UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITITES EXCHANGE
ACT OF 1934. For the fiscal year ended April 30, 1999
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number 0-22661
VECTOR ENERGY CORPORATION
(Name of small business issuer in its charter)
Texas 76-0582614
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5599 San Felipe, Suite 620, Houston, Texas 77056
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 850-9993
Securities registered pursuant to Section 12(b) of the Exchange Act:
NONE
Securities registered pursuant to Section 12(g) of the Exchange Act:
Name of Each Exchange
Title of Each Class On Which Registered
Common Stock, no par value None
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes _X_ No ___
Check if there is no disclosure of delinquent filers in response to item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB. _X_.
State issuer's revenues for its most recent fiscal year. $974,194
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was sold, or the average bid and asked price price of such common
equity, as of a specified date within the past 60 days.
$3,593,857, as of August 12, 1999.
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
6,478,317 shares of common stock, no par value, were outstanding as of
August 12, 1999.
Documents Incorporated by Reference: None
Transitional Small Business Disclosure Format (Check one) Yes___ No _X_ .
<PAGE>
PART I .................................................................. 2
ITEM 1. BUSINESS .................................................... 2
General ................................................................. 2
Competitive Conditions .................................................. 4
Dependence upon one or a few major customers ............................ 4
Governmental and Environmental Regulations .............................. 4
Employees and Consultants ............................................... 5
ITEM 2. PROPERTY .................................................... 5
Properties Acquired ..................................................... 5
Production Information .................................................. 7
Reserve Information ..................................................... 7
Oil and Gas Wells ....................................................... 8
Oil and gas leaseholds .................................................. 9
Office Facilities ....................................................... 9
ITEM 3. LEGAL PROCEEDINGS ........................................... 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ......... 9
PART II ................................................................. 9
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS .... 9
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION ...10
General .................................................................10
Liquidity and Capital Resources .........................................11
ITEM 7. FINANCIAL STATEMENTS ........................................11
Annual Financial Statements .............................................11
Financial Statements of Businesses Acquired .............................11
Pro Forma Financial Data ................................................12
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE .........................12
PART III ................................................................13
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT ...........13
ITEM 10. EXECUTIVE COMPENSATION ......................................14
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT ..................................................15
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ..............16
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K ............................16
This Form 10-KSB includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical facts included in this Form 10-KSB, including
without limitation the statements under "Business", "Properties" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" regarding the nature of the Company's oil and gas reserves,
productive wells, acreage, and drilling activities, the adequacy of the
Company's financial resources, current and future industry conditions and the
potential effects of such matters on the Company's business strategy, results
of operations and financial position, are forward-looking statements.
Although the Company believes that the expectations reflected in the
forward-looking statements contained herein are reasonable, no assurance can
be given that such expectations will prove to have been correct. Certain
important factors that could cause actual results to differ materially from
expectations ("Cautionary Statements"), including without limitation
fluctuations of the prices received for the Company's oil and natural gas,
uncertainty of drilling results and reserve estimate, competition from other
exploration, development and production companies, operating hazards,
abandonment costs, the effects of governmental regulation and the leveraged
nature of the Company, are stated herein in conjunction with the
forward-looking statements or are included elsewhere in this Form 10-KSB.
All subsequent written and oral forward-looking statements attributable to
the Company or persons acting on its behalf are expressly qualified in their
entirety by the Cautionary Statements.
<PAGE>
PART I
Item 1. Business
General
Vector Energy Corporation (the "Company") was incorporated under the laws of
the State of Texas on June 18, 1998 as a wholly owned subsidiary of Sunburst
Acquisitions II, Inc. ("Sunburst"). The Company was formed for the purpose
of completing a reverse merger with Sunburst in order to change Sunburst's
name to Vector Energy Corporation and its state of incorporation from
Colorado to Texas. This merger was completed on June 19, 1998
Sunburst was incorporated under the laws of the State of Colorado on
March 17, 1997 as a "shell" company. Sunburst's business plan was to seek,
investigate, and if warranted, acquire one or more properties or businesses,
and to pursue other related activities intended to enhance shareholder value.
Sunburst elected to voluntarily file a registration statement on Form 10-SB
in order to become a reporting company under the Securities Exchange Act of
1934 and continued to file periodic reports required under the Exchange Act.
On May 8, 1998, Sunburst entered into an asset acquisition transaction in
which it acquired substantially all of its operating assets. The transaction
consisted of an Asset Purchase Agreement executed by the Company and Old
Vector Corporation (formerly Vector Energy Corporation), a Texas corporation
("Old Vector") under which Old Vector transferred substantially all of its
assets to Sunburst, including its rights to two asset purchase agreements
with Lisbon Development Company, L.L.C., a Texas limited liability company
("Lisbon"), and Taurus Operating, Inc., a Texas corporation ("Taurus") dated
March 23, 1998 and March 31, 1998, respectively.
Other than the rights to the above mentioned asset purchase agreements with
Lisbon and Taurus, Old Vector's assets acquired by Sunburst consisted of
non-operated working interests and royalty interests in approximately 80
producing oil and gas wells located primarily in Oklahoma and Kansas.
Sunburst also acquired from Old Vector a wholly owned subsidiary of Old
Vector, Vector Exploration, Inc., a Texas Corporation ("Vector Exploration"),
which then became a wholly owned subsidiary of Sunburst. Old Vector assigned
its rights to the asset purchase agreement with Lisbon to Vector Exploration
prior to Sunburst's acquisition of Old Vector. In exchange for these assets
and the rights under the asset purchase agreements, Old Vector received
100,001 shares of Common Stock.
The Company, through its newly acquired wholly owned subsidiary Vector
Exploration, exercised the rights under the asset purchase agreement with
Lisbon by which Vector Exploration acquired 13 oil and gas wells located in
East Texas and North Louisiana. These assets are currently held in the
Company's wholly owned subsidiary Vector Exploration. In exchange for these
assets, Vector Exploration delivered to Lisbon 30,000 shares of the Company's
class AA 6% cumulative convertible preferred stock ("Class AA Preferred
Stock") and assumed $6.1 million in secured debt and $511,465 in accounts
payable, net of accounts receivable and cash acquired. The secured debt
assumed by the Company is a credit facility secured by the production on the
acquired producing properties that allows the Company access to a line of
credit of up to $10 million with a national bank. These liabilities, just
as the assets, are held by the Company's wholly owned subsidiary Vector
Exploration. The Class AA Preferred Stock is convertible into Common Stock
and votes at a rate of 100 for each share of Class AA Preferred Stock.
<PAGE>
The Company also exercised its rights under the asset purchase agreement with
Taurus which were assigned directly to the Company, and acquired the East
Westbrook Properties located in Mitchell County, Texas. In exchange for this
asset, the Company issued to Taurus 213,123 shares of Common Stock.
In connection with the above transaction, the Company additionally issued
2,480,026 shares of Common Stock, a warrant to purchase an additional 300,000
shares of Common Stock at $.10 per share, and 500,000 shares of the Company's
class B preferred stock ("Class B Preferred Stock") to subscribers in
exchange for an aggregate consideration of $773,002 in cash and services.
The Class B Preferred Stock is not convertible, but has 100 votes for every
share of Class B Preferred.
On November 4, 1998, the Company entered into an asset acquisition
transaction by which the Company acquired the right, title, and interest in
certain oil, gas, and mineral leases and working interests in approximately
fifteen producing oil and gas wells located in Oklahoma, Texas and Louisiana.
The transaction consisted of a purchase and sale agreement with Texas Energy
and Environmental, Inc. and Cougar Oil and Gas, Inc. (collectively the
"Sellers").
Pursuant to the asset acquisition transaction, the Company issued 1,226,667
of its common stock to the Sellers, issued a $120,000 non-interest bearing
note payable to the Sellers, and assumed $690,522 of the Sellers' bank debt
and $750,000 of other liabilities of the Sellers. In addition the Sellers
are entitled to receive up to 500,000 additional shares of the Company's
common stock based on the value of the proved developed producing reserves
attributed to the properties acquired, as determined by an independent
engineering evaluation on September 30, 1999. The purchase and sale
agreement also requires the Company to expend a minimum of $500,000 in
capital investment on the properties acquired, within nine months. If such
capital investment is not made, the Sellers were entitled to receive an
additional 500,000 shares of the Company's common stock. Five hundred
thousand shares of common stock were issued to the Sellers on August 23,
1999. The Company does not believe any additional shares will be issued to
the Sellers under this agreement.
In conjunction with the asset acquisition transaction, the Company executed
an amended and restated credit agreement with its lender whereby its
borrowing base was increased by $800,000. On November 4, 1998, the Company
drew down the additional $800,000 and used the proceeds to repay the bank
debt and certain of the other liabilities assumed in the asset acquisition
transaction.
In addition, the Company borrowed $500,000 from a stockholder under a
six-month promissory note. Such note bears interest at 10% per annum and is
subordinate to the Company's credit agreement. The holder of the promissory
note received warrants to purchase 100,000 shares of the Company's common
stock at $.10 per share. Such warrants expire ten years from the date
granted. On May 17, 1999 the Company issued 100,000 shares of common stock
to the holder of the promissory note in order to exercise certain provisions
extending the term of the note. The note also provides that the Company will
use its best efforts to raise additional equity capital, and any capital so
raised shall be used to repay the promissory note.
Vector Energy Corporation and its wholly owned subsidiary, Vector
Exploration, Inc., are primarily engaged in the exploration, production,
acquisition and development of oil and gas properties. These operations are
conducted in the United States.
<PAGE>
Competitive Conditions
The exploration, development and production of oil and gas is subject to
intense competition. The principal methods of competition in the industry
for the acquisition of oil and gas leases and producing properties are the
payment of cash bonus payments at the time of acquisition of leases, delay
rentals, location damage supplement payments, and stipulations requiring
exploration and production commitments by the lessee. Producing properties
are frequently offered for sale through an open competitive bidding process.
Companies with greater financial resources, existing staff and labor forces,
equipment for exploration, and vast experience are in a better position than
the Company to compete for such leases and producing properties. In addition,
the ability of the Company to market any oil and gas which it might produce
could be severely limited by its inability to compete with larger companies
operating in the same area, which may be drilling or able to offer any oil
and gas produced at a price lower than that of the Company.
The availability of a ready market for oil and gas depends upon numerous
factors beyond the Company's control, including the extent of domestic
production and imports of oil and gas, proximity and capacity of pipelines,
and the effect of federal and state regulation of oil and gas sales, as well
as environmental restrictions on the exploration and usage of oil and gas
prospects which will become even more intense in the future. The Company has
a minimal competitive position in the oil and gas industry.
Raw materials requisite to the transaction of the Company's business include
such items as drilling rigs and other equipment, casing pipe, drilling mud
and other supplies. Such items are commonly available from a number of
sources and the Company foresees no shortage or difficulty in acquiring any
raw materials relevant to the conduct of its business.
Dependence upon one or a few major customers
The Company currently markets the oil and gas production from its operated
properties to twelve customers, three of which represents sales in excess of
10% of the Company's total oil and gas revenues. These three customers
combined represent approximately 53% of the Company's total oil and gas
revenues. The availability of oil and gas purchasers is such, however, that
any customer discontinuing purchases from the Company could almost assuredly
be replace by another buyer.
Governmental and Environmental Regulations
Governmental Regulations
Domestic development, production and sale of oil and gas are extensively
regulated at both the federal and state levels. Legislation affecting the
oil and gas industry is under constant review for amendment or expansion,
frequently increasing the regulatory burden. Also, numerous departments and
agencies, both federal and state, have issued rules and regulations binding
on the oil and gas industry and its individual members, compliance with which
is often difficult and costly and some of which carry substantial penalties
for failure to comply. State statutes and regulations require permits for
drilling operations, drilling bonds and reports concerning wells. Texas and
other states in which the Company conducts operations also have statutes and
regulations governing conservation matters, including the unitization or
pooling of oil and gas properties and establishment of maximum rates of
production from oil and gas wells.
