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2. The Company faced significant expenditures relating to oil and gas operations, including
<br />estimated exploration costs in Australia of approximately up to $1,000,000 over a four year period. Based
<br />on current estimates, the Company would not have been able to fully Cund its future oil and gas
<br />operations without curtailing its gold operation substantially.
<br />3. The Company recognizes that there are risks in the gold mining business but believes the risks of
<br />the oil and gas industry are currently greater. At the current time and for the near term, the gold market's
<br />stability and predictability appear greater than the market for oil and gas. See Section G Collowing.
<br />Following the Board of Directors' decision to cause the Company to revise its principal business, the
<br />~t Board of Directors concluded that a sale of the Company's oil and gas properties was in the best interests of
<br />the Company and its stockholders. The Board of Directors determined that the sale of the oil and gas
<br />properties would permit the Company to concentrate on its gold activities and provide capital to accelerate the
<br />Company's investment in gold properties. In January, 1987, the Company solicited offers from a number of
<br />sources, including the financial community and the oil and gas industry. The Company received a number of
<br />offers and commenced substantive negotiations with Victoria, which was the highest bidder. In the course of
<br />the negotiations, Victoria increased its bid and offered $3,650,000 for the Company's oil and gas properties.
<br />This oFfer was accepted by the (:ompany and the Purchase Agreement was executed on February 26, 1987.
<br />B. Description of Purchase Agreement
<br />The Company has agreed to sell, subject to stockholder approval, substantially all of the Company's oil
<br />and gas properties to Victoria for $3.650,000 (U.S.) in cash. The sale, when closed, will be effective January I,
<br />1987 with Victoria accruing all revenues and expenses From that date forward. In addition to the $3,650,000
<br />payment, Victoria will assume, effective January I, 1987, further obligations relating to the oil and gas
<br />properties. These include obligations typically associated with a working interest ownership in oil and gas
<br />properties, including lease obligations, drilling costs, obligations under operating agreements (including
<br />workover expenses at the Tulare Lake Field), unit agreements, gas contracts, and similar agreements relating
<br />to the properties. In addition, Victoria will assume the Company's obligation to pay exploration costs required
<br />under the terms of the Australian exploratory permit known as Canning EP 231 estimated to be
<br />approximately $1,000,000. Although the Company may be liable for these obligations in the event that
<br />Victoria does not satisfy the obligations, the Company considers this relief of future obligations to be a
<br />substantial benefit.
<br />Victoria, a Colorado corporation, is a wholly owned subsidiary of Victoria Exploration, N.L„ Perth,
<br />Australia. Victoria Exploration, N.L. has guaranteed the performance by Victoria of Victoria's obligations
<br />under the Purchase Agreement. Victoria has a 10 percent working interest in the Mary Bellocchi well in Kings
<br />County, California, which the Company operates and in which the Company has a 5%o working interest and
<br />1.3% overriding royalty interest. With the Company's permission, Victoria engaged Timothy L. Hoops, in
<br />October 1986 to serve as a United States consultant to Victoria in connection with matters other than the
<br />acquisition. Mr. Hoops was employed part-time by the Company until March I, 1987 when he resigned from
<br />the Company and was employed by Victoria. Except For the foregoing matters and the prior sale to Victoria
<br />described in Section K, neither the Company nor its affiliates has any relationship with Victoria.
<br />As a condition of closing, the Company is obligated to transfer title acceptable to Victoria. Should
<br />significant title defects be present, which the Company believes is unlikely, the Company and Victoria have
<br />agreed to reduce the $3,650.000 purchase price by the amount allocated to the individual property in question.
<br />The sale to Victoria is also subject to preferential rights on some of the properties. If the preferential rights are
<br />exercised, the properties would be sold For the same price agreed to by Victoria but to the party with the
<br />preferential rights. In the event of an exercise of preferential rights by a third party, the purchase price paid by
<br />Victoria would be reduced accordingly but the total amount received by the Company would remain the same.
<br />The sale of certain of the properties also is subject to various forms of consent, including governmental
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