<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
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:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
METRO CAPITAL CORPORATION
(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):
[ ] $125 per Exchange Act Rules 0-11 (c) (1) (ii), 14a-6 (i) (1), or
14a-6 (i) (2).
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6 (i) (3).
[ ] Fee computed on the table below per Exchange Act Rules 14a-6 (i) (4)
and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, $.01 par value .
-------------------------------
(2) Aggregate number of securities to which transaction applies:
$7,717,820.
----------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
$1.00 per share, based upon the estimated fair market value for
------------------------------------------------------------------
restricted shares .
------------------------
(4) Proposed maximum aggregate value of transaction: 7,717,820 .
----------------
(5) Total fee paid: $1,544 .
------------
[X] 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 No.: .
---------------------
(3) Filing Party: .
-----------------------------------------------------
(4) Date Filed: .
---------------------------------------
<PAGE>
METRO CAPITAL CORPORATION
716 College View Drive
Riverton, Wyoming 82501
(307) 856-3800
_____________________________________________________________________________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held On November 27, 1995
_____________________________________________________________________________
November 10, 1995
TO THE SHAREHOLDERS OF METRO CAPITAL CORPORATION:
A Special Meeting of Shareholders of Metro Capital Corporation, a
Wyoming corporation (the "Company"), will be held at the Company's offices at
716 College View Drive, Riverton, Wyoming 82501 on November 27, 1995 at 1:00
p.m., Mountain Time, to consider and take action on:
1. A proposal to ratify the Asset Purchase Agreement among the Company,
Karlton Terry Oil Company, Karlton Terry and Jubal Terry and the transactions
related thereto. (Requires the affirmative vote of a majority of the votes
cast at the Special Meeting.)
2. The election of three directors to serve until the next Annual
Meeting of Shareholders and until their successors have been elected and
qualified. (Requires the affirmative vote of a plurality of the votes cast
at the Special Meeting.)
3. A proposal to amend the Company's Articles of Incorporation to (a)
change the Company's name to American Rivers Oil Company; (b) increase the
number of authorized shares of Common Stock, $.01 par value, to 20,000,000
shares and the number of authorized shares of Preferred Stock, $.50 par
value, to 5,000,000 shares; and (c) to authorize a total of 8,000,000 shares
of Class B Common Stock with a par value of $.01 per share. (Requires the
affirmative vote of a majority of the votes entitled to be cast.)
4. A proposal to approve an increase in the number of shares of the
Company's Common Stock covered by the Company's 1992 Stock Option Plan for
employees (including officers), directors and consultants of the Company to
500,000 shares. (Requires the affirmative vote of a majority of the votes
cast at the Special Meeting.)
5. Such other business as may properly come before the meeting, or any
adjournment or adjournments thereof.
<PAGE>
The discussion of the proposals of the Board of Directors set forth
above is intended only as a summary, and is qualified in its entirety by the
information relating to the proposals set forth in the accompanying Proxy
Statement.
Only shareholders of record at the close of business on November 6,
1995, will be entitled to notice of and to vote at this special meeting, or
any adjournment or adjournments thereof.
Date: November 10, 1995 By Order of the Board of Directors:
Robert E. Thrailkill, President
YOU ARE URGED TO DATE, SIGN AND PROMPTLY RETURN YOUR PROXY SO THAT YOUR
SHARES MAY BE VOTED IN ACCORDANCE WITH YOUR WISHES. THE GIVING OF SUCH PROXY
DOES NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IN THE EVENT YOU ATTEND THE
MEETING.
YOUR VOTE IS IMPORTANT
-2-
<PAGE>
METRO CAPITAL CORPORATION
PROXY STATEMENT
FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 27, 1995
NOVEMBER 10, 1995
THIS PROXY STATEMENT IS FURNISHED IN CONNECTION WITH A SOLICITATION OF
PROXIES (IN THE FORM ENCLOSED) BY THE BOARD OF DIRECTORS OF METRO CAPITAL
CORPORATION (THE "COMPANY") TO BE USED AT THE SPECIAL MEETING OF SHAREHOLDERS
AT 1:00 P.M. (MOUNTAIN TIME), ON NOVEMBER 27, 1995 AT THE COMPANY'S OFFICES
AT 716 COLLEGE VIEW DRIVE, RIVERTON, WYOMING 82501. THE PROXY AND PROXY
STATEMENT WILL BE MAILED TO SHAREHOLDERS ON OR ABOUT NOVEMBER 11, 1995.
REVOCABILITY OF PROXY
If the enclosed Proxy is executed and returned, it will be voted on the
proposals as indicated by the shareholder. The Proxy may be revoked by the
shareholder at any time prior to its use by notice in writing to the
Secretary of the Company, by executing a later dated proxy and delivering it
to the Company prior to the meeting or by voting in person at the meeting.
SOLICITATION
The cost of preparing, assembling and mailing the Notice of Meeting,
Proxy Statement and Proxy (the "Proxy Materials"), miscellaneous costs with
respect to the Proxy Materials and solicitation of the Proxies will be paid
by the Company. The Company also may use the services of its directors,
officers and employees to solicit Proxies, personally or by telephone and
telegraph, but at no additional salary or compensation. The Company intends
to request banks, brokerage houses and other custodians, nominees and
fiduciaries to forward copies of the Proxy Materials to those persons for
whom they hold such shares and request authority for the execution of the
Proxies. The Company will reimburse them for the reasonable out-of-pocket
expenses incurred by them in so doing.
VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS
Shareholders of record at the close of business on November 6, 1995 will
be entitled to vote on all matters. On the record date the Company had
1,599,455 shares of Common Stock, $.01 par value (the "Common Stock"),
outstanding. The holders of the Common Stock are entitled to one vote per
share. The Company has no class of voting securities outstanding other than
its Common Stock. One third of the issued and outstanding shares of the
Company's Common Stock entitled to vote, represented in person or by proxy,
constitutes a quorum at any shareholders' meeting. Broker non-votes and
abstentions will be counted for purposes of determining a quorum; however,
they will not be counted as votes cast. Therefore, such votes will not
affect the outcome of the voting on
<PAGE>
Proposal Numbers One, Two and Four; however, they will have the effect of a
negative vote or a vote against Proposal Number Three.
The following table sets forth certain information as of November 6,
1995 with respect to each person known by the Company to be the beneficial
owner of more than five percent of the Company's Common Stock.
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percent
of Beneficial Owner Beneficial Ownership of Class
- ------------------- -------------------- --------
<S> <C> <C>
Robert E. Thrailkill 444,880 (1) 25.1%
716 College View Drive
Riverton, Wyoming 82501
John A. Alsko 120,750 (2) 7.1%
716 College View Drive
Riverton, Wyoming 82501
Robert J. Thrailkill 86,250 (3) 5.2%
716 College View Drive
Riverton, Wyoming 82501
</TABLE>
_____________
(1) Includes currently exercisable options to acquire 120,000 shares of Common
Stock.
(2) Includes currently exercisable options to acquire 55,000 shares of Common
Stock.
(3) Includes currently exercisable options to acquire 40,000 shares of Common
Stock.
The following table sets forth certain information as of November 6,
1995 with respect to the beneficial ownership of the Company's Common Stock
by each director and executive officer, and by all directors and executive
officers as a group.
<TABLE>
<CAPTION>
Amount and Nature of Percent
Beneficial Owner Title Beneficial Ownership of Class
- ---------------- ----- -------------------- --------
<S> <C> <C> <C>
Robert E. Thrailkill Chairman of the Board, 444,880 (1) 25.1%
President and CEO
Gene E. York Director 30,013 (2) 1.8%
John R. Benesch Director, 31,720 (3) 1.9%
Secretary/Treasurer
John A. Alsko Vice-President Finance 120,750 (4) 7.1%
All executive officers 627,363 34.0%
and directors as a ======= ====
group (four persons)
</TABLE>
________________
-2-
<PAGE>
(1) Includes currently exercisable options to acquire 120,000 shares of Common
Stock.
(2) Includes currently exercisable options to acquire 10,000 shares of Common
Stock.
(3) Includes currently exercisable options to acquire 10,000 shares of Common
Stock.
(4) Includes currently exercisable options to acquire 55,000 shares of Common
Stock.
No change in control of the Company has occurred since the beginning of
the last fiscal year.
A change in control of the Company will occur if the Asset Purchase
Agreement among the Company, Karlton Terry Oil Company, Karlton Terry and
Jubal Terry is ratified by the shareholders. See "Proposal Number One."
DIRECTORS AND EXECUTIVE OFFICERS
The following are the current directors and executive officers of the
Company:
<TABLE>
<CAPTION>
Name Age Office
---- --- ------
<S> <C> <C>
Robert E. Thrailkill 63 Chairman of the Board, President and
Chief Executive Officer
Gene E. York 70 Director
John R. Benesch 70 Secretary/Treasurer and Director
John A. Alsko 54 Vice-President Finance
</TABLE>
ROBERT E. THRAILKILL. Mr. Thrailkill has been President, Chief
Executive Officer and Director of the Company since its inception in 1981.
Mr. Thrailkill's business background spans over 32 years of management
responsibility in privately and publicly-held companies. Mr. Thrailkill
devotes his full time to the business of the Company.
GENE E. YORK. Mr. York has been a Director of the Company since 1982.
He was a Senior Vice President of Operations for the Company until his
retirement in 1989.
JOHN R. BENESCH. Mr. Benesch was appointed as Secretary/Treasurer and a
Director of the Company in 1986. Mr. Benesch served on the Board of
Directors of a bank in Riverton, Wyoming for 22 years until his retirement
and also served in various other capacities, including President, at the bank.
JOHN A. ALSKO. Mr. Alsko was employed by the Company in November 1986
and was elected Vice-President Finance in February 1987. Prior to joining
the Company, he was employed in various financial positions with other
privately and publicly-held companies and public accounting firms. Mr. Alsko
is a Certified Public Accountant.
-3-
<PAGE>
The directors of the Company are elected to hold office until the next
annual meeting of shareholders or until a successor has been elected and
qualified. Officers of the Company are elected annually by the Board of
Directors and hold office until their successors are duly elected and
qualified.
No arrangement or understanding exists between any of the above officers
and directors pursuant to which any one of those persons was selected to such
office or position. None of the directors hold directorships in other
companies.
During the last fiscal year the Company's Board of Directors took
unanimous action through four sets of minutes of action.
The Company has no nominating, compensation or audit committees.
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act"), requires the Company's executive officers and directors, and persons
who own more than 10% of the outstanding common stock of the Company to file
reports of ownership and changes in ownership with the Securities and
Exchange Commission (the "SEC") and NASDAQ. Based solely on its review of
the copies of such reports received by it, or written representations from
certain reporting persons that no Forms 5 were required for those persons,
the Company believes that during fiscal 1995, its executive officers,
directors and greater than ten percent shareholders complied with all
applicable filing requirements, except as follows: Robert E. Thrailkill
(failed to file on a timely basis five reports relating to five
transactions), Gene E. York (failed to file on a timely basis six reports
relating to six transactions) and John A. Alsko (failed to file on a timely
basis two reports relating to two transactions). The Delinquent reports were
all filed within the past fiscal year, and, to the best knowledge of the
Company, all of its officers and directors are currently in compliance with
the filing requirements.
Except as disclosed in Proposal Number One, there were no transactions
during the last two fiscal years, or proposed transactions, in which the
Company was or is to be a party with any director, director nominee,
executive officer or any member of the immediate family of any director,
director nominee, or executive officer having a direct or indirect material
interest of more than 10% in any business or professional entity involved in
such transactions. No officer, director or director nominee of the Company
has been indebted to the Company directly or indirectly during fiscal year
1995 in an amount exceeding $60,000. See "Proposal Number One - Interest of
Management in Matters to be Acted Upon."
-4-
<PAGE>
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE.
The following table sets forth the compensation received by the Chief
Executive Officer for the years ended March 31, 1995, 1994 and 1993. No
other executive officer had total annual salary and bonus exceeding $100,000
for the year ended March 31, 1995.
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation Awards
------------------------------------- ----------------------------
Name and Other Annual Restricted Options
Principal Position Year Salary Bonus Compensation Stock Award ($) SARS (#)
- ------------------ ---- -------- ----- ------------ --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Robert E. Thrailkill 1995 $145,000 $ -- $ -- $15,500 (1) $50,000 (2)
President, Chief
Executive Officer and 1994 $145,000 3,000 -- -- --
Director
1993 $120,000 -- -- -- --
</TABLE>
__________
(1) Consists of 25,000 shares of Common Stock allocated and issued from the
1987 Stock Bonus Plan with a fair market value of $.62 per share on the
award date.
(2) Consists of Common Stock underlying options exercisable on date of grant
(September 6, 1994) at a per share exercise price of $.68 and expires five
years thereafter.
The columns for "Long-Term Incentive Payouts" and "All Other Compensation"
were omitted from the Summary Compensation Table since there was no
information reportable for the years ended March 31, 1995, 1994 and 1993.
OPTION/SAR GRANTS TABLE.
The following table provides information with respect to the grant of
stock options pursuant to the Company's 1992 Stock Option Plan to the Chief
Executive Officer in fiscal 1995. The Company does not have any outstanding
Stock Appreciation Rights ("SARs").
<TABLE>
<CAPTION>
Number of % of Total Options Potential Realizable Value at
Securities Granted to Exercise or Assumed Annual Rates of
Underlying Options Employees in Fiscal Base Price Expiration Stock Price Appreciation for
Name Granted (#) Year 1995 ($/Share) Date Option Term (1)
- ---- ------------------ ------------------- ----------- ---------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
5% 10%
------ -------
Robert E. Thrailkill 50,000 62.5% $.68(2) 9/06/99 $9,394 $20,755
</TABLE>
__________
(1) The dollar amounts under these columns represent the potential
realizable value of the grant of option assuming that the market
price of the Company's Common Stock appreciates from
-5-
<PAGE>
the date of grant at 5% and 10% annual rates prescribed by the SEC and
therefore are not intended to forecast possible future appreciation, if
any, of the price of the Company's Common Stock.
(2) The exercise price is the fair market value of the stock on the date of
grant.
AGGREGATED OPTION EXERCISE AND FISCAL YEAR-END OPTION VALUE TABLE.
There were no exercises of stock options by the Chief Executive Officer
in fiscal 1995. The following table shows the number of shares covered by
both exercisable and non-exercisable stock options as of March 31, 1995 and
their values at such date. There are no SARs outstanding at March 31, 1995.
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised In-the-Money
Name Unexercised Option at FY-End (#) Options at FY-End ($)(1)
- ---- -------------------------------- ---------------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert E. Thrailkill 86,000 9,000 $16,000 --
</TABLE>
__________
(1) On March 31, 1995, the last reported bid price of the Common Stock as
quoted on NASDAQ was $1.00 per share. Value is calculated on the basis of
the difference between the option price and $1.00 multiplied by the number
of shares of Common Stock granted at that option price. The option price
for the options granted in fiscal 1995 is $.68 per share and the option
price for the options granted in fiscal 1992 is $1.44 per share. At March
31, 1995, the last reported bid price was lower than the option price for
the options granted in fiscal 1992 and, therefore, no value is ascribed to
those options in the above table.
COMPENSATION OF DIRECTORS.
During fiscal 1995, the Company paid John R. Benesch and Gene E. York
each $3,600 for services as directors. All directors are reimbursed for
their travel expenses in connection with meetings. There are no other
arrangements whereby any of the Company's directors received compensation for
services as a director during fiscal 1995 in addition to or in lieu of the
amounts stated above.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS.
In September 1993, the Company renegotiated, effective as of January 1,
1993, the Executive Employment Agreement with Robert E. Thrailkill, the
Company's President. The Agreement is for a five year term and is renewable
from year to year thereafter unless terminated by either party. Under the
Agreement, Mr. Thrailkill is paid an annual salary of $145,000, which salary
may be increased by the Board of Directors from time to time in accordance
with normal business practices
-6-
<PAGE>
of the Company; his expenses are reimbursed in accordance with the Company's
policies and procedures; he continues to receive previously established
employee benefits and he is entitled to participate in any future benefit
made available by the Company to its executives. The Agreement terminates
upon death or disability and may be terminated by the Company for cause (as
defined in the Agreement). The Agreement also may be terminated upon a
breach of the Agreement, and in the event there is a change in control of the
Company (as defined in the Agreement). If the Agreement is terminated
because of a breach of the Agreement by the Company or a change in control,
the Company shall pay severance pay equal to the product of (a) the annual
salary rate in effect multiplied by (b) the greater of the number of years
(including partial years) remaining in the term of employment or the number
three. The Agreement provides that upon death, the Company shall pay half of
the annual salary; upon disability, the Company shall pay the salary for the
balance of the term of the Agreement (less amounts paid by insurance) or
until the executive becomes gainfully employed, whichever is sooner; and,
upon termination for cause, the Company shall pay any salary due up to the
termination date. In connection with the Asset Purchase Agreement described
in Proposal Number One, the Company and its wholly-owned subsidiary, Bishop
Cable Communications Corporation, plan to enter into a Management Agreement
with Mr. Thrailkill which will supersede the Executive Employment Agreement.
SEE "Proposal Number One."
PROPOSAL NUMBER ONE
A PROPOSAL TO RATIFY THE ASSET PURCHASE AGREEMENT
THE ASSET PURCHASE AGREEMENT.
Pursuant to an Asset Purchase Agreement dated October 19, 1995 among the
Company, Karlton Terry Oil Company ("KTOC"), Karlton Terry and Jubal Terry
(the "Shareholders"), the Company proposes to acquire certain assets (the
"Assets") of KTOC and the Shareholders in exchange for 7,717,820 "restricted"
shares of Class B Common Stock, $.01 par value, of the Company (the "Class B
Common"), referred to herein as the Transaction. A copy of the Asset
Purchase Agreement is attached as Attachment A. The 7,717,820 shares of the
Class B Common will represent 80% of the aggregate issued and outstanding
shares of both classes of the Company's Common Stock immediately after the
closing (the "Closing"). The authorization of the Class B Common is subject
to approval by the Company's shareholders as set forth in Proposal Number
Two. KTOC and the Shareholders are referred to herein collectively as the
Sellers.
The Assets consist of interests in and to various oil and gas prospects.
See "KTOC - Description of Business" below for a more complete description
of the Assets.
The Transaction will occur after the Company has transferred to Bishop
Cable Communications Corporation, its wholly-owned Wyoming subsidiary (the
"Subsidiary"), all of the Company's assets (the "Excluded Assets") except for
the amount of cash and marketable securities in excess of $1.2 million (which
amount in any event shall be at least $700,000) and its working interest in,
and its operating agreement with respect to, the property owned by the
Company known
-7-
<PAGE>
as Twenty Mile Hill which is held by Metro Minerals Corporation, another
wholly-owned subsidiary of the Company. The Subsidiary will assume, and will
indemnify and hold harmless the Sellers and the Company from any and all
liabilities, costs, claims and assessments related to the Excluded Assets.
All economic credit for any net operating loss of the Company, calculated as
of September 30, 1995 (or as of the end of the calendar month preceding the
month in which the Closing occurs if the Closing occurs after November 30,
1995), will be given to the Subsidiary, and the Subsidiary will have no
obligation whatsoever for payment of any consolidated tax liability until
such time as the separate taxable income of the Subsidiary exceeds such net
operating loss, which as of June 30, 1995, was approximately $830,000. In
connection with the Transaction, the Subsidiary's name will be changed to
Bishop Capital Corporation.
The Class B Common will have all of the rights of currently issued and
outstanding shares of the Company's Common Stock, except that: (i) the Class
B Common will not be entitled to participate in any distribution of shares or
assets of the Subsidiary; and (ii) each share of Class B Common will be
entitled to 1.6 votes on all issues presented for vote by the shareholders.
The Class B Common will be convertible on a one-for-one share basis into the
Company's Common Stock commencing 36 months from the Closing. Commencing 30
months from the Closing, the Class B Common will be convertible on a
one-for-one share basis, provided that the number of shares so converted
until the date 36 months after the Closing will be limited to that number of
shares of Common Stock that may be sold by an affiliate pursuant to the
volume limitation provisions of Rule 144 promulgated under the Securities Act
of 1933, as amended. Up to 500,000 shares of Class B Common may be converted
into Common Stock to the extent such shares are used to acquire the Option
Properties (described in footnote 6 of the Financial Statements of the KTOC
Contributed Properties attached as Attachment B). The 500,000 shares of
Class B Common will be subject to certain registration rights commencing six
months from the date of conversion. SEE "Proposal Number Three."
As a result of the Transaction, up to 7,717,820 shares of the Company's
Common Stock may be issued to holders of the Company's Class B Common. The
issuance of the Class B Common may have certain anti-takeover effects and
dilutive effects on the Company's Common Stock. SEE "Proposal Number Three -
Effects of Adoption of Proposal Number Three."
The bid and ask prices of the Company's Common Stock as of August 24,
1995, the date preceding the public announcement of the Transaction, as
reported on NASDAQ, were $1.50 and $2.00, respectively.
The Company, KTOC and the Shareholders intend to distribute the shares
of the Subsidiary to the holders of the Company's Common Stock as soon as
practicable on a non-taxable basis. In any event, and regardless of tax
consequences, the Company, KTOC and the Shareholders intend such distribution
to occur not later than 36 months from the Closing.
In connection with the Agreement, the Company will grant an option (the
"Option") to the Subsidiary to acquire 800,000 shares of Common Stock (the
"Option Shares") to be distributed PRO
-8-
<PAGE>
RATA to the holders of the Common Stock. The Option will be exercisable for
a period of 120 days at an exercise price of $.10 per share commencing 36
months from the Closing in the event that one of the following events has not
occurred by such time: (a) the Company has a minimum of $16.5 Million of
Proved and Probable Reserves as set forth in an independent petroleum
engineer's report prepared in accordance with SEC pricing and cost
assumptions; or, (b) the average bid price for the Common Stock shall have
been at least $4.00 for two periods of twenty consecutive trading days; or
(c) cash flow (gross revenues from oil and gas production less expenses
directly charged against such production) for the Company shall have been
greater than $2,000,000 for any fiscal year. The Option will be distributed
to the shareholders, if at all, 36 months from the Closing. The Company is
obligated to register the Option Shares with the SEC.
The Agreement provides that the maximum liability of the Sellers to the
Company, the Subsidiary or any other party claiming by, through or under
either of them under the Agreement, or any other document or certificate
executed in connection therewith, will be the value of their Restricted
Stock, as defined below. Until the date two years after the date of the
Agreement, or such longer period as provided in the Agreement (collectively
the "Restriction Period"), Sellers will maintain their ownership of at least
39% of the issued and outstanding shares (the "Restricted Shares") of the
Class B Common received by Sellers, which shares will bear a legend
evidencing such obligations and restrictions. Sellers will be allowed to
transfer such Restricted Shares free and clear of such restriction during the
Restriction Period only if they substitute stock or other assets subject to
such legend or other similar restriction as may be reasonably requested by
the management of the Subsidiary and having a value not less than the lesser
of the value of the Restricted Securities or $4,000,000. Each share of
Restricted Securities will be deemed to have a value of 75% of the market
value of a share of the Common Stock, as defined in the Agreement.
It is anticipated that the Closing will occur on November 27, 1995. In
no event will the Closing be later than January 1, 1996. The effective time
of the Transaction will be November 1, 1995 at 7:00 a.m. local time.
The consummation of the Transaction is subject to, among other things:
(i) approval of the Agreement by the Company's shareholders; (ii) delivery of
various closing documents, including opinions of counsel; (iii) confirmation
of representations and warranties of the parties; (iv) compliance with all
regulatory requirements; (v) the transfer to the Subsidiary of the Excluded
Assets; and (vi) the execution of various other agreements which relate to
the management and operation of the Subsidiary, which agreements are
described below.
The Pro Forma Financial Statements, attached as Attachment B, give
effect to the proposed Transaction by recording the Sellers' assets at their
historical carrying value since the Sellers will continue to exercise control
through their ownership of 80% of the issued and outstanding shares of Common
Stock of the Company. The Company's assets are also reflected at their
historical carrying value since its assets, except for the $700,000 cash and
a minor oil property, Twenty Mile Hill, will be transferred to the
wholly-owned Subsidiary and operated autonomously by the current management
of the Company pursuant to the terms of the Operating Agreement described
below.
-9-
<PAGE>
The Option Properties will be recorded based on the cash and the fair value
of securities and other consideration which will be issued upon exercise of
the option.
TAX CONSEQUENCES. It is intended that the Transaction will qualify as a
non-taxable event pursuant to Section 351 of the Internal Revenue Code of
1986, as amended (the "Code"). Generally, Section 351 provides that no gain
or loss will be recognized by the Sellers on the transfer of assets to the
Company if, immediately after the transfer, the Sellers are in control of the
Company. Section 351 allows the Sellers to defer recognition of realized
gain through special basis rules applicable to the Sellers and the Company.
In general, the basis rules provide for the carryover of the Sellers' basis
in the transferred assets to the Company and the substitution of the basis of
the assets transferred by the Sellers to the shares received by the Sellers.
The impact for the Company is that the Company receives assets with a
carryover basis from the Sellers. No tax consequences result to the current
shareholders of the Company in a Section 351 transaction.
Another tax effect of the Transaction is that the Company will be
limited in the amount of net operating loss carryforwards that it will be
able to use in order to offset the future income of the Company. This
limitation is not likely to have a direct impact on the shareholders of the
Company.
OPERATING AGREEMENT.
Under the Agreement, the Company, KTOC and the Subsidiary will enter
into a five-year operating agreement (the "Operating Agreement") pursuant to
which the Subsidiary will be operated autonomously by the current management
of the Company as set forth in a Management Agreement described below to be
entered into with Robert E. Thrailkill, and employment agreements to be
entered into with John A. Alsko and Robert J. Thrailkill who are expected to
be appointed to management positions by the Board of Directors of the
Subsidiary. Any determination by the Board of Directors of the Subsidiary
with respect to the business, operations and assets of the Subsidiary will be
final, conclusive and binding and will not be subject to any modification
whatsoever by the Board of Directors or management of the Company for any
reason; provided, however, that in no event will any member of the Board of
Directors or any other officer of the Company be required to breach his or
her fiduciary duty to the Company or its shareholders. Under the Operating
Agreement, the Company and the Subsidiary have agreed not to: (i) incur any
indebtedness on behalf of the other; or (ii) take any action to encumber or
cause any claims to be made with respect to any of the assets of the other.
The Company and KTOC have agreed to maintain the Management Agreement and the
Operating Agreement in effect for their respective entire terms and will not
take any action to interfere, intervene or disrupt the control and operation
of the Subsidiary by the current management.
MANAGEMENT AGREEMENT.
Pursuant to the terms of the Management Agreement to be entered into
among the Company, the Subsidiary and Robert E. Thrailkill, Mr. Thrailkill
will serve as the Subsidiary's President, Chairman of the Board of Directors
and Chief Executive Officer for a term of five years. Mr.
-10-
<PAGE>
Thrailkill will receive a salary of no less than $145,000 per year, subject
to increases based upon the Subsidiary's normal business practices, Mr.
Thrailkill's performance and/or cost of living increases. Mr. Thrailkill
will be reimbursed for his reasonable business expenses and will be entitled
to continue to participate in the Company's and the Subsidiary's employee
benefit plans and arrangements. The compensation payable to Mr. Thrailkill
will be self-funded by the Subsidiary and not the Company. The Management
Agreement may not be terminated by the Company in any event but may be
terminated by the Subsidiary in the event of the death or disability of Mr.
Thrailkill or for "Cause" as defined in the agreement. Mr. Thrailkill may
terminate the agreement for "Good Reason" as defined in the agreement or for
impaired health. The term "Good Reason" includes: (i) a change in control of
the Company or the Subsidiary which is not approved by a majority of the
shares of Common Stock owned by Mr. Thrailkill, Robert J. Thrailkill and John
A. Alsko, (ii) a material breach of the agreement by the Company or the
Subsidiary which remains uncured after notice; and (iii) any purported
termination of Mr. Thrailkill's employment which is not effected pursuant to
the terms of the agreement. In the event Mr. Thrailkill is unable to serve
due to illness or incapacity for more than six months, the agreement provides
that his compensation will be reduced by the amount of any insurance benefits
provided by the Company and/or the Subsidiary. The Subsidiary may terminate
the agreement after six months of Mr. Thrailkill's continuous absence for
whatever cause; however, in the event his absence is due to illness or
incapacity the Subsidiary will be obligated to continue to pay his full
salary for the balance of the term or until he becomes gainfully employed.
In the event of Mr. Thrailkill's death, the Subsidiary will pay his spouse or
estate his full salary for twelve months. If Mr. Thrailkill's employment is
terminated for Cause, the Subsidiary will pay his full salary through the
date of termination. If Mr. Thrailkill's employment is terminated by the
Company or the Subsidiary in breach of the agreement or by Mr. Thrailkill for
Good Reason, the Company and the Subsidiary will pay Mr. Thrailkill his full
salary through the date of termination and a lump sum equal to his annual
salary multiplied by the greater of the number of years (including partial
years) remaining under the agreement or the number three. If Mr.
Thrailkill's termination arises out of a breach by the Subsidiary of the
agreement, the Subsidiary will pay Mr. Thrailkill all other damages for
benefits to which he is entitled including damages for lost benefits under
employee benefit plans (other than the Subsidiary's Incentive Compensation
Plan.) If Mr. Thrailkill's termination arises out of a breach by the
Company of the agreement, the Company will pay Mr. Thrailkill all other
damages for benefits to which he is entitled including damages for lost
benefits under employee benefit plans (other than the Company's Incentive
Compensation Plan.) If Mr. Thrailkill terminates his employment due to
impaired health, the Subsidiary will pay him his full salary through the date
of termination together with such reasonable severance, if any, as the
Subsidiary's Board of Directors may determine. The Management Agreement will
supersede the Executive Employment Agreement effective January 1, 1993
between Mr. Thrailkill and the Company. SEE "Compensation of Directors and
Executive Officers" above.
EMPLOYMENT AGREEMENTS.
The Company will enter into three-year employment agreements with
Karlton Terry and Jubal Terry providing for salaries of $125,000 and $75,000,
respectively, and such other terms and conditions to be negotiated. In
addition, it is expected that the Subsidiary will enter into three-year
-11-
<PAGE>
employment agreements with John A. Alsko and Robert J. Thrailkill providing
for salaries of $50,000 and $36,000, respectively, and such other terms and
conditions to be negotiated.
VOTING AGREEMENT.
The Company, the Subsidiary and the Sellers will enter into a five-year
voting agreement under which the Company and the Sellers will appoint Robert
E. Thrailkill as attorney and proxy to vote in his sole and absolute
discretion, all of the shares of all classes of the Common Stock of the
Company and/or the Subsidiary owned by them with respect to any matter
brought before the shareholders of the Company and/or the Subsidiary relating
to or involving exclusively the Subsidiary (including, without limitation,
the election of directors, and other matters listed in the Operating
Agreement).
KTOC - DESCRIPTION OF BUSINESS.
GENERAL.
Upon the sale of the Assets to the Company by the Sellers, the Company
will own the oil and gas leases, described in the tables below, underlying
large rivers through several oil fields in the United States (the "River
Leases"). The River Leases are expected to be developed with horizontal and
diagonal wells. Besides the River Leases, the Sellers are also selling
producing oil and gas properties, described more fully below.
In the late 1980's, after undertaking horizontal operations in Wyoming,
KTOC began considering other uses for horizontal technology. Realizing
portions of many oil fields throughout the country underlie rivers and were
heretofore not fully developed because horizontal and reliable diagonal
drilling technology has only recently become available, KTOC researched
opportunities across the U.S. During the last four years KTOC leased its top
priority prospects. KTOC has drilled and completed its first two of
approximately 15 prospects, which KTOC believes could result in up to thirty
wells.
During the drilling on the Henderson County lease, KTOC encountered
difficulties with maintaining effectiveness of the drill bit during the
horizontal leg, collapsing formation problems with the Hardensburg and
Waltersburg formations due to low mud weight, swelling of clays due to
incorrect drilling of mud properties and inadequate mud pumps. These
problems caused an increase of approximately 200% in actual costs over
anticipated costs. KTOC was the first company to drill such a well in this
area and KTOC's management believes that because such problems occurred
during the drilling of this well, and can be anticipated, such problems can
be avoided in future wells. Still, horizontal wells and diagonal wells are
generally costlier and riskier than vertical wells. Some forms of increased
risk in horizontal wells over vertical wells include: costlier remedies to
mechanical or formation problems; and additional equipment, materials and
contractors which increase the variables and levels of expense, therefore
resulting in greater possibilities of encountering various problems which
could greatly increase the cost of drilling or even result in losing the hole.
-12-
<PAGE>
Although horizontal and diagonal drilling generally involve much more
risk that normal vertical drilling (SEE discussion of the drilling of the
Henderson County lease above), KTOC believes present technology is now
adequate to develop the River Leases with horizontal (and diagonal) drilling,
which in the last few years has become increasingly reliable. KTOC has, and
upon completion of the Transaction the Company will have, sufficient
horizontal drilling experience to develop the leases being acquired. Being
a small company the Company will be able to take advantage of working with
its choice of independent contractors, hiring experts with local expertise
and specific command of individual abilities pertinent to each project. The
Company will maintain operations over the drilling program, but may recruit
local operators with regional expertise to undertake subsequent day to day
operations so long as they have an economic working interest in each well.
After the completion of the Transaction, the Company's development plans
will include the drilling of offsets to the existing river wells as a
preliminary priority while gradually drilling new wells under previously
undrilled river projects at the rate of three to five wells per year. It is
estimated that capital of $1,700,000 will be required to: (i) meet operating
capital requirements; (ii) carry out management's plans to drill three to
five development wells in 1996; (iii) purchase existing producing oil and
gas wells; and (iv) repay outstanding bank debt of $162,000 (at September 30,
1995). Since most of the assets currently owned by the Company will be
transferred to the Subsidiary as part of the acquisition, the new management
of the Company will not have access to the capital resources which are
presently associated with the Company. Accordingly, management intends to
undertake a private placement of 1,800,000 shares of the Company's Common
Stock. If this offering is successful, proceeds of $1,800,000 (before
deduction for offering costs) would be available to fund planned activities
through at least the end of 1996. If this offering is not successful,
management expects to seek alternative financing arrangements, including
additional bank financing and/or the promotion of drilling arrangements to
oil industry partners and other investors. There is no assurance that either
the private placement, the bank financing, or the promotion of drilling
arrangements to industry partners and other investors will occur. No
commitments have been received for any such financing or drilling
arrangements. If such financing is not obtained or alternate drilling
arrangements completed, the Company could experience significant cash flow
problems. In such case, the Company may have to promote a well by selling a
portion of its leasehold acreage. While management believes obtaining
financing through industry partner promotion is a viable means to fund
development, it is not the preferred alternative since it results in a lower
share of the related proved reserves and cash flows.
In connection with the Transaction, the current management of the
Company has nominated Karlton Terry, Jubal Terry and Denis Bell to be elected
as the new directors of the Company. SEE "Proposal Number Two."
The information set forth herein concerning the Sellers and the Assets
has been provided and prepared by the Sellers.
-13-
<PAGE>
KTOC's principal executive offices are located at 700 E. Ninth Avenue,
Suite 106, Denver, Colorado, 80203, telephone no. (303) 832-1117.
DESCRIPTION OF SELLERS' PROPERTIES.
The following are definitions of oil and gas terms used in this section
and the Financial Statements attached as Attachment B.
DEVELOPED ACREAGE. Acreage spaced or assignable to Productive Wells.
DEVELOPMENT WELL. A well drilled within the proved area of an oil or
gas reservoir to the depth of a stratigraphic horizon known to be productive
in other locations.
DRY WELL (HOLE). An Exploratory or a Development Well found to be
incapable of producing either oil or gas in sufficient quantities to justify
completion as an oil or gas well.
