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 for the fiscal year ended March 31, 1997
[ ] Transition report under section 13 or 15(d) of the Securities Exchange Act
of 1934 for the transition period from to
------------- ----------------
Commission file number: 0-10006
--------
AMERICAN RIVERS OIL COMPANY
-------------------------------------------
(Name of small business issuer in its charter)
Wyoming 84-0839926
------------------------------ ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700 East 9th Avenue, Suite 106, Denver, CO 80203 80203
------------------------------------------------ ----------
(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 response to Item 405 of
Regulation S-B 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, 1997 were $763,270.
The aggregate market value of the voting Common Stock held by non-affiliates
based on the last sale price as quoted by the Nasdaq SmallCap Market System as
of June 10, 1997 was $1,522,244. The number of shares outstanding of the
issuer's Common Stock as of June 10, 1997 was 3,615,770. The number of shares
outstanding of the issuer's Class B Common Stock as of June 10, 1997 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
The Company
- -----------
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 State of
Wyoming and changed its name to Metro Capital Corporation ("Metro"). In December
1995, Metro, upon approval of its shareholders, completed a transaction with
Karlton Terry Oil Company and its affiliates ("KTOC") whereby KTOC exchanged
certain oil and gas properties for 7,717,820 shares of newly created Class B
Common Stock which represented 80% of the then issued and outstanding voting
securities of Metro (the "Transaction" or the "Metro/KTOC Transaction"). The
only class of securities of Metro issued and outstanding prior to the
Transaction was Common Stock. Metro and KTOC previously were not affiliated.
Upon completion of the Transaction, the Company's name was changed to American
Rivers Oil Company. Management of KTOC succeeded to the board of directors and
serve as officers operating the oil and gas properties previously owned by KTOC.
Prior to the Transaction, Metro had been principally engaged in petroleum
operations, real estate development and seeking business opportunities.
Prior to and in connection with the Transaction described above, Metro
transferred to Bishop Capital Corporation ("Bishop") (formerly Bishop Cable
Communications Corporation), a wholly-owned subsidiary, all of the Company's
assets except for $700,000 cash and its working interest in an insignificant oil
property. These transferred assets, together with Bishop's previously owned
assets, are being operated autonomously by the prior management of Metro who
became officers and directors of Bishop pursuant to the terms of separate
five-year Operating and Voting Agreements. Since the Company does not exercise
control over Bishop's operations, the investment is accounted for by the equity
method. The terms of the Metro/KTOC Transaction also provided that the shares of
Bishop owned by the Company would be distributed to the Company's Common
shareholders within 36 months of the Transaction date and that the Class B
Common shareholders would not participate in the distribution. On November 8,
1996, the Company's Board of Directors authorized a spin-off distribution of
Bishop's Common stock as a partial liquidating dividend to the Company's Common
shareholders of record on November 18, 1996 on the basis of one share of Bishop
Common Stock for four shares of the Company's Common Stock. The distribution is
scheduled to occur on June 20, 1997.
In November 1996, the Company signed a letter of intent to merge with Opon
Development Company (ODC) subject to, among other conditions, negotiation and
execution of a definitive agreement, obtaining of project financing for ODC's
Colombian project and shareholder approval of both companies. ODC's only asset
is a 4.55% working interest in the Opon oil and gas field in Colombia, South
America which is operated by Amoco Colombia Petroleum Corporation. Subsequent to
March 31, 1997, ODC decided not to pursue a merger with the Company as
previously structured. The Company intends to continue to explore the
possibility of a business combination involving the ODC interests under new
terms and conditions.
At March 31, 1997, the Company had three full-time employees and Bishop, which
maintains its corporate offices in Riverton, Wyoming, had four full-time
employees.
-2-
<PAGE>
Operating Strategy
- ------------------
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 a lack of adequate drilling technology. The
Company plans to develop these River Leases by using directional and horizontal
drilling methods, which are oil and gas developmental technologies now in wide
use.
Markets
- -------
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 or 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 Amoco Refining Company. 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
- -----------
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.
-3-
<PAGE>
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.
Regulation
- ----------
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.
-4-
<PAGE>
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 than 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.
State Regulation. State regulatory authorities have established rules and
regulations requiring permits for drilling operations, drilling bonds and/or
reports concerning operations.
Operations of Bishop
- --------------------
As previously discussed, Bishop is operated autonomously by the previous
management of the Company pursuant to the terms of separate five-year Operating
and Voting Agreements which will terminate when the distribution of Bishop's
Common Stock occurs on June 20, 1997.
Real Estate Operations
In October 1993, Bishop entered into two limited partnership agreements to
purchase approximately 90 contiguous acres of land in Colorado Springs,
Colorado. The property surrounding the acreage is primarily retail development
to serve nearby residential areas. A summary of the Bishop's participation in
each partnership is as follows:
(1) Bishop contributed $250,000 cash to the first partnership (Bishop
Powers, Ltd.) which purchased approximately 55 acres of land for commercial
development. Bishop, as general partner, has an 81% interest with the remaining
19% interest held by the limited partner (Powers Golf LLC) which is the general
partner in the second partnership. Bishop will be allocated 100% of the income
and losses until it has been paid $600,000 plus interest thereon at 8% per annum
(not to exceed $100,000) after which the income and losses will be allocated 81%
to Bishop and 19% to the limited partner. Bishop, as general partner, has
exclusive management of the partnership. Bishop is planning a three phase
development of commercial pad sites on a 20 acre parcel with the remaining 35
acres not being developed at the present time.
(2) Bishop contributed $100,000 cash to the second partnership (Z-H, Ltd.)
which purchased approximately 35 acres of land on which Z-H, Ltd. constructed a
recreational facility consisting of a 60 station golf driving range, 36 holes of
miniature golf, 9 baseball/softball batting cages and a 1,200 square foot
clubhouse. This facility, which encompasses all of the acreage purchased,
commenced operations in July 1994. Bishop, as the limited partner, has a 19%
interest with the remaining 81% interest held by the general partner (Powers
Golf LLC). Bishop contributed an additional $250,000 when certain financing
requirements in the partnership agreement consisting of $800,000 debt financing
-5-
<PAGE>
were fulfilled by the general partner. Bishop is not a guarantor of any debt in
this partnership and the general partner cannot incur additional debt without
the prior written consent of Bishop. The partnership has incurred losses from
operations since inception. There is no assurance that the operations will
become profitable in the near future. At March 31, 1997, the net carrying value
of Bishop's 19% interest is $215,000. The general partner is having preliminary
discussions with an unrelated third-party who has expressed an interest in
purchasing the improvements and personal property with a long-term ground lease.
Bishop's business is affected by national and local trends of the economy,
including interest rates, construction costs, governmental regulations and
legislation, including environmental requirements, real estate fluctuations,
retailing trends, population trends, zoning laws, availability of financing and
capital on satisfactory terms and the ability of Bishop to compete with other
owners and developers with greater resources and whose management may have more
experience than Bishop's management.
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, permits and
agreements before it can commence development. The ability of Bishop to obtain
necessary approvals and permits for its planned development is often beyond its
control. The length of time necessary to obtain permits and approvals increases
the carrying costs of unimproved land acquired for the purpose of development.
The western boundary of the undeveloped real estate borders a drainage channel
and appropriate governmental authorities will require that certain improvements
be made along the drainage channel as sections of the undeveloped land are
platted for development. The total drainage channel improvement costs are
estimated to be approximately $400,000.
In October 1995 Bishop acquired approximately 5 acres of undeveloped real estate
in Riverton, Wyoming for $80,000 and developed the parcel into a 15 lot
subdivision. The improvements (utilities, drainage, roadway, etc.) which were
completed in September 1996 cost approximately $154,000. In June 1996 Bishop
entered into a one year listing agreement with a real estate brokerage company
to market, at a 6% commission rate, the improved lots. Bishop's management is
presently evaluating the renewal of the listing agreement. There were no lots
sold as of March 31, 1997.
Bishop is not aware of any non-compliance with existing local, state and Federal
environmental rules and regulations in regards to the undeveloped real estate.
Natural Gas Royalty Interest
Bishop has a royalty interest 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). Bishop has no ownership interest in the
gas processing plant. The plant which commenced operations in March 1995 is
currently processing 50 million cubic feet per day from the two completed
Madison wells. The plant products include methane, sulfur and carbon dioxide.
Bishop's royalty interest in the "sour gas" production is subject to plant
processing costs and severance and ad valorem taxes. Bishop 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.
-6-
<PAGE>
Item 2. Properties
----------
The Company's principal reserves and producing properties are oil and gas
properties located in Colorado, Kentucky, Louisiana and West Virginia. A portion
of the producing properties in Colorado, Kentucky and West Virginia are pledged
as collateral for a line of credit from a bank.
Bishop's principal properties consist of real estate located in Colorado and
Wyoming and a natural gas royalty interest in Wyoming. None of the properties
are held subject to any encumbrance.
Reserves
- --------
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 12 of Notes to Consolidated Financial
Statements.
Reserve information relating to the natural gas royalty interest owned by Bishop
is not included because the information is not made available to royalty
interest owners by the operator of the properties.
Since April 1, 1996, 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
- ----------
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, 1997:
1997 1996
------- -------
Quantities Produced and Sold
Oil(barrels (Bbls)) 16,236 6,999
Natural Gas (Mcf) 192,837 28,430
Average Sales Prices
Oil(per Bbl) $21.53 $17.53
Natural Gas (per Mcf) $ 2.11 $ 1.76
Average Production Cost per BOE (1) $ 8.15 $ 7.76
- ---------------
(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.
-7-
<PAGE>
Productive Wells
- ----------------
The following summarizes the Company's total gross and net productive wells at
March 31, 1997, all of which are in the United States:
Productive Wells (1)
--------------------
Gross (2) Net (3)
--------- -------
Oil 30 11.3
Gas 71 25.2
--- ----
Totals 101 36.5
=== ====
- -------------------------
(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.
Developed and Undeveloped Acreage
- ---------------------------------
At March 31, 1997, the Company held acreage as set forth below. A portion of the
developed acreage in Colorado, Kentucky and West Virginia is subject to a lien
securing a line of credit from a bank and a portion of the undeveloped acreage
in Kentucky is subject to a production payment.
<TABLE>
C
Developed Acreage (1) Undeveloped Acreage (2)
--------------------- -----------------------
Gross (3) Net(4) Gross(3) Net(4)
--------- ------ -------- -------
<S> <C> <C> <C> <C>
Colorado 3,440.0 550.8 3,480.0 1,475.0
Indiana 0.0 0.0 424.0 424.0
Kentucky 100.0 21.9 2,808.0 2,349.0
Louisiana 2,994.0 676.8 72.0 12.8
West Virginia 153.0 76.5 1,692.0 846.0
-------- ------- ------- --------
Totals 6,687.0 1,326.0 8,476.0 5,106.8
======= ======= ======= ========
</TABLE>
- ---------------
(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 for 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.
-8-
<PAGE>
Drilling Activity
- -----------------
The Company's drilling activity for the years ended March 31, 1997 and 1996 are
set forth below:
1997 1996
----------------- ---------------
Gross Net Gross Net
----- --- ----- ---
Exploratory Wells:
Productive 0 0.00 0 0.00
Dry 1 17.88 0 0.00
--- ----- --- -----
1 17.88 0 0.00
=== ===== === ====
There were no development wells drilled for the years ended March 31, 1997 and
1996.
Present Activities
- ------------------
The Company has staked two additional locations on River Lease prospects located
in West Virginia and Indiana. The Company expects to drill these locations
during the first and second quarters of fiscal 1998 depending on weather and
flood conditions.
Bishop's Operations
- -------------------
Bishop is general partner with an 81% interest in Bishop Powers, Ltd. which owns
approximately 55 acres of undeveloped real estate in Colorado Springs, Colorado.
The property which is bounded by major east/west and north/south arterials is
zoned for most commercial and retail uses along with office complexes. Bishop is
planning a three phase development for a 20 acre parcel and is currently
developing Phase I consisting of approximately 4.62 acres (5 lots). The Phase I
Concept Plan was approved by the appropriate governmental authorities in April
1997 with the Final Plat approved and recorded in May 1997. The estimated costs
for the Phase I site development work consisting of grading, utilities, channel
lining, storm sewer, paving and curb and gutter are approximately $400,000. The
Phase I site development work is estimated to be completed in August 1997. The
site development work will be funded primarily by the proceeds from the closings
of the three lots sold. Bishop, which is devoting all of its efforts to Phase I
of the development, is unable to project an estimated time frame for the
commencement and completion of Phases II and III.
Bishop has entered into sales agreements to sell the following tracts of land:
(i) 1.14 acre to Diamond Shamrock Refining and Marketing Company for $388,850
for a combination gasoline sales, convenience store and car wash facility; (ii)
1.04 acre to a Taco Bell franchisee for not less than $350,000 (purchase price
to be adjusted up if actual size of platted lot is greater than size stated in
sales agreement) for a fast-food facility; and (iii) .92 acre to State Bank &
Trust for $330,627 (purchase price to be adjusted if actual size of platted lot
exceeds or is less than size stated in sales agreement) for a branch bank
facility. The Diamond Shamrock closing will occur when the purchaser has
obtained all required permits necessary to construct the facility on the
property; however, if purchaser has not closed within 180 days after plat
recordation, the contract will terminate. The Taco Bell closing occurred on June
9, 1997. State Bank & Trust, by providing an additional nonrefundable $25,000
earnest money deposit, extended its closing date until July 7, 1997.
-9-
<PAGE>
Item 3. Legal Proceedings
-----------------
The Company is not a party to any pending legal proceedings involving a claim
for damages which amount exceeds 10% of the current assets of the Company and
its subsidiaries on a consolidated basis and no such proceedings are known to be
contemplated.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
No matters were submitted to a vote of the Company's security holders during the
fourth quarter of the fiscal year ended March 31, 1997.
-10-
<PAGE>
PART II
Item 5. Market for the Company's Stock and Related Stockholder Matters
--------------------------------------------------------------
Common Stock
- ------------
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
------------- -------- -------
03/31/95 $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
06/30/96 1.63 1.13
09/30/96 1.88 1.38
12/31/96 1.88 1.13
03/31/97 1.56 .94
As of June 10, 1997, there were approximately 2,040 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
- --------------------
The Class B Common Stock, which is not traded in any public trading market, was
issued in connection with the Transaction described in Item 1 and has all of the
rights of currently issued and outstanding shares of the Company's Common Stock
except that the Class B Common Stock shall not be entitled to participate in any
distribution of shares or assets of Bishop Capital Corporation. The Class B
Common Stock is convertible on a one-for-one share basis into the Company's
Common Stock commencing December 1998.
As of June 10, 1997, there were 16 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. The Company is prohibited from paying dividends under
the current bank credit agreement.
-11-
<PAGE>
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
------------------------------------------------------------------------
The Company believes that this report contains certain forward-looking
statements, as defined in the Private Securities Litigation Reform Act of 1995,
including, without limitation, statements containing the words "believes,"
"anticipates," "estimates," "expects," "may" and words of similar import, or
statements of management's opinion. Such forward-looking statements involve
known and unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of the Company to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements.
The audited consolidated statements of operations and cash flows for the year
ended March 31, 1996 include the operations of the oil and gas properties
acquired from Karlton Terry Oil Company for the fiscal year, the acquisition of
additional working interests in the oil and gas properties from December 1995
and the unconsolidated operations of Bishop Capital Corporation using the equity
method of accounting from December 1995. The following discussion and analysis
should be read in conjunction with the Company's Consolidated Financial
Statements and Notes thereto.
Results of Operations
- ---------------------
While the Company's revenues increased to $763,000 for the fiscal year ended
March 31, 1997 from $180,000 in fiscal 1996, the Company's net loss for fiscal
1997 increased to $936,000 from a net loss of $640,000 for fiscal 1996. As
further described below, of the Company's $936,000 loss in 1997, $524,000
represents the Company's equity in the loss incurred by Bishop Capital
Corporation, the Company's subsidiary spun-off subsequent to March 31, 1997, and
$353,000 represents losses from operations. All losses incurred by Bishop during
1997 were funded from Bishop's operations and not from the Company. As a result
of the Bishop spin-off, the Company will not incur any expense or loss in fiscal
1998 attributable to Bishop's operations, other than those attributable to the
period from April 1 to June 20, 1997, the date of distribution of the Bishop
shares.
As further described below, of the Company's $353,000 loss from operations in
fiscal 1997, approximately $224,000 consists of isolated expenses, including
approximately $77,000 resulting from the costs of drilling a dry hole in
Terrebone Parish, Louisiana, approximately $67,000 resulting from steps taken by
the Company to comply with new environmental regulations, approximately $30,000
resulting from consulting fees incurred in connection with the Metro/KTOC
Transaction for services that will not be continued in fiscal 1998 and
approximately $66,000 resulting from legal, accounting, consulting and other
fees and expenses incurred in connection with negotiating a merger transaction
that was not completed in fiscal 1997. Management does not expect to incur
similar expenses in fiscal 1998. The Company elected to fund the $67,000 expense
of compliance with such new environmental regulations in advance of the
regulations becoming effective in fiscal 1998. Furthermore, assuming the posted
price of oil remains reasonably constant, management expects oil and gas sales
to increase in fiscal 1998 because the Company will have the benefit of a full
year of revenues from the new producing wells acquired in fiscal 1997. The
Company's ability to avoid similar expenses and the possibility of increased oil
and gas sales are not fully within the control of management and are subject to
many contingencies, such as fluctuations in oil and gas prices, regulatory
changes and other events beyond the Company's control, and investors are urged
to be cautious in considering the forward-looking statements contained in this
and preceding paragraphs and elsewhere herein.
-12-
<PAGE>
The fiscal 1996 net loss is primarily attributable to costs and expenses of
$365,500 related to the Metro/KTOC Transaction, an increase of $84,000 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 Bishop of $161,800 for the period from December 1995 to March 31,
1996.
Fiscal 1997 Compared to Fiscal 1996
The Company's oil and gas sales increased by $584,400 or 338% in fiscal 1997 due
to increased production resulting from the acquisition of producing properties
in the Denver-Julesburg Basin combined with increases in average sales prices
for oil and gas.
The production volumes and average sales prices for the years ended March 31,
1997 and 1996 were as follows:
1997 1996
---- ----
Oil production (Bbls) 16,236 6,999
Average sales price (per Bbl) $21.53 $17.53
Natural gas production (mcf) 192,837 28,430
Average sales price (per mcf) $ 2.11 $ 1.76
Production volume for oil and natural gas increased significantly in fiscal 1997
due primarily to the acquisition of producing properties in the Denver-Julesburg
Basin. The average sales price per barrel of oil increased 23% and the average
sales price per mcf of natural gas increased 20%.
Oil and gas production costs increased by $303,300 or 333% in fiscal 1997
compared to fiscal 1996 due to production costs associated with the
Denver-Julesburg Basin acquisitions and includes $67,000 of costs related to the
Company complying with new Environmental Protection Agency (EPA) regulations. On
a barrel of oil equivalent (BOE), production expense was $8.15 per BOE
(including $1.38 for the EPA compliance costs) in fiscal year 1997 compared to
$7.76 per BOE in fiscal 1996.
The Company's exploration costs in fiscal 1997 include dry hole costs of $76,700
resulting from the drilling of an unsuccessful exploratory well in the Lake
Hatch prospect.
General and administrative expenses increased approximately $332,800 in fiscal
1997 compared to fiscal 1996 due to professional fees and expenses (legal,
accounting and consulting) associated with the merger negotiations with Opon
Development Company which Opon decided not to pursue upon expiration of the
letter of intent and increases in other overhead expenses.
Depletion, depreciation and amortization increased approximately $41,700 in
fiscal 1997 compared to fiscal 1996 due to the increase in production resulting
from the acquisition of producing properties in the Denver-Julesburg Basin.
-13-
<PAGE>
The equity in loss of Bishop of $524,300 represents the Company's equity in the
operations of Bishop, an unconsolidated wholly-owned subsidiary for the fiscal
year. In the prior year, the amount represents operations for the four months
ended March 31, 1996.
Interest expense increased $60,400 in fiscal 1997 compared to fiscal 1996 due
primarily to a higher average amount of debt outstanding and debt issuance costs
associated with the bank line of credit.
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 properties in the Denver-Julesburg Basin in the
fourth quarter. The Company also incurred flooding problems on its Sisterville
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.
The production volumes and average sales prices for the years ended March 31,
1996 and 1995 were as follows:
1996 1995
------- -------
Oil production (Bbls) 6,999 7,979
Average sales price (per Bbl) $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 costs increased by $38,000 in fiscal 1996 compared to
fiscal 1995. Production expense computed on a barrel of oil equivalent was $7.48
per BOE in fiscal 1996 compared to $5.80 per BOE in fiscal 1995. The increase is
attributable to the production curtailment on the Sisterville 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 an 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
Metro/KTOC Transaction described in Item 1.
-14-
<PAGE>
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 Metro/KTOC Transaction.
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 loss of Bishop of $161,800 represents the Company's equity in the
operations of Bishop, 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.
Financial Condition
- -------------------
At March 31, 1997, the Company had a working capital deficit of $626,000.
The following summary table reflects comparative cash flows for the Company for
the two years ended March 31, 1997:
1997 1996
---------- ----------
Net cash used in operating activities $ (444,300) $ (181,600)
Net cash used in investing activities (262,400) (227,600)
Net cash provided by financing activities 842,700 409,400
Net cash used in operating activities increased in fiscal 1997 compared to
fiscal 1996 due to costs and expenses associated with the Opon merger
negotiations and a general increase in other administrative expenses.
Net cash used in investing activities of $262,400 in fiscal 1997 resulted from
the acquisition of oil and gas producing properties in the Denver-Julesburg
Basin. 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 Metro/KTOC
Transaction 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 Metro/KTOC Transaction
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 provided by financing activities of $842,700 resulted from net proceeds
of $585,100 from the private placement of Common Stock and borrowings of
$297,000 from a bank, $100,000 from Bishop and $17,000 from a major Class B
-15-
<PAGE>
Common shareholder. The Company utilized $286,400 to purchase oil and gas
producing properties, repay borrowings of $117,500 to Bishop and $17,000 to the
major Class B Common shareholder and fund operating activities. The Company also
had noncash financing activities in the form of bank borrowings of $477,900 and
the issuance of Common Stock valued at $16,300 to acquire oil and gas producing
properties. Net cash provided by financing activities of $409,400 in fiscal 1996
resulted from net proceeds of $516,000 from the private placement of Common
Stock 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
Common shareholder and $17,000 from Bishop. The Company repaid the $95,000
borrowings to the major Class B Common shareholder and $184,000 of bank debt
which was assumed by the Company in connection with the Metro/KTOC Transaction.
The Company also had noncash financing in the form of Common and Class B Common
Stock and a production payment obligation as additional consideration for
acquisition of oil and gas properties.
At March 31, 1997, approximately 65% of the Company's oil and gas reserves
relate to non-producing oil and gas properties. 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 raised $1.2 million in two private placements of Common Stock in
fiscal 1997 and 1996. Proceeds of those sales were used to retire debt, purchase
Denver-Julesburg ("D-J") wells, drill the Lake Hatch #7 well and to bring the
Sparkle #1 well into production.
Increasing the size of the Company's operations, and increasing the liquidity of
the Company's Common Stock, are significant priorities for the Company in the
coming year. The Company's development goals include expanding the Company's
operations through business acquisitions and continued development of drilling
prospects.
Management is seeking to purchase additional D-J wells, expand production on
existing leases and review possibilities for a significant transaction, which
might involve a merger or significant acquisition of assets. Management also
considers the continued development of drilling prospects on its inventory of
River Leases to be an essential part of the Company's development plans.
Management considers the Company's ongoing D-J acquisition program to be an
important portion of the Company's overall growth and operating strategy. The
Company also plans to drill an offset to the existing Sparkle #1 river well
during fiscal year 1998. Management is looking for and reviewing potential
business acquisition or combination opportunities that would be valuable
additions to the Company's operations as well as increasing the Company's equity
capitalization. One goal of such a transaction will be to strengthen the
Company's revenues and earnings as well as increasing the Company's profile in
equity markets. Management believes that an increased profile in the equity
markets will help to enhance the liquidity of the Company's Common Stock.
-16-
<PAGE>
Impact of Inflation
The Company cannot determine the precise effects of inflation. However, the
impact of general price inflation has not had a material adverse effect on the
results of the Company's operations.
Item 7. Financial Statements
--------------------
Information with respect to this item appears on page F-1 of this report. Such
information is incorporated herein by reference.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
----------------------------------------------------------------------
None.
