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, 1999
[ ] 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
- ------------------------------------------ -----
(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 is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
Issuer's revenues for fiscal year ended March 31, 1999 were $17,968
The aggregate market value of the voting Common Stock held by non-affiliates
based on the last sale price in the over the counter market as quoted on the OTC
Bulletin Board as of June 11, 1999 was $ 359,203. The number of shares
outstanding of the issuer's Common Stock as of March 31, 1999 was 3,565,770. The
number of shares outstanding of the issuer's Class B Common Stock as of March
31, 1999 was 7,267,820.
Documents incorporated by reference: None
Transitional Small Business Disclosure Format (Check one):
Yes No X
<PAGE>
PART I
------
This report contains certain forward-looking statements, as defined in the
Private Securities Litigation Reform Act of 1995, including, without limitation,
all statements regarding the Company's expected future financial position,
results of operations, business strategy, plans or objectives of management and
the potential for future transactions to be completed. Such forward looking
statements include statements containing words such as "believes,"
"anticipates," "estimates," "expects," "may" and words of similar import, or
statements of management's opinion. Although the Company believes that the
expectations reflected in such forward looking statements are based on
reasonable assumptions, no assurance can by given that such expectations will
prove to have been correct, and actual results may differ materially from those
described or implied in such forward looking statements. Factors that could
cause the Company's actual results to differ from the expectations reflected in
forward-looking statements include the risks of operating in a competitive
environment, the market for the Company's products, the market for the Company's
properties, and changes in interest and inflation rates. Moreover, whether any
anticipated future transaction occurs is subject to numerous risks and
uncertainties, many of which are outside our control. For example, the
successful completion of a transaction will be subject to negotiations with
third parties who may not accept terms that are acceptable to the Company.
Similarly, whether or not we can complete any such transactions may be affected
by changes in market conditions or the financial and business conditions of
third parties and other events outside the Company's exclusive control.
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. The assets transferred to Bishop, together with Bishop's previously
owned assets, were 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 did not exercise
control over Bishop's operations, the investment is accounted for by the equity
2
<PAGE>
method prior to the distribution of the outstanding stock of Bishop to the
Company's shareholders in June 1997. 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 holders of the Company's Class B Common stock
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 occurred on June 20,
1997.
At March 31, 1999, the Company had two part-time employees.
Operating Strategy
- ------------------
The Company has sold a significant portion of its producing properties to meet
its current obligations including maturing indebtedness. The Company's operating
objective is to pursue merger or acquisition opportunities with a substantial,
stable company. The Company is currently negotiating with a candidate; however,
no definitive agreement with respect to any acquisition has been reached.
Accordingly, the Company cannot predict whether any agreement may be reached,
the timing of the contemplated transaction or the results of the transaction if
any agreement is reached. Even if an agreement is reached, such a transaction
may not be completed as a result of factors outside of either party's control,
such as regulatory requirements, the failure to secure any necessary security
holder vote or changes in market conditions.
Markets
- -------
The three principal products produced and marketed by the Company during the
last fiscal year were 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. During the fiscal year the Company
sold all of its producing properties except one well that is shut in awaiting
sale either for salvage value or as a water disposal well to producers in the
area.
Crude oil produced from the Company's properties has generally been sold by
truck or pipeline to unaffiliated third-party purchasers at the prevailing field
price (the "posted price"). As the Company has sold all of its oil producing
properties effective March, 1999, there are no primary purchasers of the
Company's crude oil.
The Company sold 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. As the Company sold all of its natural gas
producing properties in fiscal 1999, there are no primary purchasers of the
Company's natural gas and natural gas liquids.
3
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Competition
- -----------
The Company has sold its producing properties to meet its current obligations
including eliminating its maturing bank debt. Consequently, the Company is no
longer competing with other oil and gas producers.
Operations of Bishop
- --------------------
As previously discussed, Bishop was operated autonomously by the previous
management of the Company pursuant to the terms of separate five-year Operating
and Voting Agreements which terminated upon the distribution of Bishop's Common
Stock on June 20, 1997.
Item 2. Properties
- ------------------
The Company's has one property in Kentucky that produced for one month on a test
basis in fiscal 1999 to determine its economic viability. It is currently
classified as property held for sale either as salvage or to a producer in the
area who needs additional water disposal capabilities.
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 not applicable as the Company does not have producing
properties as of year end.
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, 1999:
1999 1998
-------- --------
Quantities Produced and Sold
Oil (barrels (Bbls)) 269 17,039
Natural Gas (Mcf) 13,000 197,864
Average Sales Prices
Oil (per Bbl) $ 9.08 $ 17.05
Natural Gas (per Mcf) $ 2.10 $ 1.84
Average Production Cost per BOE(1) $ 15.48 $ 8.17
- -----------
(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 oil and gas properties.
4
<PAGE>
Productive Wells
- ----------------
Company owns no productive wells at March 31, 1999
Developed and Undeveloped Acreage
- ---------------------------------
At March 31, 1999, the Company does have a negligible amount of developed and
undeveloped acreage which is held for sale as discussed in item 2, properties.
Drilling Activity
- -----------------
The Company only participated in the drilling of one gross (.75 net) well in the
past two years. This well was a development well that was drilled in fiscal 1998
and resulted in a dry hole.
Present Activities
- ------------------
The Company has sold substantially all of its properties to retire its bank
debt. Oil and gas prices have been extremely depressed, and the Company is
considering merger possibilities with other business entities having sustained
cash flow with less price volatility relating to its product. The Company's
auditors have qualified their opinion as to the continuation of the Company as a
going concern. The financial statements are prepared on a going concern basis
which contemplates the realization of assets and the liquidation of liabilities
in the ordinary course of business. The Company is currently negotiating a
merger which is integral to the Company's ability to continue operations. The
success of this merger cannot be assured. See Item I, Business, Operating
Strategy, above.
Item 3. Legal Proceedings
- -------------------------
The Company is a party to legal proceedings. The suit, Consult and Assist v.
American Rivers Oil Company and Karlton Terry, (United States District Court for
the District of Colorado, Case No. 99-K-299) filed February 4, 1999. Plaintiff,
Consult and Assist, a Luxemborg Co, purchased 275,000 shares of common stock of
American Rivers Oil Company on November 11, 1996 for $1.00 per share. The
plaintiff alleges that defendants made untrue statements of material fact and
omitted to state certain other facts in connection with plaintiff's purchase of
common stock. The plaintiff seeks to recover $275,000 plus interest, punitive
damages, attorneys' fees and costs.
Defendants deny the allegations of the Complaint and intend to vigorously defend
against the lawsuit. Defendants have filed an Answer to the Complaint and the
case is currently in the discovery stage.
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, 1999.
5
<PAGE>
PART II
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Item 5. Market for the Company's Common Stock and Related Stockholder Matters
- -----------------------------------------------------------------------------
Common Stock
- ------------
Until December 1997 the Company's common stock was traded on the Nasdaq Stock
Market, SmallCap. Since December 1997 the Company's common stock is traded in
the over-the-counter market and is quoted on the OTC Bulletin Board under the
symbol "AROC." The following table shows the high and low bids for the common
stock of the Company for the periods indicated. Such information was furnished
by Nasdaq for periods prior to and ending on September 30, 1997 and by IDD
Information Services Tradelines for subsequent periods. 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
------------- -------- -------
06/30/97 $1.50 $.56
09/30/97 .81 .44
12/31/97 .69 .11
03/31/98 .25 .05
06/30/98 .13 .06
09/30/98 .11 .03
12/31/98 .06 .02
03/31/99 .05 .02
As of March 31, 1999 there were approximately 2,010 holders of record of the
Company's Common Stock.
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 was not entitled to participate in the June
20, 1997 distribution of shares of Bishop Capital Corporation. The Class B
Common Stock is convertible on a one-for-one share basis into the Company's
Common Stock. The Company plans to encourage the holders the Class B Common
shares to convert to Common Stock so that there will only be one class of stock
As of March 31, 1999, there were 20 holders of record of the Company's Class B
Common Stock.
Dividends
- ---------
The Company has paid no cash 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.
6
<PAGE>
Options
- -------
In connection with the Asset Purchase Agreement with Bishop referred to in item
1, the Company agreed to grant a 120 day option to the common stockholders to
acquire common shares at $0.10 per share if certain events did not occur. As the
market price of the common during the exercise period was less than the exercise
price, management elected to forego the administrative cost of distributing the
options to the common shareholders. The option expired in April, 1999.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
The audited consolidated statements of operations and cash flows for the year
ended March 31, 1998 include the unconsolidated operations of Bishop Capital
Corporation using the equity method of accounting until it was distributed on
June 20, 1997. The following discussion and analysis should be read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto.
Results of Operations
- ---------------------
The Company's revenues were $18,000, a decrease of $640,000 for the fiscal year
ended March 31, 1999 from $658,000 in fiscal 1998. The Company had a net loss in
fiscal 1999 of $114,000 as compared to a net loss of $2,950,000 for fiscal 1998.
The 1999 decrease in the loss arose from the sale of the Company's producing
properties combined with the curtailment of operations. As further described
below, of the Company's $2,950,000 loss in 1998, $2,567,000 is represented by a
charge for impairment to the Company's proved reserves, and $95,000 represents
the Company's equity in the loss incurred by Bishop Capital Corporation, the
Company's subsidiary that was spun-off on June 20, 1997. All losses incurred by
Bishop during 1998 were funded from Bishop's operations and not from the
Company. In fiscal 1999 the Company sold its interests in its producing
properties in the DJ Basin and the Ohio River property realizing a gain of
$293,000. In fiscal 1998, the Company sold its interest in a producing property
in Louisiana, the Lake Hatch prospect, and realized a gain of $92,000 Investors
are urged to be cautious in considering the forward-looking statements contained
in this paragraph and elsewhere herein.
Fiscal 1999 Compared to Fiscal 1998
The Company's oil and gas sales decreased by $637,000 in fiscal 1999 due to the
sale of the bulk of the producing properties in the first quarter and the
remaining producing properties in the second quarter.
The production costs decreased $371,000 in fiscal 1999 compared to 1998 because
of the decreased oil and gas production.
General and administrative expenses increased approximately $89,000 in fiscal
1999 compared to 1998. The components of the change consist of reductions of
$97,000 in officer compensation, $112,000 in legal, accounting and consulting
fees, $18,000 in other compensation and payroll taxes, and $10,000 in other
miscellaneous expenses combined with an increase in the allowance for doubtful
accounts of $150,000.
7
<PAGE>
In fiscal 1998, the Company conducted a comprehensive review of its reserves as
a result of the unsuccessful drilling results of the Kentucky well and in
connection with the fiscal year end. The results of the reevaluation of the
Company's reserves, on a BOE equivalent basis, resulted in a 94% reduction of
proved developed and undeveloped reserves, of which 16% was attributable to the
Lake Hatch property sale. Upon completion of the reevaluation, the Company
recorded an impairment loss of $2,567,440 to reflect the fair value of the oil
and gas properties at March 31, 1998. There were no additional impairment losses
as the Company's producing properties were sold in fiscal 1999.
Depletion decreased by approximately $288,000 in fiscal 1999 compared to 1998.
The decrease principally arises because production was lower due to the sale of
the properties early in the fiscal year.
The Company did not incur a loss from its equity method of accounting for the
investment in Bishop Capital Corporation in 1999 because the Company completed
the spin off of Bishop on June 20, 1997.
The gain on the sale of oil and gas properties increased by $229,000 as one
property, the Lake Hatch property in Louisiana, was sold in 1998 and all of the
DJ Basin properties along with the Ohio River property were sold in fiscal 1999.
Deferred tax benefits decreased by $232,000 because the Company exhausted its
deferred tax benefits totaling $232,000 in 1998. The Company has recorded a full
valuation allowance for its deferred tax assets due to substantial uncertainty
of realization.
The production volumes and average sales prices for the years ended March 31,
1999 and 1998 were as follows:
1999 1998
---- ----
Oil production (Bbls) 269 17,039
Average sales price (per Bbl) $ 9.08 $ 17.05
Natural gas production (mcf) 13,000 197,864
Average sales price (per mcf) $ 2.10 $ 1.84
Production volumes decreased, 95% for gas and 98% for oil. Average prices of gas
increased and oil declined. The average sales price of crude oil decreased 47%
per barrel and gas increased 14% per MCF.
