
AMENDED AND RESTATED BYLAWS OF
TOREADOR ROYALTY CORPORATION
RESOLUTION ADOPTED AT
BOARD OF DIRECTORS' MEETING
HELD ON JANUARY 31, 1991
RELATING TO NUMBER OF DIRECTORS
RESOLVED, that, as permitted by Article III, Section 3.02 of
the Amended and Restated Bylaws of the Corporation, the Board of
Directors of the Corporation hereby determines that the number of
directors that shall constitute the Board of Directors shall be nine
(9) until such time as the election of directors at the next annual
meeting of the stockholders of Corporation, at which time the number of
directors that shall constitute the Board of Directors shall be seven
(7).
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TOREADOR ROYALTY CORPORATION
CERTAIN RESOLUTIONS ADOPTED
AT BOARD OF DIRECTORS' MEETING
HELD ON FEBRUARY 27, 1992
RELATING TO AMENDMENTS TO THE BYLAWS
RESOLVED, that Section 2.04 of the Bylaws of the Corporation shall be
amended in its entirety to read as follows:
2.04 SPECIAL MEETINGS. Special meetings of the shareholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the
certificate of incorporation, or by these bylaws, may be called by Chairman
of the Board, the President, or any officer of the corporation (i) at the
instruction of a majority of the Board of Directors or (ii) on the written
request of the holders of at least 662/3% of the total number of the shares
of stock then outstanding and entitled to vote stating the specific purpose
or purposes thereof. Business transacted at all special meetings shall be
confined to the objects stated in the notice of the meeting.
RESOLVED FURTHER, that Article II of the Bylaws of the Corporation shall be
amended by adding new sections at the end thereof as follows:
2.11 CONDUCT OF MEETINGS BY PRESIDING PERSON. All determinations of
the presiding person at each meeting of shareholders shall be conclusive
unless a matter is determined otherwise upon motion duly adopted by the
affirmative vote of the holders of at least 80% of the voting power of the
shares of capital stock of the corporation entitled to vote in the election
of directors held by shareholders present in person or represented by proxy
at such meeting. Accordingly, in any meeting of shareholders or part
thereof, the presiding person shall have the sole power to determine
appropriate rules or to dispense with theretofore prevailing rules. Without
limiting the foregoing, the following rules shall apply:
(a) The presiding person may ask or require that anyone not a
bona fide shareholder or proxy leave the meeting.
(b) A resolution or motion shall be considered for vote only if
proposed by a shareholder or duly authorized proxy, and
<PAGE> 21
seconded by an individual, who is a shareholder or a duly authorized proxy,
other than the individual who proposed the resolution or motion, subject to
compliance with any other requirements concerning such a proposed
resolution or motion contained in these bylaws. The presiding person may
propose any motion for vote. The order of business at all meetings of
shareholders shall be determined by the presiding person.
(c) The presiding person may impose any reasonable limits with
respect to participation in the meeting by shareholders, including, but not
limited to, limits on the amount of time at the meeting taken up by the
remarks or questions of any shareholder, limits on the numbers of questions
per shareholder, and limits as to the subject matter and timing of
questions and remarks by shareholders.
(d) Before any meeting of shareholders, the Board of Directors
may appoint any person other than nominees for office to act as inspectors
of election at the meeting or its adjournment. If no inspectors of election
are so appointed, the presiding person may, and on request of any
shareholder or a shareholder's proxy shall, appoint inspector(s) of
election at the meeting of shareholders. If any person appointed as
inspector fails to appear or fails or refuses to act, the presiding person
may, upon the request of any shareholder or a shareholder's proxy shall,
appoint a person to fill such vacancy.
The duties of these inspectors shall be as follows:
(i) Determine the number of shares outstanding and the
voting power of each, the shares represented at the meeting, the existence
of a quorum and then authenticity, validity and effect of proxies;
(ii) Receive votes or ballots;
(iii) Herein determine all challenges and questions in
any way arising in connection with the right to vote;
(iv) Count and tabulate all votes;
(v) Report to the board of directors the results based
on the information assembled by the inspectors; and
(vi) Do any other acts that be proper to conduct the
election or vote with fairness to all shareholders.
<PAGE> 22
2.12. SHAREHOLDER PROPOSALS. In order for business to be properly
brought before a meeting of shareholders by a shareholder, the business
must be legally proper and written notice thereof must have been filled
with the Secretary of the Corporation not less than 60 nor more than 120
days prior to the meeting. Each such notice shall set forth:
(a) The name and address of the shareholder who intends to make the
proposal as the same appear in the corporation's records;
(b) The class and number of shares of stock of the corporation that
are beneficially owned, directly or indirectly, by such shareholder; and
(c) A clear and concise statement of the proposal and the
shareholder's reasons for supporting it.
The filing of a shareholder notice as required above shall not, in and
of itself, constitute the making of the proposal described therein.
If the person presiding at a meeting of shareholders determines that
any proposed business has not been properly brought before the meeting, he
shall declare such business out of order; and such business shall not be
conducted at the meeting.
RESOLVED FURTHER, Sections 9.01, 9.02, 9.03 and 9.04 of the Bylaws are
hereby amended in their entirety to read as follows, and existing Section 9.05
is hereby renumbered as Section 9.17.
9.01. GENERAL. The Corporation shall indemnify, and advance Expenses
(as this an all other capitalized words used in this Article IX and not
previously defined in these bylaws are defined in Section 9.14) to,
Indemnitee to the fullest extent permitted by applicable law in effect on
the date of effectiveness of these Bylaws and to such greater extent as
applicable law may thereafter permit. The rights of Indemnitee provided
under the preceding sentence shall include, but not be limited to, the
right to be indemnified to the fullest extent permitted by Section 145(b)
of the D.G.C.L. in Proceedings by or in the right of the Corporation and to
the fullest extent permitted by Section 145(a) of the D.G.C.L. in all other
Proceedings. The provisions set forth below in this Article IX are provided
in the furtherance, and not by way of limitation, of the obligations
expressed in this Section 9.01.
<PAGE> 23
9.02. EXPENSES RELATED TO PROCEEDINGS. If Indemnitee is, by reason of
his or her Corporate status, a witness in or a party to and is successful,
on the merits or otherwise, in any Proceeding, he or she shall be
indemnified against all Expenses actually and reasonably incurred by him or
her or on his or her behalf in connection therewith. If Indemnitee is not
wholly successful in such Proceeding but is successful, on the merits or
otherwise, as to any Matter in such Proceeding, the Corporation shall
indemnify Indemnitee against all Expenses actually and reasonably incurred
by him or her or on his or her behalf relating to such Matter. The
termination of any Matter in such a Proceeding by dismissal, with or
without prejudice, shall be deemed to be a successful result as to such
Matter.
9.03. ADVANCEMENT OF EXPENSES. Indemnitee shall be advanced Expenses
within ten days after requesting them to the fullest extent permitted by
Section 145(e) of the D.G.C.L.
9.04. REQUEST FOR INDEMNIFICATION. To obtain indemnification
Indemnitee shall submit to the Corporation a written request with such
information as is reasonably available to indemnification. The Secretary of
the Corporation shall promptly advise the Board of Directors of such
request.
9.05. DETERMINING ENTITLEMENT TO INDEMNIFICATION IF NO CHANGE OF
CONTROL. If there has been no Change of Control at the time the request for
indemnification is sent, Indemnitee's entitlement to indemnification shall
be determined in accordance with Section 145(d) of the D.G.C.L. If
entitlement to indemnification is to be determined by Independent Counsel,
the Corporation shall furnish notice to Indemnitee within ten days after
receipt of the request for indemnification, specifying the identity and
address of Independent Counsel. Indemnitee may, within fourteen days after
receipt of such written notice of selection, deliver to the Corporation a
written objection to such selection. Such objection may be asserted only on
the ground that the Independent Counsel so selected does not meet the
requirements of Independent Counsel and the objection shall set forth with
particularity the factual basis of such assertion. If there is an objection
to the selection of Independent Counsel, either the Corporation or
Indemnitee may petition the Court of Chancery of the State of Delaware or
any other court of competent jurisdiction for a determination that the
objection is without a reasonable basis and/or for the appointment of
Independent Counsel selected by the court.
<PAGE> 24
9.06. DETERMINING ENTITLEMENT TO INDEMNIFICATION IF CHANGE OF CONTROL.
If there has been a Change of Control at the time the request for
indemnification is sent, Indemnitee's entitlement to indemnification shall
be determined in a written opinion by Independent Counsel selected by
Indemnitee. Indemnitee shall give the Corporation written notice advising
of the identity and address of the Independent Counsel so selected. The
Corporation may, within seven days after receipt of such written notice of
selection, deliver to Indemnitee a written objection to such selection.
Indemnitee may, within five days after the receipt of such objection from
the Corporation, submit the name of another Independent Counsel and the
Corporation may, within seven days after receipt of such written notice of
selection, deliver to Indemnitee a written objection to such selection. Any
objection is subject to the limitations of Section 9.05. Indemnitee may
petition the Court of Chancery of the State of Delaware or any other court
of competent jurisdictions for a determination that the Corporation's
objection to the first and/or second selection of Independent Counsel is
without a reasonable basis and/or for the appointment as Independent
Counsel of a person selected by the Court.
9.07. PROCEDURES OF INDEPENDENT COUNSEL. If there has been a Change of
Control before the time the request for indemnification is sent by
Indemnitee, Indemnitee shall be presumed (except as otherwise expressly
provided in this Article IX) to be entitled to indemnification upon
submission of a request for indemnification in accordance with Section
9.04, and thereafter the Corporation shall have the burden of proof to
overcome the presumption in reaching a determination contrary to the
presumption. The presumption shall be used by Independent Counsel as a
basis for a determination of entitlement to indemnification unless the
Corporation provides information sufficient to overcome such presumption by
clear and convincing evidence or the investigation, review and analysis of
Independent Counsel convinces him or her by clear and convincing evidence
that the presumption should not apply.
Except in the event that the determination of entitlement to
indemnification is to be made by Independent Counsel, if the person or
persons empowered under Section 9.05 or 9.06 to determine entitlement to
indemnification shall not have made and furnished to Indemnitee in writing
a determination within sixty days after receipt by the Corporation of the
request therefor, the requisite determination of entitlement to
indemnification shall be deemed to have been made and Indemnitee shall be
entitled to such indemnification unless Indemnitee knowingly misrepresented
a material fact in connection with the request for indemnification or such
indemnification is prohibited by law. The termination of any Proceeding or
of any Matter therein, by judgment, order, settlement or conviction, or
upon a plea of nolo contendere or its equivalent, shall not (except as
otherwise expressly provided in this Article IX) of itself adversely affect
the right of Indemnitee to indemnification or create a presumption that (a)
Indemnitee did not act in good faith and in a manner that he or she
reasonably believed, in the case of conduct in his or her official capacity
as a director of the Corporation, to be in the best interests of the
Corporation or in all other cases that at least his or her conduct was not
opposed to the
<PAGE> 25
Corporation's best interests, or (b) with respect to any criminal
Proceeding, that Indemnitee had reasonable cause to believe that his or her
conduct was unlawful.
9.08. EXPENSES OF INDEPENDENT COUNSEL. The Corporation shall pay any
and all reasonable fees and expenses of Independent Counsel incurred acting
pursuant to this Article IX and in any proceeding to which it is a party or
witness in respect of its investigation and written report and shall pay
all reasonable fees and expenses incident to the procedures in which such
Independent Counsel was selected or appointed. No Independent Counsel may
serve if a timely objection has been made to his or her selection until a
court has determined that such objection is without a reasonable basis.
9.09. TRIAL DE NOVO. In the event that (a) a determination is made
pursuant to Section 9.05 or 9.06 that Indemnitee is not entitled to
indemnification under this Article IX, (b) advancement of Expenses is not
timely made pursuant to Section 9.03, (c) Independent Counsel has not made
and delivered a written opinion determining the request for indemnification
(i) within ninety days after being appointed by a court, (ii) within ninety
days after objections to his or her selection have been overruled by a
court or (iii) within ninety days after the time for the Corporation or
Indemnitee to object to his or her selection or (d) payment of
indemnification is not made within five days after a determination of
entitlement to indemnification has been made or deemed to have been made
pursuant to Section 9.05, 9.06 or 9.07, Indemnitee shall be entitled to an
adjudication in any court of competent jurisdiction of his or her
entitlement to such indemnification or advancement of Expenses. In the
event that a determination shall have been made that Indemnitee is not
entitled to indemnification, any judicial proceeding or arbitration
commenced pursuant to this Section 9.09 shall be conducted in all respects
as a de novo trial on the merits, and Indemnitee shall not be prejudiced by
reason of that adverse determination. If a Change of Control shall have
occurred, in any judicial proceeding commenced pursuant to this Section
9.09, the Corporation shall have the burden of proving that Indemnitee is
not entitled to indemnification or advancement of Expenses, as the case may
be. If a determination shall have been made or deemed to have been made
that Indemnitee is entitled to indemnification, the Corporation shall be
bound by such determination in any judicial proceeding commenced pursuant
to this Section 9.09, or otherwise, unless
<PAGE> 26
Indemnitee knowingly misrepresented a material fact in connection with the
request for indemnification, or such indemnification is prohibited by law.
The Corporation shall be precluded from asserting in any judicial
proceeding commenced pursuant to this Section 9.09 that the procedures and
presumptions of this Article IX are not valid, binding and enforceable and
shall stipulate in any such court that the Corporation is bound by all
provisions of this Article IX. In the event that Indemnitee, pursuant to
this Section 9.09, seeks a judicial adjudication to enforce his or her
rights under, or to recover damages for breach of, this Article IX,
Indemnitee shall be entitled to recover from the Corporation, and shall be
indemnified by the Corporation against, any and all Expenses actual and
reasonable incurred by him or her in such judicial adjudication, but only
if he or she prevails therein. If it shall be determined in such judicial
adjudication that Indemnitee is entitled to receive part but not all of the
indemnification or advancement of Expenses sought, the Expenses incurred by
Indemnitee in connection with such judicial adjudication or arbitration
shall be appropriately prorated.
9.10. NON-EXCLUSIVITY. The rights of indemnification and to receive
advancement of Expenses as provided by this Article IX shall not be deemed
exclusive of any other rights to which Indemnitee may at any time be
entitled under applicable law, the Certificate of Incorporation, these
bylaws, any agreement, a vote of stockholders, a resolution of the Board of
Directors or otherwise. No amendment, alteration or repeal of this Article
IX or any provision hereof shall be effective as to any Indemnitee for
acts, events and circumstances that occurred, in whole or in part, before
such amendment, alteration or repeal. The provisions of this Article IX
shall continue as to an Indemnitee whose corporate status has ceased and
shall inure to the benefit of his or her heirs, executors and
administrators.
9.11. INSURANCE AND SUBROGATION. To the extent the Corporation
maintains an insurance policy or policies providing liability insurance for
directors or officers of the Corporation or of any other corporation,
partnership, joint venture, trust, employee benefit plan or other
enterprise which such person serves at the request of the Corporation,
Indemnitee shall be covered by such policy or policies in accordance with
its or their terms to the maximum extent of coverage available for any such
director or officer under such policy or policies.
<PAGE> 27
In the event of any payment hereunder, the Company shall be subrogated
to the extent of such payment to all the rights of recovery of Indemnitee,
who shall execute all papers required and take all action necessary to
secure such rights, including execution of such documents as are necessary
to enable the Company to bring suit to enforce such rights.
The Company shall not be liable under this Article IX to make any
payment of amounts otherwise indemnifiable hereunder if, and to the extent
that, Indemnitee has otherwise actually received such payment under any
insurance policy, contract, agreement or otherwise.
9.12. SEVERABILITY. If any provision or provisions of this Article IX
shall be held to be invalid, illegal or unenforceable for any reason
whatsoever, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby; and, to
the fullest extent possible, the provisions of this Article IX shall be
construed so as to give effect to the intent manifested by the provision
held invalid, illegal or unenforceable.
9.13. CERTAIN PERSONS NOT ENTITLED TO INDEMNIFICATION. Notwithstanding
any other provision of this Article IX, no person shall be entitled to
indemnification or advancement of Expenses under this Article IX with
respect to any Proceeding, or any Matter therein, brought or made by such
person against the Corporation.
9.14. DEFINITIONS. For purposes of this Article IX:
"CHANGE OF CONTROL" means a change in control of the Corporation after
the date of adoption of these bylaws in any one of the following
circumstances: (a) any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended, (the "Exchange
Act") shall have become the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the
Corporation representing 20% or more of the combined voting power of the
Corporation's then outstanding voting securities without prior approval of
at least two-thirds of the members of the Board of Directors in office
immediately prior to such person's attaining such percentage interest; (b)
the Corporation is a party to a merger, consolidation, sale of assets or
other reorganization, or a proxy contest, as a consequence of which members
of the Board of Directors in office immediately prior to such transaction
or event constitute less
<PAGE> 28
than a majority of the Board of Directors thereafter or (c) during any
period of two consecutive years, individuals who at the beginning of such
period constituted the Board of Directors (including for this purpose any
new director whose election or nomination for election by the Corporation's
stockholders was approved by a vote of at least two-thirds of the directors
then still in office who were directors at the beginning of such period)
cease for any reason to constitute at least a majority of the Board of
Directors.
"CORPORATE STATUS" describes the status of a person who is or was a
director of the corporation or who, while a director or officer of the
Corporation, is an employee or agent of the Corporation or of any other
corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise which such person is or was serving at the request of the
Corporation.
"D.G.C.L." means the Delaware General Corporation Law, as currently in
effect or as amended from time to time.
"EXPENSES" shall include all reasonable attorneys' fees, retainers,
court costs, transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, and all other disbursements or expenses of
the types customarily incurred in connection with prosecuting, defending,
preparing to prosecute or defend, investigating or being or preparing to be
a witness in a Proceeding.
"INDEMNITEE" includes any person who is, or is threatened to be made,
a witness in or a party to any Proceeding as described in Section 9.01 or
9.02 by reason of his or her Corporate Status.
"INDEPENDENT COUNSEL" means a law firm, or member of a law firm, that
is experienced in matters of corporation law and neither presently is nor
in the five years previous to his or her selection or appointment has been,
retained to represent: (a) the Corporation or Indemnitee in any matter
material to either such party, (b) any other party to the Proceeding giving
rise to a claim for indemnification hereunder or (c) the beneficial owner,
directly or indirectly, of securities of the Corporation representing 5% or
more of the combined voting power of the Corporation's then outstanding
voting securities.
<PAGE> 29
"MATTER" is a claim, a material issue, or a substantial request for
relief.
"PROCEEDING" includes any action, suit, arbitration, alternate dispute
resolution mechanism, investigation, administrative hearing or any other
proceeding, whether civil, criminal, administrative or investigative,
except one initiated by an Indemnitee pursuant to Section 9.09 to enforce
his or her rights under this Article IX.
9.15. NOTICES. Any communication required or permitted to the
Corporation shall be addressed to the Secretary of the Corporation and any
such communication to Indemnitee shall be given in writing by depositing
the same in the United States mail, with postage thereon prepaid, addressed
to the person to whom such notice is directed at the address of such person
on the records of the Corporation, and such notice shall be deemed given at
the time when the same shall be so deposited in the United States mail.
9.16. CONTRACTUAL RIGHTS. The right to be indemnified or to the
advancement or reimbursement of Expenses (i) is a contract right based upon
good and valuable consideration, pursuant to which Indemnitee may sue as if
these provisions were set forth in a separate written contract between him
or her and the Corporation, (ii) is and is intended to be retroactive and
shall be available as to events occurring prior to the adoption of these
provisions and (iii) shall continue after any rescission or restrictive
modification of such provisions as to events occurring prior thereto.
<PAGE> 30
AMENDMENT TO BYLAWS OF
TOREADOR ROYALTY CORPORATION
RESOLVED, that Section 2.02 of the Bylaws of the Corporation shall be
amended in its entirety to read as follows:
2.02. ANNUAL MEETING. An annual meeting of the shareholders shall be
held on the third Thursday during the month of May, if not a legal holiday,
and if a legal holiday, then on the next business day following, at 10:00
a.m., or at such other date and time as shall be designated from time to
time by the board of directors and stated in the notice of the meeting, at
which time the shareholders shall elect a board of directors, and transact
such other business as may properly be brought before the meeting.
<PAGE> 1
EXHIBIT 4.1
[TOREADOR ROYALTY CORPORATION LETTERHEAD]
March 15, 1999
- ---------------------------------
- ---------------------------------
- ---------------------------------
- ---------------------------------
- ---------------------------------
RE: Series A Convertible Preferred Stock
Gentlemen:
Reference is made to that certain Securities Purchase Agreement (the "SPA"),
dated as of December 16, 1998, by and between Toreador Royalty Corporation (the
"Corporation"), and each of the persons listed on the Schedule of Purchasers
attached hereto (the "Purchasers") and the Certificate of Designation of Series
A Convertible Preferred Stock of Toreador Royalty Corporation (the "COD").
Capitalized terms used herein that are not specifically defined shall have the
meanings assigned to them in the SPA or the COD.
For good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, it is understood and agreed as follows:
1. Cash Dividends Only. The Corporation shall not exercise its option
under Paragraph 2 of the COD to pay dividends in additional shares of Preferred
Stock and shall instead pay all dividends in cash.
2. Delayed Optional Redemption. The Corporation shall not exercise its
right of redemption under Paragraph 6 of the COD prior to December 1, 2004. In
the event of an Optional Redemption on or after December 1, 2004, the Optional
Redemption Price to be paid to a Holder shall be (notwithstanding Paragraph 6(b)
of the COD) the Liquidation Preference of the Preferred Shares then held by such
a Holder multiplied by (i) 1.03 if the Optional Redemption Date is on or after
December 1, 2004 but before December 1, 2005, (ii) 1.02 if the Optional
Redemption Date is on or after December 1, 2005 but before December 1, 2006,
(iii) 1.01 if the Optional Redemption Date is on or after December 1, 2006 and
before December 1, 2007, or (iv) 1.00 if the Optional Redemption Date is on or
after December 1, 2007, plus in all cases, accrued and unpaid dividends through
and including the Optional Redemption Date.
