SCHEDULE 14C INFORMATION
Proxy Statement Pursuant to Section 14(c) of the Securities and
Exchange Act of 1934
(Amendment No. _____)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Information Statement
[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14c-5(d)(2))
[ ] Definitive Information Statement
LYRIC ENERGY, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the
Registrant)
Payment of Filing Fee (check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14c-5(g)
and 0-11.
1) Title of each class of securities to which transaction
applies:
Common Stock of Natural Gas Technologies, Inc.,
$.001 par value
Series 1994-A Preferred Stock of Natural Gas
Technologies, Inc., $4.00 par value
Series 1994-B Preferred Stock of Natural Gas
Technologies, Inc., $4.00 par value
2) Aggregate number of securities to which transaction
applies:
Common Stock: 3,819,400
Series 1994-A Preferred Stock: 9,597
Series 1994-B Preferred Stock: 66,365
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth
the amount on which the filing fee is calculated and
state how it was determined):
The underlying value of the transaction is $1,232,821,
which is the book value of Natural Gas Technologies,
Inc. as of January 31, 1997, the latest practicable
date. There is no market for the securities of Natural
Gas Technologies, Inc.
4) Proposed maximum aggregate value of transaction:
$1,232,821
5) Total fee paid: $ 246.56
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided
by Exchange Act Rule 0-11(a)(2) and identify the filing
for which the offsetting fee was paid previously.
Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its
filing.
1) Amount previously paid:
2) Form, Schedule or Registration Statement Number:
3) Filing party:
4) Date filed: <PAGE>
LYRIC ENERGY, INC.
1013 West 8th Avenue
Amarillo, Texas 79101
INFORMATION STATEMENT AND
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 2, 1997
To the shareholders of Lyric Energy, Inc.:
A Special Meeting of the shareholders of Lyric Energy, Inc. (the
"Company") will be held at , at 2:00 P.M. (CST) on
Monday, June 2, 1997, or at any adjournment or postponement
thereof, to act upon the following:
(1) To consider and act upon a one share for 231.2433
share (1 for 231.2433) reverse stock split of the
Company's $.01 par value common stock;
(2) To consider and act upon an Amendment to the
Company's Articles of Incorporation to authorize
10,000,000 shares of no par value preferred stock,
9,597 of which shall be designated as Series
1994-A Preferred Stock, 66,365 of which shall be
designated as Series 1994-B Preferred Stock and
the remainder to be reserved for future issuance
in the discretion of the Board of Directors;
(3) To consider and act upon an Amendment to the
Company's Articles of Incorporation to change the
name of the Company to Natural Gas Technologies,
Inc.;
(4) To consider and act upon an Amendment to the
Company's Articles of Incorporation to eliminate
the liability of Directors and Officers in certain
circumstances;
(5) To consider and act upon an Amendment to the
Company's Articles of Incorporation to reduce the
voting requirement for certain fundamental
corporate actions; and
(6) To consider such other business as may properly
come before the meeting.
Details relating to this matter are set forth in the attached
Information Statement. All shareholders of record as of the
close of business on May 2, 1997 will be entitled to notice
of, and to vote at, such meeting or at any adjournment or
postponement thereof.
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Brent Wagman
Brent Wagman
Chairman of the Board
May 2, 1997
<PAGE>
INFORMATION STATEMENT
LYRIC ENERGY, INC.
1013 West 8th Avenue
Amarillo, Texas 79101
(806) 376-6142
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD JUNE 2, 1997
This Information Statement is furnished in connection with the
special meeting of Lyric Energy, Inc. (the "Company"), a Colorado
corporation, to be held at 2:00 P.M. on June 2, 1997 at
, or at any adjournment or postponement
thereof. The Company anticipates that this Information Statement
will be first mailed or given to all shareholders of the Company
on or about May 2, 1997. The Company is not soliciting
proxies. Approval of the proposed Amendments to the Company's
Articles of Incorporation, including the authorization of
preferred stock, requires the affirmative vote of two-thirds of
all issued and outstanding shares of $.01 par value common stock
("Common Stock"). The approval of the reverse stock split
requires the affirmative vote of a majority of all votes present
at the Special Meeting in person or by proxy. Abstentions and
broker non-votes will be treated as negative votes.
This Information Statement is being distributed on behalf of the
Company, but all of the expenses involved in preparing,
assembling and mailing this Information Statement and the
material enclosed herewith will be paid by Natural Gas
Technologies, Inc. ("NGT") pursuant to an agreement between the
Company and NGT.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED
NOT TO SEND US A PROXY.
VOTING SHARES AND PRINCIPAL SHAREHOLDERS
The close of business on May 2, 1997, has been fixed by the
Board of Directors of the Company as the record date for the
determination of shareholders entitled to notice of and to vote
at the Special Meeting. At such date, there were outstanding
250,000,000 shares of the Company's $.01 par value common stock
(hereinafter referred to as the "Common Stock"), each of which
entitles the holder thereof to one vote per share on each matter
which may come before the meeting. The Company has no other
class of voting securities outstanding.
A majority of the issued and outstanding shares of the Common
Stock entitled to vote, represented in person or by proxy,
constitutes a quorum at any shareholders' meeting.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of May 2, 1997, the Common
Stock ownership of each person known by the Company to be the
beneficial owner of five percent or more of the Company's Common
Stock ("Principal Shareholders"), all Directors and Officers
individually and all Directors and Officers of the Company as a
group. Except as noted, each person has sole voting and
investment power with respect to the shares shown. All shares
are "restricted securities" and as such are subject to
limitations on resale. The shares may be sold pursuant to Rule
144 under certain circumstances. There are no contractual
arrangements or pledges of the Company's securities, known to the
Company, which may at a subsequent date result in a change of
control of the Company.
Amount of Beneficial Amount of Beneficial
Ownership Before Ownership After
Reverse Split Reverse Split
and Share Exchange(1) and Share Exchange
Name and
Address
of Benefi- Common % of Common % of
cial Owner Stock Class(2) Stock Class(3)
Natural Gas 203,041,517 81% --- (4) ---
Technologies,
Inc.
16775 Addison Rd.
Suite 300
Dallas, TX 75248
Brent Wagman (5) ---- ---- 1,144,376(6) 28%
Chairman of
the Board
16775 Addison Rd.
Suite 300
Dallas, TX 75248
Warren Donohue (5) ---- ---- 350,000 (7) 8.7%
Director
16775 Addison Rd.
Suite 300
Dallas, TX 75248
G.E. Stahl 3,577,402 1% 14,820 0.4%
President,
Director
1013 W. 8th Ave.
Amarillo, TX 79101
(1) Rule 13d-3 under the Securities Exchange Act of 1934,
involving the determination of beneficial owners of
securities, includes as beneficial owners of securities,
among others, any person who directly or indirectly,
through any contract, arrangement, understanding,
relationship or otherwise has, or shares, voting power
and/or investment power with respect to such securities;
and, any person who has the right to acquire beneficial
ownership of such security within sixty days through means,
including but not limited to, the exercise of any option,
warrant or conversion of a security. The Company has no
options or warrants outstanding.
(2) Based upon 250,000,000 shares issued and outstanding prior
to the Reverse Split described herein.
(3) Based upon 4,024,074 shares issued and outstanding after the
Reverse Split and the Share Exchange described herein. The
actual manner of Shares issued and outstanding may be
slightly different due to rounding after the reverse split.
(4) All Shares of the Company held by NGT will be distributed to
NGT shareholders in the Share Exchange.
(5) Mr. Wagman and Mr. Donahue are directors of NGT and Mr.
Wagman is also President and Chief Executive Officer of NGT.
(6) Includes 194,376 shares held by Wagman Petroleum, Inc. and
100,000 shares held by Long Boat Trust, a trust under which
Mr. Wagman is a beneficiary. Mr. Wagman may be deemed the
beneficial owner of all such shares.
(7) Includes 150,000 shares underlying an option which will be
issued to Mr. Donahue in the Share Exchange to replace a
similar option held by him in NGT. The option will be
exercisable any time for 54 months after the Company raises
gross proceeds of at least $1 million in an offering of
securities of the Company.
DESCRIPTION OF BUSINESS AND PROPERTIES OF THE COMPANY
Lyric Energy, Inc. (the "Company") was incorporated in Colorado
on April 25, 1980. On February 3, 1981, the Company completed a
registered public offering of 20,000,000 shares of its Common
Stock, and received gross proceeds of $2,000,000 therefrom. The
Company was an active oil and gas producing company from its
inception until July 31, 1991.
For the fiscal year ending April 30, 1991 the net loss was
$360,791 and for 1990 and 1989 was $290,561 and $266,799,
respectively. The principal cause of the losses was the interest
being accrued but not paid on the Company's bank note with the
Amarillo National Bank (the "Bank"). The original principal of
the Bank note was $1,815,869. By April 30, 1991 principal and
unpaid interest had grown to $3,209,761. The Company was unable
to pay the interest.
Effective July 31, 1991 the Company entered into an agreement
with the Bank whereby the Company assigned to the Bank interest
in certain oil and gas producing properties having a present
worth discounted at 10% of $297,600, and (ii) 3,800,000 shares of
the Company's Common Stock and the Bank cancelled all past due
notes including accrued interest thru July 31, 1991. In addition
the Company agreed to assign to the Bank small overriding royalty
interests in any wells the Company subsequently drilled on one
proved undeveloped oil property in Moore County, Texas and on any
oil and gas subsequently drilled by the Company in the Thalia
area of Foard County, Texas. The Company did not drill any such
wells.
Other oil and gas leases owned by the Company on July 31, 1991,
were assigned to other operators or expired by their own terms
for failure to develop or failure to produce. The Company agreed
to continue to operate the Okmulgee oil and casinghead gas
producing properties consisting of the properties in the Creek
Indian designated unit as designated by the Oklahoma Corporation
Commission for a six month period. At the end of that six month
period the Company agreed with the Bank that the Company would,
if the production warranted, effectuate a production payment with
the Bank providing that the Bank would receive 75% of the
Company's revenue after expenses from the Creek Indian Unit until
the Bank received $100,000 or alternately the Company would sell
the properties in the unit and give to the Bank the proceeds of
such sale. The Company subsequently sold the Okmulgee oil and
casinghead gas producing properties to an unrelated third party
and paid the proceeds to the Bank in accordance with this
agreement.
After assigning to the Bank the oil and gas producing properties
described above, the Company still had interests in some oil and
gas properties. All of those oil and gas properties subsequently
were either plugged and abandoned or ceased producing and expired
by their own terms for failure to develop or failure to produce.
With the exception of one property in Moore County, Texas, which
was sold to an unrelated third party in exchange for an
obligation by that party to plug and abandon the wells at the
appropriate time and relieve the Company of that obligation and a
modest amount of cash which was not sufficient to completely pay
the outstanding obligations of that property at the time of sale.
The amount of such unpaid invoices were owed to Stahl Petroleum
Company, a company owned and controlled by the President of the
Company, which waived the payment of the balance due.
As a consequence of the foregoing transactions, the Company had
no source of cash flow or income and no properties with any
appreciable value.
The Company is currently engaged in the business of attempting to
consummate an acquisition of an operating company in order to
carry on the business of the operating company. The Company has
a letter of intent to acquire Natural Gas Technologies, Inc.
("NGT"), which currently owns 81 percent of the Company's Common
Stock. See "Share Exchange Transaction."
COMPETITION
Upon acquisition by the Company of NGT, the Company will be
engaging in the oil and gas business. Competition in the oil and
gas business is intense, particularly with respect to the
acquisition of producing properties, proved undeveloped acreage
and leases. Major and independent oil and gas companies actively
bid for desirable oil and gas properties and for the equipment
and labor required for their operation and development. Many of
the Company's competitors will have financial resources and
exploration and development budgets that are substantially
greater than those of the Company, and these may adversely affect
the Company's ability to compete.
REGULATION AND TAXATION
The Company's oil and gas business will be subject to various
federal, state and local laws and governmental regulations which
may be changed from time to time in response to economic or
political conditions. Matters subject to regulation include
discharge permits for drilling operations, drilling bonds,
reports concerning operations, the spacing of wells, unitization
and pooling of properties, taxation and environmental protection.
From time to time, regulatory agencies have imposed price
controls and limitations on production by restricting the rate of
flow of oil and gas wells below actual production capacity in
order to conserve supplies of oil and gas.
The Company's operations could result in liability for personal
injuries, property damage, oil spills, discharge of hazardous
materials, remediation and clean-up costs and other environmental
damages. The Company could be liable for environmental damages
caused by previous property owners. As a result, substantial
liabilities to third parties or governmental entities may be
incurred, the payment of which could have a material adverse
effect on the Company's financial condition and results of
operations. The Company intends to maintain insurance coverage
for its operations, including limited coverage for sudden
environmental damages, but does not believe that insurance
coverage for environmental damages that occur over time will be
available at a reasonable cost. Moreover, the Company does not
believe that insurance coverage for the full potential liability
that could be caused by sudden environmental damages will be
available at a reasonable cost. Accordingly, the Company may be
subject to liability or may lose substantial portions of its
properties in the event of certain environmental damages. The
Company could incur substantial costs to comply with
environmental laws and regulations.
The Oil Pollution Act of 1990 imposes a variety of regulations on
"responsible parties" related to the prevention of oil spills.
The implementation of new, or the modification of existing,
environmental laws or regulations, including regulations
promulgated pursuant to the Oil Pollution Act of 1990, could have
a material adverse impact on the Company.
The recent trend toward stricter standards in environmental
legislation and regulation is likely to continue. For instance,
legislation has been introduced in Congress that would reclassify
certain exploration and production wastes as "hazardous wastes"
which would make the reclassified wastes subject to much more
stringent handling, disposal and clean-up requirements. If such
legislation were enacted, it could have a significant impact on
the operating costs of the Company, as well as the oil and gas
industry in general. Initiatives to further regulate the
disposal of oil and gas wastes are also pending in certain
states, and these various initiatives could have a similar impact
on the Company.
EMPLOYEES AND PROPERTIES
The Company has one part-time, non-compensated employee, its
President. The Company's President devotes a modest amount of
time to the Company's business. The Company utilizes the
secretaries and bookkeepers employed by Stahl Petroleum Company.
The Company's offices are located at 1013 West 8th Avenue,
Amarillo, Texas 79101, in space which the Company shares with
Stahl Petroleum Company. The Company does not pay Stahl
Petroleum Company for secretarial and accounting services, office
rent, miscellaneous expenses or any other services or material.
In connection with the Share Exchange, the Company will be moving
its offices to the offices of NGT and will no longer utilize the
employees of Stahl Petroleum Corporation.
LEGAL PROCEEDINGS
The Company knows of no pending or threatened legal proceedings
which could result in a material loss to the Company.
PLAN OF OPERATION
The Company is currently focusing on the proposed transaction
with NGT described below. In the event that transaction does not
proceed, the Company will focus on the identification and
evaluation of other prospective merger or acquisition "target"
entities including private companies, partnerships or sole
proprietorships.
SHARE EXCHANGE TRANSACTION
The Company has entered into a letter of intent dated January 2,
1997 and modified March 17, 1997 (the "Letter of Intent") with
Natural Gas Technologies, Inc. ("NGT") for a share exchange
transaction ("Share Exchange"). The reason for the Share
Exchange is to carry out the Company's Plan of Operation to
acquire an operating company.
NGT is an independent company engaged in the exploration,
development and production of oil and gas. Its principle
executive offices are located at 16775 Addison Road, Suite 300,
Dallas, Texas 75248, phone (972) 713-6050. It was incorporated
in Texas in 1993 and currently has interests in a total of 17
wells located across four properties in Coke, Runnels and Coleman
Counties in west central Texas. As of the end of NGT's last
fiscal year, it had proved and developed reserves of 298,303
barrels of oil and 211,048 MMCF (millions of cubic feet) of
natural gas. In addition, NGT holds an option expiring in July
1997 to acquire a lease underlying an approximately 1,100 acre
water-flood project in North-Central Texas. NGT currently plans
to exercise this option prior to expiration and anticipates that
this acquisition will very substantially increase its proven and
developed reserves.