EXPLORATORY WELL. A well drilled to find and produce oil or gas in an
unproved area, to find a new reservoir in a field previously found to be
productive of oil and gas in another reservoir or to extend a known reservoir.
FARM-OUT OR FARM-IN. "Farm-out" or "Farm-in" shall mean an agreement by
which the owner of a leasehold or Working Interest (the "Farmor") in an oil
or gas property agrees to assign his interest in certain specific acreage to
another party (the "Farmee"), retaining some interest (such as, and without
limitation, a carried Working Interest, an overriding royalty interest and/or
a reversionary Working Interest) or receiving cash, or both, subject to a
requirement that the Farmee drill one or more specific wells or perform other
operations or services as a condition of the assignment. The Farmor is
considered to have entered into a "Farm-out agreement" and the Farmee is
considered to have entered into a "Farm-in agreement."
GROSS ACRE OR GROSS WELL. An acre or well in which a Working Interest
is owned. The number of Gross Acres or Gross Wells is the total number of
acres or wells in which Working Interests are owned.
NET ACRE OR NET WELL. A Net Acre or Net Well is deemed to exist when
the sum of fractional ownership Working Interests in Gross Acres or Gross
Wells equals one. The number of Net Acres or Net Wells is the sum of the
factional Working Interests owned in Gross Acres or Gross Wells expressed as
whole numbers and fractions thereof.
NON-CONSENT. An election by a Working Interest owner not to participate
in the costs of drilling a particular well, resulting (if the well is
productive) in a penalty against such owner's right to receive the proceeds
of production from the well.
-14-
<PAGE>
PRODUCTIVE WELL. An Exploratory or a Development Well found to be
capable of producing either oil or gas in sufficient quantities to justify
completion as an oil or gas well.
PROVED ACREAGE. Acres to which Proved Reserves are attributable.
PROVED DEVELOPED RESERVES. Proved Reserves that are expected to be
recovered through existing wells with existing equipment and operating
methods.
PROVED RESERVES. Those estimated quantities of crude oil, condensate,
natural gas liquids and natural gas that geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs. Estimates of Proved Reserves, future net revenues
attributable thereto and the present value of such future net revenues were
made using the economic assumptions described elsewhere in this Proxy
Statement. Proved Reserves are composed of Proved Developed Reserves and
Proved Undeveloped Reserves.
PROVED UNDEVELOPED RESERVES. Proved Reserves that are expected to be
recovered from new wells drilled on undrilled acreage, or from existing wells
where a relatively major expenditure is required for recompletion.
RESERVOIR. A porous and permeable underground formation containing a
natural accumulation of producible oil and/or gas that is confined by
impermeable rock or water barriers and is individual and separate from other
reservoirs.
UNDEVELOPED ACREAGE. Those lease acres on which wells have not been
drilled or completed to a point that would permit the production of
commercial quantities of oil and gas, regardless of whether such acreage
contains Proved Reserves.
WORKING INTEREST. An operating interest in an oil and gas leasehold or
mineral estate, the owner of which has the right to share in production of
any hydrocarbons covered by the leasehold or mineral estate and has a
proportionate interest in any well located on the lands covered by the
leasehold or mineral estate and all equipment located thereon or used
exclusively in connection therewith, subject to the payment of a
proportionate share of all costs and expenses to be paid by the lessee in
connection with exploration for oil and gas or development and operation of
any wells on the leasehold or mineral estate.
The interests to be purchased from the Sellers, including the interests
covered by the Option Properties (described in footnote 6 of the Financial
Statements of the KTOC Contributed Properties attached as Attachment B)
consist of oil and gas leases covering Developed and Undeveloped Acreage as
described below.
The properties include interests averaging approximately 9.84% Working
Interest in 11 producing oil and gas wells in the Lake Hatch Field,
Terrebonne Parish, Louisiana. These wells produce from Miocene age zones
including the 5800' to 7000' sands. This property's total estimated
-15-
<PAGE>
future net revenues from total producing and non-producing Proved Reserves
before income taxes using constant prices discounted at 10% is $556,589.
The properties include interests averaging 26.56% Working Interest in
four producing oil and gas wells in the Bayou Chauvin Field, Terrebonne
Parish, Louisiana. These wells produce from Miocene age zones including the
X-1, Y-1, W, stray, and the 11,500' sand. This property's total estimated
future net revenues from total producing and non-producing Proved Reserves
before income taxes using constant prices discounted at 10% is $220,536.
The properties include interests averaging 50% Working Interest in and
to one producing well on the Ohio River Sistersville lease in Tyler County,
West Virginia. This well produces from the Big Injun Sandstone at 1450'.
This property's total estimated future net revenues from total producing and
non-producing Proved Reserves before income taxes using constant prices
discounted at 10% is $1,145,443.
The properties include interests averaging about 72% Working Interest in
and to the Henderson County lease in Henderson County, Kentucky which has one
shut-in well capable of production once adequate water disposal facilities
are completed. This property's total estimated future net revenues from
total producing and non-producing Proved Reserves before income taxes using
constant prices discounted at 10% is $5,991,276.
The Estimated Proved Developed Reserves, the Proved Reserves and the
Present Value of Estimated Future Net Revenues from Proved Reserves with
respect to the properties as of January 1, 1995, are shown in the following
tables. The information is derived from the M & Z Engineering, Inc. report
referred to below and is subject to the assumptions and qualifications stated
therein. Proved Reserves attributable to the properties not yet developed
are based upon an assumption that the Company will be able to successfully
develop the properties. At this time the Company does not have adequate
funds or borrowing ability to develop these properties. Any development
would depend upon the success of completing a private placement offering or
obtaining alternative financing arrangements including bank financing and/or
the promotion of drilling arrangements to oil industry partners or other
investors. SEE "Other Transactions." Such promotion would most likely
result in the Company owning a reduced Working Interest in the properties.
<TABLE>
<CAPTION>
-------------------------------------------------------------
PRESENT VALUE OF FUTURE NET
REVENUES FROM PROVED RESERVES OF PROPERTIES
-------------------------------------------------------------
PROPERTY JANUARY 1, 1995 10% NPV
-------------------------------------------------------------
<S> <C>
LAKE HATCH $556,589
BAYOU CHAVIN $220,536
OHIO RIVER $1,145,443
HENDERSON CO. $5,991,276
-------------------------------------------------------------
TOTAL $7,913,844
-------------------------------------------------------------
</TABLE>
-16-
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
ESTIMATED PROVED DEVELOPED RESERVES OF PROPERTIES
-----------------------------------------------------------------------
JANUARY 1, 1995 NET NET
-----------------------------------------------------------------------
<S> <C> <C>
PROPERTY OIL BARRELS GAS MMCF
-----------------------------------------------------------------------
LAKE HATCH 59,547 29.549
BAYOU CHAVIN 1,431 228.158
OHIO RIVER 8,195 307.3
HENDERSON CO. 115,740 0
-----------------------------------------------------------------------
TOTAL 184,913 565.007
-----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
ESTIMATED PROVED RESERVES OF PROPERTIES
-----------------------------------------------------------------------
JANUARY 1, 1995 NET NET
-----------------------------------------------------------------------
PROPERTY OIL BARRELS GAS MMCF
-----------------------------------------------------------------------
<S> <C> <C>
LAKE HATCH 78,571 162.567
BAYOU CHAVIN 4,754 586.895
OHIO RIVER 43,146 1,618.054
HENDERSON CO. 1,065,878 0
-----------------------------------------------------------------------
TOTAL 1,192,349 2,367.516
-----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PROPERTY UNDEVELOPED ACREAGE DEVELOPED ACREAGE
------------------- -----------------
GROSS NET GROSS NET
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LAKE HATCH 0 0 1240 210.8
BAYOU CHAUVIN 0 0 1754 465.99
OHIO RIVER 1692 203.04 153 18.46
HENDERSON CO. 1470 237.33 30 4.85
UNION CO. 912.9 415.37 0 0
BURNING SPRINGS 1999 849.58 0 0
- ------------------------------------------------------------------------------
TOTAL 6073.9 1705.32 3177 700.1
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GROSS AND NET WELLS (AS OF SEPT. 1995)
- ------------------------------------------------------------------------------
PROPERTY GAS WELLS OIL WELLS
------------------- -----------------
GROSS NET GROSS NET
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LAKE HATCH 11 1.144 11 1.144
BAYOU CHAUVIN 4 1.062 4 1.062
OHIO RIVER 1993 1 0.5 1 0.5
SPARKLE 1994 1 0.73
- ------------------------------------------------------------------------------
TOTAL 16 2.706 17 3.436
- ------------------------------------------------------------------------------
</TABLE>
-17-
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
DRILLING ACTIVITIES ON PROPERTIES
- -----------------------------------------------------------------------------
PROPERTY YEAR TOTAL WELLS NET DEVELOPMENT
- -----------------------------------------------------------------------------
GROSS NET OIL GAS DRY
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OHIO RIVER 1993 1 0.5 0.5 0.5 0
HENDERSON CO. 1994 1 0.73 0.73 0 0
- -----------------------------------------------------------------------------
TOTAL 2 1.23 1.23 0.5 0
- -----------------------------------------------------------------------------
</TABLE>
Karlton and Jubal Terry and certain of their affiliates will retain
overriding royalty interests burdening the Working Interests transferred to
the Company, ranging from 1.7% to 7.5%. Because an overriding royalty
interest bears no share of the costs of developing an oil and gas property,
it may be advantageous for the holder of the interest to conduct drilling and
other operations even if they may not be economic for the Working Interest
owner. Therefore, the existence of these overriding royalty interests
creates potential conflicts of interest between the Company and these persons.
SEE the Audited and Unaudited Financial Statements of the KTOC
Contributed Properties, Audited and Unaudited Financial Statements of the
KTOC Option Properties and Pro Forma Financial Information with respect to
the Transaction attached to this Proxy Statement as Attachment B.
OPINIONS AND APPRAISALS.
The above described properties and information appearing in this Proxy
Statement regarding the Proved Reserves and Estimated Future Revenues of the
properties being contributed to the Company are based upon estimates as of
January 1, 1995 contained in a report prepared by M & Z Engineering, Inc.,
petroleum consultants. M & Z Engineering is a Denver based firm and a
locally recognized expert in the field of Petroleum Engineering. M & Z
Engineering has received fees totaling approximately $12,000 for services
rendered to Sellers as a petroleum engineer during the last two fiscal years.
A summary of the M & Z Engineering, Inc. report which was based on
assumptions required by the SEC is included in the Proxy Statement as
Attachment C. (A complete copy of the M & Z Engineering, Inc. report will be
made available for inspection and copying by any shareholder at the Company's
principal executive offices during regular business hours.) Such summary
indicates $23,560,531 in Future Gross Revenue; $7,861,661 in Cost to Develop
and Operate (deductions); $15,698,868 in Future Net Income; and $7,913,844 in
Discounted Future Net Income (at 10%) before federal income tax. After
federal income tax, as indicated in the Standardized Measure section of the
footnotes to the Pro Forma Financial Statements, future net cash flow is
$5,292,000. An employee of M & Z Engineering, Mr. Manuel Munoz owns a 2%
interest in and to the Sparkle Well. For this reason, another Professional
Engineer, Mr. Kent B. Lina was engaged to review the work of Mr. Munoz and
reported that the estimated reserves and future values were arrived at using
-18-
<PAGE>
generally accepted methods and are reasonable for the properties. A copy of
Mr. Lina's report (in the form of a letter to Mr. Karlton Terry) is attached
as part of Attachment C.
Mr. Lina is a petroleum engineer with extensive experience in horizontal
drilling as well as reservoir analysis. He is not related to the Sellers or
to KTOC's directors, officers or shareholders, and has no interest in the
properties covered by the M & Z Engineering report. Mr. Lina was paid $975
in fees for services rendered to KTOC as an independent petroleum engineer
during the last year. Mr. Lina neither determined nor made recommendations
as to the consideration to be paid to the Sellers.
M & Z Engineering, Inc. neither determined nor made a recommendation as
to the amount of consideration to be paid to the Sellers. The information
contained herein relating to the Proved Reserves and Estimated Future
Revenues to be derived therefrom has been included in reliance upon the
report of M & Z Engineering, Inc. given upon the authority of such firm as
experts with respect to the matters covered by such report.
Shareholders should recognize that petroleum engineering is not an exact
science and involves estimates based upon numerous factors, many of which are
variable and uncertain. Because estimates of reserves and future net
revenues involve projecting future results by estimating future events, such
estimates, when prepared by different petroleum engineers, or by the same
engineers at different times, may vary substantially. Actual production,
revenues, taxes and development and operating expenses can be expected to
vary from the estimates. In addition, assumptions made as to future
production and marketing may differ from actual production and marketing. In
particular, significant amounts of the Proved Reserves on which the values
are based are attributable to properties not yet producing. Estimates of
such reserves are not based upon as much information as estimates based on
actual production history, and thus are generally not as reliable and later
estimates may be subject to great variation. There exist both mechanical
risks and risks related to the actual reservoir conditions in the production
of the horizontally and diagonally developed reserves.
KTOC - MANAGEMENT'S DISCUSSION AND ANALYSIS OF LIQUIDITY AND RESULTS OF
OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES. Over the past several years, KTOC has
devoted substantial efforts to identify attractive oil and gas prospects
through geological and economic evaluations. Once a suitable prospect was
identified, KTOC's objective was to obtain funding for lease acquisition and
development of the properties by promoting a portion of its interest to other
oil industry partners and investors.
During 1993, KTOC received $600,000 from the turnkey sale of interests
in a well to two industry partners and, upon completion of the drilling in
1994, a gain of $138,200 was recognized since KTOC's costs were less than the
$600,000 of proceeds. KTOC's total capital expenditures for
-19-
<PAGE>
drilling this well and one other well amounted to $429,300 in 1993 and
$219,900 in 1994. Both of these wells were completed as producers and added
a significant amount of proved oil and gas reserves (see reserve disclosures
included in the Pro Forma Financial Information included in Attachment B).
During 1993, KTOC also purchased producing oil and gas properties for
approximately $500,000. This purchase was primarily funded by a bank loan
for $283,000 and proceeds from the sale of an interest in the properties for
$190,700. Other sources of funds have consisted of capital infusions by
Karlton Terry which are not expected to continue in the future.
After the completion of the Transaction, the Company's development plans
will include the drilling of offsets to the existing river wells as a
preliminary priority while gradually drilling new wells under previously
undrilled river projects at the rate of three to five wells per year. It is
estimated that capital of $1,700,000 will be required to: (i) meet operating
capital requirements; (ii) carry out management's plans to drill three to
five development wells in 1996; (iii) purchase existing producing oil and
gas wells; and (iv) repay outstanding bank debt of $162,000 (at September 30,
1995). Since most of the assets currently owned by the Company will be
transferred to the Subsidiary as part of the acquisition, the new management
of the Company will not have access to the capital resources which are
presently associated with the Company. Accordingly, management intends to
undertake a private placement of 1,800,000 shares of the Company's Common
Stock. If this offering is successful, proceeds of $1,800,000 (before
deduction for offering costs) would be available to fund planned activities
through at least the end of 1996. If this offering is not successful,
management expects to seek alternative financing arrangements, including
additional bank financing and/or the promotion of drilling arrangements to
oil industry partners and other investors. There is no assurance that either
the private placement, the bank financing, or the promotion of drilling
arrangements to industry partners and other investors will occur. No
commitments have been received for any such financing or drilling
arrangements. If such financing is not obtained or alternate drilling
arrangements completed, the Company could experience significant cash flow
problems. In such case, the Company may have to promote a well by selling a
portion of its leasehold acreage. While management believes obtaining
financing through industry partner promotion is a viable means to fund
development, it is not the preferred alternative since it results in a lower
share of the related proved reserves and cash flows.
At December 31, 1994, the SEC case reserve report for KTOC and the
Option Properties includes six drilling sites with Proved Undeveloped
Reserves, which comprise approximately 75% of total Proved Reserves. If these
wells are completed successfully and if they produce as expected, the Company
should have cash flows as shown in the Pro Forma Standardized Measure. SEE
Financial Statements included as Attachment B.
RESULTS OF OPERATIONS FOR KTOC CONTRIBUTED PROPERTIES (NOT INCLUDING
OPTION PROPERTIES).
YEAR ENDED DECEMBER 31, 1994 COMPARED TO 1993.
-20-
<PAGE>
Oil and gas sales declined from $184,800 in 1993 to $146,400 in 1994, a
decrease of about 21%. The decline is primarily attributed to the natural
decline of the producing fields, and the fine-tuning of production facilities
at Sistersville which required significant shut-in time for that well. Now
that production facilities are in place for such gas well, and nearly in
place for the Sparkle Well, KTOC's management expects an increase in future
oil and gas sales from the existing properties. Costs for production have
been extremely consistent, $55,100 in 1993 and $53,400 in 1994.
Depreciation, depletion and amortization decreased from $40,300 in 1993
to $32,200 in 1994. Oil and gas production on a barrel of oil equivalent
basis was the same in 1993 and 1994. However, 1994 drilling activity proved
up additional reserves which resulted in a lower depletion rate in 1994.
The gain on drilling arrangements in 1994 of $138,200 was related to
profits earned through the participation of industry partners in the sale of
the Henderson County Lease and subsequent drilling of the Sparkle Well.
While KTOC realized a profit on drilling arrangements in 1994, there can be
no assurance that future arrangements will also result in profits.
SIX MONTHS ENDED JUNE 30, 1995 COMPARED TO 1994.
Oil and gas sales declined from $66,000 for the six months ended June
30, 1994 to $60,100 for the six months ended June 30, 1995. This decline of
just under 10% is largely due to a drop in gas prices and downtime for the
construction of surface facilities on the Sistersville Lease. Depreciation,
depletion, and amortization for the six months ended June 30, 1994 was
$22,600 compared to $13,900 for the six months period ended June 30, 1995.
This decrease is primarily due to additional reserves which were proved-up as
of December 31, 1994.
In March 1995, the Financial Accounting Standards Board issued a new
Statement titled "Accounting for Impairment of Long-Lived Assets." This new
standard is effective for years beginning after December 15, 1995 and would
change the method of determining impairment of proved oil and gas properties.
KTOC's management has not performed a detailed analysis of the impact of
this new standard on the Financial Statements.
RISKS RELATING TO THE OIL AND GAS BUSINESS.
The following are risks relating to the oil and gas business which apply
to KTOC's business. Should the Transaction be consummated, the following
risks will apply to the Company's ownership and operation of the Assets.
COMPETITION.
The oil and gas industry is highly competitive. As an independent oil
and gas company, KTOC must compete against companies with substantially
larger financial and other resources for a variety of opportunities including
reserve and lease acquisitions and marketing agreements.
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REGULATION OF OIL AND GAS.
KTOC's exploration, production and marketing are regulated extensively
at the federal, state and local levels. Oil and gas exploration, development
and production activities are subject to various laws and regulations
governing a wide variety of matters. For example, the states in which KTOC
produces oil and gas have statutes or regulations addressing production
practices that may affect KTOC's operations and limit the quantity of
hydrocarbons KTOC may produce and sell. Other regulated matters include the
marketing and transportation of oil and gas and the valuation of royalty
payments.
Among other regulated matters on the federal level, the Federal Energy
Regulatory Commission ("FERC") regulates interstate transportation of natural
gas under the Natural Gas Act. KTOC's gas sales are affected by regulation of
intrastate and interstate gas transportation. In an attempt to promote
competition, FERC has issued a series of orders which have significantly
altered the marketing and transportation of natural gas. To date, KTOC has
not experienced any material adverse effect on gas marketing as a result of
these FERC orders. However, KTOC cannot predict what effect subsequent
regulations may have on its future gas marketing.
ENVIRONMENTAL.
KTOC, as an owner of interests in oil and gas properties, is subject to
various federal, state, and local laws and regulations relating to discharge
of materials into, and protection of, the environment. These laws and
regulations may, among other things, impose liability on the lessee under an
oil and gas lease for the cost of pollution clean-up resulting from
operations, subject the lessee to liability for pollution damages, require
suspension or cessation of operations in affected areas and impose
restrictions on the injection of liquids into subsurface aquifers that may
contaminate groundwater.
KTOC has made and will continue to make expenditures in its efforts to
comply with these requirements, which it believes are necessary business
costs in the oil and gas industry. These costs are inextricably connected to
normal operating expenses such that KTOC is unable to separate the expenses
related to environmental matters. However, KTOC does not believe any such
additional expenses will materially affect its business. Although
environmental requirements do have a substantial impact upon the energy
industry, generally these requirements do not appear to affect KTOC any
differently or to any greater or lesser extent than other companies in the
industry.
KTOC is not aware of any existing environmental claims which would have
a material impact upon KTOC's financial condition or its results of
operations. KTOC does not believe that compliance with federal, state or
local provisions regulating the discharge of materials into the environment,
or otherwise relating to the protection of the environment, will have such an
impact.
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INTEREST OF MANAGEMENT IN MATTERS TO BE VOTED UPON.
The management of the Company and the director nominees have an interest
in the approval by shareholders of Proposal Numbers One and Three. SEE
"Asset Purchase Agreement, Operating Agreement, Management Agreement,
Employment Agreement and Voting Agreement" above and "Proposal Number Three."
DISSENTERS' RIGHTS.
Shareholders of record on the record date will be given the right to
dissent from the action of other shareholders in ratifying the Asset Purchase
Agreement. If the Asset Purchase Agreement is consummated, all shareholders
who properly exercise their dissenters' rights would be entitled to rights of
appraisal under the Wyoming Code. A copy of the applicable provisions of the
Wyoming Code, Sections 17-16-1301 through 17-16-1331, specifying the
procedures to be followed by a dissenting shareholder is reprinted in its
entirety as Attachment D.
Shareholders also will be given the right to dissent from the action of
other shareholders in approving Proposal Number Three, the proposed amendment
to the Company's Articles of Incorporation. Therefore, the references in this
section to shareholders' rights to dissent with respect to Proposal Number
One are also applicable with respect to Proposal Number Three.
STRICT COMPLIANCE WITH THE WYOMING CODE WILL BE NECESSARY TO RETAIN SUCH
DISSENTERS' RIGHTS. THE FOLLOWING SUMMARY IS NOT A COMPLETE STATEMENT OF THE
PROVISIONS OF SECTIONS 17-16-1301 THROUGH 17-16-1331 OF THE WYOMING CODE AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SECTIONS 17-16-1301 THROUGH
17-16-1331, A COPY OF WHICH IS ATTACHED AS ATTACHMENT D TO THIS PROXY
STATEMENT.
A shareholder of the Company as of the record date will have the right
to dissent only as to all of the shares registered in his name (or part of
the shares registered in his name only if he dissents with respect to all of
the shares beneficially owned by any one person) from the action of the other
shareholders in ratifying the Asset Purchase Agreement. A beneficial
shareholder may assert dissenters' rights as to shares held for his benefit
only if he submits to the Company the record shareholder's written consent to
dissent not later than the time the beneficial shareholder asserts
dissenters' rights and he does so with respect to all shares of which he is
the beneficial shareholder or over which he has the power to direct the vote.
Any shareholder who wishes to dissent and obtain payment for his shares must
file with the Company, prior to a vote being taken on this Proposal Number
One at the Special Meeting of Shareholders to be held on November 27, 1995, a
written notice of his intent to demand payment for his shares if the Asset
Purchase Agreement is ratified and must refrain from voting his shares "FOR"
Proposal Number One. A shareholder who fails in either respect will not
acquire a right to payment for his shares.
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If the Asset Purchase Agreement is ratified, within ten days of the
Special Meeting of Shareholders the Company will mail a notice to all
shareholders who gave due notice of intention to demand payment and who
refrained from voting "FOR" the ratification of the Asset Purchase Agreement.
The notice will state where and when a demand for payment should be sent and
certificates representing the shareholder's Common Stock should be deposited
in order to obtain payment. The time set for the demand and deposit will be
not less than 30 days nor more than 60 days from the mailing of the notice.
A shareholder who fails properly to demand payment or fails to deposit
certificates, as required by the notice mailed to such shareholder, will
forfeit his right to receive payment for his shares.
If the Company has not consummated the Asset Purchase Agreement and
remitted payment for shares within 60 days after the date set for demanding
payment and depositing certificates, it shall return any certificates that
have been deposited. If deposited certificates have been returned, and
subsequently the Company consummates the Asset Purchase Agreement, the
Company will send a new notice conforming to the requirements of Section
17-16-1322 of the Wyoming Code and repeat the payment demand procedure.
Immediately upon consummation of the Asset Purchase Agreement or upon
receipt of demand for payment, if the Asset Purchase Agreement already has
been consummated, the Company will remit the amount which the Company
estimates to be the fair value of the shares, with accrued interest, if any,
to each dissenter who properly has made demand and deposited his
certificates. The fair value of the shares will be determined by the Board
of Directors based on an analysis of the value of the shares immediately
prior to the consummation of the Asset Purchase Agreement (excluding any
appreciation or depreciation in anticipation of the Asset Purchase Agreement,
unless such exclusion would be inequitable), including such factors as market
value, value based on prior sales of the shares and asset value. Interest
will be equal to the prime rate plus two percent in effect on the effective
date of Asset Purchase Agreement and will begin to accrue from such date.
The Company may elect to withhold payment for a dissenter's shares
unless he was the beneficial owner of the shares before the date set forth in
the first announcement to the news media or to shareholders of the terms of
Asset Purchase Agreement. If the Company elects to withhold payment, it will
remit the amount which the Company estimates to be the fair value of the
shares, with accrued interest, if any, only to each such dissenter who agrees
to accept such remittance in full satisfaction of his demand.
If the Company fails to remit payment for a dissenter's shares, or if
the dissenter believes that the amount remitted is less than the fair value
of his shares or that the interest is not correctly determined, the
shareholder must, within 60 days after the date set for demanding payment if
no remittance from the Company is received, or within 30 days after the date
of mailing of the Company's remittance, notify the Company in writing of his
own estimate of the value of the shares
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and/or amount of interest due and demand payment of the deficiency. If he
fails to do so, he will be entitled to no more than the amount remitted.
Within 60 days after receiving a demand for payment pursuant to Section
17-16-1323, if any such demand for payment remains unsettled, the Company
will file in a court of competent jurisdiction in County Number Ten, Wyoming
a petition requesting that the fair value of the shares and interest thereon
be determined by the court. All dissenter's, wherever residing, whose
demands have not been settled will be made parties to the proceeding as in an
action against their shares. All dissenters who are made parties are
entitled to judgement for the amount by which the fair value of their shares
is found to exceed the amount previously remitted, if any, plus interest.
All costs and expenses of such a court proceeding shall be determined by the
court and assessed against the Company, except as provided in Section
17-16-1331 of the Wyoming Code.
If the Company fails to file a petition, each dissenter who has made a
demand and who has not already settled his claim against the Company will be
paid by the Company the amount demanded.
The right of a dissenting shareholder to be paid the fair value of his
shares as provided for in Sections 17-16-1301 through 17-16-1331 of the
Wyoming Code will cease if and when the Company abandons the Asset Purchase
Agreement or the shareholders revoke the authority to consummate the Asset
Purchase Agreement. A shareholder may withdraw his notice of election to
dissent at any time prior to receiving payment for his shares and prior to
the filing of a petition with a court for determining fair value. After the
filing of such a petition, a shareholder may withdraw his notice of election
to dissent only with the consent of the Company, which consent may be
withheld in the Company's sole discretion.
The Company has not made any decision with respect to any action over
which it has discretionary control, which are the exact time set for the
demand and deposit and the relative weights to be given to each of the
factors used in determining fair value.
For more detailed information as to rights of dissenting shareholders
and the procedures to be followed in the event of a dissention, shareholders
are referred to Sections 17-16-1301 through 17-16-1331 of the Wyoming Code, a
copy of which is attached as Attachment D.
A VOTE AGAINST PROPOSAL NUMBER ONE WILL NOT IN ITSELF CONSTITUTE THE
WRITTEN DEMAND REQUIRED BY THE WYOMING CODE TO ENTITLE A SHAREHOLDER TO
PAYMENT FOR HIS SHARES.
OTHER TRANSACTIONS.
The Company is issuing 100,000 shares of Common Stock to counsel for the
Company for legal services rendered in connection with this Transaction. The
Company is also issuing 100,000
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shares of Common Stock to a non-affiliated third party for property
acquisition services rendered in connection with this Transaction.
In connection with the Agreement, the Company has agreed to grant
various registration rights with respect to certain securities outstanding or
to be issued. As soon as practicable after Closing, the Company will
register on Form S-8 (or such other form as is appropriate) 866,500 shares of
Common Stock as follows: (i) the 200,000 shares to be issued as described in
the above paragraph; (ii) 82,500 shares previously issued as bonus shares;
(iii) 70,000 shares reserved under the Company's 1987 Stock Bonus Plan; and
(iv) 514,000 shares underlying options. Commencing six months from Closing,
an additional 63,000 shares of Common Stock underlying outstanding options
will be subject to demand registration rights and 63,000 shares of Common
Stock underlying outstanding options will be subject to "piggy-back"
registration rights.
After completion of the Transaction, the Company proposes to conduct a
private placement of 1.8 million shares of the Company's Common Stock at
$1.00 per share. Proceeds from the private placement will be used to
purchase production, repay outstanding bank debt and fund development of the
Company's properties, including general and administrative expenses. The
Company intends to register one half of the Common shares issued in the
private placement with the SEC upon the demand of the holders thereof
beginning six months after the close of the private placement. The remaining
shares will be subject to "piggy-back" registration rights. There can be no
assurance that such offering will be successful.
The Company plans to issue to non-affiliated third parties options to
acquire up to 400,000 shares of Common Stock at $1.00 per share in lieu of
cash for future services to be performed on behalf of the Company, which
shares are subject to registration on Form S-8 as set forth above.
BOARD RECOMMENDATION TO SHAREHOLDERS.
From inception, the Company had been engaged in the cable television
business. Since the sale of its cable television systems, the Company
principally has been engaged in oil and gas operations and real estate
development. Commencing in June 1995, representatives of the Company and the
Sellers began negotiations with respect to the Transaction which resulted in
the execution of a letter of intent in August 1995. Thereafter, negotiations
continued with respect to the Asset Purchase Agreement which was executed in
October 1995. During the course of the negotiations, the parties each
conducted their own due diligence with respect to the Transaction. The
valuation of the Transaction was arrived at through arms'-length negotiations
between the Company and the Sellers. Pursuant to the Transaction, the
Company proposes to acquire significant oil and gas leases and properties in
exchange for 80% of the aggregate issued and outstanding shares of both
classes of Common Stock of the Company. The Board of Directors of the Company
believes that the proposed transaction provides the shareholders of the
Company a favorable opportunity to participate in more extensive oil and gas
operations which will be conducted by a management group with substantial
experience in the industry. The Board of Directors also believes the
Transaction to be favorable to the Company's shareholders because,
notwithstanding the issuance
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of 80% of the Company's issued and outstanding Common Stock to the
transferors of the oil and gas leases and properties, the transaction terms
(as detailed elsewhere herein) provide for restrictions on the participation
of the transferors in any benefits to be realized, for a three year period,
from a distribution or other disposition of the Company's existing principal
assets.
The Board of Directors of the Company has considered the Asset Purchase
Agreement and for the reasons described above recommends that the
shareholders vote in favor of Proposal Number One. Robert E. Thrailkill,
John A. Alsko and Robert J. Thrailkill have agreed to vote their shares of
Common Stock in favor of Proposal Number One.
VOTE REQUIRED.
The affirmative vote of a majority of the votes cast at the Special
Meeting is required to approve Proposal Number One. The officers and
directors of the Company plan to vote their shares in favor of Proposal
Number One to ratify the Asset Purchase Agreement. The Asset Purchase
Agreement will be effected only if it is ratified.
PROPOSAL NUMBER TWO
ELECTION OF DIRECTORS
In connection with the Asset Purchase Agreement described in Proposal
Number One, the following three persons are to be nominated as directors of
the Company for a term of one year and until the election and qualification
of their successors: Karlton Terry, Jubal Terry and Denis Bell. These three
directors will replace the current Board of Directors and will constitute the
entire Board of Directors. The persons named in the proxy intend to vote for
Messrs. Terry, Terry and Bell, who have been recommended for election by the
Board of Directors of the Company, unless a shareholder withholds authority
to vote for any or all of the nominees. If any nominee is unable to serve
or, for good cause, will not serve, the persons named in the proxy reserve
the right to substitute another person of their choice as nominee in his
place. Each of the nominees has agreed to serve if elected. The nominees
will take office subsequent to the Closing of the Asset Purchase Agreement.
If the Closing does not occur, the current Board of Directors will continue
to serve until the next annual meeting of shareholders.
INFORMATION ABOUT DIRECTOR NOMINEES.
Karlton Terry (Chairman, CEO, and Director) age 42, is a graduate of the
University of Colorado with post graduate work at Brown University and has 16
years experience in the oil and gas business. He began his career as a
landman for Samuel Gary Oil Producer, and formed and was President of Leed
Petroleum Corporation which was subsequently sold to Burma Oil of England.
After the sale of Leed he has acted as President of Karlton Terry Oil Company
for the last twelve years.
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Jubal Terry (President, Secretary, and Director) age 38, is a geologist
and attended Western State University in Colorado. He has worked as an
independent geologist for Amoco, Samuel Gary Oil Producer, and has a wide
range of experience in the Rocky Mountain region and the Appalachian Basin.
He started working for KTOC in 1986 and became Vice President of KTOC in
1994.
Denis Bell (Director) age 62, is Executive Chairman and, through another
company, Ariane, was a founder shareholder of Rackwood Colliery Company
Limited, a coal producing company in the United Kingdom. He was appointed a
Director of Rackwood Colliery Company Limited in April 1993. His experience
in mining, particularly opencast mining, commenced in 1968 when he
established his own company to operate a number of opencast sites and two
small underground mines. This company was sold to Mining Investment
Corporation Limited, where he remained a Director until August 1979. Since
then he has been involved as an Executive Director of a number of private and
public mineral companies, including NSM PLC (from which he resigned in 1989),
Anglo United PLC (from which he resigned in 1991) and Denis Bell Inc. and its
subsidiaries. Mr. Bell through Haddon, Inc. has owned oil and gas properties
in the United States since 1983.
VOTE REQUIRED.
A plurality of the votes cast at the meeting will be required for
election to the Board of Directors.
PROPOSAL NUMBER THREE
A PROPOSAL TO AMEND THE ARTICLES OF INCORPORATION TO: (a) CHANGE THE
COMPANY'S NAME TO AMERICAN RIVERS OIL COMPANY; (b) INCREASE THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK, $.01 PAR VALUE, TO 20,000,000 SHARES AND
THE NUMBER OF AUTHORIZED SHARES OF PREFERRED STOCK, $.50 PAR VALUE, TO
5,000,000 SHARES; AND (c) TO AUTHORIZE A TOTAL OF 8,000,000 SHARES OF CLASS B
COMMON STOCK WITH A PAR VALUE OF $.01 PER SHARE
(a) CHANGE OF THE COMPANY'S NAME TO AMERICAN RIVERS OIL COMPANY
The Company has operated under the name Metro Capital Corporation since
it was reincorporated under the laws of the State of Wyoming on March 31,
1992. The Board of Directors of the Company, in connection with the proposed
Asset Purchaser Agreement (SEE "Proposal Number One"), has approved and is
recommending to the Company's shareholders adoption of an amendment to the
Company's Articles of Incorporation to change the name of the Company to
"American Rivers Oil Company." The Board of Directors and management of the
Company believe that the proposed change in the Company's name will
facilitate identification of the Company with its new business activities
under the Asset Purchase Agreement.
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In the event this Proposal Number Three is approved, the name change of
the Company will be reflected in an amendment to the Company's Articles of
Incorporation which will be filed with the Secretary of State of the State of
Wyoming.