-17-
<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 10, 1997:
Name Age Office
---- --- ------
Karlton Terry 43 Chairman of the Board, President
and Chief Executive Officer
Jubal Terry 39 Vice President, Secretary-Treasurer
and Chief Operating Officer
Denis Bell 63 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. After the sale of Leed, he was
president of Karlton Terry Oil Company for 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 Karlton Terry Oil Company in
1986 and became a Vice President 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.
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.
-18-
<PAGE>
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 1997, 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, 1997, 1996 and 1995. No other
executive officer had total annual salary and bonus exceeding $100,000 for the
year ended March 31, 1997.
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation Awards
------------------------------------------------- --------------------------
Name and Principal Other Annual Restricted Options
Position Year Salary Bonus Compensation Stock Award ($) SARS (#)
- ------------------- ---- --------- ------- ------------ --------------- --------
<S> <C> <C> <C> <C> <C> <C>
Karlton Terry 1997 $ 125,000 $ -- $ -- $ -- --
President, Chief 1996 $ 52,083 -- -- -- --
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
and Director (2)
- ----------
(1) Karlton Terry became Chief Executive Officer on December 8, 1995.
(2) Robert E. Thrailkill was the Registrant's Chief Executive Officer
through December 7, 1995. Mr. Thrailkill is currently the chief
executive officer of Bishop Capital Corporation, a wholly-owned
subsidiary at March 31, 1997. Mr. Thrailkill does not perform any
policy making functions for the Registrant.
-19-
</TABLE>
<PAGE>
(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 $.68 and expires
five years thereafter.
The columns for "Long-Term Incentive Plan Payouts" and "All Other Compensation"
were omitted from the Summary Compensation Table since there was no information
reportable for the years ended March 31, 1997, 1996 and 1995.
b. Option/SAR Grants Table
There were no individual grants of options or stock appreciation rights
("SARs") granted to the Chief Executive Officer during the year ended March 31,
1997.
c. Aggregated Option Exercise and Fiscal Year-End Option Value Table
There was no exercise of stock options by the Chief Executive Officer in
fiscal 1997. (See footnotes (1) and (2) under Item 10(a)). The following table
shows the number of shares covered by both exercisable and non-exercisable stock
options as of March 31, 1997 and their values at such date. There are no SARs
outstanding at March 31, 1997.
<TABLE>
<CAPTION>
Number of Securities Value of
Underlying Unexercised Unexercised In-the-Money
Options at FY-End (#) Options at FY-End ($)(1)
---------------------------- --------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- --------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert E. Thrailkill 120,000 -- $31,500 --
</TABLE>
- ------------
(1) On March 31, 1997, the last reported bid price of the Common Stock as
quoted on Nasdaq was $1.31 per share. Value is calculated on the basis
of the difference between the option price and $1.31 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 $1.38 (45,000 options). At March
31, 1997, the last reported bid price was lower than the exercise
prices of $1.65 (25,000 options) and $1.38 (45,000 options);
therefore, no value is ascribed to those options in the above table.
d. Compensation of 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 1997 in addition
to or in lieu of the amounts stated above.
-20-
<PAGE>
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.
Item 11. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
a. Security Ownership of Certain Beneficial Owners
The following table shows, as of June 10, 1997, 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 5,228,022 (1) 71.9%
700 East 9th Avenue, Suite 106
Denver, CO 80203
Class B Common Stock Jubal Terry 1,038,353 (2) 14.3%
700 East 9th Avenue, Suite 106
Denver, CO 80203
Class B Common Stock Karlton Terry Oil Company 3,749,565 51.6%
700 East 9th Avenue, Suite 106
Denver, CO 80203
Common Stock Consult & Assist 550,000 (3) 13.2%
P.O. Box 9856
Rancho Santa Fe, CA 92067
-21-
<PAGE>
Common Stock LMU & Company 500,000 (4) 12.2%
1200 17th Street, Suite 1000
Denver, CO 80202
Common Stock Robert E. Thrailkill 375,180 (5) 9.4%
716 College View Dr.
Riverton, WY 82501
Common Stock Haddon, Inc. 375,000 (6) 9.4%
c/o Coal Contractors
Gowen Mine
Fern Glen, PA 18241-2145
Common Stock Francarep, Inc. 275,000 (7) 7.1%
50 Av. des Champs-Elysees
75008 Paris, France
</TABLE>
- -----------------
(1) Includes 1,478,457 shares owned directly and 3,749,565 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 beneficially owned by Georg Ligenbrink and includes
currently exercisable options to acquire 275,000 shares of Common
Stock at $1.10 per share.
(4) Includes currently exercisable options to acquire 400,000 shares of
Common Stock at $1.00 per share.
(5) Includes currently exercisable options to acquire 120,000 shares of
Common Stock.
(6) Haddon, Inc. is wholly-owned by Denis Bell, a director of the Company.
(7) All shares are beneficially owned by Georges Babinet.
b. Security Ownership of Management
The following table shows, as of June 10, 1997, 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>
Class B Common Stock Karlton Terry 5,228,022 (1) 71.9%
700 East 9th Avenue, Suite 106
Denver, CO 80203
Class B Common Stock Jubal Terry 1,038,353 (2) 14.3%
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 106
Denver, CO 80203
-22-
<PAGE>
Class B Common Stock All officers and directors as a
group (three persons) 6,459,320 88.9%
Common Stock Denis Bell 375,000 (3) 9.4%
700 East 9th Avenue, Suite 106
Denver, CO 80203
Common Stock All officers and directors as a
group (three persons) 375,000 9.4%
</TABLE>
- --------------
(1) Includes 1,478,457 shares owned directly and 3,749,565 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%.
Item 12. Certain Relationships and Related Transactions
----------------------------------------------
a. Certain Relationships
In connection with the December 1995 Metro/KTOC Transaction, 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 Class B Common Stock issued in the transaction, and other consideration.
Haddon, Inc. which is wholly-owned by Denis Bell, a Company director, received
367,945 shares of Class B Common Stock of which 175,000 shares were converted
into Common Stock. Francarep Inc. received 605,000 shares of Class B Common
Stock of which 275,000 shares were converted into Common Stock. The terms of the
Metro/KTOC Transaction provided for the conversion of a portion of the Class B
Common Stock issued to Haddon, Inc. and Francarep, Inc. into Common Stock which
is subject to certain registration rights.
The Company also issued 100,000 shares of Common Stock to LMU & Company in
fiscal 1996 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.
In November 1996, Haddon, Inc. purchased an additional 200,000 shares of
Common Stock in an arms-length private placement of shares of Common Stock to a
number of investors and currently owns 375,000 shares of Common Stock.
During the year ended March 31, 1997, the Company acquired producing oil
and gas properties from Karlton Terry Oil Company for an aggregate purchase
price of approximately $220,000.
b. Indebtedness of Management
No officer or director of the Company has been indebted to the Company
directly or indirectly during fiscal year 1997 in an amount exceeding $60,000.
c. Transactions with Parent of Issuer
Not applicable
-23-
<PAGE>
d. Transactions with Promoters
Not applicable
-24-
<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 Amendment to the Articles of Incorporation of American
Rivers Oil Company (formerly Metro Capital Corporation)
modifying the voting rights of the Class B Common Stock
(incorporated by reference to Form 8-K dated August 9, 1996,
File No. 0-10006). (1)
10.4 1987 Stock Bonus Plan dated December 17, 1987 (incorporated
by reference to Exhibit 10.4 to Registrant's Form 10-K for
the year ended March 31, 1989, File No. 0-10006). (1)
10.5 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 (incorporated by
reference to Exhibit 10.9 to Registrant's Form 10-KSB for
the year ended March 31, 1996, File No. 0-10006). (1)
10.10 1995 Stock Option and Stock Compensation Plan as adopted on
December 8, 1995. (incorporated by reference to Exhibit
10.10 to Registrant's Form 10-KSB for the year ended March
31, 1996, File No. 0-10006). (1)
-25-
<PAGE>
10.11 Credit Agreement between the Registrant and Professional
Bank, dated September 13, 1996.
21 Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21 to Registrant's Form 10-KSB for the year ended
March 31, 1996, File No. 0-10006). (1)
27 Financial Data Schedule (submitted only in electronic
format).
- ----------------
(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
Date of Report Item Reported Financial Statements Filed
March 14, 1997 Item 5 None
-26-
<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 10, 1997 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 10, 1997 /s/ Karlton Terry
----------------------------------
Karlton Terry
Chairman of the Board of
Directors (Principal Executive
Officer)
Date: June 10, 1997 /s/ Jubal Terry
-----------------------------------
Jubal Terry
Vice President and Acting Chief
Financial Officer
(Principal Financial Officer)
Date: June 10, 1997 /s/ Denis Bell
----------------------------------
Denis Bell
Director
-27-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
American Rivers Oil Company and Subsidiaries
- --------------------------------------------
Independent Auditor's Report.............................................F-2
Consolidated Balance Sheet - March 31, 1997..............................F-3
Consolidated Statements of Operations -
For the Years Ended March 31, 1997 and 1996...........................F-4
Consolidated Statements of Changes in Stockholders' Equity -
For the Years Ended March 31, 1997 and 1996..........................F-5
Consolidated Statements of Cash Flows -
For the Years Ended March 31, 1997 and 1996...........................F-6
Notes to Consolidated Financial Statements...............................F-7
Bishop Capital Corporation and Subsidiaries
- -------------------------------------------
Independent Auditor's Report.............................................F-22
Consolidated Balance Sheet - March 31, 1997..............................F-23
Consolidated Statements of Operations -
For the Years Ended March 31, 1997 and 1996...........................F-24
Consolidated Statements of Changes in Stockholders' Equity -
For the Years Ended March 31, 1997 and 1996...........................F-25
Consolidated Statements of Cash Flows -
For the Years Ended March 31, 1997 and 1996...........................F-26
Notes to Consolidated Financial Statements...............................F-27
F-1
<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, 1997, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
the years ended March 31, 1997 and 1996. 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, 1997, and the results of their operations and their
cash flows for the years ended March 31, 1997 and 1996, in conformity with
generally accepted accounting principles.
HEIN + ASSOCIATES LLP
Denver, Colorado
May 21, 1997, except for the fifth paragraph of
Note 1 as to which the date is June 20, 1997
F-2
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
ASSETS
------
CURRENT ASSETS:
Cash $ 136,267
Oil and gas sales receivable 114,164
Receivable from Class B stockholder 9,989
Prepaid expenses and other 11,598
-----------
Total current assets 272,018
OIL AND GAS PROPERTIES, at cost, using
successful efforts method:
Proved properties 4,085,811
Less accumulated depreciation,
depletion and amortization (208,745)
-----------
Net oil and gas properties 3,877,066
-----------
INVESTMENT IN BISHOP CAPITAL CORPORATION 1,690,453
OTHER ASSETS 10,734
-----------
TOTAL ASSETS $ 5,850,271
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Note payable, bank $ 774,852
Current maturities of long-term debt 6,500
Accounts payable and accrued expenses 116,695
-----------
Total current liabilities 898,047
LONG-TERM DEBT, less current maturities 70,479
DEFERRED INCOME TAXES 232,000
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; 4,713,004 shares issued 47,130
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 7,797,203
Accumulated deficit (1,531,204)
Less treasury stock, at cost,
1,101,234 common shares (1,736,062)
-----------
Total stockholders' equity 4,649,745
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,850,271
===========
See accompanying notes to these consolidated financial statements.
F-3
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
MARCH 31,
--------------------------
1997 1996
----------- -----------
REVENUE:
Oil and gas sales $ 757,270 $ 172,885
Operator fees 6,000 7,450
----------- -----------
Total revenue 763,270 180,335
EXPENSES:
Oil and gas production costs 394,364 91,044
Exploration costs 78,946 -
General and administrative 559,021 226,202
Professional fees relating to
Contributed Properties - 165,464
Nonemployee compensatory stock
option expense - 200,000
Depreciation, depletion and
amortization 84,171 42,513
----------- -----------
Total expenses 1,116,502 725,223
----------- -----------
LOSS FROM OPERATIONS (353,232) (544,888)
OTHER INCOME (EXPENSE):
Loss on sale of oil property - (140,451)
Equity in loss of Bishop
Capital Corporation (524,300) (161,799)
Interest expense (78,246) (17,889)
----------- -----------
LOSS BEFORE INCOME TAXES (955,778) (865,027)
DEFERRED INCOME TAX BENEFIT 19,400 225,000
----------- -----------
NET LOSS $ (936,378) $ (640,027)
=========== ===========
NET LOSS PER SHARE:
Common stock $ (.21) $ (.15)
=========== ===========
Class B common stock $ (.04) $ (.06)
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Common stock 3,157,000 1,640,000
=========== ===========
Class B common stock 7,268,000 7,049,000
=========== ===========
See accompanying notes to these consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
Common Stock Class B Common Stock Additional Treasury Stock
----------------- -------------------- Paid-In ------------------ Accumulated
Shares Amount Shares Amount Capital Shares Amount Deficit Total
------ ------ ------ ------ ------- ------ ------ ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, April 1, 1995 - $ - 6,714,875 $67,149 $102,592 - $ - $38,353 $ 208,094
KTOC owners' contributions - - - - 60,042 - - - 60,042
Net loss prior to reverse
acquisition - - - - - - - (45,201) (45,201)
Consummation of reverse
acquisition 2,850,689 28,507 - - 4,849,785 1,101,234 (1,736,062) 6,848 3,149,078
Issuance of Class B common
stock for Option Properties - - 552,945 5,529 547,416 - - - 552,945
Issuance of convertible
Class B common stock
for Option Properties - - 450,000 4,500 670,500 - - - 675,000
Issuance of common stock
for services 100,000 1,000 - - 149,000 - - - 150,000
Issuance of common stock
for oil and
gas properties 14,815 148 - - 24,852 - - - 25,000
Grant of stock options for
services - - - - 200,000 - - - 200,000
Issuance of common stock
for cash in
private placement, net 537,500 5,375 - - 467,169 - - - 472,544
Conversion of Class B
common stock 450,000 4,500 (450,000) (4,500) - - - - -
Net loss subsequent to
reverse acquisition - - - - - - - (594,826) (594,826)
--------- ------- --------- ------- --------- --------- ---------- --------- ---------
BALANCES, March 31, 1996 3,953,004 39,530 7,267,820 72,678 7,071,356 1,101,234 (1,736,062) (594,826) 4,852,676
Issuance of common stock
for cash in
private placement, net 680,000 6,800 - - 630,426 - - - 637,226
Issuance of common stock
for Bishop
Capital services 70,000 700 - - 79,271 - - - 79,971
Issuance of common stock
for acquisition of oil
and gas properties 10,000 100 - - 16,150 - - - 16,250
Net loss - - - - - - - (936,378) (936,378)
--------- ------- --------- ------- ---------- --------- ----------- ----------- ---------
BALANCES, March 31, 1997 4,713,004 $47,130 7,267,820 $72,678 $7,797,203 1,101,234 $(1,736,062) $(1,531,204) $4,649,745
========= ======= ========= ======= ========== ========= =========== =========== ==========
See accompanying notes to these consolidated financial statements.
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
MARCH 31,
---------------------------
1997 1996
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (936,378) $(640,027)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, depletion and amortization 84,171 42,513
Amortization of debt issuance costs 12,740 -
Equity in loss of Bishop Capital Corporation 524,300 161,799
Nonemployee compensatory stock option expense - 200,000
Loss on sale of oil property - 140,451
Deferred income tax benefit (19,400) (225,000)
Issuance of common stock for services - 68,250
Changes in operating assets and liabilities:
(Increase) decrease in:
Oil and gas sales receivable (56,369) (25,769)
Prepaid expenses and other 4,312 (24,072)
Increase (decrease) in:
Payable to Class B shareholder (47,693) 37,704
Payable to Bishop Capital Corporation (23,579) 23,579
Accounts payable and accrued expenses 13,559 58,986
--------- ---------
Net cash used in operating activities (444,337) (181,586)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment (286,384) (943,565)
Cash obtained in reverse acquisition - 700,000
Proceeds from sale of property and equipment 23,965 16,000
--------- ---------
Net cash used in investing activities (262,419) (227,565)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 413,966 112,522
Principal payments on borrowings (134,522) (279,146)
Payments for debt issuance costs (21,840) -
Proceeds from private placement of common stock 680,000 537,500
Private placement offering costs (94,856) (21,492)
Owners' contributions - 60,042
----------- -----------
Net cash provided by financing activities 842,748 409,426
----------- -----------
INCREASE IN CASH 135,992 275
CASH, beginning of year 275 -
----------- -----------
CASH, end of year $ 136,267 $ 275
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 61,294 $ 16,374
=========== ===========
Cash paid for income taxes $ 1,754 $ -
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Debt incurred for acquisition of oil and gas properties $ 477,886 $ 77,184
Issuance of common stock for oil and gas properties 16,250 25,000
Issuance of Class B common stock for Option Properties - 552,945
Issuance of convertible Class B common stock for Option Properties - 675,000
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
See accompanying notes to these consolidated financial statements.
F-6
</TABLE>
<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, 1997 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.
Spin-off - In November 1996, the Company's Board of Directors agreed to a
pro rata distribution of 100% of the outstanding capital stock of Bishop.
The Company's common stockholders of record on November 18, 1996 were
entitled to the distribution of shares which occurred on June 20, 1997. The
Class B common stockholders did not participate in the distribution. The
pro forma impact of the distribution would be to reduce stockholders'
equity at March 31, 1997 from approximately $4,650,000 to $2,960,000.
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, 1997, the Company has a working capital deficit of
$626,029. The Company's operating activities have utilized significant
amounts of cash in each of the past two years, and the Company has not yet
F-7
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
achieved profitable operations. Additionally, bank debt of $774,852 is due
in September 1997. The ability of the Company to continue as a going
concern is dependent upon the Company's ability to refinance its bank debt,
to achieve profitable operations and to raise sufficient capital to enable
the successful development of the Company's oil and gas properties.
During the year ended March 31, 1997, the Company was successful in selling
$680,000 of common stock in a private placement and, as discussed in Note
5, the Company obtained substantial bank financing during fiscal 1997.
While the Company's bank debt matures in September 1997, management
believes the Company's oil and gas reserves will support the renewal or
replacement of this credit facility. Additionally, management believes the
increased annual revenues from acquisitions of oil and gas properties
during fiscal 1997 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 in Colorado and
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 field.
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.
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.
F-8
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Impairment of Long-Lived Assets - The Company assesses 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 proved oil and gas properties is performed, the Company is required to
compare the net carrying value of proved oil and gas properties on a
field-by-field 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.
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. 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.
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, assumptions affecting the estimated fair value of stock-based
compensation, and oil and gas reserve quantities which are the basis for
the calculation of depreciation, depletion, and impairment of oil and gas
properties. 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,
1997, over 65% 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.
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 prices for oil and natural gas which have typically been
volatile. Furthermore, a substantial portion of the Company's reserves are
F-9
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Stock-Based Compensation - The Company accounts for stock-based
compensation for employees using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Accordingly, compensation cost for
stock options granted to employees is measured as the excess, if any, of
the quoted market price of the Company's common stock at the measurement
date (generally, the date of grant) over the amount an employee must pay to
acquire the stock.
In October 1995, the Financial Accounting Standards Board issued a new
statement titled "Accounting for Stock-Based Compensation" (FAS 123). The
new statement is effective for fiscal years beginning after December 15,
1995. FAS 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
by the fair value method. The Company has elected not to adopt the fair
value accounting prescribed by FAS 123 for employees, but is subject to the
related disclosure requirements.
Reclassifications - Certain reclassifications have been made to the 1996
financial statements to conform to the presentation in 1997. The
reclassifications had no effect on the 1996 net loss.
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.
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,
1997
----------
Balance sheet data:
Current assets $ 557,506
Noncurrent assets 1,281,097
Current liabilities (148,150)
----------
Company's equity in net assets $1,690,453
==========
F-10
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOUR MONTHS
YEAR ENDED ENDED
MARCH 31, MARCH 31,
1997 1996
--------- ----------
Operations data:
Revenue $ 90,411 $ 26,000
Costs and expenses (657,753) (199,000)
Gain on sale of marketable securities 62,005 3,000
Other income (expense) (18,963) 8,000
--------- ---------
Net loss $(524,300) $(162,000)
========= =========
Company's equity in Bishop's loss $(524,300) $(162,000)
========= =========
In October 1995, Metro awarded 30,000 shares of the Company's common stock
from the 1987 Stock Bonus Plan (see Note 9) 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. 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.
As discussed in Note 1, on June 20, 1997, 885,481 shares of Bishop were
distributed pro rata to the Company's common stockholders (excluding
holders of Class B common stock) and the remaining 3,614,519 shares of
Bishop owned by AROC were canceled.
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.
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,
----------------------
1997 1996
--------- --------
Computed income tax benefit
at the statutory rate $325,000 $294,000
State income taxes and other 30,000 23,000
Nonqualified stock option expense
not deductible for taxes - (75,000)
Income taxes attributable to KTOC - (17,000)
Recognition of valuation allowance
related to Bishop's deferred tax
assets transferred in spin-off (335,600) -
--------- --------
Total $ 19,400 $225,000
========= ========
F-11
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred tax assets (liabilities) as of March 31, 1997 are comprised of the
following:
Long-term asset - net operating loss
carryforwards (excluding Bishop) $ 480,000
Long-term liability for oil and gas properties (712,000)
---------
Net long-term liability $(232,000)
=========
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.
At March 31, 1997, the Company has net operating loss carryforwards for
income tax purposes of approximately $1,300,000 which expire primarily in
2009 through 2012. Due to the spin-off discussed in Note 1, the Company has
not recognized deferred tax assets related to Bishop since they will not be
available after the distribution occurs. At March 31, 1997, the tax basis
of net assets exceeded Bishop's book basis by approximately $1,100,000,
including a net operating loss carryforward of $450,000.
5. NOTE PAYABLE AND LONG-TERM DEBT:
-------------------------------
Note Payable - At March 31, 1997, the Company has a line-of-credit with a
bank which provides for interest at the prime rate plus 1% (9.5% at March
31, 1997). Borrowings under the line-of-credit are collateralized by
producing oil and gas properties. At March 31, 1997, outstanding borrowings
under the line-of-credit amounted to $774,852. The maximum commitment
amount under the line-of-credit decreases monthly from $882,000 at March
31, 1997 to $767,000 at maturity in September 1997.
The line-of-credit contains various covenants that limit or prohibit the
Company from incurring additional debt, selling assets, paying dividends,
and merging with another entity.
Long-Term Debt - At March 31, 1997, 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 $6,500 per year.
F-12
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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 an additional 405,000 shares were issued during the year ended
March 31, 1997. In November 1996, the Company completed a second private
placement of 275,000 units for $1.00 per share. Each unit consisted of one
share of common stock and one option. The options are exercisable at $1.00
per share and expire in November 1997. The shares sold in the private
placements are subject to certain registration rights commencing six months
after the close of the private placements.
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. During the year ended March 31,
1997, the Company acquired another oil and gas property in exchange for
10,000 shares of common stock with an estimated fair value of $16,250.
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.
F-13
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In connection with the private placement discussed in Note 6, the Company
paid commissions of $15,000 in 1996 to an entity that is a stockholder of
the Company. The Company also incurred legal fees in connection with the
private placement of $24,959 to an entity that is a stockholder of the
Company. Also, a director and a stockholder purchased an aggregate of
280,000 common shares in the private placement.
In May 1996, the Company borrowed $100,000 from Bishop for working capital
requirements. The note provided for interest at 10% and was collateralized
by producing oil and gas properties in Louisiana. In November 1996, the
principal balance plus interest of $5,472 was repaid to Bishop. For the
year ended March 31, 1997, the Company also paid Bishop approximately
$21,000 for accounting services.
During the year ended March 31, 1997, the Company acquired producing oil
and gas properties from KTOC for an aggregate purchase price of
approximately $220,000.
8. COMMITMENTS:
-----------
Leases - The Company leases its office facilities from a major stockholder
under a lease agreement that requires monthly payments of $1,382 until
October 1998. Total rent expense under all operating leases for the period
from December 8, 1995 through March 31, 1996, and for the year ended March
31, 1997, amounted to $8,900 and $16,600, respectively.
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:
-------------
1995 Stock Option and Stock Compensation Plan - In December 1995, the
Company adopted the 1995 Stock Option and Stock Compensation Plan (the
"1995 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 all options will be determined by the
administrators of the 1995 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 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
F-14
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 in fiscal 1996 related to the difference between the
fair value of the common stock and the exercise price of the options.