Financial Condition
- -------------------
At March 31, 1999, the Company's working capital deficit amounted to $16,000.
The Company is engaged in negotiations relative to a possible merger or similar
transaction. With no significant operations or producing assets, completion of a
business combination or similar transaction is essential to the Company's
ability to continue operations. These negotiations however, are preliminary in
nature and we can provide no assurance that they will be successful.
8
<PAGE>
The following summary table reflects comparative cash flows for the Company for
the two years ended March 31, 1999:
1999 1998
---- ----
Net cash used in operating activities $(330,000) $(229,000)
Net cash provided by investing activities 334,000 335,000
Net cash used in financing activities (1,000) (243,000)
Net cash used in operating activities increased in fiscal 1999 compared to
fiscal 1998 due to decreased costs and expenses associated with operating the
Company as it became inactive operationally. However, cash was utilized to
reduce payables incurred in 1998 for operating activities which resulted in an
increase in cash utilized in operating activities
Net cash provided by investing activities of $330,000 in fiscal 1999 principally
resulted from the sale of the DJ Basin and Ohio River properties, net of
proceeds used to retire existing debt.
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.
Year 2000 Issues
"Year 2000 problems" result primarily from the inability of some computer
software to properly store, recall or use data after December 31, 1999. These
problems may affect many computers and other devices that contain imbedded
computer chips. The Company's operations, however, do not rely extensively on
information technology ("IT") systems. The IT software and hardware systems the
Company operates are all publicly available, pre-packaged systems that are
readily replaceable with other functionally similar systems. Accordingly, the
Company does not believe that it will be materially affected by Year 2000
problems in its IT software and hardware systems.
The Company relies on non-IT systems that may suffer from Year 2000 problems
including telephone systems and facsimile and other office machines. Moreover,
the Company relies on third-parties that may suffer from Year 2000 problems that
could affect the Company's operations, including banks, and utilities. In light
of the Company's substantially reduced operations, the Company does not believe
that such non-IT systems or third-party Year 2000 problems will affect the
Company in a manner that is different or more substantial than such problems
affect other similarly situated companies generally. Consequently, the Company
does not currently intend to conduct a readiness assessment of Year 2000
problems or to develop a detailed contingency plan with respect to Year 2000
problems that may affect the Company's IT and non-IT systems or third-parties.
The foregoing is a "Year 2000 Readiness Disclosure" within the meaning of the
Year 2000 Information and Readiness Disclosure Act of 1998.
9
<PAGE>
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.
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
March 31, 1999:
Name Age Office
---- --- ------
Karlton Terry 45 Chairman of the Board, President and
Chief Executive Officer
Denis Bell 64 Director
Karlton Terry. Mr. Terry is a graduate of the University of Colorado with
postgraduate work at Brown University and has 17 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.
Denis Bell. Mr. Bell is executive chairman and a founding shareholder of
Rackwood Mineral Holdings PLC, a coal producing company in the United Kingdom.
He was appointed a director of Rackwood Mineral Holding PLC 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.
10
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No arrangement or understanding exists between any of the above officers and
directors pursuant to which any one of those persons were selected to such
office or position. None of the directors hold directorships in other companies
except as noted above.
b. Identification of Certain Significant Employees
Not applicable
c. Family Relationships
Not applicable
d. Involvement in Certain Legal Proceedings
Not applicable
e. Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who own more than 10% of the
outstanding Common Stock of the Company to file reports of ownership and changes
in ownership with the SEC and Nasdaq. Based solely on its review of the copies
of such reports received by it, or written representations from certain
reporting persons that no Forms 5 were required for those persons, the Company
believes that during fiscal 1999, 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, 1999, 1998 and 1997. No other
executive officer had total annual salary and bonus exceeding $100,000 for the
year ended March 31, 1999.
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation Awards
--------------------------------------- --------------------------
Name and Principal Other Annual Restricted Options
Position Year Salary Bonus Compensation Stock Award ($) SARS (#)
- ------------------ ---- --------- ----- ------------ --------------- --------
<S> <C> <C> <C> <C> <C> <C>
Karlton Terry 1999 $ 86,452 $ -- $ -- $ -- --
President, Chief 1998 $ 118,749 -- -- -- --
Executive Officer 1997 $ 125,000 -- -- -- --
and Director (1)
(1) Karlton Terry became Chief Executive Officer on December 8, 1995.
11
</TABLE>
<PAGE>
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, 1999, 1998 and 1997.
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,
1999.
c. Aggregated Option Exercise and Fiscal Year-End Option Value Table
There were no exercises of stock options by the Chief Executive Officer in
fiscal 1999. (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, 1999 and their values at such date. There are no SARs
outstanding at March 31, 1999.
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
- -------------------- ----------- ------------- ----------- -------------
Robert E. Thrailkill 120,000 -- -- --
(1) On March 31, 1999, the last reported bid price of the Common Stock as
quoted on the Nasdaq Bulletin Board was $0.03 per share. Value is
calculated on the basis of the difference between the option price and
$0.03 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 $1.31 (45,000 options). At
March 31, 1999, the last reported bid price was lower than the exercise
prices of $1.65 (25,000 options), $.68 (50,000 options) and $1.31 (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 1999 in addition
to or in lieu of the amounts stated above.
e. Employment Contracts and Termination of Employment and
Change-in-Control Arrangements.
In December 1995, the Company entered into an Executive Employment
Agreement (the "Agreement") with Karlton Terry, the Company's President. The
Agreement is for a three-year term and is renewable from year to year thereafter
unless previously terminated by either party. In efforts to reduce overhead, in
October 1997 the Agreement was modified to be effective January 1, 1998 for a
three-year term unless terminated earlier by either party. The modified
Agreement called for an annual salary reduction from $125,000 per year to
$100,000 per year and removed Mr. Terry's company car and club membership as
compensation. Effective January 1, 1999, Mr. Terry is to be compensated for his
services at the rate of $500.00 per day for the days worked for the Company.
This agreement expires December 31, 1999. Mr. Terry spends as much time as
required and has approximated three days per week since January 1, 1999.
12
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
- -----------------------------------------------------------------------
a. Security Ownership of Certain Beneficial Owners
The following table shows, as of March 31, 1999, 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:
Amount and Nature
Name and Address of of Beneficial Percent
Title of Class Beneficial Owner Ownership of Class
- -------------------- ---------------- --------- --------
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 1,034,353 (2) 14.2%
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) 15.2%
P.O. Box 9856
Rancho Santa Fe, CA 92067
Common Stock LMU & Company 480,000 (4) 13.3%
1200 17th Street, Suite 1000
Denver, CO 80202
Common Stock Robert E. Thrailkill 375,180 (5) 10.4%
716 College View Dr.
Riverton, WY 82501
Common Stock Haddon, Inc. 375,000 (6) 10.4%
c/o Coal Contractors
Gowen Mine
Fern Glen, PA 18241-2145
Common Stock Francarep, Inc. 275,000 (7) 7.6%
50 Av. des Champs-Elysees
75008 Paris, France
(1) Includes 1,228,457 shares owned directly, 250,000 shares owned by a
non-profit organization directed by Karlton Terry, 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%.
13
<PAGE>
(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 March 31, 1999, management's ownership of
the Company's Common Stock and Class B Common Stock:
Amount and Nature
Name and Address of Beneficial Percent
Title of Class of Beneficial Owner Ownership of Class
- -------------------- ------------------- --------- --------
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 Denis Bell 192,945 (2) 2.7%
700 East 9th Avenue, Suite 106
Denver, CO 80203
Class B Common Stock All officers and directors as a
group (two persons) 5,420,967 72.1%
Common Stock Denis Bell 375,000 (2) 10.5%
700 East 9th Avenue, Suite 106
Denver, CO 80203
Common Stock All officers and directors as a
group (two persons) 375,000 10.5%
(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) All shares are owned indirectly through Haddon, Inc., of which Mr.
Bell owns 100%.
Item 12. Certain Relationships and Related Transactions
- -------------------------------------------------------
a. Certain Relationships
On June 19, 1998 the Company loaned $150,000 to a Company that is
partially owned by a director, Denis Bell. The loan was due on March
31, 1999 and was extended until July, 1999 in consideration of an
extension fee of $12,500. The loan bears interest at the rate of 15%
and is now due September, 1999. The note is guaranteed by another
entity controlled by Denis Bell.
14
<PAGE>
b. Indebtedness of Management
Except a discussed in the preceding paragraph, no officer or director
of the Company has been indebted to the Company directly or indirectly
during fiscal year 1999 in an amount exceeding $60,000.
c. Transactions with Parent of Issuer
Not applicable
d. Transactions with Promoters
Not applicable
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)
15
<PAGE>
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)
10.11 Asset Purchase Agreement dated June 4, 1998, between American
Rivers Oil Company and Trinity Energy Corporation
10.12 Sale of Assets Agreement dated June 1, 1998, between American
Rivers Oil Company and Triad Energy Corp. of West Virginia, Inc.
10.13 Promissory note dated June 19, 1998, by Coal Contractors (1991),
Inc. and extension of promissory note dated March 25, 1999.
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
None
16
<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: July 14, 1999 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: July 14, 1999 /s/ Karlton Terry
-----------------
Karlton Terry
Chairman of the Board of Directors
(Principal Executive Officer)
Date: July 14, 1999 /s/ Denis Bell
--------------
Denis Bell
Director
17
<PAGE>
American Rivers Oil Company
and Subsidiaries
Consolidated Financial Statements
For the Years Ended
March 31, 1999 and 1998
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Independent Auditor's Report.................................................F-2
Consolidated Balance Sheet - March 31, 1999..................................F-3
Consolidated Statements of Operations -
For the Years Ended March 31, 1999 and 1998.............................F-4
Consolidated Statements of Changes in Stockholders' Equity -
For the Years Ended March 31, 1999 and 1998.............................F-5
Consolidated Statements of Cash Flows -
For the Years Ended March 31, 1999 and 1998.............................F-6
Notes to Consolidated Financial Statements...................................F-7
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, 1999, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
the years ended March 31, 1999 and 1998. 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 American Rivers Oil
Company and subsidiaries as of March 31, 1999, and the results of their
operations and their cash flows for the years ended March 31, 1999 and 1998, in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has incurred an accumulated deficit of $4.6
million, recurring net losses and negative cash flows from operating activities
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 3. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
HEIN + ASSOCIATES LLP
Denver, Colorado
June 13, 1999
F-2
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
ASSETS
------
CURRENT ASSETS:
<S> <C>
Cash and equivalents $ 2,974
Oil and gas properties held for sale 93,376
Prepaid expenses and other 1,077
-----------
Total current assets 97,427
OTHER ASSETS 3,527
-----------
TOTAL ASSETS $ 100,954
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 75,824
Accounts payable and accrued expenses 37,747
-----------
Total current liabilities 113,571
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' DEFICIT:
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 6,193,893
Related party note receivable, net of origination fee of $12,500, and
allowance for doubtful accounts of $150,000 --
Accumulated deficit (4,595,513)
Less treasury stock, at cost, 1,147,234 common shares (1,730,805)
-----------
Total stockholders' deficit (12,617)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 100,954
===========
See accompanying notes to these consolidated financial statements.
