SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Filing By:
Beta Oil & Gas, Inc. (File No 000-25717)
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(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
Beta Company common stock, par value $.001 per share
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(2) Aggregate number of securities to which transaction applies:
2,250,000 shares
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
/1/ $6.74
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(4) Proposed maximum aggregate value of transaction: $15,165,000
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(5) Total fee paid: $3,033
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: $0
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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/1/ Estimated pursuant to Rule 0-11(c)(1) and 0-11(a)(4) under the Exchange
Act solely for the purpose of calculating the filing fee, based on the
average of the high and low sale prices for shares of Beta Common Stock on
the Nasdaq Small Cap Market on January 11, 2000 ($6.74 per share) multiplied
by the 2,250,000 shares of Beta common stock to be issued in connection with
the merger.
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[BETA LOGO]
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
TO THE SHAREHOLDERS OF BETA OIL & GAS, INC
The board of directors of Beta Oil & Gas, Inc. has unanimously approved a merger
with Red River Energy, Inc. designed to strengthen Beta's position in the oil
and gas industry and recommends that you approve the merger. The board of
directors also unanimously approved the Beta Amended and Restated 1999 Incentive
and Non-statutory Stock Option Plan and recommends that you vote to approve the
stock option plan.
Upon completion of the merger, Red River shareholders will receive a total of
2,250,000 shares of Beta common stock in exchange for their shares of Red River
common stock. Beta shareholders will continue to own their existing shares of
Beta common stock. After the merger, the Red River shareholders will hold
approximately 19% of Beta's outstanding common stock.
We are requesting the shareholders of Beta to consent to the merger agreement
and the stock issuance in the merger. In addition, we are asking you to approve
the adoption of the Beta Amended and Restated 1999 Incentive and Non-statutory
Stock Option Plan. We plan on obtaining such stockholder approval by the written
consent of our shareholders owning a majority of Beta common stock on or before
February _____, 2000 as permitted under Nevada law. This date may be extended by
Beta's management until no later than March ____, 2000. As such, we do not plan
on holding a meeting of our shareholders to vote on this matter.
Please take the time to indicate your approval of the merger and the stock
option plan by completing and mailing the enclosed consent forms to Beta Oil &
Gas, Inc., 901 Dove Street, Suite 230, Newport Beach, CA 92660. Instructions
relating to the completion of the consent forms are inside.
/s/ Steve A. Antry
Steve A. Antry, President and Chairman
Beta Oil & Gas, Inc.
FOR A DISCUSSION OF RISKS WHICH YOU SHOULD CONSIDER IN EVALUATING THE MERGER SEE
RISK FACTORS BEGINNING ON PAGE __.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATORS HAVE APPROVED THE BETA OIL & GAS, INC. COMMON STOCK TO BE ISSUED
UNDER THIS PROXY STATEMENT OR DETERMINED IF THIS PROXY STATEMENT IS ACCURATE OR
ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
THIS PROXY STATEMENT DATED JANUARY 12, 1999 WAS FIRST MAILED TO SHAREHOLDERS ON
OR ABOUT JANUARY , 1999.
BETA OIL & GAS, INC.
901 DOVE STREET, #230
NEWPORT BEACH, CALIFORNIA 92660
REQUEST FOR CONSENT OF SHAREHOLDERS
IN LIEU OF SPECIAL MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS OF BETA OIL & GAS, INC.:
We are requesting that you sign and complete the separate consent forms
enclosed with this document on or before February _____, 2000. You are requested
to complete, sign and deliver both of the enclosed consent forms in the self
addressed postage prepaid envelope to Beta Oil & Gas, Inc., 901 Dove Street,
Suite 230, Newport Beach, CA 92660. By completing and signing the enclosed
consent forms, you will be approving:
1. The Agreement and Plan of Merger dated November 19, 1999 in
which a wholly owned subsidiary of Beta will merge into Red River Energy,
Inc., an Oklahoma corporation, and each outstanding share of Red River,
will be converted into 2,250 shares of Beta common stock or a total of
2.25 million shares of Beta common stock, and Red River will become a
wholly-owned subsidiary of Beta; and
2. the Beta Amended and Restated 1999 Incentive and
Nonstatutory Stock Option Plan.
Approval of the merger proposal is not conditioned on adoption of the
stock option proposal. Adoption of the stock option proposal is not conditioned
on approval of the merger proposal.
YOUR BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS IN THE BEST INTEREST
OF BETA AND ITS SHAREHOLDERS. YOUR BOARD HAS UNANIMOUSLY APPROVED THE MERGER AND
RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE MERGER AGREEMENT. THE BOARD OF
DIRECTORS ALSO RECOMMENDS THAT YOU VOTE TO APPROVE THE BETA AMENDED AND RESTATED
1999 INCENTIVE AND NONSTATUTORY STOCK OPTION PLAN. THE ACCOMPANYING PROXY
STATEMENT PROVIDES DETAILED INFORMATION CONCERNING THE MERGER AND THE STOCK
OPTION PLAN.
YOUR CONSENT IS IMPORTANT. THE APPROVAL OF THE MERGER AGREEMENT AND THE
STOCK OPTION PLAN BY A MAJORITY OF BETA SHAREHOLDERS IS REQUIRED UNDER BETA'S
BYLAWS AND THE NASDAQ STOCK MARKET. PLEASE COMPLETE, DATE AND SIGN THE
ACCOMPANYING CONSENT FORMS AND RETURN THEM PROMPTLY IN THE ENCLOSED ENVELOPE. IF
YOU DO NOT COMPLETE AND RETURN YOUR CONSENT FORMS, YOU WILL, IN EFFECT, BE
VOTING AGAINST SUCH PROPOSALS. IF YOU WISH TO CONSENT TO ONE BUT NOT THE OTHER
PROPOSAL, YOU MUST RETURN THE CONSENT FORM AND INDICATE TO WHICH PROPOSAL YOU
ARE CONSENTING. ONCE WE RECEIVE YOUR CONSENT, YOU MAY NOT REVOKE IT. IF YOUR
SHARES ARE HELD IN STREET NAME, THE BROKER WILL NOT HAVE DISCRETIONARY AUTHORITY
TO CONSENT TO THE PROPOSALS UNLESS INSTRUCTED TO DO SO IN WRITING SIGNED BY YOU.
By Order of the Board of Directors,
/s/ Steve A. Antry
Steve A. Antry
President and Chairman
January 12, 2000
Table of Contents
PAGE
----
QUESTIONS AND ANSWERS ABOUT THE BETA/RED RIVER MERGER
AND THE STOCK OPTION PLAN..........................................................1
SUMMARY........................................................................................
The Companies.............................................................................
Beta......................................................................................
Red River.................................................................................
The Merger................................................................................
Shareholders' Consent.....................................................................
Terms of the Merger Agreement.............................................................
Comparative Per Share Market Price Information............................................
Risk Factors..............................................................................
Comparative Shareholder Rights............................................................
Listing of Beta Commons Stock.............................................................
The Stock Option Plan.....................................................................
Summary Financial Data for Beta...........................................................
Summary Financial Data of Red River.......................................................
Selected Unaudited Pro Forma Combined Financial Data of Beta and Red River................
RISK FACTORS...................................................................................
WHERE YOU CAN FIND MORE INFORMATION............................................................
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS...........................................
REQUEST FOR CONSENT OF BETA SHAREHOLDERS.......................................................
Purpose...................................................................................
Recommendation of Beta Board..............................................................
Record Date; Voting Rights................................................................
Exercise of Consent.......................................................................
Cost of Requesting Consents...............................................................
Required Consents.........................................................................
Share Ownership of Management.............................................................
PROPOSAL FOR CONSENT TO THE AGREEMENT AND
PLAN OF MERGER DATED NOVEMBER 19, 1999
THE MERGER.....................................................................
General...................................................................................
Background of the Merger..................................................................
Beta's Reasons for The Merger; Recommendation of its Board of Directors...................
Red River's Reasons for The Merger; Recommendation of its Board of Directors..............
Material Federal Income Tax Consequences..................................................
Interest of Red River Management in the Merger............................................
Percentage Ownership Interest of Red River Shareholders After the Merger..................
Appraisal Rights..........................................................................
Resales of Beta Common Stock..............................................................
THE MERGER AGREEMENT...........................................................................
General...................................................................................
Conditions to the Merger..................................................................
Representations and Warranties............................................................
Survival..................................................................................
Conduct of Business Prior to Closing Date.................................................
Pre-Closing Mutual Covenants..............................................................
No Solicitation of Other Proposals........................................................
Arbitration...............................................................................
Termination...............................................................................
Consequences of Termination...............................................................
Amendments................................................................................
Post Closing Covenants....................................................................
Registration of Shares of Beta Common Stock...............................................
PRINCIPAL SHAREHOLDERS OF BETA.................................................................
DESCRIPTION OF BETA'S CAPITAL STOCK............................................................
Common Stock..............................................................................
Stockholder Action........................................................................
Possible Anti-Takeover Effects of Authorized but Unissued Stock...........................
Other Anti-Takeover Provisions............................................................
Certain Charter and Bylaws Provisions.....................................................
Stockholder Meetings and Other Provisions.................................................
Transfer Agent and Registrar..............................................................
Certain Provisions of the Beta Bylaws.....................................................
COMPARISON OF THE RIGHTS OF HOLDERS OF BETA COMMON STOCK
AND RED RIVER COMMON STOCK.............................................................
General...................................................................................
Dividends.................................................................................
CumulativeVoting..........................................................................
Size of Board of Directors................................................................
Removal of Directors......................................................................
Filling Vacancies on the Board of Directors...............................................
Special Meetings of Shareholders..........................................................
Stockholder Action by Written Consent.....................................................
Inspection of Books, Records and Shareholders List........................................
Amendment of Certificate or Articles of Incorporation.....................................
Amendment of Bylaws.......................................................................
Approval of Asset Sales and Mergers.......................................................
Dissolution...............................................................................
Indemnification of Directors and Officers.................................................
Limitation of Personal Liability of Directors.............................................
Business Combinations Involving Interested Shareholders...................................
Stock Purchases...........................................................................
Transactions Involving Officers, Directors and Employees..................................
Dissenters' Appraisal Rights..............................................................
MARKET PRICES..................................................................................
Beta Common Stock.........................................................................
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS....................................
Beta Oil & Gas, Inc. Unaudited Pro Forma Combined Condensed Balance Sheet as
of September 30, 1999..................................................................
Beta Oil & Gas, Inc. Unaudited Pro Forma Combined Condensed Statement of
Earnings For the Year Ended December 31, 1998..........................................
Beta Oil & Gas, Inc. Unaudited Pro Forma Combined Condensed Statement of
Earnings For the Nine Months Ended September 30, 1999..................................
Beta Oil & Gas, Inc. Unaudited Pro Forma Combined Condensed Statement of
Earnings For the Nine Months Ended September 30, 1998..................................
BETA OIL & GAS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS................................................
GLOSSARY.......................................................................................
BUSINESS OF BETA...............................................................................
General...................................................................................
Technology................................................................................
Summary of Oil and Gas Operations.........................................................
PROPERTIES OF BETA.............................................................................
Yegua/Frio/Wilcox Trend 3-D Seismic Joint Venture, Jackson County, Texas..................
Transition Zone Project...................................................................
Norcal Project, Onshore San Joaquin and Sacramento Basins.................................
International.............................................................................
Additional Projects Under Review..........................................................
General...................................................................................
Company Reserves..........................................................................
Well Statistics...........................................................................
Acreage Statistics........................................................................
Drilling Activity.........................................................................
Subsequent Drilling Activity..............................................................
Competition...............................................................................
Employees.................................................................................
Premises..................................................................................
Litigation................................................................................
INFORMATION ABOUT RED RIVER....................................................................
Business of Red River.....................................................................
Oil and Gas Properties....................................................................
Legal Proceedings.........................................................................
Management of Red River...................................................................
PRINCIPAL SHAREHOLDERS OF RED RIVER............................................................
ADDITIONAL PROPOSAL FOR THE BETA SHAREHOLDERS
CONSENT TO THE ADOPTION OF THE AMENDED AND RESTATED
1999 INCENTIVE AND NONSTATUTORY STOCK OPTION PLAN.............................
STOCKHOLDER PROPOSALS..........................................................................
INDEPENDENT ACCOUNTANTS........................................................................
EXPERTS .......................................................................................
LEGAL OPINIONS.................................................................................
ANNEX A AGREEMENT AND PLAN OF MERGER.........................................................A-1
ANNEX B RED RIVER ENERGY, LLC AND SUBSIDIARIES CONSOLIDATED
FINANCIAL STATEMENTS...................................................................B-1
RED RIVER MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................................B-
ANNEX C BETA OIL & GAS, INC. AND SUBSIDIARIES CONSOLIDATED
FINANCIAL STATEMENTS...................................................................C-1
BETA MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................................C-
ANNEX D BETA OIL & GAS, INC. BETA AMENDED AND RESTATED
1999 INCENTIVE AND NONSTATUTORY STOCK OPTION PLAN......................................D-1
QUESTIONS AND ANSWERS ABOUT THE BETA/RED RIVER MERGER
AND THE STOCK OPTION PLAN
Q: WHY ARE THE COMPANIES PROPOSING THE BUSINESS COMBINATION?
A: We believe that the combined strengths of the two companies will provide
enhanced value to our shareholders through the addition of proved
developed reserves in diverse locations and formations where we are not
currently located, greater management experience and control in the
operation of exploratory and underdeveloped prospects as well as
developed properties, a more predictable income stream and
diversification of risks. We believe that our combined strengths will
enable us to compete more effectively in the domestic markets where our
interests in properties are currently located.
Q: WHAT DO I NEED TO DO NOW?
A: After reviewing this proxy statement, just sign each of the enclosed
consent forms and mail them in the enclosed return envelope AS SOON AS
POSSIBLE . ONCE WE RECEIVE YOUR CONSENT, IT MAY NOT BE REVOKED. The board
of directors of Beta unanimously recommend voting in favor of the
proposed merger and the stock option plan.
Approval of the merger proposal is not conditioned on adoption of the
stock option proposal. Adoption of the stock option proposal is not
conditioned on approval of the merger proposal. A separate consent form
is provided for approval of each of the merger agreement and the stock
option plan.
If you are opposed to either the merger or the stock option plan, you do
not need to return the consent form for that proposal.
Q: PLEASE EXPLAIN THE EXCHANGE RATIO.
A: Red River shareholders will receive 2,250 shares of Beta common stock in
exchange for each share of Red River common stock they hold. After the
merger, the Red River shareholders will own a total of 2.25 million
shares of Beta common stock.
Q: SHOULD I SEND IN MY STOCK CERTIFICATE NOW?
A: No. Beta shareholders will keep their current certificates. Red River
shareholders will receive stock certificates for the Beta shares at
closing.
Q: WHAT IS REQUIRED TO APPROVE THE MERGER AND THE STOCK OPTION PLAN?
A: The written consent by the shareholders owning a majority of the issued
and outstanding shares of Beta to the merger and the stock option plan is
required under applicable law. Such approval is a condition for closing
the merger and approving the stock option plan.
Q: WHO CAN CONSENT TO THE MERGER AND THE STOCK OPTION PLAN?
A: Only holders of record of the Beta common stock and the Red River common
stock as of the close of business on January 12, 2000 will be entitled to
consent to the merger and approve the merger agreement and the stock
option plan.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER BE
ENTITLED TO CONSENT ON MY BEHALF?
A: Your broker will be entitled to complete and sign the Consent Form with
respect to the number of shares beneficially owned by you only if you
provide your broker with instructions regarding your preference to
consent to, or withhold consent as to, the merger, the merger agreement
and the stock option plan.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We expect to complete the merger as soon as possible after receiving
written consent from the shareholders owning a majority of the issued and
outstanding shares of Beta, BUT NOT EARLIER THAN ____, 2000. We are
requesting such consents be returned by no later than February ____,
2000.
Q: WILL I BE ABLE TO SELL MY SHARES OF BETA COMMON STOCK?
A: Beta common stock, is listed on the Nasdaq Small Cap Market and unless
you are subject to special restrictions your stock is freely tradable.
Q: WHOM SHOULD I CALL IF I HAVE ANY QUESTIONS?
A: Beta shareholders who have questions about the merger may call and speak
to any Beta corporate officer at (800) 866-8055.
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROXY STATEMENT AND MAY
NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND THE
MERGER MORE FULLY AND FOR A MORE COMPLETE DESCRIPTION OF THE LEGAL TERMS OF THE
MERGER, YOU SHOULD READ CAREFULLY THIS ENTIRE DOCUMENT. THE MERGER AGREEMENT IS
ATTACHED AS ANNEX A. WE ENCOURAGE YOU TO READ THE MERGER AGREEMENT. IT IS THE
LEGAL DOCUMENT THAT GOVERNS THE MERGER. THE STOCK OPTION PLAN IS ALSO ATTACHED
AS ANNEX D AND WE ENCOURAGE YOU TO READ IT.
THROUGHOUT THIS DOCUMENT WHEN WE USE THE TERM "BETA", "WE", "US" AND "OUR", WE
ARE REFERRING TO BETA OIL AND GAS, INC. IF THE CONTEXT IN WHICH SUCH TERM IS
USED IS PRIOR TO THE COMPLETION OF THE MERGER AND THE COMBINED COMPANY IF THE
CONTEXT IN WHICH SUCH TERM IS USED IS AFTER THE COMPLETION OF THE MERGER. THE
REFERENCE THROUGHOUT THIS DOCUMENT TO "THE COMBINED COMPANY" REFERS TO BETA.
REFERENCES TO "RED RIVER" MEAN RED RIVER ENERGY, INC. AND ITS WHOLLY OWNED
SUBSIDIARY, RED RIVER ENERGY, LLC.
THE COMPANIES
BETA (SEE PAGES ____)
Beta is an oil and gas company organized in June 1997 to participate in the
exploration and production of natural gas and crude oil. Our operations are
currently focused in proven oil and gas producing trends primarily in South
Texas, Louisiana and Central California. Our wholly owned subsidiary,
BETAustralia, LLC, participates in the exploration for oil and gas in Australia.
To date, we have relied almost exclusively on joint ventures with qualified
operating oil and gas companies to operate our projects through the exploratory
and production phases. This has reduced general and administrative costs
necessary to conduct operations. As of the date of this document, we were
operating only one of our projects.
We believe that 3-D seismic surveys have reduced the risk of oil and gas
exploration in certain areas. Recognizing this change, we have participated in
the acquisition of prospective acreage blocks for targeted, proprietary, 3-D
seismic surveys. From the data generated by the initial proprietary seismic
surveys, covering 313 square miles, we have identified in excess of 100
potential drillsites.
RED RIVER (SEE PAGES ____)
Red River Energy, Inc. was formed in 1997 and commenced operations in early
1998. After September 30, 1999, the members of Red River Energy, L.L.C.
exchanged their interests in the L.L.C. for shares of stock in Red River Energy,
Inc. As a result, Red River Energy, L.L.C. became a single member limited
liability company which is wholly owned by Red River Energy, Inc. Most of the
Red River assets are held by and the operations conducted by Red River Energy,
L.L.C. Red River's operations to date have consisted primarily of the
acquisition and operations of producing oil and gas properties in central
Oklahoma and drilling and development operations involving coal bed methane
reserves in eastern Oklahoma. Red River also owns a natural gas gathering
system.
Its principal focus is on the acquisition of desirable producing oil and gas
properties, with the intent of enhancing the production and revenues from the
properties through efficient operations, aggressive marketing efforts, drilling
on available development locations and conducting workover and enhanced recovery
operations.
Red River has a management team with substantial experience in the evaluation,
acquisition, operation and marketing of oil and gas reserves. At December 1,
1999, Red River had 14 full-time employees, including 7 professionals with a
combined total of 120 years of experience in the oil and gas business. It is
expected that after the merger, these persons will all continue to be employed
by Red River, which will be renamed Beta Operating Company, and will act
primarily as the producing property acquisition and operating team of Beta.
THE MERGER (SEE PAGES ____)
GENERAL. In the merger, Beta Acquisition Company, our wholly owned subsidiary,
will merge into Red River, with Red River being the surviving company. Following
the completion of the merger, Red River will be a wholly-owned subsidiary of
Beta, and each of the 1,000 shares of Red River common stock will be converted
into 2,250 shares of Beta common stock. Beta will issue a total of 2,250,000
shares of Beta stock to the Red River shareholders.
RECOMMENDATION OF THE BETA BOARD. The Beta board of directors believes that the
proposed merger and the share issuance are fair to and in the best interests of
Beta and its shareholders and has unanimously approved the merger agreement. The
Beta board unanimously recommends that the shareholders of Beta vote in favor of
the adoption of the merger agreement and the merger.
EXCHANGE OF STOCK CERTIFICATES. At the closing of the merger, each Red River
stockholder will receive a certificate representing the number of shares of Beta
common stock into which the Red River stockholder's shares have been converted.
APPRAISAL RIGHTS. Beta shareholders are not entitled to appraisal rights under
Nevada Law. Dissenting Red River shareholders are entitled to appraisal rights
under Oklahoma law. However, a condition of closing the merger under the merger
agreement is the requirement that all of the Red River shareholders will have
waived their rights to an appraisal of the "fair value" of their Red River
common stock.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES. The merger is intended qualify as a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended. As such a reorganization, generally no gain or loss
will be recognized for United States federal income tax purposes by the
shareholders of Red River upon the exchange of their Red River common stock for
shares of Beta common stock in the merger. Shareholders of Red River are urged
to consult their own tax advisors regarding the specific tax consequences to
them of the merger, including the application of state, local and foreign tax
laws, as well as federal tax laws.
ACCOUNTING TREATMENT. The merger is intended to be accounted for as a pooling of
interests under applicable accounting rules. However, there is no assurance it
will be accounted for as a pooling of interests.
RECORD DATE. You may vote for approval of the merger by written consent if you
owned Beta common stock on January 12, 2000, the record date. You may cast one
vote for each share you own.
DIRECTORS AND OFFICERS OF BETA AFTER MERGER. The board of directors after the
merger will consist of six directors, including Rolf N. Hufnagel, who as
President of Red River is required under the merger agreement to be appointed as
an additional director of Beta. Mr. Lawrence Horwitz, a current director of
Beta, will resign form the Beta board of directors when Mr. Hufnagel is
appointed to the Beta board. The officers of Beta after the merger will continue
to be the same persons serving in the same positions as of the date of this
document.
SHAREHOLDERS' CONSENT (SEE PAGE ____)
Approval of the merger agreement and the merger which upon completion will
result in the issuance of shares of Beta common stock to the Red River
shareholders will require the written consent of the holders of a majority of
the issued and outstanding shares of Beta common stock. Our management and
employees own 28% of the issued and outstanding Beta common stock and will
consent to the adoption of the merger agreement and the merger. All of the Red
River shareholders signed the merger agreement and agreed to vote their shares
in favor of the merger.
Once we receive your consent, it is not revokable.
TERMS OF MERGER AGREEMENT
(SEE PAGES _________)
The Agreement and Plan of Merger is attached to this document as APPENDIX A. You
are encouraged to read the merger agreement in its entirety as it is the legal
document which will govern the merger.
GENERAL. The merger agreement provides that our wholly owned subsidiary, Beta
Acquisition Company, Inc., an Oklahoma corporation will be merged with and into
Red River. The name of the surviving corporation will be changed to Beta
Operating Company. As a result of the merger, the Red River shareholders will
receive 2,250 shares of Beta common stock for each share of Red River common
stock owned by them or a total of 2,250,000 shares of Beta common stock.
In addition, we will execute a guaranty of Red River's indebtedness to the Bank
of Oklahoma in substitution of the personal guarantees of the Red River
shareholders. The Red River shareholders have personally guaranteed
approximately $3,000,000 of the total $7,600,000 of indebtedness to the Bank of
Oklahoma.
CONDITIONS TO THE Merger. The completion of the merger depends upon the
satisfaction of various conditions, including:
o requisite approval of the merger agreement and the merger by our
shareholders and the Red River shareholders;
o receipt of all necessary authorizations, consents and approvals of
governmental agencies, authorities and other third parties;
o absence of any litigation, action or proceeding whether pending or
threatened before any consent or governmental agency seeking to restrain
or prohibit the merger or having a material adverse effect on the value
of the business, assets or properties or the stock of either party to the
merger agreement;
o waiver of the Red River shareholders' rights for an appraisal of their
Red River common stock under Oklahoma law.
o absence of any material adverse change in the financial condition,
business, properties or assets of either party to the merger agreement;
and
o Each party may, at its option, waive the satisfaction of any condition to
such party's obligations under the merger agreement. Even if the
shareholders of Beta and Red River approve the merger, it is not certain
that the merger will be completed.
SOLICITATION. Until completion or termination of the merger, the Red River
shareholders and Red River are not permitted to enter into, request, solicit or
engage in any discussions, negotiations, understandings or agreements with
anyone other than Beta or its subsidiary relating to the merger consolidation or
sale of Red River or its stock, properties and assets other than in the ordinary
course of business.
TERMS OF MERGER AGREEMENT
(CONTINUED)
REGISTRATION OF SHARES. We are obligated under the Merger Agreement to register
the 2.25 million shares of Beta common stock which will be issued to the Red
River shareholders upon completion of the merger. Such registration shall permit
the resale in the market from time to time of such shares by the Red River
Shareholders or certain of their assignees. We are required to prepare and file
such registration statement by no later than March 31, 2000. We are further
required to use our best efforts to have the registration statement declared
effective promptly after such filing, although we have no control over the
timing of the effectiveness of such registration statement.
We are permitted to suspend the effectiveness of or the availability of the
registration statement for resale of such shares if certain conditions which we
consider would be significantly disadvantageous due to, among other conditions,
the existence of a material financing or other matured transaction not publicly
disclosed or the unavailability of required financial statements beyond our
control. Any such suspension shall continue until such disadvantageous condition
is removed or 60 consecutive days or 180 days in any 12 month period.
The Red River Shareholders are also given piggyback registration rights which
obligates Beta to include their shares in any subsequent registration statement
filed by Beta with the Securities Exchange Commission.
FEES AND EXPENSES. Each party to the merger agreement is required to pay its own
expenses, including attorneys' fees and costs if the merger is completed or the
merger agreement is terminated by mutual consent or the merger is not completed
by March 31, 2000.
TERMINATION. The merger agreement may be terminated by written notice under
certain circumstances, including:
o the mutual consent of the parties;
o a party if the other party misstated to any material extent any
representation or warranty made in the merger agreement or any covenant,
undertaking or restriction contained in the merger agreement if such
misstatement or breach has not been cured within the earlier of 30 days
after notice of the misstatement or breach or the date of closing of the
merger agreement;
o either party if the merger is not completed on or prior to March 31, 2000
so long as such party is not the cause for such failure of completion;
and
o the party receiving exhibits, schedules or attachments to the merger
agreement from the other party if such party determines that the
information disclosed in any such document would materially adversely
affect the economics, financial or business considerations of the merger
as previously determined by such party and such party objects by 10 days
written notice to such document.
COMPARATIVE PER SHARE MARKET PRICE INFORMATION (SEE PAGE ____)
Beta common stock is listed on the Nasdaq Small Cap Market under the symbol
"BETA". On November 18, 1999, the last full trading day on the Nasdaq Small Cap
Market prior to the public announcement of the proposed merger, Beta common
stock closed at $8 1/8 per share. On January 11, 2000, Beta common stock closed
at $6 9/16 per share.
RISK FACTORS (SEE PAGES _________)
In evaluating the proposed merger under the merger agreement, the shareholders
of Beta and the Red River Shareholders should consider in their entirety the
various risk factors discussed on pages ____ through ____ of this document,
including among other factors:
o the possible inability of integrating the independent operations of Beta
and Red River and realizing the benefits of the merger;
o the uncertainty of the market price of the Beta common stock following
the merger;
o the dilution which will be experienced by our shareholders following the
merger;
o the exposure of the Red River shareholders to potentially different risks
than those associated with their investment in Red River.
o the loss of possible opportunities which could be realized by the Red
River shareholders if Red River remained an independent company under its
current management;
o Beta's limited operating history, its limited developed property
interests and the accumulated operating losses it has incurred since its
inception;
o the need by the combined company for additional financing in the
immediate future to fund its growth and the uncertainty of its ability to
raise such financing; and
COMPARATIVE SHAREHOLDER RIGHTS
(SEE PAGES _____________)
When the merger is completed, the Red River shareholders who receive Beta common
stock as a result of the merger will be shareholders of Beta.
Their rights after the merger will be governed by our articles of incorporation,
bylaws and Nevada law. Certain differences between the rights of holders of the
Red River common stock and those of holders of Beta common stock are summarized
on pages ______ to ______.
LISTING OF BETA COMMON STOCK
(SEE PAGES __________)
As a condition of the merger agreement, we will list the shares of Beta common
stock to be issued in the merger on the Nasdaq Small Cap Market or the National
Market System if we are then qualified for listing on that stock exchange.
THE STOCK OPTION PLAN
(SEE PAGES _____________)
In addition to approving the merger agreement and the merger, each holder of
Beta common stock is being asked to consent to the adoption of Beta's Amended
and Restated 1999 Incentive and Nonstatutory Stock Option Plan. The stock option
plan was adopted by our board of directors on August 27, 1999 for the benefit of
our employees. A total of 700,000 shares of Beta common stock representing 7.4%
of the issued and outstanding Beta common stock on the date of this document
have been reserved for issuance upon exercise of the options to be granted under
the stock option plan to our employees, officers and directors as incentive
compensation to encourage them to contribute to our future success through their
collective efforts.
The terms of the stock option plan are discussed on the pages listed above.
Stock options which may be exercised immediately upon shareholder consent for a
total of 97,500 shares of Beta common stock have been granted to a total of 6
employees. Of this amount, stock options for a total of 95,000 shares of Beta
common stock have been granted to our officers and directors.
The exercise price of the stock options will be no less than the fair market of
Beta common stock as quoted on the over-the-counter market at the close of
market on the date each such stock options are granted to the optionees.
SUMMARY FINANCIAL INFORMATION FOR BETA
The following table presents selected historical financial data for Beta derived
from Beta's Financial Statements. The following data is only a summary and
should be read with Beta historical financial statements and related notes
contained in this document. These financial statements provide further
information about significant events that impacted Beta's financial condition.
FOR THE PERIOD
FROM
INCEPTION THE NINE THE NINE
(JUNE 6, THE YEAR MONTHS MONTHS
1997) TO ENDED ENDED ENDED
DECEMBER DECEMBER SEPTEMBER SEPTEMBER
31, 1997 31, 1998 30, 1998 30, 1999
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
REVENUES
Oil and gas sales $ -- $ -- $ -- $ 375,595
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Lease operating expense -- -- -- 24,141
General and administrative 245,452 746,769 555,608 883,727
Impairment expense -- 1,670,691 1,618,432 1,227
Depreciation and depletion
expense 1,530 11,883 8,853 163,002
----------- ----------- ----------- -----------
Total costs and
expenses 246,982 2,429,343 2,182,893 1,072,097
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (246,982) (2,429,343) (2,182,893) (696,502)
OTHER INCOME AND (EXPENSE):
Interest expense -- -- -- (2,965,172)
Interest income 45,409 44,843 39,867 17,822
----------- ----------- ----------- -----------
NET LOSS $ (201,573) $(2,384,500) $(2,143,026) $(3,643,852)
=========== =========== =========== ===========
BASIC AND DILUTED LOSS
PER COMMON SHARE ($ .05) ($ .37) ($ 0.35) ($ 0.46)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 4,172,662 6,366,923 6,154,036 7,852,341
=========== =========== =========== ===========
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1997 1998 1999
-------------- -------------- ---------------
(Unaudited)
Working capital $ 3,117,351 $ (96,457) $ 593,640
Oil and gas properties, net $ 5,900,794 $13,183,304 $18,844,182
Total assets $ 9,921,057 $13,618,471 $20,330,761
Total liabilities $ 870,847 $ 319,129 $ 208,338
Stockholder's equity $ 9,050,210 $13,299,342 $20,122,423
SUMMARY FINANCIAL INFORMATION OF RED RIVER
The following table presents selected historical financial data for Red
River derived from Red River's Financial Statements. The following data is only
a summary and should be read with Red River historical financial statements and
related notes contained in this document. These financial statements provide
further information about significant events that impacted Red River's financial
condition.
THE YEAR THE NINE THE NINE
ENDED MONTHS ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1998 1999
----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
REVENUES
Oil and gas sales $ 865,356 $ 324,465 $ 2,009,500
----------- ----------- -----------
COSTS AND EXPENSES:
Lease operating expense 316,533 128,921 974,619
General and administrative 685,573 452,345 506,302
Depreciation and depletion
expense 182,747 69,814 309,734
----------- ----------- -----------
Total costs and
expenses 1,184,853 651,080 1,790,655
----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS (319,497) (326,615) 218,845
OTHER INCOME AND (EXPENSE):
Gain (loss) on sale of fixed
assets (20,000) -- 2,437
Interest expense (168,851) (62,076) (366,871)
Other, net (1,318) (2,327) (2,606)
----------- ----------- -----------
NET LOSS $ (509,666) $ (391,018) $ (148,195)
=========== =========== ===========
DECEMBER 31, SEPTEMBER 30,
1998 1999
-------------- ---------------
(Unaudited)
Working capital $ (92,758) $(1,210,979)
Oil and gas properties, net $ 6,230,565 $ 8,237,177
Total assets $ 7,658,080 $11,052,637
Total liabilities $ 6,927,835 $10,481,687
Member's equity $ 730,245 $ 570,950
SELECTED UNAUDITED PRO FORMA COMBINED SUMMARY FINANCIAL DATA
OF BETA AND RED RIVER
The merger is intended to be accounted for as a pooling of interests, which
means that for future accounting and financial reporting purposes, we will treat
our companies as if they had always been combined. However, there is no
assurance that it will be accounted for as a pooling of interests.
The unaudited pro forma financial information presented below reflects the
pooling of interests method of accounting and is intended to give you a better
picture of what our businesses might have looked like had they always been
combined. We prepared the pro forma income statement and balance sheet by adding
or combining the historical amounts for each company. We then made certain
adjustments to the combined amounts. Red River and Beta have fiscal years ending
on December 31. The pro forma balance sheet data combine Beta's and Red River's
financial positions as of the balance sheet date.
In connection with the merger, Beta and Red River will incur approximately
$100,000 (pre tax) in nonrecurring merger costs related to legal, accounting,
consulting and other costs. These costs will be charged to the combined results
of operations during the current year and are not reflected in the pro forma
information.
The pro forma information also does not reflect any additional expenses or any
cost savings and other synergies anticipated by Beta's management as a result of
the merger. The companies may have performed differently if they had actually
been combined. You should not rely on the pro forma information as being
indicative of the actual historical results that we would have had or the future
results that we will experience after the merger.
All pro forma per share data are based on the number of outstanding shares of
Beta common stock adjusted to include the number of additional shares of Beta
common stock that would have been issued in the merger if it had occurred as of
January 1, 1998. The Red River Pro Forma Equivalent data is calculated by
multiplying the Beta Pro Forma Combined data by the exchange ratio of 2,250
shares of Beta common stock for each share of Red River common stock.
SUMMARY UNAUDITED PRO FORMA FINANCIAL INFORMATION
FOR THE COMBINED COMPANY
THE YEAR THE NINE THE NINE
ENDED MONTHS ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1998 1999
------------- ------------- -------------
REVENUES
Oil and gas sales $ 865,356 $ 324,465 $ 2,385,095
COSTS AND EXPENSES: 3,614,196 2,833,973 2,962,752
------------- ------------- -------------
LOSS FROM OPERATIONS (2,748,840) (2,509,508) (577,657)
OTHER INCOME AND (EXPENSE): (145,326) (24,536) (3,314,390)
============= ============= =============
NET LOSS $ (2,894,166) $ (2,534,044) $ (3,892,047)
============= ============= =============
BASIC AND DILUTED LOSS
PER COMMON SHARE (0.34) (0.30) (0.39)
============= ============= =============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 8,616,923 8,404,036 10,102,341
============= ============= =============
SEPTEMBER 30,
1999
--------------
(Unaudited)
Working capital .......................... $ (717,339)
Oil and gas properties, net .............. $ 27,081,359
Total assets ............................. $ 31,283,398
Total liabilities ........................ $ 10,690,025
Stockholder's equity ..................... $ 20,593,373
RISK FACTORS
IN DECIDING WHETHER TO APPROVE THE MERGER, THERE ARE A NUMBER OF RISKS,
SOME OF WHICH ARE INHERENT IN THE OIL AND GAS INDUSTRY, WHICH YOU SHOULD
CONSIDER IN CONNECTION WITH THE MERGER AND THE ACQUISITION OF SHARES OF BETA
COMMON STOCK FOLLOWING THE MERGER. YOU SHOULD CAREFULLY CONSIDER THESE RISKS
ALONG WITH THE OTHER INFORMATION CONTAINED IN THIS DOCUMENT. THE RISKS DISCUSSED
BELOW SHOULD NOT BE CONSIDERED AS EXHAUSTIVE OF ALL OF THE RISKS WHICH MAY BE
INVOLVED IN THE MERGER AND THE ACQUISITION OF SUCH SHARES. YOU SHOULD ALSO REFER
TO "FORWARD LOOKING STATEMENTS" ON PAGE ______.
WE MAY NOT SUCCEED IN INTEGRATING THE SEPARATE AND INDEPENDENT OPERATIONS
OF BETA AND RED RIVER AND REALIZE THE BENEFITS WE ARE SEEKING IN THE MERGER.
Realization of the benefits sought from the merger will depend upon the
ability of Beta and Red River as a combined company to integrate successfully
the separate management, properties, activities and operations as currently in
place. We may not be able to integrate our operations with those of Red River
without the loss of key employees, customers or suppliers; loss of revenues;
increases in operating or other costs; or other difficulties which may arise as
a result of the merger. If we are unable to better utilize the revenues of the
two companies on a combined basis as compared to the separate revenues of each
company on a stand alone basis and achieve integration in a timely and
coordinated manner, the financial condition, operating results and cash flow of
either or both companies to the merger could be adversely affected. We may not
be able to realize the operating efficiencies and other benefits sought from the
merger.
THE VALUE OF SHARES OF BETA COMMON STOCK TO BE RECEIVED BY THE RED RIVER
SHAREHOLDERS COULD DECREASE, DEPENDING ON THE FUTURE TRADING PRICE OF SUCH
SHARES.
The number of shares of Beta common stock which the Red River
shareholders will receive in the merger is fixed, except for any limited
adjustment required to be made for a breach or misstatement by either Red River
or the Red River shareholders, or us as provided in the merger agreement. The
value of such shares will depend on the trading price of our common stock
following the merger. The market price of the shares of Beta common stock
received by a Red River shareholder could be depressed if such shareholder were
to sell a large block of such shares on The Nasdaq Stock Market at any one time.
EXISTING SHAREHOLDERS OF BETA COMMON STOCK WILL EXPERIENCE DILUTION AS A
RESULT OF THE MERGER.
The merger agreement provides that the Red River shareholders will
receive 2.25 million shares of Beta common stock upon the closing of the merger.
Such number of shares represents approximately 24% of the total issued and
outstanding shares of Beta common stock as of the date of this document. While
we believe that beneficial synergies will result from the merger, it is
uncertain that the combining of the management, resources, properties and
operations of the two companies will achieve the efficiencies of operations,
increased development of the oil and gas production and enhanced financial
condition of the combined company superior to that which may be achieved by each
company on a stand alone basis. The time period when the benefits of the merger
can be achieved, if at all, is also uncertain.
In addition to reducing the percentage ownership of each existing
shareholder of Beta common stock, the issuance of the shares of Beta common
stock in connection with the merger may have the effect of reducing our net
income per share from current levels or levels which may otherwise be expected.
This could reduce the market price of the shares of our common stock following
the merger unless revenue growth or cost savings and other business synergies
sufficient to offset the effect of such issuance can be achieved, which is
uncertain.
Further dilution would occur if we were to terminate the services of our
President and Chairman of the Board of Directors, Mr. Steve A. Antry. Under his
employment contract, dated June 23, 1997, if Mr. Antry's employment is
terminated by us without cause, we are required, among other items, to grant Mr.
Antry over a 5 year term an option to purchase shares of Beta common stock equal
to 10% of the then issued and outstanding shares of Beta common stock at an
exercise price equal to the lesser of 60% of the fair market value of the shares
during the 60 day period preceding the termination notice or $3.00 per share.
FUTURE SALES OF SUBSTANTIAL BLOCKS OF BETA COMMON STOCK ON THE
OVER-THE-COUNTER MARKET COULD HAVE A DEPRESSIVE EFFECT ON THE MARKET PRICE OF
BETA COMMON STOCK AND ADVERSELY AFFECT THE VALUE OF THE STOCK CONSIDERATION
RECEIVED BY THE RED RIVER SHAREHOLDERS.
As of the date of this document, there were 9,415,657 shares of Beta
common stock issued and outstanding. Of this amount, 6,286,657 shares of Beta
common stock were freely tradable on the Nasdaq Small Cap Market market.
3,129,000 shares of Beta common stock were either subject to lock-up agreements
or were "restricted securities" which are subject to the transfer restrictions
under Rule 144 of the Securities Act of 1933.
As of the date of this document, we have issued unexercised warrants to
purchase up to 2,140,518 shares of Beta common stock and stock options to
employees to purchase up to 97,500 shares of Beta common stock. We are obligated
by March 31, 2000 to register 459,000 shares of Beta common stock which were
issued in connection with note and common stock purchase agreements dated
January and March, 1999.
Under the merger agreement, we are obligated to prepare and file a shelf
registration statement by no later than March 31, 1999 to include all 2.25
million shares of Beta common stock which will be issued to the Red River
shareholders for the purpose of registering the resale in the market from time
to time of such shares by such shareholders or their potential assignees. As a
result of such registration as well as the registration of the 459,000 shares
underlying the warrants and the eligibility of 2,670,000 shares for sale in the
next six months, a total of 5,379,000 shares will become freely tradable when
the registration statement is declared effective by the SEC. Sales of
substantial blocks of common stock by our shareholders at any time in the future
would have a depressive effect on the market price of Beta common stock.
Shareholders wishing to sell their shares of our common stock in the future may
either be unable to sell their shares at a particular time due to a lack of
purchase demand for such shares or may end up selling their shares at depressed
market prices.
VARIOUS FACTORS, INCLUDING FLUCTUATIONS IN OIL AND GAS PRICES, ECONOMIC
CONDITIONS, ENVIRONMENTAL AND OTHER REGULATIONS, COULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND MAY CAUSE
CONSIDERABLE VOLATILITY IN THE MARKET PRICE OF OUR COMMON STOCK.
The market value of our Beta common stock may vary significantly in
response to changes in our quarterly results of operations. We expect to
experience substantial fluctuations in oil and gas prices due to changes in the
supply of and demand for oil and gas which may be caused by
- weather conditions,
- political conditions in the Middle East and other regions,
- domestic and foreign reserves and supply of oil and gas,
- the price and availability of alternative fuels,
- the level of consumer demand, or
- general economic and market conditions.
In addition, our revenues will be affected by the successful efforts or
failure of our third party operators to drill exploratory wells in the unproven
prospects in which we have an interest, the availability of a ready market for
the oil and gas production from the wells in which we have an interest and the
proximity of such well sites to pipelines and production facilities. Drilling,
completion and other costs and expenses will be affected by various market
factors over which neither we nor our third party operators may have any
control. Due to the uncertainty of our revenues, expenses and profits or losses,
the market price of our stock may be volatile in the future.
THE RED RIVER SHAREHOLDERS MAY LOSE AN OPPORTUNITY TO REALIZE THE
BENEFITS OF RED RIVER AS AN INDEPENDENT COMPANY.
As a result of the merger, the Red River shareholders will lose the
chance to invest directly in the exploitation and development of Red River's
existing oil and gas properties or the acquisition by Red River additional oil
and gas properties and the return on their investment which otherwise may be
realized by them if Red River were to remain an independent company. Because we
will be in control of the management and operation of Red River (i.e., whose
name will be changed to Beta Operating Company, Inc.") as our wholly owned
subsidiary, we may make strategic and operational decisions which may differ
from those of Red River's current management. It is possible that Red River's
current management, if Red River were to remain independent, could make better
decisions than those which may be made by us and which could result in economic
performance superior to that of the combined company.
Unlike Red River, we do not act as the operator of substantially all of
our properties. The combined company, unlike Red River, will be dependent on, to
a larger extent, the decisions and control of third party operators in the
development of its properties.
Red River is currently the operator of a substantial portion of the oil
and gas properties in which it has an interest. We are a non-operating interest
owner in all of the properties in which we have an interest. We have entered
into joint operating agreements with third party operators for the conduct and
supervision of drilling, completion and production operations of our wells. The
success of the drilling, development and production of the oil and gas
properties in which we have an interest is substantially dependent upon the
decisions of such third party operators and their diligence to comply with
various laws, rules and regulations affecting such properties. The failure of
any third party operator to
- make decisions,
- perform their services,
- discharge their obligations,
- deal with regulatory agencies, and
- comply with laws, rules and regulations affecting the properties
in which we have an interest, including environmental laws and
regulations
in a proper manner could result in material adverse consequences to our interest
in any affected properties, including substantial penalties and compliance
costs. Such adverse consequences could result in substantial liabilities to us,
which could negatively affect our results of operations of the combined company
following the merger. The Red River shareholders, as owners of our common stock,
will be subject to such adverse consequences which will be beyond their ability
to control as is the case with the properties currently operated by Red River.
BETA HAS A LIMITED OPERATING HISTORY, HAS LIMITED DEVELOPED PROPERTY
INTERESTS AND HAS INCURRED OPERATING LOSSES SINCE ITS INCEPTION.
We were incorporated in June, 1997 and are considered to be an early
stage company. We have a limited operating history and are subject to the risks
associated with early stage companies. Since our inception, we have incurred
operating losses. As of September 30, 1999, we had an accumulated deficit of
$6.2 million. If we are unable to generate positive cash flow from our oil and
gas operations, the combined company may continue to incur losses following the
merger, even though the oil and gas operations of Red River are profitable. The
ability of the combined company to achieve profitability based on our limited
operating history and our sustained losses is uncertain. The Red River
shareholders' investment in the oil and gas operations of the combined company
could be adversely affected by such losses and accumulated deficit in contrast
to their investment in Red River as a stand alone company.
THE COMBINED COMPANY WILL NEED ADDITIONAL FINANCING IN THE NEXT SIX
MONTHS TO FUND ITS AGGRESSIVE GROWTH STRATEGY AND FAILURE TO OBTAIN SUCH
FINANCING WOULD NOT ONLY HAMPER ITS ABILITY TO EXPAND ITS OIL AND GAS OPERATIONS
BUT COULD RESULT IN A CONTRACTION OF ITS BUSINESS AND ACTIVITIES.
We will continue our aggressive program to identify, acquire and develop
exploratory projects that meet certain criteria in the year 2000 and the future
years after such year. This program will require large amounts of capital in
excess of the anticipated working capital from the combined operations of our
company and Red River. Our ability to raise additional capital through public or
private debt or equity financing to meet our financial requirements is
uncertain. We may not be able to raise such funds. Failure to raise such
additional funds could materially adversely affect
- our ability to participate in wells proposed to be drilled and the
potential economic benefit that such wells might generate,
- our plans for aggressive expansion of our exploration activities,
- our ability to take advantage of opportunities to acquire
interests in future projects on favorable terms, and
- our financial condition.
Without the availability of additional funds, we may be required to
- reduce our operations and business activities,
- forfeit our interest in wells that are proposed to be drilled,
- farm-out our interest in proposed wells,
- sell a portion of our interest in proposed wells and use the sale
proceeds to fund our participation for a lesser interest, and
- reduce our general and administrative expenses.
If additional financing is obtained by us, such financing
- may not be available on terms that are advantageous to us,
- would dilute the percentage stock ownership of existing
shareholders, including Red River shareholders who acquire shares
of Beta common stock, if additional equity securities are issued
to raise the additional financing, and
- could result in the issuance of additional equity securities which
may have better rights, preferences or privileges than are
available with respect to shares of Beta common stock held by our
then existing shareholders.
THE ACQUISITION OF SHARES OF BETA COMMON STOCK MAY EXPOSE THE RED RIVER
SHAREHOLDERS TO DIFFERENT RISKS THAN THOSE ASSOCIATED WITH RED RIVER.
Red River's oil and gas property interests which are located exclusively
in Oklahoma, are for the most part operated exclusively by Red River, are
developed properties with oil and gas production having both proved oil and gas
reserves and proved developed oil and gas reserves, and are more weighted toward
the production of natural gas. The oil and gas properties in which we and our
subsidiary, BETAustralia, LLC, owns an interest are located primarily in South
Texas, Louisiana, Central California and Australia, substantially all of which
are not operated by us, and are for the most part exploratory and undeveloped
properties without any significant proved developed or proved reserves. Our
exploratory operations are weighted primarily toward the production of gas to
the extent we are successful in finding reserves.
The Red River shareholders may be exposed to risks, including among
others, the following risks as a consequence of the merger:
- Substantial risks involved with exploratory drilling of unproven
oil and gas properties and the uncertainty of production in
commercial quantities,
- risks associated with dependence on third party operators to drill
and complete wells,
- risks associated with fluctuations in gas prices in the United
States and Australia,
- risks associated with production to the extent of production, if
any, from exploratory wells in Australia in which we will have an
interest,
- possible declines in production at faster rates than onshore
production in Oklahoma,
- possible damage to facilities and interruption of production
relating to offshore due to severe weather disturbances, which
losses may not be insured or insurable,
- risks of war, strikes, forced renegotiations or modification of
existing contracts, import, export and transportation regulations
and tariffs, variances in taxation and policies, affecting foreign
trade and investments, exchange controls, currency fluctuations
and devaluations relating to our international offshore
operations, and
- variances in the laws, rules and regulation of oil and gas
activities and compliance requirements, including environmental
regulations, imposed by Australia and the states of Texas,
Louisiana and California as compared to those of Oklahoma, and the
incurrence of additional costs and delays in operations and the
imposition of penalties which may relate to such regulatory
variances.
OUR OIL AND GAS ACTIVITIES ARE SUBJECT TO VARIOUS RISKS WHICH ARE BEYOND
OUR CONTROL.
- Our operations are subject to many risks and hazards incident to
exploring and drilling for, producing, transporting, marketing and
sale of oil and gas. Although we or the third party operator of
the properties in which we have an interest may take precautionary
measures, many of these risks and hazards are beyond our control
and unavoidable under the circumstances. Many of these risks or
hazards could materially and adversely affect our revenues and
expenses, production of oil and gas in commercial quantities, the
rate of production and the economics of the development of, and
our investment in the prospects in which we have or will acquire
an interest. Any of these risks and hazards could materially and
adversely affect our financial condition, results of operations
and cash flows. Such risks and hazards include:
- Human error, accidents, labor force and force majeure factors that
may cause personal injuries or death to persons and destruction or
damage to equipment and facilities,
- Blowouts, fires, pollution and equipment failures that may result
in damage to or destruction of wells, producing formations,
production facilities and equipment,
- Unavailability of materials and equipment,
- Engineering and construction delays,
- Unanticipated transportation costs and delays,
- Unfavorable weather conditions,
- Hazards resulting from unusual or unexpected geological or
environmental conditions,
- Environmental regulations and requirements,
- Accidental leakage of toxic or hazardous materials, such as
petroleum liquids or drilling fluids into the environment,
- Changes in laws and regulations, including laws and regulations
applicable to oil and gas activities or markets for the oil and
gas produced,
- Fluctuations in supply and demand for oil and gas causing
variations within the prices we receive for our oil and gas
production,
- The internal and political decisions of OPEC and oil and gas
producing nations and their impact upon oil and gas prices.
As a result of these risks, expenditures, quantities and rates of
production, revenues and cash operating costs may be affected materially and
adversely and may differ materially from those anticipated by us.
OUR COMPUTER SYSTEM OR OUR OPERATIONS COULD EXPERIENCE FAILURE IF EITHER
OUR COMPUTER SYSTEM OR THOSE SYSTEMS OF OUR THIRD PARTY OPERATORS OR OUR
VENDORS, SUPPLIERS OR TRANSPORTERS OF OIL AND GAS PRODUCTION IN WHICH WE HAVE AN
INTEREST ARE DISRUPTED BY THE YEAR 2000 PROBLEM.
The combining of the Red River operations with our operations and systems
could create or result in Year 2000 ("Y2K") problems, which could materially and
adversely impact our operations and financial results.
We utilize a number of computer programs across our entire operation.
While we have taken certain action to determine the extent of, and address
possible remedial efforts in connection with, any Y2K problem, a Y2K problem
could result in a major system failure or miscalculation.
A Y2K problem is the result of computer programs being written using two
digits rather than four to define the applicable year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. Any machine or equipment (i.e., such as a telephone system,
postage meter and computer) using embedded computer technology is susceptible to
this problem.
We have reviewed all of our equipment and have determined that all of our
equipment and systems are Y2K compliant. We believe that as a consequence of the
actions taken by us, the impact internally on our day-to-day operations will not
be significant and that no valuable information is expected to be lost. We back
up all computer systems daily to protect us against data loss. We have a system
that uses 10 rotating back-up tapes as a safeguard against having a type that is
unreadable.
The cost of bringing our technology into Y2K compliance has been
approximately $5,000 and is not expected to exceed this amount. This relative
small cost of compliance is due to the availability for the most part of
"patches" or programs designed to make software Y2K compliant from manufacturers
for little no cost and the ability to upgrade our systems in-house without
relying to an significant extent on outside consultants.
We believe that the largest potential risks relating to the Y2K problem
may involve third parties, such as the third party operators which operate the
properties in which we have an interest, our vendors, suppliers and customers,
since we are unable to control the efforts of third parties. We believe that
potential risks from Y2K problems that have not been adequately addressed by
third parties could affect the provision of power and utilities necessary for
our operations and disrupt the production from existing oil and gas wells or the
drilling of wells or delay transportation of any such production. These
consequences may delay the progress of drilling operations by our oil and gas
operators and/or interrupt production and revenues from producing wells for an
indefinite period of time.
If we experience Y2K problems, our revenues may be suspended. This could
result in material losses from operations and a reduction in our working
capital. In anticipation of such events, we expect to have on hand a cash
reserve in excess of $1,000,000 at December 31, 1999 to cover both additional
well costs and our overhead expenses until production resumes. To date, we have
not experienced any internal Y2K problems. To the best of our knowledge, none of
our suppliers, vendors, purchasers or working interest partners have experienced
any Y2K problems that would directly affect us. However, there is no assurance
that problems will not occur in the future.
RED RIVER'S COMPUTER SYSTEM OR OUR OPERATIONS COULD EXPERIENCE FAILURE IF
EITHER THEIR COMPUTER SYSTEM OR THOSE SYSTEMS OF THEIR THIRD PARTY OPERATORS OR
THEIR VENDORS, SUPPLIERS OR TRANSPORTERS OF OIL AND GAS PRODUCTION IN WHICH THEY
HAVE AN INTEREST ARE DISRUPTED BY THE YEAR 2000 PROBLEM.
Red River utilizes a number of computer programs across its entire
operation. There can be no assurances that Year 2000 problems will not occur
with respect to Red River's computer systems or business affiliations. The Year
2000 problem may impact other entities with which Red River transacts business,
and Red River cannot predict the effect of the Year 2000 problem on such
entities or Red River. A major system failure could have a material adverse
effect on Red River's operations and results of operations and Beta's operations
and results of operations once the merger is completed. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
details concerning Red River's Year 2000 ongoing assessment and the current
contingency plan.
WE DEPEND SUBSTANTIALLY ON THE CONTINUED PRESENCE OF KEY PERSONNEL FOR
CRITICAL MANAGEMENT DECISIONS AND INDUSTRY CONTACTS.
Our future performance following the merger will be substantially
dependent on the performance of our executive officers and key employees. The
loss of the services of any of the executive officers or other key employees of
Beta or Red River for any reason could have a material adverse effect on our
business, operating results, financial condition and cash flows after the
merger.
Among our reasons for the merger is the experience and expertise in oil
and gas property acquisitions, operations and financings that the management of
Red River possesses. Should one or more members of the Red River management team
leave the company, we could lose a substantial portion of this anticipated
benefit of the merger.
THE BETA BOARD HAS NOT ENGAGED AN INVESTMENT BANKING FIRM TO PROVIDE A
FAIRNESS OPINION ABOUT THE MERGER.
In evaluating the terms of the merger and whether it is in the best
interests of Beta and its shareholders, the Beta Board relied upon the
experience and analytical skills of its members. It has not engaged an
investment banking firm to render an opinion on the fairness of the merger to
the Beta shareholders from a financial point of view. The Beta Board believes
that the merger is fair to the Beta shareholders and is in their best interests
but there is no assurance that the same conclusion would be reached by an
investment banking firm if one had been hired to provide a fairness opinion.
THE COAL BED METHANE OPERATIONS OF RED RIVER HAVE NOT YET BEEN PROVEN TO
BE A COMMERCIALLY VIABLE VENTURE.
Red River has committed a substantial amount of funds to the exploration,
development, production and marketing of coal bed methane. At December 31, 1999,
it had drilled a total of 47 wells for this purpose. However, the commercial
viability of these wells cannot be determined until they have produced gas and
water for a period of 12 to 24 months. While management of Red River believes
that the results to date indicate a strong potential for commercial viability of
the project, you cannot be assured that these operations will prove to be
profitable to Beta.
RED RIVER'S HEDGING ACTIVITIES COULD RESULT IN LOSSES TO BETA.
Red River has used, and expects to continue using, energy swap
arrangements and financial futures to reduce the volatility of natural gas
prices. At December 31, 1999, Red River had commitments through March, 2000 to
sell 3,500 Mmbtu of natural gas per day at prices ranging from approximately
$2.59 to $2.62 per Mmbtu. This represents approximately 70% of Red River's
natural gas production. If the market price of natural gas were to increase
substantially over the period of the hedging arrangements, Beta could lose
significant revenues compared to what it would receive without the hedging
commitments. Red River expects to continue to use hedging arrangements as part
of its future gas marketing strategy.
RED RIVER HAS SUBSTANTIAL LONG-TERM INDEBTEDNESS.
At September 30, 1999, Red River's consolidated long-term indebtedness
was approximately $10,000,000. This amount is substantially higher than Beta's
current long-term debt of $35,000. Thus, Beta's investment in Red River will be
subject to the typical risks of significant leverage if the merger is completed.
WE HAVE NOT AND DO NOT ANTICIPATE PAYING ANY DIVIDENDS IN THE FORESEEABLE
FUTURE FOLLOWING THE MERGER.
We have never paid any cash dividends on our common stock. We do not
expect to declare or pay any cash or other dividends in the foreseeable future
following the merger. Under state corporate law, we are prohibited from paying
dividends until such time as we have retained earnings, which we do not have as
of the date of this document.
TITLE TO THE PROPERTIES IN WHICH WE HAVE AN INTEREST MAY BE IMPAIRED BY
TITLE DEFECTS.
We will depend on third party operators to obtain title opinions on
properties to be drilled in which we have an interest. We will not be conducting
independently title examinations of properties in which we own an interest.
Under the terms of the operating agreements to which we are a party, any
monetary loss arising from title failure or defects is to be borne by all
parties to any such agreement in proportion to their interest in such property.
To the extent of our proportional share of any monetary loss from any title
defects or defects in assignment of leasehold rights in properties, in which we
hold an interest, we will suffer a financial loss.
WE CANNOT BE CERTAIN THAT THE INSURANCE COVERAGE MAINTAINED BY US AND OUR
OPERATORS WILL BE ADEQUATE TO COVER ALL LOSSES WHICH MAY BE SUSTAINED IN
CONNECTION WITH OUR OIL AND GAS ACTIVITIES.
All of our joint exploration agreements require the third party
operator to purchase and maintain workers compensation and general liability
insurance on behalf of us and other joint participants. In addition, we have
purchased and are maintaining a general liability policy with a total limits on
claims of $2,000,000 and a workers compensation policy to provide added
insurance if the coverage provided by an operators policy is inadequate to cover
our losses. Our policy and the policies maintained by our third party operators,
which have limits ranging from $10,000 to $20,000,000 depending on the type of
occurrence generally cover:
- personal injury,
- bodily injury,
- third party property damage,
- medical expenses,
- legal defense costs,
- pollution in some cases,
- well blowouts in some cases,
- workers compensation.
A loss not fully covered by insurance could have a materially adverse
effect on our financial position and results of operation.
WE HAVE MADE ESTIMATES AND STATEMENTS ABOUT FUTURE EVENTS WHICH ARE
UNCERTAIN AND MAY PROVE TO BE INACCURATE.
We have made statements in this document about future events based on
reasonable assumptions of our management. Such statements include estimates of
our oil and gas reserves and reserve values and estimated capital
expenditures. Due to uncertainties of events and developments in the future,
actual results may differ greatly from the predictions and estimates we have
made. Some of the specific material uncertainties include:
- Estimates of future net cash flow from oil and gas reserves based
on engineering estimates of recoveries from oil and gas which are
inherently imprecise and may be subject to downward revisions in
the future;
- Estimates of our anticipated expenses which could be higher than
we expect and require us to raise additional capital, reduce our
working capital and/or curtail our participation in other
projects;
- The uncertainty of our ability to raise additional financing in
the future to provide funds for our participation in future
projects.
To the extent that actual results differ from the statements or estimates
made in this document and we are unable to raise additional financing to cover
such variances, such differences could result in substantial
- additional losses if we are required to write down the carrying
value of our assets,
- reduction in our working capital position,
- reduction in our participation in future projects.
You should be aware that actual results will differ from the expectations
expressed in this document, although the extent of such differences is uncertain
and cannot be precisely quantified.
