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, 1996
[ ] Transition report under section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required) for the transition period
from to
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Commission file number: 0-10006
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AMERICAN RIVERS OIL COMPANY
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(Name of small business issuer in its charter)
Wyoming 84-0839926
- - ---------------------------- ---------------
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
700 East 9th Avenue, Suite 106, Denver, CO 80203
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (303) 832-1117
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. [X]
Issuer's revenues for fiscal year ended March 31, 1996 were $180,335.
The aggregate market value of the voting stock held by non-affiliates based on
the last sale price as quoted by NASDAQ as of June 20, 1996 was $3,854,549.
The number of shares outstanding of the issuer's Common Stock as of June 20,
1996 was 2,851,770. The number of shares outstanding of the issuer's Class B
Common Stock as of June 20, 1996 was 7,267,820.
Documents incorporated by reference: None
Transitional Small Business Disclosure Format (Check one):
Yes No X
<PAGE>
PART I
Item 1. Business
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The Company
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American Rivers Oil Company (the "Company") was originally incorporated under
the laws of the State of Colorado on February 2, 1981 as Metro Cable
Corporation. On March 31, 1992, the Company reincorporated in the the State of
Wyoming and changed its name to Metro Capital Corporation. For the past six
years and until the recent consummation of the Asset Transfer described below,
the Company has been principally engaged in petroleum operations, real estate
development and seeking business opportunities.
In October 1995 the Company entered into an Asset Purchase Agreement (the
"Agreement") with Karlton Terry Oil Company ("KTOC"), a Colorado corporation,
pursuant to which KTOC transferred to the Company certain oil and gas properties
in exchange for shares of the Company's Class B Common Stock (the "Asset
Transfer"). As a result of the Asset Transfer and pursuant to the terms of the
Agreement, the Company changed its name to American Rivers Oil Company and is
now principally engaged in the oil and gas business. Additional working
interests in the oil and gas properties transferred to the Company were acquired
in December 1995 for cash and other consideration. The Company's executive
offices are located in Denver, Colorado. At March 31, 1996, the Company had
three full-time employees.
In connection with this transaction, the Company transferred to Bishop Capital
Corporation (formerly Bishop Cable Communications Corporation), its wholly-owned
subsidiary (the "Subsidiary"), all of the Company's assets except for $700,000
and its working interest in, and its operating agreement with respect to, an oil
property owned by the Company. The Subsidiary is operated autonomously by the
previous management of the Company pursuant to a five year operating agreement.
In addition to being principally engaged in real estate development, the
Subsidiary has natural gas royalty interests. The Subsidiary maintains its
corporate offices in Riverton, Wyoming. At March 31, 1996, the Subsidiary had
four full-time employees.
Operating Strategy
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The Company's objective is to increase value through sustained profitable growth
of its oil and gas reserves and production by pursuing a combined strategy of
focused acquisitions, drilling and developing the reserves underlying large
rivers and lakes in known oil and gas fields (the "River Leases") and
considering and reviewing other oil and gas opportunities which will add to the
long-term stability of the Company. The Company does not intend to conduct a
significant amount of exploratory drilling.
The Company owns several River Leases which management believes provide an
opportunity to develop oil and gas reserves in existing fields which heretofore
were not fully developed because of lack of adequate drilling technology. The
Company plans on developing these River Leases by using directional and
horizontal drilling methods, which are oil and gas developmental technologies
now in wide use.
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<PAGE>
Markets
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The three principal products currently produced and marketed by the Company are
crude oil, natural gas and natural gas liquids. The Company does not currently
use commodity futures contracts and price swaps in the marketing of its natural
gas and crude oil.
Crude oil produced from the Company's properties is generally sold by truck or
pipeline to unaffiliated third-party purchasers at the prevailing field price
(the "posted price"). Currently, the three primary purchasers of the Company's
crude oil are Farm Bureau, Total Petroleum and Scurlock Permian. Together these
three purchasers buy more than 80% of the Company's annual crude oil sales. The
market for the Company's crude oil is competitive. The Company does not believe
that the loss of one of its primary purchasers would have a material adverse
effect on the Company's business because other arrangements could be made to
market the Company's crude oil products. The Company does not anticipate
problems in selling future oil production since purchases are made based on
then-current market conditions and pricing. However, oil prices are subject to
volatility due to several factors beyond the Company's control including
political turmoil, domestic and foreign production levels, OPEC's ability to
adhere to production quotas and possible governmental control or regulation.
The Company sells its natural gas production at the wellhead to various pipeline
purchasers or natural gas marketing companies. The wellhead contracts have
various terms and conditions, including contract duration. Under each wellhead
contract the purchaser is generally responsible for gathering, transporting,
processing and selling the natural gas and natural gas liquids and the Company
receives a net price at the wellhead.
Competition
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The oil and natural gas industry is intensely competitive. The Company
encounters strong competition from other independent oil companies in acquiring
economically desirable prospects as well as in marketing production therefrom
and obtaining external financing. The Company competes with a substantial number
of other companies having larger technical staffs and greater financial and
operational resources.
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 market its oil and natural gas production. The prices of
oil and natural gas realized by the Company are highly volatile. The price of
oil is generally dependent on world supply and demand, while the price the
Company receives for its natural gas is tied to the specific markets in which
such gas is sold. Declines in crude oil prices or natural gas prices adversely
impact the Company's activities. The Company's financial position and resources
may also adversely affect the Company's competitive position. Lack of available
funds or financing alternatives will prevent the Company from executing its
operating strategy and from deriving the expected benefits therefrom. For
further information concerning the Company's financial position, see Item 6.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
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<PAGE>
Regulation
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All aspects of the oil and gas industry are extensively regulated by federal,
state and local governments in all areas in which the Company has operations.
Regulations govern such things as drilling permits, production rates,
environmental protection and pollution control, royalty rates and taxation
rates. These regulations may substantially increase the cost of doing business
and sometimes prevent or delay the start or continuation of any given
exploration or development project.
Regulations are subject to future changes by legislative and administrative
action and by judicial decisions, which may adversely affect the petroleum
industry. In the past few years legislation has been adopted that increases the
authority granted to the Oil and Gas Conservation Commission to issue
regulations pertaining to surface damages, health and safety matters and
environmental issues. Additionally, certain municipalities have either proposed
or adopted regulations that affect oil and gas operations within their city
limits. At the present time, it is impossible to predict what effect current and
future proposals or changes in existing laws or regulations will have on the
Company's operations, estimates of oil and natural gas reserves, or future
revenues.
The Company believes that its operations comply with all applicable legislation
and regulations in all material respects, and that the existence of such
regulations has had no more restrictive effect on the Company's method of
operations than other similar companies in the industry. Although the Company
does not believe its business operations presently impair environmental quality,
compliance with federal, state and local regulations which have been enacted or
adopted regulating the discharge of materials into the environment could have an
adverse effect upon the capital expenditures, earnings and competitive position
of the Company, the extent of which the Company now is unable to assess. Since
inception, the Company has not made any material capital expenditures for
environmental control facilities and is not currently aware of any need to make
any such expenditures in the future.
Regulation of Production. In most areas which the Company may conduct activities
in the United States, there may be statutory provisions regulating the
production of oil and natural gas, and under which state administrative agencies
may promulgate rules in connection with the operation of both oil and gas,
and/or establish allowable rates of production. For wells in which the Company
owns an interest, such rules may restrict the oil and gas production rate to
below the rate such wells could be produced in the absence of such regulations.
Environmental Regulations. Operations of the Company are subject to numerous
laws and regulations governing the discharge of materials into the environment
or otherwise relating to environmental protection. The reservoir and the bottom
hole locations of the wellbores are deep enough and far enough under the river
(a 4" to 9" diameter hole at depths between 1,500 and 8,000 feet deep) that they
will have no effect on the river or the river bottom. The Company's surface
location will be no closer to the river that the vertical wells which have
heretofore been drilled, and therefore the Company has no increased liability,
regulation, or obligation over vertical wells which have locations near rivers.
These laws and regulations may require the acquisition of a permit before
drilling commences, prohibit drilling activities on certain lands lying within
wilderness areas or where pollution arises, and/or impose substantial
liabilities for pollution or in offshore waters or submerged lands. Future
regulations may impose additional restrictions on the Company's activities. It
is impossible to predict if, or in what form, the regulations will be adopted
and hence their potential impact upon the Company's operations.
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<PAGE>
State Regulation. State regulatory authorities have established rules and
regulations requiring permits for drilling operations, drilling bonds and/or
reports concerning operations.
Operations of the Subsidiary
- - ----------------------------
The Company, Karlton Terry Oil Company and the Subsidiary entered into a five
year operating agreement (the "Operating Agreement") pursuant to which the
Subsidiary is operated autonomously by the previous management of the Company.
The Operating Agreement provides that any determination by the Subsidiary's
Board of Directors 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 Company's Board of Directors or its management
for any reason; provided, however, that in no event will the Company, its Board
and management be required to breach fudiciary duties owed to the Company or its
shareholders. The Company and its management have agreed to maintain the
Operating Agreement in effect for a five year term and not take any action to
interfere, intervene or disrupt the control and operation of the Subsidiary by
its management. The Operating Agreement includes a voting agreement enabling the
Subsidiary's President to vote shares of the Subsidiary owned by the Company
with respect to matters exclusively affecting the Subsidiary.
Real Estate Development
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In October 1993, the Subsidiary entered into two limited partnership agreements
to purchase approximately 90 contiguous acres of land in Colorado Springs,
Colorado. A summary of the Subsidiary's participation in each partnership is as
follows:
(1) The Subsidiary contributed $250,000 cash to the first partnership which
purchased approximately 55 acres of land for commercial development. The
Subsidiary, 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. The Subsidiary 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 the
Subsidiary and 19% to the limited partner.
(2) The Subsidiary 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. The Subsidiary, as the limited partner, has a 19% interest with the
remaining 81% interest held by an unrelated third-party as the general partner.
The Subsidiary contributed an additional $250,000 when certain financing
requirements in the partnership agreement were fulfilled by the general partner.
The Subsidiary is not a guarantor of any debt in this partnership.
The Subsidiary 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. The Subsidiary'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.
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<PAGE>
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. The Subsidiary is in the preliminary planning stages for the
undeveloped real estate. Accordingly, no plats have been submitted to the local
authorities for approval.
In October 1995 the Subsidiary acquired approximately 5 acres of undeveloped
real estate in Riverton, Wyoming for $80,000 and is presently developing this
parcel into a 15 lot subdivision. The total acquisition and improvement costs
are estimated to be approximately $234,000. The improvements are scheduled to be
completed in July 1996 and the sale of the improved lots should commence shortly
thereafter.
The Subsidiary is not aware of any non-compliance with existing local, state and
Federal environmental rules and regulations in regards to the undeveloped real
estate.
Natural Gas Royalty Interests
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The Subsidiary has royalty interests in the Madden Unit in Wyoming which
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 Subsidiary has no ownership
interest in the gas processing plant. The plant which commenced operations in
March 1995 is currently processing 50 MMCFD (million cubic feet per day) from
the two completed Madison wells. The plant products include methane, sulfur and
carbon dioxide. The Subsidiary's royalty interests in "sour gas" production are
subject to plant processing costs and severance and ad valorem taxes. The
Subsidiary and other royalty owners are negotiating with the plant operator to
eliminate the deduction of certain processing costs which may not be in
accordance with applicable state rules and regulations.
Item 2. Properties
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The Company's principal reserves and producing properties are oil and gas
properties located in Colorado, Kentucky, Louisiana and West Virginia.
Subsequent to March 31, 1996, one of the producing properties in Louisiana was
pledged as collateral on a loan from the Subsidiary.
The Subsidiary's principal properties consist of undeveloped real estate located
in Colorado and Wyoming and natural gas royalty interests in Wyoming. None of
the properties are held subject to any major encumbrance.
Reserves
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Information regarding the Company's proved and proved developed oil and gas
reserves and the standardized measure of discounted future net cash flows and
changes therein is included in Note 13 of Notes to Consolidated Financial
Statements.
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<PAGE>
Since April 1, 1995, the Company has not filed any oil or natural gas reserve
estimates or included any such estimates in reports to any Federal authority or
agency, other than the Securities and Exchange Commission.
Production
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The following table sets forth information with respect to the Company's oil and
gas production, average sales prices and average production costs for the two
years ended March 31, 1996:
1996 1995
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Quantities Produced and Sold
Oil (Bbls) 6,999 7,979
Natural Gas (Mcf) 28,430 7,064
Average Sales Prices
Oil(per Bbl) $17.53 $16.71
Natural Gas (per Mcf) $ 1.76 $ 1.88
Average Production Cost per BOE (1) $ 7.48 $ 5.80
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(1) Production units were converted to common units of measure using a
conversion ratio of six Mcf of natural gas equals one barrel of oil
equivalent (BOE). Production costs exclude depreciation and depletion
associated with property and equipment.
Productive Wells
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The following summarizes the Company's total gross and net productive wells at
March 31, 1996, all of which are in the United States:
Productive Wells (1)
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Gross (2) Net (3)
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Oil 17 3.4
Gas 75 16.3
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Totals 92 19.7
== ====
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(1) Productive wells are producing wells and wells capable of
production, including wells that are shut-in.
(2) A gross well is a well in which a working interest is owned. The number
of gross wells is the total number of wells in which a working interest
is owned.
(3) A net well is deemed to exist when the sum of fractional ownership
working interests in gross wells equals one. The number of net wells is
the sum of the fractional working interests owned in gross wells
expressed as whole numbers and fractions thereof.
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<PAGE>
Developed and Undeveloped Acreage
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At March 31, 1996, the Company held acreage as set forth below. A portion of the
developed acreage in Louisiana is subject to a lien securing a loan from the
Subsidiary and a portion of the undeveloped acreage in Kentucky is subject to a
production payment.
Developed Acreage (1) Undeveloped Acreage (2)
--------------------- -----------------------
Gross (3) Net (4) Gross (3) Net(4)
Colorado 2,840.0 550.8 1,480.0 284.9
Kentucky 30.0 21.9 4,381.9 3,985.0
Louisiana 2,994.0 676.8 50.0 8.5
West Virginia 153.0 76.5 1,692.0 846.0
-------- ------ ------- --------
Totals 6,017.0 1,326.0 7,603.9 5,124.4
======= ======= ======= ========
- - ----------
(1) Developed acres are those acres which are spaced or assigned to productive
wells.
(2) Undeveloped acres are considered to be those acres on which wells have not
been drilled or completed to a point that would permit the production of
commercial quantities of oil or natural gas, regardless of whether such
acreage contains proved reserves. It should not be confused with undrilled
acreage held by production under the terms of a lease.
(3) A gross acre is an acre in which a working interest is owned. The number of
gross acres is the total number of acres in which a working interest is
owned.
(4) A net acre is deemed to exist when the sum of the fractional ownership
working interests in gross acres equals one. The number of net acres is the
sum of the fractional working interest owned in gross acres expressed as
whole numbers and fractions thereof.
Drilling Activity
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The Company did not drill any exploratory or development wells for the years
ended March 31, 1996 and 1995.
Present Activities
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The Company is presently permitting wells to drill in Lake Hatch, Louisiana,
Smith Mills North Field, Kentucky, Sistersville, West Virginia and Union County,
Kentucky. These wells are planned to be drilled in fiscal year 1997.
Real Estate Development Operations of Subsidiary
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The Subsidiary 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. The Subsidiary 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, the Subsidiary 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. The property is not subject to any major encumbrance.
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<PAGE>
The Subsidiary is currently having discussions with several prospective
purchasers regarding retail pad sites. No formal agreements or contracts have
been entered into as of June 20, 1996.
The property is subject to competitive conditions relating to market demand,
interest rates, credit availability and the strength of the economy in general.
The Subsidiary 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. The Subsidiary is not a guarantor of
any debt in this partnership.
The Subsidiary also purchased approximately 5 acres of undeveloped real estate
located in Riverton, Wyoming in October 1995. The property which is not subject
to any major encumbrance is currently being developed as a 15 lot subdivision
and improvements (utilities and street) are estimated to be completed in July
1996. The Subsidiary has estimated total costs for the acquisition and
improvements to be approximately $234,000.
There have been no sales of real estate and operating costs and expenses have
been immaterial for the years ended March 31, 1996 and 1995.
Item 3. Legal Proceedings
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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
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No matters were submitted to a vote of the Company's security holders during the
fourth quarter of the fiscal year ended March 31, 1996.
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<PAGE>
PART II
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Item 5. Market for the Company's Stock and Related Stockholder Matters
- - ----------------------------------------------------------------------
Common Stock
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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 "AROC." 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.
QUARTER ENDED HIGH BID LOW BID
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
06/30/95 1.19 .75
09/30/95 2.38 1.00
12/31/95 2.38 1.50
03/31/96 1.75 1.25
As of June 20, 1996, 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).
