Document:

35 CAROLINE CORP.            518-899-7393
                                    BOX 444            FAX  518-899-7394
AUTO TRANSPORT                ROUND LAKE, NY 12151
================================================================================

                                 AMENDMENT NO.1

                                       to

                        AMENDED STOCK PURCHASE AGREEMENT

     AMENDMENT  NO. 1, dated as of November 18,  1998,  by and among 35 CAROLINE
CORPORATION, a New York corporation ("Caroline"), RICHARD W. MORRELL ("Morrell")
and HARVEY RISIEN, JR. ("Risien").

     Reference is made to that certain AMENDED STOCK PURCHASE  AGREEMENT,  dated
November  18, 1998,  by and among  Caroline,  Morrell and Risien (the  "Original
Agreement").  Each capitalized term used herein and not otherwise defined herein
shall bear the meaning  ascribed  to said term In the  Original  Agreement.  All
section and paragraph references shall be to the Original Agreement.

     WHEREAS,  pursuant to the Original  Agreement Morrell  purchased  2,469,417
shares of common stock of Houston Operating Company ("Houston") from Risien; and

     WHEREAS,   the  Original   Agreement  provided  that  at  closing  all  the
outstanding  stock of the Caroline (the "Caroline  Stock") was to be transferred
to Houston; and

     WHEREAS,  as part of the  transaction,  Risien  retained  41,928  shares of
Houston  (the  "Retained  Stock")  and had put option of the  Retained  Stock to
Morrell for $1,789 per share; and

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<PAGE>

     WHEREAS,  it was the intent of the  parties  that  Morrell be  required  to
transfer,  or cause to be  transferred  to Houston  the  Caroline  Stock only if
Risien did not  exercise  the put option and that If Risien did exercise the put
option and that if Risien did  exercise  the put  option,  then  Morrell had the
option of retaining the Caroline Stock or transferring same to Houston; and

     WHEREAS, Risien's only interest in having the Caroline Stock contributed to
Houston was to enhance  Houston's  value if he  continued  to have a  continuing
stock interest in Houston -- i.e. if he did not exercise the put option; and

     WHEREAS, Risien did not intend to make the other shareholders of Houston or
Houston third party  beneficiaries  of his agreement  with Caroline and Morrell;
and

     WHEREAS, the Original Contract did not property reflect the parties' intent
in these regards: and

     WHEREAS,  since the date of the Original  Contract Morrell has continued to
operate Caroline for the interests of the Caroline shareholders.

     NOW, THEREFORE, The parties hereto hereby agree as follows:

1. Paragraph 1.3 shall be amended to read in its entirety as follows:

     1.3 CLOSING. The purchase and sale of the HOC Common Stock shall take place
at the offices of Barton & Schneider,  L.L.P., 700 N. St. Mary's Suite 1825, San
Antonio,  Texas  78025,  or such other  location  as agreed by the  parties,  on
November 30,  1998,  or at such other time and place as the Seller and the Buyer
mutually agree upon

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location as agreed by the parties,  on November 30, 1998,  or at such other time
and place as the Seller and the Buyer mutually agree upon in writing (which time
and place are  designated  as the  "Closing").  At the Closing the Seller  shall
deliver to the Buyer certificates  representing the HOC Common Stock which Buyer
is purchasing  together with a stock power  transferring the HOC Common Stock to
Buyer against delivery of the Purchase Price as follows:

          (a)  At the  Closing to Seller,  a check for  $1,000  made  payable to
               Seller;

          (b)  At the  Closing  to the  Seller,  a  Promissory  Note from HOC to
               Seller in the  amount  of $8,530 on terms set forth in  paragraph
               4.3 hereof; and

          (c)  If (but only if) Seller does not  exercise  his option to require
               Buyer to purchase  Sellers  remaining  Common  Stock  pursuant to
               paragraph  4.3  hereof,  on or before  April 21, 1999 to Houston,
               certificates representing all of the outstanding capital stock of
               Caroline  together with a stock power  transferring  the stock to
               Houston.

2.   A new paragraph 2.17 Shall be added and read in its entirety as follows:

     2.17 NO THIRD PARTY BENEFICIARIES. Seller does not intend to benefit in any
third parties  through the  contingent  requirement  that Buyer  contribute  the
certificates  representing  all of the outstanding  capital stock of Caroline to
Houston.

3. The  parties  hereto  acknowledge  that Risien has timely  exercised  the put
option and that,  accordingly,  Morrell is not obligated to contribute (or cause
to be contributed)  the Caroline Stock to Houston.

4. Except as modified hereby, all of the terms of the Original

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Agreement remain in full force and effect.

     IN WITNESS  WHEREOF,  the parties have caused this Amendment to be executed
this 29th day of June, 1999.

                                   35 CAROLINE CORP.

                                   By:/s/Richard W. Morrell
                                   Richard W. Morrell, President

                                   /s/Richard W. Morrell
                                   Richard W. Morrell

                                   /s/Harvey V. Risien, Jr.
                                   Harvey V. Risien, Jr.

                                       4United States District Court
                                                  Southern District of Texas
                                                            FILED
                                                         SEP 21 1989
                                                  Jesse E. Clark, Clerk

                         UNITED STATES BANKRUPTCY COURT
                       FOR THE SOUTHERN DISTRICT OF TEXAS
                                HOUSTON DIVISION

In Re:

CAMBRIDGE OIL COMPANY              )
     AKA NEW CAMBRIDGE CORPORATION )    Case No. 88-01859-H5-11
     a Delaware Corporation,       )         (Chapter 11)
                                   )
                    Debtor         )
---------------------------------- )

                 DISCLOSURE STATEMENT OF CAMBRIDGE OIL COMPANY,
          DEBTOR IN POSSESSION, AND NORMANDY OIL AND GAS COMPANY, INC.
           AND ITS WHOLLY OWNED SUBSIDIARY, HOUSTON OPERATING COMPANY
                     SUCCESSOR TO THE DEBTOR UNDER THE PLAN

DATED:                                                 FILED BY:

                              DISCLOSURE STATEMENT

     This Disclosure Statement  ("Statement") has been prepared by Cambridge Oil
Company,  ("  Debtor"),  and  Normandy  Oil and Gas Company and its wholly owned
subsidiary,  Houston Operating Company,  which together constitute the Successor
to Debtor under the Plan ("Successor"). The United States District Court for the
Southern District of Texas,  Houston Division in Bankruptcy ("Court") located in
Houston,  Texas has approved this Statement which approval does not constitute a
determination  on the  merits of the Plan of  Reorganization  ("Plan")  attached
hereto as Exhibit 1 and described in this Disclosure Statement.  The approval of
the  Statement  means  that the  Court  has found  that the  Statement  contains
adequate  information  to permit a creditor or  shareholder  of Debtor to make a
reasonably informed decision in exercising their right to vote upon the Plan.

<PAGE>
                                  INTRODUCTION

     Debtor filed its  voluntary  Chapter 11 petition with the Court on February
29, 1988.  On September 21, 1989,  Debtor and the  Successor  filed the Plan and
Statement.   The  Statement  analyzes  the  proposed  distribution  to  Debtor's
creditors and shareholders  under the Plan and in liquidation.  The Statement is
being mailed to all known  creditors,  partners,  and shareholders of the Debtor
for the purpose of disclosing that information which the Court has determined is
material,  important and necessary for such creditors and shareholders to arrive
at a reasonably  informed  decision in  exercising  their right to vote upon the
Plan. The Statement describes various transactions  contemplated under the Plan.
A copy of the Plan is  attached  hereto as Exhibit 1. You are urged to study the
Plan in full  and to  consult  your  counsel  about  the  Plan  and its  impact,
including  possible tax  consequences,  upon your legal rights.  Please read the
Statement and the Plan carefully before voting on the Plan.

                         BRIEF EXPLANATION OF CHAPTER 11

     Chapter 11 is the principal  reorganization  Chapter of the Bankruptcy Code
("Code").  Pursuant  to  Chapter  11,  the  Debtor's  business  affairs  may  be
reorganized for the benefit of its creditors,  shareholders and other interested
parties.  Formulation  and  confirmation  of the Plan is the principal means for
satisfying  the claims and  interests of the  creditors  and  shareholders  in a
Chapter 11 case.  Attempts at  collection  of  pre-petition  claims  against the
Debtor, and any attempts to foreclose upon the property

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<PAGE>

of the Debtor, are stayed during the pendency of the reorganization process.

     The Court has scheduled a hearing on Confirmation of the Plan. The date and
time  of said  hearing  is set  forth  in the  Bankruptcy  Court's  Order  which
accompanies this Statement.  The confirmation  hearing will be held at 515 Rusk,
Fourth Floor,  Room ___,  Houston,  Texas. At the hearing,  the Bankruptcy Court
will  consider  whether  the Plan  satisfies  the  various  requirements  of the
Bankruptcy  Code. If the Court orders  Confirmation of the Plan, the Debtor will
be discharged pursuant to 11 U.S.C.  Section 1141 (d) from all prepetition debts
except as provided in the Plan.  Confirmation  makes the Plan  binding  upon the
Successor and the Debtor,  all stockholders of the Debtor,  all creditors of the
Debtor and all other parties in interest.

                 SOLICITATION OF ACCEPTANCES OR REJECTIONS FROM

                           CREDITORS AND SHAREHOLDERS

     By  transmission  of  this  Statement,  Debtor  and the  Successor  solicit
acceptance or rejection of the Plan from all parties,  persons,  or entities who
are  members of the  various  Classes as defined in the Plan.  Each Class  whose
rights are in some way  impaired by the Plan  constitutes  a separate  Class for
voting and  distribution  purposes  under the Plan. The Plan can be confirmed by
the Court and therefore  become binding on all creditors and shareholders if the
Plan is accepted  by: (i)  two-thirds  (2/3) in dollar  amount and a majority in
number of the allowed  creditor claims in each impaired Class who cast a vote to
accept or reject the Plan,

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<PAGE>

and (ii) by the  holders  of at least  two-thirds  (2/3) of the total  number of
shares of Common and  Preferred  Stock of the Debtor  voting to accept or reject
the Plan.  However,  the Bankruptcy Code provides that the Plan may be confirmed
by the Court  notwithstanding  the fact that an  impaired  Class or Classes  has
failed to accept the Plan so long as at least one  impaired  Class has  accepted
the  Plan.  Finally,  the Plan can only be  confirmed  by the Court if the Court
finds the Plan meets the standards for confirmation as set forth in Section 1129
(a) of the Bankruptcy Code.

     A ballot is being  transmitted to all impaired  creditors and  shareholders
for the purpose of voting on the Plan.  The ballot may be completed and returned
by mail to: Cambridge Oil Company, 6200 Savoy, Suite 740, Houston,  Texas 77036.
If an improperly  executed or  unexecuted  ballot is returned or if no ballot is
returned  at all, it will not be counted as a vote to accept or reject the Plan,
provided  however,  that if a ballot is filed and it fails to  designate  either
acceptance  or rejection of the Plan,  such ballot shall be deemed to accept the
Plan.

                       OFFER OF SECURITIES UNDER THE PLAN

     The  Plan  contemplates  that  upon  its  confirmation,  securities  of the
Successor shall be issued to certain of the Debtor's  creditors and shareholders
under the Plan.  Recipients of  securities  of the Successor  under the Plan are
urged to review the following carefully:

THE OFFER OF  SECURITIES  AS  PROVIDED  IN THE PLAN  SHALL  CONSTITUTE  A PUBLIC
OFFERING AS PROVIDED IN SECTION 1145(c) OF THE BANKRUPTCY

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CODE [11 U.S.C.  SECTION  1145(c)].  A  REGISTRATION  STATEMENT  RELATING TO THE
SECURITIES  TO BE ISSUED  UNDER THE PLAN WILL NOT BE FILED  WITH  UNITED  STATES
SECURITIES AND EXCHANGE  COMMISSION.  THE ISSUANCE  SECURITIES UNDER THE PLAN IS
EXEMPT  FROM  REGISTRATION  WITH  THE  UNITED  STATES  SECURITIES  AND  EXCHANGE
COMMISSION  AS PROVIDED  IN SECTION  1145(a) OF THE  BANKRUPTCY  CODE [11 U.S.C.
SECTION  1145(a)].  THIS  STATEMENT HAS NOT BEEN APPROVED OR  DISAPPROVED BY THE
SECURITIES  AND  EXCHANGE  COMMISSION  NOR HAS THE  COMMISSION  PASSED  UPON THE
ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED HEREIN.

UNTIL FORTY 40) DAYS AFTER THE FIRST  DISTRIBUTION OF SECURITIES UNDER THE PLAN,
ALL DEALERS EFFECTING TRANSACTIONS IN THE SECURITIES TO BE DISTRIBUTED UNDER THE
PLAN SHALL AT THE TIME OF OR PRIOR TO THE TRANSACTION DELIVER TO THE PURCHASER A
COPY OF THIS STATEMENT. THE DELIVERY OF THE STATEMENT SHALL NOT IMPLY THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE DEBTOR OR THE SUCCESSOR SINCE THE DATE
HEREOF.

NO DEALER,  SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR MAKE ANY  REPRESENTATIONS  (PARTICULARLY AS TO THE FUTURE VALUE OF SECURITIES
TO BE ISSUED UNDER THE PLAN) OTHER THAN THOSE CONTAINED IN THIS  STATEMENT.  ANY
INFORMATION OR REPRESENTATION  NOT HEREIN CONTAINED,  IF GIVEN OR MADE, MUST NOT
BE RELIED UPON.

                                        5

<PAGE>

PURSUANT TO SECTION 1125 (E) OF THE BANKRUPTCY CODE [11 U.S.C. SECTION 1125 E)],
ANY PERSON INCLUDING THE DEBTOR, THE SUCCESSOR AND THEIR ATTORNEYS, ACCOUNTANTS,
EMPLOYEES,  OFFICERS AND DIRECTORS THAT SOLICITS OR  PARTICIPATES  IN GOOD FAITH
AND IN COMPLIANCE  WITH THE  APPLICABLE  PROVISIONS OF THE  BANKRUPTCY  CODE [11
U.S.C.  SECTION  101 ST  SEQ] IN THE  OFFER  OF  SECURITIES  UNDER  THE  PLAN OF
REORGANIZATION  DESCRIBED  HEREIN  SHALL  NOT  BE  LIABLE  ON  ACCOUNT  OF  SUCH
SOLICITATION  OR  PARTICIPATION  FOR VIOLATION OF ANY  APPLICABLE  LAW, RULE, OR
REGULATION  ENACTED BY THE  UNITED  STATES OR ONE OF ITS  STATES  GOVERNING  THE
OFFER, ISSUANCE, SALE, OR PURCHASE OF SECURITIES.

THIS  STATEMENT  MAY NOT BE RELIED UPON FOR ANY PURPOSE  OTHER THAN TO DETERMINE
HOW TO VOTE ON THE  PLAN,  AND  NOTHING  CONTAINED  IN IT  SHALL  CONSTITUTE  AN
ADMISSION  OF ANY FACT OR LIABILITY BY ANY PARTY.  THIS  STATEMENT  SHALL NOT BE
DEEMED CONCLUSIVE ADVICE ON THE TAX OR OTHER LEGAL EFFECTS OF THE REORGANIZATION
ON HOLDERS OF CLAIMS OR INTERESTS.

