SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended July 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to __________
Commission file number: 1-7965
CASPEN OIL, INC.
(Name of small business issuer as specified in its charter)
Nevada 75-1325831
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Irongate 3, Suite 201
777 S. Wadsworth Blvd.
Lakewood, Colorado 80226
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (303) 987-0925
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of Each Exchange on
Title of Each Class Which Registered
None N/A
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Title of Each Class
Common Shares, par value
$0.01 per share
Series A $1.80 Cumulative Convertible
Preferred Shares,
par value $1.00 per share
Indicate by check mark whether the issuer (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the issuer was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes x No
The Registrant's revenues for the fiscal year ended July 31,
1995, were $1,483,269.
The aggregate market value of the voting stock held by
non-affiliates of the registrant, based on the average prices of
<PAGE>
such stock as of October 1, 1995, is not determinable since the
Company's securities are not actively traded.
Aggregate Market Value
Title of Class at October 1, 1995
Common Shares, par value $0.01 per share N/A
Series A $1.80 Cumulative Convertible Preferred
Shares, par value $1.00 per share N/A
Series C Preferred Shares, par value $1.00 per share N/A*
*Not publicly traded
Series E Preferred Shares, par value $1.00 per share N/A*
*Not publicly traded
Total $ N/A
As of October 1, 1995, 18,092,222 Common Shares of the Registrant
were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Registrant's Proxy Statement for its 1995 Annual Meeting of
Shareholders: Part III
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-B is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. x
Transitional Small Business Disclosure Format: Yes ; No x
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
General Development of Business
Caspen Oil, Inc. (the "Company" or "Caspen"), a Nevada
corporation, was organized in 1970 as a successor to a
corporation organized in 1949. The Company and its subsidiaries
are presently engaged in oil and gas exploration, development and
production and the acquisition of producing oil and gas
properties. The Company was previously named "Summit Energy,
Inc." In August 1988, the name of the Company was changed to
"Caspen Oil, Inc." As used herein, all references to the
"Company" are to Caspen Oil, Inc. and its subsidiaries, unless
the context requires otherwise.
In fiscal year 1995, the Company had one industry segment:
oil and gas operations. Information regarding revenue, operating
profit or loss and assets are included in and incorporated by
reference to the Consolidated Financial Statements included in
Item 7 of this Report.
Recent Developments
The Company's Common and Series A $1.80 Cumulative
Convertible Preferred Stock were removed from the American Stock
Exchange on July 29, 1994, because the Company no longer
satisfied certain of the financial requirements for continued
listing. The Company's Common Shares trade on the NASD
electronic OTC bulletin board, under the symbol "CSPN".
Consolidated European Ventures Limited Exchange Agreement
On January 31, 1995, the Company executed an agreement with
Consolidated European Ventures Limited ("CEV") in an effort
between the two parties to equitably close out the original
merger agreement attempted last fiscal year. The basic terms of
the agreement called for CEV to return to the Company the 241,000
shares of Series F Preferred Stock which were issued under the
merger agreement dated March 7, 1994. The Series F Preferred
Stock was subsequently cancelled.
Consolidation of Working Interest in Nukern Lease
Pursuant to an agreement dated September 20, 1994, between
Summit Overseas Exploration, Inc. (wholly-owned subsidiary of the
Company) ("Summit"), the Villiers Group plc, a public limited
company organized under the laws of Northern Ireland, and
Churchill U.S.A., Inc., a Colorado corporation, each party agreed
to capitalize a newly formed company, CSV Holdings, Inc., a
Colorado corporation ("CSV") for the purpose of administering the
Nukern lease holdings of each to maximize the value of the lease.
To this end, each party transferred its respective working
<PAGE>
interest in the Nukern lease to CSV as its share of the
capitalization, along with a pari-passu working capital loan to
cover the estimated projected maintenance costs of the Nukern
lease through fiscal 1995. Of this, Summit transferred its
42.22% working interest for which it received 48.8% of the equity
in CSV and a production loan of $1,926,345. In addition, the
Company paid $42,223 as its share of the working capital loan.
The working capital loan is tied to a promissory note dated
December 1, 1994, with principal and interest, at six percent,
due in full December 1, 1998.
Other
The Company sued and was granted a judgement of $715,500,
plus interest of $84,908 through July 31, 1995, against the
parties in the United Kingdom associated with the wrestling cable
and television project. The Company has assigned no value to the
judgement in its financial statements since the asset had
previously been impaired and the collectability thereof through
the English court system is yet to be determined.
The remainder of the discussion of the business in this Item
1 focuses primarily on the Company's oil and gas business.
Products, Markets, Methods of Distribution and Revenues. Oil and
gas are the principal products produced by the Company. The
Company does not refine or otherwise process crude oil and
condensate production. The oil and condensate it produces are
sold to refineries and oil transmission companies at posted field
prices in the area where production occurred. The Company does
not have long-term contracts with purchasers of its oil and
condensate production.
The market for oil and gas is at all times subject to a
large number of important variables beyond the control of any
single producer which cannot be accurately predicted.
The availability of a ready market for any oil or gas
discovered and produced by the Company and the price obtained
therefor is affected by competition from other energy sources,
the supply of domestic and imported oil and gas, the proximity
and capacity of pipelines, market demand, the effect of state and
federal regulations of production and transportation of oil and
gas and the effect of changes in tax law affecting the oil and
gas industry. Accordingly, in view of the many uncertainties
affecting the supply and demand for crude oil, natural gas and
refined petroleum products, it is not possible to predict
accurately the prices or marketability of oil and gas from any
producing well in which the Company has an interest.
From time to time there may exist a surplus of natural gas
and/or oil supplies, the effect of which may be to reduce the
amount of hydrocarbons that the Company may produce and sell
while such surplus exists. The natural gas market continues to
be volatile due to a number of factors, including the worldwide
<PAGE>
supply of oil and gas, the price of foreign imports, the levels
of consumer demand, the price and availability of alternative
fuels and the availability of pipeline capacity. In addition,
the production and sale of natural gas are subject to extensive
federal, state, and local regulations, which greatly affect the
marketing of natural gas.
In certain areas in which the Company engages in gas
exploration and production activities, the supply of natural gas
available for delivery from time to time exceeds the demand.
During such times companies purchasing gas in such areas reduce
the amount of gas that they will purchase or "take." If buyers
cannot be readily located for newly discovered gas reserves,
newly completed gas wells may be shut-in for various periods of
time. There are no assurances that the over-supply of natural
gas in certain areas will not in the future cause the Company to
experience "take" problems or adversely affect the Company's
ability to obtain contracts to market gas discovered in wells in
which the Company owns an interest.
The average price of all oil sold by the Company in fiscal
1995 was $14.54 per barrel, while the same average for fiscal
1994 was $14.11 per barrel. The average price of all gas sold by
the Company in fiscal 1995 was $1.36 per mcf, while the same
average for fiscal 1994 was $1.82 per mcf.
Customers. For fiscal year ended July 31, 1995, the major
customers purchasing more than 10% of the Company's oil and gas
production were Cambridge Production (16%); Delhi Gas Pipeline
(11%); and Border Resources, Inc. (10%).
Competition. The Company encounters strong competition from
other independent operators and from major oil companies in
acquiring properties suitable for exploration, in contracting for
drilling equipment and in securing trained personnel. Many of
these competitors have financial resources and staffs
substantially larger than those available to the Company.
The Company's ability to discover reserves in the future
depends on its ability to select, generate and acquire suitable
prospects for future exploration. The Company does not currently
generate its own prospects and depends exclusively upon external
sources, such as various oil and gas publications and contacts
with brokers selling oil and gas companies and prospects.
Risks. The Company's operations are subject to all of the
risks normally incident to the exploration for and production of
oil and gas, including blowouts (wells blowing into the
atmosphere out of control), cratering (the subsidence of the
surface of the earth as a result of some blowouts), pollution and
fires, each of which could result in damages to or destruction of
oil and gas wells or formations or production facilities or
damage to persons and property. The Company occasionally has
experienced such blowouts, cratering, pollution or fires in the
<PAGE>
ordinary course of business; however, none of these past events
has resulted in a material adverse effect to the Company. As is
common in the oil and gas industry, the Company is not fully
insured against these risks either because insurance is not
available or because the Company has elected not to insure due to
prohibitive premium costs. Although the Company does not
directly engage in drilling activities, in case of any such
events, the Company may be held responsible for any such events
occurring on its properties. If such events should occur as a
result of negligence on the part of a contractor, then the
Company would have recourse against the contractor; however, the
occurrence of such an event not fully insured against could have
a material adverse effect on the Company's financial position.
Exploration, Development and Acquisitions. At the present
time the Company does not have an exploration department. The
Company utilizes outside consulting geologists and engineers to
evaluate new prospects and acquisitions identified by the
Company's staff and by others. The Company generally seeks out
and explores for hydrocarbons in known oil and gas producing
sedimentary basins. The Company currently uses outside
consultants to generate prospects to be operated in the Company's
name.
The Company finances its exploration, development and oil
and gas acquisition investments primarily from cash flows
generated from existing operations. The Company made
exploration, development, and acquisition expenditures totaling
$159,200 during the fiscal year ended July 31, 1995 as compared
to $737,595 for the fiscal year ending July 31, 1994.
Environmental Regulation. Various federal, state and local
laws and regulations covering the discharge of materials into the
environment, or otherwise relating to the protection of the
environment, may affect the Company's operations and costs as a
result of their effect on oil and gas exploration, development
and production operations. The Company spent approximately
$24,000 in fiscal 1995 as compared to approximately $149,000 in
fiscal 1994. It is not anticipated that the Company will be
required in the near future to expend amounts that are material
in relation to its total capital expenditure program by reason of
environmental laws and regulations, but because such laws and
regulations are constantly being changed, the Company is unable
to predict the ultimate cost to it of complying with present and
future environmental laws and regulations.
Governmental Regulation. Domestic exploration for and
production and sale of oil and gas is subject to federal and
state governmental regulation in a variety of ways. Legislation
affecting the oil and gas industry is under constant review for
amendment or expansion, frequently increasing the regulatory
burden. Also, numerous departments and agencies, both federal
and state, are authorized by statute to issue, and have issued,
rules and regulations applicable to the oil and gas industry that
<PAGE>
are often difficult and costly to comply with and that may carry
substantial penalties for failure to comply. Inasmuch as new
legislation affecting the oil and gas industry is commonplace and
existing laws and regulations are frequently amended or
reinterpreted, the Company is unable to predict the future cost
or impact of complying with such laws and regulations.
Employees. As of September 30, 1995, the Company (including
its subsidiaries) employed 2 persons, both of whom were full-time
employees. In addition, through a Service and Operations
Agreement with Churchill U.S.A., Inc., the Company is provided
with the following specific services: all computerized oil and
gas accounting; all oil and gas revenue disbursements; all oil
and gas production reporting; all oil and gas field supervision,
general corporate legal service, and all office space and
administrative activities at actual cost plus five (5) percent.
Financial Information About Foreign and Domestic Operations
and Export Sales. During the two fiscal years ended July 31,
1995, and 1994, the Company's oil and gas revenue has been
received from operations conducted and properties located within
the United States. In addition, the Company owns a working
interest in one property which is unproven in the United
Kingdom's North Sea; however, there have been no activities
conducted on that particular property. Accordingly, except for
certain investment transactions and the ownership of the working
interest in the United Kingdom, all of the Company's consolidated
revenue, operating profit and identifiable assets are
attributable to the United States for such periods. The Company
did not engage in export sales during the two fiscal years ended
July 31, 1995, and 1994. Accordingly, there were minimal
identifiable assets located outside the United States, and no
significant revenues or pretax earnings or losses were realized
during the two fiscal years ended July 31, 1995, and 1994 from
operations outside the United States.
ITEM 2. DESCRIPTION OF PROPERTY
Location and General Character
The Company's principal producing areas are in Texas,
Oklahoma, New Mexico, and Louisiana. The Company's interests in
oil and gas properties are held by virtue of leaseholds on the
property which generally continue in force by reason of, and so
long as, production from the lands under lease is maintained.
The Company believes that it generally has satisfactory title to
its oil and gas properties. Such properties are generally
subject to customary royalty interests contracted in connection
with the acquisition of the property, liens incident to operating
agreements, liens for current taxes and other burdens and minor
encumbrances, easements and restrictions. The Company believes
that none of such burdens materially detracts from the value of
such properties or materially interferes with their use in the
operation of the Company's business. As part of its Service and
<PAGE>
Operations Agreement with Churchill U.S.A., Inc., ("CUSA") the
Company is provided with
approximately 4,500 square feet of office space located at 777 S.
Wadsworth Blvd., Irongate 3, Suite 201, Lakewood, Colorado. The
Company is not a party to the lease. The primary term of the
lease covering this space will expire on December 31, 1995. The
Company has been advised that CUSA intends to renew its lease for
one year and will continue to provide office space to the
Company.
Oil and Gas Operations
Unless otherwise indicated, the following information under
this subsection "Oil and Gas Operations," applies only to one
geographic area, the United States.
Net Proved Oil and Gas Reserves. The following table sets
forth estimates of net quantities of proved reserves of crude oil
(including condensate and natural gas liquids) and natural gas of
the Company as of July 31, 1995, and 1994.
Proved Proved Total
Developed Undeveloped Proved
Reserves Reserves Reserves
July 31, 1995
Oil (bbls) 406,045 24,319 430,364
Gas (mcf) 6,125,925 804,505 6,930,430
July 31, 1994
Oil (bbls) 1,184,620 50,962 1,235,582
Gas (mcf) 6,582,687 317,795 6,900,482
The decline in oil reserves from fiscal 1994 to fiscal 1995
is primarily due to the transfer of the Company's Nukern lease
reserves to CSV Holdings, Inc. See "ITEM 1. DESCRIPTION OF
BUSINESS - Recent Developments". The Company's proved oil and
gas reserves were estimated as of July 31, 1995, and 1994, by
SavagEngineers, 7291 South Highland, Littleton, Colorado, 80120,
an independent petroleum and natural gas consultant.
