<PAGE>
147913.004(B&F)
As filed with the Securities and Exchange Commission on December 8, 1995
Registration No. 33-63277
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
OCEANIC EXPLORATION COMPANY
(Exact name of small business issuer in its charter)
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<S> <C> <C>
Delaware 1330 84-0591071
(State or other jurisdiction of Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number Identification No.)
</TABLE>
5000 South Quebec Street, Suite 450
Denver, Colorado 80237
(303) 220-8330
(Address and telephone number, of registrant's principal executive offices)
CHARLES N. HAAS, PRESIDENT
OCEANIC EXPLORATION COMPANY
5000 South Quebec Street, Suite 450
Denver, Colorado 80237
(303) 220-8330
(Name, address and telephone number of agent for service)
Copies of communications to:
RICHARD T. BEARD, ESQ.
WILLIAM D. MARSH, ESQ.
Ballard Spahr Andrews & Ingersoll
201 South Main Street, Suite 1200
Salt Lake City, UT 84111
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: Thirty
days after the effective date of this Registration Statement.
CALCULATION OF REGISTRATION FEE
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<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF SECURITIES AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED BE REGISTERED PER SHARE OFFERING PRICE(1) REGISTRATION FEE
------------------- ---------------- -------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Common Stock 6,001,000 Shares $.10 $600,100 $206.93
</TABLE>
- -------------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c).
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Commission, acting
pursuant to Section 8(a), may determine.
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 8, 1995
6,001,000 Shares
OCEANIC EXPLORATION COMPANY
COMMON STOCK
($.0625 PAR VALUE)
As more fully set forth herein, Oceanic Exploration Company (the
"Company") is offering to the holders of its Common Stock, $.0625 par value
(the "Common Stock") the right to subscribe for additional shares of Common
Stock (the "Rights Offering") on the basis of 1.5325 shares of Common Stock
for each share of Common Stock held of record at the close of business on
December __, 1995 [insert effective date of Registration Statement] (the
"Rights"). The Rights, including the Over-subscription Privilege, may not be
transferred, divided, combined, purchased or sold.
THE RIGHTS WILL EXPIRE AT 5:00 P.M., DENVER, COLORADO TIME ON __________,
1996 [INSERT DATE 30 DAYS AFTER EFFECTIVE DATE OF REGISTRATION STATEMENT].
FAILURE TO EXERCISE RIGHTS COULD RESULT IN SUBSTANTIAL DILUTION TO
NON-EXERCISING STOCKHOLDERS. SEE "RISK FACTORS-DILUTION OF NON-EXERCISING
STOCKHOLDERS." EXERCISING STOCKHOLDERS WILL BE ENTITLED TO AN
OVER-SUBSCRIPTION PRIVILEGE BY EXERCISING ALL OF THEIR RIGHTS. THE
OVER-SUBSCRIPTION PRIVILEGE MUST BE EXERCISED, IF AT ALL, AT THE TIME THE
RIGHTS ARE EXERCISED. SEE "PLAN OF DISTRIBUTION - RIGHTS OFFERING --
OVER-SUBSCRIPTION PRIVILEGE."
The Common Stock is listed on The Pacific Stock Exchange under the
symbol OXC. The Company has been notified that trading in its Common Stock
has been suspended and is subject to delisting procedures. SEE "RISK
FACTORS-SUSPENSION OF TRADING AND POTENTIAL DELISTING FROM THE PACIFIC STOCK
EXCHANGE" and "DESCRIPTION OF CAPITAL STOCK." The reported closing price of
the Common Stock on October 3, 1995 was $.25. SEE "MARKET FOR COMMON EQUITY."
_______________
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE RISKS SET FORTH IN "RISK
FACTORS." SEE "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
_______________
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
<PAGE>
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY (1)
------------ ------------- -----------
<S> <C> <C> <C>
Per Share ............... $.10 N/A $.10
Total ................... $600,100 N/A $600,100
</TABLE>
(1) Before deducting estimated expenses of the offering of $70,000 payable
by the Company.
________________
The Rights Offering is being made on an all or none basis, which
means that if all 6,001,000 shares of Additional Common Stock offered
are not subscribed for, no subscriptions will be accepted and all
subscriptions will be returned. However, each stockholder will be
allowed to exercise less than all of the Rights granted to that
stockholder. The Company has obtained the commitment of International
Hydrocarbons, its principal stockholder, to purchase all unsubscribed
for Additional Common Stock. Accordingly, International Hydrocarbons
will be allowed to subscribe for all unsubscribed for Additional Common
Stock. SEE "PLAN OF DISTRIBUTION-RIGHTS OFFERING" AND "RISK
FACTORS-DILUTION OF NON-EXERCISING STOCKHOLDERS."
________________
The date of this Prospectus is December 8, 1995
2
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND RELATED NOTES APPEARING ELSEWHERE IN
THIS PROSPECTUS. SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS TO
BE CONSIDERED IN EVALUATING THE COMPANY AND ITS BUSINESS.
THE COMPANY
The Company was incorporated in 1969 and has been engaged in the
business of acquiring oil and gas concessions covering large blocks of
acreage and in conducting exploration activities thereon, including seismic
and other geophysical evaluation and exploratory drilling where appropriate.
The Company conducts its operations directly or through wholly-owned
subsidiaries. The term "concession" is used herein to mean exploration,
development and production rights with respect to a specific area, which
rights may be created by agreement with a government, governmental agency or
corporation. When a discovery of oil or gas occurs, the Company has pursued
the development of reserves and the production of oil or gas to the extent
considered economically feasible and has financed development by farming out
or selling a portion of its interest in the discovery. The Company's
property interests are located in the North Aegean Sea, offshore Greece
("Prinos") and in the East China Sea. The Company has identified a prospect
in Bolivia, has prepared a preliminary plan for exploration and is attempting
to find participants to finance the exploration costs. Since 1994 the
Company has not been able to participate in active operations and exploration
and development, other than limited activities in Bolivia to the extent
funding is available, and has concentrated its efforts on the litigation
regarding Prinos. SEE "BUSINESS OF THE COMPANY."
The Company's only significant source of revenue, its 15% net profit
interest in certain oil and gas producing areas offshore Greece ("Prinos
Interest"), is currently the subject of litigation. The prospects for the
Company continuing as a going concern are dependent on obtaining a favorable
judgment or settlement in the litigation and collecting or enforcing the
judgment or settlement. Since litigation commenced and through November
1995, payments under the Prinos Interest were suspended. The Company funded
its operations through draws against the line of credit established with NWO
Resources, Inc. ("NWO"), the parent of the Company's principal stockholder.
Prior to the end of fiscal year 1995, the Company's credit line was exhausted
and the Company had no resources to make monthly interest payments on the
advances under the line of credit.
On September 19, 1995, the Company entered into a Modification Agreement
with NWO (the "Modification Agreement"). SEE "BUSINESS OF THE COMPANY-NWO
LINE OF CREDIT." The Modification Agreement provides for limited funding of
litigation expenses and temporary relief from any collection actions by NWO.
The Modification Agreement also allows the Company to retain up to $200,000
of any proceeds received from its Prinos Interest for general working capital
purposes. The Modification Agreement does not provide any further funding
for operating expenses of the Company other than limited funding of the
litigation with respect to the Prinos Interest.
3
<PAGE>
Future operations of the Company, reimbursements of advances for
legal fees in connection with the litigation of its Prinos Interest and
payment of accounts payable as funds are available will be funded by this
Rights Offering. The Company estimates that the funding provided from the
Rights Offering will be sufficient to fund the litigation through June 30,
1996 (including repayment of advances from NWO for litigation expenses),
the date by which time the Company anticipates a judgment will be rendered
in the litigation, and to fund limited operations through December 1996.
There is no assurance that the proceeds of the Rights Offering will be
sufficient to fund the Company's operations until the Company is able to
resolve the litigation and collect a judgment or settlement. SEE "USE
OF PROCEEDS" AND "MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS".
The Company's business activities involve only one industry segment,
oil and gas exploration and development.
The Company employs six people, four of whom are full-time employees.
The full-time employees also provide services to two related entities
pursuant to management agreements entered into by the Company and those
entities. SEE "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
The Company's principal executive offices are located at 5000 South
Quebec Street, Suite 450, Denver, Colorado 80237, and its telephone
number is (303) 220-8330.
THE RIGHTS OFFERING
Common Stock Offered 6,001,000 shares
Terms 1.5325 shares of Additional Common
Stock for each share of Common Stock
owned on the Record Date, rounded
up to the nearest whole share.
Subscription Price $.10 per share
Expiration Date of Rights ________ __, 1996 [insert date 30
days after effective date of
Registration Statement], 5:00 p.m.,
Denver Colorado time.
Use of Proceeds The Company intends to use the net
proceeds of the Rights Offering to
repay advances to fund litigation
expenses, to fund operations and to
pay accounts payable as funds are
available.
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following table sets forth summary financial data of the Company.
The summary financial data in the table is derived from the financial
statements of the Company. The data should be read in conjunction
with the financial statements, related notes and other financial information
included therein.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, SIX MONTHS ENDED SEPTEMBER 30,
-------------------- ------------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Revenue . . . . . . . . . . . $ 321,495 835,329 202,243 506,023
Costs and Expenses . . . . . $1,195,369 1,153,304 588,892 600,996
Loss before Income Taxes . . $ (873,874) (317,975) (386,649) (94,973)
Net Loss . . . . . . . . . . $ (796,602) (448,746) (327,449) (175,169)
Net Loss per Share
of Common Stock . . . . . . $ (.20) (.11) (.08) (.04)
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1995 SEPTEMBER 30, 1995
-------------- ------------------
ACTUAL ACTUAL AS ADJUSTED(1)
------ ------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Net working capital (deficit) . . $(2,554,850) (803,074) (272,974)
Total assets . . . . . . . . . . $ 1,557,322 1,357,928 1,888,028
Stockholders' deficit . . . . . . $(2,007,281) (2,334,730) (1,804,630)
</TABLE>
(1) As adjusted to give effect to the sale of 6,001,000 shares of Common
Stock offered hereby at an assumed offering price of $.10 per share
and the application of the estimated net proceeds therefrom. SEE "USE
OF PROCEEDS" AND "CAPITALIZATION."
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and,
in accordance therewith, files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
This Prospectus, which constitutes a part of a registration statement on
Form SB-2 (the "Registration Statement") filed by the Company with the
Commission under the Securities Act of 1933, as amended (the "Securities
Act"), omits certain of the information set forth in the Registration
Statement. Reference is hereby made to the Registration Statement and
to the exhibits thereto for further information with respect to the
Company. Statements contained herein concerning the provisions of such
documents are necessarily summaries of such
5
<PAGE>
documents. The Registration Statement, including exhibits and schedules
filed therewith, and the reports, proxy statements and other information
filed by the Company with the Commission may be inspected without charge at
the public reference facilities maintained by the Commission at its
principal office at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at regional offices of the Commission located
at Northwestern Atrium Center, Suite 1400, 500 West Madison Street,
Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York,
New York 10048. Copies of such materials may be obtained from the Public
Reference Section of the Commission, Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and its public reference
facilities in Chicago, Illinois and New York, New York, at prescribed
rates. The Company's Common Stock is listed on The Pacific Stock Exchange,
and copies of the reports, proxy statements and other information filed by
the Company can be inspected at such exchange. SEE "RISK FACTORS-SUSPENSION
OF TRADING AND POTENTIAL DELISTING FROM THE PACIFIC STOCK EXCHANGE."
RISK FACTORS
Prospective purchasers of shares of Common Stock should carefully read
the entire Prospectus. Purchasers should consider, among other
things, the following factors which make an investment in the Company
extremely high risk:
RECURRING MATERIAL NET LOSSES. The Company has suffered recurring
material net losses and losses from operations during the most recent
interim period and in recent fiscal years. SEE "MANAGEMENT DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
OFFERING PRICE NOT BASED ON ACTUAL VALUE. The price at which the
Common Stock is being sold to the stockholders is not based on an independent
valuation of the Company or its assets or other recognized criteria of
investment value. The Subscription Price for the Common Stock was negotiated
with NWO, the parent company of International Hydrocarbons, the Company's
principal stockholder. The Subscription Price is based on the highest
price at which International Hydrocarbons would agree to purchase all
Common Stock not subscribed for by other stockholders. It does not
indicate that the Common Stock has a value of or could be resold at the
Subscription Price. SEE "DETERMINATION OF OFFERING PRICE."
GOING CONCERN DEPENDENT ON LITIGATION - AUDITOR'S REPORT QUALIFIED
WITH RESPECT TO GOING CONCERN. The Company's only significant source of
revenue, its Prinos Interest, is currently the subject of litigation. The
prospects for the Company continuing as a going concern are dependent on
obtaining a favorable judgment or settlement in the litigation and
collecting or enforcing the judgment or settlement. While the Company
believes there is a reasonable possibility of prevailing in the
litigation, the ultimate outcome of the lawsuit cannot be determined at this
time. Furthermore, there are no assurances that the Company will be able
to collect on a successful judgment or settlement of the pending
litigation. If the Company is not able to obtain a favorable judgment
or settlement and collect on the judgment or settlement, the Company may
be forced to liquidate its assets, and in such case, little if any assets
will be
6
<PAGE>
available for distribution to shareholders. The report of the
Company's independent auditors for the most recently completed fiscal year
states that the financial statements were prepared assuming that the Company
will continue as a "going concern". However, the report expresses
substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not contain any adjustments that may
be necessary if the Company is unable to continue as a going concern.
The auditor's report also indicates that no provision for any liability
or loss that may result upon adjudication of the lawsuit with Denison
Mines Limited ("Denison") is made in the financial statements and
that the outcome of that lawsuit is uncertain. SEE "LEGAL
PROCEEDINGS," "BUSINESS OF THE COMPANY" AND "MANAGEMENT DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
LOANS FROM NWO DUE DECEMBER 31, 1996. Pursuant to the Modification
Agreement, the Company must repay $2,000,000 plus accrued interest to NWO by
December 31, 1996. On November 30, 1995, the Company paid NWO $610,522.
$92,402 was applied to accrued interest and $518,120 was applied to the loan
leaving an outstanding loan balance of $1,481,880. Beginning in December
1995, all monthly revenue payments received by the Company for its Prinos
Interest will be paid to NWO and applied first to accrued interest and then
to the outstanding loan balance. If the loan is not repaid when due and if
the loan is not extended, of which there is no guarantee, NWO may institute
legal proceedings to collect the amounts due. NWO holds a first priority lien
on the Company's Prinos Interest and may seek foreclosure of that security
interest if the Company is not able to repay the amounts due. SEE "BUSINESS
OF THE COMPANY-NWO LINE OF CREDIT."
ADDITIONAL FUNDS NEEDED TO FUND OPERATIONS OVER AN EXTENDED PERIOD. The
Company has been dependent upon the Prinos Interest as its primary source of
income. From the initiation of the litigation involving the Prinos Interest
through November 1995, the Company had not received any revenue applicable to
it. The Company had depended on draws on a line of credit facility provided
by NWO to fund its operations. NWO is the parent corporation of the
Company's principal stockholder, International Hydrocarbons. Prior to the
end of fiscal year 1995, the line of credit with NWO was exhausted and the
Company had no funds to repay NWO the advances under the line of credit. In
December 1995, Denison resumed making payments under the Prinos Interest
calculated under the terms of the license agreement as amended in 1993. This
reduced amount is not sufficient to fund operations on an ongoing basis. The
Company has entered into a Modification Agreement with NWO, which provides
for limited forbearance in collection of interest and principal under the NWO
line of credit and limited financial assistance to the Company for payment of
litigation costs with respect to the Prinos Interest. The Company will
require additional funds to pay its litigation costs and continue limited
operations. The proceeds of the Rights Offering are intended to fund limited
operations, to fund the litigation and to pay accounts payable as funds are
available. However, additional funds may also be required in excess of the
proceeds of the Rights Offering depending on the cost of litigation, appeals,
if any, and the time it may take to collect on a judgment or settlement.
Because of the Company's financial condition, there is no assurance that the
Company will have adequate funding to complete the litigation or continue
operations if the litigation is protracted. Obtaining the additional
financing may be difficult and there can be no
<PAGE>
assurances that the Company will be successful in doing so. The Company has
no alternative plans to obtain or commitments to provide additional financing
if such financing is necessary. The Company's counsel has been unable to
conclude that the likelihood of an adverse determination in the litigation
with Denison is remote. Even if the Company is successful in the litigation,
there is no guarantee that the Company could collect a judgment from Denison.
SEE "MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
SIGNIFICANT LIABILITIES DUE WITHIN 18 MONTHS. The Company has two
significant liabilities that will likely require payment within the next 18
months. First, the Company will be obligated to repay advances made by NWO for
the Company's legal fees. This reimbursement is anticipated to be made with the
proceeds of this Rights Offering but is due by January 31, 1996. Second, the
repayment of the outstanding balance on the NWO line of credit plus accrued
interest is due on December 31, 1996. Only if the Company is successful in the
litigation and is able to collect funds from Denison or is able to secure funds
from other sources will the Company be able to repay the funds borrowed under
the NWO line of credit. It is highly unlikely that the Company will be able to
secure funds from third parties. The financial statements do not include any
adjustments that might result from the uncertainties associated with the outcome
of the lawsuit or the ability to raise additional financing. SEE "MANAGEMENT
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
SUSPENSION OF TRADING AND POTENTIAL DELISTING FROM THE PACIFIC STOCK
EXCHANGE. The Company has failed to maintain the minimum standards required
by the Pacific Stock Exchange (the "Exchange") to maintain its listing as a
Tier II Security on that exchange. On August 25, 1995, the Company was
notified that it is subject to the initiation of delisting procedures. Its
listing status was reviewed by the Exchange at a meeting of the Equity
Listing Committee (the "Committee") held on October 3, 1995. The Company was
informed that the Committee had decided to delist its Common Stock. The
Committee based its decision upon the Company's deficiencies with respect to
the following components of the Exchange's listing maintenance requirements:
net tangible assets of at least $500,000, aggregate market value of at least
$500,000, and a minimum bid price per share of at least $1. The Company has
the right to appeal the decision of the Committee and the Company intends to
pursue such an appeal. The Company's Common Stock is suspended from trading
as of October 4, 1995 and will remain suspended until the appeals process is
completed. The potential delisting of the Company from the Exchange, if it
occurs, may have an adverse effect on the market value of the Common Stock.