THE INFORMATION CONTAINED IN THIS STATEMENT, OTHER THAN THE FINANCIAL STATEMENTS
INCLUDED IN EXHIBITS 4 AND 5, HAS NOT BEEN SUBJECT TO AN  INDEPENDENT  AUDIT AND
DEBTOR AND THE  SUCCESSOR ARE UNABLE TO WARRANT THAT THE  INFORMATION  CONTAINED
HEREIN IS  WITHOUT  INACCURACY  HOWEVER,  EVERY  EFFORT HAS BEEN MADE TO PROVIDE
ACCURATE INFORMATION

                 THE DATE OF THE STATEMENT IS SEPTEMBER 21, 1989

                                        6

<PAGE>

                                TABLE OF CONTENTS

I.   HISTORY, BACKGROUND, AND BUSINESS OF DEBTOR

     (A.) HISTORY
     (B.) BUSINESS OF DEBTOR
     (C.) ASSETS AND PROPERTIES OF DEBTOR

          (1)  Oil and Gas Properties
          (2)  Accounts Receivable from Oil and Gas Sales
          (3)  Accounts Receivable from Joint Interest Billings
          (4)  Accounts Receivable from Partnerships
          (5)  Office Furniture and Equipment
          (6)  All Other Assets

     (D.) LITIGATION

          (1)  Huggins
          (2)  Texas Trinity

     (E.) REASON FOR FILING

II.  POST-PETITION EVENTS AND BUSINESS OPERATIONS

III. SUMMARY OF THE PLAN

     (A.) CLASSES OF CLAIMS AND INTERESTS
     (B.) SUMMARY OF TREATMENT OF CLASSES UNDER THE PLAN
     (C.) SUMMARY OF OTHER PROVISIONS OF THE PLAN

          (1)  Means for Execution of the Plan
          (2)  Cram Down
          (3)  General Provisions
          (4)  Provision for Assumption or Rejection of Executory Contracts
          (5)  Retention of Jurisdiction

IV.  CONDITIONS PRECEDENT

V.   VOTING INSTRUCTIONS

VI.  ACCEPTANCE AND CONFIRMATION OF THE PLAN

     (A.) BEST INTERESTS TEST (MINIMUM VALUE)
     (B.) FEASIBILITY

          (1)  Common Stock
          (2)  Cash Payments Immediately After Confirmation and on the Effective
               Date
          (3)  Sources of Funds for Cash Payments
          (4)  Deferred Cash Payments

     (C.) ACCEPTANCE
     (D.) CONFIRMATION WITHOUT ACCEPTANCE BY ALL IMPAIRED CLASSES
     (E.) CLASSIFICATION OF CLAIMS AND INTERESTS
     (F.) CONFIRMATION HEARING
     (G.) EFFECT OF CONFIRMATION
     (H.) EFFECTIVE DATE OF THE PLAN

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<PAGE>

VII. ALTERNATIVES TO THE PLAN

VIII.DESCRIPTION OF NORMANDY OIL & GAS COMPANY,  INC., HOUSTON OPERATING COMPANY
     AND SECURITIES TO BE ISSUED

     (A.) DESCRIPTION OF NORMANDY

          (1)  Description of Business
          (2)  Customers and Markets
          (3)  Employees
          (4)  Properties and Production
          (5)  Officers and Directors
          (6)  Further Information (10-K)

     (B.) OFFER ISSUANCE AND RESALE OF PLAN  SECURITIES  AND RELATED  SECURITIES
          MATTERS
     (C.) DESCRIPTION OF PLAN SECURITIES

          (1)  Participation Rights
          (2)  Warrants
          (3)  Houston Operating Company Common Stock
          (4)  Normandy Common Stock

IX.  INCOME TAX CONSEQUENCES

X.   EFFECT OF U.S. SECURITIES LAWS

XI.  CONCLUSION
                                    EXHIBITS

     (1)  PLAN OF REORGANIZATION

          Schedule 1 - Warrant Agreement
          Schedule 2 - Series A Participation Rights
          Schedule 3 - Agreement and Undertaking

     (2)  LIQUIDATION ANALYSIS

     (3)  PRO FORMA BALANCE SHEETS AND CASH FLOW PROJECTIONS

     (4)  NORMANDY OIL & GAS SEC FORM 10K FOR THE YEAR ENDED JUNE 30, 1988

     (5)  DEBTOR  AUDITED FINANCIAL  STATEMENTS FOR THE YEARS ENDED DECEMBER 31,
          1988 AND 1987

     (6)  RESERVE REPORT OF INDEPENDENT PETROLEUM ENGINEER AT JANUARY 1, 1989

     (7)  LIST OF CAMBRIDGE WELLS

     (8)  CERTIFICATE OF INCORPORATION OF HOUSTON OPERATING

     (9)  SUMMARY OF DEBTOR'S SCHEDULES REFLECTING POSTPETITION CHANGES

     (10) SUMMARY OF DEBTOR'S TRANSACTIONS SINCE FILING

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<PAGE>
                  I. HISTORY, BACKGROUND AND BUSINESS OF DEBTOR

(A.) HISTORY

     Cambridge Oil Company maintains its executive offices at 6200 Savoy,  Suite
740,  Houston,  Texas 77036,  telephone  number (713)  975-1272.  The Company is
engaged in the exploration for, and development, production and sale of, oil and
gas. Unless the context otherwise requires, as used herein the term "Company" or
the term "Debtor", respectively,  refers to Cambridge Oil Company, (formerly New
Cambridge Corporation), its predecessors, and its subsidiaries.

     New  Cambridge  Corporation  was  incorporated  in the State of Delaware on
December 6, 1983. The aggregate  number of authorized  shares of Stock which New
Cambridge Corporation had authority to issue was 75,010,000, of which 75,000,000
shares were  designated  as Common Stock and 10,000  shares were  designated  as
Preferred Stock. At December 31, 1983, New Cambridge  Corporation had not issued
any shares of the Common or Preferred Stock.

     New  Cambridge  Corporation  engaged in no business  operations  other than
organizational  activities  from the date of  incorporation  (December  6, 1983)
through  December 31, 1983. At December 31, 1983, New Cambridge  Corporation had
no assets or  liabilities.  No income  had been  received  and no costs had been
incurred through that date.

     On  December  6,  1983,  the  New  Cambridge  Corporation  entered  into an
agreement  and plan of merger and  consolidation  with  Cambridge Oil Company (a
Delaware corporation) for clarity, hereinafter

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referred to as "Old  Cambridge",  and  Oklahoma  Industrial  Energies,  Inc. (an
Oklahoma  corporation)  hereinafter  referred  to as "OlE".  Under  terms of the
merger  and  consolidation,  each  OlE  shareholder  received  one  share of New
Cambridge  Corporation  Common  Stock  for  each  share of  Oklahoma  Industrial
Energies, Inc. Stock and each shareholder of Old Cambridge received 9.008 shares
of New Cambridge Corporation Common Stock for each share of Old Cambridge Common
Stock.  In addition  outstanding  options and warrants to purchase shares of Old
Cambridge Common Stock and all outstanding debentures convertible into shares of
Old  Cambridge  were adjusted to provide for the issuance of 9.008 shares of New
Cambridge  Corporation  Stock  for each  share  of Old  Cambridge  Common  Stock
issuable upon exercise of conversion thereof.

     On February 24,  1984,  Old  Cambridge  Oil Company was merged with OlE. On
this effective date, all the assets and liabilities of Old Cambridge Oil Company
and Oklahoma  Industrial  Energies,  Inc.  were  transferred  into New Cambridge
Corporation in consideration of newly issued stock of New Cambridge Corporation.
New Cambridge Corporation was formed solely for the purpose of this transaction.
Effective  February  24, 1984,  New  Cambridge  Corporation  changed its name to
"Cambridge Oil Company".

     OlE had been in existence since March 1959 but had been basically  inactive
for most of the five years prior to the Merger. During that period, it continued
to own a small number of operating  oil and gas  properties  located in Oklahoma
and Wyoming and a royalty interest in Texas. In addition,  OlE owned an interest
in Sea-Crete

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<PAGE>

resources of Japan,  Ltd., a company involved in the extraction of minerals from
sea water.

     Since  November,  1977, Old Cambridge had been involved in the  exploration
and drilling for oil and gas,  principally  through public and private  drilling
funds it had sponsored: specifically four public drilling partnerships and three
private   drilling   funds.   Old  Cambridge,   directly  or  through   drilling
partnerships,  had properties in Louisiana, Texas, Illinois, Oklahoma, Ohio, New
York,  Mississippi  and Alabama.  Old  Cambridge  additionally  owned all of the
issued and outstanding capital stock of Camoil Securities, Inc., a broker-dealer
registered with the National Association of Securities Dealers,  Inc., which was
formally dissolved in December of 1984.

     The Board of Directors of OlE decided that it would be in the best interest
of OlE and its  stockholders  to effect a Merger since OlE had been inactive for
some time and had no  full-time  management  personnel.  Because  its  principal
remaining  properties  were oil, and gas  properties,  it was determined  that a
merger  should be  effected  with a company in the oil and gas  business  having
experienced management personnel capable of raising capital. Notwithstanding the
fact that New  Cambridge  had  substantial  indebtedness  after the merger  when
compared  to  OlE's  relatively  debt-free  balance  sheet,  Cambridge  had cash
balances in excess of OlE's cash balances.  The Merger was anticipated to result
in a public  market  for the  stock of New  Cambridge  which  would  enable  the
combined  corporations to raise capital for use in its business and particularly
for the acquisition of oil and gas properties.

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<PAGE>
     Initially,  the Merged  Companies  Cambridge  Oil.  Company  or  "Company")
managed   and   administered   public   and   private   partnerships   "Drilling
Partnerships") to explore for and develop oil and gas.

     Beginning  with the  relocation  of the  executive  offices  of  Company to
Houston,  Texas in  January,  1984 and the  concurrent  closing  of the New York
office,  the  Company  streamlined  its  administrative   operations  and  began
aggressively  pursuing the  acquisition  and  drilling of prospects  for its own
account.  With drilling costs  substantially  lower than in prior years, the gas
oversupply  on a slow decline,  and the renewed  interest in  exploration,  1984
appeared to be a good year to actively explore for oil and gas.

     Management  recognized  that  past  losses  of the  Company's  predecessors
stemmed from: (1) costs of managing and administering  public drilling programs,
(2) corporate overhead costs being  disproportionate  to existing operations and
revenues,  and (3) increased  amortization rates resulting from high exploration
costs the reserves found. With these problems in mind, the following  objectives
were  established  for the Company:  reduce  corporate  overhead;  diversify the
Company's  capital base by expanding the public market for the securities of the
Company;  plan for the  liquidation  of  non-mortgage  bank  debt;  enhance  the
Company's  presence and reputation in the Houston area;  and increase  reserves,
primarily  through the  generation  of  prospects  by the Company that result in
successful wells. Further, the Company recognized the

                                       12
<PAGE>
need to operate wells to control costs and gain exposure as an operator.

     During  1984,  the Company  began  operating  wells  drilled on  successful
prospects.  The Company  served as operator  for the drilling of six such wells,
three of which  were  completed  as  commercial  gas  wells and one of which was
completed as a commercial oil well.

     During 1985, the Company  participated  in the drilling of thirteen  wells,
twelve of which were drilled and  operated by the  Company.  Four of these wells
were completed as commercial gas producers.

     During 1986, the Company generated,  funded and drilled twenty-three wells,
all of which were drilled and  operated by the  Company,  eighteen of which were
completed as commercial producers. In addition, in 1986 the Company paid off all
remaining bank debt with the exception of $35,000 which was paid in early 1987.

     During 1987, the Company  participated in the drilling of twenty one wells,
fourteen of which were completed as commercial producers,  and acted as Operator
for all but two wells.

     Since filing its Chapter 11 petition on February 29, 1988,  the Company has
not participated in the drilling of any wells.

     Since 1984, the Company has utilized  numerous methods to improve liquidity
and provide a consistent  cash flow. The  acquisition of HMG Associates in 1984,
in exchange for  1,500,000  shares of Common Stock of the Company,  added assets
and cash flow to the Company.  HMG had interests in oil and gas properties in 13
states.

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<PAGE>

with major producing areas in New York,  Pennsylvania,  West Virginia, Texas and
Louisiana.  HMG owned interests in developed  acreage and in  approximately  200
producing  wells.  Also  acquired  through  HMG  were  additional   interest  in
approximately 65,000 acres of undeveloped acreage located in Arkansas,  Florida,
Kansas, Louisiana, Michigan and Texas.

     HMG experienced an increase in reserves due to successful  drilling efforts
in 1984 but cash flow was  offset by a  decrease  in  ability to sell gas due to
oversupply and falling prices. The Company was approached by the operator of the
majority of the  properties  in which HMG had an  interest,  NRM  Petroleum,  to
acquire HMG. NRM Petroleum could administer  these properties  easily since they
already  owned an interest  in all of the same  properties  as HMG.  The Company
accepted the acquisition offer for all of the HMG properties, both developed and
undeveloped,  on October 10,  1985 with the final sales price of $101,759  based
upon an engineering reserve report dated December 15, 1985.

     Additionally,  Cambridge sold several  undeveloped  properties in Louisiana
and some producing properties in Converse County, Wyoming,  Stonewall and Reagan
Counties in Texas.

     Cambridge also participated with one of its working interest owners,  Arend
Resources & Trading Co., S.A. in the sale of numerous properties operated by the
Company  to  Griffin  Petroleum  Co.,  et al.  Effective  with  August  1,  1987
production,  Arend  Resources & Trading  Co.,  S.A.  and  Cambridge  Oil Company
jointly conveyed working interests in producing properties in Goliad,

                                       14
<PAGE>

Victoria,  Duval and  Hidalgo  Counties,  Texas for  $225,000.  One-half  of the
interests  conveyed were conveyed  from Arend's  interests;  the other half were
conveyed  from  Cambridge's  interests.  One-half of the  proceeds  were applied
against Arend's outstanding joint interest billing balance; the cash received by
the Company was used to clear up  outstanding  liens and some  production  taxes
attributable  to the  properties.  After  Griffin,  et al  receives  net revenue
(defined  as the gross oil and gas  income  received  less all  operating  costs
including  overhead  and  taxes)  equal  to 200% of the  total  purchase  price,
Griffin, et al will reassign 50% of the initial interest conveyed to Griffin, et
al back to Cambridge and Arend.  The Company is of the opinion that Griffin,  et
al will not  receive  net  revenue  equal to 200% of its total  purchase  price.
Accordingly,  the Company  does not  anticipate a  reassignment  of the interest
conveyed to Griffin, et al.

(B.) BUSINESS OF DEBTOR
     ------------------

     The  Company's  principal  products are oil and natural gas. The  principal
markets for such products are those wherein the Company's oil and gas properties
are physically located,  and the methods of distribution of such products are by
sale to the  appropriate  oil  and  gas  gathering  companies  operating  in the
geographic area of the Company's production.

     While  the  Company's  exploration  and  development  operations  have been
conducted in Texas, Louisiana, Oklahoma,  Mississippi,  Alabama, Illinois, Ohio,
New York and Wyoming,  activities since 1984 have been concentrated in the Texas
Gulf Coast.

                                       15

<PAGE>

     The Company's  operations  are subject to all of the risks  inherent in the
exploration for, and development of, oil and gas, including  blowouts,  fire and
other casualties,  which could result in damage to or destruction of oil and gas
formations, producing facilities or property or possible personal injury or loss
of life.  The Company  maintains  insurance  coverage  that is  customary  for a
company of similar size, engaged in similar operations,  but losses may occur as
a result of  uninsurable  risks or in  amounts in excess of  existing  insurance
coverage which could have a material adverse effect upon the Company's condition
if it is not fully insured.  The Company carries substantial  insurance coverage
against  certain  of  these  risks,  but is not  fully  insured  either  because
insurance  is not  available  or because the Company has elected not to purchase
insurance due to prohibitive premium costs.