(b) INCREASE IN THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK, $.01
PAR VALUE, TO 20,000,000 SHARES AND THE NUMBER OF AUTHORIZED SHARES OF
PREFERRED STOCK, $.50 PAR VALUE, TO 5,000,000 SHARES
The presently authorized capital stock of the Company consists of
6,000,000 shares of Common Stock, $.01 par value, and 3,000,000 shares of
Preferred Stock, $.50 par value. It is proposed that the Company's Articles
of Incorporation be amended to increase the number of authorized shares of
$.01 par value Common Stock to 20,000,000 and the number of authorized shares
of $.50 par value Preferred Stock to 5,000,000.
The additional shares of Common Stock for which authorization is sought
would be identical to the shares of Common Stock of the Company now
authorized.
To date no series of Preferred Stock has been established by the Board of
Directors. The Preferred Stock could have preference over the Common Stock
(and the Class B Common Stock in the event this Proposal Number Three is
approved) with respect to the payment of dividends and other preferences as
would be determined by the Board of Directors of the Company at the time of
establishment of any series of Preferred Stock. Holders of Common Stock do
not have preemptive rights to subscribe to additional securities which may
issued by the Company.
As permitted by the Wyoming Business Corporation Act, the Board of
Directors is empowered to issue the Preferred Stock in series, at any time or
from time to time, and to determine the price or prices, the number of shares
designated for a particular series, and the relative preferences, privileges
and restrictions of the shares so issued. Among the determinations to be
made by the Board of Directors for each issuance of a series of Preferred
Stock are the following:
(a) the rate of dividend, the time of payment of dividends, whether
dividends are cumulative, and the date from which any dividends shall accrue;
(b) whether shares may be redeemed and, if so, the redemption price and
the terms and conditions of redemption;
(c) the amount payable upon shares in the event of involuntary
liquidation;
(d) the amount payable upon shares in the event of voluntary liquidation;
(e) sinking fund or other provisions, if any, for the redemption or
purchase of shares;
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(f) the terms and conditions under which shares may be converted, if the
shares of any series are issued with the right of conversion; and
(g) voting powers, if any.
Such determinations would be made by the Board of Directors at the time it
designated the particular series of Preferred Stock comprising the series and
would take into account the circumstances pertinent at that time.
The Company currently has no plans to issue any additional shares of
Common Stock or any shares of Preferred Stock other than: (i) the shares of
Common Stock that previously have been reserved for issuance with respect to
existing stock option plans and stock bonus plans, including the Stock Option
Plan discussed in Proposal Number Four below, and (ii) shares of Common Stock
to be reserved for issuance upon conversion of the Class B Common. The
Company has decided to increase the number of authorized shares of Preferred
Stock because of the increase in the authorized shares of Common Stock.
If approved, the increased number of authorized shares of Common Stock
and Preferred Stock will be available for issuance from time to time for such
purposes and consideration as the Board of Directors may approve and no
further vote of shareholders of the Company will be required, except as
provided under Wyoming law or the rules of any national securities exchange
on which shares of the Company are at the time listed. The availability of
additional shares for issuance, without the delay and expense of obtaining
the approval of shareholders at a special meeting, will afford the Company
greater flexibility in acting upon proposed transactions.
In the event this Proposal Number Three is approved, the authorization of
20,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock
will be reflected in an amendment to the Company's Articles of Incorporation
which will be filed with the Secretary of State of the State of Wyoming. A
copy of Article II of the Company's Articles of Incorporation, as proposed to
be amended, is attached as Attachment E.
(c) AUTHORIZATION OF A TOTAL OF 8,000,000 SHARES OF CLASS B COMMON STOCK
WITH A PAR VALUE OF $.01 PER SHARE
It is proposed that the Company's Articles of Incorporation be further
amended to authorize a total of 8,000,000 shares of Class B Common Stock with
a par value of $.01 per share. Pursuant to the Asset Purchase Agreement,
KTOC and the Shareholders propose to acquire the Company by transferring the
Assets to the Company in exchange for 7,717,820 "restricted" shares of Class
B Common Stock (the "Class B Common") representing 80% of the issued and
outstanding shares of the Company's Common Stock immediately after the
Closing. See "Proposal Number One."
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The Class B Common will have all of the rights of currently issued and
outstanding shares of the Company's Common Stock, except that: (i) the Class
B Common will not be entitled to participate in any distribution of shares or
assets of the Subsidiary; and (ii) each share of Class B Common will be
entitled to 1.6 votes on all issues presented for vote by the shareholders.
The Class B Common will be convertible on a one-for-one share basis into the
Company's Common Stock commencing 36 months from the Closing. Commencing 30
months from the Closing, the Class B Common will be convertible on a
one-for-one share basis, provided that the number of shares so converted
until the date 36 months after the Closing will be limited to that number of
shares of Common Stock that may be sold by an affiliate pursuant to the
volume limitation provisions of Rule 144 promulgated under the Securities Act
of 1933, as amended. Up to 500,000 shares of Class B Common may be converted
into Common Stock to the extent such shares are used to acquire the Option
Properties. The 500,000 shares of Class B Common will be subject to certain
registration rights commencing six months from the date of conversion.
In the event this Proposal Number Three is approved, the authorization of
8,000,000 shares of Class B Common Stock will be reflected in an amendment to
the Company's Articles of Incorporation which will be filed with the
Secretary of State of the State of Wyoming. A copy of Article II of the
Company's Articles of Incorporation, as proposed to be amended, is attached
as Attachment E.
INTEREST OF MANAGEMENT IN MATTERS TO BE VOTED UPON.
The management of the Company and the director nominees have an interest
in the approval by shareholders of Proposal Numbers One and Three. See
"Proposal Number One - Asset Purchase Agreement, Operating Agreement,
Management Agreement, Employment Agreement and Voting Agreement."
EFFECTS OF ADOPTION OF PROPOSAL NUMBER THREE.
ANTI-TAKEOVER EFFECTS. The authorized but unissued shares of Common
Stock, Preferred Stock and Class B Common Stock for which approval is sought
could be used by incumbent management to make more difficult a change in
control of the Company. Under certain circumstances such shares could be
used to create voting impediments or to frustrate persons seeking to effect a
takeover or otherwise gain control of the Company. For example, such shares
could be privately placed with purchasers who might side with the Board in
opposing a hostile takeover bid. In addition, the Board could authorize
holders of a series of Preferred Stock to vote as a class, either separately
or with the holders of Common Stock, upon any proposed merger, sale or
exchange of assets by the Company or any other extraordinary corporate
transaction.
The authorization of additional shares of Preferred Stock might be
considered as having the effect of discouraging an attempt by another person
or entity, through the acquisition of a substantial number of shares of the
Common Stock, to acquire control of the Company with a view to imposing a
merger, sale of all or any part of the Company's assets or a similar
transaction that may not be in
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the best interest of all of the shareholders, since the issuance of new
shares of Preferred Stock could be used to dilute the stock ownership of a
person or entity seeking to obtain control of the Company. In this respect,
certain companies have recently issued as a dividend to the holders of their
Common Stock shares of Preferred Stock having terms designed to protect
against the adverse consequences to shareholders of partial takeovers and
front-end loaded, two-step takeovers and freezeouts, and the Preferred Stock
would be available for such purpose. Additionally, the Common Stock and the
Class B Common Stock could be issued diluting the ownership interest of a
potential acquiror.
Despite such anti-takeover implications, this Proposal Number Three is
not the result of management's knowledge of any effort to accumulate the
Company's securities or to obtain control of the Company by means of a
merger, tender offer, solicitation in opposition to management or otherwise.
Except as indicated below, management is not aware of the existence of
any provisions in the Articles or Bylaws or terms of contracts to which it is
a party which may be considered to have an anti-takeover effect. The
Company's Articles and Bylaws do not contain any provisions which would
impose any burden in excess of requirements imposed by Wyoming law upon
potential tender offerors or others seeking a takeover of the Company, other
than provisions for limitation of director liability, classification of the
Board and super-majority voting requirements for Board action. These
provisions were approved and adopted by the shareholders at previous annual
meetings of the Company.
The Articles do not provide for cumulative voting. As a result, in order
to be ensured of representation on the Board, a shareholder must control the
votes of a majority of the shares present and voting at a shareholders'
meeting at which a quorum is present. The lack of cumulative voting requires
an entity seeking a takeover to acquire a substantially greater number of
shares to ensure representation on the Board than would be necessary were
cumulative voting available. Further, because the Articles deny preemptive
rights to the shareholders, any authorized but unreserved shares of Common
Stock, Preferred Stock and, in the event this Proposal Number Three is
passed, shares of Class B Common Stock, may be issued to parties without
first offering such shares to existing shareholders. Such issuances,
particularly in light of the flexibility which will be afforded to the Board
in setting the terms of the Preferred Stock, might be used to reduce the
equity ownership of a tender offeror or other acquiring entity thereby
rendering acquisition efforts more difficult or impossible. In addition, the
Articles, in conformity with Wyoming law, provide that a transaction is not
void or voidable solely by virtue of the interested status of a director in
such a transaction if the relationship is known or disclosed and a sufficient
number of disinterested directors at a meeting at which a quorum is present
approve the transaction. The ability to approve such transactions with
interested parties might also be used in a takeover or other situations to
approve the issuance of shares to such an interested party.
DILUTIVE EFFECT. The issuance of shares of Preferred Stock and Class B
Common Stock having conversion rights could have the effect of diluting the
interests of the holders of the Common Stock. In addition, it should be
anticipated that any shares of Preferred Stock which may be issued
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would have dividend and liquidation preferences which would be superior to
those of the Common Stock and Class B Common Stock. Holders of Common Stock
do not have preemptive rights to subscribe to additional securities which may
issued by the Company.
DISSENTERS' RIGHTS.
Shareholders of record on the record date will be given the right to
dissent from the action of other shareholders in approving the proposed
amendment to the Company's Articles of Incorporation. If this Proposal
Number Three is approved, all shareholders who properly exercise their
dissenters' rights will be entitled to rights of appraisal under the Wyoming
Code. Shareholders also will be given the right to dissent from the action
of other shareholders in approving Proposal Number One, the ratification of
the Asset Purchase Agreement.
A DISCUSSION OF THE PROCEDURES TO BE FOLLOWED BY A DISSENTING SHAREHOLDER
IS SET FORTH IN "PROPOSAL NUMBER ONE - DISSENTERS' RIGHTS" AND A COPY OF THE
APPLICABLE PROVISIONS OF THE WYOMING CODE, SECTIONS 17-16-1301 THROUGH
17-16-1331, IS REPRINTED IN ITS ENTIRETY AS ATTACHMENT D. SEE "PROPOSAL
NUMBER ONE -DISSENTERS' RIGHTS" AND ATTACHMENT D FOR A DISCUSSION OF
DISSENTERS' RIGHTS AND THE PROCEDURES TO BE FOLLOWED.
MANAGEMENT RECOMMENDATION AND REQUIRED VOTE.
Management recommends the shareholders entitled to vote at the Special
Meeting vote "FOR" the proposed amendment to the Company's Articles of
Incorporation to (a) change the Company's name to American Rivers Oil
Company; (b) increase the number of authorized shares of Common Stock, $.01
par value, to 20,000,000 shares and the number of authorized shares of the
Company's Preferred Stock, $.50 par value, to 5,000,000 shares; and (c) to
authorize a total of 8,000,000 shares of Class B Common Stock of the Company
with a par value of $.01 per share.
Approval of the proposal to amend the Company's Articles of Incorporation
to change the Company's name, increase the number of authorized shares of
Common Stock and Preferred Stock and authorize a new class of Class B Common
Stock requires the affirmative vote of a majority of the votes entitled to be
cast. The Company's officers and directors plan to vote their shares in
favor of the amendment.
PROPOSAL NUMBER FOUR
A PROPOSAL TO APPROVE AN INCREASE IN THE NUMBER OF SHARES OF
THE COMPANY'S COMMON STOCK COVERED BY THE COMPANY'S 1992 STOCK
OPTION PLAN FOR EMPLOYEES (INCLUDING OFFICERS), DIRECTORS AND
CONSULTANTS OF THE COMPANY TO 500,000 SHARES
There are presently 150,000 shares of the Company's Common Stock reserved
under the 1992 Stock Option Plan (the "1992 Plan") for issuance pursuant to
the exercise of stock options (the "Options") which may be granted to
employees (including officers), directors and consultants of
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the Company or any subsidiary. The 1992 Plan is designed to provide
additional incentive for employees, consultants and directors to promote the
success of the Company and to encourage stock ownership in the Company by
such persons. The Board is requesting that the shareholders of the Company
approve an increase in the aggregate number of shares of the Company's Common
Stock reserved for issuance under the 1992 Plan to 500,000. As of the date
hereof, there are outstanding options to purchase 150,000 shares of Common
Stock under the 1992 Plan. No other options have been granted, or currently
are proposed to be granted, under the 1992 Plan.
The incentive option provisions in the 1992 Plan qualify for special tax
treatment as incentive stock options under the Internal Revenue Code of 1986,
as amended (the "Code"), and qualify for an exemption from certain provisions
of the Securities Exchange Act of 1934, as amended (the "1934 Act"). To the
extent that management personnel may be eligible to receive Options which may
be granted under the 1992 Plan, management has an interest in seeing the
increase in the number of shares covered by the 1992 Plan approved by
shareholders.
The 1992 Plan is currently administered by the entire Board. The 1992
Plan may be administered by a Compensation Committee (the "Committee") which
is appointed by the Board, or at the Board's discretion, may be administered
by the entire Board. In the absence of a designated and qualified Committee,
the entire Board must serve as the Committee. The Committee must consist of
at least two directors, each of whom must be disinterested. Options granted
under the Plan at any time when any Committee member is not "disinterested"
within the meaning of Rule 16b-3(c)(2)(i) under the 1934 Act shall not
qualify as exempt purchases under Rule 16b-3 of the 1934 Act.
The Committee has the authority and discretion to determine which of the
key employees, officers and directors of the Company or its subsidiaries, or
others who have provided significant services to the Company or its
subsidiaries, will be granted options, when options will be granted and the
number of options to be granted. The Committee also may determine the time
or times when each option becomes exercisable, the duration of the exercise
period, and the terms and conditions of the agreements evidencing options
granted under the 1992 Plan. It has the authority to interpret the
provisions of the 1992 Plan and is empowered to make all other determinations
deemed necessary or advisable for the administration of the 1992 Plan. The
Committee may determine which Options may be options intended to qualify for
special treatment under the Code ("Incentive Stock Options") or Non-Qualified
Options ("Non-Qualified Stock Options") which are not intended to so qualify.
See "Tax Aspects" below. The 1992 Plan provides for the grant of both
Incentive and Non-Qualified Stock Options, although only employees may be
granted Incentive Stock Options.
Participants in the 1992 Plan may be selected by the Committee from
employees (including officers), consultants and directors (whether or not
they are employees) of the Company or its divisions and subsidiaries. The
Committee may take into account the duties of persons selected, their present
and potential contributions to the success of the Company and such other
considerations as the Committee deems relevant to the purposes of the 1992
Plan.
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<PAGE>
The Committee also may construe the 1992 Plan and the provisions in
instruments evidencing Options granted under the 1992 Plan and is empowered
to make all other determinations deemed necessary or advisable for the
administration of the 1992 Plan. The Board may suspend, terminate, modify or
amend the 1992 Plan, but without the approval of the holders of a majority of
the voting shares of Common Stock represented at a meeting, the Board may not
materially increase the number of shares of Common Stock as to which Options
may be granted to Officers and Directors of the Company, grant eligibility to
Officers and Directors not included within the terms of the 1992 Plan prior
to the amendment, or materially increase the benefits to be received by
Officers and Directors of the Company who are participants under the 1992
Plan. The Board may not adversely affect the rights of any participant under
any unexercised Option or any portion thereof without the consent of such
participant. Unless sooner terminated by the Board, the 1992 Plan will
terminate in 2002.
Options granted under the 1992 Plan contain provisions for proportionate
adjustment of the number of shares for outstanding Options and the option
price per share in the event of stock dividends, recapitalizations resulting
in stock splits or combinations or exchanges of shares.
In the event of the dissolution or liquidation of the Company, a
corporate separation or division or the merger or consolidation of the
Company, the Committee may provide that each Option holder may exercise such
Option on such terms as it may have been exercised immediately prior to such
dissolution or liquidation, corporate separation or division or merger or
consolidation or may provide that the Options granted under the 1992 Plan
will expire by a fixed date and that the Option holders may exercise their
Options as to all or any part of the shares covered including shares as to
which the Options would not otherwise be exercisable.
The 1992 Plan also provides that in the event of a tender offer or
exchange offer for the Company, certain mergers or consolidations of the
Company or certain changes in control of the Company's Board of Directors,
the Committee may provide, depending upon the circumstances, that: (i) the
holder of each option then exercisable shall have the right to exercise such
Option solely for the kind and amount of shares of stock and other securities
(including those of any new direct or indirect parent of the Company),
property, cash or any combination thereof receivable upon such transaction by
the holder of the number of shares of Common Stock for which such option
might have been exercised; or (ii) all Options shall become fully exercisable
immediately. These provisions may have the effect of serving as
"anti-takeover devices."
The Committee has broad discretion to determine the number of shares with
respect to which Options may be granted to participants.
NON-QUALIFIED STOCK OPTIONS. Non-Qualified Stock Options may be granted
with exercise periods of up to ten years and must have exercise prices not
less than 80% of the fair market value of the Common Stock underlying the
options at the time of the grant. Non-Qualified Stock Options are
exercisable generally in accordance with the terms of the Plan and
specifically as determined by the Plan Committee.
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<PAGE>
INCENTIVE STOCK OPTIONS. Options granted in accordance with certain
provisions of the Plan are intended to be "Incentive Stock Options" within
the meaning of Section 422 of the Code. The Plan contains various provisions
to ensure that the Incentive Stock Options comply with Section 422 of the
Code, including the requirement that Incentive Stock Options be granted only
to persons who are employees of the Company. The Plan Committee determines
which key employees of the Company and its subsidiaries will be granted
Incentive Stock Options, when options will be granted and the number of
options to be granted.
The term of any Incentive Stock Option (or "ISO") granted under the Plan
may not be more than five years in the case of options granted to employees
who own more than ten percent of the Company's voting securities on the date
of the grant and ten years in the case of other employees. All ISO's must
have exercise prices not less than 100% of the fair market value of the
shares of Common Stock at the time of grant (110% in the case of options
granted to employees who own more than ten percent of the Company's voting
securities on the date of the grant). The maximum aggregate fair market
value (determined as of the date of grant) of the shares as to which ISO's
held by any one optionee become exercisable for the first time during any
calendar year may not exceed $100,000.
GENERAL. The "Market Value" is defined under the 1992 Plan to be the
last sale price of the Common Stock as reported on a national securities
exchange or on NASDAQ National Market System or, if a last sale reporting
quotation is not available, the average of the bid and asked prices of the
Company's Common Stock on the date of grant as reported by NASDAQ or the
electronic bulletin board. If not reported as such, then as listed in the
National Quotation Bureau Inc.'s "Pink Sheets." If such quotations are
unavailable, the Board, in its discretion, may select any reasonable method
for making a good faith determination of fair market value.
To exercise an Option, the optionee must pay the full exercise price
either in cash or, with the consent of the Committee, in shares of the
Company's Common Stock having a fair market value equal to the exercise price
or in a combination of cash, shares of Common Stock and property. Subject to
approval of the Board of Directors and compliance with applicable law, the
optionee may use cash received from the Company at the time of exercise as a
compensatory payment or borrowed from the Company on repayment terms and
conditions determined by the Committee in its discretion separately with
respect to each Option exercised and each optionee. The Board of Directors
shall determine whether or not property other than cash or common stock may
be used to purchase the shares underlying an Option and shall determine the
value of the property received.
Options are exercisable during the term of the option while the optionee
is an employee, officer, director or consultant of the Company or a
subsidiary of the Company. If an optionee ceases to be an employee, officer,
director or consultant to the Company or a subsidiary of the Company (other
than by reason of death, disability or retirement), all of the optionee's
Options that are exercisable at the time of such cessation may, unless
earlier terminated in accordance with their terms, be exercised within three
months of such cessation; provided, however, that if the optionee's
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<PAGE>
relation to the Company or a subsidiary of the Company is terminated for
cause, all the optionee's Options will, to the extent not previously
exercised, immediately terminate.
If an optionee dies while an employee, officer, director or consultant of
the Company or a subsidiary of the Company, or during the three month period
following termination such relation, other than for cause, or if the
optionee's relation to the Company or a subsidiary of the Company is
terminated by reason of disability or retirement, all of the optionee's
Options (whether or not otherwise exercisable), unless previously terminated
in accordance with their terms, may be exercised by the optionee, the
optionee's legal representative or a person who acquires the right to
exercise such Options by bequest or inheritance by reason of the death or
disability of the optionee, at any time within one year following the date of
death, disability or retirement of the optionee; provided, however, that if
the Options are Incentive Stock Options as defined under the 1992 Plan the
time of exercise is limited to three months following the date of retirement.
An Option granted under the 1992 Plan is not transferable by the optionee
other than by will or by the laws of descent and distribution or pursuant to
a qualified domestic relations order as defined by the Code or the Employee
Retirement Income Security Act of 1974. During the lifetime of the Optionee,
Options may be exercised only by the optionee, and thereafter only by his
legal representative.
An optionee has no rights as a shareholder with respect to any shares
covered by Options until the options have been exercised and stock
certificates have been issued to him. If a registration statement and a
prospectus meeting the requirements of Section 10(a)(3) of the Securities Act
relating to the shares issuable upon the exercise of Options granted pursuant
to the Plan is not in effect at the time of the exercise of such Options, the
recipient must represent and warrant, in writing to the Company, that the
shares to be issued are not being acquired with a view toward distribution
thereof. No shares will be issued upon the exercise of any Option unless and
until any of the applicable requirements of the Commission, state securities
commission or other regulatory agencies having jurisdiction, and of any
securities exchange upon which the shares may be listed, have been complied
with fully.
In addition, unless there is in effect a current registration statement
under the Securities Act, an optionee who exercises Options to purchase
shares will acquire "restricted securities" as that term is used in Rule 144
adopted under the Securities Act and will be able to sell such shares only in
compliance with such rule (or another applicable exemption from
registration). The Company presently does not plan to file a registration
statement relating to shares issuable upon the exercise of Options granted
under the 1992 Plan. Accordingly, optionees may not be able to sell the
shares purchased upon the exercise of Options granted under the Plan for a
minimum period of two years. The Company may in the future file a
registration statement on Form S-8, which is a simplified form of
registration statement available for employee benefit plans, in order to
register the options and underlying shares for public sale.
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<PAGE>
TAX ASPECTS. The following is a general summary of the Company's
understanding of the federal income tax consequences of the 1992 Plan.
Under current federal income tax laws, Incentive Stock Options ("ISO's")
granted under the 1992 Plan will generally have the following consequences.
If a participant is awarded an ISO, no income will be recognized for federal
income tax purposes at the time of grant or exercise, and the Company will,
therefore, not receive any corresponding deduction. The excess of fair
market value of the shares of Common Stock received at the date of exercise
over the option price will constitute an "item of adjustment" to the
participant, however, for purposes of the participant's alternative minimum
tax. The participant will be subject to federal income tax when the
participant sells the shares acquired upon the exercise of the ISO. The
holding period for the ISO is the later of two years from the date of grant
or one year from the date the shares were transferred to the participant upon
exercise. When the participant disposes of the stock after completion of the
holding period, the participant will recognize as capital gain the difference
between the amount received in such disposition over the participant's basis
in the stock. The Company will have no corresponding deduction. If the
participant disposes of the stock before the holding period expires, the
participant must recognize compensation income to the extent of gain on the
disposition. The Company will be entitled to a corresponding deduction for
compensation expense in the amount the participant must recognize as
compensation income.
An optionee who is awarded a Non-Qualified Stock Option ("NQSO") under
the 1992 Plan will generally recognize no income for federal income tax
purposes upon the grant, and the Company, therefore, receives no deduction at
that time. At the time of exercise, however, the holder generally will
recognize compensation income, taxable as ordinary income, to the extent that
the fair market value of the shares of Common Stock received on the exercise
date exceeds the NQSO price. The Company will be entitled to a corresponding
compensation expense deduction for federal income tax purposes in the year in
which the NQSO is exercised.
Persons eligible to participate in the 1992 Plan include officers,
directors, key employees and others designated by the Committee as having
provided significant services to the Company and its subsidiaries, and grants
are awarded in the discretion of the Committee. Therefore, it is not
possible at the present time to indicate those persons to whom options will
be granted in the future.
BOARD RECOMMENDATION AND VOTE REQUIRED.
The affirmative vote of a majority of the votes cast at the shareholders'
meeting is required to approve Proposal Number Four. The Officers and
Directors of the Company plan to vote their shares in favor of Proposal
Number Four to approve an increase in the number of shares covered by the
1992 Stock Option Plan to 500,000 shares.
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<PAGE>
COMPANY'S RELATIONSHIP WITH
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
It is expected that a representative of Hein + Associates LLP, Denver,
Colorado, the Company's independent certified public accountants, will be
present at the Special Meeting to respond to appropriate questions and to
make a statement if he so desires. The Company intends to select Hein +
Associates LLP as its independent certified public accountants to perform an
audit of the accounts of the Company for the fiscal year ending March 31,
1996.
FINANCIAL INFORMATION
A copy of the Company's Annual Report for the fiscal year ended March 31,
1995, including Audited Financial Statements, and the Company's Quarterly
Report on Form 10-QSB for the quarter ended June 30, 1995, are being sent to
shareholders with this Proxy Statement.
Audited and Unaudited Financial Statements of the KTOC Contributed
Properties, Audited and Unaudited Financial Statements of the KTOC Option
Properties and Pro Forma Financial Information with respect to the
Transaction are attached to this Proxy Statement as Attachment B.
OTHER MATTERS
Management does not know of any other matters to be brought before the
meeting. However, if any other matters properly come before the meeting, it
is the intention of the appointees named in the enclosed form of proxy to
vote in accordance with their best judgment on such matters.
SHAREHOLDER PROPOSALS
Any shareholder proposing to have any appropriate matter brought before
the 1996 Annual Meeting of Shareholders must submit such proposal in
accordance with the proxy rules of the Commission. Such proposals should be
sent to the Secretary of the Company not later than July 27, 1996 to be
considered for inclusion in the 1996 Proxy Statement.
By Order of the Board of Directors:
METRO CAPITAL CORPORATION
Date: November 10, 1995 Robert E. Thrailkill,
Chairman of the Board of
Directors
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<PAGE>
______________________________________________________________________________
PROXY
______________________________________________________________________________
METRO CAPITAL CORPORATION
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 27, 1995
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
KNOW ALL MEN BY THESE PRESENTS: That the undersigned shareholder of
Metro Capital Corporation (the "Company") hereby constitutes and appoints
Robert E. Thrailkill and Gene E. York, or either of them, as attorneys and
proxies to appear, attend and vote all of the shares of the Common Stock of
Metro Capital Corporation standing in the name of the undersigned at the
Special Meeting of Shareholders of Metro Capital Corporation to be held at
the Company's office at 716 College View Drive, Riverton, Wyoming 82501, on
November 27, 1995, at 1:00 p.m., Mountain Time, and at any adjournment or
adjournments thereof:
1. To consider and vote upon the ratification of the Asset
Purchase Agreement among the Company, Karlton Terry Oil Company, Karlton
Terry and Jubal Terry and the transactions related thereto. (Requires the
affirmative vote of a majority of the votes cast at the meeting.)
FOR ____ AGAINST _____ ABSTAIN _____
2. To elect the following three directors to serve until the next
Annual Meeting of Shareholders and until their successors have been elected
and qualified: Karlton Terry, Jubal Terry and Denis Bell. (Requires the
affirmative vote of a plurality of the votes cast at the meeting.)
For all nominees _______.
Withhold authority to vote for all nominee(s) ______.
Withhold authority to vote for nominee(s) named below:
_______________________________
_______________________________
3. To consider and vote upon an amendment to the Articles of
Incorporation of the Company to (a) change the Company's name to American
Rivers Oil Company; (b) increase the number of authorized shares of Common
Stock, $.01 par value, to 20,000,000 shares and the number of authorized
shares of Preferred Stock, $.50 par value, to 5,000,000 shares; and (c) to
authorize a
<PAGE>
total of 8,000,000 shares of Class B Common Stock with a par value of $.01
per share. (Requires the affirmative vote of a majority of the votes
entitled to be cast.)
FOR ____ AGAINST _____ ABSTAIN _____
4. To consider and vote upon the approval of an increase in the
number of shares of the Company's Common Stock covered by the Company's 1992
Stock Option Plan for employees (including officers), directors and
consultants of the Company to 500,000 shares. (Requires the affirmative vote
of a majority of the votes cast at the meeting.)
FOR ____ AGAINST _____ ABSTAIN _____
5. To transact such other business as may properly come before the
meeting.
THE SHARES REPRESENTED HEREBY WILL BE VOTED AS SPECIFIED HEREON WITH
RESPECT TO PROPOSALS ONE THROUGH FOUR, BUT THEY WILL BE VOTED FOR PROPOSALS
ONE THROUGH FOUR, IF NO SPECIFICATION IS MADE. THIS PROXY WILL BE VOTED IN
ACCORDANCE WITH THE DISCRETION OF THE PROXIES ON ANY OTHER BUSINESS.
Please mark, date and sign your name exactly as it appears hereon
and return the Proxy in the enclosed envelope as promptly as possible. It is
important to return this Proxy properly signed in order to exercise your
right to vote if you do not attend the meeting and vote in person. When
signing as agent, partner, attorney, administrator, guardian, trustee or in
any other fiduciary or official capacity, please indicate your title. If
stock is held jointly, each joint owner must sign.
Date: ____________, 1995
______________________________
Signature(s)
Address if different from that on label:
______________________________
Street Address
______________________________
City, State and Zip Code
______________________________
Number of shares
Please check if you intend to be present at the meeting: ________
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<PAGE>
ATTACHMENT A
ASSET PURCHASE AGREEMENT
THIS AGREEMENT is made as of this 19th day of October, 1995, by and
among METRO CAPITAL CORPORATION, a Wyoming corporation (the "Purchaser"), and
KARLTON TERRY OIL COMPANY, a Colorado corporation ("KTOC"), KARLTON TERRY and
JUBAL TERRY (the "Shareholders.") (KTOC and the Shareholders are referred to
herein collectively as the "Sellers").
WHEREAS, the Sellers are willing to sell, and the Purchaser is willing
to purchase, certain of the assets, and assume certain of the liabilities, of
the Sellers on the terms and conditions hereinafter set forth.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt, adequacy and sufficiency of which are hereby acknowledged, the
parties hereto covenant and agree as follows:
ARTICLE 1
PURCHASE AND SALE OF THE ASSETS
1.1 PURCHASE AND SALE OF THE ASSETS. At the Closing (as hereinafter
defined), subject to the terms and conditions stated herein, the Sellers
agree to sell, assign, convey and transfer to the Purchaser, and the
Purchaser agrees to purchase from the Sellers, the following described
interests (the "Assets"):
(a) The undivided interests described in Exhibit A hereto in and
to the entire estates created by the leases, licenses, permits and other
agreements described in Exhibit A (the "Leases"), insofar as the Leases cover
and relate to the land described in Exhibit A (the "Land"), together with
identical undivided interests in and to all the property and rights incident
thereto, including all rights in, to and under all agreements, product
purchase and sale contracts, leases, permits, rights-of-way, easements,
licenses, farmouts, options and orders in any way relating thereto;
(b) Identical undivided interests in and to all of the personal
property, fixtures and improvements now or as of the Effective Time (as
defined in Section 1.2 below) on the Land, appurtenant thereto or used or
obtained in connection therewith or with the production, treatment, sale or
disposal of hydrocarbons or water produced therefrom or attributable thereto
and all other appurtenances there unto belonging;
(c) All files, books, records and engineering and geological data
related to the foregoing; and
(d) Those options (the "Asset Options") described in Exhibit A to
acquire interests in the Leases and Land.
<PAGE>
1.2 EFFECTIVE TIME. The purchase and sale of the Assets shall be
effective for all purposes as of November 1, 1995 at 7:00 A.M., local time
(the "Effective Time"), said time to be determined for each locality
described in Exhibit A in accordance with the time generally observed in said
locality.
1.3 PURCHASE PRICE; ALLOCATION COVENANTS. In full consideration for
the purchase of the Assets, the Purchaser will issue to the Sellers, in the
respective percentages to be specified by Sellers to Purchaser prior to
Closing, 7,717,820 shares of restricted Class B Common Stock of the Purchaser
(the "Class B Common Stock"), having the attributes set forth in Section 1.5,
which when issued will be validly issued, fully paid and nonassessable shares
of Class B Common Stock. At Closing, such 7,717,820 shares of Class B Common
Stock shall represent 80% of the issued and outstanding securities of the
Purchaser after giving effect to the issuances of certain of the securities
described on Schedule 10.19. The Purchaser and the Sellers each covenants
with the other that it will promptly give written notice to the other of any
inquiry or challenge of such allocation by any federal, state or local tax
authority. It is the intention of the parties, and a condition precedent to
the obligation of the Sellers to complete the transaction contemplated
hereby, that such transaction qualify as a nontaxable event pursuant to
Section 351 of the Internal Revenue Code of 1986, as amended (the "Code").
1.4 PURCHASER SUBSIDIARY. Prior to the Closing, the Purchaser will
transfer (and Sellers agree to such transfer) to Bishop Cable Communications
Corporation, its wholly-owned Wyoming subsidiary (the "Subsidiary") all of
its assets (the "Purchaser Excluded Assets") except for (i) the amount of
cash and marketable securities in excess of $1.2 million, which amount in any
event shall be at least $700,000; and, (ii) its working interest in, and its
operating agreement with respect to, the property known as Twenty Mile Hill,
which is held by Metro Minerals Corporation, a wholly-owned subsidiary of
Purchaser (a copy of the legal description of which is hereto attached as
Exhibit B). All economic credit for any net operating loss of the Purchaser
calculated as of September 30, 1995, shall be given to the Subsidiary, and
the Subsidiary shall have no obligation whatsoever for payment of any
consolidated tax liability until such time as the separate taxable income of
the Subsidiary exceeds the aforementioned net operating loss, which as of
June 30, 1995, was approximately $830,000. In the event Closing occurs after
November 30, 1995, then the net operating loss shall be calculated as of the
end of the calendar month preceding the month in which Closing occurs. After
the Closing, the Subsidiary shall loan the Purchaser, upon its request,
amounts up to $18,000 as are necessary to pay debt service on that portion of
the Assets known as the Lake Hatch properties, which loans shall be made for
a period of up to 90 days on a fully secured basis with simple interest at
the annual rate of 10% and pursuant to other commercially reasonable terms
and conditions to be agreed upon by the parties. Such loan shall be repaid as
the first priority out of proceeds of a private placement of Purchaser's
securities but in any event shall be repaid within 90 days after the making
of such loan.
The Common Stock of the Subsidiary shall be distributed to the holders
of the Purchaser's Common Stock as soon as practicable and, if so qualified,
on a non-taxable basis. In any event, and regardless of tax consequences,
the parties intend, and Purchaser shall cause, such distribution to occur not
later than 36 months from the Closing. The Subsidiary shall be operated
autonomously
2
<PAGE>
by the current management of the Purchaser, but in no event for more than
five years, pursuant to the terms of an operating agreement (the "Operating
Agreement") and management agreement (the "Management Agreement") to be
entered into with the Purchaser and its management. Copies of the Operating
Agreement and the Management Agreement are attached hereto as Exhibits C and
D, respectively. Such compensation shall be self funded by the Subsidiary
and not the Purchaser. The Operating Agreement and the Management Agreement
shall be ratified by the Purchaser immediately after the Closing Date. The
Subsidiary shall assume, and shall indemnify and hold harmless Sellers and
Purchaser from, any and all liabilities, costs, claims and assessments
related to the Purchaser Excluded Assets.