The following is a summary of stock options granted under the 1995 Plan for
the years ended March 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
-------------------- --------------------
Weighted Weighted
Average Average
Number Exercise Number Exercise
of Shares Price of Shares Price
--------- ----- --------- -----
<S> <C> <C> <C> <C>
Outstanding, beginning
of year 400,000 $ 1.00 - $ -
Granted to:
Consultants 60,000 2.00 400,000 1.00
Bishop officer 45,000 1.38 - -
------- -------
Outstanding, end of year 505,000 1.15 400,000 1.00
======= =======
</TABLE>
For options for 45,000 shares granted during 1997, the weighted average
market price of the Company's common stock on the grant date was equal to
the weighted average exercise price. For options for 60,000 shares granted
in 1997, the market price of the common stock on the grant date was $1.56
per share. For options granted for 400,000 shares in 1996, the approximate
market price on the measurement date was equal to the exercise price. At
March 31, 1997, all outstanding options were vested.
If not previously exercised, options outstanding at March 31, 1997, will
expire as follows:
Year Ending March 31,
Exercise Price -----------------------------------------------
Per Share 1998 2000 2001 Total
-------------- ------ ------ ------- -------
$1.00 - - 400,000 400,000
1.38 45,000 - - 45,000
2.00 - 60,000 - 60,000
------ ------ ------- -------
45,000 60,000 400,000 505,000
====== ====== ======= =======
F-15
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other Plans - 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, but options for 45,000 shares are still outstanding at March
31, 1997. 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. The following is a summary of activity under these plans
for the years ended March 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------------------------- -----------------------------
Number Exercise Number Exercise
of Shares Price of Shares Price
--------- ----- --------- -----
<S> <C> <C> <C> <C>
Outstanding, beginning of year 240,000 $ 1.19 170,000 $ 1.04
Granted - - 70,000 1.55
Expired (65,000) 1.46 - -
------- -------
Outstanding, end of year 175,000 1.09 240,000 1.19
======= =======
</TABLE>
For stock options granted in 1996, the exercise prices were equal to the
estimated market value of the Company's common stock on the date of grant
for 45,000 shares. Options for the remaining 25,000 shares were granted at
an exercise price of $1.65 per share compared to the market value on the
date of grant of $1.50 per share.
All of the options were exercisable at March 31, 1997. If not previously
exercised, warrants and options outstanding at March 31, 1997, will expire
as follows:
Number Exercise
Year Ending March 31, of Shares Price
-------------------- ---------- --------
2000 50,000 $.68
2001 25,000 1.65
2002 45,000 1.31
2005 30,000 .62
2006 25,000 1.50
-------
Total 175,000 1.09
=======
Other Options - As discussed in Note 6, Bishop has an option to acquire
800,000 shares of common stock, and options for 275,000 shares were
granted in connection with a private placement completed in November
1996.
F-16
<PAGE>
Pro Forma Stock-Based Compensation Disclosures - The Company applies APB
Opinion 25 and related interpretations in accounting for stock options
which are granted to employees. Accordingly, no compensation cost has been
recognized for grants of options to employees since the exercise prices
were not less than the fair value of the Company's common stock on the
grant dates. Had compensation cost been determined based on the fair value
at the grant dates consistent with the method of FAS 123, the Company's net
loss and loss per share would have been changed to the pro forma amounts
indicated below.
Years Ended March 31,
-------------------------
1997 1996
---------- ---------
Net loss applicable to
common stockholders:
As reported $ (936,378) $ (640,027)
Pro forma (963,378) (700,027)
Net loss per common share:
As reported $ (.21) $ (.15)
Pro forma (.21) (.19)
For 1997 and 1996, there was no pro forma impact on net loss per share of
Class B common stock.
The fair value of each employee option granted in 1997 and 1996 was
estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted average assumptions:
Years Ended March 31,
---------------------------
1997 1996
------- --------
Expected volatility 75% 75%
Risk-free interest rate 6.2% 6.5%
Expected dividends - -
Expected terms (in years) 2.0 3.7
1987 Stock Bonus Plan - 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, 1997, 225,160 shares have been awarded under this plan.
Employee Stock Ownership Plan - During the year ended March 31, 1992, the
Company adopted an Employee Stock Ownership Plan (the ESOP) and reserved
250,000 shares for issuance under the ESOP. The ESOP provides for the
establishment of a trust to hold ESOP assets which will primarily consist
of common stock of the Company. The ESOP will be funded by the Company
through annual contributions to the trust in amounts which are determined
by the Board of Directors in its sole discretion and which will be
allocated to each participant's account in proportion to the ratio that
each participant's compensation for the fiscal years bears to the total
compensation of all participants for the fiscal year. No contributions were
made to the ESOP for the years ended March 31, 1997 and 1996.
F-17
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 1997, 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 sales and accounts receivable result
from crude oil and natural gas sales to a limited number of 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.
At March 31, 1997, over 67% of the estimated value of the Company's oil and
gas reserves is related to a single oil and gas property which requires
substantial development activity to access the reserves. Additionally, all
of the Company's bank financing is with a single financial institution.
12. 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, 1997 and 1996:
1997 1996
-------- ---------
Property acquisition costs $633,000 $2,971,000
Development costs 166,000 17,000
Exploration costs 79,000 -
-------- ----------
Total $878,000 $2,988,000
======== ==========
F-18
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 1997 and 1996 are presented
below.
1997 1996
-------- --------
Oil and gas sales $757,000 $173,000
Production costs (394,000) (91,000)
Exploration costs (79,000) -
Depletion, depreciation and amortization (84,000) (43,000)
Imputed income tax provision (74,000) (15,000)
-------- --------
Results of operations from oil
and gas producing activities $126,000 $ 24,000
======== ========
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 $1,382,000. 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, 1997 and 1996.
Changes in Net Quantities of Proved Reserves (Unaudited)
<TABLE>
<CAPTION>
1997 1996
----------------------------- -------------------------------
Oil Gas Oil Gas
(Bbls) (Mcf) (Bbls) (Mcf)
------ ----- ------ -----
<S> <C> <C> <C> <C>
Proved reserves, beginning of year 1,293,000 3,448,000 318,000 490,000
Purchase of minerals in place 42,000 875,000 968,000 2,906,000
Revisions of previous estimates 42,000 412,000 14,000 80,000
Production (16,000) (193,000) (7,000) (28,000)
---------- ---------- ---------- ----------
Proved reserves, end of year 1,361,000 4,542,000 1,293,000 3,448,000
========== ========== ========== ==========
Proved developed reserves,
end of year 368,000 3,250,000 152,000 1,198,000
========== ========== ========== ==========
</TABLE>
F-19
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
The following summary sets forth the Company's future net cash flows
relating to proved oil and gas reserves as of March 31, 1997 and 1996 based
on the standardized measure prescribed in Statement of Financial Accounting
Standards No. 69.
1997 1996
----------- -----------
Future cash inflows $34,386,000 $33,567,000
Future production costs (11,036,000) (9,578,000)
Future development costs (1,382,000) (1,321,000)
Future income tax expense (6,980,000) (8,048,000)
----------- -----------
Future net cash flows 14,988,000 14,620,000
10% annual distiming of cash flow (7,194,000) (6,981,000)
----------- -----------
Standardized Measure of
Discounted Future Net Cash Flows $ 7,794,000 $ 7,639,000
=========== ===========
'
F-20
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 years ended March 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Standardized measure, beginning of year $ 7,639,000 $ 1,462,000
Sale of oil and gas produced, net of production costs (363,000) (82,000)
Acquisition of reserves in place 509,000 9,004,000
Net changes in prices and production costs (1,433,000) 378,000
Net changes in estimated development costs (59,000) (955,000)
Revisions of previous quantity estimates 224,000 1,125,000
Accretion of discount 764,000 146,000
Changes in income taxes, net 513,000 (3,439,000)
----------- -----------
Standardized measure, end of year $ 7,794,000 $ 7,639,000
=========== ===========
F-21
</TABLE>
<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, 1997, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
the years ended March 31, 1997 and 1996. 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, 1997, and the results of their
operations and their cash flows for the years ended March 31, 1997 and 1996, in
conformity with generally accepted accounting principles.
HEIN + ASSOCIATES LLP
Denver, Colorado
May 15, 1997, except for the last two sentences of
Note 1, as to which the date is June 20, 1997
F-22
<PAGE>
BISHOP CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
ASSETS
------
CURRENT ASSETS:
Cash and equivalents $ 46,735
Marketable securities 449,917
Receivables:
Gas royalties 15,489
Interest and other 8,985
Notes receivable - officers 25,000
Prepaid expenses and other 11,380
-----------
Total current assets 557,506
PROPERTY AND EQUIPMENT:
Building 212,157
Furniture and fixtures 63,162
Vehicles and equipment 41,846
-----------
317,165
Less accumulated depreciation (121,436)
-----------
Net property and equipment 195,729
-----------
OTHER ASSETS:
Land under development 565,336
Investment in limited partnership 214,589
Gas royalty interest, net of accumulated amortization
of $803,617 263,434
Notes receivable 37,719
Other assets, net 4,290
-----------
Total other assets 1,085,368
-----------
TOTAL ASSETS $ 1,838,603
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 43,044
Payable to broker 85,106
Customer deposit - related party 20,000
-----------
Total current liabilities 148,150
COMMITMENTS (Notes 5 and 7)
STOCKHOLDERS' EQUITY:
Preferred stock, no par value; 5,000,000
shares authorized, no
shares issued --
Common stock, $.01 par value; 15,000,000
shares authorized; 885,481 shares issued
and outstanding 8,855
Capital in excess of par value 2,245,995
Accumulated deficit (564,397)
-----------
Total stockholders' equity 1,690,453
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,838,603
===========
See accompanying notes to these consolidated financial statements.
F-23
<PAGE>
<TABLE>
<CAPTION>
BISHOP CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
MARCH 31,
----------------------------------
1997 1996
--------- ---------
REVENUE -
<S> <C> <C>
Gas royalties $ 90,411 $ 69,931
COSTS AND EXPENSES:
Gas processing and production taxes 19,129 19,192
General and administrative 517,285 581,936
Professional fees related to reverse acquisition -- 150,000
Depreciation and amortization 121,339 152,718
--------- ---------
657,753 903,846
--------- ---------
LOSS FROM OPERATIONS (567,342) (833,915)
OTHER INCOME (EXPENSE):
Interest income 33,006 51,094
Dividend income 11,092 20,061
Rental income 13,963 12,686
Net gain on sale of marketable securities 62,005 688,400
Net unrealized loss on marketable securities (25,992) --
Equity in limited partnership loss (39,523) (54,606)
Interest expense (10,789) --
Other, net (720) (1,745)
Discontinued operations of oil property -- (25,850)
--------- ---------
NET LOSS $(524,300) $(143,875)
========= =========
NET LOSS PER SHARE $ (.59) $ (.16)
========= =========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 885,481 885,481
========= =========
See accompanying notes to these consolidated financial statements.
F-24
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BISHOP CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
Common Stock Treasury Stock
-------------------- ------------------------ Capital in Unrealized Retained
Number of Number of Excess of Holding Earnings
Shares Amount Shares Amount Par Value Gain (Deficit) Total
------ ------ ------ ------ --------- ---- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, April 1, 1995 2,700,689 $27,007 1,101,234 $(1,736,062) $3,030,711 $528,936 $1,584,498 $3,435,090
Commitment to issue common
stock for services 150,000 1,500 - - 223,500 - - 225,000
Net change in unrealized
holding gain - - - - - (462,052) - (462,052)
Consummation of reverse
acquisition and reflect
capital structure of Bishop (1,965,208) (19,652) (1,101,234) 1,736,062 (1,088,187) - (1,480,720) (852,497)
Net loss - - - - - - (143,875) (143,875)
--------- ------ --------- --------- --------- ------- --------- ---------
BALANCES, March 31, 1996 885,481 8,855 - - 2,166,024 66,884 (40,097) 2,201,666
Issuance of AROC common
stock for employee
compensation - - - - 79,971 - - 79,971
Net change in unrealized
holding gain - - - - - (66,884) - (66,884)
Net loss - - - - - - (524,300) (524,300)
---------- ------ --------- --------- ---------- ------- --------- ----------
BALANCES, March 31, 1997 885,481 $8,855 - $ - $2,245,995 $ - $(564,397) $1,690,453
========== ====== ========= ========= ========== ======= ========= ==========
See accompanying notes to these consolidated financial statements.
F-25
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BISHOP CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
MARCH 31,
--------------------------
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (524,300) $ (143,875)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 121,339 155,185
Issuance of common stock for services -- 225,000
Issuance of AROC common stock for employee
compensation 79,971 --
Equity in limited partnership loss 39,523 54,606
Write-down of investment -- 25,000
Net gain on sale of marketable securities (62,005) (688,400)
Net unrealized loss on marketable securities 25,992 --
Changes in operating assets and liabilities:
(Increase) decrease in:
Marketable securities 175,891 --
Gas royalties receivable (6,090) 3,655
Interest and other receivables 4,273 8,003
Receivables from AROC 21,524 (23,579)
Prepaid expenses 8,634 (1,680)
Other assets (1,000) 14,126
Increase (decrease) in:
Accounts payable and accrued expenses (40,498) 30,770
Customer deposit -- 20,000
Payable to broker 85,106 --
----------- ----------
Net cash used in operating activities (71,640) (321,189)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (477,837) (169,979)
Proceeds from sale of marketable securities 665,894 1,265,512
Funds advanced under notes receivable (120,000) (42,522)
Proceeds from collection of notes receivable 146,639 64,461
Land acquisition and development costs (153,627) (133,473)
Purchase of property and equipment (9,464) (21,274)
Transfer of cash in reverse acquisition -- (700,000)
----------- -----------
Net cash provided by investing activities 51,605 262,725
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings -- 60,000
Principal payments on borrowings -- (60,000)
----------- -----------
Net cash used in financing activities -- --
----------- -----------
NET DECREASE IN CASH AND EQUIVALENTS (20,035) (58,464)
CASH AND EQUIVALENTS, beginning of year 66,770 125,234
----------- -----------
CASH AND EQUIVALENTS, end of year $ 46,735 $ 66,770
============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Cash paid for interest $ 10,089 $ 830
=========== ===========
See accompanying notes to these consolidated financial statements.
F-26
</TABLE>
<PAGE>
BISHOP CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
---------------------
Reverse Acquisition - 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.
Change in Capital Structure and Spinoff - Since inception of the Company
there have been 4,500,000 shares of common stock outstanding. In November
1996, the Board of Directors of AROC (the Company's sole stockholder)
agreed to make a pro rata distribution of 885,481 shares of the Company's
common stock to AROC's common stockholders (excluding holders of Class B
common stock) of record on November 18, 1996. The pro rata distribution of
shares occurred on June 20, 1997, and the remaining 3,614,519 shares of the
Company's common stock owned by AROC were canceled. Accordingly, all share
and per share amounts in the accompanying financial statements have been
retroactively restated to give effect to the change in capital structure.
2. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------------------------------------------
Nature of Operations - The Company is primarily engaged in the development
and sale of real estate and also has a royalty interest in a natural gas
property.
Principles of Consolidation - The Company's subsidiaries consist of Bishop
Powers, Ltd. and Bridger Creek Partnership in which the Company holds
general partner interests of 81% and 80%, respectively. The accompanying
financial statements include the accounts of the Company and both
majority-owned partnerships. All material intercompany transactions and
accounts have been eliminated in consolidation.
F-27
<PAGE>
BISHOP CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Property and Equipment - Property and equipment is stated at cost.
Depreciation is provided by the straight-line method over estimated useful
lives of three to thirty-one years.
Maintenance and repairs are charged to expense as incurred, and
expenditures for major improvements are capitalized. When assets are
retired or otherwise disposed of, the property accounts are relieved of
costs and accumulated depreciation, and a gain or loss is recognized.
Land Under Development - Land under development is stated at cost and
approximately $331,000 relates to acquisition costs at March 31, 1997.
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 Interest - Through December 31, 1996, the gas royalty interest
was being amortized utilizing the straight-line method over an estimated
life of eight years. Effective January 1, 1997, management determined that
the estimated remaining life of the gas royalty interest was 20 years,
based upon information that the operator released publicly. As a result of
this change in estimate, amortization expense for the year ended March 31,
1997, was reduced by approximately $30,000 (approximately $.03 per share).
Cash Equivalents - The Company considers all highly liquid debt instruments
purchased with an original maturity of three months or less to be cash
equivalents.
Marketable Securities - Management determines the appropriate
classification of its investments at the time of acquisition and
reevaluates such determination at each balance sheet date. Trading
securities are carried at fair value, with unrealized holding gains and
losses included in earnings. Available-for- sale securities are carried at
fair value, with unrealized holding gains and losses, net of tax, reported
as a separate component of stockholders' equity. Realized gains and losses
on all securities are computed based on average cost.
Through December 31, 1996, all securities were classified as available for
sale. Effective January 1, 1997, management reevaluated the Company's
investment policies and began classifying all securities as trading since
management's intent is to hold the securities principally for the purpose
of selling them in the near term. This reclassification had no effect on
earnings.
Investments - The Company's 19% ownership interest in a limited partnership
(Z-H, LTD.) is stated at cost, adjusted for its share of losses incurred.
Income Taxes - The Company accounts for income taxes under the liability
method, which requires recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included
in the financial statements or tax returns. Under this method, deferred tax
assets and liabilities are determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted
tax rates.
F-28
<PAGE>
BISHOP CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Stock-Based Compensation - The Company accounts for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Accordingly, compensation cost for
stock options granted to employees is measured as the excess, if any, of
the quoted market price of the Company's (or AROC's) common stock at the
measurement date (generally, the date of grant) over the amount an employee
must pay to acquire the stock.
In October 1995, the Financial Accounting Standards Board issued a new
statement titled "Accounting for Stock-Based Compensation" (FAS 123). The
new statement is effective for fiscal years beginning after December 15,
1995. FAS 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
by the fair value method. The Company has elected not to adopt the fair
value accounting prescribed by FAS 123 for employees, and will be subject
only to the disclosure requirements prescribed by FAS 123.
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.
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 land under development 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.
Net Loss Per Share - The net loss per share calculation is based on the
weighted average number of shares outstanding during each year, as
retroactively restated for the changes in capital structure due to the
reverse acquisition and spin-off as discussed in Note 1.
Reclassifications - Certain reclassifications have been made to the 1996
financial statements to conform to the presentation in 1997. The
reclassifications had no effect on the 1996 net loss.
F-29
<PAGE>
BISHOP CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. MARKETABLE SECURITIES:
---------------------
The cost and estimated fair market value of trading securities at March 31,
1997 were as follows:
<TABLE>
<CAPTION>
Net
Fair Unrealized
Market Gains
Cost Value (Losses)
-------- -------- ----------
<S> <C> <C> <C>
U.S. Treasury securities $172,758 $163,525 $ (9,233)
Redeemable preferred securities 89,500 92,000 2,500
Equity securities 213,651 194,392 (19,259)
-------- -------- --------
$475,909 $449,917 $(25,992)
======== ======== ========
</TABLE>
Cash proceeds from the sale of available-for-sale securities during the
years ended March 31, 1997 and 1996 were $665,894 and $1,265,512,
respectively. Net gains from available-for-sale securities sold during the
year ended March 31, 1997 amounted to $51,340 (gross gains of $69,511 and
gross losses of $18,171). Net gains from available-for-sale securities sold
during the year ended March 31, 1996 amounted to $688,400 (gross gains of
$701,152 and gross losses of $12,752).
4. GAS ROYALTY INTEREST:
--------------------
In December 1990, the Company purchased a royalty interest in certain gas
properties located in Wyoming for approximately $1,067,000. At March 31,
1997, the net carrying value of this interest amounts to $263,434. Revenues
related to this royalty interest are affected by local gas transportation,
processing, and marketing arrangements. Reserve disclosures related to the
gas royalty interest are not presented because the information is
unavailable from the operator of the properties.
In connection with the purchase, the Company formed a tax partnership
(Bridger Creek 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 receives cumulative net
income of $1,050,000 plus interest at prime adjusted semi-annually, the
Company will be entitled to 60% of the annual net income of the
partnership. Through March 31, 1997, the minority interest's share of the
partnership's profits and cash flows has not been material.
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 $700,000,
after which the allocation will be apportioned according to ownership
interests. Through March 31, 1997, this partnership has not recognized any
F-30
<PAGE>
BISHOP CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
profits and there have not been any cash distributions to the partners.
However, at March 31, 1997, the Company had entered into three contracts
with unrelated parties for the sale of approximately three acres of land
for an aggregate sales price of $1,070,000. The closings are contingent
upon certain regulatory approvals and the Company is required to make
additional capital improvements to the properties at an estimated cost of
approximately $400,000.
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 under the equity method of accounting.
Following is a summary of condensed financial information pertaining to
this limited partnership:
Balance sheet data at March 31, 1997:
Current assets $ 11,700
Noncurrent assets 962,800
Current liabilities 43,700
Noncurrent liabilities 1,193,400
YEARS ENDED MARCH 31,
------------------------
1997 1996
--------- ----------
Operations data:
Revenue $ 276,000 $262,000
Costs and expenses 484,000 549,000
--------- ---------
Net loss $(208,000) $(287,000)
========= =========
Company's equity in limited
partnership loss $ (40,000) $ (55,000)
========= =========
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. At March 31,
1997, there is a difference of approximately $265,000 between the carrying
value of the Company's investment and its 19% interest in the assets and
liabilities of the limited partnership. This difference is primarily
attributable to the value of the land.
F-31
<PAGE>
BISHOP CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. INCOME TAXES:
------------
The items that give rise to the components of the net long-term deferred
tax asset as of March 31, 1997, are as follows:
Gas royalty interest $265,000
Net operating loss carryforward 168,000
Other (23,000)
--------
Deferred tax asset 410,000
Less valuation allowance (410,000)
--------
Net deferred tax asset $ -
========
For the year ended March 31, 1997, the valuation allowance related to
deferred tax assets increased by approximately $190,000. As of March 31,
1997, Bishop has a net operating loss carryforward for Federal income tax
purposes of approximately $450,000. Due to the spin-off discussed in Note
1, utilization of this carryforward will be subject to limitations under
IRS Section 382. If not previously utilized, this carryforward will expire
primarily in 2012.
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 AROC. 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.
F-32
<PAGE>
BISHOP CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. FINANCIAL INSTRUMENTS:
---------------------
Statement of Financial Accounting Standards No. 107 requires the Company to
disclose the fair value of certain financial instruments in its financial
statements. Accordingly, at March 31, 1997, management's best estimate is
that the carrying amount of cash and equivalents, notes and other
receivables, accounts payable, accrued expenses, payable to broker and
customer deposits, 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, 1997.
9. RELATED PARTY TRANSACTIONS:
--------------------------
During the year ended March 31, 1997, the Company loaned an additional
$100,000 to AROC which was subsequently collected during the year. The note
provided for interest at 10% and was collateralized by oil and gas
properties in Louisiana. During the year ended March 31, 1996, an officer
paid a $20,000 cash deposit to the Company for the sale of land. The
purchase price for the land is estimated to be $45,000, but closing has not
yet occurred and the deposit is included in current liabilities at March
31, 1997.
The Company has notes receivable for a total of $25,000 from two officers
of the Company. The officers pledged 25,000 shares of AROC common stock as
collateral for the notes.
10. STOCK-BASED COMPENSATION:
------------------------
Stock Grants - The Company has never issued any stock options, warrants or
similar instruments. However, in connection with the reverse acquisition
discussed in Note 1, 150,000 shares of AROC common stock were issued to
consultants in 1996 for services provided to the Company, resulting in a
charge to operations for $225,000. Additionally, during the year ended
March 31, 1997, AROC issued 70,000 shares of its common stock to certain
employees of the Company for services performed on behalf of the Company.
The Company recognized a charge to operations for the fair value of these
shares of $79,971.
Pro Forma Stock-Based Compensation Disclosures - The Company applies APB
Opinion 25 and related interpretations in accounting for stock options
which were granted to its employees by AROC. Accordingly, the Company did
not recognize any compensation cost for options granted to employees in
1997 and 1996 since the market prices of AROC's common stock did not exceed
the exercise prices on the dates of grant. In July 1996, AROC granted a
two-year option to an officer to purchase 45,000 shares of its common stock
at an exercise price of $1.38 per share. During the year ended March 31,
1996, AROC granted ten-year options to officers to purchase 25,000 shares
of its common stock for $1.50 per share and a five-year option to an
officer to purchase 25,000 shares of its common stock for $1.65 per share.