<PAGE>
Environmental Regulations
The Company's operations are subject to extensive and developing federal,
state and local laws and regulations relating to environmental, health and
safety matters; petroleum; chemical products and materials; and waste
management. Permits, registrations or other authorizations are required for
the operation of certain of the Company's facilities and for its oil and gas
exploration and production activities. These permits, registrations or
authorizations are subject to revocation, modification and renewal.
Governmental authorities have the power to enforce compliance with these
regulatory requirements, the provisions of required permits, registrations or
other authorizations, and lease conditions, and violators are subject to
civil and criminal penalties, including fines, injunctions or both. Failure
to obtain or maintain a required permit may also result in the imposition of
civil and criminal penalties. Third parties may have the right to sue to
enforce compliance.
Some risk of costs and liabilities related to environmental, health and
safety matters is inherent in the Company's operations, as it is with other
companies engaged in similar businesses, and there can be no assurance that
material costs or liabilities will not be incurred. In addition, it is
possible that future developments, such as stricter requirements of
environmental or health and safety laws and regulations affecting the
Company's business or more stringent interpretations of, or enforcement
policies with respect to, such laws and regulations, could adversely affect
the Company. To meet changing permitting and operational standards, the
Company may be required, over time, to make site or operational modifications
at the Company's facilities, some of which might be significant and could
involve substantial expenditures. There can be no assurance that material
costs or liabilities will not arise from these or additional environmental
matters that may be discovered or otherwise may arise from future
requirements of law.
Employees and Consultants
The Company has five full time employees including the officers of the
Company. The Company may hire additional personnel as required by its
operations and may also engage the services of geological and engineering
consultants from time to time to assist in its operations. The Company
currently employs two engineering consultants on a part time basis and
contracts for field supervision with Taurus Operating, Inc. of Midland, Texas.
Item 2. Property
Properties Acquired
Lisbon Properties
The Company acquired the Lisbon Properties on May 8, 1998, through its wholly
owned subsidiary Vector Exploration, Inc. The properties consist of oil and
gas working interests, ranging from approximately 50% to 100%, in thirteen
wells and leases in eight fields located in Gregg and Harrison Counties,
Texas and Claiborne, Lincoln, Webster and Bossier Parishes, Louisiana. The
primary target zones consist of the Cotton Valley, Travis Peak, Petit, Gray
Sand, Haynesville, Burgess Simmons, Vaughn and Hall formations. The Company
currently operates eleven of the thirteen wells. Currently there are eleven
wells producing on the properties. The aggregate amount of daily production
equals approximately 640 Mcf per day (net) of natural gas and 40 barrels per
day (net) of oil and condensate. The Company believes that these fields in
East Texas and North Louisiana provide an opportunity for continued growth
and have significant remaining undeveloped reserve potential.
<PAGE>
East Westbrook Properties
The East Westbrook Properties consist of approximately a 98% working interest
in 980 acres in Mitchell County, Texas that were formerly part of the East
Westbrook Unit. The East Westbrook Unit encompasses approximately 1,200
acres and is part of the Westbrook Field which encompasses over 18,000 acres
and has produced in excess of 99.1 million barrels of oil since its
discovery in 1920. The East Westbrook Unit is located on the northeast
corner of the Midland Basin Platform and on the west flank of the Eastern
Shelf. The East Westbrook Unit is bordered on the west, south, and north by
waterflood projects. All of these waterfloods have been infill drilled
and have produced large volumes of oil. Twenty wells have been completed on
the properties, five of which have recent production. The Company operates
all of the wells on this property. Historically the East Westbrook Unit has
been poorly managed and was placed in the hands of a promoter who went into
bankruptcy. The wells were not properly maintained, no water was injected
and the facility was allowed to deteriorate. Taurus acquired the property
and spent nearly $1 million putting the wells back on line, cleaning out
the wells, and replacing worn equipment. In addition, the Company performed
workovers on two of the wells. In order to complete the work that needs to be
done to bring the property up to full production, Vector estimates that an
additional $8.1 million needs to be spent.
Old Vector Properties
The Company acquired the Old Vector Properties on May 8, 1998. The
properties consist of non-operated working and royalty interests in
approximately eighty wells and units located primarily in Oklahoma and Kansas.
The most significant property holdings are focused in the south central,
central, and northwestern regions of Oklahoma within well established
producing oil and gas fields, and in a waterflood project located in Kingman
County, Kansas. Because of the Company's small interest in any particular
well or unit, the Company has little or no influence over the operation of
the properties or their further development.
Texas Energy & Environmental, Inc. Properties
The Company acquired the Texas Energy & Environmental, Inc. properties on
November 4, 1998. These properties consist of fourteen wells located in
Oklahoma, Texas and Louisiana. All wells are Company operated. These wells
currently produce approximately 1,075 Mcf per day (net) and 10 barrels of oil
per day (net). The Company's working interest in these wells varies from
approximately 50% to 100%.
New Properties
The Company continues to pursue the evaluation of a number of oil and gas
properties. During their respective careers, management has made numerous
contacts in the oil and gas industry and has accumulated knowledge concerning
location, current ownership, and other information with respect to properties.
Based on this experience and knowledge, management believes that the Company
will be able to continue to acquire properties. However, additional
financing will be required to pursue particular properties.
Currently, the Company has executed a Purchase and Sale Agreement with a
company which is a debtor in possession in a Chapter 11 Bankruptcy. Under
the agreement the Company has the right to acquire all of the Bankrupt
Debtor'' interest in a Block located in the Offshore Texas, Mustang Island
Area. This agreement has received final approval by the Bankruptcy Court.
The Company currently estimates that this property contains in excess of
20 Bcf of proved reserves.
<PAGE>
Production Information
The table below sets forth the net quantities of oil and gas production
(net of all royalties, overriding royalties, and production due to others),
the average sales prices, and the average production costs attributable to
the Company's properties for the year ended April 30, 1999.
<TABLE>
<S> <C>
Net Production
Oil (BBLS) 16,341
Gas (MCF) 415,296
Average Sales Prices
Oil (per BBL) $ 11.69
Gas (per MCF) $ 1.81
Average Production Cost (1)
Per Equivalent MCF of Gas
(2) $ 1.65
</TABLE>
[FN]
<F1>
(1) Production costs include lease operating expenses,
severance taxes, transportation, treatment, marketing,
and other direct expenses
<F2>
(2) Oil production is converted to MCF using its estimated
energy equivalent of six MCF per BBL
</FN>
Reserve Information
Oil and gas reserve information for the properties owned by the Company have
been prepared internally by the Company.
RESERVE CALCULATIONS BY PETROLEUM ENGINEERS INVOLVE THE ESTIMATION OF
FUTURE NET RECOVERABLE RESERVES OF OIL AND GAS AND THE TIMING AND AMOUNT OF
FUTURE NET REVENUES TO BE RECEIVED THEREFROM. THOSE ESTIMATES ARE BASED ON
NUMEROUS FACTORS, MANY OF WHICH ARE VARIABLE AND UNCERTAIN. RESERVE
ESTIMATORS ARE REQUIRED TO MAKE NUMEROUS JUDGEMENTS BASED UPON PROFESSIONAL
TRAINING, EXPERIENCE, AND EDUCATIONAL BACKGROUND. THE EXTENT AND SIGNIFICANCE
OF THE JUDGEMENTS IN THEMSELVES ARE SUFFICIENT TO RENDER RESERVE ESTIMATES
INHERENTLY IMPRECISE. SINCE RESERVE DETERMINATIONS INVOLVE ESTIMATES OF
FUTURE EVENTS, ACTUAL PRODUCTION, REVENUES AND OPERATING EXPENSES MAY NOT
OCCUR AS ESTIMATED. ACCORDINGLY, IT IS COMMON FOR THE ACTUAL PRODUCTION AND
REVENUES LATER RECEIVED TO VARY FROM EARLIER ESTIMATES. ESTIMATES MADE IN THE
FIRST FEW YEARS OF PRODUCTION FROM A PROPERTY ARE GENERALLY NOT AS RELIABLE AS
LATER ESTIMATES BASED ON LONGER PRODUCTION HISTORY. RESERVE ESTIMATES BASED
UPON VOLUMETRIC ANALYSIS ARE INHERENTLY LESS RELIABLE THAN THOSE BASED ON
LENGTHY PRODUCTION HISTORY. ALSO, POTENTIALLY PRODUCTIVE GAS WELLS MAY NOT
GENERATE REVENUE IMMEDIATELY DUE TO LACK OF PIPELINE CONNECTIONS AND
POTENTIAL DEVELOPMENT WELLS MAY HAVE TO BE ABANDONED DUE TO UNSUCCESSFUL
COMPLETION TECHNIQUES. HENCE, RESERVE ESTIMATES MAY VARY FROM YEAR TO YEAR.
<PAGE>
Proved oil and gas reserves are the estimated quantities of crude oil,
condensate, natural gas, and natural gas liquids which geological and
engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and operating
conditions.
Proved developed oil and gas reserves are those reserves expected to be
recovered through existing wells with existing equipment and operating methods.
The tables below set forth the estimated proved and proved developed reserves
of crude oil (including condensate) and natural gas, all of which are located
within the continental United States, associated with the properties owned by
the Company for the year ended April 30, 1999.
Proved Reserves at Year End
<TABLE>
<CAPTION>
Developed Undeveloped Total
--------- ----------- -----
<S> <C> <C> <C>
Oil (BBLs) (in thousands)
-------------------------
April 30, 1999 173 3,390 3,563
Gas (MCF) (in thousands)
------------------------
April 30, 1999 13,211 487 13,698
</TABLE>
Changes in Proved Reserves
<TABLE>
<CAPTION>
MCF BBLS
------ -------
<S> <C> <C>
Estimated Quantity (in thousands), May 1, 1998 - -
Acquisitions 24,542 603
Production (415) (16)
Changes in Estimates (10,429) 2,976
-------- -------
Estimated Quantity (in thousands), April 30, 1999 13,698 3,563
======== =======
</TABLE>
Oil and Gas Wells
The Company owns interests in productive oil and gas wells (including
producing wells and wells capable of production), as follows:
<TABLE>
<CAPTION>
Gross (1) Net
Wells Wells
--------- -------
<S> <C> <C>
Oil Wells 79 7.95
Gas Wells 49 10.59
--------- -------
Total 128 18.54
========= =======
</TABLE>
[FN]
<F1>
(1) One or more completions in the same well are counted as
one well
</FN>
<PAGE>
Oil and gas leaseholds
The table below sets forth the Company's ownership interest in leaseholds
acquired as a result of the asset acquisition transaction. The oil and gas
leases in which the Company has an interest are generally held by production.
The leases may be surrendered by the Company at any time by the cessation of
production.
<TABLE>
<CAPTION>
Developed (1) Developed (1) Undeveloped Undeveloped
Gross Acres Net Acres Gross Acres Net Acres
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Louisiana 6,573 3,574 12,570 8,061
Texas 5,573 1,659 1,500 1,088
Kansas 4,037 52 0 0
Oklahoma 14,468 841 200 100
------------ ------------ ----------- -----------
Total 30,651 6,126 14,270 9,249
============ ============ =========== ===========
</TABLE>
[FN]
<F1>
(1) Acres spaced or assigned to productive wells
</FN>
Office Facilities
The Company's Houston, Texas office consists of approximately 1,879 square
feet and has been leased, on a month-to-month basis, from an affiliated party
for $2,283 per month. The lease held by the affiliated party expires on
July 31, 2000.
Item 3. Legal Proceedings
The Company is involved from time to time in various claims, lawsuits and
administrative proceedings incidental to its business. In the opinion of
management, the ultimate liability thereunder, if any, will not have a
materially adverse effect on the financial condition or results of operations
of the Company. The Company currently has accounts payable in the amount of
$1,570,125. A significant portion of these accounts are now past due and
are subject to becoming matters for litigation at any time.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
On June 29, 1998, the Company began trading its common stock on the NASDAQ OTC
Electronic Bulletin Board under the symbol VECT. The following table shows,
for the period indicated, the high and low closing bid prices of the Company
common stock as reported by NASDAQ. Any market for the common stock should
be considered sporadic, illiquid and highly volatile. Prices reflect
inter-dealer quotations, without adjustment for retail markup, markdowns or
commissions, and may not represent actual transactions.