WHERE YOU CAN FIND MORE INFORMATION
Beta has filed an S-1 Registration Statement, quarterly and special
reports, and other information with the Securities and Exchange Commission. You
may read and copy reports, statements or other information at the SEC's public
reference rooms in Washington, D.C. (at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549), New York, New York (at 7 World Trade Center, Suite
1300, New York, New York 10048) or Chicago, Illinois (at Suite 1400, 500 West
Madison, Chicago, Illinois 60661). Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. Beta's SEC filings are also
available to the public from commercial document retrieval services and at the
web site maintained by the SEC at "www.sec.gov". Information about Beta can also
be found at its web site at "www.Beta.com".
You should rely only on the information contained in this document to
consent or withhold consent on the merger or the stock option plan. We have not
authorized anyone to give any information or make any representation about the
merger, the stock option plan or our companies that is different from or in
addition to, that contained in this document. Therefore, if anyone gives you
information of this sort, you should not rely on it. The information contained
in this document speaks only as of the date of this document, unless the
information specifically indicates that another date applies.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
All statements, trend analyses and other information contained in this
document relating to production of oil and gas properties in which Beta or Red
River have an interest, estimated reserves of the companies, markets for any
such production and trends in Beta's or Red River's results of operations or
financial conditions, as well as other forward-looking statements including
those containing words such as "will", "should", "could", "anticipate",
"believe", "plan", "estimate", "expect", "intend", "project", "forecast", and
other similar expressions, constitute forward-looking statements under the
Private Securities Litigation Reform Act of 1995. These forward- looking
statements involve known and unknown risks and uncertainties that may cause
results and conditions to differ materially from the forward-looking statements.
The risks and uncertainties include the following:
- - Beta's and Red River's ability to generate additional capital to complete
its planned drilling and exploration activities;
- - risks inherent in oil and gas acquisitions, exploration, drilling,
development and production; price volatility of oil and gas;
- - inherent imprecision of estimating recoverable reserves;
- - competition from other oil and gas companies;
- - shortages of equipment, services and supplies;
- - government regulation;
- - environmental matters;
- - financial condition and operating performance of the other companies
participating in the exploration, development and production of oil and
gas ventures in which Beta is involved;
- - ability to attract and retain highly qualified personnel;
- - ability of Beta and Red River and their vendors and third parties to
respond to Year 2000 issues; and
- - the availability and terms of future acquisitions.
In addition to the above, the forward-looking statements are subject to
uncertainties relating to the synergies, charges and expenses associated with
the merger. These are discussed under "Risk Factors" above. Beta expressly
disclaims any duty to update any forward-looking statements.
REQUEST FOR CONSENT OF BETA SHAREHOLDERS
PURPOSE OF REQUEST FOR CONSENTS
We are requesting the consent of our shareholders who owned shares of
Beta common stock as of the record date for:
- - the approval of the merger agreement and the merger contemplated under
such agreement; and
- - the approval of the Amended and Restated 1999 Incentive and Nonstatutory
Stock Option Plan.
RECOMMENDATION OF THE BETA BOARD
The Beta board of directors believes that the terms and provisions of the
merger agreement and the merger are fair to and in the best interests of Beta
and its shareholders and has unanimously approved the merger agreement and the
issuance of the 2.25 million shares of Beta common stock to the Red River
shareholders upon completion of the merger. The Beta board of directors also
unanimously approved the adoption of the Amended and Restated 1999 Incentive and
Nonstatutory Stock Option Plan. The Beta board of directors unanimously
recommends that the Beta shareholders consent to the adoption of the merger
agreement, the merger and the stock option plan.
RECORD DATE; VOTING RIGHTS
Only holders of record of Beta common stock at the close of business on
January 12, 2000, are entitled to consent to the merger agreement, merger and
stock option plan by completing, signing and returning their consent form to us
as instructed in such form. At the record date, January 12, 2000, there were
9,415,657 shares of Beta common stock outstanding, held by approximately 500
record holders. Each holder of Beta common stock is entitled to consent on the
matters requested for shareholder approval on the basis of one vote for each
share of Beta common stock he or she owns of record in the record date.
EXERCISE OF CONSENT
The enclosed consent form contain separate forms for consent to the
approval of the merger agreement and merger and the approval of the stock option
plan. Record holders wishing to consent to either or both of these matters must
place a check mark in the appropriate box or boxes and sign their names in the
space provided on each of the consent forms. Such consent forms must be returned
in the self-addressed, first class postage prepaid envelope by no later than
February _____, 2000. The votes of the shareholders on the Consent Forms will
not be counted if not received by us on or before such date.
IF YOU DO NOT COMPLETE AND RETURN YOUR CONSENT FORMS, YOU WILL, IN
EFFECT, BE VOTING AGAINST SUCH PROPOSALS. IF YOU WISH TO CONSENT TO ONE BUT NOT
THE OTHER PROPOSAL, YOU MUST RETURN THE CONSENT FORM AND INDICATE TO WHICH
PROPOSAL YOU ARE CONSENTING. IF YOUR SHARES ARE HELD IN STREET NAME, THE BROKER
WILL NOT HAVE DISCRETIONARY AUTHORITY TO CONSENT TO THE PROPOSALS UNLESS
INSTRUCTED TO DO SO IN WRITING SIGNED BY YOU.
Approval of the merger proposal is not conditioned on adoption of the
stock option proposal. Adoption of the stock option proposal is not conditioned
on approval of the merger proposal.
CONSENTS MAY NOT BE REVOKED
If you return the separate written consent forms signed by you approving
either or both of the proposals, such consents, once received by us, may not be
revoked and will be counted as an affirmative vote for the matter or matters for
which consent has been given.
COST OF REQUESTING CONSENTS
Our board of directors is soliciting the consents on behalf of Beta. We
will bear the entire cost of requesting the consents, including all printing
expenses, and filing fees in connection with the filing of this document with
the SEC. Directors, officers and regular employees of Beta may solicit consents
by telephone or otherwise, as well as through the mail. The directors, officers
and regular employees will not receive any additional compensation for any
solicitation, but may be reimbursed for out-of-pocket expenses. Beta expects its
internal expenses of solicitation to be nominal.
REQUIRED CONSENTS
The holders of a majority of the outstanding shares of Beta common stock
on the record date must consent to the proposals to approve them.
SHARE OWNERSHIP OF MANAGEMENT
At the close of business twenty days before the date of this proxy
statement, December 23, 1999, directors and executive officers of Beta had the
right to vote an aggregate of 2,686,000 shares of the outstanding shares of Beta
common stock, or approximately 28% of the shares of Beta common stock then
outstanding. The 2,686,000 shares does not include 229,000 shares underlying
presently exercisable warrants which are beneficially owned by officer and
directors. It is expected that all of these persons will consent to both the
approval of the merger agreement and merger and the adoption of the stock option
plan.
PROPOSAL FOR CONSENT OF THE BETA SHAREHOLDERS'
TO THE AGREEMENT AND PLAN OF MERGER DATED NOVEMBER 19, 1999
THE MERGER
GENERAL
At the effective time of the merger, Beta Acquisition Company, Inc. a
wholly owned subsidiary of Beta, will merge with and into Red River. Red River
will thereby become a wholly-owned subsidiary of Beta and each share of Red
River common stock outstanding will be converted into 2,250 shares of Beta
common stock. Upon completion of the merger, Red River will change its name to
Beta Operating Company, Inc.
BACKGROUND OF THE MERGER
Beta continually evaluates corporate development opportunities to
strengthen its competitive position in the oil and gas industry, increase its
proved reserves, strengthen its management expertise, and diversify its
prospects and producing wells. It seeks out companies, prospects, and producing
property acquisitions that are accretive to Beta shareholders and that will
enhance its growth potential. Management of Red River has sought to expand its
operations, diversify its prospects as well as allow its shareholders to
increase the liquidity of their investment. Management of Red River is also
aware that its ability to raise additional capital may be enhanced as a public
entity.
Red River management viewed Beta as a suitable candidate for a business
combination. Red River management based this determination on publicly available
financial information, and on familiarity with Beta management, resulting, in
part, from preliminary discussions held during August 1999 concerning the
possible acquisition by Beta of Red River and the acquaintance of Mr. Steve A.
Antry, Chairman and President of Beta, and Mr. Rolf N. Hufnagel, President of
Red River, resulting from their working together as employees of an oil and gas
company, Nerco Oil & Gas, in the 1980's.
On August 5, 1999, Mr. Antry approached Mr. Hufnagel in Tulsa to see if
Red River might have an interest in being acquired by Beta. In August and
September 1998, operating and financial personnel of each of Red River and Beta,
and their legal and accounting advisors, also commenced due diligence
investigations as to the other company. On August 31, 1999, Mr. Antry and R.
Thomas Fetters, Managing Director of Exploration and a director of Beta, visited
the offices of Red River, executed confidentiality agreements and discussed in
detail the properties of Red River. On September 7, 1999, Mr. Antry received the
approval of the Beta board to pursue merger discussions and continue a due
diligence review of Red River.
Red River management has many years of experience in the oil and gas
industry and was familiar with the valuation of similar companies in the
industry. After several meetings and discussions and after research into the
business and prospects of Red River, Beta management performed its own analysis
of the value of Red River. Beta management has many years of experience in the
oil and gas industry and it has actively reviewed several acquisition
opportunities since Beta's inception in June of 1997 involving the analysis of
companies with proven producing properties.
On October 8, 1999, Mr. Antry, Mr. J. Chris Steinhauser, director and
Chief Financial Officer of Beta, Mr. Fetters, Mr. Hufnagel and Mr. Robert E.
Davis, Jr., Chief Financial Officer, director and Executive Vice President of
Red River, met and discussed the possibility of merging Red River and Beta. Beta
management presented an initial price based upon their evaluation of Red River.
Beta initially proposed a purchase price of approximately $9.4 million
after deducting Red River's outstanding bank debt, assuming a Beta stock price
of $5.50 per share, resulting in a proposed issuance in the merger of
approximately 1.7 million Beta shares. This purchase price was determined using
Beta's estimate of Red River's proven producing reserves and discounting the
future net cash flows therefrom using a 15% discount factor. Beta's initial
proposal excluded Red River's coal bed methane properties and did not assign any
probable reserve values to the enhanced or secondary recovery potential of Red
River's conventional oil and gas properties.
Red River's management responded to Beta's initial offer by stating that
it did not wish to exclude the coal bed methane properties and that the offer
did not give adequate value to Red River's proved producing reserves. Between
October 8 and 11, 1999, Mr. Antry and Mr. Hufnagel had several meetings and
telephone conversations to discuss the price to be paid in the transaction. As a
result of these discussions, Beta management made its own
conclusion as to the valuation of Red River, which amount was reasonably similar
to Red River's own valuation. Due to the length of time involved in concluding
the negotiation of the merger agreement and the significant price fluctuations
for Beta common stock and in the United States securities markets generally,
both Red River and Beta determined that it would be desirable to agree upon an
exchange ratio to fix the maximum number of shares of Beta stock that would be
issuable in the merger at 2,250,000.
On October 13, 1999, the Red River board and the Beta board approved the
execution of a letter of intent. During October and November 1998, the parties
and their representatives continued their due diligence and negotiated the
definitive merger agreement.
At a meeting held on November 17, 1999, the Beta board unanimously
determined that the merger is fair to and in the best interests of Beta and its
shareholders and approved the merger agreement, the merger and the other
transactions contemplated thereby and resolved to recommend that the
shareholders of Beta vote in favor of the issuance of shares of Beta common
stock to the Red River shareholders.
On November 19, 1999, Beta and Red River entered into a definitive
Agreement and Plan of Merger. For purposes of effecting this transaction, Beta
has formed a wholly owned subsidiary called Beta Acquisition Company, Inc. At
closing, Beta Acquisition Company will be merged with Red River which shall
continue as the surviving corporation. After closing, Red River will change its
name to Beta Operating Company, "Beta Operating," and shall continue as Beta's
wholly-owned operating and acquisition subsidiary.
BETA'S REASONS FOR THE MERGER;
RECOMMENDATION OF ITS BOARD OF DIRECTORS
In August 1999, management of Beta and Red River initiated discussions on
the feasibility of pursuing an acquisition by Beta of Red River. Following these
discussions, the board of directors of Beta directed management to investigate
the acquisition of Red River and to commence due diligence investigations of Red
River's properties and prospects for future growth. As a result of these due
diligence investigations, the Beta directors concluded that an acquisition of
Red River would be beneficial to Beta and decided to approve the merger
agreement and to recommend shareholders approve the share issuance for the
following reasons:
- - Red River management was receptive to receiving Beta stock as the sole
consideration in an acquisition of Red River. This would not require Beta
to utilize its cash resources to acquire Red River and would result in
minimal transaction costs;
- - Using Beta common stock to acquire Red River may enable the combined
company to account for the transaction as a pooling of interests which
would be desirable for both the shareholders of Beta and Red River.
- - Red River had pursued a business strategy that focused on the acquisition
of producing oil and gas properties which complemented Beta's aggressive
exploration strategy.
- - Red River's significant proved producing reserves and its existing line
of credit with the Bank of Oklahoma will allow Beta to more easily access
bank financing which will lower Beta's cost of capital.
- - The majority of Red River's current reserve value and cash flow is
concentrated in one producing unit in Central Oklahoma. The wells in this
unit have extensive production histories with highly predictable decline
rates which makes evaluating their future recoverable reserves more
certain than other acquisitions.
- - Red River's proved producing reserves in Oklahoma offer Beta a
predictable and stable future revenue base when contrasted with Beta's
gulf coast properties, which tend to decline more quickly and can result
in significant year to year fluctuations in revenues.
- - Red River's proved producing reserves in Oklahoma offer Beta substantial
upside from enhanced recovery projects currently planned by Red River.
- - Neither Beta nor Red River had engaged in other recent capital stock
transactions that they believe would have made pooling treatment
unavailable.
- - Red River's management consists of individuals with extensive experience
and expertise in the evaluation, negotiation of producing property
purchases as well as the operation of producing wells. The management of
Red River will continue as the management of Beta's wholly owned
subsidiary, Beta Operating Company and will help facilitate the growth of
Beta through the acquisition of additional properties in the future.
- - The Red River/Beta Operating management will also enable Beta to operate
more of its exploratory prospects, thus allowing it to have more control
over the operations and reduce Beta's dependence on third party
operators.
In view of the variety of factors considered in connection with its
evaluation of the merger, the Beta board did not find it practicable to and did
not quantify or otherwise assign relative weights to the specific factors
considered in reaching its determination. In addition, individual members of the
Beta board may have given different weights to different factors.
THE BETA BOARD HAS UNANIMOUSLY APPROVED AND ADOPTED THE MERGER AGREEMENT AND THE
SHARE ISSUANCE AND THE TRANSACTIONS CONTEMPLATED THEREBY AND THE BETA BOARD
UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS OF BETA CONSENT TO THE MERGER AGREEMENT
AND MERGER.
RED RIVER'S REASONS FOR THE MERGER
The Red River Shareholders believe that the merger is desirable and in
their best interests for several reasons, including:
- The exploration prospects and experience of Beta complement the
producing property acquisition and operation activities of Red
River, making the combined company more diversified and flexible.
- As a public company with substantial management experience and
expertise in equity financing, Beta should have greater access to
the capital markets, thus increasing the financing opportunities
for Red River's operations after the merger.
- As a larger company, Beta and Red River should be a more
competitive participant in the oil and gas industry.
- The exploration prospects of Beta provide substantial upside
potential, albeit at a somewhat greater risk than Red River is
currently experiencing.
- As a public company, ownership of Beta shares will provide the Red
River shareholders with greater investment liquidity and
flexibility.
- The ability to account for the merger as a pooling of interests
should be beneficial to Beta's future financial reporting, making
it more reflective of the combined results of the two companies.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following outlines the anticipated material United States federal
income tax consequences of the merger and is not a complete analysis of all tax
effects of the merger. The discussion does not address the effect of state or
local tax laws, or the effect of any U.S. federal tax laws other than those
pertaining to United States federal income tax.
The merger is intended to qualify as a reorganization under Section
368(a) of the Code. The following are the intended material United States
federal income tax consequences of the merger:
- - No gain or loss will be recognized by Red River, Beta or Beta's merger
subsidiary as a result of the merger.
- - No gain or loss will be recognized by Red River shareholders upon the
conversion of Red River common stock into shares of Beta common stock
pursuant to the merger.
- - The aggregate tax basis of the shares of Beta common stock received in
exchange for shares of Red River common stock pursuant to the merger,
will be the same as the aggregate tax basis of the shares of Red River
common stock.
These consequences are based on current federal tax law. Future
legislative, administrative or judicial changes or interpretations, which can
apply retroactively, could affect the accuracy of those conclusions. No rulings
have or will be sought from the Internal Revenue Service concerning the tax
consequences of the merger and the merger is not conditioned upon receipt of a
legal opinion regarding the tax consequences of the merger.
Because of the complexity of the tax laws, and because the tax
consequences to any particular Red River stockholder may be affected by matters
not discussed above, each Red River stockholder is urged to consult a personal
tax advisor with respect to the specific tax consequences of the merger to him
taking into account his own particular circumstances, including the
applicability and effect of state, local and non-U.S. tax laws, as well as of
the federal tax laws.
INTEREST OF RED RIVER MANAGEMENT IN THE MERGER
Shareholders should be aware that certain directors and executive
officers of Red River have interests that are in addition to or may be different
from the interests of Red River shareholders generally. The officers having
these interests negotiated the terms of the merger agreement and the directors
having these interests participated in the discussion, deliberation and voting
of the Red River board to adopt the merger agreement.
REGISTRATION RIGHTS. Beta has agreed to register the shares to be
received by the Red River shareholders with the SEC and to maintain the
registration until the shares have been resold, or may be resold absent
registration other than pursuant to Rules 144 and 145.
EMPLOYMENT AGREEMENTS. Beta has agreed to enter into three year
employment agreements with Rolf Hufnagel, President of Red River and Robert
Davis, Executive Vice President of Red River. Each of the employment agreements
may be terminated only for the death or disability of the employee or after
written notice for cause. As a result, the position and salary of each of these
employees is protected following the merger until the end of the term of his
agreement.
PERCENTAGE OWNERSHIP INTEREST OF RED RIVER SHAREHOLDERS AFTER THE MERGER
The following table reflects the ownership interest of Red River
shareholders in Beta following the merger. The numbers are based on the number
of shares actually outstanding as of the record date, January 12, 2000.
Beta shares pre-merger .......................... 9,415,657
Red River shares outstanding pre-merger ......... 1,000
Total Beta shares post-merger ................... 11,665,657
Beta shares issued to Red River shareholders .... 2,250,000
Percentage beneficial ownership of pre-merger Red
River shareholders .................... 19.29%
APPRAISAL RIGHTS
Under Nevada law, Beta shareholders are not entitled to appraisal rights
with respect to approval of the share issuance. The merger agreement requires
that the Red River shareholders waive their appraisal rights as a condition to
completing the merger.
RESALES OF BETA COMMON STOCK
The shares of Beta common stock issued in connection with the merger have
not been registered under the Securities Act of 1933. Subject to the
registration rights granted to the Red River shareholders, the Red River
shareholders may not offer, sell, assign or otherwise dispose of the 2,250,000
shares of Beta common stock received in the merger unless the shares are
subsequently registered under the Securities Act or unless an exemption from
registration is available. The stock certificates representing the shares of
Beta common stock which will be acquired by the Red River Shareholders under the
agreement will contain a legend restricting the transferability of the shares of
Beta common stock as provided therein and stop order instructions may be imposed
by Beta's transfer agent restricting the transferability of such shares.
Beta has granted the Red River shareholders certain registration rights
in connection with the 2,250,000 shares received in the merger. The registration
rights provide that by no later than March 31, 2000, Beta shall prepare and file
with the Commission a shelf registration statement for the purpose of
registering the 2,250,000 shares for resale in the market from time to time.
Once the registration statement is declared effective, and so long as it
remains effective and current, these shares may be traded freely and without
restriction by those shareholders following the effective time of the merger.
THE MERGER AGREEMENT
The following summarizes the material provisions of the merger agreement,
a copy of which is attached as Annex A to this proxy statement. This summary is
qualified in its entirety by reference to the merger agreement. You are urged to
read the merger agreement in its entirety for a complete description of the
merger.
GENERAL. The merger agreement provides for the merger of a wholly owned
subsidiary of Beta into Red River. As a result of the merger, Red River will
become a wholly owned subsidiary of Beta. The merger will be consummated and
effective under Oklahoma law upon the filing of a certificate of merger with the
Oklahoma Secretary of State, which is expected to occur as soon as practicable
after the last condition precedent to the merger set forth in the merger
agreement has been satisfied or waived, but not later than March 31, 2000.
Following the merger, the certificate of incorporation of Red River will be
amended to change Red River's to Beta Operating Company.
MANNER AND BASIS OF CONVERTING SHARES. As a result of the merger, each
share of Red River common stock will be converted into the right to receive
2,250 shares of Beta common stock. A total of 2,250,000 shares of Beta common
stock will be issued pursuant to the merger.
CONDITIONS TO THE MERGER. The obligation of Beta to consummate the merger
is subject to a number of conditions, including:
- the approval of the merger agreement by the Red River
shareholders;
- the absence of any suit, action or other proceeding pending, or
threatened, before any court or governmental agency seeking to
restrain or prohibit the merger;
- the absence of any litigation against Red River which would
materially and adversely affect the value of the business, assets,
or properties of Red River;
- the resignation of all the officers and directors of Red River as
requested by Beta;
- the waiver by the Red River shareholders of their rights to an
appraisal of their shares of Red River common stock as provided to
dissenting shareholders under Oklahoma law;
- the receipt of all consents from third parties and governmental
authorities which are required in connection with the merger;
- the receipt of an opinion of Red River's counsel in form or
substance as reasonably requested by Beta;
- Red River's representations and warranties contained in the merger
agreement shall be true in all material respects and Red River
shall have performed in all material respects its obligations
under the merger agreement; and
- the absence of any material adverse change in the financial
condition, business, property or assets of Red River since
September 30, 1999.
The obligations of Red River and the Red River shareholders to consummate
the merger are subject to a number of conditions, including:
- the approval of the merger agreement by the shareholders of Beta;
- the absence of any suit, action or other proceeding pending, or
threatened, before any court or governmental agency seeking to
restrain or prohibit the merger;
- the absence of any litigation against Beta which would materially
and adversely affect the value of the business, assets, or
properties of Beta or the value of Beta common stock;
- the receipt of all consents from third parties and governmental
authorities required in connection with the merger;
- the receipt of an opinion of Beta's counsel in form or substance
as may reasonably be requested by Red River and the Red River
shareholders;
- Beta's representations and warranties contained in the merger
agreement shall be true in all material respects and Beta shall
have performed in all material respects it obligations under the
merger agreement;
- the execution of employment agreements between Red River and
certain Red River shareholders;
- the absence of any material adverse change in the financial
condition, business, property or assets of Beta since November 11,
1999;the listing by Beta of the shares of Beta common stock to be
issued to the Red River shareholders on The Nasdaq Stock Market;
and
- the appointment of Rolf N. Hufnagel as a director of Beta as of
the effective time of the merger.
REPRESENTATIONS AND WARRANTIES. The merger agreement contains numerous
representations and warranties by Red River and the Red River shareholders to
Beta as to various matters, such as:
- Red River's due organization and good standing;
- binding effect of the merger agreement upon Red River and the Red
River shareholders;
- absence of any conflict with any of Red River's organizational
documents and agreements as a result of the merger;
- Red River's corporate authorization with respect to the merger;
- Red River's capitalization;
- title to the outstanding shares of Red River common stock;
- Red River's financial statements;
- absence of undisclosed material liabilities of Red River;
- absence of material changes with respect to Red River since
September 30, 1999;
- tax matters with respect to Red River;
- condition of Red River's tangible assets;
- title to and status and operation of Red River's oil and gas
properties;
- Red River's insurance coverage;
- Red River's intellectual property rights;
- litigation involving Red River;
- Red River's compliance with laws and orders;
- consents and approvals required in connection with the merger;
- contracts binding upon Red River;
- Red River employee matters;
- investment intent of the Red River shareholders with respect to
the Beta common stock to be issued pursuant to the merger;
- Red River's licenses, facilities and permits; and
- Red River's accounts receivable and accounts payable.
The merger agreement contains numerous representations and warranties by
Beta to Red River and the Red River shareholders as to various matters, such as:
- Beta's due organization and good standing;
- binding effect of the merger agreement upon Beta;
- absence of any conflict with any of Beta's organizational
documents and agreements as a result of the merger;
- Beta's corporate authorization with respect to the merger;
- Beta's capitalization;
- Beta's SEC filings;
- litigation involving Beta;
- Beta's compliance with laws and orders;
- shareholder votes required in connection with the merger; and
- year 2000 issues.
SURVIVAL. The representations, warranties and covenants under the merger
agreement will survive the closing of the merger for a period which ends on the
earlier of one year after the closing date or the date Beta's first consolidated
audit report is issued after the closing date which includes audited financial
information concerning Red River.
CONDUCT OF BUSINESS PRIOR TO CLOSING DATE. Except as otherwise
contemplated by the merger agreement, Red River and the Red River shareholders
have agreed in the merger agreement that from the date of the merger agreement
until the closing date of the merger that Red River will conduct its business in
the ordinary course, consistent with past practices, and in particular, Red
River will not, among other things:
- amend its certificate of incorporation or bylaws;
- increase any employee's, officer's or directors compensation
except for increases in non-management employees consistent with
past practices;
- merge or consolidate with, acquire or be acquired by any other
entity without Beta's consent;
- increase the amount of any indebtedness other than in the ordinary
course without Beta's consent;
- sell or dispose of any of its assets or properties or abandon any
wells or equipment other than in the ordinary course of business
without Beta's consent;
- fail to maintain all leases, licenses, contracts and permits;
- issue any of its capital stock or options or rights to purchase
its capital stock or pay any dividend or make a distribution with
respect to shares of its capital stock;
- elect not to participate in the drilling of any new wells or the
fracturing or completion of a new well without Beta's consent; or
- establish or implement a new employee benefit plan of any kind.
PRE-CLOSING MUTUAL COVENANTS. The merger agreement contains mutual
covenants of the parties regarding each party's obligation to:
- provide the other party and its advisors full access to books,
records, financial information, contracts, licenses, leases,
permits and information pertaining to its properties and assets;
and
- maintain and refrain from disclosing confidential information
obtained from the other party.
NO SOLICITATION OF OTHER PROPOSALS. The merger agreement provides that
unless it is terminated prior to the closing date as permitted under the merger
agreement, neither Red River nor the Red River shareholders will solicit or
engage in any discussions, negotiations, understandings or agreements with any
person or entity other than Beta relating to the merger, consolidation or sale
of Red River's stock or properties other than in the ordinary course of
business.
REMEDIES FOR MISREPRESENTATION OR BREACH. In the event of any breach by
Red River or the Red River shareholders of their representations, warranties or
covenants under the merger agreement, the merger agreement provides that the Red
River shareholders will be required to return to Beta the number of shares of
Beta common stock determined by dividing the amount of loss incurred by Beta on
account of the breach by the closing price of a share of Beta common stock as of
the effective date of the merger. The Red River shareholders will not be
required to return any shares until such time as the amount of losses incurred
by Beta on account of breaches exceeds $100,000 and will not in any event be
required to return more than 225,000 shares.
In the event of any breach by Beta of its representations, warranties or
covenants under the merger agreement, the merger agreement provides that Beta
will be required to issue to the Red River shareholders the number of shares of
Beta common stock determined by dividing the amount of loss incurred by the Red
River shareholders on account of the breach by the closing price of a share of
Beta common stock as of the date of the merger. Beta will not be required to
issue any additional shares until such time as the amount of losses incurred by
the Red River shareholders on account of breaches exceeds $100,000 and will not
in any event be required to issue more than 225,000 additional shares.
ARBITRATION. The merger agreement provides for the settlement of all
disputes arising pursuant to or in any way related to the merger agreement by
arbitration conducted in accordance with the rules of the American Arbitration
Association by three arbitrators.
TERMINATION. The merger agreement may be terminated and the merger
abandoned at any time prior to the closing date by:
- mutual consent of Red River and Beta;
- either Red River or Beta if the other party has materially
misstated any representation or breached any warranty or covenant
in the merger agreement and such misstatement or breach is not
cured by the earlier of the closing date or 30 days after the
giving of notice of the breach or misstatement;
- either party if the merger is not consummated on or prior to March
31, 2000, so long as the terminating party did not cause the
merger to be delayed; or
- the party receiving exhibits, schedules or attachments from the
other party if it determines that the information disclosed
materially adversely affects the economic, financial or business
considerations previously determined by the receiving party in
entering into the merger agreement.
CONSEQUENCES OF TERMINATION. If the merger agreement is validly
terminated, no party will be relieved from any liability resulting from a breach
of its representations, warranties and covenants under the merger agreement
occurring prior to the termination. In addition, provisions of the merger
agreement related to the following will survive:
- confidentiality;
- brokers' and finders' fees and commissions; and
- transaction costs and expenses.
TERMINATION EXPENSES AND COSTS. Each party to the merger agreement will
pay its own costs and expenses, including its attorneys' fees and costs, if the
merger as contemplated under the merger agreement
- cannot be consummated for reasons beyond the control of the
parties and they have used their best efforts to obtain requisite
approvals and consents,
- is terminated by mutual consent of the parties, or
- is not closed prior to March 31, 2000.
Otherwise, if the merger agreement is terminated prior to the closing
date by a party not making any misstatement or not in breach of any covenant or
warranty under the merger agreement, the party making the misstatement or breach
will be obligated to pay in addition to its costs and expenses the other party's
costs and expenses, including actual attorney's fees.
AMENDMENTS. The merger agreement may be amended or modified, and any
provision of the merger agreement may be waived, only by a writing executed and
delivered by the parties.
POST CLOSING COVENANTS. The merger agreement provides that following the
consummation of the merger:
- The directors, officers and shareholders of Red River will
reasonably cooperate in effecting the merger, the orderly transfer
of assets and control of Red River to Beta, obtaining any
governmental or third party approvals or consents necessary to
effect such transfer and keeping existing contracts of Red River
intact.
- The officers, directors and shareholders of Red River will treat
as confidential and refrain from using or disclosing all
information of a confidential nature and notify Beta promptly of
any request, subpoena or demand to disclose such confidential
information .
- The officers, directors and shareholders of Red River will refrain
from any action having the effect of discouraging any lessor,
licensor, customer, supplier or other person having a business
relationship with Red River from continuing its business
relationship with Red River.
- Beta will provide to Red River employees, who are employed by Beta
or any of its subsidiaries at the effective time of the merger, so
long as they remain so employed, the same employee benefits (other
than salary or incentive compensation) and coverage under employee
benefit plans which in the aggregate are generally comparable to
those provided to Beta employees in comparable positions.
- Each party, including the officers, directors and shareholders of
Red River, will take such further action as another party may
reasonably request to accomplish the merger.
- Red River will continue its business or use a significant portion
of its assets in a business.
- Beta will use its best efforts to obtain the release of the Red
River shareholders' personal guarantees securing Red River's
approximately $3,000,000 of the indebtedness to the Bank of
Oklahoma, N.A. to the extent the bank is willing to release the
personal guarantees As an inducement to the bank, Beta will give
its guarantee in substitution of the personal guarantee. Beta will
also indemnify the Red River shareholders as to any funds they may
be required to pay with respect to their personal guarantees.
- Beta will not take or fail to take any action which would
reasonably be likely to prevent the merger from qualifying as a
reorganization under Section 368 of the Code.
REGISTRATION OF SHARES OF BETA COMMON STOCK. In the event the merger is
consummated, under the merger agreement, we are obligated by no later than March
31, 2000 to prepare and file with the SEC, a shelf registration statement. The
purpose of the shelf registration statement will be to register the resale of
the shares of Beta common stock to be received by the Red River shareholders
upon consummation of the merger. We are required to use our best efforts to have
the shelf registration statement promptly declared effective by the SEC on or
after its filing. We are also required to maintain the information contained in
the shelf registration statement current at all times as required under the
applicable provisions of the Securities Act of 1933 until the termination of the
shelf registration statement. The shelf registration statement is required to be
maintained until two years after the date that the SEC first declares the shelf
registration statement effective.
If we determine that a condition exists which would make it significantly
disadvantageous for the shares of Beta common stock to be offered under the
shelf registration statement, we are entitled to suspend either the
effectiveness of the shelf registration statement with the SEC or the
availability of the shelf registration statement. Disadvantageous conditions
include the unavailability of our required financial statements for reasons
beyond our control, the existence or anticipation of a material financing,
merger, acquisition or material transaction involving us or other similar events
or conditions involving us or our subsidiaries that have not been publicly
disclosed. In such event, the Red River shareholders will be required
immediately to discontinue the use of the shelf registration statement for any
purpose, and the availability of the shelf registration statement for resales of
shares of Beta common stock will be suspended until further notice from us. The
suspension will continue until the later of the disadvantageous condition, 60
consecutive days or 180 days within any 12 month period.
Under the terms of the merger agreement, the Red River shareholders are
also entitled to piggy-back registration rights relating to their shares of Beta
common stock to be received in the merger. If we propose to file a registration
statement in connection with an offering (with the exception of certain
offerings such as the registration of stock options or debt or preferred stock
financing) for our own account or the account of any other person, we are
required in each such instance to notify the Red River shareholders at least 20
days prior to such filing and give them the opportunity to register the number
of their shares of Beta common stock which they request us to include in such
registration statement The piggy-back registration is subject to the permission
of the managing underwriter or underwriters of the offering. If the
underwriter(s) determine(s) that the amount of shares of Beta common stock is so
large as to materially and adversely affect the success of the offering, the
total amount of the securities included in the offering will be reduced. As a
result of such reduction, the shares of Beta common stock requested by the Red
River shareholders to be included in such registration statement will be
proportionately reduced with all securities of holders having rights to include
their securities in such registration statement. We may withdraw any such
registration statement and abandon any proposed offering which we initialized
without the consent of the Red River shareholders or any other person, if we
determine in our sole discretion that such action is in our best interest and
the best interest of our shareholders. The merger agreement contains cross
indemnification provisions relating to the indemnification of the other party by
a party violating any rules or regulations under federal securities laws or
making a misrepresentation of or omitting to state a material fact necessary to
make the statements in any such registration statement not misleading.
We will be responsible for paying all of the expenses, fees and costs,
including legal and accounting fees and expenses incurred in connection with
each registration (whether a shelf registration or a piggy-back registration)
involving the shares of Beta common stock to be received upon consummation of
the merger.
PRINCIPAL SHAREHOLDERS OF BETA
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table will inform you, as of the date of this proxy
statement, about the beneficial ownership of shares of Beta's common stock held
by each person who beneficially owns more than 5% of the outstanding shares of
the common stock, each person who is a director or officer of Beta and all
persons as a group who are officers and directors of Beta, and as to the
percentage of outstanding shares held.
Approximate Approximate
Shares Beneficially Percent of Class Percent of Class
Name of Beneficial Owner Owned (1) Before the Merger After the Merger(2)
- --------------------------------------------- -------------------- --------------------- ---------------------
Mr. Steve Antry
Mrs. Lisa Antry, Jointly
901 Dove Street, #230
Newport Beach, CA 92660 1,525,000(3) 15.79% 12.80%
Mr. R. Thomas Fetters
901 Dove Street, #230
Newport Beach, CA 92660 350,000(4) 3.62% 2.94%
Mr. Lawrence W. Horwitz
2 Venture Plaza,
Suite 350
Irvine, CA 92618 70,000(5) 0.73% 0.59%
Mr. Joe C. Richardson Jr.
901 Dove Street, #230
Newport Beach, CA 92660 400,000(6) 4.14% 3.36%
Mr. Stephen L. Fischer
901 Dove St., #230
Newport Beach, CA 92660 375,000(7) 3.88% 3.15%
Mr. J. Chris Steinhauser
901 Dove Street, #230
Newport Beach, CA 92660 125,000(8) 1.29% 1.05%
Mr. John P. Tatum
901 Dove Street, #230
Newport Beach, CA 92660 70,000(9) 0.72% 0.59%
-------------------- --------------------- ---------------------
All officers, key persons and directors as
a group (7 persons) 2,915,000(10) 30.17% 24.48%
==================== ===================== =====================
Certain of the shareholders in this table have agreed that they will not sell
their founder's shares representing 2,670,000 of the 2,915,000 of the total
beneficial shares held until July 1, 2000.
(1) Unless otherwise indicated, all shares of common stock are held directly
with sole voting and investment powers. Securities not outstanding, but
included in the beneficial ownership of each such person are deemed to be
outstanding for the purpose of computing the percentage of outstanding
securities of the class owned by such person, but are not deemed to be
outstanding for the purpose of computing percentage of the class owned by
any other person.
(2) Assumes the issuance of the 2,250,000 shares in the merger.
(3) Mr. Steve Antry and Mrs. Lisa Antry, husband and wife, own 1,500,000
shares as community property. This also includes 25,000 shares of common
stock underlying presently exercisable stock warrants. The warrants are
exercisable at $5.00 per share and expire on March 12, 2003.
(4) Mr. Fetters subscribed to 350,000 shares of Beta's common stock "founder
shares".
(5) Mr. Horwitz subscribed to 50,000 founder shares. In addition, Horwitz &
Beam with whom the director is a shareholder, subscribed to 20,000
founders shares.
(6) Mr. Richardson subscribed to 400,000 founder shares.
(7) Mr. Fischer subscribed to 350,000 founder shares. This also includes
25,000 shares of common stock underlying presently exercisable stock
warrants. The warrants are exercisable at $5.00 per share and expire on
March 12, 2003.
(8) This represents 100,000 shares of common stock underlying stock warrants
which shall expire on January 27, 2003. On January 27, 1998, Beta issued
100,000 common stock purchase warrants exercisable at a price of $3.75
per share to J. Chris Steinhauser, the chief financial officer of Beta.
This also includes 25,000 shares underlying presently exercisable stock
warrants which were granted to Mr. Steinhauser. The warrants are
exercisable at $5.00 per share and expire on March 12, 2003.
(9) Mr. Tatum owns 16,000 shares of common stock. This includes 4,000 shares
of common stock underlying warrants which are exercisable at a price of
$5.00 per share and which expire September 5, 2002. In addition, it
includes 50,000 shares of warrants to purchase common stock which are
exercisable at a price of $5.00 and which expire April 1, 2004.
(10) Includes229,000 shares of common stock underlying stock warrants.
DESCRIPTION OF BETA'S CAPITAL STOCK
The statements set forth under this heading with respect to the Nevada
General Corporation Law, Beta's certificate of incorporation and Beta's by-laws
are brief summaries thereof and do not purport to be complete; the statements
are subject to the detailed provisions of the Nevada General Corporation Law,
the Beta certificate of incorporation and the Beta by- laws.
Beta is authorized to issue 50,000,000 shares of common stock, $0.001 par
value. As of the date of this proxy statement, Beta had 9,415,657 shares of
common stock outstanding.
COMMON STOCK
Each holder of common stock is entitled to one vote per share on all
matters to be voted upon by Beta's shareholders. Shareholders are entitled to as
many votes as equal to the number of shares multiplied by the number of
directors to be elected and may cast all votes for a single director or may
distribute them among the number to be voted for any two or more of them in the
election of directors. These are called cumulative voting rights. The holders of
common stock are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. Beta has not paid, and does not presently intend to pay,
dividends on its common stock. In the event of a liquidation, dissolution or
winding up of Beta, the holders of common stock are entitled to share ratably in
all assets remaining after payment of liabilities, subject to prior distribution
rights of holders of preferred stock, if any, then outstanding. The common stock
has no preemptive or conversion rights or other subscription rights. There are
no redemption or sinking fund provisions available to the common stock. All
outstanding shares of common stock are validly authorized and issued and are
fully paid and non-assessable, and the shares of common stock to be issued upon
exercise of warrants as described in this proxy statement will be validly
authorized and issued, fully paid and non-assessable. As of January 12, 2000
there were approximately 500 recordholders of Beta's common stock.
During the period from inception, June 6, 1997, through December 31,
1997, Beta issued 797,245 callable and 730,977 non-callable common stock
purchase warrants entitling the holders to purchase 1,528,222 shares of Beta's
common stock at prices ranging from $2.00 to $5.00 per share. During the year
ended December 31, 1998, Beta
issued 415,958 callable and 553,483 non-callable common stock purchase warrants
entitling the holders to purchase 969,441 shares of Beta's common stock at
prices ranging from $3.75 to $7.50 per share.
Because its common stock has traded at a market price exceeding $7.00 per
share for 10 consecutive days, Beta is entitled to call 442,000 of the 797,245
callable $5 warrants at any time. Beta has not yet issued a call for these
warrants as of the date of this proxy statement, but may do so at any time in
its sole discretion. The 442,000 warrants are exercisable at a price of $5.00
per share. The remaining 355,000 callable $5 warrants have already been
exercised.
In addition, Beta will be entitled to call 415,958 warrants at any time
on and after the date that its common stock is traded on any exchange, including
the the Nasdaq Stock Market or the Over-the-Counter Bulletin Board, at a market
price equal or exceeding $10.00 per share for 10 consecutive trading days. All
common stock Purchase warrants expire five years from their date of issuance.
STOCKHOLDER ACTION
According to Beta's bylaws, concerning any act or action required of or
by the holders of the common stock, the affirmative vote of the holders of a
majority of the issued and outstanding common stock entitled to vote thereon is
sufficient to authorize, affirm, ratify or consent to such act or action, except
as otherwise provided by law. Officers, directors and holders of 5% or more of
Beta's outstanding common stock do not constitute a majority and thus do not
control the voting upon all actions required or permitted to be taken by
shareholders of Beta, including the election of directors.
POSSIBLE ANTI-TAKEOVER EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
As of the date of this proxy statement, Beta's authorized but unissued
capital stock consists of 40,584,343 shares of common stock. One of the effects
of the existence of authorized but unissued capital stock may be to enable the
board of directors to render more difficult or to discourage an attempt to
obtain control of Beta by means of a merger, tender offer, proxy contest or
otherwise, and to protect the continuity of Beta's management. If in the due
exercise of its fiduciary obligations, for example, the board of directors were
to determine that a takeover proposal was not in Beta's best interests, such
shares could be issued by the board of directors without stockholder approval in
one or more private placements or other transactions that might prevent or
render more difficult or costly the completion of the takeover transaction by
diluting the voting or other rights of the proposed acquiring or insurgent
stockholder or stockholder group, by creating a substantial voting block in
institutional or other hands that might undertake to support the position of the
incumbent board of directors, by effecting an acquisition that might complicate
or preclude the takeover, or otherwise.
OTHER ANTI-TAKEOVER PROVISIONS
Beta executed a contract of employment with the president and chairman of
the board of directors, dated June 23, 1997. The contract provides for an
indefinite term of employment at an annual salary of $150,000, commencing in
October 1997, and an annual car allowance of up to $12,000. The contract may be
terminated by Beta without cause upon the payment of the following:
(a) Options to acquire the common stock of Beta in an amount equal to
10% of the then issued and outstanding shares containing a five
year term, piggyback registration rights and an exercise price
equal to 60% of the fair market value of the shares during the
sixty day period of time preceding the termination notice, such
amount not to exceed $3.00 per share.
(b) A cash payment equal to two times the aggregate annual
compensation.
(c) In the event of termination without cause, all unvested securities
issued by Beta to the Employee shall immediately vest and Beta
shall not have the right to terminate or otherwise cancel any
securities issued by Beta to the Employee.
The termination provisions of this employment contract were designed, in
part, to impede and discourage a hostile takeover attempt and to protect the
continuity of management.
CERTAIN CHARTER AND BYLAWS PROVISIONS
LIMITATION OF LIABILITY AND INDEMNIFICATION
Beta's Articles of Incorporation and its Bylaws limit the liability of
directors and officers to the extent permitted by Nevada law. Specifically, the
Articles of Incorporation provide that the directors and officers of Beta will
not be personally liable to Beta or its shareholders for monetary damages for
breach of their fiduciary duties as directors, including gross negligence,
except liability for acts or omissions "which involve intentional misconduct,
fraud or a knowing violation of law not in good faith, or the payment of
dividends in violation of Section 78.300 of the Nevada Revised Statutes."
Beta has obtained a directors and officers liability insurance policy for
the purposes of indemnification which shall cover all elected and appointed
directors and officers of Beta up to $1,000,000 for each claim and $3,000,000 in
the aggregate. Beta believes that the limitation of liability provision in its
Articles of Incorporation, and the directors and officers liability insurance
will facilitate Beta's ability to continue to attract and retain qualified
individuals to serve as directors and officers of Beta.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of Beta,
Beta has been advised that in the opinion of the Commission such indemnification
is against public policy as expressed in the Securities Act and is, therefore
unenforceable. Except for the payment by Beta of expenses incurred or paid by a
director, officer, or controlling person of Beta in the successful defense of
any action, suitor proceeding, if a claim for indemnification against such
liabilities is asserted by such director, officer or controlling person of Beta
in connection with the securities being registered, Beta will, unless in the
opinion of its counsel the matter has been settled by a controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issues.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent for which indemnification will be required
or permitted under Beta's Articles of Incorporation. Beta is not aware of any
threatened litigation or proceeding which may result in a claim for such
indemnification.
STOCKHOLDER MEETINGS AND OTHER PROVISIONS
Under the Bylaws, special meetings of the shareholders of Beta may be
called only by a majority of the members of the board of directors, the chairman
of the board, the president, or by one or more shareholders holding shares in
the aggregate entitled to cast not less than 10% of the votes at any such
meeting. The annual meeting shall be held each year on May 15 at 10:00 A.M., or
at such other date that is convenient as determined by the Directors, at a place
to be designated by the board of directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is Oxford Transfer
& Registrar, 317 S.W. Alder, Portland, OR 97204.
CERTAIN PROVISIONS OF THE BETA BYLAWS
Beta needs to obtain shareholder approval of a plan or arrangement under
paragraph 1 below, or prior to the issuance of common stock under paragraph 2,
3, or 4 below:
1. when a stock option or purchase plan is to be established
or other arrangement made pursuant to which stock may be acquired by officers or
directors, except for warrants or rights issued generally to security holders of
Beta or broadly based plans or arrangements including other employees (e.g.,
ESOPs). In the case where shares are issued to a person not previously employed
by Beta, as an inducement essential to the individual's entering into an
employment contract with Beta, shareholder approval will generally not be
required. The establishment of a plan or arrangement under which the amount of
securities which may be issued does not exceed the lesser of 1 percent of the
number of shares of common stock, 1 percent of the voting power outstanding, or
25,000 shares will not generally require shareholder approval;
2. when the issuance will result in a change of control of
Beta;
3. in connection with the acquisition of the stock or assets
of another company if:
a. any director, officer, or substantial shareholder of
Beta has a 5 percent or greater interest (or such persons collectively have a 10
percent or greater interest), directly or indirectly, in the company or assets
to be acquired or in the consideration to be paid in the transaction or series
of related transactions and the present or potential issuance of common stock,
or securities convertible into or exercisable for common stock, could result in
an increase in outstanding common shares or voting power of 5 percent or more;
or
b. where, due to the present or potential issuance of
common stock, or securities convertible into or exercisable for common stock,
other than a public offering for cash:
- the common stock has or will have upon
issuance voting power equal to or in excess
of 20 percent of the voting power outstanding
before the issuance of stock or securities
convertible into or exercisable for common
stock; or
- the number of shares of common stock to be
issued is or will be equal to or in excess of
20 percent of the number of shares or common
stock outstanding before the issuance of the
stock or securities; or
4. in connection with a transaction other than a public offering
involving:
a. the sale or issuance by Beta of common stock (or
securities convertible into or exercisable for common stock) at a price less
than the greater of book or market value which together with sales by officers,
directors, or substantial shareholders of the company equals 20 percent or more
of common stock or 20 percent or more of the voting power outstanding before the
issuance; or
b. the sale or issuance by Beta of common stock (or
securities convertible into or exercisable common stock) equal to 20 percent or
more of the common stock or 20 percent or more of the voting power outstanding
before the issuance for less than the greater of book or market value of the
stock.
Exceptions to those conditions requiring shareholder approval may be made
upon application to Nasdaq when:
- the delay in securing stockholder approval would seriously
jeopardize the financial viability of Beta; and
- reliance by Beta on this exception is expressly approved by the
audit committee or a comparable body of the board of directors.
If Beta is relying on this exception it must mail to all shareholders not
later than ten days before issuance of the securities a letter alerting them to
its omission to seek the shareholder approval that would otherwise be required
and indicating that the audit committee or a comparable body of the board of
directors has expressly approved the exception.
Only shares actually issued and outstanding, excluding treasury shares or
shares held by a subsidiary, are to be used in making any calculation provided
for in determining whether shareholder approval is required. Unissued shares
reserved for issuance upon conversion of securities or upon exercise of options
or warrants will not be regarded as outstanding.
Where shareholder approval is required, the minimum vote which will
constitute shareholder approval shall be a majority of the total votes cast on
the proposal in person or by proxy.
COMPARISON OF THE RIGHTS OF HOLDERS OF
BETA COMMON STOCK AND RED RIVER COMMON STOCK
GENERAL
The rights of Beta shareholders are currently governed by the Nevada
Revised Statutes (the "Nevada law") and the articles of incorporation and bylaws
of Beta (the "Beta articles" and the "Beta bylaws," respectively). The rights of
Red River shareholders are currently governed by the Oklahoma General
Corporation Act (the "Oklahoma law") and the certificate of incorporation and
bylaws of Red River (the "Red River certificate" and the "Red River bylaws,"
respectively).
In accordance with the merger agreement, the owners of Red River common
stock will become owners of Beta common stock. Upon consummation of the merger,
the rights of Beta and Red River shareholders who become shareholders of Beta in
the merger will be governed by Nevada law, the Beta articles, as amended, and
the Beta bylaws. The following are summaries of the material differences between
the current rights of Red River shareholders, and the rights of those
shareholders as shareholders of Beta following the merger.
Although it is not practical to compare the Nevada law, Beta articles,
and Beta bylaws with all their differences from the Oklahoma law, Red River
certificate, and Red River bylaws, the following is a summary of those
differences.
TAX STATUS
Red River Energy, Inc. is an S Corporation for federal income tax
purposes. Red River Energy, L.L.C. was, when owned directly by the Red River
Shareholders, taxed as a partnership for federal income tax purposes. In both
cases, the shareholders or members report the gain or loss realized by the
business entity and are subject to taxation to the extent of their allocable
shares of the gain and are able to claim deductions for their allocable shares
of the losses. Distributions to the Red River Shareholders are not subject to
federal income tax. As a result of the merger, the Red River Shareholders will
become shareholders of Beta which is a C Corporation for federal income tax
purposes. As such, Beta is taxed on its net income and not its shareholders.
Dividends paid by Beta to its shareholders, if any, would be taxed to the
shareholders to the extent that Beta has, at the time of the payment of the
dividends, retained earnings and profits.
DIVIDENDS
Subject to any restrictions contained in a corporation's certificate of
incorporation, Oklahoma law generally provides that a corporation may declare
and pay dividends out of surplus or, when no surplus exists, out of net profits
for the fiscal year in which the dividend is declared and/or for the preceding
fiscal year. Surplus is defined as net assets minus stated capital. Dividends
may not be paid out of net profits if the capital of the corporation is less
than the amount of capital represented by the issued and outstanding stock of
all classes having a preference upon the distribution of assets. The Red River
certificate contains no restrictions on the declaration or payment of dividends.
Except as otherwise provide in the corporation's articles of
incorporation, Nevada law authorizes the corporation to make distributions to
its shareholders, unless:
- the corporation would not be able to pay its debts as they become
due in the usual course of business; or
- the corporation's total assets would be less than the sum of its
total liabilities plus any amount owed if the corporation were
dissolved at the time of distribution to shareholders with
preferential rights superior to those receiving the distribution.
The Beta articles contain no restrictions on the declaration or payment
of dividends.
CUMULATIVE VOTING
In an election of directors under cumulative voting, each share of stock
normally having one vote is entitled to a number of votes equal to the number of
directors to be elected. A stockholder may then cast all of his or her votes for
a single candidate or may allocate them among as many candidates as the
stockholder may choose, up to the number of directors to be elected. Without
cumulative voting, the holders of a majority of the shares
present at an annual meeting or any special meeting held to elect directors have
the power to elect all the directors to be elected at that meeting, and no
person could be elected without the support of holders of a majority of the
shares voting at the meeting.
Under Oklahoma law, cumulative voting in the election of directors is not
available unless specifically provided for in a corporation's certificate of
incorporation. The Red River certificate does not provide for cumulative voting.
Under Nevada law, cumulative voting in the election of directors is only
available if the corporation's articles of incorporation provide for such an
election. The Beta articles do provide for cumulative voting but a stockholder
must demand cumulative voting in advance of the meeting in order for cumulative
voting to apply at the meeting.
SIZE OF BOARD OF DIRECTORS
The Oklahoma law provides that the board of directors shall consist of
one or more members. The number of directors shall be fixed by or in a manner
provided in the bylaws, unless the number of directors is fixed in the
corporation's certificate of incorporation, in which case a change in the number
of directors may be made only by amendment to the certificate of incorporation.
The Red River certificate contains no such provision, and the Red River bylaws
provide that the number of directors shall not be less than one nor more than
three as may be determined from time to time by the board of directors. The Red
River bylaws provide that unless and until determined otherwise, the board of
directors shall consist of three members.
The Nevada law provides that a corporation must have at least one
director, and may provide in its articles of incorporation or its bylaws for a
fixed number of directors or a variable number within a fixed maximum and
minimum, and for the manner in which the number of directors may be increased or
decreased. The Beta articles provide that the number of directors shall
initially be one; however, the number may be increased or decreased as provided
in the Beta bylaws. The Beta bylaws provide that the number of directors shall
not be less than one nor more than five until changed by a duly adopted
amendment to the Beta bylaws or the number of directors may be fixed or changed
by resolution adopted by a vote of the majority of directors in office or by the
vote of the shareholders representing a majority of the voting power at any
annual meeting or any special meeting called for such purpose. The Beta bylaws
provide that the number of directors shall not be less than two unless all of
the outstanding shares of stock are owned beneficially and of record by less
than two shareholders, in which event the number of directors shall not be less
than the number of shareholders or the minimum permitted by statute.
REMOVAL OF DIRECTORS
Under both the Oklahoma law and the Nevada law, any director or the
entire board of directors may be removed, with or without cause, upon the vote
of the shares entitled to vote in the election of directors. Under the Oklahoma
law, a vote of a majority of the outstanding voting shares is required to remove
a director. Under the Nevada law, a director may be removed only by the vote of
shareholders casting not less than two-thirds of the outstanding voting rights.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
The Oklahoma law provides that vacancies on the board of directors and
newly created directorships may be filled by a majority of the directors then in
office, even though less than a quorum, or by a sole remaining director, unless
otherwise provided in the certificate of incorporation or bylaws of the
corporation. The Red River bylaws restate the Oklahoma law. Each director so
elected holds office until the next annual election and the successor has been
duly elected and qualified.
The Nevada law provides that all vacancies, including those caused by an
increase in the number of directors, may be filled by a majority of the
remaining directors, even though less than a quorum, unless otherwise provided
in the articles of incorporation. The Beta bylaws provide that vacancies on the
board of directors may be filled by the vote of a majority of the shares
entitled to vote, represented at a duly held meeting at which a quorum
is present, or by written consent of the holders of the majority of the
outstanding shares entitled to vote. Each director so elected holds office until
the next annual meeting of the shareholders and until the successor has been
duly elected and qualified.
SPECIAL MEETINGS OF SHAREHOLDERS
The Oklahoma law provides that a special meeting of shareholders may be
called by the board of directors or any other person authorized to do so in the
corporation's certificate of incorporation or bylaws. The Red River bylaws
provide that special meetings of shareholders may be called by the chairman of
the board, the president or by a majority of the board of directors.
The Nevada law does not specifically address who may call special
meetings of shareholders. The Beta bylaws provide that special meetings of
shareholders may be called by the board of directors, the chairman of the board,
the president, or by one or more shareholders holding shares in the aggregate
entitled to cast not less than 10% of the votes of any such meeting.
STOCKHOLDER ACTION BY WRITTEN CONSENT
The Oklahoma law and the Nevada law both provide that any action required
to be taken at a meeting of shareholders may be taken without a meeting, if a
sufficient number of the shareholders consent in writing to the action proposed
to be taken. In both states, such a consent must be signed by the holders of
outstanding stock having not less that the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted.
INSPECTION OF BOOKS, RECORDS AND SHAREHOLDERS LIST
The Oklahoma law allows any stockholder to inspect the stock ledger and
the other books and records of a corporation for a purpose reasonably related to
that person's interest as a stockholder.
The Nevada law provides that any person who has been a stockholder of
record of a corporation for at least six months, or any person holding or
representing at least five percent of its outstanding shares, upon a least five
days' written demand, may inspect its stock ledger and make copies from it. A
corporation must allow shareholders of record who own or represent at least
fifteen percent of a corporation's shares the right, upon five days' written
demand, to make copies from the books of account and all financial records of
the corporation and to conduct an audit of those records, except that any
corporation listed and traded on any recognized stock exchange or any
corporation that furnishes to its shareholders a detailed, annual financial
statement is exempt from this requirement. Also, any such stockholder must, if
requested, provide an affidavit that the inspection is not for a purpose
unrelated to such stockholder's interest in the corporation as a stockholder.
AMENDMENT OF CERTIFICATE OR ARTICLES OF INCORPORATION
Under both the Oklahoma law and the Nevada law, a corporation may amend
its certificate or articles of incorporation if the corporation's board of
directors adopts a resolution presenting the proposed amendment and the
amendment is approved by the shareholders. An amendment generally requires
approval by the affirmative vote of a majority of the votes entitled to be cast.
In addition, a majority of the shares of each class entitled to vote as a class
must approve the amendment. When the substantial rights of a class of shares
will be affected by an amendment, the holders of those shares are entitled to
vote as a class even if the shares are non-voting shares. When only one or more
series in a class of shares, and not the entire class, will be adversely
affected by an amendment, only the affected series may vote as a class. In
addition, under Oklahoma law the right to vote as a class may be limited in
certain circumstances. Any provision in the certificate of incorporation that
requires a greater vote than required by law cannot be amended or repealed
except by such greater vote. The Oklahoma law provides that, in its resolution
proposing an amendment, the board of directors may insert a provision allowing
the board of directors to abandon an amendment, without concurrence by
shareholders, after the amendment has received stockholder approval but before
its filing with the Secretary of State.
AMENDMENT OF BYLAWS
The Oklahoma law provides that the power to adopt, amend or repeal bylaws
shall be in the shareholders unless specifically granted to the directors in the
corporation's certificate of incorporation, in which case the power is shared.
Such provision in the certificate of incorporation does not limit the
shareholders' power to adopt, amend or repeal bylaws. There is no similar
provision in the Nevada law that expressly requires a grant of power to the
directors in the articles of incorporation in order to adopt bylaws for a
corporation. Rather, the Nevada law provides that the board of directors of a
corporation may make the bylaws, but that such bylaws are subject to those
adopted by the shareholders, if any.
The Red River certificate grants to the board of directors the power to
adopt, amend, or repeal the bylaws of Red River. The Red River bylaws provide
that the bylaws may be altered, amended or repealed or new bylaws may be adopted
by the shareholders or by the board of directors when such power is conferred
upon the board of directors by the certificate of incorporation.
Similarly, the Beta bylaws provide that the bylaws of Beta are subject to
alteration or repeal, and new bylaws may be made by the affirmative vote of a
majority of those shareholders of record entitled to vote in the election of
directors at any annual or special meeting of shareholders. The board of
directors also has the power to make, adopt, alter, amend and repeal the bylaws
of Beta; provided, however, that the shareholders may alter, amend or repeal
those bylaws made by the board of directors.
APPROVAL OF ASSET SALES AND MERGERS
Both the Oklahoma law the Nevada law require an affirmative vote of a
majority of the voting rights represented by the outstanding stock entitled to
vote on such matters in order to approve the sale, lease or exchange of "all" of
a corporation's assets, unless the certificate or articles incorporation
otherwise requires a greater vote. Both the Red River certificate and the Beta
articles are silent on this issue. While the Oklahoma law also requires a
similar majority vote of shareholders to approve the sale, lease or exchange of
"substantially all" of a corporation's assets, the Nevada law has no such
requirement.
The Oklahoma law requires the approval of the a corporation's board of
directors and the holders of a majority of the outstanding shares of stock
entitled to vote thereon for mergers and consolidations. The Oklahoma law does
not require a stockholder vote of the surviving corporation in a merger (unless
the corporation provides otherwise in its certificate of incorporation) if:
- the merger agreement does not amend the existing certificate of
incorporation;
- each share of the surviving corporation outstanding before the
merger is an identical outstanding or treasury share after the
merger; and
- the number of shares of common stock to be issued by the surviving
corporation in the merger (plus those initially issuable upon
conversion of any other shares, securities, or obligations to be
issued or delivered under the plan of merger) does not exceed 20%
of the shares of common stock outstanding immediately prior to the
merger.
The Red River certificate is silent on stockholder voting in connection with
mergers and consolidations.
