Registration No. 333-63907
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
to
FORM S-4/A
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
TRANS ENERGY, INC.
(Exact name of issuer as specified in its charter)
Nevada 1311
(State or other jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code Number)
93-0997412
(I.R.S. Employer
Identification Number)
210 Second Street, P.O. Box 393, St. Marys, West Virginia 26170
(Address of Principal Executive Offices) (Zip Code)
Loren E. Bagley
210 Second Street
St. Marys, West Virginia 26170
(Name and address of agent for service)
Copies to:
Leonard E. Neilson, Esq. Roger V. Davidson, Esq.
Leonard E. Neilson, P.C. Cohen Brame & Smith
1121 East 3900 South, Suite C-200 One Norwest Center, Suite 1800
Salt Lake City, Utah 84124 1700 Lincoln Street
Denver, Colorado 80203
Approximate date of commencement of proposed sale to the public: As
promptly as practicable after the effective date of this Registration Statement
which relates to the merger of Natural Gas Technologies, Inc. with and into
Trans Energy, Inc. pursuant to the terms and conditions of the Plan and
Agreement of Merger described herein.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering.[ ]
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CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Maximum Maximum Amount of
Title each class of Securities Amount to be Offering Price Aggregate Registration
to be Registered Registered Per Share(1) Offering Price(1) Fee(1)
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Common Stock, par value 6,415,750 $ .75 per $ 4,811,813 $ 1,459
$.001 Shares Share
================================== ==================== ===================== ===================== ===================
TOTAL FEE $ 1,459
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(1) Based upon approximately 6,415,350 shares of Trans Energy, Inc. common
stock issued under the Merger covered by this Registration Statement
and 400 shares that may be issued in rounding up of fractional shares.
The fee with respect to these share and as required by Section 6(b) of
the Securities Act of 1933, as amended, (the "Securities Act"), has
been calculated pursuant to Rule 457(f) and 457(c) under the Securities
Act and based upon the last sale price per share of the Issuer's common
stock on a date within five (5) days prior to the date of filing this
Registration Statement, as reported by The Nasdaq SmallCap Market.
The Registrant hereby amends this Registration Statement on such a 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 the Registration Statement shall become
effective on such date as the Commission acting pursuant to said section 8(a),
may determine.
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TRANS ENERGY, INC.
210 Second Street. P.O. Box 393
St. Marys, West Virginia 26170
The Board of Directors cordially invites you to attend a special
meeting of shareholders of Trans Energy, Inc. ("TSRG") to be held at _____ p.m.,
local time, on ____________, October__, 1998, at the offices of TSRG located at
210 Second Street, St. Marys, West Virginia.
At the Special Meeting, you will be asked to consider a proposal to
approve the issuance of TSRG common stock, par value $.001 per share ("TSRG
Common Stock"), pursuant to a Plan and Agreement of Merger dated as of March 26,
1998 (the "Merger Agreement"), by and between TSRG and Natural Gas Technologies,
Inc., a Texas corporation ("NGT"), and the transactions contemplated thereby.
Pursuant to the Merger Agreement, NGT will merge with and into TSRG, the
separate corporate existence of NGT will cease and TSRG shall be the surviving
corporation (the "Merger"). As a result of the Merger, each share of NGT common
stock, $.001 par value ("NGT Common Stock") , and each share of NGT Series
1994-B Preferred Stock, $4.00 par value ("NGT Preferred Stock"), shall be
exchanged for shares of TSRG Common Stock based on the Exchange Ratio. The
"Exchange Ratio shall be determined by dividing 6,415,350 (three times the
number of shares of TSRG Common Stock outstanding) by the aggregate number of
shares of NGT Common Stock and NGT Preferred Stock outstanding immediately
preceding the Effective Date of the Merger.
Shareholders will also be asked to (a) approve the proposal to amend
the Articles of Incorporation to change the authorized capitalization by adding
10,000,000 shares of preferred stock , par value $.001 per share, (b) ratify the
issuance of certain convertible debentures that may be converted into TSRG
Common Stock, and (c) approve the proposal to empower the Board of Directors to
register up to 1,000,000 shares of authorized but previously unissued TSRG
Common Stock, to be offered and sold at the discretion of the Board of
Directors.
Following consummation of the proposed Merger, the combined company
will have oil and gas properties and production in the Appalachian, Rocky
Mountain and Permian basins.
THE DIRECTORS OF TSRG HAVE UNANIMOUSLY APPROVED THE TERMS OF THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND UNANIMOUSLY RECOMMEND
THAT THE SHAREHOLDERS OF TSRG VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT AND
THE TRANSACTIONS CONTEMPLATED IN THE MERGER
The Merger is conditioned on approval by TSRG shareholders of the
issuance of TSRG Common Stock in the Merger. Accordingly, it is important that
your shares be represented at the Special Meeting. whether or not you plan to
attend in person. Please complete, sign and date the enclosed Proxy card and
return it in the accompanying prepaid envelope to ensure that your shares will
be represented at the Special Meeting.
On June 5, 1998, the shares of TSRG Common Stock then outstanding were
reverse split on a one (1) share for four (4) shares basis. All share of TSRG
Common Stock referred to in this Joint Proxy Statement/Prospectus and in the
Merger Agreement are stated on a post-split basis.
Should you require assistance in completing your proxy card or if you
have questions about the voting procedure described in this Joint Proxy
Statement / Prospectus, please feel free to contact William Woodburn at the TSRG
offices, (304) 684-7053.
Thank you for your continued support.
Sincerely,
LOREN E. BAGLEY
President and Chief Executive Officer
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The Securities and Exchange Commission and state securities regulators
have not approved this Joint Proxy Statement / Prospectus or the shares of TSRG
Common Stock to be issued in the Merger, and they have not determined if this
Joint Proxy Statement / Prospectus is truthful or complete. Furthermore, the
Securities and Exchange Commission has not determined the fairness or merits of
the Merger. Any representation to the contrary is a criminal offense.
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR CERTAIN MATTERS YOU SHOULD
CONSIDER.
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This Joint Proxy Statement / Prospectus is dated October__, 1998 and is
first being mailed to shareholders on or about October __, 1998.
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TRANS ENERGY, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held October __, 1998
To our Shareholders:
NOTICE is hereby given that a Special Meeting of Shareholders (the
"Special Meeting") of Trans Energy, Inc., a Nevada corporation ("TSRG"), will be
held on ___________, October ___, 1998, at ____ p.m. local time, at 210 Second
Street, St. Marys, West Virginia for the following purposes.
(1) To consider and vote upon a proposal to approve the
issuance of TSRG common stock, par value $.001 per share, pursuant to a
Plan and Agreement of Merger dated as of March 26, 1998 (the "Merger
Agreement"), by and between TSRG and Natural Gas Technologies, Inc., a
Texas corporation ("NGT"), and the transactions contemplated thereby.
Pursuant to the Merger Agreement, NGT will merge with and into TSRG,
the separate corporate existence of NGT will cease and TSRG shall be
the surviving corporation (the "Merger"). As a result of the Merger,
each share of NGT common stock, $.001 par value ("NGT Common Stock"),
and each share of NGT Series 1994-B Preferred Stock, $4.00 par value
("NGT Preferred Stock"), shall be exchanged for shares of common stock,
$.001 par value, ("TSRG Common Stock") based on the Exchange Ratio. The
"Exchange Ratio" shall be determined by dividing the 6,415,350 (three
times the number of shares of TSRG Common Stock outstanding) by the
aggregate number of shares of NGT Common Stock and NGT Preferred Stock
outstanding immediately preceding the Effective Date of the Merger.
A copy of the Merger Agreement is annexed to the accompanying
Joint Proxy Statement/ Prospectus as Annex I.
(2) To consider and vote upon a proposal to amend the Articles
of Incorporation to change the authorized capitalization of TSRG to add
10,000,000 shares of preferred stock, par value $.001 per share.
(3) To consider and vote upon a proposal to ratify the
issuance of up to $4,850,000 face value convertible debenture that may
be converted into shares of TSRG Common Stock.
(4) To consider and vote upon a proposal to empower the Board
of Directors to register up to 1,000,000 shares of authorized but
previously unissued TSRG Common Stock, to be offered and sold at the
discretion of the Board of Directors.
(5) To transact such other business as may properly come
before the TSRG Special Meeting and any adjournment thereof.
The Board of Directors has fixed the close of business of _________,
1998 as the record date for determining the shareholders entitled to receive
notice of and to vote at, the TSRG Special Meeting or any adjournment or
postponement thereof.
The Joint Proxy Statement / Prospectus sets forth, or incorporates by
reference, information, including financial data, relating to TSRG and NGT and
describes the terms and conditions of the proposed Merger. Please carefully
review these materials before completing the enclosed proxy card. The Joint
Proxy Statement / Prospectus forms a part of this Notice.
By Order of the Board of Directors,
LOREN E. BAGLEY
President and Chief Executive Officer
St. Marys, West Virginia
October ___, 1998
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REGARDLESS OF WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING,
PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AT YOUR EARLIEST
CONVENIENCE. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE VOTE AT THE TSRG
SPECIAL MEETING BY FOLLOWING THE PROCEDURES SET FORTH IN THE JOINT PROXY
STATEMENT / PROSPECTUS.
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Alternative Page 1
NATURAL GAS TECHNOLOGIES, INC.
16775 Addison Road, Suite 300
Dallas, Texas 75248
The Board of Directors cordially invites you to attend a special
meeting of shareholders of Natural Gas Technologies, Inc. ("NGT") to be held at
_____ p.m., local time, on ____________, October __, 1998, at the offices of NGT
16775 Addison Road, Suite 300, Dallas, Texas.
At the Special Meeting, you will be asked to consider a proposal to
approve the Plan and Agreement of Merger dated as of March 26, 1998 (the "Merger
Agreement"), by and between NGT and Trans Energy, Inc., a Nevada corporation
("TSRG") and the transactions contemplated thereby. Pursuant to the Merger
Agreement, NGT will merge with and into TSRG, the separate corporate existence
of NGT will cease and TSRG shall be the surviving corporation (the "Merger"). As
a result of the Merger, each share of NGT common stock, $.001 par value ("NGT
Common Stock") , and each share of NGT Series 1994-B Preferred Stock, $4.00 par
value ("NGT Preferred Stock"), shall be exchanged for shares of TSRG Common
Stock, par value $.001 per share (the "TSRG Common Stock"), based on the
Exchange Ratio. The "Exchange Ratio" shall be determined by dividing 6,415,350
(three times the number of shares of TSRG Common Stock outstanding) by the
aggregate number of shares of NGT Common Stock and NGT Preferred Stock
outstanding immediately preceding the Effective Date of the Merger. A copy of
the Merger Agreement is attached to the accompanying Joint Proxy Statement/
Prospectus as Annex I.
Following consummation of the proposed Merger, the combined company
will have oil and gas properties and production in the Appalachian, Rocky
Mountain and Permian basins.
THE DIRECTORS OF NGT HAVE UNANIMOUSLY APPROVED THE TERMS OF THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND UNANIMOUSLY RECOMMEND
THAT THE SHAREHOLDERS OF NGT VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED IN THE MERGER.
The Merger is conditioned on approval by NGT shareholders. Accordingly,
it is important that your shares be represented at the Special Meeting. whether
or not you plan to attend in person. Please complete, sign and date the enclosed
Proxy card and return it in the accompanying prepaid envelope to ensure that
your shares will be represented at the Special Meeting.
Should you require assistance in completing your proxy card or if you
have questions about the voting procedure described in this Joint Proxy
Statement / Prospectus, please feel free to contact Michael Stewart at the NGT
offices, (972) 713-6050.
Thank you for your continued support.
Sincerely,
MICHAEL STEWART
President and Chairman of the Board
REGARDLESS OF WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING,
PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AT YOUR EARLIEST
CONVENIENCE. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE VOTE AT THE NGT
SPECIAL MEETING BY FOLLOWING THE PROCEDURES SET FORTH IN THE JOINT PROXY
STATEMENT / PROSPECTUS.
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The Securities and Exchange Commission and state securities regulators
have not approved this Joint Proxy Statement / Prospectus or the shares of TSRG
to be issued in the Merger, and they have not determined if this Joint Proxy
Statement / Prospectus is truthful or complete. Furthermore, the Securities and
Exchange Commission has not determined the fairness or merits of the Merger. Any
representation to the contrary is a criminal offense.
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR CERTAIN MATTERS YOU SHOULD
CONSIDER.
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This Joint Proxy Statement / Prospectus is dated October __, 1998 and
is first being mailed to shareholders on or about October __, 1998.
<PAGE>
TRANS ENERGY, INC.
AND
NATURAL GAS TECHNOLOGIES, INC.
JOINT PROXY STATEMENT / PROSPECTUS
This Joint Proxy Statement / Prospectus is being furnished to the
holders of common stock, $.001 par value ("TSRG Common Stock"), of Trans Energy,
Inc., a Nevada corporation ("TSRG"), in connection with the solicitation of
proxies by the Board of Directors of TSRG (the "TSRG Board") for use at a
Special Meeting of Shareholders of TSRG to be held at 210 Second Street, St.
Marys, West Virginia, on October __, 1998, and at any and all adjournments or
postponements thereof (the "TSRG Special Meeting").
This Joint Proxy Statement/Prospectus is also being furnished to the
holders of common stock, par value $.001 par value ("NGT Common Stock"), and NGT
Series 1994-B Preferred Stock, $4.00 par value ("NGT Preferred Stock") of
Natural Gas Technologies, Inc., a Texas corporation ("NGT"), in connection with
the solicitation of proxies by the Board of Directors of NGT (the "NGT Board")
for use at a Special Meeting of Shareholders of NGT to be held at 16775 Addison
Road, Suite 300, Dallas, Texas, on October __, 1998, and at any and all
adjournments or postponements thereof (the "NGT Special Meeting" and, together
with the TSRG Special Meeting, the "Special Meetings").
This Joint Proxy Statement/Prospectus relates to the Plan and Agreement
of Merger dated as of March 26, 1998 (the "Merger Agreement") by and between
TSRG and NGT, which provides for the merger of NGT with and into TSRG (the
"Merger"), with TSRG being the surviving corporate entity. Subject to the terms
and conditions of the Merger Agreement, each share of NGT Common Stock and each
share of NGT Preferred Stock shall be exchanged for shares of TSRG Common Stock
based on the "Exchange Ratio." The Exchange Ratio shall be determined by
dividing 5,415,350 (three times the number of shares of TSRG Common Stock
outstanding) by the aggregate number of shares of NGT Common Stock and NGT
Preferred Stock outstanding immediately preceding the Effective Date of the
Merger, which shall be the date of the filing of the Articles of Merger or a
Certificate of Merger, as applicable, with the Secretary of State of Nevada and
the Secretary of State of Texas (the "Effective Date"). One additional share of
TSRG Common Stock will be paid in lieu of any fractional share resulting from
the Exchange Ratio.
The consummation of the Merger is subject, among other things, (i) the
approval of the Merger and issuance of TSRG Common Stock pursuant to the Merger
in accordance with the terms of the Merger Agreement by the affirmative vote of
a majority of the outstanding shares of TSRG Common Stock; (ii) the approval of
the Merger by holders of a two-thirds (2/3) majority of the outstanding shares
of NGT Common Stock, and (iii) the continued listing of TSRG Common Stock on the
Nasdaq SmallCap Market. A copy of the Merger Agreement is attached hereto as
Annex 1.
This Joint Proxy Statement / Prospectus also constitutes the Prospectus
of TSRG filed as part of a Registration Statement on Form S-4 (the "Registration
Statement") with the Securities and Exchange Commission (the "Commission") under
the Securities Act of 1933, as amended (the "Securities Act"), relating to the
shares of TSRG Common Stock issued in the Merger. It is anticipated that
approximately 6,415,350 shares of TSRG Common Stock will be issued in the Merger
representing approximately 75% of the shares of TSRG Common Stock expected to be
issued after giving effect to the consummation of the Merger.
TSRG Common Stock is listed for trading under the symbol "TSRG" on The
Nasdaq SmallCap Market. NGT Common Stock does not trade in a public market. On
March 25, 1998, the last trading day prior to the execution of the Merger
Agreement, the last reported sale price of TSRG Common Stock as reported by The
Nasdaq SmallCap Market was $4.25 per share, post-split as defined herein.
For a description of certain significant considerations in connection
with the Merger and related matters described in this Joint Proxy
Statement/Prospectus, see Section 5, "RISK FACTORS" beginning on page 12.
This Joint Proxy Statement/Prospectus and the accompanying forms of
proxy are first being mailed to shareholders of TSRG and shareholders of NGT on
or about October ___, 1998.
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 JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Joint Proxy Statement/Prospectus is October __, 1998.
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AVAILABLE INFORMATION
TSRG is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and files annual,
quarterly and current reports, proxy statements and other information with the
Commission. Such reports, statements or other information may be inspected and
copied at the Commission's public reference rooms at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the following Regional
Offices of the Commission: Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661; and 7 World Trade Center, Suite 1300, New York, New
York 10048. Copies of such material may also be obtained at the prescribed rates
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. The Commission also maintains a World Wide Web site that
contains reports, proxy and information statements, and other information
regarding registrants (including TSRG) that file electronically with the
Commission (http://www.sec.gov). TSRG Common Stock is included on The Nasdaq
SmallCap Market and reports, proxy statements and other information relating to
TSRG can be inspected at the offices of the NASD, 1735 K Street, Washington,
D.C., 20006.
TSRG has filed the Registration Statement to register with the
Commission the shares of TSRG Common Stock to be issued to NGT shareholders in
the Merger. This Joint Proxy Statement/Prospectus is a part of the Registration
Statement and constitutes a prospectus of TSRG, as well as a proxy statement of
NGT Special Meeting and the TSRG Special Meeting.
As allowed by the Commission rules, this Joint Proxy
Statement/Prospectus does not contain all the information that shareholders can
find in the Registration Statement or the exhibits to the Registration
Statement.
The Commission allows TSRG to "incorporate by reference" information
into this Joint Proxy Statement/Prospectus, which means that it can disclose
important information to you by referring you to another document filed
separately with the Commission. The information incorporated by reference is
deemed to be part of this Joint Proxy Statement/Prospectus, except for any
information superseded by information contained directly in the Joint Proxy
Statement/Prospectus.
This Joint Proxy Statement/Prospectus incorporates by reference
documents that are not presented herein or delivered herewith. Copies of such
documents (other than exhibits thereto which are not specifically incorporated
by reference herein) are available, without charge, to any person, including any
beneficial owner of shares of TSRG Common Stock or NGT Common Stock or Preferred
Stock to whom this Joint Proxy Statement/Prospectus is sent, upon written or
oral request to, in the case of documents relating to TSRG, Trans Energy, Inc.,
210 Second Street, P.O. Box 393, St. Marys, West Virginia, 26170, telephone
(304) 684-7053 and, in the case of documents relating to NGT, Natural Gas
Technologies, Inc., 16775 Addison Road, Suite 300, Dallas, Texas, 75248
telephone (972) 713-6050. In order to ensure delivery of documents prior to the
applicable Special Meeting, any such request should be made not later than
October __, 1998.
INCORPORATION BY REFERENCE
This Joint Proxy Statement/Prospectus incorporates by reference the
documents set forth below that TSRG has previously filed with the Commission.
These documents contain important information about TSRG and its financial
condition.
1. The TSRG Annual Report on Form 10-KSB for the year ended December
31, 1997 (File No.0-23530);
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2. The TSRG Quarterly Reports on Form 10-QSB for the quarters ended
March 31 and June 30, 1998 (File No. 0-23530);
3. The TSRG current reports on Form 8-K dated February 11, 1998 and
February 19, 1998.
No person has been authorized to give any information or
representations with respect to the matters described in this Joint Proxy
Statement/Prospectus other than those contained or incorporated by reference
herein, and, if given or made, such information or representations must not be
relied upon as having been authorized by either TSRG or NGT. This Joint Proxy
Statement/Prospectus does not constitute an offer to sell or the solicitation of
an offer to buy any securities, nor does it constitute the solicitation of a
proxy in any jurisdiction to or from any person to whom it is unlawful to make
any such offer or solicitation in such jurisdiction. Neither the delivery of
this Joint Proxy Statement/Prospectus nor any distribution of securities
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of TSRG or NGT since the date hereof or that the
information contained herein is correct as of any time subsequent to its date.
CAUTIONARY STATEMENT
When used in this Joint Proxy Statement/Prospectus with respect to TSRG
and NGT, the words "estimate," "project," "intend," "expect," and similar
expressions are intended to identify forward-looking statements. Readers are
cautioned not to place undue reliance on these forward- looking statements,
which speak only as of the date of this Joint Proxy Statement/Prospectus. Such
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those contemplated in such forward-looking
statements. Such risks and uncertainties include those risks, uncertainties and
risk factors identified under the heading "Risk Factors and Cautionary
Statements" accompanying "Management's Discussion and Analysis or Plan of
Operations" that is in the TSRG Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1997. TSRG does not undertake any obligation to publicly
release any revisions to these forward-looking statements to reflect events or
circumstances after the date -hereof or to reflect the occurrence of
unanticipated events.
All information contained in this Joint Proxy Statement/Prospectus with
respect to TSRG has been provided by TSRG. All information contained in this
Joint Proxy Statement/Prospectus with respect to NGT has been provided by NGT.
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TABLE OF CONTENTS
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AVAILABLE INFORMATION............................................................................ 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.................................................. 2
CAUTIONARY STATEMENT............................................................................. 3
SUMMARY OF JOINT PROXY STATEMENT/PROSPECTUS...................................................... 6
The Companies............................................................................... 6
TSRG Special Meeting........................................................................ 7
NGT Special Meeting......................................................................... 8
The Merger and Merger Agreement............................................................. 9
Risk Factors................................................................................ 9
Comparative Per Share Data of TSRG and NGT.................................................. 10
Market Prices and Dividends................................................................. 11
The TSRG Stock Split........................................................................ 11
RISK FACTORS..................................................................................... 12
Risks Related to the TSRG / NGT Merger...................................................... 12
Risks Relating to the Business and Operations of TSRG and NGT............................... 13
Risks Relating to the Market of TSRG Common Stock........................................... 16
TSRG SPECIAL MEETING............................................................................. 16
Date, Time and Place........................................................................ 16
General..................................................................................... 16
Record Date; Vote Required.................................................................. 18
Quorum...................................................................................... 18
Proxies..................................................................................... 19
Solicitation of Proxies..................................................................... 19
Appraisal / Dissenters' Rights.............................................................. 19
NGT SPECIAL MEETING.............................................................................. 20
Date, Time and Place........................................................................ 20
General..................................................................................... 20
Record Date; Vote Required.................................................................. 21
Quorum...................................................................................... 21
Proxies..................................................................................... 21
Solicitation of Proxies..................................................................... 21
Appraisal / Dissenters' Rights.............................................................. 22
THE MERGER....................................................................................... 23
General..................................................................................... 24
Share Ownership of Affiliates............................................................... 24
Background of the Merger.................................................................... 24
TSRG Financing Related to the Merger........................................................ 25
TSRG's Reasons for the Merger; Recommendation of the TSRG Board............................. 25
NGT's Reasons for the Merger; Recommendation of the TSRG Board.............................. 26
Composition of the TSRG Board............................................................... 28
Interests of Certain Persons in the Transaction............................................. 28
Certain Federal Income Tax Consequences..................................................... 28
Anticipated Accounting Treatment............................................................ 29
Percentage Ownership Interest of NGT Shareholders Following the Merger...................... 30
Nasdaq SmallCap Market Listing.............................................................. 30
Resale of TSRG Common Stock................................................................. 30
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OTHER TERMS OF THE MERGER AGREEMENT.............................................................. 31
Conversion of Shares in the Merger.......................................................... 31
Exchange Agent; Procedure for Exchange of Certificates...................................... 32
No Fractional Shares........................................................................ 32
Representations and Warranties.............................................................. 32
Conduct of Business Pending the Merger...................................................... 33
Conditions Precedent to the Merger.......................................................... 34
Indemnification; Directors' and Officers' Insurance......................................... 35
Termination................................................................................. 36
Fees and Expenses........................................................................... 37
Amendment................................................................................... 37
Waiver...................................................................................... 37
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS................................................ 38
TSRG STOCK SPLIT................................................................................. 39
DIRECTORS AND MANAGEMENT OF TSRG FOLLOWING THE MERGER............................................ 39
DESCRIPTION OF TSRG SECURITIES................................................................... 39
TSRG Common Stock........................................................................... 40
TSRG Stock Purchase Warrants................................................................ 40
TSRG Convertible Debentures................................................................. 40
Shares Eligible for Future Sale.............................................................
COMPARISON OF THE RIGHTS OF HOLDERS OF TSRG COMMON
STOCK AND NGT COMMON STOCK.................................................................. 42
MARKET PRICE OF TSRG COMMON STOCK AND DIVIDENDS.................................................. 45
BUSINESS OF TSRG................................................................................ 46
BUSINESS OF NGT.................................................................................. 60
CERTAIN RELATED TRANSACTIONS..................................................................... 73
SHAREHOLDERS PROPOSALS........................................................................... 73
EXPERTS.......................................................................................... 73
LEGAL MATTERS.................................................................................... 74
ANNUAL REPORT AND FORM 10-KSB.................................................................... 74
ANNEXES TO THE JOINT PROXY STATEMENT/PROSPECTUS..................................................
Annex I PLAN AND AGREEMENT OF MERGER
Annex II NEVADA REVISED STATUES RELATING TO RIGHTS OF DISSENTING
SHAREHOLDERS
Annex III TEXAS CODE
Annex IV GLOSSARY OF CERTAIN TERMS RELATING TO THE MERGER
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JOINT PROXY STATEMENT/PROSPECTUS SUMMARY
The following is a summary of certain information contained elsewhere
or incorporated by reference in this Joint Proxy Statement/Prospectus. This
summary highlights selected information from this document and may not contain
all of the information that is important to you. Reference is made to, and this
summary is qualified in its entirety by, the more detailed information contained
elsewhere or incorporated by reference in this Joint Proxy Statement/Prospectus
and Annexes hereto.
Shareholders of TSRG and NGT are urged to read this Joint Proxy
Statement/Prospectus and the Annexes hereto in their entirety.
The Companies
TSRG
TSRG is primarily engaged in the transportation, marketing and
production of natural gas and oil, and also oil and gas exploration and
development activities. TSRG owns and operates oil and gas wells in West
Virginia and Wyoming and also owns and operates gas transmission lines located
in West Virginia. During the past three years, TSRG has engaged in limited
developmental drilling and no exploratory drilling. TSRG has operated primarily
in the Appalachian Basin in Northwestern West Virginia, which is geographically
one of the largest gas and oil producing regions, and also in the Powder River
Basin in Wyoming.
TSRG's business strategy is to economically increase its reserves,
production and sale of gas and oil from existing and acquired properties in the
Appalachian Basin and elsewhere in order to maximize shareholders' return over
the long term. TSRG intends to actively pursue the acquisition and development
of producing properties in areas that will enhance TSRG's revenue base without
proportional increases in overhead costs. To accomplish this strategy, TSRG has
focused on increasing its gas and oil revenues through well recompletions,
property acquisitions and exploitation programs.
TSRG operates exclusively in the oil and gas industry. Natural gas
production from wells owned by TSRG is generally sold to various intrastate and
interstate pipeline companies and natural gas marketing companies. Sales are
generally made on the spot market or under short-term contracts (one year or
less) providing for variable or market sensitive prices. These prices often are
tied to natural gas futures contracts as posted in national publications.
Natural gas delivered through TSRG's pipeline network is sold under contract to
one of two primary customers. As of the date hereof, TSRG employs ten people
full-time and anticipates hiring additional employees as business warrants and
as funds are available. See "BUSINESS OF TSRG."
TSRG's principal executive offices are located at 210 Second Street,
P.O. Box 393, St. Marys, West Virginia 26170, and its telephone number is (304)
684-7053.
NGT.
NGT is an energy company engaged in the exploration, development,
acquisition and production of crude oil and natural gas. All of NGT's properties
and its subsidiary's properties and operations are currently located in the
States of Texas and Wyoming. NGT's objective is to build shareholder value
through consistent growth in per share reserves, production and the resulting
cash flow and earnings. To accomplish this, NGT has targeted properties which
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are expected to produce secondary recoveries of oil and gas through the use of
new technologies, waterfloods or additional drilling. These types of properties
can usually be acquired on more favorable terms than properties in primary
production, although lease operating costs for these properties are higher upon
acquisition than properties in primary production. Since January 31, 1997, NGT
has been acquiring additional properties and reworking its existing properties
using cash invested by two of NGT's directors.
NGT has contracted with Wagman Petroleum, Inc. ("WPI") to operate its
properties. WPI is approximately 45 percent owned by Brent A. Wagman, a former
officer and director of NGT. Mr. Wagman is also a director and president of WPI.
See "BUSINESS OF NGT."
NGT's principal executive offices are located at 16775 Addison Road,
Suite 300, Dallas, Texas 75248, and its telephone number is (972) 713-6050.
The Combined Company. With respect to the "combined company" resulting
from the Merger, approximately 57% of the pro forma combined revenues for the
period ended June 30, 1998 were attributed to TSRG and 43% were attributable to
NGT. As of June 30,1998 approximately 73% of the pro forma assets of the
combined company were attributable to TSRG and 27% were attributable to NGT.
Following consummation of the Merger, the combined company will be
engaged in transportation, marketing and production of natural gas and oil, and
also exploration and development activities. There are currently no plans for
the combined company to change the nature of the operations described in the
TSRG and NGT paragraphs above, except to pursue consolidations that will result
in operational efficiencies.
TSRG Special Meeting
Purpose. There will be a special meeting of shareholders of TSRG at
_________________, on _______, October __, 1998, at ___ p.m. local time. At this
meeting TSRG shareholders will be asked to approve the issuance of TSRG Common
Stock to shareholders of NGT pursuant to the Merger and the terms of the Merger
Agreement. Also, shareholders will be asked to (a) approve an amendment to the
Articles of Incorporation to change TSRG's authorized capitalization to include
ten million (10,000,000) shares of preferred stock, (b) ratify the issuance of
certain convertible debentures that may be converted into TSRG Common Stock, and
(c) approve the proposal to empower the TSRG Board to register up to 1,000,000
shares of authorized but previously unissued TSRG Common Stock, to be offered
and sold at the discretion of the TSRG Board. See "TSRG SPECIAL MEETING."
Record Date. Only holders of record of TSRG Common Stock at the close
of business on October __, 1998 (the "TSRG Record Date") are entitled to receive
notice of and to vote at the TSRG Special Meeting. Each such share owned at the
Record Date entitles the registered holder thereof to one vote. See "TSRG
SPECIAL MEETING - Record Date."
Quorum. The holders of more than one-third of the shares of TSRG
outstanding and entitled to vote must be present at the TSRG Special Meeting in
person or represented by Proxy in order for a quorum to be present. See "TSRG
SPECIAL MEETING - Quorum."
Required Vote. Once a quorum has been established, an affirmative vote
of a majority of the outstanding shares of TSRG Common Stock will be required
for approval of the Merger, approval of the change in authorized capitalization,
ratification of the issuance of the Convertible Debentures, and approval of
registration of additional shares of TSRG Common Stock. An abstention with
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respect to the Merger will have the effect of a vote cast against the Merger.
Brokers who hold shares of TSRG Common Stock as nominees will not have
discretionary authority to vote such shares in the absence of instructions from
the beneficial owners thereof. Any votes that are not cast because the
nominee-broker lacks such discretionary authority will not be counted as votes
cast on such proposal and will have no effect on the vote. See "TSRG SPECIAL
MEETING - Quorum."
Appraisal/Dissenters' Rights. Holders of shares of TSRG Common Stock
may be entitled to obtain payment of the fair value of their shares by asserting
appraisal/dissenters' rights and refraining from voting their shares "for" the
Merger. See "TSRG MEETING - Appraisal/Dissenters' Rights" and "NGT MEETING -
Appraisal/Dissenters' Rights."
NGT Special Meeting
Purpose. There will be a special meeting of shareholders of NGT at
16775 Addison Road, Suite 300, Dallas, Texas, on _______, October __, 1998, at
___ p.m. local time. At this meeting NGT shareholders will be asked to approve
the Merger pursuant to the terms of the Merger Agreement. The corporate law of
the State of Texas provides that only such business as is specified in the
notice of a special meeting may come before the meeting. See "NGT SPECIAL
MEETING."
Record Date. Only holders of record of NGT Common Stock at the close of
business on October __, 1998 (the "NGT Record Date") are entitled to receive
notice of and to vote at the NGT Special Meeting. Each such share owned at the
Record Date entitles the registered holder thereof to one vote. See "NGT SPECIAL
MEETING - Record Date; Vote Required."
Subject to the terms and conditions of the Merger Agreement, 100% of
the issued and outstanding shares of NGT Common Stock and NGT Preferred Stock
will be exchanged for approximately 6,415,350 shares of TSRG Common Stock at the
Exchange Ratio, which amount shall represent at least 75% of the total
outstanding shares of TSRG Common Stock following the Merger.
Quorum. The holders of more than one-half (1/2) of the shares of NGT
outstanding and entitled to vote must be present at the NGT Special Meeting in
person or represented by Proxy in order for a quorum to be present. "NGT SPECIAL
MEETING - Quorum."
Required Vote. Once a quorum has been established, an affirmative vote
of a two-thirds (2/3) majority of the outstanding shares of NGT Common Stock
will be required for approval of the Merger. An abstention with respect to the
Merger will have the effect of a vote cast against the Merger. "NGT SPECIAL
MEETING - Quorum."
Appraisal/Dissenters' Rights. Holders of shares of NGT Common Stock may
be entitled to obtain payment of the fair value of their shares by asserting
appraisal/dissenters' rights and refraining from voting their shares "for" the
Merger. See "THE MERGER - Appraisal/Dissenters' Rights."
The Merger and the Merger Agreement
On March 26, 1998, TSRG entered into the Merger Agreement with NGT
pursuant to which NGT will be merged with and into TSRG with TSRG being the
surviving corporate entity. The Merger will be accomplished by way of exchanging
100% of the issued and outstanding shares of NGT Common Stock and NGT Preferred
Stock for approximately 6,415,350 shares of TSRG Common Stock at the Exchange
Ratio. The "Exchange Ratio" shall be determined by dividing 6,415,350 (three
times the number of shares of TSRG Common Stock outstanding) by the aggregate
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number of shares of NGT Common Stock and NGT Preferred Stock outstanding
immediately prior to the Effective Date. This will result in the present NGT
shareholders owning at least 75% of the total number of issued and outstanding
shares of TSRG Common Stock immediately after completion of the Merger. The
Merger shall be voted upon by the shareholders of both TSRG and NGT and is
subject to the effectiveness of TSRG's Registration Statement on Form S-4. See
"THE MERGER."
The Merger will become effective upon the filing of the Articles of
Merger or a Certificate of Merger, as applicable, with the Secretary of State of
Nevada and the Secretary of State of Texas (the "Effective Date"), which event
shall not occur until all conditions precedent set forth in the Merger Agreement
are satisfied or waived, to the extent permitted by law. See "OTHER TERMS OF THE
MERGER AGREEMENT - Conditions Precedent to the Merger."
Upon completion of the Merger, the Board of Directors of the combined
company shall consist of five directors, two nominated by TSRG, two nominated by
NGT, and one by mutual agreement of TSRG and NGT. See "DIRECTORS AND MANAGEMENT
OF TSRG FOLLOWING THE MERGER." Until the Merger is completed, both corporations
are being managed pursuant to a joint committee consisting of Loren E. Bagley
and Michael Stewart. See "THE MERGER - Conduct of Business Pending the Merger."
Certain Federal Income Tax Consequences. It is the intent of the
parties to the Merger that (i) the transaction be treated for federal income tax
purposes as a "reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and (ii) TSRG and NGT
will each be a party to that reorganization within the meaning of Section 368
(b) of the Code. See "THE MERGER - Certain Federal Income Tax Consequences."
Anticipated Accounting Treatment. The Merger will be accounted for as a
recapitalization of TSRG for financial accounting purposes in accordance with
generally accepted accounting principles. For financial reporting purposes, the
results of operations of NGT will be included in the TSRG consolidated statement
of operations following the Effective Date. See "THE MERGER - Anticipated
Accounting Treatment."
Risk Factors
For a description of certain significant considerations in connection
with the Merger and related matters described in this Joint Proxy
Statement/Prospectus, see the section entitled "RISK FACTORS" beginning on page
12 hereof.
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Comparative Per Share Data of TSRG and NGT
The following table sets forth certain actual ("historical") per share
information and certain information on a pro forma basis for TSRG and NGT.
Historical data is based on the historical consolidated financial statements and
related notes of each of TSRG and NGT and the Unaudited Pro Forma Combined
Financial Information, including notes thereto, appearing elsewhere in this
Joint Proxy Statement/Prospectus.
Three Month
Year Ended Period Ended
December 31, 1997 June 30, 1998
TSRG - Historical
Book value per common share $ 1.42 $ 1.44
Income (loss) per common share $ (1.14) $ (0.10)
from continuing operations
Three Month
Fiscal Year Ended Period Ended
March 31, 1998 June 30, 1998
NGT - Historical
Book value per common share $ .74 $ .71
Loss per common share from $ (.70) $ (.33)
continuing operations
As of
TSRG / NGT - Pro Forma (unaudited June 30, 1998
Book value per common share $ .93
Loss per common share from $ (.17)
continuing operations
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Market Prices and Dividends
TSRG Common Stock is traded on The Nasdaq SmallCap Market under the
symbol "TSRG". The following table sets forth, for the periods indicated the
range of quarterly high and low sales prices of TSRG as obtained from The Nasdaq
SmallCap Market for the past two fiscal years. All prices have been adjusted to
reflect the one share for four shares reverse split effected by TSRG on June 5,
1998. Price quotations reflect inter-dealer prices, without retail market
mark-up, mark-down or commission and may not represent actual transactions.
High Low
---- ---
1996
First Quarter $ 14.00 $ 10.52
Second Quarter $ 24.00 $ 10.00
Third Quarter $ 21.00 $ 11.52
Fourth Quarter $ 25.00 $ 13.00
1997
First Quarter $ 26.24 $ 8.00
Second Quarter $ 13.12 $ 5.00
Third Quarter $ 8.00 $ 2.52
Fourth Quarter $ 8.00 $ 2.52
1998
First Quarter $ 6.68 $ 2.00
Second Quarter $ 5.00 $ 2.13
Third Quarter (1) $ 2.38 $ .50
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(1) Through September 16, 1998
As of September 16, 1998, there were 187 holders of record of TSRG
Common Stock, which figure does not take into account those shareholders whose
certificates are held in the name of broker-dealers and other nominees. TSRG
estimates that there are approximately 300 beneficial owners of TSRG Common
Stock including shareholders whose certificates are held by broker-dealers or
other nominees. On March 25, 1998, the date immediately preceding the
announcement of the Merger, the shares of TSRG Common Stock closed at $4.25.
TSRG has not declared or paid cash dividends or made distributions in
the past and does not anticipate that it will pay cash dividends or make
distributions in the foreseeable future. TSRG currently intends to retain and
reinvest future earnings, if any, to finance its operations.
There is currently no public trading market for NGT Common Stock or
Preferred Stock. As of September 8, 1998, there were 181 holders of record of
NGT Common Stock and 2 holders of NGT's Series 1994-B Preferred Shares.
The TSRG Stock Split
In May 1998, the TSRG Board declared the TSRG Stock Split in connection
with the Merger. Accordingly, on June 5, 1998, the shares of TSRG Common Stock
then outstanding were reverse split on a one (1) share for four (4) shares
basis. All shares of TSRG Common Stock referred to in this Joint Proxy
Statement/Prospectus and in the Merger Agreement, including price quotations,
are stated on a post-split basis. The TSRG Stock Split will have no effect on
the terms of the Merger Agreement.
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RISK FACTORS
Shareholders of TSRG and of NGT should consider carefully all of the
information contained in this Joint Proxy Statement/Prospectus (the "Joint Proxy
Statement/Prospectus"), including, among other things, the following factors.
Risks Related to the Merger
Fixed Exchange Ratio Despite Change in Relative Stock Values
The Exchange Ratio, as expressed in the Merger Agreement, is a fixed
ratio determined by dividing 6,415,350 (three times the number of shares of TSRG
Common Stock outstanding) by the aggregate number of shares of NGT Common Stock
and NGT Preferred Stock outstanding immediately preceding the Effective Date.
Thus, the number of shares of TSRG Common Stock to be issued pursuant to the
Merger shall be at least 6,415,350 shares and shall represent at least 75% of
the outstanding shares of TSRG Common Stock immediately following the Effective
Date. Accordingly, the number of shares to be issued will not be adjusted in the
event of any increase or decrease in the price of TSRG Common Stock. The price
of TSRG Common Stock at the Effective Date may vary from its price at the date
of this Joint Proxy Statement/Prospectus and at the date of the Special
Meetings. Such variations may be the result of changes in the business,
operations or prospects of TSRG, market assessments of the likelihood that the
Merger will be consummated and the timing thereof, general market and economic
conditions and other factors. Because the Effective Date will occur at a date
later than the Special Meetings, there can be no assurance that the price of
TSRG Common Stock on the date of the Special Meetings will be indicative of its
price at the Effective Date. The Effective Date will occur as soon as
practicable following the Special Meetings and the satisfaction or waiver of the
other conditions set forth in the Merger Agreement. Shareholders of TSRG and of
NGT are urged to obtain current market quotations for TSRG Common Stock. SEE
"OTHER TERMS OF THE MERGER AGREEMENT - Conditions Precedent to the Merger."
Uncertainties in Integrating Business Operations
In determining that the Merger is in the best interests of TSRG or NGT,
as the case may be, each of the TSRG and NGT Board addressed the cost savings,
operating efficiencies, revenue enhancement and other synergies that may result
from the consummation of the Merger. The consolidation of functions and
integration of departments, systems and procedures, present significant
management challenges and require special attention. There can be no assurance
that such actions will be successfully accomplished as rapidly as currently
expected or that the combined company will realize any of the anticipated
benefits of the Merger. See "THE MERGER - TSRG's reasons for the Merger;
Recommendation of the TSRG Board - NGT's reasons for the Merger; Recommendation
of the NGT Board."
Substantial Dilution of Voting Interest of TSRG Shareholders
The shares of TSRG Common Stock to be issued to NGT shareholders at the
Effective Date are expected to represent approximately, but in no case less than
75% of the number of shares of TSRG Common Stock outstanding immediately after
the Effective Date. Accordingly, the Merger will have the effect of reducing the
percentage voting interest in TSRG represented by a share of TSRG Common Stock
immediately prior to the Effective Date, and the percentage voting interest in
NGT represented by a share of NGT Common Stock immediately prior to the
Effective Date. However, as a result of the Merger, shareholders of TSRG and
shareholders of NGT will each own a voting interest in a larger enterprise.
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Interests of Certain Persons in the Merger
In considering the recommendation of the Merger by the respective
Boards of Directors of TSRG and NGT, the shareholders of TSRG and NGT should be
aware that certain directors and executive officers of TSRG and NGT may be
deemed to have conflicts of interest with respect to the Merger. Such interests,
together with other relevant factors, were considered by the TSRG Board and NGT
Board in recommending the Merger to their respective shareholders and approving
the Merger Agreement. See "THE MERGER - Interests of Certain Persons in the
Merger."
Risks Relating to the Business and Operations of TSRG and NGT
Going Concern
TSRG has incurred operating losses for the years ended December 31,
1997 and 1996 and the six months ended June 30, 1998, and net operating losses
during each of such periods. TSRG's management has included a footnote in TSRG's
Consolidated Financial Statements for the periods ended December 31, 1996 and
1997 relating to TSRG's need for potential proceeds from contemplated debt and
equity financing, increases in operating revenues from new developments and the
Merger with Natural Gas Technologies to continue as a going concern. See Note 8
to TSRG Consolidated Financial Statements.
Working Capital Deficit; Need for Additional Capital
At December 31, 1997, TSRG had a working capital deficit of $1,922,429,
stockholders' equity of $2,012,481 and sustained a net loss of $2,029,450 for
its fiscal year ended December 31, 1997. At June 30, 1998, TSRG had a working
capital deficit of $6,430,985, stockholders' equity of $3,847,731, and
accumulated deficit of $9,022,371 and a net loss of $282,210 for the six month
period then ended. No assurance can be given that TSRG or the combined company
will be profitable in the future or that it will not continue to incur
substantial losses in the future. Development of the businesses of the combined
company and the ongoing exploration and development of oil and gas properties
will continue to require significant capital expenditures. Failure to have
access to sufficient funds for capital expenditures on acceptable terms or the
failure to achieve capital expenditure synergies may require the combined
company to delay or abandon some of its plans, which could have a material
adverse effect on the success of the proposed Merger and the combined company.
Competition
The oil and gas industry is extremely competitive and TSRG and NGT
expect that competition will intensify in the future. TSRG and NGT face
significant direct competition from numerous major and independent oil and gas
companies and other companies with greater market share and resources. Many
competitors are large, well-known oil and gas and/or energy companies, although
no single entity dominates the industry. Many competitors possess greater
financial and personnel resources enabling them to identify and more
economically acquire desirable energy producing properties and drilling
prospects than the TSRG and NGT. Additionally, there is competition from other
fuel choices to supply the energy needs of consumers and industry. See "Business
of TSRG - Competition."
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Volatility of Gas and Oil Prices
TSRG's reserves, profitability and future rate of growth are
substantially dependent upon prevailing prices for gas and oil. Such prices can
be volatile. Prices are affected by market supply and demand factors as well as
governmental action and weather conditions which are beyond the control of TSRG.
These external factors and the volatile nature of the energy markets make it
difficult to estimate future prices of gas and oil. Since 1991 TSRG's annual
average gas sales price has ranged from a high of $3.56 per Mcf in 1996 to a low
of $2.02 per Mcf in 1995. TSRG's annual average oil sales price has ranged from
a high of $19.22 per Bbl in 1996 to a low of $14.89 per Bbl in 1993. For the
year ended December 31, 1997, TSRG's average sales prices for gas and oil were
$2.95 per Mcf and $16.44 per Bbl, respectively. During the first half of 1998,
oil prices dropped to a low of $9.00 per Bbl and, as of August 5, 1998, the
price of oil was $13.80 according to the WTI Crude Oil Posted Price. This
decline in oil prices has adversely affected TSRG's revenue Any significant or
extended decline in the prices of gas and oil could have a material adverse
effect on TSRG's financial condition and results of operations. See Business of
TSRG - Estimated Proved Reserves" and Business of NGT - Estimated Proved
Reserves."
Quarterly Variations
TSRG's operating results are subject to quarterly variation due to,
among other factors, weather conditions and the supply and demand factors
affecting the natural gas markets. Historically, the demand and price paid for
natural gas has increased in the cold winter months and decreased in the warm
summer months. Consequently, TSRG believes that its results of operations should
be viewed on an annual basis.
Uncertainties in Reserve Estimates
Estimates of TSRG's and NGT's proved reserves and future net revenues
appearing elsewhere in this Joint Proxy Statement/Prospectus are based primarily
on engineering reports. Gas and oil reserves cannot be measured in an exact way,
and estimates of other engineering reports might differ materially from those
shown herein. Certain events, including production history, acquisitions and
sales of properties, changes in prices and further drilling and development
could result in increases or decreases of estimated proved reserves or estimates
of future net earnings. Reported estimates of future cash flows reflect
historical average gas and oil prices, however there can be no assurance that
such prices will be realized or that the volumes projected will be produced
during future periods. Future performance that deviates from the engineering
reports could have a material adverse effect on the combined company. In
addition to the uncertainties in projecting future prices and rates of
production, there are numerous uncertainties inherent in estimating quantities
of recoverable natural gas and oil reserves, production costs and future
development expenditures, including many factors which are beyond the control of
the combined company. See S.F.A.S. 69 Supplemental Disclosure Footnote to the
Consolidated Financial Statements of TSRG.
Reserve Replacement Risks
The future success of TSRG's operations will be largely dependent upon
its ability to replace and expand its gas and oil reserves through the
acquisition of producing properties and the exploration for and development of
gas and oil reserves. Without successful acquisitions and exploitation,
exploration and development operations, the combined company will not be able to
replace the reserves being depleted by production, and its assets and revenues
will decline over time. There can be no assurance that TSRG's acquisition,
exploitation, exploration and development activities will result in the
replacement of, or additions to, the combined company's reserves.
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Successful acquisition of producing properties generally requires, among other
things, accurate assessments of recoverable reserves, future gas and oil prices,
operating costs and potential environmental risks and other liabilities. Such
assessments are necessarily inexact and their accuracy is inherently uncertain.
Exploration and development of gas and oil reserves by TSRG involves a degree of
risk that no commercial production will be obtained or that production will be
insufficient to recover drilling and completion costs. Drilling also may be
curtailed, delayed or canceled as a result of many factors, including, among
other things, unacceptably low prices, title problems, weather conditions, labor
shortages and equipment delivery problems.
Marketing Risks
The availability of a ready market for TSRG's gas and oil depends on
numerous factors beyond its control, including, among other factors, the demand
for and supply of gas and oil, the proximity of TSRG's natural gas and oil
reserves to pipelines, the capacity of such pipelines, the cooperation of
pipeline owners, general economic conditions, fluctuations in seasonal demand
and the effects of inclement weather and governmental regulation. In addition,
under certain gas purchase arrangements, TSRG is subject to the risk of periodic
reduced purchases or access to pipelines. Any significant reduction or
curtailment of production for an extended period of time could have a material
adverse effect on the combined company's future results of operation. See
"Business of TSRG - Marketing."
Operating Hazards and Environmental Risks
TSRG and NGT are subject to all risks normally incident to the
exploration for and production of gas and oil, including blow-outs,
uncontrollable flows of gas, oil, brine or well fluids into the environment,
fires, explosions, cratering, pollution and other environmental risks. Certain
of these risks, however, are relatively lower for Appalachian-based producers
because of low production volumes, lower pressures and the minimal quantities of
oil and brine production. The occurrence of any of these hazards could,
nonetheless, result in substantial losses to the combined company due to damage
or destruction of gas and oil wells, formations or production facilities, damage
or injury to property and persons or suspension of operations. Based on its loss
experience, TSRG believes that it has adequate insurance coverage. The
occurrence of an event not fully covered by insurance could, however, have a
material adverse effect on the financial condition and operations of the
combined company.
Uncertain Effects of Government Regulation
TSRG and NGT, in common with other companies in the oil and gas
industry, are extensively regulated by federal, state and local authorities.
Legislation affecting the industry is constantly changing and/or expanding,
particularly with respect to environmental matters. Although management believes
that both TSRG and NGT are in material compliance with all such laws and
regulations, there can be no assurance that new laws or regulations or new
interpretations of existing laws and regulations will not subsequently increase
the cost of compliance or otherwise adversely affect the combined company's
future operations. See "Business of TSRG - Government Regulation."
Federal Energy Regulatory Commission ("FERC") Order 636, as revised
("Order 636"), requires, among other things, the "unbundling" or separating of
various components of the services of interstate pipeline companies, such as
supply, gathering, transportation and sales. As an oil and gas producer and an
intrastate pipeline company, TSRG is not directly subject to these regulations.
However, because TSRG's pipelines connect to pipelines of interstate pipeline
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companies, and such "unbundling" could have an effect on the Appalachian Basin
premium on gas prices, the combined company's future operations may be effected
by these regulations. Consequently, TSRG is unable to predict the ultimate
impact of these regulations on TSRG's gas sales or prices. See "Business of TSRG
- - Government Regulation."
Risks Relating to the Market and TSRG Common Stock
Possible "Penny Stock" Regulation
Trading of TSRG's Common Stock on The Nasdaq SmallCap Market may be
subject to the provisions of Section 15(g) and Rule 15g-9 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), commonly referred to as
the "penny stock" rule. Section 15(g) sets forth certain requirements for
transactions in penny stocks and Rule 15g-9(d)(1) incorporates the definition of
penny stock as that used in Rule 3a51-1 of the Exchange Act. The Commission
generally defines penny stock to be any equity security that has a market price
less than $5.00 per share, subject to certain exceptions. Section 3(a)(51)(A) of
the Exchange Act provides that any equity security is considered to be a penny
stock unless that security is: (a) registered or approved for registration and
traded on a national securities exchange meeting specified criteria set by the
Commission; (b) authorized for quotation on an automated quotation system
sponsored by a registered securities association meeting certain criteria set by
the Commission; (c) issued by a registered investment company registered under
the Investment Company Act of 1940; (d) excluded from the definition on the
basis of price (at least $5.00 per share), the issuer's net tangible assets; or
(e) exempted from the definition by rule, regulation or order of the Commission.
If TSRG's shares are deemed to be a penny stock, trading in the shares will be
subject to additional sales practice requirements on broker-dealers who sell
penny stocks to persons other than established customers and accredited
investors, generally persons with assets in excess of $1,000,000 or annual
income exceeding $200,000, or $300,000 together with their spouse.
For transactions covered by these rules, broker-dealers must make a
special suitability determination for the purchase of such securities and must
have received the purchaser's written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the rules require the delivery, prior to the first transaction, of a
risk disclosure document relating to the penny stock market. A broker-dealer
also must disclose the commissions payable to both the broker-dealer and the
registered representative, and current quotations for the securities. Finally,
monthly statements must be sent disclosing recent price information for the
penny stocks held in the account and information on the limited market in penny
stocks. Consequently, these rules may restrict the ability of broker-dealers to
trade and/or maintain a market in TSRG's Common Stock and may affect the ability
of shareholders to sell their shares.
Shares Eligible for Future Sale
Sale of substantial amounts of TSRG Common Stock in the public market
by existing shareholders, including shares issued pursuant to the Merger and
shares issued upon the exercise of certain stock options, warrants and
convertible debentures, or the perception that such sales could occur, could
materially and adversely affect the prevailing market price for such shares.
Actual sales, or the prospect of sales by the present TSRG shareholders, or by
future holders of restricted securities under Rule 144 of the Act or otherwise,
may, in the future, have a depressive effect upon the price of TSRG Common Stock
in the public trading market. See "BUSINESS OF TSRG Principal Shareholders."
Additionally, the holders of certain TSRG Convertible Debentures may, at their
discretion and subject to an effective registration statement to be completed by
TSRG, convert their debentures into shares of TSRG's Common Stock, based on the
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conversion price of 70% of the then current market price of TSRG Common Stock,
which shares would be immediately tradeable in the public market. See
"DESCRIPTION OF TSRG SECURITIES - TSRG Convertible Debentures - Shares Eligible
for Future Sale."
Possible Volatility of Price of Common Stock
TSRG Common Stock is currently traded on The Nasdaq SmallCap Market.
There can be no assurance that a significant public market for TSRG Common Stock
will be sustained following the Merger. See "MARKET PRICES OF TSRG COMMON STOCK
AND DIVIDENDS." The trading price of TSRG Common Stock may respond to quarterly
variations in operating results, announcements of oil and gas discoveries or
acquisitions, and other events or factors including the sale or attempted sale
of a large amount of TSRG Common Stock into the market. These broad market
fluctuations may adversely affect the market price of TSRG Common Stock.
TSRG SPECIAL MEETING
Date, Time and Place
The TSRG Special Meeting will be held on ___________, October ___,
1998, at ____ p.m. local time, at 210 Second Street, St. Marys, West Virginia.
General
This Joint Proxy Statement/Prospectus is being furnished to holders of
TSRG Common Stock in connection with the solicitation of proxies by the TSRG
Board for use at a special meeting of holders of TSRG Common Stock and any
adjournment thereof. Each copy of this Joint Proxy Statement/Prospectus which is
being mailed or delivered to TSRG shareholders is accompanied by a TSRG proxy
card and a Notice of Special Meeting. The corporate law of the State of Nevada
provides that only such business as is specified in the notice of a special
meeting may come before the meeting.