<PAGE>
The stock's trading range since listing on NASDAQ is as follows:
<TABLE>
<CAPTION>
High Low
-------- -------
1999 Fiscal Year
----------------
<S> <C> <C>
1st Quarter 1 7/8 1 1/4
(Since commencement on
June 29, 1998)
2nd Quarter 1 3/4 1 11/16
3rd Quarter 7/8 3
4th Quarter 3/4 2 1/2
2000 Fiscal Year
----------------
1st Quarter 3/4 2 1/4
2nd Quarter 7/8 1 7/8
(Through August 27, 1999)
</TABLE>
As of August 12, 1999, there were approximately 159 holders of record of the
Company's common stock. The Company has not paid any dividends on its common
stock and no dividends are anticipated in the foreseeable future. In
addition, the ability of the Company to declare or pay dividends on its
common stock is currently subject to certain restrictions contained in its
credit facility with a bank.
Item 6. Management's Discussion and Analysis or Plan of Operation
The following discussion should be read in conjunction with the financial
statements and notes thereto included elsewhere herein.
General
On May 8, 1998, the Company entered into an asset acquisition transaction in
which it acquired its initial operating assets. Prior to this time the
Company had no employees or operations.
In exchange for its initial operating assets, the Company issued 313,124
shares of common stock, 30,000 shares of the Company's class AA 6% cumulative
convertible preferred stock and assumed $6.1 million in secured debt and
$511,465 in accounts payable, net of accounts receivable and cash acquired.
The secured debt assumed by the Company is a credit facility secured by the
production on the acquired producing properties that allows the Company
access to a line of credit of up to $10 million with a national bank.
In connection with the above transaction, the Company additionally issued
2,480,026 shares of common stock, a warrant to purchase an additional 300,000
shares of common stock at $.10 per share, and 500,000 shares of the Company's
class B preferred stock to subscribers in exchange for an aggregate
consideration of $773,002 in cash and services.
On November 4, 1998, the Company entered into an additional asset acquisition
transaction in which the Company issued 1,226,667 shares of common stock and
a $120,000 non-interest bearing note and assumed $690,522 in bank debt and
$600,954 in accounts payable. In addition, the Company may be issued an
additional 500,000 shares of common stock under this agreement. The Company
does not believe any further shares will be issued to the Sellers under this
agreement.
<PAGE>
Liquidity and Capital Resources
The secured debt assumed by the Company is a $10,000,000 revolving credit
note which terminates on March 15, 2001. Interest on the note is payable
monthly at a floating rate which was 8.5650% at April 30, 1999. The
borrowing base under the note is determined periodically based upon the
collateral value assigned to the mortgaged properties, and is currently
$6,880.000. Principal payments are currently scheduled at $125,000 per month
beginning in December, 1999. In addition, the note places certain
restrictions on the use of the revenues from the mortgaged properties, and
requires the Company to meet certain financial covenants. The bank has
waived default under the financial covenants through November 30, 1999. The
Company does not anticipate that the borrowing base under the note can be
increased without incurring significant development costs.
Currently, the Company's oil and gas revenues are sufficient to satisfy its
oil and gas operating expenses and a portion of the interest payments. The
Company's general and administrative expenses, development costs and the
remainder of the interest payments are being funded primarily from the
proceeds from the sale of stock. The Company believes that the planned
development of its properties will result in an increase in oil and gas
revenues which will be sufficient to its meet operating, general and
administrative, interest and debt service requirements. However, there can
be no assurance that this will occur. It is anticipated that an additional
$1,500,000 in equity funding will be required to meet the current needs of
the Company. Any inability of the Company to raise additional capital will
limit the development of most of its oil and gas properties and may prevent
the Company from meeting its cash requirements.
The Company is currently negotiating with many of the vendors for which
accounts payable were assumed in the asset acquisition transactions, and
believes that a significant portion of these payables can be satisfied
through the issuance of common stock. If the Company is unsuccessful in
these negotiations, additional equity funding may be needed in order to
comply with the terms of the revolving credit note.
The Company is aggressively seeking additional property acquisitions with
near term revenue generating capability and future development potential.
The Company is currently evaluating several potential acquisitions which
would utilize a combination of the issuance of its equity securities and
additional equity and debt financing.
Item 7. Financial Statements
Annual Financial Statements
The Report of the Independent Certified Public Accountants appearing at page
F-1 and the Consolidated Financial Statements and Notes to Consolidated
Financial Statements appearing at pages F-2 through F-14 hereof are
incorporated herein by reference.
Financial Statements of Businesses Acquired
The financial statements appearing under Item 7 set forth in the Company's
Form 8-K/A, filed on July 27, 1998, are incorporated herein by reference.
The financial statements appearing under Item 7 set forth in the Company's
Form 8-K/A, filed on January 29, 1999, are incorporated herein by reference.
<PAGE>
Pro Forma Financial Data
The following unaudited pro forma condensed financial information has been
prepared by management utilizing the audited financial statements of the
Company through April 30, 1999 and reflecting the acquisition consummated on
November 4, 1998 as if it had closed on May 1, 1998. Adjustments have been
made to reflect the impact of purchase accounting and other items had the
acquisitions taken place on May 1, 1998 with respect to operating data The
pro forma adjustments are described in the accompanying notes and are based
upon certain assumptions that management of the Company believes reasonable
under the circumstances.
The unaudited pro forma condensed financial information is for comparative
purposes only and does not purport to be indicative of the results which
would actually have been obtained had the acquisition been effected on the
pro forma date, or of the results which may be obtained in the future. The
unaudited pro forma condensed financial information, in the opinion of
management, reflects all adjustments necessary to present fairly the data for
such period.
The unaudited pro forma condensed financial information should be read in
conjunction with the audited historical financial statements appearing
elsewhere in this Form 10-KSB or incorporated herein by reference.
<TABLE>
<CAPTION>
Vector Energy Corporation
Unaudited Pro Forma
Condensed Statements
Of Earnings
Company Pro Forma
Historical Adjustments Pro Forma
------------ ------------ ------------
<S> <C> <C> <C>
Revenues $ 974,194 395,446 (1) $ 1,369,640
------------ ------------ ------------
Direct Operating Expense 847,823 275,714 (2) 1,123,537
General and Administrative 1,719,794 30,000 (5) 1,749,794
Interest Expense 574,373 35,461 (3) 609,834
Depletion 237,908 136,912 (4) 374,820
------------ ------------ ------------
Total Expenses $ 3,379,898 478,087 $ 3,857,985
------------ ------------ ------------
Net Income (Loss) $(2,405,704) (82,641) $(2,488,345)
============ ============ ============
</TABLE>
[FN]
<F1>
(1) To reflect revenues from the properties acquired on November 4, 1998 for
a full year.
<F2>
(2) To reflect direct operating expenses on the properties acquired on
November 4, 1998 for a full year.
<F3>
(3) To reflect additional interest expense related to the $800,000 borrowed
under the Company's line of credit in conjunction with the
November 4, 1998 acquisition.
<F4>
(4) To reflect additional depletion related to the properties acquired on
November 4, 1998.
<F5>
(5) To reflect additional general and administrative expense related to the
properties acquired on November 4, 1998.
</FN>
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act
The Directors and Executive Officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position Tenure
- -------------------- --- ----------------------- -----------
<S> <C> <C> <C>
Samuel M. Skipper 39 Director May 8, 1998
Chairman of the Board
Chief Executive Officer
Stephen F. Noser 52 Director May 8, 1998
President
Secretary
Assistant Treasurer
Gary R. Countryman 61 Chief Operating Officer May 8, 1998
Vice President
Assistant Secretary
Randal B. McDonald, Jr. 42 Chief Financial Officer May 8, 1998
Treasurer
Assistant Secretary
</TABLE>
All Directors of the Company will hold office until the next annual meeting
of shareholders. The Executive Officers of the Company, who are appointed by
the Board of Directors, hold office until their successors are chosen and
qualified, or until their death, resignation or removal. The Company
presently has no audit, nominating or executive committee or committees
performing substantially similar functions. There are no family
relationships among the Directors and Officers of the Company. The Company
currently has no employment agreement with any of the Officers or Directors.
Sam Skipper, CEO/Chairman. Since 1990, Mr. Skipper has assisted in the
consolidation of private and public companies and the entry of such companies
into the public markets. From 1996 until the present, Mr. Skipper has been
Managing Director of Metropolitan Capital, a boutique investment banking firm
specializing in the marketing and financing of small public companies. From
1995 to 1996, Mr. Skipper served as CEO/President of Basic Natural Resources,
an oil and gas company which later merged into Synaptix. In 1992, he was the
founder, CEO, President and Chairman of ImageTrust, Inc., a public company
which was in the diagnostic health care business. In 1990, he served as
Founder and Vice President of Corporate Development of Diagnostic Health
Corporation (DHC) where he assisted the company in the identification and
closing of several acquisitions until DHC's acquisition by HealthSouth
Corporation in 1994.
Stephen Noser, President. Mr. Noser has been President or Managing Director
of Vector Energy since 1991. Prior to that time, he served in various
management and legal capacities within the oil and gas industry. He was Vice
President and General Counsel of MCO Resources, Inc. ($60 million in assets
and listed on the American Stock Exchange) from 1987 to 1988. He was
Associate General Counsel and then General Counsel of Inexco Oil Company
($500 million in assets and listed on the New York Stock Exchange) from 1983
to 1986. He also served on Inexco's Board of Directors and as a member of
the company's operating committee. Both at Inexco and MCO, Mr. Noser had
primary responsibility for all SEC reporting requirements and preparation of
all registration statements. From 1977 to 1983, he served in various legal
capacities within the
<PAGE>
American Natural Resources System. From 1974 to 1977,
he served as an attorney for Mitchell Energy & Development Corp. Mr. Noser
holds a B.A. from the University of St. Thomas and a J.D. degree from the
University of Houston. He is a member of the Texas and Houston Bar
Associations.
Randal McDonald, Chief Financial Officer. Mr. McDonald has nineteen years
experience in the field of public accounting. Since 1993, he has provided
general financial consulting and litigation support services to a variety of
companies. Such services have included preparation and review of public and
private offering documents, preparation of pro forma financial statements
utilized in raising capital, and services as interim chief financial officer.
From 1979 to 1985, he was with KPMG Peat Marwick's Houston office,
specializing in public oil and gas companies. During 1986, he served a one
year rotational assignment in KPMG Peat Marwick's world headquarters
developing their audit software. During 1987, he served as Chief Financial
Officer for IBS Technologies, Ltd., a publicly traded computer software
company. From 1988 to 1992, he was with Arthur Andersen's Denver office,
specializing in public oil and gas companies. Mr. McDonald holds a B.B.A. in
accounting from the University of Texas at Austin and is a licensed CPA in
Texas and Colorado.
Gary Countryman, Vice President-Chief Operating Officer. Mr. Countryman has
been a consulting petroleum engineer since 1987. Since 1996, he has devoted
substantial time to the activities of Vector Energy. Prior to 1987, Mr.
Countryman served in a variety of capacities for Conoco, Inc. From 1984 to
1986, he was the Managing Director in charge of Conoco's operations in Egypt
where he managed a $200 million annual budget and set the organization in
place to develop one billion barrels of reserves. From 1980 to 1984, he was
Manager of Operations. From 1978 to 1980, he served as Manager of Conoco's
operations in Dubai. From 1975 to 1977, he served as Division Manager in
Midland, Texas. From 1971 to 1976, he served as assistant division manager
in Oklahoma City. From 1961 to 1976, he served in Conoco's research and
development department with special emphasis on water flood operations. Mr.
Countryman holds an M.S. in Management from the Massachusetts Institute of
Technology, and an M.S. and B.S. in Petroleum Engineering from the University
of California at Berkeley. He is a member of Phi Beta Kappa, the American
Petroleum Institute and the society of Petroleum Engineers.