The Nevada law also requires the approval of the corporation's board of
directors and, except as described below or as provided in the articles of
incorporation, the holders of a majority of the outstanding shares of stock
entitled to vote thereon for mergers and exchanges of interests. Under the
Nevada law, the board of directors may also condition its submission of any
proposed merger or exchange to the shareholders on any basis, including
requiring a greater vote by the shareholders. If shareholders of separate
classes of stock are so entitled, the transaction must be separately approved by
each voting group entitled to vote by a majority of all the votes entitled to be
cast by that voting group. Separate voting by a class of shareholders is
required (i) on a plan of merger if the plan contains provisions that, if
contained in the proposed amendment to the articles of incorporation, would
entitle particular shareholders to vote as a class on the proposed amendment,
and (ii) on a plan of exchange by each class or series of shares included in the
exchange, with each class or series constituting a separate voting
class. Similar to the Oklahoma law, the Nevada law does not require a
stockholder vote of the surviving corporation in a merger or exchanges of
interest if:
- the merger does not amend the existing articles of incorporation
of the surviving corporation;
- each stockholder of the surviving corporation will hold the same
number of shares after the merger as before, with the same rights
and preferences;
- the number of voting shares outstanding immediately after the
merger, plus the number of voting shares issuable as a result of
the merger, will not exceed by more than twenty percent (20%) the
total number of voting shares of the surviving corporation
outstanding immediately before the merger; and
- the number of participating shares outstanding after the merger,
will not exceed by more than twenty shares twenty percent (20%)
the number of participating shares outstanding immediately before
the merger. The term "participating shares" means shares that
entitle their holders to participate without limitation in
distributions.
The Beta articles do not address voting in connection with mergers and exchanges
of interest. However, the Beta bylaws do provide that stockholder approval (a
majority of the total votes cast on the proposal in person or by proxy) is
required with regards to any plan or arrangement involving the issuance of
designated securities:
- in connection with the establishment of certain stock option or
purchase plans pursuant to which stock may be acquired by officers
or directors;
- when the issuance will result in a change of control of the
issuer;
- in connection with the acquisition of the stock or assets of
another company if (i) any director, officer, or substantial
shareholder of the issuer has a 5% or greater interest (or such
persons collectively have a 10% or greater interest), directly or
indirectly, in the company or assets to be acquired or in the
consideration to be paid in the transaction or series of related
transactions and the present or potential issuance of common
stock, or securities convertible into or exercisable for common
stock, could result in an increase in outstanding common shares or
voting power of 5% or more, or (ii) where, due to the present or
potential issuance of common stock, or securities convertible into
or exercisable for common stock, other than a public offering for
cash (x) the common stock has or will have upon issuance voting
power equal to or in excess of 20% of the voting power outstanding
before the issuance of stock or securities convertible into or
exercisable for common stock or (y) the number of shares of common
stock to be issued is or will be equal to or in excess of 20% of
the number of shares or common stock outstanding before the
issuance of the stock or securities; or
- in connection with a transaction other than a public offering
involving (i) the sale or issuance by the issuer of common stock
(or securities convertible into or exercisable for common stock)
at a price less than the greater of book or market value which
together with sales by officers, directors, or substantial
shareholders of the company equals 20% or more of common stock or
20% or more of the voting power outstanding before the issuance,
or (ii) the sale or issuance by the company of common stock (or
securities convertible into or exercisable for common stock) equal
to 20% or more of the common stock or 20% or more of the voting
power outstanding before the issuance for less than the greater of
book or market value of the stock.
DISSOLUTION
The Oklahoma law and the Nevada law both generally provide that a
dissolution may be initiated by a resolution adopted by a majority of the board
of directors and approved by the holders of a majority of the outstanding voting
shares of the corporation. However, the Oklahoma law also provides that a
dissolution may
also be authorized without action of the directors if all of the shareholders
entitled to vote thereon consent in writing.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Oklahoma law and the Nevada law each specify certain circumstances
when a corporation must, and other circumstances when it may, indemnify its
officers, directors, employees and agents against legal expenses and
liabilities. Both states' provisions are generally the same. Both the Oklahoma
law and the Nevada law require, unless ordered by a court, a finding to be made
that the officer, director, employee or agent has met the required standard of
conduct, by (i) a majority vote of the board of directors for which the quorum
does not consist of parties to the proceeding, or (ii) by independent legal
counsel in a written opinion, or (iii) by stockholder approval. In addition, the
Oklahoma law permits such a finding to be made by a committee of board members
consisting of at least one director not a party to the proceedings. Neither the
provisions of the Oklahoma law nor the Nevada law are exclusive, and both permit
indemnification as provided under any bylaw, agreement, vote of shareholders or
of disinterested directors, or otherwise.
Both the Red River bylaws and the Beta bylaws provide for indemnification
of officers and directors under certain circumstances. The Red River bylaws
provide that Red River shall indemnify any person who was or is a party or is
threatened to be a party to any third party proceeding (whether civil, criminal,
administrative or investigative, other than an action by or in the right of Red
River) by reason of the fact that such person was a director or officer of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses, including without
limitation attorneys' fees, judgments, fines and amounts paid in settlement,
actually and reasonably incurred by such person in connection with any third
party proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interest of the
corporation and, with respect to any criminal third party proceeding, had no
reasonable cause to believe such conduct was unlawful. The Red River bylaws
provide similar indemnification with respect to the previously mentioned persons
in the case of any corporate proceeding (which includes any action or suit by or
in the right of Red River to procure a judgment in its favor) if such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of Red River. However, no indemnification
shall be made in the case of a corporate proceeding in which any such person is
adjudged to be liable to the corporation, unless the court in which the
proceeding was brought determines upon application that, despite the
adjudication of liability but in view of all of the circumstances of the case,
such person is fairly and reasonably entitled to indemnity.
The Beta bylaws provide that any person made a party to any action, suit
or proceeding by reason of the fact that he, his testator or intestate
representative is or was a director, officer or employee of Beta or of any
corporation in which he served as such at the request of Beta, shall be
indemnified by Beta against the reasonable expenses, including attorneys' fees,
actually and necessarily incurred by him in connection with the defense of such
action, suit or proceedings, or in connection with any related appeal, except in
relation to matters as to which any such person is adjudged to be liable for
gross negligence or misconduct in the performance of his duties. The Beta bylaws
deviate from the Nevada law in that the Beta bylaws provide that the amount of
indemnity to which any officer or any director may be entitled shall be fixed by
the board of directors except in the case in which there is no disinterested
majority of the board of directors available. In this case, the amount shall be
fixed by arbitration under the then existing rules of the American Arbitration
Association.
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS
The Oklahoma law permits a corporation, with the approval of its
shareholders, to eliminate the personal liability of its directors in its
certificate of incorporation, except for liability arising in connection with
(i) a breach of the duty of loyalty, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of the law, (iii)
the payment of unlawful dividends and approval of certain other actions
prohibited by law, or (iv) a transaction from which a director derived an
improper personal benefit. The Red River certificate provides that a director of
Red River shall not be liable to Red River or its shareholders for monetary
damages for breach of fiduciary duty.
The Nevada law permits a corporation to eliminate or limit the personal
liability of its directors (and officers) in its articles of incorporation,
except for liability arising in connection with (i) acts or omissions which
involve intentional misconduct, fraud or a knowing violation of law or (ii) the
payment of distributions in violation of the Nevada law. The Beta articles
provide that no director or officer of Beta shall be personally liable to Beta
or its shareholders for damages for breach of any fiduciary duty as a director
or officer involving any act or omission of any such director or officer.
Nevada law restricts the ability of a resident domestic corporation to
engage in any combination with an interested stockholder for three years after
the interested stockholder's date of acquiring the shares that cause such
stockholder to become an interested stockholder unless the combination or the
purchase of shares by the interested stockholder on the interested stockholder's
date of acquiring the shares that cause such stockholder to become an interested
stockholder is approved by the board of directors of the resident domestic
corporation before that date. If the combination was not previously approved,
the interested stockholder
may affect a combination after the three-year period only if such stockholder
receives approval from a majority of the disinterested shares or the offer meets
certain fair price criteria. For purposes of the foregoing provisions, "resident
domestic corporation" means a Nevada corporation that has 200 or more
shareholders and "interested stockholder" means an person, other than the
resident domestic corporation or its subsidiaries, who is:
- the beneficial owner, directly or indirectly, of ten percent or
more of the voting power of the outstanding voting shares of the
resident domestic corporation; or
- an affiliate or associate of the resident domestic corporation and
at any time within three years immediately before the date in
question was the beneficial owner, directly or indirectly, of ten
percent or more of the voting power of the outstanding shares of
the resident domestic corporation.
The term "combination" is defined to include, when used in reference to
any resident domestic corporation and any interested stockholder of the resident
domestic corporation, the following: (1) a merger or consolidation; (2) any
sale, lease, exchange, mortgage, pledge, transfer or disposition in one
transaction or a series of transactions of assets (a) having an aggregate market
value equal to 5% or more of the aggregate market value of all of the resident
domestic corporation's assets, (b) having an aggregate market value equal to 5%
or more of the aggregate market value of all the resident domestic corporation's
outstanding shares, or (c) representing 10% or more of the earning power of the
resident domestic corporation; (3) the issuance or transfer of any shares of the
resident domestic corporation that have an aggregate market value equal to 5% or
more of its outstanding shares; (4) the adoption of a plan or proposal for the
liquidation or dissolution of the resident domestic corporation; (5) any
reclassification of securities, recapitalization, merger or consolidation or
other transaction proposed by, or under an agreement with, the interested
stockholder; or (6) the receipt by the interested stockholder of the benefit of
any loans, advances, guarantees, pledges or other financial assistance from the
resident domestic corporation.
The above provisions do not apply to any combination involving a resident
domestic corporation:
- whose original articles of incorporation expressly elect not to be
governed by the Nevada law;
- which does not, as of the date of acquiring shares, have a class
of voting shares registered with the SEC under Section 12 of the
Securities Act, unless the corporation's articles of incorporation
provide otherwise;
- whose articles of incorporation were amended to provide that the
corporation is subject to the above provisions and which did not
have a class of voting shares registered with the SEC under
Section 12 of the Securities Act on the effective date of such
amendment, if the combination is with an interested stockholder
whose date of acquiring shares is before the effective date of
such amendment; or
- that amends its articles of incorporation, approved by a majority
of the disinterested shares, to expressly elect not to be governed
by the Nevada law.
The Beta articles do not exempt Beta from the restrictions imposed by those
provisions.
Oklahoma law has provisions which are similar to the Nevada law in this
respect but the Oklahoma provisions only apply to publicly held companies.
STOCK PURCHASES
The Oklahoma law provides that a corporation may acquire its own shares.
Generally, no purchase of shares may be made when such purchase would cause any
impairment of the capital of the corporation, except that a corporation may
purchase (or redeem) out of capital:
- any of its own shares which are entitled upon any distribution of
its assets, whether by dividend or liquidation, to a preference
over another class or series of its stock; or
- if no shares entitled to a preference are outstanding, any of its
own shares if such shares will be retired upon their acquisition
and the capital of the corporation is reduced in accordance with
relevant Oklahoma law.
Under the Nevada law, a corporation may also acquire its own shares.
However, no such purchase can be made if, after giving effect to the purchase,
- the corporation would not be able to pay its debts as they become
due in the usual course of business; or
- the corporation's total assets would be less than the sum of its
total liabilities plus the amount that would be needed, if the
corporation were to be dissolved at the time of distribution, to
satisfy preferential rights (if any) of shareholders upon
dissolution.
TRANSACTIONS INVOLVING OFFICERS, DIRECTORS AND EMPLOYEES
The Oklahoma law permits loans or guarantees to any officer or other
employee, including any officer or employee who is a director, whenever, in the
judgment of the directors, such a loan or guarantee may reasonably be expected
to benefit the corporation. With respect to any other contract or transaction
between the corporation and one or more of its directors or officers, such
transactions are neither void nor voidable if either:
- the director's or officer's interest is made known to the
disinterested directors or the shareholders of the corporation,
who thereafter approve the transaction in good faith; or
- the contract or transaction is fair to the corporation as of the
time it is approved or ratified by either the board of directors,
a committee thereof, or the shareholders.
The Nevada law does not contain specific restrictions on loans or
guarantees to or for the benefit of any employee. However, the Nevada law does
contain provisions substantially similar to those noted above under the Oklahoma
law regarding contracts and transactions in general between a corporation and an
officer or director.
DISSENTERS' APPRAISAL RIGHTS
Under the Oklahoma law and the Nevada law, shareholders, in certain
circumstances, have the right to dissent from certain corporate reorganizations
and mergers, provided certain statutory procedures are followed. A stockholder
exercising his right to dissent may demand payment in cash for his shares equal
to their fair value.
The Oklahoma law provides that a stockholder who neither voted in favor
of a merger or consolidation nor consented thereto in writing shall be entitled
to an appraisal by the district court of the fair value of the stockholder's
shares. Appraisal rights are available for the shares of any class or shares of
stock of a constituent corporation in a merger or consolidation, unless the
shares of such corporation are listed on a national security exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or are held of
record by more than 2,000 shareholders. Further, appraisal rights are available
for the shares of any class or series of stock of a constituent corporation if
the holders thereof are required to accept for the stock anything except:
- shares of stock or depository receipts of the corporation
surviving or resulting from the merger or consolidation;
- shares of stock or depository receipts of any other corporation
that at the effective date of the merger are listed on a national
security exchange or designated as a national market system
security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or are held of record by
more than 2,000 shareholders;
- cash in lieu of fractional shares or fractional depository
receipts described above; or
- any combination of the foregoing.
In addition, the Oklahoma law provides that any corporation may provide
in its certificate of incorporation that appraisal rights will be available for
the shares of any class or series of its stock as a result of an amendment to
its certificate of incorporation, any merger or consolidation or the sale of all
or substantially all of the assets of the corporation.
The Nevada law provides that a stockholder is entitled to dissent from
and obtain payment of the fair value of his shares in the event of the following
corporate actions:
- consummation of a plan of merger to which the domestic corporation
is a party (i) if approval by the shareholders is required for the
merger and he is entitled to vote on the merger, or (ii) in
certain circumstances, if the domestic corporation is a subsidiary
and is merged with its parent;
- consummation of a plan of exchange to which the domestic
corporation is a party as the corporation whose subject owner's
interests will be acquired, if he is entitled to vote on the plan;
or
- any corporate action taken pursuant to a vote of the shareholders
to the extent that the articles of incorporation, bylaws or a
resolution of the board of directors provides that voting or
nonvoting shareholders are entitled to dissent and obtain payment
for their shares.
Also, and similar to the Oklahoma law, no statutory right of appraisal
exists under the Nevada law where the stock of the Nevada corporation is listed
on a national securities exchange, included in the national market system by the
National Association of Securities Dealers, Inc., or is held of record by at
least 2,000 holders, unless:
- the articles of incorporation of the corporation issuing the
shares provide otherwise; or
- the holders of the class or series are required under the plan of
merger or exchange to accept for the shares anything except (i) cash, owner's
interest or owner's interest and cash in lieu of fractional owner's interest of
the surviving or acquiring entity or any other entity which, at the effective
date of the plan of merger or exchange, were either listed on a national
securities exchange, included in the national market system by the National
Association of Securities Dealers, Inc., or is held of record by at least 2,000
holders, or (ii) any combination of the preceding subsection (i).
NEVADA CONTROL SHARE ACQUISITION LAW
The Nevada law provides that whenever an acquiring person acquires shares
of an issuing corporation that (if permitted to vote) would give the acquiring
person, directly or indirectly and individually or in association with others,
one-fifth, one-third or a majority or more of the voting power in the election
of directors of the corporation (a "controlling interest"), the newly acquired
control shares will obtain only such voting rights as are conferred by a
resolution of the stockholders of the corporation approved at a special or
annual meeting. Except as otherwise provided by the articles of incorporation of
the issuing corporation, a resolution of the stockholders granting voting rights
to the control shares acquired by an acquiring person must be approved by the
holders of a majority of the voting power of the corporation and, in certain
instances, by the holders of a majority of each class or series of stock, if
any, whose preferences or other rights would be changed by reason of the
acquisition. For this purpose, shares held by interested stockholders, which
includes those held by an acquiring person, an officer or a director of the
corporation, or an employee of the corporation, are not considered in voting
upon the resolution granting voting rights to control shares. A corporation is
subject to the Nevada law and is an "issuing corporation" if it is organized in
the state of Nevada and (i) has 200 or more stockholders of record, at least 100
of whom have addresses in the state of Nevada appearing on the stock ledger of
the corporation and (ii) does business in the state of Nevada directly or
indirectly through an affiliated corporation.
The term "acquiring person" means any person who, individually or in
association with others, acquires or offers to acquire, directly or indirectly,
a controlling interest in an issuing corporation. The term "control shares"
means those outstanding voting shares of an issuing corporation which an
acquiring person and those persons acting in association with the acquiring
person (i) acquire in an acquisition or offer to acquire in an acquisition and
(ii) acquire within 90 days immediately preceding the date when the acquiring
person became an acquiring person.
The foregoing provisions of the Nevada law do not apply to acquisitions of
a controlling interest where the acquisition of shares occurred in good faith,
and without an intent to avoid the requirements of the Nevada law, (i) by an
acquiring person authorized under the Nevada law to exercise voting rights, to
the extent that the new acquisition does not result in the acquiring person
obtaining a controlling interest greater than that previously authorized, or
(ii) pursuant to the laws of descent and distribution, the enforcement of a
judgment, the satisfaction of a pledge or other security interest, or a merger
or reorganization effected in compliance with the certain provisions of the
Nevada law.
The provisions of the Nevada law apply to any acquisition of a controlling
interest in an issuing corporation unless the articles of incorporation or
bylaws of the corporation in effect on the 10th day following the acquisition of
a controlling interest by an acquiring person provide that the provisions of
those sections do not apply to the corporation or to an acquisition of a
controlling interest specifically by types of existing or future stockholders,
whether or not identified. The articles of incorporation, the bylaws or a
resolution adopted by the directors of the issuing corporation may impose
stricter requirements on the acquisition of a controlling interest than provided
under the Nevada law. The provisions of the Nevada law do not restrict the
directors of an issuing corporation from taking action to protect the interests
of the corporation and its stockholders, including, but not limited to, adopting
or executing plans, arrangements or instruments that deny rights, privileges,
power or authority to a holder of a specified number of shares or percentage of
share ownership or voting power. Neither the Beta articles nor the Beta bylaws
specifically address control share acquisitions.
Oklahoma law has provisions which are similar to the Nevada law in this
respect but the Oklahoma provisions only apply to domestic corporations that
have one thousand or more shareholders.
MARKET PRICES OF BETA COMMON STOCK
Beta common stock began trading July 9, 1999 on the Nasdaq Small Cap
Market under the symbol "BETA". The following table sets forth for the fiscal
period indicated the range of the high and low sale prices of Beta common stock
as reported on the Nasdaq Small Cap Market. Beta has not paid any cash or other
dividends since its inception. For the foreseeable future, Beta intends to
retain any funds otherwise available for dividends for use in the expansion of
its business.
BETA COMMON STOCK
NASDAQ SMALL CAP MARKET
FISCAL YEAR ENDING DECEMBER 31, 1999: HIGH LOW
------------------------------------ ---- ---
1st Quarter N/A N/A
2nd Quarter N/A N/A
3rd Quarter 6-11/16 4-1/4
4th Quarter 8-5/8 5-15/16
Set forth below is the last reported sale price of Beta common stock on
November 19, 1999, the last trading day prior to the public announcement of the
execution of the merger agreement, and on January 11, 2000, the last trading day
prior to this proxy statement, both as reported on the Nasdaq Small Cap Market:
November 19, 1999............ $ 8 1/8
January 11, 2000 ............ $ 6 9/16
-----
BETA OIL & GAS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combining, condensed financial information is
presented to reflect the Agreement and Plan of Merger on (1) the unaudited
historical condensed balance sheet as of September 30, 1999, (2) the unaudited
historical condensed statements of operations for the year ended December 31,
1998 and (3) unaudited historical condensed statements of operations for the
nine months ended September 30, 1998 and 1999 of Beta Oil & Gas, Inc. ("Beta")
and Red River Energy, LLC and subsidiaries ("Red River").
For financial accounting purposes, it is intended that the merger will be
accounted for using the pooling-of-interests method of accounting, of which
there is no assurance. Accordingly, it is expected that (1) the recorded
historical cost basis of the assets and liabilities of Beta and Red River will
be carried forward to the combined company, (2) results of operations of the
combined company will include results of operations of Beta and Red River for
the entire fiscal period in which the combination occurs and (3) the historical
results of operations of the separate companies for fiscal years before the
merger will be combined and reported as the results of operations of the
combined company. No adjustments have been made to the historical financial
statements of Beta or Red River to conform the accounting policies of the
combining companies as the nature and amounts of such adjustments are not
expected to be significant.
The assumptions used in preparing the pro forma adjustments are described in the
footnotes to the pro forma combining, condensed financial statements. However,
due to the uncertainties inherent in the assumption process, it is at least
reasonably possible that the assumptions might require further revision and that
such revision could be material.
The unaudited pro forma combining, condensed financial information should be
read in conjunction with the historical financial statements and related notes
of Beta and Red River contained herein, which were used to prepare the pro forma
combining, condensed financial statements.
The pro forma financial information presented is not necessarily indicative of
future operations or the actual results that would have occurred had the
transactions been consummated at the beginning of the periods indicated. The
unaudited pro forma combined, condensed statements of operations do not include
the impact of nonrecurring charges or credits directly attributable to the
transaction.
BETA OIL & GAS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET AS OF
SEPTEMBER 30, 1999
The following Unaudited Pro Forma Combined Condensed Balance Sheet combines the
financial position of Beta and Red River as of September 30, 1999. This
statement has been prepared under the assumptions set forth in the accompanying
notes. This statement should be read in conjunction with the separate unaudited
condensed consolidated financial statements and notes thereto of Beta and of Red
River included in this proxy statement. The Unaudited Pro Forma Combined
Condensed Balance Sheet is not necessarily indicative of the financial position
of the combined companies as they may be in the future or as they might have
been had the merger been effective September 30, 1999.
RED RIVER MERGER
BETA OIL & GAS, ENERGY, LLC AND PRO FORMA COMBINED
INC. SUBSIDIARIES ADJUSTMENTS PRO-FORMA
--------------- --------------- --------------- ---------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 453,637 $ 201,466 $ (100,000)(1) $ 555,103
Accounts receivable 230,849 239,637 -- 470,486
Prepaid expenses 82,929 29,549 -- 112,478
--------------- --------------- --------------- ---------------
Total current assets 767,415 470,652 (100,000) 1,138,067
OIL AND GAS PROPERTIES, at cost
(full cost method)
Evaluated properties 8,405,024 5,894,708 -- 14,299,732
Unevaluated properties 12,264,610 2,713,510 -- 14,978,120
Less-accumulated amortization and
impairments of full cost pool (1,825,452) (371,041) -- (2,196,493)
--------------- --------------- --------------- ---------------
Net oil and gas properties 18,844,182 8,237,177 -- 27,081,359
OTHER OPERATING PROPERTY AND EQUIPMENT
Gas gathering system -- 1,323,258 -- 1,323,258
Support equipment -- 1,094,384 -- 1,094,384
Less-accumulated depreciation -- (107,319) -- (107,319)
--------------- --------------- --------------- ---------------
Net other operating property and
equipment -- 2,310,323 -- 2,310,323
FURNITURE, FIXTURES AND EQUIPMENT,
net 15,422 34,485 -- 49,907
OTHER ASSETS 703,742 -- -- 703,742
--------------- --------------- --------------- ---------------
TOTAL ASSETS $ 20,330,761 $ 11,052,637 $ (100,000) $ 31,283,398
=============== =============== =============== ===============
(CONTINUED)
BETA OIL & GAS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET AS OF
SEPTEMBER 30, 1999
(CONTINUED)
The following Unaudited Pro Forma Combined Condensed Balance Sheet combines the
financial position of Beta and Red River as of September 30, 1999. This
statement has been prepared under the assumptions set forth in the accompanying
notes. This statement should be read in conjunction with the separate unaudited
condensed consolidated financial statements and notes thereto of Beta and of Red
River included in this proxy statement. The Unaudited Pro Forma Combined
Condensed Balance Sheet is not necessarily indicative of the financial position
of the combined companies as they may be in the future or as they might have
been had the merger been effective September 30, 1999.
LIABILITIES AND SHAREHOLDERS' EQUITY
RED RIVER MERGER
BETA OIL & GAS, ENERGY, LLC AND PRO FORMA COMBINED
INC. SUBSIDIARIES ADJUSTMENTS PRO-FORMA
--------------- --------------- --------------- ---------------
CURRENT LIABILITIES:
Current portion of long-term debt $ -- $ 1,149,091 $ -- $ 1,149,091
Accounts payable, trade 133,142 338,604 -- 471,746
Accrued liabilities 40,633 193,936 -- 234,569
--------------- --------------- --------------- ---------------
Total current liabilities 173,775 1,681,631 -- 1,855,406
PREMIUMS PAYABLE 34,563 -- -- 34,563
LONG-TERM DEBT, less current portion -- 8,800,056 -- 8,800,056
--------------- --------------- --------------- ---------------
Total liabilities 208,338 10,481,687 -- 10,690,025
SHAREHOLDERS' EQUITY 20,122,423 570,950 (100,000) 20,593,373
--------------- --------------- --------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 20,330,761 $ 11,052,637 $ (100,000) $ 31,283,398
=============== =============== =============== ===============
BETA OIL & GAS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
The following Unaudited Pro Forma Combined Condensed Statement of Earnings
combines the operations of Beta and Red River for the year ended December 31,
1998. This statement has been prepared under the assumptions set forth in the
accompanying notes. This statement should be read in conjunction with the
separate audited consolidated financial statements and notes thereto of Beta and
of Red River included in this proxy statement. The Unaudited Pro Forma Combined
Condensed Statement of Earnings is not necessarily indicative of the results of
operations of the combined companies as they may be in the future or as they
might have been had the merger been effective January 1, 1998.
RED RIVER MERGER
BETA OIL & GAS, ENERGY, LLC AND PRO FORMA COMBINED
INC. SUBSIDIARIES ADJUSTMENTS PRO-FORMA
--------------- --------------- --------------- ---------------
REVENUES:
Oil and gas sales $ -- $ 865,356 $ -- $ 865,356
COSTS AND EXPENSES 2,429,343 1,184,853 -- 3,614,196
--------------- --------------- --------------- ---------------
LOSS FROM OPERATIONS (2,429,343) (319,497) -- (2,748,840)
OTHER INCOME (EXPENSE), net 44,843 (190,169) -- (145,326)
--------------- --------------- --------------- ---------------
NET (LOSS) $ (2,384,500) $ (509,666) $ -- $ (2,894,166)
=============== =============== =============== ===============
BASIC AND DILUTED LOSS PER SHARE $ (0.37) -- $ (0.34)
=============== =============== ===============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 6,366,923 -- 2,250,000(2) 8,616,923
=============== =============== =============== ===============
BETA OIL & GAS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
The following Unaudited Pro Forma Combined Condensed Statement of Earnings
combines the operations of Beta and Red River for the nine months ended
September 30, 1999. This statement has been prepared under the assumptions set
forth in the accompanying notes. This statement should be read in conjunction
with the separate unaudited condensed consolidated financial statements and
notes thereto of Beta and of Red River included in this proxy statement. The
Unaudited Pro Forma Combined Condensed Statement of Earnings is not necessarily
indicative of the results of operations of the combined companies as they may be
in the future or as they might have been had the merger been effective January
1, 1998.
RED RIVER MERGER
BETA OIL & GAS, ENERGY, LLC AND PRO FORMA COMBINED
INC. SUBSIDIARIES ADJUSTMENTS PRO-FORMA
--------------- --------------- --------------- ---------------
REVENUES:
Oil and gas sales $ 375,595 $ 2,009,500 $ -- $ 2,385,095
COSTS AND EXPENSES 1,072,097 1,790,655 100,000(1) 2,962,752
--------------- --------------- --------------- ---------------
INCOME (LOSS) FROM OPERATIONS (696,502) 218,845 (100,000) (577,657)
OTHER INCOME (EXPENSE), net (2,947,350) (367,040) -- (3,314,390)
--------------- --------------- --------------- ---------------
NET (LOSS) $ (3,643,852) $ (148,195) $ (100,000) $ (3,892,047)
=============== =============== =============== ===============
BASIC AND DILUTED LOSS PER SHARE $ (0.46) -- $ (0.39)
=============== =============== ===============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 7,852,341 -- 2,250,000(2) 10,102,341
=============== =============== =============== ===============
BETA OIL & GAS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
The following Unaudited Pro Forma Combined Condensed Statement of Earnings
combines the operations of Beta and Red River for the nine months ended
September 30, 1998. This statement has been prepared under the assumptions set
forth in the accompanying notes. This statement should be read in conjunction
with the separate unaudited condensed consolidated financial statements and
notes thereto of Beta and of Red River included in this proxy statement. The
Unaudited Pro Forma Combined Condensed Statement of Earnings is not necessarily
indicative of the results of operations of the combined companies as they may be
in the future or as they might have been had the merger been effective January
1, 1998.
RED RIVER MERGER
BETA OIL & GAS, ENERGY, LLC AND PRO FORMA COMBINED
INC. SUBSIDIARIES ADJUSTMENTS PRO-FORMA
--------------- --------------- --------------- ---------------
REVENUES:
Oil and gas sales $ -- $ 324,465 $ -- $ 324,465
COSTS AND EXPENSES 2,182,893 651,080 -- 2,833,973
--------------- --------------- --------------- ---------------
INCOME (LOSS) FROM OPERATIONS (2,182,893) (326,615) -- (2,509,508)
OTHER INCOME (EXPENSE), net 39,867 (64,403) -- (24,536)
--------------- --------------- --------------- ---------------
NET (LOSS) $ (2,143,026) $ (391,018) $ -- $ (2,534,044)
=============== =============== =============== ===============
BASIC AND DILUTED LOSS PER SHARE $ (0.35) -- $ (0.30)
=============== =============== ===============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 6,154,036 -- 2,250,000(2) 8,404,036
=============== =============== =============== ===============
BETA OIL & GAS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
(1) Beta and Red River estimate that they will incur transaction costs of
approximately $100,000 (pre-tax) associated with the merger. These costs
consist primarily of legal and accounting fees. The unaudited pro forma
combined condensed balance sheet reflects such expenses as if they had
been paid as of the end of the third quarter of 1999.
(2) The pro forma combined weighted average common shares reflect the
adjustment for the issuance of 2.25 million shares of Beta common stock
to Red River members, per Agreement and Plan of the Merger.
GLOSSARY
As used in this proxy statement:
"ACQUISITION OF PROPERTIES" are the costs incurred to obtain rights to
production of oil and gas. These costs include the costs of acquiring oil and
gas leases and other interests. These costs include lease costs, finder's fees,
brokerage fees, title costs, legal costs, recording costs, options to purchase
or lease interests and any other costs associated with the acquisitions of an
interest in current or possible production.
"AREA OF MUTUAL INTEREST" means, generally, an agreed upon area of land,
varying in size, included and described in an oil and gas exploration agreement
which participants agree will be subject to rights of first refusal as among
themselves, such that any participant acquiring any minerals, royalty,
overriding royalty, oil and gas leasehold estates or similar interests in the
designated area, is obligated to offer the other participants the opportunity to
purchase their agreed upon percentage share of the interest so acquired on the
same basis and cost as purchased by the acquiring participant. If the other
participants, after a specific time period, elect not to acquire their pro-rata
share, the acquiring participant is typically then free to retain or sell such
interests.
"BACK-IN INTERESTS" also referred to as a carried interest, involve the
transfer of interest in a property, with provision to the transferor to receive
a reversionary interest in the property after the occurrence of certain events.
"BBL" means barrel, 42 U.S. gallons liquid volume, used in this proxy
statement in reference to crude oil or other liquid hydrocarbons.
"BCF" means billion cubic feet, used in this proxy statement in reference
to gaseous hydrocarbons.
"BCFEQ" means billions of cubic feet of gas equivalent, determined using
the ratio of six thousand cubic feet of gas to one barrel of oil, condensate or
gas liquids.
"CASING POINT" means the point in time at which an election is made by
participants in a well whether to proceed with an attempt to complete the well
as a producer or to plug and abandon the well as a non-commercial dry hole. The
election is generally made after a well has been drilled to its objective depth
and an evaluation has been made from drill cutting samples, well logs, cores,
drill stem tests and other methods. If an affirmative election is made to
complete the well for production, production casing is then generally cemented
in the hole and completion operations are then commenced.
"DEVELOPMENT COSTS" are costs incurred to drill, equip, or obtain access
to proved reserves. They include costs of drilling and equipment necessary to
get products to the point of sale and may entail on-site processing.
"EXPLORATION COSTS" are costs incurred, either before or after the
acquisition of a property, to identify areas that may have potential reserves,
to examine specific areas considered to have potential reserves, to drill test
wells, and drill exploratory wells. Exploratory wells are wells drilled in
unproven areas. The identification of properties and examination of specific
areas will typically include geological and geophysical costs, also referred to
as G&G, which include topological studies, geographical and geophysical studies,
and costs to obtain access to properties under study. Depreciation of support
equipment, and the costs of carrying unproved acreage, delay rentals, ad valorem
property taxes, title defense costs, and lease or land record maintenance are
also classified as exploratory costs.
"FARMOUT" involves an entity's assignment of all or a part of its
interest in a property in exchange for the assignee's obligation to expend all
or part of the funds to drill and equip the property.
"FUTURE NET REVENUES, BEFORE INCOME TAXES" means an estimate of future
net revenues from a property at a specified date, after deducting production and
ad valorem taxes, future capital costs and operating expenses, before deducting
income taxes. Future net revenues, before income taxes, should not be construed
as being the fair market value of the property.
"FUTURE NET REVENUES, NET OF INCOME TAXES" means an estimate of future
net revenues from a property at a specified date, after deducting production and
ad valorem taxes, future capital costs and operating expenses, net of income
taxes. Future net revenues, net of income taxes, should not be construed as
being the fair market value of the property.
"MCF" means thousand cubic feet, used in this proxy statement to refer to
gaseous hydrocarbons.
"MMCF" means million cubic feet, used in this proxy statement to refer to
gaseous hydrocarbons.
"MBBL" means thousand barrels, used in this proxy statement to refer to
crude oil or other liquid hydrocarbons.
"GROSS" oil and gas wells or "GROSS" acres is the total number of wells
or acres in which Beta has an interest.
"NET" oil and gas wells or "net" acres are determined by multiplying
"gross" wells or acres by Beta's interest in such wells or acres.
"OIL AND GAS LEASE" OR "LEASE" means an agreement between a mineral
owner, the lessor, and a lessee which conveys the right to the lessee to explore
for and produce oil and gas from the leased lands. Oil and gas leases usually
have a primary term during which the lessee must establish production of oil and
or gas. If production is established within the primary term, the term of the
lease generally continues in effect so long as production occurs on the lease.
Leases generally provide for a royalty to be paid to the lessor from the gross
proceeds from the sale of production.
"OVERPRESSURED RESERVOIR" are reservoirs subject to abnormally high
pressure as a result of certain types of subsurface conditions.
"PRESENT VALUE OF FUTURE NET REVENUES, BEFORE INCOME TAXES" means future
net revenues, before income taxes, discounted at an annual rate of 10% to
determine their "present value." The present value is shown to indicate the
effect of time on the value of the revenue stream and should not be construed as
being the fair market value of the properties.
"PRESENT VALUE OF FUTURE NET REVENUES, NET OF INCOME TAXES" means future
net revenues, net of income taxes discounted at an annual rate of 10% to
determine their "present value." The present value is shown to indicate the
effect of time on the value of the revenue stream and should not be construed as
being the fair market value of the properties.
"PRODUCTION COSTS" means operating expenses and severance and ad valorem
taxes on oil and gas production.
"PROSPECT" means a geologic anomaly which may contain hydrocarbons that
has been identified through the use of 3-D and/or 2-D seismic surveys and/or
other methods.
"PROVED OIL AND GAS RESERVES" are the estimated quantities of crude oil,
natural gas and natural gas liquids which geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions, i.e. prices
and costs as of the date the estimate is made. Prices include consideration of
changes in existing prices provided only by contractual arrangements, but not on
escalations based upon future conditions. Reservoirs are considered proved if
economic producibility is supported by either actual production or conclusive
formation test. The area of a reservoir considered proved includes (A) that
portion delineated by drilling and defined by gas-oil and/or oil-water contacts,
if any, and (B) the immediately adjoining portions not yet drilled, but which
can reasonably be judged as economically productive on the basis of available
geological and engineering data. In the absence of information on fluid contacts
the lowest known structural occurrence of hydrocarbons controls the lower proved
limit of the reservoir.
"PROVED DEVELOPED OIL AND GAS RESERVES" are reserves that can be expected
to be recovered through existing wells with existing equipment and operating
methods. Additional oil and gas reserves expected to be obtained through the
application of fluid injection or other improved recovery techniques for
supplementing the natural forces and mechanisms of primary recovery should be
included as "proved developed reserves" only after testing by a pilot project or
after the operation of an installed program has confirmed through production
response that increased recovery will be achieved.
"PROVED UNDEVELOPED OIL AND GAS RESERVES" are reserves that are expected to
be recovered from new wells on undrilled acreage, or from existing wells where a
relatively major expenditure is required for recompletion. Reserves on undrilled
acreage shall be limited to those drilling units offsetting productive units
that are reasonably certain of production when drilled. Proved reserves for
other undrilled units can be claimed only where it can be demonstrated with
certainty that there is continuity of production from the existing productive
formation. Under no circumstances should estimates for proved undeveloped
reserves be attributable to any acreage for which an application of fluid
injection or other improved recovery technique is contemplated, unless such
techniques have been proved effective by actual tests in the area and in the
same reservoir.
"RESERVE TARGET" means a geologic anomaly which may contain hydrocarbons
that has been identified through the use of 3-D and 2-D seismic surveys and
other methods.
"ROYALTY INTEREST" is a right to oil, gas, or other minerals that is not
burdened by the costs to develop or operate the related property. The basic
royalty interest is retained by the owner of mineral rights when his property is
leased for purposes of development.
"TREND" means a geographical area where similar geological, geophysical,
or oil and gas reservoir and production characteristics may exist.
"SEISMIC OPTION" generally means an agreement in which the mineral owner
grants the right to acquire seismic data on the subject lands and grants an
option to acquire an oil and gas lease on the lands at a predetermined price.
"WORKING INTEREST" is an interest in an oil and gas property that is
burdened with the costs of development and operation of the property.
BUSINESS OF BETA
GENERAL
Beta Oil & Gas, Inc. is an oil and gas company organized in June 1997 to
engage in the exploration, development, exploitation and production of natural
gas and crude oil. Beta's operations are currently focused in proven oil and gas
producing trends primarily in South Texas, Louisiana and Central California.
Beta believes that the availability of economic 3-D seismic surveys has
fundamentally changed the risk profile of oil and gas exploration in these
regions. Recognizing this change, Beta has aggressively sought to acquire
significant prospective acreage blocks for targeted, proprietary, 3-D seismic
surveys. As of December 31, 1998, Beta had assembled approximately 76,000 gross
acres under lease or option.
Approximately 94% of Beta's current acreage position is evaluated by
proprietary 3-D seismic data that Beta has acquired, or is in the process of
acquiring, through joint participation with operating oil and gas companies.
From the data generated by its initial 5 proprietary seismic surveys, covering
313 square miles, in excess of 100 potential drillsites have been identified.
Approximately $11,000,000 has been utilized to acquire working interests
in lands and seismic data in the onshore Texas Gulf Coast region. Beta's
interests in the onshore Texas properties are operated by Parallel Petroleum
Corporation, Allegro Investments, Inc. and Sue Ann Production, Inc. Drilling
commenced on these projects during 1999 and has resulted in seven discoveries of
oil and gas to date. Representatives of Parallel, Allegro and Sue Ann have
informed Beta that drilling will continue in these projects throughout the year
2000. Beta anticipates that participation in exploratory and drilling projects
in South Texas will constitute its primary activity during 2000.
Approximately $6,800,000 has been invested in leases, seismic and
drilling in Louisiana. Drilling commenced on these prospects in 1998 and has
resulted in five oil and gas discoveries so far. It is expected that Beta will
participate in the drilling of a minimum of six wells in Louisiana during 2000.
The balance of funds raised to date have been utilized primarily to fund
various domestic and international exploratory activities. Beta's exploratory
activities in areas outside of Texas have resulted in two natural gas
discoveries located in Central California. It is anticipated that Beta will
expend additional funds to explore these areas during 2000 and future periods.
Beta has to rely on joint ventures with qualified operating oil and gas
companies to operate its projects through the exploratory and production phases.
This has reduced general and administrative costs necessary to conduct
operations. As of the date of this proxy statement, Beta is operating only one
of the oil and gas wells or prospects in which it owns an interest. The balance
of Beta's wells or prospects are being operated by third parties.
TECHNOLOGY
Beta participates in projects utilizing economically feasible advanced
technology in their exploration and development activities to reduce risks,
lower costs, and more efficiently produce oil and gas. Beta believes that the
availability of cost effective 3-D seismic surveys makes its use in exploration
and development activities attractive from a risk management perspective in
certain areas. In certain instances, 3-D seismic surveys more accurately inform
Beta in evaluating drilling prospects than do conventional 2-D seismic and
traditional evaluation methods.
Briefly, a seismic survey sends pulses of sound from the surface, down
into the earth, and records the echoes reflected back to the surface. By
calculating the speed at which sound travels through the various layers of rock,
it is possible to estimate the depth to the reflecting surface. It then becomes
possible to infer the structure of rock deep below the earth's surface. Beta has
focused its exploration activity in the Gulf of Mexico region due to affordable
and available seismic data, and the affordability of the software and computer
hardware necessary to peer through the layers of rock and salt to locate
heretofore undiscovered hydrocarbons. Beta evaluates substantially all of its
exploratory prospects using 3-D or enhanced 2-D seismic surveys.
In evaluating certain of its exploratory prospects, Beta also uses
amplitude versus offset "AVO" technology. AVO analysis can show the high
contrast between the sand and shales and provides for better interpretation of
the reservoir sands to determine the presence of gas.
Beta retains experienced third-party consultants and participates with
experienced joint working interest owners to acquire, process and interpret 3-D
seismic surveys. Beta attempts to ensure the integrity of the 3-D seismic
analysis in each of its projects by emphasizing quality control throughout the
data acquisition, processing and interpretation. Whenever possible, Beta also
attempts to correlate or "model" the interpretations of 3-D seismic surveys with
wells previously drilled on or near the prospect being evaluated.
Beta may supplement its exploration efforts with acquisitions of
producing oil and gas properties. Beta would seek to acquire producing
properties that either are underperforming relative to their potential or are
candidates for 3-D seismic analysis.
SUMMARY OF OIL AND GAS OPERATIONS
Capitalized costs at December 31, 1997, December 31 1998, and September 30, 1999
(unaudited) relating to Beta's oil and gas activities are summarized as follows:
DECEMBER 31, 1997 DECEMBER 31, 1998 SEPTEMBER 30, 1999
----------------- ----------------- -----------------
(Unaudited)
UNITED STATES FOREIGN UNITED STATES FOREIGN UNITED STATES FOREIGN
------------- ------- ------------- ------- ------------- -------
Capitalized costs-
Evaluated properties $ -- $ -- $1,763,082 $1,624,218 $6,743,079 $1,661,945
Unevaluated properties 5,870,794 30,000 11,426,732 39,963 12,154,084 110,526
Less- Accumulated
depreciation, depletion,
amortization
and impairment -- -- (46,473) (1,624,218) (163,507) (1,661,945)
---------- ---------- ----------- ---------- ----------- ==========
$5,870,794 $ 30,000 $13,143,341 $ 39,963 $18,733,656 $ 110,526
========== ========== =========== ========== =========== ==========
UNEVALUATED OIL AND GAS PROPERTIES - UNITED STATES
As Beta's properties are evaluated through exploration, they will be
included in the amortization base. Costs of unevaluated properties in the United
States at December 31, 1997 and 1998, and September 30, 1999 (unaudited)
represent property acquisition and exploration costs in connection with Beta's
Louisiana, Texas and California prospects. The prospects and their related costs
in unevaluated properties have been assessed individually and no impairment
charges were considered necessary for the United States properties for any of
the periods presented. The current status of these prospects is that seismic has
been acquired, processed and is currently being interpreted on the subject lands
within the prospects. Drilling commenced on the prospects in the first quarter
of 1999 and will continue in future periods. As the prospects are evaluated
through drilling in future periods, the property acquisition and exploration
costs associated with the wells drilled will be transferred to evaluated
properties where they will be subject to amortization.
UNEVALUATED OIL AND GAS PROPERTIES - FOREIGN
Unevaluated costs as of September 30, 1999, outside the United States
represent costs in connection with the evaluation and proposed acquisition of
one or more exploration blocks in Australia.
EVALUATED PROPERTIES - UNITED STATES
During the year ended December 31, 1998 Beta participated in the drilling
of 6 wells within the United States. The property acquisition and exploration
costs associated with the wells totaling $1,763,082 were transferred to
evaluated properties and were evaluated for impairment. It was determined that
the capitalized costs associated with the drilling of these properties exceed
their net realizable value by $46,473. Accordingly, an impairment write-down of
$46,473 was recorded for the year ended December 31, 1998. Since all of the
proved reserves associated with the wells were non-producing or behind pipe and
no production had occurred as of December 31, 1998, no depletion expense was
recorded during the year ended December 31, 1998.
During the nine months ended September 30, 1999, Beta participated in the
drilling of 13 wells within the United States. The property acquisition and
exploration costs associated with the wells were transferred to evaluated
properties. It was determined that the total costs in evaluated properties of
$8,405,024 as of September 30, 1999 did not exceed their net realizable value.
Accordingly, no impairment charge was considered necessary for the nine months
ended September 30, 1999. Production commenced during the period and depletion
expense of $153,534 was recorded.
EVALUATED PROPERTIES - FOREIGN
During 1998, Beta, through its wholly owned subsidiary, BETAustralia, LLC
secured an option to participate for a 5% working interest in two petroleum
licenses covering 2,798,000 acres (approximately 4,372 square miles). Per the
terms of the option agreement, Beta exercised its option to earn a 5% working
interest by participating in the drilling of two offshore test wells in the
license areas. The wells were completed as dry holes. The property acquisition
and exploration costs associated therewith totaling $1,625,445 were transferred
to evaluated properties and charged to impairment expense during the year ended
December 31, 1998. The exploration licenses expired in December 1998. Property
acquisition and exploration costs associated with a Brazilian prospect totaling
$36,500 were transferred to evaluated properties and charged to impairment
expense during the nine months ended September 30, 1999.
PROPERTIES OF BETA
Beta's current oil and gas exploration activities are focused in four
distinct project areas as follows:
1. YEGUA AND FRIO TREND 3-D SEISMIC JOINT VENTURE - Onshore Gulf Coast
Region, Jackson County, Texas;
2. TRANSITION ZONE PROJECT - Offshore and Onshore Gulf Coast Region, Texas
and Louisiana;
3. NORCAL PROJECT - Onshore San Joaquin and Sacramento Basins, California;
and
4. INTERNATIONAL - Onshore Australia and Brazil.
In substantially all of its project areas, Beta has entered into joint
ventures with operators who have extensive experience and expertise in those
areas. This has allowed Beta to obtain working interests in a number of
prospects with minimal associated overhead.
The following discussion contains forward looking statements. The
projects discussed in this section may never yield any additional commercial
discoveries of hydrocarbons and, even if they do, they could result in a loss to
Beta. See "RISK FACTORS" FOR A DISCUSSION OF THE RISK FACTORS ASSOCIATED WITH
THE PROJECTS.
YEGUA/FRIO/WILCOX TREND 3-D SEISMIC JOINT VENTURE, JACKSON COUNTY, TEXAS
Beta presently owns working interests in four Onshore Gulf Coast
exploration projects located in Jackson County, Texas. The projects are operated
by Parallel Petroleum Corporation, a publicly traded company. Approximately
60,000 gross acres, approximately 11,000 acres net to Beta's working interest,
of oil and gas leases or seismic options have been acquired in these four
projects as of December 31, 1998. As of December 31, 1998, Parallel had
completed 3-D seismic surveys over an area totaling 286 square miles within
which these projects are located and was evaluating seismic data to select
drilling locations. Drilling commenced on Beta's project areas in the first
quarter of 1999.
The following projects in which Beta is participating will use the same
seismic techniques that Parallel has previously used to identify potential drill
sites. The status of the projects is as follows:
1) TEXANA PROJECT. APPROXIMATELY 25,000 GROSS ACRES UNDER SEISMIC COVERAGE;
2,293 GROSS ACRES UNDER SEISMIC OPTION; 164 GROSS ACRES UNDER LEASE; 614 ACRES
UNDER SEISMIC LEASE OPTION OR LEASE NET TO BETA'S 25% WORKING INTEREST AS OF
DECEMBER 31, 1998:
Approximately 40 square miles of 3-D seismic data has been acquired and
processed. "Amplitude Versus Offset" analysis and data interpretation is
currently being completed. Drilling of exploratory wells is expected to commence
in the first quarter of 2000.
2) FORMOSA GRANDE PROJECT. APPROXIMATELY 92,000 GROSS ACRES UNDER SEISMIC
COVERAGE; 7,064 GROSS ACRES UNDER SEISMIC LEASE OPTIONS AND 9,194 GROSS ACRES
UNDER LEASE; 4,064 ACRES UNDER SEISMIC LEASE OPTIONS OR LEASE NET TO BETA'S 25%
WORKING INTEREST AT DECEMBER 31, 1998:
Approximately 140 square miles of 3-D seismic data has been acquired. The
seismic data has been interpreted and prospects identified. Drilling of
exploratory wells commenced in the fourth quarter of 1999 and has resulted in
one dry hole to date.
3) GANADO PROJECT. APPROXIMATELY 25,000 GROSS ACRES UNDER SEISMIC COVERAGE,
4,581 GROSS ACRES UNDER SEISMIC LEASE OPTIONS AND 9,439 GROSS ACRES UNDER LEASE;
2,804 ACRES UNDER OPTION OR LEASE NET TO BETA'S 20% WORKING INTEREST AT DECEMBER
31, 1998:
Approximately 40 square miles of 3-D seismic data has been acquired and
is in the interpretive stages. Three exploratory wells have been drilled in this
project this year. Two wells were dry holes and the third well was completed for
production. Additional locations have been identified for drilling in future
periods
4) BWC PROJECT. APPROXIMATELY 42,440 GROSS ACRES UNDER SEISMIC COVERAGE, 23,015
GROSS ACRES UNDER SEISMIC LEASE OPTIONS AND 833 GROSS ACRES UNDER LEASE; 2,981
ACRES UNDER OPTION NET TO BETA'S 12.5% WORKING INTEREST AT DECEMBER 31, 1998:
Approximately 66 square miles of 3-D seismic data has been acquired and
is in the interpretive stages. Drilling of exploratory wells commenced in the
first quarter of 1999 and has resulted in six oil and gas discoveries out of six
wells drilled to date. Additional drilling is scheduled for 2000.
TERMS OF PARTICIPATION
All of the lands covered by the exploration agreements are subject to
"area of mutual interest" provisions described in the glossary preceding the
"Business" section. The exploration agreements generally provide, among other
things, for participation by Beta and other participants on the following terms
and conditions:
- Participants were required to pay 133% of actual cost of initial
land costs, consisting mainly of seismic options, and the costs of
acquiring, processing and interpreting seismic data. All costs
incurred after the interpretation phase are billed to the
participants at actual cost. The post interpretation costs include
the cost of drilling, completing and equipping wells and the costs
of acquiring leases. All of the projects are now in the
post-interpretive stage.
- Once the seismic data has been acquired and interpreted, prospects
will be designated within the seismic survey areas. The parties to
the agreement then have the option to participate in the prospect
according to their pro-rata working interest. Those parties who
elect not to participate forfeit their rights of participation in
the specific prospect but retain the right to participate in other
prospects proposed in the seismic survey area which are outside of
the specific prospect.
- Those parties who elect to participate in a specific prospect then
proceed to acquire oil and gas leases within the prospect by
exercising seismic options. The seismic options were acquired in
advance of seismic acquisition and convey the right to conduct
seismic operations as well as the option to enter into an oil and
gas lease on the subject lands at a pre-determined price per acre.
The seismic option allows Beta and its partners to acquire and
evaluate seismic data before actually acquiring leases. After the
seismic data has been evaluated, Beta and its partners can then
selectively acquire leases by exercising on acreage which is
determined to be prospective from seismic evaluation. Seismic
options covering lands which are determined not to have oil and
gas potential are allowed to expire at no further cost to the
participants. The cost of a seismic option is usually much lower
than the cost of acquiring a lease and it also prevents the
mineral owner lessor from leasing the oil and gas rights to
another party during the term of the option.
GEOLOGICAL AND ECONOMIC OVERVIEW OF THE YEGUA/FRIO/WILCOX TREND 3-D JOINT
VENTURE
The subject lands lie in close proximity to productive oil and gas fields
which produce from the Yegua/Frio/Wilcox intervals. Beta wishes to emphasize
that the historical production results in the area are not necessarily
indicative of the results that Beta may obtain from its oil and gas prospects.
Within Beta's project areas, there are high potential exploration
opportunities that are being defined with the use of 3-D seismic. The Jackson
County, Texas area has proven to be suitable for 3-D seismic as faulting and
structures are easily identified and many stratigraphic reservoirs exhibit
hydrocarbon indicators from the shallowest Miocene sands, throughout the Frio,
and into the Vicksburg, Yegua, and Wilcox intervals. The Formosa Grande Prospect
Area has numerous regional down-to-the-coast faults that are easily identified
at the top of the Frio, but also has deep seated faulting that does not exhibit
displacement at the shallower horizons. Very often, these deep faults do create
hydrocarbon traps. Most fields in this trend area exhibit multiple stacked
reservoirs.
A Frio level structure map exhibits numerous large four-way closures,
primarily down-thrown to regional growth faulting. These large structures have,
for the most part, been exploited, some as early as the 1930s and 1940s.
Although it is not readily apparent in regional mapping, much of the Frio
production is stratigraphic in nature, that is, trapped in channel sands that
traverse structures, or in sands that "pinch out" up onto the flanks of these
large structures. Significant reserves may remain in similar traps which have
not been developed to date. Such traps should be readily defined with 3-D
seismic data.
Beta's project areas appear to be located in a suitable "trend" area to
apply 3-D seismic technology to identify reserves that have been passed over in
existing fields as well as to discover new reserves in deeper pools and
undrained fault segments in compartmentalized fields.
TRANSITION ZONE PROJECT
Beta has entered into several joint exploration agreements in southern
Louisiana and Texas in an area which is generally described as the Transition
Zone.
THE TRANSITION ZONE
The Transition Zone of Southern Louisiana and Texas covers the shoreline
and near shore environments in the Gulf of Mexico region. This region has been
under-explored because acquisition of seismic data in the area was very
expensive and has historically been of less than ideal quality due to the
problems inherent in gathering data in the wide variety of environments
encountered between land and deeper water offshore. Innovative techniques have
been utilized to acquire and process 3-D seismic data and quality data that
provides the opportunity to accurately interpret the structural and
stratigraphic framework of the area.
All of the reserve targets will lie in the shallow waters or onshore.
Depths of the reserve targets will typically range from 3,000 to 15,000 feet.
The average dry hole costs for these wells are expected to be $1,500,000 for a
straight hole and $2,000,000 for a directional hole to the 100% working
interest. The completion cost per well is estimated at $1,000,000 to $1,500,000
to the 100% working interest. Beta's prospects in the Transition Zone are
located within or adjacent to existing pipeline infrastructure. This will enable
wells drilled in the prospects to be connected to existing pipelines to
transport oil and gas to markets.
THE CHENIERE EXPLORATION AGREEMENTS
During 1999, Beta entered into joint exploration agreements with Cheniere
Energy, Inc. on five natural gas prospects located in Louisiana.
The following prospects in which Beta is participating have been
identified from a proprietary 3-D seismic survey acquired by Cheniere. The
status of the prospects is as follows:
1) COBRA PROSPECT. APPROXIMATELY 1,404 GROSS ACRES UNDER LEASE; 211 ACRES
NET TO BETA'S 15% WORKING INTEREST:
This prospect is located onshore in Cameron Parish, Louisiana. A well
commenced drilling on this prospect to a total depth of 12,500 feet in February
1999 and was determined to be non-commercial.
2) SHARK PROSPECT. APPROXIMATELY 752 GROSS ACRES UNDER LEASE; 113 ACRES NET
TO BETA'S 15% WORKING INTEREST:
This prospect is located offshore in West Cameron Block 49, Louisiana. A
9,900 foot test well commenced drilling on this prospect in April 1999 and was
completed as a dry hole. A separate deeper 11,000 foot test is planned for this
prospect in the year 2000.
3) REDFISH PROSPECT. APPROXIMATELY 404 GROSS ACRES UNDER LEASE; 61 ACRES NET
TO BETA'S 15% WORKING INTEREST:
This prospect is located offshore in West Cameron Block 49, Louisiana. A
10,000 foot test well was drilled on this prospect in March 1999 and completed
for production at an initial stabilized production rate in excess of 15,000 mcf
and 100 barrels of condensate per day. The well is currently producing at a rate
in excess of 19,000 mcf and 70 barrels of condensate per day.
4) STINGRAY PROSPECT. APPROXIMATELY 691 GROSS ACRES UNDER LEASE; 104 ACRES
NET TO BETA'S 15% WORKING INTEREST:
This prospect is located offshore in West Cameron Block 49, Louisiana. A
test well was drilled on this prospect in May of 1999. The well was completed
for production in September at a stabilized rate in excess of 8,000 mcf and 60
barrels of condensate per day. The initial producing zone is now believed to be
depleted and the well is currently shut in pending a re-completion in another
producing zone in a shallower interval.
5) HERON PROSPECT. APPROXIMATELY 1,139 GROSS ACRES UNDER LEASE; 142 ACRES
NET TO BETA'S 12.5% WORKING INTEREST
This prospect is located onshore in Cameron Parish, Louisiana. An 11,700
foot Planulina test was commenced in September 1999 and completed as a dry hole.
THE ROZEL EXPLORATION AGREEMENT
Beta entered into a joint exploration agreement with Rozel Energy in 1998
to explore for oil and gas in the Transition Zone of South Louisiana. Under this
agreement, which expired on February 23, 1999, Rozel identified prospects on the
basis of a 3-D seismic survey completed by Fairfield Industries, one of the
leading providers of 3-D seismic data for the Gulf of Mexico. Although the
agreement with Rozel has expired, Beta continues to have participation rights in
acreage acquired and wells drilled before the expiration of the agreement.
Under the terms of the Rozel agreement, Beta provided a total of $480,000
of lease acquisition funding for prospects before expiration of the agreement.
Rozel identified the prospects utilizing the 3-D seismic data from the Fairfield
survey. In consideration for providing the lease acquisition funds, Beta is
entitled, but not obligated, to participate on a prospect by prospect basis in
leases that were acquired by Rozel Energy during the term of the agreement.
There are currently three remaining undrilled prospects in which Beta has
rights of participation. Beta's terms of participation shall require it to pay
approximately 12.5% of the costs of drilling and completing the first well in
each prospect to earn approximately a 9.375% working interest in the initial
well and prospect acreage, a "third for a quarter" basis. Beta's 9.375% working
interest shall be further reduced to 8.8% after the costs of the prospect have
been recouped. Beta is obligated to pay a $50,000 fee on those prospects in
which it elects to participate. Beta shall be entitled to reimbursement of lease
funds advanced for prospects in which it elects not to participate. Beta shall
be entitled to such reimbursement if and when Rozel either sells or otherwise
conveys, i.e. farmouts, its interest in, or drills, the prospect.
In addition to the three undrilled prospects, Beta owns a 9.375% working
interest in three producing wells and 5,000 acres surrounding it. The
OCS-G-13825 Minkfish #1, West Cameron Blk. 39, was drilled to a depth of
approximately 10,500 feet. The well commenced production in January 1999 and is
currently producing at a rate in excess of 9,000 mcf and 30 barrels of
condensate per day. A second well, the Minkfish #2, was drilled and completed in
1999 and the well is currently producing at rate in excess of 8,000 mcf and 30
barrels of condensate per day. A third well has been drilled and completed and
will be produced when the current producing interval in the Minkfish #2 is
depleted.
THE LAPEYROUSE 3-D PROSPECT
This prospect is in Terrebone Parish, South Louisiana, an area
specifically targeted by Beta for its high reserve potential based on historical
production results that have been published for this area. Although the main
objective, the Duval, will be reached with a 14,800' test well, a total of
twenty-one objectives will be tested with one well bore. These consist of
fourteen smaller objectives from 10,000' to 14,000' to pressure point and seven
larger objectives in abnormal pressure, over-pressured reservoir, through
16,000'.
Beta's working interest was purchased after detailed 3-D seismic was
completed and interpreted. A total of 7,000 mineral acres have been leased to
drill the multiple objectives stated above. Beta's working interest varies
between 2.5% and 6.25% in the project leases. An initial exploratory well is
anticipated to be drilled in the second or third quarter of 1999. Beta has
acquired additional working interests from participants who have declined to
participate, which has increased Beta's working interest in the initial
exploratory well to 19%. Estimated drilling costs to casing point for a proposed
14,800 foot test are $3,304,302 of which Beta shall pay $627,817 for its
proportionate 19% working interest. Estimated completion costs are $1,051,683 of
which Beta shall pay $199,819 for its proportionate 19% working interest,
provided Beta elects to participate in the completion. A well is expected to be
drilled in the first quarter of 2000.
THE GREENS LAKE PROSPECT
This prospect is in Galveston County, Texas on trend with the Eagel Point
Vicksburg Sand discovery. The 2900 acre prospect lies within a proprietary 24
square mile S-D survey. Prospective sands include the Miocene, Lower Frio and
Vicksburg which are upthrown to a major regional fault. . Two wells, both to be
drilled to a depth of approximately 14,000 feet, are planned in this prospect.
Beta has a 25% working interest in this prospect.
THE ESTERWOOD PROSPECT
The Estherwood Prospect is located onshore Acadia Parish, Louisiana
within the Field Limits of the Lawson Field. The operation involved the re-entry
of the Sandefer #1 Pelto originally drilled in 1989. In December 1999 Beta
re-entered the well. The Marg tex sand at 11,720' was tested and determined to
non-commercial. Beta has a 50% working interest in this prospect and is the
operator.