Pursuant to the Letter of Intent, NGT loaned the Company $100,000
pursuant to a non-interest bearing Convertible Promissory Note
(the "Note"). The Note converted by its terms on April 10, 1997
into 203,041,517 of authorized but unissued shares of the
Company's Common Stock, which resulted in NGT obtaining a
controlling interest in Lyric. Previously, no single person or
voting group controlled the Company. The source of the $100,000
was a loan from Brent Wagman, NGT's President.
The Share Exchange will commence after the approval of the
matters on the agenda at the Special Meeting. By virtue of the
shares acquired by NGT upon conversion of the Note, NGT holds
sufficient votes to assure shareholder approval of all of the
matters on the agenda. The Share Exchange will take place in two
stages. The first stage will occur immediately after the Special
Meeting and will consist of the exchange of approximately
2,357,000 shares of the authorized but unissued post-reverse
split shares of the Company for 3,060,550 NGT common shares,
which constitutes approximately eighty percent of the equity
interests in NGT. The NGT shares to be exchanged in the first
stage are held by certain officers, directors, affiliates and
sophisticated investors. The Company will control NGT upon
completion of the first stage.
The second stage will occur upon the approval by NGT shareholders
of the exchange of the remaining shares pursuant to an S-4
Registration Statement and Proxy Statement which registers the
exchange of all of the remaining equity interests in NGT into
shares of the authorized but unissued post-reverse split shares
of the Company and further provides for the distribution of the
878,043 post-reverse split shares of the Company issued to NGT
upon conversion of the Note to the shareholders of NGT
immediately prior to the Share Exchange. It is also contemplated
that the shares issued in the first stage of the Share Exchange
will be registered by such registration statement. NGT has
outstanding 9,597 shares of Series 1994-A preferred shares and
66,365 shares of Series 1994-B preferred shares. These preferred
shares are non-voting and will be converted upon the second stage
of the share exchange into the same number of Series 1994-A and
Series 1994-B preferred shares of the Company. These shares are
to be authorized and designated at the Special Meeting and are
described below. As of the record date, the Series 1994-A Shares
of NGT have accrued an aggregate of $9,175 in dividends and the
Series 1994-B Shares of NGT have accrued an aggregate of $17,150
in dividends. These amounts will become accumulated but unpaid
dividends of the respective series of preferred stock of the
Company to be issued in the exchange. The Company intends to
surrender the NGT preferred shares it acquires in the Share
Exchange. Upon completion of the Share Exchange, the current
shareholders of the Company will hold approximately five percent
of the total outstanding shares of the Company and the
shareholders of NGT will hold the remaining 95 percent, assuming
conversion of the preferred shares to be issued in the Share
Exchange. Notwithstanding the foregoing, the shareholders of NGT
may receive a greater interest in the Company as a result of
additional issuances of NGT shares for cash and in exchange for
additional oil and gas properties which may occur prior to the
Share Exchange. Any such issuances of NGT securities prior to
the Share Exchange will require the approval of the Board of
Directors of the Company.
The Share Exchange is expected to be accounted for as a purchase.
The Share Exchange is structured as a tax-free reorganization and
should not have any tax consequences for the shareholders of the
Company or NGT.
Under Colorado law, the Share Exchange may be effected by
resolution of the Board of Directors of the Company. Approval of
the shareholders of the Company is not required and Colorado law
does not grant dissenter's rights to the shareholders of the
Company.
The Share Exchange remains conditional upon the completion of
final documentation therefor, but is probable to occur. The
Reverse Split and the other matters under consideration at the
Special Meeting are not conditional upon the completion of the
Share Exchange and will be effected upon approval at the Special
Meeting.
As indicated above, NGT loaned the Company $100,000 pursuant to a
Convertible Note which has been converted according to its terms.
The Company used a portion of the $100,000 proceeds from this
transaction to pay $48,811 in accounts payable to Stahl Petroleum
Corporation, which is owned and controlled by G.E. Stahl, the
Company's President. In addition, the Company intends to use
approximately $35,000 of the $100,000 loan to pay compensation to
G.E. Stahl for his past services as President of the Company.
Other than these transactions, none of the Officers and Directors
of the Company have an interest in the Share Exchange or any
matter to be acted upon at the Special Meeting except interests
arising solely from their ownership of securities in the Company
and NGT. See "Security Ownership of Certain Beneficial Owners
and Management."
PROPOSALS BEING CONSIDERED
1. REVERSE STOCK SPLIT
The Board of Directors of the Company believes it advisable and
in the best interests of the Company to declare a one share for
231.2433 share reverse stock split (the "Reverse Split") of the
Company's $.01 par value common stock ("Common Stock"). As a
result of the Reverse Split, the currently outstanding
250,000,000 share of the Company will be converted into 1,081,112
shares, subject to increases due to rounding as described below.
The 250,000,000 shares of Common Stock authorized in the
Company's Articles of Incorporation will remain the same.
The Reverse Split is recommended in connection with the proposed
Share Exchange between the Company and NGT. The Reverse Split
(i) will allow the shareholders of NGT to obtain the agreed
percentage of outstanding shares of the Company and (ii) is hoped
to result in a price per share of Company Common Stock sufficient
to meet the initial listing requirements for the National
Association of Securities Dealers Automated Quotation System
("Nasdaq").
The principal effect of the Reverse Split will be the decrease of
the number of issued and outstanding shares of Common Stock from
250,000,000 to 1,081,112. The Common Stock issued pursuant to
the Reverse Split will be fully paid and nonassessable. The
voting rights and other rights that accompany the Common Stock
prior to the Reverse Split will not be altered by the Reverse
Split.
The certificates currently representing issued and outstanding
shares of Common Stock will be deemed to represent .00432445 (1
divided by 231.2433) times the number of shares of Common Stock
after the effective date of the Reverse Split. New shares of
Common Stock will be issued in due course as old shares are
tendered to the transfer agent for exchange or transfer.
Fractional shares of post-split Common Stock which result from
the division described above will be rounded up to the next whole
number of shares.
Shareholders are not required to exchange their certificate(s) of
pre-split Common Stock for post-split Common Stock. Shareholders
may, however, exchange their certificates for shares of
post-split Common Stock by surrendering their old certificates
representing shares of pre-split Common Stock to the Company's
transfer agent. Upon surrender to the transfer agent of the
share certificate(s) representing shares of pre-split Common
Stock and the applicable transfer fee, which presently is $15.00
per certificate, the holder will receive a share certificate
representing the appropriate number of shares of post-split
Common Stock.
The Reverse Split is also hoped to facilitate the Company's
anticipated application for listing on the National Association
of Securities Dealers Automated Quotation System SmallCap Market
("Nasdaq"). Trading on Nasdaq is desirable for a number of
reasons, including the likelihood of generating interest in the
Company's Common Stock by more investors and securities brokers
and better access to equity capital. The initial listing
requirements for the Nasdaq SmallCap Market have recently been
proposed to be amended, and Nasdaq is currently requiring all
companies which apply for listing to meet the new requirements.
The new requirements include:
1. $4,000,000 in net tangible assets. Net tangible assets
are total assets exclusive of goodwill minus total liabilities.
2. At least 300 shareholders and at least 1,000,000 shares
held by persons other than officers, directors and ten percent
shareholders (the "public float").
3. A minimum bid price of $4.00 and a market value of at
least $5,000,000 for the public float.
4. A minimum of three market makers.
Management believes that upon approval of the Reverse Split,
consummation of the Share Exchange, exercise of the option
currently held by NGT for acquisition of a lease for 1,100 acres
in North-Central Texas, and certain other contemplated property
acquisitions, the Company will meet all of the foregoing
requirements. However, no assurance can be given that the
Company will meet the foregoing requirements, particularly the
minimum bid price requirement, or that the Company's application
will be approved by Nasdaq.
The following table illustrates the effects of the proposed
Reverse Split and Share Exchange on the authorized and
outstanding number of shares of Common Stock.
Number of Shares Prior to After After
of Common Stock Reverse Split Reverse Split Share Exchange
(1)
Authorized 250,000,000 250,000,000 250,000,000
Outstanding 250,000,000 1,081,112(2) 4,022,470
Treasury 0 0 0
Reserved(1) 0 0 76,922(3)
Available for
Future Issuance 0 248,918,888 245,977,530
Percent of
Authorized
Available for
Future Issuance 0% 99.6% 98.4%
(1) Does not include additional shares which may be issued as a
result of property acquisitions by NGT or equity investments
in NGT prior to the share exchange or additional shares
which may be issued by the Company in connection with an
offering of the Company's securities.
(2) Does not include additional shares which will be issued as a
result of rounding. It is estimated that approximately
2,000 additional shares will be outstanding as a result of
such rounding.
(3) Reserved for issuance upon conversion of the Series 1994-A
and Series 1994-B Preferred Stock which will be issued in
the Share Exchange. See "Authorization of Preferred Stock."
2. AUTHORIZATION OF PREFERRED STOCK
The Board of Directors has recommended that the Articles of
Incorporation be amended to authorize 10,000,000 shares of no par
value preferred stock. 9,597 of such shares will be designated
in the amendment as Series 1994-A and 66,365 of such shares will
be designated in the amendment as Series 1994-B. The purpose of
this amendment is (i) to authorize and designate preferred shares
to be exchanged for the outstanding preferred shares of NGT and
(ii) to add flexibility to the Company's ability meet its future
capital needs. The Company has no current plans to issue shares
of preferred stock other than the shares of Series 1994-A and
1994-B to be issued in the Share Exchange. The full text of the
amendment, including the designations of rights and preferences
of the Series 1994-A and Series 1994-B Preferred Shares, is set
forth in Exhibit A attached to this Information Statement.
The terms and conditions of the Series 1994-A Preferred Stock are
as follows:
Dividend: 9.25% per annum cumulative cash dividend payable
quarterly. Because all dividends on the NGT Series 1994-A
preferred shares have been accrued, the shares of Series 1994-A
Preferred Stock will also be entitled to the amount of the
accrued but unpaid dividend, on the NGT Series 1994-A shares.
This amount is currently $0.956 per share.
Preference: The holders of the Series 1994-A Preferred
Stock will be entitled to a preference over all other equity
holders in liquidation equal to the $4.00 original purchase price
of the NGT shares plus all accumulated but unpaid dividends.
Voting Rights: None.
Conversion: Convertible at the option of the holder into 1.1
shares of Common Stock for each share of Series 1994-A Preferred
Stock.
Redemption: The Company may redeem the Series 1994-A
Preferred Shares upon ninety days written notice at $.05 per
share anytime after the Common Stock trades in a public market
and closes at $7.00 or more for twenty consecutive trading days.
Notwithstanding the foregoing, the shares will automatically
redeem for $.05 per share on June 30, 1999. Upon redemption, all
accumulated but unpaid dividends will be paid.
The terms and conditions of the Series 1994-B Preferred Stock are
as follows:
Dividend: 9.25% per annum cumulative cash dividend payable
quarterly. Because all dividends on the NGT Series 1994-B
preferred shares have been accrued, the shares of Series 1994-B
Preferred Stock will also be entitled to the amount of the
accrued but unpaid dividend on the NGT Series 1994-B shares.
This amount is currently $1.048 per share for 16,365 of such
shares and $-0- per share for 50,000 of such shares.
Preference: The holders of the Series 1994-B Preferred
Stock will be entitled to a preference over the common
shareholders in liquidation of $4.00 (equal to the purchase price
of the shares) plus all accumulated but unpaid dividends. The
shares of Series 1994-B Preferred Stock are however subordinate
in preference to the Series 1994-A Preferred Stock.
Voting Rights: None.
Conversion: Convertible at the option of the holder into
one share of Common Stock for each share of Series 1994-B
Preferred Stock.
Automatic Conversion: Each share of Series 1994-B Preferred
Stock will automatically convert into one share of Common Stock
after the Common Stock trades in a public market and closes at or
above $7.00 per share for ten consecutive trading days.
Conversion will not however occur until all accumulated but
unpaid dividends are paid.
The additional shares of authorized preferred stock may be issued
from time to time in one or more series and each such series will
have such designations, rates of dividend, redemption prices,
voting rights, liquidation preferences, sinking fund provisions,
conversion or exchange rights and other special rights as the
Board of Directors may fix prior to the time of issuance of such
series. The Board of Directors will be empowered to authorize
the Company to issue some or all of the additional preferred
stock at such time or times, to such persons and for such
consideration as it may deem desirable without a further vote of
the stockholders and without offering such preferred stock to the
holders of the Common Stock of the Company. If additional shares
of preferred stock are issued, the interests of the holders of
Common Stock could be diluted with respect to earnings per share,
liquidation rights, net asset value per share and market value
per share.
3. OTHER PROPOSALS TO AMEND THE ARTICLES OF INCORPORATION OF
THE COMPANY
The Board of Directors believes it advisable and in the best
interests of the Company to amend its Articles of Incorporation
(i) to change the name of the Company to Natural Gas
Technologies, Inc.; (ii) to eliminate the personal liability of
the Company's Directors and Officers to the Company and its
shareholders for monetary damages as a result of certain breaches
of fiduciary duty pursuant to the Colorado Business Corporation
Act; and (iii) to reduce the voting requirement for certain
fundamental corporate actions pursuant to the Colorado Business
Corporation Act. The full text of the foregoing amendments is
set forth in Exhibit A attached to this Information Statement.
A. NAME CHANGE
The purpose of the proposed amendment to the Company's Articles
of Incorporation to change the name of the Company to Natural Gas
Technologies, Inc. is to reflect that after the Share Exchange,
the principal business of the Company, through it wholly-owned
NGT subsidiary, will be the business of NGT. This amendment
should not have any adverse effect on the shareholders of the
Company.
B. EXONERATION OF OFFICERS AND DIRECTORS
The Colorado Business Corporation Act (the "BCA") permits a
Colorado corporation to amend its Articles of Incorporation to
eliminate or limit the personal liability of Directors and
Officers to the corporation or its shareholders for damages for
breach of fiduciary duty as a Director or Officer. No such
amendment may, however, eliminate or limit the liability of a
Director or Officer for (i) any breach of the Director's or
Officer's duty of loyalty to the corporation or to its
shareholders; (ii) acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law;
(iii) the payment of distributions in violation of Section
7-108-403 of the BCA or (iv) any transaction from which the
Director or Officer directly or indirectly derived an improper
personal benefit. The elimination of liability also does not
apply to any acts or omissions occurring prior to the date when
such provision becomes effective.
The Board of Directors has recommended this proposal in response
to (i) the increasing hazard of litigation and its related
expenses directed against Directors and Officers, (ii) the
general difficulty of obtaining Directors' and Officers'
liability insurance, (iii) the dramatic increases in premiums for
such insurance coverage and (iv) the potential inability to
continue to attract and retain qualified Directors and Officers
in light of these circumstances. Although none of the Company's
current Directors or Officers have indicated that they will no
longer serve absent changes to its Articles of Incorporation, the
Company is concerned that it may encounter difficulty in
attracting qualified individuals to serve as Directors or
Officers, a concern the Company believes it shares with many
other companies. In order to ensure that the Company will be
able to attract and retain experienced individuals to serve as
Directors and Officers, and as a matter of fairness, the Board of
Directors believes that the Company should provide the maximum
possible protection to its Directors and Officers consistent with
applicable law.
In general, in performing their duties, Directors and Officers of
a Colorado corporation are obligated as fiduciaries to exercise
their business judgment and act in what they determine in good
faith, after appropriate consideration, to be in the best
interests of the corporation and its shareholders. Decisions
made on that basis are ordinarily protected by the so-called
"business judgment rule" from being second guessed by a court in
a lawsuit challenging such decisions. The business judgment rule
is thus meant to protect Directors and Officers from personal
liability to the corporation or its shareholders when their
business decisions are subsequently challenged. However, for
various reasons, including the expense of defending lawsuits, the
frequency with which unwarranted litigation is brought against
Directors and Officers and the inevitable uncertainties with
respect to the outcome of applying the business judgment rule to
particular facts and circumstances, Directors and Officers often
rely for protection, as a practical matter, on insurance procured
by the corporation they serve.