<PAGE> 2
- --------------------
March 15, 1999
Page 2
3. No Mandatory Redemption. The Mandatory Redemption under Paragraph 7
of the COD shall not be recognized by either the Corporation or the Purchasers.
Instead, the Preferred Stock shall continue to accrue and pay dividends and
remain in full force and effect as otherwise provided by the COD.
4. Successors and Assigns. The terms and conditions of this side letter
agreement (the "Agreement") shall inure to the benefit of and be binding upon
the respective successors and permitted assigns of the parties. Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and permitted assigns any
rights, remedies, obligations or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement. The Purchaser may
assign its rights and obligations hereunder, in connection with any private sale
or transfer of the Preferred Shares in accordance with the terms hereof, as long
as, as a condition precedent to such transfer, the transferee executes an
acknowledgment agreeing to be bound by the applicable provisions of this
Agreement, in which case the term "Purchaser" shall be deemed to refer to such
transferee as though such transferee were an original signatory hereto. The
Corporation may not assign it rights or obligations under this Agreement.
5. Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser hereunder are several and not joint with the
obligations of the other Purchasers hereunder, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered herewith, and no action taken by any Purchaser pursuant
hereto or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each Purchaser shall be entitled to protect and enforce its rights, including
without limitation the rights arising out of the Certificate of Designation,
this Agreement or the other Transaction Documents, and it shall not be necessary
for any other Purchaser to be joined as an additional party in any proceeding
for such purpose.
6. Headings. The headings used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
<PAGE> 3
Please sign and date this letter in the space provided below to confirm
your agreement to the terms hereof.
Very truly yours,
TOREADOR ROYALTY CORPORATION
By: /S/ G. THOMAS GRAVES III
-----------------------------------
G. Thomas Graves III
Chief Executive Officer
Accepted and Agreed to by:
- --------------------------------------------
By:
-----------------------------------------
[Name]
<PAGE> 1
EXHIBIT 10.6
JOINT VENTURE AGREEMENT
ARKOMA BASIN JOINT VENTURE 1989
THIS JOINT VENTURE AGREEMENT dated as of March 1, 1989 is made by and
among Toreador Royalty Corporation, a Delaware corporation (herein called the
"MANAGER"), and The Grayrock Corporation, Roy Guffey Oil Company, Frank A.
Schultz, Thomas A. Petrie, D. Miles Price and Michael Mewhinney, which parties
are herein, together with the Manager, collectively called the "PARTICIPANTS"
and individually called a "PARTICIPANT."
W I T N E S S E T H:
WHEREAS, the Participants desire to acquire interests in oil and gas
prospects within the Arkoma Basin as outlined in Exhibit A hereto for the
resale or exploration and development thereof;
NOW, THEREFORE, in consideration of the premises and in consideration
of the mutual covenants and agreements contained herein, the Participants do
hereby agree as follows:
ARTICLE I
FORMATION OF JOINT VENTURE
SECTION 1.1 FORMATION. Subject to the provisions of this Agreement,
the Participants do hereby form a joint venture (herein called the "VENTURE"),
which shall be considered and construed as a partnership under the Texas
Uniform Partnership Act (Article 6132b, Vernon's Texas Civil Statutes).
SECTION 1.2 NAME. The name of the Venture shall be Arkoma Basin Joint
Venture 1989. Subject to all applicable laws, the business of the Venture may
be conducted under such other name or names as the Manager shall determine to
be necessary or desirable. The Manager shall cause to be filed on behalf of the
Venture such partnership or assumed or fictitious name certificate or
certificates or similar instruments as may from time to time be required by
applicable law.
SECTION 1.3 BUSINESS. The business of the Venture shall be to generate
and acquire oil and gas Leases, to conduct geological and geophysical
activities with regard thereto, to market and sell the Venture's interest in
such oil and gas Leases, and to engage in such other incidental activities to
any of the foregoing purposes as the Manager may determine to be necessary or
desirable. It is the interest of the Participants to assemble leasehold
interests in Prospects for sale to third party industry participants for cash,
carried or back-in interests, royalties or other interests or some combination
thereof.
SECTION 1.4 P1ACE OF BUSINESS AND ADDRESS. The location of the
principal place of business of the Venture shall be 400 N. St. Paul, Suite
1140, Dallas, Texas 75201. The Manager at any time and from time to time, may
change the location of the Venture's principal place of business and may
establish such additional place or places of business of the Venture as the
Manager shall determine to be necessary or desirable.
<PAGE> 2
SECTION 1.5 TERM. The Venture shall commence upon the date hereof and
shall continue until terminated in accordance with Article VIII.
SECTION 1.6 TITLE TO VENTURE PROPERTY. All property owned by the
Venture, whether real or personal, tangible or intangible, shall be deemed to
be owned by the Venture as an entity, and no Participant, individually, shall
have any ownership of such property. The Venture may hold any of its assets in
its own name or in the name of the Manager.
ARTICLE II
DEFINITIONS AND REFERENCES
SECTION 2.1 DEFINED TERMS. When used in this Agreement and unless the
context otherwise requires, the following terms shall have the respective
meanings set forth below:
"AGREEMENT" shall mean this instrument, as originally executed. or, if
amended pursuant to the provisions of Section 3.5 or 10.2, as so amended.
"AMI BASIN" shall have the meaning assigned to it in the Arkoma Letter
Agreement.
"ARKOMA LETTER AGREEMENT" shall mean that letter agreement dated as of
March 1, l989, by and among Toreador Royalty Corporation and M.G. Whitmire and
Bandera Petroleum, Inc., a copy of which is attached hereto as Exhibit B.
"CAPITAL CONTRIBUTION" shall mean for any Participant the aggregate of
the dollar amounts of cash contributed to the capital of the Venture by that
Participant.
"INTERNAL REVENUE CODE" shall mean the Internal Revenue Code of 1986,
as amended, and any successor statute or statutes.
"LEASE" shall mean a lease, mineral interest, royalty or overriding
royalty, fee right, license, concession or other right covering oil, gas and
related hydrocarbons (or a contractual right to acquire such an interest) or an
undivided interest therein or portion thereof, together, with all appurtenances
easements, permits, licenses, servitudes and rights-of-way situated upon or
used or held for future use in connection with such an interest or the
exploration, development or operation thereof.
"LEASE ACQUISITION COSTS" shall mean (a) the price paid or
contractually agreed to be paid for a Lease to the lessor, assignor or grantor
of such Lease, including consideration paid to an assignor, lease bonuses,
advance rentals and other acquisition costs, (b) costs and expenses paid to
third parties in connection therewith, including title opinions. insurance and
examination costs and attorney's fees and (c) broker commissions, filing fees,
recording costs. transfer and sales taxes. and other similar costs incurred by
the Venture with respect to such Lease in connection with its acquisition.
"MANAGEMENT FEE" shall have the meaning assigned to it in Section 5.6
hereof.
"MANAGER". shall mean Toreador Royalty Corporation, a Delaware
corporation, in its capacity as managing Participant of the Venture.
2
<PAGE> 3
"ORGANIZATION COSTS" shall mean all legal, blue sky, accounting,
travel, filing, recording and other costs and expenses incurred in connection
with the formation of the Venture and the negotiation, preparation and execution
of all documentation in connection therewith.
"PARTICIPANTS" shall have the meaning assigned to it in the preamble to
this Agreement.
"PROSPECT" shall mean an area with structural or stratigraphic
conditions making it susceptible to the accumulation of oil or gas, in which
the Venture owns one or more Leases. which area shall have been designated in
writing by the Manager to all depths on the basis of geological and geophysical
data then available to the Manager and with a reasonable anticipation that such
area shall contain each entire reservoir in which the Venture acquires an
interest by virtue of the ownership of one or more Leases covering such
reservoir.
"PROSPECT AMI" shall have the meaning assigned to it in Paragraph 3 of
the Arkoma Letter Agreement.
"PROSPECT GENERATION COSTS" shall mean all geological, geophysical,
seismic, engineering, travel, reproduction and similar costs paid by the Venture
to define a Prospect.
"SHARING PERCENTAGE" shall mean with respect to each Participant, that
percentage set forth opposite such Participant's name in Exhibit C hereto.
ARTICLE III
CAPITALIZATION
SECTION 3.1 INITIAL CAPITAL CONTRIBUTIONS OF PARTICIPANTS. The Venture
shall attempt to generate and acquire Leases on four Prospects pursuant to the
Arkoma Letter Agreement. The Manager has established an initial budget based
upon four anticipated Prospects equal to $600,000 to be allocated as follows:
<TABLE>
<S> <C>
(a) Prospect Generation Costs $ 50,000
(b) Lease Acquisition Costs 490,000
(c) Management Fee (first year) 36,000
(d) Organization Costs and Other Costs 24,000
---------
Total $ 600,000
</TABLE>
Each Participant agrees to contribute in cash concurrently with his execution
and delivery of this Agreement, 20% of $600,000 ($120,000) times his Sharing
Percentage. Each Participant agrees to pay his Sharing Percentage of the
remaining $480,000 on a monthly basis as requested by the Manager based upon
estimated expenditures to be incurred in the following month.
SECTION 3.2 COST OVERRUNS. Subject to the terms of this Agreement, each
Participant shall be obligated to contribute its Sharing Percentage of actual
costs and expenses of Venture operations to the extent retained revenues or
other venture funds are not available for the payment thereof. The Manager will
use its best efforts to conduct Venture operations within budgeted amounts;
however, the budgeted amounts
3
<PAGE> 4
set forth in Section 3.1 shall not be a limitation on the obligations of the
Participants to pay the actual costs and expenses of operations.
SECTION 3.3 NONPAYMENT OF CAPITAL CONTRIBUTIONS.
(a) The Venture shall have the right to pursue any remedy
existing at law or in equity for the collection of the unpaid amount
of the Capital Contributions agreed to be made as provided in Sections
3.1 and 3.2., interest accrued thereon and other damages and collection
costs incurred by the Venture on account of the Participant's failure
to pay. All late payments shall bear interest at the lesser of (i) 2%
above the prime rate of interest as announced from time to time by
NCNB Texas National Bank in Dallas, Texas, or (ii) the maximum rate of
interest permissible under applicable law.
(b) In addition to the remedies discussed in subsection (a)
above, the Manager shall have the right, but not the obligation. to
advance its own funds to pay the Capital Contribution of a defaulting
Participant described in subsection (a) above and may bill such
Participant for the amount of such advance plus interest as described
in subsection (a) above or may withhold from distributions which such
Participant would otherwise receive an amount equal to such advance
plus interest.
(c) In addition to the remedies sat forth in subsections (a)
and (b) above, the Venture shall have the right to acquire the
defaulting Participant's interest in the Venture and shall have the
right to sell such interest proportionately to the other Participants
or to third parties at public or private sale. for such price and on
such terms and conditions as the Manager may deem appropriate. Each
Participant hereby grants to the Ventura a lien upon and security
interest in his interest in the Venture, and hereby authorizes the
Venture upon the failure of such Participant to pay any of his Capital
Contributions when due to foreclose on such lien or security interest
in any manner provided for by the laws of the State of Texas. Each
Participant by his execution of this Agreement hereof irrevocably
constitutes and appoints the Manager and its authorized agents and
successors, each with full power of substitution, the agent and
attorney-in-fact of such Participant to sign, execute and deliver on
behalf of such Participant all financing statements, UCC filings and
other documents as shall be necessary or desirable to create and
perfect the security interest and lien granted herein. The power of
attorney granted herein shall survive the assignment or transfer by a
Participant of his interest herein and. being coupled with an interest,
shall survive the death, incompetency, incapacity, dissolution or
termination of such Participant. The proceeds of any public or private
sale by the Venture of the Venture interest of a defaulting Participant
shall be applied as follows: (i) first, to the costs and expense,
including without limitation all attorneys' fees incurred by the
Venture in foreclosing such lien or security interest, making such sale
and collecting such proceeds; (ii) second, to the Venture in the amount
of the Capital Contribution which the defaulting Participant failed to
pay, and (iii) third, to the defaulting Participant. The defaulting
Participant shall be fully liable to the Venture for any deficiency
remaining after such sale. A purchaser of all or a part of the
Venture's interest of a defaulting Participant shall be admitted to the
Venture as a substituted Participant and shall have the Sharing
Percentage of the defaulting Participant, or a proportionate share
thereof if such interest is acquired by more than one party.
(d) In addition the remedies set forth in subsections (a)
through (c) above, the Manager shall have the right, but not the
obligation, to offer to the remaining Participants the right to pay
their pro rata portion of the unpaid Capital Contributions of the
defaulting Participant and to have their Sharing Percentages adjusted
based on the percentage relationship that each Participant's
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aggregate Capital Contributions bear to the aggregate Capital
Contributions made to the Venture by all Participants.
SECTION 3.4 RETURN OF CONTRIBUTIONS. No interest shall accrue on any
contributions to the capital of the Venture, and no Participant shall have the
right to withdraw or be repaid any capital contributed by such Participant
except as otherwise specifically provided in this Agreement.
SECTION 3.5 ADDITIONAL PROSPECTS. The Manager, with the Agreement of
all Participants, may elect to participate in the acquisition, exploration,
development and/or sales of Prospects in addition to the first four Prospects in
which the Venture will participate hereunder. In such event, the Manager will
present detailed information regarding such properties and the estimated costs
associated therewith. In the event one or more Participants do not agree to
participate in such additional Prospects, the Manager and the other Participants
may elect to so participate and a separate accounting unit and capital accounts
for the Participants will be established with respect to such Prospect, and the
non-participating Participant(s) shall have no rights or interests in such
Prospect. The Participants hereby agree to amend this Agreement to the extent
necessary to establish separate accounting units and capital accounts when and
as required to effectuate the purposes of this Section 3.5.
ARTICLE IV
ALLOCATIONS AND DISTRIBUTIONS
SECTION 4.1 ALLOCATION OR COSTS AND REVENUES AND INCOME TAX
ALLOCATIONS. All Costs and revenues, and all items of income, gain, loss
deduction and credit for federal, state and local income tax purposes, shall be
allocated to the Participants in accordance with their respective Sharing
Percentages.
SECTION 4.2 DISTRIBUTIONS. At least quarterly, all cash fund: of the
Venture which the Manager reasonably determines are not needed for the payment
of existing or anticipated Venture obligations and expenditures shall be
distributed to the Participants. In addition, the Manager will distribute all
cash and other sales proceeds to the Participants as soon as practicable
following the sale of a Venture Prospect or leasehold interest therein. All
revenues of the Venture to be distributed to the Participants shall be
distributed to the Participants in the same respective percentages as such
revenue is allocated to the Participants pursuant to Section 4.1 (after
deducting therefrom the costs and expenses charged to the Participants pursuant
to Sections 4.1).
SECTION 4.3 LIABILITY OF THE PARTICIPANTS. Each Participant hereby
acknowledges that as to all third parties dealing with the Venture, all
Participants are jointly and severally liable for all costs, expenses and
obligations of the Venture. However, as among themselves, the Participants
hereby agree that each shall be individually and solely responsible only for
his share of the costs, expenses and obligations of the Venture as determined
under this Agreement. Pursuant thereto, each Participant hereby further agrees
to indemnify the other Participants from paying more than their respective,
shares of the costs, expenses and obligations of the Venture as determined in
accordance with Article XV.
SECTION 4.4 DEFERRED PROSPECT GENERATION COSTS. Pursuant to the Arkoma
Letter Agreement, M. G. Whitmire and Bandera Petroleum, Inc. ("WB") are entitled
to certain overriding royalties, carried or earned interests and net profits, an
a prospect-by-prospect basis, on any Prospect generated by WB. The Arkoma Letter
Agreement is attached as Exhibit B hereto and is made a part of this Agreement.
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SECTION 4.5 CONFLICT OF INTEREST. Subject to the provisions of Section
5.10, no Participant is required to account for or pay over to the Venture or
any Participant any benefit or profit derived by such Participant from any
business of the same nature as or competing with that of the Venture and the
Participants hereby consent to the carrying on of any such business by any
Participant
ARTICLE V
MANAGEMENT
SECTION 5.1 MANAGER. The Participants hereby designate Toreador
Royalty Corporation as the Manager of the Venture to serve in that capacity
until such time as the Participants designate a new Manager by vote of a
majority in interest. The Partners hereby delegate to the Manager
responsibility for the day-to-day management and ministerial acts of the
Venture. The Manager shall devote such attention to the affairs of the Venture
as may reasonably be necessary.
SECTION 5.2 POWER AND AUTHORITY OF MANAGER. Except as specifically
provided in Section 5.3 and elsewhere in this Agreement. the Manager shall have
the power and authority on behalf of the Venture to manage, control, administer
and operate the business. affairs and properties of the Venture and to do or
cause to be done any and all acts deemed by the Manager to be necessary or
appropriate thereto, and the scope of such power and authority shall encompass
all matters in any way connected with such business or incident thereto,
including but not limited to, the power and authority;
(a) to acquire Leases, to market and sell assembled leasehold
positions to third parties, to package materials pertinent to such
effort and otherwise act for, in the name of and on behalf of the
Venture with respect to such Lease in accordance with the terms of
this Agreement;
(b) to purchase or otherwise acquire, hold, exchange, lease,
improve, operate, or let any interest(s) in other related real or
personal property of any kind, character and description;
(c) to enter into and execute all contracts and other
agreements and any and all other instruments or documents considered
by the Manager to be necessary or appropriate to carry on and conduct
the business of the Partnership, for such consideration and on such
terms as the Manager in its sole discretion may determine;
(d) to employ on behalf of the Venture, agents, employees,
accountants, lawyers, brokers, consultants and all other
professionals, clerical help and such other assistance and services as
the Manager may deem proper and to pay thereof or such remuneration as
the Manager may determine to be reasonable and appropriate;
(e) subject to obtaining the consent of a majority in
interest of the Participants pursuant to Section 5.3. to borrow monies
for the business of the Venture and from time to time to draw, make,
execute and issue promissory notes or other negotiable or
non-negotiable instruments and evidences of indebtedness; to secure
the payment of the sums so borrowed and to mortgage, pledge, or assign
in trust all or any part of the property of the Venture; to assign any
monies owing or to be owing to the Venture; and to engage in any other
means of financing;
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(f) to enter to any agreements for sharing of profits, joint
venture or partnerships with any person, firm, corporation, government
or agency thereof engaged in any business or transaction which the
Venture is authorized to engage in, or in any business or transaction
capable of being conducted so as to directly or indirectly benefit the
Venture;
(g) to sell, assign, convey or otherwise dispose of, for such
consideration and upon such terms and conditions as the Manager may
determine, all or any part of the Venture's assets, any interest
therein, or any interest payable therefrom, and in connection
therewith to execute and deliver such deeds, assignments and
conveyances containing such warranties as the Manager shall determine;
(h) to purchase, lease, rent or otherwise acquire or obtain
the use of all kinds and types of real or personal property which may
in any way be deemed necessary, convenient or advisable in connection
with carrying on the business of the Venture or for the enhancement of
Venture assets and to incur expenses for travel, telephone, telegraph,
insurance for such other things, whether similar or dissimilar as may
be deemed or necessary or appropriate to carry on and perform the
business of the Venture;
(i) to make and enter into such agreements and contracts with
such parties and to give such receipts, releases and discharges with
respect to any and all of the foregoing and any matters incident
thereto as the Manager may deem advisable or appropriate;
(j) subject to obtaining the consent of a majority in
interest of the Participants pursuant to Section 5.3, to guarantee the
payment of money or the performance of any contract or obligation by
any person, firm or corporation;
(k) to sue and be sued, complain and defend in the name and on
behalf of the Venture;
(l) to quitclaim, surrender, release or abandon any Venture
property with or without consideration therefor;
(m) to make such classifications, determinations and
allocations as the Manager may deem advisable, having due regard for
any relevant generally accepted accounting principles; and
(n) to take such other action, execute and deliver such other
document: and perform such other acts as may be deemed by the Manager
to be appropriate to carry out the business end affairs of the
Venture.
In accomplishing all of the foregoing, the Manager may, in its discretion, use
its own personnel, properties and equipment or those of any of its affiliates
or the manager may hire or rent that of third parties.
SECTION 5.3 RESTRICTIONS ON MANAGER'S POWER AND AUTHORITY. The consent
of a majority in interest of the Participants (other than the Manager) shall be
required to take any actions authorized in Section 5.2(e) and (j). No
Participant shall have the power or authority to do or perform many of the
following acts without having previously obtained the prior consent of the
other Participants:
(a) to bind or obligate the Venture with respect to any matter
outside the scope of the Venture business;
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(b) to use the Venture name, credit or property for other than
Venture purposes; or
(c) to take any action with respect to the asset or property
of the Venture which does not primarily benefit the Venture,
including, among other things, utilization of funds of the Venture as
compensating balances for its own benefit.
SECTION 5.4 LIABILITY AND INDEMNIFICATION OF THE MANAGER. The Manager
and its officers, directors. employees and agents: (collectively referred to in
this Section 5.4 as "THE MANAGER") shall not be liable, responsible or
accountable in damages or otherwise to the Venture or the other Participants
for, and the Venture shall indemnify and save harmless the Manager from any
loss or damage incurred by reason of. any act or omission performed or omitted
by it in good faith on behalf of the Venture and in a manner reasonably
believed by it to be within the scope of the authority granted to it by this
Agreement and in the best interests of the Venture irrespective of whether such
loss or damage results from the ordinary sole, concurrent or comparative
negligence of the Manager. provided that the Manager was not guilty of gross
negligence or willful misconduct with respect to such acts or omissions. Any
act or omission performed or omitted by the Manager on advice of legal counsel
or an independent consultant or with the consent or approval of the other
Participants shall be conclusively deem to have been performed or omitted in
good faith.