Class B Common Stock
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The Class B common stock, which is not traded in any public trading market, was
issued in connection with the Asset Transfer and has all of the rights of
currently issued and outstanding shares of the Company'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. On June 26, 1996, a Special Meeting of Shareholders was
held and the shareholders approved a proposal to amend the Articles of
Incorporation to eliminate the super-voting provision of the Class B common
stock and provide the same voting terms as the Company's common stock, one share
one vote. The Articles of Amendment to the Articles of Incorporation will be
filed as soon as waivers are obtained from all of the Class B shareholders. The
Class B common stock is convertible on a one-for-one share basis of the
Company's common stock commencing December 1998.
As of June 20, 1996, there were 10 holders of record of the Company's Class B
common stock.
Dividends
- - ---------
The Company has paid no dividends on its common stock or Class B 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.
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<PAGE>
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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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 acquired certain oil and gas properties (the
"Contributed Properties") of KTOC and the Shareholders in exchange for
"restricted" shares of Class B Common Stock. Additional working interests in the
oil and gas properties (the "Option Properties") were acquired in December 1995
from unrelated third parties for cash and other consideration. In connection
with this transaction and prior to the closing in December 1995, the Company
transferred to Bishop Capital Corporation (formerly Bishop Cable Communications
Corporation), a wholly-owned subsidiary (the "Subsidiary"), all of the Company's
assets except for $700,000 and its working interest in an oil property. The
Subsidiary is being operated autonomously by the previous management of the
Company pursuant to a five year operating agreement between the Company, KTOC,
and the subsidiary.
The audited consolidated statements of operations and cash flows for the year
ended March 31, 1996 include the operations of the Contributed Properties for
the fiscal year, the Option Properties from December 1995 and the unconsolidated
operations of the Subsidiary using the equity method of accounting from December
1995. The audited consolidated statements of operations and cash flows for the
year ended March 31, 1995 only include the operations of the Contributed
Properties. 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, 1996 was $(640,000)
compared to net income of $38,400 for fiscal 1995. The fiscal 1996 net loss is
primarily attributable to costs and expenses of $365,500 related to the Asset
Purchase Agreement, an increase of $83,500 in general and administrative
expenses, a loss of $140,500 on the sale of a wholly-owned subsidiary's oil
property and the Company recording its equity in losses of $161,800 related to
the unconsolidated Subsidiary. In fiscal 1995, the Company had a gain on
drilling arrangements of $138,200 which resulted in net income of $38,400
compared to a net loss of $77,600 in fiscal 1994.
Fiscal 1996 Compared to Fiscal 1995
- - -----------------------------------
The Company's oil and gas sales increased by approximately 18% in fiscal 1996.
Although the production volume for oil decreased by approximately 12%, the
Company had a significant increase in natural gas production due primarily to
the acquisition of producing natural gas properties in the Denver-Julesburg
Basin in the fourth quarter. The Company also incurred flooding problems on its
Sistersville well in January 1996 which resulted in the curtailment of natural
gas production for approximately two months. The decrease in oil production is
attributable to the Sparkle #1 well being shut-in for completion of water
disposal facilities and normal, anticipated production declines.
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<PAGE>
The production volumes and average sales prices for the years ended March 31,
1996 and 1995 were as follows:
1996 1995
------ -------
Oil production (barrels) 6,999 7,979
Average sales price (per barrel) $17.53 $16.71
Natural gas production (mcf) 28,430 7,064
Average sales price (per mcf) $ 1.76 $ 1.88
The average sales price per barrel of oil increased 5% in fiscal 1996 but was
offset by a 12% reduction in production volume. Although the average sales price
per mcf of natural gas decreased 6% in fiscal 1996, production volume tripled
over the prior fiscal year.
Oil and gas production expense increased by $38,000 in fiscal 1996 compared to
fiscal 1995. On a barrel of oil equivalent (BOE), production expense was $7.48
per BOE in fiscal year 1996 compared to $5.80 per BOE in fiscal 1995. The
increase is attributable to the production curtailment on the Sistersville and
Sparkle #1 wells.
General and administrative expenses increased approximately $84,000 in fiscal
1996 compared to fiscal 1995 due primarily to increases in salaries and
professional fees and other costs and expenses associated with a public company.
Depletion, depreciation and amortization increased approximately $9,100 in
fiscal 1996 compared to fiscal 1995 due to the increase in production.
Professional fees relating to Contributed Properties of $165,500 in fiscal 1996
are legal, accounting and consulting fees incurred in connection with the Asset
Purchase Agreement.
Nonemployee compensatory common stock option expense of $200,000 in fiscal 1996
represents the difference between the option price ($1.00) and the fair market
value of the Company's common stock ($1.50) on 400,000 stock options issued to a
non-affiliated third party for property acquisition and other services related
to the Asset Purchase Agreement.
The loss of $140,500 on the sale of property in fiscal 1996 occurred when a
wholly-owned subsidiary sold its only major asset consisting of an oil property
to an unrelated third party for $16,000.
The equity in subsidiary losses of $161,800 represents the Company's equity in
the operations of Bishop Capital Corporation, an unconsolidated wholly-owned
subsidiary, for the four months ended March 31, 1996.
Interest expense decreased $4,200 in fiscal 1996 compared to fiscal 1995 due
primarily to a lower average amount of debt outstanding.
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<PAGE>
Fiscal 1995 Compared to Fiscal 1994
- - -----------------------------------
The Company's oil and gas sales decreased approximately 18% in fiscal 1995
compared to fiscal 1994 primarily due to lower oil and gas production volumes
resulting from normal, anticipated
production declines. Although the Sistersville and Sparkle #1 wells commenced
production in fiscal 1995, oil production in fiscal 1995 decreased by
approximately 20% and natural gas production decreased by approximately 20%. The
average sales price per barrel of oil increased approximately 4% in fiscal 1995
and the average sales price per mcf of natural gas decreased approximately 11%.
The production volumes and average sales prices for the years ended March 31,
1995 and 1994 were as follows:
1995 1994
------- ------
Oil production (barrels) 7,979 9,970
Average sales price (per barrel) $16.71 $16.15
Natural gas production (mcf) 7,064 8,866
Average sales price (mcf) $ 1.88 $ 2.12
Oil and gas production expense decreased $6,200 in fiscal 1995 compared to
fiscal 1994. Production expense computed on a barrel of oil equivalent was $5.80
per BOE in fiscal 1995 compared to $5.18 per BOE in fiscal 1994. The increased
cost per BOE is directly attributable to fixed components of oil and gas
production expense being allocated over a smaller production base.
General and administrative expenses increased $6,300 in fiscal 1995 compared to
fiscal 1994 due to a general increase in overhead associated with various oil
and gas projects.
Depletion, depreciation and amortization decreased $8,400 in fiscal 1995
compared to fiscal 1994 due to a decrease in production.
Interest expense increased approximately $1,400 in fiscal 1995 due to debt
amortization of 12 months compared to 11 months in fiscal 1994 when it
originated.
The Company realized a gain on drilling arrangements of $138,200 from the sale
of oil and gas interests on the Sistersville well to industry partners.
Accounting Policies
- - -------------------
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS No. 121).
SFAS No. 121 requires that impairment losses be recorded on long-lived assets
used in operations when indicators of impairment are present and either the
undiscounted future cash flows estimated to be generated by those assets or the
fair market value are less than the assets' carrying amount. SFAS No. 121 also
addresses the accounting for long-lived assets that are expected to be disposed
of. The Company adopted SFAS No. 121 during the fiscal year ended March 31, 1996
and the change in the Company's accounting policy for impairment of long-lived
assets had no effect on the Company's financial statements.
-13-
<PAGE>
Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" (SFAS No. 123), was issued by the Financial Accounting Standards
Board in October 1995. SFAS No. 123 establishes financial accounting and
reporting standards for stock based employee compensation plans as well as
transactions in which an entity issues its equity instruments to acquire goods
or services from non-employees. The Company will include the disclosures
required by SFAS No. 123 in the notes to future financial statements.
Financial Condition
- - -------------------
At March 31, 1996, the Company had a working capital deficit of $157,300.
The following summary table reflects the Company's comparative cash flows for
the two years ended March 31, 1996:
1996 1995
------ -------
Net cash used in operating activities $ (181,600) $ (56,500)
Net cash used by investing activities (227,600) (219,800)
Net cash provided by financing activities 409,400 276,300
Net cash used in operations increased in fiscal 1996 compared to fiscal 1995 due
to a number of factors including lower oil production volumes, higher production
costs and an increase in general and administrative expenses.
Net cash used in investing activities of $(227,600) in fiscal 1996 resulted
primarily from the acquisition of additional working interests in oil and gas
properties from unrelated third parties in connection with the Asset Purchase
Agreement for $668,000, the acquisition of producing properties in the
Denver-Julesburg Basin for $264,000 and other capital expenditures of $11,000.
The Company received $700,000 cash in connection with the Asset Purchase
Agreement and proceeds of $16,000 from the sale of an oil property which were
utilized to partially fund the investing activities. Additional cash was
utilized from the financing activities to fund the balance of the investing
activities.
Net cash used in investing activities of $(219,800) in fiscal 1995 resulted
primarily from capital expenditures on the Sparkle #1 well.
Net cash provided by financing activities of $409,400 in fiscal 1996 resulted
from net proceeds of $516,000 from the private placement and $60,000 in owners'
contributions which were applicable for the period prior to the contribution of
certain oil and gas properties to the Company in December 1995. In addition, the
Company borrowed $95,000 from a major Class B shareholder and $17,000 from
Bishop Capital Corporation. The Company repaid the $95,000 borrowings to the
major Class B shareholder and $184,000 of bank debt which was assumed by the
Company in connection with the Asset Purchase Agreement. The Company also
utilized noncash financing in the form of common and Class B common stock and a
production payment obligation as additional consideration for acquisition costs
of oil and gas properties.
Net cash provided by financing activities of $276,300 in fiscal 1995 results
primarily from owners' contributions of $319,400 offset by principal payments on
borrowings of $43,100.
The Company's oil and gas strategy is and will continue to be the acquisition
and development of leases underlying large rivers and lakes in known oil and gas
fields (the "River Leases"). The Company also is acquiring producing cash flow
properties in the Denver-Julesburg Basin in Colorado to augment and diversify
its strategy on the River Leases. The Company will also review and consider
acquiring or participating in other oil and gas projects which management may
expect will increase the cash flow and/or add to the long-term financial
stability of the Company.
-14-
<PAGE>
A portion of the Company's oil and gas reserves are Proved Undeveloped Reserves.
Successful development and production of such reserves cannot be assured.
Additional drilling will be necessary in future years both to maintain
production levels and to define the extent and recoverability of existing
reserves. There is no assurance that present oil and gas wells of the Company
will continue to produce at current or anticipated rates of production, that
development drilling will be successful, that production of oil and gas will
commence when expected, or that there will be favorable markets for oil and gas
which may be produced in the future.
The Company's development plans 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 fiscal 1997; (iii) purchase existing producing oil
and gas wells; and (iv) repay outstanding debt. The assets transferred to the
Subsidiary as part of the Asset Purchase Agreement are not available for use by
the Company. To meet these requirements, management is conducting a private
placement of up to 1,800,000 shares of the Company's common stock for gross
proceeds of $1,800,000. As of March 31, 1996, the Company received proceeds of
$520,887 (net of commissions and other offering expenses). The offering is
continuing and the Company may receive up to $1,262,500 of additional proceeds
(before deduction of commissions and other offering costs). If the maximum
proceeds from this offering are raised, the Company believes that the net
proceeds would be sufficient to fund planned activities through at least the end
of fiscal 1997. If the maximum proceeds are not raised, management may 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 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.
Subsequent to March 31, 1996, the Company borrowed $100,000 from its Subsidiary
to pay various trade accounts payable and the $17,522 note payable to
Subsidiary. In addition, the Company borrowed $430,000 from a bank to purchase
oil and gas producing properties in the Denver-Julesburg Basin and fund
operating capital requirements.
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.
-15-
<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, 1996, all of whom took office on December 8, 1995:
Name Age Office
---- --- ------
Karlton Terry 42 Chairman of the Board, President and
Chief Executive Officer
Jubal Terry 38 Vice President, Secretary-Treasurer
and Chief Operating Officer
Denis Bell 62 Director
Karlton Terry. Mr. Terry 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. Since the sale of Leed, he has acted
as president of Karlton Terry Oil Company ("KTOC") for the last twelve years.
Jubal Terry. Mr. Terry 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. Mr. Bell is executive chairman and a founding 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
1993. His experience in mining, particularly open cast mining, commenced in 1968
when he established his own company to operate a number of open cast sites and
two small underground mines. This company was sold to Mining Investment
Corporation Limited, where he remained a director until 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., of which he owns 100%, has owned oil and gas
properties in the United States since 1983.
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.
-16-
<PAGE>
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
except as noted above.
b. Identification of Certain Significant Employees
Not applicable
c. Family Relationships
Karlton Terry and Jubal Terry are brothers.
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 1996, its executive officers, directors and greater
than ten percent stockholders complied with all applicable 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, 1996, 1995 and 1994. No other
executive officer had total annual salary and bonus exceeding $100,000 for the
year ended March 31, 1996.
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation Awards
------------------------------------------------------- ----------------------------
Name and Principal Other Annual Restricted Options
Position Year Salary Bonus Compensation Stock Award ($) SARS (#)
- - ------------------ ---- --------- ------- -------------- --------------- --------
<S> <C> <C> <C> <C> <C> <C>
Karlton Terry 1996 $ 52,083 $ -- $ -- $ -- --
President, Chief
Executive Officer
and Director (1)
Robert E. Thrailkill 1996 $145,000 $ -- $ -- $ 22,500 (3) 25,000 (4)
President,Chief 1995 145,000 -- -- 15,500 (5) 50,000 (6)
Executive Officer 1994 145,000 3,000 -- -- --
and Director (2)
-17-
<PAGE>
- - ----------
(1) Karlton Terry became Chief Executive Officer on December 8, 1995.
(2) Robert E. Thrailkill was the Registrant's Chief Executive Officer in the current fiscal year through December 7, 1995. Mr.
Thrailkill is currently the chief executive officer of Bishop Capital Corporation, a wholly-owned subsidiary. Mr. Thrailkill
does not perform any policy making functions for the Registrant.
(3) Consists of 15,000 shares allocated and issued from the 1987 Stock Bonus Plan with a fair market value of $1.50 per share on
the award date.
(4) Consists of securities underlying options exercisable on date of grant (October 11, 1995) at a per share exercise price of
$1.65 and expires five years thereafter.
(5) 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.
(6) Consists of securities underlying options exercisable on date of grant (September 6, 1994) at a per share exercise price of
$.68 and expires five years thereafter.
</TABLE>
The columns for "Long-Term Incentive Plan Payouts" and "All Other Compensation"
were omitted from the Summary Compensation Table since there was no information
reportable for the years ended March 31, 1996, 1995 and 1994.
b. Option/SAR Grants Table
The following table provides information with respect to the grant of stock
options pursuant to the Company's 1992 Stock Option Plan to the Chief Executive
Officer in fiscal 1996. (See footnotes (1) and (2) under Item 10(a)). The
Company does not have any outstanding Stock Appreciation Rights ("SARs").
<TABLE>
<CAPTION>
Potential Realizable
Number of % of Total Value at Assumed
Securities Options Exercise Annual Rates of Stock
Underlying Granted to or Base Option Term (1)
Options Employees Price Expiration ---------------------
Name Granted (#) in Fiscal 1996 ($/Share) Date 5% 10%
- - --------------------- ----------- -------------- --------- ------------ -------- -------
<S> <C> <C> <C> <C> <C> <C>
Robert E. Thrailkill 25,000 50.0% $ 1.65 10/11/2000 $11,500 $25,250
(1) The dollar amounts under these columns represent the potential realizable value of the grant of option assuming that the
market price of the Company's common stock appreciates in value from the date of grant at the 5% and 10% annual rates
prescribed by the SEC and therefore are not intended to forecast possible future appreciation, if any, of the price of the
Company's common stock.
</TABLE>
c. Aggregated Option Exercise and Fiscal Year-End Option Value Table
There were no exercise of stock options by the Chief Executive Officer in
fiscal 1996. (See footnotes (1) and (2) under Item 10(a)). The following table
shows the number of shares covered by both exercisable and non-exercisable stock
options as of March 31, 1996 and their values at such date. There are no SARs
outstanding at March 31, 1996.
-18-
<PAGE>
<TABLE>
<CAPTION>
Number of Securities Value of
Underlying Unexercised Unexercised In-the-Money
Options at FY-End (#) Options at FY-End ($)(1)
----------------------------- ---------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- - --------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert E. Thrailkill 120,000 -- $43,700 --
- - ----------
(1) On March 31, 1996, the last reported bid price of the Common Stock as quoted on NASDAQ was $1.50 per share. Value is
calculated on the basis of the difference between the option price and $1.50 multiplied by the number of shares of Common
Stock granted at that option price. The exercise prices for the various options granted are $1.65 (25,000 options), $.68
(50,000 options) and $1.44 (45,000 options). At March 31, 1996, the last reported bid price was lower than the exercise price
of $1.65 for the 25,000 options and, therefore, no value is ascribed to those options in the above table.
