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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------
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.
Horwitz & Beam
Two Venture Plaza, Suite 350
Irvine, California 92618
(949) 453-0300
(949) 453-9416-Fax
----------
Approximate date of proposed sale to the public: As soon as practicable after
this Registration Statement becomes effective.
----------
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 1,650,000 (5)
share offered by the Company $6.00 $9,900,000 $2,920.50
- ------------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
Common Stock issuable upon exercise
of Selected Dealer Warrants(3) (4)
165,000 (5) $7.50 $1,237,500 $365.06
- ------------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
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
===================================== ====================== ======================= ======================= =======================
11,342,155 $66,402,206 $19,588.65
===================================== ====================== ======================= ======================= =======================
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(1) Estimated solely for the purpose of calculating the amount of the
registration fee.
(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 150,000 Common Stock Purchase Warrants to
the Underwriter as compensation for services rendered in connection with
the Company's initial public offering. See "Underwriting."
(5) Includes 150,000 shares of Common Stock and 15,000 shares of Common
Stock underlying Selected Dealer Warrants that the Underwriter has the
option to sell to cover over-allotments, if any.
The Registrant 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 1,500,000 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>
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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
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 about 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>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
[Beta Oil & Gas, Inc. Logo]
Initial Public Offering
Prospectus
Beta Oil & Gas, Inc.
A Minimum of 600,000 shares
up to a Maximum of 1,500,000 shares
of Common Stock @ $6.00 per share
($.001 Par Value)
The Offering: Beta is offering these shares
through the Underwriter. The Underwriter
must sell the Minimum number of shares
offered of 600,000 if any are sold. The
Underwriter is not required to sell any
specific number or dollar amount of
shares but will use its best efforts to
sell the maximum number of shares
offered of 1,500,000. See
"Underwriting" for further details.
Offering Period: We are offering the shares for ninety
days after the date of this Prospectus.
We may extend this Offering Period to
one hundred and twenty days from the
date of this Prospectus at our option.
Escrow Account: Your funds will be deposited
into an escrow account at Southern
California Bank, Newport Beach,
California until we have sold the
Minimum 600,000 shares. If we do not
sell the Minimum 600,000 shares within
the Offering Period, your funds will be
returned to you with interest and
without any deduction
Proposed Trading Symbol: This is our initial public offering,
and no public market currently exists
for our shares. We intend to apply
for quotation on The Nasdaq SmallCap
Market under the symbol "BETA." The
offering price may not reflect the
market price of our shares after the
offering.
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Total Total
Per Share Minimum Maximum
---------------- ---------------- ----------------
Public Offering Price........................ $ 6.00 $ 3,600,000 $ 9,000,000 (1)
Selected Dealer Commissions................ $ 0.60 $ 360,000 $ 900,000 (1)
Proceeds to Beta................... $ 5.40 $ 3,240,000 $ 8,100,000 (1)
</TABLE>
================================================================================
================================================================================
This Investment Involves a High Degree of Risk. You Should Purchase Shares Only
if You Can Afford a Complete Loss. See "Risk Factors" Beginning on Page __.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
Prosepctus is truthful or complete. Any representation to the contrary is a
criminal offense.
================================================================================
================================================================================
Beta is offering the shares subject to various conditions and may reject all or
part of any order.
Brookstreet Securities Corporation
The date of this Prospectus is ___________, 1999_
<PAGE>
INSIDE FRONT COVER PAGE OF PROSPECTUS
(A map of the gulf coast areas of Texas and Louisiana which shows the location
of Beta's properties in those areas.)
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. You should also read the entire prospectus carefully, including the
risk factors and financial statements.
Beta Oil & Gas, Inc.
Offices: Beta's corporate headquarters are located at
901 Dove Street, Suite 230, Newport Beach, CA
92660. Our telephone number is (949)752-5212.
Our Business: Beta Oil & Gas, Inc. ("Beta" or the "Company")
is an oil and gas company organized in June
1997 to participate in the exploration and
production of natural gas and crude oil. Our
operations are currently focused in proven oil
and gas producing trends primarily in South
Texas, Louisiana and Central California.
Beta's wholly owned subsidiary, BETAustralia,
LLC, participates in the exploration for oil
and gas in Australia.
Operations Philosophy: Beta 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, Beta was not
operating any of its projects.
3-D Seismic: Beta believes that 3-D seismic surveys have
reduced the risk of oil and gas exploration in
certain areas. Recognizing this change, we
have acquired prospective acreage blocks for
targeted, proprietary, 3-D seismic surveys.
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. We use computers to
perform these calculations and "process" the
seismic data. It then becomes possible to
create a picture of the rock structures deep
below the earth's surface. A 3-D seismic
survey provides us a three dimensional picture
of these rock structures. These three
dimensional "pictures" show us the potential
size of a potential oil or gas reservoir and
the best location to drill for it.
Current Status: As of the date of this Prospectus, we have
participated in projects which total about
76,000 gross acres under lease or option
(13,000 acres net to Beta's average 17%
interest). Beta has participated with other
oil and gas companies to conduct seismic
surveys over approximately 94% of the acreage.
From the data generated by its initial
proprietary seismic surveys, covering 313
square miles, in excess of 100 potential
drillsites have been identified.
South Texas Exploration: Approximately $10,000,000, about 60% of the
total funds raised so far by Beta, have been
utilized to acquire interests in lands and
seismic data in the onshore Texas Gulf Coast
region. Beta's interests in the onshore
Texas properties are operated by Parallel
Petroleum Corporation ("Parallel"). Drilling
commenced in these projects during the first
quarter of 1999 and has resulted in two
discoveries of oil and gas to date.
Representatives of Parallel have informed
Beta that drilling will continue in these
projects throughout the year. Beta
anticipates that participation in exploratory
and drilling projects in South Texas will
constitute its primary activity during 1999.
Louisiana Exploration: Approximately $3,300,000, representing 20% of
the funds raised so far by Beta have been
invested in leases, seismic data acquisition
and drilling in Louisiana. Drilling commenced
in these prospects in 1998 and has resulted in
one oil and gas discovery so far. It is
expected that Beta will participate in the
drilling of a minimum of six wells in
Louisianaduring 1999.
Other Exploration: The balance of the funds raised to date have
been utilized primarily to fund other domestic
and international exploratory activities.
Beta's exploratory activities in areas outside
of Texas and Louisiana have resulted in one
gas discovery located in Central California.
We anticipate that Beta will expend additional
funds to explore these areas during 1999 and
future periods.
1999 Budget Plans: Beta'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. Beta will own interests in the wells
ranging from 12.5% to75% and averaging 22%.
A majority of the budgeted wells will be
drilled in Texas and Louisiana. In addition,
Beta 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 Offering
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Common Stock offered by Beta: 600,000 shares Minimum
1,500,000 shares Maximum
Common Stock to be Outstanding after the Offering:(1) 8,058,492 shares if the Minimum Shares are sold
8,958,492 shares if the Maximum Shares are sold (2)
Use of Proceeds: (3) Beta will receive net proceeds of $3,240,000 if the
Minimum Shares are sold and up to $8,100,000 if the
Maximum Shares are sold. The proceeds will be used to
fund the repayment of debt and the drilling of wells in
Beta's Louisiana, California and Texas prospects.
Risk Factors: An investment in our shares is very risky, and you should
be able to bear a complete loss of your investment. See
"Risk Factors."
Proposed Nasdaq SmallCap Market Symbol:(4) BETA
<FN>
(1) Excludes 2,647,663 shares reserved for issuance upon exercise of the Warrants.
(2) Does not include 150,000 shares reserved for issuance upon exercise of the Over-allotment Option.
(3) Net proceeds before deducting estimated Offering expenses of $90,000.
(4) 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>
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<PAGE>
Summary Financial Information
The following table presents selected historical financial data for Beta
derived from Beta's Financial Statements. The following data should be read with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements of Beta and the notes to the financial
statements included elsewhere in this Prospectus.
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For the Cumulative
period from The year from
inception ended inception
(June 6, December 31, (June 6,
1997) to 1998 1997) to
December 31, December 31,
1997 1998
----------------- ----------------- -----------------
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Consolidated Income Statement Data:
Revenues: $ - $ - $ -
Operating expenses:
General and administrative 245,452 746,769 992,221
Impairment expense - 1,670,691 1,670,691
Depreciation expense 1,530 11,883 13,413
----------------- ----------------- -----------------
Total operating expenses 246,982 2,429,343 2,676,325
----------------- ----------------- -----------------
Loss from operations (246,982) (2,429,343) (2,676,325)
Interest income 45,409 44,843 90,252
------------------ ----------------- -----------------
Net loss $ (201,573) $ (2,384,500) $ (2,586,073)
================= ================= =================
Net loss per basic and diluted common $ (.05) $ (.37)
share
================= =================
Weighted average common shares 4,172,662 6,366,923
outstanding
================= =================
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December 31, 1997 December 31, 1998
------------------ ------------------
Consolidated Balance sheet data:
Working capital........................................ $ 3,117,351 $ (96,457)
Oil and gas properties, net........................... $ 5,900,794 $ 13,183,304
Total assets............................................. $ 9,921,057 $ 13,618,471
Total liabilities........................................ $ 870,847 $ 319,129
Stockholder's equity.................................. $ 9,050,210 $ 13,299,342
</TABLE>
<PAGE>
RISK FACTORS
The securities offered in this Prospectus 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, before purchase, consider
very carefully the following risk factors, as well as all other information
presented in this Prospectus.
Development Stage Company; Beta was formed in June 1997 and is
Lack of Revenues and Operating History; considered to be a development stage
Losses from Operations (start up) company. Beta is subject
to risks associated with new
companies. To date, Beta has had a
minimal operating history generated
no revenues from oil incurred
operating losses since inception
and as of December 31, 1998 has an
accumulated deficit of approximately
$2.6 million. Until Beta is able
to establish cash flow from oil
and gas operations (of which there
is no assurance), Beta will continue
to incur losses. There is no
assurance that Beta will achieve or
sustain profitability in the future.
See "Management's Discussion and
Analysis of Financial Condition and
Results of Operations."
Beta Will Need Additional Financing in Six In our opinion, the existing working
Months or Less; Capital Resources and capital of Beta and the net proceeds
Liquidity of the Minimum Offering will be
sufficient to fund our operations
and projected capital requirements
until June 1, 1999. At that time it
will be necessary for Beta to raise
additional funds. There is no
guarantee that additional
funding will be available, or if
available, on terms acceptable
to Beta. If additional funding
is not available, Beta will be
have to reduce its business
activities. If we are unable to
fund planned expenditures, we
may have to:
1. Forfeit our interest in wells
that are proposed to be drilled;
2. Farm-out our interest in
proposed wells; and,
3. Sell a portion of our interest
in proposed wells and use the
sale proceeds to fund our
participation for a lesser
interest.
As you will read in this
Prospectus, Beta's business plan
includes an aggressive program
to identify, acquire and develop
exploration projects that meet
certain criteria. Project
acquisitions and exploration
activities are planned in 1999
and future years which will
require large amounts of
capital. These activities,
together with others that may be
entered into, will impose
financial requirements which
will exceed the existing working
capital of Beta and the net
proceeds of this Offering.
It is important to remember:
|_| The oil and gas industry
requires a lot of capital.
|_| We will need to raise
additional funds through
public or private
financings or borrowings.
|_| We may not be able to raise
such funds.
|_| If we cannot obtain
additional funds, our
operations and financial
condition will suffer.
|_| If funds are available to
us, they may not available
on terms that are
advantageous to us.
|_| If we issue additional
equity securities to raise
funds, the percentage you
own in Beta at that time
will be diluted.
|_| Those additional equity
securities may have better
rights, preferences or
privileges than your Common
Stock.
Industry Risks The operations of Beta 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
Beta.
The marketability of Beta's oil
and gas reserves or of reserves
which may be acquired or
discovered by Beta may be
affected by numerous factors
beyond the control of Beta.
These factors include
fluctuations in product markets
and prices, the proximity and
capacity of pipelines to Beta's
oil and gas reserves, the
ability of Beta to finance
exploration and development
costs and the availability of
processing equipment.
Possible Defects 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.
Before starting drilling
operations, a more thorough
title examination is usually
conducted and curative work is
performed on known significant
title defects. Beta 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.
Industry standard forms of
operating agreements usually
provide that 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 We will not insure fully against
all business risks either
because such insurance is not
available or because premium
costs are too prohibitive. This
is a common practice in the
industry. However, a loss not
fully covered by insurance could
have a materially adverse effect
on the financial position and
results of operations of Beta.
All of Beta's joint exploration
agreements require the operator
to purchase and maintain
insurance on behalf of Beta and
other joint participants. The
policies cover general liability
and workers compensation
insurance and cover a wide range
of potential claims. The
policies have limits ranging
from $10,000 to $20,000,000
depending on the type of
occurrence. In addition to the
insurance maintained by the
operators, Beta has purchased a
general liability policy with a
total limit on claims of
$2,000,000 and a workers
compensation policy as required
by California law. Beta
purchased the general liability
policy as an added measure if
coverage provided by an
operators policy was inadequate
to cover Beta's losses.
Generally, these policies cover
losses arising from, but not
limited to:
|_| Personal injury
|_| Bodily injury
|_| Third party property
damage
|_| Aircraft and watercraft
liability
|_| Medical expenses
|_| Legal defense costs
|_| Pollution (in some
cases)
|_| Well blowouts (in some
cases)
Volatility of Oil and Gas Prices Beta'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
Beta. 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 Beta 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 Beta and
Consulting Manager of
Exploration. Mr. Antry has
entered into an employment
agreement with Beta and Mr.
Fetters has a consulting
agreement with Beta. The loss
of the services of Mr. Antry or
Mr. Fetters through incapacity
or otherwise would have a
material adverse effect upon
Beta's business and prospects.
If the services of Mr. Antry or
Mr. Fetters became unavailable,
Beta would be required to retain
other qualified personnel, and
there can be no assurance that
Beta will be able to recruit and
hire qualified persons on
acceptable terms. Beta 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.
The Company does not Operate or Control any Beta is a non-operating interest
of its Projects owner in all of its properties.
Accordingly, Beta 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 Beta.
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
Beta is subject include:
|_| Environmental laws and
regulations which are
administered 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 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
Beta 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 Beta'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.
Beta 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 Beta 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.
Beta 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 Beta.
Market Overhang of Warrants; There are currently 7,458,492
Common Stock Eligible for Future Sale shares of Common Stock
outstanding. Additionally,
there are 2,647,663 shares
reserved for issuance upon
exercise of warrants. The
average exercise price of the
warrants is $5.37. This price is
lower than the public Offering
Price. Of the shares currently
outstanding, 7,029,492 shares
and 2,647,663 shares underlying
warrants are being registered
for resale herein. Therefore,
upon the date of this
Prospectus, 9,677,155 shares
could potentially be sold.
Founders of Beta have agreed not
to sell 2,670,000 shares owned
by them for one year , lowering
the potential to 7,007,155.
Additionally, up to 1,500,000
shares may be sold in this
Offering, increasing the
immediate potential for resale
to 8,507,155 shares. If a
significant number of shares are
offered for sale simultaneously,
it would have a depressive
effect on the trading price of
the Common Stock.
Investor Could Be Without Funds or Securities Beta is offering the shares
For Up to 120 Days through selected broker dealers
on a "best efforts"
minimum/maximum basis. No broker
dealer has made a
commitment to purchase any
shares offered in this
Prospectus. Consequently, there
can be no assurance that the
shares offered in this
Prospectus will be sold. If the
minimum number of shares offered
in this Prospectus 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
with interest and without
deduction. Therefore, investors
subscribing to purchase the
shares offered in this
Prospectus may lose the use of
their funds and will not be able
to sell their shares for the
escrow period of up to 120 days.
See "Plan of Distribution."
Absence of Prior Trading Market; Potential Before this Offering, there was
Volatility of Stock Price no public market for the Common
Stock. Although Beta intends to
apply 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 Beta is
unable to obtain a public
quotation for its shares or if
the Common Stock were to be
delisted because of inability to
meet 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 Beta's ability to obtain
future financing or make
acquisitions utilizing its
shares. The public Offering
price of the Common Stock was
determined based on several
criteria. See "Plan of
Distribution." 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 Beta's operating
results or the announcement of
any discoveries of any
meaningful oil or gas reserves,
developments in Beta's strategic
relationships and general market
conditions may have a
significant effect on the market
price of the Common Stock.
Risks Relating to Low-Price Stocks; The initial public offering
Securities Sold in this Offering Could be price of the Common Stock is
Classified as Penny Stocks. $6.00.However, the market price
of the shares
of Common Stock is likely to be
highly volatile and could drop
below $5.00 per share. If the
price of the Common Stock drops
lower than $5.00 per share, the
Common Stock would be subject to
the "penny stock" rules. The
penny stock rules are contained
in The Securities Enforcement
and Penny Stock Reform Act of
1990. Unless an exception is
available, these rules require
the delivery, before any
transaction involving a penny
stock, of a disclosure schedule
explaining the penny stock
market and the risks associated
with investing in penny stocks.
Brokers must also provide
potential investors with current
bid and offer quotations for
penny stocks, the compensation
of the broker and its
salesperson in connection with
the sale of penny stocks, and
monthly accounts statements
showing the market value of each
penny stock in the investor's
account. As a consequence, an
investor could find it difficult
to dispose of, or to obtain
accurate quotations as to the
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
$3.71 per share if the minimum
number of shares offered in this
Prospectus is sold (see
"Dilution"). In addition, the
investors purchasing shares of
Common Stock in this
Offering will incur additional
dilution as a result of
2,647,663 shares of Beta's
Common Stock underlying
outstanding Common Stock
Purchase Warrants which are
being registered on behalf of
Selling Security Holders.
Exercise of the warrants will
reduce the interest you own in
Beta.
Dilution Resulting from Employment Contract Beta 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
Beta without cause upon the
payment of, among other items,
options containing a five year
term to acquire the Common Stock
of Beta 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 Beta 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.
Dilution Resulting from Bridge Note Financing In connection with a
January and March 1999 bridge
promissory note financing with
three qualified investors, Beta
issued a total of 429,000 shares
of common stock. In addition,
the terms of the financing
obligate Beta to issue
additional shares of common
stock as long as any principal
balance remains outstanding on
the promissory notes.
The January portion of the
financing totaled $2,000,000. If
any portion of the principal of
the notes remains unpaid on the
180th, 210th, 240th, 270th,
300th, and/or the 330th day
following the closing date of
the securities purchase
agreements, then on the day
after any of such dates, Beta
shall issue additional Common
Stock to each holder of the
notes. The additional Common
Shares issued shall be
determined by multiplying the
unpaid principal balance by
2.5%. For example, if $2,000,000
of principal remains unpaid on
the 180th day following the
closing date, then on the
following day the investors
would be issued an additional
50,000 Common Shares ($2,000,000
x 2.5%=50,000).
The March portion of the
financing totaled $1,000,000. If
any portion of the principal of
the Note remains unpaid on the
30th, 60th, 90th, 120th, 160th,
180th, 210th, 240th, 270th,
300th, 330th and/or the 360th
day following the Closing Date,
then on the day following any of
such dates, Beta shall issue
additional Common Stock to each
holder of Notes. The additional
Common Stock issued shall be
determined by multiplying the
unpaid principal balance by 1%.
For example, if $1,000,000 of
principal remains unpaid on the
180th day following the Closing
Date, then on the following day
the investor would be issued an
additional 10,000 Common Shares
($1,000,000 x 1%=10,000).
Beta may have to issue up to
420,000 additional shares of
Common Stock per the terms of
the bridge financing if the
notes are not repaid until
maturity. If Beta is unable to
repay all or a portion of the
promissory notes in a timely
manner, the Common shareholders
will experience immediate and
substantial dilution resulting
from the issuance of these
additional common shares.
No Dividends Beta 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 Beta
from paying dividends until such
time as Beta has retained
earnings. See "Dividends."
Year 2000 Issue; Potential Computer System Beta has begun to address
possible remedial efforts in
connection Failure 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. Beta utilizes a
number of computer programs
across its entire operation.
Beta has not completed its
assessment, but currently
believes that the costs of
addressing this issue should not
have a material adverse impact
on Beta's financial position.
Although Beta does not
anticipate any problems, there
can be no assurances that Year
2000 problems will not occur
with respect to Beta's computer
systems or business
affiliations. The Year 2000
problem may impact other
entities with which Beta
transacts business, and Beta
cannot predict the effect of the
Year 2000 problem on such
entities or Beta. A major system
failure could have a material
adverse effect on Beta's
operations and results of
operations. See "Managements
Discussion and Analysis of
Financial Condition and Results
of Operations."
Statements About Future Events May Prove to In this Prospectus, we have made
be Inacurate;There is Uncertainty About statements about future events
Estimates Used in this Prospectus based upon reasonable
assumptions of management.
Included in these are statements
concerning Beta's estimated oil
and gas reserves and reserve
values, and estimated
(budgeted) capital expenditures.
However, the actual results of
these future events may differ
greatly from the statements we
have made. Some of the specific
risks and uncertainties include:
|_| This Prospectus contains
estimates of future net
cash flows from oil and gas
reserves. These estimates
are prepared based on
engineering estimates of
oil and gas that may be
recovered from Beta's
wells. Engineering
estimates are inherently
imprecise and may be
revised downward in the
future. Subsequent downward
revisions of estimated
future net cash flows could
result in substantial
additional losses to Beta
due to write-downs of the
carrying value of Beta's
assets.
|_| Our anticipated expenses
could be higher than we
expect resulting in a
possible need to raise more
funds and/or a reduction in
our working capital which
could curtail our
participation in other
projects.
|_| We may be unable to obtain
financing in the future
which could cause a
reduction in our
participation in future
projects.
There is a specific risk factor
discussing each of these risks
in this section. You should be
aware that actual results will
differ from the expectations
expressed in this Prospectus.
<PAGE>
USE OF PROCEEDS
The net proceeds from this Offering, after deducting broker commissions and
other expenses of this Offering (approximately $90,000) will be approximately
$3,150,000 if 600,000 shares are sold in this Offering and $8,010,000 if all
1,500,000 shares are sold in this Offering. In either case, Beta plans to use
$2,000,000 of such proceeds to repay debt and will use the remainder to fund its
participatory share of the cost of drilling wells in its Texas, California and
Louisiana prospects. See "Business of Beta." This is Beta's best estimate of its
use of proceeds generated from the sale of shares by Beta 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 Beta's Board of Directors.
<TABLE>
<S> <C> <C> <C> <C>
Description of Uses Minimum Offering Maximum Offering
------------- ------------- ------------- -------------
Repayment of Bridge Debt $ 2,000,000 63% $ 2,000,000 25%
Drilling and completion of wells 1,150,000 37% 6,010,000 75%
------------ ------------- ------------- -------------
Total net proceeds of Offering $ 3,150,000 100% $ 8,010,000 100%
============= ============= ============= =============
</TABLE>
Beta's capital budget for 1999 is $8,300,000, most of which will be spent in the
drilling and completion of wells. The net proceeds of this Offering will not be
enough to meet all of Beta's budgeted expenditures for 1999. Beta will have to
seek funds from other sources to fund all of its budgeted expenditures (see
"Management Discussion and Analysis" in this Prospectus).
This table does not reflect the possible proceeds from exercise of the
Over-allotment Option. If the Over-allotment Option is exercised in full, the
additional net proceeds of $810,000 will be applied to drilling and completion
of wells.
<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 Beta from its total tangible
assets after giving effect to Common Stock issued in a promissory bridge note
financing after December 31, 1998. Dilution arises mainly from an arbitrary
decision by Beta about the Offering price per share of Common Stock. In this
Offering, the level of dilution will be increased as a result of Beta's low net
tangible book before this Offering.
Tangible assets are items of property in physical form, and not intangible
items such as goodwill or intellectual property.
The net tangible book value of Beta before this Offering, based on
the December 31, 1998 financial statements, was $13,299,342 or $1.89 per share
of Common Stock (based on 7,029,492 shares outstanding). After giving effect to
common stock sold in an institutional private placement after December 31, 1998,
the net tangible value of Beta would have been $15,294,342, or $2.05 per share
of Common Stock (based on 7,458,492 shares outstanding, assuming the issuance of
an additional 429,000 shares issued in the institutional private placement after
December 31, 1998). Before selling any shares in this Offering, Beta has
7,458,492 shares of Common Stock outstanding.
If the minimum shares offered in this Prospectus are sold, Beta will have
8,058,492 shares issued and outstanding upon completion of the Offering. After
giving effect to the sale of the shares of Common Stock offered in this
Prospectus by Beta, net of estimated commissions and Offering expenses of the
Offering, the post Offering pro forma net tangible book value of Beta will be
$18,444,342 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 $2.05 before the Offering to $2.29 after the
Offering, or an increase of $0.24 per share attributable to the purchase of the
Shares by investors in this Offering.
If the maximum shares offered in this Prospectus are sold, Beta will have
8,958,492 shares issued and outstanding upon completion of the Offering. After
giving effect to the sale of the shares of Common Stock offered in this
Prospectus by Beta, net of estimated commissions and Offering expenses of the
Offering, the post Offering pro forma net tangible book value of Beta will be
$23,304,342 or $2.60 per share, approximately. This would result in dilution to
investors in this Offering of $3.40 per share or 57% from the Offering price of
$6.00 per Share. Net tangible book value per share would increase to the benefit
of present shareholders from $2.05 before the Offering to $2.60 after the
Offering, or an increase of $0.55 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 Maximum Offering assumption:
<TABLE>
<S> <C> <C>
MINIMUM MAXIMUM
OFFERING OFFERING (1)
Offering price of common stock (per share) $ 6.00 $ 6.00
Net tangible book value per share before the Offering $ 2.05 $ 2.05
Increase per share attributable to payments by new investors $ 0.24 $ 0.55
Pro forma net tangible book value per share after the Offering $ 2.29 $ 2.60
Dilution per share to new investors $ 3.71 (62%) $ 3.40 (57%)
<FN>
(1) Does not include exercise of the Over-allotment Option.
</FN>
</TABLE>
<PAGE>
The following tables sets forth as of December 31, 1998, after giving
effect to the Offering, the number of shares of Common Stock purchased from
Beta, 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 7,458,492 93% $ 19,568,416 84% $2.62
New investors 600,000 7% 3,600,000 16% $6.00
------------- --------------
Total 8,058,492 100% $ 23,168,416 100% $2.88
====================================================================================================================
===================================================================================================================
MAXIMUM OFFERING SHARES PURCHASED TOTAL CONSIDERATION AVERAGE PRICE
PER
NUMBER PERCENT AMOUNT PERCENT SHARE
Existing shareholders 7,458,492 83% $ 19,568,416 68% $2.62
New investors 1,500,000 17% 9,000,000 32% $6.00
---------------- -------------
Total 8,958,492 100% $ 28,568,416 100% $3.19
=====================================================================================================================
</TABLE>
<PAGE>
CAPITALIZATION
The following table sets forth as of December 31, 1998 (i) the actual
capitalization of Beta; (ii) the pro forma capitalization of Beta that gives
effect to the sale and issuance of shares of Common Stock in an institutional
private placement completed after December 31, 1998; and (iii) the
capitalization of Beta on a pro forma basis as adjusted to give effect to the
proposed sale by Beta of a minimum of 600,000 shares and a maximum of 1,500,000
shares of Common Stock being offered in this Prospectus.
<TABLE>
As of December 31, 1998
--------------------------------------------------------------------------
Adjusted for Adjusted for
the Sale of the Sale of
Actual Pro Forma Minimum Offering Maximum
Offering
-------------- -------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Shareholders' Equity
Common shares, $.001 par value;
50,000,000 shares authorized;
7,029,492 shares issued and outstanding actual;
7,458,492 shares pro forma; 8,058,492 shares
(Minimum Offering) and 8,958,492 (Maximum
Offering) pro forma as adjusted at $ 7,029 $ 7,458 $ 8,058 $ 8,958
December 31, 1998(1)
Additional paid-in capital 15,878,386 17,872,957 21,022,357 25,881,457
Accumulated deficit (2,586,073) (2,586,073) (2,586,073) (2,586,073)
-------------- -------------- ----------------- ----------------
Total shareholders' equity $ 13,299,342 $ 15,294,342 $ 18,444,342 $ 23,304,342
============== ============== ================= =================
<FN>
(1) Excludes 2,647,663 shares reserved for issuance on exercise of outstanding
Warrants to purchase Common Stock of Beta (assuming Maximum Offering).
</FN>
</TABLE>
DIVIDENDS
Beta 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 Beta will be used to finance the growth of
Beta and that dividends will not be paid to stockholders. Additionally, state
corporate laws prohibit Beta from paying dividends until such time as Beta has
retained earnings.
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected historical consolidated financial
data for Beta derived from Beta's Financial Statements. The historical financial
data should be read in conjunction with the Financial Statements and notes to
the financial statements of Beta which are contained in this Prospectus. The
financial data for the periods presented were derived from the Financial
Statements of Beta which have been audited by Hein + Associates LLP, independent
accountants. The following data should also be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
For the Cumulative
period from The year from
inception ended inception
(June 6, December 31, (June 6,
1997) to 1998 1997) to
December 31, December 31,
1997 1998
<S> <C> <C> <C>
----------------- ----------------- -----------------
Consolidated Income Statement Data:
Revenues: $ - $ - $ -
Operating expenses:
General and administrative 245,452 746,769 992,221
Impairment expense - 1,670,691 1,670,691
Depreciation expense 1,530 11,883 13,413
----------------- ----------------- -----------------
Total operating expenses 246,982 2,429,343 2,676,325
----------------- ----------------- -----------------
Loss from operations (246,982) (2,429,343) (2,676,325)
Interest income 45,409 44,843 90,252
---------------- ----------------- -----------------
Net loss $ (201,573) $ (2,384,500) $ (2,586,073)
================= ================= =================
Net loss per basic and diluted common $ (.05) $ (.37)
share
================= =================
Weighted average common shares 4,172,662 6,366,923
outstanding
================= =================
</TABLE>
<TABLE>
December 31, 1997 December 31, 1998
------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance sheet data:
Working capital........................................ $ 3,117,351 $ (96,457)
Oil and gas properties, net........................... $ 5,900,794 $ 13,183,304
Total assets............................................. $ 9,921,057 $ 13,618,471
Total liabilities........................................ $ 870,847 $ 319,129
Stockholder's equity.................................. $ 9,050,210 $ 13,299,342
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with Beta's
consolidated financial statements and related notes to the financial statements
appearing elsewhere in this Prospectus. The following discussion is to inform
you about the financial position, liquidity and capital resources of Beta as of
December 31, 1997 and 1998 as well as for the results of operations for the
period from inception (June 6, 1997) through December 31, 1997 and the year
ended December 31, 1998.
Financial Condition, Liquidity and Capital Resources
Beta's working capital was a deficit of ($96,457) at December 31, 1998
compared to surplus of $3,117,351 at December 31, 1997. Beta's working capital
decreased due primarily to investments in oil and gas properties.
Beta is a Development Stage (Start-Up) Company
Beta has a limited operating history upon which an evaluation of Beta and
its prospects can be based. The risks, expense, and difficulties encountered by
early-stage companies must be considered when evaluating Beta'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."
Beta had a working capital deficit as of December 31, 1998 when its current
liabilities exceeded its current assets by $96,457. Current liabilities are
those liabilities which are expected to come due within less than a year. In
order to address this working capital deficit and projected expenditures which
are expected to occur in the first six months of 1999, Beta obtained short term
financing in the form of a $3,000,000 Bridge Note.
Bridge Note
Subsequent to December 31, 1998, Beta completed the private placement of a
$3,000,000 bridge financing to three qualified investors (the "1999 Bridge
Financing"). In connection with the 1999 Bridge Financing, Beta has granted the
investors a security interest in all of Beta's assets.
The first portion of the 1999 Bridge Financing was funded in January 1999
for $2,000,000. The promissory notes issued by Beta have a maturity date of
January 2000. The notes bear interest, payable monthly in arrears, at a rate of
10%. The securities purchase agreements which govern the bridge financing
specify that, during the term of the notes, $1,000,000 of the proceeds of a
public offering of Common Stock by Beta must be directed to repayment of the
notes. Therefore, $1,000,000 of the proceeds from this Offering will be used to
repay the January notes.
In connection with the January 1999 Bridge Financing, Beta issued 300,000
shares of common stock to the note holders. In addition, if any portion of the
principal of the notes remains unpaid on the 180th, 210th, 240th, 270th, 300th,
and/or the 330th day following the closing date of the securities purchase
agreements, then on the day following any of such dates, Beta shall issue
additional Common Stock to each holder of the notes. The additional Common
Shares issued shall be determined by multiplying the unpaid principal balance by
2.5%. For example, if $1,000,000 of principal remains unpaid on the 180th day
following the closing date, then on the following day the Purchasers would be
issued an additional 25,000 Common Shares ($1,000,000 x 2.5%=25,000).