SECTION 5.5 REIMBURSEMENT OF MANAGER. All direct costs and expenses
incurred by the Manager in managing and conducting the business and affairs of
the Venture, including expenses incurred in providing or obtaining such
professional. technical. administrative and other services and advice as the
Manager may deem necessary or desirable, shall be paid or reimbursed by the
Venture as a Venture expense.
SECTION 5.6 MANAGEMENT FEE. For and in consideration of the Manager's
services in such capacity, the Participants shall pay to Manager a monthly fee
of $3,000. which will be in addition to any reimbursement of direct expenses to
Manager pursuant to Section 5.5.
SECTION 5.7 TAX ELECTIONS. The Manager shall make the following
elections on behalf of the Venture;
(a) to elect a calendar year as the Venture's fiscal year;
(b) to elect the accrual method of accounting;
(c) to elect, in accordance with Section 754 of the Internal
Revenue Code, and applicable regulations and comparable state law
provisions. to adjust the basis of Venture property in the case of
distribution of property or transfer of a Venture interest. if in the
discretion of the Manager, such action is deemed advisable; and
(d) to elect with respect to such other federal, state and
local tax matters as the Manager shall deem advantageous to the
Venture.
SECTION 5.8 RIGHTS OF PARTICIPANTS. In addition to the other rights
specifically set forth herein. each Participant shall have the right to:
(a) have the Venture books kept at the principal place of
business of the Venture and at all reasonable times to inspect and
copy any of them; and
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(b) have on demand true and full information of all things
affecting the Venture and a formal account of Venture affairs whenever
circumstances render it just and reasonable.
SECTION 5.9 TAX MATTERS PARTNER. The Manager shall be designated the
Tax Matters Partner (in this Section 5.9 called the "TMP") as defined in
Section 6231(a)(7) of the Internal Revenue Code with respect to operations
conducted by the Participants pursuant to this Agreement until such time as the
Participants have elected a new TMP. The TMP is authorized to take such actions
and to execute and file all statements and forms on behalf of the Venture which
may be permitted or required by applicable provisions of the Internal Revenue
Code or Treasury Regulations issued thereunder, and the Participants will take
all other action that may be necessary or appropriate to effect the designation
of the Manager as the TMP. In the event of an audit of the Venture's income tax
returns by the Internal Revenue Service, the TMP may, at the expense of the
Venture, retain accountants and other professionals to participate in the
audit. All expenses incurred by the TMP in its capacity as such shall be
expenses of the Venture and shall be paid or reimbursed to the TMP from Venture
funds.
SECTION 5.10 ADDITIONAL ACQUISITIONS WITHIN PROSPECT AMI'S. If any
Participant shall acquire an additional lease within a Prospect API for its own
account during the term of this Agreement, such Participant must offer the
Venture the right to acquire such Lease at the cost to such Participant for the
Lease. In such event, the Manager will present such Lease to the Participants
for acquisition in the same manner provided for the acquisition of additional
Prospects set forth in Section 3.5. In addition, any such Lease acquisition by
a Participant shall be subject to the provisions of Paragraph 3 of the Arkoma
Letter Agreement.
ARTICLE VI
BOOKS, RECORDS, BANK ACCOUNTS AND REPORTS
SECTION 6.1 BOOKS AND RECORDS. The Manager shall keep, or cause to be
kept, just and true books of account with respect to the operation of the
Venture. Such books shall be maintained at the principal place of business of
the Venture and shall be kept on the accrual method of accounting, or on such
other method of accounting as the Manager shall determine. The fiscal year of
the Partnership shall be the calendar year and the Manager shall keep the books
of the Partnership on such basis.
SECTION 6.2 BANK ACCOUNTS. The Manager shall cause one or more
accounts to be maintained in a bank (or banks) which is a member of the Federal
Deposit Insurance Corporation which accounts shall be used for the payment of
the expenditures incurred by the Participants. in connection with the business
of the Venture and in which shall be deposited any and all receipts of the
Venture. All such amounts shall be and remain the property of the Venture and
shall be received. held and dispersed by the Manager for the purposes specified
in this Agreement. There shall not be deposited in any of said accounts any
funds other than funds belonging to the Venture, and no other funds shall in
any way be commingled with such funds.
SECTION 6.3 REPORTS. The Manager shall report in writing and in
reasonable detail to the Participants on the affairs of the Venture as often as
is reasonably required to keep the Participants informed as to the affairs of
the Venture, or whenever the Participants reasonably request the Manager to do
so.
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ARTICLE VII
ASSIGNMENT OF INTEREST AND SUBSTITUTION
SECTION 7.1 ASSIGNMENT OF VENTURE INTERESTS. The interest of a
Participant in the Venture may not he sold, assigned, transferred,
hypothecated, mortgaged, pledged or otherwise disposed of without the written
approval of the Manager. This provision shall not affect the right of a
Participant to assign, transfer or otherwise deal with property interests
distributed to such Participant by the Venture and held outside this Agreement.
ARTICLE VIII
DISSOLUTION, LIQUIDATION AND TERMINATION
SECTION 8.1 DISSOLUTION. The Venture shall be dissolved upon the
occurrence of any of the following:
(a) The occurrence of March 1, 2000.
(b) The written consent of the Manager and a majority in
interest of the other Participants at any time.
(c) The dissolution, termination, bankruptcy or insolvency of
any Participant or the occurrence of any other event which would
permit a trustee or receiver to acquire control of the property or
affairs of such Participant.
(d) The adjudication of bankruptcy or insolvency of the
Venture or the assignment by the Venture for the benefit of creditors.
(e) The occurrence of any event which, under the laws of the
State of Texas, causes the dissolution of a general partnership.
Notwithstanding the provisions of Section 8.1(e), neither the death,
adjudication of incompetence or insanity nor the legal disability of a
Participant shall cause a dissolution of the Venture. Further, notwithstanding
the provisions of Section 8.1(a)-(e), upon the dissolution of the Venture by
the dissolution, termination, bankruptcy, insolvency or withdrawal of a
Participant, the remaining Participants will have the right to reconstitute the
Venture by mutual consent. Upon the death, insanity or legal disability of a
Participant and upon the occurrence of any event set forth in the immediately
preceding sentence, if the Venture is reconstituted, the estate, personal
representative, guardian or other successor in interest of such Participant or
such Participants, as the case may be, (i) will continue to be liable for all
of the debts and obligations of such Participant pursuant to this Agreement,
(ii) may transfer the Venture interest of such Participant only pursuant to the
provisions of Article VII hereof and (iii) will not have any right to withdraw
the Capital Contribution of such Participant except as expressly set forth in
Section 8.2 of this Agreement. Upon the occurrence of the event of dissolution
under Section 8.1(a), the Venture may be continued and no termination shall
occur if all Participants consent to continuation of the Venture for an
additional designated period of time.
SECTION 8.2 LIQUIDATION AND TERMINATION. Upon dissolution of the
Venture, the Manager shall act as liquidator or may appoint in writing one or
more liquidators who shall have full authority to wind up
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the affairs of the Venture and make final distribution as provided herein;
provided, however, that if one of the events specified in Section 8.1(c) has
occurred with respect to the Manager, the liquidator shall be selected by the
Participants with respect to which such event has not occurred. The liquidator
shall proceed diligently to wind up the affairs of the Venture and make final
distribution as provided herein. Until final distribution. the liquidator shall
continue to operate the Venture business with all of the power and authority of
the Manager. The steps to be accomplished by the liquidator are as follows:
(a) As promptly as possible after dissolution, the liquidator
shall cause a proper accounting to be made of the Venture's assets,
liabilities and operations through the last day of the month in which
the dissolution occurs.
(b) The liquidator shall pay all of the debts and liabilities
of the Venture (including all expenses incurred in liquidation) or
otherwise make adequate provision therefor (including. but not limited
to the establishment of a cash escrow fund for contingent liabilities
in such amount and for such term as the liquidator may determine). To
the extent cash required for this purpose is not otherwise available,
the liquidator may sell assets of the Venture for cash.
(c) After making payment or provision for all debts and
liabilities of the Venture, the liquidator shall distribute (in
accordance with the provisions of this subsection (c) and subsection
(d)) to the Participants the remaining cash and property in accordance
with their Sharing Percentages. The liquidator, at its option. may sell
Venture properties at the best cash price available therefor and the
cash therefrom shall be distributed to the Participants in accordance
with the provisions of this subsection (c).
(d) At the option of the liquidator, all or any part of the
Venture properties may be distributed in kind to the Participants. In
such event, the properties of the Venture shall be conveyed and
assigned to the Participants in a manner so that they shall be
entitled to receive from the interests so conveyed and assigned to
them income on the same basis as specified in Section 4.1. The
interests in Venture properties distributed to the Participants may be
subject to such liens, encumbrances and restrictions as affect the
properties on the date of such distribution.
The liquidator shall comply with any requirements of the Texas Uniform
Partnership Act and all other applicable laws pertaining to the winding up of
the affairs of the Venture and the final distribution of its assets. The
distribution of cash to the Participants in accordance with the provisions of
this Section 8.2 shall constitute a complete return to the Participants of
their respective interests in the Venture and all Venture property.
ARTICLE IX
REPRESENTATIONS AND WARRANTIES
SECTION 9.1 REPRESENTATIONS AND WARRANTIES OF THE PARTICIPANTS. Each
Participant hereby represents and warrants to and agrees with the Venture and
the other Participants as follows:
(a) He has the right, power and authority to enter into this
Agreement, to become a Participant, and to perform his obligations
hereunder and this Agreement is a legal and binding obligation of such
Participant.
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(b) He has adequate means of providing for his current needs
and possible personal contingencies, and he has no need now, and
anticipates no need in the foreseeable future to sell his interest in
the Venture. He is able to bear the economic risks of this investment
and consequently, without limiting the generality of the foregoing, he
is able to hold his interest in the Venture for an indefinite period
of time and has a sufficient net worth to sustain a loss of his entire
investment in the event such loss should occur.
(c) (i) He either (A) is a natural person with an individual
net worth, or joint net worth with his spouse, at the time of his
purchase in excess of$1,000,000, (B) is a natural person with
individual income in excess of $200,000 in each of the two most recent
years and reasonably expects an income in excess of $200,000 in the
current year, or (C) is an entity composed solely of persons meeting
the requirements of one or more of the above subcategories (A) or (B);
or (ii) He has such knowledge and experience in financial. tax and
business matters to be capable of evaluating the merits and risks of
an investment in the Venture.
(d) He recognizes that his investment in the Venture involves
a high degree of risk which may result in the loss of the total amount
of his investment.
(e) He is acquiring his interest in the Venture for his own
account (as principal) or the for account of his spouse (either in a
joint tenancy, tenancy by the entirety or tenancy in common) for
investment and not with a view to the distribution or resale thereof.
(f) He has not offered or sold any portion of his interest in
the Venture and has no present intention of dividing his interest
therein with others or of reselling or otherwise disposing of any
portion of his interest in the Venture, either currently or after the
passage of a fixed or determinable period of time or upon the
occurrence or nonoccurrence of any predetermined event or
circumstance.
(g) He is aware that he must bear the economic risk of his
investment in the Venture for an indefinite period of time because (i)
interests in the Venture have not been registered under federal or
state securities laws, and therefore cannot be sold unless they are
subsequently registered under the Securities Act of l933 and any
applicable state securities laws or unless an exemption from such
registration is available and. further, that only the Venture can take
action to register interests in the Venture and the Venture is under
no obligation and does not propose to attempt to do so, and (ii) the
Agreement provides that a Participant may assign his interest in the
Venture only upon the satisfaction of certain conditions. He also
recognizes that no federal or state agency has passed upon the
interests in the Venture or made any finding or determination as to
the fairness of an investment in the Venture.
(h) The foregoing representations, warranties and agreements
shall remain true and accurate during the terms of the Venture, and he
will neither take action or permit action to be taken which would
cause any of them to become untrue or inaccurate.
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ARTICLE X
MISCELLANEOUS
SECTION 10.1 NOTICES. All notices, elections, demands or other
communications required or permitted to be made or given pursuant to this
Agreement shall be in writing and shall be considered as properly given or made
if give by (a) personal delivery or (b) expedited delivery service with proof
of delivery, or (c) United States mail, postage prepaid. registered or
certified mail, return receipt requested. or (d) prepaid telegram or telex
(provided that such telegram or telex is confirmed by expedited delivery
service or by mail in the manner previously described, sent to the intended
addressee at the address set forth opposite the signature of such Partner, and
shall be deemed to have been given either at the time of personal delivery, or,
in the case of delivery service or mail, as of the date of delivery at the
address and in the manner provided herein.
SECTION 10.2 AMENDMENT. Except to the extent necessary to effect the
provisions of Section 3.5, this Agreement may be changed, modified or amended
only by an instrument in writing duly executed by all Participants.
SECTION 10.3 PARTITION. Each of the Participants hereby irrevocably
waives for the term of the Venture any rights that such Participant may have to
maintain any action for partition with respect to Venture property.
SECTION 10.4 ENTIRE AGREEMENT. This Agreement constitutes the full and
complete agreement of the parties hereto with respect to the subject matter
hereof.
SECTION 10.5 NO WAIVER. The failure of any Participant to insist upon
strict performance of a covenant hereunder or of any obligation hereunder,
irrespective of the length of time for which such failure continues, shall not
he a waiver of such Participants' right to demand strict compliance in the
future.
No consent or waiver, express or implied, to or of any breach or default in the
performance of any obligation hereunder shall constitute a consent or waiver to
or of any other breech or default in the performance of the same or any
obligation hereunder. -
SECTION 10.6 APPLICABLE LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND INTERPRETED,
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
SECTION 10.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties hereto, their respective heirs,
legal representatives, successors and assigns, provided, however, that no
Participant may sell, assign, transfer or otherwise dispose of all or any part
of his rights or interest in the Venture or under this Agreement except as
provided in Article VII.
SECTION 10.8 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be an original and all of which shall
constitute but one and the same document.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
the 17th day of March, 1989 but effective as of the day and year first above
written.
ADDRESS: PARTICIPANTS:
400 N. St. Paul, Suite 730 Toreador Royalty Corporation
Dallas, Texas 75201
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By: /s/ PETER R. VIG
------------------------------
Name: Peter R. Vig
Title: Chairman
3000 San Jacinto Tower The Grayrock Corporation
Dallas, Texas 75201
By: /s/ GRADY M. VAUGHN
------------------------------
Name: Grady M. Vaughn
Title: President
1116 One Energy Square Roy Guffey Oil Company
Dallas, Texas 75205
By: /s/ WILLIAM R. GUFFEY
------------------------------
Name: William R. Guffey
Title: Partner
Lincoln Plaza, Suite 2160 /S/ FRANK A. SCHULTZ
Lock Box #1 ---------------------------------------
Dallas, Texas 75201 Frank A. Schultz
2096 Green Oaks Lane Sterling Energy Group
Littleton, Colorado 80121 /s/ THOMAS A. PETRIE
---------------------------------------
Thomas A. Petrie
P.O. Box 335 /s/ D. MILES PRICE
Pine Plains, New York 12567 ---------------------------------------
D. Miles Price
200 Crescent Court, Suite 1900 /s/ MICHAEL MEWHINNEY
Dallas, Texas 75201 ---------------------------------------
Michael Mewhinney
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EXHIBIT "B"
Toreador Royalty Corporation
400 N. St. Paul
Suite 1140
Dallas, Texas 75201
(214) 220-2141
March 1, 1989
Mr. M. G. Whitmire
Bandera Petroleum, Inc.
427 South Boston
The Mezzanine
Tulsa, Oklahoma 74103
Re: Exploration Program/Arkoma Basin
Dear Mr. Whitmire:
This agreement (hereinafter, the "AGREEMENT") is entered into as of
the first day of March, 1989, by and among Toreador Royalty Corporation, a
Delaware corporation ('TOREADOR"), and M. G. Whitmire, an Oklahoma resident,
and Bandera Petroleum, Inc., an Oklahoma Corporation (hereinafter "W-B"). This
Agreement sets forth the terms and conditions pursuant to which Toreador and
W-B will participate in the business of an exploration program for the assembly
of oil and gas prospects in the Arkoma Basin, Arkansas.
1. The purpose of this Agreement is to provide for the generation and
acquisition of oil and gas prospects and leases for the drilling, development
and production thereon in the Area of Mutual Interest designated in Exhibit "A"
attached hereto and made a part hereof (the "AMI BASIN") from the date hereof
until March 1, 1991 (the "ACQUISITION TERM").
2. This Agreement is not intended and shall not be construed to create
a joint venture, a mining or other Partnership (general, limited or otherwise)
under state law or for tax purposes, or an association, any sort of trust or
other fiduciary relationship or otherwise render the parties hereto liable as
partners. Each party agrees to join in the execution of any documents and
elections as may be required to effectuate the purpose of this Paragraph 2.
3. W - B will generate a minimum of four (4) prospects as soon as
practical. Toreador will have the right but not the obligation to assemble
leases within these prospects with the intent of marketing said prospects for
sale or farm-out or for its own drilling and exploration. Should W - B generate
more than four prospects, Toreador will have the right or first refusal under
the same term as set forth in Paragraphs 5 and 8 below on each additional
prospect generated by W - B within the AMI during the Acquisition Term.
Toreador must accept or reject such prospect within ten (10) business days of
receipt of written notice thereof. When a prospect is accepted by Toreador, the
parties hereto shall mutually agree upon a prospect area of mutual interest (a
"PROSPECT AMI"), which Prospect AMI shall remain in effect for a five year
period, commencing with the date of acquisition of any leases therein by either
of the parties hereto. If either party shall acquire an additional lease within
a Prospect AMI during the term thereof, such lease shall become subject to the
terms of this Agreement at the election of the other party (the "NON-ACQUIRING
PARTY")
<PAGE> 16
within fifteen (15) days following receipt of written notice of such
acquisition by the non-acquiring party. Failure to respond within fifteen (15)
days of notice shall be deemed to be a rejection of such lease.
4. Toreador intends to assemble leasehold interests acquired pursuant
hereto and market such prospects to prospective purchaser candidates or
farmers. It is also the intent of Toreador to seek additional investor partners
to share the cost of assembly of such geophysical data end leasehold positions.
Such investor partners shall be bound by the terms of this Agreement.
(Toreador, together with its investor partners shall be referred to herein as
the "FUND".) Toreador will direct all leasehold acquisition activities, all
marketing efforts and will determine all terms and conditions of any sale.
5. For and in consideration of generation of these prospects, W - B
will be entitled to receive 30% of the net profit (as defined below) earned by
the Fund for any sale of a prospect and/or leasehold position generated pursuant
to this Agreement on a prospect by prospect basis. In addition, W - B will
receive 50% of any overriding royalty retained by the Fund in any sale of such
leases or farm-out of same, and 30% of any carried interest or reversionary
interest of the Fund which occurs after payout of any such prospect which is
sold or farmed out to a third party. These percentages are to be proportionately
reduced as to the interest in the leases owned by the Fund. Any compensation to
be paid to W - B hereunder shall accrue and be payable upon the earlier to occur
of (a) the sale by the Fund of 100% or the interests held by it in such prospect
or (b) a partial sale of the interests held by the Fund in such prospect and an
election by the fund (or its Participants) to participate in the drilling of an
initial well on the remaining interest held in such prospect. For purposes of
this Paragraph, "net profit" is defined as the difference between (i) the net
sales price obtained by the Fund (computed on 100% of its interest in such
prospect) and (ii) all leasehold acquisition, brokerage, and geophysical costs,
all expenses incurred by the Fund to assemble and market these prospects,
including Toreador's management fee (not to exceed $36,000 per annum) printing,
drafting, postage, travel and all other reasonable costs payable to third
parties (including without limitation, all costs paid or reimbursed to W - B
pursuant to Paragraph 6 hereof).
6. In consideration of Toreador's investment, supervision, marketing
and sales of prospects generated pursuant to this Agreement, W - B agrees to
contribute on a continuing basis within the AMI its technical expertise in the
preparation and presentation of these prospects both to prospective investor
partners as well as purchaser candidates. Such items and services to be
provided by W - B include, without limitation, the following:
a. preparation of geologic and geophysical maps and presentation
materials;
b. review and acquisition of seismic data;
c. marketing of the prospects to purchaser candidates with
Toreador, at its request; and
d. necessary travel to meet with prospective purchaser
candidates.
The Fund will reimburse W - B for all third party costs for preparing sales
packages and travel expenses incurred in marketing the prospects.
7. In the event that Toreador and its investor partners contribute to
the drilling of an exploratory well on a prospect generated pursuant to this
Agreement or cause such a well to be drilled, Toreador, its investor
partners and any third party owners will enter into a mutually agreeable Joint
Operating Agreement with each party contributing its proportionate share of the
costs.
2
<PAGE> 17
8. In the event Toreador, the Fund or one or are of its partners
elects to participate in the drilling of all or a portion of its interest in
the initial well on a prospect generated pursuant to this Agreement, then in
lieu of the compensation set forth in Paragraph 5 hereof, the W - B
compensation shall be computed as follows;
a) should there be any third party sales from Toreador or the Fund
within the prospect, W - B shall receive compensation on the same
terms as outlined in Paragraph 5 from the portion sold and from those
parties that elect to drill all or a portion of their interest,
proportionately reduced.
b) should there be any third party sales from Toreador or the Fund
within the prospect, W - B shall receive as consideration 15% of total
prospect acquisition costs including lease bonus, title, travel,
reproduction and geophysical costs related to the acquisition of such
prospect) proportionately reduced. In addition W - B shall be entitled
to receive an overriding royalty interest equal to 50% of the
remainder of twenty percent (20%) minus total leasehold burdens and a
six percent (6%) reversionary interest after payout on the initial
well of the prospect and a 6% working interest in the remaining
acreage held by the Fund in the Prospect AMI, proportionately reduced.
