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<S> <C> <C> <C> <C> <C> <C>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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BETA OIL & GAS, INC.
(Exact Name of Registrant in its Charter)
Nevada 1311 86-0876964
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
Incorporation or Organization) Classification Number)
Code Number)
Steve Antry, Chairman
901 Dove Street, Suite 230
Newport Beach, California 92660
(949) 752-5212
(949) 752-5757-Fax
(Address and telephone number of principal executive officer and principal place of business)
-----------
Copies to:Lawrence W. Horwitz, Esq. Copies to: Nick E. Yocca, Esq.
Horwitz & Beam Stradling Yocca Carlson & Rauth
Two Venture Plaza, Suite 350 660 Newport Center Drive, Suite 1600
Irvine, California 92618 Newport Beach, CA 92660
(949) 453-0300 (949) 725-4000
(949) 453-9416-Fax (949) 725-4100-Fax
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Approximate date of proposed sale to the public: As soon as practicable after
this Registration Statement becomes effective.
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If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. /x/
- ---------------------------------------------------------------------------------------------------------------------------------
CALCULATION OF REGISTRATION FEE
- ------------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
Proposed Proposed
Title of each class of securities Number of Shares to Maximum Offering Maximum Aggregate Amount of
to be registered be Registered Price Per Share(1) Offering Price Registration fee
- ------------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
Common Stock, par value $0.001 per
share on behalf of Selling Security
Holders 7,029,492 $6.00 $42,176,952 $12,442.20
- ------------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
Common Stock, par value $0.001 per
share offered by the Company 880,000 $6.00 $5,280,000 $1,557.60
- ------------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
Common Stock issuable upon exercise
of Underwriter Warrants(3) (4)
88,000 $7.50 $660,000 $194.70
- ------------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
Common Stock issuable upon Exercise
of Warrants Held by Selling
Security Holders(2)(3) 2,497,663 $5.24 $13,087,754 $3,860.89
===================================== ====================== ======================= ======================= =======================
10,495,155 $61,204,706 $18,055.39
===================================== ====================== ======================= ======================= =======================
<FN>
(1) Estimated solely for the purpose of calculating the amount of the registration fee.
<PAGE>
(2) Underlying shares of common stock issuable upon exercise of Warrants
held by the Selling Security Holders at various exercise prices. This
Registration Statement also covers such additional number of shares as
may become issuable upon exercise of the Warrants held by the Selling
Security Holders by reason of anti-dilution provisions pursuant to Rule
416.
(3) Registration fee calculated pursuant to Rule 457(g)(1).
(4) The Company will issue up to 88,000 Common Stock Purchase Warrants to
the Underwriter as compensation. See "Underwriting."
</FN>
</TABLE>
The Registrant hereby amends this Registrant Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
This Registration Statement contains two forms of prospectus: One
prospectus that will be used in connection with the sale by the Registrant of up
to 880,000 shares of its Common Stock in a best efforts underwritten public
Offering (the "IPO Prospectus"); and the other prospectus which will be used by
existing shareholders of the Registrant in effectuating sales from time to time,
for their own account, of their shares of Common Stock, principally in
over-the-counter transactions (the "Resale Prospectus"). The two prospectuses
will be identical in all respects except for the front and back cover pages, the
section entitled "Summary of the Offering," the "Use of Proceeds" section and
the section of the Resale Prospectus entitled "Plan of Distribution" which will
be substituted for the Underwriting section of the IPO Prospectus. Each Page to
be included in the Resale Prospectus and not in the IPO Prospectus is marked as
an "Alternate Page" and the Alternate Pages follow immediately after the IPO
Prospectus.
<PAGE>
<TABLE>
BETA OIL & GAS, INC.
Cross-Reference Sheet
Pursuant to Item 501(b) of Regulation S-K and Rule 404
Showing Location in Prospectus of Information
Required by Items of Form S-1
Registration Statement Item Caption In Prospectus
<S> <C> <C>
1. Front of Registration Statement and Outside Front Cover Cross-Reference Sheet;
Prospectus Prospectus Cover Page
2. Inside Front and Outside Back Cover Pages Prospectus Cover Page;
Of Prospectus Prospectus Back Cover Page
3. Summary Information and Risk Factors Prospectus Summary; The Company;
Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Determination of Offering Price;
Risk Factors
6. Dilution Risk Factors; Dilution
7. Selling Security Holders Description of Securities;
Resale by Selling Security Holders
8. Plan of Distribution Prospectus Cover Page; Plan of Distribution;
Underwriting
9. Description of Securities to be Registered Capitalization; Description of Securities
10. Interest of Named Experts and Counsel Legal Matters; Experts
11. Information with Respect to the Registrant Outside Front Cover Page of Prospectus; Additional
Information; Prospectus Summary; Risk Factors; Use
of Proceeds; Dilution; Capitalization; Dividends;
Selected Consolidated Financial Data; Management's
Discussion and Analysis of Financial Condition and
Results of Operations; Business; Management;
Principal Shareholders; Resale by Selling Security
Holders; Description of Securities; Legal Matters;
Experts; Consolidated Financial Statements
12. Disclosure of Commission Position on Indemnification for Description of Securities
Securities Act Liabilities
13. Other Expenses of Issuance and Distribution Other Expenses of Issuance and Distribution
14. Indemnification of Directors and Officers Legal Matters; Experts
15. Recent Sales of Unregistered Securities Recent Sales of Unregistered Securities
16. Exhibits and Financial Statement Schedules Exhibits and Financial Statement Schedules
17. Undertakings Undertakings
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation, or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
SUBJECT TO COMPLETION, DATED NOVEMBER 16, 1998
PROSPECTUS
BETA OIL & GAS, INC.
600,000 (MINIMUM) TO 880,000 (MAXIMUM) SHARES OF COMMON STOCK
($.001 Par Value)
All of the shares of Common Stock offered hereby are being sold by Beta Oil &
Gas, Inc. (the "Company"). This Offering is underwritten on a "best efforts"
basis, subject to the subscription and payment for at least 600,000 of the
shares offered hereby during an Offering Period of 90 days from the effective
date of this Prospectus, which may be extended by the Company for an additional
30 days (the "Offering Period"). All proceeds will be deposited in an escrow
account at California State Bank, Newport Beach, California (the "Escrow
Agent"), pending the earlier of (i) the receipt of subscriptions and the payment
for 600,000 of the shares offered hereby (the "Minimum Condition"), or (ii) the
termination of the Offering Period. If the Minimum Condition is satisfied, the
sale of the shares offered hereby will be consummated and all funds in the
escrow account will be distributed to the Company (less amounts due the
Underwriter). If the Minimum Condition is not satisfied by the end of the
Offering Period, funds in the escrow account will be returned promptly by the
Escrow Agent to the subscribers, with interest and without deduction.
Subscribers will have no right to a return of their subscription funds during
the Offering Period.
Prior to this Offering, there was no public market for the Common Stock.
The Company intends to apply for quotation on The Nasdaq SmallCap Market under
the symbol "BETA." See "Underwriting" for factors considered in determining the
initial public Offering price.
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" ON PAGE 9.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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Total Minimum Total Maximum
Per Share
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Public Offering Price $ 6.00 $ 3,600,000 $ 5,280,000
Underwriting Commissions(1) $ 0.60 $ 360,000 $ 528,000
Proceeds to the Company(1) (2) $ 5.40 $ 3,240,000 $ 4,752,000
<FN>
(1) Does not include a 3% non-accountable expense allowance payable to the
Underwriter or the value of warrants to be issued to the Underwriter to
purchase up to 88,000 shares of Common Stock at a price of $7.50 per share
(the "Underwriter's Warrants"). The Company has agreed to indemnify the
Underwriter against certain liabilities under the Securities Act of 1933,
as amended (the "Act"), See "Underwriting."
(2) Does not include estimated Offering expenses of $90,000 that are payable by the Company.
</FN>
</TABLE>
The shares of Common Stock are offered hereby by the Underwriter, and
certain dealers, as agents for the Company, subject to prior sale, receipt and
acceptance by the Underwriter and subject to their right to reject any
subscription in whole or in part, and certain other conditions.
HAGERTY STEWART
The date of this Prospectus is ___________, 1999_
<PAGE>
[INSIDE FRONT COVER PAGE]
IN CONNECTION WITH THIS OFFERING THE UNDERWRITER MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE OR MAINTAIN THE PRICE OF THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH
MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET OR WHICH MAY OTHERWISE AFFECT THE
PRICE OF THE COMMON STOCK. IF COMMENCED, SUCH TRANSACTIONS MAY BE DISCONTINUED
AT ANY TIME. SEE "UNDERWRITING."
[MAP]
Beta Oil & Gas, Inc., including its wholly-owned subsidiary BETAustralia, LLC, a
limited liability company organized under the laws of California, for the
purposes of acquiring, evaluating and developing exploration blocks in
Australia, are collectively referred to herein as the "Company" or "Registrant."
The Company's corporate headquarters are located at 901 Dove Street, Suite 230,
Newport Beach, CA 92660. The Company's telephone number is (949) 752-5212.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING IS ONLY A SUMMARY OF THE INFORMATION CONTAINED IN THIS PROSPECTUS.
YOU SHOULD ALSO READ THE DETAILED INFORMATION AND FINANCIAL STATEMENTS APPEARING
AFTER THIS SUMMARY.
The Company
Beta Oil & Gas, Inc. ("Beta" or the "Company") is an oil and gas company
organized in June 1997 to participate in the exploration, development,
exploitation and production of natural gas and crude oil. The Company's
operations are currently focused in proven oil and gas producing trends
primarily in South Texas, Louisiana and Central California. The Company believes
that the availability of economic 3-D seismic surveys has fundamentally changed
the risk profile of oil and gas exploration in these regions. Recognizing this
change, the Company has aggressively sought to acquire significant prospective
acreage blocks for targeted, proprietary, 3-D seismic surveys. As of the date of
this Prospectus, the Company had assembled approximately 192,000 gross acres
under lease or option.
Approximately 94% of the Company's current acreage position is covered by
proprietary 3-D seismic data that the Company has acquired, or is in the process
of acquiring, through joint participation with operating oil and gas companies.
From the data generated by its initial five proprietary seismic surveys,
covering 313 square miles, in excess of 100 potential drillsites have been
identified.
Approximately $10,000,000, representing 60% of the total funds raised to
date by the Company, have been utilized to acquire working interests in lands
and seismic data in the onshore Texas Gulf Coast region. The Company's interests
in the onshore Texas properties are operated by Parallel Petroleum Corporation
("Parallel"). Representatives of Parallel have informed the Company that
drilling in these projects will commence during the first quarter of 1999 and
continue throughout the year. The Company anticipates that participation in
exploratory and drilling projects in South Texas will constitute its primary
activity during 1999.
The balance of the funds raised to date have been utilized primarily to
fund various domestic and international exploratory activities. The Company's
exploratory activities in areas outside of Texas have resulted in two oil and
gas discoveries, located, respectively in the Gulf of Mexico offshore from
Louisiana, and in Central California. It is anticipated that the Company will
expend additional funds to explore these areas during 1999 and future periods.
The Company's capital budget for 1999 of approximately $8,300,000 (subject
to available funds), includes amounts for the acquisition of additional 3-D
seismic data and for the drilling of 38 gross wells (8.39 net wells) in 1999
with working interests ranging from 12.5% to75% and averaging 22%. A majority of
the budgeted wells will be drilled in Jackson County, Texas. In addition, the
Company anticipates that as its existing 3-D seismic data is further evaluated,
and 3-D seismic data is acquired over the balance of its acreage, additional
prospects will be identified for drilling beyond 1999.
The Company intends to rely on joint ventures with qualified operating oil and
gas companies to operate its projects through the exploratory and production
phases. This will reduce general and administrative costs necessary to conduct
operations. As of the date of this Prospectus, the Company was not operating,
nor did it have any working interest in,any producing oil and gas wells.
<PAGE>
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The Offering
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Common Stock offered by the Company: 600,000 sharesMinimum
880,000 sharesMaximum
Common Stock to be Outstanding after the Offering:(1) 7,629,492 shares if the Minimum Shares are sold
7,909,492 shares if the Maximum Shares are sold
Use of Proceeds: (2) The Company will receive net proceeds of $3,240,000 if
the Minimum Shares are sold and up to $4,752,000 if the
Maximum Shares are sold. The proceeds will be used to
fund the acquisition of leases and seismic data and the
drilling of wells in the Company's Louisiana and Texas
prospects.
Risk Factors: An investment in the Company's securities involves a high
degree of risk. For a discussion of certain risk factors
affecting the Company, see "Risk Factors."
Proposed Nasdaq SmallCap Market Symbol:(3) BETA
<FN>
(1) Does not include 2,585,663 shares reserved for issuance upon exercise
of the Warrants.
(2) Net proceeds before deducting a 3% non-accountable expense allowance
payable to the Underwriter and estimated Offering expenses of $90,000.
(3) There is no assurance that the Common Stock will be approved for
quotation in the Nasdaq SmallCap Market or that a trading public market
will develop, or, if developed, will be sustained. See "Risk Factors -
Absence of Prior Trading Market; Potential Volatility of Stock Price."
</FN>
</TABLE>
<PAGE>
Summary Financial Information
The following table presents selected historical financial data for the
Company derived from the Company's Financial Statements. The historical
financial data are qualified in their entirety by reference to, and should be
read in conjunction with, the Financial Statements and notes thereto of the
Company, which are incorporated by reference into this Prospectus. The following
data should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Financial Statements of
the Company and the notes thereto included elsewhere in this Prospectus.
<TABLE>
For the period For the period Cumulative
from inception from inception Nine months from inception
(June 6, 1997) (June 6, 1997) ended (June 6, 1997)
to December to September September to September
31, 1997 30, 1997 30, 1998 30, 1998
---------------- ---------------- -------------- -----------------
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Consolidated Income Statement Data:
Revenues: $ - $ - $ - $ -
Operating expenses:
General and administrative 245,452 47,047 555,608 801,060
Impairment expense - - 1,618,432 1,618,432
Depreciation expense 1,530 - 8,853 10,383
------------------ ------------------ ----------------- -----------------
Total operating expenses 246,982 47,047 2,182,893 2,429,875
------------------ ------------------ ----------------- -----------------
Loss from operations (246,982) ( 47,047) (2,182,893) (2,429,875)
Interest income 45,409 5,792 39,867 85,276
================== ================== ================= =================
Net loss $ (201,573) $ (41,255) $ (2,143,026) $ (2,344,599)
================== ================== ================= =================
Net loss per basic and diluted common
share $ (.05) $ (.01) $ (.35)
================== ================== =================
Weighted average common shares outstanding 4,172,662 2,786,987 6,154,036
================== ================== =================
</TABLE>
<TABLE>
December 31, September 30,
1997 1998
--------------------------------
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Consolidated Balance sheet data:
Working capital ............................ $ 3,117,351 $ 1,084,595
Oil and gas properties, net ................ $ 5,900,794 $12,301,141
Total assets ............................... $ 9,921,057 $13,896,785
Total liabilities .......................... $ 870,847 $ 432,761
Stockholder's equity ....................... $ 9,050,210 $13,464,024
</TABLE>
<PAGE>
RISK FACTORS
The securities offered hereby are very speculative and involve a high
degree of risk. They should be purchased only by people who can afford to lose
their entire investment. Therefore, you should, prior to purchase, consider very
carefully the following risk factors, as well as all other information set forth
in this Prospectus.
DEVELOPMENT STAGE COMPANY; LACK OF REVENUES; LOSSES FROM OPERATIONS
The Company was formed in June 1997 and is considered to be a development
stage company. The Company is subject to risks associated with new companies. To
date, the Company has had a minimal operating history and has generated no
revenues from oil and gas operations. The Company has incurred operating losses
since inception and as of September 30, 1998 has an accumulated deficit of
approximately $2.3 million. Until the Company is able to establish cash flow
from oil and gas operations (of which there is no assurance), the Company will
continue to incur losses. There is no assurance that the Company will achieve or
sustain profitability in the future. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
CONTINUED NEED FOR FINANCING; CAPITAL RESOURCES AND LIQUIDITY
As discussed herein, the Company's business plan includes an aggressive
program to identify, acquire and develop exploration projects that meet certain
criteria. Capital to date has been funded exclusively from proceeds of the sale
of the Company's securities in private placements. Additional project
acquisitions and exploration activities are planned in 1999 and future periods.
It is anticipated that these activities, together with others that may be
entered into, will impose financial requirements which will exceed the existing
working capital of the Company. No assurance can be given that additional
financing will be available to the Company for any of these purposes, or if
available, on terms acceptable to the Company. In the event that such financing
efforts are unsuccessful, the Company will be have to reduce its business
activities.
The oil and gas industry is capital intensive. The continued availability
of capital to the Company is subject to a number of variables, including, but
not limited to, oil and gas prices and the Company's ability to acquire, locate
and produce new reserves, each of which can materially affect the Company's
ability to access capital. The Company may from time to time seek additional
financing, either in the form of bank borrowings, sales of the Company's
securities or other forms of financing. The Company has no agreements for any
such financing and there can be no assurance as to the availability or terms of
any such financing. To the extent the Company's resources and earnings are at
any time insufficient to fund its activities, the Company will need to raise
additional funds through public or private financings or borrowings. The Company
may not be able to raise such funds. If the Company cannot obtain additional
funds, its operations and financial condition will suffer. If, however,
additional funds are raised through the issuance of equity securities, the
percentage ownership of the Company's stockholders at that time could be diluted
and, in addition, such equity securities may have better rights, preferences or
privileges than those of the Common Stock.
INDUSTRY RISKS
The operations of the Company are subject to the many risks and hazards
incident to exploring and drilling for, producing and transporting oil and gas,
including:
|_| Blowouts, fires, pollution and equipment failures that may result
in damage to or destruction of wells, producing
formations, production facilities and equipment.
|_| Personal injuries.
|_| Engineering and construction delays.
|_| Hazards resulting from unusual or unexpected geological or
environmental conditions.
|_| Human error.
|_| Accidental leakage of toxic or hazardous materials, such as petroleum
liquids or drilling fluids into the environment.
|_| There is no assurance that any oil and gas in commercial quantities
will be discovered or acquired by the Company.
|_| The marketability of the Company's oil and gas reserves or of
reserves which may be acquired or discovered by the Company may be
affected by numerous factors beyond the control of the Company. These
factors include fluctuations in product markets and prices, the
proximity and capacity of pipelines to the Company's oil and gas
reserves, the ability of the Company to finance exploration and
development costs and the availability of processing equipment.
<PAGE>
FAILURE OF TITLE TO PROPERTIES
As is customary in the oil and gas industry, only a perfunctory title
examination is conducted at the time properties believed to be suitable for
drilling operations are first acquired. Prior to the commencement of drilling
operations, a more thorough title examination is usually conducted and curative
work is performed with respect to known significant title defects. The Company
typically depends upon title opinions prepared at the request of the operator of
the property to be drilled; and, therefore, there can be no assurance that
losses will not result from title defects or from defects in the assignment of
leasehold rights. Pursuant to industry standard forms of operating agreements,
the operator of an oil and gas property is not to be monetarily liable for loss
or impairment of title.
INSURANCE COVERAGE MAY BE INADEQUATE
As is common in the oil and gas industry, the Company will not insure fully
against all risks associated with its business either because such insurance is
not available or because premium costs are considered prohibitive. A loss not
fully covered by insurance could have a materially adverse effect on the
financial position and results of operations of the Company.
COMPETITION
The petroleum and natural gas industry is very competitive and the Company
competes with many other companies that have greater resources. Many such
companies not only explore for, produce and market petroleum and natural gas but
also carry on refining operations and market the resultant products on a
worldwide basis. There is also competition between petroleum and natural gas
producers and other industries producing energy and fuel. Furthermore,
competitive conditions may be substantially affected by various forms of energy
legislation and/or regulation considered from time to time by the governments of
the United States and other countries; however, no one can predict the nature of
any such legislation and/or regulation which may ultimately be adopted or its
effects upon the future operations of the Company. Such laws and regulations
may, however, substantially increase the costs of exploring for, developing or
producing oil and gas and may prevent or delay the commencement or continuation
of a given operation. The exact effect of these risk factors cannot be
accurately predicted.
VOLATILITY OF OIL AND GAS PRICES
The Company's revenues, cash flows and profitability are substantially
dependent upon prevailing prices for both oil and gas. Historically, oil and gas
prices and markets have been volatile, and they are likely to continue to be
volatile in the future. Prices for oil and gas are subject to wide fluctuations
in response to relatively minor changes in the supply of and demand for oil and
gas, market uncertainty and a variety of additional factors that are beyond the
control of the Company. These factors include, among others, political
conditions in the Middle East and other regions, the domestic and foreign supply
of oil and gas, the level of consumer demand, weather conditions, domestic and
foreign government regulations, the price and availability of alternative fuels
and overall economic conditions.
DEPENDENCE UPON KEY PERSONNEL
The Company is very dependent upon the continued services of Steve Antry,
President, Founder and Chairman of the Board of Directors and Mr. R. Thomas
Fetters, a director of the Company and Consulting Manager of Exploration. Mr.
Antry has entered into an employment agreement with the Company and Mr. Fetters
has a consulting agreement with the Company. The loss of the services of Mr.
Antry or Mr. Fetters through incapacity or otherwise would have a material
adverse effect upon the Company's business and prospects. If the services of Mr.
Antry or Mr. Fetters became unavailable, the Company would be required to retain
other qualified personnel, and there can be no assurance that the Company will
be able to recruit and hire qualified persons on acceptable terms. The Company
is currently named as beneficiary on a key person life insurance policy on the
life of Mr. Antry in the amount of $2,500,000.
LACK OF OPERATIONAL CONTROL
The Company is a non-operating working interest owner in all of its
properties. Accordingly, the Company enters into joint operating agreements with
third party operators for the conduct and supervision of drilling, completion
and production operations on its wells. The success of the oil and gas
operations on a property (whether drilling operations or production operations)
depends in large measure on whether the operator of the property properly
performs its obligations. The failure of such operators and their contractors to
perform their services in a proper manner could result in materially adverse
consequences to the owners of interests in that particular property, including
the Company.
<PAGE>
INDUSTRY REGULATION
Domestic exploration for, and production and sale of, oil and gas are
extensively regulated at both the federal and state levels. Legislation
affecting the oil and gas industry is under constant review for amendment or
expansion, frequently increasing the regulatory burden. The regulatory burdens
are often costly to comply with and carry substantial penalties for failure to
comply. Regulations and compliance burdens to which the Company is subject
include:
|_| Environmental laws and regulations which are administered by the
United States Environmental Protection Agency ("EPA"), including
solid and hazardous waste management, water protection, air
emission controls, and situs controls affecting wetlands, coastal
operations, and antiquities. Environmental programs also typically
regulate the permitting, construction and operations of a facility.
Many factors, including public perception, can materially impact
the ability to secure an environmental construction or operation
permit. Once operational, enforcement measures can include
significant civil penalties for regulatory violations regardless
of intent. Under appropriate circumstances, an administrative
agency can request a "cease and desist" order to terminate operations.
|_| Other federal, state, and local environmental, zoning, health and
safety agencies periodically examine operations in which the
Company is a participant to monitor compliance with laws and
regulations
|_| State regulatory authorities have established rules and
regulations requiring permits for drilling operations, drilling
bonds and reports concerning operations.
|_| State statutes and regulations governing the unitization or
pooling of oil and gas properties and establishment of maximum
rates of production from oil and gas wells. Many states also
restrict production to the market demand for oil and gas. Such
statutes and regulations may limit the rate at which oil and gas
could otherwise be produced from the Company's properties.
|_| Federal ("OSHA") and State Hazard Communications and Community
Right to Know ("SARA Title III") statutes and regulations
governing record-keeping and reporting of the use and release of
hazardous substances.
|_| Production operations are affected by constantly changing
administrative regulations and possible interruptions or
termination by government authorities.
The Company may be required in the future to make substantial outlays of
money to comply with environmental laws and regulations. The additional changes
in operating procedures and expenditures required to comply with future laws
dealing with the protection of the environment cannot be predicted.
Since the Company does not operate the oil and gas properties in which it
is involved, it does not directly control compliance with most of the rules and
regulations discussed above. The Company is substantially dependent on the
operators of its oil and gas properties to maintain such compliance. The failure
of the operator to comply with such rules and regulations could result in
substantial liabilities to the Company.
CONTROL BY CURRENT MANAGEMENT
The Company's officers, directors and their affiliates currently possess
voting rights representing about 40% of the Company's outstanding voting
securities. Accordingly, the Company's current management is able to exercise
substantial day to day control over the Company including influencing the
election of directors and generally directing the affairs of the Company. The
President directly owns, jointly with his wife who is also an officer and
director of the Company, 1,525,000 shares of the Company's Common Stock.
MARKET OVERHANG OF WARRANTS; COMMON STOCK ELIGIBLE FOR FUTURE SALE
There are currently 7,029,492 shares of Common Stock outstanding.
Additionally, there are 2,585,663 shares reserved for issuance upon exercise of
warrants. The average exercise price of the warrants is $5.24. This price is
lower than the public Offering Price. All 7,029,492 shares and 2,585,663 shares
underlying warrants are being registered for resale herein. Therefore, upon the
date of this Prospectus, 9,615,155 shares could potentially be sold. Founders of
the Company have agreed not to sell 2,670,000 shares owned by them for one year
, lowering the potential to 6,945,155. Additionally, up to 880,000 shares may be
sold in this Offering, increasing the immediate potential for resale to
7,825,155 shares. In the event that a significant number of shares are offered
for sale simultaneously, it would have a depressive effect on the trading price
of the Common Stock.
<PAGE>
NO FIRM COMMITMENT TO PURCHASE SHARES
The Company is offering the shares through Hagerty Stewart, the
"Underwriter," on a "best efforts" minimum/maximum basis. The Underwriter has
made no commitment to purchase any shares offered hereby. Consequently, there
can be no assurance that the shares offered hereby will be sold. In the event
that the minimum number of shares offered hereby is not sold within 90 days of
the date of this Prospectus, subject to extension for an additional 30 days, all
proceeds received will be refunded in full to investors without interest or
deduction. Therefore, investors subscribing to purchase the shares offered
hereby may lose the use of their funds for the escrow period of up to 120 days.
See "Underwriting."
ABSENCE OF PRIOR TRADING MARKET; POTENTIAL VOLATILITY OF STOCK PRICE
Prior to this Offering, there was no public market for the Common Stock.
Although the Company intends to file an application for the listing of the
Common Stock for quotation on the Nasdaq SmallCap Market, there can be no
assurance that an active trading market will develop for the Common Stock or, if
one does develop, that it will be maintained. If the Company is unable to obtain
a public quotation for its shares or if the Common Stock were to be delisted
because of inability to meet future maintenance requirements of NASDAQ, it would
have a material adverse effect on the ability of investors to resell their stock
in the secondary market as well as on the Company's ability to obtain future
financing or make acquisitions utilizing its shares. The public Offering price
of the Common Stock was negotiated between the Company and the Underwriter. See
"Underwriting." The market price of the shares of Common Stock, like that of the
common stock of many other speculative businesses, is likely to be highly
volatile. Factors such as fluctuation in the Company's operating results or the
announcement of any discoveries of any meaningful oil or gas reserves,
developments in the Company's strategic relationships and general market
conditions may have a significant effect on the market price of the Common
Stock.
IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public Offering price is substantially higher than the book
value per share of Common Stock. Investors purchasing shares of Common Stock in
this Offering will incur immediate and substantial dilution equal to $3.82 per
share if the minimum number of shares offered hereby is sold (see "Dilution").
In addition, the investors purchasing shares of Common Stock in this Offering
will incur additional dilution as a result of 2,585,663 shares of the Company's
Common Stock underlying outstanding Common Stock Purchase Warrants which are
being registered on behalf of Selling Security Holders. Exercise of such
warrants will result in a reduction of the ownership interest of the Company's
shareholders. The holders of the warrants may be expected to exercise them at a
time when the Company may, in all likelihood, be able to obtain needed capital
from other sources on more favorable terms.
DILUTION RESULTING FROM EMPLOYMENT CONTRACT
The Company executed a contract of employment with the President and
Chairman of the Board of Directors, Mr. Steve Antry. dated June 23, 1997. See
"Employment Contracts." The Contract may be terminated by the Company without
cause upon the payment of, among other items, options containing a five year
term to acquire the Common Stock of the Company in an amount equal to 10% of the
then issued and outstanding shares, piggyback registration rights and an
exercise price equal to 60% of the fair market value of the shares during the
sixty day period of time preceding the termination notice, such amount not to
exceed $3.00 per share.
If the Company were to terminate Mr. Antry without cause, the Common
shareholders would experience immediate and substantial dilution resulting from
the issuance of a large number of options to Mr. Antry with an exercise price
substantially lower than the market price.
NO DIVIDENDS
The Company has not paid any cash dividends on its Common Stock and does
not expect to declare or pay any cash or other dividends in the foreseeable
future. Additionally, state corporate laws prohibit the Company from paying
dividends until such time as the Company has retained earnings. See "Dividends."
<PAGE>
YEAR 2000 ISSUE; POTENTIAL COMPUTER SYSTEM FAILURE
The Company has begun to address possible remedial efforts in connection
with computer software that could be affected by the Year 2000 problem. The Year
2000 problem is the result of computer programs being written using two digits
rather than four to define the applicable year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a major system failure or
miscalculations. The Company utilizes a number of computer programs across its
entire operation. The Company has not completed its assessment, but currently
believes that the costs of addressing this issue should not have a material
adverse impact on the Company's financial position. Although the Company does
not anticipate any problems, there can be no assurances that Year 2000 problems
will not occur with respect to the Company's computer systems or business
affiliations. The Year 2000 problem may impact other entities with which the
Company transacts business, and the Company cannot predict the effect of the
Year 2000 problem on such entities or the Company. A major system failure could
have a material adverse effect on the Company's operations and results of
operations.
FORWARD LOOKING INFORMATION; CERTAIN CAUTIONARY STATEMENTS
Certain statements contained in this Prospectus are forward looking
statements. Included in these are statements with respect to the Company's
potential oil and gas reserves, and budgeted or anticipated expenses. All of
these statements involve assumptions of future events that may not prove to be
accurate and involve risks and uncertainties. These risks and uncertainties
include risks associated with the drilling of wells, competition, financing
availability, fluctuations in prices of oil and gas, governmental regulation,
geological concentration of the Company's reserves and the matters set forth
elsewhere in the "Risk Factors" section and elsewhere in this Prospectus. For
these and other reasons, actual results may differ materially from those
projected or implied.
USE OF PROCEEDS
The net proceeds from this Offering, after deducting underwriting commissions,
the Underwriter's non-accountable expense allowance, and other expenses of this
Offering (approximately $90,000) will be approximately $3,042,000 if 600,000
shares are sold in this Offering and $4,503,600 if all 880,000 shares are sold
in this Offering. In either case, the Company plans to use approximately 90% of
such proceeds to acquire working interests in leases and seismic data and to
fund its participatory share of the cost of drilling wells in its Texas,
California and Louisiana prospects. See "Business of the Company." The remaining
10% of the proceeds will be used for general and administrative expenses of the
Company. This is the Company's best estimate of its use of proceeds generated
from the sale of shares by the Company and the possible exercise of Warrants
based on the current state of its business operations, its current plans and
current economic and industry conditions. Any changes in the projected use of
proceeds will be made at the sole discretion of the Company's Board of
Directors.
<PAGE>
DILUTION
"Dilution" represents the difference between the initial public Offering
price per share of Common Stock and the adjusted pro forma net tangible book
value per share of Common Stock immediately after the completion of this
Offering. "Adjusted pro forma net tangible book value" is the amount that
results from subtracting the total liabilities of the Company from its total
tangible assets after giving effect to Common Stock sold in a private placement
subsequent to September 30, 1998. Dilution arises mainly from an arbitrary
decision by the Company with respect to the Offering price per share of Common
Stock. In this Offering, the level of dilution will be increased as a result of
the Company's low net tangible book value prior to this Offering.
The net tangible book value of the Company prior to this Offering,
based on the September 30, 1998 financial statements, was $13,464,024 or $2.00
per share of Common Stock (based on 6,725,192 shares outstanding). After giving
effect to common stock sold in a private placement subsequent to September 30,
1998, the net tangible value of the Company would have been $13,572,024, or
$1.93 per share of Common Stock (based on 7,029,492 shares outstanding, assuming
the issuance of an additional 280,300 shares for Common Stock subscribed to as
of September 30, 1998 and an additional 24,000 shares sold in the private
placement subsequent to September 30, 1998). Prior to selling any shares in this
Offering, the Company has 7,029,492 shares of Common Stock outstanding.
If the minimum shares offered herein are sold, the Company will have
7,629,492 shares issued and outstanding upon completion of the Offering. After
giving effect to the sale of the shares of Common Stock offered hereby by the
Company and the receipt and application of the estimated proceeds therefrom, net
of estimated commissions and Offering expenses of the Offering, the post
Offering pro forma net tangible book value of the Company will be $16,614,024 or
$2.18 per share, approximately. This would result in dilution to investors in
this Offering of $3.82 per share or 64% from the Offering price of $6.00 per
Share. Net tangible book value per share would increase to the benefit of
present shareholders from $1.93 prior to the Offering to $2.18 after the
Offering, or an increase of $0.25 per share attributable to the purchase of the
Shares by investors in this Offering.
If the maximum shares offered herein are sold, the Company will have
7,909,492 shares issued and outstanding upon completion of the Offering. After
giving effect to the sale of the shares of Common Stock offered hereby by the
Company and the receipt and application of the estimated proceeds therefrom, net
of estimated commissions and Offering expenses of the Offering, the post
Offering pro forma net tangible book value of the Company will be $18,075,624 or
$2.29 per share, approximately. This would result in dilution to investors in
this Offering of $3.71 per share or 62% from the Offering price of $6.00 per
Share. Net tangible book value per share would increase to the benefit of
present shareholders from $1.93 prior to the Offering to $2.29 after the
Offering, or an increase of $0.36 per share attributable to the purchase of the
Shares by investors in this Offering.
The following table illustrates the estimated net tangible book
value per share after the Offering and the dilution to persons purchasing Shares
based on the foregoing Maximum Offering assumption:
<TABLE>
MINIMUM MAXIMUM
<S> <C> <C> <C> <C>
Offering price of common stock (per share) $ 6.00 $ 6.00
Net tangible book value per share before the Offering $ 1.93 $ 1.93
Increase per share attributable to payments by new investors $ 0.25 $ 0.36
Pro forma net tangible book value per share after the Offering $ 2.18 $ 2.29
Dilution per share to new investors $ 3.82 (64%) $ 3.71 (62%)
</TABLE>
<PAGE>
The following tables sets forth as of September 30, 1998, after giving
effect to the Offering, the number of shares of Common Stock purchased from the
Company, the total consideration paid and the average price per share paid by
existing shareholders and by new investors on an as adjusted basis:
<TABLE>
================================================================================================================
MINIMUM OFFERING SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
<S> <C> <C> <C> <C> <C> <C>
Existing shareholders 7,029,492 92.1% $ 17,423,416 82.9% $2.48
New investors 600,000 7.9% 3,600,000 17.1% $6.00
================ ================
Total 7,629,492 100% $ 21,023,416 100% $2.76
================================================================================================================
</TABLE>
<TABLE>
================================= =============================== == =============================== ================
MAXIMUM OFFERING SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
<S> <C> <C> <C> <C> <C> <C>
Existing shareholders 7,029,492 88.9% $ 17,423,416 76.7% $2.48
New investors 880,000 11.1% 5,280,000 23.3% $6.00
================ ================
Total 7,909,492 100% $ 22,703,416 100% $2.87
====================================================================================================================
</TABLE>
<PAGE>
CAPITALIZATION
The following table sets forth as of September 30, 1998 (i) the actual
capitalization of the Company; (ii) the pro forma capitalization of the Company
that gives effect to the sale and issuance of shares of Common Stock in a
private placement completed subsequent to September 30, 1998; and (ii) the
capitalization of the Company on a pro forma basis as adjusted to give effect to
the proposed sale by the Company of a minimum of 600,000 shares and a maximum of
880,000 shares of Common Stock being offered hereby.
<TABLE>
As of September 30, 1998
-------------------------------------------------------------------------
Adjusted for Adjusted for
the Sale of the Sale of
Actual Pro Forma Minimum Offering Maximum
Offering
-------------- -------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Shareholders' Equity
Common shares, $.001 par value;
50,000,000 shares authorized;
6,725,192 shares issued and outstanding actual;
7,029,492 shares pro forma; 7,629,492 shares
(Minimum Offering) and 7,909,492 (Maximum
Offering) pro forma as adjusted at
September 30, 1998(1) $ 6,725 $ 7,029 $ 7,629 $ 7,909
Additional paid-in capital 14,540,548 15,909,594 18,950,994 20,412,314
Common Stock subscribed 1,261,350 - - -
Accumulated deficit (2,344,599) (2,344,599) (2,344,599) (2,344,599)
============== ============== ================= =================
Total shareholders' equity $ 13,464,024 $ 13,572,024 $ 16,614,024 $ 18,075,624
============== ============== ================= =================
<FN>
(1) Does not include 2,585,663 shares reserved for issuance on exercise of
outstanding Warrants topurchase Common Stock of the Company
</FN>
</TABLE>
<PAGE>
DIVIDENDS
The Company has never paid any dividends, whether cash or property, on its
securities. For the foreseeable future it is anticipated that any earnings which
may be generated from operations of the Company will be used to finance the
growth of the Company and that dividends will not be paid to stockholders.
Additionally, state corporate laws prohibit the Company from paying dividends
until such time as the Company has retained earnings.
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected historical consolidated financial
data for the Company derived from the Company's Financial Statements. The
information presented herein is not covered by the independent auditors' report.
The historical financial data are qualified in their entirety by reference to,
and should be read in conjunction with, the Financial Statements and notes
thereto of the Company, which are incorporated by reference into this
Prospectus. The financial data for the period from inception (June 6, 1997) to
December 31, 1997 were derived from the Financial Statements of the Company
which have been audited by Hein + Associates LLP, independent accountants. The
data from inception to September 30, 1997, for the nine month period ended
September 30, 1998, and cumulative from inception (June 6, 1997) to September
30, 1998 have been derived from unaudited financial statements of the Company.
In the opinion of management, all adjustments (consisting only of normal
recurring adjustments) have been made that are necessary for a fair presentation
of the unaudited information presented. The nine month results are not
necessarily indicative of expected annual results. The following data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Financial Statements of the Company
and the notes thereto included elsewhere in this Prospectus.
<TABLE>
For the period For the period Cumulative
from inception from inception Nine months from inception
(June 6, 1997) (June 6, 1997) ended (June 6, 1997)
to December to September 30, September 30, to September
31, 1997 1997 1998 30, 1998
------------------ ------------------ ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated Income Statement Data:
Revenues $ - $ - $ - $ -
------------------ ------------------ ----------------- -----------------
Operating expenses
General and administrative 245,452 47,047 555,608 801,060
Impairment expense - - 1,618,432 1,618,432
Depreciation expense 1,530 - 8,853 10,383
------------------ ------------------ ----------------- -----------------
Total operating expenses 246,982 47,047 2,182,893 2,429,875
------------------ ------------------ ----------------- -----------------
Loss from operations (246,982) (47,047) (2,182,893) (2,429,875)
Interest income 45,409 5,792 39,867 85,276
================== ================== ================= =================
Net loss $ (201,573) $ (41,255) $ (2,143,026) $ (2,344,599)
================== ================== ================= =================
Net loss per common share $ (.05) $ (.01) $ (.35)
================== ================== =================
Weighted average common shares outstanding 4,172,662 2,786,987 6,154,036
================== ================== =================
</TABLE>
<TABLE>
December 31, September 30,
1997 1998
---------------------------------------
<S> <C> <C>
Consolidated Balance sheet data:
Working capital ................ $ 3,117,351 $ 1,084,595
Oil and gas properties, net .... $ 5,900,794 $12,301,141
Total assets ................... $ 9,921,057 $13,896,785
Total liabilities .............. $ 870,847 $ 432,761
Stockholder's equity ........... $ 9,050,210 $13,464,024
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements and related notes thereto appearing elsewhere
in this Prospectus. The following discussion provides information on the
financial position, liquidity and capital resources of the Company as of
December 31, 1997 and September 30, 1998 as well as for the results of
operations for the period from inception (June 6, 1997) through December 31,
1997 and the nine months ended September 30, 1998.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was $1,084,595 at September 30, 1998 compared
to $3,117,351 at December 31, 1997. The Company's working capital decreased due
primarily to investments in unproved oil and gas properties.
FINANCIAL OUTLOOK - DEVELOPMENT STAGE COMPANY
The Company has a limited operating history upon which an evaluation of the
Company and its prospects can be based. The risks, expense, and difficulties
encountered by early-stage companies must be considered when evaluating the
Company's prospects. There are numerous significant risks inherent in a
development stage company which is engaged in high risk oil and gas exploration.
See "Risk Factors."
The Company has not established any production revenues in any of the
periods presented and has sustained operating losses as a result. Until the
Company is able to establish oil and gas reserves and production revenues,
continued operating losses are anticipated. Furthermore, there is no assurance
that efforts to establish reserves and production will be successful.
The Company has not utilized any debt financing since inception. The level
of capital expenditures will vary in future periods depending on the success the
Company experiences in its development and exploratory drilling activities, gas
and oil price conditions and other related economic factors. In addition to
funds from internally generated cash flow, future Common Stock issuances and
exercise of currently outstanding Warrants (none of which can be assured), bank
or other debt financing may be used in future periods for capital expenditures
on oil and gas wells completed on the Company's prospects. During calendar 1997,
the Company issued 5,565,648 shares of Common Stock and 1,528,222 Warrants for
net proceeds after commissions and direct expenses of $9,221,783. During
calendar 1998 through November 2, the Company issued 1,463,844 shares of Common
Stock and 969,441 Warrants for net proceeds of $6,594,840. All of the
aforementioned issuances of Company Common Stock and Warrants were made pursuant
to exemptions from registration under Section 4(2) of the Securities Act. The
net proceeds of these offerings have been or will be used as part of the capital
necessary for the Company to acquire prospects, conduct 3-D seismic and drill
wells in connection with the Company's exploration activities.
COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
AND THE PERIOD FROM INCEPTION (JUNE 7, 1997) TO SEPTEMBER 30, 1997
During the nine months ended September 30, 1998, and the period ended
September 30, 1997, the Company generated no revenues.
General and administrative expenses for the nine months ended September 30,
1998 were $555,608. Of this amount, $273,869 was expended in combined salaries
and payroll taxes, $58,669 was expended for consultants and outside services and
$23,827 was expended for stockholder related costs. General and administrative
expenses for the period from inception to September 30, 1997 were $47,047,
consisting primarily of insurance, consulting and travel related expenses.
Other income for the nine months ended September 30, 1998 and the period
from inception to September 30, 1997 consisted of interest income in the amount
of $39,867 and $5,792, respectively.
Net loss for the nine months ended September 30, 1998 and the period
from inception to September 30, 1997 was ($2,143,026) and ($41,255).
RESULTS OF OPERATIONS FOR THE PERIOD FROM INCEPTION (JUNE 6, 1997) THROUGH
DECEMBER 31, 1997
During the period from inception (June 6, 1997) through December 31, 1997,
the Company generated no revenues.
<PAGE>
General and administrative expenses for the period from inception (June 6,
1997) through December 31, 1997 were $245,452. Of this amount, $87,617 was
expended in salaries and payroll taxes combined and $61,784 was expended for
consultants and outside services.
Loss from operations totaled $(246,982) for the period from inception (June
6, 1997) through December 31, 1997.
Other income for the period from inception (June 6, 1997) through December
31, 1997 consisted of interest income in the amount of $45,409.
Net loss for the period from inception (June 6, 1997) through December 31,
1997 was $(201,573).
DEPRECIATION, DEPLETION AND AMORTIZATION ("DD&A")
Depreciation is provided on furniture, fixtures and equipment using the
straight-line method over an estimated service life of three years.
DD&A for the oil and gas properties is computed based on one full cost pool
for each geographical area (country by country) in which the Company has
operations. DD&A is calculated for each geographical area using the total
estimated reserves at the end of each period presented and prior to applying the
ceiling test discussed in this section under "Impairment Expense".
As of December 31, 1997 and September 30, 1998, respectively, the Company
has not made a provision for DD&A since it has not derived any production from
its properties. All costs incurred through December 31, 1997 have been excluded
from the amortization base. As the Company's properties are evaluated through
exploration, they will be included in the amortization base. Costs of
unevaluated properties in the United States at December 31, 1997 and September
30, 1998 represent property acquisition and exploration costs in connection with
the Company's Louisiana, Texas and California prospects. The prospects and their
related costs in unevaluated properties have been assessed individually and no
impairment charges were considered necessary for any of the periods presented.
The current status of these prospects is that seismic data has been acquired,
processed and is currently being interpreted on the subject lands within the
prospects. Drilling is expected to commence on the prospects in the first
quarter of 1999 and continue in future periods. As the prospect areas are
evaluated through drilling in future periods, the property acquisition and
exploration costs associated with the wells drilled will be transferred to
evaluated properties where they will be subject to DD&A.
During the nine months ended September 30, 1998 the Company participated in
the drilling of 4 wells within the United States. The property acquisition and
exploration costs associated with the wells totaling $1,181,902 have been
transferred to evaluated properties. Since all of the reserves associated with
the wells are behind pipe and no production has occurred as of September 30,
1998, no depletion expense has been recorded during the nine month period ended
September 30, 1998.
IMPAIRMENT EXPENSE - OIL AND GAS PROPERTIES
The Company follows the full cost method of accounting for oil and gas
activities and, accordingly, capitalizes all costs incurred in the acquisition,
exploration, and development of proved oil and gas properties, including the
costs of abandoned properties, dry holes, geophysical costs, and annual lease
rentals. The full cost method regards all costs of acquisition, exploration, and
development activities as being necessary for the ultimate production of
reserves. All of those costs are incurred with the knowledge that many of them
relate to activities that do not result directly in finding and developing
reserves. However, the Company expects that the benefits obtained from the
prospects that do prove successful, together with benefits from past
discoveries, will ultimately recover the costs of all activities, both
successful and unsuccessful. Thus, all costs incurred in those activities are
regarded as integral to the acquisition, discovery, and development of reserves
that ultimately result from the efforts as a whole and are thereby associated
with the Company's proved reserves. However, the costs accumulated in each of
the Company's full cost pools are subject to a "ceiling", as defined by
Regulation SX Rule 4-10(e)(4). As prescribed by the corresponding accounting
standards for full cost, all the accumulated costs in excess of the ceiling, are
to be expensed by a charge to impairment.
During the nine months ended September 30, 1998 the Company acquired a 5%
working interest in a foreign exploration license located in the Stansbury Basin
area of south Australia and participated in the drilling of two offshore test
wells in the license areas. The drilling resulted in two dry holes. All of the
property acquisition and exploration costs associated with the
<PAGE>
Australian full cost pool totaling $1,618,432 have been transferred to evaluated
properties and charged to impairment expense The Company has no plans to conduct
additional exploration activities in the Australian (Stansbury Basin) license
areas.
A separate determination was made with respect to the U.S. full cost pool
as of September 30, 1998. The unamortized costs capitalized within the U.S. cost
center did not exceed the cost center ceiling, and accordingly, no impairment
expense relating to the U.S. cost center was recognized for the nine months
ended September 30, 1998.
NET LOSS PER COMMON SHARE
Net loss per common share is computed by dividing the net loss by the
weighted average number of common shares outstanding during the period. All
potential common shares (common stock equivalents) have been excluded from the
computations because their effect would be antidilutive.
SUBSEQUENT EVENTS
Subsequent to September 30, 1998 the Company drilled one exploratory well
on its acreage in offshore Louisiana. The Company's estimated cost for its
working interest share in the well is $80,000. The well was a dry hole. In
addition, the Company is in discussions to acquire an interest in one or more
exploratory drilling prospects in offshore Louisiana. It is not possible to
predict at this time whether the Company will participate in those prospects.
The Company is planning to drill additional wells on its leased acreage. It is
anticipated that these activities together with others that may be entered into
will impose financial requirements which will exceed the existing working
capital of the Company.
INFLATION
In recent years inflation has not had a significant impact on the Company's
operations or financial condition. However, in the past several years,
competition from other oil and gas companies to acquire, explore and develop
acreage, particularly in the Gulf Coast region of Texas and Louisiana, has
intensified. Competition from other companies has also increased utilization
rates and the costs of contracting with seismic acquisition and drilling
contractors. Although it is not possible to accurately predict whether such
competition will continue in future periods, it could put upward pressure on
costs incurred to explore for, acquire, drill, complete and operate oil and gas
properties.
INCOME TAXES
As of December 31, 1997, the Company had available, to reduce future
taxable income, a tax net operating loss carryforward of approximately $202,000
which expires in 2012. The net operating loss carryforward for tax purposes is
not materially different than the net operating loss for financial reporting
purposes because the Company has not engaged in drilling and other activities
which normally give rise to temporary differences between financial reporting
and tax bases of assets and carryforwards under SFAS 109. As of December 31,
1997, the Company has a deferred tax asset of approximately $70,000 which is
fully reserved for with a valuation allowance. The deferred tax asset consists
entirely of the net operating loss carryforward. Utilization of the tax net
operating loss carryforward may be limited in the event a 50% or more change of
ownership occurs within a three year period. The tax net operating loss
carryforward may be limited by other factors as well.
OTHER MATTERS
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS 130"), which establishes
standards for reporting and display of comprehensive income and its components.
The components of comprehensive income refer to revenues, expenses, gains and
losses that are excluded from net income under current accounting standards,
including foreign currency translation items, minimum pension liability
adjustments and unrealized gains and losses on certain investments in debt and
equity securities. SFAS 130 requires that all items that are recognized under
accounting standards as components of comprehensive income be reported in a
financial statement displayed in equal prominence with the other financial
statements; the total of other comprehensive income for a period is required to
be transferred to a component of equity that is separately displayed in the
balance sheet at the end of an accounting period. SFAS 130 is effective for both
interim and annual periods beginning after December 15, 1997. The Company does
not believe that this SFAS will have any significant impact on its financial
statements.
<PAGE>
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 131 establishes standards for the way public enterprises are
to report information about operating segments in annual financial statements
and requires the reporting of selected information about operating segments in
interim financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. SFAS 131 is effective for periods beginning after December 15, 1997.
The Company does not believe that this SFAS will currently result in any
significant new disclosures in its financial statements.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act, and Section 21E of the Exchange Act. All
statements other than statements of historical facts included in this report,
including, without limitation, statements under "Business" and "Properties" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" regarding the Company's financial position, proved or possible
reserve quantities and net present values, business strategy, plans and
objectives of management of the Company for future operations and capital
expenditures, are forward-looking statements and the assumptions upon which such
forward-looking statements are based are believed to be reasonable. The Company
can give no assurance that such expectations and assumptions will prove to be
correct. Reserve estimates of oil and gas properties are generally different
from the quantities of oil and natural gas that are ultimately recovered or
found. This is particularly true for estimates applied to exploratory prospects.
Additionally, any statements contained in this report regarding forward-looking
statements are subject to various known and unknown risks, uncertainties and
contingencies, many of which are beyond the control of the Company. Such things
may cause actual results, performance, achievements or expectations to differ
materially from the anticipated results, performance, achievements or
expectations. Factors that may affect such forward-looking statements include,
but are not limited to: the Company's ability to generate additional capital to
complete its planned drilling and exploration activities; risks inherent in oil
and gas acquisitions, exploration, drilling, development and production; price
volatility of oil and gas; competition; shortages of equipment, services and
supplies; government regulation; environmental matters; financial condition and
operating performance of the other companies participating in the exploration,
development and production of oil and gas programs; and other matters beyond the
Company's control. In addition, since all of the Company's prospects are
currently operated by third parties, the Company may not be in a position to
control costs, safety and timeliness of work as well as other critical factors
affecting a producing well or exploration and development activities. See "Risk
Factors." All written and oral forward-looking statements attributable to the
Company or persons acting on its behalf subsequent to the date of this report
are expressly qualified in their entirety by this disclosure.
YEAR 2000 ISSUE
The Company has begun to address possible remedial efforts in connection
with computer software that could be affected by the Year 2000 problem. The Year
2000 problem is the result of computer programs being written using two digits
rather than four to define the applicable year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a major system failure or
miscalculations. The Company utilizes a number of computer programs across its
entire operation. The Company has not completed its assessment, but currently
believes that the costs of addressing this issue should not have a material
adverse impact on the Company's financial position. Although the Company does
not anticipate any problems, there can be no assurances that Year 2000 problems
will not occur with respect to the Company's computer systems or those of its
business affiliations. The Year 2000 problem may impact other entities with
which the Company transacts business, and the Company cannot predict the effect
of the Year 2000 problem on such entities or the Company. The Company is
contacting its business affiliates to assess and anticipate any potential
problems arising from the Year 2000 issue.
<PAGE>
GLOSSARY
As used in this Prospectus:
"ACQUISITION OF PROPERTIES" are the costs incurred to obtain rights to
production of oil and gas. These costs include the costs of acquiring leasehold
or working interests, mineral rights, royalty interests, and the portion of a
fee-simple interest (both surface and mineral estates) applicable to mineral
interests. These costs include lease bonuses, finder's fees, brokerage fees,
title costs, legal costs, recording costs, options to purchase or lease mineral
interests (including top-leases and seismic options), and any other costs
associated with the acquisitions of an interest in current or possible
production.
"AREA OF MUTUAL INTEREST" means, generally, an agreed upon area of land,
varying in size, included and described in an oil and gas exploration agreement
which participants agree will be subject to rights of first refusal as among
themselves, such that any participant acquiring any minerals, royalty,
overriding royalty, oil and gas leasehold estates or similar interests in the
designated area, is obligated to offer the other participants the opportunity to
purchase their agreed upon percentage share of the interest so acquired on the
same basis and cost as purchased by the acquiring participant. If the other
participants, after a specific time period, elect not to acquire their pro-rata
share, the acquiring participant is typically then free to retain or sell such
interests.
"BACK-IN INTERESTS" (also referred to as a carried interest) involve the
transfer of interest in a property, with provision to the transferor to back in
to an operating or nonoperating interest in the property after payout.
"BBL" means barrel (42 U.S. gallons liquid volume), used herein in
reference to crude oil or other liquid hydrocarbons.
"BCF" means billion cubic feet.
"BCFEQ" means billions of cubic feet of gas equivalent, determined using
the ratio of six thousand cubic feet of gas to one barrel of oil, condensate or
gas liquids.
"CASING POINT" shall mean the point in time at which an election is made by
working interest participants in a well whether to proceed with an attempt to
complete the well as a producer or to plug and abandon the well as a
non-commercial dry hole. The election is generally made after a well has been
drilled to its objective depth and an evaluation has been made from drill
cutting samples, well logs, cores, drill stem tests and other methods. If an
affirmative election is made to complete the well for production, production
casing is then generally cemented in the hole and completion operations are then
commenced.
"DEVELOPMENT COSTS" are costs incurred to drill, equip, or obtain access
to proved reserves. They include costs of drilling and equipment necessary to
get products to the point of sale and may entail on-site processing.
"EXPLORATION COSTS" are costs incurred, either before or after the
acquisition of a property, to identify areas that may have potential reserves,
to examine specific areas considered to have potential reserves, to drill test
wells, and to perform stratigraphic tests and drill exploratory well (wells
drilled in unproven areas). The identification of properties and examination of
specific areas will typically include geological and geophysical costs (G&G),
which include topological studies, geographical and geophysical studies, and
costs to obtain access to properties under study. Bottom hole and dry hole
contributions, depreciation of support equipment, and the costs of carrying
unproved acreage (delay rentals, ad valorem property taxes, title defense costs,
and lease or land record maintenance) are also classified as exploratory costs.
"FARMOUT" involves an entity's assignment of all or a part of its interest
in a property in exchange for the assignee's obligation to expend all or part of
the funds to drill and equip the property.
"FUTURE NET REVENUES (BEFORE INCOME TAXES)" means an estimate of future net
revenues from a property at a specified date, after deducting production and ad
valorem taxes, future capital costs and operating expenses, before deducting
income taxes. Future net revenues (before income taxes) should not be construed
as being the fair market value of the property.
"FUTURE NET REVENUES (NET OF INCOME TAXES)" means an estimate of future net
revenues from a property at a specified date, after deducting production and ad
valorem taxes, future capital costs and operating expenses, net of income taxes.
Future net revenues (net of income taxes) should not be construed as being the
fair market value of the property.
<PAGE>
"MCF" means thousand cubic feet.
"MMCF" means million cubic feet.
"MBBL" means thousand barrels.
"GROSS" oil and gas wells or "gross" acres is the total number of wells or
acres in which the Company has an interest.
"NET" oil and gas wells or "net" acres are determined by multiplying
"gross" wells or acres by the Company's working interest in such wells or acres.
"OIL AND GAS LEASE" OR "LEASE" means an agreement between a mineral owner
(lessor) and a lessee which conveys the right to the lessee to explore for and
produce oil and gas from the leased lands. Oil and gas leases usually have a
primary term during which the lessee must establish production of oil and or
gas. If production is established within the primary term, the term of the lease
generally continues in effect so long as production occurs on the lease. Leases
generally provide for a royalty to paid to the lessor from the gross proceeds
from the sale of production.
"OVERPRESSURED RESERVOIR" are reservoirs subject to abnormally high
pressure as a result of certain types of subsurface formations.
"PRESENT VALUE OF FUTURE NET REVENUES (BEFORE INCOME TAXES)" means future
net revenues (before income taxes) discounted at an annual rate of 10% to
determine their "present value." The present value is shown to indicate the
effect of time on the value of the revenue stream and should not be construed as
being the fair market value of the properties.
"PRESENT VALUE OF FUTURE NET REVENUES (NET OF INCOME TAXES)" means future
net revenues (net of income taxes) discounted at an annual rate of 10% to
determine their "present value." The present value is shown to indicate the
effect of time on the value of the revenue stream and should not be construed as
being the fair market value of the properties.
"PRODUCTION COSTS" means lease operating expenses and severance and ad
valorem taxes on oil and gas production.
"PROSPECT" means a geologic anomaly which may contain hydrocarbons that has
been identified through the use of 3-D and/or 2-D seismic surveys.
"PROVED RESERVES" or "reserves" means gas and oil, condensate and gas
liquids on a net revenue interest basis, found to be commercially recoverable.
"PROVED DEVELOPED RESERVES" include only those proved reserves expected to
be recovered from existing completion intervals in existing wells and those
reserves that exist behind the casing of existing wells when the cost of making
such reserves available for production is relatively small compared to the cost
of a new well.
"PROVED UNDEVELOPED RESERVES" include those proved reserves expected to be
recovered from new wells on undrilled acreage or from existing wells where a
relatively major expenditure is required for recompletion.
"RESERVE TARGET" means a geologic anomaly which may contain hydrocarbons
that has been identified through the use of 3-D and 2-D seismic surveys.
"ROYALTY INTEREST" is a right to oil, gas, or other minerals that is not
burdened by the costs to develop or operate the related property. The basic
royalty interest is retained by the owner of mineral rights when his property is
leased for purposes of development.
"TREND" means a geographical area where similar geological, geophysical, or
oil and gas reservoir and production characteristics may exist.
"SEISMIC OPTION" generally means an agreement wherein the mineral owner
grants the right to acquire seismic data on the subject lands and grants an
option to acquire an oil and gas lease on the lands at a predetermined price.
<PAGE>
"WORKING INTEREST" is an interest in an oil and gas property that is
burdened with the costs of development and operation of the property. The total
mineral interest (100 percent) less the royalty interest is the working
interest.
<PAGE>
BUSINESS
GENERAL
Beta Oil & Gas, Inc. ("Beta" or the "Company") is an oil and gas company
organized in June 1997 to engage in the exploration, development, exploitation
and production of natural gas and crude oil. The Company's operations are
currently focused in proven oil and gas producing trends primarily in South
Texas, Louisiana and Central California. The Company believes that the
availability of economic 3-D seismic surveys has fundamentally changed the risk
profile of oil and gas exploration in these regions. Recognizing this change,
the Company has aggressively sought to acquire significant prospective acreage
blocks for targeted, proprietary, 3-D seismic surveys. As of the date of this
Prospectus, the Company had assembled approximately 192,000 gross acres under
lease or option.
Approximately 94% of the Company's current acreage position is covered by
proprietary 3-D seismic data that the Company has acquired, or is in the process
of acquiring, through joint participation with operating oil and gas companies.
From the data generated by its initial 5 proprietary seismic surveys, covering
313 square miles, in excess of 100 potential drillsites have been identified.
Approximately $10,000,000, representing 60% of the total funds raised to
date by the Company, have been utilized to acquire working interests in lands
and seismic data in the onshore Texas Gulf Coast region. The Company's interests
in the onshore Texas properties are operated by Parallel Petroleum Corporation
("Parallel"). Representatives of Parallel have informed the Company that
drilling in these projects will commence during the first quarter of 1999 and
continue throughout the year. The Company anticipates that participation in
exploratory and drilling projects in South Texas will constitute its primary
activity during 1999.
The balance of the funds raised to date have been utilized primarily to
fund various domestic and international exploratory activities. The Company's
exploratory activities in areas outside of Texas have resulted in two oil and
gas discoveries,located respectively, in the Gulf of Mexico offshore from
Louisiana,and in Central California. It is anticipated that the Company will
expend additional funds to explore these areas during 1999 and future periods.
The Company's capital budget for 1999 of approximately $8,300,000 (subject
to available funds), includes amounts for the acquisition of additional 3-D
seismic data and for the drilling of 38 gross wells (8.39 net wells) in 1999
with working interests ranging from 12.5% to 75% and averaging 22%. A majority
of the budgeted wells will be drilled in Jackson County, Texas. In addition, the
Company anticipates that as its existing 3-D seismic data is further evaluated,
and 3-D seismic data is acquired over the balance of its acreage, additional
prospects will be identified for drilling beyond 1999.
The Company intends to rely on joint ventures with qualified operating oil and
gas companies to operate its projects through the exploratory and production
phases. This will reduce general and administrative costs necessary to conduct
operations. As of the date of this Prospectus, the Company was not operating,
nor did it have any working interest in, any producing oil and gas wells.
TECHNOLOGY
The Company participates in projects utilizing economically feasible
advanced technology in their exploration and development activities to reduce
risks, lower costs, and more efficiently produce oil and gas. The Company
believes that the availability of cost effective 3-D seismic surveys makes its
use in exploration and development activities attractive from a risk management
perspective in certain areas and that, in certain instances, 3-D seismic surveys
provide the Company with substantially more accurate and comprehensive
information for the evaluation of drilling prospects than do conventional 2-D
seismic and traditional evaluation methods.
Briefly, a seismic survey sends pulses of sound from the surface, down into
the earth, and records the echoes reflected back to the surface. By calculating
the speed at which sound travels through the various layers of rock, it is
possible to estimate the depth to the reflecting surface. It then becomes
possible to infer the structure of rock deep below the earth's surface. The
current rebirth of oil and gas exploration activity in the Gulf of Mexico is due
to affordable and available seismic data, and the affordability of the software
and computer hardware necessary to peer through the layers of rock and salt to
locate heretofore undiscovered hydrocarbons. The Company evaluates substantially
all of its exploratory prospects using 3-D or enhanced 2-D seismic surveys.
<PAGE>
In evaluating certain of its exploratory prospects, the Company also uses
amplitude versus offset ("AVO") technology. AVO analysis can show the high
contrast between the sand and shales and provides for better interpretation of
the reservoir sands to determine the presence of gas.
The Company retains experienced third-party consultants and participates
with experienced joint working interest owners to acquire, process and interpret
3-D seismic surveys. The Company attempts to ensure the integrity of the 3-D
seismic analysis in each of its projects by emphasizing quality control
throughout the data acquisition, processing and interpretation. Whenever
possible, the Company also attempts to correlate or "model" the interpretations
of 3-D seismic surveys with wells previously drilled on or near the prospect
being evaluated.
The Company may supplement its exploration efforts with acquisitions of
producing oil and gas properties. The Company would seek to acquire producing
properties that either are underperforming relative to their potential or are
candidates for 3-D seismic analysis.
SUMMARY OF OIL AND GAS OPERATIONS
Capitalized costs at December 31, 1997 and September 30, 1998
relating to the Company's oil and gas activities are summarized as follows:
<TABLE>
December 31, 1997 September 30, 1998
-------------------------------------- ----------------------------------------
United States Foreign United States Foreign
----------------- ----------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capitalized costs-
Evaluated properties $ - $ - $ 1,181,902 $ 1,618,432
Unevaluated properties 5,870,794 30,000 11,079,276 39,963
Less- Accumulated
Depreciation, depletion,
Amortization and
Impairment - - - (1,618,432)
================= ================= ================= ===================
$ 5,870,794 $ 30,000 $ 12,261,178 $ 39,963
================= ================= ================= ===================
</TABLE>
<TABLE>
Costs incurred in oil and gas production activities are as follows:
Inception (June 6, 1997) Nine months ended Cumulative from inception
through December 31, 1997 September 30, 1998 (June 6, 1997) through
September 30, 1998
----------------------------- ----------------------------- -----------------------------
United States Foreign United States Foreign United States Foreign
------------- ----------- ------------- ------------ ------------- -----------
<S> <C><C> <C> <C> <C> <C> <C> <C> <C><C> <C> <C>
Property acquisition $ 3,835,540 $ - $ 2,558,571 $ 323,463 $ 6,394,111 $ 323,463
============= =========== ============= ============ ============= ===========
Exploration $ 2,035,254 $ 30,000 $ 3,831,813 $ 1,304,932 $ 5,867,067 $ 1,334,932
============= =========== ============= ============ ============= ===========
Development $ - $ - $ - $ - $ - $ -
============= =========== ============= ============ ============= ===========
</TABLE>
As of December 31, 1997 and September 30, 1998, respectively, the Company
has not made a provision for depletion since it has not derived any production
nor has it established any proved reserves from its properties. All costs
incurred through December 31, 1997 have been excluded from the amortization
base. As the Company's properties are evaluated through exploration, they will
be included in the amortization base. Costs of unevaluated properties in the
United States at December 31, 1997 and September 30, 1998 represent property
acquisition and exploration costs in connection with the Company's Louisiana,
Texas and California prospects. In excess of 80% of the costs of unevaluated
properties were incurred in connection with the Company's activities in Texas
(see "Yegua/Frio/Wilcox Trend 3-D Seismic Joint Venture" in the "Properties"
section of this Prospectus). The prospects and their related costs in
unevaluated properties have been assessed individually and no impairment charges
were considered necessary for any of the periods presented. The current status
of these prospects is that seismic has been acquired, processed and is currently
being interpreted on the subject lands within the prospects. Drilling is
expected to commence on prospects located in Texas, Louisiana and California in
the fourth quarter of 1998 or the first quarter of 1999 and continue in future
<PAGE>
periods. As the prospects are evaluated through drilling in future periods, the
property acquisition and exploration costs associated with the wells drilled
will be transferred to evaluated properties where they will be subject to
amortization.
During the nine months ended September 30, 1998, the Company participated
in the drilling of two unsuccessful exploratory wells and one well that is being
completed for production in its Louisiana "Transition Zone" prospect, and one
well that is being completed for production in its California Norcal Project.
The costs associated therewith have been transferred to evaluated properties. A
ceiling test was performed as of September 30, 1998 to determine whether the
capitalized costs associated with the drilling of the four wells ("evaluated
properties") exceeded their net realizable value. It was determined that the
capitalized costs did not exceed their estimated net realizable value.
Accordingly, no impairment provision was considered necessary as of September
30, 1998 for the Company's United States cost center.
Exploration costs incurred outside the United States represent costs in
connection with the evaluation and proposed acquisition of one or more
exploration blocks located in Brazil (costs which are not considered material).
In addition, in February 1998, the Company, through its wholly owned subsidiary,
BETAustralia, LLC, made an initial cash advance of $320,000 to secure an option
to participate for a 5% working interest in two petroleum licenses in the
Stansbury Basin covering 2,798,000 acres (approximately 4,372 square miles). Per
the terms of the option agreement, the Company exercised its option to earn a 5%
working interest by participating in the drilling of two offshore test wells in
the license areas. During the nine month period ended September 30, 1998 the
Company incurred costs of $1,298,432 in the drilling of the two wells. The wells
were completed as dry holes. The property acquisition and exploration costs
associated therewith totaling $1,618,432 have been transferred to evaluated
properties and charged to impairment expense during the nine months ended
September 30, 1998. The Company has no plans to conduct additional exploration
activities in the Stansbury Basin Australian license areas. These exploration
licenses will expire in December of 1998.
PLAN OF OPERATION FOR THE FIRST SIX MONTHS OF 1999
In the opinion of the Company's management, the existing working capital
of the Company and the net proceeds of the Minimum Offering will be sufficient
to fund the operations and projected capital requirements of the Company until
July 1, 1999. The Company plans to allocate its cash resources to the following
categories of expenditures:
1) Drilling and completion costs for wells on the Company's prospects. It is
anticipated that as many as 38 test wells will be drilled in 1999 in which
the Company will have an average working interest participations ranging
from 12.5% to 75% and averaging 22%;
2) Leasehold acquisition costs;
3) 3-D seismic acquisition costs; and
4) General and administrative overhead.
At such time as the Company has fully utilized the proceeds of the Offering
and the Company's existing working capital, , it will be necessary for the
Company to raise additional funds. It is anticipated that additional funds will
be raised from one or more of the following sources:
1) The Company has approximately 797,000 callable Common Stock purchase
warrants outstanding exercisable at a price of $5.00 per share. The
Company is entitled to call these warrants at any time on and after the
date that its Common Stock is traded on any exchange, including the
NASD Over-the-Counter Bulletin Board, at a market price equal to or
exceeding $7.00 per share for 10 consecutive days, of which there is no
assurance that such a price level will occur. It is the Company's
intent to call all or a portion of these warrants at such time, if and
when, the market price of the stock is at a sufficient level in order
to fund capital requirements. The Company will receive proceeds equal
to the exercise price times the number of shares which are issued
pursuant to the exercise of warrants.
2) The Company may seek bank or other debt financing at such time that
cash flow from operations is established.
3) The Company may seek mezzanine financing, if available, on terms
acceptable to the Company.
4) The Company may realize cash flow from oil and gas wells, if found
to be productive. The Company owns a working interest in two wells
which are presently being completed and equipped for production. It
is anticipated that cash flow from these wells will commence in the
first six months of 1999. It is also anticipated that additional
wells will be drilled in 1999.
The net proceeds of this Offering combined with the Company's existing
working capital will not be sufficient to fund the Company's $8.3 million of
capital expenditures that are projected for 1999. In the event that the above
additional sources of cash are unavailable on terms acceptable to the Company,
<PAGE>
the Company will be compelled to reduce the scope of its business activities. If
the Company is unable to fund planned expenditures, it may be necessary for the
Company to:
1. Forfeit its interest in wells that are proposed to be drilled;
2. Farm-out its interest in proposed wells; and,
3. Sell a portion of its interest in proposed wells and use the sale
proceeds to fund its participation for a lesser interest.
Management anticipates that revenues from oil and gas operations will
commence in the first six months of 1999. These are forward looking statements
that are based on assumptions which in the future may not prove to be accurate.
Although the Company believes that the expectations reflected in such forward
looking statements are based on reasonable assumptions, it can give no
assurance that its expectations will be achieved. Certain risks and
uncertainties inherent in the Company's business are set forth in the "RISK
FACTORS" section of this Prospectus.
PROPERTIES
The Company's current oil and gas exploration activities are focused in
five distinct project areas as follows:
1. YEGUA AND FRIO TREND 3-D SEISMIC JOINT VENTURE - Onshore Gulf Coast Region,
Jackson County, Texas;
2. LAPEYROUSE PROSPECT 3-D SEISMIC JOINT VENTURE - Onshore Gulf Coast
Region, Louisiana;
3. NORCAL PROJECT - Onshore San Joaquin and Sacramento Basins, California;
4. LOUISIANA TRANSITION ZONE PROJECT - Offshore Shallow Waters, Gulf of Mexico,
Louisiana; and
5. INTERNATIONAL - Onshore Australia and Brazil.
In each of its project areas, the Company has entered into joint ventures
with operators who have extensive experience and expertise in those areas. This
has allowed the Company to obtain workinginterest in a number of prospects with
minimal associated overhead.
The following discussion contains forward looking statements. The projects
discussed in this section may never yield any commercial discoveries of
hydrocarbons and, even if they do, they could result in a loss to the Company.
See "Risk Factors."
YEGUA/FRIO/WILCOX TREND 3-D SEISMIC JOINT VENTURE, JACKSON COUNTY, TEXAS
The Company presently owns working interests in four Onshore Gulf Coast
exploration projects located in Jackson County, Texas. The projects are operated
by Parallel Petroleum Corporation ("Parallel"), a publicly traded company.
Approximately 184,000 gross acres (approximately 40,000 acres net to the
Company's working interest) of oil and gas leases or seismic options have been
acquired in these four projects as of September 30, 1998. As of November 12,
1998, Parallel had completed 3-D seismic surveys over an area totaling 286
square miles within which these projects are located and was evaluating seismic
data to select drilling locations. Drilling is expected to commence on the
Company's project areas in the first quarter of 1999.
The Company's decision to jointly participate with Parallel in new
exploration projects was due in part to the results achieved by Parallel and
other operators utilizing 3-D seismic data on acreage adjacent to and in the
same "trend" as Beta's project areas.. Parallel reported in its annual report
that as of December 31, 1997, it had participated in the drilling of a total of
79 wells on acreage adjacent to or in the same "trend" as Beta's projects, of
which 60 have been completed as producing wells and 19 of which had been dry
holes (76% completion rate). Of the 60 producing wells, 36 had been drilled to
the Frio formation at a depth of approximately 6,000 feet, 22 had been drilled
to the Yegua formation at a depth of approximately 10,000 feet, and 2 had been
drilled to the Wilcox formation at depths below 10,000 feet. THE COMPANY DOES
NOT HAVE AN INTEREST IN THE WELLS PREVIOUSLY DRILLED BY PARALLEL AND THE
HISTORICAL RESULTS EXPERIENCED BY PARALLEL AND OTHERS IN ADJACENT AREAS ARE NOT
NECESSARILY INDICATIVE OF THE RESULTS THAT MAY BE OBTAINED IN THE COMPANY' S
PROSPECTS.
The following projects in which the Company is participating will use the
same seismic techniques that Parallel has previously used to identify potential
drill sites. The status of the projects is as follows:
1) TEXANA PROJECT (APPROXIMATELY 25,000 GROSS ACRES UNDER SEISMIC COVERAGE;
24,005 GROSS ACRES UNDER SEISMIC OPTION; 6,001 ACRES UNDER SEISMIC LEASE OPTION
NET TO BETA'S 25% WORKING INTEREST AS OF DECEMBER 31, 1997):
<PAGE>
Approximately 40 square miles of 3-D seismic data has been
acquired and processed. "Amplitude Versus Offset" ("AVO") analysis and data
interpretation is currently being completed. Drilling of exploratory wells is
expected to commence in early 1999.
2) FORMOSA GRANDE PROJECT (APPROXIMATELY 92,000 GROSS ACRES UNDER SEISMIC
COVERAGE; 77,715 GROSS ACRES UNDER SEISMIC LEASE OPTIONS; 19,429 ACRES UNDER
SEISMIC LEASE OPTIONS NET TO BETA'S 25% WORKING INTEREST AT DECEMBER 31, 1997):
Approximately 140 square miles of 3-D seismic data has been
acquired. The seismic data is currently in the interpretive stages with drilling
of exploratory wells expected to commence in the first quarter of 1999.
3) GANADO PROJECT (APPROXIMATELY 25,000 GROSS ACRES UNDER SEISMIC
COVERAGE, 23,623 GROSS ACRES UNDER SEISMIC LEASE OPTIONS; 4,725 ACRES UNDER
OPTION NET TO BETA'S 20% WORKING INTEREST AT DECEMBER 31, 1997):
Approximately 40 square miles of 3-D seismic data has been
acquired and is in the interpretive stages. Drilling of exploratory wells is
expected to commence by the second quarter of 1999.
4) BWC PROJECT (APPROXIMATELY 42,440 GROSS ACRES UNDER SEISMIC COVERAGE,
42,000 GROSS ACRES UNDER SEISMIC LEASE OPTIONS; 5,250 ACRES UNDER OPTION NET TO
BETA'S 12.5% WORKING INTEREST):
The Company entered into this project subsequent to December 31,
1997. Approximately 66 square miles of 3-D seismic data has been acquired and is
in the interpretive stages. Drilling of exploratory wells is expected to
commence by the first quarter of 1999.
The Company anticipates that it will exercise options to acquire oil and
gas leases over approximately 20% to 30% of the area covered by seismic options.
The average cost per acre to acquire a lease is estimated to be $150.00. The
lessor will typically retain a 20% to 25% royalty on any future gross oil or gas
revenues from the lease. Using a factor of 25%, the Company estimates that it
will make additional outlays of $1,400,000 based on its pro rata share in its
working interests to exercise options and acquire leases in the projects. The
outlays are anticipated to occur in 1999. In addition, the Company estimates
that in excess of 50% of the Company's 1999 planned capital expenditures will be
incurred in these four projects.
TERMS OF PARTICIPATION
All of the lands covered by the exploration agreements are subject to "area
of mutual interest" provisions described in the glossary preceding the
"Business" section. The exploration agreements generally provide, among other
things, for participation by the Company and other participants on the following
terms and conditions:
|_| Participants are required to pay 133% of actual cost of initial
land costs, consisting mainly of seismic options, and the costs of
acquiring, processing and interpreting seismic data. All costs
incurred after the interpretation phase are billed to the
participants at actual cost. The post interpretation costs include
the cost of drilling, completing and equipping wells and the costs
of acquiring leases.
|_| Once the seismic data has been acquired and interpreted, prospects
will be designated within the seismic survey areas. The parties to
the agreement then have the option to participate in the prospect
according to their pro-rata working interest. Those parties who
elect not to participate forfeit their rights of participation in
the specific prospect but retain the right to participate in other
prospects proposed in the seismic survey area which are outside of
the specific prospect.
|_| Those parties who elect to participate in a specific prospect then
proceed to acquire oil and gas leases within the prospect by
exercising seismic options. The seismic options were acquired
in advance of seismic acquisition and convey the right to conduct
seismic operations as well as the option to enter into an oil and
gas lease on the subject lands at a pre-determined price per acre.
The seismic option allows the Company and its partners to acquire
and evaluate seismic data prior to actually acquiring leases.
After the seismic data has been evaluated, the Company and its
partners can then selectively acquire leases by exercising on
acreage which is determined to be prospective from seismic
evaluation. Seismic options covering lands which are determined
not to have oil and gas potential are allowed to expire at no
further cost to the participants. The cost of a seismic option is
usually much lower than the cost of acquiring a lease and it also
prevents the mineral owner lessor from leasing the oil and gas
rights to another party during the term of the option.
<PAGE>
GEOLOGICAL AND ECONOMIC OVERVIEW OF THE YEGUA/FRIO/WILCOX TREND 3-D JOINT
VENTURE
The subject lands lie in close proximity to productive oil and gas fields
which produce from the Yegua/Frio/Wilcox intervals. The subject acreage block is
bounded by fields that have cumulatively produced in excess of 2 trillion cubic
feet of natural gas and 2 billion barrels of oil (according to statistics
published by the Goemap Company as of September, 1996). The Company wishes to
emphasize that the historical production results in the area are not necessarily
indicative of the results that the Company may obtain from its oil and gas
prospects.
The typical Yegua well costs range between $800,000 and $1,500,000 to drill
and complete, and if successful, historically has an average reservoir of 5 to10
billion cubic feet of natural gas, and begins to generate cash flow within 60
days from spud date. The typical Frio well costs range between $260,000 and
$400,000 to drill and complete, historically has a reservoir of approximately 1
billion or more cubic feet of natural gas, begins to generate cash flow 60 days
from spud date, and returns the original investment in less than one year. The
typical Wilcox well costs range in excess of $2,000,000 and involve drilling to
depths in excess of 14,000 feet and if successful, historically has an average
reservoir in excess of 10 billion cubic feet of natural gas. The foregoing
estimates naturally depend on flow rates, pricing, well depths and other
variables and there is no assurance that such estimates will be accurate. THE
COMPANY DOES NOT HAVE AN INTEREST IN THE WELLS PREVIOUSLY DRILLED IN THE AREA
AND THE HISTORICAL RESULTS AND COSTS EXPERIENCED BY OTHERS IN ADJACENT AREAS ARE
NOT NECESSARILY INDICATIVE OF THE RESULTS THAT MAY BE OBTAINED IN THE COMPANY' S
PROSPECTS.
Within the Company's project areas, there are high potential exploration
opportunities that are being defined with the use of 3-D seismic. The Jackson
County area has proven to be suitable for 3-D seismic as faulting and structures
are easily identified and many stratigraphic reservoirs exhibit hydrocarbon
indicators from the shallowest Miocene sands, throughout the Frio, and into the
Vicksburg, Yegua, and Wilcox intervals. The Formosa Grande Prospect Area has
numerous regional down-to-the-coast faults that are easily identified at the top
of the Frio, but also has deep seated faulting that does not exhibit
displacement at the shallower horizons. Very often, these deep faults do create
hydrocarbon traps. Most fields in this trend area exhibit multiple stacked
reservoirs.
A Greta level structure map exhibits numerous large four-way closures,
primarily down-thrown to regional growth faulting. These large structures have,
for the most part, been exploited, some as early as the 1930s and 1940s.
Although it is not readily apparent in regional mapping, much of the Frio
production is stratigraphic in nature, that is, trapped in channel sands that
traverse structures, or in sands that "pinch out" up onto the flanks of these
large structures. Significant reserves may remain in similar traps, further off
structure than has been developed to date. Such traps should be readily defined
with 3-D seismic data.
The Company's project areas appear to be located in a suitable "trend"
area to apply 3-D seismic technology to identify reserves that have been passed
over in existing fields as well as to discover new reserves in deeper pools and
undrained fault segments in compartmentalized fields.
LAPEYROUSE PROSPECT 3-D SEISMIC JOINT VENTURE
This prospect is in the Gulf Coast area of South Louisiana, an area
specifically targeted by the Company for its high reserve potential based on
historical production results that have been published for this area. Although
the main objective (the Duval) will be reached with a 14,800' test well, a total
of twenty-one objectives will be tested with one well bore. These consist of
fourteen smaller objectives from 10,000' to 14,000' to pressure point and seven
larger objectives in abnormal pressure (over-pressured reservior) through
16,000'.
The Company's working interest was purchased after detailed 3-D seismic was
completed and interpreted. A total of 7,000 mineral acres have been leased to
drill the multiple objectives stated above. The Company's working interest
varies between 2.5% and 6.25% in the project leases. An initial exploratory well
is anticipated to be drilled in the last quarter of 1998 or the first quarter of
1999. The Company has acquired an additional 6.25% working interest from a
participant who has declined to participate, which has increased the Company's
working interest in the initial exploratory well to 12.5%. Estimated drilling
costs to casing point for a proposed 14,800 foot test are $3,304,302 of which
the Company shall pay $413,000 for its proportionate 12.5% working interest.
Estimated completion costs are $1,051,683 of which the Company shall pay
$131,000 for its proportionate12.5% working interest, provided the Company
elects to participate in the completion.
<PAGE>
Other significant partners in the prospect include Fina Oil and Polaris
Exploration. Based on seismic mapping and historical production data of adjacent
wells, this project has a total estimated reserve potential of 400 BCF of gas to
the 100% working interest. However, there is no assurance that oil or gas will
be found in commercial quantities on the Company's prospect.
NORCAL PROJECT -- ONSHORE SAN JOAQUIN AND SACRAMENTO BASINS
The Company has entered into an exclusive two year contract, expiring in
April of 1999, to utilize 3-D and 2-D seismic technology in a 500 square mile
Area of Mutual Interest (AMI) with a prospect generator, Jim Frimodig. The
Company will maintain a 75% working interest in certain prospects generated by
Mr. Frimodig in the San Joaquin and Sacramento Basins in Central and Northern
California. As of September 30, 1998, the Company has participated in the
drilling of one well in the Norcal Project. The N.W. Buttonwillow #1 was
completed in July 1998 flowing at a rate of 415,000 cubic feet of natural gas
per day from a perforated interval at a depth of approximately 4,500 feet (see
"Drilling Activity"). Additional pay zones remain behind pipe in this well.
The Company anticipates drilling a minimum of one additional exploratory
well in the Norcal Project during the fourth quarter of 1998 or the first
quarter of 1999. The Company will pay 100% of the drilling and completion costs
to earn a 75% working interest in the well. Estimated costs to casing point are
estimated to be $139,500 for the well. Completion and hookup costs are estimated
to be $76,300. The well costs are estimated for wells drilled to an average
depth of 5,000 feet. Actual depths drilled may be more or less and well costs
will vary accordingly. Costs will also vary according to proximity to a pipeline
and other factors.
HISTORICAL
The foundation for the Norcal Project is the expertise of Jim Frimodig. Mr.
Frimodig is the owner of Source Energy LLC, the operator of the Norcal Project.
Along with an MS in Petroleum Engineering, Mr. Frimodig has 15 years of major
oil company experience (Chevron) and six years leading all aspects of leasing,
seismic acquisitions/analysis, drilling, production, gas sales, and revenue
distribution for a publicly traded oil and gas company based in San Diego,
California which is not a joint participant with the Company. He has developed a
network of land, geological, geophysical, and drilling consultants/contractors
with experience in the targeted basins.
LOUSIANA TRANSITION ZONE PROJECT
The Company has entered into a joint exploration agreement with Rozel
Energy to explore for oil and gas in the Transition Zone of South Louisiana. The
area covers the shoreline to approximately 10 to 15 miles offshore and up to 60
feet of water depth. Rozel will identify prospects on the basis of a 3-D seismic
survey recently completed by Fairfield Industries ("Fairfield"), one of the
leading providers of 3-D seismic data for the Gulf of Mexico. The survey is the
largest shallow water survey that has ever been conducted in the United States,
covering an area in excess of 2,000 square miles.
Under the terms of the Rozel agreement, the Company has agreed to provide a
total funding commitment of up to $3,000,000 over a one year period (which
expires February 23, 1999) to Rozel Energy to be utilized in the acquisition of
leases on prospects in the Transition Zone. Rozel will identify the prospects
utilizing the 3-D seismic data from the Fairfield survey. In consideration for
providing the lease acquisition funds, the Company shall be entitled, but not
obligated, to participate on a prospect by prospect basis in leases acquired by
Rozel Energy utilizing lease acquisition funds provided by the Company. The
Company's terms of participation shall require it to pay approximately 12.5% of
the costs of drilling and completing the first well in each prospect to earn
approximately a 9.375% working interest in the initial well and prospect acreage
(a "third for a quarter" basis). The Company's 9.375% working interest shall be
further reduced to 8.8% after the costs of the prospect have been recouped. The
Company is obligated to pay a $50,000 fee on those prospects in which it elects
to participate. The Company shall be entitled to reimbursement of lease funds
advanced for prospects in which it elects not to participate. The Company shall
be entitled to such reimbursement if and when Rozel either sells or otherwise
conveys (i.e. farmouts) its interest in, or drills, the Prospect. In the event
the Company does not advance funds for a particular lease acquisition, it then
forfeits its rights to participate in any prospects covered by such lease. In
the event that the Rozel agreement expires and is not extended, the Company will
continue to have working interest rights in acreage acquired and wells drilled
prior to the expiration of the agreement.