The Merger
At the TSRG Special Meeting, TSRG shareholders will consider and vote
upon a proposal to approve the issuance of shares of TSRG Common Stock pursuant
to the Merger Agreement whereby NGT shall merge with and into TSRG, and any
other business which may properly be brought before the TSRG Special Meeting or
any adjournment or postponement thereof. For comprehensive information
concerning the Merger, please refer to the sections entitled "THE MERGER" and
"OTHER TERMS OF THE MERGER AGREEMENT."
The TSRG Board has unanimously determined that the Merger is in the
best interest of TSRG and its shareholders and has approved the Merger
Agreement. THE TSRG BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF TSRG
VOTE IN FAVOR OF THE MERGER AT THE TSRG SPECIAL MEETING.
Change of Capitalization
The TSRG Board has proposed that TSRG amend its Articles of
Incorporation in order to change its authorized capitalization by adding
10,000,000 shares of preferred stock, par value One- Tenth of a Cent ($.001) per
share. TSRG presently has authorized 30,000,000 shares of common stock, par
value One-Tenth of a Cent ($.001) per share, which will remain the same. Upon
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approval of the amendment, shares of TSRG's preferred stock may be issued in
various series with terms, rights, voting privileges and preferences to be
determined at the discretion of the TSRG Board at the time of issuance. All
fully paid stock of TSRG shall not be liable to call or assessment.
By adopting the proposed amendment adding authorized shares of
preferred stock, TSRG and the TSRG Board will have greater flexibility in future
financings and sales of securities by TSRG and in the possible acquisition of
new assets and/or business opportunities.
The TSRG Board has unanimously determined that it is in the best
interest of TSRG and its shareholders to approve an amendment to the Articles of
Incorporation to change TSRG's authorized capitalization to include ten million
(10,000,000) shares of preferred stock. THE TSRG BOARD UNANIMOUSLY RECOMMENDS
THAT THE SHAREHOLDERS OF TSRG VOTE IN FAVOR OF THE AMENDMENT TO THE ARTICLES OF
INCORPORATION TO AUTHORIZE PREFERRED STOCK AT THE TSRG SPECIAL MEETING.
Issuance of Convertible Debenture
In connection with the Merger, TSRG committed to raise a minimum of
$4,000,000 pursuant to a private placement of its securities. Accordingly, TSRG
made an offering of 8% Secured Convertible Debentures Due March 31, 1999 (the
"Debentures"), in an aggregate maximum amount of $4,850,000. TSGR has declared
the offering closed as of September 10, 1998. Gross proceeds realized from the
sale of the Debentures was $4,625,400. Interest shall accrue upon the date of
issuance until payment in full of the principal sum has been made or duly
provided for. Holders of the Debentures shall have the option, at any time,
until maturity, to convert the principal amount of their Debenture, or any
portion of the principal amount which is at least $10,000, into shares of TSRG
Common Stock at a conversion price for each share equal to the lower of (a)
seventy percent (70%) of the market price of TSRG Common Stock averaged over the
five trading days prior to the date of conversion, or (b) the market price on
the issuance date of the Debentures. Any accrued and unpaid interest shall be
payable, at the option of TSRG, in cash or in shares of TSRG Common Stock valued
at the then effective conversion price.
Pursuant to the terms of the Debentures, TSRG has agreed to file a
registration statement with the Commission to register the shares of TSRG Common
Stock into which the Debentures may be converted. Upon effectiveness of the
registration statement, the shares of TSRG Common Stock underlying the
Debentures, when issued, will be deemed registered securities and will not be
restricted as to the resale of such securities. If TSRG fails to file its
registration statement within forty-five (45) days from the closing of the
Debenture offering, TSRG may be obligated to increase by up to fifteen percent
(15%) the number of shares issuable upon conversion to each holder
Proceeds from the sale of Debentures have been used to purchase the
assets of Gulf Canada Resources Limited in the Powder River Basin in Wyoming and
to retain the services of Corporate Relations Group, a public relations firm.
TSRG believes that the placement of the Debentures and application of the funds
therefrom is necessary for the Merger to be finalized. The TSRG Board has
unanimously determined that it is in the best interest of TSRG and its
shareholders to ratify the sale of Debentures. THE TSRG BOARD UNANIMOUSLY
RECOMMENDS THAT THE SHAREHOLDERS OF TSRG VOTE IN FAVOR OF THE PLACEMENT OF
DEBENTURES AT THE TSRG SPECIAL MEETING.
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Registration of Additional Shares of TSRG Common Stock
The TSRG Board has proposed that TSRG shareholders empower the TSRG
Board to register for future sale up to 1,000,000 shares of authorized but
previously unissued common stock, to be offered and sold at the discretion of
the TSRG Board. Funds realized from the sale of these shares will be used to
reduce debts of TSRG, to make future acquisitions of properties and other
assets, and for operation and development of TSRG's current properties.
Upon approval of the proposal, the TSRG Board intends to include the
1,000,000 shares of TSRG Common Stock in the registration statement that will be
filed with the Commission in connection with the Debentures. Upon the
effectiveness of the registration statement, the TSRG Board will have the
discretion, from time to time, to offer and sell up to 1,000,000 shares of TSRG
Common Stock.
The TSRG Board has unanimously determined that it is in the best
interest of TSRG and its shareholders to empower the TSRG Board, at its
discretion, to register, offer and sell up to 1,000,000 shares of TSRG Common
Stock. THE TSRG BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF TSRG VOTE
IN FAVOR OF THE PROPOSED REGISTRATION AND SALE OF TSRG COMMON STOCK.
Record Date; Vote Required
Only Holders of record of TSRG Common Stock at the close of business on
October __ (the "TSRG Record Date") are entitled to receive notice of and to
vote at the TSRG Special Meeting. At the close of business on October __, 1998,
there were 2,138,450 shares of TSRG Common Stock outstanding and entitled to
vote. Each such share owned at the Record Date entitles the registered holder
thereof to one vote.
Quorum
The holders of more than one-third of the shares of TSRG outstanding
and entitled to vote must be present at the TSRG Special Meeting in person or
represented by Proxy in order for a quorum to be present. Once a quorum has been
established, an affirmative vote of a majority of the shares outstanding
represented at the TSRG Special Meeting will be required for approval of the
Merger and the other items to be voted upon. Shares of TSRG Common Stock
represented by proxies that are marked "abstain" will be counted as shares
present for purposes of determining the presence of a quorum. An abstention with
respect to the Merger will have the effect of a vote cast against the Merger and
the other items. Brokers who hold shares of TSRG Common Stock as nominees will
not have discretionary authority to vote such shares in the absence of
instructions from the beneficial owners thereof. Any votes that are not cast
because the nominee-broker lacks such discretionary authority will not be
counted as votes cast on such proposal and will have no effect on the vote.
In the event that a quorum is not present at the TSRG Special Meeting,
it is expected that the meeting will be adjourned or postponed to solicit
additional proxies.
Proxies
All shares of TSRG Common Stock which are represented by properly
executed proxies are received in time for the TSRG Special Meeting and have not
been revoked will be voted in accordance with the instructions indicated in such
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proxies. If no instructions are indicated, such shares will be voted in favor of
the Merger and in favor of all other issues scheduled to come before the TSRG
Special Meeting, and in the discretion of the proxy with respect to such other
business as may properly come before the TSRG Special Meeting or any adjournment
or postponement thereof.
Any proxy may be revoked by the shareholder executing it at any time
prior to its exercise by the shareholder giving written notice thereof to the
Corporate Secretary of TSRG, by signing and returning a later-dated proxy or by
voting in person at the TSRG Special Meeting. Attendance at the TSRG Special
Meeting will not in and of itself constitute the revocation of a proxy.
The TSRG Board is not currently aware of any business to be brought
before the TSRG Special Meeting other than described herein. If, however, other
matters are properly brought before the TSRG Special Meeting or any adjournment
or postponement thereof, the persons appointed as proxies will have
discretionary authority to vote the shares represented by duly executed proxies
in accordance with their discretion and judgment.
Solicitation of Proxies
Proxies are being solicited hereby on behalf of the TSRG Board.
Pursuant to the Merger Agreement, the entire cost of proxy solicitation for the
TSRG Special Meeting, including the reasonable expenses of brokers, fiduciaries
and other nominees in forwarding solicitation material to beneficial owners,
will be borne by TSRG. In addition to solicitation by mail, officers and regular
employees of TSRG may solicit proxies personally or by telephone, facsimile
transmission or otherwise. Such officers and regular employees will not be
additionally compensated for such solicitation, but may be reimbursed for
out-of-pocket expenses incurred in connection therewith.
If undertaken, the expense of such solicitation would be nominal.
HOLDERS OF TSRG COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN
THE ACCOMPANYING TSRG PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE.
Appraisal/Dissenters' Rights
Holders of shares of TSRG's Common Stock may be entitled to assert
dissenters' rights under Nevada Revised Statutes ("NRS") 92A.300 to 92A.500,
inclusive, copies of which are annexed hereto as Annex "II" and by this
reference made a part hereof.
The following summary is not intended to be a complete statement of the
provisions of the NRS relating to dissenters' rights and is qualified in its
entirety by the reference to the copy of NRS Sections 92A.300 to 92A.500 annexed
hereto.
A shareholder who wishes to dissent from the proposed Merger and obtain
payment of the fair value of their shares shall refrain from voting their shares
in approval of the Merger. If the proposed Merger is approved by the required
vote at the TSRG Special Meeting, TSRG shall, within ten days after effectuation
of the action, mail a notice to all shareholders who prior to the meeting
delivered their written notice of dissent to the Merger and intent to demand
payment for their shares.
This notice shall:
(i) state where the demand for payment must be sent and where
and when certificates for certificated shares must be deposited in
order to obtain payment;
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(ii) inform holders of uncertificated shares as to what extent
transfer of shares will be restricted from the time that demand for
payment is received;
(iii) supply a form for demanding payment which includes a
request for certification of the date on which the shareholders
acquired beneficial ownership of the shares;
(iv) set a date by which TSRG must receive the demand for
payment which may not be less than 30 nor more than 60 days after the
date the notice is delivered; and
(v) be accompanied by a copy of NRS 92A.300 to 92A.500,
inclusive.
Shareholders who fail to demand payment, or fail to deposit
certificates, as required by the notice pursuant to the NRS, shall have no right
to receive payment for their shares. A dissenter shall retain all other rights
of a shareholder until these rights are modified by effectuation of the proposed
corporate action.
Within 30 days after receipt of demand for payment, TSRG shall remit to
dissenters who have made demand and have deposited their certificates, the
amount which TSRG estimates to be the fair value of the shares, with interest if
any has accrued.
If TSRG fails to remit or if the dissenters believe that the amount
remitted is less than the fair value of the shares, they may send TSRG their own
estimate of the value of the shares and demand payment for the deficiency. If
the dissenter does not file such estimate within thirty (30) days after TSRG's
mailing of its remittance, they shall be entitled to no more than the amount
remitted.
NGT SPECIAL MEETING
Date, Time and Place
The NGT Special Meeting will be held on ___________, October ___, 1998,
at ____ p.m. local time, at its corporate offices located at 16775 Addison Road,
Suite 300 Dallas, Texas.
General
This Joint Proxy Statement/Prospectus is being furnished to holders of
NGT Common Stock in connection with the solicitation of proxies by the NGT Board
for use at a special meeting of holders of NGT Common Stock and any adjournment
thereof. At the NGT Special Meeting, NGT shareholders will consider and vote
upon a proposal to approve the execution of the Merger Agreement whereby NGT
shall merge with and into TSRG, and any other business which may properly be
brought before the NGT Special Meeting or any adjournment or postponement
thereof. For comprehensive information concerning the Merger, please refer to
the sections entitled "THE MERGER" and "OTHER TERMS OF THE MERGER AGREEMENT."
Each copy of this Joint Proxy Statement/Prospectus which is being mailed or
delivered to NGT shareholders is accompanied by a NGT proxy card and a Notice of
Special Meeting.
The NGT Board has unanimously determined that the Merger is in the best
interest of NGT and its shareholders and has approved the Merger Agreement. THE
NGT BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF NGT VOTE IN FAVOR OF
THE MERGER AT THE NGT SPECIAL MEETING.
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Record Date; Vote Required
Only Holders of record of NGT Common Stock and NGT Preferred Stock at
the close of business on October __, 1998(the "NGT Record Date") are entitled to
receive notice of and to vote at the NGT Special Meeting. At the close of
business on October __, 1998, and assuming all NGT Preferred Stock is converted
to NGT Common Stock, there will be 6,135,417 shares outstanding and entitled to
vote. Each such share owned at the Record Date entitles the registered holder
thereof to one vote.
Quorum
The holders of more than one-half of the shares of NGT outstanding and
entitled to vote must be present at the NGT Special Meeting in person or
represented by Proxy in order for a quorum to be present. Once a quorum has been
established, an affirmative vote of a two-thirds (2/3) majority of the
outstanding shares of NGT Common Stock will be required for approval of the
Merger. Shares of NGT Common Stock represented by proxies that are marked
"abstain" will be counted as shares present for purposes of determining the
presence of a quorum. An abstention with respect to the Merger will have the
effect of a vote cast against the Merger. Brokers who hold shares of NGT Common
Stock as nominees will not have discretionary authority to vote such shares in
the absence of instructions from the beneficial owners thereof. Any votes that
are not cast because the nominee- broker lacks such discretionary authority will
not be counted as votes cast on such proposal and will have no effect on the
vote.
In the event that a quorum is not present at the NGT Special Meeting,
it is expected that the meeting will be adjourned or postponed to solicit
additional proxies.
Proxies
All shares of NGT Common Stock which are represented by properly
executed proxies are received in time for the NGT Special Meeting and have not
been revoked will be voted in accordance with the instructions indicated in such
proxies. If no instructions are indicated, such shares will be voted in favor of
the Merger and in the discretion of the proxy with respect to such other
business as may properly come before the NGT Special Meeting or any adjournment
or postponement thereof.
Any proxy may be revoked by the shareholder executing it at any time
prior to its exercise by the shareholder giving written notice thereof to the
Corporate Secretary of NGT, by signing and returning a later-dated proxy or by
voting in person at the NGT Special Meeting. Attendance at the NGT Special
Meeting will not in and of itself constitute the revocation of a proxy.
The NGT Board is not currently aware of any business to be brought
before the NGT Special Meeting other than described herein. If, however, other
matters are properly brought before the NGT Special Meeting or any adjournment
or postponement thereof, the persons appointed as proxies will have
discretionary authority to vote the shares represented by duly executed proxies
in accordance with their discretion and judgment.
Solicitation of Proxies
Proxies are being solicited hereby on behalf of the NGT Board. Pursuant
to the Merger Agreement, the entire cost of proxy solicitation for the NGT
Special Meeting, including the reasonable expenses of brokers, fiduciaries and
other nominees in forwarding solicitation material to beneficial owners, will be
borne by NGT.
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In addition to solicitation by mail, officers and regular employees of NGT may
solicit proxies personally or by telephone, facsimile transmission or otherwise.
Such officers and regular employees will not be additionally compensated for
such solicitation, but may be reimbursed for out-of-pocket expenses incurred in
connection therewith. If undertaken, the expense of such solicitation would be
nominal.
HOLDERS OF NGT COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN
THE ACCOMPANYING NGT PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE.
Appraisal/Dissenters' Rights
Holders of shares of NGT Common Stock may be entitled to assert
dissenters' rights under the Texas Business Corporation Act ("TBCA") Sections
5.11 to 5.13, inclusive, copies of which are annexed hereto as Annex "III" and
by this reference made a part hereof.
The following summary is not intended to be a complete statement of the
provisions of the TBCA relating to dissenters' rights and it is qualified in its
entirety by the reference to the copy of TBCA Sections 5.11 to 5.13 annexed
hereto.
A shareholder who wishes to dissent from the proposed Merger and obtain
payment of the fair value of its shares shall file with NGT, prior to the NGT
Special Meeting, a written objection to the Merger, setting out that the
shareholder's right to dissent will be exercised if the Merger is made effective
and giving the shareholder's address, to which notice thereof shall be delivered
in that event. If the Merger is effected and the shareholder did not vote in
favor of the Merger, TSRG will within ten days after the Merger is effected,
deliver to the shareholder written notice that the Merger has been effected and
the shareholder may, within ten days from the delivery or mailing of the notice,
make written demand on TSRG for payment of the fair value of the shareholders'
shares. The demand shall state the number of shares of NGT Common Stock owned by
the shareholder and the fair value of the shares as estimated by the
shareholder. Any shareholder failing to make demand within the ten day period
will be bound by that action.
Within twenty days after receipt by TSRG of a demand for payment TSRG
shall deliver to the shareholder a written notice that shall either set out that
TSRG accepts the amount claimed in the demand and agrees to pay that amount
within ninety days after the date on which the Merger was effected, and upon the
surrender of the certificates duly endorsed, or shall contain an estimate by
TSRG of the fair value of the shares, together with an offer to pay the amount
of that estimate within ninety days after the date on which the Merger was
effected, upon receipt of notice within sixty days after that date from the
shareholder that the shareholder agrees to accept that amount and upon the
surrender of the certificates duly endorsed.
If, within the period of sixty days after the date on which the Merger
was effected, the shareholder and TSRG do not agree on the fair value of the
shares, then the shareholder or TSRG may, within sixty days after the expiration
of the sixty-day period, file a petition in any court of competent jurisdiction
in the County of Pleasants, asking for a finding and determination of the fair
value of the shareholder's shares."
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THE MERGER
The description of the Merger and the Merger Agreement contained in
this Joint Proxy Statement/Prospectus describes the material terms of the Merger
Agreement, but does not purport to be complete and is qualified in its entirety
by reference to the Merger Agreement, a copy of which is annexed hereto as Annex
I and incorporated herein by this reference. Capitalized terms appearing below
that are not otherwise defined herein have the same meaning as are given such
terms in the Merger Agreement. Whenever particular sections or defined terms are
referred to, it is intended that such sections or defined terms shall also be
incorporated by reference.
General
At the Effective Date, NGT will be merged with and into TSRG, with TSRG
being the surviving corporate entity. As a result of the Merger, the separate
corporate existence of NGT will cease and TSRG will succeed to all the rights
and be responsible for all the obligations of NGT in accordance with the Nevada
Revised Statutes. Subject to the terms and conditions of the Merger Agreement,
100% of the issued and outstanding shares of NGT Common Stock and NGT Preferred
Stock will be exchanged for fully registered TSRG Common Stock at the Exchange
Ratio. The "Exchange Ratio" shall be determined by dividing 6,415,350 (three
times the number of shares of TSRG Common Stock outstanding) by the aggregate
number of shares of NGT Common Stock and NGT Preferred Stock outstanding
immediately prior to the Effective Date. Thus, assuming an aggregate of
6,135,417 shares of NGT Common Stock and NGT Preferred Stock outstanding on the
Effective Date, the Exchange Ratio shall be 1.04562 shares of TSRG Common Stock
for each one share of NGT Common Stock or NGT Preferred Stock. The Exchange
Ratio would change if the number of outstanding shares of TSRG Common Stock, NGT
Common Stock Or NGT Preferred Stock changed prior to the Effective Date.
On the Effective Date, all issued and outstanding shares of NGT Common
Stock and NGT Preferred Stock shall, without any action on the part of the
holders thereof, automatically become and be converted into the right to receive
TSRG Common Stock at the Exchange Ratio. TSRG's transfer agent shall be
instructed to issue new certificates of TSRG Common Stock, based upon the
Exchange Ratio, to each of the shareholders of NGT, at the address listed in the
register of NGT shareholders. No fractional shares will be issued, rather each
fractional share resulting from application of the Exchange Ratio will be
rounded up to the next whole share.
The Merger shall become effective upon the filing of the Articles of
Merger or a Certificate of Merger, as applicable, with the Secretary of State of
Nevada and Secretary of State of Texas, which event shall not occur until all
conditions precedent set forth in the Merger Agreement are satisfied or waived,
to the extent permitted by law. See "Other Terms of the Merger Agreement
Conditions Precedent to the Merger."
It is the intention of TSRG and NGT that the number of shares of TSRG
Common Stock issued to NGT shareholders in connection with the Merger shall
represent at least seventy five percent (75%) of the total number of issued and
outstanding shares of TSRG Common Stock immediately after completion of the
Merger. Accordingly, if between the date of the Merger Agreement and the
Effective Date, the number of issued and outstanding shares of TSRG Common Stock
has increased, the numerator of the Exchange Ratio shall be adjusted upward to
the number which represents 75% of the total number of issued and outstanding
shares of TSRG Common Stock immediately after the issuance thereof to NGT
shareholders in connection with the Merger.
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Based on 2,138,450 shares of TSRG Common Stock outstanding as of the
Record Date and, assuming an aggregate of 6,135,417 shares of NGT Common Stock ,
a total of approximately 6,415,350 shares of TSRG Common Stock will be issued to
holders of NGT Common Stock and Preferred Stock in accordance with the Exchange
Ratio of 1.04562. Thus, taking into consideration the issuance of the 6,415,350
shares of TSRG Common Stock pursuant to the Merger, immediately after the
Effective Date, TSRG will have approximately 8,553,800 shares of Common Stock
outstanding, without giving the effect of the rounding up of fractional shares.
Share Ownership of Affiliates
Ratification of the Merger requires a majority vote of the TSRG Common Stock
outstanding and a 2/3 majority vote of the NGT Common Stock outstanding. As of
the date hereof, the officers, directors and principal shareholders of TSRG own
34% of the total issued and outstanding shares of TSRG Common Stock, and the
officers, directors and principal shareholders of NGT own 55% of the total
issued and outstanding shares of NGT Common Stock.
Background of the Merger
NGT had considered going public since approximately 1995. In an effort
to complete that goal, NGT entered into a Letter of Intent on January 2, 1997 as
modified on March 17, 1997, with Lyric Energy, Inc. ("Lyric"), a reporting
company pursuant to the Exchange Act. Lyric had recently sold off the last of
its energy assets and had become a shell corporation seeking to acquire an
operating company. As part of that transaction, NGT loaned $100,000 to Lyric,
which loan was converted to 203,041,517 shares of Lyric's common stock upon
Lyric becoming current with its filing requirements pursuant to the Exchange Act
and obtaining a waiver from the Amarillo National Bank of certain non-dilution
rights in favor of the bank. This was accomplished on April 10, 1997. To
complete the merger however, Lyric had to reorganize its capital and, to
accomplish that, filed an information statement with the Securities and Exchange
Commission on Schedule 14C during the summer of 1997. The information statement
was reviewed and commented upon by the Commission Staff. This process required
that NGT obtain updated engineering reports and valuations to substantiate its
financial statements. This set back the proposed shareholders meeting through
the new year and during this period of time NGT was introduced to TSRG.
During September of 1997 Warren Donohue a director of NGT was attending
the Northeastern Regional Investment Banking Seminar conference with James
Holton, a representative of Continental Capital Corporation, a financial public
relations firm. At that conference, Mr. Holton mentioned that one of his other
clients, TSRG, also was involved in the oil and gas business and it was
suggested that a combination of the two companies could possibly be synergistic
because NGT had been interested in becoming public for quite some time. At Mr.
Holton's suggestion, Mr. Donohue put in a call to Loren Bagley, President of
TSRG. Discussions followed between the NGT Board and the TSRG Board and it was
determined that in addition to NGT's desire to become a publicly traded entity,
a combination could have a positive synergistic impact on both entities for the
following reasons:
a. TSRG operated natural gas transmission lines and had knowledge
of and contacts in the Powder River Basin. However, TSRG
historically had acquired all of its production by purchase
while;
b. NGT had an active oil and gas drilling program which it was
looking to expand into new regions such as the Powder River
Basin.
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As a result of these conversations, the parties met in Dallas, Texas on
September 30, 1997 to discuss a possible business combination. These discussions
continued on October 3, 1997 when Brent Wagman, a former officer and director of
NGT together with Mr. Donohue met in Denver, Colorado with Mr. Bagley and
William F. Woodburn, President and Vice President respectively, of TSRG. At the
October 3 meeting, discussions included the possibility of engaging in a joint
venture of some sort as an alternative to a business combination. On October 24,
1997 TSRG and NGT exchanged financial information about each respective company.
In early November 1997, Mr. Bagley and Mr. Woodburn of TSRG met twice
with the NGT Board. On December 4, 1997, three members of the TSRG Board, Mr.
Bagley, Mr. Woodburn and Gary Lawyer, a Denver based oil and gas engineer, met
with the NGT Board in Dallas. At this meeting, TSRG and NGT agreed to
discontinue Merger discussions, but decided to form a joint venture to be called
Sundance Producers LLC to own oil and gas properties for joint development in
the Powder River Basin in Crook County, Wyoming. On December 17, 1997, Messrs.
Bagley, Woodburn and Lawyer met in Denver with Michael Stewart, Vice President
of NGT, to finalize the Sundance Producers LLC joint venture.
In January 1998, the Sundance joint venture commenced drilling on the
Fowler #1 well in Crook County, Wyoming. During early January, 1998 the NGT
Board determined that a merger with TSRG may result in obtaining a Nasdaq
listing more expeditiously than completing the Lyric transaction. Additionally,
since NGT's first meeting with TSRG in September, 1997, TSRG had made
substantial progress in acquiring substantial oil and gas assets from Gulf
Canada in the Powder River Basin. On January 22, 1998, representatives of the
TSRG Board and the NGT Board met in Fort Lauderdale, Florida to formulate the
terms for the proposed Merger and for a potential funding. On February 2, 1998,
NGT made a formal proposal to TSRG for a business combination between the two
companies. From February 9 to February 12, 1998, Mr. Bagley and Mr. Woodburn met
with the NGT Board in the offices of NGT in Dallas and in Denver and agreed upon
and executed a Letter of Intent memorializing the intent of the parties to
merge. Immediately after executing the Letter of Intent, the parties walked
across the street in Denver and concluded a deal to acquire the Gulf Canada
properties being negotiated by TSRG.
On February 19, 1998, TSRG and NGT extended to March 6, 1998, the
deadline set forth in the initial Letter of Intent by which the parties were to
execute the Merger Agreement. Discussions continued until March 26, 1998 at
which time TSRG and NGT executed the definitive Merger Agreement. Preparation of
the registration statement including this Joint Proxy Statement/Prospectus was
begun shortly thereafter. The Merger is subject to shareholder approval of both
corporations and the effectiveness of TSRG's registration statement on Form S-4.
On July 7 and 8, 1998 the parties met in Dallas to review drafts of the
Form S-4. Other items discussed and approved at the meeting included the
reducing of TSRG's quorum requirements for shareholders meetings, offering
additional shares of TSRG Common Stock, and reducing the proposed combined Board
of Directors to five persons were discussed and approved.
Following the completion of the Merger, TSRG will have oil and gas
properties and production in the Appalachian, Rocky Mountain and Permian basins.
Pending finalization of the Merger, both TSRG and NGT will continue to be
operated in the ordinary course of business as separate entities. During the
period, Loren E. Bagley, President of TSRG and Michael Stewart, Vice President
of NGT shall act as a special operating committee to coordinate all significant
operations of TSRG and NGT.
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Neither Continental Capital, who introduced TSRG and NGT, nor any other
person or party is being compensated as a result of the introduction or the
resulting Merger, if it is accomplished. Additionally, as per the Merger
Agreement, NGT obtained a release of its obligation to Lyric and transferred all
shares owned by it to Mr. Wagman in exchange for the cancellation of $150,000 in
debt. This transfer resulted in an extraordinary gain of $50,000 being reported
by NGT.
TSRG Financing Related to the Merger
In connection with the Merger, TSRG committed to raise a minimum of
$4,000,000 pursuant to a private placement of its securities. Accordingly, TSRG
made an offering of 8% Secured Convertible Debentures Due March 31, 1999 (the
"Debentures"), in an aggregate maximum amount of $4,850,000. TSRG declared the
offering closed on September 10, 1998. Gross proceeds realized from the sale of
the Debentures was $4,625,400. Interest shall accrue upon the date of issuance
until payment in full of the principal sum has been made or duly provided for.
Holders of the Debentures shall have the option, at any time, until maturity, to
convert the principal amount of their Debenture, or any portion of the principal
amount which is at least $10,000, into shares of TSRG Common Stock at a
conversion price for each share equal to the lower of (a) seventy percent (70%)
of the market price of TSRG Common Stock averaged over the five trading days
prior to the date of conversion, or (b) the market price on the issuance date of
the Debentures. Any accrued and unpaid interest shall be payable, at the option
of TSRG, in cash or in shares of TSRG Common Stock valued at the then effective
conversion price.
Pursuant to the terms of the Debentures, TSRG has agreed to file a
registration statement with the Commission to register the shares of TSRG Common
Stock into which the Debentures may be converted. Upon effectiveness of the
registration statement, the shares of TSRG Common Stock underlying the
Debentures, when issued, will be deemed registered securities and will not be
restricted as to the resale of such securities. If TSRG fails to file its
registration statement within forty-five (45) days from the closing of the
Debenture offering, TSRG may be obligated to increase by up to fifteen percent
(15%) the number of shares issuable upon conversion to each holder.
Proceeds from the sale of Debentures have been used to purchase the
assets of Gulf Canada Resources Limited in the Powder River Basin in Wyoming and
to retain the services of Corporate Relations Group, a public relations firm.
TSRG's Reasons for the Merger; Recommendation of the TSRG Board
THE TSRG BOARD HAS UNANIMOUSLY DETERMINED THAT THE MERGER AND THE
ISSUANCE OF SHARES THEREUNDER ARE IN THE BEST INTERESTS OF TSRG AND ITS
SHAREHOLDERS AND HAS APPROVED THE MERGER AGREEMENT. THE TSRG BOARD UNANIMOUSLY
RECOMMENDS THAT THE SHAREHOLDERS OF TSRG VOTE IN FAVOR OF THE MERGER AT THE TSRG
SPECIAL MEETING.
The TSRG Board believes that the Merger represents a unique opportunity
to create a stronger combined company with a broader base of resources and
properties. The TSRG Board also believes that the Merger will bring
opportunities for cost savings, economies of scale and other synergies,
resulting in improved cash flow potential for the long-term growth of TSRG and
of shareholder value. Further, the Merger will give the combined company a
stronger asset base upon which it can rely in securing future financings, both
equity and debt. There can, however, be no assurance that any specific level of
cost savings or other synergies will be achieved or that such cost savings or
other synergies will be achieved within the time periods contemplated, or that
the combined company will be able to secure future financings. For the foregoing
reasons, the TSRG Board believes that the terms and conditions of the Merger
Agreement are in the best interest of TSRG and its shareholders.
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The following are the material factors considered by the TSRG Board in
reaching its conclusions, certain of which factors contained both positive and
negative elements:
(i) the judgment, advice and analyses of the TSRG Board with
respect to the strategic, financial and operational benefits of the
Merger, based in part on the business, financial, accounting and legal
due diligence investigations performed with respect to NGT;
(ii) information concerning the financial condition, results
of operations, prospects, business and past performance of NGT;
(iii) current industry, economic and market conditions which
make the combination of the two companies much more viable;
(iv) the synergies, cost reductions and operating efficiencies
that may become available to the combined company as a result of the
Merger including moving the corporate offices to Dallas, Texas and
maintaining only a field office in West Virginia, as well as the
management challenges associated with successfully integrating the
businesses, cultures and managements of two corporations;
(v) the opportunities for constructive sharing of resources
between TSRG and NGT including properties, expertise and personnel;
(vi) the express terms and conditions of the Merger Agreement,
which are viewed as providing an equitable basis for the Merger from
the standpoint of TSRG;
(vii) the fact that the Merger would reduce the dependence of
TSRG on any single project or program and the associated risks of the
cessation of a project or program;
(viii) the advice of its independent auditors with respect to
the accounting treatment of the Merger; and
(ix) the corporate governance aspects of the Merger, including
that TSRG directors would constitute two-fifths of the TSRG Board, Mr.
Bagley would serve as Chairman of the combined company and Mr. Woodburn
would serve as a director.
The foregoing discussion of the information and factors considered and
given weight by the TSRG Board is not intended to be exhaustive. In view of the
variety of factors considered in connection with its evaluation of the Merger,
the TSRG Board did not find it practicable to and did not quantify or otherwise
assign relative weights to the specific factors considered in reaching its
determination. In addition, individual members of the TSRG Board may have given
different weights to different factors.
THE TSRG BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF TSRG
VOTE IN FAVOR OF THE MERGER AT THE TSRG SPECIAL MEETING.
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NGT's Reasons for the Merger; Recommendation of the NGT Board
THE NGT BOARD HAS UNANIMOUSLY DETERMINED THAT THE MERGER IS IN THE BEST
INTERESTS OF NGT AND ITS SHAREHOLDERS AND HAS APPROVED THE MERGER AGREEMENT. THE
NGT BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF NGT VOTE IN FAVOR OF
THE MERGER AT THE NGT SPECIAL MEETING.
The NGT Board believes that the Merger represents a unique opportunity
to create a stronger combined company with a broader base of resources and
properties. The TSRG Board also believes that the Merger will bring
opportunities for cost savings, economies of scale and other synergies,
resulting in improved cash flow potential for the long-term growth of the
combined company and of shareholder value. Further, the Merger will result in
NGT shareholders becoming shareholders of a publicly traded company and will
give the combined company a stronger asset base upon which it can rely in
securing future financings, both equity and debt. There can, however, be no
assurance that any specific level of cost savings or other synergies will be
achieved or that such cost savings or other synergies will be achieved within
the time periods contemplated or that the combined company will be able to
secure future financings. For the foregoing reasons, the NGT Board believes that
the terms and conditions of the Merger Agreement are in the best interest of NGT
and its shareholders.
The following are the material factors considered by the NGT Board in
reaching its conclusions, certain of which factors contained both positive and
negative elements:
(i) the opportunities for constructive sharing of resources
between NGT and TSRG including properties, expertise and personnel;
(ii) the judgment, advice and analyses of its management with
respect to the strategic, financial and operational benefits of the
Merger, based in part on the business, financial, accounting and legal
due diligence investigations performed with respect to TSRG;
(iii) information concerning the financial condition, results
of operations, prospects, business and past performance of TSRG;
(iv) current industry, economic and market conditions;
(v) the synergies, cost reductions and operating efficiencies
that may become available to the combined company as a result of the
Merger, as well as the management challenges associated with
successfully integrating the businesses, cultures and managements of
two corporations,;
(vi) the express terms and conditions of the Merger Agreement,
which are viewed as providing an equitable basis for the Merger from
the standpoint of NGT;
(vii) the advice of its independent auditors with respect to
the accounting treatment of the Merger;
(viii) the shares of TSRG Common Stock to be issued pursuant
to the Merger shall be registered under the Securities Act which will
give the current holders of NGT Common Stock and Preferred Stock
greater liquidity in their investment;
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(ix) the corporate governance aspects of the Merger, including
that NGT directors would constitute two-fifths of the TSRG Board, Mr.
Stewart would serve as President of the combined company, and Mr.
Donohue would serve as a director; and
(x) as a result of the Merger and the number of registered
shares of TSRG Common Stock to be issued to shareholders of NGT
thereunder, NGT shareholders will own a controlling interest in a
Nasdaq SmallCap listed company.
The foregoing discussion of the information and factors considered and
given weight by the NGT Board is not intended to be exhaustive. In view of the
wide variety of factors considered, the NGT Board did not assign relative
weights to the specific factors discussed above or determine that any factor was
of particular importance. Rather, the NGT Board viewed its positions and
recommendation as being based upon the totality of the information presented.
THE NGT BOARD UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS OF NGT VOTE IN FAVOR OF THE MERGER AT THE NGT SPECIAL
MEETING.
Composition of the TSRG Board
The Merger Agreement provides that, immediately following the Effective
Date, the TSRG Board will consist of five (5) persons, of which two (2) persons
from the current TSRG Board and two (2) persons from the NGT Board will be
directors of the combined company. Loren E. Bagley and William F. Woodburn, both
current TSRG directors, will be directors of the combined company. Michael
Stewart and Warren Donohue, both current NGT directors, will also be directors
of the combined company. Mr. Stewart shall serve as President and Chief
Operating Officer and Mr. Bagley shall serve as Chairman of the Board. The fifth
director has not yet been determined, however, such director will be appointed
prior to completion of the Merger by the mutual agreement of NGT and TSRG. Until
the Merger is completed, both corporations are being managed pursuant to a joint
committee consisting of Mr. Bagley and Mr. Stewart. The directors constituting
the TSRG Board shall serve until the next annual meeting of TSRG shareholders.
Interests of Certain Persons in the Transaction
Negotiations related to the Merger were conducted on an arms-length
basis. Prior to the date of execution of the Merger Agreement, March 26, 1996,
the only related party transaction between TSRG and NGT was the joint venture
agreement for the formation of the limited liability company called Sundance
Producers LLC. This agreement to own oil and gas properties for joint
development was finalized in December 1997 and was a direct result of the Merger
negotiations between TSRG and NGT.
Also as a result of the Merger discussions, TSRG and NGT agreed to
arrange for the funding to purchase Gulf Canada Resources Limited in the Powder
River Basin in Wyoming. NGT arranged for the earnest money paid towards the
purchase and TSRG arranged for the permanent financing by the sale of the
Convertible Debentures. See "BUSINESS of TSRG - Recent Business Developments"
and "CERTAIN RELATED TRANSACTIONS."
Certain Federal Income Tax Consequences
General. The following discusses the material United State federal
income tax consequences of the Merger to United States persons who hold shares
of NGT Common Stock as capital assets within the meaning of Section 1221 of the
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Code. It does not discuss the tax consequences that might be relevant to NGT
shareholders entitled to special treatment under federal income tax law
(including, without limitation, dealers in securities or foreign currency,
tax-exempt entities, banks, trusts, insurance companies, persons that hold NGT
Common Stock as part of a straddle, a hedge against currency risk or a
constructive sale or conversion transaction, persons that have a functional
currency other than the U.S. dollar, investors in pass-through entities and
foreign persons, including foreign individuals, partnerships and corporations).
This discussion also does not describe any tax consequences arising out of the
tax laws of any state, local or foreign jurisdiction.
Assuming the Merger is consummated in accordance with the terms of the
Merger, Agreement and as described in this Joint Proxy Statement/Prospectus,
under current law, it is the intent of the parties that, for federal income tax
purposes, (i) the Merger will be treated as a "reorganization" within the
meaning of Section 368(a) of the Code and (ii) TSRG and NGT will each be a party
to that reorganization within the meaning of Section 368(b) of the Code. This
conclusion is based on the Code, regulations promulgated thereunder and rulings
in effect as of the date hereof, current administrative rulings and practice and
judicial precedent (collectively, "Current Applicable Law"), all of which are
subject to change, and certain representations as to factual matters made by
TSRG and NGT (such representations referred to as the "Factual
Representations"). Any change in Current Applicable Law, which may or may not be
retroactive, or failure of the Factual Representations to be true, correct and
complete in all material respects could alter the tax consequences discussed
herein. The parties will not request and the Merger is not conditioned upon a
ruling from the Internal Revenue Service (the "IRS") with respect to any of the
federal income tax consequences of the Merger, and as a result there can be no
assurance that the IRS will not disagree with or challenge any of the
conclusions set forth in this discussion.
Accordingly, as a reorganization under the Code, (i) no gain or loss
will be recognized by the shareholders of NGT with respect to the shares of NGT
Common Stock and NGT Preferred Stock exchanged for TSRG Common Stock in the
Merger, (ii) the adjusted tax basis of the shares of TSRG Common Stock received
by an NGT shareholder (including any fractional interest) will be equal to the
adjusted tax basis of the shares of NGT Common Stock and NGT Common Stock
exchanged therefor, (iii) a holder's holding period with respect to the shares
of TSRG Common Stock received pursuant to the Merger will include the holding
period of the NGT Common Stock and NGT Preferred Stock exchanged therefor,
provided the shares of NGT Common Stock and NGT Preferred Stock were held as
capital assets within the meaning of Section 1221 of the Code on the date of the
Merger, and (iv) no gain or loss will be recognized by TSRG or NGT as a result
of the Merger.
Because of the complexity of the tax laws, and because the tax
consequences to any particular NGT shareholder may be affected by matters not
discussed herein, each NGT shareholder is urged to consult his or her personal
tax advisor concerning the applicability of any foreign laws as well as other
federal, state and local income tax consequences of the Merger.
Anticipated Accounting Treatment
The Merger will be accounted for as a recapitalization of TSRG for
financial accounting purposes in accordance with generally accepted accounting
principles and therefore there is no adjustment in the carrying value of NGT in
the exchange. See "UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION."
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Percentage Ownership Interest of NGT shareholders Following Merger
The number of shares of TSRG Common Stock to be issued in the Merger is
expected to be approximately 6,415,350 shares, based upon 2,138,450 shares of
TSRG Common Stock being outstanding immediately prior to the Effective Date. If
the 6,415,350 shares of TSRG Common Stock are issued to holders of NGT Common
and NGT Preferred Stock, the shares of TSRG Common Stock owned by NGT
shareholders immediately after the Effective Date will represent at least
seventy five percent (75%) of the total shares of TSRG Common Stock then
outstanding.
Nasdaq SmallCap Market Listing
It is a condition to the consummation of the Merger that the shares of
TSRG Common Stock to be issued thereunder shall be registered under the
Securities Act and be authorized for quotation on The Nasdaq SmallCap Market,
subject only to official notice of issuance.
Resales of TSRG Common Stock
The shares of TSRG Common Stock to be issued to shareholders of NGT
pursuant to the Merger Agreement have been registered under the Securities Act
of 1933, as amended (the "Securities Act"), thereby allowing such shares to be
freely traded without restriction by persons who will not be "affiliates" (as
used in paragraphs (c) and (d) of Rule 145 under the Securities Act, including,
without limitation, directors and certain executive officers) of TSRG after the
Merger or who were not "affiliates"of NGT on the date of the NGT Special
Meeting. All directors and certain officers and shareholders of NGT may be
deemed to have been "affiliates" of NGT within the meaning of such rules. Any
such person may resell the TSRG Common Stock received by him or her in the
Merger only if such shares are registered for such resell under the Securities
Act or an exemption from such registration under the Securities Act is
available. Such persons may be permitted to effect resales under the safe harbor
provisions of Rule 145 under the Securities Act (or Rule 144 in the case of such
persons who become "affiliates"of TSRG) or as otherwise permitted under the
Securities Act. Persons who may be deemed affiliates of NGT or TSRG generally
include individuals or entities that control, are controlled by, or are under
common control with, such party, and may include certain officers and directors
of such party as well as principal shareholders of such party, as well as
principal shareholders of such party. It is recommended that any such person
obtain advice of securities counsel prior to effecting any resales.
NGT has agreed to prepare and deliver to TSRG a list identifying each
person who, at the time of the NGT Special Meeting, may be deemed to be an
"affiliate" of NGT for purposes of Rule 145 under the Securities Act and that,
on or prior to the Effective Date, NGT will deliver on behalf of each of NGT's
"affiliates" a written agreement to the effect that such person will not offer,
sell, pledge, transfer or otherwise dispose of any shares of TSRG Common Stock
issued to such person in connection with the Merger in violation of the
Securities Act or the rules and regulations thereunder. TSRG has agreed to
prepare and deliver to NGT a list identifying each person who, at the time of
the TSRG Special Meeting, may be deemed to be an "affiliate" of TSRG for
purposes of Rule 145 under the Securities Act and that, on or prior to the
Effective Date, TSRG will deliver on behalf of each of TSRG's "affiliates" a
written agreement to the effect that such person will not offer, sell, pledge,
transfer or otherwise dispose of any of their shares of TSRG Common Stock in
violation of the Securities Act or the rules and regulations thereunder.
This Joint Proxy Statement/Prospectus does not cover resales of TSRG
Common Stock received by any person who may be deemed to be an affiliate of TSRG
or NGT.
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OTHER TERMS OF THE MERGER AGREEMENT
Conversion of Shares in the Merger
At the Effective Date, by virtue of the Merger and without any further
action on the part of the holder thereof:
(i) each share of TSRG Common Stock issued and outstanding
immediately prior to the Effective Date will remain issued, outstanding
and unchanged as validly issued, fully paid and nonassessable shares of
TSRG Common Stock; and
(ii) each share of NGT Common Stock and Preferred Stock issued
and outstanding immediately prior to the Effective Date will be
converted into the right to receive that number of shares of TSRG
Common Stock equal to the; provided, however, that fractional shares
shall be rounded up to whole shares of NGT Common Stock.
As a result of the Merger and without any action on the part of the
holders thereof, all shares of NGT Common Stock and Preferred Stock will cease
to be outstanding and will be canceled and retired and will cease to exist, and
each holder of a certificate which immediately prior to the Effective Date
represented any such shares of NGT Common Stock or Preferred Stock ("NGT
Certificate") will cease to have any rights with respect thereto, except the
right to receive, as hereinafter described, a certificate representing the
number of whole shares of TSRG Common Stock into which any shares of NGT Common
Stock or Preferred Stock have been converted. See "Exchange Agent; Procedures
for Exchange of NGT Certificates" and "No Fractional Shares."
Exchange Agent; Procedure for Exchange of Certificates
TSRG has authorized Interstate Transfer Company to act as Exchange
Agent (the "Exchange Agent") under the Merger Agreement. At or prior to the
Effective Date, TSRG will deposit with the Exchange Agent, in trust for the
benefit of the holders of shares of NGT Common Stock and NGT Preferred Stock,
certificates ("TSRG Certificates") representing the TSRG Common Stock issuable
pursuant to the Merger Agreement in exchange for outstanding shares of NGT
Common Stock and NGT Preferred Stock. TSRG will make available to the Exchange
Agent from time to time, as needed, additional shares of TSRG Common Stock
sufficient to issue whole shares in lieu of fractional shares.
As soon as reasonably practicable after the Effective Date, TSRG will
cause the Exchange Agent to mail to each record holder of a NGT Certificate a
packet of information about exchanging Certificates for shares of TSRG Common
Stock. The packet will include a letter of transmittal and instructions for the
record holder to transmit the NGT Certificates to the Exchange Agent, which
letter of transmittal will specify that delivery will be effected, and risk of
loss and title to the NGT Certificates will pass, only upon actual delivery
thereof to the Exchange Agent and will be in such form and have such other
provisions as TSRG may reasonably specify. Upon surrender of a NGT Certificate
to the Exchange Agent together with such letter of transmittal, duly executed
and completed in accordance with the instructions thereto, and such other
documents as may reasonably be required by the Exchange Agent, such holder will
be entitled to receive in exchange for each NGT Certificate formerly
representing shares of NGT Common Stock or NGT Preferred Stock (i) one or more
shares of TSRG Common Stock representing, in the aggregate, the whole number of
shares that such holder has the right to receive pursuant to the Merger
Agreement and (ii) one share of TSRG Common Stock for each fractional share of
TSRG Common Stock such holder is otherwise entitled. All NGT Certificates so
surrendered will be canceled. In the event of a transfer of ownership of NGT
Common Stock that is not registered in the transfer records of NGT, one or more
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shares of TSRG Common Stock evidencing, in the aggregate, the proper number of
shares of TSRG Common Stock to which such holder is entitled pursuant to the
Merger Agreement, may be issued with respect to such NGT Common Stock to such a
transferee if the NGT Certificate representing such shares of NGT Common Stock
is presented to the Exchange Agent, accompanied by all of the documents required
to evidence and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid.
Shareholders of NGT should not forward their NGT Certificates with the
enclosed proxy card, nor should they forward their NGT Certificates to the
Exchange Agent until they have received the packet of information described
above, including their letter of transmittal.
No Fractional Shares
No certificates or scrip or shares of TSRG Common Stock representing
fractional shares of TSRG Common Stock will be issued upon the surrender for
exchange of NGT Certificates and such fractional share interests will not
entitle the owner thereof to vote or have any other rights of a shareholder of
TSRG. In lieu of any such fractional share, one whole share of TSRG Common Stock
shall be paid to the holder thereof
Representations and Warranties
The Merger Agreement contains various representations and warranties of
TSRG and NGT relating, among other things, to the following:
(i) their incorporation, existence, good standing, corporate
power and similar corporate matters;
(ii) their capitalization and authorization, execution,
delivery and performance and the enforceability of the Merger Agreement
and related matters;
(iv) the absence of conflicts, violations and defaults under
their certificate or articles of incorporation and by-laws and certain
other agreements and documents;
(v) the absence of required consents, approvals, orders or
authorizations of, or registration, declaration or registration with
certain governmental entities;
(vi) the documents and reports filed with the Commission and
the accuracy and completeness of the information contained therein;
(vii) the Registration Statement and this Joint Proxy
Statement/Prospectus and the accuracy and completeness of the
information contained therein and herein;
(viii) the absence of certain material changes or events with
respect to TSRG and NGT since December 31, 1997;
(ix) the shareholder votes required to approve the
transaction; and
(x) brokers or finders fees and expenses.
All representations and warranties of TSRG and NGT expire one year from
the date of the Effective Date.
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Conduct of Business Pending the Merger
Each of TSRG and NGT has agreed that during the period from the date of
the Merger Agreement and continuing until the Effective Date, except as
expressly contemplated or permitted by the Merger Agreement or as otherwise
indicated on its disclosure schedule or as required by a governmental entity of
competent jurisdiction or to the extent that the other party shall otherwise
consent in writing, each will conduct its business in the usual, regular and
ordinary course of business in all material respects, in substantially the same
manner as conducted prior to the Merger Agreement, and will use all reasonable
efforts to preserve intact their present lines of business, maintain its rights
and franchises and preserve its relationships with customers, suppliers and
others having business dealings with it to the end that its ongoing businesses
are not impaired in any material respect at the Effective Date.
Each of TSRG and NGT has further agreed and appointed Loren E. Bagley
and Michael Stewart to act as an operating committee (the "Committee") to
coordinate all significant operations of TSRG and NGT during the period
commencing the date of the Merger Agreement until the Effective Date. The
activities and decisions to be coordinated include, but are not limited to,
contracts, drilling activities, hiring and staffing activities, expenditures and
commitments in excess of $20,000. Each of TSRG and NGT has further agreed that,
during the period from the date of the Merger Agreement and continuing until the
Effective Date, except as permitted by the prior consent of the Committee, TSRG
or NGT shall:
(i) conduct their affairs and business only in the ordinary
course of business;
(ii) not create or incur any additional liability, mortgage,
lien, pledge, hypothecation, share encumbrance or restriction of any
kind in excess of $20,000, nor make any capital expenditure, capital
addition or betterment, nor pay any obligation or liability in excess
of $20,000, absolute or contingent, except current liabilities shown on
NGT's financial Statements dated January 31, 1998, or enter into any
contract or commitment pursuant to which they are obligated to expend
in excess of $20,000;
(iii) not declare or pay any dividends on or make other
distributions in respect of any of their capital stock, or issue or
sell any warrants, rights or options to acquire any such shares, except
NGT shall have the unconditional right to issue up to a maximum of
1,600,000 additional shares of NGT Common Stock in exchange for fair
consideration, as determined in the sole discretion of NGT;
(iv) not amend in any material respect, or propose to amend
their respective certificates of incorporation, bylaws or other
governing documents, except to the extent required to comply with their
respective obligations under the Merger Agreement, required by law or
required by the rules and regulations of the NASD;
(v) maintain its properties, assets and business in good
condition and not sell, lease, encumber or otherwise dispose of, any of
its properties, assets or business which are material, except sales of
oil and gas in the ordinary course of business;
(vi) not pay, or agree to pay, conditionally or otherwise, any
bonus, extra compensation, pension or severance pay to any director,
shareholder, officer, consultant, agent or employee under any pension
plan or otherwise, or increase the compensation paid by them at January
31, 1998 to any officer, director, agent, consultant or employee;
-35-
<PAGE>
(vii) duly comply with all material governmental laws, rules
and regulations applicable to them, their operations, business,
employees or assets and use reasonable commercial efforts to preserve
their business organizations intact;
(viii) except with respect to the Merger, not merge or
consolidate, or obligate to do so, with or into any other entity;
(ix) not enter into any transaction or take any acts which if
effected or performed prior to the date of the Merger Agreement, would
constitute a breach of the representations, warranties and agreements
contained therein; or
(x) not institute, settle or agree to settle any action or
proceeding before any court or governmental body.
Conditions Precedent to the Merger
The respective obligations of NGT and TSRG to effect the Merger are
subject, among other things, to the satisfaction or waiver on or prior to the
Effective Date of the following conditions:
(i) the representations and warranties of NGT and TSRG set
forth in the Merger Agreement that are qualified as to materiality
being true and correct on the date of the Merger Agreement, and each of
the representations and warranties of the parties that is not so
qualified being true and correct in all material respects on the date
of the Merger Agreement, and the receipt by the respective parties of a
certificate of the other parties to such effect;
(ii) the delivery by each party of their respective Disclosure
Schedules and all other schedules and exhibits to the Merger Agreement,
in a form and substance reasonable satisfactory to each party and such
schedules shall not disclose any material adverse change from the
financial statements of the respective parties delivering said
schedules;
(iii) the receipt from the Commission of approval of the
Registration Statement including this Joint Proxy Statement /
Prospectus which is to be mailed to the shareholders of TSRG and NGT,
and the approval by the shareholders of TSRG and NGT of the Merger and
Merger Agreement in accordance with the Registration Statement; and
(iv) the continued listing of TSRG's securities on The Nasdaq
SmallCap Market following consummation of the Merger.
The obligations of TSRG to effect the Merger are also subject to the
satisfaction of, or waiver by TSRG, on or prior to the Effective Date of the
following conditions:
(i) NGT shall have performed in all material respects its
obligations under the Merger Agreement and required to be performed by
it at or prior to the Effective Date;
(ii) TSRG shall have received a minimum of $4,000,000 of
bridge financing as set forth in the Merger Agreement;
(iii) TSRG shall have successfully restructured all of its
indebtedness which is personally guaranteed by officers or directors of
TSRG to eliminate such personal guarantees;
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<PAGE>
(iv) there shall not have accrued or been threatened any
material adverse effect, including as a result of any threatened or
pending action, suit, proceeding or investigation, on the financial
condition, assets, business, prospects or results of operations of NGT;
and
(v) completion by TSRG of its due diligence investigation of
NGT in scope, detail, substance and result reasonably satisfactory to
TSRG prior to the Effective Date.
The obligations of NGT to effect the Merger are also subject to the
satisfaction of, or waiver by NGT, on or prior to the Effective Date of the
following conditions:
(i) TSRG shall have performed in all material respects its
obligations under the Merger Agreement and required to be performed by
it at or prior to the Effective Date;
(ii) NGT shall have either purchased or caused all holders of
its Series 1994-A Preferred Stock to convert such preferred stock into
NGT Common Stock;
(iii) NGT shall have terminated its Agreement and Plan of
Share Exchange with Lyric Energy, Inc. and it shall have sold or
otherwise disposed of all shares of Lyric Energy, Inc. common stock
owned by NGT;
(iv) there shall not have accrued or been threatened any
material adverse effect, including as a result of any threatened or
pending action, suit, proceeding or investigation, on the financial
condition, assets, business, prospects or results of operations of
TSRG; and
(v) completion by NGT of its due diligence investigation of
TSRG in scope, detail, substance and result reasonably satisfactory to
NGT prior to the Effective Date.
Indemnification; Directors' and Officers' Insurance
TSRG
As permitted by the provisions of the Nevada Revised Statutes (the
"NRS"), TSRG has the power to indemnify any person made a party to an action,
suit or proceeding by reason of the fact that they are or were a director,
officer, employee or agent of TSRG, against expenses, judgments, fines and
amounts paid in settlement actually and reasonably incurred by them in
connection with any such action, suit or proceeding if they acted in good faith
and in a manner which they reasonably believed to be in, or not opposed to, the
best interest of TSRG and, in any criminal action or proceeding, they had no
reasonable cause to believe their conduct was unlawful. Termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, does not, of itself, create a
presumption that the person did not act in good faith and in a manner which they
reasonably believed to be in or not opposed to the best interests of TSRG, and,
in any criminal action or proceeding, they had no reasonable cause to believe
their conduct was unlawful.