9. This Agreement shall remain in effect until the later of March 1,
1991 or the termination of the last Prospect AMI subject to this Agreement,
unless modified by the written agreement of all parties.
10. This Agreement and the rights and obligations of the parties
hereunder shall be governed and interpreted, construed and enforced in
accordance with the laws of the State of Texas.
11. This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective heirs, legal representatives,
successors and assigns; provided, however, that no party shall be permitted to
assign its rights or obligations hereunder without the prior written consent of
the other parties.
12. This Agreement may be amended, changed or modified only by an
instrument in writing executed by all parties.
Should the foregoing terms and conditions be acceptable to you, please
execute four originals of this Agreement and return two (2) originals to
Toreador for our records.
Sincerely,
/s/ PETER R. VIG
----------------------------------------
Peter R. Vig
Chairman
Agreed to and Accepted this
7th day of March, 1989
BANDERA PETROLEUM, INC.
By: /s/ M. G. WHITMIRE
-------------------------------------
Name: M. G. Whitmire
Title: President
/s/ M. G. WHITMIRE
- ----------------------------------------
M.G. Whitmire, Individually
3
<PAGE> 18
AMENDMENT NO. 1 TO JOINT VENTURE AGREEMENT
ARKOMA BASIN JOINT VENTURE 1989
THIS AMENDMENT NO. 1 TO JOINT VENTURE AGREEMENT (this "AMENDMENT")
dated as of March 15, 1989, is made by and among Toreador Royalty Corporation,
a Delaware corporation (the "MANAGER") and The Grayrock Corporation, Roy Guffey
Oil Company, Frank A. Shultz, Thomas A. Petrie, D. Miles Price and Michael
Mewhinney (collectively, together With the Manager, the "PARTICIPANTS").
W I T N E S S E T H :
WHEREAS, a Joint Venture Agreement dated as of March 1, 1989 (the
"VENTURE AGREEMENT"), was made and entered into for the formation of Arkoma
Basin Joint Venture 1989 (the "VENTURE"); and
WHEREAS, the parties hereto desire to amend the Venture Agreement to
reflect certain changes thereto,
NOW, THEREFORE, in consideration of the premises, the mtua1 covenants
and agreements contained herein and in the Venture Agreement and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Participants hereby agree to amend the Venture Agreement in
the following particulars:
1. Cost Overruns. Section 3.2 of the Venture Agreement is hereby
amended in its entirety to read as follows:
Section 3.2. Cost Overruns. Subject to the terms of this
Agreement, each Participant shall be obligated to contribute its
Sharing Percentage of actual costs and expenses of Venture operations
to the extent retained revenues or other Venture funds are not
available for the payment thereof. The Manager will use its best
efforts to conduct Venture operations within budgeted mounts; however,
the Participants shall be obligated to pay actual costs and expenses
of Venture operations in excess of budgeted amounts up to, but not in
excess of, 15% of the budgeted amount set forth in Section 3.1.
2. Payment of Capital Contributions. Subsections (a) and (d) of
Section 3.3 of the Venture Agreement are hereby amended to read as follows:
(a) Payments of Capital Contributions agreed to be made
hereunder shall be made by the Participants at such times as requested
by the Manager. Payment of any such Capital Contributions shall be made
by the date set forth in the notice provided by the manager to the
Participants and in the absence of any date specified in the notice,
within 10 days of such notice. The Venture shall have the right to
pursue any remedy existing at law or in equity for the collection of
the unpaid amount of the Capital Contributions agreed to be made as
provided in Sections 3.1 and 3.2 or hereafter agreed to be made as
provided in Section 3.5, interest accrued thereon and other damages and
collection costs incurred by the Venture on account of the
Participant's failure to pay. All late payments shall bear interest at
the lesser of (i) 2% above the prime rate of interest as announced from
time to time by NCNB Texas National Bank in Dallas, Texas, or (ii) the
maximum rate of interest permissible under applicable law.
<PAGE> 19
* * *
(d) In addition to the remedies set forth in subsections (a)
through (c) above, the Manager shall have the right to offer to the
remaining Participants the right to pay their pro rata portion of the
unpaid Capital Contributions of the defaulting Participant and to have
their Sharing Percentages adjusted based on the percentage relationship
that each Participant's aggregate Capital Contributions bear to the
aggregate Capital Contributions made to the Venture by all
Participants. The Manager shall have the right to elect any of the
options set forth in subsections (a) through (d) of this Section 3.3,
or any combination thereof, upon the nonpayment of a Capital
Contribution by a Participant, but shall have no obligation to elect to
pursue any particular remedy provided in this Section 3.3. Further, the
Manager shall have no right to separately acquire the interest of the
defaulting Participant except on a pro rata basis in conjunction with
the other Participants as provided in this Section 3.3.
3. Additional Prospects. Section 3.5 of the Venture Agreement is
hereby amended in its entirety to read as follows:
Section 3.5. Additional Prospects. After the expenditure or
commitment for expenditure of the Capital Contributions of the
Participants set forth in Section 3.1 hereof, the Manager, with the
agreement of all Participants, may elect to participate in the
acquisition, exploration, development and/or sales of additional
prospects and the Participants shall make additional Capital
Contributions with respect thereto. In such event, the Manager will
present to the Participants detailed information regarding such
properties and the estimated costs associated therewith. In the event
one or more Participants do not agree to participate in such additional
prospects, the Manager and the Other Participants may elect to so
participate and a separate accounting unit and capital accounts for the
Participants will be established with respect to such prospect, and the
non-participating Participant(s) shall have no rights or interests in
such Prospect. The Participants hereby agree to amend this Agreement to
the extent necessary to establish separate accounting units and capital
accounts when and as required to effectuate the purposes of this
Section 3.5.
4. Liability of Participants. Section 4.3 of the Venture Agreement is
hereby amended in its entirety to read as follows:
Section 4.3. Liability of the Participants. Each Participant
hereby acknowledges that as to all third parties dealing with the
Venture, all Participants are jointly and severally liable for all
costs, expenses and obligations of the Venture. However, as among
themselves, the Participants hereby agree that each shall be
individually and solely responsible only for his Sharing Percentage of
the costs, expenses and obligations of the Venture as determined under
this Agreement. Pursuant thereto, each Participant hereby further
agrees to indemnify the other Participants from paying more than their
respective Sharing Percentages of the costs, expenses and obligations
of the Venture in an amount not to exceed his Sharing Percentage of
such costs, expenses and obligations.
5. Reimbursement of Manager. Section 5.5 of the Venture Agreement is
hereby amended in its entirety to read as follows:
Section 5.5. Reimbursement of Manager. All out-of-pocket and third
party costs and expenses incurred by the Manager in managing and
conducting the business and affairs of the Venture, including expenses
incurred in providing or obtaining such professional, technical,
administrative and other services and advice as the Manager may deem
necessary or desirable, shall be paid or reimbursed
2
<PAGE> 20
by the Venture as a Venture expense. The Manager shall not be
reimbursed under this Section 5.5 for its overhead and other indirect
costs and expenses.
6. Management Fee. Section 5.6 of the Venture Agreement is hereby
amended in its entirety to read as follows:
Section 5.6. Management Fee. For and in consideration of the
Manager's services in such capacity, the Participants shall pay to the
Manager a monthly fee of $3,000 during the first two years of the
Venture term, or until the earlier termination and liquidation of the
Venture pursuant to the terms of Article VIII hereof. Such management
fee will be in addition to any reimbursement of direct expenses to the
pursuant to Section 5.5.
7. Ratification of Original Agreement. The Venture Agreement, as
amended by this Amendment, is hereby ratified and confirmed in all respects.
8. Counterparts. This Amendment may be executed in several
counterparts, each which shall be an original and all of which shall constitute
but one and the same instrument.
IN WITNESS WHEREOF, the parties hereby have executed this Amendment
the day of 17th day of March, 1989, but effective as of March 15, 1989.
PARTICIPANTS:
Toreador Royalty Corporation
By: /s/ PETER R. VIG
-----------------------------------
Name: Peter R. Vig
----------------------------
Title: Chairman
----------------------------
The Grayrock Corporation
By: /s/ GRADY M. VAUGHN
-----------------------------------
Name: Grady M. Vaughn
-----------------------------
Title: President
-----------------------------
Roy Guffey Oil Company
By: /s/ WILLIAM R. GUFFEY
-----------------------------------
Name: William R. Guffey
------------------------------
Title: Partner
-----------------------------
3
<PAGE> 21
/s/ FRANK A. SHULTZ
---------------------------------------
Frank A. Shultz
Sterling Energy Corp.
/s/ THOMAS A. PETRIE
----------------------------------------
Thomas A. Petrie
/s/ D. MILES PRICE
----------------------------------------
D. Miles Price
/s/ MICHAEL MEWHINNEY
----------------------------------------
Michael Mewhinney
4
<PAGE> 22
AMENDMENT NO. 2 TO JOINT VENTURE AGREEMENT
ARKOMA BASIN JOINT VENTURE 1989
THIS AMENDMENT NO. 2 TO JOINT VENTURE AGREEMENT (this "AMENDMENT")
dated as of June 28, 1989, is made by and among Toreador Royalty Corporation, a
Delaware corporation (the "MANAGER"), and The Grayrock Corporation, Roy Guffey
Oil Company, Frank A. Schu1z, Sterling Energy Corporation, D. Miles Price and
Michael Mewhinney (collectively, together with the Manager, the
"PARTICIPANTS").
W I T N E S S T H :
WHEREAS, a Joint Venture Agreement dated as of March 1, 1989 as
subsequently amended by Amendment No. 1 to Joint Venture Agreement dated March
15, 1989 the ("VENTURE AGREEMENT"), was made and entered into for the formation
of Arkoma Basin Joint Venture 1989 (the "VENTURE"); and
WHEREAS, the parties hereto desire to amend the Venture Agreement to
reflect an increase in the budget for the Venture as agreed upon at a meeting
of the Participants held June 28, 1989;
NOW, THEREFORE, in consideration of the premises, the mutual
covenants and agreements contained herein and in the Venture Agreement and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Participants hereby agree to amend the Venture
Agreement in the following particulars:
1. Budget Increase. Section 3.1 of the Venture Agreement is hereby
amended in its entirety to read as follows:
Section 3.1. Initial Capital Contributions of Participants.
The Venture shall attempt to generate and acquire Leases on four
Prospects pursuant to the Arkoma Letter Agreement. The Participants
have agreed upon an initial budget based upon four anticipated
Prospects equal to $800,000 to be allocated as follows:
<TABLE>
<S> <C> <C>
(a) Prospect Generation Costs $ 40,000
(b) Lease Acquisition Costs (including
brokerage and seismic costs) 700,000
(c) Management Fee (first year) 36,000
(d} Organization Costs and Other Costs 24,000
--------
Total $800,000
</TABLE>
Each Participant has received cash calls for his proportionate share of
$600,000. Each Participant agrees to pay his Sharing Percentage of any unpaid
portion of such $600,000 and of the remaining $200,000 as called for from time
to time by the Manager.
2. Ratification of Original Agreement. The Venture Agreement, as
amended by this Amendment, is hereby ratified and confirmed in all respects.
3. Counterparts. This Amendment may be executed in several
counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
<PAGE> 23
IN WITNESS WHEREOF, the parties hereby have executed this Amendment the
6th day of July, 1989, be effective as of June 28,1989.
PARTICIPANTS:
Toreador Royalty Corporation
By: /s/ PETER R. VIG
--------------------------------
Name: Peter R. Vig
-------------------------
Title: Chairman
-------------------------
The Grayrock Corporation
By: /s/ JOHN S. NICHOLS
--------------------------------
Name: John S. Nichols
-------------------------
Title: Senior V.P.
-------------------------
Roy Guffey Oil Company
By: /s/ WILLIAM R. GUFFEY
-------------------------------
Name: William R. Guffey
Title: Partner
/s/ FRANK A. SHULTZ
-----------------------------------
Frank A. Shultz
Sterling Energy Corporation
By: /s/ THOMAS A. PETRIE
----------------------------
Name: Thomas A. Petrie
/s/ D. MILES PRICE
-----------------------------------
D. Miles Price
-----------------------------------
Michael Mewhinney
2
<PAGE> 1
EXHIBIT 10.13
TOREADOR ROYALTY CORPORATION
AMENDED AND RESTATED 1990 STOCK OPTION PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
1. Grant of Option. Pursuant to the Amended and Restated Toreador
Royalty Corporation 1990 Stock Option Plan (the "Plan"), as adopted by Toreador
Royalty Corporation, a Delaware corporation (the "Company"), the Company grants
to
G. Thomas Graves, III
(Name of Participant)
an option (sometimes referred to herein as the "Stock Option") to purchase from
the Company a total of 250,000 full shares of common stock, $0.15625 par value
per share, of the Company (the "Common Stock") at $5.00 per share (being not
less than the fair market value per share of the Common Stock on the Date of
the Grant), in the amounts, during the periods and upon the terms and
conditions set forth in this Agreement.
The Date of Grant of this Stock Option is September 24, 1998.
The option granted under this Agreement is not intended to be, and
shall not be treated as, an incentive stock option under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code").
2. Time of Exercise. Except as otherwise provided in the Plan or as
specifically provided elsewhere in this Agreement, this Stock Option is
exercisable no sooner than as follows:
<TABLE>
<CAPTION>
EXERCISE DATE NUMBER OF SHARES
<S> <C>
1. One (1) year from the Date of Grant Up to 33.33% of the total optioned shares
under the Stock Option
2. Two (2) years from the Date of Grant Up to an additional 33.33% of the total
optioned shares under the Stock Option
3. Three (3) years from the Date of Grant Up to an additional 33.34% of the total
optioned shares under the Stock Option
</TABLE>
<PAGE> 2
provided, however, that in the event of: (i) the Participant's death, (ii)
Termination of Service by the Participant by reason of Disability, or (iii) the
occurrence of a Change in Control affecting the Company, all shares of Common
Stock under this Stock Option which have not previously vested and become
exercisable shall automatically be accelerated and become vested and
exercisable in full, without regard to the vesting limitations set forth above.
No part of this Stock Option may be exercised after the expiration of ten (10)
years from the Date of Grant.
3. Subject to Plan. This Stock Option and its exercise are subject in
all respects to the terms and conditions of the Plan, including the provisions
of Article X requiring stockholder approval of the Plan. The defined terms used
herein that are defined in the Plan shall have the same meanings defined for
and assigned to them in the Plan. In addition, this Stock Option is subject to
any rules promulgated pursuant to the Plan by the Board.
4. Term. This Stock Option will terminate at the first to occur of the
following:
(a) 5 p.m. on September 24, 2008 (no later than 10 years after Date
of Grant).
(b) 5 p.m. on the date which is twelve (12) months following the
date of the Participant's Termination of Service with the
Company or an Affiliate by reason of the Participant's death or
Disability.
(c) 5 p.m. on the date of the Participant's Termination for Cause.
(d) 5 p.m. on the date which is three (3) months following the date
of the Participant's Termination of Service for any reason other
than as set forth in subparagraphs (b) or (c) above of this
Section 4.
5. Who May Exercise. Subject to the terms and conditions set forth in
Section 4 above, this Stock Option may be exercised during the lifetime of the
Participant only by the Participant or by the Participant's guardian or legal
representative. If the Participant's service terminates as a result of death or
Disability prior to the termination date specified in Section 4(a) hereof, the
following persons may exercise this Stock Option on behalf of the Participant
at any time prior to the earlier of the dates specified
- 2 -
<PAGE> 3
in Sections 4(b), 4(c), or 4(d): (i) if the Participant is Disabled, the
Participant or the guardian of the Participant; or (ii) if the Participant
dies, the personal representative of the Participant's estate or the person who
acquired the right to exercise this Stock Option by bequest or inheritance or
by reason of the death of the Participant; provided that this Stock Option
shall remain subject to the other terms of this Agreement, the Plan, and
applicable laws, rules and regulations.
6. Restrictions on Exercise. This Stock Option may be exercised in
whole or in part, but only with respect to full shares of Common Stock, and no
fractional share of stock shall be issued. In no event may this Stock Option be
exercised or shares of Common Stock be issued pursuant to this Agreement if any
registration under state or federal securities laws required under the
circumstances has not been accomplished.
7. Manner of Exercise. Subject to such administrative regulations as
the Board may from time to time adopt, this Stock Option may be exercised by
the delivery of written notice to the Company of the number of shares of Common
Stock being purchased, accompanied by the following:
(a) Full payment of the Option Price for the shares of Common Stock
being purchased; and
(b) Such documents, certificates and instruments as the Company in
its discretion deems necessary to evidence the exercise, in
whole or in part, of this Stock Option.
Full payment for shares of Common Stock purchased upon exercise of this Stock
Option shall be made in cash, or, with the consent of the Committee, with
shares of Common Stock previously owned by the Participant or, with the consent
of the Committee, by a combination of cash and such shares. No shares of Common
Stock may be issued until full payment of the purchase price has been made, and
in the case of any purchase involving the Participant's delivery of a
promissory note in partial payment thereof, the Company may require that the
shares of Common Stock be pledged to the Company to secure the payment thereof.
8. Non-Assignability. This Stock Option is not assignable or
transferable by the Participant in any form or fashion except by will or by the
laws of descent and distribution.
- 3 -
<PAGE> 4
9. Rights as Stockholder. Except for the adjustment in the number of
shares of Common Stock as provided in Section 10 below, the Participant will
have no rights as a stockholder with respect to any shares of Common Stock
covered by this Stock Option until the issuance of a certificate or
certificates to the Participant for the shares of Common Stock. Except as
otherwise provided in Section 10 below, no adjustment shall be made for
dividends or other rights for which the record date is prior to the issuance of
such certificate or certificates.
10. Adjustment of Number of Shares and Related Matters. The shares of
Common Stock covered by this Stock Option, and the exercise price thereof, in
the event of any dissolution, liquidation, merger or consolidation of the
Company, or in the event of the recapitalization of the Company or partial
distribution of its assets in the nature of a partial liquidation, or the
declaration of a stock dividend or split-up, shall be subject to adjustment in
accordance with the terms of the Plan. Notwithstanding the foregoing, and
except as provided in the Plan, the existence of the Stock Option granted
hereunder shall not affect the right of the Company to issue shares of stock of
any class, or securities convertible into shares of stock of any class, for
cash, property, labor or services, either upon direct sale or upon the exercise
of rights or warrants to subscribe therefor, or upon conversion of shares or
obligations of the Company convertible into such shares or other securities.
The issuance of such shares or securities shall not affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to the Stock Option granted hereunder.
Upon the occurrence of each event requiring an adjustment of the
exercise price and/or the number of shares of Common Stock purchasable pursuant
to this Agreement (including the identity of the issuer thereof) in accordance
with and as required by the terms of the Plan, the Company shall as soon as
practicable mail to the Participant a copy of its computation of such
adjustment which shall be conclusive and shall be binding upon the Participant
unless contested by him by written notice to the Company within thirty (30)
days after the Participant's receipt of such computation.
11. Participant's Representation. Notwithstanding any provision to the
contrary herein, the Participant hereby agrees that he will not exercise this
Stock Option, and that the Company will not be obligated to issue any shares of
Common Stock to the Participant hereunder, if the exercise thereof or the
issuance of such shares of Common Stock shall constitute a violation by the
Participant or the Company of any provision of any law or regulation of any
governmental authority. Any determination
- 4 -
<PAGE> 5
in this connection by the Board shall be final, binding, and conclusive. The
obligations of the Company and the rights of the Participant are subject to all
applicable laws, rules, and regulations.
12. Investment Representation. Unless the shares of Common Stock are
issued to him in a transaction registered under applicable federal and state
securities laws, by his execution hereof, the Participant represents and
warrants to the Company that all Common Stock which may be purchased hereunder
will be acquired by the Participant for investment purposes only for his or her
own account and not with any intent for resale or distribution in violation of
federal or state securities laws. Unless the Common Stock is issued to him in a
transaction registered under the applicable federal and state securities laws,
all certificates issued with respect to the Common Stock shall bear an
appropriate restrictive investment legend.
13. Participant's Acknowledgments. The Participant acknowledges
receipt of a copy of the Plan, which is annexed hereto, and represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts
this Stock Option subject to all the terms and provisions thereof. The
Participant hereby agrees to accept as binding, conclusive, and final all
decisions or interpretations of the Board, as those terms are defined in the
Plan, upon questions arising under the Plan or this Agreement.
14. Law Governing. This Agreement shall be governed by, construed, and
enforced in accordance with the laws of the State of Texas, except with respect
to the internal laws of the State of Delaware applicable hereto.
15. No Right to Continue Employment. Nothing herein shall be construed
to confer upon the Participant the right to continue in the employment of the
Company or interfere with or restrict in any way the right of the Company to
discharge the Participant at any time (subject to any contract rights of the
Participant).
- 5 -
<PAGE> 6
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer, and the Participant, to evidence his
consent and approval of all the terms hereof, has duly executed this Agreement,
as of the date specified in Section 1 hereof.