F-3
</TABLE>
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
MARCH 31,
--------------------------
1999 1998
---- ----
REVENUE:
Oil and gas sales $ 17,968 $ 655,398
Operator fees -- 2,578
----------- -----------
Total revenue 17,968 657,976
EXPENSES:
Oil and gas production costs 37,706 408,594
Exploration costs 5,303 5,124
General and administrative 386,466 475,381
Depreciation and depletion 9,210 296,804
Impairment of oil and gas properties -- 2,567,440
----------- -----------
Total expenses 438,685 3,753,343
----------- -----------
LOSS FROM OPERATIONS (420,717) (3,095,367)
OTHER INCOME (EXPENSE):
Gain on sale of oil and gas properties 292,838 92,451
Equity in loss of Bishop Capital Corporation -- (95,263)
Interest (expense) (3,056) (83,724)
Interest income 16,529 --
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (114,406) (3,181,903)
DEFERRED INCOME TAX BENEFIT -- 232,000
----------- -----------
NET INCOME (LOSS) $ (114,406) $(2,949,903)
=========== ===========
NET INCOME (LOSS) PER SHARE:
Common stock $ -- $ (.29)
=========== ===========
Class B common stock $ -- $ (.26)
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Common stock 3,606,000 3,614,000
=========== ===========
Class B common stock 7,268,000 7,268,000
=========== ===========
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' DEFICIT
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
Additional
Common Stock Class B Common Stock Paid-in
Shares Amount Shares Amount Capital
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
BALANCES, April 1, 1997 4,713,004 $ 47,130 7,267,820 $ 72,678 $ 7,797,203
Consummation of spin-off of Bishop -- -- -- -- (1,595,190)
Capital Corporation
Issuance of treasury stock for services -- -- -- -- (8,120)
Net loss -- -- -- -- --
----------- ----------- ----------- ----------- -----------
BALANCES, March 31, 1998 4,713,004 47,130 7,267,820 72,678 6,193,893
Purchase of treasury stock -- -- -- -- --
Net income -- -- -- -- --
----------- ----------- ----------- ----------- -----------
BALANCES, March 31, 1999 4,713,004 $ 47,130 7,267,820 $ 72,678 $ 6,193,893
=========== =========== =========== =========== ===========
(Table continues below)
Treasury Stock Accumulated
Shares Amount Deficit Total
------ ------ ------- -----
BALANCES, April 1, 1997 1,101,234 $(1,736,062) $(1,531,204) $ 4,649,745
Consummation of spin-off of Bishop -- -- -- (1,595,190)
Capital Corporation
Issuance of treasury stock for services (4,000) 6,320 -- (1,800)
Net loss -- -- (2,949,903) (2,949,903)
----------- ----------- ----------- -----------
BALANCES, March 31, 1998 1,097,234 (1,729,742) (4,481,107) 102,852
Purchase of treasury stock 50,000 (1,063) -- (1,063)
Net income -- -- (114,406) (114,406)
----------- ----------- ----------- -----------
BALANCES, March 31, 1999 1,147,234 $(1,730,805) $(4,595,513) $ (12,617)
=========== =========== =========== ===========
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,
--------------------------
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ (114,406) $(2,949,903)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and depletion 9,210 296,804
Bad debt expense 150,000 --
Impairment of oil and gas properties -- 2,567,440
Amortization of debt issuance costs -- 9,100
Equity in loss of Bishop Capital Corporation -- 95,263
Gain on sale of oil and gas properties (292,838) (92,451)
Deferred income tax benefit -- (232,000)
Issuance of treasury stock for services -- 1,800
Changes in operating assets and liabilities:
(Increase) decrease in:
Oil and gas sales receivable 80,877 33,290
Prepaid expenses and other 11,608 (6,874)
Increase (decrease) in:
Payable to Class B shareholder -- 9,989
Payable to related party (55,319) (6,106)
Accounts payable and accrued expenses (118,733) 44,760
----------- -----------
Net cash used in operating activities (329,601) (228,888)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment (22,787) (109,893)
Proceeds from sale of property and equipment 506,345 445,379
Advances under related party note receivable (150,000) --
----------- -----------
Net cash provided by investing activities 333,558 335,486
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings -- 22,525
Principal payments on borrowings -- (258,510)
Purchase of treasury stock (1,063) --
Private placement offering costs -- (6,800)
----------- -----------
Net cash used in financing activities (1,063) (242,785)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 2,894 (136,187)
CASH AND EQUIVALENTS, beginning of year 80 136,267
----------- -----------
CASH AND EQUIVALENTS, end of year $ 2,974 $ 80
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 3,035 $ 78,460
=========== ===========
Cash paid for income taxes $ -- $ --
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Debt incurred for acquisition of oil and gas properties $ -- $ 61,425
Consummation of spin-off of Bishop Capital Corporation -- 1,595,190
Repayment of borrowings from proceeds from sale of oil and gas
properties 540,000 --
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 were 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.
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
accompanying financial statements include the Company's interest in the
operating results of Bishop, accounted for under the equity method, through
June 20, 1997.
2. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Operations - The Company has been primarily engaged in the
exploration, development, and production of oil and natural gas in the
continental United States. Most of the Company's properties were located in
Colorado and along the Ohio River in West Virginia, Kentucky, and Indiana.
During 1998 and 1999, substantially all properties were sold. Management of
the Company is currently negotiating a merger whereby there would likely be
a change of control.
Principles of Consolidation - The accompanying financial statements include
the accounts of the Company and its wholly-owned subsidiaries, except for
Bishop which was 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.
Cash and Equivalents - The Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
F-7
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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 is recognized to reduce the
carrying value to the estimated fair value.
During the year ended March 31, 1998, the Company determined that certain
oil and gas properties were impaired and accordingly, an impairment charge
of $2,567,440 was recognized to reduce the properties to the estimated fair
value.
Assets held for sale were evaluated for impairment as of March 31, 1999.
However, no impairment provision was necessary since the estimated fair
value was in excess of the carrying value.
Income Taxes - Income taxes are provided for in accordance with Statement
of Financial Accounting Standards (SFAS) No. 109, Accounting for Income
Taxes. SFAS No. 109 requires an asset and liability approach in the
recognition of deferred tax liabilities and assets for the expected future
tax consequences of temporary differences between the carrying amounts and
the tax bases of the Company's assets and liabilities.
Revenue Recognition - Revenue from oil and gas sales is recorded on an
accrual basis as sales are made and deliveries occur.
F-8
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Earnings Per Share - Earnings per share is presented in accordance with the
provisions of SFAS No. 128 Earnings Per Share. SFAS No. 128 replaces the
presentation of primary and fully diluted earnings per share (EPS), with a
presentation of basic EPS and diluted EPS. Under SFAS No. 128, basic EPS
excludes dilution for potential common shares and is computed by dividing
income or loss applicable to common shareholders by the weighted average
number of common shares outstanding for the period. Diluted EPS reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock and
resulted in the issuance of common stock. Basic and diluted EPS are the
same in 1999 and 1998 as all potential common shares were antidulitive.
The computation of net loss per share is based on the rights of each class
of common stock. The Class B common stock was not entitled to participate
in any distribution of shares or assets of Bishop. Accordingly, through
June 20, 1997, 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 realization of the note receivable from a related
party, determination of the estimated fair value of oil and gas properties
held for sale, assumptions affecting the estimated fair value of
stock-based compensation, and oil and gas reserve quantities which were 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 are expected to change as future
information becomes available.
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 SFAS No. 123, Accounting for Stock-Based Compensation.
SFAS No. 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 SFAS No. 123 for employees, but is subject
to the related disclosure requirements.
F-9
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. CONTINUING OPERATIONS:
The accompanying consolidated 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. For the
years ended March 31, 1999 and 1998, the Company has incurred net losses of
$114,406 and $2,949,903, respectively. The Company's operating activities
have utilized cash in each of the past two years, and the Company has
incurred an accumulated deficit of approximately $4.6 million through March
31, 1999. The ability of the Company to continue as a going concern is
dependent upon the Company's ability to achieve profitable operations and
to raise sufficient capital to meet working capital requirements. The
Company is currently negotiating a merger which is integral to the
Company's ability to continue operations. The success of this merger cannot
be assured. In the event the merger is completed, there would likely be a
change in control of the Company.
4. INVESTMENT IN BISHOP:
As discussed in Note 1, prior to its spin-off in June 1997, Bishop was
being operated autonomously by the prior management of Metro pursuant to
the terms of separate Operating, Management, and Voting Agreements. Since
the Company did not exercise control over the wholly-owned subsidiary's
operations, the investment was accounted for by the equity method.
Following is a summary of condensed operating results pertaining to Bishop
prior to the spin-off.
Period From
April 1, 1997
Through
June 20, 1997
-------------
Revenue $ 82,132
Costs and expenses (213,445)
Gain on sale of marketable securities --
Other income (expense) 36,050
---------
Net loss $ (95,263)
=========
Company's equity in Bishop's loss $ (95,263)
=========
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.
F-10
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. INCOME TAXES:
In addition to the entities which are consolidated for financial reporting
purposes, the Company prepared a consolidated income tax return with Bishop
Capital Corporation through the June 20, 1997 spin-off.
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,
--------------------------
1999 1998
---- ----
Computed income tax benefit
at the statutory rate $ 39,000 $ 1,080,000
State income taxes and other 6,000 95,000
Allowance for bad debts (58,000) --
Tax depletion in excess of book
depletion and other 63,000 --
Change in valuation allowance (50,000) (943,000)
----------- -----------
Total $ -- $ 232,000
=========== ===========
Deferred tax assets and liabilities as of March 31, 1999 are comprised of
the following:
Asset:
Net operating loss carryforwards $ 990,000
Oil and gas properties 250,000
-----------
1,240,000
Liability:
Allowance for bad debts (40,000)
Less valuation allowance (1,200,000)
-----------
Net deferred tax asset $ --
===========
At March 31, 1999, the Company has net operating loss carryforwards for
income tax purposes of approxi mately $2,600,000 which expire primarily in
2009 through 2013. Due to the spin-off discussed in Note 1, the Company has
not recognized deferred tax assets related to net operating losses
attributable to Bishop.
6. LONG-TERM DEBT:
At March 31, 1999, 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 Company plans to sell the property
to which this obligation relates during the year ending March 31, 2000.
Accordingly, the entire balance of $75,824 is classified as a current
liability in the accompanying balance sheet.
F-11
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. COMMON STOCK:
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 Company's 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
Company did not comply with any of these conditions and the option was
required to be distributed in December 1998.
However, since fair value of the Company's common stock was substantially
less than the $.10 per share exercise price, management decided to forego
the administrative cost of distributing this option to the common
stockholders. Accordingly, this option expired in April 1999.
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 2 years from the date the associated shares are
registered. These shares have not been registered as of March 31, 1999.
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.
8. RELATED PARTY TRANSACTIONS:
At March 31, 1999, the Company has a note receivable of $150,000 due from
an entity in which a director of the Company has a significant ownership
interest. The note was amended on March 31, 1999 to extend the payment
terms and the maker agreed to pay a fee of $12,500 which is being amortized
over the extended term of the loan. The terms of the note, as amended,
provide for the payment of interest on a current basis at 15% with the
entire balance due in September 1999. The note is guaranteed by another
entity controlled by the director. This receivable arose as a result of
merger discussions with an entity owned by this director. However, the
merger discussions did not result in a definitive agreement. Management
believes that the receivable is fully collectible; however, management has
fully reserved the note in the accompanying balance sheet, due to the
uncertainties of collection.
F-12
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
9. COMMITMENTS AND CONTINGENCIES:
Leases - The Company leases its office facilities from a major stockholder
under a lease agreement that required monthly payments of $1,382 until
October 1998 and continued to lease this space on a month-to-month basis
thereafter. Total rent expense under all operating leases for the years
ended March 31, 1999 and 1998 amounted to $14,900 and $16,600,
respectively.
Employment Agreements - In October 1997, the Company entered into one-year
employment agreements with two officers which provided for annual payments
of $50,000 each. In the event of a termination by the Company without
cause, the Company was required to pay the officers' salary for one year.
In February 1998, two officers resigned from the Company, terminating the
remainder of the agreements in exchange for severance payments of $20,000
each.
Contingency - In connection with the private placement discussed in Note 7,
the Company sold 275,000 units to an entity that has asserted that it was
harmed by its inability to sell some or all of its shares of the Company's
common stock in 1997 because such shares were not registered for resale.
The entity has claimed that the Company agreed to register the shares of
common stock but failed to do so. In February 1999, the entity filed suit
in U.S. District Court against the Company and its President alleging
material, intentional and negligent misrepresentations. The entity is
seeking damages of $275,000 plus interest. Due to the preliminary nature of
this matter, the Company is not able to assess the likelihood of an
unfavorable outcome.
10. 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.