Recent changes in the market for Directors' and Officers'
liability insurance have resulted in the unavailability for
Directors and Officers of many corporations of any meaningful
liability insurance coverage. Insurance carriers have in certain
cases declined to renew existing Directors' and Officers'
liability policies, or have increased premiums to such an extent
that the cost of obtaining such insurance becomes prohibitive.
Moreover, current policies often exclude coverage for areas where
the service of qualified independent Directors and Officers is
most needed. These limitations on the scope of insurance
coverage, along with high deductibles and low limits of
liability, have tended to undermine meaningful Directors and
Officers' liability insurance coverage. The company does not
currently carry Directors' and Officers' liability insurance
coverage. The premium rates for such insurance coverage are
currently cost-prohibitive for the Company.
Without the amendment to the Company's Articles of Incorporation,
the Company's Directors and Officers have a fiduciary duty of
care in their service as Directors and Officers which subjects
them to monetary liability to the Company and its shareholders
for breach of the duty of care. The duty of care requires a
Director and Officer to use that amount of care in the
performance of his duties which ordinarily careful and prudent
men would use in similar circumstances. The amendment would have
the effect of eliminating the liability of Directors and Officers
of the Company for monetary damages for breach of fiduciary duty
except for (i) any breach of the Director's or Officer's duty of
loyalty to the corporation or to its shareholders; (ii) acts or
omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; (iii) the payment of
distributions in violation of Section 7-108-403 of the BCA or
(iv) any transaction from which the Director or Officer directly
or indirectly derived an improper personal benefit. The
amendment will not eliminate or limit the right of the Company or
any shareholder to seek an injunction or any other non-monetary
relief in the event of a breach of a Director's or Officer's duty
of care. In addition, the amendment applies only to claims
against a Director or Officer arising out of his or her role as a
Director or Officer and many not relieve a Director or Officer
from liability unrelated to his fiduciary duty of care, such as
certain liabilities imposed on the Director or Officer under the
federal securities laws.
The Board of Directors acknowledges that current and future
Directors and Officers could benefit from the approval of the
foregoing amendment and, in this connection, the Directors and
Officers may be considered to have a conflict of interest and
have a personal interest in approval of the amendment at the
potential expense of the shareholders of the Company.
The Company's Directors and Officers have no insurance coverage
for derivative claims or third party claims. The Company's
Directors and Officers may be forced to personally absorb the
liabilities and expenses of future derivative and third party
claims. Alternatively, in certain instances, the Directors and
Officers may obtain some protection under the Company's
obligations under Colorado law and the Company's Articles of
Incorporation and Bylaws to indemnify them with respect to these
liabilities and expenses. The Company's indemnification
obligation, however, will not necessarily absorb all liabilities
and expenses to which the Directors and Officers may be exposed.
Corporate indemnification is not an adequate substitute for
liability insurance because the Directors and Officers cannot be
assured that the Company's financial circumstances will always
enable the Company to provide indemnification.
The amendment is not being proposed in response to any
resignation, threatened resignation or refusal to serve by any
Director or Officer of the Company or by any person the Company
desires to serve as a Director or Officer. Moreover, management
is unaware of any pending or threatened litigation against any
Director or Officer wherein a claim is made for breach of
fiduciary duty.
C. REDUCTION IN VOTING REQUIREMENTS
The BCA provides that for corporations in existence on June 30,
1994, unless otherwise provided in the corporation's articles of
incorporation, the vote of two-thirds of all the votes entitled
to be cast by each voting group are required to approve (i)
amendment to the corporation's articles of incorporation; (ii) a
plan of merger or share exchange; (iii) sale, lease, exchange or
other disposition of all or substantially all of the property of
a corporation otherwise than in the usual and regular course of
business; or (iv) the dissolution of a corporation or the
revocation of a dissolution. A corporation such as the Company
in existence prior to June 30, 1994 and which has only a single
voting group consisting of all of the common shareholders
requires the vote of two-thirds of all issued and outstanding
shares for any of the foregoing matters unless the articles of
incorporation provide that the voting requirements for such
corporation shall be the same as for corporations formed on or
after July 1, 1994.
The Board of Directors has proposed to adopt an amendment to the
Articles of Incorporation which reduces the voting requirement
for the foregoing corporate actions to that which would be
required to take the action if the action were to be taken by a
corporation formed on or after July 1, 1994. Following adoption
of this amendment, approval of each of the above corporate action
will require the following votes:
Action Vote Required for Approval
Amendment to the Company's Votes cast for matter exceed the
Articles of Incorporation votes cast against the matter at a
meeting at which a quorum is
present.
Plan of merger or share Majority of all votes entitled to
exchange be cast.
Sale, lease, exchange or Majority of all votes entitled to
other disposition of all be cast.
or substantially all of
the property of the
Company
Dissolution or revocation Majority of all votes entitled to
of dissolution be cast.
Due to the dispersion of the Company's shareholders, it is
difficult, if not impossible under ordinary circumstances for the
Company to locate and obtain the vote of two-thirds of the
outstanding shares without a material expenditure for the
solicitation of proxies. The Board of Directors believes that it
is in the best interests of the Company to reduce the voting
requirement to the votes indicated above so that a minority of
the Company's shareholders, through inaction or otherwise, will
not be able thwart the will of the majority. The Board of
Directors believes that reduction of the voting requirement will
(i) give the Company more flexibility to adapt its business
structure to changing needs and business strategies over time and
(ii) reduce the time and costs associated with proxy
solicitation. Other than as described in this Information
Statement, the Board of Directors has no plans at this time to
recommend any of the actions for which the voting requirement is
being reduced.
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
On rare occasions the Company's common stock is traded on the
over-the-counter market and quotes for the Common Stock are
reported in the National Quotation Bureau's "Pink Sheets." There
is no established market for the Company's Common Stock.
The following table sets forth the range of high and low bid
quotations, as reported by National Quotation Bureau:
Quarter Ended High Low
July 31, 1994 None None
October 30, 1994 None None
January 31, 1995 None None
April 30, 1995 None None
July 31, 1995 None None
October 30, 1995 None None
January 31, 1996 None None
April 30, 1996 None None
July 31, 1996 None None
October 30, 1996 None None
January 31, 1997 $.035 $ 0
The foregoing bid quotations reflect inter-dealer prices, without
mark-up, mark-down or commissions, and may not necessarily
represent actual transactions.
As of May 2, 1997, there were approximately 4,155 holders of
record of the Company's Common Stock.
No cash dividends have been declared with respect to the Common
Stock since its inception, and the Company has no present
intention to pay such dividends in the foreseeable future.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Described below are any transactions, or series of similar
transactions, for the Company's last two fiscal years, or any
currently proposed transaction, or series of similar
transactions, to which the Company was or is to be a party, in
which any of the Company's Officers, Directors or ten percent
shareholders had, or will have, a direct or indirect material
interest, naming such person and indicating the person's
relationship to the Company, the nature of such person's interest
in the transaction(s), the amount of such transaction(s) and,
where practical, the amount of such person's interest in the
transaction(s):
On December 1, 1982 the Registrant loaned Mr. Wesley Masters, a
former Director, $7,551 pursuant to a note bearing interest at
10% per annum. As of April 30, 1996, $17,681 was due on such
obligation. Such amount was applied against an obligation of the
Company to a trust controlled by Mr. Masters and the remainder of
that obligation of the Company was forgiven in January 1997.
In 1983, the Company loaned Mr. L. K. Hayhurst a total of $8,874
pursuant to two notes bearing interest at 10% per annum. As of
April 30, 1996, $12,752 was due on such notes. In January 1997,
the Company forgave the obligations under those notes in
consideration of Mr. Hayhurst's past uncompensated services to
the Company as Director.
As of April 30, 1996, Stahl Petroleum Company, over a period of
time had loaned to Registrant $43,692.34, for Registrant's
working capital and for Registrant to pay certain expenditures
incurred in the Natural Gas Pipeline Company of America
litigation described at Item 3(a)(i). That amount was repaid out
of the proceeds from conversion of the $100,000 loan to the
Company from NGT.
The Company believes that the foregoing transactions were on
terms at least as favorable as those which it could have obtained
from unaffiliated parties.
COMPLIANCE WITH SECTION 16(a) UNDER THE SECURITIES EXCHANGE ACT
OF 1934
Based solely on a review of reports filed with the Company, all
Directors and Executive Officers timely filed all reports
regarding transactions in the Company's securities required to be
filed during the last fiscal year by Section 16(a) under the
Securities Exchange Act of 1934.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the 1998
Annual Meeting of Shareholders must be received by the Company on
or before November 10, 1997 in order to be eligible for inclusion
in the Company's Proxy Statement and form of Proxy. To be so
included, a proposal must also comply with all applicable
provisions of Rule 14a-8 under the Securities Exchange Act of
1934.
OTHER MATTERS
The Board of Directors does not know of any other matters to be
brought before the Meeting.
By Order of the Board of
Directors
BRENT WAGMAN
Chairman of the Board
May 2, 1997
<PAGE>
INDEX TO PRO FORMA FINANCIAL INFORMATION AND FINANCIAL STATEMENTS
PAGE
UNAUDITED PRO FORMA COMBINED,
FINANCIAL INFORMATION
Introductory Note
Pro Forma Balance Sheet - As of
January 31, 1997
Pro Forma Statement of Operations
- For the Nine Months Ended
January 31, 1997
Pro Forma Statement of Operations
- For the Year Ended April 30, 1996
LYRIC ENERGY, INC.
Independent Auditor's Report
Balance Sheet - April 30, 1996
Statements of Operations - Years Ended
April 30, 1996 and 1995
Statements of Changes in Deficiency in
Assets - Years Ended April 30,
1996 and 1995
Statements of Cash Flows - Years
Ended April 30, 1996 and 1995
Notes to Financial Statements
Balance Sheet - January 31, 1997 (Unaudited)
Statements of Operations - Three Month
Periods Ended January 31, 1997 and 1996
and Nine Month Periods Ended January
31, 1997 and 1996 (Unaudited)
Statements of Cash Flows - Nine Month
Periods Ended January 31, 1997 and
1996 and November 1, 1996
(Inception) through January 31,
1997 (Unaudited)
Notes to Financial Statements (Unaudited)
NATURAL GAS TECHNOLOGIES, INC.
Report of Independent Certified Public
Accountants
Balance Sheet - April 30, 1996 and 1995
Statements of Operations - For the Years
Ended April 30, 1996 and 1995
Statement of Changes in Stockholders'
Equity - For the Years Ended April
30, 1996 and 1995
Statement of Cash Flows - For the
Years Ended April 30, 1996 and
1995
Notes to Financial Statements
<PAGE>
PRO FORMA COMBINED FINANCIAL STATEMENTS
Upon completion of final documentation, Lyric will acquire 100%
of the outstanding shares of Natural Gas Technologies, Inc. (NGT)
(a Texas corporation) in exchange for the issuance of new Lyric
shares. This transaction, coupled with the conversion of a note
payable to NGT into Lyric shares will cause former NGT
shareholders to own at least 95% of Lyric. This transaction
qualifies as a purchase for accounting purposes. However, the
transaction also is considered to be a reverse purchase whereby
NGT is considered to be the acquirer for accounting purposes. As
such, there are no adjustments to the carrying value of NGT
assets and liabilities to reflect current fair values and Lyric
has no assets and liabilities that require adjustment.
The transaction consists of three parts, a loan from NGT to Lyric
that is convertible into Lyric common stock, the distribution of
these shares by NGT to its stockholders, and the issuance of new
Lyric shares for outstanding NGT shares. A portion of the
transaction agreement calls for Lyric to reverse split its
outstanding shares after the note conversion by a factor of one
share for 231.2433 shares. The following table presents
summarized historical unaudited balance sheets for the two
entities, estimated adjustments required as a direct result of
the acquisition plan and the transactions contemplated therein,
and a pro forma consolidated balance sheet as of the date shown.
Adjustments consist of recording the effects of converting the
note, reverse splitting the outstanding shares, and issuing
shares for NGT shares.
<PAGE>
Pro Forma Balance Sheet
As of January 31, 1997
Lyric Adjust- Pro Forma
Energy NGT ments Combined
ASSETS
Cash $ - $ 237 $ - $ 237
Accounts receivable - 4,087 - 4,087
Oil and gas properties
(Full cost method) - 1,304,212 - 1,304,212
Other assets - 24,973 - 24,973
TOTAL ASSETS $ - 1,333,509 $ - $1,333,509
LIABILITIES AND
STOCKHOLDERS EQUITY
Liabilities:
Accounts payable and
accrued expenses $ 64,521 $42,731 $(64,521) $ 42,731
Loans from
stockholder - 36,989 - 36,989
Note payable - 20,968 - 20,968
Total Liabilities $ 64,521 100,688 (64,521) 100,688
Redeemable stock
(preferred A) - 38,388 - 38,388
Stockholders equity:
Preferred stock -
series B - 842,944 - 842,944
Common stock 469,584 2,757 (437,341) 35,000
Stock to be issued - 45,248 (45,248) -
Additional paid
in capital 1,690,545 1,031,683(1,677,540) 1,044,688
Retained deficit (2,224,650)(728,199) 2,224,650 (728,199)
Total Stockholders
Equity (64,521)1,194,433 64,521 1,194,433
TOTAL LIABILITIES
AND STOCKHOLDERS
EQUITY $ - $1,333,509 $ - $1,333,509
<PAGE>
The following table presents summarized historical statements of
operation of the two entities for the nine months ended January
31, 1997. These statements include the recognition during the
nine months of certain extraordinary items related to agreements
for the acquisition of NGT. The adjustments consist of
eliminating the related party interest along with the
extraordinary gain from debt forgiveness.
Pro Forma Statement of Operations
For the Nine Months Ended January 31, 1997
Lyric Adjust- Pro Forma
Energy NGT ments Combined
REVENUES $ - $56,741 $ - $56,741
Direct Expenses - 52,273 $ - 52,273
Depletion and
Depreciation - 138,916 - 138,916
Other Operating Expenses 114 63,777 - 63,891
Other Expenses (income) 5,928 3,666 5,928 3,666
Income from
Continuing
Operations 6,042 201,891 5,928 202,005
Extraordinary items:
Forgiveness of
debt 464,093 - (464,093) -
Net income $ 458,051 $(201,891) $(458,165) $(202,005)
Loss per share
before extra-
ordinary items $ (0.05)
The following table presents summarized historical statements of
operations of the two entities for the fiscal year ended April
30, 1996. The adjustment is the elimination of related party
interest that was based on related party debt eliminated in
January 1997 as debt forgiveness.
<PAGE>
Pro Forma Statement of Operations
For the Year Ended April 30, 1996
Lyric Adjust- Pro Forma
Energy NGT ments Combined
REVENUES $ - $ 185,332 $ - $ 185,332
Direct expenses - 120,147 - 120,147
Depletion and
depreciation - 146,619 - 146,619
Other operating
expenses 906 169,589 - 170,495
Other expense
(income) 8,891 28,207 (8,891) 28,207
Income from
continuing
operations (9,797) (279,230) 8,891 (280,136)
Extraordinary items:
Forgiveness
of debt - - - -
Net income $(9,797) $(279,230) $ 8,891 $(280,136)
Loss per share
before extra-
ordinary items $(0.07)
<PAGE>
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
The pro forma financial statements presented above assume that
the combination of these two entities will be approved by each
entity and that the transactions will occur in accordance with
the current agreements. They do not reflect any activities of
the entities subsequent to January 31, 1997. These statements do
not, and are not intended to, present a projection of the future
income of the combined entity. These pro forma statements also
do not include the effects on net assets of certain planned
transactions by NGT to acquire other oil and gas properties
through the issuance of NGT shares prior to the acquisition.