THE TRANSITION ZONE
This region has been under-explored because acquisition of seismic
data in the area was very expensive and has historically been of less than ideal
quality due to the problems inherent in gathering data in the wide variety of
environments encountered
<PAGE>
between land and deep water offshore. Innovative
techniques have been utilized to acquire and process 3-D seismic data and for
the first time create quality data that provides the opportunity to accurately
interpret the structural and stratigraphic framework of the area.
As indicated in the table below, the Transition Zone is a prolific
production area. The table below does not include all of the fields, but
provides an indication of the prolific nature of the area. Seven fields
exceeding 500 BCFEQ (billion cubic feet equivalent), as well as five fields
exceeding 1 TCFEQ (trillion cubic feet equivalent), have been discovered in this
area of interest without the benefit of 3-D seismic data. These twelve fields
have resulted in approximately 13 Tcfeq (trillion cubic feet of gas equivalent)
of production.(1)
<TABLE>
===================================================
LARGE FIELD DISCOVERIES GAS(BCF) OIL(MMBO) BCFEQ
<S> <C> <C> <C>
West Cameron Block 17 1,000 20 1,120
Vermillion Block 14 588 5 618
Lighthouse Point 526 20 646
Tigershoal 3,500 40 3,740
Rabbit Island 1,500 55 1,830
Bay Marchand 211 207 1,453
West Delta 27 1,700 54 2,024
Hog Bayou 268 5 298
Vermillion Blocks 16-17 300 14 384
Sugar Island Block 18 106 39 340
Timbalier Bay 166 20 286
Grand Isle 18 25 30 205
------
Total 9,890 509 12,944
====== ====== ======
==================================================
<FN>
(1) The data contained in the above table was gathered from the Louisiana
Department of Conservation's public records as well as from Petroleum
Information, a commercial service. The historical production results for the
area are not necessarily indicative of the results that the Company may obtain
from its prospects. THE COMPANY DOES NOT OWN AN INTEREST IN THE ABOVE NAMED OIL
AND GAS FIELDS. THE HISTORICAL RESULTS OBTAINED IN THE AREA ARE NECESSARILY
INDICATIVE OF THE RESULTS THAT MAY BE OBTAINED BY THE COMPANY.
</FN>
</TABLE>
All of the reserve targets will lie in the shallow waters. Depths
of the reserve targets will typically range from 3,000 to 15,000 feet. The
average dry hole costs for these wells are expected to be $1,500,000 for a
straight hole and $2,000,000 for a directional hole (to the 100% working
interest). The completion cost per well is estimated at $1,000,000 (to the 100%
working interest).
Approximately six prospects per year are expected to be drilled in
the project area. The Company has the right, but not the obligation, to
participate by paying 12.5% of the costs to earn a 9.375% working interest (more
or less) in all drilling prospects generated within this area. As of September
30, 1998, the Company has participated in the drilling of 3 wells in the
Transition Zone with results as follows:
1) The Whiskey Pass #1 (Ship Shoal Blk. #43) was drilled to a depth
of approximately 2,500 feet and was completed as a dry hole.
The Company has expended $208,000 in connection with this well.
2) State Lease #15905 Sea Serpent #1 (Ship Shoal Blk. #67) was
drilled to a depth of approximately 11,800 feet and was completed
as a dry hole. The Company has expended $243,735 in connection
with this well.
3) The OCS-G-13825 Minkfish #1 (West Cameron Blk. 39) was drilled to
a depth of approximately 10,500 and is being completed for
production. The well is expected to commence production as early
as December 31, 1998. The Company has expended $328,000 in
connection with this well.
<PAGE>
In addition, subsequent to September 30, 1998, the Whiskey Pass #2
(SL15743#1) was drilled to a depth of approximately 4,700 feet and completed as
a dry hole. The Company's share of dry hole costs is $80,000 for this well.
INTERNATIONAL
Although the majority of the Company's exploration efforts are focused in
the United States, management believes that international exposure can reduce
the business risks commonly associated with having operational activities
confined to one country.
AUSTRALIAN PROJECTS
The Company has reviewed a number of exploration projects in the Asia
Pacific Region and elected to participate in two exploration areas covering four
separate exploration permits in Eastern Australia. A description of the areas is
as follows:
1) TOKO SYNCLINE PROJECT
The Company has signed a letter of intent with Dyad Petroleum Company of
Midland, Texas ("Dyad") to participate for a 20% working interest (16.4% net
revenue interest) in the Toko Syncline Project. This letter of intent is subject
to executing a definitive exploration agreement and subject to securing
participation from other companies for the remaining working interests. Through
a joint exploration agreement, Dyad's Australian registered subsidiary is the
holder of exploration permits covering approximately 1,700,000 contiguous acres
(2,656 square miles) in the Georgina and Eromanga Basins of Western Queensland.
Since the acquisition of the permits, Dyad has acquired, analyzed, and
reprocessed 400 miles of existing 2-D seismic data and identified four
potentially significant geological structures encompassing approximately 55,000
acres (86 square miles). During the period from 1964 to 1980, there were six
wells drilled in the Toko Syncline that went deep enough to provide meaningful
subsurface control. Four were exploratory and two were full core tests by the
Geological Survey of Queensland. Of these six, only one well failed to identify
oil or gas shows. At the time the wells were drilled, there were no gas
pipelines in the prospect areas available to transport natural gas, if
commercial amounts of gas could be discovered. The lack of pipelines in the
area discouraged further exploration in the area.
The four features, or prospects, are labeled the Ethabuka, the Pulchera,
the Bindiaca, and the Toomba. Total potential reserve estimates are 4-5 trillion
cubic feet of gas and possibly 100 million barrels of oil which have been
provided by Dyad (which have not been independently verified). There is no
assurance that oil and gas will be found in commercial quantities on the
prospect.
The Ethabuka structure is of particular interest due to a well, the
Ethabuka #1 drilled on the structure in 1973 by Alliance Oil Development. The
well encountered a persistent gas flow of 200 MCF of gas per day while drilling.
The well was abandoned 3,500 feet short of the initial target depth after
twisting of the drill pipe and making several unsuccessful efforts to reclaim
the hole. This very significant show of gas was documented by the Queensland
Department of minerals and energy. At the time, there was no gas pipeline in the
area.
The market for natural gas has increased significantly since then in the
area. Western Queensland has a large mining industry centered in the city of Mt.
Isa. This area holds some of the world's largest deposits of copper, lead, zinc,
and phosphate. At the present time, the mines and the associated processing and
smelting plants are fueled entirely by coal, which is shipped approximately 750
miles by rail. The Queensland government is encouraging the introduction of
natural gas as an energy source. Construction of a gas transmission line from
southwest Queensland to Mt. Isa is in process and completion is scheduled in
1999. The pipeline will cross the Toko Syncline project area, exposing the
project to a viable market for natural gas. A direct offset well to the Ethabuka
#1 is scheduled to begin drilling in 1999 subject to permits, rig availability
and capital availability. Beta will have a 20% working interest (16.4% net
revenue interest).
2) STANSBURY BASIN PROJECT
In March 1998, the Company formed a wholly owned subsidiary called
BETAustralia, LLC, a limited liability company organized under the laws of
California, for the purposes of participating in the Stansbury Basin Project and
other Australian projects. The Company made an initial cash advance of $320,000
to secure an option to participate for a 5% working interest in two petroleum
licenses covering 2,798,000 acres (approximately 4,372 square miles). Per the
terms of the option agreement, the Company exercised its option to earn a 5%
working interest by participating in the drilling of two offshore test wells in
the license
<PAGE>
areas. During the nine months ended September 30, 1998 the Company
incurred costs of $1,298,432 in the drilling of the two wells. The wells were
completed as dry holes. The costs associated therewith totaling $1,618,432 have
been transferred to evaluated properties and charged to impairment expense
during the nine months ended September 30, 1998. The Company has no current
plans to conduct additional exploration activities in the Australian (Stansbury
Basin) license areas. The exploration licenses will expire in December of 1998.
ADDITIONAL PROJECTS UNDER REVIEW
Although the Company's initial international focus is Australia, management
is currently reviewing several other opportunities (including exploration
licenses in Brazil). However, there is no guarantee that any of these projects
will ever reach fruition.
These are forward looking statements. The projects discussed herein may
never materialize and, even if they do materialize, they could result in a loss
to the Company. No formal agreements have been reached and there can be no
assurance that such a purchase will ever be completed and this potential
acquisition should not be relied upon in making an investment decision.
GENERAL
The Company holds interests in producing properties and undeveloped acreage
in three states within the United States.
COMPANY RESERVES
The Company had no proved reserves as of December 31, 1997.
WELL STATISTICS
As of December 31, 1997, the Company did not own working interest in any
productive wells.
ACREAGE STATISTICS
The following table sets forth the undeveloped acreage (there is no
developed acreage) of the Company as of December 31, 1997:
<TABLE>
Beta Oil & Gas,Inc.Acreage Holdings
As of December 31, 1997
- --------------------------------------------------------------------------------------------
UNDEVELOPED ACREAGE GROSS ACRES NET ACRES
- -----------------------------------------------------------------------------------------
<S> <C> <C>
GROSS
CALIFORNIA 1,371 1,028
LOUISIANA 7,000 438
TEXAS 125,343 30,155 (1)
=========================================================================================
UNDEVELOPED ACREAGE 133,714 31,621
=============================================================================== =========
<FN>
(1) Substantially all of these lease options will expire in 1998 and 1999
unless they are exercised or extended. The total acres ultimately
exercised will depend on the interpretation of the 3-D seismic results.
The Company estimates that between 20% and 30% of the options will be
exercised at an average estimated price of $150 per acre.
</FN>
</TABLE>
DRILLING ACTIVITY
For the period from inception (June 6, 1997) through December 31, 1997,
the Company did not engage or participate in the drilling of any wells.
Drilling activity subsequent to December 31, 1997 is summarized as follows:
1. During March 1998, the Company participated in the drilling of two dry
holes on one of its Australian exploration licenses. Estimated costs net to
the Company's interest are $1,618,432 which have been charged to impairment
expense during the nine
<PAGE>
months ended September 30, 1998.
2. In May 1998, the Company participated in the drilling of the first test
well in its Louisiana Transition Zone Prospect. The well, the Whiskey Pass
#1 (Ship Shoal Blk. 43) was drilled to a depth of 2,500 feet and was
completed as a dry hole at a net cost to the Company of $208,000 for its
12.5% working interest.
3. In July 1998, the Company participated in the drilling of the Sea Serpent
#1 (Ship Shoal Blk. 67) to a depth of 11,000 feet and was completed as a
dry hole at a net cost of $244,000 for the Company's 12.5% working
interest.
4. In July 1998, the Company participated in the drilling of the Minkfish #1
(West Cameron Blk. 39) to a depth of 11,000 feet and is being completed as
a producer pending construction of a production platform. The Company has
expended $328,000 in connection with this well.
5. In October of 1998, the Company participated in the drilling of the Whiskey
Pass #2 (SL15743 #1) which was drilled to a depth of approximately 4,700
feet and completed as a dry hole. The Company's estimated share of the dry
hole costs is $80,000 net to its 9.375% working interest.
6. In July 1998, the Company commenced the drilling of the first test well in
its California Project. The well has been completed for production and is
currently awaiting a pipeline hook-up. The estimated cost net to the
Company's 75% working interest is $303,735.
COMPETITION
The oil and gas industry is highly competitive in many respects,
including identification of attractive oil and gas properties for acquisition,
drilling and development, securing financing for such activities and obtaining
the necessary equipment and personnel to conduct such operations and activities.
In seeking suitable opportunities, the Company competes with a number of other
companies, including large oil and gas companies and other independent operators
with greater financial resources and, in some cases, with more experience. Many
other oil and gas companies in the industry have financial resources, personnel,
and facilities substantially greater than those of the Company and there can be
no assurance that the Company will be able to compete effectively with these
larger entities. Companies that are active in the same geographic areas as the
Company include, but are not limited to, Basin Exploration Inc., Unocal Corp.,
Fina Inc., Kerr-McGee Corp., St. Mary Land & Exploration, Esenjay Exploration
and Cheniere Energy Inc.
EMPLOYEES
As of November 1, 1998 the Company employs four full-time employees
and one part-time employee. The Company also has two consultants with long-term
contracts. The Company hires independent contractors on an "as needed" basis
only. The Company has no collective bargaining agreements with its employees.
The Company believes that its employee relationships are satisfactory. Due to
its current level of growth, the Company anticipates increasing its number of
full-time employees to six by the end of 1999. See also, "Management, Executive
Compesation, and Employment Contracts."
PREMISES
The Company leases slightly over 1,800 square feet in Newport
Beach, California, which includes offices and storage space. All of the
Company's operations are conducted from this site. The lease expires September
1999, and requires monthly payments of $2,543 per month.
LITIGATION
There is no litigation currently pending or threatened against the
Company.
ADDITIONAL INFORMATION
The Company is not presently subject to the reporting requirements of the
Securities Exchange Act of 1934 (the "Exchange Act"). With respect to the
securities offered hereby, the Company has filed with the principal office of
the Securities and Exchange Commission (the "Commission") in Washington, DC, a
Registration Statement on Form S-1 (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"). For purposes hereof,
the term "Registration Statement" means the original Registration Statement and
any and all amendments thereto. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits thereto, to
which reference hereby is made. Each statement made in this Prospectus
concerning a document filed as an exhibit to the Registration Statement is not
necessarily complete and is qualified in its entirety by reference to such
exhibit for a complete statement of its provisions.
<PAGE>
Any interested party may
inspect the Registration Statement and its exhibits without charge, or obtain a
copy of all or any portion thereof, at prescribed rates, at the public reference
facilities of the Commission at its principal office at Judiciary Plaza, 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549. Such material may also be
accessed electronically by means of the Commission's home page on the Internet
or http:www.sec.gov for no charge.
The Company will furnish its stockholders with annual reports containing
financial statements audited by independent certified public accountants and
will file with the Commission quarterly reports containing unaudited financial
information for each of the first three quarters of each fiscal year within 45
days following the end of each such quarter.
<PAGE>
MANAGEMENT
The following table sets forth the names and ages of all current directors
and officers of the Company and the positions in the Company held by them:
Name Age Position
Steve Antry 43 President, Chairman
R. Thomas Fetters 57 Managing Director of Exploration, Director
J. Chris Steinhauser 39 Chief Financial Officer, Director
Joe C. Richardson, Jr. 70 Director
Stephen L. Fischer 40 Vice President of Capital Markets
Lisa Antry 36 Secretary, Treasurer
Lawrence W. Horwitz 39 Director
Directors are elected to serve until the next annual meeting of
stockholders and until their successors have been elected and qualified. The
Bylaws permit the board itself to fill vacancies and appoint additional
directors pending shareholder approval at the next annual meeting. Officers are
appointed to serve until the meeting of the Board of Directors following the
next annual meeting of stockholders and until their successors have been elected
and qualified. The Company's Bylaws currently authorize six directors to serve
on the Board of Directors. The last annual meeting was held on February 12,
1998.
Steve Antry and Lisa Antry are married.
The business experience of each director, executive officer and key
employee is summarized below.
MR. STEVE ANTRY, PRESIDENT AND CHAIRMAN OF THE BOARD OF DIRECTORS, is the
Company's founder. In addition, Mr. Antry founded Beta Capital Group, Inc., a
financial consulting firm in November 1992, and was its President through June
1997. Beta Capital Group, Inc. specializes in selecting and working with
emerging oil and gas exploration companies which have production and drilling
prospects strategic for rapid growth yet also need capital and market support to
achieve that growth. Most recently, Mr. Antry orchestrated and implemented the
restructuring of Pease Oil and Gas Company (NASDAQ: WPOG), and remains a
Director. Mr. Antry remains Chairman of the Board of Directors of Beta Capital
Group, Inc., but resigned as its President to devote his full attention to the
Company. Prior to forming Beta Capital Group, Inc., Mr. Antry was an early
officer of Benton Oil & Gas Company (NYSE: BNO) from 1989 through 1992,
ultimately becoming President of a wholly owned subsidiary. Prior to Benton, Mr.
Antry was a Marketing Director for Swift Energy (NYSE: SFY) from 1987 through
1989. Mr. Antry is from a third generation oil and gas family that built what
became the fourth largest drilling company in the U.S. He began working in the
oil fields in Oklahoma in 1974. He has served in various exploration management
capacities with different companies, including Warren Drilling Company, as Vice
President of Exploration and Nerco Oil and Gas, a division of Pacific Power and
Light, where he served as Western Regional Land Manager. Mr. Antry is a member
of the International Petroleum Association of America (IPAA), serving on the
Capital Markets Committee and has B.B.A. and M.B.A. degrees from Texas Christian
University.
MR. R. THOMAS FETTERS, CONSULTING MANAGER OF EXPLORATION, AND DIRECTOR, spent 17
years with Exxon ultimately achieving the position of Exploration Planning
Manager, Exxon U.S.A. Other notable positions held include Exploration Manager
for Exxon Australia (ESSO) and Division Manager of Research in Houston and Chief
Geologist, Exxon Production Malaysia. Mr. Fetters was President and Chief
Executive Officer of CNG Producing Co. in New Orleans from 1983 through 1989 and
President of XCL-China, Ltd. from 1989 through 1995. From 1995 through 1997, he
served as Senior Vice President of National Energy Group and also currently sits
on the Board XCL, Ltd.. Mr. Fetters is credited with many very significant oil
and gas discoveries around the world. He earned his B.S./M.S. in Geology from
the University of Tennessee in 1966.
MR. J. CHRIS STEINHAUSER, CHIEF FINANCIAL OFFICER AND DIRECTOR, joined the
Company in January 1998. He is a Certified Public Accountant in the State of
Colorado, who began his career with Peat, Marwick, Mitchell & Co. from 1981
through 1984. Since that time, Mr. Steinhauser was primarily (September 1987
through January, 1998) with Sharon Energy Ltd. and Sharon Resources, Inc. (their
operating subsidiary) ultimately serving as Executive Vice President and Chief
Financial Officer of the parent and
<PAGE>
President, COO and Director of the
subsidiary. He is experienced in financial and SEC reporting, shareholder
communications, tax filings, and all other aspects of a public oil and gas
exploration and production company. He received his BBA from University of
Southern California in 1981 and conducted graduate studies atthe University of
Denver Graduate Tax Program in 1985.
MR. STEPHEN L. FISCHER, VICE PRESIDENT OF CAPITAL MARKETS, has been Vice
President of Beta Capital Group, Inc. since March 1996 and from April 1996
through March 1998 he was also a registered representative of Signal Securities,
Inc. a registered broker-dealer. Between 1991 and prior to joining Beta Capital
Group, Inc. in 1996, Mr. Fischer was a Registered Representative of Peacock,
Hislop Staley & Given, an Arizona based investment banking firm. Since 1993,
Mr. Fischer has held various positions in the financial services industry
in investment banking, retail and institutional sales, with a special emphasis
on the oil and gas exploration sector.
MR. JOE C. RICHARDSON, JR., DIRECTOR, graduated from Texas A&M with B.S. degrees
in Petroleum Engineering and Mechanical Engineering in 1950 when he started his
career with Shamrock Oil and Gas in Amarillo, Texas. In 1961, Mr. Richardson
formed an oil, gas, refining, and compressor equipment fabrication company and,
in 1968, co-founded a public oil and gas company that was later merged with
Worldwide Energy, Inc. Mr. Richardson has been an officer and/or director of
several successful public and private companies including Pyro Energy, Inc.
(NYSE), Consolidated Oil & Gas (AMEX), Texoil, Inc. (NASDAQ), and Corporate
Systems Corporation. He is a Regent Emeritus of the Texas A&M University System,
past President of the Texas A&M Twelfth Man Association, and was honored in 1989
with the University's Distinguished Alumni Award. He currently serves on the
University Presidents' Advisory Board and the Engineering Advisory Council. Mr.
Richardson is a registered engineer in the state of Texas and a member of the
IPAA. The Petroleum Engineering Building on the campus of Texas A&M University,
completed in 1990, was named in his honor.
MS. LISA ANTRY, SECRETARY AND TREASURER, was Executive Vice President of Beta
Capital Group, Inc. from July 1994 through June 1997. In June 1997, she was
appointed President of Beta Capital Group, Inc. upon the resignation of Mr.
Antry. Ms. Antry has in excess of 15 years of finance, accounting, and tax
experience. Prior to Beta Capital Group, Inc., she served as Corporate Planning
Manager for United California Savings Bank from 1988 to July 1994. Ms. Antry
also served United California for several years as its Finance and Tax Manager
and worked at Priority Records, a recording and distribution company, as its
Controller. Ms. Antry received her B.B.A. from Stephen F. Austin University in
1984 and her M.B.A. from Pepperdine University in 1991.
MR. LAWRENCE W. HORWITZ, DIRECTOR, is a founding partner of Horwitz & Beam, an
Irvine, California law firm primarily representing Orange County business
concerns in high technology industries. His experience includes virtually all
legal issues associated with mergers, acquisitions and the raising of private
and public capital. Within the last three years, Mr. Horwitz's practice has
increasingly focused upon the legal and business issues associated with
utilizing mergers and acquisitions to achieve NASDAQ listing status. Mr. Horwitz
is a graduate of the University of California at Berkeley (B.S. 1981) and of
Boalt Hall School of Law, University of California at Berkeley (J.D. 1984). Mr.
Horwitz was admitted to the bar in both Texas and California in 1984. Lawrence
Horwitz commenced his career in Dallas, Texas where he was involved in a number
of private and public offerings involving oil and gas companies and related
limited partnerships. He has represented public oil and gas concerns in both
hostile takeovers, as well as mutually negotiated acquisitions. Prior to forming
Horwitz & Beam, Mr. Horwitz practiced in the corporate and securities group of
the Newport Beach law firm of Stradling, Yocca, Carlson & Rauth and was elected
a partner at Hart, King & Coldren, also located in Orange County. Mr. Horwitz
has been admitted to the U.S. Federal District Court, Central District of
California and the U.S. Court of Appeals, Ninth Circuit.
BOARD COMMITTEES
In September 1997, the Company initiated several steps to improve the
corporate governance and direction of the Company.
First, the Board of Directors established an Executive Committee whose
purpose is to formulate and implement recommendations, strategies and actions
which are intended to support and protect shareholder value. The Executive
Committee is comprised of three voting members: Steve Antry, the Company's
President and Chairman, Tom Fetters, a Director and consultant to the Company
and Joe C. Richardson, Jr., an independent Director. The Board of Directors
implemented these changes to enhance the decision making processes in all
aspects of the Company's business.
Second, the Board of Directors established an Audit Committee whose purpose
is to oversee the Company's financial reporting and controls and to recommend
the appointment of an independent auditor to the board each year. The Audit
Committee is comprised of three voting members: Larry Horwitz, a Director and
the Company's legal counsel, Tom Fetters, a Director and consultant to the
Company and Joe Richardson, an independent Director.
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information concerning the
compensation earned by the Company's Chief Executive Officer for services
rendered to the Company during the fiscal year ended December 31, 1997. No other
executive officer's cash compensation exceeded $100,000 for the fiscal year
ended December 31, 1997 nor does the Company expect that any other executive
officer's cash compensation will exceed $100,000 for the fiscal year ending
December 31, 1998.
<TABLE>
Long-Term
Other Compensation
Annual Awards- All Other
Compen- Restricted Compen-
Name and Principal Position Salary Bonus sation Stock Awards Sation
($) ($) ($) # ($)
<S> <C><C> <C> <C> <C> <C> <C> <C> <C>
Steve Antry
Chief Executive Officer and
Chairman of the Board of
Directors (2) $ 34,522.44(1) $ 0 $ 0 0 $ 2,294.72 (3)
============= ============ ========= =============== =============
<FN>
(1) Mr. Antry's annual salary is $150,000. Mr. Antry's salary commenced in
October of 1997. Therefore his salary for 1997 was as presented above.
(2) Mr. Antry directly owns, jointly with his wife, who is also an officer
of the Company, 1,500,000 shares of Common Stock which are being
registered hereby. Mr. Antry subscribed to the Common Stock on June 23,
1997 at a price of $0.05 per share.
(3) Represents payments toward annual car allowance per the terms of
Mr. Antry's contract of employment with the Company.
</FN>
</TABLE>
The Company's Bylaws state that non-employee Directors of the Company shall
not receive any stated salary for their services, but, by resolution of the
Board of Directors, a fixed sum and expense of attendance, if any, may be
allowed for attendance at each regular and special meeting of the Board of
Directors. The Company has paid a total of $2,000 in attendance fees to its
non-employee directors since inception. The Company will maintain directors and
officers liability insurance.
EMPLOYMENT CONTRACTS
The Company has executed an employment contract dated June 23, 1997 (the
"Contract") with its President and Chairman of the Board, Mr. Steve Antry. The
Contract provides for an indefinite term of employment at an annual salary of
$150,000 commencing in October of 1997 and an annual car allowance of up to
$12,000. The Contract may be terminated by the Company without cause upon the
payment of the following:
(a) Options to acquire the common stock of the Company in an amount
equal to 10% of the then issued and outstanding shares containing a
five year term, piggyback registration rights and an exercise price
equal to 60% of the fair market value of the shares during the sixty day
period of time preceding the termination notice, such amount not to
exceed $3.00 per share.
(b) A cash payment equal to two times the aggregate annual compensation.
(c) In the event of termination without cause, all unvested
securities issued by the Company to the Employee shall
immediately vest and the Company shall not have the right to
terminate or otherwise cancel any securities issued by the
Company to the Employee.
On June 23, 1997, the Company entered into an employment agreement
with Steve Fischer, a shareholder. The agreement, provides for a two year term
at an annual salary of $60,000 for services as "Vice President of Capital
Markets." Under separate agreement, Mr. Fischer subscribed to 350,000 shares
of Founders Shares at price of $0.05 per share. The subscription agreement
provides that the shares shall vest over a three year period.
<PAGE>
All other employees of the Company are terminable at will.
On January 27, 1998, the Company issued 100,000 common stock purchase
warrants exercisable at a price of $3.75 per share to J. Chris Steinhauser, the
Chief Financial Officer of the Company. The warrants vest as follows: (a) 25,000
warrants vested immediately; (b) 25,000 shall vest upon the first anniversary of
the employee's employment (January 27,1998) with the Company; (c) 25,000 shall
vest upon the second anniversary of employment; and (d) 25,000 shall vest upon
the third anniversary of employment. If the officer ceases employment during the
vesting period, all nonvested warrants shall be forfeited. The Warrants expire
on January 23, 2003.
COMPENSATION COMMITTEE
On October 17, 1998 the Board of Directors of the Company established a
Compensation Committee of the Board of Directors. The Compensation Committee
(the "Committee") of the Board of Directors is responsible for formulating and
recommending to the full Board of Directors the compensation paid to the
Company's executive officers. In reviewing the overall compensation of the
Company's executive officers, the Committee will review and consider the
following components of executive compensation: base salaries, stock
option/warrant grants, cash bonuses, insurance plans, and Company contributions
to Company sponsored retirement plans. There are, however, no stock option,
retirement or other long term compensation plans (other than what is set forth
below) currently in place or under discussion or consideration by the Board of
Directors at the present time. The Committee presently consists of one outside
Director, Joe Richardson Jr.. The Company intends to add an additional outside
director to the Board of Directors who will be added to the Compensation
Committee.
In establishing the compensation paid to the Company's executives, the
Committee emphasizes (i) providing compensation that will motivate and retain
the Company's executives and reward performance, (ii) encouraging the long-term
success of the Company, and (iii) encouraging the application of prudent
decision making processes in an industry marked by volatility and high risk.
The Committee will evaluate compensation paid to the Company's executive
officers based upon a variety of factors, including the Company's growth in oil
and gas reserves, the market value of the Company's Common Stock, cash flow, the
extent to which the Company's executive officers are able to find and create
opportunities for the Company to participate in drilling or acquisition ventures
having quality prospects, their ability to formulate and maintain sound budgets
for the Company's drilling ventures and other business activities, the overall
financial condition of the Company, and the extent to which proposed business
plans are met. The Committee does not assign relative weights or rankings to
these factors but instead makes a subjective determination based upon a
consideration of all such factors.
In establishing base salaries for the Company's executive officers, the
Committee does not rely on formal surveys or comparisons with other companies,
but instead relies on their general knowledge and experience, focusing on a
subjective analysis of each executive's contributions to the Company's overall
performance. Independent consultants have not been utilized by the Committee for
the purposes of determining compensation. While specific performance levels or
"benchmarks" are not used to establish salaries, the Committee will take into
account historic comparisons of Company performance. With respect to future
awards of stock warrants or options, the Committee will try to provide the
Company's executives with an incentive compensation vehicle that could result in
future additional compensation to the executives, but only if the value of the
Company increases for all stockholders.
<PAGE>
PRINCIPAL SHAREHOLDERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table contains information as of the date of this Prospectus
as to the beneficial ownership of shares of the Company's common stock held by
each person who was the beneficial owner of more than 5% of the outstanding
shares of that class, each person who is a director or officer of the Company
and all persons as a group who are officers and directors of the Company, and as
to the percentage of outstanding shares held.
<TABLE>
Approximate Approximate
Shares Beneficially Percent of Class Percent of Class
Name of Beneficial Owner Owned(1) Before the Offering After the Offering(2)
- --------------------------------------------- -------------------- --------------------- ---------------------
<S> <C> <C> <C>
Mr. Steve Antry
Mrs. Lisa Antry, Jointly
901 Dove Street, #230
Newport Beach, CA 92660 1,525,000(3) 21.1% 19%
Mr. R. Thomas Fetters
901 Dove Street, #230
Newport Beach, CA 92660 350,000(4) 4.9% 4.3%
Mr. Lawrence W. Horwitz
2 Venture Plaza,
Suite 350
Irvine, CA 92618 85,000(5) 1.2% 1%
Mr. Joe C. Richardson Jr.
901 Dove Street, #230
Newport Beach, CA 92660 400,000(6) 5.5% 5%
Mr. Stephen L. Fischer
901 Dove Street, #230
Newport Beach, CA 92660 375,000(7) 5.2% 4.6%
Mr. J. Chris Steinhauser
901 Dove Street, #230
Newport Beach, CA 92660 125,000(8) 1.7% 1.5%
==================== ===================== =====================
All officers and directors as a group
(6 persons) 2,860,000(9) 39.6% 35%
==================== ===================== =====================
<CAPTION>
All of the securities listed in this table are being registered for resale in
this Prospectus. However, certain of the shareholders in this table have agreed
that they will not, without prior consent of the Underwriter, sell their Shares
representing 2,300,000 of the 2,485,000 of the total benficial shares held for
one year from the date of this Prospectus.
See "Underwriting."
<FN>
(1) Unless otherwise indicated, all shares of Common Stock are held
directly with sole voting and investment powers. Securities not
outstanding, but included in the beneficial ownership of each such
person are deemed to be outstanding for the purpose of computing the
percentage of outstanding securities of the class owned by such person,
but are not deemed to be outstanding for the purpose of computing
percentage of the class owned by any other person.
(2) Assumes Maximum Offering.
(3) Mr. Steve Antry and Mrs. Lisa Antry, husband and wife, own 1,500,000
shares as community property. This also includes 25,000 shares of
Common Stock underlying presently exercisable stock warrants. The
Warrants are exercisable at $5.00 per share and expire on March 12,
2003.
<PAGE>
(4) Mr. Fetters subscribed to 350,000 shares of the Company's common stock
("Founder Shares").
(5) Mr. Horwitz subscribed to 50,000 Founder Shares. In addition, Horwitz &
Beam with whom the director is a shareholder, subscribed to 20,000
Founders Shares. This also includes 15,000 shares of Common Stock
underlying presently exercisable stock warrants. The Warrants are
exercisable at $5.00 per share and expire on March 12, 2003.
(6) Mr. Richardson subscribed to 400,000 Founder Shares.
(7) Mr. Fischer subscribed to 350,000 Founder Shares. This also includes
25,000 shares of COmmon Stock underlying presently exercisable stock
warrants. The Warrants are exercisable at $5.00 per share and expre on
March 12, 2003.
(8) This represents 100,000 shares of Common Stock underlying stock
warrants which shall expire on January 27, 2003. On January 27, 1998,
the Company issued 100,000 common stock purchase warrants exercisable
at a price of $3.75 per share to J. Chris Steinhauser, the chief
financial officer of the Company. The warrants vest as follows: (a)
25,000 warrants vested immediately; (b) 25,000 shall vest upon the
first anniversary of the employee's employment (Date of employment
is January 27,1998) with the Company; (c) 25,000 shall vest upon the
second anniversary of employment; and (d) 25,000 shall vest upon the
third anniversary of employment. This also includes 25,000 shares
underlying presently exercisable stock warrants which were granted
to Mr. Steinhauser. The Warrants are exercisable at $5.00 per share
and expire on March 12, 2003.
(9) Includes 190,000 shares of Common Stock underlying stock Warrants.
</FN>
</TABLE>
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
During the period from inception (June 6, 1997) through December 31, 1997,
a director of the Company, Mr. R.T. Fetters, was paid $20,000 pursuant to a
consulting contract for management and geologic evaluation services. In
addition, on June 23, 1997, the director subscribed to 350,000 shares of the
Company's common stock at a price of $0.05 per share ("Founder Shares")
A second director of the Company, Mr. Larry Horwitz, subscribed to 50,000
Founder Shares at a price of $0.05 per share. In addition, a legal firm with
whom the director is a shareholder, subscribed to 20,000 Founder Shares at a
price of $0.05 per share. The legal firm represents the Company as general
counsel. The legal firm also received 15,000 Common Stock Purchase Warrants
presently exercisable at a price of $5.00 per share until expiration on March
12, 2003 in connection with the February 12, 1998 private placement.
A third director of the Company, Mr. Joe Richardson, subscribed to 400,000
Founder Shares at price of $0.05 per share.
The Company entered into an expense sharing agreement with Beta Capital
Group, Inc., a company owned by the President and Chairman of the Board, and the
Treasurer of the Company.. The agreement provides for the allocation and
reimbursement of certain office expenses such as office rent, secretarial
support, office supplies, marketing materials, telephone charges between the
Company and Beta Capital Group, Inc. During the period from inception through
December 31, 1997 the Company made payments totaling $9,940 to Beta Capital
Group, Inc. in connection with this agreement. During the nine months ended
September 30, 1998 the Company paid $10,748 in connection with this agreement.
Effective October 1, 1997, the Company entered into an agreement to lease
office space. The lease agreement provides for a 24-month term expiring in
September 1999. Monthly rent payments under the lease agreement commenced in
October 1997. The lease agreement was previously in the name in Beta Capital
Group, Inc. and was modified and extended by amendment to reflect the Company as
tenant. The Company's President and Chairman, and Treasurer are personal
guarantors of the lease agreement.
<PAGE>
DESCRIPTION OF SECURITIES
The Company is authorized to issue 50,000,000 shares of Common Stock,
$0.001 par value. As of November 1, 1998, the Company had 7,029,492 shares of
Common Stock outstanding.
COMMON STOCK
Each holder of Common Stock is entitled to one vote per share on all
matters to be voted upon by the Company's stockholders. Stockholders are
entitled to as many votes as equal to the number of shares multiplied by the
number of directors to be elected and may cast all votes for a single director
or may distribute them among the number to be voted for any two or more of them
(cumulative voting rights) in the election of directors. The holders of Common
Stock are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the Board of Directors out of funds legally available
therefor. The Company has not paid, and does not presently intend to pay,
dividends on its Common Stock. In the event of a liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to prior
distribution rights of holders of Preferred Stock, if any, then outstanding. The
Common Stock has no preemptive or conversion rights or other subscription
rights. There are no redemption or sinking fund provisions available to the
Common Stock. All outstanding shares of Common Stock are validly authorized and
issued and are fully paid and non-assessable, and the shares of Common Stock to
be issued upon exercise of Warrants as described in this Prospectus will be
validly authorized and issued, fully paid and non-assessable. As of November 1,
1998 there were approximately 500 recordholders of the Company's Common Stock.
During the period from inception (June 6, 1997) through December 31, 1997,
the Company issued 797,245 callable and 730,977 non-callable Common Stock
Purchase Warrants entitling the holders to purchase 1,528,222 shares of the
Company's Common Stock at prices ranging from $2.00 to $5.00 per share. During
the nine month period ended September 30, 1998, the Company issued 415,958
callable and 553,483 non-callable Common Stock Purchase Warrants entitling the
holders to purchase 969,441 shares of the Company's Common Stock at prices
ranging from $3.75 to $7.50 per share. The Company will be entitled to call
797,245 warrants at any time on and after the date that its Common Stock is
traded on any exchange, including the Over-the-Counter Bulletin Board, at a
market price equal or exceeding $7.00 per share for 10 consecutive trading days.
In addition, the Company will be entitled to call 415,958 warrants at any time
on and after the date that its Common Stock is traded on any exchange, including
the Over-the-Counter Bulletin Board, at a market price equal or exceeding $10.00
per share for 10 consecutive trading days. All Common Stock Purchase Warrants
expire five (5) years from their date of issuance.
STOCKHOLDER ACTION
Pursuant to the Company's Bylaws, with respect to any act or action
required of or by the holders of the Common Stock, the affirmative vote of the
holders of a majority of the issued and outstanding Common Stock entitled to
vote thereon is sufficient to authorize, affirm, ratify or consent to such act
or action, except as otherwise provided by law. Officers, directors and holders'
of 5% or more of the Company's outstanding common stock do not constitute a
majority and thus do not control the voting upon all actions required or
permitted to be taken by stockholders of the Company, including the election of
directors.
POSSIBLE ANTI-TAKEOVER EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
The Company's authorized but unissued capital stock consists of 42,970,508
shares of Common Stock. One of the effects of the existence of authorized but
unissued capital stock may be to enable the Board of Directors to render more
difficult or to discourage an attempt to obtain control of the Company by means
of a merger, tender offer, proxy contest or otherwise, and thereby to protect
the continuity of the Company's management. If in the due exercise of its
fiduciary obligations, for example, the Board of Directors were to determine
that a takeover proposal was not in the Company's best interests, such shares
could be issued by the Board of Directors without stockholder approval in one or
more private placements or other transactions that might prevent or render more
difficult or costly the completion of the takeover transaction by diluting the
voting or other rights of the proposed acquiring or insurgent stockholder or
stockholder group, by creating a substantial voting block in institutional or
other hands that might undertake to support the position of the incumbent Board
of Directors, by effecting an acquisition that might complicate or preclude the
takeover, or otherwise.
<PAGE>
OTHER ANTI-TAKEOVER PROVISIONS
The Company executed a contract of employment with the President and
Chairman of the Board of Directors, Mr. Steve Antry, dated June 23, 1997. The
Contract provides for an indefinite term of employment at an annual salary of
$150,000 (commencing in October 1997) and an annual car allowance of up to
$12,000. The Contract may be terminated by the Company without cause upon the
payment of the following:
(a) Options to acquire the common stock of the Company in an
amount equal to 10% of the then issued and outstanding shares
containing a five year term, piggyback registration rights and
an exercise price equal to 60% of the fair market value of the
shares during the sixty day period of time preceding the
termination notice, such amount not to exceed $3.00 per share.
(b) A cash payment equal to two times the aggregate annual
compensation.
(c) In the event of termination without cause, all unvested
securities issued by the Company to the Employee shall
immediately vest and the Company shall not have the right to
terminate or otherwise cancel any securities issued by the
Company to the Employee.
The termination provisions of this employment contract were designed, in
part, to impede and discourage a hostile takeover attempt and to protect the
continuity of management.
CERTAIN CHARTER AND BYLAWS PROVISIONS
Limitation of Liability
The Company's Articles of Incorporation and its Bylaws limit the liability
of directors and officers to the extent permitted by Nevada law. Specifically,
the Articles of Incorporation provide that the directors and officers of the
Company will not be personally liable to the Company or its shareholders for
monetary damages for breach of their fiduciary duties as directors, including
gross negligence, except liability for acts or omissions "which involve
intentional misconduct, fraud or a knowing violation of law not in good faith,
or the payment of dividends in violation of Section 78.300 of the Nevada Revised
Statutes."
The Company has obtained a directors and officers liability insurance
policy for the purposes of indemnification which shall cover all elected and
appointed directors and officers of the Company up to $1,000,000 for each claim
and $3,000,000 in the aggregate. The Company believes that the limitation of
liability provision in its Articles of Incorporation, and the directors and
officers liability insurance will facilitate the Company's ability to continue
to attract and retain qualified individuals to serve as directors and officers
of the Company.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the Company,
the Company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer, or controlling person of the Company in
the successful defense of any action, suitor proceeding) is asserted by such
director, officer or controlling person of the Company in connection with the
securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by a controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issues.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent for which indemnification will be required
or permitted under the Company's Articles of Incorporation. The Company is not
aware of any threatened litigation or proceeding which may result in a claim for
such indemnification.
STOCKHOLDER MEETINGS AND OTHER PROVISIONS
Under the Bylaws, special meetings of the stockholders of the Company may
be called only by a majority of the members of the Board of Directors, the
Chairman of the Board, the President, or by one or more stockholders holding
shares in the aggregate
<PAGE>
entitled to cast not less than 10% of the votes at any such meeting. The annual
meeting shall be held each year on May 15 at 10:00 A.M.(or within twenty days of
May 15 as determined by the Directors) at a place to be designated by the
Board of Directors.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Oxford Transfer
& Registrar, 317 S.W. Alder, Portland, OR 97204.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have between 7,629,492
(Minimum Offering) and 7,909,492 (Maximum Offering) shares of Common Stock
outstanding assuming no exercise of the 2,585,663 Common Stock Warrants
Outstanding. All the shares being registered under the Registration Statement,
of which this Prospectus is a part, will be freely transferable by persons other
than "affiliates" of the Company (as that term is defined under the Securities
Act of 1933, the "Act"), without restriction or further registration under the
Act. The Company is obligated to register the existing shares of Common Stock
and the existing shares of Common Stock issuable upon exercise of the Common
Stock Purchase Warrants in any subsequent registration statement filed by the
Company with the Securities Exchange Commission, so that holders of such Common
Stock shall be entitled to sell the same simultaneously with and upon the terms
and conditions as the securities sold for the account of the Company are being
sold pursuant to any such registration statement, subject to such lock-up
provisions as may be proposed by the underwriter and agreed to by the investors
(the "Piggyback Registration Right"). Because the Company is registering all
existing Common Stock and all existing Common Stock issuable upon exercise of
the Common Stock Purchase Warrants in this registration statement, the Company's
obligation to existing shareholders and warrant holders will be fulfilled.
The Company is unable to estimate the number of shares that may be sold in
the future by its existing shareholders or the effect, if any, that sales of
shares by such shareholders will have on the market price of the Common Stock
prevailing from time to time. Sales of substantial amounts of Common Stock by
exisitng shareholders could adversely affect prevailing market prices. See "Risk
Factors - Common Stock Eligible for Future Sales."
UNDERWRITING
The Company has entered into an Underwriting Agreement (the "Agreement")
with Hagerty Stewart (the "Underwriter"). Under the Agreement, the Company has
retained the Underwriter as its exclusive agent to offer, sell and distribute
publicly on a "best efforts" basis a minimum of 600,000 and a maximum of 880,000
shares of the Common Stock of the Company at an Offering price of $6.00 per
share, for a gross Minimum Offering of $3,600,000 and a gross Maximum Offering
of $5,280,000. All of the proceeds from the sale of the shares offered hereby
will be deposited into the Beta Oil & Gas escrow account at California State
Bank, Newport Beach, California. None of the shares offered hereby may be sold
unless, within 90 days from the date of this Prospectus (the "Offering Period"),
which may be extended by the Company for an additional 30 days upon mutual
consent of the Company and the Underwriter, subscriptions for the purchase of,
and payment for, at least 600,000 of the shares offered hereby have been
received (the "Minimum Condition"). If the Minimum Condition is satisfied, the
funds in the escrow account will be released to the Company to be used for the
purposes set forth in this Prospectus under the caption "Use of Proceeds" and
the Company will issue certificates for those shares to the subscribers. If the
Minimum Condition is satisfied prior to the expiration of the Offering Period,
the Offering will continue until the earlier of (i) the receipt of subscriptions
and payments for the remaining unsold shares or (ii) the expiration of the
Offering Period. Within three (3) business days thereafter, any subscription
funds in the escrow account will be distributed to the Company and the Company
will issue stock certificates for those shares to the subscribers. No shares
will be issued to any of the subscribers until the Minimum Condition is
satisfied and the subscription funds for the purchase of such shares have been
released from the escrow account to the Company.
If the Minimum Condition is not met prior to the expiration or earlier
termination of the Offering Period, all monies will be refunded promptly to the
subscribers, with interest and without deduction for commissions or expenses,
directly from the escrow account.
The Underwriter has advised the Company that it intends to offer the shares
only through itself and selected licensed securities dealers who are members of
the National Association of Securities Dealers, Inc. (the "Selected Dealers").
Neither the Underwriter nor the Selected Dealers have made a firm commitment to
purchase any of the shares offered hereby. There are no assurances that any or
all of the shares will be sold.
<PAGE>
Subject to the sale of at least 600,000 shares of Common Stock, the Company
has agreed to pay to the Underwriter a commission of ten percent of the initial
Offering price ($.60 per share). In addition, the Company has agreed to pay the
Underwriter a nonaccountable expense allowance equal to three percent of the
proceeds of the Offering ($.18 per share). The Underwriter has advised the
Company that it intends to allow a selling concession of $.48 per share to
Selected Dealers who sell shares in the Offeringfrom the ten percent commission
payable to the Underwriter. No concession shall be earned or paid unless the
Minimum Condition is satisfied prior to the expiration of the Offering Period.
The Underwriter reserves the right to reject all subscriptions, in whole or in
part, to make allotments and to close subscriptions at any time without notice.
The Selected Dealers Agreement may be terminated by the Underwriter or any of
the Selected Dealers by one party giving notice of the termination to the other
at any time. Such termination will not affect the Selected Dealer's right to
concessions on subscriptions accepted prior thereto, provided the Minimum
Condition is satisfied .
Subject to the sale of the minimum of 600,000 of the shares of Common Stock
offered hereby, the Company has agreed to sell to the Underwriter, for $100,
Warrants to purchase a number of shares of Common Stock of the Company equal to
10% of the shares sold in this Offering (the "Underwriter's Warrants") at an
exercise price per share equal to $7.50 per share (which is 125% of the initial
public Offering price of the shares offered hereby). The Underwriter's Warrants
are exercisable for a period of four years beginning one year after the date of
this Prospectus. The Underwriter's Warrants are not transferable except to
officers, employees and partners of the Underwriter and Selected Dealers and
their respective successors, and will contain provisions for appropriate
adjustments in the event of stock splits, stock dividends, combinations,
reorganizations, recapitalizations and certain other events. In addition, the
Company has granted certain rights to the holders of the Underwriter's Warrants
to register the Common Stock underlying the Underwriter's Warrants under the
Securities Act.
The Company has agreed to indemnify the Underwriter against certain civil
liabilities, including liabilities under the Securities Act, or to contribute to
payments the Underwriter may be required to make in respect thereof.
The Underwriter has advised the Company that the Underwriter does not
expect to make sales to accounts over which it exercises discretionary authority
in excess of 5% of the number of shares of Common Stock offered hereby.
Certain shareholders of the Company, including those shareholders who also
are executive officers and directors of the Company, have agreed that they will
not, without the prior written consent of the Underwriter, offer, sell or
otherwise dispose of certain Founder's Shares owned by them totaling 2,670,000
shares of Common Stock during the 365-day period following the date of this
Prospectus. The Company has agreed not to offer, sell, grant any options to
purchase or otherwise dispose of any shares of Common Stock during the 365-day
period following the date of this Prospectus, without the prior written consent
of the Underwriter, except that the Company may issue shares upon the exercise
of options granted and warrants issued prior to the date hereof and for certain
other business purposes.
Prior to this Offering, there has been no market for the Common Stock of
the Company. Accordingly, the initial public Offering price has been determined
by negotiation between the Company and the Underwriter. Among the factors
considered in determining the initial public Offering price were the Company's
working interests and seismic assets, the Company's future prospects, the prices
at which the Company sold shares of Common Stock in private, arms length
transactions during the past six months, the experience of its management, the
general condition of the equity securities market and the demand for similar
securities of companies considered comparable to the Company.
The foregoing is a summary of the material provisions of the Underwriting
Agreement but is not a complete statement of its terms and conditions. A copy of
the Underwriting Agreement is on file with the Securities and Exchange
Commission as an exhibit to the Registration Statement of which the Prospectus
forms a part. See " (Available Information)." The complete Underwriting
Agreement may be viewed on the SEC's EDGAR database at www.sec.gov.
LEGAL MATTERS
Certain legal matters in connection with this Registration Statement are
being passed upon for the Company by Horwitz & Beam, Two Venture Plaza, Suite
350, Irvine, CA 92618. Members of that firm own 70,000 shares of the Company's
Common Stock, which includes 50,000 shares held by Lawrence W. Horwitz, a senior
partner of the firm and a director of the Company.
The firm also owns 15,000 shares underlying presently exercisable Common Stock
Warrants.
Certain legal matters in connection with this Registration Statement are
being passed upon for the Underwriter by Stradling Yocca Carlson & Rauth, 660
Newport Center Drive, Suite 1600, Newport Beach, CA 92660.
<PAGE>
EXPERTS
The financial statements as of December 31, 1997 and for the period from
inception (June 6, 1997) through December 31, 1997 included in this Prospectus
have been so included in reliance on the report of Hein + Associates LLP,
independent certified public accountants, appearing elsewhere in this Prospectus
and given on the authority of said firm as experts in auditing and accounting.
<PAGE>
BETA OIL & GAS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
Page
<S> <C>
Independent Auditors Report..........................................................................................F-2
Consolidated Balance Sheets as of December 31, 1997 and September 30, 1998 (Unaudited)...............................F-3
Consolidated Statements of Operations for the Period from Inception (June 6,
1997) through December 31, 1997, the Period from Inception (June 6, 1997)
through September 30,1997 (Unaudited), the the Nine Months Ended September 30,
1998 (Unaudited), and Cumulative from Inception through September 30, 1998
(Unaudited)..........................................................................................................F-5
Consolidated Statement of Shareholders' Equity for the Period from Inception
(June 6, 1997) through September 30, 1998 (the Period from January 1, 1998 to
September 30, 1998 is unaudited).....................................................................................F-6
Consolidated Statements of Cash flows for the Nine Months Ended September 30,
1998 (Unaudited) and the Period from inception (June 6, 1997) through September
30, 1997 (Unaudited), Period from Inception through December 31, 1997, and
Cumulative from Inception through September 30, 1998
(Unaudited)..........................................................................................................F-7
Notes to Consolidated Financial Statements...........................................................................F-8
</TABLE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Shareholders and Board of Directors
Beta Oil & Gas, Inc. (a Development Stage Enterprise)
Newport Beach, California
We have audited the accompanying balance sheet of Beta Oil & Gas, Inc. (a
Development Stage Enterprise) as of December 31, 1997 and the related statements
of operations, shareholders' equity, and cash flows for the period from
inception (June 6, 1997) to December 31, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Beta Oil & Gas, Inc. (a
Development Stage Enterprise) as of December 31, 1997 and the results of its
operations and its cash flows for the period from inception (June 6, 1997) to
December 31, 1997.
/s/ HEIN + ASSOCIATES LLP
HEIN + ASSOCIATES LLP
Certified Public Accountants
Orange, California
April 10, 1998
<PAGE>
BETA OIL & GAS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
<TABLE>
ASSETS December 31, September
1997 30, 1998
----------------- -----------------
(Unaudited)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 3,985,599 $ 91,567
Accounts receivable - 15,464
Common Stock subscriptions receivable - 1,401,500
Prepaid expenses 2,599 8,825
----------------- -----------------
Total current assets 3,988,198 1,517,356
----------------- -----------------
Oil and gas properties, at cost (full cost method):
Evaluated properties - 2,800,334
Unevaluated properties 5,900,794 11,119,239
Less--accumulated depreciation, depletion,
Amortization and impairment - (1,618,432)
----------------- -----------------
Net oil and gas properties 5,900,794 12,301,141
----------------- -----------------
Furniture, fixtures and equipment, at cost, less
Accumulated depreciation of $1,530 and $10,383 (unaudited) at
December 31, 1997 and September 30, 1998, respectively 32,065 25,973
Other assets, at cost: - 52,315
================= =================
$ 9,921,057 $ 13,896,785
================= =================
<CAPTION>
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
<PAGE>
BETA OIL & GAS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
<TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY December 31, September 30,
1997 1998
----------------- -----------------
(Unaudited)
<S> <C> <C> <C><C>
CURRENT LIABILITIES:
Accounts payable, trade $ 807,474 $ 265,796
Commissions payable 25,329 149,550
Payroll and payroll taxes payable 24,044 17,415
Other accrued expenses 14,000 -
----------------- -----------------
Total current liabilities 870,847 432,761
----------------- -----------------
COMMITMENTS AND CONTINGENCIES (NOTES 1, 3, 7 AND 8)
SHAREHOLDERS' EQUITY:
Common Stock, $.001 par value; 10,000,000 and 50,000,000 (unaudited)
shares authorized at December 31, 1997 and September 30, 1998;
5,565,648 and 6,725,192 (unaudited) shares issued and outstanding at
December 31, 1997 and September 30, 1998, respectively 5,566 6,725
Additional paid-in capital 9,246,217 14,540,548
Common Stock subscribed, 280,300 shares - 1,261,350
Deficit accumulated during the development stage (201,573) (2,344,599)
----------------- -----------------
Total shareholders' equity 9,050,210 13,464,024
----------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 9,921,057 $ 13,896,785
================= =================
<CAPTION>
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
<PAGE>
BETA OIL & GAS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
For the For the period Cumulative
period from from inception Nine months from
inception (June 6, 1997) ended September inception
(June 6, to September 30, 30, 1998 (June 6,
1997) to 1997 1997) to
December 31, September 30,
1997 1998
----------------- ------------------ ------------------ ------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C><C> <C><C> <C> <C> <C><C>
REVENUES $ - $ - $ - $ -
----------------- ------------------ ------------------ ------------------
COSTS AND EXPENSES:
General and administrative 245,452 47,047 555,608 801,060
Impairment expense - - 1,618,432 1,618,432
Depreciation expense 1,530 - 8,853 10,383
----------------- ------------------ ------------------ ------------------
Total costs and expenses 246,982 47,047 2,182,893 2,429,875
----------------- ------------------ ------------------ ------------------
LOSS FROM OPERATIONS (246,982) (47,047) (2,182,893) (2,429,875)
OTHER INCOME:
Interest income 45,409 5,792 39,867 85,276
================= ================== ================== ==================
NET LOSS $ (201,573) $ (41,255) $ (2,143,026) $ (2,344,599)
================= ================== ================== ==================
BASIC AND
DILUTED LOSS
PER COMMON SHARE ($.05) ($.01) ($.35) ($.45)
================= ================== ================== ==================
Weighted average number of
Common shares outstanding 4,172,662 2,786,987 6,154,036 5,221,757
================= ================== ================== ==================
<CAPTION>
The accompanying notes are an integral part of these consolidated financial statement
</TABLE>
<PAGE>
BETA OIL & GAS, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
Common Stock
-------------------------------------- Additional Common
Paid-in Stock
Shares Amount Capital Subscribed
----------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, June 6, 1997 - $ - $ - $ -
Issuance of Common Stock at $.05
per share on June 23, 1997 2,910,000 2,910 142,590 -
Issuance of Common Stock at $3.75
per share on Sept. 5, 1997 2,655,648 2,656 9,073,627 -
Salary contributed to the Company - - 30,000 -
Net loss - - - -
----------------- ----------------- ---------------- ----------------
BALANCES, December 31, 1997 5,565,648 5,566 9,246,217 -
Issuance of Common Stock at $5.00 per
share (unaudited) 1,154,544 1,154 5,224,336 -
Issuance of shares for properties at $5.00
per share (unaudited) 5,000 5 24,995 -
Common Stock subscribed at $5.00
per share (unaudited) - - - 1,261,350
Salary contributed to the Company - - 45,000 -
Net loss (unaudited) - - - -
BALANCES,
================= ================= ================ ================
September 30, 1998 (Unaudited) 6,725,192 $ 6,725 $ 14,540,548 $ 1,261,350
================= ================= ================ ================
Deficit
Accumulated
During the Total
Development Shareholders'
Stage Equity
---------------- ------------------
<S> <C> <C> <C> <C>
BALANCES, June 6, 1997 $ - $ -
Issuance of Common Stock at $.05
per share on June 23, 1997 - 145,500
Issuance of Common Stock at $3.75
per share on Sept. 5, 1997 - 9,076,283
Salary contributed to the Company - 30,000
Net loss (201,573) (201,573)
--------------- ------------------
BALANCES, December 31, 1997 (201,573) 9,050,210
Issuance of Common Stock at $5.00 per
share (unaudited) - 5,225,490
Issuance of shares for properties at $5.00
per share (unaudited) - 25,000
Common Stock subscribed at $5.00
per share (unaudited) - 1,261,350
Salary contributed to the Company - 45,000
Net loss (unaudited) (2,143,026) (2,143,026)
BALANCES,
================ ==================
September 30, 1998 (Unaudited) $ (2, 344,599) $ 13,464,024
================ ==================
<CAPTION>
The accompanying notes are an integral part to these consolidated financial statements
</TABLE>
<PAGE>
BETA OIL & GAS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
For the period For the period Cumulative
from inception from inception For the nine from inception
(June 6, 1997) (June 6, 1997) months ended (June 6, 1997)
to December to September September 30, to September
31, 1997 30, 1997 1998 30, 1998
----------------- ----------------- ----------------- -----------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C><C> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (201,573) $ (41,255) $ (2,143,026) $ (2,344,599)
Adjustments to reconcile net loss to net
cash (used in) operating activities:
Depreciation 1,530 - 8,853 10,383
Impairment expense - - 1,618,432 1,618,432
Salary contributed to the Company 30,000 15,000 45,000 75,000
Changes in operating assets and liabilities:
(Increase) in accounts receivable - - (15,464) (15,464)
Increase (decrease) in prepaid expenses (2,599) - (6,226) (8,825)
Increase (decrease) in accounts payable,
trade 36,034 8,276 229,762 265,796
Increase (decrease) in commissions
payable 25,329 - (15,929) 9,400
Increase (decrease) in payroll taxes 24,044 - (6,629) 17,415
payable
Increase (decrease) in other accrued
expenses 14,000 - (14,000) -
Net cash (used in)
----------------- ----------------- ----------------- -----------------
Operating activities (73,235) (17,979) (299,227) (372,462)
----------------- ----------------- ----------------- -----------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Oil and gas property expenditures (5,129,354) (2,586,560) (8,765,218) (13,894,572)
Change in other assets - - (52,315) (52,315)
Acquisition of furniture, fixtures & equipment (33,595) - (2,762) (36,357)
----------------- ----------------- ----------------- -----------------
Net cash used in investing activities (5,162,949) (2,586,560) (8,820,295) (13,983,244)
----------------- ----------------- ----------------- -----------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from sale of shares and Warrants, net 9,221,783 4,723,019 5,225,490 14,447,273
----------------- ----------------- ----------------- -----------------
Net cash provided by financing activities 9,221,783 4,723,019 5,225,490 14,447,273
----------------- ----------------- ----------------- -----------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS: 3,985,599 2,118,480 (3,894,032) 91,567
CASH AND CASH EQUIVALENTS:
Beginning of period - - 3,985,599 -
================= ================= ================= =================
End of period $ 3,985,599 $ 2,118,480 $ 91,567 $ 91,567
================= ================= ================= =================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ - $ - $ - $ -
================= ================= ================= =================
Cash paid for income taxes $ - $ - $ - $ -
================= ================= ================= =================
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the nine month period ended September 30, 1998 (unaudited) and the
period cumulative from inception (June 6, 1997) to September 30, 1998
(unaudited), the Company issued 5,000 shares of Common Stock for properties
costing $25,000.
<CAPTION>
The accompanying notes are an integral part to these consolidated financial statements
</TABLE>
<PAGE>
BETA OIL & GAS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to December 31, 1997 is unaudited)
(1) ORGANIZATION AND OPERATIONS
The Company
Beta Oil & Gas, Inc. (the "Company"), a development stage enterprise, was
incorporated under the laws of the State of Nevada on June 6, 1997 to
participate in the oil and gas acquisition, exploration, development and
production business in the United States and internationally. The Company's
wholly owned subsidiary, BETAustralia, LLC, was formed on February 20, 1998 as a
limited liability company under the laws of the State of California for the
purposes of participating in the acquisition, evaluation and development of
exploration blocks in Australia.
Operations
Since its inception, the Company has participated as a non-operating working
interest owner in the acquisition of undeveloped leases, seismic options, lease
options and foreign concessions and has participated in extensive seismic
surveys and the drilling of test wells on its undeveloped properties. Further
leasehold acquisitions and seismic operations are planned for 1998 and future
periods. In addition, exploratory drilling is scheduled during the fourth
quarter of 1998 and future periods on the Company's undeveloped properties. It
is anticipated that these exploration activities together with others that may
be entered into will impose financial requirements which will exceed the
existing working capital of the Company. Management plans to raise additional
equity capital to finance its continued participation in planned activities. In
the event these financing efforts are unsuccessful, the Company will be
compelled to reduce the scope of its business activities.
The Company is considered to be in the development stage as defined in Statement
of Financial Accounting Standards No. 7 ("SFAS 7") and is subject to risks
associated with its development stage activities. To date, the Company has had a
minimal operating history and has generated no revenues from oil and gas
operations. Oil and gas exploration is a speculative business and involves a
high degree of risk.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires the Company's management to
make estimates and assumptions that affect the amounts reported in these
financial statements and accompanying notes. Actual results could differ from
those estimates.
The Company's financial statements are based upon a number of significant
estimates, including the impairment of oil and gas properties and the estimated
useful lives selected for furniture, fixtures and equipment. Due to the
uncertainties inherent in the estimation process, it is at least reasonably
possible that these estimates will be further revised in the near term and such
revisions could be material.
<PAGE>
BETA OIL & GAS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to December 31, 1997 is unaudited)
Oil and Gas Properties
The Company follows the full cost method of accounting for oil and gas producing
activities and, accordingly, capitalizes all costs incurred in the acquisition,
exploration, and development of proved oil and gas properties, including the
costs of abandoned properties, dry holes, geophysical costs, and annual lease
rentals. All general corporate costs are expensed as incurred. In general, sales
or other dispositions of oil and gas properties are accounted for as adjustments
to capitalized costs, with no gain or loss recorded. Amortization of evaluated
oil and gas properties is computed on the units of production method based on
all proved reserves on a country by country basis. Unevaluated oil and gas
properties are assessed for impairment either individually or on an aggregate
basis. The net capitalized costs of evaluated oil and gas properties (full cost
ceiling limitation) are not to exceed their related estimated future net
revenues discounted at 10%, and the lower of cost or estimated fair value of
unproved properties, net of tax considerations.
Joint Ventures
All exploration and production activities are conducted jointly with others and,
accordingly, the accounts reflect only the Company's proportionate interest in
such activities. The Company is a non-operator in all of its oil and gas
producing activities to date.
Revenue Recognition
Revenue will be recognized upon delivery of oil and gas production.
Furniture, Fixtures and Equipment
Furniture, fixtures and equipment is stated at cost. Depreciation is provided on
furniture, fixtures and equipment using the straight-line method over an
estimated service life of three years.
Income Taxes
The Company accounts for income taxes using the asset and liability method
wherein deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which the temporary
differences are expected to be recovered or settled.
Concentrations of Credit Risk
Credit risk represents the accounting loss that would be recognized at the
reporting date if counterparties failed completely to perform as contracted.
Concentrations of credit risk (whether on or off balance sheet) that arise from
financial instruments exist for groups of customers or counterparties when they
have similar economic characteristics that would cause their ability to meet
contractual obligations to be similarly affected by changes in economic or other
conditions described below. In accordance with FASB Statement No. 105,
Disclosure of Information about Financial Instruments with Off-Balance-Sheet
Risk and Financial Instruments with Concentrations of Credit Risk, the credit
risk amounts shown in cash and accounts receivable do not take into account the
value of any collateral or security.
As of December 31, 1997, the Company maintained cash in a bank that was
approximately $3,886,000 in excess of the federally insured limit.
<PAGE>
BETA OIL & GAS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to December 31, 1997 is unaudited)
Fair Value of Financial Instruments
The estimated fair values for financial instruments under FAS No. 107,
Disclosures about Fair Value of Financial Instruments, are determined at
discrete points in time based on relevant market information. These estimates
involve uncertainties and cannot be determined with precision. The estimated
fair values of the Company's financial instruments, which includes all cash,
accounts receivable and accounts payable, approximates the carrying value in the
financial statements at December 31, 1997.
Stock Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB25) and related interpretations in
accounting for its employee stock options. In accordance with FASB Statement No.
123 Accounting for Stock-Based Compensation (FASB123), the Company will disclose
the impact of adopting the fair value accounting of employee stock options.
Transactions in equity instruments with non-employees for goods or services have
been accounted for using the fair value method as prescribed by FASB123.
Loss Per Common Share
Basic earnings per share excludes dilution and is calculated by dividing net
loss by the weighted average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity. Potential common shares for all periods presented
were anti-dilutive and excluded in the earnings per share computation.
Cash Equivalents
For purposes of the Statements of Cash Flows, cash and cash equivalents include
cash on hand, amounts held in banks and highly liquid investments purchased with
an original maturity of three months or less.
Impact of Recently Issued Standards
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards 130, Reporting Comprehensive Income?and Statement of
Financial Accounting Standards 131, Disclosures About Segments of an Enterprise
and Related Information. Statement 130 establishes standards for reporting and
display of comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity except those
resulting from investments by owners and distributions to owners. Among other
disclosures, Statement 130 requires that all components of comprehensive income
shall be classified based on their nature and shall be reported in the financial
statements in the period in which they are recognized. A total amount for
comprehensive income shall be displayed in the financial statements where the
components of other comprehensive income are reported. Statement 131 supersedes
Statement of Financial Accounting Standards 14, Financial Reporting for Segments
of a Business Enterprise. Statement 131 establishes standards on the way that
public companies report financial information about operating segments in annual
financial statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. Statement 131 defines operating segments as components of a company
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how to allocate
resources and in assessing performance.
Statements 130 and 131 are effective for financial statements for periods
beginning after December 15, 1997 and require comparative information for
earlier years to be restated. Because of the recent issuance of these standards,
management has been unable to fully evaluate the impact, if any, the standards
may have on the future financial
<PAGE>
BETA OIL & GAS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to December 31, 1997 is unaudited)
statement disclosures. Results of operations and financial position, however,
will be unaffected by implementation of these standards.
Unaudited Information
The balance sheet as of September 30, 1998 and the statements of operations for
the nine month period ended September 30, 1998 and the period from inception
(June 6, 1997) to September 30, 1997 were taken from the Company's books and
records without audit. However, in the opinion of management, such information
includes all adjustments (consisting only of normal accruals), which are
necessary to properly reflect the financial position of the Company as of
September 30, 1998 and the results of operations for the nine month period ended
September 30, 1998 and the period from inception (June 6, 1997) to September 30,
1997. The results of operations for the interim periods presented are not
necessarily indicative of those expected for the year.
(3) SUMMARY OF OIL AND GAS OPERATIONS
Capitalized costs at December 31, 1997 and September 30, 1998 relating to the
Company's oil and gas activities are summarized as follows:
<TABLE>
December 31, 1997 September 30, 1998
------------------------------- -------------------------------
(Unaudited)
United United
States Foreign States Foreign
------------- -------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capitalized costs-
Evaluated properties $ - $ - $ 1,181,902 $ 1,618,432
Unevaluated properties 5,870,794 30,000 11,079,276 39,963
Less- Accumulated depreciation,
depletion, amortization
And impairment - - - (1,618,432)
============= ============== ============= =================
$ 5,870,794 $ 30,000 $ 12,261,178 $ 39,963
============= ============== ============= ================
</TABLE>
<PAGE>
BETA OIL & GAS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to December 31, 1997 is unaudited)
Costs incurred in oil and gas producing activities are as follows:
<TABLE>
Inception (June 6, 1997) Cumulative from inception
through December 31, 1997 Nine Months ended (June 6, 1997) through
September 30, 1998 September 30, 1997
------------------------------ ------------------------------- -------------------------------
(Unaudited) (Unaudited)
United United United
States Foreign States Foreign States Foreign
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Property acquisition $ 3,835,540 $ - $ 2,558,571 $ 323,463 $ 6,394,111 $ 323,463
============= ============= ============== ============= ============= =============
Exploration $ 2,035,254 $ 30,000 $ 3,831,813 $ 1,304,932 $ 5,867,067 $ 1,334,932
============= ============= ============== ============= ============= =============
Development $ - $ - $ - $ - $ - $ -
============= ============= ============== ============= ============= =============
</TABLE>
As of December 31, 1997 and September 30, 1998 , respectively, the Company has
not made a provision for depletion (amortization) since it has not derived any
production from its properties. All costs incurred through December 31, 1997
have been excluded from the amortization base. As the Company's properties are
evaluated through exploration, they will be included in the amortization base.
Costs of unevaluated properties in the United States at December 31, 1997 and
September 30, 1998 represent property acquisition and exploration costs in
connection with the Company's Louisiana, Texas and California prospects. The
prospects and their related costs in unevaluated properties have been assessed
individually and no impairment charges were considered necessary for the United
States properties for any of the periods presented. The current status of these
prospects is that seismic has been acquired, processed and is currently being
interpreted on the subject lands within the prospects. Drilling is expected to
commence on the prospects in the fourth quarter of 1998 and continue in future
periods. As the prospects are evaluated through drilling in future periods, the
property acquisition and exploration costs associated with the wells drilled
will be transferred to evaluated properties where they will be subject to
amortization.
During the nine months ended September 30, 1998 the Company participated in the
drilling of 4 wells within the United States. The property acquisition and
exploration costs associated with the wells totaling $1,181,902 have been
transferred to evaluated properties and have been evaluated for impairment. It
has been determined that no impairment write-down is necessary. Since all of the
proved reserves associated with the wells are non-producing or behind pipe and
no production has occurred as of September 30, 1998, no depletion expense has
been recorded during the nine month period ended September 30, 1998.
Exploration costs incurred outside the United States represent costs in
connection with the evaluation and proposed acquisition of one or more
exploration blocks in Brazil. In addition, in February 1998, the Company,
through its wholly owned subsidiary, BETAustralia, LLC, made an initial cash
advance of $320,000 to secure an option to participate for a 5% working interest
in two petroleum licenses covering 2,798,000 acres (approximately 4,372 square
miles). Per the terms of the option agreement, the Company exercised its option
to earn a 5% working interest by participating in the drilling of two offshore
test wells in the license areas. During the nine months ended September 30, 1998
the Company incurred costs of $1,298,432 in the drilling of the two wells. The
wells were completed as dry holes. The property acquisition and exploration
costs associated therewith totaling $1,618,432 have been transferred to
evaluated properties and charged to impairment expense during the nine months
ended September 30, 1998. The Company has no plans to conduct additional
exploration activities in the Australian license areas.
The exploration licenses will expire in December 1998.
<PAGE>
BETA OIL & GAS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to December 31, 1997 is unaudited )
(4) PRIVATE PLACEMENTS
During the periods from inception (June 6, 1997) through December 31, 1997 and
the nine months ended September 30, 1998, the Company issued 5,565,648 and
1,154,532 shares, respectively, of its Common Stock and 1,528,222 and 379,586
Common Stock Purchase Warrants, respectively.
Initial start-up funding was raised through the sale, effective June 23, 1997,
of 2,910,000 shares ("Founder Shares") of the Company's Common Stock to its
founders and other principals for $0.05 per share. An additional 640,000 Common
Stock Purchase Warrants were issued with each warrant entitling the holder
thereof to purchase one share of the Company's Common Stock at prices ranging
from $2.00 to $5.00 per share.
Effective September 5, 1997, the Company issued 663,912 equity units at $15 per
unit through a private placement. Each unit entitled the purchaser to four
shares of Common Stock and one callable Warrant exercisable to purchase one
share of Common Stock at $5.00 for a term of five years. The offering generated
net proceeds, after offering costs, of $9,076,283. The Company issued 224,310
additional Common Stock Purchase Warrants with an exercise price of $4.50 per
share to brokers in connection with the offering.
The following table summarizes the private placement transactions for the period
from inception (June 6, 1997) through December 31, 1997:
<TABLE>
Common Shares Warrants Issued Exercise Price
------------------------------- -------------------------------
Shares $ Amount #Warrants Expiration Per Share
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1) Tranch 1 2,910,000 $ 145,500 640,000 6/23/02 to $ $2.00 to
10/1/02 $5.00
2) Tranch 2 2,655,648 9,958,770 663,912 9/5/02 $ 5.00
3) Warrants issued as
Commission in Tranch 2 - - 224,310 12/30/02 $ 4.50
4) Direct offering expenses
- Tranch 2 - (882,487) -
Totals 5,565,648 $ 9,221,783 1,528,222
============= ============= =============
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
On February 12, 1998, the Company commenced a private placement offering of
equity units at a subscription price of $20 per unit. Each unit consists of four
shares of the Company's Common Stock and one callable Warrant to purchase one
share of its Common Stock at a price of $7.50 per share for a period of five
years from the date of issuance. During the nine months ended September 30, 1998
the Company issued 1,154,544 common shares and 288,633 Common Stock Purchase
Warrants exercisable at $7.50 per share pursuant to this offering. The offering
generated net proceeds, after offering costs, of $5,225,490. In addition, the
Company has issued 90,953 Common Stock Purchase Warrants exercisable at $7.00
per share for services rendered in connection with the offering.
<PAGE>
BETA OIL & GAS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to December 31, 1997 is unaudited)
The following table summarizes the private placement transactions for the nine
month period ended September 30, 1998 (Unaudited):
<TABLE>
Exercise
Common Shares Warrants Issued Price
------------------------------ ------------------------------
Shares $ Amount #Warrants Expiration Per Share
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1) Tranch 3 1,154,544 $ 5,772,646 288,633 3/12/03 $ 7.50
2) Warrants issued as
Commission in Tranch 3 - - 90,953 3/12/03 $ 7.00
3) Direct offering expenses -
Tranch 3 - (547,156) -
Totals 1,154,544 $ 5,225,490 379,586
============= ============= =============
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
In addition, the Company reserved for issuance 280,300 shares of Common Stock at
$5.00 per share pursuant to subscriptions received as of September 30, 1998. The
Common Stock subscriptions totaling $1,401,500 were recorded as a receivable and
associated commissions payable totaling $140,150 were accrued as of September
30, 1998. The Company received gross proceeds of $1,401,500 during October 1998.
The following table summarizes the subscriptions for Common Stock and Warrants
as of September 30, 1998 (Unaudited):
<TABLE>
Exercise
Common Shares Warrants Issued Price
------------------------------ ------------------------------
Shares $ Amount #Warrants Expiration Per Share
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1) Tranch 3 280,300 $ 1,401,500 70,075 3/12/03 $ 7.50
2) Warrants issued as
Commission in Tranch 3 - - 28,030 3/12/03 $ 7.00
3) Direct offering expenses -
Tranch 3 - (140,150) -
Totals 280,300 $ 1,261,350 98,105
========== =============== ==========
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
BETA OIL & GAS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to December 31, 1997 is unaudited)
(5) COMMON STOCK WARRANTS
During the period from inception (June 6, 1997) through December 31, 1997, the
Company issued 1,528,222 callable and non-callable Common Stock purchase
warrants entitling the holders to purchase 1,528,222 shares of the Company's
Common Stock at prices ranging from $2.00 to $5.00 per share.
The following table summarizes the number of shares reserved for the exercise of
stock Warrants as of December 31, 1997:
<TABLE>
Callable/Non-Callable
Shares Exercise Price Expiration Date
<S> <C> <C> <C>
230,000 $2.00 June 23, 2002 Non-Callable
133,333 $5.00 September 5, 2002 Callable (a)
266,667 $5.00 September 5, 2002 Non-Callable
10,000 $4.50 October 1, 2002 Non-Callable
224,310 $4.50 December 30, 2002 Non-Callable
663,912 $5.00 September 5, 2002 Callable (a)
- ---------
1,528,222
=========
<FN>
(a) The Company will be entitled to call these warrants at any time on and
after the date that its Common Stock is traded on any exchange, including
the NASD Over-the-Counter Bulletin Board, at a market price equal to or
exceeding $7.00 per share for 10 consecutive trading days.
</FN>
</TABLE>
During the nine month period ended September 30, 1998, the Company issued
969,441 callable and non-callable Common Stock Purchase Warrants entitling the
holders to purchase 969,441 shares of the Company's Common Stock at prices
ranging from $3.75 to $7.50 per share.
The following table summarizes the number of shares reserved for the exercise of
Common Stock Purchase Warrants as of September 30, 1998 (Unaudited):
<TABLE>
Shares Exercise Price Expiration Date Callable/Non-Callable
<S> <C> <C> <C>
230,000 $2.00 June 23, 2002 Non-Callable
133,333 $5.00 September 5, 2002 Callable (a)
266,667 $5.00 September 5, 2002 Non-Callable
10,000 $4.50 October 1, 2002 Non-Callable
224,310 $4.50 December 30, 2002 Non-Callable
663,912 $5.00 September 5, 2002 Callable (a)
100,000 $3.75 January 23, 2003 Non-Callable (c)
2,000 $5.00 February 4, 2003 Non-Callable
230,100 $5.00 March 12, 2003 Non-Callable
100,000 $7.50 March 12, 2003 Non-Callable
50,000 $7.50 March 12, 2003 Callable (b)
90,953 $7.00 March 12, 2003 Non-Callable
289,883 $7.50 March 12, 2003 Callable (b)
- ---------
2,391,158
=========
<PAGE>
BETA OIL & GAS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to December 31, 1997 is unaudited)
<FN>
(a) The Company will be entitled to call these warrants at any time on and
after the date that its Common Stock is traded on any exchange, including the
NASD Over-the-Counter Bulletin Board, at a market price equal to or exceeding
$7.00 per share for 10 consecutive trading days.
(b) The Company will be entitled to call these warrants at any time on and
after the date that its Common Stock is traded on any exchange, including the
NASD Over-the-Counter Bulletin Board, at a market price equal to or exceeding
$10.00 per share for 10 consecutive trading days.
(c) On January 27, 1998, the Company issued 100,000 Common Stock Purchase
Warrants exercisable at a price of $3.75 per share to an officer of the Company
as compensation. The exercise price was equal to the market value of the
Common Stock on the date of grant. The Warrants vest as follows: (a) 25,000
Warrants vested immediately; (b) 25,000 shall vest upon the first anniversary
of the employee's employment (January 27,1998) with the Company; (c) 25,000
shall vest upon the second anniversary of employment; and (d) 25,000 shall vest
upon the third anniversary of employment. If the officer ceases employment
during the vesting period, all nonvested Warrants shall be forfeited.
</FN>
</TABLE>
(6) INCOME TAXES
As of December 31, 1997, the Company had available, to reduce future taxable
income, a tax net operating loss carryforward of approximately $202,000 which
expires in 2012. The net operating loss carryforward for tax purposes is not
materially different than the net operating loss for financial reporting
purposes because the Company has not engaged in drilling and other activities
which normally give rise to temporary differences between financial reporting
and tax bases of assets and carryforwards under SFAS 109. As of December 31,
1997, the Company has a deferred tax asset of $70,000 which is fully reserved
for with a valuation allowance. The deferred tax asset consists entirely of net
operating loss carryforward. Utilization of the tax net operating loss
carryforward may be limited in the event a 50% or more change of ownership
occurs within a three year period. The tax net operating loss carryforward may
be limited by other factors as well.
(7) OTHER
Related Party Transactions
During the period from inception (June 6, 1997) through December 31, 1997, a
director of the Company was paid $20,000 pursuant to a consulting contract for
management and geologic evaluation services. In addition, the director
subscribed to 350,000 shares of the Company's Common Stock at a price of $0.05
per share ("Founder Shares").
A second director of the Company subscribed to 50,000 Founder Shares at a price
of $0.05 per share. In addition, a legal firm with whom the director is a
shareholder, subscribed to 20,000 Founder Shares at a price of $0.05 per share.
The legal firm represents the Company as general counsel. The legal firm also
received 15,000 Common Stock Purchase Warrants presently exercisable at a price
of $5.00 per share until expiration on March 12, 2003 in connection with the
February 12, 1998 private placement (see Note 4).
A third director of the Company subscribed to 400,000 Founder Shares at price of
$0.05 per share.
The Company entered into an expense sharing agreement with Beta Capital Group,
Inc., a company owned by the President and Chairman of the Board, and the
Treasurer of the Company. The agreement provides for the allocation and
reimbursement of certain office expenses such as office rent, secretarial
support, office supplies, marketing materials, telephone charges between the
Company and Beta Capital Group, Inc. During the period from inception through
December 31, 1997 the Company made payments totaling $9,940 to Beta Capital
Group, Inc. in connection with this agreement. During the nine months ended
September 30, 1998 the Company paid $10,748 in connection with this agreement.
<PAGE>
BETA OIL & GAS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to December 31, 1997 is unaudited)
Effective October 1, 1997, the Company entered into an agreement to lease office
space. The lease agreement provides for a 24-month term expiring in September
1999. Monthly rent payments under the lease agreement commenced in October 1997.
The lease agreement was previously in the name in Beta Capital Group, Inc. and
was modified and extended by amendment to reflect the Company as tenant. The
Company's President and Chairman, and Treasurer are personal guarantors of the
lease agreement.
Leases
Effective October 1, 1997, the Company entered into an agreement to lease office
space. The lease agreement provides for a 24-month term expiring in September
1999. Monthly rent payments under the lease agreement commenced in October 1997.
The Company is recognizing rent expense ratably over the term of the lease.
Total minimum future rental payments under this lease are as follows:
Fiscal 1998 $ 30,521
Fiscal 1999 22,891
-----------
$ 53,412
===========
Rent expense for the periods ended December 31, 1997 and the periods ended
September 30, 1997 (unaudited) and 1998 (unaudited) amounted to $7,671, $-0-,
and $20,614, respectively.
<PAGE>
BETA OIL & GAS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to December 31, 1997 is unaudited)
Employment Contracts
The Company has executed an employment contract dated June 23, 1997 (the
"Contract") with its president who also serves as a director. The Contract
provides for an indefinite term of employment at an annual salary of $150,000
commencing in October of 1997 and an annual car allowance of up to $12,000. The
Contract may be terminated by the Company without cause upon the payment of the
following:
(a) Options to acquire the Common Stock of the Company in an
amount equal to 10% of the then issued and outstanding
shares containing a five year term, piggyback registration
rights and an exercise price equal to 60% of the fair market
value of the shares during the sixty day period of time
preceding the termination notice, such amount not to exceed
$3.00 per share.
(b) A cash payment equal to two times the aggregate annual
compensation.
(c) In the event of termination without cause, all unvested
securities issued by the Company to the Employee shall
immediately vest and the Company shall not have the right to
terminate or otherwise cancel any securities issued by the
Company to the Employee.
On June 23, 1997, the Company entered into an employment agreement
with a shareholder. The agreement provides for a two year term at an annual
salary of $60,000 for services as "Vice President of Capital Markets". Under
separate agreement, the Shareholder subscribed to 350,000 shares of Founders
Shares at price of $0.05 per share. The subscription agreement provides that the
shares shall vest over a three year period.
Common Stock Subscribed
As of September 30, 1998, the Company had received subscriptions for Common
Stock totaling $1,401,500. The Company received payment for all of the common
stock subscriptions subsequent to September 30, 1998. Accordingly, the Common
Stock subscribed is treated as a current receivable and as a separate line item
in the equity section of the balance sheet as of September 30, 1998. Commissions
payable totaling $140,150 have been accrued as of September 30, 1998
representing 10% of the subscriptions receivable.
(8) COMMITMENTS AND CONTINGENCIES
Louisiana Transition Zone Project
In February 1998 the Company entered into a joint exploration agreement with
Rozel Energy LLC to explore for oil and gas in the Transition Zone of South
Louisiana. The exploration area is offshore Louisiana with water depths of up to
60 feet. Rozel Energy was a joint participant in a recent speculative 3-D
seismic survey covering over 2,000 square miles of the Transition Zone and has
identified a series of prospects from its interpretations of the data. The
Company has agreed to provide a total funding commitment of up to $3,000,000
over a one year period to Rozel Energy to be utilized in the acquisition of
leases on such prospects in the Transition Zone. In the event the Company does
not or is unable to provide lease acquisition funds within fifteen days of
receiving notice therefor, it shall forfeit its right of participation in such
leases. In consideration for providing the lease acquisition funds, the Company
shall be entitled, but not obligated, to participate for a 12.5% working
interest, more or less, on a prospect by prospect basis on leases acquired by
Rozel Energy utilizing lease acquisition funds provided by the Company. The
Company shall be entitled
<PAGE>
BETA OIL & GAS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to December 31, 1997 is unaudited)
to reimbursement of lease funds advanced for prospects in which it elects not to
participate. The Company shall be entitled to such reimbursement if and when
Rozel either sells or otherwise conveys (i.e. farmout) its interest in, or
drills, the Prospect, whichever occurs first. The Company's 12.5% working
interest shall be subject to a 6.25% back-in after payout, proportionately
reduced, on a prospect by prospect basis. Furthermore, the Company is obligated
to pay a $50,000 fee per one eighth working interest of the Company (or prorated
portion thereof) on those prospects in which it elects to participate.
(9) SUBSEQUENT EVENTS
Private Placement
On February 12, 1998, the Company commenced a private placement offering of
equity units at a subscription price of $20 per unit. Each unit consists of four
shares of the Company's Common Stock and one callable Warrant to purchase one
share of its Common Stock at a price of $7.50 per share for a period of five
years from the date of issuance. The Company elected to extend the offering
period until November 2, 1998 at which time the offering was terminated. During
the month ended October 31, 1998 the Company issued 24,000 common shares and
6,000 Common Stock Purchase Warrants exercisable at $7.50 per share pursuant to
this offering for gross proceeds of $120,000. In addition, the Company has
issued 2,400 Common Stock purchase warrants exercisable at $7.00 per share for
services rendered in connection with the offering.
Initial Public Offering; Registration of Common Stock
The Company is filing an S-1 Registration Statement with respect to its Common
Stock. The S-1 Registration Statement contains two forms of prospectus: One
prospectus will be used in connection with the sale by the Company of up to
880,000 shares of its Common Stock in a best efforts underwritten public
Offering and the other prospectus will be used by existing shareholders of the
Company in effectuating sales from time to time, for their own account, of their
shares of Common Stock, principally in over-the-counter transactions.
<PAGE>
================================================================================
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made by this Prospectus and, if given or
made, such information or representations must not be relied upon as having been
authorized by the Company or the Representative. Neither the delivery of this
Prospectus nor any sale made hereunder shall under any circumstances create any
implication that there has been no change in the affairs of the Company since
the date hereof. This Prospectus does not constitute an offer or solicitation by
anyone in any jurisdiction in which such offer or solicitation is not authorized
or in which the person making such offer or solicitation is not qualified to do
so or to anyone to whom it is unlawful to make such offer or solicitation.
TABLE OF CONTENTS
Additonal Information.........................................................
Prospectus Summary............................................................
Risk Factors..................................................................
Use of Proceeds...............................................................
Determination of Offering Price...............................................
Dilution......................................................................
Capitalization................................................................
Dividends.....................................................................
Selected Consolidated Financial Data..........................................
Management's Discussion and Analysis of
Financial Condition and Results of Operations...............................
Glossary......................................................................
Business......................................................................
Properties....................................................................
Management....................................................................
Executive Compensation........................................................
Summary Compensation Table....................................................
Principal Shareholders........................................................
Certain Relationships and Related Party Transactions..........................
Description of Securities.....................................................