SEE "DESCRIPTION OF CAPITAL STOCK."
TRADING OF COMMON STOCK MAY BE SUBJECT TO PENNY STOCK RULES. If the Common
Stock is delisted from the Pacific Stock Exchange, the Common Stock will be
Penny Stock as defined by the Exchange Act. Brokers must comply with complex
disclosure rules prescribed by the Exchange Act prior to effecting trades in a
Penny Stock. The classification of the Common Stock as a Penny Stock will
likely reduce the tradeability of the Common Stock and could result in a
reduction in the market value of the Common Stock.
RIGHTS OFFERING IS MADE ON AN ALL OR NONE BASIS. The Rights Offering is
being made on an all or none basis, which means that if all 6,001,000 shares of
Additional Common Stock offered are not subscribed for, no subscriptions will be
accepted and all subscriptions will be returned. However, each stockholder will
be allowed to exercise less than all of the Rights
8
<PAGE>
granted to that stockholder. The Company has obtained the commitment of
International Hydrocarbons, its principal stockholder, to purchase all
unsubscribed for Additional Common Stock. Accordingly, International
Hydrocarbons will be allowed to subscribe for all unsubscribed for Additional
Common Stock. SEE "PLAN OF DISTRIBUTION-RIGHTS OFFERING."
PROCEEDS TO BE USED TO REPAY PARENT OF PRINCIPAL STOCKHOLDER. The Company
intends to use a portion of the proceeds, up to $103,000 (approximately 19% of
the offering proceeds), to repay NWO, the parent of the Company's principal
stockholder, for advances made by NWO to the Company to pay legal fees. SEE
"USE OF PROCEEDS."
DILUTION OF NON-EXERCISING STOCKHOLDERS. The Company has received a
commitment by International Hydrocarbons, the Company's principal stockholder,
to purchase all shares of Additional Common Stock not subscribed for by other
stockholders pursuant to the Rights Offering. Consequently, the Company believes
that it will sell all Additional Common Stock offered in this Rights Offering.
As a result, the effective percentage ownership of any non-exercising
stockholder will be reduced by approximately sixty percent. For example, a
stockholder that currently owns one percent of the Company and does not exercise
its Rights will own approximately four-tenths of one percent after completion of
the Rights Offering. If further equity financing is required, additional
dilution may take place. If all stockholders fully exercise their Basic
Subscription Rights, the effective percentage ownership of each stockholder will
remain unchanged. In addition, the Subscription Price of $.10 is substantially
less than the price at which the Common Stock has traded during the last twelve
months. The effect of the Rights Offering will likely be to decrease the
current market value of the Common Stock.
The Company is currently in a deficit position and will continue to be in a
deficit position after the Rights Offering. Proceeds contributed as a result of
the Rights Offering will not have a book value after the Rights Offering.
COMPETITION. The oil and gas industry is competitive, and the Company must
compete with many long-established companies having far greater resources and
operating experience. Furthermore, the demand for financing of oil and gas and
mineral exploration and development programs substantially exceeds the available
supply, and the Company competes with other exploration and development
companies of far greater means for the available funds. Because of the
Company's financial condition, the Company is not currently able to participate
in exploration and development activities. Even if funds are raised from the
offering, the scope of the Company's exploration activities will be constrained
by the shortage of funds.
OIL AND GAS PRODUCTION. Oil and gas exploration activities, especially in
foreign areas, are subject to a wide variety of risks which affect not only the
concessions themselves but also their salability (whether of partial interests
or otherwise) to third parties. The industry is also subject to fluctuations in
the price of and the demand for oil and gas. In addition, there is no guarantee
that the Prinos Interest, the Company's principal source of revenue, will
continue to produce revenue in the future as it has in the past. While the
Prinos Interest includes new wells either drilled or being drilled on or near
the Prinos producing field, there is no assurance that these wells will produce
significant quantities of oil and gas. SEE "MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
9
<PAGE>
FOREIGN OPERATIONS. The Company's oil and gas concessions are generally
located in territories controlled by foreign governments. As a result the
concessions may be subject to the following risks:
(i) Potential expropriation or nationalization of concessions or
facilities by foreign governments;
(ii) Jurisdictional disputes between foreign governments concerning
areas in which the Company's concessions are located;
(iii) Civil unrest or significant political changes in foreign
countries in which the Company holds concessions;
(iv) Taxation by foreign governments of the Company's income derived
within their jurisdiction combined with uncertainties over the availability
in the United States of foreign tax credits for taxes actually paid to
foreign governments; and
(v) Fluctuations in the price of and the demand for oil and gas.
Certain of the Company's properties are subject to current disputes between
foreign governments which have essentially, in addition to the Company's lack of
funds, precluded development of those properties. There is no assurance that
such disputes will be resolved in a timely manner. SEE "BUSINESS OF THE
COMPANY."
LACK OF DIVIDENDS. The Company has never paid a dividend on its Common
Stock and does not intend to do so in the foreseeable future. Any future
payment of dividends by the Company is subject to the discretion of the Board of
Directors.
CONTROL BY PRINCIPAL SHAREHOLDER. The principal shareholder of the Company
is International Hydrocarbons. International Hydrocarbons currently owns 43.8%
of the Common Stock. If all stockholders fully exercise their Basic
Subscription Rights, the effective percentage ownership of each stockholder will
remain unchanged. If Basic Subscription Rights are not exercised by any other
stockholder, International Hydrocarbons will control approximately 77.8% of the
issued Common Stock. Accordingly, International Hydrocarbons will potentially
increase its ability to exert significant influence over the policies and
affairs of the Company.
PLAN OF DISTRIBUTION - RIGHTS OFFERING
The Company is offering to holders of its outstanding Common Stock of
record at the close of business on _______ __, 1995
[insert effective date of Registration Statement](the "Record Date"), the
right to subscribe for and purchase 1.5325 shares of Common Stock
("Additional Common Stock") for each share of Common Stock held of record on
the Record Date. The Rights may be exercised by executing the Subscription
Agreement and by paying $.10 per share ("Subscription Price") as described
below.
10
<PAGE>
SUBSCRIPTION EXPIRATION DATE
The Rights will expire at 5:00 P.M., Denver, Colorado Time on _______
__, 1996 [insert date 30 days after effective date of Registration Statement]
(the "Expiration Date"). AS DESCRIBED BELOW, RIGHTS MUST BE EXERCISED, IF AT
ALL, BEFORE THE EXPIRATION DATE AFTER WHICH TIME THE RIGHTS WILL BE VOID AND
VALUELESS.
BASIC SUBSCRIPTION RIGHTS
The Rights entitle the holders to subscribe at the Subscription Price of
$.10 per share for shares of Additional Common Stock on the basis of 1.5325
shares of Additional Common Stock for each share of Common Stock held on the
Record Date (the "Basic Subscription Rights"). The number of shares for which
a stockholder may subscribe will be rounded up to the nearest whole share. No
fractional shares will be issued. Exercise of the Basic Subscription Rights
will also entitle the holders to the Over-Subscription Privilege described
below. SEE "OVER-SUBSCRIPTION PRIVILEGE."
METHOD OF EXERCISING RIGHTS
To exercise the Rights, the holder should fill in Section 1 on the
Subscription Agreement and sign and transmit it along with the required
payment, in the envelope provided, to the Company at 5000 South Quebec
Street, Suite 450, Denver, Colorado 80237. The Subscription Agreement
must arrive on or before the Expiration Date.
PAYMENT
Rights exercised under the Basic Subscription Rights and the
Over-Subscription Privilege must be accompanied by payment of the full
Subscription Price in U.S. Dollars for all shares. Such payment may be made
by mail. Payment may be made by certified check or bank draft drawn upon a
United States bank, or postal, telegraphic or express money order, payable to
the order of "Oceanic Exploration Company". Sufficient mailing time should be
allowed for the Subscription Agreement and payment to be RECEIVED by the
Company before the Expiration Date of the subscription period at 5:00 P.M.,
Denver, Colorado Time, _______ __, 1996 [insert date 30 days after the effective
date of Registration Statement], after which time the Rights will be void and
valueless. Payment may also be made by hand delivery to the Company, in cash or
by certified check or bank draft drawn upon a United States bank, or postal,
telegraphic or express money order, payable to the order of "Oceanic
Exploration Company".
The Rights Offering is being made on an all or none basis, which means
that if all 6,001,000 shares of Additional Common Stock offered are not
subscribed for, no subscriptions will be accepted and all subscriptions will
be returned. However, each stockholder will be allowed to exercise less than
all of the Rights granted to that stockholder. The Company has obtained the
commitment of International Hydrocarbons, its principal stockholder, to
purchase all unsubscribed for Additional Common Stock. Accordingly,
International Hydrocarbons will
11
<PAGE>
be allowed to subscribe for all unsubscribed for Additional Common Stock. SEE
"RISK FACTORS-DILUTION OF NON-EXERCISING STOCKHOLDERS."
The Company reserves the right to reject any Subscription Agreement and
payment not properly submitted. The Company has no duty to give notification
of defects in any Subscription Agreement and/or payment and will have no
liability for failure to give such notification. The Company will return any
Subscription Agreement and/or payment not properly submitted.
PURCHASE AND SALE OF RIGHTS
Rights may not be transferred, divided, combined, purchased or sold.
DELIVERY OF CERTIFICATES
Certificates for shares of Additional Common Stock issuable on exercise
of Rights will be mailed as soon as practicable after the Expiration Date.
OVER-SUBSCRIPTION PRIVILEGE
If some stockholders do not fully exercise all of their Basic
Subscription Rights, the remaining Additional Common Stock will be offered to
those holders of Basic Subscription Rights who wish to acquire more than the
number of shares to which their Basic Subscription Rights entitle them (the
"Over-Subscription Privilege"). Each holder of Basic Subscription Rights who
fully exercises Basic Subscription Rights will be entitled to participate in
such Over-Subscription Privilege and will be asked to indicate on the
Subscription Agreement how many additional shares that stockholder would be
willing to acquire pursuant to the Over-Subscription Privilege. Each
stockholder wishing to exercise its Over-Subscription Privilege must exercise
its Over-Subscription Privilege and must tender payment for the Additional
Common Stock subscribed for pursuant to the Over-Subscription Privilege at
the time it exercises its Basic Subscription Rights. If there remain
sufficient shares of Additional Common Stock after the exercise of Basic
Subscription Rights, all over-subscriptions will be honored in full. If there
are not sufficient shares of Additional Common Stock to honor all
over-subscriptions, the available Additional Common Stock will be allocated
among those who over-subscribe based solely on the number of shares subscribed
for by each over-subscribing holder pursuant to the Basic Subscription Rights.
For example, if after the exercise of the Basic Subscription Rights (1) there
remain 150,000 shares of Additional Common Stock that were not subscribed for
pursuant to Basic Subscription Rights, (2) two stockholders each indicated that
they wished to acquire shares of Additional Common Stock pursuant to the
Over-Subscription Privilege, (3) the first stockholder oversubscribed for
150,000 shares and the second stockholder oversubscribed for 200,000 shares and
each tendered payment for that number of shares and (4) the first stockholder
acquired 100,000 shares pursuant to its full Basic Subscription Rights and the
second stockholder acquired 200,000 shares pursuant to its full Basic
Subscription Rights; then the first stockholder would be entitled to one-third
or 50,000 shares of the Additional
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<PAGE>
Common Stock and the second stockholder would be entitled to two-thirds or
100,000 shares of the Additional Common Stock.
The percentage of remaining shares of Additional Common Stock each
over-subscribing holder may acquire may be rounded up or down to result in
delivery of whole shares. The allocation process may involve a series of
allocations in order to assure that the shares available for over-subscription
are distributed proportionately among all over-subscribing holders.
Accordingly, the degree to which each stockholder's request for shares of
Additional Common Stock pursuant to the Over-Subscription Privilege will be
honored will depend on the number of shares of Additional Common Stock
requested, the number of shares acquired by the exercise of Basic Subscription
Rights and the total number of shares of Additional Common Stock available for
over-subscription. After the expiration of the Rights, the Company will send
notice of the number of shares of Additional Common Stock acquired pursuant to
the Over-Subscription Privilege to each stockholder that over-subscribed and
promptly remit to such stockholder any payment tendered for shares not acquired
under the Over-Subscription Privilege. The Company has received a commitment
from International Hydrocarbons, its principal stockholder, to purchase all
shares of Additional Common Stock not subscribed for pursuant to the Basic
Subscription Rights or the Over-Subscription Privilege.
FEDERAL INCOME TAX INFORMATION
The federal income tax consequences to stockholders of the issuance and
disposition of Rights to purchase Additional Common Stock generally will be
as follows:
RECEIPT OF RIGHTS. The receipt of Rights will not result in taxable
income to stockholders.
TAX BASIS OF RIGHTS AND COMMON STOCK FOR DETERMINING GAIN OR LOSS ON
SUBSEQUENT SALES. For purposes of determining gain or loss on subsequent
sales of Common Stock, the tax basis of Rights in the hands of each
stockholder to whom such Rights are issued will be zero and the tax basis in
the Additional Common Stock with respect to which Rights are issued will
remain unchanged. Notwithstanding this general rule, each stockholder may
elect, with respect to all Rights issued to it, to allocate the tax basis of
all shares of Common Stock that it holds on the Record Date between such
shares and the Rights issued to it in proportion to their fair market values
on the date the Rights are issued. To be valid, this election must be made by
the stockholder in a statement attached to its timely-filed Federal
income tax return for the year in which the Rights are received, and once
made, is irrevocable. However, if on the date the Rights are issued the fair
market value of the Rights is 15% or more of the fair market value of the
Common Stock, each stockholder will be required to allocate the tax basis of
its shares of Common Stock in the manner described above in determining gain
or loss on any subsequent sales of Common Stock.
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EXERCISE OF RIGHTS. The exercise of Rights will not result in taxable
income or loss. The tax basis of the Additional Common Stock acquired upon
the exercise of Rights will be the Subscription Price of such Additional
Common Stock, increased by the tax basis (if any) of the Rights exercised to
acquire such Additional Common Stock.
EXPIRATION OF RIGHTS. A stockholder who allows Rights issued to him to
expire without exercise is not required and may not elect to allocate any
tax basis to such Rights, and will therefore not recognize a loss on
account of the expiration.
HOLDING PERIOD. The holding period of the Rights received on
distribution from the Company is measured from the acquisition date of the
Additional Common Stock which gave rise to the Rights. The holding period of
Additional Common Stock acquired by exercise of Rights commences with the
date on which such Rights are exercised.
STATE TAX INFORMATION
Participants should consult with their own income tax advisors to
determine the applicable state income tax consequences of the issuance and
exercise of Rights to purchase the Additional Common Stock.
THE FOREGOING IS A GENERAL SUMMARY OF FEDERAL INCOME TAX TREATMENT UNDER
PRESENT LAW. THESE RULES ARE COMPLEX AND SUBJECT TO CHANGE. EACH
STOCKHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR FOR MORE DETAILED
INFORMATION AS TO THE TAX CONSEQUENCES APPLICABLE TO HIS OR HER OWN SITUATION.
RESALE OF ADDITIONAL COMMON STOCK
Sbject to applicable state securities laws, stockholders who are not
"affiliates" of the Company may generally resell, without restriction, the
Additional Common Stock acquired pursuant to the Basic Subscription Rights or
the Over-Subscription Privilege. Stockholders who are deemed to be "affiliates"
of the Company may resell the Additional Common Stock acquired pursuant to the
Basic Subscription Rights or the Over-Subscription Privilege only pursuant to
Rule 144 under the Securities Act or in a transaction otherwise exempt from
registration under the Securities Act and subject to applicable state
securities laws.
International Hydrocarbons will be considered an affiliate of the
Company for purposes of Rule 144 under the Securities Act. Accordingly, the
resale of the Additional Common Stock acquired by International Hydrocarbons
will be subject to the limitations set forth in Rule 144 with respect to
amounts of securities sold by an affiliate and the manner of sale unless the
Additional Common Stock is sold by International Hydrocarbons in a
transaction otherwise exempt from registration under the Securities Act and
other applicable securities laws.
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<PAGE>
USE OF PROCEEDS
The following table illustrates the Company's current expectations as to
the use of the proceeds from the Rights Offering described herein. The
Company has no firm understanding or agreement concerning items listed and no
binding budget has been established, except for reimbursement obligations to
NWO (SEE "BUSINESS OF THE COMPANY-NWO LINE OF CREDIT"). The amounts stated
herein are estimates only and the actual expenditures may vary from the
estimate.
<TABLE>
<CAPTION>
<S> <C>
Gross Proceeds $600,100
Cost of Offering (1) (70,000)
--------
Net Proceeds $530,100
--------
--------
Estimated reimbursement to NWO of current advances
including estimated accrued interest (2) 103,000
Fund future operations and pay accounts payable as
funds are available (3) 427,100
--------
Net Proceeds $530,100
--------
--------
</TABLE>
(1) The costs of offering includes professional fees incurred in the
preparation of this Prospectus and printing, copying and miscellaneous
expenses.
(2) Pursuant to the Modification Agreement between the Company and NWO,
the Company has agreed to reimburse NWO from the proceeds of the Rights
Offering for advances made by NWO to pay the Company's ongoing legal
fees in connection with the litigation against Denison together with
interest at 10% per annum. NWO has agreed to advance the Company up to
$100,000 to pay ongoing legal fees as reflected in statements received
by the Company subsequent to August 1, 1995. SEE "BUSINESS OF THE
COMPANY-NWO LINE OF CREDIT." Based on the estimated timetable of the
litigation with Denison (SEE "LEGAL PROCEEDINGS"), the Company believes it
will have sufficient funds to finance the remaining litigation through
June 30, 1996, the date prior to which the Company anticipates a judgment
to be rendered in the litigation. There is no provision for costs of
appeals from the judgment, if any, or collection expenses.