Item 10. Executive Compensation
Effective May 8, 1998, each of the four current Executive Officers of the
Company began drawing a salary equal to $72,000 per year.
At the present time, the Company has no retirement, pension or profit sharing
programs for the benefit of its Directors or employees. However, at its
discretion, the Company may adopt one or more of such programs in the future.
Pursuant to its bylaws and the Texas Business Corporation Act, the Company
shall indemnify each Director and Officer against expenses, judgements,
fines, and amounts paid in settlement actually and reasonably incurred by him
in connection with any action, suit or proceeding which he may be made a
party by reason of his being or having been made a Director or Officer of the
Company, unless he failed to meet certain standards of conduct.
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding beneficial
ownership of outstanding shares as of August 12, 1999 by each person who is
known by the Company to own beneficially five percent or more of the
outstanding shares, the Company's Directors and Executive Officers, and all
Directors and Executive Officers as a group.
<TABLE>
<CAPTION>
Name and Address Amount and Nature % of
Of Beneficial Owner Title of Class Position or Title Of Beneficial Ownership Class
- ----------------------- ----------------------- --------------------- ----------------------- ------
<S> <C> <C> <C> <C>
Samuel M. Skipper Common Stock Director 1,630,017 25.2%
5599 San Felipe Chairman of the Board
Suite 620, Houston, Class B Preferred Stock CEO 250,000 50.0%
Texas, 77056
Stephen F. Noser Common Stock Director (1)(2) 600,003 8.9%
5599 San Felipe President
Suite 620, Houston, Class B Preferred Stock Secretary
Texas, 77056 Class B Preferred Stock Assistant Treasurer 250,000 50.0%
Gary R. Countryman Common Stock COO (2) 605,023 9.0%
5599 San Felipe Vice President
Suite 620, Houston, Assistant Secretary
Texas, 77056
Randal B. McDonald, Jr. Common Stock CFO 0 0.0%
5599 San Felipe Treasurer
Suite 620, Houston, Assistant Secretary
Texas, 77056
Eugene A. Noser, Jr.c Common Stock N/A (1)(3) 800,003 10.9%
90 Broad Street
New York, NY 10004
James W. Chang, PC Common Stock N/A 405,000 6.3%
1330 Post Oak Blvd.
Suite 2222
Houston, Texas 77056
Texas Energy and Common Stock N/A 1,226,667 18.9%
Environmental, Inc.
10623 Tower Oaks Blvd
Houston, Texas 77070
Lisbon Development Class AA 6% N/A 20,625 68.8%
Company, L.L.C. Cumulative
1330 Post Oak Blvd. Convertible
Suite 2222, Houston, Preferred Stock
Texas, 77056
Lasco Energy Partners, LP Class AA 6% N/A 8,775 29.3%
1100 Louisiana Cumulative
Suite 3150 Convertible
Houston, Texas 77002 Preferred Stock
All Officers Common Stock N/A (1)(4) 2,835,043 40.6%
And Directors Class B Preferred Stock 500,000 100.0%
<FN>
<F1>
(1) Includes 50,000 shares of common stock indirectly owned by Mr. Noser
because of his 50% ownership in Old Vector Corporation, which owns
100,000 shares of common stock.
<F2>
(2) Includes 250,000 shares of common stock issuable upon the exercise of
stock options.
<F3>
(3) Includes 400,000 shares of common stock issuable upon the esercise of
stock warrants.
<F4>
(4) Includes 500,000 shares of common stock issuable upon the exercise of
stock options..
</FN>
</TABLE>
<PAGE>
Item 12. Certain Relationships and Related Transactions
The Company subleases office space from a corporation owned and controlled by
the president of the Company and his family for $2,283 per month.
The Company is obligated under a 10% promissory note payable to the brother
of the Company's president. The note matures November 4, 1999 and is
unsecured, except that the holder is entitled to receive up to 300,000 shares
of the Company's common stock in the event of nonpayment. The balance of
principal and acrrued interest at April 30, 1999 was $500,000 and $24,384,
respectively.
The Company's chairman and chief executive officer has executed a limited
quaranty agreement covering certain deferred interest on the Company's
secured line of credit.
Item 13. Exhibits and Reports on Form 8-K
Exhibits not incorporated herein by reference to a prior filing are
designated by an asterisk (*) and are filed herewith.
Exhibit 2.01 Asset Purchase Agreement between Registrant and
Vector
Exhibit 2.02 Lisbon Agreement
Exhibit 2.03 Taurus Agreement
Exhibit 2.04 Agreement and Plan of Merger Between Sunburst
Acquisitions II, Inc. and Vector Energy Corporation
Exhibit 3.01 Articles of Incorporation of Vector Energy Corporation
Exhibit 3.02 By-Laws of Vector Energy Corporation
Exhibit 4.01 Certificate of Designation, Preferences, Rights and
Limitations of Class AA 6% Cumulative Convertible Preferred
Stock and Class B Preferred Stock of Vector Energy Corporation
Exhibit 4.02 Certificate of Designation, Preferences, Rights and
Limitations of Class C 5% Cumulative Convertible Preferred
Stock of Vector Energy Corporation*
Exhibit 21 Subsidiaries of the Registrant *
Exhibit 23 Consent of Comiskey & Company *
Exhibit 27 Financial Data Schedule *
No reports were filed on Form 8-K during the Company's fourth fiscal quarter
ended April 30, 1999.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
VECTOR ENERGY CORPORATION
(Registrant)
By /S/ Samuel M. Skipper
----------------------------
Samuel M. Skipper.
Chairman of the Board and Chief Executive Officer
Date: September 1, 1999
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
By /S/ Stephen F. Noser
----------------------------
Stephen F. Noser.
President and Director
Date: September 1, 1999
By /S/ Randal B. McDonald, Jr.
-----------------------------
Randal B. McDonald, Jr.
Chief Financial Officer
Principal Accounting and Financial Officer
Date: September 1, 1999
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders of
Vector Energy Corporation
We have audited the accompanying consolidated balance sheet of Vector Energy
Corporation as of April 30, 1999, and the related consolidated statements of
income, cash flows and changes in shareholders' equity for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Vector Energy
Corporation, Inc. as of April 30, 1999, and the consolidated results of its
operations, its cash flows and changes in its shareholders' equity for the
year then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As more fully described in Note 11, the
Company has incurred substantial losses leading to a significant working
capital deficit. These and other conditions have created substantial doubt
about the Company's ability to continue as a going concern. Management's
assessment of these conditions and its plans to alleviate them are also
described in Note 11. The accompanying financial statements do not include
any adjustments which might be necessary if the Company is unable to continue.
Denver, Colorado
August 6, 1999
/s/ Comiskey & Company
PROFESSIONAL CORPORATION
F-1
<PAGE>
<TABLE>
<CAPTION>
Vector Energy Corporation
CONSOLIDATED BALANCE SHEET
April 30, 1999
<S> <C>
ASSETS
CURRENT ASSETS
Cash $ 25,665
Revenue accounts receivable 225,365
JIB accounts receivable 41,628
Advances to employees 51,908
------------
Total current assets 344,566
------------
PROVED OIL AND GAS PROPERTIES, USING THE
FULL COST METHOD OF ACCOUNTING 14,696,056
Less accumulated depreciation, depletion,
amortization and impairment 237,908
------------
Net oil and gas properties 14,458,148
------------
OTHER ASSETS
Other property and equipment, less accumulated
depreciation of $12,255 51,386
Long term accounts receivable 77,236
Deferred loan costs - net 243,479
Organization costs - net 9,588
Other assets 16,709
------------
Total other assets 398,398
------------
$15,201,112
============
</TABLE>
The accompanying notes are an integral part of the financial statements
F-2
<PAGE>
<TABLE>
<CAPTION>
Vector Energy Corporation
CONSOLIDATED BALANCE SHEET
April 30, 1999
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of Credit $ 6,880,000
Notes payable 596,988
Accounts payable - trade 1,570,125
Royalties payable 242,069
Working interest revenues payable 51,092
Taxes payable 81,241
Accrued payroll 17,995
Accrued dividends payable 184,688
Accrued interest 101,956
------------
Total current liabilities 9,726,154
STOCKHOLDERS' EQUITY
Preferred stock class AA, 6% cumulative convertible;
$100 par value per share, 30,000 shares authorized;
30,000 shares issued and outstanding 3,000,000
Preferred stock class B, noncumulative nonconvertible;
$1 par value per share, 500,000 shares authorized;
500,000 shares issued and outstanding 50,000
Preferred stock class C, 5% cumulative convertible;
$100 par value per share, 10,000 shares authorized;
1,250 shares issued and outstanding 95,000
Common stock, no par value; 100,000,000
shares authorized; 5,709,863 shares issued and
outstanding at April 30, 1999 2,128,680
Additional paid-in capital 2,791,670
Retained earnings (2,590,392)
------------
Total stockholders' equity 5,474,958
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $15,201,112
============
</TABLE>
The accompanying notes are an integral part of the financial statements
F-3
<PAGE>
<TABLE>
<CAPTION>
Vector Energy Corporation
CONSOLIDATED STATEMENT OF INCOME
Year Ended April 30, 1999
<S> <C>
REVENUES
Oil sales $ 191,023
Gas sales 753,540
Production byproducts 24,391
Interest income 5,240
------------
Total revenues 974,194
------------
EXPENSES
Production taxes 44,623
Lease operating expense 803,200
Depletion of oil and gas properties 237,908
Interest expense 574,373
General and administrative expense 1,719,794
------------
Total expenses 3,379,898
------------
NET LOSS $(2,405,704)
============
NET LOSS PER COMMON SHARE
Basic $(0.54)
=======
WEIGHTED AVERAGE NUMBER SHARES OUTSTANDING 4,482,523
============
</TABLE>
The accompanying notes are an integral part of the financial statements
F-4
<PAGE>
<TABLE>
<CAPTION>
Vector Energy Corporation
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended April 30, 1999
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(2,405,704)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depletion of oil and gas properties 237,908
Amortization expense 133,836
Depreciation expense 12,255
Stock issued for consulting fees 733,125
Decrease in accounts receivable 270,602
Increase in employee advances (51,908)
Increase in other assets (16,709)
Decrease in accounts payable 392,431
Decrease in royalties and revenues payable (109,925)
Increase in other current liabilities 201,192
------------
Net cash used by operating activities (602,897)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of oil and gas properties (693,002)
Cash acquired in property acquisitions 258,938
Property and equipment, other (63,641)
------------
Net cash used by investing activities (497,705)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of notes payable 500,000
Draw on line of credit 109,478
Note repayments (81,211)
Issuance of preferred stock Class C 95,000
Issuance of common stock 503,000
------------
Net cash provided by financing activities 1,126,267
------------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 25,665
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD -
------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 25,665
============
</TABLE>
The accompanying notes are an integral part of the financial statements
F-5
<PAGE>
<TABLE>
<CAPTION>
Vector Energy Corporation
STATEMENT OF STOCKHOLDERS' EQUITY
For the year ended April 30, 1999
Preferred Stock Common Stock
-------------------- -------------------- Total
Price Number Number Retained Paid Stockholders'
per share of shares Amount of shares Amount Earnings in capital Equity
--------- --------- ---------- --------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stock outstanding in the public
public shell, May 8, 1998 $ - 80,000 $ 8,000 609,116 $ 2,220 $ - $ - $ 10,220
Issued for services
preferred class B
on May 8, 1998 0.10 500,000 50,000 50,000
Private placement for cash
on May 8, 1998 2.01 250,003 503,000 503,000
Issued for services
on May 8, 1998 0.10 2,230,023 220,002 220,002
Issued for acquisition of
properties on May 8, 1998 3.00 313,124 939,372 939,372
Issued for acquisition of
properties, preferred
class AA on May 8, 1998 100.00 30,000 3,000,000 3,000,000
Issued to bank in acquisition
on May 8, 1998 3.00 100,001 300,000 300,000
Conversion of previous
preferred class A to
common on June 10, 1998 (80,000) (8,000) 48,010 8,000
Issued for acquisition of
properties on July 1, 1998 79,920 99,900 99,900
Private placement of class C
preferred on July 17, 1998 76.00 1,250 95,000 95,000
Issued for services
on July 17, 1998 1.75 10,000 17,500 17,500
Issued in settlement of
accounts payable from
various vendors
in July thru October 1998 2.96 12,657 18,115 19,331 37,446
Issued for acquisition of
properties on July 24, 1998 1.75 36,094 361 62,804 63,165
Issued for consulting services
On August 19, 1998 1.69 25,000 250 41,937 42,187
Issued for consulting services
on September 28, 1998 1.25 261,000 2,610 323,600 326,250
Issued for acquisition of
properties on Nov. 4, 1998 1.50 1,226,667 12,267 1,827,734 1,840,001
Issued in settlement of
accounts payable
on December 21, 1998 3.00 474 5 1,418 1,423
Issued for consulting services
on January 21, 1999 0.88 405,000 4,050 350,325 354,375
Issued in settlement of
accounts payable
in February, 1999 3.00 12,774 128 38,193 38,321
Issued for consulting services
in March, 1999 1.41 90,000 900 126,288 126,188
Net loss (2,405,704) (2,405,704)
Cummulative preferred dividends (184,688) (184,688)
--------- ---------- --------- ---------- ------------ ---------- -------------
Balances as of
April 30, 1999 531,250 $3,145,000 5,709,863 $2,128,680 $(2,590,392) $2,791,670 $5,474,958
</TABLE>
The accompanying notes are an integral part of the financial statements
F-6
<PAGE>
Vector Energy Corporation
Notes to Consolidated Financial Statements
April 30, 1999
1. Business and Organization
Vector Energy Corporation, a Texas corporation (together with its subsidiary,
Vector Exploration, Inc., collectively, "the Company") was formed on June 18,
1998 as a result of an agreement and plan of reorganization more fully
described in Note 3. The Company is primarily engaged in the acquisition,
development, production and exploration of oil and natural gas properties in
the United States.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Concentrations of Credit Risk
Although the Company's accounts receivable are exposed to credit loss, the
Company does not believe such risk to be significant. Most of the Company's
accounts receivable are a broad and diverse group of oil and gas companies,
and accordingly, do not represent a significant credit risk. In addition,
the Company has accounts receivable from parties holding working interests in
the Company's properties, and as such, may be collected via offset from future
obligations to the parties.