F-13
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of stock options granted under the 1995 Plan for
the years ended March 31, 1999 and 1998:
1999 1998
-------------------- -------------------
Weighted Weighted
Average Average
Number Exercise Number Exercise
of Shares Price of Shares Price
--------- ----- --------- -----
Outstanding, beginning of year 505,000 $ 1.15 505,000 $ 1.15
Expired (45,000) 1.38 -- --
------- -------
Outstanding, end of year 460,000 $ 1.13 505,000 $ 1.15
======= =======
At March 31, 1999, all outstanding options were vested. If not previously
exercised, options outstanding at March 31, 1999, will expire as follows:
Year Ending March 31,
Exercise Price ------------------------------
Per Share 2000 2001 Total
--------- ---- ---- -----
$1.00 - 400,000 400,000
2.00 60,000 - 60,000
------ ------- -------
60,000 400,000 460,000
====== ======= =======
Other Plans - In prior years, the Company adopted two other stock option
plans under which options have been or may be granted to officers,
employees, and non-employee members of the Board of Directors. Under these
two plans, options granted may be either incentive stock options or
nonqualified stock options and are granted at not less than the fair market
value of the stock at the time of grant. One of the plans expired in
January 1992. In November 1995, the stockholders of the Company approved an
increase in the number of shares reserved for issuance under the other plan
to 500,000 shares. No options were granted, expired, canceled, or exercised
during the years ended March 31, 1999 and 1998 At March 31, 1999, options
for 175,000 shares were outstanding at a weighted average exercise price of
$1.09 per share.
F-14
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All of these options were exercisable at March 31, 1999. If not previously
exercised, options outstanding at March 31, 1999, 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 7 and options for 275,000 shares were
granted in connection with the private placement completed in November
1996.
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. For 1999 and 1998, there were no options
granted and accordingly, pro forma information is not presented.
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, 1999, 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 year 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, 1999 and 1998.
11. FINANCIAL INSTRUMENTS:
SFAS No. 107 requires all entities to disclose the fair value of certain
financial instruments in their financial statements. Accordingly, at March
31, 1999, management's best estimate is that the carrying amount of cash,
receivables, notes payable, accounts payable and accrued expenses
approximates fair value due to the short maturity of these instruments.
Management estimates that the fair value of the non-recourse production
payment obligation (included in long-term debt) is less than $1,000
compared to the carrying value of $75,824.
F-15
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 1999 and 1998:
1999 1998
---- ----
Property acquisition costs $ -- $ 61,000
Development costs -- 110,000
Exploration costs 5,000 5,000
-------- --------
Total $ 5,000 $176,000
======== ========
Results of Operations from Oil and Gas Producing Activities - Results of
operations from oil and gas producing activities (excluding operator fees,
general and administrative expense, and interest expense) for the years
ended March 31, 1999 and 1998 are presented below.
1999 1998
---- ----
Oil and gas sales $ 18,000 $ 655,000
Gain on sale of oil and gas properties 293,000 92,000
Production costs (38,000) (409,000)
Exploration costs (5,000) (5,000)
Depletion and depreciation (9,000) (296,000)
Impairment of oil and gas properties -- (2,567,000)
Imputed income tax benefit -- 232,000
----------- -----------
Results of operations from oil and gas
producing activities $ 259,000 $(2,298,000)
=========== ===========
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 prepared by the Company's independent petroleum engineer. All
proved reserves of oil and gas at March 31, 1998 are located in the United
States. There were no proved oil and gas reserves at March 31, 1999. The
following tables present estimates of the Company's net proved oil and gas
reserves, and changes therein for the years ended March 31, 1999 and 1998.
F-16
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Changes in Net Quantities of Proved Reserves (Unaudited)
1999 1998
------------------------ ------------------------
Oil Gas Oil Gas
(bbls) (mcf) (bbls) (mcf)
------ ----- ------ -----
<S> <C> <C> <C> <C>
Proved reserves, beginning of year 65,000 1,148,000 1,361,000 4,542,000
Purchase of minerals in place -- -- 2,000 33,000
Sales of minerals in place (57,000) (1,135,000) (93,000) (160,000)
Revisions of previous estimates (8,000) -- (1,188,000) (3,069,000)
Production -- (13,000) (17,000) (198,000)
---------- ---------- ---------- ----------
Proved reserves, end of year -- -- 65,000 1,148,000
========== ========== ========== ==========
Proved developed reserves, beginning
of year 65,000 1,148,000 368,000 3,250,000
========== ========== ========== ==========
Proved developed reserves, end of year -- -- 65,000 1,148,000
========== ========== ========== ==========
</TABLE>
Standardized Measure of Discounted Future Net Cash Flows (Unaudited) - SFAS
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.
F-17
<PAGE>
AMERICAN RIVERS OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following summary sets forth the Company's future net cash flows
relating to proved oil and gas reserves as of March 31, 1999 and 1998 based
on the standardized measure prescribed in Statement of Financial Accounting
Standards No. 69.
1999 1998
---- ----
Future cash inflows $-- $ 3,099,000
Future production costs -- (2,018,000)
Future development costs -- --
Future income tax expense -- --
--- -----------
Future net cash flows -- 1,081,000
10% annual discount for estimated timing of cash flow -- (373,000)
--- -----------
Standardized measure of discounted future net cash flows $-- $ 708,000
=== ===========
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, 1999 and 1998:
1999 1998
---- ----
Standardized measure, beginning of year $ 708,000 $ 7,794,000
Sale of oil and gas produced,
net of production costs 20,000 (247,000)
Acquisition of reserves in place -- 57,000
Sale of minerals in place (675,000) (479,000)
Net changes in prices and production costs -- (6,815,000)
Net changes in estimated development costs -- 1,320,000
Revisions of previous quantity estimates (53,000) (5,331,000)
Accretion of discount -- 779,000
Changes in income taxes, net -- 3,630,000
----------- -----------
Standardized measure, end of year $ -- $ 708,000
=========== ===========
F-18
ASSET PURCHASE AGREEMENT
BETWEEN
AMERICAN RIVERS OIL COMPANY,
a Wyoming corporation
AND
TRINITY ENERGY CORPORATION,
a Colorado corporation
<PAGE>
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement is made and entered into this 4th day of June,
1998 by and between AMERICAN RIVERS OIL COMPANY, a Wyoming corporation
("Seller") and TRINITY ENERGY CORPORATION, a Colorado corporation (the
"Purchaser").
BACKGROUND
Seller is the owner of certain assets which Seller desires to sell and transfer
to Purchaser and Purchaser desires to purchase and receive from Seller for the
consideration and upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, for and in consideration of the promises and of the mutual
agreements hereinafter set forth, the parties hereto agree as follows:
Section 1. Transfer of Assets. Upon and subject to the terms and conditions set
forth in this Agreement, Seller hereby agrees to transfer, convey and assign to
Purchaser on the date provided in Section 2 hereof, free and clear of all liens
and pledges of every kind, character, and description whatsoever, and Purchaser
agrees to purchase and acquire from Seller on the said date, the Interests (as
"Interests" are defined in Section 1.1 of this Agreement).
1.1 Interests Defined. As used herein, the term "Interests" means the aggregate
of all right, title and interest owned by Seller in, to and under the following:
(a) The oil, gas and mineral leases and the operating rights, mineral interests,
royalty interests, overriding royalty interests, payments out of production and
interests in or under unit agreements described in Exhibit A (the "Leases"),
insofar as the Leases cover and relate to the lands and depths also described in
Exhibit A (the "Land");
(b) All other contracts, (including but not limited to operating agreements, gas
purchase contracts and crude oil purchase contracts) agreements, leases,
licenses, permits, easements and orders in any way relating to the Leases or the
Land, the operations conducted or to be conducted thereon, or the production,
treatment, sale or disposal of hydrocarbons or water produced therefrom or
attributable thereto;
(c) All wells (including, without limitation, disposal, supply or injection
wells), personal property, fixtures (including, without limitation, plants,
gathering systems, pipelines, compressors and dehydration and other treatment
facilities), equipment (including, without limitation, inventory and supplies)
and improvements as of the date of execution of this Agreement and as of the
Closing Date located on the Leases or the Land, or upon lands pooled or unitized
therewith, or upon lands covered by said agreements, licenses or easements, or
used or obtained in connection therewith or with the operation or maintenance
thereof or with the production, treatment, sale or disposal of hydrocarbons or
water produced therefrom or attributable thereto, and all original books, files,
seismic records and tapes (to the extent Seller may convey ownership or rights
concerning the use of same), other records and information of Seller (including
without limitation all land, geological geophysical and accounting files and
records) pertaining in any way to the Interests.
<PAGE>
1.2 Limited Assumption of Liabilities. Buyer shall assume and discharge as they
become due, the liabilities and obligations accruing from and subsequent to the
Closing Date pursuant to the Leases, the contracts, agreements, leases,
licenses, permits, easements and orders, and the wells, all as more fully
defined at Section 1.1 as the Interests, and no others, excluding any such
liability arising due to the nonfeasance or malfeasance of Seller, or due to a
breach of such instruments by Seller prior to Closing.
Section 2. The Closing. The sale and purchase provided in this Agreement shall
be consummated at a closing to be held at the offices of Astrella & Rice,
Denver, Colorado at 9:00 A.M., local time, on the 4th day of June, 1998, or at
such other place, time, and date as the parties hereto shall mutually agree
upon. The date and event of the sale and purchase are, respectively, hereinafter
referred to as the "Closing Date" and the "Closing."
Section 3. Payment of Consideration.
3.1 Basic Amount. The purchase price for the Interests, subject to adjustment as
provided in this section, shall be Nine Hundred Thousand Dollars ($900,000.)
(the "Purchase Price"), which shall be paid to Seller on the Closing Date in
immediately available funds.
3.2 Adjustments in Purchase Price. The Purchase Price shall be decreased by an
amount equal to the proceeds received by the Seller for the sale of hydrocarbons
produced and sold from the oil and gas properties owned by the Seller since the
chart changing, which occurred on or about March 1, 1998, net of all applicable
taxes and royalties not reimbursed to the Seller by a purchaser of such
hydrocarbons. The adjustment shall be made by check on or before August 4, 1998
3.3 Allocation of Purchase Price. The Purchase Price shall be allocated as set
forth in Schedule 3.3 attached hereto.
3.4 Closing Statement. Seller shall deliver to Purchaser not less than two
business days before the Closing Date a statement in the form attached hereto as
Exhibit 3.4 (the "Closing Statement") setting forth the adjustments to the
Purchase Price provided in Section 3.2. The Closing Statement shall be prepared
in accordance with customary accounting principles used in the oil and gas
industry.
Section 4. Closing Documents.
4.1 Documents to be Delivered by the Seller. Seller agrees to deliver to the
Purchaser at the Closing the following which shall be in form and substance
satisfactory to Purchaser and its counsel:
A. Such bills of sale, deeds, assignments, and executed counterparts of
assignment and assumption agreements, as shall be reasonably necessary, to
transfer to Purchaser all of the Interests, together with written consents of
all parties whose consent to such assignment is required.
<PAGE>
B. A certificate executed by Seller pursuant to Section 10.12 of this Agreement;
C. All of the Seller's books and records and other data relating to the
Interests:
D. A copy, certified as of the date of the Closing by the Secretary of the
Seller, of the resolutions of the Seller's Board of Directors and the Seller's
shareholders, respectively, authorizing the execution, delivery and performance
of this Agreement and the related documents; and
E. Incumbency certificates, dated the date of Closing, executed by the Secretary
of the Seller, which shall certify by name and title and bear the signature of
the officers of the Seller, respectively, authorized to sign this Agreement and
the related documents.
4.2 Documents to be Delivered by Purchaser. Purchaser agrees to deliver to
Seller at the Closing the following documents which shall be in form and
substance satisfactory to the Seller, and its counsel:
A. The Purchase Price;
B. A certificate by Purchaser pursuant to Section 11.2 of this Agreement;
C. A copy, certified as of the date of Closing by the Secretary of Purchaser, of
the resolutions of the Purchaser's Board of Directors, authorizing the
execution, delivery and performance of this Agreement and the related documents;
and
D. An incumbency certificate, dated the date of the Closing, executed by the
Secretary of Purchaser, which shall certify by name and title and bear the
signature of the officers of Purchaser authorized to sign this Agreement and the
related documents.
Section 5. Access to Properties and Records. From and after the date of this
Agreement, Seller shall afford to the officers, attorneys, accountants, and
other authorized representatives of Purchaser free and full access to the wells,
equipment, properties, books and records of the Seller relating to the Interests
in order that Purchaser may have full opportunity to make whatever investigation
it shall desire of the Interests, provided that the investigation shall not
unreasonably interfere with the operations of the Seller.