</TABLE>
d. Compensation of Directors
During fiscal 1996, the Company compensated two prior non-employee
directors $3,300 each 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 1996 in addition to or in lieu of the
amounts stated above.
e. Employment Contracts and Termination of Employment and Change-in-Control
Arrangements.
In December 1995, the Company entered into an Executive Employment
Agreement (the "Agreement") with Karlton Terry, the Company's President. The
Agreement is for a three year term and is renewable from year to year thereafter
unless terminated prior by either party. Under the Agreement, Mr. Terry is paid
an annual salary of $125,000, 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 participates in and receives 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 one. The Agreement provides that upon death, the
Company shall pay one fourth of the annual salary; upon disability, the Company
shall pay salary for a continuous period of six months (less amounts paid by
insurance); and, upon termination for cause, the Company shall pay any salary
due up to the termination date.
-19-
<PAGE>
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, 1996, those persons known by the
Company to be the beneficial owners of more than 5% of the Company's Common
Stock or Class B Common Stock:
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of of Beneficial Percent
Title of Class Beneficial Owner Ownership of Class
---------------------- -------------------- ----------------- --------
<S> <C> <C> <C>
Class B Common Stock Karlton Terry 5,555,522 (1) 76.4%
700 East 9th Avenue, Suite 106
Denver, CO 80203
Class B Common Stock Jubal Terry 1,159,353 (2) 16.0%
700 East 9th Avenue, Suite 106
Denver, CO 80203
Class B Common Stock Karlton Terry Oil Company 4,064,565 55.9%
700 East 9th Avenue, Suite 106
Denver, CO 80203
Common Stock LMU & Company 500,000 (3) 15.4%
1200 17th Street, Suite 1000
Denver, CO 80202
Common Stock Robert E. Thrailkill 444,880 (4) 15.0%
716 College View Dr.
Riverton, WY 82501
Common Stock Francarep, Inc. 275,000 9.6%
50 Av. des Champs-Elysees
75008 Paris, France
Common Stock Haddon, Inc. 175,000 6.1%
c/o Coal Contractors
Gowen Mine
Fern Glen, PA 18241-2145
(1) Includes 1,490,957 shares owned directly and 4,064,565 shares owned indirectly through Karlton Terry Oil Company, of which
Karlton Terry owns 87.5%.
(2) Does not include any indirect ownership of shares through Karlton Terry Oil Company, of which Jubal Terry owns 12.5%.
(3) Includes currently exercisable options to acquire 400,000 shares of Common Stock at $1.00 per share.
(4) Includes currently exercisable options to acquire 120,000 shares of Common Stock.
</TABLE>
-20-
<PAGE>
b. Security Ownership of Management
The following table shows, as of June 20, 1996, management's ownership of
the Company's Common Stock and Class B Common Stock:
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of Beneficial Percent
Title of Class of Beneficial Owner Ownership of Class
-------------- ------------------- --------- --------
<S> <C> <C> <C>
Class B Common Stock Karlton Terry 5,555,522 (1) 76.4%
700 East 9th Avenue, Suite 106
Denver, CO 80203
Class B Common Stock Jubal Terry 1,159,353 (2) 16.0%
700 East 9th Avenue, Suite 106
Denver, CO 80203
Class B Common Stock Denis Bell 192,945 (3) 2.7%
700 East 9th Avenue, Suite 1
Denver, CO 80203
Class B Common Stock All officers and directors as a
group (three persons) 6,907,820 95.1%
Common Stock Denis Bell 175,000 (3) 6.1%
700 East 9th Avenue, Suite 106
Denver, CO 80203
Common Stock All officers and directors as a
group (three persons) 175,000 6.1%
----------
(1) Includes 1,490,957 shares owned directly and 4,064,565 shares owned indirectly through Karlton Terry Oil Company, of which
Karlton Terry owns 87.5%.
(2) Does not include any indirect ownership of shares through Karlton Terry Oil Company, of which Jubal Terry owns 12.5%.
(3) All shares are owned indirectly through Haddon, Inc., of which Mr. Bell owns 100%.
</TABLE>
Item 12. Certain Relationships and Related Transactions
a. Certain Relationships
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" of KTOC), the Company acquired on December 8, 1995, certain
interests in and to various oil and gas prospects of KTOC and the Shareholders
in exchange for 7,717,820 "restricted" shares of Class B common stock of the
Company. At the closing date, additional working interests in the KTOC oil and
gas properties were acquired from Haddon, Inc., Francarep Inc. and other
non-affiliated third parties for cash, a portion of the "restricted" Class B
common stock issued in the transaction, and other consideration. Haddon Inc.
which is owned 100% by Denis Bell, a director, received 367,945 shares of
"restricted" Class B common stock of which 175,000 shares were converted into
Common Stock. Francarep Inc. received 605,000 shares of "restricted" Class B
common stock of which 275,000 shares were converted into Common Stock. The
Common Stock issued to Haddon, Inc. and Francarep, Inc. is subject to certain
registration rights.
-21-
<PAGE>
The Company also issued 100,000 shares of Common Stock upon the effective
date of the Company's Form S-8 to LMU & Company for property acquisition and
other services. LMU & Company also has currently exercisable options to acquire
400,000 shares of Common Stock at $1.00 per share.
b. Indebtedness of Management
No officer or director of the Company has been indebted to the Company
directly or indirectly during fiscal year 1996 in an amount exceeding $60,000.
c. Transactions with Parent of Issuer
Not applicable
d. Transactions with Promoters
Not applicable
-22-
<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)
3.3 Amended Articles of Incorporation for American Rivers Oil Company
(formerly Metro Capital Corporation).
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 Asset Purchase Agreement, dated October 19, 1995 among the
Registrant, Karlton Terry Oil Company, Karlton Terry and Jubal
Terry (incorporated by reference to Form 8-K dated December 8,
1995, File No. 0-10006). (1)
10.6 Operating Agreement dated November 30, 1995 among the
Registrant, Karlton Terry Oil Company, Bishop Cable
Communications Corporation, Karlton Terry and Jubal Terry
(incorporated by reference to Form 8-K dated December 8, 1995,
File No. 0-10006). (1)
10.7 Management Agreement dated November 30, 1995 among the
Registrant, Bishop Cable Communications Corporation and Robert E.
Thrailkill (incorporated by reference to Form 8-K dated December
8, 1995, File No. 0-10006). (1)
10.8 Voting Agreement dated November 30, 1995 among the Registrant,
Bishop Cable Communications Corporation, Karlton Terry Oil
Company, Karlton Terry and Jubal Terry (incorporated by reference
to Form 8-K dated December 8, 1995, File No. 0-10006). (1)
10.9 Executive Employment Agreement dated December 1, 1995, between
the Registrant and Karlton Terry.
10.10 1995 Stock Option and Stock Compensation Plan as adopted on
December 8, 1995.
21 Subsidiaries of the Registrant
27 Financial Data Schedule (submitted only in electronic format).
-23-
<PAGE>
(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
-24-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
American Rivers Oil Company and Subsidiaries
- - --------------------------------------------
Independent Auditor's Report................................................F-2
Consolidated Balance Sheet - March 31, 1996.................................F-3
Consolidated Statements of Operations - For the Years
Ended March 31, 1996 and 1995......................................F-4
Consolidated Statements of Changes in Stockholders' Equity - For the
Years Ended March 31, 1996 and 1995................................F-5
Consolidated Statements of Cash Flows - For the Years Ended
March 31, 1996 and 1995............................................F-6
Notes to Consolidated Financial Statements..................................F-7
Bishop Capital Corporation and Subsidiaries
- - -------------------------------------------
Independent Auditor's Report................................................F-20
Consolidated Balance Sheet - March 31, 1996.................................F-21
Consolidated Statements of Operations - For the Years Ended
March 31, 1996 and 1995............................................F-22
Consolidated Statements of Changes in Stockholder's Equity - For the
Years Ended March 31, 1996 and 1995................................F-23
Consolidated Statements of Cash Flows - For the Years Ended
March 31, 1996 and 1995............................................F-24
Notes to Consolidated Financial Statements..................................F-25
F1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
American Rivers Oil Company
Denver, Colorado
We have audited the accompanying consolidated balance sheet of American Rivers
Oil Company and subsidiaries as of March 31, 1996, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
the years ended March 31, 1996 and 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Rivers Oil Company and
subsidiaries as of March 31, 1996, and the results of their operations and their
cash flows for the years ended March 31, 1996 and 1995, in conformity with
generally accepted accounting principles.
/s/ Hein + Associates LLP
HEIN + ASSOCIATES LLP
Denver, Colorado
June 5, 1996
F2
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash ........................................................................ $ 275
Oil and gas sales receivable ................................................ 57,795
Accounts receivable, joint interest owners .................................. 6,978
Prepaid expenses ............................................................ 9,137
-----------
Total current assets ............................................... 74,185
OIL AND GAS PROPERTIES, at cost, using successful efforts method:
Proved properties ........................................................... 3,320,659
Less accumulated depreciation, depletion and amortization ................... (124,630)
-----------
Net oil and gas properties ......................................... 3,196,029
INVESTMENT IN BISHOP CAPITAL CORPORATION ........................................ 2,134,782
OTHER ASSETS .................................................................... 1,137
-----------
TOTAL ASSETS .................................................................... $ 5,406,133
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Payable to Class B shareholder ............................................... $ 37,704
Payables to Bishop Capital Corporation:
Note .................................................................... 17,522
Other ................................................................... 23,579
Current maturities of long-term debt ......................................... 6,600
Accounts payable and accrued expenses ........................................ 146,068
---------
Total current liabilities ........................................... 231,473
LONG-TERM DEBT, less current maturities .......................................... 70,584
DEFERRED INCOME TAXES ............................................................ 251,400
COMMITMENTS (NOTE 8)
STOCKHOLDERS' EQUITY:
Preferred stock, $.50 par value; 5,000,000 shares authorized; no
shares issued ........................................................... --
Common stock, $.01 par value; 20,000,000 shares authorized;
3,953,004 shares issued ................................................. 39,530
Class B common stock, $.01 par value; 8,000,000 shares authorized;
7,267,820 shares issued and outstanding ................................. 72,678
Additional paid-in capital ................................................... 7,071,356
Accumulated deficit .......................................................... (594,826)
Less treasury stock, at cost, 1,101,234 of common shares ..................... (1,736,062)
----------
Total stockholders' equity .......................................... 4,852,676
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ....................................... $ 5,406,133
==========
</TABLE>
See accompanying notes to these consolidated financial statements.
F3
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
MARCH 31,
-------------------------
1996 1995
<S> <C> <C>
---------- -----------
REVENUE:
Oil and gas sales .................................. $ 172,885 $ 146,671
Operator fees ...................................... 7,450 4,000
----------- -----------
Total revenue ............................. 180,335 150,671
EXPENSES:
Oil and gas production costs ....................... 91,044 53,078
General and administrative ......................... 226,202 142,064
Depreciation, depletion and amortization ........... 42,513 33,379
----------- -----------
Total expenses ............................ 359,759 228,521
----------- -----------
LOSS FROM OPERATIONS ................................... (179,424) (77,850)
OTHER INCOME (EXPENSE):
Gain on drilling arrangements ...................... -- 138,241
Loss on sale of oil property ....................... (140,451) --
Equity in loss of Bishop Capital Corporation ....... (161,799) --
Professional fees relating to Contributed Properties (165,464) --
Nonemployee compensatory stock option expense ...... (200,000) --
Interest expense ................................... (17,889) (22,038)
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES ...................... (865,027) 38,353
DEFERRED INCOME TAX BENEFIT ............................ 225,000 --
----------- -----------
NET INCOME (LOSS) ...................................... $ (640,027) $ 38,353
=========== ===========
NET INCOME (LOSS) PER SHARE:
Common stock ....................................... $ (.15) $ --
=========== ===========
Class B common stock ............................... $ (.06) $ .01
=========== ===========
AVERAGE NUMBER OF SHARES OUTSTANDING:
Common stock ....................................... 1,640,000 --
=========== ===========
Class B common stock ............................... 7,049,000 6,715,000
=========== ===========
</TABLE>
See accompanying notes to these consolidated financial statements.
F4
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
Common Stock Class B Common Stock Additional
-------------------- --------------------- Paid-in
Shares Amount Shares Amount Capital
--------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
BALANCES, April 1, 1994 ..................................... -- $ -- 6,714,875 $ 67,149 $ (216,817)
KTOC owners' contributions ............................... -- -- -- -- 319,409
Net income ............................................... -- -- -- -- --
--------- -------- --------- ---------- ----------
BALANCES, March 31, 1995 .................................... -- -- 6,714,875 67,149 102,592
KTOC owners' contributions ............................... -- -- -- -- 60,042
Net loss prior to reverse acquisition .................... -- -- -- -- --
Consummation of reverse acquisition ...................... 2,850,689 28,507 -- -- 4,849,785
Issuance of Class B common stock for
Option Properties ................................... -- -- 552,945 5,529 547,416
Issuance of convertible Class B
common stock for Option
Propertiies ......................................... -- -- 450,000 4,500 670,500
Issuance of common stock for services .................... 100,000 1,000 -- -- 149,000
Issuance of common stock for oil and
gas properties ...................................... 14,815 148 -- -- 24 852
Grant of stock options for services ...................... -- -- -- -- 200,000
Issuance of common stock for cash in
private placement, net .............................. 537,500 5,375 -- -- 467,169
Conversion of Class B common stock ....................... 450,000 4,500 (450,000) (4,500) --
Net loss subsequent to reverse acquisition ............... -- -- -- -- --
--------- ---------- --------- ---------- ----------
BALANCES, March 31, 1996 .................................... 3,953,004 $ 39,530 7,267,820 $ 72,678 $ 7,071,356
========= ========== ========= ========== ==========
<CAPTION>
Treasury Stock
---------------------- Accumulated
Shares Amount Deficit Total
-------- -------- ----------- --------
<S> <C> <C> <C> <C>
BALANCES, April 1, 1994 ..................................... -- $ -- $ -- $ (149,668)
KTOC owners' contributions ............................... -- -- -- 319,409
Net income ............................................... -- -- 38,353 38,353
--------- ---------- --------- ----------
BALANCES, March 31, 1995 .................................... -- -- 38,353 208,094
KTOC owners' contributions ............................... -- -- -- 60,042
Net loss prior to reverse acquisition .................... -- -- (45,201) (45,201)
Consummation of reverse acquisition ...................... 1,101,234 (1,736,062) 6,848 3,149,078
Issuance of Class B common stock for
Option Properties ................................... -- -- -- 552,945
Issuance of convertible Class B
common stock for Option
Propertiies ......................................... -- -- -- 675,000
Issuance of common stock for services .................... -- -- -- 150,000
Issuance of common stock for oil and
gas properties ...................................... -- -- -- 25,000
Grant of stock options for services ...................... -- -- -- 200,000
Issuance of common stock for cash in
private placement, net .............................. -- -- -- 472,544
Conversion of Class B common stock ....................... -- -- -- --
Net loss subsequent to reverse acquisition .............. -- -- (594,826) (594,826)
--------- ----------- --------- ----------
BALANCES, March 31, 1996 .................................... 1,101,234 $(1,736,062) $(594,826) $ 4,852,676
========= ========== ========= ==========
</TABLE>
See accompanying notes to these consolidated financial statements.
F5
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
MARCH 31,
----------------------
1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ............................................................ $ (640,027) $ 38,353
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation, depletion and amortization ............................. 42,513 33,379
Equity in loss of Bishop Capital Corporation ......................... 161,799 --
Nonemployee compensatory stock option expense ........................ 200,000 --
Loss on sale of oil property ......................................... 140,451 --
Deferred income tax benefit .......................................... (225,000) --
Issuance of common stock for services ................................ 68,250 --
Gain on drilling arrangements ........................................ -- (138,241)
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable:
Joint interest billings ................................... 10,396 (8,434)
Oil and gas ............................................... (25,769) 799
Other assets ................................................ (34,468) --
Increase in:
Payable to Class B shareholder .............................. 37,704 --
Payable to Bishop Capital Corporation ....................... 23,579 --
Accounts payable and accrued expenses ....................... 58,986 17,620
---------- ---------
Net cash used in operating activities ..................................... (181,586) (56,524)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition and development costs for oil and gas properties ................. (943,565) (219,809)
Cash obtained in reverse acquisition ......................................... 700,000 --
Proceeds from sale of oil property ........................................... 16,000 --
---------- ---------
Net cash used in investing activities ..................................... (227,565) (219,809)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings ..................................................... 112,522 --
Principal payments on borrowings ............................................. (279,146) (43,076)
Proceeds from private placement of common stock .............................. 537,500 --
Private placement offering costs ............................................. (21,492) --
Owners' contributions ........................................................ 60,042 319,409
---------- ---------
Net cash provided by financing activities ................................. 409,426 276,333
---------- ---------
INCREASE IN CASH ............................................................... 275 --
CASH, beginning of year ........................................................ -- --
---------- ---------
CASH, end of year .............................................................. $ 275 $ --
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest ....................................................... $ 16,374 $ 22,038
=========== ===========
Cash paid for income taxes ................................................... $ -- $ --
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Issuance of Class B common stock for Option Properties ....................... $ 552,945 $ --
Issuance of convertible Class B common stock for Option Properties ........... 675,000 --
Production payment obligation incurred for Option Properties ................. 77,184 --
Issuance of common stock for oil and gas properties .......................... 25,000 --
Issuance of common stock for property acquisition services ................... 81,750 --
Consummation of reverse acquisition:
Investment in Bishop Capital Corporation .................................. 2,296,581 --
Oil property .............................................................. 156,451 --
</TABLE>
See accompanying notes to these consolidated financial statements.