TSRG must indemnify a director, officer, employee or agent of TSRG who
is successful, on the merits or otherwise, in the defense of any action, suit or
proceeding, or in defense of any claim, issue, or matter in the proceeding, to
which they are a party because they are or were a director, officer employee or
agent of TSRG, against expenses actually and reasonably incurred by them in
connection with the defense.
-37-
<PAGE>
TSRG's Articles of Incorporation eliminate personal liability of
directors, officers and shareholders of TSRG for damages for breach of fiduciary
duty, but do not eliminate the liability of a director or officer for (a) acts
or omissions which involve intentional misconduct, fraud or a knowing violation
of law, or (b) the payment of distributions to shareholders in violation of the
applicable statutes of the NRS.
TSRG may provide to pay the expenses of officers and directors incurred
in defending a civil or criminal action, suit or proceeding as the expenses are
incurred and in advance of the final disposition of the action, suit or
proceeding, upon receipt of an undertaking by or on behalf of the director or
officer to repay the amount if it is ultimately determined by a court of
competent jurisdiction that they are not entitled to be indemnified by TSRG.
The NRS also permits a corporation to purchase and maintain liability
insurance or make other financial arrangements on behalf of any person who is or
was a director, officer, employee or agent of TSRG, or is or was serving at the
request of the corporation as a director, officer, employee or agent, of another
corporation, partnership, joint venture, trust or other enterprise for any
liability asserted against them and liability and expenses incurred by them in
their capacity as a director, officer, employee or agent, or arising out of
their status as such, whether or not TSRG has the authority to indemnify them
against such liability and expenses.
NGT
The By-Laws of NGT contain provisions whereby NGT has the power, to the
maximum extent permitted by Texas law, to indemnify its officers and directors,
or persons who act or acted at NGT's request as a director or officer of a
company of which NGT is or was a shareholder or creditor, and to purchase and
maintain insurance for the benefit of any officers or directors against any
liability incurred in their capacity as officers or directors of NGT.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling NGT pursuant
to the forgoing provisions, NGT has been informed that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act, and is therefore unenforceable.
Termination
The Merger Agreement may be terminated at any time prior to the
Effective Date by action taken or authorized by the Board of Directors of the
terminating party or parties:
(i) By the mutual written agreement of TSRG and NGT, by action
of their respective Boards of Directors;
(ii) By TSRG if any of the conditions precedent to its
obligations as set forth in the Merger Agreement are not satisfied or
waived by TSRG on or before September 30, 1998;
(i) By NGT if any of the conditions precedent to its
obligations as set forth in the Merger Agreement are not satisfied or
waived by NGT on or before September 30, 1998.
The right to terminate the Merger Agreement as described above is not
available to any party (i) that is in material breach of its obligations under
the Merger Agreement or (ii) whose failure to fulfill its obligations or to
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<PAGE>
comply with its covenants under the Merger Agreement has been the cause of, or
resulted in, the failure to satisfy any condition to the obligations of either
party under the Merger Agreement.
Fees and Expenses
Whether or not the Merger is consummated, all expenses incurred in
connection with the Merger Agreement and the transactions contemplated thereby
shall be paid by the party incurring such expenses.
Amendment
The Merger Agreement may be amended or modified by TSRG and NGT at any
time before or after approval of the matters presented in connection with the
Merger by the shareholders of NGT and the shareholders of TSRG. The Merger
Agreement may not be amended except by an instrument in writing, signed on
behalf of each of TSRG and NGT.
Waiver
The Merger Agreement permits TSRG and NGT at any time prior to the
Effective Date to (i) extend the time for the performance of any of the
obligations or other acts of the other parties thereto, (ii) waive any
inaccuracies in the representations and warranties contained therein or in any
document delivered pursuant thereto, and (iii) waive compliance with any of the
agreements or conditions contained therein, in each case pursuant to a written
instrument.
-39-
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The unaudited pro forma combined financial statements are based on the
historical consolidated financial statements of TSRG and NGT and have been
prepared as if the Merger occurred for the periods indicated. The unaudited
proforma adjustments described in the accompanying notes are based upon
preliminary estimates and certain assumptions that the managements of TSRG and
NGT believe are reasonable.
The unaudited pro forma financial statements are presented for
comparative purposes only and are not necessarily indicative of actual or future
financial position or results of operations that would have or will occur upon
consummation of the Merger, and should be read in conjunction with the audited
historical consolidated financial statements, including the notes thereto, of
TSRG and NGT, which are incorporated by reference in this Joint Proxy
Statement/Prospectus.
TRANS ENERGY, INC.
Consolidated Proforma Balance Sheets
June 30, 1998
(Unaudited)
ASSETS
------
<TABLE>
<CAPTION>
Proforma
Natural Gas Adjustments
Trans Technologies Increase Proforma
Energy, Inc. Inc. (Decrease) Consolidated
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash $ - $ 4,808 $ - $ 4,808
Accounts receivable 64,686 14,022 - 78,708
---------------- ---------------- ---------------- ----------------
Total Current Assets 64,686 18,830 - 83,516
---------------- ---------------- ---------------- ----------------
PROPERTY AND
EQUIPMENT - NET
OF ACCUMULATED
DEPRECIATION 8,493,942 4,477,361 - 12,971,303
---------------- ---------------- ---------------- ----------------
OTHER ASSETS
Loan receivable - related - 290,695 (158,497) 132,198
Prepaid promotion costs 1,061,628 - - 1,061,628
Loan acquisition costs 2,706,898 - - 2,706,898
Investments - 204,964 - 204,964
Other 101,510 3,769 - 105,279
---------------- ---------------- ---------------- ----------------
Total Other Assets 3,870,036 499,428 (158,497) 4,210,967
---------------- ---------------- ---------------- ----------------
TOTAL ASSETS $ 12,428,664 $ 4,995,619 $ (158,497) $ 17,265,786
================ ================ ================ ================
</TABLE>
See Summary of Assumptions and Disclosures
-40-
<PAGE>
TRANS ENERGY, INC.
Consolidated Proforma Balance Sheets (Continued)
June 30, 1998
(Unaudited)
LIABILITIES AND STOCKHOLDERS EQUITY
-----------------------------------
<TABLE>
<CAPTION>
Proforma
Natural Gas Adjustments
Trans Technologies Increase Proforma
Energy, Inc. Inc. (Decrease) Consolidated
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
CURRENT LIABILITIES
Bank indebtedness $ 16,133 $ - $ - $ 16,133
Accounts payable 1,396,788 609,554 25,000 2,031,342
Accrued expenses 432,037 - - 432,037
Notes payable - current 25,313 5,746 - 31,059
Advances due related parties - 206,958 - 206,958
Debentures payable 4,625,400 - - 4,625,400
---------------- ---------------- ---------------- ----------------
Total Current Liabilities 6,495,671 822,258 25,000 7,342,929
---------------- ---------------- ---------------- ----------------
NET LIABILITIES IN EXCESS
OF ASSETS OF DISCONTINUED
OPERATIONS 340,821 - - 340,821
---------------- ---------------- ---------------- ----------------
LONG-TERM LIABILITIES
Notes payable 1,744,441 18,400 (158,497) 1,604,344
---------------- ---------------- ---------------- ----------------
Total Long-Term Liabilities 1,744,441 18,400 (158,497) 1,604,344
---------------- ---------------- ---------------- ----------------
MINORITY INTEREST - - 28,388 28,388
---------------- ---------------- ---------------- ----------------
REDEEMABLE PREFERRED
STOCK, SERIES 1994-A, $4.00
PAR VALUE, 500,000 SHARES
AUTHORIZED, 7,097
OUTSTANDING $ - $ 28,388 $ (28,388) $ -
---------------- ---------------- ---------------- ----------------
</TABLE>
See Summary of Assumptions and Disclosures
-41-
<PAGE>
TRANS ENERGY, INC.
Consolidated Proforma Balance Sheets (Continued)
June 30, 1998
(Unaudited)
LIABILITIES AND STOCKHOLDERS EQUITY (Continued)
-----------------------------------------------
<TABLE>
<CAPTION>
Proforma
Natural Gas Adjustments
Trans Technologies Increase Proforma
Energy, Inc. Inc. (Decrease) Consolidated
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
STOCKHOLDERS EQUITY
Preferred stock: Series 1994-B,
$4.00 par value; authorized
500,000 shares; 66,360 shares
issued and outstanding $ - $ 265,440 $ - $ 265,440
Common stock, $0.001 par
value; authorized 30,000,000
shares; 8,553,800 shares
issued and outstanding,
respectively 2,139 5,889 526 8,554
Additional paid-in capital 12,867,963 10,067,098 (9,047,897) 13,887,164
Accumulated deficit (9,022,371) (6,211,854) 9,022,371 (6,211,854)
---------------- ---------------- ---------------- ----------------
Total Stockholders Equity 3,847,731 4,126,573 (25,000) 7,949,304
---------------- ---------------- ---------------- ----------------
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY $ 12,428,664 $ 4,995,619 $ (158,497) $ 17,265,786
================ ================ ================ ================
</TABLE>
See Summary of Assumptions and Disclosures
-42-
<PAGE>
TRANS ENERGY, INC.
Consolidated Statement of Operations
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Proforma
Natural Gas Adjustments
Trans Technologies Increase Proforma
Energy, Inc. Inc. (Decrease) Consolidated
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
SALES $ 473,006 $ 356,041 $ - $ 829,047
---------------- ---------------- ---------------- ----------------
TOTAL REVENUES 473,006 356,041 - 829,047
---------------- ---------------- ---------------- ----------------
EXPENSES
General and administrative 773,769 1,146,351 - 1,920,120
Depreciation and amortization 81,261 245,266 - 326,527
---------------- ---------------- ---------------- ----------------
Total Expenses 855,030 1,391,617 - 2,246,647
---------------- ---------------- ---------------- ----------------
INCOME (LOSS) FROM
OPERATIONS (382,024) (1,035,576) - (1,417,600)
---------------- ---------------- ---------------- ----------------
OTHER INCOME (EXPENSE)
Gain on sale of assets 239,129 - - 239,129
Write-down oil and gas - (3,076,790) - (3,076,790)
Interest expense (139,315) (405,049) - (544,364)
Other expense - (618,779) - (618,779)
---------------- ---------------- ---------------- ----------------
Total Other Income
(Expense) 99,814 (4,100,618) - (4,000,804)
---------------- ---------------- ---------------- ----------------
NET INCOME (LOSS) $ (282,210) $ (5,136,194) $ - $ (5,418,404)
================ ================ ================ ================
</TABLE>
See Summary of Assumptions and Disclosures
-43-
<PAGE>
TRANS ENERGY, INC.
Statements of Assumptions and Disclosures for the
Consolidated Proforma Financial Statements
June 30, 1998
(Unaudited)
BACKGROUND AND HISTORICAL INFORMATION
The Company was originally incorporated in the State of Idaho on
January 16, 1964. On January 11, 1988, the Company changed its name to
Apple Corporation. In 1988, the Company acquired oil and gas leases and
other assets from Ben s Run Oil Company (a Virginia limited
partnership) and has since engaged in the business of oil and gas
production.
On November 5, 1993, the Board of Directors caused to be incorporated
in the State of Nevada, a new corporation by the name of Trans Energy,
Inc., with the specific intent of effecting a merger between Trans
Energy, Inc. of Nevada and Apple Corp. of Idaho, for the sole purpose
of changing the domicile of the Company to the State of Nevada. On
November 15, 1993, Apple Corp. and the newly formed Trans Energy, Inc.
executed a merger agreement whereby the shareholders of Apple Corp.
exchanged all of their issued and outstanding shares of common stock
for an equal number of shares of Trans Energy, Inc. common stock. Trans
Energy, Inc. was the surviving corporation and Apple Corp. was
dissolved. Trans Energy, Inc. is the parent company of Tyler
Construction Company, Inc. and Ritchie County Gathering Systems, Inc.
Natural Gas Technologies, Inc. (NGT) was incorporated on April 26, 1993
and began operations in June 1993. NGT acquired interests in various
oil and gas properties in February and June 1994 and has been active in
this industry since then. NGT is the parent company of Interior Energy,
Inc.
PROFORMA TRANSACTIONS
The historical financial information contained herein has been
consolidated assuming the issuance of common stock of Trans Energy,
Inc. for 100% of the outstanding common stock of NGT as of June 30,
1998. The purchase is not effective yet, but has been retroactively
applied to the historical information of these companies.
Trans Energy, Inc. issued 6,415,350 shares of common stock in exchange
for 100% of the outstanding shares of NGT. The proforma adjustments
have been prepared under the purchase method of accounting for business
combinations and all significant intercompany transactions have been
eliminated. The proforma adjustments to record the merger of the
companies under the purchase method of accounting for business
combinations are:
1. Record the purchase of NGT through the issuance of 6,415,350 shares
of common stock:
Common stock $ 6,415
Additional paid-in capital (6,415)
------------------
Total $ -
==================
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<PAGE>
TRANS ENERGY, INC.
Statements of Assumptions and Disclosures for the
Consolidated Proforma Financial Statements
June 30, 1998
(Unaudited)
PROFORMA TRANSACTIONS (Continued)
2) Eliminate the common stock of NGT:
Common stock $ (5,889)
Additional paid-in capital 5,889
-------------
Total $ -
=============
3) Eliminate the deficit of Trans Energy, Inc.:
Accumulated deficit $ (9,022,371)
Additional paid-in capital 9,022,371
-------------
Total $ -
=============
4) Stock issuance costs:
Additional paid-in capital $ 25,000
Accounts payable (25,000)
-------------
Total $ -
=============
5) Record minority interest:
Redeemable preferred stock $ 28,388
Minority interest (28,388)
-------------
Total $ -
=============
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<PAGE>
TSRG STOCK SPLIT
In May 1998, the TSRG Board declared the TSRG Stock Split in connection
with the Merger. Accordingly, on June 5, 1998, the shares of TSRG Common Stock
then outstanding were reverse split on a one (1) share for four (4) shares
basis. All share of TSRG Common Stock referred to in this Joint Proxy
Statement/Prospectus and in the Merger Agreement are stated on a post-split
basis.
DIRECTORS AND MANAGEMENT OF TSRG FOLLOWING THE MERGER
Upon completion of the Merger, the TSRG Board will consist of five (5)
persons, of which two (2) persons from the current TSRG Board and two (2)
persons from NGT will be directors of the combined company. Loren E. Bagley and
William F. Woodburn, both current TSRG directors, will be directors of the
combined company. Michael Stewart, Vice President of NGT, and Warren Donohue, a
current NGT director, will also be directors of the combined company. Mr.
Stewart shall serve as President and Chief Operating Officer and Mr. Bagley
shall serve as Chairman of the Board. The fifth director has not yet been
determined, however, such director will be appointed prior to completion of the
Merger by the mutual agreement of NGT and TSRG. Until the Merger is completed,
both corporations are being managed pursuant to a joint committee consisting of
Mr. Bagley and Mr. Stewart. The directors constituting the TSRG Board shall
serve until the next annual meeting of TSRG shareholders.
The directors and officers of NGT do not own any shares of TSRG Common
Stock, either as of March 26, 1998 or the date hereof. As of the date hereof,
Mr. Stewart beneficially owns 200,000 shares of NGT Common Stock and Mr. Donohue
beneficially owns1,969,643 shares of NGT Common Stock. The number of shares of
NGT Common Stock indicated for Mr. Donohue includes 1,600,000 shares owned by
Ameritech Petroleum because Mr. Donohue may be deemed to beneficially own such
shares under Rule 13d-3 under the Exchange Act. See Ownership of NGT Capital
Stock. Based on the assumed Exchange Ratio of 1.04562, the NGT Common Stock of
the above two persons would be converted into the right to receive the following
shares of TSRG Common Stock upon the Effective Date: Mr. Stewart, 209,124
shares, and Mr. Donohue, 2,059,498 shares. The current holdings of TSRG Common
Stock by the two director designees of TSRG are Mr. Bagley, 104,894 shares, and
Mr. Woodburn, 112,027 shares. Mr. John Sims, a current director of TSRG, owns
13,807 shares.
Compensation of Directors and Executive Officers
TSRG does not compensate its directors for service on the TSRG Board or
any committee thereof, but directors are reimbursed for expenses incurred for
attendance at meetings of the TSRG Board and any committee thereof. Executive
officers are appointed annually by the TSRG Board and each executive officer
serves at the discretion of the TSRG Board. Executive officers have not been
paid for their services. Following the consummation of the Merger, the new TSRG
Board is expected to review the policy of paying its directors and executive
officers. However, no arrangements have been made at this time to create any
payment criteria or schedule and there can be no estimate whether the new TSRG
Board will establish such payments.
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<PAGE>
DESCRIPTION OF TSRG SECURITIES
TSRG is authorized to issue 30,000,000 shares of Common Stock, par
value $.001 per share, of which 2,138,450 shares are issued and outstanding
(post-split as per the TSRG Stock Split) as of the date hereof. All shares of
TSRG Common Stock have equal rights and privileges with respect to voting,
liquidation and dividend rights. Each share of Common Stock entitles the holder
thereof to (i) one non-cumulative vote for each share held of record on all
matters submitted to a vote of the shareholders; (ii) to participate equally and
to receive any and all such dividends as may be declared by the TSRG Board out
of funds legally available therefor; and (iii) to participate pro rata in any
distribution of assets available for distribution upon liquidation of TSRG.
Shareholders of TSRG have no preemptive rights to acquire additional shares of
Common Stock or any other securities. The Common Stock is not subject to
redemption and carries no subscription or conversion rights. All outstanding
shares of Common Stock are fully paid and non-assessable. Additional shares of
TSRG Common Stock may be issued without shareholder approval, except as that
right is limited as a result of TSRG's listing agreement with The Nasdaq
SmallCap Market.
TSRG Redeemable Common Stock Purchase Warrants
In December 1996, TSRG completed the public offering of 146,342 shares
of TSRG Common Stock and 1,200,000 Redeemable Common Stock Purchase Warrants
(the "Stock Purchase Warrants"). Each Stock Purchase Warrant is exercisable at
any time into one share of TSRG Common Stock at the exercise price of $22.56 per
share, as adjusted by the reverse stock split effected June 5, 1998, until the
expiration date of December 17, 2002. The Stock Purchase Warrants are redeemable
by TSRG at a price of $.10 per Stock Purchase Warrant, if the closing bid price
of TSRG Common Stock on the Nasdaq SmallCap Market exceeds 140% of the public
offering price (or $28.672 as adjusted for the one share for four shares reverse
stock split) for the twenty (20) consecutive trading days preceding the notice
of redemption. No Stock Purchase Warrant may be exercised unless at the time of
exercise there is a current prospectus covering the shares of TSRG Common Stock
issuable upon exercise of the Stock Purchase Warrants under an effective
registration statement filed with the Commission, and such shares have been
qualified for sale or are exempt from qualification under the securities laws of
the state of residence of the holder of such Stock Purchase Warrant.
TSRG Convertible Debentures
In connection with the Merger, TSRG has issued $4,625,400 face value of
8% Secured Convertible Debentures Due March 31, 1999 (the "Debentures").
Interest shall accrue upon the date of issuance until payment in full of the
principal sum has been made or duly provided for. Holders of the Debentures
shall have the option, at any time, until maturity, to convert the principal
amount of their Debenture, or any portion of the principal amount which is at
least $10,000, into shares of TSRG Common Stock at a conversion price for each
share equal to the lower of (a) seventy percent (70%) of the market price of
TSRG Common Stock averaged over the five trading days prior to the date of
conversion, or (b) the market price on the issuance date of the Debentures. Any
accrued and unpaid interest shall be payable, at the option of TSRG, in cash or
in shares of TSRG Common Stock valued at the then effective conversion price.
Pursuant to the terms of the Debentures, TSRG has agreed to file a
registration statement with the Commission to register the shares of TSRG Common
Stock into which the Debentures may be converted. Upon effectiveness of the
registration statement, the shares of TSRG Common Stock underlying the
Debentures, when issued, will be deemed registered securities and will not be
restricted as to the resale of such securities. If TSRG fails to file its
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<PAGE>
registration statement within forty-five (45) days from the closing of the
Debenture offering, TSRG may be obligated to increase by up to fifteen percent
(15%) the number of shares issuable upon conversion to each holder.
Shares Eligible for Future Sales
The 6,415,350 shares of TSRG Common Stock issued pursuant to the Merger
will be freely tradeable without restriction or further registration under the
Act, except for any TSRG Common Stock held by an "affiliate" (as defined under
the Act) of TSRG. As of the date hereof, 379,672 shares of TSRG Common Stock
held by TSRG's current shareholders constitute "restricted securities" within
the meaning of Rule 144 under the Act and may be sold only pursuant to an
effective registration statement under the Act or an applicable exemption,
including an exemption under Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated in accordance with Rule 144) who has beneficially
owned "restricted securities" (defined generally as shares acquired from the
issuer or an affiliate in a non-public transaction) for at least one year, as
well as any person who purchases unrestricted shares in the open market who may
be deemed an "affiliate" of the issuer, is entitled to sell, within any
three-month period, a number of shares of TSRG Common Stock that does not exceed
the greater of (i) 1% of the then outstanding shares, or (ii) the average weekly
trading volume in the shares during the four calendar weeks preceding each such
sale. A person who is not deemed to be an "affiliate" of TSRG and has not been
an affiliate for at least three months, and who has held restricted shares for
at least two years would be entitled to sell such shares without regard to the
volume limitations described above. As defined in Rule 144, an "affiliate" of an
issuer is a person that directly or indirectly, through the use of one or more
intermediaries, controls, or is controlled by, or is under common control with,
such issuer. Sales of substantial amounts of restricted shares, or the
perception that such sales may occur, could adversely affect prevailing market
prices for TSRG Common Stock.
Beginning 90 days from the date of this Prospectus, in addition to the
6,415,350 shares issued pursuant to the Merger and 931,802 tradeable shares of
Common Stock outstanding prior to the Merger, approximately 496,506 shares of
TSRG Common Stock deemed restricted securities are eligible to be sold under
Rule 144 of the Act, subject to the volume and other restrictions of Rule 144.
An additional 722,642 shares are deemed restricted securities and will not be
eligible for sale under Rule 144 for approximately ten months. Also, shares
issued upon conversion of the Convertible Debentures and subject to an effective
registration statement will immediately be tradeable in the public market,
unless held by an affiliate of TSRG. Based on the $4,625,400 value of Debentures
sold and based on the price of TSRG Common Stock of $.075 per share on September
16, 1998 (Debentures are convertible at 70% of the then current market price),
approximately 8,810,286 additional shares may be issued upon the conversion of
the Convertible Debentures. If the price of TSRG Common Stock declines,
additional shares may be issued upon the conversion of the Convertible
Debentures. It must be emphasized that holders of the Debentures are entitled to
convert their holdings into TSRG Common Stock at a conversion price for each
share equal to the lower of 70% of the market price of TSRG Common Stock
averaged over the five trading days prior to the date of conversion, or the
market price on the issuance date of the Debentures. Thus, upon conversion from
the Debentures, holders of TSRG Common Stock will have an acquisition price at a
discount from the prevailing market price and could immediately sell their
shares at a profit.
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TSRG further intends to offer up to 1,000,000 shares of Common Stock
subject to a registration statement at a future time at the discretion of the
TSRG Board. These shares, if offered and sold pursuant to an effective
registration statement, will immediately be available for trading in the public
market.
There can be no predictions of the effect, if any, that sales of TSRG
Common Stock under Rule 144, the issuance of shares upon conversion of the
Debentures, or the offering of additional TSRG Common Stock for sale will have
on the market price prevailing from time to time. Sales of substantial amounts
of TSRG Common Stock pursuant to Rule 144 or of shares acquired upon conversion
of Debentures could subsequently adversely affect the market price of TSRG
Common Stock.
The transfer agent and registrar for TSRG Common Stock is Interstate
Transfer Company, 874 East 5900 South, Suite 101, Salt Lake City, Utah 84107.
COMPARISON OF THE RIGHTS OF HOLDERS OF TSRG COMMON STOCK AND NGT
COMMON STOCK
TSRG is a Nevada corporation and the rights of its shareholders are
governed by the Nevada General Corporation Law and the Articles of Incorporation
and Bylaws of TSRG. NGT is a Texas corporation and the rights of it shareholders
are governed by the Texas Business Corporation Act and the Articles of
Incorporation and Bylaws of NGT. The corporation laws of Texas and Nevada differ
in many respects. Although all differences are not set forth in this Joint Proxy
Statement/Prospectus, certain provisions which could materially effect the
rights of security holders, are described below.
Liability of Directors
The Texas Miscellaneous Corporation Laws Act provides that a
corporation's Articles of Incorporation may provide that a director will not be
liable to the corporation or its shareholders for monetary damages for an act or
omission in the director's capacity as a director, except for (1) a breach of
the director's duty of loyalty to the corporation or its shareholders; (2) an
act or omission not in good faith that constitutes a breach of duty of the
director to the corporation or an act or omission that involves intentional
misconduct or knowing violation of the law; (3) a transaction from which the
director received an improper benefit, whether or not the benefit resulted from
an action taken within the scope of the director's office; or (4) an act or
omission for which the liability of a director is expressly provided by an
applicable statute. The Articles of Incorporation of NGT do not include such a
provision eliminating the personal liability of its directors.
Nevada law provides that a corporation s articles of incorporation may
eliminate or limit the personal liability of a director or officer to the
corporation or its stockholders for damages for breach of fiduciary duty as a
director or officer, but such a provision must not eliminate or limit the
liability of a director or officer for: (1) acts or omissions which involve
intentional misconduct, fraud or a knowing violation of the law; or (2) the
payment of distributions in violation of NRS Section 78.300. The Articles of
Incorporation of TSRG do not include such a provision by eliminating the
personal liability of its directors.
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Indemnification
Texas law generally permits a corporation to indemnify its officers and
directors, or persons who act or acted at the corporation's request as a
director, officer or agent of another company against reasonable expenses
including court costs and attorneys' fees incurred in a proceeding if the person
conducted himself in good faith, reasonably believed, in the case of conduct in
the person's official capacity, that the person's conduct was in the
corporation's best interest, and all other cases, that the person's conduct was
at least not opposed to the corporation's best interest, and in the case of any
criminal proceeding, had no reasonable cause to believe the person's conduct was
unlawful. The determination of indemnification must be made by a majority vote
of a disinterested quorum of the directors, by a majority vote of a committee of
the board of directors consisting of two or more disinterested directors, by
special legal counsel, or by the disinterested shareholders. Texas law requires
indemnification of director's and officers expenses when the person being
indemnified has been wholly successful, on the merits or otherwise, in defense
of the proceeding. If a director or officer applies to a court for
indemnification and is found liable to the corporation or is found liable on the
basis that personal benefit was improperly received by the person,
indemnification is limited to reasonable expenses actually incurred and shall
not be made if the person has been found liable for willful or intentional
misconduct in the performance of the persons's duties.
Nevada law generally permits a corporation to indemnify its officers
and directors, or persons who act or acted at the corporation's request as a
director or officer of another company against expenses, including attorneys'
fees, judgments, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with an action if the person acted in good
faith and in a manner which a person reasonably believed to be in or not opposed
to the best interest of the corporation, and, with respect to any criminal
action, had no reasonable cause to believe the person's conduct was unlawful. A
determination of indemnification must be made by the shareholders, by a majority
vote of a disinterested quorum of the directors, or by independent legal counsel
in a written opinion. Indemnification may not be made if the person has been
adjudged after all appeals to be liable to the corporation unless and only to
the extent that a court determines the person is fairly and reasonably entitled
to indemnity for expenses the court deems proper. A corporation must indemnify a
person who has been successful in the merits or otherwise in defense of any
proceeding.
Expenses incurred by an officer or director in defending an action may
be paid in advance, under Texas and Nevada law, if such director or officer
undertakes to pay such amounts if it is ultimately determined that the person is
not entitled to indemnification. In addition, the laws of both states authorize
a corporation's purchase of indemnity insurance for the benefit of its officers,
directors, employees and agents whether or not the corporation would have the
power to indemnify against liability covered by the policy.
Shareholder Inspection of Books and Records
Texas law allows any person who has been a shareholder for at least six
months prior to that person's demand or as a holder of at least 5% of all
outstanding shares of a corporation to inspect and copy its relevant books and
records of account, minutes, and share transfer record for any proper purpose.
Nevada law allows any person who has been a shareholder for at least
six months prior to that person's demand or is the holder of at least 5% of all
outstanding shares of the corporation to inspect and make copies of the
corporation's Articles of Incorporation, Bylaws, and stock ledger. A corporation
may deny a shareholder's right of inspection if that shareholder refuses to
furnish the corporation an affidavit that the inspection is not desired for a
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purpose other than the business of the corporation and that the shareholder has
not sold or offered for sale any list of shareholders or aided any person in
procuring any such record for such purpose.
Nevada law also allows a shareholder that owns not less than 15% of all
issued and outstanding shares of stock of a corporation or has been authorized
in writing by the holders of at least 15% of all its issued and outstanding
shares to inspect and copy and to conduct an audit of the books of account and
all financial records of the corporation. The right of a shareholder to inspect
the financial records may be denied if the shareholder refuses to furnish the
corporation an affidavit that the inspection, copies or audit is not desired for
any purpose not related to the shareholder's interest in the corporation as a
shareholder.
Dividends of Shares
Texas law permits a corporation to declare and pay dividends unless,
after giving effect to the distribution, the corporation would be insolvent, or
the distribution exceeds the surplus of the corporation. Surplus under Texas law
means the excess of the net assets of a corporation over its stated capital.
Nevada law permits a corporation to declare and pay dividends unless
after giving it effect: (a) the corporation would not be able to pay its debts
as they become due in the usual course of business, or (b) except as otherwise
specifically allowed by the Articles of Incorporation, the corporation's total
assets would be less than the sum of its total liabilities plus the amount that
would be needed, if the corporation were to be dissolved at the time of
distribution, to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to those receiving the
distribution.
Shareholder Voting
Both Texas and Nevada law generally require approval by the
shareholders of each corporation that is a party to a merger, or the
shareholders of the corporation whose shares will be acquired in the exchange.
Texas law requires that at least two thirds of the outstanding shares approve a
plan of merger or exchange, compared with Nevada law which requires approval by
a majority.
Texas and Nevada law do not require a shareholder vote of the surviving
corporation in a merger (unless the corporation provides otherwise in its
articles of incorporation) if (a) the articles of the incorporation of the
corporation do not differ from its articles of incorporation before the merger,
(b) each security holder of the corporation will hold the same number of shares
with identical rights immediately after the merger and (c) each of the shares
that entitle the holders thereof to vote unconditionally in the election of
directors and the shares that entitle the holders thereof to participate without
limitation in distributions outstanding immediately after the merger, plus the
number of such shares issuable as a result of the merger will not exceed by more
than 20% the total number of set shares outstanding immediately before the
merger.
Texas law provides that except as otherwise provided in the Articles of
Incorporation the sale or other disposition of all, or substantially all, the
property and assets of a corporation, were made in the usual and regular course
of business of the corporation may be authorized by its board of directors,
without authorization of the shareholders. Nevada law requires that the sale of
all of a corporation's assets must be approved by a majority of the outstanding
voting shares of the corporation.
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Nevada law requires that transactions requiring approval by
shareholders must be approved by each class of stock, whereas Texas law
generally does not require class voting, except in certain transactions. Both
Texas and Nevada law require that mergers and share exchanges be approved by
each class of shares outstanding. Texas law provides that class voting is
required with respect to proposed amendments to a corporation's articles of
incorporation that adversely affects a specific class of stock.
Nevada law provides, unless otherwise specified in the Articles of
Incorporation or Bylaws of the corporation, that if any tender offer for a
controlling interest of a corporation is made by an interested party (generally
a controlling or managing person of the target corporation), the shareholders of
the target corporation are required to approve the voting rights of the
acquiring person. A controlling interest is defined as ownership of outstanding
voting shares to enable the acquiring person to exercise one-fifth or more but
less than one-third, one-third or more but less than a majority, or a majority
or more, of all the voting power of the corporation in the election of
directors. The holders of a majority of the voting power of the corporation must
approve the voting rights of the acquiring person, and if the acquisition will
result in an amendment to the articles of incorporation that changes any right
given to any class or series then a majority of each class or series affected
must approve the voting rights of the acquiring person. If provided in the
articles of incorporation or the bylaws of a target corporation in effect on the
10th day following the acquisition of a controlling interest by an acquiring
person, the corporation may call for redemption of not less than all the
controlled shares at the average price paid for the controlled shares if the
controlled shares are not accorded full voting rights by the shareholders.
Unless otherwise provided by the articles of incorporation or bylaws of a target
corporation in effect on the 10th day following the acquisition of a controlling
interest by an acquiring person, if the controlled shares are accorded full
voting rights, then those who have not voted in favor of authorizing voting
rights for the controlled shares are entitled to demand payment for the fair
value of their shares. Texas law has no comparable provision concerning the
acquisition of a controlling interest.
Interested Director Transactions
Under both and Texas and Nevada law, certain contracts or transactions
in which one or more of a corporation's directors has an interest are not void
or voidable because of such interest provided that certain conditions, such as
obtaining the required approval and fulfilling the requirements of good faith
and full disclosure, are met. With certain exceptions, the conditions are
similar under Texas and Nevada law. Texas law requires that either (a) the
material facts as to the interest are disclosed to or known by the board of
directors or committee, and the board or committee in good faith authorizes the
transaction by an affirmative vote of a majority of the disinterested directors,
(b) the material facts as to the interest are disclosed to or known by the
shareholders, and the transaction is specifically approved in good faith by the
shareholders, or (c) the transaction is fair as to the corporation as of the
time it is authorized, approved, or ratified by the board of directors, a
committee thereof, or the shareholders.
Nevada law requires either that (a) the interest is known to the board
of directors or committee, and the board or committee authorizes the transaction
in good faith by a vote of the disinterested directors sufficient for the
purpose, (b) the interest is known to the shareholders, and they approved or
ratified the transaction in good faith by a majority vote of shareholders
including the votes of the interested directors, (c) the interest is known to
the directors at the time the transaction is brought before the board of
directors for action, or (d) the transaction is fair as to the corporation at
the time it is authorized or approved. Nevada law further provides that unless
otherwise provided in the articles of incorporation or the bylaws, the board of
directors, without regard to personal interest, may establish the compensation
of directors for services in any capacity.
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Shareholder Derivative Suits
Both Texas and Nevada law provide that a person bringing a derivative
action on behalf of a corporation must have been a holder of the corporation's
securities at the time of the transaction of which the person complains or
became a holder of the securities of the corporation by operation of law from a
person that was a security holder at that time. Texas law further requires that
the shareholder must fairly and adequately represent the interest of the
corporation in enforcing the right of the corporation, as compared to Nevada law
that requires that the shareholder must fairly and adequately represent the
interest of the shareholders similarly situated in enforcing the right of the
corporation.
Appraisal Rights
Under both Nevada and Texas law, a security holder of a corporation
participating in certain major corporate transactions may, under varying
circumstances, be entitled to an appraisal/dissenter's right pursuant to which
such security holder may receive cash in the amount of the fair market value of
the security holder's shares in lieu of the consideration the security holder
would otherwise receive in the transaction. Both Texas and Nevada law provide
that the fair value of the stock is the value of the stock immediately before
the effectuation of the corporate action to which the dissenter objects,
excluding any appreciation or depreciation in anticipation of the corporate
action; except that under Nevada law such exclusions are not made if it would be
inequitable.
Texas law provides that dissenters' rights do not apply to a
shareholder if (1) the class of series of which the shareholders are a part of
are (a) listed on a national securities exchange or The Nasdaq Stock Market or
designated as a national market systems security on an interdealer quotation
system by the National Association of Security Dealers, Inc. ("NASD") or (b)
held of record by more than 2,000 shareholders, (2) the shareholder is not
required to accept for the shareholder's shares any consideration that is
different than the consideration (other than cash in lieu of fractional shares)
to be provided to any other holder of shares of the same class or series of
shares held by that shareholder, and (3) the shareholder is not required to
accept for the shareholder's shares any consideration other than (a) shares of a
corporation that are (i) listed, or authorized for listing upon official notice
of issuance, on a national securities exchange, (ii) approved for quotation as a
national market security on an interdealer quotation system by NASD or (iii)
held by record by not less than 2,000 holders; (b) cash in lieu of fractional
shares; or (c) any combination of the foregoing.
Nevada law provides that dissenters' rights are not available if the
shareholder's shares were either listed on a national securities exchange,
included in the national market system by NASD, or held by at least 2,000
shareholders unless (1) the articles of incorporation of the corporation issuing
the shares provide otherwise or (2) a shareholder is required to accept for the
shareholder's shares anything except (a) cash, owner's interest or owner's
interest in cash in lieu of fractional owners interest of (i) the surviving or
acquiring entity, or (ii) any other entity which at the effected date is either
listed on a national securities exchange, included in a national market system
by the NASD, or held of record by at least 2,000 holders or (b) any combination
of the foregoing.
Dissolution
Under Nevada law a corporation may be dissolved upon the approval by a
majority of the board of directors and the shareholders. Under Texas law the
corporation may be dissolved upon the approval of the majority of the board of
directors and by at least two-thirds of the outstanding shares within each class
or series of shares entitled to vote as a class thereon and at least two-thirds
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of the outstanding shares otherwise entitled to vote thereon. Texas law further
provides that a corporation may be voluntarily dissolved by a written consent of
all shareholders.
MARKET PRICES OF TSRG COMMON STOCK AND DIVIDENDS
TSRG Common Stock is traded on The Nasdaq SmallCap Market under the
symbol "TSRG". The Following table sets forth, for the periods indicated the
range of quarterly high and low sales prices of TSRG as obtained from The Nasdaq
SmallCap Market for the past two fiscal years. All prices have been adjusted to
reflect the one share for four shares reverse split effected by TSRG on June 5,
1998. Price quotations reflect inter-dealer prices, without retail market
mark-up, mark-down or commission and may not represent actual transactions.
High Low
---- ---
1996
First Quarter $ 14.00 $ 10.52
Second Quarter $ 14.00 $ 10.00
Third Quarter $ 21.00 $ 11.52
Fourth Quarter $ 25.00 $ 13.00
1997
First Quarter $ 26.24 $ 8.00
Second Quarter $ 13.12 $ 5.00
Third Quarter $ 8.00 $ 2.52
Fourth Quarter $ 8.00 $ 2.52
1998
First Quarter $ 6.68 $ 2.00
Second Quarter $ 5.00 $ 2.13
Third Quarter (1) $ 2.38 $ .50
--------------
(1) Through Septemver 16, 1998
As of September 16, 1998, there were 187 holders of record of TSRG
Common Stock, which figure does not take into account those shareholders whose
certificates are held in the name of broker-dealers or other nominees. TSRG
estimates that there are approximately 300 beneficial owners of TSRG Common
Stock including shareholders whose certificates are held by broker-dealers or
other nominees. On March 25, 1998, the date immediately preceding the
announcement of the Merger, the shares of TSRG Common Stock closed at $4.25.
TSRG has not declared or paid cash dividends or made distributions in
the past and does not anticipate that it will pay cash dividends or make
distributions in the foreseeable future. TSRG currently intends to retain and
reinvest future earnings, if any, to finance its operations.
There is currently no public trading market for NGT Common Stock or
Preferred Stock. As of September 8, 1998, there were 181 holders of record of
NGT and 2 holders of NGT's Series 1994-B Preferred Shares.
BUSINESS OF TSRG
TSRG is primarily engaged in the transportation, marketing and
production of natural gas and oil, and also conducts exploration and development
activities. TSRG owns and operates 105 oil and gas wells and also owns and
operates an aggregate of over 100 miles of three-inch, four-inch and six-inch
gas transmission lines located within West Virginia in the Counties of Ritchie,
Tyler, Doddridge, and Pleasants, which pipeline system gathers the gas emanating
from certain of these wells and from wells owned by third parties. TSRG has
approximately 2,200 leasehold acres in the Sistersville, West Virginia field
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which forms part of the Keener and Big Injun sands geological formations, and
800 acres in the Powder River Basin in Crook County, Wyoming, none of which has
contributed to the revenues of TSRG to date.
TSRG was originally organized on January 16, 1964 under the laws of the
State of Idaho as Alter Creek Mining Company, Inc. TSRG changed its name to
Apple Corp. in January, 1988, and then to Trans Energy, Inc. in September 1993,
at which time its domicile was changed to the State of Nevada.
TSRG's principal executive offices are located at 210 Second Street,
P.O. Box 393, St. Marys, West Virginia 26170, and its telephone number is (304)
684-7053.
Business Development
TSRG has engaged in limited developmental drilling and no exploratory
drilling in the last three years. Exploratory drilling involves drilling wells
in areas where there are no proved reserves of gas or oil, to find a new
commercially productive area in a field previously found to be productive or to
significantly extend a known field. Development drilling involves the drilling
of wells within proven areas of an oil and gas reservoir to depths where
hydrocarbons are known to exist. Exploratory drilling involves a higher degree
of risk of failure than developmental drilling, although there can be no
assurance that a developmental well will yield commercial quantities of oil and
gas. In 1997, TSRG participated in two developmental drilling projects. One well
was drilled on the Big Injun formation underlying TSRG's Sistersville, West
Virginia acreage and one well was drilled on TSRG's acreage in the Powder River
Basin in Wyoming.
TSRG has operated primarily in the Appalachian Basin, principally in
Northwestern West Virginia. In Northwestern West Virginia, shallow wells drilled
to a depth of up to 6,000 feet are characterized by long producing lives with
low-volume production from low permeability reservoirs with a thickness ranging
from 10 to 40 feet. A typical shallow well will encounter commercial gas
production from between 4 and 10 separate and distinct production horizons. Due
to mechanical and technical limitations, it is usually possible to produce only
up to 2 to 5 of these formations simultaneously, and consequently, necessitates
either the drilling of a twin well or recompletion of the original well at a
later date where multiple productive formations are penetrated.
TSRG intends to focus its activities in the Appalachian Basin, which is
geographically one of the largest gas and oil producing regions, and also in the
Powder River Basin in Wyoming. Operators in the Appalachian Basin historically
have experienced high drilling success rates in the formations of the Basin,
with wells generally producing for more than 25 years although at low production
volumes. The Appalachian Basin is located in close proximity to the largest gas
markets in the United States and, historically, this has generally resulted in
wellhead gas prices somewhat higher than those prices received in the Gulf Coast
and the Mid-Continent producing regions.
TSRG's business strategy is to economically increase its reserves,
production and sale of gas and oil from existing and acquired properties in the
Appalachian Basin and elsewhere in order to maximize shareholders' return over
the long term. TSRG's strategic location in West Virginia enables TSRG to
actively pursue the acquisition and development of producing properties in that
area that will enhance TSRG's revenue base without proportional increases in
overhead costs. TSRG has directed its attention to Appalachian Basin properties
in which it will have a significant ownership interest and will serve as
operator.
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To accomplish this strategy, TSRG has focused on increasing its gas and
oil revenues through well recompletions, property acquisitions and exploitation
programs. Since 1992, TSRG's proved reserves of natural gas and oil have
increased by an aggregate of 71% to 1,789 MMcf and 1% to 199 MBbl, respectively.
There can be no assurance, however, that TSRG will be able to continue to expand
its proved reserves of natural gas and oil.
In September 1993, TSRG acquired certain oil and gas assets including
wells and pipelines, in exchange solely for shares of TSRG's authorized but
previously unissued common stock. These acquisitions are summarized below:
Tyler Construction Company, Inc.
In September 1993, TSRG acquired an interest equal to 65% of the total
outstanding shares of Tyler Construction Company ("Tyler Construction") from
Loren E. Bagley, TSRG's President and a director, and William F. Woodburn,
TSRG's Vice President of Operations and a director. Tyler Construction owns and
operates a natural gas gathering pipeline system serving the industrialized Ohio
Valley. Tyler Construction also owns and operates 27 miles of six-inch pipeline
and 10 miles of four-inch pipeline.
Tyler Construction's trunk line system consists of a six-inch pipeline
that begins at the town of St. Marys, West Virginia, located on the Ohio River
in the County of Pleasants in western West Virginia, and proceeds twenty-seven
miles due east to Bradden Station, West Virginia. Near Bradden Station, the
pipeline intercepts major transmission lines of Carnegie Natural Gas,
Consolidated Natural Gas and Columbia Natural Gas. An intercepting line
consisting of ten miles of four-inch pipeline begins at a point eight miles east
of St. Marys and proceeds north 10 miles to an industrial park located seven
miles south of Sistersville, West Virginia. At this point, gas is delivered to
OSI Specialties (formerly Union Carbide) and Consolidated Aluminum Corporation
of America under a marketing agreement with Sancho. Pursuant to its agreement
with Sancho, TSRG has the right to sell natural gas subject to the terms and
conditions of a 20-year contract, as amended, that Sancho entered into with Hope
Gas, Inc. ("Hope") in 1988. This agreement is a flexible volume supply agreement
whereby TSRG receives the full price which Sancho receives less a $.05 per Mcf
marketing fee paid to Sancho. The price of the natural gas is based upon the
residential gas index and the Inside F.E.R.C. Index.
Spencer Wells
Also in September 1993, TSRG acquired from Dennis L. Spencer all
rights, title and interest to six producing oil and gas wells located in West
Virginia, in exchange for TSRG shares. Five of the wells identified as "Fowler,"
"Goff," "Locke," "McGill" and "Workman" are situated in Ritchie County in a
proven reservoir field. The remaining well identified as "Spencer," is located
in Tyler County. All six wells were completed in 1991 and have been producing
oil and gas through the date hereof.
The Pipeline, Ltd.
Also in September 1993, TSRG acquired from Tyler Pipeline, Inc. ("Tyler
Pipeline") all rights, title and interest in the natural gas gathering pipeline
system known as The Pipeline, Ltd. (the name of the pipeline, not a legal
entity), a four-inch pipeline that begins at Twiggs, West Virginia, nine miles
east of St. Marys, West Virginia where it intercepts Tyler Construction's trunk
line system and proceeds due south for a distance of six miles. The Pipeline,
Ltd. system is used for purchasing gas from third party producers. Mr. Woodburn,
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Vice President and a director of TSRG, is also President and owns 50% of Tyler
Pipeline. Mr. Bagley, President and a director of TSRG, also owns 50% of Tyler
Pipeline.
Ritchie County Gathering Systems, Inc.
In September 1993, TSRG acquired all the issued and outstanding capital
stock of Ritchie County Gathering Systems, Inc., a West Virginia corporation
("Ritchie County Gathering"). Ritchie County Gathering owns and operates a
four-inch natural gas gathering line which begins five miles south of Cairo,
West Virginia at Rutherford, and proceeds due south for 4.6 miles, crossing
Mellon Ridge and ending at Macfarlan Creek approximately 1/2 mile north of the
South Fork of the Hughes River. The Ritchie County Gathering pipeline is used
for purchasing gas from third party producers and delivering such gas to Hope.
Recent Business Developments
On March 6, 1998, TSRG entered into an agreement to purchase from GCRL
Energy, Ltd. ("GCRL") all of GCRL's interest in the Powder River Basin in
Campbell and Crook Counties, Wyoming, consisting of interests in five (5) wells,
four (4) of which are producing, interests in 30,000 leasehold acres, and
interests in approximately seventy-three miles of 3-D seismic data. The
properties include three producing fields from Minnelusa Sandstone and were
discovered on 3-D seismic. TSRG made an initial payment for the properties of
$50,000 and the balance of $2,987,962 was paid for with proceeds from the sale
of TSRG's Debentures. TSRG obtained the $50,000 for the initial payment for the
properties from a loan in that amount from NGT on February 25 ,1998. See
"CERTAIN RELATED TRANSACTIONS."
The following table sets forth information concerning the existing oil
production per day of the producing wells located on the GCRL property.
<TABLE>
<CAPTION>
Name of Well Gross Bbls. Oil Per Day Net % to TSRG Net Bbls. to TSRG
- ------------ ----------------------- ------------- -----------------
<S> <C> <C> <C> <C>
Sagebrush Fed #1 100 48.8% 48
Sagebrush Fed #2 120 47.5% 57
Pinon Fee #1 45 51.2% 23
Sandbar Boley 31-36 130 2.2% 3
Sandbar State 1-36 375 14.2% 53
Sandbar State 2-36 100 33% 33
--- ----
TOTAL 870 217
</TABLE>
Current Business Activities
TSRG is actively engaged in the operation of its oil and natural gas
properties and in the transportation and marketing of its natural gas through
its transmission systems in West Virginia. Management has expressed its desire
to acquire additional oil and natural gas properties and to become more involved
in exploration and development, specifically in the Powder River Basin in
Wyoming. Management intends to continue to develop and increase the production
from the oil and natural gas properties that it currently owns.
Although TSRG will continue to transport and market natural gas through
its various pipelines, there are no current plans to acquire or to lay any
additional pipeline systems in 1998. Apart from the two wells drilled in the
Powder River Basin in Wyoming and Sistersville, West Virginia, TSRG has not
drilled any new wells in the last three years.
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Powder River Basin Wyoming
On December 28, 1996, TSRG purchased 420 acres in the Powder River
basin in the State of Wyoming for $50,000 from an unaffiliated third party.
Included in the purchase price was a condition that the previous owners would
provide all of the geologic and geophysical work as part of the purchase price.
On February 3, 1997 TSRG leased an additional 480 acres that joined with its
acreage position. The target formation is the Minnelusa "B1" sand. There
presently are no producing wells on such acreage and no proved reserves located
on the acreage owned by TSRG.
Five two-dimensional ("2-D") seismic lines and a 6-square mile
three-dimensional ("3-D") seismic program have been shot across the acreage now
held by TSRG. Unlike 2-D seismic testing which provides a cross-sectional view
of the subsurface of the Earth, 3-D testing provided a full, three-dimensional
view of the subsurface. Such views allow for greater precision in the location
of potential drilling sites. 3-D testing allows potential drillers to obtain
accurate estimates of the size of oil and gas bearing structures and the profile
of the structure. 2-D testing only informs the driller that an oil and gas
bearing structure is in a particular area, without giving information as to size
and shape. Without an accurate estimate of the size of the oil and gas bearing
structures, it is difficult to accurately estimate the reserves in the
structure, and, thus, the economic viability of drilling into a particular
structure. Without an accurate profile of the structure, a driller may not hit
the most economic portion of the structure.
Water pressure primarily is responsible for the movement of oil within
the area of TSRG's acreage. Where water pressure is the cause of oil movement,
finding the apex of the oil bearing structure is critical. Drilling into the
apex of such a structure usually assures that a maximum amount of oil, and a
minimal amount of water, will be recovered from a well. Hitting such a zone
elsewhere than at the apex will result in a lower proportion of oil to water and
reduced rates of recovery.
TSRG completed the drilling of the Fowler 22-8 in January 1998 and
determined the well to be a dry hole and was plugged. TSRG intends to drill
additional wells on its acreage during 1998.
Powder River Basin Wyoming - Wolffe Prospect
On May 27, 1997, TSRG purchased a 30% working interest in the Wolffe
Prospect in the Powder River Basin in Campbell County, Wyoming for $65,000 from
an unaffiliated third party. Included in the purchase price was a 30% working
interest in the Wolffe #1-35 well and 30% interest in 240 acres. In October
1997, TSRG participated in its share of the drilling of the Horizon 32-35 well.
The target formation was the Minnelusa "B1" sand. The well was determined to be
a dry hole and plugged.
Sistersville
Effective June 1, 1995, TSRG purchased approximately 2,200 acres in a
known producing field located near Sistersville, West Virginia for $100,000. The
Sistersville field has been in operation since the 1890's, although at a very
low level for the past ten years. To date the field has produced over 13 million
barrels of oil. The field contains portions of the Big Injun and Keener sands
formations, both well known oil and gas bearing formations, which are the zones
TSRG intends to explore. These formations are approximately 1,700 feet deep.
Recoverable reserves of oil in the field are estimated at several million
barrels.
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<PAGE>
TSRG has observed the success of oil and gas exploration in the
Sistersville field by other entities after expensive studies. The preliminary
studies conducted by the seller of the Sistersville property to TSRG indicating
substantial reserves were included in the purchase price paid by TSRG for the
Sistersville acreage. TSRG drilled a well on its Sistersville acreage in April
1997. TSRG is currently attempting to liquidate its position in the property.
Vulcan Energy Corporation.
During March 1997, TSRG announced plans to cease operations and attempt
to sell Vulcan Energy Corporation ("Vulcan"), its 80% owned subsidiary, engaged
in the lease crude oil gathering and marketing in Southeast Texas. Financial
information with respect to discontinued operations is presented in Note 9 to
the TSRG consolidated financial statements.
Research and Development
TSRG has not allocated funds for conducting research and development
activities and, due to the nature of TSRG's business, it is not anticipated that
funds will be allocated for research and development in the immediate future.
Marketing
TSRG operates exclusively in the oil and gas industry. Natural gas
production from wells owned by TSRG is generally sold to various intrastate and
interstate pipeline companies and natural gas marketing companies. Sales are
generally made on the spot market or under short-term contracts (one year or
less) providing for variable or market sensitive prices. These prices often are
tied to natural gas futures contracts as posted in national publications.
Natural gas delivered through TSRG's pipeline network is sold either to
Sancho Oil and Gas Corporation ("Sancho") at the industrial facilities near
Sistersville, West Virginia, or to Hope, a local utility, on a year long basis
ending January 31, 1999 at a variable price per month per Mcf. Under its
contract with Sancho, TSRG has the right to sell natural gas subject to the
terms and conditions of a 20-year contract, as amended, that Sancho entered into
with Hope in 1988. This agreement is a flexible volume supply agreement whereby
TSRG receives the full price which Sancho charges the end user less a $.05 per
Mcf marketing fee paid to Sancho. The price of the natural gas is based upon the
greater of the residential gas commodity index and published Inside F.E.R.C.
Index, at TSRG's option, for the first 1,500 Mcf purchased per day by Hope and
thereafter the price is the Inside F.E.R.C. Index. The residential gas commodity
index does not directly fluctuate with the overall price of natural gas. The
Inside F.E.R.C. Index fluctuates monthly with the change in the price of natural
gas. While such option provides certain price protection for TSRG there can be
no assurance that prices paid by TSRG to suppliers will be lower than the price
which TSRG would receive under the Hope arrangement. Prior to June 1, 1996, the
price was the residential gas commodity index and when the market price of gas
rose above such index, TSRG's ability to purchase gas from third parties was
adversely effected.
TSRG sells its oil production to third party purchasers under
agreements at posted field prices. These third parties purchase the oil at the
various locations where the oil is produced.
Although management believes that TSRG is not dependent upon any one
customer, its marketing arrangement with Sancho Oil and Gas Corporation
accounted for approximately 47% of TSRG's revenue for the year ended December
31, 1997, and approximately 45% for the year ended December 31, 1996. This
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<PAGE>
marketing agreement is in effect until September 1, 2003. The majority of the
balance of the gas sold by TSRG is marketed under a one year contract with Hope.
The price under the agreement is set monthly and gas is sold as available with
no volume requirements or restrictions. Sales to this customer made up
approximately 49% of net revenues in 1997. No other single customer accounts for
more than 10% of TSRG's business.
In addition to the natural gas produced by TSRG's wells, it also
purchased approximately 700 Mcf of natural gas per day in 1997.
Competition
TSRG is in direct competition with numerous oil and natural gas
companies, drilling and income programs and partnerships exploring various areas
of the Appalachian and Powder River Basins and elsewhere, and competing for
customers. Many competitors are large, well-known oil and gas and/or energy
companies, although no single entity dominates the industry. Many of TSRG's
competitors possess greater financial and personnel resources enabling them to
identify and acquire more economically desirable energy producing properties and
drilling prospects than TSRG. Additionally, there is competition from other fuel
choices to supply the energy needs of consumers and industry. Management
believes that there exists a viable market place for smaller producers of
natural gas and oil and for operators of smaller natural gas transmission
systems.