The stock transactions include the issuance of 203,041,517 Lyric
shares to NGT to convert the note payable. The reverse stock
split would result in outstanding shares of approximately
1,081,000. The subsequent issuance of Lyric shares for the
outstanding NGT shares would result in total outstanding Lyric
shares of 4,024,470 which has been used as the basis for the
earnings per share calculation.
LYRIC ENERGY, INC.
Financial Statements
April 30, 1996 and 1995
(with independent auditor's report thereon)
WILSON, HAAG & CO., P.C.
CERTIFIED PUBLIC ACCOUNTANTS
418 S. POLK, P.O. BOX 590, AMARILLO, TEXAS 79105
(806) 372-3331 FAX (806) 372-3355
Independent Auditor's Report
The Board of Directors and Stockholders
Lyric Energy, Inc.:
We have audited the accompanying balance sheet of Lyric Energy,
Inc. as of April 30, 1996, and the related statements of
operations, changes in deficiency in assets and cash flows for
the years ended April 30, 1996 and 1995. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Lyric Energy, Inc. as of April 30, 1996, and results of its
operations and its cash flows for the years ended April 30, 1996
and 1995, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed
in note 6 to the financial statements, the Company has been
relatively inactive during the past two years due to a lack of
operating assets and working capital and a significant deficiency
in assets. These factors raise substantial doubt about the
Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.
/S/ Wilson, Haag & Co., P.C.
WILSON, HAAG & CO., P.C.
January 10, 1997 (except for certain
information in note 5 as to which
the date is March 17, 1997)
Amarillo, Texas
<PAGE>
LYRIC ENERGY, INC.
Balance Sheet
April 30, 1996
Assets
Current asset - cash in bank $ 1,453
Liabilities and Deficiency in Assets
Current liabilities:
Accounts payable, trade (including
$48,811 due to related parties) 65,860
Judgement payable to a related party
(note 2) 250,000
Accrued interest payable to a related
party (note 2) 119,258
Advance from a related party (note 2) 88,907
Total current liabilities 524,025
Deficiency in assets:
Common stock - par value $.01 per share;
authorized 250,000,000 shares; issued
and outstanding 46,958,483 shares (note 5) 469,584
Additional paid-in capital 1,690,545
Deficit (2,682,701)
(522,572)
Commitment and contingency (notes 4 and 6)
$ 1,453
See accompanying notes to financial statements.<PAGE>
LYRIC ENERGY, INC.
Statements of Operations
Years ended April 30, 1996 and 1995
1996 1995
General and administrative expenses $ (906) (2,684)
Interest expense to related party (8,891) (8,891)
Net loss before income taxes (9,797) (11,575)
Income taxes (note 3) - -
Net loss $ (9,797) (11,575)
Net loss per common share (note 1) $ (.0002) (.0002)
See accompanying notes to financial statements.<PAGE>
LYRIC ENERGY, INC.
Statements of Changes in Deficiency in Assets
Years ended April 30, 1996 and 1995
Common Stock
Number Additional
of Paid-In
Shares Amount Capital Deficit Total
Balances
April
30,1994 46,958,483 $469,584 1,690,545 (2,661,329) (501,200)
Net
loss - - - (11,575) (11,575)
Balances
April
30, 1995 46,958,483 $469,584 1,690,545 (2,672,904) (512,775)
Net loss - - - (9,797) (9,797)
Balances
April
30, 1996 46,958,483 $469,584 1,690,545 (2,682,701) (522,775)
See accompanying notes to financial statements.
<PAGE>
LYRIC ENERGY, INC.
Statements of Cash Flows
Years ended April 30, 1996 and 1995
Increases (Decreases) in Cash
1996 1995
Cash flows from operating activities:
Cash paid to suppliers $ (67) (3,134)
Other 1,108 1,770
Net cash provided by (used in)
operating activities and net
increase (decrease) in cash 1,041 (1,364)
Cash at beginning of year 412 1,776
Cash at end of year $ 1,453 412
Reconciliation of Net Loss to
Net Cash Provided by (Used in) Operating Activities
1996 1995
Net loss $ (9,797) (11,575)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Net changes in the following:
Accounts payable, trade 1,947 1,320
Accrued interest 8,891 8,891
Net cash provided by (used in)
operating activities $ 1,041 (1,364)
See accompanying notes to financial statements.<PAGE>
LYRIC ENERGY, INC.
Notes to Financial Statements
April 30, 1996 and 1995
(1) General and Summary of Significant Accounting Policies
General
Lyric Energy, Inc. is a publicly registered company formerly
involved in the exploration and development of oil and gas
reserves. The Company currently has no interests in any oil
and gas properties and has been inactive during 1996 and
1995.
Pervasiveness of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures 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.
Net Loss Per Common Share
Net loss per common share was calculated by applying the
treasury stock method using weighted average outstanding
shares of 46,958,483.
(2) Related Party Transactions
Advance from a related party (ML&C Trust) consists of an
unsecured 10% demand note payable of $88,907. ML&C Trust is
controlled by a significant shareholder of the Company.
Interest expense of $8,891 was incurred on this advance
during 1996 and 1995. In January 1997, the Company received
a release of its obligation to repay this advance including
any interest which was accrued under the terms of the note.
The Company had a $250,000 judgement payable to a related
party (Dynamic Investing, Inc.) at April 30, 1996. Dynamic
Investing, Inc is owned by the president of the Company. In
December 1996, the Company received a release of the
judgement from the related party at no cost to the Company.
(3) Income Taxes
Income tax credits differ from the amounts computed by
multiplying losses before income taxes by the applicable
Federal income tax rates. The reasons for these differences
and the tax effect of each are as follows:
1996 1995
"Expected" income tax credit $ (3,300) (3,900)
Limitation on recognition of
income tax benefits of current
operating loss and tax credits 3,300 3,900
$ - -
At April 30, 1996, the Company had investment tax credit
carryforwards of approximately $26,000 available to offset
current Federal income taxes in future years which, if
unused, expire as follows: $15,000 in 1997; $6,000 in 1998;
$4,000 in 1999; and $1,000 in 2001. The Company has a
statutory depletion carryforward of approximately $219,000
which can be carried forward indefinitely. The Company has
tax net operating loss carryforwards of approximately
$2,714,000 which expire as follows: $140,000 in 2001;
$201,000 in 2002; $239,000 in 2003; $257,000 in 2004;
$354,000 in 2005; $305,000 in 2006; $840,000 in 2007;
$220,000 in 2008; $79,000 in 2009 and $79,000 in 2010.
These depletion and net operating loss carryforwards are
available to offset future Federal taxable income. The
deferred tax asset related to the above carryforwards has
been reduced to zero by a valuation allowance of equal
amount so that no tax benefits of any of these
carry-forwards are reflected in the financial statements.
(4) Commitment
In connection with a compromise and settlement agreement
related to a bank debt forgiveness in July 1991, the Company
agreed to issue additional common stock in the future as may
be required to maintain the bank at an 8.9976% ownership
interest.
(5) Subsequent Event
On January 2, 1997, the Company entered into a Letter of
Intent("LOI"), which was amended by subsequent negotiations
and a supplemental letter dated March 17, 1997, with Natural
Gas Technologies, Inc., a Texas corporation "NGT").
Pursuant to the LOI, NGT loaned the Company $100,000
pursuant to a noninterest-bearing convertible note dated
February 4, 1997, ("Note") and the loaned funds were placed
in escrow. The loan will be converted into 203,041,517
common shares, which are all of the remaining authorized but
unissued common shares of the Company, after the Company has
filed all of the required reports pursuant to the Securities
Exchange Act of 1934, as amended, and after the Company
obtains a waiver from the bank of the non-dilution rights
described in note 4. Upon such conversion, the loaned funds
will be released from escrow and paid to the Company for use
in satisfying all existing debts and encumbrances and to
settle all claims against it. If the Note is not converted
by December 31, 1997, the funds in escrow will be returned
to NGT. The LOI further provides for a share exchange
transaction whereby the shareholders of NGT would be issued
additional shares in the Company such that these
shareholders would own a total of 95 percent of the total
issued and outstanding common shares of the Company and NGT
would become a wholly-owned subsidiary of the Company. The
share exchange will occur after the Company holds a
shareholder meeting for the purpose of (i) approving a
reverse split of the Company's common stock which will
result in additional common shares being made available for
issuance in the shares exchange; (ii) authorizing 10,000,000
shares of no par value preferred stock approximately 25,000
of which will designated for exchange with NGT preferred
shareholders in the share exchange and the remaining
9,975,000 of which will be reserved for future issuance at
the discretion of the Board of Directors; and (iii)
approving certain other amendments to the Company's Articles
of Incorporation. The share exchange remains conditional
upon the completion of due diligence and final
documentation.
(6) Going Concern
The Company has been relatively inactive during the past two
years due to a lack of operating assets and working capital
and a significant deficiency in assets. These factors raise
substantial doubt about the Company's ability to continue as
a going concern. The Company is currently searching for the
acquisition of or merger with an operating company in order
to carry on the business of the acquired company. The
Company has signed a Letter of Intent to make such an
acquisition (see note 5). The ability of the Company to
continue as a going concern is dependent on the completion
of such an acquisition. The financial statements do not
include any adjustments that might be necessary if the
Company is unable to continue as a going concern.
<PAGE>
Lyric Energy, Inc.
(A Development Stage Enterprise)
Balance Sheet
(Unaudited)
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
January 31, 1997
Current liabilities
- accounts payable, trade
(including $48,811 due to
related parties) $ 64,521
Shareholders' deficiency:
Common stock, $.01 par value,
shares authorized,
250,000,000; issued and
outstanding, 46,958,483 469,584
Additional paid-in capital 1,690,545
Accumulated deficit
(net of $462,554 of earnings
during the development stage) (2,224,650)
Total shareholders' deficiency ( 64,521)
Total liabilities and
shareholders' deficiency $ -
See accompanying notes to financial statements.
Lyric Energy, Inc.
(A Development Stage Enterprise)
Statements of Operations
(Unaudited)
November
Three-Month Nine-Month 1, 1996
Periods Periods (Inception)
Ended Ended Through
January 31, January 31, January
1997 1996 1997 1996 31, 1997
Revenues $ - $ - $ - $ - $ -
General and
administrative
expenses (57) - (158) - (57)
Other income - - 44 - -
Interest expense
to related
party (1,482) (2,223) (5,928) (6,669) (1,482)
Net loss before
income taxes
and extra-
ordinary
items (1,539) (2,223) (6,042) (6,669) (1,539)
Income taxes - - - - -
Net loss before
extra-
ordinary
items (1,539) (2,223) (6,042) (6,669) (1,539)
Extraordinary
items (Note 3):
Forgiveness of
judgment pay-
able to related
party, net of
income taxes
of $- $ 250,000 - 250,000 - 250,000
Forgiveness of
advance payable
to related
party and
related accrued
interest, net of
income taxes
of $- 214,093 - 214,093 - 214,093
Net earnings
(loss) $ 462,554 $(2,223)458,051 $(6,669)$462,554
Weighted average
shares outstan-
ding 46,958,483 46,958,483 46,958,483 46,958,483 46,958,483
Net loss per
share before
extraordinary
items $ (.00003) $ (.00005) $(.0001) $(.0001) $ (.00003)
Net earnings
per share
from extra-
ordinary
items .01 - .01 - .01
Net earnings
(loss) per
common
share $.01 $ (.00005) $ .01 $ (.0001) $ .01
See accompanying notes to financial statements.
Lyric Energy, Inc.
(A Development Stage Enterprise)
Statements of Cash Flows
(Unaudited)
November 1, 1996
Nine-Month (Inception)
Periods Ended Through
January 31, 1997 January 31, 1997
1997 1996
Net cash used in
operating activities
and net decrease
in cash $(1,453) $[ ] $(23)
Cash at beginning
of period 1,453 412 23
Cash at end of
period $ - $[ ] $ -
Schedule of Noncash Financing Activities
Forgiveness of advance
payable to related
party $88,907 $ - $ 88,907
See accompanying notes to financial statements.
Lyric Energy, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
Note 1. Basis of Presentation
The unaudited financial statements and related notes to financial
statements presented herein have been prepared by the Company
pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and
regulations. The accompanying financial statements were prepared
in accordance with the accounting policies used in the
preparation of the Company's audited financial statements
included in its Annual Report on Form 10-KSB for the fiscal year
ended April 30, 1996 and should be read in conjunction with such
financial statements and the notes thereto.
Effective November 1, 1996, the Company returned to the
development stage in accordance with Statement of Financial
Accounting Standards No. 7, Accounting and Reporting by
Development Stage Enterprises, with its planned principal
activities consisting of the evaluation, structure and completion
of a merger with or acquisition of a privately owned corporation.
In the opinion of management, all adjustments (consisting only of
normal recurring adjustments) which are necessary for a fair
presentation of operating results for the interim periods
presented have been made.
Note 2. Going Concern
The Company has been relatively inactive during the past two
years due to a lack of operating assets and working capital and a
significant deficiency in assets. These factors raise
substantial doubt about the Company's ability to continue as a
going concern. The Company is currently searching for the
acquisition of or merger with an operating company in order to
carry on the business of the acquired company. The Company has
signed a Letter of Intent to make such an acquisition (see Note
4). The ability of the Company to continue as a going concern is
dependent on the completion of such an acquisition. The
financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going
concern.
Note 3. Related Party Transactions
As of December 31, 1996, the Company was obligated to repay an
advance from a related party (ML&C Trust) consists of an
unsecured 10% demand note payable of $88,907. ML&C Trust is
controlled by a significant shareholder of the Company. Interest
expense of $1,482, $2,223, $5,928 and $6,669 was incurred on this
advance during the three-month periods ended January 31, 1997 and
1996 and nine-month periods ended January 31, 1997 and 1996,
respectively. In January 1997, the Company received a release of
its obligation to repay this advance including any interest which
was accrued under the terms of the note.
The Company had a $250,000 judgment payable to a related party
(Dynamic Investing, Inc.) at November 30, 1996. The underlying
judgment occurred in 1993. Dynamic Investing, Inc. is owned by
the president of the Company. In December 1996, the Company
received a release of the judgment from the related party at no
cost to the Company.
Note 4. Letter of Intent and Promissory Note
On January 2, 1997, the Company entered into a Letter of Intent
("LOI"), which was amended by subsequent negotiations and a
supplemental letter dated March 17, 1997, with Natural Gas
Technologies, Inc., a Texas corporation ("NGT"). Pursuant to the
LOI, NGT loaned the Company $100,000 pursuant to a
noninterest-bearing convertible note dated February 4, 1997
("Note"), and the loaned funds were placed in escrow. The loan
will be converted into 203,041,517 common shares, which are all
of the remaining authorized but unissued common shares of the
Company, after the Company has filed all of the required reports
pursuant to the Securities Exchange Act of 1934, as amended, and
after the Company obtains a waiver from the bank of the Company's
commitment in connection with a compromise and settlement
agreement related to a bank debt forgiveness in July 1991 to
issue additional common stock in the future as may be required to
maintain the bank at an 8.9976% ownership interest. Upon such
conversion, the loaned funds will be released from escrow and
paid to the Company for use in satisfying all existing debts and
encumbrances and to settle all claims against it. If the Note is
not converted by December 31, 1997, the funds in escrow will be
returned to NGT. The LOI further provides for a share exchange
transaction whereby the shareholders of NGT would be issued
additional shares in the Company such that these shareholders
would own a total of 95 percent of the total issued and
outstanding common shares of the Company and NGT would become a
wholly-owned subsidiary of the Company. The share exchange will
occur after the Company holds a shareholder meeting for the
purpose of (i) approving a reverse split of the Company's common
stock which will result in additional common shares being made
available for issuance in the shares exchange; (ii) authorizing
10,000,000 shares of no par value preferred stock approximately
25,000 of which will be designed for exchange with NGT preferred
shareholders in the share exchange and the remaining 9,975,000 of
which will be reserved for future issuance at the discretion of
the Board of Directors; and (iii) approving certain other
amendments to the Company's Articles of Incorporation. The share
exchange remains conditional upon the completion of due diligence
and final documentation.