F6
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
General - In October 1995, Metro Capital Corporation (Metro) and Karlton Terry
Oil Company (KTOC) entered into an Asset Purchase Agreement whereby KTOC agreed
to exchange certain oil and gas properties (the "Contributed Properties") for a
total of 7,717,820 shares of Class B common stock of Metro, which represented
80% of the issued and outstanding voting securities of Metro. On November 29,
1995, the shareholders of Metro approved this transaction and the closing
occurred on December 8, 1995. The shareholders also approved changing the name
of the Company from Metro to American Rivers Oil Company ("AROC" or the
"Company"). At the closing date, additional working interests in the KTOC oil
and gas properties (the "Option Properties") were acquired for cash, a portion
of the Class B common shares issued in the transaction, and other consideration.
The consolidated financial statements included herein give effect to these
transactions by recording KTOC's Contributed Properties at their historical
carrying value since the KTOC owners continue to exercise control of the
Contributed Properties through their majority voting interest. Metro's assets,
except for $700,000 cash and an insignificant oil property, were transferred at
their historical carrying value to a wholly-owned subsidiary, Bishop Capital
Corporation, formerly Bishop Cable Communications Corporation (Bishop), where
they are being operated autonomously by the prior management of Metro pursuant
to the terms of a five-year operating agreement. The Option Properties acquired
were recorded based on the cash and the fair value of securities and other
consideration issued.
The consolidated balance sheet at March 31, 1996 reflects AROC's investment in
Bishop using the equity method (see Note 3). The accompanying financial
statements include the operating results and cash flows of the Contributed
Properties for all periods presented, and the Option Properties and equity
method operating results of Bishop are included beginning in December 1995 when
the change of control occurred.
Prior to December 8, 1995, the accompanying financial statements include the
results of operations and cash flows related to the Contributed Properties.
Additionally, the accompanying financial statements include an allocation of
KTOC's general and administrative expenses based on KTOC's activities related to
the Contributed Properties compared to its overall activities. The net amounts
required to fund such activities are presented as a capital contribution from
KTOC.
Continuing Operations - The accompanying financial statements have been prepared
on a going concern basis which contemplates the realization of assets and the
liquidation of liabilities in the ordinary course of business. At March 31,
1996, the Company has a working capital deficit of $157,288, the Company's
operating activities have utilized significant amounts of cash in each of the
past two years, and the Company has not yet achieved profitable operations. The
ability of the Company to continue as a going concern is dependent upon the
Company's ability to raise sufficient capital to enable the successful
development of the Company's oil and gas properties.
F7
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Through February 1996, the Company was successful in selling $537,500 of common
stock in a private placement and, as discussed in Note 12, the Company obtained
additional debt financing for $530,000 in April and May 1996. As discussed in
Note 6, management is continuing efforts to sell the maximum number of shares
offered in the private placement which, if successful, would result in proceeds
of $1,262,500. Additionally, two officers and directors have provided loans of
$37,704 at March 31, 1996 and have advised the Company that they would provide
additional loans or personal guarantees of loans from third parties, if
necessary for the Company to continue. As discussed in Note 12, after year-end
such officers personally guaranteed bank debt of $400,000 and pledged 6,596,375
shares of Class B common stock as collateral for borrowings by the Company.
In addition to the measures discussed above, management believes the increased
annual revenues from acquisitions of oil and gas properties since December 1995
will enable the Company to continue its operations in the forthcoming year.
2. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Operations - The Company is primarily engaged in the exploration,
development, and production of oil and natural gas in the continental United
States. Most of the Company's properties are located along the Ohio River in
West Virginia, Kentucky, and Indiana and consist of both developed and
undeveloped acreage.
Principles of Consolidation - The accompanying financial statements include the
accounts of the Company and its wholly-owned subsidiaries, except for Bishop
which is accounted for under the equity method due to the absence of control
discussed in Note 1. All material intercompany transactions and accounts have
been eliminated in consolidation.
Oil and Gas Producing Activities - The Company 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.
F8
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, the Company treats the proceeds as a
recovery of costs with no gain recognized until all costs have been recovered.
Impairment of Long-Lived Assets - In March 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets." SFAS No. 121 changes the
Company's method of determining impairment for all long-lived assets, including
proved oil and gas properties. During the year ended March 31, 1996, the Company
adopted SFAS No. 121, which requires the Company to assess impairment whenever
events or changes in circumstances indicate that the carrying amount of a
long-lived asset may not be recoverable. When an assessment for impairment of
oil and gas properties is performed, the Company is required to compare the net
carrying value of proved oil and gas properties on a lease-by-lease basis (the
lowest level at which cash flows can be determined on a consistent basis) to the
related estimates of undiscounted future net cash flows for such properties. If
the net carrying value exceeds the net cash flows, then impairment will be
recognized to reduce the carrying value to the estimated fair value. The
adoption of SFAS No. 121 had no effect on the Company's results of operations
for the year ended March 31, 1996.
Income Taxes - Income taxes are provided for in accordance with Statement of
Financial Accounting Standards 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.
Revenue Recognition - Revenue from oil and gas sales is recorded on an accrual
basis as sales are made and deliveries occur.
Net Income (Loss) Per Share - The computation of net income (loss) per share is
based on the rights of each class of common stock. The Class B common stock is
not entitled to participate in any distribution of shares or assets of Bishop
until such shares are converted into common stock beginning in June 1998.
Accordingly, beginning in December 1995, the common shares were allocated 100%
of the subsidiary's loss and a pro rata percentage of the remaining consolidated
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 the loss.
Accounting Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and the accompanying notes. The actual results could differ from
those estimates.
F9
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's financial statements are based on a number of significant
estimates including the allowance for doubtful accounts, determination of the
estimated fair value of oil and gas properties acquired for capital stock, and
oil and gas reserve quantities which are the basis for the calculation of
depreciation, depletion, and impairment of oil and gas properties. The Company's
reserve estimates are reviewed by an independent petroleum engineering firm.
However, management emphasizes that reserve estimates are inherently imprecise
and that estimates of more recent discoveries are more imprecise than those for
properties with long production histories. At March 31, 1996, over 80% of the
Company's oil and gas reserves are attributable to non-producing properties.
Accordingly, the Company's estimates are expected to change as future
information becomes available.
As mandated under SFAS No. 121, the Company is required under certain
circumstances to evaluate the possible impairment of the carrying value of its
long-lived assets. For proved oil and gas properties, this involves a comparison
to the estimated future undiscounted cash flows, which is the primary basis for
determining the related fair values for such properties. In addition to the
uncertainties inherent in the reserve estimation process, these amounts are
affected by historical and projected prices for oil and natural gas which have
typically been volatile. Furthermore, a substantial portion of the Company's
reserves are considered proved undeveloped reserves, which are even more
difficult to estimate. It is reasonably possible that the Company's oil and gas
reserve estimates will materially change in the forthcoming year.
Impact of Recently Issued Accounting Standards - In October 1995, the Financial
Accounting Standards Board issued a new statement titled "Accounting for
Stock-Based Compensation" (SFAS 123). The new statement is effective for fiscal
years beginning after December 15, 1995. SFAS 123 encourages, but does not
require, companies to recognize compensation expense for grants of stock, stock
options, and other equity instruments to employees based on fair value.
Companies that do not adopt the fair value accounting rules must disclose the
impact of adopting the new method in the notes to the financial statements.
Transactions in equity instruments with non-employees for goods or services must
be accounted for on the fair value method. For transactions with employees, the
Company currently does not intend to adopt the fair value accounting under SFAS
123, and will be subject only to the related disclosure requirements.
3. INVESTMENT IN BISHOP:
As discussed in Note 1, Bishop is being operated autonomously by the prior
management of Metro pursuant to the terms of separate Operating, Management, and
Voting Agreements. Since the Company does not exercise control over the
wholly-owned subsidiary's operations, the investment is accounted for by the
equity method.
F10
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Following is a summary of condensed financial information pertaining to Bishop.
Results of operations are presented for the period subsequent to the reverse
acquisition.
MARCH 31,
1996
-----------
Balance sheet data:
Current assets .................... $ 1,018,000
Noncurrent assets ................. 1,287,000
Current liabilities ............... (103,000)
Unrealized holding gain ........... (67,000)
-----------
Company's equity in net assets $ 2,135,000
===========
FOUR MONTHS
ENDED
MARCH 31,
1996
---------
Operations data:
Revenue ....................................... $ 26,000
Costs and expenses ............................ (199,000)
Gain (loss) on sale of marketable ............. 3,000
securities
Other income (expense) ........................ 8,000
---------
Net loss ................................. $(162,000)
=========
Company's equity in Bishop's loss ........ $(162,000)
=========
In October 1995, Metro awarded 30,000 shares of the Company's common stock from
the 1987 Stock Bonus Plan to officers and employees of Metro. Non-employee
directors were awarded an additional 20,000 shares of Metro's common stock
outside of the Plan. The awarded shares were not issued as of March 31, 1996.
Compensation related to these awards amounted to $75,000 which is not reflected
in the accompanying financial statements since it occurred prior to the change
of control. In October 1995, Metro also granted options to acquire 70,000 shares
of common stock from the 1992 Stock Option Plan to officers, employees, and
directors of which 45,000 are exercisable at $1.50 per share and 25,000 at $1.65
per share.
4. INCOME TAXES:
In addition to the entities which are consolidated for financial reporting
purposes, the Company prepares a consolidated income tax return with Bishop
Capital Corporation. Additionally, the results of KTOC prior to the closing date
of the reverse acquisition are excluded from the Company's consolidated income
tax return.
F11
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of income taxes at the statutory rate to the income tax benefit
reported in the accompanying financial statements is as follows:
YEARS ENDED MARCH 31,
-------------------------
1996 1995
----- -------
Computed income tax benefit (expense)
at the statutory rate .......................... $ 294,000 $ (13,000)
State income taxes and other ..................... 23,000 (1,000)
Nonqualified stock option expense not deductible
for taxes ...................................... (75,000) --
Income taxes attributable to KTOC ................ (17,000) 14,000
--------- -------
Total ..................................... $ 225,000 $ --
========= =======
Deferred tax assets (liabilities) as of March 31, 1996 are comprised of the
following:
Long-term asset - net operating loss carryforwards .......... $ 150,000
(excluding Bishop)
Long-term liability for oil and gas properties .............. (401,400)
---------
Net long-term liability .............................. $(251,400)
========
At March 31, 1996, the Company has net operating loss carryforwards for income
tax purposes of approximately $900,000, which expire primarily in 2009 through
2011. Approximately $500,000 of the Company's net operating loss carryforward is
attributable to Bishop pursuant to the Asset Purchase Agreement. In connection
with the Asset Purchase Agreement discussed in Note 1, Bishop is entitled to the
economic benefit for net operating loss carryforwards of approximately $700,000
at the date of closing. Accordingly, to the extent that Bishop realizes future
taxable income up to this amount, the Company will be required to either utilize
the net operating loss carryforward to eliminate the taxes or, if previously
utilized, the Company will be required to pay the taxes related to Bishop's
earnings.
For income tax purposes, the acquisition of the Option Properties and the
Contributed Properties discussed in Note 1 were treated as a tax free exchange
and as a result, the carrying value of the properties exceeds the related income
tax basis. Due to these temporary differences, the Company recognized deferred
income taxes of $476,400 as part of the purchase price allocation.
F12
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. LONG-TERM DEBT:
At March 31, 1996, long-term debt consists of a production payment obligation
that was incurred in connection with the purchase of the Option Properties
discussed in Note 1. As part of the consideration for the Option Properties, the
Company agreed to assign a portion of the oil and gas sales proceeds from one of
the properties acquired until a total of $130,000 is paid to the seller. The
Company recorded this non-recourse obligation at the present value of the
expected cash flows from the property of $77,184, based on a discount factor of
11.5%. The estimated maturities of the discounted obligation are approximately
$6,600 per year.
6. COMMON STOCK:
In connection with the Asset Purchase Agreement, the Company issued 100,000
shares of common stock to a non-affiliated third party for property acquisition
services. These shares were recorded at an estimated fair value of $150,000, of
which $81,750 was capitalized as a property acquisition cost and the remaining
$68,250 was charged to operations.
The Company also agreed to issue options to a non-affiliated third party to
acquire up to 400,000 shares of common stock at $1.00 per share in lieu of cash
for services to be performed on behalf of the Company. The difference between
the option price of $1.00 and the fair market value of the common stock of $1.50
was recorded as a charge to operations of $200,000 in December 1995.
In connection with the Asset Purchase Agreement, the Company agreed to grant an
option (the"Option") to Bishop to acquire 800,000 shares of common stock to be
distributed pro 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 December 1998 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 20 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, in December 1998.
In December 1995, the Company commenced a private placement of a minimum of
500,000 shares and a maximum of 1,800,000 shares of the Company's common stock
for $1.00 per share. In February 1996, the Company issued 537,500 shares and the
offering is continuing. The shares sold in this private placement are subject to
certain registration rights commencing six months after the close of the private
placement.
F13
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In January 1996, the Company purchased producing properties in the
Denver-Julesburg Basin for cash of $90,000 and 14,815 shares of the Company's
common stock with an estimated fair value of $25,000. The shares issued are
subject to certain registration rights commencing six months after the close of
the private placement.
Outstanding shares of Class B common stock are convertible into shares of common
stock on a one-for-one share basis commencing in December 1998.
7. 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. Revenues related to
these interests are excluded from the accompanying financial statements since
they were retained by KTOC.
In connection with the private placement discussed in Note 6, the Company paid
commissions of $15,000 to an entity that is a shareholder of the Company. The
Company also incurred legal fees in connection with the private placement of
$24,959 to an entity that is a shareholder of the Company.
8. COMMITMENTS:
Leases - The Company leases its office facilities under a month-to-month
arrangement with a major stockholder. Total rent expense under all operating
leases for the period from December 8, 1995 through March 31, 1996 amounted to
$8,900.
Employment Agreements - In December 1995, the Company entered into three-year
employment agreements with two executive officers which provide for aggregate
annual payments of $200,000. The agreements may be terminated by the officers
upon 30 days notice or by the Company without cause upon 30 days notice. In the
event of a termination by the Company without cause, the Company would be
required to pay the officers their respective salaries for one year. If the
termination occurs following a change in control, the Company would be required
to make lump sum payments equivalent to one year salary for each of the
officers.
9. STOCK OPTIONS:
In December 1995, the Company adopted the 1995 Stock Option and Stock
Compensation Plan reserving 750,000 shares of the Company's common stock for
issuance to employees and officers (whether or not they are employees) and
consultants. The exercise price of any option will be determined by the
administrators of the Plan. The exercise period of any option will not exceed
five years from the date of grant of the option. In connection with the
acquisition of the Option Properties and the Contributed Properties discussed in
F14
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1, the Company issued 200,000 shares of common stock with an estimated fair
value of $300,000 and the Company granted options to purchase 400,000 shares of
common stock at an exercise price of $1.00 per share to various consultants for
services rendered on behalf of the Company. The Company recognized a charge to
operations of $200,000 related to the difference between the fair value of the
common stock and the exercise price of the options.
The Company adopted in prior years two other stock option plans under which
options have been or may be granted to officers, employees, and non-employee
members of the Board of Directors. Under these two 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. One of
the plans expired in January 1992. In November 1995, the stockholders of the
Company approved an increase in the number of shares reserved for issuance under
the other plan to 500,000 shares.
Exercise prices of the options outstanding at March 31, 1996 range from $.62 to
$1.65. Expiration dates of these same options range from August 1996 to October
2005. Summarized information for the above plans is as follows:
1996 1995
-------- ------
Shares under option, beginning of year ................... 170,000 90,000
Granted ............................................... 470,000 80,000
Exercised ............................................. -- --
Cancelled or expired .................................. -- --
------- -------
Shares under option, end of year ......................... 640,000 170,000
======= =======
Shares available for grant at end of year ................ 500,000 70,000
======= =======
Shares exercisable at end of year ........................ 640,000 152,000
======= =======
Average price of options outstanding at
the end of the year .................................. $ 1.07 $ 1.00
======= =======
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, 1996, 155,160 shares have been
awarded under this plan. See Note 3 for additional information.
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
F15
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
be allocated to each participant's account in proportion to the ratio that each
participant's compensation for the fiscal years bears 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, 1996 and 1995.
10. FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107 requires all entities to
disclose the fair value of certain financial instruments in their financial
statements. Accordingly, at March 31, 1996, management's best estimate is that
the carrying amount of cash, receivables, notes payable, long-term debt,
accounts payable, and accrued expenses approximates fair value due to the short
maturity of these instruments.