Under its contract with Sancho, TSRG has the right to sell natural gas
subject to the terms and conditions of a 20-year contract, as amended, that
Sancho entered into with Hope in 1988. This agreement is a flexible volume
supply agreement whereby TSRG receives the full price which Sancho receives less
a $.05 per Mcf marketing fee paid to Sancho. The price of the natural gas is
based upon indices that include the residential gas commodity charge of Hope and
the Inside F.E.R.C. Index. Were it not for the relationship between Hope and
Sancho, Hope would compete directly with TSRG for the sale of gas to certain
customers, specifically OSI Specialities, Inc. and Consolidated Aluminum of
America, Inc.
Government Regulation
The oil and gas industry is extensively regulated by federal, state and
local authorities. The scope and applicability of legislation is constantly
monitored for change and expansion. Numerous agencies, both federal and state,
have issued rules and regulations binding on the oil and gas industry and its
individual members, some of which carry substantial penalties for noncompliance.
To date, these mandates have had no material effect on TSRG's capital
expenditures, earnings or competitive position.
Legislation and implementing regulations adopted or proposed to be
adopted by the Environmental Protection Agency ("EPA") and by comparable state
agencies, directly and indirectly affect TSRG's operations. TSRG is required to
operate in compliance with certain air quality standards, water pollution
limitations, solid waste regulations and other controls related to the
discharging of materials into, and otherwise protecting the environment. These
regulations also relate to the rights of adjoining property owners and to the
drilling and production operations and activities in connection with the storage
and transportation of natural gas and oil.
TSRG may be required to prepare and present to federal, state or local
authorities data pertaining to the effect or impact that any proposed operations
may have upon the environment. Requirements imposed by such authorities could be
costly, time-consuming and could delay continuation of production or exploration
activities. Further, the cooperation of other persons or entities may be
required for TSRG to comply with all environmental regulations. It is
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<PAGE>
conceivable that future legislation or regulations may significantly increase
environmental protection requirements and, as a consequence, TSRG's activities
may be more closely regulated which could significantly increase operating
costs. However, management is unable to predict the cost of future compliance
with environmental legislation. As of the date hereof, management believes that
TSRG is in compliance with all present environmental regulations.
TSRG's exploration and development operations are subject to various
types of regulation at the federal, state and local levels. Such regulation
includes the requirement of permits for the drilling of wells, the regulation of
the location and density of wells, limitations on the methods of casing wells,
requirements for surface use and restoration of properties upon which wells are
drilled, and governing the abandonment and plugging of wells. Exploration and
production are also subject to property rights and other laws governing the
correlative rights of surface and subsurface owners.
TSRG is subject to the requirements of the Occupational Safety and
Health Act, as well as other state and local labor laws, rules and regulations.
The cost of compliance with the health and safety requirements is not expected
to have a material impact on TSRG's aggregate production expenses. Nevertheless,
TSRG is unable to predict the ultimate cost of compliance.
Although past sales of natural gas and oil were subject to maximum
price controls, such controls are no longer in effect. In any case, the
deregulated price of natural gas under current market conditions tends to be
substantially lower than most regulated ceilings. Other federal, state and local
legislation, while not directly applicable to TSRG, may have an indirect effect
on the cost of, or the demand for, natural gas and oil.
Employees
As of the date hereof TSRG employs ten people full-time, consisting of
two executives, three marketing and clerical person, and five production
persons. Following the Merger, each position will be evaluated as to the future.
Facilities
TSRG's operations currently occupy approximately 4,000 square feet of
office space in St. Marys, West Virginia, which it shares with its subsidies
Tyler Construction Company, Inc. and Ritchie County Gathering Systems, Inc. TSRG
leases an aggregate of approximately 4,000 square feet from an unaffiliated
third party under a verbal arrangement for $1,400 per month, inclusive of
utilities. Management believes that its present office facilities are adequate
for TSRG's current business operations.
Description of TSRG Property
TSRG operates and receives gas and oil revenues from 105 wells. Of
these wells, 85 gross wells (wells in which a working interest is owned) are gas
wells and represent 77 net wells. A net well is deemed to exist when the sum of
fractional ownership working interests in gross wells equals one. The remaining
20 gross wells are oil wells which represent 18 net wells. A total of 28 wells
are considered to have multiple completions, one or more completions in the same
bore hole. It is TSRG's policy to acquire existing wells and to continually
review its holdings and either add new wells or dispose of existing wells.
Seventy-five percent of TSRG's wells are shallow wells with depths of less than
3,000 feet. The remaining wells are Devonian shale wells with a depth of greater
than 4,000 feet. Appalachian Basin development wells have relatively high
success rates and are characterized by low permeability and low porosity,
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<PAGE>
thereby resulting in relatively low production rates and long producing lives of
over 25 years. TSRG's ownership interest varies from well to well with the
composite ownership working interest in the wells at approximately 91% at the
end of 1997.
TSRG's producing wells hold approximately 5,636 gross acres under
lease, which TSRG believes include a substantial number of promising development
prospects. In addition, TSRG's has approximately 800 acres under lease in
Wyoming. TSRG's Sistersville acreage consists of approximately 2,200 acres and
has been extensively explored by numerous oil and gas operators and has proved
undeveloped reserves.
TSRG's productive wells are situated on 5,636 gross acres (acres upon
which a working interest is owned) which represent 5,412 net acres. A net acre
is deemed to exist when the sum of fractional ownership working interests in
gross acres equals one.
Substantially all of TSRG's interests are held pursuant to leases from
third parties. Title to properties is subject to royalty, over-riding royalty,
carried, net profits, working and other similar interests and contractual
arrangements customary in the oil and gas industry, liens incident to operating
agreements, liens relating to amounts owed to the operator, liens for current
taxes not yet due and other encumbrances. TSRG believes that such burdens
neither materially detract from the value of such properties nor the respective
interests therein, or materially interfere with their use in the operation of
the business.
As is customary in the industry in the case of undeveloped properties,
little investigation of record title is made at the time of lease acquisition
(other than a preliminary review of local records). Investigations, including a
title opinion of local counsel, are generally made prior to the consummation of
an acquisition of larger properties and before commencement of drilling
operations.
Estimated Proved Reserves.
TSRG's properties consist essentially of the working and royalty
interests owned by TSRG in various oil and gas wells and leases located in West
Virginia. TSRG's proved reserves for the years ended December 31, 1997, 1996 and
1995 are set forth below:
December 31,
-------------------------------------------------
1997 1996 1995
---- ---- ----
Natural Gas (MMcf)
Developed 979,662 875,705 988,000
Undeveloped 801,654 801,654 801,654
Total Proved 1,781,316 1,677,359 1,789,654
Crude Oil (MBbl)
Developed 30,870 16,343 19,070
Undeveloped 180,000 180,000 180,000
Total Proved 210,870 196,343 199,070
These estimates are bases primarily on the reports of Sam M. Deal &
Associates, independent petroleum engineers. Such reports are, by their very
nature, inexact and subject to changes and revisions. Proved developed reserves
are reserves expected to be recovered from existing wells with existing
equipment and operating methods. Proved undeveloped reserves are expected to be
recovered from new wells drilled to known reservoirs on undrilled acreage for
which existence and recoverability of such reserves can be estimated with
reasonable certainty, or from existing wells where a relatively major
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<PAGE>
expenditure is required to establish production. No estimates of reserves have
been included in any reports to any federal agency other than the Securities and
Exchange Commission. See SFAS 69 Supplemental Disclosures included as part of
the Consolidated Financial Statements of TSRG.
Set forth in the following schedule is the average sales price per unit
of oil, expressed in barrels ("bbl"), and of natural gas, expressed in thousand
cubic feet ("mcf"), produced by TSRG for the past three fiscal years.
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------------------------------
Average sales price: 1997 1996 1995
- ------------------- ------ ------ ------
<S> <C> <C> <C>
Gas (per mcf) $ 2.95 $ 3.56 $ 2.02
Oil (per bbl) 16.44 19.22 16.44
Average cost of production:
- ---------------------------
Gas (per mcf) 1.09 $ 1.02 $ 1.12
Oil (per bbl) 6.54 6.12 6.72
</TABLE>
TSRG has not filed any estimates of total, proved net oil and gas
reserves with any federal authority or agency since the beginning of TSRG's last
fiscal year.
The following schedule sets forth the capitalized costs relating to oil
and gas producing activities by TSRG for the past three fiscal years.
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Proved oil and gas
producing properties
and related lease
and well equipment $4,122,311 $3,799,387 $3,733,388
Accumulated depreciation
and depletion (433,799) (407,934) (390,540)
--------- -------- ---------
Net Capitalized Costs $3,688,512 $3,391,453 $3,342,848
========== ========== ==========
</TABLE>
The following schedule summarizes changes in the standardized measure
of discounted future net cash flows relating to TSRG's proved oil and gas
reserves.
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------------------------------
1997 1996 1995
-------------- --------------- ---------------
<S> <C> <C> <C>
Standardized measure,
beginning of year $3,611,702 $4,063,885 $3,602,626
Oil and gas sales, net
of production costs (76,874) (452,183) (107,818)
Sales of mineral in place - - -
Quantity estimates made - - 569,077
---------- --------- --------
Standardized measure,
end of year $3,534,828 $3,611,702 $4,063,885
=================================== ==========
</TABLE>
TSRG does not anticipate investing in or purchasing assets and/or
property for the purpose of capital gains. It is TSRG's intention to purchase
assets and/or property for the purpose of enhancing its primary business
operations. TSRG is not limited as to the percentage amount of TSRG's assets it
may use to purchase any additional assets or properties.
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<PAGE>
TSRG Legal Proceedings
There are no material pending legal proceedings to which TSRG is a
party or to which any of its property is subject except as set forth below.
On May 14, 1997, a complaint entitled R&K Oil Company, Inc. vs. Vulcan
Energy Corporation and Trans Energy, Inc. was filed in District Court, Andrews
County, Texas, 109th Judicial District (File #14,430). The complaint alleges
TSRG owes R&K Oil Company, Inc. $126,978 as a result of business transacted by
Vulcan Energy Corporation. The complaint also seeks $500,000 for breach of
contract. TSRG denies all allegations and intends to vigorously defend its
position.
On March 12, 1997, a complaint entitled F. Worthy Walker vs. Loren
Bagley, William Woodburn, Mark Woodburn, Trans Energy, Inc. and Vulcan Energy
Corporation, was filed in the District Court of Dallas, Texas (# 9702304C). The
complaint alleges that TSRG breached certain contracts related to Mr. Walker's
employment with Vulcan Energy Corporation, and seeks punitive and exemplary
damages. TSRG denies all allegations and intends to vigorously defend its
position. Management believes that the results of the proceedings will not have
a material adverse effect on TSRG. On February 17, 1998, TSRG and the above
named defendants filed a countersuit against F. Worthy Walker alleging breach of
contract, fraud and fraudulent inducement, conversion, and breach of fiduciary
duty and seeks punitive damages. TSRG intends to vigorously pursue its
countersuit against Mr. Walker.
Management's Discussion and Analysis or Plan of Operation
The following information should be read in conjunction with the
consolidated financial statements and notes thereto appearing elsewhere in this
Form S-4. Please note that results of operations for the 1996 fiscal year have
been restated.
Results of Operations
For the Year Ended December 31, 1997 Compared to the Year Ended December 31,
1996.
The following table sets forth the percentage relationship to total
revenues of principal items contained in TSRG's Statements of Operations for the
two most recent fiscal years ended December 31, 1997, and 1996. It should be
noted that percentages discussed throughout this analysis are stated on an
approximate basis.
Fiscal Years Ended
December 31,
1997 1996
---- ----
Total revenues...................................... 100% 100%
Total costs and expenses............................ 245 151
Total other income (expenses)....................... (33) (109)
Net income (loss) before taxes and
minority interest................................. (178) (160)
Income taxes........................................ - -
Net loss from discontinued operations............... (4) (139)
Minority interest................................. 0 3
Net income (loss)................................... (182) (296)
- ----------
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<PAGE>
Total revenues of $1,115,037 for the year ended December 31, 1997
("1997") compared to $1,236,740 for the year ended December 31, 1996 ("1996").
The decline in revenues was 10% in total and was the result of several factors.
First, there was a decline in the market price of gas during 1997. Second, much
of the gas for which TSRG had contracted to purchase was set at a price higher
than TSRG's customers, principally Sancho and Hope, would pay. Thus, as
permitted under the contracts between TSRG and its third party suppliers, TSRG
declined to purchase the gas. This decision resulted in lower sales, but avoided
additional losses for TSRG. The decline in sales was primarily attributable to
one customer. In 1997, oil made up 3% of total revenues as compared to 4% in
1996. Accordingly, gas sales increased from 96% of sales in 1996 to 97% in 1997.
TSRG had a net loss of $2,029,450 for 1997. TSRG's total costs and
expenses increased from 151% of sales in 1996 to 245% of sales in 1997. The cost
of oil and gas increased from 64% of sales in 1996 to 67% of sales in 1997.
Selling, general and administrative expenses also increased 80% due in part to
the issuance of stock by TSRG for services rendered. Salaries and wages
increased 96% due to TSRG's executives being awarded a salary which is being
accrued by TSRG. Depreciation, depletion and amortization increased 95% in 1997
from 1996 due to the amortization of offering costs in a capital raising
transaction. Interest expense in 1997 decreased 78% over 1996 due to decreased
loans by TSRG.
For the Three and Six Months Ended June 30, 1998 Compared to the Three and Six
Months Ended June 30, 1997.
The following table sets forth the percentage relationship to total
revenues of principal items contained in TSGR s Consolidated Statements of
Operations for the three month and six month periods ended June 30, 1998, and
June 30, 1997. It should be noted that percentages discussed throughout this
analysis are stated on an approximate basis.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
1998 1997 1998 1997
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Total revenues.............................. 100% 100% 100% 100%
Total costs and expenses.................... 187 337 181 216
Net income (loss form
operations................................ (87) (237) (81) (116)
Other income (expense)...................... 62 (87) 21 (50)
Net (loss) before income
taxes and minority
interest ................................. (25) (324) (60) (166)
Income taxes................................ - - - -
Minority interest........................... - - - -
Net income (loss)........................... (25) (324) (60) (166)
</TABLE>
_______________________
Total Revenues for the second quarter ended June 30, 1998 and the six
months ended June 30, 1998 decreased 2% and 13% respectively when compared with
the corresponding periods in 1997. This decrease is attributed to TSRG s
continuing decision not to purchase gas from its suppliers at a price higher
than management believed it could profitably resell the gas and was partially
offset by higher prices and higher volumes of oil and gas produced from Company
owned wells. Total costs and expenses as a percentage of total revenues
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<PAGE>
decreased from 337% in the second quarter of 1997 to 187% for the second quarter
of 1998, and from 216% for the first six months of 1997 to 181% for the same
period in 1998. Total costs and expenses for the second quarter of 1998
decreased 46% compared to the 1997 period and decreased 27% for the first six
months of 1998, compared to the same period in 1997. This decrease is primarily
attributed to the 34% decrease in selling, general and administrative costs
which was partially offset by the 22% increase in the cost of oil and gas due to
TSRG s decision not to purchase higher priced gas from its suppliers. Salaries
and wages decreased 73% to $26,802 for the second quarter of 1998 and decreased
55% for the first half of 1998, compared to the same periods in 1997.
Depreciation and depletion decreased 72% in the second quarter and decreased 54%
for the first half of 1998 compared to the corresponding periods in 1997.
Selling, general and administrative expenses decreased 48% to $271,480 in the
second quarter and decreased 34% for the first six months of 1998 compared to
the same periods in 1997. Interest expense decreased 49% to $74,449 for the
second quarter and has decreased 23% for the first six months of 1998 due to
decreased borrowings.
TSRG s net loss was $67,837 for the second quarter with a net loss of
$282,210 for the first half of 1998 compared to losses of $882,959 and $903,949
for the respective periods in 1997. TSRG s smaller net loss in the second
quarter of 1998, as compared to the same period in 1997, is attributed to the
$248,453 (48%) decrease in Selling, General and Administrative costs, the
$72,833 decrease in salaries and wages in 1998, and a $100,000 uncollectible
loan provision taken in 1997. TSRG also reported a gain of $239,129 during 1998
on the sale of certain assets.
For the remainder of fiscal year 1998, management expects salaries and
wages to remain level and other general and administrative expenses to remain at
approximately the same rate as for the second quarter of 1998. The cost of oil
and gas produced is expected to fluctuate with the amount produced and with
prices of oil and gas, and management anticipates that revenues are likely to
increase during the remainder of 1998.
Net Operating Losses
TSRG has accumulated approximately $9,022,371 of net operating loss
carryforwards as of June 30, 1998, which may be offset against future taxable
income through the year 2012 when the carryforwards expire. The use of these
losses to reduce future income taxes will depend on the generation of sufficient
taxable income prior to the expiration of the net operating loss carryforwards.
In the event of certain changes in control of TSRG, there will be an annual
limitation on the amount of net operating loss carryforwards which can be used.
No tax benefit has been reported in the financial statements for the period
ended June 30, 1998 because the potential tax benefits of the loss carryforward
is offset by valuation allowance of the same amount.
Liquidity and Capital Resources
Historically, TSRG's working capital needs have been satisfied through
its operating revenues, from borrowed funds and from the sale of its securities.
Working capital at June 30, 1998 was a negative $6,430,985 compared to a
negative $1,922,429 at December 31, 1997. This change is primarily attributed to
the $4,625,400 increase in face value convertible debentures due in 1999. TSRG
anticipates meeting its working capital needs during the remainder of the
current fiscal year with revenues from operations. However, it must be noted
that TSRG has experienced a net loss for several quarters and therefore may be
dependent upon borrowed funds or sales of securities to satisfy its working
capital requirements.
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<PAGE>
As of June 30, 1998, TSRG had total assets of $12,428,664 and total
shareholders' equity of $3,847,731, compared to total assets of $5,680,601 and
total stockholders' equity of $2,012,481 at December 31, 1997. This represents a
$6,748,063 (119%) increase in total assets due to the purchase of wells, prepaid
promotion expenses of $1,061,628 and loan acquisition costs of $2,706,898, and a
$1,835,250 (91%) increase in total stockholders equity for the period due to
the issuance of stock. For this same period, cash decreased from $185,881 to $0
and total current assets decreased 82% due to decreased accounts receivable and
cash. Total current liabilities increased 184% primarily attributed to an
increase in TSRG's accounts payable, accrued expenses and debentures payable.
At June 30, 1998, TSRG's current portion of its long term debt was
$25,313. TSRG currently anticipates that it will be able to provide for its debt
obligations and repayments coming due during the remainder of 1998 from
operating revenues generated by TSRG. However, it must be noted that TSRG has
experienced a net loss for several quarters and, due to the current environment
of the oil and gas industry, TSRG may have to explore alternative sources of
capital to satisfy its current and ongoing obligations.
Year 2000
- ---------
Year 2000 issues may arise if computer programs have been written using
two digits (rather than four) to define the applicable year. In such case,
programs that have time-sensitive logic may recognize a date using "00" as the
year 1900 rather than the year 2000, which could result in miscalculations or
system failures.
TSRG has completed its assessment of the Year 2000 issue and believes
that any costs of addressing the issue will not have a material adverse impact
on TSRG's financial position. TSRG believes that its existing computer systems
and software will not need to be upgraded to mitigate the Year 2000 issues. TSRG
has not incurred any costs associated with its assessment of the Year 2000
problem. In the event that Year 2000 issues impact TSRG's accounting operations
and other operations aided by its computer system, TSRG believes, as part of a
contingency plan, that it has adequate personnel to perform those functions
manually until such time that any Year 2000 issues are resolved.
TSRG believes that third parties with whom it has material
relationships will not materially be affected by the Year 2000 issues as those
third parties are relatively small entities which do not rely heavily on
information technology ("IT") systems and non-IT systems for their operations.
However, if TSRG and third parties upon which it relies are unable to address
any Year 2000 issues in a timely manner, it could result in a material financial
risk to NGT, including loss of revenue and substantial unanticipated costs.
Accordingly, TSRG plans to devote all resources required to resolve any
significant Year 2000 issues in a timely manner.
Inflation
- ---------
In the opinion of management, inflation has not had a material effect
on the operations of TSRG.
Compensation
TSRG does not have a bonus, profit sharing, or deferred compensation
plan for the benefit of its employees, officers or directors, nor has TSRG
entered into employment contracts with any of the aforementioned persons.
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Officers and Directors
The following table sets forth the names, ages, and offices held with
TSRG by it's directors and executive officers:
Name Position Director Since Age
---- -------- -------------- ---
Loren E. Bagley President, C.E.O. August 1991 55
and Director
William F. Woodburn Vice President August 1991 56
and Director
John B. Sims Director January 1988 72
Gary F. Lawyer Director December 1997 50
All directors hold office until the next annual meeting of shareholders
and until their successors have been duly elected and qualified. There are no
agreements with respect to the election of directors. TSRG has not compensated
its directors for service on the TSRG Board or any committee thereof, but
directors are reimbursed for expenses incurred for attendance at meetings of the
TSRG Board and any committee thereof. Executive officers are appointed annually
by the TSRG Board and each executive officer serves at the discretion of the
TSRG Board. The Executive Committee of the TSRG Board, to the extent permitted
under Nevada law, exercises all of the power and authority of the TSRG Board in
the management of the business and affairs of TSRG between meetings of the TSRG
Board.
The business experience of each of the persons listed above during the
past five years is as follows:
Loren E. Bagley has been Executive Vice President of TSRG since August,
1991, and became President and C.E.O. in September, 1993. From 1979 to the
present, Mr. Bagley has been self-employed in the oil and gas industry as
president, C.E.O. or vice president of various corporations which he has either
started or purchased, including Ritchie County Gathering Systems, Inc. Mr.
Bagley's experience in the oil and gas industry includes acting as a lease
agent, funding and drilling of oil and gas wells, supervising production of over
175 existing wells, contract negotiations for purchasing and marketing of
natural gas contracts, and owning a well logging company specializing in
analysis of wells. Prior to becoming involved in the oil and gas industry, Mr.
Bagley was employed by the United States government with the Agriculture
Department. Mr. Bagley attended Ohio University and Salem College and earned a
B.S. Degree.
William F. Woodburn has served as Vice President in charge of
Operations and a director of TSRG since August, 1991 and has been actively
engaged in the oil and gas business in various capacities for the past fifteen
years. For several years prior to 1991, Mr. Woodburn supervised the production
of oil and natural gas and managed the pipeline operations of Tyler Construction
Company, Inc. and Tyler Pipeline, Inc. Mr. Woodburn is a shareholder and serves
as President of Tyler Construction Company, Inc., and is also a shareholder of
Tyler Pipeline, Inc. which owns and operates oil and gas wells in addition to
natural gas pipelines, and Ohio Valley Welding, Inc. which owns a fleet of heavy
equipment that services the oil and gas industry. Prior to his involvement in
the oil and gas industry, Mr. Woodburn was employed by the United States Army
Corps of Engineers for twenty four years and was Resident Engineer on several
construction projects. Mr. Woodburn graduated from West Virginia University with
a B.S. in civil engineering.
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<PAGE>
John B. Sims served as President, C.E.O. and a director of TSRG from
1988 to September, 1993 and currently is a director. Prior to joining TSRG and
from 1984 to 1988, Mr. Sims was the General Partner of Ben's Run Oil Company
which was acquired by TSRG in January, 1988. Mr. Sims has also been the general
partner for fourteen limited partnerships from 1977 to 1984 drilling a total of
twenty eight wells. Prior to his involvement in the oil and gas business, Mr.
Sims was a real estate developer for twenty years as well as an exclusive real
estate broker for Ednam Forrest in Charlottesville, Virginia. During 1994, Mr.
Sims voluntarily initiated a personal bankruptcy proceeding pursuant to Chapter
7 of the United States Bankruptcy Code. Pursuant to the terms of such
proceeding, Mr. Sims was discharged of certain of his debts which were incurred
as a consequence of his personal guarantees of certain business related debts,
not related to TSRG, upon which the primary obligor defaulted.
Gary F. Lawyer became a director of TSRG in December 1997. Gary F.
Lawyer has been President and a major shareholder of GeoSense, Inc. which is an
international oil and gas exploration/exploitation and production consulting
company based in Englewood, Colorado since 1991. Prior to founding GeoSense,
Inc., Mr. Lawyer has been employed in several executive and managerial positions
with various energy companies for the past 25 years. Mr. Lawyer received his
Master of Science degree in Geology from Brigham Young University.
Cash Compensation
The following table sets forth all cash compensation paid by TSRG for
services rendered to TSRG for the years ended December 31, 1995, 1996 and 1997,
to TSRG's Chief Executive Officer. No executive officer of TSRG has earned a
salary greater than $100,000 annually for any of the periods depicted.
Summary Compensation Table
Other All
Annual Other
Name and Compen- Compen-
Principal Position Year Salary Bonus sation sation
- ------------------ ---------- --------- ----- ------ ------
Loren E. Bagley, 1997 $ 18,000 $ -0- $ -0- $ -0-
President, C.E.O. 1996 -0- -0- -0- -0-
1995 -0- -0- -0- -0-
Principal Shareholders
The following table sets forth information, to the best knowledge of
TSRG as September 16, 1998, with respect to each person known by TSRG to own
beneficially more than 5% of outstanding TSRG, each director and all directors
and officers as a group.
Name and Address Amount and Nature of Percent
of Beneficial Owner Beneficial Ownership of Class(1)
- ------------------- -------------------- -----------
Loren E. Bagley * 104,894(2)(6) 4.9%
210 Second Street
St. Marys, WV 26170
William F. Woodburn * 112,027(3)(6) 5.2%
210 Second Street
St. Marys, WV 26170
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<PAGE>
John B. Sims * 13,807(4) 0.6%
210 Second Street
St. Marys, WV 26170
Karla Spencer 148,944 7.0%
P.O. Box 24
Alma, WV 26320
Black & Company 104,334(5) 4.9%
75 Federal Street
Boston, MA 02110
Boulder Investment Capital, S.A. 236,312 11.1%
c/o LaFirma de Marc M. Harris, S.A.
25 De Mayo 530 Piso 7
1002 Buenos Aires Arg.
Corporate Relations Group 350,000 16,4%
1947 Lee Road
Winterpark, FL 32789
All directors and executive 230,728 10.8%
officers as a group
(4 persons in group)
- ----------------------------------
* Director and/or executive officer
Note: Unless otherwise indicated in the footnotes below, TSRG has been
advised that each person above has sole voting power over the shares
indicated above.
(1) Based upon 2,138,450 shares of common stock outstanding on August 1,
1997 as adjusted to reflect the one (1) share for four(4) shares
reverse stock split effected June 5, 1998.
(2) Includes 31,250 shares of common stock held in the name of Carolyn S.
Bagley, wife of Loren E. Bagley, over which Ms. Bagley retains voting
power.
(3) Includes 50,000 shares of common stock in the name of Janet L.
Woodburn, wife of William F. Woodburn, over which shares Ms. Woodburn
retains voting power. Does not include 25,000 shares of common stock
owned by Mark D. Woodburn, son of William F. Woodburn, over which
shares William F. Woodburn disclaims any voting control.
(4) Includes 13,807 shares of common stock held jointly with Virginia Sims,
wife of John B. Sims.
(5) Black & Company is a holding company for the benefit of those
shareholders of Black Petroleum Corporation.
(6) Does not include options to purchase 12,500 shares of common stock each
in the name of Loren E. Bagley and William F. Woodburn.
Related Party Transactions
During the last two fiscal years, there have been no transactions
between TSRG and any officer, director, nominee for election as director, or any
shareholder owning greater than five percent (5%) of TSRG's outstanding shares,
nor any member of the above referenced individuals' immediate family, except as
set forth below.
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<PAGE>
(a) As of December 31, 1997, TSRG had no related party loans
outstanding. Total loan payables as of December 31, 1996 were $605,190. Any loan
made to a related party is made at the discretion of and upon approval by the
Executive Committee of the Board of Directors. Of such amount, commencing
February 1995 through June 1996, members of TSRG's management extended an
aggregate of $448,583 in loans to TSRG for the purpose of providing TSRG with
working capital.
(b) Loren E. Bagley is President of Sancho, a principal purchaser of
TSRG's natural gas. Mr. Bagley's wife, Carolyn S. Bagley is a director and owner
of 66% of the outstanding capital stock of Sancho. Under its contract with
Sancho, TSRG has the right to sell natural gas subject to the terms and
conditions of a 20-year contract, as amended, that Sancho entered into with Hope
in 1988. This agreement is a flexible volume supply agreement whereby TSRG
receives the full price which Sancho receives less a $.05 per Mcf marketing fee
paid to Sancho. The price of the natural gas is based upon the greater of the
residential gas commodity index or the published Inside F.E.R.C. Index, at
TSRG's option, for the first 1,500 Mcf purchased per day by Hope and thereafter
the price is the Inside F.E.R.C. Index. The residential gas commodity index does
not directly fluctuate with the overall price of natural gas. The Inside
F.E.R.C. Index fluctuates monthly with the change in the price of natural gas.
While such option provides certain price protection for TSRG there can be no
assurance that prices paid by TSRG to suppliers will be lower than the price
which TSRG would receive under the Hope arrangement. During 1997, TSRG paid
Sancho an aggregate of approximately $5,600 pursuant to such 20-year contract.
(c) On May 7, 1996, TSRG borrowed $100,000 from William Stevenson. Such
amount is repayable in one installment of principal and interest of $110,000 on
November 7, 1996. Messrs. Bagley, William F. Woodburn and John B. Sims are
jointly and severally liable with TSRG for the repayment of such obligation.
Such obligation is secured by the pledge of 50,000 shares of Common Stock owned
by Mr. Woodburn's wife, Janet L. Woodburn.
(d) A company owned by an officer of TSRG's former subsidiary, Vulcan
Energy Corporation ("Vulcan"), owns the remaining 20% of Vulcan's common stock.
The management company is entitled to a management fee of $252,000 per year and
20% of net profits before taxes less 20% of the principal paid to the seller of
Vulcan. This 20% net profits interest has had no effect on the TSRG's
consolidated financial statements because the subsidiary generated net losses
through December 31, 1996. Because the operations of Vulcan have been
discontinued (see Note 9 to Financial Statements), management believes that the
TSRG has no obligation related to this management agreement in future periods.
TSRG occupies approximately 4,000 square feet of office space in St.
Marys, West Virginia, which it shares with its subsidiaries Tyler Construction
Company, Inc. and Ritchie County Gathering Systems, Inc. Prior to 1997, the
office space was paid for by Sancho and TSRG used the office space rent free.
TSRG believes that the foregoing transactions with Sancho were made on terms no
less favorable to TSRG than those available from unaffiliated third parties.
It is TSRG's policy that any future material transactions between it
and members of its management or their affiliates shall be on terms no less
favorable than those available from unaffiliated third parties.
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<PAGE>
BUSINESS OF NGT
NGT is an energy company engaged in the exploration, development,
acquisition and production of crude oil and natural gas. All of NGT's properties
and its subsidiary's properties and operations are currently located in the
States of Texas and Wyoming. As of March 31, 1998, NGT had estimated net proved
reserves of approximately 658 MBbls of oil and 15 MMcf of natural gas, or an
aggregate of 661 MBOE with a PV-10 value based on the prices being received on
March 31, 1998 of $4.9 million. Because of the recent wide fluctuations of oil
prices, management has also requested of Pearl Petroleum Engineering ("PPE") to
evaluate these same reserves based on the $19 per bbl received just 5 months
earlier. Based on that engineering NGT had estimated net proved reserves of 682
MBbls of oil and 18 MMcf of natural gas, or an aggregate of 685 MBOE with a
PV-10 value of $7.9 million.
From April 30, 1997 through March 31, 1998, NGT wrote down its
estimated net proved reserves by 529 MBOE at an average cost of approximately
$7.46 per BOE based on the March 31, 1998 prices. Average daily production
increased from 15 BOE per day in the last fiscal year ended April 30, 1997 to
over 75 BOE per day as of March 31, 1998. This major increase was due to the
development drilling and acquisitions of several properties in the last quarter
of fiscal 1997 and subsequent thereto. NGT currently has 4 new wells completed
and shut in awaiting electricity and gas lines prior to commencing production.
NGT's Business Strategy
NGT's objective is to build shareholder value through consistent growth
in per share reserves, production and the resulting cash flow and earnings. To
accomplish this, NGT had been targeting properties, which are expected to
produce secondary recoveries of oil and gas through the use of new technologies,
waterfloods or additional drilling. These types of properties can usually be
acquired on more favorable terms than properties in primary production, although
lease operating costs for these properties are higher upon acquisition than
properties in primary production. Recent developments in the price of oil have
presented NGT with new opportunities in the field of prime properties for
exploration. NGT will be concentrating more on developing its considerable
undeveloped and unproven gas leases it currently holds in Crockett County, Texas
and less on the older properties at these price levels. From April 30, 1995 to
April 30, 1997, NGT's production declined from an average of 33.7 BOE per day to
15 BOE per day. This was mainly due to a lack of available capital for well
reworks. Since January 31, 1997, NGT has been acquiring additional properties
and reworking its existing properties using cash invested by the two directors
of NGT.
NGT has contracted with Wagman Petroleum, Inc. ("WPI") to operate its
properties. WPI is approximately 45 percent owned by Brent A. Wagman, a former
officer and director of NGT. Mr. Wagman is also a director and president of WPI.
See "Certain Relationships and Related Transactions."
Market and Dividend Information for NGT
There is currently no public trading market for NGT Common Stock or NGT
Preferred Stock. As of September 8, 1998, there were 181 holders of record of
NGT Common Stock and 2 holders of NGT's Series 1994-B Preferred Shares.
-72-
<PAGE>
NGT's Office Facilities
NGT leases approximately 2,000 square feet of office space in Dallas,
Texas, for its executive offices. NGT also has a month-to-month agreement for
yard space in Abilene, Texas, where it stores excess pipe, valves and fittings.
NGT believes that its current facilities are adequate for its anticipated needs
during the next twelve months.
NGT's Oil and Gas Properties
NGT's exploration, development and acquisition activities are focused
in two areas of Texas and in Northeast Wyoming. Set forth below is information
concerning each of NGT's and its wholly-owned subsidiary's major areas of
operations based upon the estimated net proved reserves as of March 31, 1998.
<TABLE>
<CAPTION>
Oil Gas MBOE PV-10 Value
--- --- ---- -----------
(MBbls) (MMcf) Amount Percent (In Thousands) Percent
------- ------ ------ ------- -------------- -------
<S> <C> <C> <C> <C> <C> <C>
North Texas 401 0 401 61 2,968 61
Region
Central West 257 15 260 39 1,918 39
Texas Region
Northeast 0 0 0 0 0 0
Wyoming
</TABLE>
North Texas Region. NGT acquired Interior Energy, Inc., a Texas
corporation ("Interior") in April 1997. Interior owns two fields with an
aggregate of 75 wells located in the north Texas county of Wilbarger. Both
properties had been shut-in for the past few years by the previous operators.
Interior owns 100 percent of the working interest in both fields. The larger
property is known as the East Milham Sand Unit covering approximately 1,026
acres. This property contains approximately 45 wells including the disposal and
injection wells. It was originally drilled in the late 1920's by several major
oil companies. The producing formation is a sand that varies in thickness from 5
feet to over 35 feet. The property was unitized and waterflooded in the early
1960's. Records indicate that the water "broke through" or channeled through the
oil prematurely leaving behind a large amount of oil. Core analysis of the sand
indicates that there were three feet of sand which had permeability in excess of
900 millidarcies which created an excellent path for the water to channel
through. An independent engineering report prepared by Pearl Petroleum
Engineering Consulting Service of Abilene, Texas ("PPE") estimates that in
excess of 1 MMBbls of oil should still be recoverable using polymers to block
water channels and change the flood pattern. Due to the recent drop in oil
prices, this property accounts for the largest portion of reserves which NGT is
writing down. Preliminary results from polymer injection have been inconclusive
and NGT i reevaluating the prospect in terms of the use of other technology. NGT
is currently in the process of permitting new injection wells and setting up a
pilot flood in the south section of the field. This project accounted for a
substantial percentage of the operating expenses incurred by NGT in its last
fiscal year and during the first two quarters of this fiscal year. The reworks
on this project are now substantially complete.
The other property in North Texas is known as the Waggoner M lease.
This property has multiple pays and produced over 300,000 barrels of oil while
in primary production. A study by Ryder Scott in 1958 regarding the feasibility
of waterflooding the property showed the property to be a very good candidate
for secondary recovery. The operators at the time chose not to implement the
plan and records indicate that they completed wells into other pays instead. NGT
-73-
<PAGE>
is currently investigating water flood patterns in anticipation of commencing
polymer injection. Currently seven wells are producing five to seven BPD out of
the 30 wells on the property. No reserves have been assigned to this property at
this time. If the polymer injection is successful, NGT hopes to recover as much
as 150,000 barrels of oil from the property, but there can be no assurance of
any significant recovery.
Central West Texas Region. As of March 31, 1998, NGT had acquired
several leases located in Runnels County, Texas, just north of Norton, Texas.
The purchase of this property included six adjacent leases totaling 1,208 acres.
The principal interest here is the Lower Palo Pinto Limestone and the Gardner
Sandstone. The Palo Pinto formation produced extensively during the 1960's and
under primary recovery produced over 3,000,000 barrels of oil. The formation
produces large volumes of water along with the oil. The Wilde #1 well was
completed in this formation in December 1996 and had an initial daily production
rate of 80 barrels of oil and 60 barrels of water. Research and engineering by
independent sources indicated that the field was plugged while many of the wells
were still producing at rates of over 10 barrels of oil per day. Information has
also been found which suggests that the field may be a good candidate for
pressure maintenance or waterflood. PPE also located ten undeveloped locations
similar to the Wilde #1 location. NGT has drilled an injection well and four
exploratory wells and a test well for the Palo Pinto in this field since
acquiring it. All the wells found the Lower Palo Pinto Limestone to be
productive. At this time, two wells have been completed into a deeper payzone
called the Gardner Sandstone which was discovered to hold substantial gas and
oil. The first well tested with a potential of 1,420 Mcf per day absolute open
flow and is currently shut-in awaiting a gas pipeline. The second well has been
completed in the Gardner Sandstone swab tested 30 to 50 Bbls oil, 120 Bbls water
and estimated 75 to 100 MCF of gas per day. This well is currently awaiting
electricity. There are two wells still awaiting completion (pumpjacks to be set)
prior to beginning production. NGT hopes to inject the water produced from the
lower levels into the Palo Pinto Limestone and test to see if a secondary
recovery is feasible.
In July 1997, NGT acquired a lease on the Miller Ranch located in
Crockett County, Texas. The lease gives NGT three years to drill the first well
and up to five years to fully develop a 1,280 acre lease. Additionally, the
lease gives NGT an option on approximately 18,000 acres owned by the Miller
Ranch adjacent to the leased acreage. The option exercise price is $100 per
acre. The property is located in the Ozona Canyon Sand gas field. U.S.
Department of Energy reports production from wells in this field average .7 Bcf
of gas from the Canyon Sand formation, although there can be no assurance that
this property will produce at that rate. Management believes approximately 6,000
acres of the property may be productive from the Canyon Sand. Additionally,
Amoco Oil Company currently operates several wells producing from the
Ellenburger formation at approximately 13,000 feet deep. These wells have
cumulative production from .1 Bcf to over 19 Bcf of gas per well. NGT's lease
covers all depths. Although there are direct offset drilling locations on the
lands covered by the option, NGT has assigned no reserves to this property
because the exercise of the option would require additional capital and no
source for such capital has been identified.
During August 1997, NGT loaned $160,000 to Kodiak Corporation for
planned drilling activities. At the end of September 1997, NGT converted its
loan to a forty percent equity ownership interest in Kodiak. In November 1997,
NGT exchanged its equity interest in Kodiak for an equity interest in Mirae LLC,
which was formed to hold a royalty interest in some of Kodiak's production and
some of Kodiak's oil and gas leases, as well as other leases. Mirae currently
holds the royalty interest and a number of leases in Wilbarger County, and has
commenced drilling on one of the leases using funds loaned by NGT. NGT has not
assigned any reserves to the Mirae LLC interests.
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<PAGE>
NGT also owns working interests in approximately 30 wells located on
various leases in Coke, Runnels and Coleman counties in Texas. The depths of
these wells range from 2,100 feet to 5,600 feet. These wells are classified as
strippers and represent a small part of the NGT's total reserves.
Northeast Wyoming Region. In December 1997, NGT entered into a joint
venture agreement with TSRG for the formation of a limited liability company
called Sundance Producers LLC to own oil and gas properties for joint
development. TSRG contributed to Sundance Producers all of its leasehold
interests in approximately 900 acres in the Powder River Basin in Crook County,
Wyoming. The target formation is the Minnelusa "B1" sand. TSRG performed 3-D
seismic surveys on the property which have revealed two separate structures in
the target formation at a depth of 5,850 feet. Sundance Producers completed a
well into one of the structures which turned out to be a dry hole. NGT is
obligated to provide funds to Sundance Producers to drill a well into the second
structure. NGT has not assigned reserves to this property pending results from
the second hole.
Estimated Net Proved Reserves
NGT has employed PPE to evaluate 100 percent of its PV-10 values
acquired since March31, 1998. PPE also evaluated PV-10 values as of July 1994
which have been used as the basis of the PV-10 values for the periods prior to
March 31, 1998. The following table reflects summary information with respect to
the estimates of NGT's net proved oil and gas reserves for each of the fiscal
years ended April 30, 1996 and 1997 and March 31, 1998.
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------------------------------
April 30, 1996 April 30,1997 March 31,1998
-------------- ------------- -------------
<S> <C> <C> <C>
RESERVE DATA:(1)
Oil (MBbls).................................... 298[*] 1,161[*] 658[*]
Gas (MMcf)..................................... 211[*] 156[*] 15[*]
MBOE........................................... 333[*] 1,187[*] 661[*]
PV-10 Value (thousands)........................ $2,708[*] $8,812[*] $4,886[*]
</TABLE>
(1) No values were used or included for the Miller Ranch prospect or the
Waggoner M leases. Values for the year ended April 30, 1997 used $19
per barrel of oil and $1.80 per Mcf of gas, and the year ended April
30, 1996 used $17.00 per barrel of oil and $1.80 per Mcf of gas. The
valued for March 31, 1998 used $13.83 to $14.31 per barrel for oil and
$1.50 to $2.61 per MCF of gas.
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<PAGE>
Production, Price and Cost History
The following table summarizes the average net daily volumes of oil and
gas produced from properties in which NGT held an interest during the periods
indicated.
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------------------------------
April 30, 1995 April 30, 1996 March 31,
-------------- -------------- ---------
1997
----
<S> <C> <C> <C>
OPERATING DATA:
Net production:
Oil........................................ 6,004 3,833 14,048
Gas (Mcf).................................. 17,210 10,316 17,183
MBOE....................................... 8,872 5,552 16.9
Average net daily production:
Oil........................................ 16 11 38
Gas (Mcf).................................. 47 28 47
MBOE....................................... 24 16 .047
Average sales price:
Oil (per Bbl).............................. 17.53 20.71 17.28
Gas (per Mcf).............................. 1.55 2.12 2.10
Additional per BOE data:
Average lifting cost....................... 12.89 17.73 25.89(1)
</TABLE>
(1) A total of 61 percent of the operating costs were associated with the
costs associated with setting up the pilot flood on the Milham Sand
Unit and reworking costs on the Waggoner M leases. During this time NGT
realized very little in the way of production and or revenues from
these leases. Work on those properties has substantially been completed
and NGT does not foresee having the large expenditures in the future.
See "NGT Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Productive Wells
The following table sets forth information regarding the number of
productive wells in which NGT held a working interest as of the end of each of
the fiscal years April 30, 1996 and 1997 and March 31, 1998. Productive wells
are either currently producing wells or shut-in wells capable of commercial
production. One or more completions in the same bore hole are counted as one
well. A well is categorized under state reporting regulations as an oil well or
a gas well based upon the ratio of gas to oil produced when it first commenced
production, and such designation may not be indicative of current production.
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<PAGE>
Year Ended April 30, Year Ended March 31,
-------------------- --------------------
1996 1997 1998
---- ---- ----
Gross Net Gross Net Gross Net
------------- --------------- ----------------
Oil................ 20 10.7 90 83.1 92 86
Gas................ 3 2.1 2 1.1 1 1
-- ---- -- ---- ---- ---
Total 23 12.8 92 84.2 93 87
Drilling Activities
The table below sets forth the number of new wells drilled in which NGT
held a working interest for the last three fiscal years.
<TABLE>
<CAPTION>
Year Ended April 30, Year Ended March 31,
-------------------- --------------------
1996 1997 1998
-----------------------------------------------------------------------
Gross Net Gross Net Gross Net
------------------ ------------------ -------------------
<S> <C> <C> <C> <C> <C> <C>
Development
Oil................ 0 0 0 0 2 2
Gas................ 0 0 0 0 1 1
Dry................ 0 0 0 0 2 2
--- --- --- --- --- --
Total 0 0 0 0 5 5
Exploratory
Oil................ 0 0 0 0 0 0
Gas................ 0 0 0 0 0 0
Dry................ 0 0 0 0 2 .8
--- --- --- --- --- --
Total 0 0 0 0 2 .8
Grand Total 0 0 0 0 7 5.8
</TABLE>
All of NGT's drilling activities and completion activities are
conducted on a contract basis with outside operators and drilling contractors.
NGT owns no drilling equipment or workove r rigs.
Leasehold and Other Interests
The following table sets forth the gross and net acres of developed and
undeveloped oil and gas leases and lease options held by NGT as of the end of
each of the last three fiscal years. Undeveloped acreage includes leasehold
interest which may already have been classified as containing proved undeveloped
reserves.
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<PAGE>
Developed Undeveloped
Acreage (1) Acreage (2) Total
--------------- ----------------- -------------------
Gross Net Gross Net Gross Net
----- --- ----- --- ----- ---
4/30/96 1,415 551 0 0 1,415 551
4/30/97 2,252 1,648 1,088 1,087 3,340 2,735
3/31/98 2,287 1,815 12,200 10,486 14,487 12,301
(1) Developed acreage is acreage assigned to producing wells for the
spacing unit of the producing formation. Developed acreage in certain
of NGT's properties that include multiple formations with different
well spacing requirements may be considered undeveloped for certain
formations, but have been included only as developed acreage in the
presentation above.
(2) Undeveloped acreage is lease acreage on which wells have not been
drilled or completed to a point that would permit the production of
commercial quantities of oil and gas regardless of whether such acreage
contains estimated net proved reserves.
NGT Management's Discussion and Analysis of Financial Condition and Results of
Operations
Overview
NGT was incorporated in April 1993 and commenced operations in June
1993. NGT acquired interests in various oil and gas properties in February 1994
and June 1994 and has been active in the oil and gas industry since that time.
During fiscal year 1998, NGT changed its year end to March 31.
NGT uses the full cost method of accounting for its oil and gas
producing activities and, accordingly, capitalized all costs incurred in the
acquisition, exploration and development of proved oil and gas properties,
including the costs of abandoned properties, dry holes, geophysical costs and
annual lease rentals. In general, sales or other dispositions of oil and gas
properties are accounted for as adjustments to capitalized costs, with no gain
or loss recorded.
Results of Operation
The following table sets forth for the periods indicated the percentage
of total revenues represented by certain line items included in NGT's Statements
of Operations.
Year ended March 31, Year Ended April 30
1998 1997
---- ----
Total revenues 100% 100%
Total expenses 1,260 347
(Loss) from operations (1,160) (247)
Net interest (expense) (111) (57)
Loss on impairment of assets (108) -
Loss on debt extinguishment (64) -
Net (loss) (1,443) (304)
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<PAGE>
Comparison of Years Ended April 30, 1997 and March 31, 1998
Oil and gas revenues. Oil and gas revenues increased by $186,846, or
185%, to $287,833 for the year ended March 31, 1998 compared with $100,987 for
the year ended April 30,1997. Production increased from 3,833 Bbls of oil and
10,316 Mcf of gas in the year ended April 30, 1997 to 14,048 Bbls and 17,183 Mcf
of gas in the year ended March 31, 1998. The increase in production resulted
from the exploration and development drilling, acquisitions and reworking of
older properties. Average prices for oil and gas decreased from $20.71 Bbl and
$2.12 per Mcf in the 1997 period to $17.28 per Bbl and $2.10 per Mcf in the 1998
period.
Lease operating expenses. Lease operating expenses for the year ended
March 31,1998 were $442,963, an increase of $339,317, compared with $103,646 for
the year ended April 30,1997. Lease operating expenses for the 1998 period were
154 % of oil and gas revenues compared with 97 % of oil and gas revenues for the
1997 period. The increase in lease operating expenses as a percentage of revenue
was due to extraordinary costs of setting up the pilot floods at the Milham Sand
Unit waterflood and the Waggoner M lease. Both fields are located in the North
Texas Vernon area. NGT has completed most all of that work at this time and does
not expect to encounter similar costs in the foreseeable future. These expenses
accounted for approximately 60% of the lease operating expenses for fiscal 1997.
Depreciation, depletion and amortization. Depreciation, depletion and
amortization ("DDA") increased by $202,090 to $245,266 for the year ended March
31, 1998 compared with $43,176 for the year ended April 30,1997. DDA was 85% of
oil and gas revenue for the 1998 period and 43 % of oil and gas revenue for the
1997 period. NGT recorded a depletion cost of $13.07 per BOE for the 1998 period
compared with $7.03 per BOE for the 1997 period. This difference, caused by the
acquisition by NGT of substantial additional reserves during the 1997 period at
a higher cost per barrel than existing reserves, accounted for the increase in
DDA as a percentage of revenue, partially offset by higher volume of sales for
production during the 1997 period.
Professional fees. Professional fees increased by $184,983, or 413%, to
$229,799 for the year ended March 31, 1998, compared with $44,816 for the year
ended April 30, 1997. The increase was primarily due to legal and accounting
services with respect to NGT's pending merger with Trans Energy, Inc., the legal
and accounting services with respect to the filings with Lyric Energy, Inc. and
litigation involving Terrence Huston and/or Mobile Americlean, Inc.
Management and consulting fees. Management and consulting fees
increased by $10,000, or 8.5%, to $125,000 for the year ended March 31, 1998
compared with $115,000 for the year ended April 30, 1997. These fees were
attributable to financial advisory services rendered.
Rent. Rent increased $20,397, or 281%, to $27,646 for the year ended
March 31, 1998 compared with $7,249 for the year ended April 30, 1997 due to
NGT's move to larger offices.
Director Fees. No Directors fees paid for the year ended March 31,
1998. Fees of $20,833 were paid for the year ended April 30, 1997.
Travel. Travel expenses for the year ended March 31, 1998 of $39,866
were attributable to management's meetings with business partners and
professionals. Travel expenses for the year ended April 30, 1997 were $7,610.
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Other expenses. Other expenses for the year ended March 31, 1998
increased $38,202, or 386%, to $48,098 compared with $9,896 for the year ended
April 30, 1997 primarily due to additional expenses incurred while traveling or
entertaining professionals with regards to advice on merger candidates.
Interest expense. Interest expense for the year ended March 31, 1998
increased $346,563, or 592%, to $405,049 compared with $58,486 for the year
ended April 30, 1997 primarily due to assumption of the $3 million note in
connection with NGT's acquisition of Interior Energy, Inc. and loans made to NGT
by Wagman Petroleum, Inc.
Net loss. Net loss for the year ended March 31, 1998 increased
$4,829,089 or 1,572%, to $5,136,194 compared with $307,105 for the year ended
April 30, 1997 primarily due to a write down of oil and gas values due to the
price drop, a re-evaluation of recoverable reserves, increased depreciation,
depletion and amortization and increased professional fees, management and
consulting fees and travel and other expenses associated with NGT's
reorganization with Trans Energy and more aggressive acquisitions of oil and gas
properties, partially offset by lower director fees, the lack of offering costs,
and increased revenues.
Comparison of Three Month Periods Ended June 30, 1998 and June 30, 1997
Results of Operations
The following table sets forth for the periods indicated the percentage
of total revenues represented by certain line items included in NGT's Statements
of Operations.
Three Months Ended Three Months Ended
June 30, 1998 June 30, 1997
------------- -------------
Total revenues 100% 100%
Total expenses 405 463
(Loss) from operations (305) (363)
Net other expense 13 176
Less unpaid dividend 9 11
Net (loss) (327) (550)
Results for the three month period ended June 30, 1998 included
operating revenues of $62,738 as compared to $59,119 for the comparable period
ended June 30, 1997. This six percent (6%) increase in revenues is primarily
attributable to an increase in oil and gas production.
Expenses for the period ended June 30, 1998 decreased from $273,527
during the corresponding 1997 period to approximately $254,157. Production
expenses and taxes decreased by $66,983, or fifty two percent (52%), primarily
due to extraordinary costs of setting up the pilot water flood project at the
Milham Sand Unit located at the Waggoner M Lease during 1997.
The net loss decreased from $318,645 during the three months ended June
30, 1997 to $199,287 during the comparable 1998 period, primarily as a result of
the aforementioned decrease in production expenses and a substantial decrease of
$96,862 in interest expenses.
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The net loss is also attributable to a continuance of relatively low
prices for crude, liquid hydrocarbons and natural gas during the three month
period commencing April, May and June of 1998. The spring months are normally
periods of low demand and seasonal prices for such products prevail.
Liquidity and Capital Resources
On June 30, 1998, NGT had $4,808 in cash on hand and net working
capital deficit of $803,428. This compares with $14,261 in cash on hand and a
net working capital deficit of $320,145 as of March 31, 1998. NGT's primary
sources of liquidity are proceeds from stock issuances, advances from related
parties and borrowings. NGT's principal cash needs are for the acquisition,
exploration and development of oil and gas properties. NGT anticipates
continuing to raise capital during the next twelve (12) months through the sale
of securities and/or through bank loans in order to fund its planned activities
and to repay WPI for work performed. The amount of future capital expenditures
will depend upon a number of factors including the impact of oil and gas prices
on investment opportunities, the availability of capital and investor perception
of the Merger.
NGT's net cash provided by operating activities decreased $6,897 to
$104,923 for the three months ended June 30, 1998 compared with $111,820 for the
three months ended June 30, 1998, primarily due to much larger accounts payable
financing during the 1998 period, partially offset by the larger net loss for
the 1997 period. Net cash used in investing activities decreased $1,158,701 to
$104,568 for the three months ended June 30, 1998 compared to $1,263,269 for the
three months ended June 30, 1997 due to the purchases of lease and well
equipment during the 1997 period.
Net cash used by financing activities was $9,808 for the three months
ended June 30, 1998, attributed to repayments to related parties, partially
offset by loans and advances from related parties, compared with net cash
provided of $1,632,125 for the three month period ended June 30, 1997
attributable to proceeds from the issuance of stock.
NGT's accounts payable balance significantly increased during the year
ended March 31, 1998 and the three months ended June 30, 1998. The increase,
also attributable to issuances of stock and to advances, was primarily due to
drilling activities. However, most of the increase was paid off by issuing NGT
Common Stock prior to the end of the March 31, 1998 fiscal year. As of June 30,
1998, the total accounts payable includes $522,496 payable to Wagman Petroleum,
Inc. ("WPI") for drilling and lease operating expenses incurred since February
1997, and an additional $206,958 payable to a related party. At this time, WPI,
a related party due to common management, is content to wait for NGT to be able
repay these costs. NGT anticipates raising additional capital in the next twelve
months through a public or private sale of securities and/or through bank loans
in order to fund its planned activities and to repay WPI for the work already
done. Timing for that offering is dependent on several factors. There is no
assurance that NGT will be successful in raising the capital necessary to repay
past costs as well as to fund activities planned for the future. Should NGT fail
to raise the necessary capital to fund its planned activities, cash flows are
not expected to be sufficient to fund them and portions of the assets would, in
all likelihood, not be realizable. No accounting adjustments have been made to
reflect this outcome, which is not anticipated.
Capital expenditures. NGT's expenditures for the purchase of fixed
assets and oil and gas properties are the primary use of its capital resources.