     The  production  and sale of oil and  natural  gas is  subject  to  various
federal, state and local regulations.  The executive and legislative branches of
the  federal  government  have  periodically  proposed  and  considered  various
programs for development and use of alternative fuels,  energy  conservation and
limitations  on the level of crude oil imports.  Numerous  proposals  are before
Congress and state  legislatures  concerning  regulation and taxation of the oil
and gas industry.  The Company cannot predict which of such  proposals,  if any,
will be enacted into law, and, if any such  proposals or programs are enacted or
adopted, the effect they might have cannot be predicted accurately.

                                       16

<PAGE>
     For  the  past  six  years,   the  natural  gas  industry  has  experienced
instability  primarily  due to a decline  in demand  combined  with  excess  gas
deliverability. Economic conditions and the availability of alternative fuels at
competitive prices are just two of the factors that have affected demand for gas
and created  increased  competition for markets.  Many producers,  pipelines and
distribution  companies  have lowered  their prices in an attempt to maintain or
increase  sales.  Some gas  purchasers  have  implemented a variety of marketing
approaches,   including   gas   "clearinghouses"   designed  as  a  vehicle  for
month-to-month spot sales and various types of special marketing programs, in an
effort to  increase  sales or avoid  additional  take-or-pay  liabilities.  As a
result, the Federal Energy Regulatory  Commission ("FERC" has approved a variety
of special marketing programs and eased restrictions on transportation of gas to
end-users in an effort to respond to conditions in the  marketplace.  The market
for future gas  production  is  unpredictable,  as are the  reactions of FERC or
other agencies to future events.

     The Company's operations are subject to numerous laws and regulations, both
federal and state,  controlling  the discharge of materials into the environment
or  otherwise  relating to the  protection  of the  environment.  These laws and
regulations have not had a material impact on the Company's operations,  but the
Company is unable to predict  whether its future  operations  will be materially
adversely affected thereby.

                                       17
<PAGE>

     The  Company   competes  with  a  large  number  of  major  oil  companies,
independent oil and gas companies, individual operators and drilling programs in
the  exploration  for, and development and production of, oil and gas. Many such
competitors possess and employ financial and personnel  resources  substantially
in excess of those available to the Company and may,  therefore,  be able to pay
greater  amounts for  desirable  leases and to evaluate,  bid for,  purchase and
define a greater number of potential  producing prospects than the Company's own
financial and personnel resources permit.

     As of December 31, 1988,  the Company  employed  three people.  None of the
Company's  employees  are  represented  by a union  or labor  organization.  The
Company  maintains  disability,  medical and  hospital  insurance  plans for its
employees.

(C.) ASSETS AND PROPERTIES OF DEBTOR
     -------------------------------

     The Debtor has filed Amended  Schedules B-l (real property),  B-2 (personal
property) and B-3 (other property). These schedules have been amended to reflect
changes since they were initially filed on May 11, 1988, deleting any properties
disposed   of  through   sale  or   properties   depleted   or   abandoned   for
noncommerciality,  and revising estimates of value. Additionally, the Debtor has
attached  as Exhibit  9, a Summary of the  Debtor's  Schedules  Reflecting  Post
Petition Changes.  The schedules may be reviewed at the United States Bankruptcy
Court Clerk's office, 515 Rusk, Houston,  Texas,  between the hours of 9:00 a.m.
and 4:30 p.m., Monday through Friday.

                                       18
<PAGE>
     Assets and properties of the Debtor consist of the following:

                              HISTORICAL COST          FAIR MARKET   LIQUIDATION
                                 (BOOK VALUE)             VALUE           VALUE
                              --------------------------------------------------
                              12/31/88     6/30/89        6/30/89        6/30/89
                              --------------------------------------------------
Cash                          $78,311      $38,759        $38,759        $38,759

Accounts Receivable:
     Oil & Gas Sales          170,106      235,760        188,608        100,000
     Joint Interest           113,880      161,114        136,947         50,000
     Limited Partnerships     106,647       75,696         50,000         40,000

Oil & Gas Properties        1,586,848    1,423,120        809,202        612,011

Office Furniture,              38,572       34,726         21,230         10,000
     Equipment and Vehicles

All Other Assets               55,516       63,158         61,000         32,500
                           -----------------------------------------------------
     TOTALS                $2,149,880   $2,032,333     $1,305,746       $883,270
                           =====================================================

     In preparing  estimates of fair market and liquidation  values the debtor's
assets,  management  consulted with independent  appraisers,  performed physical
inspections and consulted with its financial and legal advisors. A discussion of
each of the  debtor's  assets and  properties,  together  with the  methods  and
assumptions utilized by management for valuations, is as follows:

(1)  OIL AND GAS PROPERTIES

     The Company's  principal  asset consists of oil and gas reserves which have
been  estimated by Gerald DuPont  Enterprises,  Inc.,  ("DuPont" an  independent
petroleum engineering firm. The following table sets forth as of January 1, 1989
the estimated net  quantities of proved  developed and  undeveloped  oil and gas
reserves  together with estimated net revenues  (discounted at 20%) by field, in
which the Company has an interest and which were capable of  production  at June
30, 1989:

                                       19

<PAGE>

                            PROVED DEVELOPED RESERVES

                          NET OIL         NET GAS              DISCOUNTED
                          RESERVES        RESERVES             NET REVENUE
FIELD                      (BBLS)            (MCF)               (20%)
---------------------------------------------------------------------------
Altamont-Bluebell             137                 0              $1,759
North Alkek                     0            29,831              18,205
Baby Face                       0           212,665             110,214
Bucksnag                    1,105            25,606              34,641
East Coletto Creek              0             8,894               4,116
North Fannin                    0           112,946              76,752
Johns                           0             1,196               2,810
Lil Miss                    3,004            38,906              28,829
Maetze                          0            30,208              17,430
West Maetze                     0            19,448              12,839
Power Play                      0           530,446             228,612
Pearsall                    9,109                 0              53,218
Reichert                        0            73,885              48,582
Ric-John                        0             5,172               5,345
Tom M                           0             3,976               2,483
Willmarg                        0           277,581             129,395
                         ---------------------------------------------------
TOTAL PROVED DEVELOPED     13,355         1,370,760            $775,230
                         ===================================================

                           PROVED UNDEVELOPED RESERVES

                          NET OIL         NET GAS              DISCOUNTED
                          RESERVES        RESERVES             NET REVENUE
FIELD                      (BBLS)            (MCF)               (20%)
----------------------------------------------------------------------------
North Alkek                     0            23,542           $   2,508
Bucksnag                    1,062            37,253              11,735
Fletcher                        0            45,535               5,189
Lil Miss                    6,070            83,205              28,476
Nichols                         0           117,262              60,978
Ric-John                        0            21,688              18,527
                         ---------------------------------------------------
TOTAL PROVED
UNDEVELOPED                 7,672           328,485           $ 127,413
                         ===================================================

                                 SUMMARY-TOTALS

                          NET OIL         NET GAS              DISCOUNTED
                          RESERVES        RESERVES             NET REVENUE
                           (BBLS)            (MCF)               (20%)
----------------------------------------------------------------------------
PROVED DEVELOPED           13,355         1,370,760           $  775,230
PROVED UNDEVELOPED          7,672           328,485              127,413
                         ---------------------------------------------------
     TOTAL                 21,027         1,699,245           $  902,643
                         ===================================================

                                       20

<PAGE>
     A copy of  DuPont's  reserve  estimates  as of January 1, 1989 is  attached
hereto as Exhibit 6. Wells which were not deemed to be capable of  production or
which have been  recommended  for abandonment or have been abandoned at June 30,
1989 are reflected in this exhibit.

     The  estimate  of oil and gas  reserves  were  based on the  most  reliable
information  available  at the  time  of  preparation.  Data  used  in  DuPont's
estimates has been  supplied by the operators of the  properties or is otherwise
accessible through various regulatory  agencies such as the Railroad  Commission
of Texas  and the  Louisiana  Department  of  Conservation.  While  the  reserve
estimates used in the evaluation are believed to be reasonable and correct, they
should be accepted with the understanding that reservoir performance may justify
revision.

     Several methods were used to estimate  reserves for the various  reservoirs
studied.  The  particular  method used for any given sand was  determined by the
quality and quantity of available  data.  More than one method was used wherever
possible in order to increase the degree of accuracy of the final result.

     Where sufficient  production  history was available to determine an average
rate of decline in production,  the actual performance of the reservoir was used
as a basis for predicting  reserves.  Actual production trends were extrapolated
to an  anticipated  point of  abandonment.  This  method can  provide not only a
reasonable  estimate of ultimate  production  but also a fairly  reliable  "life
expectancy" for the well

                                       21

<PAGE>

     Volumetric  Analysis  was based on a  determination  of total volume of oil
and/or gas present in the reservoir and  percentage of that initial volume which
can be expected to be recovered.

     The  recovery  factor is a variable  calculated  for each  reservoir on the
basis of reservoir  pressures and/or water,  oil and gas  saturations.  It is an
expression of the efficiency of producing mechanism of the reservoir.

     The estimate of future net revenues were  established  using average prices
in effect for 1988 with no future  escalations  except in those  instances where
gas sales are being made under the terms of a contract  which includes fixed and
determinable escalations. Where applicable, the effect of the Natural Gas Policy
Act of 1978 was  included in  determining  current  price as of January 1, 1989,
none of the future  escalations  provided for by the Act were  considered  to be
fixed  and  determinable.  Operating  costs,  production  taxes,  royalties  and
overriding  royalties,  and estimated future capital  expenditures were deducted
from the estimates of future  revenues to determine  net  revenues.  These costs
were  estimated  based upon  current  costs,  and were not  adjusted  to reflect
anticipated increases due to inflation or other factors.

     The Company  selected a discount factor of 20% to determine the fair market
value of the  properties.  This  discount  factor was selected for the following
reasons:

                                       22

<PAGE>
     The  undiscounted  net revenues to be received in the future do not include
any provision for the overhead and other costs  associated  with the  management
and adminIstration of the properties.

     The  undiscounted  net revenues to be received in the future do not include
any provision for the time value of money which was estimated at 10%.

     Recent industry  transactions  involving the sale of oil and gas properties
have generally been in the 20-25% discount range.

     To determine the fair market value at June 30, 1989, Mr.  DuPont's  January
1, 1989 estimates of reserve valuation were reduced to reflect production of the
wells during the six months ended June 30, 1989:

               Total Oil & Gas Properties
                   at January 1, 1989,
                   discounted at 20%                          $ 902,643

               Net Revenues for
                   six months ended 6/30/89                    ( 93,441)
                                                            ---------------
               Fair Market Value at 6/30/89                   $ 809,202
                                                            ===============

     The liquidation value of these oil and gas properties  reflects  additional
costs (15%) that  management  expects would be incurred by a Trustee,  including
commissions,  legal and  administrative  fees and trustee's fees in disposing of
the  properties,  and a reduction in proved  undeveloped  reserves to 30% of the
indicated fair market value.

     Additional  information  concerning the Company's oil and gas properties is
included in footnotes to the audited financial  statements included as Exhibit 5
to this Statement.

                                       23

<PAGE>

(2) ACCOUNTS RECEIVABLE FROM OIL AND GAS SALES

     The amount  represents  accounts  receivable earned in the normal course of
business  from the sale of oil and natural gas. At June 30, 1989,  approximately
$125,000 of the amount due Cambridge. for oil and gas sales was in suspense with
the purchaser,  Cokinos  Natural Gas Co., as a result of litigation  between the
Company and William 0. Huggins,  III (See Litigation  (I)(D)(l) for discussion).
Some of these suspended revenues due Cambridge (approximately $55,000) have been
disbursed by Cokinos to Huggins as the result of an agreement  between  them. In
addition,  the amount shown at June 30, 1989 includes  approximately $65,000 due
from North Central Oil  Corporation,  as  reimbursement of costs of drilling and
completing  a  well,  which  is in  dispute  (See  Litigation  (I)  (D)  (2) for
discussion).  Management is currently in the process of recovering both of these
amounts; however, it can not be determined at this time if these efforts will be
successful.

     In determining  the fair market value of accounts  receivable  from oil and
gas sales, the Company has estimated that 80% of the amounts due will ultimately
be collected.  The liquidation values of these accounts  receivable reflects (i)
additional  costs  (10%) that  management  would  expect  would be incurred by a
Trustee  (including  Trustee  fees) in  collecting  the  amounts due and (ii) an
estimate  of the amount  that  might not ever be  collected  should the  company
convert the case to a Chapter 7.

                                       24

<PAGE>

(3)  ACCOUNTS RECEIVABLE FROM JOINT INTEREST BILLINGS

     Accounts  receivable due from working interest owners for expenses incurred
by Debtor in wells  operated by the Debtor.  Amounts which have been  determined
not to be collectable have been excluded.  The primary reason for exclusion were
those  cases  where  the well is no longer  revenue  producing  aid the  working
interest  owner has refused to pay.  In  determining  the fair  market  value of
accounts  receivable from joint interest billings,  the Company has assumed that
85% of the $161,114 due at June 30, 1989 will ultimately be paid.

     The liquidation value represents  management's  estimate of the amount that
might  ultimately  be  collected by a Trustee  (after  Trustee  expenses).  This
estimate is based on the fact that the accounts receivable from working interest
owners consist of amounts due from  individuals  rather than  companies,  making
collection efforts more difficult.

(4)  ACCOUNTS RECEIVABLE FROM LIMITED PARTNERSHIPS

     The Company is the general  partner  for six  limited  partnerships  formed
during  1980-1982.  In  accordance  with the  terms of the  Limited  Partnership
Agreements,  each partnership was dissolved effective February 29, 1988 with the
filing of the general  partner's  Chapter 11  petition.  The general  partner is
responsible to wind-up the affairs of the  partnership  to include,  among other
things:

     (1)  Sale and disposal of partnership assets;
     (2)  Filing of final tax returns with appropriate taxing authorities;

                                       25

<PAGE>

     (3)  Payment of outstanding obligations of the partnership;

     (4)  Distributing  the  remaining   proceeds,   if  any,  to  each  limited
          partnership in accordance with their respective ownership position;

     (5)  Causing  the   partnerships'   accountants  to  file  a  Statement  of
          Dissolution with respect to the final disposition of funds.

     The only significant asset of the individual limited partnerships  consists
of oil and gas properties which are to be sold in accordance with the respective
partnership  agreements.  The  discounted  (20%) value of these  properties,  as
determined by Mr. DuPont, at January 1, 1989, are as follows:

                        PROVED                   PROVED
                        DEVELOPED              UNDEVELOPED
PARTNERSHIP             RESERVES                 RESERVES                  TOTAL
-----------             --------                 --------                  -----
80-I                    $ 12,416                      $ 0               $ 12,416
80-II                     18,244                   20,484                 38,728
81-I                       1,251                   56,906                 58,157
81-II                     22,679                   20,232                 42,911
82-I                      56,342                        0                 56,342
82-II                     53,957                        0                 53,957
                          ------                        -                 ------
 TOTAL                  $164,889                 $ 97,622               $262,511
                         =======                 ========               ========

     Accounts  receivable  from  limited  partnerships   represent  the  limited
partnership's  share of expenses paid by the general partner  (Debtor) on behalf
of the limited  partnership.  The Company is currently in the process of selling
the  oil and gas  properties  of the  limited  partnerships.  The  partnerships'
ability to pay the amounts due the Company is limited to those proceeds received
from the sale of partnership assets, none of which has been completed.  The fair
market value of these  receivables was based upon  management's  estimate of the
amount that may ultimately be paid (after

                                       26
<PAGE>
partnership costs and expenses) upon final disposition of partnership assets.

