- 37 -
On November 19, 1986, petitioner, TPC, Tri-Power, Bonanza,24
and the banks entered into a "Stock Purchase and Put Option
Agreement". Petitioner granted each of the banks a put option
pursuant to which each bank could, at its option, sell to
petitioner 46,250 shares of Tri-Power preferred stock at a price
of $100 per share.25 Pursuant to the stock purchase agreement,
petitioner purchased all of the capital stock of Tri-Power by
paying (1) $549,08926 to TPC and (2) $9.25 million ($4.625
million each) to the two banks. The parties to the stock
purchase agreement closed the transaction on November 21, 1986,
and, on that date, petitioner and Tri-Power became members of an
affiliated group.
The total proved, developed, and producing reserves that
petitioner acquired from Tri-Power were less than the net
reserves of several single wells that petitioner already owned.
Nonetheless, the acquisition of Tri-Power replaced approximately
50 percent of petitioner's 1986 production. Through the
24 As discussed supra, Bonanza was merged into Tri-Power on
Oct. 10, 1986. Accordingly, it is unclear why Bonanza was a
separate party to this agreement.
25 Pursuant to the agreement, each put option was to terminate
if not validly exercised on or before Nov. 24, 1986.
26 The parties stipulated that petitioner paid TPC $500,000
plus the amount of Tri-Power's adjusted net working capital of
$235,367 less a postclosing adjustment of $186,279, for a total
of $549,089.
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