NGT has committed to contribute up to $700,000 for the drilling of two wells in
the Powder River Basin by Sundance Producers LLC, a limited liability company
owned fifty percent by NGT and fifty percent by TSRG (see "NGT's Oil and Gas
Properties"). NGT's current business plan anticipates additional material
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capital expenditures during the fiscal year ended March 31, 1999, subject to the
availability of capital. NGT raised $335,000 through the sale of 47,857 shares
of common stock to its president during the year ended March 31, 1998, and
raised an additional $1,150,000 through the sale of 191,667 shares to unrelated
parties in December 1997. NGT also agreed to issue 1,600,000 shares for of
common stock for settlement of accounts payable and notes payable totaling
$3,630,190 held by related parties. This capital will be used to fund
operations, for capital expenditures and to pay off some of NGT's debt. As
discussed above, NGT anticipates raising additional capital in the next twelve
months. The amount of future capital expenditures will depend upon a number of
factors including the impact of oil and gas prices on investment opportunities,
the availability of capital and the success of its development activity which
could lead to funding requirements for further development.
Effects of Inflation and Changing Prices
NGT's results of operations and cash flows are affected by changing oil
and gas prices. At present, NGT does not expect that changes in the rates of
overall economic growth or inflation will significantly impact product prices in
the short-term. While gas prices seem most dependent on weather in North America
and corresponding usage, oil prices are more subject to global economic forces
and supply. NGT cannot predict the extent of any such effect. If oil and gas
prices increase, there could be a corresponding increase in the cost to NGT for
drilling and related services as well as an increase in revenues.
Year 2000
- ---------
Year 2000 issues may arise if computer programs have been written using
two digits (rather than four) to define the applicable year. In such case,
programs that have time-sensitive logic may recognize a date using "00" as the
year 1900 rather than the year 2000, which could result in miscalculations or
system failures.
NGT has not completed its assessment of the Year 2000 issue, but
currently believes that costs of addressing the issue will not have a material
adverse impact on NGT's financial position. NGT has not automated many of its
operations with information technology ("IT") systems and non IT systems because
of the size of NGT, and presently believes that NGT's existing computer
systems and software will not need to be upgraded to mitigate the Year 2000
issues. NGT has not incurred any costs associated with its assessment of the
Year 2000 problem. In the event that Year 2000 issues impact NGT's accounting
operations and other operations aided by its computer system, NGT believes, as
part of a contingency plan, that it has adequate personnel to perform those
functions manually until such time that any Year 2000 issues are resolved.
NGT believes that the third parties with whom NGT has material
relationships will not materially be affected by the Year 2000 issues as those
third parties are relatively small entities which do not rely heavily on IT and
non-IT systems for their operations. However, if NGT and third parties upon
which it relies are unable to address any Year 2000 issues in a timely manner,
it could result in a material financial risk to NGT, including loss of revenue
and substantial unanticipated costs. Accordingly, NGT plans to devote all
resources required to resolve any significant Year 2000 issues in a timely
manner.
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Officers and Directors
The following table sets froth the names, ages and offices held with
NGT by its directors and executive officers
Name Position Director Since Age
---- -------- -------------- ---
Michael Stewart President, Chairman of September 1998 48
the Board and Director
Warren Donohue Secretary and Director October 1993 57
All directors hold office until the next annual meeting of shareholders
and until their successors have been duly elected and qualified. There are no
arrangements with respect to election of directors of NGT. No directors or
officers of NGT received any compensation for serving in those capacities during
NGT's last three fiscal years.
The business experience of each person listed above for the past five
years is as follows:
Michael Stewart. Mr. Stewart has been the President, Chairman of the
Board and a Director since September 1998. Mr. Stewart was the Vice President of
NGT from June 1997 until September 1998. Mr. Stewart has served as Vice
President of Administration for Mrs. Baird's Bakeries, Inc. since 1995.
From 1985 until 1995, Mr. Stewart worked with the Chemical Group of Occidental
Petroleum, serving in various senior level executive positions both in
divisional and corporate staff. He received a B.A. degree in Pre-Law from the
University of Alabama in 1975 and he did graduate work in finance at the
University of Georgia in 1978.
Warren Donohue. Mr. Donohue has been a Director of NGT since October
1993 and was appointed Secretary in August 1996. Mr. Donohue held various
positions with Volvo Cars of North America, Inc., from November 1958 until
December 1996, at which time he was Sales Development Manager. Mr. Donohue also
is President of Donohue Enterprises, inc., a marketer of women's bridal apparel.
Mr. Donohue serves as a director of Lyric International, Inc., a public company
engaged Primarily in the oil and gas business. He serves as a director of Haber,
Inc., a public company which manufactures high speed separation devices. He
studied at Farleigh Dickenson and Austin Peay Universities.
NGT Related Party Transactions
Wagman Petroleum, Inc. ("WPI"), which is approximately 45 percent owned
by Brent Wagman, a former officer and director fo NGT, operates most of the
properties in which NGT has interests. As operator, WPI incurs expenses for
drilling, reworking and normal lease operating expenses and then bills these
expenses to the working interest owners. WPI collects a portion of NGT's gas
production revenues and offsets such amounts against amounts that are due from
NGT. At March 31, 1998, NGT owed WPI $259,687 in accounts payable. The bulk of
this amount is due to drilling and reworking on the properties that NGT has
acquired and reworking interests previously held.
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<PAGE>
Through March 31, 1997, NGT reimbursed WPI for rent, postage, travel
and other office expenses. Office rent reimbursement to WPI totaled $4,200 for
each of fiscal 1997 and 1996. WPI also advanced funds to NGT for other expenses
during March 1997. These advances were reflected in a demand note effective
April 30, 1997 for $79,067 which bears interest at 5% per annum. Beginning in
April 1997, WPI began reimbursing NGT for one-half of the rent and office costs
incurred by NGT in its Dallas office.
In July 1996, NGT repaid a note payable to WPI with a balance of
$396,988, accrued interest of $24,681 and other liabilities owed to WPI in the
amount of $89,997 through the issuance of 354,994 shares of NGT Common Stock. In
connection with such transaction, WPI also agreed to forgive the then-accrued
but undeclared dividends on its 194,376 shares of Series 1994-B Preferred Stock
and all future dividends on such shares until NGT had a class of securities
registered under the Exchange Act. In recognition of that forgiveness, NGT
voluntarily converted its shares of Series 1994-B Preferred Stock into 194,376
shares of NGT without receipt of accumulated dividends in May 1997.
In July 1996, NGT issued 26,661 shares of NGT to Brent Wagman as
payment for $53,332 in unreimbursed expenses and cash advances.
In February 1997, Brent Wagman loaned $50,000 and Warren Donohue loaned
$50,000 to NGT pursuant to demand notes bearing interest at 5% per annum. These
funds were used to loan $100,000 to Lyric pursuant to the Convertible Note. In
April 1997, these notes were converted as partial payment for 112,500 shares of
NGT issued to each of Mr. Wagman and Mr. Donohue for $7.00 per share.
In May 1997, NGT purchased the remaining one half working interest in
the Wilde #1 well and lease located in Runnels County, Texas, from Brent Wagman
in consideration for a $200,000 demand note bearing interest at 5% per annum
with principal and interest due two years from issuance and an option
exercisable for two years to purchase 100,000 shares of NGT at $7.00 per share.
In August and September 1997, NGT issued 55,000 shares of NGT Common
Stock to Brent Wagman for $7.00 per share. In September 1997, NGT issued 7,143
shares of NGT Common Stock to Warren Donohue for $7.00 per share.
NGT entered into a letter of intent dated January 2, 1997 and modified
March 17, 1997 with Lyric Energy, Inc. for a share exchange transaction. As part
of that transaction, NGT loaned $100,000 to Lyric, which loan was converted to
203,041,517 shares of Lyric s common stock upon Lyric becoming current with its
filing requirements pursuant to the Exchange Act and obtaining a waiver from the
Amarillo National Bank of certain non-dilution rights in favor of the bank. This
was accomplished on April 10, 1997. In January, 1998, NGT terminated its merger
plans with Lyric and sold the 203,041,517 shares of the Lyric s common stock to
Brent Wagman in exchange for the cancellation of $150,000 in debt.
In February, 1998, NGT issued 1,600,000 shares of NGT common stock to
Ameritech Petroleum, Inc., a company controlled by Brent Wagman, in satisfaction
of debts in the amount of $3,630,192 owed by NGT to WPI, Interior Energy, Inc.
and Ameritech Petroleum, Inc.
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During July, 1998, NGT entered into an agreement with Michael Stewart
pursuant to which Mr. Stewart received 50,000 shares of NGT common stock and is
entitled to receive 150,000 additional shares of NGT common stock upon the
earliest to occur of the effective date of a merger with TSRG or any other
public company or NGT becoming a reporting company with the Securities and
Exchange Commission.
NGT believes that the foregoing transactions were on terms at least as
favorable as those which it could have obtained from unaffiliated parties.
Ownership of NGT Capital Stock
The following table sets forth information, to the best knowledge of
NGT as September 8, 1998, with respect to each person known by NGT to own
beneficially more than 5% of outstanding NGT, each director and all directors
and officers as a group.
Amount and Nature of Percent
Name of Beneficial Owner Beneficial Ownership of Class(1)
- ------------------------ -------------------- -----------
Warren Donohue * 1,969,643(3) 32.1%
16775 Addison Road, Suite 300
Dallas, TX 75248
Michael Stewart 200,000 3.3%
16775 Addison Road, Suite 300
Dallas, TX 75248
All Officers and 2,169,643 25.4%
Directors as a
Group (two persons)
Brent A. Wagman 2,804,376(2) 45.7%
16775 Addison Road, Suite 300
Dallas, TX 75248
Ameritech Petroleum 1,600,000(2)(3) 26.1%
16901 Dallas Parkway, #111
Dallas, TX 75248
Longboat Trust 537,500(2) 8.8%
3788 Harvest Glen
Celina, TX 75099
- --------------------------
* Director
(1) Rule 13d-3 under the Exchange Act, involving the determination of
beneficial owners of securities, includes as beneficial owners of securities,
among others, any person who directly or indirectly, through any contract,
arrangement, understanding, relationship or otherwise has, or shares, voting
power and/or investment power with respect to such securities; and, any person
who has the right to acquire beneficial ownership of such security within sixty
days through means, including but not limited to, the exercise of any option,
warrant or conversion of a security.
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(2) The shares shown for Brent Wagman include 1,600,000 shares held by
Ameritech Petroleum, 537,500 shares held by Longboat Trust, and 193,376 shares
held by WPI because Mr. Wagman may be deemed to beneficially own those shares
pursuant to Rule 13d-3. The shares owned by Ameritech Petroleum are included in
the table as being beneficially owned by Ameritech Petroleum, Mr. Wagman and
Warren Donohue. Mr. Wagman controls Ameritech Petroleum, his minor children are
the beneficiaries of the Longboat Trust, and he is the president of WPI.
(3) The shares shown for Warren Donohue include 1,600,000 shares held
by Ameritech Petroleum because Mr. Donohue may be deemed to beneficially own
those shares pursuant to Rule 13d-3. Mr. Donohue is a director of Ameritech
Petroleum.
CERTAIN RELATED TRANSACTIONS
In December 1997, NGT entered into a joint venture agreement with TSRG
for the formation of a limited liability company called Sundance Producers LLC
to own oil and gas properties for joint development. TSRG contributed to
Sundance Producers all of its leasehold interests in approximately 900 acres in
the Powder River Basin in Crook County, Wyoming. The target formation is the
Minnelusa "B1" sand. TSRG performed 3-D seismic surveys on the property which
have revealed two separate structures in the target formation at a depth of
5,850 feet. Sundance Producers completed a well into one of the structures which
turned out to be a dry hole. NGT is obligated to provide funds to Sundance
Producers to drill a well into the second structure. This obligation will expire
upon completion of the Merger. NGT has not assigned reserves to this property
pending results from the second hole.
On February 25, 1998 NGT made a $50,000 loan to TSRG. That loan was
evidence by a promissory note bearing an interest rate of 8% per year and
secured by all of TSRG s right title and interest in the assets of TSRG. The
maturity date of that note was the earliest to occur of November 1, 1998 or the
Effective Date of the Merger. The entire principal amount of the note was repaid
on May 18, 1998.
On March 10, 1998, NGT made a $51,467 loan to TSRG. That loan was
evidenced by an unsecured promissory note bearing an interest rate of 8% per
year. The maturity date of the note is December 31, 1999. TSRG repaid $49,000 of
the principal amount of the loan on May 12, 1998.
On March 10, 1998, Brent Wagman made a $282,500 loan to TSRG. That loan
was evidenced by an unsecured promissory note bearing an interest rate of 10%
per year. TSRG also agreed to pay the holder of the note $28,250 and 50,000
shares of common stock of TSRG. The maturity date of that note is the date on
which TSRG receives any financial funding. TSRG closed a debenture offering on
September 10, 1998 and the note became due on that date. On June 3, 1998 Mr.
Wagman sold the note and all of his rights thereunder to an unrelated third
party.
On April 23, 1998, Mr. Wagman made a $103,205 loan to TSRG. That loan
was evidenced by an unsecured promissory note bearing an interest rate of 8% per
year. The note provides that the holder shall have the option of accepting any
form of payment agreed upon between TSRG and the holder. If TSRG and the holder
agree that any amounts owed pursuant to the note will be paid with shares of
TSRG s common stock, then such shares will be issued at a 50% discount to the
market price of TSRG s common stock and have piggy-back registration rights. The
maturity date of that note was May 22, 1998 and the note has not been repaid.
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The note contains a penalty clause pursuant to which TSRG is required to pay the
holder a penalty in the amount of $100,000 payable in the form of restricted
common stock of TSRG because the note was not repaid on its maturity date. TSRG
therefore is required to issue to the holder of the note 72,727 shares of TSRG
common stock based on a closing price of $2.75 per share, post-split, of the
TSRG common stock on May 21 and 26, 1998 (the dates on which TSRG s common stock
traded immediately prior to and after May 22, 1998). The note and all rights
thereunder were assigned on July 20, 1998 to a company of which Mr. Wagman is a
majority shareholder.
On June 3, 1998 NGT made a $153,467 loan to TSRG. That loan was
evidenced by an unsecured promissory note bearing an interest rate of 8% per
year. The note is due and payable at the option of the holder upon (i) TSRG s
failure to make any payment due under the note within 5 days of its due date,
(ii) the dissolution or liquidation of TSRG, (iii) the filing by TSRG of an
assignment for the benefit of creditors or bankruptcy, or (iv) TSRG s suffering
an involuntary petition in bankruptcy or receivership not vacated within thirty
days.
On September 8, 1998 Mr. Wagman made a $60,000 loan to TSRG. That loan
was evidence by an unsecured promissory note bearing an interest rate of 8% per
year. The maturity date of that note is September 8, 1999.
SHAREHOLDER PROPOSALS
It is anticipated that TSRG's fiscal 1998 Annual Meeting of
Shareholders will be held on or about __________, 1998. Shareholders who intend
to present proposal at such Annual Meeting must submit their proposals to the
Secretary of TSRG on or before ________, 1998, for inclusion, if appropriate, in
TSRG's proxy statement and form of proxy relating to the 1998 Annual Meeting.
EXPERTS
The financial statements and schedule of TSRG for the years ended
December 31, 1997 and 1996 included in this Joint Proxy Statement/Prospectus and
in the Registration Statement, have been audited by Jones, Jensen and Company,
independent certified public accountants, to the extent and for the periods set
forth in their report appearing elsewhere herein and in the Registration
Statement, and are incorporated herein by reference, in reliance upon the
authority of such firm as experts in accounting and auditing in giving said
reports.
The financial statements and schedule of NGT for the eleven months
ended March 31, 1998 and the year ended April 30, 1997 included in this Joint
Proxy Statement/Prospectus and in the Registration Statement, have been audited
by Jones Jensen & Company, independent certified public accountants, to the
extent and for the periods set forth in their report appearing elsewhere herein
and in the Registration Statement, in reliance upon the authority of such firm
as experts in accounting and auditing in giving said reports.
LEGAL MATTERS
Certain legal matters relating to the validity of the shares of TSRG
Common Stock to be issued in the Merger will be passed upon by Leonard E.
Neilson, Attorney at Law. Mr. Neilson is the beneficial owner of 750 shares of
TSRG Common Stock.
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GENERAL
The costs of soliciting proxies of TSRG and NGT will be paid by TSRG
and NGT respectively. In addition to the use of the mails, proxies may be
personally solicited by directors, officers or regular employees of TSRG (who
will not be compensated separately for their services) by mail, telephone,
telegraph, cable or personal discussion. TSRG will also request banks, brokers,
and other custodians, nominees and fiduciaries to forward proxy materials to the
beneficial owners of stock held of record by such persons and request authority
for the execution of proxies. TSRG will reimburse such entities for reasonable
out-of-pocket expenses incurred in handling proxy materials for the beneficial
owners of TSRG's Common Stock.
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted by delivering to the Secretary
of TSRG or NGT, as the case may be, a written notice of revocation bearing a
later date than the proxy, by duly executing a subsequent proxy relating to the
same shares, or by attending the Meeting and voting in person. Attendance at the
Meeting will not in itself constitute revocation of a proxy unless the
shareholder votes their shares of Common Stock in person at the Meeting. Any
notice revoking a proxy should be sent to, in the case of TSRG, the Secretary of
TSRG, William Woodburn, at 210 Second Street, P.O. Box 393, St. Marys, West
Virginia 26170, and in the case of NGT, the Secretary of NGT, Sonja Fletcher, at
16775 Addison Road, Suite 300 Dallas, Texas 75248
All shares represented at the TSRG Special Meeting and the NGT Special
Meeting by a proxy will be voted in accordance with the instructions specified
in that proxy. Proxies received and marked "Abstain" as to any particular
proposal, will be counted in determining a , however, such proxies will not be
counted for the vote on that particular proposal. A majority of the shares
represented at the meeting is required to ratify any proposal presented. If no
instructions are marked with respect to the matters to be acted upon, each proxy
will be voted FOR the matter to be voted upon.
Please complete, date, sign and return the accompanying proxy promptly.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. WE URGE YOU TO
COMPLETE, DATE, SIGN AND RETURN THE ACCOMPANYING PROXY, NO MATTER HOW LARGE OR
SMALL YOUR HOLDING MAY BE.
ANNUAL REPORT AND FORM 10-KSB
UPON REQUEST, TSRG WILL FURNISH WITHOUT CHARGE A COPY OF TSRG'S ANNUAL
REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997, INCLUDING
FINANCIAL STATEMENTS AND SCHEDULES. THE FORM 10-KSB HAS BEEN FILED WITH THE
COMMISSION. IT MAY BE OBTAINED BY WRITING TO TSRG AT 210 SECOND STREET, P.O. BOX
393, ST. MARYS, WV 26170, OR CALLING TSRG AT (304) 684-7053.
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ANNEX I
PLAN AND AGREEMENT OF MERGER
BETWEEN
TRANS ENERGY, INC.
and
NATURAL GAS TECHNOLOGIES, INC.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Article No. Page No.
- ----------- --------
<S> <C>
ARTICLE 1
THE MERGER......................................................................................1
1.1 Description of Merger...........................................................................1
1.2 Manner of Accomplishing Merger..................................................................1
1.3 Adjustments.....................................................................................2
1.4 Assets and Liabilities..........................................................................2
1.5 Shareholder Approval; Appraisal Rights..........................................................3
1.6 Governing Law; Articles of Incorporation; Bylaws................................................3
1.7 Directors and Officers of Surviving Corporation.................................................3
1.8 Additional Actions..............................................................................3
ARTICLE 2
REPRESENTATIONS AND WARRANTIES..................................................................4
2.1 Representations and Warranties of NGT...........................................................4
2.2 Representations and Warranties of Trans Energy.................................................10
ARTICLE 3
ACTIONS AND OBLIGATIONS OF THE PARTIES PENDING THE MERGER17
3.1 Coordination of Operations Pending Effective Date..............................................17
3.2 Actions of NGT Pending Merger..................................................................17
3.3 Actions of Trans Energy Pending Merger.........................................................20
3.4 Confidentiality................................................................................22
ARTICLE 4
CONDITIONS PRECEDENT...........................................................................23
4.1 Conditions to Obligations of Both Parties......................................................23
4.2 Conditions to Obligations of Trans Energy......................................................24
4.3 Conditions to Obligations of NGT...............................................................25
ARTICLE 5
OTHER AGREEMENTS...............................................................................26
5.1 NGT's Right to Sell Additional Stock...........................................................26
5.2 Disputes With Terry Huston.....................................................................26
5.3 Sundance Producers LLC.........................................................................26
5.4 Intercompany Loans.............................................................................26
ARTICLE 6
NATURE AND SURVIVAL OF
REPRESENTATIONS AND WARRANTIES.................................................................26
6.1 Nature and Survival of Representations and Warranties..........................................26
ARTICLE 7
TERMINATION....................................................................................27
7.1 Termination....................................................................................27
</TABLE>
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ARTICLE 8
RESOLUTION OF DISPUTES........................27
8.1 Dispute Resolution............................27
ARTICLE 9
MISCELLANEOUS.................................29
9.1 Amendment and Waiver..........................29
9.2 Assignment....................................29
9.3 Notices.......................................29
9.4 Paragraph and Other Headings..................30
9.5 Severability..................................30
9.6 Parties in Interest...........................30
9.7 Fees and Expenses.............................30
9.8 Attorneys' Fees...............................30
9.9 Counterparts..................................31
9.10 Integrated Agreement..........................31
ATTACHMENTS:
NGT Disclosure Schedule
Trans Energy Disclosure Schedule
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<PAGE>
PLAN AND AGREEMENT OF MERGER
THIS PLAN AND AGREEMENT OF MERGER (this "Agreement") is dated effective
as of March 26, 1998, by and between Trans Energy, Inc., a Nevada corporation
("Trans Energy"), and Natural Gas Technologies, Inc., a Texas corporation
("NGT"). Trans Energy and NGT are sometimes hereinafter referred to as the
"Constituent Corporations."
WHEREAS, NGT and Trans Energy are engaged in the business of
exploration, development, acquisition and production of crude oil and natural
gas; and
WHEREAS, the Board of Directors of NGT and the Board of Directors of
Trans Energy deem it advisable and to the advantage of such corporations that
NGT merge with and into Trans Energy upon the terms and subject to the
conditions herein provided (the "Merger").
NOW, THEREFORE, Trans Energy and NGT hereby agree as follows:
ARTICLE 1
THE MERGER
1.1 Description of Merger. Upon the terms and subject to the conditions
contained in this Agreement, NGT shall be merged with and into Trans Energy in
accordance with the Nevada General Corporation Law and Texas Business
Corporation Act (together referred to as the "Codes"); the separate corporate
existence of NGT shall cease and Trans Energy shall be the surviving corporation
in the Merger; and the outstanding shares of common and preferred stock of NGT
shall be exchanged for fully registered shares of common stock of Trans Energy
as set forth in Section 1.2 below. The "Effective Date" of the Merger shall be
the first day upon which Articles of Merger or a Certificate of Merger, as
applicable, are filed with the Secretary of State of Texas and the Secretary of
State of Nevada, which event shall not occur until all conditions precedent set
forth in Article 4 are satisfied or waived (to the extent permitted by law).
1.2 Manner of Accomplishing Merger. The Merger shall be accomplished by
way of the exchange of 100% of the issued and outstanding shares of NGT common
stock, $.001 par value ("NGT Common Stock"), and NGT Series 1994-B Preferred
Stock, $4.00 par value ("NGT Preferred Stock"), if any, for fully registered
shares of common stock, $.001 par value, of Trans Energy ("Trans Energy Common
Stock"), at the . The "Exchange Ratio" shall be determined by dividing
16,989,645 shares of Trans Energy Common Stock by the aggregate number of shares
of NGT Common Stock and NGT Preferred Stock outstanding immediately prior to the
Effective Date. For example, if there are 6,100,000 shares of NGT Common Stock
and NGT Preferred Stock outstanding on the Effective Date, the Exchange Ratio
shall be 2.785 shares of Trans Energy Common Stock for each one share of NGT
Common Stock or NGT Preferred Stock. On the Effective Date, all issued and
outstanding shares of NGT Common Stock and NGT Preferred Stock shall, without
any action on the part of the holders thereof, automatically become and be
converted into the right to receive Trans Energy Common Stock at the Exchange
Ratio. The transfer agent for Trans Energy shall be instructed to issue new
certificates of Trans Energy Common Stock, based upon the Exchange Ratio, to
each of the shareholders of NGT, at the address listed in the register of NGT
shareholders. No fractional shares will be issued, but each fractional share
will be rounded up to the next whole share. The Merger will be accomplished and
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the shares of Trans Energy Common Stock will be fully registered when
issued to the NGT shareholders pursuant to a Joint Proxy Statement and
Information Statement and a Registration Statement, all on Form S-4
(collectively, the "Registration Statement") to be filed with the Securities and
Exchange Commission ("SEC"). NGT currently has 7,097 shares of Series 1994-A
Preferred Stock outstanding, however, such shares shall be converted or
purchased prior to the Effective Date as set forth in Section 4.3(2) hereof. NGT
also currently has outstanding stock options to purchase 200,000 shares in the
aggregate of NGT Common Stock. Some of such stock options may be exercised for
NGT Common Stock prior to the Effective Date. Any NGT stock option remaining
outstanding and unexpired on the Effective Date shall automatically become and
be converted into a Trans Energy stock option to acquire the number of shares of
Trans Energy Common Stock equal to the number of shares of NGT Common Stock
underlying the original option multiplied by the Exchange Ratio. The per share
exercise price of the new Trans Energy stock option shall be equal to the per
share exercise price of the original NGT stock option multiplied by the
reciprocal of the Exchange Ratio (rounded up to the nearest cent). Such Trans
Energy stock options shall otherwise have the same duration and other terms as
the original NGT stock option.
1.3 Adjustments. It is the intention of the Constituent Corporations
that the number of shares of Trans Energy Common Stock issued to the NGT
shareholders in connection with the Merger shall represent at least 75% of the
total number of issued and outstanding shares of Trans Energy Common Stock
immediately after completion of the Merger. Accordingly, if between the date of
this Agreement and the Effective Date, the number of issued and outstanding
shares of Trans Energy Common Stock has increased, the numerator of the Exchange
Ratio shall be adjusted upward to the number which represents 75% of the total
number of issued and outstanding shares of Trans Energy Common Stock immediately
after the issuance thereof to the NGT shareholders in connection with the
Merger.
1.4 Assets and Liabilities. On the Effective Date, all rights,
privileges, powers, immunities, and franchises, and all property, real, personal
and mixed, and all debts due on whatever account, as well as stock subscriptions
and all other choses or things in action, and all and every other interest of or
belonging to or due to NGT, shall be taken by and deemed to be transferred to
and shall be vested in Trans Energy without further act or deed, and all such
rights, privileges, powers, immunities, and franchises, property, debts, choses
or things in action, and all and every other interest of NGT shall be thereafter
as effectually the property of Trans Energy as they were of NGT, and the title
to any real or other property, or any interest therein, whether vested by deed
or otherwise, in NGT, shall not revert or be in any way impaired by reason of
the Merger; provided, however, that all rights of creditors and all liens upon
any properties of NGT shall be preserved unimpaired, and all debts, liabilities,
restrictions, obligations and duties of NGT, including without limitation all
obligations, liabilities and duties as lessee under any existing lease, shall
thenceforth attach to Trans Energy and may be enforced against it to the same
extent as if such debts, liabilities, duties, restrictions and obligations had
been incurred or contracted by it. Any action or proceeding pending by or
against NGT may be prosecuted to judgment as if the Merger had not taken place.
1.5 Shareholder Approval; Appraisal Rights. This Agreement shall be
submitted for adoption and approval by the shareholders of each of the
Constituent Corporations in accordance with their respective Articles of
Incorporation and the applicable Code with respect to each corporation, at a
special meeting of shareholders called and held for such purpose. The Merger
shall also be subject to the rights of appraisal granted to the shareholders of
the Constituent Corporations pursuant to the applicable Code with respect to
each corporation.
1.6 Governing Law; Articles of Incorporation; Bylaws. On the Effective
Date, the laws of Nevada shall continue to govern the surviving corporation,
Trans Energy.
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The Articles of Incorporation and Bylaws of Trans Energy shall continue in
effect after the Effective Date, provided, however, that such Articles of
Incorporation and Bylaws shall be amended as necessary to permit Trans Energy to
effectuate the Merger as contemplated by this Agreement and to provide for seven
members of its Board of Directors as set forth in Section 1.7 below.
1.7 Directors and Officers of Surviving Corporation. From and after
the Effective Date, the Board of Directors of Trans Energy shall consist of
seven directors, three of whom shall be named by NGT, three shall be named by
Trans Energy and the seventh shall be named by mutual agreement of NGT and Trans
Energy. When and as determined prior to the Effective Date, the names of such
directors shall be indicated under the appropriate naming party below.
Trans Energy NGT Both Parties
------------ --- ------------
Loren Bagley (who will Mike Stewart ---------------
also serve as Chairman of
the Board of Directors) Warren Donohoe
William F. Woodburn Sonja Fletcher
John B. Sims
In addition, Michael Stewart shall serve as President and
Chief Operating Officer of Trans Energy from and after the Effective Date until
his replacement is duly appointed by the Board of Directors.
1.8 Additional Actions. If at any time after the Effective Date Trans
Energy shall consider or be advised that any further assignments or assurances
or any other acts are necessary or desirable to (a) vest, perfect or confirm, of
record or otherwise, in Trans Energy its rights, title or interest in, to or
under any of the rights, properties or assets of NGT acquired or to be acquired
by Trans Energy as a result of, or in connection with, the Merger or (b)
otherwise carry out the purposes of this Agreement, NGT and its proper officers
and directors shall be deemed to have granted to Trans Energy an irrevocable
power of attorney to execute and deliver all such proper deeds, assignments and
assurances in law and to do all acts necessary or proper to vest, perfect or
confirm title to and possession of such rights, properties or assets in Trans
Energy and otherwise carry out the purposes of this Agreement; and the proper
officers and directors of Trans Energy are fully authorized in the name of NGT
or otherwise to take any and all such action.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of NGT. As a material inducement to
Trans Energy to execute and perform its obligations under this Agreement, NGT
represents and warrants to Trans Energy as follows:
(1) Organization and Standing of NGT. NGT is a corporation
duly organized and validly existing and in good standing under the laws
of the State of Texas. It has all requisite corporate power and
authority to carry on its business as now being conducted, to enter
into this Agreement and to carry out and perform the terms and
provisions of this Agreement except with regard to the requirement for
shareholder approval as herein provided.
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NGT has no direct or indirect interest, either by way of stock
ownership or otherwise, in any firm, corporation, association or
business, except Interior Energy, Inc. which is owned 100% by NGT;
Sundance Producers LLC which is owned 50% by NGT and 50% by Trans
Energy; NGT Fuels, Inc. which is owned 100% by NGT; Mirae LLC which is
owned 40% by NGT; and Lyric Energy, Inc. which is owned 82% by NGT,
however such shares of Lyric Energy, Inc. shall be sold or otherwise
disposed of by NGT pursuant to section 4.3(3) hereof.
(2) Capitalization and Indebtedness for Borrowed Moneys.
----------------------------------------------------
(a) NGT is duly and lawfully authorized by its
Articles of Incorporation, as amended, to issue 10,000,000 shares of
NGT Common Stock of which 3,971,057 shares are validly issued and
outstanding on the date of this Agreement (including the shares issued
to Terry Huston). NGT has no treasury stock. Further, NGT has
authorized 1,000,000 shares of $4.00 par preferred stock of which 9,597
shares have been designated as Series 1994-A Preferred Stock and
260,740 shares have been designated as Series 1994-B Preferred Stock.
7,097 shares of Series 1994-A Preferred Stock and 66,360 shares of
Series 1994-B Preferred Stock are issued and outstanding as of the date
of this Agreement. All the outstanding shares of NGT's Common Stock and
Preferred Stock have been duly authorized and validly issued and are
fully paid and nonassessable.
(b) NGT is not presently liable on account of any
indebtedness for borrowed moneys, except as reflected in the financial
statements described in subparagraph (4) below and in "NGT's Disclosure
Schedule" attached hereto and by this reference incorporated herein.
(c) Except for (i) an option for 100,000 shares of
NGT's Common Stock issued to a director of NGT, (ii) an option for
100,000 shares of NGT Common Stock issued to the president of NGT,
(iii) as set forth in the NGT Disclosure Schedule and (iv) as permitted
in Section 3.2(2)(h) hereof, there are no outstanding subscriptions,
options, warrants, calls, contracts, demands, commitments, convertible
securities or other agreements or arrangements of any character or
nature whatsoever under which NGT is or may be obligated to issue or
purchase shares of its capital stock.
(3) NGT's Authority. NGT has full corporate power and
authority to enter into this Agreement and the other documents and
instruments to be executed and delivered by NGT pursuant hereto and,
subject to obtaining the necessary approval of NGT's shareholders, to
carry out its obligations hereunder and thereunder. The execution,
delivery and performance by NGT of this Agreement and the other
documents and instruments to be executed and delivered by NGT pursuant
hereto, and the consummation by NGT of the transactions contemplated
hereby and thereby, have been duly and validly authorized by the Board
of Directors of NGT and, except for obtaining the approval of NGT's
shareholders with respect to this Agreement and the transactions
contemplated hereby, no other corporate act or proceeding on the part
of NGT is necessary to authorize the execution and delivery by NGT of
this Agreement and the other documents or instruments to be executed
and delivered by NGT pursuant hereto, for the consummation by NGT of
the transactions contemplated hereby or thereby. This Agreement and the
other documents and instruments to be executed and delivered by NGT
pursuant hereto have been duly and validly executed and delivered by
NGT, and, assuming this Agreement and the other documents and
instruments to be executed and delivered by NGT pursuant hereto
constitute a valid and binding obligation of any other parties thereto,
4
<PAGE>
onstitutes a valid and binding obligation of NGT enforceable against
NGT in accordance with its terms, except as (i) such enforcement is
subject to applicable bankruptcy, insolvency or similar laws, now or in
hereafter in effect, affecting creditors' rights generally and (ii) the
remedy of specific performance and injunctive and other forms of
equitable relief is subject to equitable defenses and to the discretion
of the court before which any proceeding therefor may be brought.
(4) Financial Statements. NGT has furnished Trans Energy
with audited consolidated financial statements of NGT and its
subsidiaries as of April 30, 1997 and 1996 and unaudited consolidated
financial statements of NGT and its subsidiaries for the nine-month
period ended January 31, 1998 (hereinafter collectively referred to as
"NGT's Financial Statements"). NGT's Financial Statements present
fairly the financial condition of NGT at such dates and the results of
its operations for the periods therein specified and NGT's Financial
Statements were prepared in accordance with generally accepted
accounting principles applied upon a basis consistent with prior
accounting periods.
Specifically, but not by way of limitation, NGT's
Financial Statements disclose all of the assets, debts, liabilities and
obligations of any nature (whether absolute, accrued, contingent or
otherwise and whether due or to become due) of NGT and its subsidiaries
at the date thereof and include appropriate reserves for all taxes and
other liabilities accrued or due at such date, but not yet payable.
(5) Present Status. Other than as described in NGT's
Financial Statements or in NGT's Disclosure Schedule, NGT has not,
since January 31, 1998:
(a) Incurred any material obligations or liabilities,
absolute, accrued, contingent or otherwise and whether due or to become
due, except current liabilities incurred in the ordinary course of
business, none of which materially adversely affects the business or
prospects of NGT;
(b) Discharged or satisfied any material liens or
encumbrances, or paid any material obligation or liability, absolute,
accrued, contingent or otherwise and whether due or to become due,
other than (i) current liabilities shown on NGT's Financial Statements
and current liabilities incurred since the close of business on the
date of NGT's Financial Statements, in each case, in the ordinary
course of business and (ii) expenses incurred in connection with the
transactions contemplated by this Agreement (including, without
limitation, reasonable attorneys' fees and costs);
(c) Declared or made any payment or distribution to
its stockholders or purchased or redeemed, or obligated itself to
purchase or redeem, any of its common stock, preferred stock or other
securities;
(d) Mortgaged, pledged or subjected to lien or any
other encumbrances or charges, any of its assets, tangible or
intangible;
(e) Sold or transferred any of its assets except in
the ordinary course of business or canceled any debt or claim;
(f) Suffered any damage, destruction or loss (whether
or not covered by insurance) affecting the assets, properties or
business of NGT, or waived any rights of material value;
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(g) Except with respect to and as otherwise permitted
under this Agreement, entered into any material transaction other than
in the ordinary course of business; or
(h) Encountered any labor difficulties or labor union
organizing activity or loss of key people which will materially
adversely affect the business or prospects of NGT.
(6) Litigation. Except as disclosed in NGT's Financial
Statements or NGT's Disclosure Schedule, there are no legal actions,
suits, arbitrations or other legal or administrative proceedings
pending or threatened against NGT which would materially affect it or
its assets, properties or business; and NGT is not aware of any facts
which to its knowledge might result in any action, suit, arbitration or
other proceeding which in turn might result in any material adverse
change in the assets, properties or business or condition (financial or
otherwise) of NGT other than as disclosed in NGT's Financial Statements
or NGT's Disclosure Schedule. NGT is not in default with respect to any
judgment, order or decree of any court or any government agency or
instrumentality.
(7) Compliance With the Law and Other Instruments. To the best
of NGT's knowledge, the business operations of NGT have been and are
being conducted in material compliance with all applicable laws, rules
and regulations of all authorities. NGT is not in material violation
of, or in material default under, any term or provision of its Articles
of Incorporation, as amended, or its Bylaws, as amended, or of any
license, lien, mortgage, lease, agreement, instrument, order, judgment
or decree, or subject to any restriction, contained in any of the
foregoing, of any kind or character which materially adversely affects
in any way the assets, property, business or prospects of NGT, or
prevents consummation of the Merger.
(8) Title to Assets. NGT has good and marketable title to its
assets, including without limitation those reflected in NGT's Financial
Statements and those used or located on property controlled by NGT on
January 31, 1998 and acquired thereafter (except assets sold in the
ordinary course of business), subject to no mortgage, pledge, lien,
charge, security interest, encumbrance or restriction except those
which (a) are disclosed in NGT's Disclosure Schedule or in NGT's
Financial Statements as securing specified liabilities; or (b) do not
materially adversely affect the use thereof. The buildings and
equipment of NGT are in good condition and repair, reasonable wear and
tear excepted. NGT has not been, to the knowledge of any officer of
NGT, threatened with any action or proceeding under any building or
zoning ordinance, regulation or law. Except as otherwise provided in
NGT's Disclosure Schedule, NGT owns, free and clear of any liens,
claims, encumbrances, royalty interests or other restrictions or
limitations of any nature whatsoever, any and all patents, trade
secrets, copyrights, procedures, techniques, business plans, methods of
management or other information utilized in connection with NGT's
business.
(9) Schedule of Leases and Insurance. Prior to the Effective
Date, NGT will have fully completed NGT's Disclosure Schedule to
include a true and complete description of each indenture, lease,
sublease or any instrument under which NGT claims or holds a leasehold
interest for oil and gas interests, equipment, automobiles or real
property. To the best of NGT's knowledge, NGT has good and valid
leasehold interests in such properties and all such instruments are in
effect and enforceable according to their respective terms.
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NGT'sDisclosure Schedule shall also contain a complete description of
all fire and other casualty and liability insurance policies of NGT in
effect as of the date of this Agreement.
(10) Creditor's Arrangements. NGT has not made any assignment
for the benefit of creditors, nor has any involuntary or voluntary
petition in bankruptcy been filed by or against NGT.
(11) Contracts and Other Obligations. Except with respect to
this transaction or as set forth in NGT's Disclosure Schedule, NGT is
not a party to, or otherwise bound by, any written or oral:
(a) Contract or agreement not made in the ordinary
course of business;
(b) Employment or consultant contract which is not
terminable at will without cost or other liability to NGT or any
successor;
(c) Contract with any labor union;
(d) Bonus, pension, profit-sharing, retirement, share
purchase, stock option, hospitalization, group insurance or similar
plan providing employee benefits;
(e) Lease with respect to any property, real or
personal, whether as lessor or lessee;
(f) Advertising contract or contract for public
relations services;
(g) Purchase, supply or service contracts in excess
of $10,000 each, or in the aggregate of $100,000 for all such contracts
whether below or above $10,000;
(h) Deed of trust, mortgage, conditional sales
contract, security agreement, pledge agreement, trust receipt or any
other agreement or arrangement whereby any of the assets or properties
of NGT are subjected to a lien, encumbrance, charge or other
restriction;
(i) Contract or other commitment continuing for a
period of more than thirty days which is not terminable without cost or
other liability to NGT; or
(j) Contract which (i) contains a redetermination of
price or similar type of provision; or (ii) provides for a fixed price
for goods or services sold.
NGT has in all material respects performed all
obligations required to be performed by it to date and is not in
material default under any of the contracts, agreements, leases,
documents or other obligations to which it is a party or by which it is
otherwise bound. To the best of NGT's knowledge, all parties with whom
NGT has contractual arrangements are in material compliance therewith
and are not in default thereunder.
(12) Changes in Compensation. Since January 31, 1998, there
has not been any general pay increase to employees or any change in the
rate of compensation, commission, bonus or other remuneration payable
to any officer, employee, director, agent or stockholder of NGT other
than in the ordinary course of business.
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(13) Records. The books of account, minute books, stock
certificate books and stock transfer ledgers of NGT are complete and
correct, and there have been no transactions involving the business of
NGT which properly should have been set forth in the respective books,
other than those set forth therein.
(14) Brokers or Finders. Except as set forth in NGT's
Disclosure Schedule, all negotiations on the part of NGT relative to
this Agreement and the transactions contemplated hereby have been
carried on by NGT without the intervention of any person or as the
result of any act of NGT in such manner as to give rise to any valid
claim against NGT or Trans Energy for a brokerage commission, finder's
fee or other like payment.
(15) Absence of Certain Changes or Events. Since January 31,
1998, there has not been any material adverse change in, or event or
condition materially and adversely affecting, the condition (financial
or otherwise), assets, obligations or business of NGT, except as
disclosed in NGT's Disclosure Schedule.
(16) Taxes. NGT has duly filed all federal, state, county and
local income, franchise, excise, real and personal property and other
tax returns and reports (including, but not limited to, those relating
to social security, withholding, unemployment insurance and occupation
(sales) and use taxes) required to have been filed by NGT up to the
date hereof. All of the foregoing returns are true and correct in all
material respects and NGT has paid all taxes, interest and penalties
shown on such returns or reports as being due. NGT has paid or made
adequate provision in NGT's Financial Statements or its books and
records for all taxes payable in respect of all periods ending on or
before the date hereof. NGT has no material liability for any taxes,
interest or penalties of any nature whatsoever, except for those taxes
which may have arisen since January 31, 1998 in the ordinary course of
business and which are properly accrued on the books of NGT.
(17) Environmental Matters. There are no actions, proceedings
or investigations pending or, to the actual knowledge of NGT,
threatened before any federal or state environmental regulatory body,
or before any federal or state court, alleging noncompliance by NGT
with the Comprehensive Environmental Response, Compensation and
Liability Act of 1990 ("CERCLA") or any other Environmental Laws. To
the actual knowledge of NGT: (i) there is no reasonable basis for the
institution of any action, proceeding or investigation against NGT
under any Environmental Law; (ii) NGT is not responsible under any
Environmental Law for any release by any person at or in the vicinity
of real property of any hazardous substance (as defined by CERCLA),
caused by the spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, leaching, dumping or disposing of any
such hazardous substance into the environment; (iii) NGT is not
responsible for any costs of any remedial action required by virtue of
any release of any toxic or hazardous substance, pollutant or
contaminant into the environment including, without limitation, costs
arising from security fencing, alternative water supplies, temporary
evacuation and housing and other emergency assistance undertaken by any
environmental regulatory body; (iv) NGT is in compliance with all
applicable Environmental Laws; and (v) except as disclosed in NGT's
Disclosure Schedule, no real property used, owned, managed or
controlled by NGT contains any toxic or hazardous substance including,
without limitation, any asbestos, PCBs or petroleum products or
byproducts in any form, the presence, location or condition of which
(a) violates any Environmental Law, or (b) cannot be cleaned by
ordinary reclamation procedures customary in the oil and gas industry.
For purposes of this Agreement, "Environmental Laws" shall mean any
8
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federal, state, local or municipal statute, ordinance or regulation, or
order, ruling or other decision of any court, administrative agency or
other governmental authority pertaining to the release of hazardous
substances (as defined in CERCLA) into the environment.
(18) Indemnification Liabilities. There are no existing
liabilities or facts known to NGT which would require NGT to indemnify
its officers or directors for acts or omissions by such persons acting
on behalf of NGT.
2.2 Representations and Warranties of Trans Energy. Trans Energy
hereby represents and warrants to NGT as follows:
(1) Organization and Standing of Trans Energy. Trans Energy is
a corporation duly organized and validly existing and in good standing
under the laws of the State of Nevada. It has all requisite corporate
power and authority to carry on its business as now being conducted, to
enter into this Agreement and to carry out and perform the terms and
provisions of this Agreement, except with regard to the requirement for
shareholder approval as herein provided. Trans Energy has no
subsidiaries and no direct or indirect interest, either by way of stock
ownership or otherwise, in any other firm, corporation, association or
business, other than Sundance Producers LLC which is owned 50% by Trans
Energy and 50% by NGT.
(2) Capitalization and Indebtedness for Borrowed Moneys.
--------------------------------------------------------
(a) Trans Energy is duly and lawfully authorized by
its Articles of Incorporation, as amended, to issue 30,000,000 shares
of Trans Energy Common Stock, 5,663,215 shares of which are issued and
outstanding on the date of this Agreement. Trans Energy has no shares
of treasury stock and no other authorized series or class of stock. All
the outstanding shares of Trans Energy Common Stock have been duly
authorized and validly issued and are fully paid and nonassessable and
free of preemptive rights.
(b) Trans Energy is not presently liable on account
of any indebtedness for borrowed moneys, except as reflected in the
financial statements described in subparagraph (4) below and in "Trans
Energy's Disclosure Schedule" attached hereto and by this reference
incorporated herein.
(c) There are no outstanding subscriptions, options,
warrants, calls, contracts, demands, commitments, convertible
securities or other agreements or arrangements of any character or
nature whatsoever under which Trans Energy is or may be obligated to
issue or purchase shares of its capital stock except with respect to
the Convertible Debenture issued to VenGua in connection with this
Agreement as described in Trans Energy's Disclosure Schedule.
(3) Trans Energy's Authority. Trans Energy has full corporate
power and authority to enter into this Agreement and the other
documents and instruments to be executed and delivered by Trans Energy
pursuant hereto and, subject to obtaining the necessary approval of
Trans Energy's shareholders, to carry out its obligations hereunder and
thereunder. The execution, delivery and performance by Trans Energy of
this Agreement and the other documents and instruments to be executed
and delivered by Trans Energy pursuant hereto, and the consummation by
Trans Energy of the transactions contemplated hereby and thereby, have
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been duly and validly authorized by the Board of Directors ofTrans
Energy and, except for obtaining the approval of Trans Energy's
shareholders with respect to this Agreement and the transactions
contemplated hereby, no other corporate act or proceeding on the part
of Trans Energy is necessary to authorize the execution and delivery by
Trans Energy of this Agreement and the other documents or instruments
to be executed and delivered by Trans Energy pursuant hereto, for the
consummation by Trans Energy of the transactions contemplated hereby or
thereby. This Agreement and the other documents and instruments to be
executed and delivered by Trans Energy pursuant hereto have been duly
and validly executed and delivered by Trans Energy, and, assuming this
Agreement and the other documents and instruments to be executed and
delivered by Trans Energy pursuant hereto constitute a valid and
binding obligation of any other parties thereto, constitutes a valid
and binding obligation of Trans Energy enforceable against Trans Energy
in accordance with its terms, except as (i) such enforcement is subject
to applicable bankruptcy, insolvency or similar laws, now or in
hereafter in effect, affecting creditors' rights generally and (ii) the
remedy of specific performance and injunctive and other forms of
equitable relief is subject to equitable defenses and to the discretion
of the court before which any proceeding therefor may be brought.
(4) Financial Statements. Trans Energy has furnished NGT with
audited financial statements of Trans Energy as of December 31, 1997
and 1996 (hereinafter referred to as "Trans Energy's Financial
Statements"). All such financial statements present fairly the
financial condition of Trans Energy at such dates, and the results of
its operations for the periods therein specified, and were prepared in
accordance with generally accepted accounting principles applied upon a
basis consistent with prior accounting periods.
Specifically, but not by way of limitation, Trans Energy's
Financial Statements disclose all of the debts, liabilities and
obligations of any nature (whether absolute, accrued, contingent or
otherwise and whether due or to become due) of Trans Energy at the date
thereof and include appropriate reserves for all taxes and other
liabilities accrued or due at such date, but not yet payable.
(5) Present Status. Other than as described in Trans Energy's
Financial Statements or in Trans Energy's Disclosure Schedule, Trans
Energy has not, since December 31, 1997:
(a) Incurred any obligations or liabilities,
absolute, accrued, contingent or otherwise and whether due or to become
due, except current liabilities incurred in the ordinary course of
business, none of which adversely affects the business or prospects of
Trans Energy;
(b) Discharged or satisfied any liens or
encumbrances, or paid any obligation or liability, absolute, accrued,
contingent or otherwise and whether due or to become due, other than
(i) current liabilities shown on Trans Energy's Financial Statements
and current liabilities incurred since the close of business on the
date of Trans Energy's Financial Statements, in each case, in the
ordinary course of business and (ii) expenses incurred in connection
with the transactions contemplated by this Agreement (including,
without limitation, reasonable attorneys' fees and costs);
(c) Declared or made any payment or distribution to
its stockholders or purchased or redeemed, or obligated itself to
purchase or redeem, any of its shares of common stock or other
securities;
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(d) Mortgaged, pledged, or subjected to lien, or any
other encumbrances or charges, any of its assets, tangible or
intangible;
(e) Sold or transferred any of its assets except in
the ordinary course of business, or canceled any debt or claim;
(f) Suffered any damage, destruction or loss (whether
or not covered by insurance) affecting the asset, properties, business
or prospects of Trans Energy, or waived any rights of material value;
or
(g) Except with respect to this Agreement, entered
into any transaction other than in the ordinary course of business; or
(h) Encountered any labor difficulties or labor union
organizing activity or loss of key people which will materially
adversely affect the business or prospects of Trans Energy.
(6) Litigation. Except as disclosed in Trans Energy's
Financial Statements or Trans Energy's Disclosure Schedule, there are
no legal actions, suits, arbitrations or other legal or administrative
proceedings pending or threatened against Trans Energy which would
materially affect it, its properties, assets or business; and Trans
Energy is not aware of any facts which to its knowledge might result in
any action, suit, arbitration or other proceeding which in turn might
result in any material adverse change in the business or condition
(financial or otherwise) of Trans Energy or its properties or assets
other than as disclosed in Trans Energy's Financial Statements or Trans
Energy's Disclosure Schedule. Trans Energy is not in default with
respect to any judgment, order or decree, of any court or any
government agency or instrumentality.
(7) Compliance With the Law and Other Instruments. To the best
of Trans Energy's knowledge, the business operations of Trans Energy
have been and are being conducted in material compliance with all
applicable laws, rules and regulations of all authorities. Trans Energy
is not in material violation of, or in material default under, any term
or provision of its Articles of Incorporation, as amended, or its
Bylaws, as amended, or of any lien, mortgage, lease, agreement,
instrument, order, judgment or decree, or subject to any restriction,
contained in any of the foregoing, of any kind or character which
materially adversely affects in any way the business, properties,
assets or prospects of Trans Energy, or which would prohibit Trans
Energy from entering into this Agreement or prevent consummation of the
Merger.
(8) Title to Assets. Trans Energy has good and marketable
title to all its assets, including without limitation those reflected
in Trans Energy's Financial Statements and those used or located on
property controlled by Trans Energy on December 31, 1997 and acquired
thereafter (except assets sold in the ordinary course of business),
subject to no mortgage, pledge, lien, charge, security interest,
encumbrance or restriction except those which (a) are disclosed in
Trans Energy's Disclosure Schedule or in Trans Energy's Financial
Statements as securing specified liabilities; or (b) do not materially
adversely affect the use thereof. The buildings and equipment of Trans
Energy are in good condition and repair, reasonable wear and tear
excepted. Trans Energy has not been, to the knowledge of any officer of
Trans Energy, threatened with any action or proceeding under any
building or zoning ordinance, regulation or law. Except as otherwise
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provided in Trans Energy's Disclosure Schedule, Trans Energy owns, free
and clear of any liens, claims, encumbrances, royalty interests or
other restrictions or limitations of any nature whatsoever, any and all
patents, trade secrets, copyrights, procedures, techniques, business
plans, methods of management or other information utilized in
connection with Trans Energy's business.
(9) Schedule of Leases and Insurance. Prior to the Effective
Date, Trans Energy will have fully completed Trans Energy's Disclosure
Schedule to include a true and complete description of each indenture,
lease, sublease or any instrument under which Trans Energy claims or
holds a leasehold interest for oil and gas interests, equipment,
automobiles or real property. To the best of Trans Energy's knowledge,
Trans Energy has good and valid leasehold interests in such properties
and all such instruments are in effect and enforceable according to
their respective terms. Trans Energy's Disclosure Schedule shall also
contain a complete description of all fire and other casualty and
liability insurance policies of Trans Energy in effect as of the date
of this Agreement.
(10) Creditor's Arrangements. Trans Energy has not made any
assignment for the benefit of creditors, nor has any involuntary or
voluntary petition in bankruptcy been filed by or against Trans Energy.
(11) Contracts and Other Obligations. Except with respect to
this transaction or as set forth in Trans Energy's Disclosure Schedule
or Trans Energy's Financial Statements, Trans Energy is not a party to
or otherwise bound by, any written or oral:
(a) Contract or agreement not made in the ordinary
course of business;
(b) Employment or consultant contract which is not
terminable at will without cost or other liability to Trans Energy or
any successor;
(c) Contract with any labor union;
(d) Bonus, pension, profit-sharing, retirement, share
purchase, stock option, hospitalization, group insurance or similar
plan providing employee benefits;
(e) Lease with respect to any property, real or
personal, whether as lessor or lessee;
(f) Advertising contract or contract for public
relations services;
(g) Purchase, supply or service contracts in excess
of $10,000 each, or in the aggregate of $100,000 for all such contracts
whether below or above $10,000;
(h) Deed of trust, mortgage, conditional sales
contract, security agreement, pledge agreement, trust receipt or any
other agreement or arrangement whereby any of the assets or properties
of Trans Energy are subjected to a lien, encumbrance, charge or other
restriction;
(i) Contract or other commitment continuing for a
period of more than thirty days which is not terminable without cost or
other liability to Trans Energy or its successor; or
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(j) Contract which (i) contains a redetermination of
price or similar type of provision; or (ii) provides for a fixed price
for goods or services sold.
Trans Energy has in all material respects performed
all obligations required to be performed by it to date and is not in
material default under any of the contracts, agreements, leases,
documents or other arrangements to which it is a party or by which it
is otherwise bound. To the best of Trans Energy's knowledge, all
parties with whom Trans Energy has contractual arrangements are in
compliance therewith and are not in default thereunder.
(12) Changes in Compensation. Since December 31, 1997,
there has not been any general pay increase to employees or any change
in the rate of compensation, commission, bonus or other remuneration
payable to any officer, employee, director, agent or stockholder of
Trans Energy other than in the ordinary course of business.
(13) Records. The books of account, minute books, stock
certificate books and stock transfer ledgers of Trans Energy are
complete and correct, and there have been no transactions involving the
business of Trans Energy which properly should have been set forth in
the respective books, other than those set forth therein.
