Item 7.01 Regulation FD Disclosure (July 8-K)
(a) Information
Purchase and Sale Agreement
As previously publicly disclosed, on
April 26, 2007, the Registrant entered into a Purchase and Sale Agreement with
Westar Oil, Inc, a Nevada corporation (the “Purchaser”). Under the
Purchase and Sale Agreement, the Registrant agreed to sell to the Purchaser
55% of the issued and outstanding shares of common stock of the Registrant.
The Purchase and Sale Agreement contemplated the holding of two closings as
follows: (i) an initial closing pursuant to which the Registrant would sell
to the Purchaser 618,000 shares (representing approximately 9% of its issued
and outstanding common stock); and (ii) a second closing pursuant to which the
Registrant would sell to the Purchaser 3,900,000 (originally contemplated to
be 3,182,000) shares (representing approximately 46% of its issued and outstanding
common stock). The per share purchase price in both closings of the transaction
was $0.21, for total consideration of $948,780 for the total 4,518,000 shares
to be purchased. As also previously disclosed, the initial closing occurred
on April 26, 2007 and the second closing occurred on July 23, 2007. A copy of
the Purchase and Sale Agreement was filed as Exhibit 10.1 to the Registrant’s
Current Report on Form 8-K dated April 26, 2007 and filed May 1, 2007.
In connection with and pursuant
to the Purchase and Sale Agreement, the Registrant’s sole director, David Pratt,
and the Registrant’s President, Chief Executive Officer and Chief Financial
Officer, Lawrence Finn, tendered their resignations, subject in the case of Mr.
Pratt to the Registrant’s compliance with the filing and information
transmission requirements of Commission Rule 14f-1. Concurrently, the Purchaser
designated Linda Contreras as
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the replacement Chief Executive Officer of the Registrant and
the Purchaser also designated Ms. Contreras as the replacement sole director of
the Registrant, to take office as a director upon compliance with Commission
Rule 14f-1. On May 1, 2007, the Registrant filed with the Commission a Schedule
14F1 and the Registrant concurrently transmitted the Schedule 14F1 information
to the Registrant’s shareholders, in compliance with Rule 14f-1. In accordance
with the Purchase and Sale Agreement and in compliance with Rule 14f-1, on May
11, 2007, the Registrant accepted the resignation of Mr. Pratt as the
Registrant’s sole director and Ms. Contreras became the sole director of the
Registrant on that date.
In connection with and pursuant
to the Purchase and Sale Agreement, the Registrant also announced its intention
to change the Registrant’s name to “Westar Oil and Gas, Inc.” As previously
disclosed by the Registrant, the change in the Registrant’s name is to be
effected through an amendment of the Registrant’s Articles of Incorporation. On
July 26, 2007, the Registrant’s board of directors and majority shareholder, the
Purchaser, approved and adopted the amendment of the Registrant’s Articles of
Incorporation to change the Registrant’s name. In accordance with Section 14(c)
of the Securities Exchange Act of 1934, as amended, and Regulations 14C of the
Commission promulgated thereunder, because the amendment to the Articles of
Incorporation was adopted pursuant to a written consent of the majority
shareholder and not pursuant to a solicitation of consents or proxies pursuant
to Regulation 14A promulgated by the Commission, the Registrant is required to
file with the Commission certain information on Schedule 14C and to transmit
that information to the Registrant’s shareholders not less than 20 calendar days
prior to the date on which the corporate action is to be taken. In accordance
with Regulation 14C, on August 24, 2007, the Registrant filed with the
Commission an information statement on Schedule 14C containing the information
required by Regulation 14C and transmitted that information to the Registrant’s
shareholders. The Registrant may implement the name change amendment to its
Articles of Incorporation on or after September 13, 2007. The Registrant intends
to implement the name change amendment in a manner consistent with other
announced or contemplated Registrant initiatives and transactions and, as a
result, the Registrant does not presently know exactly if or when it will
implement the name change amendment.