Estimates of oil and gas reserves are, of necessity, pro-
jections based on engineering data. There are uncertainties
inherent in the interpretation of such data, and there can be no
assurance that the reserves set forth herein will ultimately be
realized.
All of the Company's producing reserves are located within
the United States.
<PAGE>
Present Value Analysis. The following table sets forth the
present value, using a discount factor of ten percent (10%) and
computed in accordance with regulations and guidelines of the
Securities and Exchange Commission ("SEC"), of the estimated
future net revenues to be received by the Company from the net
quantities of proved reserves of crude oil (including condensate
and natural gas liquids) and natural gas referred to in the
subsection entitled "Properties--Oil and Gas Operations--Net
Proved Oil and Gas Reserves", above, as of July 31, 1995, and
1994. The present value data has been presented to comply with
the regulations of the SEC and should not be construed as
representative of the fair market value of the Company's proved
oil and gas properties.
July 31,
1995 1994
Proved Developed
Reserves of Oil and
Gas ............... $4,370,914 $9,490,572
Proved Undeveloped
Reserves of Oil and
Gas ............... 210,741 269,496
Total Proved
Reserves of Oil and
Gas ............... $4,581,655 $9,760,068
Oil and Gas Production, Sales Price, Production Cost. The
following table sets forth the Company's net oil (including
condensate and natural gas liquids) and gas production, in number
of barrels and thousands of cubic feet, respectively, for the
years ended July 31, 1995, and 1994:
Year Ended Year Ended
July 31, 1995 July 31, 1994
Oil (bbls) 33,963 52,209
Gas (mcf) 540,645 861,051
None of the oil or gas produced and received during each of
these periods was applicable to long-term supply or similar
agreements with foreign governments or authorities in which the
Company acted as a producer.
<PAGE>
The following table sets forth for the years ended July 31,
1995, and 1994, the Company's average sales price per bbl of oil
and mcf of gas produced and average production costs per
equivalent unit of production.
Year Ended Year Ended
July 31, 1995 July 31,
1994
Average sales price per
bbl of oil <F1>: $14.54 $14.11
Average sales price per
mcf of gas: $ 1.36 $ 1.82
Average production cost
per equivalent unit
(bbl), including
severance taxes <F2>: $ 4.24 $ 4.99
Other<F3> $ 1.00 $ 0.38
TOTAL: $ 5.24 $ 5.37
_________________________
<F1>
(1) Excludes natural gas liquids.
</F1>
<F2>
(2) Gas production is converted to barrel equivalents at the
rate of 6 mcf per barrel, representing the estimated
relative energy content of natural gas to oil.
</F2>
<F3>
(3) Workover costs.
</F3>
<PAGE>
Producing Wells. The following table summarizes the
producing oil and gas wells in which the Company had an interest
at July 31, 1995:
TOTAL WELLS
Geographic Oil Wells<F1> Gas Wells<F1>
Area Gross Net Gross Net
Louisiana -- -- 7 3.30
New Mexico 232 2.27 5 .95
Oklahoma 8 1.16 1 .13
Texas 327 1.71 34 3.23
TOTAL 567 5.14 47 7.61
___________________
<F1>
Gross wells are the total number of wells in which the
Company has a working interest. Net wells are the sum of
the Company's fractional working interests in the gross
wells. Multiple completions are treated as one well each.
One (1) well with a multiple completion is included in the
table.
<F1>
Acreage. The following table shows the developed and
undeveloped leasehold acreage held by the Company as of July 31,
1995:
<TABLE>
<CAPTION>
WORKING INTEREST ROYALTY AND OVERRIDING
ROYALTY
DEVELOPED UNDEVELOPED DEVELOPED UNDEVELOPED
Acreage <F1> <F3> Acreage <F2> <F3> Acreage Acreage
Gross Net Gross Net Gross Gross
<S> <C> <C> <C> <C> <C> <C>
California -- -- -- -- 160 --
Colorado -- -- 495 485 -- --
Kansas -- -- -- -- 880 --
Louisiana 5,479 2,564 -- -- 5,970 --
Mississippi -- -- 3,195 832 -- --
New Mexico 22,882 711 1,600 1,213 22,557 1,120
Oklahoma 1,712 268 -- -- 678 --
Texas 35,582 2,106 -- -- 37,136 --
Wyoming -- -- -- -- 800 --
United Kingdom -- -- 25,155 629 -- --
TOTAL 65,655 5,649 30,445 3,159 68,181 1,120
___________________
<F1>
(1) Developed acres are those spaced or assignable to productive
wells.
</F1>
<F2>
(2) Undeveloped acres are assignable to those wells which have
not been drilled or completed to a point that would permit
the production of commercial quantities of oil and gas
regardless of whether or not such acreage contains proved
reserves.
<F2>
<F3>
(3) Gross acres are the total number of acres in which the
Company has a working interest. Net acres are the sum of
the Company's fractional interests in the gross acres.
</F3>
</TABLE>
Drilling Activity. The following table sets forth the
results of drilling activity by the Company for the years ended
July 31, 1995, and 1994. The Company drilled no exploratory
wells for the years ended July 31, 1995, and 1994.
Development Wells<F1>
Gross Net
Productive Dry Total ProductiveDry Total
Year Ended
July 31, 1995 14 0 14 0.12 0.00 0.12
Year Ended
July 31, 1994 45 0 45 0.36 0.00 0.36
__________________
<F1>
The term "development well" refers to a well drilled within
the proven area of an oil and gas reservoir to the depth of
a stratigraphic horizon known to be productive.
</F1>
Present Activities. During 1994, the Company installed a
water disposal system at its Boston Bayou Field, Vermilion
Parish, Louisiana. The installation was necessary to comply with
Environmental Protection Agency and Department of Water Quality
mandate to cease the discharge of produced water into the
adjacent marshland. Since the installation, the well was
successfully reworked to accommodate a greater flow at lower
pressure, and the disposal system presently handles 100% of the
produced water from the project.
Effective January 1, 1993, ARCO's South Justis Secondary
Recovery Unit, located in Lea County, New Mexico, of which the
Company owns a gross .825% working interest, was approved by the
New Mexico Oil and Gas Conservation Commission for unitization.
Fifty-six (56) wells have been drilled in the unit since
inception. Total project costs were estimated at $56.5 million,
of which approximately $50 million have been expended thus far.
The Company's cost in this project was approximately $400,000.
The Company holds various working, overriding royalty and
royalty interests in the Beargrass Prospect Area in Leo,
Freestone and Limestone counties, Texas. The reservoir produces
gas from the Cotton Valley, Travis Peak, Bossier and Pettit
formations. Continued development plans have been postponed due
to low gas prices; however, spacing units have been reduced for
<PAGE>
all applicable formations, and it is likely that additional
development drilling will be conducted during the coming fiscal
year.
The Company has farmed out, sold, or otherwise assigned
tracts of acreage in several of its leasehold areas, for purposes
of causing wells to be drilled. Two new producing wells were
located on such lands during fiscal 1995, in which the Company
retains various overriding royalty and/or reversionary working
interests. The effect of these transactions to the acreage pool
and to total revenues is relatively insignificant; however, it
reflects the Company's continuing utilization of assets.
Title to Oil and Gas Properties. As is common industry
practice, little or no investigation of title is made at the time
of acquisition of undeveloped properties, other than a
preliminary review of local mineral records. Title
investigations are made, in most cases including obtaining a
title opinion of local counsel, before commencement of drilling
operations. The Company believes that its methods of
investigating title to its properties are consistent with
practices customary in the oil and gas industry in connection
with the acquisition of such properties and that such practices
are adequately designed to enable it to acquire good title to
such properties.
Contractual Commitments. The Company is not obligated to
provide a fixed and determinable quantity of oil or gas in the
future under existing contracts or agreements.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in routine litigation from time to
time. The litigation in which the Company is currently involved
is not material to the Company's consolidated financial position.
On July 9, 1993, the Company received a demand notice from the
Daiwa Bank Ltd., ("Daiwa") for payment of $1,997,500 in payment
of the outstanding balance on the Company's $15,000,000 Credit
Revolver established by Daiwa in 1988, although no litigation has
been commenced as of the date hereof. The Company is in contact
with Daiwa to resolve the matter. See "Management's Discussion
and Analysis or Plan of Operation - Liquidity and Capital
Resources."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the shareholders of the
Company during the fourth quarter of the year ended July 31,
1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
The principal market on which the Company's Common Shares
traded prior to July 29, 1994, was the American Stock Exchange.
<PAGE>
The following table sets forth the high and low closing sale
prices for the Common Shares of the Company as reported in the
consolidated transaction reporting system for the calendar
periods indicated.
On July 29, 1994, the Company's securities ceased trading on
the American Stock Exchange because the Company no longer
satisfied certain of the financial requirements for continued
listing. Since July 29, 1994, the shares have not been actively
traded in any market. The Company's Common stock is traded on
the NASD electronic OTC bulletin board under the symbol "CSPN".
The Company has no reliable information as to the price at which
the shares have traded since July 29, 1994.
<TABLE>
<CAPTION>
High Low
1994:
<S> <C> <C>
First Quarter $ 3/8 $ 3/16
Second Quarter 5/16 1/8
Third Quarter (through July 29, 1994) 7/32 1/8
</TABLE>
As of September 30, 1995, there were approximately 4,400
holders of record of the Company's Common Shares.
No cash dividend on the Common Shares has been declared
since 1982, and no dividend has been paid on the Series C or E
Preferred Shares. Declaration and payment of any cash dividends
by the Company is currently prohibited by the Loan Agreement,
dated August 1, 1988, amended and restated on December 14, 1990,
between the Company and Daiwa. Moreover, the terms of the Series
A Shares provide that no dividends may be paid on the Common
Shares or Series C or E Preferred Shares while dividends on the
Series A Shares are in arrears. The Company has not paid any
dividends on the Series A Shares since June 30, 1988. As of July
31, 1995, dividends on the Company's Series A Shares are in
arrears $15.289 per share for a total of $9,165,977.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
LIQUIDITY AND CAPITAL RESOURCES
In December 1990, at the request of Daiwa, the Company sold
property, which was mortgaged to Daiwa, for approximately
$5,200,000. From the proceeds of the sale, Daiwa received the
total $5,200,000. Daiwa applied $4,700,000 to the reduction of
principal. Simultaneously, the Company executed a 30-month
extension note in the amount of $2,000,000, with the guarantee by
Daiwa that, upon payment of $500,000 in June 1993, the note would
be renewed or restructured. Daiwa recognized that the Company
would be unable to make the $500,000 principal payment in June
1993 and therefore returned $500,000 from the December 1990 sale
of property to the Company.
In June 1993, after the Company paid interest for thirty
(30) months of approximately $425,000, Daiwa refused to accept
the $500,000 principal reduction payment offered by the Company
and refused to renew or restructure the note claiming no legal
<PAGE>
obligation to do so and citing its decision to divest itself of
oil and gas loans.
On July 9, 1993, the Company received a demand notice from
Daiwa for $1,997,500 in payment of the loan balance remaining on
the $15,000,000 Credit Revolver established by Daiwa in late
1988. On February 17, 1994, the Company sold certain oil and gas
properties for $300,000 the proceeds of which were used to reduce
the bank debt principal to $1,697,500.
As of October 4, 1995, the Company has voluntarily reduced
the outstanding principal balance to $1,547,500.
The Company has attempted to resolve the loan dispute. The
Company expects one of two developments between the Company and
Daiwa in fiscal year 1996: (a) the Company and Daiwa reach an
agreement to reduce to zero the outstanding loan balance
inclusive of interest (However, there can be no assurance that
Daiwa will agree to do so, nor can there be any assurance that
Daiwa will not proceed to foreclose on the oil and gas properties
which secure the debt.); or (b) litigation results in which the
Company asserts lender liability claims for refusal to renew the
credit as represented, and Daiwa asserts claims for default
interest and attorneys' fees. Under the second alternative, the
Company estimates legal fees in the range of $150,000 in fiscal
years 1996-1997.
Cash flow used in operations during fiscal year 1995 of
$(13,033) decreased from cash provided by operations during
fiscal year 1994 of $538,508. This decrease primarily related to
the large provision for loss on assets as reported in fiscal 1994
as compared to fiscal 1995.
The Company anticipates that with its current cash
position, and a satisfactory resolution with Daiwa, it will have
sufficient working capital to meet its obligations during the
ensuing fiscal year.
As of July 31, 1995, dividends on the Company's cumulative
convertible Series A Preferred Shares are in arrears $15.289 per
share for a total of $9,165,977.
The Company intends to continue to provide visionary
leadership and vigorously pursue merger and acquisition
candidates both domestically and abroad. The Company will
respond aggressively to any merger or acquisition opportunity
that is in the best interest of all the shareholders.
RESULTS OF OPERATIONS
During fiscal year 1995, the Company's management resources
were primarily directed to three areas:
(1) The settlement and/or avoidance of legal actions.
The Company was sued by the operator of one of the
Company's offshore lease facilities. The potential exposure to
the Company under this suit was approximately $600,000. In
addition, the Company could be faced with plugging liabilities of
approximately $650,000. The Company's President negotiated a
settlement of $230,000 to be paid over a twelve-month period
<PAGE>
thereby resulting in an 81% discount of the potential exposure
without reference to the avoidance of associated legal fees. As
of this filing, execution of the settlement agreement is pending.
It is anticipated that closing will be completed no later than
November 20, 1995.
(2) The identification of a suitable merger or acquisition
candidate for the Company. To date, no suitable candidate has
been identified.
(3) The identification of the most viable market which
would enhance the trading of the Company's stock. To this end,
the Company is pursuing listing on the London Stock Exchange's
newly formed Alternative Investment Market which came into being
in July 1995 and was specifically created to meet the needs of
smaller and growing companies keen to raise public finance and to
have their shares more widely traded.
Consolidation of Working Interest in Nukern Lease
Pursuant to an agreement dated September 20, 1994, between
Summit Overseas Exploration, Inc. (wholly-owned subsidiary of the
Company) ("Summit"), the Villiers Group plc, a public limited
company organized under the laws of Northern Ireland, and
Churchill U.S.A., Inc., a Colorado corporation, each party agreed
to capitalize a newly formed company, CSV Holdings, Inc., a
Colorado corporation ("CSV") for the purpose of administering the
Nukern lease holdings of each to maximize the value of the lease.