NORCAL PROJECT, ONSHORE SAN JOAQUIN AND SACRAMENTO BASINS
Beta had entered into an exclusive eighteen month contract, which expired
in April of 1999, to utilize 3-D and 2-D seismic technology in a 500 square mile
area of mutual interest with a prospect generator, Jim Frimodig. A prospect
generator is someone who generates an oil and gas prospect idea using geologic
and/or seismic data.
Beta has maintained a between a 30 to 75% working interest in certain
prospects generated by Mr. Frimodig in the San Joaquin and Sacramento Basins in
Central and Northern California. As of December 31, 1999, Beta has participated
in the drilling of five wells in the Norcal Project. Two of the wells have been
completed for production:
1) The N.W. Buttonwillow #1 was completed in July 1998 flowing at a rate of
415 mcf per day and is currently producing at rate of approximately 600
mcf per day. Beta has a 75% working interest in this well.
2) The S.E. Garrison City #1 was completed and tested at a rate of 2,400 mcf
per day. The well is awaiting a pipeline hookup. Beta has a 30% working
interest in this well.
INTERNATIONAL
Although the majority of Beta's exploration efforts are focused in the
United States, management believes that international exposure can reduce the
business risks commonly associated with having operational activities confined
to one country.
AUSTRALIAN PROJECTS
Beta has reviewed a number of exploration projects in the Asia Pacific
Region and elected to participate in two exploration areas covering four
separate exploration permits in Eastern Australia. A description of the areas is
as follows:
1) TOKO SYNCLINE PROJECT
Beta's wholly owned subsidiary BETAustralia LLC has signed an agreement
with Dyad Australia, Inc. of Midland, Texas to participate for a 20% working
interest, 16.4% net revenue interest, in Dyad's rights to the Toko Syncline
Project. Dyad is the holder of exploration permits covering approximately
918,000 contiguous acres, 1,434 square miles, in the Georgina and Eromanga
Basins of Western Queensland. Since the acquisition of the permits, Dyad has
acquired, analyzed, and reprocessed 400 miles of existing 2-D seismic data and
identified four potentially significant geological structures encompassing
approximately 55,000 acres or 86 square miles. During the period from 1964 to
1980, there were six wells drilled in the Toko Syncline that went deep enough to
provide meaningful subsurface control. Four were exploratory and two were full
core tests by the Geological Survey of Queensland. Of these six, only one well
failed to identify oil or gas shows. At the time the wells were drilled, there
were no gas pipelines in the prospect areas available to transport natural gas,
if commercial amounts of gas could be discovered. The lack of pipelines in the
area discouraged further exploration in the area until now.
One of the structures is of particular interest due to a well, the
Ethabuka #1 drilled on the structure in 1973 by Alliance Oil Development. The
well encountered a persistent gas flow of 200 MCF of gas per day while drilling.
The well was abandoned 3,500 feet short of the initial target depth after
twisting off the drill pipe and making several unsuccessful efforts to reclaim
the hole. This very significant show of gas was documented by the Queensland
Department of Minerals and Energy. At the time, there was no gas pipeline in the
area.
The market for natural gas has increased significantly since then in the
area. Western Queensland has a large mining industry centered in the city of Mt.
Isa. This area holds some of the world's largest deposits of copper, lead, zinc,
and
phosphate. Previously, the mines and the associated processing and smelting
plants were fueled entirely by coal, which was shipped approximately 750 miles
by rail. The Queensland government is encouraging the introduction of natural
gas as an energy source. Construction of a 14 inch gas transmission line from
southwest Queensland to Mt. Isa is now complete and transporting gas. The
pipeline crosses the Toko Syncline project area, exposing the project to a
viable market for natural gas.
Dyad has entered into an agreement with a major U.S. concern for the
funding of additional seismic data acquisition and the drilling of an
exploration well. Under the terms of the agreement, Dyad will have the
opportunity to buy into the exploratory well by reimbursing its proportionate
share of actual costs after the well has been drilled and evaluated. Dyad also
has the option of postponing its buy-in until later stages in the development
program. Per the terms of the Beta-Dyad agreement, Beta has paid $100,000 to
acquire 20% of Dyad's working interest buy-in rights in the project area. If
Dyad buys into the program after the initial exploratory well has been drilled
and evaluated, Beta will at that point, have the option of acquiring a net 10%
working interest at cost. If Dyad postpones its buy-in option until the later
stages of the project, then its option to purchase an interest will be
incrementally reduced. Beta's working and net revenue interest in the Toko
Syncline project area will depend on if and when Dyad and its partners elect to
buy-in to the project and will be reduced in the later stages of the project if
the buy-in option is not exercised and additional expenditures are incurred by
the funding partner. The funding partner will have exclusive marketing rights to
hydrocarbons in the project area, subject to an agreed minimum floor price to be
received for hydrocarbons produced and sold.
Beta anticipates that the initial exploratory well could be drilled in
the second quarter of 2000.
2) STANSBURY BASIN PROJECT
In March 1998, Beta formed a wholly owned subsidiary called BETAustralia,
LLC, a limited liability company organized under the laws of California, for the
purposes of participating in the Stansbury Basin Project and other Australian
projects. Beta made an initial cash advance of $320,000 to secure an option to
participate for a 5% working interest in two petroleum licenses covering
2,798,000 acres or approximately 4,372 square miles. Per the terms of the option
agreement, Beta exercised its option to earn a 5% working interest by
participating in the drilling of two offshore test wells in the license areas.
Beta incurred costs of $1,305,445 in the drilling of the two wells. The wells
were completed as dry holes. The costs associated therewith totaling $1,625,000
have been transferred to evaluated properties and charged to impairment expense
during the year ended December 31, 1998. Beta has no current plans to conduct
additional exploration activities in the Australian, Stansbury Basin, license
areas. The exploration licenses expired in December of 1998.
ADDITIONAL PROJECTS UNDER REVIEW
Although Beta's initial international focus is Australia, management is
currently reviewing several other opportunities. However, there is no guarantee
that any of these projects will ever reach fruition.
These are forward looking statements. The projects discussed in this
section may never materialize and, even if they do materialize, they could
result in a loss to Beta. No formal agreements have been reached and there can
be no assurance that such a purchase will ever be completed and this potential
acquisition should not be relied upon in making an investment decision.
GENERAL
Beta holds interests in producing properties and undeveloped acreage in
three states within the United States.
COMPANY RESERVES
Beta had no proved reserves as of December 31, 1997. Beta's total net
ownership in oil and gas reserves as of December 31, 1998 is based on an
independent engineering report. The reserve quantities and valuations for fiscal
1998 are based upon estimates by Veazey & Associates, Inc.
Proved developed reserves are those that can be recovered through
existing wells with existing equipment and existing operating or tested recovery
techniques. All of Beta's reserves are classified as proved developed reserves.
These reserves are located entirely within the United States.
BETA OIL & GAS, INC.
HISTORICAL RESERVE INFORMATION
AS OF DECEMBER 31, 1998 AND 1997
-------------------------------------------------------------------------------
DESCRIPTION 1998 1997
-------------------------------------------------------------------------------
PROVED DEVELOPED RESERVES
OIL (BBLS) 1,461 0
GAS (MCF) 1,596,740 0
-------------------------------------------------------------------------------
PROVED RESERVES
OIL (BBLS) 1,461 0
GAS (MCF) 1,596,740 0
-------------------------------------------------------------------------------
FUTURE NET CASH FLOWS
BEFORE INCOME TAX $2,553,762 $0
-------------------------------------------------------------------------------
STANDARDIZED MEASURE OF
DISCOUNTED FUTURE NET CASH FLOWS $1,716,608 $0
-------------------------------------------------------------------------------
WELL STATISTICS
As of December 31, 1997, Beta did not own working interest in any
productive wells. As of December 31, 1998 Beta owned working interests in two,
.84 net, wells which have been completed for production but which have not yet
commenced production.
ACREAGE STATISTICS
The following tables set forth the undeveloped and developed acreage of
Beta as of December 31, 1998:
BETA OIL & GAS, INC. ACREAGE HOLDINGS
AS OF DECEMBER 31, 1998
------------------------------------------------------------------------------------------------
UNDEVELOPED ACREAGE GROSS ACRES NET ACRES
------------------------------------------------------------------------------------------------
CALIFORNIA 200 150
LOUISIANA 7,502 485
TEXAS 59,038 10,955
------------------------------------------------------------------------------------------------
UNDEVELOPED ACREAGE 66,740 11,590
================================================================================================
------------------------------------------------------------------------------------------------
DEVELOPED ACREAGE GROSS ACRES NET ACRES
------------------------------------------------------------------------------------------------
CALIFORNIA 600 450
LOUISIANA 5,000 470
TEXAS 0 00
------------------------------------------------------------------------------------------------
DEVELOPED ACREAGE 5,600 920
================================================================================================
DRILLING ACTIVITY
The following table sets forth the results of Beta's drilling activities
in the fiscal years ended December 31, 1998 and 1997:
BETA OIL & GAS, INC.
SUMMARY OF DRILLING ACTIVITY
FOR FISCAL YEARS ENDING DECEMBER 31, 1998 AND 1997
--------------------------------------------------------------
EXPLORATORY WELLS 1998 1997
--------------------------------------------------------------
GROSS
Productive 2 0
Dry 6 0
--------------------------------------------------------------
TOTAL 8 0
==============================================================
NET
Productive .84 0
Dry 1.13 0
--------------------------------------------------------------
TOTAL 1.97 0
==============================================================
--------------------------------------------------------------
DEVELOPMENT WELLS 1998 1997
--------------------------------------------------------------
GROSS
Productive 0 0
Dry 0 0
--------------------------------------------------------------
TOTAL 0 0
==============================================================
NET
Productive 0 0
Dry 0 0
--------------------------------------------------------------
TOTAL 0 0
==============================================================
DRILLING ACTIVITY FOR 1998 IS SUMMARIZED AS FOLLOWS:
1. During March 1998, Beta participated in the drilling of two dry holes on
one of its Australian exploration licenses.
2. In May 1998, Beta participated in the drilling of the first test well in
its Louisiana Transition Zone Prospect. The well, the Whiskey Pass #1,
Ship Shoal Blk. 43, was drilled to a depth of 2,500 feet and was
completed as a dry hole.
3. In July 1998, Beta participated in the drilling of the Sea Serpent #1,
Ship Shoal Blk. 67, to a depth of 11,000 feet and was completed as a dry
hole.
4. In July 1998, Beta participated in the drilling of the Minkfish #1, West
Cameron Blk. 39, to a depth of 11,000 feet and has been completed as a
producer.
5. In October of 1998, Beta participated in the drilling of the Whiskey Pass
#2, SL15743 #1, which was drilled to a depth of approximately 4,700 feet
and completed as a dry hole.
6. In July 1998, Beta commenced the drilling of the first test well in its
Norcal Project. The well has been completed for production and is
currently awaiting a pipeline hook-up.
7. In December of 1998, Beta participated in the drilling of a second test
well in its Norcal Project which was completed as a dry hole.
SUBSEQUENT DRILLING ACTIVITY
During the nine months ended September 30, 1999, Beta participated in the
drilling of 13 exploratory wells. Of the 13 wells drilled, 4 were completed as
dry-holes and 9 are either producing or in various stages of completion for
production. The wells are summarized as follows:
ESTIMATED FIRST
WORKING COMPLETION DATE OF
WELL NAME LOCATION INTEREST % STATUS PRODUCTION
--------- -------- ---------- ------ ----------
1. Cobra Stream #1 Onshore Louisiana 15% Dry-hole N/A
2. Shark Prospect #1 Offshore Louisiana 15% Dry-hole N/A
3. Schluter #1 Jackson Co., TX 20% Dry-hole N/A
4. Buttonwillow #1 Kern Co., CA 30% Dry-hole N/A
-----------------
Total 80%
=================
1. Redfish #1 Offshore Louisiana 15% On production 9/99
2. Stingray #1 Offshore Louisiana 15% On production 9/99
3. Minkfish #2 Offshore Louisiana 9.4% On production 9/99
4. Minkfish #3 Offshore Louisiana 9.4% Awaiting production facility 6/2000
5. Pressley #1 Jackson Co., TX 12.5% On production 9/99
6. Wilbeck #1 Jackson Co., TX 12.5% On production 9/99
7. Alamo Realty #1 Jackson Co., TX 20% On production 9/99
8. Mark #1 Jackson Co., TX 12.5% On production 11/99
9. Faust #1 Jackson Co., TX 12.5% On production 11/99
-----------------
Total 118.8%
=================
COMPETITION
The oil and gas industry is highly competitive. Beta competes with a
number of other companies, including large oil and gas companies and other
independent operators with greater financial resources and, in some cases, with
more experience. Companies that are active in the same geographic areas as Beta
include, but are not limited to, Basin Exploration Inc., Unocal Corp., Fina
Inc., Kerr-McGee Corp., St. Mary Land & Exploration, Esenjay Exploration and
Cheniere Energy Inc.
EMPLOYEES
As of the date of this proxy statement, Beta employs seven full-time
employees. Beta hires independent contractors on an "as needed" basis only. Beta
has no collective bargaining agreements with its employees. Beta believes that
its employee relationships are satisfactory. Due to its current level of growth,
Beta anticipates increasing its number of full-time employees to eight by the
March of 2000.
PREMISES
Beta leases slightly over 2,000 square feet in Newport Beach, California,
which includes offices and storage space. All of Beta's operations are conducted
from this site. The lease expires September 2002, and requires monthly payments
of $2,637 per month.
LITIGATION
There is no litigation currently pending or threatened against Beta.
INFORMATION ABOUT RED RIVER
This section of the proxy statement provides you with certain information
regarding Red River and its business. You should read this information in
connection with the other information provided to you in this proxy statement.
Red River was formed in 1997 and commenced operations in early 1998. It
was Originally formed as a limited liability company under Oklahoma law and
named Red River Energy, L.L.C. Subsequent to September 30, 1999, the members of
the limited liability company exchanged their member interests for shares of Red
River Energy, Inc., which is an Oklahoma corporation. Red River Energy, L.L.C.
continues to hold title to the assets and operations of Red River as a wholly
owned subsidiary. The coal bed methane exploration, development and production
operations of Red River are conducted through TCM, L.L.C., an Oklahoma limited
liability company which is 80% owned by Red River.
BUSINESS OF RED RIVER
Red River engages in the oil and gas business in the continental United
States. It acquires, develops, operates and sells oil and gas property interests
of all types. Red River also focuses on the acquisition of gas gathering systems
associated with the producing fields in which it has an interest. It owns and
operates the West Edmond Hunton Lime Field Unit in central Oklahoma, the
Hitchita Field in Okmulgee and McIntosh Counties, and through its 80% owned
subsidiary, TCM, L.L.C., coal bed methane gas wells in Tulsa and Okmulgee
Counties in Oklahoma. Red River also owns and operates a gas gathering system
located primarily in McIntosh County, Oklahoma.
Red River's headquarters are located in Tulsa, Oklahoma. At December 1,
1999 Red River employed 14 persons on a full time basis.
Red River's principal line of business is oil and gas acquisition,
exploration, development and production. Red River evaluates producing oil and
gas prospects from several perspectives. It reviews the opportunities to produce
and market the oil and gas production from the properties, to participate in
drilling activities on development locations and to rework the wells to improve
production and further develop the area.
Red River faces strong competition from many other companies and
individuals engaged in the oil and gas business, many of which are very large,
well-capitalized energy companies with substantial capabilities. Red River may
be at a competitive disadvantage in acquiring oil and gas prospects since it
must compete with these individuals and companies, many of which have greater
financial resources and larger technical staffs.
Red River's business is not dependent on a single customer and its
management does not believe that it will be in the foreseeable future since oil
and gas purchasers are readily available in today's markets.
Red River's search for oil and gas is concentrated in the continental
United States, primarily in Oklahoma and Texas. However, the acquisition,
exploration, development, production and sale of oil and gas are subject to many
factors that are outside Red River's control. These factors include worldwide
and domestic economic conditions; oil import quotas; availability of drilling
rigs, casing and other supplies; proximity to pipelines; the supply and price of
other fuels and the regulation of prices, production, transportation and
marketing by Federal and State government authorities. The oil and gas industry
has at times been faced with shortages in tubular steel, increased prices in
used steel casing and a shortage of drilling rigs which have in the past delayed
drilling activities by oil and gas operators. Pumping units and other wellhead
equipment have also been in short supply from time to time.
Red River is engaged in a facet of exploiting natural resources. It is
subject to various federal, state and local laws and regulations regarding
environmental and ecological matters. Environmental laws may necessitate
significant capital outlays, which may materially affect Red River's earnings
potential and could cause material changes in Red River's business. At the
present time, however, environmental laws have not materially hindered nor
adversely affected Red River's business.
Working capital is needed in the oil and gas industry to finance the
drilling and completion of wells, to finance major workovers to enhance existing
production, and to acquire undeveloped leasehold interests and proved producing
properties. At present, Red River is generating sufficient revenue from
operations and has sufficient credit lines to supply current working capital
requirements.
OIL AND GAS PROPERTIES
WEST EDMOND HUNTON LIME UNIT. The principal properties of Red River are
the oil and gas leases comprising the West Edmond Hunton Lime Unit which covers
parts of Canadian, Logan, Kingfisher and Oklahoma Counties in central Oklahoma.
The production from this 30,160 acre field is from the Hunton Limestone
formation (located at depths of 6,600 to 7,100 feet) and was first discovered in
1943. Approximately 80% of the production from this field is natural gas. Red
River is the operator of these properties.
There are 22 gross (21 net) producing wells in the field, 16 (15 net) of
which produce natural gas and six (six net) of which produce crude oil. Most of
the wells have pumps or other forms of artificial lift to aid production of the
reserves. There are 33 additional shut in wells that are being evaluated to be
returned to production.
Sales of natural gas from the West Edmond Hunton Lime Unit are made to
GPM Gas Corporation and sales of crude oil from the field are made to Sunoco
Inc. Red River believes that other purchasers of production from this field are
readily available if the arrangements with the current purchasers were to
terminate for any reason.
Red River believes that there are a number of potential locations to
drill additional development wells on the properties. It is anticipated that
during 2000 Red River will drill additional wells in this unit, but the extent
of this activity will be not be decided until Red River has reviewed the results
of a pilot project scheduled to commence second quarter of 2000.
HITCHITA FIELD. Red River owns approximately 7,800 acres (6,000 net
acres) of oil and gas leases in the Hitchita Field which is located in Okmulgee
and McIntosh Counties in Oklahoma. It has interests in 44 wells (34 net) and
operates 38 of those wells. These wells produce dry gas from various formations
with depths ranging from 1700 to 2600'. Gas is sold into Red River Field
Services low pressure gathering system. Red River anticipates drilling at least
two different prospects in early 2000. Subsequent development operations in the
area will depend in largely on the results achieved from these two prospects.
GAS GATHERING SYSTEM. Through its wholly owned subsidiary, Red River
Field Services, L.L.C., Red River owns a low pressure gathering system in the
Hitchita Field which comprises approximately 40 miles of pipeline and is
connected to 46 wells. The system currently gathers approximately 1,700 Mcf of
natural gas per day. Red River is actively seeking new well connections.
These properties secure a mortgage loan which had an outstanding
principal balance at December 1, 1999 of $7,694,229 and which bears interest at
the variable annual rate based on the prime rate of the lender or LIBOR,
whichever Red River elects from time to time, currently 8.25%. This mortgage
loan is a revolving credit facility.
Red River also has field equipment securing an installment loan with an
outstanding balance at December 1, 1999 of $152,723 and which bears interest at
the annual rate of 8.25%. The loan matures on October 31, 2001.
HEDGING TRANSACTIONS. From time to time, Red River engages in hedging
transactions in order to increase to some extent the stability and reliability
of the prices that it receives for its natural gas production. Red River has
committed to sell 2,500 Mmbtus per day of natural gas at a price of $2.585 per
Mmbtu and 1,000 Mmbtus per day at a price of $2.624 per Mmbtu through March
2000. Approximately 70% of Red River's average daily gas production is subject
to hedging arrangements. Red River expects to continue to engage in hedging
transactions at times it believes are opportune as part of its overall natural
gas marketing strategy. While hedging arrangements may protect Red River to some
extent during the period of the hedging contract from the detrimental effects of
declining market prices in natural gas, they will also limit the benefit that
Red River would otherwise realize as a result of increases in market prices
during the period.
LEASEHOLD AND WELL DATA. The following tables set forth information with
respect to Red River's oil and gas interests. This information is as of
September 30, 1999, unless otherwise indicated. Red River's interests are all
located in the State of Oklahoma:
GROSS ACRES NET ACRES
----------- ---------
Total Developed leasehold acreage 37,960 35,389
Total Undeveloped leasehold acreage 0 0
TOTAL OIL GAS
----- --- ---
Gross productive wells................... 99 39 60
Net productive wells..................... 88 38 50
WELLS DRILLED: TOTAL OIL GAS DRY
----- --- --- ---
1999 (through September 30).............. 1 0 1 0
1998..................................... 0 0 0 0
YEAR NINE MONTHS
ENDED ENDED
1998 SEPT 30, 1999
---- -------------
TYPE OF WELLS DRILLED:
Net productive exploratory ............... 0 0
Net productive development ............... 0 0.165
Net dry development ...................... 0 0
PRICE AND PRODUCTION DATA. Red River's average sales price, oil and natural
gas production volumes and average production cost for each Mcf equivalent of
production for the periods indicated were as follows:
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPT. 30,
1998 1999
--------------- ------------
Oil production (Bbl) ..................... 13,470 24,010
Gas production (Mcf) ..................... 336,537 699,024
Average sales price:
Oil (per Bbl) ........................ $ 12.94 $ 16.30
Gas (per Mcf) ........................ $ 2.24 $ 2.70
Average production cost per
Mcfe ................................. $ 0.76 $ 1.00
RESERVES. The following table sets forth certain information regarding
Red River's proved oil and gas reserves at the end of the period indicated. The
reports were prepared by Ryder Scott Company Petroleum Engineers in accordance
with the guidelines established by the Securities and Exchange Commission and
the Financial Accounting Standards Board, using prices received as of the
effective date of each report. The reserve information for the December 31, 1998
report was calculated using a gas price of $2.06/mmbtu and oil price of
$10.50/bbl. Prices and operating costs are unescalated. The estimated cash flows
are reduced to present value amounts by applying a 10% per year discount factor.
The standardized measure of future discounted net cash flows reflects estimated
future income taxes using current statutory income tax rates including
consideration for estimated future statutory depletion and tax credits.
There are numerous uncertainties inherent in estimating quantities of
proved reserves, including many factors beyond the control of Red River.
Reservoir engineering is a subjective process of estimating subsurface
accumulations of oil and gas that cannot be measured in an exact manner, and the
accuracy of any reserve estimate is a function of the quality of available data
and the interpretation of that data. As a result, estimates by different
engineers often vary, sometimes significantly. In addition, physical factors,
such as changes in product price, may justify revision of these estimates.
Accordingly, oil and gas quantities ultimately recovered will vary from reserve
estimates.
DECEMBER 31, 1998
-----------------
Proved reserves:
Oil (Bbls) .......................... 434,070
Gas (Mcf) ........................... 15,542,000
Estimated future net revenues from oil
and gas reserves before income taxes: $26,427,079
Standardized Measure of Discounted
Future Net Cash Flows: .............. $10,106,000
COAL BED METHANE. Red River, through TCM, is in the process of testing
wells drilled during late 1998 and early 1999 in Tulsa and Okmulgee Counties to
develop the coal bed methane reserves believed to be there. At December 1, 1999,
TCM had drilled a total of 47 wells covering approximately 2800 acres to test
the commercial viability of the coal bed methane reserves. Some wells began
producing in early 1999 and the last few wells began selling gas in July 1999.
The project is still in the testing phase and Red River estimates that it takes
approximately 8 to12 months of production of water and gas from each well to
determine if it will produce methane in commercial quantities. The proved
reserves attributable to this project have not been fully determined. At this
time, this project is classified as unevaluated.
The coal bed methane development operations have been financed primarily
under a non-recourse credit facility with Duke Energy Financial Services, Inc.
The total amount of the principal due under that facility at December 1, 1999
was $2,243,076 and the indebtedness bears interest at prime plus one percentage
point, which currently is 9.25%. Under the terms of the credit facility, Duke
Financial Services is entitled to receive overriding royalty interests in these
properties.
LEGAL PROCEEDINGS
Red River has no pending legal proceedings and, to the knowledge of its
management, no legal proceedings are threatened.
MANAGEMENT OF RED RIVER
Mr. Rolf N. Hufnagel, age 52, is the Chairman, President and Chief
Executive Officer of Red River Energy, Inc., which he cofounded in 1997. His
function at Red River is to set the course for Red River's activities, while
providing significant interaction within the oil and gas industry so as to
maintain sizeable deal flow for acquisition purposes. Mr. Hufnagel is also
directly involved with finding, evaluating, negotiating and closing acquisition
opportunities and Red River's capital needs. Prior to forming Red River, Mr.
Hufnagel founded and served as Chairman, President and Chief Executive Officer
of Carlton Resources Corporation, an oil and gas acquisition company, from 1994
to 1998. From 1986 to 1992, Mr. Hufnagel served as Senior Vice President of
RAMCO Oil & Gas, Inc., a privately held property acquisition company. Mr.
Hufnagel's experience encompasses over 25 years. Mr. Hufnagel received his
Bachelor of Science from Cameron University and his Master of Business
Administration from the University of Oklahoma in 1974.
Mr. Robert E. Davis Jr. . age 48, is Executive Vice President and Chief
Financial Officer of Red River. He is responsible for the Company's financing
and accounting activities as well as assisting in economic evaluations of
potential acquisition targets. Prior to cofounding Red River, Mr. Davis served
as Executive Vice President and Chief Financial Officer of Carlton Resources
Corporation, an oil and gas acquisition company, from 1996 to 1998. From 1994 to
1996, Mr. Davis served as Executive Vice President and Chief Financial Officer
of American Central Gas Company in Tulsa, a natural gas gathering and processing
company. In 1983, Mr. Davis co-founded and served as Executive Vice President
and Chief Financial Officer of Vesta Energy Company, a nationally recognized
natural gas marketing company. From 1986 through 1992, he also served as
President and Chief Executive Officer of Esco Energy, Inc., the holding company
of Vesta Energy Co., Omega Pipeline Co. and Esco Exploration Company. During his
25 years in the oil and gas industry, Mr. Davis also served as CPA with Arthur
Young & Company (now Ernst & Young LLP) in Tulsa, specializing in oil and gas
taxation and accounting, a commercial loan officer at United Oklahoma Bank in
Oklahoma City and manager of drilling program sales and administration with
Andover Oil Company of Tulsa. Mr. Davis has a B.S. degree in finance and
accounting from the University of Oklahoma. He is a licensed certified public
accountant in the state of Oklahoma.
Mr. Bill L. Baysinger, Jr., age 36, is Senior Vice President of
Acquisitions for Red River. He is responsible for identifying strategic
acquisition candidates and coordinating the evaluation process of each property
set. In addition, Mr. Baysinger oversees the office administration and
production land functions. From 1997 until 1998, Mr. Baysinger was employed by
Carlton Resources Corporation and, its wholly owned subsidiary, Magic Circle
Energy Corporation as Vice President, Business Development. Prior to his
employment with Carlton Resources, Mr. Baysinger spent five years in the
midstream sector of the oil and gas industry working for Associated Natural Gas
(PanEnergy Field Services and now Duke Energy). He has been active in the oil
and gas industry for nearly 15 years starting in 1985 as a geologist with Lynan
Energy, Inc., a small private oil and gas company. He managed gas marketing,
contract administration and volume control functions during another five year
span. Mr. Baysinger received a Bachelor of Science degree in Geology from
Oklahoma State University in 1985 and his Master of Business Administration from
Central State University in 1989. He is a member of the American Association of
Petroleum Geologists, Gas Processors Association and the Natural Gas Association
of Oklahoma.
Mr. Brent A. Biggs, age 33, is the Vice President of Marketing for Red
River. He is responsible for managing Red River's product marketing efforts
including the sale of natural gas, crude oil and liquids. He is also a member of
the acquisitions team. Prior to joining Red River in 1998, he was the Manager of
Product Marketing and Gas Supply for Carlton Resources Corporation from 1997 to
1998. Prior to joining Carlton Resources, Mr. Biggs was Product-Marketing
Manager for RAMCO Operating Company and RB Operating Company from 92 to 97. He
has more than nine years experience in the oil and gas business and is a member
of the Natural Gas Association of Oklahoma. Mr. Biggs attended the University of
Central Oklahoma and majored in Business Management.
Ms. Janet L. McGehee, age 39, is Vice President of Engineering and is
responsible for all the engineering functions of Red River. She evaluates
properties for acquisition opportunities and once a property base is established
she will be responsible for operations, development and enhancement of the
properties. Prior to the formation of Red River, she served as Engineering
Manager for Carlton Resources from 1997 to 1998, providing property evaluations
to the bank and coordinating evaluations with third party engineering groups.
She also provided property enhancement with workover and recompletion proposals
on the Magic Circle properties. Prior to joining Carlton in 1997, she was a
district engineer for Samson Resources from 1993 to 1996. In addition, Ms.
McGehee served as a petroleum engineer for Hawkins Oil & Gas, Inc. from 1983 to
1989, and a senior engineer for Geodyne Resources, Inc. from 1990 to 1992, both
in Tulsa. Ms. McGehee received a Bachelor of Science in Petroleum Engineering
from Texas A&M University. She is a Licensed Professional Engineer and a member
and director of the MidContinent Section of the Society of Petroleum Engineers.
Mr. Stephen J. Vogel, age 53, is the minority owner and President of TCM.
L.L.C., an 80%-owned subsidiary of Red River, which was created to operate Red
River's coal bed methane projects. Mr. Vogel brings 25 years of oil and gas
experience to Red River Energy. Prior to the formation of Red River, Mr. Vogel
served as Vice President of Operations for Carlton Resources from 1996 to 1998.
Before joining Carlton Resources, Mr. Vogel owned Star Production Corporation
and worked as Senior Vice President of Operations and Chief Operating Officer of
RAMCO Oil & Gas, Inc. in Tulsa from 1987 to 1992. Mr. Vogel has worked in oil
and gas engineering and operations in the United States, the Pacific Rim, South
America, and the Middle East. Mr. Vogel has served as a senior engineer for
Phillips Petroleum from 1974 to 1978, the Executive Vice President and Chief
Operating Officer of Texas International Petroleum from 1978 to 1981, President
and Chief Operating Officer of Graceland Petroleum in Oklahoma City from 1981 to
1982, Vice President of production for Eason Oil from 1983 to 1984, and Vice
President of Engineering and Acquisitions for
Samson Resources in Tulsa in 1984. Mr. Vogel received both a Bachelor of Science
and Masters of Science in Mechanical Engineering from Oklahoma State University
in 1968 and 1973, respectively. Mr. Vogel is a member of the Society of
Petroleum Engineers and the American Society of Mechanical Engineers. From 1968
to 1971, Mr. Vogel served in the United States Army in Germany and Vietnam.
PRINCIPAL SHAREHOLDERS OF RED RIVER
The following table sets forth certain information concerning the number
of shares of Red River common stock owned beneficially, as of December 1, 1999
by each of the Red River shareholders. No shares of any other class of equity
securities are outstanding. All of the shares are beneficially owned by the
named owners directly.
BENEFICIAL OWNERSHIP
--------------------
PERCENT
NAME OF BENEFICIAL OWNER SHARES OF TOTAL
------------------------ ------ --------
Rolf N. Hufnagel 640 64%
Robert E. Davis, Jr. 160 16%
Billy L. Baysinger, Jr. 40 4%
Brent A. Biggs 40 4%
Janet L. McGehee 40 4%
Stephen J. Vogel 40 4%
Mark Biggs 40 4%
------------------------ ------- --------
All directors and officers as a group (7 persons)..... 1,000 100.0%
======= ========
ADDITIONAL PROPOSAL FOR THE BETA SHAREHOLDERS'
CONSENT TO THE ADOPTION OF THE AMENDED
1999 INCENTIVE AND NONSTATUTORY STOCK OPTION PLAN
Effective as of August 27, 1999, our board of directors adopted the 1999
Incentive and Nonstatutory Stock Option Plan, a copy of which is appended to
this proxy statement on APPENDIX D. The Plan was subsequently amended and
restated by our board of directors effective as of January 6, 2000.
The Plan as amended and restated is referred to as the "stock option
plan." The stock option plan is subject to approval by the written consent of
the holders of a majority of the Beta common stock. We are presenting the stock
option plan for approval by the written consent of the holders of a majority of
the issued and outstanding shares of the Beta common stock. Our management
currently 28% of the issued and outstanding shares of Beta common stock. ALL
SUCH SHARES OVER WHICH OUR MANAGEMENT EXERCISES VOTING POWER WILL CONSENT TO THE
APPROVAL OF THE STOCK OPTION PLAN. It will be necessary to secure the written
consent of the holders of a majority of the issued and outstanding shares of
Beta common stock to obtain the required approval of the stock option plan.
The stock option plan provides for the granting to employees of incentive
stock options within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended, and for the granting of nonstatutory stock options to
directors who are not employees and consultants. In the case of employees who
receive incentive stock options which are first exercisable in a particular
calendar year whose aggregate fair market value exceeds $100,000, the excess of
the $100,000 limitation shall be treated as a nonstatutory stock option under
the stock option plan.
The stock option plan is being administered by the Compensation Committee
appointed by our board of directors. This committee consists of two directors,
Joe C. Richardson, Jr. and John Tatum, neither of whom is an employee of Beta.
As such, under Rule 16b-3, the grant of such stock options under the stock
option plan to officers and directors who are our employees is exempt from the
short swing profits provisions under Section 16(b) of the Securities Exchange
Act of 1934 ("1934 Act").
This committee has the power, subject to the approval of our board of
directors, to determine the terms of the options granted, including the number
of shares subject to each option, the exercisability and vesting requirements of
each option, and the form of consideration payable upon the exercise of such
option (i.e., whether cash or exchange of existing shares of Beta common stock
in a cashless transaction or a combination thereof).
A maximum of 700,000 shares of Beta common stock (which amount is subject
to adjustment for stock splits, stock dividends, combinations or
reclassification of the Beta common stock) are reserved for issuance under the
stock option plan. As of the date of this proxy statement, stock options
exercisable for a total of 97,500 shares of Beta common stock have been granted
to a total of six employees as incentive stock options. Of this amount, stock
options for a total of 95,000 shares of Beta common stock have been granted to
officers and directors who are employees. The average exercise price of such
stock options is $6.00 per share, which represented an amount in excess of 110%
of the fair market value of the average of the last reported highest bid and
lowest asked prices quoted on the Nasdaq Small Cap Market on August 27, 1999,
which was the date such stock options were granted. IN THE EVENT THAT THE STOCK
OPTION PLAN IS NOT APPROVED BY A MAJORITY OF THE BETA SHAREHOLDERS, THE 97,500
STOCK OPTIONS WILL BE CANCELLED.
The stock option plan requires that the exercise price of the stock
options granted under such plan shall not be less than, but may be higher than,
100% of the fair market value per share as determined on the date of grant.
However, if an employee who is granted a Stock Option owns, at the time of
grant, stock representing move than 10% of the voting power of all classes of
Beta Stock, the exercise price for options which are incentive stock options may
not be less than 110% of the fair market value per share on the date of grant.
So long as our stock is reported on The Nasdaq Stock Market, the fair
market value per share on the date of grant of a stock option under the stock
option plan shall be the average of the last reported highest bid and the lowest
asked prices quoted on the Nasdaq Small Cap Market System on such date. If the
Company's shares qualify in the future for designation on the Nasdaq National
Market System, the fair market value per share shall be the closing price of the
Beta common stock as reported on such system on the date of grant, or if our
price is not quoted on such date, then the closing price as of the last
immediately preceding day on which the closing price is so reported.
The stock option plan will continue in effect for 10 years from August
20, 1999 (i.e., the date first adopted by our board of directors), unless sooner
terminated by our board of directors. Unless otherwise provided by our board of
directors, the stock options granted under the stock option plan will terminate
immediately prior to the consummation of a proposed dissolution or liquidation
of Beta.
The options granted under the stock option plan are for a period of not
more than 10 years after the date of grant. However, in the case of an optionee
who owns, at the time of grant, stock representing more than 10% of the combined
voting power of all classes of Beta stock, the term of the options shall not be
for more than five (5) years.
Upon the termination of an optionee as our employee, he/she must exercise
his/her option within three (3) months (as set forth in such stock option) after
he/she ceases to be our employee. If an optionee becomes disabled and due to
such disability ceases to be our employee, he/she must exercise his/her option
within the period of time not exceeding 12 months (as set forth in such stock
option). Upon the death of an optionee whose employment by us was not terminated
prior to such event, the optionee's estate or person acquiring the right to
exercise such option by bequest or inheritance may exercise such option at any
time within 12 months following the date of such optionee's death but only to
the extent that the optionee could have exercised such option (under its terms)
if his/her employment had continued uninterrupted for such 12 month period.
The options granted under the stock option plan may only be exercised by
the optionee during his/her lifetime and are not transferable except by will or
by the laws of descent and distribution. The shares of Beta common stock
transferred to an optionee as a result of the exercise of a stock option are
"restricted securities" under Rule 144 as promulgated under the 1933 Act and may
only be resold or transferred in compliance with such rule and the registration
requirements or an exemption from such requirements under the 1933 Act.
SHAREHOLDER PROPOSALS
Shareholders of Beta may submit proposals to be considered for stockholder
action at the 2000 Annual Meeting of Shareholders of Beta if they do so in
accordance with applicable regulations of the SEC and with the requirements of
the Beta by-laws. Any stockholder proposal must be submitted to the secretary of
Beta no later than January 30, 2000 in order to be considered for inclusion in
Beta's 2000 proxy materials. The proxies named in the proxy solicitation for the
2000 Annual Meeting of shareholders will have discretionary authority to vote on
any matters proposed at the meeting by any shareholders if Beta was not given
written notice of the matter no later than March 15, 2000.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of Beta as of December 31, 1998 and 1997
and for each of the two years in the period ended December 31, 1998, included in
this proxy statement have been included in reliance on the report of Hein +
Associates, LLP, independent accountants, given on the authority of said firm as
experts in accounting and auditing.
The consolidated financial statements of Red River as of December 31, 1998 and
for the fiscal period ended December 31, 1998, included in this proxy statement,
have been included in reliance on the report of Hein + Associates LLP,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.
EXPERTS
The unaudited supplementary oil and gas reserve information of Beta included in
this proxy statement has been included in reliance of the report of Veazey &
Associates, Inc. The unaudited supplementary oil and gas reserve information
appears elsewhere in this proxy statement on the authority of Veazey &
Associates, Inc.
The unaudited supplementary oil and gas reserve information of Red River
included in this proxy statement has been included in reliance of the report of
Ryder Scott Company, L.P. The unaudited supplementary oil and gas reserve
information appears elsewhere in this proxy statement on the authority of Ryder
Scott Company, L.P.
LEGAL OPINIONS
The validity of the shares of Beta common stock being offered hereby is being
passed upon for Beta by Clanahan, Tanner, Downing and Knowlton, P.C.
Shareholders of this law firm do not own shares of Beta common stock.
ANNEX A
(AGREEMENT AND PLAN OF MERGER)
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Agreement") is made this 19th day of
November, 1999, by and among Beta Oil & Gas, Inc., a Nevada corporation
("Purchaser"), Beta Acquisition Company, Inc., an Oklahoma corporation ("Merger
Sub"), and Red River Energy, Inc., an Oklahoma corporation ("Company") and the
shareholders listed in Schedule A attached to this Agreement, individually
(collectively, "Red River Shareholders").
RECITALS
A. The Company is engaged in the ownership, leasing, acquisition,
exploration, drilling and development of oil and gas property, located in
Oklahoma and the production and sale of oil and gas; B. The Purchaser owns 100%
of the issued and outstanding capital stock of Merger Sub;
B. The Purchaser owns 100% of the issued and outstanding capital stock of
Merger Sub:;and
C. Purchaser desires to acquire the Company's business by merging the
Merger Sub with and into the Company in accordance with the terms and conditions
of this Agreement in a transaction designed and intended to meet the
requirements of Section ("ss.") 368(a)(l)(A) and ss.368(a)(2)(E) of the Internal
Revenue Code of 1986, as amended ("Code") and as a result of such transaction
the Company, following the merger of Merger Sub with and into the Company which
shall be the Surviving Corporation and, as such, shall become a subsidiary of
the Purchaser.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. CERTAIN DEFINITIONS. The definitions set forth below shall apply to the
meaning of the terms as used throughout this Agreement. All other capitalized
terms shall have the meaning as defined in other sections of this Agreement.
1.1 "AFFILIATE" shall mean with reference to a particular Person (i)
any Person, directly or indirectly, owning, controlling or holding with
power to vote 10% or more of the outstanding voting securities of such
particular Person; (ii) any Person 10% or more of whose outstanding voting
securities are directly or indirectly owned, controlled or held with power
to vote by such particular Person; or (iii) any Person, directly or
indirectly, controlled by, controlling or under common control with such
particular Person
1.2 "AGREEMENT" shall mean this Agreement and Plan of Merger.
1.3 "BETA COMMON STOCK" shall mean the $.001 par value voting common
stock of the Purchaser.
1.4 "CLOSING" shall mean the consummation of the transactions
contemplated by this Agreement.
1.5 "CLOSING DATE" shall mean the date on which the Closing occurs
pursuant to Section 2.4 hereof.
1.6 "COMMISSION" shall mean the United States Securities and Exchange
Commission.
1.7 "COMPANY" shall mean Red River Energy, Inc., an Oklahoma
corporation, and its predecessor, Red River Energy, L.L.C. which became a
wholly owned subsidiary of Red River Energy, Inc. in a reorganization under
ss.351 of the Code.
1.8 "EFFECTIVE TIME" shall mean the time when the Certificate of
Merger is filed as provided in Section 2.5 hereof and the Merger of Merger
Sub with and into the Company becomes effective under applicable law.
1.9 "RED RIVER SHAREHOLDERS" shall mean the shareholders set forth in
Schedule A attached to this Agreement, who collectively, as of the date of
this Agreement, own all of the issued and outstanding Red River Stock.
1.10 "RED RIVER STOCK" shall mean the $1.00 par value voting common
stock of the Company, which is the only authorized capital stock of the
Company.
1.11 "EMPLOYMENT AGREEMENTS" shall mean those Employment Agreements
attached hereto as Exhibit 7.1.9.
1.12 "MERGER" shall have the same meaning as set forth in Section 2.2
hereof.
1.13 "PERSON" shall mean an individual, partnership, corporation,
trust, limited liability company, unincorporated organization, association
or joint venture or a government, or an agency, political subdivision or
instrumentality thereof.
1.14 "PURCHASER" shall mean Beta Oil & Gas, Inc., a Nevada
corporation.
1.15 "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, and the rules and regulations thereunder.
1.16 "SURVIVING CORPORATION" shall have the same meaning as set forth
in Section 2.2 of this Agreement.
1.17 "YEAR 2000 COMPLIANCE" shall mean that (a) no value for current
date will cause any interruption in operation; (b) date-based functionality
will behave consistently for dates prior to, during and after Year 2000;
(c) in all interfaces and data storage, the first two digits in the year of
any date are specified either explicitly or by unambiguous algorithms; (d)
year 2000 will be recognized as a leap year; and (e) the year "00" will be
read and correctly interpreted as the year "2000."
All other capitalized terms shall have the meanings as specified elsewhere
in this Agreement.
2. THE MERGER AND CONSIDERATION
2.1 RED RIVER CONSIDERATION. On the Closing Date, the shares of Red
River Stock owned by the Red River Shareholders, consisting of 1,000 shares
of Red River Stock which constitutes all of the issued and outstanding
shares of the Company's capital stock, shall be converted into and become,
and there shall be paid and issued, in exchange for such shares, Two
Million Two Hundred Fifty Thousand (2,250,000) shares of Beta Common Stock
which shall be issued by the Purchaser to the Red River Shareholders. Such
shares of Beta Common Stock shall be divided and issued to each Red River
Shareholder in proportion to their respective ownership interests in the
Red River Stock as set forth in Schedule A attached hereto.
2.2 MERGER. At the Effective Time and subject to and upon the terms
and conditions of this Agreement and in accordance with Oklahoma law,
Merger Sub shall be merged with and into the Company (the "Merger") and as
a result of such Merger the separate corporate existence of the Merger Sub
shall cease and the Company shall continue as the surviving corporation.
The Company as the surviving corporation after the Merger is hereafter
sometimes referred to as the "Surviving Corporation".
The Merger will have the effect set forth in the Oklahoma General
Corporation Act. The Surviving Corporation may, at any time after the
Effective Time, take any action, including executing and delivering any
certificates, instruments and documents as shall be determined by the Board
of Directors of the Surviving Corporation to be necessary and appropriate,
in the name and on behalf of either the Company or Merger Sub in order to
carry out and effectuate the transactions contemplated by this Agreement.
2.3 SHAREHOLDER APPROVALS. Subsequent to the date of this Agreement
and prior to the Effective Time, the parties hereto shall obtain the
requisite shareholder approval as required under their respective Articles
or Certificate of Incorporation and Bylaws and under Nevada and Oklahoma
law as follows:
a PURCHASER APPROVAL. Pursuant to Section 1.4b of Article XII of
the Purchaser's Bylaws, the Purchaser, through its Board of Directors,
shall duly call, give notice of, convene shareholders for the approval
of this Agreement and the issuance of the shares of Beta Common Stock
for the number of shares as contemplated under Section 2.1 hereof, all
in accordance with Nevada law, its Articles of Incorporation and
Bylaws. In addition, the Purchaser as the holder of 100% of Merger
Sub's issued and outstanding Common Stock shall approve, by written
consent of its Board of Directors, this Agreement and the Merger
contemplated hereby in accordance with Oklahoma law and the
Certificate of Incorporation of Merger Sub; and
b COMPANY APPROVAL. The Company, acting through its Board of
Directors shall duly call, give notice of, convene and hold a special
meeting of its shareholders (the "Special Meeting") to consider and
vote upon the approval and adoption of this Agreement and the Merger
contemplated hereby, or shall seek the requisite written consent of
its shareholders, all in accordance with Oklahoma law and its
Certificate of Incorporation and Bylaws. The Company shall hold the
Special Meeting or obtain such written consent as soon as practicable
after the date hereof.
2.4 CLOSING. The Closing Date shall occur on that date which is on or
before three (3) days after the satisfaction and receipt of any and all
required conditions and approvals, including any required approval of the
shareholders of Purchaser; but in no event later than March 31, 2000. The
Purchaser and the Company will use best efforts to close as soon as
possible upon execution of this Agreement. In the event that the Closing
Date falls on a Saturday, Sunday or Federal holiday, then the next
succeeding date which is not a Saturday, Sunday or Federal holiday shall be
the Closing Date. The Closing shall take place at the offices of the
Company, 6120 S. Yale, Suite 813, Tulsa, Oklahoma, 10:00 a.m. Central
Standard Time on the Closing Date, or at such other time or place as
mutually agreed by the parties hereto. Such Closing may be accomplished by
facsimile transmission of Closing Documents and facsimile signatures,
provided that the original of such signed documents are transmitted to the
party or parties entitled to receive such documents within three (3)
business days following the Closing Date. The Closing shall be effective as
of the close of business of the Closing Date. At the Closing, (a) the
Company and the Red River Shareholders will deliver to Merger Sub and the
Purchaser the various certificates and instruments and documents referred
to in Section 7.1 hereof, (b) Purchaser and Merger Sub will deliver to the
Company and the Red River Shareholders the various certificates,
instruments and documents referred to in Section 7.2 hereof, and (c)
Purchaser and Merger Sub will deliver to the Red River Shareholders in the
manner provided below in Section 7.2.1 the Stock Certificates evidencing
the consideration issued in the Merger.
2.5 CONSUMMATION OF THE TRANSACTION AT THE CLOSING. Purchaser, Merger
Sub and the Company will each carry out the procedures specified under the
applicable provisions of Oklahoma law as shall be necessary and appropriate
to assure the effectiveness of the Merger. The Merger shall be consummated
by filing the Certificate of Merger with the Secretary of State of Oklahoma
in such form as required by, and executed in accordance with the relevant
provisions of Oklahoma law to the extent required. Such Certificate of
Merger shall provide for an amendment to the Company's Certificate of
Incorporation to change its name to "Beta Operating Company."
2.6 EFFECT OF MERGER. At the Effective Time:
2.6.1 SURVIVING CORPORATIOn. Merger Sub shall be merged with and
into the Company, with the Company as the Surviving Corporation, and
the separate existence of Merger Sub shall cease. As a result of the
Merger, the Red River Shareholders who held stock certificates
representing the Red River Stock prior to the Merger shall cease to
have any rights with respect to such stock and all rights, privileges,
powers, franchises and interests of the Company and all of its
properties, whether real, personal or mixed, all debts due on whatever
account, and every other interest of the Company, whether tangible or
intangible shall be deemed to vest in the Surviving Corporation
without further act or deed, and all claims, demands, property and
every other interest shall be as of the Effective Time the property of
the Surviving Corporation to the same extent as previously owned or
held by the Company.
2.6.2 CERTIFICATE OF INCORPORATION. Except as contemplated by
Section 2.5, the Certificate of Incorporation of the Company in effect
at and as of the Effective Time shall remain the Certificate of
Incorporation of the Surviving Corporation until thereafter amended as
provided by law.
2.6.3 BYLAWS. The Bylaws of the Company, as in effect immediately
prior to the Effective Time, shall be the bylaws of the Surviving
Corporation until thereafter amended as provided by law and provisions
of such Bylaws.
2.6.4 DIRECTORS AND OFFICERS. Immediately prior to the Effective
Time of the Merger, the directors and officers of the Company as
constituted immediately prior to the Effective Time shall tender their
resignations to the Company as agreed upon in Exhibit 2.6.4. The
number of directors of the Surviving Corporation and the persons
serving as Directors of the Surviving Corporation shall be a minimum
of three (3) directors and a maximum of six (6) directors (the exact
number of which shall be determined by resolution of the directors of
the Surviving Corporation). The number of directors and the
individuals who shall serve as directors of the Surviving Corporation
shall be determined by the Purchaser, as the sole shareholder of the
Surviving Corporation immediately following the Effective Time and
such persons as so appointed shall continue to hold office until their
successors have been duly nominated, elected or appointed as provided
under the Surviving Corporation's Bylaws as may subsequently be
amended in accordance with the provisions thereof. The officers of the
Surviving Corporation shall be appointed, immediately following the
Effective Time and the election by the Purchaser of the directors of
its Board of Directors, by the directors of the Surviving Corporation
and such officers as so appointed shall hold such offices in the
Surviving Corporation following the Effective Time, until such time as
their successors have been duly appointed and qualified.
2.6.5 THE MERGER. From and after the Effective Time, the Merger
shall have all the effects provided for a merger under Oklahoma law, ,
which law shall govern the Surviving Corporation.
2.7 EFFECT ON CAPITAL STOCK.
2.7.1 CONVERSION OF RED RIVER STOCK. At the Effective Time, as a
result of the Merger and without any action on the part of Purchaser,
Merger Sub, the Company or the holders of any of their securities, all
of the issued and outstanding shares of Red River Stock immediately
prior to the Effective Time, held by the Red River Shareholders shall
be delivered for surrender to the Purchaser on the Closing Date and at
the Effective Time converted into the right to receive all of the
shares of Beta Common Stock payable under this Agreement.
The certificate or certificates representing Red River Stock
shall after the Effective Time cease to have any rights with respect
to such shares of Red River Stock except the right to the issuance of
the number of shares of Beta Common Stock as provided in Schedule A
attached hereto for such Red River Stock upon the surrender of such
certificate or certificates in accordance with this Section 2.7
hereof. Upon the filing of the Certificate of Merger with the
Secretary of State of Oklahoma, as a consequence of the Merger and
without any other action on the part of the parties to this Agreement,
each of the issued and outstanding shares of Red River Stock shall be
cancelled and retired by the Surviving Corporation in exchange for the
shares of Beta Common Stock as provided in Section 2.1 hereof and as
set forth in Schedule A attached hereto and all other shares of the
Company's capital stock shall automatically be cancelled and retired
and no payment by the Purchaser or Merger Sub shall be made with
respect to any such other capital stock, if any, of the Company. At
the Closing, the Company shall issue to the Purchaser a stock
certificate, registered on the Company's stock transfer records, in
the Purchaser's name representing 1,000 shares of the Surviving
Corporation's Common Stock, which shall have been duly authorized by
the Board of Directors of the Company as constituted immediately prior
to the Closing Date and such shares as so issued shall constitute the
only issued and outstanding shares of the Surviving Corporation.
2.7.2 SUBSEQUENT TRANSFER: LOSS, STOLEN OR DESTROYED
CERTIFICATES. After the Effective Time, there shall be no transfer on
the stock transfer books of the Surviving Corporation of shares of Red
River Stock that were registered as outstanding immediately prior to
the Effective Time other than the shares issued in the name of the
Purchaser as required in Section 2.7.1 hereof. If any registered
certificate for the Company shall have been lost, stolen or destroyed,
the Surviving Corporation, upon making of an Affidavit signed by the
person claiming such certificate to have been lost, stolen or
destroyed and setting forth the facts and other information relating
to such loss or destruction shall, subject to the provisions of this
Section 2.7.2, deliver a stock certificate for the appropriate shares
of Beta Common Stock for the Red River Stock represented by such
certificate in accordance with Section 2.1.1 hereof to the Person(s)
legally entitled thereto. The Surviving Corporation, in the sole
discretion of its Board of Directors and as a condition precedent to
the delivery of the shares of Beta Common Stock in exchange for the
shares of Red River Stock represented by such certificate, may require
the owner of such lost, stolen or destroyed certificate to provide a
bond or other security in such sum as it reasonably may direct as
indemnity against any claim that may be made against the Surviving
Corporation with respect to the certificate alleged to have been so
lost, stolen or destroyed.
2.7.3 MERGER SUB STOCK. Each share of the $.001 par value common
stock of Merger Sub issued and outstanding immediately prior to the
Effective Time shall be cancelled and converted into the 1,000 shares
of the Surviving Corporation's Common Stock as provided in Section
2.7.1 hereof, all of which shares shall be owned and held of record in
the name of the Purchaser.
2.7.4 DISSENTING SHARES. As provided in Section 3.1.4 hereof, the
Red River Shareholders shall take whatever action is necessary and
appropriate effectively to waive under the applicable provision of the
Oklahoma General Corporation Act their rights to an appraisal of the
shares of Red River Stock held by each of them, which represent all
the authorized, issued and outstanding shares of the Red River Stock
on and prior to the Closing Date.
3. CONDITIONS PRECEDENT TO OBLIGATIONS
3.1 CONDITIONS PRECEDENT TO THE PURCHASER'S AND MERGER SUB'S
OBLIGATIONS. The obligations of Purchaser and Merger Sub to be
performed under this Agreement on or before the Closing Date are
subject to each and all of the following conditions, any one or more
of which may, however, be waived in whole or in part by Purchaser.
3.1.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company herein contained shall be true on and as of
the date hereof and as of the Closing Date in all material respects
with the same force and effect as though made on and as of said date.
3.1.2 PERFORMANCE OF OBLIGATIONS. The Company shall have
performed in all material respects all of the Company's covenants,
undertakings, obligations, conditions and agreements required to be
performed by it under this Agreement.
3.1.3 PERFORMANCE AT CLOSING. The Company shall have performed
each of the acts it is required to perform and delivered each of the
certificates and other documents it is required to deliver, or
appeared at Closing ready, willing and able to perform each of the
acts it is required to perform and deliver each of the certificates
and other documents it is required to deliver.
3.1.4 WAIVER OF DISSENTER'S RIGHTS. The Red River Shareholders
shall have provided the Company prior to Closing a legally binding
instrument executed by such Shareholders waiving all of their rights
for an appraisal of the Red River Stock owned by them in accordance
with the Oklahoma General Corporation Act and any other applicable
provisions under Oklahoma law and to the extent applicable under
Nevada law.
3.1.5 ABSENCE OF RESTRAINING ACTION. No suit, action or other
proceeding shall be pending, or threatened, before any court or
governmental agency in which it will be, or it is, sought to restrain
or prohibit or to obtain damages or other relief in connection with
this Agreement or the consummation of the transactions contemplated
hereunder.
3.1.6 ABSENCE OF LITIGATION. The Company shall have disclosed to
Purchaser in Exhibit 4.1.20 all suits, actions or other proceedings
pending before any court or governmental agency, or threatened against
or affecting the Company and Purchaser shall be satisfied that no such
suit, action or other proceeding, if adversely determined, would have
a material adverse effect on the value of the business, assets, or
properties of the Company, or the value of the Red River Stock.
3.1.7 NO ATTACHMENT. None of the Company's assets or properties
shall have been attached or levied upon or passed into the hands of a
receiver or assignee for the benefit of creditors. No petition or
similar instrument shall have been filed with respect to the Company
under any bankruptcy or insolvency law, and no injunction or
restraining order shall have been instituted against the Company that
would have a material adverse effect on the Company.
3.1.8 NO LIENS, INDEBTEDNESS. Except as set forth in Exhibit
3.1.8, the Company shall not be subject to indebtedness nor its
properties or assets subject to liens or encumbrances of any kind,
other than (i) indebtedness and liens for current taxes, wages and
operating expenses in the normal course of business, payment of which
at the time of Closing shall not yet be due; (ii) indebtedness
identified in the Company's Financial Statements as set forth in
Exhibit 4.1.7 attached hereto; (iii) any accounts payable or loans
advanced to the Company subsequent to the Financial Statement Date
which were incurred in the ordinary course of its business; (iv) any
other indebtedness approved by the Purchaser; or (v) Permitted
Encumbrances (as hereinafter defined).
3.1.9 RESIGNATIONS. Purchaser and Merger Sub shall have received
the resignation dated as of the Closing Date of each director of the
Company and the officers of the Company as agreed upon in Exhibit
2.6.4 that Purchaser requests so resign prior to the Closing.
3.1.10 CORPORATE RECORDS. Purchaser and Merger Sub shall have
received the stock books, minute books, and corporate seal (if any) of
the Company and its subsidiaries, if any.
3.1.11 CONSENTS AND WAIVERS. All consents from third parties,
including without limitation the Notification and Report Form only to
the extent required to be filed under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the regulations thereunder
("HSR Act"), as well as any other consent or waiver required under any
other Licenses, Leases, Permits, Approvals or Contracts set forth in
Exhibits 4.1.17, 4.1.22, 4.1.24 and 4.1.28 attached hereto and as
provided in Section 4.1.31 hereof and any other person or governmental
bodies, necessary for the consummation of the transactions
contemplated hereby shall have been obtained.
3.1.12 ABSENCE OF ADVERSE CHANGES. The Company shall not have
suffered any material adverse change in its financial condition,
business, property or assets since the date of the Company's Financial
Statements as set forth in Exhibit 4.1.7 attached hereto
3.1.13 OPINION OF COUNSEL. Purchaser and Merger Sub shall have
received an opinion of counsel for the Company dated as of the Closing
Date in form or substance as may reasonably requested by Purchaser.
3.1.14 CERTIFICATES. Purchaser and Merger Sub shall have received
the certificates and other closing documents required to be received
under Section 7.1.6 and otherwise under Section 7.1 hereof on or prior
to the Closing Date.
3.1.15 SHAREHOLDER APPROVAL. The shareholders of the Company
shall have approved the Merger and the other transactions contemplated
by this Agreement in accordance with the Oklahoma General Corporation
Act.
3.2 CONDITIONS PRECEDENT TO THE COMPANY'S AND RED RIVER
SHAREHOLDERS' OBLIGATIONS. The obligations of the Company and the Red
River Shareholders to be performed under this Agreement at Closing are
subject to each and all of the following conditions, any one or more
of which may, however, be waived in whole or in part by the Company or
the Red River Shareholders.
3.2.1 REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Purchaser and Merger Sub set forth in this
Agreement shall be true and correct in all material respects on
and as of the date hereof and as of the Closing Date with the
same effect as if made on and as of the said date.
3.2.2 PERFORMANCE OF OBLIGATIONS. Purchaser and Merger Sub
shall have performed or complied with all of Purchaser's and
Merger Sub's covenants, undertakings, obligations, conditions and
agreements herein to be performed on or before Closing as
contained in this Agreement, including, but not limited to,
Purchaser's obligation to undertake the filing of the Shelf
Registration pursuant to the requirements of and by no later than
the date set forth in Section 9.15 and execution by the Surviving
Corporation and Purchaser of the Employment Agreements.
3.2.3 PERFORMANCE AT CLOSING. Each of Purchaser and Merger
Sub shall have performed each of the acts it is required to
perform and delivered each of the certificates and other
documents it is required to deliver, or appeared at Closing
ready, willing and able to perform each of the acts it is
required to perform and deliver each of the certificates and
other documents it is required to deliver.
3.2.4 ABSENCE OF RESTRAINING ACTION. No suit, action or
other proceeding shall be pending, or threatened, before any
court or governmental agency in which it will be, or it is,
sought to restrain or prohibit or to obtain damages or other
relief in connection with this Agreement or the consummation of
the transactions contemplated hereunder.
3.2.5 ABSENCE OF LITIGATION. Purchaser shall have disclosed
to the Company and the Red River Shareholders all suits, actions
or other proceedings pending before any court or governmental
agency, or threatened against or affecting Purchaser or Merger
Sub and the Company and the Red River Shareholders shall be
satisfied that no such suit, action or other proceeding which, if
adversely determined, would have a material adverse effect on the
value of the business, assets, or properties of the Purchaser or
Merger Sub or the value of the Beta Common Stock.