The second portion of the 1999 Bridge Financing was funded in March 1999 for
$1,000,000. The promissory note issued by Beta has a maturity date of March
2000. The promissory note bears interest, payable monthly in arrears, at a rate
of 10%. The securities purchase agreements which govern the bridge financing
specify that, during the term of the promissory note, $1,000,000 of the proceeds
of a public offering of Common Stock by Beta must be directed to repayment of
the note. Therefore, $1,000,000 of the proceeds from this Offering will be used
to repay the March note.
In connection with the March 1999 Bridge Financing, Beta issued 100,000
shares of common stock to the promissory note holder (investor). In addition, If
any portion of the principal of the Note remains unpaid on the 30th, 60th, 90th,
120th, 160th, 180th, 210th, 240th, 270th, 300th, 330th and/or the 360th day
following the Closing Date of the securities purchase agreement, then on the day
following any of such dates, the Company shall issue to the holder of the
promissory note, that number of Common Shares determined by the above formula
and a Coverage Percentage, in each instance, of 1%. For example, if $1,000,000
of principal remains unpaid on the 180th day following the Closing Date, then on
the following day the investor would be issued an additional 10,000 Common
Shares ($1,000,000 x 1%=10,000); if $250,000 of principal remains unpaid on the
180th day following the Closing Date, then on the following day the investor
would be issued an additional 2,500 Common Shares ($250,000 x 1% = 2,500).
Plan of Operation for 1999
In the opinion of Beta's management, the existing working capital
of Beta and the net proceeds of the Minimum Offering will be sufficient to fund
the operations and projected capital requirements of Beta until June 1, 1999.
Beta plans to allocate its cash resources from all sources, including the net
proceeds of this Offering, to the following categories of expenditures:
1) Repayment of $2,000,000 of Bridge Debt.
2) Drilling and completion costs for wells on Beta's prospects. It is
anticipated that as many as 38 test wells will be drilled in 1999 in which
Beta will have an average interest participations ranging from 12.5% to 75%
and averaging 22%;
3) Leasehold acquisition costs;
4) 3-D seismic acquisition costs; and
5) General and administrative overhead.
At such time as Beta has fully utilized the proceeds of the Offering and
Beta's existing working capital, it will be necessary for Beta to raise
additional funds. It is anticipated that additional funds will be raised from
one or more of the following sources:
1) Beta has approximately 797,000 callable Common Stock purchase warrants
outstanding exercisable at a price of $5.00 per share. Beta is able to
call these 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 to or exceeding $7.00 per share
for 10 consecutive days, of which there can be no assurance that such a
price level will occur. It is Beta'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 to fund capital requirements. Beta will
receive proceeds equal to the exercise price times the number of shares
which are issued from the exercise of warrants net of commission to the
broker of record, if any.
2) Beta may seek bank or other debt financing at such time that cash flow
from operations is established.
3) Beta may seek mezzanine financing, if available, on terms acceptable to
Beta. Mezzanine financing usually involves debt with a higher cost of
capital as compared to conventional bank financing.
4) Beta may realize cash flow from oil and gas wells, if found to be
productive. Beta owns a working interest in one well that is currently
producing and in 4 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 which may
contribute cash flow if completed for production.
The net proceeds of this Offering combined with Beta's existing working
capital will not be sufficient to fund Beta's $8.3 million of capital
expenditures that are projected for 1999. If the above additional sources of
cash are unavailable on terms acceptable to Beta, Beta will be compelled to
reduce the scope of its business activities. If Beta is unable to fund planned
expenditures, it may be necessary 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 Beta management 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 Beta's business are set forth in the "Risk Factors"
section of this Prospectus.
Comparison of Results of Operations for the Period from Inception (June 6, 1997)
through December 31, 1997 and the year ended December 31, 1998
During the period from inception (June 6, 1997) through December 31, 1997
and the year ended December 31, 1998 Beta generated no revenues.
General and administrative expenses for the period from inception (June 6,
1997) through December 31, 1997 were $245,452 compared to $746,769 for the year
ended December 31, 1998. This represents a $501,317 or 204% increase. The
primary reasons for the increase were due to (i) a full year of operations in
1998 as compared to a partial year in 1997, (ii) an increase in the number of
employees from three in 1997 to five in 1998, and (iii) audit and other costs
related to filing this registration statement.
Loss from operations totaled $(246,982) for the period from inception (June
6, 1997) through December 31, 1997 compared to $(2,429,343) for the year ended
1998. The primary reason for the increase in the loss was due to a large
impairment expense recorded in 1998. During 1998 Beta participated in the
drilling of two offshore test wells in Australia. The drilling resulted in two
dry holes. All of the property acquisition and exploration costs associated with
the Australian full cost pool totaling $1,624,218 have been transferred to
evaluated properties and charged to impairment expense during 1998. In addition,
it was determined that the capitalized costs associated with the U.S full cost
pool exceeded their net realizable value by $46,473. Accordingly, an impairment
write-down of $46,473 was recorded as of December 31, 1998.
Other income for the period from inception (June 6, 1997) through December
31, 1997 consisted of interest income in the amount of $45,409. Beta realized
$44,843 of other (interest) income for 1998.
Net loss for the period from inception (June 6, 1997) through December 31,
1997 was $(201,573) compared to $(2,384,500) for the year ended December 31,
1998.
Subsequent Events
After December 31, 1998 Beta acquired interests in three exploratory
drilling prospects in Louisiana. Beta paid $658,000 as consideration for its 15%
share of land and seismic costs in the prospects (see "Properties" in this
Prospectus). In addition, as previously mentioned in this section, Beta secured
$3,000,000 in short term "Bridge" financing, of which $2,000,000 will be repaid
from the proceeds of this Offering.
Inflation
In recent years inflation has not had a significant impact on Beta'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, 1998, Beta had available, to reduce future taxable
income, a tax net operating loss carryforward of approximately $4,003,000 which
expires in the years 2012 through 2018. As of December 31, 1998, Beta has a
deferred tax asset of approximately $1,110,000 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.
Disclosure Regarding Forward-Looking Statements
All statements except 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 Beta'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. Beta 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 Beta. 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: Beta'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 Beta's prospects are currently
operated by third parties, Beta 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 after the date of this report are expressly
qualified in their entirety by this disclosure.
Year 2000 ("Y2K") Problem
Beta has begun to address possible remedial efforts in connection with
computer software that could be affected by the Year 2000 ("Y2K") problem. The
Y2K 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 Y2K problem can affect any modern technology used by a business in the
course of its day. Any machine that uses embedded computer technology is
susceptible to this problem, including for example, telephone systems, postage
meters & scales and of course, computers. The impact on a company is determined
to a large extent by the company's dependence on these technologies to perform
their day to day operations.
Internally, Beta has begun reviewing all such equipment and has determined
that many of our systems are Y2K compliant. This includes our telephone systems,
postage equipment and some of our software. We anticipate that all systems and
software will be fully reviewed and brought into compliance by November 1999. If
certain systems are not brought up to Y2K compliance by the end of November
1999, then the non-compliant technology will be disabled so as not to have an
impact on the systems that are compliant. Any such events would not have a
serious impact on our day to day operations, nor would any valuable information
be lost. Our company backs up all computer systems daily to protect us against
data loss and we have a system that utilizes 10 rotating back-up tapes as a
safeguard against having a tape that is unreadable.
The costs of bringing our company technology up to Y2K compliance is
expected to be less than $5,000. This is because the majority of the "patches"
(programs designed to make software Y2K compliant) can be obtained over the
internet from manufacturers for little or no cost and we do not expect to rely
heavily on outside consultants to upgrade our systems as most of the work can be
performed in-house.
Externally, the Year 2000 problem may impact other entities with which Beta
transacts business, and Beta cannot predict the effect of the Year 2000 problem
on such entities or Beta. With regard to those companies that we do business
with on a daily basis, we cannot guarantee that they will be vigilant about
their Y2K plan of action. We have, however, started mailing out a simple
questionnaire to these companies, requesting that they advise us of their Y2K
readiness. Should any of our oil and gas well operators experience a disruption
due to the Year 2000 problem, the most significant impact may be a delay in the
progress of drilling operations and/or interruption of production and revenue on
a producing well. In a worst case scenario, the former may ultimately cause Beta
to incur drilling cost overruns, while the latter may cause us to have an
interruption in revenues for several months. In any situation, we do not feel
that those scenarios would cause Beta to be subject to litigation.
We have also assessed the possibility of personal injury, loss of life,
property damage and accidental pollution resulting from equipment malfunctions.
Although we believe these to be a remote possibility, we have undertaken
investigations to determine possible problem areas and will communicate our
findings, if any, to the project operators.
In these unlikely events, Beta's plan of action is to have on hand a cash
reserve at December 31, 1999 to cover both the additional well costs and the
Company's overhead expenses until production resumes. We have not yet determined
the amount or source of such funds. We have discussed our exposure to potential
litigation with our corporate counsel and feel that any such exposure will be
minimal because we are not the actual operators of any wells. However, we are
contacting our insurance carriers to determine the extent of insurance coverage,
if any, in the event Y2K problems affect any of Beta's project areas.
<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 oil and
gas leases and other interests. These costs include lease costs, finder's fees,
brokerage fees, title costs, legal costs, recording costs, options to purchase
or lease interests 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 receive
a reversionary interest in the property after the occurrence of certain events.
"Bbl" means barrel (42 U.S. gallons liquid volume), used in this Prospectus
in reference to crude oil or other liquid hydrocarbons.
"Bcf" means billion cubic feet, used in this Prospectus in reference to
gaseous hydrcarbons.
"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" means the point in time at which an election is made by
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 drill exploratory wells (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. 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.
"Mcf" means thousand cubic feet, used in this Prospectus to refer to
gaseous hydrcarbons.
"MMcf" means million cubic feet, used in this Prospectus to refer to
gaseous hydrocarbons.
"MBbl" means thousand barrels, used in this Prospectus to refer to crude
oil or other liquid hydrocarbons.
"Gross" oil and gas wells or "gross" acres is the total number of wells or
acres in which Beta has an interest.
"Net" oil and gas wells or "net" acres are determined by multiplying
"gross" wells or acres by Beta's 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 conditions.
"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 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 and/or other
methods.
"Proved oil and gas reserves" means reserve quantities that have been proved
by actual or conclusive formation tests and are producible with existing
technology under existing economic conditions. A reservoir is only considered to
be proved if the reservoir has been tested directly, the area has been
delineated by tests of surrounding acreage, or tests of adjoining acreage give
reasonable assurance that the formation, considering all relevant geological
data available, extends to the acreage. The lowest tested contact with a show of
oil and gas in economically producible quantities generally defines the lower
limits of a reservoir. The existence of a reservoir of oil or gas should
generally be determined by a qualified reservoir engineer or geologist.
"Proved developed reserves" means reserve quantities that have been drilled
and can be produced with existing technology and with the appropriate production
equipment in place. Additional reserves, which could be produced by water
injection (water flood), carbon dioxide injection, or other proved secondary
recovery techniques may be classified as proved developed reserves only if the
techniques have been proved to be successful by a pilot project or operation of
an installed project that has demonstrated that improved response from the
reservoir will be achieved.
"Proved undeveloped reserves" means reserve quantities that are estimated
to be recoverable from acreage that has not been developed or intended
reclamations of abandoned wells that are reasonably certain to contain
economically producible quantities of reserves under existing economic
conditions. Reserves on undrilled acreage are limited to amounts attributable to
drilling units that offset productive acreage and are reasonably certain to
contain producible reserves. The application of improved recovery techniques can
only be considered if the criteria for inclusion as proved developed reserves,
as described, have been met for directly offsetting and geologically similar
acreage.
"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 and
other methods.
"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 in which 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.
"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. Beta's operations are currently
focused in proven oil and gas producing trends primarily in South Texas,
Louisiana and Central California. Beta 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, Beta has
aggressively sought to acquire significant prospective acreage blocks for
targeted, proprietary, 3-D seismic surveys. As of the date of this Prospectus,
Beta had assembled approximately 76,000 gross acres under lease or option.
Approximately 94% of Beta's current acreage position is evaluated by
proprietary 3-D seismic data that Beta 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 Beta, have been utilized to acquire working interests in lands and
seismic data in the onshore Texas Gulf Coast region. Beta's interests in the
onshore Texas properties are operated by Parallel Petroleum Corporation
("Parallel"). Drilling has commenced in these projects during the first quarter
of 1999 and has resulted in two discoveries of oil and gas to date.
Representatives of Parallel have informed Beta that drilling will continue in
these projects throughout the year. Beta anticipates that participation in
exploratory and drilling projects in South Texas will constitute its primary
activity during 1999.
Approximately $3,300,000, representing 20% of the funds raised so far by
Beta have been invested in leases, seismic and drilling in Louisiana. Drilling
commenced in these prospects in 1998 and has resulted in one oil and gas
discovery so far. It is expected that Beta will participate in the drilling of a
minimum of six wells in Louisiana during 1999.
The balance of the funds raised to date have been utilized primarily to
fund various domestic and international exploratory activities. Beta's
exploratory activities in areas outside of Texas have resulted in a natural gas
discovery located in Central California. It is anticipated that Beta will expend
additional funds to explore these areas during 1999 and future periods.
Beta'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, Beta
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.
Beta 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, Beta is not operating any of the
oil and gas wells or prospects in which it owns an interest but instead relies
on third party companies to operate the wells and properties.
Technology
Beta 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. Beta 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. In certain instances, 3-D seismic surveys more accurately inform
Beta in evaluating 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. Beta has
focused its exploration activity in the Gulf of Mexico region 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. Beta evaluates substantially all of its
exploratory prospects using 3-D or enhanced 2-D seismic surveys.
In evaluating certain of its exploratory prospects, Beta 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.
Beta retains experienced third-party consultants and participates with
experienced joint working interest owners to acquire, process and interpret 3-D
seismic surveys. Beta 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, Beta also
attempts to correlate or "model" the interpretations of 3-D seismic surveys with
wells previously drilled on or near the prospect being evaluated.
Beta may supplement its exploration efforts with acquisitions of producing
oil and gas properties. Beta 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 December 31, 1998 relating to Beta's
oil and gas activities are summarized as follows:
<TABLE>
December 31, 1997 December 31, 1998
------------------------------- -------------------------------
United States United States
Foreign Foreign
------------- -------------- ------------- ----------------
<S> <C> <C> <C> <C>
Capitalized costs-
Evaluated properties $ - $ - $ 1,763,082 $ 1,624,218
Unevaluated properties 5,870,794 30,000 11,426,732 39,963
Less- Accumulated depreciation,
Depletion, amortization
And impairment - - (46,473) (1,624,218)
------------- -------------- ------------- ----------------
$ 5,870,794 $ 30,000 $ 13,143,341 $ 39,963
============= ============== ============= ================
</TABLE>
Costs incurred in oil and gas producing activities are as follows:
<TABLE>
Cumulative from inception
Inception (June 6, 1997) Year ended (June 6, 1997) through
through December 31, 1997 December 31, 1998 December 31, 1998
------------------------------ ------------------------------- -------------------------------
United States United States United States
Foreign Foreign Foreign
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Property acquisition $ 3,835,540 $ - $ 2,808,123 $ 323,463 $ 6,643,663 $ 323,463
============= ============= ============== ============= ============= =============
Exploration $ 2,035,254 $ 30,000 $ 4,510,897 $ 1,310,718 $ 6,546,151 $ 1,340,718
============= ============= ============== ============= ============= =============
Development $ - $ - $ - $ - $ - $ -
============= ============= ============== ============= ============= =============
</TABLE>
As of December 31, 1997 and 1998, Beta 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 Beta'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
December 31, 1998 represent property acquisition and exploration costs in
connection with Beta's Louisiana, Texas and California prospects. In excess of
80% of the costs of unevaluated properties were incurred in connection with
Beta'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 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 year ended December 31, 1998, Beta participated in the drilling,
within the United States, of four 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 December 31, 1998 to
determine whether the capitalized costs associated with the drilling of the six
wells ("evaluated properties") exceeded their net realizable value. It was
determined that the capitalized costs exceeded their estimated net realizable
value by $46,473. Accordingly, animpairment provision of $46,473 was recorded as
of December 31, 1998 for Beta'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, Beta, through its wholly owned subsidiary, BETAustralia, LLC,
participated in the drilling of two dry holes in Australia. The property
acquisition and exploration costs associated therewith totaling $1,624,218 have
been transferred to evaluated properties and charged to impairment expense
during the year ended December 31, 1998.
PROPERTIES
Beta's current oil and gas exploration activities are focused in four
distinct project areas as follows:
1. Yegua and Frio Trend 3-D Seismic Joint Venture - Onshore Gulf Coast Region,
Jackson County, Texas;
2. Louisiana Transition Zone Project - Offshore and onshore Gulf Coast Region,
Louisiana;
3. Norcal Project - Onshore San Joaquin and Sacramento Basins, California; and
4. International - Onshore Australia and Brazil.
In each of its project areas, Beta has entered into joint ventures with
operators who have extensive experience and expertise in those areas. This has
allowed Beta to obtain working interests 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 Beta. See
"Risk Factors."
YEGUA/FRIO/WILCOX TREND 3-D SEISMIC JOINT VENTURE, JACKSON COUNTY, TEXAS
Beta 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 60,000 gross acres (approximately 11,000 acres net to Beta's
working interest) of oil and gas leases or seismic options have been acquired in
these four projects as of December 31, 1998. As of December 31, 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 commenced on Beta's project areas in the first
quarter of 1999.
The following projects in which Beta 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;
2,293 gross acres under seismic option; 164 gross acres under lease; 614 acres
under seismic lease option or lease net to Beta's 25% working interest as of
December 31, 1998):
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 the second half of 1999.
2) Formosa Grande Project (Approximately 92,000 gross acres under seismic
coverage; 7,064 gross acres under seismic lease options and 9,194 gross acres
under lease; 4,064 acres under seismic lease options or lease net to Beta's 25%
working interest at December 31, 1998):
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 second quarter of 1999.
3) Ganado Project (Approximately 25,000 gross acres under seismic
coverage, 4,581 gross acres under seismic lease options and 9,439 gross acres
under lease; 2,804 acres under option or lease net to Beta's 20% working
interest at December 31, 1998):
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, 23,015
gross acres under seismic lease options and 833 gross acres under lease; 2,981
acres under option net to Beta's 12.5% working interest at December 31, 1998):
Approximately 66 square miles of 3-D seismic data has been
acquired and is in the interpretive stages. Drilling of exploratory wells
commenced in the first quarter of 1999 and has resulted in 2 oil and gas
discoveries to date.
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 Beta 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 Beta and its
partners to acquire and evaluate seismic data before actually
acquiring leases. After the seismic data has been evaluated,
Beta 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.
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. Beta wishes to emphasize
that the historical production results in the area are not necessarily
indicative of the results that Beta may obtain from its oil and gas prospects.
Within Beta'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.
Beta'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.
LOUSIANA TRANSITION ZONE PROJECT
Beta has entered into several joint exploration agreements in southern
Louisiana in an area which is generally described as the Transition Zone.
The Transition Zone
The Transition Zone of Southern Louisiana covers the shoreline and
near shore environments in the Gulf of Mexico region. 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 between land and deeper 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.
All of the reserve targets will lie in the shallow waters or
onshore. 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 $1,500,000
(to the 100% working interest). Beta's prospects in the Transition Zone are
located within or adjacent to existing pipeline infrastructure. This will enable
wells drilled in the prospects to be connected to existing pipelines to
transport oil and gas to markets.
The Cheniere Exploration Agreements
In January 1999, Beta entered into joint exploration agreements with
Cheniere Energy, Inc. ("Cheniere") on three natural gas prospects located in
Louisiana. Beta paid $658,000 to Cheniere as consideration for land and seismic
costs and committed to participate in the drilling of a test on each of the
three prospects. The agreements provide that Beta will pay 20% of the costs of
drilling each of the test wells to total depth to earn a 15% working interest in
each prospect. All costs incurred thereafter shall be borne by Beta at its 15%
working interest. Total estimated costs of drilling the three test wells to
total depth are $876,000 net to Beta.
The following prospects in which Beta is participating have been identified from
a proprietary 3-D seismic survey acquired by Cheniere. The status of the
prospects is as follows:
1) Cobra Prospect (Approximately 1,404 gross acres under lease; 211 acres net
to Beta's 15% working interest):
This prospect is located onshore in Cameron Parish, Louisiana. A
well commenced drilling on this prospect to a projected depth of 12,500 feet in
February 1999. The estimated cost of drilling this well to casing point is
$347,000 net to Beta. This well is currently being completed for production as
of the date of this Prospectus. A separate deeper 13,500 foot test is planned
for this prospect later in the year.
2) Shark Prospect (Approximately 752 gross acres under lease; 113 acres net to
Beta's 15% working interest):
This prospect is located offshore in West Cameron Block 49, Louisiana. A
9,900 foot test well is expected to commence drilling on this prospect in April
1999. The estimated cost of drilling this well to casing point is $245,000 net
to Beta. A separate deeper 11,000 foot test is planned for this prospect later
in the year.
3) Redfish Prospect (Approximately 404 gross acres under lease; 61 acres net
to Beta's 15% working interest):
This prospect is located offshore in West Cameron Block 49,
Louisiana. A 10,000 foot test well is expected to commence drilling on this
prospect in March 1999. The estimated cost of drilling this well to casing point
is $284,000 net to Beta.
4) Stingray Prospect (Approximately 691 gross acres under lease; 104 acres net
to Beta's 15% working interest):
This prospect is located offshore in West Cameron Block 49,
Louisiana. A 10,000 foot test well is expected to commence drilling on this
prospect in the second half of 1999. The estimated cost of drilling this well to
casing point is $245,000 net to Beta.
The Rozel Exploration Agreement
Beta entered into a joint exploration agreement with Rozel Energy in 1998
to explore for oil and gas in the Transition Zone of South Louisiana. Under this
agreement (which expired on February 23, 1999) Rozel identified prospects on the
basis of a 3-D seismic survey 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. Although the
agreement with Rozel has expired, Beta continues to have participation rights in
acreage acquired and wells drilled before the expiration of the agreement.
Under the terms of the Rozel agreement, Beta provided a total of $480,000
of lease acquisition funding for prospects before expiration of the agreement.
Rozel identified the prospects utilizing the 3-D seismic data from the Fairfield
survey. In consideration for providing the lease acquisition funds, Beta is
entitled, but not obligated, to participate on a prospect by prospect basis in
leases that were acquired by Rozel Energy during the term of the agreement.
There are currently three remaining undrilled prospects in which Beta has
rights of participation. Beta'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). Beta's 9.375% working
interest shall be further reduced to 8.8% after the costs of the prospect have
been recouped. Beta is obligated to pay a $50,000 fee on those prospects in
which it elects to participate. Beta shall be entitled to reimbursement of lease
funds advanced for prospects in which it elects not to participate. Beta 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 addition to the three undrilled prospects, Beta owns a 9.375% working
interest in a producing well and 5,000 acres surrounding it.The OCS-G-13825
Minkfish #1 (West Cameron Blk. 39) was drilled to a depth of approximately
10,500 feet. The well commenced production in January 1999. Drilling on a second
well, the Minkfish #2, commenced in March of 1999. Beta intends to participate
in a proposed completion of the well as a producer. The estimated cost of
drilling this well to casing point is $215,000 net to Beta's 9.38% working
interest. Estimated completion cost net to Beta is $172,000.
The Lapeyrouse 3-D Prospect
This prospect is in Terrebone Parish, South Louisiana, an area specifically
targeted by Beta 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 reservoir) through 16,000'.
Beta'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. Beta'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 second quarter of 1999. Beta has acquired an
additional 6.25% working interest from a participant who has declined to
participate, which has increased Beta'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 Beta shall pay $413,000 for
its proportionate 12.5% working interest. Estimated completion costs are
$1,051,683 of which Beta shall pay $131,000 for its proportionate 12.5% working
interest, provided Beta elects to participate in the completion.
NORCAL PROJECT -- ONSHORE SAN JOAQUIN AND SACRAMENTO BASINS
Beta has entered into an exclusive eighteen month 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. A
prospect generator is someone who generates an oil and gas prospect idea using
geologic and/or seismic data. Beta 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 December 31, 1998, Beta has
participated in the drilling of two wells 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 South Shafter #1 was completed as a dry hole in
December of 1998.
INTERNATIONAL
Although the majority of Beta'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
Beta 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
Beta's wholly owned subsidiary BETAustralia LLC has signed an
agreement with Dyad Australia, Inc. of Midland, Texas ("Dyad") to
participate for a 20% working interest (16.4% net revenue interest) in
Dyad's rights to the Toko Syncline Project. Dyad is the holder of
exploration permits covering approximately 918,000 contiguous acres (1,434
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 until now.
One of the structures 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 off 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. Previously, the mines and the
associated processing and smelting plants were fueled entirely by coal,
which was shipped approximately 750 miles by rail. The Queensland
government is encouraging the introduction of natural gas as an energy
source. Construction of a 14 inch gas transmission line from southwest
Queensland to Mt. Isa is now complete and transporting gas. The pipeline
crosses the Toko Syncline project area, exposing the project to a viable
market for natural gas.
Dyad has entered into an agreement with a major U.S concern for the
funding of additional seismic data acquisition and the drilling of an
exploration well. Under the terms of the agreement, Dyad will have the
opportunity to buy into the exploratory well on a cost only basis and
after the well has been drilled and evaluated. Dyad also has the option of
postponing its buy-in until later stages in the development program. If
Dyad buys into the program after the initial exploratory well has been
drilled and evaluated, Beta will at that point, have the option of
acquiring a net 10% working interest at cost. If Dyad postpones its buy-in
option until the later stages of the project, then its option to purchase
an interest will be incrementally reduced. Per the terms of the Beta-Dyad
agreement, Beta has paid $100,000 to acquire 20% of Dyad's working
interest buy-in rights in the project area. Beta's working and net revenue
interest in the Toko Syncline project area will depend on if and when Dyad
and its partners elect to buy-in to the project and will be reduced in the
later stages of the project if the buy-in option is not exercised and
additional expenditures are incurred by the funding partner. The funding
partner will have exclusive marketing rights to hydrocarbons in the
project area, subject to an agreed minimum floor price to be received for
hydrocarbons produced and sold.
Beta anticipates that the initial exploratory well could be drilled
as early as the second or third quarter of 1999.
2) Stansbury Basin Project
In March 1998, Beta 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. Beta 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, Beta exercised its
option to earn a 5% working interest by participating in the drilling of
two offshore test wells in the license areas. Beta incurred costs of
$1,304,218 in the drilling of the two wells. The wells were completed as
dry holes. The costs associated therewith totaling $1,624,218 have been
transferred to evaluated properties and charged to impairment expense
during the year ended December 31, 1998. Beta has no current plans to
conduct additional exploration activities in the Australian (Stansbury
Basin) license areas. The exploration licenses expired in December of
1998.
Additional Projects Under Review
Although Beta'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 in this
section may never materialize and, even if they do materialize, they could
result in a loss to Beta. 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
Beta holds interests in producing properties and undeveloped acreage
in three states within the United States.
Company Reserves
Beta had no proved reserves as of December 31, 1997. Beta's total net
ownership in oil and gas reserves as of December 31, 1998 is based on an
independent engineering report. The reserve quantities and valuations for
fiscal 1998 are based upon estimates by Veazey & Associates, Inc.
Proved developed behind pipe reserves are those that can be recovered
through existing wells with existing equipment and existing (either
operating or tested) recovery techniques. All of Beta's reserves are
classified as proved developed behind pipe reserves.
Beta wishes to emphasize that the estimates included in the following
tables are by their nature inexact and are subject to changing economic,
operating and contractual conditions.
These reserves are located entirely within the United States.
<TABLE>
Beta Oil & Gas, Inc.
Historical Reserve Information
as of December 31, 1998 and 1997
---------------------------------------------- ---------------- ----------------
<S> <C> <C>
DESCRIPTION 1998 1997
---------------- --------------------------------------------------------------
Proved Developed Behind Pipe Reserves
Oil (bbls) 1,461 0
Gas (mcf) 1,596,740 0
---------------------------------------------- ---------------- ----------------
Proved Reserves
Oil (bbls) 1,461 0
Gas (mcf) 1,596,740 0
---------------------------------------------- ---------------- ----------------
Future Net Cash Flows
Before Income Tax $2,553,762 $0
---------------------------------------------- ---------------- ----------------
Standardized Measure of
Discounted Future Net Cash Flows $1,716,608 $0
---------------------------------------------- ---------------- ----------------
</TABLE>
Well Statistics
As of December 31, 1997, Beta did not own working interest in any
productive wells. As of December 31, 1998 Beta owned working interests in two
(.84 net) wells which have been completed for production but which have not yet
commenced production.
Acreage Statistics
The following tables set forth the undeveloped and developed acreage of
Beta as of December 31, 1998:
<TABLE>
Beta Oil & Gas,Inc.Acreage Holdings
As of December 31, 1998
---------------------------------------------------------------------------------------------------
UNDEVELOPED ACREAGE GROSS ACRES NET ACRES
---------------------------------------------------------------------------------------------------
<S> <C> <C>
California 200 150
Louisiana 7,502 485
Texas 59,038 10,955
===================================================================================================
UNDEVELOPED ACREAGE 66,740 11,590
===================================================================================================
---------------------------------------------------------------------------------------------------
DEVELOPED ACREAGE GROSS ACRES NET ACRES
---------------------------------------------------------------------------------------------------
California 600 450
Louisiana 5,000 470
Texas 0 00
====================================================================================================
DEVELOPED ACREAGE 5,600 920
===================================================================================================
</TABLE>
Drilling Activity
The following table sets forth the results of Beta's drilling activities in
the fiscal years ended December 31, 1998 and 1997:
<TABLE>
Beta Oil & Gas, Inc.
Summary of Drilling Activity
For Fiscal Years Ending December 31, 1998 and 1997
--------------------------------------- --------- -------------
EXPLORATORY WELLS 1998 1997
<S> <C> <C> <C>
---------------------------------------------------------------
GROSS
Productive 2 0
Dry 6 0
----------------------------------------------------------------
TOTAL 8 0
================================================================
NET
Productive .84 0
1.13 0
Dry
----------------------------------------------------------------
TOTAL 1.97 0
===============================================================
<PAGE>
DEVELOPMENT WELLS 1998 1997
---------------------------------------------------------------
GROSS
0 0
Productive
0 0
Dry
---------------------------------------------------------------
TOTAL 0 0
======================================= ========= =============
NET
0 0
Productive
0 0
Dry
---------------------------------------------------------------
TOTAL 0 0
===============================================================
</TABLE>
Drilling activity for 1998 is summarized as follows:
1. During March 1998, Beta participated in the drilling of two dry holes on
one of its Australian exploration licenses. Estimated costs net to Beta's
interest are $1,624,000 which have been charged to impairment expense
during the nine months ended September 30, 1998.
2. In May 1998, Beta 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 Beta of $320,000 for its 12.5% working interest.
3. In July 1998, Beta 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 Beta's 12.5% working interest.
4. In July 1998, Beta participated in the drilling of the Minkfish #1 (West
Cameron Blk. 39) to a depth of 11,000 feet and has been completed as a
producer. Beta has expended $328,000 in connection with this well.
5. In October of 1998, Beta 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. Beta's estimated share of the dry hole costs
is 236,000 net to its 9.375% working interest.
6. In July 1998, Beta 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. All of the permits have been
acquired to commence construction of a one mile pipeline. Completion of the
pipeline and commencement of production from the well is expected by the
end of March 1999. The estimated cost net to Beta for the pipeline is
$80,000. The estimated cost net to Beta's 75% working interest in the well
is $313,000. In December of 1998, Beta participated in the drilling of a
second test well in its California Project which was completed as a dry
hole at an estimated cost net to Beta of $128,000.
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, Beta 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 Beta and there can be no
assurance that Beta will be able to compete effectively with these larger
entities. Companies that are active in the same geographic areas as Beta
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 the date of this Prospectus, Beta employs five full-time
employees and one part-time employee. Beta also has two consultants with
long-term contracts. Beta hires independent contractors on an "as needed" basis
only. Beta has no collective bargaining agreements with its employees. Beta
believes that its employee relationships are satisfactory. Due to its current
level of growth, Beta anticipates increasing its number of full-time employees
to six by the end of 1999. See also, "Management, Executive Compensation, and
Employment Contracts."
Premises
Beta leases slightly over 1,800 square feet in Newport Beach,
California, which includes offices and storage space. All of Beta's operations
are conducted from this site. The lease expires September 1999, and requires
monthly payments of $2,645 per month.
Litigation
There is no litigation currently pending or threatened against
Beta.
Additional Information
Beta is not presently subject to the reporting requirements of the
Securities Exchange Act of 1934 (the "Exchange Act"). Concerning the securities
offered by this prospectus, Beta 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 to the Registration Statement. This Prospectus does not
contain all of the information presented in the Registration Statement and the
exhibits to the Registration Statement. 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. 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.