Item 2. Plan of Operation.
The Company is currently searching for an operating company to
acquire in order to carry on the business of the acquired
company. The Company has only engaged in preliminary efforts in
attempting to identify possible merger or acquisition candidates;
however, effective January 2, 1997, as amended March 17, 1997,
the Company has entered into a letter of intent with Natural Gas
Technologies, Inc. See "Letter of Intent and Promissory Note."
The Company has insufficient capital with which to provide merger
or acquisition candidates with substantial cash or other assets,
regardless, management believes that the Company offers potential
merger or acquisition candidates the opportunity to acquire a
controlling ownership interest in a public company at
substantially less cost than is required to conduct an initial
public offering.
Management contemplates that the Company will seek to merge with
or acquire a company with assets or earnings, or both. The
Company has not established a specific level of earnings or
assets below which the Company would not consider a merger
acquisition of the target company. Moreover, management may
identify and acquire a target company which is generating losses
if it believes that the prospects of the target company merit the
risks involved.
The Company has very limited liquidity and in fact in the absence
of being able to borrow money from its Chairman of the Board of
Directors or some other source, it will not be able to continue
operations. In recent history, the Company's sole source of
liquidity was in fact from loans of cash or services provided to
it by its Chairman. The Company does not plan on hiring third
party consultants to perform due diligence or market research
relative to availability of target companies but instead plans on
relying on its own judgment in determining the viability of the
merger and acquisition market and any target candidates which may
be made available to it. The Company's sole employee is its
Chairman and Chief Executive Officer and it is expected this
shall remain true until such time as the Company completes an
acquisition of a target operating company or a business of
another company by way of a merger transaction. As a result of
the Company's lack of cash, its only available form of
acquisition "capital" is its stock.
Letter of Intent and Promissory Note
On January 2, 1997, the Company entered into a Letter of Intent
with Natural Gas Technologies, Inc. ("NGT"), a Texas corporation
engaged in the exploration, development and production of oil and
gas properties. The Letter of Intent was amended March 17, 1997.
Pursuant to the Letter of Intent, NGT loaned the Company $100,000
pursuant to a non-interest bearing Convertible Promissory Note
(the "Note"). The Note automatically converts into 203,041,517
shares of the Company upon the later to occur of (i) the Company
becoming current on all reports required under Section 13 or
15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and (ii) the Company obtaining a waiver from
Amarillo National Bank of the Bank's non-dilution rights
contained in the July 31, 1991 agreement with the Bank. If the
Note does not convert prior to December 31, 1997, the funds in
escrow will be repaid to NGT. Upon conversion of the Note, the
Company has agreed to fill two vacancies on the Board of
Directors with two directors nominated by NGT.
The Letter of Intent further provides for a special meeting of
the shareholders of the Company to approve the following matters:
(i) a 268.3342 shares for one share reverse split of the
Company's common stock; (ii) a name change of the Company to
Natural Gas Technologies, Inc.; (iii) amendments to the Company's
articles of incorporation to eliminate the liability of officers
and directors in certain circumstances and to reduce the
shareholder voting requirements for certain significant corporate
actions; and (iv) the authorization of 10,000,000 shares of no
par value preferred stock which will be reserved for future
issuance in the discretion of the Board of Directors. Assuming
approval of the foregoing matters, the current shareholders of
the Company will upon conversion of the Note hold 175,000 shares
and NGT will hold 756,674 shares on a post-reverse split basis.
The special meeting will be held as soon as practicable after the
conversion of the Note, and all costs associated with the
meeting, including the preparation and mailing of the information
statements and notices will be borne by NGT.
The Letter of Intent further contemplates a share exchange
between NGT and Lyric. The share exchange is intended to take
place in two stages. The first stage will occur immediately
after shareholder approval of the matters specified above and
will consist of the exchange of approximately 2,055,000 shares of
the authorized but unissued post-reverse split shares of the
Company for approximately eighty percent of the equity interests
in NGT, which interests are held by certain officers, directors
and their family members and affiliates. The Company will
therefore control NGT upon completion of the first stage. The
second stage will occur upon the effective date of a registration
statement on Form S-4 which registers the exchange of all of the
remaining equity interests in NGT into approximately 513,000
shares of the authorized but unissued post-reverse split shares
of the Company and further providing for the distribution of the
756,674 post-reverse split shares of the Company issued to NGT
upon conversion of the Note to the shareholders of NGT
immediately prior to the share exchange. The foregoing terms are
subject to adjustment based upon the anticipated conversion of
certain preferred stock of NGT into common stock and based upon
certain anticipated oil and gas property acquisitions by NGT
prior to the share exchange. It is anticipated that upon
completion of the share exchange, the current shareholders of the
Company will hold five percent of the total outstanding shares of
Lyric and the shareholders of NGT will hold the remaining 95
percent.
The share exchange remains conditional upon the completion of due
diligence and final documentation therefor.
Liquidity and Capital Resources
On January 31, 1997, the Company had no cash on hand. At the
date of this report, the Company has entered into a Convertible
Promissory Note pursuant to which $100,000 has been loaned to
Company but is currently being held in escrow. Such funds will
be taken out of escrow and paid to the Company upon the later to
occur of (i) the Company becoming current on all reports required
under Section 13 or 15(d) of the Exchange Act and (ii) the
Company obtaining a waiver from Amarillo National Bank of the
Bank's non-dilution rights contained in a settlement agreement
with the Bank. See Note 4 of the Notes to Financial Statements
presented herein. Pursuant to a letter of intent between the
Company and the lender, the Company must use such funds for the
payment of outstanding obligations in preparation for a share
exchange with the lender. In the event the foregoing escrow
release conditions do not occur before December 31, 1997, the
funds in escrow will be repaid to the lender. Should this occur,
the Company will have inadequate liquidity on its own to carry
out its business plan and will have to rely on future advances
from its President and Sole Director.
Except for historical information contained herein, statements in
this discussion are forward looking statements. Forward looking
statements involve known and unknown risks and uncertainties
which may cause the Company's actual results in future periods to
differ materially from forecast results.<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
NATURAL GAS TECHNOLOGIES, INC.
Abilene, Texas
We have audited the accompanying balance sheets of Natural Gas
Technologies, Inc. as of April 30, 1996 and 1995 and the related
statements of operations, changes in shareholders' equity and
cash flows for the years 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 audits.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Natural Gas Technologies, Inc. at April 30, 1994, and the
results of its operations and its cash flows from inception to
April 30, 1994, in conformity with generally accepted accounting
principles.
Robert Early & Company, P.C.
Abilene, Texas
July 30, 1996<PAGE>
NATURAL GAS TECHNOLOGIES, INC.
Balance Sheet
April 30, 1996 and 1995
1996 1995
Assets
Cash $ 506 $ 19
Oil and gas properties 1,443,830 1,333,444
Lease and well equipment 29,503 7,277
Accumulated depreciation
and depletion (170,583) (24,346)
1,302,750 1,316,375
Investment in Wagman
Petroleum, Inc. stock 14, 464 14,464
Organizational costs
(net of amortization
of $1,114 and $732) 796 178
TOTAL ASSETS $ 1,318,516 $1,332,036
Liabilities and Stockholders' Equity
Liabilities
Accounts payable $ 15,629 $ 37,462
Accrued interest 80 46,263
Advances and amounts due officers - 53,322
Amount due Wagman Petroleum, Inc. - 44,977
Current portion of notes payable 18,794 396,988
Total Current Liabilities 34,503 579,012
Notes payable 15,434 -
TOTAL LIABILITIES 49,937 579,012
Redeemable Stock
Preferred stock, Series A
$4.00 par value (500,000 shares
authorized, 9,597 outstanding) 38,388 -
Stockholders's Equity
Preferred stock, Series B
$4.00 par value (500,000 shares
authorized, 210,736 outstanding) 842,944 -
Common stock, $.001 par value
(10,000,000 shares authorized,
2,330,130 and 2,343,562 outstanding) 2,330 2,344
Additional paid-in capital 497,573 473,994
Stock to be issued 579,785 739,897
Prepaid director fees (20,833) (70,833)
Retained earnings/(deficit) (671,608) (392,378)
Total Stockholders' Equity 1,230,191 753,024
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 1,318,516 $1,332,036
NATURAL GAS TECHNOLOGIES, INC.
Statements of Operations
For the years ended April 30, 1996 and 1995
1996 1995
Oil and gas revenues $ 156,736 $144,014
Other income 28,596 7,769
Total Revenues 185,332 151,783
Expenses:
Production taxes 5,737 7,768
Lease operating expenses 114,410 110,624
Depreciation, depletion
and amortization 146,619 23,239
Professional fees 10,571 -
Office expenses 3,002 6,411
Management and consulting fees 90,000 1,000
Rent 4,200 14,178
Secretarial services 500 1,428
Printing and distribution 2,092 6,884
Director fees 50,000 50,000
Taxes 1,885 1,051
Offering costs
(non-capitalizable) 4,000 113,061
Other expenses 3,339 17,588
Total Expenses 436,355 353,232
Income/(Loss) from Operations (251,023) (201,449)
Interest income - 75
Interest expense (28,207) (39,722)
NET (LOSS) $(279,230) $(241,096)
Primary loss per share $ (0.12) $ (0.10)
Weighted average shares
outstanding 2,398,254 2,387,546
Fully diluted loss per share $ (0.11) $ (0.09)
Weighted average shares
outstanding 2,618,587 2,607,879
<PAGE>
NATURAL GAS TECHNOLOGIES, INC.
Statement of Changes in Stockholders' Equity
For the years ended April 30, 1996 and 1995
Preferred Stock
Series A Series B
Shares Amount Shares Amount
BALANCES April 30, 1994 - $ - - $ -
Voluntary reduction in
shares held by
directors - - - -
Sale of option - - - -
Net loss - - - -
BALANCES April 30, 1995 - - - -
Stock issued for:
Cash 9,597 38,388 - -
Oil and gas
interests - - 16,360 65,440
Related party liabi-
lities - - - -
Exchange by Wagman
Petroleum Inc. of
common for preferred - - 194,376 777,504
Net loss - - - -
BALANCES
April 30, 1996 9,597 $ 38,388 210,736 $842,944
STOCK TO BE ISSUED
(Total Value)
For Oil and gas
interests - - 16,360 65,440
For Cash 9,597 38,388 - -
For Services - - - -
Exchange by Wagman
Petroleum Inc.
of common for
preferred - - 194,376 777,504
NATURAL GAS TECHNOLOGIES, INC.
Statement of Changes in Stockholders' Equity
For the years ended April 30, 1996 and 1995 (cont.)
BALANCES
April 30, 1995 9,597 $ 38,388 210,736 $842,944
Liabilities to
related parties - - - -
Liablities to
third parties - - - -
Oil and gas
interests - - - -
Promotional
services - - - -
BALANCES April 30, 1996 - - - -
The accompanying notes are an integral part of these financial
statements.<PAGE>
NATURAL GAS TECHNOLOGIES, INC.
Statement of Changes in Stockholders' Equity
For the years ended April 30, 1996 and 1995 (cont.)
Additi- Accumu-
onal lated
Common Stock Paid-In Earnings
Shares Amount Capital (Deficit)
BALANCES
April 30, 1994 $ 2,843,562 $2,844 $473,394 $(151,282)
Voluntary reduction
in shares held by
directors (500,000) (500) 500 -
Sale of option - - 100 -
Net loss - - - (241,096)
BALANCES
April 30, 1995 2,343,562 2,344 473,994 (392,378)
Stock issued for:
Cash 2,667 3 170 -
Oil and gas
interests 337,235 337 635,560 -
Related party liabi-
lities 165,000 165 164,835 -
Exchange by Wagman
Petroleum Inc. of
common for preferred (518,334) (518) (776,986) -
Net loss - - - (279,230)
BALANCES
April 30, 1996 $2,330,130 $2,331 $ 497,573 $(671,608)
The accompanying notes are an integral part of these financial
statements.<PAGE>
NATURAL GAS TECHNOLOGIES, INC.
Statement of Changes in Stockholders' Equity
For the years ended April 30, 1996 and 1995 (cont.)
Additi- Accumu-
onal lated
Common Stock Paid-In Earnings
Shares Amount Capital (Deficit)
STOCK TO BE ISSUED
(Total Value)
Oil and gas
interests $ 337,235 $ 337 $631,628 $697,405
Cash - - 104 38,492
Services 2,667 3 3,997 4,000
Exchange by Wagman
Petroleum Inc.
of common for
preferred (518,334) (518) (776,986) -
BALANCES
April 30, 1995 $842,944 $(178,432) $ ( 178) $(141,257)
Liabilities to
related parties 216,655 217 833,089 433,306
Liablities to
third parties 10,615 11 21,220 21,231
Oil and gas
interests 22,624 23 45,225 45,248
Promotional
services 200,000 200 79,800 80,000
BALANCES
April 30, 1996 $449,894 $ 451 $579,334 $579,785
The accompanying notes are an integral part of these financial
statements.<PAGE>
NATURAL GAS TECHNOLOGIES, INC.
Statement of Cash Flows
For the years ended April 30, 1996 and 1995
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (279,230) $ (241,096)
Adjustments to reconcile net income/(loss) to
net cash provided by operations:
Depreciation, depletion and amortization 146,619
23,239
Amortization of directors fees 50,000 50,000
Stock to be issued for services 80,000 -
Expensing
of prepaid offering costs - 35,107
Increase/(decrease) in:
Accounts payable (601) 8,495
Accrued expenses (32,033) 39,646
NET CASH (USED BY) OPERATING ACTIVITIES (35,245) (84,609)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (22,226) (7,277)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock to issued - 35,069
Advances from related parties 23,730 56,824
Note proceeds 35,000 -
Note payments (772) -
NET CASH PROVIDED BY FINANCING ACTIVITIES 57,958 91,893
Increase/(decrease) in cash for period 487 7
Cash, Beginning of period 19 12
Cash, End of period $ 506 $ 19
Supplemental Disclosures:
Cash payments for:
Interest $ 772 $ -
Income taxes - -
Stock and stock to be issued for:
Professional services $ 80,000 $ 4,000
Oil and gas properties 45,248 697,405
Reductions of accounts
and notes payable 619,537 -
NATURAL GAS TECHNOLOGIES, INC.
Notes to Financial Statements
April 30, 1996 and 1995
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Natural Gas Technologies, Inc. (NGT) was incorporated on April
26, 1993 and began operations in June 1993. NGT acquired
interests in various oil and gas properties in February and June
1994 and has been active in this industry since that time. The
nature of the oil and gas industry lends itself to uncertainties
and risks. NGT s interests are currently concentrated in the
Central Texas area.
NGT was in the development stage during the year ended April 30,
1994 and statements to that date reflected such status. The year
ended April 30, 1995 is the first year during which the Company
is considered an operating company.
The accounting and reporting policies of NGT conform with
generally accepted accounting principles and to general practices
within the industry. Policies that materially affect the
determination of financial position, changes in financial
position, and results of operations are summarized as follows:
Federal Income Taxes -- For Federal income tax purposes, NGT
reports its operations on the accrual basis of accounting.
Depreciation is calculated using the MACRS percentages. First
year expensing under Section 179 is utilized when it is
advantageous to do so.
Statement No. 109 (SFAS 109) "Accounting for Income Taxes"
requires that a liability approach to providing for deferred
taxes be used. That is, deferred taxes must be established for
all temporary differences between the book and tax bases of
assets and liabilities.
Oil and Gas Properties -- The Company has adopted the full cost
method of accounting for its oil and gas producing activities
and, accordingly, capitalizes all costs incurred in the
acquisition, exploration, and development of proved oil and gas
properties, including the costs of abandoned properties, dry
holes, geophysical costs, and annual lease rentals. In general,
sales or other dispositions of oil and gas properties are
accounted for as adjustments to capitalized costs, with no gain
or loss recorded.