3.2.6 CERTIFICATES. The Company shall have received such
certificates as are required by Section 7.2.3 hereof on or prior
to the Closing Date.
3.2.7 OPINION OF COUNSEL. An opinion of counsel for
Purchaser and Merger Sub shall have been delivered to the Company
and the Red River Shareholders dated as of the Closing Date,
substantially in the form or substance as may reasonably
requested by the Company and the Red River Shareholders.
3.2.8 PURCHASER SHAREHOLDER APPROVAL. The shareholders of
the Purchaser shall have approved the Merger and the other
transactions contemplated by this Agreement in accordance with
the General Corporation Law of Nevada.
3.2.9 EMPLOYMENT AGREEMENTS. Purchaser shall have caused the
Company to execute and deliver the Employment Agreements.
3.2.10 ABSENCE OF ADVERSE CHANGES. Neither Purchaser nor
Merger Sub shall have suffered any material adverse change in its
financial condition, business, property or assets since the date
of this Agreement.
3.2.11 CONSENTS AND WAIVERS. All consents from third
parties, including without limitation the Notification and Report
Form only to the extent required to be filed under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and the regulations thereunder ("HSR Act"), as well as any other
consent or waiver required under any other Licenses, Leases,
Permits, Approvals or Contracts set forth in Exhibits 4.1.17,
4.1.22, 4.1.24 and 4.1.28 attached hereto and as provided in
Section 4.1.31 hereof and any other person or governmental
bodies, necessary for the consummation of the transactions
contemplated hereby shall have been obtained.
3.2.12 FILING OF SHELF REGISTRATION. Purchaser shall
undertake to file a Shelf Registration Statement with the
Commission to the extent and within the time period required by
Section 9.15 relating to the future resale of the shares of Beta
Common Stock to be received by the Red River Shareholders.
3.2.13 NASDAQ LISTING OF SHARES. Purchaser shall undertake
to file the necessary documents requesting that the shares of
Beta Common Stock to be issued to the Red River Shareholders be
listed on and available for trading on The Nasdaq Stock Market.
3.2.14 DIRECTOR APPOINTMENT. Rolf N. Hufnagel shall have
been appointed as a director of the Purchaser, effective
immediately after the Effective Time.
4. REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS AND WARRANTIES OF SELLER. The Company and the
Red River Shareholders, represent and warrant to Purchaser and Merger
Sub as of the date hereof and as of the Closing Date, as follows:
4.1.1 GOOD STANDING. The Company is a corporation duly
organized, validly existing and in good standing under the laws
of the State of Oklahoma, with full corporate power and authority
to own, operate and lease its properties and its interests in
properties (including its interests in oil and gas properties)
and to carry on its business as now being conducted. The Company
is qualified to do business and is in good standing in all
jurisdictions where its properties, assets and/or activities and
operations so require, which states are listed in Exhibit 4.1.1
attached hereto, except where the failure to qualify would not
have a material adverse effect on the Company. True and correct
copies of the Company's Certificate of Incorporation and all
amendments thereto and restatements thereof, and the Company's
Bylaws and all amendments thereof and restatements thereto are
set forth in Exhibit 4.1.1 attached hereto.
4.1.2 BINDING AGREEMENT. This Agreement has been executed
and delivered by the Company and each of the Red River
Shareholders as set forth above, constitutes the valid and
binding obligation of the Company and the Red River Shareholders
enforceable in accordance with its terms, except as such
enforcement may be limited by applicable bankruptcy, insolvency,
moratorium, general principles of equity, or similar laws
affecting the rights of creditors generally, and will not
conflict with, cause a breach, violate or be in contravention of
or result in a default under the Company's Certificate of
Incorporation, Bylaws or any other organizational or governing
instrument of the Company, or of any Contract, Lease, indenture,
promissory notes, agreement, mortgage or other instrument to
which the Company is a party or by which any of its assets or
property is bound or affected or, to the best of the Company's
knowledge, any law, rule, License, regulation, judgment, decree
or order of any court, agency or other authority to which
jurisdiction the Company is subject. All corporate action
necessary for the approval and/or ratification of this Agreement
has been taken or will have been taken on or before the Closing.
4.1.3 AUTHORIZED STOCK The only authorized capital stock of
the Company is 50,000 shares of its $1.00 par value common stock,
of which, as of the date hereof, 1,000 shares of Red River Stock
are issued and outstanding. The Red River Shareholders own such
portions of the issued and outstanding shares of Red River Stock
as set forth in Schedule A attached hereto. No other person has
any legal ownership interest in and to any shares of the Red
River Stock.
4.1.4 STOCK FULLY PAID AND OWNERSHIP OF SECURITIES. All
issued and outstanding shares of the Red River Stock have been
duly authorized and validly issued and are fully paid and
non-assessable. As of the date hereof, there are not, and as of
the Closing Date there will not be, any (i) options, warrants,
purchase rights, subscription rights or other contract rights or
commitments, stock appreciation rights, phantom stock or other
any rights to purchase any shares of the Red River Stock or any
debt or securities convertible into such shares or (ii)
obligations of the Company, contractual or contingent, to issue
any such options, warrants, rights or shares. As of the date
hereof, record ownership of the Red River Stock is held 100% by
the Red River Shareholders, and each such Shareholder owns of
record and beneficially the number of shares set forth opposite
such Shareholder's name in Schedule A attached to this Agreement.
The Red River Shareholders represent and warrant that as of the
Closing Date such Red River Stock will be free and clear of all
pledges, liens, security interests, encumbrances or other
restrictions (excluding restrictions imposed on the transfer of
the Red River Stock under the Securities Act) and of all voting
trusts, voting agreements, proxies and other voting restrictions.
4.1.5 INDEFEASIBLE. The Red River Shareholders have good and
indefeasible title to the shares of the Red River Stock to be
transferred pursuant to the terms hereof and such shares at the
Closing will be presented to the Surviving Corporation, free and
clear of all pledges, liens, security interests, encumbrances,
equities, claims or other restrictions (other than restrictions
imposed under the Securities Act), and such Shareholders have
full power and authority to consummate the transactions described
herein.
4.1.6 NO AGREEMENTS. There are no agreements with any person
with respect to (i) the sale, lease, exchange or other
disposition of any of the Company's properties or assets, except
in the ordinary course of its business; or (ii) the sale, pledge,
hypothecation, transfer, assignment or other disposition of the
ownership, direct or indirect, of any of the shares of the Red
River Stock, the operation of which may in the future result in a
change in control of the Company.
4.1.7 FINANCIAL REPRESENTATIONS. To be attached hereto
within 15 days from the date hereof as Exhibit 4.1.7 are a
Balance Sheet, Statement of Income (Loss and Deficit) and
Statement of Changes in Financial Position (including notes to
such financial statements) as of September 30, 1999, and for the
Nine (9) month period then ended (collectively the "Financial
Statements"). The Financial Statements will have been prepared in
accordance with generally accepted accounting principles applied
on a consistent basis, except as disclosed therein, and will
present fairly the financial position of the Company as of
September 30, 1999, ("Financial Statement Date") and the results
of operations for the Nine (9) month period then ended.
4.1.8 NO LIABILITIES. As of the Financial Statement Date,
the Company had no material liabilities or obligations of any
nature (whether accrued, absolute, contingent, and due or to
become due) except as disclosed or reflected in the Financial
Statements, or as set forth in Exhibit 4.1.8 attached hereto.
4.1.9 NO CHANGE IN FINANCIAL CONDITION. Except as set forth
in Exhibit 4.1.9 attached hereto, since the Financial Statement
Date, there has not been, and neither the Red River Shareholders
nor the Company know of (i) any event, condition or state of
facts that has resulted or may reasonably be expected to result
in any material adverse change in the financial condition,
business, sales, income, properties, assets or liabilities of the
Company from that shown on the Financial Statements; or (ii) any
material adverse change with respect to any contracts to which
the Company is a party or any event, circumstance, fact or other
occurrence which may result in any material adverse change to the
financial condition, business, sales, income, properties or
assets of the Company; or (iii) any material damage, destruction
or loss to the properties, assets or business of the Company,
whether or not covered by insurance, as the result of any fire,
explosion, accident, casualty, labor disturbance or interruption,
requisition or taking of property by any governmental body or
agency, flood, embargo, or act of God or the public enemy, or
cessation, interruption or diminution of operations, which has
materially and adversely affected or impaired or which may be
reasonably expected to materially or adversely affect or impair
the conduct of the Company's operations or business; or (iv) any
labor trouble other than routine grievances (including without
limitation any negotiation, or request for negotiation, for any
representation or any labor contract) or to the Red River
Shareholders' and the Company's knowledge any event or condition
of any character which has materially and adversely affected or
which may be reasonably expected to materially and adversely
affect or impair the conduct of the Company's operations or
business; or (v) any declaration, setting aside or payment of any
dividend, or any distribution, in respect of the Red River Stock;
or (vi) any redemption, purchase or other acquisition by the
Company of any shares of the Red River Stock; or (vii) any
significant loss of customers of the Company.
4.1.10 CERTAIN TAX MATTERS. The Company has, or shall have,
prepared and duly filed (and to the best of its knowledge has
done so accurately and correctly) all federal, state, county and
local income, franchise, sales, use, real property personal
property, ad valorem, production and severance tax returns and
reports required to be filed as of the date hereof, and which
shall be required to be filed on or before the Closing Date, with
respect to the Company and has, or shall have duly paid, withheld
or reserved for all taxes, penalties and other governmental
charges required to be paid as of the date hereof that have been
assessed or levied against or upon it or its properties, assets,
income, franchises, licenses or sales, including, without
limitations, federal, state, county and local income taxes, gross
receipt property taxes franchise, sales, use, real property,
personal property, ad valorem, production, severance and similar
taxes and assessments (based on production of hydrocarbons or
receipt of proceeds therefrom on the oil and gas properties or
other assets and the business owned and operated by the Company,
or to the extent that they relate to periods on or prior to the
Financial Statement Date are reflected as a liability on the
Financial Statements, or if not paid, is contesting such amounts
in good faith by the appropriate proceedings. All such taxes and
assessment, which have become due prior to the Effective Time
have been or will have been timely and properly paid. In the
event the Company is contesting such amounts in good faith, the
Company has established a reserve for financial accounting
purposes in connection with the business currently conducted by
the Company, neither the Red River Shareholders nor the Company
know of any proposal by any taxing authority for additional taxes
or assessments against or upon the Company. To the best of the
knowledge of the Red River Shareholders and the Company, all
monies required to be withheld by the Company from employees for
income taxes, social security and unemployment insurance taxes
have, as of the date hereof, been collected or withheld, and as
of the Closing Date shall have been collected and withheld, and
either paid to the appropriate governmental agencies or set aside
in cash for such purpose. The Company has not entered into any
agreement for the extension of time or the assessment of any tax
or tax delinquency, nor has the Company received any outstanding
or unresolved notices from the Internal Revenue Service or any
taxing body of any proposed examination or of any proposed
deficiency or assessment or of any tax returns or tax liabilities
due and payable. The Company has or will within ten (10) days of
the date hereof, deliver to Purchaser an accurate, correct and
complete copy of each return or statement filed by, on behalf of
or including the Company for federal income tax purposes or state
and local income or franchise tax purposes for the last three (3)
tax years of the Company or for such period as the Company has
been in existence. All material elections with respect to the
taxes affecting the Company as of the date hereof are set forth
in Exhibit 4.1.10. After the date hereof, no written election
permitted under federal, state or local income, property,
franchise or other tax laws, ordinances, codes, rules or
regulations will be made by the Company without Purchaser's and
Merger Sub's express written consent. The provisions of this
Section 4.1.10 shall not apply to any federal or state income tax
returns that may be due for a short period as a result of the
Merger but rather shall be subject to filing by the existing
officers of the Company within the time period normally required
for any such filings following the Effective Date.
4.1.11 FINANCIAL DISCLOSURE. The Company has made available
to Purchaser and Merger Sub, all information known to the Red
River Shareholders or the Company with respect to (i) accounts,
borrowing resolutions and deposit boxes maintained by the Company
at any bank or other financial institution and the account
numbers and the names and addresses of all of the persons
authorized to effect transactions in such accounts and pursuant
to such resolutions and with access to such boxes; and (ii) the
names of all persons, firms, associations, corporations or
business organizations holding general or special powers of
attorney from the Company and a summary of the terms thereof.
4.1.12 CONDITION OF TANGIBLE ASSETS. To the best of the
knowledge of the Company and the Red River Shareholders, all
material tangible portions of the assets, and properties owned by
the Company or in which the Company has a leasehold interest or a
working interest, royalty interest, farmout or farmin interest or
any other leasehold or mineral interest of any kind whatsoever in
oil and gas or mineral properties, including the well equipment,
pipe and other structures located thereon, including all real
properties or leasehold interests in real property and structures
thereon, are in good operating condition and repair, subject only
to ordinary wear and tear in light of their respective ages and
the respective uses for which they are currently used, and that
the use of such tangible properties and assets conform and comply
in all material respects with all rules, regulations and
standards applicable to the Company or its assets or property,
imposed by applicable federal, state or local laws, ordinances,
codes, orders, rules or regulations.
4.1.13 ALL ASSETS. The properties and assets of the Company
as of the date hereof include (i) all properties and assets,
whether or not reflected on the balance sheet included in the
Financial Statements, including Licenses, Permits, Leases,
Contracts, customer lists, goodwill and any other tangible or
intangible assets disclosed in the Exhibits attached to this
Agreement, and (ii) assets and properties acquired by the Company
after the Financial Statement Date and on or before the date
hereof in the ordinary course of business or as disclosed in the
Exhibits attached to this Agreement, other than such properties
and assets as shall have been transferred or otherwise disposed
of by the Company in the ordinary course of business.
4.1.14 STOCK TRANSFER RECORDS AND MINUTE BOOKS. The stock
transfer records and corporate minutes books of the Company and
its subsidiaries will be furnished to the Purchaser and Merger
Sub at least ten (10) days prior to the Closing Date and will be
complete and correct in all respects. The minutes books will
accurately reflect all meetings, consents and other actions of
the shareholders and Board of Directors of the Company since its
incorporation.
4.1.15 DEFENSIBLE TITLE. Except for Permitted Encumbrances
(as defined herein), the Company has good and defensible title to
all of its assets and properties, including fee interests in real
property and title to all its other properties and assets owned
as of the date hereof, free and clear of all mortgages, liens,
pledges, charges, claims (real or asserted) or encumbrances of
any nature whatsoever. Title to the oil and gas interests
included in the Company's assets and properties is not subject to
being reduced by virtue of any reversionary or back-in interests
or reassignments or payments required of the Company; the oil and
gas interests are not subject to any joint venture agreements,
farmout agreements, operating agreements, oil and or gas sales or
processing contracts, preferential rights of purchase, consents
to assignment, drilling and or development obligations or other
burden, restriction or limitation with respect to the ownership
interest of the Company therein, the operation thereof, or the
disposition and processing of production attributable thereto
which are not ordinary and customary in the oil and gas industry,
or which contain any terms, provisions, conditions or agreements
which are not ordinary and customary in the oil and gas industry
or which decrease the Company's net revenue interest or increase
the Company's working interest from the working interest and net
revenue interests set forth in Exhibit 4.1.28. The Company owns
the Working interest and net revenue interest shown in Exhibit
4.1.28 in the oil and gas properties in which it has an interest.
(b) Except as set forth in Exhibit 4.1.15 with respect to the
oil, gas and other mineral leases, unit agreements, pooling
agreements, communization agreements, and other documents
creating oil, gas and mineral interest included in the oil and
gas interests, (a) the Company has fulfilled all requirements for
filings, certificates, disclosures of parties in interest, and
other similar matters contained in (or otherwise applicable
thereto by law, rule or regulation) the Leases or other documents
applicable to it and is fully qualified to own and hold all such
Leases or other interests; (b) there are no obligations
(excluding implied covenants, if any) to engage in continuous
development operations in order to maintain any such Lease or
other interest in force and effect for the areas and depths
covered thereby; (c) there are no provisions applicable to such
Leases or other documents which increase the royalty share of the
lessor thereunder, except where such increase would not decrease
the Company's net revenue interest below those shown on Exhibit
4.1.28; and (d) subject to any express or implied covenants, upon
the establishment of production in commercial quantities, the
Leases and other interests are to be in full force and effect
over the economic life of the property involved and do not have
terms fixed by a certain number of years. With respect to
tangible personal property held by the Company under lease, all
such agreements are valid, binding and in full force and effect
and the Company is not in default under any such Lease. As used
in this Agreement with respect to an oil and gas property, the
term "good and defensible title" shall mean title to such oil and
gas property which is free and clear of liens and encumbrances
(other than Permitted Encumbrances) and which entitles the
Company to a net revenue interest in such oil and gas property
that is no less than the net revenue interest that is set forth
in Exhibit 4.1.28 and to a working interest in such oil and gas
property that is no greater than the working interest shown in
Exhibit 4.1.28 without a corresponding increase in net revenue
interest.
4.1.16 PERMITTED ENCUMBRANCES. The following liens, charges
and other encumbrances of a similar nature are collectively
referred to herein as the "Permitted Encumbrances" with respect
to the properties and assets of the Company:
(i) liens for current state or local property taxes not
yet due and payable or subject to penalties; zoning
ordinances, building laws, restrictions and regulations
imposed by governmental authorities, if any, none of which
is materially violated by existing buildings and uses by the
Company;
(ii) any assessment for local benefits levied by any
governmental authority and not now a lien upon all or any
portion of such real property; provided, however, neither
the Red River Shareholders nor the Company know or have
reason to know of any such assessment;
(iii) liens of carriers, warehousemen, mechanics,
laborers, materialmen, landlords, vendors, workmen, and
operators arising by operation of law in the ordinary course
of business or by a written agreement existing as of the
date hereof and necessary or incident to the exploration,
development, operation, and maintenance of oil and natural
gas properties and related facilities and assets for sums
not yet due or being contested in good faith by appropriate
proceedings, which proceedings are disclosed in Exhibit
4.1.16 attached hereto and which liens Purchaser has
approved as Permitted Encumbrances;
(iv) any mortgage, deeds of trust or other encumbrances
on leasehold properties which the Company is leasing from a
third party and which is from the owner of the property. and
does not adversely affect the Company's working interest or
net revenue interest in the oil and gas properties;
(v) Liens incurred in the ordinary course of business
in connection with worker's compensation, unemployment
insurance, and other social security legislation (other than
ERISA) to the extent such liens are for amounts not yet due;
(vi) liens, easements, rights-of-way, restrictions,
servitude, permits, conditions, covenants, exceptions,
reservations, and other similar encumbrances incurred in the
ordinary course of business or existing on property and not
materially impairing the value of the assets of the Company
or interfering with the ordinary conduct of the Company's
business or rights to their assets,
(vii) all rights to consent by, required notices to,
filings with, or other actions by governmental authorities
to the extent customarily obtained subsequent to closing,
(viii) farmout, carried working interest, joint
operating, unitization, royalty, overriding royalty, sales,
and similar agreements relating to the exploration or
development of, or production from, oil and natural gas
properties entered into in the ordinary course of business,
unless such agreements decrease the Company's net revenue
interest or increase the Company's working interest from the
interests set forth in Exhibit 4.1.28 attached hereto,
(ix) any defects, irregularities, or deficiencies in
title to easements, rights-of-way, or other surface use
agreements that do not adversely affect the value of any
asset of the Company,
(x) preferential rights to purchase and third-party
consents that would not
be activated or triggered by the Merger and the other
transactions contemplated by this Agreement, except that any
such rights which affect the West Hunton Lime Unit shall be
Permitted Encumbrances if they are listed in Exhibit 4.1.16
attached hereto and approved by Purchaser as Permitted
Encumbrances;
(xi) liens approved in writing by or on behalf of
Purchaser,
(xii) any liens, mortgages or security interests
disclosed in the Financial
Statements or on Exhibit 4.1. 16,
(xiii) such imprefections of title, liens, easements or
encumbrances, if
any, as are not material in character, amount or extent
and do not, severally or in the aggregate, materially
detract from the value or materially and adversely interfere
with the present use of the property subject thereto or
affected thereby or otherwise materially impair the business
and operations of the Company (for purposes of this
subsection only, "material" shall mean the foregoing title
defects with a cumulative value which in the aggregate
exceeds $100,000).
4.1.17 LEASES AND LICENSES. Exhibit 4.1.17 attached hereto sets
forth, as of the date hereof and which shall set forth as of the
Closing Date, an accurate and complete list of all leases and
purchases of real property or leases, including without limitation oil
and gas leases or mineral interests and agreement relating thereto,
license agreements and purchases of personal property (covering
property with a purchase price as of the date hereof greater than
$25,000) to which the Company is a party (whether as purchaser,
lessor, lessee, licenser or licensee) (collectively, the "Leases and
Licenses"). The Company, as purchaser, lessee or licensee, has entered
into all such Leases and Licenses which the Company reasonably
believes may be necessary for the conduct of the business and
operation as now conducted. The Company has furnished to Purchaser
accurate and complete copies of all such Leases and Licenses. The
Company has good and defensible title to each of the leasehold and
other interests created by the Leases and Licenses, free and clear of
all security interests, claims, liens and encumbrances of any nature,
other than Permitted Encumbrances. Each such Lease and License is in
full force and effect. Each such Lease and License constitutes the
legal, valid and binding obligation of the Company and, to the best of
the knowledge of the Company and the Red River Shareholders, the other
party or parties thereto, enforceable against the Company in
accordance with its respective terms of each such lease or license
except as may be limited by bankruptcy, insolvency, reorganization,
readjustment of debt, moratorium, general principles of equity or
other laws of general application related to or affecting the
enforcement of creditor's rights generally. Neither the Company nor
the Red River Shareholders have received notice or have any reason to
know, of any claimed material default under any such Leases and
Licenses except as set forth in Exhibit 4.1.17.
4.1.18 INSURANCE. Exhibit 4.1.18 attached hereto sets forth, as
of the date hereof, an accurate and complete list and brief
description of the terms of all policies of insurance carried by the
Company and designating the Company as the insured thereunder. The
description of each policy consists of a description of the subject
property, the insurance coverage, the deductibles and the additional
insureds. The Company has furnished to the Purchaser and Merger Sub an
accurate and complete copy of all such insurance policies. Except as
set forth in Exhibit 4.1.18, to the best of the knowledge of the Red
River Shareholders and the Company, no insurance carrier has refused
any application for insurance by the Company or any other person on
behalf of the Company with respect to any of its properties or assets
or any of its Leases and Licenses.
4.1.19 INTELLECTUAL PROPERTY RIGHTS. Exhibit 4.1.19 attached
hereto sets forth, as of the date hereof, an accurate and complete
list of all letters patent, patent applications, trademarks, service
marks, trade names, brands, logos, copyrights and licenses both
domestic and foreign, and rights with respect to the foregoing,
whether or not registered or registrable with any governmental
authority, now owned or used by the Company. Neither the Red River
Shareholders nor the Company have received notice, or otherwise have
any reason to know, of any claimed or threatened infringement of the
rights of others with respect to any patents, trademarks, service
marks, trade names, brands, logos, copyrights and licenses used or
owned by the Company, the loss of which would have a material adverse
effect upon the business, operations, assets or financial condition of
the Company.
4.1.20 NO LITIGATION. Except as set forth in Exhibit 4.1.20
attached hereto, there are no existing or pending or, to the best of
the knowledge of the Company and the Red River Shareholders,
threatened suits, actions, claims, or litigation, administrative,
arbitration or other proceedings or governmental investigations or
inquiries to which the Company or the Red River Shareholders are a
party or to which any of the properties or assets thereof is subject.
4.1.21 NO VIOLATION OF LAWS OR REGULATIONS. To the best knowledge
of the Company and Red River Shareholders, the Company has materially
complied with, and is not in any material respect in default under or
in violation of, any laws, ordinances, requirements, regulations or
orders applicable to its businesses and properties, nor is the Company
in violation of or in default of any order, writ, injunction, judgment
or decree of any court, arbitrator, or federal, state or local
department official, commission, authority, board, bureau, agency or
other instrumentality issued or pending against the Company which
might adversely affect the Company's or the Red River Shareholders'
ability to execute, deliver and perform their obligations under this
Agreement or to consummate the transactions contemplated hereby or
which challenges or seeks to prevent, enjoin, alter or materially
delay any such transactions. Neither the Red River Shareholders nor
the Company have received notice, or otherwise have any reason to
know, of any claimed default or violation with respect to any of the
foregoing. There have been no illegal payments, kickbacks, bribes or
political contributions made by the Company to any person, entity or
governmental or regulatory body in the United States or any foreign
country or political subdivision.
4.1.22 APPROVALS. All consents necessary or required to be
obtained by the Company for the consummation of the transactions
contemplated hereby are set forth in Exhibit 4.1.22 attached hereto.
The Company will have obtained, on or before the Closing Date, all
such consents, approvals and authorizations of all designations,
declarations and notices required to be obtained or given, as the case
may be, pursuant to the Certificate of Incorporation or the Bylaws of
the Company or under or in accordance with any Lease, License, Permit,
Contract, agreement, indenture or other instrument to which the
Company is a party or by which the Company or any of its properties or
assets are bound in connection with the execution, delivery and
performance of this Agreement and the consummation of each transaction
referred to in this Agreement. Subject to obtaining the approvals set
forth in Exhibit 4.1.22, attached hereto, neither the execution,
delivery or performance of this Agreement nor the conclusion of any
transaction contemplated by this Agreement will result in any
violation of, be in conflict with or constitute a default under any
term or provision of the Certificate of Incorporation or the Bylaws of
the Company or any such Lease, License, Permit, Contract, indenture or
other agreement or instrument or the rules and regulations of any
regulatory body.
4.1.23 LABOR AGREEMENTS. There are (i) no collective bargaining
agreements between the Company and any labor union or other
representative of employees, including local agreements. amendments,
supplements, letters and memoranda of understanding of all kinds and
(ii) no employment or consulting contracts which are not terminable at
will without penalty to which the Company is a party.
4.1.24 CONTRACTS. Exhibit 4.1.24 attached hereto sets forth, as
of the date hereof and as of the Closing Date, accurate and complete
lists of the following:
(i) except for the Leases and Licenses, all agreements,
contracts, arrangements, commitments, understandings or obligations,
oral or written, of the Company which are to be performed in whole or
in part on or after the date hereof and which require or may require
the payment by the Company in an amount, or under which the Company is
required or may be required to provide goods or services of a value,
greater than twenty-five thousand dollars ($25,000) during any period
of twelve (12) consecutive months;
(ii) any agreement to which the Company is a party or by which
its properties or assets are bound that limits the freedom of such
corporation to compete in any line of business or with any person; and
(iii) all other agreements, contracts, arrangements, commitments,
understandings or obligations, oral or written (other than oral
contracts of employment), between the Company on the one part and one
or more or all of the Red River Shareholders or any other officer or
director of the Company on the other part, or in which any of such
persons or entities has any financial interest, direct or indirect
(including without limitation any agreements affecting the Company's
properties or assets and agreements to make loans).
The Red River Shareholders have furnished to the extent requested
by Purchaser or Merger Sub or have made available for inspection by
Purchaser and Merger Sub a copy of each agreement, contract,
arrangement, commitment or obligation set forth on Exhibit 4.1.24,
attached hereto. Collectively the contracts, agreements, arrangements,
commitments or obligations set forth in this Section and listed in
Exhibit 4.1.24, attached hereto, are referred to throughout this
Agreement as the "Contracts." Except as set forth in Exhibit 4.1.24,
each such Contract is in full force and effect and to the best of the
Company's and the Red River Shareholders' knowledge the Company has
performed in all material respects all of the obligations under each
Contract required to be performed by it as of the date hereof and as
of the Closing Date and no such Contract is in default, nor has any
event occurred, which with the passage of time or giving of notice or
both, will result in the occurrence of a default under any such
Contract.
4.1.25 EMPLOYEES. The Company is not a party to any agreement,
contract, arrangement, plan, commitment or understanding which has
resulted or would result, upon the consummation of the transactions
contemplated under this Agreement or otherwise, separately or in the
aggregate, in the payment of any "excess parachute payment" within the
meaning of Code ss.280G nor is the Company obligated to pay any
severance arrangements with any current or former employees of the
Company or any of its subsidiaries. Attached hereto as Exhibit 4.1.25
is a true and complete list of all employees of the Company
compensated by the Company. There are no employees of the Company who
have employment contracts or employee benefit rights which cannot be
terminated upon reasonable notice, except to the extent employment
benefit rights must be continued as required by state and federal law.
4.1.26 ENVIRONMENTAL MATTERS. To the best knowledge of the
Company and the Red River Shareholders, the Company has duly complied
with, and the operation of its business, equipment and other assets in
the facilities owned or leased by the Company and its subsidiaries, if
any, are in compliance with the provisions of all applicable federal,
state and local environmental, health and safety laws, statutes,
ordinances, rules and regulations of any governmental or quasi
governmental authority relating to (i) omissions, (ii) discharges,
release or seepage to surface water or ground water, (iii) solid or
liquid waste disposal, (iv) the use, storage, generation, handling,
transport, discharge, release or disposal of toxic or hazardous
substances or waste, or (vi) other environmental, health or safety
matters, including, without limitation, the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as
amended by the Superfund Amendments and Authorization Act of 1986; the
Occupational Safety and Health Act, as amended; the Resource
Conservation and Recovery Act of 1976; the Federal Water Pollution
Control Act of 1970, as amended; the Safe Drinking Water Act of 1974;
the Toxic Substances Control Act of 1976; the Emergency Planning and
Community Right to Know Act of 1986, as amended; and the Clean Air
Act, as amended; the Federal Water Pollution Control Act, as amended;
the Oil Pollution Act of 1990, as amended; the Rivers and Harbors Act
of 1899; the Hazardous and Solid Waste Amendments Act of 1984, as
amended; and the Hazardous Materials Transportation Act, as amended
(collectively "Environmental and Health Laws"). To the best knowledge
of the Company and the Red River Shareholders, there are no
investigations, administrative proceedings, judicial actions, orders,
claims or notices which are pending, anticipated or threatened against
the Company, relating to violations of the Environmental and Health
Laws. The Company has not received a notice of, and does not know or
have any reason to suspect, any facts which might constitute a
violation of any Environmental or Health Laws which relate to the use,
ownership or occupancy of any property or facilities used by the
Company in connection with the operation of its business or any
activity of the Company's business which would result in a violation
or threatened violation of any Environmental or Health Laws.
4.1.27 STOCK REPRESENTATIONS. Subject to the rights of the Red
River Shareholders under Section 9.15, the Red River Shareholders (i)
intend to acquire the shares of the Beta Common Stock pursuant to
Section 2.1 hereof solely for the purpose of investment and not for
the resale and distribution thereof, and has no present intention to
offer, sell, , assign or otherwise dispose of the same; (ii) are
either accredited investors within the meaning of Rule 501(a) of
Regulation D as promulgated under the Securities Act of 1933, as
amended ("Securities Act") or sophisticated investors within the
meaning of the judicial and regulatory rulings and interpretations of
Section 4(2) of the Securities Act and Rule 506(b)(2)(ii) of
Regulation D as promulgated under the Securities Act; (iii) will be
required in connection with any reoffer or resale of the Beta Common
Stock to (a) comply with Rule 144 and, in the case of those Red River
Shareholders who are Affiliates of the Company, with Rule 145(d), as
shall be applicable, (b) comply with any other exemption from
registration under the Securities Act, or (c) offer and sell their
shares of Beta Common Stock pursuant to an effective registration
statement under the Securities Act; (iv) agree that they will not
offer, sell., transfer, assign or otherwise dispose of ("disposition")
any such shares of Beta Common Stock unless any such disposition shall
comply with either Rule 145 or Rule 144, as the case may be, of the
Securities Act or be registered or be exempt from registration under
the Securities Act and shall comply with Rule 144, all applicable
federal and state securities laws, and (v) agree and acknowledge that
the stock certificates representing the shares of Beta Common Stock
which will be acquired by the Red River Shareholders under this
Agreement will contain a legend restricting the transferability of the
shares of Beta Common Stock as provided herein and that stop order
instructions may be imposed by the Purchaser's transfer agent
restricting the transferability of such shares.
4.1.28 LICENSES, FACILITIES.
(i) All licenses and authorizations material to the
operation of the Company's oil and gas wells and other facilities
owned, operated or leased by the Company, such oil and gas wells
and other facilities being identified at Exhibit 4.1.28, attached
hereto, and/or to the conduct of the Company's business are
listed at Exhibit 4.1.28 attached hereto. The Company is
operating the oil and gas wells and other facilities identified
in full compliance with the authorizations identified; neither
the Red River Shareholders nor the Company have any knowledge of
any matters which might result in the supervision or revocation
of such authorizations, or the issuance of any citation or
forfeiture to the Company. To the best of the knowledge of the
Company and the Red River Shareholders, there are no unsatisfied
citations or notices of apparent liability issued or
investigations ongoing, by any federal or state government
agency, commission or other authority with respect to the oil and
as wells and other facilities owned, operated or leased by the
Company or their operation.
(ii) The Company owns all of the equipment necessary or
useful in the operation of the oil and gas wells and other
facilities in accordance with their licenses and with the Company
obligations under any agreements now in effect (the "Equipment").
All of the Equipment is in good repair and operable condition,
ordinary wear and tear excepted, and have been, and will be,
prior to Closing, operated in accordance with the authorizations
for the oil and gas wells and other facilities and the rules and
regulations of the federal and state regulatory agency,
commission or other authority having jurisdiction over such oil
and gas wells and other facilities.
(iii) Purchaser, Merger Sub, the Red River Shareholders and
the Company will cooperate in seeking authorizations or consents
to the transfer of control to the Surviving Corporation, and each
party will bear its expenses incurred in requesting such
authorizations or consents required to be obtained under the
provisions of this Agreement by such party. Purchaser, Merger
Sub, the Red River Shareholders and the Company shall cooperate
fully in responding promptly to any inquiries or objections
related to such requests for authorizations or consents.
4.1.29 ACCOUNTS RECEIVABLE. All of the accounts receivable of the
Company as disclosed in the Financial Statements constitute valid
receivables deemed collectible, have been incurred in the ordinary
course of business consistent with past practices and, to the
Company's and the Red River Shareholders' knowledge are collectible in
the ordinary course of the Company's business, except to the extent of
the reserve for bad debts or doubtful accounts as set forth in the
Financial Statements attached hereto as Exhibit 4.1.7, and are not
subject to any setoffs or counterclaims. To the knowledge of the
Company and the Red River Shareholders, no part of such accounts
receivable is contingent upon the performance by the Company of any
obligation, and no agreements for deduction or discounts have been
made with respect to any part of such receivables.
4.1.30 PAYABLES. The list of itemized accounts payable of the
Company as shown on Exhibit 4.1.30 as of the Financial Statement Date
attached hereto represent a complete list of all of the Company's
accounts payable to its creditors as of such date, are true and
correct and are not currently in default as of the date hereof and as
of the Closing Date. The Company shall not incur any additional
accounts payable between the date hereof and the Closing Date other
than in the ordinary course of business without Purchaser's express
written consent.
4.1.31 PERMITS. To the best knowledge of the Company and the Red
River Shareholders, the Company has obtained all permits, licenses and
any other approvals or authorizations (collectively "Permits") in
connection with the ownership, operation, or leasing of the oil and
gas wells and facilities in which the Company has an interest and the
drilling and completion, or proposed drilling and completion, of oil
and gas wells and the extraction, removal, transportation and
gathering of oil and gas under any existing oil and gas leases or
other Leases, Licenses or Contracts relating to the operation of its
oil and gas properties or leasehold interests which are presently
being operated or which are currently in effect. All such Permits are
presently valid and in full force and effect and no revocation,
cancellation, or withdrawal thereof has been effective or to the best
of the knowledge of the Company and the Red River Shareholders,
threatened. Except as disclosed herein, the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby will not result in the termination of, or change
in, any such Permits.
4.1.32 EMPLOYEE BENEFIT MATTERS.
(i) EMPLOYEE SALARIES AND BENEFITS. Exhibit 4.1.32 consists
of a true and complete list of all of the salaries of all
employees of the Company and a true and complete list of the
plans, programs and arrangements providing profit sharing,
retirement, pension, savings, thrift, deferred compensation,
stock options, stock purchases, group insurance, accident,
sickness, medical, dental and disability benefits, and all
vacation pay, severance pay, incentive compensation, consulting
agreements, bonuses and other employee benefits or fringe
benefits maintained currently or at any time in the past three
(3) years by the Company or with respect to which contributions
are made or have been made at any time in the past six (6) years
by the Company (including health insurance, life insurance and
other benefit plans maintained for retirees) whether or not such
plans, programs and arrangements consist "employee benefit plans"
within the meaning of Section 3(3) of the Employees Retirement
Income Security Act of 1974, as amended ("ERISA"), whether or not
such plans, programs and arrangements are in the nature of formal
or informal understandings, and whether or not such plans,
programs and arrangements are pursuant to any collective
bargaining arrangements. Such plans, programs and arrangements
are collectively referred to herein as "Benefit Plans".
(ii) COMPLIANCE WITH ERISA. To the best knowledge of the
Company and the Red River Shareholders, each Benefit Plan of the
Company which is covered by ERISA complies in all material
respects and has been administered in all material respects in
accordance with the applicable provisions of ERISA and the Code,
including, without limitations, the satisfaction of all
applicable recording, disclosure, fiduciary and tax qualification
requirements under ERISA and the Code. The Company has filed or
caused to be filed with the Internal Revenue Service annual
reports on form 5500 or 5500C or 5500R, as applicable, for each
Benefit Plan for all years and periods for which such reports
were required. To the best knowledge of the Company and the Red
River Shareholders, all statements and disclosures made on the
documents or forms filed or distributed pursuant to the
applicable reporting and disclosure requirements under ERISA and
the Code have been true and complete in all material respects and
have been filed or distributed timely. No Benefit Plan has
incurred any excise tax liability.
(iii) FUNDING. The Company has made all payments and
contributions to all Benefit Plans on a timely basis as required
by the terms of each such Plan, ERISA and the Code. All such
payments and contributions have been deducted fully by the
Company for federal income tax purposes. Such deductions have not
been challenged or disallowed by any governmental authority and
the Company has no reason to believe that such deductions are not
properly allowable. The Company has funded or will fund each
Benefit Plan in accordance with the terms of each Benefit Plan
and, with respect to the current plan year for benefits accrued
through the Closing Date, including the payment of applicable
premiums on any insurance contract funding a Benefit Plan for
coverage provided through the date hereof.
(iv) PROHIBITED TRANSACTIONS. To the best knowledge of the
Company and the Red River Shareholders, no "prohibited
transaction" as defined in ss.406 of ERISA or ss.4975 of the
Code, has occurred with respect to any Benefit Plan other than
any such transaction which is exempt under ss.408 of ERISA or
ss.4975(d) of the Code. No fiduciary violations, as defined in
ss.404 of ERISA, have occurred with respect to which the Company
could have any present or future liability or obligations. Each
Benefit Plan is, and has been, operated and administered in
accordance with the appropriate written plan documents.
(v) DETERMINATION LETTERS. The Internal Revenue Service has
issued to the Company letters determining that any Benefit Plan
operated by the Company is qualified under ss.401(a) and related
sections of the Code to the extent applicable and the related
trust of such Benefit Plans operated as qualified plans are
exempt from federal income tax under ss.501(a) of the Code. To
the best knowledge of the Company and the Red River Shareholders,
there have been no occurrences since the date of any such
determination letter which have adversely affected or which could
adversely affect such qualification.
(vi) MEDICAL PLANS. Each Benefit Plan that provides medical
and related benefits has been operated in compliance with all
requirements of ss.ss.601 through 608 of ERISA and either (i)
ss.ss.162(i)(2) and (k) of the Code and the regulations
promulgated thereunder (prior to 1989) or (ii) ss.4980(B) of the
Code and the regulations promulgated thereunder (after 1988)
relating to the continuation of coverage under certain
circumstances in which coverage could otherwise cease. Exhibit
4.1. 32(vi) attached hereto is a true and complete list of all
former employees of the Company and their respective
beneficiaries who, as of the date hereof, are receiving or who
are eligible to elect to receive benefits pursuant to such plans
and the provisions of ERISA and the Code.
(vii) POST RETIREMENT BENEFITS. No Plan, program or
arrangement maintained by the Company provides for
post-retirement medical benefits, post-retirement death benefits
or other post-retirement welfare benefits, except to the extent
of the continuation coverage rules as provided under the
provisions of ss.4980B of the Code and ss.ss.601 through 608 of
ERISA.
(viii) COMMUNICATIONS. All communications with respect to
each Benefit Plan by any person having the requisite authority to
make such communications reflect and always have reflected
accurately the plan documents and operations of each such Benefit
Plan. There have been no written statements or communications,
and to the best knowledge of the Company and the Red River
Shareholders, no oral statements or communications made to any
employee or former employee of the Company in any form by any
person (including, without limitation, any officer, director or
any other employee of the Company having the requisite power to
do so) which provide for or could be construed as a contract or
promise by the Company to provide for any pension, welfare or
other insurance type benefits to any such employee or former
employee, whether before or after retirement, other than benefits
under the Benefit Plans listed in Exhibit 4.1.32 attached hereto.
(ix) SEVERANCE. The Company has no severance arrangements
with any current or former employee of the Company and neither
Purchaser nor Merger Sub shall have any liability for severance
payments to employees of the Company who voluntarily incur a
separation from service prior to and including the Closing Date
or as a result of the consummation of the transactions
contemplated by this Agreement.
4.1.33 DIRECTORS AND OFFICERS. Exhibit 4.1.33 attached hereto is
a correct and complete list as of the date hereof showing the names of
each of the Officers and Directors of the Company, each of whom has
been duly elected or appointed.
4.1.34 NO SUBSIDIARY. Except as set forth in Exhibit 4.1.34, the
Company does not have any subsidiaries and does not own shares of
common stock or capital stock in any other corporation or a
participating interest or other interest in any limited liability
company, partnership, joint venture, strategic alliance or any other
entity, association or business arrangement.
4.1.35 SALE OF PRODUCTION. Except as set forth in Exhibit 4.1.35,
no hydrocarbons produced from the Company's oil and gas properties are
subject to a sales contract (other than a contract or division order
terminable upon no more than 30 days notice), and no person has any
call upon, option to purchase or similar rights with respect to
production from the Company's oil and gas properties. The Company is
receiving proceeds from the sale of production from the properties in
a timely manner, and the proceeds payable to Company are not being
held in suspense by any production purchaser or operator and are not
subject to refund.
4.1.36 PREPAYMENTS AND IMBALANCES. The Company is not obligated
by virtue of a production payment, prepayment arrangement under any
contract containing a "take or pay", advance payment or similar
provision, gas balancing agreement or other arrangement to deliver
hydrocarbons at some time after the Effective Time, without then or
thereafter receiving full payment therefor.
4.1.37 DEMANDS FOR RELEASE. The Company has not received any
currently pending demands for release regarding any portion of any oil
and gas leases or demands for reconveyance of any interest in any of
the oil and gas properties.
4.1.38 OPERATING AGREEMENTS. With respect to any and all
operating agreements affecting any of the Company's oil and gas
properties: (1) there are no outstanding calls or payments in excess
of $25,000 under authorities for expenditures for payment which are
due from Company and have not been paid; (2) there are no operations
with respect to which either Company is a non-consenting party or is
subject to a prior non-consent election the effect of which is not
reflected in the working interest and net revenue interest of the
Company reflected in Exhibit 4.1.28.
4.1.39 PLUGGING OPERATIONS. There are no pending governmental or
other requests or demands to plug, replug or abandon any well which
have not been satisfied.
4.1.40 SURFACE RIGHTS. The Company has obtained the surface
leases and rights-of-way necessary to conduct its operations on the
Company's oil and gas properties in the manner in which they have been
conducted prior to the Effective Time.
4.1.41 SUSPENSE ACCOUNTS. Suspense accounts for production
proceeds payable to third parties that are maintained by Company are
adequate for the purposes for which they were created, and will
contain sufficient monies at the Closing Date to satisfy obligations
to such third parties for the payment of their proceeds of production
as of the Closing Date.
4.1.42 ""FULL DISCLOSURE". None of the written information
provided by the Company and the Red River Shareholders to Purchaser
and Merger Sub in connection with the negotiation of this Agreement
contains any intentionally misleading statement of a material fact. No
representation or warranty of the Red River Shareholders set forth in
this Agreement contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the
statements contained herein not misleading.
4.2 REPRESENTATIONS AND WARRANTIES OF PURCHASER AND MERGER SUB.
Purchaser and Merger Sub, jointly and severally, represent to the Company
and the Red River Shareholders as follows:
4.2.1 GOOD STANDING. Purchaser and Merger Sub are both
corporations duly organized, validly existing and in good standing
under the laws of Nevada and Oklahoma, respectively, with full
corporate power and authority to own, operate and lease their
properties and to carry on their respective businesses as now being
conducted. Purchaser and Merger Sub are both qualified to do business
and in good standing in all jurisdictions where their properties,
assets and operations so require. Purchaser and Merger Sub have all
requisite power and authority to enter into this Agreement and perform
their obligations under this Agreement. A true and correct copy of
Merger Sub's Articles of Incorporation and all amendments thereto and
restatements thereof, certified by the Oklahoma Secretary of State and
Merger Sub's Bylaws and all amendments thereof and restatements
thereto, certified as true, complete and accurate by the Secretary of
Merger Sub are set forth in Exhibit 4.2.1 attached hereto.
4.2.2 BINDING AGREEMENT. This Agreement has been executed and
delivered by each of Purchaser and Merger Sub, and constitutes the
valid and binding obligation of Purchaser and Merger Sub enforceable
in accordance with its terms, except as such enforcement may be
limited by applicable bankruptcy, insolvency, moratorium, general
principles of equity or similar laws affecting the rights of creditors
generally. This Agreement and the performance of this Agreement by
Purchaser and Merger Sub will not conflict with, breach, violate or be
in contravention of or result in a default under Purchaser's or Merger
Sub's Articles or Certificate of Incorporation, By-laws or any other
organizational or governing instrument of Purchaser or Merger Sub, or
of any agreement, mortgage or other instrument to which either
Purchaser or Merger Sub is a party or by which any of its assets or
property is bound or affected or, to the best of Purchaser's
knowledge, any law, rule, license, regulation, judgment, decree or
order of any court, agency or other authority which has jurisdiction
over the business, properties, assets and activities of Purchaser or
Merger Sub. All corporate action necessary for the approval and/or
ratification of this Agreement has been taken, or in the case of the
submission of this Agreement for approval by Purchaser's shareholders
in accordance with Purchaser's Bylaws will have been taken on or
before Closing Date.
4.2.3 LITIGATION. There are no pending or to the best of
Purchaser's and Merger Sub's knowledge, threatened suits, actions,
inquiries, claims, arbitrations, administrative or legal or other
proceedings or governmental investigations or to which either
Purchaser or Merger Sub is a party or to which any of its properties
or assets thereof is subject.
4.2.4 NO VIOLATION OF LAWS OR REGULATIONS. To the best knowledge
of the Purchaser, Purchaser has materially complied with, and is not
in any material respect in default under or in violation of, any laws,
ordinances. requirements, regulations or orders applicable to its
businesses and properties, nor is Purchaser in violation of or in
default of any order, writ, injunction, judgment or decree of any
court, arbitrator, or federal, state or local department official,
commission, authority, board, bureau, agency or other instrumentality
issued or pending against the Purchaser which might adversely affect
the Purchaser's ability to execute, deliver and perform its
obligations under this Agreement or to consummate the transactions
contemplated hereby or which challenges or seeks to prevent, enjoin,
alter or materially delay any such transactions. Purchaser has not
received notice, or otherwise has any reason to know, of any claimed
default or violation with respect to any of the foregoing. There have
been no illegal payments, kickbacks, bribes or political contributions
made by the Purchaser to any person, entity or governmental or
regulatory body in the United States or any foreign country or
political subdivision.
4.2.5 CURRENT FILINGS WITH SEC. Purchaser has filed all Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q and other
applications and reports required to be filed by Purchaser with the
Commission under the Securities Exchange Act of 1934, as amended
("Exchange Act"). The Company and the Red River Shareholders have
access under the EDGAR system and have reviewed (i) each registration
statement, report on Form 8-K, proxy statement or information
statement prepared by it since December 1, 1998, and (ii) Purchaser's
Quarterly Reports on Form 10-Q for the quarterly periods ended June
30, and September 30, each in the form (including exhibits) filed with
the Commission (collectively, the "Purchaser SEC Reports"). As of
their respective dates, the Purchaser SEC Reports did not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made
therein, in light of the circumstances in which they were made, not
misleading. Each of the consolidated balance sheets included in the
Purchaser SEC Reports (including the related notes and schedules)
fairly presents the consolidated financial position of Purchaser and
its Subsidiaries as of its date and each of the consolidated
statements of income, of stockholders' equity and of cash flows
included in or incorporated by reference into the Purchaser SEC
Reports (including any related notes and schedules) fairly presents
the results of operations, stockholders' equity and cash flows, of
Purchaser and its Subsidiaries for the periods set forth therein
(subject, in the case of unaudited statements, to normal year-end
audit adjustments which will not be material to Purchaser and its
subsidiaries taken as a whole in amount or effect), in each case in
accordance with generally accepted accounting principles consistently
applied during the periods involved, except as may be noted therein.
Other than the Purchaser SEC Reports, Purchaser has not filed any
other definitive reports or statements with the Commission since
January 1, 1999.
4.2.6 PURCHASER'S STOCK. The only authorized capital stock of
Purchaser is fifty million (50,000,000) shares of its $.001 par value
voting common stock, which is the Beta Common Stock. The number of
shares of Beta Common Stock which are issued and outstanding as of the
date hereof is as set forth in Exhibit 4.2.6 attached hereto. All
outstanding shares of capital stock of the Purchaser have been duly
authorized and validly issued and are fully paid and nonassessable.
Except as specifically stated in the SEC Reports and Exhibit 4.2.6
attached hereto, as of the date of this Agreement, there are
outstanding (a) no shares of capital stock or other voting securities
of Purchaser, (b) no securities of Purchaser convertible into or
exchangeable for shares of capital stock or voting securities of
Purchaser, and (c) no options, warrants or other rights to acquire
from Purchaser, and no preemptive or similar rights, subscription or
other rights, convertible securities, agreements, arrangements or
commitments of any character, relating to the capital stock of
Purchaser, obligating Purchaser to issue, transfer or sell, any
capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of Purchaser or
obligating Purchaser to grant, extend or enter into any such option,
warrant, subscription or other right, convertible security, agreement,
arrangement or commitment (the items in clauses 4.2.6(a), 4.2.6(b) and
4.2.6(c) being referred to collectively as the "Purchaser
Securities"). There are no outstanding obligations of Purchaser to
repurchase, redeem or otherwise acquire any Purchaser Securities. Upon
issuance of the 2,250,000 shares of Beta Common Stock to the Red River
Shareholders, such shares of Beta Common Stock will be validly issued,
fully paid and nonassessable. The Beta Common Stock is currently
listed on the Nasdaq Small Cap Market.
4.2.7 YEAR 2000 COMPLIANCE.The Purchaser will not suffer a
material adverse effect attributable to a lack of Year 2000 Compliance
in any system, process or equipment owned or utilized by the
Purchaser, or any other aspect of its business and operations, or any
system, process or equipment of any of its material customers,
suppliers or vendors.
4.2.8 VOTE REQUIRED.The affirmative vote of the holders of a
majority of the outstanding shares of Beta Common Stock is the only
vote of the holders of any class or series of Purchaser Securities or
other voting securities necessary to approve this Agreement, the
Merger and the transactions contemplated hereby.
5. ACTIVITIES PRIOR TO THE CLOSING DATE
5.1 OPERATION OF COMPANY'S BUSINESS. The Red River Shareholders and
the Company (for purposes of this Section 5, all references to the
"Company" shall include each of the Company's subsidiaries, if any) hereby
agree that from and after the date hereof to the Closing Date, except as
otherwise contemplated by this Agreement, the Company shall conduct its
business solely in the ordinary course consistent with past practices, and
the Company shall, and the Red River Shareholders shall cause the Company
to:
5.1.1 ORGANIZATIONAL DOCUMENTS. Not amend its Certificate of
Incorporation or Charter or Bylaws, except as may be necessary to
carry out this Agreement or as required by law;
5.1.2 CORPORATE NAME. Not change its corporate name or permit the
use thereof by any other corporation, person or entity;
5.1.3 COMPENSATION. Not pay or agree to pay any employee,
officer, or director, without the consent of Purchaser and Merger Sub,
compensation which is in excess of the current compensation level of
each employee, officer or director, except for standard periodic
increases to non-management employees consistent with past practices
in terms of timing and amount;
5.1.4 MANAGEMENT. Not make any changes in management without the
prior written consent of Purchaser and Merger Sub;
5.1.5 REORGANIZATIONS OR OTHER RELATED TRANSACTIONS. Not merge or
consolidate with any other corporation, or acquire, agree to acquire
or be acquired by any corporation, association, partnership, joint
venture or other entity without the prior written consent of Purchaser
and Merger Sub;
5.1.6 DISPOSITION OR ABANDONMENT OF ASSETS. Not sell, transfer or
otherwise dispose of any of its properties or assets or its interests
in oil and gas properties or other mineral properties nor abandon any
of its oil and gas wells, Equipment or other facilities without the
prior written consent of Purchaser and Merger Sub, except in the
ordinary course of business;
5.1.7 INDEBTEDNESS. Not create, incur, assume or guarantee any
indebtedness for money borrowed except for trade and other
indebtedness incurred in the ordinary course of business, unless the
Company first advises Purchaser and receives its consent thereto.
5.1.8 ENCUMBRANCES. Not create or suffer to exist any Encumbrance
on any of its properties or assets, including without limitation its
interests in oil and gas properties or other mineral properties,
equipment or other facilities, except for Permitted Encumbrances and
those in existence on the date hereof;
5.1.9 INCREASE OF INDEBTEDNESS. Not increase the amount of any
indebtedness outstanding under any loan agreement, mortgage or
borrowing arrangement in existence on the date hereof, unless the
Company first advises Purchaser and Merger Sub and receives their
consent thereto except for additional borrowings required to fund the
working capital needs of the Company in the ordinary course of
business under any line of credit loan identified in the Company's
Financial Statements to the extent permitted thereunder by the
documentation relating thereto in effect as of the date hereof and
then only to the extent that the Company has first notified Purchaser
of any such borrowings under the line of credit subsequent to the date
hereof and both Purchaser and Merger Sub approve such borrowings;
5.1.10 PAYABLES. Pay when due, in accordance with past practices,
all of its accounts payables and trade obligations;
5.1.11 MAINTENANCE OF ASSETS. Maintain its facilities, assets and
properties, including without limitation the Equipment in good
operating repair, order and condition, reasonable wear and tear
excepted, and notify Purchaser and Merger Sub promptly upon any loss
of, damage to or destruction of any of its facilities, properties or
assets;
5.1.12 INSURANCE. Not allow to lapse and maintain in full force
and effect all insurance coverage of the types and in the amounts set
forth in the Exhibits attached hereto and apply the proceeds received
under any insurance policy or as a result of any loss of, damage to,
or destruction of any of its facilities, properties or assets,
including the Equipment, to the repair or replacement of such
facilities, properties or assets, including the Equipment;
5.1.13 CONTRACTS AND PERMITS. Maintain in full force and effect
all Leases, Licenses, Contracts and Permits for or related to the
operation of its business in all respects and in all places as its
business is now conducted;
5.1.14 GOODWILL. Use its best efforts to preserve its business
organization in tact, to keep available the services of its present
employees and to preserve the goodwill of its customers and others
having business relations with it;
5.1.15 ISSUANCE OF SECURITIES. Not issue any additional capital
stock, options, warrants, or other rights to purchase capital stock or
securities convertible into or exchangeable for capital stock of the
Company; not declare, set aside or pay any dividend or make any other
distributions in respect of any of the Company's shares of capital
stock;
5.1.16 REPURCHASE OF SECURITIES AND REPAYMENT OF INDEBTEDNESS.
Except as approved by Purchaser after first being notified of any such
event, not make any direct or indirect redemption, purchase or other
acquisition of shares of the Company's capital stock or make any
direct or indirect repurchase, repayment or retirement of any
principal of, or interest on, any indebtedness other than regularly
scheduled payments of principal and interest as provided in the
promissory note evidencing any of the Company's indebtedness;
5.1.17 LITIGATION. Promptly advise Purchaser and Merger Sub in
writing of the commencement of, and of any known threat to commence,
any suit, claim, action, arbitration, legal or administrative
proceedings, governmental investigation or tax audit against the
Company;
5.1.18 MONTHLY FINANCIAL STATEMENTS. Deliver to Purchaser and
Merger Sub as soon as available monthly financial statements ("Monthly
Financial Statements") of the Company commencing with the month of
October, 1999, and for each calendar month thereafter prior to the
Closing Date;
5.1.19 ELECTIONS TO PARTICIPATE AND NONCONSENTS. Not to elect to
not participate in operations for the drilling of any new well or the
fracturing or recompletion of any existing well, without the prior
written consent of Purchaser. Purchaser shall respond timely to any
requests for such consent.
5.1.20 MISCELLANEOUS. Not enter into any agreement or otherwise
agree to take any action in violation of the negative covenants set
forth in this Section 5 or take, agree to take or omit to take any
action that would make any representation or warranty inaccurate.
5.2 ACCESS TO INFORMATION. (a) The Company and Red River Shareholders
will cooperate fully with Purchaser and Merger Sub, and the Company shall
provide, and the Red River Shareholders shall cause the Company to provide,
to Purchaser and its accountants, counsel and other representatives
(collectively "Advisors") during normal business hours, (i) full access to
the books, records, Equipment, oil and gas leases, title opinions and other
information concerning the oil and gas properties and other real estate
owned or leased by the Company or in which the Company has an interest, and
all other Contracts, Leases, Licenses and Permits relating to the assets
and operations of the Company's oil and gas business and properties and all
work papers relating to the Company of the Company's independent
accountants and (ii) full opportunity to discuss the Company's business
affairs and assets with its officers, employees, agents and independent
accountants ("Company's Advisors") and furnish to Purchaser, Merger Sub and
their Advisors copies of such documents, records and information with
respect to the affairs of the Company as Purchaser, Merger Sub or its
Advisors may reasonably request.
(b) The Purchaser will cooperate fully with the Company and the Red
River Shareholders, and the Purchaser shall provide to the Company and its
Advisors during normal business hours, (i) full access to the books,
records, Equipment, oil and gas leases, title opinions and other
information concerning the oil and gas properties and other real estate
owned or leased by the Purchaser or in which the Purchaser has an interest,
and all other Contracts, Leases, Licenses and Permits relating to the
assets and operations of the Purchaser's oil and gas business and
properties and all work papers relating to the Purchaser of the Purchaser's
independent accountants and (ii) full opportunity to discuss the
Purchaser's business affairs and assets with its officers, employees,
agents and independent accounts ("Purchaser's Advisors") and furnish to the
Company, the Red River Shareholders and their Advisors copies of such
documents, records and information with respect to the affairs of the
Purchaser as the Company, the Red River Shareholders or their Advisors may
reasonably request.
5.3 CONFIDENTIALITY. Purchaser, Merger Sub, their respective officers,
directors and employees shall retain in confidence and shall cause their
Advisors to retain in confidence, all information obtained by them pursuant
to the investigations made by Purchaser or its Advisors pursuant to Section
5.2 (the "Confidential Information"). The Red River Shareholders, the
Company, its officers, directors and employees and the Company's Advisors
shall retain in confidence, all information obtained by them in connection
with any investigation undertaken by such persons as a result of Purchaser
or Merger Sub providing such Persons such access to information of the
Purchaser or Merger Sub as provided in this Agreement. The parties agree
that Confidential Information shall not include information which (i) was
or becomes generally available to the public other than as a result of a
Red River disclosure by Purchaser, Merger Sub, the Red River Shareholders,
the Company or any of their officers, directors or employees or any of
their Advisors, (ii) was or becomes available to Purchaser, Merger Sub, the
Red River Shareholders, the Company, any of their officers, directors or
employees or their Advisors on a non-confidential basis from a source other
than Purchaser, Merger Sub, the Red River Shareholders, the Company or the
Company's Advisors, provided that such source is not bound by a
confidential agreement or (iii) was, or in the future is, developed
independently by Purchaser, Merger Sub or their Advisors or by the Red
River Shareholders, the Company or their Advisors without reference to the
information furnished by the Purchaser, Merger Sub, the Red River
Shareholders or the Company or the Company's Advisors, as the case may be.
The parties understand and agree that all of the Confidential Information
supplied to Purchaser, Merger Sub or their Advisor or to the Red River
Shareholders or the Company or their Advisors is provided on the
understanding that such Confidential Information shall remain the property
of Purchaser, Merger Sub or the Company, as the case may be, and that all
copies and originals of any Confidential Information furnished pursuant to
this Agreement from one party to another will be returned to the party
furnishing such Confidential Information or, at the option of the party to
whom the Confidential Information belongs, destroyed promptly upon such
party's request after termination of this Agreement as provided under
Section 8 hereof. Pending the Closing of the transactions contemplated
hereby or if this Agreement is terminated as provided in Section 8 hereof,
a party receiving the Confidential Information of another party shall not
use such information to its economic or financial advantage or benefit.
5.4 BENEFIT PLANS. Between the date hereof and the Closing Date the
Company will not establish or implement a new Benefit Plan of any kind
whatsoever.