(3) This amount should be sufficient to fund limited operations through
December 1996.
The Company reserves the right to allocate the resources of the Company
in a different manner if necessary or appropriate.
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<PAGE>
DETERMINATION OF OFFERING PRICE
The Rights Offering is being conducted by the Company in connection with
the Modification Agreement with NWO and is being offered based on the
commitment of International Hydrocarbons to purchase all Additional Common
Stock not purchased by other stockholders. After NWO rejected the Company's
proposal to extend or increase the line of credit, the terms of the Rights
Offering and the Modification Agreement were negotiated with NWO by the two
independent members of the Company's Board of Directors (the "Independent
Directors"). The Subscription Price is based on the highest price at which
International Hydrocarbons would agree to purchase all Additional Common
Stock not subscribed for by other stockholders. The terms of the Rights
Offering and the Modification Agreement negotiated with NWO were unanimously
recommended by the Independent Directors and approved by a majority of the
Company's Board of Directors on August 8, 1995. SEE "BUSINESS OF THE
COMPANY-NWO LINE OF CREDIT".
The principal factors in the negotiations with NWO were the
non-availability of revenue from other sources and the opportunity for
stockholders to participate in the financing through the Rights Offering.
The Company has not sought an independent third party opinion with respect to
the value of the Company or the appropriateness of the Subscription Price.
The Subscription Price has no relation to the market value of the Common
Stock of the Company, the value of the Company's assets or the Company's
prospects as a going concern.
BUSINESS OF THE COMPANY
The Company was incorporated in 1969 and is engaged in the business of
acquiring oil and gas concessions covering large blocks of acreage and in
conducting exploration activities thereon, including seismic and other
geophysical evaluation and exploratory drilling where appropriate. The
Company conducts its operations directly or through wholly-owned
subsidiaries. The term "concession" is used herein to mean exploration,
development and production rights with respect to a specific area, which
rights may be created by agreement with a government, governmental agency or
corporation. When a discovery of oil or gas occurs, the Company will pursue
the development of reserves and the production of oil or gas to the extent
considered economically feasible and may finance development by farming out
or selling a portion of its interest in the discovery. The Company's property
interests are located in the North Aegean Sea, offshore Greece, and in the
East China Sea. The Company has identified a prospect in Bolivia, has
prepared a preliminary plan for exploration and is attempting to find
participants to finance exploration costs. Since 1994 the Company has not
been able to participate in exploration and development, other than limited
activities in Bolivia to the extent that funding is available, and has
concentrated its efforts on the litigation regarding the Prinos Interest.
The Company's business activities involve only one industry segment, oil
and gas exploration and development.
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<PAGE>
The Company employs six people, four of whom are full-time employees.
The full-time employees also provide services to two related entities
pursuant to management agreements entered into by the Company and those
entities. SEE "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
The Company's principal executive offices are located at 5000 South
Quebec Street, Suite 450, Denver, Colorado 80237, and its telephone number is
(303) 220-8330.
MODE OF OPERATION
The Company has generally undertaken exploration of concessions through
various forms of joint arrangements with unrelated companies, whereby the
parties agree to share the costs of exploration, as well as the costs of and
any revenue from a discovery. Such arrangements do not always equate the
proportion of expenditures undertaken by a party with the share of revenues
to be received by such party.
The Company has usually obtained concessions directly from a government
or governmental agency and has then entered into arrangements with other
participants whereby the Company has received cash payments and has had its
share of exploration expenditures paid (either before or after being
expended) in whole or in part by other participants.
Since the Company's establishment, sales of partial interest in its
concessions have been part of its normal course of business and have provided
funds for the acquisition of further concessions and for exploration of
existing concessions. Some of the competition and risk factors relating to
this method of doing business are referred to above in "RISK FACTORS."
In order to maintain its concessions in good standing, the Company is
usually required to expend substantial sums for exploration and, in many
instances, for surface rentals or other cash payments. Additionally, the
development of any discoveries made upon concessions in which the Company
holds an interest generally involve the expenditure of substantial sums of
money. The Company has, in the past, satisfied required expenditures on its
concessions. The Company cannot be certain that its revenues in the future
will be sufficient to satisfy expenditures required to be made on its
concessions.
PROPERTIES
The Company holds various interests in concessions or leases for oil and
gas exploration which are listed below. Oil and gas property interests as
reflected in the accompanying financial statements include costs
attributable only to the Prinos Interest. Costs on all other foreign
concessions described below have been charged to expense in prior years.
GREECE. The Company has the right to receive the Prinos Interest
payable by Denison from the proceeds of production of oil and gas from
certain concession areas totaling approximately 430,000 acres in the North
Aegean Sea, offshore Greece. "Development areas"
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<PAGE>
for the Prinos Oil Field covering 23,390 gross acres and for the Kavala Gas
Field covering 11,787 gross acres have been defined by the Greek government
and given "development status." The term of each "development" license is 26
years, with an automatic 10-year renewal. The remaining exploration area
adjoining Prinos and South Kavala covers 153,316 acres and an exploration
area east of the island of Thasos covers an additional 243,367 acres. The
Prinos Interest is subject to a lien in favor of NWO, which lien secures
payment of the amounts due to NWO by the Company. SEE "BUSINESS OF THE
COMPANY-NWO LINE OF CREDIT."
Daily production from the Prinos/South Kavala Fields averaged 10,652
barrels of oil and 151 tons of sulphur during fiscal year ended March 31,
1995. According to Denison's 1994 Annual Report, calendar year 1994
production was essentially maintained at levels achieved in calendar year
1993 as a result of the completion of workovers and the drilling of infill
wells and that two more infill wells are being considered for 1995 in order
to maintain economic rates of production.
Due to high Greek income taxes and royalties in combination with
declining production levels, low oil prices and increasing operating costs,
the consortium believed that the Greek operation was at its economic
breakeven point. As a result, Denison and its partners commenced
negotiations in 1992 with senior Greek government officials to obtain relief
from the high level of government taxes and royalties. On February 23, 1993,
the consortium reached an agreement with the Greek government resulting in an
amendment to the June 1975 license agreement (the "License Agreement") known
as Law 98/1975 which regulates the operation of the field. The amendment was
ratified by the Greek Parliament on June 23, 1993 and was retroactive to
January 1, 1993.
The amendment provides for a sliding scale for both the cost recovery
factor and the Greek royalty interest based on the annual adjusted gross
income from operations on a calendar year basis. The new law also provides
for a reduction in the effective Greek income tax rate from 50% to 40%.
In addition, the new law required Denison and its partners to spend $15
million during 1993 and 1994 on infill drilling in order to enhance the
recoverability of the hydrocarbons. In March 1994, the consortium operating
the Prinos properties announced the discovery of a new oil field by the
drilling of the Prinos North-2 well. Denison's 1994 Annual Report states
that two oil bearing zones were flow tested with a 30 meter upper section
flowing at about 3,200 barrels per day and a 7 meter lower section flowing at
150 barrels per day. Oil in place was calculated at about 18 million barrels
of which 5 million may be recoverable. The crude from this discovery has an
API gravity of about 25 degrees, contains about 7% sulphur and may have a
selling value of between $1.50 and $4.00 per barrel less than Prinos crude.
Recent discussions with Denison indicate that the consortium is not
considering development of Prinos North at this time.
Denison, who has the contractual obligation to pay the Prinos Interest,
has asserted that the calculation of the amounts due the Company should be
based on the amended agreement with
18
<PAGE>
the Greek government. The amended agreement provides for higher cost
recoveries than the License Agreement before the 1993 amendment. If the
higher cost recoveries are used in calculating the amount due under the
Prinos Interest, the amount will be significantly lower than the amount
calculated under the License Agreement before the 1993 amendment. The
Company disagrees with this interpretation and has commenced legal action
seeking a declaration by the Court that amounts due the Company attributable
to its Prinos Interest be calculated based on the terms of the License
Agreement before the 1993 amendment. The Company is seeking damages of
approximately $5,000,000 for the period from January 1, 1993 through March
31, 1994 plus damages since that date and undetermined future damages. The
Company estimates that damages for the unpaid revenues for the period from
April 1, 1994 through September 30, 1995 are approximately $6,300,000. The
Company's counsel is unable to conclude that the likelihood of an adverse
determination in the litigation with Denison is remote. In addition, if the
Company obtains a favorable judgment against Denison, there is no assurance
that the Company will be able to collect the judgment due to Denison's
current financial condition. SEE "LEGAL PROCEEDINGS."
When the legal action against Denison commenced, Denison suspended
payments under the Prinos Interest. Denison also asserted a counterclaim for
$4,700,000 against the Company for alleged past overpayments by Denison. On
November 27, 1995, the Company received $810,522 from Denison representing
unpaid revenues on the Prinos Interest. These revenues cover the period from
January 1, 1993 through October 31, 1995, and are calculated under the terms
of the License Agreement as amended in 1993. This payment was made in
connection with the agreement of Denison to withdraw the counterclaim filed
by Denison against the Company. As of December 1995, Denison resumed monthly
revenue payments to the Company for its Prinos Interest as calculated under
the terms of the amended License Agreement. The Company will continue to
pursue its litigation against Denison challenging Denison's position that the
calculation of the Prinos Interest should be based on the amended License
Agreement.
Pursuant to the Modification Agreement, the Company retained $200,000
from the payment of Denison. On November 30, 1995 the Company paid NWO
$610,522. $92,402 was applied to accrued interest and $518,120 was applied
to the loan leaving an outstanding loan balance of $1,481,880. Future
payments by Denison under the Prinos Interest will also be applied to the
Company's obligations to NWO pursuant to the Modification Agreement. The
Company does not believe that the payments made under the Prinos Interest as
calculated under the terms of the amended License Agreement at current
production and price levels will be sufficient to repay the obligations owed
to NWO.
There is no assurance as to how long the Prinos property will continue
to produce oil and gas and, accordingly, how long the Company can expect
revenue from its Prinos Interest. The Company has analyzed the data provided
to it from Denison and other data that the Company has been able to verify
from publicly available sources in determining the potential revenue from the
Prinos Interest. The consortium operating the Prinos property has announced a
new oil discovery on or near the Prinos producing field, which is subject to
the Prinos Interest. The Company has not verified the data provided by
Denison with respect to that new oil discovery
19
<PAGE>
and its potential revenue and does not have sufficient resources to do so
reasonably. Additionally, the Company is aware that other members of the
consortium believe the estimated amounts provided by Denison may be exceeded.
These analyses are not publicly available and, accordingly, have not been
verified. There is a possibility that the revenues from the Prinos property
would substantially differ from current estimates.
REPUBLIC OF CHINA (TAIWAN). The Company holds a 22.23% working interest
in a concession located north of Taiwan in the East China Sea, covering
3,706,560 gross acres. The exploration license for this concession had a
nominal term extending to 1979, requiring exploration activity and minimum
expenditures. Preparations for initial exploratory drilling were suspended
in 1977 under a claim of force majeure, pending resolution of a territorial
dispute among the Republic of China (Taiwan), the Government of Japan and the
People's Republic of China. The Chinese Petroleum Corporation (Taiwan) has
agreed to suspend obligations under this concession until December 31, 1995.
During fiscal 1990, the Company entered into a farmout agreement with
two United Kingdom companies conveying two-thirds of its original 66.67%
interest in the concession.
Due to the uncertainty of sovereignty in the area, no immediate
development expenditures, as required under the terms of the concession
agreement, are anticipated. The Company incurred $27,171 of exploration
expenses during fiscal 1995 as the result of ongoing negotiations with the
governments of China and Taiwan and the reprocessing of seismic data to
assist in the future exploration and development of the concession.
In fiscal year 1994, the Company reported that the People's Republic of
China was indicating its intention to open up adjacent concession areas for
bidding and that a resolution to the sovereignty issues may result. Nothing
occurred in fiscal year 1995 to indicate that the lifting of the current
force majeure status is imminent.
BOLIVIA. The Company has conducted a preliminary exploration study of a
10,500 square kilometer area located in the eastern part of the country near
the Paraguayan border, pursuant to a work study program with Y.P.F.B., the
government controlled agency having responsibility for oil and gas
exploration in Bolivia. The Company has preliminarily agreed to the terms
of an operations contract pertaining to such area and anticipates signing an
operations contract in fiscal year 1996. The Company is attempting to find
participants to finance exploration costs.
OTHER. The Company leases 2,562 square feet of office space in an
office building located at 5000 South Quebec Street, Denver, Colorado. The
office building is owned by a related party. The lease expires on February
28, 1997. SEE "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
20
<PAGE>
NWO LINE OF CREDIT
Since payments under the Prinos Interest were suspended, the Company had
funded its operations through draws against the line of credit established
with NWO. Prior to the end of fiscal year 1995, the Company's credit line was
exhausted. During the first half of fiscal year 1996, the Company had no
resources to make monthly interest payments on the advances under the line of
credit. Accordingly, the Company entered into the Modification Agreement,
modifying the existing line of credit arrangement between the Company and
NWO. Prior to entering into the Modification Agreement, the NWO line of
credit provided for cumulative draws of up to $2,000,000 with interest
payable monthly on the outstanding balance at the greater of the U.S. bank
prime lending rate or 1-3/4% above the 30-day LIBOR in effect on the date of
each draw against the line of credit. Draws under the line of credit are
evidenced by promissory notes which were originally payable by the Company's
wholly-owned subsidiary, Oceanic International Properties Corporation
("OIPC") no later than January 1, 1996 with interest at annual rates of 7% to
9%. Cumulative draws on the NWO line of credit had reached $2,000,000 by
February 15, 1995. The line of credit is secured by the Company's Prinos
Interest. At the time the Modification Agreement was entered into, the
Company was in default under the terms of the line of credit as it had not
made its interest payments for May, June, July and August 1995.
The Modification Agreement provides as follows:
1. Except as provided below, NWO will forebear on collection
until December 31, 1996 of the interest and principal on the
$2,000,000 of promissory notes evidencing draws on the NWO line of
credit ("Oceanic Notes") which it holds from OIPC.
2. Any monies collected by the Company from Denison either
before or after December 31, 1996 will first be applied to paying
accrued interest on the Oceanic Notes. After all accrued interest has
been paid, and prior to December 31, 1996, the Company will be
permitted to use up to $200,000 of monies collected from Denison for
working capital purposes. All remaining collections from Denison will
be applied first to accrued interest and then to reducing principal on
the Oceanic Notes.
3. The Security Agreement between the Company and NWO will be
amended to provide that NWO has a full security interest in all
proceeds from the Company's lawsuit against Denison and any existing
and future Company receivables from Denison.
4. The interest rate on the Oceanic Notes is adjusted to 8.25%.
5. The Company agrees to diligently pursue its lawsuit against
Denison.
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<PAGE>
6. The Company will use its best efforts to file the
Registration Statement with the Securities and Exchange Commission
with respect to the Rights Offering described in the Registration
Statement and use its best efforts to cause the Registration Statement
to become effective by December 31, 1995.
7. In order to enable the Company to diligently pursue its
lawsuit against Denison, NWO agrees to make advances to the Company
for ongoing legal fees as reflected in statements received by the
Company subsequent to August 1, 1995 in connection with the Denison
litigation up to an estimated $100,000 in litigation expenses.
8. The Company agrees to reimburse NWO for such advances up to
an estimated $100,000 together with interest thereon computed at the
annual rate of 10% upon receipt of the proceeds of the Rights Offering
described in the Registration Statement or January 31, 1996, whichever
occurs earlier.
On November 27, 1995, the Company received $810,522 from Denison
representing unpaid revenues on the Prinos Interest. These revenues cover
the period from January 1, 1993 through October 31, 1995, and are calculated
under the terms of the License Agreement as amended in 1993. Pursuant to the
Modification Agreement, the Company retained $200,000 from the payment of
Denison. On November 30, 1995 the Company paid NWO $610,522. $92,402 was
applied to accrued interest and $518,120 was applied to the loan leaving an
outstanding loan balance of $1,481,880. Future payments by Denison under the
Prinos Interest will also be applied to the Company's obligations to NWO
pursuant to the Modification Agreement. The Company does not believe that
the payments made under the Prinos Interest as calculated under the terms of
the amended License Agreement at current production and price levels will be
sufficient to repay the obligations owed to NWO.
International Hydrocarbons, which owns approximately 43.8% of the
outstanding common stock of the Company, is a wholly-owned subsidiary of NWO.
International Hydrocarbons has agreed to purchase all shares of Additional
Common Stock not subscribed for pursuant to the Basic Subscription Rights or
the Over-Subscription Privilege. SEE "PLAN OF DISTRIBUTION-RIGHTS
OFFERING--OVER-SUBSCRIPTION PRIVILEGE."
LEGAL PROCEEDINGS
The Company has commenced an action in the Ontario Court (General
Division), Canada, against Denison. The Company claims that Denison has
failed since January 1, 1993 to pay the Company the Prinos Interest pursuant
to an agreement dated August 30, 1976, which is to be calculated on the basis
of the terms of the License Agreement.
The Company has claimed the following relief in the action:
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1. a constructive trust or equitable lien over funds received by Denison
representing the unpaid portion of the Prinos Interest;
2. a vendor's lien over assets purchased by Denison from the Company
including Denison's interest in the License Agreement; and
3. $27,000,000.00 or alternatively, an accounting and payment of the
Prinos Interest in respect of the period commencing January 1, 1993.
Denison has defended the action on the basis that the Company is not
entitled to the payment claimed, and is entitled only to payment of the
Prinos Interest calculated in accordance with the terms of the License
Agreement as amended by an agreement with the Greek State dated February 23,
1993.
Denison counterclaimed for the repayment of the sum of $4,747,811 that
it alleged it mistakenly paid to the Company as part of the Prinos Interest
during the period from January 1, 1989, to December 31, 1993. On November
27, 1995, the Company received unpaid revenues on the Prinos Interest for the
period from January 1, 1993 through October 31, 1995, calculated under the
terms of the License Agreement as amended in 1993. This payment was made in
connection with the agreement of Denison to withdraw the counterclaim filed
by Denison against the Company. As of December 1995, Denison has resumed
monthly revenue payments to the Company for its Prinos Interest as calculated
under the terms of the amended License Agreement. The Company will continue
to pursue its litigation against Denison challenging Denison's position that
the calculation of the Prinos Interest should be based on the amended License
Agreement.