Oil and Gas Properties
The Company follows the full cost method of accounting for its oil and gas
properties. All costs associated with property acquisition, exploration, and
development activities are capitalized in a single, United States cost center.
Internal costs directly identified with the acquisition, exploration and
development activities of the Company are also capitalized. Capitalized costs
are amortized on the unit-of-production basis using proved oil and gas
reserves. Capitalized costs are limited to the present value of estimated
future net revenues less estimated future expenditures using a discount factor
of ten percent. Sales and abandonments of oil and gas properties are treated
as reductions of the capitalized cost pool. At April 30, 1999, there were no
costs of unproved properties or major development projects included in the
capitalized cost pool.
In accordance with Statement of Financial Accounting Standards No. 121
("SFAS 121") - Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of, the Company assesses the need for an
impairment of capitalized costs of oil and gas properties on a combined basis,
with separate consideration given to unproved properties and major development
projects, of which there were none at April 30, 1999. If impairment is
indicated based upon undiscounted future cash flows, then an impairment is
recognized to the extent that
F-7
<PAGE>
Vector Energy Corporation
Notes to Consolidated Financial Statements (Continued)
April 30, 1999
net capitalized costs exceed discounted expected future cash flows. No
impairment was considered necessary for the year ended April 30, 1999.
Other Property and Equipment
Other property and equipment of the Company consists primarily of computer
equipment, vehicles and furniture and fixtures, which are depreciated over
estimated useful lives, ranging from three to seven years, on a straight-line
basis.
Income Taxes
Deferred income taxes are provided to reflect the future tax consequences of
differences between the tax basis of assets and liabilities and their reported
amounts in the financial statements, using enacted tax rates.
Loss Per Share
Loss per share has been calculated using the weighted average number of shares
outstanding. Outstanding warrants and other potentially dilutive securities
have been excluded from the calculation of loss per share, as their effect
would be anti-dilutive.
Organizational Costs
Certain organizational costs incurred by the Company have been capitalized
and are being amortized over a sixty-month period.
Transactions in the Company's Stock
Transactions in the Company's common stock are recorded at the fair value of
the stock issued in the transaction, or at the value of the goods and services
received, whichever is the more readily determinable amount.
Statement of Cash Flows
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with an original maturity of three months
or less to be cash equivalents.
The following is a summary of all significant noncash investing and financing
activities and payments made for interest and income taxes for the year ended
April 30, 1999:
<TABLE>
<S> <C>
Noncash activities:
Common stock issued for compensation $ 1,137,502
Properties acquired for stock and assumption of liabilities $ 14,003,094
Stock issued in settlement of accounts payable $ 77,190
</TABLE>
<TABLE>
<S> <C>
Cash payments
Interest $ 466,431
Income taxes $0
3. Acquisitions of Oil and Gas Properties
On May 8, 1998, the Company acquired various working and royalty interests in
wells located in Texas, Louisiana and Oklahoma. To effect the transaction,
the Company issued 30,000 shares of class AA preferred stock, valued at
$3,000,000, and 313,124 shares of common stock, valued at $939,372. In
addition, the Company assumed $6,100,000 in bank debt and $511,465 in accounts
payable, net of accounts receivable and cash acquired. The Company has
capitalized $251,704 in expenses incurred in conjunction with this
transaction. Subsequently, the Company
F-8
<PAGE>
Vector Energy Corporation
Notes to Consolidated Financial Statements (Continued)
April 30, 1999
issued 116,014 shares of common stock, valued at $163,065, for additional
working interests in certain of the properties acquired.
On November 4, 1998, the Company acquired various working interests in wells
located in Louisiana, Texas and Oklahoma. To effect the transaction, the
Company issued 1,226,667 shares of common stock, valued at $1,840,000, and a
$120,000 non-interest bearing note payable to the sellers. In addition, the
Company assumed $690,522 in bank debt and $600,954 in accounts payable. The
Company has capitalized $15,145 in expenses incurred in conjunction with this
transaction. The purchase and sale agreement also provides that the sellers
may receive up to 500,000 additional shares of common stock based on the value
of proved developed producing reserves attributable to the properties
acquired, as determined by an independent engineering evaluation as of
September 30, 1999. The Company is also required to expend a minimum of
$500,000 in capital investment on the properties acquired within nine months.
If such capital investment is not made, the sellers will be entitled to
receive an additional 500,000 shares of common stock. Subsequently, the
Company exchanged the working interests acquired in certain properties in
Texas and $30,000 for additional working interests in the properties acquired
in Louisiana.
The acquisitions were accounted for utilizing the purchase method of
accounting. The accompanying consolidated statements of operations include
the results of operations from the acquired properties beginning on the dates
that the acquisitions were closed. The purchase price was reduced by net cash
flow from the properties acquired, in the amount of $255,230, from the
effective date of the transaction through the date of closing. The following
table summarizes the unaudited pro forma effect on the Company's consolidated
statements of operations as if the acquisition consummated on November 4, 1998
had been closed on May 1, 1998. Future results may differ substantially from
pro forma results due to changes in prices received for oil and gas sold,
production declines and other factors. Therefore, the pro forma amounts should
not be considered indicative of future operations.
</TABLE>
<TABLE>
<CAPTION>
Unaudited 1999
Pro Forma Results
<S> <C>
Total Revenues $ 1,369,640
Net loss from continuing operations attributable
to common stock $ (2,488,245)
Net loss from continuing operations per share:
Basic 1
</TABLE>
4. Oil and Gas Producing Activities
Set forth below is certain information regarding the aggregate capitalized
costs of oil and gas properties, as of April 30, 1999, and costs incurred in
oil and gas property acquisition, development and exploration activities for
the year ended April 30, 1999:
<TABLE>
<S> <C>
Capitalized Costs
Proved properties $ 14,696,056
Unproved properties 0
Accumulated depreciation,
depletion and amortization ( 237,908)
-------------
$ 14,458,148
=============
</TABLE>
<TABLE>
<S> <C>
Costs Incurred
Property acquisitions:
Proved properties $ 14,005,343
Unproved properties 0
Development costs 690,713
Exploration costs 0
-------------
$ 14,696,056
=============
</TABLE>
F-9
<PAGE>
Vector Energy Corporation
Notes to Consolidated Financial Statements (Continued)
April 30, 1999
<TABLE>
<CAPTION>
The following presents the results of operations of oil and gas producing
activities for the period ended April 30, 1999:
<S> <C>
Oil and gas sales $ 968,954
Production costs (847,823)
Exploration 0
Depreciation, depletion and amortization (237,908)
Impairment of oil and gas properties 0
----------
Operating income (loss) (116,777)
Income tax 0
----------
Net Income (Loss) $(116,777)
==========
</TABLE>
5. Notes Payable
<TABLE>
<CAPTION>
Total debt at April 30, 1999 consists of the following:
<S> <C>
Line-of-credit $ 6,880,000
Other 596,988
-----------
7,476,988
Less current portion 0
-----------
$ 7,476,988
===========
</TABLE>
Line of Credit
The Company has a $10 million revolving credit note with the First Union
National Bank which terminates on March 15, 2001. Interest on the note is
payable monthly at a floating rate which was 8.5650% at April 30, 1999. The
borrowing base under the note is determined periodically based upon the
collateral value assigned to the mortgaged properties, and is currently
$6,880,000. The borrowing base may be redetermined at the Bank's sole
discretion. Principle payments are scheduled at $125,000 per month. In
addition, the note places certain restrictions on the use of the revenues
from the mortgaged properties. The Company does not anticipate that the
borrowing base under the note can be increased without incurring development
costs which are significantly greater than those required under the terms of
the note.
The line-of-credit with First Union National Bank has the following financial
covenants: The Company is required to submit to the bank audited financial
statements in accordance with GAAP, and have nothing indicative of an ongoing
concern in the audit report. The Company's debt service ratio (ratio of
EBITDA to consolidated debt service) shall not be less than 1.25 to 1.00 at
all times throughout the remaining term of the loan. The Company's interest
coverage ratio (ratio of EBITDA to consolidated interest expense) shall not
be less than 3.00 to 1.00 at all times throughout the remaining term of the
loan. The Company shall maintain a positive current ratio (current assets to
current liabilities). The current ratio should not exceed 1.00 to 1.00 at any
time during the loan (excluding any past due payables through May 31, 1999,
only). The bank has waived default of all financial covenants through
November 30, 1999. However, due to the fact that the waiver does not extend
for afull year from the date of the financial statements, the Company has
reflected the entire line of credit amount as a current liability.
Other notes payable
The Company is obligated under a 10% promissory note payable to the brother
of the Company's president. The note matures November 4, 1999 and is
unsecured, except that the holder is entitled to receive up to 300,000 shares
of the Company's common stock in the event of non-payment. The balance of
principal and accrued interest at April 30, 1999 was $500,000 and $24,384,
respectively.
F-10
<PAGE>
Vector Energy Corporation
Notes to Consolidated Financial Statements (Continued)
April 30, 1999
The Company is obligated under an unsecured non-interest bearing promissory
note, payable in equal monthly installments of $10,000 per month. Interest
has been accrued on this obligation at 8%. The outstanding balance on this
note at April 30, 1999 was $84,000.
The Company is obligated under an unsecured 6% installment note which calls
for monthly payments of $3,288. The outstanding principal balance at
April 30, 1999 was $12,988.
6. Income Taxes
The Company has available at April 30, 1999 an approximate $2,400,000 unused
operating loss carryforward that may be applied against future taxable
income, and that expires in the year 2018. The tax benefit of unused
operating loss carryforwards of approximately $816,000 has been offset by a
full valuation allowance.