11. SIGNIFICANT CONCENTRATIONS:
Substantially all of the Company's accounts receivable at March 31, 1996, result
from crude oil, natural gas sales, and joint interest billings to companies in
the oil and gas industry. This concentration of customers and joint interest
owners may impact the Company's overall credit risk, either positively or
negatively, since these entities may be similarly affected by changes in
economic or other conditions. In determining whether or not to require
collateral from a customer or joint interest owner, the Company analyzes the
entity's net worth, cash flows, earnings, and credit ratings. Receivables are
generally not collateralized; however, receivables from joint interest owners
are subject to collection under operating agreements which generally provide
lien rights. Historical credit losses incurred on trade receivables by the
Company have been insignificant.
12. SUBSEQUENT EVENTS:
In April 1996, the Company borrowed $30,000 from a bank for working capital
requirements and an additional $400,000 for the acquisition of producing oil and
gas properties in the Denver-Julesburg Basin. The $400,000 note is due in
October 1996, is collateralized by 6,596,375 shares of the Company's Class B
common stock owned by officers, directors, and KTOC. Additionally, the $400,000
note is personally guaranteed by two individuals who are officers and directors
of the Company.
In May 1996, the Company borrowed $100,000 from Bishop Capital Corporation, a
wholly-owned subsidiary, for working capital requirements. The note bears
interest at 10% and is collateralized by producing oil and gas properties in
Louisiana.
F16
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. SUPPLEMENTAL OIL AND GAS DISCLOSURES:
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 March
31, 1996 and 1995:
1996 1995
------ ------
Property acquisition costs ... $2,971,000 $ --
Development costs ............ 17,000 220,000
Exploration costs ............ -- --
---------- ----------
Total ................... $2,988,000 $ 220,000
========== ==========
Results of Operations from Oil and Gas Producing Activities - Results of
operations from oil and gas producing activities (excluding operator fees, gain
on drilling arrangements, general and administrative expense, and interest
expense) for the years ended March 31, 1996 and 1995 are presented below.
1996 1995
------ ------
Oil and gas sales ............................ $ 172,885 $ 146,671
Production costs ............................. (91,044) (53,078)
Depletion, depreciation and amortization ..... (42,513) (33,379)
Imputed income tax benefit (provision) ....... (15,000) (22,000)
--------- ---------
Results of operations from oil and gas
producing activities ..................... $ 24,328 $ 38,214
========= =========
Oil and Gas Reserve Quantities (Unaudited) - Proved oil and gas reserves are the
estimated quantities of crude oil, natural gas, and natural gas liquids which
geological and engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing economic and
operating conditions. Proved developed oil and gas reserves are those reserves
expected to be recovered through existing wells with existing equipment and
operating methods. The reserve data is based on studies reviewed by the
Company's independent petroleum engineer. Reserve estimates require substantial
judgment on the part of petroleum engineers resulting in imprecise
determinations, particularly with respect to new discoveries. Accordingly, it is
expected that the estimates of reserves will change as future production and
development information becomes available. A portion of the Company's proved
developed reserves are currently non-producing as one well requires construction
of a water disposal line. Furthermore, a substantial portion of the Company's
proved reserves are undeveloped and the estimated expenditures to develop these
properties amount to $1,321,000. If the Company does not have adequate funding
to carry out these development activities, it may be necessary to enter into
joint drilling or farm-out arrangements which would result in a reduced interest
in the future net revenues related to such properties. All proved reserves of
oil and gas are located in the United States. The following tables present
estimates of the Company's net proved oil and gas reserves, and changes therein
for the years ended March 31, 1996.
F17
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Changes in Net Quantities of Proved Reserves (Unaudited)
Oil Gas
(Bbls) (Mcf)
-------- --------
Proved reserves, beginning of year ........ 318,000 490,000
Purchase of minerals in place ........ 968,000 2,906,000
Revisions of previous estimates ...... 14,000 80,000
Production ........................... (7,000) (28,000)
--------- ----------
Proved reserves, end of year .............. 1,293,000 3,448,000
========= ==========
Proved developed reserves, end of year .... 152,000 1,198,000
========= ==========
Standardized Measure of Discounted Future Net Cash Flows (Unaudited) - Statement
of Financial Accounting Standards No. 69 prescribes guidelines for computing a
standardized measure of future net cash flows and changes therein relating to
estimated proved reserves. The Company has followed these guidelines which are
briefly discussed below.
Future cash inflows and future production and development costs are determined
by applying year-end prices and costs to the estimated quantities of oil and gas
to be produced. 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 the Company's expectations for actual revenues to be derived from those
reserves nor their present worth. The limitations inherent in the reserve
quantity estimation process, as discussed previously, are equally applicable to
the standardized measure computations since these estimates are the basis for
the valuation process.
F18
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following summary sets forth the Company's future net cash flows relating to
proved oil and gas reserves as of March 31, 1996 and 1995 based on the
standardized measure prescribed in Statement of Financial Accounting Standards
No. 69.
1996 1995
------- --------
Future cash inflows ........................ $ 33,567,000 $ 6,483,000
Future production costs .................... (9,578,000) (1,809,000)
Future development costs ................... (1,321,000) (315,000)
Future income tax expense .................. (8,048,000) (1,613,000)
------------ ------------
Future net cash flows ................. 14,620,000 2,746,000
10% annual discount for estimated
timing of cash flow ................... (6,981,000) (1,284,000)
------------ ------------
Standardized Measure of Discounted ......... $ 7,639,000 $ 1,462,000
============ ============
Future Net cash flows
Changes in Standardized Measure (Unaudited) - The following are the principal
sources of change in the standardized measure of discounted future net cash
flows for the year ended March 31, 1996:
Standardized measure, beginning of year ..................... $ 1,462,000
Sale of oil and gas produced, net of production costs ....... (82,000)
Acquisition of reserves in place ............................ 9,004,000
Net changes in prices and production costs .................. 378,000
Net changes in estimated development costs .................. (955,000)
Revisions of previous quantity estimates .................... 1,125,000
Accretion of discount ....................................... 146,000
Changes in income taxes, net ................................ (3,439,000)
-----------
Standardized measure, end of year ........................... $ 7,639,000
===========
F19
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Bishop Capital Corporation
Riverton, Wyoming
We have audited the accompanying consolidated balance sheet of Bishop Capital
Corporation and subsidiaries as of March 31, 1996, and the related consolidated
statements of operations, changes in stockholder's equity and cash flows for the
years ended March 31, 1996 and 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 Bishop Capital
Corporation and subsidiaries as of March 31, 1996, and the results of their
operations and their cash flows for the years ended March 31, 1996 and 1995, in
conformity with generally accepted accounting principles.
/s/ Hein + Associates LLP
HEIN + ASSOCIATES LLP
Denver, Colorado
May 23, 1996
F20
<PAGE>
BISHOP CAPITAL CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of American Rivers Oil Company)
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
ASSETS
<S> <C>
CURRENT ASSETS:
Cash and equivalents ........................................... $ 66,770
Marketable securities .......................................... 844,734
Receivables:
Gas royalties .............................................. 9,399
Interest and other ......................................... 13,258
Receivables from parent:
Note ....................................................... 17,522
Other ...................................................... 23,579
Notes receivable - officers .................................... 25,000
Prepaid expenses ............................................... 17,960
-----------
Total current assets ................................ 1,018,222
PROPERTY AND EQUIPMENT:
Building ....................................................... 212,157
Furniture and fixtures ......................................... 63,969
Vehicles and equipment ......................................... 38,581
-----------
314,707
Less accumulated depreciation .................................. (111,045)
-----------
Net property and equipment .......................... 203,662
OTHER ASSETS:
Undeveloped land ............................................... 411,709
Investment in limited partnership .............................. 254,112
Gas royalty interest, net of accumulated amortization
of $700,245 ................................................ 366,806
Notes receivable ............................................... 46,836
Other assets, net .............................................. 3,860
-----------
Total other assets .................................. 1,083,323
-----------
TOTAL ASSETS .................................................... $ 2,305,207
===========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES -
Accounts payable and accrued expenses .......................... $ 103,541
COMMITMENTS (Note 7)
STOCKHOLDER'S EQUITY:
Common stock, $.01 par value; 15,000,000 shares ................ 45,000
authorized; 4,500,000 shares issued and outstanding
Capital in excess of par value ................................. 2,129,879
Unrealized holding gain ........................................ 66,884
Accumulated deficit ............................................ (40,097)
-----------
Total stockholder's equity .......................... 2,201,666
-----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY ...................... $ 2,305,207
===========
</TABLE>
See accompanying notes to these consolidated financial statements.
F21
<PAGE>
BISHOP CAPITAL CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of American Rivers Oil Company)
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
MARCH 31,
------------------
1996 1995
------ ------
<S> <C> <C>
REVENUE -
Gas royalties ................................... $ 69,931 $ 68,176
COSTS AND EXPENSES:
Gas processing and production taxes ............. 19,192 9,549
General and administrative ...................... 581,936 497,694
Depreciation and amortization ................... 152,718 159,181
--------- ---------
753,846 666,424
--------- ---------
LOSS FROM OPERATIONS ................................. (683,915) (598,248)
OTHER INCOME (EXPENSE):
Interest income ................................. 51,094 61,010
Dividend income ................................. 20,061 29,229
Rental income ................................... 12,686 18,692
Gain (loss) on sale of marketable securities .... 688,400 (3,222)
Professional fees relating to reverse acquisition (150,000) --
Equity in limited partnership loss .............. (54,606) (41,282)
Discontinued operations of oil property ......... (25,850) (24,720)
Other ........................................... (1,745) 1,588
--------- ---------
NET LOSS ............................................. $(143,875) $(556,953)
========= =========
</TABLE>
See accompanying notes to these consolidated financial statements.
F22
<PAGE>
BISHOP CAPITAL CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of American Rivers Oil Company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON SHARES TREASURY STOCK
-------------------------- --------------------------
NUMBER OF NUMBER OF
SHARES AMOUNT SHARES AMOUNT
---------- ---------- --------- -----------
<S> <C> <C> <C> <C>
BALANCES, April 1, 1994 ................... 2,660,689 $ 26,607 1,050,527 $(1,689,583)
Net change in unrealized holding gain .. -- -- -- --
Stock bonus ............................ 40,000 400 -- --
Purchase of treasury stock ............. -- -- 50,707 (46,479)
Net loss ............................... -- -- -- --
----------- ----------- ----------- -----------
BALANCES, March 31, 1995 .................. 2,700,689 27,007 1,101,234 (1,736,062)
Commitment to issue common stock for
services .......................... 150,000 1,500 -- --
Net change in unrealized holding gain .. -- -- -- --
Consummation of reverse acquisition and
reflect capital structure of Bishop 1,649,311 16,493 (1,101,234) 1,736,062
Net loss ............................... -- -- -- --
----------- ----------- ----------- -----------
BALANCES, March 31, 1996 .................. 4,500,000 $ 45,000 -- $ --
=========== =========== =========== ===========
<CAPTION>
CAPITAL IN UNREALIZED RETAINED
EXCESS OF HOLDING EARNINGS
PAR VALUE GAIN (DEFICIT) TOTAL
----------- ---------- --------- --------
<S> <C> <C> <C> <C>
BALANCES, April 1, 1994 ................... $ 3,006,311 $ 572,841 $ 2,141,451 $ 4,057,627
Net change in unrealized holding gain .. -- (43,905) -- (43,905)
Stock bonus ............................ 24,400 -- -- 24,800
Purchase of treasury stock ............. -- -- -- (46,479)
Net loss ............................... -- -- (556,953) (556,953)
----------- ----------- ----------- -----------
BALANCES, March 31, 1995 .................. 3,030,711 528,936 1,584,498 3,435,090
Commitment to issue common stock for
services .......................... 223,500 -- -- 225,000
Net change in unrealized holding gain .. -- (462,052) -- (462,052)
Consummation of reverse acquisition and
reflect capital structure of Bishop (1,124,332) -- (1,480,720) (852,497)
Net loss ............................... -- -- (143,875) (143,875)
----------- ----------- ----------- -----------
BALANCES, March 31, 1996 .................. $ 2,129,879 $ 66,884 $ (40,097) $ 2,201,666
=========== =========== =========== ===========
</TABLE>
See accompanying notes to these consolidated financial statements.
F23
<PAGE>
BISHOP CAPITAL CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of
American Rivers Oil Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
MARCH 31,
------------------------
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ...................................................................................... $ (143,875) $ (556,953)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ......................................................... 155,185 164,041
Issuance of common stock for services ................................................. 225,000 --
Stock bonus compensation .............................................................. -- 24,800
Equity in limited partnership loss .................................................... 54,606 41,282
Write-down of investment .............................................................. 25,000 --
Abandoned leases ...................................................................... -- 13,576
(Gain) loss on sale of marketable securities .......................................... (688,400) 3,222
Gain on sale of property and equipment ................................................ -- (917)
Changes in operating assets and liabilities:
(Increase) decrease in:
Trade receivables ............................................................. 3,655 (5,732)
Interest and other receivables ................................................ 8,003 15,239
Receivables from parent ....................................................... (23,579) --
Prepaid expenses .............................................................. (1,680) 2,432
Other assets .................................................................. 14,126 --
Interest (decrease) in accounts payable and accrued
expenses ..................................................................... 50,770 (8,917)
---------- -----------
Net cash used in operating activities ................................................. (321,189) (307,927)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities ............................................................. (169,979) (335,830)
Proceeds from sale of marketable securities ................................................... 1,265,512 797,108
Funds advanced under notes receivable ......................................................... (42,522) (7,000)
Proceeds from notes receivable ................................................................ 64,461 8,104
Additions to undeveloped land ................................................................. (133,473) --
Proceeds from sale of property and equipment .................................................. -- 2,000
Purchase of property and equipment ............................................................ (21,274) (25,129)
Transfer of cash in reverse acquisition ....................................................... (700,000) --
----------- -----------
Net cash provided by investing activities ............................................. 262,725 439,253
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings ...................................................................... 60,000 10,000
Principal payments on borrowings .............................................................. (60,000) (10,000)
Treasury stock acquired ....................................................................... -- (46,479)
------------ -----------
Net cash used in financing activities ................................................. -- (46,479)
------------ -----------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS ....................................................... (58,464) 84,847
CASH AND EQUIVALENTS, beginning of year ........................................................... 125,234 40,387
----------- -----------
CASH AND EQUIVALENTS, end of year ................................................................. $ 66,770 $ 125,234
=========== ===========
SUPPLEMENTAL INFORMATION:
Cash paid for interest ......................................................................... $ 830 $ --
=========== ===========
Non-cash equipment purchases ................................................................... $ -- $ 13,500
=========== ===========
</TABLE>
See accompanying notes to these consolidated financial statements.
F24
<PAGE>
BISHOP CAPITAL CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of American Rivers Oil Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
In October 1995, Metro Capital Corporation (Metro) and Karlton Terry Oil Company
(KTOC) entered into an Asset Purchase Agreement whereby KTOC agreed to exchange
certain oil and gas properties (the "Contributed Properties") for a total of
7,717,820 shares of Class B common stock of Metro, which represented 80% of the
issued and outstanding voting securities of Metro. On November 29, 1995, the
shareholders of Metro approved this transaction and the closing occurred on
December 8, 1995. The shareholders also approved changing the name of the
Company from Metro to American Rivers Oil Company (AROC).
Metro's assets, except for $700,000 cash and an insignificant oil property, were
transferred at their historical carrying value to a wholly-owned subsidiary,
Bishop Capital Corporation, formerly Bishop Cable Communications Corporation
("Bishop" or the "Company"), where they are being operated autonomously by the
prior management of Metro pursuant to the terms of separate five-year Operating
and Voting Agreements. The Operating Agreement provides that Bishop's management
will have sole authority and discretion with respect to the business,
operations, and assets of Bishop. The Voting Agreement appoints Bishop's
president as attorney and proxy to vote in his sole and absolute discretion, all
of the shares of all classes of the common stock of AROC and/or Bishop owned by
them with respect to any matter brought before the shareholders of AROC and/or
Bishop relating to or involving exclusively Bishop.
Accordingly, the accompanying financial statements include the consolidated
operating results and cash flows of Metro until December 8, 1995 when the change
of control occurred. Beginning in December 1995, the accompanying financial
statements reflect only the operations of Bishop.
Bishop's subsidiaries consist of Bishop Powers, Ltd. and Bridger Creek
Partnership in which the Company holds general partner interests of 81% and 80%,
respectively.
2. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Operations - The Company is primarily engaged in the development
and/or sale of real estate and also has a royalty interest in a natural gas
property.
Principles of Consolidation - The accompanying financial statements include the
accounts of the Company and both majority-owned partnerships discussed in Note
1. All material intercompany trans actions and accounts have been eliminated in
consolidation.
Property, Equipment and Depreciation - Property and equipment are stated at
cost. Depreciation is being provided by the straight-line method over estimated
useful lives of three to thirty-one years.
F25
<PAGE>
BISHOP CAPITAL CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of American Rivers Oil Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Undeveloped Land - Undeveloped land is stated at cost and consists solely of
acquisition costs at March 31, 1996.