Beta 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 Beta and the positions in Beta 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
John P. Tatum 64 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. Beta'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 Beta'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 Beta. Before 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. Before Benton, Mr. Antry was a Marketing Director for
Swift Energy (NYSE: SFY) from 1987 through 1989. Mr. Antry 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.. 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 Beta 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 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 at the University of Denver Graduate Tax
Program in 1985.
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.
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 before 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 1983,
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.
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. Before 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. Before 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.
Mr. John P. Tatum, Director, joined Beta as a director in March 1999. Mr. Tatum
has worked in the oil and gas industry since 1962, holding successive positions
with Skelley Oil Company, Placid Oil Company, Hunt International Company and
Hunt Energy Company. From 1980 to 1996, Mr. Tatum was employed with Triton
Energy Corporation as Vice President (1980-82), Senior Vice President
(1982-1991) and Executive Vice President (1991-96). As Senior Vice President for
Triton Energy Corporation, Mr. Tatum was responsible for directing Triton's
operations in Columbia, Thailand, New Zealand, Nepal, Gabor, Cote D'Ivoire and
Argentina. Since 1996, Mr. Tatum has worked as an international oil & gas
consultant. Mr. Tatum received his B.B.A. from the University of Texas in 1956
and conducted graduate studies at the Louisiana State University Graduate
Business School.
Board Committees
In September 1997, Beta initiated several steps to improve the corporate
governance and direction of Beta.
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, Beta's President
and Chairman, Tom Fetters, a Director and consultant to Beta 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 Beta's
business.
Second, the Board of Directors established an Audit Committee whose purpose
is to oversee Beta'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
Beta's legal counsel, Tom Fetters, a Director and consultant to Beta and Joe
Richardson, an independent Director.
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table will inform you about the compensation earned by Beta's
Chief Executive Officer for services rendered to Beta during the fiscal years
ended December 31, 1997 and 1998. No other executive officer's cash compensation
exceeded $100,000 for the fiscal years ended December 31, 1997 and 1998.
<TABLE>
Long-Term
Compensation
Other Awards- All Other
Annual Restricted Compen-
Name and Principal Position Year Salary Bonus Compen- Stock Awards Sation
($) ($) Sation # ($)
($)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Steve Antry
Chief Executive Officer 1998 $ 150,000 $ 0 $ 2,600(4) 0 $ 9,343(3)
============= =========== ============= =============== =============
and Chairman of the
Board of Directors (2) 1997 $ 34,522(1) $ 0 $ 0 0 $ 2,294(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 Beta, 1,500,000 shares of Common Stock which are being registered
along with the shares offered by this Prospectus. 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 Beta.
(4) Represents Beta's matching contributions toward Mr. Antry's Simple IRA
retirement plan.
</FN>
</TABLE>
Beta's Bylaws state that non-employee Directors of Beta 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. Beta
has paid a total of $2,000 in attendance fees to its non-employee directors
since inception. Beta maintains directors and officers liability insurance.
Employment Contracts
Beta 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 Beta without cause upon the payment
to Mr. Antry of the following:
(a) Options to acquire the common stock of Beta 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 Beta to the Employee shall immediately
vest and Beta shall not have the right to terminate or
otherwise cancel any securities issued by Beta to the
Employee.
On June 23, 1997, Beta 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.
All other employees of Beta are terminable at will.
On January 27, 1998, Beta 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 Beta. 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 Beta; (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 shall expire on
January 23, 2003.
Compensation Committee
On October 17, 1998 the Board of Directors of Beta 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 Beta's
executive officers. In reviewing the overall compensation of Beta'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 (except what is set forth in this Prospectus) currently
in place or under discussion or consideration by the Board of Directors at the
present time. The Committee presently consists of two outside Directors, Joe
Richardson Jr. and John P. Taum.
In establishing the compensation paid to Beta's executives, the Committee
emphasizes (i) providing compensation that will motivate and retain Beta's
executives and reward performance, (ii) encouraging the long-term success of
Beta, and (iii) encouraging prudent decision making processes in an industry
marked by volatility and high risk.
The Committee will evaluate compensation paid to Beta's executive officers
based upon a variety of factors, including Beta's growth in oil and gas
reserves, the market value of Beta's Common Stock, cash flow, the extent to
which Beta's executive officers are able to find and create opportunities for
Beta to participate in drilling or acquisition ventures having quality
prospects, their ability to formulate and maintain sound budgets for Beta's
drilling ventures and other business activities, the overall financial condition
of Beta, and the extent to which proposed business plans are met. The Committee
does not assign relative weights or rankings to these factors but instead
subjectively determines compensation based on all such factors.
In establishing base salaries for Beta'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 Beta'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. Concerning future awards of stock
warrants or options, the Committee will try to provide Beta's executives with an
incentive compensation vehicle that could result in future additional
compensation to the executives, but only if the value of Beta increases for all
stockholders.
<PAGE>
PRINCIPAL SHAREHOLDERS
Security Ownership Of Certain Beneficial Owners And Management
The following table will inform you, as of the date of this Prospectus,
about the beneficial ownership of shares of Beta's common stock held by each
person who beneficially owns more than 5% of the outstanding shares of the
common stock, each person who is a director or officer of Beta 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 Percent Approximate Percent
Shares of Class Before the of Class After the
Name of Beneficial Owner Beneficially Owned Offering Offering(2)
(1)
- --------------------------------------------- -------------------- --------------------- ---------------------
<S> <C> <C> <C>
Mr. Steve Antry
Mrs. Lisa Antry, Jointly
901 Dove Street, #230
Newport Beach, CA 92660 1,525,000(3) 19.9% 16.67%
Mr. R. Thomas Fetters
901 Dove Street, #230
Newport Beach, CA 92660 350,000(4) 4.6% 3.8%
Mr. Lawrence W. Horwitz
2 Venture Plaza,
Suite 350
Irvine, CA 92618 85,000(5) 1.1% 1%
Mr. Joe C. Richardson Jr.
901 Dove Street, #230
Newport Beach, CA 92660 400,000(6) 5.2% 4.4%
Mr. Stephen L. Fischer
901 DoveSt., #230
Newport Beach, CA 92660 375,000(7) 4.9% 4.1%
Mr. J. Chris Steinhauser
901 Dove Street, #230
Newport Beach, CA 92660 125,000(8) 1.6% 1.4%
-------------------- --------------------- ---------------------
All officers and directors as a group (6
persons) 2,860,000(9) 37.3% 31.37%
==================== ===================== =====================
<FN>
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 sell their Founder's Shares representing 2,670,000 of the
2,860,000 of the total beneficial shares held for one year from the date of this
Prospectus. See "Plan of Distribution."
(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.
(4) Mr. Fetters subscribed to 350,000 shares of Beta'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 expire 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,
Beta 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 Beta. 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
Beta; (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 Beta, Mr. R.T. Fetters, was paid $20,000 per a consulting contract
for management and geologic evaluation services. Mr. Fetters received $60,000 in
consulting fees during the year ended December 31, 1998. In addition, on June
23, 1997, the director subscribed to 350,000 shares of Beta's common stock at a
price of $0.05 per share ("Founder Shares")
A second director of Beta, 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 Beta 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 Beta, Mr. Joe Richardson, subscribed to 400,000 Founder
Shares at price of $0.05 per share.
A fourth director of Beta, Mr. John P. Tatum, is a partner with Dyad
Petroleum Company ("Dyad") in Midland, Texas. Beta has purchased a 20% interest
in a property owned by an affiliate of Dyad at a cost of $100,000 in January
1999, prior to the time Mr. Tatum joined Beta as a director.
Beta 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 Beta. 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 Beta and Beta Capital
Group, Inc. During the period from inception through December 31, 1997 Beta made
payments totaling $9,940 to Beta Capital Group, Inc. in connection with this
agreement. During the year ended December 31, 1998 Beta paid $17,000 in
connection with this agreement.
Effective October 1, 1997, Beta entered into an agreement to lease office
space with the Colton Company, an unrelated third party. The lease agreement
provides for a 24-month term expiring in September 1999. Monthly rent payments
under the lease agreement commenced in October 1997 and are currently $2,645 per
month. The lease agreement was previously in the name in Beta Capital Group,
Inc. and was modified and extended by amendment to reflect Beta as tenant. Beta
Capital Group, Inc. no longer occupies the suite. Beta's President and Chairman,
and Treasurer are personal guarantors of the lease agreement.
There are no outstanding loans to officers, directors and related persons.
The present policy of Beta does not permit loans to officers, directors and
related persons.
All future transactions with affiliates of the Company are to be on terms
no less favorable than could be approved by a majority of the directors
including the majority of disinterested directors.
<PAGE>
DESCRIPTION OF SECURITIES
Beta is authorized to issue 50,000,000 shares of Common Stock, $0.001 par
value. As of the date of this Prospectus, Beta had 7,458,492 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 Beta'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. Beta 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
Beta, 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 March 1, 1999 there were
approximately 500 recordholders of Beta's Common Stock.
During the period from inception (June 6, 1997) through December 31, 1997,
Beta issued 797,245 callable and 730,977 non-callable Common Stock Purchase
Warrants entitling the holders to purchase 1,528,222 shares of Beta's Common
Stock at prices ranging from $2.00 to $5.00 per share. During the year ended
December 31, 1998, Beta issued 415,958 callable and 553,483 non-callable Common
Stock Purchase Warrants entitling the holders to purchase 969,441 shares of
Beta's Common Stock at prices ranging from $3.75 to $7.50 per share. Beta 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, Beta 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
According to Beta's Bylaws, concerning 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
Beta'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 Beta, including the election of directors.
Possible Anti-Takeover Effects of Authorized but Unissued Stock
Beta's authorized but unissued capital stock consists of 42,541,508 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 Beta by means of a merger,
tender offer, proxy contest or otherwise, and to protect the continuity of
Beta'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 Beta'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
Beta executed a contract of employment with the President and Chairman of
the Board of Directors, 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 Beta without cause upon the payment of the following:
(a) Options to acquire the common stock of Beta 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 Beta to the Employee shall immediately
vest and Beta shall not have the right to terminate or
otherwise cancel any securities issued by Beta 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
Beta'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 Beta will
not be personally liable to Beta 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."
Beta 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 Beta up to $1,000,000 for each claim and $3,000,000 in
the aggregate. Beta believes that the limitation of liability provision in its
Articles of Incorporation, and the directors and officers liability insurance
will facilitate Beta's ability to continue to attract and retain qualified
individuals to serve as directors and officers of Beta.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of Beta, Beta
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. If a claim for indemnification against such liabilities (except
the payment by Beta of expenses incurred or paid by a director, officer, or
controlling person of Beta in the successful defense of any action, suitor
proceeding) is asserted by such director, officer or controlling person of Beta
in connection with the securities being registered, Beta 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 Beta's Articles of Incorporation. Beta 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 Beta 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 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
at such other date that is convenient 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, Beta will have between 8,058,492 (Minimum
Offering) and 8,958,492 (Maximum Offering) shares of Common Stock outstanding
assuming no exercise of the 2,497,663 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 except "affiliates"
of Beta (as that term is defined under the Securities Act of 1933, the "Act"),
without restriction or further registration under the Act. Beta is obligated to
register 7,029,492 shares of Common Stock and 2,647,663 shares of Common Stock
issuable upon exercise of the Common Stock Purchase Warrants in the current
registration statement filed by Beta with the 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 Beta are
being sold pursuant to any such registration statement, subject to such lock-up
provisions as may be agreed to by the investors (the "Piggyback Registration
Right"). In addition, Beta is obligated to register, in a subsequent
registration statement, 429,000 shares of Common Stock issued in connection with
Note and Common Stock Purchase Agreements dated January and March 1999. Beta is
required to file a registration statement registering these shares 180 days
after the effective date of this Prospectus. At such time that the subsequent
registration statement becomes effective, all of the 429,000 shares will become
freely tradeable.
Beta 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
Beta has entered into an Underwriting Agreement (the "Agreement") with
Brookstreet Securities Corporation (the "Underwriter"). Under the Agreement,
Beta 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 1,500,000 shares of the Common Stock of Beta at an Offering price of $6.00
per share, for a gross Minimum Offering of $3,600,000 and a gross Maximum
Offering of $9,000,000. All of the proceeds from the sale of the shares offered
in this Prospectus will be deposited into the Beta Oil & Gas escrow account at
Southern California Bank, Newport Beach, California. None of the shares offered
in this Prospectus may be sold unless, within 90 days from the date of this
Prospectus (the "Offering Period"), which may be extended by Beta for an
additional 30 days upon mutual consent of Beta and the Underwriter ,
subscriptions for the purchase of, and payment for, at least 600,000 of the
shares offered in this Prospectus have been received (the "Minimum Condition").
If the Minimum Condition is satisfied, the funds in the escrow account will be
released to Beta to be used for the purposes stated in this Prospectus under the
caption "Use of Proceeds" and Beta will issue certificates for those shares to
the subscribers. If the Minimum Condition is satisfied before 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
Beta and Beta 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 Beta.
If the Minimum Condition is not met before 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 Beta that it intends to offer the shares only
through itself and selected registered 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 .
There are no assurances that any or all of the shares will be sold.
The Underwriter has an option, exercisable within 45 days of the effective
date of this Prospectus, to sell an additional 150,000 shares of the Common
Stock at the public offering price, less selected dealer commissions, solely for
the purpose of covering over-allotments ("Over-allotment Option"), if any.
Subject to the sale of at least 600,000 shares of Common Stock, Beta will
agreed to pay to the Underwriter and Selected Dealers a commission of 8% and a
non-accountable expense allowance of 2% for a total of ten percent of the
initial Offering price ($.60 per share). No commission shall be earned or paid
unless the Minimum Condition is satisfied before 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 commissions on subscriptions accepted prior to termination, provided the
Minimum Condition is satisfied.
Subject to the sale of the minimum of 600,000 of the shares of Common Stock
offered in this Prospectus, Beta has agreed to sell to the Underwriter and
Selected Dealers, for $.001 each, Warrants to purchase a number of shares of
Common Stock of Beta equal to 10% of the shares sold by them in this Offering
(the "Selected Dealer 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 in this Prospectus). The Selected Dealer Warrants are exercisable for a
period of four years beginning one year after the date of this Prospectus. The
Selected Dealer 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, Beta is registering the
Common Stock underlying the Selected Dealer Warrants in the Registration
Statement of which this Prospectus is a part.
Beta 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 Beta 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.
Certain shareholders of Beta, including those shareholders who also are
executive officers and directors of Beta, have agreed that they will not 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.
Before this Offering, there was no market for the Common Stock of Beta.
Accordingly, the initial public Offering price has been determined by
negotiation between and the Underwriter. Among the factors considered in
determining the initial public Offering price were Beta's working interests and
seismic assets, Beta's future prospects, the prices at which Beta 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 Beta.
This 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 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
Commission's EDGAR database at www.sec.gov.
LEGAL MATTERS
Certain legal matters in connection with this Registration Statement are
being passed upon for Beta by Horwitz & Beam, Two Venture Plaza, Suite 380,
Irvine, CA 92618. Members of that firm own 70,000 shares of Beta's Common Stock,
which includes 50,000 shares held by Lawrence W. Horwitz, a senior partner of
the firm and a director of Beta. The firm also owns 15,000 shares underlying
presently exercisable Common Stock Warrants.
<PAGE>
EXPERTS
The audited consolidated financial statements of Beta Oil & Gas, Inc.
included herein have been examined by Hein & Associates LLP, independent
certified public accountants, for the periods and to the extent set forth in
their report and are included herein in reliance upon such report of said firm
given upon their authority as experts in accounting and auditing.
The unaudited Supplementary Oil and Gas Reserve Information included in
this Prospectus has been included in reliance of the report of Veazy &
Associates, Inc. The unaudited Supplementary Oil and Gas Reserve Information
appears elsewhere in this Prospectus on the authority of Veazey & Associates,
Inc.
<PAGE>
<TABLE>
BETA OIL & GAS, INC.
(A Development Stage Enterprise)
Index to Consolidated Financial Statements
<S> <C>
Page
Independent Auditor's Report.....................................................................F-2
Consolidated Balance Sheets as of December 31, 1997 and December 31, 1998........................F-3
Consolidated Statements of Operations for the Period from Inception (June 6,
1997) through December 31, 1997, the Year Ended December 31, 1998, and
Cumulative from Inception through December 31, 1998 .............................................F-5
Consolidated Statement of Shareholders' Equity for the Period from Inception
(June 6, 1997) through December 31, 1998.........................................................F-6
Consolidated Statements of Cash flows for the Period from Inception through
December 31, 1997, the Year Ended December 31, 1998, and Cumulative from
Inception through December 31, 1998 .............................................................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 consolidated balance sheets of Beta Oil &
Gas, Inc. and subsidiary (a Development Stage Enterprise) as of December 31,
1997 and 1998, and the related statements of operations, shareholders' equity,
and cash flows for the period from inception (June 6, 1997) to December 31,
1997, the year ended December 31, 1998, and the period from inception through
December 31, 1998. These consolidated financial statements are the
responsibility of Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Beta Oil &
Gas, Inc. and subsidiary (a Development Stage Enterprise) as of December 31,
1997 and 1998, and the results of their operations and their cash flows for the
period from inception (June 6, 1997) to December 31, 1997 the year ended
December 31, 1998, and the period cumulative from inception (June 6, 1997)
through December 31, 1998 in conformity with generally accepted accounting
principles.
/s/ HEIN + ASSOCIATES LLP
HEIN + ASSOCIATES LLP
Certified Public Accountants
Orange, California
February 9, 1999 except for the fourth and fifth paragraph of Note 8 which is
as of March 19, 1999
<PAGE>
<TABLE>
BETA OIL & GAS, INC.
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, December 31,
1997 1998
----------------- -----------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 3,985,599 $ 198,043
Accounts receivable - 9,678
Prepaid expenses 2,599 14,951
----------------- -----------------
Total current assets 3,988,198 222,672
----------------- -----------------
Oil and gas properties, at cost (full cost method):
Evaluated properties - 3,387,300
Unevaluated properties 5,900,794 11,466,695
Less--impairment - (1,670,691)
----------------- -----------------
Net oil and gas properties 5,900,794 13,183,304
----------------- -----------------
Furniture, fixtures and equipment, at cost, less
Accumulated depreciation of $1,530 and $13,413 at
December 31, 1997 and December 31, 1998, respectively 32,065 22,943
Other assets - 166,028
Deferred offering costs - 23,524
================= =================
$ 9,921,057 $ 13,618,471
================= =================
</TABLE>
(Continued)
<PAGE>
<TABLE>
BETA OIL & GAS, INC.
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
(Continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31, December 31,
1997 1998
----------------- -----------------
<S> <C> <C> <C> <C>
Current Liabilities:
Accounts payable, trade $ 807,474 $ 310,770
Commissions payable 25,329 -
Payroll and payroll taxes payable 24,044 7,559
Other accrued expenses 14,000 800
----------------- -----------------
Total current liabilities 870,847 319,129
----------------- -----------------
Commitments and contingencies (Notes 1, 7 and 8)
Shareholders' Equity:
Common Stock, $.001 par value; 10,000,000 and 50,000,000 shares
authorized at December 31, 1997 and December 31, 1998, respectively;
5,565,648 and 7,029,492 shares issued and outstanding at
December 31, 1997 and December 31, 1998, respectively 5,566 7,029
Additional paid-in capital 9,246,217 15,878,386
Deficit accumulated during the development stage (201,573) (2,586,073)
----------------- -----------------
Total shareholders' equity 9,050,210 13,299,342
----------------- -----------------
Total Liabilities and Shareholders' Equity $ 9,921,057 $ 13,618,471
================= =================
<CAPTION>
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
BETA OIL & GAS, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Cumulative
period from from
inception The year ended inception
(June 6, December 31, (June 6,
1997) to 1998 1997) to
December 31, December 31,
1997 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
REVENUES $ - $ - $ -
----------------- ----------------- -----------------
COSTS AND EXPENSES:
General and administrative 245,452 746,769 992,221
Impairment expense - 1,670,691 1,670,691
Depreciation expense 1,530 11,883 13,413
----------------- ----------------- -----------------
Total costs and expenses 246,982 2,429,343 2,676,325
----------------- ----------------- -----------------
LOSS FROM OPERATIONS (246,982) (2,429,343) (2,676,325)
OTHER INCOME:
Interest income 45,409 44,843 90,252
================= ================= =================
NET LOSS $ (201,573) $ (2,384,500) $ (2,586,073)
================= ================= =================
BASIC AND
DILUTED LOSS
PER COMMON SHARE ($.05) ($.37)
================= =================
Weighted average number of
Common shares outstanding 4,172,662 6,366,923
================= =================
<CAPTION>
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
BETA OIL & GAS, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Common Stock
--------------------------------------
Additional
Paid-in
Shares Amount Capital
----------- --------- ----------------
<S> <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, net
of offering costs 2,655,648 2,656 9,073,627
Salary contributed to Beta - - 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, February 12 through November
2, 1998, net of offering costs 1,458,844 1,458 6,547,174
Issuance of shares for properties at $5.00
per share on March 12, 1998 5,000 5 24,995
Salary contributed to Beta - - 60,000
Net loss - - -
BALANCES,
----------------- ----------------- ----------------
December 31, 1998 7,029,492 $ 7,029 $ 15,878,386
================= ================= ================
Deficit
Accumalated
During the Total
Development Shareholders'
Stage Equity
------------- ----------------
<S> <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, net
of offering costs - 9,076,283
Salary contributed to Beta - 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, February 12 through November
2, 1998, net of offering costs - 6,548,632
Issuance of shares for properties at $5.00
per share on March 12, 1998 - 25,000
Salary contributed to Beta - 60,000
Net loss (2,384,500) (2,384,500)
BALANCES,
================= =================
December 31, 1998 (2, 586,073) $ 13,299,342
================= =================
<CAPTION>
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
BETA OIL & GAS, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Cumulative
period from For the from
inception year ended inception
(June 6, December (June 6,
1997) to 31, 1998 1997) to
December 31, December 31,
1997 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (201,573) $ (2,384,500) $ (2,586,073)
Adjustments to reconcile net loss to net
cash (used in) operating activities:
Depreciation 1,530 11,883 13,413
Impairment expense - 1,670,691 1,670,691
Salary contributed to Beta 30,000 60,000 90,000
Changes in operating assets and liabilities:
(Increase) in accounts receivable - (9,678) (9,678)
(Increase) decrease in prepaid expenses (2,599) (12,352) (14,951)
Increase (decrease) in accounts payable,
trade 807,474 (496,703) 310,770
Increase (decrease) in commissions
payable 25,329 (25,329) -
Increase (decrease) in payroll taxes
payable 24,044 (16,485) 7,559
Increase (decrease) in other accrued
expenses 14,000 (13,200) 800
Net cash (used in)
----------------- ----------------- -----------------
Operating activities 698,205 (1,215,673) (517,469)
----------------- ----------------- -----------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Oil and gas property expenditures (5,900,794) (8,928,201) (14,828,995)
Change in other assets - (166,028) (166,028)
Acquisition of furniture, fixtures & (33,595) (2,762) (36,356)
equipment
----------------- ----------------- -----------------
Net cash used in investing activities (5,934,389) (9,096,991) (15,031,379)
----------------- ----------------- -----------------
</TABLE>
(Continued)
<PAGE>
<TABLE>
BETA OIL & GAS, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
For the Cumulative
period from For the from
inception year ended inception
(June 6, December (June 6,
1997) to 31, 1998 1997) to
December 31, December 31,
1997 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from sale of shares and warrants, 9,221,783 6,548,632 15,770,415
net
(Increase) in deferred offering costs - (23,524) (23,524)
----------------- ----------------- -----------------
Net cash provided by financing activities 9,221,783 6,525,108 15,746,891
----------------- ----------------- -----------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS:
3,985,599 (3,787,556) 198,043
CASH AND CASH EQUIVALENTS:
Beginning of period - 3,985,599 -
================= ================= =================
End of period $ 3,985,599 $ 198,043 $ 198,043
================= ================= =================
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 year ended December 31, 1998 and the cumulative period from
inception (June 6, 1997) to December 31, 1998, Beta 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
(1) ORGANIZATION AND OPERATIONS
The Company
Beta Oil & Gas, Inc. ("Beta"), 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. Beta'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, Beta 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 1999 and future
periods. In addition, exploratory drilling is scheduled during 1999 and future
periods on Beta'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 Beta.
Management plans to raise additional equity and/or debt capital to finance its
continued participation in planned activities. In the opinion of Beta
management, current cash flow projections indicate that Beta can continue as a
going concern even if additional financing is unavailable. However, if
additional financing is not available, Beta will be compelled to reduce the
scope of its business activities. If Beta is unable to fund planned
expenditures, it may be necessary to:
1. Forfeit its interest in wells that are proposed to be drilled;
2. Farm-out its interest in proposed wells;
3. Sell a portion of its interest in prospects and use the sale proceeds to
fund its participation for a lesser interest; and,
4. Reduce general and administrative expenses.
Beta 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, Beta 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.
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Beta and its
wholly-owned subsidiary. All significant intercompany accounts and transactions
have been eliminated in consolidation.
<PAGE>
BETA OIL & GAS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Use of Estimates
Beta'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.
Oil and Gas Properties
Beta 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 Beta's proportionate interest in such
activities. Beta 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
Beta 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.
<PAGE>
BETA OIL & GAS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 and 1998, Beta
maintained cash in a bank that was approximately $3,886,000 and $98,000,
respectively, in excess of the federally insured limit.
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 Beta's financial instruments, which includes all cash, accounts
receivable and accounts payable, approximates the carrying value in the
financial statements at December 31, 1997 and 1998.
Stock Based Compensation
Beta 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), Beta 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
Beta adopted SFAS 130, "Reporting Comprehensive Income," effective January 1,
1998. However, Beta has no items of other comprehensive income in any period
presented and, as a result, is not required to report comprehensive income.
Beta intends to adopt SFAS 133, "Accounting for Derivative Instruments and
Hedging Activities," issued in June 1998 effective with its fiscal year
beginning January 1, 2000 as required by the Statement. Due to Beta's current
<PAGE>
BETA OIL & GAS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and anticipated limited use of derivative instruments, management anticipates
that adoption of SFAS 133 will not have any significant impact on Beta's
financial position or results of operations. SFAS 132, "Employees' Disclosures
about Pensions and other Postretirement Benefits," and SFAS 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise" were issued in 1998 and are not
expected to impact Beta regarding future financial statement disclosures,
results of operations and financial position.
Deferred offering costs
Deferred offering costs of $23,524 relate to Beta's proposed initial public
offering. Such costs will be charged against the proceeds of the offering when
completed. Should the offering not be completed, such costs will be charged to
expense.
Segment Information
Beta has adopted SFAS 131, "Disclosure about Segments of an Enterprise and
Related Information." As defined in that Standard, Beta operates in only one
segment, oil and gas exploration.
(3) SUMMARY OF OIL AND GAS OPERATIONS
Capitalized costs at December 31, 1997 and December 31, 1998 relating to Beta's
oil and gas activities are summarized as follows:
<TABLE>
December 31, 1997 December 31, 1998
------------------------------- -------------------------------
United States United States
Foreign Foreign
------------- -------------- ------------- ----------------
<S> <C> <C> <C> <C> <C><C> <C> <C>
Capitalized costs-
Evaluated properties $ - $ - $ 1,763,082 $ 1,624,218
Unevaluated properties 5,870,794 30,000 11,426,732 39,963
Less- Accumulated depreciation,
depletion, amortization
and impairment - - (46,473) (1,624,218)
============= ============== ============= ================
$ 5,870,794 $ 30,000 $ 13,143,341 $ 39,963
============= ============== ============= ================
</TABLE>
Costs incurred in oil and gas producing activities are as follows:
<TABLE>
Cumulative from inception
Inception (June 6, 1997) Year ended (June 6, 1997) through
through December 31, 1997 December 31, 1998 December 31, 1998
------------------------------ ------------------------------- -------------------------------
United States United States United States
Foreign Foreign Foreign
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Property acquisition $ 3,835,540 $ - $ 2,808,123 $ 323,463 $ 6,643,663 $ 323,463
============= ============= ============== ============= ============= =============
Exploration $ 2,035,254 $ 30,000 $ 4,510,897 $ 1,310,718 $ 6,546,151 $ 1,340,718
============= ============= ============== ============= ============= =============
Development $ - $ - $ - $ - $ - $ -
============= ============= ============== ============= ============= =============
</TABLE>
<PAGE>
BETA OIL & GAS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 1997 and 1998 , respectively, Beta 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 Beta'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 1998 represent property
acquisition and exploration costs in connection with Beta'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
first quarter of 1999 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 year ended December 31, 1998 Beta participated in the drilling of 6
wells within the United States. The property acquisition and exploration costs
associated with the wells totaling $1,763,082 have been transferred to evaluated
properties and have been evaluated for impairment. It has been determined that
the capitalized costs associated with the drilling of these properties exceed
their net realizable value by $46,473. Accordingly, an impairment write-down of
$46,473 was recorded as of December 31, 1998. Since all of the proved reserves
associated with the wells are non-producing or behind pipe and no production has
occurred as of December 31, 1998, no depletion expense has been recorded during
the year ended December 31, 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, Beta, through its
wholly owned subsidiary, BETAustralia, LLC secured 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, Beta
exercised its option to earn a 5% working interest by participating in the
drilling of two offshore test wells in the license areas. The wells were
completed as dry holes. The property acquisition and exploration costs
associated therewith totaling $1,624,218 have been transferred to evaluated
properties and charged to impairment expense during the year ended December 31,
1998. The exploration licenses expired in December 1998.
<PAGE>
BETA OIL & GAS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) PRIVATE PLACEMENTS
During the periods from inception (June 6, 1997) through December 31, 1997 and
the year ended December 31, 1998, Beta issued 5,565,648 and 1,458,844 shares,
respectively, of its Common Stock and 1,528,222 and 968,191 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 Beta'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 Beta's Common Stock at prices ranging from $2.00 to $5.00
per share.
Effective September 5, 1997, Beta 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. Beta 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>
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>
<PAGE>
BETA OIL & GAS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the year ended December 31, 1998, Beta completed a private placement
offering of equity units at a subscription price of $20 per unit. Each unit
consisted of four shares of Beta'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 year ended December
31, 1998 Beta issued 1,458,844 common shares and 364,708 Common Stock Purchase
Warrants exercisable at $7.50 per share pursuant to this offering. The offering
generated net proceeds, after offering costs, of $6,548,632. In addition, Beta
issued 482,100 Common Stock Purchase Warrants exercisable at prices ranging from
$5.00 to $7.50 per share for services rendered in connection with the offering.
The following table summarizes the private placement transactions for the year
ended December 31, 1998:
<TABLE>
Exercise
Common Shares Warrants Issued Price
------------------------------ ------------------------------
Shares $ Amount #Warrants Expiration Per Share
<S> <C> <C> <C> <C> <C> <C>
1) Tranch 3 1,458,844 $ 7,294,160 364,708 3/12/03 $ 7.50
2) Warrants issued as
Commission in Tranch 3 - - 121,383 3/12/03 $ 7.00
3) Direct offering expenses -
Tranch 3 - (745,528) -
4) Warrants issued as
additional commissions for
capital raised - - 482,100 2/4/03 to $ 5.00 to 7.00
3/21/03
----------- ------------ ------------
Totals 1,458,844 $ 6,548,632 968,191
============ ============= ============
</TABLE>
- --------------------------------------------------------------------------------
In addition, during the year ended December 31, 1998 and the period cumulative
from inception (June 6, 1997) to December 31, 1998, Beta issued 5,000 shares of
Common Stock and 1,250 Common Stock Purchase Warrants for properties costing
$25,000.
<PAGE>
BETA OIL & GAS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) COMMON STOCK WARRANTS
During the period from inception (June 6, 1997) through December 31, 1997, Beta
issued 1,528,222 callable and non-callable Common Stock purchase warrants
entitling the holders to purchase 1,528,222 shares of Beta'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>
Shares Exercise Price Expiration Date Callable/Non-Callable
<S> <C> <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) Beta 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 year ended December 31, 1998, Beta issued 969,441 callable and
non-callable Common Stock Purchase Warrants entitling the holders to purchase
969,441 shares of Beta'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 December 31, 1998:
<TABLE>
Shares Exercise Price Expiration Date Callable/Non-Callable
<S> <C> <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)
121,383 $7.00 March 12, 2003 Non-Callable
365,958 $7.50 March 12, 2003 Callable (b)
--------
2,497,663
=========
</TABLE>
<PAGE>
BETA OIL & GAS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(a) Beta 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) Beta 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, Beta issued 100,000 Common Stock Purchase Warrants
exercisable at a price of $3.75 per share to an officer of Beta. 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 Beta; (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.