To this end, each party transferred its respective working
interest in the Nukern lease to CSV as its share of the
capitalization, along with a pari-passu working capital loan to
cover the estimated projected maintenance costs of the Nukern
lease through fiscal 1995. Of this, Summit transferred its
42.22% working interest for which it received 48.8% of the equity
in CSV and a production loan of $1,926,345. In addition, the
Company paid $42,223 as its share of the working capital loan.
The working capital loan is tied to a promissory note dated
December 1, 1994, with principal and interest, at six percent,
due in full December 1, 1998.
Year Ended July 31, 1995 Compared with the Year Ended July 31,
1994
Oil and gas revenue was $1,208,381 as compared to
$2,202,084 for the prior fiscal year. This decrease in revenue
is primarily due to significantly lower natural gas prices
received during fiscal 1995 as compared to fiscal 1994 as well as
shut-ins of two significant non-operated wells due to
recompletion efforts.
The Company experienced slightly higher oil and
substantially lower gas prices than those received in the same
period last year. Average prices received in fiscal 1995 were
$14.54/barrel oil and $1.36/mcf gas, as compared to $14.11/barrel
oil and $1.82/mcf gas received in the prior fiscal year.
Substantially lower net revenue from oil and gas operations
was offset by a decrease in production costs. Production costs
decreased to $5.24 per BOE for fiscal 1995 as compared to $5.37
per BOE for fiscal 1994. The lower per unit production costs are
<PAGE>
primarily a result of the Company's transfer of its working
interest in the Nukern lease to CSV Holdings, Inc.
General and administrative expenses for fiscal 1995
decreased by $479,785 over the prior year. This decrease related
primarily to the reduction of merger and acquisition costs and
associated legal expenses as well as outside contract services.
Interest expense for the current fiscal year was $166,127
as compared to $135,198 reported for the prior fiscal year.
Depletion, depreciation and amortization of oil and gas
property costs are calculated on the unit-of-production method
based on total estimated reserves. The current fiscal year's
rate per MCF equivalent unit was $.27 as compared to $.35 for the
prior fiscal year.
There was no writedown of the Company's oil and gas
properties for either the current fiscal year or the fiscal year
ended July 31, 1994.
As a result of the aforementioned activities, the Company
had a net loss of ($430,158) in fiscal 1995 as compared to a net
loss of ($1,381,603) in fiscal 1994.
Year Ended July 31, 1994 Compared with the Year Ended July 31,
1993
Oil and gas revenue was $2,202,084 as compared to
$2,299,457 for the prior fiscal year. This decrease in revenue
was primarily due to adjustments to the gas balancing payable for
fiscal 1994.
The Company experienced lower oil and higher gas prices
than those received in the same period in the prior year.
Average prices received in fiscal 1994 were $14.11/barrel oil and
$1.82/mcf gas, as compared to $17.05/barrel oil and $1.64/mcf gas
received in the prior fiscal year.
Slightly lower net revenue from oil and gas operations was
offset by a decrease in production costs. Production costs
decreased to $5.37 per BOE for fiscal 1994 as compared to $5.79
per BOE for fiscal 1993. The lower per unit production costs
were a result of increased production due to workovers.
General and administrative expenses for fiscal 1994
decreased by $28,402 over the prior year. This decrease related
primarily to the renegotiated Service and Operations Agreement.
During fiscal year 1994, the Company's management resources
were primarily directed to the proposed reverse merger with CEV
which limited the activities in the Company's non-oil and gas
investments. Planned operations were not as anticipated; and as
a result, the Company's management assessed each of its
investments and provided a reserve for impairment of $704,540 for
the year ended July 31, 1994.
Interest expense for fiscal 1994 was $135,198 as compared
to $152,098 reported for the prior fiscal year due to a reduction
in the prime lending rate.
<PAGE>
Depletion, depreciation and amortization of oil and gas
property costs are calculated on the unit-of-production method
based on total estimated reserves. Fiscal 1994's rate per MCF
equivalent unit was $.35 as compared to $.34 for the prior fiscal
year.
There was no writedown of the Company's oil and gas
properties for either fiscal 1994 or the fiscal year ended July
31, 1993.
As a result of the aforementioned activities, the Company
had a net loss of ($1,381,603) in fiscal 1994 as compared to a
net loss of ($1,627,705) in fiscal 1993.
INFLATION AND CHANGES IN PRICES
While the costs of operations have been, and will continue
to be, affected by inflation, oil and gas prices have fluctuated
in recent years and generally have not followed the same pattern
as inflation. The following table shows the average oil and gas
prices received by the Company over the last two fiscal years.
<TABLE>
<CAPTION>
Average Average
Oil Price Gas Price
($/Bbl) ($/MCF)
By Year
<C> <C> <C>
July 31, 1995 $14.54 $1.36
July 31, 1994 $14.11 $1.82
Lower gas prices have had a significant impact on revenues.
Many wells, particularly in northern Louisiana, East Texas and
New Mexico, where the Company has extensive holdings of royalty
and overriding royalty acreage, have been idled. In addition,
lower gas prices have resulted in a near-cessation of drilling on
acreage owned by the Company upon which additional development is
warranted.
ITEM 7. FINANCIAL STATEMENTS
The Financial Statements are set forth herein commencing on
page F-i.
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT
The information required in response to this Item is
incorporated herein by reference to the Registrant's definitive
proxy statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A, not later than 120 days
after the end of the Registrant's fiscal year covered by this
report.
ITEM 10. EXECUTIVE COMPENSATION
The information required in response to this Item is
incorporated herein by reference to the Registrant's definitive
proxy statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A, not later than 120 days
after the end of the Registrant's fiscal year covered by this
report.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required in response to this Item is
incorporated herein by reference to the Registrant's definitive
proxy statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A, not later than 120 days
after the end of the Registrant's fiscal year covered by this
report.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in response to this Item is
incorporated herein by reference to the Registrant's definitive
proxy statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A, not later than 120 days
after the end of the Registrant's fiscal year covered by this
report.
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this
report:
(1) Financial Statements:
See "CASPEN OIL, INC. AND SUBSIDIARIES - Index to
Consolidated Financial Statements" on page F-i of this
report.
(2) Exhibits:
3.1 Certificate of Amendment and Restatement of
Restated Articles of Incorporation of the
Registrant dated December 1, 1994.
3.2 Bylaws of the Registrant, as amended, filed as
Exhibit 3.2 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended July 31, 1988,
and incorporated herein by reference.
4.1 Specimen Common Share Certificate of the
Registrant, filed as Exhibit 4.1 to the
Registrant's Annual Report on Form 10-K for the
fiscal year ended July 31, 1992, and incorporated
herein by reference.
4.2 Specimen Series A $1.80 Cumulative Convertible
Preferred Share Certificate of the Registrant,
filed as Exhibit 4.2 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended July
31, 1992, and incorporated herein by reference.
4.3 Resolutions authorizing the $1.80 Cumulative
Convertible Preferred Shares, par value $1.00 per
share, of the Registrant, as amended, filed as
Exhibit 4.3 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended July 31, 1988,
and incorporated herein by reference.
4.4 Specimen Series C Preferred Share Certificate of
the Registrant, filed as Exhibit 4.4 to the
Registrant's Annual Report on Form 10-K for the
fiscal year ended July 31, 1992, and incorporated
herein by reference.
4.5 Resolution authorizing the Series C Preferred
Shares, par value $1.00 per share of the
Registrant, filed as Exhibit 4.5 to the
Registrant's Annual Report on Form 10-K for the
<PAGE>
fiscal year ended July 31, 1992, and incorporated
herein by reference.
4.6 Specimen Series E Preferred Share Certificate of
the Registrant, filed as Exhibit 4.6 to the
Registrant's Annual Report on Form 10-KSB for the
fiscal year ended July 31, 1994, and incorporated
herein by reference.
4.7 Resolution authorizing the Series E Preferred
Shares, par value $1.00 per share of the
Registrant, filed as Exhibit 4.7 to the
Registrant's Annual Report on Form 10-KSB for the
fiscal year ended July 31, 1994, and incorporated
herein by reference.
4.8 Specimen Series F Preferred Share Certificate of
the Registrant, filed as Exhibit 4.8 to the
Registrant's Annual Report on Form 10-KSB for the
fiscal year ended July 31, 1994, and incorporated
herein by reference.
4.9 Resolution authorizing the Series F Preferred
Shares, par value $1.00 per share of the
Registrant, filed as Exhibit 4.9 to the
Registrant's Annual Report on Form 10-KSB for the
fiscal year ended July 31, 1994, and incorporated
herein by reference.
4.10 1993 Omnibus Employee Stock Option Plan of Caspen
Oil, Inc., filed as Exhibit 4.8 to the
Registrant's Form S-8 (No. 33-68868) dated
September 15, 1993, and incorporated herein by
reference.
10.1 Form of Indemnification Agreement with Directors,
filed as Exhibit 10.2 to the Registrant's Annual
Report on Form 10-K for the Year ended July 31,
1987, and incorporated herein by reference.
10.2 Summit Energy, Inc. Stock Bonus Plan, filed as
Exhibit 10.3 to the Registrant's Annual Report on
Form 10-K for the Year ended July 31, 1987, and
incorporated herein by reference.
10.3 Service and Operations Agreement, dated March 31,
1994, between the Registrant's subsidiary, Summit
Overseas Exploration, Inc. and Churchill U.S.A.,
Inc., filed as Exhibit 10.5 to the Registrant's
Annual Report on Form 10-KSB for the fiscal year
ended July 31, 1994, and incorporated herein by
reference.
<PAGE>
10.4 Amendment to Service and Operations Agreement,
dated June 15, 1995, between Churchill U.S.A.,
Inc. and the Registrant's subsidiary, Summit
Overseas Exploration, Inc.
<PAGE>
10.5 Amended and Restated Loan Agreement, dated as of
December 14, 1990, by and between the Registrant
and The Daiwa Bank Limited (formerly Lloyds Bank
Plc) concerning the $15,000,000 Revolving Credit
Loan to the Registrant, filed as Exhibit 10.4 to
the Registrant's Annual Report on Form 10-K for
the fiscal year ended July 31, 1991, and
incorporated herein by reference.
10.6 Employment Agreement, dated January 1, 1994, by
and between the Registrant's subsidiary, Summit
Overseas Exploration, Inc. and Anthony J. Carroll,
filed as Exhibit 10.7 to the Registrant's Annual
Report on Form 10-KSB for the fiscal year ended
July 31, 1994, and incorporated herein by
reference.
10.7 Employment Agreement, dated January 1, 1994, by
and between the Registrant's subsidiary, Summit
Overseas Exploration, Inc. and Gary N. Davis,
filed as Exhibit 10.8 to the Registrant's Annual
Report on Form 10-KSB for the fiscal year ended
July 31, 1994, and incorporated herein by
reference.
10.8 Agreement dated September 20, 1994, between the
Registrant's subsidiary, Summit Overseas
Exploration, Inc., Churchill U.S.A., Inc., and
Villiers Group plc.
21.1 Subsidiaries of the Registrant, filed as Exhibit
22.1 to the Registrant's Annual Report on Form 10-
K for the fiscal year ended July 31, 1992, and
incorporated herein by reference.
(b) Reports on Form 8-K
The Company filed no current reports on Form 8-K during
the last quarter of the period covered by this report.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the Company has duly caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
DATE: November 10, 1995
CASPEN OIL, INC.
/s/ Anthony J. Carroll
Anthony J. Carroll
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons in the capacities and on the dates indicated.
</TABLE>
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Anthony J. Carroll Chairman of the November 10, 1995
Anthony J. Carroll Board, President and
Chief Executive Officer
(Principal Executive
Officer)
/s/ Gary N. Davis Chief Financial November 10, 1995
Gary N. Davis Officer and
Director
(Principal Financial
and Accounting Officer)
/s/ Kimberley J. Love Secretary and November 10, 1995
Kimberley J. Love Director
/s/ John J. Crawford Director November 10, 1995
John J. Crawford
22
<PAGE>
CASPEN OIL, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements
Independent Auditor's Report . . . . . . . . . . . . . . . . F 1
Consolidated Balance Sheet as of July 31, 1995 . . . F 2 to F 3
Consolidated Statements of Operations
for the Years Ended July 31, 1995 and 1994 . . . . . . . . . F 4
Consolidated Statements of Shareholders' Equity
for the Years Ended July 31, 1995 and 1994 . . . . . . . . . F 5
Consolidated Statements of Cash Flows
for the Years Ended July 31, 1995 and 1994 . . . . . F 6 to F 7
Notes to Consolidated Financial Statements F 8 to F 23
INDEPENDENT AUDITOR'S REPORT
Shareholders and Board of Directors
Caspen Oil, Inc.
Lakewood, Colorado
We have audited the accompanying consolidated balance sheet of
Caspen Oil, Inc. and subsidiaries as of July 31, 1995 and the
related consolidated statements of operations, changes in
shareholders' equity and cash flows for the years ended July 31,
1995 and 1994. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Caspen Oil, Inc. and subsidiaries as of July 31,
1995, and the consolidated results of their operations and their
cash flows for the years ended July 31, 1995 and 1994 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 B to the financial statements, the
Company's current liabilities exceed its current assets by
approximately $2,287,000 at July 31, 1995. The working capital
deficit results primarily from bank debt of $1,597,500, for which
payment was demanded by the bank on July 9, 1993. The working
capital deficit raises substantial doubt about the Company's
<PAGE>
ability to continue as a going concern. Management's plans in
regard to this matter are also discussed in Note B. The
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Mitchell & Finley and Company, P.C.
Certified Public Accountants
October 24, 1995
Denver, Colorado
F-2
<PAGE>
CASPEN OIL, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
July 31, 1995
ASSETS
CURRENT ASSETS
Cash and cash equivalents $464,876
Accounts receivable, trade, no allowance
for doubtful accounts 327,038
Notes receivable, affiliate, current portion 8,346
800,260
PROPERTY AND EQUIPMENT, AT COST
Oil and gas properties, full cost method used for
oil and gas properties 19,626,347
Other 240,830
19,867,177
Less accumulated depletion,
depreciation and amortization 16,659,765
3,207,412
OTHER
Investments 833,520
Note receivable, related party, noncurrent 42,223
Notes receivable, affiliate, noncurrent 48,045
Other 1,950
925,738
TOTAL ASSETS $4,933,410
See accompanying notes to consolidated financial statements.