Impairment of Long-lived Assets - The Company periodically compares the net
carrying value of long-lived assets to the related estimates of undiscounted
future cash flows for such assets. If the net carrying value exceeds the
estimated cash flows, then impairment will be recognized to reduce the carrying
value to the estimated fair value.
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 accounted 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 stockholder's 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 limited partnership (Z-H, LTD.)
is stated at cost, adjusted for its equity in undistributed earnings since
acquisition.
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. AROC includes
the Company's operations in its consolidated income tax return. Income taxes are
allocated between AROC and the Company as if the Company was a separate
taxpayer.
Accounting Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and the accompanying notes. The actual results could differ from
those estimates.
F26
<PAGE>
BISHOP CAPITAL CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of American Rivers Oil Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's financial statements are based on a number of significant
estimates including the amortization period for the gas royalty interest,
realizability of the carrying value of undeveloped land and the limited
partnership investment discussed in Note 5, and the determination of other than
temporary impairment of marketable securities. The Company's estimates are
expected to change as additional information becomes available and it is
reasonably possible that such estimates will materially change in the
forthcoming year.
3. MARKETABLE SECURITIES:
The cost and estimated fair market value of available-for-sale securities at
March 31, 1996 were as follows:
Gross Gross
Unrealized Unrealized Fair
Holding Holding Mareket
Cost Gains Losses Value
---- ---------- --------- --------
U.S. Treasury securities $ 466,357 $ 6,078 $ (11,427) $ 461,008
Redeemable preferred
securities ....... 136,955 8,297 -- 145,252
Equity securities ....... 174,538 89,057 (25,121) 238,474
--------- --------- --------- ---------
$ 777,850 $ 103,432 $ (36,548) $ 844,734
========= ========= ========= =========
The cost and estimated fair market value of available-for-sale securities with
contractual maturities (U.S. Treasury and redeemable preferred) at March 31,
1996, by contractual maturity periods, were as follows:
Fair
Market
Cost Value
---- -------
Due in one year or less .......................... $232,105 $232,029
Due after one year through five years ............ 210,902 211,679
Due after five years through ten years ........... 90,953 97,031
Due after ten years .............................. 69,352 65,521
-------- --------
$603,312 $606,260
======== ========
F27
<PAGE>
BISHOP CAPITAL CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of American Rivers Oil Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash proceeds from the sale of available-for-sale securities during the years
ended March 31, 1996 and 1995 were $1,265,512 and $797,108, respectively. Net
gains from available-for-sale securities sold in the year ended March 31, 1996
amounted to $688,400 (gross gains of $701,152 and gross losses of $12,752). Net
losses from securities sold in the year ended March 31, 1995 were $3,222 (gross
gains of $23,638 and gross losses of $26,860).
4. GAS ROYALTY INTERESTS:
In December 1990, the Company purchased a royalty interest in certain gas
properties located in Wyoming for approximately $1,067,000. At March 31, 1996,
the net carrying value of this interest amounts to $367,000. Revenues related to
this royalty interest are affected by local gas transportation, processing, and
marketing arrangements. Reserve disclosures relating to the gas royalty interest
are not included because the information is unavailable from the operator of the
properties.
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, the Company became the general partner of a limited partnership
to develop or sell 55 acres of undeveloped real estate. The Company 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. The Company 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.
The Company 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. The Company
contributed $350,000 cash for its 19% partnership interest, which is reported on
the equity method of accounting.
F28
<PAGE>
BISHOP CAPITAL CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of American Rivers Oil Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Following is a summary of condensed financial information pertaining to this
limited partnership:
Balance sheet data at March 31, 1996:
Current assets ........................................... $ 8,327
Noncurrent assets ........................................ 1,129,394
Current liabilities ...................................... 31,622
Noncurrent liabilities ................................... 1,160,774
Company's equity in net assets ........................... 254,112
YEARS ENDED MARCH 31,
------------------------
1996 1995
---- ----
Operations data:
Revenue ................................ $ 261,526 $ 121,961
Costs and expenses ..................... 548,928 339,236
----------- -----------
Net loss .............................. $ (287,402) $ (217,275)
=========== ===========
Company's equity in limited partners... $ (54,606) $ (41,282)
=========== ===========
The land owned by the partnerships discussed above is located in Colorado
Springs, Colorado and, accordingly, the value of these properties is directly
affected by local economic and operating conditions.
6. INCOME TAXES:
The items that give rise to the components of the net deferred tax asset as of
March 31, 1996, are as follows:
Gas royalty interest ................... $ 227,000
Net operating loss carryforward ........ 231,000
--------
Deferred tax asset ................. 458,000
Less valuation allowance ............... (458,000)
---------
Net deferred tax asset .............. $ --
=========
As of March 31, 1996, AROC has net operating loss carryforwards for Federal
income tax purposes, of which approximately $500,000 is attributable to the
Company pursuant to the Asset Purchase Agreement and, if not previously
utilized, will expire in the years 2009 and 2010.
F29
<PAGE>
BISHOP CAPITAL CORPORATION AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of American Rivers Oil Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. COMMITMENTS:
Effective December 1995, a five-year management agreement (the "Agreement") was
entered into between the Company, the Company's president (the "Executive") and
the parent company. The Agreement, which supersedes a previous employment
agreement, provides for minimum annual compensation of $145,000 plus employee
benefits. On the last day of September of each year thereafter, the term of the
Agreement shall be automatically extended an additional year unless, prior to
such last day of September, the Company or the Executive shall have delivered
written notice that the term of employment will not be extended. The Agreement
may be terminated by the Company only upon the death or disability of the
Executive or for cause. If the Executive is terminated without cause, the
Company would be required to pay as severance pay an amount equal to the
Executive's salary in effect as of the date of termination multiplied by the
greater number of years remaining in the term of employment or the number three.
The Company also entered into a three-year employment agreement in December 1995
with two other officers which provide for aggregate annual compensation of
$85,000 plus employee benefits. The agreements shall be automatically extended
an additional year on September 30 of each year thereafter unless written notice
is given by either party that the term of employment will not be extended. The
agreements may be terminated upon the death or disability of the individual
officer or for cause.
8. FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107 requires all entities to
disclose the fair value of certain financial instruments in their financial
statements. Accordingly, at March 31, 1996, management's best estimate is that
the carrying amount of cash and equivalents, notes and other receivables,
accounts payable and accrued expenses approximates fair value due to the short
maturity of these instruments. Due to the short operating history of the
business owned by the limited partnership discussed in Note 5, management is
unable to estimate the fair value of the Company's 19% limited partner interest.
However, management believes that fair value exceeds the carrying value at March
31, 1996.
9. SUBSEQUENT EVENT:
In May 1996, the Company loaned an additional $100,000 to the parent company.
The note bears interest at 10% and is collateralized by oil and gas producing
properties in Louisiana.
F30
<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.
AMERICAN RIVERS OIL COMPANY
(Registrant)
Date: June 20, 1996 By: /s/ Karlton Terry
-------------------
Karlton Terry
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, 1996 /s/ Karlton Terry
-------------------
Carlton Terry
Chairman of the Board of Directors
(Principal Executive Officer)
Date: June 20, 1996 /s/ Jubal Terry
-----------------
Jubal Terry
Vice President and Acting Chief
Financial Officer
(Principal Financial Officer)
Date: June 20, 1996 /s/ Denis Bell
----------------
Denis Bell
Director
-25-
Exhibit 3.3
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
METRO CAPITAL CORPORATION
Article I shall be revised as follows:
ARTICLE I
NAME
The name of the corporation shall be:
American Rivers Oil Company
This Amendment was approved by written consent of all of the directors of
the Company on October 19, 1995 and by a majority of votes entitled to be cast
at a Special Meeting of Shareholders of the Company held on November 27, 1995 As
of November 6, 1995, the record date for the Special Meeting, the Company's only
authorized class of voting securities was its Common Stock, $.01 par value, of
which 6,000,000 shares were authorized and 1,599,455 shares were outstanding.
880,960 votes were indisputably represented at the Special Meeting and 1,599,455
votes were entitled to be cast. The total number of votes cast "for" the
Amendment was 871,173 . The total number of votes cast "against" the Amendment
was 9,787 . The total number of votes cast "for" the Amendment was sufficient
for the approval of the Amendment.
IN WITNESS WHEREOF, the undersigned certifies under penalty of perjury that
the execution of this instrument is the undersigned's act and deed, that the
undersigned has read these Articles of Incorporation and all attachments thereto
and knows the contents thereof and the facts stated therein are true.
Date: Nov. 29 ,1995
/s/ John A. Alsko
------------------------------------------
John A. Alsko, Assistant Secretary
<PAGE>
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
METRO CAPITAL CORPORATION
Article II shall be revised to 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 to 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.
<PAGE>
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.
This Amendment was approved by written consent of all of the directors of
the Company on October 19, 1995 and by a majority of votes entitled to be cast
at a Special Meeting of Shareholders of the Company held on November 27, 1995.
As of November 6, 1995, the record date for the Special Meeting, the Company's
only authorized class of voting securities was its Common Stock, $.01 par value,
of which 6,000,000 shares were authorized and 1,599,455 shares were outstanding.
880, 960 votes were indisputably represented at the Special Meeting and
1,599,455 votes were entitled to be cast. The total number of votes cast "for"
the Amendment was 871,173 . The total number of votes cast "against" the
Amendment was 9,787 . The total number of votes cast "for" the Amendment was
sufficient for the approval of the Amendment.
IN WITNESS WHEREOF, the undersigned certifies under penalty of perjury that
the execution of this instrument is the undersigned's act and deed, that the
undersigned has read these Articles of Incorporation and all attachments thereto
and knows the contents thereof and the facts stated therein are true.
Date: November 29 1995
-----------------
/s/ John A. Alsko
--------------------------------------
John A. Alsko, Assistant Secretary
Exhibit 10.9
EMPLOYMENT AGREEMENT
THIS AGREEMENT made as of this 1st day of December, 1995, by and among
AMERICAN RIVERS OIL COMPANY, a Wyoming corporation (the "Company"), and KARLTON
TERRY ("KT") (the "Executive").
Beginning December 1, 1995 Karlton Terry shall be employed by the Company
as President. This Agreement shall describe the terms and conditions under which
such employment shall be undertaken.
Pursuant to an Asset Purchase Agreement, dated October 19th, 1995, between
the Company and Karlton Terry Oil Company, Karlton Terry and Jubal Terry
(collectively "KTOC"), KTOC will be obtaining control of the Company.
The Company recognizes (i) that the Executive's contribution to the growth
and success of the Company will be substantial, and (ii) the Executive has
experience in the management of the oil and gas business The Company desires to
provide for the continued employment of the Executive by the Company and to
encourage the Executive's continued attention and dedication to the Company. The
Executive is willing to commit himself to serve the Company on the terms and
conditions herein provided.
In order to effect the foregoing, the Company and the Executive wish to
enter into a management/employment agreement on the terms and conditions set
forth below. Accordingly, in consideration of the promises and the respective
covenants and agreements of the parties herein contained, the parties hereto
agree as follows:
1. Employment. The Company hereby agrees to employ the Executive, and the
Executive hereby agrees to serve the Company on the terms and conditions set
forth herein.
2. Term. The employment of the Executive by the Company as provided in
Section 1 will commence on the date hereof and continue for three (3) years from
the date hereof, unless sooner terminated as hereinafter provided. On December
1, 1995, and on the first day of December of each year thereafter, the term of
the Executive's employment shall be automatically extended an additional year
unless, prior to such first day of December, the Company shall have delivered to
the Executive or the Executive shall have delivered to the Company written
notice that the term of the Executive's employment hereunder will not be
extended.
3. Position and Duties. Karlton Terry shall serve as President of the
Company, his powers and duties in that capacity to be such as may be determined
from time to time by the Board of Directors of the Company.
The Company agrees to headquarter the Executive in the Denver, Colorado
area except for required travel on the Company's business.
<PAGE>
4. Extent of Services The Executive shall devote his time, attention and
energies to the business of the Company and shall not, during the term of this
Agreement, be engaged in any other business activity, whether or not such
business activity is pursued for gain, profit or other pecuniary advantage,
unless prior approval therefor has been obtained from the Board of Directors of
the Company. This provision shall not be construed as preventing the Executive
from investing his assets in such form or manner as will minimize services on
the part of the Executive in the operation of the affairs of the companies in
which such investments are made.
5. Compensation and Related Matters. The Executive's compensation, as set
forth below, is to be provided by the Company.
a. Salary. During the period of Karlton Terry's employment hereunder,
the Company shall pay to Karlton Terry a salary at a rate of not less that
$125,000 per annum.
The Executive's salary shall be paid in equal installments as nearly as
practicable on the 15th and the last days of each month in arrears. The
Executive's salary may be increased from time to time (i) in accordance with
normal business practices of the Company, (ii) based upon the Executive's
performance and/or (iii) to reflect increases in the cost of living. The
Executive's salary, if so increased, shall not thereafter during the term of the
Agreement be decreased. Compensation of the Executive by salary payments shall
not be deemed exclusive and shall not prevent the Executive from participating
in any other compensation or benefit plan of the Company. The salary payments
(including any increased salary payments) hereunder shall not in any way limit
or reduce any other obligation of the Company, and no other compensation,
benefit or payment hereunder shall in any way limit or reduce the obligation of
the Company to pay the Executive's salary hereunder.
b. Expenses. During the term of the Executive's employment hereunder,
the Executive shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive in performing services hereunder,
including all expenses of travel and living expenses while away from home on
business or at the request of and in the service of the Company, provided that
such expenses are incurred and accounted for in accordance with the policies and
procedures established by the Company.
c. Other Benefits. The Company shall maintain in full force and effect,
and the Executive shall be entitled to continue to participate in, all of its
employee benefit plans and arrangements in effect on the date hereof or
<PAGE>
effective concurrent herewith in which the Executive participates or plans and
arrangements providing the Executive with at lease equivalent benefits
thereunder (including without limitation each stock option plan, stock bonus
plan, life insurance and health-and-accident plan and arrangement, medical
insurance plan, disability plan and vacation plan). The Company shall not make
any changes in such plans or arrangements which would adversely affect the
Executive's rights or benefits thereunder, unless such change occurs pursuant to
a program applicable to all executives of the Company and does not result in a
proportionately greater reduction in the rights of or benefits to the Executive
as compared with any other of the executives of the Company. The Executive shall
be entitled to participate in or receive benefits under any employee benefit
plan or arrangement made available by the Company in the future to executives
and key management employees, subject to and on a basis consistent with the
terms, conditions and overall administration of such plans and arrangements.
Nothing paid to the Executive under any plan or arrangements presently in effect
or made available in the future shall be deemed to be in lieu of the salaries
payable to the Executive pursuant to paragraph (a) of this Section. Any payments
or benefits payable to the Executive hereunder in respect of any calendar year
during which the Executive is employed by the Company for less than the entire
such year shall, unless otherwise provided in the applicable plan or
arrangement, be prorated in accordance with the number of days in such calendar
year during which the Executive is so employed.
d. Vacations. The Executive shall be entitled to the number of vacation
days in each calendar year, and to compensation in respect of earned but unused
vacation days, determined in accordance with the Company's vacation plan. The
Executive shall also be entitled to all paid holidays given by the Company to
its executives.
e. Services Furnished. The Company shall furnish the Executive with
office space and such other facilities and services as shall be suitable to the
individual Executive's positions and adequate for the performance of his duties
as set forth in Section 3 hereof.
6. Disclosure of Information. The Executive recognizes and acknowledges
that the operation of the Company's businesses and know how as it may exist from
time to time, and the Company's trade secrets are valuable, special and unique
assets of the Company's business. The Executive will not, during or after the
term of his employment, disclose such information and know how or any part
thereof, or any trade secrets, to any person, firm, corporation, association or
other entity for any reason or purpose whatsoever. In the event of a breach or
threatened breach by an Executive of the provisions of this paragraph, the
Company shall be entitled to an injunction restraining the Executive from
disclosing in whole or in part such information or any trade secrets or from
rendering any services to any person, firm, corporation, association or other
entity to whom such information in whole or in part has been disclosed or is
threatened to be disclosed. Nothing herein shall be construed as prohibiting the
Company from pursuing any other remedies available to the Company for such
breach or threatened breach, including the recovery of damages from the
Executive.