Pro Forma Information
As stated in Note 2, Beta has not adopted the fair value accounting prescribed
by FAS123 for employees. Had compensation cost for stock options issued to
employees been determined based on the fair value at grant date for awards in
the year ended December 31, 1998 consistent with the provisions of FAS123,
Beta's net loss and net loss per share would have been adjusted to the pro forma
amounts indicated below:
December 31, 1998
Net loss $(2,473,000)
Loss per common $(.39)
share
During the year ended December 31, 1997, Beta did not grant options to
employees. As a result, there would be no effect on Beta's net loss or net loss
per share.
The fair value of each option is estimated on the date of grant using the
minimum value option-pricing model using the following assumptions: expected
volatility of 0%, an expected life of 2-3 years, no dividends would be declared
during the expected term of the options, a risk free interest rate of
approximately 5.6%.
The weighted average fair value of the options on the grant dates was $4.31 per
share.
<PAGE>
BETA OIL & GAS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) INCOME TAXES
Income tax (expense) for the years ended December 31, 1997 and 1998 is
comprised of the following:
<TABLE>
Cumulative
Inception Year ended From inception (June
(June 6, 1997) to December 31, 6, 1997) to
December 31, 1997 1998 December 31, 1998
--------------------- -------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Current:
Federal $ - $ - $ -
State - (800) (800)
-------------------- -------------------- -------------------
$ - $ (800) $ -
===================== ==================== ======================
Deferred:
Federal $ - $ - $ -
State - - -
===================== ==================== ======================
$ - $ - $ -
===================== ==================== ======================
</TABLE>
The actual income tax (expense ) benefit differs from the "expected" tax
(expense) benefit (computed by applying the U.S. Federal corporate income tax
rate of 34% for each period) as follows:
<TABLE>
Cumulative
Inception Year ended from inception (June
(June 6, 1997) to December 31, 6, 1997) to
December 31, 1997 1998 December 31, 1998
---------------------- ------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Amount of expected tax
(expense) benefit $ 68,535 $ 810,458 $ 878,993
Non-deductible expenses (713) (23,759) (24,472)
State taxes, net - (800) (800)
Change in valuation allowance
For deferred tax assets (67,822) (786,699) (854,521)
---------------------- ------------------ ---------------------
Total $ - $ (800) $ (800)
====================== =================== ======================
</TABLE>
The components of the net deferred tax asset recognized as of December 31, 1997
and 1998 are as follows:
<TABLE>
December 31, 1997 December 31, 1998
---------------------- -----------------------
<S> <C> <C> <C> <C>
Long-term deferred tax assets (liabilities)
Net operating loss carryforwards $ 74,801 $ 1,714,694
Exploration and development costs
capitalized for financial purposes,
expensed for tax purposes - (605,173)
---------------------- -----------------------
74,801 1,109,521
Valuation allowance (74,801) (1,109,521)
---------------------- -----------------------
Net long term deferred tax asset $ - $ -
====================== =======================
</TABLE>
<PAGE>
BETA OIL & GAS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 1998, Beta has net operating loss carryforwards of
approximately $4,003,000 which expire in the years 2012 through 2018. Beta has
California net operating loss carryforwards for the year ended December 31,
1998 of $4,002,000 which expire in 2005.
Utilization of the tax net operating loss carryforward may be limited in the
event 50% or more change in ownership occurs within a three year period.
(7) OTHER
Related Party Transactions
During the period from inception (June 6, 1997) through December 31, 1997, and
for the year ended December 31, 1998, a director of Beta was paid $20,000 and
$60,000, respectively, pursuant to a consulting contract for
management and geologic evaluation services. In addition, the director
subscribed to 350,000 shares of Beta's Common Stock at a price of $0.05 per
share ("Founder Shares").
A second director of Beta 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 Beta 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 Beta subscribed to 400,000 Founder Shares at price of $0.05
per share.
Beta 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
Beta. 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 Beta and Beta Capital Group, Inc.
During the period from inception through December 31, 1997 Beta made payments
totaling $9,940 to Beta Capital Group, Inc. in connection with this agreement.
During the year ended December 31, 1998 Beta paid $17,000 in connection with
this agreement.
Leases
Effective October 1, 1997, Beta 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 Beta as tenant. Beta's President
and Chairman, and Treasurer are personal guarantors of the lease agreement. Beta
is recognizing rent expense ratably over the term of the lease. Total minimum
future rental payments under this lease are as follows:
Year ended December 31, 1999 $ 23,804
============
Rent expense for the period ended December 31, 1997 and the year ended December
31, 1998 amounted to approximately $8,000 and $ 31,000 , respectively.
<PAGE>
BETA OIL & GAS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Initial Public Offering; Registration of Common Stock
On December 4, 1998, Beta filed 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 Beta 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 Beta
in effectuating sales from time to time, for their own account, of their shares
of Common Stock, principally in over-the-counter transactions. It is anticipated
that the Registration Statement will be amended subsequent to the date of this
report for the following items: (i) to include this report, (ii) to increase the
number of shares being offered by Beta from 880,000 to 1,500,000, and (iii) to
include any other material changes to Beta since December 4, 1998.
Employment Contracts
Beta 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 Beta without cause upon the payment of the following:
(a) Options to acquire the Common Stock of Beta 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 Beta to the Employee shall immediately vest and Beta shall not have the
right to terminate or otherwise cancel any securities issued by Beta to the
Employee.
On June 23, 1997, Beta 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.
Deferred Compensation
In 1998, the Company began to offer a simple individual retirement account (IRA)
plan for all employees meeting certain eligibility requirements. Employees may
contribute up to 3% of the employees eligible compensation. Beta's contribution
to the plan for the year ended December 31, 1998 was $4,693.
Other Assets
Other assets of approximately $166,000 at December 31, 1998 consisted of
unapplied well prepayments.
<PAGE>
BETA OIL & GAS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) SUBSEQUENT EVENTS
Bridge Loan
Subsequent to December 31, 1998, Beta completed the private placement of a
$3,000,000 bridge promissory note financing to three qualified investors (the
"1999 Bridge Financing"). In connection with the 1999 Bridge Financing, Beta has
granted the investors a security interest in all of Beta's assets.
The first portion of the 1999 Bridge Financing was funded on January 20, 1999
for $2,000,000. The promissory notes issued by Beta have a maturity date of
January 20, 2000. The notes bear interest, payable monthly in arrears, at a rate
of 10%. The securities purchase agreements which govern the January bridge
financing specify that, during the term of the notes, $1,000,000 of the proceeds
of a public offering of Common Stock by Beta must be directed to repayment of
the notes.
In connection with the January 1999 Bridge Financing, Beta issued 300,000 shares
of common stock to the note holders. In addition, if any portion of the
principal of the notes remains unpaid on the 180th, 210th, 240th, 270th, 300th,
and/or the 330th day following the closing date of the securities purchase
agreements, then on the day following any of such dates, Beta shall issue
additional Common Stock to each holder of the notes. The additional Common
Shares issued shall be determined by multiplying the unpaid principal balance by
2.5%. For example, if $1,000,000 of principal remains unpaid on the 180th day
following the closing date, then on the following day the Purchasers would be
issued an additional 25,000 Common Shares ($1,000,000 x 2.5%=25,000).
The second portion of the 1999 Bridge Financing was funded on March 19, 1999 for
$1,000,000. The promissory note issued by Beta has a maturity date of March 19,
2000. The promissory note bears interest, payable monthly in arrears, at a rate
of 10%. The securities purchase agreements which govern the bridge financing
specify that, during the term of the promissory note, $1,000,000 of the proceeds
of a public offering of Common Stock by Beta must be directed to repayment of
the note.
In connection with the March 1999 Bridge Financing, Beta issued 100,000 shares
of common stock to the promissory note holder (investor). In addition, If any
portion of the principal of the Note remains unpaid on the 30th, 60th, 90th,
120th, 160th, 180th, 210th, 240th, 270th, 300th, 330th and/or the 360th day
following the Closing Date of the securities purchase agreement, then on the day
following any of such dates, the Company shall issue to the holder of the
promissory note, that number of Common Shares determined by the above formula
and a Coverage Percentage, in each instance, of 1%. For example, if $1,000,000
of principal remains unpaid on the 180th day following the Closing Date, then on
the following day the investor would be issued an additional 10,000 Common
Shares ($1,000,000 x 1%=10,000); if $250,000 of principal remains unpaid on the
180th day following the Closing Date, then on the following day the investor
would be issued an additional 2,500 Common Shares ($250,000 x 1% = 2,500).
Cheniere Energy, Inc. Joint Exploration Agreements
In January 1999, Beta entered into joint exploration agreements with Cheniere
Energy, Inc. ("Cheniere") on three natural gas prospects located in Louisiana.
Beta paid $658,000 to Cheniere as consideration for land and seismic costs in
connection with the prospects and committed to participate in the drilling of a
test well on each of the three prospects. The agreements provide that Beta will
pay 20% of the costs of drilling each of the test wells to total depth to earn a
15% working interest in each prospect. All costs incurred thereafter shall be
borne by Beta at its 15% working interest. Total estimated costs of drilling the
three test wells to total depth are $873,000 net to Beta.
<PAGE>
BETA OIL & GAS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dyad Australia, Inc. Exploration Agreement
In January 1999, Beta's wholly owned subsidiary BETAustralia LLC has signed an
agreement with Dyad Australia, Inc. of Midland, Texas ("Dyad") to participate
for a 20% working interest (16.4% net revenue interest) in Dyad's rights to the
Toko Syncline Project. Dyad is the holder of exploration permits covering
approximately 918,000 contiguous acres (1,434 square miles) in the Georgina and
Eromanga Basins of Western Queensland. Beta has paid $100,000 to acquire 20% of
Dyad's working interest buy-in rights in the project area. Dyad's buy-in rights
allow it to buy into the exploratory well on a cost only basis and after the
well has been drilled. If Dyad buys into the program after the initial
exploratory well has been drilled and evaluated, Beta will at that point, have
the option of acquiring a net 10% working interest in the well and entire
program at cost. If Dyad postpones its buy-in option until the later stages of
the project, then its option to purchase an interest will be incrementally
reduced. Beta's working and net revenue interest in the Toko Syncline project
area will depend on if and when Dyad and its partners elect to buy-in to the
project and will be reduced in the later stages of the project if the buy-in
option is not exercised and additional expenditures are incurred by the funding
partner. The funding partner will have exclusive marketing rights to
hydrocarbons in the project area, subject to an agreed minimum floor price to be
received for hydrocarbons produced and sold.
9) UNAUDITED SUPPLEMENTARY OIL AND GAS RESERVE INFORMATION
The following supplementary information is presented in compliance with United
States Securities and Exchange Commission ("SEC") regulations and is not covered
by the report of Beta's independent auditors.The information required to be
disclosed for the year ended 1998 in accordance with FASB Statement No. 69,
"Disclosures About Oil and Gas Producing Activities," is discussed below and is
further detailed in the following tables. There were no oil and gas reserves as
of December 31, 1997.
The reserve quantities and valuations for fiscal 1998 are based upon estimates
by Veazy & Associates, Inc. and Company management. Proved reserves are the
estimated quantities of petroleum and natural gas which are reasonably certain
of recovery in future years from known reservoirs under existing operating
conditions assuming current prices and costs.
Proved developed reserves are those that can be recovered through existing wells
with existing equipment and existing (either operating or tested) recovery
techniques. Beta's producing reserves include those expected to be produced from
existing completion intervals now open for production in existing wells.
<PAGE>
BETA OIL & GAS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Beta wishes to emphasize that the estimates included in the following tables are
by their nature inexact and are subject to changing economic, operating and
contractual conditions. At December 31, 1998, all of Beta's reserves are
attributable to recently drilled wells which are being completed and are not yet
producing oil and gas as of that date. Reserve estimates for these wells are
subject to substantial upward or downward revisions after production commences
and a production history is obtained. Accordingly, reserve estimates of future
net revenues from production may be subject to substantial revision from year to
year. Reserve information presented herein is based on reports prepared by
independent petroleum engineers.
The assumptions used to compute the standardized measure are those prescribed by
the Financial Accounting Standards Board and, as such, do not necessarily
reflect Beta's expectations for actual revenues to be derived from those
reserves nor their present worth. The limitations inherent in the reserve
quantity estimation process, as discussed previously, are equally applicable to
the standardized measure computations since these are the basis for the
valuation process.
CHANGES IN QUANTITIES OF PROVED PETROLEUM AND NATURAL GAS RESERVES
FOR THE YEAR ENDED DECEMBER 31, 1998 (Unaudited)
<TABLE>
Oil Gas
PROVED RESERVES (Bbls) (Mcf's)
<S> <C> <C>
Balance at December 31, 1997 - -
Extensions and discoveries 1,461 1,596,740
------------- ------------
Balance at December 31, 1998 1,461 1,596,740
- ------------------------------------------------------------------------------------- ============= =============
Oil Gas
PROVED DEVELOPED BEHIND PIPE RESERVES (Bbls) (Mcf's)
December 31, 1997 - -
- ------------------------------------------------------------------------------------- ------------- -------------
December 31, 1998 1,461 1,596,740
============= =============
</TABLE>
<PAGE>
BETA OIL & GAS, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED PETROLEUM AND NATURAL GAS RESERVES (Unaudited)
For purposes of the following disclosures, estimates were made of quantities of
proved reserves and the periods during which they are expected to be produced.
Future cash flows were computed by applying year-end prices to estimated annual
future production from proved oil and gas reserves. The average year-end price
for oil was $13.14 per barrel at December 31, 1998. The average year-end price
for gas was $1.85 per Mcf at December 31, 1998. Future development and
production costs were computed by applying year-end costs to be incurred in
producing and further developing the proved reserves. Future income tax expenses
were computed by applying, generally, year-end statutory tax rates (adjusted for
permanent differences, tax credits and allowances) to the estimated net future
pre-tax cash flows. The discount was computed by application of a 10% discount
factor. The calculations assume the continuation of existing economic, operating
and contractual conditions. However, such arbitrary assumptions have not proven
to be the case in the past. Other assumptions of equal validity could give rise
to substantially different results.
<TABLE>
Year Ended
December 31,
1998
---------------
<S> <C> <C>
Future cash inflows $ 2,978,861
Future costs-
Production (343,478)
Development (81,621)
---------------
Future net cash inflows before income tax 2,553,762
Future income tax -
---------------
Future net cash flows 2,553,762
10% discount factor (837,154)
Standardized measure of discounted
---------------
future net cash flows $ 1,716,608
===============
</TABLE>
<TABLE>
CHANGES IN THE STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH
FLOWS FROM PROVED PETROLEUM AND NATURAL GAS RESERVE
QUANTITIES (Unaudited)
The following are the principal sources of changes in the standardized measure
of discounted future net cash flows:
Year Ended
December 31,
1998
---------------
<S> <C> <C>
Standardized measure of discounted future net cash
flows--beginning of year $ -
Extensions and discoveries, net of future costs 1,716,608
-
Standardized measure of discounted future net cash
------------
flows--end of year $ 1,716,608
============
</TABLE>
<PAGE>
INSIDE BACK COVER PAGE OF PROSPECTUS
(Three graphic illustrations depicting the following: (i) A three dimensional
cube which illustrates the ground surface and underlying layers of earth from
which oil and gas is produced, (ii) a map of California which shows the location
of Beta's prospects and (iii) a map of Australia which shows the location of
Beta's ongoing Australian prospect.)
<PAGE>
================================================================================
You should rely only on the information contained in this document or that we
have referred to you. We have not authorized anyone to provide you with
information that is different. The delivery of this Prospectus and any sale made
by this Prospectus does not imply that there has been no change in the affairs
of Beta since the date of this Prospectus. 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................................................................
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..........................................................
For an explanation of industry terms used in this Prospectus, see "Glossary."
----------------------
Dealer Prospectus Delivery Obligation. Until ___, 1999 (25 days after the date
of this Prospectus), all dealers effecting transactions in the registered
securities, whether or not participating in this Offering, 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 Logo]
BETA OIL & GAS, INC.
600,000 (MINIMUM)
1,500,000 (MAXIMUM)
SHARES OF COMMON STOCK
($.001 Par Value)
---------------
PROSPECTUS
---------------
_________, 1999
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
ALTERNATE PAGE
Initial Public Offering
Prospectus
Beta Oil & Gas, Inc.
9,652,155 shares of Common Stock
($.001 Par Value)
The Offering: This Offering relates to the possible sale, from
time to time, by certain shareholders ("Selling
Security Holders") of Beta of up to 7,029,492 shares
of Common Stock, and 2,647,663 shares of Common Stock
issuable upon exercise of unregistered Common Stock
Purchase Warrants (the "Warrants"). Beta will not
receive any proceeds from sales by Selling Security
Holders, except when Warrantholders choose to
exercise their Warrants, in which case Beta will
receive the exercise price of the Warrants net of a
5% commission. See "Plan of Distribution" for
further details.
Proposed Trading Symbol: No public market currently exists for our shares.
We intend to apply for quotation on The Nasdaq
SmallCap Market under the symbol "BETA." The offering
price may not reflect the market price of our shares
after the offering.
<TABLE>
Total Gross Proceeds to
the Selling Security
Per Share Holders
---------------- ---------------------------
<S> <C> <C>
Public Offering Price........................ $ 6.00 $ 42,176,952
</TABLE>
================================================================================
This Investment Involves a High Degree of Risk. You Should Purchase Shares Only
if You Can Afford a Complete Loss. See "Risk Factors" Beginning on Page __.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
================================================================================
Beta has agreed to bear all the expenses of registering these shares. The
expenses are estimated at $90,000.
The date of this Prospectus is ___________, 1999_
<PAGE>
ALTERNATE PAGE
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. You should also read the entire prospectus carefully, including the
risk factors and financial statements.
Beta Oil & Gas, Inc.
Offices: Beta's corporate headquarters are located at 901 Dove
Street, Suite 230, Newport Beach, CA 92660. Our
telephone number is (949) 752-5212.
Our Business: Beta Oil & Gas, Inc. ("Beta" or the "Company") is an oil
and gas company organized in June 1997 to participate in
the exploration and production of natural gas and crude
oil. Our operations are currently focused in proven
oil and gas producing trends primarily in South Texas,
Louisiana and Central California. Beta's wholly owned
subsidiary, BETAustralia, LLC, participates in the
exploration for oil and gas in Australia.
Operations Philosophy: Beta 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, Beta was not
operating any of its projects.
3-D Seismic: Beta believes that 3-D seismic surveys have reduced the
risk of oil and gas exploration in certain areas.
Recognizing this change, we have acquired prospective
acreage blocks for targeted, proprietary,
3-D seismic surveys. 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. We use computers to perform these
calculations and "process" the seismic data. It then
becomes possible to create a picture of the rock
structures deep below the earth's surface. A 3-D
seismic survey provides us a three dimensional picture
of these rock structures. These three dimensional
"pictures" show us the potential size of a potential oil
or gas reservoir and the best location to drill for it.
Current Status: As of the date of this Prospectus, we have participated
in projects which total about 76,000 gross acres under
lease or option (13,000 acres net to Beta's average 17%
interest). Beta has participated with other oil and
gas companies to conduct seismic surveys over
approximately 94% of the acreage. From the data
generated by its initial proprietary seismic surveys,
covering 313 square miles, in excess of 100 potential
drillsites have been identified.
South Texas
Exploration: Approximately $10,000,000, about 60% of the total funds
raised so far by Beta, have been utilized to acquire
interests in lands and seismic data in the onshore Texas
Gulf Coast region. Beta's interests in the onshore
Texas properties are operated by Parallel Petroleum
Corporation ("Parallel"). Drilling commenced in these
projects during the first quarter of 1999 and has
resulted in two discoveries of oil and gas to date.
Representatives of Parallel have informed Beta that
drilling will continue in these projects throughout the
year. Beta anticipates that participation in
exploratory and drilling projects in South Texas will
constitute its primary activity during 1999.
Louisiana Exploration: Approximately $3,300,000, representing 20% of the funds
raised so far by Beta have been invested in leases,
seismic data acquisition and drilling in Louisiana.
Drilling commenced in these prospects in 1998 and has
resulted in one oil and gas discovery so far. It is
expected that Beta will participate in the drilling of
a minimum of six wells in Louisiana during 1999.
Other Exploration: The balance of the funds raised to date have been
utilized primarily to fund other domestic and
international exploratory activities. Beta's
exploratory activities in areas outside of Texas and
Louisiana have resulted in one gas discovery located in
Central California. We anticipate that Beta will expend
additional funds to explore these areas during 1999 and
future periods.
1999 Budget Plans: Beta'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. Beta will own interests in
the wells ranging from 12.5% to75% and averaging 22%.
A majority of the budgeted wells will be drilled in
Texas and Louisiana. In addition, Beta 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.
<TABLE>
The Offering
<S> <C>
Common Stock offered by the Selling Security Holders: 9,677,155 shares (1)
Common Stock Warrants: 2,647,663
Common Stock to be Outstanding after the Offering:(2) 7,458,492 shares
Use of Proceeds: (3) The Company will not receive any proceeds from the sale
of securities by the Selling Security Holders, although
it could realize as much as $14,213,821 (less an
approximate 5% commission to brokers of record, if any)
if all Warrants are exercised. The proceeds from the
exercise of Warrants will be used for general working
capital purposes, the repayment of debt and the drilling
of wells in Beta's Louisiana, California and Texas
prospects.
Risk Factors: An investment in our shares is very risky, and you should
be able to bear a complete loss of your investment. See
"Risk Factors."
Proposed Nasdaq SmallCap Market Symbol:(4) BETA
<FN>
(1) Includes 2,647,663 shares of Common Stock reserved for issuance upon exercise of Warrants
(2) Does not include Common Stock issuable upon exercise of outstanding
Warrants. In addition, it does not include between 600,000 and
1,500,000 shares being offered concurrently with this Offering.
(3) Net proceeds before deducting estimated Offering expenses of $90,000.
(4) 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>
ALTERNATE PAGE
USE OF PROCEEDS
Beta will not receive any proceeds from the sale of securities by the
Selling Security Holders. Beta intends to utilize the proceeds received from the
exercise of any Warrants, estimated to be $14,213,821 (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, for the repayment of debt and
for exploratory and development drilling on its various projects. There can be
no assurance that any of the Warrants will be exercised. This is Beta's best
estimate of its use of proceeds generated from the sale of shares by Beta 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
Beta'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 2,647,663 additional shares of Common Stock issuable upon
exercise of Beta's outstanding Common Stock purchase warrants. The following
tables set forth as of the date of this Prospectus certain information
concerning the persons for whom Beta is registering the shares for resale to the
public. Beta will not receive any of the proceeds from the sale of the shares,
but will receive a maximum of $14,213,821 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 -
BROKER WARRANTS 0 150,000 -
-------------------
7,029,492 2,647,663
====================
</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.
Beta 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 the sale of their Shares might be deemed to be
"underwriters" within the meaning of section 2(11) of the Securities Act.
Beta has notified the Selling Security Holders of the prospectus delivery
requirements for sales made by 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 2,647,663 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. Beta will not receive any proceeds from possible release by
the Selling Securities Holders of their respective shares of Beta's Common
Stock. The Company will receive gross proceeds of $14,213,821 if all outstanding
Warrants are exercised of which an approximately 5% commission will be paid to
the brokers of record, if applicable. 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). Beta 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
================================================================================
You should rely only on the information contained in this document or that we
have referred to you. We have not authorized anyone to provide you with
information that is different. The delivery of this Prospectus and any sale made
by this Prospectus doesn't imply that there haven't been changes in the affairs
of Beta since the date of this Prospectus. 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................................................................
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...........................................................
---------------------------
Dealer Prospectus Delivery Obligation. 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
2,647,663
SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE
OF WARRANTS
---------------
PROSPECTUS
---------------
_________, 1999
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
<TABLE>
<S> <C>
SEC Registration Fee 19,588.65
Nasdaq Listing Fee 10,000.00
Printing Expenses 10,259.00 *
Legal Fees and Expenses 23,000.00 *
Accounting Fees and Expenses 20,000.00 *
Transfer Agent Fees 3,000.00 *
Miscellaneous 4,152.35 *
Expenses
---------------
Total
$90,000.00
================
<FN>
* Estimated
</FN>
</TABLE>
Item 14. Indemnification of Directors and Officers.
Beta'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 Beta will
not be personally liable to Beta 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."
Beta 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 Beta up to $1,000,000 for each claim and $3,000,000 in
the aggregate. Beta believes that the limitation of liability provision in its
Articles of Incorporation, and the directors and officers liability insurance
will facilitate Beta's ability to continue to attract and retain qualified
individuals to serve as directors and officers of Beta.
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 Beta, Beta 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. If a claim for indemnification
against such liabilities (other than the payment by Beta of expenses incurred or
paid by a director, officer, or controlling person of Beta in the successful
defense of any action, suitor proceeding) is asserted by such director, officer
or controlling person of Beta in connection with the securities being
registered, Beta 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 Beta's Articles of Incorporation. Beta is not aware of any
threatened litigation or proceeding which may result in a claim for such
indemnification.
Item 15. Recent Sales of Unregistered Securities.
Beta issued 5,565,648 shares in 1997 and 1,463,844 shares in 1998 of its Common
Stock and 1,528,222 and 969,441 Common Stock Purchase Warrants in 1997 and 1998
through private placements exempt from registration under Section 4(2) of
Securities Act. An institutional private placement was completed to two
qualified institutional investors in January and March of 1999 in which the
Company issued a total of 429,000 shares of Common Stock.
Initial start-up funding was raised through the sale, effective June 23,
1997, of 2,910,000 shares ("Founder Shares") of Beta'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 Beta with
each Warrant entitling the holder thereof to purchase one share of Beta's Common
Stock at prices ranging from $2.00 to $5.00 per share.
Effective September 5, 1997, Beta 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. Beta 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, Beta 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 $6,548,632.
Beta 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, Beta issued 5,000 shares of Common Stock and 1,250 Warrants in
exchange for certain oil and gas property interests. Beta also issued 482,100
Warrants for various services provided to Beta with each Warrant entitling the
holder thereof to purchase on share of Beta' 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
Commission in Tranch
Three N/A N/A 121,383 3/12/03 $ 7.00
7) Direct offering expenses -
Tranch Three - (745,528) -
8) Common Stock issued for
Properties 5,000 $ 25,000 1,250 3/12/98 $ 7.50
9) Warrants issued as
additional commissions for N/A N/A 482,100 2/4/03 to $ 5.00 to 7.50
capital raised 3/12/03
10) Tranche four 429,000 2,145,000 - N/A N/A
11) Direct offering expense
Tranche 4 (150,000) - N/A N/A
----------------- --------------- ----------------
7,458,492 $ 17,790,415 2,497,663
================= =============== ================
</TABLE>
<PAGE>
Item 16. Exhibits
1.1 Underwriter Agreement (Form)
1.2 Selected Dealer Warrant (Form)
1.3 Selected Dealer Agreement (Form)
3.1 Original and Amended Articles of Incorporation of Registrant.*
3.2 Amended and Restated By Laws of the Registrant, Dated January 5,1999.
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 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 Representation Letter, Dated June , 1997
10.19 Cobra Prospect Agreement Dated January 6, 1999
10.20 Redfish Prospect Agreement Dated January 6, 1999
10.21 Shark Prospect Agreement Dated January 6, 1999
10.22 Cheniere Energy, Inc. Option Agreement Dated January 6, 1999
10.23 Dyad-Australia, Inc. Agreement Dated January 25, 1999
10.24 Note and Common Stock Purchase Agreement Dated January 20, 1999
10.25 Note and Common Stock Purchase Agreement Dated March , 1999
23.1 Consent of Horwitz & Beam (included in their opinion set forth in
Exhibit 5.1 hereto).
23.2 Consent of Hein + Associates LLP
23.3 Consent of Veazey & Associates, Inc.
24 Power of Attorney (see signature page) *
27 Financial Data Schedule
* Previously filed.
Item 17. Undertakings.
(a) Rule 415 Offerings.
The undersigned issuer 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.
(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.
If a claim for indemnification against such liabilities (except 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.
The undersigned registrant hereby undertake to provide to the underwriter at the
closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
<PAGE>
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 this Amendment No. 1 on Form S-1 and authorized
this registration statement to be signed on its behalf by the undersigned, in
Newport Beach, California on March 23, 1999.
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
Amendment to the Registration statement was signed by the following persons in
the capacities and on the dates stated.
Signature Title Date
___________*___ Chairman of the March 23, 1999
Steve Antry Board of Directors
and President
___________*___ Chief Financial Officer, March 23, 1999
J. Chris Steinhauser Principal Accounting
Officer and Director
___________* _ Director March 23, 1999
Lawrence W. Horwitz
___________*___ Director March 23, 1999
R.T. Fetters
___________*___ Director March 23, 1999
Joe Richardson Jr.
* By: /s/ Steve Antry___
Steve Antry
Attorney in Fact
This document replaces Exhibit 1.1 previously filed.
<PAGE>
UNDERWRITING AGREEMENT
__________________, 1999
Brookstreet Securities Corporation
2361 Campus Drive, Suite 210
Irvine, CA 92715
Dear Ladies and Gentlemen:
Beta Oil & Gas, Inc., a Nevada corporation (the "Company"), proposes to
issue and sell a minimum of 600,000 (the "Minimum Offering") and a maximum of
1,500,000 shares (the "Maximum Offering") of its Common Stock for $6.00 per
share (the "Shares") on a best efforts basis (the "Offering") (exclusive of an
Over-Allotment Option granted to the underwriters to sell an additional 150,000
shares of the Common Stock at the public offering price, as described below).
The Company confirms as follows its agreement with you:
1. Registration Statement and Prospectus: The Company has prepared and
filed with the Securities and Exchange Commission (the "Commission") in
accordance with the Securities Act of 1933, as amended (the "Act") and the rules
and regulations of the Commission promulgated thereunder (the "Rules and
Regulations"), a registration statement on Form S-1, including a preliminary
prospectus, relating to the Securities. As used in this Agreement, the term
"Registration Statement" means such registration statement, including exhibits,
financial statements and schedules, as amended, when it becomes effective and
any information (if any) contained in the prospectus subsequently filed with the
Commission pursuant to Rule 424(b) under the Act, and the term "Prospectus"
means such prospectus in the final form filed on behalf of the Company with the
Commission pursuant to Rule 424(b) under the Act.
2. Agreement to Sell and Purchase: Upon the basis of the
representations, warranties and agreements herein contained and subject to all
the terms and conditions of this Agreement, you agree to use best efforts to
sell on behalf of the Company the aggregate principal amount of Securities which
are offered in this Offering. The Securities sold and the proceeds therefrom
will be placed in an escrow account. However, if the Company fails to receive
subscriptions for the Minimum Offering within 90 days from the date of the final
Prospectus (or 120 days, if extended by the Company), the Offering will be
terminated and any subscriptions received will be promptly refunded to
subscribers with interest thereon and without any deduction therefrom and this
Agreement shall terminate. You shall receive an 8% cash commission for the sale
of the Securities made by you after the Minimum Offering has been sold (the
"Commission")..
The Company also agrees to pay to you a non-accountable expense
allowance equal to 2% of the aggregate principal amount of Securities sold by
you (the "Nonaccountable Expense Allowance"). In the event that the Offering is
terminated for any reason, the Company shall pay you for any reasonable
accountable expenses you have incurred.
In addition to the Commission and the Nonaccountable Expense Allowance,
you shall be entitled to receive (the "Selected Dealer Warrants") for the
purchase of an amount of shares of Common Stock of the Company equal to 10% of
the number of Securities actually sold by you in the public offering. The
Selected Dealer Warrants shall be issued in the form set forth in the Selected
Dealer Warrant included in the Registration Statement. The Selected Dealer
Warrants shall be exercisable, in whole or in part, for a period of four years
commencing one year from the date of the completion of the Offering at an
exercise price of $7.50 per share. The Selected Dealer Warrants shall be
non-exercisable for one year from the effective date of the Offering, and
non-transferable (whether by sale, transfer, assignment, or hypothecation)
except for (i) transfers to officers of the broker/dealer who are also
shareholders of the broker/dealer; and (ii) transfers occurring by operation of
law.
<PAGE>
It is understood that you may also execute Selected Dealer Agreements
providing for the sale of the Securities by other broker/dealers who are
registered as such with the Commission and who are members of the National
Association of Securities Dealers, Inc. ("NASD") (the "Selected Dealers"). The
Selected Dealers shall receive the Commission, the Nonaccountable Expense
Allowance, and Selected Dealer Warrants in the appropriate amount for the
Securities actually sold by them.