Debt Acquisition and Debt, Asset
and Share Exchange Agreement Proposal
As disclosed by the Registrant on
June 8, 2007, the Registrant was informed by the Purchaser that the Purchaser
had negotiated to acquire from a creditor the rights to $3.0 million in
Registrant indebtedness owed to that creditor, consisting of principal, accrued
interest and costs. The indebtedness was secured by liens on the Registrant’s
leasehold interests in approximately 9,700 acres located in Erath County, Texas.
On April 10, 2007, the Registrant had also disclosed that on April 3, 2007 it
received notice that approximately 3,200 of these leasehold assets located in
Erath County were subject to a writ of execution issued by the 266th District
Court of the State of Texas and directing the Erath County sheriff’s office to
recover the judgment amount and any other charges that had been awarded. The
Registrant further disclosed at such time that the Purchaser had indicated to
the Registrant its willingness to exchange the $3.0 million in indebtedness for
Registrant common stock at a price of $6.75 per share, pursuant to a series of
proposed transactions and subject to a number of conditions. These transactions
are referred to here as the Debt, Asset and Share Exchange Agreement
Proposal.
Pursuant to the Debt, Asset and
Share Exchange Agreement Proposal, the Purchaser would exchange the $3.0 million
of the Registrant’s debt at a price of $6.75 per share, for a total of 444,445
shares of common stock. Concurrently, the Purchaser and the Registrant would
exchange shares at a ratio of 3.63 shares of Registrant common stock for each
share of the Purchaser’s common stock. This equated the value of the Purchaser’s
common stock in the transaction for exchange purposes at $24.50 per share, based
on the $3.0 million in debt being exchanged at $6.75 per Registrant common
share. In addition under the Debt, Asset and Share Exchange Agreement Proposal,
the Purchaser would contribute to the Registrant additional oil and gas and
other assets at the same ratio, subject to receipt of appropriate third-party
valuations for the shares or assets. Some of these proposed assets are described
below in this Current Report on Form 8-K/A.
Consummation of the Debt, Asset
and Share Exchange Agreement Proposal transaction was proposed to be subject to
a number of conditions to be negotiated between the parties, including (i) the
accuracy of the parties’ representations and warranties customary for
transactions of this type, including the absence of a material adverse changes
in their business, assets or liabilities and the receipt of all applicable
permits, authorizations, consents, and
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approvals, (ii) the receipt of third-party valuations for the
share price of both companies and the assets proposed to be transferred and
(iii) receipt of an approved settlement agreement with all of the creditors and
judgment holders of the Registrant.
Concurrently with the June 8,
2007 announcement of the Purchaser’s acquisition of the Registrant’s debt and
the announcement of the Debt, Asset and Share Exchange Agreement Proposal, the
Registrant also disclosed its intention to extend its oil and gas leases on its
Erath County, Texas lands, which expire in October 2007 with respect to
approximately 3,200 acres. Extension of the leases would, of course, require
satisfactory resolution of the writ of execution relating to the leaseholds.
Subject to that extension, the Registrant intended to commence production from
the leases (where six active wells are present) as soon as practicable, and the
Registrant estimated gross cash proceeds from production from such properties at
$750,000 per month. This estimate was based on prior management’s internal
forecasts. Actual production proceeds, however, are subject to a number of
variables and uncertainties, including gross well production, production costs,
and the prevailing prices for the produced oil and gas.
Subsequent to the June 2007
announcement regarding the $3.0 million debt exchange proposal, the Purchaser
informed the Registrant that, in August September, the creditor had foreclosed
on the leasehold interest on approximately 6,500 of the acres located in Erath
County, Texas and that the Purchaser then held the rights to the leasehold in
lieu of the Registrant debt. At such time, the Purchaser also informed the
Registrant of its continued desire to proceed with the Debt, Asset and Share
Exchange Agreement Proposal, subject to all of the initial conditions to the
proposal, on the basis of the exchange of the leasehold, rather than the prior
$3.0 million indebtedness.
In or about August 2007, a
receiver was appointed over the Registrant’s leasehold on the approximately
3,200 acres in Erath County, Texas that had been subject to the writ of
execution. That leasehold expires in accordance with its terms in or about
October 2007. The Registrant is considering entering into a new lease for that
property, but there can be no assurance whether the Registrant will be able to
negotiate such a lease or, if negotiated, the Registrant will be able to operate
on the property without satisfactory resolution of the Registrant’s indebtedness
related to its prior leasehold interest.