(14) Brokers or Finders. Except as set forth in Trans
Energy's Disclosure Schedule, all negotiations on the part of Trans
Energy relative to this Agreement and the transactions contemplated
hereby have been carried on by Trans Energy without the intervention of
any person or as the result of any act of Trans Energy in such manner
as to give rise to any valid claim against NGT or its shareholders for
a brokerage commission, finder's fee or other like payment.
(15) Absence of Certain Changes or Events. Since December
31, 1997, there has not been any material adverse change in, or event
or condition materially and adversely affecting, the condition
(financial or otherwise), properties, assets, liabilities business or
prospects of Trans Energy, except as set forth in Trans Energy's
Disclosure Schedule.
(16) Taxes. Trans Energy has duly filed all federal,
state, county and local income, franchise, excise, real and personal
property and other tax returns and reports (including, but not limited
to, those relating to social security, withholding, unemployment
insurance and occupation (sales) and use taxes) required to have been
filed by Trans Energy up to the date hereof. All of the foregoing
returns are true and correct in all material respects and Trans Energy
has paid all taxes, interest and penalties shown on such returns or
reports as being due. Trans Energy has paid or made adequate provision
in Trans Energy's Financial Statements or its books and records for all
taxes payable in respect of all periods ending on or before the date
hereof. Trans Energy has no material liability for any taxes, interest
or penalties of any nature whatsoever, except for those taxes which may
have arisen since December 31, 1997 in the ordinary course of business
and are properly accrued on the books of Trans Energy.
(17) Environmental Matters. There are no actions,
proceedings or investigations pending or, to the actual knowledge of
Trans Energy, threatened before any federal or state environmental
regulatory body, or before any federal or state court, alleging
noncompliance by Trans Energy with CERCLA or any other Environmental
Laws. To the actual knowledge of Trans Energy: (i) there is no
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reasonable basis for the institution of any action, proceeding or
investigation against Trans Energy under any Environmental Law; (ii)
Trans Energy is not responsible under any Environmental Law for any
release by any person at or in the vicinity of real property of any
hazardous substance (as defined by CERCLA), caused by the spilling,
leaking, pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leaching, dumping or disposing of any such hazardous
substance into the environment; (iii) Trans Energy is not responsible
for any costs of any remedial action required by virtue of any release
of any toxic or hazardous substance, pollutant or contaminant into the
environment including, without limitation, costs arising from security
fencing, alternative water supplies, temporary evacuation and housing
and other emergency assistance undertaken by any environmental
regulatory body; (iv) Trans Energy is in compliance with all applicable
Environmental Laws; and (v) except as disclosed in Trans Energy's
Disclosure Schedule, no real property used, owned, managed or
controlled by Trans Energy contains any toxic or hazardous substance
including, without limitation, any asbestos, PCBs or petroleum products
or byproducts in any form, the presence, location or condition of which
(a) violates any Environmental Law, or (b) cannot be cleaned by
ordinary reclamation procedures customary in the oil and gas industry.
(18) SEC Filings. Trans Energy has filed with the SEC all
reports and other documents currently required to be filed by Trans
Energy pursuant to the Securities Exchange Act of 1934, as amended (the
"34 Act"), and the applicable rules and regulations thereunder. Copies
of all such reports for the period ended September 30, 1997 and
subsequent periods have been provided to NGT. As of their respective
dates, each of such reports contained no untrue statements of any
material facts nor omitted to state any material fact required to be
stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(19) Indemnification Liabilities. There are no existing
liabilities or facts known to Trans Energy which would require Trans
Energy to indemnify its officers or directors for acts or omissions by
such persons acting on behalf of Trans Energy.
ARTICLE 3
ACTIONS AND OBLIGATIONS OF THE PARTIES PENDING THE MERGER
3.1 Coordination of Operations Pending Effective Date. For the period
from the date of this Agreement until the Effective Date, NGT and Trans Energy
shall continue to be operated in the ordinary course of business as separate
entities. Notwithstanding the foregoing, in order to obtain as promptly as
possible the mutual benefits to be received by the parties as a result of the
Merger, the parties have appointed Loren Bagley and Mike Stewart to act as an
operating committee (the "Committee") to coordinate all significant operations
of Trans Energy and NGT during the period commencing on the date of this
Agreement through the Effective Date. The activities and decisions to be
coordinated include but are not limited to contracts, drilling activities,
hiring and staffing activities, expenditures and commitments in excess of
$20,000 and activities set forth in Sections 3.2(2) and 3.3(2) below.
Notwithstanding, however, all such decisions that may directly benefit a
Committee member shall require Board of Director approvals from both Trans
Energy and NGT. Additionally, Trans Energy and NGT agree that the Committee and
its members shall be treated as directors of the individual corporations they
represent and, therefore, shall be subject to all the rights of limitation of
liability and indemnification granted to officers and directors of the
respective corporations pursuant to their charters, bylaws and any applicable
agreements.
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3.2 Actions of NGT Pending Merger. NGT covenants with Trans Energy that
from the date hereof to and including the Effective Date of the Merger:
(1) Correct as of Effective Date. Each representation and
warranty of NGT set forth in Section 2.1 of this Agreement shall be
true and correct on and as of the Effective Date.
(2) Operations. Except with the prior written consent of the
Committee, NGT will, prior to the Effective Date:
(a) Conduct its affairs and business only in the
ordinary course of business;
(b) Not create or incur any additional liabilities in
excess of $20,000;
(c) Not create or incur, or suffer to exist, any
mortgage, lien, pledge, hypothecation, charge, encumbrance or
restriction of any kind in excess of $20,000 which is not otherwise
disclosed in this Agreement;
(d) Not make any capital expenditures, or capital
additions or betterment in excess of $20,000;
(e) Not enter into any contract or commitment
pursuant to which it will be obligated to expend in excess of $20,000;
(f) Maintain its properties, assets and business in
good condition and repair, and not sell, or otherwise dispose of, any
of such properties, assets or business, except sales of oil and gas in
the ordinary course of business;
(g) Not declare or pay any dividend on, or make any
other distribution upon, or purchase, retire or redeem, any shares of
its common stock, or set aside any funds for any such purpose, except
NGT shall either purchase or cause all of the holders of its Series
1994-A Preferred Stock and most of the holders of its Series 1994-B
Preferred Stock to convert their shares of such preferred stock into
NGT Common Stock as provided in Section 4.3(2);
(h) Not issue or sell, or obligate itself to issue or
sell any additional shares of its common or preferred stock, or issue
or sell any warrants, rights or options to acquire any such shares, or
acquire any stock of any corporation, or any interest in any business
enterprise, except NGT shall have the unconditional right to issue up
to a maximum of 1.6 million additional shares of NGT Common Stock in
exchange for fair consideration, as determined in the sole discretion
of NGT and as further provided in Section 5.1;
(i) Not amend its Articles of Incorporation or
Bylaws;
(j) Not pay, or agree to pay, conditionally or
otherwise, any bonus, extra compensation, pension or severance pay to
any director, stockholder, officer, consultant, agent or employee under
any pension plan or otherwise, or increase the compensation paid by it
at January 31, 1998 to any officer, director, agent, consultant or
employee, except as otherwise set forth in NGT's Disclosure Schedule;
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(k) Not discharge or satisfy any material lien,
charge or encumbrance, nor pay any obligation or liability in excess of
$20,000, absolute or contingent, except (i) current liabilities shown
on NGT's Financial Statements dated January 31, 1998, and (ii) expenses
incurred in connection with the transactions contemplated by this
Agreement (including, without limitation, reasonable attorneys' and
accounting fees and costs);
(l) Duly comply with all material governmental laws,
rules and regulations applicable to it, its operations, business,
employees or assets and use reasonable commercial efforts to preserve
its business organization intact;
(m) Except with respect to this transaction and Lyric
Energy, Inc. as described in NGT's Disclosure Schedule, not merge or
consolidate, or obligate itself to do so, with or into any other
entity;
(n) Not enter into any transactions, or take any acts
which if effected or performed prior to the date of this Agreement,
would constitute a breach of the representations, warranties and
agreements contained herein; and
(o) Not institute, settle, or agree to settle any
action or proceeding before any court or governmental body.
(3) Access to Records. NGT shall afford Trans Energy, its
representatives, counsel, agents and employees, at all reasonable
times, and in a manner and under circumstances which will not cause
unreasonable interference with the operation of NGT's business, access
to all of the properties and working interests of NGT and its
subsidiaries, and their books, files, records, insurance policies and
other corporate books and records, for the purpose of audit, inspection
and examination thereof, and shall do everything reasonably necessary
to enable Trans Energy to make a complete examination of the assets,
properties and business of NGT and its subsidiaries and the condition
thereof. No such examination, however, shall constitute a waiver or
relinquishment, on the part of Trans Energy, of its right to rely upon
the covenants, representations and warranties made by NGT in the
provisions of this Agreement.
(4) Approval of Shareholders. NGT and its officers and
directors shall (a) cause a meeting of its shareholders to be duly
called and held as soon as practicable for the purpose of voting on
this Agreement and the Merger contemplated hereby and (b) recommend
approval and adoption of this Agreement and the Merger to NGT's
shareholders. Because Trans Energy also needs shareholder approval with
respect to this Agreement and the Merger, NGT shall in good faith
cooperate with Trans Energy to prepare a Joint Proxy and Information
Statement and Registration Statement all on Form S-4 (collectively, the
"Registration Statement") to be delivered to NGT's and Trans Energy's
shareholders and filed with the Securities and Exchange Commission
("SEC"). NGT shall assist Trans Energy in responding to any comments of
the SEC which pertain to NGT or any of its subsidiaries.
(5) No Solicitation or Disclosure. NGT shall not directly
solicit, entertain or encourage inquiries or proposals to enter into an
agreement or negotiate with any third party to sell or participate in
any merger or consolidation with respect to the business and/or assets
of NGT, provided, however that as set forth in NGT's Disclosure
Schedule, NGT is a party to an Agreement and Plan of Share Exchange
with Lyric Energy, Inc., which Agreement NGT shall terminate prior to
the Effective Date as set forth in Section 4.3(3) hereof.
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Except to the extent required by law, NGT shall not publicly announce
or disclose the Merger or the terms of this Agreement without the prior
approval of Trans Energy, which approval shall not be unreasonably
withheld, conditioned or delayed.
(6) Consultation; Supplement Disclosure Schedule. NGT
will endeavor to keep Trans Energy apprised with respect to the
operations and conduct of NGT's business and assets prior to the
Effective Date. From time to time prior to the Effective Date, NGT
shall supplement or amend NGT's Disclosure Schedule with respect to any
matter, condition or occurrence hereafter arising which, if existing or
occurring at the date of this Agreement, would have been required to be
set forth or described in NGT's Disclosure Schedule.
3.3 Actions of Trans Energy Pending Merger. Trans Energy covenants with
NGT that from the date hereof to and including the Effective Date of the Merger:
(1) Correct as of Effective Date. Each representation and
warranty of Trans Energy set forth in Section 2.2 of this Agreement
shall be true and correct on and as of the Effective Date.
(2) Operations. Except with the prior written consent of
the Committee, Trans Energy will, prior to the Effective Date:
(a) Conduct its affairs and business only in the ordinary
course of business;
(b) Not create or incur any additional liabilities in
excess of $20,000;
(c) Not create or incur, or suffer to exist, any
mortgage, lien, pledge, hypothecation, charge, encumbrance or
restriction of any kind in excess of $20,000 which is not otherwise
disclosed in this Agreement;
(d) Not make any capital expenditures, or capital
additions or betterment in excess of $20,000 ;
(e) Not enter into any contract or commitment pursuant to
which it will be obligated to expend in excess of $20,000;
(f) Maintain its properties, assets and business in good
condition and repair, and not sell, or otherwise dispose of, any of
such properties, assets or business, except sales of oil and gas in the
ordinary course of business;
(g) Not declare or pay any dividend on or make any other
distribution upon, or purchase, retire or redeem, any shares of its
capital stock, or set aside any funds for any such purpose;
(h) Not issue or sell or obligate itself to issue or sell
any additional shares of its common stock or issue or sell any
warrants, rights or options to acquire any such shares, or acquire any
stock of any corporation or any interest in any business enterprise,
except with respect to the Convertible Debenture issued to VenGua as
described in Trans Energy's Disclosure Schedule;
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(i) Except as necessary to accomplish the transactions
contemplated herein, not amend its Articles of Incorporation or Bylaws;
(j) Not pay or agree to pay, conditionally or otherwise,
any bonus, compensation, pension or severance pay to any director,
stockholder, officer, consultant, agent or employee under any pension
plan or otherwise or increase the compensation paid by it as of
December 31, 1997 to any officer, director, agent, consultant or
employee, except as otherwise set forth in Trans Energy's Disclosure
Schedule;
(k) Not discharge or satisfy any material lien, charge or
encumbrance, or pay any obligation or liability in excess of $20,000,
absolute or contingent, except (i) current liabilities shown on Trans
Energy's Financial Statements dated December 31, 1997 and (ii) expenses
incurred in connection with the transaction contemplated by this
Agreement (including, without limitation, reasonable attorneys' and
accounting fees and costs);
(l) Duly comply with all material governmental laws,
rules and regulations applicable to it, its operations, business,
employees or assets and use reasonable commercial efforts to preserve
its business organization intact;
(m) Except with respect to this transaction, not merge or
consolidate, or obligate itself to do so, with or into any other
entity;
(n) Not enter into any transactions or take any acts
which if effected or performed prior to the date of this Agreement,
would constitute a breach of the representations, warranties and
agreements contained herein; and
(o) Not institute, settle or agree to settle any action
or proceeding before any court or governmental body.
(3) Access to Records. Trans Energy will afford NGT, its
representatives, counsel, agents and employees, at all reasonable times
and in a manner and under circumstances which will not cause
unreasonable interference with the operation of Trans Energy's
business, access to all of the properties and working interests of
Trans Energy and its books, files, records, insurance policies and
other corporate books and records, for the purpose of audit, inspection
and examination thereof, and shall do everything reasonable necessary
to enable NGT to make a complete examination of the assets, properties
and business of Trans Energy and the condition thereof. No such
examination, however, shall constitute a waiver or relinquishment on
the part of NGT of its right to rely upon the covenants,
representations and warranties made by Trans Energy in the provisions
of this Agreement.
(4) Approval of Shareholders. Trans Energy and its
officers and directors shall (a) cause a meeting of its shareholders to
be duly called and held as soon as practicable for the purpose of
voting on this Agreement and the Merger contemplated hereby and (b)
recommend approval and adoption of this Agreement and the Merger to
Trans Energy's shareholders. In connection with such shareholders'
meeting, Trans Energy will file the Registration Statement with the SEC
and will use its best efforts to respond to the comments of the SEC and
cause the Registration Statement to be mailed to its shareholders, all
at the earliest practicable time. Trans Energy will notify NGT promptly
of the receipt of any comments from the SEC, and of any requests by the
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SEC for amendments or supplements to the Registration Statement or for
additional information, and will supply NGT with copies of all
correspondence between Trans Energy or its representatives and the SEC
with respect to the Registration Statement. Trans Energy will notify
NGT, both orally and in writing, at least forty-eight hours prior to
mailing of the Registration Statement to its shareholders. If at any
time prior to the meeting of Trans Energy's shareholders, an event
relating to Trans Energy is discovered which should be set forth in an
amendment of, or a supplement to, the Registration Statement, Trans
Energy shall promptly so inform NGT, will furnish all necessary
information to NGT relating to such event, will use its best efforts to
cause the SEC to take any necessary action as promptly as practicable
to permit an appropriate amendment or supplement to be transmitted to
NGT's and Trans Energy's shareholders and will transmit such amendment
or supplement as promptly as practicable.
(5) No Solicitation or Disclosure. Trans Energy shall not
directly solicit, entertain or encourage inquiries or proposals to
enter into an agreement or negotiate with any third party to sell or
participate in any merger or consolidation with respect to the business
and/or assets of Trans Energy. Except to the extent required by law,
Trans Energy shall not publicly announce or disclose the Merger or the
terms of this Agreement without the prior approval of NGT, which
approval shall not be unreasonably withheld, conditioned or delayed.
(6) Consultation; Supplement Disclosure Schedule. Trans Energy
shall endeavor to keep NGT apprised with respect to the operation and
conduct of Trans Energy's business and assets prior to the Effective
Date. From time to time prior to the Effective Date, Trans Energy shall
supplement or amend Trans Energy's Disclosure Schedule with respect to
any matter, condition or occurrence hereafter arising which, if
existing or occurring at the date of this Agreement, would have been
required to be set forth or described in Trans Energy's Disclosure
Schedule.
3.4 Confidentiality. Trans Energy and NGT each will hold, and will
cause its respective officers, directors, employees, consultants, advisors and
agents to hold, in confidence, unless compelled to disclose by judicial or
administrative process or by other requirements of law, all confidential
documents and information concerning the parties furnished to any other party in
connection with the Merger and the transactions contemplated by this Agreement,
except to the extent that such information can be shown to have been (i)
previously known on a non-confidential basis by the non-disclosing party; (ii)
in the public domain; or (iii) later lawfully acquired by the non-disclosing
party from sources other than as a result of the transactions contemplated
herein; provided that each party may disclose such information to its officers,
directors, employees, consultants, advisors and agents who need to know such
information in connection with the Merger and the transactions contemplated by
this Agreement so long as such persons are informed of the confidential nature
of such information and are directed to treat such information confidentially in
accordance herewith. Subject to the foregoing, each party shall keep
confidential the Merger and the terms of this Agreement, except to the extent
such information is legally required to be disclosed. If this Agreement is
terminated, such confidence shall be maintained and each party shall, and shall
use its best efforts to cause its officers, directors, employees, consultants,
advisors and agents to, destroy or deliver to each other party, upon request,
all documents and other materials, and all copies thereof, obtained by such
party in connection with the Merger and this Agreement, that are subject to such
confidence.
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ARTICLE 4
CONDITIONS PRECEDENT
4.1 Conditions to Obligations of Both Parties. The obligations of the
Constituent Corporations under this Agreement are subject to the satisfaction of
the following conditions (any or all of which may be waived by the party for
whose benefit such condition exists to the extent permitted by law):
(1) No Material Errors. The representations and warranties of
NGT in Section 2.1 and of Trans Energy in Section 2.2 hereof shall be
true and correct as of the Effective Date, subject to any changes
contemplated by this Agreement, and the parties shall not have
discovered any material error, misstatement or omission therein.
(2) Schedules Delivered. The Disclosure Schedules and all
other schedules and exhibits to this Agreement and all outstanding due
diligence documents to be delivered by each party shall have been
delivered in a form and substance reasonably satisfactory to each party
and such schedules shall not disclose a material adverse change from
Trans Energy's Financial Statements or Trans Energy's most recent
Annual Report on Form 10-KSB and Quarterly Report on Form 10-QSB or
NGT's Financial Statements.
(3) Registration Statement; Shareholder Approvals. The
Constituent Corporations shall have received SEC approval of the
Registration Statement to be mailed to the shareholders of each
Constituent Corporation and the shareholders of each Constituent
Corporation shall have approved the Merger and this Agreement in
accordance with the Registration Statement and the respective Articles
of Incorporation and applicable Code of each Constituent Corporation.
(4) Injunctions; Changes in Law. No governmental authority
shall have issued any injunction, order, decree or ruling and there
shall not be any statute, rule or regulation (i) restraining, enjoining
or prohibiting the consummation of the transactions contemplated hereby
or (ii) which materially and adversely effects the benefits expected to
be received by either party from the Merger.
(5) Other Requirements. Any other requirements under
applicable Nevada or Texas laws shall have been satisfied prior to the
Effective Date in connection with the Merger and this Agreement.
(6) Tax-Free Qualification. Each party shall have satisfied
itself that the Merger shall qualify as a tax-free reorganization
within the meaning of Section 368(a)(1)(A) of the Internal Revenue Code
of 1986, as amended.
4.2 Conditions to Obligations of Trans Energy. The obligations of Trans
Energy under this Agreement are subject to the satisfaction of the following
conditions (any or all of which may be waived by Trans Energy in its sole
discretion to the extent permitted by law):
(1) NGT's Performance. NGT shall have performed in all
material respects its obligations hereunder and under any other
documents and instruments to be executed and delivered by NGT pursuant
hereto and required to be performed by it at or prior to the Effective
Date, and Trans Energy shall have received a certificate signed on
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behalf of NGT by its Chief Executive Officer and Chief Financial
Officer to such effect with respect to such obligations of NGT.
(2) Financing. Trans Energy shall have received a minimum of
$4,000,000 of financing from VenGua, pursuant to the Term Sheet dated
February 9, 1998, as set forth in Trans Energy's Disclosure Schedule,
and/or other sources.
(3) Release of Personal Guarantees. Trans Energy shall have
successfully restructured all of its indebtedness which is personally
guaranteed by officers or directors of Trans Energy as set forth in
Trans Energy's Disclosure Schedule to eliminate such personal
guarantees.
(4) No Material Changes. Since the date of this Agreement,
and except as otherwise set forth herein, there shall not have accrued
or be threatened any material adverse effect (including as a result of
any threatened or pending action, suit, proceeding or investigation) on
the financial condition, assets, business, prospects or results of
operations of NGT.
(5) Completion of Due Diligence. Trans Energy shall have
completed its due diligence investigation of NGT in scope, detail,
substance and result reasonably satisfactory to Trans Energy prior to
the Effective Date.
(6) Other Consents. Any and all other consents, permits,
authorizations, approvals and orders deemed in the sole discretion of
Trans Energy to be material to the consummation of the Merger and the
transactions contemplated hereby shall have been obtained.
4.3 Conditions to Obligations of NGT. The obligations of NGT under this
Agreement are subject to the satisfaction of the following conditions (any or
all of which may be waived by NGT in its sole discretion to the extent permitted
by law):
(1) Trans Energy's Performance. Trans Energy shall have
performed in all material respects its obligations hereunder and under
any other documents and instruments to be executed and delivered by
Trans Energy pursuant hereto and required to be performed by it at or
prior to the Effective Date, and NGT shall have received a certificate
signed on behalf of Trans Energy by its Chief Executive Officer and
Chief Financial Officer to such effect with respect to such obligations
of Trans Energy.
(2) Eliminate Series 1994-A Preferred Stock. NGT shall have
either purchased or caused all holders of its Series 1994-A Preferred
Stock and most of the holders of its Series 1994-B Preferred Stock to
convert such preferred stock into NGT Common Stock.
(3) Sale of Lyric Stock. NGT shall have terminated its
Agreement and Plan of Share Exchange with Lyric Energy Inc. and it
shall have sold or otherwise disposed of all shares of common stock
owned by it in Lyric Energy, Inc.
(4) No Material Changes. Since the date of this Agreement,
and except as otherwise set forth herein, there shall not have accrued
or be threatened any material adverse effect (including as a result of
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any threatened or pending action, suit, proceeding orinvestigation) on
the financial condition, assets, business, prospects or results of
operations of Trans Energy.
(5) Completion of Due Diligence. NGT shall have completed its
due diligence investigation of Trans Energy in scope, detail, substance
and result reasonably satisfactory to NGT prior to the Effective Date.
(6) Other Consents. Any and all other consents, permits,
authorizations, approvals and orders deemed in the sole discretion of
NGT to be material to the consummation of the Merger and the
transactions contemplated hereby shall have been obtained.
(7) Payments by Trans Energy. Trans Energy shall pay (i)
$1,250,000 to NGT to be used for the satisfaction of NGT's financial
obligations and (ii) $310,000 to Brent Wagman as reimbursement for such
amount which was paid by Mr. Wagman for the benefit of NGT in
connection with a recent transaction with Gulf Canada.
ARTICLE 5
OTHER AGREEMENTS
5.1 NGT's Right to Sell Additional Stock. Notwithstanding anything
contained in this Agreement to the contrary, NGT shall have the unconditional
right to issue up to a maximum of 1.9 million additional shares of NGT Common
Stock in exchange for fair consideration, as determined in the sole discretion
of NGT.
5.2 Disputes With Terry Huston. Trans Energy acknowledges that it is
aware of the litigation matters which are currently pending between NGT, Brent
Wagman and Terry Huston. Such matters include a claim by NGT to recover
approximately 400,000 shares of NGT Common Stock which are currently held by
Terry Huston. The parties hereby agree that any shares of Trans Energy Common
Stock to be distributed pro rata in the Merger with respect to NGT Common Stock
held by Terry Huston shall be placed in escrow until resolution of all such
matters. In the event that Terry Huston prevails, he will be entitled to the
escrowed Trans Energy Common Stock. In the event that NGT and Brent Wagman
prevail and NGT recovers Terry Huston's shares of NGT Common Stock, the escrowed
Trans Energy Common Stock shall be distributed pro rata to the NGT shareholders.
5.3 Sundance Producers LLC. The parties acknowledge that they are the
sole owners (50% each) of Sundance Producers LLC, which after the Merger shall
become a wholly owned entity of Trans Energy. NGT has paid certain costs and
expenses of Sundance Producers LLC, half of which costs and expenses are the
obligation of Trans Energy. The parties agree that prior to the Effective Date
of the Merger, they shall perform a final accounting of all such costs and
expenses related to Sundance Producers LLC and Trans Energy shall promptly
reimburse NGT with respect to any amounts owing by it to NGT.
5.4 Intercompany Loans. The parties believe that shareholder approval
of the Merger is only a formality and that the Merger will, therefore, be
completed. Accordingly, in order to as quickly as possible receive the benefits
to be obtained by the parties as a result of the Merger, and to the extent
reasonably deemed necessary and appropriate by the Committee, the parties shall
23
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make intercompany loans between them prior to the Effective Date. Such loans
shall be negotiated on an arms-length basis, properly documented and secured.
ARTICLE 6
NATURE AND SURVIVAL OF
REPRESENTATIONS AND WARRANTIES
6.1 Nature and Survival of Representations and Warranties. All
statements of fact contained herein, or in any certificate or schedule delivered
by or on behalf of NGT or Trans Energy pursuant to the terms hereof, shall be
deemed representations and warranties made by NGT and Trans Energy,
respectively, to each other under this Agreement. For purposes of this Section
6.1 only, any party or other person seeking to enforce, or claiming the benefit
of, any representation and warranty hereunder is called a Claimant, and any
party or other person against which right is claimed is called a Defendant. All
representations and warranties of the parties shall survive the completion of
the Merger and all inspections, examinations or audits on behalf of the parties;
provided however that all representations and warranties shall terminate and
expire, and be without further force and effect whatsoever from and after one
year from the Effective Date, and neither party hereto shall have liability
whatsoever on account of any inaccurate representation or warranty or for any
breach of warranty, unless the Claimant shall on or prior to such date, serve
written notice on the Defendant, with a copy to the Defendant's counsel herein,
setting forth in reasonable detail any claims (and to the extent possible an
estimate of the damages) which Claimant may have under this Agreement.
ARTICLE 7
TERMINATION
7.1 Termination. This Agreement may be terminated and abandoned at any
time prior to the Closing:
(1) By the mutual agreement of both NGT and Trans Energy for
any reason, including the failure of a condition precedent set forth in
Section 4.1;
(2) By Trans Energy if any of the conditions precedent set
forth in Section 4.2 are not satisfied or waived by Trans Energy on or
before September 30, 1998;
(3) By NGT if any of the conditions precedent set forth in
Section 4.3 are not satisfied or waived by NGT on or before September
30, 1998.
ARTICLE 8
RESOLUTION OF DISPUTES
8.1 Dispute Resolution. Any dispute, claim or controversy arising out
of or relating to this Agreement or the schedules, exhibits or other documents
or instruments to be executed in connection herewith or the breach, termination
or validity thereof (a "Dispute") shall be resolved in accordance with the
procedures set forth in this Section 8.1. These procedures shall be the sole and
exclusive process for the resolution of any such Dispute. However, any party may
initiate litigation to obtain a preliminary injunction or other provisional
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relief, pending the completion of the procedures set forth in this Section 8.1,
if in its sole judgment such action is necessary to avoid irreparable damage or
to preserve the status quo.
(1) The parties shall attempt in good faith to resolve any
Dispute promptly by negotiation between executives who have authority
to settle the controversy. Any party may give the other party written
notice of any Dispute not resolved in the normal course of business.
Within 20 days after delivery of such notice, the receiving party shall
submit to the other a written response. The notice and the response
shall include (i) a statement of each party's position and a summary of
arguments supporting that position and (ii) the name and title of the
executive who will represent that party and of any other persons who
will accompany the executive. Within 30 days after delivery of the
disputing party's notice, the executives of both parties shall meet at
a mutually acceptable time and place, and thereafter as often as they
reasonably deem necessary, to attempt to resolve the Dispute. All
reasonable requests for information made by one party to the other
shall be honored. If the Dispute has not been resolved within 45 days
of the receipt of the disputing party's notice, or if the parties fail
to meet within 30 days, either party may initiate mediation of the
controversy as provided hereinafter.
(2) If the Dispute has not been resolved by negotiation as
provided herein, upon the written request of either party, the parties
shall endeavor to settle the Dispute by mediation under the CPR Model
Procedure for Mediation of Business Disputes, promulgated by the CPR
Institute for Dispute Resolution ("CPR"), that is in effect on the date
of this Agreement except as modified herein ("CPR Model Rules"). If the
parties are unable to agree upon a mediator within 15 days of the
request for mediation, the mediator shall be selected by CPR from the
CPR Panels of Neutrals. In the event that the Dispute has not been
resolved by mediation within 30 days of appointment of a mediator in
accordance with the CPR Model Rules, either party may initiate
arbitration as provided below.
(3) All negotiations held and submissions made pursuant to
subparagraphs (1) and (2) above are confidential and shall be treated
as compromise and settlement negotiations for the purpose of the
Federal Rules of Evidence and State rules of evidence.
(4) Any Dispute which has not been resolved by use of the
processes set forth in subparagraphs (1) and (2) above shall be
resolved by a sole arbitrator under arbitration in accordance with the
CPR Rules for Non-Administered Arbitration of Business Disputes in
effect on the date of this Agreement except as modified herein.
However, if one party has requested the other to participate in the
processes set forth in subparagraphs (1) and (2) and the other has
failed to participate, including the failure to give any required
notices, the requesting party may initiate arbitration immediately. The
arbitration shall be governed by the United States Arbitration Act, 9
U.S.C. ss. 1-16, and judgment upon the award rendered by the arbitrator
may be entered by any court having jurisdiction thereof. The place of
arbitration shall be Denver, Colorado. The arbitrator is not empowered
to award damages in excess of compensatory damages and each party
hereby irrevocably waives any right to recover such damages with
respect to any dispute resolved by arbitration.
(5) The parties agree that, in the event that a Dispute comes
before a sole arbitrator pursuant to subparagraph (4), such sole
arbitrator may take into account (subject to acting in accordance with
the provisions of subparagraph (4)) in resolving such Dispute that the
parties hereto agree that if any of the provisions of this Agreement
were not performed in accordance with their specific terms or were
25
<PAGE>
otherwise breached, irreparable damages would occur, no adequate remedy at law
would exist and damages would be difficult to determine, and that the parties
shall be entitled to specific performance of the terms hereof, in addition to
any other remedy at law or in equity.
ARTICLE 9
MISCELLANEOUS
9.1 Amendment and Waiver. This Agreement may be amended or modified at
any time and in all respects only by an instrument in writing executed by the
Presidents of Trans Energy and NGT.
9.2 Assignment. Neither this Agreement nor any right created hereby
shall be assignable by NGT or Trans Energy without the prior written consent of
the other, except by the laws of succession. Nothing in this Agreement, express
or implied, is intended to confer upon any person, other than the parties hereto
and their respective successors and assigns any rights or remedies under or by
reason of this Agreement.
9.3 Notices. Any notice, communication, request, reply or advice,
hereinafter severally and collectively called "notice," in this Agreement
provided or permitted to be given, made, or accepted by either party to the
other must be in writing and may be given or be served by depositing the same in
the United States mail, addressed to the party to be notified, postage prepaid
and registered or certified with return receipt requested, or by delivering the
same in person to an officer of such party. Notice deposited in the mail in the
manner hereinabove described shall be effective only if and when received by the
parties to be notified. For purposes of notice the addresses of the parties
shall, until changed as hereinafter provided, be as follows:
(1) If to Trans Energy:
Loren E. Bagley, President
Trans Energy, Inc.
210 Second Street
P. O. Box 393
St. Marys, West Virginia 26170
with a copy to:
Leonard E. Neilson, Esq.
1121 East 3900 S.
Building C, Suite 200
Salt Lake City, Utah 84124
(2) If to NGT:
Brent Wagman
Natural Gas Technologies, Inc.
16775 Addison Road, Suite 300
Dallas, Texas 75248
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<PAGE>
with a copy to:
Roger V. Davidson, Esq. and
Andrew L. Pidcock, Esq.
Cohen Brame & Smith Professional Corporation
1700 Lincoln Street, Suite 1800
Denver, Colorado 80203
or at such other addresses as either party may have advised the
other in writing.
9.4 Paragraph and Other Headings. Paragraph and other headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
9.5 Severability. In the event that any one or more of the provisions
contained in this Agreement shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect other provisions of this Agreement, but this Agreement shall be
constructed as if such invalid, illegal or unenforceable provisions had never
been contained therein.
9.6 Parties in Interest. This Agreement shall be binding on and inure
to the benefit of the parties hereto and their respective successors and assigns
except as otherwise expressly provided herein.
9.7 Fees and Expenses. Except as set forth in Section 9.8 below, each
party hereto shall bear its own expenses in connection with the negotiation and
consummation of the transactions contemplated by this Agreement and the other
documents and instruments to be executed and delivered pursuant hereto.
9.8 Attorneys' Fees. Subject to Article 8 hereof, if any action at law
or in equity, including an action for declaratory relief, is brought to enforce
or interpret the provisions of this Agreement, the prevailing party shall be
entitled to recover reasonable attorneys' fees from the other party, which fees
may be set by the court in the trial of such action or may be enforced in a
separate action brought for that purpose, and which fees shall be in addition to
any other relief which may be awarded.
9.9 Counterparts. This Agreement and all other copies of this
Agreement insofar as they relate to the rights, duties and remedies of parties,
shall be deemed to be one agreement. This Agreement may be executed concurrently
in one or more counterparts, each which shall be deemed an original, but all of
which together shall constitute one and the same instrument. Facsimile
signatures shall be treated as original until replaced by the original
signatures which shall then be substituted.
9.10 Integrated Agreement. This Agreement constitutes the entire
agreement between the parties hereto, and there are no agreements,
understandings, restrictions, warranties or representations between the parties
other than those set forth herein or herein provided for.
IN WITNESS WHEREOF, this Agreement has been executed effective as
of the day and year first set forth above.
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TRANS ENERGY, INC., NATURAL GAS TECHNOLOGIES, INC.,
a Nevada corporation a Texas corporation
By:_______________________________ By:____________________________
Loren E. Bagley, President Brent Wagman, President
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Annex11
Nevada Revised Statutes
RIGHTS OF DISSENTING OWNERS
(Nevada)
NRS 92A.300 Definitions. As used in NRS 92A.300 to 92A.500, inclusive, unless
the context otherwise requires, the words and terms defined in NRS 92A.305 to
92A.335, inclusive, have the meanings ascribed to them in those sections. (Added
to NRS by 1995, 2086)
NRS 92A.305 "Beneficial stockholder" defined. "Beneficial stockholder" means a
person who is a beneficial owner of shares held in a voting trust or by a
nominee as the stockholder of record. (Added to NRS by 1995, 2087)
NRS 92A.310 "Corporate action" defined. "Corporate action" means the action of a
domestic corporation. (Added to NRS by 1995, 2087)
NRS 92A.315 "Dissenter" defined. "Dissenter" means a stockholder who is entitled
to dissent from a domestic corporation's action under NRS 92A.380 and who
exercises that right when and in the manner required by NRS 92A.410 to 92A.480,
inclusive. (Added to NRS by 1995, 2087)
NRS 92A.320 "Fair value" defined. "Fair value," with respect to a dissenter's
shares, means the value of the shares immediately before the effectuation of the
corporate action to which he objects, excluding any appreciation or depreciation
in anticipation of the corporate action unless exclusion would be inequitable.
(Added to NRS by 1995, 2087)
NEVADA CASES.
Definition. Term "fair cash value" (now "fair value") as used in former NRS
78.510 (cf. NRS 92A.320 and 92A.380), relating to payment to dissident former
shareholders of merged corporation, meant intrinsic value of dissenting
shareholders' interests determined from assets and liabilities of corporation
considered in light of every factor bearing on value. Southdown, Inc. v.
McGinnis, 89 Nev. 184, 510 P.2d 636 (1973)
NRS 92A.325 "Stockholder" defined. "Stockholder" means a stockholder of record
or a beneficial stockholder of a domestic corporation. (Added to NRS by 1995,
2087)
NRS 92A.330 "Stockholder of record" defined. "Stockholder of record" means the
person in whose name shares are registered in the records of a domestic
corporation or the beneficial owner of shares to the extent of the rights
granted by a nominee's certificate on file with the domestic corporation. (Added
to NRS by 1995, 2087)
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NRS 92A.335 "Subject corporation" defined. "Subject corporation" means the
domestic corporation which is the issuer of the shares held by a dissenter
before the corporate action creating the dissenter's rights becomes effective or
the surviving or acquiring entity of that issuer after the corporate action
becomes effective. (Added to NRS by 1995, 2087)
NRS 92A.340 Computation of interest. Interest payable pursuant to NRS 92A.300 to
92A.500, inclusive, must be computed from the effective date of the action until
the date of payment, at the average rate currently paid by the entity on its
principal bank loans or, if it has no bank loans, at a rate that is fair and
equitable under all of the circumstances. (Added to NRS by 1995, 2087)
NRS 92A.350 Rights of dissenting partner of domestic limited partnership. A
partnership agreement of a domestic limited partnership or, unless otherwise
provided in the partnership agreement, an agreement of merger or exchange, may
provide that contractual rights with respect to the partnership interest of a
dissenting general or limited partner of a domestic limited partnership are
available for any class or group of partnership interests in connection with any
merger or exchange in which the domestic limited partnership is a constituent
entity. (Added to NRS by 1995, 2088)
NRS 92A.360 Rights of dissenting member of domestic limited-liability company.
The articles of organization or operating agreement of a domestic
limited-liability company or, unless otherwise provided in the articles of
organization or operating agreement, an agreement of merger or exchange, may
provide that contractual rights with respect to the interest of a dissenting
member are available in connection with any merger or exchange in which the
domestic limited-liability company is a constituent entity. (Added to NRS by
1995, 2088)
NRS 92A.370 Rights of dissenting member of domestic nonprofit corporation. 1.
Except as otherwise provided in subsection 2, and unless otherwise provided in
the articles or bylaws, any member of any constituent domestic nonprofit
corporation who voted against the merger may, without prior notice, but within
30 days after the effective date of the merger, resign from membership and is
thereby excused from all contractual obligations to the constituent or surviving
corporations which did not occur before his resignation and is thereby entitled
to those rights, if any, which would have existed if there had been no merger
and the membership had been terminated or the member had been expelled. 2.
Unless otherwise provided in its articles of incorporation or bylaws, no member
of a domestic nonprofit corporation, including, but not limited to, a
cooperative corporation, which supplies services described in chapter 704 of NRS
to its members only, and no person who is a member of a domestic nonprofit
corporation as a condition of or by reason of the ownership of an interest in
real property, may resign and dissent pursuant to subsection 1. (Added to NRS by
1995, 2088)
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NRS 92A.380 Right of stockholder to dissent from certain corporate actions and
to obtain payment for shares. 1. Except as otherwise provided in NRS 92A.370 and
92A.390, a stockholder is entitled to dissent from, and obtain payment of the
fair value of his shares in the event of any of the following corporate actions:
(a) Consummation of a plan of merger to which the domestic corporation is a
party: (1) If approval by the stockholders is required for the merger by NRS
92A.120 to 92A.160, inclusive, or the articles of incorporation and he is
entitled to vote on the merger; or (2) If the domestic corporation is a
subsidiary and is merged with its parent under NRS 92A.180. (b) Consummation of
a plan of exchange to which the domestic corporation is a party as the
corporation whose subject owner's interests will be acquired, if he is entitled
to vote on the plan. (c) Any corporate action taken pursuant to a vote of the
stockholders to the event that the articles of incorporation, bylaws or a
resolution of the board of directors provides that voting or nonvoting
stockholders are entitled to dissent and obtain payment for their shares. <249-
9>2. A stockholder who is entitled to dissent and obtain payment under NRS
92A.300 to 92A.500, inclusive, may not challenge the corporate action creating
his entitlement unless the action is unlawful or fraudulent with respect to him
or the domestic corporation. (Added to NRS by 1995, 2087)
NEVADA CASES.
Definition. Term "fair cash value" (now "fair value") as used in former NRS
78.510 (cf. NRS 92A.320 and 92A.380), relating to payment to dissident former
shareholders of merged corporation, meant intrinsic value of dissenting
shareholders' interests determined from assets and liabilities of corporation
considered in light of every factor bearing on value. Southdown, Inc. v.
McGinnis, 89 Nev. 184, 510 P.2d 636 (1973)
FEDERAL AND OTHER CASES. Adequate remedy at law for dissenting stockholders.
Stockholders in Nevada corporation who opposed merger with another corporation
could not invoke equity powers of federal courts to block merger, in absence of
fraud, because they had adequate remedy at law under NCL ss. 1640 (cf. NRS
92A.380) which provides that dissenting stockholder may demand and receive "the
fair cash value of his shares." Skelly v. Dockweiler, 75 F. Supp. 11 (S.D. Cal.
1947)
NRS 92A.390 Limitations on right of dissent: Stockholders of certain classes or
series; action of stockholders not required for plan of merger. 1. There is no
right of dissent with respect to a plan of merger or exchange in favor of
stockholders of any class or series which, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting at
which the plan of merger or exchange is to be acted on, were either listed on a
national securities exchange, included in the national market system by the
National Association of Securities Dealers, Inc., or held by at least 2,000
stockholders of record, unless: (a) The articles of incorporation of the
corporation issuing the shares provide otherwise; or (b) The holders of the
class or series are required under the plan of merger or exchange to accept for
the shares anything except: (1) Cash, owner's interests or owner's interests and
cash in lieu of fractional owner's interests of: (I) The surviving or acquiring
entity; or (II) Any other entity which, at the effective date of the plan of
merger or exchange, were either listed on a national securities exchange,
included in the national market system by the National Association of Securities
Dealers, Inc., or held of record by a least 2,000 holders of owner's interests
of record; or
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(2) A combination of cash and owner's interests of the kind described in
sub-subparagraphs (I) and (II) of subparagraph (1) of paragraph (b). 2. There is
no right of dissent for any holders of stock of the surviving domestic
corporation if the plan of merger does not require action of the stockholders of
the surviving domestic corporation under NRS 92A.130. (Added to NRS by 1995,
2088)
NRS 92A.400 Limitations on right of dissent: Assertion as to portions only to
shares registered to stockholder; assertion by beneficial stockholder. 1. A
stockholder of record may assert dissenter's rights as to fewer than all of the
shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the subject corporation in
writing of the name and address of each person on whose behalf he asserts
dissenter's rights. The rights of a partial dissenter under this subsection are
determined as if the shares as to which he dissents and his other shares were
registered in the names of different stockholders. 2. A beneficial stockholder
may assert dissenter's rights as to shares held on his behalf only if: (a) He
submits to the subject corporation the written consent of the stockholder of
record to the dissent not later than the time the beneficial stockholder asserts
dissenter's rights; and (b) He does so with respect to all shares of which he is
the beneficial stockholder or over which he has power to direct the vote. (Added
to NRS by 1995, 2089)
NRS 92A.410 Notification of stockholders regarding right of dissent. 1. If a
proposed corporate action creating dissenters' rights is submitted to a vote at
a stockholders' meeting, the notice of the meeting must state that stockholders
are or may be entitled to assert dissenters' rights under NRS 92A.300 to
92A.500, inclusive, and be accompanied by a copy of those sections. 2. If the
corporate action creating dissenters' rights is taken by written consent of the
stockholders or without a vote of the stockholders, the domestic corporation
shall notify in writing all stockholders entitled to assert dissenters' rights
that the action was taken and send them the dissenter's notice described in NRS
92A.430. (Added to NRS by 1995, 2089; A 1997, 730)
NRS 92A.420 Prerequisites to demand for payment for shares. 1. If a proposed
corporate action creating dissenters' rights is submitted to a vote at a
stockholders' meeting, a stockholder who wishes to assert dissenter's rights:
(a) Must deliver to the subject corporation, before the vote is taken, written
notice of his intent to demand payment for his shares if the proposed action is
effectuated; and (b) Must not vote his shares in favor of the proposed action.
2. A stockholder who does not satisfy the requirements of subsection 1 is not
entitled to payment for his shares under this chapter. (Added to NRS by 1995,
2089)
NRS 92A.430 Dissenter's notice: Delivery to stockholders entitled to assert
rights; contents. 1. If a proposed corporate action creating dissenters' rights
is authorized at a stockholders' meeting, the subject corporation shall deliver
a written dissenter's notice to all stockholders who satisfied the requirements
to assert those rights. 2. The dissenter's notice must be sent no later than 10
days after the effectuation of the corporate action, and must:
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(a) State where the demand for payment must be sent and where and when
certificates, if any, for shares must be deposited; (b) Inform the holders of
shares not represented by certificates to what extent the transfer of the shares
will be restricted after the demand for payment is received; (c) Supply a form
for demanding payment that includes the date of the first announcement to the
news media or to the stockholders of the terms of the proposed action and
requires that the person asserting dissenter's rights certify whether or not he
acquired beneficial ownership of the shares before that date; (d) Set a date by
which the subject corporation must receive the demand for payment, which may not
be less than 30 nor more than 60 days after the date the notice is delivered;
and (e) Be accompanied by a copy of NRS 92A.300 to 92A.500, inclusive. (Added to
NRS by 1995, 2089)
NRS 92A.440 Demand for payment and deposit of certificates; retention of rights
of stockholder. 1. A stockholder to whom a dissenter's notice is sent must: (a)
Demand payment; (b) Certify whether he acquired beneficial ownership of the
shares before the date required to be set forth in the dissenter's notice for
this certification; and (c) Deposit his certificates, if any, in accordance with
the terms of the notice. 2. The stockholder who demands payment and deposits his
certificates, if any, before the proposed corporate action is taken retains all
other rights of a stockholder until those rights are canceled or modified by the
taking of the proposed corporate action. 3. The stockholder who does not demand
payment or deposit his certificates where required, each by the date set forth
in the dissenter's notice, is not entitled to payment for his shares under this
chapter. (Added to NRS by 1995, 2090; A 1997, 730)
NEVADA CASES.
Dissident stockholders entitled to prejudgment interest from date of demand. In
proceeding pursuant to former NRS 78.510 (cf. NRS 92A.490) by dissident former
shareholders of merged Nevada corporation to recover fair cash value of their
shares, former shareholders were entitled to recover prejudgment interest on
fair cash value from date of demand for payment because, under former NRS 78.515
(cf. NRS 92A.440), they ceased to be shareholders and became creditors on date
of demand and, as creditors, were entitled to interest under NRS 99.040. Fact
that amount due had not yet been judicially determined was immaterial.
Southdown, Inc. v. McGinnis, 89 Nev. 184, 510 P.2d 636 (1973), cited, Tolotti v.
Eikelberger, 90 Nev. 466, at 468, 530 P.2d 106 (1974), Lake Tahoe Sailboat Sales
& Charter, Inc. v. Douglas County, 562 F. Supp. 523 (D. Nev. 1983)
NRS 92A.450 Uncertificated shares: Authority to restrict transfer after demand
for payment; retention of rights of stockholder. 1. The subject corporation may
restrict the transfer of shares not represented by a certificate from the date
the demand for their payment is received. 2. The person for whom dissenter's
rights are asserted as to shares not represented by a certificate retains all
other rights of a stockholder until those rights are canceled or modified by the
taking of the proposed corporate action. (Added to NRS by 1995, 2090)
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NRS 92A.460 Payment for shares: General requirements. 1. Except as otherwise
provided in NRS 92A.470, within 30 days after receipt of a demand for payment,
the subject corporation shall pay each dissenter who complied with NRS 92A.440
the amount the subject corporation estimates to be the fair value of his shares,
plus accrued interest. The obligation of the subject corporation under this
subsection may be enforced by the district court: (a) Of the county where the
corporation's registered office is located; or (b) At the election of any
dissenter residing or having its registered office in this state, of the county
where the dissenter resides or has its registered office. The court shall
dispose of the complaint promptly. 2. The payment must be accompanied by: (a)
The subject corporation's balance sheet as of the end of a fiscal year ending
not more than 16 months before the date of payment, a statement of income for
that year, a statement of changes in the stockholders' equity for that year and
the latest available interim financial statements, if any; (b) A statement of
the subject corporation's estimate of the fair value of the shares; (c) An
explanation of how the interest was calculated; (d) A statement of the
dissenter's rights to demand payment under NRS 92A.480; and (e) A copy of NRS
92A.300 to 92A.500, inclusive. (Added to NRS by 1995, 2090)
NRS 92A.470 Payment for shares: Shares acquired on or after date of dissenter's
notice. 1. A subject corporation may elect to withhold payment from a dissenter
unless he was the beneficial owner of the shares before the date set forth in
the dissenter's notice as the date of the first announcement to the news media
or to the stockholders of the terms of the proposed action. 2. To the extent the
subject corporation elects to withhold payment, after taking the proposed
action, it shall estimate the fair value of the shares, plus accrued interest,
and shall offer to pay this amount to each dissenter who agrees to accept it in
full satisfaction of his demand. The subject corporation shall send with its
offer a statement of its estimate of the fair value of the shares, an
explanation of how the interest was calculated, and a statement of the
dissenters' right to demand payment pursuant to NRS 92A.480. (Added to NRS by
1995, 2091)
NRS 92A.480 Dissenter's estimate of fair value: Notification of subject
corporation; demand for payment of estimate. 1. A dissenter may notify the
subject corporation in writing of his own estimate of the fair value of his
shares and the amount of interest due, and demand payment of his estimate, less
any payment pursuant to NRS 92A.460, or reject the offer pursuant to NRS 92A.470
and demand payment of the fair value of his shares and interest due, if he
believes that the amount paid pursuant to NRS 92A.460 or offered pursuant to NRS
92A.470 is less than the fair value of his shares or that the interest due is
incorrectly calculated. 2. A dissenter waives his right to demand payment
pursuant to this section unless he notifies the subject corporation of his
demand in writing within 30 days after the subject corporation made or offered
payment for his shares. (Added to NRS by 1995, 2091)
NRS 92A.490 Legal proceeding to determine fair value: Duties of subject
corporation; powers of court; rights of dissenter. 1. If a demand for payment
remains unsettled, the subject corporation shall commence a proceeding within 60
days after receiving the demand and petition the court to determine the fair
value of the shares and accrued interest. If the subject corporation does not
commence the proceeding within the 60-day period, it shall pay each dissenter
whose demand remains unsettled the amount demanded.
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2. A subject corporation shall commence the proceeding in the district court of
the county where its registered office is located. If the subject corporation is
a foreign entity without a resident agent in the state, it shall commence the
proceeding in the county where the registered office of the domestic corporation
merged with or whose shares were acquired by the foreign entity was located. 3.
The subject corporation shall make all dissenters, whether or not residents of
Nevada, whose demands remain unsettled, parties to the proceeding as in an
action against their shares. All parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law. 4. The jurisdiction of the court in which the
proceeding is commenced under subsection 2 is plenary and exclusive. The court
may appoint one or more persons as appraisers to receive evidence and recommend
a decision on the question of fair value. The appraisers have the powers
described in the order appointing them, or any amendment thereto. The dissenters
are entitled to the same discovery rights as parties in other civil proceedings.
5. Each dissenter who is made a party to the proceeding is entitled to a
judgment: (a) For the amount, if any, by which the court finds the fair value of
his shares, plus interest, exceeds the amount paid by the subject corporation;
or (b) For the fair value, plus accrued interest, of his after-acquired shares
for which the subject corporation elected to withhold payment pursuant to NRS
92A.470. (Added to NRS by 1995, 2091)
NEVADA CASES.
Findings of appraisers not disturbed unless clearly wrong. On appeal from
judgment confirming appraisal of stock of merged corporation in proceeding under
former NRS 78.510 (cf. NRS 92A.490) by dissident former shareholders to recover
value of their shares, findings of appraisers would not be disturbed unless
clearly wrong. Southdown, Inc. v. McGinnis, 89 Nev. 184, 510 P.2d 636 (1973)
Dissident stockholders entitled to prejudgment interest from date of demand. In
proceeding pursuant to former NRS 78.510 (cf. NRS 92A.490) by dissident former
shareholders of merged Nevada corporation to recover fair cash value of their
shares, former shareholders were entitled to recover prejudgment interest on
fair cash value from date of demand for payment because, under former NRS 78.515
(cf. NRS 92A.440), they ceased to be shareholders and became creditors on date
of demand and, as creditors, were entitled to interest under NRS 99.040. Fact
that amount due had not yet been judicially determined was immaterial.
Southdown, Inc. v. McGinnis, 89 Nev. 184, 510 P.2d 636 (1973), cited, Tolotti v.
Eikelberger, 90 Nev. 466, at 468, 530 P.2d 106 (1974), Lake Tahoe Sailboat Sales
& Charter, Inc. v. Douglas County, 562 F. Supp. 523 (D. Nev. 1983)
NRS 92A.500 Legal proceeding to determine fair value: Assessment of costs and
fees. 1. The court in a proceeding to determine fair value shall determine all
of the costs of the proceeding, including the reasonable compensation and
expenses of any appraisers appointed by the court. The court shall assess the
costs against the subject corporation, except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously or not
in good faith in demanding payment. 2. The court may also assess the fees and
expenses of the counsel and experts for the respective parties, in amounts the
court finds equitable: (a) Against the subject corporation and in favor of all
dissenters if the court finds the subject corporation did not substantially
comply with the requirements of NRS 92A.300 to 92A.500, inclusive; or (b)
Against either the subject corporation or a dissenter in favor of any other
party, if the court finds that the party against whom the fees and expenses are
assessed acted arbitrarily, vexatiously or not in good faith with respect to the
rights provided by NRS 92A.300 to 92A.500, inclusive.
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3. If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the subject corporation, the
court may award to those counsel reasonable fees to be paid out of the amounts
awarded to the dissenters who were benefited. 4. In a proceeding commenced
pursuant to NRS 92A.460, the court may assess the costs against the subject
corporation, except that the court may assess costs against all or some of the
dissenters who are parties to the proceeding, in amounts the court finds
equitable, to the extent the court finds that such parties did not act in good
faith in instituting the proceeding. 5. This section does not preclude any party
in a proceeding commenced pursuant to NRS 92A.460 or 92A.490 from applying the
provisions of N.R.C.P. 68 or NRS 17.115. (Added to NRS by 1995, 2092)
8
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Annex III
Texas Business Corporation Act
Art. 5.11. Rights of Dissenting Shareholders in the Event of Certain Corporate
Actions.
A. Any shareholder of a domestic corporation shall have the right
to dissent from any of the following corporate actions:
(1) Any plan of merger to which the corporation is a
party if shareholder approval is required by Article
5.03 or 5.16 of this Act and the shareholder holds
shares of a class or series that was entitled to vote
thereon as a class or otherwise;
(2) Any sale, lease, exchange or other disposition (not
including any pledge, mortgage, deed of trust or
trust indenture unless otherwise provided in the
articles of incorporation) of all, or substantially
all, the property and assets, with or without good
will, of a corporation requiring the special
authorization of the shareholders as provided by this
Act;
(3) Any plan of exchange pursuant to Article 5.02 of this
Act in which the shares of the corporation of the
class or series held by the shareholder are to be
acquired.