     The liquidation  values of these receivables  reflects (1) additional costs
(10% that  management  would  expect  would be incurred by a trustee  (including
trustee  fees) in  collecting  the amounts due and (2) an estimate of the amount
that  might not ever be  collected  should  the  company  convert  the case to a
chapter 7.

(5) OFFICE FURNITURE AND EQUIPMENT

     At August 1,  1989,  management  took a  physical  inventory  of all office
furniture and equipment,  computers, desks, chairs, tables, typewriters,  adding
machines,  etc.  The  fair  market  value of this  equipment  was  estimated  by
management  based on the age and  condition  of  similar  equipment  sold in the
normal course of business over a reasonable time.

     Liquidation values assume the sale, at auction, of the same equipment.

(6) ALL OTHER ASSETS

     Other  assets at  December  31,  1988 and June 30,  1989  consisted  of the
following:

                                   HISTORICAL COST       FAIR MARKET LIQUIDATION
                                     (BOOK VALUE)              VALUE     VALUE
                              --------------------------------------------------
                                 12/31/88       6/30/89        6/30/89   6/30/89
                              --------------------------------------------------
Fannin Gas Gathering              $     0        $     0        $35,000  $31,500
     System
Accounts Receivable Other          28,331         36,543         15,000        0
Prepaid Expenses                   15,161         14,591         10,000        0
Deposits                           10,989         10,989              0        0
Investments in Intuck               1,035          1,035              0        0
Causes of Action                        0              0          1,000    1,000
                              --------------------------------------------------
     TOTALS                       $55,516        $63,158        $61,000  $32,500
                              ==================================================

                                       27
<PAGE>

     The Fannin Gas Gathering  System is a small natural gas pipeline  gathering
system located in Goliad County.  There is disputed ownership with various third
parties as to "actual"  ownership  of the system.  Normandy Oil and Gas Company,
Inc.  is in the  process  of  acquiring  the  claims of  various  unsecured  and
third-party  creditors  as these  claims  relate to the  gathering  system.  The
proposed  acquisition  of claims by Normandy will be reflected by a Motion to be
filed with this court.

     Accounts  receivable  represent  amounts due from various producers who use
the  pipeline to  transport  their gas from the wellhead to a major gas pipeline
system.

     Accounts  Receivable  Other  represents  an  amount  due  from  one  of the
producers who has refused to pay the transportation  fees for the use of the gas
gathering  system under the pretense that the Company does not have the right to
collect such fees. The Company is in the process of addressing this dispute. The
amount that may  ultimately be collected,  if any,  cannot be determined at this
time.

     Prepaid  expenses  consist  primarily  of  prepaid  costs  associated  with
maintenance  agreements and  insurance.  Deposits  consist of rent,  utility and
equipment deposits.

     The  Company  has  available  various  causes  of  action  against a former
attorney and certain working  interest  owners.  The viability of pursuing these
causes is uncertain,  as is the potential  outcome of any litigation  that might
result and amounts that may ultimately be collected.

                                       28

<PAGE>

(D.) LITIGATION

          The Company is presently involved in the following legal actions:

     (1) WILLIAM 0. HUGGINS,  III ET AL,  PLAINTIFFS  V.  CAMBRIDGE OIL COMPANY,
DEFENDANT, filed  on January  5, 1987 in the 135th  Judicial  District  Court of
Goliad County,  Texas,  Cause No.  87-1-6279.  Plaintiffs in their first amended
original  petition,  allege  that the  Company  breached  a  farmout  agreement,
fraudulently  withheld monies due plaintiffs  under the farmout  agreement and a
certain oil and gas lease,  breached a fiduciary  obligation  to  plaintiffs  in
handling the monies due  plaintiffs  and was  negligent  in handling  monies due
plaintiffs.  Plaintiffs  asked for (1)  rescission and  cancellation  of (i) the
farmout agreement; (ii) assignments made pursuant to such agreement, and (iii) a
certain oil and gas lease, (2) actual damages of $436,000, (3) exemplary damages
of $3,000,000  for breach of fiduciary  obligations,  (4)  exemplary  damages of
$1,000,000  for  malice  and (5)  exemplary  damages  of  $1,000,000  for  gross
negligence.

     On  September  23, 1987, a verdict was returned by the jury in favor of the
plaintiffs  terminating  the  farmout  agreement  involved  in  the  litigation,
terminating the  assignments  made pursuant to the farmout  agreement,  awarding
damages of $100,000 and exemplary damages of $1,500,000.

     On October 21, 1987, the Court denied  Cambridge Oil Company's Motion for a
judgment  notwithstanding  the  verdict  and  entered a judgment  based upon the
jury's findings in favor of the plaintiffs. Company counsel filed a motion for a
new trial.

                                       29

<PAGE>

     On January 4, 1988,  the  Company's request  for a new trial was denied and
the  plaintiff  subsequently  filed  a  Writ  of  Execution  to  post  producing
properties of the Company for Sheriff's Sale. The Company subsequently filed for
protection under Chapter 11 of the Bankruptcy Code to prepare it's appeal.

     Counsel was  retained  for the Company to pursue its appeal to the judgment
in the Texas Court of Appeals, 13th Supreme Judicial District in Corpus Christi,
Texas, Appellate Case No. 13-88-00038-CV styled Cambridge Oil Company, Appellant
VS.  William 0.  Huggins  III,  Trustee for William 0.  Huggins  III,  Judith L.
Huggins, and Virginia Huggins May, Appellees.

     An  Agreed  Order  was  entered  by the  Bankruptcy  court on June 6,  1988
allowing the automatic stay under the Chapter 11 to be lifted so as to allow the
state court litigation to proceed through the appeals process.

     The appellate  cause was submitted and oral argument was allowed on October
6, 1988. Cambridge, as Appellant,  cited twenty-two points of error, eighteen of
which were supported by statements,  arguments and authorities pertaining to: 1)
the lack of  evidence to support  monetary  damage  recovery,  2) the absence of
legal or factual basis for any recovery in tort and 3) the  insupportability  of
recision  remedy for non-fraud  "tort";  and four of which were supported by: 1)
statements,  arguments  and  authorities  pertaining  to the contract  claim for
cancellation  and 2)  recision of partial  assignments  to  Cambridge  under the
farmout agreement.

                                       30

<PAGE>

     On October 5, 1987,  Cambridge Oil Company  filed notice of appeal  through
the 13th Court of Appeals of Corpus Christi, Texas. Such appeal was subsequently
withdrawn.

     Texas  Trinity  Energy  Company  additionally  brought a  complaint  to the
Railroad  Commission of Texas alleging  violations  pertaining to the Dreier No.
1-A  Well.  A hearing  was held on  November  18,  1987  (Oil & Gas  Docket  No.
2-91,621)  to: 1) consider  the good faith  claim of title of North  Central Oil
Corporation  and Cambridge Oil Company to an oil and gas lease;  2) determine if
the  Railroad  Commission's  Statewide  Rules 11 and 12 were  violated  by North
Central Oil  Corporation  and  Cambridge  Oil Company  when the subject well was
permitted, drilled and completed; 3) determine whether an exception to Statewide
Rule 37 must be obtained  for the subject  well and to consider  the validity of
the permit issued to drill the well; 4) consider whether all production from the
subject well should be considered  illegal  production and be subject to makeup;
and 5) give North  Central Oil  Corporation  and Cambridge  Oil  Corporation  an
opportunity  to appear and address the  allegation  of false  filing  concerning
failure to inform the Commission that the subject well was to be a directionally
drilled well.

     On March 14,  1988,  the  Commission  issued a Final Order in this  matter,
adopting as finding of fact and  conclusions  of laws that: 1) proper notice was
issued  to  the  appropriate  parties  and  that  the  Railroad  Commission  had
jurisdiction  to decide the matter;  2) that the Dreier No. 1-A Well was drilled
in  violation of Statewide  Rule 11 (d)(3)(B)  but that there was no  deliberate
attempt to

                                       32

<PAGE>

     On October 5, 1987,  Cambridge Oil Company  filed notice of appeal  through
the 13th Court of Appeals of Corpus Christi, Texas. Such appeal was subsequently
withdrawn.

     Texas  Trinity  Energy  Company  additionally  brought a  complaint  to the
Railroad  Commission of Texas alleging  violations  pertaining to the Dreier No.
1-A  Well.  A hearing  was held on  November  18,  1987  (Oil & Gas  Docket  No.
2-91,621)  to: 1) consider  the good faith  claim of title of North  Central Oil
Corporation  and Cambridge Oil Company to an oil and gas lease;  2) determine if
the  Railroad  Commission's  Statewide  Rules 11 and 12 were  violated  by North
Central Oil  Corporation  and  Cambridge  Oil Company  when the subject well was
permitted, drilled and completed; 3) determine whether an exception to Statewide
Rule 37 must be obtained  for the subject  well and to consider  the validity of
the~ permit issued to drill the well; 4) consider  whether all  production  from
the  subject  well should be  considered  illegal  production  and be subject to
makeup;  and 5) give North Central Oil Corporation and Cambridge Oil Corporation
an opportunity  to appear and address the allegation of false filing  concerning
failure to inform the Commission that the subject well was to be a directionally
drilled well.

     On March 14,  1988,  the  Commission  issued a Final Order in this  matter,
adopting as finding of fact and  conclusions  of laws that: 1) proper notice was
issued  to  the  appropriate  parties  and  that  the  Railroad  Commission  had
jurisdiction  to decide the matter;  2) that the Dreier No. 1-A Well was drilled
in  violation of Statewide  Rule 11 (d)(3)(B)  but that there was no  deliberate
attempt to

                                       32

<PAGE>

file false filings or to deceive the  Commission as to the Dreier No. Well being
a  directionally  drilled  well;  3) that the  subject  leases were valid and in
effect  when the Dreier No. 1-A Well was  drilled  and that both the surface and
bottomhole  locations  were at regular  locations;  4) that Texas Trinity Energy
Company now had clear title to the subject  leases;  5) that the  shutting in or
reduction  of  production  of the Dreier No. 1-A Well or the  revocation  of the
previously granted permit for the well would cause the waste of hydrocarbons; it
therefore being mandated that the Dreier No. 1-A Well continue to be produced at
its present levels; 6) that no violation of Statewide Rule 12 had occurred

     An Order Denying Motion for Rehearing was signed by the Commission on April
18,  1988,  denying  Texas  Trinity's  motion to reopen the hearing or otherwise
preserve its complaint at the Commission.

     The Company is currently  entitled under its agreements  with North Central
Oil Corporation to  reimbursement of its costs of drilling and completing of the
well on the affected property from production revenues from this well.

(E.) REASON FOR FILING

     Changing industry economics which generally  adversely affected all oil and
gas producing  companies had a more pronounced effect on smaller operations like
that of Debtor.  The price of oil and  natural  gas the  primary  revenue of the
Debtor) has declined dramatically over the past years, illustrated as follows:

                                       33

<PAGE>

                         Average Oil                        Average Gas
                         Price (BBL)                        Price (MCF)
                         ----------                         -----------
    1984                 $ 29.54                          $ 3.68
    1985                   25.88                            2.73
    1986                   13.88                            1.38
    1987                   13.58                            1.33
    1988                   11.03                            1.12

     In addition, costs and expenses for managing and administer-public drilling
programs,   and  costs  associated  with  producing   properties  were  high  in
relationship to the size of the Company and could not be reduced proportionately
with the decline in revenues.

     As a result,  the debtor incurred losses in each of its four calender years
preceding the Chapter 11 filing as follows:

                                                AMOUNT OF LOSS
                                             ------------------
                       1984            $            (344,074)
                       1985                         (579,040)
                       1986                         (751,771)
                       1987                       (1,178,359)
                                             ------------------
                       Cumulative Total          $(2,853,244)
                                             ==================

     The primary  reason for filing the  Chapter 11  petition;  however,  was to
protect creditors and shareholders from the Huggins judgment, to avoid Execution
by the  Sheriff of Goliad  County on the  company's  producing  properties  as a
result of this Huggins judgment See Litigation (I)(D)(l)for discussion),  and to
give the Company time to prepare its appeal of the Huggins judgment to the Texas
Court of Appeals.

                II. POST-PETITION EVENTS AND BUSINESS OPERATIONS

     Since  filing its Chapter 11 petition the Company has  conducted  business,
for the most part, on a satisfactory  basis in the ordinary course. A summary of
the Debtor's Transactions Since Filing is attached hereto as Exhibit 10.

                                       34
<PAGE>
 Significant  events  and  events  out of the  ordinary  course of  business
include the following:

     (A) Order  Approving  Motion for  Authority to Sell an Oil and Gas Lease to
TXO Production  Corporation Free and Clear of Any Interest, (order granted April
13, 1988) by which the Company  conveyed all of its working interest in and to a
319.9 acre oil and gas lease located in Colorado County,  Texas,  reserving unto
itself a 3-1/3  percent  overriding  royalty  interest  in  accordance  with the
provisions of this order. TXO Production  corporation paid a cash  consideration
of $60,000 for this lease;  $24,000 of this proceeds was used to satisfy in full
the liens and claims of Jack E.  Coffman and Eldon S. West,  III and  $25,202.63
was used to satisfy in full the lien and claim of Kemp Geophysical Corporation.

     (B) As a result  of  actions  taken  by the  State  of  Texas  against  the
Company's  purchasers in July 1988, Cambridge received funds attributable to gas
production from its purchasers in July,  August, and September for only three of
its wells.  As a result of the State of Texas action,  the Company was unable to
pay the severance taxes attributable to the properties with suspended  revenues.
Cambridge filed suit against the State of Texas and various first purchasers and
orders were entered by the Court in early October which released suspended funds
to the Company and the various  involved royalty owners and caused taxes for the
production  months of May 1988 forward to be paid from the suspended  funds held
by the various first  purchasers.  The Company has paid  severance  taxes on all
production income that has been generated post-petition.

                                       35
<PAGE>

     (C) Order  Approving  Motion for Authority to Enter into Farmout  Agreement
With  Indexgeo &  Associates,  Inc.,  (granted  February  13, 1989) by which the
company  farmed out its interest in and to certain oil and gas leases located in
Goliad County, Texas, retaining unto itself an overriding royalty interest equal
to the difference between the lessors royalties under the oil and gas leases and
23.5% of the total net revenue interest in the leases. Additionally, the Company
retained under the farmout agreement a production payment, an overriding royalty
interest  equal to 9.375% of production  commencing  with first  production  and
continuing  until the revenue paid totals $26,000.  In addition,  Billye Stevens
Halbouty as an equity investor in the leases,  received a 6% working interest in
the initial test well which will be paid by Indexgeo. Indexgeo agreed to pay all
costs  associated  with Court  approval for the farmout  motion.  A Supplemental
Order to Debtor's Motion for Authority to Enter Farmout  Agreement with Indexgeo
&  Associates,  Inc.  was  granted on March 20,  1989.  The  Supplemental  Order
provided that out of the overriding  royalty interest retained by the company CT
Associates,  Inc.,  an original  investor in the property that is subject to the
farmout agreement, be assigned a 2.5% overriding royalty interest in the well to
be drilled on the property  subject and that Dr. Samuel Meyer,  another original
investor in the subject property,  be assigned a 1% overriding  royalty interest
in the well to be drilled on the property.