F 3
<PAGE>
CASPEN OIL, INC. AND SUBSIDIARIES
Consolidated Balance Sheet (Continued)
July 31, 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable, bank $1,597,500
Accounts payable 956,116
Accrued expenses 523,973
Note payable, other, current portion 10,000
3,087,589
LONG-TERM LIABILITIES
Accrued expenses 66,667
Note payable, other 20,000
86,667
COMMITMENTS
SHAREHOLDERS' EQUITY
$1.80 cumulative convertible preferred stock, Series A,
$1 par value. Authorized 10,000,000 shares; issued
600,000 shares (liquidation preference of $21,155,977,
excluding shares in treasury) 600,000
Convertible preferred stock, Series C, $1 par value.
Authorized 300,000 shares; issued and outstanding
300,000 shares (liquidation preference of $300,000)
300,000
Convertible preferred stock, Series E, $1 par value.
Authorized 1,250,000 shares; issued and outstanding
125,000 shares (liquidation preference of $500,000)
125,000
Common stock, $.01 par value. Authorized
50,000,000 shares; issued 18,092,222 shares 180,922
Additional paid-in capital 21,091,871
Accumulated deficit (20,528,929)
1,768,864
Less cost of 18,836 common shares and
500 Series A preferred shares in treasury 9,710
1,759,154
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,933,410
See accompanying notes to consolidated financial statements.
F 4
<PAGE>
CASPEN OIL, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the Years Ended July 31, 1995 and 1994
1995 1994
REVENUES
Crude oil and gas sales $1,208,381 $2,202,084
Interest income 29,121 28,276
Other 245,767 69,136
1,483,269 2,299,496
COSTS AND EXPENSES
Production and operating 673,350 1,051,610
Depletion, depreciation and amortization 217,576 413,045
Provision for loss on investments 704,540
General and administrative 856,374 1,336,159
Interest
166,127 135,198
Loss on sale of assets 40,547
1,913,427 3,681,099
NET LOSS (430,158)
(1,381,603)
DIVIDEND REQUIREMENTS ON PREFERRED STOCK 3,875,729 706,151
LOSS APPLICABLE TO COMMON STOCK $(4,305,887) $
(2,087,754)
LOSS PER SHARE OF COMMON STOCK $ (.24) $ (.12)
See accompanying notes to consolidated financial statements.
F 5
<PAGE>
CASPEN OIL, INC. AND SUBSIDIARIES
</TABLE>
<TABLE>
<CAPTION>
CASPEN OIL, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity (Continued)
For the Years Ended July 31, 1995 and 1994
Series A Series B Series C Common stock Additional Accumu Total
preferred stock preferred stock preferred stock Common stock to be issued paid in lated Treasury
shareholders'
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount capital
deficit
equity
Balances,
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
July 31, 1992 600,000 $600,000$300,000$300,00017,483,449$8,741,725 30,935$15,469$12,621,086$(17,089,463)$(1,067,847)$4,120,970
Issuance of shares
of commons stock
for acquisitions 250,000 125,000 62,500 187,500
Issuance of shares
of common
stock for
services rendered 90,000 45,000 22,500 67,500
Issuance of share
of treasury
stock for
acquisition of certain
accounts receivable 5,089 5,089
Issuance of shares
of treasury
stock for cash 14,84 14,841
Net loss (1,627,705)(1,627,705)
Balances,
July 31, 1994 600,000$600,000$300,000$300,00017,823,449$8,911,725 30,935$15,469$12,706,086 $(18,717,168)$(1,047,917)$2,768,195
Balances, July 31, 1995
See accompanying notes to consolidated financial statements.
</TABLE>
F 6
<PAGE>
CASPEN OIL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended July 31, 1995 and 1994
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (430,158) $(1,381,603)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities
Depletion, depreciation and amortization217,576 413,045
Provision for loss on assets 61,231 704,540
Issuance of stock for services rendered1,000 125,000
Change in asset and liability accounts
(Increase) decrease in trade accounts
receivable 103,572 (3,154)
Increase (decrease) in accounts payable (317,066)505,585
Increase in accrued expenses 350,812 175,095
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (13,033) 538,508
See accompanying notes to consolidated financial statements.
F 7
<PAGE>
<TABLE>
<CAPTION>
CASPEN OIL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
For the Years Ended July 31, 1995 and 1994
1995 1994
CASH FLOWS FROM INVESTING ACTIVITIES
<S> <C> <C>
Capital expenditures for property and equipment (159,200) (737,595)
Proceeds from disposition of property and equipment 9,598 348,477
Advances to related party and affiliate (101,900) (370,000)
Collections on note receivable 3,286
(Increase) decrease in other assets - 26,770
NET CASH USED IN INVESTING ACTIVITIES (248,216) (732,348)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of debt (110,000) (300,000)
Proceeds from issuance of debt 40,000
Proceeds from issuance of preferred stock 500,000
Cost to repurchase and cancel common stock (30,450)
Cost to repurchase common and preferred stock (524)
Proceeds from issuance of shares held in treasury 207,694
NET CASH PROVIDED BY FINANCING ACTIVITIES 97,170 209,550
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (164,079) 15,710
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 628,955 613,245
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 464,876 $ 628,955
See accompanying notes to consolidated financial statements.
</TABLE>
F 8
<PAGE>
CASPEN OIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation The consolidated financial
statements include the accounts of Caspen Oil, Inc. and its
subsidiaries (the Company). All significant intercompany
balances and transactions are eliminated in consolidation.
Property and Equipment The Company follows the full cost
method of accounting for its domestic oil and gas operations
and, accordingly, capitalizes all costs incurred in the
acquisition, exploration, and development of oil and gas
properties. Capitalized costs relating to proved reserves are
amortized on the units-of-production method based on total
estimated proved recoverable reserves as determined by
independent petroleum reservoir engineers. Investments in
unproved properties and major development projects are not
depleted until the determination of the existence of proved
reserves and the commencement of sales from the properties.
No gain or loss is recognized on the sale of oil and gas
properties except in the case of properties involving
significant remaining reserves. Proceeds from sales of
insignificant reserves and undeveloped properties are applied
to reduce the costs in the cost centers.
Capitalized costs less related accumulated depletion and
deferred income taxes may not exceed the sum of (1) the
present value of future net revenue from estimated production
of proved oil and gas reserves; (2) the cost of properties not
being amortized, if any; (3) the lower of cost or estimated
fair value of unproved properties included in the costs being
amortized, if any; and (4) income tax effects related to
temporary differences between the book and tax basis of oil
and gas properties.
Other equipment is depreciated using straight-line and
accelerated methods based on estimated useful lives ranging
from three to ten years.
Investments The Company initially records investments at
cost. Investments in which the Company has an ownership
interest of less than 20% are accounted for using the cost
method of accounting. Investments in which the Company has an
ownership interest of between 20% and 50% are accounted for
using the equity method of accounting.
F-9
<PAGE>
CASPEN OIL, INC. AND SUBSIDIARIES
The Company periodically assesses each of its investments and
provides an allowance in the event it determines that its
investment is considered permanently impaired.
Notes to Consolidated Financial Statements (Continued)
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Gas Balancing The Company uses the entitlements method of
accounting for gas imbalances. Under this method, proceeds
are recognized as revenue only to the extent that the Company
is entitled to its proportionate share of the gas sold.
Amounts received applicable to other revenue interest owners
of approximately $262,900 at July 31, 1995, are recorded as a
liability and included in accounts payable.
Loss Per Common Share Loss per common share is based on the
weighted-average number of shares outstanding during each
period, which were 18,030,050 and 18,027,723 for 1995 and
1994, respectively. Shares issuable upon conversion of
convertible preferred stock and exercise of stock options have
not been included in the loss per share calculation since the
result would be antidilutive.
Cash Flow Reporting For purposes of the statement of cash
flows, the Company considers all highly liquid investments
purchased with an original maturity of three months or less to
be cash equivalents.
F-10
<PAGE>
CASPEN OIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE B BASIS OF PRESENTATION
These consolidated financial statements have been prepared on
a going concern basis which contemplates the realization of
assets and the satisfaction of liabilities and commitments in
the normal course of business. The Company's current
liabilities exceed its current assets by $2,287,329 at July
31, 1995. The working capital deficit results primarily from
bank debt of $1,597,500 for which payment was demanded by the
bank on July 9, 1993. The working capital deficit raises
substantial doubt about the Company's ability to continue as a
going concern.
The Company's bank loan, $1,597,500 at July 31, 1995, was due
June 30, 1993. On July 9, 1993, the Company received a demand
notice from the bank for full payment of the loan. The
Company is in negotiations with the bank to resolve the
matter. The Company believes that the bank will agree to
reduce its debt to zero. However, there can be no assurance
that the bank will agree to do so, nor can there be any
assurance that the bank will not proceed to foreclose on the
oil and gas properties which secure the debt.
The Company anticipates that given its current cash position
and assuming a satisfactory resolution of the bank matter, it
will have sufficient working capital to meet its obligations
during the ensuing fiscal year.
F-11
<PAGE>
<TABLE>
<CAPTION>
CASPEN OIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE C OIL AND GAS PROPERTIES (UNAUDITED)
Costs Incurred A summary of costs incurred in oil and gas property
acquisition, exploration, and development activities for the years ended
July 31, 1995 and 1994 follows:
1995 1994
Property acquisition costs:
<S> <C> <C>
Proved $ $
Unproved
$ $
Exploration costs $ $
Development costs $ 159,200 $ 737,595
The Company's share of equity method
investee's costs of property acquisition,
exploration and development. $ - $ NA
Depletion, depreciation and amortization
of oil and gas properties $ 177,000 $ 371,438
Depletion, depreciation and amortization
of oil and gas properties per equivalent
mcf of production $ .27 $ .35
Aggregate Capitalized Costs The following presents the Company's
aggregate capitalized costs relating to oil and gas activities as of July
31, 1995:
Costs related to proved properties $ 19,626,347
Costs related to unproved properties
19,626,347
Less accumulated depletion 16,478,140
Net capitalized costs $ 3,148,207
The Company's share of equity method
investee's net capitalized costs $ 1,263,315
Notes to Consolidated Financial Statements (Continued)
</TABLE>
NOTE C OIL AND GAS PROPERTIES (UNAUDITED) (Continued)
F-12
<PAGE>
CASPEN OIL, INC. AND SUBSIDIARIES
Property Transfer As discussed in Note D, the Company
transferred its working interest in certain oil and gas
properties to CSV Holdings, Inc. The reserves associated with
this transfer are estimated at 789,000 barrels of oil. The
present value of estimated future net cash flows for the
property, using a discount rate of ten percent, approximates
$1,963,000 at July 31, 1995.
Oil and Gas Reserve Data The following table presents the
Company's estimate of its proved oil and gas reserves, all of
which are located in the United States. The Company
emphasizes that reserve estimates are inherently imprecise and
that estimates of new discoveries are more imprecise than
those of producing oil and gas properties. Accordingly, these
estimates are expected to change as future information becomes
available. The reserve information presented below is based
upon reports prepared by independent petroleum reservoir
engineers.
Estimated net proved developed and undeveloped oil and gas
reserves (in barrels and thousands of cubic feet of gas), all
of which are located in the United States, are as follows:
<TABLE>
<CAPTION>
Year ended Year ended
July 31, 1995 July 31, 1994
Oil Gas Oil Gas
(bbls) (mcf) (bbls) (mcf)
Proved developed and
undeveloped reserves:
<S> <C> <C> <C> <C>
Beginning of period 1,236,000 6,900,000 1,418,000 5,982,000
Revision of previous
estimates (32,000) 571,000 (113,000) 1,785,000
Sales of reserves-
in-place (740,000) (25,000) (6,000)
Purchases of
reserves-in-place 8,000
Production (34,000) (541,000) (52,000) (861,000)
End of period 430,000 6,930,000 1,236,000 6,900,000
Notes to Consolidated Financial Statements (Continued)
</TABLE>
<TABLE>
<CAPTION>
NOTE C OIL AND GAS PROPERTIES (UNAUDITED) (Continued)
Year ended Year ended
July 31, 1995 July 31, 1994
Oil Gas Oil Gas
F-13
<PAGE>
CASPEN OIL, INC. AND SUBSIDIARIES
(bbls) (mcf) (bbls) (mcf)
Proved developed reserves:
<S> <C> <C> <C> <C>
Beginning of period 1,185,000 6,583,000 1,360,000 5,505,000
End of period 406,000 6,126,000 1,185,000 6,583,000
The Company's proportional
interest in reserves of in-
vestee accounted for by the
equity method, end of period 789,000 NA NA
</TABLE>
Standardized Measure of Discounted Future Net Cash Flows and
Changes Therein Relating to Proved Oil and Gas Reserves The
table below, which presents a standardized measure of
discounted future net cash flows and changes therein relating
to proved oil and gas reserves, is presented pursuant to
Statement of Financial Accounting Standards No. 69,
"Disclosures About Oil and Gas Producing Activities"; however,
the data should not necessarily be construed as representative
of the fair market value of the Company's proved oil and gas
reserves.
