UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): June 14, 2002
MID-POWER SERVICE CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 2-85602-D 87-0398403
- ------------------------ ---------------------- -----------------------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
3800 Howard Hughes Parkway
Suite 860A
Las Vegas, Nevada 89109
- -------------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
(702) 214-3615
----------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
ITEMS 1 AND 2. CHANGES IN CONTROL OF REGISTRANT AND
ACQUISITION OR DISPOSITION OF ASSETS
- --------------------------------------------------------------------------------
Acquisition of Clear Creek Unit
On June 14, 2002, Mid-Power Service Corporation (the "Corporation")
completed the acquisition of Red Star, Inc. ("Red Star"), which resulted in a
change of control of the Corporation and the acquisition by the Corporation of
oil and gas rights located on approximately 17,000 gross acres comprising the
Clear Creek Unit in Utah's Carbon and Emery Counties.
Red Star is a privately-held company that owns and operates the Clear
Creek Unit. In the acquisition, the Corporation paid $5,500,000 in cash, agreed
to pay $10,000,000 in January 2003, and issued 17.1 million shares of the
Corporation's common stock to the sole stockholder of Red Star, Edward Mike
Davis, who, as a result, now owns approximately 60% of the Corporation's common
stock after giving effect to the exercise of outstanding options and the
conversion of outstanding indebtedness to common stock. Under the terms of the
acquisition agreement, the Corporation is precluded from issuing additional
shares to reduce Mr. Davis's ownership below 60% on a fully-diluted basis until
the $10,000,000 note is paid. Thereafter, the Corporation cannot issue shares
that would dilute Mr. Davis's interests below 51% before July 20, 2003, or below
36% before June 20, 2007. On June 14, 2002, the market price for the
Corporation's common stock was approximately $1.50 per share.
The amount of consideration paid and the other terms of the acquisition
were determined by arm's-length negotiations. The board of directors of the
Corporation considered engineering, geological and geophysical data provided by
Red Star and other publicly available data as well as technical overviews by
consultants engaged by the Corporation.
As part of the acquisition, the Corporation has agreed to file a
registration statement under the Securities Act of 1933 covering the resale of
Mr. Davis's 17.1 million shares of the Corporation's common stock within 30 days
of the completion of required audited financial statements for the acquired
business.
To the knowledge of the Corporation, Mr. Davis has not entered into any
agreements with any other stockholders, including those who formerly held
control, with respect to the election of directors or other matters. Mr. Davis
has not entered into any agreement with any other person, such as a pledge
agreement or an option, that may result in a change of control at a later date.
Credit Facility
In order to finance the costs of the acquisition and obtain access to
capital needed for initial exploration activities, the Corporation established a
credit facility with SCRS Investors, LLC, under which the Corporation may borrow
up to $25,000,000. As consideration for entering into the agreement for the
credit facility, the Corporation issued 340,000 shares of its common stock to
SCRS Investors. Repayment of the loan is secured by the assets acquired through
the acquisition of Red Star. The loan is repayable over 10 years, commencing on
December 31, 2003, and is convertible into the Corporation's common stock at
$1.50 per share, subject to the limitations on issuing additional shares that
would reduce Mr. Davis's ownership percentage below agreed amounts as noted
2
above. James W. Scott, the Corporation's president and a director, is a
principal member of SCRS, and Mark T. Davis, the Corporation's general counsel,
is a member of SCRS. The Corporation's $5,500,000 payment to Mr. Davis was drawn
on the credit facility and the $5,500,000 of indebtedness has been converted to
3,666,667 shares of the Corporation's common stock.
The Clear Creek Field
The Clear Creek field was originally discovered and developed during
the mid-1950s. One of the 16 wells initially completed remains in production to
maintain the leases in the approved unit. To date, approximately 136 billion
cubic feet of gas have been produced from the field. The gas gathering and
transmission system used to transport and market previous production remains in
place.
During the 2002 field season, the Corporation plans to rework, log and
test up to three previously drilled wells and, if warranted, complete them for
production. Gas would be delivered to the pipeline on the property for sale to
an unrelated purchaser.
The Corporation is initiating an engineering, geological and
geophysical evaluation of the approximately 10 previously productive wells in
the field to determine whether to reenter any of those wells or implement
enhanced recovery measures. In addition, the Corporation will evaluate the
coalbeds at depths of from 800 to 3,000 feet to determine their potential for
coalbed methane gas.
