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Terra stock to the public at a maximum price of $17.50 per
share. The board of directors resolved that the proceeds
of this offering should be used “for exploration and/or
purchase of oil properties” and to retire a portion of
the company’s previously incurred debt. On the advice of
petitioner’s investment bankers, the stock offering was
delayed until February 1972. Terra’s prospectus, which was
released on February 15, 1972, states that Terra “has paid
no dividends to date and does not expect to do so in the
foreseeable future.”
Although petitioner’s management had expected to
receive approximately $16 per share for the Terra stock,
the offering price was only $12 per share, and the offering
netted only $4.2 million to Terra after expenses. Terra
used $2.3 million of the proceeds of the initial offering
to retire existing debt. The remainder, $1.9 million,
was added to Terra’s working capital. After the offering,
petitioner retained 88.2 percent of Terra’s outstanding
capital stock and members of the public owned 11.8 percent.
Petitioner did not make any other public offering of Terra
stock.
Although Terra was formed primarily to raise outside
capital to support petitioner’s oil and gas exploration
activities, very little capital was actually raised.
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