                                       36

<PAGE>

     (D) Order  Approving  Emergency  Motion  for  Authority  to Enter   Farmout
Agreement with Indexgeo and Associates,  Inc., (granted April 1989) by which the
Company and various third parties who have  participation  rights in certain oil
and gas leases located in Goliad County,  Texas,  farmed out its interest in and
to these leases. The Company retained unto itself an overriding royalty interest
equal to its ownership share (22.5%) of a 3.3333% overriding royalty interest in
the leases.

     (E) In conjunction  with that certain Order approving  Motion for Authority
to Enter into Farmout  Agreement with Indexgeo & Associates,  (described in (II)
(D) above),  the Company entered into an Agreed Order Regarding Debtor's Use and
Disposition of Cash Collateral  with CT Associates,  Inc. "CT" (granted July 20,
4989).  The Order  provides  in general  that:  1) CT be  provided a  recordable
conveyance in and to oil and gas leases covered by the farmout (described in (D)
above);  2 the  $85,000  debt owed by the  company  be  reduced,  the  amount of
reduction  being  contingent  on the status and outcome of the initial test well
drilled  under the  farmout  and that CT's  associated  working  interest in the
Hanley No. 1--B Well, a producing gas property in which CT has a secured  claim,
be likewise  reduced on the same pro rata basis;  and 3) that effective with the
entering  of the Order,  the Company  pay to CT amounts  equal to their  working
interest share in the Hanley No 1-B Well, net of CT's share of associated  lease
operating  expenses,  within  fifteen  days of receipt of these  revenues by the
Company and that these  payments be applied to reduce the debt owed to CT by the
Company.

                                       37

<PAGE>

     (F) As the result of litigation  between the Company and William 0. Huggins
III, production revenues for certain of the Company's  properties have been held
in suspense.  Refer to Litigation (I)(D)(1) and Accounts Receivable From Oil and
Gas Sales (I)(C)(2) in this statement for discussion.

                            III. SUMMARY OF THE PLAN

     The following summary of the principal  provisions of the Plan is qualified
in its  entirety by the  reference to the full text of the Plan.  CREDITORS  AND
EQUITY HOLDERS ARE URGED TO REVIEW CAREFULLY THE COMPLETE TEXT OF THE PLAN.

A.   CLASSES OF CLAIMS AND INTERESTS
------------------------------------

     The Debtor's  estimate of claims does not include  Priority Claims pursuant
to Section  507(a)(1)  or (a)(3)  which have  arisen in the  ordinary  course of
business during the pendency of the Chapter 11 case,  administrative  in nature,
but  which  have  been and will be paid,  when due,  in the  ordinary  course of
business. The Debtor has not classified these Administrative  Priority Claims or
Expenses,  the  aggregate  at June 30,  1989 being  estimated  at  approximately
$400,000.   These  expenses  include  the  fees  of  counsel,   accountants  and
consultants for the Debtor and unpaid wage claims of employees.  Since such fees
and expenses and any claims pursuant to Section  507(a)(6) will be determined by
the Bankruptcy  Court upon appropriate  application,  and since ongoing services
will be rendered by such professionals and post-petition  claimants,  the amount
estimated for Administrative

                                       38
<PAGE>

Claims is based on the best  information  available to the Debtor and is subject
to change.

     As noted above in Section I (C) Assets and  Properties  of the Debtor,  the
Debtor  has filed  with the  Court  Amended  Schedules  A-l  (creditors  holding
priority),  A-2 (creditors holding security) and A-3 (creditors having unsecured
claims  without  priority).  These  Schedules  have been  amended to reflect any
changes since they were initially  filed on May 11, 1988,  including  additional
claimholders.  A summary of the post petition changes in the Debtor's  Schedules
is reflected in the attached Exhibit 9. These schedules are available for review
as described Section I (C).

     The Plan  divides  the  creditors  and equity  holders  into seven  general
Classes. The Classes are described as follows:

     1.   CLASS A

     Class A Claims consist of the holders of Claims  entitled to priority under
Section 507(a)(7) of the Bankruptcy Code ("Priority Tax Claims"). The holders of
Class A Priority Claims consist primarily of payroll, production, ad valorem and
other tax claims.  The Debtor  estimates  that the  aggregate of Allowed Class A
Priority Claims is approximately $347,000.

     2.   CLASS B

     Class B consists of the Secured Claim of CT Associates,  Inc. (CT).  Debtor
estimates  the amount of the Allowed Class B Secured Claim at $75,000 as of June
30, 1989.

                                       39

<PAGE>

     3.   CLASS C

     Class C Claims  consist  of all other  Secured  Claims,  including  without
limitation,  any oil and gas, operators',  materialmen's,  mechanics' liens. The
Allowed  amount of these Claims will be determined  either by agreement  between
the Debtor  and the  holders  of the Class C Claims or by the  Bankruptcy  Court
pursuant to Section 506(a) of the  Bankruptcy  Code.  Debtor  estimates that the
aggregate amount of Allowed Class B Secured Claims is approximately $31,000.

     4.   CLASS D

     Class  D  Claims  consist  of  unsecured  small  claims,  including  unpaid
royalties, overriding royalties and working interest royalties which are or have
been  reduced  to  $500.   Debtor   estimates  that  Class  D  claims  aggregate
approximately  $30,000.  The debtor  believes it is  impossible  to estimate the
value of those claims which will be reduced by their  holders to Class D claims.
However, assuming all claims less than $5,000 were converted the total amount of
converted claims would aggregate approximately $120,000.

     5.   CLASS E

     Class E Claims  consist  of the  holders  of all  other  unsecured  claims,
including, without limitation,  unpaid royalties,  overriding royalties, working
interest  royalties and other deficiency  claims of secured  creditors and those
arising from the  rejection of executory  contracts and  unexpired  leases.  The
aggregate amount of these Claims is approximately $2,050,000.

                                       40

<PAGE>

     6.   CLASS F

     Class F Claims consist of the holders of existing shares of Preferred Stock
of  Cambridge  Oil  Company  as of 5:00  P.M.  Houston  Texas  time,  on the day
immediately preceding the Confirmation Date.

     7.   CLASS G

     Class G Claims consist of the holders of existing shares of Common Stock of
Cambridge  Oil  Company  as of  5:00  P.M.  Houston,  Texas  time,  on  the  day
immediately preceding the Confirmation Date.

B. SUMMARY OF TREATMENT OF CLASSES UNDER THE PLAN
   ----------------------------------------------

     The Claims and  Interests of the following  Classes are not impaired  under
the Plan and acceptance of the Plan by holders of such Claims is not required.

     1.   CLASS A

     Each holder of an Allowed Class A Claim for Priority Taxes shall be paid in
sixty  equal  monthly  installments,  the  first of  which  shall be paid on the
Effective Date or as soon as practicable thereafter.  The succeeding installment
payments  shall be paid  during  each of the next  fifty-nine  months  after the
Effective Date and the installment  payments shall bear interest at a rate to be
determined by reference to Section 1274(d) of the Internal Revenue Code of 1986,
or based on agreement with each respective taxing authority involved.

     The Claims and  Interests of the following  Classes are impaired  under the
Plan and  acceptance  of the Plan by  holders  of such  Claims or  Interests  is
required.

                                       41

<PAGE>

     2.   CLASS B

     The  holder  of the  Class B Secured  Claim  will  receive a equal to 5.215
percent (5.215%) of the net amount of the rents, income,  production and profits
received by the Debtor from the Mortgaged  Property within fifteen (15) calendar
days of the  Debtor's  receipt  of  same.  The net  amounts  of  rents,  income,
production profits to be remitted to the Secured Claim holder after deduction of
the lease  operating  expenses  attributable  to a seven  percent  (7%)  working
interest. These payments will continue until: (i) the claim is satisfied in full
or (ii) the mortgaged property is deemed longer commercial.

     3.   CLASS C

     Each holder of an Allowed Secured  Materialman's  Lien Claim will be paid a
lump  sum on  the  Effective  Date  or  forty-eight  (48)  monthly  installments
beginning  on the  Effective  Date in full  satisfaction  of their lien claim as
follows:

                                                      Lump       Monthly
                                                       Sum       Payment
Claim Holder and Claim                                Payment    Amount
------------------------------------------------------------------------------

Air Equipment Rental
Materialman's lien Burns #1                       $2,716.00      $70.75
Materialman's lien Swickheimer #lD                 1,360.00       35.44
Materialman's lien Collins #1                      1,451.00       37.79

Dowell Schlumberger
Materialman's lien Holland #6                      5,453.88      113.62

Gearhart Industries, Inc.
Materialman's lien Swickheimer #lD                 3,190.00       83.06

Pronto Vacuum Service
Materialman's lien Burns #1                        1,450.00       37.75

                                       42

<PAGE>
Schlumberger Technology Corporation
Materialman's lien Holland #6                      2,250.00       58.06

White's Well Service Materialman's lien Burns #1  11,603.00      302.16

     4.   CLASS D

     All Allowed  Claims  which are or have been reduced to $500 or less will be
paid 75% of the claim amount in cash on the Effective Date or as soon thereafter
as practicable, unless otherwise ordered by the Court.

     5.   CLASS E

     Each holder of an Allowed  Claim of Class E shall  receive on the Effective
Date one Unit,  consisting  of one share of  Houston  Operating  Company  Common
Stock,  one Class A Warrant  and one Class B Warrant  for each $10.00 of allowed
claims.

     6.   CLASS F

     Preferred  Stock shall be cancelled upon the Effective Date. Each holder of
an Allowed  Preferred  Stock  Interest  shall receive on the Effective  Date one
Unit,  consisting of one share of Houston  Operating  Company Common Stock,  one
Class A Warrant and one Class B Warrant for each $100 in par value of  Cambridge
Oil Company Preferred Stock.

     7.   CLASS G

     The Common Stock shall be cancelled upon the Effective Date. Each holder of
an  Allowed  Common  Stock  Interest  shall  receive on the  Effective  Date one
Participation  Right for each 80  shares of  presently  issued  and  outstanding
Cambridge Oil Company Common Stock.

                                       43

<PAGE>

C. SUMMARY OF OTHER PROVISIONS OF THE PLAN.
   ---------------------------------------

     (1)  MEANS FOR EXECUTION OF THE PLAN

     The  Successor  shall acquire all assets  (including  all real property and
personal  property and  interests of any kind) of the Debtor upon  Confirmation.
The  acquisition  shall  be  accomplished  by  the  issuance  of  Common  Stock,
Participation  Rights,  and  Warrants,  or the payment of cash in  exchange  for
Allowed  Claims,  Allowed Secured  Claims,  Allowed  Priority Claims and Allowed
Unsecured  Claims.  Cash payments on the  Effective  Date shall be made from the
Debtor's  cash on hand at the Effective  Date which shall include  proceeds of a
loan of not less  than  $100,000  and not more than  $250,000  to be made to the
Debtor by the Successor on the Effective Date whtch loan shall be secured by all
assets of the debtor.  Deferred cash payments to the holders of Allowed  Secured
and Priority Claims shall be made from cash on hand and income  generated by the
oil and gas  properties  acquired by the  Successor  under the Plan.  Sufficient
funds  shall  be  available  to  fund  all  Plan  payments.  If for  any  reason
insufficient  cash exists to make Plan payments,  the Successor shall contribute
such additional cash as may be necessary.

     (2)  CRAM DOWN

     If all of the applicable  requirements for Confirmation of the Plan are met
as set forth in 11 U.S.C. Section  1129(a)(l)-(ll)  except subparagraph (8), the
proponents of the Plan hereby  request the Court confirm the Plan pursuant to 11
U.S.C.  Section 1129(b)  notwithstanding the requirements of subparagraph (8) as
the Plan is fair and equitable

                                       44

<PAGE>

and does not  discriminate  unfairly  with respect to any  dissenting,  impaired
Class.

     (3)  GENERAL PROVISIONS

     The  Successor  shall be  vested  on  Confirmation  with  ownership  of all
property,  including all rights and causes,  of the Debtor  whether  tangible or
intangible  including  any property  acquired by the  Successor  pursuant to the
exchange of Common Stock,  Participation Rights, Warrants, and cash provided for
in the Plan and  including  the proceeds of the loan to be made to the Debtor on
the Effective Date, and provided however that the Debtor, shall retain the right
to bring any and all causes of action provided for in the Code and the Successor
may initiate suit to enforce such causes of action after  Confirmation  with the
proceeds thereof paid to Successor.

     The  Successor's  purchase of assets in the Plan shall not subject  them to
any liability for any Claim; nor shall their participation in the Plan be deemed
for any reason to be an  assumption by them of any Claim or an admission by them
that they are liable for any Claim.

     The payment of cash and/or the distribution of Common Stock,  Participation
Rights,  and Warrants,  pursuant to the Plan shall be in exchange for all Claims
and/or interests in the Debtor and shall  constitute full  settlement,  release,
discharge,  and  satisfaction  of all such Claims,  interests  and liens against
property of the estate.

     Either  the  Successor  and/or  the  Debtor  may  modify  the Plan prior to
Confirmation,  and after  confirmation only the Successor may modify the Plan in
accordance with 11 U.S.C. Section 1127(b).

                                       45

<PAGE>

     The  entry of the  Order of  Confirmation  shall  release  partners  of the
Limited  Partnerships,  the  Limited  Partnerships  their  successors,  assigns,
employees and agents, their respective successors, assigns, employees and agents
from all actions,  causes of action, suits, debts, claims and demands which they
heretofore,  now or  hereafter  possess  or may  possess,  and their  respective
successors,  assigns,  employees and agents, based upon or in any manner arising
from or related to the Limited Partnerships,  including, without limitation, the
sale of Limited  Partnership  units and the negotiation of the Plan. The Limited
Partnerships  shall  waive and  release  any claims  they may hold  against  the
Debtor.

     No fractional  shares of Common Stock shall be issued pursuant to the Plan.
Fractional shares shall be rounded up to the next whole share.

     Nothing  contained in the Plan shall affect the rights of supplier of goods
or services to oil and gas drilling sites to perfect  mechanics s liens or other
such lien rights  under  applicable  non-bankruptcy  law whether the Claim arose
prior to or after the filing of Debtor's Chapter 11 case

     Notwithstanding  any other  provision of the Plan, a Disputed Claim will be
paid in accordance  with the Plan only after the Court enters its Order allowing
the Disputed Claim as an Allowed Claim such Order has become a Final Order.

     Any  oil  or  gas  revenues  (net  of  applicable  expenses)  suspended  or
interplead  since the  filing  date of the  Chapter  11 case  attributable  to a
Working Interest, Overriding Royalty or Landowner's

                                       46

<PAGE>

Royalty shall be paid to the holder of such interest or royalty on the Effective
Date.

     Any party holding a right of setoff pursuant to 11 U.S.C.  Section 553, may
exercise such right of setoff on and after the Effective Date

     If the  whereabouts of a party who is entitled to receive a distribution of
cash, Common Stock,  Warrants or Participation Rights under the Plan, is unknown
as of the Effective  Date,  the cash,  Common Stock,  Warrants or  Participation
Rights shall be escrowed for a period of six months after the Effective Date. If
at the end of the six-month  period,  said party's  whereabouts  remain unknown,
said party shall forfeit the property  which would have been  distributed  under
the Plan to said party and such escrowed  property shall be returned to the Plan
Successor.