Shares Eligible for Future Sale...............................................
Underwriting..................................................................
Legal Matters.................................................................
Experts.......................................................................
Financial Statements..........................................................
----------------------
Until ___, 1999 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligation of dealers to deliver
a Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
================================================================================
<PAGE>
================================================================================
BETA OIL & GAS, INC.
600,000 (MINIMUM)
880,000 (MAXIMUM)
SHARES OF COMMON STOCK
($.001 Par Value)
---------------
PROSPECTUS
---------------
_________, 1999
================================================================================
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation, or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
ALTERNATE PAGE
SUBJECT TO COMPLETION, DATED NOVEMBER 16, 1998
PROSPECTUS
BETA OIL & GAS, INC.
9,615,155 SHARES OF COMMON STOCK
($.001 Par Value)
This Prospectus ("Prospectus") relates to the possible sale, from time to time,
by certain shareholders ("Selling Security Holders") of the Company of up to
7,029,492 shares of Common Stock, and 2,585,663 shares of Common Stock issuable
upon exercise of unregistered Common Stock Purchase Warrants (the "Warrants").
Each of the Warrants entitles the holder to purchase one share of Common Stock
at the agreed Exercise Price during the period stated in the Warrant. The
Exercise Prices vary from $2.00 to $7.50 per Warrant. (See Description of
Securities; Resale by Selling Security Holders.) The Company will not receive
any proceeds from sales by Selling Security Holders, except to the extent that
Warrantholders choose to exercise their Warrants, in which case the Company will
receive the exercise price thereon net of a 5% commission payable to the broker
of record, if any.
Prior to the Offering, there has been no public market for the Common
Stock. The Company intends to apply for quotation on The Nasdaq SmallCap Market
under the symbol "BETA." See "Underwriting" for factors considered in
determining the initial public Offering price.
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" ON PAGE 9.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Total Gross Proceeds to
Price Per Share the Selling Security
Holders
----------------- -------------------------
Public Offering Price $ 6.00 $ 42,176,952
7,029,492 shares of Common Stock and 2,585,663 shares of Common Stock issuable
upon exercise of unregistered Warrants will be offered by the Selling Security
Holders from time to time in market transactions at prevailing prices on the
Nasdaq Small Cap Market or a similar market. The Company will not receive any
proceeds from possible resale by the Selling Security Holders of their
respective shares of the Company's Common Stock. The Company will receive gross
proceeds of $13,748,821 if all outstanding Warrants are exercised net of a 5%
commission payable to the brokers of record, if any. There can be no assurance
that any Warrants will be exercised. The Selling Security Holders may effect
such transactions by selling their shares of Common Stock to or through
broker-dealers, and such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Security Holders and/or
the purchasers of such shares of Common Stock for whom such broker-dealer may
act as agents or to whom they may sell as principals, or both (which
compensation as to a particular broker-dealer might be in excess of customary
commissions). The Company has agreed to bear all expenses estimated at
approximately $89,314.70 in connection with the registration of the shares of
Common stock to which this Prospectus relates.
The date of this Prospectus is ___________, 1999
<PAGE>
ALTERNATE PAGE
PROSPECTUS SUMMARY
THE FOLLOWING IS ONLY A SUMMARY OF THE INFORMATION CONTAINED IN THIS
PROSPECTUS. YOU SHOULD ALSO READ THE DETAILED INFORMATION AND FINANCIAL
STATEMENTS APPEARING AFTER THIS SUMMARY
THE COMPANY
Beta Oil & Gas, Inc. ("Beta" or the "Company") is an oil and gas
company organized in June 1997 to engage in the exploration, development,
exploitation and production of natural gas and crude oil. The Company's
operations are currently focused in proven oil and gas producing trends
primarily in South Texas, Louisiana and Central California The Company believes
that the availability of economic 3-D seismic surveys has fundamentally changed
the risk profile of oil and gas exploration in these regions. Recognizing this
change, the Company has aggressively sought to acquire significant prospective
acreage blocks for targeted, proprietary, 3-D seismic surveys. As of September
30, 1998, the Company had assembled approximately 192,000 gross acres under
lease or option.
Approximately 94% of the Company's current acreage position is covered
by proprietary 3-D seismic data that the Company has acquired, or is in the
process of acquiring, through joint participation with operating oil and gas
companies. From the data generated by its initial five proprietary seismic
surveys, covering 313 square miles, in excess of 100 potential drillsites have
been identified.
Approximately $10,000,000, representing 60% of the total funds raised
to date by the Company, have been utilized to acquire working interests in lands
and seismic data in the onshore Texas Gulf Coast region. The Company's interests
in the onshore Texas properties are operated by Parallel Petroleum Corporation
("Parallel"). Representatives of Parallel have informed the Company that
drilling in these projects will commence during the first quarter of 1999 and
continue throughout the year The Company anticipates that participaton in
exploratory and drilling projects in South Texas will constitute its primary
activity during 1999.
The balance of the funds raised to date have been utilized primarily to
fund various domestic and international exploratory activities. The Company's
exploratory activities in areas outside of Texas have resulted in two oil and
gas discoveries, located, respectively, in the Gulf of Mexico offshore from
Louisiana, andin Central California. It is anticipated that the Company will
expend additional funds to explore these areas during 1999 and future periods.
The Company's capital budgets for 1999 of approximately $8,300,000
(subject to available funds), includes amounts for the acquisition of additional
3-D seismic data and for the drilling of 38 gross wells (8.39 net wells) in 1999
with with working interests ranging from 12.5% to 75% and averaging 22% per
well. A majority of the budgeted wells will be drilled in Jackson County,
Texas.In addition, the Company anticipates that as its existing 3-D seismic data
is further evaluated, and 3-D seismic data is acquired over the balance of its
acreage, additional prospects will beidentified for drilling beyond 1999.
The Company intends to rely on joint ventures with qualified operating
oil and gas companies to operate its projects through the exploratory and
production phases. This will reduce general and administrative costs necessary
to conduct operations. As of the date of this Prospectus, the Company was not
operating, nor did it have any working interest in, any producing oil and gas
wells.
<PAGE>
ALTERNATE PAGE
The Offering
Common Stock offered by the
Selling Securityholders:(1) 9,615,155 shares (1)
Common Stock Warrants: 2,585,663
Common Stock to be
Outstanding after the Offering:(2) 7,029,492 shares
Use of Proceeds: The Company will not receive
any proceeds from the sale
of securities by the Selling
Security Holders, although
it could realize as much as
$13,748,821 (less an
approximate 5% commission to
any brokers of record) if
all Warrants are exercised.
The proceeds from the
exercise of Warrants will be
used for general working
capital purposes
Risk Factors: An investment in the Company's
securities involves a high
degree of risk. For a
discussion of certain risk
factors affecting the Company,
see "Risk Factors."
Proposed Nasdaq SmallCap Market Symbol:(3) BETA
(1) Includes 2,585,663 shares of Common Stock reserved for issuance upon
exercise of the Warrants.
(2) Does not include Common Stock issuable upon exercise of outstanding
Warrants. In addition, it does not include between 600,000 (Minimum)
and 880,000 (Maximum) shares of commons stock which are being offered
by the Company concurrently with this Offering.
(3) There is no assurance that the Common Stock will be approved for
listing in the Nasdaq SmallCap Market or that a trading public market
will develop, or, if developed, will be sustained. See "Risk Factors -
Absence of Prior Trading Market; Potential Volatility of Stock Price."
Beta Oil & Gas, Inc., including its wholly-owned subsidiary BETAustralia, LLC, a
limited liability company organized under the laws of California, for the
purposes of acquiring, evaluating and developing exploration blocks in
Australia, are collectively referred to herein as the "Company" or "Registrant."
The Company's corporate headquarters are located at 901 Dove Street, Suite 230,
Newport Beach, California 92660. The Company's telephone number is (949)
752-5212.
<PAGE>
ALTERNATE PAGE
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of securities by
the Selling Security Holders. The Company intends to utilize the proceeds
received from the exercise of any Warrants, estimated to be $13,748,821 (less a
5% commission to the brokers of record if applicable) if all Warrants are
exercised in full, for general corporate and working capital purposes as well as
for exploratory and development drilling on its various projects. There can be
no assurance that any of the Warrants will be exercised. This is the Company's
best estimate of its use of proceeds generated from the sale of shares by the
Company and the possible exercise of Warrants based on the current state of its
business operations, its current plans and current economic and industry
conditions. Any changes in the projected use of proceeds will be made at the
sole discretion of the Company's Board of Directors.
<PAGE>
ALTERNATE PAGE
RESALE BY SELLING SECURITY HOLDERS
This Prospectus relates to the proposed resale by the Selling Security
Holders of up to 7,029,492 shares of outstanding Common Stock as well as the
resale of up to 2,585,663 additional shares of Common Stock issuable upon
exercise of the Company's outstanding Common Stock purchase warrants. The shares
being registered hereby represent all of the currently issued and outstanding
Common Stock of the Company and shares of Common Stock issuable upon exercise of
all of the Company's outstanding Common Stock purchase warrants. The following
tables set forth as of September 1, 1998 certain information with respect to the
persons for whom the Company is registering the shares for resale to the public.
The Company will not receive any of the proceeds from the sale of the shares,
but will receive a maximum of $13,688,821 if the Warrants listed below are
exercised.
<TABLE>
Common Percentage
Common Stock Owned
Stock Underlying If More
Security Holder Shares Warrants Than 1%
--------------- ------ -------- -------
<S> <C> <C> <C> <C>
15TH STREET PARTNERS A LIMITED PARTNERSHIP 20,000 20,000 -
ALSTROM, JOHN K. & ALSTROM, DOREEN Y. COM PROP 8,000 2,000 -
ALTER, SCOTT C 4,000 1,000 -
ANDERSON, RAYMOND A. & ANDERSON, PATRICIA ANN 1,336 334 -
ANDERSON, SAMUEL THOMAS & ANDERSON, DIANA LEE JTWROS 10,000 2,500 -
ANTRY, JO LAYNE TTEE ANTRY, JO LAYNE REV INT TR U/A DTD 10,000 0 -
5/11/93
ANTRY, SARA ELIZABETH 0 12,500 -
ANTRY, STEVE & ANTRY, LISA 1,500,000 0 21%
ANTRY, W FRED 10,000 0 -
ANTRY, WILLIAM WARREN 5,000 0 -
ARAX, NAVO & ARAX, JOSETTE COM PROP 1,000 250 -
ARKOOSH, JOHN T & ARKOOSH, GAIL A JTWROS 8,000 2,000 -
ARKOOSH, JOHN T 0 23,200 -
ARKOOSH, THOMAS J 8,000 2,000 -
ASSEMI, MASSOUD 2,000 500 -
ASSEMI, SAID IRA 2,000 500 -
AVANT, DON L 0 800 -
BAIRD, RALPH 0 10,000 -
BALAKIAN, LARRY 4,000 1,000 -
BARBOUR, MATT 8,000 2,000 -
BEAR STEARNS SECURITIES CORP CUST FBO MANZ, VIRGINA C IRA #5859520214048 20,000 5,000 -
BEAR STEARNS SECURITIES CORP CUST FBO LACY, FREDERICK SEP IRA 13,120 3,280 -
BENNETT, BILL & BENNETT, JOYCE L COMMUNITY PROPERTY 10,200 2,550 -
BENNETT, JACK K & BENNETT, GLORIA E 10,000 0 -
BENNETT, LAURIE LEA 5,000 0 -
BERBERIAN & GAZARIAN FAMILY FOUNDATION 10,000 2,500 -
BERLINER, WILLIAM P & BERLINER, MARIE E JTWROS 4,000 1,000 -
BERTAINA, LAWRENCE J TTEE BERTAINA, LAWRENCE J REV LIV TR DTD 2,000 500 -
09/18/89
BIPPUS, JUNE 0 4,000 -
BIPPUS, WANDA JUNE 0 5,000 -
BIRCHTREE FINANCIAL SERVICES INC. 0 1,442 -
BLACK DIAMOND BLADE INC PROFIT SH PL & TR BRENNER, FRANKLIN TTEE 19,000 4,750 -
BLACK, JOHN M & BLACK, JOYCE E. JTWROS 4,000 1,000 -
BLAIR, SUSAN A 6,000 1,500 -
BLOUNT, LAMARUS L. & BLOUNT, MICHELLE T. JTWROS 12,000 3,000 -
BLUM, DEREK E 1,000 250 -
BLUM, GERALD H. 1,348 334 -
BLUM, RYAN H 1,000 250 -
BOESEL, JOHN 1,200 -
BOGHOSIAN, NICHOLAS P & NANCY TTEES FBO BOGHOSIAN FAMILY TRUST UTD 11-20-90 4,000 1,000 -
BONNER, CHARLES B. 10,668 2,667 -
BONNER JR, S.M. 8,000 2,000 -
BORELLI, DON 8,000 2,000 -
BOSWELL, GEORGE & BOSWELL, NORMA G. JTWROS 4,000 1,000 -
<PAGE>
ALTERNATE PAGE
Common Percentage
Common Stock Owned
Stock Underlying If More
Security Holder Shares Warrants Than 1%
--------------- ------ -------- -------
<S> <C> <C> <C> <C>
BOVA, MICHAEL F & BOVA, L. MICHELLE TIC 4,000 1,000 -
BOWERS, STEVEN W. & BOWERS, SYBIL A. 2,600 650 -
BOYD, KEN TTEE FBO KENCO INVESTMENT INC PROFIT SHARING PLAN 2,000 500 -
BOYD, KEN 2,000 500 -
BRAGG, ROBERT M TTEE FBO THE BRAGG, ROBERT M SEPARATE PROPERTY TR 17,112 4,278 -
5-30-72
BRENNER, FRANK 19,000 4,750 -
BRENNER, HOBY & BRENNER, ALEXIS 18,332 4,583 -
BRILL JR, WILLIAM B. & BRILL, DOLORES M TIC 8,000 2,000 -
BROOKSHIRE, G. LEE & BROOKSHIRE, JANEL M. 6,000 1,500 -
BRUNY, STEPHEN J. 4,000 1,000 -
BUCKENBERGER, ROBERT A. IRA 4,000 1,000 -
BURKS, STEVE 0 8,464 -
CAMBRIDGE, THOMAS R. TTEE CAMBRIDGE PRODUCTION INC.401K PRF SH PLN 8,000 2,000 -
CANALES, JAMES P. 4,000 1,000 -
CANADA, LEESA NAN HOLLAND 2,000 500 -
CARIB FINANCIAL 0 10,000 -
CARLISLE, FRED H TTEE FBO CARLISLE, FRED H & SUE Z REV TRUST 2,000 500 -
CARLISLE, FRED H. & CARLISLE, SUE Z. REV TRUST 2,000 500 -
CARR, GARY B. 6,000 1,500 -
CASEY FAMILY TRUST UTD 04/18/90 8,000 2,000 -
CASEY, LARRY W & SUANNE BLAIR TTEES FBO CASEY FAMILY TRUST UA DTD 4-18-90 4,000 1,000 -
CASWELL BELL HILLISON BURNSIDE & GREER SHARING TR FBO JAMES M BELL 1,000 250 -
CASWELL, G THOMAS JR & CASWELL, CAROL W COMMUNITY PROPERTY 6,000 1,500 -
CASWELL, THOMAS 4,000 1,000 -
CENTANNI, RANI 0 1,000 -
CHANNER, GARY J & PATRICIA J TTEES CHANNER FAMILY TRUST 4,000 1,000 -
CHANNER, GARY J. 8,000 2,000 -
CHAN, JACKY C. 1,000 250 -
CHERRY, ROBERT T & TAY N TTEES CHERRY FAMILY TRUST 2,000 500 -
CHILDS, SPENCER 0 2,000 -
CHIZMAR, LAWRENCE E JR IRA 2,000 500 -
CHOOLJIAN, LEO 8,000 2,000 -
CHOOLJIAN, MEHRAN & MADELINE TTEES FBO CHOOLIJAN, MERHAN & MADELINE FAM TR DT 22,000 5,500 -
08/91
CHOOLJIAN, MEHRAN & CHOOLJIAN, MADELINE 10,000 2,500 -
CHOOLJIAN, MICHAEL 2,700 675 -
CIFELLI, THOMAS A LIVING TRUST 0 231 -
CITY NATIONAL BANK TTEE FBO APPLICATION SOFTWARE INC PROF SH TR 16,000 4,000 -
CLARK, JEFF 840 -
COFFMAN, SUSAN M & COFFMAN, LEROY B II COMMUNITY PROPERTY 16,000 4,000 -
COHEE, GARY 0 2,500 -
COLBERT ENTERPRISES PRF SHR PLN COLBERT TTEE, FLOYD O. 4,000 1,000 -
COLLETTE, DAVID G. 2,600 650 -
COLLINS, TRUDY G. 3,000 750 -
COLTON INVESTMENTS LLC 8,000 2,000 -
COLTON, RANDALL WAYNE 60,000 15,000 -
CONNOLLY, JOSEPH & BETTY LOU CONNOLLY FAMILY TRUST UTD 1-24-92 16,000 4,000 -
CONSTRUCTION DEVELOPERS INC. 16,000 4,000 -
CONZELMAN, MAX TTEE MAX CONZELMAN TR UTD 06/10/91 1,332 333 -
COPELAND, CARRIE 1,000 0 -
COPELAND, COURTNEY 1,000 0 -
COPELAND, GREGORY 1,000 0 -
COPELAND, KRISTEN 1,000 0 -
COPELAND, LEE R & COPELAND, CAROL S JTWROS 2,000 1,750 -
COPELAND, LEE R 2,000 500 -
COPELAND, NATHAN LEWIS - 1,000 0 -
CORNWELL, KNOWLES 8,000 2,000 -
<PAGE>
ALTERNATE PAGE
Common Percentage
Common Stock Owned
Stock Underlying If More
Security Holder Shares Warrants Than 1%
--------------- ------ -------- -------
<S> <C> <C> <C> <C>
CORRIN, ALLAN A 8,000 2,000 -
COSTNER-MCIHENNY, KATHY M 2,000 500 -
CULLUM, TIM 0 8,464 -
CUMMINGS, RICHARD & LAURA TTEES CUMMINGS, RICHARD REV TR UTD 01/17/96 6,668 1,667 -
CUNNINGS, ROY W. & CUNNINGS, NORMA D. 2,700 675 -
CURRY, PATRICK GREGG 8,000 2,000 -
CURTIS, CHARLES ELLIOTT & CHARLENE ANN TEES CURTIS, CHARLES & CHARLENE FAM TR 7,336 1,834 -
4-15-94
CUTLER, STANLEY 4,000 1,000 -
DAHLIA FINANCIAL LTD. 0 400,000 -
DANDELION INTERNATIONAL LTD 177,776 44,444 2.5%
DAVIS, CHRISTINE 5,000 0 -
DAVIDIAN, DOUGLAS B & ROBYN D TTEES DAVIDIAN REV TR DTD 07/05/95 8,000 2,000 -
DAVIDIAN, DOUG 2,000 500 -
DAVIDIAN, HAIG 0 10,000 -
DAVIDIAN, HAIG 24,000 6,000 -
DAVIDSON, JANICE A TTEE UA DTD 5-19-81 6,000 1,500 -
DEBOOY, DAVID P & DEBOOY, RUTH E JTWROS 2,000 500 -
DEFONSEKA, MAHENDRA M.D. 1,500 375 -
DELAWARE CHARTER GUARANTEE & TRUST T/F HAGERTY, WILLIAM KELLY 8,000 2,000 -
DESMOND, JOSEPH F TTEE OF THE DESMOND SURVIORS TRUST 14,000 3,500 -
DESMOND, JOSEPH F 8,000 5,500 -
DICKISON-RYSKAMP, JUDITH 0 660 -
DICKISON-RYSKAMP, JUDITH 2,000 500 -
DIR, DALE B TTEE FBO THE DALE B DIR LIVING TRUST DTD 11-3-93 12,000 3,000 -
DIR, RODNEY D 12,000 7,400 -
DIXON, BILL 0 2,000 -
DOMME M.D., SYLVESTER 1,332 333 -
DONALDSON LUFKIN JENRETTE SECURITIES CUST FILEDS, STEPHEN A IRA DLJ AC#6JC105452 3,000 750 -
DOW, ROBERT L JR 5,000 1,250 -
DRAKE, RONALD L. 12,000 3,000 -
DUBOIS, J.SCOTT & DUBOIS, CYNTHIA A. JTWROS 8,000 2,000 -
DUNCAN, LARRY R. 4,000 1,000 -
DUNCAN, ROBERT E. TTEE FBO DUNCAN FAMILY TRUST 1986 10,000 2,500 -
DUNCAN, ROBERT E. & DUNCAN, LINDA L. COMM PROP 50,000 12,500 -
EGAN, RICHARD M 1,000 250 -
ELHAJ, ABED K. 6,000 1,500 -
ELLIOTT, BRUCE 2,000 500 -
ELLIS, JOHN STEVEN SR & ELLIS, REBECCA C JTWROS 6,000 1,500 -
EVANS, MARK A & EVANS, STACEY D JTWROS 1,332 333 -
EVEREN CLEARING CORP CUST FBO COLLETTE, DAVID G. SEP IRA 4,000 1,000 -
EVERS, MARJORIE S 8,000 2,000 -
EVETTS, CURTIS A 8,000 2,000 -
FAMALETTE, JAMES R & FAMALETTE, DWANNA N COMMUNITY PROPERTY 4,000 1,000 -
FASI, RALPH 8,000 2,000 -
FETTERS, R T 350,000 0 5%
FIELDS FAMILY ADMINISTRATIVE TRUST 4,000 1,000 -
FIELDS, KATHRYN R TTEE FIELDS GRANDCHILDREN'S TRUST 4,000 1,000 -
FIELDS, KATHRYN R TTEE FBO FIELDS, KATHRYN R SURVIVORS TR UDT 8,000 2,000 -
03/27/81
FIFTEENTH STREET PARTNERS L.P. 26,668 6,667 -
FINE, HOWARD F & FINE, CAROL M TTEES FINE REV TR DTD 120,000 30,000 2%
12/1/88
FISCHER, STEPHEN L 350,000 25,000 5%
FOERSTER, STEVEN P 16,000 4,000 -
FOSTER, RAYMOND T & LEITA TTEES OF THE FOSTER, RAY T REVOCABLE TRUST 5,668 1,417 -
FOX & COMPANY INVESTMENTS INC. 0 313 -
FRANEY, ROGER C. 4,000 1,000 -
FRAZER, JOE W M.D. & FRAZER, JILL B. JTWROS 4,000 1,000 -
FREDSON, RONALD A & FREDSON, MARGARET A JTWROS 8,000 2,000 -
FRICK, C. WALTER TTEE OF THE FRICK FAMILY TRUST UTD 1-31-92 4,000 1,000 -
<PAGE>
ALTERNATE PAGE
Common Percentage
Common Stock Owned
Stock Underlying If More
Security Holder Shares Warrants Than 1%
--------------- ------ -------- -------
<S> <C> <C> <C> <C>
FRICK, C. WALTER 4,000 1,000 -
FROGGATTE, THERON L 1,332 4,374 -
FUJINAKA, STEVE HISAO FUJINAKA, BARBIE JTWROS 24,000 6,000 -
GALBRAITH, JACK H TTEE JACK H GALBRAITH TR UTD 05/25/95 5,332 1,333 -
GAMMAGE & BURNHAM PROF SH PL #18 2,000 500 -
GAZARIAN, ARNOLD H & DIANE B TTEES FBO GAZARIAN FAMILY TRUST 16,000 4,000 -
GBS FINANCIAL CORP 0 3,621 -
GESSERT, CHARLES 4,000 1,000 -
GETZ, KAREN A. 1,000 250 -
GIDDINGS, DEBRA & GIDDINGS, RICHARD JTWROS 8,000 2,000 -
GIDDINGS, RICHARD J. & GIDDINGS, CAROL H. 8,000 2,000 -
GLASCO, DALE TTEE GLASCO FAMILY TRUST 8,000 2,000 -
GLASPEY, RODGER C TTEE GLASPEY FAMILY TRUST UTD 05/15/92 20,000 5,000 -
GORDON, CHRIS 56,000 14,000 -
GOULD, PAUL L. 11,000 2,750 -
GRALNICK, MARK AVERY 4,000 1,000 -
GRAY, BETTY CURTIS 8,000 2,000 -
GRIDER, ROBERT E. & GRIDER, JEANETTE COMM PROPERTY 1,000 250 -
GRIDER, ROBERT E & GRIDER, JEANETTE 2,000 500 -
GRIFFIN, JAMES 0 2,000 -
GROSS, RONALD I 0 51 -
GRUS, GEORGE W & GRUS, LIBBY JTWROS 8,000 2,000 -
H. ARNOLD KELA FARMS EMPLOYEE RETIREMENT PLAN & TRUST DTD 12-28-71 14,000 3,500 -
HAFER, EDWARD 8,000 2,000 -
HAGERTY STEWART & ASSOCIATES 0 53,756 -
HAGERTY, WM KELLY & GLADYS W TTEES FBO HAGERTY TRUST DTD 11/24/92 0 8,160 -
HANGEN, DONALD H & PATRICIA C TTEES HANGEN FAMILY TRUST UTD 3-6-96 2,000 500 -
HANOIAN, DARRYL G. 2,700 675 -
HANSON, AMY ANN 1,000 0 -
HANSON, MARY ANN 1,000 0 -
HANSON, PEDER CHRISTIAN 1,000 0 -
HANSON, ROBERT FRANKLIN 1,000 0 -
HARDMAN, GARY D 4,000 1,000 -
HARDIN, JAMES & HARDIN, DIANE COM PROP 2,000 500 -
HARRIES, EUGENE J. & HARRIES, EDEN L. JTWROS 1,000 250 -
HARRIS, PATRICIA 0 5,000 -
HARTOG, B. M. DEN TTEE OF THE HARTOG, DEN 1989 FAMILY TR UA DTD 6-13-89 3,000 750
HARTOG, B. M. DEN 2,000 500 -
HARTMAN, JOHN 2,000 500 -
HASKER, DAN C 8,000 2,000 -
HAWKINS, BRUCE E & HAWKINS, KATHY B 5,000 0 -
HEITKOTTER, JAMES & HARTLEY, JUNE G JTWROS 6,000 1,500 -
HELMER, JAMES D & IRIS C HELMER TTEES FBO HELMER FAMILY TRUST DTD 5-1-97 4,000 1,000 -
HENDRICKS, FRANK IRA #83003228 2,000 500 -
HERNDON, BILL 0 6,421 -
HIBNER, RICHARD W & HIBNER, EILEEN W COM PROP 21,844 5,461 -
HILL, T WILLIAM & HILL, BARBARA C JTWROS 8,000 2,000 -
HILL, T. WILLIAM & HILL, BARBARA C JTWROS 4,000 1,000 -
HIRSCHFELD, DAVID S. 5,368 1,342 -
HLLYWA, JOHN & HLLYWA, CYNTHIA JTWROS 2,500 5,000 -
HOBBS, JERRY C. & HOBBS, SARAH JANE TIC 4,000 1,000 -
HODGES, JOSEPH MICHAEL 17,332 4,333 -
HODGES, MICHAEL S 0 5,000 -
HOFFMAN, DAROL TTEE FOR RICHARD D GORDON INC PROFIT SHARING PLAN 20,000 5,000 -
HOFFMAN, DAROL 10,000 2,500 -
HOLDEN, GREGORY M & HOLDEN, NANCY 1,000 250 -
HOLDER, MARY LYNN 1,000 0 -
HOLLAND, C.T. 24,000 6,000 -
HOLLAND, PAMELA J 2,000 500 -
<PAGE>
ALTERNATE PAGE
Common Percentage
Common Stock Owned
Stock Underlying If More
Security Holder Shares Warrants Than 1%
--------------- ------ -------- -------
<S> <C> <C> <C> <C>
HOMEN, ROBERT E. & HOMEN, LUCY M. COM PROP 5,000 1,250 -
HOPKINS, ALAN R & KAREN D TTEES UNDER THE DECLARATION OF TRUST DTD 1,000 250 -
1-23-90
HORN, J.P. & JILL B COMMUNITY PROPERTY 2,000 500 -
HORWITZ, FLOYD 5,000 0 -
HORWITZ & BEAM 20,000 15,000 -
HORWITZ, LAWRENCE 50,000 0 -
HOULIHAN SMITH & CO. INC. (NEVADA) 0 30,800 -
HOWARD, FRED 4,000 1,000 -
HUBER, DAVID S 8,000 2,000 -
HUGHES, BETTY R TTEE EST U/A/T DTD 10/16/97 20,000 5,000 -
HUGHES, BETTY R. TTEE HUGHES, REUBEN P AND BETTY R TR UA 10,000 2,500 -
11/30/71
HUGHES, JOSEPH BERNARD 1,000 250 -
HUNNICUTT, LUTHER C. & HUNNICUTT, CARROL N. COM PROP 6,000 1,500 -
INNIS, ELIZABETH A. LIVING TRUST DTD 6/28/89 6,700 1,675 -
IORIO, GLORIA JEAN IRA 4,000 1,000 -
JACHENS, ALBERT M 1,000 250 -
JACOBS, DAVID A 2,000 500 -
JEFFRIES, JOHN R & JEFFRIES, PAMELA A COMM PROP 1,000 250 -
JENSEN, RODGER B 10,000 2,500 -
JOBE, CHRISTOPHER M. & WUCHENICH-JOBE, MELANIE M. JTWROS 8,000 2,000 -
JOE B FIELDS FAMILY PARTNERSHIP L.P. 4,000 1,000 -
JOHNSON, J. RONALD & JOHNSON, CHRISTINE E JT TEN 1,000 250 -
JONES, CARROLL SHANNON TTEE JONES TRUST, CARROLL SHANNON 10,400 2,600 -
JONES, LEO & MARGARET L TTEES JONES FAMILY TRUST 400 100 -
JONES, STANLEY F & JONES, BOBBE C 4,000 1,000 -
JONES, THOMAS H. & JONES, SHIRLEY 2,668 667 -
JURA, ROY & JURA, BETTY JANE COM PROP 3,352 838 -
K & B DEVELOPMENT INC PROFIT SHARING TR FBO KUNZ, R. KENT 9,000 2,250 -
THE KASHIAN GROUP LTD. 8,000 2,000 -
KECK, HUNTER TTEE KECK FAMILY TR UTD 03/21/78 8,000 2,000 -
KELA, H. ARNOLD & KELA, COLLEEN F. COM PROP 18,668 4,667 -
KELA FARMS CORPORATION 12,000 3,000 -
KELTON, LISA TTEE FBO MICHAEL K KELTON LISA KELTON LIVING TR 2,000 500 -
KEMP, CHARLES 16,000 11,500 -
KEMP, KELLY 20,000 30,000 -
KENCAROL INC. A CORPORATION 18,000 4,500 -
KENFIELD, STEPHEN C. & KENFIELD, ANN E. 4,000 1,000 -
KENNEDY, THOMAS J & EILEEN M TTEES FBO KENNEDY, THOMAS J & EILEEN M REV TR NO.1 8,000 2,000 -
KENT, R TTEE FBO T.T.& K. EDUCATIONAL TRUST II 4,000 1,000 -
KEROLA, GREG 2,500 0 -
KEROLA, RYAN 2,500 0 -
KESZLER, GARY R. & KESZLER, MARLENE JTWROS 6,000 1,500 -
KHASIGIAN, HARRY A. & KHASIGIAN, LYNDA H. 13,332 3,333 -
KHASIGIAN, HARRY A & LYNDA H TTEES THE KHASIGIAN REVOC LIV TR DTD 7-24-91 8,000 2,000 -
KHAYYAM, MANSOUR & KHAYYAM, VICTORIA JTWROS 16,000 4,000 -
KILPATRICK, BYRON & KILPATRICK, MYRIAM JTWROS 24,000 6,000 -
KIMBALL, ROBERT L. & KIMBALL, ELIZABETH S. JTWROS 8,000 2,000 -
KIMURA MARKETS 7,000 1,750 -
KINARD, CRAIG S 6,000 1,500 -
KINARD, JOHN C 4,000 1,000 -
KING, GERALD W & EDITH C TTEES FBO KING FAMILY TRUST UTD 01/22/93 12,000 3,000 -
KINSMAN, ROBERT L & ANNETTE M FAMILY LIMITED PARTNERSHIP (CORP) 8,000 2,000 -
KOBORI, MARVIN S DDS PROF CORP PEN PL 4,000 1,000 -
KOKILA, RICHARD A. & KOKILA, NAN M. JTWROS 4,000 1,000 -
KOONCE, JOHN P 5,000 16,269 -
KOONCE, PETER 0 4,250 -
KOURAFAS, NICK T & ELAINE TTEES FBO KOURAFAS, NICK & ELAINE 1993 TRUST 2,000 500 -
KOURAFAS, TOM 1,500 375 -
KOUTURES, GEROGE C IRA 24,336 6,084 -
KOUTOURES, MARIA IRA 20,176 5,044 -
<PAGE>
ALTERNATE PAGE
Common Percentage
Common Stock Owned
Stock Underlying If More
Security Holder Shares Warrants Than 1%
--------------- ------ -------- -------
<S> <C> <C> <C> <C>
KRAZAN, THOMAS P. & KRAZAN, DONNA L. 1,000 250 -
KULICK, EDWARD L TTEE FBO THE KULICK TRUST 1984 UA 10-23-84 10,000 2,500 -
KUNZ, MICHAEL J 532 133 -
KUNZ, PAMELA 1,000 250 -
KUNZ, R KENT & KUNZ, BARBARA J JTWROS 8,000 2,000 -
KUNZ, R KENT & SYLVIA LAMAS TTEES FBO K & B DEVELOPMENT PROF SH TR FBO R KENT 13,336 3,334 -
KUNZ
L. C. LOOKABAUGH CO. 26,668 6,667 -
LACY, FREDERICK 8,000 84,160 -
LAINES, DONALD C. & LAINES, ELLEN J. JT TEN 4,000 1,000 -
LANOTTE, FRANK J SEP/IRA FBO LANOTTE, FRANK J 2,800 700 -
LANOTTE, FRANK J. & LANOTTE, LOUISE A. COM PROP 1,000 250 -
LAVERGNE, K O 1,332 333 -
LEFKOWITZ, MICHAEL TTEE FBO LEFKOWITZ, MICHAEL REVOCABLE TRUST 5,000 1,250 -
LESTER, D. KEVIN 20,000 5,000 -
LEVY, BRET & MATHEWS, AUDREY COM PROP 8,000 2,000 -
LEVY, JOSEPH W 16,000 4,000 -
LEWIS, H. WAYNE & JANET A TTEES THE LEWIS FAMILY LIVING TRUST DTD 4-29-92 20,000 5,000 1%
LEWIS, WAYNE H. & LEWIS, JANET A. 64,000 16,000 1%
LEWTER, MERRI G. 8,000 2,000 -
LINDBERG, DANIEL W 3,200 800 -
LINDLEY, JAMES W 2,000 500 -
LINDLEY, LES & LINDLEY, MARGUERITE COMMUNITY PROPERTY 4,000 1,000 -
LO, BETTY 13,332 3,333 -
LO, BETTY IRA R/O BEAR STEARNS SEC CORP CUST 10,000 2,500 -
LONG, WILLIAM E JR & LONG, JANET A JTWROS 6,000 1,500 -
LOONEY, COLEMAN B 2,000 500 -
LOPERENA, JACK & LOPERENA, JOANNE COMMUNITY PROPERTY 13,000 3,250 -
LOPERENA, LARRY J 2,000 500 -
LOPERENA, LAURIE M 2,000 500 -
LOPERENA, LINDA A 2,000 500 -
LOPERENA, LINDSEY J 2,000 500 -
LORD, JOSEPH M. JR. & LORD, JUDITH JTWROS 1,000 250 -
LOW, GARY K & LOW, SUSAN E JTWROS 8,000 2,000 -
LOWRY, JAMES S. & LOWRY, MARY JULIA F. TIC 8,000 2,000 -
LOWTHER-SMITH, JASON 10,000 2,580 -
LOWTHER, MURIEL I TTEE FBO SURVIVORS TRUST LOWER FAMILY TRUST, A DIVISION OF 20,000 5,000 -
LUCCHETTI, FRANK J & LUCCHETTI, CRISTINA M JTWROS 2,000 500 -
LUCHETTI, RALPH P & LUCCHETTI, DENENE J JTWROS 2,000 500 -
LUSSON, JOHN J 4,000 1,000 -
LYLES, VALERA W. IRA LINCOLN TRUST CUST 4,000 1,000 -
LYLES, VALERA W. 15,652 3,913 -
MAGHAN, BILL & MAGHAN, MARY JTWROS 4,000 1,000 -
MAGHAN, WILLIAM J 0 4,000 -
MAJR ASSOCIATES A CALIFORNIA GENERAL PARTNERSHIP 8,000 2,000 -
MALANCA, JAMES E SEP IRA 4,400 1,100 -
MANFREDA, ANTHONY 10,000 2,500 -
MANZ, THOMAS J & MANZ, VIRGINIA C COMMUNITY PROPERTY 30,000 7,500 -
MARKS, EUNICE E 1,000 250 -
MARSHALL, KATHLEEN 5,000 0 -
MARTIN, DANIEL R 1,000 250 -
MARTIN, SUSAN B 2,000 500 -
MASSEY, BRENT I 8,000 2,000 -
MATTER, THOMAS R 8,000 2,000 -
MAWZ, THOMAS J 13,332 3,333 -
MAYER, ALAN M & GREISMAN, CLARA COM PROP 8,000 2,000 -
MAZZU, ANTHONY & MAZZU, SUSAN DAWAN JTWROS 8,500 1,500 -
MC LAUGHLIN, ANDREW J 6,000 1,500 -
MC AHSTER, JAMES H 2,000 500 -
MCCLAREN, JANET 8,000 2,000 -
<PAGE>
ALTERNATE PAGE
Common Percentage
Common Stock Owned
Stock Underlying If More
Security Holder Shares Warrants Than 1%
--------------- ------ -------- -------
<S> <C> <C> <C> <C>
MCCLAREN, JO ANN 8,000 2,000 -
MCCULLOR, TINA H 2,000 500 -
MCDOUGAL, MARTHA P TTEE OF THE MCGOUGAL, MARTHA P TRUST UA DTD 6-13-94 10,000 2,500 -
MCGILL, D.C. 0 1,000 -
MCGILL, D.C. 4,000 0 -
MCGUINNESS, J. WILLIAM TTEE MCGUINNESS FAMILY TRUST DTD 12/8/92 4,700 1,175 -
MCIC INC 1,000 250 -
MCMAHAN, MARC THOMAS 4,000 1,000 -
MELIKIAN, MARVIN D. & MELIKIAN, NANCY E. 10,000 2,500 -
MEREDITH, JANET L 4,000 1,000 -
MERIDIAN CAPITAL GROUP 0 3,818 -
MEYER, DENNIS C 3,668 917 -
MILLER, CAROLINE M 4,000 1,000 -
MODGLIN, DONALD L & GRACE M TTEES OF THE MODGLIN, DONALD L & GRACE M TRUST 12,000 3,000 -
MONTEREY PENINSULA RADIOLOGICAL HANSON, COURTNEY J. TTEE 8,000 2,000 -
MONTEREY PENINSULA RADIOLOGICAL MED GROUP INC PENSION PL FBO DAVID R HOLLEY C. HANSON 8,000 2,000 -
TTEE
MOORE, CHARLES L. 2,604 651 -
MOORE, JOHN TEMPLE 25,000 25,000 -
MOORE, JOHN TEMPLE TTEE FBO MOORE LIVING TRUST 8,000 2,000 -
MOORE, THOMAS E. & MOORE, MARIE E COM PROP 4,000 1,000 -
MORSE, GLORIA & MORSE, MICHAEL JTWROS 4,000 1,000 -
MORSE, MICHAEL & MORSE, GLORIA 5,000 0 -
MURRAY, EDWIN RENE & MURRAY, PATRICIA RUTH JTWROS 2,000 500 -
MURRAY, JOSEPH R. 2,000 500 -
MUSOLF, BERDYNE TTEE FBO MUSOLF, BERDYNE & LLOYD FAM REV TR DTD 12,000 3,000 -
08/89
MUSSON, GREGORY E. & MUSSON, KAREN A. 2,668 667 -
MYOVICH, DOUG & MYOVICH, CYNTHIA JTWROS 24,000 6,000 -
NALCHAJIAN, RICHARD 8,000 2,000 -
NELSON, ANTHONY 8,000 2,000 -
NELSON, GERALD E. & NELSON, DOROTHY A. 1,336 334 -
NOMINA FINANCE LTD. BVI 200,000 50,000 3%
O'CAOIMH, RONAN 1,000 250 -
OAKLEY, JEFFREY M. & OAKLEY, VALERIE A. JTWROS 8,000 2,000 -
OGILVIE, DEAN 0 10,000 -
OGILVIE, R. DEAN OGILVIE, VICKIE A. COMM PROP 4,000 1,000 -
OKUBO, WARREN T. 4,000 1,000 -
OLIPHANT, LEONARD 50,000 110,000 -
OLSON, JAMES R D.D.S. TTEE OLSON, JAMES R D.D.S. PROFIT SHARING PL 2,000 500 -
OLSON, JAMES R 2,000 500 -
ORR, THOMAS F TTEE ORR FAM REV TR UTD 11/12/93 4,000 1,000 -
OVERSTREET, JOHN J 0 6,130 -
PACINI, DENI J & PACINI, MARJORIE J COM PROP 10,300 2,575 -
PARR, FRANK 4,000 1,000 -
PEARE, DAN C 1,336 334 -
PEERY, JAMES B & JOAN W TTEES PEERY, JAMES B & JOAN W FAM TR U/A DTD 1,336 334 -
02/81
PEERY, JAMES B. M.D. IRA 2,640 660 -
PETERSON, GORDON W & PETERSON, MYRA L JTWROS 1,000 250 -
PINKSTON, ROBERT L. & PINKSTON, LAURIE FARWELL JTWROS 4,000 1,000 -
PINKSTON, ROBERT L. 8,000 2,000 -
PODOLSKY, WILLIAM J & PODOLSKY, KAREN I COMMUNITY PROPERTY 1,000 250 -
POLDER, DICK R. 7,600 1,900 -
POMEROY, CARL F. & POMEROY, DEBORAH D. JTWROS 4,000 1,000 -
PORTMAN, LEO J PORTMAN TRUST 8,000 2,000 -
PORTMAN, LEO J. 8,000 2,000 -
POTOSKY, ROBERT A 1,336 334 -
POWELL, GENE 16,000 4,000 -
PRICKETT, GLEN L & SHIRLEY E TTEES THE GLEN L & SHIRELY PRICKETT LIV TR 2,000 500 -
7-28-93
<PAGE>
ALTERNATE PAGE
Common Percentage
Common Stock Owned
Stock Underlying If More
Security Holder Shares Warrants Than 1%
--------------- ------ -------- -------
<S> <C> <C> <C> <C>
PRICE, ROBERT F & KATHRYN S TTEES PRICE FAMILY TRUST DTD 06/06/94 2,000 500 -
PRIGGER, WILLIAM 0 1,307 -
PROPERTY DEVELOPMENT OF HAWAII INC 0 10,000 -
RAMAKANT, D RAUT & RAUT, MARJORIE S JTWROS 2,000 500 -
RANA, M. CARL & RANA, CARLA S JTWROS 1,000 250 -
RATHBONE, DONALD G & RATHBONE, VICKI A JTWROS 1,000 250 -
RATHBONE, RICHARD N FBO RATHBONE, RICHARD N IRA 1,000 250 -
RATHBONE, RICHARD N. & RATHBONE, SUSAN F. JTWROS 4,500 1,125 -
RATHBONE, ROBERT C & RATHBONE, PATRICIA P JTWROS 1,000 250 -
RATHBONE, SUSAN F FBO RATHBONE, SUSAN F IRA 1,000 250 -
REDMAN, ROBERT TTEE FBO VILLAGE CAPITAL CORP MPP 4,000 1,000 -
REINHARDT, WALTER R. 45,076 11,269 -
RESOURCES TRUST COMPANY CUST FBO BERLINER, WILLIAM P IRA A/C I155285670 4,000 1,000 -
RHODUS, ARIEL 880 0 -
RHODUS, JESSE 880 0 -
RHODUS, NAOMI 880 0 -
RICHARDSON JR., JOE C 400,000 0 6%
RICHARDSON III, JOE C. 1,000 250 6%
RICHARDSON, JOE C. 1,000 0 6%
RICHARDSON, RUBY C. 0 1,750 -
RICKETTS, JAMES M & RICKETTS, VEDA M TTEES RICKETTS FAMILY 8,000 2,000 -
TRUST
RIEDLINGER, WILLIAM A. 4,000 1,000 -
RINEHART, DAYNE T. & RINEHART, RHONDA L. JTWROS 2,000 500 -
RITTER, BARBARA ANN 4,000 1,000 -
ROBERTS, RICHARD 0 298 -
ROBINSON, LAUREN BLAIRE CARLA 0 12,500 -
ROCKY MOUNTAIN ARTIFICIAL LIMB & BRACE INC 3,732 933 -
ROGERS, ERIC & ROGERS, CHERYL JTWROS 1,332 333 -
ROGERS, NEVA R. & ROGERS, COURTNEY G. 1,500 375 -
ROGERS, TRAVIS 0 297 -
ROSSO, HAROLD J & DAVID TTEES OF THE ROSSO, HAROLD J TRUST UTD 5-9-77 6,000 1,500 -
ROSS, LEONARD V. 0 112,516 -
RYSKAMP TAKAYAMA 401K PROFIT SHARING PLAN FBO JAMES J RYSKAMP JR M.D. 5,500 3,875 -
RYSKAMP, TAKAYAMA 8,000 2,000 -
SAN JOSE CARDIAC SURGERY GROUP 8,000 2,000 -
SAN JOSE CARDIAC SURGERY MED GRP MONEY PURCH PEN PL FBO WUERFLEIN DTD 04/01/90 18,076 4,519 -
SANDERS, FAHMIE 568 142 -
SANDERS, JASON A. 636 159 -
SANDERS, JACKIE S. 1,080 270 -
SANDERS, MICHAEL J. 568 142 -
SANDERS, STAN CUST SANDERS, STANLEYJ. 1,080 270 -
SANDERS, STACYJ. 636 159 -
SANDERS, STANLEY J. 8,000 2,000 -
SCHNEIDERS, GERALD S TTEE SCHNEIDERS, GERALD S TRUST 1,332 333 -
SCHOENDUVE, HOWARD W & SCHOENDUVE, MARGUERITE JTWROS 1,000 250 -
SCHOOLEY, JAMES L M.D. INC MONEY PURCHASE PENSION PLAN UAD 2-1-79 4,000 2,606 -
SCHOOLEY, JAMES L M.D. INC MONEY PURCHASE PENSION PLAN UAD 2-1-79 6,424 0 -
SCHROEDER, WALTER W. & SCHROEDER, KAREN JTWROS 12,000 3,000 -
SCHUBERT, STEVE B 8,000 2,000 -
SCHWAB, WAYNE 8,000 2,000 -
SCIARONI, LLOYD G TTEE. SCIARONI FAMILY TRUST DTD 5-22-90 5,200 1,300 -
SCIARONI, LLOYD G. 3,332 833 -
SEITZ, JOHN P. MD 4,000 1,000 -
SENTRA SECURITIES CORPORATION 0 4,315 -
SHAMDANJIAN, ALBERT G. 13,332 3,333 -
SHARP, RITA 1,000 250 -
SHEARER, S.K. M.D. & SHEARER, CATHERINE 9,868 2,467 -
SHEETS, CAROL S & SHEETS, GEORGE K COMMUNITY PROPERTY 2,000 500 -
SHIMIZU, SCOTT E. & SHIMIZU, LORRAINE M. TIC 8,000 2,000 -
<PAGE>
ALTERNATE PAGE
Common Percentage
Common Stock Owned
Stock Underlying If More
Security Holder Shares Warrants Than 1%
--------------- ------ -------- -------
<S> <C> <C> <C> <C>
SHOWS, ALAN & SHOWS, KATHY COMMUNITY PROPERTY 8,000 2,000 -
SIKES, JOHN E. & SIKES, JEAN L. 10,000 2,500 -
SILVER CREEK INVESTMENTS LTD 177,776 44,444 3%
SIMMONS, BILLIE H. TTEE FBO SIMMONS, BILLIE H. TRUST UTD 1/12/88 1,000 250 -
SINGER, ELI & MILLER, DORIN JTWROS 4,000 1,000 -
SLATER & COMPANY 401(K) PEN & PROF SH SLATER, JOHN TTEE 2,700 675 -
SLATER, JOHN H 500 125 -
SLATER, LOUIS C. SLATER, MARIE J. 1,000 250 -
SLATER, LOUIS C. & MARIE J. TTEES SLATER FAMILY LIVING TRUST UTD 5/30/96 500 125 -
SLOCUM, RICHARD C. 4,000 1,000 -
SMALL, SHARON C. TTEE SMALL SEPARATE LIVING TRUST DTD 11/8/96 2,400 600 -
SMART, BARRICK & MICHAEL HEALY CO-TTEES FBO LACY, FREDERICK 401-K DTD 5-14-96 7,600 1,900 -
SMITH, ANDREW D PROFIT SHARING PLAN 8,000 2,800 -
SMITH, JEFF L. 2,668 667 -
SMITH, LEROY W TTEE DOCTORS FINANCAIL MGMT EMPLOYEE BENEFIT TRUST DTD 1-1-84 4,000 1,000 -
SMITH, LEROY W & SMITH, LORENA F COMMUNITY PROPERTY 8,000 2,000 -
SMITH, LEROY W TTEE FBO DR MANAGEMENT BENEFIT TR DTD 01/01/84 8,000 2,000 -
SMITH BARNEY FBO GEORGESON, JAMIE E IRA ROLLOVER CUST 8,000 2,000 -
SMITH BARNEY CUST FBO GEORGESON, JILL T IRA A/C#2136013014091 4,000 1,000 -
SNELL, WILLIAM N 3,600 900 -
SOUTHWORTH, THOMAS G 10,000 0 -
SPENCER, DAN & PAT CARRIVEAU TTEES OF CARRIEAU SPENCER INC 401 K PROFIT SH PL 2,000 500 -
SPROUL, DAVID 5,332 1,333 -
ST. CLOUD INVESTMENTS LTD 0 150,000 -
STAUFFER, CLARENCE & STAUFFER, MILDRED M. 2,400 600 -
STEINHAUSER, J CHRIS 0 125,000 -
STEVENS, MYRON 8,000 2,000 -
STEVENS, SABIN 8,000 2,000 -
STONE, JOHN G STONE, SUSAN M JTWROS 1,332 333 -
STOUT, LANNY R 20,000 39,708 -
SUMMERS, DOUG & SUMMERS, MARY ANN JTWROS 6,000 1,500 -
SUNDERLAND, HOYT & SUNDERLAND, EVELYN JTWROS 1,332 333 -
SUNDERLAND, RICK 1,332 333 -
SURABIAN, GERALD 6,668 1,667 -
SUSKIND, DAVIS A. & SUSKIND, ELIZABETH A. 13,500 3,375 -
SWARTOUT, STERLING 4,000 1,000 -
TAHMAZIAN, BRYAN LUKE TTEE UITIA DTD 2-26-97 5,512 1,378 -
TAKAYAMA, RYSKAMP 401K PROFIT SH PL TR FBO RYSKAMP, JAMES J JR M.D. 24,776 3,694 -
TANNER, NORMAN C. & TANNER, BARBARA L. JT TEN 20,500 5,125 -
TATUM, CONNIE D & TATUM, STEPHEN E JTWORS 2,668 667 -
TATUM, JOHN P 16,000 4,000 -
TELFORD, JOHN T. 6,000 1,500 -
TEMPLE, J MARTIN 9,512 2,378 -
THOMAS, MILES H. & JOAN THOMAS TTEES THOMAS, MILES H FAMILY TRUST UAD 4-22-83 16,000 4,000 -
THOMAS, RICHARD W TTEE THE RANCHO SECURITY TRUST 14,000 3,500 -
THOMAS, RICHARD W. 8,000 2,000 -
THOMPSON, ROBERT J. & THOMPSON, ARLENE M. JTWROS 4,000 1,000 -
THOMAS A KING DDS INC 8,000 2,000 -
TOLFREE, CHARLES & TOLFREE, BETH M. 2,000 500 -
TOLFREE, CHARLES H & BETH M TRUSTEES OF THE TOLFREE FAM TR DTD 1,000 250 -
08/14/96
TORCASO, CHESTER J. & TORCASO, ELAINE G. 4,000 1,000 -
TOTAL BENEFIT SERVICES INC 401 K PLAN FBO AUNE, RICHARD 2,000 500 -
TOTMAN, JAMES W TTEE FBO TOTMAN, JAMES W TRUST UTD 12/18/86 22,000 5,500 -
TRUCK DISPATCH SERVICE INC. PROF SH PL FBO KOURAFAS, JAMES 10,000 2,500 -
TRUCK DISPATCH SERVICE INC. 6,000 1,500 -
TWO GABLES PTY LIMITED 100,000 25,000 1%
<PAGE>
ALTERNATE PAGE
Common Percentage
Common Stock Owned
Stock Underlying If More
Security Holder Shares Warrants Than 1%
--------------- ------ -------- -------
<S> <C> <C> <C> <C>
VACIN, GARY 1,332 333 -
VATHAYANON, SATHAPORN 2,600 650 -
VAVOULIS, TED 10,000 2,500 -
VILLONE, THOMAS R. 6,000 1,500 -
VISTA MESA LLC 4,000 1,000 -
VOLPE, STEVE 32,000 8,000 -
VOSBURGH, JAY 2,668 667 -
WAGNER, ROLF 0 10,000 -
WALLINGTON INVESTMENTS LTD 177,776 44,444 -
WARPINSKI, JOSEPH G 8,000 2,000 -
WARREN, ELAINE M & WARREN, PHILLIP D TIC 8,000 2,000 -
WEBSTER, GORDON M JR. 2,000 500 -
WEDDON, BRADLEY C 0 1,360 -
WEDDELL, LAURA E 0 661 -
WEIGAND, DALE P. & WEIGAND, TERRI L. JTWROS 3,000 750 -
WEIGAND, PHILIP C TTEE FBO WEIGAND, DOROTHY M TRUST UAD 12-16-87 2,500 625 -
WEYBRIGHT, DENNY 1,500 375 -
WHITEHEAD, ALBERT E LIV TRUST DTD 6-26-97 10,000 2,500 -
WHITE, CHARLES G & WHITE, BRENDA L JTWROS 1,000 250 -
WHITBURN, KAREN B 5,000 0 -
WHITE MARKETING INC A CORPORATION 4,000 1,000 -
WILKES, ELISE R. 1,000 0 -
WILLIAMSON, JOHN F. 2,000 500 -
WILLIAMSON, PATRICIA A IRA 1,000 250 -
WILLIG, W DAVID 1,336 334 -
WILSON, GUY B & WILSON, JEANNETTE FAMILY TRUST UTD 8,000 2,000 -
03/07/90
WINTON, JAMES T. & WINTON, JONOLYN C. COM PROP 8,000 2,000 -
WITWER, JAMES J. M.D. INC. TTEE FBO WITWER, JAMES J. M.D. WITWER EMPL. BEN 8,000 0 -
TR
WITWER, JAMES J. M.D. TTEE FBO EMPLOYEE BENEFIT PLAN 05/31/85 13,336 5,334 -
WOESNER, RANDALL E & JANIS M TTEES FBO WOESNER FAMILY LIVING TRUST 2,000 500 -
WOLF, JOE FAMILY TRUST 4,000 1,000 -
WOLTMAN, RICHARD & WOLTMAN, KAYE 260 -
WOOD, JOHN ALAN & AREKNAS WOOD, ARLENE JTWROS 1,000 250 -
WOODS, KERRY B & WOODS, ROBYN COM PROP 1,336 334 -
WOODWARD III, O JAMES 1,336 334 -
WOOLF, JOHN L. II 12,332 3,083 -
WOOLF, JOHN L. 2,668 667 -
YEE, DESMOND SCHROEDER& ALLEN 0 1,360 -
YONG, TONY 4,800 1,200 -
YUYAMA, DOUG & YUYAMA, JOHN TENANTS IN COMMON 4,740 1,185 -
ZACHRITZ, LILLIAN A. 1,336 334 -
ZANONI, NATHAN A. JR. 5,000 1,250 -
ZINKIN, HAROLD & BETTY FAMILY LIVING TR 2,000 500 -
====================
7,029,492 2,497,663
====================
</TABLE>
The Selling Security Holders may effect the sale of their Shares from time
to time in transactions (which may include block transactions) in the open
market, in negotiated transactions, through the writing of options on the Common
stock, or a combination of such methods of sale, at fixed prices which may be
changed, at market prices prevailing at the time of sale, or at negotiated
prices.
The Company is not aware of any agreements, undertakings or arrangements
with any Underwriters or broker-dealers regarding the resale of its securities.
The Selling Security Holders may effect such transactions by selling the Shares,
as applicable, directly to purchasers or to or through broker-dealers who may
act as agents or principals. Such broker-dealers may receive compensation in the
form of discounts, concessions or commissions from the Selling Security Holders,
and/or the purchasers of their Shares, as applicable, for which such
broker-dealers may act as agents or to whom they sell as principal, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions). The Selling Security Holders and any broker-dealers that
act in connection with
<PAGE>
ALTERNATE PAGE
the sale of their Shares might be deemed to be "underwriters" within the meaning
of section 2(11) of the Securities Act.
The Company has notified the Selling Security Holders of the prospectus
delivery requirements for sales made pursuant to this Prospectus and that, if
there are material changes to the stated plan of distribution, a post-effective
amendment with current information would need to be filed before offers are made
and no sales could occur until such amendment is declared effective.
<PAGE>
ALTERNATE PAGE
PLAN OF DISTRIBUTION
7,029,492 shares of Common Stock and 2,585,663 shares of Common Stock
underlying Warrants will be offered by the Selling Security Holders from time to
time in market transactions at prevailing prices on the Nasdaq Small Cap Market
or a similar market. The Company will not receive any proceeds from possible
release by the Selling Securities Holders of their respective shares of the
Company's Common Stock. The Company will receive gross proceeds of $13,748,821
if all outstanding Warrants are exercised of which an approximately 5%
commission will be paid to the brokers of record. There can be no assurance that
any Warrants will be exercised. The Selling Security Holders may effect such
transactions by selling their shares of Common Stock to or through
broker-dealers, and such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Security Holders and/or
the purchasers of such shares of Common Stock for whom such broker-dealer may
act as agents or to whom they may sell as principals, or both (which
compensation as to a particular broker-dealer might be in excess of customary
commissions). The Company has agreed to bear all expenses estimated at
approximately $90,000 in connection with the registration of the shares of
Common stock to which this Prospectus relates.
<PAGE>
ALTERNATE PAGE
================================================================================
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made by this Prospectus and, if given or
made, such information or representations must not be relied upon as having been
authorized by the Company or the Representative. Neither the delivery of this
Prospectus nor any sale made hereunder shall under any circumstances create any
implication that there has been no change in the affairs of the Company since
the date hereof. This Prospectus does not constitute an offer or solicitation by
anyone in any jurisdiction in which such offer or solicitation is not authorized
or in which the person making such offer or solicitation is not qualified to do
so or to anyone to whom it is unlawful to make such offer or solicitation.
TABLE OF CONTENTS
Additional Information........................................................
Prospectus Summary............................................................
Risk Factors..................................................................
Use of Proceeds...............................................................
Determination of Offering Price...............................................
Dilution......................................................................
Capitalization................................................................
Dividends.....................................................................
Selected Consolidated Financial Data..........................................
Management's Discussion and Analysis of
Financial Condition and Results of Operations...............................
Glossary......................................................................
Business......................................................................
Properties....................................................................
Management....................................................................
Executive Compensation........................................................
Summary Compensation Table....................................................
Principal Shareholders........................................................
Resale by Selling Shareholders................................................
Certain Relationships and Related Party Transactions..........................
Description of Securities.....................................................
Shares Eligible for Future Sale...............................................
Plan of Distribution..........................................................
Legal Matters.................................................................
Experts.......................................................................
Financial Statements..........................................................
---------------------------
Until ___, 1999 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligation of dealers to deliver
a Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
================================================================================
<PAGE>
ALTERNATE PAGE
================================================================================
BETA OIL & GAS, INC.
7,029,492
SHARES OF
COMMON STOCK AND
2,585,663
SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE
OF WARRANTS
---------------
PROSPECTUS
---------------
November ___, 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
SEC Registration Fee $18,055.39
Nasdaq Listing Fee 10,000.00
Printing Expenses 10,259.00 *
Legal Fees and Expenses 35,000.00 *
Accounting Fees and Expenses 8,000.00 *
Transfer Agent Fees 3,000.00 *
Miscellaneous 5,685.61 *
Expenses
================
Total
$90,000.00
================
* Estimated
Item 14. Indemnification of Directors and Officers.
The Company's Articles of Incorporation and its Bylaws limit the liability of
directors and officers to the extent permitted by Nevada law. Specifically, the
Articles of Incorporation provide that the directors and officers of the Company
will not be personally liable to the Company or its shareholders for monetary
damages for breach of their fiduciary duties as directors, including gross
negligence, except liability for acts or omissions "which involve intentional
misconduct, fraud or a knowing violation of law not in good faith, or the
payment of dividends in violation of Section 78.300 of the Nevada Revised
Statutes."
The Company has obtained a directors and officers liability insurance
policy for the purposes of indemnification which shall cover all elected and
appointed directors and officers of the Company up to $1,000,000 for each claim
and $3,000,000 in the aggregate. The Company believes that the limitation of
liability provision in its Articles of Incorporation, and the directors and
officers liability insurance will facilitate the Company's ability to continue
to attract and retain qualified individuals to serve as directors and officers
of the Company.
Insofar as indemnification for liabilities arising under the Securities
Act, as amended (the "Securities Act") may be permitted to directors, officers,
and controlling persons of the Company, the Company has been advised that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer, or
controlling person of the Company in the successful defense of any action,
suitor proceeding) is asserted by such director, officer or controlling person
of the Company in connection with the securities being registered, the Company
will, unless in the opinion of its counsel the matter has been settled by a
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issues.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent for which indemnification will be required
or permitted under the Company's Articles of Incorporation. The Company is not
aware of any threatened litigation or proceeding which may result in a claim for
such indemnification.
<PAGE>
Item 15. Recent Sales of Unregistered Securities.
During 1997 and 1998 (through the date of this registration statement), the
Company issued 5,565,648 and 1,463,844 shares, respectively, of its Common Stock
and 1,528,222 and 969,441 Common Stock Purchase Warrants, respectively, through
private placements exempt from registration under Section 4(2) of Securities
Act.
Initial start-up funding was raised through the sale, effective June 23,
1997, of 2,910,000 shares ("Founder Shares") of the Company's Common Stock to
its founders and other principals for $0.05 per share. An additional 640,000
Common Stock Purchase Warrants were issued for various services provided to the
Company with each Warrant entitling the holder thereof to purchase one share of
the Company's Common Stock at prices ranging from $2.00 to $5.00 per share.
Effective September 5, 1997, the Company issued 663,912 equity units at $15
per unit through a private placement. Each unit entitled the purchaser to four
shares of common stock and one warrant exercisable to purchase one share of
common stock at $5.00 for a term of five years. The offering generated net
proceeds, after offering costs, of $9,076,283. The Company issued 224,310
additional Common Stock purchase warrants with an exercise price of $4.50 per
share for services in connection with the offering.
Commencing on February 12 and terminating on November 2, 1998, the Company
issued 364,708 equity units at $20 per unit through a private placement. Each
unit entitled the purchaser to four shares of common stock and one warrant
exercisable to purchase one share of common stock at $7.50 for a term of five
years. The offering generated net proceeds, after offering costs, of $6,594,854.
The Company issued 121,383 additional common stock purchase warrants with an
exercise price of $7.00 per share for services in connection with the offering.
In addition, the Company issued 5,000 shares of Common Stock and 1,250 Warrants
in exchange for certain oil and gas property interests. The Company also issued
482,100 Warrants for various services provided to the Company with each Warrant
entitling the holder thereof to purchase on share of the Company' Common Stock
at prices ranging from $3.75 to $7.50.
<PAGE>
The following table summarizes the private placement transactions and
warrants issued from inception (June 6, 1997) through November 2, 1998:
<TABLE>
Exercise
Common Shares Warrants to Purchase Stock $ Price
Shares $ Amount # Warrants Expiration Per Share
<S> <C> <C> <C> <C> <C> <C> <C>
1) Tranch one 2,910,000 $ 145,500 640,000 6/27/02 to $ 2.00 to 5.00
10/1/02
2) Tranch two 2,655,648 9,958,770 663,912 9/5/02 $ 5.00
3) Warrants issued as
Commission in Tranch
Two N/A N/A 224,310 12/30/02 $ 4.50
4) Direct offering expenses -
Tranch two - (882,487) -
5) Tranch three 1,458,844 7,294,160 364,708 3/12/03 $ 7.50
6) Warrants issued as 3/12/03
Commission in Tranch
Three N/A N/A 121,383 $ 7.00
7) Direct offering expenses -
Tranch Three - (699,306) -
8) Common Stock issued for
Properties 5,000 $ 25,000 1,250 3/12/98 $ 7.50
9) Warrants issued as additional
commission for capital raised N/A N/A 482,100 2/4/03 to $ 5.00 to 7.50
3/12/03
================= ================= ================
7,029,492 $ 15,841,637 2,497,663
================= ================= ================
</TABLE>
<PAGE>
Item 16. Exhibits
1.1 Underwriter Agreement (Form)
1.2 Underwriter's Warrant (Form)
1.3 Underwriter's Registration Rights Agreement(Form)(To be filed by
Amendment)
1.4 Selected Dealer Agreement (Form)
3.1 Original and Amended Articles of Incorporation of Registrant
3.2 By Laws of the Registrant, Dated June 9, 1997
5.1 Opinion of Horwitz & Beam As To The Legality Of The Securities Being
Registered, Dated July 23, 1998
10.1 Formosa Grande Prospect Agreement, Dated August 1, 1997
10.2 Texana Prospect Agreement, Dated July 15, 1997
10.3 Ganado Prospect Agreement, Dated November 1, 1997.
10.4 T.A.C. Resources Agreement, Dated January 21, 1998
10.5 Lapeyrouse Prospect Agreement, Dated October 13, 1997
10.6 Rozel (Transition Zone) Prospect Agreement, Dated February 24,1998
10.7 Stansbury Basin (Australia) Prospect Agreement, Dated February 1998
10.8 Agreement With Jim Frimodig (Norcal), Dated October 27, 1997
10.9 Steve Antry Employment Agreement, Dated June 23,1997
10.10 Steve Fischer, Employment Agreement, Dated June 23, 1997
10.11 J. Chris Steinhauser Warrant Agreement, Dated January 27, 1998
10.12 R.T. Fetters Consulting Agreement, Dated June 23, 1997
10.13 Office Lease, Dated October 1997 (To be filed by Amendment)
10.14 BWC Prospect Agreement, Dated April 1, 1998
10.15 Dahlia Financial Limited Consulting Agreement, Dated September 5,
1997
10.16 St. Cloud Investments, Ltd., Dated March 12, 1998
10.17 Beta Oil & Gas / Beta Capital Group Reciprocal Agreement
10.18 Horwitz & Beam Legal Represtation Letter, Dated June 23, 1997
23.1 Consent of Horwitz & Beam (included in their opinion set forth in
Exhibit 5.1 hereto)
23.2 Consent of Hein + Associates LLP
24 Power of Attorney (see signature page)
27 Financial Data Schedule
Item 17. Undertakings.
(a) Rule 415 Offerings.
The undersigned issuer hereby undertakes that it will:
(1) File, during the period required by Rule 415, a post-effective
amendment to this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the Registration Statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act of 1933, treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that
time to be the initial bonafide offering.
<PAGE>
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(b) Request for acceleration of effective date.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the issuer of expenses incurred or paid by a
director, officer or controlling person of the issuer in the successful defense
of any action, suit or proceedings) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
court.
<PAGE>
POWER OF ATTORNEY
Each person whose signature appear below constitutes and appoints Steve
Antry his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution for him and in his name, place and stead, in
anyand all capacities to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and to take such actions in, and file with
the appropriate authorities in, whatever states said attorney-in-fact and agent
shall determine, such applications, statements, consents and other documents as
may be necessary or expedient to register securities of the Company for sale,
granting unto said attorney-in-fact and agent full power and authority to do so
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or his substitute or substitutes may lawfully do or
cause to be done by virtue hereof and the Registrant hereby confers like
authority on its behalf.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form S-1 and authorized this registration
statement to be signed on its behalf by the undersigned, in Newport Beach,
California on November 000000000, 1998.
BETA OIL & GAS, INC.
By: /s/ Steve Antry
---------------------------------------------
Steve Antry, President and Chairman
In accordance with the requirements of the Securities Act of 1933, this
Registration statement was signed by the following persons in the capacities and
on the dates stated.
Signature Title Date
/s/ Steve Antry Chairman of the November , 1998
- ----------------
Steve Antry Board of Directors
and President
/s/ J. Chris Steinhauser Chief Financial Officer, November , 1998
- -----------------------
J. Chris Steinhauser Principal Accounting
Officer and Director
/s/ Lawrence W. Horwitz Director November , 1998
- ------------------------
Lawrence W. Horwitz
/s/ R.T. Fetters Director November , 1998
- ----------------
R.T. Fetters
/s/ Joe C. Richardson, Jr. Director November , 1998
- -------------------------
Joe C. Richardson, Jr.
UNDERWRITING AGREEMENT
PUBLIC OFFERING OF UP TO
880,000 SHARES OF COMMON STOCK
BETA OIL & GAS INCORPORATED
__________ __, 199_
HAGERTY STEWART
As Underwriter
2600 Michelson Drive, Suite 1500
Irvine, California 92612
Ladies and Gentlemen:
Beta Oil & Gas Incorporated, a corporation organized under the laws of
the State of Nevada (which shall be referred to hereinafter as the "Company"),
proposes to issue and sell through you (the "Underwriter"), in a public offering
(the "offering") that shall be registered by the Company under the Securities
Act of 1933, as amended (the "Securities Act"), a minimum of 600,000 and a
maximum of 880,000 shares (the "Shares") of Common Stock, $.001 par value (the
"Common Stock"), of the Company. The Company also proposes to sell to you,
individually, five-year warrants (the "Underwriter's Warrants") that will
entitle you to purchase, in the aggregate, a number of shares of Common Stock
equal to 10% of the total number of Shares sold in the offering (the
"Underwriter's Warrant Stock"), which sale will be consummated in accordance
with the terms and conditions of the Underwriter's Warrant Agreement (the
"Underwriter's Warrant Agreement") filed as an exhibit to the Registration
Statement (as defined below). Unless the context expressly indicates otherwise
(such as in Section 1(g) hereof), the term "Company" shall mean Beta Oil & Gas
Incorporated and its wholly-owned subsidiary, BetAustralia LLC, which is a
limited liability company organized under the laws of the state of California
(the "Subsidiary"), considered together as if they were a single, consolidated
entity.
This is to confirm the agreement concerning the sale by the Company
through you, as Underwriter of the Shares, in the offering. The Company
understands that you propose to use your reasonable best efforts to make a
public offering of the Shares within ninety (90) days after the Registration
Statement becomes effective (which period may be extended for an additional
thirty (30) day period pursuant to the terms hereof), subject to the conditions
and on the terms hereinafter set forth in this Agreement.
1. Representations, Warranties and Agreements of the Company.
The Company represents and warrants to, and agrees with, the Underwriter that:
(a) A registration statement on Form S-1 (File No.
333-_______) relating to the Shares has been prepared by the Company in
conformity with the requirements of the Securities Act, and the Rules and
Regulations promulgated by the Securities and Exchange Commission (the
"Commission") thereunder (the "Rules and Regulations") and the Registration
Statement has been filed by the Company with the Commission. Copies of such
registration statement and any amendments, and all forms of the related
prospectuses contained therein, previously filed by the Company with the
Commission have been delivered to the Underwriter and the Company has consented
to the Underwriter's use of such copies for the purposes permitted by the
Securities Act. Such registration statement, including the prospectus, Part II
and all exhibits thereto, as amended at the time when it shall become effective,
is herein referred to as the "Registration Statement", the prospectus included
as part of the Registration Statement at the time it became effective under the
Securities Act (the "effective date"), is herein referred to as the "Effective
Prospectus" and the prospectus that is filed, with your prior consent, with the
Commission after the effective date to disclose all the information that was
omitted from the Effective Prospectus pursuant to Rule 430A of the Rules and
Regulations and any other changes contained therein with your consent, is herein
referred to as the "Final Prospectus." Such amendments to such Registration
Statement as may have been required prior to the date hereof have been filed
with the Commission; and the Company will file with the Commission such
additional amendments to such Registration Statement and such amended
prospectuses as may hereafter be required under the Securities Act or the Rules
and Regulations, including an amendment to the Registration Statement or to the
Effective Prospectus that contains the information omitted from the Registration
Statement pursuant to Rule 430A(a) of the Rules and Regulations either as part
of a post-effective amendment to the Registration Statement (including an
amended prospectus) or pursuant to subparagraph (1) or (4) of Rule 424(b) of the
Rules and Regulations. Any prospectus included in the Company's Registration
Statement and in any amendments thereto filed prior to the effective date is
referred to herein as a "Pre-Effective Prospectus." For purposes of this
Agreement, the "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, the term "Exchange Act Rules" shall mean the rules and regulations
promulgated by the Commission under the Exchange Act and the term "affiliate"
shall have the definition specified in Rule 405 of the Rules and Regulations.
(b) No stop order or other order preventing or suspending the
use of any Pre-Effective Prospectus or the Effective Prospectus has been issued
by the Commission nor any "blue sky" or securities authority of any jurisdiction
and each Pre-Effective Prospectus and the Effective Prospectus, at the time of
filing thereof, did not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; except that the foregoing shall not apply to statements in
or omissions from any Pre-Effective Prospectus or in the Effective Prospectus in
reliance upon, and in conformity with, written information furnished to the
Company by the Underwriter specifically for inclusion therein.
(c) As of each of the Closing Dates (as defined below), the
Registration Statement will have been declared effective under the Securities
Act, and no post-effective amendment to the Registration Statement will have
been filed as of each Closing Date, without the Underwriter's approval as
provided in Section 4(a) hereof. When the Registration Statement becomes
effective and at all times subsequent thereto, the Registration Statement, any
post-effective amendment thereto and the Effective Prospectus and the Final
Prospectus, as amended or supplemented, shall comply in all material respects
with the requirements of the Securities Act and the Rules and Regulations. No
such document shall contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except that the foregoing shall not apply to statements in, or
omissions from, any such document, in reliance upon, and in conformity with,
written information furnished to the Company by the Underwriter specifically for
inclusion therein. There is no contract or document required to be described in
the Registration Statement or Effective Prospectus or Final Prospectus or to be
filed as an exhibit to the Registration Statement which is not described in the
Effective Prospectus or Final Prospectus as required and filed as an exhibit to
the Registration Statement or Final Prospectus, or both, as the case may be. As
of each of the Closing Dates, no stop order or other order suspending the
effectiveness of the Registration Statement or preventing or suspending the use
of the Effective Prospectus or the Final Prospectus, or any amendment or
supplement thereto, shall have been issued by the Commission or any "Blue Sky"
or securities authority of any jurisdiction.
(d) Hein & Associates LLP, whose report appears in the
Registration Statement, each Pre-Effective Prospectus, the Effective Prospectus
and the Final Prospectus, are independent auditors as required by the Securities
Act and the Rules and Regulations. The financial statements (including the
related schedules and notes) included in the Registration Statement, any
Pre-Effective Prospectus, the Effective Prospectus and/or the Final Prospectus,
together with the unaudited financial information of the Company forming part of
the Registration Statement, each Pre-Effective Prospectus, the Effective
Prospectus and/or the Final Prospectus present fairly, in all material respects,
the consolidated financial condition, the consolidated results of the operations
and changes in cash flows and equity of the entities purported to be shown
thereby at the dates and for the periods indicated and have been prepared in
conformity with generally accepted accounting principles applied on a consistent
basis ("GAAP"), and in conformity with the applicable Rules and Regulations of
the Commission, throughout the periods indicated. The selected and summary
financial data included in the Registration Statement, each Pre-Effective
Prospectus, the Effective Prospectus and the Final Prospectus present fairly, in
all material respects, the information shown therein and have been compiled on a
basis substantially consistent with the audited financial statements presented
in the Registration Statement, the Effective Prospectus, and the Final
Prospectus. There are no financial statements or schedules that are required to
be included in the Registration Statement, the Effective Prospectus or the Final
Prospectus that have not been so included.
(e) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary in order to permit preparation of
financial statements in accordance with GAAP and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(f) The descriptions of (i) the contracts or other agreements
that exist between the Company and other entities with which the Company is
participating in oil and gas exploratory and development activities (the
"Participating Corporations"), and the prior performance of such Participating
Companies, as described in the Pre-Effective Prospectus, the Effective
Prospectus and the Final Prospectus, and (ii) the oil and gas reserve data
presented in any of such Prospectuses pertaining to the fields or trends in or
adjacent to which the Company's oil and gas properties are located, and (iii)
the description of the Company's ownership interests in such properties, was
complete and correct, in all material respects, on each of the respective dates
of such Prospectuses. The Company is not required, under the Rules and
Regulations or by generally accepted accounting principles to disclose, in the
Effective Prospectus or the Final Prospectus, any financial or other data
relating to oil and gas reserves in which it has an interest or to obtain and
include, in each such Prospectus, a reserve report of any petroleum engineer or
geologist.
(g) Each of the Company and the Subsidiary has been duly
organized and is validly existing as a corporation, or (in the case of (in the
case of the Subsidiary) as a limited liability company, in good standing under
the laws of the jurisdiction of its organization, with full power and authority
(corporate and other) to own, lease and operate its respective properties and
conduct its respective business as described in the Effective Prospectus and
Final Prospectus. Each of the Company and the Subsidiary also is duly qualified
to do business as a foreign corporation, or (in the case of the Subsidiary) as a
limited liability company, and is in good standing in each jurisdiction (outside
of its state of incorporation or organization) in which the character of the
business conducted by it or the location of the properties owned or leased by it
makes such qualification necessary, except in any instance in which the failure
to be so qualified and in good standing does not and will not have a Material
Adverse Effect (as hereinafter defined). Each of the Company and the Subsidiary
(i) holds such licenses, permits and other approvals or authorizations of and
from governmental or regulatory authorities ("Permits") as are necessary under
applicable law to own its properties and to conduct its business in the manner
now being conducted and as described in the Effective Prospectus and the Final
Prospectus, (ii) has fulfilled and performed all of its respective obligations
with respect to such Permits, except for any non-performance which has not had,
and is not expected to and will not have, a material adverse effect on the
Company or its Subsidiary, the consolidated condition (financial or other) of
the Company and the Subsidiary or their consolidated operating results, their
consolidated assets or liabilities, or the future prospects of the Company or
such Subsidiary or the ability of the Company to consummate, on a timely basis,
the transactions contemplated in this Agreement (a "Material Adverse Effect").
No event has occurred which allows, or after notice or lapse of time or both
would allow, revocation or termination of, or result in any other impairment of
the rights of the Company or the Subsidiary under any such Permits where such
revocation, termination or impairment might have a Material Adverse Effect.
(h) The Company has an authorized, issued and outstanding
capitalization as set forth in the Effective Prospectus and the Final
Prospectus, and all of the issued shares of capital stock of the Company have
been duly and validly authorized by all necessary corporate action on the part
of the Company and are duly and validly issued, fully paid and non-assessable,
were not issued in violation of or subject to any preemptive rights, rights of
first refusal or similar rights (whether arising under the Company's Articles of
Incorporation or Bylaws or under the Nevada General Corporation Law or any
agreement or instrument or otherwise), and were issued and sold in compliance
with the applicable Federal and state securities laws. Except as described in
the Prospectus, there are no outstanding options, warrants or other rights
calling for the issuance of, and there are no commitments, plans or arrangements
to issue, any shares of capital stock of the Company or any security convertible
into, exchangeable for or exercisable into any shares of capital stock of the
Company. The statements set forth in the Effective Prospectus and the Final
Prospectus under the caption "Description of Capital Stock," insofar as they
purport to describe the authorized and issued shares of capital stock of the
Company, including its Common Stock, are in all material respects accurate and
complete.
(i) The Company has duly and validly authorized, by all
requisite corporate action, the sale and issuance of the Shares, the sale and
issuance of the Underwriter's Warrants, the reservation of the Underwriter's
Warrant Stock for issuance on exercise of the Underwriter's Warrants, and, when
issued against payment therefor, as contemplated by this Agreement or the
Underwriter's Warrant Agreement (as the case may be), the Shares, the
Underwriter's Warrants and the Underwriter's Warrant Stock will be duly
authorized, validly issued, fully paid and nonassessable. Except as described in
the Effective Prospectus and Final Prospectus, there are not in existence, and
the sale and issuance of the Shares and the sale and issuance of the
Underwriter's Warrants and the Underwriter's Warrant Stock will not violate, any
preemptive rights, rights of first refusal or other rights to subscribe for or
to purchase, or any restriction upon the voting or transfer of, any shares of
Common Stock pursuant to the Company's Articles of Incorporation, Bylaws or
other governing documents or under the Nevada General Corporation Law or under
any agreement, contract or other instrument to which the Company is a party or
to which the Company or its capital stock are subject. There are no debt
securities outstanding that entitle the holders thereof, now or in the future,
to exercise any voting rights. Except as otherwise disclosed in the Effective
Prospectus and Final Prospectus, neither the filing of the Registration
Statement nor the offering or sale of the Shares, as contemplated by this
Agreement nor the sale and issuance of Underwriter's Warrant or Warrant Stock,
respectively, gives rise to any rights, other than those which have been waived
or satisfied, for or relating to the registration of any shares of Common Stock;
and any such waivers, to the best of the Company's knowledge, were duly and
validly given. Except for the Subsidiary, the Company has no subsidiary (as
defined in Rule 405 of the Rules and Regulations) which is material to the
Company.
(j) Except as described in or contemplated by the Effective
Prospectus and Final Prospectus (i) there has not been any change or any
development in the business, properties, condition (financial or other), results
of operations or prospects of the Company which might have a Material Adverse
Effect, whether or not arising in the ordinary course of business, from the
respective dates as of which information is given in the Effective Prospectus
and Final Prospectus; (ii) the Company has not, directly or indirectly, incurred
any liabilities or obligations, direct or contingent, which were incurred other
than in the ordinary course of business or which, either individually or in the
aggregate, are material in amount whether or not incurred in the ordinary course
of business, or entered into any transactions not in the ordinary course of
business or which, either individually or in the aggregate, are material to the
financial condition, operating results, business or prospects of the Company
whether or not in the ordinary course of business; (iii) the agreements to which
the Company is a party described in the Effective Prospectus and Final
Prospectus, are valid and enforceable by the Company and, to the Company's
knowledge, are valid and binding on the other party or parties thereto and
neither the Company nor such other party or parties is in material breach or
default under any such agreements; (iv) there has not been any change in the
capital stock of, or any incurrence of long-term debt by, the Company, or any
issuance or grant of options, warrants or rights to purchase capital stock of
the Company, or any security convertible into, exercisable for, or exchangeable
for capital stock of the Company, or any declaration or payment of any dividend
or other distribution on any class of capital stock of the Company from the
respective dates as of which information is given in the Effective Prospectus
and Final Prospectus; (v) there is outstanding no security or other instrument
which by its terms is convertible into or exchangeable for capital stock of the
Company or which is or will be senior in priority to the shares of Common Stock
of the Company (including the Shares); and (vi) there is no commitment, plan or
arrangement to change or alter the rights, preferences or privileges of any
outstanding class or series of the capital stock of the Company.
(k) The Company is not, nor with the giving of notice or lapse
of time or both would be, in violation of or in default under, nor will the
execution or delivery of this Agreement or the Underwriter's Warrant Agreement,
or consummation of the transactions contemplated hereby or thereby, result in a
violation of, or constitute a default under, or result in the creation or
imposition of any lien, charge, claim or encumbrance upon any property or asset
of the Company under or pursuant to, (i) the Articles of Incorporation, Bylaws
or other governing documents of the Company, or (ii) any contract, indenture,
mortgage, deed of trust, loan or credit agreement, bond, debenture, note, lease
or other agreement or instrument, to which the Company is a party or by which it
is bound, or to which its business or any of its properties is subject, and
which is or is expected to become material to the Company; or (iii) any law,
rule, administrative regulation, Permit, judgment, order, writ or decree of any
court or any governmental agency or body having jurisdiction over the Company or
its business or any of its properties, except for any such violations or
defaults which, neither individually nor in the aggregate, would have a Material
Adverse Effect. Except for Permits and similar authorizations required under the
Securities Act and the securities or "Blue Sky" laws of certain jurisdictions
and for such Permits and authorizations which have been obtained, no consent,
approval, authorization or order of any court, governmental agency or body,
financial institution or other person or entity is required in connection with
the consummation of the transactions contemplated by this Agreement, including,
without limitation, the valid sale, issuance and delivery of the Shares, the
Underwriter's Warrant Agreement and the Underwriter's Warrant Stock, nor will
the execution or delivery of this Agreement or the Underwriter's Warrant
Agreement or consummation of the transactions contemplated hereby or thereby
result in a violation of, or constitute a default thereunder.
(l) The Company has all requisite corporate power and
authority to execute, deliver and perform its obligations under this Agreement,
the Escrow Agreement and the Underwriter's Warrant Agreement, and this
Agreement, the Escrow Agreement and the Underwriter's Warrant Agreement have
been duly authorized, executed and delivered by the Company and constitute
legal, valid and binding agreements and obligations of the Company and are
enforceable against the Company in accordance with their respective terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting creditors' rights generally.
(m) The Company has (i) satisfactory title to all its
interests in the oil and gas properties described in the Prospectus as being
owned by it, title investigations having been carried out by the Company in
accordance with the customary practice in the oil and gas industry, and (ii)
good and marketable title to all other real property and all personal property
described in the Effective Prospectus as being owned by it, in each case free
and clear of all liens, claims, security interests or other encumbrances except
such as are described in the Registration Statement and the Effective Prospectus
or in a document filed as an exhibit to the Registration Statement or such as
are not in, individually or in the aggregate, materially burdensome and do not
interfere in any material respect with the use or value of the property or the
conduct of the business of the Company, and the property (real and personal)
held under lease by the Company is held by it under valid, subsisting and
enforceable leases with only such exceptions as in the aggregate are not
materially burdensome and do not interfere in any material respect with the
conduct of the business of the Company as now conducted or as contemplated to be
conducted as described in the Effective Prospectus.
(o) There is no litigation or governmental proceeding or
investigation to which the Company is a party or is subject or to which its
business or any of its property is subject or which is pending or, to the
Company's knowledge, threatened against or affecting the Company which either is
required to be disclosed in the Effective Prospectus and Final Prospectus or
could have a Material Adverse Effect, including but not limited to any actions,
suits or proceedings related to environmental matters or related to
discrimination on the basis of age, sex, religion, race, or physical or mental
disability, and no labor disturbance by the employees of the Company exists or,
to the Company's knowledge, is imminent which might be expected to have a
Material Adverse Effect or which is required to be disclosed in the Effective
Prospectus and Final Prospectus.
The Company is not a party to any union or collective bargaining agreements.