The statement of claim in this action was issued on June 9, 1994. The
matter was transferred to the Ontario Court (General Division) Commercial
List by order of November 25, 1994. The parties filed with the Court the
following schedule for the progress of this action:
1. Delivery of documents by April 15, 1995;
2. Examination for discovery of both parties during the week of June 26, 1995;
3. Motions arising from discovery to be completed by October 31, 1995;
4. Trial to be held February 1996.
The Company is vigorously pursuing this action. Oral discovery of the
parties has commenced but has not been completed.
The Company's legal counsel, Osler, Hoskin & Harcourt in Toronto,
Canada, is unable to advise as to the probable outcome of the claim by the
Company. Management's decision to pursue a legal action against Denison was
based on management's review of information
23
<PAGE>
provided to the Company by Denison and oral discussions with legal counsel.
Based on that information and those discussions, Management believed that
there was a reasonable basis for commencing a legal action against Denison
and continues to believe that there is a reasonable possibility of success in
the litigation. Of course, litigation is inherently uncertain and there is
no assurance as to the final outcome. The Company has not received a written
determination from its legal counsel with respect to the litigation.
It should be noted that if the claim is unsuccessful the Company will
remain entitled to payment of the Prinos Interest calculated in accordance
with the terms of the License Agreement, as amended. The amounts of such
payments will be substantially lower than the payments received prior to
January 1, 1993. The Company does not believe that the payments made under
the Prinos Interest calculated under the amended License Agreement at current
production and price levels will be sufficient to repay the obligations owed
to NWO.
Any judgment obtained by the Company or Denison in relation to the claim
will be subject to the right of the losing party to appeal to the Ontario
Court of Appeal. Notice of appeal to the Court of Appeal must be filed within
30 days after judgment. Barring an order to expedite the appeal, which may
or may not be available in this case, it may take approximately 2 years
before an appeal is heard. A further appeal to the Supreme Court of Canada
is available with leave of the Supreme Court.
Enforcement of a judgment in Ontario is generally carried out by seizure
and sale of assets, garnishment of debts, or appointment of a receiver.
Until recently, it appeared, based on Denison's public filings, that the
financial stability of Denison was questionable and that Denison continued to
operate at the sufferance of its secured creditors. Denison announced on
October 16, 1995 that Denison's Board had approved a Plan of Arrangement
which, among other things, incorporates agreements restructuring the debt
held by Denison's major lenders, the Toronto Dominion Bank, Bank of America
Canada, and the Canadian Mortgage and Housing Corporation. The announcement
states that the Plan is to be put to the shareholders at meetings scheduled
for December 18, 1995. These announced plans if implemented may increase the
likelihood that Denison would have assets available for satisfaction of a
judgment in favor of the Company. However, the Company does not have
sufficient information in its possession to determine whether any assets of
Denison are unsecured and available for satisfaction of a judgment in favor
of the Company.
MARKET FOR COMMON EQUITY
The Company's Common Stock is listed on the Pacific Stock Exchange
Incorporated under the symbol OXC. The Pacific Stock Exchange (the
"Exchange") has informed the Company that it intends to delist its Common
Stock due to the current financial condition of the Company. As of October
4, 1995, the Company's Common Stock is suspended from trading and will remain
suspended until the Company completes its appeal of the Exchange's decision
to delist its Common Stock. At that time, the Common Stock will either
resume trading on the
24
<PAGE>
Exchange or be delisted. There are no assurances that the Company will
continue to be listed on the Exchange. SEE "RISK FACTORS-SUSPENSION OF
TRADING AND POTENTIAL DELISTING FROM THE PACIFIC STOCK EXCHANGE" and
"DESCRIPTION OF CAPITAL STOCK."
The range of closing prices in the Company's Common Stock over the last
two years and through September 30, 1995 (which are not necessarily
representative of actual transactions) is set out below.
<TABLE>
<CAPTION>
THREE MONTHS FISCAL 1996 FISCAL 1995 FISCAL 1994
ENDED HIGH LOW HIGH LOW HIGH LOW
- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
June 30 $.75 .50 $1.13 .88 $1.56 1.38
September 30 .63 .25 .88 .75 1.50 .56
December 31 .75 .50 1.00 .63
March 31 .88 .63 1.13 .75
</TABLE>
CAPITALIZATION
The following table sets forth as of September 30, 1995 (i) the actual
capitalization of the Company and (ii) capitalization of the Company as
adjusted for the sale of 6,001,000 shares of Additional Common Stock in this
Rights Offering at an assumed offering price of $.10 per share. SEE "USE OF
PROCEEDS."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
--------------------------
ACTUAL AS ADJUSTED
----------- -----------
<S> <C> <C>
Stockholders' deficit:
Common stock, authorized 12,000,000
shares of $.0625 par value,
3,915,154 issued and outstanding
actual, 9,916,154 issued and
outstanding as adjusted . . . . . . . . . $ 244,697 619,760
Additional Paid in Capital. . . . . . . . . 6,665 161,702
Accumulated Deficit . . . . . . . . . . . . (2,586,092) (2,586,092)
----------- ----------
Total stockholders' deficit . . . . . . . $(2,334,730) (1,804,630)
=========== ==========
</TABLE>
25
<PAGE>
The Company's authorized capital stock also includes 600,000 shares of
Preferred Stock, par value $10.00 per share. The Board of Directors of the
Company, without further action by the stockholders, is authorized to issue
the shares of Preferred Stock in one or more series and to determine the
voting rights, preferences as to dividends, and the liquidation, conversion,
redemption and other rights of each series. The issuance of a series with
voting and conversion rights may adversely affect the voting power of the
holders of Common Stock. The issuance of Preferred Stock may have the effect
of delaying, deferring or preventing a change in control of the Company
without further action by the shareholders. The Company has no present plans
to issue any shares of Preferred Stock. SEE "DESCRIPTION OF CAPITAL STOCK."
DIVIDENDS
The Company has never paid a dividend. The Company's management does
not anticipate paying dividends in the future.
AVAILABILITY OF OIL AND GAS RESERVE INFORMATION
The Prinos Interest in Greece consists of a contractual right to receive
a 15% "net profits interest." Because the Company has a net profits interest
and not a working interest in this property, the Company is only entitled to
receive information regarding current monthly production quantities and net
revenue. Consequently, certain information regarding the operations of the
property is unavailable to the Company. In previous reports to the
Commission, the Company has provided information concerning estimated
quantities of proved oil and gas reserves attributable to the Prinos Interest
which had been derived from publicly available information. Currently, there
is no publicly available information which takes into consideration the
effects of the infill drilling during 1993 and 1994 as required under the
1993 amendment to the License Agreement known as Law 98/1975. Similarly, the
Company does not have access to the engineering data upon which the infill
drilling program was based. Therefore, the Company is not in a position to
estimate the potential future producible reserves and/or present value of
future net revenues attributable to the Prinos Interest.
26
<PAGE>
OIL AND GAS REVENUE AND COST INFORMATION
Revenue from and costs incurred in oil and gas producing activities for
the fiscal years ended March 31, 1995, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
-------------------------------------------
1995 1994 1993
------------ ----------- -----------
<S> <C> <C> <C>
OIL AND GAS REVENUE (1)
Greece $ - 573,100 4,523,500
Less Greek income taxes paid - (228,100) (2,245,499)
------------ ----------- -----------
$ - 345,000 2,278,001
============ =========== ===========
CAPITALIZED COSTS
RELATED TO OIL AND GAS
PRODUCING ACTIVITIES
Proved properties
Greece $ 39,000,000 39,000,000 39,000,000
Less accumulated depreciation,
depletion and amortization (37,629,909) (37,396,220) (37,151,590)
------------ ----------- -----------
$ 1,370,091 1,603,780 1,848,410
============ =========== ===========
</TABLE>
(1) The Company's gross revenues are burdened only by Greek income taxes.
The Company has no production costs since its Prinos Interest is a net
profits interest.
The rate of depreciation, depletion and amortization as a percentage of
gross revenues (net of Greek income taxes) for Greece is as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
-------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Greece - (2) 71% 30%
</TABLE>
(2) The Company recorded a provision for depreciation, depletion and
amortization of $233,689 for fiscal year 1995 but did not record any revenues
for its Prinos Interest.
27
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth summary financial data of the Company.
The summary financial data in the table is derived from the financial
statements of the Company. The data should be read in conjunction with the
financial statements, related notes and other financial information included
therein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
--------------------- -------------------
1995 1994 1995 1994
---------- --------- -------- --------
<S> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Revenue...................... $ 321,495 835,329 202,243 506,023
Costs and Expenses........... $1,195,369 1,153,304 588,892 600,996
Loss before Income Taxes..... $ (873,874) (317,975) (386,649) (94,973)
Net Loss..................... $ (796,602) (448,746) (327,449) (175,169)
Net Loss per Share of
Common Stock................ $ (.20) (.11) (.08) (.04)
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1995 SEPTEMBER 30, 1995
-------------- ---------------------------
ACTUAL ACTUAL AS ADJUSTED(1)
----------- ---------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Net working capital (deficit).... $(2,554,850) (803,074) (272,974)
Total assets..................... $ 1,557,322 1,357,928 1,888,028
Stockholders' deficit........... $(2,007,281) (2,334,730) (1,804,630)
</TABLE>
(1) As adjusted to give effect to the sale of 6,001,000 shares of Common
Stock offered hereby at an assumed offering price of $.10 per share and
the application of the estimated net proceeds therefrom. SEE "USE OF
PROCEEDS" AND "CAPITALIZATION."
28
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
In the past, the Company's principal source of revenue has been from its
Prinos Interest. Payments to the Company under the Prinos Interest were
suspended in 1994 when the Company commenced legal action against Denison.
Prior to that time the revenues from the Prinos Interest varied. The
fluctuations in revenues in recent years are in part due to fluctuations in
oil prices. The average per barrel price for oil production underlying the
Prinos Interest was $14.47, $12.38 and $15.65 for the years ended March 31,
1995, 1994 and 1993, respectively.
Due to high Greek income taxes and royalties in combination with
declining production levels, low oil prices and increasing operating costs,
the consortium operating the Greek properties believed that the Greek
operation was at its economic breakeven point. As a result, Denison and its
partners commenced negotiations in 1992 with senior Greek government
officials to obtain relief from the high level of government taxes and
royalties. On February 23, 1993, the consortium reached an agreement with
the Greek Government resulting in an amendment to the License Agreement known
as Law 98/1975 which regulates the operation of the field. The amendment was
ratified by the Greek Parliament on June 23, 1993 and was retroactive to
January 1, 1993.
The amendment provides for a sliding scale for both the cost recovery
factor and the Greek royalty interest based on the annual adjusted gross
income from operations on a calendar year basis. The new law also provides
for a reduction in the effective Greek income tax rate from 50% to 40%.
In addition, the new law required Denison and its partners to spend $15
million during 1993 and 1994 on infill drilling in order to enhance the
recoverability of the hydrocarbons. In March 1994, the consortium announced
the discovery of a new oil field by the drilling of the Prinos North-2 well.
According to Denison's 1994 Annual Report, two oil bearing zones were flow
tested with a 30 meter upper section flowing at about 3,200 barrels per day
and a 7 meter lower section flowing at 150 barrels per day. Oil in place was
calculated at about 18 million barrels of which 5 million may be recoverable.
The crude from this discovery has an API gravity of about 25 degrees,
contains about 7% sulphur and may have a selling value of between $1.50 and
$4.00 per barrel less than Prinos crude. Recent discussions with Denison
indicate that the consortium is not considering development of Prinos North
at this time.
Denison, who has the contractual obligation to pay the Company's Prinos
Interest, has asserted that the calculation of the amounts due the Company
should be based on the amended agreement with the Greek government. The
Company disagrees with this interpretation and has commenced legal action
seeking a declaration by the Court that amounts due the Company attributable
to its Prinos Interest be calculated based on the terms of the license
agreement prior to the 1993 amendment. The Company is seeking damages of
approximately $5,000,000 for the
29
<PAGE>
period from January 1, 1993 through March 31, 1994 plus damages since that
date and undetermined future damages. The Company estimates that damages for
unpaid revenues for the period from April 1, 1994 through September 30, 1995
are approximately $6,300,000. SEE "LEGAL PROCEEDINGS."
On November 27, 1995, the Company received $810,522 from Denison
representing unpaid revenues on the Prinos Interest. These revenues cover
the period from January 1, 1993 through October 31, 1995, and are calculated
under the terms of the License Agreement as amended in 1993. This payment
was made in connection with the agreement of Denison to withdraw the
counterclaim filed by Denison against the Company. As of December 1995,
Denison has resumed monthly revenue payments to the Company for its Prinos
Interest as calculated under the terms of the amended License Agreement.
Pursuant to the Modification Agreement, the Company retained $200,000
from the payment of Denison. On November 30, 1995 the Company paid NWO
$610,522. $92,402 was applied to accrued interest and $518,120 was applied
to the loan leaving an outstanding loan balance of $1,481,880. Future
payments by Denison under the Prinos Interest will also be applied to the
Company's obligations to NWO pursuant to the Modification Agreement. The
Company does not believe that the payments made under the Prinos Interest as
calculated under the terms of the amended License Agreement at current
production and price levels will be sufficient to repay the obligations owed
to NWO.
The Company also receives revenues from sales of seismic data gathered
in its oil and gas exploration and development. That revenue is sporadic and
is not sufficient to fund the Company's ongoing operations. During the
six-month period ended September 30, 1995, the Company recorded approximately
$36,700 of revenue from the sale of seismic data.
The Company currently receives approximately $322,000 per year in
connection with services it renders to Cordillera Corporation and San Miguel
Valley Corporation pursuant to management agreements providing for
reimbursement of costs for actual time and expenses incurred in activities
conducted on behalf of those entities. The amounts received under the
management agreements are a reimbursement for employee salaries and other
operating expenses. SEE "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
Denison's reduced payments to the Company under the Prinos Interest has
resulted in the Company's inability to fulfill its financial obligations as
they become due and therefore the Company faces potential insolvency.
Accordingly, the Company's auditors have issued an opinion on the Company's
financial statements for the year ended March 31, 1995 that includes an
explanatory paragraph discussing the uncertainty regarding the Company's
ability to continue as a going concern. The financial statements do not
contain any adjustments that may be necessary if the Company is unable to
continue as a going concern. In addition to the uncertainty of the Company's
ability to continue as a going concern, the auditor's report also refers to
the uncertainty associated with the legal action against Denison and
indicates that no
30
<PAGE>
provision for any liability or loss that may result upon adjudication has
been recognized in the financial statements for the year ended March 31, 1995.
When payments under the Prinos Interest were suspended, the Company
funded its operations through draws against the line of credit established
with NWO. Prior to the end of fiscal year 1995, the Company's credit line
was exhausted. During the first half of fiscal year 1996, the Company had no
resources to make monthly interest payments on the advances under the line of
credit.
On September 19, 1995, the Company entered into the Modification
Agreement with NWO. The Modification Agreement provides for limited funding
of litigation expenses and provides temporary relief from any collection
actions by NWO. The Modification Agreement also allows the Company to retain
up to $200,000 of any proceeds received from its Prinos Interest for general
working capital purposes. The Modification Agreement does not provide any
further funding for operating expenses of the Company other than limited
funding of the litigation with Denison. SEE "BUSINESS OF THE COMPANY-NWO
LINE OF CREDIT."
Future operations of the Company, reimbursements of advances for legal
fees in connection with the litigation of its Prinos Interest and payment of
accounts payable as funds are available will be funded by this Rights
Offering and the $200,000 retained by the Company from the Denison payment.
The Company estimates that the funding provided from the Rights Offering will
be sufficient to fund the litigation with Denison through June 30,1996, the
date prior to which the Company anticipates a judgment will be rendered in
the litigation, and to fund limited operations through December 1996. SEE
"USE OF PROCEEDS." Even if a judgment in the Company's favor is obtained, of
which there is no assurance, there is no guarantee that the Company would be
able to collect that judgment and, if able to collect, when the judgment
would be actually collected. Until recently, it appeared, based on Denison's
public filings, that the financial stability of Denison was questionable and
that Denison continued to operate at the sufferance of its secured creditors.
Denison announced on October 16, 1995 that Denison's Board had approved a
Plan of Arrangement which, among other things, incorporates agreements
restructuring the debt held by Denison's major lenders, the Toronto Dominion
Bank, Bank of America Canada, and the Canadian Mortgage and Housing
Corporation. The announcement states that the Plan is to be put to the
shareholders at meetings scheduled for December 18, 1995. These announced
plans if implemented may increase the likelihood that Denison would have
assets available for satisfaction of a judgment in favor of the Company.
However, the Company does not have sufficient information in its possession
to determine whether any assets of Denison are unsecured and available for
satisfaction of a judgment in favor of the Company.
Unless funds are collected as a result of the litigation with Denison
and the revenue stream is resumed under the Prinos Interest as calculated
under the original License Agreement, the Company will be required to obtain
some additional source of capital, in addition to the Rights Offering
described herein, to fund continuing operations past December 1996 and pay
off the NWO loan and accrued interest when due on December 31, 1996.
31
<PAGE>
If the judgment is not favorable, the Company would likely still have
its Prinos Interest, however, the revenue stream will likely be substantially
reduced. If such unfavorable outcome occurs, the Company does not believe
that the payments made under the Prinos Interest as calculated under the
terms of the amended License Agreement at current production and price levels
will be sufficient to repay the obligations owed to NWO. The Company may be
forced to liquidate its assets, and in such case, little if any assets will
be available for distribution to shareholders.
If the litigation with Denison is resolved in the Company's favor and
payments are resumed under the Prinos Interest as calculated under the
License Agreement prior to the 1993 Amendment, that revenue should be
sufficient to fund on-going operations and limited new exploration
activities. All revenues from the Prinos Interest will be initially applied
to repay the Company's obligations to NWO under the Modification Agreement.