     (4)  PROVISION FOR ASSUMPTION OR REJECTION OF EXECUTORY CONTRACTS

     The Bankruptcy Court gives the Debtor the power, subject to the approval of
the  Bankruptcy  Court,  to assume or reject  executory  contracts and unexpired
leases.  If an executory  contract or an unexpired lease is rejected,  the other
parties to the contract or lease may claim damages by reason of  rejection.  The
Bankruptcy  Court limits such damages in the case of leased real  property.  The
Debtor is not required to make a final  decision  concerning  the  acceptance or
rejection of executory Contract and unexpired lease until thirty days before the
Confirmation Date of the Plan. The Plan expressly  reserves the Debtor's rights,
and the Debtor specifically does not admit that oil and gas leases are executory
contract or unexpired leases within

                                       47
<PAGE>

the meaning of the Bankruptcy Code. Out of caution, however, provisions are made
in the Plan for Oil and Gas Leases to be assumed upon the Effective  Date in the
event  they  are held to be  executory  contracts  unless  Debtor  shall  file a
schedule rejecting specific executory contracts longer than thirty days prior to
the Confirmation Date.

     With  respect to the  operating  agreements  pertaining  to the oil and gas
wells set forth in Exhibit 7 to the Disclosure Statement where the Debtor is the
operator at the date of the  Confirmation  of the Plan,  the Debtor accepts such
operating agreements.

     With  respect to the  operating  agreements  pertaining  to the oil and gas
wells set forth in Exhibit 7 to the Disclosure Statement where the Debtor is not
the operator at the date of the Confirmation of the Plan, the Debtor assumes and
assigns to the  Successor  such  operating  agreements.  Any balances due by the
Debtor to the  operator  of the well shall be paid by setting off  net  revenues
due to the Successor who shall own the interest after Confirmation.

     To the extent  that oil and gas leases to which the Debtor is a party or an
assignee constitute executory contracts, the Debtor assumes and assigns such oil
and gas leases to the Successor. Any unpaid royalties,  overriding royalties and
working interest  royalties  arising from Executory  Contracts assumed are being
paid pursuant to the Plan as Class D and/or Class E claims.

     Subject  to the  reservation  of all such  rights,  the Plan  provides  any
executory  contracts which are described on a schedule filed on or before thirty
days prior to the Confirmation  Date with the Bankruptcy Court will be rejected.
Any party in interest (as defined

                                       48
<PAGE>

in the  Bankruptcy  Code)  may  object to the  assumption  or  rejection  of any
contract or lease.

     (5)  RETENTION OF JURISDICTION

     The Court shall retain exclusive jurisdiction for the following purposes:

     a.   To determine any and all objections to the allowance of Claims, and

     b.   To insure the purposes and intent of the Plan are carried out, and

     c.   To  correct  any  defect,   cure  any   omission,   or  reconcile  any
          inconsistency  in the Plan or the  Order of the Court  confirming  the
          Plan as may be  necessary  to carry out the purposes and intent of the
          Plan, and

     d.   To enforce and interpret the terms and conditions of the Plan, and

     e.   To enter an Order modifying the Plan, and

     f.   To determine disputes raised before or after Confirmation by adversary
          proceedings or contested hearings, and

     g.   To enter an order concluding and dismissing this Chapter 11 case.

                            IV. CONDITIONS PRECEDENT

     This  Plan  is   conditioned   upon  the   Successor   obtaining  at  least
fifty-one percent (51%) of the working interest owners' reserves.

                                       49

<PAGE>

Successor  intends to negotiate  separately  with the  Company's  major  working
interest owners for the  contractual  purchase of their working  interest.  This
condition  is  necessary  because the cost of  administering  and  managing  the
working  interests  is  prohibitive  to  operating  Company  profitably.   While
Successor  will  negotiate  in good faith offer fair market  values for proposed
working interest  acquisitions there are no assurances that negotiations will be
successful.

                             V. VOTING INSTRUCTIONS

     A ballot is enclosed with this Disclosure Statement and sent to all holders
of Allowed Claims and Interests who are impaired who are entitled to vote on the
Plan.  Although the interests of all of the shareholders  will be allowed,  only
those  shareholders  of record at the close of business on  ______________  1989
will be entitled to vote to accept or reject the Plan.  Holders of claims  which
unimpaired are conclusively presumed to have accepted the Plan and are therefore
not  entitled to vote.  If you are a holder of impaired  Claims or  Interests in
more than one class,  you will be sent ballot for each such class and you should
vote all ballots  that  receive.  To vote on the Plan,  indicate on the enclosed
ballot(s) whether you accept or reject the Plan. Return ballots to Debtor at the
following address:                      Sandra K. Bacak
                                        Cambridge Oil Company
                                        6200 Savoy, Ste. 740
                                        Houston, Texas 77036

BALLOTS  MUST BE  RECEIVED  AT THE ABOVE  ADDRESS BY 5:00 P.M.  CENTRAL  TIME ON
_______________, 1989.

                                       50

<PAGE>

     Banks,  brokers,  and  other  nominees  holding  claims  or  Interests  for
beneficial owners are requested to transmit a copy of this Disclosure Statement,
and a  ballot  or  ballots  to such  beneficial  owners  with  instructions  for
returning ballots.

     Each holder of an Allowed  Claim which  would  otherwise  be in Class E may
elect to be a Class D creditor by reducing its claim to $500 and  receiving  75%
of its claims in cash in lieu of the  treatment  to which it would  otherwise be
entitled  under the Plan.  If the election  applies to you,  your ballot will so
indicate. Please read your ballot carefully.  Please note that an election to be
included in the small claims Class D will be deemed to be an  acceptance  of the
Plan.

                   VI. ACCEPTANCE AND CONFIRMATION OF THE PLAN
                     ---------------------------------------

              In order to confirm the plan,  the  Bankruptcy  Code requires that
the Court make a series of determinations  concerning the Plan,  including:  (i)
that the Plan has classified  creditor and equity security holder interests in a
permissible manner; (ii) that the contents of the Plan comply with the technical
requirements  of the Bankruptcy  Code;  (iii) that the Debtor and Successor have
proposed  the  Plan in good  faith;  and  (iv)  that the  debtor  and  successor
disclosures concerning the plan have been adequate and have included information
concerning  all payments  made or promised in  connection  with the Plan and the
bankruptcy  case, as well as the identity,  affiliations  and compensation to be
paid to all officers, directors and other insiders. Debtor and Successor believe
that each of these conditions has been

                                       51

<PAGE>

met,  and will seek  rulings  of the  Court to this  effect  at the  hearing  on
confirmation of the Plan

     The  Bankruptcy  Code also imposes  requirements  of  acceptance of Plan by
creditors  and  holders  of  Interests,  minimum  value  of  distributions,  and
feasibility.  To  confirm  the  Plan,  the  Court  must  find that each of these
conditions  is met.  Thus,  even if  creditors  and holders of  Interests in the
impaired  classes  B,  C,  D,  E, F and G  accept  the  Plan  by  the  requisite
majorities,   the  Court  must  undertake  an  independent   evaluation  of  the
feasibility  of the Plan  before it may  confirm the Plan.  The  conditions  for
minimum value, financial feasibility and acceptances are discussed below.

     A.   BEST INTERESTS TEST (MINIMUM VALUE)

     Notwithstanding  rejection  of the Plan by an  impaired  class of Claims or
interests  under the Plan,  in order to confirm  the Plan,  under  Section  1129
(a)(7) of the Code, the Court may determine that, with respect to each holder of
a claim or interest in such rejecting  impaired class,  the Plan is in the "best
interests"  of each holder of a claim or interest  within such Class.  The "best
interests" test requires that the Court find that the Plan provides to each such
holder of a claim or interest a recovery which has a value at least equal to the
value of the distribution that such holder would receive from the Debtor, if the
Debtor were instead liquidated under Chapter 7 of the Code.

     To calculate what  non-accepting  holders would  receive,  if a Debtor were
liquidated  under Chapter 7, the Bankruptcy Code must first determine the dollar
amount that would be generated upon disposition

                                       52

<PAGE>

of such Debtor's  assets.  The aggregate amount so generated would be reduced by
the costs of  liquidating  such Debtor.  Such costs would be expected to include
the fees of a trustee (as well as those of counsel and other  professionals that
such trustee  would in all  likelihood  employ),  selling  expenses,  and claims
arising  from such  trustee's  rejection  of  obligations  assumed or  otherwise
incurred during the pendency of such Debtor's case.

     Further,  distributions  to unsecured  creditors in a Chapter 7 liquidation
would not occur immediately upon completion of a Debtor's liquidation, but would
be delayed pending  determination  of the aggregate  amount of unsecured  claims
against such Debtor.  Such a determination  would entail  significant  delay and
lost  opportunity  cost even for those  creditors  whose claims were  ultimately
allowed.

     Debtor and Successor  have prepared a liquidation  analysis for the purpose
of  complying  with Section  1129(a)(7)  of the  Bankruptcy  Code and to provide
creditors  and  shareholders  with the  Debtor's  estimate  of the  amount  of a
"liquidation fund" that would result upon a hypothetical  liquidation of Debtor,
effective  December 31, 1989 Debtor and Successor have no reason to believe that
the results would be materially  different if the hypothetical  liquidation were
to occur on the Effective Date.  Debtor and Successor  believe this test will be
satisfactory  as  indicated by the  liquidation  analysis set forth in Exhibit 2
annexed hereto which conclude that unsecured  creditors and  shareholders  would
receive nothing in liquidation.

                                       53

<PAGE>

     B.   FEASIBILITY

     As a  condition  to  confirmation  of a  plan  of  reorganization,  Section
1129(a)(ll)  of the Code  requires  that the  confirmation  is not  likely to be
followed  by a  liquidation  or the need for further  financial  reorganization,
except as proposed in such plan. The essence of the feasibility  requirement for
this Plan is to establish  that  Successor  can and shall make the required Plan
distributions to creditors and stockholders.

     Set out in Exhibit 3 are  consolidated  Pro Forma  Balance  Sheets and Cash
Flow  Projections  for Debtor and Successor on a combined  basis which  indicate
sufficient cash reserves to meet the requirements of the Plan.

     THESE  FINANCIAL   PROJECTIONS  SET  FORTH  IN  THIS  DISCLOSURE  STATEMENT
REPRESENT  A  PREDICTION  OF  FUTURE  EVENTS  BASED ON  CERTAIN  ASSUMPTIONS  OF
MANAGEMENT AND OTHERS SET FORTH IN SUCH PROJECTIONS.  ANTICIPATED  FUTURE EVENTS
MAY OR MAY NOT OCCUR AND THE  PROJECTIONS  MAY NOT BE RELIED UPON AS A GUARANTEE
OR OTHER  ASSURANCE  OF THE  ACTUAL  RESULTS  WHICH WILL  OCCUR.  BECAUSE OF THE
UNCERTAINTIES  INHERENT IN PREDICTIONS  OF FUTURE EVENTS,  THE ACTUAL RESULTS OF
OPERATIONS MAY WELL BE DIFFERENT FROM THOSE  PREDICTED AND SUCH  DIFFERENCES MAY
BE MATERIAL AND ADVERSE.

     THE  FINANCIAL   PROJECTIONS   ARE  INTENDED  TO  ASSESS   FUTURE   ASSETS,
LIABILITIES,  INCOME,  AND CASH  FLOW  AVAILABLE  FOR DEBT  SERVICE  AND ARE NOT
DESIGNED OR INTENDED TO BE USED FOR PURPOSES OF  PROJECTING  THE FUTURE VALUE OF
EITHER COMMON OR Preferred SHARES AND SHOULD NOT BE RELIED UPON FOR THAT.

                                       54

<PAGE>

     Based on the Cash Flow  Projections,  Debtor and Successor believe that the
Plan satisfies the feasibility requirement of the Code.

     C.   ACCEPTANCE

     The Bankruptcy Code requires as a condition to confirmation that each class
of claims or interests  that is impaired under the Plan accept the Plan, or that
the plan be "fair  and  equitable"  as to such  class as  described  below.  The
Bankruptcy Code defines  acceptance of a Plan by a class of claims as acceptance
by holders of  two-thirds in dollar amount and a majority in number of claims of
that class,  but for  confirmation  purpose only those who  actually  vote their
claims to accept or to reject the Plan are counted in tabulating  the results of
the  vote.  The  Bankruptcy  Code  defines  acceptance  of a Plan by a class  of
interests as acceptance by two-thirds in amount of the allowed interests in such
class,  but for that purpose  counts only those claims,  which  actually vote to
accept or reject the Plan.

     Classes of claims and Interests that are not "impaired"  under the Plan are
conclusively  presumed to have accepted the Plan. Thus, Debtor and Successor are
soliciting  acceptances  of the Plan only from those entities who hold claims or
interests in impaired  classes.  A class is  "impaired"  if the  conditions  and
requirements of Bankruptcy Code section 1124 are met. All classes except Class A
are impaired under the Plan.

     D.   CONFIRMATION WITHOUT ACCEPTANCE BY ALL IMPAIRED CLASSES

     The Bankruptcy Code contains  provisions for confirmation of a plan even if
the plan is not accepted by all impaired classes, as long

                                       55

<PAGE>

as at least one impaired  class of claims has  accepted  it.  These  "cram-down"
provisions allow for confirmation of a plan despite the non-acceptance of one or
more impaired  classes of claims or interests are set forth in Section 1129(b of
the Bankruptcy Code.

     If a class of  secured  claims  rejects  the  Plan,  the Plan may  still be
confirmed so long as the Plan does not discriminate  unfairly as to a class, and
is "fair and equitable"  with respect to such class under Section 1129(b) of the
Bankruptcy  Code and applicable  case law Section 1129(b) of the Bankruptcy Code
states that the "fair and equitable" standard requires, among other things, that
the Plan  provide  (i) that the lien  securing  the claim of each  member of the
class is to be left in place and the holders of the claim will receive  deferred
cash  payments  of a present  value  equal to the  lesser of the  amount of such
claims  or the  value of the  collateral  securing  such  claims;  (ii) that the
collateral  securing the claims be sold free of the lien with the lien attaching
to the proceeds and with such lien on the proceeds  being  treated  under one of
the two other standards  described in this  paragraph;  or (iii) a treatment for
the  claim  that  is the  "indubitable  equivalent"  of the  claim.  Debtor  and
Successor  believe that the Plan meets this test and therefore that the Plan can
be  confirmed  even if it is  rejected by holders of Allowed  Secured  Claims in
Classes B and C.

     If a class of  unsecured  claims  rejects  the Plan,  the Plan may still be
confirmed  so long as the Plan is not unfairly  discriminatory  as to that class
and is  "fair  and  equitable"  to such  class.  Under  Section  1129(b)  of the
Bankruptcy Code, a plan is "fair and equitable"

                                       56

<PAGE>

as to a class of unsecured  claims if,  among other  things,  the Plan  provides
that:  (i) each holder of a claim  included in the rejecting  class  receives or
retains on account of that claim property which has a value, as of the Effective
Date, equal to the allowed amount of such claim; or (ii) the holder of any claim
or  Interest  that is junior to the  claims of such  class  will not  receive or
retain any property at on account of such junior  claim or Interest.  Debtor and
Successor  believe  that  the  Plan  meets  this  test  as to  Classes  D and E.
Therefore,  Debtor and Successor believe that the Bankruptcy Court could confirm
the Plan even if it is rejected by one such class of unsecured claims as long as
one impaired class of claims accepts it.

     If either Class F or Class G (Classes of  Interests)  reject the Plan,  the
Plan may still be  confirmed so long as the Plan is "fair and  equitable"  under
applicable case law and provides, that the holder of any interest that is junior
to the  Interests  of such  class will not  receive or retain  under the Plan on
account of such junior interest any property at all. There is no interest junior
to the Common Stock.  However,  the  legislative  history of the Bankruptcy Code
indicates  that the "fair and equitable"  standard  includes other factors which
are found by the Court to be fundamental to "fair and equitable"  treatment of a
dissenting  class.  For example,  a  dissenting  class should be assured that no
senior class receives more than 100% of the allowed amount of its claims. Debtor
and Successor  believe that the Plan meets this test and therefore that the Plan
can be confirmed even if it is rejected by holders of Classes F and G.