(p) The Company is not in violation of any federal, foreign,
state, or local law, ordinance, governmental rule or regulation or court decree
or order to which it may be subject which violation might have a Material
Adverse Effect, or of any foreign, federal, state or local law or regulation
relating to discrimination in the hiring, promotion or paying of employees nor
any applicable federal or state wages and hours laws, nor any provisions of the
Employee Retirement Income Security Act of 1974, as amended, or the Rules and
Regulations promulgated thereunder, where such violation would have a Material
Adverse Effect.
(q) The Company and its agents, including the operating
companies which have been or will be conducting oil and gas exploration and
development activities as described in the Effective Prospectus or the Final
Prospectus (i) are in compliance with any and all applicable federal, state and
local laws and regulations relating to the protection of human health and
safety, the environment or hazardous or toxic substances or waste, pollutants or
contaminants ("Environmental Laws"), (ii) have received all Permits, licenses or
other approvals which applicable Environmental Laws require for the conduct of
by the Company or such agents of the business or activities being or to be
conducted by them, as described in the Effective Prospectus and Final Prospectus
("Environmental Permits"), and (iii) are in compliance with all terms and
conditions of any such Environmental Permits, except for such noncompliance with
Environmental Laws, or the failure to receive or to comply with the terms of any
required Environmental Permits, that would not, individually or in the
aggregate, have a Material Adverse Effect. There has been no storage, disposal,
generation, transportation, handling or treatment of hazardous substances or
solid wastes by the Company (or to the knowledge of the Company, any of its
predecessors in interest) at, upon or from any of the property now or previously
owned or leased by the Company in violation of any applicable law, ordinance,
rule, regulation, order, judgment, decree or permit or which would require
remedial action by the Company under any applicable law, ordinance, rule,
regulation, order, judgment, decree or permit, except for any violation or
remedial action which would not result in, or which would not be reasonably
likely to result in, individually or in the aggregate with all such violations
and remedial actions, a Material Adverse Effect. There has been no spill,
discharge, leak, emission, injection, escape, dumping or release of any kind
onto such property or into the environment surrounding such property of any
solid wastes or hazardous substances due to or caused by the Company, except for
any such spill, discharge, leak, emission, injection, escape, dumping or release
which would not result in or would not be reasonably likely to result in,
singularly or in the aggregate with all such spills, discharges, leaks,
emissions, injections, escapes, dumpings and releases, a Material Adverse
Effect. The terms "hazardous substances" and "solid wastes" shall have the
meanings specified in any applicable local, state and federal laws or
regulations with respect to environmental protection.
(r) The Company has timely (giving effect to permitted
extensions) filed and properly prepared all necessary federal, state, local and
foreign income, franchise and any other required tax returns, has paid all taxes
shown as due thereon, including payroll and employee withholding taxes. The
Company has no knowledge, or any reasonable grounds to know, of any tax
deficiencies which would have a Material Adverse Effect and there is no further
liability (whether or not disclosed on such returns) or assessments for any such
taxes, and no interest or penalties accrued or accruing with respect thereto,
except for such taxes as are being contested in good faith and as may be set
forth or adequately reserved for in the financial statements included in the
Effective Prospectus and the Final Prospectus. The amounts currently set up as
provisions for taxes on the Company's books and records are sufficient for the
payment of all of the Company's unpaid federal, foreign, state, county and local
taxes accrued through the dates as of which such books and records speak, and
for which the Company may be liable in its own right, or as a transferee of the
assets of, or as successor to, any other corporation, limited liability company,
association, partnership, joint venture or other entity.
(s) Neither the Company nor any officers, directors, employees
or agents or any other persons associated with or acting on behalf of it has at
any time (i) made any contributions to any candidate for political office in
violation of law, or failed to disclose fully any contributions to any candidate
for political office in accordance with any applicable statute, rule, regulation
or ordinance requiring such disclosure, (ii) made any payment to any local,
state, federal or foreign governmental officer or official, or other person
charged with similar public or quasi-public duties, other than payments required
or allowed by applicable law, (iii) violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended, (iv) made any payment outside the
ordinary course of business to any purchasing or selling agent or person charged
with similar duties of any entity to which the Company sells or from which the
Company buys products for the purpose of influencing such agent or person to buy
products from or sell products to the Company, (v) made any other bribe, rebate,
payoff, influence payment, kickback or other unlawful payment or (vi) engaged in
any transaction, maintained any bank account or used any corporate funds except
for transactions, bank accounts and funds which have been and are reflected in
the normally maintained books and records of the Company.
(t) True and complete copies of the minutes of all meetings of
the Company's Shareholders, Board of Directors and its Committees, and of any
written consents thereof, have been furnished to the Underwriter or its counsel
and are, in all material respects, accurate and complete descriptions of the
proceedings thereof and the actions taken at such meetings or by written consent
and no material transactions have been taken by the Company that have not
received requisite corporate approvals by whichever of the Shareholders, the
Board of Directors or any Committee thereof is authorized to grant such
approvals. The stock and the warrant and option registers of the Company that
have been furnished to the Underwriter and its counsel completely and accurately
set forth the record holders of, and all transactions (since the inception of
the Company) in, shares of capital stock and options, warrants and rights to
acquire capital stock of the Company.
(u) Except for the Underwriter and the Selected Dealers, no
person has provided any underwriting, brokerage, finders or similar services in
connection with, and no person has any right to receive any commissions,
discounts, finders fees, or brokerage fees or similar commissions or fees with
respect to, the offering of the Shares contemplated hereby for which the Company
or the Underwriter may be or become responsible.
(v) The Company has its properties adequately insured against
loss or damage by fire and maintains such other insurance as is prudent or
customarily maintained by companies in the same or similar business and in the
same or similar localities where any of its business operations are conducted.
The Company has not been refused any insurance coverage sought or applied for
and, except as described in the Effective Prospectus, the Company has no reason
to believe that it will not be able, at a cost that would not have a Material
Adverse Effect, to renew its existing insurance coverage, or to obtain similar
coverage from similar insurers as may be necessary to continue its business, as
and when its existing coverages expire.
(w) The Company owns, or possesses adequate rights to use, all
material patents, patent rights, inventions, proprietary software (whether
represented by source code, object code or in any other manner), trademarks,
service marks, trade names, copyrights, and trade secrets and know-how
(collectively, the "Intangibles") necessary for the conduct of its business as
currently conducted and as proposed to be conducted (which is described in the
Effective Prospectus and Final Prospectus) and has taken all reasonable security
measures to protect the secrecy, confidentiality and value of its trade secrets
and know-how which are valid and protectible and are not part of the public
knowledge or literature. All of the Intangibles that the Company owns or has
pending, or under which it is licensed, are in good standing and uncontested.
Any of the Company's employees and any other person who, either alone or in
concert with others, developed, invented, discovered, derived, programmed or
designed any Intangibles, or who have knowledge of or access to information
relating to them, have been put on notice and have entered into agreements that
provide that these Intangibles are proprietary to the Company, that transfer
each such employee's or other person's right, title and interest therein to the
Company and that require each such employee and other persons to keep strictly
confidential and not to divulge or use, other than for the Company' benefit, any
such Intangibles. The Company has not received any notice of infringement of or
conflict with, and to the best of its knowledge, the Company is not infringing
or in conflict with, asserted rights of others with respect to any Intangibles
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, could have a Material Adverse Effect. To the knowledge of the
Company, there is no infringement by others of Intangibles of the Company.
(x) The Company has made an inquiry into all aspects of its
operations, including, without limitation, its communications systems and
physical plant and equipment, and has determined that all computer databases,
software and hardware, including any microprocessors, microcontrollers, smart
instrumentation or other sensors, drivers, monitors, robotic or other devices
containing a semiconductors, memory circuits or microchips (collectively, the
"Computer Systems"), owned, used or licensed by the Company have been designed
or modified to operate without error as a result of the advent of the year 2000
or the year 2001. Without limiting the generality of the foregoing, the Computer
Systems (i) will not abnormally end or provide invalid or incorrect results as a
result of date data, specifically including date data which represents or
references different centuries or more than one century, (ii) have been designed
or modified to ensure Year 2000 compatibility, including, but not limited to,
date data century recognition, calculations which accommodate same century and
multi-century formulas and date values, and date data interface values that
reflect the century, and (iii) provide that all date-related user and data
interface functionalities and data fields include the indication of century,
except for any invalid or inaccurate results or any incompatibility that is not
expected to have and will not have, either individually or in the aggregate, a
Material Adverse Effect. To the Company's knowledge, none of the Computer
Systems owned, used or licensed by suppliers have Year 2000-related functional
problems which could reasonably be expected to have a Material Adverse Effect.
(y) There are no outstanding loans or advances or guarantees
of indebtedness by the Company to or for the benefit of any affiliate of the
Company, any of the officers or directors of the Company, or any of the members
of the families of any of them, or any other business relationships or
related-party transaction of the nature described in Item 404 of Regulation S-B
involving the Company and any other persons referred to in said Item 404, which
are required by the Rules and Regulations to be described in the Registration
Statement, Effective Prospectus and Final Prospectus except such that are so
described.
(z) The Company is not, and after giving effect to the sale of
the Shares will not be, an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
(aa) Application for quotation of the Common Stock on the
National Association of Securities Dealers Automated Quotations (herein called
Nasdaq) Small-Cap Market has been approved, subject to notice of issuance.
(bb) Neither the Company nor any of its officers or directors
has taken, and none of them shall take, directly or indirectly, any action
designed to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of the shares of Common Stock to facilitate the sale or resale of the
Shares.
(cc) Neither the Company nor any of its officers or directors
has distributed, and prior to the later of (i) the Subsequent Closing and (ii)
the completion of the distribution of the Shares none of them will distribute,
any offering material in connection with the offering and sale of the Shares
other than the Registration Statement or any amendment thereto, any Preliminary
Prospectus, the Effective Prospectus and the Final Prospectus, or any amendment
or supplement thereto, or such other materials, if any, permitted by the
Securities Act and the Rules and Regulations.
(dd) The Company is sole and exclusive record and beneficial
owner of all ownership interests in the Subsidiary and there are no outstanding
warrants, options or other rights to purchase or subscribe for the purchase of,
and there are no securities that are convertible or exercisable into or
exchangeable for, and there are no agreements entitling any one, other than the
Company, to acquire, any ownership interests in the Subsidiary.
2. Payment and Delivery.
(a) The Company hereby appoints the Underwriter as its
exclusive agent (subject to the Underwriter's right to designate selected
dealers who may participate in the offering) for a period (the "Offering
Period") of ninety (90) days from the date on which the Registration Statement
becomes effective (the "Effective Date") to sell Six Hundred Thousand (600,000)
Shares (the "Minimum Shares") on a "best-efforts, minimum-or-none" basis, and to
sell, on a "best-efforts" basis, an aggregate of up to Eight Hundred Eighty
Thousand (880,000) Shares (the "Maximum Shares"); provided, however, the Company
and the Underwriter, by their mutual written consent, may extend the Offering
Period for an additional period of up to thirty (30) days. The Company and
Underwriter, at any time, may agree to terminate the offering prior to the end
of the Offering Period. Unless the context indicates otherwise, the term
"Offering Period" shall include the extension referred to above. The
Underwriter, on the basis of the representations and warranties contained
herein, and subject to the terms and conditions set forth herein, accepts such
appointment and agrees to use its reasonable best efforts to find purchasers for
the Shares. The price at which the Underwriter, as agent for the Company, shall
sell the Shares to the public shall be $6.00 per share.
(b) It shall be a condition precedent to the sale of any
Shares in the Offering that there shall have been received, prior to the
expiration of the Offering Period, irrevocable subscriptions ("Share
Subscriptions") from prospective purchasers of the Shares in the offering to the
purchase at least 600,000 of the Shares, together with the funds required to be
paid therefor (the "Subscription Funds"), computed at the public offering price
of $6.00 per Share (the "Minimum Condition"). Until the Minimum Condition is
satisfied, all Subscriptions and Subscription Funds shall be deposited no later
than noon on the business day next following their receipt by the Underwriter or
any participating Selected Dealer (as hereinafter defined), directly into an
escrow account (the "Escrow Account"), pursuant to the terms of an escrow
agreement (the "Escrow Agreement") dated ________ __, 199_ among the Company,
the Underwriter, and California State Bank (the "Escrow Agent"). All payments of
Subscription Funds shall be made either by check or by wire transfer. All checks
evidencing Subscription Funds should be made payable to "California State Bank
- -- Beta Oil & Gas, Inc. Escrow Account." All such Subscription Funds shall be
held in the Escrow Account until disbursed as hereinafter provided.
Simultaneously with the deposit of the Subscription Funds into the Escrow
Account, the Underwriter or the participating Selected Dealer, as appropriate,
shall inform the Escrow Agent, in writing, of the name, address, and Taxpayer
Identification Number of each Subscriber, and the number of Shares and the
aggregate dollar amount of such Subscriber's Subscription.
(c) On or prior to the Effective Date, the Company shall
deliver to Oxford Stock Transfer (the "Transfer Agent") certificates which will
be used to represent the Shares to be sold hereunder through the Underwriter.
(d) If the Minimum Condition has not been satisfied by the end
of the Offering Period, then, the obligation of the Underwriter to use its
reasonable best efforts to sell Shares in the offering, and its other
obligations under this Section 2 and under Section 3 of this Agreement, shall
terminate automatically, without any liability to the Underwriter, and all
amounts in the Escrow Account shall be returned promptly to the Subscribers as
provided in the Escrow Agreement. If the Minimum Condition is satisfied prior to
the expiration of the Offering Period, all amounts in the Escrow Account (less
any fees or costs payable to the Escrow Agent pursuant to the Escrow Agreement,
which the Escrow Agent shall retain, and less the Underwriter's commission of
$0.60 per Share sold in the Offering and the Non-Accountable Expense Allowance
payable pursuant to Section 4(k) hereof, which shall be paid directly to the
Underwriter by the Escrow Agent) shall be delivered to the Company as provided
in the Escrow Agreement.
(e) If and when the Minimum Condition has been satisfied, the
Underwriter promptly shall give written notice (the "Initial Closing Notice") to
the Company, the Escrow Agent and the Transfer Agent so indicating and setting
forth (i) the amount of the Underwriter's commission as set forth in Section
2(d) and the amount of the Non-Accountable Expense Allowance that the Company is
obligated to pay to the Underwriter, (ii) the time and date (which date shall be
no longer than three (3) business days after the date of the Initial Closing
Notice) on which the closing (the "Initial Closing") shall take place (the
"Initial Closing Date"), and (iii) a written statement reflecting each
subscription which identifies, among other things, the name, address, and
Taxpayer Identification Number of each Subscriber, the number of Shares
allocated to each Subscriber, the amount tendered as payment therefor, and the
amount, if any, that is equal to the aggregate price of that number of the
Shares for which any Subscription is not being accepted. The Initial Closing
shall take place at the offices of the Underwriter, 2600 Michelson Drive, Suite
1500, Irvine, California 92612, or at such other place as the Underwriter and
the Company may agree.
(f) Prior to the Initial Closing, the Company shall instruct
the Transfer Agent, in writing, to deliver to each Subscriber that has purchased
Shares in the Offering certificates representing the Shares sold to each of
them, and the Underwriter shall instruct the Escrow Agent to deliver and remit
to the Company from the Escrow Account the purchase price paid for such Shares,
less any unpaid fees or charges due the Escrow Agent under the Escrow Agreement,
which shall be retained by the Escrow Agent, and less the Underwriter's
commission as set forth in Section 2(d) and Non-Accountable Expense Allowance
which shall be paid directly to the Underwriter pursuant to Section 4(k) hereof.
(g) If the Minimum Condition is satisfied before the end of
the Offering Period (as the same may be extended as hereinabove provided) and,
as provided herein, the offering continues thereafter, then, all subscription
funds subsequently received by the Underwriter and any participating Selected
Dealer shall be deposited directly into the Escrow Account by noon on the
business day next following their receipt. On the earliest to occur of (i) the
date as of which the Maximum Shares have been subscribed for and payment
therefor has been deposited in the Escrow Account, (ii) the expiration of the
Offering Period, or (iii) the date, if any, on which the Underwriter and the
Company determine that the offering of the Shares shall be concluded, the
Underwriter promptly shall give written notice (the "Subsequent Notice") to the
Company, the Escrow Agent and the Transfer Agent so indicating and setting forth
(x) the time and date (which date shall be no later than three (3) business days
after the date of the Subsequent Notice) on which the closing (the "Subsequent
Closing") shall take place (the "Subsequent Closing Date"), (y) a written
statement reflecting each Subscription received subsequent to the Initial
Closing which identifies, among other things, the name, address, and Taxpayer
Identification Number of each such Subscriber, the number of Shares subscribed
for by each such Subscriber, the amount tendered as payment therefor, and, if
the provisions of Section 2(i) below are applicable, the amount equal to the
aggregate price of the number of Shares for which such Subscription is not being
accepted, and (z) the amount of the Underwriter's commission as set forth in
Section 2(d) and the amount of the Non-Accountable Expense Allowance, as set
forth in Section 4(k) hereof, that shall be paid to the Underwriter in respect
of the sale of shares pursuant to Subscriptions received after the Initial
Closing. The Subsequent Closing shall take place at the offices of the
Underwriter, 2600 Michelson, Drive, Suite 1500, Irvine, California 92612, or at
such other place as the Underwriter and the Company may agree.
(h) Prior to the Subsequent Closing, the Company shall
instruct the Transfer Agent, in writing, to deliver to each Subscriber whose
Subscriptions were received after the Initial Closing certificates representing
the Shares sold to such Subscribers, and the Underwriter shall instruct the
Escrow Agent to deliver and remit to the Company from the Escrow Account the
purchase price of such Shares, less the Underwriter's commission as set forth in
Section 2(d) and Non-Accountable Expense Allowance, as set forth in Section 4(k)
hereof, which shall be paid directly to the Underwriter and less any unpaid fees
or chargers of the Escrow Agent due under the Escrow Agreement which may be
retained by the Escrow Agent. The Initial Closing Date and the Subsequent
Closing Date are sometimes referred to herein collectively as the "Closing
Dates."
(i) If any Subscriptions received from prospective purchasers
of Shares in the offering are rejected, either in whole or in part, the
applicable Closing Date Notice shall contain instructions to the Escrow Agent to
remit to each Subscriber whose Subscription is not being accepted, in whole or
in part, an amount of money equal to the price of the Shares for which such
Subscription is not being accepted.
(j) For purposes of determining whether or not the Minimum
Condition has been satisfied and the amounts that are payable to the Company and
the Underwriter on the Initial Closing Date and the Subsequent Closing Date,
Subscription Funds paid by check shall not be deemed to have been received by
the Escrow Agent nor shall the Escrow Agent be required, at any Closing, to pay
to the Company or the Underwriter, any amounts in respect of any Subscription
check received by the Escrow Agent unless and until the check has cleared and
such Funds have been credited to the Escrow Account by the Escrow Agent (which
the Escrow Agreement agrees shall not be later than __ business days after the
receipt of any check that is not dishonored).
3. Offering of the Shares on Behalf of the Company.
(a) In offering the Shares for sale, the Underwriter shall
offer the Shares solely as agent for the Company, and such offering shall be
made upon the terms and subject to the conditions set forth in the Registration
Statement. The Underwriter shall commence offering the Shares for sale as agent
for the Company as soon after the Effective Date as the Underwriter may deem
advisable; provided, however, that if the Underwriter does not commence such
offering within three (3) business days after the Effective Date, it promptly
shall so advise the Company and the Commission.
(b) In accordance with the applicable provisions of the
Registration Statement and this Agreement, the Underwriter may offer and sell
the Shares for the account of the Company through registered dealers selected by
the Underwriter (the "Selected Dealers"), and may allow such concessions (out of
the underwriting commission) to the Selected Dealers as is set forth in the form
of Selected Dealers Agreement that is attached as an exhibit to the Registration
Statement. All sales by Selected Dealers shall be on behalf of the Company. The
Underwriter shall have the authority to appoint Selected Dealers as agents for
the Company; provided, however, that no Selected Dealer shall be appointed by
the Underwriter unless such Selected Dealer has duly executed and delivered to
the Underwriter a Selected Dealers Agreement in the form filed as an exhibit to
the Registration Statement. In no event shall Selected Dealers be agents or
sub-agents of the Underwriter. The Company shall not appoint any other agents in
offering the Shares for sale, except as herein provided.
4. Covenants. The Company covenants and agrees with each Underwriter
that:
(a) The Company shall use its best efforts to cause the
Registration Statement to become effective and, if the procedure in Rule 430A of
the Rules and Regulations is utilized, to comply with the provisions of, and
make all requisite filings with the Commission pursuant to, Rule 430A of the
Rules and Regulations and to notify the Underwriter promptly (in writing, if
requested) of all such filings. The Company shall notify the Underwriter
promptly of the receipt of any comments from the Commission and any request by
the Commission for any amendment of or supplement to the Registration Statement
or the Effective Prospectus or the Final Prospectus or for additional
information and; the Company shall prepare and file with the Commission,
promptly upon your request, any amendments of or supplements to the Registration
Statement or the Effective Prospectus or the Final Prospectus which, in your
opinion, may be necessary or advisable in connection with the distribution of
the Shares. The Company shall not file any amendment of or supplement to the
Registration Statement or the Effective Prospectus or the Final Prospectus
(including any post-effective amendment), which is not approved by the
Underwriter after reasonable notice thereof, such approval not to be
unreasonably withheld or delayed. The Company shall advise the Underwriter
promptly of the issuance by the Commission or any State or other regulatory body
of any stop order or other order suspending the effectiveness of the
Registration Statement, suspending or preventing the use of any Pre-Effective
Prospectus, Effective Prospectus or Final Prospectus or suspending the
qualification of the Shares for offering or sale in any jurisdiction, or of the
institution of any proceedings for any such purpose; and the Company shall use
its best efforts to prevent the issuance of any stop order and any other such
order and, should a stop order or other such order be issued, to obtain as soon
as possible the lifting thereof.
(b) If the Company has elected to rely upon Rule 430A, it will
take such steps as it deems necessary to ascertain promptly whether the form of
prospectus transmitted for filing under Rule 424(b) was received for filing by
the Commission and, in the event that it was not, it will promptly file such
prospectus.
(c) The Company shall furnish to the Underwriter, from time to
time and without charge, a reasonable number of copies of the Registration
Statement and of each amendment and supplement thereto, of which one of each
such Registration Statement and each amendment and supplement thereto for the
Underwriter and one for counsel to the Underwriter shall be originally signed
and shall include exhibits. During the period in which a prospectus is required
to be delivered under the Securities Act and the Rules and Regulations, the
Company shall furnish to the Underwriter, from time to time and without charge,
such number of copies of the Pre-Effective Prospectus, Effective Prospectus and
Final Prospectus as the Underwriter may reasonably request and the Company
hereby consents to the use of such copies for purposes permitted by the
Securities Act.
(d) Within the time during which a Final Prospectus relating
to the Shares is required to be delivered under the Securities Act, the Company
shall comply with all requirements imposed upon it by the Securities Act, as now
and hereafter amended, and by the Rules and Regulations, as from time to time in
force, so far as is necessary to permit the continuance of sales of or dealings
in the Shares as contemplated by the provisions hereof and the Final Prospectus.
If during such period any event occurs or condition exists as a result of which
in the opinion of counsel for the Underwriter and counsel for the Company, the
Final Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances then existing, not
misleading, or if during such period it is necessary in the opinion of counsel
for the Underwriter and counsel for the Company, to amend the Registration
Statement or supplement the Final Prospectus to comply with the Securities Act,
the Company shall promptly notify the Underwriter and shall amend the
Registration Statement or supplement the Final Prospectus (at the expense of the
Company), subject to Section 4(a), so as to correct such statement or omission
or effect such compliance, provided that the Company shall determine the final
terms of any such amendment or supplement only after considering such changes in
any such documents as the Underwriter may reasonably request.
(e) The Company shall take or cause to be taken all necessary
actions and furnish to whomever the Underwriter may direct such information as
may be required in qualifying the Shares for sale under the laws of such
jurisdictions which the Underwriter shall designate and to continue such
qualifications in effect for as long as may be necessary for the distribution of
the Shares; except that in no event shall the Company be obligated in connection
therewith to qualify as a foreign corporation, or to execute a general consent
for service of process. The Company will file such applications, statements and
reports as may be required by the laws of each jurisdiction in which the Shares
are to be or have been qualified as above provided.
(f) The Company shall make generally available to its security
holders, in the manner contemplated by Rule 158(b) under the Securities Act, as
soon as practicable but in any event not later than 45 days after the end of its
fiscal quarter in which the first anniversary of the Effective Date occurs, an
earnings statement satisfying the requirements of Section 11(a) of the
Securities Act covering a period of at least twelve (12) consecutive months
beginning after the Effective Date.
(g) For a period of twelve (12) months following the Initial
Closing Date, the Company will not, without your prior written consent, (i)
purchase any shares of Common Stock or equity securities of the Company or (ii)
offer, issue, sell, transfer or otherwise dispose of, for value or otherwise,
directly or indirectly, any shares of Common Stock or other equity securities of
the Company except (A) the Shares and the Underwriter's Warrants, (B) pursuant
to the exercise of options or warrants of the Company outstanding immediately
prior to the Effective Date, as described in the Effective Prospectus and Final
Prospectus, (C) in connection with a merger, consolidation, acquisition or
similar business combination with another corporation or entity which is not an
affiliate of the Company or any of its officers or directors (other than a mere
reincorporation transaction), (D) pursuant to a joint venture, partnership,
collaboration or research, oil or gas exploration or development, product
development, marketing or technology licensing arrangement with a party which is
not an affiliate of the Company or any of its officers or directors, or (E) in
connection with any equipment leasing arrangement or bank financing arrangement
with a party which is not an affiliate of the Company or any of its officers or
directors.
<PAGE>
(h) The Company shall apply the net proceeds of the sale of
the Shares as set forth under the caption "Use of Proceeds" in the Final
Prospectus.
(i) The Company shall file such reports with the Commission
with respect to the sale of the Shares and the application of the proceeds
therefrom as may be required in accordance with Rule 463 under the Securities
Act.
(j) The Company will comply with all undertakings contained in
the Registration Statement.
(k) The Company shall pay or cause to be paid (A) all expenses
(including any capital duties, stamp duties and stock transfer taxes) incurred
in connection with the sale through the Underwriter of the Shares, (B) all fees
and expenses (including, without limitation, fees and expenses of the Company's
accountants, counsel and experts) in connection with the preparation, printing,
filing, delivery and shipping of the Registration Statement (including the
financial statements therein) and all amendments and exhibits thereto, each
Pre-Effective Prospectus, the Effective Prospectus and the Final Prospectus, as
the same may be amended or supplemented, and the printing, delivery and shipping
of this Agreement and other underwriting documents, including Underwriter's
Questionnaires, Underwriter's Powers of Attorney, Blue Sky Memoranda, the Escrow
Agreement and Selected Dealer Agreements and any letters transmitting the
offering material to Underwriter or Selected Dealers (including costs of mailing
and shipment) and the cost of furnishing copies thereof to the Underwriter and
the Selected Dealers, (C) all filing fees and the reasonable fees and
disbursements of counsel incurred in connection with the qualification of the
Shares under state securities laws as provided in Section 4(e) hereof, (D) the
filing fee payable to the NASD in connection with its review of the terms of the
Offering, (E) any applicable listing fees, including the fee for including the
Company's Common Stock for quotation on the Nasdaq Small-Cap Market, (F) the
cost of printing certificates representing the Shares, (G) the cost and charges
of any transfer agent or registrar, (H) the costs of preparing, printing and
distributing a maximum of four (4) bound volumes for the Underwriter and its
counsel, (I) the costs relating to the publication of a "tombstone" announcement
of the sale of the Shares in the local newspapers and The Wall Street Journal,
(J) all reasonable travel (not to include first class unless approved by the
Company) and lodging expenses incurred by the Underwriter in connection with the
offer and sale of the Shares, (K) the costs and charges relating to the Escrow
Account, (L) all other costs and expenses incident to the performance of the
Company's obligations hereunder which are not otherwise provided for in this
Section 4(k), and (M) fifty percent (50%), but not to exceed $30,000, of the
fees and expenses of the Underwriter's counsel incurred in connection with
preparation of the Registration Statement and this Agreement and the closing of
the transactions contemplated thereby and hereby. In addition, if the Minimum
Condition is satisfied, the Company also agrees to pay to the Underwriter an
underwriting commission as set forth in Section 2(d) above and a non-accountable
expense allowance (the "Non-Accountable Expense Allowance") equal to three
percent (3%) of the aggregate initial public offering price of the Shares sold
in the offering, which amounts (less amounts previously paid to the Underwriter
in respect of such Non-Accountable Expense Allowance) shall be paid to the
Underwriter on each of the Closing Dates (with respect to Shares sold by the
Company on such Closing Date). If the sale of the Shares provided for herein is
not consummated by reason of acts of the Company pursuant to Section 7(a) hereof
which prevent this Agreement from becoming effective, or if this Agreement is
terminated for any of the events specified in clauses (i) through (vi),
inclusive, of Section 7(b), the Company shall, in addition to its obligations
under the preceding sentence, reimburse the Underwriter for all reasonable
out-of-pocket expenses (including all of the fees and disbursements of the
counsel) incurred by the Underwriter in connection with the investigation,
preparing to market and marketing the Shares or in contemplation of performing
their obligations hereunder.
(l) The Company, at its expense, will furnish to its
shareholders an annual report (including financial statements prepared in
accordance with generally accepted accounting principles audited by independent
certified public accountants acceptable to the Underwriter), and, as soon as
practicable after the end of each of the first three quarters of each fiscal
year, a statement of operations of the Company for such quarter (which may be in
summary form), all in reasonable detail, and during the five year period after
the date hereof, at its expense, will furnish the Underwriter, (i) as soon as
practicable after the end of each fiscal year, a balance sheet of the Company
and any subsidiaries as at the end of such fiscal year, together with statements
of income or operations, shareholders' equity and changes in cash flows of the
Company and any consolidated subsidiaries, and of any non-consolidated
significant subsidiary, for such fiscal year, all in reasonable detail and
accompanied by a copy of the certificate or report thereon of independent
certified public accountants; (ii) as soon as they are available, a copy of all
reports (financial or other) mailed to security holders; (iii) as soon as they
are available, a copy of all reports and financial statements furnished to or
filed with the Commission; and (iv) such other information as the Underwriter
may from time to time reasonably request. In addition, during such five-year
period the Company will furnish the Underwriter, every material press release
and every material news item or article in respect of the Company or its affairs
that is released or prepared by the Company.
(m) If the Company has an active subsidiary or subsidiaries,
the financial statements provided for in Section 4(l) will be on a consolidated
basis to the extent the accounts of the Company and its subsidiary or
subsidiaries are consolidated in reports furnished to its shareholders
generally. Separate financial statements shall be furnished for all subsidiaries
whose accounts are not consolidated but which at the time are significant
subsidiaries as defined in the Rules and Regulations.
(n) At or before the Initial Closing Date, the Underwriter
shall receive from each of the Company's officers and directors ("Insiders") and
the Shareholders of the Company whose shares of Common Stock or Warrants of the
Company are being registered concurrently with the registration of the offering
of the Shares, a written agreement not to offer, sell, transfer or otherwise
dispose of, directly or indirectly, any shares of Common Stock or other equity
securities of the Company now owned or hereafter acquired by such person, for a
period of [ ___ ] days from the date on which the Registration Statement becomes
effective (the "Lock-up Period"), without your prior written consent (which
consent shall not be unreasonably withheld); provided, however, that they may
make private dispositions or gifts of such securities if such securities
constitute "restricted securities," within the meaning of Rule 144 of the Rules
and Regulations, in the hands of the acquiring persons, and if the acquiring
persons agree in writing to be bound by the foregoing restrictions on transfer.
(o) The Company shall continue to maintain a system of
internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary in order to
permit preparation of financial statements in accordance with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(p) The Company shall comply with all registration, filing and
reporting requirements of the Exchange Act which may from time to time be
applicable to the Company. Without limiting the generality of the foregoing,
within 30 days following the Initial Closing Date, the Company will file a
registration statement for the Common Stock under Section 12(g) of the Exchange
Act, will use its best efforts to cause such registration statement to become
effective and will supply copies of the Form 8-A and any amendments or
supplements thereto, to the Underwriter and your counsel, within five days of
its filings with the Commission.
(q) The Company shall make all filings required, including
registration under the Exchange Act, to obtain and maintain the inclusion of the
Common Stock on the Nasdaq Small-Cap Market, or on the Nasdaq National Market
System (the "Nasdaq NMS"), concurrently with the effective date of the
Registration Statement (with Nasdaq symbols mutually acceptable to the Company
and the Underwriter). The Company shall not release the Common Stock for trading
on Nasdaq without the express prior approval of the Underwriter and shall not
delist its Common Stock from Nasdaq without the prior approval of the
Underwriter, unless required by Nasdaq to do so.
(r) Prior to the Initial Closing Date, the Company shall
obtain a CUSIP number for the Common Stock, and the Company shall use its best
efforts to be included in Standard & Poor's Corporations Designation Manual
and/or Moody's Investors Services, Inc. Over-the-Counter Industrial Manual as
soon as possible following the Initial Closing Date and to continue to be
included in either of such Manuals for at least five years following the latest
of the Closing Dates.
(s) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
(which may be the same entity as the transfer agent) for its Common Stock.
(t) If any time during the period between the Effective Date
and the latest of the Closing Dates, any rumor, publication or event relating to
or affecting the Company shall occur as a result of which in your opinion the
market price of the Common Stock has been or is likely to be materially affected
(regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Final Prospectus), the Company will, after
written notice from the Underwriter advising the Company to the effect set forth
above, forthwith prepare, consult with the Underwriter concerning the substance
of, and disseminate a press release or other public statement, reasonably
satisfactory to the Underwriter, responding to or commenting on such rumor,
publication or event.
(u) Prior to each of the Closing Dates and during the period
for which a prospectus is required to be delivered pursuant to the Rules and
Regulations under the Securities Act in connection with the offer or sale of any
of the Shares being sold through the Underwriter as contemplated by this
Agreement, the Company shall not issue any press release or other publicity
about the Company without the prior approval of the Underwriter and counsel to
the Underwriter.
(v) The Company shall take or cause to be taken such actions
as are necessary to cause the representation and warranty set forth in Section
1(x) above to remain true and correct both prior to and at all times after the
closing of the sale of the Minimum Shares pursuant to this Agreement.
5. Conditions of Underwriter's Obligations. The obligations of the
Underwriter hereunder are subject to the accuracy, as of the date hereof and
each of the Closing Dates (as if made at each such Closing Date), of the
representations and warranties of the Company contained herein, to the
performance by the Company of its obligations hereunder and to the following
additional conditions:
(a) The Registration Statement and all post-effective
amendments thereto shall have become effective and all filings required by Rule
24 and Rule 430A of the Rules and Regulations shall have been made; at each
Closing Date, no stop order or other order suspending the effectiveness of the
Registration Statement or any amendment or supplement thereto shall have been
issued; no proceedings for the issuance of such an order shall have been
initiated or threatened; and any request of the Commission for additional
information (to be included in the Registration Statement or the Final
Prospectus or otherwise) shall have been disclosed to the Underwriter and
complied with to the reasonable satisfaction of the Underwriter and its counsel.
(b) The Underwriter shall not have advised the Company that
the Registration Statement or Effective Prospectus or Final Prospectus, or any
amendment or supplement thereto, contains an untrue statement of fact which, in
your opinion, is material, or omits to state a fact which, in your opinion, is
material and is required to be stated therein or is necessary to make the
statements therein not misleading.
(c) On or prior to each of the Closing Dates, the Underwriter
shall have received from Stradling Yocca Carlson & Rauth, counsel for the
Underwriter, such opinion or opinions with respect to the sufficiency of all
corporate proceedings and other legal matters relating to this Agreement and the
transactions contemplated hereby as the Underwriter reasonably may require and
such counsel shall have received from the Company and its counsel such papers,
opinions and other information as they request to enable them to pass upon such
matters.
(d) On each of the Closing Dates there shall have been
furnished to the Underwriter the opinion (addressed to the Underwriter) of
Horwitz & Beam, counsel for the Company, dated as of such Closing Date and in
form and substance satisfactory to counsel for the Underwriter and stating that
it may be relied upon by counsel for the Underwriter in giving their opinion, to
the effect that:
(i) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
organization, with full corporate power and authority to own, lease, license or
use its properties and conduct its business as described in the Registration
Statement, Effective Prospectus and Final Prospectus, and to the best of such
counsel's knowledge is duly qualified to do business as a foreign corporation
and is in good standing in each jurisdiction in which the character of the
business conducted by it or the location of the properties owned, leased,
licensed or used by it makes such qualification necessary, except for
jurisdictions in which the failure to so qualify would not have a Material
Averse Effect.
(ii) The authorized, issued and outstanding capital stock of the Company as
of _________ __, 199_, was as set forth under the caption "Capitalization" in
the Effective Prospectus and Final Prospectus, and there have been no changes in
the authorized and outstanding capital stock of the Company since such date,
except as disclosed in or specifically contemplated by the Effective Prospectus
and Final Prospectus. The Common Stock of the Company conforms to the
description thereof under the caption "Description of Capital Stock" in the
Effective Prospectus and the Final Prospectus. The outstanding shares of Common
Stock have been and are, and the Shares to be issued and sold by the Company,
upon issuance and delivery and payment therefor in the manner herein described
will be, duly authorized, validly issued, fully paid and nonassessable, and the
Subscribers will receive good and marketable title to the Shares purchased by
them, free and clear of any liens, claims or encumbrances, or restrictions on
transferability, of any kind or nature whatsoever. Except as described in the
Effective Prospectus and the Final Prospectus, there are no preemptive or, to
the best of such counsel's knowledge, other rights to subscribe for or to
purchase, or any restriction upon the voting or transfer of, any shares of
Common Stock pursuant to the Company's articles of incorporation or by-laws or
any agreement, contract or other instrument to which the Company is a party or
by which it is bound; neither the filing of the Registration Statement nor the
offering or sale of the Shares or Underwriter's Warrant Stock as contemplated by
this Agreement and the Underwriter's Warrant Agreement, respectively, gives rise
to any rights, other than those which have been waived or satisfied, for or
relating to the registration of any shares of Common Stock. To such counsel's
knowledge, the Company has no subsidiaries.
(iii) The execution and delivery of this Agreement and the Underwriter's
Warrant Agreement and consummation of the transactions contemplated hereby and
thereby will not result in a violation of, or constitute a default under, the
articles of incorporation or by-laws of the Company or any contract, indenture,
mortgage, deed of trust, loan or credit agreement, bond, debenture, note, lease
or other agreement or instrument filed as an exhibit to the Registration
Statement (the "Material Agreements"), to which the Company is a party or by
which it is bound, or to which any of its properties is subject, nor will the
performance by the Company of its obligations hereunder or under the Escrow
Agreement or Warrant Agreement violate any existing law, rule, administrative
regulation, judgment, order, writ or decree of any court or any governmental
agency or body having jurisdiction over the Company or its properties, or result
in the creation or imposition of any lien, charge, claim or encumbrance upon any
property or asset of the Company under any Material Agreement, where such
violation, default or lien would have a Material Adverse Effect. Except for
permits and similar authorizations required under the Securities Act, the
securities or "Blue Sky" laws of certain jurisdictions and from the NASD and for
such permits and authorizations which have been obtained, no consent, approval,
authorization or order of any court, governmental agency or body is required in
connection with the execution and delivery, or the consummation of the
transactions contemplated by, this Agreement, the Warrant Agreement, and the
Escrow Agreement, including, without limitations, the valid sale, issuance and
delivery of the Shares and the Warrant Shares.
(iv) The descriptions in the Registration Statement, Effective Prospectus
and the Final Prospectus of the statutes, regulations, legal or governmental
proceedings, contracts and other documents therein described, to the extent that
such descriptions constitute summaries of matters of law, documents or
proceedings, or legal conclusions, have been reviewed by such counsel and fairly
present the information required to be disclosed therein in all material
respects.
(v) The Registration Statement and all post-effective amendments thereto
have become effective under the Securities Act and, to the best of such
counsel's knowledge, no stop order or other order suspending the effectiveness
of the Registration Statement or preventing or suspending the use of any
Pre-Effective Prospectus, the Effective Prospectus, the Final Prospectus or any
amendment or supplement thereto has been issued and no proceedings for that
purpose have been instituted or are pending before or threatened by the
Commission and all filings required by Rule 424 and Rule 430A of the Rules and
Regulations have been made within the required time period; the Registration
Statement and the Effective Prospectus and the Final Prospectus and any
amendment or supplement thereto, as of their respective effective dates, comply
in all material respects with the requirements of the Securities Act and the
Rules and Regulations (except that counsel need express no opinion on the
financial statements or other financial data contained therein).
(vi) To the best of such counsel's knowledge, all descriptions in the
Effective Prospectus and the Final Prospectus of contracts, and the statements
under the captions "Description of Capital Stock" and "Shares Eligible for
Future Sale" are accurate in all material respects and fairly present the
information required to be set forth therein. To the best of such counsel's
knowledge, there are no contracts to which the Company is a party of a character
required to be summarized or described in the Effective Prospectus and Final
Prospectus or required to be filed as exhibits to the Registration Statement
which are not so summarized, described or filed, nor to the best of such
counsel's knowledge, is the Company a party to any pending or threatened
litigation or any governmental action, suit or proceeding, required to be
described in the Effective Prospectus and the Final Prospectus which is not so
described.
(vii) The Company has the requisite corporate power and authority to enter
into and perform its obligations under this Agreement, the Underwriter's Warrant
Agreement and the Escrow Agreement and each of this Agreement, the Underwriter's
Warrant Agreement and the Escrow Agreement has been duly authorized, executed
and delivered by the Company and constitutes the valid and binding agreement and
obligation of the Company and is enforceable against the Company in accordance
with its terms, except insofar as indemnification and contribution provisions
may be limited by applicable laws and except as enforceability may be limited by
bankruptcy, insolvency, reorganization or other similar laws relating to or
affecting creditors' rights generally, and general equitable principles (whether
considered in a proceeding in equity or at law).
(viii) The Underwriter's Warrant Stock has been duly authorized and
reserved for issuance and, when issued and delivered in accordance with the
terms of the Underwriter's Warrant Agreement, will be duly and validly issued,
fully paid and nonassessable, and the Underwriter will receive good and
marketable title to the Warrant Shares which it purchases, free and clear of any
liens, claims or encumbrances, or restrictions on transferability, of any kind
or nature whatsoever, except such restrictions as are set forth in the Warrant
Agreement.
(ix) The form of certificate representing the Shares filed as an exhibit to
the Registration Statement is in due and proper form and complies in all
material respects with all applicable requirements of the Nevada General
Corporation Law.
In addition, such counsel shall state that although such
counsel has not verified the accuracy or completeness of the statements
contained in the Registration Statement, Effective Prospectus or Final
Prospectus, nothing has come to such counsel's attention that caused it to
believe that the Registration Statement or any amendment thereto at the time it
became effective contained any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading or that, on the Closing Date, the Effective
Prospectus or the Final Prospectus or any amendment or supplement thereto
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading (it being understood
that such counsel need express no opinion as to the financial statements or
other financial data contained therein).
In rendering such opinion, such counsel may rely upon
certificates of any officer of the Company or of government officials as to
matters of fact of which the maker of such certificate has knowledge and, in the
case of matters governed by the laws of any state of the United States other
than California, or of any foreign country, on an opinion or opinions of local
counsel reasonably acceptable to the Underwriter and its counsel; provided that
Horwitz & Beam shall furnish the Underwriter with copies of any such statements
or certificates or opinions of local counsel and state that in their opinion
they have no reason not to rely upon any such statements or certificates or such
opinions of local counsel.
(e) There shall have been furnished to the Underwriter on each
of the Closing Dates, a certificate, dated such Closing Date and addressed to
the Underwriter, signed by the President and by the Chief Financial Officer of
the Company to the effect that: (i) the representations and warranties of the
Company in this Agreement are true and correct, as if made at and as of such
Closing Date, and the Company has complied with all the agreements and satisfied
all the conditions on its part to be performed or satisfied at or prior to such
Closing Date; (ii) no stop order or other order suspending the effectiveness of
the Registration Statement or preventing or suspending the use of any
Pre-Effective Prospectus, the Effective Prospectus or Final Prospectus or any
amendment or supplement thereto has been issued by the Commission or any "blue
sky" or securities authority of any jurisdiction, and no proceedings for that
purpose has been initiated or threatened; (iii) all filings required by Rule 424
and Rule 430A of the Rules and Regulations have been made; (iv) the signers of
said certificate have carefully examined the Registration Statement and the
Effective Prospectus and the Final Prospectus, and any amendments or supplements
thereto, and such documents contain all statements and information required to
be included therein, and do not include any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading; (v) since the Effective Date, there
has been no change in the general affairs, business, key personnel, operating
results, earnings, capitalization, financial position, net worth or the
prospects of the Company that has had or might have a Material Adverse Effect ;
and (vi) since the Effective Date, there has occurred no event required to be
set forth in an amendment or supplement to the Registration Statement or the
Effective Prospectus and the Final Prospectus which has not been so set forth.
(f) Since the Effective Date, the Company shall not have
sustained any loss by fire, flood, accident or other calamity (whether or not
insured), nor shall have become a party to or the subject of any litigation, nor
shall there have been a change in the general affairs, business, key personnel,
operating results, earnings, capitalization, financial position, net worth or
the prospects of the Company, whether or not arising in the ordinary course of
business, which loss, litigation or change is so material and adverse to the
Company that, in your judgment, shall render it inadvisable to proceed with the
delivery of the Shares.
(g) On the date of this Agreement and on each of the Closing
Dates, the Underwriter shall have received a letter of Hein & Associates LLP,
dated such date and each of the Closing Dates, respectively, addressed to the
Underwriter, to the effect that:
(i) They are independent certified public accountants with respect to the
Company within the meaning of the Securities Act and the applicable Rules and
Regulations and the answer to Item 13 of the Registration Statement is correct
insofar as it relates to them (or no response is required).
(ii) In their opinion, the financial statements and notes thereto of the
Company examined by them and contained in the Effective Prospectus and Final
Prospectus, and the supporting schedules included in the Registration Statement,
comply as to form in all material respects with the applicable accounting
requirements of the Securities Act and the Rules and Regulations.
(iii) On the basis of their procedures and inquiries (which do not
constitute an examination in accordance with generally accepted auditing
standards), as specified in their letters, except as set forth and described in
the Effective Prospectus and Final Prospectus, nothing has come to their
attention to cause them to believe that:
(A) the unaudited financial statements and supporting schedules contained
in the Registration Statement (x) do not comply as to form in all material
respects with the applicable accounting requirements of the Securities Act and
the Rules and Regulations or (y) are not fairly presented in conformity with
generally accepted accounting principles applied on a basis substantially
consistent with that of the audited financial statements included in the
Registration Statement;
(B) the financial data included in the Effective Prospectus and Final
Prospectus under the captions "Prospectus Summary," and "Selected Financial
Data" do not agree with the corresponding amounts in the financial statements
for and as at the end of each of the periods then ended; and
(C) at a specified date not more than five business days prior to the date
of such letter, (a) there was any change in the capital stock or long-term debt
of the Company or any decrease in net current assets or net assets or
shareholders' equity, in each case as compared with corresponding amounts shown
in the September 30, 1997 balance sheet contained in the Effective Prospectus
and Final Prospectus, or (b) for the period from October 1, 1998 to the
specified date referred to above, as compared with the same corresponding period
in the prior year, there was any decrease in sales, net income or net income per
share, except in all instances for changes, decreases or increases which the
Effective Prospectus and Final Prospectus disclose have occurred or may occur,
or if there was any change, decrease or increase, setting forth the amount of
such change or decrease.
(iv) They have compared the information expressed in amounts, dollar
amounts and percentages derived therefrom and other financial information
pertaining to the Company set forth in the Pre-Effective Prospectus, Effective
Prospectus and Final Prospectus specified by the Underwriter, in each case to
the extent such information was obtained or derived from the general accounting
records of the Company with the results obtained from the application of
specified readings, inquiries and other appropriate procedures (which procedures
do not constitute an examination in accordance with generally accepted auditing
standards) set forth in such letters, and found them to be in agreement.
In addition, the Underwriter shall have received from Hein & Associates
LLP, a letter addressed to the Company, which shall be made available to the
Underwriter for its use, stating that their review of the Company's system of
internal accounting controls, to the extent they deemed necessary in
establishing the scope of their examination of the Company's financial
statements as of December 31, 1997, did not disclose any weaknesses in internal
controls that they considered to be material weaknesses.
(h) At or prior to the Initial Closing Date, the Underwriter's
Warrant Agreement shall have been entered into by the Company and the
Underwriter, and the Underwriter's Warrants shall have been issued and sold to
the Underwriter pursuant thereto.
(i) At or prior to the Initial Closing Date, the Underwriter
shall have received the written agreements described in Section 4(n) hereof.
(j) All proceedings taken in connection with the issuance,
sale, transfer and delivery of the Shares shall be satisfactory in form and
substance to the Underwriter and to its counsel, and the Underwriter shall have
been furnished such additional documents and certificates as it may have
reasonably requested.
(k) The Underwriter shall have been furnished evidence in
usual written or telegraphic form from the appropriate authorities of the
several jurisdictions, or other evidence satisfactory to the Underwriter, of the
qualification referred to in subsection 4(e) above.
(l) Prior to the Initial Closing Date, the Shares shall have
been duly authorized for quotation on the Nasdaq Small-Cap Market upon official
notice of issuance.
(m) The NASD, upon review of the terms of the public offering
of the Shares, shall not have objected to your participation in such offering.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are reasonably satisfactory
in form and substance to the Underwriter and its counsel. Any certificate or
document signed by any officer of the Company and delivered to the Underwriter
or its counsel shall be deemed a representation and warranty by such officer
individually and by the Company hereunder to the Underwriter as to the
statements made therein. The Company shall furnish the Underwriter with such
number of conformed copies of such opinions, certificates, letters and other
documents as the Underwriter shall reasonably request. If any of the conditions
specified in this Section 5 shall not have been fulfilled when and as required
by this Agreement, this Agreement and all obligations of the Underwriter
hereunder may be cancelled at, or at any time prior to, each of the Closing
Dates, by the Underwriter. Any such cancellation shall be without liability of
the Underwriter to the Company. Notice of such cancellation shall be given to
the Company in writing, or by telegraph or telephone and confirmed in writing.
6. Indemnification and Contribution.
(a) Subject to the conditions set forth below, the Company
agrees to indemnify and hold harmless the Underwriter, any member of the selling
group, and each of such entities' officers, directors, partners, employees,
agents, and counsel, and each person, if any, who controls the Underwriter or
selling group member within the meaning of Section 15 of the Securities Act or
Section 20(a) of the Exchange Act (each an "Indemnified Underwriter") against
any and all loss, claim, damage, expense or liability, joint or several, to
which such Indemnified Underwriter may become subject, under the Securities Act
or otherwise, insofar as such loss, claim, damage, expense or liability (or
action in respect thereof) arises out of or is based upon (i) the inaccuracy of
any of the representations or warranties made by the Company in Section 1 hereof
or elsewhere in this Agreement, or (ii) any untrue statement or alleged untrue
statement of a material fact contained (A) in the Registration Statement, any
Pre-Effective Prospectus, the Effective Prospectus or the Final Prospectus or
any amendment or supplement thereto, or (B) in any application or other document
or communication (in this Section 6, collectively called an "Application")
executed by or on behalf of the Company or based upon written information
furnished by or on behalf of the Company in any jurisdiction in order to qualify
the Shares under the "blue sky" or securities laws thereof or filed with the
Commission or any securities exchange or national market system, such as the
Nasdaq Small-Cap Market; or (iii) the omission or alleged omission to state, in
the Registration Statement, any Pre-Effective Prospectus, the Effective
Prospectus or Final Prospectus or any amendment or supplement thereto or in any
Application, a material fact required to be stated therein or necessary to make
the statements therein not misleading, or (iv) any breach of any representation,
warranty, covenant or agreement of the Company contained in this Agreement; and
shall pay each Indemnified Underwriter for any and all costs and expenses,
including reasonable attorneys' fees, as and when incurred by such Indemnified
Underwriter in connection with investigating or defending against or appearing
as a third-party witness in connection with any litigation, commenced or
threatened, and any and all amounts paid in settlement of any claim or
litigation of any such loss, claim, damage, liability or action whatsoever,
notwithstanding the possibility that payments for such expenses might later be
held to be improper; provided; however, that the Company shall not be liable in
any such case to the extent, but only to the extent, that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in reliance upon
and in conformity with written information furnished to the Company by the
Underwriter specifically for inclusion in the Registration Statement, any
Pre-Effective Prospectus, the Effective Prospectus or Final Prospectus or any
amendment or supplement thereto, or any Application. In addition to its other
obligations under this Section 6(a), the Company agrees that, as an interim
measure during the pendency of any claim, action, investigation, inquiry or
other proceeding arising out of or based upon any statement or omission, or any
alleged statement or omission, or any inaccuracy in the representations and
warranties of the Company herein or the failure to perform its obligations
hereunder, it will pay each Indemnified Underwriter on a monthly basis for all
costs and expenses, including reasonable attorneys' fees, incurred in connection
with investigating or defending any such claim, action, investigation, inquiry
or other proceeding, notwithstanding the absence of a judicial determination as
to the propriety and enforceability of the Company's obligation to indemnify
hereunder or to pay each Indemnified Underwriter for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any such interim payment is
so held to have been improper, each Indemnified Underwriter shall promptly
return it to the Company, together with interest, determined on the basis of the
prime rate (or other commercial lending rate for borrowers of the highest credit
standing) announced from time to time by Bank of America NT&SA (the "Prime
Rate"). Any such interim payment which is not made to an Indemnified Underwriter
within 30 days of a request for payment, shall bear interest at the Prime Rate
from the date of such request. The foregoing agreement to indemnify shall be in
addition to any liability which the Company may otherwise have, including
liabilities arising under this Agreement.
(b) The Underwriter shall indemnify and hold harmless the
Company, each director of the Company, each officer of the Company who has
signed the Registration Statement and any person who controls the Company within
the meaning of Section 15 of the Securities Act against any loss, claim, damage
or liability to which the Company may become subject, under the Securities Act
or otherwise, insofar as such loss, claim, damage or liability (or action in
respect thereof) arises out of or is based upon (i) any untrue statement or
alleged untrue statement of a material fact contained (A) in the Registration
Statement, any Pre-Effective Prospectus, the Effective Prospectus or Final
Prospectus or any amendment or supplement thereto, or (B) in any Application, or
(ii) the omission or alleged omission to state in the Registration Statement,
any Pre-Effective Prospectus, the Effective Prospectus or Final Prospectus or
any amendment or supplement thereto or in any Application, a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading and the
Underwriter shall reimburse the Company for any and all costs and expenses,
including reasonable attorneys' fees, as and when incurred by it in connection
with investigating or defending against or appearing as a third-party witness in
connection with any such loss, claim, damage, liability or action; provided;
however, that such indemnification and reimbursement shall be available in each
such case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by the
Underwriter specifically for inclusion therein. This indemnity agreement shall
be in addition to any liability which the Underwriter may otherwise have. The
Company acknowledges that the statements set forth in the last paragraph of the
cover page (insofar as such information relates to the Underwriter), the
paragraph on page 2 with respect to stabilization and under the heading
"Underwriting" in any Pre-Effective Prospectus, Effective Prospectus and/or the
Final Prospectus constitute the only information furnished in writing by or on
behalf of the Underwriter, for inclusion in any such Prospectus.
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of any claim or the commencement of any
action, the indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under such subsection, notify the indemnifying
party in writing of the claim or the commencement of that action; provided,
however, that the failure to notify the indemnifying party shall not relieve it
from any liability which it may have to an indemnified party. If any such claim
or action shall be brought against an indemnified party, and it shall notify the
indemnifying party thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action with counsel reasonably satisfactory to the
indemnified party, the indemnifying party shall not be liable to the indemnified
party under such subsection for any legal or other expenses subsequently
incurred by the indemnified party in connection with the defense thereof other
than reasonable costs of investigation; provided, however, if the defendants in
any such action include both the indemnified party and the indemnifying party
and the indemnified party shall have reasonably concluded that there may be a
conflict between the positions of the indemnifying party and the indemnified
party in conducting the defense of any such action or that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, the indemnified
party or parties shall have the right to select separate counsel to assume such
legal defenses and to otherwise participate in the defense of such action on
behalf of such indemnified party or parties, in which event the fees and
expenses of such separate counsel shall be paid by the indemnifying party (it
being understood, however, that the indemnifying party shall not be liable for
the expenses of more than one separate counsel, approved by the Underwriter in
the case of subsection (a) above, representing the indemnified parties who are
parties to such action). The Company agrees promptly to notify the Underwriter
of the commencement of any litigation or proceedings against the Company, or
against any of its officers or directors in connection with the sale of the
Shares, the Registration Statement, any Pre-Effective Prospectus, the Effective
Prospectus or the Final Prospectus, or any amendment or supplement thereto, or
any Application. To the extent any provision of this Section 6 entitles the
indemnified party to reimbursement of fees and expenses, such obligations may be
billed by the indemnified party monthly and shall be due and payable within ten
(10) days of the date thereof.
No indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement of any pending or threatened proceeding
in respect of which any indemnified party is or could have been a party and
indemnity could have been sought hereunder by such indemnified party, unless
such settlement includes an unconditional release of such indemnified party from
all liability on claims that are the subject matter of such proceeding. No
indemnifying party shall be liable for the costs and expenses of any settlement
of such proceeding effected by such indemnified party without the consent of the
indemnifying party. Any consent of an indemnified party under this paragraph may
be given on behalf of all such indemnified parties by the Underwriter in the
case of parties indemnified pursuant to Section 6(a) and by the Company in the
case of parties indemnified pursuant to Section 6(b).
(d) In order to provide for just and equitable contribution
under the Act in any case in which (i) the Underwriter (or any person who
controls any Underwriter within the meaning of the Act or the Exchange Act)
makes claim for indemnification pursuant to Section 6(a) hereof, but is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that Section 6(a) provides for indemnification in such
case or (ii) contribution under the Act may be required on the part of any
Underwriter or any such controlling person in circumstances for which
indemnification is provided under Section 6(b), then, and in each such case,
each indemnifying party shall contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject as an indemnifying party
hereunder (after contribution from others) in such proportion as is appropriate
to reflect the relative benefits received by the Company on the one hand and the
Underwriter on the other from the offering and sale of the Shares as
contemplated by this Agreement. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law, then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company on the one hand and
the Underwriter on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities (or actions in
respect thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the Underwriter on
the other shall be deemed to be in the same proportion as the total net proceeds
from the offering of the Shares sold pursuant to this Agreement (before
deducting expenses) received by the Company bear to the total underwriting
commissions received by the Underwriter with respect to such Shares, in each
case as set forth in the table on the cover page of the Effective or Final
Prospectus. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or the Underwriter on the other and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and the Underwriter
agree that it would not be just and equitable if contributions pursuant to this
Section 6(d) were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this Section 6(d). The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above in this Section 6(d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 6(d), the Underwriter shall not
be required to contribute any amount in excess of the amount by which the total
price at which the Shares sold by it on behalf of the Company exceeds the amount
of any damages which such Underwriter has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of a fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
(e) Promptly after receipt by any party to this Agreement of
notice of the commencement of any action, suit or proceeding, such party will,
if a claim for contribution in respect thereof is to be made against another
party (the "contributing party"), notify the contributing party of the
commencement thereof; but the delay or omission so to notify the contributing
party will not relieve it from any liability which it may have to any other
party for contribution under the Act except to the extent it was unaware of such
action and has been prejudiced in any material respect by such delay or failure
or from any liability which it may have to any other party other than for
contribution under the Act. In case any such action, suit or proceeding is
brought against any party, and such party notifies a contributing party of the
commencement thereof, the contributing party will be entitled to participate
therein with the notifying party and any other contributing party similarly
notified.
(f) It is agreed that any controversy arising out of the
operation of the interim payment arrangements set forth in Sections 6(a) or 6(b)
hereof, including the amounts of any requested payments and method of
determining such amounts, shall be settled by arbitration conducted under the
provisions of the Constitution and Rules of the Board of Governors of the New
York Stock Exchange, Inc. or pursuant to the Code of Arbitration Procedure of
the National Association of Securities Dealers, Inc. Any such arbitration shall
be commenced by service of a written demand for arbitration or written notice of
intention to arbitrate, therein electing the arbitration tribunal. In the event
the party demanding arbitration does not make such designation of an arbitration
tribunal in such demand or notice, then the party responding to said demand or
notice is authorized to do so. Such an arbitration shall be limited to the
operation of the interim payment provisions contained in Sections 6(a) or 6(b)
hereof and shall not resolve the ultimate propriety or enforceability of the
obligation to indemnify or pay expenses which is created by the provisions of
such Sections 6(a) or 6(b) hereof.
7. Effective Date and Termination.
(a) This Agreement shall become effective at 6:00 A.M., Los
Angeles time, on the first full Business Day following the date upon which the
Registration Statement becomes effective. Until this Agreement is effective, it
may be terminated by the Company by giving notice as hereinafter provided to the
Underwriter or by the Underwriter by giving notice as hereinafter provided to
the Company, except that the provisions of Section 4(k) and Section 6 shall at
all times be effective.
(b) Until the Initial Closing Date, this Agreement may be
terminated by the Underwriter by giving notice as hereinafter provided to the
Company, if (i) the Company shall have failed, refused or been unable, at or
prior to the Initial Closing Date, to perform any agreement on its part to be
performed hereunder; (ii) any other condition of the obligations of the
Underwriter hereunder is not fulfilled; (iii) if there has been, since the date
as of which the information is given in the Final Prospectus, any change or any
development involving a prospective change, in the business or prospects of the
Company that would have a Material Adverse Effect (notice of which shall be
given by the Company to the Underwriter promptly after the occurrence thereof);
(iv) trading in the Shares has been suspended by the Commission or trading in
securities generally on either the New York Stock Exchange, American Stock
Exchange or NASDAQ shall have been suspended or minimum or maximum prices shall
have been established on or maximum ranges for prices for securities have been
required by such exchange or NASDAQ by the Commission or by such exchange or
other regulatory body or governmental authority having jurisdiction; or (v) a
general banking moratorium shall have been declared by a state or Federal
authority; or (vi) if there has occurred any material adverse change in the
financial markets in the United States or internationally or any outbreak of
hostilities or escalation of existing hostilities or other calamity or crisis
that, in your reasonable judgment, is material and adverse. If any of the
foregoing events occurs after the Initial Closing Date and prior to the
completion of the Subsequent Closing, the Underwriter also shall be entitled to
terminate this Agreement by giving notice thereof to the Company as hereinafter
provided.
(c) Any termination of this Agreement pursuant to this Section
7 shall be without liability on the part of the Company or any Underwriter,
except as otherwise provided in Sections 4(k) and 6 hereof.
(d) Any notice referred to above may be given at the address
specified in Section 9 hereof in writing or by telegraph or telephone, and if by
telegraph or telephone, shall be immediately confirmed in writing.
8. Survival of Indemnities, Contribution, Warranties and
Representations. The indemnity and contribution agreements contained in Section
6, the applicable obligations of the Company under Section 4(k) and the
representations, warranties and agreements of the Company in Sections 1 and 3,
shall survive the delivery of the Shares to the Underwriter hereunder and shall
remain in full force and effect, regardless of any termination or cancellation
of this Agreement or any investigation made by or on behalf of any indemnified
party.
9. Notices. Except as otherwise provided in this Agreement, (a)
whenever notice is required by the provisions of this Agreement to be given to
the Company such notice shall be in writing (and may be telecopied if confirmed
by letter) addressed to the Company at 901 Dove Street, Suite 230, Newport
Beach, California 92660, telecopier number (949) 752-5757, Attention: President;
and (b) whenever notice is required by the provisions of this Agreement to be
given to the Underwriter, such notice shall be in writing addressed to the
Underwriter, 2600 Michelson Drive, Suite 1500, Irvine, California 92612,
telecopier number (949) 221-9135, Attention: Chief Executive Officer.
10. Information Furnished by Underwriter. The statements set forth the
in the last paragraph on the cover page, the paragraph on page 2 with respect to
stabilization, and under the caption "Underwriting" in any Pre-Effective
Prospectus and in the Effective Prospectus and the Final Prospectus, constitute
the sole written information furnished by or on behalf of the Underwriter.
11. Parties. This Agreement is made solely for the benefit of the
Underwriter, the Company, any officer, director or controlling person referred
to in Section 6 hereof, and their respective successors and assigns, and no
other person shall acquire or have any right by virtue of this Agreement. The
term "successors and assigns," as used in this Agreement, shall not include any
purchaser of any of the Shares through the Underwriter or selected dealers
merely by reason of such purchase.
12. Definitions; Interpretation For purposes of this Agreement,
"Business Day" means any day other than Saturday, Sunday, a federal holiday or a
day on which the New York Stock Exchange is closed. Neither this Agreement nor
any uncertainty or ambiguity herein shall be construed or resolved against the
Company or the Underwriter, whether under any rule of construction or otherwise.
On the contrary, this Agreement has been reviewed by all parties and shall be
construed and interpreted according to the ordinary meaning of the words used so
as to fairly accomplish the purposes and intentions of all parties hereto.
Section headings and section numbers have been set forth herein for convenience
only and shall not be considering in construing this Agreement or any of the
provisions hereof. Unless otherwise indicated elsewhere in this Agreement, (a)
the term "or" shall not be exclusive, (b) the term "including" shall mean
"including, but not limited to," and (c) unless otherwise indicated, the terms
"herein," "hereof," "hereto," "hereunder" and other terms similar thereto shall
refer to this Agreement as a whole and not merely to the specific section,
subsection, paragraph or clause where such terms may appear.
13. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
the choice of law or conflict of laws principles thereof.
14. Counterparts. This Agreement may be signed in one or more
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same agreement.
<PAGE>
Please confirm, by signing and returning to us counterparts of this
Agreement, that the foregoing correctly sets forth the Agreement among the
Company and the Underwriter.
Very truly yours,
BETA OIL & GAS, INCORPORATED
By:
Steve Antry, President and Chairman
Confirmed and accepted as of the date first above mentioned:
HAGERTY STEWART
By:
Nicholas Mosich, Chief Executive Officer
UNDERWRITER'S WARRANT AGREEMENT
THIS UNDERWRITER'S WARRANT AGREEMENT (the "Agreement"), dated as of
_________ __, 1999 is made and entered into by and between BETA OIL & GAS
INCORPORATED, a Nevada corporation (the "Company"), and HAGERTY STEWART
("Hagerty Stewart" or the "Warrantholder").
Concurrently herewith, the Company is consummating the sale, in a
public offering (the "Offering") of __,000 of shares (the "Public Offering
Shares") of the Company's Common Stock, par value $.001 per share (the "Common
Stock or the "Shares"). The Offering has been registered under the Securities
Act of 1933, as amended (the "Act") and has been underwritten by Hagerty Stewart
pursuant to an Underwriting Agreement dated as of ______ __, 1999 (the
"Underwriting Agreement") between the Company and Hagerty Stewart. The
Underwriting Agreement provides that, on consummation of the sale of any of
Public Offering Shares, the Company shall sell and issue to Hagerty Stewart
warrants (the "Warrants") entitling Hagerty Stewart to purchase, on the terms
and conditions hereinafter set forth, a number of shares of Company Common Stock
(hereinafter referred to as the "Warrant Shares") equal to ten percent (10%) of
the number of Public Offering Shares sold in the Offering.
In consideration of the foregoing and in satisfaction of the Company's
obligations contained in the Underwriting Agreement and for the purpose of
defining the terms and provisions of the Warrants and the respective rights and
obligations with respect thereto, the Company and the Warrantholder, for value
received, hereby agree as follows:
Section 1. Sale and Issuance of Warrants; Transferability and Form of Warrants.
1.1 Sale and Issuance of the Warrants. The Company agrees that it shall
issue and sell, and the Warrantholder agrees to purchase, on this date, a number
of Warrants equal to ten percent (10%) of the number of Shares that is sold in
the Offering, for a purchase price of $.001 per warrant. Each Warrant will
entitle the Warrantholder to purchase one share of the Company's Common Stock
(as hereinafter further defined in Subsection 8.1(h)__ hereof), at the Warrant
Price (as defined in Section 7 hereof). Accordingly, the number of Warrants to
be sold and issued on the date hereof by the Company to the Warrantholder, and
the number of Warrant Shares that may be purchased hereafter on exercise thereof
(before giving effect to any adjustments required by Section 8 hereof), shall be
___,000. The Warrants being sold and issued on the date hereof shall be
evidenced by a Warrant Certificate substantially in the form of Exhibit A hereto
(the "Warrant Certificate"). If additional Shares of Common Stock are sold
hereafter in the Offering, the Company shall sell and issue to Hagerty Stewart,
on the terms and conditions set forth herein, a number of additional Warrants
equal to ten percent (10%) of such additional Shares that are sold by the
Company (the "Additional Warrants"). The Additional Warrants, if any, shall be
sold and issued on the Subsequent Closing Date (as defined in the Underwriting
Agreement and shall be evidenced by a separate Warrant Certificate substantially
in the form of Exhibit A hereto.
1.2 Registration. The Warrants shall be numbered and shall be
registered on the books of the Company when issued.
1.3 Transfer. The Warrants shall be transferable in whole or in part
only on the books of the Company maintained at its principal office in Newport
Beach, California, or wherever its principal office may then be located, upon
delivery thereof duly endorsed by the Warrantholder or by its duly authorized
attorney or representative, accompanied by proper evidence of succession,
assignment or authority to transfer. Upon any registration of transfer, the
Company shall execute and deliver new Warrants to the person or persons entitled
thereto.
1.4 Limitations on Transfer of the Warrants. Subject to the provisions
of Section 11, the Warrants shall not be sold, transferred, assigned or
hypothecated by the Warrantholder, until _________ __, 2000, except that the
Warrants may be transferred, in whole or in part, to (i) one or more persons,
each of whom on the date of transfer is an officer or partner of the
transferring Warrantholder; (ii) any other underwriting firm or member of the
selling group which participated in the Public Offering (or the officers or
partners of any such firm); (iii) a successor to the transferring Warrantholder
in merger or consolidation; (iv) a purchaser of all or substantially all of the
transferring Warrantholder's assets; or (v) any person receiving the Warrants
from one or more of the persons listed in this subsection 1.3 at such person's
or persons' death pursuant to a will or trust or the laws of intestate
succession. The Warrants may be divided or combined, upon request to the Company
by the Warrantholder, into a certificate or certificates representing the right
to purchase the same aggregate number of Warrant Shares. Unless the context
indicates otherwise, the term "Warrantholder" shall include any transferee or
transferees of the Warrants pursuant to this subsection 1.3, and the term
"Warrants" shall include any and all warrants outstanding pursuant to this
Agreement, including those evidenced by a certificate or certificates issued
upon division, exchange, substitution or transfer pursuant to this Agreement.
1.5 Form of Warrants. The text of the Warrants and of the form of
election to purchase Warrant Shares shall be substantially as set forth in
Exhibit A attached hereto. The number of Warrant Shares issuable upon exercise
of the Warrants is subject to adjustment upon the occurrence of certain events,
all as hereinafter provided. The Warrants shall be executed on behalf of the
Company by its President or by a Vice President. A Warrant bearing the signature
of an individual who was at the time of signature the proper officer of the
Company shall bind the Company, notwithstanding that such individual shall have
ceased to hold such office prior to the delivery of such Warrant or did not hold
such office on the date of this Agreement. The Warrants shall be dated as of the
date of signature thereof by the Company either upon initial issuance or upon
division, exchange, substitution or transfer.
1.6 Legend on Warrant Shares. Each Warrant certificate and certificate
for Warrant Shares initially issued upon exercise of the Warrants shall bear the
following legend, unless, at the time of exercise, such Warrant Shares are
subject to a currently effective registration statement under the Act:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS AND MAY NOT BE SOLD, EXCHANGED, HYPOTHECATED
OR TRANSFERRED IN ANY MANNER EXCEPT PURSUANT TO A REGISTRATION
OR AN EXEMPTION FROM SUCH REGISTRATION AND IN COMPLIANCE WITH
SECTION 11 OF THE AGREEMENT PURSUANT TO WHICH THEY WERE
ISSUED."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution pursuant to a registration statement under the Act, of
the securities represented thereby) shall also bear the above legend unless, in
the opinion of the Company's counsel, the securities represented thereby need no
longer be subject to such restrictions.
Section 2. Exchange of Warrant Certificate. Any Warrant certificate may be
exchanged for another certificate or certificates entitling the Warrantholder to
purchase a like aggregate number of Warrant Shares as the certificate or
certificates surrendered then entitled such Warrantholder to purchase. Any
Warrantholder desiring to exchange a Warrant certificate shall make such request
in writing delivered to the Company, and shall surrender, properly endorsed,
with signatures guaranteed, the certificate evidencing the Warrant to be so
exchanged. Thereupon, the Company shall execute and deliver to the person or
persons entitled thereto a new Warrant certificate as so requested.
Section 3. Term of Warrants; Exercise of Warrants.
(a) Subject to the terms of this Agreement, each Warrantholder shall
have the right, at any time during the period commencing at 9:00 a.m., Pacific
Time, on ________ __, 2000 and ending at 5:00 p.m., Pacific Time, on __________
__, 2004 (the "Termination Date"), to purchase from the Company up to the number
of fully paid and nonassessable Shares to which the Warrantholder may at the
time be entitled to purchase pursuant to this Agreement, upon surrender to the
Company, at its principal office, of the certificate evidencing the Warrants to
be exercised, together with the purchase form on the reverse thereof duly filled
in and signed, with signatures guaranteed, and upon payment to the Company of
the Warrant Price (as defined in and determined in accordance with the
provisions of this section 3 and sections 7 and 8 hereof), for the number of
Warrant Shares in respect of which such Warrants are then exercised, but in no
event for less than 100 Warrant Shares (unless less than an aggregate of 100
Warrant Shares are then purchasable under all outstanding Warrants held by a
Warrantholder).
(b) Payment of the aggregate Warrant Price shall be made in cash, by
check, through the use of Appreciation Currency (as defined below), or any
combination thereof. Upon such surrender of the Warrants and payment of such
Warrant Price as aforesaid, the Company shall issue and cause to be delivered
with all reasonable dispatch to or upon the written order of the Warrantholder,
and in such name or names as the Warrantholder may designate, a certificate or
certificates for the number of full Warrant Shares so purchased upon the
exercise of the Warrant, together with cash, as provided in Section 9 hereof, in
respect of any fractional Warrant Shares otherwise issuable upon such surrender.
Such certificate or certificates shall be deemed to have been issued and any
person so designated to be named therein shall be deemed to have become a holder
of record of such securities as of the date of surrender of the Warrants and
payment of the Warrant Price, as aforesaid, notwithstanding that the certificate
or certificates representing such securities shall not actually have been
delivered or that the stock transfer books of the Company shall then be closed.
The Warrants shall be exercisable, at the election of each Warrantholder, either
in full or from time to time in part and, in the event that a certificate
evidencing the Warrants is exercised in respect of less than all of the Warrant
Shares specified therein at any time prior to the Termination Date, a new
certificate evidencing the remaining portion of the Warrants shall be issued by
the Company to such Warrantholder.
(c) As used herein, "Appreciation Currency" shall mean the
consideration given by the surrender to the Company of a Warrant (or portion
thereof) in an amount equal to the product of (i) the number of Warrant Shares
purchasable upon exercise of the Warrant (or portion thereof) surrendered for
exercise, and (ii) the excess of the Current Market Price (as defined in section
9) per share of Common Stock over the Warrant Price. For purposes of determining
Appreciation Currency, the Warrant Price shall mean the Warrant Price defined in
section 7 as adjusted and readjusted as set forth in Section 8.
Section 4. Payment of Taxes. The Company will pay all documentary stamp taxes,
if any, attributable to the initial issuance of the Warrants or the securities
comprising the Warrant Shares; provided, however, the Company shall not be
required to pay any tax which may be payable in respect of any secondary
transfer of the Warrants or the securities comprising the Warrant Shares.
Section 5. Mutilated or Missing Warrants. In case the certificate or
certificates evidencing the Warrants shall be mutilated, lost, stolen or
destroyed, the Company shall, at the request of the Warrantholder, issue and
deliver in exchange and substitution for and upon cancellation of the mutilated
certificate or certificates, or in lieu of and substitution for the certificate
or certificates lost, stolen or destroyed, a new Warrant certificate or
certificates of like tenor and representing an equivalent right or interest, but
only upon receipt of evidence reasonably satisfactory to the Company of such
loss, theft or destruction of such Warrant and payment of the reasonable
out-of-pocket expenses incurred by the Company in issuing a replacement Warrant
Certificate.
Section 6. Reservation of Warrant Shares. There has been reserved, out of its
authorized Capital Stock, such number of shares of Common Stock as shall be
subject to purchase under the Warrants, and the Company shall at all times keep
reserved, for so long as any of the Warrants remain outstanding, such shares of
Common Stock that from time to time are, and such additional Warrant Shares or
other securities that, pursuant to Section 8 hereof, become issuable on exercise
of the Warrants.
Section 7. Warrant Price. The price per Share at which Warrant Shares shall be
purchasable upon the exercise of the Warrants shall be $7.50, subject to any
adjustments thereto required pursuant to Section 8 hereof (and as so adjusted,
the "Warrant Price").
Section 8. Adjustment of Number of Warrant Shares. The number and kind of
securities purchasable upon the exercise of the Warrants and the Warrant Price
shall be subject to adjustment from time to time upon the happening of certain
events, as follows:
8.1 Adjustments. The number of Warrant Shares purchasable upon the
exercise of the Warrants shall be subject to adjustment as follows:
(a) In case the Company shall (i) pay a dividend in Common
Stock or make a distribution in Common Stock, (ii) subdivide its outstanding
Common Stock, (iii) combine its outstanding Common Stock into a smaller number
of shares of Common Stock, or (iv) issue by reclassification of its Common Stock
other securities of the Company, the number of Warrant Shares purchasable upon
exercise of the Warrants immediately prior thereto shall be adjusted so that the
Warrantholder shall be entitled to receive the kind and number of Warrant Shares
or other securities of the Company which it would have owned or would have been
entitled to receive immediately after the happening of any of the events
described above, had the Warrants been exercised immediately prior to the
happening of such event or any record date with respect thereto. Any adjustment
made pursuant to this subsection 8.1(a) shall become effective immediately after
the effective date of such event, retroactive to the record date, if any, for
such event.
(b) In case the Company shall sell any shares of its Common
Stock ("Below Market Shares"), or sell or issue rights, options, warrants or
convertible securities that are exercisable or convertible into or exchangeable
for, or that entitle the recipients thereof to subscribe for or purchase, shares
of Common Stock (collectively, "Common Stock Rights"), at a price per share
which is lower at the record date mentioned below than the then Current Market
Price (as defined in Section 9), then, the number of Warrant Shares thereafter
purchasable upon the exercise of each Warrant shall be determined by multiplying
the number of Warrant Shares theretofore purchasable upon exercise of the
Warrant by a fraction, of which (i) the numerator shall be the number of shares
of Common Stock outstanding immediately prior to the issuance of such Below
Market Shares or such Common Stock Rights (as the case may be) plus the number
of additional Below Market Shares sold or the number of shares that are
purchasable on exercise of such Common Stock Rights, and (ii) the denominator
shall be the number of shares of Common Stock outstanding immediately prior to
the issuance of such Below Market Shares or Common Stock Rights (as the case may
be) plus the number of Shares which could then be purchased, at such Current
Market Price, with the aggregate consideration that the Company will receive on
the sale of the Below Market Shares or the exercise or conversion of the Common
Stock Rights (as the case may be). Such adjustment shall be made whenever any
Below Market Shares or Common Stock Rights are issued, and shall become
effective immediately upon issuance of such Below Market Shares or Common Stock
Rights.
(c) In case the Company shall distribute to all or
substantially all holders of its Common Stock evidences of its indebtedness or
assets (excluding cash dividends or distributions out of earnings) or rights,
options, warrants or convertible securities containing the right to subscribe
for or purchase Common Stock (excluding those referred to in subsection 8.1(b)
above), then in each case the number of Warrant Shares thereafter purchasable
upon the exercise of the Warrants shall be determined by multiplying the number
of Warrant Shares theretofore purchasable upon exercise of the Warrants by a
fraction, of which the numerator shall be the then Current Market Price on the
date of such distribution, and of which the denominator shall be such Current
Market Price on such date minus the then fair value (determined as provided in
subsection (d) below) of the portion of the assets or evidences of indebtedness
so distributed or of such subscription rights, options, warrants or convertible
securities applicable to one share. Such adjustment shall be made whenever any
such distribution is made and shall become effective on the date of
distribution.
(d) For the purposes of the adjustments covered by subsections
8.1(b) or (c) hereof, the Common Stock which the holders of any Common Stock
Rights shall be entitled to subscribe for or purchase, whether by exercise,
exchange or conversion or otherwise, shall be deemed issued and outstanding as
of the date of such sale or issuance and the consideration received by the
Company therefor shall be deemed to be the consideration received by the Company
for such Common Stock Rights, plus the consideration or premiums stated in such
Common Stock Rights to be paid for the Common Stock covered thereby. In case the
Company shall sell or issue Below Market Shares, or Common Stock Rights
containing the right to subscribe for or purchase Common Stock, for a
consideration consisting, in whole or in part, of property other than cash or
its equivalent, then, in determining the "price per share" of Common Stock and
the "consideration received by the Company" for purposes of the first sentence
of this subsection 8.1(d), the Company's Board of Directors shall determine the
fair value of said property, and such determination, if reasonable and based
upon the Board of Directors' good faith business judgment, shall be binding upon
the Warrantholder. In determining the "price per share" of Common Stock, any
underwriting discounts or commissions shall not be deducted from the
consideration received by the Company for or in connection with any sales of
Below Market Shares or Common Stock Rights.
(e) No adjustment in the number of Warrant Shares purchasable
pursuant to the Warrants shall be required unless such adjustment would require
an increase or decrease of at least one percent in the number of Warrant Shares
then purchasable upon the exercise of the Warrants or, if the Warrants are not
then exercisable, the number of Warrant Shares purchasable upon the exercise of
the Warrants on the first date thereafter that the Warrants become exercisable;
provided, however, that any adjustments which by reason of this subsection
8.1(e) are not required to be made immediately shall be carried forward and
taken into account in any subsequent adjustment.
(f) Whenever the number of Warrant Shares purchasable upon the
exercise of the Warrant is adjusted, as herein provided, the Warrant Price
payable upon exercise of the Warrant shall be adjusted by multiplying such
Warrant Price immediately prior to such adjustment by a fraction, of which (i)
the numerator shall be the number of Warrant Shares purchasable upon the
exercise of the Warrant immediately prior to such adjustment, and (ii) the
denominator shall be the number of Warrant Shares so purchasable immediately
thereafter.
(g) Whenever the number of Warrant Shares purchasable upon the
exercise of the Warrants is adjusted as herein provided, the Company shall cause
to be promptly mailed to the Warrantholder by first class mail, postage prepaid,
notice of such adjustment and a certificate of the chief financial officer of
the Company setting forth the number of Warrant Shares purchasable upon the
exercise of the Warrants and the Warrant Price after such adjustment, a brief
statement of the transaction or transactions that required such adjustment and
the computation by which such adjustment was made.
(h) For the purpose of this subsection 8.1, the term "Common
Stock" shall mean (i) the class of stock designated as the Common Stock of the
Company at the date of this Agreement, or (ii) any other class of stock
resulting from successive changes or reclassifications of such Common Stock
consisting solely of changes in par value, or from par value to no par value, or
from no par value to par value. In the event that at any time, as a result of an
adjustment made pursuant to this Section 8, the Warrantholder shall become
entitled to purchase any securities of the Company other than Common Stock, (x)
if the Warrantholder' right to purchase is on any other basis than that
available to all holders of the Company's Common Stock, the Company shall obtain
an opinion of an independent investment banking firm valuing such other
securities, and (y) thereafter the number of such other securities so
purchasable upon exercise of the Warrants shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Warrant Shares contained in this Section 8.
(i) Upon the expiration of any Common Stock Rights, if such
shall not have been exercised prior thereto (the "Expired Rights"), the number
of Warrant Shares purchasable upon exercise of the Warrants then outstanding,
and the Warrant Price thereof, shall, upon such expiration, be readjusted to the
number of Warrant Shares that would have been issuable on exercise of such
outstanding Warrants, and the Warrant Price at which the Warrant Shares would
have been purchasable, if the Expired Rights had never been issued; provided,
however, that no such readjustment shall have the effect of decreasing the
number of Warrant Shares purchasable upon exercise of the Warrants by an amount
in excess of the amount of the adjustment initially made in respect of the
issuance, sale or grant of such Expired Rights.
8.2 No Adjustment for Dividends. Except as provided in subsection 8.1,
no adjustment in respect of any dividends or distributions out of earnings shall
be made during the term of the Warrants or upon the exercise of the Warrants.
8.3 Preservation of Purchase Rights upon Reclassification,
Consolidation, etc. In case of any consolidation of the Company with or merger
of the Company into another corporation or in case of any sale or conveyance to
another corporation of the property, assets or business of the Company as an
entirety or substantially as an entirety (a "Business Combination Transaction"),
the Company or such successor or purchasing corporation, as the case may be,
shall execute with the Warrantholder an agreement that the Warrantholder shall
have the right thereafter, exercisable at any time or from time to time during
the remaining term of the Warrant, upon payment of the Warrant Price in effect
immediately prior to the consummation of such Business Combination Transaction
(as the same may be adjusted thereafter pursuant to the adjustment provisions
referenced below in this section 8.3), to purchase the kind and number or amount
of shares and other securities and property which the Warrantholder would have
owned or have been entitled to receive immediately after the happening of such
consolidation, merger, sale or conveyance had the Warrants been exercised
immediately prior to such Business Combination Transaction. In the event of a
Business Combination Transaction that is implemented by means of a merger
described in Section 368(a)(2)(E) of the Internal Revenue Code of 1986, in which
the Company is the surviving corporation, the right to purchase Warrant Shares
under the Warrants shall terminate on the date of such merger and thereupon the
Warrants shall become null and void, but only if the controlling corporation
shall agree to substitute for the Warrants its warrants (the "Controlling
Corporation Warrants"), which entitle each Warrantholder to purchase upon the
exercise thereof, the kind and amount of shares and other securities and
property which the Warrantholder would have owned or been entitled to receive
had the Warrants been exercised immediately prior to such merger. Any such
agreements referred to in this subsection 8.3 shall provide for adjustments,
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in Section 8 hereof. The provisions of this subsection 8.3 shall
similarly apply to successive Business Combination Transactions. The Company
will not merge or consolidate with or into any other corporation or sell all or
substantially all of its property to another corporation, unless the provisions
of this section 8.3 are complied with.
8.4 Par Value of Warrant Shares of Common Stock. Before taking any
action which would cause an adjustment effectively reducing the portion of the
Warrant Price allocable to each Share below the then par value (if any) per
share of the Common Stock issuable upon exercise of the Warrants, the Company
will take any corporate action which may, in the opinion of its counsel, be
necessary in order that the Company may validly and legally issue fully paid and
nonassessable Common Stock upon exercise of the Warrants.
8.5 Independent Public Accountants. The Company may retain a firm of
independent public accountants of recognized national standing (which may be any
such firm regularly employed by the Company) to make any computation required
under this Section 8, and a certificate signed by such firm shall be conclusive
evidence of the correctness of any computation made under this Section 8.