7. Termination. The individual Executive's employment hereunder may be
terminated only by the Company under the following circumstances:
<PAGE>
a. Death. The Executive's employment hereunder shall terminate upon his
death.
b. Disability. If, as a result of the Executive's incapacity due to
physical or mental illness, the Executive shall have been absent from his duties
hereunder on a full-time basis for the entire period of six consecutive months,
and within thirty (30) days after written Notice of Termination is given (which
may occur before or after the end of such six-month periods) shall not have
returned to the performance of his duties hereunder on a full-time basis, the
Company may terminate the Executive's employment hereunder
c. Cause. The Company may terminate the Executive's employment hereunder
for Cause. For purposes of this Agreement, the Company shall have "Cause" to
terminate the Executive's employment hereunder upon (A) the willful and
continued failure by the Executive to substantially perform his duties hereunder
(other than any such failure resulting from the Executive's incapacity due to
physical or mental illness), after demand for substantial performance is
delivered by the Company that specifically identifies the manner in which the
Company believes the Executive has not substantially performed his duties, or
(B) the willful engaging by the Executive in misconduct which is materially
injurious to the Company, monetarily or otherwise. For purposes of this
paragraph, no act, or failure to act, on the Executive's part shall be
considered "willful" unless done, or omitted to be done, by him not in good
faith and without reasonable belief that his action or omission was in the best
interest of the Company. Notwithstanding the foregoing, the Executive shall not
be deemed to have been terminated for Cause without (i) reasonable notice to the
Executive setting forth the reasons for the Company's intention to terminate for
Cause; (ii) an opportunity for the Executive, together with his counsel, to be
heard before the Board of Directors of the Company, and (iii) delivery to the
Executive of a Notice of Termination as defined in subsection (e) hereof from
the Board of Directors of the Company finding that in the good faith opinion of
such Board the Executive was guilty of conduct set forth above in clause (A) or
(B) of the preceding sentence, and specifying the particulars thereof in detail.
d. Termination by the Executive. The Executive may terminate his
employment hereunder (i) for Good Reason or (ii) if his health should become
impaired to an extent that makes his continued performance of his duties
hereunder hazardous to his physical or mental health or his life, provided that
the Executive shall have furnished the Company with a written statement from a
qualified doctor to such effect.
<PAGE>
For purposes of this Agreement, "Good Reason" shall mean (A) a change in
control of the Company (as defined below) which is not approved by a majority of
the shares of the Company owned by the Executives, (B) a failure by the Company
to comply with any material provision of this Agreement which has not been cured
within ten days after notice of such noncompliance has been given by the
Executive to the Company as the case may be, or (C) any purported termination of
the Executive's employment which is not effected pursuant to a Notice of
Termination satisfying the requirements of paragraph (e) hereof (and for
purposes of this Agreement no such purported termination shall be effective).
For purposes of this Agreement, a "change in control of the Company" shall
mean a change in control of a nature that would be required to be reported in
response to Item 5(f) of schedule 14A of Regulation 14A promulgated under the
securities Exchange Act of 1934 (the "Exchange Act"); provided that, without
limitation, such a change in control shall be deemed to have occurred if (i) any
"person" (as that term is used in Sections 13(d) and 14(d) of the Exchange Act),
other than the Company or any "person" who on the date hereof is a director or
officer of the Company of any "person" who on the date hereof is a director or
officer of the Company, is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing 20% of more of the combined voting power of the Company's
then outstanding securities, or (ii) during any period of two consecutive years
during the term of this Agreement, individuals who at the beginning of such
period constitute the Board of the Company cease for any reason to constitute at
least a majority thereof, unless the election of each director who was not a
director at the beginning of such period has been approved in advance by
directors representing at least two-thirds of the directors then in office who
were directors at the beginning of the period.
e. Any termination of the Executive's employment by the Company or by
the Executive (other than termination pursuant to subsection (a) above) shall be
communicated by written Notice of Termination to the other parties hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated.
f. "Date of Termination" shall mean (i) if the Executive's employment is
terminated by his death, the date of his death, (ii) if the Executive's
employment is terminated pursuant to subsection (b) above, 30 days after Notice
of Termination is given (provided that the Executive shall not have returned to
the performance of his duties on a full-time basis during such 30 days period),
(iii) if the Executive's employment is terminated pursuant to subsection (e)
above, the date specified in the Notice of Termination, and (iv) if the
Executive's employment is terminated for any other reason, the date on which a
Notice of Termination is given; provided that if within 30 days after any Notice
of Termination is given the party receiving such Notice of Termination notifies
the other party that a dispute exists concerning the termination, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding and final arbitration
award or by a final judgment, order or decree of a court of competent
jurisdiction (the time for appeal therefrom having expired and no appeal having
been perfected).
<PAGE>
8. Compensation Upon Termination or During Disability.
a. If the Executive is unable to perform his services by reason of
illness or incapacity for a period of more than six months, the compensation
otherwise payable to him during the continued period of such illness or
incapacity shall be reduced by the amount of any insurance benefits provided by
the Company. The Company may terminate this Agreement at any time after the
Executive shall be absent from his employment for whatever cause, for a
continuous period of more than six months and all obligations of the Company and
shareholders hereunder shall cease upon such termination.
b. If the Executive's employment is terminated by his death, the Company
shall pay to the Executive's spouse, or if he leaves no spouse, to his estate,
commencing on the next succeeding day which is the 15th day or last day of the
month, as the case may be, and semi-monthly thereafter on the 15th and last days
of each month, until a total of 6 payments have been made, an amount on each
payment date equal to the semi-monthly salary payment payable to the Executive
pursuant to Section 5 (a) hereof at the time of his death.
c. If the Executive's employment shall be terminated for Cause, the
Company shall pay the Executive his full salary through the Date of Termination
at the rate in effect at the time Notice of Termination is given and the Company
shall have no further obligations to the Executive under this Agreement.
d. If (A) in breach of this Agreement, the Company shall terminate an
Executive's employment other than pursuant to Section 7(b) or 7(c) hereof (it
being understood that a purported termination pursuant to Section 7(b) or 7(c)
hereof which is disputed and finally determined not to have been proper shall be
a termination by the Company in breach of this Agreement) or (B) the Executive
shall terminate his employment for Good Reason, then
(i) the Company shall pay the Executive his full salary through the
Date of Termination at the rate in effect at the time Notice of Termination is
given;
(ii) in lieu of any further salary payments to the Executive for
periods subsequent to the Date of Termination, the Company shall pay as
severance pay to the Executive an amount equal to the product of (A) the
Executive's annual salary rate in effect as of the Date of Termination,
multiplied by (B) the greater of the number of years (including partial years)
remaining in the term of employment hereunder or the number one, such payments
to be made in a lump sum on or before the 5th day following the Date of
Termination.
<PAGE>
(iii) if termination of the Executive's employment arises out of a
breach by the Company of this Agreement, the Company shall pay all other damages
to which the Executive may be entitled as a result of such breach, including
damages for any and all loss of benefits to the Executive under the Company's
employee benefit plans which the Executive would have received if the Company
had not breached this Agreement and had the Executive's employment continued for
the full term provided in Section 2 hereof, and including all legal fees and
expenses incurred by him as a result of such termination.
e. If the Executive shall terminate his employment under clause (ii) of
Section 7(d) hereof, the Company shall pay the Executive his full salary through
the Date of Termination at the rate in effect at the time Notice of Termination
is given together with such reasonable severance payment, if any, or the
Company's Board of Directors may determine.
f. Unless the Executive is terminated for Cause, the Company shall
maintain in full force and effect, for the continued benefit of the Executive
for the greater of the number of years (including partial years) remaining in
the term of employment hereunder or the number three, all employee benefit plans
and programs in which the Executive was entitled to participate immediately
prior to the Date of Termination provided that the Executive's continued
participation is possible under the general terms and provisions of such plans
and programs. In the event that the Executive's participation in any such plan
or program is barred, the Company shall arrange to provide the Executive with
benefits substantially similar to those which the Executive would otherwise have
been entitled to receive under such plans and programs from which his continued
participation is barred.
g. The Executive shall not be required to mitigate the amount of any
payment provided for in this Section 8 by seeking other employment or otherwise.
<PAGE>
9. Successors: Binding Agreement.
a. The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company, by agreement in form and substance
satisfactory to the Executive, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. Failure by the
Company to obtain such agreement prior to the effectiveness of any such
succession shall be a breach of the Agreement and shall entitle the Executive to
compensation from the Company in the same amount and on the same terms as he
would be entitled to hereunder if he terminated his employment for Good Reason,
except that for purposes of implementing the foregoing, the date on which any
such succession becomes effective shall be deemed the Date of Termination. As
used in the Agreement, "Company" shall mean the Company as hereinbefore defined
and any successor to its business and/or assets as aforesaid which executes and
delivers the agreement provided for in this Section 9 or which otherwise becomes
bound by all the terms and provisions of this Agreement by operation of law.
b. This Agreement and all rights of the Executive hereunder shall inure
to the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If an Executive should die while any amounts would still
be payable to him hereunder if he had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the Executive's devisee, legatee or other designee or, if
there be no such designee, to the Executive's estate.
10. Notice. For purposes of this Agreement, notices, demands and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or (unless otherwise specified)
mailed by United States registered mail, return receipt requested, postage
prepaid, addressed to the Company, and the Executive at the following addresses:
(i) If to the Company:
Karlton Terry, President
American Rivers Oil Co.
700 E. 9th Ave., #106
Denver, CO 80203
(ii) If to the Executive
Karlton Terry
American Rivers Oil Co.
700 E. 9th Ave., #106
Denver, CO 80203
Any party to this Agreement may change the address for giving notices by written
notice to the other party in conformity with the foregoing, except that notices
of change of address shall be effective only upon receipt.
<PAGE>
11. Miscellaneous. No provisions of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by the Executives and such officers as may be specifically
designated by the Company. No waiver by any party hereto at any time of any
breach by any other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same ar at any
prior or subsequent time. No agreements or presentations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
any party which are not set forth expressly in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Colorado.
12. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not effect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
13. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same instrument.
14. Governing Law. This interpretation and construction of this Agreement,
and all matters relating hereto, shall be governed by the internal laws of the
State of Colorado.
15. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration, conducted
before a panel of three arbitrators, in Denver, Colorado, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction. The expense
of such arbitration shall be borne by the Company.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
and year first above written.
AMERICAN RIVERS OIL COMPANY
By /s/ JUBAL S. TERRY
---------------------------------------
Jubal S. Terry
By /s/ KARLTON TERRY
---------------------------------------
Karlton Terry
Exhibit 10.10
AMERICAN RIVERS OIL COMPANY
1995 STOCK OPTION AND STOCK COMPENSATION PLAN
1. Purposes of and Benefits Under the Plan. This 1995 Stock Option and
Stock Compensation Plan (the "Plan") is intended to encourage stock ownership by
employees and officers (whether or not they are employees) of and consultants to
American Rivers Oil Company (the "Corporation"), so that they may acquire or
increase their proprietary interest in the Corporation, and is intended to
facilitate the Corporation's efforts to (i) induce qualified persons to become
employees or officers of or consultants to the Corporation; (ii) compensate
employees, officers and consultants for services to the Corporation; and (iii)
encourage such persons to remain in the employ of or associated with the
Corporation and to put forth maximum efforts for the success of the Corporation.
The Plan also provides the Corporation the opportunity to compensate such
persons through the issuance of shares of its Common Stock, in lieu of cash,
therefore allowing the Corporation to preserve its cash for other purposes.
2. Definitions. As used in this Plan, the following words and phrases shall
have the meanings indicated:
(a) "Board" shall mean the Board of Directors of the Corporation.
(b) "Committee" shall mean the Compensation Committee appointed by the
Board, if one has been appointed. If no Committee has been appointed, the term
"Committee" shall mean the Board.
(c) "Common Stock" shall mean the Corporation's $.01 par value common
stock.
(d) "Employee" means any person or entity that renders bona fide
services to the Corporation, including, without limitation: (i) a person
employed by the Company; (ii) an officer or director of the Company, (iii) a
person or company engaged by the Company as a consultant or advisor; (iv) a
lawyer, law firm, accountant or accounting firm, engaged by the Company; or (v)
any other person defined as an "employee" herein.
(e) "Recipient" means any person granted an Option or awarded a Award
hereunder.
<PAGE>
3. Administration.
---------------
(a) The Plan shall be administered by the Committee. The Committee shall
have the authority in its discretion, subject to and not inconsistent with the
express provisions of the Plan, to administer the Plan and to exercise all the
powers and authorities either specifically conferred under the Plan or necessary
or advisable in the administration of the Plan, including the authority: to
grant Options and Awards; to determine the vesting schedule and other
restrictions, if any, relating to Options and Awards; to determine the purchase
price of the shares of Common Stock covered by each Option (the "Option Price");
to determine the persons to whom, and the time or times at which, Options and
Awards shall be granted; to determine the number of shares to be covered by each
Option or Award; to interpret the Plan; to prescribe, amend and rescind rules
and regulations relating to the Plan; to determine the terms and provisions of
the Option agreements (which need not be identical) entered into in connection
with Options granted under the Plan; and to make all other determinations deemed
necessary or advisable for the administration of the Plan. The Committee may
delegate to one or more of its members or to one or more agents such
administrative duties as it may deem advisable, and the Committee or any person
to whom it has delegated duties as aforesaid may employ one or more persons to
render advice with respect to any responsibility the Committee or such person
may have under the Plan.
(b) Options and Awards granted under the Plan shall be evidenced by duly
adopted resolutions of the Committee included in the minutes of the meeting at
which they are adopted or in a unanimous written consent.
(c) The Committee shall endeavor to administer the Plan and grant
Options and Awards hereunder in a manner that is compatible with the obligations
of persons subject to Section 16 of the U.S. Securities Exchange Act of 1934
(the "1934 Act"), although compliance with Section 16 is the obligation of the
Recipient, not the Corporation. Neither the Committee, the Board nor the
Corporation can assume any legal responsibility for a Recipient's compliance
with his obligations under Section 16 of the 1934 Act.
(d) No member of the Committee or the Board shall be liable for any
action taken or determination made in good faith with respect to the Plan or any
Option or Award granted hereunder.
4. Eligibility.
(a) Subject to certain limitations hereinafter set forth, Options and
Awards may be granted to employees and officers (whether or not they are
employees) of and consultants to the Corporation. In determining the persons to
whom Options or Awards shall be granted and the number of shares to be covered
by each Option or Award, the Committee shall take into account the duties of the
respective persons, their present and potential contributions to the success of
the Corporation, and such other factors as the Committee shall deem relevant to
accomplish the purposes of the Plan.
-2-
<PAGE>
(b) A Recipient shall be eligible to receive more than one grant of
an Option or Award during the term of the Plan, on the terms and subject to the
restrictions herein set forth.
5. Stock Reserved.
(a) The stock subject to Options or Awards hereunder shall be shares of
Common Stock. Such shares, in whole or in part, may be authorized but unissued
shares or shares that shall have been or that may be reacquired by the
Corporation. The aggregate number of shares of Common Stock as to which Options
and Awards may be granted from time to time under the Plan shall not exceed
750,000, subject to adjustment as provided in Section 6(f) hereof.
(b) If any Option outstanding under the Plan for any reason expires or
is terminated without having been exercised in full, or if any Award granted is
forfeited because of vesting or other restrictions imposed at the time of grant,
the shares of Common Stock allocable to the unexercised portion of such Option
or the forfeited portion of the Award shall become available for subsequent
grants of Options and Awards under the Plan.
6. Terms and Conditions of Options. Each Option granted pursuant to the
Plan shall be evidenced by a written Option agreement between the Corporation
and the Recipient, which agreement shall be substantially in the form of Exhibit
A hereto as modified from time to time by the Committee in its discretion, and
which shall comply with and be subject to the following terms and conditions:
(a) Number of Shares. Each Option agreement shall state the number of
shares of Common Stock covered by the Option.
(b) Option Price. Each Option agreement shall state the Option Price,
which shall be determined by the Committee subject only to the following
restrictions:
(1) The Option Price shall be subject to adjustment as provided in
Section 6(f) hereof.
(2) The date on which the Committee adopts a resolution expressly
granting an Option shall be considered the day on which such option is granted,
unless a future date is specified in the resolution.
(c) Term of Option. Each Option agreement shall state the period during
and times at which the Option shall be exercisable, in accordance with the
following limitations:
(1) The date on which the Committee adopts a resolution expressly
granting an Option shall be considered the day on which such Option is granted,
although such grant shall not be effective until the Recipient has executed an
Option agreement with respect to such Option.
-3-
<PAGE>
(2) The exercise period of any Option shall not exceed five years
from the date of grant of the Option.
(3) The Committee shall have the authority to accelerate or extend
the exercisability of any outstanding Option at such time and under such
circumstances as it, in its sole discretion, deems appropriate. No exercise
period may be so extended to increase the term of the Option beyond five years
from the date of the grant.
(d) Method of Exercise and Medium and Time of Payment.
(1) An Option may be exercised as to any or all whole shares of
Common Stock as to which it then is exercisable, provided, however, that no
Option may be exercised as to less than 100 shares (or such number of shares as
to which the Option is then exercisable if such number of shares is less than
100).
(2) Each exercise of an Option granted hereunder, whether in whole
or in part, shall be effected by written notice to the Secretary of the
Corporation designating the number of shares as to which the Option is being
exercised, and shall be accompanied by payment in full of the Option Price for
the number of shares so designated, together with any written statements
required by, or deemed by the Corporation's counsel to be advisable pursuant to,
any applicable securities laws.
(3) The Option Price shall be paid in cash, or in shares of Common
Stock having a fair market value equal to such Option Price, or in property or
in a combination of cash, shares and property and, subject to approval of the
Committee, may be effected in whole or in part with funds received from the
Corporation at the time of exercise as a compensatory cash payment.