TOREADOR ROYALTY CORPORATION
By:
------------------------------------------------
Name:
----------------------------------------------
Title:
---------------------------------------------
PARTICIPANT
/s/ G. THOMAS GRAVES III
---------------------------------------------------
Name: G. Thomas Graves III
----------------------------------------------
-6-
<PAGE> 1
EXHIBIT 10.14
TOREADOR ROYALTY CORPORATION
AMENDED AND RESTATED 1990 STOCK OPTION PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
1. Grant of Option. Pursuant to the Amended and Restated Toreador
Royalty Corporation 1990 Stock Option Plan (the "Plan"), as adopted by Toreador
Royalty Corporation, a Delaware corporation (the "Company"), the Company grants
to
John Mark McLaughlin
(Name of Participant)
an option (sometimes referred to herein as the "Stock Option") to purchase from
the Company a total of 45,000 full shares of common stock, $0.15625 par value
per share, of the Company (the "Common Stock") at $2.625 per share (being not
less than the fair market value per share of the Common Stock on the Date of
the Grant), in the amounts, during the periods and upon the terms and
conditions set forth in this Agreement.
The Date of Grant of this Stock Option is September 24, 1998
The option granted under this Agreement is not intended to be, and
shall not be treated as, an incentive stock option under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code").
2. Time of Exercise. Except as otherwise provided in the Plan or as
specifically provided elsewhere in this Agreement, this Stock Option is
exercisable no sooner than as follows:
<TABLE>
<CAPTION>
EXERCISE DATE NUMBER OF SHARES
<S> <C>
1. One (1) year from the Date of Grant Up to 33.33% of the total optioned shares
under the Stock Option
2. Two (2) years from the Date of Grant Up to an additional 33.33% of the total
optioned shares under the Stock Option
3. Three (3) years from the Date of Grant Up to an additional 33.34% of the total
optioned shares under the Stock Option
</TABLE>
<PAGE> 2
provided, however, that in the event of: (i) the Participant's death, (ii)
Termination of Service by the Participant by reason of Disability, or (iii) the
occurrence of a Change in Control affecting the Company, all shares of Common
Stock under this Stock Option which have not previously vested and become
exercisable shall automatically be accelerated and become vested and
exercisable in full, without regard to the vesting limitations set forth above.
No part of this Stock Option may be exercised after the expiration of ten (10)
years from the Date of Grant.
3. Subject to Plan. This Stock Option and its exercise are subject in
all respects to the terms and conditions of the Plan, including the provisions
of Article X requiring stockholder approval of the Plan. The defined terms used
herein that are defined in the Plan shall have the same meanings defined for
and assigned to them in the Plan. In addition, this Stock Option is subject to
any rules promulgated pursuant to the Plan by the Board.
4. Term. This Stock Option will terminate at the first to occur of the
following:
(a) 5 p.m. on September 24, 2008 (no later than 10 years after Date
of Grant).
(b) 5 p.m. on the date which is twelve (12) months following the
date of the Participant's Termination of Service with the
Company or an Affiliate by reason of the Participant's death or
Disability.
(c) 5 p.m. on the date of the Participant's Termination for Cause.
(d) 5 p.m. on the date which is three (3) months following the date
of the Participant's Termination of Service for any reason other
than as set forth in subparagraphs (b) or (c) above of this
Section 4.
5. Who May Exercise. Subject to the terms and conditions set forth in
Section 4 above, this Stock Option may be exercised during the lifetime of the
Participant only by the Participant or by the Participant's guardian or legal
representative. If the Participant's service terminates as a result of death or
Disability prior to the termination date specified in Section 4(a) hereof, the
following persons may exercise this Stock Option on behalf of the Participant
at any time prior to the earlier of the dates specified
- 2 -
<PAGE> 3
in Sections 4(b), 4(c), or 4(d): (i) if the Participant is Disabled, the
Participant or the guardian of the Participant; or (ii) if the Participant
dies, the personal representative of the Participant's estate or the person who
acquired the right to exercise this Stock Option by bequest or inheritance or
by reason of the death of the Participant; provided that this Stock Option
shall remain subject to the other terms of this Agreement, the Plan, and
applicable laws, rules and regulations.
6. Restrictions on Exercise. This Stock Option may be exercised in
whole or in part, but only with respect to full shares of Common Stock, and no
fractional share of stock shall be issued. In no event may this Stock Option be
exercised or shares of Common Stock be issued pursuant to this Agreement if any
registration under state or federal securities laws required under the
circumstances has not been accomplished.
7. Manner of Exercise. Subject to such administrative regulations as
the Board may from time to time adopt, this Stock Option may be exercised by
the delivery of written notice to the Company of the number of shares of Common
Stock being purchased, accompanied by the following:
(a) Full payment of the Option Price for the shares of Common Stock
being purchased; and
(b) Such documents, certificates and instruments as the Company in
its discretion deems necessary to evidence the exercise, in
whole or in part, of this Stock Option.
Full payment for shares of Common Stock purchased upon exercise of this Stock
Option shall be made in cash, or, with the consent of the Committee, with
shares of Common Stock previously owned by the Participant or, with the consent
of the Committee, by a combination of cash and such shares. No shares of Common
Stock may be issued until full payment of the purchase price has been made, and
in the case of any purchase involving the Participant's delivery of a
promissory note in partial payment thereof, the Company may require that the
shares of Common Stock be pledged to the Company to secure the payment thereof.
8. Non-Assignability. This Stock Option is not assignable or
transferable by the Participant in any form or fashion except by will or by the
laws of descent and distribution.
- 3 -
<PAGE> 4
9. Rights as Stockholder. Except for the adjustment in the number of
shares of Common Stock as provided in Section 10 below, the Participant will
have no rights as a stockholder with respect to any shares of Common Stock
covered by this Stock Option until the issuance of a certificate or
certificates to the Participant for the shares of Common Stock. Except as
otherwise provided in Section 10 below, no adjustment shall be made for
dividends or other rights for which the record date is prior to the issuance of
such certificate or certificates.
10. Adjustment of Number of Shares and Related Matters. The shares of
Common Stock covered by this Stock Option, and the exercise price thereof, in
the event of any dissolution, liquidation, merger or consolidation of the
Company, or in the event of the recapitalization of the Company or partial
distribution of its assets in the nature of a partial liquidation, or the
declaration of a stock dividend or split-up, shall be subject to adjustment in
accordance with the terms of the Plan. Notwithstanding the foregoing, and
except as provided in the Plan, the existence of the Stock Option granted
hereunder shall not affect the right of the Company to issue shares of stock of
any class, or securities convertible into shares of stock of any class, for
cash, property, labor or services, either upon direct sale or upon the exercise
of rights or warrants to subscribe therefor, or upon conversion of shares or
obligations of the Company convertible into such shares or other securities.
The issuance of such shares or securities shall not affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to the Stock Option granted hereunder.
Upon the occurrence of each event requiring an adjustment of the
exercise price and/or the number of shares of Common Stock purchasable pursuant
to this Agreement (including the identity of the issuer thereof) in accordance
with and as required by the terms of the Plan, the Company shall as soon as
practicable mail to the Participant a copy of its computation of such
adjustment which shall be conclusive and shall be binding upon the Participant
unless contested by him by written notice to the Company within thirty (30)
days after the Participant's receipt of such computation.
11. Participant's Representation. Notwithstanding any provision to the
contrary herein, the Participant hereby agrees that he will not exercise this
Stock Option, and that the Company will not be obligated to issue any shares of
Common Stock to the Participant hereunder, if the exercise thereof or the
issuance of such shares of Common Stock shall constitute a violation by the
Participant or the Company of any provision of any law or regulation of any
governmental authority. Any determination
- 4 -
<PAGE> 5
in this connection by the Board shall be final, binding, and conclusive. The
obligations of the Company and the rights of the Participant are subject to all
applicable laws, rules, and regulations.
12. Investment Representation. Unless the shares of Common Stock are
issued to him in a transaction registered under applicable federal and state
securities laws, by his execution hereof, the Participant represents and
warrants to the Company that all Common Stock which may be purchased hereunder
will be acquired by the Participant for investment purposes only for his or her
own account and not with any intent for resale or distribution in violation of
federal or state securities laws. Unless the Common Stock is issued to him in a
transaction registered under the applicable federal and state securities laws,
all certificates issued with respect to the Common Stock shall bear an
appropriate restrictive investment legend.
13. Participant's Acknowledgments. The Participant acknowledges
receipt of a copy of the Plan, which is annexed hereto, and represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts
this Stock Option subject to all the terms and provisions thereof. The
Participant hereby agrees to accept as binding, conclusive, and final all
decisions or interpretations of the Board, as those terms are defined in the
Plan, upon questions arising under the Plan or this Agreement.
14. Law Governing. This Agreement shall be governed by, construed, and
enforced in accordance with the laws of the State of Texas, except with respect
to the internal laws of the State of Delaware applicable hereto.
15. No Right to Continue Employment. Nothing herein shall be construed
to confer upon the Participant the right to continue in the employment of the
Company or interfere with or restrict in any way the right of the Company to
discharge the Participant at any time (subject to any contract rights of the
Participant).
- 5 -
<PAGE> 6
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer, and the Participant, to evidence his
consent and approval of all the terms hereof, has duly executed this Agreement,
as of the date specified in Section 1 hereof.
TOREADOR ROYALTY CORPORATION
By:
------------------------------------------------
Name:
----------------------------------------------
Title:
---------------------------------------------
PARTICIPANT
/s/ JOHN MARK McLAUGHLIN
---------------------------------------------------
Name: JOHN MARK MCLAUGHLIN
----------------------------------------------
-6-
<PAGE> 1
EXHIBIT 10.17
Loan Agreement
- -------------------------------------------------------------------------------
November 13, 1997
Between
- ---------------------------------------- --------------------------------------
BORROWER BANK
TOREADOR ROYALTY CORPORATION COMPASS BANK
TOREADOR EXPLORATION & PRODUCTION INC. 8080 N. Central Expressway
530 Preston Commons West Dallas, Texas 75206
8117 Preston Road
Dallas, Texas 75225
- ---------------------------------------- --------------------------------------
In consideration of the creation of the reducing revolving facility
described below and the mutual covenants and agreements contained herein, and
intending to be legally bound hereby, Bank and Borrowers agree as follows:
1.0 CERTAIN DEFINITIONS. In addition to any other terms defined herein,
the following terms shall have the meaning set forth with respect thereto:
"ACCEPTABLE HEDGING AGREEMENTS" means those Hedging Agreements
meeting all of the following criteria:
(a) the quantity of hydrocarbons owned by Borrowers
subject to Hedging Agreements shall not be greater than 75% of
the monthly production of the Mortgaged Properties forecast in
Bank's most recent engineering evaluation delivered to
Borrowers;
(b) the "strike prices" under any Hedging Agreements
shall not be less than the lowest prices utilized for such
production in Bank's most recent base case evaluation of the
Mortgaged Properties as reported to Borrowers;
(c) Bank must have given its written consent to the
counterparties under the Hedging Agreements; and
(d) Bank shall have received first and prior
perfected security interests pursuant to security agreements
in form and substance satisfactory to Bank in and to the right
to receive payment under the Hedging Agreements to the extent
permitted by applicable law under the Hedging Agreements.
"AGREEMENT" means this Loan Agreement and all subsequent
modifications and amendments hereto.
"CBIR RATE" means, on any day, the prime rate as announced in
The Wall Street Journal's "Money Rates" table for such day. If multiple
prime rates are quoted in such table, then the highest prime rate
quoted therein shall be the CBIR Rate. In the event that a prime rate
is not published in The Wall Street Journal's "Money Rates" table, Bank
will choose a substitute
<PAGE> 2
CBIR Rate, which is based on comparable information, until such time a
prime rate is published in The Wall Street Journal's "Money Rates"
table.
"CONTESTED IN GOOD FAITH" means, as to any payment, tax,
assessment, charge, levy, lien, encumbrance or claim, contesting the
amount, applicability or validity thereof in good faith by appropriate
proceedings or other appropriate actions promptly initiated and
diligently conducted in a manner satisfactory to Bank, provided (a) a
deposit of funds or other security satisfactory to Bank in the full
amount of such contested payment, tax, assessment, charge, levy, lien,
encumbrance or claim has been provided for in a manner satisfactory to
Bank, and (b) the enforcement of the contested payment, tax,
assessment, charge, levy, lien, encumbrance or claim is stayed in a
manner satisfactory to Bank pending the resolution of such contest.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the regulations promulgated thereunder, as in
effect as of the date hereof and any subsequent provisions which are
amendatory thereof, supplemental thereto or substituted therefor. In
addition, the terms "Commonly Controlled Entity," "Multiemployer Plan,"
"PBGC," "Plan," "Prohibited Transaction," and "Reportable Event" have
the same means as provided therefor in ERISA.
"HEDGING AGREEMENT" means this (a) any interest rate or
currency swap, rate cap, rate floor, rate collar, forward agreement, or
other exchange or rate protection agreement or any option with respect
to any such transaction, and (b) any swap agreement, cap, floor,
collar, exchange transaction, forward agreement, or other exchange or
protection agreement relating to hydrocarbons or any option with
respect to any such transaction.
"LOAN(S)" means collectively any and all loans heretofore or
hereafter made by Bank to the Borrowers.
"LOAN DOCUMENTS" means this Agreement, the Note, the Oil and
Gas Mortgages, the UCC-1 financing statements, the Officer's
Certificate, the Section 26.02 Notice, and all other documents,
instruments, guarantees, security agreements, deeds of trust, pledge
agreements, certificates and agreements executed and/or delivered by
Borrowers, any guarantor or third party in connection with any Loan.
"MATERIAL OIL AND GAS PROPERTY" means any Mineral Interests of
either Borrower in an oil and gas property which compromises at least
ten percent (10%) of the present worth future net income at nine
percent (9%) of all Mineral Interests in all oil and gas properties of
such Borrower.
"MATURITY DATE" means October 1, 2000.
"MINERAL INTERESTS" means (a) all present and future interests
and estates existing under an oil and gas lease including without
limitation working interests, royalties, over-riding royalties,
production payments and net profits interests, (b) all present and
future rights in mineral fee interests and rights therein, including
without limitation, any reversionary or carried interests relating
thereto, (c) all rights, titles and interests created by or arising
under the terms of all present and future unitization, communitization,
and pooling arrangements (and all properties covered and units created
thereby) whether arising by contract or operation of law which now or
hereafter include all or any part of the foregoing, and (d) all rights,
remedies, powers and privileges with respect to all of the foregoing.
LOAN AGREEMENT - Page 2
<PAGE> 3
"MORTGAGED PROPERTIES" means all present and future Mineral
Interests of Borrowers in the oil and gas properties in which Borrowers
hereafter grant to Bank a mortgage or lien.
"NOTE" means that certain promissory note made by Borrowers
payable to the order of Bank in the original principal sum of
$10,000,000 dated November 13, 1997, and all renewals, extensions,
modifications and amendments thereto, and substitutions therefor.
"OBLIGATIONS" means the joint and several obligations of
Borrowers:
(a) to pay all indebtedness arising out of this
Agreement, any future advances under this Agreement, and all
renewals, extensions or amendments of such indebtedness or any
part thereof or any such future advances;
(b) to pay the principal of and interest on the Note
in accordance with the terms thereof, and all renewals,
extensions, modifications and amendments of such Note or any
part thereof, and any future advances made pursuant thereto;
(c) to repay to Bank all amounts advanced by Bank
hereunder or under the other Loan Documents on behalf of
Borrowers, including, without limitation, advances for
principal or interest payments to prior secured parties,
mortgagees, or lienors, or for taxes, levies, insurance, rent,
repairs to or maintenance or storage of any of the collateral;
(d) to pay any and all other indebtedness of
Borrowers to Bank of every kind, nature and description,
direct or indirect, primary or secondary, secured or unsecured
(including overdrafts), joint or several, absolute or
contingent, due or to become due, now existing or hereafter
arising, regardless of how it may be evidenced, including
without limitation all future advances, whether or not
presently contemplated by the parties hereto;
(e) to perform fully all of the terms and provisions
of each of the instruments constituting the Loan Documents;
and
(f) to reimburse Bank, on demand, for all of Bank's
reasonable expenses and costs, which Borrowers are obligated
to pay pursuant to the terms of the Loan Documents.
"PLAN" means, at any time, any employee benefit plan which is
covered by ERISA and in respect of which Borrowers or any Commonly
Controlled Entity is (or, if such plan were terminated at such time,
would under ERISA be deemed to be) an "employer" as defined in ERISA.
"POTENTIAL DEFAULT" means any condition, event or act, which
with the giving of notice of the lapse of time, or both, will
constitute an Event of Default hereunder.
"PRINCIPAL DEBT" means the sum of (a) the aggregate principal
balance of all Loans hereunder outstanding at any one time, plus (b)
the aggregate undrawn amount of all Letters of Credit plus any and all
amounts paid by Bank in connection with drawings under any Letter of
Credit for which Bank has not been reimbursed.
"RESERVE REPORT" means a report in form and substance
satisfactory to Bank prepared by Harlan Consulting or such other
independent petroleum consulting firm selected by Borrowers
LOAN AGREEMENT - Page 3
<PAGE> 4
and acceptable to Bank evaluating the oil and gas reserves attributable
to the Mineral Interests of Borrowers in all of their oil and gas
properties as of each December 31 and which shall, among other things,
(a) identify the wells covered thereby, (b) specify such engineers'
opinions with respect to the total volume of reserves (the "available
reserves") of hydrocarbons (using the terms or categories "proved
developed producing reserves," "proved developed nonproducing reserves"
and "proved undeveloped reserves") which Borrowers have advised such
engineers that the Borrowers have the right to produce for their own
account, (c) set forth such engineers' opinions with respect to the
projected future cash proceeds from the available reserves, discounted
for present value at a rate acceptable to Bank, for each calendar year
or portion thereof after the date of such findings and data, (d) set
forth such engineers' opinions with respect to the projected future
rate of production of the available reserves, (e) contain such other
information as requested by Bank with respect to the projected rate of
production, gross revenues, operating expenses, taxes, capital costs,
net revenues and present value of future net revenues attributable to
such reserves and production therefrom, and (f) contain a statement of
the price and escalation parameters, procedures and assumptions upon
which such determinations were based.
2.0 LOAN.
2.1 THE LOAN. Bank agrees, subject to the terms and conditions
hereof, to lend Borrowers at any time and from time to time on or
before the Maturity Date, sums (each year-end called a "Loan" and
collectively the "Loans") which may be repaid and reborrowed pursuant
to the terms hereof and which shall not exceed at any one time
outstanding the lesser of $10,000,000 or the Borrowing Base (defined in
Section 3.0 below). Whenever Borrowers desire to borrow hereunder, they
shall give Bank written notice specifying (a) the date of the proposed
borrowing, (b) the amount to be borrowed, and (c) a description of the
purpose for which the proceeds of the Loan will be used. The request
shall be made by means of a Borrowing Request in the form of Exhibit A
attached hereto with blanks completed in conformity herewith. Notice
shall be given by 12 p.m., (Dallas, Texas, time) on the date of the
proposed borrowing. The notice may be given by facsimile transmission
provided the original manually executed Borrowing Request is promptly
delivered to Bank.
2.2 USE OF PROCEEDS. The proceeds of Loans may be used solely
to support the acquisition and development of oil and gas properties.
2.3 PROMISSORY NOTE. The obligation of Borrowers to repay the
aggregate principal balance of all Loans hereunder outstanding at any
one time shall be evidenced by a promissory note (the "Note") which (a)
shall be dated November 13, 1997, (b) be payable on or before the
Maturity Date for the amount of $10,000,000, or the Principal Debt then
outstanding, whichever is less, (c) bear interest from the date thereof
until paid in the manner provided in the Note, (d) be entitled to the
benefits of this Agreement in the security provided for herein, and (e)
be in the form attached hereto as Exhibit C.
2.4 INTEREST RATE. During any period that the Principal Debt
then outstanding is equal to or less than eighty percent (80%) of the
Borrowing Base then in effect, the unpaid principal balance of the Note
shall bear interest at a rate per annum equal to the lesser of (a) a
fluctuating rate of interest equal to the CBIR Rate (changing as the
CBIR Rate changes) less one-half percent (.50%), or (b) the maximum
rate permitted by applicable law. During any period that the Principal
Debt then outstanding is greater than eighty percent (80%) of the
Borrowing Base then in effect, the unpaid principal balance of the Note
shall bear interest at a rate per annum equal to the lesser of (a) a
fluctuating rate of interest equal to the CBIR Rate (changing as the
CBIR Rate changes), or (b) the maximum rate permitted by applicable
law.
LOAN AGREEMENT - Page 4
<PAGE> 5
2.5 AMORTIZATION. Interest on the unpaid principal balance of
the Note shall be due and payable quarterly as it accrues on the first
day of each calendar quarter commencing the first day of January 1998.
The Principal Debt then outstanding, plus accrued but unpaid interest
then outstanding, plus accrued but unpaid interest to the date of
payment, shall be due and payable on the Maturity Date.
2.6 COLLATERAL. If at any time the Principal Debt then
outstanding equals or exceeds $2,000,000 then, Borrowers will promptly
do the following:
(a) Grant to Bank to secure the payment and
performance of the Obligations a first and superior lien
against Borrowers' entire Mineral Interest in those oil and
gas properties selected by Bank which in the aggregate
comprise at least eighty percent (80%) of the present worth
future net income at nine percent (9%) of all oil and gas
properties of Borrowers, which determination shall be made by
Bank in accordance with then-current practices, customary
procedures and standards used by Bank for its petroleum
industry customers generally including an analysis of such
reserve and production data with respect to each such property
as is provided Bank from time to time utilizing pricing
parameters of Bank then in effect, all pursuant to the terms
of one or more deeds of trust (each "Oil and Gas Mortgage") in
the form of Exhibit D attached hereto, with blanks completed
in conformity herewith.
(b) Provide to Bank with respect to Borrowers'
Mineral Interest in each such property mortgaged to Bank, a
property certificate in the form of Exhibit E attached hereto,
and an affidavit of payment of trade bills in the form of
Exhibit F attached hereto, in each instance with blanks
completed in conformity herewith and therewith and which are
otherwise satisfactory to Bank.