1.5 CLASS B COMMON STOCK. The Class B Common Stock shall have all of
the rights of the currently issued and outstanding shares of the Purchaser's
Common Stock, except that (i) the Class B Common Stock shall not be entitled
to participate in any distribution of shares or assets of the Subsidiary and
(ii) each share of Class B Common Stock shall be entitled to 1.6 votes on all
issues presented for vote by the shareholders. The rights and restrictions of
the Class B Common Stock shall be set forth in the materials submitted to the
shareholders of Purchaser pursuant to Section 5.4, which materials must be
acceptable to Sellers, in their reasonable discretion. The Class B Common
Stock shall be fully convertible on a one-for-one share basis into the
Purchaser's Common Stock commencing 36 months from the Closing Date.
Commencing 30 months from the Closing Date, the Class B Common Stock shall be
convertible on a one to one share basis, provided that the number of shares
so converted until the date 36 months after the Closing Date shall be limited
to that number of shares of Common Stock of the Purchaser that may be sold by
an affiliate pursuant to the volume limitation provisions of Rule 144
promulgated under the Securities Act of 1933, as amended. Up to 500,000
shares of Class B Common Stock may be converted into the Purchaser's Common
Stock to the extent used by the Sellers to exercise the Asset Options. Such
shares of the Purchaser's Class B Common Stock will be subject to demand
registration rights commencing six months from the date of conversion, which
registration rights will include one demand registration right and other
terms and conditions as are agreed to by the parties.
1.6 PERFORMANCE PROVISION. Prior to Closing, Purchaser shall grant an
option (the "Option") in a form mutually acceptable to the parties to issue
800,000 shares of the Purchaser's Common Stock (the "Option Shares"), the
terms of which shall be as follows:
(i) Exercisability- The Option shall become exercisable commencing
36 months from the Closing in the event that one of the following events has
not occurred by such time: (a) realization of a minimum of $16.5 Million of
Proved and Probable Reserves; or, (b) the average bid price for the
Purchaser's Common Stock shall have been at least $4.00 for two periods of
twenty consecutive trading days; or (c) cash flow (gross revenues from oil
and gas production less expenses directly charged against such production)
for the Purchaser shall have been greater than $2,000,000 for any fiscal year.
(ii) Optionees- The Options shall be distributed PRO RATA to the
then current holders of the Purchaser's Common Stock.
(iii) Term- The Option shall be exercisable for a period of 120 days.
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(iv) Exercise Price- The Option shall be exercisable at a per share
price of $0.10.
(v) Registration Rights- All shares issued upon exercise of the
Option shall be registered with the SEC as soon as is practicable, but in no
event later than nine months after the end of the Option Term.
1.7 CLOSING OF THE PURCHASE. The closing of the purchase and sale
provided for herein (the "Closing") shall take place at the offices of
Brenman Key & Bromberg, P.C., 1775 Sherman Street, Suite 1001, Denver
Colorado, or at such other location as the parties may agree, on or before
November 17, 1995, or as soon as practicable thereafter in the event
additional time is necessary to comply with applicable requirements of the
SEC with respect to the Proxy Materials to be issued by the Purchaser as
provided under Section 5.4 hereof, which date may be extended by ten days by
the mutual agreement of the parties (the "Closing Date"). In no event shall
the Closing Date be later than January 1, 1996, provided that the party
responsible for any delay after November 17 shall reimburse the other party
for all reasonable out of pocket expenses incurred by the other party.
ARTICLE 2
REPRESENTATIONS OF THE SELLERS
As an inducement to the Purchaser to enter into this Agreement and to
consummate the transactions contemplated hereby, and with the knowledge that
the Purchaser will rely thereon, the Sellers represent and warrant to the
Purchaser as follows, which representations shall be true, both as of the
date hereof and as of the Closing Date.
2.1 DUE INCORPORATION AND QUALIFICATION. KTOC is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Colorado, and has the corporate power and lawful authority to carry on its
business as now being conducted. KTOC is duly qualified or otherwise
authorized as a foreign corporation to transact business in every
jurisdiction in which: (a) the nature of the business conducted or the
character or location of the properties owned by it makes such
qualification necessary; and (b) failure to so qualify might impair title to
properties or the right to enforce contracts against others, result in
exposure to liability in such jurisdictions or have an adverse effect on the
assets or business of KTOC.
2.2 STOCK OWNERSHIP. The Shareholders own all of the issued capital
stock of KTOC. There are no outstanding rights to acquire any of the capital
stock of KTOC either from KTOC or the Shareholders.
2.3 TITLE TO ASSETS. Except for Permitted Encumbrances (as defined in
Schedule 2.3) and those other matters listed in SCHEDULE 2.3, the Sellers
have good and defensible title to the Assets subject to no encumbrance, lien,
charge, option, right of first refusal, or other restriction of any kind or
character.
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2.4 AUTHORITY AND CONSENTS. KTOC and Shareholders each have full power
and authority to execute and deliver this Agreement and the other agreements
required to be executed and delivered hereunder (this Agreement and such
other agreements being hereinafter referred to as the "Closing Documents")
and to carry out the transactions contemplated hereby and KTOC has taken all
requisite corporate action to authorize the execution, delivery and
performance of the Closing Documents. The Sellers are not subject to, or a
party to, any charter, bylaw, mortgage, lien, lease, license, permit,
agreement, contract, instrument, law, rule, ordinance, regulation, order,
judgment or decree, or any other restriction of any kind or character that is
not typical of similarly situated oil and gas entities and that materially,
adversely affect the business, operation or condition of any Seller or the
Assets or would prevent consummation of the transactions contemplated by this
Agreement. The Closing Documents are valid and binding agreements of the
Sellers enforceable in accordance with the terms thereof. No consent,
authorization or approval of, or declaration, filing or registration with,
any governmental or regulatory authority or any consent, authorization or
approval of any other third party is required to enable KTOC or the
Shareholders to enter into and perform their respective obligations under the
Closing Documents, and neither the execution and delivery of the Closing
Documents nor the consummation of the transactions contemplated thereby will:
(a) Be in violation of the Certificate of Incorporation or Bylaws
of KTOC or constitute a breach of any evidence of indebtedness or
agreement to which KTOC or the Shareholders is a party;
(b) Cause a default under any mortgage or deed of trust or other
lien, charge or encumbrance to which any of the Assets are subject or
under any material contract to which any of the Sellers is a party, or
permit the termination of any such contract by another person;
(c) Result in the creation or imposition of any security interest,
lien, charge or other encumbrance upon the Assets under any agreement or
commitment to which any of the Sellers is bound;
(d) Accelerate, or constitute an event entitling, or which would,
upon notice or lapse of time or both, entitle the holder of any
indebtedness to accelerate the maturity of any such indebtedness;
(e) Conflict with or result in the breach of any writ, injunction
or decree of any court or governmental instrumentality;
(f) Violate any statute, law or regulation of any jurisdiction
as such statute, law or regulation relates to the Assets; or
(g) Violate or cause any revocation of or limitation on any Permit
(as hereinafter defined in Section 2.9).
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2.5 FINANCIAL STATEMENTS. Audited statement of assets and liabilities
of KTOC Contributed Properties as at December 31, 1994 and audited statement
of direct revenues and expenses for the two years then ended (hereinafter,
the "KTOC Audited Financial Statements") and an unaudited statement of assets
and liabilities of KTOC Contributed Properties as at June 30, 1995 and
unaudited statements of direct revenues and expenses for the six months ended
June 30, 1995 and 1994 (hereinafter, the "KTOC Unaudited Financial
Statements") will be provided to Purchaser within 10 days after the date
hereof. The KTOC Audited and KTOC Unaudited Financial Statements are
referred to hereinafter collectively as the KTOC Financial Statements. The
KTOC Financial Statements will be complete and accurate in all material
respects. The KTOC Audited Financial Statements, including the footnotes
thereto, will be prepared in accordance with generally accepted accounting
principles ("GAAP") and will present fairly the assets and liabilities of
KTOC Contributed Properties as of the dates thereof and their direct revenues
and expenses for the periods indicated. The KTOC Audited Financial Statements
shall have been (i) audited by KTOC's independent certified public
accountants in accordance with generally accepted auditing standards and
(ii) based upon information prepared in accordance with customary industry
standards and practices.
2.6 TAX MATTERS. The Sellers have paid all federal, state, county,
local, foreign and other taxes, including, without limitation, income
taxes, estimated taxes, excise taxes, sales taxes, use taxes, gross receipts
taxes, franchise taxes, employment and payroll related taxes, property taxes
and import duties, whether or not measured in whole or in part by net income
(individually, a "Tax" and collectively, the "Taxes") required to be paid by
them through the date hereof, and all deficiencies or other additions to any
Tax, interest and penalties owed by them in connection with any Tax.
2.7 NO TAX LIENS. None of the Assets is subject to any lien pursuant to
Section 6321 of the Code for nonpayment of federal taxes, or any lien in
favor of any state under any comparable provision of state law, under which
transferee liability might be imposed upon the Purchaser under Section 6323
of the Code or any comparable provision of state or local law.
2.8 COMPLIANCE WITH LAWS; PERMITS. The Sellers are not in violation of
any applicable order, judgment, injunction, award or decree relating to their
businesses. To the Sellers' knowledge, the Sellers are not in violation of
any federal, state, local or foreign law, ordinance or regulation or any
other requirement of any governmental or regulatory body, court or arbitrator
applicable to the Assets, the violation of which would have a material,
adverse effect on the Assets. The Sellers hold all licenses, permits, orders
and approvals of any federal, state or local governmental or regulatory
bodies (collectively, "Permits") that are material to or necessary for the
conduct of their businesses as now conducted. All Permits are in full force
and effect and no proceeding to revoke or limit any of such Permits is
pending or, to the knowledge of the Sellers, threatened.
2.9 LITIGATION. There are no outstanding orders, judgments,
injunctions, awards or decrees of any court, governmental or regulatory
body or arbitration tribunal against or involving the Assets. Except as set
forth in SCHEDULE 2.9, there are no actions or suits against the Sellers or,
to the knowledge of the Sellers, claims or investigations (whether or not the
defense thereof or liabilities in respect thereof are covered by insurance)
pending or, to the knowledge of the Sellers,
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threatened against or involving the Assets. Responsibility for any
litigation involving the Assets pending prior to the Closing, including
without limitation, the matters set forth on SCHEDULE 2.9 and the
satisfaction of judgments (including related costs and fees) shall remain
with the Sellers.
2.10 CONTRACTS AND OTHER AGREEMENTS. With respect to each material
contract under which any of the Sellers are obligated, neither the Sellers
nor any other party to each such contract is in default nor has any default
been asserted by any party, and there has not occurred any event which, with
the passage of time or giving of notice, or both, would constitute such
default or permit termination, modification or acceleration of such contract.
2.11 LEASES. With respect to each Lease, neither the Sellers nor any
other party to each such Lease is in default nor has any default been
asserted by any party, and there has not occurred any event which, with the
passage of time or giving of notice, or both, would constitute such default
or permit termination, modification or acceleration of the Lease.
2.12 LIABILITIES. Except as otherwise set forth in this Agreement or
any Schedule hereto, the Sellers have no direct or indirect indebtedness,
liability, claim, loss, damage, deficiency, obligation or responsibility,
known or unknown, asserted or unasserted, fixed or unfixed, liquidated or
unliquidated, secured or unsecured, accrued, absolute, contingent or
otherwise which has of could have a material adverse effect on the Assets.
2.13 RELATIONSHIPS. No officer or director of KTOC possesses, directly
or indirectly, any financial interest in, or is a director, officer,
stockholder or employee of, any corporation, firm, association or business
organization that is a manufacturer for, or client, supplier, customer,
lessor, lessee, or competitor or potential competitor of, KTOC.
2.14 DISCLOSURE. Neither this Agreement nor any Schedule, Exhibit or
certificate delivered in accordance with the terms hereof or any document,
report or statement in writing that has been supplied by or on behalf of the
Sellers or by any of KTOC's directors or officers in connection with the
transactions contemplated hereby contains any untrue statement of a material
fact, or omits any statement of a material fact necessary in order to make
the statements contained herein or therein not misleading. There is no fact
or circumstance known to the Sellers that materially and adversely affects or
that may materially and adversely affect the Assets, which has not been set
forth in this Agreement, the Schedules, Exhibits, certificates or
statements furnished in writing to the Purchaser in connection with the
transactions contemplated by this Agreement.
2.15 BROKER'S OR FINDER'S FEES. Except as provided on Schedule 2.15
attached hereto, no agent, broker, person or firm acting on behalf of any of
the Sellers is, or will be, entitled to any commission or broker's or
finder's fees from any of the parties hereto, or from any person controlling,
controlled by or under common control with any of the parties hereto, in
connection with any of the transactions contemplated herein.
2.16 INSURANCE. The Sellers maintain those insurance policies set
forth on Schedule 2.16.
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ARTICLE 3
REPRESENTATIONS OF THE PURCHASER
As an inducement to the Sellers to enter into this Agreement and to
consummate the transactions contemplated hereby, and with the knowledge that
the Sellers will rely thereon, the Purchaser represents and warrants to the
Sellers the following (both as of the date hereof and as of the Closing Date):
3.1 DUE INCORPORATION AND QUALIFICATION. The Purchaser is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Wyoming, and has the corporate power and lawful
authority to carry on its business as now being conducted.
3.2 CERTIFICATE OF INCORPORATION, BYLAWS AND MINUTES; CAPITAL
STRUCTURE. The Purchaser has heretofore delivered to the Sellers true and
complete copies of its and each of its Subsidiaries' Certificate of
Incorporation (certified by the Secretary of State of Wyoming) and their
Bylaws (certified by their corporate secretary) as in effect on the date
hereof. As of the date hereof, the authorized capital stock of Purchaser
consists of 6,000,000 shares of common stock and 3,000,000 shares of
preferred stock, of which 1,649,455 shares of common stock and no shares of
preferred stock are validly issued and outstanding, and are fully paid and
nonassessable. As of the date hereof and immediately after the Closing,
except as set forth on Schedule 10.19, (A) Purchaser is not and will not be a
party to or be bound by any contract, agreement or arrangement to issue or
sell any capital stock or any other security convertible into any capital
stock or other security of Purchaser (other than pursuant to this Agreement)
(B) there will not be any outstanding preemptive rights, rights of first
refusal, options, warrants or other rights to subscribe for or purchase or
contracts, agreements, or arrangements with respect to any capital stock or
other security of Purchaser authorized or not or any other security
convertible into any capital stock or any other security authorized or not of
Purchaser, and (C) Purchaser shall have no obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any shares of its capital
stock or any interest therein, or to pay any dividend or make any other
distribution in respect thereof. All of the issued and outstanding shares of
capital stock of Purchaser have been offered, issued and sold by Purchaser in
compliance with applicable federal and state securities laws. Except for
stock issued pursuant to outstanding options, no additional shares of
Purchaser's capital stock will be issued between the date hereof and the
Closing Date without the prior written consent of Sellers.
3.3 AUTHORITY OF THE PURCHASER. The Purchaser has full power and
authority to execute and deliver this Agreement and the Closing Documents and
to carry out the transactions contemplated hereby. The Purchaser is not
subject to, or a party to, any charter, bylaw, mortgage, lien, lease,
license, permit, agreement, contract, instrument, law, rule, ordinance,
regulation, order, judgment or decree, or any other restriction of any kind
or character that is not typical of similar situated entities and that
materially, adversely affect the business, operation or condition of
Purchaser or would prevent consummation of the transactions contemplated by
this Agreement. The Closing Documents are valid and binding agreements of
the Purchaser, enforceable in accordance with their terms. No consent,
authorization or approval of, or declaration, filing or registration with, any
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governmental or regulatory authority or any consent, authorization or
approval of any other third party is necessary in order to enable the
Purchaser to enter into and perform its obligations under the Closing
Documents, and neither the execution and delivery of the Closing Documents
nor the consummation of the transactions contemplated thereby will:
(a) Be in violation of its Certificate of Incorporation or Bylaws
or constitute a breach of any evidence of indebtedness or agreement to
which it is a party;
(b) Cause a default under any mortgage or deed of trust or other
lien, charge or encumbrance to which any of its property is subject or
under any contract to which it is a party, or permit the termination of
any such contract by another person;
(c) Result in the creation or imposition of any security interest,
lien, charge or other encumbrance upon any of its property or assets under
any agreement or commitment to which it is bound;
(d) Accelerate, or constitute an event entitling, or which would,
upon notice or lapse of time or both, entitle the holder of any
indebtedness to accelerate the maturity of any such indebtedness;
(e) Conflict with or result in the breach of any writ, injunction
or decree of any court or governmental instrumentality;
(f) Violate any statute, law or regulation of any jurisdiction as
such statute, law or regulation relates to it; or
(g) Violate or cause any revocation of or limitation on any permit.
3.4 COMPLIANCE WITH LAWS. The Purchaser is not in violation of any
applicable order, judgment, injunction, award or decree.
3.5 RESTRICTIVE DOCUMENTS. The Purchaser is not subject to, or a party
to, any charter, bylaw, mortgage, lien, lease, license, permit, agreement,
contract, instrument, law, rule, ordinance, regulation, order, judgment or
decree, or any other restriction of any kind or character, which adversely
affects the business practices, operations or condition of the Purchaser or
any of its assets, or which would prevent consummation of the transactions
contemplated by this Agreement.
3.6 THE CLASS B COMMON STOCK. The Class B Common Stock to be issued to
the Sellers in accordance with Section 1.5, will be validly issued, fully
paid, non-assessable shares of Class B Common Stock.
3.7 DISCLOSURE. Neither this Agreement nor any Schedule, Exhibit or
certificate delivered in accordance with the terms hereof or any document or
statement in writing that has been supplied by or on behalf of the Purchaser
in connection with the transactions contemplated hereby, contains any
untrue statement of a material fact, or omits any statement of a material
fact necessary
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in order to make the statements contained herein or therein not misleading.
There is no fact or circumstance known to the Purchaser that materially and
adversely affects or that may materially and adversely affect the
Purchaser, which has not been set forth in this Agreement, the Schedules,
Exhibits, certificates or statements furnished in writing to the Sellers in
connection with the transactions contemplated by this Agreement.
3.8 FINANCIAL STATEMENTS. Purchaser has provided Sellers with the
audited balance sheets of Purchaser and all of its subsidiaries as at March
31, 1994 and 1995 and audited statements of operations and cash flows for the
two years then ended (hereinafter, the "Purchaser Audited Financial
Statements") and an unaudited balance sheet of Purchaser as at June 30, 1995
and unaudited statements of operations and cash flows for the three months
then ended (hereinafter, the "Purchaser Unaudited Financial Statements.") The
Purchaser Audited and Unaudited Financial Statements are referred to
hereinafter collectively as the Purchaser Financial Statements. The Purchaser
Financial Statements are complete and accurate in all material respects. The
Purchaser Audited Financial Statements, including the footnotes thereto,
have been prepared in accordance with GAAP and present fairly the financial
position of Purchaser at the dates thereof and the results of its operations
and cash flows for the periods indicated. The Purchaser Audited Financial
Statements have been audited by Purchaser's independent certified public
accountants in accordance with generally accepted auditing standards.
3.9 TAX MATTERS. The Purchaser has paid all federal, state, county,
local, foreign and other taxes, including, without limitation, income
taxes, estimated taxes, excise taxes, sales taxes, use taxes, gross receipts
taxes, franchise taxes, employment and payroll related taxes, property taxes
and import duties, whether or not measured in whole or in part by net income
(individually, a "Tax" and collectively, the "Taxes") required to be paid by
it through the date hereof, and all deficiencies or other additions to any
Tax, interest and penalties owed by them in connection with any Tax.
3.10 NO TAX LIENS. None of the assets of Purchaser is subject to any
lien in favor of the United States pursuant to Section 6321 of the Code for
nonpayment of federal taxes, or any lien in favor of any state under any
comparable provision of state law, under which transferee liability might be
imposed upon the Purchaser under Section 6323 of the Code or any comparable
provision of state or local law.
3.11 COMPLIANCE WITH LAWS; PERMITS. The Purchaser is not in violation
of any applicable order, judgment, injunction, award or decree relating to
its businesses. To the Purchaser's knowledge, the Purchasers are not in
violation of any federal, state, local or foreign law, ordinance or
regulation or any other requirement of any governmental or regulatory body,
court or arbitrator applicable to its assets, the violation of which would
have a material, adverse effect on such assets. The Purchaser holds all
permits that are material to or necessary for the conduct of its businesses
as now conducted. All Permits are in full force and effect and no proceeding
to revoke or limit any of such Permits is pending or, to the knowledge of the
Purchaser, threatened.
3.12 LITIGATION. There are no outstanding orders, judgments,
injunctions, awards or decrees of any court, governmental or regulatory body
or arbitration tribunal against or involving Purchaser or its assets. There
are no actions or suits against the Purchaser or, to the knowledge of
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the Purchaser, claims or investigations (whether or not the defense thereof
or liabilities in respect thereof are covered by insurance) pending or, to
the knowledge of the Purchaser, threatened against or involving its assets.
Responsibility for any litigation involving the Purchaser Excluded Assets
pending prior to the Closing and the satisfaction of judgments (including
related costs and fees) shall remain with the Purchaser.
3.13 CONTRACTS AND OTHER AGREEMENTS. With respect to each material
contract under which the Purchaser is obligated, neither the Purchaser nor
any other party to each such contract is in default nor has any default been
asserted by any party, and there has not occurred any event which, with the
passage of time or giving of notice, or both, would constitute such default
or permit termination, modification or acceleration of such contract.
3.14 LIABILITIES. Except as otherwise set forth in this Agreement or
any Schedule hereto, neither the Purchaser nor its wholly-owned subsidiary,
Metro Minerals Corporation, has any direct or indirect indebtedness,
liability, claim, loss, damage, deficiency, obligation or responsibility,
known or unknown, asserted or unasserted, fixed or unfixed, liquidated or
unliquidated, secured or unsecured, accrued, absolute, contingent or
otherwise which has of could have a material adverse effect on either of such
entity's business or its assets.
3.15 BROKER'S OR FINDER'S FEES. No agent, broker, person or firm acting
on behalf of the Purchaser is, or will be, entitled to any commission or
broker's or finder's fees from any of the parties hereto, or from any person
controlling, controlled by or under common control with any of the parties
hereto, in connection with any of the transactions contemplated herein.
3.16 INDEPENDENT INVESTIGATION. Purchaser acknowledges that it has
conducted its independent review and analysis of the Assets and has not
relied upon Sellers or any representation of Sellers, other than as
explicitly set forth in this Agreement, concerning the amount or value of
reserves attributable to the Assets or the condition of any property included
in the Assets.
3.17 SUBSIDIARIES. There are no subsidiaries of Purchaser other than as
described in its most recent form 10-K filed with the Securities and Exchange
Commission.
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ARTICLE 4
TITLE PROCEDURES AND OTHER MATTERS
4.1 TITLE PROCEDURES. If any of the information or material supplied by
Sellers to Purchaser pursuant to this Agreement or any other information or
data reflects the existence of any encumbrance, encroachment, defect in or
objection to title, other than those set forth in the Schedules attached
hereto, that render title to the Assets or any portion thereof less than good
and defensible (collectively, "Title Defects"), written notice of the Title
Defects shall be given to Sellers at least 15 days before the scheduled
Closing Date. If Title Defects shall be so specified, Sellers shall use their
reasonable efforts to cure or remove the Title Defects at the expense of
Sellers. If the Title Defects are not cured or removed at or prior to the
Closing, Purchaser may elect in writing to:
(a) Grant a further period or periods of time (up to an additional
30 days) within which Sellers may cure or remove the Title Defects;
(b) Terminate this Agreement; or
(c) Proceed with the Closing, provided, however, that completion of
the Closing shall operate as a waiver by Purchaser of any Title Defects.
4.2 ENGINEERING AND ACCOUNTING MATTERS. Purchaser shall have 10 days
from the date on which Sellers have completed and delivered to Purchaser
Sellers' accounting and engineering audits and reports (collectively the
"Reports") in which to review the Reports and provide Sellers with notice of
any alleged deficiencies (the "Deficiencies") therein. If any Deficiencies
are so specified, Sellers shall have the option, at their expense, to remedy
such Deficiencies. If the deficiencies are not remedied to Purchaser's
reasonable satisfaction within 30 days after the date hereof, then Purchaser
may elect to terminate this Agreement by providing written notice of such
election to Sellers.
4.3 SELLERS' REVIEW OF PURCHASER'S CORPORATE RECORDS. For a period of
two weeks following the date of this Agreement, Sellers shall have the right
to review all records of Purchaser. If any of the information or material so
reviewed reflects the existence of any liability, indebtedness, claim, loss,
damage, deficiency, obligation or responsibility accrued, absolute,
contingent or otherwise which has not been previously disclosed to Sellers,
then Sellers may at their option provide Purchaser with a notice of such
matter and Purchaser shall have ten days in which to cure or remove such
matter. In the event that Purchaser is unable to cure or remove such matter,
then Sellers may elect in writing to:
(a) grant a further period or periods of time (up to an additional
30 days) within which Purchaser may cure or remove such matter;
(b) terminate this Agreement; or
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(c) proceed with the Closing, provided, however, that completion of
the Closing shall operate as a waiver by Sellers of any such matter.
ARTICLE 5
COVENANTS TO BE PERFORMED PRIOR TO THE CLOSING
The parties hereto covenant and agree that between the date hereof and
the Closing Date:
5.1 CONDUCT OF BUSINESS. The parties shall conduct their respective
businesses in the ordinary course and in such a manner so that the
representations and warranties contained in Articles 2 and 3 shall continue
to be true and correct on and as of the Closing Date as if made on and as of
the Closing Date.
5.2 NOTICE OF EVENTS. Each party shall promptly notify the other party
of (a) any event, condition or circumstance occurring from the date hereof
through the Closing Date that would constitute a violation or breach of this
Agreement, or (b) any event, occurrence, transaction or other item which
would have been required to have been disclosed on any Schedule, Exhibit or
statement delivered hereunder, had such event, occurrence, transaction or
item existed on the date hereof, other than items arising in the ordinary
course of business which would not render any of the representations,
warranties or other agreements of the notifying party misleading.
5.3 EXAMINATIONS AND INVESTIGATIONS. Prior to the Closing Date, each
party shall be entitled, through its employees, agents, counsel, accountants
and other representatives, and such party's lenders, to make such
investigation of the assets, properties, business and operations of the other
party's businesses, and such examination of the books, records and financial
condition of the other party's businesses as the examining party wishes. If
this Agreement terminates (a) each party shall keep confidential and shall
not use in any manner any information or documents obtained from the other
party, unless readily ascertainable from public or published information, or
trade sources, or subsequently developed by the examining party, or received
from a third party not under an obligation to the other party to keep such
information confidential, and (b) any documents obtained from the other party
shall be promptly returned to it. Without limiting the foregoing, Sellers
agree to make available to Purchaser all title opinions, abstracts, status
reports and other title data relating to the Assets.
5.4 PURCHASER SHAREHOLDER MEETING. Prior to the Closing Date, the Board
of Directors of the Purchaser shall prepare proxy materials (the "Proxy
Materials") and give notice of and convene a special meeting of shareholders
(the "Special Shareholders Meeting") for the purpose of: (1) approving this
Agreement and the transactions contemplated hereby; (2) approving an
amendment to the Purchaser's Articles of Incorporation (the "Articles of
Amendment") to (a) change the Purchaser's name to American Rivers Oil
Company, Inc.; (b) increase the number of authorized shares of the
Purchaser's Common Stock and Preferred Stock and authorize shares of Class B
Common Stock in amounts and containing terms so as to allow
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the consummation of the transactions contemplated hereby; and (3) approving
an increase in the number of shares of the Purchaser's Common Stock covered
by the Purchaser's 1992 Incentive Stock Option Plan to an amount equal to
five percent of the issued and outstanding capital stock of Purchaser. All
such actions and communications shall be taken and given in compliance with
all laws, rules and regulations applicable to Purchaser.
The Sellers shall cooperate with the Purchaser in the preparation and
processing of the Proxy Materials in all reasonable respects as requested by
the Purchaser and will furnish in writing to the Purchaser the information
relating to the Sellers which is required to be set forth therein. Sellers
shall pay one-half of Purchaser's reasonable expenses in printing and mailing
the Proxy Materials. If at any time prior to the Closing, any event should
occur relating to the Sellers which is required to be set forth in an
amendment of or supplement to the Proxy Materials, such party shall promptly
inform the Purchaser and shall furnish all necessary information with respect
thereto to the Purchaser.
Purchaser agrees to recommend to its shareholders that they approve all
of the items specified above in this Section 5.4. Robert E. Thrailkill, John
A. Alsko and Robert J. Thrailkill join in this agreement for the purposes of
agreeing to support and recommend such items to Purchaser's shareholders and
agree to vote their stock in Purchaser in favor of such proposals.
5.5 STAND-STILL AGREEMENT. From and after the date hereof and up to and
including the Closing or the termination of this Agreement, the parties agree
to conduct their respective businesses in the ordinary course and agree that
during such period each shall have the exclusive right to negotiate with the
other with respect to the Assets and stock that are the subject of this
Agreement, and during such period each party agrees not to directly or
through intermediaries solicit, entertain or otherwise discuss with any
person or entity any offers to purchase or otherwise acquire any or all of
the Assets or such stock. Should any party be in violation of this provision,
that party shall be liable on an accountable basis to the other parties for
their expense, including time of their personnel, reasonably incurred in
connection with the negotiation and preparation of this Agreement, together
with reasonable attorney fees for collection.
5.6 PURCHASER'S EFFORTS TO CLOSE.
(a) Purchaser shall use its best efforts to take or cause to be
taken all such actions as may be necessary or advisable to consummate and
make effective the purchase of the Assets and the transactions contemplated
by this Agreement and to assure that as of the Closing Date it will not be
under any material corporate, legal or contractual restriction that would
prohibit or delay the timely consummation of such transactions.
(b) Purchaser shall cause all the representations and warranties
of Purchaser contained in this Agreement to be true and correct on and as of
the Closing Date. To the extent the conditions precedent to the obligations
of Sellers are within the control of Purchaser, Purchaser shall cause such
conditions to be satisfied on or prior to the Closing Date and, to the extent
the conditions precedent to the obligations of Sellers are not within the
control
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of Purchaser, Purchaser shall use its best efforts to cause such conditions
to be satisfied on or prior to the Closing Date.
5.7 SELLERS' EFFORTS TO CLOSE.
(a) Sellers shall use their best efforts to take or cause to be
taken all such actions as may be necessary or advisable to consummate and
make effective the sale of the Assets and the transactions contemplated by
this Agreement and to assure that as of the Closing Date they will not be
under any material corporate, legal or contractual restriction that would
prohibit or delay the timely consummation of such transactions.
(b) Sellers shall cause all the representations and warranties of
Sellers contained in this Agreement to be true and correct on and as of the
Closing Date. To the extent the conditions precedent to the obligations of
Purchaser are within the control of Sellers, Sellers shall cause such
conditions to be satisfied on or prior to the Closing Date and, to the extent
the conditions precedent to the obligations of Purchaser are not within the
control of Sellers, Sellers shall use their best efforts to cause such
conditions to be satisfied on or prior to the Closing Date.
ARTICLE 6
CONDITIONS PRECEDENT TO THE OBLIGATION OF THE PURCHASER TO CLOSE
The obligation of the Purchaser to enter into and to complete the
transactions contemplated by this Agreement is subject to the fulfillment on
or prior to the Closing Date of the following conditions, any one or more of
which may be waived by the Purchaser only in writing:
6.1 REPRESENTATIONS, WARRANTIES AND OTHER AGREEMENTS. The
representations, warranties and other agreements of the Sellers contained in
this Agreement shall be true on and as of the Closing Date with the same
force and effect as though made on and as of the Closing Date. The Sellers
shall have performed and complied with all covenants and agreements required
by this Agreement to be performed or complied with by them on or prior to the
Closing Date. The Sellers shall have delivered to the Purchaser certificates,
dated the Closing Date, to such effect.
6.2 GOVERNMENTAL PERMITS AND APPROVALS. All permits and approvals from
any governmental or regulatory body required for the lawful consummation of
the transactions which are the subject of this Agreement shall have been
obtained.
6.3 THIRD PARTY CONSENTS. All consents, permits and approvals from
parties to any contracts or other agreements with the Sellers that may be
required in connection with the performance by the Sellers of their
respective obligations under this Agreement or the continuance of such
contracts or other agreements without material modification after the Closing
Date shall have been obtained. The Purchaser also shall have received all
required waivers or consents under any
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material debt instrument or other material agreement to which any of the
Sellers is a party or by which any of them is bound.
6.4 LITIGATION. No action, suit or proceeding shall have been
instituted before any court or governmental or regulatory body, or instituted
or threatened by any governmental or regulatory body, to restrain, modify or
prevent the carrying out of the transactions contemplated by this Agreement
or to seek damages or a discovery order in connection with such
transactions, or that has or could reasonably be expected to have, in the
opinion of the Purchaser, a materially adverse effect on the Assets.
6.5 TRANSFER DOCUMENTS. The Purchaser shall have received assignments
and such other instruments of sale, transfer, conveyance and assignment
transferring all of the Assets from the Sellers.
6.6 CERTIFICATES, ETC. OF KTOC. KTOC shall have delivered all certified
resolutions, certificates, documents or instruments with respect to KTOC's
authority and such other matters as the Purchaser's counsel may have
reasonably requested prior to the Closing Date.
6.7 ADEQUATE FINANCIAL STATEMENTS. The Sellers shall have supplied to
the Purchaser the Financial Statements and pro forma financial statements
adequate to comply with the requirements of Items 7(a) and 7(b) of Form 8-K
under the Exchange Act and Section 10(a)(3) of the Securities Act and shall
demonstrate an ability to supply other financial statements as such may
become necessary to comply with the requirements of the Exchange Act.
6.8 PURCHASER SHAREHOLDER APPROVAL. The Purchaser's Special
Shareholders Meeting shall have been held and all matters listed in Section
5.4 shall have been approved.
6.9 APPROVAL OF COUNSEL. All actions and proceedings hereunder and
all documents and other papers to be delivered by the Sellers hereunder or in
connection with the consummation or the transactions contemplated hereby, and
all other related matters shall have been approved by counsel to Purchaser,
as to their form.
6.10 NO MATERIAL ADVERSE CHANGE. No material adverse change in the
operation, condition, or value if the Assets shall have occurred since the
date hereof.
6.11 ASSET OPTIONS. The Asset Options shall have been duly exercised,
which exercise may be achieved as provided in Section 10.21.
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ARTICLE 7
CONDITIONS PRECEDENT TO THE OBLIGATION OF THE SELLERS TO CLOSE
The obligation of the Sellers to enter into and to complete the
transactions contemplated by this Agreement is subject to the fulfillment on
or prior to the Closing Date of the following conditions, any one or more of
which may be waived by the Sellers only in writing:
7.1 REPRESENTATIONS, WARRANTIES AND OTHER AGREEMENTS. The
representations, warranties and other agreements of the Purchaser contained
in this Agreement shall be true on and as of the Closing Date with the same
force and effect as though made on and as of the Closing Date. The Purchaser
shall have performed and complied with all covenants and agreements required
by this Agreement to be performed or complied with by it on or prior to the
Closing Date. The Purchaser shall have delivered to the Sellers a
certificate, dated the Closing Date, to such effect.
7.2 GOVERNMENTAL PERMITS AND APPROVALS. All permits and approvals from
any governmental or regulatory body required for the lawful consummation of
the transactions which are the subject of this Agreement shall have been
obtained.
7.3 LITIGATION. No action, suit or proceeding shall have been
instituted before any court or governmental or regulatory body, or instituted
or threatened by any governmental or regulatory body, to restrain, modify or
prevent the carrying out of the transactions contemplated by this Agreement,
or to seek damages or a discovery order in connection with such transactions,
or that has or could reasonably be expected to have, in the opinion of the
Sellers, a materially adverse effect on the assets, properties, businesses,
operations or financial condition of the Purchaser.