3. Delivery and Payment: Delivery of and payment for any Shares
purchased in accordance with this Agreement shall be made after the effective
date of the Registration Statement (the "Effective Date") at such time, date and
place as may be agreed between you and the Company, but delivery of and payment
for the Shares sold in the Minimum Offering shall take place not more than 90
full business days (or 120 days if extended by the Company) after the Effective
Date of the Registration Statement (such time and dates are referred to herein
as the "Initial Closing Date"). Delivery of and payment for any Shares purchased
after the Minimum Offering has occurred, shall take occur at interim periods
thereafter (the "Interim Closings") until the Maximum Offering is sold or the
Offering is terminated at which time a final closing will be held (the "Final
Closing").
Delivery of the Shares shall be made to you against payment of the
purchase price therefor in good (same day) funds, to the order of the Company.
For the purpose of expediting the checking and packaging of the Shares, the
Company agrees to make such Shares available for inspection at least 24 hours
prior to each Closing Date.
4. Agreements of the Company: The Company agrees with you as follows:
(a) The Company shall use its best efforts to cause the
Registration Statement and any amendments to become effective as promptly as
practicable and will not at any time, whether before or after the effective date
of the Registration Statement, file any amendment to the Registration Statement
or supplement to the Prospectus or file any document under the Act or the
Securities Exchange Act of 1934, as amended (the "Exchange Act") before
termination of the offering of the Shares by you of which you and your counsel
shall not previously have been advised and furnished with a copy, or to which
you or your counsel shall have objected (except if deemed necessary by counsel
for the Company, in which case you shall have the right to terminate this
Agreement upon prompt notice to the Company), or which is not in compliance with
the Act, the Exchange Act, or the Rules and Regulations.
As soon as the Company is advised or obtains knowledge thereof, the
Company will advise you, and as soon as practicable, confirm in writing, (i)
when the Registration Statement, as amended, becomes effective and, if the
provisions of Rule 430A promulgated under the Act will be relied upon, when the
Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective, (ii)
of the issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of any preliminary
prospectus or the Prospectus, or any amendment or supplement thereto, or the
institution of proceedings for that purpose, (iii) of the issuance by the
Commission or by any state Shares commission of any proceedings for the
suspension of the qualification of any Shares for offering or sale in any
jurisdiction or of the initiation, or the threatening, of any proceeding for
that purpose, (iv) of the receipt of any comments from the Commission, and (v)
of any request by the Commission for any amendment to the Registration Statement
or any amendment or supplement to the Prospectus or for additional information.
If the Commission or any state Shares commission shall enter a stop order or
suspend such qualification at any time, the Company will make every effort to
obtain promptly the lifting of such order or suspension.
(b) The Company will furnish to you, without charge, three
signed copies of the Registration Statement and any post-effective amendment
thereto, including financial statements and schedules, and all exhibits.
(c) The Company will give you advance notice of its intention
to file any amendment to the Registration Statement or any amendment or
supplement to the Prospectus, and will not file any such amendment or supplement
to which you shall reasonably object in writing or which is not in compliance
with the Act.
<PAGE>
(d) From the date hereof, and thereafter from time to time,
the Company will deliver to you, without charge, as many copies of the
Prospectus, or any amendment or supplement thereto as you may reasonably
request. The Company consents to the use of the Prospectus or any amendment or
supplement thereto by you and by all dealers to whom the Shares may be sold,
both in connection with the offering or sale of the Shares and for such period
of time thereafter as the Prospectus is required to be delivered under the Act
in connection therewith. If during such period of time any event shall occur
which in the reasonable judgment of the Company or your counsel should be set
forth in the Prospectus in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading, or if it is
necessary to supplement or amend the Prospectus to comply with law, the Company
will forthwith prepare and duly file with the Commission an appropriate
supplement or amendment thereto and will deliver to you, without charge, such
number of copies thereof as you may reasonably request.
(e) Prior to any public offering of the Shares by you, the
Company will cooperate with you and your counsel in connection with the
registration or qualification of the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you request. The Company
will pay all reasonable fees and expenses (including reasonable fees and
expenses of counsel) relating to qualification of the Shares under such Shares
or Blue Sky laws and in connection with the determination of the eligibility of
the Shares for investments under the laws of such jurisdictions as you may
designate, including the reasonable expenses of any opinion of local counsel
required by any state Shares or Blue Sky authorities.
(f) The Company will pay all expenses in connection with (1)
the preparation, printing and filing of the Registration Statement, each
preliminary prospectus, the Prospectus, any legal investment memoranda and the
Blue Sky Survey, (2) the issuance and delivery of the Shares (other than
transfer taxes),(3) the rating of the Shares by rating agencies, (4) furnishing
such copies of the Registration Statement, the Prospectus and any preliminary
prospectus, all amendments and supplements thereto, as may reasonably be
requested for use in connection with the offering and sale of the Shares by you
or by dealers to whom Shares may be sold, and (5) filings with the "NASD".
(g) The Company will use the net proceeds from the sale of the
Shares in the manner specified in the Prospectus under the caption "Use of
Proceeds."
(h) The Company will appoint and retain, while any of the
Shares remain outstanding, a transfer agent for the Shares, and, if necessary, a
registrar for the Shares (who may be the transfer agent), and will make
arrangements to have available at the offices of the transfer agent certificates
for the Shares in such quantities as may, from time to time, be necessary. As of
the date of this Agreement, the transfer agent for the Shares of the Company is
Oxford Transfer and Registrar, 317 S.W. Alder, #1120, Portland, OR 97204.
(i) The Company shall utilize its best efforts to obtain the
listing of the Shares on the NASDAQ Small Cap Market system.
(j) Neither the Company nor any of the Subsidiaries nor any of
their respective executive officers, directors, principal stockholders or
affiliates (within the meaning of the Rules and Regulations) will take, directly
or indirectly, any action designed to, or which might in the future reasonably
be expected to cause or result in, stabilization or manipulation of the price of
any Shares of the Company in violation of the Exchange Act.
5. Representations and Warranties of the Company: The Company
represents and warrants to you that:
(a) Each preliminary prospectus filed as part of any
Registration Statement as originally filed or as part to any amendment thereto,
or filed pursuant to Rule 424 under the Act, complied when so filed in all
material respects with the Act, and when the Registration Statement becomes
effective and at all times subsequent thereto up to the Closing Date, the
Registration Statement and the Prospectus, and any supplements or amendments
thereto, will comply in all material respects with the provisions of the Act and
the Registration Statement and the Prospectus, and any such supplement or
amendment thereto, at all such times will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated herein or
necessary to make the statements therein not misleading, except that this
representation and warranty does not apply to statements or omissions in the
Registration Statement or the Prospectus or any preliminary prospectus made in
reliance upon information furnished to the Company in writing by you expressly
for use therein.
<PAGE>
(b) This Agreement has been duly authorized and validly
executed and delivered by the Company and constitutes a legal, valid and binding
agreement of the Company, enforceable in accordance with its terms, except that
(i) the enforceability hereof may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect,
relating to creditors' rights generally, (ii) the enforceability thereof may be
limited by the application of equitable principles (whether such enforceability
is considered in a proceeding at law or in equity) and (iii) rights to indemnity
and contribution hereunder may be limited by Federal or state Shares laws.
(c) The Shares have been duly authorized, validly issued,
fully paid and nonassessable, and the Company has duly authorized and reserved
for issuance the number of shares of common stock required for the firm
commitment offering and the over-allotment option. The Shares are not and will
not be subject to any preemptive or other similar rights of any security holder
of the Company or any of the Subsidiaries (as defined below); the holders
thereof will not be subject to any liability for the Company's acts or omissions
solely as such holders; all corporate action required to be taken for the
authorization, issuance and sale of the Shares has been duly and validly taken;
and the certificates representing the Shares will be in due and proper form.
Upon the issuance and delivery of the Shares pursuant to the terms of this
Agreement, you will acquire good and marketable title thereto free and clear of
any lien, charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever resulting from the affirmative act
of the Company or from a judgment or nonconsensual lien rendered against the
Company.
(d) The Company is a corporation duly incorporated and validly
existing in good standing under the laws of the State of Nevada. The Company has
full corporate power and authority to own and occupy its properties and carry on
its business as presently conducted and as described in the Prospectus and holds
all licenses and permits and is duly registered or qualified to conduct
business, and is in good standing, in each jurisdiction in which it owns or
leases property or transacts business and in which such licensing, registration
or qualification is necessary except where the failure to be so licensed,
registered or qualified would not have a material adverse effect on the Company
and its Subsidiaries, taken as a whole. The Company has a duly authorized,
issued and outstanding capitalization as set forth in the Registration
Statement. All of the outstanding capital stock or other equity Shares of the
Company and each of the Subsidiaries has been duly and validly authorized and
issued, is fully paid and nonassessable; the holders thereof shall have no
rights of rescission with respect thereto and are not subject to personal
liability for the Company's acts or omissions solely by reason of being such
holders.
(e) There are no legal or governmental proceedings pending, or
to the knowledge of the Company, threatened or contemplated to which the Company
or any of its Subsidiaries is a party or of which the business or property of
the Company or any of its Subsidiaries is the subject which are material to the
Company and its Subsidiaries, taken as whole and which are not disclosed in the
Registration Statement and the Prospectus, and there is no contract or document
concerning the Company or any of its Subsidiaries of a character required to be
described in the Registration Statement or the Prospectus or to be filed as an
exhibit to the Registration Statement which is not described or filed as
required.
<PAGE>
(f) Neither the Company nor any of its Subsidiaries is in
violation of its charter or by-laws or is in default in any respect in the
performance of any obligation, agreement or condition contained in any bond,
debenture, note or any other evidence of indebtedness or in any indenture,
mortgage, deed of trust or any other agreement or instrument of the Company or
of any such Subsidiary, which default would be material to the Company and its
Subsidiaries, taken as a whole and there exists, and at the Closing Date shall
exist, no condition which, with the passage of time or otherwise, would
constitute a default under any such document or instrument or result in the
imposition of any penalty or acceleration of any indebtedness which would be
material to the Company and its Subsidiaries, taken as a whole. The execution
and delivery by the Company of this Agreement, the authorization, issuance and
sale of the Shares, the fulfillment by the Company of this Agreement and the
consummation by the Company of the transactions contemplated by this Agreement
will not conflict with or constitute a breach of, or default (with the passage
of time or otherwise) under, or result in the imposition of a lien on any
properties of the Company or its Subsidiaries or an acceleration of indebtedness
pursuant to, the certificate of incorporation or by-laws of the Company or any
of its Subsidiaries, or any bond, debenture, note or any other evidence of
indebtedness or any indenture, mortgage, deed of trust or any other material
agreement or instrument to which the Company or any of its Subsidiaries is a
party or by which it or any of them is bound or to which any of the property or
assets of the Company or any of its Subsidiaries is subject, or any law,
administrative regulation or order of any court or governmental agency or
authority applicable to the Company or any of its Subsidiaries which in any
event would be material to the Company and its Subsidiaries, taken as a whole.
No consent, approval, authorization or other order of any regulatory body,
administrative agency, or other governmental body is legally required by the
Company or its Subsidiaries for the valid issuance and sale of the Shares,
except such as may be required by the NASD or under the Act or the Shares or
blue sky laws of any jurisdiction.
(g) The consolidated financial statements of the Company and
its Subsidiaries together with the related notes and schedules included in the
Registration Statement and Prospectus comply in all material respects with the
requirements of the Act and fairly present the financial position, income,
change in stockholder's equity, cash flow and the results of operations of the
Company and the Subsidiaries at the respective dates and for the respective
periods to which they apply. There has been no adverse change or development
involving a material prospective change in the condition, financial or
otherwise, or in the earnings, business affairs, position, prospects, value,
operation, properties, business or results of operations of the Company or any
of the Subsidiaries, whether or not arising in the ordinary course of business,
since the date of the financial statements included in the Registration
Statement and the Prospectus, except as set forth in the Registration Statement
and the Prospectus, and the outstanding debt, the property, both tangible and
intangible, and the businesses of each of the Company and the Subsidiaries
described in the Registration Statement and the Prospectus conform in all
material respects to the descriptions thereof contained in the Registration
Statement and the Prospectus. Such consolidated financial statements (including
the related notes and schedules) have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods involved except as otherwise stated therein.
(h) Each of the Company and the Subsidiaries (i) has paid all
federal, state and local taxes for which it is currently liable, including, but
not limited to, withholding taxes and amounts payable under Chapters 21 through
24 of the Internal Revenue Code of 1986, as amended (the "Code"), and has
furnished all information returns it is required to furnish pursuant to the
Code, (ii) has established adequate reserves for such taxes that are not due and
payable and (iii) does not have any tax deficiency or claims outstanding,
proposed or assessed against its respective business or assets.
(i) Subsequent to the respective dates as of which information
is set forth in the Registration Statement and Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, neither the Company
nor any of the Subsidiaries has (i) entered into any material transaction other
than in the ordinary course of business or (ii) declared or paid any dividend or
made any other distribution on or in respect of its capital stock of any class
and there has not been any change in the capital stock, debt (long or short
term) or liabilities or any material change in or affecting the general affairs,
management, financial operations, stockholders' equity or results of operations
of the Company or any of the Subsidiaries.
6. Indemnification: The Company agrees to indemnify you and hold you
harmless, and each person, if any, who controls you, within the meaning of
either Section 15 of the Act or Section 20 of the Exchange Act from and against
any and all losses, claims, damages, liabilities and expenses (including
reasonable costs of investigation) arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement or the Prospectus or in any amendment or supplement
thereto or in any preliminary prospectus, or arising out of or based upon any
omission or alleged omission to state therein a material fact required to be
stated herein or necessary to make the statements therein not misleading.
If any action or proceeding (including any governmental investigation)
shall be brought or asserted against you or any person controlling you in
respect of which indemnity may be sought from the Company, you or such
controlling person shall promptly notify the Company in writing, and the Company
shall assume the defense thereof, including the employment of counsel reasonably
satisfactory to you or such controlling person, as the case may be and the
payment of all expenses. You or any such controlling person shall have the right
to employ separate counsel in any such action and to participate in the defense
thereof at your own cost. The Company shall not be liable for any settlement of
any such action or proceeding effected without its written consent, but if
settled with its written consent, or if there be a final judgment for the
plaintiff in any such action or proceeding, the Company agrees as provided in
the preceding paragraph to indemnify you and hold you or such controlling person
harmless from and against any loss or liability by reason of such settlement or
judgment.
<PAGE>
You agree, severally and not jointly, to indemnify and hold harmless
the Company, its directors and officers, and each person, if any, who controls
the Company within the meaning of either Section 15 of the Act or Section 20 of
the Exchange Act, to the same extent as the foregoing indemnity from the Company
to you, but only with respect to information furnished in writing by you or on
your behalf expressly for use in the Registration Statement, the Prospectus, or
any amendment or supplement thereto, or any preliminary prospectus. In case any
action or proceeding shall be brought against the Company or its directors or
officers or any such controlling person, in respect of which indemnity may be
sought against you, you shall have the rights and duties given to the Company,
and the Company or its directors or officers or such controlling person shall
have the rights and duties given to you, by the preceding paragraph.
7. Conditions of Your Obligations: Your obligations hereunder shall be
subject to the continuing accuracy of the representations and warranties of the
Company herein as of the date hereof and as of each Closing Date as if they had
been made on and as of each Closing Date; the accuracy on and as of each Closing
Date of the statements of officers of the Company made pursuant to the
provisions hereof; and the performance by the Company on and as of each Closing
Date of its covenants and obligations hereunder and to the following further
conditions:
(a) Notification that the Registration Statement has become
effective and that the Prospectus has been filed with the Commission on a timely
basis pursuant to Rule 424(b) under the Act shall be received by you;
(b) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall be pending or contemplated by the Commission; and you shall have
received a certificate, dated as of each Closing Date and signed by the Chairman
or President of the Company (who may, as to proceedings contemplated, rely upon
the best of his information and belief), to that effect and to the effect set
forth in clause (g) of this Section 7;
(c) At each of the Closing Dates you shall have received a
certificate of the Company signed by the principal executive officer and by the
chief financial or chief accounting officer of the Company, dated as of each
Closing Date to the effect that each of such persons has examined the
Registration Statement, the Prospectus, and this Agreement, and that:
(i) the representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the
Closing Date and the Company has complied with all
agreements and covenants and satisfied all conditions
contained in this Agreement on its part to be performed or
satisfied at or prior to the Closing Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued,
and no proceedings for that purpose have been instituted or
are pending or, to the best of each of such person's
knowledge after due inquiry, are contemplated or threatened
under the Act;
(iii)the Registration Statement and the Prospectus and, if any,
each amendment and each supplement thereto, contain all
statements and information required to be included therein,
and none of the Registration Statement, the Prospectus or
any amendment or supplement thereto includes any untrue
statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the
statements therein not misleading and none of the
Preliminary Prospectus or any supplement thereto included
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, in light of the
circumstances under which they were made, not misleading;
and
<PAGE>
(iv) subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus:
(a) neither the Company nor any of the Subsidiaries has
incurred up to and including the Closing Date, other than in
the ordinary course of its business, any material
liabilities or obligations, direct or contingent (except as
otherwise contemplated in subclause (d) of this clause
(iv)); (b) neither the Company nor any of the Subsidiaries
has paid or declared any dividends or other distributions on
its capital stock; (c) neither the Company nor any of the
Subsidiaries has entered into any material transactions not
in the ordinary course of business (except as otherwise
contemplated in subclause (d) of this clause (iv)); (d)
there has not been any material change in the capital stock
or long-term debt or any increase in the short-term
borrowings (other than any increase in the short-term
borrowings in the ordinary course of business) of the
Company or any of the Subsidiaries; (e) neither the Company
nor any of the Subsidiaries has sustained any material loss
or damage to its property or assets, whether or not insured;
(f) there is no material litigation which is pending or, to
the best of the Company's knowledge, threatened against the
Company, any of the Subsidiaries or any affiliated party of
any of the foregoing which is required to be set forth in an
amended or supplemented Prospectus which has not been set
forth; and (g) there has occurred no event required to be
set forth in an amended or supplemented Prospectus which has
not been set forth.
(d) Prior to each Closing Date (i) there shall have been no
materially adverse change nor development involving a prospective change in the
condition, financial or otherwise, prospects, stockholders' equity or the
business activities of the Company and the Subsidiaries taken as a whole,
whether or not in the ordinary course of business, from the latest dates as of
which such condition is set forth in the Registration Statement and Prospectus;
(ii) there shall have been no transaction, not in the ordinary course of
business, entered into by the Company or any of the Subsidiaries, from the
latest date as of which the financial condition of the Company and the
Subsidiaries is set forth in the Registration Statement and Prospectus which is
adverse to the Company and the Subsidiaries taken as a whole; (iii) neither the
Company nor any of the Subsidiaries shall be in material default under any
provision of any instrument relating to any outstanding indebtedness; (iv)
neither the Company nor any of the Subsidiaries shall have issued any Shares
(other than the Shares or underlying common stock from the exercise of options
or warrants) or declared or paid any dividend or made any distribution in
respect of its capital stock of any class and there has not been any change in
the capital stock, or any change in the debt (long or short term) or liabilities
or obligations (contingent or otherwise) of the Company or any of the
Subsidiaries except as set forth in the Registration Statement or Prospectus or
agreed to in writing by you and the Company; (v) no material amount of the
assets of the Company or any of the Subsidiaries shall have been pledged or
mortgaged other than in the ordinary course of the Company's business, except as
set forth in the Registration Statement and Prospectus; (vi) no action, suit or
proceeding, at law or in equity, shall have been pending or, to the best of the
Company's knowledge, threatened against the Company or any of the Subsidiaries,
or affecting any of their respective properties or businesses, before or by any
court or federal, state or foreign commission board or other administrative
agency wherein an unfavorable decision, ruling or finding may materially
adversely affect the business, operations, prospects, financial condition or
income of the Company and the Subsidiaries taken as a whole, except as set forth
in the Registration Statement and Prospectus; and (vii) no stop order shall have
been issued under the Act and no proceedings therefor shall have been initiated,
threatened or contemplated by the Commission or any state regulatory authority.
8. Effective Date of Agreement: This Agreement shall become effective
upon execution by both Parties hereto.
9. Notice. Any notice, request, instruction, or other document required
by the terms of this Agreement, or deemed by any of the Parties hereto to be
desirable, to be given to any other Party hereto shall be in writing and shall
be given by facsimile, personal delivery, overnight delivery, or mailed by
registered or certified mail, postage prepaid, with return receipt requested, to
the following addresses:
If to the Company:
Beta Oil & Gas, Inc.
901 Dove Street, Suite 230
Newport Beach, CA 92618
Fax: 949/752-5757
ATTN: Steve Antry, President
With a copy to:
Horwitz & Beam
Two Venture Plaza, Suite 350
Irvine, CA 92618
Fax: 949/453-0300
ATTN: Lawrence W. Horwitz, Esq.
<PAGE>
If to you:
Brookstreet Securities Corporation
2361 Campus Drive, Suite 210
Irvine, CA 92715
FAX: 949/852-6806
ATTN: Stanley C. Brooks, President
With a copy to:
Horwitz & Beam
Two Venture Plaza, Suite 350
Irvine, CA 92618
Fax: 949/453-0300
ATTN: Lawrence W. Horwitz, Esq.
The persons and addresses set forth above may be changed from time to
time by a notice sent as aforesaid. If notice is given by facsimile, personal
delivery, or overnight delivery in accordance with the provisions of this
Section, said notice shall be conclusively deemed given at the time of such
delivery. If notice is given by mail in accordance with the provisions of this
Section, such notice shall be conclusively deemed given seven business days
after deposit thereof in the United States mail.
10. Termination: You shall have the right to terminate this Agreement
(i) if any domestic or international event or act or occurrence has or in your
reasonable opinion will in the immediate future have a material adverse effect
on the Company or the Shares market in general or (ii) if trading on the New
York Stock Exchange, the American Stock Exchange or in the NASDAQ exchange shall
have been suspended, or minimum or maximum prices for trading shall have been
fixed, or maximum ranges for prices for Shares shall have been required on the
over-the-counter market by the NASD or by order of the Commission or any other
government authority having jurisdiction; or (iii) if the United States shall
have become involved in a war or major hostilities, or there shall have been an
escalation in an existing war or major hostilities, or a national emergency
shall have been declared in the United States; or (iv) if a banking moratorium
has been declared by a state or federal authority; or (v) if a moratorium in
foreign exchange trading has been declared; or (vi) if the Company or any of the
Subsidiaries shall have sustained a loss material or substantial to the Company
or any of the Subsidiaries by fire, flood, accident, hurricane, earthquake,
theft, sabotage or other calamity or malicious act which, whether or not such
loss shall have been insured, will, in your reasonable opinion, make it
inadvisable to proceed with the delivery of the Shares; or (vii) if there shall
have been such a material adverse change in the conditions or prospects of the
Company or any of the Subsidiaries, or such material adverse change in the
general market, political or economic conditions in the United States or
elsewhere, as in your judgment would make it inadvisable to proceed with the
offering, sale and/or delivery of the Shares.
11. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto
shall be deemed to be representations, warranties and agreements at the Closing
Date, as the case may be, and such representations, warranties and agreements of
the Company and the respective indemnity agreements contained in Section 6
hereof shall remain operative and in full force and effect as of such dates,
regardless of any investigation made by or on behalf of you, the Company, any of
the Subsidiaries or any controlling person, and shall survive termination of
this Agreement or the issuance and delivery of the Shares to you.
12. Entire Agreement; Amendments. This Agreement constitutes the entire
agreement of the parties hereto and supersedes all prior written or oral
agreements, understandings and negotiations with respect to the subject matter
hereof. This Agreement may not be amended except in a writing signed by you and
the Company.
<PAGE>
13. Miscellaneous. This Agreement has been and is made solely for the
benefit of you and the Company and of the controlling persons, directors and
officers referred to in Section 6 hereof, and their respective successors and
assigns, and no other person shall acquire or have any right under or by virtue
of this Agreement. The term "successors and assigns" as used in this Agreement
shall not include a purchaser, as such purchaser, of Shares from you.
This Agreement may be signed in various counterparts which together
shall constitute one and the same agreement.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO AGREEMENTS MADE AND
TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.
Please confirm that the foregoing correctly sets forth the agreement
between the Company and you.
Very truly yours,
BETA OIL & GAS, INC.
--------------------------------------------
BY: Steve Antry
ITS: President
Confirmed as of the date first above mentioned:
BROOKSTREET SECURITIES CORPORATION
- -----------------------------------------------
BY: Stanley C. Brooks
ITS: President
This document replaces Exhibit 1.2 previously filed.
<PAGE>
SELECTED DEALER WARRANT AGREEMENT
THIS SELECTED DEALER WARRANT AGREEMENT (the "Agreement"), dated as of
___________, 1999 is made and entered into by and between BETA OIL & GAS, INC.,
a Nevada corporation (the "Company"), and BROOKSTREET SECURITIES CORPORATION
("Warrantholder").
Concurrently herewith, the Company is consummating the sale, in a
public offering (the "Offering") of up to 1,650,000 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
Brookstreet Securities Corporation pursuant to an Underwriting Agreement dated
as of ________, 1999 (the "Underwriting Agreement") between the Company and
Brookstreet Securities Corporation. The Underwriting Agreement provides that, on
consummation of the sale of any of Public Offering Shares, the Company shall
sell and issue to broker / dealers participating in the offering, including the
Underwriter ("Selected Dealers") warrants (the "Warrants") entitling the
Selected Dealers 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 the Selected
Dealers, 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 Selected Dealers (the "Additional Warrants"). The Additional Warrants, if
any, shall be sold and issued on the Interim Closing Date(s) and Final (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 1.4 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.
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.
(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.
(a) The Company shall be obligated to the owners of the
Warrants and the Warrant Shares to register the Warrant Shares in its a
Registration Statement for the offering. The Company also agrees that, until all
Warrant Shares have been sold, the Company shall keep the Registration Statement
effective pursuant to which such securities are now and have been registered.
(b) 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(a) 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.
Section 12. Indemnification.
12.1 Indemnification of Warrantholder. 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, at the address set forth in the Selected Dealer Agreement or any
more recent notice of address change delivered to the Company.
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, INC.
By:
Name: Steve Antry
Title: Chairman and President
BROKER / DEALER:
By:
Name:
Title:
<PAGE>
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Exhibit A
Warrant Certificate No. _____
SELECTED DEALERS WARRANTS TO PURCHASE SHARES OF COMMON STOCK
VOID AFTER 5:00 P.M.,
PACIFIC TIME, ON _________, 2004
BETA OIL & GAS, INC.
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, INC. (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 Selected Dealers 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 Selected Dealer Warrant Agreement, dated as of
________ __, 1999 (the "Selected Dealer Warrant Agreement"),
between the Company and the Warrantholder and are subject to the
terms and provisions contained in the Selected Dealers 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 Selected Dealer 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 Selected
Dealers 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, INC.
Dated: _____________ __, 1999 By:
===========================================================================
===========================================================================
===========================================================================
<PAGE>
BETA OIL & GAS, INC.
PURCHASE FORM
BETA OIL & GAS, INC.
9O1 Dove Street, Suite 230
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>
BETA OIL & GAS, INC.
SELECTED DEALER AGREEMENT
PUBLIC OFFERING OF UP TO 1,650,000 SHARES OF COMMON STOCK
______________________, 1998
_____________________
_____________________
_____________________
_____________________
Ladies and Gentlemen:
Brookstreet Securities Corporation (the "Underwriter") has agreed to
use its best efforts to offer and sell on behalf of Beta Oil & Gas, Inc. (the
"Company") up to 1,650,000 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 (the "Commission") on Form S-1 (File No.
333-68381) 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 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 solicit the services of
other broker/dealers who are registered as such with the Commission and who are
members of the National Association of Securities Dealers, Inc.
("NASD").
2. Appointment of Selected Dealer. By executing this Selected Dealer
Agreement (the "Agreement"), you are appointed as a Selected Dealer to offer and
sell the Shares during the term of the Offering on a nonexclusive basis.
3. Offering by Selected Dealer. By executing this Agreement, you agree
to use your best efforts to offer and sell the Shares in accordance with the
terms and conditions of this Agreement, the Registration Statement, the
Prospectus, and any revisions, supplements or amendments thereof, and the
applicable federal and state securities laws and regulations in connection with
the Offering.
<PAGE>
4. 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 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 signed Agreement, you shall be informed as to
the states in which the Underwriter has been advised that the Shares have been
qualified fro 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.
The Underwriter and the Company reserve the right to refuse to accept
any and all orders or sales secured by you.
5. Closing of Offering. Unless at least 400,000 Shares are sold within
90 days of the date of the Final Prospectus (or 120 days if extended by the
Company) (the "Minimum Offering"), the Offering will terminate, none of the
Shares will be deemed to have been sold and all proceeds received will be
returned in full and no commissions shall be paid to you pursuant to Section 7
of this Agreement. If the Minimum Offering is sold, the proceeds will be
released from escrow and deposited to the Company's account. Within 10 days
after the date that the Company receives the proceeds from the sale of the
Minimum Offering, the Company shall instruct the Escrow Agent to remit to you
the amount of the commission to be paid to you pursuant to Section 6 of this
Agreement.
6. Amount of Sales Commissions. Provided that the proceeds from the
sale of the Minimum Offering are received by the Company, the Company shall pay
you a sales commission in an amount equal to 8% percent of the cash proceeds to
the Company of the purchase price of each Share sold by you (the "Commission").
The Company also agrees to pay to you a non-accountable expense allowance equal
to 2% of the aggregate principal amount of the Shares sold by you (the
"Nonaccountable Expense Allowance"). In the event that the Offering is
terminated for any reason, the Company shall pay you for any reasonable
accountable expenses you have incurred. In addition to the Commission and the
Nonaccountable Expense Allowance, you shall be entitled to receive (the
"Selected Dealer Warrants") for the purchase of an amount of shares of Common
Stock of the Company equal to 10% of the number of Securities actually sold by
you in the public offering. The Selected Dealer Warrants shall be issued in the
form set forth in the Selected Dealer Warrant included in the Registration
Statement. The Selected Dealer Warrants shall be exercisable, in whole or in
part, for a period of four years commencing one year from the date of the
completion of the Offering at an exercise price of $7.50 per share. The Selected
Dealer Warrants shall be non-exercisable for one year from the effective date of
the Offering, and non-transferable (whether by sale, transfer, assignment, or
hypothecation) except for (i) transfers to officers of the broker/dealer who are
also shareholders of the broker/dealer; and (ii) transfers occurring by
operation of law.
<PAGE>
7. Relationship of Selected Dealers and the Underwriter. 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 Dealer as an
association, unincorporated business, or other separate entity of 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.
8. Effectiveness of Agreement. This Agreement will become effective as
of the date first set forth above.
9. Termination of Agreement. This Agreement may be terminated by notice
hereunder at any time by the Underwriter or the Company, with or without cause.
If not terminated sooner, this Agreement shall terminate concurrently with the
Termination of the Offering. Upon any termination you shall continue to have the
right to receive compensation hereunder for Shares sold by you, for which you
have not yet been compensated.
10. Indemnification and Contribution.
(a) You hereby indemnify and hold harmless the Company and
each person who controls the Company within the meaning of Section 15 of the
Securities Act of 1933, as amended (the "1933 Act" ) against any and all losses,
claims, damages, liabilities and expenses (including reasonable costs of
investigation and counsel fees) caused by (i) any breach by you of the
representations, warranties or covenants by you contained in or made pursuant to
this Agreement, (ii) the failure by you to give, deliver or send a copy of the
Prospectus as appropriate to any person to whom the Shares are offered or sold
or to offer or sell the Shares in accordance with the provisions of and
applicable rules, regulations and published administrative interpretations under
the Act and the securities or blue sky laws of any jurisdiction in which the
Shares are offered or sold by or through you, (iii) any unauthorized
representations made by you or (iv) any unauthorized conduct which adversely
affects the availability of exemption from registration under the Act or the
rules and regulations thereunder or any provisions of the securities laws of any
jurisdiction.
<PAGE>
(b) The Company hereby indemnifies and holds harmless each
person who controls you (within the meaning of Section 15 of the 1933 Act)
against any and all losses, claims, damages, liabilities and expenses (including
reasonable costs of investigation and counsel fees) caused by (i) any breach by
the Company of the representations, warranties or covenants by the Company
contained in or made pursuant to this Agreement, (ii) any untrue statement of a
material fact contained in the Prospectus, Registration Statement, or in any
amendment or supplement thereto or (iii) any omission to state in the
Prospectus, Registration Statement or in any amendment or supplement thereto any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they are made, not
misleading; provided, however, that the Company shall not be responsible for,
nor does the Company indemnify or hold harmless you or your controlling persons
against any losses, claims, damages, liabilities or expenses arising out of or
resulting from the offer or sale of the Shares to any person who was not given,
delivered or sent a copy of the Prospectus as appropriate, or the failure by you
to offer and sell the Shares in accordance with the provisions of and applicable
rules, regulations and published administrative interpretations under the Act
and rules thereunder and the securities or blue sky laws of any jurisdiction in
which the Shares are offered or sold by or through you.
