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consents to the assignment of the Company's federal and state oil and gas leases and approval by the Minister <br />of Mines for the State of Western Australia for the transfer of Canning EP 231. The Company expects that <br />the required consents will be obtained and that failure to obtain any such consent would not materially affect <br />the Company. <br />The sale, when closed, will result in a loss to the Company for financial reporting purposes, of an <br />estimated $930,000. The loss will be reported in the last quarter of fiscal 1987 when the sale is closed. The <br />parties have agreed to structure the sale as a sale of assets. The tax consequences of the sale will depend on the <br />final accounting for net operating revenue through the tax effective date. It is not practicable at this time to <br />fully assess the tax impact of the transaction other than it appears the transaction will result in a taxable loss <br />of approximately $300,000. <br />During negotiations, Victoria paid the Company $25,000 as anon-refundable fee for an exclusive option <br />to negotiate. If the sale is closed, the $25,000 will apply to the purchase price. V ictoria has deposited $365,000 <br />into an escrow account in Denver with the balance of the purchase price payable at closing. if Victoria does <br />not close for any reason other than a failure by the Company to perform its obligations under the Purchase <br />Agreement, this $365.000 would be paid to Royal as liquidated damages. Closing must occur on or before <br />May 30, 1987. The Purchase Agreement further provides that if the sale is not approved by the stockholders <br />within 75 days from the date of the Purchase Agreement (i.e., by May 12, 1987), Victoria at its option may <br />terminate the Purchase Agreement aitd the Company will be required to Itay Victoria $350,000 as liquidated <br />damages. <br />Victoria has agreed to enter into a management agreement with Royal under which Royal will manage <br />the properties until closing for a fee of $7,500 per month. The Company will pay all expenses related to the <br />properties from the proceeds of production. The Company will have the right to require Victoria to pay for any <br />expenses to the extent they are not covered by the proceeds of production. <br />The closing sale price uFa share of the Company's Common Stock on the NASDAQ/N MS Exchange on <br />February 26, 1987, the last trading day before the Company and Victoria announced the signing of the <br />Purchase Agreement for the proposed sale of assets, was $5.625, The closing sale price on April 7, 1987 was <br />$10.125. <br />C. Recommendation of the Board of Directors <br />The Board of Directors believes that consummation of the proposed sale would enhance the ability of the <br />Compan}~ to participate in the gold business, would eliminate the risks inherent in the oil and gas business and <br />would provide the Company with fair consideration for the Company's oil and gas properties. The Board of <br />Directors has unanimously approved the proposed sale and recommends a vote for the proposal to approve the <br />Purchase Agreement and the sale of the Company's oil and gas properties. <br />D. Opinion Relating to Fairness of Consideration <br />Mr. Jack Wanner, Consulting Petroleum Engineer, has delivered to the Board of Directors of [he <br />Company his written opinion to the effect that, based upon his review ;ts described therein, the consideration <br />to be paid to the Company in the proposed sale of assets falls within the range of market values that exists for <br />those assets, and in his opinion the price is fair. The Company asked Mr. Wanner to make an independent <br />determination of the fairness of the price based on the information provided by the Company, Mr. Wanner's <br />past experience and any other information he believed necessary. In conjunction with preparation of his <br />opinion, Mr. Wanner, who is familiar with the properties through his preparation and review of the <br />Company's oil and gas reserve estimates since 1984, reviewed current information regarding prices being <br />received for oil and gas from the properties, cost of production and other expense data, production <br />information. information regarding certain future obligations of the Company to be assumed by Victoria, <br />the other bids received by the Company, and such other information as he believed appropriate relating <br />