SEE "BUSINESS OF THE COMPANY-NWO LINE OF CREDIT." There is no assurance as
to how long the Prinos property will continue to produce oil and gas and,
accordingly, how long the Company can expect revenue from its Prinos Interest.
The financial statements do not include any adjustments that might
result from the uncertainties described above.
RESULTS OF OPERATIONS
The Company reported net losses of $796,602 and $448,746 for the years
ended March 31, 1995 and 1994, respectively, and net income of $1,511,343 for
the year ended March 31, 1993. The most significant factors in the
fluctuations of net income between the periods are lower revenues under the
Prinos Interest as the result of the position taken by Denison in the
calculation of the Prinos Interest, variances in oil and gas prices received,
and the effect of normal production declines from the Prinos and South Kavala
fields in Greece. The depletion provision decreased from $678,519 in 1993 to
$244,630 for 1994, and subsequently to $233,689 for 1995, reflecting the
declining base of depletable costs for the Greece concession.
The Company reported a loss before income taxes of $386,649 for the
first six months of fiscal year 1996 compared to a loss before income taxes
of $94,973 for the same period of fiscal year 1995. The increased loss
before income taxes is due to the suspension of revenues from the Prinos
Interest offset by approximately $37,000 in revenue from a non-recurring sale
of seismic data.
32
<PAGE>
The following table summarizes the primary components of changes in net
income before the provision for income taxes for the relevant periods:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED MARCH 31,
---------------- ---------------------------------------
SEPTEMBER 30,
1995 1995 1994 1993
---------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Calculation of Greek
revenues $(366,666) (573,100) (3,377,000) (623,000)
Production decline - - (78,000) (1,315,000)
Price decrease - - (477,000) (115,000)
Reduction in
depreciation and
depletion charges 23,378 10,941 433,889 176,842
(Increase) reduction in
interest costs (19,062) (38,136) 43,741 200,211
Increase (reduction) in
other income 62,886 59,266 (182,000) -
Other 7,788 (14,870) (20,133) 65,220
--------- -------- ---------- ----------
Decrease in income
before taxes $(291,676) (555,899) (3,656,503) (1,610,727)
========= ======== ========== ==========
</TABLE>
For the year ended March 31, 1995, other components of changes in net
income are the net effect of a decrease in exploration expenses and an
increase in general and administrative expenses.
The provision for income taxes in fiscal 1995 decreased approximately
$208,000 from the fiscal 1994 provision due to a decrease in Greek income
taxes corresponding to the decrease in Greek oil and gas revenues recorded.
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 12,000,000 shares of
Common Stock, par value $.0625 per share and 600,000 shares of Preferred
Stock, par value $10.00 per share. The relative rights of the Company's
Common Stock and Preferred Stock are defined by the
33
<PAGE>
Company's Articles of Incorporation, as described below, as well as by the
Company's Bylaws and the General Corporation Law of the State of Delaware.
COMMON STOCK
Subject to the rights of holders of any series of Preferred Stock which
may from time to time be issued, holders of Common Stock are entitled to one
vote per share on matters acted upon at any shareholders' meeting, including
the election of directors, and to dividends when, as and if declared by the
Board of Directors out of funds legally available therefor. There is no
cumulative voting and the Common Stock is not redeemable. In the event of
any liquidation, dissolution or winding up of the Company, each holder of
Common Stock is entitled to share ratably in all assets of the Company
remaining after the payment of liabilities and any amounts required to be
paid to holders of Preferred Stock, if any. Holders of Common Stock have no
preemptive or conversion rights and are not subject to further calls or
assessments by the Company. All shares of Common Stock now outstanding, and
all shares to be outstanding upon the completion of this Rights Offering, are
and will be fully paid and non-assessable.
The Common Stock is listed on the Pacific Stock Exchange as a Tier II
Security. As of November 15, 1995, there were approximately 493 holders of
record of Common Stock. This number was derived from the Company's
shareholder records, and does not include owners of the Company's Common
Stock whose shares are held in the names of various dealers, clearing
agencies, banks, brokers, and other fiduciaries. The Company believes that
the number of beneficial owners of Common Stock exceeds 550.
The Company has failed in several respects to maintain the minimum
requirements for maintaining its listing on the Pacific Stock Exchange. On
August 25, 1995, the Company was notified that it is subject to the
initiation of delisting procedures. Its listing status was reviewed by the
Exchange at a meeting of the Equity Listing Committee (the "Committee") held
on October 3, 1995. The Company was informed that the Committee had decided
to delist its Common Stock. The Committee based its decision upon the
Company's deficiencies with respect to the following components of the
Exchange's listing maintenance requirements: net tangible assets of at least
$500,000, aggregate market value of at least $500,000, and a minimum bid
price per share of at least $1. The Company has the right to appeal the
decision of the Committee and the Company intends to pursue such an appeal.
The Company's Common Stock is suspended from trading as of October 4, 1995
and will remain suspended until the appeals process is completed. The
potential delisting of the Company from the Exchange, if it occurs, may have
an adverse effect on the market value of the Common Stock. SEE "RISK
FACTORS-SUSPENSION OF TRADING AND POTENTIAL DELISTING FROM THE PACIFIC STOCK
EXCHANGE."
34
<PAGE>
PREFERRED STOCK
The Board of Directors of the Company, without further action by the
stockholders, is authorized to issue the shares of Preferred Stock in one or
more series and to determine the voting rights, preferences as to dividends,
and the liquidation, conversion, redemption and other rights of each series.
The issuance of a series with voting and conversion rights may adversely
affect the voting power of the holders of Common Stock. The issuance of
Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of the Company without further action by the shareholders.
The Company has no present plans to issue any shares of Preferred Stock.
TRANSFER AGENT
The Company's Transfer Agent is Chemical Mellon Shareholder Services,
300 South Grand Avenue, Los Angeles, California 90071-3401.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the names and ages of the members of the
Company's Board of Directors and its executive officers, and sets forth the
position with the Company held by each:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
James Neal Blue 60 Director; Chairman of the Board and Chief
Executive Officer of the Company
Charles N. Haas 57 Director and President of the Company
John L. Redmond 65 Director and Vice President, International
Exploration of the Company
Gene E. Burke, M.D. 66 Director
Sidney H. Stires 65 Director
Janet A. Holle 44 Vice President/Secretary of the Company
Diana J. Peters 38 Treasurer and Chief Financial Officer of the
Company
</TABLE>
35
<PAGE>
Directors of the Company hold these positions until their respective
successors are elected and qualified. The current directors, except for John
L. Redmond, were elected in 1982 and no meeting of the stockholders has been
held since that date. Mr. Redmond was appointed in 1994 by the remaining
directors to fill a vacancy on the Board of Directors.
JAMES N. BLUE. Mr. Blue has been a director and officer of the Company
since 1981. He is also Chairman of General Atomics in San Diego, California
and President of Cordillera Corporation in Denver, Colorado.
CHARLES N. HAAS. Mr. Haas has been a director and officer of the
Company since 1981.
JOHN L. REDMOND. Mr. Redmond has been a director of the Company since
1994. He has been Vice President, International Exploration of the Company
since 1990.
GENE E. BURKE, M.D. Mr. Burke has been a director of the Company since
1972. He has been a physician in sole practice in Houston, Texas during that
time.
SIDNEY H. STIRES. Mr. Stires has been a director of the Company since
1980. During that time Mr. Stires has been the President of Stires & Co.,
Inc., an investment banking company in New York, NY.
JANET A. HOLLE. Ms. Holle has been an officer of the Company since 1987.
DIANA J. PETERS. Ms. Peters has been an officer of the Company since
1992. From 1988 to 1992, Ms. Peters was a consultant with respect to
accounting issues.
EXECUTIVE COMPENSATION
The following information summarizes compensation paid by the Company to
James N. Blue, Chief Executive Officer and Charles N. Haas, President.
36
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
--------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------- ------------------- ---------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
FISCAL OTHER RESTRICTED
NAME AND YEAR ANNUAL STOCK LTIP ALL OTHER
PRINCIPAL ENDED SALARY BONUS COMPENSATION AWARD(S) OPTIONS/ PAYOUTS COMPENSATION
POSITION MARCH 31 ($) ($) ($) ($) SARS (#) ($) ($)
- -------- -------- ------ ----- ------------ -------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James N. Blue 1995 60,000(1) -- -- -- -- -- --
Chairman of 1994 60,000(1) -- -- -- -- -- --
the Board and 1993 60,000(1) -- -- -- -- -- --
Chief
Executive
Officer
Charles N. 1995 158,762(2) -- -- -- -- -- 21,899(2)(3)
Haas 1994 159,862(2) -- -- -- -- -- 20,766(2)(3)
President 1993 161,789(2) -- -- -- -- -- 22,892(2)(3)
</TABLE>
(1) Monthly officer's fee of $5,000.
(2) A portion of the salary and other compensation paid to Mr. Haas
has been reimbursed based on cost sharing arrangements with other
companies. SEE "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS-MANAGEMENT AGREEMENTS."
(3) The Company is a participant in the Cordillera and Affiliated
Companies' Money Purchase Pension Plan and 401(K) Plan, covering
all qualified employees of the Company. The pension plan is a
non-contributory defined contribution plan. Company contributions
to this plan are based on 6% of total compensation not exceeding
the limit established annually for the Federal Insurance
Contribution Act (FICA) and 11.7% of compensation in excess of
this limit. Vesting begins after two years of service at a rate
of 20% annually with full vesting subsequent to five years of
service or upon retirement, death or permanent disability. The
401(K) plan provides for discretionary employee contribution of up
to 10% of annual pre-tax earnings, subject to the maximum amount
established annually under Section 401(K) of the Internal Revenue
Code. The Company is required to match contributions to the
extent of 6% of annual employee compensation. Employer
contributions to the plan vest immediately.
Members of the Company's Board of Directors who are not employees of the
Company or any of its affiliates receive directors' fees of $500 per month.
Members of the Board of Directors who are employees do not receive directors'
fees. Mr. Blue receives a monthly fee of $5,000 for services as an officer of
the Company.
There are no employment contracts outstanding at this time. The Company
has a deferred compensation agreement with a former officer entitling this
officer to receive $175,000 payable in a maximum of ten equal installments
beginning January 1, 1988 or, if such person dies prior to receiving all
installments, payable at such time to his beneficiaries to the extent of
37
<PAGE>
the remaining balance. Included in accrued expenses is $17,500 which is due
January 1, 1996. The final installment of $17,500 is due January 1, 1997.
In fiscal 1983, the Board of Directors authorized a bonus of $25,000 to
the president of the Company, payable as cash flow permits. The president
has not been paid as of March 31, 1995, and the amount is included in accrued
expenses in the accompanying balance sheets.
The Company has no compensation committee. James N. Blue and Charles N.
Haas participated in all deliberations concerning executive officer
compensation.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
As of November 15, 1995 there were issued and outstanding 3,915,154
shares of Common Stock and is the Company's only class of voting securities.
Holders of Common Stock are entitled to one vote per share on each matter
upon which shareholders may be entitled to vote.
The following table sets forth information regarding shares of Common
Stock of the Company beneficially owned as of November 15, 1995 by: (i) each
person known by the Company to beneficially own 5% or more of the outstanding
Common Stock, (ii) by each director, (iii) by each person named in the
summary compensation table and (iv) by all officers and directors as a group.
38
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESSES OF
OFFICERS, DIRECTORS AND AMOUNT OF PERCENTAGE OF
PRINCIPAL SHAREHOLDERS COMMON STOCK VOTING SECURITIES
- ----------------------- ------------ -----------------
<S> <C> <C>
Allen & Company 824,200 21%
and various affiliates (1)
711 Fifth Avenue
New York, NY 10022
International 1,713,483 43.8%
Hydrocarbons (2)
c/o John E. Jones
5000 S. Quebec Street,
Suite 450
Denver, CO 80237
James N. Blue (3) (4) None N/A
5000 S. Quebec St.,
Suite 450
Denver, CO 80237
Charles N. Haas (3) None N/A
5000 S. Quebec St.,
Suite 450
Denver, CO 80237
Sidney H. Stires (3) 34,000 less than 1%
432 Park Avenue South
New York, NY 10016
Gene E. Burke, M.D. (3) None N/A
3555 Timmons #680
Houston, TX 77027
John L. Redmond (3) None N/A
5000 S. Quebec St.,
Suite 450
Denver, CO 80237
All Directors and 34,000 less than 1%
Officers as a group
(7 persons)
</TABLE>
39
<PAGE>
(1) The information regarding Common Stock owned by Allen & Company is
based on the information contained in the Amendment No. 1 to Schedule
13D dated April 20, 1987 filed by the persons and entities identified
below, which reports the following ownership of the Common Stock:
<TABLE>
<CAPTION>
NAME COMMON SHARES PERCENTAGES
<S> <C> <C>
Allen & Company 165,000 4.2
American Diversified Enterprises, Inc. 232,500 5.9
Herbert Anthony Allen, Susan Kathleen
Wilson and Herbert Allen as Successor
Trustees of Trust created by Herbert
Allen pursuant to Agreement dated
12/1/64 47,917 1.2
Terry Allen Kramer and Irwin H. Kramer,
as Trustees U/A for Issuer of Terry
Allen Kramer pursuant to Agreement
dated 4/5/63 70,000 1.8
Toni Allen Goutal 55,500 1.4
Angela Frances Allen Kramer 43,700 1.1
Nathaniel Charles Allen Kramer 56,000 1.4
Bruce Allen 20,000 .5
C. Robert Allen, IV 5,000 .1
John Godwin Allen 5,000 .1
Luke Andrew Allen 5,000 .1
Thaddeus Mack Allen 5,000 .1
Evelyn Henry 52,000 1.3
Marjorie Bisgood 59,500 1.5
Bradley Roberts 2,083 *
</TABLE>
* Less than .1%
(2) International Hydrocarbons is a wholly-owned subsidiary of NWO. Mr. Blue
is president and a director of International Hydrocarbons. He is
also president and a director of NWO. Cordillera Corporation
("Cordillera"), of which Mr. Blue is president and a major stockholder,
and Mr. Blue beneficially hold 60.667% of Class B common stock of NWO.
40
<PAGE>
(3) Director of the Company
(4) Does not include shares owned by International Hydrocarbons.
International Hydrocarbons is a wholly-owned subsidiary of NWO.
Mr. Blue is president and a director of both International Hydrocarbons
and NWO. Cordillera, of which Mr. Blue is president and a major
stockholder, and Mr. Blue beneficially hold 60.667% of Class B common
stock of NWO.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
NWO LINE OF CREDIT
The Company has a $2,000,000 line of credit with NWO, the parent company
of International Hydrocarbons, the Company's principal stockholder. The line
of credit is secured by the Company's Prinos Interest. Prior to the end of
fiscal year 1995, the Company's credit line was exhausted. During the first
half of fiscal year 1995 the Company had no resources to maintain interest
payments under the line of credit. Accordingly, the Company has entered into
a Modification Agreement with NWO, modifying the existing line of credit
arrangement between the Company and NWO. SEE "BUSINESS OF THE COMPANY-NWO
LINE OF CREDIT." On November 30, 1995 the Company paid NWO $610,522.
$92,402 was applied to accrued interest and $518,120 was applied to the loan
leaving an outstanding loan balance of $1,481,880.
Cordillera is a stockholder of NWO holding 60.667% of Class B common stock.
Mr. Blue, the Chairman of the Board and Chief Executive Officer of the
Company, is president and a major stockholder of Cordillera.
MANAGEMENT AGREEMENTS
The Company has a cost sharing arrangement under which it provides
management services to Cordillera and to San Miguel Valley Corporation
(SMVC), an affiliate of Cordillera, pursuant to agreements providing for
reimbursement of costs for actual time and expenses incurred on Cordillera
and SMVC activities. In 1995, 1994, and 1993, such reimbursements amount to
approximately $274,000, $231,000 and $287,000, respectively, which have been
included as other revenue in the accompanying statements of operations. Mr.
Blue, the Chairman of the Board and Chief Executive Officer of the Company,
is president and a major stockholder of Cordillera.
41
<PAGE>
OFFICER FEES
Mr. Blue receives officers' fees of $5,000 per month for his services as
Chairman of the Board and Chief Executive Officer of the Company. Mr. Blue
is president and a director of International Hydrocarbons, the Company's
principal stockholder, and its parent, NWO. Cordillera, of which Mr. Blue is
president and a major stockholder, and Mr. Blue beneficially hold 60.667% of
Class B common stock of NWO.
EMPLOYEE BENEFIT PLANS
Cordillera has a defined contribution pension plan covering all
qualified employees of the Company. Contributions to the plan are based on a
percentage of employee compensation ranging from 6% to 11.7%. During 1995,
1994, and 1993, the Company recorded $27,038, $24,607, and $25,270,
respectively, as pension expense under this plan. Mr. Blue, the Chairman of
the Board and Chief Executive Officer of the Company, is president and a
major stockholder of Cordillera.
LEASE OF CORPORATE HEADQUARTERS
The Company leases 2,562 square feet of space in an office building
located at 5000 South Quebec Street, Denver, Colorado. The building is
owned by Sorrento West Properties, Inc., a company indirectly owned and
controlled by Mr. Blue, the Chairman of the Board and Chief Executive Officer
of the Company, and his family. Rent payments for 1995 were $32,998. Future
lease payments are estimated to be $27,000 for 1996 and $29,000 for 1997.
These lease payments include adjustments for the Company's proportionate
share of operating expenses. The Company believes that, with respect to the
lease of its corporate headquarters, it obtained terms no less favorable than
what could have been obtained from unrelated parties in arms-length
transactions.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Under Sections 145 of the Delaware General Corporate Law and the
Company's Certificate of Incorporation, the Company's directors and officers
may be indemnified against certain liabilities which they may incur in their
capacities as such.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions or otherwise, the Company has
been advised that in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted
42
<PAGE>
by such director, officer or controlling person in connection with the
securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
RIGHTS AND LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
the Company by Ballard Spahr Andrews & Ingersoll, Salt Lake City, Utah.