The Corporation has budgeted approximately $500,000 of its own funds
for planned 2002 field work and technical evaluation of the Clear Creek Field.
Further planned activities during succeeding years will require substantial
amounts of additional capital. Under its credit facility with SCRS Investors,
the Corporation can draw up to $10,000,000 in loan proceeds during 2003 to fund
these activities. Alternatively, the Corporation intends to seek funding for
Clear Creek expenditures through arrangements with industry or financial
participants. The Corporation has no commitment or arrangement to obtain any
such financing.
Amended Articles and Bylaws
Prior to completing the Red Star acquisition, the Corporation adopted
amended and restated articles of incorporation and bylaws that provided for the
Corporation's directors to serve three-year terms, staggered such that no more
than one-third of the Corporation's directors' terms shall expire in any one
year, as well as requiring a two-thirds majority for the removal of any
director. At the same time, the Corporation's bylaws were amended to establish
procedural requirements for the nomination of directors and the consideration of
matters at meetings of stockholders.
Stock Option and Bonus Grants
The Corporation has granted to certain directors, executive officers
and other key employees options to purchase an aggregate of 130,000 shares at
$1.50 per share at any time on or before June 25, 2003. The Corporation also
granted an aggregate of 40,000 shares as stock bonuses to three executives. On
the date of these awards, the market price for the common stock was
approximately $1.50 per share.
3
- --------------------------------------------------------------------------------
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
- --------------------------------------------------------------------------------
(a) Financial Statements of Business Acquired. Pursuant to the
requirements of Item 7 of Form 8-K, the Corporation shall file audited financial
statements for the business acquired on or before the 28th day of August, 2002.
(b) Pro Forma Financial Information. See subparagraph (a) above.
(c) Exhibits. The following exhibits are filed with this report on Form
8-K:
SEC
Exhibit Reference
Number Number Title of Document Location
------ ------ ----------------- --------
Plan of Acquisition, Reorganization, Arrangement,
Item 2 Liquidation, or Succession
- --------- --------- ------------------------------------------------ -----------
2.01 2 Acquisition Agreement and Plan of Merger among This filing
Mid-Power Service Corporation, Red Star, Inc.,
and Mid-Power Resource Corporation, dated
June 13, 2002
Item 3 Articles of Incorporation and Bylaws
- --------- --------- ------------------------------------------------ -----------
3.01 3 Amended and Restated Articles of Incorporation This filing
dated June 4, 2002
3.02 3 Bylaws dated June 4, 2002 This filing
Item 10 Material Contracts
- --------- --------- ------------------------------------------------ -----------
10.01 10 Promissory Note in the amount of $10,000,000 This filing
dated June 13, 2002
10.02 10 Registration Rights Agreement between This filing
Mid-Power Service Corporation and Edward
Mike Davis dated June 13, 2002
10.03 10 Loan Agreement by and among Mid-Power Service This filing
Corporation and Mid-Power Resource Corporation,
borrowers, and SCRS Investors, LLC, lender,
dated as of May 9, 2002
10.04 10 Promissory Note among Mid-Power Service This filing
Corporation and Mid-Power Resource Corporation,
as makers, and SCRS Investors, LLC, as holder,
as of May 9, 2002
10.05 10 Security Agreement between Mid-Power Resource This filing
Corporation and SCRS Investors, LLC as of
May 9, 2002
10.06 10 Deed of Trust and Security Agreement as of This filing
May 9, 2002, between Mid-Power Resource
Corporation, trustor, Bruce Lemons, trustee,
and SCRS Investors, LLC, beneficiary
4
SEC
Exhibit Reference
Number Number Title of Document Location
------ ------ ----------------- --------
10.07 10 2002 Stock Option and Purchase Rights Plan This filing
adopted June 25, 2002
10.08 10 Notice of Grant (with related Stock Option This filing
Agreement and Notice of Exercise) and Stock
and Option Grant Schedule
- --------------------------------------------------------------------------------
SIGNATURES
- --------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MID-POWER SERVICE CORPORATION
Dated: July 1, 2002 By: /s/ Kenneth M. Emter
-------------------------------------
Kenneth M. Emter, Secretary/Treasurer
5