7. Stockholder's Equity
Preferred Stock
The Company has 20,000,000 authorized shares of preferred stock of which
30,000 shares are designated as Class AA Cumulative Convertible Preferred
Stock, par value $100.00 per share. The holders of the Class AA Cumulative
Convertible Preferred Stock are entitled to receive a 6%, or $6.00 per share
cumulative cash dividend payable quarterly. As of April 30, 1999 30,000
shares of the Class AA Cumulative Convertible Preferred Stock were issued and
outstanding and dividends totaling $180,000, or $6.00 per share, had been
accrued but remain unpaid. The 6% Class AA Cumulative Convertible Preferred
Stock is redeemable in whole, but not in part, at the option of the
Corporation by unanimous resolution of its Board of Directors at any time
after December 31, 1998, at $100 per share, plus all dividends accrued and
unpaid up to the date fixed for redemption. The Class AA Cumulative
Convertible Preferred Stock may also be converted at the option of each
holder, into 100 fully paid and non-assessable shares of the Corporation's
common stock, no par value per share. Each share of Class AA Preferred Stock
is entitled to cast a number of votes equal to the number of shares of common
stock into which the Class AA Preferred Stock is convertible.
The Company is authorized to issue 500,000 shares of Class B Preferred Stock,
par value $1.00 per share. Class B Preferred Stock is subordinate to Class AA
6% Preferred Stock in priority, both of which are senior to any and all
capital stock. The holders of Class B Preferred Stock are not entitled to
receive any dividends. As of April 30, 1999 500,000 shares of the Class B
Preferred Stock were issued and outstanding. The Class B Preferred Stock is
redeemable in whole, but not in part, at the option of the Corporation by
resolution of the Corporation's Board of Directors at anytime at $1.00 per
share. Each share of Class B Preferred Stock has the voting rights equal to
100 shares of the Company's common stock. The holders of Class B shares are
entitled to elect at least two directors to the Board of Directors of the
Corporation. The holders of Class B Preferred Stock voting as a class will
have the right to remove without cause at any time and replace any director
such holders have elected.
The Company is authorized to issue out of the 20,000,000 authorized shares of
preferred stock, 10,000 shares of Class C Cumulative Convertible Preferred
Stock (Class C Preferred Stock). Class C Preferred Stock has a par value of
$100.00 per share and is entitled to receive cumulative cash dividends at the
annual rate of 5%, or $5.00 per share, payable quarterly at the rate of $1.25
per share. As of April 30, 1999 1,250 shares of Class C Preferred Stock were
F-11
<PAGE>
Vector Energy Corporation
Notes to Consolidated Financial Statements (Continued)
April 30, 1999
issued and outstanding and dividends of $4,687.50 or $3.75 per share had been
accrued but remain unpaid. Class C Preferred Stock is redeemable in whole,
but not in part by unanimous resolution of the Board of Directors at any time
after July 31, 1999, at the rate of $100.00 per share plus all dividends
accrued and unpaid at such date. Class C Preferred Stock has no voting
rights. Class C Preferred Stock is subordinate to all other shares of
preferred stock in priority. The Class C Preferred Stock may be converted
into common stock at the option of the shareholder at the rate of 25 common
shares to one share of Class C Preferred Stock. At any time on or after
July 31, 1999, each holder of shares of the 5% Preferred Stock may, at such
holders option, tender any or all such shares for redemption at the rate of
$100.00 per share plus all dividends accrued and unpaid up to the redemption
date.
Common Stock
The Company has 100,000,000 shares of authorized common stock, of which
5,709,863 shares are issued and outstanding.
Stock Options and Warrants
In December 1998, The Company granted options to certain key employees of the
Company to purchase 500,000 shares of The Company's common stock at the
purchase price of $1.00 per share. These options may be exercised at any
time from May 1, 1999 until their expiration on May 1, 2009 and are
non-transferable. The options, which were issued at a price equal to or
exceeding the market value of the underlying stock on the date of the grant,
are not intended to qualify as incentive stock options under Internal Revenue
Code Section 422. The Company has applied Accounting Principles Board No. 25
Accounting for Stock Issued to Employees, and related interpretations in
accounting for these options.
The Company has considered the effect of recognizing compensation cost
pursuant to the provisions of Statement of Financial Accounting Standards
No. 123, Accounting for Stock Based Compensation (SFAS No. 123). Using a
Black Scholes option pricing model, and assuming an expected life of 3 years,
47% volatility, no dividends, and a risk free interest rate of 6.5%, net loss
would have been increased to the pro forma amounts as follows for the year
ended April 30, 1999:
<TABLE>
<S> <C>
As reported: $ (2,405,704)
Proforma: $ (2,595,704)
</TABLE>
Also outstanding at April 30, 1999 are a warrants for the purchase of 400,000
shares of the Company's common stock at a purchase price of $0.10 per share.
The warrants expire in May and November of 2008.
8. Significant Customers
The Company currently markets the oil and gas production from its properties
to twelve customers, three of which represent sales in excess of 10% of the
Company's total oil and gas revenues. These three customers combined
represent approximately 53% of the Company's total oil and gas revenues. The
availability of oil and gas purchasers is such, however, that any customer
discontinuing purchases from the Company could almost assuredly be replaced by
another buyer.
9. Related Party Transactions
The Company subleases office space from a related party for $2,283 per month.
Monthly payments on this lease do not extend over the period of one year.
10. Risk Management
The Company's market risk exposures relate primarily to commodity prices and
interest rates. Therefore, the Company periodically uses commodity price
swaps to hedge the impact of natural gas price fluctuations and uses
interest rate swaps to hedge interest rates on floating rate debt. The
Company does not engage in activities using complex or highly leveraged
instruments. These instruments are generally put in place to limit risk of
adverse natural gas price or interest
F-12
<PAGE>
Vector Energy Corporation
Notes to Consolidated Financial Statements
April 30, 1999
rate movements, however, these instruments usually limit future gains from
favorable natural gas prices or lower interest rates. Recognition of
realized gains or losses in the Statement of Operations are deferred until
the underlying physical product is purchased or sold. Unrealized gains or
losses on derivative financial instruments are not recorded. The cash flow
impact of derivative and other financial instruments is reflected as cash
flows from operating activities in the Statement of Cash Flows.
11. Going Concern
As shown in the financial statements, the Company incurred a net loss of
$2,400,000 for the year ended April 30, 1999. At April 30, 1999, current
liabilities exceeded current assets by approximately $9,382,000. Amounts
outstanding and payable to creditors are in arrears and the Company is in
negotiations with creditors to obtain extensions and settlements of
outstanding amounts. Of the $5,659,646 in shareholders' equity, $14,458,148
is attributable to the Company's investment in oil and gas properties. Such
properties, as discussed in Note 4, generated a loss from operations for the
year ended April 30, 1999. Management anticipates that significant additional
expenditures will be necessary to develop the properties, which consist of
only proved reserves, before positive operating cash flows will be achieved.
These factors are an indication that the Company may be unable to continue in
existence.
Management's plans to alleviate these conditions include the renegotiation of
certain trade payables, settlements of debt amounts with stock, deferral of
certain time payments, and sales of properties, as considered necessary by
management. In addition, management is pursuing business partnering
arrangements for the acquisition and development of additional properties.
As of April 30, 1999, the Company has executed a Purchase and Sale Agreement
with a company which is a debtor in possession in a Chapter 11 Bankruptcy.
Under the agreement the Company has the right to acquire all of the Bankrupt
Debtor's interest in a Block located in the Offshore Texas, Mustang Island
Area. This agreement has received final approval by the Bankruptcy Court.
The Company currently estimates that this property contains in excess of 20
Bcf of proved reserves.
The accompanying financial statements are prepared as if the Company will
continue as a going concern. They contain none of the adjustments, including
adjustments to recorded assets and liabilities, which might be necessary if
the Company were unable to continue.
12. Oil and Gas Reserves Information (Unaudited)
The estimates of proved oil and gas reserves utilized in the preparation of
the financial statements were estimated internally by the Company in
accordance with guidelines established by the Securities and Exchange
Commission and the Financial Accounting Standards Board, which require that
reserve reports be prepared under existing economic and operating conditions
with no provision for price and cost escalation except by contractual
agreement. All of the Company's reserves are located onshore in the
continental United States.
Future prices received for production and future production costs may vary,
perhaps significantly, from the prices and costs assumed for purposes of
these estimates. There can be no assurance that the proved reserves will be
developed within the periods indicated or that prices and costs will remain
constant. There can be no assurance that actual production will equal the
estimated amounts used in the preparation of reserve projections.
In accordance with the Securities and Exchange Commission's guidelines, the
Company's internal petroleum engineers' estimates of future net cash flows
from the Company's proved properties and the present value thereof are made
using oil and natural gas sales prices in effect as of the dates of such
estimates and are held constant throughout the life of the properties.
Average prices used in estimating the future net cash flows were $14.73 per
barrel of oil and $1.85 per Mcf of natural gas for 1999.
There are numerous uncertainties inherent in estimating quantities of proved
reserves and in projecting future rates of production and timing of
development expenditures. Oil and gas reserve engineering must be recognized
as a subjective process of estimating underground
F-13
<PAGE>
Vector Energy Corporation
Notes to Consolidated Financial Statements (Continued)
April 30, 1999
accumulations of oil and gasthat cannot be measured in an exact way, and
estimates of other engineers might differ materially from those shown below.
The accuracy of any reserve estimate is a function of the quality of available
data and engineering and geological interpretation and judgment. Results of
drilling, testing and production after the date of the estimate may justify
revisions. Accordingly, reserve estimates are often materially different from
the quantities of oil and gas that are ultimately recovered. Reserve
estimates are integral in management's analysis of impairments of oil and gas
properties and the calculation of depreciation, depletion and amortization on
those properties.
<TABLE>
<CAPTION>
Oil Gas
(Bbls) (Mcf)
(in thousands)
<S> <C> <C>
Proved Reserves:
May 1, 1998 - -
Acquisitions 603 24,542
Production (16) (415)
Revisions 2,976 (10,429)
------ --------
April 30, 1999 3,563 13,698
====== ========
Proved Developed Reserves:
April 30, 1999 173 13,211
</TABLE>
<TABLE>
<CAPTION>
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved
Oil and Gas Reserves:
<S> <C>
April 30, 1999 (in thousands)
Future cash inflows $ 77,841
Production Costs (17,850)
Development Costs (10,064)
---------
Future net cash flows 49,927
10% discount factor (28,708)
--------
Standardized measure of discounted future
Net cash flows $ 21,219
=========
</TABLE>
<TABLE>
<CAPTION>
Changes in Standardized Measure of Discounted Future Net Cash Flows Relating
to Proved Oil and Gas Reserves:
<S> <C>
(in thousands)
Standardized measure - beginning of year $ -
Increase (decrease)
Sales, net of production costs (121)
Net change in prices, net of production costs 3,442
Development costs incurred 691
Change in future development costs (1,479)
Revisions of quantity estimates (3,758)
Accretion of discount 1,432
Changes in production rates, timing and other 2,702
Acquisitions 18,310
---------
Standardized measure - end of year $ 21,219
=========
</TABLE>
F-14
<PAGE>
CERTIFICATE OF DESIGNATION, PREFERENCES,
RIGHTS AND LIMITATIONS
OF
CLASS C 5% CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF
VECTOR ENERGY CORPORATION
Vector Energy Corporation, hereinafter called the Corporation, a
corporation organized and existing under the laws of the State of Texas.
DOES HEREBY CERTIFY:
RESOLVED, that pursuant to the authority conferred upon the Board of
Directors by the Certificate of Incorporation, there is hereby authorized and
created out of the Corporation's 20,000,000 authorized shares of preferred
stock (the Preferred Stock) a class of up to 10,000 shares of Preferred Stock
designated as Class C Cumulative Convertible Preferred Stock, par value $100.00
per share (the 5% Preferred Stock), which shall have the voting powers,
preferences, and relative, participating, optional, and other special rights,
and the qualifications, limitations or restrictions as set forth below.
Class C 5% Cumulative Convertible Preferred Stock.
1. Priority. The 5% Preferred Stock shall, with respect to the
payment of dividends and upon redemption, liquidation, the dissolution,
winding up, rank senior and prior to any and all common stock issued by
the Corporation, but junior to all other classes of Preferred Stock whether
now outstanding or designated in the future.