F-33
<PAGE>
BISHOP CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
If compensation cost had been recognized using the fair value method
prescribed by FAS 123 rather than the intrinsic value method under APB 25,
the Company's net loss and net loss per share would have been changed to
the pro forma amounts indicated below.
Year Ended March 31,
-------------------------------
1997 1996
---------- ----------
Net loss:
As reported $ (524,300) $ (143,875)
Pro forma $ (551,300) $ (203,875)
Net loss per share:
As reported $ (.59) $ (.16)
Pro forma $ (.62 $ (.23)
The fair value of each employee option granted in 1997 and 1996 was
estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions:
Year Ended March 31,
--------------------------
1997 1996
------ ------
Expected volatility 75.0% 75.0%
Risk-free interest rate 6.5% 6.2%
Expected dividends - -
Expected terms (in years) 1.8 3.7
F-34
September 13, 1996
American Rivers Oil Company
Mr. Karlton Terry
Mr. Jubal S. Terry
700 East Ninth Avenue
Denver, Colorado 80203
Gentlemen:
This letter agreement (this "Agreement") is entered into by and among
American Rivers Oil Company, a Wyoming corporation ("AROC"), Karlton Terry,
individually, and Jubal S. Terry, individually (all of the foregoing being
herein collectively called "Borrower"), and Professional Bank, a Colorado
state-chartered bank, in order to provide for the terms upon which Professional
Bank will make available to Borrower a reducing revolving line of credit and by
which such line of credit will be governed.
ARTICLE 1: THE LOAN
- -------------------
1.1. The Loan. (a) Subject to the other terms and conditions of this
Agreement, Professional Bank agrees to make advances ("Advances") to Borrower
from time to time requested by Borrower, each such Advance to be made after the
submission of a written advance request to Professional Bank in the form of
Exhibit A attached hereto and made a part hereof, no later than 2:00 p.m.,
Denver time, at least one business day prior to such Advance.
(b) Professional Bank shall not have any obligation to: (1) make an
Advance after September 12, 1997, (2) make an Advance in an amount less than
$5,000, or (3) make an Advance if, at the time immediately after the making of
such Advance, the aggregate amount of all Advances outstanding hereunder would
exceed the amount specified in Exhibit B attached hereto and made a part hereof
for that time (the "Commitment Amount").
(c) Within the limitation of the Commitment Amount and subject to the
other terms and provisions hereof, Borrower may borrow, repay and reborrow
hereunder. The Advances described above shall be herein collectively referred to
as the "Loan". Borrower hereby expressly requests and irrevocably authorizes
Professional Bank to make the Loan.
<PAGE>
American Rivers Oil Company, et al.
September 13, 1996
Page 2
1.2. Borrower's obligation to repay the Loan, with interest thereon, shall
be evidenced by a Promissory Note in the form of Exhibit C attached hereto and
made a part hereof (the "Note"). The Note shall bear interest on the outstanding
principal balance thereof at the rates per annum provided in the Note.
1.3. Mandatory principal payments from Borrower to Professional Bank shall
be required as set forth in Section 2.2 below. The entire outstanding principal
balance of the Loan, together with all accrued interest and other amounts
payable to Professional Bank hereunder or under the Note, shall be due and
payable, if not previously paid, on September 13, 1997.
1.4. In no event shall the proceeds of the Loan be used for any purpose
other than: (a) the repayment of an existing loan from Professional Bank to
Borrower, (b) the repayment, within 60 days of the date hereof, of an existing
loan in the amount of $100,000 from Bishop Capital Corporation to Borrower, (c)
future purchases of producing oil and/or gas properties, (d) expenditures made
to improve producing oil and/or gas properties owned by Borrower, and (e) costs
incurred pursuant to or in connection with this Agreement.
ARTICLE 2: SECURITY; MANDATORY PAYMENTS; FEE
- --------------------------------------------
2.1. The Note will be secured by the security documents to be delivered by
AROC to Professional Bank upon the execution and delivery of this Agreement and
any additional security documents hereafter delivered by Borrower (or any of the
persons or entities comprising Borrower) and accepted by Professional Bank (all
of the foregoing being herein collectively referred to as the "Security
Documents").
2.2. If at any time, the outstanding principal balance of the Loan is
greater than the Commitment Amount described in Exhibit B for that time, an
Event of Default shall be deemed to have occurred hereunder unless Borrower,
within 10 days after notice from Professional Bank, prepays the principal of the
Loan such that the outstanding principal balance of the Loan is reduced by a
sufficient amount to be less than the Commitment Amount.
2.3. Borrower shall pay to Professional Bank at closing (from the initial
Advance): (a) a facility fee in the amount of $10,000, (b) estimated legal and
recording fees in the amount of $6,000, (c) engineering fees in the amount of
$5,839.55, and (d) $608,742.00 plus accrued interest to pay off in its entirety
Loan #070015001.
<PAGE>
American Rivers Oil Company, et al.
September 13, 1996
Page 3
ARTICLE 3: CONDITIONS PRECEDENT TO THE LOAN
- -------------------------------------------
3.1. Professional Bank shall have no obligation to make the Loan unless
Professional Bank shall have received all of the following at its office in
Englewood, Colorado, duly executed and delivered and in form, substance and date
satisfactory to Professional Bank:
(a) The Note.
(b) The Security Documents.
(c) A guaranty from Karlton Terry Oil Company ("Guarantor").
(d) The amounts payable by Borrower pursuant to Section 2.3 above.
(e) Such title opinions, supplemental title opinions, UCC searches
and other title information concerning Borrower's title to the
collateral covered by the Security Documents (the "Collateral")
or any portions thereof as may be satisfactory to Professional
Bank.
(f) Such evidence as Professional Bank may require as to the
authority of Borrower to execute the loan documents, the
enforceability of the loan documents, pending or threatened
litigation and other matters, including without limitation
certificates in the form of Exhibits D and E attached hereto and
made a part hereof.
(g) Any and all other loan documents required by Professional Bank.
ARTICLE 4: COVENANTS OF BORROWER
- --------------------------------
4.1. Borrower warrants, covenants and agrees that until the full and final
payment of all amounts payable hereunder and the termination of this Agreement,
unless Professional Bank has previously agreed otherwise in writing:
(a) Payment and Performance. Borrower will pay all amounts due in
accordance with the terms of this Agreement, the Note and any other applicable
loan documents and will in all material respects observe, perform and comply
with every covenant, term and condition express or implied in this Agreement,
the Note or any other applicable loan document.
<PAGE>
American Rivers Oil Company, et al.
September 13, 1996
Page 4
(b) Books Financial Statements and Records. AROC will at all times
maintain full and accurate books of account and records and a standard system of
accounting, and Borrower will furnish the following statements and reports to
Professional Bank at Borrower's expense:
(1) As soon as available, and in any event: (a) within 120 days after
the end of each fiscal year of AROC, complete financial
statements of AROC, prepared in reasonable detail and in
accordance with generally accepted accounting principles,
containing at least a balance sheet as of the end of such fiscal
year and a statement of income and cash flow, setting forth in
comparative form the corresponding figures for the preceding
fiscal year, and (b) by August 1, 1997, complete personal
financial statements of Karlton Terry and Jubal S. Terry and
complete financial statements of Guarantor, all prepared as of
not earlier than June 30, 1997 and prepared in reasonable detail
and in accordance with accounting principles acceptable to
Professional Bank;
(2) As soon as available, and in any event within 90 days after the
end of each fiscal quarter of AROC, complete financial statements
of AROC, prepared in reasonable detail and in accordance with
generally accepted accounting principles, containing at least a
balance sheet as of the end of such fiscal quarter and a
statement of income and cash flow, setting forth in comparative
form the corresponding figures for the preceding fiscal year;
(3) As soon as available and in any event within 30 days after
filing, signed copies of any and all federal and state income tax
returns (and any and all amendments thereto) of AROC, Guarantor,
Karlton Terry and Jubal S. Terry;
(4) As soon as available, and in any event within 60 days after the
end of each calendar quarter (commencing with the calendar
quarter ending September 30,
<PAGE>
American Rivers Oil Company, et al.
September 13, 1996
Page 5
1996), a report in a form satisfactory to Professional Bank
describing, for each month during such calendar quarter, on a
lease-by-lease basis, the gross volume of production and sales
attributable to production (and the prices at which such sales
were made and the revenues derived from such sales) during such
calendar quarter from the Collateral, and describing the related
ad valorem, severance and production taxes and lease operating
expenses attributable thereto and incurred during such calendar
quarter; and
(5) By July 1, 1997, an engineering report and economic evaluation
prepared as of October 31, 1997 by one or more petroleum
engineers chosen by Borrower and acceptable to Professional Bank,
covering all oil and gas properties and interests included in the
Collateral. This engineering report shall be in form and
substance satisfactory to Professional Bank and shall contain
information and analysis comparable in scope to that contained in
the engineering report heretofore delivered by Borrower to
Professional Bank covering the Collateral.
(c) Other Information and Inspections. Borrower will furnish to
Professional Bank any information which Professional Bank may from time to time
request concerning any covenant, provision or condition of this Agreement, the
Note or any other applicable loan document or any matter in connection with the
businesses or operations of any of the persons or entities comprising Borrower
and will permit representatives appointed by Professional Bank to visit and
inspect, at their sole risk, any and all properties and facilities of any of the
persons or entities comprising Borrower, including their books of account, other
books and records, and any facilities or other business assets.
(d) Notice of Material Events. Borrower will promptly notify
Professional Bank: (1) of any material adverse change in the financial condition
of, or any material occurrence (including without limitation acceleration of
debts, filing of - suits or claims) with respect to, Borrower or any of the
persons or entities comprising Borrower, or (2) of the occurrence of any Event
of Default, or any event that, with the giving of notice, the lapse of time or
both, would become an Event of Default.
<PAGE>
American Rivers Oil Company, et al.
September 13, 1996
Page 6
Borrower will also notify Professional Bank in writing at least twenty business
days prior to the date that AROC changes its name or the location of its chief
executive office or principal place of business or the place where it keeps its
books and records concerning the Collateral, furnishing with such notice any
necessary financing statement amendments or requesting that Professional Bank
prepare the same.
(e) Maintenance of Existence and Qualifications. AROC will maintain
and preserve its existence as a corporation and its rights and franchises in
full force and effect and will qualify to do business as a foreign corporation
in all places where required by applicable law. Borrower will cause Guarantor to
maintain and preserve its existence as a corporation and its rights and
franchises in full force and effect and to qualify to do business as a foreign
corporation in all places where required by applicable law.
(f) Maintenance of Properties. Borrower will maintain, preserve,
protect, and keep all property used or useful in the conduct of Borrower's
business in accordance with the standards of a reasonable and prudent operator.
(g) Payment of Trade Debt, Taxes. etc. Borrower will: (1) timely file
all required tax returns; (2) timely pay all taxes, assessments, and other
governmental charges or levies imposed upon it or upon its income, profits or
property; and (3) timely pay all obligations owed by it on ordinary trade terms
to vendors, suppliers and other persons and entities providing goods and
services used by Borrower in the ordinary course of Borrower's business.
Borrower may, however, delay paying or discharging any such amounts so long as
it is in good faith contesting the validity thereof by appropriate proceedings.
(h) Payment of Expenses. Borrower will promptly (and in any event
within 30 days after any invoice or other statement or notice) pay all
reasonable costs and expenses incurred by or on behalf of Professional Bank
(including attorneys' fees) in connection with: (1) the preparation, execution
and delivery of this Agreement, the Note and any and all other loan documents
(including without limitation any and all future amendments or supplements
thereto or restatements thereof), and any and all consents, waivers or other
documents or instruments relating thereto, (2) the filing, recording, refiling
and re-recording of any Security Documents and any other documents or
instruments or further assurances required to be filed or recorded or refiled or
re-recorded, (3) the examination of Borrower's title to the Collateral, and (4)
the enforcement, after the occurrence of an Event of Default, of this Agreement,
the Note and any other applicable loan documents.
<PAGE>
American Rivers Oil Company, et al.
September 13, 1996
Page 7
(i) Compliance with Agreements and Law. Borrower will perform all
material obligations it is required to perform under the terms of each
indenture, mortgage, deed of trust, security agreement, lease, franchise,
agreement, contract or other instrument or obligation to which it is a party or
by which it or any of its properties is bound, in such a way that they result in
no material adverse effect upon the Collateral or Borrower's ability to perform
its obligations under this Agreement. Borrower will conduct its business and
affairs in compliance with all laws, regulations, and orders applicable thereto
(including without limitation those relating to pollution and other
environmental matters).
(j) Additional Security Documents. Promptly after a request therefor
by Professional Bank at any time and from time to time, Borrower will execute
and deliver to Professional Bank such additional Security Documents and/or
amendments to existing Security Documents as Professional Bank may deem
necessary or appropriate in order to grant to Professional Bank a perfected lien
on and security interest in any or all oil and/or gas interests owned by
Borrower.
(k) Operating Accounts. AROC will maintain its principal operating
accounts with Professional Bank, to which accounts the proceeds of the sales of
production from the Collateral will be paid by the purchasers of production
therefrom.
(l) Insurance. AROC will maintain with financially sound and reputable
insurance companies, insurance with respect to its business, operations and
properties in at least such amounts and against at least such risks as are
usually insured against in the same general area by companies of established
repute engaged in the same or a similar business.
4.2. Borrower warrants, covenants and agrees that until the full and final
payment of the Obligations and the termination of this Agreement, unless
Professional Bank has previously agreed otherwise in writing:
(a) Limitation on Liens. AROC will not create, assume or permit to
exist any lien or encumbrance upon any of AROC's properties or assets, whether
now owned or hereafter acquired, except: (1) liens and encumbrances at any time
existing in favor of Professional Bank; (2) statutory liens for taxes, statutory
or contractual mechanics' and materialmen's liens incurred in the ordinary
course of business, and other similar liens incurred in the ordinary course of
business; provided that such liens secure only debt which is not delinquent or
which is being contested as provided in Section 4.1(g) above; and (3) liens
currently existing on certain of Borrower's Louisiana properties to secure an
existing debt of Borrower to Bishop Capital Corporation in an amount not in
excess of $100,000.
<PAGE>
American Rivers Oil Company, et al.
September 13, 1996
Page 8
(b) Additional Debt. AROC will not create, incur, assume or permit to
exist any outstanding debt, except: (1) the Loan, (2) trade debt owed to
suppliers, pumpers, mechanics, materialmen and others furnishing goods or
services to AROC in the ordinary course of AROC's business, and (3) existing
debt of Borrower shown on the financial statements heretofore submitted by
Borrower to Professional Bank.
(c) Limitation on Sales of Property. AROC will not sell, transfer,
lease, exchange, alienate or dispose of any of the assets of AROC except as
follows (and the following exceptions shall be subject to any limitations
contained in the Security Documents): (1) equipment which is worthless or
obsolete, which is replaced by equipment of equal suitability and value or which
is salvaged from wells which have been plugged and abandoned by or on behalf of
AROC; (2) inventory (including oil and gas sold as produced) which is sold in
the ordinary course of business; and (3) personal property located on oil and
gas properties operated by third parties, the sale of which personal property
cannot be prevented by AROC.
(d) Reorganizations; Combinations. AROC will not: (1) change its name,
its fiscal year or the nature of its business, (2) reorganize, liquidate or
dissolve, or (3) enter into any merger or other combination in which such entity
is not the surviving entity.
(e) Distributions. AROC will not: (1) pay any dividend payable in cash
or property with respect to any shares of capital stock of AROC (other than
dividends payable in shares of the same class of common, preferred or other
capital stock as the shares upon which the dividend is being paid), (2) make any
other distribution with respect to any shares of capital stock of AROC, or (3)
make any purchase, redemption or retirement of, or other payment with respect
to, any shares of capital stock of AROC.
ARTICLE 5: EVENTS OF DEFAULT AND REMEDIES
- -----------------------------------------
5.1. Each of the following events constitutes an event of default under
this Agreement (an "Event of Default"):
(a) Borrower fails to pay any amount due under this Agreement, the
Note or any other applicable loan document when due and payable; or
(b) Borrower fails to duly observe, perform or comply with any
covenant, agreement, condition or provision of this Agreement or any other Loan
Document, including without limitation Section 2.2 above; or
<PAGE>
American Rivers Oil Company, et al.
September 13, 1996
Page 9
(c) Any of AROC, Karlton Terry, Jubal S. Terry or Guarantor: (1)
commences a voluntary case under any applicable bankruptcy, insolvency or
similar law; (2) suffers the entry against it of a judgment, decree or order for
relief by a court of competent jurisdiction in an involuntary proceeding
commenced under any applicable bankruptcy, insolvency or similar law; (3)
suffers the appointment of a receiver, custodian, trustee or similar official
for a substantial part of its assets; (4) makes a general assignment for the
benefit of creditors; or (5) fails generally to pay (or admits in writing its
inability to pay) its debts as such debts become due; or
(d) Any default, including the expiration of any applicable period of
grace, occurs with respect to any other indebtedness owed by any of the persons
or entities comprising Borrower to Professional Bank or any other person or
entity.
Upon the occurrence of an Event of Default described in subsection (c) of this
Section, all amounts owed by Borrower under or in connection with this
Agreement, the Note or any other applicable loan document shall thereupon be
immediately due and payable, without presentment, demand, protest, notice of
protest, declaration or notice of acceleration or intention to accelerate, or
any other notice or declaration of any kind, all of which are hereby expressly
waived by Borrower. During the continuance of any other Event of Default,
Professional Bank at any time and from time to time (unless all Events of
Default have theretofore been remedied) may declare any or all of the amounts
owed by Borrower under or in connection with this Agreement, the Note or any
other applicable loan document immediately due and payable, and all such amounts
shall thereupon be immediately due and payable.
5.2. If any Event of Default (or any event or condition which, with the
giving of notice, the lapse of time or both, would become an Event of Default)
shall occur and be continuing, the obligation of CNB to make Advances under this
Agreement shall terminate immediately. If any Event of Default shall occur,
Professional Bank may protect and enforce its rights under this Agreement, the
Note and any other applicable loan documents by any appropriate proceedings,
including proceedings for specific performance of any covenant or agreement
contained in this Agreement, the Note or any other applicable loan document, and
Professional Bank may enforce the payment of any obligations due or enforce any
other legal or equitable right. All rights, remedies and powers conferred upon
Professional Bank under this Agreement, the Note or any other applicable loan
document shall be deemed cumulative and not exclusive of any other rights,
remedies or powers available at law or in equity.
<PAGE>
American Rivers Oil Company, et al.
September 13, 1996
Page 10
5.3. Borrower hereby agrees to indemnify, defend and hold harmless
Professional Bank and its agents, affiliates, officers, directors and employees
from and against any and all claims, losses, demands, actions, causes of action,
and liabilities whatsoever (including without limitation reasonable attorneys'
fees and expenses, and costs and expenses reasonably incurred in investigating,
preparing or defending against any litigation or claim, action, suit, proceeding
or demand of any kind or character) arising out of or resulting from: (a) this
Agreement, the Note or any other applicable loan document (including without
limitation the enforcement thereof), except to the extent such claims, losses,
and liabilities are proximately caused by a Professional Bank's gross negligence
or willful misconduct, and (b) the contamination of the Collateral by any
hazardous substance or environmental pollutant in violation of any federal,
state or local environmental statute, rule, regulation or ordinance, including
without limitation violation of the Comprehensive Environmental Response,
Compensation and Liability Act, as amended from time to time, or of the Resource
Conservation and Recovery Act, as amended from time to time.
ARTICLE 6: MISCELLANEOUS
- ------------------------
6.1. This Agreement, the Note and the other loan documents executed in
connection herewith set forth the entire understanding between the parties
hereto, and no modification or amendment of or supplement to this Agreement, the
Note or any other loan document shall be valid or effective unless the same is
in writing and signed by the party against whom it is sought to be enforced.
6.2. All notices, requests, consents, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed
sufficiently given or furnished if delivered by personal delivery, by expedited
delivery service or by United States mail, postage prepaid, at the addresses
specified below (unless changed by similar notice in writing given by the
particular person or entity whose address is to be changed), and, when so given,
shall be deemed effective upon delivery:
Borrower's address: 700 East Ninth Avenue
Denver, Colorado 80203
Attention: Mr. Karlton Terry
Professional Bank's address: 5299 DTC Boulevard
Englewood, Colorado 80111
Attention: Mr. James B. Bills
6.3. All obligations which are owed by Borrower shall be the joint and
several (and not merely joint) obligations of all of the persons and entities
comprising Borrower. All grants,
<PAGE>
American Rivers Oil Company, et al.
September 13, 1996
Page 11
covenants and agreements contained in this Agreement, the Note and any other
applicable loan documents shall bind and inure to the benefit of the parties
thereto and their respective successors and assigns; provided that Borrower may
not assign or transfer any of its rights or delegate any of its duties or
obligations under this Agreement, the Note or any other loan document without
the prior consent of Professional Bank.
6.4. THIS AGREEMENT, THE NOTE AND ANY OTHER LOAN DOCUMENTS SHALL BE DEEMED
CONTRACTS AND INSTRUMENTS MADE UNDER THE LAWS OF THE STATE OF COLORADO AND SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF COLORADO AND THE LAWS OF THE UNITED STATES OF AMERICA, EXCEPT (A) TO
THE EXTENT THAT THE LAW OF ANOTHER JURISDICTION IS EXPRESSLY ELECTED IN A LOAN
DOCUMENT, AND (B) WITH RESPECT TO SPECIFIC LIENS, OR THE PERFECTION THEREOF,
EVIDENCED BY SECURITY DOCUMENTS COVERING REAL OR PERSONAL PROPERTY WHICH BY THE
LAWS APPLICABLE THERETO ARE REQUIRED TO BE CONSTRUED UNDER THE LAWS OF ANOTHER
JURISDICTION. BORROWER HEREBY IRREVOCABLY SUBMITS ITSELF TO THE NON-EXCLUSIVE
JURISDICTION OF THE STATE AND FEDERAL COURTS OF THE STATE OF COLORADO.
6.5. Professional Bank and Borrower intend to contract in strict compliance
with applicable usury laws from time to time in effect. Professional Bank agrees
to refund to Borrower any amounts paid by Borrower in excess of the maximum rate
under applicable usury laws.
6.6. This Agreement may be separately executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to constitute one and the same agreement.
EXECUTED as of the date first written above.
Sincerely,
PROFESSIONAL BANK
By: /s/ James B. Bills
-----------------------------------
James B. Bills,
Senior Vice President
<PAGE>
American Rivers Oil Company, et al.
September 13, 1996
Page 12
ACCEPTED AND AGREED TO AS
OF THE DATE OF THIS LETTER:
AMERICAN RIVERS OIL COMPANY
By: /s/ KARLTON TERRY
---------------------------
President
By: /s/ JUBAL S. TERRY
----------------------------
Vice President
/s/ KARLTON TERRY
- -------------------------------
KARLTON TERRY
/s/ JUBAL S. TERRY
- -------------------------------
JUBAL S. TERRY
<PAGE>
EXHIBIT A
---------
ADVANCE REQUEST
---------------
, 199
---------- ------
Professional Bank
5299 DTC Boulevard
Englewood, Colorado 80111
Attention: James B. Bills
Gentlemen:
1. This Advance Request is delivered to you pursuant to Section 1.1 of the
letter agreement dated September 13, 1996 (the "Credit Agreement"), among
American Rivers Oil Company, Karlton Terry and Jubal S. Terry (collectively,
"Borrower"), and Professional Bank ("Professional Bank"). Terms defined in the
Credit Agreement shall have the same meanings when used herein.
2. Borrower hereby requests an Advance as follows:
(a) Proposed Date of Advance:
(b) Amount of Advance:
3. Borrower hereby represents and warrants that: (a) as of the date hereof
and as of the date of the Advance requested hereunder, all of the covenants
contained in Article 4 of the Credit Agreement have been and will have been duly
performed and complied with in all material respects by Borrower, and (b) the
proceeds of the Advance requested hereunder shall be used solely for the
purposes described in Section 1.4 of the Credit Agreement.
4. Borrower agrees that if, at any time prior to the date of the Advance
requested by Borrower hereunder, any representation or warranty of Borrower
contained herein is not true and correct as of such time, Borrower will
immediately so notify Professional Bank. Except to the extent of any such
notification by Borrower, the acceptance by Borrower of any Advance requested
hereunder shall be deemed a re-certification by Borrower as of the date of such
Advance of the representations and warranties made by Borrower herein.