Section 6. Representations and Warranties of Seller. Seller represents and
warrants unto Purchaser that as of the date hereof:
6.1 Due Organization. Seller is a corporation duly organized and in good
standing under the laws of the State of Wyoming. Seller has the power to own its
properties and assets and to carry on its business as now conducted, and is duly
qualified to do business and is in good standing in every jurisdiction in which
the nature of its business makes proper qualification necessary.
<PAGE>
6.2 Authority. Seller has full corporate power and authority to execute and
deliver this Agreement and to perform all of its obligations hereunder in
accordance with the terms hereof; all necessary corporate action to authorize
this Agreement and the consummation of the transactions contemplated hereby on
the part of Seller has been duly and effectively taken, including without
limitation, the approval thereof by the Board of Directors of Seller; and this
Agreement constitutes the valid and binding obligation of Seller enforceable in
accordance with its terms.
6.3 Intentionally left blank.
6.4 Real Estate and Mineral Leases. Seller has good and marketable title to the
Interests. The Seller is, to the extent described in Schedules 6.4 and 6.5,
lessee or holder under the real estate leases, oil and gas leases, including but
not limited to leases included within all drilling pools and units,
rights-of-way and easements which are included among the Interests, all of which
real estate leases, oil and gas leases, rights-of-way and easements are
described on Schedule 6.4. The Seller now enjoys and on the Closing Date will
enjoy quiet and undisturbed possession under each of said leases, rights-of-way
and easements to the extent described in Schedule 6.4 and 6.5. The Seller is
vested with good and marketable title to each of said real estate leases, oil
and gas leases, rights-of-way and easements.
6.5 Wells. Schedule 6.5 contains a true, correct and complete list of all oil
and gas wells in which the Seller has an interest which are among the Interests,
including the percentage and type of interest therein.
6.6 Intentionally left blank.
6.7 Physical Condition of Operating Interests. All of the owned and leased real
estate included in the Interests and the structures erected thereon and all of
the owned and leased tangible personal property included in the Interests are
accepted by Buyer as is. Seller makes no representations as to the condition of
the equipment and fixtures.
6.8 Intentionally left blank.
6.9 Intentionally left blank.
6.10 Processing, Sale and Transportation of Production. Except as described in
Schedule 6.10, the Seller has not produced or sold gas subject to balancing
rights of third parties (including without limitation other owners of interests
in the Land and purchasers of production therefrom) or subject to balancing
duties under governmental requirements, and the Seller is not obligated by
virtue of any prepayment made under any production sales contract or any other
contract containing a take-or-pay clause, or under any similar arrangement, to
deliver oil, gas or other minerals produced from or allocated to any of the
Interests at any time after the Effective Time without receiving full payment
therefor at the time of delivery. Except as described in Schedule 6.10, the
Seller has not collected any proceeds from the sale of hydrocarbons produced
from the Interests which are subject to refund. Except as set forth in Schedule
6.10, proceeds from the sale of oil, gas and natural gas liquids from the
<PAGE>
Interests are being received by the Seller in a timely manner and are not being
held in suspense for any reason. Seller has described in Schedule 6.10 and made
available to Purchaser for examination all contracts and agreements (other than
routine division orders terminable by the Seller upon less than sixty (60) days'
notice) pursuant to which hydrocarbons produced from the Interests are treated,
compressed, sold, transported, processed or otherwise disposed of or marketed.
Except as disclosed in Schedule 6.10, no person has any call upon, option to
purchase or similar rights with respect to the Interests or to the production
therefrom.
6.11 Environmental Matters. Except as disclosed in Schedule 6.11, the Seller, to
the best of Seller's knowledge, with respect to its respective ownership or
operation of the Interests (i) is currently in compliance with all applicable
environmental laws, (ii) has not materially violated any applicable
environmental law in effect prior to the date hereof, (iii) is unaware of any
present requirements of any applicable environmental law which is due to be
imposed which will increase its cost of complying with the environmental laws.
As used in this Agreement, the terms (i) "Environmental Laws" include but are
not limited to any federal, state or local law, statute, charter or ordinance,
and any rule, regulation, binding interpretation, binding policy, permit, order,
court order or consent decree issued pursuant to any of the foregoing, which
pertains to, governs or otherwise regulates any of the following activities,
including without limitation (a) the emission, discharge, release or spilling of
any substance into the air, surface water, groundwater, soil or substrata; (b)
the manufacturing, processing, sale, generation, treatment, storage, disposal,
labeling or other management of any waste, hazardous substance or hazardous
waste, and (ii) "Hazardous Substance" and "Hazardous Waste," include any
substance defined as such by an applicable environmental law.
6.12 Regulatory Jurisdiction. Neither the ownership nor the operation of the
Interests by the Seller is currently subject to certificate authority or rate
regulation under the Natural Gas Act or the Natural Gas Policy Act as an
interstate pipeline, natural gas company, marketing affiliate or other federally
jurisdictional entity, nor subject to certificate authority or rate regulation
under the applicable law of the State of Colorado as a public utility.
6.13 No Adverse Changes. Except as set forth on Schedule 6.13 hereto, since
March 1, 1998, there has not been:
(a) any mortgage or pledge of, or creation of any lien, pledge, charge, security
interest or encumbrance respecting the Interests, except for liens of current
property taxes not yet due and payable;
(b) any damage, theft, destruction or casualty loss, whether or not covered by
insurance, adversely affecting the Interests;
(c) any sale, lease, transfer or assignment of the Interests;
(d) any loss, waiver or release of any material rights of the Seller with
respect to the Interests, whether or not in the ordinary course of business or
consistent with past practice;
<PAGE>
(e) the negotiation or execution of any arrangement, agreement or understanding
with respect to the Interests to which the Seller is a party which cannot be
terminated on notice of thirty days or less without cost or penalty; and
(f) any other transaction, contract or commitment entered into by the Seller
with respect to the Interests otherwise than in the ordinary course of business.
6.14 Claims or Litigation. Except as disclosed in Schedule 6.14, there is
neither any suit, action, claim, investigation or other proceeding pending or
threatened before any court or governmental agency, board, department,
commission, bureau, or instrumentality (including but not limited to any
federal, state, local or foreign governmental agency or body concerned with the
control of foreign exchange, energy, environmental protection or pollution
control, franchising or other distribution arrangements, antitrust or trade
regulation, civil rights, labor or discrimination, safety or health, zoning or
land use), against the Seller or, to the best knowledge and belief of Seller,
any state of facts existing which could give rise to any such proceedings; and
Seller is not in violation of any order, decree or judgment of any court or
arbitration tribunal or governmental board, department, commission, bureau,
instrumentality or agency which would adversely affect the Interests.
6.15 Compliance with Laws. The Seller has complied in all material respects with
all applicable laws, statutes, rules and regulations and orders of federal,
state, local and foreign governments and governmental agencies applicable to it
and its business, assets, properties and operations and no claim of violation
(or basis therefor) of any such laws or regulations exists on the date hereof.
6.16 Intentionally left blank.
6.17 Intentionally left blank.
6.18 Consents and Approvals. Except as set forth on Schedule 6.18 hereto, there
are no authorizations, consents, approvals or notices required to be obtained or
given by the Seller or waiting periods required to expire, in order that the
Interests be transferred to Purchaser and otherwise that this Agreement and the
transactions provided for herein may be consummated by Seller.
6.19 Disclosure. The Seller has disclosed all material facts relating to the
Interests of which Seller, its officers and/or directors has knowledge including
business conditions (financial and otherwise) and operations of the Seller in
this Agreement (including the Schedules hereto). Neither this Agreement nor any
other document, certificate, exhibit, statement, or schedule furnished or to be
furnished by or on behalf of the Seller to Purchaser in connection with the
transactions contemplated hereby contains or will contain any untrue statement
of a material fact of which Seller, its officers and/or directors has knowledge,
or omits or will omit to state a material fact of which Seller, its officers
and/or directors has knowledge, necessary to make the factual statements
contained therein, in light of the circumstances under which made, not
misleading.
<PAGE>
6.20 Conflicts. The execution and delivery of this Agreement by Seller does not,
and the consummation of the transactions contemplated by this Agreement shall
not, (a) violate or be in conflict with, or require the consent of any person or
entity under any provision of the governing documents of the Seller, (b)
conflict with, result in a breach of, or constitute a default (or an event that
with the lapse of time or notice, or both would constitute a default) under any
agreement or instrument to which Seller is a party, (c) violate any provision of
or require any consent, authorization or approval under any judgment, decree,
judicial or administrative order, award, writ, injunction, statute, rule or
regulation applicable to Seller, or (d) result in the creation of any lien,
charge or encumbrance on any of the Interests.
6.21 Enforceability. This Agreement has been duly executed and delivered by
Seller and constitutes its legal, valid and binding obligation, enforceable in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, reorganization or moratorium statutes, or other similar laws
affecting the rights of creditors generally or equitable principles
(collectively, "Equitable Limitations"). At the Closing all documents and
instruments required hereunder to be executed and delivered by Seller shall be
duly executed and delivered and shall constitute its legal, valid and binding
obligations enforceable in accordance with their terms, except as enforceability
may be limited by Equitable Limitations.
Section 7. Representations and Warranties of Purchaser. Purchaser represents and
warrants unto Seller that:
7.1 Due Organization. Purchaser is a corporation duly organized and existing and
in good standing under the laws of the State of Colorado.
7.2 Authorization. Purchaser has full power, in accordance with law, to execute
and perform this Agreement, and such execution and performance does not conflict
with any charter or bylaw provision of the Purchaser or with any contract to
which Purchaser is a party, or to which it is subject. The Board of Directors of
the Purchaser has authorized, or before the Closing shall have authorized, this
Agreement, the transactions contemplated herein, and their execution by the
Purchaser.
7.3 Enforceability. This Agreement has been duly executed and delivered on
behalf of Purchaser, and constitutes a legal, valid and binding obligation of it
enforceable in accordance with its terms, except as enforceability may be
limited by Equitable Limitations. At the Closing all documents required
hereunder to be executed and delivered by Purchaser shall be duly executed and
delivered and shall constitute legal, valid and binding obligations of Purchaser
enforceable in accordance with their terms, except as enforceability may be
limited by Equitable Limitations.
7.4 Conflicts. The execution and delivery of this Agreement by the Purchaser
does not, and the consummation of the transactions contemplated by this
Agreement shall not, (a) violate or be in conflict with, or require the consent
of any person or entity under any provision of the Purchaser's Certificate of
Incorporation, bylaws or other governing documents, (b) conflict with, result in
a breach of, constitute a default (or an event that with the lapse of time or
notice, or both, would constitute a default) under any agreement or instrument
<PAGE>
to which Purchaser is a party or is bound, or (c) violate any provision of or
require any consent, authorization or approval under any judgment, decree,
judicial or administrative order, award, writ, injunction, statute, rule or
regulation applicable to Purchaser.
7.5 Available Funds. Purchaser will have available at Closing sufficient funds
to enable Purchaser to pay in full the Purchase Price, as adjusted, in
immediately available funds.
Section 8. Survival of Representations and Warranties. The liability of Seller
and Purchaser under each of their respective representations and warranties
contained in this Agreement shall survive the Closing and execution and delivery
of the assignments contemplated hereunder, subject to the limitations contained
in Section 11.1; provided, however, that notwithstanding any other provisions of
this Agreement, representations and warranties made with respect to taxes shall
survive throughout the applicable statute of limitations period(s) for such
taxes. No investigation, verification, or approval by any party hereto or by
anyone on behalf of any of such parties shall limit or affect Purchaser's right
to rely upon the representations, warranties, covenants and agreements of Seller
set forth in this Agreement.
Section 9. Additional Agreements of the Parties.