Additional Transactions Relating
to the Debt, Asset and Share Exchange Proposal
On June 22, 2007, the Registrant
disclosed that it and the Purchaser had finalized the terms of the Debt, Asset
and Share Exchange Agreement Proposal on the basis that had been previously
disclosed and subject to a number of conditions. The parties had not, however,
on such date bound themselves to proceed with the transaction. Consistent with
the parties’ negotiations and the finalized proposal at such date, the Purchaser
had identified additional assets it proposed to exchange with the Registrant for
Registrant common stock. Set forth in the section below entitled “Additional
Disclosed Transactions to Which the Registrant is Not a Party” are descriptions
of a number of these assets and transactions that the parties have contemplated
making part of the Debt, Asset and Share Exchange Agreement Proposal
transaction.
Included in the proposed assets
were the Purchaser’s rights under several oil and gas property acquisition
contracts which the Purchaser had recently negotiated. In addition, the
Registrant announced that the Purchaser had recently negotiated $175 million
funding agreement the Purchaser with a New York-based energy lender, which
funding agreement had been allocated to the funding of two proposed oil and gas
acquisitions, which involved both current producing properties and additional
drilling potential. As the Registrant disclosed at the time, it was proposed
that the Purchaser may transfer its rights to the funding proposal and the
related acquisitions to the Registrant in the Debt, Asset and Share Exchange
Agreement Proposal transaction, but it was not anticipated that additional
shares of Registrant common stock would be issued in the Debt, Asset and Share
Exchange Agreement Proposal to acquire the rights to the financing if that
transfer were to occur. Correspondingly, the Registrant was not obligated in any
manner with respect to the proposed financing. The Registrant is informed that
the Purchaser elected to let the funding proposal lapse in accordance with its
terms and to seek any necessary funding concurrently with any new proposed
transactions.
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Concurrently with the
announcement of the finalized terms of the Debt, Asset and Share Exchange
Agreement Proposal, the Registrant announced its intention to issue a stock
dividend to the Registrant’s shareholders, concurrent with the anticipated name
change of the Registrant. At the time of the announcement, the Registrant
believed that it could implement the name change based on the board and majority
shareholder approval of the name change amendment to the Registrant’s Articles
of Incorporation alone. However, as disclosed above, implementation of the name
change amendment has certain filing and information transmission pre-conditions
as to which the Registrant has taken action.
At the time of the board’s
initial approval of the share dividend, the Registrant’s common stock was
trading at approximately $3.00 per share, and the board proposed issuing
approximately 1.25 of a share for each outstanding share, to equate with the
original share to a total of approximately $6.75, the per share price the
Purchaser had proposed to convert $3.0 million in acquired Registrant debt. As
disclosed by the Registrant on June 29, 2007 and then as revised in its Current
Report on Form 8-K filed on July 30, 2007, the board determined to simplify the
proposed dividend transaction to a share dividend of whole shares of common
stock for each outstanding share of common stock. The initial proposal of one
share for each outstanding share was increased to propose a share dividend of
two shares for each outstanding share.
Consummation of the share
dividend is conditioned upon the Registrant implementing its other disclosed
transactions, including the Debt, Asset and Share Exchange Proposal described
above and the Debt Restructuring proposal described below. In addition, because
of the number of shares proposed in the share dividend, the Registrant will have
to amend its Articles of Incorporation to authorize additional shares of common
stock. Therefore, at the same time that the Registrant announced its intention
to declare a share dividend of two shares for each outstanding share in its
Current Report on Form 8-K filed July 30, 2007, the Registrant announced its
intention to increase the authorized capital to 200,000,000 shares pursuant to
the board and majority shareholder approval of that amendment, and the
concurrent approval of the name change amendment, on July 26, 2007. Like the
name change amendment, implementation of the amendment to increase the
authorized number of shares requires compliance with Commission Regulation
14C.