2. Cash Dividends on 5% Preferred Stock.
(a) The holders of the 5% Preferred Stock shall be entitled to
receive, out of the funds of the Corporation legally available therefor,
cumulative cash dividends at the annual rate of Five and No/100 Dollars
($5.00) per share, payable quarterly in arrears in equal installments of One
and 25/100 Dollars ($1.25) on the last day of January, March, June, and
September (unless such day is a non-business day, in which event on the
next business day) in each year, commencing on the last day of September,
1998, which shall be the dividend payment dates. Dividends on each share
of 5% Preferred Stock shall begin to accrue and shall cumulate from the
date of original issue of such share (Issue Date), whether or not
declared, and shall be payable to the holder of such share on the record
date (as defined in Section 1(c) below). Dividends on account of arrears
for any past dividend periods may be declared and paid at any time,
without reference to any regular dividend payment date, to holders of
record on a record date fixed for such payment by the Board of Directors
of the Corporation or by a committee of such Board duly authorized to fix
such date by resolution designating such committee.
(b) The Corporation shall not permit any Subsidiary (as defined
below) to purchase, redeem, retire or otherwise acquire for consideration
any shares of capital stock of the Corporation unless the Corporation
could, pursuant to Section 3 hereof purchase, redeem, retire or otherwise
acquire such shares of capital stock at such time and in such manner. As
used herein, the term Subsidiary shall mean a corporation, a majority of
the outstanding voting securities of which is owned, directly or indirectly,
by the Corporation.
(c) Dividends on the 5% Preferred Stock shall be payable to
holders of record as they appear on the books of the Corporation as of the
close of business on any record date for payment of dividends. The record
dates for payment of dividends shall be the last day of December, February,
May, and August in each year which immediately precedes each respective
dividend payment date.
(d) Dividends payable on the date of any conversion or
redemption of the 5% Preferred Stock not occurring on a regular dividend
payment date shall be calculated on the basis of the actual number of days
elapsed (including the date of conversion or redemption) over a 365-day
year.
(e) No dividends shall be declared or paid or set apart for
payment on, and no payment shall be made on account of the purchase,
redemption or retirement of, any of common stock of the Corporation, for
any period unless full cumulative dividends have been or
contemporaneously are declared and paid (or declared and a sum sufficient
for the payment thereof set apart for such payment) on the 5% Preferred
Stock for all dividend payment periods terminating on or prior to the date
of payment of dividends on such stock or other payment date resulting
from the repurchase or retirement of such stock. Accumulations of
dividends on the 5% Preferred Stock shall not bear interest.
(f) If the Corporation calls for redemption the 5% Preferred
Stock, the Corporation shall reserve sufficient shares of Common Stock
for the purpose of issuing such shares of Common Stock to holders of 5%
Preferred Stock that determine to convert such shares of 5% Preferred
Stock into Common Stock prior to the close of business on the business
day prior to the date of redemption. Prior to providing notice for
redemption, the Corporation will (i) provide a prospectus meeting the
requirements of Section 10(a)(3) of the Securities Act of 1933, as amended
(the Act), relating to the issuance of Common Stock (hereinafter
defined) upon conversion of the 5% Preferred Stock and will maintain such
prospectus through the redemption date; and (ii) obtain an approval for
listing the Common Stock on any national securities exchange, on the
National Association of Securities Dealers Automated Quotation System,
or in the over-the-counter market on which the 5% Preferred Stock is
trading on the date notice of redemption is provided.
3. Redemption of 5% Preferred Stock at Option of Corporation.
(a) Subject to the provisions of this Section 3, the 5%
Preferred Stock shall be redeemable in whole, but not in part, at the option
of the Corporation by unanimous resolution of its Board of Directors at
any time after July 31, 1999, at One Hundred and No/100 Dollars
($100.00) per share, plus all dividends accrued and unpaid on such 5%
Preferred Stock up to the date fixed for redemption upon giving the notice
hereinafter provided.
(b) Not less than thirty nor more than sixty days prior to the
date fixed for redemption of the 5% Preferred Stock, a notice in writing
shall be given by mail to the holders of record of 5% Preferred Stock at
their respective addresses as the same shall appear on the stock books of
the Corporation. Such notice shall state: (i) the redemption date; (ii) the
redemption price and the amount of dividends on the 5% Preferred Stock
that will be accrued and unpaid to the date fixed for redemption; (iii) the
place or places where certificates for shares are to be surrendered for
payment of the redemption price; (iv) that the dividends on shares to be
redeemed will cease to accrue on such redemption dates; (v) the
conversion rights of the shares to be redeemed; (vi) the period within
which the conversion rights may be exercised; and (vii) the Conversion
Price and the number of shares of the Common Stock issuable upon
conversion of a share of 5% Preferred Stock at the time.
(c) After giving notice of redemption and prior to the close of
business on the business day prior to the redemption date, the holders of
5% Preferred Stock so called for redemption may convert such stock into
Common Stock in accordance with the conversion privileges set forth in
Section 4 hereof. Unless (i) the holder of shares of 5% Preferred Stock to
whom notice has been duly given shall have exercised its rights to convert
in accordance with Section 4 hereof; or (ii) the Corporation shall default
in the payment of the redemption price as set forth in such notice, upon
such redemption date such holder shall no longer have any voting or other
rights with respect to such shares, except the right to receive the moneys
payable upon such redemption from the Corporation, without interest
thereon, upon surrender (and endorsement, if required by the Corporation)
of the certificates, and the shares represented thereby shall no longer be
deemed to be outstanding as of the redemption date. In the event a holder
of 5% Preferred Stock provides the Corporation with notice of conversion
of all or a portion of such 5% Preferred Stock into shares of Common
Stock on or after any notice of redemption is provided, the holder shall
have been deemed to convert as of the redemption date provided, however,
that in the event the Corporation shall default in the payment of the
redemption price as set forth in such redemption notice, the conversion
shall not be effective unless the holder of 5% Preferred Stock electing to
convert provides written notice to the Corporation within 20 days of the
purported redemption date of this desire to effect such conversion.
(d) The 5% Preferred Stock may not be redeemed and the
Corporation may not purchase or otherwise acquire any shares of 5%
Preferred Stock unless full cumulative dividends on all outstanding shares
of 5% Preferred Stock shall have been paid in full or contemporaneously
are declared and paid in full for all past dividend periods.
(e) All shares of 5% Preferred Stock so redeemed shall have
the status of authorized but unissued preferred stock, but such shares so
redeemed shall not be reissued as shares of the series of 5% Preferred
Stock created hereby.
(f) No holder of shares of 5% Preferred Stock shall have the
right to require the Corporation to redeem all or any portion of such
shares.
4. Conversion of 5% Preferred Stock into Common Stock.
(a) At any time on or after July 31, 1999, each holder of shares
of 5% Preferred Stock may, at such holder's option, convert any or all
such shares, plus all dividends accrued and unpaid on such 5% Preferred
Stock up to the conversion date, on the terms and conditions set forth in
this Section 4, into twenty-five (25) fully paid and non-assessable shares
of the Corporation's common stock, no par value per share (Common
Stock), except that with respect to any shares of 5% Preferred Stock
called or tendered for redemption, the conversion right shall terminate at
the close of business on the business day prior to the date of redemption,
unless default is made in the payment of the redemption price. The number
of shares of Common Stock into which each share of 5% Preferred Stock
may be converted shall be determined by dividing $4.00 by the Conversion
Price (as defined herein) in effect at the time of conversion and multiplying
the result by 25. The Conversion Price per share at which shares of
Common Stock shall be initially issuable upon conversion of any shares of
5% Preferred Stock shall be $4.00, subject to adjustment provided below.
(b) To exercise such holder's conversion privilege, the holder
of any shares of 5% Preferred Stock shall surrender to the Corporation
during regular business hours at the principal executive offices of the
Corporation or the offices of the transfer agent for the 5% Preferred Stock
or at such other place as may be designated by the Corporation, the
certificate or certificates for the shares to be converted, duly endorsed for
transfer to the Corporation (if required by it), accompanied by written
notice stating that the holder irrevocably elects to convert such shares.
Conversion shall be deemed to have been effected on the date when such
delivery is made, and such date is referred to herein as the Conversion
Date. Within three (3) business days after the date on which such delivery
is made, the Corporation shall issue and send (with receipt to be
acknowledged) to the holder thereof or the holder's designee, at the
address designated by such holder, a certificate or certificates for the
number of full shares of Common Stock to which the holder is entitled as
a result of such conversion, and cash with respect to any fractional interest
of a share of Common Stock as provided in paragraph (c) of this Section
4. The holder shall be deemed to have become a stockholder of record of
the number of shares of Common Stock into which the shares of 5%
Preferred Stock have been converted on the applicable Conversion Date
unless the transfer books of the Corporation are closed on that date, in
which event he shall be deemed to have become a stockholder of record of
such shares on the next succeeding date on which the transfer books are
open, but the Conversion Price shall be that in effect on the Conversion
Date. Upon conversion of only a portion of the number of shares of 5%
Preferred Stock represented by a certificate or certificates surrendered for
conversion, the Corporation shall within three (3) business days after the
date on which such delivery is made, issue and send (with receipt to be
acknowledged) to the holder thereof or the holder's designee, at the
address designated by such holder, a new certificate covering the number
of shares of 5% Preferred Stock representing the unconverted portion of
the certificate or certificates so surrendered.
(c) No fractional shares of Common Stock or scrip shall be
issued upon conversion of shares of 5% Preferred Stock. If more than one
share of 5% Preferred Stock shall be surrendered for conversion at any one
time by the same holder, the number of full shares of Common Stock
issuable upon conversion thereof shall be computed on the basis of the
aggregate number of shares of 5% Preferred Stock so surrendered.
Instead of any fractional shares of Common Stock which would otherwise
be issuable upon conversion of any shares of 5% Preferred Stock, the
Corporation shall make an adjustment in respect of such fractional interest
equal to the fair market value of such fractional interest, to the nearest
1/100th of a share of Common Stock, in cash at the Current Market Price
(as defined below) on the business day preceding the effective date of the
conversion. The Current Market Price of publicly traded shares of
Common Stock or any other class of Common Stock or other security of
the Corporation or any other issuer for any day shall be deemed to be the
average of the daily Closing Prices for the ten (10) consecutive trading
days preceding the Conversion Date. The Current Market Price of the
Common Stock or any other class of capital stock or securities of the
Corporation or any other issuer which is not publicly traded shall mean the
fair value thereof as determined by an independent investment banking or
appraisal firm experienced in the valuation of such securities or properties
selected in good faith by the Board of Directors of the Corporation or a
committee thereof or, if no such investment banking or appraisal firm is,
in the good faith judgment of the Board of Directors of the Corporation or
such committee, available to make such determination, as determined in
good faith judgment of the Board of Directors of the Corporation or such
committee. The Closing Price shall mean the last reported sales price on
the principal national securities exchange on which the Common Stock is
listed or admitted to trading or, if not listed or admitted to trading on any
national securities exchange, on the National Association of Securities
Dealers Automated Quotations System, or, if the Common Stock is not
listed or admitted to trading on any national securities exchange or quoted
on the National Association of Securities Dealers Automated Quotations
System, the average of the closing bid and asked prices in the over-the-
counter market as furnished by any New York Stock Exchange member
firm selected from time to time by the Corporation for that purpose.
(d) The Corporation shall pay any and all issue and other taxes
that may be payable in respect of any issue or delivery of shares of
Common Stock on conversion of 5% Preferred Stock pursuant hereto.
The Corporation shall not, however, be required to pay any tax which may
be payable in respect of any transfer involved in the issue and delivery of
shares of Common Stock in a name other than that in which the 5%
Preferred Stock so converted were registered, and no such issue and
delivery shall be made unless and until the person requesting such issue has
paid to the Corporation the amount of any such tax, or has established, to
the satisfaction of the Corporation, that such tax has been paid.