A-1
<PAGE>
Sincerely,
AMERICAN RIVERS OIL COMPANY
By:
-----------------------------
President
By:
-----------------------------
Vice President
---------------------------------
KARLTON TERRY
---------------------------------
JUBAL S. TERRY
A-2
<PAGE>
EXHIBIT B
---------
COMMITMENT AMOUNT
-----------------
Time Period Commitment Amount
----------- -----------------
09/13/96 - 09/30/96 $1,000,000.00
10/01/96 - 10/31/96 $980,174.00
11/01/96 - 11/30/96 $960,405.00
12/01/96 - 12/31/96 $940,724.00
01/01/97 - 01/31/97 $921,130.00
02/01/97 - 02/28/97 $901,772.00
03/01/97 - 03/31/97 $882,347.00
04/01/97 - 04/30/97 $863,005.00
05/01/97 - 05/31/97 $843,743.00
06/01/97 - 06/30/97 $824,560.00
07/01/97 - 07/31/97 $805,455.00
08/01/97 - 08/31/97 $786,427.00
09/01/97 - 09/13/97 $767,475.00
B-1
<PAGE>
EXHIBIT C
---------
PROMISSORY NOTE
---------------
$1,000,000 September 13, 1996
Englewood, Colorado
FOR VALUE RECEIVED, AMERICAN RIVERS OIL COMPANY, a Wyoming corporation,
KARLTON TERRY, individually, and JUBAL S. TERRY, individually (all of the
foregoing being herein collectively called "Borrower"), jointly and severally,
promise to pay to the order of PROFESSIONAL BANK, a Colorado state-chartered
bank (herein called "Payee"), the principal sum of $1,000,000, or so much
thereof as may be borrowed hereunder, together with interest on the outstanding
unpaid balance of such principal amount at the rate provided below.
This Note is issued pursuant to, and is subject to the terms and provisions
of, the letter agreement dated September 13, 1996, among Borrower and Payee, as
now in effect or as hereafter extended, amended, modified or amended and
restated (the "Credit Agreement"). Except as otherwise defined herein, terms
defined in the Credit Agreement shall have the same meanings when used herein.
The outstanding principal amount of this Note shall be payable as provided
in the Credit Agreement. The entire outstanding principal balance of this Note
shall be due and payable on September 13, 1997 (unless payable sooner pursuant
to the terms of the Credit Agreement) and shall bear interest initially at the
fluctuating Index Rate (as defined below), plus one percentage point per annum.
For all purposes of this Note, the "Index Rate" shall be the annual rate
published from time to time in the Wall Street Journal as the prime rate, and is
not necessarily the lowest interest rate charged by Payee nor the only rate upon
which Payee bases interest rates charged upon loans made by Payee. If for any
reason such published rate becomes unavailable, Payee may designate a substitute
index by giving notice to Borrower. No more than one interest rate change shall
occur per day. The Index Rate is currently 8.25 percent per annum.
Interest shall accrue daily, shall be payable on the first day of each
calendar month, commencing October 1, 1996, and at the maturity of this Note,
and shall be calculated on the basis of a 360-day year, and the actual number of
days elapsed.
All payments of principal and interest hereon shall be made at Payee's
offices at 5299 DTC Boulevard, Englewood, Colorado 80111 (or at such other place
as Payee shall have designated to Borrower in writing) on the date due in
immediately available funds and without set-off or counterclaim or deduction of
any kind. All payments received hereunder shall be applied
C-1
<PAGE>
first to costs of collection, second to accrued interest as of the date of
payment and third to the outstanding principal balance of this Note.
Notwithstanding anything to the contrary contained in this Note, from and
after the expiration of any applicable period of grace provided for in the
Credit Agreement, overdue principal, and (to the extent permitted under
applicable law) overdue interest, whether caused by acceleration of maturity or
otherwise, shall bear interest at a fluctuating rate, adjustable the day of
publication of any change in such rate, equal to five percentage points above
the Index Rate, until paid, and shall be payable monthly or, at the option of
the holder hereof, on demand.
This Note is secured by, and the holder of this Note is entitled to the
benefits of, the documents described in the Credit Agreement (the "Security
Documents"). Reference is made to the Security Documents for a description of
the property covered thereby and the rights, remedies and obligations of the
holder hereof in respect thereto.
Subject to the expiration of any applicable period of grace provided for in
the Credit Agreement, in the event of (a) any default in any payment of the
principal of or interest on this Note when due and payable, or (b) any other
Event of Default (as defined in the Credit Agreement), then the whole principal
sum of this Note plus accrued interest and all other obligations of Borrower to
holder, direct or indirect, absolute or contingent, now existing or hereafter
arising, shall, at the option of Payee, become immediately due and payable, and
any or all of the rights and remedies provided herein and in the Credit
Agreement and the Security Documents, as they may be amended, modified or
supplemented from time to time may be exercised by Payee.
If Borrower fails to pay any amount due under this Note and Payee has to
take any action to collect the amount due or to exercise its rights under the
Security Documents, including without limitation retaining attorneys for
collection of this Note, or if any suit or proceeding is brought for the
recovery of all or any part of or for protection of the indebtedness or to
foreclose the Security Documents or to enforce Payee's rights under the Security
Documents, then Borrower agrees to pay on demand all reasonable costs and
expenses of any such action to collect, suit or proceeding, or any appeal of any
such suit or proceeding, incurred by Payee, including without limitation the
reasonable fees and disbursements of Payee's attorneys and their staff.
Borrower waives presentment, notice of dishonor and protest, and
assents to any extension of time with respect to any payment due under this
Note, to any substitution or release of collateral and to the addition or
release of any party, except as
C-2
<PAGE>
provided in the Credit Agreement. No waiver of any payment or other right under
this Note shall operate as a waiver of any other payment or right.
If any provision in this Note shall be held invalid, illegal or
unenforceable in any jurisdiction, the validity, legality or enforceability of
any defective provisions shall not be in any way affected or impaired in any
other jurisdiction.
No delay or failure of the holder of this Note in the exercise of any right
or remedy provided for hereunder shall be deemed a waiver of such right by the
holder hereof, and no exercise of any right or remedy shall be deemed a waiver
of any other right or remedy that the holder may have.
All notices given hereunder shall be given as provided in the Credit
Agreement.
At the option of the holder hereof, an action may be brought to enforce
this Note in the District Court in and for the City and County of Denver, State
of Colorado, in the United States District Court for the District of Colorado or
in any other court in which venue and jurisdiction are proper. Borrower and all
signers or endorsers hereof consent to venue and jurisdiction in the District
Court in and for the City and County of Denver, State of Colorado and in the
United States District Court for the District of Colorado and to service of
process under Sections 13-1124(1)(a) and 13-1-125, Colorado Revised Statutes
(1992), as amended, in any action commenced to enforce this Note.
This Note is to be governed by and construed according to the laws of the
State of Colorado.
EXECUTED as of the date first written above.
AMERICAN RIVERS OIL COMPANY
By:
-----------------------------------------
President
By:
-----------------------------------------
Vice President
---------------------------------------------
KARLTON TERRY
---------------------------------------------
JUBAL S. TERRY
C-3
<PAGE>
EXHIBIT D
---------
CERTIFICATE RE RESOLUTIONS AND
------------------------------
ARTICLES OF INCORPORATION AND BYLAWS
------------------------------------
The undersigned, Pam Holley, Assistant Secretary of AMERICAN RIVERS OIL
COMPANY (the "Company"), a Wyoming corporation, hereby certifies that:
1. Attached hereto is a true and complete copy of certain Resolutions
duly adopted by the Board of Directors of the Company as in effect on the date
hereof.
2. Attached hereto are true and complete copies of the Articles of
Incorporation and the Bylaws of the Company (including all amendments thereto)
as in effect on the date hereof.
3. The following persons are duly authorized to execute, on behalf of
the Company, the letter agreement dated September 13, 1996, among the Company,
et al. and Professional Bank, the related Promissory Note and any and all
security documents and other loan documents to be executed in connection
therewith:
Name and Specimen
Capacity Signature
-------- ---------
Karlton Terry
President ----------------------------
Karlton Terry
Jubal S. Terry
Vice President ----------------------------
Jubal S. Terry
Executed by the undersigned as of the 13th day of September, 1996.
-----------------------------
Pam Holley
D-1
<PAGE>
EXHIBIT E
---------
COMPLIANCE CERTIFICATE
----------------------
The undersigned hereby certify as follows, to the best of their
knowledge, after due inquiry, in connection with the execution and delivery of
the letter agreement dated September 13, 1996 (the "Credit Agreement"), among
American Rivers Oil Company, a Wyoming corporation ("AROC"), Karlton Terry and
Jubal S. Terry and Professional Bank (all terms defined in the Credit Agreement
having the same meanings when used herein):
1. Each of the representations and warranties made by Borrower in the
Credit Agreement and/or any loan document delivered in connection with the
Credit Agreement is true and correct as of this date.
3. No Event of Default exists as of this date.
4. Borrower has performed and complied with all agreements and
conditions required to be performed or complied with by Borrower on or prior to
this date under the Credit Agreement and/or any loan document delivered in
connection with the Credit Agreement.
Dated as of September 13, 1996.
AMERICAN RIVERS OIL COMPANY
By:
-----------------------------------------
President
By:
-----------------------------------------
Vice President
---------------------------------------------
KARLTON TERRY
---------------------------------------------
JUBAL S. TERRY
E-1
<PAGE>
C O P Y
PROMISSORY NOTE
---------------
$1,000,000 September 13, 1996
Englewood, Colorado
FOR VALUE RECEIVED, AMERICAN RIVERS OIL COMPANY, a Wyoming corporation,
KARLTON TERRY, individually, and JUBAL S. TERRY, individually (all of the
foregoing being herein collectively called "Borrower"), jointly and severally,
promise to pay to the order of PROFESSIONAL BANK, a Colorado state-chartered
bank (herein called "Payee"), the principal sum of $1,000,000, or so much
thereof as may be borrowed hereunder, together with interest on the outstanding
unpaid balance of such principal amount at the rate provided below.
This Note is issued pursuant to, and is subject to the terms and provisions
of, the letter agreement dated September 13, 1996, among Borrower and Payee, as
now in effect or as hereafter extended, amended, modified or amended and
restated (the "Credit Agreement"). Except as otherwise defined herein, terms
defined in the Credit Agreement shall have the same meanings when used herein.
The outstanding principal amount of this Note shall be payable as provided
in the Credit Agreement. The entire outstanding principal balance of this Note
shall be due and payable on September 13, 1997 (unless payable sooner pursuant
to the terms of the Credit Agreement) and shall bear interest initially at the
fluctuating Index Rate (as defined below), plus one percentage point per annum.
For all purposes of this Note, the "Index Rate" shall be the annual
rate published from time to time in the Wall Street Journal as the prime rate,
and is not necessarily the lowest interest rate charged by Payee nor the only
rate upon which Payee bases interest rates charged upon loans made by Payee. If
for any reason such published rate becomes unavailable, Payee may designate a
substitute index by giving notice to Borrower. No more than one interest rate
change shall occur per day. The Index Rate is currently 8.25 percent per annum.
Interest shall accrue daily, shall be payable on the first day of each
calendar month, commencing October 1, 1996, and at the maturity of this Note,
and shall be calculated on the basis of a 360-day year, and the actual number of
days elapsed.
All payments of principal and interest hereon shall be made at Payee's
offices at 5299 DTC Boulevard, Englewood, Colorado 80111 (or at such other place
as Payee shall have designated to Borrower in writing) on the date due in
immediately available funds and without set-off or counterclaim or deduction of
any kind. All payments received hereunder shall be applied first to costs of
collection, second to accrued interest as of the date of payment and third to
the outstanding principal balance of this Note.
<PAGE>
Notwithstanding anything to the contrary contained in this Note, from and
after the expiration of any applicable period of grace provided for in the
Credit Agreement, overdue principal, and (to the extent permitted under
applicable law) overdue interest, whether caused by acceleration of maturity or
otherwise, shall bear interest at a fluctuating rate, adjustable the day of
publication of any change in such rate, equal to five percentage points above
the Index Rate, until paid, and shall be payable monthly or, at the option of
the holder hereof, on demand.
This Note is secured by, and the holder of this Note is entitled to the
benefits of, the documents described in the Credit Agreement (the "Security
Documents"). Reference is made to the Security Documents for a description of
the property covered thereby and the rights, remedies and obligations of the
holder hereof in respect thereto.
Subject to the expiration of any applicable period of grace provided for in
the Credit Agreement, in the event of (a) any default in any payment of the
principal of or interest on this Note when due and payable, or (b) any other
Event of Default (as defined in the Credit Agreement), then the whole principal
sum of this Note plus accrued interest and all other obligations of Borrower to
holder, direct or indirect, absolute or contingent, now existing or hereafter
arising, shall, at the option of Payee, become immediately due and payable, and
any or all of the rights and remedies provided herein and in the Credit
Agreement and the Security Documents, as they may be amended, modified or
supplemented from time to time may be exercised by Payee.
If Borrower fails to pay any amount due under this Note and Payee has to
take any action to collect the amount due or to exercise its rights under the
Security Documents, including without limitation retaining attorneys for
collection of this Note, or if any suit or proceeding is brought for the
recovery of all or any part of or for protection of the indebtedness or to
foreclose the Security Documents or to enforce Payee's rights under the Security
Documents, then Borrower agrees to pay on demand all reasonable costs and
expenses of any such action to collect, suit or proceeding, or any appeal of any
such suit or proceeding, incurred by Payee, including without limitation the
reasonable fees and disbursements of Payee's attorneys and their staff.
Borrower waives presentment, notice of dishonor and protest, and assents to
any extension of time with respect to any payment due under this Note, to any
substitution or release of collateral and to the addition or release of any
party, except as provided in the Credit Agreement. No waiver of any payment or
other right under this Note shall operate as a waiver of any other payment or
right.
-2-
<PAGE>
If any provision in this Note shall be held invalid, illegal or
unenforceable in any jurisdiction, the validity, legality or enforceability of
any defective provisions shall not be in any way affected or impaired in any
other jurisdiction.
No delay or failure of the holder of this Note in the exercise of any right
or remedy provided for hereunder shall be deemed a waiver of such right by the
holder hereof, and no exercise of any right or remedy shall be deemed a waiver
of any other right or remedy that the holder may have.
All notices given hereunder shall be given as provided in the Credit
Agreement.
At the option of the holder hereof, an action may be brought to enforce
this Note in the District Court in and for the City and County of Denver, State
of Colorado, in the United States District Court for the District of Colorado or
in any other court in which venue and jurisdiction are proper. Borrower and all
signers or endorsers hereof consent to venue and jurisdiction in the District
Court in and for the City and County of Denver, State of Colorado and in the
United States District Court for the District of Colorado and to service of
process under Sections 13-1124(1)(a) and 13-1-125, Colorado Revised Statutes
(1992), as amended, in any action commenced to enforce this Note.
This Note is to be governed by and construed according to the laws of the
State of Colorado.
EXECUTED as of the date first written above.
AMERICAN RIVERS OIL COMPANY
By: /S/ KARLTON TERRY
-----------------------------------------
President
By: /S/ JUBAL S. TERRY
-----------------------------------------
Vice President
/S/ KARLTON TERRY
---------------------------------------------
KARLTON TERRY
/S/ JUBAL S. TERRY
---------------------------------------------
JUBAL S. TERRY
-3-
<PAGE>
FINANCING STATEMENT
-------------------
1. Debtor and Address:
AMERICAN RIVERS OIL COMPANY
f/k/a METRO CAPITAL CORPORATION
(Fed. Tax ID No. 84-0839926)
700 East Ninth Avenue
Denver, Colorado 80203
(Residence: Denver County, Colorado)
2. Secured Party and Address:
PROFESSIONAL BANK
5299 DTC Boulevard
Englewood, Colorado 80111
(Residence: Arapahoe County, Colorado)
3. This financing statement covers the following types (or items) of
property:
(a) All of the right, title and interest of Debtor, whether now owned
or hereafter acquired (the "Interests"): (a) in and to all of the
fee estates, mineral estates, leasehold estates, oil and gas
leases, oil, gas and mineral leases, licenses, subleases and
sublicenses described or referred to in Exhibit "A" attached
hereto and made a part hereof or otherwise relating to the Land
(as defined below), and (b) in and to any other interests
covering or relating to all or any part of the land described in
Exhibit "A" or the description of which is incorporated in
Exhibit "A" (the "Land");
(b) All of the oil, gas, casinghead gas and other hydrocarbons,
whether solid, liquid or gaseous, and all other associated or
related substances ("Hydrocarbons") in, on or attributable to any
of the Interests;
(c) All of the items incorporated as part of or attributed or affixed
to any of the real property included in the Interests, in such a
manner that such items are no longer personal property under the
laws of the state where the property is situate;
(d) All wells, platforms, derricks, casing, tubing, tanks, tank
batteries, separators, rods, pumps, flow lines, water lines, gas
lines, machinery, pipelines, power lines and other goods and
equipment, and all of the personal property and fixtures, as
defined under the laws of the state where the property is
situate, now or hereafter attributable to or obtained or used in
<PAGE>
connection with any of the Interests, which are used or purchased
for the production, treatment, storage, transportation,
manufacture or sale of Hydrocarbons;
(e) All of the accounts, contract rights and general intangibles now
or hereafter arising in connection with the Interests, including,
without limitation, the production, treatment, storage,
transportation, manufacture or sale of Hydrocarbons related
thereto;
(f) All of the severed and extracted Hydrocarbons produced from or
attributed to any of the Interests;
(g) All of the rights, privileges, benefits, hereditaments and
appurtenances in any way belonging, incidental or appertaining to
any of the property described under Paragraphs (a) through (f)
above; and
(h) All of the proceeds and products of the property described under
Paragraphs (a) through (g) above, including without limitation
condemnation awards and the proceeds of any and all title
insurance policies and other insurance policies covering all or
any part of said property and, to the extent they may constitute
proceeds, instruments, accounts, securities, general intangibles
and contract rights.
4. Some of the above described goods and personal property are or are to be
affixed to the land described in Exhibit "A."
5. The above described minerals, including oil and gas and accounts, will be
financed at the wellhead of the well or wells located on the land described
in Exhibit "A."
6. This financing statement is to be filed, among other places, in the real
estate records.
7. Debtor owns a record interest in the real estate described or referred to
in Exhibit "A."
AMERICAN RIVERS OIL COMPANY
f/k/a METRO CAPITAL CORPORATION
By: /s/ Karlton Terry
-------------------------------------------
Karlton Terry,
President
By: /s/ Jubal S. Terry
--------------------------------------------
Jubal S. Terry
Vice President
-2-
<PAGE>
EXHIBIT "A"
-----------
EXHIBIT "A" OMITTED FROM THIS COUNTERPART -- SEE EXHIBIT "A" ATTACHED TO
MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT, FINANCING STATEMENT AND FIXTURE FILING
DATED AS OF SEPTEMBER 13, 1996, FROM AMERICAN RIVERS OIL COMPANY TO PROFESSIONAL
BANK.
<PAGE>
September 13, 1996
American Rivers Oil
Company
Mr. Karlton Terry
Mr. Jubal S. Terry
700 East Ninth Avenue
Denver, Colorado 80203
Gentlemen:
Reference is made to a Mortgage, Security Agreement, Assignment, Financing
Statement and Fixture Filing of even date herewith (the "Mortgage"), from
American Rivers Oil Company ("Mortgagor") to Professional Bank (the "Bank"), and
to a letter agreement of even date herewith, as it may hereafter be amended,
modified, supplemented or replaced from time to time (the "Loan Agreement"),
among Mortgagor, Karlton Terry, Jubal S. Terry and the Bank.
Pursuant to the Mortgage, Mortgagor has assigned to the Bank all
Hydrocarbons (as defined in the Mortgage) which are produced from and which
accrue to the Collateral (as defined in the Mortgage) and all proceeds
therefrom.
This letter is to inform Mortgagor that Mortgagor shall have a revocable
license to continue to receive, retain and use all Hydrocarbons and proceeds
therefrom, until the Bank elects, in its sole discretion, to receive such
Hydrocarbons and proceeds as described in the Mortgage. In such event, the Bank
may, by written notice to Mortgagor, revoke such license.
Upon such notice of revocation, the above-described license shall be
revoked, and the Bank may seek enforcement of and may demand, collect, receive,
sue for and recover in its own name, all or any part of such Hydrocarbons and
proceeds. The Bank may notify any and all parties responsible for making payment
of such proceeds, including, without limitation, pipeline companies, gathering
companies, and others purchasing or receiving oil, gas, casinghead gas and other
Hydrocarbons and mineral production from the Collateral, to make payment thereof
directly to the Bank. Each such responsible party who makes such payments in
reliance on the representation of the Bank that such proceeds should be paid to
the Bank shall not be liable in any manner to Mortgagor on account thereof. The
Bank shall not be liable for any delay, neglect, or failure to effect collection
of any proceeds or to take any other action in connection therewith or
hereunder; but the Bank shall have the right, at its election, in the name of
Mortgagor or
<PAGE>
American Rivers Oil Company, et al.
September 13, 1996
Page 2
otherwise, to prosecute and defend any and all actions or legal proceedings
deemed advisable by the Bank in order to collect such funds and to protect the
interests of the Bank and/or Mortgagor, with all costs, expenses and attorneys'
fees incurred in connection therewith being paid by Mortgagor. Any such proceeds
actually received by the Bank shall promptly be applied by the Bank to the
repayment of the Obligations (as defined in the Mortgage) or, at the Bank's
option, may be made available to Mortgagor.
Mortgagor hereby appoints Bank as its attorney-in-fact to pursue, after any
Event of Default, any and all rights of Mortgagor to liens on and security
interest in the Hydrocarbons securing payment of proceeds of runs attributable
to the Hydrocarbons, including but not limited to those liens and security
interests provided for by applicable law. In addition to the rights granted to
the Bank in this letter or pursuant to the Mortgage, Mortgagor hereby further
transfers and assigns to the Bank any and all such liens, security interests,
financing statements or similar interests of Mortgagor attributable to its
interest in the Hydrocarbons and proceeds of runs therefrom arising under or
created by any statutory provision, judicial decision or otherwise. The
power-of-attorney granted to the Bank in this paragraph, being coupled with an
interest, shall be irrevocable so long as the Obligations (as defined in the
Mortgage) or any part thereof remains unpaid.
Except as expressly provided herein, nothing herein contained shall be
deemed to prejudice the exercise by the Bank of any or all of its rights and
remedies under the Loan Agreement, the Mortgage, the Note (as defined in the
Loan Agreement) or any other instrument or document obtained or to be obtained
in connection with any of the foregoing.
If the foregoing correctly sets forth our agreement with respect to the
foregoing, please so indicate by signing below.
Sincerely,
PROFESSIONAL BANK
By: /S/ JAMES B. BILLS
--------------------------------
James B. Bills,
Senior Vice President
<PAGE>
American Rivers Oil Company, et al.
September 13, 1996
Page 3
ACCEPTED AND AGREED TO AS
OF THE DATE OF THIS LETTER:
AMERICAN RIVERS OIL COMPANY
By: /s/ Karlton Terry
----------------------------
President
By: /s/ Jubal S. Terry
----------------------------
Vice President
/s/ Karlton Terry
-----------------------------
KARLTON TERRY
/s/ Jubal S. Terry
------------------------------
JUBAL S. TERRY
<PAGE>
COMPLIANCE CERTIFICATE
----------------------
The undersigned hereby certify as follows, to the best of their knowledge,
after due inquiry, in connection with the execution and delivery of the letter
agreement dated September 13, 1996 (the "Credit Agreement"), among American
Rivers Oil Company, a Wyoming corporation ("AROC"), Karlton Terry and Jubal S.
Terry and Professional Bank (all terms defined in the Credit Agreement having
the same meanings when used herein):
1. Each of the representations and warranties made by Borrower in the
Credit Agreement and/or any loan document delivered in connection with the
Credit Agreement is true and correct as of this date.
3. No Event of Default exists as of this date.
4. Borrower has performed and complied with all agreements and conditions
required to be performed or complied with by Borrower on or prior to this date
under the Credit Agreement and/or any loan document delivered in connection with
the Credit Agreement.
Dated as of September 13, 1996.