(c) Promptly after receipt by an indemnified party under this
Section 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, notify the indemnifying party in writing of the commencement
thereof, but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under this Section. 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, to
assume the defense thereof, with counsel satisfactory to such indemnified party,
under joint control thereof over the defense in conjunction with the indemnified
party 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 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation and the indemnified
party may, but shall not be obligated to, participate in the defense of its own
expense with its own counsel.
11. Representations and Indemnities to Survive Delivery. The
indemnities, agreements, representations, warranties, and other statements by
you set forth in or made in writing pursuant to this Agreement will remain in
full force and effect, regardless of any investigation made by or on behalf of
the Company, or any controlling person and will survive delivery of and payment
for the Shares, and the Company, or any controlling person, as the case may be,
shall be entitled to the benefit of the indemnity agreements.
12. Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of California.
13. Notices. All communications hereunder will be in writing sent by
certified, first class mail, return receipt requested each party at the address
set forth below. Notices will be effective only when received or when first
attempted to be delivered by the mails. Addresses for notice may be changed by
notice to the other parties hereunder.
14. Modifications and Waivers. No modification or waiver of any term
hereof shall be effective unless in writing, signed by the party to be charged.
15. Multiple Counterparts. This Agreement is made, and may be executed,
in multiple counterparts, each of which shall constitute an original hereof.
<PAGE>
16. Assignability. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs and successors but
shall not be assignable by a party without the prior written consent of the
other party.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
it will become a binding agreement between us in accordance with its terms.
Very truly yours,
BROOKSTREET SECURITIES CORPORATION
-----------------------------------
BY: Stanley C. Brooks
ITS: President
SELECTED DEALER
___________________________________
By:________________________________
Its: ______________________________
This document replaces Exhibit 3.2 previously filed.
<PAGE>
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:
1.2.1Each 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:
<PAGE>
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 six
(6) 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, except for a vacancy
created by the removal of a Director, may be filled by a majority of the
remaining Directors, though less than a quorum, or by a sole remaining Director.
Each Director so elected shall hold office until the next annual meeting of the
Stockholders and until a successor has been elected and qualified. A vacancy in
the Board of Directors created by the removal of a Director may only 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 the
holders of a majority of the outstanding shares.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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 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.
<PAGE>
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 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.
<PAGE>
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.
<PAGE>
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 or the
filling of vacancies in the Board resulting from the removal by the
stockholders. If 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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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 5th day of January, 1999.
--------------------------
/s/Lisa Antry, Secretary
This document replaces Exhibit 5.1 previusly filed.
<PAGE>
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.
March 26, 1999
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: (1) the issuance and sale of a maximum of 1,650,000 shares of the
Registrant's Common Stock; (2) 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; and (3) the registration of up to 165,000 shares of the
Registrant's Common Stock issuable upon exercise of Underwriter Warrants
(collectively, the "Registered Securities") all 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
/s/ Horwitz & Beam
CHENIERE ENERGY, INC.
TWO ALLEN CENTER
1200 SMITH STREET, SUITE 1740
HOUSTON, TEXAS 77002-4312
(713) 659-1361
FAX: (713) 659-5459
January 6, 1999
Beta Oil & Gas, Inc.
901 Dove Street, Suite 230
Newport Beach, CA 92660
Attention: Mr. Steve Antry, President
Re: Prospect "Cobra" (Formerly "Pelican")
Offshore - West Cameron Area, Louisiana
Gentlemen:
When accepted by you in the manner provided below, this letter shall
evidence the agreement between you (sometimes hereinafter referred to as "Beta")
and Cheniere Energy, Inc., (hereinafter referred to as "Cheniere") with respect
to (1) your acquiring from Cheniere a certain undivided interest in and to the
Oil, Gas and Mineral Leases described on Exhibit "A" attached hereto and made a
part hereof (the "Leases"), which Leases cover lands comprising the prospect
known to Cheniere as the Cobra Prospect, and (2) your participation in the
drilling of a test well on the Cobra Prospect in the manner hereinafter
described. The geographical area covered by the Cobra Prospect is shown on
Exhibit "A," on which it is depicted as the yellow shaded "Lease Block"
(hereinafter referred to as the "Cobra Lease Block").
1.
Cheniere represents that it owns a 50% interest in and to the Leases.
In consideration of the sum of $312,000, which Beta agrees to pay and deliver to
Cheniere simultaneously with Beta's execution of this Letter Agreement, and
Beta's undertakings as hereinafter set forth, Cheniere has agreed and does
hereby agree to assign to Beta, an undivided 15.0% of 8/8ths interest in and to
the Leases. The assignment to you of interests pursuant to this Paragraph shall
be made immediately after Cheniere's receipt of (i) your payment to Cheniere of
the amount set forth above, (ii) an original counterpart of this Letter
Agreement duly executed by you, (iii) an Operating Agreement, in the form
attached as Exhibit "C" (the "Operating Agreement"), duly executed by you; and
(iv) the authority for expenditure for the Test Well set forth in Exhibit A duly
executed by you. Except as to claims by, through, or under Assignor, but not
otherwise, the assignments herein provided for shall be without warranty, either
express or implied, and shall be made expressly subject to the terms and
provisions of this Letter Agreement and the Operating Agreement. The form of the
assignment shall be the same or substantially similar to the form of assignment
attached hereto as Exhibit "B."
2.
All operations on the Cobra Lease Block or the area of mutual interest
("AMI") created in the Operating Agreement, including the drilling of a test
well as provided in Section 3 below (the "Test Well"), will be governed by the
Operating Agreement; provided, however, if on any matter there is a conflict
between the Operating Agreement and this Letter Agreement, the Letter Agreement
shall prevail. Initially, Zydeco Exploration, Inc. ("Zydeco") shall be
designated as operator under the Operating Agreement. Zydeco may resign or be
replaced as operator in accordance with the provisions of the Operating
Agreement; provided, however, that if Zydeco resigns or is replaced as operator
prior to completion or abandonment of the Test Well and the successor operator
selected under the Operating Agreement is not acceptable to Beta, then, for a
period of thirty (30) days after appointment of such successor operator, Beta
may elect to reassign to Cheniere its interests in the Leases, and any other
interests acquired within the Cobra Lease Block or AMI, and Cheniere shall,
contemporaneously with receipt of such reassignment, return to Beta the purchase
price therefor. If such reassignment right is not timely exercised, it shall be
deemed waived.
3.
Beta has agreed, and does hereby agree to participate in the manner set
forth below in the drilling of a Test Well for the Cobra Prospect at the
location and to the Contract Depth described in Exhibit "A." Prior to the
spudding of the Test Well, Cheniere may change the location or Contract Depth
for the Test Well, provided that if Beta does not approve such change it may,
within fourteen (14) days of receipt of notice thereof, reassign to Cheniere its
interests in the Leases, and any other interests acquired within the Cobra Lease
Block or AMI, and Cheniere shall, contemporaneously with receipt of such
reassignment, return to Beta the purchase price therefor. If such reassignment
right is not timely exercised, it shall be deemed waived.
Beta has agreed and does hereby agree to pay and bear 20.0% of all
risks, costs and expenses incurred in connection with the drilling of the Test
Well to Contract Depth; in logging and testing the Test Well; and, in plugging
and abandoning the Test Well if a completion attempt is not made. The costs and
expenses of drilling the Test Well shall include, but without limitation by
enumeration, the costs incurred in obtaining a drill site surface lease,
examining and clearing title on the surface location (and, if the Test Well is
directionally drilled, the lease covering the bottom hole location), staking the
location, preparing the location and drilling to Contract Depth and evaluating
the well. A detailed estimate of costs of drilling the Test Well to Contract
Depth is included in Exhibit "A", but such information is merely an estimate and
shall not be deemed a limitation or cap on such costs or on either party's
responsibility therefor. An estimate of completion cost will be provided prior
to spudding the Test Well.
If after reaching Contract Depth in the Test Well, Beta elects to
participate in a completion attempt of the Test Well, 15% of all risks, costs
and expenses incurred in connection with such completion, together with the
risks, costs and expenses of plugging and abandoning such well in the event
completion is unsuccessful, shall be borne by Beta.
If the Test Well is not commenced within 120 days after the date
hereof, then, for a period of thirty (30) days thereafter, Beta may reassign to
Cheniere its interest in the Leases, and any other interests acquired within the
Cobra Lease Block and AMI, and Cheniere shall, contemporaneously with receipt of
such reassignment, return to Beta the purchase price therefor. If such
reassignment right is not timely exercised, it shall be deemed waived.
4.
If, after commencing a Test Well, but before reaching Contract Depth,
there should be encountered conditions or formations, whether natural or
mechanical, which render further drilling of the Test Well either impossible or
impractical, so that operations on the Test Well are abandoned, a Substitute
Well may be commenced not later than 90 days following the abandonment of Test
Well. Such Substitute Well shall be considered and deemed for all purposes
(including, without limitation, the apportionment between the parties of the
costs and expenses incurred in connection therewith) a continuation of the
drilling of the Test Well and as though it were the well for which it is the
substitute.
5.
If Beta elects not to participate in the Substitute Well, then Beta
shall be deemed to have forfeited all rights and interest in and to the Leases
and any other leases, fee mineral interests or other oil and gas interests or
contractual rights covering or appurtenant to lands in the Cobra Lease Block and
the AMI, and shall, within ten (10) days after (i) receipt of notice of the
commencement of the Substitute Well or (ii) the expiration of the 90 day period
for commencement of a Substitute Well, as the case may be, assign to Cheniere
all of such rights and interests.
6.
It is recognized that (i) although title will be examined on the drill
site surface and bottom hole location tracts for the Test Well prior to
commencement of drilling thereof, title will not be examined as to other lands
lying within the Cobra Lease Block or the AMI until such time as wells are
proposed to be drilled thereon, and (ii) there possibly may be unleased
interests in other tracts of land within the Cobra Lease Block. You acknowledge
that Cheniere has advised you of any currently unleased interests known to
Cheniere which may exist within the Cobra Lease Block, but Cheniere makes no
representation or warranty, express or implied, as to the completeness or
accuracy of such information, and your reliance thereon is at your sole risk. If
any such unleased interests are now known or become known to Cheniere to exist
prior to completion or abandonment of the Test Well, Cheniere agrees to make a
good faith effort to acquire Oil, Gas and Mineral Leases covering such unleased
interests under such terms and conditions as are reasonably acceptable to
Cheniere. Undivided interests in such leases acquired by Cheniere shall be
offered to Beta pursuant to the AMI provision of the Operating Agreement.
7.
The notices provided for in this agreement shall be in writing and
delivered by certified U.S. mail, return receipt requested, telecopy, or
overnight courier or messenger with receipt confirmation, to the addresses
below:
CHENIERE ENERGY, INC.
Two Allen Center
1200 Smith Street, Suite 1740
Houston, TX 77002
Attn: Walter L. Williams
phone (713) 659-1361
fax (713) 659-5459
BETA OIL & GAS, INC.
901 Dove Street, Suite 230
Newport Beach, CA 92660
Attn: Steve Antry
phone (949) 752-5212
fax (949) 752-5757
Notices hereunder shall be deemed made upon receipt.
8.
Beta shall have the right to review in Cheniere's office all Fairfield
spec data pertaining to the Cobra Prospect under the terms and conditions set
out in the Master and Supplemental Licensing Agreement covering such data by and
between Fairfield Industries and Cheniere Energy, Inc. dated January 28, 1998,
and Beta agrees to comply with all such terms and conditions. At Beta's request
and at Beta's cost Cheniere will endeavor to secure a Partners License to such
data for Beta. Subject to Beta's continued compliance with the previously
executed Confidentiality Agreement, dated September 14, 1998, Beta shall have
access to proprietary seismic data acquired by Cheniere covering the Cobra
Prospect in Cheniere's offices during Cheniere's normal business hours;
provided, however, that if Beta reassigns interests to Cheniere rights pursuant
to this Agreement, Beta shall return all interpretations, maps, seismic sections
or other data, information, reports, analyses or opinions generated by Beta or
its consultants, contractors or agents using, based upon or derived from such
data, and Beta shall cause all such materials to be removed from Beta's
workstations and computer systems.
9.
This agreement is made subject to all valid, applicable laws, rules,
orders and regulations, of any duly constituted Federal, State or local
regulatory body or authority having jurisdiction thereof, and all development
and operations hereunder shall be in conformity therewith.
10.
The provisions hereof shall inure to the benefit and are binding upon
the parties hereto, and to their respective successors and assigns.
11.
Prior to the date hereof, Beta acquired an interest in State Leases No.
16187 and 16188, Sabine Pass Block 3, Offshore Louisiana. Beta and Cheniere
expressly agree that, notwithstanding anything herein or in the Operating
Agreement to the contrary, such State Leases are hereby excluded from the AMI.
12.
The parties agree that this Agreement shall be deemed confidential and
shall not be revealed to any third party except (i) to the extent disclosure may
be required by law, including, without limitation, disclosures in registration
statements or other filings with the Securities and Exchange Commission; (ii)
disclosures in any judicial or alternative dispute resolution proceeding
concerning the terms hereof; (iii) disclosures to bona fide prospective
investors, lenders, successors or assigns of a party, upon such third parties'
execution of a confidentiality agreement in form and substance reasonably
acceptable to the parties hereto; and (iv) disclosures with the written consent
of the other party, which consent shall not be unreasonably withheld.
13.
All assignments of interests by Beta to Cheniere pursuant to this
Agreement shall be made by assignment reasonably acceptable to Cheniere and free
of all claims, burdens or encumbrances by through, or under Beta, other than
royalties, overriding royalties, back-ins or like interests reserved by third
parties in farmout agreements, assignments or grants of such interests to Beta.
If Beta reassigns interests to Cheniere pursuant to this Agreement, then Beta
agrees (i) to maintain the confidentiality of all information in Beta's
possession concerning the Cobra Prospect; and (ii) for a period of three (3)
years after the date hereof, not to acquire oil and gas interests (including,
without limitation, leasehold interests, fee mineral interests, net profits
interests, royalty or overriding royalty interests, farmouts or other interests)
covering lands within the Cobra Lease Block or the AMI. If, notwithstanding the
foregoing, Beta acquires such interests, then within fourteen (14) days after
receipt of assignments or conveyances of such interests, Beta shall in writing
offer to assign such interests to Cheniere upon Cheniere's payment to Beta of
Beta's acquisition costs therefor, documentation of which shall be furnished by
Beta to Cheniere. Cheniere shall have thirty (30) days after receipt of such
notice in which to elect whether to acquire such interest. If Cheniere does not
tender the purchase price for such interests within such period, Cheniere shall
be deemed to have elected not to acquire such interest. Beta shall deliver
executed and acknowledged assignments of such interests to Cheniere
contemporaneously with Cheniere's payment of the purchase price therefor.
14.
Time is of the essence in the performance of this Agreement.
If the foregoing is your understanding of our agreement, please
evidence your acceptance of this agreement by executing in the space provided
below for your signature.
Sincerely,
CHENIERE ENERGY, INC.
/s/Walter L. Williams
President & CEO
AGREED TO AND ACCEPTED THIS _____ DAY OF _______________, 1999.
BETA OIL AND GAS, INC.
/s/Steve Antry
President & CEO
CHENIERE ENERGY, INC.
TWO ALLEN CENTER
1200 SMITH STREET, SUITE 1740
HOUSTON, TEXAS 77002-4312
(713) 659-1361
FAX: (713) 659-5459
January 6, 1999
Beta Oil & Gas, Inc.
901 Dove Street, Suite 230
Newport Beach, CA 92660
Attention: Mr. Steve Antry, President
Re: Prospect "Redfish" (IP's "Four Corners")
Offshore - West Cameron Area, Louisiana
Gentlemen:
When accepted by you in the manner provided below, this letter shall
evidence the agreement between you (sometimes hereinafter referred to as "Beta")
and Cheniere Energy, Inc., (hereinafter referred to as "Cheniere") with respect
to (1) your acquiring from Cheniere a certain undivided interest in and to the
Oil, Gas and Mineral Leases described on Exhibit "A" attached hereto and made a
part hereof (the "Leases"), which Leases cover lands comprising the prospect
known to Cheniere as the Redfish Prospect, and (2) your participation in the
drilling of a test well on the Redfish Prospect in the manner hereinafter
described. The geographical area covered by the Redfish Prospect is shown on
Exhibit "A," on which it is depicted as the yellow shaded "Lease Block"
(hereinafter referred to as the "Redfish Lease Block").
1.
Cheniere represents that it owns a 50% interest in and to the Leases.
In consideration of the sum of $242,000, which Beta agrees to pay and deliver to
Cheniere simultaneously with Beta's execution of this Letter Agreement, and
Beta's undertakings as hereinafter set forth, Cheniere has agreed and does
hereby agree to assign to Beta, an undivided 15.0% of 8/8ths interest in and to
the Leases. The assignment to you of interests pursuant to this Paragraph shall
be made immediately after Cheniere's receipt of (i) your payment to Cheniere of
the amount set forth above, (ii) an original counterpart of this Letter
Agreement duly executed by you, (iii) an Operating Agreement, in the form
attached as Exhibit "C" (the "Operating Agreement"), duly executed by you; and
(iv) the authority for expenditure for the Test Well set forth in Exhibit A duly
executed by you. Except as to claims by, through, or under Assignor, but not
otherwise, the assignments herein provided for shall be without warranty, either
express or implied, and shall be made expressly subject to the terms and
provisions of this Letter Agreement and the Operating Agreement. The form of the
assignment shall be the same or substantially similar to the form of assignment
attached hereto as Exhibit "B."
2.
All operations on the Redfish Lease Block or the area of mutual
interest ("AMI") created in the Operating Agreement, including the drilling of a
test well as provided in Section 3 below (the "Test Well"), will be governed by
the Operating Agreement; provided, however, if on any matter there is a conflict
between the Operating Agreement and this Letter Agreement, the Letter Agreement
shall prevail. Initially, IP petroleum Company, Inc. (IP) shall be designated as
operator under the Operating Agreement. IP may resign or be replaced as operator
in accordance with the provisions of the Operating Agreement; provided, however,
that if IP resigns or is replaced as operator prior to completion or abandonment
of the Test Well and the successor operator selected under the Operating
Agreement is not acceptable to Beta, then, for a period of thirty (30) days
after appointment of such successor operator, Beta may elect to reassign to
Cheniere its interests in the Leases, and any other interests acquired within
the Redfish Lease Block or AMI, and Cheniere shall, contemporaneously with
receipt of such reassignment, return to Beta the purchase price therefor. If
such reassignment right is not timely exercised, it shall be deemed waived.
3.
Beta has agreed, and does hereby agree to participate in the manner set
forth below in the drilling of a Test Well for the Redfish Prospect at the
location and to the Contract Depth described in Exhibit "A." Prior to the
spudding of the Test Well, Cheniere may change the location or Contract Depth
for the Test Well, provided that if Beta does not approve such change it may,
within fourteen (14) days of receipt of notice thereof, reassign to Cheniere its
interests in the Leases, and any other interests acquired within the Redfish
Lease Block or AMI, and Cheniere shall, contemporaneously with receipt of such
reassignment, return to Beta the purchase price therefor. If such reassignment
right is not timely exercised, it shall be deemed waived.
Beta has agreed and does hereby agree to pay and bear 20.0% of all
risks, costs and expenses incurred in connection with the drilling of the Test
Well to Contract Depth; in logging and testing the Test Well; and, in plugging
and abandoning the Test Well if a completion attempt is not made. The costs and
expenses of drilling the Test Well shall include, but without limitation by
enumeration, the costs incurred in obtaining a drill site surface lease,
examining and clearing title on the surface location (and, if the Test Well is
directionally drilled, the lease covering the bottom hole location), staking the
location, preparing the location and drilling to Contract Depth and evaluating
the well. A detailed estimate of costs of drilling the Test Well to Contract
Depth is included in Exhibit "A", but such information is merely an estimate and
shall not be deemed a limitation or cap on such costs or on either party's
responsibility therefor. An estimate of completion cost will be provided prior
to spudding the Test Well.
If after reaching Contract Depth in the Test Well, Beta elects to
participate in a completion attempt of the Test Well, 15% of all risks, costs
and expenses incurred in connection with such completion, together with the
risks, costs and expenses of plugging and abandoning such well in the event
completion is unsuccessful, shall be borne by Beta.
If the Test Well is not commenced within 120 days after the date
hereof, then, for a period of thirty (30) days thereafter, Beta may reassign to
Cheniere its interest in the Leases, and any other interests acquired within the
Redfish Lease Block and AMI, and Cheniere shall, contemporaneously with receipt
of such reassignment, return to Beta the purchase price therefor. If such
reassignment right is not timely exercised, it shall be deemed waived.
4.
If, after commencing a Test Well, but before reaching Contract Depth,
there should be encountered conditions or formations, whether natural or
mechanical, which render further drilling of the Test Well either impossible or
impractical, so that operations on the Test Well are abandoned, a Substitute
Well may be commenced not later than 90 days following the abandonment of Test
Well. Such Substitute Well shall be considered and deemed for all purposes
(including, without limitation, the apportionment between the parties of the
costs and expenses incurred in connection therewith) a continuation of the
drilling of the Test Well and as though it were the well for which it is the
substitute.
5.
If Beta elects not to participate in the Substitute Well, then Beta
shall be deemed to have forfeited all rights and interest in and to the Leases
and any other leases, fee mineral interests or other oil and gas interests or
contractual rights covering or appurtenant to lands in the Redfish Lease Block
and the AMI, and shall, within ten (10) days after (i) receipt of notice of the
commencement of the Substitute Well or (ii) the expiration of the 90 day period
for commencement of a Substitute Well, as the case may be, assign to Cheniere
all of such rights and interests.
6.
It is recognized that (i) although title will be examined on the drill
site surface and bottom hole location tracts for the Test Well prior to
commencement of drilling thereof, title will not be examined as to other lands
lying within the Redfish Lease Block or the AMI until such time as wells are
proposed to be drilled thereon, and (ii) there possibly may be unleased
interests in other tracts of land within the Redfish Lease Block. You
acknowledge that Cheniere has advised you of any currently unleased interests
known to Cheniere which may exist within the Redfish Lease Block, but Cheniere
makes no representation or warranty, express or implied, as to the completeness
or accuracy of such information, and your reliance thereon is at your sole risk.
If any such unleased interests are now known or become known to Cheniere to
exist prior to completion or abandonment of the Test Well, Cheniere agrees to
make a good faith effort to acquire Oil, Gas and Mineral Leases covering such
unleased interests under such terms and conditions as are reasonably acceptable
to Cheniere. Undivided interests in such leases acquired by Cheniere shall be
offered to Beta pursuant to the AMI provision of the Operating Agreement.
7.
The notices provided for in this agreement shall be in writing and
delivered by certified U.S. mail, return receipt requested, telecopy, or
overnight courier or messenger with receipt confirmation, to the addresses
below:
CHENIERE ENERGY, INC.
Two Allen Center
1200 Smith Street, Suite 1740
Houston, TX 77002
Attn: Walter L. Williams
phone (713) 659-1361
fax (713) 659-5459
BETA OIL & GAS, INC.
901 Dove Street, Suite 230
Newport Beach, CA 92660
Attn: Steve Antry
phone (949) 752-5212
fax (949) 752-5757
Notices hereunder shall be deemed made upon receipt.
8.
Beta shall have the right to review in Cheniere's office all Fairfield
spec data pertaining to the Redfish Prospect under the terms and conditions set
out in the Master and Supplemental Licensing Agreement covering such data by and
between Fairfield Industries and Cheniere Energy, Inc. dated January 28, 1998,
and Beta agrees to comply with all such terms and conditions. At Beta's request
and at Beta's cost Cheniere will endeavor to secure a Partners License to such
data for Beta. Subject to Beta's continued compliance with the previously
executed Confidentiality Agreement, dated September 14, 1998, Beta shall have
access to proprietary seismic data acquired by Cheniere covering the Redfish
Prospect in Cheniere's offices during Cheniere's normal business hours;
provided, however, that if Beta reassigns interests to Cheniere rights pursuant
to this Agreement, Beta shall return all interpretations, maps, seismic sections
or other data, information, reports, analyses or opinions generated by Beta or
its consultants, contractors or agents using, based upon or derived from such
data, and Beta shall cause all such materials to be removed from Beta's
workstations and computer systems.
9.
This agreement is made subject to all valid, applicable laws, rules,
orders and regulations, of any duly constituted Federal, State or local
regulatory body or authority having jurisdiction thereof, and all development
and operations hereunder shall be in conformity therewith.
10.
The provisions hereof shall inure to the benefit and are binding upon
the parties hereto, and to their respective successors and assigns.
11.
Prior to the date hereof, Beta acquired an interest in State Leases No.
16187 and 16188, Sabine Pass Block 3, Offshore Louisiana. Beta and Cheniere
expressly agree that, notwithstanding anything herein or in the Operating
Agreement to the contrary, such State Leases are hereby excluded from the AMI.
12.
The parties agree that this Agreement shall be deemed confidential and
shall not be revealed to any third party except (i) to the extent disclosure may
be required by law, including, without limitation, disclosures in registration
statements or other filings with the Securities and Exchange Commission; (ii)
disclosures in any judicial or alternative dispute resolution proceeding
concerning the terms hereof; (iii) disclosures to bona fide prospective
investors, lenders, successors or assigns of a party, upon such third parties'
execution of a confidentiality agreement in form and substance reasonably
acceptable to the parties hereto; and (iv) disclosures with the written consent
of the other party, which consent shall not be unreasonably withheld.
13.
All assignments of interests by Beta to Cheniere pursuant to this
Agreement shall be made by assignment reasonably acceptable to Cheniere and free
of all claims, burdens or encumbrances by through, or under Beta, other than
royalties, overriding royalties, back-ins or like interests reserved by third
parties in farmout agreements, assignments or grants of such interests to Beta.
If Beta reassigns interests to Cheniere pursuant to this Agreement, then Beta
agrees (i) to maintain the confidentiality of all information in Beta's
possession concerning the Redfish Prospect; and (ii) for a period of three (3)
years after the date hereof, not to acquire oil and gas interests (including,
without limitation, leasehold interests, fee mineral interests, net profits
interests, royalty or overriding royalty interests, farmouts or other interests)
covering lands within the Redfish Lease Block or the AMI. If, notwithstanding
the foregoing, Beta acquires such interests, then within fourteen (14) days
after receipt of assignments or conveyances of such interests, Beta shall in
writing offer to assign such interests to Cheniere upon Cheniere's payment to
Beta of Beta's acquisition costs therefor, documentation of which shall be
furnished by Beta to Cheniere. Cheniere shall have thirty (30) days after
receipt of such notice in which to elect whether to acquire such interest. If
Cheniere does not tender the purchase price for such interests within such
period, Cheniere shall be deemed to have elected not to acquire such interest.
Beta shall deliver executed and acknowledged assignments of such interests to
Cheniere contemporaneously with Cheniere's payment of the purchase price
therefor.
14.
Time is of the essence in the performance of this Agreement.
If the foregoing is your understanding of our agreement, please
evidence your acceptance of this agreement by executing in the space provided
below for your signature.
Sincerely,
CHENIERE ENERGY, INC.
/s/Walter L. Williams
President & CEO
AGREED TO AND ACCEPTED THIS _____ DAY OF _______________, 1999.
BETA OIL AND GAS, INC.
/s/Steve Antry
President & CEO
CHENIERE ENERGY, INC.
TWO ALLEN CENTER
1200 SMITH STREET, SUITE 1740
HOUSTON, TEXAS 77002-4312
(713) 659-1361
FAX: (713) 659-5459
January 6, 1999
Beta Oil & Gas, Inc.
901 Dove Street, Suite 230
Newport Beach, CA 92660
Attention: Mr. Steve Antry, President
Re: Prospect "Shark"
Offshore - West Cameron Area, Louisiana
Gentlemen:
When accepted by you in the manner provided below, this letter shall
evidence the agreement between you (sometimes hereinafter referred to as "Beta")
and Cheniere Energy, Inc., (hereinafter referred to as "Cheniere") with respect
to (1) your acquiring from Cheniere a certain undivided interest in and to the
Oil, Gas and Mineral Leases described on Exhibit "A" attached hereto and made a
part hereof (the "Leases"), which Leases cover lands comprising the prospect
known to Cheniere as the Shark Prospect, and (2) your participation in the
drilling of a test well on the Shark Prospect in the manner hereinafter
described. The geographical area covered by the Shark Prospect is shown on
Exhibit "A," on which it is depicted as the yellow shaded "Lease Block"
(hereinafter referred to as the "Shark Lease Block").
1.
Cheniere represents that it owns a 100% interest in and to the Leases.
In consideration of the sum of $104,000, which Beta agrees to pay and deliver to
Cheniere simultaneously with Beta's execution of this Letter Agreement, and
Beta's undertakings as hereinafter set forth, Cheniere has agreed and does
hereby agree to assign to Beta, an undivided 15.0% of 8/8ths interest in and to
the Leases. The assignment to you of interests pursuant to this Paragraph shall
be made immediately after Cheniere's receipt of (i) your payment to Cheniere of
the amount set forth above, (ii) an original counterpart of this Letter
Agreement duly executed by you, (iii) an Operating Agreement, in the form
attached as Exhibit "C" (the "Operating Agreement"), duly executed by you; and
(iv) the authority for expenditure for the Test Well set forth in Exhibit A duly
executed by you. Except as to claims by, through, or under Assignor, but not
otherwise, the assignments herein provided for shall be without warranty, either
express or implied, and shall be made expressly subject to the terms and
provisions of this Letter Agreement and the Operating Agreement. The form of the
assignment shall be the same or substantially similar to the form of assignment
attached hereto as Exhibit "B."
2.
All operations on the Shark Lease Block or the area of mutual interest
("AMI") created in the Operating Agreement, including the drilling of a test
well as provided in Section 3 below (the "Test Well"), will be governed by the
Operating Agreement; provided, however, if on any matter there is a conflict
between the Operating Agreement and this Letter Agreement, the Letter Agreement
shall prevail. Initially, Cheniere shall be designated as operator under the
Operating Agreement. Cheniere may resign or be replaced as operator in
accordance with the provisions of the Operating Agreement; provided, however,
that if Cheniere resigns or is replaced as operator prior to completion or
abandonment of the Test Well and the successor operator selected under the
Operating Agreement is not acceptable to Beta, then, for a period of thirty (30)
days after appointment of such successor operator, Beta may elect to reassign to
Cheniere its interests in the Leases, and any other interests acquired within
the Shark Lease Block or AMI, and Cheniere shall, contemporaneously with receipt
of such reassignment, return to Beta the purchase price therefor. If such
reassignment right is not timely exercised, it shall be deemed waived.
3.
Beta has agreed, and does hereby agree to participate in the manner set
forth below in the drilling of a Test Well for the Shark Prospect at the
location and to the Contract Depth described in Exhibit "A." Prior to the
spudding of the Test Well, Cheniere may change the location or Contract Depth
for the Test Well, provided that if Beta does not approve such change it may,
within fourteen (14) days of receipt of notice thereof, reassign to Cheniere its
interests in the Leases, and any other interests acquired within the Shark Lease
Block or AMI, and Cheniere shall, contemporaneously with receipt of such
reassignment, return to Beta the purchase price therefor. If such reassignment
right is not timely exercised, it shall be deemed waived.
Beta has agreed and does hereby agree to pay and bear 20.0% of all
risks, costs and expenses incurred in connection with the drilling of the Test
Well to Contract Depth; in logging and testing the Test Well; and, in plugging
and abandoning the Test Well if a completion attempt is not made. The costs and
expenses of drilling the Test Well shall include, but without limitation by
enumeration, the costs incurred in obtaining a drill site surface lease,
examining and clearing title on the surface location (and, if the Test Well is
directionally drilled, the lease covering the bottom hole location), staking the
location, preparing the location and drilling to Contract Depth and evaluating
the well. A detailed estimate of costs of drilling the Test Well to Contract
Depth is included in Exhibit "A", but such information is merely an estimate and
shall not be deemed a limitation or cap on such costs or on either party's
responsibility therefor. An estimate of completion cost will be provided prior
to spudding the Test Well.
If after reaching Contract Depth in the Test Well, Beta elects to
participate in a completion attempt of the Test Well, 15% of all risks, costs
and expenses incurred in connection with such completion, together with the
risks, costs and expenses of plugging and abandoning such well in the event
completion is unsuccessful, shall be borne by Beta.
If the Test Well is not commenced within 120 days after the date
hereof, then, for a period of thirty (30) days thereafter, Beta may reassign to
Cheniere its interest in the Leases, and any other interests acquired within the
Shark Lease Block and AMI, and Cheniere shall, contemporaneously with receipt of
such reassignment, return to Beta the purchase price therefor. If such
reassignment right is not timely exercised, it shall be deemed waived.
4.