Additional Disclosed Transactions
to Which the Registrant is Not a Party
As indicated above, in connection
with the continued negotiations and finalization of the Debt, Asset and Share
Exchange Agreement Proposal, the Registrant provided disclosure regarding
certain of the assets or transactions being negotiated by the Purchaser and
which the Registrant anticipated may be transferred to the Registrant in the
Debt, Asset and Share Exchange Proposal transaction.
On June 29, 2007, the Registrant
announced that the Purchaser (not the Registrant) had finalized oil and gas
exploration and development agreements relating to approximately 24,000 acres
located in Arkansas in the Fayetteville formations. These transactions relate to
approximately 3,800 acres located within a 24,000-acre area of interest located
in Cleburne and Van Buren Counties in Arkansas. Under the terms of these the
agreements, the Purchaser would acquire a 75% working interest in the
properties, which the Registrant anticipated may be assigned to the Registrant
in the Debt, Asset and Share Exchange Agreement Proposal. Under these
development agreements, the Purchaser (and the Registrant if it succeeds to the
rights of the Purchaser as assignee) would be required to fund all exploration,
development, drilling and production costs. However, unless and until the
Registrant acquires rights in these leases, the Registrant similarly would incur
no liabilities related to these leases.
Concurrently on June 29, 2007,
the Registrant publicly announced that the Purchaser (not the Registrant)
expected to acquire a controlling interest in an oil and gas company for $150
million. The Purchaser stated that it intended to access the $175 million
proposed financing described above and being evaluated at the time by the
Purchaser. The Registrant concurrently anticipated that if the Registrant’s
transactions with the Purchaser were to be consummated, then the Registrant
would possibly also succeed to the rights and obligations of the Purchaser in
that transaction. However, the Registrant is informed that the Purchaser elected
not to consummate the acquisition transaction and to let the financing proposal
lapse in accordance with its terms. As with the Arkansas exploration and
development agreements described above, the Registrant did not and does not have
any present rights or
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commitments relating to or ability to effect these
transactions, other than if it elects to pursue a transaction with the Purchaser
and these transactions are included as part of that transaction. The Registrant
does not currently know of the Purchaser’s actions or intentions with respect to
these transactions.
On July 25, 2007, the Registrant
announced that the Purchaser (not the Registrant) had purchased on the open
market a controlling shareholder position in Truestar Petroleum Corporation,
which is listed on the TSX Venture Exchange. The Registrant understands that the
Purchaser had purchased nearly 18 million shares. Based on Truestar’s public
filings, on June 30, 2007, Truestar had a total of approximately 90 million
shares outstanding on that date. However, the Registrant was subsequently
informed that the Purchaser had not proceeded with that transaction as
originally proposed. The Registrant further understands that in August 2007 the
Truestar subsidiary controlling the Texas-based assets of Truestar that provided
significant potential opportunity for compatible development had filed for
protection under Chapter 11 of the United States Bankruptcy Code. As with the
other assets and transactions described above, the Registrant did not and does
not have any present rights or commitments relating to or ability to effect this
transaction, other than if it elects to pursue a transaction with the Purchaser
and this transaction is included as part of that transaction. The Registrant
does not currently know of the Purchaser’s actions or intentions with respect to
this transaction.
On August 8, 2007, the Registrant
announced that the Purchaser had agreed to acquire the working interest
positions and the operator position in the leases which Truestar Petroleum is a
working interest holder, known as Eagle. The Registrant understood that the
proposed transaction potentially offered significant efficiencies with the
Purchaser’s nearby properties. The Registrant was, however, not involved in this
transaction and the Registrant is not aware of whether the Purchaser intends to
proceed with this transaction and what effect, if any, the Truestar subsidiary’s
Chapter 11 filing will have on this decision. As with the other transactions
described above, the Registrant did not and does not have any present rights or
commitments relating to or ability to effect the Eagle transaction, other than
if it elects to pursue a transaction with the Purchaser and the Eagle
transaction is included as part of that transaction. Unless and until that
occurs, the Registrant has no right or interest in any such asset or
transaction.