                                       57
<PAGE>

     E.   CLASSIFICATION OF CLAIMS AND INTERESTS

     Section 1122 of the Bankruptcy Code requires that a plan of  reorganization
place each  creditor's  claim and each  interest in a class with other claims or
interests  which are  "substantially  similar" The Debtor and Successor  believe
that the  classification  system in the Plan  satisfies  the  Bankruptcy  Code's
standards.

     F.   CONFIRMATION HEARING

     Section  1128(a) of the Code  requires  the Court,  after  notice to hold a
hearing  on  confirmation  of  the  Plan (the   "Confirmation   Hearing").   THE
CONFIRMATION    HEARING    FOR    THIS    PLAN    IS    SCHEDULED    TO    BEGIN
___________________________

     Section  1128(b)  provides  that any party in  interest  of any  Debtor may
object to  confirmation  of the Plan. Any objection to  confirmation of the Plan
must be made in  writing  and  filed  with the  Court,  together  with  proof of
service,  and served by hand or overnight  courier for receipt on or before 5:00
p.m. Central Standard Time at the following addresses:

                                     United States District Court
                                     For the Southern District of Texas
                                     Houston Division in Bankruptcy
                                     811 Rusk
                                     Houston, Texas 77002

     Objections  to  confirmation  of the Plan are governed by  Bankruptcy  Rule
9014.  UNLESS AN OBJECTION TO  CONFIRMATION  IS TIMELY SERVED AND FILED, IT WILL
NOT BE CONSIDERED BY THE Court.

     G.   EFFECT OF CONFIRMATION

     Except as  otherwise  provided in the Plan or  Confirmation  Order,  and in
addition to other consequences of Confirmation as

                                       58

<PAGE>

disclosed herein, entry by the Court of the Confirmation Order will:  constitute
approval of the assumption  and assignment of all executory  contracts or leases
unless previously  rejected pursuant to the Plan;  constitute  authorization for
the  Debtor  to act as a  Disbursing  Agent;  constitute  authorization  for the
Debtor's or Successor's use of funds of the estate to meet any cash  requirement
in the case;  and will act as discharge,  effective as of the Effective  Date of
the Plan,  of the Debtor and  Successor,  of all their  claims that arose at any
time before the entry of the Confirmation Order.

     Except as otherwise  provided in the Plan and the Confirmation  Order, upon
the effective  Date, all property of the Debtor shall vest in Successor free and
clear of all liens, claims and interest of all creditors of and interest holders
in the Debtor.

     H.   EFFECTIVE DATE OF THE PLAN

     The Plan will become effective on the thirtieth day after the date on which
the Confirmation Order becomes final and nonappealable.

                          VII. ALTERNATIVES TO THE PLAN
                           --------------------------

     It is the view of the Debtor that the only feasible alternative to the Plan
as proposed  would be the conversion of the Chapter 11 case to a Chapter 7 case,
and the  subsequent  liquidation  of the Debtor by a duly  appointed  or elected
trustee.  In the event of a  liquidation  under Chapter 7, it is the view of the
Debtor that the following is likely to occur:

                                       59

<PAGE>
 (1) An additional tier of administrative expenses entitled to priority over
general  unsecured claims under Section 507(a)(l) of the Bankruptcy Code will be
incurred. Such administrative expenses will include the trustee's commissions as
well as  professional  fees for the trustee's  accountants,  attorneys and other
professionals likely to be retained by the trustee.

     (2) The  Debtor  believes  that in a Chapter  7  liquidation  the  proceeds
realized at December 31, 1989 from the disposition of assets, including accounts
receivable,  and oil and gas reserves,  (the primary assets of the debtor) would
be  approximately  $750,000.  However,  there would be no recovery for unsecured
creditors  or  shareholders  of the  Debtors  after  payment of  Administrative,
Priority and Secured Claims. Further, it is believed that the liquidation of the
Debtor's  assets would be a long and  expensive  process with no assurance  that
even projected liquidation values would in fact be realized.

     (3) Additional  claims would be asserted against the Debtor with respect to
such matters as termination of leases,  severance payments to employees mandated
by law,  income  and other  taxes  associated  with the sale of  assets  and the
inability of the Debtor to fulfill outstanding contractual commitments and other
items.

     The total of all these  increased  claims  cannot be estimated at this time
with any  reasonable  accuracy,  but could  materially  increase  the claims and
obligations   to  be  satisfied   out  of  the  proceeds  of   liquidation   and
correspondingly  would reduce the funds, if any, available to satisfy the claims
of creditors in the Chapter 11 Case.

                                       60
<PAGE>

     Attached hereto as Exhibit 2 is Debtor's unaudited  Liquidation Analysis as
of December 31, 1989,  which  reflects the estimated  liquidation  values of the
Debtor's  assets.  Liquidation  values  have  been  arrived  at  based  upon the
experience  of  the  Debtor's   management  and  employees,   consultation  with
independent petroleum engineers and an evaluation of the factors believed likely
to have an  impact  on  realization  of the  value  of the  assets  in a  forced
liquidation.

     The Debtor's oil and gas property  liquidation  values are based on reserve
volumes and production schedules audited by Gerald Dupont Enterprises,  Inc., an
independent  petroleum  engineering firm, using oil and gas pricing projected to
be representative of oil and gas market prices at January 1, 1989,  adjusted for
estimated  depletion  since that date.  Liquidation  values were then calculated
using 1) acquisition costs which would result in a   20% discount rate, 2) based
on the inclusion of 100 percent of proved developed  producing reserve value and
30 percent of proved  undeveloped  reserve value and 3) estimated costs (15%) of
liquidating the properties.

     Liquidation  values are necessarily  based upon  assumptions  which may not
prove to be correct, and actual liquidation values could vary from the estimated
values.

     The liquidation analysis does not take into account potential  preferential
or  fraudulent  transfers  which the Debtor or a Chapter 7 trustee may  recover.
However,  the Debtor has made a review of these potential voidable transfers and
believes  that any  potential  recovery  would  have no  material  effect on the
liquidation analysis.

                                       61
<PAGE>

     As set forth in the Liquidation Analysis, there is no realistic possibility
of any  distribution  to  general  creditors  of the  Debtor  in the  event of a
conversion of the Chapter 11 case to a Chapter 7 case.

               VIII. DESCRIPTION OF NORMANDY OIL AND GAS COMPANY,
               ----- --------------------------------------------
           INC., HOUSTON OPERATING COMPANY AND SECURITIES TO BE ISSUED
           -----------------------------------------------------------

A. DESCRIPTION OF NORMANDY
   -----------------------

     (1)  DESCRIPTION OF BUSINESS.
          -----------------------

     Normandy was  incorporated on March 31, 1929 as a New York  corporation and
was formerly  named Servus  Clothes,  Inc. In 1968,  the name of the Company was
changed to Saxony Industries,  Inc. The Company was an inactive corporation from
1972  to  April  1983  when  it was  reactivated  to  engage  in the oil and gas
business. In August, 1984, the name was changed to Normandy Oil and Gas Company,
Inc.

     Normandy's  principal  objective  has been to  acquire  and  manage and gas
assets as cost effectively as possible given the current economic environment of
the industry. Normandy is of the view that it can acquire oil and gas properties
through the  purchase or merger of  financially  distressed  companies  at costs
lower than Normandy would incur by drilling and developing  comparable reserves.
Thus, it drilled no development wells in its last fiscal year. Substantially all
Normandy's acquisition, exploration, and development activities are conducted in
Texas, Louisiana, and Colorado.

     Although Normandy  presently intends to continue its pursuit of potentially
attractive  acquisitions  of  financially-distressed   entities,  such  as  that
contemplated by the Plan, there can be no

                                       62

<PAGE>

assurance  that  Normandy  will  continue  this means of  acquiring  oil and gas
properties in the future.  Future  acquisitions will depend on the relative cost
of acquisitions  compared to the cost of drilling for resources,  the success of
Normandy's  drilling  operations,  the  market  demand  for  oil  and  gas,  the
availability  of  satisfactory  acquisition  candidates  and the cash and credit
facilities  available  to  Normandy.  Due to the  decline in oil and gas prices,
particularly  the recent sharp decline in oil prices in 1986, and the increasing
difficulty in securing  additional credit lines from bank lenders,  Normandy may
have  to  seek  alternative  financing  methods  and may  have  to  curtail  its
acquisition activities if alternative financing is not available.

     (2)  CUSTOMERS AND MARKETS

     Normandy  does not refine or process the oil and  natural gas it  produces.
Normandy's  production is primarily sold to unaffiliated  oil and gas purchasing
companies in the area where it is produced.  Production is transported by trucks
and pipelines.  Crude oil and condensate are sold under short-term  contracts at
competitive  field  prices  posted  by major  purchasers  of crude in the  area.
Natural gas is sold to natural gas pipeline companies  generally under long term
contracts.  Normandy  also  sells  gas on the  spot  market,  which  prices  are
generally below contract prices.  Normandy may sell increasing volumes of gas on
the spot market if no alternative  market exists for its gas. In addition,  many
of Normandy's gas contracts incorporate "market-out" provisions which permit the
gas purchaser to terminate

                                       63

<PAGE>

the  contract  (or reopen  negotiations  on the price set forth  therein) if the
contract  price exceeds  market  prices.  Furthermore,  many of  Normandy's  gas
contracts provide for annual (or more frequent) redeterminations of the purchase
price.

     (3)  EMPLOYEES

     As of June 30, 1988, Normandy had twenty-four full time employees,  of whom
sixteen were located at the Fort Worth office, two located in the Austin office,
and six were field personnel.  From time to time, Normandy utilizes the services
of consulting  geologists,  engineers and lancimen.  It is anticipated  that the
Debtor's remaining  employees will be hired by Normandy and/or Houston Operating
upon the Effective Date. It is also  anticipated  that a bonus of  approximately
two months salary shall be paid to Sandra Bacak and Charles Williams as a result
of services  rendered by them on behalf of the Debtor during the pendency of the
Chapter 11 proceedings  and their  committment  not to leave the Debtor's employ
during the course of the Debtor's Chapter 11 proceeding.

     (4)  PROPERTIES AND PRODUCTION

     Normandy's  properties  are located  exclusively  in Texas,  Louisiana  and
Colorado. Normandy has no foreign operations or properties.

     Normandy's interests in producing and non-producing acreage are in the form
of working  interests,  royalty and overriding  royalty  interests.  The working
interests are subject to royalty and overriding

                                       64
<PAGE>

royalty  interests  either  pre-existing  or  created in  connection  with their
acquisition),  liens incident to operating  agreements,  liens for current taxes
and other  burdens or minor liens,  encumbrances,  easements  and  restrictions.
Normandy believes that none of such burdens  materially  detracts from the value
of such  properties or interferes  with their  operation.  Substantially  all of
Normandy's major productive  properties are collateral  securing existing credit
facilities.  As is  customary  in the  oil  and  gas  industry,  detailed  title
examinations are not made at the time of acquisition of undeveloped  properties.
More thorough investigations are made, including in most cases obtaining a title
opinion,  before  commencement of drilling operations or preparation of division
orders.

<TABLE>
<CAPTION>
     As of June 30, 1988, Normandy's proved reserves were 560,098 barrels of oil
and 6,139,596 mcf of gas. Production revenues of recent years were as follows:

                                                              Year Ended June 30:
<S>                                       <C>            <C>              <C>             <C>            <C>
                                            1984            1985            1986            1987           1988
                                            ----            ----            ----            ----           ----
PRODUCTION:
        Oil (BBLS)                           2,414           2,371           3,195         13,024          30,408
        Natural Gas (MCF                   127,798         230,598         129,137        112,592         404,346

UNIT PRICES AND COSTS:
        Oil (per BBL)                      $ 27.68         $ 26.39         $ 19.26         $14.82          $17.40
        Natural Gas
            (per MCF)                         2.13            2.70            2.24           1.85            1.51

PRODUCTION COSTS PER
        EQUIVALENT BBL:                       4.31            5.74            4.53           5.73            5.15

AMORTIZATION PER
        EQUIVALENT BBL:                       4.17            3.99            4.24           5.13            3.76

</TABLE>
                                       65
<PAGE>

     (5)  OFFICERS AND DIRECTORS

Normandy's officers and directors are as follows:

                                                                 DATE OF
NAME                          AGE      POSITION                  APPOINTMENT
----                          ---      --------                  -----------
Frank W. Cole                 63       Director,                 April 1983
                                       Chairman of the Board

Roy T. Rimmer, Jr.            47       Director, President and   September 1986
                                       Chief Executive Officer

Mack S. Cohn                  47       Director                  January 1989

Judy M. Brooks                39       Secretary                 September 1986

William I. Temple             42       Vice President,           June 1987
                                       Operations

     The  directors  of  Normandy  are  elected to serve  until the next  annual
shareholders  meeting or until  their  respective  successors  are  elected  and
qualified.  Normandy  officers  hold  office  until the  meeting of the Board of
Directors  after the next annual  shareholder's  meeting or until removal by the
Board of  Directors.  There  are no  arrangements  or  understandings  among the
officers and directors pursuant to which any of them are elected as officers and
directors.

     The following information is a brief account of the business experience for
the past five years of the individuals listed above.

     Frank W. Cole has been,  for at least  the past  five  years,  the owner of
Frank W. Cole  Engineering,  and oil and gas consulting  firm located in Dallas,
Texas. Mr. Cole has served as chairman of the board of Normandy since April 1983
and served as president from April 1983 to October 1986. Her retired from Amcole
Energy  Corporation,  a publicly  held Utah  corporation  engaged in oil and gas
production and  development,  in July 1982 after acting as president and founder
since 1971 and continued to serve as a director until 1985. Mr. Cole is a

                                       66

<PAGE>

director  and vice  president  of Phoenix  Capital  Corporation.  Mr.  Cole is a
director of Sunbelt Exploration.

     Roy T. Rimmer,  Jr. has served as the  president and a director of Normandy
since  September,  1986. From February 1983 to the present,  Mr. Rimmer has been
the chief executive officer and principal equity owner of two privately-held oil
and gas  companies  based in Fort Worth,  Texas.  Mr. Rimmer was chairman of the
board and  president  from  June  1982 to  February  1986 of Poll  Gas,  Inc.  a
corporation  which operated a gas gathering and  transmission  system located in
Lincoln County,  Oklahoma. In July 1982, Mr. Rimmer became chairman of the board
and president of Amcole Energy  Corporation,  a publicly-held  Utah  corporation
engaged in oil and gas production and development,  and he continue to hold such
positions  until  February  1986.  Mr.  Rimmer is a director and chairman of the
board of Phoenix Capital Corporation.  Mr. Rimmer is president and a director of
Sunbelt Exploration, Inc. Mr. Rimmer is president and a director of Roseland Oil
and Gas, Inc.

     Mr. Mack S. Cohn was elected a director  of Normandy  Oil and Gas  Company,
Inc.  on January 31, 1989 at a Special  Meeting of the Board of  Directors.  Mr.
Cohn will also serve on Normandy's audit  committee.  Mr. Cohn is an officer and
director of Regal Limousine  Service,  a privately held Ft. Worth based company.
He also  serves on the board of  Gamtex,  Inc.  and the Miss  Texas  Scholarship
Pageant. Previously, he has served as an officer of Beth-El Congregation and the
Forth Worth Jaycees. Mr. Cohn graduated from New Mexico Military Institute,  and
attended Texas Christian University.