AMERICAN RIVERS OIL COMPANY
By: /S/ KARLTON TERRY
-----------------------------------------
President
By: /S/ JUBAL S. TERRY
-----------------------------------------
Vice President
/S/ KARLTON TERRY
---------------------------------------------
KARLTON TERRY
/S/ JUBAL S. TERRY
---------------------------------------------
JUBAL S. TERRY
<PAGE>
CERTIFICATE RE RESOLUTIONS AND
------------------------------
ARTICLES OF INCORPORATION AND BYLAWS
------------------------------------
The undersigned, Pam Holley, Assistant Secretary of AMERICAN RIVERS OIL
COMPANY (the "Company"), a Wyoming corporation, hereby certifies that:
1. Attached hereto is a true and complete copy of certain Resolutions
duly adopted by the Board of Directors of the Company as in effect on the date
hereof.
2. Attached hereto are true and complete copies of the Articles of
Incorporation and the Bylaws of the Company (including all amendments thereto)
as in effect on the date hereof.
3. The following persons are duly authorized to execute, on behalf of
the Company, the letter agreement dated September 13, 1996, among the Company,
et al. and Professional Bank, the related Promissory Note and any and all
security documents and other loan documents to be executed in connection
therewith:
Name and Specimen
Capacity Signature
-------- ---------
Karlton Terry /s/ KARLTON TERRY
President ----------------------------
Karlton Terry
Jubal S. Terry /s/ JUBAL S. TERRY
Vice President ----------------------------
Jubal S. Terry
Executed by the undersigned as of the 13th day of September, 1996.
/s/ PAM HOLLEY
-----------------------------
Pam Holley
<PAGE>
THIS INSTRUMENT WAS PREPARED BY
AND WHEN RECORDED SHOULD BE RETURNED TO:
- -----------------------------------------
David G. Stolfa
3300 South Columbine Circle
Englewood, Colorado 80110
MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT,
FINANCING STATEMENT AND FIXTURE FILING
FROM AMERICAN RIVERS OIL COMPANY f/k/a
METRO CAPITAL CORPORATION (Fed. Tax ID No. 84-0839926)
TO PROFESSIONAL BANK
THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS.
THIS INSTRUMENT SECURES PAYMENT OF FUTURE ADVANCES.
THIS INSTRUMENT COVERS PROCEEDS OF COLLATERAL.
THE OIL AND GAS INTERESTS INCLUDED IN THE PROPERTY COVERED HEREBY WILL BE
FINANCED AT THE WELLHEADS OF THE WELLS LOCATED ON THE PROPERTIES DESCRIBED IN,
OR THE DESCRIPTION OF WHICH IS INCORPORATED IN, EXHIBIT "A" ATTACHED HERETO AND
MADE A PART HEREOF, AND THIS FINANCING STATEMENT IS TO BE FILED OR FILED FOR
RECORD, AMONG OTHER PLACES, IN THE REAL ESTATE RECORDS PURSUANT TO APPLICABLE
LAW.
THOSE PORTIONS OF THE COLLATERAL WHICH ARE MINERALS OR OTHER SUBSTANCES OF VALUE
WHICH MAY BE EXTRACTED FROM THE EARTH (INCLUDING, WITHOUT LIMITATION, OIL AND
GAS), AND THE ACCOUNTS RELATING THERETO, WILL BE FINANCED AT THE WELLHEADS OF
THE WELLS LOCATED ON THE PROPERTIES DESCRIBED IN, OR THE DESCRIPTION OF WHICH IS
INCORPORATED IN, EXHIBIT "A", AND THIS FINANCING STATEMENT IS TO BE FILED OR
FILED FOR RECORD, AMONG OTHER PLACES, IN THE REAL ESTATE RECORDS PURSUANT TO
APPLICABLE LAW.
SOME OF THE PERSONAL PROPERTY CONSTITUTING A PORTION OF THE COLLATERAL IS OR IS
TO BE AFFIXED TO THE PROPERTIES DESCRIBED IN, OR THE DESCRIPTION OF WHICH IS
INCORPORATED IN, EXHIBIT "A", AND THIS FINANCING STATEMENT IS TO BE FILED OR
FILED FOR RECORD, AMONG OTHER PLACES, IN THE REAL ESTATE RECORDS PURSUANT TO
APPLICABLE LAW.
DEBTOR HAS AN INTEREST OF RECORD IN THE REAL ESTATE CONCERNED, WHICH IS
DESCRIBED IN, OR THE DESCRIPTION OF WHICH IS INCORPORATED IN, EXHIBIT "A".
A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE. A POWER OF SALE MAY ALLOW THE
MORTGAGEE TO TARE THE COLLATERAL AND SELL IT WITHOUT GOING TO COURT IN A
FORECLOSURE ACTION UPON DEFAULT BY DEBTOR HEREUNDER.
<PAGE>
MORTGAGE, SECURITY AGREEMENT,
-----------------------------
ASSIGNMENT, FINANCING STATEMENT
-------------------------------
AND FIXTURE FILING
------------------
THIS MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT, FINANCING STATEMENT AND
FIXTURE FILING (this "Instrument"), dated as of September 13, 1996, is from
AMERICAN RIVERS OIL COMPANY, a Wyoming corporation ("Debtor"), f/k/a Metro
Capital Corporation, Fed. Tax ID No. 84-0839926, with an address at 700 East
Ninth Avenue, Denver, Colorado 80203 (Residence: Denver County, Colorado), to
PROFESSIONAL BANK, a Colorado state-chartered bank ("Grantee"), with an address
at 5299 DTC Boulevard, Englewood, Colorado 80111 (Residence: Arapahoe County,
Colorado).
Pursuant to the terms of the letter agreement dated September 13,
1996, between Debtor and Grantee, as the same may hereafter be modified,
extended, amended and/or restated from time to time (the "Credit Agreement"),
Grantee is making a loan to Debtor in the amount of up to $1,000,000 (the
"Loan").
All of the property described under Paragraphs 1 through 8 below is
herein collectively called the "Collateral":
1. All of the right, title and interest of Debtor, whether now owned
or hereafter acquired (the "Interests"): (a) in and to all of the fee estates,
mineral estates, leasehold estates, oil and gas leases, oil, gas and mineral
leases, licenses, subleases and sublicenses described or referred to in Exhibit
"A" attached hereto and made a part hereof or otherwise relating to the Land (as
defined below), and (b) in and to any other interests covering or relating to
all or any part of the land described in Exhibit "A" or the description of which
is incorporated in Exhibit "A" (the "Land");
2. All of the oil, gas, casinghead gas and other hydrocarbons, whether
solid, liquid or gaseous, and all other associated or related substances
("Hydrocarbons") in, on or attributable to any of the Interests;
3. All of the items incorporated as part of or attributed or affixed
to any of the real property included in the Interests, in such a manner that
such items are no longer personal property under the laws of the state where the
property is situate;
4. All wells, platforms, derricks, casing, tubing, tanks, tank
batteries, separators, rods, pumps, flow lines, waterlines, gas lines,
machinery, pipelines, power lines and other goods and equipment, and all of the
personal property and fixtures, as defined under the laws of the state where the
property is situate, now or hereafter attributable to or obtained or used in
connection with any of the Interests, which are used or purchased for the
production, treatment, storage, transportation, manufacture or sale of
Hydrocarbons;
<PAGE>
5. All of the accounts, contract rights and general intangibles now or
hereafter arising in connection with the Interests, including, without
limitation, the production, treatment, storage, transportation, manufacture or
sale of Hydrocarbons related thereto;
6. All of the severed and extracted Hydrocarbons produced from or
attributed to any of the Interests;
7. All of the rights, privileges, benefits, hereditaments and
appurtenances in any way belonging, incidental or appertaining to any of the
property described under Paragraphs 1 through 6 above; and
8. All of the proceeds and products of the property described under
Paragraphs 1 through 7 above, including without limitation condemnation awards
and the proceeds of any and all title insurance policies and other insurance
policies covering all or any part of said property and, to the extent they may
constitute proceeds, instruments, accounts, securities, general intangibles and
contract rights.
IN CONSIDERATION of the sum of ten dollars ($10.00) in hand paid to
Debtor, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Debtor hereby:
A. Grants, bargains, sells, assigns, transfers, pledges, mortgages and
conveys, and grants a security interest in, the Collateral to Grantee, WITH
POWER OF SALE pursuant to this Instrument and applicable law; TO HAVE AND TO
HOLD the Collateral to Grantee and its successors and assigns forever, subject
to all of the terms, conditions, covenants and agreements herein set forth, for
the security and benefit of Grantee; and
B. Assigns to Grantee all of the severed and extracted Hydrocarbons
produced from or attributed to any of the Collateral, together with all amounts
that become payable to Debtor with respect to any of the Collateral, whether now
owned or hereafter acquired, and all of the proceeds thereof.
AND in furtherance thereof Debtor warrants, represents, covenants and
agrees as follows:
ARTICLE I
Obligations
-----------
Section 1.1 This Instrument is executed, acknowledged and delivered by
Debtor to secure and enforce the following obligations (herein called the
"Obligations"):
-2-
<PAGE>
A. Payment of, and performance of all obligations of Debtor, Karlton
Terry and Jubal S. Terry under, the Promissory Note dated September 13, 1996, as
hereafter amended, extended, modified or replaced (the "Note"), made by Debtor,
Karlton Terry and Jubal S. Terry, in the face amount of $1,000,000, payable to
the order of Grantee on or before September 13, 1997 (unless payable sooner
pursuant to the terms of the Credit Agreement), with interest at the rate
specified in the Credit Agreement, which rate at the date hereof is an annual
rate equal to: (a) prior to maturity, whether by acceleration or otherwise, the
fluctuating interest rate equal to the annual rate published in the Wall Street
Journal as the prime rate (the "Index Rate") (which rate is currently eight and
one-quarter percent per annum), plus one percentage point per annum, and (b)
after maturity, whether by acceleration or otherwise, the fluctuating Index
Rate, adjustable as of the day of publication of any change in such rate, plus
five percentage points per annum;
B. All indebtedness, liabilities and obligations of Debtor to Grantee
of every kind and character, now existing or hereafter arising, pursuant to the
Credit Agreement;
C. All other indebtedness, liabilities and obligations of Debtor to
Grantee, of every kind and character, now existing or hereafter arising, whether
direct or indirect, primary or secondary, joint, several or joint and several
(including, without limitation, any and all obligations of Debtor to Grantee for
fees, costs and expenses pursuant to or in connection with any loan agreements
now or hereafter in force), it being contemplated that Debtor may hereafter
become indebted to Grantee in such further sums;
D. Payment of all sums advanced and costs and expenses incurred by
Grantee (whether directly or indirectly and including, without limitation, all
legal and engineering fees) in connection with the Obligations or any part
thereof, any renewal, extension or change of or substitution for the Obligations
or any part thereof, or the acquisition or perfection of the security therefor,
whether such advances, costs and expenses were made or incurred at the request
of Debtor or Grantee;
E. Payment of all other indebtedness and liabilities and performance
of all other obligations of Debtor to Grantee arising pursuant to this
Instrument or in connection with this Instrument; and
F. All future advances (both obligatory future advances made pursuant
to the Credit Agreement and other, nonobligatory future advances made at the
option of Grantee), renewals, extensions, amendments and changes of, or
substitutions or replacements for, all or any part of the items described under
A through E above; provided that such future advances, renewals, extensions,
amendments or changes of, or substitutions or replacements for, all or any part
of the foregoing:
-3-
<PAGE>
(1) shall not together in unpaid principal amount aggregate more
than $10,000,000 at any time, which amount contemplates all futures
advances;
(2) shall have been made on or before December 31, 1999;
(3) shall completely mature prior to December 31, 2004; and
(4) shall, prior to the due date, bear interest on the unpaid
balance at an annual rate not exceeding the sum of the Index Rate plus
10 percentage points per year.
ARTICLE II
Warranties. Representations and Covenants
-----------------------------------------
Section 2.1 Debtor warrants, represents and covenants to and with
Grantee that, to the best of Debtor's knowledge and subject to typical
oil-industry operating agreements and product-purchase contracts: (a) the oil
and gas leases, licenses, agreements, contracts and other documents relating
thereto described in Exhibit "A" hereto (collectively, the "Leases") provide for
the payment of landowners' royalties, overriding royalties, net profit
interests, production payments and other similar payments which do not exceed in
the aggregate an amount which would allow Debtor to receive at all times the
"Net Revenue Interest" specified in Exhibit "A" hereto of all Hydrocarbons
produced from the wells described in Exhibit "A" (the "Subject Wells"); (b)
Debtor's share of development and operating costs with respect to each of the
Subject Wells is no greater than the "Working Interest" specified for that
Subject Well in Exhibit "A"; (c) Debtor is the lawful owner of good and
defensible title to the Collateral, free and clear of all encumbrances and
defects of title burdens, except for covenants, restrictions, rights, easements,
liens, encumbrances and minor irregularities in title which do not materially
interfere with the occupation, use and enjoyment of such Collateral in the
normal course of business as presently conducted or materially impair the value
thereof for such business and except other matters permitted by the terms of the
Credit Agreement; (d) the Leases are valid and subsisting and are in full force
and effect insofar as they cover or relate to the Collateral with no material
default existing thereunder; (e) all rents, royalties and other payments due and
payable under the Leases, insofar as they cover, affect or relate to the
Collateral, and all severance and production taxes payable by Debtor with
respect to the Collateral have been properly and timely paid; (f) all of the
Subject Wells have been drilled, operated and produced in material conformity
with all applicable laws and rules,
-4-
<PAGE>
regulations and orders of all regulatory authorities having jurisdiction, and
are subject to no penalties on account of past production, except certain gas
production imbalances which are not material to the aggregate value of the
Collateral; (g) each loan, the payment of which constitutes an Obligation
hereunder, is or shall be for a business or commercial purpose; and (h) Debtor
warrants and will forever defend the title to the Collateral against the claims
of all persons whomsoever claiming or to claim the same or any part thereof.
Section 2.2 Debtor covenants that, so long as any part of the
Obligations remains unpaid or unsatisfied, unless Grantee shall have otherwise
consented in writing:
A. Debtor shall promptly and, insofar as not contrary to applicable
law, at Debtor's own expense, file and refile in such offices, at such times and
as often as may be necessary, this Instrument and every other instrument in
addition or supplemental hereto, including applicable financing statements, as
may be necessary to create, perfect, maintain and preserve the lien, encumbrance
and security interest intended to be created hereby and the rights and remedies
of Grantee hereunder;
B. Debtor shall execute, acknowledge and deliver to Grantee such other
and further instruments and do such other acts as in the reasonable opinion of
Grantee may be necessary or desirable to more fully identify and subject to the
lien, encumbrance and security interest and assignment created hereby any
property intended by the terms hereof to be covered hereby, to assure the first
priority thereof, and otherwise to effect the intent of this Instrument,
promptly upon request of Grantee and at Debtor's expense; and
C. If the title, interest, lien or encumbrance, as the case may be, of
Debtor or Grantee to the Collateral or any part thereof, or the security of this
Instrument, or the rights or powers of Grantee hereunder, shall be attacked,
either directly or indirectly, or if any legal proceedings are commenced
involving Debtor or the Collateral, Debtor shall promptly give written notice
thereof to Grantee and at Debtor's own expense shall take all reasonable steps
diligently to defend against any such attack or proceedings; and Grantee may
take such independent action in connection therewith as it may in its discretion
deem advisable, and all costs and expenses, including, without limitation,
reasonable attorneys' fees and legal expenses, incurred by Grantee in connection
therewith shall be a demand obligation owing by Debtor to Grantee, shall bear
interest at the rate provided in the Note, and shall be a part of the
Obligations.
-5-
<PAGE>
ARTICLE III
Collection of Proceeds of Production
------------------------------------
Section 3.1 Pursuant to the assignment made by Debtor in paragraph B
of the granting clause of this Instrument, Grantee is entitled to receive all of
the severed and extracted Hydrocarbons produced from or attributed to all of the
Interests, together with all of the proceeds thereof. Debtor acknowledges and
agrees that said assignment is intended to be an absolute and unconditional
assignment and not merely a pledge of or creation of a security interest therein
or assignment as additional security. Debtor hereby authorizes and directs all
parties producing, purchasing, receiving or having in their possession any such
Hydrocarbons or proceeds to treat and regard Grantee as the party entitled, in
Debtor's place and stead, to receive such Hydrocarbons and proceeds; and said
parties shall be fully protected in so treating and regarding Grantee and shall
be under no obligation to see to the application by Grantee of any such proceeds
received by it.
Section 3.2 All of the proceeds received by Grantee pursuant to
Section 3.1 shall be applied by Grantee in accordance with the terms of the
Credit Agreement.
Section 3.3 Upon any sale of any of the Collateral by or for the
benefit of Grantee pursuant to Article V, the Hydrocarbons thereafter produced
from or attributed to the part of the Collateral so sold, and the proceeds
thereof, shall be included in such sale and shall pass to the purchaser free and
clear of the provisions of this Article.
Section 3.4 Grantee is hereby absolved from all liability for failure
to enforce collection of any such Hydrocarbons or proceeds and from all other
responsibility in connection therewith, except the responsibility to account to
Debtor for proceeds actually received.
Section 3.5 Debtor shall indemnify Grantee against all claims,
actions, liabilities, judgments, costs, attorneys' fees and other charges of
whatsoever kind or nature (herein called "Claims") made against or incurred by
Grantee as a consequence of the assertion, either before or after the payment in
full of the Obligations, that Grantee received Hydrocarbons or proceeds pursuant
to this Article which were claimed by or due to third persons. Grantee shall
have the right to employ attorneys and to defend against any Claims, and unless
furnished with reasonable indemnity, - Grantee shall have the right to pay or
compromise and adjust all Claims. Debtor shall indemnify and pay to Grantee all
such amounts as may be paid in respect thereof or as may be successfully
adjudicated against Grantee. The liabilities of Debtor as set forth in this
Section shall survive the termination of this Instrument.
-6-
<PAGE>
Section 3.6 Nothing in this Instrument shall be deemed or construed to
create a delegation to or assumption by Grantee of the duties and obligations of
Debtor under any agreement or contract relating to the Collateral or any portion
thereof, and all of the parties to any such contract shall continue to look to
Debtor for performance of all covenants and other obligations and the
satisfaction of all representations and warranties of Debtor thereunder,
notwithstanding the assignment of production and proceeds herein made or the
exercise by Grantee, prior to foreclosure, of any of its rights hereunder or
under applicable law.
ARTICLE IV
Termination
-----------
If all of the Obligations of Debtor shall be paid or performed in full
pursuant to the terms and conditions of this Instrument and the instruments
evidencing the Obligations and if Grantee has no further obligation to make
advances to Debtor, then Grantee shall, promptly after the request of Debtor,
execute, acknowledge and deliver to Debtor proper instruments evidencing the
termination of this Instrument. Debtor shall pay all reasonable legal fees and
other expenses incurred by Grantee for preparing and reviewing such instruments
of termination and the execution and delivery thereof, and Grantee may require
payment of the same prior to delivery of such instruments. Otherwise, this
Instrument shall remain and continue in full force and effect.
ARTICLE V
Default
-------
Section 5.1 The occurrence of any of the events described in the
Credit Agreement, including without limitation the expiration of any applicable
grace periods ("Events of Default") shall, automatically (as described in the
Credit Agreement), or at the option of Grantee, make all amounts then remaining
unpaid on the Obligations immediately due and payable, and the liens,
encumbrances and security interests evidenced or created hereby shall be subject
to foreclosure in any manner provided for herein or provided for by law.
Section 5.2 Upon the occurrence of any of the Events of Default, or at
any time thereafter, and upon any exercise of its rights to foreclose on the
Collateral as provided herein, Grantee may elect to treat the fixtures included
in the Collateral either as real property or as personal property, but not as
both, and proceed to exercise such rights as apply to the type of property
selected.
-7-
<PAGE>
Section 5.3 Upon the occurrence of any of the Events of Default, and
at all times thereafter during the continuation of any such Event of Default and
thereafter upon any exercise by Grantee of its rights to foreclose on the
Collateral as provided herein, in addition to all other rights and remedies
herein conferred, Grantee shall have all of the rights and remedies of a
mortgagee under a mortgage with respect to all of the Collateral. This
Instrument shall be effective as a mortgage, and, upon the occurrence of an
Event of Default, may be foreclosed as to any of the Collateral in any manner
permitted by applicable law, and any foreclosure suit may be brought by Grantee.
The provisions set forth in this Section 5.3 shall not in any way limit any
other provision of this Instrument. Grantee shall, to the extent permitted by
applicable law, have the right and power, but not the obligation, to enter upon
and take immediate possession of the real property included in the Collateral or
any part thereof, to exclude Debtor therefrom, to hold, use, operate, manage and
control such real property, to make all such repairs, replacements, alterations,
additions and improvements to the same as Grantee may deem proper, to sell all
of the severed and extracted Hydrocarbons included in the same subject to the
provisions of Article III, to demand, collect and retain all other earnings,
proceeds and other sums due or to become due with respect to such real property,
accounting for and applying to the payment of the Obligations only the net
earnings arising therefrom after charging against the receipts therefrom all
costs, expenses, charges, damages and losses incurred by reason thereof plus
interest thereon at an annual rate which equals the sum of the Index Rate plus
five percentage points per year, as fully and effectually as if Grantee were the
absolute owner of such real property and without any liability to Debtor in
connection therewith.
Section 5.4 Upon the occurrence of any of the Events of Default, or at
any time thereafter during the continuation of any such Event of Default and
thereafter upon any exercise by Grantee of its rights to foreclose on the
Collateral as provided herein, Grantee, in lieu of or in addition to exercising
any other power, right or remedy herein granted or by law or equity conferred,
may proceed by an action or actions in equity or at law for the seizure and sale
of the real property included in the Collateral or any part thereof, for the
specific performance of any covenant or agreement herein contained or in aid of
the execution of any power, right or remedy herein granted or by law or equity
conferred, for the foreclosure or sale of such real property or any part thereof
under the judgment or decree of any court
-8-
<PAGE>
of competent jurisdiction, for the appointment of a receiver pending any
foreclosure hereunder or the sale of such real property or any part thereof or
for the enforcement of any other appropriate equitable or legal remedy.
Section 5.5 Upon the occurrence of any of the Events of Default, or at
any time thereafter during the continuation of any such Event of Default and
thereafter upon any exercise by Grantee of its rights to foreclose on the
Collateral as provided herein, in addition to all other powers, rights and
remedies herein granted or by law or equity conferred, Grantee shall have all of
the rights and remedies of an assignee and secured party granted by applicable
law, including the Uniform Commercial Code, and shall, to the extent permitted
by applicable law, have the right and power, but not the obligation, to take
possession of the personal property included in the Collateral, and for that
purpose Grantee may enter upon any premises on which any or all of such personal
property is located and take possession of and operate such personal property or
remove the same therefrom. Grantee may require Debtor to assemble such personal
property and make it available to Grantee at a place to be designated by Grantee
which is reasonably convenient to both parties. The following presumptions shall
exist and shall be deemed conclusive with regard to the exercise by Grantee of
any of its remedies with respect to personal property:
(a) If notice is required by applicable law, five days' prior
written notice of the time and place of any public sale or of the time after
which any private sale or any other intended disposition thereof is to be made
shall be reasonable notice to Debtor. No such notice is necessary if such
property is perishable, threatens to decline speedily in value or is of a type
customarily sold on a recognized market.
(b) Without in any way limiting the right and authority of
Grantee to sell or otherwise dispose of Collateral in a commercially reasonable
manner, the following, or any of them, shall be considered commercially
reasonable: (i) Grantee may hold a public sale of the Collateral in Denver,
Colorado or Houston, Texas, after having provided Debtor with five days' notice
of such sale and after having published notice of such sale by an advertisement
in such publication as may be permitted or required under applicable state law,
as Grantee determines to be appropriate (which advertisement may be placed in
the "classified" section), for a period of not less than five consecutive issues
commencing not more than ten days prior to - the sale; (ii) the Collateral may
be sold for cash; and (iii) Grantee or any other person owning, directly or
indirectly, any interest in any of the Obligations may be a purchaser at such
sale.
-9-
<PAGE>
Section 5.6 Upon the occurrence of any of the Events of Default, or at
any time thereafter during the continuation of any such Event of Default and
thereafter upon any exercise by Grantee of its rights to foreclose on the
Collateral as provided herein, Grantee may, with respect to all or any portion
of the Collateral, subject to any mandatory requirements of applicable law, sell
or have sold the real property or interests therein included in the Collateral
or any part thereof at one or more sales, as an entirety or in parcels, at such
place or places and otherwise in such manner and upon such notice as may be
required by law or by this Instrument, or, in the absence of any such
requirement, as Grantee may deem appropriate. Grantee may postpone the sale of
such real property or interests therein or any part thereof by public
announcement at the time and place of such sale, and from time to time
thereafter may further postpone such sale by public announcement made at the
time of sale fixed by the preceding postponement. Sale of a part of such real
property or interests therein or any defective or irregular sale hereunder will
not exhaust the power of sale, and sales may be made from time to time until all
such property is sold without defect or irregularity or the Obligations are paid
in full. Grantee shall have the right to appoint one or more attorneys-in-fact
to act in conducting the foreclosure sale and executing a deed to the purchaser.