7.4 TAX TREATMENT. Sellers shall be satisfied, in their reasonable
judgment, that the transaction contemplated hereby will qualify as a
nontaxable event pursuant to Section 351 of the Code.
7.5 OPERATING AND MANAGEMENT AGREEMENTS. The Purchaser and the
Purchaser's Subsidiary shall have entered into the Operating and Management
Agreements substantially in the forms attached as Exhibits C and D, and
Sellers hereby approve of such agreements.
7.6 PURCHASER'S SHAREHOLDER APPROVAL. The Purchaser's Special Meeting
of Shareholders shall have been held and all matters listed in Section 5.4
shall have been approved.
7.7 TRANSFER TO SUBSIDIARY. The Purchaser shall have transferred to
the Subsidiary the Purchaser Excluded Assets as provided for in Section 1.4
hereof, and Sellers hereby approve of such transfer.
7.8 CERTIFICATES, ETC. OF PURCHASER. Purchaser shall have delivered
all certified resolutions, certificates, documents or instruments with
respect to Purchaser's authority and such other matters as Seller's counsel
may have reasonably requested prior to the Closing Date.
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7.9 APPROVAL OF COUNSEL. All actions and proceedings hereunder and all
documents and other papers to be delivered by the Purchaser hereunder or in
connection with the consummation or the transactions contemplated hereby, and
all other related matters shall have been approved by counsel to Sellers, as
to their form.
7.10 NO MATERIAL ADVERSE CHANGE. There shall have occurred no material
adverse change in the operation, value or condition of Purchaser.
ARTICLE 8
ACTIONS TO BE TAKEN AT THE CLOSING
The following actions shall be taken at the Closing, each of which shall
be conditioned on completion of all the others and all of which shall be
deemed to have taken place simultaneously:
8.1 TRANSFER DOCUMENTS. The Sellers shall deliver duly executed
transfer documents and/or instruments of assignment in accordance with
Section 6.5.
8.2 THE CLASS B COMMON STOCK. The Purchaser shall deliver to the
Sellers certificates representing the Class B Common Stock in accordance with
the terms of Section 1.5. The Sellers shall deliver to the Purchaser
executed investment letters.
8.3 ITEMS RELATING TO LEGENDS. The Purchaser and Sellers shall take
those actions described in Section 10.19 relating to resignations, opinion of
counsel and instruction letter to transfer agent.
8.4 OPERATING AND MANAGEMENT AGREEMENTS. The Purchaser shall deliver
the executed Operating and Management Agreements
8.5 CLOSING CERTIFICATES OF THE SELLERS. The Sellers shall deliver to
the Purchaser closing certificates as required by Section 6.1, dated the
Closing Date, in a form satisfactory to the Purchaser.
8.6 CLOSING CERTIFICATE OF THE PURCHASER. The Purchaser shall deliver
to the Sellers a closing certificate as required by Section 7.1, dated the
Closing Date, in a form satisfactory to the Sellers.
8.7 CERTIFICATE REGARDING RESOLUTIONS OF KTOC. KTOC shall deliver to
the Purchaser copies of resolutions certified as required by Section 6.6.
8.8 CERTIFICATE REGARDING RESOLUTIONS OF PURCHASER. Purchaser shall
deliver to Sellers copies of resolutions certified as required by Section 7.8.
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8.9 OPINION OF SELLERS' COUNSEL. The Sellers shall deliver an opinion
of their counsel in form and substance satisfactory to the Purchaser.
8.10 OPINION OF PURCHASER'S COUNSEL. The Purchaser shall deliver an
opinion of its counsel in form and substance satisfactory to the Sellers.
ARTICLE 9
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties of the parties contained in this Agreement
shall survive the Closing for a period of two years after the Closing Date
with the exception of Sections 2.6 and 3.9, which shall survive for a period
of time which is equal to the statute of limitations period applicable to the
respective Tax liability being asserted.
9.2 INDEMNITY AGREEMENTS OF THE SELLERS. The Sellers shall indemnify,
defend, reimburse and hold harmless the Purchaser from and against any and
all claims, demands, penalties, fines, liabilities, obligations, losses,
settlements, damages, costs and expenses resulting from:
(i) any inaccuracy in, or breach of, any representation and
warranty or nonfulfillment of any covenant on the part of the
Sellers contained in this Agreement, or
(ii) any misrepresentation in or omission from or nonfulfillment
of any covenant on the part of the Sellers contained in any other
agreement, certificate or other instrument furnished or to be
furnished to the Purchaser by the Sellers pursuant to this Agreement.
(iii) all costs, expenses, claims and liabilities relating to
the operation of the Assets for periods of time prior to the Closing
Date;
(iv) any of the matters set forth in SCHEDULE 2.9;
(v) the violation or alleged violation by the Sellers of any
Environmental Laws (as hereinafter defined), or any orders,
requirements or demands of any governmental authorities related
thereto, resulting from events or circumstances occurring on or
before the Closing Date; and
(vi) fees and disbursement of counsel incident to any of the
foregoing.
For purposes of this Agreement, "Environmental Laws" shall mean any and
all federal, state, local or municipal laws, rules, orders, regulations,
statutes, ordinances, codes, decrees, or requirements of any governmental
authority regulating, relating to or imposing liability or standards
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of conduct concerning environmental protection matters, including all
requirements pertaining to reporting, licensing, permitting, investigation,
removal or remediation of emissions, discharges, releases, or threatened
releases of Hazardous Materials (as hereinafter defined), chemical
substances, pollutants or contaminants or relating to the manufacture,
generation, processing, distribution, use, treatment, storage, disposal,
transport, or handling of Hazardous Materials, chemical substances,
pollutants or contaminants.
For purposes of this Agreement, "Hazardous Materials" shall mean any
substance (i) the presence of which requires investigation, removal or
remediation under any federal, state or local statute, regulation, rule,
ordinance, order, action, policy or common law, (ii) which is or becomes
defined as a "hazardous substance," "hazardous material," "pollutant" or
"contaminant" under any federal, state or local statute, regulation, rule or
ordinance or any amendments thereto, and/or (iii) which is toxic, explosive,
corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic, or
otherwise hazardous and is or becomes regulated by any governmental authority.
9.3 INDEMNITY AGREEMENT OF THE PURCHASER. The Purchaser shall
indemnify, defend, reimburse and hold harmless the Sellers from and against
any and all claims, demands, penalties, fines, liabilities, obligations,
losses, settlements, damages, costs and expenses resulting from:
(i) any inaccuracy in, or breach of, any representation and
warranty or nonfulfillment of any covenant on the part of the Purchaser
contained in this Agreement;
(ii) the transfer or operation of the Purchaser Excluded
Assets;
(iii) claims made by the holders of Purchaser's Common Stock
related to the operation or management or any other issue regarding
the Subsidiary; or
(iv) the violation or alleged violation by the Purchaser or
Metro Minerals Corporation of any Environmental Laws, or any orders,
requirements or demands of any governmental authorities related thereto,
resulting from events or circumstances occurring on or before the
Closing Date;
(v) any misrepresentation in or omission from or nonfulfillment
of any covenant on the part of the Purchaser, contained in any other
agreement, certificate or other instrument furnished or to be furnished
to the Sellers by the Purchaser pursuant to this Agreement.
(vi) any liability specifically assumed by the Purchaser; and
(vii) fees and disbursement of counsel incident to any of the
foregoing.
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9.4 INDEMNIFICATION PROCEDURE FOR THIRD PARTY CLAIMS.
(a) NOTICE OF CLAIM AND DEFENSE. The party seeking
indemnification under this Article 9 shall give the party from whom
indemnification is sought prompt written notice of the assertion of any third
party claim of which said party has knowledge which is covered by the
indemnity agreements set forth in Section 9.2 or Section 9.3 and the party
obligated to indemnify will undertake the defense thereof by representatives
chosen by the party seeking indemnification but acceptable to the party
obligated to indemnify. If the party obligated to indemnify, within a
reasonable period of time after notice of any such claim fails to defend, the
party seeking indemnification will have the right to undertake the defense,
compromise or settlement of such claim on behalf of and for the account and
risk of the party obligated to indemnify, subject to the right of the party
obligated to indemnify to assume the defense of such claim at any time prior
to settlement, compromise or final determination thereof. Anything in this
Section 9.4 to the contrary notwithstanding, if there is a reasonable
probability that a claim may adversely affect the party seeking
indemnification, other than as a result of money damages or other payments,
the party seeking indemnification shall have the right, at the cost and
expense of the party obligated to indemnify, to defend, compromise or settle
such claim.
(b) PAYMENT OF SUMS DUE. After any final judgment or award shall
have been rendered by a court, arbitration board or administrative agency of
competent jurisdiction, or a settlement shall have been consummated, or the
parties shall have arrived at a mutually binding agreement, with respect to
each separate third party claim indemnified by the party obligated to
indemnify, the party seeking indemnification shall forward to the party
obligated to indemnify notice of any sums due and owing by the party seeking
indemnification with respect to such claim and the party obligated to
indemnify shall pay such sums to the party seeking indemnification in cash,
within 30 days after the date of such notice.
9.5 GOOD FAITH EFFORTS TO SETTLE DISPUTES. Each of the parties agrees
that, prior to commencing any litigation against the other concerning any
matter with respect to which such party intends to claim a right of
indemnification in such proceeding, such parties shall meet in a timely
manner and attempt in good faith to negotiate a settlement of such dispute
during which time such parties shall disclose to the others all relevant
information relating to such dispute.
9.6 FEES AND EXPENSES. Notwithstanding any other provision in this
Article 9, in the event of any dispute or controversy, the prevailing party
in such dispute shall, in addition to any other remedies the prevailing party
may obtain in such dispute, be entitled to recover from the other party all
of its reasonable legal fees and out-of-pocket costs incurred by such party
in enforcing or defending its rights hereunder.
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ARTICLE 10
CERTAIN ADDITIONAL AGREEMENTS
10.1 PROCEEDS OF PRODUCTION; EXPENSES. Purchaser and Sellers shall
be entitled to the proceeds from the Assets as follows:
(a) Purchaser shall be entitled to receive all proceeds,
including without limitation proceeds of production, and shall be obligated
to bear all expenses attributable to the Assets after the Effective Time.
(b) Sellers shall be entitled to receive all proceeds, including
without limitation proceeds of production, and shall be obligated to bear all
expenses attributable to the Assets prior the Effective Time.
10.2 PUBLIC STATEMENTS. No party to this Agreement shall issue any
public statement or announcement concerning the transactions contemplated by
this Agreement without the prior consent of the other parties, except as
otherwise may be required by law.
10.3 ENTIRE AGREEMENT. This Agreement, including all Schedules and
Exhibits hereto, and the other Closing Documents constitute the entire
agreement of the parties with respect to the subject matter hereof, and may
not be modified, amended or terminated except by a written instrument
specifically referring to this Agreement signed by each of the parties hereto
or as otherwise provided in this Agreement.
10.4 CONSTRUCTION. In the event of an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the parties and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise.
The word "including" shall mean including without limitation. The parties
intend that the each representation, warranty and covenant contained herein
shall have independent significance. If any party has breached any
representation, warranty or covenant contained herein in any respect, the
fact that there exists another representation, warranty or covenant relating
to the same subject matter, regardless of the relative levels of specificity,
which the party has not breached shall not detract from or mitigate the fact
that the party is in breach of the first representation, warranty or covenant.
10.5 WAIVERS AND CONSENTS. All waivers and consents given hereunder
shall be in writing. No waiver by any party hereto of any breach or
anticipated breach of any provision hereof by any other party shall be deemed
a waiver of any other contemporaneous, preceding or succeeding breach or
anticipated breach, whether or not similar, on the part of the same or any
other party.
10.6 NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed to have been given only if and when (a)
personally delivered, or (b) three business
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days after mailing, postage prepaid, by certified mail, or (c) when delivered
(and receipted for) by an overnight delivery service, addressed in each case
as follows:
(i) If to the Sellers, to:
Karlton Terry, President
Karlton Terry Oil Company
700 East 9th Avenue, Suite 106
Denver, Colorado 80203
FAX NO. (303) 832-2404
with a copy to:
William R. Roberts, Esq.
Holme Roberts & Owen LLC
1401 Pearl Street, Suite 400
Boulder, Colorado 80202
FAX NO. (303) 444-1063
(ii) If to the Purchaser, to:
Robert E. Thrailkill, President
Metro Capital Corporation
716 College View Drive
Riverton, Wyoming 82501
FAX NO. (307) 856-1851
with a copy to:
A. Thomas Tenenbaum, Esq.
Brenman Key & Bromberg, P.C.
1775 Sherman Street, Suite 1001
Denver, Colorado 80203
FAX NO. (303) 839-1633
Any party to this Agreement may change the address for the giving of notices
and communications to it or him, and/or copies thereof, by written notice to
the other parties in conformity with the foregoing.
10.7 FURTHER ASSURANCES. From and after the date of this Agreement,
each of the parties hereto will cooperate with each other and will use its or
his best efforts to obtain all necessary waivers and consents from third
parties. The Sellers, at any time and from time to time on and after the
Closing, upon request by the Purchaser and without further consideration,
shall take or cause to be taken such actions and execute, acknowledge and
deliver, or cause to be executed, acknowledged and delivered, such transfers,
conveyances and assurances as may be required or desirable for the
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better conveying, transferring, assigning, delivering, assuring and
confirming the Assets to the Purchaser.
10.8 RIGHTS OF THIRD PARTIES. All conditions of the obligations of the
parties hereto, and all undertakings herein, except as otherwise provided by
a written consent, are solely and exclusively for the benefit of the parties
hereto and their successors and assigns, and no other person or entity shall
have standing to require satisfaction of such conditions or to enforce such
undertakings in accordance with their terms or be entitled to assume that any
party hereto will refuse to consummate the exchange contemplated hereby in
the absence of strict compliance with any or all thereof, and no other person
or entity shall, under any circumstances, be deemed a beneficiary of such
conditions or undertakings, any or all of which may be freely waived in whole
or in part, by mutual consent of the parties hereto at any time, if in their
sole discretion they deem it desirable to do so.
10.9 HEADINGS. The Table of Contents and Article and Section
headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement.
10.10 GOVERNING LAW. The interpretation and construction of this
Agreement, and all matters relating hereto, shall be governed by the internal
laws of the State of Wyoming.
10.11 ARBITRATION.
(a) GENERAL. All disputes and claims arising in connection with this
Agreement shall be settled in accordance with the Commercial Arbitration
Rules of the American Arbitration Association, except as modified below, by a
panel of three arbitrators, one of whom will be selected by the Sellers, one
by the Purchaser and one mutually agreed to by the arbitrators selected by
the Sellers and the Purchaser. Initiation of an arbitration will not stay the
operation of this Agreement and the parties will continue to abide by their
respective obligations set forth herein. The parties will settle all accounts
based upon the results of said arbitration within 30 days of the conclusion
of the arbitration.
(b) LOCATION OF ARBITRATION. Any such arbitration shall take place in
Cheyenne, Wyoming.
(b) SERVICE OF PROCESS. Service of process in any such arbitration
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail) or delivery by
overnight courier, postage and/or fees prepaid.
(c) MODIFICATIONS TO THE ARBITRATION RULES. The provisions of the
Commercial Arbitration Rules of the American Arbitration Association which
shall apply to arbitrations hereunder are hereby modified as follows:
(1) Any demand for arbitration must be in writing and in no
event may be made after the date that institution of legal proceedings based
upon the claim made in the demand would be barred by the applicable statute
of limitations.
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(2) The arbitrators' decision must be made within 45 days from
the date the arbitration proceedings are initiated and shall be binding on
the parties. Judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof.
(3) The prevailing party shall be awarded reasonable attorneys'
fees and expenses, and other costs and expenses incurred in connection with
the arbitration, unless the arbitrators for good cause determine otherwise.
(4) Costs and fees of the arbitrators shall be borne by the
nonprevailing party, unless the arbitrators for good cause determine
otherwise.
10.12 PARTIES IN INTEREST. This Agreement may not be transferred,
assigned, pledged or hypothecated by any party hereto, other than by
operation of law or with the consent of the other parties. This Agreement
shall be binding upon and shall inure to the benefit of the parties hereto
and their respective successors and permitted assigns.
10.13 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one instrument.
10.14 SEVERABILITY. In case any provision in this Agreement shall be
held invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions hereof will not in any way be
affected or impaired thereby.
10.15 BULK SALES. The Purchaser hereby waives compliance by the
Sellers with the provisions of the Bulk Sales law of any state, if applicable
to the transfer of the Assets, and the Sellers agree to indemnify and hold
the Purchaser harmless from any liability, other than liabilities expressly
assumed by the Purchaser hereunder, incurred as a result of the failure to so
comply.
10.16 EXPENSES. Except as provided in Section 5.4 with respect to
certain of the expenses related to the Proxy Materials, each party shall pay
its own costs and expenses, including the fees and disbursements of its
respective counsel, in connection with the negotiation, preparation and
execution of the Agreement and the consummation of the transactions
contemplated hereby whether or not the transactions contemplated hereby are
consummated.
10.17 BOOKS AND RECORDS. The files, books and records comprising a
portion of the Assets may be maintained after the Closing Date at the current
offices of KTOC, which may become the principal offices of Purchaser.
10.18 JOINDER BY SUBSIDIARY. The Subsidiary joins in this Agreement
for the purpose of guaranty, and does hereby jointly and severally guaranty,
all of the obligations of Purchaser hereunder, including without limitation
any and all indemnities and covenants of Purchaser in favor of Sellers. In
the event Sellers have any right to pursue indemnity from Purchaser, Sellers
may elect to pursue any such remedy against the Subsidiary without making any
claim against or pursuing any other remedy against Purchaser.
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10.19 ISSUANCES OF SECURITIES. Schedule 10.19 describes securities of
Purchaser recently issued and to be issued pursuant to obligations of
Purchaser, and certain rights and obligations related to such securities. At
Closing Sellers will cause Purchaser to ratify such issuances and
obligations. Pursuant to Rule 144(k) promulgated under the Securities Act of
1993, as amended, Purchaser shall remove all restrictive legends from
certificates evidencing shares of Common Stock owned for more than three
years by Messrs. Robert E. Thrailkill, John A. Alsko, Gene E. York, John
Benesch and Robert J. Thrailkill (collectively the "Requesting Parties")
90 days after receipt of their resignations from their positions as officers
and directors of Purchaser, which resignations shall be delivered at Closing,
together with an opinion of counsel stating that (i) none of the Requesting
Parties is an "affiliate" of the Purchaser, as defined in Rule 144 and
(ii) the three-year holding period for each Requesting Party has been
satisfied. Also at Closing, Purchaser shall deliver to the Requesting Parties
instructions from Purchaser's new board of directors to Purchaser's transfer
agent directing the transfer agent to so remove such legends.
10.20 OBLIGATIONS OF SELLERS. Notwithstanding any other term or
provision hereof to the contrary the maximum liability of the Sellers to
Purchaser, the Subsidiary or any other party claiming by, through or under
either of them under this Agreement, or any other document or certificate
executed in connection herewith, shall be the value of their Restricted
Stock, as defined below. Until the date two years after the date hereof, or
such longer period as may be required as provided below (collectively the
"Restriction Period"), Sellers shall maintain their ownership of at least 39%
of the issued and outstanding shares (the "Restricted Shares") of the Class B
Common Stock received by Sellers, which shares shall bear a legend evidencing
the obligations and restrictions contained in this Section 10.20. Sellers
shall be allowed to transfer such Restricted Shares free and clear of such
restriction and the terms hereof during the Restriction Period only if they
substitute stock or other assets subject to such legend or other similar
restriction as may be reasonably requested by the management of the
Subsidiary and having a value not less than the lesser of the value of the
Restricted Securities or $4,000,000. For purposes of determining the value
of the Restricted Securities, each share of Restricted Securities shall be
deemed to have a value of 75% of the market value of a share of the
Purchaser's common stock. For purposes of this Section 10.20, the market
value of the share of Purchaser's common stock shall be determined by the
average bid and asked price for the previous 20 days of trading of such stock
prior to the date of valuation or, if there is no public market then
available for such stock, then the fair market value shall be determined by
the agreement of the parties. In the event that a claim is made against
Sellers under this agreement during the period allowed under Section 9.1,
then the Restriction Period shall be extended until such time as the claim is
finally resolved or satisfied.
10.21 ESCROW. Upon the election of either the Sellers or the
Purchaser, the Closing contemplated hereby shall take place into escrow with
Brenman Key & Bromberg, P.C. through its counsel, Tom Tenenbaum, Esq., acting
as escrow agent, pursuant to an agreement to be entered into promptly after
the date hereof containing the following described terms and such other terms
as the parties may agree. Such escrow agreement shall provide that the
transfer documents described in 8.1 above, the Class B Common Stock described
in 8.2 above, the Operating and Management Agreements and all the other
closing documents described in this Article 8 shall be placed into escrow.
In addition, the proceeds of the loan described in Section 1.4 and up to
500,000 shares of the Class B Common Stock described in Section 1.5 shall be
placed into escrow to be delivered by the escrow agent to the optionees under
the Asset Options. At such time as the escrow agent is satisfied that the
Asset Options have been duly and validly exercised, then the escrow agent
shall
26
<PAGE>
close the escrow by delivering the relevant documents, funds and stock
certificates to the appropriate parties.
10.22 CHANGE OF OPERATOR. Sellers shall use all reasonable efforts to
enable Purchaser to take over as operator promptly after Closing each of
those Assets operated by any Seller on the date hereof. In the event any such
operation cannot be transferred, the Seller who remains as operator shall pay
to Purchaser any economic benefit of being operator net of such Seller's
actual costs of operating.
10.23 EMPLOYMENT AGREEMENTS. The Shareholders shall each enter into
Employment agreements with the Purchaser to be effective immediately after
the Closing and having terms of three years, providing for salaries of
$125,000 and $75,000, respectively for Karlton Terry and Jubal Terry, and
containing such other terms and conditions as the parties may agree.
IN WITNESS WHEREOF, the parties hereto have caused their names to be
hereunto subscribed, all as of the day and year first above written.
"PURCHASER"
METRO CAPITAL CORPORATION
By /s/ Robert E. Thrailkill
_______________________________
Robert E. Thrailkill, President
"SELLER"
KARLTON TERRY OIL COMPANY
By /s/ Karlton Terry
______________________________
Karlton Terry, President
"SHAREHOLDERS" AND "SELLERS"
/s/ Karlton Terry
_________________________________
Karlton Terry
/s/ Karlton Terry
_________________________________
Jubal Terry by Karlton Terry
POA
27
<PAGE>
Bishop Cable Communications Corporation
By: /s/ Robert E. Thrailkill
______________________________
The undersigned join in this Agreement solely for the purposes set
forth in Section 5.4.
/s/ Robert E. Thrailkill
_________________________________
Robert E. Thrailkill
_________________________________
John A. Alsko
_________________________________
Robert J. Thrailkill
28
<PAGE>
ATTACHMENT B
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Karlton Terry Oil Company
Denver, Colorado
We have audited the accompanying statement of assets and liabilities of KTOC
Contributed Properties as of December 31, 1994 and the related statements of
direct revenues and expenses for the years ended December 31, 1994 and 1993.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
The accompanying financial statements were prepared for the purpose of
complying with the rules of the Securities and Exchange Commission (for
inclusion in the proxy statement of Metro Capital Corporation) as described
in Note 1 and are not intended to be a complete presentation of Karlton Terry
Oil Company.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets and liabilities of KTOC Contributed
Properties as of December 31, 1994, and their direct revenues and expenses
for the years ended December 31, 1994 and 1993, in conformity with generally
accepted accounting principles.
HEIN + ASSOCIATES LLP
Denver, Colorado
September 12, 1995
F-1
<PAGE>
KTOC CONTRIBUTED PROPERTIES
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Oil and gas sales receivable $ 55,800 $ 46,400
Accounts receivable, joint interest owners
(including amounts due from related parties
of $18,000 in 1995 and $19,100 in 1994) 80,800 43,000
-------- --------
Total current assets 136,600 89,400
OIL AND GAS PROPERTIES, at cost, using the successful
efforts method:
Proved properties 471,800 457,900
Less accumulated depreciation, depletion and
amortization (86,400) (72,500)
-------- --------
Net oil and gas properties 385,400 385,400
-------- --------
TOTAL ASSETS 522,000 474,800
-------- --------
LIABILITIES
CURRENT LIABILITIES:
Current maturities of long-term debt $ 58,000 $ 50,700
Accounts payable, trade 57,300 20,300
Oil and gas sales payable 30,100 27,800
Accrued interest 1,600 -
-------- --------
Total current liabilities 147,000 98,800
LONG-TERM DEBT, less current maturities 122,000 149,400
-------- --------
TOTAL LIABILITIES 269,000 248,200
-------- --------
NET ASSETS $253,000 $226,600
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-2
<PAGE>
KTOC CONTRIBUTED PROPERTIES
STATEMENTS OF DIRECT REVENUES AND EXPENSES
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED FOR THE YEARS ENDED
JUNE 30 DECEMBER 31,
------------------ -------------------
1995 1994 1994 1993
------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C>
REVENUE:
Oil and gas sales $60,100 $ 66,600 $146,400 $184,800
Operator fees 2,500 - 2,500 -
------- -------- -------- --------
Total revenue 62,600 66,600 148,900 184,800
EXPENSES:
Oil and gas production costs 26,300 25,400 53,400 55,100
Depreciation, depletion and
amortization 13,900 22,600 32,200 40,300
------- -------- -------- --------
Total expenses 40,200 48,000 85,600 95,400
------- -------- -------- --------
22,400 18,600 63,300 89,400
OTHER INCOME (EXPENSE):
Gain on drilling arrangements - 138,200 138,200 -
Interest expense (9,100) (13,700) (19,700) (15,500)
------- -------- -------- --------
Excess of direct revenues over
expenses $13,300 $143,100 $181,800 $ 73,900
======= ======== ======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-3
<PAGE>
KTOC CONTRIBUTED PROPERTIES
NOTES TO FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1994 IS UNAUDITED)
1. BASIS OF PRESENTATION:
The accompanying financial statements present the assets and liabilities
of certain oil and gas properties (the "Properties") which are currently
owned by Karlton Terry Oil Company and affiliated individuals
(collectively referred to herein as "KTOC") and their historical direct
revenues and expenses. Most of the properties are located in Louisiana
and along the Ohio River in West Virginia, Kentucky and Indiana and
consist of both developed and undeveloped acreage. As discussed in Note
6, the Properties (along with additional interests in the properties
which KTOC has rights to acquire pursuant to option agreements) are
subject to an agreement with Metro Capital Corporation ("Metro")
whereby, subject to approval by Metro's shareholders, the Properties and
the options will be sold to Metro in exchange for 80% of the outstanding
shares of Metro.
These financial statements present the properties to be acquired and
liabilities to be assumed, along with related operating receivables and
payables at their historical cost basis, and the direct revenues and
expenses of these properties on the accrual basis. They are not
intended to be a complete presentation of the financial position and
results of operations of KTOC.
UNAUDITED INFORMATION - The accompanying financial statements as of June
30, 1995 and for the six-month periods ended June 30, 1995 and 1994 are
included herein without audit. In the opinion of management of KTOC,
these financial statements contain all adjustments (consisting only of
normal recurring items) necessary to present fairly the financial
position and the results of operations for the periods presented. The
results of operations for the six months ended June 30, 1995 are not
necessarily indicative of the results to be expected for the full year.
2. SIGNIFICANT ACCOUNTING POLICIES:
OIL AND GAS PRODUCING ACTIVITIES - KTOC follows the "successful efforts"
method of accounting for its oil and gas properties. Under this method
of accounting, all property acquisition costs and costs of exploratory
and development wells are capitalized when incurred, pending
determination of whether the well has found proved reserves. If an
exploratory well has not found proved reserves, the costs of drilling
the well are charged to expense. The costs of development wells are
capitalized whether productive or nonproductive.
Geological and geophysical costs and the costs of carrying and retaining
undeveloped properties are expensed as incurred. Depreciation and
depletion of capitalized costs for producing oil and gas properties is
provided using the units-of-production method based upon proved reserves
for each well. Management estimates that the salvage value of lease and
well equipment will approximately offset the future liability for
plugging and abandonment of the related wells.
The net capitalized costs of proved oil and gas properties are limited
to the aggregate undiscounted future net revenues (the "ceiling")
related to such properties. If the net capitalized costs exceed the
ceiling, the excess will be recorded as a charge to operations.
F-4
<PAGE>
KTOC CONTRIBUTED PROPERTIES
NOTES TO FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1994 IS UNAUDITED)
Gains and losses are generally recognized upon the sale of interests in
proved oil and gas properties based on the portion of the property sold.
For sales of partial interests in unproved properties, KTOC treats the
proceeds as a recovery of costs with no gain recognized until all costs
have been recovered.
INCOME TAXES - No income tax provision is included in the accompanying
financial statements, since KTOC's shareholder has elected to be taxed
under Subchapter S of the Internal Revenue Code. Accordingly, KTOC's
taxable income or loss is required to be reported in the shareholder's
individual income tax return.
REVENUE RECOGNITION - Revenue from oil and gas sales is recorded on an
accrual basis as sales are made and deliveries occur.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS - In March 1995, the
Financial Accounting Standards Board issued a new Statement titled
"Accounting for Impairment of Long-Lived Assets." This new standard is
effective for years beginning after December 15, 1995 and would change
the method of determining impairment of proved oil and gas properties.
Management has not performed a detailed analysis of the impact of this
new standard on the financial statements.
3. NOTE PAYABLE:
In April 1993, KTOC financed the acquisition of a producing oil and gas
property with a note payable to a bank with a principal balance of
$200,000 at December 31, 1994. The note provides for monthly payments
of $5,841 through April 1998 when the remaining balance is due.
Interest accrues at a variable rate which is equal to the bank's base
rate plus 2% (11% at December 31, 1994). Borrowings under the note are
collateralized by an oil and gas property located in Louisiana and an
assignment of production. Additionally, KTOC's president has personally
guaranteed KTOC's obligations under the note agreement.
The aggregate maturities of long-term debt at December 31, 1994, are as
follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31 AMOUNT
------------ --------
<S> <C>
1995 $ 50,700
1996 56,400
1997 62,900
1998 30,100
--------
$200,100
========
</TABLE>
F-5
<PAGE>
KTOC CONTRIBUTED PROPERTIES
NOTES TO FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1994 IS UNAUDITED)
4. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS:
Substantially all of the KTOC's accounts receivable at December 31, 1994
result from crude oil and natural gas sales and/or joint interest
billings to companies in the oil and gas industry. This concentration
of customers and joint interest owners may impact KTOC's overall credit
risk, either positively or negatively, since these entities may be
similarly affected by changes in economic or other conditions.
Receivables are generally not collateralized except through operator
liens. Historical credit losses incurred on trade receivables by KTOC
have been insignificant.
5. RELATED PARTY TRANSACTIONS:
In addition to the working interests in the oil and gas properties
included in the accompanying financial statements, KTOC also owns
royalty interests in some of the properties and has rights to
reversionary interests. These interests are excluded from the
accompanying financial statements since they are being retained by KTOC.
6. SUBSEQUENT EVENTS (UNAUDITED):
In October 1995, KTOC and certain affiliates entered into an agreement
with Metro Capital Corporation ("Metro") whereby Metro agreed to acquire
certain oil and gas properties (including the properties for which KTOC
has an option as discussed in the following paragraph) and assume
certain liabilities of KTOC. The Agreement is subject to the approval
of the shareholders of Metro and would provide for the issuance to KTOC
and certain affiliates of 80% of the issued and outstanding voting
shares of Metro upon completion of the transaction.
In August and September 1995, KTOC entered into agreements with certain
joint interest owners, which provide KTOC with an option to acquire
additional working interests in the properties. Upon exercise of the
options, KTOC will be required to pay $641,000 in cash, issue 1,062,946
Class B Metro common shares (of which 450,000 shares are immediately
convertible to Metro common stock), and pay $130,000 in production
payments.
F-6
<PAGE>
KTOC CONTRIBUTED PROPERTIES
NOTES TO FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1994 IS UNAUDITED)
7. COSTS INCURRED IN OIL AND GAS PRODUCING ACTIVITIES:
The following is a summary of costs incurred in oil and gas producing
activities for the years ended December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Property acquisition costs $ - $487,300
Development costs 219,900 427,000
Exploration costs - 15,000
-------- --------
Total $219,900 $929,300
======== ========
</TABLE>
See pro forma reserve information for estimated reserve quantities and
standardized measure of discounted future net cash flows related to the
oil and gas properties to be acquired by Metro.
F-7
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Karlton Terry Oil Company
Denver, Colorado
We have audited the accompanying Historical Summaries of Oil and Gas Revenues
and Direct Operating Expenses (the "Historical Summaries") of the Option
Properties (the "Properties") for the years ended December 31, 1994 and 1993.
The Historical Summaries are the responsibility of Karlton Terry Oil
Company's management. Our responsibility is to express an opinion on the
Historical Summaries based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the Historical Summaries are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the Historical Summaries.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the Historical Summaries. We believe that our audits
provides a reasonable basis for our opinion.
The Historical Summaries were prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission (for
inclusion in the proxy statement of Metro Capital Corporation) as described
in Note 1 and are not intended to be a complete presentation of the
Properties' revenues and expenses.
In our opinion, the Historical Summaries referred to above present fairly, in
all material respects, the oil and gas revenues and direct operating expenses
described in Note 1 of the Properties, for the years ended December 31, 1994
and 1993 in conformity with generally accepted accounting principles.
HEIN + ASSOCIATES LLP
Denver, Colorado
September 8, 1995
F-8
<PAGE>
HISTORICAL SUMMARIES OF OIL AND GAS REVENUES AND
DIRECT OPERATING EXPENSES OF THE OPTION PROPERTIES
<TABLE>
<CAPTION>
SIX MONTHS ENDED FOR THE YEARS ENDED
JUNE 30, DECEMBER 31,
------------------ --------------------
1995 1994 1994 1993
------- ------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C>
Revenue -
Oil and gas sales $59,600 $94,800 $190,700 $233,800
Expenses -
Direct operating expenses 55,100 79,100 143,900 146,600
------- ------- -------- --------
Revenues in excess of direct operating expenses $ 4,500 $15,700 $ 46,800 $ 87,200
======= ======= ======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE HISTORICAL SUMMARIES.
F-9
<PAGE>
NOTES TO HISTORICAL SUMMARIES OF OIL AND GAS REVENUES AND
DIRECT OPERATING EXPENSES OF THE OPTION PROPERTIES
1. BASIS OF PRESENTATION:
The accompanying Historical Summaries have been prepared from accounting
records provided by KTOC and include only those revenues and direct
operating expenses attributable to the properties which are subject to
option agreements (the "Option Properties") between the current owners and
KTOC. The financial information for the six month periods ended June 30,
1995 and 1994 is unaudited but reflects, in the opinion of management,
all adjustments (which include only normal recurring adjustments)
necessary to present fairly the interests in the oil and gas revenues and
direct operating expenses for such periods. The oil and gas revenues and
direct operating expenses for such interim periods are not necessarily
indicative of results to be expected for the full year.
The accompanying Historical Summaries are included to provide historical
information on the revenues and direct operating expenses of the Option
Properties and may not be representative of future operations. A
provision for depreciation, depletion and amortization has not been
included since the purchaser's basis in the properties will be
significantly different from the basis of the current owners. General
and administrative expenses have not been included because the historical
expenses incurred by the current owners may not be comparable to amounts
expected to be incurred by the purchaser. The Historical Summaries also
do not include Federal and state income taxes or interest.
See pro forma reserve information for estimated reserve quantities and
standardized measure of discounted future net cash flows related to the
acquired oil and gas properties.