(c) Deliver to Bank one or more title opinions
reflecting title to Borrowers' Mineral Interest in such
property which is acceptable to Bank.
2.7 LETTER OF CREDIT SUBFEATURE. As a subfeature under the
revolving credit facility created by this Agreement, Bank may from time
to time up to and including seven days prior to the Maturity Date,
issue Letters of Credit for the account of either Borrower (each a
"Letter of Credit" and collectively, the "Letters of Credit"); provided
however that (a) the form and substance of each Letter of Credit shall
be subject to approval by Bank in its sole discretion, and (b) the
aggregate undrawn amount of all outstanding Letters of Credit shall not
at any time exceed $500,000. No Letter of Credit shall have an
expiration date subsequent to the Maturity Date. The undrawn amount of
all Letters of Credit plus any and all amounts paid by Bank in
connection with drawings under any Letter of Credit for which Bank has
not been reimbursed shall be reserved under the revolving credit
facility and shall not be available for Loans thereunder. Each draft
paid by Bank under a Letter of Credit shall be deemed a Loan and shall
be repaid in accordance with the terms of this Agreement; provided
however, that if a Loan is not available for any reason whatsoever at
the time any draft is paid by Bank, or, if Loans are not then available
in such amount due to any limitation on borrowing set forth in this
Agreement, then the full amount of such draft shall immediately be due
and payable, together with interest thereon, from the date such amount
is paid by Bank to the date such amount is fully repaid by Borrowers,
at the rate of interest applicable to Loans under the Note. In such
event, Borrowers agree that Bank, at Bank's sole discretion, may debit
Borrowers' deposit account with Bank for the amount of such draft.
Borrowers shall pay a fee for the issuance of each Letter of Credit in
an amount equal to 7/8ths percent (0.875%) per annum of the face amount
of such Letter of Credit, with a $350 minimum. This fee shall be
payable upon issuance.
LOAN AGREEMENT - Page 5
<PAGE> 6
2.8 UNUSED COMMITMENT FEE. Borrowers agree to pay Bank an
unused commitment fee for the period commencing with the date of this
Agreement to the Maturity Date computed at the rate of 3/8ths of one
percent (0.375%) per annum on the average daily unused portion of the
commitment. The phrase "unused portion of the commitment" as used in
the preceding sentence means the difference between (a) the lesser of
$10,000,000 or the Borrowing Base, and (b) the Principal Debt. The
commitment fee shall be payable quarterly in arrears beginning January
1, 1998, and at maturity, and shall be due and payable upon receipt of
billing from Bank.
3.0 BORROWING BASE. The term "Borrowing Base" means, as of the date of
determination thereof, an amount as determined by Bank in accordance with
then-current practices, customary procedures and standards used by Bank for its
petroleum industry customers including an analysis of such reserve and
production data with respect to the Mineral Interests of Borrowers in all of
their oil and gas properties, as is provided to Bank in accordance herewith. The
Borrowing Base shall initially be $4,000,000.
3.1 PERIODIC DETERMINATIONS OF BORROWING BASE. The Borrowing
Base shall be redetermined by Bank as of May 1 and November 1 of each
year (each a "Determination Date") until maturity, commencing May 1,
1998. The Borrowing Base, as redetermined, shall remain in effect until
the next Determination Date, provided the Borrowing Base may be
redetermined between Determination Dates in accordance with Section 3.3
hereof.
3.2 ENGINEERING DATA TO BE PROVIDED PRIOR TO SCHEDULED
DETERMINATION DATES.
(a) On or before April 1 of each year for the Determination
Date of May 1, Borrowers shall deliver to Bank a Reserve Report and the
other data specified in Section 6.4 hereof. Bank shall then determine
the Borrowing Base for the six (6) month period commencing April 1.
(b) On or before October 1 of each year for the Determination
Date of November 1, Borrowers shall deliver to Bank such information,
reports and data pertaining to Borrowers' Mineral Interests in all of
their oil and gas properties, as Bank may reasonably request. Such
information shall (i) set forth the historical production data of the
oil and gas reserves included in such properties, (ii) set forth for
each property prices received for production, lease operating expenses,
capital expenditures and such other information as Bank may deem
necessary or appropriate, (iii) set forth for each property any
material changes since the date of most recent Reserve Report, if any,
in Borrowers' working interest or net revenue interest therein, and
(iv) be accompanied by a certification of Borrowers to the effect that
no material adverse changes have occurred since the date of the last
Reserve Report except those which have previously been disclosed to
Bank in writing. Bank shall then determine the Borrowing Base for the
next six (6) month period.
3.3 SPECIAL DETERMINATIONS OF BORROWING BASE. Special
determinations of the Borrowing Base may be requested by Borrowers not
more than one (1) time per calendar year or by Bank at any time during
the term hereof. If any special determination is requested by
Borrowers, it shall be accompanied by engineering data described in
Section 3.2(b). If any special determination is requested by Bank,
Borrowers will provide Bank with the information specified in Section
3.2(b) hereof as soon as is reasonably possible following the request.
The determination whether to increase or decrease the Borrowing Base
shall then be made by Bank in its sole discretion in accordance with
the standards set forth in Section 3.0 hereof. In the event of any
special determination of the Borrowing Base pursuant to this Section,
Bank in the exercise of its discretion may suspend the next regularly
scheduled determination of the Borrowing Base.
LOAN AGREEMENT - Page 6
<PAGE> 7
3.4 BORROWING BASE DEFICIENCY. If by reason of any adjustment
to the Borrowing Base, the Principal Debt then outstanding exceeds the
amount of the Borrowing Base, then Bank shall notify Borrowers of the
same, and Borrowers shall within thirty (30) days following receipt of
such notice elect whether to (i) prepay an amount which will reduce the
Principal Debt to the amount of the Borrowing Base (this sum may be
paid in one installment or, at Borrowers' option, in three equal
consecutive monthly installments), or (ii) execute and deliver to Bank
instruments mortgaging such other collateral as is acceptable to Bank,
pursuant to security documents acceptable to Bank having present values
which, in the opinion of Bank, taken in the aggregate are sufficient to
increase the Borrowing Base to an amount at least equal to the
Principal Debt then outstanding, or (iii) do any combination of the
foregoing as is acceptable to Bank. If Borrowers so elect to mortgage
additional oil and gas properties, then clause (ii) above shall be
accomplished within forty-five (45) days from Bank's date of
notification. If Borrowers fail to make an election among clauses (i)
through (iii) above within thirty (30) days from Bank's notification,
then Borrowers shall be deemed to have selected the payment option
specified in clause (i) thereof.
4.0 CONDITIONS PRECEDENT TO CLOSING. The obligations of Bank as set
forth herein are subject to the satisfaction (in the opinion of Bank), unless
waived in writing by Bank, of each of the following conditions:
4.1 EFFECTIVENESS OF LOAN DOCUMENTS. Each of the Loan
Documents shall be in full force and effect.
4.2 CREDIT OPINION. There shall have been delivered a
favorable opinion of Borrowers' counsel covering such matters incident
to the Loan as Bank may reasonably request.
4.3 INSURANCE CERTIFICATE. Bank shall have received evidence
that Borrowers have obtained the policies of insurance specified and
required by Section 6.7 hereof.
4.4 DOCUMENTATION AND PROCEEDINGS. Borrowers shall have
delivered resolutions of their boards of directors authorizing their
execution, delivery and performance of the Loan Documents.
4.5 SECTION 26.02 NOTICE. Borrowers shall have executed a
notice in compliance with the provisions of Section 26.02 of the Texas
Business and Commerce Code (the "Section 26.02 Notice").
4.6 REPRESENTATIONS AND WARRANTIES. All representations and
warranties contained herein or in the documents referred to herein or
otherwise made in writing in connection herewith or therewith shall be
true and correct with the same force and effect as though such
representations and warranties have been made on and as of this date.
4.7 EXPENSES. Borrowers shall have paid all reasonable
expenses of Bank in connection with the preparation of the Loan
Documents, including but not limited to, the fees and expenses of
counsel for Bank, subject to a cap of $2,000 plus out-of-pocket
expenses.
5.0 CONDITIONS PRECEDENT TO SUBSEQUENT LOANS. The obligation of Bank to
make subsequent Loans to Borrowers is subject, at the time of the funding of
each such Loan (the "Funding Date"), to the satisfaction (in the opinion of
Bank), unless waived in writing by Bank, of each of the following conditions:
LOAN AGREEMENT - Page 7
<PAGE> 8
5.1 BORROWING REQUEST. Borrowers shall have given Bank written
notice within the time frame specified in Section 2.1 hereof by means
of a Borrowing Request appropriately completed in compliance herewith.
5.2 AVAILABILITY OF COMMITMENT. The then Principal Debt plus
the amount of the requested Loan shall be equal to or less than the
Borrowing Base then in effect.
5.3 EXPENSES. Borrowers shall have paid all reasonable
expenses of Bank in connection with the making of the Loan.
5.4 REPRESENTATIONS AND WARRANTIES. All representations and
warranties contained herein in the Loan Documents shall be true and
correct in all material respects as though such representations and
warranties have been made on and as of the Funding Date.
5.5 NO DEFAULT. There shall exist no Event of Default or
Potential Default hereunder.
5.6 CHANGE IN CONDITION. No adverse change in condition
(financial or otherwise) of either Borrower or any other event shall
have occurred which creates a possibility of materially adversely
effecting (a) the condition (financial or otherwise) of such Borrower
(b) the validity or enforceability of any of the Loan Documents, or (c)
the ability of such Borrower to meet and carry out its obligations
under the Loan Documents or perform the transactions contemplated
hereby or thereby.
6.0 AFFIRMATIVE COVENANTS. Until full payment and performance of all
Obligations, Borrowers will, unless Bank consents otherwise in writing (and
without limiting any requirement of any other Loan Document):
6.1 FINANCIAL STATEMENTS AND OTHER INFORMATION. Deliver or
cause to be delivered to Bank (a) quarterly consolidated financial
statements of Toreador Royalty Corporation within sixty (60) days after
the end of each of the first three fiscal quarters of each fiscal year,
in each instance to include a balance sheet, an income statement, a
cash flow statement and such other financial statements and supporting
schedules or documentation required by Bank prepared in accordance with
generally accepted accounting principles consistently applied and
presented in a format acceptable to Bank, and (b) annual audited
consolidated financial statements of Toreador Royalty Corporation by
April 15th of each year, to include a balance sheet, an income
statement and a cash flow statement prepared in accordance with
generally accepted accounting principles consistently applied and
presented in a format acceptable to Bank, and (c) such additional
information, reports and statements with respect to the business
operations and financial condition of Borrowers as Bank may reasonably
request from time to time, and (d) within sixty (60) days after the end
of each quarter of the first three (3) fiscal quarters and within one
hundred twenty (120) days after the end of each fiscal year, a
compliance certificate in the form of Exhibit B attached hereto, and
(e) within fifteen (15) days after the filing thereof, copies of any
report, proxy statement, financial statement, or other filing made by
either Borrower with the Securities and Exchange Commission, any state
securities agency, or any national stock exchange or quotation service,
and promptly upon receipt thereof, copies of any notices received from
the Securities and Exchange Commission or any state securities agency
relating to any order, rule, statute, or other laws or information that
could have a material adverse effect upon the financial condition,
properties, or operations of either Borrower.
LOAN AGREEMENT - Page 8
<PAGE> 9
6.2 ADVERSE CONDITIONS OR EVENTS. Promptly advise Bank in
writing of (i) any condition, event or act which comes to the attention
of either Borrower that would or might materially adversely affect
either Borrower's financial condition or operations, the collateral
from time to time securing the Loan, or Bank's rights under the Loan
Documents, (ii) any litigation filed by or against either Borrower,
(iii) any event that has occurred that would constitute an event of
default under any Loan Documents, (iv) any uninsured or partially
uninsured loss through fire, theft, liability or property damage in
excess of an aggregate of $50,000, (v) any actual, proposed or
threatened testing or other investigation by any governmental authority
or other person or entity concerning the environmental condition of, or
relating to, any of the Mortgaged Properties or the release of any
hazardous substances by or from, affecting or related to any of the
Mortgaged Properties (except such releases as are made in accordance
with applicable environmental laws), and (vi) any circumstances that
constitute grounds entitling the PBGC to institute proceedings to
terminate a Plan subject to ERISA, and the receipt of any notice to
either Borrower or any Commonly Controlled Entity that the PBGC intends
to terminate a Plan, and the receipt of notice concerning the
imposition of withdrawal liability in excess of $25,000 with respect to
either Borrower or any Commonly Controlled Entity.
6.3 QUARTERLY SALES REPORTS. As soon as available and in any
event not later than the sixtieth (60th) day following the end of each
calendar quarter, internally prepared reports showing for all of their
oil and gas properties all production of oil, gas and other
hydrocarbons therefrom during the subject quarter, all proceeds
received during the subject quarter from the sale of production from
such properties, all expenses incurred during the subject quarter
attributable to such Properties, a description of all material
operations conducted on such Properties since the last quarterly report
and such other information as Bank may reasonably request.
6.4 RESERVE REPORT. Deliver to Bank on or before April 1 of
each year (i) a Reserve Report as of December 31 of the immediately
preceding year, and (ii), if Borrowers (or either of them) have
executed on Oil and Gas Mortgage,, a schedule comparing the net revenue
interests of each well or lease of the Mortgaged Properties as
reflected in such Oil and Gas Mortgage after giving effect to all
encumbrances listed thereon, to net revenues reflected in the Reserve
Report along with an explanation as to any material discrepancies
between the two net revenue interest disclosures.
6.5 ENGINEERING EXPENSES. Pay all reasonable engineering
expenses incurred by Bank after the date hereof in connection with the
administration of the credit facility evidenced by this Agreement.
6.6 TAXES AND OTHER OBLIGATIONS. Pay all of each Borrower's
taxes, assessments and other obligations, including, but not limited to
taxes and assessments and lawful claims which, if unpaid, might by law
become a lien against the assets of each Borrower, as the same become
due and payable, except to the extent the same are being Contested in
Good Faith.
6.7 INSURANCE. Keep their properties of an insurable nature
insured at all times against such risks and to the extent that like
properties are customarily insured by other companies engaged in the
same or similar businesses similarly situated, maintain insurance of
the types and in the coverage amounts and with reasonable deductibles
as are usual and customary including the following:
LOAN AGREEMENT - Page 9
<PAGE> 10
(a) Employer's liability insurance in the limits of
$500,000 per accident covering injury or death to any employee
who may be outside the scope of the worker's compensation
statute of the state in which the work is performed.
(b) Commercial or comprehensive general liability
insurance with combined single limits per occurrence (and
general aggregate if applicable) of $1,000,000 for bodily
injury and property damage, including property damage by
blowout and cratering, completed operations and broad form
contractual liability as respects any contract in which either
Borrower as operator may enter into under the terms of its
joint operating agreement.
(c) Automobile liability insurance covering owned,
non-owned and hired automotive equipment with limits of bodily
injury and property damage of $1,000,000.
Borrowers shall obtain the agreement of each insurance company
that its policy may not be canceled, altered or amended without ten
(10) days prior written notice to Borrowers and Bank. Borrowers shall
promptly give Bank notice of any cancellation, alteration or amendment
of an insurance policy received by them from an insurer or from the
operator. If requested by Bank, such insurance policies shall (1)
provide that Bank shall receive prompt notice of any claims filed
thereunder; (2) include a standard mortgagee clause in favor of Bank
with loss payable for all claims in excess of $10,000 to Bank; and (3)
provide that no adverse alteration or cancellation thereof shall be
effective as against Bank until thirty (30) days after written notice
of such alteration or cancellation is given to Bank. Borrowers shall
deliver to Bank certificates of insurance coverage for each Mortgaged
property as and when requested by Bank.
6.8 COMPLIANCE WITH LAWS. Comply with all applicable laws
(including environmental laws), rules, regulations and orders of any
governmental authority.
6.9 INSPECTION OF BOOKS AND RECORDS. Allow any representative
of Bank to visit and inspect any of its oil and gas properties, to
examine its books of record and account and to discuss its affairs,
finances and accounts with any of its officers, directors, employees
and agents, all at such reasonable times and as often as Bank may
request. Bank agrees that it will take all reasonable steps to keep
confidential any proprietary information given to it by Borrowers,
provided, however, that this restriction shall not apply to information
which (i) has at the time in question entered the public domain, (ii)
is required to be disclosed by law, (iii) is disclosed to Bank's
auditors, attorneys or agents, or (iv) is disclosed in the course of
enforcing Bank's rights and remedies during the existence of an Event
of Default.
6.10 FURTHER ASSURANCES. Take any and all such other action as
Bank may from time to time deem necessary or appropriate in connection
with this Agreement or any of the other Loan Documents (a) to cure any
defects in the creation of the Loan Documents, or (ii) to evidence
further or more fully describe the collateral intended as security, or
(iii) to correct any omissions in the Loan Documents, or (iv) to state
more fully the security obligations set forth in this Agreement or in
any of the Loan Documents, or (v) to perfect, protect or preserve any
liens pursuant to any of the Loan Documents, or (vi) for better
assuring and confirming unto Bank all or any part of the security for
such obligations.
7.0 NEGATIVE COVENANTS. Until full payment and performance of
all Obligations, neither Borrower will, without the prior written
consent of Bank (and without limiting any requirement of any other Loan
Documents):
LOAN AGREEMENT - Page 10
<PAGE> 11
7.1 NEGATIVE PLEDGE. Grant, suffer or permit to exist any
contractual or noncontractual lien on or security interest in its
assets, except (a) liens in favor of Bank, (b) liens for taxes,
assessments or similar charges, incurred in the ordinary course of
business that are not yet due and payable, (c) liens of mechanics,
materialmen, warehousemen, carriers, operators and other like liens
securing obligations incurred in the ordinary course of business that
are not yet due and payable; and (d) landlord's liens for rentals not
yet due and payable.
7.2 SALE OF MINERAL INTERESTS. Directly or indirectly sell,
lease or otherwise dispose of (by farmout or otherwise) any of its
present or future Mineral Interests in any oil and gas property now
owned or hereafter acquired other than (a) sales of oil and gas
properties in the ordinary course of business, (b) sales of
hydrocarbons in the ordinary course of business, (c) any compulsory
pooling or unitization ordered by a governmental body with jurisdiction
over the Mineral Interests, and (d) sales of oil and gas properties
(other than those described in clauses (a), (b) and (c) above) which do
not exceed in any twelve month period an aggregate amount of 10% of the
collateral value which Bank has assigned to such oil and gas
properties, provided that 100% of the net proceeds of sale are paid to
Bank for application to the Obligations.
7.3 ABANDONMENT, ETC. Permit the surrender, abandonment,
release or termination, in whole or in part, of any present or future
Mineral Interests in any Material Oil and Gas Property now owned or
hereafter acquired by it, unless in the opinion of Bank the same has
become unprofitable, or is not producing hydrocarbons in commercially
profitable quantities.
7.4 MERGER, ETC. Enter into any merger or consolidation, or
form or acquire any subsidiary, except (a) the Borrowers may merge into
or consolidate with each other, and (b) either Borrower may merge into
or consolidate with any of its subsidiaries so long as such Borrower is
the survivor.
7.5 EXTENSIONS OF CREDIT. Make any loan or advance to any
individual, partnership, corporation or other entity, except (a) loans
and intercompany adjustments between Borrowers, individually, occurring
in the ordinary course of business, and (b) advances made to employees
of Borrowers for the payment by them of items for which an expense
report or voucher will be filed and which items will constitute
ordinary and necessary business expenses of Borrowers, and (c) loans or
advances (other than those provided by clauses (a) and (b) above) in an
aggregate amount not do exceed $250,000 at any time outstanding.
7.6 BORROWINGS. Create, incur, assume or become liable in any
manner for any indebtedness (for borrowed money, deferred payment for
the purchase of assets, lease payments, as surety or guarantor for the
debt for another, or otherwise) other than to Bank, except for normal
trade debts incurred in the ordinary course of its business, and except
for existing indebtedness disclosed to Bank in writing and acknowledged
by Bank prior to the date of this Agreement.
7.7 DIVIDENDS AND DISTRIBUTIONS. Make any distribution (other
than dividends payable in its capital stock) on any shares of any class
of its capital stock or apply any of its property or assets to the
purchase, redemption or other retirement of any shares of any class of
its capital stock.
7.8 HEDGING TRANSACTIONS. Enter into any Hedging Agreement,
other than Acceptable Hedging Agreements.
LOAN AGREEMENT - Page 11
<PAGE> 12
7.9 CURRENT RATIO. Permit at any fiscal quarter end the ratio
of its consolidated current assets to consolidated current liabilities
to be less than 1.0 to 1.0. Current maturities of long term debt shall
be excluded from the determination of current liabilities.
7.10 DEBT SERVICE COVERAGE RATIO. Permit, as of the last day
of any fiscal quarter, the Debt Service Coverage Ratio of Toreador
Royalty Corporation to be less than 1.50 to 1.0; provided that if at
any time this loan is secured by Mortgaged Properties, this ratio shall
thereafter be 1.25 to 1.0. "Debt Service Coverage Ratio" means the
quotient obtained by dividing Funded Debt Service of Toreador Royalty
Corporation for such fiscal quarter into Adjusted Cash Flow of Toreador
Royalty Corporation for such fiscal quarter, in each instance
determined on a consolidated basis in accordance with generally
accepted accounting principles consistent with that applied in the
preparation of the financial statements previously furnished to Bank.