It shall not be necessary for any of the Collateral at any such sale to be
physically present or constructively in the possession of Grantee.
Section 5.7 Grantee or any other person owning, directly or
indirectly, any interest in any of the Obligations shall have the right to
become the purchaser at any sale made pursuant to the provisions of this Article
V and shall have the right to credit upon the amount of the bid made therefor
the amount payable to it under or in connection with the Obligations. Recitals
contained in any conveyance to any purchaser at any sale made hereunder will
conclusively establish the truth and accuracy of the matters therein stated,
including without limitation nonpayment of the Obligations and advertisement and
conduct of such sale in the manner provided herein or provided by law. Debtor
hereby ratifies and confirms all legal acts that Grantee may do in carrying out
the provisions of this Instrument.
Section 5.8 Debtor hereby waives and relinquishes, to the maximum
extent permitted by law, and subject to any mandatory requirements of applicable
law, Debtor hereby agrees that Debtor shall not at any time hereafter have or
assert, any right under any law pertaining to: marshalling, whether of assets or
liens, the sale of property in the inverse order of alienation, the exemption of
homesteads, the administration of estates of decedents, appraisement, valuation,
stay, extension, redemption,
-10-
<PAGE>
subrogation, or abatement, suspension, deferment, diminution or reduction of any
of the Obligations (including, without limitation, setoff), now or hereafter in
force. Debtor expressly agrees that Grantee may offer the Collateral as a whole
or in such parcels or lots as Grantee, in its sole discretion elects, regardless
of the manner in which the Collateral may be described.
Section 5.9 All costs and expenses (including reasonable attorneys'
fees, legal expenses, filing fees, and mortgage, transfer, stamp and other
excise taxes) incurred by Grantee in perfecting, protecting and enforcing its
rights hereunder, whether or not an Event of Default shall have occurred, shall
be a demand obligation of Debtor to Grantee and shall bear interest at the rate
provided in the Note, all of which shall be part of the Obligations.
Section 5.10 The proceeds of any sale of the Collateral or any part
thereof made pursuant to this Article V shall be applied as follows:
A. First, to the payment of all costs and expenses incident to the
enforcement of this Instrument, including, without limitation, a reasonable
compensation to the agents, attorneys and counsel of Grantee;
B. Second, to the payment or prepayment of the Obligations, in such
order as Grantee shall elect; and
C. Third, the remainder, if any, shall be paid to Debtor or such other
person or persons as may be entitled thereto by law.
Section 5.11 Upon any sale made under the powers of sale herein
granted and conferred, the receipt of Grantee will be sufficient discharge to
the purchaser or purchasers at any sale for the purchase money, and such
purchaser or purchasers and the heirs, devisees, personal representatives,
successors and assigns thereof will not, after paying such purchase money and
receiving such receipt of Grantee, be obligated to see to the application
thereof or be in any way answerable for any loss, misapplication or
non-application thereof.
ARTICLE VI
Miscellaneous Provisions
------------------------
Section 6.1 Each and every right, power and remedy hereby granted to
Grantee shall be cumulative and not exclusive, and each and every right, power
and remedy whether specifically hereby granted or otherwise existing may be
exercised from time to time and as often and in such order as
-11-
<PAGE>
may be deemed expedient by Grantee, and the exercise of any such right, power or
remedy will not be deemed a waiver of the right to exercise, at the same time or
thereafter, any other right, power or remedy. All changes to and modifications
of this Instrument must be in writing and signed by Debtor and Grantee.
Section 6.2 If any provision hereof or of any of the other documents
constituting, evidencing or creating all or any part of the Obligations is
invalid or unenforceable in any jurisdiction, the other provisions hereof or of
said documents shall remain in full force and effect in such jurisdiction and
the remaining provisions hereof will be liberally construed in favor of Grantee
in order to carry out the provisions hereof and of such other documents. The
invalidity of any provision of this Instrument in any jurisdiction will not
affect the validity or enforceability of any such provision in any other
jurisdiction.
Section 6.3 This Instrument will be deemed to be and may be enforced
from time to time as an assignment, contract, financing statement, real estate
mortgage, or security agreement, and from time to time as any one or more
thereof, as is appropriate under applicable state law. A carbon, photographic or
other reproduction of this Instrument or any financing statement in connection
herewith shall be sufficient as a financing statement for any and all purposes.
Section 6.4 Notwithstanding anything to the contrary contained herein,
no rate of interest required hereunder or under the Obligations shall exceed the
maximum legal rate under applicable law, and, in the event any such rate is
found to exceed such maximum legal rate, Debtor shall be required to pay only
such maximum legal rate.
Section 6.5 Insofar as permitted by otherwise applicable law, this
Instrument and the Obligations shall be construed under and governed by the laws
of the State of Colorado; provided, however, that, with respect to any portion
of the Collateral located outside of the State of Colorado, the laws of the
place in which such property is located shall apply to the extent, and only to
the extent, necessary to permit Grantee to enforce or realize upon its rights
and remedies hereunder with respect to such property, and any such enforcement
or realization proceedings shall be conducted in compliance with the applicable
laws of the state where the Collateral is located. This Instrument is intended
to be a credit line mortgage pursuant to West Virginia law.
Section 6.6 This Instrument may be executed in any number of
counterparts, each of which will for all purposes be deemed to be an original,
and all of which are identical except that to facilitate recordation, in
particular counterparts hereof, portions of Exhibit "A"
-12-
<PAGE>
hereto which describe properties situated in counties other than the county in
which the counterpart is to be recorded have been omitted. Each counterpart
shall be deemed to be an original for all purposes, and all counterparts shall
together constitute but one and the same instrument.
Section 6.7 Unless otherwise specified in Exhibit "A" hereto, all
recording references in Exhibit "A" hereto are to the official real property
records of the county in which the affected land is located. Any references in
Exhibit "A" hereto to liens, encumbrances and other burdens shall not be deemed
to recognize or create any rights in third parties.
Section 6.8 All deliveries and notices hereunder shall be deemed to
have been duly made or given if made or given in conformity with the provisions
of the Credit Agreement.
Section 6.9 This Instrument shall bind and inure to the benefit of the
respective successors and assigns of Debtor and Grantee, including, without
limitation, any and all other banks, lending institutions and parties which may
participate in the indebtedness evidenced by the Obligations or any of them.
Notwithstanding any other provision contained herein, if any property interest
granted by this Instrument does not vest on the execution and delivery of this
Instrument, it shall vest, if at all, no later than 20 years after the execution
and delivery of this Instrument. As used herein, the term "person" shall mean
individual, corporation, limited liability company, partnership, joint venture,
agency or other form of entity or association.
Section 6.10 Some of the above goods are or are to become fixtures on
the Land. The above described minerals or other substances of value which may be
extracted from the earth (including without limitation oil and gas), and the
accounts relating thereto will be financed at the wellhead of the well or wells
located on the Land. This Instrument is to be filed for record in, among other
places, the real estate records of each county in which the affected real estate
is located; to wit, all of those listed in Exhibit "A." Debtor is the owner of a
record interest in a portion of the real estate concerned. The mailing address
of Debtor and the address of Grantee from which information concerning the
security interest may be obtained are as set forth above.
Section 6.11 Grantee shall be entitled to enforce payment of any
indebtedness and performance of any other of the Obligations secured hereby and
to exercise all rights and powers under this Instrument or under any other
instrument or other agreement or any laws now or hereafter in force,
notwithstanding the fact that some or all of said indebtedness and other
Obligations secured hereby may now or
-13-
<PAGE>
hereafter be otherwise secured, whether by mortgage, deed of trust, pledge,
lien, assignment or otherwise. Neither the acceptance of this Instrument nor its
enforcement, whether by court action or pursuant to the power of sale or other
powers herein contained shall prejudice or in any manner affect Grantee's right
to realize upon or enforce any other security now or hereafter held by Grantee,
it being agreed that Grantee shall be entitled to enforce this Instrument and
any other security now or hereafter held by Grantee in such order and manner as
it may in its absolute discretion determine.
EXECUTED as of the date first above written.
ATTEST: AMERICAN RIVERS OIL COMPANY f/k/a
METRO CAPITAL CORPORATION
/s/ PAM HOLLEY By: /s/ KARLTON TERRY
- ------------------------- -----------------------------------
Pam Holley, Karlton Terry,
Assistant Secretary President
(SEAL)
By: /s/ JUBAL S. TERRY
-----------------------------------
Jubal S. Terry,
Vice President
STATE OF COLORADO )
) ss.
CITY AND COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 13th day of
September, 1996, by Karlton Terry, as President, and by Jubal S. Terry, as Vice
President, of AMERICAN RIVERS OIL COMPANY, a Wyoming corporation, f/k/a METRO
CAPITAL CORPORATION, on behalf of the corporation. Witness my hand and official
seal.
/s/ SHEILA OGLE
-----------------------------------
Notary Public
My Commission expires: My Commission Expires 6/15/99
-----------------------------
(SEAL GRAPHIC OMITTED)
THIS INSTRUMENT WAS PREPARED BY AND
WHEN RECORDED SHOULD BE RETURNED TO:
David G. Stolfa
3300 South Columbine Circle
Englewood, Colorado 80110
-14-
<PAGE>
EXHIBIT A
---------
ADAMS COUNTY, COLORADO
----------------------
1. UPRR Panama #92-1. All of Debtor's right, title and interest
in and to the lands described below, which right, title and interest
is such that Debtor owns: (a) an expense-bearing interest therein not
greater than the Working Interest described below, and (b) an interest
in the production therefrom not less than the Net Revenue Interest
described below:
T. 2 S., R. 61 W., 6th P.M.
---------------------------
Section 17: SW/4SE/4.
WORKING INTEREST ..................................................... 36.9050%
NET REVENUE INTEREST ................................................. 26.8121%
2. Porter-UPRR #2. All of Debtor's right, title and interest in
and to the lands described below, which right, title and interest is
such that Debtor owns: (a) an expense- bearing interest therein not
greater than the Working Interest described below, and (b) an interest
in the production therefrom not less than the Net Revenue Interest
described below:
T. 2 S.,R. 63 W., 6th P.M.
--------------------------
Section 23: E/2NW/4.
WORKING INTEREST ...................................................... 60.5645%
NET REVENUE INTEREST .................................................. 43.9464%
3. Putnam #41-18. All of Debtor's right, title and interest in
and to the lands described below, which right, title and interest is
such that Debtor owns: (a) an expense-bearing interest therein not
greater than the Working Interest described below, and (b) an interest
in the production therefrom not less than the Net Revenue Interest
described below:
T. 1 S., R. 65 W., 6th P.M.
---------------------------
Section 18: N/2.
WORKING INTEREST ...................................................... 34.9950%
NET REVENUE INTEREST .................................................. 25.1964%
4. Wailes #1-1. All of Debtor's right, title and interest in and
to the lands described below, which right, title and interest is such
that Debtor owns: (a) an expense-bearing interest therein not greater
than the Working Interest described below, and (b) an interest in the
production therefrom not less than the Net Revenue Interest described
below:
A-C-AD-1
<PAGE>
EXHIBIT A
---------
ADAMS COUNTY, COLORADO (CONT.)
------------------------------
T. 2 S., R. 63 W., 6th P.M.
---------------------------
Section 1: W/2SW/4.
WORKING INTEREST .................................................... 61.7333%
NET REVENUE INTEREST ................................................ 48.7693%
5. UPRR 60 Pan Am D-4. All of Debtor's right, title and interest
in and to the lands described below, which right, title and interest
is such that Debtor owns: (a) an expense- bearing interest therein not
greater than the Working Interest described below, and (b) an interest
in the production therefrom not less than the Net Revenue Interest
described below:
T. l S., R. 63 W., 6th P.M.
---------------------------
Section 7: N/2SE/4.
WORKING INTEREST ...................................................... 62.8440%
NET REVENUE INTEREST .................................................. 49.2193%
6. Eleanor Arnold B. All of Debtor's right, title and interest in
and to the lands described below, which right, title and interest is
such that Debtor owns: (a) an expense-bearing interest therein not
greater than the Working Interest described below, and (b) an interest
in the production therefrom not less than the Net Revenue Interest
described below:
T. l S., R. 64 W., 6th P.M.
---------------------------
Section 10: SW/4.
WORKING INTEREST ...................................................... 55.8667%
NET REVENUE INTEREST .................................................. 44.7433%
7. UPRR Julie #1. All of Debtor's right, title and interest in
and to the lands described below, which right, title and interest is
such that Debtor owns: (a) an expense-bearing interest therein not
greater than the Working Interest described below, and (b) an interest
in the production therefrom not less than the Net Revenue Interest
described below:
T. l S., R. 64 W., 6th P.M.
---------------------------
Section 17: W/2NE/4.
WORKING INTEREST ...................................................... 57.7000%
NET REVENUE INTEREST .................................................. 45.2850%
8. Ann #34-12. All of Debtor's right, title and interest in and
to the lands described below, which right, title and interest is such
that Debtor owns: (a) an expense-bearing interest therein not greater
than the Working
A-C-AD-2
<PAGE>
EXHIBIT A
---------
ADAMS COUNTY, COLORADO (CONT.)
------------------------------
Interest described below, and (b) an interest in the production
therefrom not less than the Net Revenue Interest described below:
T. 1 S., R. 64 W., 6th P.M.
---------------------------
Section 12: SW/4SE/4.
WORKING INTEREST ...................................................... 51.6320%
NET REVENUE INTEREST .................................................. 43.8871%
9. Alice #44-18. All of Debtor's right, title and interest in and
to the lands described below, which right, title and interest is such
that Debtor owns: (a) an expense-bearing interest therein not greater
than the Working Interest described below, and (b) an interest in the
production therefrom not less than the Net Revenue Interest described
below:
T. 1 S., R. 64 W., 6th P.M.
---------------------------
Section 18: SE/4SE/4.
WORKING INTEREST ...................................................... 53.4717%
NET REVENUE INTEREST .................................................. 42.7779%
10. UPRR Bessie #1. All of Debtor's right, title and interest in
and to the lands described below, which right, title and interest is
such that Debtor owns: (a) an expense- bearing interest therein not
greater than the Working Interest described below, and (b) an interest
in the production therefrom not less than the Net Revenue Interest
described below:
T. 1 S., R. 64 W., 6th P.M.
---------------------------
Section 17: E/2NE/4.
WORKING INTEREST ...................................................... 49.1794%
NET REVENUE INTEREST .................................................. 39.3436%
11. Eiffel #1. All of Debtor's right, title and interest in and
to the lands described below, which right, title and interest is such
that Debtor owns: (a) an expense-bearing interest therein not greater
than the Working Interest described below, and (b) an interest in the
production therefrom not less than the Net Revenue Interest described
below:
T. 1 S., R. 63 W., 6th P.M.
---------------------------
Section 19: SW/4.
WORKING INTEREST ...................................................... 37.7236%
NET REVENUE INTEREST .................................................. 26.7465%
A-C-AD-3
<PAGE>
EXHIBIT A
---------
ADAMS COUNTY, COLORADO (CONT.)
------------------------------
12. Eleanor Arnold #1. All of Debtor's right, title and interest
in and to the lands described below, which right, title and interest
is such that Debtor owns: (a) an expense- bearing interest therein not
greater than the Working Interest described below, and (b) an interest
in the production therefrom not less than the Net Revenue Interest
described below:
T. 1 S., R. 64 W., 6th P.M.
---------------------------
Section 2: SW/4.
WORKING INTEREST ...................................................... 55.8667%
NET REVENUE INTEREST .................................................. 44.7433%
13. George Sauter #1. All of Debtor's right, title and interest
in and to the lands described below, which right, title and interest
is such that Debtor owns: (a) an expense- bearing interest therein not
greater than the Working Interest described below, and (b) an interest
in the production therefrom not less than the Net Revenue Interest
described below:
T. 1 S., R. 64 W., 6th P.M.
---------------------------
Section 14: E/2.
WORKING INTEREST ...................................................... 51.6320%
NET REVENUE INTEREST .................................................. 43.8871%
14. Hand-Muegge #1-32. All of Debtor's right, title and interest
in and to the lands described below, which right, title and interest
is such that Debtor owns: (a) an expense- bearing interest therein not
greater than the Working Interest described below, and (b) an interest
in the production therefrom not less than the Net Revenue Interest
described below:
T. 3 S., R. 63 W., 6th P.M.
---------------------------
Section 32: SE/4.
WORKING INTEREST ...................................................... 61.1626%
NET REVENUE INTEREST .................................................. 48.9577%
15. Helzer Farms #1. All of Debtor's right, title and interest in
and to the lands described below, which right, title and interest is
such that Debtor owns: (a) an expense- bearing interest therein not
greater than the Working Interest described below, and (b) an interest
in the production therefrom not less than the Net Revenue Interest
described below:
T. 1 S., R. 64 W., 6th P.M.
---------------------------
Section 25: NW/4.
WORKING INTEREST ...................................................... 37.1309%
NET REVENUE INTEREST .................................................. 25.5064%
A-C-AD-4
<PAGE>
EXHIBIT A
---------
ADAMS COUNTY, COLORADO (CONT.)
------------------------------
16. Juanita State #1. All of Debtor's right, title and interest
in and to the lands described below, which right, title and interest
is such that Debtor owns: expense-bearing interest therein not greater
than the Working Interest described below, and (b) an interest in the
production therefrom not less than the Net Revenue Interest described
below:
T. 1 S., R. 64 W., 6th P.M.
---------------------------
Section 36: S/2.
WORKING INTEREST ...................................................... 48.0603%
NET REVENUE INTEREST .................................................. 38.7062%
17. UPRR 60 Pan Am E-1 and E-2. All of Debtor's right, title and
interest in and to the lands described below, which right, title and
interest is such that Debtor owns: (a) an expense-bearing interest
therein not greater than the Working Interest described below, and (b)
an interest in the production therefrom not less than the Net Revenue
Interest described below:
T. 1 S., R. 64 W., 6th P.M.
---------------------------
Section 3: SE/4.
WORKING INTEREST ...................................................... 55.8676%
NET REVENUE INTEREST .................................................. 44.7267%
18. UPRR 60 Pan Am I. All of Debtor's right, title and interest
in and to the lands described below, which right, title and interest
is such that Debtor owns: (a) an expense- bearing interest therein not
greater than the Working Interest described below, and (b) an interest
in the production therefrom not less than the Net Revenue Interest
described below:
T. 1 S., R. 64 W., 6th P.M.
---------------------------
Section 11: E/2SE/4 (below the base of
the J Sand formation), W/2SE/4.
WORKING INTEREST ..................................................... 55.8677%
NET REVENUE INTEREST ................................................ 44.7267%
19. Fahk-Garrett. All of Debtor's right, title and interest in
and to the lands described below, which right, title and interest is
such that Debtor owns: (a) an expense-bearing interest therein not
greater than the Working Interest described below, and (b) an interest
in the production therefrom not less than the Net Revenue Interest
described below:
T. 2 S., R. 57 W., 6th P.M.
---------------------------
Section 4: W/2.
A-C-AD-5
<PAGE>
EXHIBIT A
---------
ADAMS COUNTY COLORADO (CONT.)
-----------------------------
WORKING INTEREST ...................................................... 25.5183%
NET REVENUE INTEREST .................................................. 21.9624%
20. Lewton "F" Unit #1. All of Debtor's right, title and interest
in and to the lands described below, which right, title and interest
is such that Debtor owns: (a) an expense- bearing interest therein not
greater than the Working Interest described below, and (b) an interest
in the production therefrom not less than the Net Revenue Interest
described below:
T. 1 S. ,R. 62 W., 6th P.M.
---------------------------
Section 31: NW/4.
WORKING INTEREST ..................................................... 34.0618%
NET REVENUE INTEREST ................................................ 27.2494%
21. Kalcevic #1. All of Debtor's right, title and interest in and
to the lands described below, which right, title and interest is such
that Debtor owns: (a) an expense-bearing interest therein not greater
than the Working Interest described below, and (b) an interest in the
production therefrom not less than the Net Revenue Interest described
below:
T. 1 S., R. 62 W., 6th P.M.
---------------------------
Section 30: S/2SW/4.
WORKING INTEREST ...................................................... 35.5783%
NET REVENUE INTEREST ................................................. 28.4626%
22. Linnebur #2. All of Debtor's right, title and interest in and
to the lands described below, which right, title and interest is such
that Debtor owns: (a) an expense-bearing interest therein not greater
than the Working Interest described below, and (b) an interest in the
production therefrom not less than the Net Revenue Interest described
below:
T. 3 S., R. 60 W., 6th P.M.
---------------------------
Section 5: SE/4SW/4.
WORKING INTEREST ...................................................... 26.6640%
NET REVENUE INTEREST ................................................. 21.3312%
A-C-AD-6
<PAGE>
Exhibit A
---------
ARAPAHOE COUNTY, COLORADO
-------------------------
1. Krause-Albin #1-20. All of Debtor's right, title and interest
in and to the lands described below, which right, title and interest
is such that Debtor owns: (a) an expense- bearing interest therein not
greater than the Working Interest described below, and (b) an interest
in the production therefrom not less than the Net Revenue Interest
described below:
T. 5 S., R. 63 W., 6th P.M.
---------------------------
Section 20: NW/4NW/4.
WORKING INTEREST ...................................................... 61.1626%
NET REVENUE INTEREST .................................................. 48.9438%
A-C-AR-1
<PAGE>
EXHIBIT A
---------
ELBERT COUNTY, COLORADO
-----------------------
1. Champlin #569. All of Debtor's right, title and interest in
and to the lands described below, which right, title and interest is
such that Debtor owns: (a) an expense-bearing interest therein not
greater than the Working Interest described below, and (b) an interest
in the production therefrom not less than the Net Revenue Interest
described below:
T. 6 S., R. 62 W., 6th P.M.
---------------------------
Section 3: W/2NW/4.
WORKING INTEREST ...................................................... 51.6321%
NET REVENUE INTEREST .................................................. 38.7239%
A-C-E-1
<PAGE>
EXHIBIT A
---------
WASHINGTON COUNTY, COLORADO
---------------------------
1. Belle Field Unit. All of Debtor's right, title and interest in
and to the lands described below, which right, title and interest is
such that Debtor owns: (a) an expense- bearing interest therein not
greater than the Working Interest described below, and (b) an interest
in the production therefrom not less than the Net Revenue Interest
described below:
T. 1 N., R. 53 W., 6th P.M.
---------------------------
Section 34: E/2SW/4, SE/4.
T. 1 S., R. 53 W., 6th P.M.
---------------------------
Section 2: NW/4, SW/4NW/4.
Section 3: N/2, NE/4SE/4.
WORKING INTEREST ...................................................... 61.1078%
NET REVENUE INTEREST .................................................. 48.7223%
A-C-WA-1
<PAGE>
EXHIBIT A
---------
WELD COUNTY, COLORADO
---------------------
1. UPRR Lola #1. All of Debtor's right, title and interest in and
to the lands described below, which right, title and interest is such
that Debtor owns: (a) an expense-bearing interest therein not greater
than the Working Interest described below, and (b) an interest in the
production therefrom not less than the Net Revenue Interest described
below:
T. 1 N., R. 63 W., 6th P.M.
---------------------------
Section 19: E/2SW/4.
WORKING INTEREST ...................................................... 51.6320%
NET REVENUE INTEREST .................................................. 38.7239%
2. State #2-36. All of Debtor's right, title and interest in and
to the lands described below, which right, title and interest is such
that Debtor owns: (a) an expense-bearing interest therein not greater
than the Working Interest described below, and (b) an interest in the
production therefrom not less than the Net Revenue Interest described
below:
T. 1 N., R. 66 W., 6th P.M.
---------------------------
Section 36: SE/4SW/4.
WORKING INTEREST ...................................................... 51.3878%
NET REVENUE INTEREST .................................................. 44.7726%
3. Weld #1. All of Debtor's right, title and interest in and to
the lands described below, which right, title and interest is such
that Debtor owns: (a) an expense-bearing interest therein not greater
than the Working Interest described below, and (b) an interest in the
production therefrom not less than the Net Revenue Interest described
below:
T. 2 N., R. 62 W., 6th P.M.
---------------------------
Section 20: SE/4SW/4.