(4) The Committee shall have the sole and absolute discretion to
determine whether or not property other than cash or Common Stock may be used to
purchase the shares of Common Stock hereunder and, if so, to determine the value
of the property received.
(5) The Recipient shall make provision for the withholding of taxes
as required by Paragraph 8 hereof.
-4 -
<PAGE>
(e) Transferability Restriction.
(l)(A) As a condition to the transfer of any shares of Common Stock
issued upon exercise of an Option granted under this Plan, the Corporation may
require an opinion of counsel, satisfactory to the Corporation, to the effect
that such transfer will not be in violation of the Securities Act of 1933, as
amended (the "1933 Act") or any other applicable securities laws or that such
transfer has been registered under federal and all applicable state securities
laws. (B) Further, the Corporation shall be authorized to refrain from
delivering or transferring shares of Common Stock issued under this Plan until
the Committee determines that such delivery or transfer will not violate
applicable securities laws and the Recipient has tendered to the Corporation any
federal, state or local tax owed by the Recipient as a result of exercising the
Option or disposing of any Common Stock when the Corporation has a legal
liability to satisfy such tax. (C) The Corporation shall not be liable for
damages due to delay in the delivery or issuance of any stock certificate for
any reason whatsoever, including, but not limited to, a delay caused by listing
requirements of any securities exchange or any registration requirements under
the 1933 Act, the 1934 Act, or under any other state, federal or provincial law,
rule or regulation. (D) The Corporation is under no obligation to take any
action or incur any expense in order to register or qualify the delivery or
transfer of shares of Common Stock under applicable securities laws or to
perfect any exemption from such registration or qualification unless otherwise
provided in a separate written agreement. (E) Furthermore, the Corporation will
not be liable to any Recipient for failure to deliver or transfer shares of
Common Stock if such failure is based upon the provisions of this paragraph.
(f) Effect of Certain Changes.
(1) If there is any change in the number of shares of outstanding
Common Stock through the declaration of stock dividends, or through a
recapitalization resulting in stock splits or combinations or exchanges of such
shares, the number of shares of Common Stock available for Options and the
number of such shares covered by outstanding Options, and the exercise price per
share of the outstanding Options, shall be proportionately adjusted by the
Committee to reflect any increase or decrease in the number of issued shares of
Common Stock; provided, however, that any fractional shares resulting from such
adjustment shall be eliminated.
(2) In the event of the proposed dissolution or liquidation of the
Corporation, or any corporate separation or division, including, but not limited
to, split-up, split-off or spin-off, or a merger or consolidation of the
Corporation with another corporation, the Committee may provide that the holder
of each Option then exercisable shall have the right to exercise such Option (at
its then current Option Price) solely for the kind and amount of shares of stock
and other securities, property, cash or any combination thereof receivable upon
such dissolution, liquidation, corporate separation or division, or merger or
consolidation by a holder of the number of shares of Common Stock for which such
Option might have been exercised immediately prior to such dissolution,
liquidation, corporate separation or division, or merger or consolidation; or,
in the alternative the Committee may provide that each Option granted under the
Plan shall terminate as of a date fixed by the Committee; provided, however,
that not less than 30 days' written notice of the date so fixed shall be given
to each Recipient, who shall have the right, during the period of 30 days
preceding such termination, to exercise the Option as to all or any part of the
shares of Common Stock covered thereby, including shares as to which such Option
would not otherwise be exercisable.
-5-
<PAGE>
(3) Paragraph (2) of this Section 6(f) shall not apply to a merger
or consolidation in which the Corporation is the surviving corporation and
shares of Common Stock are not converted into or exchanged for stock, securities
of any other corporation, cash or any other thing of value. Notwithstanding the
preceding sentence, in case of any consolidation or merger of another
corporation into the Corporation in which the Corporation is the surviving
corporation and in which there is a reclassification or change (including a
change to the right to receive cash or other property) of the shares of Common
Stock (excluding a change in par value, or from no par value to par value, or
any change as a result of a subdivision or combination, but including any change
in such shares into two or more classes or series of shares), the Committee may
provide that 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
Corporation), property, cash or any combination thereof receivable upon such
reclassification, change, consolidation or merger by the holder of the number of
shares of Common Stock for which such Option might have been exercised.
(4) To the extent that the foregoing adjustments relate to stock or
securities of the Corporation, such adjustments shall be made by the Committee,
whose determination -in that respect shall be final, binding and conclusive.
(5) Except as expressly provided in this Section 6(f) the Recipient
shall have no rights by reason of any subdivision or consolidation of shares of
stock of any class, or the payment of any stock dividend or any other increase
or decrease in the number of shares of stock of any class, or by reason of any
dissolution, liquidation, merger, or consolidation or spin-off.of assets or
stock of.another corporation; .and any issue by the Corporation of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall not affect, and no adjustment by reason thereof shall be made with respect
to, the number or price of shares of Common Stock subject to an Option. The
grant of an Option pursuant to the Plan shall not affect in any way the right or
power of the Corporation to make adjustments, reclassifications, reorganizations
or changes of its capital or business structures, or to merge or consolidate, or
to dissolve, liquidate, or sell or transfer all or any part of its business or
assets.
-6-
<PAGE>
(g) No Rights as Shareholder - Non-Distributive Intent.
(1) Neither a Recipient of an Option nor such Recipient's legal
representative, heir, legatee or distributee, shall be deemed to be the holder
of, or to have any rights of a holder with respect to, any shares subject to
such Option until after the Option is exercised and the shares are issued.
(2) No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distributions
or other rights for which the record date is prior to the date such stock
certificate is issued, except as provided in Section 6(f) hereof.
(3) Upon exercise of an Option at a time when there is no
registration statement in effect under the 1933 Act relating to the shares
issuable upon exercise, shares may be issued to the Recipient only if the
Recipient represents and warrants in writing to the Corporation that the shares
purchased are being acquired for investment and not with a view to the
distribution thereof and provides the Corporation with sufficient information to
establish an exemption from the registration requirements of the 1933 Act.
(4) No shares shall be issued upon the exercise of an Option unless
and until there shall have been compliance with any then applicable requirements
of the U.S. Securities and Exchange Commission or any other regulatory agencies
having jurisdiction over the Corporation.
(h) Other Provisions. Option Agreements authorized under the Plan may
contain such other provisions as the Committee shall deem advisable, including,
without limitation, the imposition of restrictions upon the vesting and exercise
of an Option.
7. Grant of Stock Awards. In addition to, or in lieu of, the grant of an
Option, the Committee may grant Awards.
(a) At the time of grant of a Award, the Committee may impose a vesting
period of up to five years, and such other restrictions which it deems
appropriate. Unless otherwise directed by the Committee at the time of grant of
a Award, the Recipient shall be considered a shareholder of the Corporation as
to the Award shares which have vested in the grantee at any time regardless of
any forfeiture provisions which have not yet arisen.
(b) The grant of a Award and the issuance and delivery of shares of
Common Stock pursuant thereto shall be subject to approval by the Corporation's
counsel of all legal matters in connection therewith, including compliance with
the requirements of the 1933 Act, the 1934 Act, other applicable securities
laws, rules and regulations, and the requirements of any stock exchanges upon
which the Common Stock then may be listed. Any certificates prepared to evidence
Common Stock issued pursuant to a Award grant shall bear legends as the
Corporation's counsel may seem necessary or advisable.
-7-
<PAGE>
8. Agreement by Recipient Regarding Withholding Taxes. Each Recipient
agrees that the Corporation, to the extent permitted or required by law, shall
deduct a sufficient number of shares due to the Recipient upon exercise of the
Option or the grant of a Award to allow the Corporation to pay federal,
provincial, state and local taxes of any kind required by law to be withheld
upon the exercise of such Option or payment of such Award from any payment of
any kind otherwise due to the Recipient. The Corporation shall not be obligated
to advise any Recipient of the existence of any tax or the amount which the
Corporation will be so required to withhold.
9. Term of Plan. Options and Awards may be granted under this Plan from
time to time within a period of five years from the date the Plan is adopted by
the Board.
10. Amendment and Termination of the Plan. The Committee at any time and
from time to time may suspend, terminate, modify or amend the Plan. No
suspension, termination, modification or amendment of the Plan may adversely
affect any Option or Award previously granted, unless the written consent of the
Recipient is obtained.
11. Assumption. Subject to Section 6, the terms and conditions of any
outstanding Options granted pursuant to this Plan shall be assumed by, be
binding upon and shall inure to the benefit of any successor corporation to the
Corporation and shall, to the extent applicable, continue to be governed by the
terms and conditions of this Plan. Such successor corporation may, but shall not
be obligated to, assume this Plan.
12. Termination of Right of Action. Every right of action arising out of or
in connection with the Plan by or on behalf of the Corporation, or by any
shareholder of the Corporation against any past, present or future member of the
Board or the Committee, or against any employee, or by an employee (past,
present or future) against the Corporation, irrespective of the place where an
action may be brought and of the place of residence of any such shareholder,
director or employee, will cease and be barred by the expiration of three years
from the date of the act or omission in respect of which such right of action is
alleged to have arisen or such shorter period as may be provided by law.
13. Tax Litigation. The Corporation shall have the right, but not the
obligation, to contest, at its expense, any tax ruling or decision,
administrative or judicial, on any issue which is related to the Plan and which
the Board believes to be important to holders of Options or Common Stock issued
pursuant to Awards granted under the Plan and to conduct any such contest or any
litigation arising therefrom to a final decision.
14. Adoption. This Plan was approved by the Board of Directors of the
Corporation effective November ---, 1995.
-8-
<PAGE>
Exhibit A
----------
FORM OF STOCK OPTION AGREEMENT
------------------------------
STOCK OPTION AGREEMENT made as of this ---------- day of -------- , 199
- - -----, by and between American Rivers Oil Company, a Wyoming (the
"Corporation"), and (the "Recipient").
In accordance with the Corporation's 1995 Stock Option and Stock Award Plan
(the "Plan"), a copy of which is attached hereto and is incorporated herein by
reference, the Corporation desires, in connection with the services of the
Recipient, to provide the Recipient with an opportunity to acquire shares of the
Corporation's $.01 par value common stock ("Common Stock") on favorable terms
and thereby increase the Recipient's proprietary interest in the Corporation and
incentive to put forth maximum efforts for the success of the business of the
Corporation. Capitalized terms used but not defined herein are used as defined
in the Plan.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein set forth and other good and valuable consideration, the Corporation and
the Recipient agree as follows:
1. Confirmation of Grant of Option. Pursuant to a determination of the
Committee or, in the absence of a Committee, by the Board of Directors of the
Corporation made on --------- , 19 ---- (the "Date of Grant"), the Corporation,
subject to the terms of the Plan and of this Agreement, confirms that the
Recipient has been irrevocably granted on the Date of Grant, as a matter of
separate inducement and agreement, a Stock Option (the "Option") exercisable to
purchase an aggregate of shares --------- of Common Stock on the terms and
conditions herein set forth, subject to adjustment as provided in Paragraph 8
hereof.
2. Option Price. The Option Price of shares of Common Stock covered by the
Option will be -------- per share (the "Option Price") subject to adjustment as
provided in Paragraph 8 hereof.
3. Exercise of Option. Except as otherwise provided herein or in Section 6
of the Plan, the Option may be exercised in whole or in part at any time during
the term of the Option. The Option may not be exercised at any one time as to
fewer than 100 shares (or such number of shares as to which the Option is then
exercisable if such number of shares is less than 100). The Option may be
exercised by written notice to the Secretary of the Corporation accompanied by
payment in full of the Option Price as provided in Section 6(d) of the Plan.
4. Term of Option. The term of the Option will be through ---------- ,
- - -------, subject to earlier termination or cancellation as provided in this
Agreement. The holder of the Option will not have any rights to dividends or any
other rights of a shareholder with respect to any shares of Common Stock subject
to the Option until such shares shall have been issued (as evidenced by the
appropriate transfer agent of the Corporation) upon purchase of such shares
through exercise of the Option.
<PAGE>
5. Adjustments. The Option shall be subject to adjustment upon the
occurrence of certain events as set forth in Section 6(f) of the Plan.
6. No Registration Obligation. The Recipient understands that the Option is
not registered under the 1933 Act and, unless by separate written agreement, the
Corporation has no obligation to so register the Option or any of the shares of
Common Stock subject to and issuable upon the exercise of the Option, although
it may from time to time register under the 1933 Act the shares issuable upon
exercise of Options granted pursuant to the Plan. The Recipient represents that
the Option is being acquired for the Recipient's own account and that unless
registered by the Corporation, the shares of Common Stock issued on exercise of
the Option will be acquired by the Recipient for investment. The Recipient
understands that the Option is, and the underlying securities may be, issued to
the Recipient in reliance upon exemptions from the 1933 Act, and acknowledges
and agrees that all certificates for the shares issued upon exercise of the
Option will bear the following legends unless such shares are registered under
the 1933 Act prior to their issuance:
The shares represented by this Certificate have not been registered under
the Securities Act of 1933 (the "1933 Act"), and are "restricted
securities" as that term is defined in Rule 144 under the 1933 Act. The
shares may not be offered for sale, sold or otherwise transferred except
pursuant to an effective registration statement under the 1933 Act or
pursuant to an exemption from registration under the 1933 Act, the
availability of which is to be established to the satisfaction of the
Company.
The Recipient further understands and agrees that the Option may be
exercised only if at the time of such exercise the underlying shares are
registered and/or the Recipient and the Corporation are able to establish the
existence of an exemption from registration under the 1933 Act and applicable
state or other laws.
7. Notices. Each notice relating to this Agreement will be in writing and
delivered in person or by certified mail to the proper address. Notices to the
Corporation shall be addressed to the Corporation, attention: President, at
- - ------------------ , or at such other address as may constitute the
Corporation's principal place of business at the time, with a copy to:
- - ---------- , - -------------. Notices to the Recipient or other person or
persons then entitled to exercise the Option shall be addressed to the Recipient
or such other person or persons at the Recipient's address below specified.
Anyone to whom a notice may be given under this Agreement may designate a new
address by notice to that effect given pursuant to this Paragraph 10.
A-2
<PAGE>
8. Approval of Counsel. The exercise of the Option and the issuance and
delivery of shares of Common Stock pursuant thereto shall be subject to approval
by the Corporation's counsel of all legal matters in connection therewith,
including compliance with the requirements of the 1933 Act, the Securities
Exchange Act of 1934, as amended, applicable state and other securities laws,
the rules and regulations thereunder, and the requirements of any national
securities exchange(s) upon which the Common Stock then may be listed.
9. Benefits of Agreement. This Agreement will inure to the benefit of and
be binding upon each successor and assignee of the Corporation. All obligations
imposed upon the Recipient and all rights granted to the Corporation under this
Agreement will be binding upon the Recipient's heirs, legal representatives and
successors.
10. Effect of Governmental and Other Regulations. The exercise of the
Option and the Corporation's obligation to sell and deliver shares upon the
exercise of the Option are subject to all applicable federal and state laws,
rules and regulations, and to such approvals by any regulatory or governmental
agency which may, in the opinion of counsel for the Corporation, be required.
11. Incorporation of the Plan. The Plan is attached hereto and incorporated
herein by reference. In the event that any provision in this Agreement conflicts
with a provision in the Plan, the provisions of the Plan shall govern.
Executed in the name and on behalf of the Corporation by one of its duly
authorized officers and by the Recipient all as of the date first above written.
AMERICAN RIVERS OIL COMPANY
Date , 19 By
---------------- ---- --------------------------------------
, President
-------------------------
A-3
<PAGE>
The undersigned Recipient has read and understands the terms of this Option
Agreement and the attached Plan and hereby agrees to comply therewith.
Date , 19
------------------- ---- ----------------------------------
Signature of Recipient
Tax ID Number:
--------------------
Address:
-----------------------------------
-----------------------------------
A-4
EXHIBIT 21
Subsidiaries of the Registrant
State of
Name Incorporation
- - ------------------------------- -------------
Bishop Capital Corporation (1) Wyoming
MCC Cablevision, Inc. Wyoming
Metro Minerals Corporation Wyoming
Charter American Corporation Wyoming
(1) Since the subsidiary is being operated autonomously by the previous
management of the Company pursuant to a five year operating agreement,
the Company's investment in the subsidiary is accounted for by the
equity method.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 275
<SECURITIES> 0
<RECEIVABLES> 64,773
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 74,185
<PP&E> 3,320,659
<DEPRECIATION> 124,630
<TOTAL-ASSETS> 5,406,133
<CURRENT-LIABILITIES> 231,473
<BONDS> 0
0
0
<COMMON> 112,208
<OTHER-SE> 4,740,468
<TOTAL-LIABILITY-AND-EQUITY> 5,406,133
<SALES> 172,885
<TOTAL-REVENUES> 180,335
<CGS> 91,044
<TOTAL-COSTS> 359,759
<OTHER-EXPENSES> 667,714
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,889
<INCOME-PRETAX> (865,027)
<INCOME-TAX> 225,000
<INCOME-CONTINUING> (640,027)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (640,027)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)
</TABLE>