9.1 Examination of Title; Title Defects.
From the date hereof to the Closing Date, Seller shall provide Purchaser full
opportunity to examine the Interests, including but not limited to examining the
following to the extent that such materials are in the possession of or
available to Seller:
(a) All title opinions and reports pertaining to the Interests;
(b) All abstracts of title and status reports pertaining to the Interests;
(c) All documents comprising the Interests, prior conveyances of interests
therein or interests created thereby, unitization, communitization, pooling and
operating agreements, division and transfer orders, mortgages, deeds of trust,
security agreements, financing statements and other instruments of encumbrance,
together with all other contracts and documents affecting the title to or the
value of the Interests;
(d) All spacing, pooling, unitization, exception, allowable and other orders of
any local, state or Federal court, agency, commission or other regulatory
authority in any way relating to the Interests or the operation thereof;
(e) The payment of delay rentals, shut-in royalties, royalties and other
payments due under the Interests;
(f) The payment of ad valorem, property, business and occupation, production,
severance and similar taxes and assessments based on or measured by the
ownership of property or the production or removal of hydrocarbons or the
receipt of proceeds therefrom attributable to the interests;
<PAGE>
(g) All ownership maps and surveys relating to the Interests and the lands
affected thereby;
(h) All lease records, production records and data sheets relating to the
Interests and to bonuses, delay rentals, shut-in royalties and royalties payable
thereunder;
(i) All division and transfer orders and all purchase, sale, gathering,
processing, exchange, transportation and similar agreements relating to the
sale, treatment, transportation or marketing of production from the Interests;
(j) All bonds, insurance policies, leases, permits, easements, licenses, salt
water disposal agreements, gas balancing agreements, pumping or pumper's
agreements and other agreements in any way relating to the Interests or the
operation thereof;
(k) All records relating to the inventory of all personal property and fixtures
included in the Interests;
(l) All records pertaining to the billing for and payment of costs and expenses
attributable to the Interests;
(m) All regulatory filings relating to the Interests, including without
limitation, all applications and determinations under the Natural Gas Policy Act
of 1978 ("NGPA"); and
(n) All other records, files, reports and documents in Seller's possession
pertaining to the Interests as Purchaser reasonably may request.
A "Title Defect" shall be deemed to include any lien, claim, defect, encumbrance
or deficiency such that the Seller does not have good and marketable title to a
particular item of the Interests, or such that the net revenue interests of the
Seller are otherwise less than, or the working or cost bearing interests of the
Seller are otherwise more than those set forth in Exhibit A, provided, no
Permitted Encumbrance shall constitute a Title Defect. "Permitted Encumbrances"
are, except as otherwise provided herein, comprised of (i) matters described
without material omission in Exhibits and Schedules attached hereto, (ii)
royalties, overriding royalties, production payments and other burdens on
production which do not reduce the net revenue interest of an item of the
Interests to less than the interests set forth in Exhibit A, (iii) liens for
taxes, labor and materials where payment is not due, (iv) regulatory authority
of governmental agencies not presently or previously violated, easements,
surface leases and rights, plat restrictions, contractual burdens and similar
encumbrances, provided that they do not detract from the value or increase the
cost of operation of any item of the Interests, and (v) regulatory filings with
and consents by regulatory authority if they are customarily obtained subsequent
to the sale or conveyance.
9.2 Environmental Audit; Environmental Defects. Purchaser may at its sole cost
and discretion perform, or may have a third party perform prior to Closing, an
environmental audit of the Interests to determine if there exist any conditions
attributable to the Interests which violate any laws, rules, orders, regulations
or statutes of any Federal, state, local or provincial agency with respect to
any waste material or hazardous substances on or included with the Interests or
the presence, disposal, release or threatened release of waste material or
<PAGE>
hazardous substance from the Interests into the atmosphere or into or upon land
or any water course or body of water including ground water ("Environmental
Defect"). The results of any environmental audit will be provided to Seller.
9.3 Notification of Defects. Purchaser shall from time to time upon discovery,
but in no event later than three (3) days prior to Closing, notify Seller in
writing of any Title Defects or Environmental Defects discovered by Purchaser
with respect to the Interests. If Purchaser's title examination and/or
environmental audit reveal items of the Interests having an aggregate diminution
in value due to Title Defects and/or Environmental Defects of five percent (5%)
or more of the adjusted Purchase Price due at Closing, then, if such defect(s)
are not cured to the reasonable satisfaction of Purchaser prior to the Closing
Date, Purchaser shall have the right to terminate this Agreement in its
entirety.
9.4 Delivery of Books and Records. Seller shall deliver to Purchaser, as soon as
practicable after the Closing Date (but in no event more than thirty (30) days
after the Closing Date), all original, unrestricted books, files, records and
other information of Seller (including, without limitation, all land,
geological, geophysical and applicable accounting files, records and other
material) relating to the Interests, or copies thereof at Purchaser's expense.
For a period of three (3) years after the Closing Date, Purchaser shall permit
Seller reasonable access to such files and records.
9.5 Transfer of Operations. Seller shall use all reasonable efforts to cause the
Purchaser, its successors and assigns, to be and remain the designated operator
under applicable contracts and regulatory orders of all Wells, units and
properties included in the Interests.
9.6 Insurance and Bonds. Seller will, at its expense, maintain in full force and
effect until the Closing Date, all policies of insurance and all surety and
other bonds to which the Seller is a party with respect to the Interests. To
Seller's knowledge, such policies provide adequate coverage in adequate amounts
to insure the Interests in accordance with practices in the industry.
9.7 Further Assurances. From time to time (whether at or after Closing), as and
when requested by the other, Seller and Purchaser or their successors or assigns
will execute, acknowledge and deliver all such instruments and documents and
take such other action as such parties may reasonably deem necessary or
desirable in order to more effectively consummate the transactions contemplated
hereby and to transfer to Purchaser the Interests.
9.8 Condemnation, Casualty Loss or Claims. If, after the execution of this
Agreement, and prior to the Closing Date, any item of the Interests is damaged
or destroyed by fire or other casualty, is taken under the right of eminent
domain, or proceedings for such purposes are pending or threatened, or if any
item of the Interests is made the subject of any pending or threatened suit,
action or other proceeding before any court or governmental agency, then the
existence of such a circumstance shall be treated as if the item of the
Interests affected thereby were subject to a Title Defect; provided, if
Purchaser shall elect to waive such defects affected by damage, destruction or
other casualty, or taken under eminent domain, then all sums paid to Seller by
reason of the damage, destruction or taking of such item of the Interests, and
<PAGE>
all of the right, title and interest of the Seller in and to any unpaid awards
or other payments from third parties, and any claims, causes of action or
demands against third parties, arising out of such damage, destruction, taking
or pending or threatened taking, shall be assets of the Seller included within
the Interests to which Purchaser shall be entitled. Prior to the Closing Date,
Seller shall not voluntarily compromise, settle or adjust any such rights to
awards or other payments, or any such claims, causes of action or demands
without the prior written consent of Purchaser.
9.9 Consents, Preferential Rights to Purchase. Promptly after execution hereof
the Seller will proceed diligently to solicit any consents to the transfers
contemplated hereby which are required to be obtained from third parties and
will give all notices required by existing contracts with respect to
preferential rights to purchase on the part of third parties and to obtain
waivers of such preferential rights. Properties subject to Preferential Rights
are listed on Schedule 9.9. Any item of the Interests which requires the consent
of a third party for transfer where such consent cannot be obtained prior to the
Closing Date (other than routine consents required in connection with Federal,
state and Indian leases), or which is subject to a preferential right to
purchase which has not expired and has not been waived prior to the Closing
Date, may, at Purchaser's option, be treated as an excluded interest, and the
Purchase Price shall be adjusted downward by the agreed values of each such
items of the Interests. The form of notice to preferential rights holders, if
any are required, is attached hereto and made a part hereof as part of Schedule
9.9. Promptly upon receipt of any written communication from a preferential
rights holder or a party whose consent is required, in response to the Seller's
said notices, Seller shall give notice thereof by forwarding such responses by
facsimile transmission to Purchaser at Trinity Energy Corporation, Attention:
Karl Kimmich, fax number (412) 444-7502 and to Sherrard, German and Kelly, P.C.,
fax number (412) 261-6221, Attention: Joseph L. Robinson.
Section 9.10 Release of Claims. Seller, on behalf of itself and its officers,
directors, successors and assigns, upon the transfer of the Interests to
Purchaser by having closed the sale of the Interests hereunder, shall be deemed
conclusively to have released Purchaser and waived any and all claims, suits,
actions, causes of action or any other claims of any nature whatsoever against
Purchaser arising from or related to Purchaser's operation of the Interests
prior to Closing, including but not limited to those claims set forth in the
letters of Seller's legal counsel to Purchaser dated April 15, 1998 and April
21, 1998, copies of which letters are attached hereto as Schedule 9.10.
Section 10. Conditions to Obligations of Purchaser. The obligations of Purchaser
under this Agreement are, at the option of Purchaser, subject to the conditions
that, at or prior to the Closing Date:
10.1 Execution of Agreement. This Agreement shall have been signed by Seller
obligating and committing Seller to sell to Purchaser all of the Interests, and
Seller shall at the Closing on the Closing Date deliver to Purchaser all of the
items in Section 4.1 of this Agreement and Seller shall in addition fully comply
with the terms and provisions hereof, it being understood and agreed that the
obligation of Purchaser to purchase the Interests is conditioned upon
performance hereunder by Seller.
<PAGE>
10.2 Compliance. All of the terms, covenants, and conditions of this Agreement
to be complied with or performed by Seller at or before the Closing Date shall
have been duly complied with and performed.
10.3. Accuracy of Representations and Warranties. The representations and
warranties of Seller set forth in Section 6 hereof shall be true on and as of
the Closing Date with the same force and effect as if such representations and
warranties had been made on and as of the Closing Date. The provisions of this
paragraph shall be self executing, and Seller, by having closed the sale of the
Interests hereunder, shall be deemed conclusively to have certified at Closing
that all such representations and warranties were true on and as of the Closing
Date.
10.4. No Adverse Effect. The Interests shall not have been materially adversely
affected as a result of any fire, accident, or other casualty or any act of God
or the public enemy, unless they shall have been protected and fully covered by
insurance.
10.5. No Adverse Change. There shall have been no changes in the Interests since
the execution of this Agreement, other than changes in the ordinary course of
business that do not have a materially adverse effect on the value of the
Interests.
10.6. Intentionally left blank.
10.7 Authorizations. All authorizations, approvals, and consents of any
governmental authority or agency necessary in connection with the sale and
transfer of the Interests to Purchaser or for the continued operation of the
Interests in the manner in which the Interests are now conducted after such
transfer, shall have been secured.
10.8 Consents. Seller shall have received all consents, permissions, novations
and approvals by third parties necessary for the sale and transfer of the
Interests.
10.9 Litigation. No action or proceeding shall have been instituted or
threatened to set aside the transactions provided for herein or to enjoin or
prevent the consummation thereof.
10.10 Preferential Rights. With respect to all Interests which are subject to a
preferential purchase right, either (a) such preferential purchase rights shall
have been waived or terminated by the holders thereof or lapsed in accordance
with their terms, or (b) the Seller shall have received notice that the holder
of such preferential purchase rights intends to exercise such preferential
purchase rights.
10.11 Intentionally left blank.
10.12 Certificate. Seller shall have executed and delivered to Purchaser on the
Closing Date a certificate, dated that date, to the effect of each of the
provisions of Paragraphs 10.1 through 10.10 of this Section.
Section 11. Conditions to Obligations of Seller. The obligations of Seller under
this Agreement are, at the option of Seller, subject to the condition that, at
or before the Closing Date:
<PAGE>
11.1 Compliance. All the terms, conditions, and covenants of this Agreement to
be complied with and performed by Purchaser at or before the Closing Date shall
have been duly complied with and performed.
11.2 Certificate. Purchaser shall have executed and delivered to Seller on the
Closing Date a certificate, dated that date, to the effect of each of the
provisions of this Section.
Section 12. Indemnification by Seller.
A. Seller shall defend, indemnify and hold Purchaser harmless from and against
any and all claims, liabilities, damages, losses and expenses, including
reasonable attorneys' fees and expenses and costs of suit, (i) arising out of
any and all inaccurate representations and out of any and all breaches of
covenants and warranties and stipulations and agreements and certifications made
by or on behalf of Seller, in this Agreement or in any document required to be
delivered hereunder, including without limitation any schedule or exhibit
attached hereto, and (ii) arising out of or resulting from any occurrence prior
to the Closing Date and not disclosed herein or in documents required to be
delivered hereunder, including without limitation any schedule or exhibit
attached hereto. Notwithstanding the foregoing, Seller shall not have any
obligation to indemnify Purchaser in connection with any loss, liability or
damage caused, wholly or in part, by Purchaser or its affiliates after the
Closing, or arising from the ownership or operation of the Interests after the
Closing by Purchaser, any of their affiliates or any other party or the
operation of the Interests by Purchaser prior to the Closing.