On September 5, 2007, the
Registrant additionally announced that it had been informed that the Purchaser
had received approval to lease nearly 6,000 acres from the Department of
Interior, Bureau of Indian Affairs in Osage County, Oklahoma. As with the
transactions described above, the Purchaser is the present party to the Oklahoma
transaction and the Registrant did not and does not have any present rights or
commitments relating to or ability to effect this transaction, other than if it
elects to pursue a transaction with the Purchaser and the Oklahoma transaction
is included as part of that transaction. The Registrant is not aware of whether
the Purchaser intends to proceed with the Oklahoma transaction.
As noted above, each of these
transactions is a transaction being contemplated, negotiated or entered into by
the Purchaser only. The Registrant will only acquire rights in these
transactions or the underlying assets if and to the extent the Registrant and
the Purchaser consummate the Debt, Asset and Share Exchange Agreement Proposal
transaction and the particular transactions or assets are transferred to the
Registrant in that transaction of if the Purchaser elects not to proceed with a
transaction and the Registrant desires and is able to pursue the transaction.
Since neither the Purchaser nor the Registrant is bound to proceed with the
Debt, Asset and Share Exchange Agreement Proposal transaction, there can be no
assurance if or when that transaction will occur or, if it occurs, how it will
be structured or what transactions or assets will be included.
Debt Restructuring and Further
Conditions to Consummation of the Proposed Transactions
As disclosed in the Registrant’s
periodic reports, including its Annual Report on Form 10-KSB for the year ended
December 31, 2006 and its quarterly reports on Form 10-QSB for the quarters
ended March 31 and June 30, 2007, the Registrant is currently subject to
contract or judgment indebtedness of in excess of $6 million dollars. In
addition to other conditions to closing of the transactions contemplated in the
Debt, Asset and Share Exchange Agreement Proposal with the Purchaser, closing of
those transactions is specifically conditioned on the Registrant obtaining
satisfactory settlement with its creditors holding that indebtedness, including
any necessary court
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approvals of those settlements. Those satisfactory settlements
are referred to in this Current Report on Form 8-K/A as the Debt
Restructuring.
As discussed above, and as
previously disclosed by the Registrant, the Purchaser previously acquired the
rights to another $3.0 million of the Registrant’s secured debt, which it
proposed to exchange for Registrant common stock in the proposed transactions.
However, in August 2007, the creditor foreclosed on the Registrant’s leasehold
on approximately 6,500 acres located in Erath County, Texas and which secured
the $3.0 million in debt. The Purchaser indicated to the Registrant at the time
of that foreclosure its expectation that the foreclosed property would be
considered in lieu of the $3.0 million in debt for purposes of the Debt, Asset
and Share Exchange Agreement Proposal transaction. However, as stated above,
proceeding with that transaction is expressly conditioned on the satisfaction of
all other conditions to consummation of that transaction, which include the
satisfactory conclusion of the Debt Restructuring and no material adverse change
in the Registrant’s business or financial condition. If the parties elect to
proceed with the transaction, it is expected that it will remain subject to
conditions that are customary for transactions of this type as well as (i)
consummation of the name change amendment, (ii) consummation of the proposed
share dividend, (iii) receipt and acceptance of acceptable third-party
valuations of the assets and shares to be exchanged with the Registrant, and
(iv) the continued advancement of the various acquisition and development
transactions being pursued by the Purchaser.
Current State of
Transactions
Prior to September 12, 2007, the
Registrant intended to pursue the Debt Restructuring and the Debt, Asset and
Share Exchange Agreement Proposal transaction. However, on September 12, 2007,
the Securities and Exchange Commission temporarily suspended trading in the
Registrant’s common stock and commenced other legal actions described in Item
8.01 below. These actions will have effects on the Registrant and the Purchaser
and their respective businesses, and these effects may prevent consummation of
any or all of the Debt Restructuring and the Debt, Asset and Share Exchange
Agreement Proposal transaction. Neither the Purchaser nor the Registrant is
obligated to proceed with any such transaction. The Registrant intends to
evaluate its alternatives relating to the transactions and to do what it
determines is in the best interest of the Registrant and its shareholders.
(b) The information in this
Current Report on Form 8-K/A shall not be deemed “filed” for purposes of Section
18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated
by reference in any filing under the Securities Act of 1933 or the Securities
Exchange Act of 1934, except as shall be expressly set forth by specific
reference in this Current Report on Form 8-K/A or in such filing.