"Funded Debt Service" means the sum of (a) the aggregate of all
scheduled principal payments on debt other than the Note actually paid
on account of funded debt during such fiscal quarter, plus (b) all debt
service (both principal and interest) actually paid on the Note during
such fiscal quarter. "Adjusted Cash Flow" means for the fiscal quarter
(a) the sum of net earnings after taxes and all non-cash charges (such
as deferred taxes, depreciation and amortization of goodwill) which, in
determining of the net income of Toreador Royalty Corporation for such
fiscal quarter were deducted from its gross income for such fiscal
quarter, (b) minus non-cash income of Toreador Royalty Corporation, all
as determined on a consolidated basis in accordance with generally
accepted accounting principles consistent with that applied in the
preparation of the financial statements previously furnished to Bank.
7.11 PRINCIPAL DEBT NOT TO EXCEED COMMITMENT. Permit at any
time the Principal Debt to exceed the lesser of $10,000,000 or the
Borrowing Base then in effect.
7.12 INVESTMENTS. Invest in (by capital contribution or
otherwise), or acquire or purchase or make any commitment to purchase
the obligations or stock of, any entity, except (i) temporary
investments in securities of the United States having maturities not in
excess of one (1) year, and (ii) demand deposits and certificates of
deposit issued by Bank or by a domestic office of any national or state
bank which is organized of the laws of the United States of America or
any state therein, which has capital, surplus and undivided profits of
at least $500,000,000, and (iii) readily marketable commercial paper
rated "A-1" by Standard & Poor's Corporation (or similar rating by any
similar organization which rates commercial paper), and (iv) such other
investments as are approved by Bank in writing from time to time.
7.13 CHANGE OF CONTROL OF BORROWER. Permit the change of
control of either Borrower. "Change of control" as used in the
preceding sentence means (i) the acquisition of more than fifty percent
(50%) of the outstanding voting stock of a Borrower by any person or
entity or group of persons or entities acting in concert, or (b) the
acquisition of more than fifteen percent (15%) of the outstanding
voting stock of a Borrower by any person or entity or group of persons
or entities acting in concert if at any time following such acquisition
of fifteen percent (15%) or more of a Borrower's outstanding voting
stock more than fifty percent (50%) of the persons serving on the board
of directors of a Borrower are persons proposed directly or indirectly
by the persons or entities or group of persons or entities acting in
concert who have acquired such fifteen percent (15%) or more of a
Borrower's outstanding voting stock.
7.14 CHANGE IN MANAGEMENT. Permit Edward C. Marhanka to cease
being Vice President of Toreador Royalty Corporation for any reason
other than his death or disability.
LOAN AGREEMENT - Page 12
<PAGE> 13
7.15 CHANGE IN NATURE OF BUSINESS. Conduct any business other
than, or make any material change in the nature of, its business as
carried on as of the date hereof.
7.16 ARM'S LENGTH TRANSACTIONS. Enter into transaction with
any affiliate, except a transaction upon terms that are not less
favorable to it than would be obtained in a transaction negotiated at
arm's length with an unrelated third party.
8.0 REPRESENTATIONS AND WARRANTIES. Borrowers hereby jointly and
severally represent and warrant to Bank as follows:
8.1 NO LIENS. Toreador Exploration & Production Inc. has good
and defensible title to all of the its Mineral Interests in and to the
oil and gas leases which are described in and covered by the
engineering reports previously delivered to and relied upon by Bank in
connection with this Agreement, and none of such Mineral Interests are
subject to any security interest, mortgage, deed of trust, pledge,
lien, title retention document or encumbrance of any character, except
for except for (i) the contracts, agreements, burdens, encumbrances and
other matters as may be set forth in the description of each of the
Mortgaged Properties, (ii) the liens and security interests evidenced
by the Oil and Gas Mortgages, (iii) statutory liens for taxes which are
not yet delinquent, (iv) liens under operating agreements, pooling
orders and unitization agreements, and mechanic's liens with respect to
obligations which are not yet due, (v) minor defects and irregularities
of title which are not liens and do not materially impair with the
value of any Mortgaged Property.
8.2 GAS IMBALANCES. There are no material gas imbalances, take
or pay or other prepayments with respect to any of the leases described
in the Oil and Gas Mortgages for which Borrowers are the operator which
would require the delivery of hydrocarbons produced from such leases at
some time in the future without then or thereafter receiving full
payment therefor.
8.3 GOOD STANDING. Toreador Royalty Corporation is a
corporation, duly organized, validly existing and in good standing
under the laws of Delaware. Toreador Exploration & Production Inc. is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Texas. Each Borrower has the power and
authority to own its property and to carry on its business in Texas in
each other jurisdiction in which the character of the properties owned
or held by it or the nature of the business transacted by it makes such
qualification necessary.
8.4 AUTHORITY AND COMPLIANCE. Each Borrower has full power and
authority to execute, deliver and perform the Loan Documents and to
incur and perform the obligations provided for therein. No consent or
approval of any public authority or other third party is required as a
condition to the validity or performance of any Loan Document. Each
Borrower is in compliance with all laws and regulatory requirements to
which such Borrower is subject, except where failure so to comply would
not have a material adverse effect upon the financial condition,
properties or operations of either Borrower.
8.5 BINDING AGREEMENT. This Agreement and the other Loan
Documents executed by Borrowers constitute valid and legally binding
obligations of Borrowers, enforceable in accordance with their terms,
except as such enforcement may be limited by bankruptcy, insolvency or
other similar laws of general application relating to the enforcement
of creditors' rights.
LOAN AGREEMENT - Page 13
<PAGE> 14
8.6 LITIGATION. There is no proceeding involving an amount in
excess of $100,000 involving either Borrower pending or, to the
knowledge of Borrowers, threatened before any court or governmental
authority, agency or arbitration authority, except as disclosed to Bank
in writing and acknowledged by Bank prior to the date of this
Agreement.
8.7 NO CONFLICTING AGREEMENTS. There is no charter, bylaw,
stock provision, partnership agreement or other document pertaining to
the power or authority of either Borrower and no provision of any
existing agreement, mortgage, indenture or contract binding on either
Borrower or affecting either Borrower's property, which would conflict
with or in any way prevent the execution, delivery or carrying out of
the terms of this Agreement and the other Loan Documents.
8.8 TAXES. All taxes and assessments due and payable by
Borrowers have been paid or are being Contested in Good Faith, and
Borrowers have filed all tax returns which Borrowers are required to
file.
8.9 ERISA. Borrowers are in compliance in all material
respects with all applicable provisions of ERISA. Neither a Reportable
Event nor a Prohibited Transaction has occurred and is continuing with
respect to any Plan; no notice of intent to terminate a Plan has been
filed, nor has any Plan been terminated; neither Borrower nor any
Commonly Controlled Entity has completely or partially withdrawn from a
Multiemployer Plan; and Borrowers and each Commonly Controlled Entity
have met their minimum funding requirements under ERISA with respect to
all of their Plans.
8.10 ACCURACY OF INFORMATION. To the best of each Borrower's
knowledge, all factual information furnished by Borrowers to Bank in
connection with this Agreement and the other Loan Documents is and will
be accurate and complete on the date as of which such information is
delivered to Bank and is not and will not be incomplete by the omission
of any material fact necessary to make such information not misleading.
9.0 DEFAULT. Any of the following shall constitute events of
default (each and "Event of Default"):
9.1 NONPAYMENT. Borrowers shall default in the due and
punctual payment of any principal or interest of the Note or any of the
other Obligations when due and payable, whether at maturity or
otherwise.
9.2 REPRESENTATIONS AND WARRANTIES. Any representation,
warranty or statement made by Borrowers herein or otherwise in writing
in connection herewith or in connection with any of the other Loan
Documents and the agreements referred to herein or therein or in any
financial statement, certificate or statement signed by any officer or
employee of Borrowers and furnished pursuant to any provision of the
Loan Documents shall be breached, or shall be materially false,
incorrect or incomplete when made.
9.3 CERTAIN AFFIRMATIVE AND NEGATIVE COVENANTS. (i) Either
Borrower shall default in the due performance or observance by it of
any term, covenant or agreement on its part to be performed or observed
pursuant to Section 6.2 or Sections 7.1 through 7.16; or (ii) either
Borrower shall default in the due performance or observance of any
term, covenant or agreement on its part to be observed or performed
pursuant to Sections 6.1 or 6.3 through 6.10 hereof, and such failure
shall continue unremedied for a period of fifteen (15) days after (a)
notice of such
LOAN AGREEMENT - Page 14
<PAGE> 15
default from Bank; or (b) Bank is notified of such default or should
have been so notified pursuant to the provisions of Section 6.2 hereof,
whichever is earlier.
9.4 OTHER COVENANTS. Either Borrower shall default in the due
performance or observance by it of any term, covenant or agreement
(other than those referred to in Sections 9.1, 9.2 and 9.3 hereof)
contained in this Agreement and such default shall continue unremedied
for a period of thirty (30) days after: (a) notice of such default from
Bank, or (b) Bank is notified of such default or should have been so
notified pursuant to the provisions of Section 6.2 hereof, whichever is
earlier.
9.5 DEFAULT IN OTHER LOAN DOCUMENTS. Either Borrower shall
default in the due performance of or observance by such Borrower of any
term, covenant or agreement on such Borrower's part to be performed
pursuant to the terms of any of the other Loan Documents and the
default shall continue unremedied beyond any grace or cure period
therein provided.
9.6 DEFAULT IN OTHER DEBT. An event of default shall occur
under the provisions of any instrument (other than the Loan Documents)
evidencing indebtedness of either Borrower for the payment of borrowed
money in excess of $50,000 or of any agreement relating thereto (the
effect of which is to permit the holder or holders of such instrument
to cause the indebtedness evidenced by such instrument to become due
prior to its stated maturity).
9.7 VALIDITY OF LOAN DOCUMENTS. Any of the Loan Documents
shall cease to be a legal, valid and binding agreement enforceable
against any party executing the same in accordance with the respective
terms thereof, or shall in any way be terminated, or become or be
declared ineffective or inoperative, or shall in any way whatsoever
cease to give or provide the respective rights, remedies, powers and
privileges intended to be created thereby.
9.8 BANKRUPTCY. Either Borrower shall suspend or discontinue
its business operations, or shall generally fail to pay its debts as
they mature, or shall file a petition commencing a voluntary case
concerning such Borrower under any chapter of the United States
Bankruptcy Code; or any involuntary case shall be commenced against
either Borrower under the United States Bankruptcy Code and such case
remains undismissed for a period of forty-five (45) days.
9.9 JUDGMENTS AND DECREES. Either Borrower shall suffer a
final judgment for the payment of money in excess of $50,000 and not
otherwise covered by insurance satisfactory to Bank in its discretion,
and such Borrower shall not discharge the same within a period of
thirty (30) days unless, pending further proceedings, execution has not
been commenced, or, if commenced, has been effectively stayed. Any
order, judgment or decree shall be entered in any proceeding against
either Borrower decreeing the dissolution or split up of such Borrower
and such order shall remain undischarged or unstayed for a period in
excess of thirty (30) days.
9.9 ERISA. Any of the following events shall occur or exist
with respect to either Borrower and any Commonly Controlled Entity
under ERISA and the regulations promulgated thereunder:
(a) any Reportable Event shall occur;
(b) complete or partial withdrawal from any
Multiemployer Plan shall take place;
LOAN AGREEMENT - Page 15
<PAGE> 16
(c) any Prohibited Transaction shall occur;
(d) a notice of intent to terminate a Plan shall be
filed, or a Plan shall be terminated; or
(e) circumstances shall exist which constitute
grounds entitling the PBGC to institute proceedings to
terminate a Plan, or the PBGC shall institute such
proceedings;
and in each case above, such event or condition, together with all
other events or conditions, if any, could subject either Borrower to
any tax, penalty or other liability which in the aggregate may exceed
$50,000.
10.0 REMEDIES. Upon the occurrence of an Event of Default described in
Section 9.8 hereof, the entire principal of and accrued interest on the Note
shall forthwith be due and payable without demand, presentment for payment,
notice of nonpayment, protest, notice of protest, notice of intent to
accelerate, notice of acceleration and all other notices and further actions of
any kind, all of which are hereby expressly waived by Borrowers. In the event
that any other Event of Default occurs and is continuing, Bank may, without
demand or notice of its election terminate its obligation to make further Loans
hereunder and/or declare the entire unpaid balance of the Note and all other
indebtedness of Borrowers to Bank, or any part thereof, immediately due and
payable, whereupon the principal of and accrued interest on such Note and other
indebtedness shall be forthwith due and payable without demand, presentment for
payment, notice of nonpayment, protest, notice of protest, notice of intent to
accelerate, notice of acceleration and all other notices and further actions of
any kind, all of which are hereby expressly waived by Borrowers. Upon the
occurrence and during the continuance of any Event of Default, Bank may (a)
exercise any and all rights under or pursuant to any of the Loan Documents, and
(b) exercise any and all rights afforded to Bank by the laws of the State of
Texas or any other applicable jurisdiction or in equity or otherwise, as Bank
may deem appropriate.
11.0 NOTICES. All notices, requests or demands which any party is
required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to the other party at the addresses set
forth on the first page of this Agreement or to such other address as any party
may designate by written notice to the other party. Each such notice, request
and demand shall be deemed given or made (a) if sent by hand delivery or private
carrier, upon delivery; and (b) if sent by mail, upon the earlier of the date of
receipt or five (5) days after deposit in the U.S. Mail, first class postage
prepaid.
12.0 COSTS, EXPENSES, ATTORNEYS' FEES, AND INDEMNITY. Borrowers shall
pay to Bank immediately upon demand the full amount of all costs and expenses,
including reasonable attorneys' fees, incurred by Bank in connection with (a)
negotiation and preparation of this Agreement and each of the Loan Documents,
and (b) any modifications of or consents or waivers under or amendments to or
interpretations of or the enforcement of this Agreement, the Note, the other
Loan Documents and the agreements described therein, and the collection of the
Obligations. Borrowers further agree to indemnify Bank from and hold it harmless
against any and all losses, liabilities, claims, damages or expenses which Bank
suffers or incurs as a result of its entering into this Agreement, or the
consummation of the transactions contemplated by this Agreement and the Loan
Documents, or the use or contemplated use of the proceeds of the Loan,
including, without limitation, the fees and disbursements of counsel incurred in
connection with any litigation, arbitration or other proceeding arising out of
or by reason of any of the after said; provided that no Borrower shall be
obligated under this Section to indemnify Bank for that portion, if any, of such
losses, liabilities, claims, damages or
LOAN AGREEMENT - Page 16
<PAGE> 17
expenses which are caused by Bank's own negligence. Borrowers shall defend any
claim for which Bank is entitled to seek indemnity pursuant to the preceding
sentence, and Bank shall cooperate with the defense. Bank may have separate
counsel, and Borrowers will pay the expenses and reasonable fees of such
separate counsel if either counsel for Borrowers or counsel for Bank shall
advise Bank that the interests of both Borrowers and Bank with respect to such
claim are or with reasonable certainty will become adverse.
13.0 MISCELLANEOUS. Borrowers and Bank further covenant and agree as
follows, without limiting any requirement of any other Loan Document:
13.1 CUMULATIVE RIGHTS AND NO WAIVER. Each and every right granted to
Bank under any Loan Document, or allowed it by law or equity shall be cumulative
of each other and may be exercised in addition to any and all other rights of
Bank, and no delay in exercising any right shall operate as a waiver thereof,
nor shall any single or partial exercise by Bank of any right preclude any other
or future exercise thereof or the exercise of any other right. Borrowers
expressly waive any presentment, demand, protest or other notice of any kind,
including but not limited to notice of intent to accelerate and notice of
acceleration. No notice to or demand on Borrowers in any case shall, of itself,
entitle Borrowers to any other or future notice or demand in similar or other
circumstances.
13.2 CHOICE OF LAW AND VENUE. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS (BUT NOT THE RULES GOVERNING CONFLICTS
OF LAWS) OF THE STATE OF TEXAS AND SHALL BE PERFORMABLE IN DALLAS COUNTY, TEXAS.
13.3 AMENDMENT. No modification, consent, amendment or waiver of any
provision of this Agreement, nor consent to any departure by Borrowers
therefrom, shall be effective unless the same shall be in writing and signed by
an officer of Bank, and then shall be effective only in the specified instance
and for the purpose for which given. This Agreement is binding upon Borrowers,
their successors and assigns, and inures to the benefit of Bank, its successors
and assigns; however, no assignment or other transfer of Borrowers' rights or
obligations hereunder shall be made or be effective without Bank's prior written
consent, nor shall it relieve Borrowers of any obligations hereunder. There is
no third party beneficiary of this Agreement.
13.4 DOCUMENTS. All documents, certificates and other items required
under this Agreement to be executed and/or delivered to Bank shall be in form
and content satisfactory to Bank and its counsel.
13.5 PARTIAL INVALIDITY. The unenforceability or invalidity of any
provision of this Agreement shall not affect the enforceability or validity of
any other provision herein and the invalidity or unenforceability of any
provision of any Loan Document to any person or circumstance shall not affect
the enforceability or validity of such provision as it may apply to other
persons or circumstances.
13.6 SURVIVABILITY. All covenants, agreements, representations and
warranties made herein or in the other Loan Documents shall survive the making
of the Loan and shall continue in full force and effect so long as the
Obligations are outstanding or the obligation of Bank to make any advances
hereunder shall not have expired.
13.7 JOINT AND SEVERAL LIABILITY. The obligations of Borrowers
hereunder and under all of the other Loan Documents are joint and several in all
respects.
LOAN AGREEMENT - Page 17
<PAGE> 18
14.0 AGREEMENT CONTROLLING. In the event of a conflict between the
terms and provisions of this Agreement and the terms and provisions of any of
the other Loan Documents, the terms and provisions of this Agreement shall
control.
15.0 NOTICE OF FINAL AGREEMENT. THIS WRITTEN AGREEMENT REPRESENTS THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
TOREADOR ROYALTY CORPORATION
By: /S/ EDWARD C. MARHANKA
------------------------------------
Edward C. Marhanka
Vice President
TOREADOR EXPLORATION &
PRODUCTION INC.
By: /S/ EDWARD C. MARHANKA
------------------------------------
Edward C. Marhanka
Vice President
COMPASS BANK
By: /S/ TERRY O. McCARTER
------------------------------------
Terry O. McCarter
Senior Vice President
LOAN AGREEMENT - Page 18
<PAGE> 19
LIST OF EXHIBITS
<TABLE>
<CAPTION>
<S> <C> <C>
A .......................... Borrowing Request .................Section 2.1
B ........................Compliance Certificate ...............Section 6.1
C .................................Note ........................Section 2.3
D .........................Oil and Gas Mortgage ................Section 2.6(a)
E .........................Property Certificate ................Section 2.6(b)
F ...................Affidavit of Payment of Trade Bills .......Section 2.6(b)
</TABLE>
<PAGE> 20
EXHIBIT C
REVOLVING NOTE
$10,000,000 DALLAS, TEXAS NOVEMBER 13, 1997
FOR VALUE RECEIVED, TOREADOR ROYALTY CORPORATION, a Delaware
corporation having its principal place of business at 530 Preston Commons West,
8117 Preston Road, Dallas, Texas 75225, and TOREADOR EXPLORATION & PRODUCTION
INC., a Texas corporation having its principal place of business at 530 Preston
Commons West, 8117 Preston Road, Dallas, Texas 75225, collectively referred to
herein as the "Borrowers," promise to pay to the order of COMPASS BANK, a state
banking association and referred to herein as the "Lender," the principal sum of
Ten Million Dollars ($10,000,000) or, if less, all such sums as may have been
advanced and be outstanding hereunder, together with interest on the unpaid
principal balance as set forth below. All sums hereunder are payable to the
Lender at its principal office in Dallas, Dallas County, Texas.
1. DEFINITIONS. Unless the context hereof otherwise requires or
provides, the terms used herein defined in that certain Loan Agreement among the
Borrowers and the Lender of even date herewith, as the same has been or may be
amended or supplemented from time to time (the "Agreement") have the same
meanings. In addition, "MAXIMUM RATE" means the higher of the maximum interest
rate allowed by applicable United States or Texas law as amended from time to
time and in effect on the date for which a determination of interest accrued
hereunder is made. The determination of the maximum rate permitted by applicable
Texas law shall be made pursuant to the indicated rate ceiling as defined in
Tex.Rev.Civ.Stat.Ann. art. 5069-1D.003, but the Lender reserves the right to
implement from time to time any other rate ceiling permitted by such law.
2. INTEREST RATE.
(a) The unpaid principal balance from time to time outstanding from the
date hereof until maturity (whether by acceleration or otherwise) shall bear
interest as is provided in the Agreement.
(b) Interest shall be calculated at a daily rate equal to 1/365th
(1/366th in leap year) of the rate per annum specified therein, and shall be
charged and collected on the actual number of days elapsed. The rate of interest
on this Note shall change automatically, without notice to the Borrowers, as of
the opening of business on the effective date of each and every change of the
CBIR Rate charged by the Lender.
(c) If at any time the rate of interest which this Note would bear if
the rate of interest were determined in accordance with Section 2(a) hereof
otherwise would exceed the Maximum Rate, then the rate of interest which this
Note bears shall be limited to the Maximum Rate; provided any subsequent
reductions in the interest rate determined in accordance with Section 2(a)
hereof shall not reduce the rate of interest which this Note bears below the
Maximum Rate (or if there is then no such Maximum Rate, then below the sum of
the CBIR Rate plus 5%) until the total amount of the interest
<PAGE> 21
paid and accrued on this Note equals the amount of interest which would have
been paid or accrued if the interest rate determined in accordance with Section
2(a) hereof had at all times been in effect.
(d) All past-due payments of principal and interest under this Note
shall bear interest at the Maximum Rate (or if there is no such Maximum Rate,
then at the CBIR Rate plus 5%) from maturity until paid.