8.6 Statement on Warrant Certificates. Irrespective of any adjustments
in the number of Shares or other securities issuable upon exercise of Warrants,
Warrant certificates theretofore or thereafter issued may continue to express
the same number of securities as are stated in the similar Warrant certificates
initially issuable pursuant to this Agreement. However, the Company may, at any
time in its sole discretion (which shall be conclusive), make any change in the
form of Warrant certificate that it may deem appropriate and that does not
affect the substance thereof; and any Warrant certificate thereafter issued,
whether upon registration of transfer of, or in exchange or substitution for, an
outstanding Warrant certificate, may be in the form so changed.
Section 9. Fractional Interests; Current Market Price. The Company shall not be
required to issue fractional Warrant Shares on the exercise of any of the
Warrants. If any fraction of a Warrant Share would, except for the provisions of
this Section 9, be issuable on the exercise of the Warrants (or any specified
portion thereof being exercised), the Company shall pay to the Warrantholder, in
lieu of the issuance of such fractional Warrant Share, an amount in cash equal
to the then Current Market Price multiplied by such fraction. For purposes of
this Agreement, the term "Current Market Price" shall mean (i) if the Common
Stock is traded in the over-the-counter market and not in the NASDAQ National
Market System nor on any national securities exchange, the average of the per
share closing bid prices of the Common Stock on the 30 consecutive trading days
immediately preceding the date in question, as reported by NASDAQ or an
equivalent generally accepted reporting service, or (ii) if the Common Stock is
traded in the NASDAQ National Market System or on a national securities
exchange, the average for the 30 consecutive trading days immediately preceding
the date in question of the daily per share closing prices of the Common Stock
in the NASDAQ National Market System or on the principal stock exchange on which
it is listed, as the case may be. For purposes of clause (i) above, if trading
in the Common Stock is not reported by NASDAQ, the bid price referred to in said
clause shall be the lowest bid price as reported in the "pink sheets" published
by National Quotation Bureau, Incorporated. The closing price referred to in
clause (ii) above shall be the last reported sale price or, in case no such
reported sale takes place on such day, the average of the reported closing bid
and asked prices, in either case in the NASDAQ National Market System or on the
national securities exchange on which the Common Stock is then listed.
Section 10. No Rights as Shareholder; Notices to Warrantholder. Nothing
contained in this Agreement or in the Warrants shall be construed as conferring
upon the Warrantholder or its transferees any rights as a shareholder of the
Company, including the right to vote, receive dividends, consent or receive
notices as a shareholder in respect of any meeting of shareholders for the
election of directors of the Company or any other matter, unless and until the
Warrantholder or such transferee (as the case may be) exercises the Warrants, in
whole or in part, and pays the Warrant Price thereof to the Company.
Notwithstanding the foregoing, however, if at any time prior to the earlier of
the expiration of the Warrants and or their exercise in full, any one or more of
the following events shall occur:
(a) any action which would require an adjustment pursuant to
Section 8.1; or
(b) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation, merger or sale of its property,
assets and business as an entirety or substantially as an entirety) shall be
proposed;
then, the Company shall give notice in writing of such event to the
Warrantholder, in the manner provided in Section 14 hereof, at least 20 days
prior to the date fixed as a record date or the date of closing the transfer
books for the determination of the shareholders entitled to any relevant
dividend, distribution, subscription rights or other rights or for the
determination of shareholders entitled to vote on such proposed dissolution,
liquidation or winding up. Such notice shall specify such record date or the
date of closing of the transfer books, as the case may be.
Section 11. Restrictions on Transfer; Registration Rights.
11.1 Transfer Restrictions. The Warrantholder agrees that prior to
making any disposition of the Warrants or the Warrant Shares, other than to
persons or entities identified in clauses (i) through (v), inclusive, of Section
1.4, the Warrantholder shall give written notice to the Company describing
briefly the manner in which any such proposed disposition is to be made; and no
such disposition shall be made if the Company has notified the Warrantholder
that in the opinion of counsel reasonably satisfactory to the Warrantholder a
registration statement or other notification or post-effective amendment thereto
(hereinafter collectively a "Registration Statement") under the Act is required
with respect to such disposition and no such Registration Statement has been
filed by the Company with, and declared effective, if necessary, by, the
Securities and Exchange Commission (the "Commission").
11.2 Registration Rights. The Company shall be obligated to the
owners of the Warrants and the Warrant Shares to file a Registration Statement
as follows:
(a) Whenever during the six-year period beginning on _______
__, 2000 and ending on ________ __, 2006, the Company proposes to file with the
Commission a Registration Statement, whether to register shares to be sold by
the Company or by any of its securityholders, (but excluding any such filing the
purpose of registering securities issuable pursuant to an employee benefit plan
or a transaction subject to Rule 145 promulgated under the Act), the Company
shall, at least 30 days prior to each such filing, give written notice of such
proposed filing (a "Registration Notice") to the Warrantholder and each holder
of Warrant Shares at their respective addresses as they appear on the records of
the Company, and shall offer to include and shall include in such filing any
proposed disposition of the Warrant Shares upon receipt by the Company, not less
than 15 days after receipt of the Registration Notice, of a request therefor
setting forth the facts with respect to such proposed disposition and all other
information with respect to such person reasonably necessary to be included in
such Registration Statement. If any such registration relates to a underwritten
public offering of the Company's securities and the managing underwriter for
that offering advises the Company and the Warrantholders and each holder of
Warrants or Warrant Shares, in writing, that the inclusion of their Warrant
Shares in the offering would be detrimental to the offering, a number of such
Warrant Shares which constitute no less than 25% of the total number of Shares
or other securities offered in such offering shall nevertheless be included in
the Registration Statement, provided that the Warrantholder and each holder of
Warrants and Warrant Shares desiring to have their Warrant Shares included in
the Registration Statement agree in writing, for a period of 180 days following
the commencement of such offering, not to sell or otherwise dispose of such
Warrant Shares pursuant to such Registration Statement, which Registration
Statement the Company shall keep effective for a period of at least nine months
following the expiration of such 180-day period.
(b) In addition to any Registration Statement filed pursuant
to subsection 11.2(a) above, during the five-year period beginning on ______ __,
2000 and ending on ______ __, 2005, the Company will, as promptly as practicable
(but in any event within 60 days), after written request (a "Registration
Request") by Warrantholder, or by a person or persons holding (or having the
right to acquire by virtue of holding the Warrants) at least 50% of the shares
of Common Stock which have been (or may be) issued upon exercise of the
Warrants, prepare and file at the Company's expense a Registration Statement
with the Commission and appropriate Blue Sky authorities sufficient to permit
the public offering of the Warrant Shares and will use its best efforts at its
own expense through its officers, directors, auditors and counsel, in all
matters necessary or advisable, to cause such Registration Statement to become
effective as promptly as practicable and to maintain such effectiveness so as to
permit resale of the Warrant Shares covered by the Request until the earlier of
the time that all such Warrant Shares have been sold or the expiration of ninety
(90) days from the effective date of the Registration Statement (the "Minimum
Period"); provided, however, that the Company shall only be obligated to file
and have declared effective one such Registration Statement under this
subsection 11.2(b). Notwithstanding the foregoing, if a Registration Statement
is filed pursuant to this subsection 11.2(b) but is not declared effective, or
is not kept effective for the Minimum Period, then it shall not be deemed to be
a Registration Statement meeting the requirements under this section and the
Warrantholder, and any person or persons holding (or having the right to acquire
by virtue of holding the Warrants) at least 50% of the shares of Common Stock
which have been (or may be) issued upon exercise of the Warrants, shall be
entitled to again exercise the rights under this subsection 11.2(b) to require
the registration under the Act of their Warrant Shares.
(c) All fees, disbursements and out-of-pocket expenses (other
than Warrantholder' brokerage fees and commissions and reasonable legal fees of
counsel to the Warrantholder, if any) in connection with the filing of any
Registration Statement under section 11(b) (or obtaining the opinion of counsel
and any no-action position of the Commission with respect to sales under Rule
144) and in complying with applicable securities and Blue Sky laws shall be
borne by the Company. The Company at its expense will supply any Warrantholder
and any holder of Warrant Shares with copies of such Registration Statement and
the prospectus included therein and other related documents, and any opinions
and no-action letters in such quantities as may be reasonably requested by the
Warrantholder or holder of Warrant Shares.
(d) The Company shall not be required by this Section 11 to
file such Registration Statement if, in the opinion of counsel for the
Warrantholder and holders of Warrant Shares and the Company (or, should they not
agree, in the opinion of another counsel experienced in securities law matters
acceptable to counsel for such holders and the Company), the proposed public
offering or other transfer as to which such Registration Statement is requested
is exempt from applicable federal and state securities laws and would result in
all purchasers or transferees obtaining securities which are not "restricted
securities," as defined in Rule 144 under the Act.
(e) The Company agrees that until all Warrant Shares have been
sold under a Registration Statement or pursuant to Rule 144 under the Act, it
will keep current in filing all materials required to be filed with the
Commission in order to permit the holders of such securities to sell the same
under Rule 144.
Section 12. Indemnification.
12.1 Indemnification of Warrantholder. In the event of the filing of
any Registration Statement with respect to the Warrant Shares pursuant to
Section 11 hereof, the Company agrees to indemnify and hold harmless each
Warrantholder and any holder of such Warrant Shares and each person, if any, who
controls the Warrantholder or any holder of such Warrant Shares within the
meaning of the Act, against any losses, claims, damages or liabilities, joint or
several (which shall, for all purposes of this Agreement, include, but not be
limited to, all costs of defense and investigation and all attorneys' fees), to
which such Warrantholder or any holder of such Warrant Shares or such
controlling person may become subject, under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any such Registration Statement, or any
related preliminary prospectus, final prospectus, or amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading; provided, however, that the Company will
not be liable in any such case to the extent that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in such Registration
Statement, preliminary prospectus, final prospectus or amendment or supplement
thereto in reliance upon, and in conformity with, written information furnished
to the Company by such Warrantholder or the holder of such Warrant Shares
specifically for inclusion therein . This indemnity will be in addition to any
liability which the Company may otherwise have.
12.1 Indemnification of the Company. The Warrantholder and the holders
of the Warrant Shares agree that they will indemnify and hold harmless the
Company, each other person referred to in subparts (1), (2) and (3) of Section
11(a) of the Act in respect of the Registration Statement and each person, if
any, who controls the Company within the meaning of the Act, against any losses,
claims, damages or liabilities (which shall, for all purposes of this Agreement,
include but not be limited to, all costs of defense and investigation and all
attorneys' fees) to which the Company or any such director, officer or
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in such Registration Statement, or any related
preliminary prospectus, final prospectus or amendment or supplement thereto, or
arise out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, but in each case only to the extent that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in such Registration Statement, preliminary prospectus, final prospectus or
amendment or supplement thereto in reliance upon, and in conformity with,
written information furnished to the Company by the Warrantholder or such holder
of Warrant Shares specifically for inclusion therein. This indemnity agreement
will be in addition to any liability which the Warrantholder or such holder of
Warrant Shares may otherwise have.
12.3 Indemnification Procedures. Promptly after receipt by an
indemnified party under this Section 12 of notice of the commencement of any
action, such indemnified party will, if a claim in respect thereof is to be made
against the indemnifying party under this Section 12, notify the indemnifying
party of the commencement thereof; but the omission so to notify the
indemnifying party will not relieve the indemnifying party from any liability
which it may have to any indemnified party. In case any such action is brought
against any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate in,
and, to the extent that it may wish, jointly with any other indemnifying party
similarly notified, reasonably assume the defense thereof, subject to the
provisions herein stated, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section 12 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation, unless the indemnifying party shall not pursue the
action to its final conclusion. The indemnified party shall have the right to
employ separate counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel shall not be at the expense
of the indemnifying party if the indemnifying party has assumed the defense of
the action with counsel reasonably satisfactory to the indemnified party;
provided, however, that if the indemnified party is a Warrantholder or a holder
of Warrant Shares or a person who controls a Warrantholder or a holder of
Warrant Shares within the meaning of the Act, the fees and expenses of such
counsel shall be at the expense of the indemnifying party if (i) the employment
of such counsel has been specifically authorized in writing by the indemnifying
party or (ii) the named parties to any such action, including any impleaded
parties, include both a Warrantholder or a holder of Warrant Shares or such
controlling person and the indemnifying party and a Warrantholder or a holder of
Warrant Shares or such controlling person shall have been advised by such
counsel that there may be one or more legal defenses available to a
Warrantholder or a holder of Warrant Shares or controlling person which are not
available to or in conflict with any legal defenses which may be available to
the indemnifying party (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of a Warrantholder or a
holder of Warrant Shares or such controlling person, it being understood,
however, that the indemnifying party shall not, in connection with any one such
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys for the Warrantholder, the holders of the Warrant Shares and
controlling persons, which firm shall be designated in writing by a majority in
interest of such holders and controlling persons based upon the value of the
securities included in the Registration Statement). No settlement of any action
against an indemnified party shall be made without the consent of the
indemnified and the indemnifying parties, which shall not be unreasonably
withheld in light of all factors of importance to such parties.
Section 13. Contribution. In order to provide for just and equitable
contribution under the Act in any case in which (i) a Warrantholder or any
holder of the Warrant Shares or controlling person makes a claim for
indemnification pursuant to Section 12 hereof but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case notwithstanding the
fact that the express provisions of Section 12 hereof provide for
indemnification in such case or (ii) contribution under the Act may be required
on the part of any Warrantholder or any holder of the Warrant Shares or
controlling person, then the Company and any Warrantholder or any such holder of
the Warrant Shares or controlling person shall contribute to the aggregate
losses, claims, damages or liabilities to which they may be subject (which
shall, for all purposes of this Agreement, include, but not be limited to, all
costs of defense and investigation and all attorneys' fees), in either such case
(after contribution from others) on the basis of relative fault as well as any
other relevant equitable considerations. The relative fault shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company on the one hand or
a Warrantholder or holder of Warrant Shares or controlling person on the other
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
such holders of such securities and such controlling persons agree that it would
not be just and equitable if contribution pursuant to this Section 13 were
determined by pro rata allocation or by any other method which does not take
account of the equitable considerations referred to in this Section 13. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
in this Section 13 shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
Section 14. Notices. Any notice pursuant to this Agreement by the Company or by
a Warrantholder or a holder of Warrant Shares shall be in writing and shall be
deemed to have been duly given on the date of delivery or refusal indicated on
the return receipt if delivered or mailed by certified mail, return receipt
requested:
14.1 Warrantholder Address. If to the Warrantholder or a holder
of Warrant Shares, addressed to Hagerty, Stewart, 2600 Michelson, Suite 1500,
Irvine, California, 92612 Attention: Corporate Finance Department.
14.2 Company Address. If to the Company addressed to it at 901 Dove
Street, Suite 230, Newport Beach, California 92660, Attention: President.
Each party may from time to time change the address to which notices to it are
to be delivered or mailed hereunder by notice in accordance herewith to the
other party.
Section 15. Survival of Representations and Warranties. All statements contained
in any schedule, exhibit, certificate or other instrument delivered by or on
behalf of the parties hereto, or in connection with the transactions
contemplated by this Agreement, shall be deemed to be representations and
warranties hereunder. Notwithstanding any investigations made by or on behalf of
the parties to this Agreement, all representations, warranties and agreements
made by the parties to this Agreement or pursuant hereto shall survive.
Section 16. Miscellaneous.
16.1 Applicable Law. This Agreement shall be deemed to be a contract
made under the laws of the State of California and for all purposes shall be
construed in accordance with the laws of said State.
16.2 Successors. All the covenants and provisions of this Agreement by
or for the benefit of the Company, the Warrantholder, or the holders of Warrant
Shares shall bind and inure to the benefit of their respective successors and
assigns hereunder. Notwithstanding the foregoing, however, nothing in this
Agreement shall be construed to give to any person or corporation other than the
Company, the Warrantholder and the holders of Warrant Shares, and their
respective permitted transferees (other than transferees who acquire any Warrant
Shares that are free of restrictions on transfer under this Agreement and under
the Act), any legal or equitable right, remedy or claim under this Agreement.
This Agreement shall be for the sole and exclusive benefit of the Company, the
Warrantholder and the holders of Warrant Shares and such permitted transferees
(other than transferees who acquire any Warrant Shares that are free of
restrictions on transfer under this Agreement and under the Act).
16.3 Amendments. This Agreement may be amended only by a written
instrument executed by duly authorized representatives of the Company and the
Warrantholder.
16.4 Severability. In the event any provision of this Agreement becomes
or is declared by a court of competent jurisdiction to be illegal, unenforceable
or void, this Agreement shall continue in full force and effect without said
provision, but only to the extent necessary to cure the infirmity that caused
such provision to be held illegal, unenforceable or void.
16.5 Interpretation. This Agreement is the result of arms'-length
negotiations between the parties hereto and no provision hereof, because of any
ambiguity found to be contained in any of the provisions hereof, shall be
construed against a party by reason of the fact that such party or its legal
counsel was the draftsman of those provisions. Unless otherwise indicated
elsewhere in this Agreement, (i) the term "or" shall not be exclusive, (ii) the
term "including" shall mean "including, but not limited to," and (iii) unless
the context indicates otherwise the terms "herein," "hereof," "hereto,"
"hereunder" and other terms similar to such terms shall refer to this Agreement
as a whole and not merely to the specific section, subsection, paragraph or
clause where such terms may appear.
16.6 Headings. The captions or headings of the sections and subsections
of this Agreement are for convenience of reference only and shall be disregarded
in interpreting, construing or applying any of the provisions of this Agreement.
16.7 Counterparts. This Agreement may be executed in separate
counterparts, each of which shall be an original of and all of which together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, all as of the day and year first above written.
BETA OIL & GAS INCORPORATED
By:
Name: Steve Antry
Title: Chairman and President
HAGERTY, STEWART & ASSOCIATES, INC.
By:
Name: Nicholas Mosich
Title: Chief Executive
<PAGE>
================================================================================
Exhibit A
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS AND MAY NOT BE SOLD, EXCHANGED, HYPOTHECATED OR
TRANSFERRED IN ANY
MANNER EXCEPT PURSUANT TO A REGISTRATION
OR AN EXEMPTION FROM SUCH REGISTRATION AND IN COMPLIANCE WITH SECTION 11 OF THE
AGREEMENT PURSUANT TO WHICH THEY WERE ISSUED.
Warrant Certificate No. _____
UNDERWRITERS' WARRANTS TO PURCHASE SHARES OF COMMON STOCK
VOID AFTER 5:00 P.M.,
PACIFIC TIME, ON _________, 2004
BETA OIL & GAS INCORPORATED
INCORPORATED UNDER THE LAWS
OF THE STATE OF NEVADA
This certifies that, for value received,
_____________________________________ the registered holder hereof
or assigns (the "Warrantholder"), is entitled to purchase from
BETA OIL & GAS INCORPORATED (the "Company"), at any time during
the period commencing at 9:00 a.m., Pacific Time, on _________ __,
2000, and before 5:00 p.m., Pacific Time, on _______ __, 2004 at
the purchase price per share of $7.50 (the "Warrant Price"), the
number of Shares of Common Stock of the Company set forth above
(the "Warrant Shares"). The number of Warrant Shares issuable upon
exercise of each Warrant evidenced hereby and the Warrant Price
shall be subject to adjustment from time to time as set forth in
the Underwriters' Warrant Agreement referred to below.
The Warrants evidenced hereby represent the
right to purchase an aggregate of up to ( )
Shares, subject to certain adjustments, and
are issued under and in
accordance with a Underwriters' Warrant Agreement, dated as of
________ __, 1999 (the "Underwriter's Warrant Agreement"), between
the Company and Hagerty, Stewart & Associates, Inc. and are
subject to the terms and provisions contained in the Underwriters'
Warrant Agreement, to all of which the Warrantholder by acceptance
hereof consents.
The Warrants evidenced hereby may be exercised in whole
or in part by presentation of this Warrant Certificate with the
Purchase Form attached hereto duly executed (with a signature
guarantee as provided thereon) and simultaneous payment of the
Warrant Price at the principal office of the Company. Payment of
such price shall be made at the option of the Warrantholder in
cash, by check, through the use of Appreciation Currency (as
defined in the Underwriter's Warrant Agreement) or any combination
thereof.
Upon any partial exercise of the Warrants evidenced
hereby, there shall be signed and issued to the Warrantholder a
new Warrant Certificate in respect of the Warrant Shares as to
which the Warrants evidenced hereby shall not have been exercised.
These Warrants may be exchanged at the office of the Company by
surrender of this Warrant Certificate properly endorsed for one or
more new Warrants of the same aggregate number of Warrant Shares
as evidenced by the Warrant or Warrants exchanged. No fractional
Shares of Common Stock will be issued upon the exercise of rights
to purchase hereunder, but the Company shall pay the cash value of
any fraction upon the exercise of one or more Warrants. These
Warrants are transferable at the office of the Company in the
manner and subject to the limitations set forth in the
Underwriter's Warrant Agreement.
This Warrant Certificate does not entitle any
Warrantholder to any of the rights of a stockholder of the Company
unless and until the Warrantholder exercises its rights to
purchase Warrant Shares hereunder.
BETA OIL & GAS INCORPORATED
Dated: _____________ __, 1999 By:
================================================================================
================================================================================
================================================================================
<PAGE>
BETA OIL & GAS INCORPORATED
PURCHASE FORM
BETA OIL & GAS INCORPORATED 9O1 Dove Street, Suite __ Newport Beach, California
92660
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant Certificate for, and to purchase
thereunder, ____________ Warrant Shares of Common Stock (the "Warrant Shares")
provided for therein, and requests that certificates for the Warrant Shares be
issued in the name of:
(Please Print or Type Name)
(Address, including zip code)
(Social Security No. or Tax I.D. No.)
and, if said number of Warrant Shares shall not be all the Warrant Shares
purchasable hereunder, that a new Warrant Certificate for the balance of the
Warrant Shares purchasable under the within Warrant Certificate be registered in
the name of the undersigned Warrantholder or his Assignee as below indicated and
delivered to the address stated below.
Name of Warrantholder
or Assignee:
(Please Print)
Address:
Signature: Dated:
Note: The above signature must correspond with the name as written upon the face
of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever, unless these Warrants have been assigned.
Signatures Guaranteed:
(Signature must be guaranteed by a bank or trust company having an office or
correspondent in the United States or by a member firm of a registered
securities exchange or the National Association of Securities Dealers, Inc.)
ASSIGNMENT
(To be signed only upon assignment of Warrants)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto the assignee named below all of the rights of the undersigned represented
by the attached Warrant with respect to the number of Warrant Shares covered by
the Warrant set forth below:
(Name and Address of Assignee Must Be Printed or Typewritten)
Social Security No.
Name of Assignee or Tax I.D. No. Address No. of Warrant
Shares
and does hereby irrevocably constitute and appoint __________________________
_______ Attorney to transfer said Warrants on the books of the Company, with
full power of substitution in the premises.
Dated: _____________________________
Signature of Registered Holder
Note: The signature on this assignment must correspond with the name as it
appears upon the face of the within Warrant Certificate in every
particular, without alteration or enlargement or any change whatever.
Signature Guaranteed:
(Signature must be guaranteed by a bank or trust company having an office or
correspondent in the United States or by a member firm of a registered
securities exchange or the National Association of Securities Dealers, Inc.)
<PAGE>
SCHEDULE I
Initial Distribution of Warrants
Name................................................................. Amount
Hagerty, Stewart & Associates, Inc.........................................100%
BETA OIL & GAS INCORPORATED
(Public Offering of up to 880,000 Shares of Common Stock)
________ __, 1999
================================
- -----------, ---------- -----
Re: Selected Dealers Agreement between Hagerty, Stewart & Associates, Inc.
(the "Underwriter"), and the undersigned dealer ("You")
Dear Sir or Madam:
The Underwriter has agreed to offer and sell on behalf of Beta Oil &
Gas Incorporated, a Nevada corporation (the "Company"), up to 880,000 shares of
Common Stock, par value $.001 per share (the "Shares"), all as set forth in the
prospectus (the "Prospectus"), which is part of the registration statement (the
"Registration Statement") filed with the Securities and Exchange Commission on
Form S-1 (File No. 333-______) under the Securities Act of 1933, as amended (the
"Act"), subject to the terms of the Underwriting Agreement referred to therein
(the "Underwriting Agreement").
1. The Public Offering. The Shares are to be offered to the public by
the Underwriter, on a best-efforts basis, at a price of $6.00 per share (the
"Public Offering Price"), in accordance with the terms of the offering set forth
in the Prospectus. The Underwriter has full authority to take such action as it
may deem advisable in respect of all matters pertaining to the public offering
of the Shares.
2. Offering by Selected Dealers. The Underwriter is offering part of
the Shares for sale through certain dealers (the "Selected Dealers") who are
members of the National Association of Securities Dealers, Inc. (the "NASD"), at
the Public Offering Price, less a concession (the "Selected Dealers Concession")
not in excess of $0.__ per share, subject to the terms and conditions herein and
in the Prospectus, and subject to modification and cancellation of the offering
without notice. Sales of Shares by You pursuant to such offering shall be
evidenced by the Underwriter's written confirmation and shall be on the terms
and conditions set forth herein. In selling Shares, You shall not rely upon any
statement whatsoever, written or oral, other than statements contained herein
and in the Registration Statement of which the Prospectus is a part.
If You desire to apply to act as a Selected Dealer and sell any of the
Shares, please sign and return to the Underwriter the enclosed copy of this
letter, even though You may have advised the Underwriter thereof previously by
telephone or telegraph. Your application should be sent to Hagerty Stewart, 2600
Michelson Drive, Suite 1500, Irvine, California 92612. The Underwriter shall use
its reasonable best efforts to fill any subscriptions You may submit. The
Underwriter reserves the right to reject all subscriptions in whole or in part,
to make allotments, and to close the subscription books at any time and without
notice.
3. Conduct of Offering. On becoming a Selected Dealer and in offering
and selling the Shares, You agree to comply with all applicable requirements of
the Securities Act of 1933, as amended (the "Act"), the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and the Rules of Fair Practice of the
NASD including, but not limited to, Sections 8, 24, 25 and 36 of Article III of
said Rules of Fair Practice. As a Selected Dealer, You shall be supplied with
such quantities of the Prospectus as, from time to time, You may reasonably
request.
Upon acceptance of your application, You shall be informed as to the
states in which the Underwriter has been advised that the Shares have been
qualified for sale under the respective securities or blue sky laws of such
states; however, the Underwriter assumes no obligation or responsibility as to
the right of any Selected Dealer to sell the Shares in any state or as to any
sale made therein.
4. Offering by Selected Dealers. Shares sold by You must be offered in
conformity with the terms of the offering set forth in the Prospectus.
5. Payment and Delivery. Payment for Shares purchased through You shall
be made by the subscriber of the Shares, at the Public Offering Price, either by
check or wire transfer. All checks for Shares should be made payable to
"California StateBank -- Beta Oil & Gas, Inc. Escrow Account" and must be
forwarded to California State Bank, as Escrow Agent, at 1201 Dove Street,
Newport Beach, California 92660, no later than noon on the next business day
following their receipt by You. Delivery instructions for the Shares must have
been received by the Underwriter by such date and time as the Underwriter shall
request. The Selected Dealers Concession payable to You hereunder shall be paid
within ten (10) business days after the occurrence of the closing that includes
the Shares purchased through You.
6. Relationship of Selected Dealers and the Underwriters. You represent
that You are a member in good standing of the NASD. You are not authorized to,
and You agree not to, give any information or to make any representations other
than as contained in the Prospectus, or to act as agent or sub-agent for the
Underwriter. Nothing herein shall constitute the Selected Dealers an
association, unincorporated business, or other separate entity or partners with
the Underwriter, or with each other, but You shall be liable for the
Underwriter's share of any tax, liability, or expense based on any claim to the
contrary. The Underwriter shall not be under any liability to You, except for
obligations expressly assumed by the Underwriter in this Agreement; however, no
obligations on the Underwriter's part shall be implied or inferred herefrom.
7. Notices. All communications from You to the Underwriter shall be
addressed to Mr. Nicholas Mosich, 2600 Michelson Drive, Suite 1500 Irvine,
California 92612. Any notice from the Underwriter to You shall be delivered,
mailed, or telegraphed to You at the address to which this Agreement is mailed.
8. Termination. This Agreement shall terminate ninety (90) days after
the date hereof, unless extended by the Underwriter for a period not exceeding
an additional thirty (30) days, and, whether extended or not, may be terminated
by the Underwriter at any time. Provided that the Minimum Condition (as defined
in the Prospectus) is satisfied in accordance with the terms of the Underwriting
Agreement, such termination shall not affect Your right to receive the Selected
Dealers Concession with respect to the number of Shares that are sold by You as
evidenced in the Underwriter's written confirmation referenced in Section 2
hereof.
Very truly yours,
HAGERTY, STEWART & ASSOCIATES, INC.
By:
Name:
Title:
Confirmed and accepted as of the date first above written.
By:
Authorized Signature
Title:
ARTICLES OF INCORPORATION
OF
BETA OIL & GAS, INC.
FIRST. The name of this corporation is BETA OIL & GAS, INC.
SECOND. Its resident agent and registered office in the State of
Nevada is as follows: PARACORP at 318 N. Carson Street, Suite 208, Carson City,
Nevada 89701.
THIRD. The total number of shares which the corporation is authorized
to issue is Ten Million (10,000,000) shares of common stock with a par value
of $.001 per share.
FOURTH. The governing body of this corporation shall be known as
directors, and the number of directors may from time to time be increased
or decreased in such manner as shall be provided by the bylaws of the
corporation.
The name and addresse of the first board of directors, which shall
consist of one director, is as follows:
Joe C. Richardson, Jr.
318 N. Carson Street, Suite 208
Carson City, NV 89701
FIFTH. The name and address of the incorporator signing the Articles of
Incorporation is as follows:
Malea Farsai, Esq.
HORWITZ & BEAM
Two Venture Plaza, Suite 380
Irvine, California 92618
SIXTH. At all elections of directors of the corporation, each holder of
stock possessing voting power is entitled to as many votes as equal the
number of shares multiplied by the number of directors to be elected, and he
may cast all of his votes for a single director or may distribute them among
the number to be voted for or any two or more of them, as he may see fit.
SEVENTH. No director or officer of the corporation shall be personally
liable to the corporation or any of its stockholders for damages for breach
of fiduciary duty as a director or officer involving any act or omission of
any such director or officer; provided, however, that the foregoing provision
shall not eliminate or limit the liability of a director or officer (i) for
acts or omissions which involve intentional misconduct, fraud or a knowing
violation of law, or (ii) the payment of dividends in violation of Section
78.300 of the Nevada Revised Statues. Any repeal or modification of this
Article by the stockholders of the corporation shall be prospective only,
and shall not adversely affect any limitation on the personal liability
of a director or officer of the corporation for acts or omissions prior
to such repeal or modification.
I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of
the State of Nevada, do make and file these Articles of Incorporation,
hereby declaring and certifying that the facts herein stated are true, and
accordingly have hereunto set my hand this day of June, 1997.
Malea Farsai, Incorporator
STATE OF CALIFORNIA )
) SS.
COUNTY OF ORANGE )
On this day of June, 1997 before me, the undersigned Notary Public,
personally appeared Malea Farsai, personally known to me (or prove to me on the
basis of satisfactory evidence) to be the person whose name is subscribed to
the within Instrument and acknowledged to me that she executed the same in
her authorized capacity, and that by his signature on the instrument the
person, or the entity upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal.
Notary Public
<PAGE>
CERTIFICATE OF ACCEPTANCE OF APPOINTMENT
BY RESIDENT AGENT
The undersigned, , hereby accepts the appointment as Resident Agent of
the above named corporation.
Resident Agent
Dated: By:
Name:
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
FOR
BETA OIL & GAS, INC.
a Nevada corporation
Steve Antry and Lisa Antry each hereby certify that:
1. He is the President and Secretary, respectively, of Beta Oil & Gas,
Inc., a Nevada corporation.
2. Article Three of the Articles of Incorporation of this Corporation
are amended and restated in its entirety to read as follows:
THIRD. The total number of shares which the corporation is authorized
to issue is Fifty Million (50,000,000) shares of common stock with a par
value of $.001 per share.
3. Except as expressly amended by the foregoing Amendment, the Articles
of Incorporation of this Corporation remain in full force and effect.
4. The foregoing Amendment of the Articles of Incorporation has been
duly approved by the board of directors.
5. The foregoing Amendment of the Articles of Incorporation has been
duly approved by the required vote of shareholders in accordance with
Section 78.390 of the Nevada Revised Statutes.
The undersigned further declare under the penalty of perjury under the
laws of the State of Nevada that the matters set forth in this certificate
are true and correct of their own knowledge.
Dated: March __, 1998
Steve Antry, President
Lisa Antry, Secretary
<PAGE>
STATE OF CALIFORNIA )
) ss.
COUNTY OF ____________)
On this _____ day of , 1998, before me, the undersigned Notary Public,
personally appeared , personally known to me (or proved to me on the basis
of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within Instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the entity upon
behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
-------------------------------
Notary Public
(Seal)
STATE OF CALIFORNIA )
) ss.
COUNTY OF ____________)
On this _____ day of , 1998, before me, the undersigned Notary Public,
personally appeared , personally known to me (or proved to me on the basis
of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within Instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the entity upon
behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
-------------------------------
Notary Public
(Seal)
AMENDED AND RESTATED BYLAWS
OF
BETA OIL & GAS, INC.
a Nevada corporation
ARTICLE I
OFFICES
Section 1. Principal Office. The principal office for the transaction
of business of the Corporation is hereby fixed and located at 901 Dove Street,
Suite 230, Newport Beach, CA 92660. The location may be changed by approval of
a majority of the authorized directors, and additional offices may be
established and maintained at such other place or places, either within
or outside of Nevada, as the Board of Directors may from time to time
designate.
Section 2. Other Offices. Branch or subordinate offices may at any
time be established by the Board of Directors at any place or places where the
Corporation is qualified to do business.
ARTICLE II
DIRECTORS - MANAGEMENT
Section 1. Powers, Standard of Care.
1.1 Powers: Subject to the provisions of the Nevada Revised
Statutes (hereinafter the "Code"), and subject to any limitations in the
Articles of Incorporation of the Corporation relating to action required to be
approved by the Stockholders, as that term is defined in the Code, or by the
outstanding shares, as that term is defined Code, the business and affairs of
the Corporation shall be managed and all corporate powers shall be exercised by
or under the direction of the Board of Directors. The Board of Directors may
delegate the management of the day-to-day operation of the business of the
Corporation to a management company or other persons, provided that the
business and affairs of the Corporation shall be managed, and all corporate
powers shall be exercised, under the ultimate direction of the Board.
1.2 Standard of Care; Liability:
1.2.1 Each Director shall exercise such powers and
otherwise perform such duties, in good faith, in the matters such Director
believes to be in the best interests of the Corporation, and with such care,
including reasonable inquiry, using ordinary prudence, as a person in a like
position would use under similar circumstances.
1.2.2 In performing the duties of a Director, a
Director shall be entitled to rely on information, opinions, reports, or
statements, including financial statements and other financial data, in which
case prepared or presented by:
1.3.1 One or more officers or employees of the
Corporation whom the Director believes to be reliable and competent in the
matters presented,
1.3.2 Counsel, independent accountants or other
persons as to which the Director believes to be within such person's
professional or expert competence, or
1.3.3 A Committee of the Board upon which
the Director does not serve, as to matters within its designated authority,
which committee the Director believes to merit confidence, so long as in any
such case the Director acts in good faith, after reasonable inquiry when the
need therefor is indicated by the circumstances and without knowledge that
would cause such reliance to be unwarranted.
Section 2. Number and Qualification of Directors. The authorized number
of Directors of the Corporation shall be not less than one (1) nor more than
five (5) until changed by a duly adopted amendment to the Articles of
Incorporation or by an amendment to this Section 2 of Article II of these
Bylaws or, without amendment of these Bylaws, the number of directors may be
fixed or changed by resolution adopted by the vote of the majority of directors
in office or by the vote of holders of shares representing a majority of the
voting power at any annual meeting, or any special meeting called for such
purpose; but no reduction of the number of directors shall have the effect
of removing any director prior to the expiration of his term. The number of
Directors shall not be less than two (2) unless all of the outstanding
shares of stock are owned beneficially and of record by less than two (22)
stockholders, in which event the number of Directors shall not be less than
the number of stockholders or the minimum permitted by statute.
Section 3. Election and Term of Office of Directors.
3.1 Directors shall be elected at each annual meeting of the
Stockholders to hold office until the next annual meeting. If any such annual
meeting of Stockholders is not held or the Directors are not elected thereat,
the Directors may be elected at any special meeting of Stockholders held for
that purpose. Each Director, including a Director elected to fill a vacancy,
shall hold office until the expiration of the term for which elected and until
a successor has been elected and qualified.
3.2 Except as may otherwise be provided herein, or in the
Articles of Incorporation by way of cumulative voting rights, the members of
the Board of Directors of this Corporation, who need not be stockholders,
shall be elected by a majority of the votes cast at a meeting of stockholders,
by the holders of shares of stock present in person or by proxy, entitled to
vote in the election.
Section 4. Vacancies.
4.1 Vacancies on the Board of Directors may be filled by the
vote of a majority of the shares entitled to vote, represented at a duly held
meeting at which a quorum is present, or by the written consent of holders of
the majority of the outstanding shares entitled to vote. Each Director so
elected shall hold office until the next annual meeting of the Stockholders and
until a successor has been elected and qualified.
4.2 A vacancy or vacancies on the Board of Directors shall be
deemed to exist in the event of the death, resignation or removal of any
Director, or if the Board of Directors by resolution declares vacant the office
of a Director who has been declared of unsound mind by an order of court or
convicted of a felony.
4.3 The Stockholders may elect a Director or Directors at any
time to fill any vacancy or vacancies, but any such election by written consent
shall require the consent of a majority of the outstanding shares entitled to
vote.
4.4 Any Director may resign, effective on giving written
notice to the Chairman of the Board, the President, the Secretary, or the Board
of Directors, unless the notice specifies a later time for that resignation to
become effective.
4.5 No reduction of the authorized number of Directors shall
have the effect of removing any Director before that Director's term of office
expires.
Section 5. Removal of Directors.
5.1 The entire Board of Directors, or any individual Director,
may be removed from office as provided by Section 78.335 of the Code at any
special meeting of stockholders called for such purpose by vote of the holders
of two-thirds of the voting power entitling them to elect directors in place of
those to be removed, subject to the provisions of Section 5.2.
5.2 No Director may be removed (unless the entire Board is
removed) when the votes cast against removal or not consenting in writing to
such removal would be sufficient to elect such Director if voted cumulatively
at an election at which the same total number of votes were cast (or, if
such action is taken by written consent, all shares entitled to vote, were
voted) and the entire number of Directors authorized at the time of the
Directors most recent election were then being elected; and when by the
provisions of the Articles of Incorporation the holders of the shares of
any class or series voting as a class or series are entitled to elect one or
more Directors, any Director so elected may be removed only by the applicable
vote of the holders of the shares of that class or series.
Section 6. Place of Meetings. Regular meetings of the Board of
Directors shall be held at any place within or outside the state that has been
designated from time to time by resolution of the Board. In the absence of such
resolution, regular meetings shall be held at the principal executive office of
the Corporation. Special meetings of the Board shall be held at any place
within or outside the state that has been designated in the notice of the
meeting, or, if not stated in the notice or there is no notice, at the
principal executive office of the Corporation. Any meeting, regular or
special, may be held by conference telephone or similar communication
equipment pursuant to Section 78.320 of the Code, so long as all Directors
participating in such meeting can hear one another, and all such Directors
shall be deemed to have been present in person at such meeting.
Section 7. Annual Meetings. Immediately following each annual meeting
of Stockholders, the Board of Directors shall hold a regular meeting for the
purpose of organization, the election of officers and the transaction of other
business. Notice of this meeting shall not be required. Minutes of any meeting
of the Board, or any committee thereof, shall be maintained as required by the
Code by the Secretary or other officer designated for that purpose.
Section 8. Other Regular Meetings.
8.1 Other regular meetings of the Board of Directors shall be
held without call at such time as shall from time to time be fixed by the Board
of Directors. Such regular meetings may be held without notice, provided the
time and place of such meetings has been fixed by the Board of Directors, and
further provided the notice of any change in the time of such meeting shall be
given to all the Directors. Notice of a change in the determination of the
time shall be given to each Director in the same manner as notice for such
special meetings of the Board of Directors.
8.2 If said day falls upon a holiday, such meetings shall
be held on the next succeeding day thereafter.
Section 9. Special Meetings/Notices.
9.1 Special meetings of the Board of Directors for any purpose
or purposes may be called at any time by the Chairman of the Board or the
President or any Vice President or the Secretary or any two Directors.
9.2 Notice of the time and place for special meetings shall be
delivered personally or by telephone to each Director or sent by first class
mail or telegram, charges prepaid, addressed to each Director at his or her
address as it is shown in the records of the Corporation. In case such notice
is mailed, it shall be deposited in the United States mail at least four days
prior to the time of holding the meeting. In case such notice is delivered
personally, or by telephone or telegram, it shall be delivered personally or be
telephone or to the telegram company at least 48 hours prior to the time of
the holding of the meeting. Any oral notice given personally or by
telephone may be communicated to either the Director or to a person at the
office of the Director who the person giving the notice has reason to believe
will promptly communicate same to the Director. The notice need not specify
the purpose of the meeting, nor the place, if the meeting is to be held at the
principal executive office of the Corporation.
Section 10. Waiver of Notice
10.1 The transactions of any meeting of the Board of
Directors, however called, noticed, or wherever held, shall be as valid as
though had at a meeting duly held after the regular call and notice if a quorum
is present and if, either before or after the meeting, each of the Directors
not present signs a written waiver of notice, a consent to holding the meeting
or an approval of the minutes thereof. Waivers of notice or consent need not
specify the purposes of the meeting. All such waivers, consents and approvals
shall be filed with the corporate records or made part of the minutes of the
meeting.
10.2 Notice of a meeting shall also be deemed given to any
Director who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to such Director.
Section 11. Quorums. A majority of the authorized number of Directors
shall constitute a quorum for the transaction of business, except to adjourn as
provided in Section 12 of this Article II. Every act or decision done or made
by a majority of the Directors present at a meeting duly held at which a quorum
was present shall be regarded as the act of the Board of Directors, unless a
greater number is required by law or the Articles of Incorporation. A meeting
at which a quorum is initially present may continue to transact business
notwithstanding the withdrawal of Directors, if any action taken is
approved by at least a majority of the required quorum for that meeting.
Section 12. Adjournment. A majority of the directors present,
whether or not constituting a quorum, may adjourn any meeting to another time
and place.
Section 13. Notice of Adjournment. Notice of the time and place of the
holding of an adjourned meeting need not be given, unless the meeting is
adjourned for more than 24 hours, in which case notice of such time and place
shall be given prior to the time of the adjourned meeting to the Directors who
were not present at the time of the adjournment.
Section 14. Sole Director Provided by Articles or Bylaws. In the event
only one Director is required by the Bylaws or the Articles of Incorporation,
then any reference herein to notices, waivers, consents, meetings or other
actions by a majority or quorum of the Board of Directors shall be deemed or
referred as such notice, waiver, etc., by the sole Director, who shall have all
rights and duties and shall be entitled to exercise all of the powers and shall
assume all the responsibilities otherwise herein described, as given to the
Board of Directors.
Section 15. Directors Action by Unanimous Written Consent. Pursuant to
Section 78.315 of the Code, any action required or permitted to be taken by the
Board of Directors may be taken without a meeting and with the same force and
effect as if taken by a unanimous vote of Directors, if authorized by a writing
signed individually or collectively by all members of the Board of Directors.
Such consent shall be filed with the regular minutes of the Board of Directors.
Section 16. Compensation of Directors. Directors, and members as such,
shall not receive any stated salary for their services, but by resolution of
the Board of Directors, a fixed sum and expense of attendance, if any,
may be allowed for attendance at each regular and special meeting of the
Board of Directors; provided, however, that nothing contained herein shall be
construed to preclude any Director from serving the Corporation in any other
capacity as an officer, employee or otherwise receiving compensation for such
services.
Section 17. Committees. Committees of the Board of Directors may be
appointed by resolution passed by a majority of the whole Board. Committees
shall be composed of two or more members of the Board of Directors. The Board
may designate one or more Directors as alternate members of any committee, who
may replace any absent member at any meeting of the committee. Committees
shall have such powers as those held by the Board of Directors as may be
expressly delegated to it by resolution of the Board of Directors, except
those powers expressly made non-delegable by the Code.
Section 18. Meetings and Action of Committees. Meetings and action of
committees shall be governed by, and held and taken in accordance with, the
provisions of Article II, Sections 6, 8, 9, 10, 11, 12, 13 and 15, with such
changes in the context of those Sections as are necessary to substitute the
committee and its members for the Board of Directors and its members, except
that the time of the regular meetings of the committees may be determined by
resolution of the Board of Directors as well as the committee, and special
meetings of committees may also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The Board of Directors
may adopt rules for the government of any committee not inconsistent with the
provisions of these Bylaws.
Section 19. Advisory Directors. The Board of Directors from time to
time may elect one or more persons to be Advisory Directors, who shall not by
such appointment be members of the Board of Directors. Advisory Directors
shall be available from time to time to perform special assignments specified
by the President, to attend meetings of the Board of Directors upon invitation
and to furnish consultation to the Board of Directors. The period during
which the title shall be held may be prescribed by the Board of Directors. If
no period is prescribed, the title shall be held at the pleasure of the Board
of Directors.
ARTICLE III
OFFICERS
Section 1. Officers. The principal officers of the Corporation shall be
a President, a Secretary, and a Treasurer. The Corporation may also have, at
the discretion of the Board of Directors, a Chairman of the Board, one or more
Vice Presidents, one or more Assistant Secretaries, one or more Assistant
Treasurers, and such other officers as may be appointed in accordance with the
provisions of Section 3 of this Article III. Any number of offices may be
held by the same person.
Section 2. Election of Officers. The principal officers of the
Corporation, except such officers as may be appointed in accordance with the
provisions of Section 3 or Section 5 of this Article, shall be chosen by the
Board of Directors, and each shall serve at the pleasure of the Board of
Directors, subject to the rights, if any, of an officer under any contract of
employment.
Section 3. Subordinate Officers, Etc. The Board of Directors may
appoint such other officers as the business of the Corporation may require,
each of whom shall hold office for such period, have such authority and perform
such duties as are provided in the Bylaws or as the Board of Directors may from
time to time determine.
Section 4. Removal and Resignation of Officers.
4.1 Subject to the rights, if any, of an officer under any
contract of employment, any officer may be removed, either with or without
cause, by a majority of the Directors at that time in office, at any regular or
special meeting of the Board of Directors, or, except in the case of an officer
chosen by the Board of Directors, by any officer upon whom such power of
removal may be conferred by the Board of Directors.
4.2 Any officer may resign at any time by giving written
notice to the Board of Directors. Any resignation shall take effect on the date
of the receipt of that notice or at any later time specified in that notice;
and, unless otherwise specified in that notice, the acceptance of the
resignation shall not be necessary to make it effective. Any resignation is
without prejudice to the rights, if any, of the Corporation under any contract
to which the officer is a party.
Section 5. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled
in the manner prescribed in the Bylaws for regular appointments to that office.
Section 6. Chairman of the Board.
6.1 The Chairman of the Board, if such an officer be elected,
shall, if present, preside at the meetings of the Board of Directors and
exercise and perform such other powers and duties as may, from time to time, be
assigned by the Board of Directors or prescribed by the Bylaws. If there is
no President, the Chairman of the Board shall, in addition, be the Chief
Executive Officer of the Corporation and shall have the powers and duties
prescribed in Section 7 of this Article III.
Section 7. President. Subject to such supervisory powers, if any, as
may be given by the Board of Directors to the Chairman of the Board, if there
is such an officer, the President shall be the Chief Executive Officer of
the Corporation and shall, subject to the control of the Board of Directors,
have general supervision, direction and control of the business and officers
of the Corporation. The President shall preside at all meetings of the
Stockholders and, in the absence of the Chairman of the Board, or if there be
none, at all meetings of the Board of Directors. The President shall have the
general powers and duties of management usually vested in the office of
President of a corporation, shall be ex officio a member of all the
standing committees, including the Executive Committee, if any, and shall
have such other powers and duties as may be prescribed by the Board of
Directors or the Bylaws.
Section 8. Vice President. In the absence or disability of the
President, the Vice Presidents, if any, in order of their rank as fixed by the
Board of Directors, or if not ranked, the Vice President designated by the
Board of Directors, shall perform all the duties of the President, and when so
acting, shall have all the powers of, and be subject to all the restrictions
upon, the President. The Vice Presidents shall have such other powers and
perform such other duties as from time to time may be prescribed for them,
respectively, by the Board of Directors or the Bylaws, the President, or
the Chairman of the Board.
Section 9. Secretary.
9.1 The Secretary shall keep, or cause to be kept, a book of
minutes of all meetings of the Board of Directors and Stockholders at the
principal office of the Corporation or such other place as the Board of
Directors may order. The minutes shall include the time and place of holding
the meeting, whether regular or special, and if a special meeting, how
authorized, the notice thereof given, and the names of those present at
Directors' and committee meetings, the number of shares present or represented
at Stockholders' meetings and the proceedings thereof.
9.2 The Secretary shall keep, or cause to be kept, at the
principal office of the Corporation or at the office of the Corporation's
transfer agent, a share register, or duplicate share register, showing the
names of the Stockholders and their addresses; the number and classes or
shares held by each; the number and date of certificates issued for the same;
and the number and date of cancellation of every certificate surrendered for
cancellation.
9.3 The Secretary shall give, or cause to be given, notice of
all the meetings of the Stockholders and of the Board of Directors required by
the Bylaws or by law to be given. The Secretary shall keep the seal of the
Corporation in safe custody, and shall have such other powers and perform such
other duties as may be prescribed by the Board of Directors or by the Bylaws.
Section 10. Treasurer.
10.1 The Treasurer shall keep and maintain, or cause to be
kept and maintained, in accordance with generally accepted accounting
principles, adequate and correct accounts of the properties and business
transactions of the Corporation, including accounts of its assets, liabilities,
receipts, disbursements, gains, losses, capital, earnings (or surplus) and
shares issued. The books of account shall, at all reasonable times, be open to
inspection by any Director.
10.2 The Treasurer shall deposit all monies and other
valuables in the name and to the credit of the Corporation with such
depositaries as may be designated by the Board of Directors. The Treasurer shall
disburse the funds of the Corporation as may be ordered by the Board of
Directors, shall render to the President and Directors, whenever they request
it, an account of all of the transactions of the Treasurer and of the financial
condition of the Corporation, and shall have such other powers and perform such
other duties as may be prescribed by the Board of Directors or the Bylaws.
ARTICLE IV
STOCKHOLDERS' MEETINGS
Section 1. Place of Meetings. Meetings of the Stockholders shall be
held at any place within or outside the state of Nevada designated by the Board
of Directors. In the absence of any such designation, Stockholders' meetings
shall be held at the principal executive office of the Corporation.
Section 2. Annual Meeting.
2.1. The annual meeting of the Shareholders shall be held,
each year, as follows:
Time of Meeting: 10:00 A.M.
Date of Meeting: May 15
2.2 If this day shall be a legal holiday, then the meeting
shall be held on the next succeeding business day, at the same time. At the
annual meeting, the Shareholders shall elect a Board of Directors, consider
reports of the affairs of the Corporation and transact such other business as
may be properly brought before the meeting.
2.3 If the above date is inconvenient, the annual meeting of
Shareholders shall be held each year on a date and at a time designated by the
Board of Directors within twenty days of the above date upon proper notice to
all Shareholders.
<PAGE>
Section 3. Special Meetings.
3.1 Special meetings of the Stockholders for any purpose or
purposes whatsoever, may be called at any time by the Board of Directors, the
Chairman of the Board, the President, or by one or more Stockholders holding
shares in the aggregate entitled to cast not less than 10% of the votes at any
such meeting. Except as provided in paragraph B below of this Section 3, notice
shall be given as for the annual meeting.
3.2 If a special meeting is called by any person or persons
other than the Board of Directors, the request shall be in writing, specifying
the time of such meeting and the general nature of the business proposed to be
transacted, and shall be delivered personally or sent by registered mail or by
telegraphic or other facsimile transmission to the Chairman of the Board, the
President, any Vice President or the Secretary of the Corporation. The officer
receiving such request shall forthwith cause notice to be given to the
Stockholders entitled to vote, in accordance with the provisions of Sections 4
and 5 of this Article, that a meeting will be held at the time requested by the
person or persons calling the meeting, not less than 35 nor more than 60 days
after the receipt of the request. If the notice is not given within 20 days
after receipt of the request, the person or persons requesting the meeting may
give the notice in the manner provided in these Bylaws or upon application to
the Superior Court. Nothing contained in this paragraph of this Section shall
be construed as limiting, fixing or affecting the time when a meeting
of Stockholders called by action of the Board of Directors may be held.
Section 4. Notice of Meetings - Reports.
4.1 Notice of any Stockholders meetings, annual or special,
shall be given in writing not less than 10 days nor more than 60 days before
the date of the meeting to Stockholders entitled to vote thereat by the
Secretary or the Assistant Secretary, or if there be no such officer, or in
the case of said Secretary or Assistant Secretary's neglect or refusal,
by any Director or Stockholder.
4.2 Such notices or any reports shall be given personally or
by mail or other means of written communication as provided in the Code and
shall be sent to the Stockholder's address appearing on the books of the
Corporation, or supplied by the Stockholder to the Corporation for the purpose
of notice, and in the absence thereof, as provided in the Code by posting
notice at a place where the principal executive office of the Corporation is
located or by publication at least once in a newspaper of general circulation
in the county in which the principal executive office is located.
4.3 Notice of any meeting of Stockholders shall specify the
place, the day and the hour of meeting, and (i) in case of a special meeting,
the general nature of the business to be transacted and that no other business
may be transacted, or (ii)in the case of an annual meeting, those matters which
the Board of Directors,at the date of mailing of notice, intends to present for
action by the Stockholders. At any meetings where Directors are elected, notice
shall include the names of the nominees, if any, intended at the date of notice
to be presented for election.
4.4 Notice shall be deemed given at the time it is delivered
personally or deposited in the mail or sent by other means of written
communication. The officer giving such notice or report shall prepare and file
in the minute book of the Corporation an affidavit or declaration thereof.
4.5 If action is proposed to be taken at any meeting for
approval of (i) contracts or transactions in which a Director has a direct or
indirect financial interest, pursuant to the Code, (ii) an amendment to the
Articles of Incorporation, pursuant to the Code, (iii) a reorganization of the
Corporation, pursuant to the Code, (iv)dissolution of the Corporation, pursuant
to the Code, or (v) a distribution to preferred Stockholders, pursuant to the
Code, the notice shall also state the general nature of such proposal.
Section 5. Quorum.
5.1 The holders of a majority of the shares entitled to vote
at a Stockholders' meeting, present in person, or represented by proxy, shall
constitute a quorum at all meetings of the Stockholders for the transaction of
business except as otherwise provided by the Code or by these Bylaws.
5.2 The Stockholders present at a duly called or held meeting
at which a quorum is present may continue to transact business until
adjournment, notwithstanding the withdrawal of enough Stockholders to leave
less than a quorum, if any action taken (other than adjournment) is approved
by a majority of the shares required to constitute a quorum.
Section 6. Adjourned Meeting and Notice Thereof.
6.1 Any Stockholders' meeting, annual or special, whether or
not a quorum is present, may be adjourned from time to time by the vote of the
majority of the shares represented at such meeting, either in person or by
proxy, but in the absence of a quorum, no other business may be transacted at
such meeting.
6.2 When any meeting of Stockholders, either annual or
special, is adjourned to another time or place, notice need not be given of the
adjourned meeting if the time and place thereof are announced at a meeting at
which the adjournment is taken, unless a new record date for the adjourned
meeting is fixed, or unless the adjournment is for more than 45 days from the
date set for the original meeting, in which case the Board of Directors shall
set a new record date. Notice of any adjourned meeting shall be given to each
Stockholder of record entitled to vote at the adjourned meeting in accordance
with the provisions of Section 4 of this Article. At any adjourned meeting, the
Corporation may transact any business which might have been transacted at the
original meeting.
Section 7. Waiver or Consent by Absent Stockholders.
7.1 The transactions of any meeting of Stockholders, either
annual or special, however called and noticed, shall be valid as though had at
a meeting duly held after regular call and notice, if a quorum be present
either in person or by proxy, and if, either before or after the meeting,
each of the Stockholders entitled to vote, not present in person or by proxy,
sign a written waiver of notice, or a consent to the holding of such meeting
or an approval of the minutes thereof.
7.2 The waiver of notice or consent need not specify either
the business to be transacted or the purpose of any regular or special meeting
of Stockholders, except that if action is taken or proposed to be taken for
approval of any of those matters specified in Section E of Section 4 of this
Article, the waiver of notice or consent shall state the general nature of such
proposal. All such waivers, consents or approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
7.3 Attendance of a person at a meeting shall also constitute
a waiver of notice of such meeting, except when the person objects, at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened, and except that attendance at a
meeting is not a waiver of any right to object to the consideration of matters
not included in the notice of such meeting.
ARTICLE V
AMENDMENTS TO BYLAWS
Section 1. Amendment by Stockholders.
All Bylaws of the Corporation shall be subject to alteration
or repeal, and new Bylaws may be made by the affirmative vote of stockholders
holding of record in the aggregate at least a majority of the outstanding
shares of stock entitled to vote in the election of directors at any annual or
special meeting of stockholders, provided that the notice or waiver of notice
of such meeting shall have summarized or set forth in full therein, the
proposed amendment.
Section 2. Amendment by Directors.
The Board of Directors shall have power to make, adopt, alter,
amend and repeal, from time to time, Bylaws of the Corporation, provided,
however, that the stockholders entitled to vote with respect thereto as in this
Article V above-provided may alter, amend or repeal Bylaws made by the Board of
Directors, except that the Board of Directors shall have no power to change the
quorum for meetings of stockholders or of the Board of Directors or to change
any provisions of the Bylaws with respect to the removal of directors of the
filling of vacancies in the Board resulting from the removal by the
stockholders. In any bylaw regulating an impending election of directors is
adopted, amended or repealed by the Board of Directors, there shall be set
forth in the notice of the next meeting of stockholders for the election of
directors, the Bylaws so adopted, amended or repealed, together with a concise
statement of the changes made.
Section 3. Record of Amendments.
Whenever an amendment or new Bylaw is adopted, it shall be
copies in the corporate book of Bylaws with the original Bylaws, in the
appropriate place. If any Bylaw is repealed, the fact of repeal with the date
of the meeting at which the repeal was enacted or written assent was filed
shall be stated in the corporate book of Bylaws.
ARTICLE VI
SHARES OF STOCK
Section 1. Certificate of Stock.
1.1 The certificates representing shares of the Corporation's
stock shall be in such form as shall be adopted by the Board of Directors, and
shall be numbered and registered in the order issued. The certificates shall
bear the following: the Corporate Seal, the holder's name, the number of shares
of stock and the signatures of: (1) the Chairman of the Board, the President
or a Vice President and (2) the Secretary, Treasurer, any Assistant Secretary
or Assistant Treasurer.
1.2 No certificate representing shares of stock shall be
issued until the full amount of consideration therefore has been paid, except
as otherwise permitted by law.
1.3 To the extent permitted by law, the Board of Directors may
authorize the issuance of certificates for fractions of a share of stock which
shall entitle the holder to exercise voting rights, receive dividends and
participate in liquidating distributions, in proportion to the fractional
holdings; or it may authorize the payment in cash of the fair value of
fractions of a share of stock as of the time when those entitled to receive
such fractions are determined; or its may authorize the issuance, subject to
such conditions as may be permitted by law, of scrip in registered or
bearer form over the signature of an officer or agent of the corporation,
exchangeable as therein provided for full shares of stock, but such scrip
shall not entitle the holder to any rights of a stockholder, except as therein
provided.
Section 2. Lost or Destroyed Certificates.
The holder of any certificate representing shares of stock of
the Corporation shall immediately notify the Corporation of any loss or
destruction of the certificate representing the same. The Corporation may issue
a new certificate in the place of any certificate theretofore issued by it,
alleged to have been lost or destroyed. On production of such evidence of loss
or destruction as the Board of Directors in its discretion may require, the
Board of Directors may, in its discretion, require the owner of the lost or
destroyed certificate, or his legal representatives, to give the Corporation a
bond in such sum as the Board may direct, and with such surety or sureties as
may be satisfactory to the Board, to indemnify the Corporation against any
claims, loss, liability or damage it may suffer on account of the issuance of
the new certificate. A new certificate may be issued without requiring any
such evidence or bond when, in the judgment of the Board of directors, it is
proper to do so.
Section 3. Transfer of Shares.
3.1 Transfer of shares of stock of the Corporation shall be
made on the stock ledger of the Corporation only by the holder of record
thereof, in person or by his duly authorized attorney, upon surrender for
cancellation of the certificate or certificates representing such shares of
stock with an assignment or power of transfer endorsed thereon or delivered
therewith, duly executed, with such proof of the authenticity of the signature
and of authority to transfer and of payment of taxes as the Corporation or its
agents may require.
3.2 The Corporation shall be entitled to treat the holder of
record of any share or shares of stock as the absolute owner thereof for all
purposes and, accordingly, shall not be bound to recognize any legal, equitable
or other claim to, or interest in, such share or shares of stock on the part of
any other person, whether or not it shall have express or other notice thereof,
except as otherwise expressly provided by law.
Section 4. Record Date.
In lieu of closing the stock ledger of the Corporation, the
Board of Directors may fix, in advance, a date not exceeding sixty (60) days,
nor less than ten (10) days, as the record date for the determination of
stockholders entitled to receive notice of, or to vote at, any meeting of
stockholders, or to consent to any proposal without a meeting, or for the
purpose of determining stockholders entitled to receive payment of any
dividends or allotment of any rights, or for the purpose of any other action.
If no record date is fixed, the record date for the determination of
stockholders entitled to notice of, or to vote at, a meeting of stockholders
shall be at the close of business on the day next preceding the day on which
the notice is given, or, if no notice is given, the day preceding the day on
which the meeting is held. The record date for determining stockholders for
any other purpose shall be at the close of business on the day on which the
resolution of the directors relating thereto is adopted. When a determination
of stockholders of record entitled to notice of, or to vote at, any meeting of
stockholders has been made, as provided for herein, such determination shall
apply to any adjournment thereof, unless the directors fix a new record date
for the adjourned meeting.
ARTICLE VII
DIVIDENDS
Subject to applicable law, dividends may be declared and paid out of
any funds available therefor, as often, in such amount, and at such time or
times as the Board of Directors may determine.
ARTICLE VIII
FISCAL YEAR
The fiscal year of the Corporation shall be December 31, and may be
changed by the Board of Directors from time to time subject to applicable law.
ARTICLE IX
CORPORATE SEAL
The corporate seal shall be circular in form, and shall have inscribed
thereon the name of the Corporation, the date of its incorporation, and the
word "Nevada" to indicate the Corporation was incorporated pursuant to the
laws of the State of Nevada.
ARTICLE X
INDEMNITY
Section 1. Any person made a party to any action, suit or proceeding,
by reason of the fact that he, his testator or interstate representative is or
was a director, officer or employee of the Corporation or of any corporation in
which he served as such at the request of the Corporation, shall be indemnified
by the Corporation against the reasonable expenses, including attorneys' fees,
actual and necessarily incurred by him in connection with the defense of such
action, suit or proceedings, or in connection with any appeal therein, except
in relation to matters as to which it shall be adjudged in such action,
suit or proceeding or in connection with any appeal therein that such officer,
director or employee is liable for gross negligence or misconduct in the
performance of his duties.
Section 2. The foregoing right of indemnification shall not be deemed
exclusive of any other rights to which any officer or director or employee may
be entitled apart from the provisions of this section.
Section 3. The amount of indemnity to which any officer or any director
may be entitled shall be fixed by the Board of Directors, except that in any
case in which there is no disinterested majority of the Board available, the
amount shall be fixed by arbitration pursuant to the then existing rules of the
American Arbitration Association.
ARTICLE XI
MISCELLANEOUS
Section 1. Stockholders' Agreements. Notwithstanding anything contained
in this Article XI to the contrary, in the event the Corporation elects to
become a close corporation, an agreement between two or more Stockholders
thereof, if in writing and signed by the parties thereto, may provide that in
exercising any voting rights, the shares held by them shall be voted as
provided therein, and may otherwise modify the provisions contained in
Article IV, herein as to Stockholders' meetings and actions.
Section 2. Subsidiary Corporations. Shares of the Corporation owned by
a subsidiary shall not be entitled to vote on any matter. For the purpose of
this Section, a subsidiary of the Corporation is defined as another corporation
of which shares thereof possessing more than 25% of the voting power are owned
directly or indirectly through one or more other corporations of which the
Corporation owns, directly or indirectly, more than 50% of the voting power.
ARTICLE XII
SHAREHOLDER APPROVAL
Section 1. The Company needs to obtain shareholder approval of a plan
or arrangement under subparagraph 1.1 below, or prior to the issuance of
designated securities under subparagraph 1.2, 1.3, or 1.4 below:
<PAGE>
1.1 when a stock option or purchase plan is to be established
or other arrangement made pursuant to which stock may be acquired by officers
or directors, except for warrants or rights issued generally to security
holders of the company or broadly based plans or arrangements including other
employees (e.g., ESOPs). In the case where shares are issued to a person not
previously employed by the company, as an inducement essential to the
individual's entering into an employment contract with the company,
shareholder approval will generally not be required. The establishment of
a plan or arrangement under which the amount of securities which may be
issued does not exceed the lesser of 1 percent of the number of shares of
common stock, 1 percent of the voting power outstanding, or 25,000 shares will
not generally require shareholder approval;
1.2 when the issuance will result in a change of control of
the issuer;
1.3 in connection with the acquisition of the stock or
assets of another company if:
a. any director, officer, or substantial
shareholder of the issuer has a 5 percent or greater interest (or such
persons collectively have a 10 percent or greater interest), directly or
indirectly, in the company or assets to be acquired or in the consideration
to be paid in the transaction or series of related transactions and the
present or potential issuance of common stock, or securities convertible into
or exercisable for common stock, could result in an increase in outstanding
common shares or voting power of 5 percent or more; or
b. where, due to the present or potential
issuance of common stock, or securities convertible into or exercisable for
common stock, other than a public offering for cash:
1. the common stock has or will have upon
issuance voting power equal to or in excess of 20 percent of the voting power
outstanding before the issuance of stock or securities convertible into or
exercisable for common stock; or
2. the number of shares of common stock
to be issued is or will be equal to or in excess of 20 percent of the number
of shares or common stock outstanding before the issuance of the stock or
securities; or
1.4 in connection with a transaction other than a public
offering involving:
a. the sale or issuance by the issuer of common
stock (or securities convertible into or exercisable for common stock) at a
price less than the greater of book or market value which together with sales
by officers, directors, or substantial shareholders of the company equals 20
percent or more of common stock or 20 percent or more of the voting power
outstanding before the issuance; or
b. the sale or issuance by the company of
common stock (or securities convertible into or exercisable common stock)
equal to 20 percent or more of the common stock or 20 percent or more of the
voting power outstanding before the issuance for less than the greater of
book or market value of the stock.
Section 2. Exceptions may be made upon application to Nasdaq when:
2.1 the delay in securing stockholder approval would seriously
jeopardize the financial viability of the enterprise; and
2.2. reliance by the company on this exception is expressly
approved by the Audit Committee or a comparable body of the Board of Directors.
A company relying on this exception must mail to all
shareholders not later than ten days before issuance of the securities a letter
alerting them to its omission to seek the shareholder approval that would
otherwise be required and indicating that the Audit Committee or a comparable
body of the Board of Directors has expressly approved the exception.
Section 3. Only shares actually issued and outstanding (excluding treasury
shares or shares held by a subsidiary) are to be used in making any calculation
provided for in this section. Unissued shares reserved for issuance upon
conversion of securities or upon exercise of options or warrants will not be
regarded as outstanding.
Section 4. Voting power outstanding as used in this section refers to the
aggregate number of votes which may be cast by holders of those securities
outstanding which entitle the holders thereof to vote generally on all matters
submitted to the company's security holders for a vote.
Section 5. An interest consisting of less than either 5 percent of the number
of shares of common stock or 5 percent of the voting power outstanding of an
issuer or party shall not be considered a substantial interest or cause the
holder of such an interest to be regarded as a substantial security holder.
Section 6. Where shareholder approval is required, the minimum vote which will
constitute shareholder approval shall be a majority of the total votes cast on
the proposal in person or by proxy.
CERTIFICATE OF SECRETARY
I, the undersigned, certify that:
1. I am the duly elected and acting Secretary of BETA OIL & GAS, INC.,
a Nevada corporation; and
2. The foregoing Amended and Restated Bylaws, consisting of 16 pages,
are the Amended and Restated Bylaws of this Corporation as adopted by the Board
of Directors.
IN WITNESS WHEREOF, I have subscribed my name and affixed the
seal of this Corporation on this 29th day of October,1998.
---------------------------------
Lisa Antry, Secretary
[SEAL]
Law Offices of
HORWITZ & BEAM
Two Venture Plaza
Suite 350
Irvine, California 92618
(949) 453-0300
(310) 842-8574
FAX: (949) 453-9416
Gregory B. Beam, Esq. Ralph R. Loyd, Esq.
Lawrence W. Horwitz, Esq. Patti L.W. McGlasson, Esq.
Lawrence M. Cron, Esq. Bernard C. Jasper, Esq.
Lynne Bolduc, Esq. K. William Pergande, Esq.
Malea M. Farsai, Esq. John Y. Igarashi, Esq.
November 30, 1998
Beta Oil & Gas, Inc.
Ladies and Gentlemen:
This office represents Beta Oil & Gas, Inc., a Nevada corporation (the
"Registrant") in connection with the Registrant's Registration Statement on Form
S-1 under the Securities Act of 1933 (the "Registration Statement"), which
relates to the issuance and sale of a maximum of 880,000 shares of the
Registrant's Common Stock as well as the registration and possible sale of up to
7,029,492 shares of the Registrant's Common Stock and 2,497,663 shares of the
Registrant's Common Stock issuable upon exercise of warrants by certain Selling
Security Holders (collectively, the "Registered Securities") pursuant to an
Underwriting Agreement to be dated as of the effective date of the Registration
Statement. In connection with our representation, we have examined such
documents and undertaken such further inquiry as we consider necessary for
rendering the opinion hereinafter set forth.
Based upon the foregoing, it is our opinion that the Registered
Securities, when sold as set forth in the Registration Statement, will be
legally issued, fully paid and nonassessable.
We acknowledge that we are referred to under the heading "Legal
Matters" in the Prospectus which is a part of the Registration Statement, and we
hereby consent to such use of our name in such Registration Statement and to the
filing of this opinion as Exhibit 5 to the Registration Statement and with such
state regulatory agencies in such states as may require such filing in
connection with the registration of the Registered Securities for offer and sale
in such states.
HORWITZ & BEAM
EXPLORATION AGREEMENT
Formosa Grande Project
Jackson and Calhoun Counties, Texas
This Exploration Agreement (the "Agreement") is entered into as of
August 1, 1997, by and between Parallel Petroleum Corporation ("Parallel"),
TAC Resources, Inc. ("TAC"), Allegro Investments, Inc. ("Allegro"), Beta Oil &
Gas, Inc. ("Beta"), Pease Oil and Gas Company ("Pease"), Four-Way Texas L.L.C.
("Four-Way"), Meyer Financial Services, Inc. ("Meyer") and Wes-Tex Drilling
Corp. ("Wes-Tex") all hereinafter collectively referred to as (the "Parties").
WITNESSETH:
WHEREAS, Parallel has acquired, for itself and for the benefit of TAC
and Allegro, seismic and lease options, oil and gas leases and seismic permits
covering an area of approximately 90,000 acres located in Jackson and Calhoun
Counties, Texas, as depicted on the plat attached hereto as Exhibit "A".
WHEREAS, Beta, Pease, Four-Way, Meyer and Wes-Tex propose to acquire
undivided interests in and to the rights granted by such agreements, and to
participate in conducting a 3-D seismic program upon the lands covered thereby.
NOW, THEREFORE, in consideration of the premises, the mutual agreements
and obligations set forth herein, and the mutual benefits to be received
hereunder, the Parties agree as follows:
ARTICLE 1. DEFINITIONS
For the purpose of this Agreement, the following terms shall have the
meanings designated below:
1.1 Area of Mutual Interest "AMI" means the lands outlined on the plat
attached hereto as Exhibit "A".
1.2 "AMI Interests" means any interest in the oil, gas or other
minerals in and under the AMI, including leasehold interests under oil and gas
leases, oil and gas lease options, interests of the farmee under farmout
agreement, and other such interests or rights similar or dissimilar to those
mentioned, including, but not limited to, seismic permits. AMI Interest does
not, however, include nonpossessory interests in the oil, gas and other minerals
in and under the AMI, such as royalty interests, overriding royalty interests,
net profits interests, or other such interests whether similar or dissimilar to
those mentioned.
1.3 "Existing AMI Interests" means the Seismic and Lease Options, Oil
and Gas Leases and Seismic Permits which have been acquired by Parallel as of
December 1, 1997.
1.4 "Subsequently Acquired AMI Interests" means all AMI Interests acquired after
December 1, 1997.
1.5 "Contract Lands" means lands located within the AMI which are
covered by AMI Interests.
1.6 "Initial Interest" means a Party's ownership in Existing AMI
Interests, and the amount of interest a party is entitled to acquire in
Subsequently Acquired AMI Interests, subject to the provisions hereof.
1.7 "Jointly Owned AMI Interest" means an AMI Interest in which the
Parties own an interest pursuant to the terms of this Agreement.
1.8 "Lease Burden" means any royalty, overriding royalty interest, net
profits interest, production payment, carried interest, reversionary working
interest or other charges upon a leasehold interest or the production therefrom.
1.9 "Losses" means any and all losses, liabilities, claims, demands,
penalties, fines, settlements, damages, actions, or suits of whatsoever kind and
nature (but expressly excluding consequential damages), whether or not subject
to litigation, including without limitation (I) claims or penalties arising from
products liability, negligence, statutory liability or violation of any
applicable law or in tort (strict, absolute or otherwise) and (ii) loss of or
damage to any property, and all reasonable out-of-pocket costs, disbursements
and expenses (including, without limitation, legal, accounting, consulting and
investigation expenses and litigation costs) imposed on, incurred by or asserted
against an indemnified Party in connection therewith.
1.10 "Operator" shall mean Parallel Petroleum Corporation.
1.11 "Party" or "Parties" means Parallel, TAC, Allegro, Beta, Pease,
Four-Way, Meyer, Wes-Tex and any other person or entity, singularly or as a
group, which hereafter becomes a party hereto or is otherwise subject to the
terms hereof.
1.12 "Pre-Existing Data" means such data which includes, but is not
limited to: seismic records and related seismic data, electronic and mud logs,
cores and core analyses, field studies (less and except any proprietary
methodology or process used by any Party in such studies), production tests,
engineering, geological, geophysical, paleontological data, interpretive data
and maps prepared by any Party in existence as of the date of this Agreement.
1.13 "Proportionate Share" except as otherwise provided for herein,
shall be calculated by dividing a Party's Initial Interest by the aggregate of
the Initial Interests of all Parties who are to share an interest or an
obligation pursuant to the terms hereof.
1.14 "Prospect" means an area within the AMI which is designated as a
Prospect pursuant to Article 6.3 hereof and within which there is expected to
occur, based on information developed as a result of 3-D Seismic Operations, a
commercial accumulation of oil and/or gas in a specific structural or
stratigraphic trap.
1.15 "Subsequently Created Burden" means a lease burden which is
created by a party subsequent to its acquisition of the interest which is
subject to the burden.
1.16 "Costs Prior to Leasehold Acquisition" means all costs of any type
whatsoever which pertain to this project, covering lands located within or
outside the AMI, including, but not limited to costs of seismic permits, seismic
and lease options, oil and gas leases, and renewals and/or extensions thereof,
land brokerage, legal costs, surface damages, surveying, seismic acquisition,
processing and interpretation, etc., which are incurred prior to Leasehold
Acquisition conducted under the provisions of Article 4 hereof.
1.17 Other terms are defined elsewhere in this Agreement.
ARTICLE 2. INTERESTS AND SHARE OF COSTS OF THE PARTIES
2.1 Area of Mutual Interest. The Parties hereby establish an Area of
Mutual Interest "AMI", same to be comprised of the area outlined on the attached
Exhibit "A", and which shall cover AMI Interests located therein. This AMI shall
continue for a term of seven (7) years, or the expiration of the last Jointly
Owned AMI Interest, whichever is earlier.
2.2 "Interests and Share of Costs of the Parties" The Parties hereby
agree to own, as their Initial Interest, and agree to bear the costs set out
below, as follows:
<TABLE>
Party Initial Interest Share of Costs Share of Costs
Prior to Leasehold for Leasehold
Acquisition Acquisition and
Subsequent Operations
<S> <C> <C> <C>
Parallel .5312500 .5000000 .5312500
TAC .0625000 .0000000 .0625000
Allegro .0312500 .0000000 .0312500
Beta .2000000 .2666666 .2000000
Pease .1250000 .1666667 .1250000
Four-Way .0200000 .0266667 .0200000
Meyer .0100000 .0133333 .0100000
Wes-Tex .0200000 .0266667 .0200000
</TABLE>
Parallel, TAC and Allegro have acquired and presently own the Existing AMI
Interests. Beta, Pease, Four-Way, Meyer and Wes-Tex agree that their respective
costs in the Existing AMI Interests shall be based on $100.00 per net mineral
acre on seismic and lease options, and cost plus 33.33333% on oil and gas leases
and seismic permits. The Existing AMI Interests are presently comprised of
approximately 73,102.116 net mineral acres covered by seismic and lease option,
522.896 net mineral acres covered by seismic permit where cost was $5,228.96,
and 146.890 net mineral acres covered by oil and gas lease where cost was
$7,344.50. Based on the foregoing, the current total cost of Existing AMI
Interests is Seven million three hundred twenty-two thousand seven hundred
eighty-five and 06/100 Dollars ($7,322,785.06). Beta, Pease, Four-Way, Meyer and
Wes-Tex agree to pay Parallel their Proportionate Share of such cost, as
referenced above, in the Existing AMI Interests upon execution of this
Agreement. Beta, Pease, Four-Way, Meyer and Wes-Tex hereby agree that Parallel
shall have the exclusive right to acquire AMI Interests through December 1,
1997, and that same shall be treated in all respects as Existing AMI Interests.
Beta, Pease, Four-Way, Meyer and Wes-Tex agree that they shall be obligated to
accept such interests in the same percentages and pay Parallel for such
interests at the same terms stated herein. Payment for such interests shall be
due within fifteen (15) days after receipt of written notice as set out in
Article 2.4. Interests available to Parallel which costs exceed those stated
above shall be offered to the other Parties as per the procedure set forth in
Article 2.4 below.
2.3 Recording. Parallel agrees to file for record in the office of the
Jackson County Clerk, all Memorandums of Seismic and Lease Options covering the
Existing AMI Interests within fifteen (15) days of the date this Agreement is
executed by all Parties.
2.4 Subsequently Acquired AMI Interests. Any Party acquiring a
Subsequently Acquired AMI Interest, directly or indirectly, shall notify the
other Parties hereto. Such notice shall set forth (i) a description of the
interest acquired, (ii) the total cost of the interest, including all land and
legal costs associated with the acquisition thereof, (iii) the Proportionate
Share of the notified Party and its cost therein, and (iv) any other pertinent
terms of such acquisition, including, but not limited to, copies of the
instruments of conveyance, copies of leases, assignments, subleases, farmout and
other contracts affecting the AMI Interests, copies of paid drafts or checks,
itemized invoices of actual costs incurred by the acquiring Party. Parties shall
have fifteen (15) days from the receipt of this notice to acquire their
Proportionate Share of the Subsequently Acquired AMI Interest. A Party's
election to acquire shall be given in writing and accompanied by Party's payment
of its total cost for such interest. If a Party's election and payment are not
received within such fifteen (15) day period, it shall be conclusively presumed
that such Party has elected not to acquire its Proportionate Share of the
Subsequently Acquired AMI Interest and has forfeited its right thereto. A
Party's failure to exercise its option as to any particular notice shall not
constitute a waiver or release of its right to acquire any interest described in
any subsequent notice delivered hereunder.
2.5 Existing Burdens. Each Party's interest under this agreement in the
AMI Interests, and oil and gas leases which may be acquired thereunder, shall be
subject to and burdened by its proportionate share of all existing operating
agreements, existing and pending pooling and spacing orders and all Lease
Burdens other than Subsequently Created Burdens. Parallel, TAC and Allegro
represent that they have not burdened the Existing AMI Interests acquired or to
be acquired with any liens or Subsequently Created Burdens. Each Party agrees to
perform its Proportionate Share of the obligations under the AMI Interests
acquired pursuant to this Agreement and the other obligations described in this
Article, but only to the extent that such obligations arise after the
acquisition of such AMI Interests by such Party.
2.6 Expiring Options. If any lease options covered hereby will expire
prior to completion of the Seismic Operations contemplated herein, Operator
shall use its best efforts to renew and/or extend such option for a sufficient
period of time to complete the proposed 3-D Seismic Operations thereon and
exercise the lease option thereunder. Payment for extensions and/or renewals
shall be due within fifteen (15) days after receipt of an invoice therefore.
2.7 Assignments. Upon receipt of payment for AMI Interests, Parallel
shall assign to the Parties hereto their Initial Interest in such AMI Interests.
Such assignment shall be recordable in form, shall be subject to this agreement,
shall provide for warranty by, through and under Parallel, but not otherwise,
and shall be subject to the terms and provisions of the AMI Interests assigned.
Notwithstanding such assignments, the Parties hereby grant Operator full right
and authority to conduct Leasehold Acquisition on their behalf under the
provisions of Article 4 hereof.
2.8 AMI Interests Located In and Out of Existing AMI. If an AMI
Interest is found to cover lands located both within and outside the existing
AMI, the entirety of such AMI Interest shall be offered to the other Parties
under the acquisition, notice and election provisions of Article 2.4, and if the
other Parties elect to participate in the acquisition thereof, the description
of the lands comprising the AMI shall be deemed to be amended to extend and
cover all of the lands covered by such interest. The option of the Parties to
participate in the acquisition of such interests shall be limited to the
entirety of the interest acquired.
2.9 Option to Cash Call: Notwithstanding the provisions for the
payments required in Articles 2.2, 2.4, 2.6 and 4, Operator shall the right to
require the other Parties to pay their Proportionate Share of the estimated
costs as provided in such Articles in advance. Such advanced payment shall be
paid within fifteen (15) days of receipt of an invoice therefor.
ARTICLE 3. SEISMIC OPERATIONS
3.1 Existing Seismic, Geologic and Other Subsurface Data. Except as
prohibited by law or by agreements with third parties, upon request, each Party
owning existing seismic data pertaining to lands located within the AMI shall
furnish copies of all such data to the other Parties, together with any geologic
or other subsurface data that could be useful in the interpretation thereof. The
Party receiving such data shall bear the expense of copying it. The Party owning
any seismic or other data which may not be copied, due to legal prohibitions or
by agreements with third parties, shall, upon request, make such data available
to the Party requesting such data during normal business hours.
3.2 Ownership of Pre-Existing Data. Ownership of the Pre-Existing Data
and all reprocessed Pre-Existing Data shall at all times remain vested in the
Party who contributes the Pre-Existing Data for use by the Parties, and the
Parties agree to acknowledge such ownership, including, but not limited to, the
filing with any appropriate governmental authority of such acknowledgment. The
Parties expressly reserve the right to sell, license, or trade the Pre-Existing
Data which it contributes hereunder, to the extent that it has such right to
sell, license or trade the Pre-Existing Data, through its own efforts, or
through the efforts of others duly authorized by such Party and the benefits and
advantages, including monetary consideration, which such Party receives as a
result of such activities shall be the sole property of such Party.
3.3 Management of the 3-D Seismic Operations. Operator shall
exclusively manage and conduct the 3-D Seismic Operations contemplated hereunder
and all operations incident thereto, including, but not limited to, the
acquisition of all geoscientific data, the performance of all 3-D seismic
surveys and other geoscientific work incident thereto, and, subject to the
Operating Agreements, the drilling of all wells on the Prospects. Operator shall
perform all such work through employees, representatives, and contractors of its
selection, and Operator shall and does hereby agree to utilize reasonable
prudence and economic judgment in contracting with third party contractors or
subcontractors. As manager of 3-D Seismic Operations, Operator shall devote such
of its time, attention and efforts to the conduct thereof as it shall in good
faith determine reasonably necessary, but shall otherwise be free to engage in
and pursue all other current and future business projects, programs, prospects,
opportunities, investments and activities without obligation of any kind to or
right of participation therein by the other Parties hereto. In performing its
duties under this Agreement, Operator shall serve as an independent contractor
and not as an agent or employee of the other Parties hereto. Operator shall
utilize reasonable prudence and economic judgment in incurring costs, and shall
further conduct the 3-D Seismic Operations and perform all of its duties under
this Agreement as a reasonable, prudent operator, in a good and workmanlike
manner with due diligence and dispatch, in accordance with good oilfield and
exploratory practice, and in compliance with all applicable laws and
regulations, BUT SHALL HAVE NO LIABILITY TO THE OTHER PARTIES HERETO OR ANY
OTHER OWNER OF RIGHTS OR INTERESTS UNDER THIS AGREEMENT FOR ANY LOSSES SUSTAINED
OR LIABILITIES INCURRED IN CONNECTION WITH THE 3-D SEISMIC OPERATIONS AND/OR THE
CONDUCT OF ANY ACTIVITIES UNDER OR CONTEMPLATED BY THIS AGREEMENT, SAVE AND
EXCEPT AS MAY BE OCCASIONED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF
OPERATOR. EACH OF THE OTHER PARTIES HERETO ACKNOWLEDGES THAT (A) IT HAS READ AND
AGREED TO THE FOREGOING EXCULPATION OF OPERATOR AS A NEGOTIATED AND BARGAINED
FOR ASPECT OF THIS TRANSACTION, (B) THIS EXCULPATION PROVISION IS CONSPICUOUS.
3.4 Ongoing and Future Seismic Operations. The Parties agree to conduct
such operations on all or substantially all of the Contract Lands. The Parties
may, subject to their unanimous written consent, agree to reduce or increase the
acreage on which such operations will be conducted when technical, legal or
operational considerations indicate that such reduction or increase is
warranted. In any event, the Parties agree to pay Operator their respective
shares of the total costs of the 3-D Seismic Operations conducted on all land
covered by AMI Interests as set forth in Article 2.2 hereof. Payment for 3-D
Seismic Operations shall be due within fifteen (15) days after receipt of each
invoice therefore. Operator shall furnish the other Parties hereto with copies
of all applicable contracts and other information pertaining to all 3-D Seismic
Operations conducted hereunder. The Parties shall own their Proportionate Share
of the geophysical data obtained by and resulting from the 3-D Seismic
Operations conducted on the Contract Lands, including, but not limited to all
tapes, seismic sections and any and all other data generated by such 3-D Seismic
Operations. Each Party shall have access to such data and shall receive copies
thereof. The Parties agree to work together in a spirit of cooperation and in
good faith in planning and causing the 3-D Seismic Operations to be conducted as
contemplated herein as well as in sharing the data collected therefrom and the
interpretations thereof. Such interpretations, by any Party, shall in no way be
deemed a representation to any other Party that such interpretations are
accurate or correct. Such interpretations shall be given merely as a means of
sharing such Party's analysis and ideas regarding such data.