Depletion and amortization are computed on a composite unit-of-
production method based on estimated proved reserves. All costs
associated with oil and gas properties are currently included in
the base for computation and amortization. The Company's proved
reserves were estimated by Company personnel based on previous
work done by a petroleum engineer. All of the Company's reserves
are located within the United States.
Depreciation is calculated on a straight line over the estimated
useful lives of the assets. This is seven years for lease and
well equipment.
Earnings per Share and Shares to be Issued -- Primary earnings
per share is calculated on the basis of weighted average common
shares outstanding which includes shares to be issued as
discussed below. Fully diluted earnings per share is calculated
based on the assumption that convertible preferred shares were
converted at the first of the year.
Shares to be issued represents shares that the Company has
contractually or otherwise agreed to issue. These have been
included in weighted average earnings per share as of the
effective date of the agreement rather than the date actually
issued.
Cash Flows -- The Company considers cash to be its only cash
equivalent for purposes of presenting its Statement of Cash
Flows.
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, the 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.
Environmental Issues -- The oil and gas industry is regulated in
Texas by the Texas Railroad Commission (RRC) and Texas Natural
Resources Conservation Commission. Leases are operated under
permits from the RRC. Failure to comply with regulations could
result in interruption or termination of the operations.
Additionally, upon cessation of use, the wells will require
plugging and site cleanup. Costs of voluntary termination and
remediation have been estimated to be insignificant on a well by
well basis and are expected to be recorded as incurred.
New Accounting Pronouncements -- Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
(SFAS 121) issued by the Financial Accounting Standards Board
(FASB) is effective for financial statements for fiscal years
beginning after December 15, 1995. The new standard establishes
new guidelines regarding when impairment losses on long-lived
assets, which include plant and equipment, and certain
identifiable intangible assets, should be recognized and how
impairment losses should be measured. The Company does not
expect adoption to have a material effect on its financial
position or results of operations.
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" (SFAS 123) issued by the FASB is
effective for specific transactions entered into after December
15, 1995 while the disclosure requirements of SFAS 123 are
effective for financial statements for fiscal years beginning no
later than December 15, 1995. The new standard establishes a
fair value method of accounting for stock-based compensation
plans and for transactions in which an entity acquires goods or
services from non-employees in exchange for equity instruments.
The Company does not expect adoption to have a material effect on
its financial position or results of operations. At the present
time, the Company has not determined if it will change its
accounting policy for stock-based compensation or only provide
the required financial statement disclosures. As such, the
impact on the Company's financial position and results of
operations is currently unknown.
Advertising Costs -- All advertising costs are expensed as
incurred.
NOTE 2: CHANGE IN ACCOUNTING ESTIMATE AND TERMINATION OF
AGREEMENT
During the periods presented, Management determined that it had
overestimated the value of the stock it had acquired in
Wagman Petroleum, Inc. In accordance with this determination,
the carrying value was reduced by $149,294. This reduction was
charged directly against Additional Paid in Capital as a
correction of the entry recorded in the year ended April 1994.
During the year ended April 1994, NGT was attempting to develop
an alternative fuel formulation. That attempt included
contracting for testing and refinement of the base formulation
through the issuance of 150,000 shares common stock. These
services were never provided to NGT. During fiscal 1996, NGT
obtained legal counsel regarding the cancellation of these shares
and attempted to get the shares returned. The opinion of legal
counsel was that NGT should prevail due to the original contract
having not been fulfilled. Accordingly, NGT notified the
contractor that the shares had been voided. This reversal has
been recorded as though it were effective in the year ended April
1995.
The balances for 1995 have been adjusted for effects of both of
these transactions and there is no effect to the results from
operations for either year presented.
NOTE 3: STOCK TRANSACTIONS
In order to acquire initial funding during 1993 and 1994, NGT
sold shares through two limited offerings under Regulation D of
the Securities and Exchange Commission. The Company also issued
shares to various entities for fund-raising and promotional
efforts, to certain entities for other services and
consideration, and to Wagman Petroleum, Inc. (WPI) for interests
in oil and gas properties. 150,000 shares and options to
purchase 100,000 additional shares of restricted stock at an
exercise price of $4 per share were issued to Warren Donohue of
Volvo America as compensation for his agreeing to serve as a
director of NGT for three years. These options were to commence
six months following the close of the public offering and expire
four years after commencement. Prepaid Director Fees of $150,000
was recorded as a result of this transaction based on the
Regulation D offering. No additional costs were recorded for the
options due to the exercise price.
NGT acquired 64,300 shares of WPI from unrelated parties in
exchange for 54,586 shares of NGT stock. There is no market for
WPI's shares and their value has been determined by an estimate
of the future value of WPI. The Company intends to hold this
investment for the foreseeable future.
During the year ended April 1995, NGT authorized 1,000,000 shares
of Preferred and designated it as Series A and Series B. Both of
these series have a nine and one-quarter percent cumulative
annual dividend, are convertible to common shares on a one for
one basis. Series A shares may be called by the Company at five
cents per share if the trading price of the common shares exceeds
seven dollars for twenty consecutive trading days. They also are
subject to a mandatory redemption at par five years from the
effective date of issuance. Series B shares automatically
convert to common if the trading price of the common shares
exceeds five dollars for ten consecutive trading days. Other
differences between the two series relate to the timing of and
number of shares subject to the conversion privileges. It is
believed that all of the outstanding preferred shares are
convertible at this time at the option of the holder at May 1,
1996.
The Company utilized its stock to purchase oil and gas working
interests effective July 1, 1994. This resulted in the issuance
of 337,235 common shares and 16,360 Series B preferred shares.
During the year ended April 1995, NGT s directors were advised
that it would be advantageous to the Company to reduce the number
of outstanding shares. Accordingly, the directors returned
500,000 shares that had been issued for their initial efforts in
organizing the Company. Also, WPI exchanged 518,334 shares of
common stock for 194,376 Series B Preferred stock. (The
directors' reduction in shares was the only stock transaction
where shares were actually issued during the year ended April
1995. The remaining shares were actually issued in the year
ended April 1996.)
During the year ended April 1996, WPI exercised an option of its
sale agreement and NGT issued 165,000 shares of common stock for
the benefit of WPI in exchange for reductions in advances,
accrued interest, and $100,000 of the note balance.
Effective in April 1996, NGT approved a request by its president
and WPI to issue 26,661 and 189,994 common shares, respectively,
in exchange for the complete liquidation of unreimbursed
expenses, advances owed, and the remaining note balance due to
WPI. Additionally, NGT negotiated an agreement to pay off
certain offering legal fees via the issue of 10,615 common shares
and finalized an agreement with a third party regarding specific
oil and gas interests that was effective May 1, 1995 through the
issue of 22,624 common shares and the assumption of $17,000 of
unpaid lease operating expenses. (The shares described in this
paragraph were yet to be issued at April 30, 1996 and are so
presented in the Balance Sheet.)
NOTE 4: TRANSACTIONS WITH RELATED PARTIES
Prior to May 1994, NGT had issued 1,925,000 shares of stock to
its directors and officers as compensation for services rendered
in developing the concept for the Company and pursuing efforts to
implement plans of action. As discussed above this number was
reduced by 500,000 shares during the 1995 fiscal year. In
addition, NGT purchased interests in specified oil and gas
properties from WPI effective February 1, 1994. The contract
called for WPI to receive cash, common stock, and a note.
As discussed above, NGT negotiated the exchange of the bulk of
WPI's common shares for preferred shares during the periods
presented. Also, the note was ultimately repaid via the issuance
of common stock along with other indebtedness to WPI in the
amount of $89,997 for a total of 354,994 shares. Also, the
Company s president accepted 26,661 shares for unreimbursed
expenses and cash advances in lieu of cash repayments.
NGT reimburses WPI for rent, postage, travel and other office
expenses. The Company's president owns approximately 45% of the
outstanding stock of WPI and also serves as WPI's president.
Additionally, WPI operates the properties in which NGT is an
owner. As such, WPI incurs expenses and bills them out to the
respective owners. Currently, WPI receives NGT's gas production
revenues and offsets them against amounts that NGT owes WPI.
NOTE 5: NOTES PAYABLE
During fiscal 1994, NGT entered into a note payable to WPI
in conjunction with the purchase of oil and gas properties for
$400,000. This note bore interest at 10 percent and was due to
be repaid out of proceeds from a stock offering or from oil and
gas production. It was retired during fiscal 1996 along with its
accrued interest through the issuance of common stock.
During February 1996, the Company borrowed $35,000 from a bank in
order to finance certain reworking expenses. This note bears
interest at 10 1/2 percent and is due in twenty-four installments
of $1,625 per month including interest. NGT has given its
interest in the wells being reworked as collateral for this note.
NOTE 6: OIL AND GAS PROPERTIES
As previously discussed, NGT acquired interests in oil and gas
properties from WPI during fiscal 1994. Effective July 1, 1995,
the Company acquired additional interests in these same
properties in exchange for stock. These interests are all
located in the central Texas area.
These properties are subject to tax liens for unpaid property
taxes owed by WPI. WPI has contested the values used by the
taxing authorities and is in the process of negotiating payment
of the back taxes. Should WPI be unsuccessful in settling these
tax liens, NGT and other interest owners could be caused to
forfeit any and all interests in the properties subject to such
liens to foreclosure by the taxing authorities. WPI is working
to ensure that this does not happen.
NOTE 7: REDEEMABLE STOCK
As discussed above, the Company s Series A preferred shares carry
a mandatory redemption at par at the end of five years. Both
preferred series may be converted to common stock by the Company
upon the attainment of specific circumstances. In accordance
with generally accepted accounting principles, the shares
carrying the mandatory redemption feature have been segregated
from the balance of the stockholders equity. The redemption for
these shares is due on July 1, 1999.
NOTE 8: INCOME TAXES
As of April 30, 1996 and 1995, NGT had accumulated deficits of
$670,608 and $392,378. However, operating loss carry-forwards
for tax purposes vary from these amounts due to differences in
the tax treatment of various items. These loss carry-forwards,
which should provide future benefits, expire as shown in the
following table.
Amount of
Year of Operating Loss
Expiration Carry-Forward
2009 $301,283
2010 90,343
2011 281,318
$672,944
The provision for income taxes is as follows:
1996 1995
Current
Federal $ - $ -
State - -
Deferred
Federal (132,473) (102,203)
State (16,774) (12,943)
Less allowance 149,247 115,146
Total $ - $ -
The following temporary differences gave rise to the deferred tax
assets and liabilities at April 30, 1996 and 1995:
1996 1995
Excess of tax depreciation over
financial accounting depreciation $ 2,088 $ 718
The deferred tax asset and liabilities are comprised of the
following at April 30, 1996 and 1995:
1996 1995
Assets Liabilities Assets Liabilities
Depreciation $ - $ 769 $ - $ 265
Net operating
losses
carried
forward 150,017 - 115,410 -
Less
valuation
allowance (149,247) - (115,146) -
Totals $ 769 $ 769 $ 115,410 $ 265
Due to the way future utilization of tax benefits is analyzed
under SFAS 109, an allowance for the full amount of any benefits
which may arise from operating loss carry-forwards has been made
and no asset has been recorded as a result.
NOTE 9: SUBSEQUENT EVENTS
The Company is in the process of negotiating an agreement to
acquire/merge with a Florida company whose primary business is
contracting with the state of Florida for soils testing and
removal of contaminated soils. Because of the early stages of
these negotiations, no pro forma combined schedules have been
presented.
Subsequent to April 1996, NGT purchased an option to acquire the
lease under an eleven hundred acre water-flood project in North-
Central Texas. Engineers have estimated that this lease has
significant potential if managed properly. This option calls for
the Company to pay $375,000 cash plus a note for the remaining
appraised value and is exercisable at any time prior to July
1997.
NOTE 10: SUPPLEMENTARY INFORMATION RELATING TO OIL AND GAS
PRODUCING ACTIVITIES
The accompanying disclosures of oil and gas producing activities
are unaudited due to the nature of reserve estimates and their
calculation. The balances at April 30, 1994 included certain
properties that included proven undeveloped reserves. During
fiscal 1995, it was determined that it would not be feasible for
the Company to develop these properties and their reserves were
eliminated from the estimated reserve base.
<PAGE>
NATURAL GAS TECHNOLOGIES, INC.
Supplementary Information Relating
To Oil and Gas Producing Activities
(Unaudited)
Quantities of Reserves Oil Gas
Proved and Developed Reserves (Barrels) (MCF)
Balances, April 30, 1994 144,680 85,457
Acquisitions 149,353 212,335
Revisions of estimates 28,146 12,637
Extensions and discoveries - -
Production (3,439) (14,119)
Balances, April 30, 1995 318,740 296,310
Acquisitions 13,253 -
Revisions of estimates - (68,052)
Production (33,690) (17,210)
Balances, April 30, 1996 298,303 211,048
Costs Incurred in Acquisition, Exploration,
and Development of Properties
1996 1995
Acquisition $ 45,248 $ 697,405
Standardized Measure of Discounted Future Net Cash Flows
1996 1995
Future cash inflows $ 5,451,124 $5,952,025
Future production and
development costs (743,276) (856,376)
Future income taxes (1,080,308) (1,212,160)
Future net cash flows 3,627,540 3,883,489
10% annual discount for
estimated timing of cash flows (919,028) (1,098,988)
Standardized measure of
discounted future net cash flows $ 2,708,512 $ 2,784,501
Principal Sources of Changes in the Standardized Measure of
Discounted Future Net Cash Flows
1996 1995
Standardized Measure-Beginning
of Year $ 2,784,501 $ 3,059,926
Acquisition of reserves in place 45,248 697,405
Sales, net of production costs (560,223) (40,392)
Extensions & discoveries - (1,515,352)
Changes in estimated
future development costs - (31,885)
Revisions of quantity estimates 7,609 140,705
Accretion of discount 365,674 424,022
Net change in income taxes 62,173 308,062
Changes in production timing and other 3,530 (257,990)
Changes in sales prices - -
Standardized Measure - End of Year $ 2,708,512 $ 2,784,501
<PAGE>
EXHIBIT A
SHAREHOLDER RESOLUTIONS APPROVING A REVERSE STOCK SPLIT AND
AMENDING THE ARTICLES OF INCORPORATION
OF
LYRIC ENERGY, INC.
Reverse Stock Split
RESOLVED, that the one share for 231.2433 share reverse
split of the Corporation's $.01 par value common stock pursuant
to resolutions of the Board of Directors dated April 14, 1997 is
hereby approved.
Authorization of Preferred Stock
RESOLVED, that the Articles of Incorporation of the
Corporation be amended by deleting Article Fourth thereof and
substituting therefor the following:
ARTICLE IV
Capital Stock
The aggregate number of shares which this corporation shall
have authority to issue is two hundred fifty million
(250,000,000) shares of $.01 par common stock ("Common Stock")
and ten million (10,000,000) share of no par value preferred
stock ("Preferred Stock").
The designations, powers, preferences and rights and the
qualifications, limitations or restrictions of the preferred
stock are as follows:
1. Series 1994-A Convertible Preferred Stock.
9,597 shares of Preferred Stock shall be designated as
Series 1994-A Preferred Stock and shall have the following
designations, powers, preferences and rights and the
qualifications, limitations or restrictions as follows:
A. Dividends.
(1) In each fiscal quarter of the corporation,
the holders of Series 1994-A Preferred Stock shall be entitled to
receive, out of funds legally available therefor, when and if
declared by the board of directors, before any cash dividends
shall be declared and paid upon or set aside for the Common Stock
or any other series of Preferred Stock in such fiscal year, a
cumulative dividend at the rate of $0.0925 per quarter on each
outstanding share of Series 1994-A Preferred Stock (as adjusted
for any stock split, stock dividend, recapitalization or the like
with respect to such shares ("Recapitalization Events")).
Dividends, if paid, or if declared and set apart for payment,
must be paid on, or declared and set apart for payment on, all
outstanding shares of Series 1994-A Preferred Stock.