F-10
<PAGE>
METRO CAPITAL CORPORATION
INTRODUCTION TO PRO FORMA FINANCIAL INFORMATION
In October 1995, Metro and KTOC entered into an Asset Purchase Agreement
whereby KTOC will exchange certain oil and gas properties (the "Contributed
Properties") for a combined total of 7,717,820 shares of common stock and
Class B common stock of Metro, which will represent 80% of the issued and
outstanding voting securities of Metro. At the closing date, additional
working interests in the KTOC oil and gas properties (the "Option
Properties") will be acquired for cash, a portion of the common shares issued
to KTOC, and other consideration.
These pro forma financial statements give effect to the proposed transactions
by recording KTOC's assets at their historical carrying value since the KTOC
owners will continue to exercise control through their 80% voting interest.
Metro's assets are also reflected at their historical carrying value since
its assets, except for $700,000 cash and an insignificant oil property, will
be transferred to a wholly-owned subsidiary and operated autonomously by the
current management of Metro pursuant to the terms of an Operating Agreement.
The Option Properties will be recorded based on the cash and the fair value
of securities and other consideration which will be issued upon exercise of
the option.
The accompanying pro forma combined statement of operations combines the
statements of operations of Metro and KTOC for the years ended March 31, 1995
and December 31, 1994, respectively. The combined interim statement of
operations combines the statements of operations of Metro and KTOC for the
six months ended June 30, 1995.
The pro forma combined statements of operations are presented as if the
proposed transactions had occurred at the beginning of the periods presented.
The pro forma combined balance sheet is presented as if the proposed
transactions had occurred at the balance sheet date.
These statements are not necessarily indicative of future operations or the
actual results that would have occurred had the transactions been consummated
at the beginning of the periods indicated. The pro forma combined financial
statements should be read in conjunction with the historical financial
statements and notes thereto of Metro and the KTOC Contributed Properties and
the historical summaries for the Option Properties, included elsewhere in
this document.
F-11
<PAGE>
METRO CAPITAL CORPORATION
KTOC PROPERTIES
PRO FORMA COMBINED BALANCE SHEET (UNAUDITED)
JUNE 30, 1995
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------------------------------------------
METRO KTOC ADJUSTMENT COMBINED
----------- -------- ------------- -----------
<S> <C> <C> <C> <C>
CURRENT ASSETS $ 1,925,417 $136,600 $ (641,000)(a) $ 1,284,417
(136,600)(i)
PROPERTY AND EQUIPMENT:
Oil and gas properties 1,286,941 471,800 612,946 (b) 4,478,387
641,000 (a)
675,000 (c)
150,000 (d)
50,000 (e)
77,200 (f)
513,500 (g)
Accumulated depreciation,
depletion, and amortization (661,549) (86,400) - (747,949)
----------- -------- ---------- -----------
Net oil and gas properties 625,392 385,400 2,719,646 3,730,438
OTHER ASSETS, net 919,563 - - 919,563
----------- -------- ---------- -----------
TOTAL ASSETS $ 3,470,372 $522,000 $1,942,046 $ 5,934,418
=========== ======== ========== ===========
CURRENT LIABILITIES $ 45,028 $147,000 $ (87,400)(i) $ 104,628
DEFERRED INCOME TAXES - - 513,500 (g) 513,500
LONG-TERM DEBT - 122,000 77,200 (f) 199,200
EQUITY:
Preferred stock - - - -
Common stock and additional paid-
in capital 3,057,718 - 675,000 (c) 4,032,718
150,000 (d)
150,000 (e)
Class B common stock and
additional paid-in capital - - 203,800 (h) 816,746
612,946 (b)
Unrealized holding gain 638,429 - - 638,429
Retained earnings 1,465,259 - (100,000)(e) 1,365,259
Treasury stock (1,736,062) - (1,736,062)
(49,200)(i)
Excess of assets over liabilities - 253,000 (203,800)(h) -
----------- -------- ---------- -----------
TOTAL LIABILITIES AND EQUITY $ 3,470,372 $522,000 $1,942,046 $ 5,934,418
=========== ======== ========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS.
F-12
<PAGE>
METRO CAPITAL CORPORATION
KTOC PROPERTIES
PRO FORMA COMBINED INTERIM STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
KTOC PROPERTIES PRO FORMA
--------------------- --------------------------
METRO CONTRIBUTED OPTIONS ADJUSTMENTS COMBINED
----- ----------- ------- ------------ ---------
<S> <C> <C> <C> <C> <C>
REVENUES:
Oil and gas sales $ 54,034 $60,100 $59,600 $ - $ 173,734
Well overhead fees 2,174 2,500 - - 4,674
--------- ------- ------- --------- ---------
Total revenue 56,208 62,600 59,600 - 178,408
--------- ------- ------- --------- ---------
COSTS AND EXPENSES:
Oil and gas production costs 20,819 26,300 55,100 - 102,219
General and administrative
expenses 228,812 - - 132,500 (j) 361,312
Depreciation, depletion and
amortization 78,134 13,900 - 55,825 (k) 147,859
--------- ------- ------- --------- ---------
Total expenses 327,765 40,200 55,100 188,325 611,390
--------- ------- ------- --------- ---------
Income (loss) from operations (271,557) 22,400 4,500 (188,325) (432,982)
OTHER CREDITS (CHARGES):
Other income, net 61,897 - - - 61,897
Equity in partnership losses (32,842) - - - (32,842)
Interest expense - (9,100) - (3,900)(l) (13,000)
--------- ------- ------- --------- ---------
29,055 (9,100) - (3,900) 16,055
--------- ------- ------- --------- ---------
Income (loss) before income
tax benefit (242,502) 13,300 4,500 (192,225) (416,927)
Income tax benefit - - - 154,300 (m) 154,300
--------- ------- ------- --------- ---------
Net income (loss) $(242,502) $13,300 $ 4,500 $ (37,925) $(262,627)
========== ======= ======= ========= =========
NET LOSS PER COMMON
SHARE:
Common stock $ (.15) $ (.08)
========== =========
Class B common stock $ (.01)
=========
AVERAGE NUMBER OF SHARES
OUTSTANDING
Common stock 1,599,455 2,249,455
========== ==========
Class B common stock 7,267,820
==========
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS.
F-13
<PAGE>
METRO CAPITAL CORPORATION
KARLTON TERRY OIL COMPANY
PRO FORMA COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
METRO FOR KTOC PROPERTIES
THE YEAR FOR THE
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
1995 1994 PRO FORMA
--------- ---------------------- ------------------------
CONTRIBUTED OPTION ADJUSTMENTS COMBINED
----------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C>
REVENUES:
Oil and gas sales $ 115,988 $146,400 $190,700 $ - $ 453,088
Well overhead fees 4,941 2,500 - - 7,441
--------- -------- -------- --------- ----------
Total revenue 120,929 148,900 190,700 - 460,529
--------- -------- -------- --------- ----------
COSTS AND EXPENSES:
Oil and gas production costs 73,369 53,400 143,900 - 270,669
General and administrative
expenses 488,254 - - 307,600 (j) 795,854
Depreciation, depletion and
amortization 164,041 32,200 - 98,574 (k) 294,815
Abandoned leases 13,576 - - - 13,576
--------- -------- -------- --------- ----------
Total expenses 739,240 85,600 143,900 406,174 1,374,914
--------- -------- -------- --------- ----------
Income (loss) from operations (618,311) 63,300 46,800 (406,174) (914,385)
OTHER CREDITS (CHARGES):
Other income, net 102,640 - - - 102,640
Equity in partnership losses (41,282) - - - (41,282)
Interest expense - (19,700) - (8,500)(l) (28,200)
Gain on drilling arrangements - 138,200 - - 138,200
--------- -------- -------- --------- ----------
61,358 118,500 - (8,500) 171,358
--------- -------- -------- --------- ----------
Income (loss) before income
tax benefit (556,953) 181,800 46,800 (414,674) (743,027)
Income tax benefit - - - 274,900 (m) 274,900
--------- -------- -------- --------- ----------
Net income (loss) $(556,953) $181,800 $ 46,800 $(139,774) $ (468,127)
========= ======== ======== ========= ==========
NET LOSS PER COMMON SHARE
Common stock $ (.35) $ (.16)
========= ==========
Class B common stock $ (.01)
==========
AVERAGE NUMBER OF SHARES
OUTSTANDING
Common stock 1,599,455 2,249,455
========= ==========
Class B common stock 7,267,820
==========
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS.
F-14
<PAGE>
METRO CAPITAL CORPORATION
KTOC PROPERTIES
PRO FORMA COMBINED OIL AND GAS DISCLOSURES
PRO FORMA ADJUSTMENTS:
(a) Entry to record cash payment for purchase of the Option Properties.
(b) Entry to record the issuance of 612,946 shares of Class B common stock
valued at $1.00 per share for purchase of the Option Properties.
(c) Entry to record the issuance of 450,000 shares of common stock valued at
$1.50 per share for purchase of the Option Properties.
(d) Entry to record the issuance of 100,000 shares of common stock valued at
$1.50 per share for commission relating to the purchase of the Option
Properties.
(e) Entry to record the issuance of 100,000 shares of common stock valued at
$1.50 per share for legal services, of which $50,000 was recorded as
property acquisition costs.
(f) Entry to record $130,000 production payment at net present value relating
to purchase of the Option Properties.
(g) Entry to record deferred income taxes relating to temporary differences
between the tax basis and financial reporting basis of the oil and gas
properties.
(h) Entry to record the issuance of 6,654,874 shares of Class B common stock
for certain oil and gas properties exchanged by KTOC.
(i) Entry to eliminate receivables and payables of KTOC which are not
included in the acquisition.
(j) Entry to increase general and administrative expenses for additional
salary costs as provided for in the Asset Purchase Agreement and
anticipated increases in other administrative expenses.
(k) Entry to record additional depreciation, depletion and amortization to
give effect to the increased carrying value of the oil and gas
properties.
(l) Entry to record imputed interest on the production payments.
(m) Entry to record deferred tax benefit resulting from operating losses.
(n) The computation of net loss per share is based on the rights of each
class of common stock. The Class B common stock has all of the rights
of the common stock except that: (i) the Class B common stock is not
entitled to participate in any distribution of shares or assets of the
wholly-owned subsidiary into which certain assets were transferred from
Metro prior to the closing date and (ii) each share of Class B common
stock will be entitled to 1.6 votes on all issues presented for vote by
the shareholders. Accordingly, the computation of the loss per share is
based on the allocation of the net loss between Metro's and KTOC's
operations adjusted for certain costs and expenses (primarily public
F-15
<PAGE>
METRO CAPITAL CORPORATION
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENT (UNAUDITED)
company costs) reclassified from Metro to KTOC and the allocation of the
income tax benefit based on each company's revised loss. The common
shares were allocated 100% of Metro's loss and a pro rata percentage of
KTOC's loss based on the ratio of common shares outstanding to total
common and Class B shares outstanding. The Class B common shares
were allocated the remaining pro rata percentage of loss associated with
KTOC's operations.
F-16
<PAGE>
KTOC PROPERTIES
PRO FORMA COMBINED OIL AND GAS DISCLOSURES (UNAUDITED)
The accompanying reserve information relates to the oil and gas
properties which are currently owned by KTOC, as well as the properties
for which KTOC has an option to acquire additional interests.
OIL AND GAS RESERVE QUANTITIES - Proved oil and gas reserves are the
estimated quantities of crude oil, natural gas, and natural gas liquids
which geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs under
existing economic and operating conditions. Proved developed oil and
gas reserves are those reserves expected to be recovered through
existing wells with existing equipment and operating methods. However,
reserve information should not be construed as the current market value
of the oil and gas reserves or the costs that would be incurred to
obtain equivalent reserves. Reserve calculations involve the estimation
of future net recoverable reserves of oil and gas and the timing and
amount of future net revenues to be received therefrom. These estimates
are based on numerous factors, many of which are variable and uncertain.
Accordingly, it is common for the actual production and revenues to
vary from earlier estimates.
The reserve data is based on studies which were prepared by one of the
working interest owners of the properties and reviewed by an independent
petroleum engineer. Reserve estimates require substantial judgment on
the part of petroleum engineers resulting in imprecise determinations,
particularly with respect to new discoveries. Since all of the
producing wells were drilled within the past few years, it is expected
that the estimates of reserves will change as future production and
development information becomes available. Additionally, due to short
production histories for certain properties, it was necessary to prepare
a portion of the reserve estimates using volumetric methods which are
generally less precise than performance based estimates. A portion of
the proved developed reserves are currently non-producing as certain
wells require recompletions in additional productive zones and the
purchase of a salt water disposal well.
All proved reserves of oil and gas are located in the United States.
The following tables present estimates of the net proved oil and gas
reserves, and changes therein for the years indicated.
CHANGES IN NET QUANTITIES OF PROVED RESERVES
<TABLE>
<CAPTION>
1994 1993
----------------------- ------------------
Oil Gas Oil Gas
(Bbls) (Mcf) (Bbls) (Mcf)
--------- --------- ------- -------
<S> <C> <C> <C> <C>
Proved reserves, beginning of year 98,000 828,000 - -
Extensions, discoveries, and
other additions 1,109,000 1,600,000 - -
Purchase of minerals in place - - 115,000 898,000
Production (15,000) (60,000) (17,000) (70,000)
--------- --------- ------- -------
Proved reserves, end of year 1,192,000 2,368,000 98,000 828,000
========= ========= ======= =======
Proved developed reserves, end of year 207,000 1,057,000 98,000 828,000
========= ========= ======= =======
</TABLE>
F-17
<PAGE>
KARLTON TERRY OIL AND GAS INTERESTS
PRO FORMA COMBINED OIL AND GAS DISCLOSURES (UNAUDITED)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS - Statement of
Financial Accounting Standards No. 69 prescribes guidelines for
computing a standardized measure of future net cash flows and changes
therein relating to estimated proved reserves. These guidelines are
briefly discussed below.
Future cash inflows and future production and development costs are
determined by applying year-end prices and costs to the estimated
quantities of oil and gas to be produced. Estimated future income taxes
are computed using current statutory income tax rates including
consideration for estimated future statutory depletion and tax credits.
The resulting future net cash flows are reduced to present value amounts
by applying a 10% annual discount factor.
The assumptions used to compute the standardized measure are those
prescribed by the Financial Accounting Standards Board and, as such, do
not necessarily reflect KTOC's expectations for actual revenues to be
derived from those reserves nor their present worth. The limitations
inherent in the reserve quantity estimation process, as discussed
previously, are equally applicable to the standardized measure
computations since these estimates are the basis for the valuation
process.
The following summary sets forth KTOC's (including reserves for which
KTOC has an option to acquire additional interests) future net cash
flows relating to proved oil and gas reserves as of December 31, 1994
based on the standardized measure prescribed in Statement of Financial
Accounting Standards No. 69.
<TABLE>
<S> <C>
Future cash inflows $23,561,000
Future production costs (6,480,000)
Future development costs (1,382,000)
Future income tax expense (5,200,000)
-----------
Future net cash flows 10,499,000
10% annual discount for estimated timing of cash flow (5,207,000)
-----------
Standardized Measure of Discounted
Future Net Cash Flows $ 5,292,000
===========
</TABLE>
Changes in the Standardized Measure are not presented since KTOC did not
have reserve estimates prepared in the prior year.
F-18
<PAGE>
ATTACHMENT C
[LETTERHEAD]
M & Z ENGINEERING, INC.
September 20, 1995
Mr. Karlton Terry
KARLTON TERRY OIL COMPANY
700 East 9th Avenue - Suite 106
Denver, Colorado 80203
Dear Mr. Terry:
At your request, we have prepared an estimate of the reserves and
future production and income as of January 1, 1995, attributable
to certain leasehold interests held by Karlton Terry Oil Company.
The estimated future income based on the Securities and Exchange
Commission's (SEC) guidelines for future costs and price
parameters. The results of this study are summarized below:
Estimated Net Reserve and Income Data
Certain Leasehold Interests Held by
Karlton Terry Oil Company
as of January 1, 1995
CONSTANT PRICES AND COSTS
<TABLE>
<CAPTION>
Proved Reserves
------------------------------------------------------
Developed Undeveloped
--------- -----------
Producing Behind Pipe Totals
--------- ----------- ------
Net Remaining Reserves
- ----------------------
<S> <C> <C> <C> <C>
Oil/Condensate Barrels 184,912 22,347 985,091 1,192,347 Bbls
Gas - MMCF 565.005 491.758 1,310.755 2,367.516 Mmcf
Income Data
- -----------
Future Gross Revenue (KTOC) $3,948,696 1,036,632 18,575,201 $23,560,531
Deductions 1,824,254 543,136 5,494,271 $7,861,661
Future Net Income (FNI) $2,124,441 493,496 13,080,933 $15,698,868
Discounted FNI @ 10% $1,297,314 315,133 6,301,148 $7,913,844
</TABLE>
<PAGE>
Liquid hydrocarbons are expressed in standard 42 gallon
barrels. All gas volumes are sales gas expressed in millions of
cubic feet (MMCF) at the official temperature and pressure bases
of the areas where the gas reserves are located.
The future gross revenues are before the deduction of
production taxes, normal direct costs of operating the wells, ad
valorem taxes, recompletion costs and development costs. The
future net income is before the deduction of state and federal
income taxes and has not been adjusted for outstanding loans which
may exist nor does it include any adjustments for cash on hand or
undistributed income. No attempt has been made to quantify or
otherwise account for any accumulated gas production imbalances
that may exist. Liquid hydrocarbon reserves account for
approximately 25 per cent and gas reserves account for the
remaining 75 per cent of total future gross revenue from proved
reserves.
The discounted future net income shown above is based on a
discount rate of 10 percent per annum compounded annually. These
data are shown on each estimated projection of future production
and income presented in a later section of this report.
These data are presented for your information and should not
be construed as M & Z Engineering, Inc.'s estimate of fair market
value.
RESERVES INCLUDED IN THIS REPORT
The proved reserves included herein conform to the definition
as set forth in the Securities and Exchange Commission's
Regulation S-X Part 210.4-10(a) as clarified by the Commission's
Staff Accounting Bulletin No. 40 and to the definition adopted by
the Society of Petroleum Engineers of AIME.
RESERVE ESTIMATES
In general, the reserves included herein were estimated by
performance methods or the volumetric method; however, other
methods were used in certain cases where characteristics of the
data indicated such other methods were more appropriate in our
opinion.
The reserves included herein were estimated by the
performance method utilizing extrapolations of various historical
data in those cases where such data were definitive in our
opinion. Reserves were estimated by the volumetric method in
those cases where there was inadequate historical performance
data to establish a definitive trend or where the use of
production performance data as a basis for the reserve estimates
were considered to be inappropriate and the volumetric data were
adequate for a reasonable estimate.
<PAGE>
The reserves included in this report are estimates only and
should not be construed as being exact quantities. They
may or may not be actually recovered, and if recovered,
the revenues therefrom and the actual costs related thereto could
be more or less than the estimated amounts. Moreover, estimates
of reserves may increase or decrease as a result of future
operations.
PROJECTION RATES
Initial production rates are based on the current producing
rates for those reservoirs now on production. Test data and other
related information were used to estimate the anticipated initial
production rates for those wells or locations which are not
currently producing. If no production decline trend has been
established, future production rates were held constant, or
adjusted for the effects of curtailment where appropriate, until a
decline in ability to produce was anticipated. The future
anticipated decline was then applied to depletion of the reserves.
If a decline trend has been established, this trend was used as
the basis for estimating future production rates. For reserves
not yet on production, sales were projected to commence at an
anticipated date of delivery.
The future production rates from reservoirs now on production
may be more or less than estimated because of changes in market
demand or allowables set by regulatory bodies. Wells or locations
which are not currently producing may start producing earlier or
later than anticipated in our estimates of their future production
rates.
HYDROCARBON PRICES
Karlton Terry Oil Company furnished us with oil and
condensate prices in effect at January 1, 1995, for our
evaluation. The price of crude oil and natural gas used in this
study were the posted price or contract price in effect on
December 31, 1994 and these prices were held constant to depletion
of the properties.
COSTS
Operating costs for the leases and wells in this report are
based on the operating expense reports of Karlton Terry Oil
Company and include only those costs directly applicable to the
leases or wells. When applicable, the operating costs include
a portion of general and administrative costs allocated directly
to the leases and wells under terms of operating agreements.
Development costs were furnished to us by Karlton Terry Oil
Company and are based on authorizations for expenditure for the
proposed work or actual costs for similar projects. The current
operating and development costs were held constant throughout the
life of the properties. This study does not consider the salvage
value of the lease equipment or the abandonment cost since both
are relatively
<PAGE>
insignificant and tend to offset each other. No deduction was
made for indirect costs such as loan repayments, interest expenses
and exploration and development prepayments which are not charged
directly to the leases or wells.
GENERAL
While it may reasonably be anticipated that the prices
received by Karlton Terry Oil Company for the sale of its
production may be higher or lower than the prices used in this
evaluation as described above, and the operating costs relating to
such production may also increase above existing levels, such
increases or decreases in prices and costs were, in accordance
with rules adopted by the SEC.
The reserve estimates presented herein based upon a detailed
study of the properties in which Karlton Terry Oil Company owns an
interest. Karlton Terry Oil Company has informed us that they
have furnished us all of the accounts, records, geological and
engineering data and reports and other data required for this
investigation. The ownership interests, prices, product
classifications relating to prices, and other factual data
furnished to M & Z Engineering, Inc. by Karlton Terry Oil Company
in connection with this investigation were accepted without
independent verification.
Neither the employment to make this study nor the
compensation is contingent on our estimates of reserves and future
income for the subject properties.
This report was prepared for the exclusive use of Karlton
Terry Oil Company. The data, work papers and maps used in the
preparation of this report are available for examination by
authorized parties in our offices. Please contact us if we can be
of further service.
Very truly yours,
M & Z ENGINEERING, INC.
/s/ Manuel J. Munoz, PE
Manuel J. Munoz, PE
President
<PAGE>
[LETTERHEAD]
September 20, 1995
Mr. Karlton Terry
Karlton Terry Oil Company
1380 Lawrence, Suite 1290
Denver, Colorado 80204
Re: Engineering Review
M&Z Reserve Report Dated September 20, 1995
Various Properties - Karlton Terry Oil Company
As of January 1, 1995
Dear Mr. Terry:
Pursuant to your request I have reviewed the subject Reserve
Report prepared by Manuel J. Munoz, M & Z Engineering, for various
properties located in West Virginia, Kentucky and Louisiana. The
purpose of this review was to determine the reasonableness of the
oil and gas forecasts and reserve estimates.
The engineering data reviewed consists of cash flow projections
prepared by M & Z Engineering, individual historical and projected
performance curves, and open hole well logs. All the information
was accepted as factual without independent verification.
Additional information utilized was obtained from my files. I did
not perform a field inspection of the properties.
The oil and gas prices, ownership interest and operating costs
used by M & Z Engineering, in the preparation of the reserve and
economic estimates are reasonable for the reviewed properties.
The techniques used to make the reserve and economic projections
are generally accepted engineering methods.
In summary, I believe the estimated reserves and future values
were arrived at using generally accepted methods and are
reasonable for these properties.
I am not related to Karlton Terry Oil Company, its officers,
shareholders, and the properties evaluated in this report. I do
not own a direct or indirect financial interest in Karlton Terry
Oil Company or its properties.
Please contact me if you have questions or require additional
information.
Respectfully submitted,
[STATE OF TEXAS SEAL]
/s/ Kent B. Lina, P.E.
Kent B. Lina, P.E.
<PAGE>
ATTACHMENT D
Copr. (C) West 1995 No claim to orig. U.S. govt. work
WYOMING STATUTES 1977
TITLE 17. CORPORATIONS, PARTNERSHIPS AND ASSOCIATIONS
CHAPTER 16. WYOMING BUSINESS CORPORATION ACT
ARTICLE 13. DISSENTERS' RIGHTS
Copyright (c) 1977-1995 by The State of Wyoming. All rights reserved.
Current through Ch. 212 of the General Assembly of the 53rd Legislature
SUBARTICLE A. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
SECTION 17-16-1301 DEFINITIONS.
(a) As used in this article:
(i) "Beneficial shareholder" means the person who is a beneficial
owner of shares held in a voting trust or by a nominee as the record
shareholder;
(ii) "Corporation" means the issuer of the shares held by a
dissenter before the corporate action, or the surviving, new, or acquiring
corporation by merger, consolidation, or share exchange of that issuer;
(iii) "Dissenter" means a shareholder who is entitled to dissent
from corporate action under W.S. 17-16-1302 and who exercises that right when
and in the manner required by W.S. 17-16-1320 through 17-16-1328;
(iv) "Fair value," with respect to a dissenter's shares, means the
value of the shares immediately before the effectuation of the corporate
action to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action unless exclusion would
be inequitable;
(v) "Interest" means interest from the effective date of the
corporate action until the date of payment, at the average rate currently
paid by the corporation on its principal bank loans, or, if none, at a rate
that is fair and equitable under all the circumstances;
(vi) "Record shareholder" means the person in whose names shares are
registered in the records of a corporation or the beneficial owner of shares
to the extent of the rights granted by a nominee certificate on file with a
corporation;
(vii) "Shareholder" means the record shareholder or the beneficial
shareholder.
SECTION 17-16-1302 RIGHT TO DISSENT.
(a) A shareholder is entitled to dissent from, and to obtain payment
of the fair value of his shares in the event of, any of the following
corporate actions:
(i) Consummation of a plan of merger or consolidation to which the
corporation is a party if:
(A) Shareholder approval is required for the merger or the
consolidation by W.S. 17-16-1103 or 17-16-1111 or the articles of
incorporation and the shareholder is entitled to vote
1 of 6
<PAGE>
on the merger or consolidation; or
(B) The corporation is a subsidiary that is merged with its parent
under W.S. 17-16-1104.
(ii) Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be acquired, if
the shareholder is entitled to vote on the plan;
(iii) Consummation of a sale or exchange of all, or substantially
all, of the property of the corporation other than in the usual and regular
course of business, if the shareholder is entitled to vote on the sale or
exchange, including a sale in dissolution, but not including a sale pursuant
to court order or a sale for cash pursuant to a plan by which all or
substantially all of the net proceeds of the sale will be distributed to the
shareholders within one (1) year after the date of sale;
(iv) An amendment of the articles of incorporation that materially
and adversely affects rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preferential right of the shares;
(B) Creates, alters or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities;
(D) Excludes or limits the right of the shares to vote on any
matter, or to cumulate votes, other than a limitation by dilution through
issuance of shares or other securities with similar voting rights; or
(E) Reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be acquired for
cash under W.S. 17-16-604.
(v) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
(b) A shareholder entitled to dissent and obtain payment for his
shares under this article may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
SECTION 17-16-1303 DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
(a) A record shareholder may assert dissenters' rights as to fewer
than all the shares registered in his name only if he dissents with respect
to all shares beneficially owned by any one (1) person and notifies the
corporation in writing of the name and address of each person on whose behalf
he asserts dissenters' rights. The rights of a partial dissenter under this
subsection are determined as if the shares as to which he dissents and his
other shares were registered in the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to
shares held on his behalf only if:
(i) He submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial shareholder
asserts dissenters' rights; and
(ii) He does so with respect to all shares of which he is the
beneficial shareholder or over which he has power to direct the vote.
2 of 6
<PAGE>
SUBARTICLE B. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
SECTION 17-16-1320 NOTICE OF DISSENTERS' RIGHTS.
(a) If proposed corporate action creating dissenters' rights under
W.S. 17- 16-1302 is submitted to a vote at a shareholders' meeting, the
meeting notice shall state that shareholders are or may be entitled to assert
dissenters' rights under this article and be accompanied by a copy of this
article.
(b) If corporate action creating dissenters' rights under W.S.
17-16-1302 is taken without a vote of shareholders, the corporation shall
notify in writing all shareholders entitled to assert dissenters' rights that
the action was taken and send them the dissenters' notice described in W.S.
17-16-1322.
SECTION 17-16-1321 NOTICE OF INTENT TO DEMAND PAYMENT.
(a) If proposed corporate action creating dissenters' rights under
W.S. 17- 16-1302 is submitted to a vote at a shareholders' meeting, a
shareholder who wishes to assert dissenters' rights shall deliver to the
corporation before the vote is taken written notice of his intent to demand
payment for his shares if the proposed action is effectuated and shall not
vote his shares in favor of the proposed action.
(b) A shareholder who does not satisfy the requirements of
subsection (a) of this section is not entitled to payment for his shares
under this article.
SECTION 17-16-1322 DISSENTERS' NOTICE.
(a) If proposed corporate action creating dissenters' rights under
W.S. 17- 16-1302 is authorized at a shareholders' meeting, the corporation
shall deliver a written dissenters' notice to all shareholders who satisfied
the requirements of W.S. 17-16-1321.
(b) The dissenters' notice shall be sent no later than ten (10) days
after the corporate action was taken, and shall:
(i) State where the payment demand shall be sent and where and when
certificates for certificated shares shall be deposited;
(ii) Inform holders of uncertificated shares to what extent transfer
of the shares will be restricted after the payment demand is received;
(iii) Supply a form for demanding payment that includes the date of
the first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting dissenters'
rights certify whether or not he acquired beneficial ownership of the shares
before that date;
(iv) Set a date by which the corporation shall receive the payment
demand, which date may not be fewer than thirty (30) nor more than sixty (60)
days after the date the notice required by subsection (a) of this section is
delivered; and
(v) Be accompanied by a copy of this article.
3 of 6
<PAGE>
SECTION 17-16-1323 DUTY TO DEMAND PAYMENT.
(a) A shareholder sent a dissenters' notice described in W.S.
17-16-1322 shall demand payment, certify whether he acquired beneficial
ownership of the shares before the date required to be set forth in the
dissenters' notice pursuant to W.S. 17-16-1322(b)(iii), and deposit his
certificates in accordance with the terms of the notice.
(b) The shareholder who demands payment and deposits his share
certificates under subsection (a) of this section retains all other rights of
a shareholder until these rights are cancelled or modified by the taking of
the proposed corporate action.
(c) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice,
is not entitled to payment for his shares under this article.
SECTION 17-16-1324 SHARE RESTRICTIONS.
(a) The corporation may restrict the transfer of uncertificated
shares from the date the demand for their payment is received until the
proposed corporate action is taken or the restrictions released under W.S.
17-16-1326.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are cancelled or modified by the taking of the proposed corporate
action.
SECTION 17-16-1325 PAYMENT.
(a) Except as provided in W.S. 17-16-1327, as soon as the proposed
corporate action is taken, or upon receipt of a payment demand, the
corporation shall pay each dissenter who complied with W.S. 17-16-1323 the
amount the corporation estimates to be the fair value of his shares, plus
accrued interest.
(b) The payment shall be accompanied by:
(i) The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen (16) months before the date of payment, an
income statement for that year, a statement of changes in shareholders'
equity for that year, and the latest available interim financial statements,
if any;
(ii) A statement of the corporation's estimate of the fair value of
the shares;
(iii) An explanation of how the interest was calculated;
(iv) A statement of the dissenter's right to demand payment under
W.S. 17- 16-1328; and
(v) A copy of this article.
SECTION 17-16-1326 FAILURE TO TAKE ACTION.
(a) If the corporation does not take the proposed action within
sixty (60) days after the date set for demanding payment and depositing share
certificates, the corporation shall return the deposited certificates and
release the transfer restrictions imposed on uncertificated shares.
4 of 6
<PAGE>
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it shall send a new
dissenters' notice under W.S. 17-16-1322 and repeat the payment demand
procedure.
SECTION 17-16-1327 AFTER-ACQUIRED SHARES.
(a) A corporation may elect to withhold payment required by W.S.
17-16-1325 from a dissenter unless he was the beneficial owner of the shares
before the date set forth in the dissenters' notice as the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action.
(b) To the extent the corporation elects to withhold payment under
subsection (a) of this section, after taking the proposed corporate action,
it shall estimate the fair value of the shares, plus accrued interest, and
shall pay this amount to each dissenter who agrees to accept it in full
satisfaction of his demand. The corporation shall send with its offer a
statement of its estimate of the fair value of the shares, an explanation of
how the interest was calculated, and a statement of the dissenter's right to
demand payment under W.S. 17-16-1328.
SECTION 17-16-1328 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR
OFFER.
(a) A dissenter may notify the corporation in writing of his own
estimate of the fair value of his shares and amount of interest due, and
demand payment of his estimate, less any payment under W.S. 17-16-1325, or
reject the corporation's offer under W.S. 17-16-1327 and demand payment of
the fair value of his shares and interest due, if:
(i) The dissenter believes that the amount paid under W.S.
17-16-1325 or offered under W.S. 17-16-1327 is less than the fair value of
his shares or that the interest due is incorrectly calculated;
(ii) The corporation fails to make payment under W.S. 17-16-1325
within sixty (60) days after the date set for demanding payment; or
(iii) The corporation, having failed to take the proposed action,
does not return the deposited certificates or release the transfer
restrictions imposed on uncertificated shares within sixty (60) days after
the date set for demanding payment.
(b) A dissenter waives his right to demand payment under this
section unless he notifies the corporation of his demand in writing under
subsection (a) of this section within thirty (30) days after the corporation
made or offered payment for his shares.
SUBARTICLE C. JUDICIAL APPRAISAL OF SHARES
SECTION 17-16-1330 COURT ACTION.
(a) If a demand for payment under W.S. 17-16-1328 remains unsettled,
the corporation shall commence a proceeding within sixty (60) days after
receiving the payment demand and petition the court to determine the fair
value of the shares and accrued interest. If the corporation does not
commence the proceeding within the sixty (60) day period, it shall pay each
dissenter
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<PAGE>
whose demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in the district
court of the county where a corporation's principal office, or if none in
this state, its registered office, is located. If the corporation is a
foreign corporation without a registered office in this state, it shall
commence the proceeding in the county in this state where the registered
office of the domestic corporation merged with or whose shares were acquired
by the foreign corporation was located.
(c) The corporation shall make all dissenters, whether or not
residents of this state, whose demands remain unsettled parties to the
proceeding as in an action against their shares and all parties shall be
served with a copy of the petition. Nonresidents may be served by registered
or certified mail or by publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is
commenced under subsection (b) of this section is plenary and exclusive. The
court may appoint one (1) or more persons as appraisers to receive evidence
and recommend decision on the question of fair value. The appraisers have
the powers described in the order appointing them, or in the amendment to it.
The dissenters are entitled to the same discovery rights as parties in other
civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to
judgment for:
(i) The amount, if any, by which the court finds the fair value of
his shares, plus interest, exceeds the amount paid by the corporation; or
(ii) The fair value, plus accrued interest, of his after-acquired
shares for which the corporation elected to withhold payment under W.S.
17-16-1327.
SECTION 17-16-1331 COURT COSTS AND COUNSEL FEES.
(a) The court in an appraisal proceeding commenced under W.S.
17-16-1330 shall determine all costs of the proceeding, including the
reasonable compensation and expenses of appraisers appointed by the court.
The court shall assess the costs against the corporation, except that the
court may assess costs against all or some of the dissenters, in amounts the
court finds equitable, to the extent the court finds the dissenters acted
arbitrarily, vexatiously, or not in good faith in demanding payment under
W.S. 17-16-1328.
(b) The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable:
(i) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of W.S. 17-16-1320 through 17-16-1328; or
(ii) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by this article.
(c) If the court finds that the services of counsel for any
dissenter were of substantial benefit to other dissenters similarly situated,
and that the fees for those services should not be assessed against the
corporation, the court may award to these counsel reasonable fees to be paid
out of the amounts awarded the dissenters who were benefited.
6 of 6
<PAGE>
ATTACHMENT E
Article II of the Company's Articles of Incorporation, as proposed to be
amended, will read as follows:
ARTICLE II
CAPITAL
The total number of shares of all classes of capital stock which the
corporation shall have authority to issue is 33,000,000 shares, of which
5,000,000 shares shall be shares of Preferred Stock, $.50 per share;
20,000,000 shares shall be shares of Common Stock, $.01 par value per share
and 8,000,000 shares shall be shares of Class B Common Stock, $.01 par value
per share.