5.5 BEST EFFORTS AND STANDSTILL. Subject to the other provisions of
this Agreement, the Red River Shareholders and the Company will use their
best efforts to cause the conditions listed in Section 3.1 hereof to be
satisfied on or before the Closing Date. Subject to the other conditions of
this Agreement, Purchaser and Merger Sub will use their best efforts to
cause the conditions listed in Section 3.2 hereof to be satisfied on or
before the Closing Date. The Red River Shareholders and the Company further
agree that they will not enter into, request, solicit or engage in any Red
River discussions, negotiations, understandings or agreements with any
person or entity other than Purchaser and Merger Sub relating to the
merger, consolidation or sale of the Company or Red River Stock or the
properties and assets of the Company (other than in the ordinary course of
business) unless this Agreement is terminated pursuant to Section 8 hereof.
5.6 LISTING OF PURCHASER COMMON STOCK. Purchaser shall notify The
Nasdaq Stock Market of the issuance of the shares of Beta Common Stock in
connection with the consummation of the Merger and to use its reasonable
best efforts to list and cause such shares of Beta Common Stock to be
eligible for trading on the Nasdaq Small Cap Market or the Nasdaq National
Market System if the Beta Common Stock is then eligible for listing
thereon.
5.7 MEETING OF STOCKHOLDERS OF PURCHASER. If Purchaser does not obtain
the written consent required for the Merger by the holders of a majority of
the outstanding shares of Beta Common Stock ("Purchaser Stockholder
Consent"), Purchaser shall cause a meeting of its stockholders (the
"Purchaser Stockholder Meeting") to be duly called and held as soon as
reasonably practicable, for the purpose of voting on the approval and
adoption of this Agreement and the Merger (the "Purchaser Stockholder
Approval"). The board of directors of Purchaser shall recommend approval
and adoption of this Agreement by Purchaser's stockholders. In connection
with the Purchaser Stockholder Consent or the Purchaser Stockholder
Meeting, as the case may be, Purchaser (x) will promptly prepare and file
with the Commission, will use its reasonable best efforts to have cleared
by the Commission and will thereafter mail to its stockholders as promptly
as practicable the Purchaser Information Statement or Purchaser Proxy
Statement and all other proxy materials for the Purchaser Stockholder
Meeting, as applicable, (y) will use its best efforts, subject to the
immediately preceding sentence, to obtain the Purchaser Stockholder Consent
or the Purchaser Stockholder Approval and (z) will otherwise comply with
all legal requirements applicable to the Purchaser Stockholder Consent or
the Purchaser Stockholder Meeting.
6. POST-CLOSING COVENANTS. The Red River Shareholders, the Company and
Purchaser and Merger Sub agree as follows with respect to the period following
the Closing.
6.1 COOPERATION OF THE RED RIVER SHAREHOLDERS AND FORMER OFFICERS OF
COMPANY. The Red River Shareholders and the current officers and directors
of the Company, will reasonably cooperate upon and after the Closing Date
in effecting the Merger and the orderly transfer of the assets and
properties as well as the control of the Company to Purchaser by using
their reasonable efforts to cause any federal, state or local governmental
body, and every agency and department and instrumentality thereof, to have
contracts between such government, agency, department and instrumentality
and the Company, to the extent required under any existing Contracts
between the Company and such governmental body, as a result of the change
of control of the Company, to be approved and transferred into the name of
the Company under the control of the Purchaser following the Closing. To
the extent that any other contract between the Company and any other third
parties require approval as a result of the Merger, the Red River
Shareholders and the current officers and directors of the Company will
reasonably cooperate in effecting any such approval such that the Contracts
will remain intact and enforceable in accordance with the terms thereof. To
the extent required to effect any such approval and transfer of control,
the Red River Shareholders and the current officers and directors of the
Company will execute any appropriate and reasonable documents or
instruments required to accomplish such result.
6.2 LITIGATION SUPPORT. If and to the extent that the Company is
actively contesting or defending against any charge, complaint, action,
suit, proceeding, hearing, investigation, claim, or demand (collectively
"Proceedings") in connection with (i) any transaction contemplated under
this Agreement, or (ii) any fact, situation, circumstance, status,
condition, activity, practice, planning, occurrence, event, incident,
action, failure to act, or transaction on or prior to the Closing Date
involving the Company, the Company, the Red River Shareholders and the
current officers and directors of the Company will reasonably cooperate
with Purchaser, Merger Sub and their counsel in contesting or defending
against any such Proceedings, making available any personnel of the
Company, and providing such testimony in access to their books and records
as shall be reasonably necessary in connection with contesting or defending
against such Proceedings. Except to the extent that Purchaser and Merger
Sub are entitled to indemnification with respect to contesting or defending
any such Proceedings, Purchaser and Merger Sub shall bear the cost and
expense of contesting or defending against any such Proceedings.
6.3 DISPOSITION OF CONFIDENTIAL INFORMATION. After the Closing, the
Red River Shareholders and the current officers and directors of the
current Company will treat and hold as such all of the Confidential
Information, refrain from using any of the Confidential Information except
in connection with this Agreement, and deliver promptly to the Purchaser
and Merger Sub or destroy, at the request and option of Purchaser and
Merger Sub, all tangible correspondence, documents, instruments,
memorandums and all other writings (and all copies thereof) which embody
the Confidential Information which are in such persons' possession. Afer
the Closing, if the Red River Shareholders or current officers or directors
of the Company are requested or required (by oral question or request for
information or document in any legal proceeding, interrogatory, subpoena,
civil investigative demand, or similar process) to Red River, disclose any
Confidential Information, the Red River Shareholders and the current
officers or directors of the Company will notify Purchaser and Merger Sub
promptly of any such request or requirement to enable Purchaser and Merger
Sub to seek an appropriate remedy to enjoin the Red River disclosure of
such Confidential Information or waive compliance with the provisions of
this Section. The foregoing provision shall not apply to any Confidential
Information which is generally available to the public immediately prior to
the time of Red River disclosure.
6.4 OTHER TRANSITIONAL MATTERS. The Red River Shareholders and the
current officers and directors of the Company will not take any action
which primarily is designed or intended to have the effect of Red River
discouraging lessor, licenser, customer, supplier, or other business
associate of the Company or any of its subsidiaries from maintaining the
same business relationships with the Company and its subsidiaries after the
Closing as it maintained with the Company and its subsidiaries prior to the
Closing. The Red River Shareholders and the current officers and directors
of the Company will refer all lessor, licensor, customer and supplier
inquiries relating to the business of the Company and any of its
subsidiaries to Purchaser from and after the Closing Date.
6.5 EMPLOYEE BENEFITS. (a) Following the consummation of the Merger,
Purchaser shall continue to provide to individuals who are employed by the
Company as of the effective time of the Merger (the "Effective time") and
who, if any, remain employed with Purchaser or any Subsidiary of Purchaser
("Affected Employees"), for so long as such Affected Employees remain
employed by Purchaser or any Subsidiary of Purchaser, employee benefits
(other than salary or incentive compensation) pursuant to employee benefit
plans, programs, policies or arrangements maintained by Purchaser or any
Subsidiary of Purchaser providing coverage and benefits which, in the
aggregate, are generally comparable to those provided to employees of
Purchaser in positions comparable to positions held by Affected Employees
with Purchaser or its Subsidiaries from time to time after the Effective
Time.
(b) Purchaser will, or will cause the Surviving Corporation to, (i)
waive all limitations as to preexisting conditions, exclusions and waiting
periods with respect to participation and coverage requirements applicable
to the Affected Employees under any welfare benefit plans that such
employees may be eligible to participate in after the Effective Time, other
than limitations or waiting periods that are already in effect with respect
to such employees and that have not been satisfied as of the Effective Time
under any welfare plan maintained for the Affected Employees immediately
prior to the Effective Time, and (ii) provide each Affected Employee with
credit for any co-payments and deductibles paid prior to the Effective Time
in satisfying any applicable deductible or out-of-pocket requirements under
any welfare plans that such employees are eligible to participate in after
the Effective Time.
6.6 COOPERATION AFTER CLOSING. In case at any time after the Closing
Date any further action is necessary or desirable to carry out and
accomplish the purposes of this Agreement and the transactions contemplated
hereunder, the Red River Shareholders and the current officers and
directors of the Company, in the case of the Company's and the Red River
Shareholder's performance under this Agreement, and Purchaser, in the case
of Purchaser's and Merger Sub's performance under this Agreement, will take
such further action as the party seeking or requesting such performance
("Requesting Party") may reasonably request, including executing and
delivering such further instruments and documents as shall be necessary or
appropriate to accomplish and effectuate such transaction. Except as to
costs and damages associated with the indemnification of Purchaser and
Merger Sub, as provided below, all costs and expenses relating to any such
matters after the Closing Date will be borne by Purchaser and Merger Sub.
6.7 CONTINUITY OF BUSINESS. Following the Merger, the Surviving
Corporation will continue the historic business of the Company or use a
significant portion of the Company's business assets in a business.
6.8 BANK GUARANTEES. Following the Closing, Purchaser shall use its
best efforts to cause the release of the personal guarantees executed by
the Red River Shareholders which secure the Company's indebtedness to the
Bank of Oklahoma, National Association ("Bank") as described in Exhibit 6.8
attached hereto to the extent that the Bank is willing to consent to such a
release. As an inducement for the Bank to release the Red River
Shareholders from their personal guarantees of the indebtedness described
in Exhibit 6.8, Purchaser will execute a guaranty required by the Bank to
guarantee such indebtedness in substitution of the personal guarantees of
the Red River Shareholders only to the extent of their current guarantees
with the Bank. After the Closing, Purchaser shall indemnify and hold the
Red River Shareholders harmless from and against any and all amounts which
any or all of the Red River Shareholders are required to pay on account of
the guaranties set forth in Exhibit 6.8 attached hereto prior to their
release from such guaranties only, however, to the extent of their personal
guarantee obligations as currently in effec
6.9
TAX TREATMENT. Purchaser shall not take any action and shall not fail
to take any action which action or failure to act would prevent, or would
be reasonably likely to prevent, the Merger from qualifying as a
reorganization under Section 368 of the Code.
7. DELIVERY OF CLOSING DOCUMENTS.
7.1 DELIVERY OF CLOSING DOCUMENTS TO PURCHASER AND MERGER SUB. Subject
to the fulfillment of all of the conditions set forth in Section 3.1
hereof, at the Closing, the following documents, agreements, and
instruments shall be duly delivered by the Company and the Red River
Shareholders:
Certificates representing the shares of Red River Stock which shall be
duly executed in blank or with a duly executed stock power attached
thereto, endorsed in blank, in order to effect the transfer of the shares
of Red River Stock from the Red River Shareholders to Purchaser, with all
stock transfer, tax stamps, if any, affixed and cancelled and if required
by Purchaser's transfer agent shall be guaranteed by a United States
Commercial Bank or by a broker who is a member of the New York Stock
Exchange or is otherwise approved by the transfer agent of Purchaser to
guarantee signatures in connection with such transfer;
7.1.1 The Resignations of the Officers and Directors of the
Company as agreed upon in Exhibit 2.6.4 and as requested by Purchaser
prior to the Closing;
7.1.2 The books and records referred to in Section 3.1.10 hereof;
7.1.3 The opinion of Conner & Winters, A Professional
Corporation, counsel for the Company in the form and substance
reasonably requested by Purchaser;
7.1.4 A certificate of good standing from the State of Oklahoma
certified by the appropriate official of such state, dated as of the
date not more than five (5) days prior to the Closing Date evidencing
that the Company is duly qualified and in good standing and in effect
indicating that the Company has filed all franchise tax returns due to
the date of such certificate, that all taxes shown on such returns to
be due have been paid in full, and that there are no outstanding
franchise tax claims or assessments against the Company as of the date
of such certificate;
7.1.5 All consents and approvals referred to in section 3.1.11
hereof;
7.1.6 The Company's closing certificate in the form of Exhibit
7.1.6 attached hereto;
7.1.7 Certificate of Merger as contemplated by Section 2.5
hereof;
7.1.8 To the extent appropriate and only if any secured loan, for
which the Company is currently obligated is paid in whole or in part
on or prior to the Closing Date (which is not contemplated as of the
date hereof), documentation (including without limitation, duly
executed UCC-3 termination statements) satisfactory in form and
substance to Purchaser and Merger Sub as requested by Purchaser and
Merger Sub to release all or a portion of such Encumbrances to the
extent of such loan repayment, if any, in favor of any of the holders
of any such indebtedness on the property and assets of the Company;
7.1.9 Employment Agreement between the Surviving Corporation and
Rolf N. Hufnagel and Robert E. Davis, Jr., executed by them and the
Purchaser in the form attached hereto as Exhibit 7.1.9; and
7.1.10 Such other documents or instruments of further assurance
or conveyance as shall be deemed necessary and appropriate by the
Purchaser and Merger Sub.
7.2 DELIVERY OF DOCUMENTS TO THE COMPANY AND THE RED RIVER SHAREHOLDERS.
Subject to the fulfillment of all conditions set forth in Section 3.2 hereof, at
the Closing, the following documents, agreements and instruments shall be duly
delivered by the Purchaser and Merger Sub to the Company and Red River
Shareholders:
7.2.1 Stock Certificates representing shares of Beta Common Stock
to be issued to each of the Red River Shareholders in the amounts set
forth in Schedule A attached hereto;
7.2.2 Certificates of good standing from the Nevada and Oklahoma
Secretary of State (as appropriate), dated not more than five (5) days
prior to the Closing Date evidencing that Purchaser and Merger Sub are
duly qualified and in good standing and in effect indicating that
Merger Sub has filed all franchise taxes on the date of such
certificate, that all taxes shown on such returns to be due have been
paid in full, and that there are no outstanding franchise tax claims
or assessments against Merger Sub as of the date of such certificate;
7.2.3 Purchaser's and Merger Sub's closing certificate in the
form of Exhibit 7.2.3 attached hereto;
7.2.4 The opinion of Clanahan, Tanner, Downing & Knowlton, P.C.
to be in form and substance reasonably requested by the Company and
the Red River Shareholders; and
7.2.5 Employment Agreements between the Surviving Corporation,
Rolf N. Hufnagel and Robert E. Davis, Jr., executed by Surviving
Corporation and the Purchaser, in the form attached hereto as Exhibit
7.1.9.
7.2.6 Certificate of Merger as contemplated by Section 2.5
hereof; and
7.2.7 Such other documents and instruments of further assurance
and conveyance as shall be deemed necessary and appropriate to the
Closing of the transactions contemplated hereby.
8. TERMINATION
8.1 EVENTS OF TERMINATION. Anything contained elsewhere in this
Agreement to the contrary notwithstanding, prior to the Closing Date, this
Agreement may be terminated by written notice of termination as follows:
8.1.1 MUTUAL CONSENT. Any time by mutual consent of the Company
and Purchaser or Merger Sub;
8.1.2 PRIOR TO CLOSING DATE. By the Company or Purchaser or
Merger Sub if the other party shall have (i) misstated to any material
extent any representation or been in breach of any warranty contained
herein, or (ii) breached any covenant, undertaking or restriction
contained herein, and such misstatement or breach has not been cured
by the earlier of (a) thirty (30) days after the giving of notice of
such party of such misstatement or breach or (b) the Closing Date
8.1.3 DELAY. By either party by written notice to the other party
if the Closing shall not have occurred on or prior to March 31, 2000;
provided, however, that the right to terminate this Agreement under
this Section 8.1.3 shall not be available to any party whose failure
to fulfill or perform any obligation under this Agreement has been a
substantial cause of, or has substantially resulted in, the failure of
the Closing to occur on or before such date.
8.1.4 AMENDMENT OF EXHIBITS. By the party ("Receiving Party")
receiving Exhibits, Schedules or Attachments or amendments thereto
from the other party to this Agreement which disclose information
which such Receiving Party determines to materially adversely affect
the economic, financial or business considerations previously
determined by the Receiving Party in entering into this Agreement
setting forth its or his objection to such Exhibit, Schedule or
Attachment and to which such Receiving Party gives ten (10) days
written notice to the party furnishing such Exhibits, Schedules or
Attachments.
8.1.5 CONSEQUENCES OF TERMINATION. In the event of a termination
and abandonment hereof pursuant to the provisions of this Section 8,
this Agreement shall become void and have no effect, without any
liability on any of the parties or their directors or officers or
stockholder in respect of this Agreement, except that (a) the
agreements contained in this Section 8.1.5, in Section 5.3 and in
Section 9.2 shall survive the termination hereof and (b) no such
termination shall relieve any party of any liability or damages
resulting from a breach by that party of its representations,
warranties, covenants, agreements or other obligations under this
Agreement prior to such termination. In addition, if this Agreement is
terminated as provided under Section 8.1.2 hereof, the party,
misstating or breaching this Agreement shall be obligated to pay the
other party's costs and expenses incurred in connection with this
Agreement, including actual attorney's fees. Otherwise, if the
transactions contemplated hereunder cannot be consummated for reasons
beyond the control of the parties hereto, provided they have used
their best efforts to acquire the approvals and consents hereunder, or
this Agreement is terminated under the provisions of Sections 8.1.1 or
8.1.3 hereof , then each party hereto will pay its own expenses,
including without limitation its attorneys' fees and costs.
9. MISCELLANEOUS
9.1 NOTICES. Any notices under this Agreement shall be in writing,
signed by the party giving the same and transmitted by registered or
certified United States Mail or by a generally accepted national courier
service providing confirmation of delivery, and addressed to the party to
receive the notice at the address set forth below or such other address as
any party may specify by notice to the other party, and shall be deemed
properly given and received when actually given and received:
If to Purchaser: Beta Acquisition Company, Inc.
901 Dove Street, Suite 230
Newport Beach, California 92660
Attn: Steve Antry
With a copy to: J. Chris Steinhauser
If to the Company
and Red River Shareholders: Red River Energy, Inc.
6120 South Yale Avenue, Suite 813
Tulsa, Oklahoma 74136
With a copy to: Conner & Winters, A Professional Corporation
3700 First National Tower
15 East 5th Street
Tulsa, Oklahoma 74103
Attention: Lynnwood R. Moore, Jr.
9.2 BROKERAGE COMMISSIONS.
9.2.1 The Company hereby represents and warrants to Purchaser
that the Company has not engaged or utilized the services of any
broker or finder in connection with this transaction and that no
commissions are payable with respect to this transaction. The Company
hereby agrees to indemnify and hold Purchaser and the Company harmless
from and against any liability for any claims of any broker or finder
claiming by, through or under the Company or the Red River
Shareholders.
9.2.2 Purchaser and Merger Sub hereby represent and warrant to
the Company and the Red River Shareholders that neither the Purchaser
nor Merger Sub have engaged or utilized the services of any broker or
finder in connection with this transaction and that no commissions are
payable with respect to this transaction. Purchaser and Merger Sub
hereby agree to indemnify and hold the Red River Shareholders and the
Company harmless from and against any liability for any claims of any
other broker or finder claiming by, through or under Purchaser and
Merger Sub.
9.3 SUCCESSORS AND ASSIGNS. This Agreement is personal to the parties
hereto and may not be assigned, transferred, delegated or nullified without
the prior written consent of all of the parties hereto. This Agreement
shall be binding upon and inure to the benefit of the parties hereto and
their respective heirs, personal representatives, successors and permitted
assigns.
9.4 ARBITRATION. Any dispute arising pursuant to or in any way related
to this Agreement or the transactions contemplated hereby shall be settled
by arbitration at a mutually agreed upon location in Newport Beach,
California; provided, however, that nothing in this Section shall restrict
the right of either party to apply to a court of competent jurisdiction for
emergency relief pending final determination of a claim by arbitration in
accordance with this Section. All arbitration shall be conducted in
accordance with the rules and regulations of the American Arbitration
Association, in force at the time of any such dispute, by a panel of three
(3) single arbitrators selected in accordance with the procedures of the
American Arbitration Association. Each party shall pay its own expenses
associated with such arbitration, including 50% of the expenses of the
arbitrator, provided that the prevailing party in any arbitration shall be
entitled to reimbursement of reasonable attorney's fees and expenses
(including, without limitation, arbitration expenses) relating to such
arbitration. The award of the arbitrator, based upon written findings of
fact and conclusions of law, shall be binding upon the parties; and
judgment in accordance with that decision may be entered in any court
having jurisdiction thereof.
9.5 NO ORAL MODIFICATIONS. No amendments or modifications to this
Agreement shall be made or deemed to have been made unless in writing
executed and delivered by the party to be bound thereby. Any provision of
this Agreement may be waived, amended, supplemented or modified only by
agreement in writing of the parties hereto.
9.6 WAIVER. The failure of any party to this Agreement to insist upon
strict performance of any of the terms of this Agreement will not
constitute a waiver of any of its rights under this Agreement or its right
subsequently to assert, rely upon, or enforce any provision of this
Agreement.
9.7 GOVERNING LAW. This Agreement shall be interpreted, governed by
and enforced according to the laws of the State of Oklahoma.
9.8 SEVERABILITY. If any provision of this Agreement shall be held
invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions of this Agreement will not in
any way be affected or impaired thereby.
9.9 HEADINGS AND CAPTIONS FOR CONVENIENCE. The headings and captions
contained in this Agreement are for convenience only and shall not be
considered in interpreting the provisions hereof.
9.10 COUNTERPARTS. This agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, all of
which together shall constitute one and the same instrument.
9.11 REPRESENTATIONS, WARRANTIES AND COVENANTS. Notwithstanding any
investigation made by or on behalf of the Company, the Red River
Shareholders or Purchaser prior to or after the Closing Date, all
representations, warranties and covenants of the parties hereto contained
herein shall survive and remain in full force and effect for a period equal
to the earlier of (i) the date that the first independent consolidated
audit report of Purchaser and the Surviving Corporation is issued after the
Closing Date, or (ii) one year after the Closing Date.
9.12 REMEDIES FOR MISREPRESENTATION OR BREACH BY RED RIVER
SHAREHOLDERS. In the event of:
(a) any inaccuracy in any representation or the breach of any
warranty made by the
Red River Shareholders and the Company in or pursuant to this
Agreement or any Exhibit, Schedule or other attachment to this
Agreement,
(b) any failure by the Red River Shareholders and the Company
duly to perform or observe any term, provision, covenant, or agreement
in this Agreement to be performed or observed on the part of the Red
River Shareholders and the Company, or
(c) action, suit, investigation, proceeding, demand, assessment,
audit, judgment and claim, including any employment-related claim
arising out of the foregoing (collectively "Claims"), against the
Company or any of its subsidiaries, even though such Claims may not be
filed or come to light until after the Closing Date, Purchaser shall
have the right to demand an adjustment to the number of shares of the
Beta Common Stock issued to the Red River Shareholders as provided in
Section 2.1 hereof and a return of a portion of the shares of the Beta
Common Stock to recompense Purchaser for the amount of the loss
resulting from such misrepresentation or breach , the number of shares
to be determined by dividing the amount of the loss by the closing
price per share of Beta Common Stock as quoted at the Nasdaq Small Cap
Market or the Nasdaq National Market System (as applicable) on the
Closing Date. Notwithstanding anything contained in the foregoing to
the contrary, any and all such adjustments in the number of shares of
Beta Common Stock shall not exceed in the aggregate 225,000 shares of
Beta Common Stock over the period provided in Section 9.11 hereof.
Purchaser and Merger Sub hereby covenant and agree to immediately
provide to the Red River Shareholders any and all notifications or
other correspondence it receives related to matters which may affect
this indemnity.
The Red River Shareholders' obligation to return shares of Beta
Common Stock to Purchaser as provided hereunder shall not exceed in
the aggregate ten percent (10%) of the total shares issued to them as
determined on the Closing Date. The Red River Shareholders shall have
no obligation to return shares of Beta Common Stock until the
aggregate losses as provided under this Section 9.12 exceed One
Hundred Thousand Dollars ($100,000) and shall be liable to return a
portion of the shares of Beta Common Stock received by them on the
Closing Date only for the losses in excess of such amount. The amount
of any losses for which an adjustment is required to be made under
this Section 9.12 bythe Red River Shareholders shall be computed net
of any insurance proceeds received by the Surviving Corporation or
Purchaser with respect to the matter out of which such liability
arose. Each party agrees to use commercially reasonable efforts to
mitigate any damage or expense resulting from any matter giving rise
to the losses covered under this Section. It is agreed that the
obligations of the Red River Shareholders under this Section 9.12
shall be solely for the benefit of Purchaser, Merger Sub and the
Surviving Corporation and may not be enforced by any insurer under any
subrogation or similar agreement or arrangement or by any governmental
authority except as a receiver for Purchaser or Surviving Corporation.
The liability of the Red River Shareholders hereunder shall be joint
and several. No claims for losses under this Section 9.12 may be
asserted by Purchaser or Surviving Corporation under this section from
and after the period set forth in Section 9.11 of this Agreement. If
one or more of the Red River Shareholders who are required to return
shares of Beta Common Stock under the provisions of this Section 9.12
have sold all or a portion of their shares of Beta Common Stock such
that such shareholder(s) are unable to return shares of Beta Common
Stock as provided herein, such shareholder(s) obligation hereunder
shall be paid in cash in an amount equal to the closing market price
of the shares of Beta Common Stock, as determined on the Closing Date,
for which delivery thereof to Purchaser cannot be made.
Any dividends accruing or paid on the shares of Beta Common Stock
required to be returned under this Section 9.12 shall be returned to
Purchaser upon determination of the loss in the manner provided in
this Section 9.12.
As used in this Section 9.12 and Section 9.13, the term "loss"
shall mean and include (y) all losses, damages, costs and expenses,
including without limitation pre- and post-judgment interest,
penalties, court costs and attorneys' fees and expenses, and (z) all
demands, claims, actions, costs of investigation, causes of action,
proceedings, arbitrations, judgments, settlements and assessments.
After the Closing, the remedies provided in this Section 9.12 to
Purchaser, Merger Sub and the Surviving Corporation shall be exclusive
of any other rights or remedies available to Purchaser, Merger Sub or
the Surviving Corporation, either at law or in equity, for breach of
this Agreement or any certificates delivered pursuant hereto; provided
that none of Purchaser, Merger Sub or the Surviving Corporation waives
the right to seek specific performance or injunctive relief.
9.13 PURCHASER'S INDEMNIFICATION. In the event of:
(a) any inaccuracy in any representation or the breach of any
warranty made by Purchaser or Merger Sub in or pursuant to this
Agreement or any Exhibit, Schedule or other attachment to this
Agreement of Purchaser or Merger Sub; or
(b) any failure by Purchaser or Merger Sub of their duty to
perform or observe any item, provision, covenant or agreement in this
Agreement to be performed or observed on the part of Purchaser or
Merger Sub,
Purchaser shall be obligated to issue additional shares of Beta
Common Stock to each of the Red River Shareholders in proportion to
the number of shares issued to them by Purchaser on the Closing Date
to cover any losses resulting from any such misrepresentation or
breach provided in (a) and (b) above. The obligation to issue
additional shares of Beta Common Stock to the Red River Shareholders
under this Section 9.13 shall not exceed 225,000 shares of Beta Common
Stock and shall be determined based on the closing price of the shares
of the Beta Common Stock as determined on the Closing Date. The
provisions of Section 9.12 regarding the determination of the loss, ,
the limitation concerning the aggregate amount of losses (i.e.,
$100,000) which must be incurred before the adjustment in the number
of shares is required, and the offset of such losses by any insurance
proceeds received are hereby incorporated by reference as part of this
Section 9.13 and shall apply with equal force and effect to Purchaser
with respect to its obligations under this Section 9.13 as it applies
to the Red River Shareholders under Section 9.12 and in furtherance
thereof for purposes of this Section 9.13 all references to the Red
River Shareholders under Section 9.12 shall be to Purchaser where
applicable.
9.14 NO BENEFIT TO OTHERS. The representations, warranties, covenants
and agreements contained in this Agreement are for the sole benefit of the
parties hereto and their respective heirs, successors, assigns, and such
representations, warranties, covenants and agreements shall not be
construed as conferring, and are not intended to confer, any rights on any
other persons.
9.15 REGISTRATION OF SECURITIES.(a) As used in this Section 9.15, the
following terms have the meanings set forth below:
"Disadvantageous Condition" has the meaning set forth in Section
9.15(b)(iv).
"Holders" means the Red River Shareholders or any person who becomes a
holder of Subject Securities after the Closing Date as a result of a
No-Sale Transaction.
"No-Sale Transaction" means a transfer from a Holder of Subject
Securities that does not constitute a "sale" (as such term is understood
and defined under the Securities Act), including without limitation a
distribution from a Holder that is a corporation, partnership, joint
venture, limited liability company, association or trust to the owner of a
beneficial interest in such Holder.
"Registration Expenses" has the meaning set forth in Section 9.15(e).
"Registration Termination Date" means the second anniversary of the
date when the Commission first declares the Shelf Registration Statement
effective.
"Shelf Registration Statement" means a registration statement on Form
S-1 or S-3 filed with the Commission under the Securities Act.
"Subject Securities" means the shares of Beta Common Stock issued to
the Red River Shareholders pursuant to the Merger and any common stock or
other security issued or issuable as a dividend or other distribution with
respect to, or in exchange for, or upon conversion or in replacement of,
any of such Beta Common Stock.
"Suspension Notice" has the meaning set forth in Section 9.15(b)(iv).
(b) (i) By no later than March 31, 2000, Purchaser shall prepare
and file with the Commission a Shelf Registration Statement for the
purpose of registering the resale in the market from time to time of
the Subject Securities by Holders or by potential assignees of such
Holders to which all or a portion of such Holders' Subject Securities
may be transferred in a No-Sale Transaction.
(ii) Purchaser will use its best efforts to have the Shelf
Registration Statement promptly declared effective by the Commission
on or after the filing of such Shelf Registration Statement and
thereafter to maintain the effectiveness of the Shelf Registration
Statement and to maintain such Shelf Registration Statement "current"
(as below defined) at all times until the Registration Termination
Date. Purchaser shall promptly give written notice to the Holders when
the Registration Statement has been declared effective by the
Commission and is available for use by Holders for the resale of
Subject Securities.
(iii) The Shelf Registration Statement shall not be considered to
be "current" at any time when, by reason of occurrence of any event or
by reason of the passage of time, the Shelf Registration Statement
does not meet the requirements of Section 10, Section 12(2) or Section
17 of the Securities Act, or the Shelf Registration Statement contains
an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading. The Shelf Registration Statement shall
disclose that Holders may elect to resell Subject Securities without
registration of such sales under the Shelf Registration Statement, by
making such sales under and as permitted by Rules 144 or 145, as
applicable, of the Commission under the Securities Act.
(iv) If at any time or times after the Shelf Registration
Statement is declared effective by the Commission, Purchaser
determines that the offering of Beta Common Stock under the Shelf
Registration Statement would be significantly disadvantageous to
Purchaser because of, or improper in view of (or improper without
disclosure in the prospectus included in the Shelf Registration
Statement of), the existence or anticipation of a material financing,
merger, acquisition or other material transaction or event involving
Purchaser or its subsidiaries that has not been publicly disclosed,
the unavailability of any required financial statements for reasons
substantially beyond the control of the Purchaser, or other similar
events or conditions involving Purchaser or its subsidiaries that have
not been publicly disclosed (a "Disadvantageous Condition"), Purchaser
shall be entitled to either suspend the effectiveness of the Shelf
Registration Statement with the Commission or suspend the availability
of the Shelf Registration for resales of Subject Securities by
Holders, or may take both such actions, and shall promptly notify all
Holders thereof by delivery of written notice (a "Suspension Notice");
provided, however, that Purchaser's obligation to maintain the Shelf
Registration Statement current under this Section 9.15(b) shall not be
suspended by reason of Purchaser's failure to disclose information at
a time when public disclosure of such information is required by law.
Upon receipt of a Suspension Notice, Holders shall immediately
discontinue the use of the Shelf Registration Statement for any
purpose until notified by Purchaser that the Shelf Registration
Statement is current and available for use by Holders for sales of
Subject Securities. Purchaser shall not be entitled to suspend the
effectiveness of the Shelf Registration Statement until the later of
(X) the removal of the Disadvantageous Conditions or (Y) for a period
of not more than 60 consecutive days, or (B) 180 days within any
twelve-month period. As promptly as practicable after the public
disclosure of such Disadvantageous Condition or the Purchaser
determines that the Disadvantageous Condition no longer exists,
Purchaser shall amend or supplement the Shelf Registration Statement
to the extent necessary to make the Shelf Registration Statement
current, and shall give prompt written notice to all Holders when the
Shelf Registration Statement is again available for resales of Subject
Securities.
(v) Purchaser shall promptly notify all Holders of Subject
Securities of, and confirm in writing, the issuance by the Commission
of any stop order suspending the effectiveness of the Shelf
Registration Statement or the initiation of any proceedings for that
purpose. Purchaser shall use its best efforts to obtain the withdrawal
of any order suspending the effectiveness of the Shelf Registration
Statement at the earliest possible time.
(vi) Purchaser will cause all of the Subject Securities to be
listed on each securities exchange or market, as the case may be, on
which similar securities issued by Purchaser are then listed no later
than the effective date of the Shelf Registration Statement.
(c) If at any time the Purchaser proposes to file a registration
statement under the 1933 Act with respect to an offering by the
Purchaser for its own account or for the account of any other Person
of any class of equity security, including any warrants, options or
other security convertible into or exchangeable for any equity
security (other than a registration statement on Forms S-4 or S-8 (or
their successor forms) or filed in connection with an exchange offer
or an offering of securities solely to the Purchaser's existing
stockholders, and other than as set forth in subsection (c)(i) below),
then the Purchaser shall in each case give written notice of such
proposed filing to the Holders at least twenty (20) days before the
anticipated filing date, and such notice shall offer such Holders the
opportunity to register such number of Subject Securities as each such
Holder may request (a "Piggy-back Registration"). The Purchaser shall
use reasonable efforts to cause the managing underwriter or
underwriters of a proposed underwritten offering to permit the Holders
requested to be included in the registration for such offering to
include such securities in such offering on the same terms and
conditions as any similar securities of the Purchaser included
therein. Similarly, Purchaser may include the shares of any other
Person in the Shelf Registration Statement as contemplated in
subsection (b) above. Notwithstanding the foregoing, if the managing
underwriter or underwriters of such offering delivers an opinion to
the Holders that the total amount of securities which they and any
other Persons (other than the Purchaser) intend to include in such
offering is sufficiently large to materially and adversely affect the
success of such offering, then the amount of Subject Securities to be
offered for the accounts of Holders of Subject Securities shall be
reduced pro rata with all securities held by holders of securities
having rights for inclusion therein to the extent necessary, in the
opinion of such managing underwriter, to reduce the total amount of
securities to be included in such offering to the amount recommended
by such managing underwriter. In connection with the rights set forth
in this subsection 9.15(c), it is agreed that:
(i) Notwithstanding anything to the contrary contained in
this Agreement, the Purchaser shall not be required to include
Subject Securities in any registration statement if the proposed
registration is (1) a registration of a stock option or other
employee incentive compensation or employee benefit plan or of
securities issued or issuable pursuant to any such plan, or a
registration statement relating to warrants, options or shares of
capital stock granted or to be granted or sold primarily to
employees, directors or officers of the Purchaser, (2) a
registration of securities issued or issuable pursuant to a
stockholder reinvestment plan or other similar plan, (3) a
registration of securities issued in exchange for any securities
or any assets of, or in connection with a merger or consolidation
with, an unaffiliated Purchaser, (4) a registration of securities
pursuant to a "rights" or other similar plan designed to protect
the Purchaser's stockholders from a coercive or other attempt to
cause a change in control of the Purchaser, (5) a registration of
securities filed pursuant to Rule 145 under the 1933 Act or any
successor rule, or (6) a registration of preferred stock or
securities issued in connection with any debt or preferred stock
financing of the Purchaser.
(ii) The Purchaser may withdraw any registration statement
and abandon any proposed offering initiated by the Purchaser
without the consent of any Person, including the Holders,
notwithstanding the request of any such Holder to participate
therein in accordance with this provision, if the Purchaser
determines in its sole discretion that such action is in the best
interests of the Purchaser and its stockholders (for this
purpose, the interest of the Holders shall not be considered).
(d) Purchaser will indemnify and hold harmless each Holder, each
of such Holder's officers, directors, partners, or members, as the
case may be, and each Person controlling such Holder, with respect to
which registration or qualification of Subject Securities has been
effected pursuant to this Section 9.15 against all claims, losses,
damages, and liabilities, joint or several (or actions in respect
thereof), arising out of or based upon any untrue statement (or
alleged untrue statement) of a material fact contained in the Shelf
Registration Statement, prospectus, or offering circular, or in any
document incorporated by reference in any of the foregoing, or arising
out of or based upon any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, or any violation by
Purchaser of any rule or regulation promulgated under the Securities
Act applicable to Purchaser and relating to action or inaction
required of Purchaser in connection with the Shelf Registration, each
of such Holder's officers, directors, partners, or members, as the
case may be, and each Person controlling such Holder, for any legal
and any other expenses reasonably incurred in connection with
investigating or defending any such claims, loss, damage, liability or
action; PROVIDED, however, that Purchaser will not be liable in any
such case to the extent that any such claim, loss, damage, liability
or expense arises out of or is based upon any untrue statement or
omission based upon written information furnished to Purchaser by such
Holder specifically for inclusion in any such registration statement,
prospectus or offering circular. The obligations of Purchaser under
the foregoing indemnity agreement shall survive the completion of the
offering of Subject Securities under the Shelf Registration Statement
.
(e) Each Holder with respect to which registration or
qualification of Subject Securities has been effected pursuant to this
Section 9.15 will indemnify and hold harmless Purchaser, each of
Purchaser's officers, directors, and each Person controlling
Purchaser, against all claims, losses, damages, and liabilities, joint
or several (or actions in respect thereof), arising out of or based
upon any untrue statement (or alleged untrue statement) of a material
fact contained in any registration statement, prospectus, or offering
circular, or in any document incorporated by reference in any of the
foregoing, or arising out of or based upon any omission (or alleged
omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or
any violation by such Holder of any rule or regulation promulgated
under the Securities Act or Exchange Act applicable to such Holder and
relating to action or inaction required of such Holder in connection
with any such registration or qualification, and will promptly
reimburse Purchaser, each of Purchaser's officers, directors, and each
Person controlling Purchaser, for any legal and any other expenses
reasonably incurred in connection with investigating or defending any
such claims, loss, damage, liability or action; PROVIDED, however,
that such Holder will not be liable in any such case to the extent
that any such claim, loss, damage, liability or expense does not arise
out of or is not based upon any untrue statement or omission based
upon written information furnished by such Holder specifically for
inclusion in any such registration statement, prospectus or offering
circular. The obligations of Holders under the foregoing indemnity
agreement shall survive the completion of the offering of Subject
Securities under any registration statement provided for in this
Section 9.15.
(f) All expenses incident to Purchaser's performance of or
compliance with this Section 9.15, including, without limitation, all
registration and filing fees, fees and expenses of compliance with
securities or blue sky laws (including fees and disbursements of
counsel in connection with blue sky qualifications of the Subject
Securities), rating agency fees, printing expenses, messenger and
delivery expenses, internal expenses (including, without limitation,
all salaries and expenses of its officers and employees performing
legal or accounting duties), the fees and expenses incurred in
connection with the listing of the securities to be registered on The
Nasdaq Stock Market and all securities exchanges on which similar
securities issued by Purchaser are then quoted or listed, the fees and
disbursements of counsel for Purchaser and its independent certified
public accountants (including the expense of any special audit or
comfort letters required by or incident to such performance),
securities act liability insurance (if Purchaser elects to obtain such
insurance), the fees and expenses of any special experts retained by
Purchaser in connection with such registration, and fees and expenses
of other Persons retained by Purchaser, in connection with each
registration hereunder (but not including discounts, commissions, fees
or expenses payable to underwriters that are attributable to the
Subject Securities offered on behalf of the Selling Holder or the fees
and expenses of counsel for any selling Holder) (collectively, the
"Registration Expenses") will be borne by Purchaser.
(g) Purchaser will also take such action as may be required to be
taken under applicable blue sky laws in connection with the issuance
of Beta Common Stock pursuant to this Agreement and in connection with
resale of Subject Securities by Holders pursuant to the Shelf
Registration Statement; PROVIDED that Purchaser will not be required
to become qualified as a foreign corporation in any jurisdiction.
9.16 PUBLICITY. Prior to the Closing Date, all notices to third
parties and all other publicity relating to the transactions contemplated
by this Agreement shall be jointly planned, coordinated and approved by the
Company, and Purchaser or Merger Sub; provided, however, that such approval
shall not be unreasonably withheld.
9.17 EXHIBITS. The Exhibits, Schedules and Attachments referred to
herein are incorporated into this Agreement by reference. Such Exhibits,
Schedules and Attachments may be amended or modified by a party provided
that the other party ("Receiving Party") has been furnished with a copy of
the Amendment or modification to such Exhibit, Schedule or Attachment;
provided, however, that if any such amendment shall materially adversely
affect the economics, financial or business considerations of the
transactions contemplated under this Agreement as determined by the
Receiving Party, such Receiving Party may terminate this Agreement in
accordance with Section 8.1.4.
9.18 ENTIRE AGREEMENT. This Agreement, together with Exhibits,
Schedules and Attachments hereto, represents the entire agreement between
the parties hereto with respect to the subject matter hereof and all prior
agreements, understandings or negotiations shall be deemed merged herein.
No representations, warranties, promises or agreements, express or implied,
shall exist between the parties, except as stated herein.
9.19 CURRENCY AMOUNTS. All references to dollar amounts in this
Agreement shall refer to, and be interpreted solely as referring to, the
dollar amount under the United States monetary system.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
the day and year first above written.
BETA OIL & GAS, INC.
a Nevada corporation
By: J. Chris Steinhauser
Its: Chief Financial Officer
BETA ACQUISITION COMPANY, INC.
an Oklahoma corporation
By: /s/ J. Chris Steinhauser
Its: President
RED RIVER ENERGY, INC.
an Oklahoma corporation
By: /s/ Rolf N. Hufnagel
Its: President
THE RED RIVER SHAREHOLDERS
/s/Rolf N. Hufnagel
Rolf N. Hufnagel
/s/ Robert E. Davis, Jr.
Robert E. Davis, Jr.
/s/ Stephen J. Vogel
Stephen J. Vogel
/s/ Janet L. McGeehee
Janet L. McGeehee
/s/ Billy L. Baysinger, Jr.
Billy L. Baysinger, Jr.
/s/ Brent A. Biggs
Brent A. Biggs
/s/ Mark A. Biggs
Mark A. Biggs
ANNEX B
RED RIVER ENERGY, LLC
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED
DECEMBER 31, 1998
AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1999
INDEX TO FINANCIAL STATEMENTS
PAGE
----
INDEPENDENT AUDITOR'S REPORT .............................................................. B-2
CONSOLIDATED BALANCE SHEETS - December 31, 1998 and September 30, 1999 (unaudited) ........ B-3
CONSOLIDATED STATEMENTS OF OPERATIONS - For the Year Ended December 31, 1998 and
For the Nine Months Ended September 30, 1998 and 1999 (unaudited) .................. B-4
CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS' EQUITY - For the Year
Ended December 31, 1998 and For the Nine Months Ended September 30, 1999 (unaudited) B-5
CONSOLIDATED STATEMENTS OF CASH FLOWS - For the Year Ended December 31, 1998 and
For the Nine Months Ended September 30, 1998 and 1999 (unaudited) .................. B-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ................................................ B-8
INDEPENDENT AUDITOR'S REPORT
The Members
Red River Energy, LLC
Tulsa, Oklahoma
We have audited the consolidated balance sheet of Red River Energy, LLC and
subsidiary as of December 31, 1998, and the related consolidated statements of
operations, changes in members' equity, and cash flows for the year then ended.
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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Red River Energy,
LLC and subsidiary as of December 31, 1998 and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.
\s\ HEIN + ASSOCIATES LLP
HEIN + ASSOCIATES LLP
Certified Public Accountants
Orange, California
November 12, 1999
RED RIVER ENERGY, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 48,980 $ 201,466
Accounts receivable 335,002 239,637
Advance in drilling contract 30,000 --
Prepaid expenses -- 29,549
------------ ------------
Total current assets 413,982 470,652
OIL AND GAS PROPERTIES, at cost
(full cost method)
Evaluated properties 5,224,845 5,894,708
Unevaluated properties 1,143,656 2,713,510
Less - accumulated amortization of full cost pool (137,936) (371,041)
------------ ------------
Net oil and gas properties 6,230,565 8,237,177
OTHER OPERATING PROPERTY AND EQUIPMENT, at cost
Gas gathering system -- 1,323,258
Support equipment 1,012,335 1,094,384
Less - accumulated depreciation (38,118) (107,319)
------------ ------------
Net other operating property and equipment 974,217 2,310,323
FURNITURE, FIXTURES AND EQUIPMENT, net 39,316 34,485
------------ ------------
TOTAL ASSETS $ 7,658,080 $ 11,052,637
============ ============
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 68,424 $ 1,149,091
Accounts payable, trade 303,931 338,604
Accounts payable, related party 95,931 65,903
Accrued interest 36,154 67,324
Other accrued liabilities 2,300 60,709
------------ ------------
Total current liabilities 506,740 1,681,631
LONG-TERM DEBT, less current portion 6,421,095 8,800,056
------------ ------------
Total liabilities 6,927,835 10,481,687
MEMBERS' EQUITY
General Members, 100 unit certificates authorized, issued, and
outstanding at December 31, 1998 and September 30, 1999,
respectively 730,245 570,950
------------ ------------
TOTAL LIABILITIES AND MEMBERS' EQUITY $ 7,658,080 $ 11,052,637
============ ============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
RED RIVER ENERGY, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR FOR THE NINE MONTHS
ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1998 1998 1999
----------- ----------- -----------
(unaudited) (unaudited)
NET REVENUES:
Oil and gas sales $ 865,356 $ 324,465 $ 2,009,500
----------- ----------- -----------
COSTS AND EXPENSES:
Operating expense 316,533 128,921 974,619
General and administrative 685,573 452,345 506,302
Depreciation, depletion and
amortization expense 182,747 69,814 309,734
----------- ----------- -----------
Total costs and expenses 1,184,853 651,080 1,790,655
----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS (319,497) (326,615) 218,845
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Gain (loss) on sale of fixed assets (20,000) 2,437
Interest expense, net (168,851) (62,076) (366,871)
Other, net (1,318) (2,327) (2,606)
----------- ----------- -----------
Total other income (expense) (190,169) (64,403) (367,040)
----------- ----------- -----------
NET (LOSS) $ (509,666) $ (391,018) $ (148,195)
=========== =========== ===========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
RED RIVER ENERGY, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
BALANCE, January 1, 1998 $ --
Sale of member units 380,000
Contribution of salaries by members 217,800
Contribution of equipment by members 774,000
Capital contributions 38,565
Distribution to members (170,454)
Net loss for the year ended December 31, 1998 (509,666)
---------
BALANCE, December 31, 1998 $ 730,245
Contribution of salaries by members (unaudited) 207,900
Distributions to members (unaudited) (219,000)
Net loss for the nine months ended September 31, 1999 (unaudited) (148,195)
---------
BALANCE, September 30, 1999 (unaudited) $ 570,950
=========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
RED RIVER ENERGY, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR FOR THE NINE MONTHS
ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1998 1998 1999
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES: (unaudited) (unaudited)
Net (loss) from operations $ (509,666) $ (391,018) $ (148,195)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation, depletion, and amortization 182,747 69,814 309,734
Contribution of salaries by members 217,800 158,400 207,900
(Gain) loss on sale of equipment 20,000 -- (2,437)
(Increase) decrease in:
Accounts receivable (335,002) (149,145) 95,365
Advance in drilling contract (30,000) (30,000) 30,000
Prepaid expenses -- -- (29,549)
Increase (decrease) in:
Accounts payable, trade 303,931 78,323 34,673
Accounts payable, related party 95,931 72,874 (30,028)
Accrued interest 36,154 66,047 31,170
Other accrued liabilities 2,300 95,190 58,409
----------- ----------- -----------
Net cash provided by (used in) operating
activities (15,805) (29,515) 557,042
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for:
Evaluated oil and gas property (5,224,845) (5,224,845) (669,863)
Unevaluated oil and gas property (1,127,656) (218,122) (1,569,854)
Gas gathering system property -- -- (1,323,258)
Support equipment (273,335) (185,011) (106,503)
Furniture, Fixtures and equipment (57,009) (25,359) (686)
Proceeds from sale of property and equipment 10,000 -- 24,980
----------- ----------- -----------
Net cash (used in) investing activities (6,672,845) (5,653,337) (3,645,184)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash borrowings from line of credit 6,274,734 5,894,734 3,510,366
Issuance of notes payable 345,000 125,000 --
Principal payments on borrowings (130,215) (6,461) (50,738)
Proceeds from sale of member units 380,000 380,000 --
Capital contributions 38,565 20 --
Distributions to members (170,454) (132,678) (219,000)
----------- ----------- -----------
Net cash provided by financing activities 6,737,630 6,260,615 3,240,628
----------- ----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 48,980 577,763 152,486
CASH AND CASH EQUIVALENTS, at beginning of period -- -- 48,980
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, at end of period $ 48,980 $ 577,763 $ 201,466
----------- ----------- -----------
(CONTINUED)
(CONTINUED)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid for:
Interest $ 152,342 $ 565 $ 463,728
=========== =========== ===========
Non-cash investing and financing transactions:
Assets contributed by owners $ 774,000 $ 774,000 $ -
=========== =========== ===========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
RED RIVER ENERGY, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
1. NATURE OF OPERATIONS:
Red River Energy, LLC ("Red River") was incorporated in the State of
Oklahoma in November 1997, with operations commencing in February 1998,
to engage in the business of oil and gas exploration, acquisition,
production, development, marketing, and transportation business in the
United States.
The Company also conducts business through its subsidiaries TCM, LLC
("TCM") and Red River Field Services, LLC ("Red River Field"). TCM was
incorporated in the State of Oklahoma in November 1997, with operations
commencing in August 1998, to explore, produce, market, and transport
coal bed methane gas from leases located in Eastern Oklahoma. Red River
Field was incorporated in the State of Oklahoma in March 1999 to market
and transport gas produced by Red River Energy and others from leasehold
interests located in Eastern Oklahoma.
As reflected in the accompanying financial statements, the Company has
incurred net losses for the year ended December 31, 1998 and the nine
months ended September 30, 1999, and has significant negative working
capital. Management expects improvements in operations as the oil and gas
property interests become more productive in the future. Also, the
members have unit subscriptions outstanding of $1,120,000 at December 31,
1998 and September 30, 1999, that have not been called by the Company.
Finally, the Company entered into an agreement and plan of merger with
Beta Oil and Gas, Inc. during 1999 (See Note 9). Management believes
these actions will provide the Company with adequate working capital to
meet its obligations on a current basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of Red River and subsidiaries ("the Company"). All
significant intercompany accounts and transactions have been eliminated
in consolidation.
USE OF ESTIMATES - The preparation of the Company's consolidated
financial statements in conformity with generally accepted accounting
principles requires the Company's management to make estimates and
assumptions that affect the amounts reported in these financial
statements and accompanying notes. Actual results could differ from those
estimates.
The Company's financial statements are based on significant estimates
including the selection of useful lives for property, plant and
equipment, and oil and gas reserve quantities which form the basis for
the calculation of amortization and impairment of oil and gas properties.
Management emphasizes that reserve estimates are inherently imprecise and
that estimates of more recent discoveries are more imprecise than those
for properties with long production histories.
RED RIVER ENERGY, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
OIL AND GAS PROPERTIES - The Company follows the full cost method of
accounting for oil and gas producing activities and, accordingly,
capitalizes all costs incurred in the acquisition, exploration, and
development of proved oil and gas properties, including the costs of
abandoned properties, dry holes, geophysical costs, and annual lease
rentals. All general corporate costs are expensed as incurred. In
general, sales or other dispositions of oil and gas properties are
accounted for as adjustments to capitalized costs, with no gain or loss
recorded. Amortization of evaluated oil and gas properties is computed on
the units of production method based on all proved reserves on a country
by country basis. Unevaluated oil and gas properties are assessed for
impairment either individually or on an aggregate basis. The net
capitalized costs of evaluated oil and gas properties (full cost ceiling
limitation) are not to exceed their related estimated future net revenues
discounted at 10%, and the lower of cost or estimated fair value of
unproved properties, net of tax considerations.
JOINT VENTURES - All exploration and production activities are conducted
jointly with others and, accordingly, the accounts reflect only the
Company's proportionate interest in such activities.
REVENUE RECOGNITION - The Company recognizes oil and gas sales upon
delivery to the purchaser.
FURNITURE, FIXTURES AND EQUIPMENT - Furniture, fixtures, and equipment
are stated at cost. Provision for depreciation and amortization on
property and equipment is calculated using the straight-line and
accelerated methods over the estimated useful lives (ranging from 3 to 5
years) of the respective assets. The cost of normal maintenance and
repairs is charged to operating expense as incurred. Material
expenditures, which increase the life of an asset, are capitalized and
depreciated over the estimated remaining useful life of the asset. The
cost of properties sold, or otherwise disposed of, and the related
accumulated depreciation or amortization are removed from the accounts,
and any gain or losses are reflected in current operations.
IMPAIRMENT OF LONG-LIVED ASSETS - In the event that facts and
circumstances indicate that the costs of long-lived assets, other than
oil and gas properties, may be impaired, an evaluation of recoverability
would be performed. If an evaluation is required, the estimated future
undiscounted cash flows associated with the asset would be compared to
the asset's carrying amount to determine if a write-down to market value
or discounted cash flow value is required. Impairment of oil and gas
properties is evaluated subject to the full cost ceiling as described
under oil and gas properties.
INCOME TAXES - A provision for income taxes has not been recorded in the
accompanying financial statements as taxes accrue directly to the
individual members of the Company.
CONCENTRATIONS OF CREDIT RISK - Credit risk represents the accounting
loss that would be recognized at the reporting date if counterparties
failed completely to perform as contracted. Concentrations of credit risk
(whether on or off balance sheet) that arise from financial instruments
exist for groups of customers or counter parties when they have similar
economic characteristics that would cause their ability to meet
contractual obligations to be similarly affected by changes in economic
or other conditions described
RED RIVER ENERGY, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
below. In accordance with FASB Statement No. 105, DISCLOSURE OF
INFORMATION ABOUT FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET
RISK AND FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT RISK, the
credit risk amounts shown in cash and accounts receivable do not take
into account the value of any collateral or security.
The Company operates primarily in the oil and gas industry within the
United States. Oil and gas sales are based solely on short-term purchase
contracts from three customers with related accounts receivable subject
to credit risk.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The estimated fair values for
financial instruments under FAS No. 107, DISCLOSURES ABOUT FAIR VALUE OF
FINANCIAL INSTRUMENTS, are determined at discrete points in time based on
relevant market information. These estimates involve uncertainties and
cannot be determined with precision. The estimated fair values of the
Company's financial instruments, which includes all cash, accounts
receivable, accounts payable, and long term debt approximates the
carrying value in the financial statements at December 31, 1998 and
September 30, 1999.
HEDGING ACTIVITIES - The Company uses derivative commodity instruments to
manage commodity price risks associated with future natural gas and crude
oil production but does not use them for speculative purposes. The
Company's commodity price hedging program utilizes swap contracts. To
qualify as a hedge, these contracts must correlate to anticipated future
production such that the Company's exposure to the effects of commodity
price changes is reduced. The gains and losses related to these hedging
transactions are recognized as adjustments to the revenue recorded for
the related production. No such contracts were outstanding as of December
31, 1998. As of September 30, 1999, the Company had contracts expiring on
October 31, 1999 on the sale of 105,000 Mmbtu of gas at an average price
$2.35 per Mmbtu.
STATEMENT OF CASH FLOWS - For purposes of the statement of cash flows,
the Company considers all highly liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents.
IMPACT OF RECENTLY ISSUED STANDARDS - In June 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards No. 133 (FASB133), "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES." This statement is effective for fiscal years
beginning after June 15, 1999. However, in July 1999, FASB137 was issued
delaying the effective date of FASB133 for one year, to fiscal years
beginning after June 15, 2000. FASB133 requires that an entity recognize
all derivatives as assets or liabilities in the statement of financial
position and measure their instruments at fair value. The Company does
not believe the adoption of FASB133 will have a material impact on
assets, liabilities, or equity. The Company has not yet determined the
impact of FASB133 on the income statement or the impact on comprehensive
income.
RED RIVER ENERGY, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
FASB132, "EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT
BENEFITS" and FASB134, "ACCOUNTING FOR MORTGAGE-BACKED SECURITIES
RETAINED AFTER THE SECURITIZATION OF MORTGAGE LOANS HELD FOR SALE BY A
MORTGAGE BANKING ENTERPRISE" were issued in 1998. SFAS No. 135,
"RESCISSION OF FASB STATEMENT NO. 75 AND TECHNICAL CORRECTIONS" and
SFAS No. 136, "TRANSFERS OF ASSETS TO A NOT-FOR-PROFIT ORGANIZATION OR
CHARITABLE TRUST THAT RAISES OR HOLDS CONTRIBUTIONS FOR OTHERS" were
issued in 1999. These pronouncements are not expected to impact the
Company regarding future financial statement disclosures, results of
operations, or financial position.
SEGMENT INFORMATION - The Company has adopted SFAS 131, "Disclosure about
Segments of an Enterprise and Related Information." As defined in that
Standard, the Company operates in only one segment, oil and gas
exploration.
INTERIM FINANCIAL INFORMATION - The September 30, 1998 and 1999 financial
statements have been prepared by the Company without audit. In the
opinion of management, the accompanying financial statements contain all
adjustments (consisting of only normal recurring accruals) necessary for
a fair presentation of the Company's financial position as of September
30, 1999 and the results of operations and cash flows for the nine months
ended September 30, 1998 and 1999. The results of operations for the nine
month periods ended September 30, 1998 and 1999 are not necessarily
indicative of those that will be obtained for the entire fiscal year.
3. SUMMARY OF OIL AND GAS OPERATIONS:
PROPERTY ACQUISITIONS - In July 1998, the Company acquired a 97.4%
working interest (80.0% net revenue interest) in a producing oil and gas
prospect in Central Oklahoma for a cash payment of $5,258,000. The
property includes a 30,160-acre unit producing from 22 active wells. In
March 1999, the Company acquired an 85.0% working interest (68.0% net
revenue interest) in 7,500 acres that are currently producing from 45
active wells in Eastern Oklahoma for a cash payment of $1,950,000. The
property also includes a gas gathering system consisting of 40 miles of
pipeline transporting gas produced to Eastern Oklahoma.
FULL COST AMORTIZATION EXPENSE - Amortization expense amounted to
$137,936 for the year ended December 31, 1998 and $233,105 for the nine
months ended September 30, 1999. Amortization expense per equivalent
units of oil and gas produced amounted to $1.97 and $1.94 for the year
ended December 31, 1998 and the period ended September 30, 1999. Natural
gas is converted to equivalent units of oil on the basis of six MCF of
gas to one equivalent barrel of oil.
UNEVALUATED OIL AND GAS PROPERTIES - The Company is currently developing
a 46 well coal bed methane project located in Eastern Oklahoma. As of
December 31, 1998 and September 30, 1999 the property had not been
evaluated through exploration, and therefore is not included in the
depletion base. Drilling is expected to continue on the prospect through
1999 and in future periods. As the prospect is evaluated through future
drilling, the property development and exploration
RED RIVER ENERGY, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
costs associated with the wells drilled will be transferred to evaluated
properties and included in the depletion base.
CAPITALIZATION OF INTEREST - For the year ended December 31, 1998, the
Company capitalized interest costs of $18,896 for the year ended December
31, 1998 and $122,619 for the nine months ended September 30, 1999
related to the unevaluated oil and gas properties' exploration
activities.
COSTS INCLUDED IN OIL AND GAS PRODUCING ACTIVITIES - Costs incurred in
oil and gas producing activities are as follows:
DECEMBER 31, 1998 SEPTEMBER 30, 1999
UNITED STATES UNITED STATES
-------------------- --------------------
Property acquisition $ 5,224,845 $ 669,863
=============== ===============
Exploration $ 1,143,656 $ 1,569,854
=============== ===============
Development $ - $ -
=============== ===============
4. OTHER OPERATING PROPERTY AND EQUIPMENT
Other operating property and equipment are the 40 miles of pipeline
acquired in Eastern Oklahoma and specific equipment and vehicles related
to the oil and gas activities. During the year ended December 31, 1998
and the nine months ended September 30, 1999, the Company recorded
depreciation expense of $38,118 and $70,812, respectively.
At December 31, 1998 and September 30, 1999, support equipment with a net
book value of $700,000 was classified as idle. In management's opinion,
the net book value of the idle equipment is not in excess of net
realizable value.
5. FURNITURE, FIXTURES AND EQUIPMENT:
Property and equipment consisted of the following:
DECEMBER 31, 1998 SEPTEMBER 30, 1999
-------------------- ------------------
Office equipment $ 40,000 $ 40,000
RED RIVER ENERGY, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
Computer equipment 6,009 6,995
Less- accumulated depreciation (6,693) (12,510)
---------------- ----------------
$ 39,316 $ 34,485
================ ================
During the year ended December 31, 1998 and the nine months ended
September 30, 1999, the Company recorded depreciation expense of $6,693
and $5,817, respectively.