(2) In addition to the foregoing, each share of
Series 1994-A Preferred Stock shall be entitled to a cumulative
dividend equal to the dividends accumulated prior to conversion
on that number of shares of Series 1994-A Preferred Stock in
Natural Gas Technologies, Inc., a Texas corporation ("NGT"),
which were converted into each share of Series 1994-A Preferred
Stock, out of funds legally available therefor, when and if
declared by the board of directors, before any cash dividends
shall be paid and set aside for the Common Stock or any other
series of Preferred Stock of the corporation.
B. Liquidation Preference.
(1) In the event of any liquidation, dissolution
or winding up of the corporation, either voluntary or
involuntary, the holders of Series 1994-A Preferred Stock shall
be entitled to receive, prior and in preference to any
distribution of any of the assets or surplus funds of the
corporation to the holders of the Common Stock or any other
series of Preferred Stock by reason of their ownership thereof,
the amount equal to four dollars ($4.00) per share for each share
of Series 1994-A Preferred Stock then held by them (as adjusted
for any Recapitalization Events) plus all accumulated but unpaid
dividends on their respective shares of Series 1994-A Preferred
Stock then held by them and no more (the "Series 1994-A Preferred
Liquidation Preference"). If upon the occurrence of such event,
the assets and funds thus distributed among the holders of the
Series 1994-A Preferred Stock shall be insufficient to permit the
payment to such holders of the full amount of such preference,
then the entire assets and funds of the corporation legally
available for distribution shall be distributed ratably among the
holders of the Series 1994-A Preferred Stock in proportion to the
shares then held by them.
(2) A consolidation or merger of the corporation
with or into any other corporation or corporations, or a sale of
all or substantially all of the assets of the corporation shall
be deemed a liquidation, a dissolution or winding up within the
meaning of this Section if more than fifty percent of the
surviving entity is not owned by persons who were holders of
capital stock or securities convertible into capital stock of the
corporation immediately prior to such merger, consolidation or
sale. In such event, the Series 1994-A Preferred Liquidation
Preference may be paid in cash or securities of any entity
surviving such liquidation event.
(3) The preference provisions set forth in
Section B(1) shall not prohibit distributions made by the
corporation in connection with the repurchase of shares of Common
Stock issued to or held by employees, directors or consultants of
or to the corporation or any of its subsidiaries upon termination
of their employment or services pursuant to agreements providing
for the right of such repurchase between the corporation and such
persons.
C. Notices of Record Date. In the event of any
taking by the corporation of a record of the holders of any class
of securities for the purpose of determining the holders thereof
who are entitled to receive any dividend (other than a cash
dividend) or other distribution, any security or right
convertible into or entitling the holder thereof to receive
additional shares of Common Stock, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right,
the corporation shall mail to each holder of Series 1994-A
Preferred Stock at least twenty days prior to the date specified
therein, a notice specifying the date on which any such record is
to be taken for the purpose of such dividend, distribution,
security or right, and the amount and character of such dividend,
distribution, security or right.
D. No Voting Rights. Except as may be required by
law, the shares of Series 1994-A Preferred Stock shall have no
voting rights.
E. Conversion. The holders of the Series 1994-A
Preferred Stock shall have conversion rights as follows (the
"Conversion Rights"):
(1) Optional Conversion. Each share of Series
1994-A Preferred Stock shall be convertible, at the option of the
holder thereof, at the office of the corporation or any transfer
agent for the Series 1994-A Preferred Stock, into 1.1 shares of
Common Stock (the "Series 1994-A Conversion Rate").
(2) Mechanics of Conversion. Any holder of
Series 1994-A Preferred Stock wishing to convert shares of Series
1994-A Preferred Stock into Common Stock shall surrender the
certificate or certificates therefor, duly endorsed, at the
office of the corporation or any transfer agent for the Series
1994-A Preferred Stock and shall give the corporation written
notice stating the name or names in which the holder wishes the
certificate or certificates for shares of Common Stock to be
issued. Any conversion pursuant to Section E(1) shall be deemed
to be effective for all purposes upon receipt by the corporation
or a transfer agent for the Series 1994-A Preferred Stock of such
certificates, duly endorsed, and such written notice and shall be
deemed to have been made immediately prior to the close of
business on the date thereof. As soon as practicable after the
effectiveness of any conversion of Series 1994-A Preferred Stock
and receipt by the corporation or the appropriate transfer agent
of certificates representing such Series 1994-A Preferred Stock,
duly endorsed, together with written notice stating the name or
names in which the holder wishes the certificate or certificates
for shares of Common Stock to be issued, the corporation shall
cause to be issued and delivered pursuant to the written
instructions of the holder of the converted Series 1994-A
Preferred Stock certificates representing the Common Stock into
which such Series 1994-A Preferred Stock has been converted;
provided, however, that the corporation shall not be required to
issue certificates for Common Stock in any name other than that
of the holder in the absence of assurances reasonably
satisfactory to the corporation that all stamp and other transfer
taxes relating to the transfer of such securities have been or
will be paid. Notwithstanding any issuance or lack thereof of
certificates representing Common Stock, from and after the
effectiveness of any conversion of Series 1994-A Preferred Stock,
the person or persons entitled to receive the shares of Common
Stock issuable upon conversion shall be treated by the
corporation for all purposes as the record holders of the Common
Stock obtainable upon such conversion and shall cease to have
any other rights of holders of Series 1994-A Preferred Stock.
(3) Fractional Shares Upon Conversion. No
fractional shares of Common Stock shall be issued upon conversion
of Series 1994-A Preferred Stock, and any fractional shares that
otherwise would result from conversion by a holder of all of such
holder's shares of Series 1994-A Preferred Stock (in the
aggregate) shall be redeemed by payment in an amount equal to
such fraction of the fair market value on the effective date of
conversion of a share of Common Stock as promptly as funds
legally are available therefor.
(4) Adjustment for Subdivisions or Combinations
of Common Stock. In the event the corporation at any time or
from time to time effects a subdivision or combination of its
outstanding Common Stock into a greater or lesser number of
shares without a proportionate and corresponding subdivision or
combination of Series 1994-A Preferred Stock, then the existing
Series 1994-A Conversion Price shall be decreased or increased
proportionately.
(5) Adjustment for Dividends, Distribution and
Common Stock Equivalents. In the event the corporation at any
time or from time to time makes or issues, or fixes a record date
for the determination of holders of Common Stock (but not holders
of Series 1994-A Preferred Stock) entitled to receive, a dividend
or other distribution payable in additional shares of Common
Stock or other securities or rights (hereinafter referred to as
"Common Stock Equivalents") convertible into or entitling the
holder thereof to receive additional shares of Common Stock
without payment of any consideration by such holder for such
Common Stock Equivalents or the additional shares of Common
Stock, then and in each such event the maximum number of shares
(as set forth in the instrument relating thereto without regard
to any provisions contained therein for a subsequent adjustment
of such number) of Common Stock issuable in payment of such
dividend or distribution or upon conversion or exercise of such
Common Stock Equivalents shall be deemed to be issued and
outstanding as of the time of such issuance or, in the event such
a record date has been fixed, as of the close of business on such
record date. In each such event, the then existing Series 1994-A
Conversion Rate shall be increased as of the time of such
issuance or, in the event such a record date has been fixed, as
of the close of business on such record date, by multiplying the
then effective Series 1994-A Conversion Rate by a fraction,
(a) the numerator of which shall be the
total number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance on the close of
business on such record date plus the number of shares of Common
Stock issuable in payment of such dividend or distribution or
upon conversion or exercise of such Common Stock Equivalents, and
(b) the denominator of which shall be the
total number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of
business on such record date; provided, however, that if such
record date has been fixed and such dividend is not fully paid or
if such distribution is not fully made on the date fixed
therefor, the Series 1994-A Conversion Rate shall be recomputed
accordingly as of the close of business on such record date and
thereafter the Series 1994-A Conversion Rate shall be adjusted
pursuant to this Section E(5) as of the time of actual payment of
such dividend or distribution.
(6) No Impairment. The corporation, whether by
amendment of its Articles of Incorporation or through any
reorganization, transfer of assets, merger, dissolution, issue or
sale of securities or any other voluntary action, shall not avoid
or seek to avoid the observance or performance of any of the
terms to be observed or performed hereunder by the corporation,
but at all times in good faith shall assist in the carrying out
of all of such action as may be necessary or appropriate in order
to protect the conversion rights pursuant to this Section E of
the holders of Series 1994-A Preferred Stock against impairment.
(7) Notice of Adjustments. Upon the occurrence
of each adjustment or readjustment of the Series 1994-A
Conversion Rate pursuant to this Section E, the corporation at
its expense shall compute such adjustment or readjustment in
accordance with the terms hereof and prepare and promptly furnish
to each holder of Series 1994-A Preferred Stock a written notice
setting forth (i) such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is
based, (ii) the Series 1994-A Conversion Rate at the time in
effect and (iii) the number of shares of Common Stock and the
amount, if any, of other property which at the time would be
received upon the conversion of Series 1994-A Preferred Stock
held by such holder.
(8) Reservation of Stock Issuable Upon
Conversion. The corporation at all times shall reserve and keep
available out of its authorized but unissued shares of Common
Stock solely for the purpose of effecting the conversion of the
shares of Series 1994-A Preferred Stock such number of its shares
of Common Stock as from time to time will be sufficient to effect
the conversion of all then outstanding shares of Series 1994-A
Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock is not sufficient to effect the
conversion of all then outstanding shares of Series 1994-A
Preferred Stock, in addition to such other remedies as may be
available to the holders of Series 1994-A Preferred Stock for
such failure, the corporation shall take such corporate action
as, in the opinion of its counsel, may be necessary to increase
its authorized but unissued shares of Common Stock to such number
of shares as will be sufficient for such purpose.
F. Redemption. The shares of Series 1994-A
Convertible Preferred Stock may be redeemed by the corporation,
at its option, as follows:
(1) Optional Redemption. The corporation shall
have the right at any time after the Common Stock trades in a
public market and closes at or above $7.00 per share (as adjusted
for any Recapitalization Events) for twenty consecutive trading
days, at its option, to give notice to the holders of the Series
1994-A Preferred Stock of its intention to redeem all of the
then-outstanding shares of Series 1994-A Preferred Stock, or any
portion thereof (the "Redemption Notice"); provided, however,
that such right is contingent upon all accumulated and unpaid
dividends being fully paid prior to the corporation's giving of
such notice.
(2) Mandatory Redemption. All of the outstanding
shares of Series 1994-A Preferred Stock shall automatically be
redeemed by the corporation on June 30, 1999; provided that the
corporation gives the holders the Redemption Notice required by
Section F(3) and further provided that all accumulated and unpaid
dividends on the Series 1994-A Preferred Stock are fully paid on
the date of such notice. Notwithstanding the provisions of
Section F(3), the Redemption Notice provided in connection with
the mandatory redemption may be given any time not more than 120
and not less than thirty days prior to June 30, 1999.
(3) Redemption Price and Payment. The shares of
Series 1994-A Preferred Stock to be redeemed hereunder shall be
redeemed by paying in cash an amount equal to $0.05 per share,
plus, in the case of each share, an amount equal to all
accumulated and unpaid dividends, computed to the date of such
redemption, such amount being referred to as the "Redemption
Price." Such payment shall be made in full on the date such
shares are redeemed to the holders entitled thereto.
(4) Redemption Mechanics. The corporation shall
give written notice (the "Redemption Notice") at least ninety but
not more than 120 days prior to the date on which the corporation
proposes to redeem the Series 1994-A Preferred Stock (the
"Redemption Date"), to each holder of record (at the close of
business on the business day next preceding the day on which the
Redemption Notice is given) of shares of Series 1994-A Preferred
Stock. The Redemption Notice shall notify each such holder of
the redemption and specify the Redemption Price, the Redemption
Date, the number of shares of Series 1994-A Preferred Stock to be
redeemed from such holder (computed on a pro rata basis in
accordance with the number of such shares held by all holders
thereof) and the place where such Redemption Price shall be
payable. From and after the close of business on a Redemption
Date, unless there shall have been a default in the payment of
the Redemption Price, all rights of holders of shares of Series
1994-A Preferred Stock (except the right to receive the
Redemption Price) shall cease with respect to the shares to be
redeemed on such Redemption Date, and such shares shall not
thereafter be transferred on the books of the corporation or be
deemed to be outstanding for any purpose whatsoever. If the
funds of the corporation legally available for redemption of
shares of Series 1994-A Preferred Stock on a Redemption Date are
insufficient to redeem the total number of shares of Series
1994-A Preferred Stock to be redeemed on such Redemption Date,
the holders of such shares shall share ratably in any funds
legally available for redemption of such shares according to the
respective amounts which would be payable to them if the full
number of shares to be redeemed on such Redemption Date were
actually redeemed. The shares of Series 1994-A Preferred Stock
required to be redeemed but not so redeemed shall remain
outstanding and entitled to all rights and preferences provided
herein. At any time thereafter when additional funds of the
corporation are legally available for the redemption of such
shares of Series 1994-A Preferred Stock, such funds shall be
used, at the end of the next succeeding fiscal quarter, to redeem
the balance of such shares, or such portion thereof for which
funds are then legally available, on the basis set forth above.
G. Notices. Any notices required by the provisions
of this Article IV to be given to the holders of shares of Series
1994-A Preferred Stock must be in writing and shall be deemed
given when delivered at the address of the recipient; provided,
however, that such address shall have been furnished in writing
to the person giving notice and the address shall be at an entity
that maintains regular business hours (except for holidays)
throughout the entire year. In the event that the address
furnished is not at an entity that maintains regular business
hours, notice shall be deemed given upon the earlier of personal
delivery or, if sent by registered or certified mail, at the
earlier of its receipt or 72 hours after deposit in a regularly
maintained receptacle for the deposit of the United States mail,
addressed and mailed as set forth above.
H. Amendment. Any term relating to the Series 1994-A
Preferred Stock may be amended only with the vote or written
consent of holders of not less than a majority of all Series
1994-A Preferred Stock then outstanding. Any amendment so
effected shall be binding upon the corporation and any holder of
Series 1994-A Preferred Stock.
I. Availability of Shares. The number shares of
Series 1994-A Preferred Stock which are converted or redeemed
pursuant to this Article IV shall be available in the discretion
of the board of directors for reissuance as any series of
Preferred Stock which may be designated by the board of
directors.
2. Series 1994-B Convertible Preferred Stock.
66,365 shares of Preferred Stock shall be designated as
Series 1994-B Preferred Stock and shall have the following
designations, powers, preferences and rights and the
qualifications, limitations or restrictions as follows:
A. Dividends.
(1) In each fiscal quarter of the corporation,
the holders of Series 1994-B Preferred Stock shall be entitled to
receive, out of funds legally available therefor, when and if
declared by the board of directors, before any cash dividends
shall be declared and paid upon or set aside for the Common Stock
or any other series of Preferred Stock other than the Series
1994-A Preferred Stock in such fiscal year, a cumulative dividend
at the rate of $0.0925 per quarter on each outstanding share of
Series 1994-B Preferred Stock (as adjusted for any stock split,
stock dividend, recapitalization or the like with respect to such
shares ("Recapitalization Events")). Dividends, if paid, or if
declared and set apart for payment, must be paid on, or declared
and set apart for payment on, all outstanding shares of Series
1994-B Preferred Stock.
(2) In addition to the foregoing, each share of
Series 1994-B Preferred Stock shall be entitled to a cumulative
dividend equal to the dividends accumulated prior to conversion
on that number of shares of Series 1994-B Preferred Stock in
Natural Gas Technologies, Inc., a Texas corporation ("NGT"),
which were converted into each share of Series 1994-B Preferred
Stock, out of funds legally available therefor, when and if
declared by the board of directors, before any cash dividends
shall be paid and set aside for the Common Stock or any other
series of Preferred Stock other than the Series 1994-A Preferred
Stock.