(a) PREFERRED STOCK. The designations and the powers, preferences and
rights, and the qualifications, limitations or restrictions of the Preferred
Stock, the establishment of different series of Preferred Stock, and
variations in the relative rights and preferences as between different series
shall be established in accordance with the Wyoming Business Corporation Act
by the Board of Directors.
(b) COMMON STOCK. The holders of Common Stock shall have and possess
all rights as shareholders of the corporation, including such rights as may
be granted elsewhere by these Articles of Incorporation, except as such
rights may be limited by the preferences, privileges and voting powers, and
the restrictions and limitations of the Preferred Stock.
Subject to preferential dividend rights, if any, of the holders
Preferred Stock, dividends upon the Common Stock may be declared by the Board
of Directors and paid out of any funds legally available therefor at such
times and in such amounts as the Board of Directors shall determine.
(c) CLASS B COMMON STOCK. The holders of the Class B Common Stock
shall have and possess the same rights as the holders of the Common Stock
except that: (i) the Class B Common will not be entitled to participate in
any distribution of shares or assets of the Subsidiary; and (ii) each share
of Class B Common will be entitled to 1.6 votes on all issues presented for
vote by the shareholders. The Class B Common will be convertible on a
one-for-one share basis into the Company's Common Stock commencing 36 months
from the Closing. Commencing 30 months from the Closing, the Class B Common
will be convertible on a one-for-one share basis, provided that the number of
shares so converted until the date 36 months after the Closing will be
limited to that number of shares of Common Stock that may be sold by an
affiliate pursuant to the volume limitation provisions of Rule 144
promulgated under the Securities Act of 1933, as amended.
The capital stock, after the amount of the subscription price has been
paid in, shall not be subject to assessment to pay the debts of the
corporation.
Any stock of the corporation may be issued for money, property, services
rendered, labor done, cash advances for the corporation, or for any other
assets of value in accordance with the action of the Board of Directors,
whose judgement as to value received in return therefor shall be conclusive
and said stock, when issued, shall be fully paid and nonassessable.
<PAGE>
ATTACHMENT F
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in the Proxy Statement of Metro Capital Corporation of
our report dated May 26, 1995, accompanying the consolidated financial
statements of Metro Capital Corporation contained in such Proxy Statement.
HEIN + ASSOCIATES LLP
Certified Public Accountants
Denver, Colorado
October 24, 1995
<PAGE>
ATTACHMENT G
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in the Proxy Statement of Metro Capital Corporation of
our report dated September 12, 1995, accompanying the financial statements of
KTOC Contributed Properties contained in such Proxy Statement.
HEIN + ASSOCIATES LLP
Certified Public Accountants
Denver, Colorado
October 24, 1995
<PAGE>
ATTACHMENT H
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in the Proxy Statement of Metro Capital Corporation of
our report dated September 8, 1995, accompanying the Historical Summaries of
KTOC Option Properties contained in such Proxy Statement.
HEIN + ASSOCIATES LLP
Certified Public Accountants
Denver, Colorado
October 24, 1995
<PAGE>
ATTACHMENT I
METRO CAPITAL CORPORATION
1995 ANNUAL REPORT
<PAGE>
To Our Shareholders:
I am pleased to announce that the Company entered into an agreement with
Karlton Terry Oil Company and its principals, subject to approval by our
shareholders, to acquire oil and gas properties consisting of both developed
and undeveloped acreage. The majority of these oil and gas leases underly
several oil fields located along the Ohio River in West Virginia, Kentucky
and Indiana and will be developed by utilizing horizontal and diagonal
drilling technology. In addition, the acquisition includes two oil and gas
properties in Louisiana. An estimate of the proved reserves and future
revenues of these properties prepared as of January 1, 1995 in accordance
with Securities and Exchange Commission guidelines indicates future gross
revenues of $23.5 million. After deducting costs to develop and operate and
federal income tax expense, future net income discounted at 10% is $5.3
million.
Under the terms of the agreement, the Company will issue 7.7 million
shares of Class B Common Stock, representing 80% of its voting securities,
in exchange for the properties. All assets of the Company will be transferred
to a wholly-owned subsidiary, except for $700,000 cash and a minor oil
property. Upon completion of the transaction, the Company will be managed by
the principals of Karlton Terry Oil Company and the subsidiary will be
managed autonomously by the current management of the Company.
The shares of Class B Common Stock will be convertible into Metro's
Common Stock after three years except for 425,000 shares of Class B Common
Stock which will be immediately convertible. The Class B Common Stock is
restricted from participating in any distribution or other disposition of the
subsidiary assets during this three year period.
Since the sale of its cable television systems, the Company has been
engaged in oil and gas operations and real estate development. The Company's
current oil and gas operations comprise gas royalty interests and one minor
oil property in Wyoming. Management of the Company believes that this
proposed transaction will provide you an opportunity to participate in more
extensive oil and gas operations conducted by individuals with substantial
experience in the industry. This will allow current management to concentrate
on the Company's operation of other assets.
The Board and management of the Company want to thank you for your past
support and we look forward to the opportunities and challenges ahead.
Sincerely,
Robert E. Thrailkill
President
<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[X] Annual report under section 13 or 15(d) of the Securities Exchange
Act of 1934 (Fee Required) for the fiscal year ended March 31, 1995
[ ] Transition report under section 13 or 15(d) of the Securities Exchange
Act of 1934 (No Fee Required) for the transition period
from _______________ to ______________
Commission file number: 0-10006
METRO CAPITAL CORPORATION
(Name of small business issuer in its charter)
WYOMING 84-0839926
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
716 COLLEGE VIEW DRIVE, RIVERTON, WY 82501
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (307) 856-3800
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act: Common Stock,
$.01 Par Value
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months,
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Check if there is no disclosure of delinquent filers in reponse to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for fiscal year ended March 31, 1995 were $120,929.
The aggregate market value of the voting stock held by non-affiliates
computed by the average of the closing bid and asked prices as reported by
NASDAQ, as of June 20, 1995, was $1,199,592.
The number of shares outstanding of the issuer's common stock as of June 20,
1995 was 1,599,455.
Documents incorporated by reference: None
Transitional Small Business Disclosure Format (Check one):
Yes No X
----- -----
<PAGE>
PART I
Item 1. BUSINESS
Metro Capital Corporation, formerly known as Metro Cable Corporation,
(the "Company") was originally incorporated under the laws of the State of
Colorado on February 2, 1981. On March 31, 1992, the Company changed its name
and reincorporated under the laws of the State of Wyoming. The Company is
principally engaged in petroleum operations and real estate development and
is pursuing other business opportunities. The Company maintains its executive
and corporate office in Riverton, Wyoming. At March 31, 1995, the Company had
four full-time employees.
PETROLEUM OPERATIONS
Metro Minerals Corporation ("MMC"), a wholly-owned subsidiary, has a
71.76% working interest in a developed unitized oil-producing property
located in Natrona County, Wyoming. The working interest occurs on property
leased from others which requires payment of a delay rental or production
royalty to the owner of the mineral rights.
All of MMC's production is sold to one crude oil purchasing company
(Scurlock Permian Corporation) at posted field prices competitive for the
area and for quality of production.
On December 31, 1990, the Company purchased a 5% royalty interest in the
Madden Unit in Wyoming for $1,050,000. The Madden Unit produces natural gas
from producing horizons between 5,500 and 24,000 feet. A gas processing plant
was completed in February 1995 to treat the "sour gas" from the Madison
producing horizon (24,000 feet). The Company has no ownership interest in the
gas processing plant. The plant commenced operations on March 30, 1995 and
is currently processing 50 MMCFD (million cubic feet per day) from the two
completed Madison wells. Plant products include natural gas, sulfur and
carbon dioxide.
During 1995, the Company assigned certain Nevada leasehold interests
consisting of 1,920 gross (1,596 net) undeveloped acres to an unrelated
third-party for a 3.5% overiding royalty interest. The remaining undeveloped
Nevada leasehold interests were not renewed by the Company.
The oil and natural gas industry is intensely competitive in the
acquisition of prospective oil and natural gas properties and oil and natural
gas reserves. The Company competes with a substantial number of other
companies having technical staffs and greater financial and operational
resources. Many such companies not only explore for and produce oil and
natural gas, but also carry on refining operations, generate electricity and
market refined products. There is also competition between the oil and
natural gas industry and other industries supplying energy and fuel to
industrial, commercial and individual customers. In addition, companies not
previously investing in oil and natural gas may choose to acquire reserves to
establish a firm supply or simply as an investment.
The Company's business is affected not only by such competition, but also
by general economic developments, governmental regulations and other factors
that affect its ability to
1
<PAGE>
market its oil production. The price of oil realized by the Company is highly
volatile and generally dependent on world supply and demand. Declines in
crude oil prices could adversely impact the Company's oil production
activities.
Various aspects of the Company's oil operations are regulated by
administrative agencies under statutory provisions of the state where such
operations are conducted and by certain agencies of the Federal government
for its operations on Federal leases. The regulatory burden on the oil
industry increases its costs of doing business and consequently affects its
profitability. Although compliance with existing Federal, state and local
laws, rules and regulations enacted or adopted regulating the discharge of
materials into the environment have not had a material adverse effect upon
the Company's operations, there is no assurance that this will continue in
the future.
REAL ESTATE DEVELOPMENT
In October 1993, Bishop Cable Communications Corporation ("Bishop"), a
wholly-owned subsidiary, entered into two limited partnership agreements to
purchase approximately 90 contiguous acres of land in Colorado Springs,
Colorado. A summary of Bishop's participation in each partnership is as
follows:
(1) Bishop contributed $250,000 cash to the first partnership which
purchased approximately 55 acres of land for commercial development. Bishop,
as general partner, has an 81% interest with the remaining 19% interest held
by a limited partner who is the general partner in the second partnership.
Bishop will be allocated 100% of the income and losses until it has been paid
$600,000 plus interest thereon at 8% per annum (not to exceed $100,000) after
which the income and losses will be allocated 81% to Bishop and 19% to the
limited partner.
(2) Bishop contributed $100,000 cash to the second partnership which
purchased approximately 35 acres of land for the construction of a
recreational facility encompassing a golf driving range, miniature golf and
baseball/softball batting cages. This facility commenced operations in July
1994. Bishop, as the limited partner, has a 19% interest with the remaining
81% interest held by an unrelated third-party as the general partner. Bishop
contributed an additional $250,000 when certain financing requirements in the
partnership agreement were fulfilled by the general partner. Bishop is not a
guarantor of any debt in this partnership.
Bishop competes with other commercial real estate development companies
having greater financial and operational resources and technical staffs that
plan, supervise, develop and market the projects. Bishop's business is
affected not only by such competition, but also by market demand, interest
rates, credit availability and the strength of the economy in general.
The undeveloped real estate is subject to local zoning laws and
regulations. The undeveloped real estate must be surveyed, designed and
platted and then submitted to the appropriate local authorities for approval
and appropriate permits. Since the undeveloped real estate borders a drainage
channel, the local authorities may require that certain improvements be made
along such drainage channel. Bishop is in the preliminary planning stages for
the undeveloped real estate. Accordingly, no plats have been submitted to the
local authorities for approval.
Bishop is not aware of any non-compliance with existing local, state and
Federal environmental rules and regulations in regards to the undeveloped
real estate.
2
<PAGE>
Item 2. PROPERTIES
The Company's principal properties consist of a working interest in an
oil property in Wyoming, natural gas royalty interests in Wyoming and
undeveloped real estate located in Colorado. None of the properties are held
subject to any major encumbrance.
RESERVES
The Company has not filed any estimates of total proved oil or gas
reserves or included any such estimates in reports to any Federal authority
or agency.
ESTIMATED QUANTITIES OF PROVED OIL RESERVES (UNAUDITED)
The Company's estimated proved oil reserves relate to its one oil
property located in the United States and such estimates are inherently
imprecise and may be subject to substantial revisions. Reserves relating to
the gas royalty interests owned are not included because the information is
unavailable. The Company's share of production from the royalty interests for
the year ended March 31, 1995 was 39,383 mcf.
Proved oil reserves are the estimated quantities of crude oil which
geological and engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing economic and
operating conditions; i.e., prices and costs as of the date the estimate is
made. Proved developed oil reserves are reserves that can be expected to be
recovered through existing wells with existing equipment and operating
methods. The Company has no plans to conduct additional development drilling
in its oil property; therefore, its net proved and proved developed reserves
are comparable. The following table presents estimates of the Company's net
proved oil reserves and changes therein for the years indicated.
<TABLE>
<CAPTION>
Year Ended March 31,
-----------------------
1995 1994
---------- ----------
Oil (Bbls) Oil (Bbls)
---------- ----------
<S> <C> <C>
Proved reserves, beginning of year 51,100 54,800
Revisions of previous estimates (1,500) 1,000
Production (3,000) (4,700)
------ ------
Proved reserves, end of year 46,600 51,100
====== ======
Proved developed reserves, end of year 46,600 51,100
====== ======
</TABLE>
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS AND CHANGES THEREIN
RELATING TO PROVED OIL RESERVES (UNAUDITED)
The following supplemental data on the Company's oil activities were
prepared in accordance with the provisions of Statement of Financial
Accounting Standards No. 69. Estimated future net cash flows are determined
by: (1) applying the respective year-end oil price to the Company's estimates
of future production of proved reserves; (2) deducting estimates of the
future costs of
3
<PAGE>
development and production of proved reserves based on the assumed
continuation of the cost levels and economic conditions existing at the
respective year-end; and (3) deducting estimates of future income taxes based
on the respective year-end and future statutory tax rates and giving effect
to estimated future tax deductions and tax credits. Present value is
determined using a discount rate of 10% per annum.
Although the information presented is based on the Company's best
estimates of the required data, the methods and assumptions used in preparing
the data were those prescribed by the Financial Accounting Standards Board to
provide for the use of reasonably objective data. It is important to note
here that this information is neither fair market value nor the present value
of future cash flows and it does not reflect changes in oil prices
experienced since the respective year-end. Accordingly, the Company cautions
that this data should not be used for other than its intended purpose.
<TABLE>
<CAPTION>
Standardized Measure at
March 31,
-----------------------
1995 1994
-------- --------
<S> <C> <C>
Future cash inflows $ 779,000 $ 716,000
Future production and development costs (589,000) (537,000)
Future income tax expense -- --
--------- ---------
Future net cash flows 190,000 179,000
10% annual discount for estimated
timing of cash flows (78,000) (73,000)
--------- ---------
Standardized measure of discounted
future net cash flows $ 112,000 $ 106,000
========= =========
</TABLE>
<TABLE>
<CAPTION>
Principal Sources of Change
For the Year Ended March 31,
----------------------------
1995 1994
-------- --------
<S> <C> <C>
Standardized measure, beginning of year $106,000 $157,000
Sales of oil, net of production costs 16,008 (30,907)
Net changes in prices and production costs 12,396 (29,723)
Revisions of previous quantity estimates (15,362) 9,468
Accretion of discount 10,600 15,700
Other (17,642) (15,538)
-------- --------
Standardized measure, end of year $112,000 $106,000
======== ========
</TABLE>
CAPITALIZED COSTS RELATING TO OIL AND GAS ACTIVITIES
<TABLE>
<CAPTION>
March 31,
-----------------------
1995 1994
---------- ----------
<S> <C> <C>
Oil and gas properties $1,286,941 $1,285,698
Accumulated depreciation and amortization (627,154) (488,974)
---------- ----------
$ 659,787 $ 796,724
========== ==========
</TABLE>
4
<PAGE>
COSTS INCURRED IN OIL AND GAS PRODUCING ACTIVITIES
<TABLE>
<CAPTION>
For the Year Ended March 31,
----------------------------
1995 1994
------- ------
<S> <C> <C>
Proved property acquisition $ 1,243 $ --
Exploration expenses 13,576 9,821
Development costs -- --
------- ------
Total $14,819 $9,821
======= ======
</TABLE>
RESULTS OF OPERATIONS FROM OIL AND GAS PRODUCING ACTIVITIES
<TABLE>
<CAPTION>
For the Year Ended March 31,
----------------------------
1995 1994
--------- ---------
<S> <C> <C>
Oil and gas sales $ 115,988 $ 128,744
Oil and gas production costs (73,369) (44,439)
Exploration expenses (13,576) (9,821)
Depreciation and amortization (138,240) (140,580)
--------- ---------
(109,197) (66,096)
Income tax benefit (1) -- --
--------- ---------
Results of operations from producing
activities (excluding corporate
overhead and interest costs) $(109,197) $ (66,096)
========= =========
</TABLE>
_____________
(1) No income tax benefit has been recognized as it has not been
realized by the Company.
OIL AND GAS PRODUCTION
The table below sets forth information with respect to the Company's
producing oil property and gas royalty interests for the two years ended
March 31, 1995:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Quantities Produced and Sold
Oil and Condensate (Bbls) 3,040 4,705
Natural Gas (Mcf) 39,383 27,683
Average Sales Prices
Oil and Condensate ($/Bbl) $ 15.91 $ 15.03
Natural Gas ($/Mcf) $ 1.72 $ 1.91
Average Production Cost (1)
Oil ($/Bbl) (2) $ 21.24 $ 8.43
</TABLE>
_____________
(1) Excludes natural gas/condensate royalty interests since the Company
incurs no production costs other than severance and ad valorem taxes.
(2) Includes workover and maintenance costs of $13.65 in fiscal 1995 and
$3.22 in fiscal 1994.
5
<PAGE>
REAL ESTATE DEVELOPMENT
Bishop, a wholly-owned subsidiary of the Company, has an 81% interest,
as general partner, in a limited partnership which owns approximately 55
acres of undeveloped real estate in Colorado Springs, Colorado. The property
which is bounded by major east/west and north/south arterials is zoned for
most commercial and retail uses along with office complexes. Bishop is in the
preliminary planning stages relative to the proposed program of development
of such property. Accordingly, the estimated costs for surveying, designing
and platting the property is unavailable. These initial costs are expected
to be internally financed. When a proposed plat is submitted to the local
authorities for approval and appropriate permits, Bishop may be required to
post a letter of credit or expend funds for certain improvements to a
drainage channel which borders the western boundary of the property. The
estimated costs for such improvements are not known at this time.
Bishop is currently negotiating with a prospective purchaser for a small
retail pad site. In addition, Bishop has had preliminary discussions with
another developer relating to a joint venture for an apartment complex.
The property is subject to competitive conditions relating to market
demand, interest rates, credit availability and the strength of the economy
in general.
Bishop also has a 19% limited partnership interest in another
partnership which constructed a recreational facility encompassing a golf
driving range, miniature golf and baseball/softball batting cages on 35 acres
contiguous to the 55 acres owned by the previously discussed partnership. The
facility commenced operations in July 1994 and Bishop's share of earnings or
losses is reflected in the consolidated financial statements. Bishop is not a
guarantor of any debt in this partnership.
There have been no sales of real estate and operating costs and expenses
have been immaterial for the years ended March 31, 1995 and 1994.
Item 3. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings involving a
claim for damages which amount exceeds 10% of the current assets of the
Company and its subsidiaries on a consolidated basis and no such proceedings
are known to be contemplated.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year ended March 31, 1995.
6
<PAGE>
PART II
Item 5. MARKET FOR THE COMPANY'S STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded in the over-the-counter market and
is quoted on the NASDAQ SmallCap Market System under the symbol "METO." The
following table shows the high and low bids for the common stock of the
Company for the periods indicated as furnished by NASDAQ. The quotations
represent prices between dealers and do not include retail mark-up, markdown,
or commission and may not reflect actual transactions.
<TABLE>
<CAPTION>
QUARTER ENDED HIGH BID LOW BID
------------- -------- -------
<S> <C> <C>
03/31/93 $1.12 $1.12
06/30/93 1.12 1.12
09/30/93 1.75 1.12
12/31/93 1.62 1.25
03/31/94 1.25 1.12
06/30/94 1.00 .94
09/30/94 .75 .63
12/31/94 1.69 .82
03/31/95 1.12 .75
</TABLE>
As of June 20, 1995, there were approximately 2,100 holders of record of
the Company's common stock (which amount does not include the number of
shareholders whose shares are held of record by brokerage houses).
The Company has paid no dividends on its common stock and does not
intend to pay cash dividends in the foreseeable future. Payment of cash
dividends, if any, in the future will be determined by the Company's Board of
Directors in light of the Company's earnings, financial condition and other
relevant considerations.
7
<PAGE>
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's Consolidated Financial Statements and Notes thereto.
RESULTS OF OPERATIONS
The Company's net loss for the fiscal year ended March 31, 1995 was
$556,953 compared to a net loss of $412,066 for fiscal year 1994. The
increase in the net loss can be attributable to a number of factors including
lower oil revenues, higher oil production costs, lower interest and dividend
income and realized net losses on the sale of marketable securities. In
addition, the Company recorded its share of losses in a partnership which
owns a recreational facility.
The availability of a ready market for oil and gas depends upon numerous
factors beyond the Company's control, including the production of crude oil
and gas by others, crude oil imports and the marketing of competitive fuels.
No prediction can be made as to what price the Company will receive for its
oil and gas production in the future.
The Company adopted, effective March 31, 1994, the provisions of SFAS
No. 115, "Accounting for Certain Investments in Debt and Equity Securities,"
which requires that investments in equity securities that have readily
determinable fair values and all investments in debt securities be classified
into three categories based on management's intent. Such investments are to
be reported at fair value except for investments intended to be held to
maturity which are to be reported at amortized cost. Previously, all such
investments were accounted for at the lower of cost or market. All of the
Company's marketable securities are categorized as available-for-sale under
the new Standard and reported at fair value with net unrealized holding gain
(loss) reflected as a separate component of stockholders' equity. The change
in the net unrealized holding gain in fiscal 1995 was a decrease of $43,905.
FISCAL 1995 COMPARED TO FISCAL 1994
The Company's oil and gas sales decreased by approximately 10% in fiscal
1995. Although the Company's gas sales increased by 17%, oil sales decreased
by 32% due to lower production volumes. The production volumes and average
sales prices for the two years ended March 31, 1995 were as follows:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Oil and condensate (barrels) 3,040 4,705
Average sales price (per barrel) $ 15.91 $ 15.03
Natural gas (mcf) 39,383 27,683
Average sales price (per mcf) $ 1.72 $ 1.91
</TABLE>
Average oil production costs per barrel were $21.24 in fiscal 1995 and
$8.43 in fiscal 1994. Workover and maintenance costs increased in fiscal 1995
to $13.65 per barrel compared to $3.22 per barrel in fiscal 1994. The field
which has been producing for approximately 34 years may
8
<PAGE>
require additional workover expenditures in future years. The Company's
natural gas royalty interests did not incur any production costs other than
severance and ad valorem taxes.
Operating expenses increased approximately $11,600 or 2% due primarily
to compensation expense recorded in connection with the issuance of shares to
employees from the Company's Stock Bonus Plan.
Abandoned lease expense increased over the prior year due to
management's decision to let certain Nevada leases expire without renewal.
The Company also assigned certain Nevada leases to an unrelated third-party
and received reimbursement of the lease rentals plus a 3.5% overriding
royalty.
Depreciation and amortization remained comparable between the two fiscal
years.
Dividend and interest income decreased approximately $52,000 or 36% in
fiscal 1995 due to the sale of marketable securities (U. S. Treasury and
preferred securities).
The equity in partnership losses represents the Company's share of
losses in a recreational facility limited partnership which began operations
in July 1994.
FISCAL 1994 COMPARED TO FISCAL 1993
The Company's oil and gas sales decreased approximately 15% in fiscal
1994. This decrease resulted from lower oil production volumes and average
oil sales prices. The decrease in oil sales of approximately $36,000 was
partially offset by a $13,600 increase in natural gas sales. The production
volumes and average sales prices for the two years ended March 31, 1994 were
as follows:
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Oil and condensate (barrels) 4,705 5,606
Average sales price (per barrel) $ 15.03 $ 19.05
Natural gas (mcf) 27,683 26,522
Average sales price (per mcf) $ 1.91 $ 1.67
</TABLE>
Average oil production costs per barrel were $8.43 in fiscal 1994 and
$10.66 in fiscal 1993. The average oil production cost per barrel decreased
in fiscal 1994 due to a reduction in personnel costs of approximately $2.08
per barrel. Workover and maintenance costs, however, increased in fiscal 1994
to $3.22 per barrel compared to $2.55 per barrel in fiscal 1993.
Operating expenses increased approximately $19,000 or 4% due to
consulting expenditures in connection with the evaluation of various
investment opportunities.
Depreciation and amortization remained comparable between the two fiscal
years.
Dividend and interest income decreased approximately $19,000 or 12% due
to the sale of marketable securities and decreased yields on fixed income
securities.
9
<PAGE>
FINANCIAL CONDITION
The following summary table reflects comparative cash flows for the
Company for the fiscal years ended March 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Net cash (used in) operating activities (307,927) (236,348)
Net cash provided by (used in)
investing activities 439,253 (4,891)
Net cash (used in) financing activities (46,479) (14,970)
</TABLE>
Net cash (used in) operating activities in fiscal years 1995 and 1994
consists of the Company's net loss adjusted for changes in operating assets
and liabilities and non-cash items.
Net cash provided by investing activities of $439,000 in fiscal 1995
resulted primarily from net cash proceeds of $461,000 from the sale and
purchase of marketable securities and net cash proceeds of $1,000 from notes
receivable offset by net capital expenditures of $23,000. Net cash (used
in) investing activities of $(4,900) in fiscal 1994 resulted primarily from
the purchase of land for $258,000 in Colorado Springs, Colorado and the
investment of $350,000 in a limited partnership which developed a
recreational facility in Colorado Springs, Colorado. The Company also
invested $25,000 in a cable television project. These expenditures were
funded by proceeds from borrowings reflected in financing activities. The
Company utilized net cash proceeds of $625,000 from the sale and purchase of
marketable securities and $4,000 of net cash proceeds from notes receivable
for principal payments on the borrowings.
Net cash (used in) financing activities of $(46,000) in fiscal 1995
resulted from borrowings of $10,000 and principal payments on borrowings of
$10,000. The Company also repurchased 50,707 shares of its common stock for
$46,000. Net cash (used in) financing activities of $(15,000) in fiscal 1994
resulted from borrowings of $589,000 and principal payments on borrowings of
$589,000 and the repurchase of 11,900 shares of its common stock for $15,000.
The Company's material commitments for capital expenditures in the next
fiscal year will be in conjunction with the development of the real estate
located in Colorado Springs, Colorado. The amount of such commitment is not
known at this time but it is expected that any expenditures will be funded by
internal sources.
The Company may make additional purchases of its common stock from time
to time. The shares repurchased are being held as treasury shares which
affords the Company greater financial flexibility to respond to business
opportunities that might arise.
In addition to its present oil, gas and real estate operations, the
Company is reviewing other business opportunities.
Management believes that the funds provided from its short-term cash
investments and marketable securities, the Company's ability to obtain
financing and the availability of the Company's common or preferred stock for
issuance will provide adequate sources of funding for any proposed future
acquisitions.
10
<PAGE>
IMPACT OF INFLATION
The Company cannot determine the precise effects of inflation. However,
the impact of general price inflation has not had a material adverse effect
on the results of the Company's operations.
Item 7. FINANCIAL STATEMENTS
Information with respect to this item appears on page F-1 of this
report. Such information is incorporated herein by reference.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
11
<PAGE>
PART III
Item 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
a. Identification of Directors and Executive Officers
The following are the directors and executive officers of
the Company at June 20, 1995:
<TABLE>
<CAPTION>
Name Age Office
---- --- ------
<S> <C> <C>
Robert E. Thrailkill 63 Chairman of the Board, President and
Chief Executive Officer
Gene E. York 70 Director
John R. Benesch 70 Secretary/Treasurer and Director
John A. Alsko 54 Vice President-Finance
</TABLE>
ROBERT E. THRAILKILL. Mr. Thrailkill has been President, Chief
Executive Officer and Director of the Company since its inception in February
1981. Mr. Thrailkill's business background spans over 32 years of management
responsiblity in privately and publicly-held companies. Mr. Thrailkill
devotes his full time to the business of the Company.
GENE E. YORK. Mr. York has been a Director of the Company since 1982.
He was Senior Vice President of Operations for the Company until his retirement
on March 31, 1989.
JOHN R. BENESCH. Mr. Benesch was appointed as Secretary/Treasurer
and a Director of the Company in April 1986. Mr. Benesch served on the Board
of Directors of a bank in Riverton, Wyoming for 22 years and also served in
various other capacities, including President, at the bank.
JOHN A. ALSKO. Mr. Alsko was employed by the Company in November 1986
and elected Vice President-Finance in February 1987. Prior to joining the
Company, he was employed in various financial positions with other privately
and publicly-held companies and public accounting firms. Mr. Alsko is a
Certified Public Accountant.
The directors of the Company are elected to hold office until the next
annual meeting of shareholders or until a successor has been elected and
qualified. Officers of the Company are elected annually by the Board of
Directors and hold office until their successors are duly elected and
qualified.
No arrangement or understanding exists between any of the above officers
and directors pursuant to which any one of those persons were selected to
such office or position. None of the directors hold directorships in other
companies.
b. Identification of Certain Significant Employees
Not applicable
12
<PAGE>
c. Family Relationships
Not applicable
d. Involvement in Certain Legal Proceedings
Not applicable
e. Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors, and persons who own more than 10%
of the outstanding common stock of the Company to file reports of ownership
and changes in ownership with the SEC and NASDAQ. Based solely on its review
of the copies of such reports received by it, or written representations
from certain reporting persons that no Forms 5 were required for those
persons, the Company believes that during fiscal 1995, its executive
officers, directors and greater than ten percent stockholders complied with
all applicable filing requirements, except as follows: Robert E. Thrailkill
(failed to file on a timely basis five reports relating to five
transactions); Gene E. York (failed to file on a timely basis six reports
relating to six transactions); John R. Benesch (failed to file on a timely
basis three reports relating to three transactions), and John A. Alsko
(failed to file on a timely basis two reports relating to two transactions).
Delinquent reports were all filed within the past fiscal year, and, to the
best knowledge of the Company, all of its officers and directors are
currently in compliance with the filing requirements.
Item 10. EXECUTIVE COMPENSATION
a. Summary Compensation Table
The following table sets forth the compensation received by the Chief
Executive Officer for the years ended March 31, 1995, 1994 and 1993. No other
executive officer had total annual salary and bonus exceeding $100,000 for
the year ended March 31, 1995.
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation Awards
------------------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Name and Principal Other Annual Restricted Options
Position Year Salary Bonus Compensation Stock Award ($) SARS (#)
- ------------------ ---- ------ ----- ------------ --------------- --------
Robert E. Thrailkill 1995 $145,000 $ -- $ -- $15,500 (1) 50,000 (2)
President, Chief 1994 145,000 3,000 -- -- --
Executive Officer 1993 120,000 -- -- -- --
and Director
</TABLE>
_______________
(1) Consists of 25,000 shares allocated and issued from the 1987 Stock
Bonus Plan with a fair market value of $.62 per share on the award
date.
(2) Consists of securities underlying options exercisable on date of
grant (September 6, 1994) at a per share exercise price of $.68 and
expires five years thereafter.
The columns for "Long-Term Incentive Plan Payouts" and "All Other Compensation"
were omitted from the Summary Compensation Table since there was no information
reportable for the years ended March 31, 1995, 1994 and 1993.
13
<PAGE>
b. Option/SAR Grants Table
The following table provides information with respect to the grant of
stock options pursuant to the Company's 1992 Stock Option Plan to the Chief
Executive Officer in fiscal 1995. The Company does not have any outstanding
Stock Appreciation Rights ("SARs").
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Number of % of Total Annual rates of Stock
Securities Options Exercise Price Appreciation for
Underlying Granted to or Base Option Term (1)
Options Employees Price Expiration -----------------------
Name Granted (#) in Fiscal 1995 ($/Share) Date 5% 10%
- -------------------- ---------- -------------- --------- --------- --- ----
<S> <C> <C> <C> <C> <C> <C>
Robert E. Thrailkill 50,000 62.5% $ .68(2) 9/06/99 $ 9,394 $20,755
</TABLE>
_______________
(1) The dollar amounts under these columns represent the potential
realizable value of the grant of option assuming that the market
price of the Company's common stock appreciates in value from the
date of grant at the 5% and 10% annual rates prescribed by the SEC
and therefore are not intended to forecast possible future apprecia-
tion, if any, of the price of the Company's common stock.
(2) The exercise price is the fair market value of the stock on the date
of grant.
c. Aggregated Option Exercise and Fiscal Year-End Option Value Table
There were no exercise of stock options by the Chief Executive Officer
in fiscal 1995. The following table shows the number of shares covered by
both exercisable and non-exercisable stock options as of March 31, 1995 and
their values at such date. There are no SARs outstanding at March 31, 1995.
<TABLE>
<CAPTION>
Number of Securities Value of
Underlying Unexercised Unexercised In-The-Money
Options at FY-End(#) Options at FY-End ($)(1)
--------------------------- ---------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- -------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert E. Thrailkill 86,000 9,000 $16,000 --
</TABLE>
_______________
(1) On March 31, 1995, the last reported bid price of the Common Stock as
quoted on NASDAQ was $1.00 per share. Value is calculated on the
basis of the difference between the option price and $1.00 multiplied
by the number of shares of Common Stock granted at that option price.
The option price for the options granted in fiscal 1995 is $.68 per
share and the option price for the options granted in fiscal 1992 is
$1.44 per share. At March 31, 1995, the last reported bid price was
lower than the option price for the options granted in fiscal 1992
and, therefore, no value is ascribed to those options in the above
table.
d. Compensation of Directors
During fiscal 1995, the Company paid John R. Benesch and Gene E. York
each $3,600 for services as directors. All directors are reimbursed for their
travel expenses in connection with meetings. There are no other arrangements
whereby any of the Company's directors received compensation for services as
a director during fiscal 1995 in addition to or in lieu of the amounts stated
above.
14
<PAGE>
e. Employment Contracts and Termination of Employment and
Change-in-Control Arrangements.
In September 1993, the Company renegotiated, effective as of January 1,
1993, the Executive Employment Agreement with Robert E. Thrailkill, the
Company's President. The Agreement is for a five year term and is renewable
from year to year thereafter unless terminated prior by either party. Under
the Agreement, Mr. Thrailkill is paid an annual salary of $145,000, which
salary may be increased by the Board of Directors from time to time in
accordance with normal business practices of the Company; his expenses are
reimbursed in accordance with the Company's policies and procedures; he
continues to receive previously established employee benefits and he is
entitled to participate in any future benefit made available by the Company
to its executives. The Agreement terminates upon death or disability and may
be terminated by the Company for cause (as defined in the Agreement). The
Agreement may also be terminated upon a breach of the Agreement, and in the
event there is a change in control of the Company (as defined in the
Agreement). If the Agreement is terminated because of a breach of the
Agreement by the Company or a change in control, the Company shall pay
severance pay equal to the product of (a) the annual salary rate in effect
multiplied by (b) the greater of the number of years (including partial
years) remaining in the term of employment or the number three. The Agreement
provides that upon death, the Company shall pay half of the annual salary;
upon disability, the Company shall pay salary for the balance of the term of
the Agreement (less amounts paid by insurance) or until the executive becomes
gainfully employed, whichever is sooner; and, upon termination for cause, the
Company shall pay any salary due up to the termination date.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
a. Security Ownership of Certain Beneficial Owners
The following table shows, as of June 20, 1995, those persons known by
the Company to be the beneficial owners of more than 5% of the Company's
Common Stock ($.01 par value).
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of of Beneficial Percent
Beneficial Owner Ownership of Class
- -------------------- ----------------- --------
<S> <C> <C>
Robert E. Thrailkill 405,880 (1) 23.6%
716 College View Dr.
Riverton, WY 82501
John A. Alsko 93,250 (2) 5.4
716 College View Dr.
Riverton, WY 82501
</TABLE>
_______________
(1) Includes options to acquire 86,000 shares. (See Item 10(c) for
additional information.)