                                       67
<PAGE>

     Judy M. Brooks has been the corporate secretary of Normandy since September
1986, and is also responsible for supervising all administrative  personnel. Ms.
Brooks was employed by Amcole Energy Corporation from September 1978 to February
1986, where she was the corporate secretary and, after January 1985, responsible
for investor and stockholder relations. Ms. Brooks is secretary, treasurer and a
director of Phoenix Capital Corporation. Ms. Brooks is assistant secretary and a
director of Roseland Oil and Gas, Inc.

     William  I.  Temple,  a  registered  professional  engineer,  has been Vice
President of Operations for Normandy since June 1987, and had previously  been a
consultant to Normandy.  Mr. Temple previously served as founder,  president and
chairman  of  the  board  of  William  I  Temple,  Investments,   Inc.  and  its
subsidiaries  from  January  1979 to  November  1986,  when it was  subsequently
acquired by Normandy.  Mr.  Temple has served in various  positions of authority
with  other  oil  and  gas  companies  involved  in  drilling,  exploration  and
production.  Effective  August 1, 1988, Mr. Temple resigned as Vice President of
Operations but continues to work with Normandy as a consultant.

     (6)  FURTHER INFORMATION

     Set forth as Exhibit 4 is  Normandy's  most recent SEC Form 10K (year ended
June 30, 1988).  Included  within this Exhibit is information  pertinent to the
following:

1. Business;
2. Properties;
3. Legal Proceedings;
4. Submission of Matters to a Vote of Security Holders;
5. Market for the Company's Common Equity
   and Related Stockholder Matters;
6. Selected Financial Data;

                                       68
<PAGE>

7  Management's Discussion and Analysis of
   Financial Condition and Results of Operation;
8. Financial Statements and Supplementary
   Data;
9. Changes in and Disagreements on
   Accounting and Financial Disclosure;
10.Directors and Executive Officers of the
   Company;
11.Executive Compensation;
12.Security Ownership of Certain Beneficial Owners
   and Management;
13.Certain Relationships and Related Transactions

B. DESCRIPTION OF HOUSTON OPERATING COMPANY
-------------------------------------------

     Houston  Operating  Company is a wholly owned  subsidiary of Normandy Oil &
Gas Corporation. Inc., incorporated in the State of Delaware on August 31, 1989.
The  aggregate  number  of  authorized  shares  Houston  Operating  Company  has
authority to issue is 60,000,000,  of which  50,000,000  shares are Common Stock
having a par value of $.0O1 per  share,  5,000,000  shares are  Preferred  Stock
having a par value of $.0Ol per share and 5,000,000  shares are Preference Stock
having a par value of $.O0l per share.  At August 31,  1989,  Houston  Operating
Company had not engaged in any  business  operations  other than  organizational
activities.  At August 31,  1989,  Houston  Operating  Company  had no assets or
liabilities,  and no income had been  received  and no costs had been  incurred,
other than organizational costs.

     Houston Operating Company was established to effect the transactions of the
Plan.  Prior to  confirmation,  Houston  Operating  Company will issue 2,500,000
shares of its Common Stock to Normandy in  consideration  for the costs incurred
by  Normandy  in  its  organization  and   implementation  of  its  business  as
contemplated by the Plan.

                                       69

<PAGE>

C. DESCRIPTION OF PLAN SECURITIES
---------------------------------

     The Plan  calls for  issuance  of four types of  securities:  Participation
Rights,  Warrants  (Class A and  Class B),  Common  Stock of  Houston  Operating
Company,  and Normandy Common Shares for which Houston  Operating Company Common
Shares may be  exchanged.  A Unit  consists  of one share of  Houston  Operating
Company Common Stock, one Class A Warrant and one Class B Warrant.

     Participation  Rights will be issued to Common shareholders of Cambridge at
a rate of one  right  for each 80 shares of  presently  issued  and  outstanding
Common Stock.  Each right entitles the holder to acquire one Unit at an exercise
price of $1.00.  The  Participation  Rights are exercisable for a period of nine
months following the Effective Date and are represented by a certificate  issued
to the Cambridge  shareholders,  setting  forth the terms of such  Participation
Rights.  The  form  of the  Participation  Right  certificate  to be  issued  to
shareholders  is attached to the Plan as Schedule 2 and is  incorporated  in its
entirety by this reference.

     In addition  to the  issuance  of Units,  on exercise of the  Participation
Rights, Units will also be issued to unsecured creditors at the rate of one Unit
for each $10.00 in claims and one Unit in exchange for each $100.00 in par value
of Preferred Stock.

     The following  summarizes the terms and conditions of the securities  which
comprise a Unit:

     (1)  Warrants

     (a) AMOUNT AND DELIVERY TO THE DISBURSING  AGENT On or before the Effective
Date, Houston Operating Company will authorize the

                                       70

<PAGE>

issuance  of  Class A  Common  Stock  purchase  warrants  to  purchase  up to an
aggregate  of 725,000  shares of its Common  Stock,  $.OOl par value and Class B
Common Stock  purchase  warrants to purchase up to additional  725,000 shares of
its Common Stock, $.OOl par value. Authorized Warrants shall be delivered to the
Disbursing Agent on the Effective Date.

     (b)  TERMS  The terms of the  Warrants  are fully set forth in the  Warrant
Agreement attached as Schedule 1 to the Plan, which is controlling of such terms
and is  incorporated  in its  entirety  by this  reference.  Such  terms  may be
summarized, however, as follows:

     (I)  CLASS A WARRANTS Each Class A Warrant may be exercised to purchase one
          share of Houston  Operating  Company  Common Stock at a price of $1.50
          per share during the eighteen  month period  following  the  Effective
          Date  of the  Plan.  Class  A  warrants  may be  redeemed  by  Houston
          Operating  Company  at a price of $.Ol per  warrant  on not less  than
          thirty days prior written  notice at any time  commencing  nine months
          following the Effective Date of the Plan.

     (II) CLASS B WARRANTS Each Class B Warrant  entitles holder to purchase one
          share of Common Stock of Houston Operating Company at a price of $2.00
          per share during the two year period  following the Effective  Date of
          the Plan.  The Class B Warrants are subject to  redemption on the same
          terms as the Class A Warrants.

3. HOUSTON OPERATING COMPANY COMMON SHARES
   ---------------------------------------

     Subject to provisions of the Plan, the rights appurtenant to the holders on
Houston  Operating  Company  Common  Shares  shall  specified in the Articles of
Incorporation of Houston Operating

                                       71
<PAGE>
Company,  attached as Exhibit 8 hereto,  and as set forth in the  Agreement  and
Undertaking  between Houston Operating Company and Normandy attached as Schedule
3 to the Plan,  which are  controlling  of such rights and are  incorporated  in
their  entirety  by this  reference.  Such terms may be  summarized,  however as
follows:

     A.   EXCHANGE  PRIVILEGE - Common Shares of Houston Operating Company shall
          at all  times  during  the  period  commencing  nine  months  from the
          Effective  Date be  subject to  exchange,  at the option of the holder
          during the entire period and also at the option of Normandy during the
          last three years of such period, for Normandy Common Shares.

     B.   EXCHANGE RATIO - Upon exchange,  holders of Houston  Operating Company
          Common Shares will receive  Normandy  Common Shares in an amount equal
          to the lessor of:

              (i) The number of shares of  Normandy  Common  Stock  issuable in
          exchange for Houston  Operating  Company  Common Stock  determined  by
          multiplying the number of shares of Houston  Operating  Company Common
          Stock to be exchanged by a fraction,  the  numerator of which shall be
          the market price per Common share of Houston Operating Company and the
          denominator  of which  shall be the market  price per Common  share of
          Normandy; and

               (ii) The number of shares of Normandy  Common  Stock  issuable in
          exchange for Houston  Operating  Company  Common Stock  determined  by
          multiplying the number of shares of Houston  Operating  Company Common
          Stock to be exchanged by a

                                       72
<PAGE>

          fraction  the  numerator  of which shall be $l.00 per Common  share of
          Houston  Operating Company and the denominator of which shall be $4.0O
          per Common share of Normandy.

4.  DESCRIPTION OF NORMANDY COMMON SHARES
-----------------------------------------

     Normandy's articles of incorporation  authorize an aggregate of 150,OOO,OOO
shares  of  which  100,000,000  shares  are  Common  Shares,  par  value  $.OOl,
25,000,000  shares are Preferred Stock,  par value $.OOl, and 25,000,000  shares
are Preference Stock, par value $.OOl. Normandy Common Shares have no preemptive
or other subscription  rights, have no conversion rights, and are not subject to
redemption. No personal liability attaches to the ownership thereof. The holders
on  Normandy  Common  Shares  are  entitled  to one vote for each share held and
cumulative  voting for  election  of  directors  or on any other  matters is not
provided for.

     In the event of  liquidation,  dissolution,  or the winding up of Normandy,
either  voluntarily or  involuntarily,  the holders of the outstanding  Normandy
Common  Shares are  entitled to receive a pro rata  portion of the net assets of
Normandy  remaining  after  payment of all  liabilities  and any  Preference  on
Preferred or Preference  Stock of Normandy  which may then be  outstanding.  The
holders of Normandy  Common  Shares are  entitled  to  dividends  when,  and if,
declared by the board of directors from funds legally available thereof, subject
to any Preference on Preferred or Preference Stock of Normandy which may then be
outstanding.  Normandy has not paid a dividend in the past five years, and it is
not anticipated that a dividend will be paid in the foreseeable future.

                                       73
<PAGE>

     The articles of  incorporation  provide  that the shares of  Preferred  and
Preference Stock may be issued in one or more series as designated by resolution
of board of directors, and each such series shall have such rights, preferences,
privileges and powers as shall be determined by the board of directors including
participation in dividends,  participation  in the assets of Normandy  following
liquidation,  the right to convert shares of Preferred or Preference  Stock into
Normandy Common Shares or other securities of Normandy, and the rights to redeem
the Preferred or Preference Stock for cash, securities or other property.  There
are  currently no shares of Normandy  Preferred or  Preference  Stock issued and
outstanding,  and  Normandy has no intention of issuing any shares of such Stock
at the present time.

                           IX. INCOME TAX CONSEQUENCES
                             -----------------------

     The Plan and its tax consequences are complex,  and the tax consequences of
the Plan will depend upon  factual  determinations.  No ruling has been (or will
be, prior to the Effective  Date),  requested from the Internal  Revenue Service
(the  "Service")  regarding the tax  consequences  of the Plan.  BECAUSE THE TAX
CONSEQUENCES  OF  THE  PLAN  ARE  COMPLEX  AND  MAY  VARY  BASED  ON  INDIVIDUAL
CIRCUMSTANCES,   THIS  DISCLOSURE   STATEMENT  RENDERS  NO  ADVICE  ON  THE  TAX
CONSEQUENCES OF THE  IMPLEMENTATION OF THE PLAN TO ANY PARTICULAR  CREDITOR,  TO
THE  DEBTOR,  OR TO  INTEREST  HOLDERS,  EXCEPT  AS SET  FORTH ON THE  PROJECTED
FINANCIAL  INFORMATION SUPPLIED HEREWITH.  EACH CREDITOR IS URGED TO CONSULT HIS
OR HER  TAX  ADVISOR  AS TO THE  TAX  CONSEQUENCES  OF THE  PLAN  TO HIM OR HER,
INCLUDING ANY CONSEQUENCES UNDER STATE AND LOCAL TAX LAWS.

                                       74

<PAGE>
                X. OFFER, ISSUANCE AND RESALE OF PLAN SECURITIES
                          AND RELATED SECURITY MATTERS
                           --------------------------

     The offer and issuance of Plan Securities by Houston  Operating Company and
Normandy  Oil & Gas  Company,  Inc.  as  successor  in  interest  to the debtor,
constitutes  the offer and sale of securities  under the Securities Act of 1933,
as amended (the "1933 Act") and applicable  state  securities laws, and the Plan
securities have not been registered  under the 1933 Act or such state securities
laws,  in reliance on the  exemption  therefrom  provided by Section 1145 of the
Bankruptcy  Code.  None of the Plan  Securities  is being issued  pursuant to an
indenture qualified under the Trust Indenture Act of 1939.

     The Debtor and  Successor  believe that resales of the Plan  Securities  by
most holders may be effected in reliance on the  exemptions  provided by Section
1145 of the Code and Section  4(1) of the  Securities  Act of 1933,  as amended,
without  registration  under  applicable  federal  and  state  securities  laws.
However,  to the extent that a holder is deemed to be an  "underwriter"  as that
term is defined in subsection (b) of Section 1145,  the  exemptions  provided by
that  Section  and  Section  4(1)  would  not be  available  to  resale  of Plan
Securities by such holder.

     BY ITS RECEIPT OF PLAN SECURITY EACH HOLDER SHALL BE DEEMED TO  ACKNOWLEDGE
THAT IT IS RESPONSIBLE FOR ITS COMPLIANCE WITH ALL APPLICABLE  SECURITIES  LAWS.
EACH HOLDER  SHOULD  CONSULT HIS OR HER OWN ATTORNEY AS TO WHETHER ANY RESALE OF
PLAN SECURITIES  REQUIRES  REGISTRATION OF SUCH SECURITIES  UNDER THE SECURITIES
ACT OF 1933 OR ANY APPLICABLE STATE SECURITIES LAWS.

                                       75
<PAGE>

     No market  currently  exists  for any of the Plan  Securities,  except  the
Normandy  Common  Shares.  Houston  Operating  Company has received  preliminary
indications of interest from certain member firms of the National Association of
Securities Dealers,  Inc., of their willingness to make a market in the Warrants
and Common  Shares when issued,  but there is no assurance  that a market in any
such securities will be established or, if established, continue to exist at any
give time in the future. Consequently, holders of the Plan Securities may not be
able to liquidate their position readily or at all.

     In the  event a  market  in  Warrants  or  Common  Shares  develops,  it is
anticipated that quotations will initially appear in the "pink sheets" published
by the National Quotation Bureau. As soon as practicable following the Effective
Date, Houston Operating Company intends to pursue registration of its securities
under section  12(g) of the  Securities  Exchange Act of 1934,  as amended,  and
obtain a listing of its  securities  in the National  Association  of Securities
Dealers,  Inc., Automated Quotation System ("NASDAQ").  In order to register its
securities and obtain a listing on NASDAQ,  Houston Operating  Company,  will be
required to satisfy certain  conditions imposed by regulations of the Securities
and Exchange Commission an~ the National  Association of Securities Dealer, Inc.
Houston  Operating Company cannot predict at this time when it will satisfy such
conditions and obtain registration and listing of its securities on NASDAQ.

                                       76

<PAGE>

                                 XI. CONCLUSION
                                 ---------------

     Debtor and  Successor  believe  that the Plan  provides  the best means for
satisfying  the  claims  of  Debtor's  creditors,  and urge that you cast a vote
accepting the Plan.

CAMBRIDGE OIL COMPANY              AND          NORMANDY OIL & GAS COMPANY, INC.
                                                AND HOUSTON OPERATING COMPANY

Debtor                                          Successor

By:/s/Christine E. Haslett                      By:/s/Roy T. Rimmer, Jr.
Christine E. Haslett,                           Roy T. Rimmer, Jr.
Vice President                                  President

Attorney for Debtor:                            Attorney for Successor:

Richard Fuqua, Esq.                             Mark E. Lehman
1331 Lamar, Suite #1455                         136 South Main Street
Houston, Texas  77010                           Salt Lake City, Utah 841101
(713) 951-2482                                  (801) 532-7858

                                       77

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