EXPERTS
The consolidated balance sheets of Oceanic Exploration Company and
subsidiaries as of March 31, 1995 and 1994 and the consolidated statements of
operations and accumulated deficit and cash flows for each of the years in
the three-year period ended March 31, 1995, have been included herein and in
the Registration Statement in reliance upon the report of KPMG Peat Marwick
LLP, independent certified public accountants, appearing elsewhere herein,
and upon the authority of said firm as experts in accounting and auditing.
The report of KPMG Peat Marwick LLP covering the aforementioned
financial statements contains two explanatory paragraphs. The first
explanatory paragraph states that the Company's inability to generate
sufficient cash flow to sustain operations and service its debt raises
substantial doubt about the Company's ability to continue as a going concern.
The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty. The second explanatory
paragraph states the Company has commenced legal action in Canada seeking a
declaration by the Court that amounts due the Company attributable to its
Prinos Interest be calculated based on the terms of a license agreement with
the Greek government before a recent amendment. The working interest owner
who has the contractual obligation to the Company for its Prinos Interest has
ceased remitting payments to the Company and has filed a counterclaim. The
ultimate outcome of this litigation cannot presently be determined.
Accordingly, no provision for any liability or loss that may result upon
adjudication has been recognized in the consolidated financial statements.
43
<PAGE>
[KPMG LOGO]
The Global Leader
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995 AND 1994
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND STOCKHOLDERS
OCEANIC EXPLORATION COMPANY:
We have audited the accompanying consolidated balance sheets of Oceanic
Exploration Company and subsidiaries as of March 31, 1995 and 1994, and the
related consolidated statements of operations and accumulated deficit and
cash flows for each of the years in the three-year period ended March 31,
1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated 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 the financial position of Oceanic Exploration Company and
subsidiaries as of March 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the three-year
period ended March 31, 1995 in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared
assuming that Oceanic Exploration Company and subsidiaries will continue as a
going concern. As discussed in Note 1 to the consolidated financial
statements, the Company's inability to generate sufficient cash flow to
sustain operations and service its debt raises substantial doubt about the
Company's ability to continue as a going concern. Management's plans in
regard to these matters are also disclosed in Note 1. The consolidated
financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
As discussed in Note 3 to the consolidated financial statements, the Company
has commenced legal action in Canada seeking a declaration by the Court that
amounts due the Company attributable to its 15% net profits interest in an
oil and gas property offshore Greece be calculated based on the terms of a
license agreement with the Greek government before a recent amendment. The
working interest owner who has the contractual obligation to the Company for
its 15% net profits interest has ceased remitting payments to the Company and
has filed a counterclaim. The ultimate outcome of the litigation cannot
presently be determined. Accordingly, no provision for any liability or loss
that may result upon adjudication has been recognized in the accompanying
consolidated financial statements.
KPMG Peat Marwick LLP
Denver, Colorado
May 31, 1995
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1995 AND 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1995 1994
- ------ ------------ -----------
<S> <C> <C>
Cash $ 154,628 48,928
Receivables:
Federal income tax - 4,125
Affiliates 2,237 7,264
Other 9,633 777
------------ -----------
11,870 12,166
Prepaid expenses 4,347 2,235
Restricted cash 15,629 15,171
------------ -----------
Total current assets 186,474 78,500
------------ -----------
Oil and gas property interests, full-cost
method of accounting - Greece (note 2) 39,000,000 39,000,000
Less accumulated amortization, depreciation,
and valuation allowance (37,629,909) (37,396,220)
------------ -----------
1,370,091 1,603,780
------------ -----------
Other assets 757 1,325
------------ -----------
$ 1,557,322 1,683,605
------------ -----------
------------ -----------
</TABLE>
(Continued)
2
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT 1995 1994
- ------------------------------------- ----------- ----------
<S> <C> <C>
Current liabilities:
Notes payable to affiliate (notes 1 and 2) $ 2,000,000 -
Accounts payable 181,879 61,894
Accounts payable to affiliates 60,000 60,000
United Kingdom taxes payable, including
accrued interest 408,958 355,303
Accrued expenses (note 6) 90,487 103,303
----------- ----------
Total current liabilities 2,741,324 580,500
----------- ----------
Note payable to affiliate (note 2) - 1,400,000
Deferred income taxes 808,062 885,334
Other noncurrent liabilities 15,217 28,450
----------- ----------
Total liabilities 3,564,603 2,894,284
----------- ----------
Stockholders' deficit (note 5):
Common stock, $.0625 par value. Authorized
12,000,000 shares; issued and outstanding
3,915,154 shares 244,697 244,697
Capital in excess of par value 6,665 6,665
Accumulated deficit (2,258,643) (1,462,041)
----------- ----------
Total stockholders' deficit (2,007,281) (1,210,679)
----------- ----------
Commitments and contingencies (notes 1, 3 and 6)
$ 1,557,322 1,683,605
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
YEARS ENDED MARCH 31, 1995, 1994, AND 1993
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Revenue:
Oil and gas sales - Greece (note 3) $ - 573,100 4,523,500
Other (note 6) 321,495 262,229 444,065
----------- ---------- ----------
321,495 835,329 4,967,565
----------- ---------- ----------
Costs and expenses:
Interest and financing costs 150,164 112,028 155,769
Exploration expenses 181,566 213,115 220,935
Amortization and depreciation 233,689 244,630 678,519
General and administrative 629,950 583,531 573,814
----------- ---------- ----------
1,195,369 1,153,304 1,629,037
----------- ---------- ----------
Income (loss) before income taxes (873,874) (317,975) 3,338,528
Income tax (benefit) expense (note 4) (77,272) 130,771 1,827,185
----------- ---------- ----------
Net income (loss) (796,602) (448,746) 1,511,343
Accumulated deficit at beginning of year (1,462,041) (1,013,295) (2,524,638)
----------- ---------- ----------
Accumulated deficit at end of year $(2,258,643) (1,462,041) (1,013,295)
----------- ---------- ----------
----------- ---------- ----------
Income (loss) per common share $(.20) (.11) .39
----- ---- ---
----- ---- ---
Number of common shares outstanding 3,915,154 3,915,154 3,915,154
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1995, 1994, AND 1993
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
--------- -------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(796,602) (448,746) 1,511,343
Adjustments to reconcile net income (loss)
to net cash (used in) provided by
operating activities:
Amortization and depreciation 233,689 244,630 678,519
Deferred income tax benefit (77,272) (78,332) (425,000)
Decrease in receivables 296 23,699 17,257
(Increase) decrease in restricted cash (458) (280) 198,673
(Increase) decrease in prepaid expenses
and other assets (1,544) 456 442
Increase (decrease) in accounts payable 119,985 (304,487) 221,011
Decrease in accounts payable to affiliates - - (172,432)
Increase (decrease) in United Kingdom
taxes payable, including accrued interest
payable, and accrued expenses 40,839 13,285 (36,828)
Decrease in other noncurrent liabilities (13,233) (11,506) (40,644)
--------- -------- ----------
Net cash (used in) provided by operating
activities (494,300) (561,281) 1,952,341
--------- -------- ----------
Cash flows from financing activities:
Principal payments on primary bank loan - - (2,002,534)
Borrowings from (repayments to) affiliate, net 600,000 (55,000) 650,000
--------- -------- ----------
Net cash provided by (used in)financing
activities 600,000 (55,000) (1,352,534)
--------- -------- ----------
Net increase (decrease) in cash 105,700 (616,281) 599,807
Cash at beginning of year 48,928 665,209 65,402
--------- -------- ----------
Cash at end of year $ 154,628 48,928 665,209
--------- -------- ----------
--------- -------- ----------
Interest paid $ 124,781 86,690 137,821
--------- -------- ----------
--------- -------- ----------
Federal income taxes paid (refunded) $ (4,125) (18,997) 6,686
--------- -------- ----------
--------- -------- ----------
Foreign income taxes paid $ - 228,100 2,245,499
--------- -------- ----------
--------- -------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995 AND 1994
- ----------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) GENERAL
Oceanic Exploration Company (the Company) is principally engaged in a
worldwide search for oil and gas reserves. The Company's investment in
oil and gas properties consists primarily of interests in proven reserves
offshore Greece. Substantially all production from the offshore Greece
property is sold 50% to the Greek national refinery and 50% to BP-France
based on prices determined by reference to current world oil prices as
specified by contracts signed by the operator with both customers.
(b) GOING CONCERN BASIS OF PRESENTATION
The financial statements have been prepared on a going concern basis which
contemplates the realization of assets and the satisfaction of liabilities
and commitments in the normal course of business. Several factors,
described below, raise substantial doubt about the ability of the Company
to continue as a going concern.
Currently, the Company's operations are not generating sufficient cash flow
to fund operations and the Company's debt service. The Company has been
economically dependent upon NWO Resources, Inc. (NWO). NWO is the parent
corporation of the Company's majority stockholder, International
Hydrocarbons. The Company required financial assistance from NWO during
1995 under a line of credit agreement (see note 2).
Through fiscal year 1995, NWO continued to advance funds to the Company up
to the limit of the line of credit agreement. NWO has no obligation or
commitment to provide further financial support and recent discussions
with NWO indicate that NWO is unwilling to extend further financial
assistance to the Company. As of May 31, 1995, the Company is in default
on the line of credit as it has not made its interest payment for May 1995.
Management has entered into discussions with NWO with a view towards
achieving an agreement which would defer principal and interest payments
and allow the Company to finance its litigation costs and continue limited
operations (see note 3). There can be no assurance that such an agreement
can be reached with NWO.
The Company will require additional funds to fund its litigation costs and
continue limited operations until the pending litigation is completed or
settled. Management is reviewing the Company's activities and taking
actions to reduce overhead costs. The Company is also considering various
options to fund its activities, which include raising additional capital,
borrowing additional funds, the sale of assets, or a merger with another
company. Obtaining the additional financing may be difficult and there can
be no assurances that the Company will be successful in doing so.
6
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ----------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Due to the uncertainties regarding the Company's ability to obtain
additional financing and reach an agreement with NWO to defer payments due
on its line of credit, there is substantial doubt about the ability of the
Company to continue as a going concern. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
(c) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned domestic and foreign subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation.
(d) OIL AND GAS PROPERTIES
Oil and gas properties are accounted for using the full-cost method of
accounting in accordance with the rules prescribed by the Securities and
Exchange Commission (SEC). Under this method, all acquisition,
exploration, and development costs are capitalized on a country-by-country
basis as incurred. Gains or losses on disposition of oil and gas properties
are recognized only when such dispositions involve significant reserves
within the individual country cost pools.
Capitalized costs less related accumulated amortization may not exceed the
sum of (1) the present value of future net revenue from estimated
production of proved oil and gas reserves, computed using current prices
and costs and a discount rate of 10%; plus (2) the cost of properties not
being amortized, if any; plus (3) the lower of cost or fair value of
unproved properties included in costs being amortized; less (4) income tax
effects related to differences in the book and tax basis of oil and gas
properties.
The Company's offshore Greece oil and gas property interests represent a
15% net profits interest in such properties. Accordingly, depletion of oil
and gas properties is computed using the future net revenue method.
Depletion expense for 1995 and 1994 has been calculated based on the
Company's estimate of the revenue due for its net profits interest,
calculated in a manner consistent with the terms of the amended license
agreement (see note 3).
Because the Company's interest in the offshore Greece oil and gas property
is a net profits interest and not a working interest, the Company is only
entitled to receive information regarding current monthly production
quantities and net revenue. Consequently, certain reserve information
regarding the operations of the property is unavailable to the Company.
The cost of undeveloped properties is excluded from amortization pending a
determination of the existence of proved reserves. Such undeveloped
properties are assessed periodically for impairment. The amount of
impairment, if any, is added to the costs to be amortized. At March 31,
1995 and 1994, all capitalized costs were subject to amortization.
7
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ------------------------------------------------------------------------------
(E) INCOME TAXES
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES.
Under the asset and liability method of Statement 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. Under Statement 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in operations in
the period that includes the enactment date.
Effective April 1, 1993, the Company adopted Statement 109 and has
reported no effect for this change in the method of accounting for
income taxes.
(F) INCOME (LOSS) PER SHARE
Income (loss) per share is based on the number of common shares
outstanding for the period.
(G) RECLASSIFICATIONS
Certain amounts for 1994 have been reclassified to conform to the
1995 presentation.
(2) NOTES PAYABLE
Notes payable to affiliate represents borrowings under a line of credit
with NWO. The NWO line of credit provides for cumulative draws of up to
$2,000,000 with interest payable monthly on the outstanding principal
balance at the greater of the U.S. bank prime lending rate or 1 3/4% above
the 30-day LIBOR. Borrowings under the line of credit are secured by the
Company's 15% net profits interest in the offshore Greece oil and gas
property. The borrowings are secured by promissory notes payable no later
than January 1, 1996. As of May 31, 1995, the Company is in default of
the line of credit as it has not made its interest payment for May 1995.
(3) OIL AND GAS SALES - GREECE
Effective January 1, 1993, the operator of the Greek properties negotiated
an agreement with the Greek government which amended the original license
agreement. The amendment provides for a sliding scale for calculating the
operator's recoverable costs and expenses and for the calculation of the
Greek royalty interest. The working interest owner who has the contractual
obligation to the Company for the 15% net profits interest has asserted
that the calculation of the amounts due to the Company should be based on
the amended agreement with the Greek government. The Company disagrees with
this interpretation and has commenced a legal action in Canada seeking a
declaration by the Court that amounts due the Company attributable to its
15% net profits interest be calculated based on the terms of the
8
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ------------------------------------------------------------------------------
license agreement before this amendment. The Company is seeking damages
of approximately $5,000,000 for the period from January 1, 1993 through
March 31, 1994 plus undetermined future damages. While the Company
believes it has a reasonable possibility of prevailing in its action,
the ultimate outcome of the matter cannot presently be determined.
Accordingly, no amounts have been recorded in the accompanying financial
statements for current revenues or damages, if any, that may ultimately
be awarded to the Company.
In response to the legal action commenced by the Company, the working
interest owner has ceased remitting payments to the Company and has
filed a counteraction seeking damages in the amount of $4,800,000 plus
interest and costs, alleging the Company was overpaid for the period
January 1, 1989 through December 31, 1993. As the working interest owner
has ceased remitting payments to the Company for its 15% net profits
interest, the Company has not recorded any revenues for Greece for the
current year. While the Company also believes that it will prevail on
the counterclaim, the ultimate outcome of that matter likewise cannot be
determined. Accordingly, no provision for any liability or loss that may
result upon final resolution of the counterclaim has been recognized in
the financial statements.
(4) INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
--------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Current:
Foreign - Greece $ -- 228,100 2,245,499
U.S. federal -- (18,997) 6,686
-------- ------- ---------
Total current income tax expense -- 209,103 2,252,185
-------- ------- ---------
Deferred:
Foreign - Greece (93,476) (97,852) (450,465)
U.S. federal 16,204 19,520 25,465
-------- ------- ---------
Total deferred income tax benefit (77,272) (78,332) (425,000)
-------- ------- ---------
Total income tax (benefit) expense $(77,272) 130,771 1,827,185
-------- ------- ---------
-------- ------- ---------
</TABLE>
9
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ------------------------------------------------------------------------------
The reconciliation between tax expense computed by multiplying pretax
income by the U.S. federal statutory tax rate of 34% and the reported
amount of income tax expense is as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
--------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Computed at U.S. statutory tax rate $ -- -- 1,135,100
Foreign - Greek income taxes, net (93,476) 130,248 1,795,034
Tax credit for Greek income taxes -- -- (1,081,906)
Other, net 16,204 523 (21,043)
-------- ------- ---------
Income tax expense $(77,272) 130,771 1,827,185
-------- ------- ---------
-------- ------- ---------
</TABLE>
Greek income taxes are withheld from oil and gas revenue payments to the
Company. The effective Greek income tax rate applicable to the Company's
15% net profits interest was reduced from 50% to 40% effective January 1,
1993 with respect to existing development areas. The 50% tax rate remains
effective for areas outside the current development area.
Temporary differences between the financial statement carrying amounts and
tax bases of assets and liabilities that give rise to the deferred tax
liability at March 31, 1995 and 1994 relate to the Greece oil and gas
property interest.
(5) STOCK OPTIONS AND GRANTS
The Company adopted an incentive plan in June 1976 which reserved 500,000
shares of common stock for stock options and 200,000 shares for stock
grants to be awarded to Company officers, directors, and employees,
including certain eligible consultants. At March 31, 1995, no stock
options or grants were outstanding. At that date, 223,500 shares were
available for future stock option awards and 115,626 shares were available
for future grants.
(6) RELATED PARTY TRANSACTIONS
The Company provides management services under a cost sharing arrangement
to Cordillera Corporation (Cordillera), the beneficial controlling
shareholders of the Company, and to San Miguel Valley Corporation (SMVC),
an affiliate of Cordillera, under agreements providing for reimbursement
of costs for actual time and expenses incurred on Cordillera and SMVC
activities. In 1995, 1994, and 1993, such reimbursements amounted to
approximately $274,000, $231,000, and $287,000, respectively, which have
been included as other revenue in the accompanying statements of
operations.
Cordillera has a defined contribution pension plan covering all qualified
employees of the Company. Contributions to the plan are based on a
percentage of employee compensation ranging from 6% to 11.7%. During 1995,
1994, and 1993, the Company recorded $27,038, $24,607, and $25,270,
respectively, as pension expense under this plan.
10
<PAGE>
OCEANIC EXPLORATION COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ------------------------------------------------------------------------------
(6) RELATED PARTY TRANSACTIONS (CONTINUED)
The Company has a deferred compensation agreement with a former officer
entitling this officer to receive $175,000 payable in a maximum of ten
equal installments beginning January 1, 1988 or, if such person dies
prior to receiving all installments, payable at such time to his
beneficiaries to the extent of the remaining balance. Included in accrued
expenses is $17,500 which is due January 1, 1996.
In fiscal 1983, the Board of Directors authorized a bonus of $25,000 to
the president of the Company, payable as cash flow permits. The president
has not been paid as of March 31, 1995, and the amount is included in
accrued expenses in the accompanying balance sheets.