Future cash inflows were computed by applying year-end prices
of oil and gas relating to the Company's proved reserves to
the estimated year-end quantities of those reserves. Future
price changes were considered only to the extent provided by
contractual arrangements in existence at year-end. Future
development and production costs were computed by estimating
the expenditures to be incurred in developing and producing
the proved oil and gas reserves at the end of the year, based
on year-end costs. Future income tax expense was computed by
applying the year-end statutory tax rate to the future pretax
net cash flows relating to the Company's proved oil and gas
reserves, after adjusting for tax basis of oil and gas
properties and available credits, and assuming continuation of
existing economic conditions. The standardized measure of
discounted future cash flows represents the present value of
estimated future net cash flows using a discount rate of 10%
per year and is presented in the following schedule:
Notes to Consolidated Financial Statements (Continued)
<TABLE>
<CAPTION>
NOTE C OIL AND GAS PROPERTIES (UNAUDITED) (Continued)
Years ended July 31,
1995 1994
<S> <C> <C>
Future cash inflows $ 15,862,900 $30,745,200
F-14
<PAGE>
CASPEN OIL, INC. AND SUBSIDIARIES
Future production and development costs 6,674,000 13,774,100
Future net cash inflows $ 9,188,900 $16,971,100
Standardized measure of discounted
future net cash flows $ 4,581,700 $ 9,760,100
The Company's share of equity method
investee's standardized measure of
discounted future net cash flows $ 1,962,600 $ NA
No future income tax expense is included due to the existence of
substantial net operating loss carryforwards (Note I).
Changes in Standardized Measure The following table summarizes the
changes in the standardized measure of discounted future net cash flows:
Years ended July 31,
1995 1994
Beginning of year $ 9,760,100 $10,679,300
Sales and transfers of oil and gas
produced, net of production costs (856,016) (1,313,476)
Revisions in quantity estimates 2,748,235 3,323,795
Accretion of discount (402,694) (1,290,689)
Net changes in prices and
production costs (5,456,976) (1,586,227)
Net change due to purchase and
sale of minerals-in-place (1,595,138) (84,001)
Changes in estimated future
development costs 384,189 31,398
End of year $ 4,581,700 $ 9,760,100
Notes to Consolidated Financial Statements (Continued)
NOTE D INVESTMENTS
Investments at July 31, 1995 includes:
Investment in CSV Holdings, Inc. $ 807,800
Other 25,720
$ 833,520
</TABLE>
CSV Holdings, Inc. During fiscal 1995, the Company entered
into an agreement with Churchill U.S.A., Inc. (CUSA), a related
party, and another working interest owner in certain oil and
gas properties located in California. Under the agreement,
each party transferred its working interest in the properties
to a newly formed company, CSV Holdings, Inc. (CSV), in
exchange for an equivalent interest in the common stock of CSV.
F-15
<PAGE>
CASPEN OIL, INC. AND SUBSIDIARIES
The Company has a 48.8 percent interest in the common stock of
CSV. As a result, the Company transferred its cost basis in
the properties, $807,800, from oil and gas property to
investment status. CSV has had no operations subsequent to
acquiring the properties, accordingly, the Company has no
equity adjustment to its investment through July 31, 1995.
NOTE E NOTES RECEIVABLE
Notes receivable at July 31, 1995 includes:
Notes receivable, affiliate $ 56,391
Note receivable, related party 42,223
98,614
Less noncurrent portion 90,268
Current portion $ 8,346
Notes receivable, affiliate In September 1992, the Company
acquired a 20 percent equity interest and a separate revenue
interest in Quantum Soil Remediation, Inc. (Quantum) in
exchange for 250,000 shares of the Company's common stock.
Quantum is in the business of providing remediation of
contaminated soil using existing, patented, transportable
equipment. In addition to the 20 percent equity interest, the
Company was to receive revenue interest payments of $15 per ton
of soil treated by Quantum, up to a total of $350,000, with
revenue interest payments recorded when received. In addition,
during fiscal 1993, the Company advanced $50,000 to Quantum
under a noninterest bearing promissory note due in November
1992, extended during fiscal 1994, with payments to begin
January 1994. During fiscal 1994, the carrying value of the
Company's investments in Quantum were charged to expense.
Notes to Consolidated Financial Statements (Continued)
NOTE E NOTES RECEIVABLE (Continued)
Notes receivable, affiliate (Continued) In February 1995, the
Company and Quantum entered into a new agreement covering the
following documents:
- A promissory note in the principal amount of $59,677,
payable in monthly installments of $1,046 beginning
February 15, 1995 through January 15, 2001, with interest
at eight percent per annum;
- A promissory note in the principal amount of $145,251,
with interest at twelve percent per annum, payable in
quarterly installments equal to $1 for each ton of soil
treated by Quantum, with any remaining balance due January
31, 2005. Due to the contingent nature of this
F-16
<PAGE>
CASPEN OIL, INC. AND SUBSIDIARIES
receivable, the note is considered fully impaired and
revenue will be recorded when received; and
- A revenue interest agreement equal to $1 for each ton of
soil treated by Quantum to first be applied in payment of
the promissory note described in the preceding paragraph
and, after payment in full thereof, until the Company has
received an additional $115,000. Due to the contingent
nature of this receivable, revenue will be recorded when
received.
Note receivable, related party In connection with the
investment in CSV described at Note D, the Company advanced
$42,223 to CSV under a promissory note dated December 1, 1994,
with principal and interest, at six percent, due December 1,
1998.
NOTE F DEBT
On December 14, 1990, the Company entered into an amended and
restated loan agreement with its principal lender, Daiwa Bank,
Ltd. (Daiwa), formerly Lloyd's Bank plc, and satisfied all
technical deficiencies as they existed prior to the
renegotiation. Amounts owed under this agreement are
collateralized by a significant portion of the Company's oil
and gas properties. At the request of Daiwa, the Company sold
property, which was mortgaged to Daiwa, for approximately
$5,200,000. From the proceeds of the sale, Daiwa received the
total $5,200,000. Daiwa applied $4,700,000 to the reduction of
principal. Simultaneously, the Company executed a 30-month
extension note in the amount of $2,000,000, with the guarantee
by Daiwa that, upon payment of $500,000 in June 1993, the note
would be renewed or
Notes to Consolidated Financial Statements (Continued)
NOTE F DEBT (Continued)
in June 1993 and therefore returned $500,000 from the December
1990 sale of property to the Company.
In June 1993, after the Company paid interest for thirty months
of approximately $425,000, Daiwa refused to accept the $500,000
principal reduction payment offered by the Company and refused
to renew or restructure the note claiming no legal obligation
to do so and citing its decision to divest itself of oil and
gas loans.
F-17
<PAGE>
CASPEN OIL, INC. AND SUBSIDIARIES
On July 9, 1993, the Company received a demand notice from
Daiwa for $1,997,500 in payment of the loan balance remaining
on the $15,000,000 Credit Revolver established by Daiwa in late
1988. The interest rate on the revolving line of credit was
prime plus one percent. On February 17, 1994, the Company sold
certain oil and gas properties for $300,000 the proceeds of
which were used to reduce the bank debt principal to
$1,697,500.
The Company has attempted to resolve the loan dispute. The
Company expects one of two developments between the Company and
Daiwa in fiscal year 1996: (a) the Company and Daiwa reach an
agreement to reduce to zero the outstanding loan balance
inclusive of interest. (However, there can be no assurance
that Daiwa will agree to do so, nor can there by any assurance
that Daiwa will not proceed to foreclose on the oil and gas
properties which collateralize the debt); or (b) litigation
results in which the Company asserts lender liability claims
for refusal to renew the credit as represented, and Daiwa
asserts claims for default interest and attorneys' fees. Under
the second alternative, the Company estimates legal fees in the
range of $150,000 in fiscal years 1996-1997.
Generally accepted accounting principles require the Company to
carry on its financial statements outstanding debt to Daiwa of
$1,597,500 as of July 31, 1995, plus interest accrued using
prime plus one percent (9.75% at July 31, 1995), of $310,500.
However, the Company believes that Daiwa will reduce the
$1,908,000 balance to zero. This action on Daiwa's part will
partially compensate the Company for damages created by Daiwa's
breach of contract.
During June 1994, the Company entered into an agreement for
$50,000, $20,000 of which has been paid through June 1995. The
remaining balance is payable in $10,000 installments annually
through June 1998.
F-18
<PAGE>
CASPEN OIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE G SHAREHOLDERS' EQUITY
The Series A cumulative convertible preferred stock is
convertible into the Company's common stock at the rate of
1.132 shares of common stock for each share of cumulative
convertible preferred stock and is redeemable at any time at
the option of the Company for $20 per share. The Series A
preferred shares earn dividends at the rate of $1.80 per share
per annum. At July 31, 1995, $9,165,977 of dividends on the
cumulative convertible preferred stock ($15.29 per share) are
in arrears. The liquidation preference on the Series A
preferred shares, $21,155,977 at July 31, 1995, is the sum of
dividends in arrears at July 31, 1995 and the liquidation
preference of $20 per share for each Series A share outstanding
at July 31, 1995. In accordance with the Certificate of
Designation and Terms applicable to preferred shares, Series A
preferred shareholders are granted voting rights to elect two
additional directors in the event $2.70 per share of dividends
are in arrears.
The Company's Series C convertible preferred stock dividends
are noncumulative; the Series C is junior to the Company's
Series A preferred stock and is convertible at the option of
the holder to 300,000 common shares no earlier than August
1997.
F-19
<PAGE>
CASPEN OIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE G SHAREHOLDERS' EQUITY (Continued)
The Company's Series E convertible preferred stock dividends
are noncumulative; the Series E is junior to the Company's
Series A and Series C preferred stocks and was convertible to
common stock, at the option of the holder, subject to certain
terms and conditions. The terms and conditions were not met by
the prescribed date, nullifying the convertibility of the
Series E preferred shares.
During fiscal years 1995 and 1994, the Company issued 100,000
and 250,000 shares, respectively, of common stock to certain
consultants as compensation for services performed in
connection with the acquisition of certain investments. The
values of $1,000 and $125,000, respectively, attributed to
these services was based on the quoted market price of the
Company's common stock at the stock issuance date.
On January 31, 1995, the Company executed an agreement with
Consolidated European Ventures Limited (CEV) in an effort
between the two parties to equitably close out the original
merger agreement attempted during fiscal 1994. The basic terms
of the agreement called for CEV to return to the Company the
241,000 shares of Series F preferred stock which were issued
under the merger agreement dated March 7, 1994. The Series F
preferred stock was subsequently cancelled. The Company
transferred to CEV 60 percent of the common shares received by
the Company as a result of the original merger agreement,
retaining 40 percent in satisfaction of certain advances made
in prior periods which had been fully impaired by charges to
expense in fiscal 1994 and 1993.
F-20
<PAGE>
CASPEN OIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE G SHAREHOLDERS' EQUITY (Continued)
Employee Stock Plans The Company has a qualified incentive
stock option plan, as defined in Section 422A of the Internal
Revenue Code, that reserved a total of 500,000 shares of common
stock for issuance thereunder to certain officers and
employees. The plan provides for options to (a) be granted at
an exercise price equal to the fair market value of the
Company's common stock on the date of grant (110% of the fair
market value for greater than 10% shareholders), (b) become
exercisable at least six months after the date of grant, and
(c) lapse no more than 10 years from the date of grant (5 years
for greater than 10% shareholders). The Company granted
100,000 options to two of its officers during 1994. At July
31, 1995, the outstanding options are exercisable as follows:
<TABLE>
<CAPTION>
Number of stock Exercise Expiration
options exercisable price date
<C> <C> <C>
100,000 .50 July 27, 2002
160,000 .48125 July 31, 1996
60,000 .4125 February 28, 1997
50,000 .375 February 28, 2002
50,000 .4375 August 1, 2001
80,000 .39 February 27, 2001
500,000
</TABLE>
On September 13, 1993, the Board of Directors adopted the 1993
Omnibus Employee Stock Option Plan (the "Plan") whereby the
Company reserved 250,000 shares of the Company's common stock
to be issued to officers, employees and consultants in the form
of stock awards or stock options. The Plan was effective
August 1, 1993. During fiscal 1994, the Company issued 250,000
shares of common stock under the Plan to an unrelated third
party consultant as compensation for services performed in
providing opportunity assessments and due diligence leading to
possible acquisitions of private and/or public companies.
F-21
<PAGE>
CASPEN OIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE H CRUDE OIL AND GAS SALES
The Company's only significant business segment is the
exploration for and acquisition and development of oil and gas
reserves. Customers accounting for 10% or more of the
Company's total crude oil and gas sales were:
Percentage of total sales
1995 1994
Cambridge Production 1610
Delhi Gas Pipeline 11*
Border Resources 1018
Koch Oil * 15
*Sales accounted for less than 10% of total crude oil
and gas sales.
NOTE I FEDERAL INCOME TAXES
At July 31, 1995, the Company had available net operating loss
carryforwards of approximately $10,000,000, and depletion
carryforwards of approximately $4,500,000. As a result of
certain transactions, the utilization of approximately
$5,000,000 of the Company's net operating loss carryforwards is
limited. The net operating loss carryforwards, if unused, will
expire in various amounts through 2010. The depletion
carryforwards may be carried forward indefinitely. These
carryforwards are subject to various limitations imposed by the
rules and regulations of the Internal Revenue Service.
As of July 31, 1995 and 1994, the tax effect on components of
the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Net operating loss carryforwards $ 2,028,000 $2,180,000
Percentage depletion carryforward 949,000 900,000
Provision for loss on investments 324,020 334,120
Oil and gas properties 2,052,615 2,072,346
Depletion of oil and gas properties (2,068,362) (2,338,168)
3,285,273 3,148,298
Valuation allowance (3,285,273) (3,148,298)
Net deferred tax asset $ 0 $ 0
Notes to Consolidated Financial Statements (Continued)
</TABLE>
NOTE J RELATED PARTY TRANSACTIONS AND COMMITMENTS
F-22
<PAGE>
CASPEN OIL, INC. AND SUBSIDIARIES
Employment Agreement Effective January 1, 1994, the Company
renewed an employment agreement with its president for an
initial term of 24 months at an annual salary of $144,000. The
employment agreement also carries provisions for an extension
term of an additional 24 months at an annual salary of
$125,000. Amounts paid pursuant to the contracts were $144,000
for each of the two years ended July 31, 1995.
Services and Operations Agreement Effective March 31, 1994,
Summit Overseas Exploration, Inc., a wholly-owned subsidiary of
the Company, entered into a Service and Operations Agreement
(the Service Agreement) with CUSA. The initial term of the
Service Agreement expired on July 31, 1995, at which time the
Service Agreement automatically renewed for up to two
additional one-year terms. Under the terms of the Service
Agreement, CUSA is to provide financial and operational
management and general corporate legal services to the Company.