3.5 Confidentiality of Seismic Data. Except as provided below, each
Party agrees to keep all seismic data obtained pursuant to Article 3.3
confidential for a period of seven (7) years from the date hereof. After the
expiration of five (5) years from the date hereof any Party may sell the data it
acquired pursuant to Article 3.3. Each Party owning an interest in such data
shall receive its Proportionate Share of the proceeds of any such sale. Any data
acquired from another Party pursuant to Article 3.1 shall forever be kept
confidential by the Parties; provided, however, that the Party who originally
contributed such data may share, sell or otherwise dispose of such data that
does not pertain to a Prospect to a third party after the expiration of one (1)
year from the date hereof, and the other Parties shall have no interest in the
proceeds from such sale. Notwithstanding the foregoing, a Party may disclose
seismic data to (A) a prospective purchaser or farmee of such Party's interest,
provided (i) such disclosure is limited to the Prospect under consideration for
sale or farmout, (ii) the prospective purchaser or farmee must review such data
in the affected Party's offices and may not copy such data until such time as it
has acquired or earned an interest in the Contract Lands, and (iii) such
prospective purchaser or farmee must execute a confidentiality agreement to
prevent further disclosure and unauthorized use of such data; or (B) a third
party who is entitled thereto pursuant to the terms of a lease, lease option or
seismic permit. Any Party may disclose such data to its agents, staff,
representatives and consultants in the normal conduct of its business.
3.6 Review of Seismic Data. The Parties agree to cooperate in good
faith in reviewing the seismic data acquired hereunder. Such data should be
reviewed by the Parties as soon as practicable after the data is available so
that the Parties can make decisions regarding the exercise of lease options.
ARTICLE 4. LEASEHOLD ACQUISITION
As soon as is practicable after the 3-D seismic data has been processed
and interpreted, Operator shall, in its sole discretion, acquire leases within
the AMI, and the Parties agree to pay their Proportionate Share of cost therein,
including all land and legal costs associated with the acquisition thereof. Upon
receipt of payment, which shall be due within fifteen (15) days after receipt of
each invoice therefore, Operator shall promptly execute and deliver recordable
assignments to the Parties reflecting their respective interests in the leases
acquired.
ARTICLE 5. FORFEITURE
Payments due hereunder for Existing AMI Interests under Article 2.2,
renewals and/or extensions acquired under Article 2.6, Seismic Operations under
Article 3.4, and Lease Acquisition under Article 4 shall be mandatory. A Party
failing to timely make any such payment shall be in breach of this Agreement;
and, in the event such payment is not received by Operator, or other Party
entitled thereto, within sixty (60) days after written demand therefore has been
received, such Party shall, without the necessity of any further proceeding,
forfeit all of its right, title and interest under this Agreement to Operator.
Any Party so forfeiting its interest hereunder, hereby appoints Operator as its
Agent and Attorney-in-Fact for the sole and limited purpose of executing an
instrument of conveyance vesting title to the forfeited interest in Operator and
filing same in the appropriate public records.
ARTICLE 6. SALE, FARMOUT OR OTHER DISPOSITION
OF AMI INTERESTS TO A THIRD PARTY
Any Party may sell, assign, farmout or otherwise dispose of all or any
portion of its interest acquired pursuant to or in connection with this
Agreement without consent of any other Party. Operator shall be furnished with a
copy of the assignment or other instrument disposing of such interest within ten
(10) days from the date thereof.
ARTICLE 7. SUBSEQUENT OPERATIONS
7.1 Operator. Operator shall have the right, subject to the terms and
provisions of the attached Operating Agreement, to be the Operator for all
operations conducted within the AMI, and the Parties hereby agree to execute
separate Operating Agreements designating Operator, as Operator, as required.
7.2 Operating Agreement. Except as provided herein, all operations
conducted within the AMI shall be conducted in accordance with the terms of an
Operating Agreement substantially in the form attached hereto as Exhibit "B". A
separate Operating Agreement shall be executed for each Prospect, with the first
well drilled in such Prospect to be designated as the "Initial Well". The share
of costs which each Party must bear and the interest of each Party in the
production from each well drilled under the Prospect Operating Agreement will be
determined on a well-by-well basis in accordance with the terms hereof as
modified by the terms of the Operating Agreement. In the event of conflict
between the terms and provisions hereof and those contained in the Operating
Agreement, the terms and provisions hereof shall prevail.
7.3 Designation of Prospects. As soon as practicable after the data has
been processed and interpreted, Operator shall furnish the other Parties with
maps which reflect designated Prospects, together with a description of the
seismic data, prospective feature and any interpretative data or other maps upon
which such Prospect is based.
7.4 Non-Consent Election on Initial Well. If a Party elects not to
participate in the drilling of the Initial Well in a Prospect, such Party shall
relinquish all of its rights and interests in that Prospect to the Parties
participating in the drilling of such well which elect to acquire their
Proportionate Share of the relinquished interest. A condition precedent to such
relinquishment shall be the reimbursement of the relinquishing Party's leasehold
cost in the relinquished interest by the Parties electing to participate in such
interest, which cost shall be specifically limited to that incurred by such
Party under Article 4 hereof. A Party so relinquishing its interest shall
promptly execute a recordable assignment of its relinquished interest to the
Parties entitled thereto, which interest shall be free of any Subsequently
Created Burdens. Upon receipt of such assignment the Parties receiving the
relinquished interest shall reimburse the relinquishing Party their respective
Proportionate Share of the relinquishing Party's cost in the interest so
assigned.
7.5 Limitation on Number of Wells Drilling. Not more than three (3)
wells shall be drilling on the Contract Lands at any time unless it is necessary
to commence a well in order to perpetuate a lease or otherwise satisfy the terms
of a continuous drilling obligation.
ARTICLE 8. MISCELLANEOUS
8.1 Legal Relationship. This agreement is not intended to create, and
shall not be construed to create, a partnership or other relationship whereby
one party is liable for the actions or debts of another party; it being
understood and agreed that the rights and liabilities of all parties are several
and not joint or collective.
8.2 Entire Agreement. This agreement constitutes the entire agreement
among the parties hereto with respect to the subject matter hereof, superseding
any and all prior agreements, understandings, discussions, negotiations and
commitments of any kind.
8.3 Amendment. The provisions of this agreement may be amended,
supplemented, or waived only if in writing signed by all parties hereto.
8.4 Construction. The parties to this agreement all acknowledge and
agree that this agreement was drafted jointly by them, and that in the event of
any ambiguity, this agreement shall not be construed against any of them on the
basis of the fact or presumption that one party had a greater or lesser hand in
the drafting of the agreement than another party, but rather the terms shall be
given a reasonable interpretation.
8.5 Governing Law. Except to the extent preempted by federal law, this
agreement is to be construed and interpreted in accordance with, and governed
by, the laws of the State of Texas.
8.6 Binding Agreement. This agreement shall bind and inure to the
benefit of the parties hereto and their respective heirs, successors, legal
representatives and assigns.
8.7 Section and Subsection Headings. The article, section and
subsection headings contained in this agreement are for the purpose of
convenience only and are not intended to define or limit the contents hereof or
otherwise be considered in construing and enforcing this agreement.
8.8 Waivers. Any failure by any party hereto to comply with any of its
obligations, agreements or conditions herein contained may be waived in writing,
but not in any other manner, by the party to whom such compliance is owed. No
waiver of, or consent to a change in, any provision of this agreement shall be
deemed to be, or shall constitute, a waiver of or consent to a change in the
provisions hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver unless expressly provided.
8.9 Further Assurances. The parties hereto agree to deliver or cause to
be delivered to each other at all such times as shall be reasonably required,
all such additional instruments, agreements, and other documents, and to perform
all such actions, as any of them may reasonably request for the purpose of
performing any provision of this agreement or evidencing the transactions
contemplated by this agreement.
8.10 Severability. If any term or provision of this agreement or any
application of this agreement is held invalid or unenforceable, the remainder of
this agreement and any other application of the terms and provisions of this
agreement shall not be affected by that holding, but shall be valid and
enforceable.
8.11 Exhibits. All exhibits attached hereto or referred to in this
agreement are incorporated herein and made a part of this agreement.
8.12 Term. The term of this agreement shall be seven (7) years from the
date hereof or until the last expiration of the last Jointly Owned AMI Interest
acquired hereunder, whichever is earlier, with the exception of the
confidentiality requirements of Article 3.5 which shall survive and extend past
that period.
8.13 Notices. All notices, consents and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given (a)
when delivered by hand, (b) when sent by facsimile (with receipt confirmed),
provided that a copy is promptly mailed thereafter by first class postage
prepaid registered or certified mail, return receipt requested, (c) when
received by the addressee, if sent by Express Mail, Federal Express, other
express delivery service (receipt requested) or by such other means as the
Parties named below may agree from time to time or (d) five (5) days after being
mailed in the USA, by first class postage prepaid registered or certified mail,
return receipt requested; in each case to the appropriate address and telecopier
number set forth below (or to such other address or telecopier number as a Party
may designate as to itself by notice to the other Parties).
Parallel Petroleum Corporation
110 N. Marienfield, Suite 465
Midland , TX 79701
Attn: Larry Oldham
Telephone Number: (915)684-3727
Telecopier Number: (915)684-3905
TAC Resources, Inc.
P. O. Box 206
Victoria, TX 77902
Attn: Bill Bishop
Telephone Number: (512)573-4969
Telecopier Number: (512)573-9840
Allegro Investments, Inc.
1908 N. Laurent, Suite 370
Victoria, TX 77901
Attn: Chris Thompson
Telephone Number: (512)573-5619
Telecopier Number: (512)576-9643
Beta Oil & Gas, Inc.
901 Dove Street, Suite 230
Newport Beach, CA 92660
Attn: Steve Antry
Telephone Number: (714)752-5212
Telecopier Number: (714)752-5757
Pease Oil and Gas Company
751 Horizon Court, Suite 203
P. O. Box 60219
Grand Junction, CO 81506-8758
Attn: Willard Pease, Jr.
Telephone Number: (970)245-5917
Telecopier Number: (970)243-8840
Four-Way Texas L.L.C.
c/o Kissing Bridge Company
11296 State Road
Glenwood, NY 14069
Attn: Bob James
Telephone Number: (716)592-4963
Telecopier Number: (716)592-4228
Meyer Financial Services, Inc.
1005 Liberty Building
Buffalo, NY 14202
Attn: Paul Meyer
Telephone Number: (716)842-2215
Telecopier Number: (716)842-2220
Wes-Tex Drilling Corp.
P. O. Box 3739
Abilene, TX 79604
Attn: Myrle Greathouse
Telephone Number: (915)677-9121
Telecopier Number: (915)677-5140
Each Party shall have the right upon giving thirty (30) days prior written
notice to the other Parties, in the manner herein provided, to change its
address and telecopier number for the purpose of notice.
8.14 Transfers Subject to this Agreement. Any sale, agreement, transfer
or other disposition of an interest in the Contract Lands, however accomplished,
either voluntarily or involuntarily, by operations of law or otherwise, shall be
subject to the terms of this Agreement. Any instruments which convey any
interest in the Contract Lands shall be made expressly subject to the Agreement.
8.15 Counterparts. This agreement may be executed in multiple
counterparts, all of which when taken together shall constitute one and the same
agreement.
8.16 Public Announcements. Each Party hereto agrees that prior to
making any public announcement or statement with respect to the transaction
contemplated in this Agreement, the Party desiring to make such public
announcement or statement shall consult with the other Parties hereto and
exercise their best efforts to (i) agree upon the text of a joint public
announcement or statement to be made by the Parties, (ii) obtain approval of the
other Parties hereto to the extent of a public announcement or statement to be
made solely by one of the Parties, as the case may be. Approval shall be
requested pursuant to Article 8.13 hereof, and any such announcement or
statement shall be deemed approved if no reply to the contrary is received
within twenty-four (24) hours (Saturdays, Sundays and federal legal holidays
excluded) after receipt of such request by the other Parties. Nothing contained
in this paragraph shall be construed to require any Party to obtain approval of
the other Parties hereto to disclose information with respect to the transaction
contemplated by this Agreement to any governmental body to the extent required
by applicable law or by any applicable rules.
8.17 Expenses. Except as specified herein and as the Parties may
otherwise agree, each Party shall be solely responsible for all expenses
incurred by it in connection with any and all transactions that are contemplated
by this Agreement.
8.18 Force Majeure. Should any Party be prevented, wholly or in part,
from complying with any express or implied obligation of this Agreement (other
than the obligation to make money payments), from conducting any operations
provided for under this Agreement, including by way of illustration but not
limitation, the conducting of the 3-D Seismic Operations by reason of scarcity
of or inability to obtain or to use labor, water, equipment or materials in the
open market or transportation thereof from any cause (other than financial)
beyond the control of such Party, or operation of "Force Majeure, any State or
Federal law or any order, ruling or regulation of governmental authority, then
while so prevented, such Party's obligation to comply with such provision or
obligation shall be suspended, and such Party shall not be liable in damages or
otherwise to the other Parties for failure to comply therewith, provided that
the Party claiming suspension shall give written notice and full particulars of
the reason of such inability to perform its obligations to the other Parties
within thirty (30) days after the occurrence of the cause relied on by the Party
claiming suspension.
8.19 Arbitration. The Parties agree that any and all disputes arising
under or relating to this Agreement shall be referred to arbitration pursuant to
the commercial rules of arbitration of the American Arbitration Association.
Venue for such arbitration shall be Houston, Texas USA.
IN WITNESS WHEREOF, this agreement is executed on the date first above written.
Parallel Petroleum Corporation
By:________________________________
Larry C. Oldham, President
TAC Resources, Inc.
By:________________________________
Bill Bishop, President
Allegro Investments, Inc.
By:________________________________
John R. Thompson, President
Beta Oil & Gas, Inc.
By:________________________________
Steve Antry, President
Pease Oil and Gas Company
By:________________________________
Willard Pease, Jr., President
Four-Way Texas, L.L.C.
By:________________________________
Robert M. James, President
Meyer Financial Services, Inc.
By:________________________________
Paul Meyer, President
Wes-Tex Drilling Corp.
By:________________________________
Myrle Greathouse,
Chairman of the Board
EXPLORATION AGREEMENT
Texana Project
Jackson County, Texas
This Exploration Agreement (the "Agreement") is entered into as of July
15, 1997, by and between TAC Resources, Inc. ("TAC"), Parallel Petroleum
Corporation ("Parallel"), Unit Petroleum Company ("Unit"), Beta Oil & Gas, Inc.
("Beta") and Pease Oil and Gas Company ("Pease") all hereinafter collectively
referred to as (the "Parties").
WITNESSETH:
WHEREAS, TAC has acquired seismic and lease options, oil and gas leases
and seismic permits covering an area of approximately 25,000 acres located in
Jackson County, Texas, as depicted on the plat attached hereto as Exhibit "A".
WHEREAS, Parallel, Unit, Beta and Pease propose to acquire undivided
interests in and to the rights granted by such agreements, and to participate in
conducting a 3-D seismic program upon the lands covered thereby.
NOW, THEREFORE, in consideration of the premises, the mutual agreements
and obligations set forth herein, and the mutual benefits to be received
hereunder, the Parties agree as follows:
ARTICLE 1. DEFINITIONS
For the purpose of this Agreement, the following terms shall have the
meanings designated below:
1.1 Area of Mutual Interest "AMI" means the lands outlined on the plat
attached hereto as Exhibit "A".
1.2 "AMI Interests" means any interest in the oil, gas or other
minerals in and under the AMI, including leasehold interests under oil and gas
leases, oil and gas lease options, interests of the farmee under farmout
agreement, and other such interests or rights similar or dissimilar to those
mentioned, including, but not limited to, seismic permits. AMI Interest does
not, however, include nonpossessory interests in the oil, gas and other minerals
in and under the AMI, such as royalty interests, overriding royalty interests,
net profits interests, or other such interests whether similar or dissimilar to
those mentioned.
1.3 "Existing AMI Interests" means the Seismic and Lease Options, Oil
and Gas Leases and Seismic Permits which have been acquired by TAC as of August
1, 1997.
1.4 "Subsequently Acquired AMI Interests" means all AMI Interests
acquired after August 1, 1997.
1.5 "Contract Lands" means lands located within the AMI which are
covered by AMI Interests.
1.6 "Initial Interest" means a Party's ownership in Existing AMI
Interests, and the amount of interest a party is entitled to acquire in
Subsequently Acquired AMI Interests, subject to the provisions hereof.
1.7 "Jointly Owned AMI Interest" means an AMI Interest in which the
Parties own an interest pursuant to the terms of this Agreement.
1.8 "Lease Burden" means any royalty, overriding royalty interest, net
profits interest, production payment, carried interest, reversionary working
interest or other charges upon a leasehold interest or the production therefrom.
1.9 "Losses" means any and all losses, liabilities, claims, demands,
penalties, fines, settlements, damages, actions, or suits of whatsoever kind and
nature (but expressly excluding consequential damages), whether or not subject
to litigation, including without limitation (I) claims or penalties arising from
products liability, negligence, statutory liability or violation of any
applicable law or in tort (strict, absolute or otherwise) and (ii) loss of or
damage to any property, and all reasonable out-of-pocket costs, disbursements
and expenses (including, without limitation, legal, accounting, consulting and
investigation expenses and litigation costs) imposed on, incurred by or asserted
against an indemnified Party in connection therewith.
1.10 "Operator" shall have the meaning as it is given in the Operating
Agreement in the form attached hereto as Exhibit "B".
1.11 "Party" or "Parties" means TAC, Parallel, Unit, Beta and Pease and
any other person or entity, singularly or as a group, which hereafter becomes a
party hereto or is otherwise subject to the terms hereof.
1.12 "Pre-Existing Data" means such data which includes, but is not
limited to: seismic records and related seismic data, electronic and mud logs,
cores and core analyses, field studies (less and except any proprietary
methodology or process used by any Party in such studies), production tests,
engineering, geological, geophysical, paleontological data, interpretive data
and maps prepared by any Party in existence as of the date of this Agreement.
1.13 "Proportionate Share" except as otherwise provided for herein,
shall be calculated by dividing a Party's Initial Interest by the aggregate of
the Initial Interests of all Parties who are to share an interest or an
obligation pursuant to the terms hereof. In circumstances where one or more
Parties do not participate in such an interest or obligation, "Proportionate
Share" shall be determined by dividing a Party's Initial Interest by the total
Initial Interests of all Party's participating therein.
1.14 "Prospect" means an area within the AMI which is designated as a
Prospect pursuant to Article 4.1 hereof and within which there is expected to
occur, based on information developed as a result of 3-D Seismic Operations, a
commercial accumulation of oil and/or gas in a specific structural or
stratigraphic trap.
1.15 "Subsequently Created Burden" means a lease burden which is
created by a party subsequent to its acquisition of the interest which is
subject to the burden, except the overriding royalty interest provided for in
Article 2.5 hereof.
1.16 "Costs Prior to Leasehold Acquisition" means all costs of any type
whatsoever which pertain to this project, covering lands located within or
outside the AMI, including, but not limited to costs of seismic permits, seismic
and lease options, oil and gas leases, and renewals thereof, land brokerage,
legal costs, surface damages, surveying, seismic acquisition and interpretation,
etc., which are incurred prior to Leasehold Acquisition conducted under the
provisions of Article 4 hereof.
1.17 Other terms are defined elsewhere in this Agreement.
ARTICLE 2. INTERESTS AND SHARE OF COSTS OF THE PARTIES
2.1 Area of Mutual Interest. The Parties hereby establish an Area of
Mutual Interest "AMI", same to be comprised of the area outlined on the attached
Exhibit "A", and which shall cover AMI Interests located therein. This AMI shall
continue for a term of three (3) years, or the expiration of the last Jointly
Owned AMI Interest, whichever is earlier.
2.2 "Interests and Share of Costs of the Parties" The Parties hereby
agree to own, as their Initial Interest; and agree to bear the costs set out
below, as follows:
<TABLE>
Party Initial Interest Share of Costs Share of Costs for
Prior to Leasehold Leasehold Acquisition
Acquisition and Subsequent Operations
<S> <C> <C> <C>
TAC .2500000 .0625000 .2500000
Parallel .1750000 .2187500 .1750000
Unit .2500000 .3125000 .2500000
Beta .2000000 .2500000 .2000000
Pease .1250000 .1562500 .1250000
</TABLE>
TAC has acquired and now owns the Existing AMI Interests. Parallel, Unit, Beta
and Pease agree that their costs in the Existing AMI Interests shall be based on
$75.00 per net mineral acre on seismic and lease options, and cost plus 25% on
oil and gas leases and seismic permits. The Existing AMI Interests are presently
comprised of approximately 23,183.908 net mineral acres covered by seismic and
lease option, and 300.5 net mineral acres covered by seismic permit where cost
was $25.00/net mineral acre. Based on the foregoing, the current total cost of
Existing AMI Interests is One million seven hundred forty-eight thousand one
hundred eighty-three and 73/100 Dollars ($1,748,183.73). Parallel, Unit, Beta
and Pease agree to pay TAC their portion of such cost, as referenced above, in
the Existing AMI Interests upon execution of this Agreement. Parallel, Unit,
Beta and Pease hereby agree that TAC shall have the exclusive right to acquire
AMI Interests through August 1, 1997, and that same shall be treated in all
respects as Existing AMI Interests. Parallel, Unit, Beta and Pease agree that
they shall be obligated to accept such interests in the same percentages and pay
TAC for such interests at the same terms stated herein. Payment for such
interests shall be due within fifteen (15) days after receipt of written notice
as set out in Article 2.4. Interests available to TAC which costs exceed those
stated above shall be offered to the other Parties as per the procedure set
forth in Article 2.4 below.
2.3 Recording. TAC agrees to file for record in the office of the
Jackson County Clerk, all Memorandums of Seismic and Lease Options covering the
Existing AMI Interests within fifteen (15) days of the date this Agreement is
executed by all Parties.
2.4 Subsequently Acquired AMI Interests. Any Party acquiring a
Subsequently Acquired AMI Interest, directly or indirectly, shall notify the
other Parties hereto. Such notice shall set forth (i) a description of the
interest acquired, (ii) the total cost of the interest, including all land and
legal costs associated with the acquisition thereof, (iii) the Proportionate
Share of the notified Party and its cost therein, and (iv) any other pertinent
terms of such acquisition, including, but not limited to, copies of the
instruments of conveyance, copies of leases, assignments, subleases, farmout and
other contracts affecting the AMI Interests, copies of paid drafts or checks,
itemized invoices of actual costs incurred by the acquiring Party. Parties shall
have fifteen (15) days from the receipt of this notice to acquire their
Proportionate Share of the Subsequently Acquired AMI Interest. A Party's
election to acquire shall be given in writing and accompanied by Party's payment
of its total cost for such interest. If a Party's election and payment are not
received within such fifteen (15) day period, it shall be conclusively presumed
that such Party has elected not to acquire its Proportionate Share of the
Subsequently Acquired AMI Interest and has forfeited its right thereto. A
Party's failure to exercise its option as to any particular notice shall not
constitute a waiver or release of its right to acquire any interest described in
any subsequent notice delivered hereunder.
2.5 Existing Burdens. Each Party's interest under this agreement in the
AMI Interests, and oil and gas leases which may be acquired thereunder, shall be
subject to and burdened by its proportionate share of all existing operating
agreements, existing and pending pooling and spacing orders and all Lease
Burdens other than Subsequently Created Burdens. TAC represents that, except as
hereinafter provided, it has not burdened the Existing AMI Interests acquired or
to be acquired with any liens or Subsequently Created Burdens. Each Party agrees
to perform its Proportionate Share of the obligations under the AMI Interests
acquired pursuant to this Agreement and the other obligations described in this
Article, but only to the extent that such obligations arise after the
acquisition of such AMI Interests by such Party. Notwithstanding the foregoing,
the Parties agree that they shall bear, their Proportionate Share of an
overriding royalty interest to be owned by Bayou Black Royalty Company, Inc. on
all oil and gas leases acquired pursuant to this Agreement (including leases
acquired by exercising lease options in which the Parties own an interest, and
in extensions and renewals thereof ) equal to two percent (2%) of eight-eighths
(8/8ths), provided that such overriding royalty interest shall be reduced in the
proportion that the undivided mineral interest covered by any such lease bears
to the entire mineral interest in the lands covered by such lease.
2.6 Expiring Options. If any lease options covered hereby will expire
prior to completion of the Seismic Operations contemplated herein, Operator
shall use its best efforts to renew such option for a sufficient period of time
to complete the proposed 3-D Seismic Operations thereon and exercise the lease
option thereunder. The acquisition of such renewal shall be handled under the
acquisition, notice and election provisions of Article 2.4.
2.7 Assignments. Upon receipt of payment for AMI Interests, TAC shall
assign to the Parties hereto their Initial Interest in and to all right, title
and interest owned by TAC in such AMI Interests. Such assignment shall be
recordable in form, shall be subject to this agreement, shall provide for
warranty by, through and under TAC, but not otherwise, and shall be subject to
the terms and provisions of the AMI Interests assigned.
2.8 AMI Interests Located In and Out of Existing AMI. If an AMI
Interest is found to cover lands located both within and outside the existing
AMI, the entirety of such AMI Interest shall be offered to the other Parties
under the acquisition, notice and election provisions of Article 2.3 and Article
2.4, and if the other Parties elect to participate in the acquisition thereof,
the description of the lands comprising the AMI shall be deemed to be amended to
extend and cover all of the lands covered by such interest. The option of the
Parties to participate in the acquisition of such interests shall be limited to
the entirety of the interest acquired.
ARTICLE 3. SEISMIC OPERATIONS
3.1 Existing Seismic, Geologic and Other Subsurface Data. Except as
prohibited by law or by agreements with third parties, upon request, each Party
owning existing seismic data pertaining to lands located within the AMI shall
furnish copies of all such data to the other Parties, together with any geologic
or other subsurface data that could be useful in the interpretation thereof. The
Party receiving such data shall bear the expense of copying it. The Party owning
any seismic or other data which may not be copied, due to legal prohibitions or
by agreements with third parties, shall, upon request, make such data available
to the Party requesting such data during normal business hours.
3.2 Ownership of Pre-Existing Data. Ownership of the Pre-Existing Data
and all reprocessed Pre-Existing Data shall at all times remain vested in the
Party who contributes the Pre-Existing Data for use by the Parties, and the
Parties agree to acknowledge such ownership, including, but not limited to, the
filing with any appropriate governmental authority of such acknowledgment. The
Parties expressly reserve the right to sell, license, or trade the Pre-Existing
Data which it contributes hereunder, to the extent that it has such right to
sell, license or trade the Pre-Existing Data, through its own efforts, or
through the efforts of others duly authorized by such Party and the benefits and
advantages, including monetary consideration, which such Party receives as a
result of such activities shall be the sole property of such Party.
3.3 Management of the 3-D Seismic Operations. Operator shall
exclusively manage and conduct the 3-D Seismic Operations contemplated hereunder
and all operations incident thereto, including, but not limited to, the
acquisition of all geoscientific data, the performance of all 3-D seismic
surveys and other geoscientific work incident thereto (other than analysis
and/or interpretation), and, subject to the Operating Agreements, the drilling
of all wells on the Prospects. Operator shall perform all such work through
employees, representatives, and contractors of its selection, and Operator shall
and does hereby agree to utilize reasonable prudence and economic judgment in
contracting with third party contractors or subcontractors. As manager of 3-D
Seismic Operations, Operator shall devote such of its time, attention and
efforts to the conduct thereof as it shall in good faith determine reasonably
necessary, but shall otherwise be free to engage in and pursue all other current
and future business projects, programs, prospects, opportunities, investments
and activities without obligation of any kind to or right of participation
therein by the other Parties hereto. In performing its duties under this
Agreement, Operator shall serve as an independent contractor and not as an agent
or employee of the other Parties hereto. Operator shall utilize reasonable
prudence and economic judgment in incurring costs, and shall further conduct the
3-D Seismic Operations and perform all of its duties under this Agreement as a
reasonable, prudent operator, in a good and workmanlike manner with due
diligence and dispatch, in accordance with good oilfield and exploratory
practice, and in compliance with all applicable laws and regulations, BUT SHALL
HAVE NO LIABILITY TO THE OTHER PARTIES HERETO OR ANY OTHER OWNER OF RIGHTS OR
INTERESTS UNDER THIS AGREEMENT FOR ANY LOSSES SUSTAINED OR LIABILITIES INCURRED
IN CONNECTION WITH THE 3-D SEISMIC OPERATIONS AND/OR THE CONDUCT OF ANY
ACTIVITIES UNDER OR CONTEMPLATED BY THIS AGREEMENT, SAVE AND EXCEPT AS MAY BE
OCCASIONED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF OPERATOR. EACH OF
THE OTHER PARTIES HERETO ACKNOWLEDGES THAT (A) IT HAS READ AND AGREED TO THE
FOREGOING EXCULPATION OF OPERATOR AS A NEGOTIATED AND BARGAINED FOR ASPECT OF
THIS TRANSACTION, (B) THIS EXCULPATION PROVISION IS CONSPICUOUS.
3.4 Ongoing and Future Seismic Operations. The Parties agree to conduct
such operations on all or substantially all of the Contract Lands. The Parties
may, subject to the unanimous written consent of all Parties, agree to reduce or
increase the acreage on which such operations will be conducted when technical,
legal or operational considerations indicate that such reduction or increase is
warranted. In any event, the Parties agree to pay their respective shares of the
total costs of the 3-D Seismic Operations conducted on all land covered by AMI
Interests as set forth in Article 2.2 hereof. Operator shall furnish the other
Parties hereto with copies of all applicable contracts and other information
pertaining to all 3-D Seismic Operations conducted hereunder. The Parties shall
own their Proportionate Share of the geophysical data obtained by and resulting
from the 3-D Seismic Operations conducted on the Contract Lands, including, but
not limited to all tapes, seismic sections and any and all other data generated
by such 3-D Seismic Operations. Each Party shall have access to such data and
shall receive copies thereof. The Parties agree to work together in a spirit of
cooperation and in good faith in planning and causing the 3-D Seismic Operations
to be conducted as contemplated herein as well as in sharing the data collected
therefrom and the interpretations thereof. Such interpretations, by any Party,
shall in no way be deemed a representation to any other Party that such
interpretations are accurate or correct. Such interpretations shall be given
merely as a means of sharing such Party's analysis and ideas regarding such
data.
3.5 Confidentiality of Seismic Data. Except as provided below, each
Party agrees to keep all seismic data obtained pursuant to Article 3.3
confidential for a period of five (5) years from the date hereof. After the
expiration of five (5) years from the date hereof any Party may sell the data it
acquired pursuant to Article 3.2. Each Party owning an interest in such data
shall receive its Proportionate Share of the proceeds of any such sale. Any data
acquired from another Party pursuant to Article 3.1 shall forever be kept
confidential by the Parties; provided, however, that the Party who originally
contributed such data may share, sell or otherwise dispose of such data that
does not pertain to a Prospect to a third party after the expiration of one (1)
year from the date hereof, and the other Parties shall have no interest in the
proceeds from such sale. Notwithstanding the foregoing, a Party may disclose
seismic data to (A) a prospective purchaser or farmee of such Party's interest,
provided (i) such disclosure is limited to the Prospect under consideration for
sale or farmout, (ii) the prospective purchaser or farmee must review such data
in the affected Party's offices and may not copy such data until such time as it
has acquired or earned an interest in the Contract Lands, and (iii) such
prospective purchaser or farmee must execute a confidentiality agreement to
prevent further disclosure and unauthorized use of such data; or (B) a third
party who is entitled thereto pursuant to the terms of a lease, lease option or
seismic permit. Any Party may disclose such data to its agents, staff,
representatives and consultants in the normal conduct of its business.
3.6 Review of Seismic Data. The Parties agree to cooperate in good
faith in reviewing the seismic data acquired hereunder. Such data should be
reviewed by the Parties as soon as practicable after the data is available so
that the Parties can make decisions regarding the exercise of lease options.
ARTICLE 4. LEASEHOLD ACQUISITION
4.1 Designation of Prospects. As soon as practicable after the data has
been processed and interpreted, Operator shall establish Prospects within the
AMI. Operator shall designate such Prospects on a map which reflects the outline
of the lands to be included within each such Prospect. Promptly after
designating such Prospects, Operator shall furnish the other Parties with such
maps which reflect the designated Prospects, together with a description of the
seismic data, prospective feature and any interpretative data or other maps upon
which such Prospect is based. The other Parties shall have fifteen (15) days
after receipt of such notice in which to elect in writing whether or not they
will participate in the designated Prospects. If a Party fails to furnish
Operator with its written election to participate within such fifteen (15) day
period, it shall be conclusively presumed to have elected not to participate in
the Prospect or Prospects so designated. Any Party not participating in a
Prospect shall promptly assign all of its interest in the lands lying within
such Prospect to the Parties participating in such Prospect. A Party's election
hereunder may be on a Prospect by Prospect basis, and a Party's failure to
participate in any or all Prospects contained in any particular notice shall not
constitute a waiver or release of the right to participate in a Prospect or
Prospects described in any subsequent notice delivered hereunder.
4.2 Acquisition of Leases Within Prospects. The Parties participating
in a Prospect will acquire and pay their Proportionate Share for leases covering
each Prospect upon the terms provided in the applicable lease options or upon
such other terms as the Parties may mutually agree upon if some lands within the
Prospect are unleased and not covered by a lease option. As soon as possible
after designating Prospects, Operator shall provide written notice to the
Parties participating in such Prospects of the leases to be acquired therein,
which notice shall set forth (i) a description of the lands and interests to be
acquired, (ii) the total cost of such interests, including all land and legal
costs associated with the acquisition thereof, (iii) the Proportionate Share of
the notified Party and its cost therein, and (iv) any other pertinent terms of
such acquisition, including, but not limited to, copies of the instruments and
other contracts affecting same. Payment for such leases shall be due within
fifteen (15) days after receipt of the above notice.
4.3 Minimum Acreage Obligation. In the event the lease options covering
a Prospect require minimum acreage selection in excess of the acreage included
within the boundaries of the Prospect, then each Party participating in such
Prospect must acquire and pay its Proportionate Share of the cost of the acreage
necessary to fulfill such minimum acreage selection requirements.
ARTICLE 5. SALE, FARMOUT OR OTHER DISPOSITION
OF AMI INTERESTS TO A THIRD PARTY
Any Party may sell, assign, farmout or otherwise dispose of all or any
portion of its interest acquired pursuant to or in connection with this
Agreement without consent of any other Party.
ARTICLE 6. SUBSEQUENT OPERATIONS
6.1 Operator. Operator shall have the right, subject to the terms and
provisions of the attached Operating Agreement, to be the Operator for all
operations conducted within the AMI, and the Parties hereby agree to execute
separate Operating Agreements designating Operator, as Operator, as required.
6.2 Operating Agreement. Except as provided herein, all operations
conducted within the AMI shall be conducted in accordance with the terms of an
Operating Agreement substantially in the form attached hereto as Exhibit "B". A
separate Operating Agreement shall be executed for each Prospect, with the first
well drilled in such Prospect to be designated as the "Initial Well". The share
of costs which each Party must bear and the interest of each Party in the
production from each well drilled under the Prospect Operating Agreement will be
determined on a well-by-well basis in accordance with the terms hereof as
modified by the terms of the Operating Agreement. In the event of conflict
between the terms and provisions hereof and those contained in the Operating
Agreement, the terms and provisions hereof shall prevail.
6.3 Limitation on Number of Wells Drilling. Not more than three (3)
wells shall be drilling on the Contract Lands at any time unless it is necessary
to commence a well in order to perpetuate a lease or otherwise satisfy the terms
of a continuous drilling obligation.
6.4 Non-Consent Election on Initial Well. If a Party elects not to
participate in the drilling of the Initial Well in a Prospect established under
Article 4.1 hereof, such Party shall relinquish all of its rights and interests
in that Prospect to the Parties participating in the drilling of such well. A
Party so relinquishing its interest shall promptly execute a recordable
assignment of its relinquished interest to the Parties entitled thereto. The
interest so assigned shall be free of any Subsequently Created Burdens.
ARTICLE 7. MISCELLANEOUS
7.1 Indemnification with Regard to Existing Matters. TAC agrees to
fully indemnify, defend and hold harmless all other Parties to this Agreement
against all Losses arising out of, in connection with, or relating to TAC's sole
ownership or operation of the Existing AMI prior to the date of this Agreement,
including, but not limited to, breach of contract or monetary damage, regardless
of fault or strict liability imposed by statute, rule or regulation, so long and
only in the event that all actions, activities and/or conduct giving rise to the
claim for such Losses relate to activities of TAC which occurred in the period
prior to the date of this Agreement.
7.2 Legal Relationship. This agreement is not intended to create, and
shall not be construed to create, a partnership or other relationship whereby
one party is liable for the actions or debts of another party; it being
understood and agreed that the rights and liabilities of all parties are several
and not joint or collective.
7.3 Entire Agreement. This agreement constitutes the entire agreement
among the parties hereto with respect to the subject matter hereof, superseding
any and all prior agreements, understandings, discussions, negotiations and
commitments of any kind.
7.4 Amendment. The provisions of this agreement may be amended,
supplemented, or waived only if in writing signed by all parties hereto.
7.5 Construction. The parties to this agreement all acknowledge and
agree that this agreement was drafted jointly by them, and that in the event of
any ambiguity, this agreement shall not be construed against any of them on the
basis of the fact or presumption that one party had a greater or lesser hand in
the drafting of the agreement than another party, but rather the terms shall be
given a reasonable interpretation.
7.6 Governing Law. Except to the extent preempted by federal law, this
agreement is to be construed and interpreted in accordance with, and governed
by, the laws of the State of Texas.
7.7 Binding Agreement. This agreement shall bind and inure to the
benefit of the parties hereto and their respective heirs, successors, legal
representatives and assigns.
7.8 Section and Subsection Headings. The article, section and
subsection headings contained in this agreement are for the purpose of
convenience only and are not intended to define or limit the contents hereof or
otherwise be considered in construing and enforcing this agreement.
7.9 Waivers. Any failure by any party hereto to comply with any of its
obligations, agreements or conditions herein contained may be waived in writing,
but not in any other manner, by the party to whom such compliance is owed. No
waiver of, or consent to a change in, any provision of this agreement shall be
deemed to be, or shall constitute, a waiver of or consent to a change in the
provisions hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver unless expressly provided.
7.10 Further Assurances. The parties hereto agree to deliver or cause
to be delivered to each other at all such times as shall be reasonably required,
all such additional instruments, agreements, and other documents, and to perform
all such actions, as any of them may reasonably request for the purpose of
performing any provision of this agreement or evidencing the transactions
contemplated by this agreement.
7.11 Severability. If any term or provision of this agreement or any
application of this agreement is held invalid or unenforceable, the remainder of
this agreement and any other application of the terms and provisions of this
agreement shall not be affected by that holding, but shall be valid and
enforceable.
7.12 Exhibits. All exhibits attached hereto or referred to in this
agreement are incorporated herein and made a part of this agreement.
7.13 Term. The term of this agreement shall be three (3) years from the
date hereof or until the last expiration of the last Jointly Owned AMI Interest
acquired hereunder, whichever is earlier, with the exception of the
confidentiality requirements of Article 3.5 which shall survive and extend past
that period.
7.14 Notices. All notices, consents and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given (a)
when delivered by hand, (b) when sent by facsimile (with receipt confirmed),
provided that a copy is promptly mailed thereafter by first class postage
prepaid registered or certified mail, return receipt requested, (c) when
received by the addressee, if sent by Express Mail, Federal Express, other
express delivery service (receipt requested) or by such other means as the
Parties named below may agree from time to time or (d) five (5) days after being
mailed in the USA, by first class postage prepaid registered or certified mail,
return receipt requested; in each case to the appropriate address and telecopier
number set forth below (or to such other address or telecopier number as a Party
may designate as to itself by notice to the other Parties).
TAC Resources, Inc.
P. O. Box 206
Victoria, TX 77902
Attn: Bill Bishop
Telephone Number: (512)573-4969
Telecopier Number: (512)573-9840
Parallel Petroleum Corporation
110 N. Marienfield, Suite 465
Midland , TX 79701
Attn: Larry Oldham
Telephone Number: (915)684-3727
Telecopier Number: (915)684-3905
Unit Petroleum Company
24 Greenway Plaza, Suite 501
Houston, TX 77046
Attn: Jim Kahlden
Telephone Number: (713)960-8870
Telecopier Number: (713)960-8801
Beta Oil & Gas, Inc.
901 Dove Street, Suite 230
Newport Beach, CA 92660
Attn: Steve Antry
Telephone Number: (714)752-5212
Telecopier Number: (714)752-5757
Pease Oil and Gas Company
751 Horizon Court, Suite 203
P. O. Box 60219
Grand Junction, CO 81506-8758
Attn: Willard Pease, Jr.
Telephone Number: (970)245-5917
Telecopier Number: (970)243-8840
Each Party shall have the right upon giving thirty (30) days prior written
notice to the other Parties, in the manner herein provided, to change its
address and telecopier number for the purpose of notice.
7.15 Transfers Subject to this Agreement. Any sale, agreement, transfer
or other disposition of an interest in the Contract Lands, however accomplished,
either voluntarily or involuntarily, by operations of law or otherwise, shall be
subject to the terms of this Agreement. Any instruments which convey any
interest in the Contract Lands shall be made expressly subject to the Agreement.
7.16 Counterparts. This agreement may be executed in multiple
counterparts, all of which when taken together shall constitute one and the same
agreement.
7.17 Public Announcements. Each Party hereto agrees that prior to
making any public announcement or statement with respect to the transaction
contemplated in this Agreement, the Party desiring to make such public
announcement or statement shall consult with the other Parties hereto and
exercise their best efforts to (i) agree upon the text of a joint public
announcement or statement to be made by the Parties, (ii) obtain approval of the
other Parties hereto to the extent of a public announcement or statement to be
made solely by one of the Parties, as the case may be. Approval shall be
requested pursuant to Article 7.14 hereof, and any such announcement or
statement shall be deemed approved if no reply to the contrary is received
within twenty-four (24) hours (Saturdays, Sundays and federal legal holidays
excluded) after receipt of such request by the other Parties. Nothing contained
in this paragraph shall be construed to require any Party to obtain approval of
the other Parties hereto to disclose information with respect to the transaction
contemplated by this Agreement to any governmental body to the extent required
by applicable law or by any applicable rules.
7.18 Expenses. Except as specified herein and as the Parties may
otherwise agree, each Party shall be solely responsible for all expenses
incurred by it in connection with any and all transactions that are contemplated
by this Agreement.
7.19 Force Majeure. Should any Party be prevented, wholly or in part,
from complying with any express or implied obligation of this Agreement (other
than the obligation to make money payments), from conducting any operations
provided for under this Agreement, including by way of illustration but not
limitation, the conducting of the 3-D Seismic Operations by reason of scarcity
of or inability to obtain or to use labor, water, equipment or materials in the
open market or transportation thereof from any cause (other than financial)
beyond the control of such Party, or operation of "Force Majeure, any State or
Federal law or any order, ruling or regulation of governmental authority, then
while so prevented, such Party's obligation to comply with such provision or
obligation shall be suspended, and such Party shall not be liable in damages or
otherwise to the other Parties for failure to comply therewith, provided that
the Party claiming suspension shall give written notice and full particulars of
the reason of such inability to perform its obligations to the other Parties
within thirty (30) days after the occurrence of the cause relied on by the Party
claiming suspension.
7.20 Arbitration. The Parties agree that any and all disputes arising
under or relating to this Agreement shall be referred to arbitration pursuant to
the commercial rules of arbitration of the American Arbitration Association.
Venue for such arbitration shall be Houston, Texas USA.
IN WITNESS WHEREOF, this agreement is executed on the date first above written.
TAC Resources, Inc.
By:_________________________________
Bill Bishop, President
Parallel Petroleum Corporation
By:________________________________
Larry C. Oldham, President
Unit Petroleum Company
By:________________________________
Phillip M. Keeley, Sr.,
Sr. Vice-President
Beta Oil & Gas, Inc.
By:_________________________________
Steve Antry, President
Pease Oil and Gas Company
By:_________________________________
Willard Pease, Jr., President
EXPLORATION AGREEMENT
This Agreement is made and entered into this 1st day of November,
1997, by and between PARALLEL PETROLEUM CORPORATION ("Parallel"), SUE-ANN
PRODUCTION COMPANY ("Sue-Ann"), TAC RESOURCES, INC.("TAC"), ALLEGRO INVESTMENTS,
INC. ("Allegro"), (said Parties being sometimes hereinafter collectively
referred to as "Parallel/Sue-Ann"), BETA OIL & GAS, INC. ("Beta"), PEASE OIL
& GAS COMPANY ("Pease"), MEYER FINANCIAL SERVICES, INC. ("Meyer"), and
FOUR-WAY TEXAS, L.L.C. ("Four-Way") (said parties being sometimes hereinafter
collectively referred to as "Beta/Pease");
WITNESSETH:
WHEREAS, Parallel/Sue-Ann have identified the lands outlined on the map
attached as Exhibit "A" hereto, except the lands and depths covered by the
Leases described on Exhibit "B" hereto (the "Excluded Lands") , as an area that
they desire to jointly explore for the production of oil and gas;
WHEREAS, Parallel/Sue-Ann have acquired the Leases and Seismic Options
(as those terms are defined below) described in Exhibits "C-1" and "C-2" hereto
(such Leases and Options being collectively referred to as the "Existing Leases
and Options") covering the interests in the lands described in such agreements;
WHEREAS, Parallel/Sue-Ann desire to conduct 3-D Seismic Operations
across most of the Contract Lands; and
WHEREAS, Beta, Pease, Meyer and Four-Way desire to acquire the
undivided interests in the Existing Leases and Options and participate in the
3-D Seismic Operations to be conducted by Parallel/Sue-Ann, all as described
below;
NOW, THEREFORE, in consideration of the premises, the mutual covenants,
agreements and obligations set forth herein, and the mutual benefits to be
received hereunder, the Parties hereto agree as follows:
ARTICLE 1. DEFINITIONS
For the purposes of this Agreement, the following terms shall have the
meanings designated below:
<PAGE>
1.1 "3-D Seismic Operations" means all operations which are necessary
to produce a three-dimensional seismic data grid over the portion of the
Contract Lands on which the Parties conduct such operations, including the
processing and interpretation of such data.
1.2 "Contract Lands" shall mean the lands lying within the area
outlined by the bold, solid line on Exhibit "A" hereto, except the Excluded
Lands; provided, however, the "Contract Lands" may be enlarged or contracted to
the same extent that all of the Parties agree to expand or contract the 3-D
Seismic Operations to be conducted pursuant to Section 4.2 hereof.
1.3 "Existing Leases and Options" means those Leases and Seismic
Options (as such terms are defined below) which are described in Exhibits "C-1"
and "C-2" hereto, including any such Leases and Options which are renewed or
extended pursuant to Article 2.3 hereof.
1.4 "Initial Interest" means a Party's initial interest hereunder as
set forth in Article 3.1 hereof. 1.5 "Jointly-Owned Lease" means a
Lease (as defined below) in which two or more of the Parties own an
interest pursuant
to the terms of this Agreement.
1.6 "Lease" means oil and gas lease, oil, gas and mineral lease,
unleased mineral interest, or sublease thereof, operating rights or other rights
or partial interest therein, which authorize the owner thereof to explore any
portion of the Contract Lands for (and/or produce) oil and/or gas therefrom, and
the right to acquire any of the foregoing. This term also includes top leases,
farmout agreements or any other type of agreement under which the right to
explore and/or develop a portion of the Contract Lands can be earned including
Seismic Options (as defined below).
1.7 "Lease Burden" means any production sale contract, lien,
encumbrance, royalty, overriding royalty interest, net profits interest,
production payment, carried interest, reversionary working interest or other
charge upon a leasehold interest or the production therefrom.
1.8 "Net Mineral Acres" are calculated by multiplying the undivided
interest in the minerals covered by a Lease or Seismic Option times the number
of gross acres covered by such Lease or Seismic Option times a Party's undivided
interest in such Lease or Seismic Option.
1.9 "Party" means either Parallel, Sue-Ann, TAC, Allegro, Beta, Pease,
Meyer or Four-Way or any other person or entity which hereafter becomes a party
hereto or is otherwise subject to the terms hereof.
<PAGE>
1.10 "Proportionate share", except as otherwise provided for
hereinbelow, shall be calculated by dividing a Party's Initial Interest
percentage by the aggregate of the Initial Interests of all of the Parties who
are to share an interest or an obligation pursuant to the terms hereof. In
circumstances where one or more Parties do not participate in a project or
acquisition, "proportionate share" shall be determined with reference to the
Parties who participate in such project or acquisition.
1.11 "Prospect" means an area, designated as a Prospect pursuant to
Article 5.1 hereof, within which there is expected to occur, based upon the
information developed as a result of 3-D Seismic Operations, a commercial
accumulation of oil and/or gas in a specific structural or stratigraphic trap.
1.12 "Seismic Option" or "Option" means an agreement which entitles a
Party to conduct 3-D Seismic Operations on a portion of the Contract Lands with
an option to acquire a Lease covering all or a portion of such lands.
1.13 "Subsequently Created Burden" means a Lease Burden which is
created by a Party subsequent to its acquisition of the interest which is
subject to the burden.
1.14 Other terms are defined elsewhere in this Agreement.
ARTICLE 2. ACQUISITION OF INTEREST IN EXISTING LEASES AND OPTIONS
2.1 Initial Acquisition. Beta, Pease, Meyer and Four-Way agree to
acquire from Parallel the following interest set forth opposite their name in
the Existing Leases and Options:
Beta ..................................................20%
Pease ...............................................12.5%
Meyer ..................................................2%
Four-Way ...............................................1%
For such interests, Beta, Pease, Meyer and Four-Way agree to pay Parallel the
sum of One Hundred Thirty-Three and 33/100 Dollars ($133.33) per Net Mineral
Acre covered by the respective undivided interests in the Existing Leases and
Options so acquired by such Parties. Parallel has represented to Beta, Pease,
Meyer and Four-Way that the Existing Leases and Options described in Exhibits
"C-1" and "C-2" hereto cover at least 17,654 Net Mineral Acres. Accordingly,
Beta, Pease, Meyer and Four-Way initially shall pay Parallel the sum set forth
opposite their name for the interest each acquires under this Article 2.1:
Beta ..........................................$470,773.00
Pease .........................................$294,216.00
<PAGE>
Meyer ..........................................$47,077.00
Four-Way .......................................$23,539.00
Beta, Pease, Meyer and Four-Way shall pay Parallel such sums upon the complete
execution hereof. Upon receipt of such payment, each such Party will be assigned
its respective percentage interest (as set forth above in this Article 2.1) in
the Existing Leases and Options. In the event it is determined that the Existing
Leases and Options cover less than 17,654 Net Mineral Acres, Parallel shall
refund to Beta, Pease, Meyer and Four-Way the amounts that such Parties overpaid
for their respective Initial Interests acquired under this Article 2.1. If it is
determined that the Existing Leases and Options cover more than 17,654 Net
Mineral Acres, Beta, Pease, Meyer and Four-Way shall pay Parallel an additional
sum equal to their proportionate share of the number of Net Mineral Acres
covered by the Existing Leases and Options in excess of 17,654 Net Mineral
Acres.
2.2 Subsequently-Acquired Leases and Options. All of the Parties hereto
agree to acquire and pay their proportionate share (as provided hereinbelow) of
the cost of any Leases or Seismic Options, including a Lease or an option in
renewal of an expiring Lease or Option as provided in Article 2.3 (a
"Subsequently-Acquired Lease or Option"), which are acquired by a Party from an
unaffiliated third party prior to the conclusion of 3-D Seismic Operations. For
the purposes of this Article 2.2, the proportionate shares of the interests and
costs of a Subsequently-Acquired Lease or Option of the Parties comprising
Parallel/Sue-Ann shall be as follows:
Parallel.................................................79.125%
Sue-Ann..................................................16.875%
TAC.......................................................1.000%
Allegro...................................................3.000%
<PAGE>
Beta, Pease, Meyer and Four-Way agree to purchase their proportionate share of
such Subsequently-Acquired Leases or Options from Parallel for a price equal to
the actual total cost thereof plus one-third (1/3) of such total cost thereof.
The Party initially acquiring such interest shall promptly notify the other
Parties comprising Parallel/Sue-Ann of the acquisition of such interest. Such
notice shall contain the same information as is required in Article 6.3 for an
AMI Interest. The other Parties comprising Parallel/Sue-Ann shall promptly
reimburse the acquiring Party for their proportionate share of the actual total
cost thereof. Upon receipt of a Party's proportionate share of the costs of
acquiring such interest, the acquiring party shall promptly assign to such Party
its proportionate share of such interest (as set forth above in this Article
2.2). Upon Parallel's acquisition of its proportionate share of a
Subsequently-Acquired Lease or Option, it shall notify Beta, Pease, Meyer and
Four-Way of such acquisition and invoice them for their proportionate share
thereof at a price equal to the total cost of acquiring such Lease or Option
plus one-third (1/3) of such total cost. Upon receipt of the purchase price from
such Party Parallel shall promptly assign to such Party its proportionate share
of such interest.
2.3 Expiring Options. If any Leases or Options covered hereby will
expire prior to the completion of the 3-D Seismic Operations contemplated herein
and the exercise of the Options to acquire Leases under such Options, the Party
originally acquiring such expiring Lease or Option shall use its best efforts to
renew such Leases or Options for a sufficient period of time to complete the
proposed 3-D Seismic Operations thereon and exercise any such Options
thereunder. All such renewals shall be treated in the same manner as set forth
in Article 2.2, above, pertaining to Subsequently-Acquired Leases and Options.
ARTICLE 3. INTERESTS OF THE PARTIES
3.1 Initial Interests of the Parties. The Initial Interests of
the Parties hereunder will be as follows:
--------------------------------
Parallel.......................................... 43.625%
Sue-Ann........................................... 16.875%
TAC.............................................. 1.000%
Allegro.......................................... 3.000%
Beta.............................................. 20.000%
Pease............................................. 12.500%
Meyer .......................................... 2.000%
Four-Way ....................................... 1.000%
<PAGE>
All Existing Leases and Options will be owned by the Parties in accordance with
their respective Initial Interests. All Subsequently-Acquired Seismic Options
will be owned in the same proportions as the Parties' Initial Interests,
provided that each Party has paid its proportionate share of the cost thereof as
provided in Section 2.2. If a Party fails to pay for its proportionate share of
a Subsequently-Acquired Seismic Option, such Seismic Option will be owned by the
Parties who paid their original proportionate share of the costs thereof. Such
Parties will pay their proportionate share of the total cost thereof and such
interests shall be owned by such Parties in the proportions that their
respective Initial Interests hereunder bear to the aggregate of such Parties'
Initial Interests.
3.2 Existing Burdens. Each Party's interest under this Agreement, in
the Leases and Seismic Options covered hereby and the Leases acquired and to be
acquired pursuant hereto, shall be subject to and burdened by its proportionate
share of all existing operating agreements, existing and pending pooling and
spacing orders and all Lease Burdens other than Subsequently Created Burdens.
Each Party hereto hereby assumes and agrees to perform its proportionate share
of the obligations under all Leases and Seismic Options and the Leases acquired
pursuant to this Agreement and the other obligations described in this Article,
but only to the extent that such obligations arise after the acquisition of such
Leases and Seismic Options by such Party.
ARTICLE 4. SEISMIC OPERATIONS
4.1 Existing Seismic, Geologic and Other Subsurface Data. Except as
prohibited by law or by agreements with third parties, upon request, each Party
owning existing seismic data pertaining to the Contract Lands shall furnish
copies of all of such data to any Party requesting such data, together with any
geologic or other subsurface data that could be useful in the interpretation of
such seismic data. The Party requesting such data shall bear the expense of
copying it. The Party owning any seismic or other data which may not be copied
shall, upon request, make such data available to the Party requesting such data
during normal business hours.
4.2 3-D Seismic Operations. Parallel shall serve as Operator in
conducting all 3-D Seismic Operations. All Parties agree to conduct such
operations on all or substantially all of the Contract Lands. The Parties may,
by unanimous agreement, reduce the number of sections on which such operations
will be conducted (for example, where technical, legal or operational
considerations indicate that such reduction is warranted). Beta and Pease desire
to participate in such 3-D Seismic Operations. The Parties shall bear the
following proportions of the total cost of all 3-D Seismic Operations:
Parallel........................................ 31.79166%
Sue-Ann......................................... 16.87500%
TAC............................................ 1.00000%
Allegro....................................... 3.00000%
Beta............................................ 26.66667%
<PAGE>
Pease........................................... 16.66667%
Meyer.......................................... 2.66667%
Four-Way ..................................... 1.33333%
Subject to Article 5.1.1, the data that is obtained from such 3-D Seismic
Operations shall be owned by the Parties in the proportions of their Initial
Interests hereunder. The Parties agree to work together in a spirit of
cooperation and in good faith in planning and causing the 3-D Seismic Operations
to be conducted as contemplated and provided herein, as well as in sharing the
data collected therefrom and the interpretations thereof. Such interpretations
shall in no way be deemed a representation that such interpretations are
accurate or correct. Such interpretations shall be given merely as a means of
sharing such Party's analysis and ideas regarding such data.
4.3 Confidentiality of Seismic Data. Except as provided below, each
Party agrees to keep all seismic data obtained pursuant to Article 4.2
confidential for a period of seven (7) years from the date hereof. After the
expiration of seven (7) years from the date hereof, any Party may sell the data
it acquired pursuant to Article 4.2. Each Party owning an interest in such data
shall receive its proportionate share of the proceeds of any such sale. Any data
acquired from another Party pursuant to Article 4.1 shall forever be kept
confidential by the Parties; provided, however, that the Party who originally
contributed such data may share, sell or otherwise dispose of such data that
does not pertain to a Prospect to a third party after the expiration of one (1)
year from the date hereof, and the other Parties shall have no interest in the
proceeds from such sale. Notwithstanding the foregoing, a Party may disclose
seismic data to a prospective purchaser or farmee of such Party's interest,
provided (i) such disclosure is limited to the Prospect under consideration for
sale or farmout, (ii) the prospective purchaser or farmee must review such data
in the affected Party's offices and may not copy such data, and (iii) such
prospective purchaser or farmee must execute a confidentiality agreement to
prevent further disclosure and unauthorized use of such data.
4.4 Review of Seismic Data. The Parties agree to cooperate in good
faith in reviewing the seismic data obtained hereunder. Such data should be
reviewed by the Parties as soon as practicable after the data for a particular
area is available so that the Parties can make a decision as to whether or not
to exercise any of the Options to acquire Leases under any of the Seismic
Options pertaining to such area.
<PAGE>
ARTICLE 5. EXERCISE OF OPTIONS
5.1 Designation of Prospects. The Parties shall cooperate in good faith
to establish Prospects within the Contract Lands as soon as practicable after
the data for an area has been processed and interpreted. Any Party may designate
a Prospect within seven (7) years from the date hereof by giving the other
Parties written notice of such designation. Such notice shall contain a map
which reflects the outline of the lands to be included within such Prospect,
together with a description of the seismic data, prospective feature and any
interpretative data or maps upon which such Prospect is based. The Parties
receiving notice of the designation of a Prospect shall have fourteen (14) days
after receipt of such notice in which to elect in writing whether or not they
will participate in such Prospect. Any Party which has not furnished the Party
designating a Prospect with its written election to participate in a Prospect
within said fourteen-day period conclusively shall be presumed to have elected
not to participate in the Prospect so designated. Any Party not participating in
a Prospect shall promptly assign all of its interest in the Options or Leases
covering lands lying within such Prospect to the Parties participating in such
Prospect, in the proportions of their respective interests therein.
<PAGE>
5.1.1 Extension; Additional Seismic Operations. In the event a
Prospect includes lands lying on the border of the Contract Lands, one or more
of the Parties participating in such Prospect may propose the conducting of
additional 3-D Seismic Operations to obtain seismic data on lands lying outside
of the Contract Lands but reasonably anticipated to be underlain by the feature
for which such Prospect was designated. In the event all Parties
participating in such Prospect agree to participate in the additional seismic
operations, the Prospect shall be enlarged to cover the lands included in
such proposed additional shooting and all such Parties shall bear their
proportionate share of the costs of such additional seismic operations. A
Party participating in the original Prospect may elect not to participate in
expanding the Prospect by conducting additional 3-D Seismic Operations, in
which event the lands covered by the additional 3-D Seismic Operations shall
constitute a separate Prospect in which only the Parties conducting such
operations will participate. Notwithstanding the foregoing, the expanded
Prospect shall not include any lands on which (i) the Parties electing to
participate in the expanded Prospect are unable to obtain a Lease or an Option
from a third party or (ii) a Party owns a Lease or Option which has been
committed to an agreement with a third party prior to the date hereof.
5.2 Acquisition of Leases Within Prospects. The Parties
participating in a Prospect will acquire and pay for Leases covering lands
within such Prospects upon the terms provided for in the applicable
Seismic Options or upon such other terms as the Parties can mutually agree upon
if some Leases are not governed by the terms of a Seismic Option.
5.3 Minimum Acreage Obligation. In the event the Leases acquired by
Parties electing to participate in Prospects do not satisfy the minimum acreage
selection requirements under one or more of the Seismic Options, then each Party
must acquire and pay for its proportionate share of the Leases which must be
acquired in order to fulfill any such minimum acreage selection requirements.
ARTICLE 6. AREA OF MUTUAL INTEREST
6.1 Establishment of Area of Mutual Interest. The Contract Lands are
hereby established as an Area of Mutual Interest for a term of seven (7) years
from the date of this Agreement. Thereafter, those lands lying within a Prospect
which has been designated as provided in Article 5.1 shall be established as an
Area of Mutual Interest for the Parties then owning an interest in such Prospect
for as long as any Jointly-Owned Lease covering lands within such Prospect is in
force and effect as to such land.
6.2 Acquisition of Interest. After all of the 3-D Seismic Operations
have been completed (through the interpretation of the data obtained therefrom),
except as otherwise provided in this Article 6, if during the term of the Area
of Mutual Interest a Party (the "Acquiring Party") acquires from an unaffiliated
third party a Lease covering lands lying within such Area of Mutual Interest (an
"AMI Interest"), the other Parties (the "Non-Acquiring Parties") shall have the
first and prior right to acquire their proportionate share of such interest upon
the terms set forth below. If an AMI Interest covers lands lying within a
Prospect in which a Party has elected not to participate pursuant to Articles
5.1 or 8.4 hereof, such Party shall offer one hundred percent (100%) of such
interest to the Parties participating in such Prospect.
<PAGE>
6.3 Notification. The Acquiring Party shall notify the Non-Acquiring
Parties in writing of the acquisition of an AMI Interest. Such notice shall set
forth (i) a description of the interest acquired, (ii) the total cost of the
interest, including all land and legal costs associated with the acquisition
thereof, (iii) the proportionate share of such interest that the Non-Acquiring
Parties are entitled to acquire, and (iv) any other pertinent terms of such
acquisition, including copies of such Leases, assignments, bank drafts or other
evidence of payment for such interest.
6.4 Election Period. The Non-Acquiring Parties shall have ten (10) days
from the receipt of such notice to elect to acquire. If any Non-Acquiring Party
elects to acquire its proportionate share of the AMI Interest, such election
shall be given in writing to the Acquiring Party within ten (10) days after
receipt of notice of the acquisition of the interest. If the Acquiring Party has
not received an election in writing from a Non-Acquiring Party within said
ten-day period, such Non-Acquiring Party conclusively shall be presumed to have
elected not to acquire its proportionate share of the AMI Interest.
6.5 Binding Obligation. An election by a Non-Acquiring Party to acquire
its proportionate share of a AMI Interest shall constitute a binding obligation
of such Non-Acquiring Party to pay its proportionate share of the total cost of
the AMI Interest within thirty (30) days from the date that the Non-Acquiring
Party receives notice of the acquisition of such interest. If the Non-Acquiring
Party elects to acquire its proportionate share of an AMI Interest, the notice
of acquisition shall be deemed to be an invoice for the Non-Acquiring Party's
proportionate share of the total cost of such interest. If a Party fails to pay
its proportionate share of the cost of such an AMI Interest within said
thirty-day period, such Party shall then be conclusively deemed to have elected
not to acquire its proportionate share of such interest and the Acquiring
Parties shall have the right to acquire their proportionate share of such
interest.
6.6 Assignment of AMI Interest. The Acquiring Party shall execute and
deliver an Assignment to each Non-Acquiring Party which elects to acquire its
proportionate share of an AMI Interest as soon as practical after receiving the
Non-Acquiring Party's proportionate share of the total cost thereof.
<PAGE>
6.7 Renewal and Extension Leases. Except as required in Article 2.3, if
a Party shall at any time acquire a renewal or extension of a Jointly-Owned
Lease (a "Renewal or Extension Lease"), each Non-Acquiring Party shall have the
first and prior right to acquire its proportionate share thereof. The
acquisition of a Renewal or Extension Lease pursuant to this Article 6.7 shall
be treated just as if it was an AMI Interest under Article 6.3 hereof. For the
purposes of this provision, the term "Renewal or Extension Lease" shall mean any
Lease which is acquired before the expiration of a prior Jointly-Owned Lease or
taken or contracted for within one (1) year from the expiration of a
Jointly-Owned Lease, but shall not include an Option acquired in renewal of an
Expiring Option as provided in Article 2.3.
ARTICLE 7. SALE, FARMOUT OR OTHER DISPOSITION OF AN INTEREST TO A
THIRD PARTY
Any Party may farm out or otherwise dispose of all or a portion of its
interest in any Jointly-Owned Lease to a third party. The Party desiring to
sell, farm out or otherwise dispose of such interest must notify the other
Parties in writing of all of the terms of such trade.
ARTICLE 8. SUBSEQUENT OPERATIONS
8.1 Operator. Sue-Ann shall have the first and prior right to be the
Operator for all operations conducted on the Contract Lands except the 3-D
Seismic Operations, provided that it has elected to participate in the
acquisition of the Leases covering the portion of the Contract Lands on which
such operations are to be conducted. Except as otherwise hereinabove provided, a
majority in interest of the Parties participating in a well may mutually agree
that any of them or some third party may serve as Operator for any such well.
Except as otherwise agreed by the Parties, any Party participating in a Prospect
may, by forty-five (45) days' prior written notice to the other participating
Parties, cause the commencement of drilling operations on the Initial Well to be
drilled on such Prospect; subject, however, to the provisions of Article 8.3.
8.2 Operating Agreement. Except as provided herein, all operations
conducted on the Contract Lands shall be conducted in accordance with the terms
of an Operating Agreement substantially in the form attached as Exhibit "D"
hereto. A separate Operating Agreement shall be executed for each Prospect, with
the first well drilled in such Prospect to be designated as the Initial Well. A
commencement date for such Initial Well will be included in the Operating
Agreement upon execution only if agreed to by all participating Parties at that
time; otherwise, the commencement date will be determined pursuant to Article
8.1. The share of costs which each Party must bear and the interest of each
Party in the production from each well drilled under the Operating Agreement
will be determined on a well-by-well basis.
8.3 Limitation on Number of Wells Drilling. Only two (2) exploratory
wells shall be drilling on the Contract Lands at any time unless it is necessary
to commence a well while another well is being drilled in order to perpetuate a
Lease or otherwise satisfy the terms of a continuous drilling obligation.
<PAGE>
8.4 Non-Consent Election on the Drilling of a Well. If a Party elects
not to participate in the drilling of any well in a Prospect established under
Section 5.1 hereof, such Party shall relinquish all of its rights and interests
in that Prospect proportionately to the other Parties who elect to participate
in the drilling of such well save and except such non-consenting Party's
interest in any wells in such Prospect in which such Party participated in
drilling and the proration unit or spacing unit therefor, provided that the well
in which such Party elected not to participate is commenced within the time
prescribed provided in the applicable Operating Agreement.
ARTICLE 9. REMEDIES FOR NON-PAYMENT
All of the payments required to be made by a Party hereunder shall be
made on or before such payments are due. The failure of any Party to pay an
amount due hereunder by the date that it is due shall constitute a breach of
this Agreement. The remedies for failure to make the payments required by
Article 6.5 (pertaining to the acquisition of an AMI Interest), Article 6.7
(pertaining to Renewal and Extension Leases) and the payments required under an
applicable Operating Agreement shall be governed by the provisions of such
Articles or the Operating Agreement (as the case may be). For all other payments
to be made hereunder, the Party to whom such a payment is not made when due
shall have the right to make written demand on the Party from whom such payment
is past due. If the Party receiving such written demand fails to make the
required payment within sixty (60) days from the date that it receives such
written demand, such Party shall relinquish all of its interest under this
Agreement (including, but not limited to all of the interest that it acquired
pursuant to the terms hereof in any Leases, Options, seismic data and wells
drilled on the Contract Lands) to the Party to whom such payment is owed. The
Party so relinquishing its interest hereby designates the Party to whom such
payment is owed as its agent and attorney-in-fact for the limited purpose of
such instrument of conveyance as is necessary to convey the relinquished
interests to the Party to whom the payment is owed. The Party receiving such
relinquished interest shall then offer the other Parties their proportionate
share of such relinquished interest. Each of the other Parties who pay their
proportionate share of the sum of money that was owed by the Party relinquishing
its interest to the Party offering such interest within fourteen (14) days from
its receipt of such offer, shall be entitled to their proportionate share of
such relinquished interests and the Party offering such interest shall, as soon
as practicable, execute an instrument conveying such interest to such Parties.
<PAGE>
ARTICLE 10. MISCELLANEOUS
10.1 Term and Applicability of Agreement. Except as otherwise provided
for herein, the provisions of this Agreement shall remain in force and effect
for a term of seven (7) years from the date hereof except that it shall apply to
each Jointly-Owned Lease and the lands included within the Prospect in which the
lands covered by such Jointly-Owned Lease are situated for as long as such
Jointly-Owned Lease remains in force and effect.
10.2 Governing Law. The laws of the State of Texas shall apply in
all matters concerning this Agreement.
10.3 Entire Agreement. This Agreement, including all of the
exhibits attached hereto, constitute the entire agreement of the Parties
concerning the subject matter hereof, and there are no other understandings,
obligations, relationships or agreements, written or oral, pertaining to
the subject matter of this Agreement. This Agreement supersedes, replaces and
shall be in lieu of that certain Exploration Agreement dated
October 22, 1996, between Parallel and Sue-Ann, insofar only as this Agreement
covers the lands and depths covered by the Exploration Agreement dated October
22, 1996. Otherwise, the Exploration Agreement dated October 22, 1996 shall
remain in force as to the lands and depths covered thereby which are not covered
by this Agreement.
10.4 Inurement. This Agreement shall be binding upon and shall inure to
the benefit of the successors and assigns of the Parties and the terms and
provisions hereof shall constitute covenants running with the lands subject
hereto to the extent that such provisions apply to such lands.
10.5 Notices. All notices required to be given hereunder shall be given
in writing. Any such notice shall be deemed to be given upon receipt thereof by
the Party who is to receive the notice. The receipt of a notice by electronic
facsimile (fax) shall be considered as delivery of such notice. If notice by fax
is received other than during normal business hours, it shall be deemed received
on the next business day. All notices required hereunder shall be given to the
Parties as follows:
If to Parallel: Parallel Petroleum Corporation
110 N. Marienfeld, Suite 465
Midland, Texas 79701
Attn: Mr. Larry C. Oldham
or
Fax No.: 915-684-3905
<PAGE>
If to Sue-Ann: Sue-Ann Production Company
1908 N. Laurent, Suite 570
Victoria, Texas 77901
Attn: Mr. Richard Marshall
or
Fax No.: 512-576-6099
If to Beta: Beta Oil & Gas, Inc.
901 Dove Street, Suite 230
Newport Beach, California 92660
Attn: Mr. Steve Antry
or
Fax No.: 714-752-5757
If to Pease: Pease Oil & Gas Company
751 Horizon Court
Grand Junction, Colorado 81506
Attn: Mr. Willard Pease, Jr.
or
Fax No.: 970-243-8840
If to TAC: TAC Resources, Inc.
P.O. Box 206
Victoria, Texas 77902
Attn: Mr. Bill Bishop
or
Fax No.: 512-573-9840
If to Allegro: Allegro Investments, Inc.
1908 N. Laurent, Suite 370
Victoria, Texas 77901
Attn: Mr. Chris Thompson
or
Fax No.: 512-576-9643
If to Meyer: Meyer Financial Services, Inc.
5645 Harris Hill Road
Williamsville, NY 14221
Attn: Mr. Jeffrey Meyer
or
Fax No.: 716-741-1075
<PAGE>
If to Four-Way: Four-Way Texas, L.L.C.
c/o Kissing Bridge Company
11296 State Road
Glenwood, NY 14069
Attn: Mr. Bob James
or
Fax No.: 716-592-4228
10.6 Transfers Subject to this Agreement. Any sale, agreement, transfer
or other disposition of an interest in the Contract Lands however accomplished,
either voluntarily or involuntarily, by operation of law or otherwise, shall be
subject to the terms of this Agreement. Any instruments which convey any
interest in the Contract Lands shall be made expressly subject to this
Agreement.
10.7 Singular and Plural. When the context requires, the use of a
singular noun or pronoun shall be deemed plural and vice versa.
10.8 Further Assurances. Each of the Parties agrees to perform such
other acts and execute and deliver such other instruments as may be necessary in
order to effectuate the terms of this Agreement.
10.9 Relationship of the Parties. The Parties do not intend to create a
partnership by entering into this Agreement. The Parties agree that for the
purposes of federal income taxation, they are not to be taxed as a partnership
and each Party will elect to be excluded from the application of all of the
provisions of Subchapter "K", Chapter 1, Subtitle "A", of the Internal Revenue
Code of 1986, as amended ("Code"), as permitted and authorized by Section 761 of
the Code and the regulations promulgated thereunder. The liability of the
Parties hereunder shall be several, not joint or collective.
10.10 Memorandum of Operating Agreement. The Parties agree to execute
and record in the Records of Jackson County, Texas, a Memorandum of this
Exploration Agreement, in the form attached as Exhibit "E" hereto.
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement in
multiple counterparts as of the date first above written.
PARALLEL PETROLEUM CORPORATION
By:
Printed Name:
Title:
SUE-ANN PRODUCTION COMPANY
By:
Printed Name:
Title:
TAC RESOURCES, INC.
By:
Printed Name:
Title:
ALLEGRO INVESTMENTS, INC.
By:
Printed Name:
Title:
BETA OIL & GAS, INC.
By:
Printed Name:
Title:
PEASE OIL & GAS COMPANY
By:
Printed Name:
Title:
<PAGE>
MEYER FINANCIAL SERVICES, INC.
By:
Printed Name:
Title:
FOUR-WAY TEXAS, L.L.C.
By:
Printed Name:
Title:
STATE OF TEXAS )
)
COUNTY OF MIDLAND )
This instrument was acknowledged before me this _______ day of
_______________, 1997, by ___________________________________________________,
_______________________ of Parallel Petroleum Corporation, a Texas corporation,
on behalf of said corporation.
Notary Public, State of Texas
STATE OF TEXAS )
)
COUNTY OF )
This instrument was acknowledged before me this _______ day of
_______________, 1997, by ___________________________________________________,
_______________________ of Sue-Ann Production Company, a ________________
corporation, on behalf of said corporation.
Notary Public, State of Texas
STATE OF TEXAS )
)
COUNTY OF )
This instrument was acknowledged before me this _______ day of
_______________, 1997, by ___________________________________________________,
_______________________ of TAC Resources, Inc., a _______________ corporation,
on behalf of said corporation.
Notary Public, State of Texas
<PAGE>
STATE OF )
)
COUNTY OF )
This instrument was acknowledged before me this _______ day of
_______________, 1997, by ___________________________________________________,
_______________________ of Allegro Investments, Inc., a _______________
corporation, on behalf of said corporation.
Notary Public, State of
STATE OF )
)
COUNTY OF )
This instrument was acknowledged before me this _______ day of
_______________, 1997, by ___________________________________________________,
_______________________ of Beta Oil & Gas, Inc., a _______________ corporation,
on behalf of said corporation.
Notary Public, State of
STATE OF )
)
COUNTY OF )
This instrument was acknowledged before me this _______ day of
_______________, 1997, by ___________________________________________________,
_______________________ of Pease Oil & Gas Company, a _________________
corporation, on behalf of said corporation.
Notary Public, State of
STATE OF )
)
COUNTY OF )
This instrument was acknowledged before me this _______ day of
_______________, 1997, by ___________________________________________________,
_______________________ of Meyer Financial Services, Inc., a _______________
corporation, on behalf of said corporation.
Notary Public, State of
<PAGE>
STATE OF )
)
COUNTY OF )
This instrument was acknowledged before me this _______ day of
_______________, 1997, by ___________________________________________________,
_______________________ of Four-Way Texas, L.L.C., a _______________ limited
liability company, on behalf of said limited liability company.
Notary Public, State of
<PAGE>
G:\DOCS\JRT97\20379.JRT\50068.121
EXHIBIT "A"
(Contract Lands)
<PAGE>
<TABLE>
EXHIBIT "B"
- -------------------------------------------- -------------- -- ------------ -- --------------- -- -------------------
Gross
Lessor Date Acres Net Acres Vol./Page
- -------------------------------------------- -------------- -- ------------ -- --------------- -- -------------------
- -------------------------------------------- -------------- -- ------------ -- --------------- -- -------------------
<S> <C> <C> <C> <C>
*Florence Groberg, et al 03/01/33 354 354 86/286
- -------------------------------------------- -------------- -- ------------ -- --------------- -- -------------------
- -------------------------------------------- -------------- -- ------------ -- --------------- -- -------------------
**Maggie Branch, et vir 12/03/34 1804.83 1804.83 92/623
- -------------------------------------------- -------------- -- ------------ -- --------------- -- -------------------
- -------------------------------------------- -------------- -- ------------ -- --------------- -- -------------------
*Otto Hultquist 08/04/34 167.5 167.5 90/597
- -------------------------------------------- -------------- -- ------------ -- --------------- -- -------------------
- -------------------------------------------- -------------- -- ------------ -- --------------- -- -------------------
*T.N. Mauritz, et al ("A") 07/10/35 209.5 209.5 94/436
- -------------------------------------------- -------------- -- ------------ -- --------------- -- -------------------
- -------------------------------------------- -------------- -- ------------ -- --------------- -- -------------------
*T.N. Mauritz, et al ("B") 12/26/32 110.5 110.5 84/81
- -------------------------------------------- -------------- -- ------------ -- --------------- -- -------------------
- -------------------------------------------- -------------- -- ------------ -- --------------- -- -------------------
*Martin Hultquist, et ux 07/10/35 200 200 94/429
- -------------------------------------------- -------------- -- ------------ -- --------------- -- -------------------
- -------------------------------------------- -------------- -- ------------ -- --------------- -- -------------------
*Hanna Ross et al 07/22/35 143 143 96/246
- -------------------------------------------- -------------- -- ------------ -- --------------- -- -------------------
- -------------------------------------------- -------------- -- ------------ -- --------------- -- -------------------
*A.T. Ross, et ux 12/16/34 100 100 92/224
- -------------------------------------------- -------------- -- ------------ -- --------------- -- -------------------
- -------------------------------------------- -------------- -- ------------ -- --------------- -- -------------------
*Florence V. Tunison, et al 08/14/34 909 909 91/540
- -------------------------------------------- -------------- -- ------------ -- --------------- -- -------------------
- -------------------------------------------- -------------- -- ------------ -- --------------- -- -------------------
*Mortgage Land & Investment 07/10/35 321.25 321.25 94/440
Co.
- -------------------------------------------- -------------- -- ------------ -- --------------- -- -------------------
- -------------------------------------------- -------------- -- ------------ -- --------------- -- -------------------
*Lillian A. Silliman, et vir 12/10/32 241.25 241.25 83/602
- -------------------------------------------- -------------- -- ------------ -- --------------- -- -------------------
- -------------------------------------------- -------------- -- ------------ -- --------------- -- -------------------
*F. Wayne Silliman, et ux 09/13/49 121.25 121.25 189/73
- -------------------------------------------- -------------- -- ------------ -- --------------- -- -------------------
- -------------------------------------------- -------------- -- ------------ -- --------------- -- -------------------
*T.C. Robertson, et al 12/11/34 200 200 92/218
- -------------------------------------------- -------------- -- ------------ -- --------------- -- -------------------
- -------------------------------------------- -------------- -- ------------ -- --------------- -- -------------------
*Bohus Simicek, et ux 09/23/40 165 165 No Recording
- -------------------------------------------- -------------- -- ------------ -- --------------- -- -------------------
- -------------------------------------------- -------------- -- ------------ -- --------------- -- -------------------
*A.J. Dahlstrom, et ux 08/01/47 16 16 171/25
- -------------------------------------------- -------------- -- ------------ -- --------------- -- -------------------
- -------------------------------------------- -------------- -- ------------ -- --------------- -- -------------------
*C.A. Barron, et ux 07/22/54 100 100 244/378
- -------------------------------------------- -------------- -- ------------ -- --------------- -- -------------------
- -------------------------------------------- -------------- -- ------------ -- --------------- -- -------------------
***W.W. McCrory, et ux 02/06/34 184.5 184.5 71/463
----- -----
5347.58 5347.58
- -------------------------------------------- -------------- -- ------------ -- --------------- -- -------------------
<FN>
* From the surface down to 8,000 feet.
** From the surface down to 6,620 feet.
*** From the surface down to 7,600 feet (as to 102.5 acres) is subject to farmout agreement with Ka-Hugh
International.
</FN>
</TABLE>
<PAGE>
EXHIBIT "C"
(The Existing Leases and Options)
<PAGE>
EXHIBIT "D"
(Operating Agreement)
AGREEMENT
THIS AGREEMENT is dated January 21, 1998, and is by and between Beta
Oil & Gas, Inc., 901 Dove Street, Suite 230, Newport Beach, CA 92660 ("Beta")
and TAC Resources, Inc., 1908 N. Laurent, Suite 380, Victoria, TX 77901
("TAC") and Allegro Investments, Inc., 1908 N. Laurent, Suite 370, Victoria,
TX 77901 ("Allegro").
WHEREAS, Beta wishes to purchase and TAC wishes to sell certain
interests owned by TAC under that certain Exploration Agreement dated July 15,
1997, as amended, covering the Texana Project; and Beta wishes to purchase and
TAC and Allegro wish to sell certain interests owned by TAC and Allegro under
that certain Exploration Agreement dated August 1, 1997, as amended, covering
the Formosa Grande Project.
NOW, THEREFORE, for Ten and 00/100 Dollars ($10.00) and other
valuable consideration and the mutual covenants and agreements contained
herein the parties hereby agree as follows.
1. Conveyance. TAC hereby agrees to convey Beta five percent (5%)
interest in the Texana Project, and TAC and Allegro hereby agree to
convey Beta five percent (5%) interest in the Formosa Grande Project
for a total sum of One rnillion two hundred seventy-five thousand and
00/100 Dollars ($1,275,000.00). Upon receipt of payment in full as
described below, TAC shall execute and deliver to Beta an amendment
identical in form to that attached hereto as Exhibit "A" covering the
interest to be transferred in the Texana Project, and TAC and Allegro
shall execute and deliver to Beta an amendment identical in form to
that attached hereto as Exhibit "B" covering the interest to be
transferred in the Formosa Grande Project.
2. Payment. TAC and Allegro agree and direct that all payments made
hereunder shall be made to TAC at the address shown above. Upon
execution of this Agreement, Beta shall pay TAC the sum of Four
hundred twenty-five thousand and 00/100 Dollars ($425,000.00). and
shall thereafter make two additional payments in the amount of
$425,000.00 each to TAC. The first such payment shall be due on or
before March 1, 1998 and the second due on or before April 1, 1998.
TAC and Allegro shall have the option prior to the making of either
of such additional payments to require that all or a portion of such
payments be made in the form of Beta stock on the basis of $5 00 per
share
3. Forfeiture. In the event Beta fails to timely make any of the
above payments this Agreement shall terminate and be of no further
force or effect. It is agreed that upon such termination Beta shall
forfeit the right to receive any interest hereunder, regardless of
partial payment, and TAC and Allegro shall be entitled to retain all
payments received.
This agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof, superseding any and all
prior agreements, understandings, discussions, negotiations and commitments of
any kind.
The provisions of this agreement may be amended, supplemented, or
waived only if in writing signed by all parties hereto.
This agreement shall bind and inure to the benefit of the parties
hereto and their respective heirs, successors, legal representatives and
assigns.
<PAGE>
This agreement may be executed in multiple counterparts, all of
which when taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, this instrument is executed on the date first above
written.
Beta Oil & Gas, Inc.
Steve Antry, President
TAC Resources, Inc
Bill Bishop, President
Allegro Investments, Inc.
John C. Thompson, President
<PAGE>
Exhibit "A"
(Attached to and made a part of that certain
Agreement dated January 21, 1998, by and
between Beta Oil & Gas, Inc., TAC Resources,
Inc. and Allegro
Investments, Inc,)
FIRST AMENDMENT TO EXPLORATION AGREEMENT
TEXANA PROJECT
JACKSON COUNTY, TEXAS
This First Amendment to Exploration Agreement (the "Amendment") is entered into
this ____ day of March, 1998, by and between Parallel Petroleum Corporation
("Parallel"), TAC Resources, Inc. ("TAC"), Beta Oil & Gas, Inc. ("Beta"), Pease
Oil and Gas Company ("Pease"), and Unit Petroleum Company ("Unit"), all
hereinafter collectively referred to as (the "Parties"), in order to amend that
certain Exploration Agreement dated July 15, 1997, (the "Agreement").
Whereas, Beta has acquired a portion of the interest owned by TAC under the
Agreement, and
Whereas, in order to evidence this acquisition the Agreement is hereby amended
as follows:
Article 2.2 is hereby amended as follows:
"2.2 "Interest and Share of Cost of the Parties." The Parties hereby
agree to own, as their Initial Interest, and agree to bear the costs set out
below as follows:
<TABLE>
Party Initial Interest Share of Costs Share of Costs for
Prior to Leasehold Leasehold Acquisition
Acquisition and Subsequent Operations
<S> <C> <C> <C>
TAC .2000000 .0625000 .2000000
Parallel .1750000 .2187500 .1750000
Unit .2500000 .3125000 .2500000
Beta .2500000 .2500000 .2500000
Pease .1250000 .1562500 .1250000
</TABLE>
TAC has acquired and now owns the Existing AMI Interests. Parallel, Unit, Beta
and Pease agree that their costs in the Existing AMI Interests shall be based on
$75.00 per net mineral acre on seismic and lease options, and cost plus 25% on
oil and gas leases and seismic permits. The Existing AMI Interests are presently
comprised of approximately 23,183.908 net mineral acres covered by seismic and
lease option, and 300.5 net mineral acres covered by seismic permit where cost
was $25.00/net mineral acre. Based on the foregoing, the current total cost of
Existing AMI Interests is One million seven hundred forty-eight thousand one
hundred eighty-three and 73/100 Dollars ($1,748,183.73). Parallel, Unit, Beta
and Pease agree to pay TAC their portion of such cost, as referenced above, in
the Existing AMI Interests upon execution of this Agreement. Parallel, Unit,
Beta and Pease hereby agree that TAC shall have the exclusive right to acquire
AMI Interests through August 1, 1997, and that same shall be treated in all
respects as Existing AMI Interests. Parallel, Unit, Beta and Pease agree that
they shall be obligated to accept such interests in the same percentages and pay
TAC for such interests at the same terms stated herein.
Payment for such interests shall be due within fifteen (15) days after receipt
of written notice as set out in Article 2.4. Interests available to TAC which
costs exceed those stated above shall be offered to the other Parties as per the
procedure set forth in Article 2.4 below."