The Company leases 2,562 square feet of space in an office building owned
by Sorrento West Properties, Inc., a company indirectly owned and
controlled by an officer and director of the Company. Rent payments were
$32,998 for 1995 and $32,152 for 1994. Future minimum lease payments are
$27,000 for 1996 and $29,000 for 1997.
11
<PAGE>
1
FINANCIAL STATEMENTS - FOR THE QUARTERLY PERIOD
ENDED SEPTEMBER 30, 1995
OCEANIC EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1995 1995
------------ -----------
<S> <C> <C>
Cash $ 117,540 154,628
Receivables:
Affiliates 4,585 2,237
Other - 9,633
------------ -----------
4,585 11,870
Prepaid expenses 2,239 4,347
Restricted cash - 15,629
------------ -----------
Total current assets 124,364 186,474
------------ -----------
Oil and gas property
interests, full-cost method
of accounting -- Greece 39,000,000 39,000,000
Less accumulated amortization,
depreciation and
valuation allowance (37,766,909) (37,629,909)
------------ -----------
1,233,091 1,370,091
------------ -----------
Other assets 473 757
------------ -----------
$ 1,357,928 1,557,322
------------ -----------
------------ -----------
</TABLE>
(Continued)
<PAGE>
2
OCEANIC EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
(UNAUDITED)
LIABILITIES AND
STOCKHOLDER'S DEFICIT
<TABLE>
Caption>
SEPTEMBER 30, MARCH 31,
1995 1995
------------ -----------
<S> <C> <C>
Current liabilities:
Notes payable to affiliate (note 2) $ 49,685 2,000,000
Accounts payable 234,850 181,879
Accounts payable to affiliates 62,041 60,000
United Kingdom taxes payable,
including accrued interest 408,958 408,958
Accrued expenses 171,904 90,487
------------ -----------
Total current liabilities 927,438 2,741,324
------------ -----------
Notes payable to affiliate (note 2) 2,000,000 -
Deferred income taxes (note 4) 748,862 808,062
Other noncurrent liabilities 16,358 15,217
------------ -----------
Total liabilities 3,692,658 3,564,603
------------ -----------
Stockholders' deficit:
Common stock, $.0625 par value.
Authorized 12,000,000 shares;
issued and outstanding
3,915,154 shares 244,697 244,697
Capital in excess of par value 6,665 6,665
Accumulated deficit (2,586,092) (2,258,643)
------------ -----------
Total stockholders' deficit (2,334,730) (2,007,281)
------------ -----------
Contingencies (note 3)
$ 1,357,928 1,557,322
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
3
OCEANIC EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- -------------------
1995 1994 1995 1994
--------- -------- -------- -------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales -
Greece (note 3) $ - 366,666 - 183,333
Other 202,243 139,357 82,079 69,263
--------- -------- -------- -------
202,243 506,023 82,079 252,596
--------- -------- -------- -------
Costs and expenses:
Interest and
financing costs 78,042 58,980 32,820 31,416
Exploration
expenses 25,927 74,654 11,326 36,175
Amortization and
depreciation 137,000 160,378 68,500 80,189
General and
administrative 347,923 306,984 204,170 154,512
--------- -------- -------- -------
588,892 600,996 316,816 302,292
--------- -------- -------- -------
Loss before
income taxes (386,649) (94,973) (234,737) (49,696)
Income tax (benefit)
expense (note 4) (59,200) 80,196 (27,140) 40,663
--------- -------- -------- -------
Net loss $(327,449) (175,169) (207,597) (90,359)
--------- -------- -------- -------
--------- -------- -------- -------
Loss per common share $ (.08) (.04) (.05) (.02)
--------- -------- -------- -------
--------- -------- -------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
4
OCEANIC EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
---------------------
1995 1994
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(327,449) (175,169)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Amortization and depreciation 137,000 160,378
Deferred income tax benefit (59,200) (66,470)
Decrease (increase) in
receivables 7,285 (203,435)
Decrease (increase) in
restricted cash 15,629 (193)
Decrease in prepaid expenses
and other assets 2,392 1,537
Increase (decrease) in accounts
payable and accounts
payable to affiliates 55,012 (20,406)
Increase (decrease) in accrued
expenses 81,417 (5,127)
Increase in other noncurrent
liabilities 1,141 2,133
--------- --------
Net cash used in
operating activities (86,773) (306,752)
--------- --------
Cash flows from financing activities:
Borrowings from affiliates 49,685 400,000
--------- --------
Net cash provided by financing
activities 49,685 400,000
--------- --------
Net (decrease) increase in cash (37,088) 93,248
Cash at beginning of period 154,628 48,928
--------- --------
Cash at end of period $ 117,540 142,176
--------- --------
--------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
5
OCEANIC EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated balance sheet as of March 31, 1995, which has been
derived from audited statements, and the unaudited interim consolidated
financial statements included herein have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to those rules and
regulations, although the Registrant believes that the disclosures made are
adequate to make the information presented not misleading. In the opinion of
management, all adjustments consisting of normal reoccurring accruals have
been made which are necessary for the fair presentation of the periods
presented. The accounting policies of the Registrant are set forth in the
financial statements and notes thereto and are included in the Registrant's
latest annual report on Form 10-KSB. It is suggested that these consolidated
financial statements be read in conjunction with that document.
(2) NOTES PAYABLE
Notes payable to affiliate at September 30 and March 31, 1995 represent
borrowings under a $2,000,000 line of credit established in favor of the
Registrant by NWO Resources, Inc. (NWO), the parent company of International
Hydrocarbons, the Registrant's majority stockholder. On September 19, 1995,
the Registrant entered into a Modification Agreement with NWO, modifying the
existing line of credit arrangement between the Registrant and NWO. Prior to
entering into the Modification Agreement, the NWO line of credit provided for
cumulative draws of up to $2,000,000 with interest payable monthly on the
outstanding balance at the greater of the U.S. bank prime lending rate or
1-3/4% above the 30-day LIBOR in effect on the date of each draw against the
line of credit. Draws under the line of credit are evidenced by promissory
notes which were originally payable no later than January 1, 1996 with
interest at annual rates of 7% to 9%. Cumulative draws on the NWO line of
credit had reached $2,000,000 by February 15, 1995. The line of credit is
secured by the Registrant's net earnings interest in certain oil and gas
producing areas offshore Greece. At the time the Modification Agreement was
entered into, the Registrant was in default under the terms of the line of
credit as it had not made its interest payments for May, June, July and
August 1995.
<PAGE>
6
The Modification Agreement provides as follows:
1. Except as provided below, NWO will forebear on collection
until December 31, 1996 of the interest and principal on the
$2,000,000 of promissory notes evidencing draws on the NWO
line of credit ("Oceanic Notes") which it holds from OIPC.
2. Any monies collected by the Registrant from Denison either
before or after December 31, 1996 will first be applied to
paying accrued interest on the Oceanic Notes. After all
accrued interest has been paid, and prior to December 31,
1996, the Registrant will be permitted to use up to $200,000
of monies collected from Denison for working capital
purposes. All remaining collections from Denison will be
applied first to accrued interest and then to reducing
principal on the Oceanic Notes.
3. The Security Agreement between the Registrant and NWO will
be amended to provide that NWO has a full security interest
in all proceeds from the Registrant's lawsuit against
Denison and any existing and future Registrant receivables
from Denison.
4. The interest rate on the Oceanic Notes is adjusted to 8.25%.
5. The Registrant agrees to diligently pursue its lawsuit
against Denison.
6. The Registrant will use its best efforts to file a
Registration Statement with the Securities and Exchange
Commission with respect to the rights offering described
below and use its best efforts to cause the Registration
Statement to become effective by December 31, 1995.
7. In order to enable the Registrant to diligently pursue its
lawsuit against Denison, NWO agrees to make advances to the
Registrant for ongoing legal fees as reflected in statements
received by the Registrant subsequent to August 1, 1995 in
connection with the Denison litigation up to an estimated
$100,000 in litigation expenses. As of September 30, 1995,
the Registrant has borrowed $49,685 for legal fees. This
amount is included as a current liability in the
accompanying financial statements.
8. The Registrant agrees to reimburse NWO for such advances up
to an estimated $100,000 together with interest thereon
computed at the annual rate of 10% upon receipt of the
proceeds of the rights offering or January 31, 1996,
whichever occurs earlier.
<PAGE>
7
(3) OIL AND GAS SALES - GREECE
Effective January 1, 1993, the operator of the Greek properties
negotiated an agreement with the Greek government which amended the original
license agreement. The amendment provides for a sliding scale for
calculating the operator's recoverable costs and expenses and for the
calculation of the Greek royalty interest. Denison Mines Ltd., the working
interest owner who has the contractual obligation to the Registrant for the
15% net earnings interest, has asserted that the calculation of the amounts
due to the Registrant should be based on the amended agreement with the Greek
government. The Registrant disagrees with this interpretation and has
commenced a legal action in Canada seeking a declaration by the Court that
amounts due the Registrant attributable to its 15% net earnings interest be
calculated based on the terms of the license agreement before the 1993
amendment. The Registrant has filed for damages of approximately $5,000,000
for the period from January 1, 1993 through March 31, 1994, plus damages
since that date and undetermined future damages. The Registrant estimates
that damages for unpaid revenues for the period from April 1, 1994 through
September 30, 1995, are approximately $7,000,000. While the Registrant
believes it has a reasonable possibility of prevailing in the litigation, the
ultimate outcome of the matter cannot presently be determined. Accordingly,
no amounts have been recorded in the accompanying financial statements for
current revenues or damages, if any, that may ultimately be awarded to the
Registrant. Unpaid revenues for the net earnings interest calculated under
the terms of the amended agreement are estimated at approximately $675,000
for the period from January 1, 1993 through September 30, 1995, $490,000 of
which is attributable to the year ended March 31, 1995.
In response to the legal action commenced by the Registrant, the
working interest owner has ceased remitting payments to the Registrant and
has filed a counteraction seeking damages in the amount of $4,747,811 plus
interest and costs, alleging the Registrant was overpaid for the period
January 1, 1989 through December 31, 1993. As the working interest owner has
ceased remitting payments to the Registrant for its 15% net earnings
interest, the Registrant has not recorded any revenues for Greece for the
year ended March 31, 1995 or for the six months ended September 30, 1995. A
revenue accrual had been made for the six months ended September 30, 1994 but
was subsequently reversed in the financial statements for the year ended
March 31, 1995. While the Registrant believes that it will prevail on the
counterclaim, the ultimate outcome of that matter likewise cannot be
determined. Accordingly, no provision for any liability or loss that may
result upon final resolution of the counterclaim has been recognized in the
financial statements.
<PAGE>
8
(4) INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------------
SEPTEMBER 30, SEPTEMBER 30,
1995 1994
------------ -------------
<S> <C> <C>
Current:
Foreign - Greece $ - 146,666
Deferred:
Foreign - Greece (59,200) (66,470)
-------- -------
Total income tax
(benefit) expense $(59,200) 80,196
======== =======
</TABLE>
<PAGE>
- -------------------------------------------------------------
- -------------------------------------------------------------
NO PERSON IS AUTHORIZED TO GIVE ANY RIGHTS OFFERING
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE
CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN
THE COMMON SHARES OFFERED BY THIS PROSPECTUS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY COMMON SHARES IN ANY
CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED BY REFERENCE HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO ITS DATE.
_________________
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY ..................................... 3
AVAILABLE INFORMATION .................................. 5
RISK FACTORS ........................................... 6
PLAN OF DISTRIBUTION - RIGHTS OFFERING ................. 10
USE OF PROCEEDS ........................................ 15
DETERMINATION OF OFFERING PRICE ........................ 16
BUSINESS OF THE COMPANY ................................ 16
LEGAL PROCEEDINGS ...................................... 22
MARKET FOR COMMON EQUITY ............................... 24
CAPITALIZATION ......................................... 25
DIVIDENDS .............................................. 26
AVAILABILITY OF OIL AND GAS RESERVE INFORMATION ........ 26
OIL AND GAS REVENUE AND COST INFORMATION ............... 27
SELECTED FINANCIAL DATA ................................ 28
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ................... 29
DESCRIPTION OF CAPITAL STOCK ........................... 33
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY ........ 35
EXECUTIVE COMPENSATION ................................. 36
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT ............................................ 38
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ......... 41
INDEMNIFICATION OF OFFICERS AND DIRECTORS .............. 42
RIGHTS AND LEGAL MATTERS ............................... 43
EXPERTS ................................................ 43
</TABLE>
RIGHTS OFFERING
6,001,000 Shares
OCEANIC EXPLORATION COMPANY
Common Stock
$.0625 par value
____________________
PROSPECTUS
____________________
December 8, 1995
- -------------------------------------------------------------
- -------------------------------------------------------------
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware
provides that a corporation may indemnify its officers, directors, employees
and agents (or persons who have served, at the corporation's request, as
officers, directors, employees or agents of another corporation) against the
expenses, including attorneys' fees, actually and reasonably incurred by them
in connection with the defense of any action by reason of being or having
been directors, officers, employees or agents, if such person shall have
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and with respect to any
criminal action or proceedings, had no reason to believe his conduct was
unlawful, except that if such action shall be in the right of the
corporation, no such indemnification shall be provided as to any claim, issue
or matter as to which such person shall have been adjudged to have been
liable to the corporation unless and only to the extent that the Court of
Chancery of the State of Delaware, or any other court in which the suit was
brought, shall determine upon application that, in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
The Company's Bylaws provide that the Company shall indemnify its
officers and directors to the fullest extent permitted by the Delaware Law.
Insofar as indemnification for liabilities under the Securities Act of
1933 may be permitted to directors, officers or persons controlling the
Company pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the Commission, such indemnification is against public
policy as expressed in the Act and is therefore unenforceable.
Item 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with this Rights Offering, other
than underwriting discounts and commissions, are set forth below:
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission filing fee. . . . . . . . . $ 207
Blue Sky fees and expenses . . . . . . . . . . . . . . . . . . 1,000
Accounting fees and expenses . . . . . . . . . . . . . . . . . 15,000
Legal fees and expenses. . . . . . . . . . . . . . . . . . . . 40,000
Transfer agent and registrar fees and expenses . . . . . . . . 1,000
Printing and electronic transmission expenses. . . . . . . . . 9,000
Postage. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . 2,793
-------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . $70,000
-------
-------
</TABLE>
II-1
<PAGE>
Item 26. RECENT SALES OF UNREGISTERED SECURITIES
On August 22, 1995, International Hydrocarbons agreed to purchase the
unsubscribed for shares of Additional Common Stock in the Rights Offering.
The Company believes that the commitment of International Hydrocarbons was a
private transaction exempt from Section 5 of the Securities Act pursuant to
Section 4(2). Upon obtaining the commitment of International Hydrocarbons on
August 22, 1995, the private transaction was consummated. After obtaining
the commitment of International Hydrocarbons, the Board of Directors, on
October 2, 1995, authorized the Company to proceed with the Rights Offering.
The Company has not sold any other securities within the past three
years without registration under the Securities Act of 1933.
II-2
<PAGE>
Item 27. EXHIBITS
EXHIBIT NUMBER
4 Form of Subscription Agreement.*
5 Opinion of Ballard Spahr Andrews & Ingersoll.*
3.1 Restated Certificate of Incorporation of Oceanic Exploration
Company, filed August 4, 1969.(1)
3.2 Certificate of Increase, filed July 26, 1971.(1)
3.3 Certificate of Amendment, filed July 26, 1971.(1)
3.4 Certificate of Correction, filed August 20, 1971.(1)
3.5 Second Certificate of Correction, filed February 22, 1972.(1)
3.6 Certificate of Amendment, filed February 22, 1972.(1)
3.7 Certificate of Determination of Preferences, dated April 27, 1972.(1)
3.8 Tenth Amended Bylaws of Oceanic Exploration Company adopted by the
Board of Directors on November 6, 1981.(2)
10.1 Memorandum of Agreement dated June 30, 1976 between Oceanic
Exploration Company and Denison Mines Limited.(3)
10.2 Letter Agreement dated July 28, 1976 amending Agreement of
June 30, 1976.(3)
- --------------------
* Attached hereto.
(1) This exhibit is incorporated by reference to the exhibits filed with
respect to the Company's Report on Form 10-K for the period ended
September 30, 1980.
(2) This exhibit is incorporated by reference to the exhibits filed with
respect to the Company's Form 8 (Amendment No. 1 to Report on Form 10-K
for the period ended September 30, 1981,) dated June 1, 1982.
(3) This exhibit is incorporated herein by reference to the exhibits filed
with respect to the Company's Report on Form 10-K for the period ended
September 30, 1976.
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER
- --------------
<S> <C>
10.3 Memorandum of Agreement, dated August 27, 1976 amending
Agreement of June 30, 1976.(3)
10.4 Oil Payment and Net Earnings Interest Agreement, dated
August 30, 1976.**
10.5 Farm-out Agreement with Enterprise Oil Exploration Limited
and NMX Resources (Overseas) Limited dated September 22,
1989.(4)
10.6 Letter Agreement with Enterprise Oil Exploration Limited and
NMX Resources (Overseas) Limited dated September 22,
1989.(4)
10.7 Letter of Indemnification with Enterprise Oil Exploration
Limited and NMX Resources (Overseas) Limited dated September
22, 1989.(4)
10.8 Agreement for Study and Petroleum Evaluation of the South
East Area of Bolivia, dated May 11, 1992.**
10.9 Management Agreement with Cordillera Corporation dated
January 1, 1990.(4)
10.10 Management Agreement with San Miguel Valley Corporation
dated January 1, 1990.(4)
10.11 Office Building Lease with Sorrento West Properties,
Inc. dated March 1, 1991.(4)
10.12 Addendum to Office Building Lease dated March 1,
1994.(4)
10.13 Promissory Note with NWO dated June 15, 1994.(4)
10.14 Promissory Note with NWO dated July 18, 1994.(4)
10.15 Security Agreement in favor of NWO dated July 27,
1994.(4)
</TABLE>
- --------------------
** Previously filed.
(3) This exhibit is incorporated herein by reference to the
exhibits filed with respect to the Company's Report on Form
10-K for the period ended September 30, 1976.