If, after commencing a Test Well, but before reaching Contract Depth,
there should be encountered conditions or formations, whether natural or
mechanical, which render further drilling of the Test Well either impossible or
impractical, so that operations on the Test Well are abandoned, a Substitute
Well may be commenced not later than 90 days following the abandonment of Test
Well. Such Substitute Well shall be considered and deemed for all purposes
(including, without limitation, the apportionment between the parties of the
costs and expenses incurred in connection therewith) a continuation of the
drilling of the Test Well and as though it were the well for which it is the
substitute.
5.
If Beta elects not to participate in the Substitute Well, then Beta
shall be deemed to have forfeited all rights and interest in and to the Leases
and any other leases, fee mineral interests or other oil and gas interests or
contractual rights covering or appurtenant to lands in the Shark Lease Block and
the AMI, and shall, within ten (10) days after (i) receipt of notice of the
commencement of the Substitute Well or (ii) the expiration of the 90 day period
for commencement of a Substitute Well, as the case may be, assign to Cheniere
all of such rights and interests.
6.
It is recognized that (i) although title will be examined on the drill
site surface and bottom hole location tracts for the Test Well prior to
commencement of drilling thereof, title will not be examined as to other lands
lying within the Shark Lease Block or the AMI until such time as wells are
proposed to be drilled thereon, and (ii) there possibly may be unleased
interests in other tracts of land within the Shark Lease Block. You acknowledge
that Cheniere has advised you of any currently unleased interests known to
Cheniere which may exist within the Shark Lease Block, but Cheniere makes no
representation or warranty, express or implied, as to the completeness or
accuracy of such information, and your reliance thereon is at your sole risk. If
any such unleased interests are now known or become known to Cheniere to exist
prior to completion or abandonment of the Test Well, Cheniere agrees to make a
good faith effort to acquire Oil, Gas and Mineral Leases covering such unleased
interests under such terms and conditions as are reasonably acceptable to
Cheniere. Undivided interests in such leases acquired by Cheniere shall be
offered to Beta pursuant to the AMI provision of the Operating Agreement.
7.
The notices provided for in this agreement shall be in writing and
delivered by certified U.S. mail, return receipt requested, telecopy, or
overnight courier or messenger with receipt confirmation, to the addresses
below:
CHENIERE ENERGY, INC.
Two Allen Center
1200 Smith Street, Suite 1740
Houston, TX 77002
Attn: Walter L. Williams
phone (713) 659-1361
fax (713) 659-5459
BETA OIL & GAS, INC.
901 Dove Street, Suite 230
Newport Beach, CA 92660
Attn: Steve Antry
phone (949) 752-5212
fax (949) 752-5757
Notices hereunder shall be deemed made upon receipt.
8.
Beta shall have the right to review in Cheniere's office all Fairfield
spec data pertaining to the Shark Prospect under the terms and conditions set
out in the Master and Supplemental Licensing Agreement covering such data by and
between Fairfield Industries and Cheniere Energy, Inc. dated January 28, 1998,
and Beta agrees to comply with all such terms and conditions. At Beta's request
and at Beta's cost Cheniere will endeavor to secure a Partners License to such
data for Beta. Subject to Beta's continued compliance with the previously
executed Confidentiality Agreement, dated September 14, 1998, Beta shall have
access to proprietary seismic data acquired by Cheniere covering the Shark
Prospect in Cheniere's offices during Cheniere's normal business hours;
provided, however, that if Beta reassigns interests to Cheniere rights pursuant
to this Agreement, Beta shall return all interpretations, maps, seismic sections
or other data, information, reports, analyses or opinions generated by Beta or
its consultants, contractors or agents using, based upon or derived from such
data, and Beta shall cause all such materials to be removed from Beta's
workstations and computer systems.
9.
This agreement is made subject to all valid, applicable laws, rules,
orders and regulations, of any duly constituted Federal, State or local
regulatory body or authority having jurisdiction thereof, and all development
and operations hereunder shall be in conformity therewith.
10.
The provisions hereof shall inure to the benefit and are binding upon
the parties hereto, and to their respective successors and assigns.
11.
Prior to the date hereof, Beta acquired an interest in State Leases No.
16187 and 16188, Sabine Pass Block 3, Offshore Louisiana. Beta and Cheniere
expressly agree that, notwithstanding anything herein or in the Operating
Agreement to the contrary, such State Leases are hereby excluded from the AMI.
12.
The parties agree that this Agreement shall be deemed confidential and
shall not be revealed to any third party except (i) to the extent disclosure may
be required by law, including, without limitation, disclosures in registration
statements or other filings with the Securities and Exchange Commission; (ii)
disclosures in any judicial or alternative dispute resolution proceeding
concerning the terms hereof; (iii) disclosures to bona fide prospective
investors, lenders, successors or assigns of a party, upon such third parties'
execution of a confidentiality agreement in form and substance reasonably
acceptable to the parties hereto; and (iv) disclosures with the written consent
of the other party, which consent shall not be unreasonably withheld.
13.
All assignments of interests by Beta to Cheniere pursuant to this
Agreement shall be made by assignment reasonably acceptable to Cheniere and free
of all claims, burdens or encumbrances by through, or under Beta, other than
royalties, overriding royalties, back-ins or like interests reserved by third
parties in farmout agreements, assignments or grants of such interests to Beta.
If Beta reassigns interests to Cheniere pursuant to this Agreement, then Beta
agrees (i) to maintain the confidentiality of all information in Beta's
possession concerning the Shark Prospect; and (ii) for a period of three (3)
years after the date hereof, not to acquire oil and gas interests (including,
without limitation, leasehold interests, fee mineral interests, net profits
interests, royalty or overriding royalty interests, farmouts or other interests)
covering lands within the Shark Lease Block or the AMI. If, notwithstanding the
foregoing, Beta acquires such interests, then within fourteen (14) days after
receipt of assignments or conveyances of such interests, Beta shall in writing
offer to assign such interests to Cheniere upon Cheniere's payment to Beta of
Beta's acquisition costs therefor, documentation of which shall be furnished by
Beta to Cheniere. Cheniere shall have thirty (30) days after receipt of such
notice in which to elect whether to acquire such interest. If Cheniere does not
tender the purchase price for such interests within such period, Cheniere shall
be deemed to have elected not to acquire such interest. Beta shall deliver
executed and acknowledged assignments of such interests to Cheniere
contemporaneously with Cheniere's payment of the purchase price therefor.
14.
Time is of the essence in the performance of this Agreement.
If the foregoing is your understanding of our agreement, please
evidence your acceptance of this agreement by executing in the space provided
below for your signature.
Sincerely,
CHENIERE ENERGY, INC.
/s/Walter L. Williams
President & CEO
AGREED TO AND ACCEPTED THIS _____ DAY OF _______________, 1999.
BETA OIL AND GAS, INC.
/s/Steve Antry
President & CEO
CHENIERE ENERGY, INC.
TWO ALLEN CENTER
1200 SMITH STREET, SUITE 1740
HOUSTON, TEXAS 77002-4312
(713) 659-1361
FAX: (713) 659-5459
January 6, 1999
Beta Oil & Gas, Inc.
901 Dove Street, Suite 230
Newport Beach, CA 92660
Attention: Mr. Steve Antry, President
Re: Option Agreement
Heron, Stingray, and King Creole Prospects
West Cameron Area, Louisiana
Gentlemen:
Cheniere is the owner of interests in:
(i) the Oil, Gas and Mineral Leases described in Exhibit A-1
attached hereto (the "Heron Leases"), which cover lands
comprising the prospect known to Cheniere as the "Heron
Prospect." The lands covered by the Heron Prospect are
depicted on Exhibit A-2 as the yellow shaded "Lease Block"
(the "Heron Lease Block").
(ii) the Oil, Gas and Mineral Leases described in Exhibit B-1
attached hereto (the "Stingray Leases"), which cover lands
comprising the prospect known to Cheniere as the "Stingray
Prospect." The lands covered by the Stingray Prospect are
depicted on Exhibit B-2 as the yellow shaded "Lease Block"
(the "Stingray Lease Block").
(iii) the Oil, Gas and Mineral Leases described in Exhibit C-1
attached hereto (the "King Creole Leases"), which cover lands
comprising the prospect known to Cheniere as the "King Creole
Prospect." The lands covered by the King Creole Prospect are
depicted on Exhibit C-2 as the yellow shaded "Lease Block"
(the "King Creole Lease Block").
For and in consideration of ONE HUNDRED DOLLARS ($100) and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Cheniere hereby grants to Beta Oil & Gas, Inc. ("Beta") the option
for a period of sixty (60) days after the date hereof to purchase from Cheniere
an undivided fifteen percent (15%) of 8/8ths interest in the Heron Leases,
Stingray Leases and/or King Creole Leases. The purchase prices for the undivided
fifteen percent interest in the Heron Leases, Stingray Leases, and King Creole
Leases, respectively, are:
Heron Leases $255,000
Stingray Leases $100
King Creole $230,000
(the aggregate of such purchase prices being equal to a portion of seismic costs
incurred by Cheniere in connection with such prospects plus 20% of the aggregate
of leasehold acquisition costs incurred Cheniere for the Heron, Stingray and
King Creole Leases). If additional leasehold acquisition costs (including,
without limitation, delay rentals) for the Heron Leases, Stingray Leases or King
Creole Leases are incurred by or billed after the date hereof, then Cheniere
will notify Beta of such additional costs, with supporting documentation, and
the purchase price for the affected Leases shall be adjusted upward by an amount
equal to fifteen percent (15%) of such additional costs.
The option granted herein may be separately exercised by Beta as to the
Heron Leases, Stingray Leases and King Creole Leases, by (i) Beta's payment to
Cheniere of the purchase price(s), as provided above, for the Leases covering
the respective prospect(s) which Beta elects to acquire; and (ii) Beta's
execution and delivery to Cheniere of a prospect agreement, substantially in the
form of Exhibit D attached hereto, for each such prospect Beta elects to
acquire. This option shall terminate if within sixty (60) days after the date
hereof Cheniere has not received from Beta the purchase price and executed
prospect agreement provided above.
If Beta does not exercise its option to acquire an interest in
the Heron, Stingray, or King Creole Leases, then Beta agrees (i) to maintain the
confidentiality of all information in the possession of Beta concerning such
Leases and prospects; and (ii) for a period of three (3) years after the date
hereof, not to acquire oil and gas interests (including, without limitation,
leasehold interests, fee mineral interests, net profits interests, royalty or
overriding royalty interests, farmouts or other interests) covering lands within
the respective Lease Block or the Area of Mutual Interest for the rejected
prospect, as shown in the exhibits hereto. If, notwithstanding the foregoing,
Beta acquires such interests, then within fourteen (14) days after receipt of
assignments or conveyances of such interests, Beta shall by written notice offer
to assign such interests to Cheniere upon Cheniere's payment to Beta of Beta's
acquisition costs therefor, documentation of which shall be furnished by Beta to
Cheniere. Cheniere shall have thirty (30) days after receipt of such notice in
which to elect whether to acquire such interest. If Cheniere does not tender the
purchase price for such interests within such period, Cheniere shall be deemed
to have elected not to acquire such interest. Contemporaneously with Cheniere's
payment of the purchase price therefor, Beta shall deliver executed and
acknowledged assignments of such interests to Cheniere in form and substance
reasonably acceptable to Cheniere, free of all claims or encumbrances by,
through or under Beta.
This Option Agreement may not be assigned by Beta without the prior
written consent of Cheniere, which consent may be withheld by Cheniere at its
sole discretion; provided, however, that this provision shall not apply to
assignments by Beta of leasehold interests acquired upon exercise of its options
hereunder.
The notices provided for in this agreement shall be in writing and
delivered by certified U.S. mail, return receipt requested, telecopy, or
overnight courier or messenger with receipt confirmation, to the addresses
below:
CHENIERE ENERGY, INC.
Two Allen Center
1200 Smith Street, Suite 1740
Houston, TX 77002
Attn: Walter L. Williams
phone (713) 659-1361
fax (713) 659-5459
BETA OIL & GAS, INC.
901 Dove Street, Suite 230
Newport Beach, CA 92660
Attn: Steve Antry
phone (949) 752-5212
fax (949) 752-5757
Notices hereunder shall be deemed made upon receipt.
Time is of the essence in the performance or exercise of this Option
Agreement.
Please indicate your acceptance of the foregoing by signing an original
counterpart of this letter in the space provided below and returning it to me.
Sincerely,
CHENIERE ENERGY, INC.
/s/Walter L. Williams
President & CEO
<PAGE>
AGREED TO AND ACCEPTED THIS _____ DAY OF _______________, 1999.
BETA OIL AND GAS, INC.
/s/Steve Antry
President & CEO
January 25, 1999
BETAustralia, LLC
901 Dove Street, Suite 230
Newport Beach, Ca. 92660
Attention: Chris Steinhauser
Re: ATP 554 P
Queensland, Australia
Gentlemen:
This letter when fully executed, including the terms and provisions provided for
herein, shall constitute an agreement between Dyad - Australia, Inc. (Dyad) and
BETAustralia LLC (Beta).
Dyad - Australia, Inc. is the holder of an exploration permit described as
Authority to Prospect 554P in Queensland, Australia. The permit covers an area
of 35 blocks as described in Exhibit A attached hereto.
Dyad has entered into an agreement with Duke Energy International of Brisbane,
Queensland for the funding of additional seismic data acquisition and the
drilling of an exploration well. Under the terms of the agreement with Duke
Energy, a copy of which is attached and made a part of this agreement, Dyad -
Australia will have the opportunity to buy into the exploratory well on a cost
only basis and after the well has been drilled and evaluated. Dyad also has the
option of postponing its buy-in until later stages in the development program.
The exact terms are more fully described in the agreement between Duke and Dyad.
Subject to the terms of this agreement Dyad agrees to assign to Beta 20% of
Dyad's rights under the first and subsequent Dyad Buy-In Options set out on page
2 and 3 of the Duke agreement specifically reserving to Dyad the existing 8%
royalty interests covered in the Duke agreement under "Existing Royalties." For
example, assuming Dyad and its group of investors elects to buy in at Stage 1 of
the program, thereby acquiring a 50% interest, the net working interest to Beta
shall be 10% (20% x 50%).
Should the Dyad group elect to acquire an economic interest under Stage 2 of the
Duke agreement, Beta's interest shall be 20% of that acquired interest.
(i.e.:20% x Interest.)
Assignment of the above described interest is subject to the following terms and
conditions:
1. Beta agrees to pay Dyad - Australia, Inc. a sum of US
$100,000 at the time this letter agreement is
executed and delivered to Dyad.
2. An Operating Agreement between Dyad-Australia, Inc.,
as Operator, or a third party acceptable to Dyad and
Duke, as Operator, and Duke, as Non-Operator, the
terms and conditions of which Operating Agreement are
to be negotiated by and mutually acceptable to Dyad
and Duke, at their sole discretion.
<PAGE>
1. The election to either buy into the exploratory well and prospect at
Stage 1 of the Duke agreement or at some point in Stage 2, shall be by
a vote of the majority of the interest owners based on their
percentage of ownership in the Duke agreement. The parties to this
agreement and their percentage of ownership are set out in Exhibit
"A." Each party shall have 10 days after receipt of written notice by
Dyad of the election to or not to Buy-In pursuant to the Duke
agreement. Failure of a party to forward its ballot within the 10-day
period shall be deemed a vote not to Buy-In.
3. In the event the majority percentage of ownership elects to
participate in a Buy-In under the Duke agreement, Dyad will give each
party voting against said Buy-In the chance to participate in the
decision of the majority by giving Dyad written notice of its election
to participate in the Buy-In within 5 days of notice from Dyad of the
election results. In the event said party still does not wish to
participate in the majority decision or fails to respond to the
election notice within said 5-day period, the non-participating party
shall forfeit all of his, her and/or its interest in all rights in the
Duke agreement and agrees to execute any documents reflecting said
forfeiture. Thereafter, each participating party, after receipt of
written notice from Dyad, shall advise Dyad, within 5 days of written
notice from Dyad, of its desire to (a) limit its ownership in the
agreement to the interest reflected on Exhibit "A" or (b) assume its
proportionate part of the non-participating parties' interest. Failure
to advise Dyad shall be deemed an election to limit the participating
party to its original interest. Following the election to purchase an
economic interest under the Duke agreement and subsequent election to
or not to bear more interest, Dyad will invoice each participating
party for his, her and or its proportionate share of all costs,
including any additional share assumed from the forfeited interest.
Thereafter, each party shall have 30 days after receipt of said
invoice within which to pay the invoice amount either by wire transfer
and/or cashier's check. In the event any party fails to make the
required payment within 5 days after written notification of said
party's failure to make the payment within the 30-day period, said
party shall forfeit all of his, her and/or its interest in all rights
in the Duke agreement and agrees to execute any documents reflecting
said forfeiture.
4. The interest herein conveyed is subject to a 10% royalty to the State
of Queensland, Australia and a total of 8% overriding royalty which is
further described in the Duke agreement under "Existing Royalties".
6. A preferential right to purchase is retained by Dyad - Australia, Inc.
with respect to the sale or transfer of the interest here-in conveyed.
A party desiring to sell any or all of its interest created under this
agreement shall notify Dyad - Australia in writing of the name of
purchaser and the terms of the proposed sale. Dyad shall have a period
of 30 days in which to purchase the interest under the same terms and
price or elect not to acquire the interest. Specifically excluded from
the preferential right to purchase is the transfer of interest to a
subsidiary or affiliate of Beta.
7. Any expenses incurred by Dyad in the management and administration of
the subject venture including a $250 per month overhead fee shall be
reimbursed proportionally to Dyad by the parties to this agreement.
8. This agreement shall be construed, governed and enforced by the laws
of the County of Midland, State of Texas, and all payments are payable
in Midland County, Texas unless otherwise instructed by Dyad.
<PAGE>
If the foregoing terms are acceptable please indicate Beta's acceptance by
returning an executed notarized copy of this agreement to Dyad's office's within
15 days of the above date.
Sincerely yours,
DYAD - AUSTRALIA, INC.
/s/Tom D. Dyches
President
- -------------------------------
BETA OIL & GAS, INC.
By:/s/Steve Antry Title: President
STATE OF _________________________ ss.
ss.
COUNTY OF________________________ ss.
BEFORE Me, the undersigned authority, on this day personally appeared
__________________________________, known to me to be the person whose name is
subscribed to the foregoing instrument, as_____________________________
of_______________________________ and acknowledged to me that He executed the
same for the purposes and consideration therein expressed, in the capacity
stated, and as the act and deed of said corporation. Given under my hand and
seal of office this the _____ day of_______________, 19_____.
- -------------------------------
Notary
Public
NOTE AND COMMON STOCK PURCHASE AGREEMENT
This NOTE AND COMMON STOCK PURCHASE AGREEMENT
("Agreement") is entered into as of January 20, 1999, by and between
BETA OIL & GAS, INC., a Nevada corporation (the "Company"), with
headquarters located at 901 Dove Street, Suite 230, Newport Beach,
California 92660 and the purchasers (the "Purchasers") set forth on the
execution pages hereof, with regard to the following:
RECITALS
A. The Company and Purchasers are executing and
delivering this Agreement in reliance upon the exemption from
securities registration afforded by the provisions of Regulation D
("Regulation D"), as promulgated by the United States Securities and
Exchange Commission (the "SEC") under the Securities Act of 1933 as
amended (the "Securities Act").
B. Purchasers desire to purchase, upon the terms and
conditions stated in this Agreement, Secured Promissory Notes ("Notes")
and shares of the Company's Common Stock, $.001 par value (the "Common
Stock"). The shares of Common Stock issuable hereunder are referred to
herein as the Common Shares. The Notes and Common Shares are sometimes
referred to herein jointly as the "Securities."
C. Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a
Registration Rights Agreement in the form attached hereto as Exhibit A
(the "Registration Rights Agreement"), pursuant to which the Company
has agreed to provide certain registration rights under the Securities
Act, the rules and regulations promulgated thereunder and applicable
state securities laws and a Security Agreement in the form attached
hereto as Exhibit B (the "Security Agreement") pursuant to which the
Company has agreed to grant the Purchasers a security interest in its
assets.
AGREEMENTS
NOW, THEREFORE, in consideration of their respective promises
contained herein and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Company and
Purchasers hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF NOTES AND COMMON STOCK
1.1 Purchase of Notes and Common Shares. Subject to the terms and
conditions of this Agreement, the issuance, sale and purchase of the
Notes and Common Shares shall be consummated in a "Closing". On the
date of the Closing ("Closing Date"), subject to the satisfaction or
waiver of the conditions set forth in Articles V and VII, the Company
shall issue and sell to each Purchaser, and each Purchaser severally
agrees to purchase from the Company, Notes of the Company in the amount
set forth on the signature page executed by such Purchaser. The Notes
shall be in the form of Exhibit C hereto. Each Purchaser's obligation
to purchase Notes hereunder is distinct and separate from each other
Purchasers obligation to purchase, and no Purchaser shall be required
to purchase hereunder more than the amount of Notes set forth on such
Purchaser's signature page. The obligations of the Company with respect
to each Purchaser shall be separate from the obligations of each other
Purchaser and shall not be conditioned as to any Purchaser upon the
performance of obligations of any other Purchaser.
1.2 Security Agreement. Concurrently with the sale of the Notes, the
Company and the Investors shall execute the Security Agreement. In
addition, the Company shall take any action reasonably requested by
Purchaser in connection with Purchaser's preparation and filing of UCC
Form 1 Financing Statements and similar documents.
1.3 Issuance of Common Shares. Concurrently with the sale of the Notes, the
Company shall issue to each Purchaser Common Shares. The Common Shares
issuable shall be determined as provided herein.
A. Closing Date Common Shares. On the Closing Date, the
Company shall issue to each Purchaser that number of Common Shares
determined by multiplying the amount of the Notes issued to such
Purchaser by 15% (the "Coverage Percentage"). By way of example if a
Purchaser invested $ 2,000,000 in Notes, such Purchaser would be issued
300,000 Common Shares ($2,000,000 x 15% = 300,000).
B. Additional Common Shares. If any portion of the principal
of the Note remains unpaid on the 180th, 210th, 240th, 270th, 300th,
and/or the 330th day following the Closing Date, then on the day
following any of such dates, the Company shall issue to each holder of
Notes, that number of Common Shares determined by the above formula and
a Coverage Percentage, in each instance, of 2.5%. For example, if
$1,000,000 of principal remains unpaid on the 180th day following the
Closing Date, then on the following day the Purchasers would be issued
an additional 25,000 Common Shares ($1,000,000 x 2.5%=25,000).
C. INTENTIONALLY LEFT BLANK.
1.4 Form of Payment. Each Purchaser shall pay the aggregate
Purchase Price for the Notes and Common Shares being purchased by such
Purchaser by wire transfer to the account designated by the Company.
1.5 Closing Date. Subject to the satisfaction (or waiver) of
the conditions set forth in Articles VI and VII below, the date and
time of the issuance, sale and purchase of the Notes and Common Shares
pursuant to this Agreement shall be at 10:00 a.m. California time, on
January 20, 1999 when usable funds have been received by the Company.
ARTICLE II
PURCHASERS REPRESENTATIONS AND
WARRANTIES
Each Purchaser represents and warrants as of the date hereof
and as of the Closing, severally and solely with respect to itself and
its purchase hereunder and not with respect to any other Purchaser or
the purchase hereunder by any other Purchaser (and no Purchaser shall
be deemed to make or have any liability for any representation or
warranty made by any other Purchaser) to the Company as set forth in
this Article II. No Purchaser makes any other representations or
warranties, express or implied, to the Company in connection with the
transactions contemplated hereby and any and all prior representations
and warranties, if any, which may have been made by a Purchaser to the
Company in connection with the transactions contemplated hereby shall
be deemed to have been merged in this Agreement and any such prior
representations and warranties, if any, shall not survive the execution
and delivery of this Agreement.
2.1 Investment Purpose. Purchaser is purchasing the Securities
for Purchaser's own account for investment only and not with a view
toward or in connection with the public sale or distribution thereof.
Purchaser will not, directly or indirectly. offer, sell, pledge
(subject to Section 4.11) or otherwise transfer its Securities or any
interest therein except pursuant to transactions that are exempt from
the registration requirements of the Securities Act and/or sales
registered under the Securities Act. Purchaser understands that
Purchaser must bear the economic risk of this investment indefinitely,
unless the Securities are registered pursuant to the Securities Act and
any applicable state securities laws or an exemption from such
registration is available, and that the Company has no present
intention of registering any such Securities other than contemplated by
the Registration Rights Agreement. By making the representations in
this Section 2.1, Purchaser does not agree to hold the Securities for
any minimum or other specific term (except as otherwise provided
herein) and reserves the right to dispose of the Securities at any time
in accordance with or pursuant to a registration statement or an
exemption from registration under the Securities Act and any applicable
state securities laws.
2.2 Qualified Institutional Buyer. Purchaser is a "Qualified
Institutional Buyer" as that term is defined in Rule 144(a) of the
Securities Act of 1933 and Purchaser has indicated on the Confidential
Prospective Investor Questionnaire attached hereto as Exhibit E in
which capacity that it so qualifies as a "Qualified Institutional
Buyer".
2.3 Reliance on Exemptions. Purchaser understands that the
Securities are being offered and sold to Purchaser in reliance upon
specific exemptions from the registration requirements of United States
federal and state securities laws and that the Company is relying upon
the truth and accuracy of, and Purchaser's compliance with, the
representations, warranties. agreements, acknowledgments and
understandings of Purchaser set forth herein in order to determine the
availability of such exemptions and the eligibility of Purchaser to
acquire the Securities
2.4 Information. Purchaser or its counsel have been furnished
all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Securities
which have been specifically requested by Purchaser, including without
limitation the Company's Form S-1 Registration Statement Dated November
16, 1998 filed with the Securities and Exchange Commission ("SEC") on
December 4, 1998. Purchaser has been afforded the opportunity to ask
questions of the Company and has received what Purchaser believes to be
complete and satisfactory answers to any such inquiries. Purchaser
understands that Purchaser's investment in the Securities involves a
high degree of risk, including without limitation the risks and
uncertainties disclosed in the SEC Document.
2.5 Governmental Review. Purchaser understands that no United
States federal or state agency or any other government or governmental
agency has passed upon or made any recommendation or endorsement of the
Securities.
2.6 Transfer or Resale. Purchaser understands that (i)
except as provided in the Registration Rights Agreement, the Securities
have not been and are not being registered under the Securities
and/or any state securities laws, and may not be offered, sold,
pledged (subject to Section 4.11 of this Agreement) or otherwise
transferred unless subsequently registered thereunder or an
exemption from such registration is available (which exemption the
Company expressly agrees may be established as contemplated in clauses
(b) and (c) of Section 5.1 hereof); (ii) any sale of such Securities
made in reliance on Rule 144 under the Securities Act (or a successor
rule) ("Rule 144") may be made only in accordance with the terms of
Rule 144 and further, if Rule 144 is not applicable, any resale
of such Securities without registration under the Securities Act
under circumstances in which the seller may be deemed to be an
underwriter (as that term is defined in the Securities Act) may require
compliance with some other exemption under the Securities Act or
the rules and regulations of the SEC thereunder in order for such
resale to be allowed, and (iii) neither the Company nor any other
person is under any obligation to register such Securities under the
Securities Act or any state securities laws or to comply with the
terms and conditions of any exemption thereunder (in each case,
other than pursuant to this Agreement or the Registration Rights
Agreement).
2.7 Legends. Purchaser understands that, subject to Article V
hereof, until such time as the Securities have been registered under
the Securities Act as contemplated by the Registration Rights Agreement
or otherwise may be sold by Purchaser pursuant to Rule 144 (subject to
and in accordance with the procedures specified in Article V hereof)
the certificates for the Securities will bear a restrictive legend (the
"Legend") in the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE
SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE
SECURITIES LAWS OR UNLESS OFFERED, SOLD OR TRANSFERRED
PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS. THESE SECURITIES ARE ALSO SUBJECT
TO THE TERMS OF A SECURITIES PURCHASE AGREEMENT DATED JANUARY
20, 1999 A
COPY OF WHICH IS AVAILABLE FROM BETA OIL & GAS, INC.
2.8 Authorization: Enforcement. This Agreement, the Registration
Rights Agreement and the Security Agreement have been duly and validly
authorized, executed and delivered on behalf of Purchaser and are valid and
binding agreements of Purchaser enforceable in accordance with their
respective terms, except to the extent that such validity or enforceability
may be subject to or affected by any bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of creditors' rights or remedies of
creditors generally or by other equitable principles of general
application.
2.9 Residency. Purchaser is a resident of the jurisdiction set forth
under Purchaser's name on the signature page hereto executed by Purchaser.
2.10 No Brokers. Except for an Agreement between the Company and
Hagerty, Stewart & Associates, Inc. ("Hagerty Stewart") and the issuance of
25,000 shares of Common Stock to Scorpion Energy Partners, the Purchasers
have taken no action which would give rise to any claim by any person for
brokerage commission, finder fees or similar payments relating to this
Agreement or the transaction contemplated hereby.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to each Purchaser as of the date hereof and
as of the Closing that:
3.1 Organization and Qualification. Except as set forth on Schedule 3.1.
each of the Company and its subsidiaries is a corporation duly organized and
existing in good standing under the laws of the jurisdiction in which it is
incorporated, and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. The Company and each of its
subsidiaries is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction where the failure so to qualify or be in
good standing would have a Material Adverse Effect. "Material Adverse Effect"
means any effect which, individually or in the aggregate with all other effects,
reasonably would be expected to be materially adverse to the business,
operations, properties, financial condition, operating results or prospects of
the Company and its subsidiaries, taken as a whole on a consolidated basis or on
the transactions contemplated hereby.
3.2 Authorization: Enforcement. (a) The Company has the requisite
corporate power and authority to enter into and perform this Agreement, the
Registration Rights Agreement and the Security Agreement, and to issue, sell and
perform its obligations with respect to the Securities in accordance with the
terms hereof and thereof; (b) the execution, delivery and performance of this
Agreement, the Registration Rights Agreement and the Security Agreement by the
Company and the consummation by it of the transactions contemplated hereby and
thereby (including, without limitation, the issuance of the Securities) have
been duly authorized by all necessary corporate action and, no further consent
or authorization of the Company, its board of directors, or its shareholders or
any other person, body or agency is required with respect to any of the
transactions contemplated hereby or thereby (whether under rules of the Nasdaq
National Market, the Nasdaq Small Cap Market, the National Association of
Securities Dealers, Inc. ("NASD") or otherwise); (c) this Agreement, the
Registration Rights Agreement, the Security Agreement and certificates for the
Notes and Common Shares have been duly executed and delivered by the Company;
and (d) this Agreement, the Registration Rights Agreement, and the Secured
Promissory Notes and Common Shares constitute legal, valid and binding
obligations of the Company enforceable against the Company in accordance with
their respective terms, except (i) to the extent that such validity or
enforceability may be subject to or affected by any bankruptcy, insolvency.
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditor's rights or remedies of
creditors generally, or by other equitable principles of general application,
and (ii) as rights to indemnity and contribution under the Registration Rights
Agreement may be limited by Federal or state securities laws. The Company has
duly reserved all Common Shares from time to time issuable under the terms of
this agreement.
3.3 Capitalization. The capitalization of the Company as of the date
hereof, including the authorized capital stock, the number of shares issued and
outstanding, the number of shares reserved for issuance pursuant to the
Company's stock option plans, the number of shares reserved for issuance
pursuant to securities exercisable for, or convertible into or exchangeable for
any shares of Common Stock is set forth on Schedule 3.3. All of such outstanding
shares of capital stock have been, or upon issuance following full payment
therefor will be, validly issued, fully paid and nonassessable. No shares of
capital stock of the Company are subject to preemptive rights or any other
similar rights of the shareholders of the Company or any liens or encumbrances.
Except as disclosed in Schedule 3.3, as of the date of this Agreement, (i) there
are no outstanding options, warrants, scrip, rights to subscribe for, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exercisable or exchangeable for, any shares of capital stock
of the Company or any of its subsidiaries, or contracts, commitments,
understandings or arrangements by which the Company or any of its subsidiaries
is or may become bound to issue additional shares of capital stock of the
Company or any of its subsidiaries, and (ii) issuance of the Common shares will
not trigger antidilution rights for any other outstanding or authorized
securities of the Company, and (iii) there are no agreements or arrangements
under which the Company or any of its subsidiaries is obligated to register the
sale of any of its or their securities under the Securities Act (except the
Registration Rights Agreement and what is set forth on Schedule 3.3). The
Company has furnished to Purchaser true and correct copies of the Company's
Articles of Incorporation as in effect on the date hereof ("Articles of
Incorporation"), and the Company's By-laws as in effect on the date hereof (the
"By-laws"). The Company has set forth on Schedule 3.3 all instruments and
agreements (other than the Certificate of Incorporation and By-laws) governing
securities convertible into or exercisable or exchangeable for Common Stock of
the Company (and the Company shall provide to Purchaser copies thereof upon the
request of Purchaser).