The Parties agree that the provisions of this Amendment shall become a part of
the Agreement, as if originally included therein, and do hereby adopt ratify and
confirm the Agreement, as amended, in all of its terms and provisions.
This Agreement may be executed in multiple counterparts, all of which when taken
together shall constitute one and the same agreement.
IN WITNESS WHEREOF, this instrument is executed on the date first above written.
Parallel Petroleum Corporation
By:
Larry C. Oldham, President
TAC Resources, Inc.
By:
Bill Bishop, President
Beta Oil & Gas, Inc.
By:
Steve Antry, President
Pease Oil and Gas Company
By:
Willard Pease, Jr., President
Unit Petroleum Company
By:
Phillip M. Keeley, Sr. Vice President
<PAGE>
Exhibit "B"
(Attached to and made a part of that certain
Agreement dated January 21, 1998, by and
between Beta Oil & Gas, Inc., TAC Resources,
Inc. and Allegro
Investments, Inc,)
SECOND AMENDMENT TO EXPLORATION AGREEMENT
FORMOSA GRANDE PROJECT
JACKSON AND CALHOUN COUNTIES, TEXAS
This Second Amendment to Exploration Agreement (the "Amendment") is entered into
this ____ day of March, 1998, by and between Parallel Pet:roleum Corporation
("Parallel"), TAC Resources, Inc. ("TAC"), Allegro Investments, Inc.
("Allegro"), Beta Oil & Gas, Inc. ("Beta"), Pease Oil and Gas Company ("Pease"),
Four-Way Texas L.L.C. ("Four-Way"), Meyer Financial Services, Inc. ("Meyer") and
Wes-Tex Drilling Corp. ("Wes-Tex"), FGL, Inc. ("FGL"), Camway, Inc. ("Camway"),
Mert L. Cooper ("Cooper"), CKC Investments, Inc. ("CKC") and LWC of Austin, Inc.
("LWC") all hereinafter collectively referred to as (the "Parties"), in order to
amend that certain Exploration Agreement dated August 1, 1997, as amended in
that certain First Amendment to Exploration Agreement dated October 6, 1997,
(the "Agreement").
Whereas, Beta has acquired a portion of the interest owned by TAC and Allegro
under the Agreement, and
Whereas, in order to evidence this acquisition the Agreement is hereby amended
as follows:
Article 2.2 is herebv amended as follows:
"2.2 "Interest and Share of Cost of the Parties." The Parties hereby
agree to own, as their Initial Interest, and agree to
bear the costs set out below as follows:
<TABLE>
Party Initial Interest Share of Costs Share of Costs
Prior to Leasehold for Leasehold
Acquisition Acquisition and
Subsequent Operations
<S> <C> <C> <C>
Parallel .4337500 .3700000 .4337500
TAC .0291667 .0000000 .0291670
Allegro .0145833 .0000000 .0145830
Beta .2500000 .2666666 .2500000
Pease .1250000 .1666667 .1250000
Four-Way .0200000 .0266667 .0200000
Meyer .0100000 .0133333 .0100000
Wes-Tex .0200000 .0266667 .0200000
FGL .0700000 .0933333 .0700000
Camway .0050000 .0066667 .0050000
Cooper .0100000 .0133333 .0100000
CKC .0100000 .0133333 .0100000
LWC .0025000 .0033333 .0025000
</TABLE>
Parallel, TAC and Allegro have acquired and presently own the Existing AMI
Interests. Beta, Pease, Four-Way, Meyer, Wes-Tex, FGL, Camway, Cooper, CKC and
LWC agree that their respective costs in the Existing AMI Interests shall be
based on $100.00 per net mineral acre on seismic and lease options, and cost
plus 33.33333% on oil and gas leases and seismic permits. The Existing AMI
Interests are presently comprised of approximately 73,102.116 net mineral acres
covered by seismic and lease option, 522.896 net mineral acres covered by
seismic permit where cost was $5,228.96, and 146.890 net mineral acres covered
by oil and gas lease where cost was $7,344.50. Based on the foregoing, the
current total cost of Existing AMI Interests is Seven million three hundred
twenty-two thousand seven hundred eighty-five and 06/100 Dollars
($7,322,785.06). Beta, Pease, Four-Way, Meyer, Wes-Tex, FGL, Camway, Cooper, CKC
and LWC agree to pay Parallel their Proportionate Share of such cost, as
referenced above, in the Existing AMI Interests upon execution of this
Agreement. Beta, Pease, Four-Way, Meyer, Wes-Tex, FGL, Camway, Cooper, CKC and
LWC hereby agree that Parallel shall have the exclusive right to acquire AMI
Interests through December 1, 1997, and that same shall be treated in all
respects as Existing AMI Interests. Beta, Pease, Four-Way, Meyer, Wes-Tex, FGL,
Camway, Cooper, CKC and LWC agree that they shall be obligated to accept such
interests in the same percentages and pay Parallel for such interests at the
same terms stated herein. Payment for such interests shall be due within fifteen
(15) days after receipt of written notice as set out in Article 2.4. Interests
available to Parallel which costs exceed those stated above shall be offered to
the other Parties as per the procedure set forth in Article 2.4 below."
The Parties agree that the provisions of this Amendment shall become a part of
the Agreement as if originally included therein, and do hereby adopt ratify and
confirm the Agreement, as amended, in all of its terms and provisions.
This Agreement may be executed in multiple counterparts, all of which when taken
together shall constitute one and the same agreement.
IN WITNESS WHEREOF, this instrument is executed on the date first above written.
Parallel Petroleum Corporation
By:
Larry C. Oldham, President
TAC Resources, Inc.
By:
Bill Bishop, President
FGL, Inc.
By:
Guy Griffith, President
Camway, Inc.
By:
Guy Griffith, President
CKC Investments, Inc.
By:
Mert L. Cooper, President
LWC of Austin, Inc.
By:
Lewis Lee, President
October 13, 1997
BETA OIL & GAS, INC.
901 Dove Street, Suite 230
Newport Beach, California 92660
Attention: Steve Antry
President
Re: Purchase and Sale Agreement
Lapeyrouse Area
Terrebonne Parish, Louisiana
Gentlemen:
This will evidence the "Purchase and Sale Agreement" provided for in
Article 5 of that certain Letter of Intent dated September 18, 1997 between Beta
Oil & Gas, Inc. ("Beta" herein) and Laurent Oil & Gas, Inc. ("Laurent" herein)
relative to Laurent's "Look-Back Interests", hereinafter defined.
1. Laurent represents that Laurent has the exclusive right to acquire the
following described undivided interests ("Look-Back Interests" herein) in and to
those oil, gas and mineral leases and geophysical options set out and described
in Exhibits "A" through "D" hereto ("Leases" herein) and made a part hereof for
all purposes:
(a)6.25% as to rights between the surface and the stratigraphic
equivalent depth of the base of the Duval Sand,
(b)75.0% of 6.25% or 4.6875% as to rights between the stratigraphic
equivalent depth of the base of the Duval Sand and one hundred
feet (100') below the stratigraphic equivalent depth of the
base of the Dularge Sand, and
(c)25.0% of 6.25% or 1.5625% as to rights below one hundred feet (100')
below the stratigraphic equivalent depth of the base of the
Dularge Sand,
in and to the Leases described in Exhibit A within the boundaries of the
"Contract Area", defined in that certain 3-D Seismic Participation Agreement
dated May 30, 1996 by Fina Oil and Chemical Company, et al (Group Leases),
(d)50.0% of 6.25%, or 3.125% between the surface and one hundred feet
(100.0') below the stratigraphic equivalent depth of the base
of the Dularge Sand, and
(e)25.0% of 6.25%, or 1.5625% below one hundred feet (100.0') below the
stratigraphic equivalent depth of the base of the Dularge
Sand,
in and to those Leases described in Exhibits B and C within the boundaries of
the Contract Area (AMI Leases),
(f)6.25% interest, all rights to all depths,
in and to those Leases described in Exhibit A, outside the boundaries of the
Contract Area, and Exhibit D (Starboard West and South Leases),
(g)50.0% of 6.25%, or 3.125% between the surface and one hundred feet
(100.0') below the stratigraphic equivalent depth of the base
of the Dularge Sand, and
(h)25.0% of 6.25%, or 1.5625% below one hundred feet (100.0') below the
stratigraphic equivalent depth of the base of the Dularge
Sand,
in and to any lease, geophysical option or other contract for the right to
explore for oil or gas or creating a mineral servitude within the boundaries of
the Contract Area, other than the Leases,
(i)6.25%, all rights to all depths,
in and to any lease, geophysical option and any other contract for the right to
explore for oil or gas or creating a mineral servitude outside the boundaries of
the Contract Area but within the boundaries of the "Area of Mutual Interest" for
Exploration Agreement - Starboard dated February 19, 1996 by Frontier Natural
Gas Corporation, et al, ("Exploration Agreement - Starboard"), and
(j)the 2-d and 3-d Data to be acquired by Laurent under the "Frontier
Agreement" hereinafter defined.
2. Laurent further represents that the Look-Back Interests are subject to the
following:
(a)That certain Letter Agreement dated April 27, 1995 between Frontier
Natural Gas Corporation, Polaris Exploration Corporation and
Laurent, as amended by Amendment of Letter Agreement dated
August 14, 1996 ("Frontier Agreement" herein).
(b)The lessors' royalties.
(c)An overriding royalty in favor of Laurent in the amount of 3.0%
on Leases with lessor's royalty of 25.0% or less.
(d)An overriding royalty in favor of Laurent in the amount of 1.5%
on Leases with lessor's royalty of more than 25.0%.
3. Now therefore, for and in consideration of the sum of Four Hundred Fifty-six
Thousand Two Hundred Fifty Dollars ($456,250), paid and payable as follows:
(a) $45,625.00 earnest money and "Down Payment" received by Laurent on
October 9, 1997, as provided in the Letter of Intent to extend the
closing date by 15 days.
(b) $ 33,935.56 to South Coast Exploration Company.
$ 33,935.56 to SOCO Exploration, L.P.
$ 90,494.83 to Frontier Natural Gas Corporation.
$ 22,623.71 to HarCor Energy, Inc.
$ 7,541.24 to Matagorda Production Company.
-----------
$188,530.90
upon receipt by Beta of assignments from such parties of the Look-Back
Interests.
(c) $222,094.10 to Laurent upon receipt by Beta of such assignments of
the Look-Back Interests.
The checks in payment under (b) above have been delivered in escrow with Polaris
Exploration Corporation to be distributed as provided in this Paragraph 3.
Laurent does hereby bargain, grant, sell, assign and convey unto Beta, all
Laurent's rights, title and interest in and to the Look-Back Interests. The sums
specified are payable in cash, as consideration for Laurent's rights to the
Look-Back Interests under the Frontier Agreement and which sums of money are
non-refundable.
The assignments of the Look-Back Interests shall be considered "received" by
Beta when delivered to Beta at the address listed above, or to Beta's attorney,
Mr. Robert Redfearn, 1100 Poydras Street, 30th Floor, Energy Centre, New
Orleans, Louisiana 70163. Assignments need not be recorded in the Parish or
approved by the State Mineral Board to be considered received.
6. This Agreement and the rights herein conveyed are made without warranty,
express or implied, even to the return of the purchase price, except as against
the acts or omissions by, through or under Laurent, but such rights are conveyed
with complete transfer and subrogation of all rights and actions in warranty
against all other parties.
7. This Agreement is subject to the terms and provisions of the Letter of
Intent; provided, however, in the event of a conflict between this Purchase and
Sale Agreement and the Letter of Intent, the provisions of this Purchase and
Sale Agreement shall take precedence.
8. The assignments of the Look-Back Interests shall be on forms of assignment
substantially the same as the assignment attached hereto, marked Exhibit "E" and
made a part hereof for all purposes.
9. Beta expressly agrees to fully protect, defend, indemnify and hold Laurent
free and harmless from and against each and every claim, demand, liability or
cause of action, on account of personal injury or death, property damage or
lease maintenance matters (including the payment of royalties) arising after the
date of this Agreement related directly or indirectly to the interests herein
conveyed, operations related thereto or the agreements referenced herein,
including, but not limited to, any costs, expenses, damages, attorneys' fees or
losses in connection therewith which may be made or asserted by Beta, its
employees, agents or servants, or by Laurent, its employees, agents or servants,
or by third persons. Beta further agrees to fully protect, indemnify and hold
Laurent and its officers, executives, supervisors, employees, successors and
assigns free and harmless from and against each and every claim, demand,
liability or cause of action on account of environmental damage arising out of
or in connection with the interests herein conveyed, including, but not limited
to, any costs, attorneys' fees or losses in connection therewith which may be
made or asserted by any Federal, State or local agency. Beta agrees to fully
assume and bear all of the obligations of Laurent with respect to the Look-Back
Interests and the Leases, as provided for in the Frontier Agreement, Exploration
Agreement - Starboard and 3-D Seismic Participation Agreement, including, but
not limited to, the cost of acquiring Leases following the effective date of
this Agreement.
10. If Beta elects to surrender a Lease or interest therein or other oil, gas
and mineral lease or interest within the Area of Mutual Interest for the
Frontier Agreement, including oil, gas and mineral leases acquired outside the
definition of Look-Back Interest, Beta shall give Laurent written notice of such
election at least sixty (60) days before such surrender date, and if Laurent
elects to acquire such Lease, lease or interest therein, Beta shall assign all
interest to Laurent thirty (30) days in advance of the proposed surrender date,
free and clear of any burdens against the leasehold estate except those
described in Section 4 above.
11. This Agreement is effective as of May 19, 1997.
* * *
If the foregoing correctly reflects your understanding of our
Agreement, kindly sign one copy in the space provided below and return the same
to Laurent, on or before November 15, 1997.
Very truly yours,
LAURENT OIL & GAS, INC.
By:____________________________
J. Scott Laurent
President
ACCEPTED AND AGREED TO this the _____ day of November, 1997.
BETA OIL & GAS, INC.
By:________________________
Steve Antry
President
February 24, 1998
Beta Oil & Gas, Inc.
901 Dove Street, Suite 230
Newport Beach, California 92660
Attn: Mr. R. T. Fetters
Re: Joint Exploration Agreement
Dear Mr. Fetters:
The purpose of this Joint Exploration Agreement (this "Agreement") is to set
forth the agreements between Rozel Energy, L.L.C. ("Rozel") and Beta Oil & Gas,
Inc. ("Beta"), with respect to Beta providing certain funding to Rozel for the
acquisition of oil and gas leases in exchange for Beta receiving from Rozel the
right to participate for a working interest in prospects generated on such
leases. The following numbered paragraphs of this Agreement reflect our
agreement regarding this matter.
1. Lease Acquisition Funding by Beta. Beta shall provide lease acquisition
funds (the "Lease Acquisition Funds") to Rozel for Rozel's use in the
acquisition of state and federal oil and gas leases within the area
outlined on Exhibit "A" attached hereto and made a part hereof (the
"Program Area"), pursuant to the following terms:
(a) Beta shall provide a total of $3,000,000 (the "Total
Commitment") to Rozel for a period of one (1) year commencing
March 1, 1998 and ending February 28, 1999 (the "Commitment
Period"), which Total Commitment includes any overhead
reimbursement fees paid by Beta to Rozel pursuant to Section
2(c) below.
(b) As part of the Total Commitment, Beta shall provide a minimum
of $750,000, and a maximum of $1,000,000 for Rozel to utilize
in the March 18, 1998, federal lease sale. If Beta provides
more than $750,000 to Rozel, and the amount over $750,000 (the
"Excess Amount") is not utilized in the acquisition of a
federal lease due to bid rejection, then Rozel immediately
shall reimburse the Excess Amount to Beta. Any remaining
amount shall be retained by Rozel in the Account described in
Section 5 below for Rozel's use in state lease sales pursuant
to Section 1(c).
<PAGE>
(c) The remaining balance of the Total Commitment that is not
utilized in the March 15, 1998, federal lease sale, shall be
provided by Beta to Rozel for Rozel to utilize in state lease
acquisitions during the Commitment Period. Beta's commitment
hereunder shall not require Beta to provide more than $750,000
during any one quarter of the Commitment Period on a
cumulative basis (for example, at the conclusion of June 1998
the required cumulative amount provided by Beta shall not
exceed $1,500,000, and at the end of September 1998 the
required cumulative amount provided by Beta shall not exceed
$2,250,000).
(d) Notwithstanding anything herein to the contrary, Rozel's
bidding on and any acquisition of any federal or state leases
shall be in Rozel's sole discretion, including, without
limitation, Rozel's determination of the leases on which Rozel
bids and the amounts of such bids.
2. Right to Participate in Prospects. In consideration for Beta providing
the lease acquisition funds pursuant to the Total Commitment as
described in Section 1 hereof, Beta shall have the right to review all
Prospects (as hereinafter defined) generated by Rozel within the
Program Area on leases acquired by Rozel utilizing Lease Acquisition
Funds, and the right (but not the obligation) to participate on a
Prospect-by-Prospect basis in such Prospects, on the following terms
and conditions:
(a) Upon Rozel's acquisition of a leasehold interest utilizing
Lease Acquisition Funds and Beta's election to participate in
a Prospect generated by Rozel on such leasehold, and if at
least a 25% WI was available for acquisition by Rozel, Beta
shall pay 12.5% of all WI (as hereinafter defined) costs
through the wellhead of the initial test well on such
Prospect, and shall earn a 9.375% WI for such initial test
well on such Prospect. Thereafter, Beta shall have a 9.375% WI
in all future activities on such Prospect, including, without
limitation, platform construction, pipeline installation and
any additional drilling on such Prospect. Upon Beta's
election to participate in a Prospect, Beta shall enter into
an operating agreement with Rozel and the other participants
in such Prospect. In the event of any conflict between the
terms and provisions of this Agreement and the terms and
provisions of such operating agreement, the terms
and provisions of this Agreement shall govern. The BIWI and
the ORI described in Section 2(c) shall not be subject to or
bound by any security interests, liens, encumbrances,
forfeiture provisions, burdens, obligations or other
provisions limiting or diminishing the value of such interests
which arise under or pursuant to such operating agreement.
<PAGE>
(b) If less than a 25% WI is available for acquisition by Rozel on
a Prospect, Beta shall have the right to participate for 50%
of the WI that is available to Rozel on the same basis as in
the preceding Section 2(a) (i.e., on a one-third for
one-quarter basis). If more than a 25% WI is available for
acquisition by Rozel on a Prospect, and Rozel elects, in its
sole discretion, to make any portion of such excess WI
available to Beta, Beta may (but is not obligated to) elect to
participate for such additional WI on the same basis as in the
preceding Section 2(a).
(c) Beta's WI shall be subject to its proportionate share of all
lease burdens, including, without limitation, (i) the
landowner's royalty, any overriding royalties, and any other
royalties or other encumbrances and burdens that affect the
leasehold interest, and (ii) the reservation by Rozel of a
back-in after payout Working Interest (the "BIWI") equal to
6.25% of 8/8ths WI, proportionately reduced, and the ORI (as
hereinafter defined), each of which shall be reserved to Rozel
or its designee. Payout of the BIWI shall occur with respect
to each Prospect on the date on which the Prospect Revenues
(as hereinafter defined) equal Prospect Expenses (as
hereinafter defined).
(d) For each Prospect in which Beta elects to participate, Beta
shall pay $50,000 per one-eighth WI of Beta (or prorated
portion thereof) to Rozel as a fixed overhead reimbursement to
Rozel. Pursuant to Section 1(a) hereof, such overhead
reimbursements by Beta to Rozel shall be deducted from the
Total Commitment.
(e) Upon the acquisition of any lease by Rozel utilizing Lease
Acquisition Funds under this Agreement, there shall
immediately be created an AMI (as hereinafter defined) with
respect to the Prospect on such lease, without further action
by the parties. Provided Beta participates for its WI in the
initial test well on such Prospect pursuant to Section 2(a),
Beta shall thereafter have the right to participate for its WI
in any subsequent lease acquisitions within such AMI.
Likewise, if Beta participates in the initial test well on a
Prospect, or if Beta has reviewed any geophysical, geologic,
or other information provided by Rozel describing such
Prospect, Beta shall not acquire any direct or indirect
interest in any lease or well within such AMI. If Beta
acquires such an interest within the AMI in violation of the
foregoing provision, in addition to Rozel's other rights and
remedies at law or in equity, Rozel shall have the right to
require that Beta convey all such rights to Rozel in exchange
for payment by Rozel to Beta of the direct out-of-pocket costs
that Beta paid to acquire such interest. Upon any such
conveyance by Beta to Rozel, Beta shall retain its rights
described in this Agreement to acquire its WI in such
leasehold interest.
<PAGE>
3. Utilization of Lease Acquisition Funds. Rozel shall utilize the Lease
Acquisition Funds solely for the acquisition of state and/or federal
oil and gas leases within the Program Area. If Rozel acquires any
federal or state leases within the Program Area in lease sales during
the Commitment Period, Rozel shall utilize the Lease Acquisition Funds
available in the Account. If adequate Lease Acquisition Funds are not
available to Rozel in the Account for any reason, and as a result Rozel
acquires state or federal oil and gas leases without utilizing Lease
Acquisition Funds, Beta shall have no rights, and Rozel shall have no
obligations to Beta, regarding any Prospect generated with respect to
such state and federal oil and gas leases. Any Lease Acquisition Funds
that are expended by Rozel on Prospects in which Beta elects not to
participate in the initial test well, shall be repaid to the Account
described below (or directly to Beta if the Commitment Period has
expired) if and when Rozel either sells its interest in or drills the
Prospect, whichever occurs first.
4. Prospects. Rozel shall have sole responsibility for the generation of
Prospects, and to the extent it generates Prospects, Rozel shall keep
Beta informed on a timely basis of such developments. Upon Rozel
utilizing Lease Acquisition Funds to acquire a Prospect to Beta, Rozel
shall allow Beta to review at Rozel's office such Prospect, subject to
Beta entering into a mutually acceptable form of confidentiality
agreement with Rozel. Rozel shall notify Beta in writing with a
description of the proposed initial test well on any Prospect in which
Beta has the right to participate hereunder. Beta shall notify Rozel
in writing of Beta's election to participate in such initial test well
for Beta's WI within two weeks of Beta's receipt of such notice from
Rozel. If Beta fails to so notify Rozel within such two-week period,
Beta shall be deemed to have elected not to participate in such initial
test well. If Beta participates in such initial test well, the
drilling of any subsequent wells shall be pursuant to the terms of the
applicable operating agreement for such Prospect.
5. Lease Acquisition Fund Account. Upon execution of this Agreement, Beta
shall set up an interest bearing account (the "Account") with Bank One
in Lafayette, Louisiana, in the name of Rozel. Beta shall establish
and maintain a minimum balance of $100,000 in this account beginning on
or before April 15, 1998. To the extent additional funds are required
for a lease acquisition by Rozel, subject to Beta's limits on its
commitments hereunder, Beta shall wire transfer the required funds to
the Account within fifteen days of Rozel's request, or within such
shorter period which Rozel may request based on the availability of the
applicable lease. Subject to the obligation of Rozel to return any
Excess Amount (as described in Section 1(b) hereof), any funds
withdrawn by Rozel from the Account for lease acquisition purposes that
are not expended at either a federal or state lease sale, shall be
immediately deposited back into the Account. Notwithstanding anything
herein to the contrary, if Rozel acquires a state or federal oil and
gas lease without utilizing any Lease Acquisition Funds, because the
Total Commitment has been reached, the quarterly commitment limit of
$750,000 has been reached, or Beta fails for any reason to place
sufficient funds in the Account, Beta shall have no rights with respect
to such lease or any Prospects developed thereon.
6. Miscellaneous.
(a) For purposes of this Agreement, in addition to the other terms
defined herein, the following terms shall have the following
respective meanings:
(i) "AMI" means an area of mutual interest encompassing
the surface area comprising a Prospect and the
surface area within a distance of one and one-half
miles beyond the outside boundary of such Prospect;
provided, however, that an AMI shall not include
Blocks 9 and 10, Eugene Island Area, Blocks 41, 43,
and 67, Ship Shoal Area, and Block 15, Grand Isle
Area, and any area contained within the boundaries of
a then existing AMI.
(ii) "NRI" means, with respect to any leasehold interest,
the interest in and to all production of oil, gas and
other minerals produced, saved or sold from, under or
by virtue of such leasehold interest after giving
effect to all valid lessor royalties, overriding
royalties, production payments, carried interests and
other encumbrances or charges against production
therefrom.
(iii) "ORI" means the overriding royalty interest of Rozel,
or its designee, in and to oil, gas and other
minerals produced from any leasehold interest, free
of the expenses of production and operation, other
than processing or transportation costs, which
interest shall burden Beta's WI in such leasehold
interest. The ORI shall be reserved by Rozel in all
leasehold interests as follows:
(1) If the NRI to all owners of the WI
in the leasehold interest is greater
than or equal to 83%, the ORI on
such leasehold interest shall be 4%
of 8/8ths, proportionately reduced
to Beta's WI in such leasehold
interest.
(2) If the total NRI to all owners of
the WI in the leasehold interest is
greater than or equal to 76% and
less than 83%, the ORI on such
leasehold interest shall be 3% of
8/8ths, proportionately reduced to
Beta's WI in such leasehold
interest.
(3) If the total NRI to all owners of
the WI in the leasehold interest is
less than 76%, the ORI on such
leasehold interest shall be the
greater of (a) 2% of 8/8ths or (b)
the difference between the NRI to
the owners of the WI and 73%,
proportionately reduced to Beta's WI
in such leasehold interest.
<PAGE>
(iv) "Prospect" means an area within the Program Area
which Rozel has analyzed and is believed to contain
one or more geological structures which are believed
to have the potential of producing oil, gas and/or
other minerals in commercial quantities and which is
designated as a "Prospect" by Rozel.
(v) "Prospect Expenses" means as to each Prospect, the
aggregate third party and direct overhead costs and
expenses incurred by Beta in connection with the
acquisition, ownership and development of such
Prospect, including, without limitation, the costs
and expenses associated with acquiring the leasehold
interest within the Prospect Area. Prospect Expenses
also shall include exploring such leasehold interests
for minerals (including, without limitation, the cost
of drilling one or more wells) and developing
minerals from the Prospect Area (including, without
limitation, all drilling and operating costs incurred
with respect to such Prospect).
(vi) "Prospect Revenues" means as to each Prospect, the
aggregate gross proceeds received by Beta from
production attributable to wells on such Prospect,
less and after deducting from such gross proceeds
Beta's share of (1) all burdens on production in
existence at the time the first well is spudded on
such Prospect (including the ORI but excluding any
burdens not affecting the interests, if any, held by
Beta), attributable to the wells on such Prospect and
paid after the date on which Beta acquires an
interest in such Prospect, and (2) all ad valorem,
excise, production, severance and like taxes incurred
after the first well is spudded on such Prospect.
(vii) "WI" means working interest, which is the percentage
interest that an owner of an oil, gas or other
mineral lease must contribute to, or be liable for,
production and operating expenses of such oil, gas or
other mineral lease. A WI owner is entitled to share
in revenue from such oil, gas or other mineral lease
equal to its WI less all burdens attributable to such
owner's WI.
(b) If any one or more of the provisions of this Agreement shall
for any reason be held by a court of competent jurisdiction to
be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect
the remaining provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or
unenforceable provision had never been a part hereof. This
Agreement shall be construed in accordance with the laws of
the State of Texas, without giving effect to any conflict of
law rules or provisions.
<PAGE>
(c) This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and
supercedes all previous communications, representations or
agreements, whether oral or written, with respect to the
subject matter herein. No agreement or understanding varying
or extending the terms hereof will be binding on either party
unless in writing and executed by an authorized representative
of each party. A benefit, right or duty provided by this
Agreement shall be deemed waived only when expressly agreed in
writing between the parties. The waiver of one instance of any
act, omission, condition or requirement shall not constitute a
continuing waiver unless specifically stated in the aforesaid
written waiver.
(d) This Agreement is not intended to create, nor shall it be
construed as creating, any mining partnership, joint venture
or other partnership, or any agency relationship between Beta
and Rozel or their employees or representatives.
Please have an authorized representative of Beta sign this Agreement in the
space provided below to confirm the agreements set forth herein and return a
signed copy to the undersigned.
Very truly yours,
ROZEL ENERGY, L.L.C.
By:
C. William Rogers, Manager
ACKNOWLEDGED AND AGREED
effective this ___ day of February, 1998
BETA OIL & GAS, INC.
By:
Name:
Title:
February ____, 1998
BETAustralia, LLC
901 Dove Street, Suit 230
Newport Beach, California 92660
Attention: Steve Antry, President
Gentlemen:
BETAustralia, LLC ("Farmee") has agreed to acquire, and Wagner
(Australia) Ltd. ("Wagner") and Brown (Australia) Ltd. ("Brown") (individually a
"Farmor" and collectively, "Farmors") have agreed to transfer, convey and
assign, a five percent (5%) undivided interest in each of two petroleum
exploration licenses, P.E.L. 53 and P.E.L. 59, issued by the government of South
Australia, as varied and amended from time to time (as so varied and amended,
the "Licenses") on the terms and conditions set forth in this letter agreement.
<PAGE>
1. To earn a five percent (5%) undivided interest in the Licenses, Farmee
agrees to pay (a) ten percent (10%) of the Drilling Costs (as defined
below) of the Initial Wells (as defined below), subject to the
limitation set forth below and (b) six and seven-tenths percent (6.7%)
of the Completion Costs (as defined below), if any, of the Initial
Wells, subject to the limitation set forth below. As used in this
letter agreement, "Initial Wells" means the first exploration well
drilled by the parties to the Operating Agreements (as defined in
Paragraph 8 below) on the structural play shown on Exhibit A attached
to this letter agreement (the "Structural Play") with a stated
objective that includes the Winulta formation and the first exploration
well drilled by the parties to the Operating Agreements on the reef
play shown on Exhibit A attached to this letter agreement (the "Reef
Play") with a stated objective that includes the Parara/Koolywurtie
formation. The "Drilling Costs" of an Initial Well for purposes of
this letter agreement shall include (i) all costs of drilling and
open-hole testing the well (including all costs of drilling and testing
any sidetrack or substitute well, should the initial wellbore fail to
reach its objective depth), (ii) if no production casing is set or
production tests are not run, all costs incurred through plugging and
abandoning the well, and (iii) all overhead charges applicable to the
preceding costs under the Operating Agreements. The "Completion Costs"
of an Initial Well for purposes of this letter agreement shall include
(i) all costs of setting and perforating production casing or setting
a liner in the Initial Well, (ii) all costs of production or pressure
tests, and (iii) all overhead charges applicable to the preceding costs
under the Operating Agreements. Drilling Costs and Completion Costs
shall include costs incurred both prior to and after the date of this
letter agreement but shall not include any costs attributable to
operations carried out prior to March 17, 1997, costs of rig
mobilization and demobilization to and from the drillsite License or
any costs beyond the wellhead(s), including, but not limited to, the
costs of platform(s) and the costs of any equipment or facilities for
processing, handling, separating, dehydrating, treating, compressing,
gathering or transporting production from the License(s).
Notwithstanding the foregoing, should the total Drilling Costs of
either Initial Well exceed U.S. $4,819,787.00 or should the total
Completion Costs of either Initial Well exceed U.S. $2,213,305.00,
Farmee shall be obligated to pay only a five percent (5%) share of
those Drilling Costs or Completion Costs of such Initial Well, as
applicable, which are in excess of such amount, and such cost
limitation shall not affect the interest earned by Farmee under the
terms of this letter agreement. The dollar figures set forth in the
preceding sentence for each Initial Well shall be deemed revised to
equal the applicable amounts set forth in the Authority for Expenditure
for such Initial Well when each such Authority for Expenditure is
issued. The parties agree that the Initial Well on the Reef Play shall
be drilled prior to the Initial Well on the Structural Play. The
parties further agree that the two Initial Wells shall be drilled
before any other well is drilled on either License.
2. The Drilling Costs and Completion Costs payable by Farmee under the
terms of Paragraph 1 above shall be paid in accordance with Operator's
periodic cash calls and billings under the Operating Agreements and
subject to the terms and provisions of the Operating Agreements.
3. In addition to the Drilling Costs and Completion Costs of the Initial
Wells, Farmee shall pay in accordance with the provisions of the
Operating Agreements a five percent (5%) share of rig mobilization
and demobilization costs for the Initial Wells and all other costs
incurred pursuant to the Operating Agreements in connection with the
ownership and operation of the Licenses, whether prior to or after the
date of this letter agreement, but excluding costs incurred for
geological and geophysical data acquired by Farmors prior to
September 25, 1996 and any costs, debts or liabilities attributable to
operations carried out prior to March 17, 1997 (including,
specifically, all costs and liabilities attributable to the
November 1996 incident involving the Maersk Victory Rig). The parties
agree that time is of the essence for all payments owing under this
letter agreement.
<PAGE>
4. In consideration of Farmee's agreements contained in this letter
agreement and subject to satisfaction of all of Farmee's earning
obligations under this letter agreement in accordance with paragraphs
1 and 2 above, Farmors have executed and delivered to Farmee,
simultaneously with their execution and delivery of this Agreement,
assignments in substantially the form of Exhibit B attached hereto (the
"Assignments"), transferring, conveying and assigning to Farmee a five
percent (5%) undivided interest in the Licenses (the "Assigned
Interest"), with an undivided one-half of the Assigned Interest being
conveyed by each Farmor. The Assignments are subject to a
proportionate share of obligations to the government of South Australia
(the "Government") and existing overriding royalty interests equal to
four percent (4%) of 8/8ths of production (the "Third Party Overriding
Royalties"), to the consent of the Government, and to the consent of
the present parties to the Operating Agreements, and are further
subject to the reservation and exception of the Overriding Royalty
described in Paragraph 7 below. The Assignments contain a special
warranty of title from each Farmor warranting against all persons
claiming by, through or under such Farmor, but not otherwise, title to
an undivided two and one-half percent(2.5%) interest under each License
having at least an undivided two and three-fortieths percent (2.075%)
net revenue interest in production from the License (after deduction of
royalties, overriding royalties and other burdens on production). The
Assignments are subject to obligations to the Government, the terms of
the Overriding Royalty, the terms of the Third Party Overriding
Royalties and any applicable standard exceptions to title. Farmors
and Farmee agree to use all reasonable efforts to obtain the
Government's approval of the Assignments and agree to make such changes
to the form of the Assignments (provided they do not alter the
substance of the deal between the parties) as may be reasonably
requested by the Government. If the Government should fail to approve
the Assignments within one hundred eighty (180) days after submission
of the application, then Farmee shall furnish to the Government the
technical and/or financial assurances reasonably necessary to obtain
such approval. Nothing in this letter agreement shall be deemed to
impact that certain letter agreement among Farmors, Forcenergy
International Inc. and Canyon (Australia) PTY. Limited dated
September 25, 1996 (the "Forcenergy Agreement") or that certain letter
agreement among Farmors and Hanley OAD IV (Australia),L.L.C. dated
March 17, 1997 (the "Hanley Agreement" and, together with the
Forcenergy Agreement, the "Prior Letter Agreements").
<PAGE>
5. In the event that (a) Farmee does not satisfy all of Farmee's earning
obligations under this letter agreement in accordance with paragraphs
1 and 2 above by paying all amounts payable under such paragraphs on or
before the dates due and (b) either Farmor terminates this letter
agreement under Paragraph 9, the Assigned Interest shall automatically
revert to Farmors, free and clear of any liens or encumbrances
attaching during the period of Farmee's ownership, in the proportions
one-half to Wagner and one-half to Brown. To provide additional
evidence of such reversion, Farmee has executed and delivered to
Farmors, simultaneously with its execution and delivery of this
Agreement, reassignments in substantially the form of Exhibit C
attached hereto (the "Reassignments") transferring, conveying and
assigning to Farmors the Assigned Interest. The Reassignments are
subject to a proportionate share of obligations to the Government, and
to the Third Party Overriding Royalties and to the consent of the
Government and to the consent of the present parties to the Operating
Agreements, and are further subject to the Overriding Royalty. The
Reassignments contain a special warranty of title from Farmee
warranting against all persons claiming by, through or under Farmee,
but not otherwise, title to an undivided five percent (5%) interest
under each License having at least an undivided four and
three-twentieths percent (4.15%) net revenue interest in production
from the License (after deduction of royalties, overriding royalties
and other burdens on production), subject only to encumbrances
burdening the Assigned Interest prior to the date of the Assignment and
any applicable standard exceptions to title. Farmors shall hold the
Reassignments until filed or returned in accordance with this letter
agreement. If and only if Farmee has failed to pay on or before the
date due any amount payable under paragraphs 1 and 2 of this letter
agreement and either Farmor has terminated this letter agreement under
Paragraph 9, Farmors are authorized to insert the effective date of
termination as the effective date in each of the Reassignments, to
insert the resulting percentage ownership of each party in the
appropriate blanks in the Reassignments, and to file the Reassignments
with the Government. Farmee and Farmors shall each use all reasonable
efforts to obtain the Government's approval of the Reassignments and
agree to make such changes to the form of the Reassignments (provided
they do not alter the substance of the deal between the parties) as may
be reasonably requested by the Government. Should Farmee earn the
Assigned Interest under the terms of this Agreement, the Reassignments
shall be void and Farmors shall return the Reassignments to Farmee.
6. Farmee shall bear and pay any stamp duty payable under the South
Australian Stamp Duties Act with respect to this letter agreement and
the Assignments and with respect to any Reassignments. Farmee shall be
responsible for lodging this letter agreement and the Assignments for
stamping and Farmors shall be responsible (subject to receipt of
payment from Farmee) for lodging the Reassignments for stamping. Each
party shall bear and pay its own legal fees and all taxes, fees or
similar costs (except stamp duty) assessed against such party by the
Government or any other governmental authority in connection with the
Assignments, Reassignments and other transactions contemplated by this
letter agreement. Any taxes, fees or similar costs (except stamp duty)
incurred in connection with the Assignments or Reassignments and not
assessed against a particular party shall be paid by Farmee.
7. In each Assignment, each Farmor shall reserve an overriding royalty
interest equal to three-fortieths of one percent (0.075%) of 8/8's of
all oil, gas and other substances that may be produced and saved under
the applicable License, for a total reservation by both Farmors of
three-twentieths of one percent (0.15%) (the "Overriding Royalty").
The Overriding Royalty shall be free and clear of all costs of
exploring, drilling, appraising, developing, and operating each License
but shall bear its proportionate share of all costs of separating,
treating, gathering, compressing, processing, transporting and
marketing such production, and its proportionate share of any liability
for property taxes or taxes determined by gross production. Each
Farmor shall have the option to take its Overriding Royalty for any six
month period in kind by written notice to Farmee at least ten (10) days
prior to the first day of the first month of such period. If a Farmor
does not elect to take its Overriding Royalty in kind, Farmee shall pay
the Farmor, or arrange for the Farmor to be paid, the following amounts
with respect to sales of production from each License attributable to
any month in which the Farmor is not taking in kind:
(a) In the case of sales of oil or gas to
non-affiliates in arm's length transactions, Farmee shall pay
each Farmor for which it is marketing production 1.5% of the
gross proceeds received by Farmee from such sale less 1.5% of
deductible costs incurred by Farmee in connection with the
production sold; or
<PAGE>
(b) In the case of sales of production to an
affiliate or otherwise disposed of in a non-arm's length
transaction, Farmee shall pay to each Farmor for which it is
marketing production 1.5% of the market value of the oil or
gas sold by Farmee in such sale less 1.5% of deductible costs
incurred by Farmee in connection with the production sold.
"Market value," for purposes of this Paragraph, shall mean the
product of the quantity of oil or gas in question and the
highest price actually received in an arm's-length sale to a
non-affiliate by either Farmor during the month in question
or, if there was no such sale, then the prevailing price for
oil or gas of similar quality in Adelaide during the month in
question.
All payments to the Farmor shall be due within thirty (30) business
days after the applicable sales proceeds are received by Farmee.
8. The activities of the parties with respect to the Licenses shall be
subject to the laws and regulations of the Government and any other
government authority having jurisdiction and to the terms of the
Licenses. Operations by the parties on the Licenses shall be conducted
pursuant to the terms of the two Operating Agreements dated
September 25, 1996, one for P.E.L. 53 and one for P.E.L. 59, attached
to this letter agreement as Exhibit D, as amended from time to time
(as so amended, the "Operating Agreements"). Canyon (Australia) PTY.
Limited, ACN 053 781 909, a corporation organized under the laws of
Australia and an affiliate of Farmors ("Canyon"), is the operator under
each Operating Agreement (the "Operator"). Simultaneously with its
execution of this Agreement, Farmee has executed a document evidencing
its intention to be bound by the terms of each Operating Agreement
substantially in the form of Exhibit E. In the event of a conflict
between the provisions of this letter agreement and the provisions of
either Operating Agreement, the provisions of this letter agreement
shall prevail.
9. Either Farmor may terminate this letter agreement by written notice to
Farmee if before earning its interests hereunder, Farmee fails to pay
any of the Drilling Costs or Completion Costs when due and fails to pay
all past due amounts within five business days of written notice of its
default. This remedy shall be in addition to any remedies available to
Farmors under the terms of the Operating Agreements. Following either
Farmor's termination of this letter agreement under this Paragraph 9,
the Reassignments described in Paragraph 5 shall become effective and
Farmee shall have no further rights hereunder. Without limiting the
generality of the preceding sentence, upon any termination under this
Paragraph 9 Farmee shall lose all rights to receive an Assigned
Interest in the Licenses and shall have no right to receive a refund of
any amounts previously paid pursuant to this letter agreement. Farmee
shall execute a release and any other instruments reasonably requested
by either Farmor to evidence the termination of this letter agreement
and reversion of the Assigned Interest. Farmee shall remain liable
for any amounts then owing under Paragraph 2 of this letter agreement
plus interest thereon from the date due until paid at the rate provided
for late payments in the P.E.L. 53 Operating Agreement.
<PAGE>
10. Representations.
a. Each Farmor represents to Farmee that:
i. Such Farmor is a limited partnership duly organized
and validly existing under the laws of the State of
Texas, U.S.A.
ii. Such Farmor has the all necessary power and authority
under its agreement of limited partnership and the
partnership laws of the State of Texas, U.S.A. to
execute, deliver and perform this letter agreement,
the Assignments and the Reassignments.
iii. The execution, delivery and performance of this
letter agreement and the Assignments and the
execution, acceptance and performance of the
Reassignments by such Farmor have been duly
authorized by all necessary partnership action
(including any necessary general partner action) on
the part of such Farmor.
iv. This letter agreement, the Assignments and the
Reassignments have been duly executed and delivered
on behalf of such Farmor.
v. There are no suits, actions or proceedings pending,
or to the best knowledge of such Farmor, threatened,
against such Farmor before any court or governmental
authority, which relate to the Licenses or, if
adversely determined, would prevent the consummation
of the transactions contemplated hereby other than
suits, actions or proceedings relating to operations
prior to the date of this letter agreement for which
Farmee will have no liability.
vi. The execution, delivery and performance of this
letter agreement, the Assignments and the
Reassignments do not and will not contravene or
violate (i) the agreement of limited partnership of
such Farmor, (ii) to the best of such Farmor's
knowledge, any law, statute, rule or regulation of
any governmental authority having jurisdiction over
such Farmor, (iii) any material contract to which
such Farmor is a party or, to the best of such
Farmor's knowledge, by which the Assigned Interest
is bound or (iv) to the best of such Farmor's
knowledge, any writ, order or decision of any court
or governmental authority binding on such Farmor or
the Assigned Interest.
vii. Such Farmor has not directly or indirectly employed
any broker, finder or intermediary to whom Farmee
shall have any liability in connection with the
transactions contemplated hereby.
<PAGE>
viii. Such Farmor has and at the time of delivery of the
Assignments will have title to the Assigned Interest
that is free and clear of all encumbrances asserted
by persons claiming by, through or under such Farmor,
or, to the knowledge of such Farmor, by, through or
under any predecessor in title, other than
obligations to the Government, the Third Party
Overriding Royalties and the Overriding Royalty (the
net cumulative effect of which does not cause the net
revenue interest attributable to the undivided
interest in the Assigned Interest that is assigned
by such Assignor to be less than 2.075%), but subject
to the Operating Agreements, the terms of the
Licenses, and all applicable laws, rules and
regulations.
ix. Except for agreements relating to the Third Party
Overriding Royalties, agreements relating to the
acquisition of geological and geophysical data,
agreements relating to the drilling of the Initial
Wells, the Prior Letter Agreements and related
documents, agreements related to the acquisition of
P.E.L. 53 by Farmors and the agreements contemplated
by this letter agreement, neither the Licenses nor
the Assigned Interest are subject to any agreement or
contract to which such Farmor is a party or, to the
knowledge of such Farmor, by which the Licenses or
Assigned Interest are otherwise bound.
x. No third party has a preferential right to purchase
the Assigned Interest (or any portion thereof) and,
except for necessary consents from the Government and
the parties to the Operating Agreements, no third
party consent is required to effect the assignment of
the Assigned Interest.
xi. No oil or gas drilling or production operations have
been conducted under the Licenses.
b. Farmee represents to each Farmor that:
i. Farmee is a limited liability corporation duly
organized, validly existing, and in good standing
under the laws of the state of California.
ii. Farmee has the necessary corporate power and
authority to execute, deliver and perform this letter
agreement, the Assignments and the Reassignments.
iii. The execution, delivery and performance of this
letter agreement and the Reassignments and the
execution, acceptance and performance of the
Assignments by Farmee have been duly authorized by
all necessary corporate action (including any
necessary shareholder action) on the part of Farmee.
<PAGE>
iv. This letter agreement, the Assignments and the
Reassignments have been duly executed and delivered
on behalf of Farmee.
v. There are no suits, actions or proceedings pending,
or to the best knowledge of Farmee, threatened,
against Farmee before any court or governmental
authority, which, if adversely determined, would
prevent the consummation of the transactions
contemplated hereby.
vi. The execution, delivery and performance of this
letter agreement, the Assignments and the
Reassignments do not and will not contravene or
violate (i) the articles of incorporation or bylaws
of Farmee, (ii) to the best of Farmee's knowledge,
any law, statute, rule or regulation of any
governmental authority having jurisdiction over
Farmee, (iii) any material contract to which Farmee
is a party or (iv) to the best of Farmee's knowledge,
any writ, order or decision of any court or
governmental authority binding on Farmee.
vii. Farmee has not directly or indirectly employed any
broker, finder or intermediary to whom either Farmor
shall have any liability in connection with the
transactions contemplated hereby.
viii. Farmee has the financial resources available to it to
meet its obligations under this letter agreement.
ix. Except for obtaining the approval of the Government
as described in Paragraphs 4 and 5 and obtaining the
consent of the parties to the Operating Agreements,
no approval, authorization, waiver, or order of any
court or governmental authority is or was necessary
for the execution, delivery and performance of this
letter agreement, the Assignments and the
Reassignments by Farmee.
x. Farmee at the time of delivery of the Reassignments
will have title to the Assigned Interest that is free
and clear of all encumbrances asserted by persons
claiming by, through or under Farmee, but subject to
encumbrances burdening the Assigned Interest prior to
the date of the Assignments, the Operating
Agreements, the terms of the Licenses, and all
applicable laws, rules and regulations.
<PAGE>
c. Except as expressly set forth above in this Paragraph 10, or
as expressly contained in the Assignments and Reassignments,
each Farmor, and Farmee, make no, and disclaim any,
representations or warranties, whether express or implied,
as to title or any other matter. WITHOUT LIMITING THE
GENERALITY OF THE PRECEDING SENTENCE, ALL PERSONAL PROPERTY
INCLUDED IN THE ASSIGNED INTEREST IS ASSIGNED AS IS, AND EACH
FARMOR (AND FARMEE) MAKES NO, AND DISCLAIMS AND NEGATES ANY,
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO (i)
MERCHANTABILITY, (ii) FITNESS FOR ANY PARTICULAR PURPOSE,
(iii) CONDITION AND (iv) CONFORMITY TO MODELS OR SAMPLES OF
MATERIALS.
11. Farmors have prior to the date hereof and shall from time to time
hereafter provide Farmee with access to or copies of geological,
geophysical, engineering, financial, and other confidential information
in connection with the Licenses. All such information shall be
maintained by Farmee in confidence and shall not be disclosed by Farmee
other than in accordance with the applicable Operating Agreement.
Furthermore, all parties agree to maintain the contents of this letter
agreement in confidence and to not disclose the same to any third party
without the prior written consent of the others except to the extent
disclosure would be allowed if such contents were confidential
information under the Operating Agreements and except for disclosure by
Farmors to the parties to the Prior Letter Agreements as Farmors deem
appropriate to comply with their obligations under those agreements.
If this letter agreement terminates and the Assigned Interest reverts
to Farmors, Farmee shall return all confidential information received
from Farmors, together with all copies and extracts thereof, promptly
upon request by Farmors and shall not thereafter disclose such
confidential information to any person or use such confidential
information for any purpose.
12. Farmee may not assign, pledge, encumber or otherwise transfer all or
any part of its rights in this letter agreement, the Operating
Agreements or the Assigned Interest prior to earning its interest under
this letter agreement without the prior written consent of Farmors.
After any such assignment, both Farmee and the assignee shall be liable
for Farmee's obligations under this letter agreement. Except as set
forth in this Paragraph, the rights of either party to assign, pledge,
encumber or otherwise transfer its interest in the Licenses, or to
withdraw in whole or in part from the Licenses and the Operating
Agreements, shall be governed by the terms of the Licenses and the
Operating Agreements.
13. The representations and warranties in this letter agreement shall
survive the execution and delivery of the Assignments and (a) the
satisfaction of Farmee's obligations under Paragraphs 1 and 2 or (b)
reversion of the Assigned Interest to Farmors, as applicable, for a
period of one year from (a) or (b), as applicable, after which they
shall terminate and be of no further effect.
14. If not terminated sooner pursuant to Paragraph 9, this letter agreement
shall terminate upon the earlier of (a) termination of the Licenses and
any petroleum production license(s) issued in connection therewith or
(b) upon mutual written agreement of Farmors and Farmee to terminate
the same.
<PAGE>
15. This letter agreement shall be construed in accordance with, and the
rights and obligations of the parties governed by, the laws of the
State of Texas, U.S.A. Each party consents to be subject to the
jurisdiction of the courts of Texas for the limited purpose of the
enforcement of this letter agreement.
16. It is not the intention of the parties to create, nor shall this letter
agreement be construed as creating, a mining or other partnership or
other association or otherwise render the parties liable as partners.
The liability of the parties hereto shall be several and not joint or
collective. Nothing in this letter agreement or the Operating
Agreements shall preclude any party, or its affiliates, from engaging
in any business or purchasing any property of any sort whatsoever,
whether or not in competition with operations under this letter
agreement or the Operating Agreements, without consulting the other
parties or inviting or allowing the other parties to participate
therein, except for the restrictions on use of confidential information
by Farmee contained in Paragraph 11.
17. Unless otherwise specifically provided, all notices under this letter
agreement shall be given in writing and in the English language and
shall be delivered in accordance with the notices article in the P.E.L.
53 Operating Agreement, as supplemented by the Accession Agreement
attached to this letter agreement as Exhibit E.
18. This letter agreement (including the Exhibits) constitutes the entire
understanding of the parties with respect to the subject matter hereof
and supersedes any prior agreements, whether written or oral. This
letter agreement may be amended only in a writing signed by all
parties.
19. This letter agreement shall be binding upon and inure to the benefit of
the parties and their respective permitted successors and assigns.
20. Each party agrees to execute and deliver such further documents and
take such further actions as the other may reasonably request to
consummate and assure the effectiveness of the transactions
contemplated by this letter agreement.
21. As provided in each Operating Agreement, if Canyon ceases to serve as
Operator, whether through resignation or removal, and another affiliate
of either Farmor is not appointed as successor Operator, then the party
holding the largest participating interest in each Operating Agreement
who is not affiliated with Farmors shall become Operator under that
Operating Agreement without the need for a vote. In the event two
parties are tied for the largest non-affiliated participating interest,
the successor Operator shall be chosen as provided in each Operating
Agreement.
<PAGE>
22. If between the date of this letter agreement and the date of spudding
the first Initial Well, either Farmor enters into any agreement(s)
transferring an interest in the Licenses, or either of them, to a third
party or allowing a third party to earn an interest in the Licenses, or
either of them, then Farmors shall offer to Farmee the right to acquire
or earn the Assigned Interest on the same terms and conditions as
agreed with said third party(ies), pro rated based on the relative
size of the third party interest and the Assigned Interest, and shall
provide Farmee with a copy of any such agreement promptly after it has
been entered into. Farmee shall then have ten (10) days from receipt
of such notice and a copy of the third party agreement, or until the
date of spudding of the first Initial Well, whichever is earlier, in
which to give Farmors written notice of its election to acquire or
earn the Assigned Interest pursuant to the financial terms of such
third party agreement, as so prorated, in place of the provisions of
Paragraphs 1, 2, 3, 4, 5 and 7 of this letter agreement. Should Farmee
fail to give such written notice within said time period, such failure
shall be conclusively deemed to be an election by Farmee not to acquire
or earn the Assigned Interest based on the financial terms of such
third party agreement and to continue to earn the Assigned Interest
pursuant to this letter agreement. Should Farmee elect to acquire or
earn the Assigned Interest based on the financial terms of such third
party agreement, then Paragraphs 1, 2, 3, 4, 5 and 7 of this letter
agreement shall be replaced or modified as necessary to reflect the
financial terms of such third party agreement, as prorated, and except
as so modified, this letter agreement shall remain in force and effect.
If the third party agreement requires the third party or its affiliates
to provide services in connection with the Licenses in addition to or
in lieu of cash, Farmee shall have the right to acquire or earn the
Assigned Interest on the same terms and conditions, as described above,
by providing the same services itself, or through an affiliate, if
Farmee or its affiliate are qualified to provide such services.
Farmee may not delegate the performance of such services to a third
party, and if neither Farmee nor its affiliates are qualified to
provide such services, the rights granted in this Paragraph 22 shall
not apply.
23. Subject to Section 42 of the Petroleum Act, 1940, this letter agreement
shall have no effect until approved by the Minister of Mines and Energy
of South Australia. In addition, Farmors and Farmee agree that to the
extent required by applicable law, they shall provide notice of this
letter agreement to the Australian Foreign Investment Review Board.
24. This letter agreement may be executed in any number of counterparts,
and by different parties in separate counterparts, all of which shall
be considered to be one agreement.
<PAGE>
If the foregoing accurately sets forth your understanding,
please execute two originals of this letter agreement in the space provided
below, retain one fully executed original for your files, and return the other
to the undersigned. This letter agreement will expire unless a signed copy is
received by the undersigned on or before 5:00 p.m. on February ____, 1998.
Very truly yours,
WAGNER (AUSTRALIA), LTD.
By: Elkhorn Oil & Gas, LLC, General Partner
By:
Name:
Title:
BROWN (AUSTRALIA), LTD.
By: Elkhorn Oil & Gas, LLC, General Partner
By:
Name:
Title:
AGREED TO AND ACCEPTED THIS
____ DAY OF February, 1998
BETAUSTRALIA, LLC
By: Beta Oil & Gas, Inc., Managing Member
By:
Steve Antry, President
AREA OF MUTUAL INTEREST AGREEMENT
This Area of Mutual Interest Agreement ("Agreement"), dated October 27,
1997 ("Effective Date"), is entered into by and between Jim Frimodig, an
individual ("Frimodig") and Beta Oil & Gas, Inc., a Nevada corporation ("Beta"),
concerning the parties' joint participation in acquiring and operating oil and
gas interests covering the lands hereinafter described.
RECITALS
A. WHEREAS, Frimodig is a petroleum engineer who is experienced in
identifying geological properties as viable candidates for oil and gas
exploration and/or development, which properties cover lands in areas within the
State of California generally known as the Sacramento Basin and the San Joaquin
Basin (such geological properties sometimes referred to herein as "Prospects");
and
B. WHEREAS, Frimodig intends to identify Prospects for the purpose of
acquiring oil and gas interests thereon, and to caused to be drilled thereon one
or more exploratory and/or development wells for oil and gas; and
C. WHEREAS, Frimodig may identify other geological properties as viable
candidates for oil and gas exploration and/or development, which properties are
outside the areas of mutual interest specifically set forth herein ("Outside
Prospects"), and/or he may identify other prospects which are inside or outside
such areas of mutual interest, and which are owned by others but available for
purchase ("Acquisitions"); and
D. WHEREAS, Beta is a Nevada corporation in good standing engaged in
the business of exploration for and the acquisition and development of oil and
gas properties, and desires the opportunity to participate in any of the
Prospects, Outside Prospects, and Acquisitions identified and/or acquired by
Frimodig; and
E. WHEREAS, Frimodig and Beta desire to enter into this Agreement (1)
to identify certain areas of mutual interest concerning the Prospects and to
acquire oil and gas interests thereon, (2) to identify and acquire oil and gas
interests in Outside Prospects, and (3) to identify Acquisitions, all with the
goal of providing the parties the opportunity to jointly participate therein as
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants, conditions
and restrictions hereinafter set forth, and the promises to be kept and
performed by the parties hereto, it is agreed as follows:
I. AREAS OF MUTUAL INTEREST. Two (2) areas of mutual interest are hereby
established under this Agreement, as follows:
A. Sacramento Basin Forbes 3-D Project Area. The Sacramento Basin
Forbes 3-D Project Area ("Sacramento AMI") is hereby established covering the
following described lands:
Township 21 North, Range 2 West: All
Township 21 North, Range 3 West: All
Township 21 North, Range 4 West: East Half
Township 22 North, Range 2 West: All
Township 22 North, Range 3 West: All
Township 22 North, Range 4 West: East Half
Township 23 North, Range 2 West: All
Township 23 North, Range 3 West: All
Township 23 North, Range 4 West: East Half
all in the Counties of Butte, Glenn and Tehama, State of California, MDB&M, and
as depicted on the map attached hereto as Exhibit "A" and by this reference made
a part hereof.
B. San Joaquin Basin Pliocene 2-D Project Area. The San Joaquin Basin
Pliocene 2-D Project Area ("San Joaquin AMI") is hereby established covering the
following described lands:
Township 26 South, Range 22 East: East Half
Township 26 South, Range 23 East: All
Township 26 South, Range 24 East: All
Township 27 South, Range 22 East: East Half
Township 27 South, Range 23 East: All
Township 27 South, Range 24 East: All
Township 28 South, Range 22 East: East Half
Township 28 South, Range 23 East: All
Township 28 South, Range 24 East: All
all in Counties of Kern and Kings, State of California, MDB&M, and as depicted
on the map attached hereto as Exhibit "B" and by this reference made a part
hereof.
C. Sacramento AMI.
1. Identification of Prospects; Payment of Costs. Frimodig
will identify Prospects within the Sacramento AMI which he, in his sole
discretion, determines to exhibit reasonable seismic bright spot and amplitude
verses offset (AVO) characteristics. Beta shall pay 100% of the costs of: (a)
approximately 10 square miles of 3-D seismic shooting and proceesing, (b)
obtaining oil and gas interests and/or seismic options within such area, and (c)
drilling and completing three wells thereon at locations selected by Frimodig.
Upon completion of the 3-D seismic shooting, the size of the Sacramento AMI will
be redefined to encompass only the area covered by the seismic shooting, or the
area covered by oil and gas interests, or the area covered by seismic options.
The phrase "oil and gas interest" and "oil and gas interests" as used in this
Agreement shall include, without limitation, mineral, royalty or leasehold
interests, or an option to acquire such interests.
2. Acquisition of Oil and Gas Interests; Assignment to Beta.
The terms of any acquisition of oil and gas interests shall be at the sole
discretion of Frimodig. Provided that the following principal terms are not
exceeded:
a. For Leases - 1/5 Royalty or less, 3 year term or
greater and $30/acre rent or less.
b. For Seismic Options - 1 year option term or
greater, $10/acre option payment or less and lease
terms as set forth in I.C.2a.
It is understood that all oil and gas interests shall be acquired in the name of
Frimodig or his duly authorized agent. Within thirty (30) days after acquiring
any oil and gas interests, Frimodig shall deliver to Beta a duly executed and
recordable assignment of an undivided 75% interest therein, reserving, only for
the benefit of independent geologist/geophysicist compensation, an overriding
royalty interest not to exceed 2% of 8/8ths. Any such assignment shall be
without warranty of title, express or implied, except as relates to the acts of
Frimodig.
3. Prospect Fee. In addition to other costs paid by Beta
hereunder, Beta shall pay Frimodig a prospect fee of $30,000.00 for each of the
first three (3) wells drilled within the Sacramento AMI, each such payment to be
due upon the spudding of each such well.
4. Operating Agreement. Concurrent with the initial assignment
to Beta provided above, the parties hereto shall be deemed to have entered into
an Operating Agreement in substantially the same form as the Operating Agreement
attached hereto as Exhibit "C" and by this reference made a part hereof. Except
as otherwise expressly provided in this Agreement, the Operating Agreement shall
govern all operations on any Prospect within the Sacramento AMI. The Operating
Agreement shall designate Frimodig, or his duly authorized agent, as operator.
5. Cost of First Three Wells. Notwithstanding anything to the
contrary contained herein or in the Operating Agreement, Beta shall be
responsible for 100% of the costs of drilling and completing (through the tanks,
if completed as a producer, and plugged and abandoned, if a dry hole) the first
three (3) wells within the Sacramento AMI (regardless of whether such wells, or
any of them, are exploratory or development in nature). Thereafter, all
operations on said three (3) wells, if any, and all other operations within the
Sacramento AMI shall be governed by the Operating Agreement. It is understood
and agreed that Beta shall not be entitled to any form of reimbursement with
respect to its payment of a disproportionate share (i.e., 100% instead of 75%)
of the costs associated with the first three (3) wells.
6. Other Wells Within the Sacramento AMI. As to each well,
other than the first 3 wells, within the Sacramento AMI identified by Frimodig,
Beta shall pay Frimodig a prospect fee $10,000.00, each such payment to be due
upon the spudding of each such well. All operations on each such Prospect, and
the parties' respective shares thereof, shall be governed by the Operating
Agreement.
D. San Joaquin AMI.
1. Identification of Prospects; Payment of Costs. Frimodig
will identify Prospects within the San Joaquin AMI which he, in his sole
discretion, determines to exhibit reasonable seismic bright spot and AVO
characteristics. Beta shall pay 100% of the costs of: (a) approximately 50 miles
of 2-D seismic data and proceesing, (b) obtaining and renewing oil and gas
interests covering approximately 320 acres, and (c) drilling and completing two
wells thereon at locations selected by Frimodig.
2. Acquisition of Oil and Gas Interests; Assignment to Beta.
The terms of any acquisition of oil and gas interests shall be at the sole
discretion of Frimodig provided that the following principal terms are not
exceeded:
a. For Leases - 1/5 Royalty or less, 3 year term or
greater and $30/acre rent or less.
b. For Seismic Options - 1 year option term or
greater, $10/acre option payment or less and lease
terms as set forth in I.D.2a.
It is understood that all oil and gas interests shall be acquired in the name
of Frimodig or his duly authorized agent. Within thirty (30) days after
acquiring any oil and gas interests, Frimodig shall deliver to Beta a duly
executed and recordable assignment of an undivided 75% interest therein,
reserving, only for the benefit of independent geologist/geophysicist
compensation, an overriding royalty interest not to exceed 2.5% of 8/8ths. Any
such assignment shall be without warranty of title, express or implied, except
as relates to the acts of Frimodig.
3. Prospect Fee. In addition to other costs paid by Beta
hereunder, Beta shall pay Frimodig a prospect fee of $25,000.00 for each of the
first two (2) wells drilled within the San Joaquin AMI, each such payment to e
due upon the spudding of each such well.
4. Operating Agreement. Concurrent with the initial assignment
to Beta provided above, the parties hereto shall be deemed to have entered into
the Operating Agreement attached hereto as Exhibit "C." Except as expressly
provided in this Agreement, the Operating Agreement shall govern all operations
on any Prospect within the San Joaquin AMI. The Operating Agreement shall
designate Frimodig, or his duly authorized agent, as operator.
5. Cost of First Two Wells. Notwithstanding anything to the
contrary contained herein or in the Operating Agreement, Beta shall be
responsible for 100% of the costs of drilling and completing (through to the
tanks, if completed as a producer, and plugged and abandoned, if a dry hold) the
first two (2) wells within the San Joaquin AMI (regardless of whether such
wells, or any of them, are exploratory or development in nature). Thereafter,
all operations on said two (2) wells, if any, shall be governed by the Operating
Agreement. It is understood and agreed that Beta shall not be entitled to any
form of reimbursement with respect to its payment of a disproportionate share
(i.e., 100% instead of 75%) of the costs and expenses associated with the first
two (2) wells.
6. Other Wells Within the San Joaquin AMI. As to each
Prospect, other than the first 2 wells, within the San Joaquin AMI identified by
Frimodig, Beta shall pay Frimodig a prospect fee of $10,000.00, each such
payment to be due upon the spudding of each such well. All operations on each
such Prospect, and the parties' respective shares thereof, shall be governed by
the Operating Agreement.
II. BETA'S INITIAL PAYMENT
Concurrent with its execution of this Agreement, Beta shall pay
Frimodig the sum of $175,000.00, as an advanced payment, to be used by Frimodig
toward initial coses associated with the purchase of seismic shooting and
processing, purchasing seismic data and processing, and obtaining oil and gas
interests and/or seismic options covering lands within the Sacramento AMI or the
San Joaquin AMI under the terms of this Agreement. The initial payment also
includes an advance of prospect fees for one Sacramento AMI well ($30,000) and
one San Joaquin AMI well ($25,000), for a total of $55,000 to be used at
Frimodig's discretion. An estimated schedule of costs to casing point for the
first five (5) wells in both AMI's, including the initial payment, is shown in
Exhibit D. Beta understands that its obligation to pay 100% of the costs of such
oil and gas interests, seismic and drilling as set forth in this Agreement may
be more or less than the amount referenced in Exhibit D. Beta also agrees that
the time estimated for such acquisitions and drilling as forth in this Agreement
may be shorter or longer than referenced in Exhibit D. Beta agrees to pay within
15 days of being cash called by Frimodig, as estimated in Exhibit D, any and all
other costs required of it hereunder, or under the Operating Agreement, failing
which shall be deemed a material breach.
However, notwithstanding anything to the contrary contained in the
Agreement, in the event a cash call for oil and gas interests, seismic or
drilling will cause costs to exceed by more than 25% the estmiated amount seet
forth in Exhibit D, Beta shall have the election to either (1) terminate its
rights and obligations under this Agreement applicable to the particular cash
call, or (2) approve such cash call. Beta shall notify Frimodig in writing
within three (3) days after receiving the cash call whether it elects to (1)
terminate or (2) approve. Beta's failure to timely notify Frimodig of its
election shall be deemed an election to a approve the cash call. If Beta elects
to terminate, Beta shall, continue to be responsible for payment of all costs
properly attributable to it which were incurred prior to the date of its
election.
III. OUTSIDE PROSPECTS, & PRODUCING PROPERTY ACQUISITIONS
A. Identification of Outside Prospects; Beta's Option to Participate.
Frimodig may, but is not obligated to, identify one or more Outside Prospects
which he, in his sole discretion, determines to be viable candidates for
acquiring oil and gas interests thereon for purposes of drilling exploratory
and/or development wells. As to each Outside Prospect identified by Frimodig,
Beta shall have the option to participate therein for a minimum of 50% working
interest. If Beta elects to participate, the parties will enter into another AMI
agreement similar to this Agreement, but specific to the area covered by the
Outside Prospect, which includes, without limitation, the following general
terms:
1. As to Beta's participation, it shall pay Frimodig a
non-refundable prospect generation fee of $15,000.00 of 8/8ths for each well
drilled.
2. As to Beta's participation, it shall provide Frimodig with
a 10% of 8/8th carried working interest on all costs to casing point for each
well drilled.
3. Beta's right to participate in any Outside Prospects shall
terminate at the end of the year 2000.
B. Identification of Producing Property Acquisitions; Beta's Option to
Participate. Frimodig may, but is not obligated to, identify one or more
Producing Party Acquisitions which he, in his sole discretion, determines to be
viable candidates for acquiring oil and gas interests thereon for purposes of
particating in the operation of producing wells. As to each Producing Party
Acquisition identified by Frimodig, Beta shall have the option to participate
therein for a minimum of 50% working interest. If Beta elects to participate,
the parties will enter into another AMI agreement similar to this Agreement, but
specific to the area covered by the Producing Party Acquisition, which includes,
without limitation, the following general terms:
1. Frimodig shall not be entitled to any finder's fee.
2. As to Beta's particpation, it shall provide Frimodig with a
2.5% of 8/8th carried working interest in all acquired properties.
3. Beta's right to participate in any Producing Party
Acquisition shall terminate at the end of the year 2000.
IV. RENEWALS AND EXTENSIONS
As to each Prospect within the Sacramento AMI or the San Joaquin AMI,
it is understood and agreed that in the event any oil and gas interest covered
hereby expires and a new oil and gas interest (including, without limitation,
new lease, top lease, renewal, extension or other instrument affecting the
acreage covered thereby, or a portion thereof), is acquired by either party
hereto, or by any party representing or acting on behalf of such party (the
"acquiring party"), within one (1) year from the latest expiration date of any
oil and gas interest thereon, such new oil and gas interest shall become subject
to this Agreement to the same effect as though it originally covered such
prospect if, and only if, the other party (the "non-acquiring party") elects to
participate in such acquisition.
In that regard, the acquiring party shall immediately notify the
non-acquiring party in writing of such acquisition, including all relevant
details relating thereto. The non-acquiring party shall have thirty (30) days
thereafter to notify the acquiring party in writing of its election to
participate in such acquisition. If the non-acquiring party elects to so
participate, it shall reimburse the acquiring party for the non-acquiring
party's percentage interest of the acquisition costs. Promptly after receipt of
such payment, the acquiring party shall deliver to the non-acquiring party a
duly executed and recordable assignment of the non-acquiring party's percentage
interest in and to the new oil and gas interest. Such assignment shall be
without warranty of title, express or implied, except that the acquiring party
shall warrant such new oil and gas interest is free and clear of any and all
liens and encumbrances by, through, and under the acquiring party, but not
otherwise. Failure to timely elect to participate in such acquisition shall be
deemed an election not to participate. The phrase "non-acquiring party's
percentage interest" as used in this paragraph means such party's interest in
the prospect in which the new oil and gas interest was acquired.
The parties hereto specifically agree that the provisions of this
Article III shall remain in effect notwithstanding a termination of the rights
and obligations provided for in this Agreement.
V. BETA'S CASH REQUIREMENTS AND LIQUIDATED DAMAGES
A. Beta's Cash Requirements. Beta understands that Frimodig's efforts
to identify prospects and acquire oil and gas interests thereon will require the
purchase of seismic, seismic processing and/or geological data relating thereto.
In that regard, Beta shall at all times during the terms of this Agreement and
as estimated by Exhibit D, promptly advance funds when cash called within 15
days and/or pay accounts within 15 days of being invoiced by Frimodig. Beta's
failure to perform either of these requirments shall be deemed a material breach
of this Agreement, the result of which shall be, at Frimodig's election, Beta's
forfeiture of any and all further rights under this Agreement, and at any time
before the first five (5) wells have been drilled, payment of the amount set
forth in paragraph V.B.
B. Liquidated Damages. If Beta fails to advance funds when cash called
by Frimodig, as estimated in Exhibit D, within 15 days and/or pay accounts
within 15 days of being invoiced by Frimodig, then Frimodig, at his option, may
terminate this Agreement and all rights and obligations hereunder by giving
written notice thereof to Beta. Thereupon, Frimodig shall be relieved of any
obligation to identify and/or acquire oil and gas interests on any prospect, and
at any time before the first three wells in the Sacramento AMI and two wells in
the San Joaquin AMI have been drilled, Frimodig shall be entitled to immediate
payment from Beta of the sum of $100,000.00 as liquidated damages, and each
party hereto shall return to the other party any and all documents rightfully
belonging such other party. Frimodig shall not be entitled to liquidated damages
if after 18 months of the execution of this Agreement, he fails to identify the
five (5) prospects as set forth in paragraph I.C.1 and I.D.1.
Frimodig and Beta agree that it would be extremely impractical and
difficult to estimate the amount of damages Frimodig might suffer in the event
of Beta's default hereunder. The parties hereby agree that the delivery of the
above-noted liquidated damages to Frimodig in the event of Beta's default
represents a fair and reasonable estimate of said damages.
Frimodig's Initials:__________ Beta's Initials:__________
VI. OPERATING AGREEMENT
A. As to each Prospect with the Sacramento AMI and the San Joaquin AMI,
the parties agree that the Operating Agreement attached hereto as Exhibit "C"
and by this reference made a part hereof shall automatically become effective
and, except as expressly provided in this Agreement, shall govern all operations
as to each such Prospect. Frimodig, or his designated agent, shall act as
operator.
B. Notwithstanding anything to the contrary contained herein or in the
Operating Agreement, it is understood and agreed that, as to the first five (5)
wells drilled hereunder (i.e., three (3) wells within the Sacramento AMI and two
(2) wells within the San Joaquin AMI, as set forth above), Beta shall pay 100%
of all costs associated with drilling and completing such wells through the
tanks (if completed as a producer of oil or gas), or plugged and abandoned (if a
dry hole). Thereafter, all operations on said five (5) wells, if any, shall be
governed by the Operating Agreement.
VII. ASSIGNABILITY
It is understood and agreed that this Agreement and any assignment or
sublease which either party hereto may become entitled to under the terms hereof
shall not be assigned or subleased, in whole or in part, without the other
party's prior written consent, and the granting of any such consent by either
party shall not have the effect of waiving this limitation on any future or
additional assignments or subletting thereof. Every such assignment or sublease
made without the appropriate party's prior written consent shall be void. A
party's prior written consent to any assignment hereunder shall not be
unreasonably withheld.
VIII. TITLE
Irrespective of any provision contained herein to the contrary, it is
specifically understood and agreed that Frimodig makes no warranty whatsoever
regarding the title to any oil and gas interest acquired hereunder.
Specifically, Frimodig does not warrant the title to nor represent that the oil
and gas interests cover a full interest in the lands covered thereby. It is
agreed that Frimodig shall not be required to furnish any preliminary title
reports, abstracts of title, or similar documentation regarding title to any oil
and gas interests acquired hereunder, and Frimodig shall have no obligation to
purchase any policies of title insurance or title opinions, nor shall Frimodig
be obligated to do any curative work in connection with the title to any of the
oil and gas interests, except as specifically required for the drillsite leases
as set forth in Article IV of the Operating Agreement, attached as Exhibit C.
Any assignment from Frimodig will be without warranty, either express or
implied, except as to Frimodig's own acts. Furthermore, should any oil and gas
interest require written consent to assign, Frimodig's assignment to Beta shall
be subject to Frimodig's ability to secure such consent, and Frimodig shall not
be liable to Beta for its inability to obtain such consent in any manner.
IX. INSURANCE
Frimodif shall carry the insurance provided for in the Operating
Agreement with respect to all operations conducted by Frimodig wihtin the AMIs,
including operations conducted and to be conducted at the sole cost, risk and
expense of Beta. Such insurance shall be charged to the parties and carried for
the mutual benefit and protection of both Frimodig and Beta.
X. DISCLOSURES
Beta agrees to notify Frimodig five days in advance of any type of
disclosure to any third party regarding any of the terms of this Agreement or
any details relating to the Sacramento AMI or San Joaquin AMI.
XI. NOTICES
Any notice, request, instruction or other document to be delivered
hereunder by any party hereto to any other party shall be in writing and
delivered personally, via telecopy (with receipt confirmed) or by registered or
certified mail, postage prepaid:
If to Frimodig: Jim Frimodig
P. O. Box 99243
San Diego, CA 92167
Phone: (619) 539-6901
Fax: (619) 488-7055
If to Beta: Beta Oil & Gas, Inc.
901 Dove Street, Suite 230
Newport Beach, CA 92660
Phone: (714) 752-5212
Fax: (714) 752-5757
or at such other address for a party as shall be specified by like notice. Any
notice that is delivered personally in the manner provided herein shall be
deemed to have been duly given to the party to whom it is directed upon actual
receipt by such party (or its agents for notices hereunder). Any notice that is
addressed and mailed in the manner herein provided shall be conclusively
presumed to have been duly given to the party to which it is addressed at the
close of business, local time of the recipient, on the third day after the day
it is so placed in the mail. Any notice that is sent by telecopy shall be deemed
to have been duly given to the party to which it is addressed upon telephonic
confirmation of the same as provided herein. A copy of any notice delivered by
telecopy shall promptly be mailed in the manner herein provided to the party to
which such notice was given.
XII. REPRESENTATIONS AND WARRANTIES OF THE PARTIES
A. Except as may otherwise be set forth in this Agreement, Frimodig
hereby represents and warrants to and covenants with Beta as follows:
1. Effect of Agreement; Consent. The execution and delivery of
this Agreement by Frimodig and the consummation by Frimodig of the transactions
contemplated hereby do not require the consent, approval, clearance, waiver,
order or authorization of any other person.
2. No Misleading Statements. This Agreement, and the
information referred to herein, when taken as a whole, do not include any untrue
statement of a material fact and do not omit any material fact necessary to make
the statements contained herein or therein not misleading.
3. Execution and Delivery. Frimodig has full power and
authority to execute and deliver this Agreement and to perform his obligations
hereunder. This Agreement has been duly executed and delivered by Frimodig and
constitutes a legal, valid and binding obligation of Frimodig, enforceable
against him in accordance with its terms, except as such enforceability may be
limited by or subject to (a) any bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to creditor's rights generally and (b)
general principles or equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
B. Except as may otherwise be set forth in this Agreement, Beta hereby
represents and warrants to and covenants with Frimodig as follows:
1. Corporate Organization. Beta is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada and has all requisite corporate power and authority to carry on its
business in the State of California as it is now being conducted, and to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby.
2. No Misleading Statements. This Agreement, and the
information referred to herein, when taken as a whole, do not include any untrue
statement of a material fact and do not omit any material fact necessary to make
the statements contained herein or therein not misleading.
3. Due Authorization, Execution and Delivery; Effect of
Agreement. The execution and delivery by Beta of this Agreement and the
consummation by Beta of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Beta. This Agreement
has been duly and validly executed and delivered by Beta and constitutes the
legal, valid and binding obligation of Beta, enforceable against it in
accordance with its terms, except as such enforceability may be limited by or
subject to (a) any bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to creditor's rights generally and (b) general principles
or equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
4. Consents. No consent, approval or authorization of, or
exemption by, or filing with, any person or entity is required in connection
with the execution, delivery or performance by Beta of this Agreement or the
taking of any other action contemplated hereby.
XII. GENERAL PROVISIONS
A. Agreement Subject to Laws. This Agreement is subject to all valid
and applicable Federal, State and local laws, rules, orders and regulations and
all operations hereunder shall be conducted in conformity therewith.
B. Successor and Assigns. This Agreement will inure to the benefit of
and be binding upon the parties hereto, and their respective successors and
permitted assigns. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any parties hereto without the prior
written consent of the other parties hereto. Any assignment without such consent
being first obtained shall be void.
C. Expenses. Except as may otherwise be provided in this Agreement or
the Operating Agreement, each party hereto shall be responsible for the payment
of the fees and expenses of their respective counsel, accountants and other
experts in the negotiation and preparation of this Agreement.
D. Modification and Waiver. Any of the terms or conditions of this
Agreement may be waived in writing at any time by the party which is entitled to
the benefits thereof. No waiver of any of the provisions of this Agreement shall
be deemed to or shall constitute a waiver of any other provisions hereof
(whether or not similar).
E. Further Assurances. The parties agree to take all such further
actions and execute, acknowledge and deliver all such further documents that are
necessary or useful in carrying out the purpose and intent of this Agreement, to
the extent permitted by applicable law.
F. Invalidity. Except as may otherwise be provided, if any term or
other provision of this Agreement is invalid, illegal or incapable of being
enforced by any rule of law, or public policy, all other conditions and
provisions of this Agreement shall nevertheless remain in full force and effect.
Upon such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner to the end that the transactions
contemplated hereby are fulfilled to the extent possible.
G. Attorneys' Fees. In the event of any claim, dispute or controversy
arising out of or relating to this Agreement, the prevailing party in such
action or proceeding shall be entitled to recover its reasonable attorneys' fees
and costs. The court shall determine who is the "prevailing party," whether or
not the dispute or controversy proceeds to final judgment.
H. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
and all of which shall constitute the same instrument.
I. Headings. Headings used in this Agreement are included for
convenience only and shall not be deemed to constitute part of this Agreement
or to affect its construction.
J. Gender and Number. Masculine, feminine, or neuter gender
and the singular and the plural number, shall each be considered to include
the other whenever the context so requires.
K. Governing Law; Interpretation. This Agreement shall be construed in
accordance with and governed by the laws of the State of California (regardless
of the laws that might otherwise govern under applicable California principles
of conflict of laws) as to all matters, including, but not limited to, matters
of validity, construction, effect, performance and remedies.
L. Jurisdiction. Any legal action or proceeding with respect to this
Agreement may be brought in the federal or state courts for the County of Kern,
in the State of California, and by execution and delivery of this Agreement, the
parties hereto hereby accept the jurisdiction of the aforesaid courts.
M. No Warranties. No representation, warranty, or recommendation is
made by either party, their respective agents, employees, or attorneys regarding
the legal sufficiency, legal effect, or tax consequences of this Agreement or
the transaction, and each signatory is advised to submit this Agreement to his
respective attorney before signing it.
N. Survival. The warranties, representations and indemnities contained
in this Agreement, and in any other instrument delivered pursuant hereto, shall
survive the date hereof and shall remain in full force and effect thereafter.
O. Time of Essence. Time is of the essence in this Agreement and a
failure of this condition shall be a material breach hereof.
P. Conflict. In the event of any conflict between the terms of this
Agreement and the terms of the Operating Agreement attached hereto, the terms of
this Agreement shall prevail.
Q. Entire Agreement. This Agreement constitutes the sole understanding
of the parties hereto with respect to the matters provided for herein and
supersedes any previous agreements and understandings between the parties with
respect to the subject matter hereof. No amendment, modification or alteration
of this Agreement shall be binding unless in writing and duly executed by all
parties hereto.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the Effective Date, and each party acknowledges receipt of a
fully executed copy of this Agreement.
BETA OIL & GAS, INC.,
a Nevada corporation
By
Jim Frimodig Steve Antry, President
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made, entered into, and
effective as of _________________, 1997 ("Effective Date"), by and between Beta
Oil & Gas, Inc. ( the "COMPANY") and Steve Antry ("Employee").
RECITALS
WHEREAS, COMPANY desires to benefit from Employee's expertise in
financing and operating oil and gas companies;
WHEREAS, Employee desires to accept such employment, subject to the
conditions and terms set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, the parties hereto hereby agree as follows:
AGREEMENT
1. Terms and Duties.
COMPANY hereby employs Employee as President of the Company as of the
date first set forth above and Employee agrees to enter into and remain in the
employ of COMPANY until this Agreement is terminated as provided hereinbelow.
Employee shall faithfully and diligently perform all professional duties and
acts as President, as may be required by the Board of Directors of the Company.
2. Exclusivity.
Employee agrees to perform Employee's services efficiently and to the
best of Employee's ability. Employee agrees throughout the term of this
Agreement to devote the majority of hisl time, energy and skill to the business
of the COMPANY and to the promotion of the best interests of the COMPANY. The
Company understands that nothing contained in this Agreement shall prohibit
Employee from continuing in his positions as the Chairman of the Board of Beta
Capital Group, Inc. and as a member of the Board of Directors of Pease Oil &
Gas, Inc. The Employee understands that he must obtain the consent of the Board
of Directors of the Company to commit to any additional positions which would
require utilization of his business time.
3. Compensation.
<PAGE>
Subject to the termination of this Agreement as provided herein,
COMPANY shall compensate Employee for his services hereunder at an annual salary
of $150,000 ("Salary") commencing October 1, 1997, payable in monthly
installments in accordance with the COMPANY's practices, less normal payroll
deductions. The Employee shall also be reimbursed for all expenses associated
with the maintenance and operation of Employee's car, up to $1,000 per month
plus gasoline expenses. In addition to the Salary as defined above, COMPANY
agrees to pay Employee a bonus, at times and in amounts determined by the Board
of Directors of the COMPANY. Employee shall be entitled to such other benefits
and salary increases as the Board of Directors may determine.
4. Disability of Employee.
Employee shall be considered disabled if, due to illness or injury,
either physical or mental, Employee is unable to perform Employee's customary
duties as an employee of COMPANY for more than thirty (30) days in the aggregate
out of a period of twelve (12) `consecutive months. The determination that
Employee is disabled shall be made by the Board of Directors of COMPANY, based
in part upon a physician's certification from a physician selected by the Board
of Directors of COMPANY and reasonably satisfactory to Employee. Employee agrees
to timely submit to any required medical or other examination.
If Employee is determined to be disabled, COMPANY shall have the option
of terminating this Agreement in its entirety upon fourteen (14) days written
notice, subject to the provisions of Section 6 below, to Employee stating the
date of termination, which date may be any time selected by COMPANY, but after
the date of the notice.
6. Termination and Liquidated Damages.
COMPANY shall have the right to terminate Employee "for cause" and
"without cause."
For purposes of this Agreement, the term "cause" shall be: (a) any
felonious conduct or material fraud by Employee in connection with the COMPANY;
(b) any embezzlement or misappropriation of funds or property of COMPANY by
Employee; (c) gross negligence by Employee; and (d) Employee's willful and
intentional misconduct in the performance of his material duties and
obligations, in each case after written notice to Employee specifying the cause
for termination, and, in the case of the causes described in (c) and (d) above,
the passage of not less than thirty (30) days after receipt of such notice,
during which time Employee shall have the right to respond to COMPANY's notice
and cure the breach or other event giving rise to the termination. In the event
that Employee is able to cure, this Agreement shall continue in full force and
effect. In the event of "for cause" termination, the COMPANY shall not have the
right to terminate or otherwise cancel any securities issued by the COMPANY to
the Employee.
COMPANY shall have the right to terminate Employee "without cause" upon
the payment of the "Severance Benefits." Severance Benefits shall mean, for
purposes of this Agreement, the payment of the following:
<PAGE>
(a) options to acquire the common stock of the COMPANY in an amount
equal to 10% of the then issued and outstanding shares containing a five-year
term, piggyback registration rights and an exercise price equal to 60% of the
fair market value of the shares during the sixty-day period of time preceding
the termination notice, such amount not to exceed $3.00 per share; and
(b) a cash payment equal to two times the aggregate compensation
payable to the Employee during the remaining term of this Agreement;
(c) in the event of termination "without cause," all unvested
securities issued by the COMPANY to the Employee shall immediately vest and the
COMPANY shall not have the right to terminate or otherwise cancel any securities
issued by the COMPANY to the Employee.
7. Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto, their respective devisees, legatees, heirs, legal
representatives, successors, and permitted assigns. The preceding sentence shall
not affect any restriction on assignment set forth elsewhere in this Agreement.
8. Arbitration.
If a dispute or claim shall arise with respect to any of the terms or
provisions of this Agreement, or with respect to the performance by either of
the parties under this Agreement, then either party may, with notice as herein
provided, require that the dispute be submitted under the Commercial Arbitration
Rules of the American Arbitration Association.
9. Notices.
Any notice, request, demand, or other communication given pursuant to
the terms of this Agreement shall be deemed given upon delivery, if hand
delivered, or forty-eight (48) hours after deposit in the United States mail,
postage prepaid, and sent certified or registered mail, return receipt
requested, correctly addressed to the principal business address of the party to
which the communication is addressed.