B. Notwithstanding anything to the contrary contained in this Agreement, Seller
shall have no liability for any misrepresentation or breach of warranty under
this Agreement to the extent that: (i) the breach of warranty or the falsity of
the representation upon which such liability would be based is disclosed in any
of the contracts and documents referred to in this Agreement, in the schedules
attached hereto or in any other contracts, documents, records or other
instruments made available to Purchaser, or (ii) such liability is based upon a
claim, assessment or deficiency for federal, state and/or local income or
franchise taxes which arise from adjustments which have the effect only of
shifting income, credits and/or deductions from one fiscal period to another.
C. Notwithstanding anything to the contrary contained in this Agreement, there
shall be excluded from the sale, transfer, conveyance and assignment
contemplated hereunder, any debt, liability or obligation of, or claim against,
Seller.
Section 13. Indemnification by Purchaser. Purchaser shall defend, indemnify and
save Seller harmless from and against (a) any and all claims, liabilities,
damages, losses and expenses, including reasonable attorneys' fees and expenses
and costs of suit (collectively, "Losses"), arising out of any and all
inaccurate representations and out of any and all breaches of covenants and
warranties and stipulations and agreements and certifications made by or on
behalf of Purchaser in this Agreement or in any document delivered hereunder,
and (b) any Losses suffered or incurred by Seller arising from the ownership or
operation of the Interests after the Closing Date by Purchaser or any of its
affiliates.
<PAGE>
Section 14. Intentionally left blank.
Section 15. Intentionally left blank.
Section 16. Arbitration.
16.1 Binding Arbitration. On the request of any party hereto, whether made
before or after the institution of any legal proceeding, any action, dispute,
claim or controversy of any kind now existing or hereafter arising between any
of the parties hereto in any way arising out of, pertaining to or in connection
with this Agreement (a "Dispute") shall be resolved by binding arbitration in
accordance with the terms hereof. Any party may, by summary proceedings, bring
an action in court to compel arbitration of any Dispute.
16.2 Governing Rules. Any arbitration shall be administered by the American
Arbitration Association (the "AAA") in accordance with the terms of this
Section, the Commercial Arbitration Rules of the AAA, and, to the maximum extent
applicable, the Federal Arbitration Act. Judgment on any award rendered by an
arbitrator may be entered in any court having jurisdiction.
16.3 Arbitrators. Any arbitration shall be conducted before one arbitrator. The
arbitrator shall be a practicing attorney licensed to practice in the State of
Colorado who is knowledgeable in the subject matter of the Dispute selected by
agreement between the parties hereto. If the parties cannot agree on an
arbitrator within 30 days after the request for an arbitration, then any party
may request the AAA to select an arbitrator. The arbitrator may engage
engineers, accountants or other consultants that the arbitrator deems necessary
to render a conclusion in the arbitration proceeding.
16.4 Conduct of Arbitration. To the maximum extent practicable, an arbitration
proceeding hereunder shall be concluded within 180 days of the filing of the
Dispute with the AAA. Arbitration proceedings shall be conducted in Denver,
Colorado. The arbitrator shall be empowered to impose sanctions and to take such
other actions as the arbitrator deems necessary to the same extent a judge could
impose sanctions or take such other actions pursuant to the Federal Rules of
Civil Procedure and applicable law. At the conclusion of any arbitration
proceeding, the arbitrator shall make specific written findings of fact and
conclusions of law. The arbitrator shall have the power to award recovery of all
costs and fees but not punitive damages to the prevailing party. Each party
agrees to keep all Disputes and arbitration proceedings strictly confidential
except for disclosure of information required by applicable law.
16.5 Costs of Arbitration. All fees of the arbitrator and any engineer,
accountant or other consultant engaged by the arbitrator, shall be paid by
Purchaser and Seller equally unless otherwise awarded by the arbitrator.
Section 17. Expenses. Seller shall pay its own expenses and costs, including,
without limitation, all counsel fees and transfer taxes, and Purchaser shall pay
its expenses and costs in connection with this Agreement and the transactions
contemplated hereby, including any recording costs.
<PAGE>
Section 18. Notice. "Notice" means any notice, demand, request, or other
communication or document to be provided under this Agreement to a party to this
Agreement. The Notice shall be in writing and shall be given to the party at its
address or telecopy number set forth below or such other address or telecopy
number as the party may later specify for that purpose by notice to the other
party. Each Notice shall, for all purposes, be deemed given and received:
A. If given by telecopy, when the telecopy is transmitted to the party's
telecopy number specified below and confirmation of complete receipt is received
by that transmitting party during normal business hours or on the next business
day if not confirmed during normal business hours;
B. If hand delivered to a party against receipted copy, when the copy of the
notice is receipted;
C. If given by a nationally recognized and reputable overnight delivery service,
the day on which the notice is actually received by the party; or
D. If given by any other means or if given by certified mail, return receipt
requested, postage prepaid, two (2) business days after it is posted with the
United States Postal Service, at the address of the party specified below:
If to Seller:
American Rivers Oil Company
700 East Ninth Avenue
Suite 106
Denver, CO 80203
Telecopy: 303/832-2404
Attention: Karlton Terry
With a copy to:
William R. Roberts, Esquire
Holme Roberts & Owen LLP
1401 Pearl Street, Suite 400
Boulder, CO 80302-5314
Telecopy: 303/444-1063
If to Purchaser:
Trinity Energy Corporation
5636 North Montour Road
Gibsonia, PA 15044
Telecopy No.: (412) 444-7502
Attention: Karl C. Kimmich
With a copy to:
Joseph L. Robinson, Esquire
Sherrard, German & Kelly, P.C.
35th Floor
One Oliver Plaza
Pittsburgh, PA 15222-2602
Telecopy No.: (412) 261-6221
<PAGE>
If any Notice is sent by telecopy, the transmitting party may as a courtesy send
a duplicate copy of the Notice to the other party by regular mail. In all
events, however, any Notice sent by telecopy transmission shall govern all
matters dealing with delivery of the Notice, including the date on which the
Notice is deemed to have been received by the other party.
The provisions above governing the date on which a Notice is deemed to have been
received by a party to this Agreement shall mean and refer to the date on which
a party to this Agreement, and not its counsel or other recipient to which a
copy of the Notice may be sent, is deemed to have received the Notice.
If Notice is tendered under the provisions of this Agreement and is refused by
the intended recipient of the Notice, the Notice shall nonetheless be considered
to have been given and shall be effective as of the date provided in this
Agreement.
Section 19. Miscellaneous
19.1. Broker's Fees - Seller's Indemnification. Seller shall indemnify Purchaser
against, and hold it harmless from, any and all liabilities, including, without
limitation, counsel fees and other costs of defending against liabilities for a
brokerage commission, to any person, firm, or corporation for any brokerage
commission or finder's fee in connection with any of the transactions
contemplated by this Agreement, arising out of acts by the Seller.
19.2. Broker's Fees - Purchaser's Indemnification. Purchaser shall indemnify the
Seller against, and hold it harmless from, any and all liabilities, including,
without limitation, counsel fees and other costs of defending against
liabilities for a brokerage commission, to any person, firm, or corporation for
any brokerage commission or finder's fee in connection with any of the
transactions contemplated by this Agreement, arising out of acts by Purchaser.
19.3 Integration. This instrument contains the entire agreement between the
parties hereto with respect to the transaction contemplated hereby and shall not
be changed or terminated except by written amendment signed by the parties
hereto. Neither party has made any representations to the other except as set
forth in this Agreement or in the schedules hereto.
19.4 Exhibits and Schedules. All exhibits and schedules referred to herein are
attached hereto and by this reference made a part hereof.
19.5 Counterparts. This Agreement may be executed in any number of counterparts,
and all counterparts executed by Purchaser and Seller together shall constitute
one and the same agreement, and it shall not be necessary for Purchaser and
Seller to execute the same counterpart hereof.
<PAGE>
19.6 Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, no assignment by any party shall relieve such party of any of its
obligations hereunder.
19.7 Section Headings. The section headings contained in this Agreement are for
convenient reference only and shall not in any way affect the meaning or
interpretation of this Agreement.
19.8 Superseding Effect. This Agreement supersedes any prior agreement and
understanding between the parties with respect to the subject matter of this
Agreement.
19.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania applicable to
contracts made and performed entirely therein.
19.10 Waivers. No party's rights hereunder will be deemed waived except by a
writing signed by such party. Without limitation, the occurrence of the Closing
shall not be deemed a waiver of any party's rights except its right to refuse to
close.
19.11 Intentionally left blank.
19.12 Construction. This Agreement shall not be construed against the party
preparing it, but shall be construed as if both parties prepared this Agreement.
This Agreement is not intended to confer any rights or remedies upon any other
persons who or which are not parties hereto.
19.13 Assignment. Neither Seller nor Purchaser may assign its rights or delegate
its duties or obligations arising under this Agreement, in whole or in part, by
operation of law or otherwise, before Closing, without the prior written consent
of the other party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
ATTEST: SELLER:
AMERICAN RIVERS OIL COMPANY
By: /s/ Pam Holly By: /s/ Karlton Terry
Secretary President
ATTEST: PURCHASER:
TRINITY ENERGY CORPORATION
By: /s/ Joseph L. Robinson By: /s/
Assistant Secretary President
SALE OF ASSETS AGREEMENT
PARTIES
This Agreement made and entered this 1 day of June, 1998 between TRIAD ENERGY
CORP. OF WEST VIRGINIA, INC., a West Virginia corporation, of PO Box 430, Reno,
Ohio 45773 ("BUYER") and American Rivers Oil Co., Inc. ("SELLER") of 700 E. 9th
Street, Suite 106, Denver, Colorado 80203.
SUMMARY OF TRANSACTION
The Seller desires to sell and Buyer desires to purchase from Seller all of
Seller's interest in an oil and gas well located in Sistersville, Tyler County,
West Virginia known as the Ohio River #1 as well as the sale of certain pipeline
right-of-ways, leases and equipment. The terms and conditions of said sale are
as follows.
ARTICLE I
Transfer of Assets
Section 1(a) Assets Being Sold ("Transferred Assets"). The Seller agrees to sell
and Buyer agrees to purchase at Closing, the following assets:
1(a)(i) Oil and Gas Leases. All of Seller's right, title and interest in the oil
and gas leases as set forth in Exhibit A, attached hereto and made a part
hereof.
1(a)(ii) Pipeline Right-of-Ways. All right, title and interest Seller may have
in certain pipeline right-of-way agreements which are set forth in Exhibit A1,
attached hereto and made a part hereof.
1(a)(iii) Machinery and Equipment. All right, title and interest that Seller may
have in the machinery and equipment as set forth in Exhibit B, attached hereto
and made a part hereof.
1(a)(iv) Books and Records. All books and records pertaining to the operation,
production and maintenance of the assets set forth in Exhibits A and B, to the
extent Seller shall have same.
Section 1(b) Determination of Fair Market Value. Exhibit C to this Agreement
("Fair Market Value") set forth the agreed upon fair market value of each of the
transferred assets. The parties agree to adhere to such Fair market Values for
the purposes of all federal and state tax returns filed by them subsequent to
the Closing, including the determination by the Seller of taxable gain or loss
in the sale of the Transferred Assets hereunder, and the determination by Buyer
of its tax basis with respect to the Transferred Assets.
Section 1(c) Assignment Documentation. Seller agrees to execute such assignments
as may be desired by Buyer to vest in all of Seller's right, title and interest
in and to the Transferred Assets. The assignment documents shall be approved in
writing by Buyer.
Section 1(d) Bond Transfer. Seller agrees to execute a well bond transfer on
such form or forms as may be prescribed by the State West Virginia. Seller
warrants that its present bond is in full force and effect. Buyer also
represents that its well bond is in full force and effect with the State of West
Virginia and that Buyer will execute a well bond transfer form as may be
prescribed by the State of West Virginia.