B. Notwithstanding the provisions of Section A of this Article, a
shareholder shall not have the right to dissent from any plan
of merger in which there is a single surviving or new domestic
or foreign corporation, or from any plan of exchange, if (1)
the shares held by the shareholder are part of a class shares
of which are listed on a national securities exchange, or are
held of record by not less than 2,000 holders, on the record
date fixed to determine the shareholders entitled to vote on
the plan of merger or the plan of exchange, and (2) the
shareholder is not required by the terms of the plan of merger
or the plan of exchange to accept for his shares any
consideration other than (a) shares of a corporation that,
immediately after the effective time of the merger or
exchange, will be part of a class or series of shares of which
are (i) listed, or authorized for listing upon official notice
of issuance, on a national securities exchange, or (ii) held
of record by not less than 2,000 holders, and (b) cash in lieu
of fractional shares otherwise entitled to be received.
Acts 1955, 54th Leg., p. 239, ch. 64, eff. Sept. 6, 1955. Amended by Acts 1957,
55th Leg., p. 111, ch. 54, Sec. 10; Acts 1973, 63rd Leg., p. 1508, ch. 545, Sec.
36, eff. Aug. 27, 1973.
Amended by Acts 1989, 71st Leg., ch. 801, Sec. 34, eff. Aug. 28, 1989; Sec. B
amended by Acts 1991, 72nd Leg., ch. 901, Sec. 32, eff. Aug. 26, 1991.
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Art. 5.12. Procedure for Dissent by Shareholders as to Said Corporate Actions.
A. Any shareholder of any domestic corporation who has the right
to dissent from any of the corporate actions referred to in
Article 5.11 of this Act may exercise that right to dissent
only by complying with the following procedures:
(1) (a) With respect to proposed corporate action that is
submitted to a vote of shareholders at a meeting, the
shareholder shall file with the corporation, prior to
the meeting, a written objection to the action,
setting out that the shareholder's right to dissent
will be exercised if the action is effective and
giving the shareholder's address, to which notice
thereof shall be delivered or mailed in that event.
If the action is effected and the shareholder shall
not have voted in favor of the action, the
corporation, in the case of action other than a
merger, or the surviving or new corporation (foreign
or domestic) or other entity that is liable to
discharge the shareholder's right of dissent, in the
case of a merger, shall, within ten (10) days after
the action is effected, deliver or mail to the
shareholder written notice that the action has been
effected, and the shareholder may, within ten (10)
days from the delivery or mailing of the notice, make
written demand on the existing, surviving, or new
corporation (foreign or domestic) or other entity, as
the case may be, for payment of the fair value of the
shareholder's shares. The fair value of the shares
shall be the value thereof as of the day immediately
preceding the meeting, excluding any appreciation or
depreciation in anticipation of the proposed action.
The demand shall state the number and class of the
shares owned by the shareholder and the fair value of
the shares as estimated by the shareholder. Any
shareholder failing to make demand within the ten
(10) day period shall be bound by the action.
(b) With respect to proposed corporate action that is
approved pursuant to Section A of Article 9.10 of
this Act, the corporation, in the case of action
other than a merger, and the surviving or new
corporation (foreign or domestic) or other entity
that is liable to discharge the shareholder's right
of dissent, in the case of a merger, shall, within
ten (10) days after the date the action is effected,
mail to each shareholder of record as of the
effective date of the action notice of the fact and
date of the action and that the shareholder may
exercise the shareholder's right to dissent from the
action. The notice shall be accompanied by a copy of
this Article and any articles or documents filed by
the corporation with the Secretary of State to effect
the action. If the shareholder shall not have
consented to the taking of the action, the
shareholder may, within twenty (20) days after the
mailing of the notice, make written demand on the
existing, surviving, or new corporation (foreign or
domestic) or other entity, as the case may be, for
payment of the fair value of the shareholder's
shares. The fair value of the shares shall be the
value thereof as of the date the written consent
authorizing the action was delivered to the
corporation pursuant to Section A of Article 9.10 of
this Act, excluding any appreciation or depreciation
in anticipation of the action. The demand shall state
the number and class of shares owned by the
dissenting shareholder and the fair value of the
shares as estimated by the shareholder.
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<PAGE>
Any shareholder failing to make demand within the
twenty (20) day period shall be bound by the action.
(2) Within twenty (20) days after receipt by the existing,
surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, of a demand for payment made by a
dissenting shareholder in accordance with Subsection (1) of
this Section, the corporation (foreign or domestic) or other
entity shall deliver or mail to the shareholder a written
notice that shall either set out that the corporation (foreign
or domestic) or other entity accepts the amount claimed in the
demand and agrees to pay that amount within ninety (90) days
after the date on which the action was effected, and, in the
case of shares represented by certificates, upon the surrender
of the certificates duly endorsed, or shall contain an
estimate by the corporation (foreign or domestic) or other
entity of the fair value of the shares, together with an offer
to pay the amount of that estimate within ninety (90) days
after the date on which the action was effected, upon receipt
of notice within sixty (60) days after that date from the
shareholder that the shareholder agrees to accept that amount
and, in the case of shares represented by certificates, upon
the surrender of the certificates duly endorsed.
(3) If, within sixty (60) days after the date on which the
corporate action was effected, the value of the shares is
agreed upon between the shareholder and the existing,
surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, payment for the shares shall be
made within ninety (90) days after the date on which the
action was effected and, in the case of shares represented by
certificates, upon surrender of the certificates duly
endorsed. Upon payment of the agreed value, the shareholder
shall cease to have any interest in the shares or in the
corporation.
B. If, within the period of sixty (60) days after the date on
which the corporate action was effected, the shareholder and
the existing, surviving, or new corporation (foreign or
domestic) or other entity, as the case may be, do not so
agree, then the shareholder or the corporation (foreign or
domestic) or other entity may, within sixty (60) days after
the expiration of the sixty (60) day period, file a petition
in any court of competent jurisdiction in the county in which
the principal office of the domestic corporation is located,
asking for a finding and determination of the fair value of
the shareholder's shares. Upon the filing of any such petition
by the shareholder, service of a copy thereof shall be made
upon the corporation (foreign or domestic) or other entity,
which shall, within ten (10) days after service, file in the
office of the clerk of the court in which the petition was
filed a list containing the names and addresses of all
shareholders of the domestic corporation who have demanded
payment for their shares and with whom agreements as to the
value of their shares have not been reached by the corporation
(foreign or domestic) or other entity. If the petition shall
be filed by the corporation (foreign or domestic) or other
entity, the petition shall be accompanied by such a list. The
clerk of the court shall give notice of the time and place
fixed for the hearing of the petition by registered mail to
the corporation (foreign or domestic) or other entity and to
the shareholders named on the list at the addresses therein
stated. The forms of the notices by mail shall be approved by
the court. All shareholders thus notified and the corporation
(foreign or domestic) or other entity shall thereafter be
bound by the final judgment of the court.
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C. After the hearing of the petition, the court shall determine
the shareholders who have complied with the provisions of this
Article and have become entitled to the valuation of and
payment for their shares, and shall appoint one or more
qualified appraisers to determine that value. The appraisers
shall have power to examine any of the books and records of
the corporation the shares of which they are charged with the
duty of valuing, and they shall make a determination of the
fair value of the shares upon such investigation as to them
may seem proper. The appraisers shall also afford a reasonable
opportunity to the parties interested to submit to them
pertinent evidence as to the value of the shares. The
appraisers shall also have such power and authority as may be
conferred on Masters in Chancery by the Rules of Civil
Procedure or by the order of their appointment.
D. The appraisers shall determine the fair value of the shares of
the shareholders adjudged by the court to be entitled to
payment for their shares and shall file their report of that
value in the office of the clerk of the court. Notice of the
filing of the report shall be given by the clerk to the
parties in interest. The report shall be subject to exceptions
to be heard before the court both upon the law and the facts.
The court shall by its judgment determine the fair value of
the shares of the shareholders entitled to payment for their
shares and shall direct the payment of that value by the
existing, surviving, or new corporation (foreign or domestic)
or other entity, together with interest thereon, beginning 91
days after the date on which the applicable corporate action
from which the shareholder elected to dissent was effected to
the date of such judgment, to the shareholders entitled to
payment. The judgment shall be payable to the holders of
uncertificated shares immediately but to the holders of shares
represented by certificates only upon, and simultaneously
with, the surrender to the existing, surviving, or new
corporation (foreign or domestic) or other entity, as the case
may be, of duly endorsed certificates for those shares. Upon
payment of the judgment, the dissenting shareholders shall
cease to have any interest in those shares or in the
corporation. The court shall allow the appraisers a reasonable
fee as court costs, and all court costs shall be allotted
between the parties in the manner that the court determines to
be fair and equitable.
E. Shares acquired by the existing, surviving, or new corporation
(foreign or domestic) or other entity, as the case may be,
pursuant to the payment of the agreed value of the shares or
pursuant to payment of the judgment entered for the value of
the shares, as in this Article provided, shall, in the case of
a merger, be treated as provided in the plan of merger and, in
all other cases, may be held and disposed of by the
corporation as in the case of other treasury shares.
F. The provisions of this Article shall not apply to a merger if,
on the date of the filing of the articles of merger, the
surviving corporation is the owner of all the outstanding
shares of the other corporations, domestic or foreign, that
are parties to the merger.
G. In the absence of fraud in the transaction, the remedy
provided by this Article to a shareholder objecting to any
corporate action referred to in Article 5.11 of this Act is
the exclusive remedy for the recovery of the value of his
shares or money damages to the shareholder with respect to the
action. If the existing, surviving, or new corporation
(foreign or domestic) or other entity, as the case may be,
complies with the requirements of this Article, any
4
<PAGE>
shareholder who fails to comply with the requirements of this
Article shall not be entitled to bring suit for the recovery
of the value of his shares or money damages to the shareholder
with respect to the action.
Acts 1955, 54th Leg., p. 239, ch. 64, eff. Sept. 6, 1955. Amended by Acts 1967,
60th Leg., p. 1721, ch. 657, Sec. 12, eff. June 17, 1967.
Secs. A and D amended by Acts 1983, 68th Leg., p. 2570, ch. 442, Sec. 9, eff.
Sept. 1, 1983; Sec. B amended by Acts 1987, 70th Leg., ch. 93, Sec. 27, eff.
Aug. 31, 1987. Amended by Acts 1989, 71st Leg., ch. 801, Sec. 35, eff. Aug. 28,
1989. Secs. A, D amended by Acts 1993, 73rd Leg., ch. 215, Sec. 2.16, eff. Sept.
1, 1993.
Art. 5.13. Provisions Affecting Remedies of Dissenting Shareholders.
A. Any shareholder who has demanded payment for his shares in
accordance with either Article 5.12 or 5.16 of this Act shall
not thereafter be entitled to vote or exercise any other
rights of a shareholder except the right to receive payment
for his shares pursuant to the provisions of those articles
and the right to maintain an appropriate action to obtain
relief on the ground that the corporate action would be or was
fraudulent, and the respective shares for which payment has
been demanded shall not thereafter be considered outstanding
for the purposes of any subsequent vote of shareholders.
B. Upon receiving a demand for payment from any dissenting
shareholder, the corporation shall make an appropriate
notation thereof in its shareholder records. Within twenty
(20) days after demanding payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act, each holder of
certificates representing shares so demanding payment shall
submit such certificates to the corporation for notation
thereon that such demand has been made. The failure of holders
of certificated shares to do so shall, at the option of the
corporation, terminate such shareholder's rights under
Articles 5.12 and 5.16 of this Act unless a court of competent
jurisdiction for good and sufficient cause shown shall
otherwise direct. If uncertificated shares for which payment
has been demanded or shares represented by a certificate on
which notation has been so made shall be transferred, any new
certificate issued therefor shall bear similar notation
together with the name of the original dissenting holder of
such shares and a transferee of such shares shall acquire by
such transfer no rights in the corporation other than those
which the original dissenting shareholder had after making
demand for payment of the fair value thereof.
C. Any shareholder who has demanded payment for his shares in
accordance with either Article 5.12 or 5.16 of this Act may
withdraw such demand at any time before payment for his shares
or before any petition has been filed pursuant to Article 5.12
or 5.16 of this Act asking for a finding and determination of
the fair value of such shares, but no such demand may be
withdrawn after such payment has been made or, unless the
corporation shall consent thereto, after any such petition has
been filed. If, however, such demand shall be withdrawn as
hereinbefore provided, or if pursuant to Section B of this
Article the corporation shall terminate the shareholder's
rights under Article 5.12 or 5.16 of this Act, as the case may
be, or if no petition asking for a finding and determination
of fair value of such shares by a court shall have been filed
within the time provided in Article 5.12 or 5.16 of this Act,
5
<PAGE>
as the case may be, or if after the hearing of a petition
filed pursuant to Article 5.12 or 5.16, the court shall
determine that such shareholder is not entitled to the relief
provided by those articles, then, in any such case, such
shareholder and all persons claiming under him shall be
conclusively presumed to have approved and ratified the
corporate action from which he dissented and shall be bound
thereby, the right of such shareholder to be paid the fair
value of his shares shall cease, and his status as a
shareholder shall be restored without prejudice to any
corporate proceedings which may have been taken during the
interim, and such shareholder shall be entitled to receive any
dividends or other distributions made to shareholders in the
interim.
Acts 1955, 54th Leg., p. 239, ch. 64, eff. Sept. 6, 1955. Amended by Acts 1967,
60th Leg., p. 1723, ch. 657, Sec. 13, eff. June 17, 1967.
Sec. B amended by Acts 1983, 68th Leg., p. 2573, ch. 442, Sec. 10, eff. Sept. 1,
1983. Amended by Acts 1993, 73rd Leg., ch. 215, Sec. 2.17, eff. Sept. 1, 1993.
6
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Annex IV
GLOSSARY OF CERTAIN TERMS RELATING TO THE MERGER
The terms defined below are used throughout this Joint Proxy
Statement/Prospectus.
Bcf. One billion cubic feet.
Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume, used
herein in reference to oil or other liquid hydrocarbons.
BOE. Barrels of oil equivalent. Oil equivalents are determined using
the ratio of six Mcf of gas (including gas liquids) to one Bbl of oil.
Commission. Means the Securities and Exchange Commission.
Development well. A well drilled within the proved area of an oil or
gas reservoir to the depth of a stratigraphic horizon known to be productive in
an attempt to recover proved undeveloped reserves.
Disposal well. A well employed for the reinjection of salt water
produced with oil into an underground formation.
Effective Date. The date the Merger becomes effective upon which the
Articles of Merger are filed with the State of Nevada.
Estimated net proved reserves. The estimated quantities of oil, gas and
gas liquids which geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs under existing
economic and operating conditions.
Exchange Act. Means the Securities Exchange Act of 1934, as amended.
Exchange Agent. Means Interstate Transfer Company.
Exploratory well. A well drilled to find and produce oil or gas in an
unproved area, to find a new reservoir in a field previously found to be
productive of oil or gas in another reservoir, or to extend a known reservoir.
Gross acres. An acre in which a working interest is owned.
Injection well. Well employed to inject water or polymer into an oil
bearing formation in order to increase reservoir pressure.
MBbl. One thousand barrels of oil or other liquid hydrocarbons.
MMBbl. One million barrels of oil or other liquid hydrocarbons.
MBOE. One thousand barrels of oil equivalent.
Mcf. One thousand cubic feet.
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Merger Agreement. Means the Plan and Agreement of Merger between Trans
Energy, Inc. and natural Gas Technologies, Inc., dated March 26, 1997, a copy of
which is annexed to this Joint Proxy Statement/Prospectus as Annex I.
MMcf. One million cubic feet.
Net acres. The sum of the fractional working interests owned in gross
acres.
NGT Series 1994-A Preferred Stock.
Pay. A geological deposit in which oil and gas is found in commercial
quantities.
PV-10 value. The present value of estimated future gross revenue to be
generated from the production of estimated net proved reserves, net of estimated
production and future development costs, using prices and costs in effect as of
the date indicated (unless such prices or costs are subject to change pursuant
to contractual provisions), without giving effect to non-property related
expenses such as general and administrative expenses, debt service and future
income tax expenses or to depreciation, depletion and amortization, discounted
using an annual discount rate of 10%.
Productive well. A well that is producing oil or gas or that is capable
of production.
Proved developed reserves. Reserves that can be expected to be
recovered through existing wells with existing equipment and operating methods.
Proved undeveloped reserves. Reserves that are expected to be recovered
from new wells on undrilled acreage, or from existing wells where a relatively
major expenditure is required for recompletion.
Securities Act. Means the Securities Act of 1933, as amended.
Shut-in. To close down a producing well temporarily.
Stripper. A well which produces very little oil and therefore provides
very little if any profit margin.
Undeveloped acreage. Lease acreage on which wells have not been drilled
or completed to a point that would permit the production of commercial
quantities or oil and gas, regardless of whether such acreage contains estimated
net proved reserves.
Working interest. The operating interest which gives the owner the
right to drill, produce and conduct operating activities on the property and to
share in the production. Working interest is computed as a percentage of the
interest remaining after payment of royalties.
2
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- --------------------------------------------------------------------------------
Trans Energy, Inc.
210 Second Street, P.O. Box 393, St. Marys, West Virginia 26170
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY
-----
The undersigned hereby constitutes and appoints William F. Woodburn,
Vice President of Trans Energy, Inc., with power of substitution, the proxies of
the undersigned to attend the Special Meeting of the Shareholders of Trans
Energy, Inc. on October __, 1998, and any adjournment thereof, and to vote the
stock of the corporation standing in the name of the undersigned.
1. Proposal to approve the issuance of Trans Energy, Inc. common
stock pursuant to an Plan and Agreement of Merger with Natural
Gas Technologies, Inc. and the transactions contemplated
thereby.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Proposal to amend the Articles of Incorporation to change the
authorized capitalization of Trans Energy, Inc. to add
10,000,000 shares of preferred stock , par value $.001 per
share.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Proposal to issue to Brent Wagman, President of Natural Gas
Technologies, Inc., ____________ shares of Trans Energy, Inc.
Common Stock in exchange for certain debts owed.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Proposal to ratify the issuance of up to $4,850,000 face value
convertible debenture that may be converted into shares of Trans
Energy, Inc. Common Stock. [
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. On any and all other matters that may properly come before the
meeting.
This proxy, when properly executed, will be voted in the manner
directed herein by the undersigned shareholder. IF NO SPECIFIC
DIRECTIONS ARE GIVEN, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2, 3
AND 4.
------------------------ ------------------------
Print Name Signature of Shareholder
------------------------ -------------------------
Number of Shares Signature if Held Jointly
-------------------------
Date
Please sign exactly as name appears on the certificate or certificates
representing shares to be voted by this proxy. When signing as executor,
administrator, attorney, trustee or guardian, please give full titles as such.
If a corporation, please sign in full corporate name by president or other
authorized officer. If a partnership, please sign in partnership name by
authorized persons.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
As permitted by the provisions of the Nevada Revised Statutes
(the "NRS"), TSRG has the power to indemnify any person made a party to an
action, suit or proceeding by reason of the fact that they are or were a
director, officer, employee or agent of TSRG, against expenses, judgments, fines
and amounts paid in settlement actually and reasonably incurred by them in
connection with any such action, suit or proceeding if they acted in good faith
and in a manner which they reasonably believed to be in, or not opposed to, the
best interest of TSRG and, in any criminal action or proceeding, they had no
reasonable cause to believe their conduct was unlawful. Termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, does not, of itself, create a
presumption that the person did not act in good faith and in a manner which they
reasonably believed to be in or not opposed to the best interests of TSRG, and,
in any criminal action or proceeding, they had no reasonable cause to believe
their conduct was unlawful.
TSRG must indemnify a director, officer, employee or agent of TSRG who
is successful, on the merits or otherwise, in the defense of any action, suit or
proceeding, or in defense of any claim, issue, or matter in the proceeding, to
which they are a party because they are or were a director, officer employee or
agent of TSRG, against expenses actually and reasonably incurred by them in
connection with the defense.
TSRG may provide to pay the expenses of officers and directors incurred
in defending a civil or criminal action, suit or proceeding as the expenses are
incurred and in advance of the final disposition of the action, suit or
proceeding, upon receipt of an undertaking by or on behalf of the director or
officer to repay the amount if it is ultimately determined by a court of
competent jurisdiction that they are not entitled to be indemnified by TSRG.
The NRS also permits a corporation to purchase and maintain liability
insurance or make other financial arrangements on behalf of any person who is or
was a director, officer, employee or agent of TSRG, or is or was serving at the
request of the corporation as a director, officer, employee or agent, of another
corporation, partnership, joint venture, trust or other enterprise for any
liability asserted against them and liability and expenses incurred by them in
their capacity as a director, officer, employee or agent, or arising out of
their status as such, whether or not TSRG has the authority to indemnify them
against such liability and expenses. Presently, TSRG does not carry such
insurance.
Item 21. Exhibits and Financial Statement Schedules
(a) The following exhibits are filed with this Registration Statement:
Exhibit No. Exhibit Name
- ----------- ------------
2.1 Plan and Agreement of Merger (See Annex I)
3.1* Articles of Incorporation and Amendments
3.2* By-Laws
4.1* Specimen Common Stock Certificates of Registrant
5 Opinion of Leonard E. Neilson, P.C.
10.1* Marketing Agreement with Sancho Oil and Gas Corporation
1
<PAGE>
10.2* Gas Purchase Agreement with Central Trading Company
10.3* Price Agreement with Key Oil Company
21* Subsidiaries of Registrant
23.1 Consent of Jones Jensen & Company, Independent Certified Public
Accountants, related to financial statements for Trans Energy, Inc.
23.2 Consent of Jones Jensen & Company, Independent Certified Public
Accountants, related to financial statements for Natural Gas
Technologies, Inc.
23.3 Consent of Leonard E. Neilson, P.C. (included in Exhibit 5)
27 Financial Data Schedule
99.1* Reserve Estimate and Evaluation of oil and gas properties
99.2* Reserve Estimate and Evaluation for Dennis L. Spencer wells
- ------------
*Previously filed as Exhibit to Form 10-SB.
(b) Financial Statement Schedules for Registrant.
Schedules other than those listed above are omitted for the reason that
they are not required or are not applicable, or the required
information is shown in the financial statements or notes therein.
Item 22. 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 small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer 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 small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
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 small business issuer 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.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
2
<PAGE>
TRANS ENERGY, INC.
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors
Trans Energy, Inc.
Las Vegas, Nevada
We have audited the accompanying consolidated balance sheet of Trans Energy,
Inc. and subsidiaries as of December 31, 1997 and the related consolidated
statements of operations, stockholders' equity, and cash flows for the years
ended December 31, 1997 and 1996. 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Trans
Energy, Inc. and subsidiaries as of December 31, 1997 and the consolidated
results of their operations and their cash flows for the years ended December
31, 1997 and 1996, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 8 to the
financial statements, the Company has generated significant losses from
operations which raises substantial doubt about its ability to continue as a
going concern. Management's plans in regards to these matters are also described
in Note 8. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Jones, Jensen & Company
Salt Lake City, Utah
March 25, 1998
1
<PAGE>
TRANS ENERGY, INC.
Consolidated Balance Sheet
ASSETS
------
December 31,
1997
-----------------
CURRENT ASSETS
Cash $ 185,881
Accounts receivable 175,161
Prepaid and other current assets 1,441
-----------------
Total Current Assets 362,483
-----------------
PROPERTY AND EQUIPMENT (Note 2)
Vehicles 94,589
Machinery and equipment 10,092
Pipelines 2,231,308
Well equipment 271,882
Wells 3,850,429
Leasehold acreage 597,221
Accumulated depreciation (1,742,136)
-----------------
Total Fixed Assets 5,313,385
-----------------
OTHER ASSETS
Loan acquisition costs 4,733
-----------------
Total Other Assets 4,733
-----------------
TOTAL ASSETS $ 5,680,601
=================
The accompanying notes are an integral part of these consolidated
financial statements.
2
<PAGE>
<TABLE>
TRANS ENERGY, INC.
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<CAPTION>
December 31,
1997
<S> <C>
CURRENT LIABILITIES -----------------
Accounts payable - trade $ 1,250,017
Accrued expenses 72,195
Salaries payable 64,602
Notes payable - current portion (Note 3) 898,098
-----------------
Total Current Liabilities 2,284,912
-----------------
NET LIABILITIES IN EXCESS OF ASSETS OF
DISCONTINUED OPERATIONS (Note 9) 340,821
-----------------
LONG-TERM LIABILITIES
Notes payable (Note 3) 792,387
-----------------
Total Long-Term Liabilities 792,387
-----------------
Total Liabilities 3,418,120
-----------------
MINORITY INTERESTS 250,000
-----------------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY (Note 6)
Common Stock: 30,000,000 shares authorized at $0.001 par value;
5,663,215 shares issued and outstanding 5,663
Capital in excess of par value 10,746,979
Accumulated deficit (8,740,161)
-----------------
Total Stockholders' Equity 2,012,481
-----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,680,601
=================
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
3
<PAGE>
TRANS ENERGY, INC.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the Years Ended
December 31,
----------------------------------
1997 1996
-------------- ---------------
<S> <C> <C>
OIL AND GAS SALES $ 1,115,037 $ 1,236,740
-------------- ---------------
COSTS AND EXPENSES
Cost of oil and gas 748,757 787,136
Salaries and wages 203,940 104,078
Depreciation, depletion and amortization 325,206 165,830
Selling, general and administrative 1,453,954 803,810
-------------- ---------------
Total Costs and Expenses 2,731,857 1,860,854
-------------- ---------------
LOSS FROM CONTINUING OPERATIONS (1,616,820) (624,114)
-------------- ---------------
OTHER INCOME (EXPENSE)
Other income 10,229 73
Interest expense (281,867) (1,276,465)
Gain (loss) on disposition of assets 1,500 (50,000)
Bad debt expense (100,000) (16,000)
-------------- ---------------
Total Other Income (Expense) (370,138) (1,342,392)
-------------- ---------------
NET LOSS FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES AND MINORITY INTERESTS (1,986,958) (1,966,506)
-------------- ---------------
INCOME TAXES (Note 1) - -
-------------- ---------------
NET LOSS FROM CONTINUING OPERATIONS BEFORE
MINORITY INTERESTS (1,986,958) (1,966,506)
NET LOSS FROM DISCONTINUED OPERATIONS (Note 9) (42,492) (1,711,877)
-------------- ---------------
NET LOSS BEFORE MINORITY INTERESTS (2,029,450) (3,678,383)
MINORITY INTERESTS - 39,393
-------------- ---------------
NET LOSS $ (2,029,450) $ (3,638,990)
============== ===============
NET LOSS PER SHARE
Continuing operations $ (0.44) $ (0.59)
Discontinued operations - (0.53)
-------------- ---------------
$ (0.44) $ (1.12)
============== ===============
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
4
<PAGE>
TRANS ENERGY, INC.
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Common Shares Capital in
------------------------- Excess of Accumulated
Shares Amount Par Value Deficit
------ ------ --------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 3,174,122 $ 3,174 $ 5,629,734 $ (3,071,721)
Common stock issued for
debenture at $0.90 per share .. 55,555 56 49,944 --
Common stock issued for
services at $2.67 per share 9,000 9 23,991 --
Common stock warrants
issued -- -- 774,000 --
Cancellation of common
stock options issued for
services -- -- (275,000) --
Shareholder loans contributed
to capital -- -- 250,000 --
Issuance of common stock for
cash at $5.36 per share 585,366 585 3,137,415 --
Common stock offering costs -- -- (663,451) --
Net loss for the year ended
December 31, 1996 -- -- -- (3,638,990)
------------ ------------ ------------ ------------
Balance, December 31, 1996 3,824,043 3,824 8,926,633 (6,710,711)
Common stock issued for services
at $1.41 per share 350,000 350 491,837 --
Common stock issued for cash
at $0.96 per share 1,489,172 1,489 1,428,511 --
Contribution of capital by
shareholders -- -- 49,998 --
Common stock offering costs -- -- (150,000) --
Net loss for the year ended
December 31, 1997 -- -- -- (2,029,450)
------------ ------------ ------------ ------------
Balance, December 31, 1997 5,663,215 $ 5,663 $ 10,746,979 $ (8,740,161)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
5
<PAGE>
<TABLE>
TRANS ENERGY, INC.
Consolidated Statements of Cash Flows
<CAPTION>
For the Years Ended
December 31,
-------------------
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $(2,029,450) $(3,638,990)
Adjustments to Reconcile Net Loss to Cash
Provided by Operating Activities:
Depreciation and depletion 325,206 165,830
Minority interest 250,000 (39,393)
(Gain) loss on disposition of assets (1,500) 50,000
Bad debt expense 100,000 16,000
Common stock issued for services 492,837 24,000
Stock options canceled for services not performed -- (275,000)
Loss on discontinued operations (477,896) 1,190,800
Changes in Operating Assets and Liabilities:
Decrease (increase) in accounts receivable (39,404) (73,290)
Decrease (increase) in prepaid and other current assets 58,160 (59,601)
Decrease (increase) in deposits -- 355
Decrease (increase) in loan acquisition costs -- 876,065
Increase (decrease) in accounts payable and
accrued expenses 721,716 243,223
----------- -----------
Cash Provided (Used) by Operating Activities (600,331) (1,520,001)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment (918,685) (152,206)
----------- -----------
Cash Provided (Used) by Investing Activities $ (918,685) $ (152,206)
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
6
<PAGE>
TRANS ENERGY, INC.
Consolidated Statements of Cash Flows (Continued)
For the Years Ended
December 31,
--------------------------
1997 1996
CASH FLOWS FROM FINANCING ACTIVITIES: ----------- -----------
Principal payments on related party advances $ (605,190) $ --
Proceeds from sale of common stock 1,429,350 3,138,000
Payment of deferred offering costs -- (388,451)
Proceeds from related party advances -- 204,110
Principal payments on notes payable (211,109) (899,606)
Proceeds from notes payable 610,000 100,000
----------- -----------
Cash Provided (Used) by Financing Activities 1,223,051 2,154,053
----------- -----------
NET INCREASE (DECREASE) IN CASH (295,965) 481,846
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 481,846 --
----------- -----------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 185,881 $ 481,846
=========== ===========
CASH PAID FOR:
Interest $ 279,525 $ 184,381
Income taxes $ -- $ --
NON-CASH FINANCING ACTIVITIES:
Common stock issued for services $ 492,837 $ 24,000
Stock options issued (cancelled) for services $ -- $ (275,000)
Conversion of debentures to equity $ -- $ 50,000
Common stock warrants $ -- $ 774,000
Shareholder loans contributed to capital $ 49,998 $ 250,000
The accompanying notes are an integral part of these consolidated
financial statements.
7
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1997 and 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
The Company was originally incorporated in the State of Idaho on
January 16, 1964. On January 11, 1988, the Company changed its
name to Apple Corporation. In 1988, the Company acquired oil and
gas leases and other assets from Ben's Run Oil Company (a
Virginia limited partnership) and has since engaged in the
business of oil and gas production.
On November 5, 1993, the Board of Directors caused to be
incorporated in the State of Nevada, a new corporation by the
name iof Trans Energy, Inc., with the specific intent of
effecting a merger between Trans Energy, Inc. of Nevada and Apple
Corp. of Idaho, for the sole purpose of changing the domicile of
the Company to the State of Nevada. On November 15, 1993, Apple
Corp. and the newly formed Trans Energy, Inc. executed a merger
agreement whereby the shareholders of Apple Corp. exchanged all
of their issued and outstanding shares of common stock for an
equal number of shares of Trans Energy, Inc. common stock. Trans
Energy, Inc. was the surviving corporation and Apple Corp. was
dissolved.
On August 7, 1995, the Company purchased 80 percent of the issued
and outstanding stock of Vulcan Energy Corporation (Vulcan), a
Texas corporation, for $1,100,000 including the assumption of
$300,000 in debt for a customer of Vulcan. Vulcan was located in
the State of Texas and was engaged in the oil gathering and
marketing business. In March 1997, the Company decided to cease
the operations of Vulcan. Accordingly, the results of operations
along with the net liabilities of Vulcan have been reflected as
discontinued operations in the accompanying consolidated
financial statements. See Note 9 for further discussion.
b. Accounting Method
The Company's consolidated financial statements are prepared
using the accrual method of accounting. The successful efforts
method of accounting is used for oil and gas exploration and
production activities which states that total net capitalized
costs, as a minimum test, may not exceed future undiscounted net
cash flows. In any period that total net capitalized costs exceed
future undiscounted net cash flows, the excess will be charged to
current operations. The Company has elected a calendar year end.
c. Net Loss per Share of Common Stock
The net loss per share of common stock is based on the weighted
average number of shares issued and outstanding at the date of
the consolidated financial statements. Only primary net loss per
share of common stock is disclosed in the accompanying
consolidated statements of operations as fully diluted loss per
share is anti-dilutive.
d. Provision for Taxes
At December 31, 1997, the Company had net operating loss
carryforwards of approximately $8,740,000 that may be offset
against future taxable income through 2012. No tax benefit has
been reported in the consolidated financial statements, because
the potential tax benefits of the net operating loss
carryforwards is offset by a valuation allowance of the same
amount.
8
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1997 and 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
e. Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents.
f. Principles of Consolidation
The consolidated financial statements include the Company and its
wholly owned subsidiary, Ritchie County Gathering Systems, Inc.,
its 65% owned subsidiary, Tyler Construction Company, Inc. and
its 50% owned and now discontinued subsidiary, Sundance, LLC. All
significant intercompany accounts and transactions have been
eliminated.
g. Presentation
Certain 1996 balances have been reclassified to conform to the
presentation of the 1997 consolidated financial statements.
h. Depreciation
Fixed assets are stated at cost. Depreciation on vehicles,
pipelines, machinery, equipment and well equipment is provided
using the straight line method over expected useful lives of five
to fifteen years. Wells are being depreciated using the
units-of-production method on the basis of total estimated units
of proved reserves.
i. Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
NOTE 2 - PROPERTY AND EQUIPMENT
The Company acquired oil and gas leases from Ben's Run Oil
Company (a Virginia limited partnership) in 1988 along with other
assets and liabilities in exchange for shares of the Company's
common stock. The assets were recorded at predecessor cost since
the former owners of Ben's Run Oil Company became the controlling
shareholders of the Company. The assets acquired had been fully
amortized or depreciated. Therefore, they were recorded at a cost
of $0.
9
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1997 and 1996
NOTE 2 - PROPERTY AND EQUIPMENT (Continued)
In January of 1989 the Company acquired interests in oil and gas
producing properties from Black Petroleum Corporation (Black). In
exchange for the interests acquired, the Company paid $100,000
cash, 160,790 shares of common stock and assumed certain
liabilities of Black. The value of the stock issued was based on
the estimated fair market value of the properties acquired less
cash paid and liabilities assumed. The purchase price for oil and
gas properties totaled $2,015,109.
On November 15, 1994, the Company acquired six oil and gas wells
at a cost of $1,082,222 and other equipment totaling $8,710 in
exchange for shares of the Company's common stock. All assets
were recorded at their market value (which was approximately the
same as book value) at the time of acquisition based on the
purchase method of accounting.
Based upon the reserve estimates, depletion and depreciation on
these properties and the related equipment is computed under the
units-of-production method as required by generally accepted
accounting principles. In 1994 and 1993, the Company refurbished
a number of wells. In 1995, the Company obtained a reserve study
which showed that the oil and gas reserves are higher than
originally reported because the fix-up work allowed the producing
wells to produce greater quantities and put some non-productive
wells into production.
During 1994, the Company purchased leasehold acreage in Ohio
known as Rose Run for $287,000. The acreage was purchased from
shareholders of the Company in part for forgiveness of
receivables from those shareholders.
10
<PAGE>
<TABLE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1997 and 1996
<CAPTION>
NOTE 3 - LONG-TERM DEBT
The Company had the following debt obligations at December 31,
1997:
<S> <C>
Calhoun County Bank, secured by oil and gas well interests,
payable in monthly installments of $1,859 including interest at
variable rates, (lender's base rate of 9.75% as of December 31,
1997), matures April 12, 1999 $ 22,354
Calhoun County Bank, secured by oil and gas well interests,
payable in monthly installments of $269 including interest at
variable rates, (lender's base rate of 9.75% as of December 31,
1997), matures
April 12, 1999 4,072
Calhoun County Bank, secured by oil and gas well interests,
payable in monthly installments of $1,300 including interest at
variable rates, (lender's base rate of 9.75% as of December 31,
1997), matures
April 12, 1999 30,133
New York Life, secured by cash value in policy, interest payable
annually at 7.25% interest rate 21,800
First National Bank of St. Marys, $9,244 payable monthly, 12.5%
interest rate, secured by equipment 592,979
Union Bank of Tyler County, interest at 11.5% due quarterly,
renewable, due on demand, secured by equipment 19,756
Note due private company, principal and interest of $163 payable
monthly, interest rate of 10.75%, secured by vehicle 1,573
Bank of Paden City, interest payable quarterly, prime +2%, due
on demand, secured by officers personal assets 268,234
Note payable to an individual, due on demand, bearing interest at
9.75%, unsecured 292,078
Bank of Paden City, secured by vehicles, various maturity dates,
principal and interest due monthly at 9.25% to 10.25% 28,779
Note due to a private individual, due November 7, 1996 with interest
at 20%, unsecured 100,000
Note due to an individual, due August 1999 with interest at
7.50%, requiring monthly payments of $3,000, secured by personal
guarantee
of officer 250,232
Note due to an individual, due on demand with interest at 7.00%, unsecured 58,495
-----------
Total 1,690,485
Less Current Portion (898,098)
-----------
Total Long-Term Debt $ 792,387
===========
</TABLE>
11
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1997 and 1996
NOTE 3 - LONG-TERM DEBT (Continued)
Future maturities of long-term debt are as follows:
1997 $ 898,098
1998 279,273
1999 53,167
2000 56,586
2001 62,346
2002 and thereafter 341,015
------------------
Total $ 1,690,485
==================
NOTE 4 - RELATED PARTY TRANSACTIONS
a. Management Agreement
A company owned by an officer of the Company's subsidiary, Vulcan
Energy Corporation (Vulcan), owns the remaining 20% of Vulcan's
common stock. The management company is entitled to a management
fee of $252,000 per year and 20% of net profits before taxes less
20% of the principal paid to the seller of Vulcan. This 20% net
profits interest has had no effect on the Company's consolidated
financial statements since the subsidiary has generated net
losses through December 31, 1996. Since the operations of Vulcan
Energy have been discontinued (see Note 9), management believes
that the Company has no obligation related to this management
agreement as of December 31, 1996 or in future periods.
NOTE 5 - ECONOMIC DEPENDENCE AND MAJOR CUSTOMERS
The Company's marketing arrangement with Sancho accounted for
approximately 47% of the Company's revenue for the year ended
December 31, 1997. This marketing agreement is in effect until
December 1, 2003. Another customer also generated sales in excess
of 10% of the Company's total sales. Sales to this customer made
up approximately 49% of net revenues in 1997.
NOTE 6 - COMMON STOCK, OPTIONS AND WARRANTS
On January 15, 1995, the Company issued 100,000 shares of its
common stock to a consultant for services rendered. The shares
were valued at $1.50 per share which was the average trading
price when issued.
On October 1, 1995, the Company issued an option to a consultant
to purchase 100,000 shares of its common stock at $0.001 per
share. The option was valued at the difference between the
exercise price and the trading price of the shares. Accordingly,
the Company incurred $275,000 of consulting fees in 1995. On
March 29, 1996, the consultant returned the option for
cancellation. The option was not exercised and was cancelled
without consideration, therefore the cancellation was accounted
for as a decrease of capital in excess of par value and the
related asset during 1996.
12
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1997 and 1996
NOTE 6 - COMMON STOCK, OPTIONS AND WARRANTS (Continued)
During 1995, debentures having a total face value of $45,000 were
converted into 50,000 shares of the Company's common stock,
valued at $0.90 per share. Remaining debentures with a total face
value of $50,000 were converted into 55,555 shares of the
Company's common stock in 1996, also valued at $0.90 per share.
As an incentive to the debenture holders for extending the due
date of the debentures due on December 31, 1995, they were given
the right to receive the number of post-split shares they were to
have received pre-split. The value of the additional shares
issued, $202,032, has been recorded as loan costs and amortized
over the period until the debentures were converted in 1996.
The Company also received $5,000 during December of 1995 for the
purchase of 500,000 bridge warrants at $0.01 per warrant. The
bridge warrants were valued at the average trading price when
issued and expensed during the year ended December 31, 1995 in
the amount of $1,345,000. The bridge warrants are convertible
into 1 share of common stock at $0.50 per share for up to
eighteen months. With the completion of the public offering
discussed below, the $0.50 common stock conversion option of the
bridge warrants terminated and the bridge warrants automatically
converted into 2 redeemable warrants exercisable at 110% of the
offering price. The Company issued 48,750 additional stock
warrants as compensation for the sale of the bridge warrants
which were later surrendered to the Company for no consideration.
The Company issued an additional 300,000 bridge warrants in March
1996 in conjunction with the completion of a $600,000 bridge
financing. The Company issued 30,000 additional bridge warrants
in conjunction for the sale of bridge units containing the
unsecured notes and bridge warrants which were later returned to
the Company for no consideration. These bridge warrants were
exercisable for 18 months from the date of issuance and entitled
the holder thereof to purchase 1 share of common stock at $0.50
per share. The bridge warrants were valued at the average trading
price when issue and were being amortized to interest expense
over 12 months. With the completion of the public offering
discussed below, the $0.50 common stock conversion option of
these bridge warrants terminated and the bridge warrants
converted into 2 redeemable warrants exercisable at 110% of the
offering price. Accordingly, the remaining unamortized portion
was expensed at December 31, 1996.
The Company issued 9,000 shares of common stock during 1996 to an
individual as compensation for services rendered totaling $24,000
representing a per share price of $2.67 which approximated the
fair market value of the shares on the date they were authorized
to be issued.
In December 1996, the Company completed a public offering of its
common stock issuing 585,366 shares while receiving total
proceeds of $3,138,000 or $5.36 per share. Related costs
associated with this offering totalled $663,451 which has been
charged to capital in excess of par value in the accompanying
consolidated financial statements.
In September 1996, two officers, directors and shareholders of
the Company agreed to a reduction in amounts payable to them by
the Company totaling $250,000 which have previously been
accounted for as advances from related parties. This amount has
been contributed to capital in excess of par value in the
accompanying consolidated financial statements.
In 1997, the Company completed the sale of 8% cumulative
convertible debentures due March 25, 2000, netting cash proceeds
to the Company of $1,430,000. The terms of the convertible
debentures enable the holder to convert the debentures into
common stock of the Company at any time after 45 days at a price
based on a percentage of the quoted market price depending on
when the debentures are converted. The debentures were converted
to 1,489,172 shares of common stock in 1997.
13
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1997 and 1996
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Several vendors of Vulcan Energy, Inc., the discontinued
operation, have filed legal action against Vulcan Energy and the
Company alleging breach of contract and non-payment of
outstanding obligations. Those vendors are also seeking other
damages and assessments. The Company has included in the net
liabilities of the discontinued operations of Vulcan Energy,
amounts which they believe are owing to those vendors. These
actions are still in the discovery stage and the Company is
attempting to negotiate settlements with those vendors. The
Company believes that the amounts accrued in the accompanying
consolidated financial statements are adequate to satisfy these
claims.
A former officer of Vulcan Energy has filed suit against the
Company, its officers and directors and Vulcan Energy, asserting
a claim against these parties based upon a breach of contract and
fraud in connection with his employment with Vulcan Energy. The
parties to this action have filed response vigorously contesting
the allegations and have filed a countersuit to this action.
Management believes that the Company and the ultimate outcome of
these actions and their possible effects on the consolidated
financial statements cannot be readily determined.
The Company pays $1,400 per month for leased office space which
is on a month-to-month basis.
NOTE 8 - GOING CONCERN
The Company's consolidated financial statements are prepared
using generally accepted accounting principles applicable to a
going concern which contemplates the realization of assets and
liquidation of liabilities in the normal course of business. The
Company has incurred cumulative operating losses through December
31, 1997, and has a working capital deficit at December 31, 1997.
Revenues have not been sufficient to cover its operating costs
and to allow it to continue as a going concern. During 1995, the
Company purchased an 80% equity ownership of Vulcan Energy
Corporation, replaced management and recapitalized Vulcan Energy
with a $200,000 working capital infusion. However, the Company
discontinued the operations of Vulcan Energy during 1997,
incurring a substantial loss from discontinued operations.
Management believes that despite the discontinued operations of
Vulcan Energy and recurring operating losses, the potential
proceeds from the sale of common stock, other contemplated debt
and equity financing, and increases in operating revenues from
new development and the merger with Natural Gas Technologies will
enable the Company to continue as a going concern. (See also
Notes 10 and 11)
NOTE 9 - VULCAN ENERGY, INC. - DISCONTINUED OPERATIONS
In March 1997, the Company discontinued the operations of Vulcan
Energy, Inc., its 80% owned subsidiary. Accordingly, net
liabilities in excess of assets, totaling $340,821, have been
reflected separately in the accompanying consolidated balance
sheet as of December 31, 1997. The net operating loss of Vulcan
Energy, Inc. for the year ended December 31, 1996 amounting to
$1,711,877 has been reflected separately in the accompanying
consolidated statements of operations and include estimated
losses on disposition of Vulcan Energy, Inc.
NOTE 10 - JOINT VENTURE
The Company has entered into a joint venture with Natural Gas
Technologies, Inc. (NGT) to form Sundance Producers, LLC. This
joint venture will be engaged in oil and gas production
activities in Wyoming.
14
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
December 31, 1997 and 1996
NOTE 11 - SUBSEQUENT EVENTS
Acquisition of Subsidiary
-------------------------
The Company has entered into a plan and agreement of merger with
Natural Gas Technologies, Inc. (NGT). It is expected that this
merger will qualify as a tax free reorganization within the
meaning of Section 368(9)(1)(A) of the Internal Revenue Code. The
merger is expected to be accomplished by way of exchanging 100%
of the issued and outstanding NGT common stock and NGT series
1994-B preferred stock for fully registered shares of common
stock of the Company at the exchange ratio. The exchange ratio
will be 2.785 shares of the Companys common stock for one share
of NGT common or preferred stock. It is intended that the
shareholders of NGT will own 75% of the issued and outstanding
shares of the Company immediately after the exchange.
Acquisition of Leasehold Interest
---------------------------------
The Company has entered into a purchase and sale agreement with
GCRL Energy Ltd. wherein the Company will pay $3,325,000 for
leasehold interests located in Wyoming and for Seismic data
associated with those leasehold interests.
15
<PAGE>
TRANS ENERGY, INC.
S.F.A.S. 69 Supplemental Disclosures
December 31, 1997 and 1996
(Unaudited)
S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES
(1) Capitalized Costs Relating to
Oil and Gas Producing Activities
December 31,
-------------------------
1997 1996
----------- -----------
Proved oil and gas producing properties and related
lease and well equipment $ 4,122,311 $ 3,799,387
Accumulated depreciation and depletion (433,799) (407,934)
----------- -----------
Net Capitalized Costs $ 3,688,512 $ 3,391,453
=========== ===========
(2) Costs Incurred in Oil and Gas Property
Acquisition, Exploration, and Development Activities
For the Years Ended
December 31,
---------------------------
1997 1996
----------- -----------
Acquisition of Properties
Proved $ 65,000 $ --
Unproved 573,479 --
Exploration Costs 164,900 --
Development Costs 280,206 --
The Company does not have any investments accounted for by the
equity method.
(3) Results of Operations for
Producing Activities
For the Year Ended
December 31,
1997 1996
----------- -----------
Sales $ 390,922 $ 452,183
Production costs (120,190) (115,112)
Depreciation and depletion (25,865) (13,916)
--------- ---------
Results of operations for producing activities
(excluding corporate overhead and interest costs) $ 244,867 $ 323,155
========= =========
16
<PAGE>
TRANS ENERGY, INC.
S.F.A.S. 69 Supplemental Disclosures
December 31, 1997 and 1996
(Unaudited)
S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES (CONTINUED)
(4) Reserve Quantity Information
Oil Gas
BBL MCF
---------- ----------
Balance, December 31, 1996 196,343 1,677,359
Production (1,343) (125,210)
Purchased and developed 15,870 229,167
---------- ----------
Balance, December 31, 1997 210,870 1,781,316
========== ==========
Proved developed reserves:
Oil Gas
BBL MCF
---------- ----------
Beginning of the year 1997 196,343 1,677,359
End of the year 1997 210,870 1,781,316
Beginning of the year 1996 199,070 1,789,654
End of the year 1996 196,343 1,677,359
During 1996, 1995, 1992, 1991 and 1990, the Company had reserve
studies and estimates prepared on its various properties. The
difficulties and uncertainties involved in estimating proved oil
and gas reserves makes comparisons between companies difficult.
Estimation of reserve quantities is subject to wide fluctuations
because it is dependent on judgmental interpretation of
geological and geophysical data.
17
<PAGE>
TRANS ENERGY, INC.
S.F.A.S. 69 Supplemental Disclosures
December 31, 1997 and 1996
(Unaudited)
S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES (CONTINUED)
(5) Standardized Measure of Discounted
Future Net Cash Flows Relating to
Proved Oil and Gas Reserves
At December 31, 1996
Trans Energy
and
Subsidiaries
-----------------
Future cash inflows $ 17,638,619
Future production and development costs (6,332,264)
------------
Future net inflows before income taxes 11,306,355
Future income tax expense (3,844,161)
------------
Future net cash flows 7,462,194
10% annual discount for estimated timing of cash flows (3,850,492)
------------
Standardized measure of discounted future net cash flows $ 3,611,702
============
Future income taxes were determined by applying the statutory
income tax rate to future pre-tax net cash flow relating to
proved reserves.
At December 31, 1997
Trans Energy
and
Subsidiaries
-----------------
Future cash inflows $ 17,407,048
Future production and development costs (6,249,130)
------------
Future net inflows before income taxes 11,157,918
Future income tax expense (3,793,693)
------------
Future net cash flows 7,364,225
10% annual discount for estimated timing of cash flows (3,829,397)
------------
Standardized measure of discounted future net cash flows $ 3,534,828
============
The following schedule summarizes changes in the standardized
measure of discounted future net cash flow relating to proved oil
and gas reserves:
For the Years Ended
December 31,
---------------------------
1997 1996
----------- -----------
Standardized measure, beginning of year $ 3,611,702 $ 4,063,885
Oil and gas sales, net of production costs (390,922) (452,183)
Sales of mineral in place -- --
Quantity estimates made 314,048 --
----------- -----------
Standardized measure, end of year $ 3,534,828 $ 3,611,702
=========== ===========
18
<PAGE>
TRANS ENERGY, INC.
S.F.A.S. 69 Supplemental Disclosures
December 31, 1997 and 1996
(Unaudited)
S.F.A.S. 69 SUPPLEMENTAL DISCLOSURES (CONTINUED)
The above schedules relating to proved oil and gas reserves,
standardized measure of discounted future net cash flows and
changes in the standardized measure of discounted future net cash
flows have their foundation in engineering estimates of future
net revenues that are derived from proved reserves and with the
assumption of current pricing and current costs of production for
oil and gas produces in future periods. These reserve estimates
are made from evaluations conducted by independent geologists, of
such properties and will be periodically reviewed based upon
updated geological and production date. Estimates of proved
reserves are inherently imprecise. The above standardized measure
does not include any restoration costs due to the fact the
Company does not own the land.
Subsequent development and production of the Company's reserves
will necessitate revising the present estimates. In addition,
information provided in the above schedules does not provide
definitive information as the results of any particular year but,
rather, helps explain and demonstrate the impact of major factors
affecting the Company's oil and gas producing activities.
Therefore, the Company suggests that all of the aforementioned
factors concerning assumptions and concepts should be taken into
consideration when reviewing and analyzing this information.
19
<PAGE>
TRANS ENERGY, INC.
CONSOLIDATED FINANCIAL STATEMENTS
June 30,1998
(Unaudited)
<PAGE>
TRANS ENERGY, INC.
Consolidated Balance Sheets
ASSETS
------
June 30, December 31,
1998 1997
----------- -----------
(Unaudited)
CURRENT ASSETS
Cash $ - $ 185,881
Accounts receivable 64,686 175,161
Prepaid and other current assets - 1,441
----------- -----------
Total Current Assets 64,686 362,483
----------- -----------
PROPERTY AND EQUIPMENT
Vehicles 94,589 94,589
Machinery and equipment 10,092 10,092
Pipelines 2,231,308 2,231,308
Well equipment 271,895 271,882
Wells 6,941,955 3,850,429
Leasehold acreage 767,500 597,221
Accumulated depreciation (1,823,397) (1,742,136)
----------- -----------
Total Fixed Assets 8,493,942 5,313,385
----------- -----------
OTHER ASSETS
Note receivable - other 100,002 -
Deposits 1,508 -
Prepaid promotion expenses 1,061,628 -
Loan acquisition costs 2,706,898 4,733
----------- -----------
Total Other Assets 3,870,036 4,733
----------- -----------
TOTAL ASSETS $ 12,428,664 $ 5,680,601
= ========== = =========
The accompanying notes are an integral part of these consolidated
financial statements.
1
<PAGE>
TRANS ENERGY, INC.
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- -----------
(Unaudited)
CURRENT LIABILITIES
<S> <C> <C>
Cash overdraft $ 16,133 $ --
Accounts payable - trade 1,396,788 1,250,017
Accrued expenses 432,037 72,195
Salaries payable -- 64,602
Notes payable - current portion 25,313 898,098
Debentures payable 4,625,400 --
----------- -----------
Total Current Liabilities 6,495,671 2,284,912
----------- -----------
NET LIABILITIES IN EXCESS OF ASSETS OF
DISCONTINUED OPERATIONS 340,821 340,821
----------- -----------
LONG-TERM LIABILITIES
Notes payable 1,744,441 792,387
----------- -----------
Total Long-Term Liabilities 1,744,441 792,387
----------- -----------
Total Liabilities 8,580,933 3,418,120
----------- -----------
MINORITY INTERESTS -- 250,000
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock: 30,000,000 shares authorized at
$0.001 par value; 2,138,450 and 1,415,808 shares
issued and outstanding, respectively 2,139 1,416
Capital in excess of par value 12,867,963 10,751,226
Accumulated deficit (9,022,371) (8,740,161)
----------- -----------
Total Stockholders' Equity 3,847,731 2,012,481
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $12,428,664 $ 5,680,601
=========== ===========
</TABLE>
2
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
TRANS ENERGY, INC.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months For the Three Months
Ended June 30, Ended June 30,
---------------------------- ---------------------------
1998 1997 1998 1997
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
REVENUES
Oil and gas sales $ 473,006 $ 543,550 $ 266,768 $ 272,834
------------ ------------- ------------ ------------
Total Revenues 473,006 543,550 266,768 272,834
------------ ------------- ------------ ------------
COSTS AND EXPENSES
Cost of oil and gas 303,076 248,265 160,433 157,095
Salaries and wages 58,596 130,386 26,802 99,635
Depreciation and amortization 81,261 176,352 40,629 142,788
Selling, general and administrative 412,097 621,484 271,480 519,933
------------ ------------- ------------ ------------
Total Costs and Expenses 855,030 1,176,487 499,344 919,451
------------ ------------- ------------ ------------
Net Income (Loss) from
Operations (382,024) (632,937) (232,576) (646,617)
------------ ------------- ------------ ------------
OTHER INCOME (EXPENSE)
Gain on sale of assets 239,129 -- 239,129 --
Bad debt expense -- (100,000) -- (100,000)
Interest income 459 10,155 59 8,510
Interest expense (139,774) (181,167) (74,449) (144,852)
------------ ------------- ------------ ------------
Total Other Income (Expense) 99,814 (271,012) 164,739 (236,342)
------------ ------------- ------------ ------------
NET LOSS BEFORE INCOME TAXES
AND MINORITY INTERESTS (282,210) (903,949) (67,837) (882,959)
------------ ------------- ------------ ------------
INCOME TAXES -- -- -- --
------------ ------------- ------------ ------------
NET LOSS BEFORE MINORITY
INTERESTS (282,210) (903,949) (67,837) (882,959)
MINORITY INTERESTS -- -- -- --
------------ ------------- ------------ ------------
NET LOSS $ (282,210) $ (903,949) $ (67,837) $ (882,959)
============ ============= ============ ============
PRIMARY LOSS PER SHARE
NET LOSS $ (0.16) $ (0.88) $ (0.14) $ (0.84)
============ ============= ============ ============
FULLY DILUTED LOSS PER SHARE $ (0.16) $ (0.88) $ (0.14) $ (0.84)
============ ============= ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE>
TRANS ENERGY, INC.