WORKING INTEREST ...................................................... 25.0000%
NET REVENUE INTEREST .................................................. 20.0000%
4. Lee #1. All of Debtor's right, title and interest in and to
the lands described below, which right, title and interest is such
that Debtor owns: (a) an expense-bearing interest therein not greater
than the Working Interest described below, and (b) an interest in the
production therefrom not less than the Net Revenue Interest described
below:
A-C-WE-1
<PAGE>
EXHIBIT A
---------
WELD COUNTY, COLORADO (CONT.)
-----------------------------
T. 1 N., R. 63 W., 6th P.M.
---------------------------
Section 20: S/2SE/4.
WORKING INTEREST ...................................................... 45.5742%
NET REVENUE INTEREST .................................................. 36.4592%
5. Linda #1. All of Debtor's right, title and interest in and to
the lands described below, which right, title and interest is such
that Debtor owns: (a) an expense-bearing interest therein not greater
than the Working Interest described below, and (b) an interest in the
production therefrom not less than the Net Revenue Interest described
below:
T. 1 N., R. 64 W., 6th P.M.
---------------------------
Section 24: N/2SE/4.
WORKING INTEREST ...................................................... 45.5635%
NET REVENUE INTEREST .................................................. 37.1364%
6. Donagene #1. All of Debtor's right, title and interest in and
to the lands described below, which right, title and interest is such
that Debtor owns: (a) an expense-bearing interest therein not greater
than the Working Interest described below, and (b) an interest in the
production therefrom not less than the Net Revenue Interest described
below:
T. 1 N., R. 64 W., 6th P.M.
---------------------------
Section 24: S/2SE/4.
WORKING INTEREST ...................................................... 45.4428%
NET REVENUE INTEREST .................................................. 36.6991%
7. Lehl #1-30. All of Debtor's right, title and interest in and
to the lands described below, which right, title and interest is such
that Debtor owns: (a) an expense-bearing interest therein not greater
than the Working Interest described below, and (b) an interest in the
production therefrom not less than the Net Revenue Interest described
below:
T. 1 N., R. 65 W., 6th P.M.
---------------------------
Section 30: N/2.
WORKING INTEREST ...................................................... 51.6320%
NET REVENUE INTEREST .................................................. 41.4444%
8. Dottie #11-34. All of Debtor's right, title and interest in
and to the lands described below, which right, title and interest is
such that Debtor owns: (a) an expense-bearing interest therein not
greater than the Working Interest described below, and (b) an interest
in the
A-C-WE-2
<PAGE>
EXHIBIT A
---------
WELD COUNTY, COLORADO (CONT.)
-----------------------------
production therefrom not less than the Net Revenue Interest described
below:
T. 1 N., R. 64 W., 6th P.M.
---------------------------
Section 34: NW/4NW/4.
WORKING INTEREST ...................................................... 48.2163%
NET REVENUE INTEREST .................................................. 40.2276%
9. Tina #42-12. All of Debtor's right, title and interest in and
to the lands described below, which right, title and interest is such
that Debtor owns: (a) an expense-bearing interest therein not greater
than the Working Interest described below, and (b) an interest in the
production therefrom not less than the Net Revenue Interest described
below:
T. 1 S., R. 64 W., 6th P.M.
---------------------------
Section 12: SE/4NE/4.
WORKING INTEREST ...................................................... 51.6320%
NET REVENUE INTEREST .................................................. 43.8871%
10. Champlin #367. All of Debtor's right, title and interest in
and to the lands described below, which right, title and interest is
such that Debtor owns: (a) an expense-bearing interest therein not
greater than the Working Interest described below, and (b) an interest
in the production therefrom not less than the Net Revenue Interest
described below:
T. 1 N., R. 63 W., 6th P.M.
---------------------------
Section 5: SE/4SE/4.
WORKING INTEREST ...................................................... 38.8889%
NET REVENUE INTEREST .................................................. 33.0556%
11. NESSSU Unit. All of Debtor's right, title and interest in and
to the lands described below, which right, title and interest is such
that Debtor owns: (a) an expense-bearing interest therein not greater
than the Working Interest described below, and (b) an interest in the
production therefrom not less than the Net Revenue Interest described
below:
T. 2 N., R. 66 W., 6th P.M.
---------------------------
Section 17: S/2S/2.
Section 20: N/2, N/2S/2.
WORKING INTEREST ...................................................... 31.0710%
NET REVENUE INTEREST .................................................. 24.8689%
A-C-WE-3
<PAGE>
EXHIBIT A
---------
WELD COUNTY, COLORADO (CONT.)
-----------------------------
12. Oskarson #1, #2, #3 and #4. All of Debtor's right, title and
interest in and to the lands described below, which right, title and
interest is such that Debtor owns: (a) an expense-bearing interest
therein not greater than the Working Interest described below, and (b)
an interest in the production therefrom not less than the Net Revenue
Interest described below:
T 2 N., R 68 W., 6th P M
------------------------
Section 33: SW/4.
WORKING INTEREST ...................................................... 80.0000%
NET REVENUE INTEREST .................................................. 64.0000%
13. Bernard #1. All of Debtor's right, title and interest in and
to the lands described below, which right, title and interest is such
that Debtor owns: (a) an expense-bearing interest therein not greater
than the Working Interest described below, and (b) an interest in the
production therefrom not less than the Net Revenue Interest described
below:
T. 2 N., R. 62 W., 6th P.M.
---------------------------
Section 29: E/2SE/4.
WORKING INTEREST ...................................................... 25.0000%
NET REVENUE INTEREST .................................................. 20.0000%
14. Clem #1. All of Debtor's right, title and interest in and to
the lands described below, which right, title and interest is such
that Debtor owns: (a) an expense-bearing interest therein not greater
than the Working Interest described below, and (b) an interest in the
production therefrom not less than the Net Revenue Interest described
below:
T. 2 N., R. 62 W., 6th P.M.
---------------------------
Section 31: NW/4.
WORKING INTEREST ...................................................... 25.0000%
NET REVENUE INTEREST 20.0000%
15. Sigg #1. All of Debtor's right, title and interest in and to
the lands described below, which right, title and interest is such
that Debtor owns: (a) an expense-bearing interest therein not greater
than the Working Interest described below, and (b) an interest in the
production therefrom not less than the Net Revenue Interest described
below:
T. 2 N., R. 62 W., 6th P.M.
---------------------------
Section 19: E/2SE/4.
WORKING INTEREST ..................................................... 19.6875%
NETREVENUE INTEREST .................................................. 15.7500%
A-C-WE-4
<PAGE>
EXHIBIT A
---------
WELD COUNTY, COLORADO (CONT.)
-----------------------------
16. Victor State #1. All of Debtor's right, title and interest in
and to the lands described below, which right, title and interest is
such that Debtor owns: (a) an expense- bearing interest therein not
greater than the Working Interest described below, and (b) an interest
in the production therefrom not less than the Net Revenue Interest
described below:
T. 2 N., R. 62 W., 6th P.M.
---------------------------
Section 20: W/2SW/4.
WORKING INTEREST ...................................................... 23.4375%
NET REVENUE INTEREST .................................................. 18.7500%
17. Gorges #1. All of Debtor's right, title and interest in and
to the lands described below, which right, title and interest is such
that Debtor owns: (a) an expense-bearing interest therein not greater
than the Working Interest described below, and (b) an interest in the
production therefrom not less than the Net Revenue Interest described
below:
T. 2 N., R. 62 W., 6th P.M.
---------------------------
Section 33: NW/4.
WORKING INTEREST ...................................................... 25.0000%
NET REVENUE INTEREST .................................................. 20.0000%
18. HSR Church #14-17. All of Debtor's right, title and interest
in and to the lands described below, which right, title and interest
is such that Debtor owns: (a) an expense-bearing interest therein not
greater than the Working Interest described below, and (b) an interest
in the production therefrom not less than the Net Revenue Interest
described below:
T. 2 N., R. 62 W., 6th P.M.
---------------------------
Section 17: SW/4.
WORKING INTEREST ................................................... 25.0000%
NET REVENUE INTEREST ............................................... 20.0000%
19. Linnebur #10-17. All of Debtor's right, title and interest in
and to the lands described below, which right, title and interest is
such that Debtor owns: (a) an expense- bearing interest therein not
greater than the Working Interest described below, and (b) an interest
in the production therefrom not less than the Net Revenue Interest
described below: .
T. 2 N., R. 62 W., 6th P.M.
---------------------------
Section 17: S/2NE/4, N/2SE/4.
A-C-WE-5
<PAGE>
EXHIBIT A
---------
WELD COUNTY. COLORADO (CONT.)
-----------------------------
WORKING INTEREST ...................................................... 25.0000%
NET REVENUE INTEREST .................................................. 20.0000%
20. Beth #1. All of Debtor's right, title and interest in and to
the lands described below, which right, title and interest is such
that Debtor owns: (a) an expense-bearing interest therein not greater
than the Working Interest described below, and (b) an interest in the
production therefrom not less than the Net Revenue Interest described
below:
T. 1 N., R. 62 W., 6th P.M.
---------------------------
Section 6: NW/4NE/4.
BPO APO
--- ---
WORKING INTEREST ................................... 25.0000% 16.6667%
NET REVENUEINTEREST ................................ 20.0000% 13.3333%
21. Bixby #42-2. All of Debtor's right, title and interest in and
to the lands described below, which right, title and interest is such
that Debtor owns: (a) an expense-bearing interest therein not greater
than the Working Interest described below, and (b) an interest in the
production therefrom not less than the Net Revenue Interest described
below:
T. 1 N., R. 63 W., 6th P.M.
---------------------------
Section 2: SE/4NE/4.
WORKING INTEREST ...................................................... 25.0000%
NET REVENUE INTEREST .................................................. 19.2500%
22. Blanche #1. All of Debtor's right, title and interest in and
to the lands described below, which right, title and interest is such
that Debtor owns: (a) an expense-bearing interest therein not greater
than the Working Interest described below, and (b) an interest in the
production therefrom not less than the Net Revenue Interest described
below:
T. 2 N., R. 62 W., 6th P.M.
---------------------------
Section 20: NW/4NW/4.
BPO APO
--- ---
WORKING INTEREST ..................................... 18.7500% 17.1875%
NET REVENUE INTEREST ................................. 15.0000% 13.7500%
23. Cooper #1. All of Debtor's right, title and interest in and
to the lands described below, which right, title and interest is such
that Debtor owns: (a) an expense bearing interest therein not greater
than the Working Interest described below, and (b) an interest in the
A-C-WE-6
<PAGE>
EXHIBIT A
---------
WELD COUNTY, COLORADO (CONT.)
-----------------------------
production therefrom not less than the Net Revenue Interest described
below:
T. 2 N., R. 62 W., 6th P.M.
---------------------------
Section 20: SE/4NE/4.
WORKING INTEREST ................................................... 25.0000%
NET REVENUE INTEREST ............................................... 20.0000%
24. Harold #1. All of Debtor's right, title and interest in and
to the lands described below, which right, title and interest is such
that Debtor owns: (a) an expense-bearing interest therein not greater
than the Working Interest described below, and (b) an interest in the
production therefrom not less than the Net Revenue Interest described
below:
T. 2 N., R. 62 W., 6th P.M.
---------------------------
Section 31: NW/4SE/4.
WORKING INTEREST ...................................................... 24.0726%
NET REVENUE INTEREST .................................................. 19.2581%
25. Ivan #1. All of Debtor's right, title and interest in and to
the lands described below, which right, title and interest is such
that Debtor owns: (a) an expense-bearing interest therein not greater
than the Working Interest described below, and (b) an interest in the
production therefrom not less than the Net Revenue Interest described
below:
T. 1 N., R. 63 W., 6th P.M.
---------------------------
Section 1: SE/4NW/4.
WORKING INTEREST ...................................................... 25.0000%
NET REVENUE INTEREST .................................................. 20.0000%
26. Jerry #1. All of Debtor's right, title and interest in and to
the lands described below, which right, title and interest is such
that Debtor owns: (a) an expense-bearing interest therein not greater
than the Working Interest described below, and (b) an interest in the
production therefrom not less than the Net Revenue Interest described
below:
T. 2 N., R. 62 W., 6th P.M.
---------------------------
Section 20: SE/4SE/4.
WORKING INTEREST ...................................................... 25.0000%
NET REVENUE INTEREST .................................................. 20.0000%
27. Joe #1. All of Debtor's right, title and interest in and to
the lands described below, which right, title and
A-C-WE-7
<PAGE>
EXHIBIT A
---------
WELD COUNTY, COLORADO (CONT.)
-----------------------------
interest is such that Debtor owns: (a) an expense-bearing interest
therein not greater than the Working Interest described below, and (b)
an interest in the production therefrom not less than the Net Revenue
Interest described below:
T. 2 N., R. 62 W., 6th P.M.
---------------------------
Section 20: NW/4NE/4.
WORKING INTEREST ...................................................... 25.0000%
NET REVENUE INTEREST .................................................. 20.0000%
28. Klein #1. All of Debtor's right, title and interest in and to
the lands described below, which right, title and interest is such
that Debtor owns: (a) an expense-bearing interest therein not greater
than the Working Interest described below, and (b) an interest in the
production therefrom not less than the Net Revenue Interest described
below:
T. 2 N., R. 62 W., 6th P.M.
---------------------------
Section 9: NW/4SE/4.
WORKING INTEREST ...................................................... 25.0000%
NET REVENUE INTEREST .................................................. 19.7266%
29. Mart #1. All of Debtor's right, title and interest in and to
the lands described below, which right, title and interest is such
that Debtor owns: (a) an expense-bearing interest therein not greater
than the Working Interest described below, and (b) an interest in the
production therefrom not less than the Net Revenue Interest described
below:
T. 2 N., R. 62 W., 6th P.M.
---------------------------
Section 27: NW/4NW/4.
WORKING INTEREST ...................................................... 25.0000%
NET REVENUE INTEREST .................................................. 19.6875%
30. Martin #1. All of Debtor's right, title and interest in and
to the lands described below, which right, title and interest is such
that Debtor owns: (a) an expense-bearing interest therein not greater
than the Working Interest described below, and (b) an interest in the
production therefrom not less than the Net Revenue Interest described
below:
T. 1 N., R. 63 W., 6th P.M.
---------------------------
Section 1: N/2SE/4.
WORKING INTEREST ...................................................... 25.0000%
NET REVENUE INTEREST .................................................. 20.0000%
A-C-WE-8
<PAGE>
EXHIBIT A
WELD COUNTY, COLORADO (CONT.)
31. Nick #1. All of Debtor's right, title and interest in and to
the lands described below, which right, title and interest is such
that Debtor owns: (a) an expense-bearing interest therein not greater
than the Working Interest described below, and (b) an interest in the
production therefrom not less than the Net Revenue Interest described
below:
T. 1 N., R. 63 W., 6th P.M.
---------------------------
Section 1: NW/4NE/4.
WORKING INTEREST ...................................................... 25.0000%
NET REVENUE INTEREST .................................................. 20.0000%
32. Paul #1. All of Debtor's right, title and interest in and to
the lands described below, which right, title and interest is such
that Debtor owns: (a) an expense-bearing interest therein not greater
than the Working Interest described below, and (b) an interest in the
production therefrom not less than the Net Revenue Interest described
below:
T. 2 N., R. 62 W., 6th P.M.
---------------------------
Section 29: SE/4NE/4.
WORKING INTEREST ...................................................... 20.0781%
NET REVENUE INTEREST ..................................................16.0625%
33. Prospect #1. All of Debtor's right, title and interest in and
to the lands described below, which right, title and interest is such
that Debtor owns: (a) an expense-bearing interest therein not greater
than the Working Interest described below, and (b) an interest in the
production therefrom not less than the Net Revenue Interest described
below:
T. 2 N., R. 62 W., 6th P.M.
---------------------------
Section 28: SE/4NW/4.
WORKING INTEREST ...................................................... 22.5391%
NET REVENUE INTEREST .................................................. 18.0313%
34. Ray #1. All of Debtor's right, title and interest in and to
the lands described below, which right, title and interest is such
that Debtor owns: (a) an expense-bearing interest therein not greater
than the Working Interest described below, and (b) an interest in the
production therefrom not less than the Net Revenue Interest described
below:
T. 1 N., R. 63 W., 6th P.M.
---------------------------
Section 2: NE/4SW/4.
WORKING INTEREST ...................................................... 25.0000%
NET REVENUE INTEREST .................................................. 18.7500%
A-C-WE-9
<PAGE>
EXHIBIT A
---------
WELD COUNTY, COLORADO (CONT.)
-----------------------------
35. Shoe #1. All of Debtor's right, title and interest in and to
the lands described below, which right, title and interest is such
that Debtor owns: (a) an expense-bearing interest therein not greater
than the Working Interest described below, and (b) an interest in the
production therefrom not less than the Net Revenue Interest described
below:
T. 2 N., R. 62 W., 6th P.M.
---------------------------
Section 21: SW/4SE/4.
WORKING INTEREST ...................................................... 25.0000%
NET REVENUE INTEREST .................................................. 20.0000%
36. State #36-1. All of Debtor's right, title and interest in and
to the lands described below, which right, title and interest is such
that Debtor owns: (a) an expense-bearing interest therein not greater
than the Working Interest described below, and (b) an interest in the
production therefrom not less than the Net Revenue Interest described
below:
T. 2 N., R. 63 W., 6th P.M.
---------------------------
Section 36: SE/4NW/4.
WORKING INTEREST ...................................................... 25.0000%
NET REVENUE INTEREST .................................................. 19.0625%
37. State #36-3. All of Debtor's right, title and interest in and
to the lands described below, which right, title and interest is such
that Debtor owns: (a) an expense-bearing interest therein not greater
than the Working Interest described below, and (b) an interest in the
production therefrom not less than the Net Revenue Interest described
below:
T. 2 N., R. 63 W., 6th P.M.
---------------------------
Section 36: SE/4SE/4.
WORKING INTEREST ..................................................... 25,0000%
NET REVENUE INTEREST .................................................. 20.0000%
38. Trupp #1. All of Debtor's right, title and interest in and to
the lands described below, which right, title and interest is such
that Debtor owns: (a) an expense-bearing interest therein not greater
than the Working Interest described below, and (b) an interest in the
production therefrom not less than the Net Revenue Interest described
below:
T. 1 N.,R. 63 W., 6th P.M.
--------------------------
Section 2: NW/4SE/4.
A-C-WE-10
<PAGE>
EXHIBIT A
---------
WELD COUNTY, COLORADO (CONT.)
-----------------------------
WORKING INTEREST ..................................................... 25.0000%
NET REVENUE INTEREST ................................................. 20.0000%
39. Vic #1. All of Debtor's right, title and interest in and to
the lands described below, which right, title and interest is such
that Debtor owns: (a) an expense-bearing interest therein not greater
than the Working Interest described below, and (b) an interest in the
production therefrom not less than the Net Revenue Interest described
below:
T. 2 N., R. 62 W., 6th P.M.
---------------------------
Section 16: SE/4SW/4.
WORKING INTEREST ...................................................... 25.0000%
NET REVENUE INTEREST .................................................. 20.0000%
A-C-WE-11
<PAGE>
EXHIBIT A
---------
HENDERSON COUNTY, KENTUCKY
--------------------------
1. Sparkle. All of Debtor's right, title and interest in and to the leases
and/or lands described below (being the same property conveyed to Debtor by
Karlton Terry Oil Company, Karlton Terry and Jubal Terry by Assignment, Bill of
Sale and Conveyance dated November 30, 1995, and recorded in Book 166 Pages
333-359 of the County Clerk's office of Henderson County, Kentucky), which
right, title and interest is such that Debtor owns: (a) an expense-bearing
interest therein not greater than the Working Interest described below, and (b)
an interest in the production therefrom not less than the Net Revenue Interest
described below:
(1) That certain Oil and Gas Lease granted from Henderson County,
Commonwealth of Kentucky to Karlton Terry Oil Company dated November 24,
1992 and recorded in Book 163 Pages 624-630 of the County Clerk's office of
Henderson County, Kentucky, covering those segments of the Ohio River bed
running from Mile .807 to Mile .809 and Mile .810 to Mile .811 and Mile
.817 to Mile .822.5 and Mile .823 to Mile .824 and Mile .827.25 to Mile
.829 and Mile .830.5 West to the Union County line approximately Mile
.831.75 for a total of approximately 12.25 miles of total river bed length
and encompassing approximately 1,470 acres, more or less.
(2) That certain Farmout Agreement (and all rights derived therefrom,
including without limitation leasehold interests, mineral interests and
other interests) granted from Geigo Company to Karlton Terry Oil Company
dated September 1, 1993 and recorded in Book 164 Pages 575-581 of the
County Clerk's office of Henderson County, Kentucky, subject to the terms
thereof, covering the N/2 of the following-described tract of land: A tract
of land located on the Ohio River, approximately 4 miles Northwest of Smith
Mills, and being Lot No. 9 in the Division of the Estate of William Scaper,
Deceased, divided by his heirs by Deed of partition dated July 20, 1881 and
recorded in Deed Book 6 at Page 472 in the Henderson County Court Clerk's
office, bounded and described as follows, to-wit: Beginning at a Sycamore
on the bank of the Ohio River and corner to the Homestead plat of the
Anderson tract; thence down the river W. 139 poles to a stake on the bank
of the river and corner to M. Merritt; thence with his line S. 234 poles to
a small Dogwood and Sweetgum in said Merritt's line; thence E. 139 poles to
a Black Oak and Hickory in the line of the Anderson Homestead Survey;
thence with his line N. 234 poles to the beginning, containing 203 acres,
more or less, Henderson County, Kentucky -- Aaron Waller Estate: being the
same land I conveyed to Aaron Waller by Henderson National Bank by Deed
A-K-1
<PAGE>
EXHIBIT A
---------
HENDERSON COUNTY, KENTUCKY (CONT.)
----------------------------------
dated September 24, 1926 and recorded in Deed Book 73, Page 504, and devised to
Co-Trustees by Will of Aaron Waller, dated October 22, 1926 and recorded in Will
Book "G" at Page 106, in the Henderson County Clerk's Office.
WORKING INTEREST ..................................................... 74.7500%
NET REVENUE INTEREST ................................................. 61.5340%
A-K-2
<PAGE>
EXHIBIT A
---------
WETZEL, TYLER AND PLEASANT COUNTIES. WEST VIRGINIA
--------------------------------------------------
1. Ohio River. All of Debtor's right, title and interest in and to the
leases and/or lands described below, which right, title and interest is such
that Debtor owns: (a) an expense-bearing interest therein not greater than the
Working Interest described below, and (b) an interest in the production
therefrom not less than the Net Revenue Interest described below:
That certain Oil and Gas Lease dated July 17, 1991, from the State of
West Virginia, as lessor, to Karlton Terry Oil Company, as lessee, recorded
in: (a) Oil and Gas Lease Book 74, Page 62 of the official records of
Wetzel County, West Virginia; (b) Deed Book 291, Page 482 of the official
records of Tyler County, West Virginia; and (c) Deed Book 222, Page 596 of
the official records of Pleasant County, West Virginia, covering the bed of
the Ohio River from the low-water mark on the eastern bank to the low-water
mark on the western bank running from Mile Point 133 to Mile Point 144 and
Mile Point 148 to Mile Point 161, encompassing approximately 3690 acres,
excluding Lower Brothers Island, Middle Brothers Island, Bat Island,
Grandview Island, Mill Creek Island, Wells Island, Witten Towhead,
Williamson Island and Paden Island, all as shown on the location maps
attached hereto and made a part hereof.
WORKING INTEREST ...................................................... 50.0000%
NET REVENUE INTEREST .................................................. 40.0000%
A-WV-1
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 136,267
<SECURITIES> 0
<RECEIVABLES> 124,153
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 272,018
<PP&E> 4,085,811
<DEPRECIATION> 208,745
<TOTAL-ASSETS> 5,850,271
<CURRENT-LIABILITIES> 898,047
<BONDS> 0
0
0
<COMMON> 119,808
<OTHER-SE> 4,529,937
<TOTAL-LIABILITY-AND-EQUITY> 5,850,271
<SALES> 757,270
<TOTAL-REVENUES> 763,270
<CGS> 394,364
<TOTAL-COSTS> 1,116,502
<OTHER-EXPENSES> 524,300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 78,246
<INCOME-PRETAX> (955,778)
<INCOME-TAX> 19,400
<INCOME-CONTINUING> (936,378)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (936,378)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
</TABLE>