6. LONG-TERM DEBT:
Long-term debt consisted of the following:
DECEMBER 31, SEPTEMBER 30,
1998 1999
---------------- -----------------
Note payable under a revolving credit agreement, due July
31, 2001, bearing interest at the prime rate minus .25%
(7.50% at December 31, 1998), accrued interest payable
monthly, secured by substantially all oil and gas
properties owned by Red River and Red River Field. $ 5,413,000 $ 7,619,866
Note payable under a revolving credit agreement, monthly
payments of principal and accrued interest equal to 100%
of the net production proceeds of specific coal bed
methane wells, final payment on outstanding principal and
interest due July 31, 2002, bearing interest at the prime
rate plus 1.50% (9.25% at December 31, 1998), secured by
certain assets of TCM. 861,734 2,165,234
Note payable, due in monthly installments of $6,845
including interest of 7.50% maturing on October 31, 2001,
unsecured. 214,785 164,047
---------------- ----------------
6,489,519 9,949,147
---------------- ----------------
Less current portion 68,424 1,149,091
---------------- ----------------
$ 6,421,095 $ 8,800,056
================ ================
The $5,413,000 note at December 31, 1998 arises from a credit agreement
with a commercial bank for Red River that provides for maximum
outstanding borrowings aggregating $25 million and maturing on July 31,
2001. The aggregate amount of advances under the revolving credit
agreement is limited to a collateral borrowing base of $5.8 million at
December 31, 1998 and $7.7 million at September 30, 1999. The members
have committed to a limited personal guarantee of the repayment of the
credit agreement up to $800,000. Under the terms of the agreement, the
Company is required to maintain certain ratios and be in compliance with
other
covenants. At December 31, 1998 and September 30, 1999, the Company was
not in compliance with certain covenants for which it has obtained
waivers.
RED RIVER ENERGY, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
The $861,734 note at December 31, 1998 arises from a credit agreement
between an energy financial services company and TCM which provides for
maximum outstanding borrowings aggregating $2.5 million and maturing on
July 31, 2002. Under the terms of the agreement, TCM may make periodic
draws to fund specific costs incurred in developing certain coal bed
methane wells. Also, TCM is required to make monthly repayments of
principal and accrued interest equal to 100% of the net production
proceeds of specific coal bed methane gas wells. The agreement allows for
the deferral of the required monthly repayments if the purchase of the
production from those wells does not meet specific percentages of
production. However, if outstanding borrowings on the agreement are
greater than 90%, 50%, and 25% of the total borrowings made under the
agreement at March 31, 2000 and July 31, 2001, and 2002, respectively,
then TCM is required to make additional payments equal to the difference
between the outstanding borrowings at the date and the specific
percentage of total borrowings made under the agreement.
TCM has also granted to the lender an undivided 2% overriding royalty
interest in the coal bed methane gas wells. The overriding royalty
interest is reduced (to a minimum of 1-7/12%) if the borrowings are
repaid prior to specified dates and, may be increased (to a maximum of
3%) if borrowings are not repaid by specific dates. No value has been
assigned to the overriding royalty interest because the properties are
still being evaluated. At that time the properties are evaluated and
overriding royalties are due, TCM will treat the payments as additional
interest expense to the extent paid. For the year ended December 31, 1998
and the nine months ended September 31, 1999, there have been no
overriding royalty payments made to the lender.
At December 31, 1998, TCM was in compliance with all covenants. At
September 30, 1999, TCM was not in compliance with certain covenants,
and, as a result, has negotiated with the lender to revise the covenants
and timing of required payments.
Scheduled maturities of notes payable and long-term debt are as follows:
YEARS ENDING DECEMBER 31, AMOUNT
------------------------ ------------
1999 $ 68,424
2000 504,539
2001 5,701,122
2002 215,434
-----------
TOTAL $ 6,489,519
===========
RED RIVER ENERGY, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
7. COMMITMENTS AND CONTINGENCIES:
LEASE COMMITMENTS - The Company leases office space in Oklahoma and
certain vehicles under long-term operating leases. The Company's leases
include the cost of real property taxes. Insurance, utilities, and
routine maintenance are the Company's responsibility. Future minimum
lease payments for all non-cancelable operating leases are as follows:
YEARS ENDING DECEMBER 31, AMOUNT
------------------------ ------------
1999 $ 62,159
2000 32,363
2001 -
2002 -
----------
$ 94,522
==========
Rent expense was $51,827 and $81,394 for the year ended December 31, 1998
and the nine months ended September 30, 1999, respectively.
8. MEMBERS' EQUITY:
The Company has 100 unit certificates issued and outstanding at December
31, 1998 and September 30, 1999. In February 1998, unit certificates were
issued to six individual members for $15,000 per unit. Each member paid
25% in cash for the purchase of the units and the Company issued unit
subscription agreements for the remaining purchase commitment by each
member. For financial reporting purposes, the subscription agreements
have not been recorded in the financial statements. Two majority members
also made additional contributions of unreimbursed organization costs and
assets to the Company totaling $812,565. The assets consist of office
furniture with a historical cost of $19,000 and equipment with a
historical cost of $755,000, $700,000 is idle at December 31, 1998 and
September 30, 1999, and is expected to be used in the exploration and
production of the coal bed methane gas properties. Profits and losses of
the Company will be allocated to the members in proportion to their
respective ownership interests. Distributions are limited to available
cash as defined in the operating agreement.
The six members are also considered employees of the Company. The members
dedicate a substantial amount of time to the Company and its operations,
but have not taken salaries. At December 31, 1998 and September 30, 1999,
the Company recorded salaries for the members of $217,800 and $207,900,
respectively. The members contributed these amounts to the Company as
additional contributions.
The members have also taken cash withdrawals of $170,454 and $219,000 at
December 31, 1998 and September 30, 1999.
RED RIVER ENERGY, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
The Company has assigned overriding royalty interests to certain members
of the LLC to reward such members with incentive compensation based on
the results of the Company's oil and gas drilling activities. The
interests assigned were determined at the discretion of management prior
to the commencement of certain drilling programs by the Company. At
September 30, 1999, the Company had paid $2,031 to the members as
overriding royalty interests and an additional $748 is accrued as other
accrued liabilities.
TCM has 1,000 member units outstanding at December 31, 1998 with 800
units owned by the Company and 200 units owned individually by a member
of the Company as a minority interest. Upon formation of TCM, the Company
committed to contribute cash and assets to be used on establishing and
developing TCM. For the additional cash and assets contributed, the
Company received no additional ownership units. Under the operating
agreement, the Company is to receive all income and losses of TCM until
such time as the total amount of income allocated to the Company equals
the amount of cash, service, and equipment contributions made to TCM.
Thereafter, profits and losses of TCM will be allocated to the two owners
in proportion to their respective ownership interests. Distributions are
limited to available cash as defined in the operating agreement.
9. SUBSEQUENT EVENTS (UNAUDITED):
Subsequent to September 30, 1999, the members of the Company exchanged
their units of ownership interest for stock in Red River Energy, Inc. an
Oklahoma corporation which has elected to be taxed as an S corporation.
As a result of this transaction, Red River Energy, Inc. is now the parent
of the Company and the former members of the Company now own all of the
issued and outstanding stock of Red River Energy, Inc.
On November 19, 1999, Red River Energy, Inc., the current parent of the
Company, entered into a binding Agreement and Plan of Merger with Beta
Oil & Gas Inc., (Beta). The merger consideration consists of Beta common
stock. Under the agreement, Beta has also agreed to guarantee certain of
the Company's bank indebtedness. Upon closing of the agreement, the
members of the Company will convert all issued and outstanding unit
certificates into 2.25 million shares of Beta common stock. Completion of
the agreement is contingent upon approval by Beta shareholders.
10. UNAUDITED SUPPLEMENTARY OIL AND GAS RESERVE INFORMATION:
The following supplementary information is presented in compliance with
United States Securities and Exchange Commission ("SEC") regulations and
is not covered by the report of the Company's independent auditors.
RED RIVER ENERGY, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
The information required to be disclosed for the year ended 1998 in
accordance with FASB Statement No. 69, "Disclosures About Oil and Gas
Producing Activities," is discussed below and is further detailed in the
following tables.
Proved oil and gas reserves are the estimated quantities of crude oil,
natural gas, and natural gas liquids which geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years
from known reservoirs under existing economic and operating conditions.
Proved developed oil and gas reserves are those reserves expected to be
recovered through existing wells with existing equipment and operating
methods. The reserve data is based on studies prepared by the Company's
independent consulting petroleum engineers. Reserve estimates require
substantial judgement on the part of petroleum engineers resulting in
imprecise determinations, particularly with respect to new discoveries,
Accordingly, it is expected that the estimates of reserves will change as
future production and development information become available. All proved
oil and gas reserves are located in the United States. At December 31,
1998, all of the Company's proved oil and gas reserve quantities are
located in Central Oklahoma. The following table presents estimates of the
Company's net proved oil and gas reserves, and changes therein for the
year ended December 31, 1998.
CHANGES IN QUANTITIES OF PROVED PETROLEUM AND NATURAL GAS RESERVES
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1998
OIL GAS
(BBLS) (MCF)
---------------- --------------------
Proved reserves, beginning of year - -
Purchase of minerals in place 451,000 15,963,000
Sale of minerals in place (17,000) (421,000)
---------------- ----------------
Proved reserves, end of year 434,000 15,542,000
================ ================
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (UNAUDITED) -
Statement of Financial Accounting Standards No. 69 prescribes guidelines
for computing a standardized measure of future cash flows and changes
therein relating to estimated proved reserves. The Company has followed
these guidelines which are briefly discussed below.
Future cash inflows and future production and development costs are
determined by applying year-end prices and costs to the estimated
quantities of oil and gas to be produced. Estimates of future income
taxes are computed using current statutory income tax rates including
consideration for estimated future statutory depletion and tax credits.
The resulting net cash flows are reduced to present value amounts by
applying a 10% discount factor.
The assumptions used to compute the standardized measure are those
prescribed by the Financial Accounting Standards Board and, as such, do
not necessarily reflect the Company's expectations
for actual revenues to be derived from those reserves nor their present
worth. The limitations inherent in the reserve quantity estimation
process, as discussed previously, are equally applicable to the
standardized measure computations since these estimates are the basis for
the valuation process.
RED RIVER ENERGY, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
The following summary sets forth the Company's future net cash flows
relating to proved oil and gas reserves as of December 31, 1998 based on
standardized measure prescribed in Statement of Financial Accounting
Standard No. 69.
YEAR ENDED
DECEMBER 31,1998
-----------------
Future cash inflows $ 42,075,000
Future costs-
Production (15,648,000)
Development -
--------------
Future net cash inflows before income tax 26,427,000
Future income tax (1,140,000)
--------------
Future net cash flows 25,287,000
10% discount factor (15,181,000)
--------------
Future net cash flows $ 10,106,000
==============
CHANGES IN THE STANDARDIZED MEASURE (UNAUDITED) - The following are the
principal sources of changes in the standardized measure of discounted
future net cash flows for the year ended December 31, 1998:
YEAR ENDED
DECEMBER 31,1998
-----------------
Standardized measure, beginning of year -
Purchase of minerals in place $ 11,795,000
Sale of oil and gas produced,
net of production costs (549,000)
Changes in income taxes, net (1,140,000)
---------------
Standardized measure, end of year $ 10,106,000
===============
RED RIVER MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF CONDITIONS
The following discussion should be read in conjunction with Red River's
consolidated financial statements and related notes to the financial statements
appearing elsewhere in this proxy statement. The following discussion is to
inform you about the financial position, liquidity and capital resources of Red
River as of December 31, 1998 and September 30, 1999 as well as for the results
of operations for the nine months ended September 30, 1998, the year ended
December 31, 1998, and the nine months ended September 30, 1999.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Red River's working capital was a deficit of ($92,758) at December 31,
1998 and ($1,210,979) at September 30, 1999. Red River's working capital
decreased due to advances to its subsidiary, TCM, LLC. These advances to TCM
were used primarily to provide working capital for drilling and completing coal
bed methane wells on coal bed leases owned by TCM, and associated operating and
general and administrative costs of TCM. Included in Red River's consolidated
current liabilities of September 30, 1999 is the current portion of long- term
debt, owed by its subsidiary, TCM, to its lender under a revolving line of
credit. This debt, which was used to fund TCM's drilling of coal bed wells, is
recourse only to the assets of TCM, L.L.C., the 80% owned subsidiary of Red
River which conducts its coal bed methane exploration and development operations
consisting primarily of coalbed leases, and is not recourse to any of the other
assets of Red River other than its 80% ownership of TCM. Additionally, Red River
had unutilized available borrowing capacity under its revolving line of credit
at December 31, 1998 of $2,287,000, and at September 30, 1999 of $800,134.
Subsequent to September 30, 1998, Red River increased its unutilized available
borrowing capacity to $1,705,134 as of December 31, 1999.
HISTORICAL CASH USED IN AND PROVIDED BY OPERATING, INVESTING AND FINANCING
ACTIVITIES
Red River financed its business activities through a combination of
contributions of equity by its members, bank debt, and cash flow from
operations. Red River received cash contributions from members of $380,000
during the year ended December 31, 1998. In addition, Red River borrowed
$6,274,734 of long and short term debt during the year ended December 31, 1998
and $3,510,066 in 1999 through September 30, 1999. Red River generated net
revenues of $865,356 in the year ended December 31, 1998 and $2,009,500 for the
nine months ended September 30, 1999.
The net proceeds of equity contributions, borrowings and net revenues
have been primarily invested in oil and gas properties, drilling activities and
gas gathering systems totaling $7,238,432 in 1998 and $3,644,383 during the
first nine months of 1999.
The general and administrative expense of $685,573 in 1998 and $506,302
for the first nine months of 1999 include non-cash expenses of $217,800 in 1998
and $207,900 for the first nine months of 1999 representing salary contributed
to Red River in lieu of cash compensation.
LONG TERM LIQUIDITY AND CAPITAL RESOURCES
The timing of most of Red River's capital expenditures is discretionary.
Red River has no material long-term commitments associated with its capital
expenditure plans or operating agreements. Consequently, Red River has a
significant degree of flexibility to adjust the level of such expenditures as
circumstances warrant. The level of capital expenditures will vary in future
periods depending on the success it experiences on planned development drilling
activities, oil and gas price conditions and other related economic factors.
Red River expects significant opportunities to invest significant capital
in development drilling, recompletions of existing wells, investments in coal
bed methane drilling and oil and gas property acquisitions. Red River expects to
finance these opportunities through internally generated cash flow, bank
borrowings, equity contributions and funds generated from partners participating
in these projects.
PLAN OF OPERATION FOR 2000
Red River will rely on the same strategy for the next 12 months that has
employed in 1998 and 1999. Red River was able to fund its operations and
acquisitions out of member contributions, debt and internally generated cash
flow. The opportunities for growth and increased cash flow will come primarily
from four areas of focus:
1. Further enhancement of the West Edmond Hundton Lime Unit ("WEHLU")
properties. Red River currently owns and operates 30,000 acres of leasehold
which it purchased as a producing property in September of 1998. These
properties currently account for approximately 85% of Red River's total daily
oil and gas production.
A newly designed recompletion technique has resulted in a significant
Hunton formation recompletion program in the State of Oklahoma. This program has
resulted in significantly higher production rates on old Huanton formation wells
and the drilling of successful new wells once thought to be wet and incapable of
economic production. Red River believes its 30,000 acres of leasehold held by
production is a major candidate for this procedure. A pilot program in this area
to test the validity of this new concept would cost approximately $5 million.
Red River plans to finance this pilot project out of its own cash flow or with a
third party who will participate on a promoted basis. The pilot program would
involve approximately 900 acres initially. If successful, the pilot would be
expanded to include at least 20,000 of the total 30,000 available acres held by
Red River. If the project is expanded beyond the initial 900 acre pilot project,
Red River intends to use bank financing to pay for its share of the costs.
Currently, Red River owns approximately 97% of the working interest rights
within the WEHLU leasehold.
2. Further enchancement and developmental drilling within the
McIntosh prospect is planned, as well as expansion of the existing gas gathering
system. Three new developmental wells are planned for the first half of 2000.
3. The coal bed methane drilling program of Red River's 80% owned
subsidiary, TCM, LLC, has been underway since February of 1998, financed from
internal cash flow and a loan from a major gas and electric utility company
which is nonrecourse to any of the assets of Red River other than its interest
in TCM. This project has involved the drilling of 47 wells to date, including a
saltwater disposal well, and also included the installation of a gas and a
saltwater gathering system. The wells are currently in a state of de-watering
and the economic results of the project are considered unevaluated at December
31, 1999.
4. It is the intent of Red River to pursue oil and gas producing
property acquisitions in the $20 million to $50 million dollar range during
2000.
RESULTS OF OPERATIONS
Red River is a limited liability company which elected to be taxed as a
partnership for federal income tax purposes. As a consequence, the taxable
income of Red River is taxed to its members in proportion to their individual
ownership interests, and the payment of federal income taxes on such
proportionate share of Red River's taxable income is the personal obligation of
each member. Red River Energy, Inc., which acquired all of the membership
interests of the Red River management, is an S Corporation for federal income
tax purposes. Like a limited liability company, an S corporation is not a
taxpayer as its income is included in the taxable income of its shareholders. As
a consequence of the merger, Red River's status as an S Corporation will
automatically terminate. The taxable year of Red River will end on the day of
the merger and a tax return will be due for the short taxable year ending then.
Thereafter Red River will be treated as a C Corporation for income tax purposes
and its income will be reported on a consolidated tax return filed by Beta, its
parent corporation.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS SEPTEMBER 30, 1998
Oil and gas sales increased from $324,465 for the nine months ended
September 30, 1998 to $2,009,500 for the nine months ended September 30, 1999,
an increase of 519%, primarily due to acquisition of the West Edmond Hunton Lime
Unit ("WEHLU") producing oil and gas properties in September of 1998.
Additionally, the McIntosh producing oil and gas properties and gathering system
were purchased in July of 1999, resulting in three months of
revenues from these properties in 1999 compared to no revenues in 1998. Also
contributing to the increase were the higher oil and gas prices in 1999. The
production for the respective periods and the average prices obtained for that
period are as follows:
Quantities for Quantities for
Production 9 mos. Ended Average Price for 9 9 mos. Ended Average Price for 9
9/30/98 mos. Ended 9/30/98 9/30/99 mos. Ended 9/30/99
------- ------------------ ------- -------------------
Oil 5,174 Bbls $13.91 23,570 Bbls $15.66
Gas 134,870 Mcf $2.04 832,176 Mcf $1.72
The price received by Red River for its gas sales in 1999 were negatively
affected by its hedging arrangements. Without those arrangements, Red River
would have realized average natural gas prices of $1.75 per mcf.
Operating expenses for the nine months ended September 30, 1999 were
$974,619, or $1.00 per mcf equivalent compared to $128,921, or $.78 per mcf
equivalent for the comparable period in 1998, an increase of 656%, and
depreciation and depletion expense increased to $309,734 in 1999 compared to
$69,814 for the same period of 1998, principally because of the producing
property acquisitions in September 1998 and March 1999. Interest expense was
significantly higher for the nine months ended September 30, 1999, $366,871,
compared to $62,076 for the same period in 1998, an increase of 491%, because
bank borrowings totaling approximately $5,383,000 in September 1998 and
$2,100,000 in March 1999 were incurred to finance the acquisition of the WEHLU
and McIntosh properties. General and administrative expenses increased only 12%,
from $452,345 for the nine months ended September 30, 1998 to $506,302 for the
same period in 1999, due primarily to addition of three employees.
THE YEAR ENDED DECEMBER 31, 1998 RESULTS OF OPERATIONS
Oil and gas sales were $865,356 for the year ended December 31, 1998
primarily due to the acquisition of the West Edmond Hunton Lime Unit ("WEHLU")
producing oil and gas properties in September of 1998. Red River management
believes that oil and gas revenues for the years ending 1999 and 2000 will trend
significantly higher as compared to 1998. This belief is due primarily to the
acquisition of additional producing properties, the enhancement of production
rates from existing properties and the drilling of coal bed methane wells which
commenced production in early 1999:
1. The McIntosh producing oil and gas properties and gathering system were
purchased in July of 1999, resulting in revenues from these properties in
1999 compared to no revenues in 1998.
2. Red River has drilled a total of 47 coal bed methane wells which
commenced production in 1999.
3. Red River has performed remedial work on the WEHLU properties which has
enhanced their production rates.
PRICE AND PRODUCTION DATA. Red River's average sales price, oil and
natural gas production volumes and average production cost for each Mcf
equivalent of production for the year 1998 were as follows:
YEAR
ENDED
DECEMBER
31, 1998
--------
Oil production (Bbl)..................... 13,470
Gas production (Mcf)..................... 336,537
Average sales price:
Oil (per Bbl)........................ $12.94
Gas (per Mcf)........................ $ 2.24
Average production cost per
Mcfe.................................. $ 0.76
Operating expenses for the year ended December 31, 1998 were $316,533, or
$0.76 per mcf. Red River management currently expects that the per mcf
equivalent operating cost will be higher in the 1999 year due to the addition of
some higher cost properties.
Depreciation and depletion expense was $182,747 in 1998. Management
expects to incur significantly higher depreciation and depletion expense in
future periods due to drilling activity and producing property acquisitions in
September 1998 and March 1999.
Interest expense was $166,000 in 1998. Management expects interest
expense to be significantly higher in 1999 due to higher average debt levels
incurred to drill wells and purchase producing properties.
General and administrative expenses were $685,573 in 1998. Management
expects general and administrative expenses to be higher in 1999 due to the
addition of three employees and higher levels of operational activity.
YEAR 2000 "Y2K" PROBLEM
Red River has addressed possible remedial efforts in connection with
computer software that could be affected by the Year 2000 "Y2K" problem. The Y2K
problem is the result of computer programs being written using two digits rather
than four to define the applicable year. Any programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a major system failure or miscalculations. The Y2K
problem can affect any modern technology used by a business in the course of its
day. Any machine that uses embedded computer technology is susceptible to this
problem, including for example, telephone systems, postage meters and scales,
and of course, computers. The impact on a company is determined to a large
extent by the company's dependence on these technologies to perform their day to
day operations.
Internally, Red River has reviewed all such equipment and has determined
that all of its systems are Y2K compliant. This includes telephone systems,
postage equipment and some of our software. Red River believes that all of its
internal systems and software were brought into compliance prior to December 31,
1999. If an error was made and all systems are not compliant, then any such
events would not have a serious impact on its day to day operations, nor would
any valuable information be lost. The costs of bringing Red River company
technology up to Y2K compliance is expected to be less than $5,000. This is
because the majority of the "patches" or programs designed to make software Y2K
compliant can be obtained over the internet from manufacturers for little or no
cost and Red River did not rely heavily on outside consultants to upgrade its
systems as most of the work was performed in-house.
Externally, the Year 2000 problem may impact other entities with which Red
River transacts business, and Red River cannot predict the effect of the Year
2000 problem on such entities or Red River. With regard to those companies that
Red River does business with on a daily basis, Red River cannot guarantee that
they have been vigilant about their Y2K plan of action. Red River also assessed
the possibility of personal injury, loss of life, property damage and accidental
pollution resulting from equipment malfunctions. Although Red River believes
these to be a remote possibility, it has undertaken investigations to determine
possible problem areas.
In the event that Red River does experience Y2K problems, it could result
in a suspension of Red River's revenues. A suspension of revenues could result
in material losses from operations and a reduction in Red River's working
capital. Red River management is unable at this time to quantify the impact that
the Y2K problem could have on Red River's results of operations and financial
condition. Red River has experienced no internal Y2K problems to date. In
addition, Red River has experienced no external problems in connection with
companies that it does business with.
ANNEX C
BETA OIL & GAS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
INDEPENDENT AUDITOR'S REPORT
The Shareholders and Board of Directors
Beta Oil & Gas, Inc.
Newport Beach, California
We have audited the accompanying consolidated balance sheets of Beta Oil
& Gas, Inc. and subsidiary as of December 31, 1997 and 1998, and the related
statements of operations, shareholders' equity, and cash flows for the period
from inception (June 6, 1997) to December 31, 1997, and the year ended December
31, 1998. These consolidated financial statements are the responsibility of
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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Beta Oil &
Gas, Inc. and subsidiary as of December 31, 1997 and 1998, and the results of
their operations and their cash flows for the period from inception (June 6,
1997) to December 31, 1997 and for the year ended December 31, 1998 in
conformity with generally accepted accounting principles.
/s/ HEIN + ASSOCIATES LLP
HEIN + ASSOCIATES LLP
Certified Public Accountants
Orange, California
February 9, 1999
BETA OIL & GAS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
DECEMBER 31, DECEMBER 31, SEPTEMBER 30
1997 1998 1999
--------------- --------------- ---------------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 3,985,599 $ 198,043 $ 453,637
Accounts receivable -
Oil and gas sales -- -- 221,171
Other -- 9,678 9,678
Prepaid expenses 2,599 14,951 82,929
--------------- --------------- ---------------
Total current assets 3,988,198 222,672 767,415
--------------- --------------- ---------------
OIL AND GAS PROPERTIES, at cost (full cost method):
Evaluated properties -- 3,387,300 8,405,024
Unevaluated properties 5,900,794 11,466,695 12,264,610
Less--accumulated depletion and impairments -- (1,670,691) (1,825,452)
--------------- --------------- ---------------
Net oil and gas properties 5,900,794 13,183,304 18,844,182
--------------- --------------- ---------------
FURNITURE, FIXTURES AND EQUIPMENT, at cost, less
Accumulated depreciation of $1,530, $13,413
and $22,880 at December 31, 1997, December 31,
1998, and September 30, 1999 (unaudited),
respectively 32,065 22,943 15,422
OTHER ASSETS -- 166,028 703,742
DEFERRED OFFERING COSTS -- 23,524 --
=============== =============== ===============
$ 9,921,057 $ 13,618,471 $ 20,330,761
=============== =============== ===============
(CONTINUED)
BETA OIL & GAS, INC.
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY
DECEMBER 31, DECEMBER 31, SEPTEMBER 30
1997 1998 1999
--------------- --------------- ---------------
(UNAUDITED)
CURRENT LIABILITIES:
Accounts payable, trade $ 807,474 $ 310,770 $ 133,142
Commissions payable 25,329 -- --
Payroll and payroll taxes payable 24,044 7,559 15,501
Other accrued expenses 14,000 800 25,132
--------------- --------------- ---------------
Total current liabilities 870,847 319,129 173,775
--------------- --------------- ---------------
Premiums payable -- -- 34,563
COMMITMENTS AND CONTINGENCIES (NOTES 1 AND 5)
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value; 10,000,000 shares
authorized at December 31, 1997, and 50,000,000 shares
authorized at December 31, 1998 and September 30, 1999
(unaudited); 5,565,648, 7,029,492 and 8,985,482 shares
issued and outstanding at December 31, 1997, December 31,
1998 and September 30, 1999 (unaudited), respectively 5,566 7,029 8,985
Additional paid-in capital 9,246,217 15,878,386 26,343,363
Accumulated deficit (201,573) (2,586,073) (6,229,925)
--------------- --------------- ---------------
Total shareholders' equity 9,050,210 13,299,342 20,122,423
--------------- --------------- ---------------
--------------- --------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 9,921,057 $ 13,618,471 $ 20,330,761
=============== =============== ===============
The accompanying notes are an integral part of these
consolidated financial statements
BETA OIL & GAS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD
FROM THE NINE
INCEPTION THE YEAR MONTHS THE NINE
(JUNE 6, 1997) ENDED ENDED MONTHS ENDED
TO DECEMBER DECEMBER 31, SEPTEMBER SEPTEMBER
31, 1997 1998 30, 1998 30, 1999
--------------- --------------- --------------- ---------------
(UNAUDITED) (UNAUDITED)
REVENUES
Oil and gas sales $ -- $ -- $ -- $ 375,595
--------------- --------------- --------------- ---------------
COSTS AND EXPENSES:
Lease operating expense -- -- -- 24,141
General and administrative 245,452 746,769 555,608 883,727
Impairment expense -- 1,670,691 1,618,432 1,227
Depreciation and depletion expense 1,530 11,883 8,853 163,002
--------------- --------------- --------------- ---------------
Total costs and expenses 246,982 2,429,343 2,182,893 1,072,097
--------------- --------------- --------------- ---------------
LOSS FROM OPERATIONS (246,982) (2,429,343) (2,182,893) (696,502)
OTHER INCOME AND (EXPENSE):
Interest expense -- -- -- (2,965,172)
Interest income 45,409 44,843 39,867 17,822
=============== =============== =============== ===============
NET LOSS $ (201,573) $ (2,384,500) $ (2,143,026) $ (3,643,852)
=============== =============== =============== ===============
BASIC AND DILUTED LOSS
PER COMMON SHARE ($.05) ($.37) ($0.35) ($0.46)
=============== =============== =============== ===============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 4,172,662 6,366,923 6,154,036 7,852,341
=============== =============== =============== ===============
The accompanying notes are an integral part of these
consolidated financial statements
BETA OIL & GAS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Common Stock
--------------------------- Additional Total
Paid-in Accumulated Shareholders'
Shares Amount Capital Deficit Equity
------------ ------------ ------------ ------------ ------------
BALANCES, June 6, 1997 -- $ -- $ -- $ -- $ --
Issuance of common stock, net of offering costs 5,565,648 5,566 9,216,217 -- 9,221,783
Salary contributed to Beta -- -- 30,000 -- 30,000
Net loss -- -- -- (201,573) (201,573)
------------ ------------ ------------ ------------ ------------
BALANCES, December 31, 1997 5,565,648 5,566 9,246,217 (201,573) 9,050,210
Issuance of common stock, net of offering costs 1,463,844 1,463 6,572,169 -- 6,573,632
Salary contributed to Beta -- -- 60,000 -- 60,000
Net loss -- -- -- (2,384,500) (2,384,500)
------------ ------------ ------------ ------------ ------------
BALANCES, December 31, 1998 7,029,492 7,029 15,878,386 (2, 586,073) 13,299,342
------------ ------------ ------------ ------------ ------------
The accompanying notes are an integral part of these
consolidated financial statements
BETA OIL & GAS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(CONTINUED)
Common Stock
--------------------------- Additional Total
Paid-in Accumulated Shareholders'
Shares Amount Capital Deficit Equity
------------ ------------ ------------ ------------ ------------
BALANCES, December 31, 1998 7,029,492 7,029 15,878,386 (2,586,073) 13,299,342
Issuance of shares for bridge note financing
(unaudited) 459,000 459 2,753,541 -- 2,754,000
Salary contributed to Beta (unaudited) -- -- 10,000 -- 10,000
Issuance of shares for warrant exercises
(unaudited) 31,500 32 74,968 -- 75,000
Issuance of shares in initial public offering
(unaudited) 1,465,490 1,465 7,626,468 -- 7,627,933
Net loss (unaudited) -- -- -- (3,643,852) (3,643,852)
------------ ------------ ------------ ------------ ------------
BALANCES, September 30, 1999 (unaudited) 8,985,482 $ 8,985 $ 26,343,363 $ (6,229,925) $ 20,122,423
============ ============ ============ ============ ============
The accompanying notes are an integral part of these
consolidated financial statements
BETA OIL & GAS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD THE NINE THE NINE
FROM INCEPTION FOR THE YEAR MONTHS MONTHS
(JUNE 6, 1997) ENDED ENDED ENDED
TO DECEMBER DECEMBER SEPTEMBER SEPTEMBER
31, 1997 31, 1998 30, 1998 30, 1999
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (201,573) $ (2,384,500) $ (2,143,026) $ (3,643,852)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and depletion 1,530 11,883 8,853 163,002
Amortization of notes payable
discount and debt issuance costs -- -- -- 2,843,100
Impairment expense -- 1,670,691 1,618,432 1,227
Salary contributed to Beta 30,000 60,000 45,000 10,000
Changes in operating assets and
liabilities:
Accounts receivable -- (9,678) (15,464) (221,171)
Prepaid expenses (2,599) (12,352) (6,226) (67,978)
Accounts payable, trade 807,474 (496,703) 229,762 (177,629)
Commissions payable 25,329 (25,329) (15,929) --
Accrued payroll 24,044 (16,485) (6,629) 7,942
Other accrued expenses 14,000 (13,200) (14,000) (800)
Net cash provided by (used in)
operating activities
------------ ------------ ------------ ------------
698,205 (1,215,673) (299,227) (1,086,159)
------------ ------------ ------------ ------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Oil and gas property expenditures (5,900,794) (8,928,201) (8,765,218) (5,815,638)
Change in other assets -- (166,028) (52,315) (537,714)
Acquisition of furniture, fixtures & equipment (33,595) (2,762) (2,762) (1,947)
------------ ------------ ------------ ------------
Net cash used in investing activities (5,934,389) (9,096,991) (8,820,295) (6,355,299)
------------ ------------ ------------ ------------
(CONTINUED)
BETA OIL & GAS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
FOR THE PERIOD THE NINE THE NINE
FROM INCEPTION FOR THE YEAR MONTHS MONTHS
(JUNE 6, 1997) ENDED ENDED ENDED
TO DECEMBER DECEMBER SEPTEMBER SEPTEMBER
31, 1997 31, 1998 30, 1998 30, 1999
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from sale of shares and warrants, net 9,221,783 6,548,632 5,225,490 7,746,830
Proceeds from exercise of warrants - - - 75,000
Offering costs of previous private placements - - - (42,996)
Proceeds for premiums payable - - - 65,651
Repayment of premiums payable - - - (5,957)
Proceeds from bridge notes payable - - - 2,835,000
Repayment of bridge notes - - - (3,000,000)
(Increase) decrease in deferred offering costs - (23,524) - 23,524
------------ ------------ ------------ ------------
Net cash provided by financing activities 9,221,783 6,525,108 5,225,490 7,697,052
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS: 3,985,599 (3,787,556) (3,894,032) 255,594
CASH AND CASH EQUIVALENTS:
Beginning of period - 3,985,599 3,985,599 198,043
============ ============ ============ ============
End of period $ 3,985,599 $ 198,043 $ 91,567 $ 453,637
============ ============ ============ ============
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for interest $ - $ - $ - $ 120,555
============ ============ ============ ============
Cash paid for income taxes $ - $ - $ - $ 5,410
============ ============ ============ ============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
FOR THE PERIOD
FROM INCEPTION FOR THE YEAR THE NINE THE NINE
(JUNE 6, 1997) TO ENDED MONTHS ENDED MONTHS ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1998 1999
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
Fair market value of common stock issued for:
Oil and gas properties $ - $ 25,000 $ 25,000 $ -
Discount on notes payable $ - $ - $ - $ 2,574,000
Discount on notes payable $ - $ - $ - $ 180,000
The accompanying notes are an integral part to these
consolidated financial statements
BETA OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to December 31, 1998 is unaudited)
(1) ORGANIZATION AND OPERATIONS
THE COMPANY
Beta Oil & Gas, Inc. was incorporated under the laws of the State of Nevada on
June 6, 1997 to participate in the oil and gas acquisition, exploration,
development and production business in the United States and internationally.
Beta's wholly owned subsidiary, BETAustralia, LLC, was formed on February 20,
1998 as a limited liability company under the laws of the State of California
for the purposes of participating in the acquisition, evaluation and development
of exploration blocks in Australia.
OPERATIONS
Since its inception, Beta has participated as a non-operating working interest
owner in the acquisition of undeveloped leases, seismic options, lease options
and foreign concessions and has participated in extensive seismic surveys and
the drilling of test wells on its undeveloped properties. Further leasehold
acquisitions and seismic operations are planned for 2000 and future periods. In
addition, exploratory drilling is scheduled during 2000 and future periods on
Beta's undeveloped properties. It is anticipated that these exploration
activities together with others that may be entered into will impose financial
requirements which will exceed the existing working capital of Beta. Management
plans to raise additional equity and/or debt capital to finance its continued
participation in planned activities. In the opinion of Beta management, current
cash flow projections indicate that Beta can continue as a going concern even if
additional financing is unavailable. However, if additional financing is not
available, Beta will be compelled to reduce the scope of its business
activities. If Beta is unable to fund planned expenditures, it may be necessary
to:
1. Forfeit its interest in wells that are proposed to be drilled;
2. Farm-out its interest in proposed wells;
3. Sell a portion of its interest in prospects and use the sale proceeds to
fund its participation for a lesser interest; and
4. Reduce general and administrative expenses.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Beta and its
wholly-owned subsidiary. All significant intercompany accounts and transactions
have been eliminated in consolidation.
Use of Estimates
Beta's financial statements are based upon a number of significant estimates,
including the impairment of oil and gas properties and the estimated useful
lives selected for furniture, fixtures and equipment. Due to the uncertainties
inherent in the estimation process, it is at least reasonably possible that
these estimates will be further revised in the near term and such revisions
could be material.
BETA OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to December 31, 1998 is unaudited)
OIL AND GAS PROPERTIES
Beta follows the full cost method of accounting for oil and gas producing
activities and, accordingly, capitalizes all costs incurred in the acquisition,
exploration, and development of proved oil and gas properties, including the
costs of abandoned properties, dry holes, geophysical costs, and annual lease
rentals. All general corporate costs are expensed as incurred. In general, sales
or other dispositions of oil and gas properties are accounted for as adjustments
to capitalized costs, with no gain or loss recorded. Amortization of evaluated
oil and gas properties is computed on the units of production method based on
all proved reserves on a country by country basis. Unevaluated oil and gas
properties are assessed for impairment either individually or on an aggregate
basis. The net capitalized costs of evaluated oil and gas properties (full cost
ceiling limitation) are not to exceed their related estimated future net
revenues discounted at 10%, and the lower of cost or estimated fair value of
unproved properties, net of tax considerations.
JOINT VENTURES
All exploration and production activities are conducted jointly with others and,
accordingly, the accounts reflect only Beta's proportionate interest in such
activities. Beta is a non-operator in all of its oil and gas producing
activities to date.
REVENUE RECOGNITION
Revenue will be recognized upon delivery of oil and gas production.
FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment is stated at cost. Depreciation is provided on
furniture, fixtures and equipment using the straight-line method over an
estimated service life of three years.
INCOME TAXES
Beta accounts for income taxes using the asset and liability method wherein
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which the temporary
differences are expected to be recovered or settled.
CONCENTRATIONS OF CREDIT RISK
Credit risk represents the accounting loss that would be recognized at the
reporting date if counterparties failed completely to perform as contracted.
Concentrations of credit risk (whether on or off balance sheet) that arise from
financial instruments exist for groups of customers or counterparties when they
have similar economic characteristics that would cause their ability to meet
contractual obligations to be similarly affected by changes in economic or other
conditions described below. In accordance with FASB Statement
BETA OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to December 31, 1998 is unaudited)
No. 105, DISCLOSURE OF INFORMATION ABOUT FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET RISK AND FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT
RISK, the credit risk amounts shown in cash and accounts receivable do not take
into account the value of any collateral or security. As of December 31, 1997
and 1998, Beta maintained cash in a bank that was approximately $3,886,000 and
$98,000, respectively, in excess of the federally insured limit. As of September
30, 1999, Beta maintained a cash balance that was $469,331 in excess of the
limit.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values for financial instruments under FAS No. 107,
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, are determined at
discrete points in time based on relevant market information. These estimates
involve uncertainties and cannot be determined with precision. The estimated
fair values of Beta's financial instruments, which includes all cash, accounts
receivable and accounts payable, approximates the carrying value in the
financial statements at December 31, 1997 and 1998 and September 30, 1999.
STOCK BASED COMPENSATION
Beta has elected to follow Accounting Principles Board Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES (APB25) and related interpretations in
accounting for its employee stock options. In accordance with FASB Statement No.
123 ACCOUNTING FOR STOCK-BASED COMPENSATION (FASB123), Beta will disclose the
impact of adopting the fair value accounting of employee stock options.
Transactions in equity instruments with non-employees for goods or services have
been accounted for using the fair value method as prescribed by FASB123.
LOSS PER COMMON SHARE
Basic earnings per share excludes dilution and is calculated by dividing net
loss by the weighted average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity. Potential common shares for all periods presented
were anti-dilutive and excluded in the earnings per share computation.
CASH EQUIVALENTS
For purposes of the Statements of Cash Flows, cash and cash equivalents include
cash on hand, amounts held in banks and highly liquid investments purchased with
an original maturity of three months or less.
COMPREHENSIVE INCOME
Beta adopted SFAS 130, "Reporting Comprehensive Income," effective January 1,
1998. However, Beta has no items of other comprehensive income in any period
presented and, as a result, is not required to report comprehensive income.
BETA OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to December 31, 1998 is unaudited)
IMPACT OF RECENTLY ISSUED STANDARDS
Beta intends to adopt SFAS 133, "Accounting for Derivative Instruments and
Hedging Activities," issued in June 1998 effective with its fiscal year
beginning January 1, 2000 as required by the Statement. Due to Beta's current
and anticipated limited use of derivative instruments, management anticipates
that adoption of SFAS 133 will not have any significant impact on Beta's
financial position or results of operations. SFAS 132, "Employees' Disclosures
about Pensions and other Postretirement Benefits," and SFAS 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise" were issued in 1998 and are not
expected to impact Beta regarding future financial statement disclosures,
results of operations and financial position.
DEFERRED OFFERING COSTS
Deferred offering costs of $23,524 as of December 31, 1998 relate to Beta's
initial public offering which was completed in July. The costs were charged
against the proceeds of the offering upon completion.
SEGMENT INFORMATION
Beta has adopted SFAS 131, "Disclosure about Segments of an Enterprise and
Related Information." As defined in that Standard, Beta operates in only one
segment, oil and gas exploration.
INTERIM FINANCIAL INFORMATION
The September 30, 1998 and 1999 financial statements have been prepared by Beta
without audit. In the opinion of management, the accompanying unaudited
financial statements contain all adjustments(consisting of only normal recurring
accruals) necessary for a fair presentation of Beta's financial position as of
September 30, 1999 and the results of operations and cash flows for the nine
months ended September 30, 1998 and 1999. The results of operations for the nine
month periods ended September 30, 1998 and 1999 are not necessarily indicative
of those that will be obtained for the entire fiscal year.
(3) SUMMARY OF OIL AND GAS OPERATIONS
Capitalized costs at December 31, 1997; December 31, 1998, and September 30,
1999 relating to Beta's oil and gas activities are summarized as follows:
DECEMBER 31, 1997 DECEMBER 31, 1998 SEPTEMBER 30, 1999
----------------- ----------------- ------------------
UNITED STATES FOREIGN UNITED STATES FOREIGN UNITED STATES FOREIGN
------------- ------------- ------------- ------------- ------------- -------------
Capitalized costs-
Evaluated properties $ -- $ -- $ 1,763,082 $ 1,624,218 $ 6,743,079 $ 1,661,945
Unevaluated properties 5,870,794 30,000 11,426,732 39,963 12,154,084 110,526
Less- Accumulated depreciation,
depletion, amortization
and impairment -- -- (46,473) (1,624,218) (163,507) (1,661,945)
============= ============= ============= ============= ============= =============
$ 5,870,794 $ 30,000 $ 13,143,341 $ 39,963 $ 18,733,656 $ 110,526
============= ============= ============= ============= ============= =============
BETA OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to December 31, 1998 is unaudited)
Costs incurred in oil and gas producing activities are as follows:
INCEPTION (JUNE 6, 1997) YEAR ENDED NINE MONTHS ENDED
THROUGH DECEMBER 31, 1997 DECEMBER 31, 1998 SEPTEMBER 30, 1999 (UNAUDITED)
------------------------------ ------------------------------ ------------------------------
UNITED STATES FOREIGN UNITED STATES FOREIGN UNITED STATES FOREIGN
------------- ------------- ------------- ------------- ------------- -------------
Property acquisition $ 3,835,540 $ - $ 2,808,123 $ 323,463 $ 1,315,743 $ 110,526
============= ============= ============= ============= ============= =============
Exploration $ 2,035,254 $ 30,000 $ 4,510,897 $ 1,310,718 $ 4,474,525 $ -
============= ============= ============= ============= ============= =============
Development $ - $ - $ - $ - $ - $ -
============= ============= ============= ============= ============= =============
UNEVALUATED OIL AND GAS PROPERTIES - UNITED STATES
As Beta's properties are evaluated through exploration, they will be included in
the amortization base. Costs of unevaluated properties in the United States at
December 31, 1997 and 1998, and September 30, 1999 represent property
acquisition and exploration costs in connection with Beta's Louisiana, Texas and
California prospects. The prospects and their related costs in unevaluated
properties have been assessed individually and no impairment charges were
considered necessary for the United States properties for any of the periods
presented. The current status of these prospects is that seismic has been
acquired, processed and is currently being interpreted on the subject lands
within the prospects. Drilling commenced on the prospects in the first quarter
of 1999 and will continue in future periods. As the prospects are evaluated
through drilling in future periods, the property acquisition and exploration
costs associated with the wells drilled will be transferred to evaluated
properties where they will be subject to amortization.
UNEVALUATED OIL AND GAS PROPERTIES - FOREIGN
Unevaluated costs incurred outside the United States represent costs in
connection with the evaluation and proposed acquisition of one or more
exploration blocks in Brazil. In addition, during the Nine months ended
September 30, 1999, Beta incurred acquisition costs of approximately $111,000 in
Australia.
At December 31, 1997 and 1998, and September 30, 1999, capitalized unevaluated
properties consist of the following:
DECEMBER 31, 1997 DECEMBER 31, 1998 SEPTEMBER 30, 1999
----------------- ----------------- ------------------
Unproved property acquisition cost $ 3,835,540 $ 6,476,043 $ 8,405,950
Exploration costs 2,065,254 4,990,652 3,858,660
----------------- ----------------- ------------------
$ 5,900,794 $ 11,466,695 $ 12,264,610
================= ================= ==================
Management expects that planned activities for the year 2000 will enable the
evaluation for approximately 30% of the costs as of September 30, 1999.
Evaluation of 40% of the remaining costs is expected to occur in 2001 with the
remaining 30% in 2002.
BETA OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to December 31, 1998 is unaudited)
EVALUATED PROPERTIES - UNITED STATES
During the year ended December 31, 1998 Beta participated in the drilling of 6
wells within the United States. The property acquisition and exploration costs
associated with the wells totaling $1,763,082 were transferred to evaluated
properties and were evaluated for impairment. It was determined that the
capitalized costs associated with the drilling of these properties exceed their
net realizable value by $46,473. Accordingly, an impairment write-down of
$46,473 was recorded for the year ended December 31, 1998. Since all of the
proved reserves associated with the wells were non-producing or behind pipe and
no production had occurred as of December 31, 1998, no depletion expense was
recorded during the year ended December 31, 1998.
During the Nine months ended September 30, 1999, Beta participated in the
drilling of 13 wells within the United States. The property acquisition and
exploration costs associated with the wells were transferred to evaluated
properties. It was determined that the total costs in evaluated properties of
$6,743,079 as of September 30, 1999 did not exceed their net realizable value.
Accordingly, no impairment charge was considered necessary for the Nine months
ended September 30, 1999. Production commenced during the nine month period and
depletion expense of $153,533 was recorded.
EVALUATED PROPERTIES - FOREIGN
During 1998, Beta, through its wholly owned subsidiary, BETAustralia, LLC
secured an option to participate for a 5% working interest in two petroleum
licenses covering 2,798,000 acres (approximately 4,372 square miles). Per the
terms of the option agreement, Beta exercised its option to earn a 5% working
interest by participating in the drilling of two offshore test wells in the
license areas. The wells were completed as dry holes. The property acquisition
and exploration costs associated therewith totaling $1,624,218 were transferred
to evaluated properties and charged to impairment expense during the year ended
December 31, 1998. The exploration licenses expired in December 1998.
(4) PRIVATE PLACEMENTS
During the periods from inception (June 6, 1997) through December 31, 1997 and
the year ended December 31, 1998, Beta issued 5,565,648 and 1,458,844 shares,
respectively, of its common stock and 1,528,222 and 968,191 common stock
purchase warrants, respectively.
Initial start-up funding was raised through the sale, effective June 23, 1997,
of 2,910,000 shares ("founder shares") of Beta's common stock to its founders
and other principals for $0.05 per share. An additional 640,000 common stock
purchase warrants were issued with each warrant entitling the holder thereof to
purchase one share of Beta's common stock at prices ranging from $2.00 to $5.00
per share.
Effective September 5, 1997, Beta issued 663,912 equity units at $15 per unit
through a private placement. Each unit entitled the purchaser to four shares of
common stock and one callable warrant exercisable to purchase one share of
common stock at $5.00 for a term of five years. The offering generated net
proceeds, after offering costs, of $9,076,283. Beta issued 224,310 additional
common stock purchase warrants with an exercise price of $4.50 per share to
brokers in connection with the offering.
BETA OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to December 31, 1998 is unaudited)
The following table summarizes the private placement transactions for the period
from inception (June 6, 1997) through December 31, 1997: Exercise
Common Shares Warrants Issued Exercise
--------------------------- --------------------------- Price
Shares $ Amount #Warrants Expiration Per Share
------------ ------------ ------------ ------------ ------------
1) Tranch 1 2,910,000 $ 145,500 640,000 6/23/02 to $2.00 to
10/1/02 $5.00
2) Tranch 2 2,655,648 9,958,770 663,912 9/5/02 $5.00
3) Warrants issued - - 224,310 12/30/02 $ 4.50
4) Direct offering expenses
- Tranch 2 - (882,487) -
Totals 5,565,648 $ 9,221,783 1,528,222
============ ============ ============
- --------------------------------------------------------------------------------
During the year ended December 31, 1998, Beta completed a private placement
offering of equity units at a subscription price of $20 per unit. Each unit
consisted of four shares of Beta's common stock and one callable warrant to
purchase one share of its common stock at a price of $7.50 per share for a
period of five years from the date of issuance. During the year ended December
31, 1998 Beta issued 1,458,844 common shares and 364,708 common stock purchase
warrants exercisable at $7.50 per share pursuant to this offering. The offering
generated net proceeds, after offering costs, of $6,548,632. In addition, Beta
issued 482,100 common stock purchase warrants exercisable at prices ranging from
$5.00 to $7.50 per share for services rendered.
The following table summarizes the private placement transactions for the year
ended December 31, 1998:
Common Shares Warrants Issued Exercise
--------------------------- --------------------------- Price
Shares $ Amount #Warrants Expiration Per Share
------------ ------------ ------------ ------------ ------------
1) Tranch 3 1,458,844 $ 7,294,160 364,708 3/12/03 $ 7.50
2) Warrants issued as
commission in Tranch 3 - - 121,383 3/12/03 $ 7.00
3) Direct offering expenses -
Tranch 3 - (745,528) -
4) Warrants issued - - 482,100 2/4/03 to $ 5.00 to
3/21/03 7.50
------------ ------------ ------------ ------------ ------------
Totals 1,458,844 $ 6,548,632 968,191
============ ============ ============
- --------------------------------------------------------------------------------
In addition, during the year ended December 31, 1998 and the period cumulative
from inception (June 6, 1997) to December 31, 1998, Beta issued 5,000 shares of
common stock and 1,250 common stock purchase warrants for properties costing
$25,000.
BETA OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to December 31, 1998 is unaudited)
(5) BRIDGE NOTES - NOTES PAYABLE
During the nine months ended September 30, 1999 Beta completed the private
placement of a $3,000,000 bridge promissory note financing to three
institutional investors (the "1999 bridge financing"). In connection with the
1999 bridge financing, Beta granted the investors a security interest in all of
Beta's assets. In addition, a total of 459,000 shares of Beta common stock were
issued in connection with the 1999 bridge financing. The $3,000,000 in bridge
notes was repaid in full with accrued interest on July 7, 1999 from the proceeds
of Beta's initial public offering.
Beta received net cash proceeds of $2,835,000 from the bridge notes. The
estimated fair market value of 429,000 shares of common stock issued in
connection with the bridge note of $2,574,000 was treated as a discount and was
amortized over the term of the promissory notes using the interest method. The
estimated fair market value of 30,000 additional shares of common stock issued
per the terms of the bridge note of $180,000 was immediately expensed as
interest during the nine month period ended September 30, 1999. Accordingly,
Beta incurred additional interest expense of $2,754,000 because of the common
stock issued in connection with the bridge notes. The debt issuance costs of the
1999 bridge financing of $89,100 were amortized as additional interest expense
during the nine months ended September 30, 1999.
During the nine months ended September 30, 1999, Beta incurred interest expense
of $2,965,172, substantially all of which related to the bridge notes. Interest
expense related to the bridge notes for the 1999 period consists of the
following:
Cash interest expense $ 120,555
Amortization of note discount and fair market value of 30,000 shares 2,754,000
Amortization of deferred loan costs 89,100
--------------
Bridge note interest expense for the nine months ended September 30, 1999 $ 2,963,655
==============
(6) COMMON STOCK WARRANTS
During the period from inception (June 6, 1997) through December 31, 1997, Beta
issued 1,528,222 callable and non-callable common stock purchase warrants
entitling the holders to purchase 1,528,222 shares of Beta's common stock at
prices ranging from $2.00 to $5.00 per share.
The following table summarizes the number of shares reserved for the exercise of
stock warrants as of December 31, 1997:
SHARES EXERCISE PRICE EXPIRATION DATE CALLABLE/NON-CALLABLE
230,000 $2.00 June 23, 2002 Non-Callable
133,333 $5.00 September 5, 2002 Callable (a)
266,667 $5.00 September 5, 2002 Non-Callable
10,000 $4.50 October 1, 2002 Non-Callable
224,310 $4.50 December 30, 2002 Non-Callable
663,912 $5.00 September 5, 2002 Callable (a)
---------
1,528,222
=========
BETA OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to December 31, 1998 is unaudited)
(a) Beta will be entitled to call these warrants at any time on and after the
date that its common stock is traded on any exchange, including the NASD
Over-the-Counter Bulletin Board, at a market price equal to or exceeding
$7.00 per share for 10 consecutive trading days.
During the year ended December 31, 1998, Beta issued 969,441 callable and
non-callable common stock Purchase warrants entitling the holders to purchase
969,441 shares of Beta's common stock at prices ranging from $3.75 to $7.50 per
share.
The following table summarizes the number of shares reserved for the exercise of
common stock purchase warrants as of December 31, 1998:
SHARES EXERCISE PRICE EXPIRATION DATE CALLABLE/NON-CALLABLE
230,000 $2.00 June 23, 2002 Non-Callable
133,333 $5.00 September 5, 2002 Callable (a)
266,667 $5.00 September 5, 2002 Non-Callable
10,000 $4.50 October 1, 2002 Non-Callable
224,310 $4.50 December 30, 2002 Non-Callable
663,912 $5.00 September 5, 2002 Callable (a)
100,000 $3.75 January 23, 2003 Non-Callable (c)
2,000 $5.00 February 4, 2003 Non-Callable
230,100 $5.00 March 12, 2003 Non-Callable
100,000 $7.50 March 12, 2003 Non-Callable
50,000 $7.50 March 12, 2003 Callable (b)
121,383 $7.00 March 12, 2003 Non-Callable
365,958 $7.50 March 12, 2003 Callable (b)
---------
2,497,663
=========
(a) Beta will be entitled to call these warrants at any time on and after the
date that its common stock is traded on any exchange, including the NASD
Over-the-Counter Bulletin Board, at a market price equal to or exceeding
$7.00 per share for 10 consecutive trading days.
(b) Beta will be entitled to call these warrants at any time on and after the
date that its common stock is traded on any exchange, including the NASD
Over-the-Counter Bulletin Board, at a market price equal to or exceeding
$10.00 per share for 10 consecutive trading days.
(c) On January 27, 1998, Beta issued 100,000 common stock purchase warrants
exercisable at a price of $3.75 per share to an officer of Beta. The
exercise price was equal to the market value of the common stock on the
date of grant. The warrants vest as follows: (a) 25,000 warrants vested
immediately; (b) 25,000 shall vest upon the first anniversary of the
employee's employment (January 27,1998) with Beta; (c) 25,000 shall vest
upon the second anniversary of employment; and (d) 25,000 shall vest upon
the third anniversary of employment. If the officer ceases employment
during the vesting period, all nonvested warrants shall be forfeited.
BETA OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to December 31, 1998 is unaudited)
PRO FORMA INFORMATION
As stated in Note 2, Beta has not adopted the fair value accounting prescribed
by FAS123 for employees. Had compensation cost for stock options issued to
employees been determined based on the fair value at grant date for awards in
the year ended December 31, 1998 and the nine month periods ended September 30,
1998 and 1999, consistent with the provisions of FAS123, Beta's net loss and net
loss per share would have been adjusted to the pro forma amounts indicated
below:
DECEMBER 31, 1998 SEPTEMBER 30, 1998
----------------- ------------------
Net loss $(2,473,000) $(2,217,326)
============ ============
Loss per common share $(.39) $(.35)
====== ======
During the year ended December 31, 1997 and the nine months ended September 30,
1999, Beta did not grant exercisable options to employees. As a result, there
would be no effect on Beta's net loss or net loss per share.
The fair value of each option is estimated on the date of grant using the
minimum value option-pricing model using the following assumptions: expected
volatility of 0%, an expected life of 2-3 years, no dividends would be declared
during the expected term of the options, a risk free interest rate of
approximately 5.6%.
The weighted average fair value of the options on the grant dates was $4.31 per
share.
CANCELLATION OF WARRANTS
On June 21, 1999, certain warrant holders agreed to cancel 87,296 warrants to
purchase common stock consisting of 20,000 warrants exercisable at $5.00 per
share and 67,296 warrants exercisable at $7.00 per share. All of the cancelled
warrants were non-callable with expiration dates on March 12, 2003. The warrants
were cancelled for no consideration pursuant to a request by the National
Association of Securities Dealers, the "NASD". The warrant holders were certain
NASD member firms and their employees who participated in Beta's 1998 private
placement, as well as Beta's legal counsel. The cancellation request was made
and complied with because the NASD determined that these warrants could be
deemed "underwriter's compensation" and the continued existence of these
warrants could result in the compensation for the initial public offering
exceeding the NASD guidelines. Therefore, all such warrants which could be
deemed "underwriter's compensation" in excess of NASD guidelines have been
cancelled for no consideration.
BETA OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to December 31, 1998 is unaudited)
(7) INCOME TAXES
Income tax (expense) for the years ended December 31, 1997 and 1998 is comprised
of the following:
Inception Year ended
(June 6, 1997) to December 31,
December 31, 1997 1998
----------------- -----------------
Current:
Federal $ - $ -
State - (800)
----------------- -----------------
$ - $ (800)
================= =================
Deferred:
Federal $ - $ -
State - -
----------------- -----------------
$ - $ -
================= =================
The actual income tax (expense ) benefit differs from the "expected" tax
(expense) benefit (computed by applying the U.S. Federal corporate income tax
rate of 34% for each period) as follows:
Inception Year ended
(June 6, 1997) to December 31,
December 31, 1997 1998
----------------- -----------------
Amount of expected tax
(expense) benefit $ 68,535 $ 810,458
Non-deductible expenses (713) (23,759)
State taxes, net - (800)
Change in valuation allowance
For deferred tax assets (67,822) (786,699)
----------------- -----------------
Total $ - $ (800)
================= =================
The components of the net deferred tax asset recognized as of December 31, 1997
and 1998 are as follows:
December 31, 1997 December 31, 1998
----------------- -----------------
Long-term deferred tax assets (liabilities)
Net operating loss carryforwards $ 74,801 $ 1,714,694
Exploration and development costs
capitalized for financial purposes,
expensed for tax purposes - (605,173)
----------------- -----------------
74,801 1,109,521
Valuation allowance (74,801) (1,109,521)
----------------- -----------------
Net long term deferred tax asset $ - $ -
================= =================
BETA OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to December 31, 1998 is unaudited)
At December 31, 1998, Beta has net operating loss carryforwards of approximately
$4,003,000 which expire in the years 2012 through 2018. Beta has California net
operating loss carryforwards for the year ended December 31, 1998 of $4,002,000
which expire in 2005.
Utilization of the tax net operating loss carryforward may be limited in the
event a 50% or more change in ownership occurs within a three year period.
(8) OTHER
RELATED PARTY TRANSACTIONS
During the period from inception (June 6, 1997) through December 31, 1997, and
for the year ended December 31, 1998, a director of Beta was paid $20,000 and
$60,000, respectively, pursuant to a consulting contract for management and
geologic evaluation services. In addition, the director subscribed to 350,000
shares of Beta's common stock at a price of $0.05 per share ("founder shares").
A second director of Beta subscribed to 50,000 founder shares at a price of
$0.05 per share. In addition, a legal firm with whom the director is a
shareholder, subscribed to 20,000 founder shares at a price of $0.05 per share.
The legal firm represents Beta as general counsel. The legal firm also received
15,000 common stock purchase warrants presently exercisable at a price of $5.00
per share until expiration on March 12, 2003 in connection with the February 12,
1998 private placement (see Note 4).
A third director of Beta subscribed to 400,000 founder shares at a price of
$0.05 per share.
Beta entered into an expense sharing agreement with Beta Capital Group, Inc., a
company owned by the President and Chairman of the Board, and the Treasurer of
Beta. The agreement provides for the allocation and reimbursement of certain
office expenses such as office rent, secretarial support, office supplies,
marketing materials and telephone charges between Beta and Beta Capital Group,
Inc. During the period from inception through December 31, 1997 Beta made
payments totaling $9,940 to Beta Capital Group, Inc. in connection with this
agreement. During the year ended December 31, 1998 Beta paid $17,000 in
connection with this agreement. During the nine months ended September 30, 1999,
Beta made no payments in connection with this agreement.
LEASES
Effective October 1, 1999, Beta entered into a new agreement to lease office
space. The lease agreement provides for a 36 -month term expiring in September
2002. Monthly rent payments under the lease agreement commenced in October 1999.
Beta is recognizing rent expense ratably over the term of the lease. Total
minimum future rental payments under this lease are as follows:
Year ended December 31, 1999 $ 9,878
============
Year ended December 31, 2000 $ 41,472
============
Year ended December 31, 2001 $ 47,969
============
Year ended December 31, 2002 $ 37,362
============
BETA OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to December 31, 1998 is unaudited)
Rent expense for the period ended December 31, 1997 and the year ended December
31, 1998 amounted to approximately $8,000 and $ 31,000 , respectively. Rent
expense for the Nine months ended September 30, 1998 and 1999 was approximately
$24,000 for each of the periods.