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Capital in
Common Shares Excess of Accumulated
Shares Amount Par Value Deficit
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1996 956,015 $ 956 $ 8,929,501 $ (6,710,711)
Common stock issued for services
at $5.64 per share 87,500 88 492,099 --
Common stock issued for cash
at $3.84 per share 372,293 372 1,429,628 --
Contribution of capital by
shareholders -- -- 49,998 --
Common stock offering costs -- -- (150,000) --
Net loss for the year ended
December 31, 1997 -- -- -- (2,029,450)
------------ ------------ ------------ ------------
Balance, December 31, 1997 1,415,808 1,416 10,751,226 (8,740,161)
Common stock issued for well costs
at $4.00 per share (unaudited) 12,500 13 49,987 --
Contribution of capital by
shareholders (unaudited) -- -- 208,210 --
Common stock issued for cash at
$1.31 per share (unaudited) 236,312 236 310,514 --
Common stock issued for services
at $3.61 per share (unaudited) 473,830 474 1,548,026 --
Net loss for the six months ended
June 30, 1998 (unaudited) -- -- -- (282,210)
------------ ------------ ------------ ------------
Balance, June 30, 1998 (unaudited) 2,138,450 $ 2,139 $ 12,867,963 $ (9,022,371)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE>
TRANS ENERGY, INC.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months For the Three Months
Ended June 30, Ended June 30,
--------------------------- ---------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
Net loss $ (282,210) $ (903,949) $ (67,837) $ (882,959)
Adjustments to reconcile net loss to
cash provided by operating activities:
Depreciation, depletion and
amortization 81,261 176,352 40,629 142,788
Minority interest -- -- -- --
Common stock issued for services 1,548,500 171,875 1,548,500 171,875
Changes in operating assets and liabilities:
Decrease (increase) in accounts
receivable 10,473 61,237 (23,313) (16,676)
Decrease (increase) in prepaid
expenses (1,061,695) 59,601 (1,061,695) 59,601
Decrease (increase) in loan
acquisition costs (2,702,165) -- (2,702,165) --
Increase (decrease) in accounts
payable and accrued expenses 666,354 495,882 230,294 598,883
Increase (decrease) in interest
payable -- (9,154) -- --
------------ ------------ ------------ ------------
Cash Provided (Used) by
Operating Activities (1,739,482) 51,844 (2,035,587) 73,512
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property (259,129) -- (259,129) --
Expenditures for property and
equipment (3,202,689) (798,336) (2,281,280) (727,816)
------------ ------------ ------------ ------------
Cash Provided (Used) by
Investing Activities (3,461,818) (798,336) (2,540,409) (727,816)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debentures 4,625,400 -- 4,096,525 --
Borrowings of long-term debt 259,208 1,312,700 259,208 100,000
Repayment to related parties -- (410,541) -- (101,962)
Common stock issued for cash 310,750 -- 310,750 --
Principal payments on long-term debt (179,939) (154,064) (90,487) (47,323)
------------ ------------ ------------ ------------
Cash Provided (Used) by
Investing Activities 5,015,419 748,095 4,575,996 (49,285)
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH (185,881) 1,603 -- (703,589)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 185,881 481,846 -- 1,187,038
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ -- $ 483,449 $ -- $ 483,449
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
5
<PAGE>
TRANS ENERGY, INC.
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months For the Three Months
Ended June 30, Ended June 30,
------------------------ ----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
CASH PAID FOR:
<S> <C> <C> <C> <C>
Interest $ 139,774 $ 181,167 $ 74,449 $ 144,852
Income taxes $ -- $ -- $ -- $ --
NON-CASH FINANCING ACTIVITIES:
Common stock issued for services $1,548,500 $ 171,875 $1,548,500 $ 171,875
Conversion of debentures to equity $ -- $ 500,000 $ -- $ 500,000
Common stock issued for well costs $ 50,000 $ -- $ -- $ --
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
6
<PAGE>
TRANS ENERGY, INC.
Notes to the Consolidated Financial Statements
June 30, 1998 and December 31, 1997
NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been
prepared by the Company without audit. In the opinion of
management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position,
results of operations and cash flows at June 30, 1998 and for all
periods presented have been made.
Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with
general accepted accounting principles have been condensed or
omitted. It is suggested that these condensed consolidated
financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's December
31, 1997 audited consolidated financial statements. The results of
operations for the periods ended June 30, 1998 and 1997 are not
necessarily indicative of the operating results for the full year.
7
<PAGE>
NATURAL GAS TECHNOLOGIES, INC.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998 and April 30, 1997
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors
Natural Gas Technologies, Inc. and Subsidiary
Dallas, Texas
We have audited the accompanying consolidated balance sheet of Natural Gas
Technologies, Inc. and Subsidiary as of March 31, 1998 and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows for the eleven months then ended. 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
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated 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 consolidated financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Natural Gas
Technologies, Inc. and Subsidiary as of March 31, 1998, and the results of their
operations and their cash flows for the eleven months then ended, in conformity
with generally accepted accounting principles.
Jones, Jensen & Company
Salt Lake City, Utah
July 21, 1998
1
<PAGE>
NATURAL GAS TECHNOLOGIES, INC. & SUBSIDIARY
Consolidated Balance Sheet
ASSETS
------
March 31,
1998
----------
CURRENT ASSETS
Cash $ 14,261
Accounts receivable 17,712
Notes receivable - related parties (Note 4) 101,467
----------
Total Current Assets 133,440
----------
FIXED ASSETS
Oil and gas properties (full cost method) (Notes 1, 6 and 7) 4,675,193
Other fixed assets 65,466
Accumulated depreciation and depletion (330,623)
----------
Total Fixed Assets 4,410,036
----------
OTHER ASSETS
Investments in joint ventures 190,500
Investment in stock (Note 2) 14,464
Other assets 3,113
----------
Total Other Assets 208,077
----------
TOTAL ASSETS $4,751,553
==========
The accompanying notes are an integral part of these
consolidated financial statements.
2
<PAGE>
NATURAL GAS TECHNOLOGIES, INC. & SUBSIDIARY
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
March 31,
1998
------------
CURRENT LIABILITIES
Accounts payable (Note 4) $ 278,295
Accrued interest 68,081
Current portion of note payable (Note 14) 5,746
------------
Total Current Liabilities 352,122
------------
NOTE PAYABLE (Note 14) 19,934
------------
TOTAL LIABILITIES 372,056
------------
REDEEMABLE PREFERRED STOCK, SERIES 1994-A
$4.00 PAR VALUE (500,000 SHARES AUTHORIZED,
7,097 OUTSTANDING) (Note 9) 28,388
------------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY --
------------
STOCKHOLDERS' EQUITY
Preferred stock, Series 1994-B $4.00 par value
(500,000 shares authorized, 66,360 outstanding) 265,440
Common stock, $0.001 par value (10,000,000
shares authorized, 5,878,200 outstanding) 5,878
Additional paid-in capital 10,261,358
Deferred services (net of amortization of $17,500) (160,000)
Receivable for stock issued to officers (9,000)
Accumulated deficit (6,012,567)
------------
Total Stockholders' Equity 4,351,109
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,751,553
============
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
<TABLE>
NATURAL GAS TECHNOLOGIES, INC. & SUBSIDIARY
Consolidated Statements of Operations
<CAPTION>
For the
Eleven Months For the
Ended Year Ended
March 31, April 30,
1998 1997
----------- -----------
<S> <C> <C>
REVENUES
Oil and gas revenues $ 287,833 $ 100,987
Other Income 68,208 5
----------- -----------
Total Revenues 356,041 100,992
----------- -----------
EXPENSES
Production expenses and taxes 442,963 103,646
Depreciation, depletion and amortization 245,266 43,176
Professional fees 229,799 44,816
Consulting fees 125,000 115,000
Personnel costs 220,753 --
Rent 27,646 7,249
Business promotion 6,551 1,015
Director fees -- 20,833
Taxes 22,803 3,658
Travel 39,866 7,610
Other expenses 48,098 9,896
Write-down of oil and gas for ceiling test 3,076,790 --
Minority interest in loss of consolidated subsidiary -- (6,573)
----------- -----------
Total Expenses 4,485,535 350,326
----------- -----------
LOSS FROM OPERATIONS (4,129,494) (249,334)
----------- -----------
OTHER INCOME (EXPENSES)
Interest income 7,929 715
Interest expense (405,049) (58,486)
Loss on impairment of assets (386,800) --
Loss on debt extinguishment (222,780) --
----------- -----------
Total Other Income (Expense) (1,006,700) (57,771)
----------- -----------
NET LOSS (5,136,194) (307,105)
Less unpaid preferred stock dividend claims for the year (9,199) (9,604)
----------- -----------
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS $(5,145,393) $ (316,709)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
NATURAL GAS TECHNOLOGIES, INC. & SUBSIDIARY
Consolidated Statements of Operations (Continued)
For the
Eleven Months For the
Ended Year Ended
March 31, April 30,
1998 1997
---- ----
LOSS PER SHARE
Primary $ (1.18) $ (0.11)
Primary, attributable to common shares $ (1.18) $ (0.11)
Fully diluted $ (1.16) $ (0.10)
Fully diluted, attributable to common shares $ (1.16) $ (0.11)
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
<TABLE>
NATURAL GAS TECHNOLOGIES, INC. AND SUBSIDIARY
Consolidated Statements of
Stockholders' Equity For the Eleven Months and
the Year Ended March 31, 1998 and April 30,
1997
<CAPTION>
Preferred Stock
---------------
Series 1994-A Series 1994-B Common Stock Additional Deferred
------------- ------------- ------------ Paid-In Services & Accumulated
Shares Amount Shares Amount Shares Amount Capital Other Deficit
------ ------ ------ ------ ------ ------ ------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, April 30, 1996 9,597 $ 38,388 210,736 $ 842,944 2,805,014 $ 2,806 $ 940,139 $ -- $ (569,268)
Stock issued for:
Cash -- -- -- -- 225,000 225 1,574,775 (159,000) --
Deferred promotional
services -- -- -- -- 200,000 200 159,800 (160,000) --
Oil and gas interests -- -- -- -- 120,000 120 628,862 -- --
Stock of Interior Energy, Inc. -- -- -- -- 370,000 370 272,217 -- --
Patent license -- -- 50,000 200,000 100,000 100 199,900 -- --
Conversion of preferred to
common -- -- (194,376) (777,504) 194,376 193 777,311 --
Net (loss) -- -- -- -- -- -- -- -- (307,105)
------ -------- -------- --------- ---------- ------- ----------- ----------- -----------
Balances, April 30, 1997 9,597 38,388 66,360 265,440 4,014,390 4,014 4,553,004 (319,000) (876,373)
Stock issued for:
Cash -- -- -- -- 239,524 240 1,484,760 -- --
Related party liabilities -- -- -- -- 1,614,286 1,614 3,728,578 150,000 --
Options issued to related
party for properties -- -- -- -- -- -- 425,026 -- --
Management services -- -- -- -- 10,000 10 69,990 -- --
Repurchase of shares (2,500) (10,000) -- -- -- -- -- -- --
Net (loss) -- -- -- -- -- -- -- -- (5,136,194)
------ -------- -------- --------- ---------- ------- ----------- ----------- -----------
Balances, March 31, 1998 7,097 $ 28,388 66,360 $ 265,440 5,878,200 $ 5,878 $10,261,358 $ (169,000) $(6,012,567)
====== ======== ======== ========= ========== ======= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE>
<TABLE>
NATURAL GAS TECHNOLOGIES, INC. & SUBSIDIARY
Consolidated Statements of Cash Flows
<CAPTION>
For the
Eleven Months For the
Ended Year Ended
March 31, April 30,
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(5,136,194) $ (307,105)
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
Depreciation, depletion and amortization 245,266 43,176
Stock issued for services 70,000 100,833
Stock issued for payables and accrued interest 692,120 --
Amortization of note payable discount -- 14,838
Loss on impairment and sales of assets 691,373 --
Write-down of oil and gas for ceiling test 1,472,313 --
(Increase) decrease in:
Accounts receivable (14,305) (3,407)
Other assets -- (3,049)
Increase (decrease) in:
Accounts payable (12,740) 252,826
Accrued interest 27,972 40,029
Minority interests -- 28,427
----------- -----------
Net Cash Provided (Used) by Operating Activities (1,964,195) 166,568
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for oil and gas assets (1,697,558) (726,286)
Purchase of furniture and equipment (65,466) --
Investment in joint venture (190,500) --
Proceeds from sale of oil and gas interest 1,500,000 --
Goodwill acquired in Lyric Energy acquisition -- (100,000)
----------- -----------
Net Cash (Used) by Investing Activities (453,524) (826,286)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock 1,485,000 1,416,000
Repurchase of preferred shares (10,000) --
Loans and advances from related party 320,000 80,203
Note receivable from related party (101,467) --
Note payable proceeds 25,684 --
Note payments (103,962) (20,266)
----------- -----------
Net Cash Provided by Financing Activities $ 1,615,255 $ 1,475,937
----------- -----------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
7
<PAGE>
<TABLE>
NATURAL GAS TECHNOLOGIES, INC. & SUBSIDIARY
Statements of Cash Flows (Continued)
<CAPTION>
For the
Eleven Months For the
Ended Year Ended
March 31, April 30,
1998 1997
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN CASH FOR PERIOD $ (802,464) $ 816,219
CASH AT BEGINNING OF PERIOD 816,725 506
----------- -----------
CASH AT END OF PERIOD $ 14,261 $ 816,725
=========== ===========
CASH PAID FOR:
Interest $ 188,653 $ 2,525
Income taxes $ -- $ --
NON-CASH FINANCING ACTIVITIES:
Professional services $ 70,000 $ --
Prepaid professional services $ -- $ 160,000
Oil and gas properties $ -- $ 628,982
Reduction of accounts, notes and interest payable
net of transfer price for Lyric Energy, Inc. $ 3,630,192 $ --
Acquisition if Interior Energy, Inc. $ -- $ 49,997
Acquisition of patent license and related equipment $ -- $ 400,000
Options issued for oil and gas properties $ 425,026 $ --
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
8
<PAGE>
NATURAL GAS TECHNOLOGIES, INC & SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 1998 and April 30, 1997
GENERAL Natural Gas Technologies, Inc. (NGT or "the Company) was
incorporated on April 26, 1993 and began operations in June
1993. NGT acquired interests in various oil and gas properties
in February and June 1994 and has been active in this industry
since then. The nature of the oil and gas industry lends itself
to uncertainties and risks. During the year ended April 1997,
the Company acquired oil and gas properties with significant
reserves. (See Note 6.)
In April 1997, NGT acquired 100% ownership of Interior Energy,
Inc. (IEI) and ownership of 81% of Lyric Energy, Inc. (Lyric).
During February 1998, the Company sold its interest in Lyric to
an officer and director for $150,000. IEI is consolidated with
the Company in the presentation of its financial statements.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of NGT conform with
generally accepted accounting principles and to general
practices within the oil and gas industry. Policies that
materially affect the determination of financial position,
changes in financial position, and results of operations are
summarized as follows:
Consolidation
-------------
The accompanying consolidated financial statements include the
accounts of the Company and its subsidiary, IEI. Intercompany
transactions and balances have been eliminated in consolidation.
Federal Income Taxes
--------------------
For Federal income tax purposes, NGT reports its operations on
the accrual basis of accounting. Depreciation is calculated
using the MACRS percentages. First year expensing under Section
179 is utilized when it is available and has been determined to
be advantageous. NGT files a consolidated tax return with IEI.
Statement No. 109 (SFAS 109) "Accounting for Income Taxes"
requires that a liability approach to providing for deferred
taxes be used. That is, deferred taxes must be recorded for all
temporary differences between the book and tax bases of assets
and liabilities. (See Note 11.)
Oil and Gas Properties
----------------------
The Company records its oil and gas producing activities under
the full cost method of accounting, and accordingly, capitalizes
all costs incurred in the acquisition, exploration, and
development of proved oil and gas properties, including the
costs of abandoned properties, dry holes, geophysical costs, and
annual lease rentals. In general, sales or other dispositions of
oil and gas properties are accounted for as adjustments to
capitalized costs, with no gain or loss recorded until the
proceeds from dispositions exceed the company's basis in the
full cost pool.
9
<PAGE>
NATURAL GAS TECHNOLOGIES, INC & SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 1998 and April 30, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Oil and Gas Properties (continued)
----------------------------------
Depletion and amortization are computed on a composite
units-of-production method based on estimated proved reserves. All
leasehold, equipment, and intangible costs associated with oil and
gas properties are currently included in the base for computation
and amortization unless the property has not been evaluated and no
estimated reserves have been included for the property in the
Company's total reserves. The Company's reserves were reviewed and
estimated by a registered petroleum engineer. Included in these
properties reviewed by the engineer were significant acquisitions
during the current year. All of the Company's reserves are located
within the United States.
Loss per Share
--------------
Primary loss per share is computed on the basis of weighted
average number of common shares actually outstanding. Fully
diluted loss per share are computed based on the increased number
of shares that would be outstanding assuming that preferred shares
outstanding at the first of the year were converted at the first
of the year. Preferred shares issued during the year are assumed
to be converted on the date of issuance.
The following table presents a reconciliation of the weighted
average number of shares actually outstanding with the number of
shares used in the computation of fully diluted loss per share:
<TABLE>
<CAPTION>
March 31, April 30,
1998 1997
---------------- ---------------
<S> <C> <C>
Primary
Weighted average number of shares actually
outstanding 4,356,055 2,860,393
================ ===============
Fully diluted
Weighted average number of shares actually
outstanding 4,356,055 2,860,393
Preferred shares 74,167 76,917
---------------- ---------------
4,430,222 2,937,310
================ ===============
</TABLE>
At the end of each of the years presented, the Company had
contractually or otherwise committed to issue common and/or
preferred shares but the stock certificates had not actually been
issued. These shares have been included as issued in the
outstanding shares presented in the balance sheet and the
statement of changes in stockholders' equity. They have also been
included in weighted average earnings per share as of the
effective date of the agreement rather than the date certificates
were ultimately issued.
10
<PAGE>
NATURAL GAS TECHNOLOGIES, INC & SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 1998 and April 30, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash and Cash Flows
-------------------
The Company considers cash to be its only cash equivalent for
purposes of presenting its Statement of Cash Flows. The Company
had cash at two banks at April 30, 1997. Accounts at each
institution are insured by the Federal Deposit Insurance
Corporation up to $100,000. On occasion throughout the year, the
Company's cash balances exceeded the insured amount.
Amortization
------------
The Company is also amortizing organization costs on the
straight-line method over five years and through September 1997
was amortizing the cost of a patent license (discussed further at
Note 8.)
Use of Estimates
----------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Environmental Issues
--------------------
The oil and gas industry is regulated in Texas by the Texas
Railroad Commission (RRC) and Texas Natural Resources Conservation
Commission. Leases are operated under permits from the RRC.
Failure to comply with regulations could result in interruption or
termination of the operations. Additionally, upon cessation of
use, the wells require plugging and sit cleanup. Costs of
voluntary termination and remediation have been estimated to be
insignificant on a well by well basis and are expected to be
recorded as incurred.
Advertising Costs
-----------------
All advertising costs are expensed as incurred.
Fiscal Year End
---------------
The Company has changed its fiscal year end to March 31,
accordingly, the financial statements reflect the operations and
cash flows for the eleven months then ended.
11
<PAGE>
NATURAL GAS TECHNOLOGIES, INC & SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 1998 and April 30, 1997
NOTE 2 - INVESTMENTS IN STOCK AND ACQUISITIONS OF SUBSIDIARIES
In 1994, NGT acquired approximately 2% of the outstanding shares
of Wagman Petroleum, Inc. (WPI) from urelated parties in exchange
for NGT common shares. As discussed at Note 4, WPI is considered a
related party. WPI is not a subsidiary. There is no market for
these shares. Their value has been determined based on an estimate
of the future value of WPI at the time of acquisition. The Company
intends to hold this investment for the foreseeable future.
In April 1997, the Company acquired 81.25% of the outstanding
shares of Lyric Energy, Inc. This entity was a consolidated
subsidiary at April 30, 1997. During February 1998, the Company
sold its interest in Lyric to Brent Wagman (the Company's
president) for $150,000.
On April 1, 1997, NGT acquired 100% of the outstanding shares of
Interior Energy, Inc. (IEI). NGT acquired IEI subject to a note
payable to third parties for $3,000,000 that arose from the
purchase of interests in certain oil and gas leases. As part of
the purchase, NGT assumed full liability for the balance of the
note.
NOTE 3 - STOCK TRANSACTIONS
During the year ended April 1995, NGT authorized 1,000,000
preferred shares and designated it as Series 1994-A (Preferred )
and Series 1994-B (Preferred B). Both of these series have a 9.25%
cumulative annual dividend. Preferred A shares are convertible to
common shares on a 1.1 for 1 basis and may be called by the
Company at five cents per share if the trading price of the common
shares exceeds $7 for twenty consecutive trading days. They are
also subject to a mandatory redemption at par five years from the
effective date of issuance. Preferred B shares automatically
convert to common on a one-for-one basis if the trading price of
the common shares exceeds $5 per share for ten consecutive trading
days. All of the outstanding preferred shares became convertible
at the option of the holder at May 1, 1996. (See Note 15 for
subsequent events.)
In February 1996, NGT entered into an agreement for the provision
of public relations, identification of funding sources, merger
candidates, etc. services with a third party. These services were
to be rendered over a primary period ending in December 1996 with
provisions for extensions as approved by both parties. The shares
were to be issued on a milestone basis with 200,000 shares issued
at the commencement of the agreement. One-half of the original
shares were for services to be rendered after April 30, 1996, were
recorded as Deferred Services at that date, and have been included
in expenses during the year ended April 1997. An additional
200,000 shares were issued during April 1997 in anticipation of
meeting additional milestones after the fiscal year end and were
reported as Deferred Services at April 30, 1997. Per mutual
agreement, these services have been deferred to an undetermined
future date and the deferred services remain on the books pending
utilization of the services. The remaining 100,000 shares called
for under this agreement are to be issued after the achievement of
specified events. The agreement calls for all of these shares to
be registered in any registration pursued by NGT.
12
<PAGE>
NATURAL GAS TECHNOLOGIES, INC & SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 1998 and April 30, 1997
NOTE 3 - STOCK TRANSACTIONS (Continued)
During the year ended April 1997, the Company issued 225,000
common shares to its directors on the basis of $7 per share. Of
the total $1,575,000 to be received, the directors did not pay
$150,000 until June 1997, after the year end. Due to the
relationship of this receivable to stock issuance, it was
presented as an offset in Stockholders' Equity collected. In 1998,
$9,000 was similarly receivable for shares which the Company had
agreed to issued to a director.
During the period ended March 31, 1998, the Company has issued
239,524 shares for $1,485,000. The Company also issued 10,000
shares to an individual for management services and 50,000 shares
to its president for debt forgiveness. The Company has agreed to
issue 50,000 shares to a director for debt forgiveness and a
payment of $9,000 and cleared up other related party liabilities
totaling $3,630,192 by agreeing to issue 1,600,000 shares.
NOTE 4 - TRANSACTIONS WITH RELATED PARTIES
WPI operates essentially all of the properties in which the
Company has interests. As operator, WPI incurs expenses for
drilling, reworking, and normal lease operating expenses; and then
charges them out to the respective interest owners. The Company's
president owns approximately 45% of the outstanding stock of WPI
and also serves as its president. At March 31, 1998 and April 30,
1997, the Company owed WPI $259,587 and $134,982, respectively,
for accounts payable.
During the year ended April 1997, the Company's directors acquired
stock (as discussed at Note 3), loaned funds to the Company, and
were reimbursed for business expenses.
In April 1997, the Company acquired 81.25% of the outstanding
shares of Lyric Energy, Inc. This entity was a consolidated
subsidiary at April 30, 1997. During February 1998, the Company
sold its interest in Lyric to Brent Wagman (the Company's
president) for $150,000.
During the eleven months ended March 31, 1998, the Company loaned
$101,467 to Trans Energy, Inc. The Company is presently in the
process of completing a merger with Trans Energy, Inc. The notes
bear interest at 8%, are due upon demand and are unsecured.
At March 31, 1998, the Company owed WPI $259,687 which is recorded
in accounts payable.
NOTE 5 - NOTES PAYABLE
During February 1996, the Company borrowed $35,000 from a bank in
order to finance certain reworking expenses. This note bears
interest at 10.5% and is due in twenty-four installments of $1,625
per month including interest. The Company gave its interest in the
wells being reworked as collateral for this note. This note was
paid off during February 1998.
13
<PAGE>
NATURAL GAS TECHNOLOGIES, INC & SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 1998 and April 30, 1997
NOTE 5 - NOTES PAYABLE (Continued)
In April 1997, as part of its acquisition of IEI, the Company
assumed liability for a note payable to EXP, Inc. (EXP) with an
original face amount of $3,475,000. The note was due March 1, 1998
with no specified payments due prior to maturity although
prepayment was allowed. Subsequent to April 1997, EXP assigned the
note to Ameritech Petroleum, Inc. (Ameritech). In February 1998,
the Company negotiated a deal to issue 1,452,250 common shares to
Ameritech as payment in full of this note and certain other
liabilities and accrued interest which Ameritech had obtained from
EXP. Due to its terms, this note was recorded at its fair value at
the time of the acquisition of IEI. This discount was being
amortized to interest over the term of the note. Due to early
extinguishment of this debt, a loss of $222,780 has been
recognized in the current period.
NOTE 6 - OIL AND GAS PROPERTIES
The Company's oil and gas interests are all located in Texas. They
consist primarily of two leases in Wilbarger County, a field in
Runnels County, various small leases mostly in Runnels County, and
an undeveloped lease in Crockett County. The bulk of these
properties were acquired during the year ended April 1997. During
the period ended March 31, 1998, the Company has expanded its
interest in the field in Runnels County by paying $200,000 and
issuing options to acquire 100,000 shares of common stock,
purchased and drilled a lease in Shackleford County, drilled
additional wells on the Runnels County field, and reworked the
Wilbarger and Runnels County leases. The Company also invested in
a joint venture to drill two wells in the Powder River Basin of
Wyoming. The first of these wells was a dry hole. The Company and
its joint venture partner have delayed drilling the second well
and are seeking a buyer for the prospect.
In December 1997, the Company sold one half of its interest in the
Crockett County lease for $1,500,000. In accordance with the full
cost accounting method, these proceeds were charged against the
full cost pool rather than showing them as a gain on sale of
assets.
The Company hired a petroleum engineer to estimate its reserves as
of March 31, 1998. The Crockett County lease was excluded from
this analysis. Based on these estimates, the value of the
Company's oil and gas assets was written down to the amount
supported by a ceiling test calculation. The write-down amounted
to $3,076,790.
14
<PAGE>
<TABLE>
NATURAL GAS TECHNOLOGIES, INC & SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 1998 and April 30, 1997
<CAPTION>
NOTE 7 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at March 31,
1998 and April 30, 1997:
March 31, April 30,
1997 1997
---------------- ---------------
<S> <C> <C>
Oil and gas properties:
Leasehold and capitalized IDC $ 3,307,392 $ 4,662,651
Lease and well equipment 1,367,801 862,270
Office furniture and equipment 65,466 -
Blending tower - 40,000
---------------- ---------------
4,470,659 5,564,921
Less accumulated depreciation and depletion (330,623) (97,706)
---------------- ---------------
$ 4,410,036 $ 5,467,215
================ ===============
</TABLE>
Depletion totaled $226,959 and $39,127 for the periods ended March
1998 and April 1997, respectively. Depreciation was $5,957 during
the period ended March 1998 with none during the year ended April
1997. In addition, due to the decline in oil prices and revisions
to estimated reserves, the Company charged off $3,076,790 of oil
and gas costs which exceed a ceiling test based on the discounted
present value of estimated reserves.
NOTE 8 - PATENT LICENSE
During October 1996, the Company acquired a license to a patented
blending process for the blending of automobile fuel. The
acquisition of the license included $40,000 of tanks and
equipment.
During September 1997, it was determined that the vendor did not
have clear title to these assets and that the Company would be
unable to utilize these assets the future due to circumstances
beyond its control. As a result of this determination, these
assets were abandoned and a loss was recognized of $386,800. The
Company entered into a lawsuit against the vendor to retrieve the
shares it had issued for these patent assets.
(See Note 15 for subsequent events.)
NOTE 9 - REDEEMABLE PREFERRED STOCK
As discussed at Note 3, the Company's Preferred A shares carry a
mandatory redemption requirement. They must be redeemed at par at
the end of five years. Effectively, both preferred stock series
may be converted to common stock by the Company upon the
attainment of specific circumstances as described at Note 3. In
accordance with generally accepted accounting principles, the
shares carrying the mandatory redemption feature have been
reported separately from stockholders' equity. The redemption date
for these shares is July 1, 1999. During the period ended March
31, 1998, the Company repurchased 2,500 Preferred A shares at par
plus accumulated dividends. (See Note 15 for subsequent events.)
15
<PAGE>
NATURAL GAS TECHNOLOGIES, INC & SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 1998 and April 30, 1997
NOTE 10 - ACCUMULATED DIVIDENDS ON PREFERRED STOCK
As discussed in Note 3, the Company has issued preferred stock
that contains a provision for cumulative dividends at the rate of
9.25%. These dividends have remained undeclared and unpaid since
issuance. The amounts accumulated during the periods ended March
31, 1998 and April 30, 1997 totaled $9,199 and $9,604,
respectively. Total accumulated unpaid dividends at April 30, 1997
was $32,140. The statement of operations presents net loss
available to common shareholders after increasing the actual net
loss for the unpaid dividends for the periods.
NOTE 11 - INCOME TAXES
Operating loss carryforwards for income tax purposes vary from
retained deficit amounts due to differences in the tax treatment
of various items. These loss carryforwards which may provide
future benefits, expire as shown in the following table:
Amount of
Year of Operating Loss
Expiration Carryforward
---------- -----------------
2009 $ 301,283
2010 241,814
2011 220,831
2012 410,280
2013 2,280,631
--------------------
$ 3,454,839
====================
The provision for income tax is as follows:
March 31, April 30,
1998 1997
----------------- -----------------
Current
Federal $ - $ -
State - -
Deferred
Federal (2,009,757) (222,455)
State (265,997) (29,433)
Less allowance 2,275,754 251,888
----------------- -----------------
Total $ - $ -
================= =================
A reconciliation of income tax at the statutory rate to the
Company's effective rate at March 31, 1998 and April 30, 1997
indicates that the expected statutory rate for each of these
years is 0%. The effective tax rate is also 0%.
16
<PAGE>
NATURAL GAS TECHNOLOGIES, INC & SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 1998 and April 30, 1997
NOTE 11 - INCOME TAXES (Continued)
The following temporary differences gave rise to the deferred tax
assets and liabilities at March 31, 1998 and April 30, 1997:
<TABLE>
<CAPTION>
March 31, April 30,
1998 1997
---------------- -----------------
<S> <C> <C>
Depletion $ 31,267 $ 66,228
Depreciation (256,481) 1,370
Amortization of goodwill on subsidiary
acquisition - 1,667
Write-down of oil and gas values 3,076,790 -
The deferred tax asset and liabilities are comprised of the
following at March 31, 1998 and April 30, 1997:
March 31, April 30,
1998 1997
------------------------------------------------------------
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
Depreciation and depletion $ - $ 76,573 $ 25,137 $ -
Goodwill 1,046,109 - 614 -
Net operating losses
carried forward 1,174,645 - 226,137 -
Less valuation allowance (2,144,181) - (251,888) -
------------ ------------- ------------- ---------
Gross deferred tax assets
and liabilities $ 76,573 $ 76,573 $ 769 $ 769
============ ============= ============= ==============
Net deferred tax liability $ - $ -
============= ==============
</TABLE>
Due to the manner in which future utilization of tax benefits is
analyzed under SFAS 109, an allowance for the full amount of the
benefits that may arise from operating loss carryforwards has
been made and no asset has been recorded as a result at March 31,
1998 and April 30, 1997.
NOTE 12 - OPERATING LEASE
On April 1, 1997, the Company leased office space in Addison,
Texas and relocated its offices. This lease had an initial term
of seventeen months beginning on that date. The lease called for
a security deposit of $3,049 and monthly lease payments in
advance. Under this lease, rent of $27,646 and $3,049 was
included in expenses for the periods ended March 31, 1998 and
April 30, 1997, respectively. Minimum future rental payments
total $12,197 during the year ended March 31, 1999.
NOTE 13 - MERGER AGREEMENTS
During the period ended March 31, 1998, the Company terminated
its plans to merge with Lyric.
17
<PAGE>
<TABLE>
NATURAL GAS TECHNOLOGIES, INC & SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 1998 and April 30, 1997
<CAPTION>
NOTE 14 - NOTE PAYABLE
March 31,
1998
-----------------
<S> <C>
Note payable to bank bearing interest at 8.5%, requiring monthly
principal and interest payments of $679.
Secured by a vehicle, due November 3, 2001. $ 25,680
Less current portion
(5,746)
-----------------
$ 19,934
=================
Maturities of the note payable are as follows:
1999 $ 5,746
2000 6,881
2001 7,449
2002 5,604
-----------------
$ 25,680
=================
</TABLE>
NOTE 15 - SUBSEQUENT EVENTS
Subsequent to March 31, 1998, the Company finished drilling a
well on one of the leases in the field in Runnels County. The
Company also borrowed $150,000 from a related entity and loaned
$153,475 to Trans Energy.
The Company has redeemed all of its Preferred A shares subsequent
to March 31, 1998.
The Company has settled the lawsuits regarding the patent
licenses. The vendor has withdrawn his action and has agreed to
return all of the shares issued by the Company with regard to
these assets and a related management agreement.
18
<PAGE>
NATURAL GAS TECHNOLOGIES, INC & SUBSIDIARY
Supplementary Information Relating
To Oil and Gas Producing Activities
For the periods ended March 31, 1998 and April 30, 1997
(Unaudited)
The following tables identify the Company's estimated quantities of proved
developed reserves of crude oil and natural gas related to its oil and gas
interests. These supplemental disclosures of oil and gas producing activities
are unaudited due to the nature of reserve estimates and their computation.
Amounts presented are the activity for the periods ended April 30, 1997 and
balances as of March 31, 1998 and April 30, 1997. During both periods, some
properties were reevaluated resulting in revisions to their reserve estimates.
As is generally well known, there are risks involved in exploration for and
production of oil and gas reserves. Reserves represent quantitative estimates of
the recoverable amounts of oil and gas that exist in the ground and of the
timing and costs of producing them. There are many ways in which reserve
estimates can be over or under the actual amounts of oil and gas that are
recovered. The estimated proved oil and gas reserves included are located
entirely within the United States.
Quantities of Reserves
Oil Gas
Proved and Developed Reserves (Barrels) (MCF)
----------------------------- --------- -----
Balances, April 30, 1996 190,213 118,980
Acquisitions 887,876 38,081
Revisions of estimates (81,082) (60,434)
Production (3,833) (10,316)
-------- --------
Balances, April 30, 1997 993,174 86,311
Revisions of estimates (291,250) (54,339)
Production (14,521) (17,058)
-------- --------
Balances, March 31, 1998 687,403 14,914
======== ========
The Company has net estimated reserve amounts for its interest in a lease in
Crockett County.
<TABLE>
<CAPTION>
Capitalized Costs Relating to Oil and Gas Producing Activities
March 31, April 30,
1998 1997
---------------- ---------------
<S> <C> <C>
Unproved properties (not being amortized) $ - $ 432,966
Proved properties (being amortized)
Evaluated proved properties 4,675,193 5,091,455
---------------- ---------------
Total Capitalized Costs 4,675,193 5,524,421
Accumulated Depletion (324,665) (97,706)
---------------- ---------------
Net Capitalized Costs $ 4,350,528 $ 5,426,715
================ ===============
</TABLE>
19
<PAGE>
NATURAL GAS TECHNOLOGIES, INC & SUBSIDIARY
Supplementary Information Relating
To Oil and Gas Producing Activities
For the periods ended March 31, 1998 and April 30, 1997
(Unaudited)
Costs incurred in Acquisition, Exploration and Development of Properties
<TABLE>
<CAPTION>
March 31, April 30,
1998 1997
----------- -----------
<S> <C> <C>
Property acquisition
Purchase of reserves in place $ -- $ 3,675,913
Unevaluated properties -- 432,966
Development 3,727,061 148,847
----------- -----------
$ 3,727,061 $ 4,257,726
=========== ===========
Results of Operations for Oil and Gas Producing Activities
Sales of oil and gas $ 287,833 $ 100,987
Production costs (including severance taxes) (442,963) (103,646)
Depletion (226,959) (36,235)
Income taxes -- --
----------- -----------
Results of operations from producing activities
(excluding corporate overhead) $ (382,089) $ (38,894)
=========== ===========
</TABLE>
All sales were to unaffiliated enterprises. Depletion is calculated based on
equivalent barrels of oil assuming that gas reserves and production are
converted to oil on the basis of 6 mcf per equivalent barrel of oil. During the
periods ended March 31, 1998 and April 30, 1997, depletion cost was $13.07 and
$7.03 per equivalent barrel, respectively. The significant difference between
the two years is primarily due to the addition of significant properties toward
the end of the year at costs that were materially higher, on a per barrel basis.
Standardized Measure of Discounted Future Net Cash Flows
Future cash inflows $ 11,753,843 $ 16,538,415
Future production and development costs (4,237,519) (6,856,457)
Future income taxes -- (1,572,429)
------------ ------------
Future net cash flows 7,516,324 8,109,529
10% annual discount for estimated timing
of cash flows (3,165,796) (3,236,864)
------------ ------------
Standardized measure of discounted
future net cash flows $ 4,350,528 $ 4,872,665
============ ============
20
<PAGE>
NATURAL GAS TECHNOLOGIES, INC & SUBSIDIARY
Supplementary Information Relating
To Oil and Gas Producing Activities
For the Periods ended March 31, 1998 and April 30, 1997
(Unaudited)
Principal Sources of Changes in the Standardized Measure
of Discounted Future Net Cash Flows
March 31, April 30,
1998 1997
----------- -----------
Standardized measure - beginning of year $ 4,872,665 $ 1,658,314
Acquisition of reserves in place -- 4,705,628
Sales, net of production costs 144,077 (25,540)
Changes in estimated future development costs 245,455 2,265,846
Revisions of quantity estimates (3,110,941) (1,139,362)
Accretion of discount 570,125 203,283
Net change in income taxes 828,581 (454,068)
Changes in production timing and other (547,725) (2,245,393)
Changes in sales prices 1,348,291 (96,043)
----------- -----------
Standardized measure - end of year $ 4,350,528 $ 4,872,665
=========== ===========
21
<PAGE>
NATURAL GAS TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
<PAGE>
NATURAL GAS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
------
<TABLE>
<CAPTION>
June 30, March 31,
1998 1998
--------- ---------
(Unaudited)
CURRENT ASSETS
<S> <C> <C>
Cash $ 4,808 $ 14,261
Accounts receivable 14,022 17,712
--------- ---------
Total Current Assets 18,830 31,973
--------- ---------
FIXED ASSETS
Oil and gas properties (full cost method) 4,779,761 4,675,193
Furniture and equipment 65,466 65,466
Accumulated depreciation and depletion (367,866) (330,623)
--------- ---------
Total Fixed Assets 4,477,361 4,410,036
--------- ---------
OTHER ASSETS
Accounts and notes receivable - related parties 132,198 -
Note receivable - Trans Energy, Inc. 158,497 101,467
Investment in joint ventures 190,500 190,500
Investment in stock 14,464 14,464
Other 3,769 3,113
--------- ---------
Total Other Assets 499,428 309,544
--------- ---------
TOTAL ASSETS $ 4,995,619 $ 4,751,553
========= =========
</TABLE>
1
<PAGE>
NATURAL GAS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
June 30, March 31,
1998 1998
------------ ------------
(Unaudited)
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable (Note 2) $ 609,554 $ 278,291
Accrued interest - 68,081
Advances and amounts due related parties 206,958 -
Current portion of note payable 5,746 5,746
------------ ------------
Total Current Liabilities 822,258 352,118
------------ ------------
NOTE PAYABLE 18,400 19,938
------------ ------------
Total Liabilities 840,658 372,056
------------ ------------
Redeemable preferred stock, Series 1994A $4.00
par value, (500,000 shares authorized; 7,097 outstanding) 28,388 28,388
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock Series 1994-B, $4.00 par value, 500,000
shares authorized and 66,360 outstanding 265,440 265,440
Common stock, $0.001 par value, 10,000,000 shares
authorized, 5,888,700 and 5,878,200 outstanding 5,889 5,878
Additional paid-in capital 10,277,098 10,261,358
Deferred services (160,000) (160,000)
Receivable for stock issued to officers (50,000) (9,000)
Accumulated deficit (6,211,854) (6,012,567)
------------ ------------
Total Stockholders' Equity 4,126,573 4,351,109
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,995,619 $ 4,751,553
============ ============
</TABLE>
2
<PAGE>
NATURAL GAS TECHNOLOGIES AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the
Three Months Ended
June 30,
-------------------------------
1998 1997
--------- ---------
REVENUES
<S> <C> <C>
Oil and gas revenues $ 46,094 $ 58,916
Other income 16,644 203
--------- ---------
Total Revenues 62,738 59,119
--------- ---------
EXPENSES
Production expenses and taxes 61,634 128,617
Depreciation, depletion and amortization 37,308 32,798
Professional fees 41,293 36,866
Consulting fees - 13,750
Personnel costs 84,165 29,793
Rent 4,716 4,802
Business promotion 2,845 -
Taxes 4,799 2,131
Travel 6,295 9,469
Other expenses 11,102 15,301
--------- ---------
Total Expenses 254,157 273,527
--------- ---------
LOSS FROM OPERATIONS (191,419) (214,408 )
--------- ---------
OTHER INCOME (EXPENSE)
Interest income 2,556 3,049
Interest expense (10,424) (107,286)
--------- ---------
Total Other Income (Expense) (7,868) (104,237)
--------- ---------
NET LOSS (199,287) (318,645)
Less unpaid preferred stock dividend claims for the year (5,877) (6,282)
--------- ---------
NET LOSS ATTRIBUTABLE TO COMMON
SHAREHOLDERS $ (205,164) $ (324,927)
========= =========
LOSS PER SHARE DATA:
Basic $ (0.03) $ (0.07)
Basic, attributable to common shares $ (0.04) $ (0.07)
Diluted $ (0.03) $ (0.07)
Diluted, attributable to common shares $ (0.04) $ (0.07)
</TABLE>
3
<PAGE>
NATURAL GAS TECHNOLOGIES, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
For the Year Ended March 31, 1998 and the Three Months Ended June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Preferred Stock
---------------
Series 1994-A Series 1994-B
------------- -------------
Shares Amount Shares Amount
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Balances, April 30, 1997 9,597 $ 38,388 66,360 $ 265,440
Stock issued for:
Cash - - - -
Related party liabilities - - - -
Options issued to related
party for properties - - - -
Management services - - - -
Repurchase of shares (2,500) (10,000) - -
Net loss - - - -
----------- ---------- ----------- ----------
Balances, March 31, 1998 7,097 28,388 66,360 265,440
Stock issued for:
Services at $1.50 per share - - - -
Cash at $1.50 per share - - - -
Management services - - - -
Net loss - - - -
----------- ---------- ----------- ----------
Balances, June 30, 1998 7,097 $ 28,388 66,360 $ 265,440
=========== ========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
Additional Deferred
Common Stock Paid-In Services & Accumulated
Shares Amount Capital Other Deficit
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balances, April 30, 1997 4,014,390 $ 4,014 $ 4,553,004 $ (319,000) $ (876,373)
Stock issued for:
Cash 239,524 240 1,484,760 - -
Related party liabilities 1,614,286 1,614 3,728,578 150,000 -
Options issued to related
party for properties - - 425,026 - -
Management services 10,000 10 69,990 - -
Repurchase of shares - - - - -
Net loss - - - - (5,136,194)
------------- ------------- ------------- ------------- -------------
Balances, March 31, 1998 5,878,200 5,878 10,261,358 (169,000) (6,012,567)
Stock issued for:
Services at $1.50 per share 500 1 750 - -
Cash at $1.50 per share 10,000 10 14,990 - -
Management services - - - (41,000) -
Net loss - - - - (199,287)
------------- ------------- ------------- ------------- -------------
Balances, June 30, 1998 5,888,700 $ 5,889 $ 10,277,098 $ (210,000) $ (6,211,854)
============= ============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial Statements.
4
<PAGE>
NATURAL GAS TECHNOLOGIES AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the
Three Months Ended
June 30,
--------------------------------
1998 1997
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (199,287) $ (318,645)
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
Depreciation, depletion and amortization 37,308 32,798
Amortization of note payable discount - 50,698
Stock issued for services 751 -
(Increase) decrease in:
Accounts receivable 3,690 (9,887)
Other assets (721) (3,049)
Increase (decrease) in:
Accounts payable 331,263 207,032
Accrued interest (68,081) 152,873
---------- ----------
Net Cash Provided by Operating Activities 104,923 111,820
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of oil and gas assets (104,568) (1,254,697)
Purchase of furniture and equipment - (8,572)
---------- ----------
Net Cash (Used) by Investing Activities (104,568) (1,263,269)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock 15,000 1,575,000
Loans and advances from related party 33,760 152,689
Repayments to related party (57,030) -
Note payments (1,538) (95,564)
---------- ----------
Net Cash (Used) Provided by Financing Activities (9,808) 1,632,125
---------- ----------
INCREASE (DECREASE) IN CASH FOR PERIOD (9,453) 480,676
CASH AT BEGINNING OF PERIOD 14,261 (575)
---------- ----------
CASH AT END OF PERIOD $ 4,808 $ 480,101
========== ==========
</TABLE>
5
<PAGE>
NATURAL GAS TECHNOLOGIES AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
For the
Three Months Ended
June 30,
----------------------------------------
1998 1997
--------------- -------------
CASH PAID FOR:
<S> <C> <C>
Interest $ 534 $ 1,133
Income taxes $ - $ -
NON-CASH FINANCING ACTIVITIES:
Stock issued for:
Acquisition of Interior Energy, Inc. $ - $ 2,590,000
Oil and gas assets $ - $ 840,000
Prepaid professional services $ - $ 70,000
Patent rights $ - $ 400,000
Business promotion $ 751 $ -
Acquisition of oil and gas assets for note payable $ - $ 250,000
Acquisition of oil and gas assets from related party for
note payable and options:
Note payable $ - $ 200,000
Contributed capital $ - $ 438,982
</TABLE>
6
<PAGE>
NATURAL GAS TECHNOLOGIES, INC & SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
June 30, 1998
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared
in accordance with generally accepted accounting principles for
interim financial information and with instructions of Regulation
SB of the Securities and Exchange Commission. They do not include
all information and footnotes required by generally accepted
accounting principles for complete financial statements. However,
except as disclosed herein, there has been no material change in
the information included in the audited financial statements for
the eleven months ended March 31, 1998. In the opinion of
management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the three month periods ended June
30, 1998 and 1997, are not necessarily indicative of the results
that may be expected for the year ending March 31, 1999.
NOTE 2 - RELATED PARTY PAYABLES
The accounts payable balance has significantly increased during
the quarter ended June 30, 1998. This is primarily due to
operations and drilling activity in excess of revenues. The total
accounts payable is owed primarily to Wagman Petroleum, Inc. for
lease operating and drilling costs. Other operating expenses and
loans to Trans Energy, Inc. were funded by loans from related
parties or entities controlled by related parties.
NOTE 3 - PLANNED MERGER ACTIVITY
On March 24, 1998, the Company entered into a Plan and Agreement
of Merger with Trans Energy, Inc. ("Trans Energy"), a Salt Lake
City, Utah based exploration Company, pursuant to which the
Company will be merged with and into Trans Energy which will be
the surviving corporate entity. The merger will be accomplished by
way of the exchange of 100% of the issued and outstanding shares
of the Company's common stock and preferred stock for shares of
Trans Energy's common stock. The exchange ratio will result in the
Company's present shareholders owning at lease 75% of the total
number of issued and outstanding shares of Trans Energy's common
stock immediately after the completion of the merger. The merger
is subject to shareholder approval of both corporations and the
effectiveness of Trans Energy's registration statement on Form
S-4.
Upon completion of the merger, the plan calls for the Company's
Vice President, Michael Stewart, to serve as President, Chief
Operating Officer and a director of Trans Energy. The Board of
Directors shall consist of five directors after completion of the
merger. Trans Energy's current President, Loren E. Bagley, shall
continue to serve as Chairman of the Board. In addition to Mr.
Bagley and Mr. Stewart, Trans Energy will appoint two additional
directors and the Company will appoint two additional directors.
The seventh director has not yet been determined, however, such
director will be appointed prior to completion of the merger by
the mutual agreement of directors appointed by Trans Energy and
the Company. Until the merger is completed, both corporations are
bing managed pursuant to a joint committee consisting of Mr.
Bagley and Mr. Stewart.
7
<PAGE>
NATURAL GAS TECHNOLOGIES, INC & SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
June 30, 1998
NOTE 4 - SUBSEQUENT EVENTS
During July 1998, the Company has entered into an agreement with
its Vice President, Michael Stewart, whereby he received 50,000
shares of common stock and is entitled to receive 150,000
additional shares upon the earlier of completion of the merger
with Trans Energy (or any other publicly traded entity) or the
Company becoming a fully reporting entity with the Securities
Exchange Commission.
Also during July 1998, the Company extended to the holders of its
preferred shares an offer to exchange their preferred shares for
common shares on a basis of two common shares for each preferred
share held. As part of the offer, the Company offered to pay an
amount equal to the accumulated dividends in cash or in common
shares at the rate of $2.75 per share. The Company has been
successful in converting all of the outstanding Series A preferred
shares and nearly all of the outstanding Series B preferred shares
into common. As a result of the conversion offer and the offer
regarding the cumulative dividend amounts, the Company has issued
47,179 common shares. The Company has also paid cash of $29,136 to
preferred shareholders electing that option.
8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of St. Marys, State of West
Virginia, on this 23rd day of September 1998.
TRANS ENERGY, INC.
(REGISTRANT)
By: /S/ LOREN E. BAGLEY
----------------------------------
Loren E. Bagley, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
President, Chief Executive
/S/ LOREN E. BAGLEY Officer and Director September 23, 1998
- --------------------------
Loren E. Bagley (Principal Financial Officer)
/S/ WILLIAM F. WOODBURN Vice President and Director September 23, 1998
William F. Woodburn (Chief Accounting Officer)
/S/ JOHN B. SIMS Director September 23, 1998
- --------------------------
John B. Sims
/S/ GARY F. LAWYER Director September 23, 1998
-------------------------
Gary F. Lawyer
9
Trans Energy, Inc.
August 13, 1998
Page 2
Exhibit 5
Opinion
Leonard E. Neilson
Attorney at Law
1121 East 3900 South
Suite 200, Bldg. C
Salt Lake City, UT 84124
Phone: (801) 288-2855 Fax: (801) 288-2850
September 17, 1998
Trans Energy, Inc.
210 Second Street
P.O. Box 393
St. Marys, West Virginia 2170
Re: Form S-4 Registration Statement of Trans Energy, Inc.
To the Board of Directors:
I have acted as counsel to Trans Energy, Inc., a Nevada corporation
(the "Company"), in connection with its Registration Statement on Form S-4
including the Joint Proxy Statement / Prospectus, related to the issuance of
6,415,350 shares of the Company's authorized but previously unissued common
stock, par value One Tenth of a Cent ($.001) per share (the "Common Stock"). The
subject 6,415,350 shares of Common Stock (the "Shares") are to offered and
exchanged in connection with the Company's merger with Natural Gas Technologies,
Inc. pursuant to fulfillment of the terms and conditions set forth in the
Registration Statement filed on Form S-4 in accordance with the registration
provisions of the Securities Act of 1933, as amended.
I have examined the Articles of Incorporation and all amendments
thereto, By-Laws, minutes of corporate proceedings and other corporate documents
with respect to the issuance of the Shares. I have been furnished with
originals, or copies certified to my satisfaction, of all such corporate or
other records of the Company (the "Corporate Records") and I have made such
other legal and factual examinations and inquiries as I have considered
necessary as a basis for the opinions expressed herein. In the examination of
the Corporate Records, I have presumed the authenticity of all signatures which
existed on the Corporate Records and have presumed the veracity and regularity
of all Corporate Records.
As to the question of fact material to this opinion letter, I have
relied upon the representations and warranties, certificates of and
conversations and correspondences with, officers and representatives of the
Company. Based upon the foregoing, I am of the opinion that:
1. The Company is a corporation duly organized and validly
existing under the laws of the State of Nevada.
2. The Shares have been legally and validly authorized under the
Articles of Incorporation and Board of Directors of the
Company and, when distributed and paid for in accordance with
the terms set forth in the Registration Statement (by
exchanging shares of Natural Gas Technologies, Inc. capital
stock), the Shares will be duly and validly issued and
outstanding, fully paid and nonassessable.
<PAGE>
Trans Energy, Inc.
Septmeber 17, 1998
Page 2
I hereby consent to the reference to myself in the Registration
Statement covering the offering of the Shares and the use of my name beneath the
caption "Legal Matters" in the Joint Proxy Statement / Prospectus forming a part
thereof, and to the filing of a copy of this opinion as Exhibit 5 thereof.
Yours truly,
/S/ Leonard E. Neilson
----------------------
Leonard E. Neilson
:ae
Exhibit 23.1
Consent of Jones Jensen & Company, Independent Certified Public Accountants,
related to financial statements for Trans Energy, Inc.
CONSENT OF INDEPENDENT AUDITORS'
--------------------------------
Board of Directors
Trans Energy, Inc.
St. Mary's, West Virginia
We hereby consent to the use in this Registration Statement of Trans Energy,
Inc. on Form S-4, of our report dated March 25, 1998 of Trans Energy, Inc. for
the years ended December 31, 1997 and 1996, which are part of this Registration
Statement, and to all references to our firm included in this Registration
Statement.
Jones, Jensen & Company
Salt Lake City, Utah
September 17, 1998
Exhibit 23.2
Consent of Jones Jensen & Company, Independent Certified Public Accountants,
related to financial statements for Natural Gas Technologies, Inc.
CONSENT OF INDEPENDENT AUDITORS'
--------------------------------
Board of Directors
Natural Gas Technologies, Inc. and Subsidiary
Dallas, Texas
We hereby consent to the use in this Registration Statement Natural Gas
Technologies, Inc. on Form S-4, of our report dated July 21, 1998 of Natural Gas
Technologies, Inc. and Subsidiary for the year ended March 31, 1998, which is a
part of this Registration Statement, and to all references to our firm included
in this Registration Statement.
Jones, Jensen & Company
Salt Lake City, Utah
September 17, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE TRANS ENERGY, INC.
FINANCIAL STATEMENTS FROM THE PERIOD ENDED JUNE
30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 64686
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 64686
<PP&E> 10317339
<DEPRECIATION> 1823397
<TOTAL-ASSETS> 12428664
<CURRENT-LIABILITIES> 6495671
<BONDS> 1744441
0
0
<COMMON> 2139
<OTHER-SE> 12867963
<TOTAL-LIABILITY-AND-EQUITY> 12428664
<SALES> 473006
<TOTAL-REVENUES> 473006
<CGS> 303076
<TOTAL-COSTS> 855030
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 139774
<INCOME-PRETAX> (282210)
<INCOME-TAX> 0
<INCOME-CONTINUING> (282210)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (282210)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> (.16)
</TABLE>