CUSA also provides the personnel and office space necessary for
the operations of the Company. The Service Agreement with CUSA
provides for the payment to CUSA of actual costs plus ten
percent, revised to five percent effective June, 1995, (the
Costs). In the event that the Costs exceed the computed
average of the preceding three months amount, the Company will
not be obligated to pay such excess. Any costs in excess of
the computed average of the preceding three months amount will
be borne by CUSA. During fiscal 1995 and 1994, the Company
made payments to CUSA pursuant to the Service Agreement in the
amount of $385,718 and $194,289, respectively. During fiscal
1994, the Company made payments to Churchill Technology, Inc.
pursuant to a Management and Operations Agreement (the
Management Agreement) in the amount of $315,000. The
Management Agreement was terminated on March 31, 1994. Total
amounts paid under the agreements were $385,718 and $509,289
for the years ended July 31, 1995 and 1994, respectively.
CUSA owns 100 percent of the outstanding common stock of Trans
Energy, Inc., a principal shareholder of the Company. During
fiscal 1995, the Company sold 207,694 Series A preferred shares
held in treasury to Trans Energy, Inc. for cash proceeds of
$207,694. The offer was made by the Company initially to its
largest Series A preferred shareholder, MCorp Management
(MCorp); however, MCorp declined purchasing the shares.
Dividends in arrears on these shares were $3,440,214 as of July
31, 1995.
F-23
<PAGE>
CASPEN OIL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE K SUPPLEMENTAL DATA TO CONSOLIDATED STATEMENTS OF CASH
FLOWS
During the years ended July 31, 1995 and 1994, the Company paid
interest of $2,627 and $198, respectively.
Noncash investing and financing activities were as follows:
- During the year ended July 31, 1994, the Company cancelled
30,935 shares of common stock with an assigned value of
$15,469, which had been set aside for issuance under an
employee stock plan that has been terminated, by crediting
paid-in capital.
- During the year ended July 31, 1995, the Company
transferred its cost basis of $807,800 in certain oil and
gas properties to Investment in CSV (Note D).
- During the year ended July 31, 1995, the Company
reacquired and cancelled 27 shares of common stock at no
cost to the Company.
- On November 29, 1994, the shareholders of the company
approved a proposal to reduce the par value of the
Company's common stock from $.50 per share to $.01 per
share.
- During the year ended July 31, 1995, the Company cancelled
241,000 shares of Series F preferred stock with an
assigned value of $241,000 (Note G).
NOTE L EMPLOYEE BENEFIT PLAN
Effective August 1, 1993, the Company adopted a profit sharing
plan (the Plan), which is a defined contribution plan available
for all employees who work over 1,000 hours during any fiscal
year ending July 31.
Within the terms of the Plan, the Company may contribute such
amount not to exceed the lesser of 25% of a participant's
compensation or $30,000. An employee vests according to the
Plan's vesting schedule; however, an employee is fully vested
upon completing three years of service.
The Company's management determines the Plan contribution by
year end and funds the contribution by or after the fiscal year
end. Management contributed $16,100 and $43,000 for the years
ended July 31, 1995 and 1994, respectively.
F-24
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000095254
<NAME> CASPEN OIL, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 464,876
<SECURITIES> 0
<RECEIVABLES> 335,384
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 800,260
<PP&E> 19,867,177
<DEPRECIATION> 16,659,765
<TOTAL-ASSETS> 4,933,410
<CURRENT-LIABILITIES> 3,087,589
<BONDS> 0
<COMMON> 180,922
0
1,025,000
<OTHER-SE> 553,232
<TOTAL-LIABILITY-AND-EQUITY> 4,933,410
<SALES> 1,208,381
<TOTAL-REVENUES> 1,483,269
<CGS> 673,350
<TOTAL-COSTS> 890,926
<OTHER-EXPENSES> 856,374
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 166,127
<INCOME-PRETAX> (430,158)
<INCOME-TAX> 0
<INCOME-CONTINUING> (140,158)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (430,158)
<EPS-PRIMARY> (.24)
<EPS-DILUTED> 0
</TABLE>
Amendment to Service and Operations Agreement ("Agreement")
Between Churchill U.S.A., Inc. ("CUSA") and Summit Overseas
Exploration, Inc. ("Summit")
Item 8. Fees. To be amended as follows:
(a) Summit will pay CUSA based on the monthly average
of the three preceding months actual net payments
made by Summit to CUSA (net of any reimbursed
costs from CUSA back to Summit) for each ensuing
calendar month on or before the first day of each
calendar month for services to be performed by
CUSA during that month.
(b) CUSA will submit an invoice to Summit of its cost
plus five percent (5%) (the "Costs") for the month
in which services are provided. Should the Costs
be less than the computed average of the preceding
three months, Summit will be reimbursed for the
difference between the Costs and the computed
average of the preceding three months on or before
the end of the following month. Should the Costs
exceed the computed average of the preceding three
months amount, Summit will not be obligated to pay
such. Any Costs in excess of the computed average
of the preceding three months amount will be borne
by CUSA.
All other items within the Agreement remain intact and in force
pursuant to the terms set forth in the Agreement.
Amendment agreed to and accepted this 15th day of June, 1995:
Churchill U.S.A., Inc.
a Colorado Corporation
By:/s/ Kellie M. Clark By:/s/ Wendy A. Cribari
Secretary (Assistant) President
Summit Overseas Exploration, Inc.
a Nevada Corporation
By:/s/ Kimberley J. Love By:/s/ Anthony J. Carroll
Secretary President
<PAGE>
AGREEMENT
Agreement (the "Agreement") dated September 20 , 1994
between Churchill U.S.A., Inc., a Colorado corporation ("CUSA"),
Summit Overseas Exploration, Inc., a Nevada corporation
("Summit"), and Villiers Group plc, a public limited company
organized under the laws of Northern Ireland ("Villiers").
RECITALS
The boards of directors of CUSA, Summit, and Villiers have
determined that it is advisable and in the best interests of
their respective stockholders to capitalize CSV Holdings, Inc., a
Colorado corporation ( CSV ).
The purpose of CSV is to administer the Nukern holdings to
maximize and crystallize its value for the benefit of the CSV
shareholders.
THEREFORE, in consideration of the foregoing, the parties to
this Agreement hereby agree as follows:
1. Each party will transfer their Nukern holdings to CSV on
or before September 30, 1994. Those holdings are:
a. Churchill U.S.A., Inc. = 24.47% working interest
b. Summit Overseas Exploration, Inc. = 42.22% working
interest
c. Villiers Group plc = 19.83% working interest
2. Upon completion of Items 1, 5, and 6 of this Agreement,
each party will receive a loan note the value of which shall
equal 60% of the independent engineering evaluation of their
Nukern holdings. The value assigned to the loan note will be
adjusted annually to reflect current engineering evaluations.
3. Each party will also receive the following number of
common shares in CSV upon completion of Items 1, 5, and 6 of this
Agreement. Those share amounts are:
a. Churchill U.S.A., Inc. = 244.7 shares
b. Summit Overseas Exploration, Inc. = 422.2 shares
c. Villiers Group plc = 198.3 shares
4. No party shall transfer either the loan note receivable
from CSV or the common shares without the written consent of each
of the shareholders.
5. Each party will bring their accounts payable as of May
31, 1994, current with Churchill Energy, Inc., the Operator of
the Nukern Lease, via wire transfer of funds on or before
September 30, 1994. Those accounts payable are:
1
<PAGE>
a. Churchill U.S.A., Inc. = $10,884.10
b. Summit Overseas Exploration, Inc. = $60,241.04
c. Villiers Group plc = $25,757.84
Churchill Energy, Inc. shall continue to act as operator
unless a successor operator is appointed in accordance with the
Operating Agreement.
6. Each party will make a working capital loan to CSV via
wire transfer of funds on or before September 30, 1994. The
amounts of the loans are:
a. Churchill U.S.A., Inc. = $24,465
b. Summit Overseas Exploration, Inc. = $42,223
c. Villiers Group plc = $19,832
The working capital loan will be used for the following
purposes:
a. Maintenance of the Nukern Lease
b. Steam flood expansion
7. Each party hereby agrees that should CSV direct the
Operator of the Nukern Lease to place said lease in a maintenance
mode CSV will, if necessary, issue notice to the shareholders
hereunder to make additional capital available in the form of a
loan to CSV to meet maintenance costs which are estimated to be
approximately $10,000 per month. CSV shareholders shall
contribute and pay such additional capital within thirty days of
the date of the notice in pro-rata amounts based on the number of
shares owned by each shareholder.
8. Upon failure of any shareholder to pay such additional
capital as required pursuant to paragraph 7 above, CSV shall
issue a notice of default in payment. The notice of default will
be sent via registered delivery. Failure to pay the additional
capital and bring all accounts with CSV current within ninety
(90) days after notice of default shall result in cancellation
and forfeiture of all of such shareholder's shares in CSV. CSV
shall hold the share certificates of each shareholder to effect
the provisions of this paragraph in the event of a failure to pay
expenses as agreed.
9. The following actions require 100% shareholder
approval:
a. Issuance of additional shares
b. Modifications of shareholder rights
c. Purchase, sale or hypothecation of assets
d. Joint venture agreements
e. Borrowings
f. Any action that is not in concourse with the
2
<PAGE>
purpose for which the corporation was established
10. Each shareholder will receive a quarterly statement of
cash flow and quarterly summaries of production and of income and
expenditures.
11. CUSA, Summit, and Villiers each represents and warrants
that each is a corporation duly incorporated, validly existing,
and in good standing under the laws of its respective
jurisdiction.
CUSA, Summit, and Villiers each represents and warrants
that it has the requisite corporate power and authority to
execute, deliver and perform the Agreement.
Neither the execution, delivery, and performance of the
Agreement by CUSA, Summit, or Villiers nor the consummation of
the transactions contemplated by the Agreement will (i) violate
or conflict with the charter documents or bylaws, or similar
governing instruments of CUSA, Summit, and Villiers; (ii) violate
or conflict with any law, regulation, order, judgment, award,
administrative interpretation, injunction, writ, or decree
applicable to CUSA, Summit, or Villiers or by which any of them
are bound, or any agreement or understanding between any
administrative or regulatory authority, on the one hand, and
CUSA, Summit, or Villiers on the other hand; or (iii) violate or
conflict with, result in a breach of, result in or permit the
acceleration or termination of, or constitute a default (whether
with notice or lapse of time, or both) under any material
agreement, instrument, note, indenture, mortgage, lien, lease, or
other contract, arrangement, or understanding to which CUSA,
Summit, or Villiers is party.
12. All disputes arising out of or relating to this
Agreement shall be finally settled by arbitration in accordance
with the rules of the American Arbitration Association in Denver,
Colorado.
13. For purposes of this Agreement notice shall be deemed
complete upon completion of facsimile transmission to the numbers
listed for each party below (all such facsimile transmissions to
be confirmed in writing by registered delivery), or upon
depositing notice for delivery by courier under items calling for
delivery within three business days to the addresses listed below
for each party:
Churchill U.S.A., Inc.
Irongate 3, Suite 200
777 S. Wadsworth Blvd.
Lakewood, CO 80226
303-987-1480
303-987-0464 (Fax)
3
<PAGE>
Summit Overseas Exploration, Inc.
Irongate 3, Suite 201
777 S. Wadsworth Blvd.
Lakewood, CO 80226
303-987-0925
303-987-0464 (Fax)
4
<PAGE>
Villiers Group plc
Empress Works
16 Empress Street
Cornbrook
Manchester M16 9EN
44-61-872-3333
44-61-872-7092 (Fax)
14. This Agreement will terminate September 30, 1994, if
the conditions set forth in Items 1, 5, and 6 in the Agreement
are not completed. If this Agreement is terminated, such
termination will be without liability of any party (or any
stockholder, director, officer, employee, agent, consultant, or
representative of such party) to the other parties to this
Agreement.
IN WITNESS WHEREOF, Churchill U.S.A., Inc., Summit Overseas
Exploration, Inc. and Villiers Group plc have executed this
Agreement.
ATTEST CHURCHILL U.S.A., INC.
By:/s/ John Webb By:/s/ Wendy A. Cribari
99 Charterhouse Street President
London EC1
ATTEST SUMMIT OVERSEAS EXPLORATION,
INC
By:/s/ John Webb By:/s/ Anthony J. Carroll
President
WITNESS VILLIERS GROUP PLC
By:/s/ John Webb By:/s/ R. Luetchford
Chairman
5
<PAGE>
CERTIFICATE OF AMENDMENT AND RESTATEMENT OF
RESTATED ARTICLES OF INCORPORATION
OF
CASPEN OIL, INC.
CASPEN OIL, INC., a Nevada corporation (the "Corporation"),
by its President and Secretary does hereby certify:
I. The Board of Directors of the Corporation adopted
resolutions setting forth the amendment to the Restated
Articles of Incorporation hereinafter set forth and
declaring its advisability, and recommended the amendment's
adoption at a meeting of stockholders called for the purpose
of considering and voting on such amendment.
II. Pursuant to a vote on November 29, 1994 by the stockholders
of record on October 3, 1994 (the "Record Date"), the
stockholders of the Corporation approved the amendment of
Article Fourth to the Restated Articles of Incorporation.
The number of shares of the Corporation that were
outstanding and entitled to vote on the Record Date was
19,258,249 shares, which consists of 17,992,249 Common
Shares, 600,000 shares of its $1.80 Cumulative Convertible
Preferred Shares, 300,000 of its Series C Preferred Stock,
125,000 shares of its Series E Preferred Stock and 241,000
shares of its Series F Preferred Stock (collectively, the
"Shares"). Each of the Shares was entitled to one vote with
respect to such amendment to Article Fourth. The number of
Shares voting to approve the amendment to Article Fourth to
the Restated Articles of Incorporation was 9,946,566,
representing 51.6% of the Shares entitled to consider and
vote on the amendment to Article Fourth.
III. Article Fourth of the Restated Articles of Incorporation is
hereby amended to read in its entirety as follows:
FOURTH: The aggregate number of shares which this
corporation is authorized to issue is sixty million
(60,000,000) divided into ten million (10,000,000) Preferred
Shares of the par value of One Dollar ($1.00) per share, and
fifty million (50,000,000) Common Shares of the par value of
One Cent ($0.01) per share.