INITIAL PUBLIC OFFERING; REGISTRATION OF COMMON STOCK
On December 4, 1998, Beta filed an S-1 Registration Statement, as amended, with
respect to its common stock. The S-1 Registration Statement contained two forms
of prospectus: One prospectus was used in connection with the sale by Beta of
its common stock in a best efforts underwritten public offering and the other
prospectus will be used by existing shareholders of Beta in effectuating sales
from time to time, for their own account, of their shares of common stock,
principally in over-the-counter transactions.
On July 30, 1999, Beta completed its initial public offering of common stock.
Beta sold 1,465,490 shares of common stock at $6.00 per share out of the
1,500,000 maximum number of shares offered pursuant to its S-1 Registration
Statement which was declared effective July 1, 1999. Beta withdrew from
registration the 34,510 unsold shares, the 150,000 shares registered to satisfy
an "Over-Allotment Option," and a total of 31,878 shares issuable upon exercise
of Selected Dealer Warrants in connection with the unsold portion of the
offering, including the Over-allotment Option.
Beta realized gross proceeds of $8,792,948 from the sale of its common stock in
the initial public offering, before deducting commissions and offering expenses.
On July 7, 1999, Beta applied $3,070,000 of the proceeds from the offering
towards the full repayment of the bridge notes and accrued interest.
STOCK OPTION PLAN
On August 27, 1999, the board of directors approved an incentive and
non-statutory stock option plan which authorizes the Compensation Committee to
grant stock option awards to officers, directors and employees. The plan
provides, among other things, the following:
- - The maximum number of shares which may be optioned and sold under the
plan is 700,000 shares.
- - The per share exercise price for common shares to be issued pursuant to
the exercise of an option shall be no less than the fair market value of
Beta's common stock as of the date of grant.
- - The per share exercise price for common shares to be issued to persons
owning more than 10% of the voting stock of Beta at the date of grant,
shall be no less than 110% of the fair market value of Beta's common
stock as of the date of grant.
- - The maximum term of the options shall be a maximum of ten years or such
lesser time period as the board of directors determines. The maximum time
period for options to be issued to persons owning more than 10% of the
voting stock of Beta at the date of grant shall be five years from the
date of grant.
The Compensation Committee of the board of directors granted 97,500 options to
officers, directors and employees as of August 27, 1999 at an exercise price of
$6.00 per share. All of the 97,500 options will expire on or before December 31,
2004. None of the 97,500 options, or any additional options issued under the
plan shall become exercisable until such time as the shareholders of Beta have
approved the plan as provided in Beta's bylaws.
BETA OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to December 31, 1998 is unaudited)
EMPLOYMENT CONTRACTS
Beta has executed an employment contract dated June 23, 1997 with its president
who also serves as a director. The contract provides for an indefinite term of
employment at an annual salary of $150,000 commencing in October of 1997 and an
annual car allowance of up to $12,000. The contract may be terminated by Beta
without cause upon the payment of the following:
(a) Options to acquire the common stock of Beta in an amount equal to
10% of the then issued and outstanding shares containing a five
year term, piggyback registration rights and an exercise price
equal to 60% of the fair market value of the shares during the
sixty day period of time preceding the termination notice, such
amount not to exceed $3.00 per share.
(b) A cash payment equal to two times the aggregate annual
compensation.
(c) In the event of termination without cause, all unvested securities
issued by Beta to the Employee shall immediately vest and Beta
shall not have the right to terminate or otherwise cancel any
securities issued by Beta to the Employee.
On June 23, 1997, Beta entered into an employment agreement with a shareholder.
The agreement provides for a two year term at an annual salary of $60,000 for
services as "Vice President of Capital Markets". Under separate agreement, the
Shareholder subscribed to 350,000 shares of Founders Shares at a price of $0.05
per share. The subscription agreement provides that the shares shall vest over a
three year period.
DEFERRED COMPENSATION
In 1998, the Company began to offer a simple individual retirement account (IRA)
plan for all employees meeting certain eligibility requirements. Employees may
contribute up to 3% of the employees eligible compensation. Beta's contribution
to the plan for the year ended December 31, 1998 was $4,693.
OTHER ASSETS
Other assets of approximately $166,000 and $135,000 at December 31, 1998 and
September 30, 1999, respectively, consisted of unapplied well prepayments.
9) SUBSEQUENT EVENTS
BETA ACQUISITION OF RED RIVER ENERGY, INC.
Beta Oil & Gas, Inc. ("Beta") entered into an agreement on November 19, 1999 to
purchase Red River Energy, Inc. of Tulsa, Oklahoma, a private oil and natural
gas company. The purchase price will be paid by the issuance of approximately
2.25 million shares of Beta common stock. The purchase is subject to approval by
Beta shareholders.
The assets of Red River Energy, Inc. consist of four components: 1) a 97.4%
working interest (80% net revenue interest) in a 30,160 acre unit which is
currently producing approximately 3.65 MMBTU/d and 120 Bopd from 22 active wells
in the Hunton Limestone formation in Central Oklahoma; 2) an 85% working
interest (68% net revenue interest) in 7,500 acres which are currently producing
960 MMBTU/d from 45 wells in the Atoka and Gilcrease formations in Eastern
Oklahoma; 3) a gas gathering system
BETA OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to December 31, 1998 is unaudited)
consisting of 40 miles of pipeline which is currently transporting approximately
1650 MMBTU/d in Eastern Oklahoma; and 4) a 46 well coal bed methane project also
located in Eastern Oklahoma which is currently under development and producing
approximately 600 MMBTU/d. Red River Energy, Inc. is the operator of all its
properties.
10) UNAUDITED SUPPLEMENTARY OIL AND GAS RESERVE INFORMATION
The following supplementary information is presented in compliance with United
States Securities and Exchange Commission) regulations and is not covered by the
report of Beta's independent auditors. The information required to be disclosed
for the year ended 1998 in accordance with FASB Statement No. 69, "Disclosures
About Oil and Gas Producing Activities," is discussed below and is further
detailed in the following tables. There were no oil and gas reserves as of
December 31, 1997.
The reserve quantities and valuations for fiscal 1998 are based upon
estimates by Veazey & Associates, Inc. and Beta's management. Proved reserves
are the estimated quantities of crude oil, natural gas and natural gas liquids
which geological and engineering data demonstrate with reasonable certainty to
be recoverable in future years from known reservoirs under existing economic and
operating conditions, i.e. prices and costs as of the date the estimate is made.
Prices include consideration of changes in existing prices provided only by
contractual arrangements, but not on escalations based upon future conditions.
Reservoirs are considered proved if economic producibility is supported by
either actual production or a conclusive formation test. The area of a reservoir
considered proved includes (A) that portion delineated by drilling and defined
by gas-oil and/or oil-water contacts, if any, and (B) the immediately adjoining
portions not yet drilled, but which can reasonably be judged as economically
productive on the basis of available geological and engineering data. In the
absence of information on fluid contacts the lowest known structural occurrence
of hydrocarbons controls the lower proved limit of the reservoir.
Proved developed reserves are reserves that can be expected to be recovered
through existing wells with existing equipment and operating methods. Additional
oil and gas reserves expected to be obtained through the application of fluid
injection or other improved recovery techniques for supplementing the natural
forces and mechanisms of primary recovery should be included as "proved
developed reserves" only after testing by a pilot project or after the operation
of an installed program has confirmed through production response that increased
recovery will be achieved.
Beta wishes to emphasize that the estimates included in the following tables are
by their nature inexact and are subject to changing economic, operating and
contractual conditions. At December 31, 1998, all of Beta's reserves are
attributable to recently drilled wells which are being completed and are not yet
producing oil and gas as of that date. Reserve estimates for these wells are
subject to substantial upward or downward revisions after production commences
and a production history is obtained. Accordingly, reserve estimates of future
net revenues from production may be subject to substantial revision from year to
year. Reserve information presented herein is based on reports prepared by
independent petroleum engineers.
The assumptions used to compute the standardized measure are those prescribed by
the Financial Accounting Standards Board and, as such, do not necessarily
reflect Beta's expectations for actual revenues to be derived from those
reserves nor their present worth. The limitations inherent in the reserve
quantity
BETA OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to December 31, 1998 is unaudited)
estimation process, as discussed previously, are equally applicable to the
standardized measure computations since these are the basis for the valuation
process.
CHANGES IN QUANTITIES OF PROVED PETROLEUM AND NATURAL GAS RESERVES
FOR THE YEAR ENDED DECEMBER 31, 1998 (UNAUDITED)
Oil Gas
PROVED RESERVES (Bbls) (Mcf's)
- -------------------------------------------------------------- ----------- -----------
Balance at December 31, 1997 -- --
Extensions and discoveries 1,461 1,596,740
----------- -----------
Balance at December 31, 1998 1,461 1,596,740
=========== ===========
Oil Gas
PROVED DEVELOPED BEHIND PIPE RESERVES (Bbls) (Mcf's)
- -------------------------------------------------------------- ----------- -----------
December 31, 1997 -- --
----------- -----------
December 31, 1998 1,461 1,596,740
=========== ===========
BETA OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to December 31, 1998 is unaudited)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED PETROLEUM AND NATURAL GAS RESERVES (UNAUDITED)
For purposes of the following disclosures, estimates were made of quantities of
proved reserves and the periods during which they are expected to be produced.
Future cash flows were computed by applying year-end prices to estimated annual
future production from proved oil and gas reserves. The average year-end price
for oil was $13.14 per barrel at December 31, 1998. The average year-end price
for gas was $1.85 per Mcf at December 31, 1998. Future development and
production costs were computed by applying year-end costs to be incurred in
producing and further developing the proved reserves. Future income tax expenses
were computed by applying, generally, year-end statutory tax rates (adjusted for
permanent differences, tax credits and allowances) to the estimated net future
pre-tax cash flows. The discount was computed by application of a 10% discount
factor. The calculations assume the continuation of existing economic, operating
and contractual conditions. However, such arbitrary assumptions have not proven
to be the case in the past. Other assumptions of equal validity could give rise
to substantially different results.
Year Ended
December 31,
1998
---------------
Future cash inflows $ 2,978,861
Future costs-
Production (343,478)
Development (81,621)
---------------
Future net cash inflows before income tax 2,553,762
Future income tax --
---------------
Future net cash flows 2,553,762
10% discount factor (837,154)
---------------
Standardized measure of discounted future net cash flows $ 1,716,608
===============
CHANGES IN THE STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH
FLOWS FROM PROVED PETROLEUM AND NATURAL GAS RESERVE
QUANTITIES (UNAUDITED)
The following are the principal sources of changes in the standardized measure
of discounted future net cash flows:
Year Ended
December 31,
1998
---------------
Standardized measure of discounted future net cash
flows--beginning of year $ -
Extensions and discoveries, net of future costs 1,716,608
-
---------------
Standardized measure of discounted future net cash
flows--end of year $ 1,716,608
===============
BETA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
The following discussion is to inform you about the financial position,
liquidity and capital resources of Beta as of September 30, 1999 and December
31, 1998 and 1997, and the results of operations for the period from inception
(June 6, 1997) through December 31, 1997, the year ended December 31, 1998, and
the nine month periods ended September 30, 1999 and 1998.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Included in this report are forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Although the company believes that
the expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations reflected in such forward-looking
statements will prove to have been correct.
All forward looking statements contained in this section are based on
assumptions believed to be reasonable.
These forward looking statements include statements regarding:
- - Beta's financial position
- - Proved or possible reserve quantities and net present values of those
reserves
- - Business strategy
- - Plans and objectives of management of Beta for future operations and
capital expenditures
Beta can give no assurance that such expectations and assumptions will
prove to be correct. Reserve estimates of oil and gas properties are generally
different from the quantities of oil and natural gas that are ultimately
recovered or found. This is particularly true for estimates applied to
exploratory prospects. Additionally, any statements contained in this report
regarding forward-looking statements are subject to various known and unknown
risks, uncertainties and contingencies, many of which are beyond the control of
Beta. Such things may cause actual results, performance, achievements or
expectations to differ materially from the anticipated results, performance,
achievements or expectations.
Factors that may affect such forward-looking statements include, but are
not limited to:
- - Beta's ability to generate additional capital to complete its planned
drilling and exploration activities
- - Risks inherent in oil and gas acquisitions, exploration, drilling,
development and production; price volatility of oil and gas
- - Competition from other oil and gas companies
- - Shortages of equipment, services and supplies
- - Government regulation
- - Environmental matters
- - Financial condition and operating performance of the other companies
participating in the exploration, development and production of oil and
gas ventures that Beta is involved in
In addition, since substantially all of Beta's prospects are currently
operated by third parties, Beta may not be in a position to control costs,
safety and timeliness of work as well as other critical factors affecting a
producing well or exploration and development activities.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Beta's working capital was a surplus of $593,640 at September 30, 1999
compared to a deficit of ($96,457) at December 31, 1998 and a surplus of
$3,117,351 at December 31, 1997. Beta's working capital increased between
December 31, 1998 and September 30, 1999, primarily due to Beta's completion of
its initial public offering. In order to fund capital expenditures in the first
nine months of 1999, Beta obtained short term debt financing in the form of
$3,000,000 in bridge note financing which is discussed below under "Bridge Note"
and completed an initial public offering in July 1999 which is discussed below
under "Initial Public Offering."
HISTORICAL CASH USED IN AND PROVIDED BY OPERATING, INVESTING AND FINANCING
ACTIVITIES
Beta financed all of its business activities through December 31, 1998
through issuances of its common stock in private placements. Beta raised net
proceeds of $9,221,783 during 1997 and $6,548,632 during 1998 in these private
placements. During the nine months ended September 30, 1999 Beta realized net
proceeds of $2,835,000 from a bridge note financing and net proceeds of
$7,781,562 from an initial public offering which is discussed below. The
$3,000,000 face amount of the bridge notes was repaid in full on July 7, 1999
from the proceeds of the initial public offering.
The net proceeds of the private placements, the bridge note financing and
the initial public offering have been primarily invested in oil and gas
properties totaling $5,815,638 and $8,765,218 for the nine months ended
September 30, 1999 and 1998.
Beta's cash balance at September 30, 1999 was $453,637 compared to a cash
balance of $198,043 at December 31, 1998. The change in Beta's cash balance is
summarized as follows:
Cash balance at December 31, 1998 $ 198,043
Sources of cash:
Cash provided by operating activities (1,086,159)
Cash provided by financing activities 7,697,052
-------------
Total sources of cash 6,610,893
Uses of cash:
Oil and gas property expenditures (5,815,638)
Other assets (increase in advances to industry partners) (537,714)
Furniture, fixtures and equipment (1,947)
-------------
(6,355,299)
-------------
Cash balance at September 30, 1999 453,637
=============
LONG TERM LIQUIDITY AND CAPITAL RESOURCES
The timing of most of Beta's capital expenditures is discretionary. Beta
has no material long-term commitments associated with its capital expenditure
plans or operating agreements. Consequently, Beta has a significant degree of
flexibility to adjust the level of such expenditures as circumstances warrant.
The level of capital expenditures will vary in future periods depending on the
success it experiences on planned exploratory drilling activities in future
periods, gas and oil price conditions and other related economic factors.
Accordingly, Beta has not yet prepared an estimate of capital expenditures for
the year 2000 or future periods.
BRIDGE NOTE
During the nine months ended September 30, 1999, Beta completed the
private placement of a $3,000,000 bridge note financing to three institutional
investors referred to as the "1999 bridge financing." Beta issued promissory
notes having a maturity date of one year and bearing an interest rate of 10%. In
addition, a total of 459,000 shares of Beta common stock were issued in
connection with the 1999 bridge financing. The $3,000,000 in bridge notes was
repaid in full with accrued interest on July 7, 1999 from the proceeds of Beta's
initial public offering.
Beta received net cash proceeds of $2,835,000 from the bridge notes. The
estimated fair market value of 429,000 shares of common stock issued in
connection with the bridge note of $2,574,000 was treated as a discount and was
amortized over the term of the promissory notes using the interest method. The
estimated fair market value of 30,000 additional shares of common stock issued
per the terms of the bridge note of $180,000 was immediately expensed as
interest during the nine month period ended September 30, 1999. Accordingly,
Beta incurred additional interest expense of $2,754,000 because of the common
stock issued in connection with the bridge notes. The debt issuance costs of the
1999 bridge financing of $89,100 were amortized as additional interest expense
during the nine months ended September 30, 1999.
PLAN OF OPERATION FOR 1999
In the opinion of Beta's management, the existing working capital of
Beta, the net proceeds of Beta's initial public offering completed on July 30,
1999, and the exercise of common stock purchase warrants subsequent to September
30, 1999 will be sufficient to fund the operations and projected capital
requirements of Beta until March 31, 2000. Beta is allocating its cash resources
from all sources, including the net proceeds of the initial public offering, to
the following categories of expenditures:
1) Drilling and completion costs for wells on Beta's prospects. While it is
difficult to predict the exact timing of when these wells will be
proposed for drilling, Beta's operating agreements generally provide a
thirty day period in which to elect participation in a proposed well.
Generally funds must be advanced within thirty days or less after the
thirty day election period;
2) Leasehold acquisition costs;
3) 3-D seismic acquisition costs only if funds are available; and
4) General and administrative overhead.
At such time as Beta has fully utilized the proceeds of the warrant
exercises to date and Beta's existing working capital, it will be necessary for
Beta to raise additional funds. It is anticipated that additional funds will be
raised from one or more of the following sources:
1) Beta has approximately 797,000 callable common stock purchase warrants
outstanding exercisable at a price of $5.00 per share, of which
approximately 442,000 remain unexercised. Beta is able to call these
warrants at any time since its common stock has traded on Nasdaq at a
market price equal to or exceeding $7.00 per share for 10 consecutive
days. It is Beta's intent to call all of these warrants at such time that
cash is needed to fund capital requirements. Beta will receive proceeds
equal to the exercise price times the number of shares which are issued
from the exercise of warrants net of commission to the broker of record,
if any. Beta could realize net proceeds of approximately $2,210,000 from
the exercise of these warrants. There is no assurance that Beta will
realize any proceeds from the warrant calls. Beta has not called any
warrants to date. Beta has received net proceeds of approximately
$1,975,000 during the months of October, November and December 1999 from
the voluntary exercise of both callable and non-callable warrants.
2) Beta may seek bank or other debt financing at such time that cash flow
from operations is established. Beta is not able to predict when, if
ever, such financing will be available. Beta is currently seeking bank
financing in the range of $1,000,000 to $5,000,000.
3) Beta may seek mezzanine financing, if available, on terms acceptable to
Beta. Mezzanine financing usually involves debt with a higher cost of
capital as compared to conventional bank financing. Beta is currently
seeking mezzanine financing in the range of $1,000,000 to $5,000,000.
4) Beta may realize additional cash flow from oil and gas wells to be
drilled, if found to be productive. Beta owns a working interest in wells
that are currently producing and in additional wells which are presently
being completed and equipped for production.
The net proceeds of the public offering and warrant exercises combined
with Beta's existing working capital may not be sufficient to fund Beta's
capital expenditures that are projected for 2000 and future periods. If the
above additional sources of cash are insufficient or are unavailable on terms
acceptable to Beta, Beta will be compelled to reduce the scope of its business
activities. If Beta is unable to fund planned expenditures within a thirty to
sixty day period after a well is proposed for drilling, it may be necessary to:
1) Forfeit its interest in wells that are proposed to be drilled;
2) Farm-out its interest in proposed wells;
3) Sell a portion of its interest in proposed wells and use the sale
proceeds to fund its participation for a lesser interest; and
4) Reduce general and administrative expenses.
As stated above, Beta believes it has sufficient working capital to fund
its capital expenditure requirements until March 31, 2000. In the event that
Beta cannot raise additional capital , it may be necessary for Beta to curtail
its business activities until other financing is available.
These are forward looking statements that are based on assumptions which
in the future may not prove to be accurate. Although Beta's management believes
that the expectations reflected in such forward looking statements are based on
reasonable assumptions, it can give no assurance that its expectations will be
achieved.
COMPARISON OF RESULTS OF OPERATIONS FOR THE PERIOD FROM INCEPTION, JUNE 6, 1997,
THROUGH DECEMBER 31, 1997 AND THE YEAR ENDED DECEMBER 31, 1998
During the period from inception, June 6, 1997, through December 31, 1997
and the year ended December 31, 1998 Beta generated no revenues.
General and administrative expenses for the period from inception, June
6, 1997, through December 31, 1997 were $245,452 compared to $746,769 for the
year ended December 31, 1998. This represents a $501,317 or a 204% increase. The
primary reasons for the increase were due to:
(1) A full year of operations in 1998 as compared to a partial year in 1997 .
(2) An increase in the number of employees from three in 1997 to five in
1998.
(3) Costs related to Beta's initial public offering.
Loss from operations totaled $(246,982) for the period from inception,
June 6, 1997, through December 31, 1997 compared to $(2,429,343) for the year
ended 1998. The primary reason for the increase in the loss was due to an
impairment expense of $1,670,691 recorded in 1998. During 1998 Beta participated
in the drilling of two offshore test wells in Australia. The drilling resulted
in two dry holes. All
of the property acquisition and exploration costs associated with the Australian
full cost pool totaling $1,624,218 have been transferred to evaluated properties
and charged to impairment expense during 1998. In addition, it was determined
that the capitalized costs associated with the U.S. full cost pool exceeded
their net realizable value by $46,473. Accordingly, an impairment write-down of
$46,473 was recorded as of December 31, 1998.
Other income for the period from inception, June 6, 1997, through
December 31, 1997 consisted of interest income in the amount of $45,409. Beta
realized $44,843 of interest income for 1998.
Net loss for the period from inception, June 6, 1997, through December
31, 1997 was $(201,573) compared to $(2,384,500) for the year ended December 31,
1998. The increase in net loss was primarily due to the impairment writedown of
oil and gas properties.
COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
AND 1998 (UNAUDITED)
During the nine months ended September 30, 1999 Beta had oil and gas
revenues of $375,595. Beta's net production was 153,000 mcf at an average price
of $2.37 per mcf and 614 barrels of oil at an average price of $21.15 per
barrel. During the nine months ended September 30, 1998 Beta generated no
revenues.
During the nine months ended September 30, 1999 Beta incurred lease
operating expenses of $24,141. Beta's average lifting cost for this period was
$.15 per mcf equivalent. During the nine months ended September 30, 1998 Beta
incurred no lease operating expense.
General and administrative expenses for the nine months ended September
30, 1999 were $883,727 compared to $555,608 for the nine months ended September
30, 1998. This represents a $328,000 or a 59% increase over the prior year
period. The primary reasons for the increase were due to:
(1) An increase in operational activities in 1999 versus 1998;
(2) An increase in the number of employees from five in 1998 to six in 1999;
and
(3) Costs related to Beta's initial public offering and filing the S-1
registration statement.
Depreciation and depletion expense for the nine months ended September
30, 1999 was $163,002 compared to $8,853 for the nine months ended September 30,
1998. This represents a $154,149 increase over the prior year period. The
primary reason for the increase is due to the fact Beta had no oil or gas
production in the prior year period that would give rise to depletion expense.
Loss from operations totaled $(696,502) for the nine months ended
September 30, 1999 compared to $(2,182,893) for the nine months ended September
30, 1998. The primary reason for the decrease in the loss was due to an
impairment write-down in the prior year of approximately $1,600,000 associated
with the drilling of two Australian dry holes.
Other income for the nine months ended September 30, 1999 consisted of
interest income in the amount of $17,822. Beta realized $39,867 of interest
income for the nine month period in 1998. The reason for the decrease was lower
average cash and cash equivalents balances for the 1999 period as compared to
the 1998 period.
During the nine months ended September 30, 1999, Beta incurred interest
expense of $2,965,172, substantially all of which related to the bridge notes.
Interest expense related to the bridge notes for the 1999 period consists of the
following:
Cash interest expense $ 120,555
Amortization of note discount and fair market value of 30,000 shares 2,754,000
Amortization of deferred loan costs 89,100
-------------
Bridge note interest expense for the nine months ended September 30, 1999 $ 2,963,655
=============
During the nine months ended September 30, 1998, Beta incurred no
interest expense.
Net loss for the nine months ended September 30, 1999 was $(3,643,852)
compared to $(2,143,026) for the nine months ended September 30, 1998. The
increase in net loss was primarily due to the interest expense related to the
bridge note.
INCOME TAXES
As of December 31, 1998, Beta had available, to reduce future taxable
income, a tax net operating loss carryforward of approximately $4,003,000 which
expires in the years 2012 through 2018. As of December 31, 1998, Beta has a
deferred tax asset of approximately $1,110,000 which is fully reserved for with
a valuation allowance. The deferred tax asset consists entirely of the net
operating loss carryforward. Utilization of the tax net operating loss
carryforward may be limited in the event a 50% or more change of ownership
occurs within a three year period. The tax net operating loss carryforward may
be limited by other factors as well.
CANCELLATION OF WARRANTS
On June 21, 1999, certain warrant holders agreed to cancel 87,296
warrants to purchase common stock consisting of 20,000 warrants exercisable at
$5.00 per share and 67,296 warrants exercisable at $7.00 per share. All of the
cancelled warrants were non-callable with expiration dates on March 12, 2003.
The warrants were cancelled for no consideration pursuant to a request by the
National Association of Securities Dealers, the "NASD". The warrant holders were
certain NASD member firms and their employees who participated in Beta's 1998
private placement, as well as Beta's legal counsel. The cancellation request was
made and complied with because the NASD determined that these warrants could be
deemed "underwriter's compensation" and the continued existence of these
warrants could result in the compensation for the initial public offering
exceeding the NASD guidelines. Therefore, all such warrants which could be
deemed "underwriter's compensation" in excess of NASD guidelines have been
cancelled for no consideration.
DRILLING ACTIVITY
During the nine months ended September 30, 1999, Beta participated in the
drilling of 13 exploratory wells. Of the 13 wells drilled, 4 were completed as
dry-holes and 9 are either producing or in various stages of completion for
production. The wells are summarized as follows:
ESTIMATED FIRST
WORKING COMPLETION DATE OF
WELL NAME LOCATION INTEREST % STATUS PRODUCTION
--------- -------- ---------- ------ ----------
1. Cobra Stream #1 Onshore Louisiana 15% Dry-hole N/A
2. Shark Prospect #1 Offshore Louisiana 15% Dry-hole N/A
3. Schluter #1 Jackson Co., TX 20% Dry-hole N/A
4. Buttonwillow #1 Kern Co., CA 30% Dry-hole N/A
---------------
Total 80%
===============
1. Redfish #1 Offshore Louisiana 15% On production 9/99
2. Stingray #1 Offshore Louisiana 15% On production 9/99
3. Minkfish #2 Offshore Louisiana 9.4% On production 9/99
4. Minkfish #3 Offshore Louisiana 9.4% Awaiting production 6/2000
facility
5. Pressley #1 Jackson Co., TX 12.5% On production 9/99
6. Wilbeck #1 Jackson Co., TX 12.5% On production 9/99
7. Alamo Realty #1 Jackson Co., TX 20% On production 9/99
8. Mark #1 Jackson Co., TX 12.5% Being completed 11/99
9. Faust #1 Jackson Co., TX 12.5% Being completed 11/99
---------------
Total 118.8%
===============
INITIAL PUBLIC OFFERING
On July 30, 1999, Beta completed its initial public offering of common
stock. Beta sold 1,465,490 shares of common stock at $6.00 per share out of the
1,500,000 maximum number of shares offered pursuant to its S-1 Registration
Statement which was declared effective July 1, 1999. Beta withdrew from
registration the 34,510 unsold shares, the 150,000 shares registered to satisfy
an "Over-Allotment Option," and a total of 31,878 shares issuable upon exercise
of Selected Dealer Warrants in connection with the unsold portion of the
offering, including the Over-allotment Option.
Beta realized gross proceeds of $8,792,948 from the sale of its common
stock in the initial public offering, before deducting commissions and offering
expenses. On July 7, 1999, Beta applied $3,070,000 of the proceeds from the
offering towards the full repayment of the bridge notes and accrued interest.
STOCK OPTION PLAN
On August 27, 1999, the board of directors approved an incentive and
non-statutory stock option plan which authorizes the Compensation Committee to
grant stock option awards to officers, directors and employees. The plan
provides, among other things, the following:
- - The maximum number of shares which may be optioned and sold under the
plan is 700,000 shares.
- - The per share exercise price for common shares to be issued pursuant to
the exercise of an option shall be no less than the fair market value of
Beta's common stock as of the date of grant.
- - The per share exercise price for common shares to be issued to persons
owning more than 10% of the voting stock of Beta at the date of grant,
shall be no less than 110% of the fair market value of Beta's common
stock as of the date of grant.
- - The maximum term of the options shall be a maximum of ten years or such
lesser time period as the board of directors determines. The maximum time
period for options to be issued to persons owning
more than 10% of the voting stock of Beta at the date of grant shall be
five years from the date of grant.
The Compensation Committee of the board of directors granted 97,500
options to officers, directors and employees as of August 27, 1999 at an
exercise price of $6.00 per share. All of the 97,500 options will expire on or
before December 31, 2004. None of the 97,500 options, or any additional options
issued under the plan shall become exercisable until such time as the
shareholders of Beta have approved the plan as provided in Beta's bylaws.
SUBSEQUENT EVENTS
I. SUBSEQUENT DRILLING ACTIVITY
Subsequent to September 30, 1999, and up to the date of this document,
Beta participated in the drilling of the following wells:
ESTIMATED FIRST
WORKING COMPLETION DATE OF
WELL NAME LOCATION INTEREST % STATUS PRODUCTION
--------- -------- ---------- ------ ----------
1. Bowerbank #1 Kern Co., CA 30% Dry-hole N/A
2. Heron #1 Onshore Louisiana 12.5% Dry-hole N/A
3. Hildebrandt #1 Jackson Co., TX 20.0% Dry-hole N/A
4. Traylor #1 Jackson Co., TX 25.0% Dry-hole N/A
5. Estherwood #1 Acadia Parish, LA 50.0% Dry-hole N/A
---------------
Total 137.5%
===============
1. Rayborn-Pressley #1 Jackson Co., TX 12.5% Being completed 12/99
2. SE Garrison City #1 Kern Co., CA 30.0% Being completed 1/2000
3. Johnson/Found #1 Jackson Co., TX 12.5% Being completed 1/2000
---------------
Total 55%
===============
II. BETA ACQUISITION OF RED RIVER ENERGY, INC.
Beta has entered into an agreement to purchase Red River Energy, Inc. of
Tulsa, Oklahoma, a private oil and natural gas company. The purchase price will
be paid by the assumption of approximately $7.6 million existing debt and the
issuance of approximately 2.25 million shares of Beta common stock. The purchase
is subject to approval by Beta shareholders.
The assets of Red River Energy, Inc. consist of four components: 1) a
97.4% working interest (80% net revenue interest) in a 30,160 acre unit which is
currently producing approximately 3.65 MMBTU/d and 120 Bopd from 22 active wells
in the Hunton Limestone formation in Central Oklahoma; 2) an 85% working
interest (68% net revenue interest) in 7,500 acres which are currently producing
960 MMBTU/d from 45 wells in the Atoka and Gilcrease formations in Eastern
Oklahoma; 3) a gas gathering system consisting of 40 miles of pipeline which is
currently transporting approximately 1650 MMBTU/d in Eastern Oklahoma; and 4) a
46 well coal bed methane project also located in Eastern Oklahoma which is
currently under development and producing approximately 600 MMBTU/d. Excluding
the coal bed methane project, the properties being acquired contain estimated
proved producing recoverable reserves totaling approximately 22.5 billion cubic
feet of natural gas and 504,000 barrels of oil having a net present value
discounted at 10% of approximately $23.5 million. Red River Energy, Inc. is the
operator of all its properties.
III. EXERCISE OF WARRANTS
Subsequent to September 30, 1999, approximately 430,000 warrants to
purchase Beta common stock at prices ranging from $2.00 to $5.00 per share have
been exercised resulting in proceeds to Beta of approximately $2,055,000.
IMPACT OF RECENTLY ISSUED STANDARDS
Beta intends to adopt SFAS 133, "Accounting for Derivative Instruments
and Hedging Activities," issued in June 1998 effective with its fiscal year
beginning January 1, 2000 as required by the Statement. Due to Beta's current
and anticipated limited use of derivative instruments, management anticipates
that adoption of SFAS 133 will not have any significant impact on Beta's
financial position or results of operations. SFAS 132, "Employees' Disclosures
about Pensions and other Postretirement Benefits," and SFAS 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise" were issued in 1998 and are not
expected to impact Beta regarding future financial statement disclosures,
results of operations and financial position.
YEAR 2000 "Y2K" PROBLEM
Beta has addressed possible remedial efforts in connection with computer
software that could be affected by the Year 2000 "Y2K" problem. The Y2K problem
is the result of computer programs being written using two digits rather than
four to define the applicable year. Any programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a major system failure or miscalculations. The Y2K
problem can affect any modern technology used by a business in the course of its
day. Any machine that uses embedded computer technology is susceptible to this
problem, including for example, telephone systems, postage meters and scales,
and of course, computers. The impact on a company is determined to a large
extent by the company's dependence on these technologies to perform their day to
day operations.
Internally, Beta has reviewed all such equipment and has determined that
all of its systems are Y2K compliant. This includes our telephone systems,
postage equipment and some of our software. We believe that all of our internal
systems and software were brought into compliance prior to December 31, 1999. If
an error was made and all systems are not compliant, then any such events would
not have a serious impact on our day to day operations, nor would any valuable
information be lost. Our company backs up all computer systems daily to protect
us against data loss and we have a system that utilizes 10 rotating back-up
tapes as a safeguard against having a tape that is unreadable. The costs of
bringing our company technology up to Y2K compliance is expected to be less than
$5,000. This is because the majority of the "patches" or programs designed to
make software Y2K compliant can be obtained over the internet from manufacturers
for little or no cost and we do not expect to rely heavily on outside
consultants to upgrade our systems as most of the work can be performed
in-house.
Externally, the Year 2000 problem may impact other entities with which
Beta transacts business, and Beta cannot predict the effect of the Year 2000
problem on such entities or Beta. With regard to those companies that we do
business with on a daily basis, we cannot guarantee that they will be vigilant
about their Y2K plan of action. Should any of our oil and gas well operators
experience a disruption due to the Year 2000 problem, the most significant
impact may be a delay in the progress of drilling operations and/or interruption
of production and revenue on a producing well. In a worst case scenario, the
former may ultimately cause Beta to incur drilling cost overruns, while the
latter may cause us to have an interruption in revenues for several months. We
have also assessed the possibility of personal injury, loss of life, property
damage and accidental pollution resulting from equipment malfunctions. Although
we believe these to be a remote possibility, we have undertaken investigations
to determine possible problem areas and will communicate our findings, if any,
to the project operators.
In these unlikely events, Beta's plan of action is to have on hand a cash
reserve in excess of $500,000 at December 31, 1999 and throughout the year 2000
to cover both the additional well costs and the Company's overhead expenses
until production resumes. In the event that Beta does experience Y2K problems,
it could result in a suspension of Beta's revenues. A suspension of revenues
could result in material losses from operations and a reduction in Beta's
working capital. Management is unable at this time to quantify the
impact that the Y2K problem could have on Beta's results of operations and
financial condition. Beta has experienced no Y2K problems to date.
ANNEX D
BETA OIL & GAS, INC.
AMENDED AND RESTATED 1999 INCENTIVE AND NONSTATUTORY STOCK OPTION PLAN
[GRAPHIC OMITTED][GRAPHIC OMITTED]
BETA OIL & GAS, INC.
AMENDED AND RESTATED
1999 INCENTIVE AND NONSTATUTORY
STOCK OPTION PLAN
1. PURPOSE OF PLAN. The purpose of this 1999 Incentive and
Nonstatutory Stock Option Plan are to attract and retain the best
available personnel for positions of substantial responsibility, to
provide additional incentive to the Employees, Directors and
Consultants of BETA OIL & GAS, INC. (the "Company") and to promote the
success of the Company's business. Options granted hereunder may be
either "incentive stock options," as defined in Section 422 of the
Internal Revenue Code of 1986, as amended, or "nonstatutory stock
options," at the discretion of the Board and as reflected in the terms
of the written stock option agreement.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "BOARD" shall mean the Board of Directors of the Company, or
if a Committee is appointed, "Board" shall refer to the Committee
if the context so requires.
(b) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "COMMON STOCK" shall mean the $.001 par value common stock of
the Company.
(d) "COMPANY" shall mean BETA OIL & GAS, INC., a Nevada
corporation.
(e) "COMMITTEE" shall mean the Committee appointed by the Board
of Directors in accordance with paragraph (a) of Section 4 of the
Plan, if one is appointed, or the Board if no committee is
appointed.
(f) "CONSULTANT" shall mean any person who is engaged by the
Company or any Subsidiary to render consulting services and is
compensated for such consulting services.
(g) "CONTINUOUS STATUS AS AN EMPLOYEE" shall mean the absence of
any interruption or termination of service as an Employee.
Continuous Status as an Employee shall not be considered
interrupted in the case of sick leave, military leave, or any
other leave of absence approved by the Board; provided that such
leave is for a period of not more than 90 days or reemployment
upon the expiration of such leave is guaranteed by contract or
statute.
(h) "EMPLOYEE" shall mean any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of
the Company.
(i) "INCENTIVE STOCK OPTION" shall mean an Option which is
intended to qualify as an incentive stock option within the
meaning of Section 422 of the Code and which shall be clearly
identified as such in the written Stock Option Agreement provided
by the Company to each Optionee granted an Incentive Stock Option
under the Plan.
(j) "NON-EMPLOYEE DIRECTOR" shall mean a director who:
(i) Is not currently an officer (as defined in Section
16a-1(f) of the Securities Exchange Act of 1934, as amended)
of the Company or a Parent or Subsidiary of the Company, or
otherwise currently employed by the Company or a Parent or
Subsidiary of the Company;
(ii) Does not receive compensation, either directly or
indirectly, from the Company or a Parent or Subsidiary of
the Company, for services rendered as a Consultant or in any
capacity other than as a director, except for an amount that
does not exceed the dollar amount for which disclosure would
be required pursuant to Item 404(a) of Regulation S-K
adopted by the United States Securities and Exchange
Commission; and
(iii) Does not possess an interest in any other transaction
for which disclosure would be required pursuant to Item
404(a) of Regulation S-K adopted by the United States
Securities and Exchange Commission.
(k) "NONSTATUTORY STOCK OPTION" shall mean an Option granted
under this Plan which does not qualify as an Incentive Stock
Option and which shall be clearly identified as such in the
written Stock Option Agreement provided by the Company to each
Optionee granted a Nonstatutory Stock Option under this Plan. To
the extent that the aggregate fair market value of Optioned Stock
to which Incentive Stock Options granted under Options to an
Employee are exercisable for the first time during any calendar
year (under the Plan and all plans of the Company or any Parent
or Subsidiary) exceeds $100,000, such Options shall be treated as
Nonstatutory Stock Options under the Plan. The aggregate fair
market value of the Optioned Stock shall be determined as of the
date of grant of each Option and the determination of which
Incentive Stock Options shall be treated as qualified incentive
stock options under Section 422 of the Code and which Incentive
Stock Options exercisable for the first time in a particular year
in excess of the $100,000 limitation shall be treated as
Nonstatutory Stock Options shall be determined based on the order
in which such Options were granted in accordance with Section
422(d) of the Code.
(l) "OPTION" shall mean an Incentive Stock Option, a Nonstatutory
Stock Option or both as identified in a written Stock Option
Agreement representing such stock option granted pursuant to the
Plan.
(m) "OPTIONED STOCK" shall mean the Common Stock subject to an
Option.
(n) "OPTIONEE" shall mean an Employee or other person who is
granted an Option.
(o) "PARENT" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the
Code.
(p) "PLAN" shall mean this 1999 Incentive and Nonstatutory Stock
Option Plan.
(q) "SHARE" shall mean a share of the Common Stock of the
Company, as adjusted in accordance with ----- Section 11 of the
Plan.
(r) "STOCK OPTION AGREEMENT" shall mean the agreement to be
entered into between the Company and each Optionee which shall
set forth the terms and conditions of each Option granted to each
Optionee, including the number of Shares underlying such Option
and the exercise price of each Option granted to such Optionee
under such agreement.
(s) "SUBSIDIARY" shall mean a "subsidiary corporation," whether
now or hereafter existing, as defined in Section 424(f) of the
Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 11
of the Plan, the maximum aggregate number of Shares which may be
optioned and sold under the Plan is 700,000 shares of Common Stock.
The Shares may be authorized, but unissued, or reacquired Common
Stock. If an Option should expire or become unexercisable for any
reason without having been exercised in full, the unpurchased Shares
which were subject thereto shall, unless the Plan shall have been
terminated, become available for future grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE. The Plan shall be administered by a Committee
appointed by the Board consisting of two or more Non-Employee
Directors to administer the Plan on behalf of the Board, subject
to such terms and conditions as the Board may prescribe. If the
Company has a class of its equity securities registered under the
Securities Exchange Act of 1934, as amended ("1934 Act"), the
Board shall appoint the Committee.
(i) Once appointed, the Committee shall continue to serve
until otherwise directed by the Board (which for purposes of
this paragraph (a)(i) of this Section 4 shall be the Board
of Directors of the Company). From time to time the Board
may increase the size of the Committee and appoint
additional members thereof, remove members (with or without
cause) and appoint new members in substitution therefor,
fill vacancies however caused, or remove all members of the
Committee and thereafter directly administer the Plan.
(ii) Members of the Board who are granted, or have been
granted, Options may vote on any matters affecting the
administration of the Plan or the grant of any Options
pursuant to the Plan.
(b) POWERS OF THE BOARD. Subject to the provisions of the Plan,
the Board (or the Committee, subject to the approval of the
Board) shall have the authority, in its discretion:
(i) To grant Incentive Stock Options, in accordance with
Section 422 of the Code, and Nonstatutory Stock Options or
both as provided and identified in a separate written Stock
Option Agreement to each Optionee granted such Option or
Options under the Plan; provided however, that in no event
shall an Incentive Stock Option and a Nonstatutory Stock
Option granted to any Optionee under a single Stock Option
Agreement be subject to a "tandem" exercise arrangement such
that the exercise of one such Option affects the Optionee's
right to exercise the other Option granted under such Stock
Option Agreement;
(ii) To determine, upon review of relevant information and
in accordance with Section 8(b) of the Plan, the fair market
value of the Common Stock;
(iii) To determine the exercise price per Share of Options
to be granted, which exercise price shall be determined in
accordance with Section 8(a) of the Plan;
(iv) To determine the Employees or other persons to whom,
and the time or times at which, Options shall be granted and
the number of Shares to be represented by each Option;
(v) To interpret the Plan;
(vi) To prescribe, amend and rescind rules and regulations
relating to the Plan;
(vii) To determine the terms and provisions of each Option
granted (which need not be identical) and, with the consent
of the holder thereof, modify or amend each Option;
(viii) To accelerate or defer (with the consent of the
Optionee) the exercise date of any Option, consistent with
the provisions of Section 7 of the Plan;
(ix) To authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of
an Option previously granted by the Board; and
(x) To make all other determinations deemed necessary or
advisable for the administration of the Plan.
(xi) To determine whether a holder of Nonstatutory Stock
Options granted under this Plan shall have engaged in
conduct which is contrary to the best interests of the
Company and whose Nonstatutory Stock Option is therefore
subject to cancellation as set forth in Section 7.
(c) EFFECT OF BOARD'S DECISION. All decisions, determinations and
interpretations of the Board shall be final and binding on all
Optionees and any other permissible holders of any Options
granted under the Plan.
5. ELIGIBILITY.
(a) PERSONS ELIGIBLE. Options may be granted to any Employee,
Director, Officer or Consultant of the Company selected by the
Board. Incentive Stock Options may be granted only to Employees.
An Employee, who is also a director of the Company, its Parent or
a Subsidiary, shall be treated as an Employee for purposes of
this Section 5. An Employee or other person who has been granted
an Option may, if he is otherwise eligible, at the discretion of
the Committee, if a Committee has been appointed, or the Board,
be granted an additional Option or Options.
(b) NO EFFECT ON RELATIONSHIP. The Plan shall not confer upon any
Optionee any right with respect to continuation of employment or
other relationship with the Company nor shall it interfere in any
way with his right or the Company's right to terminate his
employment or other relationship at any time.
6. TERM OF PLAN. The Plan became effective on the date first approved and
adopted by the Board of Directors, as set forth on the last page of this
Plan. It shall continue in effect for 10 years from the date of such
approval and adoption, unless sooner terminated under Section 13 of the
Plan.
7. TERM OF OPTION. The term of each Option shall be 10 years from the date
of grant thereof or such shorter term as may be provided in the Stock
Option Agreement. However, in the case of an Incentive Stock Option granted
to an Optionee who, at the time the Option is granted, owns stock
representing more than 10% of the total combined voting power of all
classes of stock of the Company or any Parent or Subsidiary, the term of
the Option shall be five years from the date of grant thereof or such
shorter time as may be provided in the Stock Option Agreement.
The Nonstatutory Stock Options granted to, and held by, any person under
this Plan, may be deemed canceled and forfeited by the Board, if the Board,
in its sole discretion, determines that the conduct of the holder of such
Nonstatutory Stock Option has been contrary to the best interests of the
Company and could reasonably be deemed by the Board to have a material
adverse effect on the Company or the business of the Company.
8. EXERCISE PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. The per Share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be no less than the
fair market value of Shares of common stock as of the date of grant of
the option or such higher price as may be determined by the Board, but
the per Share exercise price under an Incentive Stock Option shall be
subject to the following:
(i) If granted to an Employee who, at the time of the grant of
such Incentive Stock Option, owns stock representing more than
10% of the voting power of all classes of stock of the Company or
any Parent or Subsidiary, the per Share exercise price shall not
be less than 110% of the fair market value per Share on the date
of grant.
(ii) If granted to any other Employee, the per Share exercise
price shall not be less than 100% of the fair market value per
Share on the date of grant.
(b) DETERMINATION OF FAIR MARKET VALUE. The fair market value per
Share on the date of grant shall be determined as follows:
(i) If the Common Stock is listed on the New York Stock Exchange,
the American Stock Exchange or such other securities exchange
designated by the Board, or admitted to unlisted trading
privileges on any such exchange, or if the Common Stock is quoted
on a National Association of Securities Dealers, Inc. system that
reports closing prices, the fair market value shall be the
closing price of the Common Stock as reported by such exchange or
system on the day the fair market value is to be determined, or
if no such price is reported for such day, then the determination
of such closing price shall be as of the last immediately
preceding day on which the closing price is so reported;
(ii) If the Common Stock is not so listed or admitted to unlisted
trading privileges or so quoted, the fair market value shall be
the average of the last reported highest bid and the lowest asked
prices quoted on the National Association of Securities Dealers,
Inc. Automated Quotations System or, if not so quoted, then by
the National Quotation Bureau, Inc. on the day the fair market
value is determined; or
(iii) If the Common Stock is not so listed or admitted to
unlisted trading privileges or so quoted, and bid and asked
prices are not reported, the fair market value shall be
determined in such reasonable manner as may be prescribed by the
Board.
(c) CONSIDERATION AND METHOD OF PAYMENT. The consideration to be paid
for the Shares to be issued upon exercise of an Option, including the
method of payment, shall be determined by the Committee or the Board
and may consist entirely of cash, check, other shares of Common Stock
having a fair market value on the date of exercise equal to the
aggregate exercise price of the Shares as to which said Option shall
be exercised, or any combination of such methods of payment, or such
other consideration and method of payment for the issuance of Shares
to the extent permitted under the Nevada Business Corporation Act.
9. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable at such times and under such
conditions as determined by the Board, including performance criteria
with respect to the Company and/or the Optionee, and as shall be
permissible under the terms of the Plan.
In the sole discretion of the Board, at the time of the grant of an
Option or subsequent thereto but prior to the exercise of an Option,
an Optionee may be provided with the right to exchange, in a cashless
transaction, all or part of the Option for Common Stock of the Company
on terms and conditions determined by the Board.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of
the Option by the person entitled to exercise the Option and full
payment for the Shares with respect to which the Option is exercised
has been received by the Company. Full payment, as authorized by the
Board, may consist of a consideration and method of payment allowable
under Section 8(c) and this Section 9(a) of the Plan. Until the
issuance (as evidenced by the appropriate entry on the books of the
Company or of the duly authorized transfer agent of the Company) of
the stock certificate evidencing such Shares, no right to vote or
receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of
the Option. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the stock certificate
is issued, except as provided in Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes
of the Plan and for exercise under the Option, by the number of Shares
as to which the Option is exercised.
(b) TERMINATION OF STATUS AS AN EMPLOYEE. In the case of an Incentive
Stock Option, if any Employee ceases to serve as an Employee, he may,
but only within such period of time not exceeding three months as is
determined by the Board at the time of grant of the Option, after the
date he ceases to be an Employee of the Company, exercise his Option
to the extent that he was entitled to exercise the Option at the date
of such termination. To the extent that he was not entitled to
exercise the Option at the date of such termination, or if he does not
exercise any portion of the Option which he was entitled to exercise
at the date of termination within the time specified herein, the
Option shall terminate.
(c) DISABILITY OF OPTIONEE. In the case of an
Incentive Stock Option, notwithstanding the provisions of Section 9(b)
above, in the event an Employee is unable to continue his employment
with the Company as a result of his total and permanent disability (as
defined in Section 22(e)(3) of the Code), he may, but only within such
period of time not exceeding 12 months as is determined by the Board at
the time of grant of the Option from the date of termination, exercise
his Option to the extent he was entitled to exercise it at the date of
such termination. To the extent that he was not entitled to exercise
the Option at the date of termination, or if he does not exercise any
portion of the Option which he was entitled to exercise at the date of
disability within the time specified herein, the Option shall
terminate.
(d) DEATH OF OPTIONEE. In the case of an Incentive Stock Option, in
the event of the death of the Optionee:
(i) During the term of the Option if the Optionee was at the time
of his death an Employee the Company and had been in Continuous
Status as an Employee or Consultant since the date of grant of
the Option, the Option may be exercised, at any time within 12
months following the date of death, by the Optionee's estate or
by a person who acquired the right to exercise the Option by
bequest or inheritance, but only to the extent of the right to
exercise that would have accrued had the Optionee continued
living and remained in Continuous Status as an Employee 12 months
after the date of death; or
(ii) Within such period of time not exceeding three months as is
determined by the Board at the time of grant of the Option after
the termination of Continuous Status as an Employee, the Option
may be exercised, at any time within 12 months following the date
of death, by the Optionee's estate or by a person who acquired
the right to exercise the Option by bequest or inheritance, but
only to the extent of the right to exercise that had accrued at
the date of termination.
10. Nontransferability of Options. In the case of an Incentive Stock
Option, the Option may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner (a "sale or other transfer")
other than by will or by the laws of descent and distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. In
the case of a nonstatutory stock option, an Option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner
during the period ending one year from the date of grant and thereafter
only (i) after written notice to the Board and (ii) in a manner which is in
compliance with all applicable provisions of the Securities Act of 1933, as
amended ("1933 Act") and the 1934 Act to the reasonable satisfaction of the
Company. Upon any permitted sale or other transfer, the transferee shall
remain subject to all terms and conditions of the Plan and the Stock Option
Agreement.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. Subject to any
required action by the shareholders of the Company, the number of Shares
covered by each outstanding Option, and the number of Shares which have
been authorized for issuance under the Plan but as to which no Options have
yet been granted or which have been returned to the Plan upon cancellation
or expiration of any Option, as well as the price per Share covered by each
such outstanding Option, shall be proportionately adjusted for any increase
or decrease in the number of issued Shares resulting from a stock split,
reverse stock split, stock dividend, combination or reclassification of the
Common Stock, or any other increase or decrease in the number of issued
shares of Common Stock effected without receipt of consideration by the
Company; provided, however, that conversion of any convertible securities
of the Company shall not be deemed to have been "effected without receipt
of consideration." Such adjustment shall be made by the Board, whose
determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares
of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of Shares subject to an Option.
In the event of the proposed dissolution or liquidation of the Company, the
Option will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Board. The Board may, in
the exercise of its sole discretion in such instances, declare that any
Option shall terminate as of a date fixed by the Board and give each
Optionee the right to exercise his Option as to all or any part of the
Optioned Stock, including Shares as to which the Option would not otherwise
be exercisable. In the event of the proposed sale of all or substantially
all of the assets of the Company, or the merger of the Company with or into
another corporation in a transaction in which the Company is not the
survivor, the Option shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation, unless the Board determines, in the exercise of its
sole discretion and in lieu of such assumption or substitution, that the
Optionee shall have the right to exercise the Option as to all of the
Optioned Stock, including Shares as to which the Option would not otherwise
be exercisable. If the Board makes an Option fully exercisable in lieu of
assumption or substitution in the event of such a merger or sale of assets,
the Board shall notify the Optionee that the Option shall be fully
exercisable for a period of 30 days from the date of such notice, and the
Option will terminate upon the expiration of such period.
12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for all
purposes, be the date on which the Board makes the determination granting
such Option. Notice of the determination shall be given to each Employee or
other person to whom an Option is so granted within a reasonable time after
the date of such grant. Within a reasonable time after the date of the
grant of an Option, the Company shall enter into and deliver to each
Employee or other person granted such Option a written Stock Option
Agreement as provided in Sections 2(r) and 16 hereof, setting forth the
terms and conditions of such Option and separately identifying the portion
of the Option which is an Incentive Stock Option and/or the portion of such
Option which is a Nonstatutory Stock Option.
13. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may amend or terminate the
Plan from time to time in such respects as the Board may deem
advisable; provided that, the following revisions or amendments shall
require approval of the shareholders of the Company in the manner
described in Section 17 of the Plan:
(i) An increase in the number of Shares subject to the Plan above
700,000 Shares, other than in connection with an adjustment under
Section 11 of the Plan;
(ii) Any change in the designation of the class of Employees
eligible to be granted Incentive Stock Options; or
(iii) Any material amendment under the Plan that would have to be
approved by the shareholders of the Company for the Board to
continue to be able to grant Incentive Stock Options under the
Plan in accordance with the Code.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan shall not affect Options already granted and
such Options shall remain in full force and effect as if the Plan had
not been amended or terminated, unless mutually agreed otherwise
between the Optionee and the Board, which agreement must be in writing
and signed by the Optionee and the Company.
14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued pursuant
to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the 1933 Act,
the 1934 Act, the rules and regulations promulgated thereunder, applicable
state securities laws, and the requirements of any stock exchange upon
which the Shares may then be listed, and shall be further subject to the
approval of legal counsel for the Company with respect to such compliance.
As a condition to the existence of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares and such
other representations and warranties which in the opinion of legal counsel
for the Company, are necessary or appropriate to establish an exemption
from the registration requirements under applicable federal and state
securities laws with respect to the acquisition of such Shares.
15. RESERVATION OF SHARES. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. Inability of the
Company to obtain authority from any regulatory body having jurisdiction,
which authority is deemed by the Company's legal counsel to be necessary
for the lawful issuance and sale of any Share hereunder, shall relieve the
Company of any liability relating to the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
16. OPTION AGREEMENT. Each Option granted to an Employee or other persons
shall be evidenced by a written Stock Option Agreement. The Stock Option
Agreement shall be in the form and shall include the terms and conditions
set forth on Exhibit A attached hereto.
17. SHAREHOLDER APPROVAL. Continuance of the Plan shall be subject to
approval by the shareholders of the Company. Such shareholder approval and
any shareholder approval required under Section 13 of the Plan, may be
obtained at a duly held shareholders meeting by the affirmative vote of the
holders of a majority of the outstanding shares of the voting stock of the
Company, who are present or represented and entitled to vote thereon, or by
majority written consent of the shareholders in accordance with the
provisions of the Nevada Business Corporation Act.
18. INFORMATION TO OPTIONEES. The Company shall provide to each Optionee,
during the period for which such Optionee has one or more Options
outstanding, copies of all annual reports and other information which are
provided to all shareholders of the Company. The Company shall not be
required to provide such information if the issuance of Options under the
Plan is limited to key employees whose duties in connection with the
Company assure their access to equivalent information.
19. GENDER. As used herein, the masculine, feminine and neuter genders
shall be deemed to include the others in all cases where they would so
apply.
20. CHOICE OF LAW. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND
INTERPRETATION OF THIS PLAN AND THE INSTRUMENTS EVIDENCING OPTIONS WILL BE
GOVERNED BY THE INTERNAL LAW, AND NOT THE LAW OF CONFLICTS, OF THE STATE OF
NEVADA.
Adopted by Directors: Effective January 6, 1999
Adopted by Shareholders: Effective ____________
BETA OIL & GAS, INC.
organized under the laws of Nevada
ATTEST:
By /s/Steve Antry /s/ Lisa Antry
Chairman Secretary
REQUEST FOR CONSENT
BETA OIL & GAS, INC. ("Company")
901 Dove Street, Suite 230
Newport Beach, California 92660
THIS IS A REQUEST FOR THE CONSENT OF THE SHAREHOLDERS TO THE
ACTION TO BE TAKEN AS TO THE RESOLUTION SET FORTH BELOW
ON OR AFTER, BUT NO EARLIER THAN, FEBRUARY ____, 2000
CONSENT TO ACTION IN LIEU OF A SPECIAL MEETING
OF THE SHAREHOLDERS
The undersigned acknowledges that he/she/it/they have received a copy of
the Proxy Statement, dated January _____, 2000, concerning the proposed merger
of the Company's wholly owned subsidiary, Beta Acquisition Company, Inc., an
Oklahoma corporation, with and into Red River Energy, Inc., an Oklahoma
corporation. On the basis of his/her/its/their review of the information
contained in such Proxy Statement, the undersigned hereby (please check the
appropriate box)
/ / Consents / / Withholds Consent
as to the following resolution:
RESOLVED, that the Agreement and Plan of Merger, dated November 19, 1999,
by and between the Company and Beta Acquisition Company, Inc. and Red River
Energy, Inc. and the shareholders of the Red River Energy, Inc. and the merger
of Beta Acquisition Company, Inc. with and into Red River Energy, Inc., as
described in the Agreement and Plan of Merger, is hereby ratified and approved
by the shareholders of the Company.; and
RESOLVED FURTHER, that this consent may executed in multiple
counterparts, all of which shall be taken together and considered a single
consent.
FAILURE TO RETURN THIS REQUEST FOR CONSENT WILL HAVE THE EFFECT OF
WITHHOLDING CONSENT WITH RESPECT TO THE RESOLUTION SET FORTH ABOVE. TO BE
APPROVED UNDER NEVADA LAW AND THE COMPANY'S BYLAWS THE RESOLUTION MUST RECEIVE
THE CONSENT OF THE HOLDERS OF RECORD OF A MAJORITY OF THE ISSUED AND OUTSTANDING
SHARES OF THE COMPANY'S COMMON STOCK AS DETERMINED ON JANUARY 12, 2000, THE
RECORD DATE.
Dated: , 2000.
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Signature
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Signature (if held jointly)
Please sign exactly as your name(s) appear(s)
herein. Where more than one owner is shown above,
each should sign. When signing in a fiduciary or
representative capacity, please add your full title
as such. If a corporation is submitting this
Consent, it should be executed in its full corporate
name by a duly authorized officer. If a partnership
or limited liability company is submitting this
Consent, it should be signed in the full name of the
entity by an authorized person.
REQUEST FOR CONSENT
BETA OIL & GAS, INC. ("Company")
901 Dove Street, Suite 230
Newport Beach, California 92660
THIS IS A REQUEST FOR THE CONSENT OF THE SHAREHOLDERS TO THE
ACTION TO BE TAKEN AS TO THE RESOLUTION SET FORTH BELOW
ON OR AFTER, BUT NO EARLIER THAN, FEBRUARY ____, 2000
CONSENT TO ACTION IN LIEU OF A SPECIAL MEETING
OF THE SHAREHOLDERS
The undersigned acknowledges that he/she/it/they have received a copy of
the Proxy Statement, dated January 12, 2000, which in part under Proposed No. 2
discusses the Company's Amended and Restated 1999 Incentive and Nonstatutory
Stock Option Plan ("Plan"), a copy of which is appended to the Proxy Statement
as APPENDIX D. Based on his/her/its/their review of the information contained in
such Proxy Statement, pertaining to the Plan, the undersigned hereby (please
check the appropriate box)
/ / Consents / / Withholds Consent
as to the following resolution:
RESOLVED, that the Shareholders of the Company hereby ratify and approve
the adoption of the Company's Amended and Restated 1999 Incentive and
Nonstatutory Stock Option Plan by the Company's Board of Directors: and
RESOLVED FURTHER, that this consent may executed in multiple
counterparts, all of which shall be taken together and considered a single
consent.
FAILURE TO RETURN THIS REQUEST FOR CONSENT WILL HAVE THE EFFECT OF
WITHHOLDING CONSENT WITH RESPECT TO THE RESOLUTION SET FORTH ABOVE. TO BE
APPROVED UNDER NEVADA LAW AND THE COMPANY'S BYLAWS THE RESOLUTION MUST RECEIVE
THE CONSENT OF THE HOLDERS OF RECORD OF A MAJORITY OF THE ISSUED AND OUTSTANDING
SHARES OF THE COMPANY'S COMMON STOCK AS DETERMINED ON JANUARY 12, 2000, THE
RECORD DATE.
Dated: , 2000.
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------------------------------------------
Signature
------------------------------------------
Signature (if held jointly)
Please sign exactly as your name(s) appear(s)
herein. Where more than one owner is shown above,
each should sign. When signing in a fiduciary or
representative capacity, please add your full title
as such. If a corporation is submitting this
Consent, it should be executed in its full corporate
name by a duly authorized officer. If a partnership
or limited liability company is submitting this
Consent, it should be signed in the full name of the
entity by an authorized person.