(e) The Corporation shall at all times reserve for issuance and
maintain available, out of its authorized but unissued Common Stock,
solely for the purpose of effecting the conversion of the 5% Preferred
Stock, the full number of shares of Common Stock deliverable upon the
conversion of all 5% Preferred Stock from time to time outstanding. The
Corporation shall from time to time (subject to obtaining necessary
director and stockholder action), in accordance with the laws of the State
of Texas, increase the authorized number of shares of Corporation's
Common Stock if at any time the authorized number of shares of its
Common Stock remaining unissued shall not be sufficient to permit the
conversion of all of the shares of 5% Preferred Stock at the time
outstanding.
(f) If any shares of Common Stock to be issued upon
conversion of shares of 5% Preferred Stock require registration or listing
with, or approval of, any governmental authority, stock exchange or other
regulatory body under any federal or state law or regulation or otherwise,
including registration under the Act, and appropriate state securities laws,
before such shares may be validly issued or delivered upon conversion, the
Corporation will in good faith and as expeditiously as possible meet such
registration, listing or approval, as the case may be.
(g) All shares of Common Stock which may be issued upon
conversion of the shares of 5% Preferred Stock will upon issuance by the
Corporation be validly issued, fully paid and non-assessable and free from
all taxes, liens and charges with respect to the issuance thereof.
(h) The Conversion Price in effect shall be subject to
adjustment from time to time as follows:
(i) Stock Splits, Dividends and Combinations. In the
event that the Corporation shall at any time subdivide the
outstanding shares of Common Stock, or shall pay or make a
dividend or distribution on any class of capital stock of the
Corporation in Common Stock, the Conversion Price in effect
immediately prior to such subdivision or the issuance of such
dividend shall be proportionately decreased, and in case the
Corporation shall at any time combine the outstanding shares of
Common Stock, the Conversion Price in effect immediately prior
to such combination shall be proportionately increased, effective at
the close of business on the date of such subdivision, dividend or
combination, as the case may be.
(ii) Non-Cash Dividends, Stock Purchase Rights,
Capital Reorganization and Dissolutions. In the event:
(A) that the Corporation shall take a record of
the holders of the Corporation's Common Stock for the
purpose of entitling such holders to receive a dividend, or
any other distribution, payable otherwise than in cash; or
(B) that the Corporation shall take a record of
the holders of Corporation Common Stock for the purpose
of entitling such holders to subscribe for or purchase any
shares of stock of any class or other securities, or to
receive any other rights; or
(C) of any capital reorganization of the
Corporation, reclassification of the capital stock of the
Corporation (other than a subdivision or combination of
the Corporation's outstanding shares of Common Stock),
consolidation or merger of the Corporation with or into
another corporation, share exchange for all outstanding
shares of Common Stock under a plan of exchange to
which the Corporation is a party, or conveyance of all or
substantially all of the assets of the Corporation to another
corporation; or
(D) of the voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, and in any such case, the Corporation shall cause to be mailed
to the holders of record of the outstanding 5% Preferred Stock, at
least ten (10) days prior to the date hereinafter specified, a notice
stating the date on which (x) a record is to be taken for the purpose
of such dividend, distribution or rights, or (y) such reclassification,
reorganization, consolidation, merger, share exchange,
conveyance, dissolution, liquidation or winding up is to take place
and the date, if any is to be fixed, as of which holders of
Corporation securities of record shall be entitled to exchange their
shares of Corporation securities for securities or other property
deliverable upon such reclassification, reorganization,
consolidation, merger, share exchange, conveyance, dissolution,
liquidation or winding up.
5. Redemption at the Option of the Shareholders.
(a) At any time on or after July 31, 1999, each holder of shares of
5% Preferred Stock may, at such holder's option, tender any or all such
shares for redemption on the terms and conditions set forth in this Section
5. The redemption price per share to be paid upon redemption shall be
One Hundred and No/100ths Dollars ($100.00), plus all dividends accrued
and unpaid on such 5% Preferred Stock up to the redemption date.
(b) To exercise such holder's redemption privilege, the holder
of any shares of 5% Preferred Stock shall surrender to the Corporation
during regular business hours at the principal executive offices of the
Corporation or the offices of the transfer agent for the 5% Preferred Stock
or at such other place as may be designated by the Corporation, the
certificate or certificates for the shares to be redeemed, duly endorsed for
transfer to the Corporation (if required by it), accompanied by written
notice stating that the holder irrevocably elects to tender such shares for
redemption. Redemption shall be deemed to have been effected on the date
when such delivery is made, and such date is referred to herein as the
Redemption Date. Within three (3) business days after the date on
which such delivery is made, the Corporation shall tender its check for the
redemption price for the shares to be redeemed and send such check (with
receipt to be acknowledged) to the holder thereof or the holder's designee,
at the address designated by such holder. Upon redemption of only a
portion of the number of shares of 5% Preferred Stock represented by a
certificate or certificates surrendered for conversion, the Corporation shall
within three (3) business days after the date on which such delivery is
made, issue and send (with receipt to be acknowledged) to the holder
thereof or the holder's designee, at the address designated by such holder,
a new certificate covering the number of shares of 5% Preferred Stock
representing the unredeemed portion of the certificate or certificates so
surrendered.
6. Voting.
(a) Except as otherwise required by law or set forth herein, the
shares of 5% Preferred Stock shall not be entitled to vote.
(b) Without limiting the foregoing, if at any time an amount
equal to six quarterly dividend payments in respect of the 5% Preferred
Stock shall be in arrears then (i) the number of members of the Board of
Directors shall be increased by one and (ii) the holders of the 5% Preferred
Stock, voting separately as a class, shall be entitled to elect such additional
director at any meeting of the stockholders of the Corporation at which
directors are to be elected, or held, as the case may be, at any time during
the period such dividend remain in arrears. The right of the holders of the
5% Preferred Stock to elect such additional director shall cease when all
accrued and unpaid dividends on the 5% Preferred Stock have been paid,
but subject always to the same provisions for the vesting of such voting
rights in the case of any such future dividend default or defaults. At any
time after such voting power shall have so vested in the holders of the 5%
Preferred Stock, upon the written request of the holders of record of ten
percent or more of the shares of the 5% Preferred Stock then outstanding,
addressed to the Secretary of the Corporation at the principal office of the
Corporation, the Secretary shall call a special meeting of the holders of the
5% Preferred Stock for the election of the director to be elected by them
as hereinafter provided, such meeting to be held within thirty (30) days
after delivery of such request at the place and upon the notice provided by
law and in the Bylaws for the holding of meetings of stockholders;
provided, however, that the Secretary shall not be required to call such
special meeting in the case of any such request received less than ninety
days before the date fixed for the next ensuing annual meeting of the
stockholders. If at any such annual or special meeting or any adjournment
thereof the holders of a least a majority of the shares of the 5% Preferred
Stock then outstanding shall be present or represented by proxy, then by
vote of the holders of at least a majority of the shares of the 12% Preferred
Stock present or so represented at such meeting, the then authorized
number of directors of the Corporation shall be increased by one, and the
holders of the 5% Preferred Stock shall be entitled to elect the additional
director authorized. The director so elected shall serve until the next
annual meeting of stockholders or until such director's respective
successor shall be elected and qualified; provided, however, that whenever
the holders of the 5% Preferred Stock shall be divested of voting power as
above provided, the term of office of the person elected as a director by the
holders of the 5% Preferred Stock as a class shall forthwith terminate, and
the authorized number of directors shall be reduced accordingly.
(c) If, at any time during the period in which the holders of the
5% Preferred Stock shall be entitled to elect one director, the director who
has been elected by the holders of the 5% Preferred Stock shall cease to be
a director, by reason of resignation, death or removal, the Secretary of the
Corporation shall call a special meeting of the holders of the 5% Preferred
Stock and such vacancy shall be filled by a vote of the holders of the 5%
Preferred Stock at such special meeting.
(d) The holders of the 5% Preferred Stock voting as a class will
have the right to remove without cause at any time and replace any
director such holders have elected pursuant to this Section 6.
7. Liquidation Rights.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of 5%
Preferred Stock then outstanding shall be entitled or receive out of assets
of the Corporation available for distribution to stockholders after the
distribution to holders of any other class of preferred stock and before any
distribution of assets is made to holders of any other class of capital stock
of the Corporation, an amount equal to $100.00 per share, plus
accumulated and unpaid dividends thereon to the date fixed for
distribution. If upon any voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, the amounts payable with respect to the
5% Preferred Stock and any other shares of stock of the Corporation
ranking as to any such distribution on a parity with the 5% Preferred Stock
are not paid in full, the holders of the 5% Preferred Stock and of such
other shares shall share ratably in any such distribution of assets of the
Corporation in proportion to the full respective preferential amounts to
which they are entitled. After payment of the full amount of the liquidating
distribution to which they are entitled, the holders of shares of 5%
Preferred Stock shall not be entitled to any further participation in any
distribution of assets by the Corporation.
(b) Neither the consolidation of nor merging of the
Corporation with or into any other corporation or corporations, nor the
sale or lease of all or substantially all of the assets of the Corporation
shall be deemed to be a liquidation, dissolution or a winding up of the
Corporation within the meaning of any of the provisions of this Section 7.
(c) In the event of a voluntary or involuntary liquidation,
dissolution, or winding up of the Corporation, the Corporation shall, within
ten (10) days after the date the Board of Directors approves such action,
or within twenty (20) days prior to any stockholders' meeting called to
approve such action, or within twenty (20) days after the commencement
of any involuntary proceeding, whichever is earlier, give each holder of
shares of 5% Preferred Stock initial written notice of the proposed action.
Such initial written notice shall describe the material terms and conditions
of such proposed action, including a description of the stock, cash, and
property to be received by the holders of shares of 5% Preferred Stock
upon consummation of the proposed action and the date of delivery
thereof. If any material change in the facts set forth in the initial notice
shall occur, the Corporation shall promptly give written notice to each
holder of shares of 5% Preferred Stock of such material change. The
Corporation shall not consummate any voluntary or involuntary
liquidation, dissolution, or winding up of the Corporation before the
expiration of 30 days after the mailing of the initial notice or 10 days after
the mailing of any subsequent written notice, whichever is later; provided
that any such 30-day or 10-day period may be shortened upon the written
consent of the holders of all of the outstanding shares of 5% Preferred
Stock.
(d) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation which will involves the
distribution of assets other than cash, the Corporation shall promptly
engage competent independent appraisers to determine the value of the
assets to be distributed to the holders of shares of 5% Preferred Stock and
the holders of shares of Common Stock. The Corporation shall, upon
receipt of such appraiser's valuation, give prompt written notice to each
holder of shares of 5% Preferred Stock of the appraiser's valuation.
8. Limitations.
(a) So long as any shares of 5% Preferred Stock are
outstanding, the Corporation shall not, without the affirmative vote or the
written consent of the holders of at least 66-2/3% of the outstanding shares
of 5% Preferred Stock, voting separately as a class amend, alter or repeal
any provision of the Certification of Incorporation or Bylaws of the
Corporation so as to affect adversely the relative rights, preferences,
qualifications, limitations or restrictions of the 5% Preferred Stock.
(b) The provisions of this paragraph 8 shall not in any way limit
the right and power of the Corporation to:
(i) Increase the total number of authorized shares of
Common Stock; or
(ii) Issue bonds, notes, mortgages, debentures,
preferred stock ranking senior to or in parity with the terms of the
5% Preferred Stock and other obligations, and to incur
indebtedness to banks and to other lenders.
IN WITNESS WHEREOF, Vector Energy Corporation has caused its
corporate seal to be hereunto affixed and this certificate to be signed by
Stephen Noser, its President, and attested by Gary Countryman, its Assistant
Secretary, this 16th day of July, 1998.
VECTOR ENERGY
CORPORATION
By________________________________________
President
ATTEST:
By________________________________
Assistant Secretary
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion in this
Form 10-KSB of our report dated August 6, 1999 on the financial statements of
Vector Energy Corporation as of and for the year ended April 30, 1999.
Denver, Colorado
September 1, 1999
/s/ Comiskey & Company
PROFESSIONAL CORPORATION
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