B. Liquidation Preference.
(1) In the event of any liquidation, dissolution
or winding up of the corporation, either voluntary or
involuntary, the holders of Series 1994-B Preferred Stock shall
be entitled to receive, prior and in preference to any
distribution of any of the assets or surplus funds of the
corporation to the holders of the Common Stock or any other
series of Preferred Stock other than the Series 1994-A Preferred
Stock by reason of their ownership thereof, the amount equal to
four dollars ($4.00) per share for each share of Series 1994-B
Preferred Stock then held by them (as adjusted for any
Recapitalization Events) plus all accumulated but unpaid
dividends on their respective shares of Series 1994-B Preferred
Stock then held by them and no more (the "Series 1994-B Preferred
Liquidation Preference").
(2) A consolidation or merger of the corporation
with or into any other corporation or corporations, or a sale of
all or substantially all of the assets of the corporation shall
be deemed a liquidation, a dissolution or winding up within the
meaning of this Section if more than fifty percent of the
surviving entity is not owned by persons who were holders of
capital stock or securities convertible into capital stock of the
corporation immediately prior to such merger, consolidation or
sale. In such event, the Series 1994-B Preferred Liquidation
Preference may be paid in cash or securities of any entity
surviving such liquidation event.
(3) The preference provisions set forth in
Section B(1) shall not prohibit distributions made by the
corporation in connection with the repurchase of shares of Common
Stock issued to or held by employees, directors or consultants of
or to the corporation or any of its subsidiaries upon termination
of their employment or services pursuant to agreements providing
for the right of such repurchase between the corporation and such
persons.
C. Notices of Record Date. In the event of any
taking by the corporation of a record of the holders of any class
of securities for the purpose of determining the holders thereof
who are entitled to receive any dividend (other than a cash
dividend) or other distribution, any security or right
convertible into or entitling the holder thereof to receive
additional shares of Common Stock, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right,
the corporation shall mail to each holder of Series 1994-B
Preferred Stock at least twenty days prior to the date specified
therein, a notice specifying the date on which any such record is
to be taken for the purpose of such dividend, distribution,
security or right, and the amount and character of such dividend,
distribution, security or right.
D. No Voting Rights. Except as may be required by
law, the shares of Series 1994-B Preferred Stock shall have no
voting rights.
E. Conversion. The holders of the Series 1994-B
Preferred Stock shall have conversion rights as follows (the
"Conversion Rights"):
(1) Optional Conversion. Each share of Series
1994-B Preferred Stock shall be convertible, at the option of the
holder thereof, at the office of the corporation or any transfer
agent for the Series 1994-B Preferred Stock, into one share of
Common Stock (the "Series 1994-B Conversion Rate").
(2) Mandatory Conversion. Each share of Series
1994-B Preferred Stock shall automatically convert into Common
Stock at the Series 1994-B Conversion Rate immediately upon the
Common Stock having traded in a public market and closing at or
above five dollars ($5.00) per share for ten consecutive trading
days ("Mandatory Conversion"); provided, however, that no such
Mandatory Conversion shall occur until all accumulated but unpaid
dividends shall have been paid up to the date of conversion.
(3) Mechanics of Conversion.
(a) Any holder of Series 1994-B Preferred
Stock wishing to convert shares of Series 1994-B Preferred Stock
into Common Stock pursuant to Section E(1) shall surrender the
certificate or certificates therefor, duly endorsed, at the
office of the corporation or any transfer agent for the Series
1994-B Preferred Stock and shall give the corporation written
notice stating the name or names in which the holder wishes the
certificate or certificates for shares of Common Stock to be
issued. Any conversion pursuant to Section E(1) shall be deemed
to be effective for all purposes upon receipt by the corporation
or a transfer agent for the Series 1994-B Preferred Stock of such
certificates, duly endorsed, and such written notice and shall be
deemed to have been made immediately prior to the close of
business on the date thereof.
(b) The Mandatory Conversion shall be deemed
to be effective for all purposes at the close of business on the
date of the Mandatory Conversion. Any holder of Series 1994-B
Preferred Stock may at any time after the Mandatory Conversion
surrender its certificate or certificates for the Series 1994-B
Preferred Stock at the office of the corporation or any transfer
agent for the Series 1994-B Preferred Stock and give written
notice stating the name or names in which the holder wishes the
certificate or certificates for shares of Common Stock to be
issued.
(c) As soon as practicable after the
effectiveness of any conversion of Series 1994-B Preferred Stock
and receipt by the corporation or the appropriate transfer agent
of certificates representing such Series 1994-B Preferred Stock,
together with written notice stating the name or names in which
the holder wishes the certificate or certificates for shares of
Common Stock to be issued, the corporation shall cause to be
issued and delivered pursuant to the written instructions of the
holder of the converted Series 1994-B Preferred Stock
certificates representing the Common Stock into which such Series
1994-B Preferred Stock has been converted; provided, however,
that the corporation shall not be required to issue certificates
for Common Stock in any name other than that of the holder in the
absence of assurances reasonably satisfactory to the corporation
that all stamp and other transfer taxes relating to the transfer
of such securities have been or will be paid.
(d) Notwithstanding any issuance or lack
thereof of certificates representing Common Stock, from and after
the effectiveness of any conversion of Series 1994-B Preferred
Stock, the person or persons entitled to receive the shares of
Common Stock issuable upon conversion shall be treated by the
corporation for all purposes as the record holders of the Common
Stock obtainable upon such conversion and shall cease to have
any other rights of holders of Series 1994-B Preferred Stock.
(4) Fractional Shares Upon Conversion. No
fractional shares of Common Stock shall be issued upon conversion
of Series 1994-B Preferred Stock, and any fractional shares that
otherwise would result from conversion by a holder of all of such
holder's shares of Series 1994-B Preferred Stock (in the
aggregate) shall be redeemed by payment in an amount equal to
such fraction of the fair market value on the effective date of
conversion of a share of Common Stock as promptly as funds
legally are available therefor.
(5) Adjustment for Subdivisions or Combinations
of Common Stock. In the event the corporation at any time or
from time to time effects a subdivision or combination of its
outstanding Common Stock into a greater or lesser number of
shares without a proportionate and corresponding subdivision or
combination of Series 1994-B Preferred Stock, then the existing
Series 1994-B Conversion Price shall be decreased or increased
proportionately.
(6) Adjustment for Dividends, Distribution and
Common Stock Equivalents. In the event the corporation at any
time or from time to time makes or issues, or fixes a record date
for the determination of holders of Common Stock (but not holders
of Series 1994-B Preferred Stock) entitled to receive, a dividend
or other distribution payable in additional shares of Common
Stock or other securities or rights (hereinafter referred to as
"Common Stock Equivalents") convertible into or entitling the
holder thereof to receive additional shares of Common Stock
without payment of any consideration by such holder for such
Common Stock Equivalents or the additional shares of Common
Stock, then and in each such event the maximum number of shares
(as set forth in the instrument relating thereto without regard
to any provisions contained therein for a subsequent adjustment
of such number) of Common Stock issuable in payment of such
dividend or distribution or upon conversion or exercise of such
Common Stock Equivalents shall be deemed to be issued and
outstanding as of the time of such issuance or, in the event such
a record date has been fixed, as of the close of business on such
record date. In each such event, the then existing Series 1994-B
Conversion Rate shall be increased as of the time of such
issuance or, in the event such a record date has been fixed, as
of the close of business on such record date, by multiplying the
then effective Series 1994-B Conversion Rate by a fraction,
(a) the numerator of which shall be the
total number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance on the close of
business on such record date plus the number of shares of Common
Stock issuable in payment of such dividend or distribution or
upon conversion or exercise of such Common Stock Equivalents, and
(b) the denominator of which shall be the
total number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of
business on such record date; provided, however, that if such
record date has been fixed and such dividend is not fully paid or
if such distribution is not fully made on the date fixed
therefor, the Series 1994-B Conversion Rate shall be recomputed
accordingly as of the close of business on such record date and
thereafter the Series 1994-B Conversion Rate shall be adjusted
pursuant to this Section E(5) as of the time of actual payment of
such dividend or distribution.
(7) No Impairment. The corporation, whether by
amendment of its Articles of Incorporation or through any
reorganization, transfer of assets, merger, dissolution, issue or
sale of securities or any other voluntary action, shall not avoid
or seek to avoid the observance or performance of any of the
terms to be observed or performed hereunder by the corporation,
but at all times in good faith shall assist in the carrying out
of all of such action as may be necessary or appropriate in order
to protect the conversion rights pursuant to this Section E of
the holders of Series 1994-B Preferred Stock against impairment.
(8) Notice of Adjustments. Upon the occurrence
of each adjustment or readjustment of the Series 1994-B
Conversion Rate pursuant to this Section E, the corporation at
its expense shall compute such adjustment or readjustment in
accordance with the terms hereof and prepare and promptly furnish
to each holder of Series 1994-B Preferred Stock a written notice
setting forth (i) such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is
based, (ii) the Series 1994-B Conversion Rate at the time in
effect and (iii) the number of shares of Common Stock and the
amount, if any, of other property which at the time would be
received upon the conversion of Series 1994-B Preferred Stock
held by such holder.
(9) Reservation of Stock Issuable Upon
Conversion. The corporation at all times shall reserve and keep
available out of its authorized but unissued shares of Common
Stock solely for the purpose of effecting the conversion of the
shares of Series 1994-B Preferred Stock such number of its shares
of Common Stock as from time to time will be sufficient to effect
the conversion of all then outstanding shares of Series 1994-B
Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock is not sufficient to effect the
conversion of all then outstanding shares of Series 1994-B
Preferred Stock, in addition to such other remedies as may be
available to the holders of Series 1994-B Preferred Stock for
such failure, the corporation shall take such corporate action
as, in the opinion of its counsel, may be necessary to increase
its authorized but unissued shares of Common Stock to such number
of shares as will be sufficient for such purpose.
F. Notices. Any notices required by the provisions
of this Article IV to be given to the holders of shares of Series
1994-B Preferred Stock must be in writing and shall be deemed
given when delivered at the address of the recipient; provided,
however, that such address shall have been furnished in writing
to the person giving notice and the address shall be at an entity
that maintains regular business hours (except for holidays)
throughout the entire year. In the event that the address
furnished is not at an entity that maintains regular business
hours, notice shall be deemed given upon the earlier of personal
delivery or, if sent by registered or certified mail, at the
earlier of its receipt or 72 hours after deposit in a regularly
maintained receptacle for the deposit of the United States mail,
addressed and mailed as set forth above.
G. Amendment. Any term relating to the Series 1994-B
Preferred Stock may be amended only with the vote or written
consent of holders of not less than a majority of all Series
1994-B Preferred Stock then outstanding. Any amendment so
effected shall be binding upon the corporation and any holder of
Series 1994-B Preferred Stock.
H. Availability of Shares. The number shares of
Series 1994-B Preferred Stock which are converted or redeemed
pursuant to this Article IV shall be available in the discretion
of the board of directors for reissuance as any series of
Preferred Stock which may be designated by the board of
directors.
3. Other shares of Preferred Stock.
All shares of Preferred Stock not designated in these
Articles of Incorporation may be issued from time to time in one
or more series and for such consideration as the board of
directors shall determine. Subject to the limitations set forth
herein and any limitations then prescribed by law, authority
is hereby expressly granted to the board of directors to fix by
resolution from time to time the designation of such series and
the powers, preferences and rights of the shares of such series,
and the qualifications, limitations or restrictions thereof,
including, without limitation, the following:
A. The designation and number of shares comprising
such series, which number may from time to time be decreased by
the board of directors (but not below the number of such shares
then outstanding) or may be increased (unless prohibited by
action of the board of directors in resolutions creating such
series);
B. The rate, amount and times at which, and the
preferences and conditions under which, dividends shall be
payable on shares of such series, including, without limitation,
whether such dividends are cumulative or noncumulative and
whether the shares of such series participate or do not
participate in additional dividends after the payment of
preferential dividends with respect to such shares;
C. Any rights and preferences of the holders of
shares of such series upon the liquidation, dissolution or
winding up of the affairs of, or upon any distribution of the
assets of, the corporation, and whether such amounts vary
depending upon whether such liquidation, dissolution or winding
up is voluntary or involuntary;
D. The full or limited voting rights, if any, of the
shares of any such series, in addition to voting rights provided
by law; and whether or not, under what conditions and with
respect to what subject matters, the shares of such series shall
be entitled to vote separately as a class;
E. Any times, terms and conditions upon which the
shares of such series may be subject to redemption and the
amount, terms, conditions and manner of operation of any
purchase, retirement or sinking fund to be provided with respect
to the redemption of such shares;
F. Any rights to convert such shares into, or to
exchange such shares for, shares of any other class or classes or
of any other series of the same class, including, without
limitation, the prices, rates, conversion or exchange and any
other terms or conditions applicable to such conversion or
exchange;
G. Any limitations upon the payment of dividends or
the making of distributions on or the acquisition or redemption
of common stock of any other class of shares subordinate to the
shares of such series with respect to the payment of dividends;
H. Any conditions or restrictions upon the issue of
any additional shares on a parity with or superior to the shares
of such series; and
I. Any other relative powers, preferences or rights
and any other qualifications, limitations or restrictions with
respect to the shares of such series as the board of directors
may deem advisable and as shall not be inconsistent with the
provisions hereof.
Except as specified by these Articles of Incorporation
or the board of directors, all shares of Preferred Stock shall be
identical to and of equal rank with all shares of any other
series of Preferred Stock, except as to the terms from which
cumulative dividends, if any, shall accumulate.
4. Common Stock
A. Dividends. Dividends in cash, property or shares
of the corporation may be paid upon the Common Stock, as and when
declared by the board of directors, out of funds of the
corporation to the extent and in the manner permitted by law.
B. Distribution in Liquidation. Upon any
liquidation, dissolution or winding up of the corporation, and
after paying or adequately providing for the payment of all its
obligations, the remainder of the assets of the corporation shall
be distributed, either in cash or in kind, pro rata to the
holders of the Common Stock.
C. Voting Rights; Cumulative Voting. Each
outstanding share of Common Stock shall be entitled to one vote
and each fractional share of Common Stock shall be entitled to a
corresponding fractional vote on each matter submitted to a vote
of shareholders. Cumulative voting shall not be allowed in the
election of directors of the corporation.
D. Denial of Preemptive Rights. No holder of any
shares of the corporation, whether now or hereafter authorized,
shall have any preemptive or preferential right to acquire any
shares or securities of the corporation, including shares or
securities held in the treasury of the corporation.
Name Change
FURTHER RESOLVED, that such Articles be amended by
deleting Article I thereof and substituting therefor the
following:
ARTICLE I
Name
The name of the corporation shall be: Natural Gas
Technologies, Inc.
Limitation of Liability for Directors and Officers
FURTHER RESOLVED, that such Articles be amended by
adding Article XIII as follows:
ARTICLE XIII
Limitation of Liability for Directors and Officers
No director or officer of the corporation shall have
any personal liability to the corporation or its
shareholders for monetary damages for breach of fiduciary
duty as a director or officer; provided that directors and
officers shall not be exonerated from liability for monetary
damages for (a) any breach of the director's or officer's
duty of loyalty to the corporation or to its shareholders;
(b) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (c)
the payment of distributions in violation of section
7-108-403 of the Colorado Business Corporation Act or (d)
any transaction from which the director or officer directly
or indirectly derived an improper personal benefit.
Reduction in Voting Requirement
FURTHER RESOLVED, that such Articles be amended by
adding Article XIV as follows:
ARTICLE XIV
Certain Voting Requirements
With respect to any action to be taken by shareholders
of this corporation which pursuant to the Business
Corporation Act requires the vote of two-thirds of the
outstanding shares of each voting group entitled to vote
thereon as a result of the corporation having been in
existence on June 30, 1994, the vote required to approve
such action shall be the same as the vote which would be
required under the Colorado Business Corporation Act to
approve such action if the corporation were formed on or
after July 1, 1994.