The preferences, qualifications, limitations,
restrictions and the special or relative rights in respect
of the shares of each class are as follows:
A. Provisions relating to the Preferred Shares:
1. The Preferred Shares may be issued from time
to time in one or more classes or series, the shares of
each class or series to have such designations and
DCC0EAC5 25943-1
<PAGE>
powers, preferences and rights, and qualifications,
limitations and restrictions thereof as are stated and
expressed herein and in the resolution or resolutions
providing for the issue of such class or series adopted
by the Board of Directors as hereafter provided.
2. Authority is hereby expressly granted to and
vested in the Board of Directors to authorize the
issuance of the Preferred Shares from time to time in
one or more class or series, and with respect to each
class or series of the Preferred Shares, to fix and
state by the resolution or resolutions from time to
time adopted providing for the issuance thereof the
following:
(i) Whether or not the class or series is to
have voting rights, full or limited, or is to be
without voting powers; provided, in no event shall
a single share of a class or series be entitled to
more than one vote on each matter it is entitled
to vote upon;
(ii) The number of shares to constitute the
class or series and the designations thereof;
(iii) The preferences and relative,
participating, optional or other special rights,
if any, and the qualifications, limitations or
restrictions thereof, if any, with respect to any
class or series;
(iv) Whether or not the shares of any class
or series shall be redeemable and if redeemable
the redemption price or prices, and the time or
times at which, and the terms and conditions upon
which such shares shall be redeemable and the
manner of redemption;
(v) Whether or not the shares of a class or
series shall be subject to the operation of
retirement or sinking funds to be applied to the
purchase or redemption of such shares for
retirement, and if such retirement or sinking fund
or funds be established, the annual amount thereof
and the terms and provisions relative to the
operations thereof;
(vi) The dividend rate, the conditions upon
which and the times when such dividends are
payable, the preference to or the relation to the
payment of the dividends payable on any other
class or classes or series of stock whether or not
such dividend shall be cumulative or non-
DCC0EAC5 25943-1
<PAGE>
cumulative, and if cumulative, the date or dates
from which such dividends shall accumulate;
(vii) The preferences, if any, and the amounts
thereof which the holders of any series thereof
shall be entitled to receive upon the voluntary or
involuntary dissolution of, or upon any
distribution of the assets of, the corporation;
(viii) Whether or not the shares of any class
or series shall be convertible into, or
exchangeable for, the shares of any other class or
classes or of any other series of the same or any
other class or classes of stock of the corporation
and the conversion price or prices or ratio or
ratios of the rate or rates at which such exchange
may be made, with such adjustments, if any, as
shall be stated and expressed or provided for in
such resolution or resolutions; and
(ix) Such other special rights and protective
provisions with respect to any class or series as
may to the Board of Directors seem advisable.
The shares of each class or series of the Preferred
Shares may vary from the shares of any other class and
series thereof in any or all of the foregoing respects.
Unless otherwise provided in any such resolution or
resolutions, the number of shares of any class or series of
the Preferred Shares set forth in such resolution or
resolutions may by the Board of Directors from time to time
be increased or decreased (but not below the number of
shares thereof then outstanding).
B. Provisions relating to the Common Shares.
Subject to the provisions of law and the Preferred
Shares, dividends may be paid on the Common Shares of the
Corporation at such time and in such amounts as the Board of
Directors may deem advisable. Each Common Share shall be
entitled to one vote on each matter submitted to a vote at a
meeting of shares.
C. General.
(i) Subject to the provisions of law and the
foregoing provisions of this Certificate of
Incorporation, the Corporation may issue shares of
its Preferred Shares or Common Shares from time to
time for such consideration (not less than the par
value or stated value thereof) as may be fixed by
the Board of Directors which is expressly
authorized to fix the same in its absolute and
DCC0EAC5 25943-1
<PAGE>
uncontrolled discretion subject to the foregoing
conditions. Shares so issued for which the
consideration has been paid or delivered to the
Corporation shall be deemed fully paid stock and
shall not be liable to any further call or
assessment thereon and the holders of such shares
shall not be liable for any further payments in
respect of such shares.
(ii) No stockholder of this Corporation shall
have by reason of its holding shares of any class
or series of stock of this Corporation, any
preemptive or preferential rights to purchase or
subscribe for any other shares of any class or
series of this Corporation now or hereafter to be
authorized, and any other equity securities, or
any notes, debentures, warrants, bonds, or other
securities convertible into or carrying options or
warrants to purchase shares of any class, now or
hereafter to be authorized, whether or not the
issuance of any such shares, or such notes,
debentures, bonds or other securities, would
adversely affect the dividend or voting rights of
such stockholder.
(iii) Cumulative voting by any shareholder is
hereby expressly denied.
IV. Annexed hereto and made a part hereof is the entire text of
the Restated Articles of Incorporation of the corporation as
hereby and heretofore amended and as hereby restated.
IN WITNESS WHEREOF, this Certificate of Amendment and
Restatement has been executed by the President and Secretary of
the Corporation as of the ____ day of December, 1994.
Anthony J. Carroll, President
Kimberley J. Love, Secretary
DCC0EAC5 25943-1
<PAGE>
THE STATE OF COLORADO &
&
COUNTY OF ___________ &
On this ______ day of December, 1994, before me appeared
Anthony J. Carroll, to me personally known, who, being by me duly
sworn, did say that he is the President of CASPEN OIL, INC., a
Nevada corporation, and acknowledged that the statements
contained in the foregoing Certificate of Amendment and
Restatement are true and correct.
My commission expires: Notary Public in and for
the State of Colorado
THE STATE OF COLORADO &
&
COUNTY OF ___________ &
On this ______ day of December, 1994, before me appeared
Kimberley J. Love, to me personally known, who, being by me duly
sworn, did say that she is the Secretary of CASPEN OIL, INC., a
Nevada corporation, and acknowledged that the statements
contained in the foregoing Certificate of Amendment and
Restatement are true and correct.
My commission expires: Notary Public in and for
the State of Colorado
DCC0EAC5 25943-1
<PAGE>
RESTATED ARTICLES OF INCORPORATION
OF
CASPEN OIL, INC.
FIRST: The name of the corporation is CASPEN OIL, INC.
SECOND: The principal office of the corporation in the
State of Nevada is located at One East First Street, Reno, Washoe
County, Nevada. The name and address of its resident agent is
The Corporation Trust Company of Nevada, One East First Street,
Reno, Nevada.
THIRD: The Corporation may engage in any lawful act,
activity and/or business for which corporations may be organized
under the General Corporation Laws of the State of Nevada,
including, by way of partial enumeration and not by way of
limitation, the following:
1. To purchase, take, hold, lease, exchange or otherwise
acquire, and to sell, mortgage, let and otherwise deal in gas-
bearing, oil-bearing and other mineral and natural resource
bearing properties, including leases, claims, mines, wells,
royalties, net profit interests, production payments and any and
all other interests or rights whatsoever therein or thereto, and
to engage in the business of producing, mining and selling gas,
oil and other minerals and natural resources, and to prospect,
drill, mine for, and produce petroleum, oil, natural gas and
other natural resources, and transport same by pipe lines or any
other available means or method, and market and sell same.
2. To carry on the business of producing, acquiring,
developing, utilizing, manufacturing, storing, extracting,
separating, refining, reducing, compressing, absorbing,
condensing, cracking, converting, purifying, treating,
evaporating, vaporizing, blending, analyzing, liquefying,
combining, mixing, marketing, buying and selling, and otherwise
dealing in and turning to account, oil of all kinds and grades,
petroleum, gas, gasoline, carbon and hydrocarbon products of all
kinds, and the elements, constituents, products and by-products,
mixtures, combinations, compounds and blends thereof.
3. To enter into partnership or into any arrangement for
sharing of profits, union of interests, corporation, joint
adventure, reciprocal concession or otherwise, with any person or
corporation carrying on or engaged in or about to carry on or
engage in any business or transaction which the corporation is
authorized to carry on or engage in, or any business or
transaction capable of being conducted so as directly or
indirectly to benefit the corporation.
4. To guarantee the payment of the principal of and
interest upon notes, debentures, bonds, or other evidences of
DCC0EAC5 25943-1
<PAGE>
indebtedness, of any kind or character of any corporation, joint
stock company, syndicate, association, firm, trust or person
whomsoever.
5. To have one or more offices, to carry on all or any of
its operations and business and without restriction or limit as
to amount to purchase or otherwise acquire, hold, own, mortgage,
sell, convey or otherwise dispose of, real and personal property
of every class and description in any of the states, districts,
territories or colonies of the United States, and in any and all
foreign countries, subject to the laws of such state, district,
territory, colony or country.
The objects and purposes specified in the foregoing clauses
shall not, except where otherwise expressed, be limited or
restricted by reference to, or inference from, the terms of any
other clause in these articles of incorporation, but the objects
and purposes specified in each of the foregoing clauses of this
article shall be regarded as independent objects and purposes.
FOURTH: The aggregate number of shares which this
corporation is authorized to issue is sixty million (60,000,000)
divided into ten million (10,000,000) Preferred Shares of the par
value of One Dollar ($1.00) per share, and fifty million
(50,000,000) Common Shares of the par value of One Cent ($0.01)
per share.
The preferences, qualifications, limitations, restrictions
and the special or relative rights in respect of the shares of
each class are as follows:
A. Provisions relating to the Preferred Shares:
1. The Preferred Shares may be issued from time to
time in one or more classes or series, the shares of each
class or series to have such designations and powers,
preferences and rights, and qualifications, limitations and
restrictions thereof as are stated and expressed herein and
in the resolution or resolutions providing for the issue of
such class or series adopted by the Board of Directors as
hereafter provided.
2. Authority is hereby expressly granted to and
vested in the Board of Directors to authorize the issuance
of the Preferred Shares from time to time in one or more
class or series, and with respect to each class or series of
the Preferred Shares, to fix and state by the resolution or
resolutions from time to time adopted providing for the
issuance thereof the following:
(i) Whether or not the class or series is to have
voting rights, full or limited, or is to be without
voting powers; provided, in no event shall a single
DCC0EAC5 25943-1
<PAGE>
share of a class or series be entitled to more than one
vote on each matter it is entitled to vote upon;
(ii) The number of shares to constitute the class
or series and the designations thereof;
(iii) The preferences and relative, participating,
optional or other special rights, if any, and the
qualifications, limitations or restrictions thereof, if
any, with respect to any class or series;
(iv) Whether or not the shares of any class or
series shall be redeemable and if redeemable the
redemption price or prices, and the time or times at
which, and the terms and conditions upon which such
shares shall be redeemable and the manner of
redemption;
(v) Whether or not the shares of a class or
series shall be subject to the operation of retirement
or sinking funds to be applied to the purchase or
redemption of such shares for retirement, and if such
retirement or sinking fund or funds be established, the
annual amount thereof and the terms and provisions
relative to the operations thereof;
(vi) The dividend rate, the conditions upon which
and the times when such dividends are payable, the
preference to or the relation to the payment of the
dividends payable on any other class or classes or
series of stock whether or not such dividend shall be
cumulative or non-cumulative, and if cumulative, the
date or dates from which such dividends shall
accumulate;
(vii) The preferences, if any, and the amounts
thereof which the holders of any series thereof shall
be entitled to receive upon the voluntary or
involuntary dissolution of, or upon any distribution of
the assets of, the corporation;
(viii) Whether or not the shares of any class or
series shall be convertible into, or exchangeable for,
the shares of any other class or classes or of any
other series of the same or any other class or classes
of stock of the corporation and the conversion price or
prices or ratio or ratios of the rate or rates at which
such exchange may be made, with such adjustments, if
any, as shall be stated and expressed or provided for
in such resolution or resolutions; and
DCC0EAC5 25943-1
<PAGE>
(ix) Such other special rights and protective
provisions with respect to any class or series as may
to the Board of Directors seem advisable.
The shares of each class or series of the Preferred Shares
may vary from the shares of any other class and series thereof in
any or all of the foregoing respects. Unless otherwise provided
in any such resolution or resolutions, the number of shares of
any class or series of the Preferred Shares set forth in such
resolution or resolutions may by the Board of Directors from time
to time be increased or decreased (but not below the number of
shares thereof then outstanding).
B. Provisions relating to the Common Shares.
Subject to the provisions of law and the Preferred Shares,
dividends may be paid on the Common Shares of the Corporation at
such time and in such amounts as the Board of Directors may deem
advisable. Each Common Share shall be entitled to one vote on
each matter submitted to a vote at a meeting of shares.
DCC0EAC5 25943-1
<PAGE>
C. General.
(i) Subject to the provisions of law and the
foregoing provisions of this Certificate of
Incorporation, the Corporation may issue shares of its
Preferred Shares or Common Shares from time to time for
such consideration (not less than the par value or
stated value thereof) as may be fixed by the Board of
Directors which is expressly authorized to fix the same
in its absolute and uncontrolled discretion subject to
the foregoing conditions. Shares so issued for which
the consideration has been paid or delivered to the
Corporation shall be deemed fully paid stock and shall
not be liable to any further call or assessment thereon
and the holders of such shares shall not be liable for
any further payments in respect of such shares.
(ii) No stockholder of this Corporation shall have
by reason of its holding shares of any class or series
of stock of this Corporation, any preemptive or
preferential rights to purchase or subscribe for any
other shares of any class or series of this Corporation
now or hereafter to be authorized, and any other equity
securities, or any notes, debentures, warrants, bonds,
or other securities convertible into or carrying
options or warrants to purchase shares of any class,
now or hereafter to be authorized, whether or not the
issuance of any such shares, or such notes, debentures,
bonds or other securities, would adversely affect the
dividend or voting rights of such stockholder.
(iii) Cumulative voting by any shareholder is
hereby expressly denied.
FIFTH: The members of the governing board shall be styled
directors and the number of directors of the Corporation shall
not be less than three (3) nor more than fifteen (15), and within
that minimum and maximum shall be such number as shall be from
time to time specified by resolution of at least two-thirds of
the board of directors; provided, however, no director's term
shall be shortened by reason of a resolution reducing the number
of directors.