<PAGE>
Section 1(e) Oil and Gas Production. All natural gas, propane and oil revenue
from the well set forth in Exhibit A shall be the sole and exclusive property of
Seller prior to the date of Closing. After closing, all natural gas, propane and
oil revenue shall be the sole and exclusive property of Buyer. It shall be
Seller's responsibility to have all oil or propane it desires to sell removed
from the wellsite, set forth in Exhibit A, prior to Closing or within reasonable
time thereafter as may be dictated by the oil or propane purchaser of Seller.
ARTICLE II
Warranty
Section 2(a) Warranty With Respect to Title. Seller does hereby warrant to the
extent of its interests, that it has free and clear title in the transferred
assets. Buyer acknowledges that it will perform its due diligence with respect
thereto and agrees to accept the Transferred Assets with warranty as to sellers
interest only. Seller hereby agrees to have released, at his expense at closing,
any mortgages or other lien interests against sellers interest.
Section 2(b) No Warranty With Respect of Equipment. Seller offers no warranty as
to the fitness for intended use or the merchantability of the assets set forth
in Exhibit B. Seller agrees that in shall maintain the assets set forth in
Exhibit B from the date of execution of this Agreement to date of Closing. Buyer
acknowledges that it, by and through its agents and employees, has examined the
assets set forth in Exhibit B and agrees to accept same in their present
condition.
Section 2(c) Representation in Good Standing. Seller acknowledges that it is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation and has the right to do business in the State
of West Virginia. It further acknowledges that it has corporate power and
authority to own and operate its property and assets and to conduct its business
in West Virginia and has full corporate power and authority to sell the
Transferred Assets as set forth herein. The execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of the
Seller.
Section 2(d) Representation of Buyer. Buyer acknowledges that it is a
corporation duly organized, validly existing and in good standing under the law
of the State of West Virginia has full corporate power and authority to own and
Operate the transferred assets. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby have
received all necessary approval by the Board of Directors of Buyer.
ARTICLE III
Covenants of Parties
Seller expressly agrees that it shall not, between the time of execution hereof
and Closing, cause any lien or other encumbrance to be placed upon the property
which does not otherwise exist at the date of execution hereof.
<PAGE>
Each of the parties further agrees to bear all its own expenses and cost
incurred in connection with this Agreement and the transactions contemplated
hereby with Buyer incurring the expense for filing of the assignments for the
Transferred Assets.
ARTICLE IV
Consideration
Section 4(a) Payment at Closing. In consideration of the transfer of the
Transferred Assets from Seller to Buyer, Buyer shall pay to Seller, the sum of
one hundred twenty five thousand ($125,000).
ARTICLE V
Closing
Section 5(a) Time and Place. The Closing hereunder shall take place on or before
June 15, 1998 at the offices of Triad Resources, Inc. of PO Box 430, Reno, Ohio
45773.
Section 5(b) Instruments of Transfer, Etc. At the Closing, Seller will deliver
to Buyer such bills of sale, instruments of assignment and other good and
sufficient instruments of transfer executed by Sellers and in a form reasonably
satisfactory to Buyer, as Buyer may reasonably require to vest in Buyer all of
the right, title and interest of the Seller in and to the Transferred Assets and
Buyer shall pay to Seller the amount and deliver to Seller the instruments
required of it at the Closing.
ARTICLE VI
Survival
All the representations, warranties and covenants set forth herein shall survive
the Closing. This agreement contains the entire agreement of the parties with
respect to the subject matter hereof and supersedes all prior agreements and
understandings, whether verbal or written, between the parties with respect to
such subject matter and no amendment, modification or waiver of any provision
hereof will be binding unless in writing and signed by the parties.
ARTICLE VII
Confidentiality--Cooperation
In connection with the negotiations of this agreement and the preparation for
the consummation of the transactions contemplated herein, each party has access
the confidential information relating to the other party. Each party shall treat
as confidential, shall preserve the confidentiality of and shall not duplicated
or use such information except in connection with the transaction contemplated
hereby. In the event of the termination of this agreement for any reason
whatsoever, each party shall return to the other all documents, work papers and
other material obtained in connection with the transaction contemplated hereby
and will use all reasonable efforts, including instructing its employees and
agents who may have had access to such information, to keep it confidential and
not to use any such information, unless such information is now or hereafter
disclosed, through no act or omission of such party, in any manner, making it
available to the general public.
<PAGE>
ARTICLE V
Closing
Section 5(a) Time and Place. The Closing hereunder shall take place on or before
Sept. 1, 1998 at the offices of Triad Resources, Inc. of PO Box 430, Reno, Ohio
45773.
Section 5(b) Instruments of Transfer, Etc. At the Closing, Seller will deliver
to Buyer such bills of sale, instruments of assignment and other good and
sufficient instruments of transfer executed by Sellers and in a form reasonably
satisfactory to Buyer, as Buyer may reasonably require to vest in Buyer all of
the right, title and interest of the Seller in and to the Transferred Assets and
Buyer shall pay to Seller the amount and deliver to Seller the instruments
required of it at the Closing.
ARTICLE VI
Survival
All the representations, warranties and covenants set forth herein shall survive
the Closing. This agreement contains the entire agreement of the parties with
respect to the subject matter hereof and supersedes all prior agreements and
understandings, whether verbal or written, between the parties with respect to
such subject matter and no amendment, modification or waiver of any provision
hereof will be binding unless in writing and signed by the parties.
ARTICLE VII
Confidentiality--Cooperation
In connection with the negotiations of this agreement and the preparation for
the consummation of the transactions contemplated herein, each party has access
the confidential information relating to the other party. Each party shall treat
as confidential, shall preserve the confidentiality of and shall not duplicated
or use such information except in connection with the transaction contemplated
hereby. In the event of the termination of this agreement for any reason
whatsoever, each party shall return to the other all documents, work papers and
other material obtained in connection with the transaction contemplated hereby
and will use all reasonable efforts, including instructing its employees and
agents who may have had access to such information, to keep it confidential and
not to use any such information, unless such information is now or hereafter
disclosed, through no act or omission of such party, in any manner, making it
available to the general public.
<PAGE>
This 1st day of June, 1998.
TRIAD ENERGY CORP. OF WVA, INC.
/s/ Kean A. Weaver, President
AMERICAN RIVERS OIL CO., INC.
/s/ Karlton Terry, President
STATE OF OHIO)
)ss
COUNTY OF WASHINGTON)
Before me a Notary Public in and for said County and State personally appeared
Kean A. Weaver, President of Triad Energy Corp. of Wva., Inc. who acknowledges
that he did sign the foregoing instrument and that the same is his free and
voluntary act and deed.
In testimony whereof, I have hereunto set my hand and affixed my official seal
this 1st day of June, 1998.
/s/ Cathy J. Douthitt
Notary Public
<PAGE>
EXHIBIT A
OIL & GAS LEASE
WELL NAME LESSOR LESSEE VOL./PAGE COUNTY STATE
- --------- ------ ------ --------- ------ -----
State of
Ohio River #1 West Virginia Karlton Terry Oil Co. 222/596 Tyler WVA
Note:
Buyer is purchasing 100% working interest and 80% NRI in the above described
leasehold from Mile Point 133 to Mile Point 144 and Mile Point 148 to Mile Point
155.
Revised - 8/11/98
Buyer is purchasing 100% WI and 85% NRI in the above described leasehold from
milepoint 133 to 144 and 84.5% NRI from milepoint 148 to 155.
PROMISSORY NOTE
Borrower:
Coal Contractors, (1991) Inc.
c/o Gowen Mine, P.O. Box 639
Fern Glen, PA 18241-0639
Lender:
American Rivers Oil Company
700 E. 9th Ave., #106
Denver, CO 80203
Principal: $150,000
Loan Date: June 19, 1998
Interest Rate: 15.0% Per annum
Maturity: Sept. 19, 1998
PROMISE TO PAY. Coal Contractors, Inc. ("Borrower") promises to repay to
American Rivers Oil Company, ("Lender"), in lawful money of the United States of
America, the principal amount of $150,000 plus $5,625 in interest for a total of
$155,625.
PAYMENT. Borrower will pay this loan in one payment of all outstanding principal
and interest on Sept. 15, 1998. Note is 15% of the principal balance.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due; (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to perform promptly at the time
and strictly in the manner provided in this Note or any agreement related to
this Note; (c) any representation or statement made or furnished to Lender by
Borrower or on Borrower's behalf is false or misleading in any material respect;
(d) Borrower becomes insolvent, a receiver is appointed for any part of
Borrower's property, Borrower makes an assignment for the benefit of creditors,
or any proceeding is commenced either by Borrower or against Borrower under any
bankruptcy or insolvency laws; (e) any creditor tries to take any of Borrower's
property on or in which Lender has a lien or security interest.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note immediately due, without notice, and then Borrower will pay
that amount. Upon default, including failure to pay upon final maturity, Lender
at its option, may also, if permitted under applicable law, increase the
interest rate on this Note to 18%. Lender may hire or pay someone else to help
collect this Note if Borrower does not pay. Borrower also will pay Lender that
amount. This includes, subject to any limits under applicable law, Lender's
attorney's fees and Lender's legal expenses whether or not there is a lawsuit,
including attorneys' fees and legal expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post judgment collection services. If not
prohibited by applicable law, Borrower also will pay any court costs, in
addition to all other sums provided by law. This Note has been delivered and
accepted by the Lender in the State of Colorado and said Note shall be governed
by and construed in accordance with the laws of the State of Colorado.
<PAGE>
GENERAL PROVISIONS. Lender may delay or forego enforcing any of its rights or
remedies under this Note without losing them. Borrower, to the extent allowed by
law, waives presentment, demand for payment, protest and notice of dishonor.
Upon any change in the terms of this Note, and unless otherwise expressly stated
in writing, no party who signs this Note, whether as maker, guarantor,
accommodation maker or endorser, shall be released from liability. All such
parties agree that Lender may renew or extend (repeatedly and for any length of
time) this loan, or release any party or guarantor or collateral; or impair,
fail to realize upon or perfect Lender's security interest in the Collateral;
and take any other action deemed necessary by Lender without the consent of or
notice to anyone. All such parties also agree that Lender may modify this loan
without the consent of or notice to anyone other than the party with whom the
modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGE RECEIPT OF A
COMPLETED COPY OF THE NOTE.
BORROWER:
Coal Contractors, (1991) Inc.
By: /s/ Christopher Lloyd
Christopher Lloyd, Secretary, Treasurer
<PAGE>
EXTENSION OF PROMISSORY NOTE
THIS EXTENSION of the maturity date of the Promissory Note, a copy of which is
attached hereto, is dated as of March 25, 1999 by and between American Rivers
Oil Company (AROC, "Lender") and Coal Contractors (1991, Inc. ("Borrower").
Recitals
A. Borrower wishes to extend the term of that certain Promissory Note first
written as of June 19, 1998 and due Sept. 19, 1998 and subsequently extended
until March 31, 1999, which extension is hereby ratified, in the original
principal amount of $150,000.00 at an interest rate of 15% per annum;
B. Borrower has paid all interest due through March 31, 1999 on such existing
Promissory Note;
C. Lender wishes to extend the term of such Promissory Note from April 1, 1999
for 91 days thereby having a new maturity date of July 1, 1999 at such interest
rate as first written;
Agreement
A. On or before April 15, 1999, in consideration for this extension Borrower
shall pay Lender the sum of $12,500.00 US.
B. It is hereby agreed by and between the Lender and the Borrower that the
maturity date of the original Promissory Note attached hereto is hereby extended
to July 1, 1999 in the amount of $150,000.00 together with interest accumulated
at the rate of 15% from April 1, 1999 through June 30, 1999.
IN WITNESS WHEREOF, the parties have executed and delivered this Extension to
Promissory Note as of the day and year first written above.
AMERICAN RIVERS OIL COMPANY
/s/ Karlton Terry
Karlton Terry, President
COAL CONTRACTORS (1991), INC.
/s/ Denis Bell
Denis Bell, President
<TABLE> <S> <C>
<ARTICLE> 5
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 2,974
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
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<CURRENT-ASSETS> 97,427
<PP&E> 0
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<TOTAL-ASSETS> 100,954
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0
0
<COMMON> 119,808
<OTHER-SE> (132,425)
<TOTAL-LIABILITY-AND-EQUITY> 100,954
<SALES> 17,968
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 438,685
<OTHER-EXPENSES> (309,367)
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