3. PAYMENT OF INTEREST AND PRINCIPAL.
(a) Interest hereunder shall be payable quarterly as it accrues on the
first day of each calendar quarter commencing on January 1, 1998, and at
maturity (whether by acceleration or otherwise) and after maturity on demand.
(b) The outstanding principal hereof, plus accrued but unpaid interest
to the date of payment, shall be due and payable on October 1, 2000.
(c) The principal and interest due hereunder shall be evidenced by the
Lender's records which, absent manifest error, shall be conclusive evidence of
the computation of principal and interest balances owed by the Borrowers to the
Lender.
4. DEFAULT. Upon the occurrence of an Event of Default described in
Section 9.8 of the Agreement, the entire principal of and accrued interest on
this Note shall forthwith be due and payable without demand, presentment for
payment, notice of nonpayment, protest, notice of protest, notice of intent to
accelerate, notice of acceleration and all other notices and further actions of
any kind, all of which are hereby expressly waived by the Borrowers. Should any
other Event of Default occur and be continuing, the holder of this Note may,
without demand or notice of its election declare the entire unpaid balance of
this Note, or any part thereof, immediately due and payable, whereupon the
principal of and accrued interest on such Note shall be forthwith due and
payable without demand, presentment for payment, notice of nonpayment, protest,
notice of protest, notice of intent to accelerate, notice of acceleration and
all other notices and further actions of any kind, all of which are hereby
expressly waived by the Borrowers.
5. WAIVER. Each surety, endorser, guarantor and any other party now or
hereafter liable for the payment of this Note in whole or in part ("Surety") and
the Borrowers hereby severally (a) waive grace, demand, presentment for payment,
notice of nonpayment, protest, notice of protest, non-payment or dishonor,
notice of intent to accelerate, notice of acceleration and all other notices
(except as provided in the Agreement), filing of suit and diligence in
collecting this Note or enforcing any other security with respect to same, (b)
agree to any substitution, surrender, subordination, waiver, modification,
change, exchange or release of any security or of the liability of any parties
primarily or secondarily liable hereon, (c) agree that the Lender is not
required first to institute suit or exhaust its remedies hereon against the
Borrowers, any Surety or others liable or to become liable hereon or to enforce
its rights against them or any security with respect to same, and (d) consent to
any extension or postponement of time of payment of this Note and to any other
indulgence with respect hereto without notice thereof to any of them. No failure
or delay on the part of the Lender in exercising any right, power or privilege
hereunder shall operate as a waiver thereof.
2
<PAGE> 22
6. ATTORNEYS' FEES. If this Note is not paid at maturity, regardless of
how such maturity may be brought about, or is collected or attempted to be
collected through the initiation or prosecution of any suit or through any
probate, bankruptcy or any other judicial proceedings, or is placed in the hands
of an attorney for collection, the Borrowers shall pay, in addition to all other
amounts owing hereunder, all actual expenses of collection, all court costs and
reasonable attorney's fees incurred by the holder hereof.
7. LIMITATION ON AGREEMENTS. All agreements between the Borrowers and
the Lender, whether now existing or hereafter arising, are hereby limited so
that in no event shall the amount paid, or agreed to be paid to or charged or
demanded by the Lender for the use, forbearance, or detention of money or for
the payment or performance of any covenant or obligation contained herein or in
any other document evidencing, securing or pertaining to this Note, exceed the
Maximum Rate. If any circumstance otherwise would cause the amount paid, charged
or demanded to exceed the Maximum Rate, the amount paid or agreed to be paid to
or charged or demanded by the Lender shall be reduced to the Maximum Rate, and
if the Lender ever receives interest which otherwise would exceed the Maximum
Rate, such amount which would be excessive interest shall be applied to the
reduction of the principal of this Note and not to the payment of interest, or
if such excessive interest otherwise would exceed the unpaid balance of
principal of this Note such excess shall be applied first to other indebtedness
of the Borrowers to the Lender, and the balance, if any, shall be refunded to
the Borrowers. In determining whether the interest paid, agreed to be paid,
charged or demanded hereunder exceeds the highest amount permitted by applicable
law, all sums paid or agreed to be paid to or charged or demanded by the Lender
for the use, forbearance or detention of the indebtedness of the Borrowers to
the Lender shall, to the extent permitted by applicable law, (i) be amortized,
prorated, allocated and spread throughout the full term of such indebtedness
until payment in full so that the actual rate of interest on account of such
indebtedness is uniform throughout such term, (ii) be characterized as a fee,
expense or other charge other than interest, and (iii) exclude any voluntary
prepayments and the effects thereof. The terms and provisions of this paragraph
shall control and supersede every other provision of all agreements between the
Lender and the Borrowers in conflict herewith.
8. GOVERNING LAW AND VENUE. This Note and the rights and obligations of
the parties hereunder shall be governed by the laws of the United States of
America and by the laws of the State of Texas, and is performable in Dallas
County, Texas. Chapter 15 of the Texas Credit Code (Tex.Rev.Civ.Stat.Ann. art.
5069-15.01 et seq., now known as Chapter 346 of the Texas Finance Code) does not
apply to this Note.
9. BUSINESS DAY. If any action is required or permitted to be taken
hereunder on a Sunday, legal holiday or other day on which banking institutions
in the State of Texas are authorized or required to close, such action shall be
taken on the next succeeding day which is a business day, and, to the extent
applicable, interest on the unpaid principal balance shall continue to accrue at
the applicable rate.
10. AGREEMENT. This Note is the Note referred to in the Agreement, and
is entitled to the benefits thereof and the security as provided for therein.
Reference is made to the Agreement and the Loan Documents for a statement of the
rights and obligations of the Borrowers, a description of
3
<PAGE> 23
the nature and extent of the security and the rights of the parties in respect
to such security, and a statement of the terms and conditions under which the
due date of this Note may be accelerated.
11. JOINT AND SEVERAL LIABILITY. The obligations of the Borrowers under
this Note are joint and several in all respects.
TOREADOR ROYALTY CORPORATION
By: /s/ EDWARD C. MARHANKA
-----------------------------------
Edward C. Marhanka
Vice President
TOREADOR EXPLORATION & PRODUCTION
INC.
By: /s/ EDWARD C. MARHANKA
-----------------------------------
Edward C. Marhanka
Vice President
4
<PAGE> 1
EXHIBIT 10.18
FIRST AMENDMENT TO LOAN AGREEMENT
FIRST AMENDMENT TO LOAN AGREEMENT made as of September 22, 1998, among
TOREADOR ROYALTY CORPORATION, a Delaware corporation, TOREADOR EXPLORATION &
PRODUCTION INC., a Texas corporation, and COMPASS BANK, a state banking
association (the "First Amendment").
R E C I T A L S
A. Toreador Royalty Corporation and Toreador Exploration & Production
Inc. (collectively, the "Borrowers") and Compass Bank (the "Lender") are
parties to a Loan Agreement dated as of November 13, 1997 (the "Original Loan
Agreement").
B. The Borrowers have requested that the Lender modify the Original
Loan Agreement to adjust the Borrowing Base (as therein defined) and to make
certain other changes as are hereinafter set forth. The Lender is agreeable to
such requests, subject to the terms and conditions hereof.
NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt, sufficiency and adequacy of which are
hereby acknowledged, the parties hereto agree as follows:
1.0 DEFINITIONS. The defined terms used herein shall have the same
meanings as provided therefor in the Original Loan Agreement, unless the
context hereof otherwise requires or provides. The term "Loan Agreement" means
the Original Loan Agreement as amended by this First Amendment and as the same
may hereafter be amended from time to time.
2.0 BORROWING BASE. The parties agree that as of the date hereof the
Borrowing Base shall be $3,500,000.
3.0 AMENDMENTS TO ORIGINAL LOAN AGREEMENT. The parties agree that the
Original Loan Agreement is hereby amended as follows:
(a) Section 2.6 is hereby amended by changing "$2,000,000" to
"$1,500,000" on the second line thereof.
(b) The Determination Dates set forth in Section 3.1 are
hereby changed from May 1 and November 1 of each year to February 1
and August 1 of each year. References in Section 3.2(a) to the
Determination Date of May 1 shall mean the Determination Date of
August 1, and references in Section 3.2(a) to the date of "April 1"
shall mean "July 1". References in Section 3.2(b) to the Determination
Date of November 1 shall mean February 1, and the date of "October 1"
on the first line of Section 3.2(b) shall mean "January 1".
(c) Section 6.0 is hereby amended by adding thereto a new
Section 6.11 which reads in its entirety as follows:
FIRST AMENDMENT TO LOAN AGREEMENT - Page 1
<PAGE> 2
"6.11 YEAR 2000. Notify Bank in the event either
Borrower discovers or determines that any computer
application (including those of its suppliers, vendors and
customers) that is material to its or any of its subsidiaries
businesses and operations will not be Year 2000 compliant,
except to the extent that the failure could not reasonably be
expected to have a material adverse effect on the business,
assets, liabilities, operations or condition (financial or
otherwise) of either Borrower or the ability of either
Borrower to perform its obligation under the Loan Documents."
(d) Section 8.0 is hereby amended by adding a new Section
8.11 at the end thereof in its entirety as follows:
"8.11 YEAR 2000 PREPAREDNESS. Each Borrower has (i)
initiated a review and assessment of all areas within its
business and operations (including those affected by
suppliers, vendors and customers) that could be adversely
affected by the `Year 2000 Problem' (that is, the risk that
computer applications used by each Borrower (or its
suppliers, vendors and customers) may be unable to recognize
and perform properly date sensitive functions involving
certain dates prior to and after any date after December 31,
1999), (ii) developed a plan and timeline for addressing the
Year 2000 Problem on a timely basis, and (iii) to date,
implemented that plan in accordance with that timetable.
Based on the foregoing, each Borrower believes that all
computer applications (including those of its suppliers,
vendors and customers) that are material to its business and
operations are reasonably expected on a timely basis to be
able to perform properly date-sensitive functions for all
dates before and after January 1, 2000, except to the extent
that the failure to do so could not reasonably be expected to
have a material adverse effect on the business, assets,
liabilities, operations or condition (financial or otherwise)
of either Borrower or the ability of either Borrower to
perform its obligation under the Loan Documents."
4.0 CHANGE OF ADDRESS OF NOTICES TO BORROWERS. The new address for all
notices to the Borrowers shall be 4809 Cole Avenue, Suite 108, Dallas, Texas
75205 (fax number 214-369-3183).
5.0 REPRESENTATIONS AND WARRANTIES. To induce the Lender to enter into
this First Amendment, each Borrower represents and warrants as follows (which
representations and warranties shall survive the execution and delivery
hereof):
5.1 CORPORATE POWER AND AUTHORITY. Each Borrower has the
corporate power and authority to execute, deliver and carry out the
terms and provisions of this First Amendment, and each Borrower has
taken all necessary action (including, without limitation, any consent
of shareholders required by law or by its articles of incorporation or
bylaws) to authorize the execution and delivery of this First
Amendment.
5.2 NO VIOLATION OF AGREEMENTS. Neither the execution nor the
delivery of this First Amendment, nor the consummation of the
transactions contemplated thereby, will contravene any
FIRST AMENDMENT TO LOAN AGREEMENT - Page 2
<PAGE> 3
provision of applicable law or will conflict or be inconsistent with
the terms, covenants and conditions to any agreement by which either
Borrower is bound or to which either is a party.
5.3 ENFORCEABILITY. The First Amendment has been duly
executed and delivered by each Borrower and constitutes the legal,
valid and binding obligation of each Borrower enforceable in
accordance with its terms, except to the extent that the enforcement
thereof may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of
creditors' rights generally.
5. 4 NO DEFAULTS. No Event of Default or potential Default
exist.
6.0 NO FURTHER AMENDMENTS. Except as previously amended in writing or
as amended hereby, the Original Loan Agreement shall remain unchanged and all
provisions shall remain fully effective between the parties.
7.0 LIMITATION ON AGREEMENTS. The agreements and amendments set forth
herein are limited precisely as written and shall not be deemed (a) to be a
waiver or waivers of or a consent or a consents to or an amendment of any other
term or condition in the Original Loan Agreement, or (b) to prejudice any right
or rights which the Lender now has or may have in the future under or in
connection with the Original Loan Agreement or any of the Loan Documents or any
of the other documents referred to therein. This First Amendment shall
constitute a Loan Document for all purposes.
8.0 SECTION 26.02 NOTICE. THIS WRITTEN AGREEMENT, TOGETHER WITH ALL OF
THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL AGREEMENT AMONG THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS AMONG THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG
THE PARTIES. This First Amendment, together with the other Loan Documents,
embodies the entire agreement between the parties, and supersedes all prior
agreements and understandings relating to the subject matter hereof.
IN WITNESS WHEREOF, the parties have executed this First Amendment as
of the date and year first above written.
TOREADOR ROYALTY CORPORATION
By: /S/ G. THOMAS GRAVES III
-------------------------------
G. Thomas Graves III, President
TOREADOR EXPLORATION & PRODUCTION INC.
By: /S/ G. THOMAS GRAVES III
-------------------------------
G. Thomas Graves III, President
COMPASS BANK
By: /S/ CHRIS D. COWAN
-------------------------------
Chris D. Cowan, Banking Officer
<PAGE> 1
EXHIBIT 10.19
SECOND AMENDMENT TO LOAN AGREEMENT
This Second Amendment to Credit Agreement ("Second Amendment") is
entered into between COMPASS BANK ("Bank" or "Lender") and TOREADOR ROYALTY
CORPORATION and TOREADOR EXPLORATION & PRODUCTION, INC. (collectively, the
"Borrower") and is dated December 15, 1998. Terms defined in the Loan Agreement
between the Lender and the Borrower dated November 13, 1997 (as amended, the
"Credit Agreement"), are used herein as therein defined unless otherwise
defined herein or the context otherwise requires.
R E C I T A L S:
WHEREAS, the Borrower has requested the Lender to modify the terms of
the Credit Agreement in certain respects; and
WHEREAS, the Lender is willing to amend the terms of the Credit
Agreement subject to the terms and conditions set forth herein,
NOW, THEREFORE, the Borrower and the Lender hereby agree as follows:
1. Section 1.0 of the Credit Agreement is hereby amended by
adding thereto the following definition:
"Preferred Stock" means the Preferred Stock described in the
certificate of designations attached to the Second Amendment
as ANNEX A.
2. The lead-in for Section 2.6 of the Credit Agreement is hereby
amended as follows:
"2.6 COLLATERAL. Within 30 days after December 15, 1998, the
Borrowers will do the following:"
Clauses (a), (b), and (c) of such Section 2.6 shall remain
unchanged.
3. The Borrowing Base determined under Section 3.0 of the Credit
Agreement is $2,700,000 as of the date hereof.
4. Section 7.4 of the Credit Agreement is hereby amended by
adding the following sentence thereto:
"Notwithstanding the foregoing, Toreador Royalty Corporation
shall be permitted to form a Delaware corporation under the
name of "Tormin, Inc.", if all of the
SECOND AMENDMENT TO LOAN AGMT/TOREADOR ROYALTY CORP.
1
<PAGE> 2
outstanding common stock and other equity interests of
Tormin, Inc. are owned by Toreador Royalty Corporation."
5. Section 7.5 of the Credit Agreement is hereby amended by
adding thereto the following sentence:
"Notwithstanding the foregoing, on or about December 15,
1998, Toreador Royalty Corporation shall be permitted to
advance to its wholly owned subsidiary, Tormin, Inc., a
Delaware corporation, cash in the amount of up to $7,100,000
to be used by Tormin, Inc. to acquire certain mineral
interests from Howell Petroleum Corporation, the repayment of
which shall be evidenced by a promissory note of the Borrower
payable to Toreador Royalty Corporation."
6. Section 7.7 of the Credit Agreement is hereby amended in its
entirety:
"7.7 DIVIDENDS AND DISTRIBUTIONS. Make any distribution
(other than dividends payable in its capital stock or, if no
Event of Default or Potential Default exists or will exist as
a result thereof, cash dividends on the Preferred Stock) on
any shares of any class of its capital stock or apply any of
its property or assets to the purchase, redemption or other
retirement of any shares of any class of its capital stock."
7. GOVERNING LAW. THIS AGREEMENT AND THE NOTE SHALL BE DEEMED TO
BE CONTRACTS MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED
BY THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO PRINCIPLES THEREOF
RELATING TO CONFLICTS OF LAW; PROVIDED, HOWEVER, THAT VERNON'S TEXAS CIVIL
STATUTES, ARTICLE 5069, CHAPTER 15 (WHICH REGULATES CERTAIN REVOLVING CREDIT
LOAN ACCOUNTS AND REVOLVING TRIPARTY ACCOUNTS) SHALL NOT APPLY.
8. JURISDICTION AND VENUE. ALL ACTIONS OR PROCEEDINGS WITH
RESPECT TO, ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED
TO, OR FROM THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE LITIGATED, AT THE
SOLE DISCRETION AND ELECTION OF THE LENDER, IN COURTS HAVING SITUS IN DALLAS,
DALLAS COUNTY, TEXAS. THE BORROWER HEREBY SUBMITS TO THE JURISDICTION OF ANY
LOCAL, STATE, OR FEDERAL COURT LOCATED IN DALLAS, DALLAS COUNTY, TEXAS, AND
HEREBY WAIVES ANY RIGHTS IT MAY HAVE TO TRANSFER OR CHANGE THE JURISDICTION OR
VENUE OF ANY LITIGATION BROUGHT AGAINST IT BY THE LENDER IN ACCORDANCE WITH
THIS SECTION.
9. WAIVER OF RIGHTS TO JURY TRIAL. THE BORROWER AND THE LENDER
HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY, IRREVOCABLY, AND UNCONDITIONALLY
WAIVE ALL RIGHTS TO TRIAL BY
SECOND AMENDMENT TO LOAN AGMT/TOREADOR ROYALTY CORP.
2
<PAGE> 3
JURY IN ANY ACTION, SUIT, PROCEEDING, COUNTERCLAIM, OR OTHER LITIGATION THAT
RELATES TO OR ARISES OUT OF ANY OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR
THE ACTS OR OMISSIONS OF THE LENDER IN THE ENFORCEMENT OF ANY OF THE TERMS OR
PROVISIONS OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR OTHERWISE WITH
RESPECT THERETO. THE PROVISIONS OF THIS SECTION ARE A MATERIAL INDUCEMENT FOR
THE LENDER ENTERING INTO THIS AGREEMENT.
10. Counterparts. For the convenience of the parties, this Second
Amendment may be executed in multiple counterparts, each of which for all
purposes shall be deemed to be an original, and all such counterparts shall
together constitute but one and the same agreement.
11. Effect. Except as amended hereby, the Credit Agreement shall
remain unchanged and in full force and effect.
[REMINDER OF PAGE INTENTIONALLY LEFT BLANK]
SECOND AMENDMENT TO LOAN AGMT/TOREADOR ROYALTY CORP.
3
<PAGE> 4
12. ENTIRE AGREEMENT. THIS AGREEMENT CONSTITUTES THE ENTIRE
AGREEMENT BETWEEN THE PARTIES HERETO WITH RESPECT TO THE SUBJECT HEREOF.
FURTHERMORE, IN THIS REGARD, THIS AGREEMENT AND THE OTHER WRITTEN LOAN
DOCUMENTS REPRESENT, COLLECTIVELY, THE FINAL AGREEMENT AMONG THE PARTIES
THERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF SUCH PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG SUCH PARTIES.
IN WITNESS WHEREOF, this Second Amendment is deemed executed effective
as of the date first above written.
BORROWER:
TOREADOR ROYALTY CORPORATION
By: /S/ G. THOMAS GRAVES III
-------------------------------
Printed Name: G. Thomas Graves III
Title: President
and
TOREADOR EXPLORATION & PRODUCTION, INC.
By: /S/ G. THOMAS GRAVES III
-------------------------------
Printed Name: G. Thomas Graves, III
Title: President
LENDER:
COMPASS BANK
By: /S/ CHRIS D. COWAN
-------------------------------
Printed Name: Chris D. Cowan
Title: Assistant Vice President
SECOND AMENDMENT TO LOAN AGMT/TOREADOR ROYALTY CORP.
4
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF TOREADOR ROYALTY CORPORATION
Toreador Royalty Corporation has two wholly-owned subsidiaries,
Toreador Exploration & Production Inc., a Texas corporation, and Tormin, Inc.,
a Delaware corporation.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 333-14145 and 333-39309) of Toreador Royalty
Corporation of our report dated April 9, 1999 appearing on page F-2 of this
Annual Report on Form 10-K.
PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
April 15, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
As independent petroleum engineers, we hereby consent to the incorporation
by reference in the Registration Statements on Form S-8 (Nos. 333-14145 and
333-39309) of Toreador Royalty Corporation of our estimates of reserves,
included in this Annual Report on Form 10-K, and to all references to our firm
included in this Annual Report.
/s/ L.E. HARLAN
- -----------------------
HARLAN CONSULTING
Dallas, Texas
April 13, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TOREADOR
ROYALTY CORPORATION CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED
DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM
10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 726,187
<SECURITIES> 1,593,206
<RECEIVABLES> 517,442
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,295,518
<PP&E> 18,832,279
<DEPRECIATION> 2,622,648
<TOTAL-ASSETS> 19,782,262
<CURRENT-LIABILITIES> 1,307,754
<BONDS> 0
0
160,000
<COMMON> 881,886
<OTHER-SE> 9,552,622
<TOTAL-LIABILITY-AND-EQUITY> 19,782,262
<SALES> 1,968,638
<TOTAL-REVENUES> 2,308,640
<CGS> 0
<TOTAL-COSTS> 2,784,163
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (475,523)
<INCOME-TAX> (233,277)
<INCOME-CONTINUING> (242,246)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (261,746)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
