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