10. Assignment.
Subject to all other provisions of this Agreement, any attempt to
assign or transfer this Agreement or any of the rights conferred hereby, by
judicial process or otherwise, to any person, firm, COMPANY, or corporation
without the prior written consent of the other party except for a transfer of
COMPANY's rights to a subsidiary or affiliate of COMPANY, shall be invalid, and
may, at the option of such other party, result in an incurable event of default
resulting in termination of this Agreement and all rights hereby conferred.
<PAGE>
11. Choice of Law.
This Agreement and the rights of the parties hereunder shall be
governed by and construed in accordance with the laws of the State of California
including all matters of construction, validity, performance, and enforcement
and without giving effect to the principles of conflict of laws.
12. Entire Agreement.
Except as provided herein, this Agreement, including exhibits, contains
the entire agreement of the parties, and supersedes all existing negotiations,
representations, or agreements and all other oral, written, or other
communications between them concerning the subject matter of this Agreement.
There are no representations, agreements, arrangements, or understandings, oral
or written, between and among the parties hereto relating to the subject matter
of this Agreement that are not fully expressed herein.
13. Severability.
If any provision of this Agreement is unenforceable, invalid, or
violates applicable law, such provision, or unenforceable portion of such
provision, shall be deemed stricken and shall not affect the enforceability of
any other provisions of this Agreement.
14. Captions.
The captions in this Agreement are inserted only as a matter of
convenience and for reference and shall not be deemed to define, limit, enlarge,
or describe the scope of this Agreement or the relationship of the parties, and
shall not affect this Agreement or the construction of any provisions herein.
15. Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which shall together constitute
one and the same instrument.
16. Modification.
No change, modification, addition, or amendment to this Agreement shall
be valid unless in writing and signed by all parties hereto.
17. Attorneys' Fees.
<PAGE>
Except as otherwise provided herein, if a dispute should arise between
the parties including, but not limited to arbitration, the prevailing party
shall be reimbursed by the nonprevailing party for all reasonable expenses
incurred in resolving such dispute, including reasonable attorneys' fees
exclusive of such amount of attorneys' fees as shall be a premium for result or
for risk of loss under a contingency fee arrangement.
18. Taxes.
Any income taxes required to be paid in connection with the payments
due hereunder, shall be borne by the party required to make such payment. Any
withholding taxes in the nature of a tax on income shall be deducted from
payments due, and the party required to withhold such tax shall furnish to the
party receiving such payment all documentation necessary to prove the proper
amount to withhold of such taxes and to prove payment to the tax authority of
such required withholding.
20. Not for the Benefit of Creditors or Third Parties.
The provisions of this Agreement are intended only for the regulation
of relations among the parties. This Agreement is not intended for the benefit
of creditors of the parties or other third parties and no rights are granted to
creditors of the parties or other third parties under this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the Effective Date.
"COMPANY"
BETA OIL & GAS, INC.
By:/s/
Title:
"Employee"
/s/
-----------------------------------
<PAGE>
ADDENDUM
This Addendum is attached to and is a part of that certain EMPLOYMENT
AGREEMENT by and between BETA OIL & GAS, INC., a Nevada corporaation
("Company"), and STEVE ANTRY, an individial ("Employee"), dated________,
1997, (the "Agreement").
1. Compensation. Notwithstanding anything to the contrary contained in
the Agreement, Employee and Company agree that section 6(b) of the Agreement
should read as follows:
(b) a cash payment equal to two times the aggregate annual compensation
payable to the Employee during the remaining term of this Agreement;
2. No Modification. Except as specifically amended, modified, and
supplemented by this Addendum, the terms and provisions of the Agreement shall
remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the Effective Date.
"COMPANY"
BETA OIL & GAS, INC.
By:______________________________
Name: ___________________________
Title:_____________________________
By:______________________________
Name: ___________________________
Title:_____________________________
"Employee"
By: ______________________________
Name: ___________________________
By: ______________________________
Name: ___________________________
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
_________________, 1997 by and between Beta Oil & Gas, Inc. ( the "COMPANY") and
Steven Fischer ("Employee").
RECITALS
WHEREAS, COMPANY desires to benefit from Employee's expertise in
financing and operating oil and gas companies;
WHEREAS, Employee desires to accept such employment, subject to the
conditions and terms set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, the parties hereto hereby agree as follows:
AGREEMENT
1. Terms and Duties.
COMPANY shall employ Employee as Vice- President of Capital Markets
commencing immediately and terminating upon the date which is four years from
the Effective Date. Employee shall faithfully and diligently perform all
professional duties and acts as may be required by the Board of Directors of the
Company. The Effective Date shall mean, for purposes of this Agreement, the date
upon which the Employee's employment agreement is executed.
2. Exclusivity.
Employee agrees to perform Employee's services efficiently and to the
best of Employee's ability. Employee agrees throughout the term of this
Agreement to devote the majority of his time, energy and skill to the business
of the COMPANY and to the promotion of the best interests of the COMPANY. The
Employee understands that he must obtain the consent of the Board of Directors
of the Company to commit to any additional positions which would require
utilization of his business time.
3. Compensation.
<PAGE>
Subject to the termination of this Agreement as provided herein,
COMPANY shall compensate Employee for his services hereunder at an annual salary
of $60,000 ("Salary"), payable in monthly installments in accordance with the
COMPANY's practices, less normal payroll deductions beginning on March 1, 1999.
In addition to the Salary as defined above, COMPANY agrees to pay Employee a
bonus, at times and in amounts determined by the Board of Directors of the
COMPANY. Employee shall be entitled to such other benefits and salary increases
as the Board of Directors may determine.
4. Disability of Employee.
Employee shall be considered disabled if, due to illness or injury,
either physical or mental, Employee is unable to perform Employee's customary
duties as an employee of COMPANY for more than thirty (30) days in the aggregate
out of a period of twelve (12) consecutive months. The determination that
Employee is disabled shall be made by the Board of Directors of COMPANY, based
in part upon a physician's certification from a physician selected by the Board
of Directors of COMPANY and reasonably satisfactory to Employee. Employee agrees
to timely submit to any required medical or other examination.
If Employee is determined to be disabled, COMPANY shall have the option
of terminating this Agreement in its entirety upon fourteen (14) days written
notice, subject to the provisions of Section 6 below, to Employee stating the
date of termination, which date may be any time selected by COMPANY, but after
the date of the notice.
6. Termination and Liquidated Damages.
COMPANY shall have the right to terminate Employee "for cause".
For purposes of this Agreement, the term "cause" shall be: (a) any
felonious conduct or material fraud by Employee in connection with the COMPANY;
(b) any embezzlement or misappropriation of funds or property of COMPANY by
Employee; (c) gross negligence by Employee; and (d) Employee's willful and
intentional misconduct in the performance of his material duties and
obligations, in each case after written notice to Employee specifying the cause
for termination, and, in the case of the causes described in (c) and (d) above,
the passage of not less than thirty (30) days after receipt of such notice,
during which time Employee shall have the right to respond to COMPANY's notice
and cure the breach or other event giving rise to the termination. In the event
that Employee is able to cure, this Agreement shall continue in full force and
effect. In the event of "for cause" termination, the COMPANY shall not have the
right to terminate or otherwise cancel any securities issued by the COMPANY to
the Employee.
7. Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto, their respective devisees, legatees, heirs, legal
representatives, successors, and permitted assigns. The preceding sentence shall
not affect any restriction on assignment set forth elsewhere in this Agreement.
<PAGE>
8. Arbitration.
If a dispute or claim shall arise with respect to any of the terms or
provisions of this Agreement, or with respect to the performance by either of
the parties under this Agreement, then either party may, with notice as herein
provided, require that the dispute be submitted under the Commercial Arbitration
Rules of the American Arbitration Association.
9. Notices.
Any notice, request, demand, or other communication given pursuant to
the terms of this Agreement shall be deemed given upon delivery, if hand
delivered, or forty-eight (48) hours after deposit in the United States mail,
postage prepaid, and sent certified or registered mail, return receipt
requested, correctly addressed to the principal business address of the party to
which the communication is addressed.
10. Assignment.
Subject to all other provisions of this Agreement, any attempt to
assign or transfer this Agreement or any of the rights conferred hereby, by
judicial process or otherwise, to any person, firm, COMPANY, or corporation
without the prior written consent of the other party except for a transfer of
COMPANY's rights to a subsidiary or affiliate of COMPANY, shall be invalid, and
may, at the option of such other party, result in an incurable event of default
resulting in termination of this Agreement and all rights hereby conferred.
11. Choice of Law.
This Agreement and the rights of the parties hereunder shall be
governed by and construed in accordance with the laws of the State of California
including all matters of construction, validity, performance, and enforcement
and without giving effect to the principles of conflict of laws.
12. Entire Agreement.
Except as provided herein, this Agreement, including exhibits, contains
the entire agreement of the parties, and supersedes all existing negotiations,
representations, or agreements and all other oral, written, or other
communications between them concerning the subject matter of this Agreement.
There are no representations, agreements, arrangements, or understandings, oral
or written, between and among the parties hereto relating to the subject matter
of this Agreement that are not fully expressed herein.
<PAGE>
13. Severability.
If any provision of this Agreement is unenforceable, invalid, or
violates applicable law, such provision, or unenforceable portion of such
provision, shall be deemed stricken and shall not affect the enforceability of
any other provisions of this Agreement.
14. Captions.
The captions in this Agreement are inserted only as a matter of
convenience and for reference and shall not be deemed to define, limit, enlarge,
or describe the scope of this Agreement or the relationship of the parties, and
shall not affect this Agreement or the construction of any provisions herein.
15. Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which shall together constitute
one and the same instrument.
16. Modification.
No change, modification, addition, or amendment to this Agreement shall
be valid unless in writing and signed by all parties hereto.
17. Attorneys' Fees.
Except as otherwise provided herein, if a dispute should arise between
the parties including, but not limited to arbitration, the prevailing party
shall be reimbursed by the nonprevailing party for all reasonable expenses
incurred in resolving such dispute, including reasonable attorneys' fees
exclusive of such amount of attorneys' fees as shall be a premium for result or
for risk of loss under a contingency fee arrangement.
18. Taxes.
Any income taxes required to be paid in connection with the payments
due hereunder, shall be borne by the party required to make such payment. Any
withholding taxes in the nature of a tax on income shall be deducted from
payments due, and the party required to withhold such tax shall furnish to the
party receiving such payment all documentation necessary to prove the proper
amount to withhold of such taxes and to prove payment to the tax authority of
such required withholding.
<PAGE>
20. Not for the Benefit of Creditors or Third Parties.
The provisions of this Agreement are intended only for the regulation
of relations among the parties. This Agreement is not intended for the benefit
of creditors of the parties or other third parties and no rights are granted to
creditors of the parties or other third parties under this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the Effective Date.
"COMPANY"
BETA OIL & GAS, INC.
By:
Title:
"Employee"
Steven Fischer
WARRANT AGREEMENT
THIS WARRANT AGREEMENT (this "Agreement") is made and entered into as
of January 27, 1998, between BETA OIL & GAS, INC., a Nevada corporation (the
"Company") and J. CHRIS STEINHAUSER, an individual ("Holder").
R E C I T A L S
WHEREAS, the Company proposes to issue to Holder 100,000 warrants (the
"Warrants"), each such Warrant entitling the holder thereof to purchase one
share of Common Stock, $0.001 par value, of the Company (the "Shares" or the
"Common Stock"); and
WHEREAS, the Warrants which are the subject of this Agreement will be
issued by the Company to Holder as part of consideration payable to Holder in
connection with services rendered by the Holder to the Company as Chief
Financial Officer of the Company.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
A G R E E M E N T
1. Warrant Certificates. The warrant certificates to be delivered
pursuant to this Agreement (the "Warrant Certificates") shall be in the form set
forth in Exhibit A, attached hereto and made a part hereof, with such
appropriate insertions, omissions, substitutions and other variations as are
required or permitted by this Warrant Agreement.
2. Vesting. The warrants shall vest as follows: (a) 25,000 warrants
shall be immediately vested upon the execution of this Agreement; (b) 25,000
warrants shall vest upon the date which is Holder's one year anniversary of
employment with the Company; (c) 25,000 warrants shall vest upon the date which
is Holder's two year anniversary of employment with the Company; and (d) 25,000
warrants shall vest upon the date which is Holder's three year anniversary of
employment with the Company. If Holder shall cease his employment with the
Company, for any reason, Holder shall be entitled only to those warrants which
vested as of the date of termination of employment. All nonvested warrants shall
be forfeited.
3. Right to Exercise Warrants. Subject to the provisions of paragraph 2
above, each Warrant may be exercised from the date of this Agreement until 11:59
P.M. (Los Angeles time) on the date that is five years after the date of this
Agreement (the "Expiration Date"). Each Warrant not exercised on or before the
Expiration Date shall expire.
Each Warrant shall entitle its holder to purchase from the Company one
share of Common Stock at an exercise price of $3.75 per share, subject to
adjustment as set forth below ("Exercise Price").
<PAGE>
The Company shall not be required to issue fractional shares of capital
stock upon the exercise of this Warrant or to deliver Warrant Certificates which
evidence fractional shares of capital stock. In the event that a fraction of an
Exercisable Share would, except for the provisions of this paragraph 2, be
issuable upon the exercise of this Warrant, the Company shall pay to the Holder
exercising the Warrant an amount in cash equal to such fraction multiplied by
the current market value of the Exercise Share. For purposes of this paragraph
2, the current market value shall be determined as follows:
(a) if the Exercise Shares are traded in the over-the-counter
market and not on any national securities exchange and not in the NASDAQ
Reporting System, the average of the mean between the last bid and asked prices
per share, as reported by the National Quotation Bureau, Inc., or an equivalent
generally accepted reporting service, for the last business day prior to the
date on which this Warrant is exercised, or, if not so reported, the average of
the closing bid and asked prices for an Exercise Share as furnished to the
Company by any member of the National Association of Securities Dealers, Inc.,
selected by the Company for that purpose.
(b) if the Exercise Shares are listed or traded on a national
securities exchange or in the NASDAQ Reporting System, the closing price on the
principal national securities exchange on which they are so listed or traded or
in the NASDAQ Reporting System, as the case may be, on the last business day
prior to the date of the exercise of this Warrant. The closing price referred to
in this Clause (b) shall be the last reported sales price or, in case no such
reported sale takes place on such day, the average of the reported closing bid
and asked prices, in either case on the national securities exchange on which
the Exercise Shares are then listed on in the NASDAQ Reporting System; or
(c) if no such closing price or closing bid and asked prices
are available, as determined in any reasonable manner as may be prescribed by
the Board of Directors of the Company.
4. Mutilated or Missing Warrant Certificates. In case any of the
Warrant Certificates shall be mutilated, lost, stolen or destroyed prior to its
expiration date, the Company shall issue and deliver, in exchange and
substitution for and upon cancellation of the mutilated Warrant Certificate, or
in lieu of and in substitution for the Warrant Certificate lost, stolen or
destroyed, a new Warrant Certificate of like tenor and representing an
equivalent right or interest.
5. Reservation of Shares. The Company will at all times reserve and
keep available, free from preemptive rights, out of the aggregate of its
authorized but unissued Shares or its authorized and issued Shares held in its
treasury for the purpose of enabling it to satisfy its obligation to issue
Shares upon exercise of Warrants, the full number of Shares deliverable upon the
exercise of all outstanding Warrants.
The Company covenants that all Shares which may be issued upon exercise
of Warrants will be validly issued, fully paid and nonassessable outstanding
Shares of the Company.
6. Rights of Holder. The Holder shall not, by virtue of anything
contained in this Warrant Agreement or otherwise, prior to exercise of this
Warrant, be entitled to any right whatsoever, either in law or equity, of a
stockholder of the Company, including without limitation, the right to receive
dividends or to vote or to consent or to receive notice as a shareholder in
respect of the meetings of shareholders or the election of directors of the
Company of any other matter.
<PAGE>
7. Investment Intent. Holder represents and warrants to the Company
that Holder is acquiring the Warrants for investment and with no present
intention of distributing or reselling any of the Warrants.
8. Certificates to Bear Language. The Warrants and the certificate or
certificates therefor shall bear the following legend by which each holder shall
be bound:
"THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES
OF COMMON STOCK (OR OTHER SECURITIES) ISSUABLE UPON EXERCISE
THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. THE SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN OPINION OF COUNSEL THAT AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT IS AVAILABLE."
The Shares and the certificate or certificates evidencing any
such Shares shall bear the following legend:
"THE SHARES (OR OTHER SECURITIES) REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933. THE SHARES MAY NOT BE SOLD OR TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL
THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE."
Certificates for Warrants without such legend shall be issued if such
warrants or shares are sold pursuant to an effective registration statement
under the Securities Act of 1933 (the "Act") or if the Company has received an
opinion from counsel reasonably satisfactory to counsel for the Company, that
such legend is no longer required under the Act.
9. Registration Rights. The Company is obligated to register the shares
of Common Stock underlying the Warrants in any subsequent registration statement
filed by the Company with the Securities and Exchange Commission, so that
holders of such Common Stock shall be entitled to sell the same simultaneously
with and upon the terms and conditions as the securities sold for the account of
the Company are being sold pursuant to any such registration statement, subject
to such lock-up provisions as may be proposed by the underwriter of said
registration statement and agreed to by the investors (the "Piggyback
Registration Right"). In such registration, the Company shall pay all its
expenses and filing fees and shall make a reasonable number of copies of the
registration statement and any prospectus available to holders. The Company will
not pay any selling commissions or similar expenses incurred by Seller or of any
counsel or other representative of a seller.
<PAGE>
10. Adjustment of Number of Shares and Class of Capital Stock
Purchasable. The Number of Shares and Class of Capital Stock purchasable under
this Warrant Agreement are subject to adjustment from time to time as set forth
in this Section.
(a) Adjustment for Change in Capital Stock. If the Company:
(i) pays a dividend or makes a distribution on its Common
Stock, in each case, in shares of its Common Stock;
(ii) subdivides its outstanding shares of Common
Stock into a greater number of
shares;
(iii) combines its outstanding shares of Common Stock into
a smaller number of shares;
(iv) makes a distribution on its Common Stock in
shares of its capital stock other than Common Stock; or
(v) issues by reclassification of its shares of Common
Stock any shares of its capital stock;
then the number and classes of shares purchasable upon exercise of each Warrant
in effect immediately prior to such action shall be adjusted so that the holder
of any Warrant thereafter exercised may receive the number and classes of shares
of capital stock of the Company which such holder would have owned immediately
following such action if such holder had exercised the Warrant immediately prior
to such action.
For a dividend or distribution the adjustment shall become
effective immediately after the record date for the dividend or distribution.
For a subdivision, combination or reclassification, the adjustment shall become
effective immediately after the effective date of the subdivision, combination
or reclassification.
If after an adjustment the holder of a Warrant upon exercise
of it may receive shares of two or more classes of capital stock of the Company,
the Board of Directors of the Company shall in good faith determine the
allocation of the adjusted Exercise Price between or among the classes of
capital stock. After such allocation, that portion of the Exercise Price
applicable to each share of each such class of capital stock shall thereafter be
subject to adjustment on terms comparable to those applicable to Common Stock in
this Agreement. Notwithstanding the allocation of the Exercise Price between or
among shares of capital stock as provided by this Section 9, a Warrant may only
be exercised in full by payment of the entire Exercise Price currently in
effect.
<PAGE>
(b) Consolidation, Merger or Sale of the Company. If the
Company is a party to a consolidation, merger or transfer of assets which
reclassifies or changes its outstanding Common Stock, the successor corporation
(or corporation controlling the successor corporation or the Company, as the
case may be) shall by operation of law assume the Company's obligations under
this Warrant Agreement. Upon consummation of such transaction the Warrants shall
automatically become exercisable for the kind and amount of securities, cash or
other assets which the holder of a Warrant would have owned immediately after
the consolidation, merger or transfer if the holder had exercised the Warrant
immediately before the effective date of such transaction. As a condition to the
consummation of such transaction, the Company shall arrange for the person or
entity obligated to issue securities or deliver cash or other assets upon
exercise of the Warrant to, concurrently with the consummation of such
transaction, assume the Company's obligations hereunder by executing an
instrument so providing and further providing for adjustments which shall be as
nearly equivalent as may be practical to the adjustments provided for in this
Section 9.
11. Successors. All the covenants and provisions of this Agreement by
or for the benefit of the Company or Holder shall bind and inure to the benefit
of their respective successor and assigns hereunder.
12. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all proposes be deemed to
be an original, and such counterparts shall together constitute by one and the
same instrument.
13. Notices. All notices or other communications under this Warrant
shall be in writing and shall be deemed to have been given if delivered by hand
or mailed by certified mail, postage prepaid, return receipt requested,
addressed as follows: if to the Company: Beta Oil & Gas, Inc., 901 Dove Street,
Suite Suite 230, Newport Beach, California, 92660, Attention: Chief Executive
Officer, and to the Holder: at the address of the Holder appearing on the books
of the Company or the Company's transfer agent, if any.
Either the Company or the Holder may from time to time change the
address to which notices to it are to be mailed hereunder by notice in
accordance with the provisions of this Paragraph 12.
14. Supplements and Amendments. The Company may from time to time
supplement or amend this Warrant Agreement without the approval of any Holders
of Warrants in order to cure any ambiguity or to be correct or supplement any
provision contained herein which may be defective or inconsistent with any other
provision, or to make any other provisions in regard to matters or questions
herein arising hereunder which the Company may deem necessary or desirable and
which shall not materially adversely affect the interest of the Holder.
15. Severability. If for any reason any provision, paragraph or term of
this Warrant Agreement is held to be invalid or unenforceable, all other valid
provisions herein shall remain in full force and effect and all terms,
provisions and paragraphs of this Warrant shall be deemed to be severable.
16. Governing Law and Venue. This Warrant shall be deemed to be a
contract made under the laws of the State of California and for all purposes
shall be governed and construed in accordance with the laws of said State. Any
proceeding arising under this Warrant Agreement shall be instituted in Orange
County, State of California.
<PAGE>
17. Headings. Paragraphs and subparagraph headings, used herein are
included herein for convenience of reference only and shall not affect the
construction of this Warrant Agreement nor constitute a part of this Warrant
Agreement for any other purpose.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the date and year first above written.
<PAGE>
"COMPANY" "HOLDER"
BETA OIL & GAS, INC. J. CHRIS STEINHAUSER
- ---------------------------------
BY: Steve Antry J. Chris Steinhauser
ITS: President
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
EXHIBIT A
NUMBER __ WARRANT
Warrant to Purchase
Shares
BETA OIL & GAS, INC. see reverse for
COMMON STOCK PURCHASE WARRANT certain definitions
will be void if not exercised prior to 11:59 P.M. Pacific Time on __________, 2002
This Certifies that for value received,
the registered holder or assigns ("Holder"),
<PAGE>
is entitled to purchase from Beta Oil & Gas, Inc., a Nevada corporation (the
"Company") at any time after 9:00 A.M. Eastern Time on January 27, 1998 at the
purchase price per share of $3.75 (the "Warrant Price"), the number of shares of
Common Stock of the Company set forth above (the "Shares"). The number of shares
purchasable upon exercise of each warrant evidenced hereby and the Warrant Price
per Share shall be subject to adjustment from time to time as set forth in the
Warrant Agreement referred to below. The Warrants expire on January 27, 2003.
Holders will not have any rights or privileges of shareholders of the Company
prior to exercise of the Warrants. Holders of the Warrants evidenced hereby and
the shares of Common Stock issuable upon exercise hereof have certain rights
with respect to registration with the Securities and Exchange Commission of the
Warrants and Common Stock issuable upon exercise hereof. These registration
rights are set forth in that certain Warrant Agreement of even date herewith
pursuant to which this Warrant Certificate has been issued. Further, the Warrant
Agreement includes certain vesting provisions which may affect the Holder's
right to exercise the Warrants. The Warrant evidenced hereby may be exercised in
whole or in part by presentation of this Warrant certificate with the Purchase
Form on the reverse side hereof fully executed (with a signature guarantee as
provided on the reverse side hereof) and simultaneous payment of the Warrant
Price (subject to adjustment) at the principal office of the Company. Payment of
such price shall be made at the option of the holder in cash or by certified
check or bank draft. The Warrants evidenced hereby are part of a duly authorized
issue of Common Stock Purchase Warrants with rights to purchase an aggregate of
up to 400,000 shares of Common Stock of the Company. Upon any partial exercise
of the Warrant evidenced hereby, there shall be countersigned and issued to the
Holder a new Warrant Certificate in respect of the Shares as to which the
Warrants evidenced hereby shall not have been exercised. This Warrant
Certificate may be exchanged at the office of the Company by surrender of this
Warrant Certificate properly endorsed with a signature guarantee either
separately or in combination with one or more other Warrants for one or more new
Warrants to purchase the same aggregate number of Shares as evidenced by the
Warrant or Warrants exchanged. No fractional Shares will be issued upon the
exercise of rights to purchase hereunder, but the Company shall pay the cash
value of any fraction upon the exercise of one or more Warrants. The Holder
hereof may be treated by the Company and all other persons dealing with this
Warrant Certificate as the absolute owner hereof for all purposes and as the
person entitled to exercise the rights represented hereby, any notice to the
contrary notwithstanding, and until such transfer is on such books, the Company
may treat the Holder as the owner for all purposes.
<PAGE>
Dated: __________, 1998 BETA
OIL & GAS, INC.
Secretary
Chief Executive Officer
SEE LEGEND ON REVERSE
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF
CERTAIN STATES, AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED
OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE LAWS, (ii) TO THE EXTENT
APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER THE ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF SUCH
OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL TO THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER THE ACT AND APPLICABLE STATE LAW IS AVAILABLE.
ELECTION TO PURCHASE
The undersigned hereby elects irrevocably to exercise the within
Warrant and to purchase _______________________ shares of Common Stock of Beta
Oil & Gas, Inc. and hereby makes payment of $_________ (at the rate of $________
per share) in payment of the Exercise Price pursuant hereto. Please issue the
shares as to which this Warrant is exercised in accordance with the instructions
given below.
The undersigned represents and warrants that the exercise of the within
Warrant was solicited by the member firm of the National Association of
Securities Dealers, Inc. ("NASD") listed below. If not solicited by an NASD
member, please write "unsolicited" in the space below.
------------------------------------------------------
(Insert Name of NASD Member or "Unsolicited")
Dated: ________________, 19______
Signature: _____________________________________________
INSTRUCTIONS FOR REGISTRATION OF SHARES
Name (print) __________________________________________________________________
Address (print) ________________________________________________________________
ASSIGNMENT
FOR VALUE RECEIVED, ____________________________________ does hereby
sell, assign and transfer unto
___________________________________________________, the right to purchase
________________shares of Common Stock of Beta Oil & Gas, Inc., evidenced by the
within Warrant, and does hereby irrevocably constitute and appoint
__________________________________________ attorney to transfer such right on
the books of Beta Oil & Gas, Inc., with full power of substitution on the
premises.
Dated: ________________, 19______
Signature: _____________________________________________
Notice: The signature of Election to Purchase or Assignment must correspond with the name as written upon the
face of the within Warrant in every particular without alteration or enlargement or any change whatsoever. The
signature(s) must by guaranteed by an eligible guarantor institution (Banks, Stockbrokers, Savings and Loan
Associations and Credit Unions with membership in an approved signature
guarantee Medallion Program), pursuant to S.E.C. Rule 17Ad-15.
-----------------------------------------
Signature Guarantee
</TABLE>
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (this "Agreement") is entered into as of June
23, 1997 (the "Effective Date"), by and between Beta Oil & Gas, Inc. (the
"Company"), and R. Thomas Fetters ("Consultant").
RECITALS
WHEREAS, the Company desires to retain the Consultant to provide the
services set forth in Exhibit A hereto for the benefit of the Company (the
"Consulting Services");
WHEREAS, Consultant is engaged in the business of providing the
Consulting Services and desires to provide the Consulting Services to the
Company in accordance with the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, the parties hereto hereby agree as follows:
A G R E E M E N T
1. Appointment and Duties. The Company hereby engages Consultant to
perform the Consulting Services commencing upon the date of this Agreement and
terminating in accordance with the terms set forth in Exhibit A. Consultant
agrees to accept such engagement upon the terms and conditions set forth herein.
Consultant shall faithfully and diligently perform the Consulting Services.
2. Compensation. Subject to the termination of this Agreement as
provided herein, the Company shall compensate Consultant for the performance
of the Consulting Services hereunder upon the terms and conditions set
forth in attached Exhibit B hereto.
3. Non-Exclusive; Non-Disclosure.
3.1 Consultant agrees to perform Consultant's Consulting
Services efficiently and to the best of Consultant's ability. Notwithstanding
the foregoing, the Company acknowledges and agrees that Consultant's engagement
with The Company is not exclusive and that Consultant is engaged in other
business endeavors and reserves the right to continue to do so throughout the
terms of this Agreement.
<PAGE>
3.2 Consultant acknowledges that Consultant may have access to
proprietary information regarding the business operations of the Company and
agrees to keep all such information secret and confidential and not to use or
disclose any such information to any individual or organization without the
Company's prior written consent.
4. Independent Contractor. Both the Company and the Consultant agree
that the Consultant will act as an independent contractor in the performance of
its duties under this Agreement. Nothing contained in this Agreement shall be
construed to imply that Consultant, or any employee, agent or other authorized
representative of Consultant, is a partner, joint venturer, agent, officer or
employee of The Company.
5. Term; Termination.
(a) Consultant may terminate this Agreement immediately for
cause at any time without notice. For purposes of this subsection (b), "cause"
for termination by Consultant shall be (i) a breach by The Company of any
material covenant or obligation hereunder; or (ii) the voluntary or involuntary
dissolution of the Company.
(b) The Company may terminate this Agreement for cause at any
time without notice. For purposes of this subsection (b), "cause" for
termination shall be: (i) any felonious conduct or material fraud by Consultant
in connection with The Company; (ii) any embezzlement or misappropriation of
funds or property of The Company by Consultant; (iii) any material breach of or
material failure to perform any covenant or obligation of Consultant under this
Agreement; or (iv) gross negligence by Consultant in the performance of his
duties under this Agreement.
6. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto their respective devisees, legatees, heirs,
legal representatives, successors, and permitted assigns. The preceding sentence
shall not affect any restriction on assignment set forth elsewhere in this
Agreement.
7. Notices. Any notice, request, demand, or other communication given
pursuant to the terms of this Agreement shall be deemed given upon delivery, if
hand delivered, or forty-eight (48) hours after deposit in the United States
mail, postage prepaid, and sent certified or registered mail, return receipt
requested, correctly addressed to the addresses of the parties indicated below
or at such other address as such party shall in writing have advised the other
party.
If to the Company: Beta Oil & Gas, Inc.
901 Dove Street, Suite 230
Newport Beach, CA 92660
Attention: Steve Antry
<PAGE>
If to Consultant: R. Thomas Fetters
101 Red Brick Circle
Lafayette, LA 70503
8. Entire Agreement. Except as provided herein, this Agreement contains
the entire agreement of the parties, and supersedes all existing negotiations,
representations, or agreements and all other oral, written, or other
communications between them concerning the subject matter of this Agreement.
9. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which shall
together constitute one and the same instrument.
10. Modification. No change, modification, addition, or amendment to
this Agreement shall be valid unless in writing and signed by all parties
hereto.
11. Attorneys' Fees. Except as otherwise provided herein, if a dispute
should arise between the parties including, but not limited to arbitration, the
prevailing party shall be reimbursed by the non-prevailing party for all
reasonable expenses incurred in resolving such dispute, including reasonable
attorneys' fees exclusive of such amount of attorneys' fees as shall be a
premium for result or for risk of loss under a contingency fee arrangement. In
the event of such a dispute, it shall be resolved at the Orange County,
California office of the American Arbitration Association.
12. Assignment. Neither party shall assign its rights or obligations
under this Agreement without the express prior written consent of the other
party.
[signature page follows]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the Effective Date.
The Company
BETA OIL & GAS, INC.
By:
Steve Antry, President
The Consultant
R. THOMAS FETTERS
<PAGE>
EXHIBIT "A"
Description of Consulting Services
During the twelve-month period of time commencing upon the date of this
Agreement Consultant agrees to utilize approximately 50% of his time in
providing the Consulting Services. Upon conclusion of this twelve month period
of time, in the event the Board of Directors of the Company is satisfied with
the performance of the Consultant, the Consultant shall be offered a two-year
extension of his Consulting Agreement. The Consulting Services shall mean, for
purposes of this Agreement, consulting with Company management in connection
with all aspects of the Company's exploration, development and production
projects. Nothing contained herein shall restrict the ability of the Consultant
to continue as a member of the Board of Directors of Pease Oil & Gas, Inc., XCL,
Inc. or Global Minerals, Inc.. Consultant agrees to serve on the Board of
Directors of the Company while he is a consultant/employee. Upon the Company
commencing trading in the public securities markets, the Company shall maintain
errors and omissions insurance through the term of this Agreement.
<PAGE>
EXHIBIT "B"
Compensation
The Consultant shall receive the following Compensation for the
provision of the Consulting Services (commencing upon the receipt by the Company
of at least $3 million pursuant to its July 1997 Private Placement Memorandum):
$5,000 per month plus all reasonable expenses incurred on
behalf of the Company (all amounts in excess of $500 per month shall require the
previous approval of the Company).
<PAGE>
ADDENDUM TO CONSULTING AGREEMENT
Pursuant to the Consulting Agreement (the "Agreement") entered into as
of _____________________, 1997 (the "Effective Date"), by and between Beta Oil &
Gas, Inc. (the "Company"), and R. Thomas Fetters ("Consultant"), it is hereby
agreed that in the event the Consultant is offered a position as a full-time
employee of the Company, his compensation shall be increased to a salary of
$125,000 per annum.
The Company
BETA OIL & GAS, INC.
By:
Steve Antry, President
The Consultant
R. THOMAS FETTERS
<PAGE>
EXTENSION OF CONSULTING AGREEMENT
DATED 6-23-97 BETWEEN
BETA OIL & GAS, INC. AND R.THOMAS. FETTERS
WHEREAS, The Company and Consultant both agree to a two (2) year extension of
the Consulting Agreement as discussed in Exhibit "B" (2) of the Agreement by
today signing below with an effective date of June 23, 1998.
The Company
BETA OIL & GAS, INC.
By:
Steve Antry, President
The Consultant
R. THOMAS FETTERS
EXPLORATION AGREEMENT
BWC Project
Jackson County, Texas
This Exploration Agreement (the "Agreement") is entered into as of
April 1, 1998, by and between Parallel Petroleum Corporation ("Parallel"), TAC
Resources, Inc. ("TAC"), Beta Oil & Gas, Inc. ("Beta"), Meyer Financial
Services, Inc. ("Meyer"), FGL, Inc. ("FGL"), Mert L. Cooper ("Cooper"),
Mansefeldt Investment Corporation ("Mansefeldt"), Topaz Exploration Company
("Topaz"), Wes-Tex Drilling Corp. ("Wes-Tex") and CKC Investments, Inc. ("CKC")
all hereinafter collectively referred to as (the "Parties").
WITNESSETH:
WHEREAS, Parallel and TAC have acquired seismic and lease options, oil
and gas leases and seismic permits covering an area of approximately 40,000
acres located in Jackson County, Texas, as depicted on the plat attached hereto
as Exhibit "A".
WHEREAS, Beta, Meyer, FGL, Cooper, Mansefeldt, Topaz, Wes-Tex and CKC
propose to acquire undivided interests in and to the rights granted by such
agreements, and to participate in conducting a 3-D seismic program upon the
lands covered thereby.
NOW, THEREFORE, in consideration of the premises, the mutual agreements
and obligations set forth herein, and the mutual benefits to be received
hereunder, the Parties agree as follows:
ARTICLE 1. DEFINITIONS
For the purpose of this Agreement, the following terms shall have the
meanings designated below:
1.1 Area of Mutual Interest "AMI" means the lands outlined on the plat
attached hereto as Exhibit "A".
1.2 "AMI Interests" means any interest in the oil, gas or other
minerals in and under the AMI, including leasehold interests under oil
and gas leases, oil and gas lease options, interests of the farmee
under farmout agreement, and other such interests or rights similar or
dissimilar to those mentioned, including, but not limited to, seismic
permits. AMI Interest does not, however, include nonpossessory
interests in the oil, gas and other minerals in and under the AMI, such
as royalty interests, overriding royalty interests, net profits
interests, or other such interests whether similar or dissimilar to
those mentioned.
1.3 "Existing AMI Interests" means the Seismic and Lease Options, Oil
and Gas Leases and Seismic Permits which have been acquired as of
August 1, 1998.
1.4 "Subsequently Acquired AMI Interests" means all AMI Interests
acquired after August 1, 1998.
1.5 "Contract Lands" means lands located within the AMI which are
covered by AMI Interests.
1.6 "Initial Interest" means a Party's ownership in Existing AMI
Interests, and the amount of interest a party is entitled to acquire in
Subsequently Acquired AMI Interests, subject to the provisions hereof.
1.7 "Jointly Owned AMI Interest" means an AMI Interest in which the
Parties own an interest pursuant to the terms of this Agreement.
1.8 "Lease Burden" means any royalty, overriding royalty interest, net
profits interest, production payment, carried interest, reversionary
working interest or other charges upon a leasehold interest or the
production therefrom.
1.9 "Losses" means any and all losses, liabilities, claims, demands,
penalties, fines, settlements, damages, actions, or suits of whatsoever
kind and nature (but expressly excluding consequential damages),
whether or not subject to litigation, including without limitation (i)
claims or penalties arising from products liability, negligence,
statutory liability or violation of any applicable law or in tort
(strict, absolute or otherwise) and (ii) loss of or damage to any
property, and all reasonable out-of-pocket costs, disbursements and
expenses (including, without limitation, legal, accounting, consulting
and investigation expenses and litigation costs) imposed on, incurred
by or asserted against an indemnified Party in connection therewith.
1.10 "Operator" shall mean Parallel Petroleum Corporation.
1.11 "Party" or "Parties" means Parallel, TAC, Beta, Meyer, FGL,
Cooper, Mansefeldt, Topaz, Wes-Tex and CKC and any other person or
entity, singularly or as a group, which hereafter becomes a party
hereto or is otherwise subject to the terms hereof.
1.12 "Pre-Existing Data" means such data which includes, but is not
limited to: seismic records and related seismic data, electronic and
mud logs, cores and core analyses, field studies (less and except any
proprietary methodology or process used by any Party in such studies),
production tests, engineering, geological, geophysical, paleontological
data, interpretive data and maps prepared by any Party in existence as
of the date of this Agreement.
1.13 "Proportionate Share" except as otherwise provided for herein,
shall be calculated by dividing a Party's Initial Interest by the
aggregate of the Initial Interests of all Parties who are to share an
interest or an obligation pursuant to the terms hereof.
1.14 "Prospect" means an area within the AMI which is designated as a
Prospect pursuant to Article 7.3 hereof and within which there is
expected to occur, based on information developed as a result of 3-D
Seismic Operations, a commercial accumulation of oil and/or gas in a
specific structural or stratigraphic trap.
1.15 "Subsequently Created Burden" means a lease burden which is
created by a party subsequent to its acquisition of the interest which
is subject to the burden, except the overriding royalty interest
provided for in Article 2.5 hereof.
1.16 "Costs Prior to Leasehold Acquisition" means all costs of any
type whatsoever which pertain to this project, covering lands located
within or outside the AMI, including, but not limited to costs of
seismic permits, seismic and lease options, oil and gas leases, and
renewals and/or extensions thereof, land brokerage, legal costs,
surface damages, surveying, seismic acquisition, processing and
interpretation, etc., which are incurred prior to Leasehold
Acquisition conducted under the provisions of Article 4 hereof.
1.17 "Seismic Operations" means all operations which are necessary to
produce a three-dimensional seismic data grid over the portion of the
Contract Lands on which the Parties conduct such operations, including
the processing and interpretation of such data.
1.18 Other terms are defined elsewhere in this Agreement.
ARTICLE 2. INTERESTS AND SHARE OF COSTS OF THE PARTIES
2.1 Area of Mutual Interest. The Parties hereby establish an Area of
Mutual Interest "AMI", same to be comprised of the area outlined on the
attached Exhibit "A", and which shall cover AMI Interests located
therein. This AMI shall continue for a term of seven (7) years, or the
expiration of the last Jointly Owned AMI Interest, whichever is
earlier.
2.2 Interests and Share of Costs of the Parties. The Parties hereby
agree to own, as their Initial Interest, and agree to bear the costs
set out below, as follows:
<TABLE>
Party Initial Interest Share of Costs Share of Costs
Prior to Leasehold for Leasehold
Acquisition Acquisition and
Subsequent Operations
<S> <C> <C> <C>
Parallel .4825000 .5600000 .4825000
TAC .1875000 .0000000 .1875000
Beta .1250000 .1666667 .1250000
Meyer .0200000 .0266667 .0200000
CKC .0300000 .0400000 .0300000
Cooper .0300000 .0400000 .0300000
FGL .0750000 .1000000 .0750000
Mansefeldt .0360000 .0480000 .0360000
Topaz .0040000 .0053333 .0040000
Wes-Tex .0100000 .0133333 .0100000
</TABLE>
Parallel and TAC have acquired and presently own the Existing AMI
Interests. Beta, Meyer, FGL, Cooper, Mansefeldt, Topaz, Wes-Tex and CKC
agree that their respective costs in the Existing AMI Interests shall
be based on $100.00 per net mineral acre on seismic and lease options,
and cost plus 33.33333% on oil and gas leases and seismic permits. The
Existing AMI Interests are presently comprised of approximately
28,454.496 net mineral acres covered by seismic and lease option, 2,288
acres covered by seismic permit where cost was $36,895.00, and 279.3065
net mineral acres covered by oil and gas lease where cost was
$41,895.98. Based on the foregoing, the current total cost of Existing
AMI Interests is Two million nine hundred fifty thousand five hundred
four and 24/100 Dollars ($2,950,504.24). Beta, Meyer, FGL, Cooper,
Mansefeldt, Topaz, Wes-Tex and CKC agree to pay Parallel their share of
such cost, as referenced above, in the Existing AMI Interests upon
execution of this Agreement. Beta, Meyer, FGL, Cooper, Mansefeldt,
Topaz, Wes-Tex and CKC hereby agree that Parallel shall have the
exclusive right to acquire AMI Interests through August 1, 1998, and
that same shall be treated in all respects as Existing AMI Interests.
Beta, Meyer, FGL, Cooper, Mansefeldt, Topaz, Wes-Tex and CKC agree that
they shall be obligated to accept such interests in the same
percentages and pay Parallel for such interests at the same terms
stated herein. Payment for such interests shall be due within fifteen
(15) days after receipt of written notice as set out in Article 2.4.
Interests available to Parallel which costs exceed those stated above
shall be offered to the other Parties as per the procedure set forth in
Article 2.4 below.
2.3 Recording. Parallel agrees to file for record in the office of the
Jackson County Clerk, all Memorandums of Seismic and Lease Options
covering the Existing AMI Interests within fifteen (15) days of the
date this Agreement is executed by all Parties.
2.4 Subsequently Acquired AMI Interests. Any Party acquiring a
Subsequently Acquired AMI Interest, directly or indirectly, shall
notify the other Parties hereto. Such notice shall set forth (i) a
description of the interest acquired, (ii) the total cost of the
interest, including all land and legal costs associated with the
acquisition thereof, (iii) the Proportionate Share of the notified
Party and its cost therein, and (iv) any other pertinent terms of such
acquisition, including, but not limited to, copies of the instruments
of conveyance, copies of leases, assignments, subleases, farmout and
other contracts affecting the AMI Interests, copies of paid drafts or
checks, itemized invoices of actual costs incurred by the acquiring
Party. Parties shall have fifteen (15) days from the receipt of this
notice to acquire their Proportionate Share of the Subsequently
Acquired AMI Interest. A Party's election to acquire shall be given in
writing and accompanied by Party's payment of its total cost for such
interest. If a Party's election and payment are not received within
such fifteen (15) day period, it shall be conclusively presumed that
such Party has elected not to acquire its Proportionate Share of the
Subsequently Acquired AMI Interest and has forfeited its right thereto.
A Party's failure to exercise its option as to any particular notice
shall not constitute a waiver or release of its right to acquire any
interest described in any subsequent notice delivered hereunder.
Subsequently acquired AMI Interests shall not be construed to include
oil and gas leases acquired under Article 4 hereof.
2.5 Existing Burdens. Each Party's interest under this agreement in the
AMI Interests, and oil and gas leases which may be acquired thereunder,
shall be subject to and burdened by its proportionate share of all
existing operating agreements, existing and pending pooling and spacing
orders and all Lease Burdens other than Subsequently Created Burdens.
Parallel and TAC represent, except as hereinafter provided, that they
have not burdened the Existing AMI Interests acquired or to be acquired
with any liens or Subsequently Created Burdens. Each Party agrees to
perform its Proportionate Share of the obligations under the AMI
Interests acquired pursuant to this Agreement and the other obligations
described in this Article, but only to the extent that such obligations
arise after the acquisition of such AMI Interests by such Party.
Notwithstanding the foregoing, the Parties agree that they shall bear,
their Proportionate Share of an overriding royalty interest to be owned
by TAC on all oil and gas leases acquired pursuant to this Agreement
(including leases acquired by exercising lease options in which the
Parties own an interest, and in extensions and renewals thereof) equal
to the difference between Lease Burdens and twenty-five percent (25%)
on all such leases where Lease Burdens are less than twenty-five
percent (25%); and an overriding royalty interest equal to two percent
(2%) of eight-eighths (8/8th) in such leases where Lease Burdens are
twenty-five percent (25%) or greater. All such overriding royalty
interests shall be reduced in the proportion that the mineral interest
covered by any such lease or leases bears to the entire undivided fee
mineral estate.
2.6 Expiring Options. If any lease options covered hereby will expire
prior to completion of the Seismic Operations contemplated herein,
Operator shall use its best efforts to renew and/or extend such option
for a sufficient period of time to complete the proposed 3-D Seismic
Operations thereon and exercise the lease option thereunder. Payment
for extensions and/or renewals shall be due within fifteen (15) days
after receipt of an invoice therefore.
2.7 Assignments. Upon receipt of payment for AMI Interests, Parallel
shall assign to the Parties hereto their Initial Interest in such AMI
Interests. Such assignment shall be recordable in form, shall be
subject to this agreement, shall provide for warranty by, through and
under Parallel, but not otherwise, and shall be subject to the terms
and provisions of the AMI Interests assigned. Notwithstanding such
assignments, the Parties hereby grant Operator full right and authority
to conduct Leasehold Acquisition on their behalf under the provisions
of Article 4 hereof.
2.8 AMI Interests Located In and Outside of the Existing AMI. If an AMI
Interest is found to cover lands located both within and outside the
existing AMI, the entirety of such AMI Interest shall be offered to the
other Parties under the provisions of Article 2.4, and if the other
Parties elect to participate in the acquisition thereof, the
description of the lands comprising the AMI shall be deemed to be
amended to extend and cover all of the lands covered by such interest.
The option of the Parties to participate in the acquisition of such
interests shall be limited to the entirety of the interest acquired.
2.9 Option to Cash Call. Notwithstanding the provisions for the
payments required in Articles 2.2, 2.4, 2.6 and 4, Operator shall the
right to require the other Parties to pay their Proportionate Share of
the estimated costs as provided in such Articles in advance. Such
advanced payment shall be paid within fifteen (15) days of receipt of
an invoice therefor.
ARTICLE 3. SEISMIC OPERATIONS
3.1 Existing Seismic, Geologic and Other Subsurface Data. Except as
prohibited by law or by agreements with third parties, upon request,
each Party owning existing seismic data pertaining to lands located
within the AMI shall furnish copies of all such data to the other
Parties, together with any geologic or other subsurface data that could
be useful in the interpretation thereof. The Party receiving such data
shall bear the expense of copying it. The Party owning any seismic or
other data which may not be copied, due to legal prohibitions or by
agreements with third parties, shall, upon request, make such data
available to the Party requesting such data during normal business
hours.
3.2 Ownership of Pre-Existing Data. Ownership of the Pre-Existing Data
and all reprocessed Pre-Existing Data shall at all times remain vested
in the Party who contributes the Pre-Existing Data for use by the
Parties, and the Parties agree to acknowledge such ownership,
including, but not limited to, the filing with any appropriate
governmental authority of such acknowledgment. The Parties expressly
reserve the right to sell, license, or trade the Pre-Existing Data
which it contributes hereunder, to the extent that it has such right to
sell, license or trade the Pre-Existing Data, through its own efforts,
or through the efforts of others duly authorized by such Party and the
benefits and advantages, including monetary consideration, which such
Party receives as a result of such activities shall be the sole
property of such Party.
3.3 Management of the 3-D Seismic Operations. Operator shall
exclusively manage and conduct the 3-D Seismic Operations contemplated
hereunder and all operations incident thereto, including, but not
limited to, the acquisition of all geoscientific data, the performance
of all 3-D seismic surveys and other geoscientific work incident
thereto, and, subject to the Operating Agreements, the drilling of all
wells on the Prospects. Operator shall perform all such work through
employees, representatives, and contractors of its selection, and
Operator shall and does hereby agree to utilize reasonable prudence and
economic judgment in contracting with third party contractors or
subcontractors. As manager of 3-D Seismic Operations, Operator shall
devote such of its time, attention and efforts to the conduct thereof
as it shall in good faith determine reasonably necessary, but shall
otherwise be free to engage in and pursue all other current and future
business projects, programs, prospects, opportunities, investments and
activities without obligation of any kind to or right of participation
therein by the other Parties hereto. In performing its duties under
this Agreement, Operator shall serve as an independent contractor and
not as an agent or employee of the other Parties hereto. Operator shall
utilize reasonable prudence and economic judgment in incurring costs,
and shall further conduct the 3-D Seismic Operations and perform all of
its duties under this Agreement as a reasonable, prudent operator, in a
good and workmanlike manner with due diligence and dispatch, in
accordance with good oilfield and exploratory practice, and in
compliance with all applicable laws and regulations, BUT SHALL HAVE NO
LIABILITY TO THE OTHER PARTIES HERETO OR ANY OTHER OWNER OF RIGHTS OR
INTERESTS UNDER THIS AGREEMENT FOR ANY LOSSES SUSTAINED OR LIABILITIES
INCURRED IN CONNECTION WITH THE 3-D SEISMIC OPERATIONS AND/OR THE
CONDUCT OF ANY ACTIVITIES UNDER OR CONTEMPLATED BY THIS AGREEMENT, SAVE
AND EXCEPT AS MAY BE OCCASIONED BY THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF OPERATOR. EACH OF THE OTHER PARTIES HERETO ACKNOWLEDGES
THAT (A) IT HAS READ AND AGREED TO THE FOREGOING EXCULPATION OF
OPERATOR AS A NEGOTIATED AND BARGAINED FOR ASPECT OF THIS TRANSACTION,
(B) THIS EXCULPATION PROVISION IS CONSPICUOUS.
3.4 Ongoing and Future Seismic Operations. The Parties agree to conduct
such operations on all or substantially all of the Contract Lands. The
Parties may, subject to their unanimous written consent, agree to
reduce or increase the acreage on which such operations will be
conducted when technical, legal or operational considerations indicate
that such reduction or increase is warranted. In any event, the Parties
agree to pay Operator their respective shares of the total costs of the
3-D Seismic Operations conducted on all land covered by AMI Interests
as set forth in Article 2.2 hereof. Payment for 3-D Seismic Operations
shall be due within fifteen (15) days after receipt of each invoice
therefore. Operator shall furnish the other Parties hereto with copies
of all applicable contracts and other information pertaining to all 3-D
Seismic Operations conducted hereunder. The Parties shall own their
Proportionate Share of the geophysical data obtained by and resulting
from the 3-D Seismic Operations conducted on the Contract Lands,
including, but not limited to all tapes, seismic sections and any and
all other data generated by such 3-D Seismic Operations. Each Party
shall have access to such data and shall receive copies thereof. The
Parties agree to work together in a spirit of cooperation and in good
faith in planning and causing the 3-D Seismic Operations to be
conducted as contemplated herein as well as in sharing the data
collected therefrom and the interpretations thereof. Such
interpretations, by any Party, shall in no way be deemed a
representation to any other Party that such interpretations are
accurate or correct. Such interpretations shall be given merely as a
means of sharing such Party's analysis and ideas regarding such data.
3.5 Confidentiality of Seismic Data. Except as provided below, each
Party agrees to keep all seismic data obtained pursuant to Article 3.3
confidential for a period of seven (7) years from the date hereof.
After the expiration of seven (7) years from the date hereof any Party
may sell the data it acquired pursuant to Article 3.3. Each Party
owning an interest in such data shall receive its Proportionate Share
of the proceeds of any such sale. Any data acquired from another Party
pursuant to Article 3.1 shall forever be kept confidential by the
Parties; provided, however, that the Party who originally contributed
such data may share, sell or otherwise dispose of such data that does
not pertain to a Prospect to a third party after the expiration of one
(1) year from the date hereof, and the other Parties shall have no
interest in the proceeds from such sale. Notwithstanding the foregoing,
a Party may disclose seismic data to (A) a prospective purchaser or
farmee of such Party's interest, provided (i) such disclosure is
limited to the Prospect under consideration for sale or farmout, (ii)
the prospective purchaser or farmee must review such data in the
affected Party's offices and may not copy such data until such time as
it has acquired or earned an interest in the Contract Lands, and (iii)
such prospective purchaser or farmee must execute a confidentiality
agreement to prevent further disclosure and unauthorized use of such
data; or (B) a third party who is entitled thereto pursuant to the
terms of a lease, lease option or seismic permit. Any Party may
disclose such data to its agents, staff, representatives and
consultants in the normal conduct of its business.
3.6 Review of Seismic Data. The Parties agree to cooperate in good
faith in reviewing the seismic data acquired hereunder. Such data
should be reviewed by the Parties as soon as practicable after the data
is available so that the Parties can make decisions regarding the
exercise of lease options.
ARTICLE 4. LEASEHOLD ACQUISITION
As soon as is practicable after the 3-D seismic data has been processed
and interpreted, Operator shall, in its sole discretion, acquire leases
within the AMI, and the Parties agree to pay their Proportionate Share
of cost therein, including all land and legal costs associated with the
acquisition thereof. Upon receipt of payment, which shall be due within
fifteen (15) days after receipt of each invoice therefore, Operator
shall promptly execute and deliver recordable assignments to the
Parties reflecting their respective interests in the leases acquired.
ARTICLE 5. FORFEITURE
Payments due hereunder, including Cash Calls provided for in Article
2.9, for Existing AMI Interests under Article 2.2, renewals and/or
extensions acquired under Article 2.6, Seismic Operations under
Article 3.4, and Lease Acquisition under Article 4 shall be mandatory.
A Party failing to timely make any such payment shall be in breach of
this Agreement; and, in the event such payment is not received by the
Party entitled thereto, within sixty (60) days after written demand
therefore has been received, such Party shall, without the necessity
of any further proceeding, forfeit all of its right, title and
interest under this Agreement (including, but not limited to all of the
interest that it acquired pursuant to the terms hereof in any AMI
Interests and seismic data) to the Party to whom such payment is owed.
Any Party so forfeiting its interest hereunder, hereby designates
and appoints the Party to whom such payment is owed as its Agent
and Attorney-in-Fact for the sole and limited purpose of executing
an instrument of conveyance vesting title to the forfeited interest in
the Party to whom such payment is owed. The Party receiving such
forfeited interest shall then offer the other Parties their
Proportionate Share of such forfeited interest as per the provisions of
Article 2.4 hereof.
ARTICLE 6. SALE, FARMOUT OR OTHER DISPOSITION OF AMI INTERESTS TO A THIRD PARTY
Any Party may sell, assign, farmout or otherwise dispose of all or any
portion of its interest acquired pursuant to or in connection with this
Agreement without consent of any other Party. Operator shall be
furnished with a copy of the assignment or other instrument disposing
of such interest within ten (10) days from the date thereof.
ARTICLE 7. SUBSEQUENT OPERATIONS
7.1 Operator. Operator shall have the right, subject to the terms and
provisions of the attached Operating Agreement, to be the Operator for
all operations conducted within the AMI, and the Parties hereby agree
to execute separate Operating Agreements designating Operator, as
Operator, as required.
7.2 Operating Agreement. Except as provided herein, all operations
conducted within the AMI shall be conducted in accordance with the
terms of an Operating Agreement substantially in the form attached
hereto as Exhibit "B". A separate Operating Agreement shall be executed
for each Prospect, with the first well drilled in such Prospect to be
designated as the "Initial Well". The share of costs which each Party
must bear and the interest of each Party in the production from each
well drilled under the Prospect Operating Agreement will be determined
on a well-by-well basis in accordance with the terms hereof as modified
by the terms of the Operating Agreement. In the event of conflict
between the terms and provisions hereof and those contained in the
Operating Agreement, the terms and provisions hereof shall prevail.
7.3 Designation of Prospects. As soon as practicable after the data has
been processed and interpreted, Operator shall furnish the other
Parties with maps which reflect designated Prospects, together with a
description of the seismic data, prospective feature and any
interpretative data or other maps upon which such Prospect is based.
7.4 Non-Consent Election on Initial Well. If a Party elects not to
participate in the drilling of the Initial Well in a Prospect, such
Party shall relinquish all of its rights and interests in that Prospect
to the Parties participating in the drilling of such well which elect
to acquire their Proportionate Share of the relinquished interest. A
condition precedent to such relinquishment shall be the reimbursement
of the relinquishing Party's leasehold cost in the relinquished
interest by the Parties electing to participate in such interest, which
cost shall be specifically limited to that incurred by such Party under
Article 4 hereof. A Party so relinquishing its interest shall promptly
execute a recordable assignment of its relinquished interest to the
Parties entitled thereto, which interest shall be free of any
Subsequently Created Burdens. Upon receipt of such assignment the
Parties receiving the relinquished interest shall reimburse the
relinquishing Party their respective Proportionate Share of the
relinquishing Party's cost in the interest so assigned.
7.5 Limitation on Number of Wells Drilling. Not more than three (3)
wells shall be drilling on the Contract Lands at any time unless it is
necessary to commence a well in order to perpetuate a lease or
otherwise satisfy the terms of a continuous drilling obligation.
ARTICLE 8. MISCELLANEOUS
8.1 Legal Relationship. This agreement is not intended to create, and
shall not be construed to create, a partnership or other relationship
whereby one party is liable for the actions or debts of another party;
it being understood and agreed that the rights and liabilities of all
parties are several and not joint or collective.
8.2 Entire Agreement. This agreement constitutes the entire agreement
among the parties hereto with respect to the subject matter hereof,
superseding any and all prior agreements, understandings, discussions,
negotiations and commitments of any kind.
8.3 Amendment. The provisions of this agreement may be amended,
supplemented, or waived only if in writing signed by all parties
hereto.
8.4 Construction. The parties to this agreement all acknowledge and
agree that this agreement was drafted jointly by them, and that in the
event of any ambiguity, this agreement shall not be construed against
any of them on the basis of the fact or presumption that one party had
a greater or lesser hand in the drafting of the agreement than another
party, but rather the terms shall be given a reasonable interpretation.
8.5 Governing Law. Except to the extent preempted by federal law, this
agreement is to be construed and interpreted in accordance with, and
governed by, the laws of the State of Texas.
8.6 Binding Agreement. This agreement shall bind and inure to the
benefit of the parties hereto and their respective heirs, successors,
legal representatives and assigns.
8.7 Section and Subsection Headings. The article, section and
subsection headings contained in this agreement are for the purpose of
convenience only and are not intended to define or limit the contents
hereof or otherwise be considered in construing and enforcing this
agreement.
8.8 Waivers. Any failure by any party hereto to comply with any of its
obligations, agreements or conditions herein contained may be waived in
writing, but not in any other manner, by the party to whom such
compliance is owed. No waiver of, or consent to a change in, any
provision of this agreement shall be deemed to be, or shall constitute,
a waiver of or consent to a change in the provisions hereof (whether or
not similar), nor shall such waiver constitute a continuing waiver
unless expressly provided.
8.9 Further Assurances. The parties hereto agree to deliver or cause to
be delivered to each other at all such times as shall be reasonably
required, all such additional instruments, agreements, and other
documents, and to perform all such actions, as any of them may
reasonably request for the purpose of performing any provision of this
agreement or evidencing the transactions contemplated by this
agreement.
8.10 Severability. If any term or provision of this agreement or any
application of this agreement is held invalid or unenforceable, the
remainder of this agreement and any other application of the terms and
provisions of this agreement shall not be affected by that holding, but
shall be valid and enforceable.
8.11 Exhibits. All exhibits attached hereto or referred to in this
agreement are incorporated herein and made a part of this agreement.
8.12 Term. The term of this agreement shall be seven (7) years from the
date hereof or until the last expiration of the last Jointly Owned AMI
Interest acquired hereunder, whichever is earlier, with the exception
of the confidentiality requirements of Article 3.5 which shall survive
and extend past that period.
8.13 Notices. All notices, consents and other communications under this
Agreement shall be in writing and shall be deemed to have been duly
given (a) when delivered by hand, (b) when sent by facsimile (with
receipt confirmed), provided that a copy is promptly mailed thereafter
by first class postage prepaid registered or certified mail, return
receipt requested, (c) when received by the addressee, if sent by
Express Mail, Federal Express, other express delivery service (receipt
requested) or by such other means as the Parties named below may agree
from time to time or (d) five (5) days after being mailed in the USA,
by first class postage prepaid registered or certified mail, return
receipt requested; in each case to the appropriate address and
telecopier number set forth below (or to such other address or
telecopier number as a Party may designate as to itself by notice to
the other Parties).
Parallel Petroleum Corporation
110 N. Marienfeld, Suite 465
Midland , TX 79701
Attn: Larry Oldham
Telephone Number: (915)684-3727
Telecopier Number: (915)684-3905
TAC Resources, Inc.
P. O. Box 206
Victoria, TX 77902
Attn: Bill Bishop
Telephone Number: (512)573-4969
Telecopier Number: (512)573-9840
Beta Oil & Gas, Inc.
901 Dove Street, Suite 230
Newport Beach, CA 92660
Attn: Steve Antry
Telephone Number: (714)752-5212
Telecopier Number: (714)752-5757
Meyer Financial Services, Inc.
1005 Liberty Building
Buffalo, NY 14202
Attn: Paul Meyer
Telephone Number: (716)842-2215
Telecopier Number: (716)842-2220
Mert L. Cooper
P. O. Box 935
Canadian, TX 79014
Attn: Mert L. Cooper
Telephone Number: (806)323-9464
Telecopier Number: (806)323-9463
CKC Investments, Inc.
P. O. Box 935
Canadian, TX 79014
Attn: Mert L. Cooper
Telephone Number: (806)323-9464
Telecopier Number: (806)323-9463
FGL, Inc.
5646 Milton Street, Suite 900
Dallas, TX 75206
Attn: Guy Griffith
Telephone Number: (214)691-0711
Telecopier Number: (214)368-1502
Also Notify:
EG Operating, Inc.
1101 S. Capitol of Texas Highway, Building A, Suite 104
Austin, TX 78746
Attn: Ed Geoffroy
Telephone Number: (512)328-4355
Telecopier Number: (512)328-4383
Mansefeldt Investment Corporation
400 Pine Street, Suite 1000
Abilene, TX 79601
Attn: Tucker Bridwell
Telephone Number: (915)677-1367
Telecopier Number: (915)675-5017
Topaz Exploration Company
P. O. Box 1616
Abilene, TX 79604
Attn: Tucker Bridwell
Telephone Number: (915)677-1367
Telecopier Number: (915)675-5017
Wes-Tex Drilling Corp.
P. O. Box 3739
Abilene, TX 79604
Attn: Myrle Greathouse
Telephone Number: (915)677-9121
Telecopier Number: (915)675-5140
Each Party shall have the right upon giving thirty (30) days prior
written notice to the other Parties, in the manner herein provided, to
change its address and telecopier number for the purpose of notice.
8.14 Transfers Subject to this Agreement. Any sale, agreement, transfer
or other disposition of an interest in the Contract Lands, however
accomplished, either voluntarily or involuntarily, by operations of law
or otherwise, shall be subject to the terms of this Agreement. Any
instruments which convey any interest in the Contract Lands shall be
made expressly subject to the Agreement.
8.15 Counterparts. This agreement may be executed in multiple
counterparts, all of which when taken together shall constitute one
and the same agreement.
8.16 Public Announcements. Each Party hereto agrees that prior to
making any public announcement or statement with respect to the
transaction contemplated in this Agreement, the Party desiring
to make such public announcement or statement shall consult with
the other Parties hereto and exercise their best efforts to (i)
agree upon the text of a joint public announcement or statement to
be made by the Parties, (ii) obtain approval of the other Parties
hereto to the extent of a public announcement or statement to be made
solely by one of the Parties, as the case may be. Approval
shall be requested pursuant to Article 8.13 hereof, and any such
announcement or statement shall be deemed approved if no reply to
the contrary is received within twenty-four (24) hours (Saturdays,
Sundays and federal legal holidays excluded) after receipt of such
request by the other Parties. Nothing contained in this paragraph
shall be construed to require any Party to obtain approval of the other
Parties hereto to disclose information with respect to the transaction
contemplated by this Agreement to any governmental body to the extent
required by applicable law or by any applicable rules.
8.17 Expenses. Except as specified herein and as the Parties may
otherwise agree, each Party shall be solely responsible for all
expenses incurred by it in connection with any and all transactions
that are contemplated by this Agreement.
8.18 Force Majeure. Should any Party be prevented, wholly or in part,
from complying with any express or implied obligation of this
Agreement(other than the obligation to make money payments), from
conducting any operations provided for under this Agreement,
including by way of illustration but not limitation, the conducting
of the 3-D Seismic Operations by reason of scarcity of or inability to
obtain or to use labor, water, equipment or materials in the open
market or transportation thereof from any cause (other than
financial) beyond the control of such Party, or operation of "Force
Majeure, any State or Federal law or any order, ruling or regulation
of governmental authority, then while so prevented, such Party's
obligation to comply with such provision or obligation shall be
suspended, and such Party shall not be liable in damages or otherwise
to the other Parties for failure to comply therewith, provided that
the Party claiming suspension shall give written notice and full
particulars of the reason of such inability to perform its obligations
to the other Parties within thirty (30) days after the occurrence of
the cause relied on by the Party claiming suspension.
8.19 Arbitration. The Parties agree that any and all disputes arising
under or relating to this Agreement shall be referred to arbitration
pursuant to the commercial rules of arbitration of the American
Arbitration Association. Venue for such arbitration shall be Houston,
Texas USA.
IN WITNESS WHEREOF, this agreement is executed on the date first above written.
Parallel Petroleum Corporation
By:__________________________________
Larry C. Oldham, President
TAC Resources, Inc.
By:__________________________________
Bill Bishop, President
Beta Oil & Gas, Inc.
By:___________________________________
Steve Antry, President
Meyer Financial Services, Inc.
By:___________________________________
Paul Meyer, President
CKC Investments, Inc.
By:___________________________________
Mert L. Cooper, President
-----------------------------------
Mert L. Cooper
FGL, Inc.
By:__________________________________
Guy Griffith, Vice President
Mansefeldt Investment Corporation
By:__________________________________
Tucker Bridwell, President
Topaz Exploration Company
By:_________________________________
Tucker Bridwell, President
Wes-Tex Drilling Corp.
By:__________________________________
Myrle Greathouse,
Chairman of the Board
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (this "Agreement") is entered into as of
_____________________, 1997 (the "Effective Date"), by and between BETA OIL &
GAS, INC., a Nevada corporation (the "Company"), and DAHLIA FINANCIAL LIMITED, a
corporation ("Consultant").
RECITALS
WHEREAS, the Company desires to retain the Consultant to provide the
services set forth in Exhibit A hereto for the benefit of the Company (the
"Consulting Services");
WHEREAS, Consultant is engaged in the business of providing the
Consulting Services and desires to provide the Consulting Services to the
Company in accordance with the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, the parties hereto hereby agree as follows:
A G R E E M E N T
1. Appointment and Duties. The Company hereby engages Consultant to
perform the Consulting Services commencing upon the date of this Agreement and
terminating in accordance with the terms set forth in Exhibit A. Consultant
agrees to accept such engagement upon the terms and conditions set forth herein.
Consultant shall faithfully and diligently perform the Consulting Services.
2. Compensation. Subject to the termination of this Agreement as
provided herein, the Company shall compensate Consultant for the performance of
the Consulting Services hereunder upon the terms and conditions set forth
in attached Exhibit B hereto
3. Non-Exclusive; Non-Disclosure.
3.1 Consultant agrees to perform Consultant's Consulting
Services efficiently and to the best of Consultant's ability. It is anticipated
that the Consultant shall spend as much time as deemed necessary by the
Consultant in order to perform the obligations of Consultant hereunder.
Notwithstanding the foregoing, the Company acknowledges and agrees that
Consultant's engagement with the Company is not exclusive and that Consultant is
engaged in other business endeavors and reserves the right to continue to do so
throughout the terms of this Agreement.
<PAGE>
3.2 Consultant acknowledges that Consultant may have access to
proprietary information regarding the business operations of the Company and
agrees to keep all such information secret and confidential and not to use or
disclose any such information to any individual or organization without the
Company's prior written consent.
4. Independent Contractor. Both the Company and the Consultant agree
that the Consultant will act as an independent contractor in the performance of
its duties under this Agreement. Nothing contained in this Agreement shall be
construed to imply that Consultant, or any employee, agent or other authorized
representative of Consultant, is a partner, joint venturer, agent, officer or
employee of the Company.
5. Term; Termination.
(a) Consultant may terminate this Agreement immediately for
cause at any time without notice. For purposes of this subsection (b), "cause"
for termination by Consultant shall be (i) a breach by The Company of any
material covenant or obligation hereunder; or (ii) the voluntary or involuntary
dissolution of the Company.
(b) The Company may terminate this Agreement for cause at any
time without notice. For purposes of this subsection (c), "cause" for
termination shall be: (i) any felonious conduct or material fraud by Consultant
in connection with The Company; (ii) any embezzlement or misappropriation of
funds or property of The Company by Consultant; (iii) any material breach of or
material failure to perform any covenant or obligation of Consultant under this
Agreement; or (iv) gross negligence by Consultant in the performance of his
duties under this Agreement.
6. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto their respective devisees, legatees, heirs,
legal representatives, successors, and permitted assigns. The preceding sentence
shall not affect any restriction on assignment set forth elsewhere in this
Agreement.
7. Notices. Any notice, request, demand, or other communication given
pursuant to the terms of this Agreement shall be deemed given upon delivery, if
hand delivered, or forty-eight (48) hours after deposit in the United States
mail, postage prepaid, and sent certified or registered mail, return receipt
requested, correctly addressed to the addresses of the parties indicated below
or at such other address as such party shall in writing have advised the other
party.
If to the Company: Beta Oil & Gas, Inc.
901 Dove Street Suite 230
Newport Beach, CA 92660
<PAGE>
If to Consultant: Dahlia Financial Limited
Road Town, Tortola, BVI
c/o Privatim Finance
Waldmanstrasse 6, Postpach 269
CH-8024 Zurich, Switzerland
8. Entire Agreement. Except as provided herein, this Agreement contains
the entire agreement of the parties, and supersedes all existing negotiations,
representations, or agreements and all other oral, written, or other
communications between them concerning the subject matter of this Agreement.
9. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which shall
together constitute one and the same instrument.
10. Modification. No change, modification, addition, or amendment to
this Agreement shall be valid unless in writing and signed by all parties
hereto.
11. Attorneys' Fees. Except as otherwise provided herein, if a dispute
should arise between the parties including, but not limited to arbitration, the
prevailing party shall be reimbursed by the non-prevailing party for all
reasonable expenses incurred in resolving such dispute, including reasonable
attorneys' fees exclusive of such amount of attorneys' fees as shall be a
premium for result or for risk of loss under a contingency fee arrangement. In
the event of such a dispute, it shall be resolved at the Orange County,
California office of the American Arbitration Association.
12. Assignment. Neither party shall assign its rights or obligations
under this Agreement without the express prior written consent of the other
party.
13. Arbitration. If a dispute or claim shall arise with respect to any
of the terms or provisions of this Agreement, or with respect to the performance
by either of the parties under this Agreement, then either party may, with
notice as herein provided, require that the dispute be submitted under the
Commercial Arbitration Rules of the American Arbitration Association.
[signature page follows]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the Effective Date.
"The Company"
BETA OIL & GAS, INC.
BY: Steve Antry
ITS: President
"The Consultant"
DAHLIA FINANCIAL LIMITED
BY:
ITS:
<PAGE>
EXHIBIT "A"
Description of Consulting Services
During the pendency of this Agreement, the Consultant shall serve
perform international public relations services for the Company.
<PAGE>
EXHIBIT "B"
Compensation
The Consultant shall receive the following Compensation for the
provision of the Consulting Services:
400,000 warrants to purchase common stock of the Company at an exercise
price of $5.00 for a term of five years (the "Warrants"). 133,333 of the total
of 400,000 Warrants shall be callable at the option of the Company, on and after
the date that its Common Stock is traded on any exchange, including the NASD
Bulletin Board, at a Market Price, as defined below, equal to or exceeding $7.00
per share for 10 consecutive trading days. The remaining 266,667 of the total of
400,000 Warrants shall not be callable by the Company in any event. Further
provisions and representations regarding the Warrants are set forth in full in
those certain Warrant Agreements executed between the Company and the Consultant
on even date herewith.
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (this "Agreement") is entered into as of
March 12, 1998 (the "Effective Date"), by and between BETA OIL & GAS, INC., a
Nevada corporation (the "Company"), and ST. CLOUD INVESTMENTS LTD., a
corporation ("Consultant").
RECITALS
WHEREAS, the Company desires to retain the Consultant to provide the
services set forth in Exhibit A hereto for the benefit of the Company (the
"Consulting Services");
WHEREAS, Consultant is engaged in the business of providing the
Consulting Services and desires to provide the Consulting Services to the
Company in accordance with the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, the parties hereto hereby agree as follows:
A G R E E M E N T
1. Appointment and Duties. The Company hereby engages Consultant to
perform the Consulting Services commencing upon the date of this Agreement and
terminating in accordance with the terms set forth in Exhibit A. Consultant
agrees to accept such engagement upon the terms and conditions set forth herein.
Consultant shall faithfully and diligently perform the Consulting Services.
2. Compensation. Subject to the termination of this Agreement as
provided herein, the Company shall compensate Consultant for the
performance of the Consulting Services hereunder upon the terms and
conditions set forth in attached Exhibit B hereto
3. Non-Exclusive; Non-Disclosure.
3.1 Consultant agrees to perform Consultant's Consulting
Services efficiently and to the best of Consultant's ability. It is anticipated
that the Consultant shall spend as much time as deemed necessary by the
Consultant in order to perform the obligations of Consultant hereunder.
Notwithstanding the foregoing, the Company acknowledges and agrees that
Consultant's engagement with the Company is not exclusive and that Consultant is
engaged in other business endeavors and reserves the right to continue to do so
throughout the terms of this Agreement.
<PAGE>
3.2 Consultant acknowledges that Consultant may have access to
proprietary information regarding the business operations of the Company and
agrees to keep all such information secret and confidential and not to use or
disclose any such information to any individual or organization without the
Company's prior written consent.
4. Independent Contractor. Both the Company and the Consultant agree
that the Consultant will act as an independent contractor in the performance of
its duties under this Agreement. Nothing contained in this Agreement shall be
construed to imply that Consultant, or any employee, agent or other authorized
representative of Consultant, is a partner, joint venturer, agent, officer or
employee of the Company.
5. Term; Termination.
(a) Consultant may terminate this Agreement immediately for
cause at any time without notice. For purposes of this subsection (b), "cause"
for termination by Consultant shall be (i) a breach by The Company of any
material covenant or obligation hereunder; or (ii) the voluntary or involuntary
dissolution of the Company.
(b) The Company may terminate this Agreement for cause at any
time without notice. For purposes of this subsection (c), "cause" for
termination shall be: (i) any felonious conduct or material fraud by Consultant
in connection with The Company; (ii) any embezzlement or misappropriation of
funds or property of The Company by Consultant; (iii) any material breach of or
material failure to perform any covenant or obligation of Consultant under this
Agreement; or (iv) gross negligence by Consultant in the performance of his
duties under this Agreement.
6. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto their respective devisees, legatees, heirs,
legal representatives, successors, and permitted assigns. The preceding sentence
shall not affect any restriction on assignment set forth elsewhere in this
Agreement.
7. Notices. Any notice, request, demand, or other communication given
pursuant to the terms of this Agreement shall be deemed given upon delivery, if
hand delivered, or forty-eight (48) hours after deposit in the United States
mail, postage prepaid, and sent certified or registered mail, return receipt
requested, correctly addressed to the addresses of the parties indicated below
or at such other address as such party shall in writing have advised the other
party.
If to the Company: Beta Oil & Gas, Inc.
901 Dove Street Suite 230
Newport Beach, CA 92660
<PAGE>
If to Consultant: St. Cloud Investments Ltd.
c/o Dominique Lang
Waldmanstrasse 8
P.O. Box 319
CH-8024 Zurich, Switzerland
8. Entire Agreement. Except as provided herein, this Agreement contains
the entire agreement of the parties, and supersedes all existing negotiations,
representations, or agreements and all other oral, written, or other
communications between them concerning the subject matter of this Agreement.
9. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which shall
together constitute one and the same instrument.
10. Modification. No change, modification, addition, or amendment to
this Agreement shall be valid unless in writing and signed by all parties
hereto.
11. Attorneys' Fees. Except as otherwise provided herein, if a dispute
should arise between the parties including, but not limited to arbitration, the
prevailing party shall be reimbursed by the non-prevailing party for all
reasonable expenses incurred in resolving such dispute, including reasonable
attorneys' fees exclusive of such amount of attorneys' fees as shall be a
premium for result or for risk of loss under a contingency fee arrangement. In
the event of such a dispute, it shall be resolved at the Orange County,
California office of the American Arbitration Association.
12. Assignment. Neither party shall assign its rights or obligations
under this Agreement without the express prior written consent of the other
party.
13. Arbitration. If a dispute or claim shall arise with respect to any
of the terms or provisions of this Agreement, or with respect to the performance
by either of the parties under this Agreement, then either party may, with
notice as herein provided, require that the dispute be submitted under the
Commercial Arbitration Rules of the American Arbitration Association.
[signature page follows]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the Effective Date.
"The Company"
BETA OIL & GAS, INC.
BY: Steve Antry
ITS: President
"The Consultant"
ST. CLOUD INVESTMENTS LTD.
BY:
ITS:
<PAGE>
EXHIBIT "A"
Description of Consulting Services
During the pendency of this Agreement, the Consultant shall serve
perform international public relations services for the Company.
<PAGE>
EXHIBIT "B"
Compensation
The Consultant shall receive the following Compensation for the
provision of the Consulting Services:
150,000 warrants to purchase common stock of the Company at an exercise
price of $7.50 for a term of five years (the "Warrants"). Fifty thousand of the
total of 150,000 Warrants shall be callable at the option of the Company, on and
after the date that its Common Stock is traded on any exchange, including the
Over-the-Counter Bulletin Board, at a Market Price, as defined below, equal to
or exceeding $10.00 per share for 10 consecutive trading days. The remaining
100,000 of the total of 150,000 Warrants shall not be callable by the Company in
any event. Further provisions and representations regarding the Warrants are set
forth in full in those certain Warrant Agreements executed between the Company
and the Consultant on even date herewith.
First Amendment to
Expense Agreement Between
Beta Oil & Gas, Inc. (OIL) and Beta Capital Group, Inc. (CAPITAL)
for the two years ending September 30, 1999
Effective November 1, 1998 Section III of the Agreement is amended as follows:
III. Phone Charges
All office phone bills will be paid by OIL.
<PAGE>
Expense Agreement Between
Beta Oil & Gas, Inc. (OIL) and Beta Capital Group, Inc. (CAPITAL)
for the two years ending September 30, 1999
(As presented to the Beta Oil & Gas, Inc., Board of Directors September 10,
1997)
IV. Office lease
2-year lease signed by Beta Oil & Gas, Inc. at 901 Dove Street, Suite
230, Newport Beach, California (required personal guarantees by both
Steve and Lisa Antry) at $1.35 per square foot.
In exchange for 1) CAPITAL providing to OIL office space, personnel,
all F.F. & E., and certain supplies at no cost during the start up
phase of OIL (through August 31, 1997) and in exchange for 2) Steve and
Lisa Antry (CAPITAL shareholders)personally guaranteeing OIL's office
lease, and in exchange for 3) CAPITAL continuing to provide all
existing F.F. & E. and allocable consumable supplies (ex. pens, water
service..etc.) through September 30, 1999, OIL agrees to provide to
CAPITAL one office and associated light secretarial support and use of
OIL's F.F. & E. through September 30, 1999.
V. Employees
Cynthia Hllywa became the Office Manager for OIL as of September 1,
1997 whereby the majority of her time is necessary. Ms. Hllywa will
charge all temporary employees required to handle any CAPITAL or
CAPITAL client work which exceeds ordinary light support to CAPITAL
such that the only instance whereby temporary general office support is
to be charged to OIL is in the event of a specific OIL project.
VI. Phone Charges
Currently, all office phone bills will be paid by CAPITAL but 40% will
be recharged to OIL and 40% will be recharged to Pease (CAPITAL's
largest client). CAPITAL will absorb 20% of phone charges to ensure it
covers its share of general business calls. This also falls in line
with the IRS policy of allocating by employee % of time: Currently the
following full time office attendees and their phone time allocations
are estimated as follows:
<TABLE>
BOG BCG/PEASE
<S> <C> <C>
Steve Antry 70 30
Steve Fischer 20 80
Lisa Antry 40 60
Cynthia Hllywa 90 10
Regular Temporary 0 100
</TABLE>
This would confirm that a 40% phone bill for OIL and 60% for
Pease/CAPITAL collectively are appropriate for tax purposes.
VII. Marketing Materials/Office Supplies
All materials such as letterhead, folders. . etc. which can be
associated with only one particular Company are paid directly by that
Company. Materials which are utilized by both such as "Beta" envelopes
and copy paper are paid for by CAPITAL and recharged to OIL at cost
only when consumed by OIL. A detailed log of all such items is kept by
the Office Manager. Actual costs for such items are reviewed with each
major purchase. Office expense items used by both Companies which are
relatively immaterial, impossible or impracticable to track on a daily
basis are typically paid for by CAPITAL as part of its obligations to
OIL under Item I "Office Lease".
Law Offices of
HORWITZ & BEAM
Two Venture Plaza
Suite 350
Irvine, California 92618
(714) 453-0300
(310) 842-8574
FAX: (714) 453-9416
Gregory B. Beam, Esq. Thomas B. Griffen, Esq.
Lawrence W. Horwitz, Esq. Malea M. Farsai, Esq.
Lawrence R. Bujold, Esq. Ralph R. Loyd, Esq.
Lawrence M. Cron, Esq.
Lynne Bolduc, Esq. George L Rogers, Esq.
Of Counsel
June 23, 1997
Beta Oil & Gas, Inc.
901 Dove Street
Suite 230
Newport Beach, CA 92660
Re: Legal Representation
Gentlemen:
This is to confirm our understanding whereby you have engaged Horwitz &
Beam (the "Firm") to represent your company with respect to general counsel
representation in connection with the operations of Beta Oil & Gas, Inc. during
the period of time commencing upon the date of this Agreement and terminating
the earlier to occur of either: (i) two years or (ii) the Company's common stock
commencing trading in the public securities markets (hereinafter referred to as
the "Matter"). California law requires lawyers to have written fee contracts
with their clients. This letter, when signed by you, will constitute the written
fee contract required by California law. In connection therewith, our
understanding and agreement are as follows:
1. We will undertake to advise you in connection with the Matter and
any other matters you ask us to undertake. We will undertake to prepare such
documents as may be required to affect the foregoing.
2. There can be no assurances, and we make no guarantees,
representations or warranties as to the particular results from our services and
the response and timeliness of action by any governmental official or
department.
<PAGE>
Horwitz & Beam
Beta Oil & Gas, Inc.
June 23, 1997
Page 3
51368.1
3. You understand that the accuracy and completeness of any document
prepared by us is dependent upon your alertness to assure that it contains all
material facts which might be important and that such documents must not contain
any misrepresentation of a material fact nor omit information necessary to make
the statements therein not misleading. To that end, you agree to review, and
confirm to us in writing that you have reviewed, all materials for their
accuracy and completeness prior to any use thereof. You also acknowledge that
this responsibility continues in the event that the materials become deficient
in this regard.
4. It is understood that the Company shall reimburse the firm for all
non-labor out-of-pocket expenses incurred by the firm on behalf of the Company,
including, but not limited to copying charges, long distance telephone charges,
out sourced messenger charges, filing fees, court costs and facsimile charges,
arising from this agreement. It is understood that the Company's obligation to
pay such expenses shall only be at the actual costs incurred by the firm. You
agree to pay any and all expenses advanced by the firm.
5. The firm reserves the right to immediately withdraw its
representation in the event that (i) we discover any misrepresentation of
information provided to us, or (ii) you and any of your affiliates engage in any
conduct or activities contrary to our advice which in our opinion would
constitute a violation of applicable law. In the event legal action is required
to collect any amounts due hereunder, you agree to pay legal fees and expenses
required to collect such amounts.
6. We will consult with you on all major decisions and will attempt to
keep you fully informed of the status of the preparation of documents and
responses to filings, if any, as well as our recommended strategies. You should
feel free to call at any time if you have any questions or wish to discuss any
aspect of these matters.
7. You are advised that the Firm maintains errors and omissions
insurance coverage applicable to the services to be rendered.
<PAGE>
8. This Agreement shall be governed by the laws of the State of
California and venue for any action hereunder shall be in Orange County,
California.
If this letter correctly sets forth your understanding and agreement
with respect to the matters mentioned above, please execute and return one copy
of this letter.
Very truly yours,
HORWITZ & BEAM
/s/
Lawrence W. Horwitz
The undersigned hereby confirms and agrees that this letter, executed
and effective this _____ day of ____________, 1997, sets forth my understanding
and agreement.
BETA OIL & GAS, INC.
By: /s/
Steve Antry, President
The Shareholders and Board of Directors
Beta Oil & Gas, Inc. (a Development Stage Enterprise)
We have audited the accompanying balance sheet of Beta Oil & Gas, Inc. (a
Development Stage Enterprise) as of December 31, 1997 and the related statements
of operations, shareholders' equity, and cash flows for the period from
inception (June 6, 1997) to December 31, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
These standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Beta Oil & Gas, Inc. (a
Development Stage Enterprise) as of December 31, 1997 and the results of its
operations and its cash flows for the period from inception (June 6, 1997) to
December 31m 1997.
/s/ HEIN + ASSOCIATES LLP
HEIN + ASSOCIATES LLP
Certified Public Accountants
Orange, California
April 10, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS AS OF AND FOR THE PERIODS ENDED DECEMBER 31, 1997 AND
SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JUN-06-1997
<PERIOD-END> SEP-30-1998 DEC-31-1997
<CASH> 91,567 3,985,599
<SECURITIES> 0 0
<RECEIVABLES> 15,464 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 1,517,356 3,988,198
<PP&E> 13,919,573 5,900,794
<DEPRECIATION> 1,618,432 0
<TOTAL-ASSETS> 12,301,141 9,921,057
<CURRENT-LIABILITIES> 432,761 870,474
<BONDS> 0 0
0 0
0 0
<COMMON> 6,725 5,566
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 13,464,024 9,050,210
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 2,182,893 246,982
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (2,143,026) (201,573)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,143,026) (201,573)
<EPS-PRIMARY> (0.35) (0.05)
<EPS-DILUTED> (0.35) (0.05)
</TABLE>