(2) Includes options granted in September 1994 to acquire 15,000 shares
at an exercise price per share of $.62 and options granted in August 1991
to acquire 20,000 shares at an exercise price per share of $1.31.
15
<PAGE>
b. Security Ownership of Management
The following table shows, as of June 20, 1995, management's ownership
of the Company's Common Stock ($.01 par value).
<TABLE>
<CAPTION>
Amount and Nature
Name of of Beneficial Percent
Beneficial Owner Ownership of Class
- ----------------- ------------------ --------
<S> <C> <C>
Robert E. Thrailkill 405,880(1) 23.6%
John R. Benesch 11,720 .7
Gene E. York 10,013 .6
All officers and directors
as a group (four persons) 520,863(2) 30.3%
</TABLE>
_________________
(1) Includes options to acquire 86,000 shares. (See Item 10(c) for
additional information.)
(2) Includes options to acquire 35,000 shares by an officer. (See
footnote (2) to the table under Item 11(a) above.)
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
a. Certain Relationships
There were no transactions during the last two fiscal years, or proposed
transactions, in which the Company was or is to be a party with any director,
executive officer or any member of the immediate family of any director or
executive officer having a direct or indirect material interest of more than
10% in any business or professional entity involved in such transactions.
b. Indebtedness of Management
No officer or director of the Company has been indebted to the Company
directly or indirectly during fiscal year 1995 in an amount exceeding $60,000.
c. Transactions with Parent of Issuer
Not applicable
d. Transactions with Promoters
Not applicable
16
<PAGE>
PART IV
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
3.1 Articles of Incorporation and Bylaws (incorporated by reference
to Exhibits 2.1 and 2.2 of the Registrant's Form S-18
Registration Statement, Registration No. 2-72736-1) filed
June 11, 1981. (1)
3.2 Articles of Incorporation and Bylaws for Metro Capital
Corporation (formerly Metro Cable Corporation) reincorporated
in Wyoming from Colorado effective March 31, 1992 (incorporated
by reference to Exhibit 3.2 to Registrant's Form 10-K for the
year ended March 31, 1992, File No. 0-10006). (1)
10.4 1987 Stock Bonus Plan dated December 17, 1987 (incorporated by
reference to Exhibit 10.4 to Registrant's Form 10-K for the year
ended March 31, 1989, File No. 0-10006). (1)
10.5 Executive Employment Agreement dated January 1, 1993, between the
Registrant and Robert E. Thrailkill (incorporated by reference
to Exhibit 10.5 to Registrant's Form 10-KSB for the year ended
March 31, 1994, File No. 0-10006). (1)
22 Subsidiaries of the Registrant (incorporated by reference to
Exhibit 22 to Registrant's Form 10-KSB for the year ended
March 31, 1994, File No. 0-10006). (1)
_______________
(1) Not filed herewith. In accordance with Rule 12B-32 of the General
Rules and Regulations under the Securities Exchange Act of 1934,
reference is made to a document previously filed with the
Commission.
b. Reports on Form 8-K
None
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
METRO CAPITAL CORPORATION
(Registrant)
Date: June 20, 1995 By: /s/ Robert E. Thrailkill
-----------------------------------
Robert E. Thrailkill
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Date: June 20, 1995 /s/ Robert E. Thrailkill
--------------------------------------
Robert E. Thrailkill
Chairman of the Board of Directors
(Principal Executive Officer)
Date: June 20, 1995 /s/ John R. Benesch
--------------------------------------
John R. Benesch
Director, Secretary/Treasurer
Date: June 20, 1995 /s/ Gene E. York
--------------------------------------
Gene E. York
Director
Date: June 20, 1995 /s/ John A. Alsko
--------------------------------------
John A. Alsko
Vice President-Finance
(Principal Financial and Accounting
Officer)
18
<PAGE>
METRO CAPITAL CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITOR'S REPORT . . . . . . . . . . . . . . . . . . . . . . . F-2
CONSOLIDATED BALANCE SHEET - March 31, 1995. . . . . . . . . . . . . . . . F-3
CONSOLIDATED STATEMENTS OF OPERATIONS - For the Years Ended March 31,
1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - For the
Period from April 1, 1993 through March 31, 1995 . . . . . . . . . . . . F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS - For the Years Ended March 31,
1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
NOTES TO FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and
Board of Directors
Metro Capital Corporation
We have audited the accompanying consolidated balance sheet of Metro Capital
Corporation and subsidiaries as of March 31, 1995, and the related
consolidated statements of operations, changes in stockholders' equity and
cash flows for the years ended March 31, 1995 and 1994. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Metro
Capital Corporation and subsidiaries as of March 31, 1995, and the results of
their operations and their cash flows for the years ended March 31, 1995 and
1994, in conformity with generally accepted accounting principles.
HEIN + ASSOCIATES LLP
May 26, 1995
Denver, Colorado
F-2
<PAGE>
METRO CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1995
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 125,234
Marketable securities 1,713,919
Accounts receivable, with no allowance for doubtful accounts:
Trade 13,054
Interest and other receivables 21,261
----------
34,315
Notes receivable 5,997
Prepaid expenses 16,277
----------
Total current assets 1,895,742
PROPERTY AND EQUIPMENT:
Gas royalty interests 1,067,051
Land and building 496,999
Oil properties 219,890
Furniture and fixtures 63,969
Vehicles and equipment 44,815
----------
1,892,724
Less accumulated depreciation and amortization (741,673)
----------
1,151,051
----------
INVESTMENTS 333,718
NOTES RECEIVABLE 105,300
OTHER ASSETS, net 2,050
----------
TOTAL ASSETS $3,487,861
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES -
Accounts payable and accrued expenses $ 52,771
CONTINGENCY AND COMMITMENT (Note 9)
STOCKHOLDERS' EQUITY:
Preferred stock, $.50 par value; 3,000,000 shares
authorized, no shares issued -
Common stock, $.01 par value; 6,000,000 shares
authorized; 2,700,689 shares issued 27,007
Capital in excess of par value 3,030,711
Unrealized holding gain 528,936
Retained earnings 1,584,498
Less: Treasury stock, at cost, 1,101,234 shares (1,736,062)
----------
Total stockholders' equity 3,435,090
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,487,861
==========
</TABLE>
See accompanying notes to these consolidated financial statements.
F-3
<PAGE>
METRO CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
MARCH 31,
--------------------------
1995 1994
---------- ----------
<S> <C> <C>
REVENUES:
Gas royalty revenue $ 68,176 $ 58,361
Oil sales 47,812 70,383
Well overhead fees 4,941 5,775
---------- ----------
120,929 134,519
COSTS AND EXPENSES:
Oil production costs 73,369 44,439
Operating expenses 488,254 476,636
Depreciation and amortization 164,041 168,856
Abandoned leases 13,576 9,821
---------- ----------
739,240 699,752
---------- ----------
LOSS FROM OPERATIONS (618,311) (565,233)
OTHER CREDITS (CHARGES):
Interest income 62,020 95,949
Dividend income 29,229 46,869
Rental income 18,692 20,820
(Loss) gain on sale of marketable securities (3,222) 33,068
Income tax expense - (35,626)
Equity in partnership loss (41,282) -
Other (4,079) (7,913)
---------- ----------
61,358 153,167
---------- ----------
NET LOSS $ (556,953) $ (412,066)
========== ==========
NET LOSS PER COMMON SHARE $ (.35) $ (.26)
========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 1,601,763 1,614,054
========== ==========
</TABLE>
See accompanying notes to these consolidated financial statements.
F-4
<PAGE>
METRO CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM APRIL 1, 1993 THROUGH MARCH 31, 1995
<TABLE>
<CAPTION>
Common Shares Treasury Stock
-------------------- Capital in Unrealized ------------------------
Number of Par Excess of Holding Retained Number of
Shares Value Par Value Gain Earnings Shares Amount Total
--------- ------- ---------- --------- ---------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, April 1, 1993 2,660,689 $26,607 $3,006,311 $ - $2,553,517 1,038,627 $(1,674,613) $3,911,822
Unrealized holding gain - - - 572,841 - - - 572,841
Purchase of treasury stock - - - - - 11,900 (14,970) (14,970)
Net loss for the year - - - - (412,066) - - (412,066)
--------- ------- ---------- -------- ---------- --------- ----------- ----------
BALANCES, March 31, 1994 2,660,689 26,607 3,006,311 572,841 2,141,451 1,050,527 (1,689,583) 4,057,627
Unrealized holding loss - - - (43,905) - - - (43,905)
Stock bonus 40,000 400 24,400 - - - - 24,800
Purchase of treasury stock - - - - - 50,707 (46,479) (46,479)
Net loss for the year - - - - (556,953) - - (556,953)
--------- ------- ---------- -------- ---------- --------- ----------- ----------
BALANCES, March 31, 1995 2,700,689 $27,007 $3,030,711 $528,936 $1,584,498 1,101,234 $(1,736,062) $3,435,090
========= ======= ========== ======== ========== ========= =========== ==========
</TABLE>
See accompanying notes to these consolidated financial statements.
F-5
<PAGE>
METRO CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
MARCH 31,
------------------------
1995 1994
---------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(556,953) $ (412,066)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 164,041 168,856
Stock bonus compensation 24,800 -
Equity in partnership losses 41,282 -
Abandoned leases 13,576 5,505
Loss (gain) on sale of marketable securities 3,222 (33,068)
Gain on sale of property and equipment (917) -
Changes in operating assets and liabilities:
(Increase) decrease in:
Trade receivables (5,732) 5,878
Interest and other receivables 15,239 1,348
Prepaid expenses 2,432 510
Other assets - (3,029)
Increase (decrease) in -
Accounts payable and accrued expenses (8,917) 29,718
--------- -----------
Net cash used in operating activities (307,927) (236,348)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (335,830) (1,710,781)
Proceeds from sale of marketable securities 797,108 2,335,486
Funds advanced under notes receivable (7,000) (70,365)
Proceeds from notes receivable 8,104 74,259
Investments in real estate and CATV projects - (375,000)
Proceeds from sale of property and equipment 2,000 -
Purchase of property and equipment (25,129) (258,490)
--------- -----------
Net cash provided by (used in) investing
activities 439,253 (4,891)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 10,000 588,831
Principal payments on borrowings (10,000) (588,831)
Treasury stock acquired (46,479) (14,970)
--------- -----------
Net cash (used in) financing activities (46,479) (14,970)
--------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 84,847 (256,209)
CASH AND CASH EQUIVALENTS, beginning of year 40,387 296,596
--------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 125,234 $ 40,387
========= ===========
SUPPLEMENTAL INFORMATION:
Cash paid for interest $ - $ 6,957
========= ===========
Non-cash equipment purchases $ 13,500 $ 747
========= ===========
</TABLE>
See accompanying notes to these consolidated financial statements.
F-6
<PAGE>
METRO CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL:
COMPANY ORGANIZATION AND DESCRIPTION OF ACTIVITIES - Metro Capital
Corporation (the Company) operated cable television (CATV) systems in
non-urban areas. In fiscal 1989, the Company sold its remaining cable
television operations and subsequently acquired oil and gas properties and
real estate for development. The Company is presently seeking business
acquisitions. In May 1988, the Company formed Metro Minerals Corporation
(MMC), a wholly-owned subsidiary, which operates a limited number of oil
wells. The Company has three additional wholly-owned subsidiaries,
Bishop Cable Communications Corp. (Bishop), MCC Cablevision, Inc. (MCCC)
and Charter American Corporation (CAC), and holds general partnership
interests of 81% in Bishop Powers, Ltd., and 80% in Bridger Creek
partnership.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of the Company and its majority-owned subsidiaries
and partnerships. All significant intercompany accounts and transactions
have been eliminated.
PROPERTY, EQUIPMENT AND DEPRECIATION - Property and equipment are stated
at cost. Depreciation, for financial statement purposes, is being
provided by the straight-line method over estimated useful lives of three
to thirty-one years.
Maintenance and repairs are charged to expense as incurred, and
expenditures for major improvements are capitalized. When assets are
retired or otherwise disposed of, the property accounts are relieved of
costs and accumulated depreciation.
OIL PROPERTIES - The Company follows the "successful efforts" method of
accounting for costs incurred in the acquisition, exploration and
development of oil properties. Under this method, geological and
geophysical costs, annual delay rentals on undeveloped leases and
exploratory dry hole costs are charged to expense as incurred.
Intangible drilling and development costs are capitalized on successful
wells and developmental dry holes. Property acquisition costs, which
were not material for the years ended March 31, 1995 and 1994, are
capitalized as incurred and are charged to expense when abandoned.
All of the Company's oil sales are made to one customer.
Depreciation and depletion are provided on the units-of-production method
based on the estimated proved oil reserves, computed on a
property-by-property basis.
In March 1995, the Financial Accounting Standards Board issued statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment
of Long-Lived Assets." During the fiscal year ended March 31, 1995, the
Company adopted SFAS No. 121, which requires the Company to compare the
net carrying value of proved oil and gas properties on a field-by-field
basis to the related estimates
F-7
<PAGE>
METRO CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of undiscounted future cash flows for such properties. If the net
carrying value exceeds the cash flows, then impairment is recognized to
reduce the carrying value to the estimated fair value. The change in the
Company's accounting policy for impairment of long-lived assets had no
effect on the Company's financial statements.
Unproved properties are assessed periodically for impairment on a
property-by-property basis. Proceeds from sales of interests in unproved
oil and gas properties in which the Company retains an economic interest
are credited against property costs. Gains on sales of interests in
unproved properties are recognized when property costs are fully
recovered and the Company has no substantial commitments for future
performance.
Estimated abandonment costs (including estimated plugging, site
restoration, and dismantlement expenditures) are accrued if the estimated
costs exceed estimated salvage values, as determined using current market
values and other information. Abandonment costs are estimated based
primarily on environmental and regulatory requirements in effect from
time to time. As of March 31, 1995, management's estimated salvage
values equaled or exceeded management's estimated abandonment costs.
GAS ROYALTY INTERESTS - The Company amortizes gas royalty interests on a
straight-line basis over eight years.
CASH EQUIVALENTS - The Company considers highly liquid temporary
investments with an original maturity of three months or less to be cash
equivalents.
MARKETABLE SECURITIES - Marketable securities are provided for in
accordance with Statement of Financial Accounting Standard (SFAS) No. 115
"Accounting for Certain Investments in Debt and Equity Securities."
Pursuant to SFAS No. 115, the Company's securities are classified as
available-for-sale based on management's intent. Investment securities
classified as available-for-sale are stated at market value, with
unrealized gains and losses, net of applicable income taxes, reported as a
separate component of stockholders' equity. If the decline in market
value of a security is determined to be other than temporary, the loss in
value is charged to earnings. Realized gains or losses are determined on
a specific identification method.
INVESTMENTS - The Company's 19% ownership in a partnership (Z-H, LTD.) is
stated at cost, adjusted for its equity in undistributed earnings since
acquisition.
The Company has another investment in a CATV project, which is accounted
for at cost, which approximates fair market value.
INCOME TAXES - Income taxes are provided for in accordance with SFAS No.
109, "Accounting for Income Taxes." SFAS No. 109 requires an asset and
liability approach in the recognition of deferred tax liabilities and
assets for the expected future tax consequences of temporary differences
between the carrying amounts and the tax bases of the Company's assets
and liabilities.
F-8
<PAGE>
METRO CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INVESTMENT TAX CREDITS - The Company accounts for investment tax credits
as a reduction of income tax expense in the year the tax benefit is
realized (flow-through method).
LOSS PER SHARE - The computations of loss per share are based on the
weighted average number of outstanding common shares during each fiscal
period. Common stock options outstanding were not included in the
computation for the years ended March 31, 1995 and 1994 since their effect
is anti-dilutive.
RECLASSIFICATIONS - Certain reclassifications have been made to the 1994
financial statements to conform to the presentation in 1995. The
reclassifications had no effect on the 1994 net loss.
3. MARKETABLE SECURITIES:
The cost and estimated fair market value of available-for-sale securities
at March 31, 1995 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED FAIR
HOLDING HOLDING MARKET
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 718,457 $ 3,745 $(20,856) $ 701,346
Redeemable preferred securities 136,955 10,500 (455) 147,000
Equity securities 329,571 566,364 (30,362) 865,573
---------- -------- -------- ----------
$1,184,983 $580,609 $(51,673) $1,713,919
========== ======== ======== ==========
</TABLE>
The net unrealized holding gain on available-for-sale securities included
as a separate component of stockholders' equity decreased by $43,905 for
the year ended March 31, 1995.
The cost and estimated fair market value of available-for-sale securities
with contractual maturities (U.S. Treasury and redeemable preferred) at
March 31, 1995, by contractual maturity periods, were as follows:
<TABLE>
<CAPTION>
FAIR
MARKET
COST VALUE
-------- --------
<S> <C> <C>
Due in one year or less $202,177 $201,796
Due after one year through five years 339,601 340,374
Due after five years through ten years 90,953 91,156
Due after ten years 222,681 215,020
-------- --------
$855,412 $848,346
======== ========
</TABLE>
F-9
<PAGE>
METRO CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash proceeds from the sale of available-for-sale securities during the
years ended March 31, 1995 and 1994 were $797,108 and $2,335,486,
respectively. Net losses from available-for-sale securities sold in the
year ended March 31, 1995 amounted to $3,222 (gross gains of $23,638 and
gross losses of $26,860). Net gains from securities sold in the year
ended March 31, 1994 were $33,068 (gross gains of $66,494 and gross losses
of $33,426).
4. GAS ROYALTY INTERESTS:
In December 1990, the Company purchased a royalty interest in certain gas
properties for approximately $1,067,000. Reserves relating to the gas
royalty interest owned are not included because the information is
unavailable. In connection with the purchase, the Company formed a tax
partnership, which allocates to the Company the first $40,000 of annual
net income from the partnership and 80% of annual net income in excess of
$40,000. After the Company has received cumulative net income of
$1,050,000, plus interest at prime adjusted semi-annually, the Company
will receive 60% of the annual net income in the partnership.
5. PARTNERSHIPS:
In October 1993, Bishop became the general partner of a limited
partnership to develop or sell 55 acres of undeveloped real estate.
Bishop contributed $250,000 cash for its 81% general partnership interest.
The remaining 19% interest is held by the limited partner who is the
general partner in the partnership described below. Bishop will be
allocated 100% of the income and losses until it has been paid $600,000
plus interest at 8% per annum (not to exceed $100,000) after which the
allocation will be apportioned according to ownership.
Bishop also became a limited partner in a limited partnership, which
purchased approximately 35 acres of undeveloped land adjacent to the land
mentioned above. The partnership constructed a golf driving range,
miniature golf, and batting facility which was completed in July 1994.
Bishop contributed $350,000 cash for its 19% partnership interest, which
is reported on the equity method of accounting.
6. PREFERRED STOCK:
The Company has authorized 3,000,000 shares of preferred stock. The Board
of Directors has the authority to issue preferred shares in series and
determine the rights and preferences of the shares. As of March 31, 1995
no shares of preferred stock have been issued.
7. STOCK OPTION AND BONUS PLANS:
The Company adopted two stock option plans (the Plans) under which options
for shares of the Company's common stock have been or may be granted to
officers, employees, and non-employee
F-10
<PAGE>
METRO CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
members of the Board of Directors. Under the Plans, options granted may
be either incentive stock options or nonqualified stock options and are
granted at not less than the fair market value of the stock at the time of
grant. Exercise prices of the options outstanding at March 31, 1995
range from $.62 to $1.44. Expiration dates of these same options range
from August 1996 to September 2004. One of the Plans expired in January
1992 and no more shares can be issued from this plan. Summarized
information for the Plans is as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Shares under option, beginning of year 90,000 90,000
Granted 80,000 -
Exercised - -
Cancelled or expired - -
-------- --------
Shares under option, end of year 170,000 90,000
======== ========
Shares available for grant at end of year 70,000 150,000
======== ========
Shares exercisable at end of year 152,000 54,000
======== ========
Average price of options exercised during the year (a) - -
======== ========
Average price of options outstanding at end of Year (a) $ 1.00 $ 1.36
======== ========
</TABLE>
________________________
(a) According to the Plans, employees who own more than 10% of
Company's voting common stock can exercise their options at a price
equal to 110% of the market price at the date of the grant. This
average includes the effect of this additional 10% which relates to
86,000 and 27,000 shares exercisable at March 31, 1995 and 1994,
respectively.
In December 1987, the Company adopted the 1987 Stock Bonus Plan and
reserved 250,000 shares (200,000 of which may be allocated to officers
and/or directors) for allocation to employees. As of March 31, 1995,
125,160 shares have been awarded under this plan, of which 40,000 shares
were issued during the year ended March 31, 1995. Compensation costs
recorded in connection with the Plan were approximately $24,800 and $-0-
for the years ended March 31, 1995 and 1994, respectively.
During the year ended March 31, 1992, the Company adopted an Employee
Stock Ownership Plan (the ESOP) and reserved 250,000 shares for issuance
under the ESOP. The ESOP provides for the establishment of a trust to
hold ESOP assets which will primarily consist of common stock of the
Company. The ESOP will be funded by the Company through annual
contributions to the trust in amounts which are determined by the Board of
Directors in its sole discretion and which will be allocated to each
participant's account in proportion to the ratio that each participant's
compensation for the fiscal year bears
F-11
<PAGE>
METRO CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
to the total compensation of all participants for the fiscal year. No
contributions have been made to the ESOP for the years ended March 31,
1995 and 1994.
8. INCOME TAXES:
The items that give rise to the components of the net deferred tax asset
as of March 31, 1995, are as follows:
<TABLE>
<S> <C>
Adjusted basis differential-depletable properties $ 163,000
Partnership's activity 5,000
Net operating loss carryforward 247,000
---------
Deferred tax asset 415,000
Less allowance (415,000)
---------
Net deferred tax asset $ -
=========
</TABLE>
As of March 31, 1995, the Company has net operating loss carryforwards for
Federal income tax purposes of approximately $726,000 which expire in the
years 2009 through 2010.
9. CONTINGENCY AND COMMITMENT:
Effective January 1993, the Company entered into a five-year employment
agreement with the Company's president/chairman of the Board of Directors
which provides for minimum annual compensation of $145,000 plus employee
benefits. Upon completion of the agreement in 1997, the Company can
extend the agreement on an annual basis.
The Company is contingently liable under two irrevocable letters of credit
in the amount of $35,000 at March 31, 1995. The letters of credit are
required by certain Federal and state agencies to cover any defaults in
obligations associated with the development of oil and gas properties and
expire on November 29, 1995 and January 19, 1996.
F-12
<PAGE>
METRO CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. SEGMENT INFORMATION:
The Company's principal operations are in the oil and gas and real estate
industries. The following is selected information for 1995 and 1994
about the Company's industry segments.
<TABLE>
<CAPTION>
CORPORATE
REAL AND
OIL AND GAS ESTATE OTHER CONSOLIDATED
----------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Year ended March 31, 1995
Revenue $ 120,929 $ - $ - $ 120,929
Income (loss) from operations (104,256) (11,165) (502,890) (618,311)
Depreciation and amortization 138,240 572 25,229 164,041
Capital expenditures 1,243 17,453 6,433 25,129
Identifiable assets 695,810 274,962 2,517,089 3,487,861
Year ended March 31, 1994
Revenue $ 134,519 $ - $ - $ 134,519
Income (loss) from operations (60,321) (2,539) (502,373) (565,233)
Depreciation and amortization 140,580 286 27,990 168,856
Capital expenditures - 255,513 2,977 258,490
Identifiable assets 839,088 258,081 3,022,147 4,119,316
</TABLE>
F-13
<PAGE>
OFFICERS AND DIRECTORS TRANSFER AGENT AND REGISTRAR
ROBERT E. THRAILKILL AMERICAN SECURITIES TRANSFER, INC.
Chairman of the Board 1825 Lawrence Street, #444
President and Chief Executive Officer Denver, CO 80202
JOHN R. BENESCH STOCK LISTING
Secretary/Treasurer and
Director Metro Capital Corporation is
traded over-the-counter
JOHN A. ALSKO NASDAQ Symbol: METO
Vice President - Finance
GENE E. YORK
Director
LEGAL COUNSEL EXHIBITS TO FORM 10-KSB
BRENMAN KEY & BROMBERG, P.C. The Corporation will furnish
1775 Sherman Street, Suite 1001 to any shareholder, upon written
Denver, CO 80203 request and upon payment of copying
charges, a copy of any exhibits
AUDITORS filed with the Form 10-KSB by
writing to John A. Alsko, 716
HEIN + ASSOCIATES LLP College View Drive, Riverton, WY
717 17th Street, Suite 1600 82501.
Denver, CO 80202
METRO CAPITAL CORPORATION
716 College View Drive
Riverton, Wyoming 82501
<PAGE>
ATTACHMENT J
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarterly Period Ended June 30, 1995
[ ] Transition Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period
from to
------- -------
Commission file number 0-10006
-------
METRO CAPITAL CORPORATION
----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Wyoming 84-0839926
- ------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
716 College View Drive, Riverton, WY 82501
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(307) 856-3800
----------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
The number of shares of the Issuer's $.01 par value common stock outstanding
as of August 9, 1995 was 1,599,455.
Transitional Small Business Disclosure Format
(Check one):
Yes No X
----- -----
<PAGE>
METRO CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1995
(Unaudited)
<TABLE>
<S> <C>
Current Assets:
Cash and cash equivalents $ 35,506
Marketable securities 1,840,729
Accounts receivable, with no allowance for doubtful accounts:
Trade 16,857
Interest and other receivables 17,443
----------
34,300
Notes receivable 2,000
Prepaid expenses 12,882
----------
Total current assets 1,925,417
Property and Equipment:
Gas royalty interests 1,067,051
Land and building 498,948
Oil property 219,890
Furniture and fixtures 63,969
Vehicles and equipment 44,815
----------
1,894,673
Less accumulated depreciation and amortization (780,796)
----------
1,113,877
----------
Investments 320,703
Notes Receivable 108,482
Other Assets, net 1,893
----------
Total Assets $3,470,372
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities -
Accounts payable and accrued expenses $ 45,028
Stockholders' Equity:
Preferred stock, $.50 par value; 3,000,000 shares
authorized, no shares issued --
Common stock, $.01 par value; 6,000,000 shares
authorized; 2,700,689 issued 27,007
Capital in excess of par value 3,030,711
Unrealized holding gain 638,429
Retained earnings 1,465,259
Less: Treasury stock, at cost, 1,101,234 shares (1,736,062)
----------
Total stockholders' equity 3,425,344
----------
Total Liabilities and Stockholders' Equity $3,470,372
==========
</TABLE>
See accompanying notes to these consolidated financial statements.
<PAGE>
METRO CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended June 30,
---------------------------
1995 1994
--------- ---------
<S> <C> <C>
REVENUES:
Gas royalty revenue $ 14,987 $ 15,211
Oil sales 11,790 12,702
Other product revenue 359 --
Well overhead fees 988 1,260
--------- ---------
28,124 29,173
COSTS AND EXPENSES:
Oil and gas production costs 13,516 34,570
Operating expenses 110,214 107,351
Depreciation and amortization 39,281 41,761
Abandoned leases -- 7,627
--------- ---------
163,011 191,309
--------- ---------
LOSS FROM OPERATIONS (134,887) (162,136)
OTHER CREDITS (CHARGES):
Interest income 13,592 15,620
Dividend income 5,125 7,823
Rental income 2,535 4,935
Gain on sale of marketable securities 7,411 211
Equity in partnership losses (13,015) --
--------- ---------
15,648 28,589
--------- ---------
NET LOSS $(119,239) $(133,547)
========= =========
NET LOSS PER COMMON SHARE $ (.08) $ (.08)
========= =========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 1,599,455 1,601,685
========= =========
</TABLE>
See accompanying notes to these consolidated financial statements.
<PAGE>
METRO CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
-----------------------
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(119,239) $(133,547)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 39,281 41,761
Equity in partnership losses 13,015 --
Abandoned leases -- 7,627
Gain on sale of marketable securities (7,411) (211)
Changes in operating assets and liabilities:
(Increase) decrease in:
Trade receivables 4,404 (9,728)
Interest and other receivables (4,389) 15,737
Prepaid expenses 3,395 1,786
Increase (decrease) in -
Accounts payable and accrued expenses (7,744) 23,676
--------- ---------
Net cash (used in) operating activities (78,688) (52,899)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (121,218) (141,031)
Proceeds from sale of marketable securities 111,312 257,486
Proceeds from notes receivable 815 753
Purchase of property and equipment (1,949) (5,250)
--------- ---------
Net cash (used in) provided by investing
activities (11,040) 111,958
CASH FLOWS FROM FINANCING ACTIVITIES:
Treasury stock acquired -- (12,661)
--------- ---------
Net cash (used in) financing activities -- (12,661)
--------- ---------
Increase (decrease) in Cash and Cash Equivalents $ (89,728) $ 46,398
Cash and Cash Equivalents, beginning of period 125,234 40,387
--------- ---------
Cash and Cash Equivalents, end of period $ 35,506 $ 86,785
========= =========
</TABLE>
See accompanying notes to these consolidated financial statements.
<PAGE>
METRO CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, 1995 AND 1994
(Unaudited)
l. Basis of Presentation
The consolidated financial statements included herein are unaudited.
In the opinion of management, all adjustments, consisting of normal
recurring accruals, have been made which are necessary for a fair
presentation of the financial position of the Company at June 30,
1995 and the results of operations and cash flows for the three
month periods ended June 30, 1995 and 1994. Quarterly results are
not necessarily indicative of expected annual results because of
the impact of fluctuations in prices received for oil and natural
gas and other factors. Certain amounts have been reclassified to
conform with the current period's presentation. For a more
complete understanding of the Company's operations and financial
position, reference is made to the consolidated financial statements
of the Company, and related notes thereto, filed with the Company's
annual report on Form 10-KSB for the year ended March 31, 1995.
2. Marketable Securities
Marketable securities are classified as available-for-sale
based on management's intent. Cash proceeds and net gains
from the sale of available-for-sale securities for the three
months ended June 30, 1995 were $111,312 and
$7,411 (gross gains of $7,629 and gross losses of $218),
respectively. Cash proceeds and net gains from the sale of
available-for-sale securities for the three months ended
June 30, 1994 were $257,486 and $211 (gross gains of $2,774
and gross losses of $2,563), respectively. The net
unrealized holding gain on available-for-sale securities
included as a separate component of stockholders' equity
increased by $109,493 for the three months ended June 30,
1995.
3. Loss Per Share
The computations of loss per share are based on the weighted
average number of common shares outstanding during each period.
Common stock options outstanding were not included
in the computations since their effect is anti-dilutive.
<PAGE>
METRO CAPITAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's gas royalty revenue decreased by approximately 2% for the three
months ended June 30, 1995 over the comparable period in 1994 due primarily
to a lower average sales price. Although natural gas production increased due
to the gas processing plant commencing operations on March 30, 1995 to
process "sour gas", the average sales price for natural gas for the three
months ended June 30, 1995 was $1.29 per thousand cubic feet compared to
$1.81 for the comparable period in 1994. The Company's oil sales decreased by
approximately 7% for the three months ended June 30, 1995 over the comparable
period in 1994 due primarily to lower production levels.
The production volumes and average sales prices during the periods were as
follows:
<TABLE>
<CAPTION>
Three Months Ended
June 30,
--------------------
1995 1994
------ ------
<S> <C> <C>
Oil and condensate (barrels) 709 812
Average sales price per barrel $16.86 $15.79
Natural gas (mcf) 11,478 8,366
Average sales price per mcf $ 1.29 $ 1.81
</TABLE>
Domestic oil prices generally follow world-wide oil prices which are subject
to price fluctuations resulting from changes in world supply and demand.
Prices received for natural gas are also subject to price volatility. As a
result, no prediction can be made as to what price the Company will receive
for its oil and gas production in the future.
Average oil production cost per barrel was $12.21 for the three months ended
June 30, 1995 compared to $39.95 for the comparable period in 1994. The
average oil production cost per barrel was higher in 1994 due to workover
costs on three wells. The wells within the field may require additional
workover expenditures in future periods.
The Company's royalty interests in "sour gas" production are subject to plant
processing costs (depreciation and operating costs) and severance and ad
valorem taxes. The processing deduction attributable to an individual product
(methane, sulphur or CO2) will not exceed 90 percent of the revenue received
for that product, net of severance tax deductions. The Company and other
royalty owners are presently negotiating with the plant operator to eliminate
certain processing costs which may not be in accordance with applicable state
rules and regulations. Production from the Company's other natural gas
royalty interests ("sweet gas") do not incur any production costs other than
severance and ad valorem taxes.
<PAGE>
Operating expenses for the three months ended June 30, 1995 increased
approximately 3% over the comparable period in 1994 due to expenditures in
connection with evaluating various investment opportunities.
Depreciation and amortization decreased approximately 6% for the three months
ended June 30, 1995 over the comparable period in 1994 due to a reduction in
property and equipment.
Interest and dividend income for the three months ended June 30, 1995
decreased approximately 20% over the comparable period in 1994 due to changes
in portfolio mix and sales of marketable securities.
Rental income decreased approximately 49% for the three months ended June 30,
1995 over the comparable period in 1994 due to a lessee vacating office space
upon expiration of the lease.
The equity in partnership losses of $13,015 represents the Company's share of
operating losses for the three months ended June 30, 1995 in a golf driving
range, miniature golf and batting facility. Since the facility commenced
operations in July 1994, there were no operating results for the three months
ended June 30, 1994.
FINANCIAL CONDITION
Net cash used in operations of $78,688 for the three months ended June 30,
1995 was the result of a net loss of $119,239 plus non-cash net expenses of
$44,885 (comprised of depreciation and amortization, equity in partnership
losses and gain on sale of marketable securities) and a net decrease in
operating assets and liabilities of $4,334. Net cash used in operations of
$52,899 for the three months ended June 30, 1994 was the result of a net loss
of $133,547 plus non-cash net expenses of $49,177 (comprised of depreciation
and amortization, gain on sale of marketable securities and abandoned leases)
and a net increase in operating assets and liabilities of $31,471.
Net cash (used in) provided by investing activities by the Company was
$(11,040) and $111,958 for the three months ended June 30, 1995 and 1994,
respectively. During the three months ended June 30, 1995, the Company
utilized the net cash proceeds of $9,906 from the purchase and sale of
marketable securities for capital expenditures of $1,949 and operating
activities. During the three months ended June 30, 1994, the Company utilized
the net cash proceeds of $116,455 from the purchase and sale of marketable
securities for capital expenditures of $5,250, the purchase of treasury stock
for $12,661 and operating activities.
The Company's material commitments for capital expenditures in the next
twelve months will be in conjunction with the development of the real estate
located in Colorado. The amount of such commitment is not known at this time
but it is expected that any expenditures will be funded by internal sources.
The Company may make additional purchases of its common stock from time to
time. The shares repurchased are being held as treasury shares which affords
the Company greater financial flexibility to respond to business
opportunities that might arise.
In addition to its real estate and oil and gas operations, the Company is
reviewing other business opportunities.
<PAGE>
Management believes that the funds provided from its short-term cash
investments and marketable securities, the Company's ability to obtain
long-term financing and the availability of the Company's common or preferred
stock for issuance will provide adequate sources of funding for any proposed
future acquisitions.
<PAGE>
PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
Item 2. CHANGES IN SECURITIES
None
Item 3. DEFAULT UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit 27. Financial Data Schedule (submitted
only in electronic format)
b. Reports on Form 8-K
None
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
METRO CAPITAL CORPORATION
(Registrant)
Date: August 9, 1995 By: /s/ Robert E. Thrailkill
_________________________________
Robert E. Thrailkill
President
(Principal Executive Officer)
Date: August 9, 1995 By: /s/ John A. Alsko
________________________________
John A. Alsko
Vice President-Finance
(Principal Financial and Accounting
Officer)