No amendment to the Articles of Incorporation of the
Corporation shall amend, alter, change or repeal any of the
provisions of this Article FIFTH, unless the amendment effecting
such amendment, alteration, change or repeal shall receive the
affirmative vote or consent of eighty percent (80%) of the
outstanding shares of each class of stock of the Corporation
normally entitled to vote in elections of directors, voting for
the purposes of this Article FIFTH as separate classes. Such
affirmative vote or consent shall be in addition to the vote or
DCC0EAC5 25943-1
<PAGE>
consent of the holders of the stock of the Corporation otherwise
required by law or by the terms of any class or series of
preferred stock, whether now or hereafter authorized, or any
agreement between the Corporation and any national securities
exchange.
DCC0EAC5 25943-1
<PAGE>
The names and post office addresses of the initial Board of
Directors, which shall consist of seven (7) members, are as
follows:
Name Post Office Address
J. Quincy Adams Ling & Company, Inc.
LTV Tower Mall
Dallas, Texas 75201
Carrol M. Bennett, Jr. Rauscher, Pierce & Co., Inc.
Mercantile Dallas Building
Dallas, Texas 75201
Ray L. Hunt 2900 First National Bank Bldg.
Dallas, Texas 75202
Jack D. Knox 1925 Mercantile Dallas
Building
Dallas, Texas 75201
Morio Omori Suite 602, Capital Investment
Bldg.
Honolulu, Hawaii 96813
John T. Simms, III 730 Post Oak Road
Houston, Texas
E.A. Smith 406 South Boulder
Tulsa, Oklahoma 74103
SIXTH: The name and post office address of each of the
incorporators signing the Articles of Incorporation are as
follows:
Name Post Office Address
George W. Coleman 2200 First National Bank Bldg.
Dallas, Texas 75202
Christie S. Flanagan 2200 First National Bank Bldg.
Dallas, Texas 75202
William A. Thau 2200 First National Bank Bldg.
Dallas, Texas 75202
SEVENTH: The corporation shall have perpetual existence.
EIGHTH: A. The Board of Directors is expressly
authorized to make, alter or amend the By-Laws of the
Corporation.
B. Authority is hereby expressly granted to and vested in
the Board of Directors to issue notes, bonds, debentures,
warrants and other obligations of the Corporation convertible
into stock of such class, or bearing such warrants or other
DCC0EAC5 25943-1
<PAGE>
evidence of optional rights to purchase and/or subscribe to stock
of such class and issued and convertible upon such terms and
conditions and in such manner as may be fixed and stated by the
resolution or resolutions from time to time adopted providing for
the issuance thereof.
C. The Corporation reserves the rights to amend, alter,
change or repeal any provision contained in the Articles of
Incorporation, in the manner now or hereafter prescribed by
statute, and all rights conferred by stockholders herein are
created subject to this reservation.
D. The Board of Directors shall be authorized to exercise
all such powers and do all such things and acts as may be
exercised or done by the Corporation subject to the provisions of
the laws of the State of Nevada, of this Certificate of
Incorporation and of the By-Laws of the Corporation.
NINTH: No contract or other transaction between the
Corporation and any other corporation and no other act of the
Corporation shall, in the absence of fraud, be invalidated or in
any way affected by the fact that any of the stockholders,
directors or officers of the Corporation are pecuniarily or
otherwise interested in such contract, transaction, or other act,
or are stockholders, directors or officers of such corporation.
Any stockholder, director or officer of the corporation,
individually, or any firm or association of which any such
stockholder, director or officer may be a member, may be a party
to, or may be pecuniarily or otherwise interested in, any
contract or transaction of the Corporation, provided that the
fact that he individually or such firm or association is so
interested shall be disclosed or shall have been known to the
Board of Directors or a majority of such members thereof as shall
be present at any meeting of the Board of Directors at which
action upon any such contract or transaction shall be taken; and
any director of the Corporation who is a stockholder, director or
officer of such other corporation or who is so interested may be
counted in determining the existence of a quorum at any meeting
of the Board of Directors which shall authorize any such contract
or transaction and may vote thereat to authorize any such
contract or transaction with like force and effect as if he were
not such stockholder, director or officer of such other
corporation or not so interested; every stockholder, director or
officer of the Corporation being hereby relieved from any
disability which might otherwise prevent him from carrying out
transactions with or contracting with the Corporation for the
benefit of himself or any firm or corporation, association, trust
or organization in which or with which he may be in anyway
interested or connected.
TENTH: A. The Corporation shall have power to indemnify any
person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or
DCC0EAC5 25943-1
<PAGE>
proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the
Corporation), by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer,
employee or agent of another corporation or is or was serving at
the request of the Corporation as a director, officer, trustee,
employee or agent of another corporation, partnership, joint
venture, trust, or other enterprise, against expenses (including
attorney fees), judgments, fines, and amounts paid in settlement,
actually and reasonably incurred by him in connection with such
action, suit or proceeding, if such person acted in good faith
and in a manner he reasonably believed to be in or not opposed to
the best interest of the Corporation, and, with respect to any
criminal action or proceedings had no reasonable cause to believe
his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, or conviction, or on
plea of nolo contendere or its equivalent shall not, of itself,
create a presumption that the person did not act in good faith
and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Corporation, and with
respect to any criminal action or proceeding had reasonable cause
to believe that his conduct was unlawful.
B. The Corporation shall have power to indemnify any
person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure judgment in its favor by
reason of the fact that he is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, trustee, agent
or employee of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorney
fees) actually and reasonably incurred by him in connection with
the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation and except that
no indemnification shall be made in respect to any claim, issue
or manner as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his
duty to the Corporation unless and only to the extent that the
court in which such action or suit was brought shall determine
upon application that despite the adjudication of liabilities but
in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses
which the court shall deem proper.
C. To the extent that a director, officer, employee or
agent of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred
to in subsections A and B, or in defense of any claim, issue or
matter therein he shall be indemnified against expenses
DCC0EAC5 25943-1
<PAGE>
(including attorney fees) actually and reasonably incurred by him
in connection therewith.
D. Expenses incurred in defending a civil or criminal
action, suit or proceeding may be paid by the Corporation in
advance of the final disposition of such action, suit or
proceeding as authorized by the Board of Directors.
E. The indemnification provided by this section shall not
be deemed exclusive of any other right to which those seeking
indemnification may be entitled under any by-law, agreement, vote
of stockholders or disinterested directors, or otherwise, both as
to action in his official capacity and as to his action in other
capacities while holding such office and shall continue as to a
person who has ceased to be a director, officer, trustee,
employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
F. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a director,
officer, trustee, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such
capacity or arising out of his status as such whether or not the
Corporation would have the power to indemnify him against such
liability under the provisions of this section.
ELEVENTH:
A. Eighty Percent Vote Required for Certain Transactions.
Notwithstanding any other provision of these Articles of
Incorporation, and subject to the exceptions provided in
Paragraph D of this Article ELEVENTH, the types of transactions
described in paragraph C of this Article ELEVENTH shall require
the affirmative vote or consent of eighty percent (80%) of the
outstanding shares of each class of stock of the Corporation
normally entitled to vote in elections of directors, voting for
the purposes of this Article ELEVENTH as separate classes, when a
Major Stockholder (as defined in Paragraph B of this Article
ELEVENTH) is a party to the transaction. Such affirmative vote
or consent shall be in addition to the vote or consent of the
holders of the stock of the Corporation otherwise required by law
or by the terms of any class or series of preferred stock,
whether now or hereafter authorized, or any agreement between the
Corporation and any national securities exchange.
B. "Major Stockholder" Defined. The term "Major
Stockholder" shall mean any corporation, person or other entity
which is the beneficial owner, directly or indirectly, of more
than ten percent (10%) of the outstanding shares of stock of the
Corporation normally entitled to vote in elections of directors,
DCC0EAC5 25943-1
<PAGE>
considered for the purposes of this definition as one class, and
shall include any affiliate or associate, as such terms are
defined in clause (ii) below, of a Major Stockholder. For the
purposes of this Article ELEVENTH, (a) any corporation, person or
other entity shall be deemed to be the beneficial owner of any
shares of stock of the Corporation (i) which it has the right to
acquire pursuant to any agreement or upon exercise of conversion
rights or warrants, or otherwise (but excluding stock options
granted by the Corporation), or (ii) which are beneficially
owned, directly or indirectly (including shares deemed owned
through application of clause (i) above), by any other
corporation, person or entity with which it or its "affiliate" or
"associate" (as defined below) has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or
disposing of stock of the Corporation, or which is its
"affiliate" or "associate" as those terms are defined in Rule
12b-2 of the General Rules and Regulations under the Securities
Exchange Act of 1934 as in effect on December 1, 1976, and
(b) the outstanding shares of any class of stock of the
Corporation shall include shares deemed owned through application
of clauses (i) and (ii) above but shall not include any other
shares which may be issuable pursuant to any agreement, or upon
exercise of conversion rights or warrants, or otherwise.
C. Transactions Covered. This Article ELEVENTH shall
apply to the following transactions:
(i) The merger or consolidation of the
Corporation or any subsidiary of the Corporation with
or into any Major Stockholder;
(ii) The issuance of any securities of the
Corporation to a Major Stockholder for cash;
(iii) The sale, lease or exchange of all or
any substantial part of the assets of the Corporation
to any Major Stockholder (except assets having an
aggregate fair market value of less than $1,000,000,
aggregating for the purpose of such computation all
assets sold, leased or exchanged in any series of
similar transactions within a twelve-month period);
(iv) The sale, lease or exchange to the
Corporation or any subsidiary thereof, in exchange for
securities of the Corporation, of any assets of any
Major Stockholder (except assets having an aggregate
fair market value of less than $1,000,000, aggregating
for the purpose of such computation all assets sold,
leased or exchanged in any series of similar
transactions within a twelve-month period);
(v) A loan from the Corporation or any
subsidiary thereof to a Major Stockholder or a guaranty
DCC0EAC5 25943-1
<PAGE>
by the Corporation or any subsidiary of any obligation
of a Major Stockholder; and
(vi) The use of any assets of the Corporation
or any subsidiary thereof as collateral or compensating
balances, directly or indirectly, for any obligation of
a Major Stockholder.
D. Transactions Not Covered. The provision of this
Article ELEVENTH shall not be applicable to (i) any of the
transactions described in Paragraph C of this Article ELEVENTH if
the Board of Directors of the Corporation shall by resolution
having approved a memorandum of understanding with such Major
Stockholder with respect to and substantially consistent with
such transaction, or (ii) any such transaction with any
corporation of which a majority of the outstanding shares of all
classes of stock normally entitled to vote in elections of
directors is owned of record or beneficially by the Corporation
and its subsidiaries.
E. Board of Directors Determination Conclusive. The Board
of Directors shall have the power and duty to determine for the
purposes of this Article ELEVENTH, on the basis of information
known to the Corporation, whether (i) a corporation, person or
entity beneficially owns more than ten percent (10%) of the
outstanding shares of stock of the Corporation normally entitled
to vote in elections of directors, (ii) a corporation, person or
entity is an "affiliate" or "associate" (as defined above) of
another, (iii) the assets being acquired or leased to or by the
Corporation, or any subsidiary thereof, have an aggregate fair
market value of less than $1,000,000, and (iv) the memorandum of
understanding referred to in Paragraph D hereof is substantially
consistent with the transaction covered thereby. Any such
determination shall be conclusive and binding for all purposes of
this Article ELEVENTH.
F. Amendment by Eighty Percent Vote. No amendment to the
Articles of Incorporation of the Corporation shall amend, alter,
change or repeal any of the provisions of this Article ELEVENTH,
unless the amendment effecting such amendment, alteration, change
or repeal shall receive the affirmative vote or consent of eighty
percent (80%) of the outstanding shares of each class of stock of
the Corporation normally entitled to vote in elections of
directors, voting for the purposes of this Article ELEVENTH as
separate classes. Such affirmative vote or consent shall be in
addition to the vote or consent of the holders of the stock of
the Corporation otherwise required by law or by the terms of any
class or series of preferred stock, whether now or hereafter
authorized, or any agreement between the Corporation and any
national securities exchange.
TWELFTH: No director or officer of the Corporation shall be
personally liable to the Corporation or any of its stockholders
DCC0EAC5 25943-1
<PAGE>
for damages for breach of fiduciary duty as a director or officer
involving any act or omission of any such director or officer
occurring on or after January 31, 1989, and to the extent
permitted under applicable law, occurring prior to January 31,
1989; provided, however, that the foregoing provisions shall not
eliminate or limit 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 dividends in
violation of Section 78.300 of the Nevada Revised Statutes. Any
repeal or modification of this Article by the stockholders of the
Corporation shall be prospective only, and shall not adversely
affect any limitation on the personal liability of a director or
officer of the Corporation for acts or omissions prior to such
repeal or modification.
IN WITNESS WHEREOF, these Restated Articles of Incorporation
of Caspen Oil, Inc. have been executed by the President and
Secretary of the Corporation as of the ____ day of December,
1994.
Anthony J. Carroll, President
Kimberley J. Love, Secretary
DCC0EAC5 25943-1
<PAGE>
THE STATE OF COLORADO &
&
COUNTY OF ___________ &
On this ______ day of December, 1994, before me appeared
Anthony J. Carroll, to me personally known, who, being by me duly
sworn, did say that he is the President of CASPEN OIL, INC., a
Nevada corporation, and acknowledged that the statements
contained in the foregoing Restated Articles of Incorporation of
Caspen Oil, Inc. are true and correct.
My commission expires: Notary Public in and for
the State of Colorado
THE STATE OF COLORADO &
&
COUNTY OF ___________ &
On this ______ day of December, 1994, before me appeared
Kimberley J. Love, to me personally known, who, being by me duly
sworn, did say that she is the Secretary of CASPEN OIL, INC., a
Nevada corporation, and acknowledged that the statements
contained in the foregoing Restated Articles of Incorporation of
Caspen Oil, Inc. are true and correct.
My commission expires: Notary Public in and for
the State of Colorado
DCC0EAC5 25943-1
<PAGE>