(4) This exhibit is incorporated herein by reference to the
exhibits filed with respect to the Company's Report on Form
10-KSB for the period ended March 31, 1995.
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER
- --------------
<S> <C>
10.16 Promissory Note with NWO dated September 22, 1994.(4)
10.17 Promissory Note with NWO dated December 15, 1994.(4)
10.18 Promissory Note with NWO dated January 1, 1995.(4)
10.19 Promissory Note with NWO dated February 15, 1995.(4)
10.20 Modification Agreement with NWO dated September 19,
1995.**
10.21 First Amendment to Security Agreement with NWO dated
September 19, 1995.**
10.22 Letter dated August 22, 1995 from International
Hydrocarbons regarding purchase of unsubscribed stock
in rights offering.**
23.1 Consent of KPMG Peat Marwick LLP.*
23.2 Consent of Ballard Spahr Andrews & Ingersoll (included in
its opinion filed as Exhibit 5).
23.3 Consent of Osler, Hoskin & Harcourt.*
24 Power of Attorney **
</TABLE>
- ------------------
* Attached hereto.
** Previously filed.
(4) This exhibit is incorporated herein by reference to the
exhibits filed with respect to the Company's Report on Form
10-KSB for the period ended March 31, 1995.
II-5
<PAGE>
Item 28. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to its Certificate of
Incorporation, as amended, its Bylaws, as amended or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or
sales are being made, a post-effective amendment to this
Registration Statement:
(i) To include any prospectus required by Section
10(a)(3) of the Act;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of the
Registration Statement (or the most recent
post-effective amendment thereto) which, individually
or in the aggregate, represent a fundamental change in
the information set forth in the Registration
Statement;
(iii) To include any material information with
respect to the plan of distribution not previously
disclosed in the Registration Statement or any material
change to such information set forth in the
Registration Statement;
(2) That, for the purpose of determining any liability
under the Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being
registered that remain unsold at the termination of the
offering.
II-6
<PAGE>
(4) To supplement the prospectus, after the end of the
subscription period, to include the results of the subscription
offer and the number of shares of Common Stock acquired by
International Hydrocarbons. If International Hydrocarbons makes
any subsequent public offering of the Common Stock registered under
this Registration Statement, the Company will file a post-effective
amendment to state the terms of such offering.
II-7
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and authorized this amendment
to the registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Denver, State of Colorado, on
December 8, 1995.
OCEANIC EXPLORATION COMPANY
By: /s/ Charles N. Haas
-------------------------------
Charles N. Haas
President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the registration statement has been signed by the following
persons in the capacities and on the date stated.
<PAGE>
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Charles N. Haas President and Director December 8, 1995
- ------------------------------- (Principal Executive
Charles N. Haas Officer)
/s/ Diana J. Peters Treasurer (Principal December 8, 1995
- ------------------------------- Financial Officer and
Diana J. Peters Principal Accounting
Officer)
/s/ Charles N. Haas Chairman of the Board December 8, 1995
- ------------------------------- of Directors and Chief
James N. Blue, by Charles N. Executive Officer
Haas, Attorney-in-Fact
/s/ Charles N. Haas Vice President- December 8, 1995
- ------------------------------- International
John L. Redmond, by Charles N. Exploration and
Haas, Attorney-in-Fact Director
/s/ Charles N. Haas Director December 8, 1995
- -------------------------------
Sidney H. Stires, by Charles N.
Haas, Attorney-in-Fact
/s/ Charles N. Haas Director December 8, 1995
- -------------------------------
Gene E. Burke, M.D., by Charles
N. Haas, Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
4 Form of Subscription Agreement.*
5 Opinion of Ballard Spahr Andrews & Ingersoll.*
3.1 Restated Certificate of Incorporation of Oceanic Exploration
Company, filed August 4, 1969.(1)
3.2 Certificate of Increase, filed July 26, 1971.(1)
3.3 Certificate of Amendment, filed July 26, 1971.(1)
3.4 Certificate of Correction, filed August 20, 1971.(1)
3.5 Second Certificate of Correction, filed February 22,
1972.(1)
3.6 Certificate of Amendment, filed February 22, 1972.(1)
3.7 Certificate of Determination of Preferences, dated April 27,
1972.(1)
3.89 Tenth Amended Bylaws of Oceanic Exploration Company adopted
by the Board of Directors on November 6, 1981.(2)
10.1 Memorandum of Agreement dated June 30, 1976 between
Oceanic Exploration Company and Denison Mines Limited.(3)
- ------------
* Attached hereto.
(1) This exhibit is incorporated by reference to the exhibits
filed with respect to the Company's Report on Form 10-K for
the period ended September 30, 1980.
(2) This exhibit is incorporated by reference to the exhibits
filed with respect to the Company's Form 8 (Amendment No. 1
to Report on Form 10-K for the period ended September 30,
1981) dated June 1, 1982.
(3) This exhibit is incorporated herein by reference to the
exhibits filed with respect to the Company's Report on Form
10-K for the period ended September 30, 1976.
<PAGE>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
10.2 Letter Agreement dated July 28, 1976 amending Agreement
of June 30, 1976.(3)
10.3 Memorandum of Agreement, dated August 27, 1976
amending Agreement of June 30, 1976.(3)
10.4 Oil Payment and Net Earnings Interest Agreement,
dated August 30, 1976.**
10.5 Farm-out Agreement with Enterprise Oil Exploration Limited
and NMX Resources (Overseas) Limited dated
September 22, 1989.(4)
10.6 Letter Agreement with Enterprise Oil Exploration Limited
and NMX Resources (Overseas) Limited dated
September 22, 1989.(4)
10.7 Letter of Indemnification with Enterprise Oil Exploration
Limited and NMX Resources (Overseas) Limited dated
September 22, 1989.(4)
10.8 Agreement for Study and Petroleum Evaluation of the
South East Area of Bolivia, dated May 11, 1992.**
10.9 Management Agreement with Cordillera Corporation
dated January 1, 1990.(4)
10.10 Management Agreement with San Miguel Valley Corporation
dated January 1, 1990.(4)
10.11 Office Building Lease with Sorrento West Properties, Inc.
dated March 1, 1991.(4)
- ------------
** Previously filed.
(3) This exhibit is incorporated herein by reference to the
exhibits filed with respect to the Company's Report on Form
10-K for the period ended September 30, 1976.
(4) This exhibit is incorporated herein by reference to the
exhibits filed with respect to the Company's Report on Form
10-KSB for the period ended March 31, 1995.
<PAGE>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
10.12 Addendum to Office Building Lease dated March 1,
1994.(4)
10.13 Promissory Note with NWO dated
June 15, 1994.(4)
10.14 Promissory Note with NWO dated
July 18, 1994.(4)
10.15 Security Agreement in favor of NWO
dated July 27, 1994.(4)
10.16 Promissory Note with NWO
dated September 22, 1994.(4)
10.17 Promissory Note with NWO
dated December 15, 1994.(4)
10.18 Promissory Note with NWO
dated January 1, 1995.(4)
10.19 Promissory Note with NWO
dated February 15, 1995.(4)
10.20 Modification Agreement with NWO
dated September 19, 1995.**
10.21 First Amendment to Security Agreement with NWO
dated September 19, 1995.**
10.22 Letter dated August 22, 1995 from International
Hydrocarbons regarding purchase of unsubscribed
stock in rights offering.**
- ------------
** Previously filed.
(4) This exhibit is incorporated herein by reference to the
exhibits filed with respect to the Company's Report on Form
10-KSB for the period ended March 31, 1995.
<PAGE>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
23.1 Consent of KPMG Peat Marwick LLP.*
23.2 Consent of Ballard Spahr Andrews & Ingersoll (included
in its opinion filed as Exhibit 5).
23.3 Consent of Osler, Hoskin & Harcourt.*
24 Power of Attorney **
- ------------
* Attached hereto.
** Previously filed.
<PAGE>
Exhibit 4
PLEASE CAREFULLY REVIEW THE INSTRUCTIONS
OCEANIC EXPLORATION COMPANY
SUBSCRIPTION AGREEMENT
This Subscription Agreement represents a subscription to
acquire the number of shares of Common Stock of Oceanic
Exploration Company ("Common Stock") set forth below at a
subscription price of $.10 per share for the total subscription
price set forth below. The registered owner named below is
entitled to subscribe for full shares of Common Stock pursuant to
subscription rights granted to stockholders upon the terms and
conditions set forth in the related Prospectus. For each share
of Common Stock subscribed for the subscription price of $.10
must be forwarded to Oceanic Exploration Company.
THE SUBSCRIPTION RIGHTS EXPIRE AT 5:00 P.M. DENVER, COLORADO TIME
ON ____________, 1996. NO SUBSCRIPTION AGREEMENT WILL BE
ACCEPTED THEREAFTER.
Stockholder Name: _______________________________
Stockholder Address: _____________________________
Number of Shares Owned By
Stockholder on ________, 1995: ___________________
Number of Shares Subject To
Basic Subscription Rights: _______________________
SECTION 1 - SUBSCRIPTION AND SIGNATURE
I hereby irrevocably subscribe for the number of shares of Common
Stock as indicated below, on the terms specified in the related
Prospectus.
a. Subscription: ___________ Shares
b. Over-Subscription: ________ Shares
(no more than 6,001,000 less the number
subscribed for in (a))
c. Total Subscription (a + b): __________ Shares
d. Total Cost (c x $.10): $__________
Signature of Telephone
Shareholder______________________________ Number ( )_________________
SECTION 2 - ADDRESS FOR DELIVERY OF stock certificate if
different from above.
_____________________________________
_____________________________________
_____________________________________
<PAGE>
INSTRUCTIONS FOR USE OF SUBSCRIPTION AGREEMENT
Each stockholder of Oceanic Exploration Company (the
"Company") has the right to subscribe for 1.5325 shares of Common
Stock for each full share of common stock of the Company owned of
record at the close of business on ___________ ___, 1995 (the
"Record Date"). The number of shares you are entitled to
subscribe for appears on the front of the Subscription Agreement
or can be calculated by multiplying the number of shares of
Common Stock owned of record on the Record Date by 1.5325 and
rounding up to the nearest whole number. The Subscription Price
of $.10 is needed to subscribe for each share of Common Stock.
See Prospectus for detailed information on these options. You
may also subscribe for additional shares pursuant to an
Over-Subscription Privilege. TO EXERCISE YOUR RIGHTS, YOU MUST
COMPLETE THE APPROPRIATE SECTIONS ON THE SUBSCRIPTION AGREEMENT.
IF YOU WISH TO EXERCISE YOUR RIGHTS OR THE OVER-SUBSCRIPTION
PRIVILEGE, YOU MUST DO SO BY NO LATER THAN 5:00 P.M. ____________
___, 1996. RIGHTS MAY BE EXERCISED ONLY THROUGH THE COMPANY.
TO EXERCISE YOUR RIGHTS-PLEASE COMPLETE AND RETURN
THE SUBSCRIPTION AGREEMENT
1. Complete "SECTION 1-SUBSCRIPTION AND SIGNATURE."
a. BASIC SUBSCRIPTION RIGHTS. Enter the number of shares
you intend to purchase under your Basic Subscription Rights. The
maximum number of shares you may purchase on Basic Subscription
appears on the front of the Subscription Agreement or can be
calculated by multiplying the number of shares of Common Stock
owned of record on the Record Date by 1.5325 and rounding up to
the nearest whole number.
b. OVER-SUBSCRIPTION. Enter the number of shares you
desire to purchase under your Over-Subscription Privilege. THE
OVER-SUBSCRIPTION PRIVILEGE IS AVAILABLE ONLY IF YOU EXERCISED
ALL OF YOUR BASIC SUBSCRIPTION RIGHTS. The maximum number of
Shares that you can purchase on Over-Subscription is 6,001,000
shares less the number of shares you purchased on Basic
Subscription Rights. The number of shares that will actually be
purchased by you will be subject to allotment if there are not
enough shares remaining after the Basic Subscription Rights to
completely fill all requests for purchases on Over-Subscription.
c. TOTAL SUBSCRIPTION. Enter the total number of shares
you want to purchase in the offer. This number is the sum of the
number of shares you are purchasing on Basic Subscription Rights
plus the number of shares you desire to purchase on
Over-Subscription.
d. TOTAL COST. Enter the total cost of your subscription.
Your total cost is the dollar number obtained when you multiply
the number of shares shown under Total Subscription by $.10, the
Subscription Price per share.
2. Sign the Subscription Agreement in the space provide at the
bottom of SECTION 1. Include your telephone number in the space
provided.
3. Enclose the executed Subscription Agreement, together with a
check or money order made payable to "Oceanic Exploration
Company" in the amount of the Total Cost (Item d. of SECTION 1)
in the envelope provided. If you use your own envelope, address
it to Oceanic Exploration Company, 5000 South Quebec Street,
Suite 450, Denver, Colorado 80237. You may also personally
deliver your Subscription Agreement and payment to Oceanic
Exploration Company, 5000 South Quebec Street, Suite 450, Denver,
Colorado 80237.
<PAGE>
4. MAIL OR DELIVER YOUR EXECUTED SUBSCRIPTION AGREEMENT AND
PAYMENT FOR THE TOTAL COST ON A TIMELY BASIS SO THAT IT IS
RECEIVED BY THE COMPANY BY NO LATER THAN 5:00 P.M. DENVER,
COLORADO TIME ON _____________ ___, 1996 (THE "EXPIRATION DATE").
IF THE COMPANY HAS NOT RECEIVED YOUR SUBSCRIPTION AGREEMENT AND
PAYMENT FOR THE TOTAL COST BY 5:00 P.M. DENVER, COLORADO TIME ON
THE EXPIRATION DATE, YOU WILL NOT BE ENTITLED TO PURCHASE SHARES
PURSUANT TO THE RIGHTS. Accordingly, if you are sending your
executed Subscription Agreement and payment by mail, please allow
sufficient time for them to be received by the Company prior to
5:00 p.m. on the Expiration Date.
The Rights Offering is being made on an all or none basis,
which means that if all 6,001,000 shares of Additional Common
Stock offered are not subscribed for, no subscriptions will be
accepted and all subscriptions will be returned. However, each
stockholder will be allowed to exercise less than all of the
Rights granted to that stockholder. The Company has obtained the
commitment of International Hydrocarbons, its principal
stockholder, to purchase all unsubscribed for Additional Common
Stock. Accordingly, International Hydrocarbons will be allowed
to subscribe for all unsubscribed for Additional Common Stock.
The Company reserves the right to reject any Subscription
Agreement and payment not properly submitted. The Company has no
duty to give notification of defects in any Subscription
Agreement and/or payment and will have no liability for failure
to give such notification. The Company will return any
Subscription Agreement and/or payment not properly submitted.
STOCKHOLDERS SHOULD CAREFULLY REVIEW THE RELATED PROSPECTUS
PRIOR TO MAKING AN INVESTMENT DECISION WITH RESPECT TO THE RIGHTS
REFERRED TO IN THIS SUBSCRIPTION AGREEMENT.
<PAGE>
Exhibit 5
Law Offices
BALLARD SPAHR ANDREWS & INGERSOLL
201 South Main Street, Suite 1200
Salt Lake City, Utah 84111
801-531-3000
FAX: 801-531-3001
December 8, 1995
Board of Directors
Oceanic Exploration Company
5000 South Quebec Street
Suite 450
Denver, Colorado
RE: OCEANIC EXPLORATION COMPANY
REGISTRATION STATEMENT ON FORM SB-2
Gentlemen:
We have acted as counsel to Oceanic Exploration Company, a Delaware
corporation (the "Company"), in connection with the preparation and filing of
an Amendment No. 1 to Registration Statement on Form SB-2 (the "Registration
Statement") filed with the Securities and Exchange Commission on December 8,
1995 pertaining to the 6,001,000 shares of the Company's common stock, $.0625
par value (the "Shares") being registered in connection with the Company's
Rights Offering described in the Registration Statement (the "Rights
Offering").
We have reviewed the Articles of Incorporation and Bylaws of the
Company, resolutions of the board of directors of the Company, the
Registration Statement and such other documents as we have deemed
appropriate. As to factual matters we have relied upon a certificate
supplied to us by an officer of the Company. In rendering the opinion
expressed herein, we have assumed, without investigation, the validity of all
documents and the accuracy of all information supplied to us by the Company.
Based upon the foregoing, we are of the opinion that the Shares
being registered pursuant to the Registration Statement, when the
Registration Statement becomes effective and
<PAGE>
the Shares are issued and paid for in accordance with the Rights Offering,
will have been duly authorized and will be legally issued, fully paid and
non-assessable.
We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement and the reference to this firm under "Legal
Matters" in the Prospectus contained in the Registration Statement.
Very truly yours,
BALLARD SPAHR ANDREWS & INGERSOLL
<PAGE>
EXHIBIT 23.1
Consent of Independent Auditors
The Board of Directors
Oceanic Exploration Company:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
Our report dated May 31, 1995, contains an explanatory paragraph that states
that the Company's inability to generate sufficient cash flow to sustain
operations and service its debt raises substantial doubt about the Company's
ability to continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.
Our report also contains an explanatory paragraph that states that the
Company has commenced legal action in Canada seeking a declaration by the
Court that amounts due the Company attributable to its 15% net profit
interest in an oil and gas property offshore Greece be calculated based on
the terms of a license agreement with the Greek government before a recent
amendment. The working interest owner who has the contractual obligation to
the Company for its 15% net profits interest has ceased remitting payments to
the Company and has filed a counter claim. The ultimate outcome of the
litigation can not presently be determined. Accordingly, no provision for
any liability or loss that may result upon adjudication has been recognized
in the consolidated financial statements.
KPMG Peat Marwick LLP
Denver, Colorado
December 7, 1995
<PAGE>
Exhibit 23.3
CONSENT OF OSLER, HOSKIN & HARCOURT
The Board of Directors
Oceanic Exploration Company:
We hereby consent to the reference to our firm under the heading "Legal
Proceedings" in the prospectus contained in this Registration Statement.
OSLER, HOSKIN & HARCOURT
Toronto, Canada
December 4, 1995