3.4 Issuance of Shares. The Common Shares are duly authorized and
reserved for issuance, and following full payment therefor, will be validly
issued, fully paid and non-assessable, and free from all taxes, liens, claims
and encumbrances imposed or suffered by the Company and will not be subject to
preemptive rights or other similar rights of shareholders of the Company.
3.5 No Conflicts. The execution, delivery and performance of this
Agreement, the Registration Rights Agreement and the Security Agreement by the
Company, and the consummation by the Company of transactions contemplated hereby
and thereby (including, without limitation, the issuance of the Securities) do
not and will not (a) result in a violation of the Articles of lncorporation or
By-laws or (b) conflict with, or constitute a default (or an event which, with
notice or lapse of time or both, would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of any
agreement indenture or instrument to which the Company or any of its
subsidiaries is a party, or to the best knowledge of the Company, result in a
violation of any law, rule, regulation, order, judgment or decree (including
U.S. federal and state securities laws and regulations and the rules and
regulations of NASDAQ) applicable to the Company or any of its subsidiaries, or
by which any property or asset of the Company or any of its subsidiaries, is
bound or affected (except for such possible conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect). Except as set
forth in Schedule 3.5, neither the Company nor any of its subsidiaries is in
violation of its Articles of Incorporation or other organizational documents,
and neither the Company nor any of its subsidiaries, is in default (and no event
has occurred which has not been waived which, with notice or lapse of time or
both, would put the Company or any of its subsidiaries in default) under, nor
has there occurred any event giving others (with notice or lapse of time or
both) any rights of termination, amendment, acceleration or cancellation of, any
agreements indenture or instrument to which the Company or any of its
subsidiaries is a party, except for possible violations, defaults or rights as
would not, individually or in the aggregate, have a Material Adverse Effect. The
businesses of the Company and its subsidiaries are not being conducted. and
shall not be conducted so long as purchaser owns any of the Securities, in
violation of any law, ordinance or regulation of any governmental entity, except
for possible violations the sanctions for which either individually or in the
aggregate would not have a Material Adverse Effect. Except as set forth on
Schedule 3.5, or except (A) such may be required under the Securities Act in
connection with the performance of the Company's obligations under the
Registration Rights Agreement, (B) filing of a Form D with the SEC, (C)
compliance with the state securities or Blue Sky laws of applicable
jurisdictions, and (D) as required by Nasdaq, the Company is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency or any regulatory or
self-regulatory agency in order for it to execute deliver or perform any of its
obligations under this Agreement or the Registration Rights Agreement or to
perform its obligations in accordance with the terms hereof or thereof.
3.6 SEC Documents. The Company is not presently subject to the
reporting requirements of the Securities Exchange Act of 1934 (the
"Exchange Act"). The Company has filed with the principal office of the
Securities and Exchange Commission (the "Commission") in Washington, DC,
and a Registration Statement on Form S-1 (thethe 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. At such time
that this Registration Statement becomes effective, the Company intends to
register under the Exchange Act. Upon effectiveness, 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.As of its date, the
Registration Statement complied in all material respects with the
requirements of the Securities Act and the rules and regulations of the SEC
promulgated thereunder applicable to the Registration Statement, and the
Registration Statement, at the time it was filed with the SEC, did not
contain any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. None of the statements made in the Registration
Statement which is required to be updated or amended under applicable law
has not been so updated or amended except for the disclosures which will be
required as a result of this Agreement, the Company's joint exploration
agreements with Cheniere Energy, Inc., "Plain English" Disclosures required
by the SEC and any SEC legal and accounting comments and resultant changes
which will be required by the SEC upon their review of the Registration
Statement. The financial statements of the Company included in the
Registration Statement have been prepared in accordance with U.S. generally
accepted accounting principles, consistently applied, and the rules and
regulations of the SEC during the periods involved except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they do not
include footnotes or are condensed or summary statements) and present
accurately and completely the consolidated financial position of the
Company and its consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments). Except as set forth in a manner clearly
evident to a sophisticated institutional investor in the financial
statements or the notes thereto of the Company included in the Registration
Statement, the Company has no liabilities, contingent or otherwise, other
than (i) liabilities incurred in the ordinary course of business consistent
with past practice subsequent to the date of such financial statements and
(ii) obligations under contracts and commitments incurred in the ordinary
course of business consistent with past practice and not required under
generally accepted accounting principles to be reflected in such financial
statements, in each case of clause (i) and (ii) next above which,
individually or in the aggregate, are not material to the financial
condition, business, operations, properties, operating results or prospects
of the Company and its subsidiaries. To the extent required by the rules of
the SEC applicable thereto, the Registration Statement contains a complete
and accurate list of all material undischarged written or oral contracts,
agreements, leases or other instruments to which the Company or any
subsidiary is a party or by which the Company or any subsidiary is bound or
to which any of the properties or assets of the Company or any subsidiary
is subject (each a "Contract"). Except as set forth in Schedule 3.6, none
of the Company, its subsidiaries or, to the best knowledge of the Company,
any of the other parties thereto, is in breach or violation of any Contract
which breach or violation would have a Material Adverse Effect. No event,
occurrence or condition exists which, with the lapse of time, the giving of
notice, or both, would become a default by the Company or its subsidiaries
thereunder which would have a Material Adverse Effect. The Company has not
provided to any Purchaser any material non-public information or any other
information which, according to applicable law, rule or regulation, should
have been disclosed publicly by the Company but which has not been so
disclosed.
3.7 Absence of Certain Changes. Since September 30, 1998, there has
been no material adverse change and no material adverse development in the
business, properties, operations, financial condition, results of operations or
prospects of the Company, except as disclosed in Schedule 3.7 or clearly evident
to a sophisticated institutional investor from the Registration Statement.
3.8 Absence of Litigation. Except as disclosed in Schedule 3.8 or as
clearly evident to a sophisticated institutional investor from the Registration
Statement, there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board, government agency, or self-regulatory
organization or body pending or, to the knowledge of the Company or any of its
subsidiaries, threatened against or affecting the Company, any of its
subsidiaries or any of their respective directors or officers in their
capacities as such, which could reasonably be expected to result in an
unfavorable decision, ruling or finding which would have a Material Adverse
Effect or would adversely affect the transactions contemplated by this Agreement
or any of the documents contemplated hereby or which would adversely affect the
validity or Enforceability of, or the authority or ability of the Company to
perform its obligations under, this Agreement or any of such other documents.
There are no facts known to the Company which, if known by a potential claimant
or governmental authority, could reasonably be expected to give rise to a claim
or proceeding which, if asserted or conducted with results unfavorable to the
Company or any of its subsidiaries, could reasonably be expected to have a
Material Adverse Effect.
3.9 Disclosure. No information relating to or concerning the Company set
forth in this Agreement contains an untrue statement of a material fact. No
information relating to or concerning the Company set forth in the Registration
Statement contains a statement of material fact that was untrue as of the date
the Registration Statement was filed with the SEC. The Company has not omitted
to state a material fact necessary in order to make the statements made herein
or herein, in light of the circumstances under which they were made, not
misleading. Except for the execution and performance of this Agreement and the
Company's joint exploration agreements with Cheniere Energy, Inc., no material
fact (within the meaning of the federal securities laws of the United States and
of applicable state securities laws) exists with respect to the Company which
has not been publicly disclosed which requires such disclosure.
3.10 Acknowledgment Regarding Purchaser's Purchase of the Securities.
The Company acknowledges and agrees that Purchaser is not acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with respect to
this Agreement or the transactions contemplated hereby, that this Agreement and
the transaction contemplated hereby, and the relationship between each Purchaser
and the Company, are "arms-length", and that any statement made by Purchaser
(except as set forth in Article II), or any of its representatives or agents, in
connection with this Agreement and the transactions contemplated hereby is not
advice or a recommendation, is merely incidental to Purchaser's purchase of the
Securities and has not been relied upon as such in any way by the Company, its
officers or directors, The Company further represents to Purchaser that the
Company's decision to enter into this Agreement and the transactions
contemplated hereby have been based solely on an independent evaluation by the
Company and its representatives.
3.11 S-3 Registration. The Company is currently not eligible to
register the Common Shares on a registration statement on Form S-3 under the
Securities Act.
3.12 No General Solicitation. Neither the Company nor any distributor
participating on the Company's behalf in the transactions contemplated hereby
(if any) nor any person acting for the Company, or any such distributor, has
conducted any "general solicitation," as described in Rule 502(c) under
Regulation D, with respect to any of the Securities being offered hereby.
3.13 No Integrated Offerings. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would prevent the parties hereto from
consummating the transactions contemplated hereby pursuant to an exemption from
the registration under the Securities Act pursuant to the provisions of
Regulation D. The transactions contemplated hereby are exempt from the
registration requirements of the Securities Act, assuming the accuracy of the
representations and warranties herein contained of each Purchaser.
3.14 No Brokers. The Company and the Purchasers acknowledge that the
Company has entered into an Agreement with Hagerty Stewart pursuant to which the
Company will pay Hagerty Stewart a fee in connection with the transactions
contemplated hereby. In addition, the Company has agreed to issue 25,000 shares
of its Common Stock to Scorpion Holdings, Inc. in connection with this
transaction. Except for the aforementioned agreements with Hagerty Stewart and
Scorpion Holdings, Inc., the Company has taken no action which would give rise
to any claim by any person for brokerage commissions, finder's fees or similar
payments relating to this Agreement or the transactions contemplated hereby.
3.15 INTENTIONALLY LEFT BLANK.
3.16 Key Employees. Each Key Employee as listed on Schedule 3.16 is
currently serving the Company in the capacity disclosed in Schedule 3.16. No Key
Employee, to the best of the knowledge of the Company and its subsidiaries, is,
or is now expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each Key Employee does not subject the
Company or any of its subsidiaries to any liability with respect to any of the
foregoing matters. No Key Employee has, to the best of the knowledge of the
Company and its subsidiaries, any intention to terminate his employment with; or
services to, the Company or any of its subsidiaries.
3.17 Rights Plan. The Company does not have in effect a shareholders
rights plan or similar plan in the nature of a "poison pill" except what is
disclosed in the Registration Statement.
ARTICLE IV
COVENANTS
4.1 Best Efforts. The parties shall use their best efforts to timely
satisfy each of the conditions described in Articles VI and VII of this
Agreement.
4.2 Securities Laws. The Company agrees to file a Form D with respect to
the Securities with the SEC as required under Regulation D and to provide a copy
thereof to each Purchaser within fifteen (15) days after the date of closing.
The Company shall, on or prior to the date of Closing, take such action as is
necessary to sell the Securities to each Purchaser under applicable securities
laws of the states of the United States, and shall provide evidence of any such
action so taken to each Purchaser on or prior to the date of the Closing.
4.3 Reporting Status. The Company is not presently subject to the reporting
requirements of the Securities Exchange Act of 1934 (the "Exchange Act"). 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"). At such time that the Registration Statement
becomes effective, the Company intends to file for registration under the 1934
Exchange Act and will become subject to the reporting requirements of the
Exchange Act. For the period ending two (2) years from the Closing, (a) the
Company shall then timely file all reports required to be filed with the SEC
pursuant to the Exchange Act, and the Company shall not terminate its status as
an issuer required to file reports under the Exchange Act even if the Exchange
Act or the rules and regulations thereunder would permit such termination, and
(b) the Company will maintain its ability to register its Common Stock on Form
S-3 if, and at such time, the Company becomes eligible to use Form S-3.
4.4 INTENTIONALLY LEFT BLANK
4.5 INTENTIONALLY LEFT BLANK
4.6 Information. For the period ending two (2) years from the Closing, the
Company agrees to send the following reports to each Purchaser until such
Purchaser transfers, assigns or sells all of its Securities in transactions in
which the transferee is (unless such transferee is an affiliate of the Company)
not subject to securities law resale restrictions: (a) within ten (10) business
days after the filing with the SEC, a copy of its Annual Report on Form 10-K,
its Quarterly Reports on Form 10-Q, any proxy statements and any Current Reports
on Form 8-K; and (b) within one (1) business day after release, copies of all
press releases issued by the Company or any of its subsidiaries. The Company
further agrees to promptly provide to any Purchaser any information with respect
to the Company, its properties, or its business or Purchasers investment as such
Purchaser may reasonably request; provided, however. that the Company shall not
be required to give any Purchaser any material nonpublic information. If any
information requested by a Purchaser from the Company contains material
nonpublic information, the Company shall inform the Purchaser in writing that
the information requested contains material nonpublic information and shall in
no event provide such information to Purchaser without the express written
consent of such Purchaser after being so informed.
4.7 Listing. For the period ending two (2) years from the Closing, the
Company shall use its reasonable best efforts to obtain and then continue the
uninterrupted quotation and trading of its Common Stock on the Nasdaq SmallCap
Market or the Nasdaq NMS; and, if so quoted and traded, comply in all respects
with the Company's reporting, filing and other obligations under the By-laws or
rules of the Nasdaq Small Cap Market or the Nasdaq NMS, as applicable.
4.8 Prospectus Delivery Requirement. Each Purchaser understands that the
Securities Act may require delivery of a prospectus relating to the Common Stock
in connection with any sale thereof pursuant to a registration statement under
the Securities Act covering the resale by such Purchaser of the Common Stock
being sold, and each Purchaser shall comply with the applicable prospectus
delivery requirements of the Securities Act in connection with any such sale.
4.9 Corporate Existence. For the period ending two (2) years from the
Closing, the Company shall maintain its corporate existence, except in the event
of a merger, consolidation or sale of all or substantially all of the Company's
assets, as long as the surviving or successor entity in such transaction (i)
assumes the Company's obligations hereunder and under the agreements and
instruments entered into in connection herewith and (ii) is a publicly traded
corporation whose common stock is listed for trading on the NASDAQ, the New York
Stock Exchange, the Pacific Stock Exchange or the American Stock Exchange.
4.10 INTENTIONALLY LEFT BLANK.
4.11 Pledging and Margining. Notwithstanding anything in this Agreement to
the contrary and assuming such Common Shares are eligible to be margined under
applicable regulations, Purchaser may pledge, margin or otherwise encumber the
Common Shares unless the result of any such activity would be that such Common
Shares would be available for lending and/or borrowing in connection with short
sales of the Common Stock by any third party.
4.12 INTENTIONALLY LEFT BLANK.
4.13 Use of Proceeds. The Company will use the proceeds of the sale of the
Securities for working capital or such other purposes as management of the
Company's Board of Directors shall determine.
4.14 INTENTIONALLY LEFT BLANK.
ARTICLE V
LEGEND REMOVAL, TRANSFER, AND CERTAIN SALES
5.1 Removal of Legend. The Legend shall be removed and the Company shall
issue a certificate without such Legend to the holder of any Security upon which
it is stamped, and a certificate for a security shall be originally issued
without the Legend, if. (a) the sale of such Security is registered under the
Securities Act, (b) such holder provides the Company with an opinion of counsel,
in form, substance and scope customary for opinions of counsel in comparable
transactions and reasonably satisfactory to the Company and its counsel (the
reasonable cost of which shall be borne by the Company if neither an effective
registration statement under the Securities Act nor Rule 144 is available in
connection with such sale) to the effect that a public sale or transfer of such
Security may be made without registration under the Securities Act pursuant to
an exemption from such registration requirements, (c) such Security can be sold
pursuant to Rule 144 and the holder provides the Company with reasonable
assurances that the Security can be so sold without restriction or (d) such
Security can be sold pursuant to Rule 144(k). Each Purchaser agrees to sell all
Securities, including those represented by a certificate(s) from which the
Legend has been removed, or which were originally issued without the Legend,
pursuant to an effective registration statement, in accordance with the manner
of distribution described in such registration statement and to deliver a
prospectus in connection with such sale, or in compliance with an exemption from
the registration requirements of the Securities Act. In the event the Legend is
removed from any Security or any Security is issued without the Legend and the
Security is to be disposed of other than pursuant to the registration statement
or pursuant to Rule 144, then prior to, and as a condition to, such disposition
such Security shall be relegended as provided herein in connection with any
disposition if the subsequent transfer thereof would be restricted under the
Securities Act, Also, in the event the Legend is removed from any Security or
any Security is issued without the Legend and thereafter the effectiveness of a
registration statement covering the resale of such Security is suspended or the
Company determines that a supplement or amendment thereto is required by
applicable securities laws, then upon reasonable advance notice to Purchaser
holding such Security, the Company may require that the Legend be placed on any
such Security that cannot then be sold pursuant to an effective registration
statement or Rule 144 or with respect to which the opinion referred to in clause
(b) next above has not been rendered, which Legend shall be removed when such
Security may be sold pursuant to an effective registration statement or Rule 144
or such holder provides the opinion with respect thereto described in clause (b)
next above.
5.2 Transfer Agent Instructions. The Company shall or shall instruct its
transfer agent to issue certificates, registered in the name of each Purchaser
or its nominee, for the Securities. Such certificates shall bear the Legend only
to the extent provided by Section 5.1 above. The Company covenants that no
instruction other than such instructions referred to in the Article V, and stop
transfer instructions to give effect to Section 2.6 hereof in the case of the
Securities prior to registration of the Securities under the Securities Act,
will be given by the Company to its transfer agent and that the securities shall
otherwise be freely transferable on the books and records of the Company.
Nothing in this section shall affect in any way each Purchaser's obligations and
agreement et forth in Section 5.1 hereof to resell the Securities pursuant to an
effective registration statement and to deliver a prospectus in connection with
such sale or in compliance with an exemption from the registration requirements
of applicable securities laws. If (a) a Purchaser provides the Company with an
opinion of counsel in comparable transactions and reasonably satisfactory to the
Company and its counsel (the reasonable cost of which shall be borne by the
Company if neither an effective registration statement under the Securities Act
nor Rule 144 is available in connection with such sale), to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption form registration or (b) a Purchaser transfers Securities to an
affiliate which is an accredited investor (within the meaning of Regulation D
under the Securities Act) and which delivers to the Company in written form the
same representations, warranties and covenants made by Purchaser hereunder or
pursuant to Rule 144, the Company shall permit the transfer, and, in the case of
the Securities, issue or promptly instruct its transfer agent to issue one or
more certificates in such name and in such denomination as specified by such
Purchaser. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to a Purchaser by vitiating the intent and
purposes of the transaction contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Article V will be inadequate and agrees in the event of a breach or threatened
breach by the Company of the provisions of this Article V, that a Purchaser
shall be entitled in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
5.3 INTENTIONALLY LEFT BLANK
ARTICLE VI
CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL
6.1 Conditions to the Company's Obligation to Sell. The obligation of the
Company hereunder to issue and sell the Securities to a Purchaser at the Closing
is subject to the satisfaction, as of the Closing Date and with respect to such
Purchaser, of each of the following conditions thereto, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion:
(i) Such Purchaser shall have executed and delivered the signature page
to this Agreement, the Registration Rights Agreement and the Security
Agreement;
(ii) Such Purchaser shall have wired the Purchase Price to the account
designated by the Company;
(iii) The representations and warranties of such Purchaser shall be
true and correct in all material respects as of the date when made and
as of the Closing as though made at that time (except for
representations and warranties that speak as of a specific date), and
such Purchaser shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions
required by this Agreement to be performed. satisfied or complied with
by the applicable Purchaser at or prior to the Closing;
(iv) No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by
any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters
contemplated hereby which restricts or prohibits the consummation of
any of the transactions contemplated by this Agreement.
ARTICLE VII
CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE
7.1 The obligation of each Purchaser hereunder to purchase the Securities
to be purchased by it on the Closing date is subject to the satisfaction of each
of the following conditions, provided that these conditions are for each
Purchaser's sole benefit and may be waived by such Purchaser at any time in such
Purchaser's sole discretion:
(i) The Company shall have executed and delivered the signature page to
this Agreement, the Registration Rights Agreement and the Security
Agreement.
(ii) The Company shall have delivered to the Purchasers counsel duly
issued certificates for the Secured Promissory Notes and Warrants being
so purchased by Purchaser at the Closing.
(iii) INTENTIONALLY LEFT BLANK
(iv) The representations and warranties of the Company shall be true
and correct in all material respects as of the date when made and as of
the Closing as though made at that time and the Company shall have
performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior to the
Closing.
(v) No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by
any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement
(vi) Purchaser shall have received an opinion of Horwitz & Beam,
counsel to the Company, dated as of the Closing, in the form attached
hereto as Exhibit F.
ARTICLE VIII
GOVERNING LAW; MISCELLANEOUS
8.1 Governing Law: Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of California which would
apply if both parties were residents of California and this Agreement was made
and performed in California. In any legal action involving this Agreement or the
parties' relationship, the Parties agree that the exclusive venue for any
lawsuit shall be in the state or federal court located within the County of
Orange, California. The parties agree to submit to the personal jurisdiction of
the state and federal courts located within Orange County, California.
8.2 Counterparts. This Agreement may be executed in two or more
counterparts, including, without limitation, by facsimile transmission, all of
which counterparts shall be considered one and the same agreement and shall
become effective when counterparts have been signed by each party and delivered
to the other party. In the event any signature page is delivered by facsimile
transmission, the party using such means of delivery shall cause additional
original executed signature pages to be delivered to the other parties as soon
as practicable thereafter.
8.3Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
8.4Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction
8.5Entire Agreement: Amendments. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor any Purchaser makes any
representation, warranty, covenant or undertaking with respect to such manners.
No provision of this Agreement may be waived other than by an instrument in
writing signed by the party to be charged with enforcement and no provision of
this Agreement may be amended other than by an instrument in writing signed by
the Company and each Purchaser.
8.6 Notice. Any notice herein required or permitted to be given shall be
in writing and may be personally served or delivered by nationally-recognizable
overnight courier or by facsimile machine confirmed telecopy, and shall be
deemed delivered at the time and date of receipt (which shall include telephone
line facsimile transmission). The addresses for such communications shall be:
If to the Company:
Beta Oil & Gas, Inc.
901 Dove Street, Suite 230
Newport Beach, CA 92660
Attention: Steve Antry
Phone: (949) 752-5212 Facsimile: (949) 752- 5757
With a copy to:
Horwitz & Beam
Two Venture Plaza, Suite 350
Irvine, CA 92618
Attention: Lynne Bolduc, Esq.
Phone: (949) 453-0300 Fax: (949) 453-9416
If to the Purchasers:
St. Cloud Investments, Ltd.
Dandelion Investments, Ltd.
Scorpion Holdings, Inc.
505 Park Avenue, 12th Floor
New York, NY 10022
Phone: (212) 207 - 9020 Fax; (212) 207-9050
With a copy to:
Robert T. Tucker, Esq.
61 Purchase Street, Suite 2
Rye, NY 10580
Phone: (914) 967 - 8105 Facsimile: (914) 967 - 8161
8.7 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and assigns. Each Purchaser
may assign its rights and obligations hereunder to any of its "affiliates," as
that term is defined under the Securities Act, without the consent of the
Company so long as such affiliate is an accredited investor (within the meaning
of Regulation D under the Securities Act) and agrees in writing to be bound by
this Agreement. This provision shall not limit each Purchaser's right to
transfer the Securities pursuant to the terms of this Agreement or to assign
such Purchaser's rights hereunder to any such transferee. In that regard, if
Purchaser sells all or part of its Securities to someone that acquires the
Securities subject to restrictions on transferability (other than restrictions,
if any, arising out of the transferee's status as an affiliate of the Company),
Purchaser shall be permitted to assign its rights hereunder, in whole or in
part, to such transferee.
8.8 Third Party Beneficiaries. This Agreement is intended for the benefit
of the parties hereto and their respective permitted successors and assigns and
is not for the benefit of, nor may any provision hereof be enforced by, any
other person.
8.9 Survival. The representations and warranties of the Company and the
agreements and covenants shall survive the closing hereunder notwithstanding any
due diligence investigation conducted by or on behalf of Purchaser. The Company
agrees to indemnify and hold harmless each Purchaser and each of each
Purchaser's officers, directors, employees, partners, agents and affiliates for
loss or damage arising as a result of or related to any breach or alleged breach
by the Company of any of its representations or covenants set forth herein. The
representations and warranties of the Purchasers shall survive the Closing
hereunder and each Purchaser shall indemnify and hold harmless the Company and
each of its officers, director. employees, partners, agents and affiliates for
any loss or damage arising as a result of the breach of such Purchaser's
representations and warranties.
8.10 INTENTIONALLY LEFT BLANK.
8.11 Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
8.12 Remedies. No provision of this Agreement providing for any remedy to
a Purchaser shall limit any remedy which would otherwise be available to such
Purchaser at law or in equity Nothing in this Agreement shall limit any rights a
Purchaser may have with any applicable federal or state securities laws with
respect to the investment contemplated hereby. The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to a
Purchaser. Accordingly, the Company acknowledges that the remedy at law for a
material breach of its obligations under this Agreement will be inadequate and
agrees, in the event of a breach or threatened breach by the Company of the
provisions of this Agreement, that a Purchaser shall be entitled, in addition to
all other available remedies, to an injunction restraining any breach and
requiring immediate compliance, without the necessity of showing economic loss
and without any bond or other security being required.
8.13 Final Agreement. This Agreement, the Registration Rights Agreement
and the Security Agreement, when executed by the parties hereof, shall
constitute the final agreement between the parties and upon such execution
Purchasers and the Company accept the terms hereof and have no cause of action
against each other for prior negotiations preceding the execution of this
Agreement.
8.14 Expenses. Each of the Company and the Purchasers shall be
responsibly for its own expenses in connection with this Agreement;
provided, however, that on the date hereof, the Company shall pay to
Scorpion Holdings, Inc., a sum not to exceed $15,000 in connection with
legal fees and expenses incurred by the Purchasers. Such amount shall be
paid to:
Scorpion Holdings, Inc.
505 Park Avenue, 12th Floor
New York, NY 10022
IN WITNESS WHEREOF, the undersigned Purchasers and the Company have caused this
Agreement to be duly executed as of the date first above written.
"COMPANY":
Beta Oil & Gas, Inc.
by ______________________
/s/J. Chris Steinhauser
Its: Chief Financial Officer and Director
"PURCHASERS":
St. Cloud Investments, Ltd. Dandelion Investments, Ltd.
a corporation a corporation
By: ______________________ By. __________________
Its: Its:
<PAGE>
SCHEDULES
TO NOTE AND COMMON STOCK PURCHASE AGREEMENT DATED
JANUARY 20, 1999
Schedule 3.1 - None.
Schedule 3.3 - Attached.
Schedule 3.5 - None.
Schedule 3.6 - None.
Schedule 3.7 - None.
Schedule 3.8 - None.
Schedule 3.16 - Attached.
<PAGE>
SCHEDULE 3.3
TO NOTE AND COMMON STOCK PURCHASE AGREEMENT DATED
JANUARY 20, 1999
CAPITALIZATION OF BETA OIL & GAS, INC.
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 in the initial public offering.
As of September 30, 1998
<TABLE>
-------------------------------------------------------------------------
Adjusted for Adjusted for
the Sale of the Sale of
Actual Pro Forma Minimum Offering Maximum
Offering
-------------- -------------- ----------------- -----------------
<S> <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 to purchase Common Stock of the Company. All of the
presently outstanding shares of the Company and shares issuable upon
exercise of the 2,585,663 warrants have registration rights which will be
satisfied upon effectiveness of the current Registration Statement. There
will be an additional number of shares reserved for issuance underlying
warrants equal to 10% of the number of shares sold in the initial public
offering ("underwriter's warrants"). In addition, the minimum and the
maximum number of shares sold in the initial public offering may be changed
at the discretion of Company's management and the Underwriters.
Note: In addition, there may be an additional number of shares issuable pursuant
to common stock options in the event of termination without cause of Steve
Antry, President of the Company. This is pursuant to Mr. Antry's employment
contract with the Company.
</FN>
</TABLE>
<PAGE>
SCHEDULE 3.16
TO NOTE AND COMMON STOCK PURCHASE AGREEMENT DATED
JANUARY 20, 1999
Key Employee
Mr. Steve Antry is serving the Company in the capacity of President and Chairman
of the Board. Neither the Company, nor any of its subsidiaries, is aware that
Mr. Antry is, or is now expected to be, in violation of any material term of any
employment contract, confidentiality, disclosure or proprietary information
agreement, non-competition agreement, or any other contract or agreement or any
restrictive covenant, and the continued employment of Mr. Antry does not subject
the Company or any of its subsidiaries to any liability with respect to any of
the foregoing matters. Mr. Antry, to the best of the knowledge of the Company
and its subsidiaries, does not have any intention to terminate his employment
with the Company or any of its subsidiaries.
<PAGE>
EXHIBIT A
TO NOTE AND COMMON STOCK PURCHASE AGREEMENT DATED
JANUARY 20, 1999
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT dated as of January 20,
1999 (the "Agreement") is made by and between Beta Oil & Gas, Inc., a
Nevada Corporation, 901 Dove Street, Suite 230, Newport Beach, CA 92660
(the Company"), and the undersigned investors (the "Initial
Investors").
WITNESSETH:
WHEREAS, in connection with the Note and Common Stock Purchase
agreement dated January 20, 1999 among the Initial Investors and the
Company the "Purchase Agreement"), the Company has agreed, upon the
terms and subject to the conditions of said Purchase Agreement, to
issue and sell to the Initial Investors shares of Common Stock, $.001
par value, of the Company (the "Common Stock"). The shares of Common
Stock are referred to herein as the "Registrable Shares." In connection
with the sale of the Common Stock to the Initial Investors (the
"Offering"), each of such investors will be entitled to registration
rights as set forth in this Agreement.
WHEREAS, to induce the Initial Investors to execute and
deliver the Purchase Agreement, the Company has agreed to provide
certain registration rights under the Securities Act of 1933, as
amended, and the rules and regulations thereunder, or any similar
successor statute (collectively, the 'Securities Act"), and applicable
state securities laws with respect to the Registrable Shares;
NOW, THEREFORE, in consideration of the premises and the mutual
Covenants contained herein and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged1 the
Company and the Initial Investors hereby agree as follows:
1. Definitions. Capitalized terms used herein and not
otherwise defined herein shall have the respective meanings set forth
in the Purchase Agreement as used in this Agreement. The following
terms shall have the following meanings:
(a) "Holders" are shareholders of the Company who, by virtue
of agreements with the Company, are entitled to include
certain of their securities in certain Registration Statements
filed by the Company.
(b) "Investors" means the initial Investors and any permitted
transferee or assignee of the initial investors who agrees to
become bound by the provisions of this Agreement in accordance
with Section 9 hereof.
(c) "Registrable Securities" means the Registrable Shares,
together with any shares of Common Stock or other securities
which may be issued as a dividend or other distribution or in
exchange for Registrable Shares or common shares issued or
which may be issued pursuant to paragraph 1.3B of the Purchase
Agreement which are required to be included in a Registration
Statement pursuant to Section 2(a) below.
(d) "Registration Period" means the period between the date of
this Agreement and the earlier of (i) the date on which all of
the Registrable Securities have been sold in transactions
where the transferee is not subject to securities law resale
restrictions (or is subject to securities law resale
restrictions solely because it is an "affiliate" of the
Company under the Securities Act and the Rules and Regulations
promulgated thereunder), or (ii) the date on which the
Registrable Securities (in the opinion of Investors' counsel)
may be immediately sold without registration and free of
restrictions on transfer.
(e) "Registration Statement" means a registration statement of
the Company filed with the Securities and Exchange Commission
(the "SEC") under the Securities Act.
(f) The terms "register," "registered," and "registration"
refer to a registration effected by preparing and filing a
Registration Statement in compliance with the Securities Act
and applicable rules and regulations thereunder and pursuant
to Rule 415 under the Securities Act, and the declaration or
ordering of effectiveness of such Registration Statement by
the SEC.
2. Registration.
(a) Mandatory Registration. Subject to Section 4, the Company will prepare
and file a Registration Statement with the SEC, registering all of the
Registrable Shares for resale promptly following 180 days after the closing
date of the Company's initial public offering (the "Closing Date").
Notwithstanding the foregoing right of registration, the Investors shall
have the right to include the Registrable Securities in any Registration
Statement filed by the Company subsequent to the Closing Date. However,
this does not include the registration statement filed by the Company on
December 4, 1998 or any amendments or supplements thereto. To the extent
allowable under the Securities Act and the Rules promulgated thereunder,
the Registration Statement shall include the Registrable Shares. The
Registration Statement (and each amendment or supplement thereto) shall be
provided to and subject to the reasonable approval of, the Initial
Investors and their counsel. The Company shall use its best efforts to
cause such Registration Statement to be declared effective by the SEC as
soon as practicable after filing. Such best efforts shall include, but not
be limited to, promptly responding to all comments received from the staff
of the SEC. Should the Company receive notification from the SEC that the
Registration Statement will receive no action or no review from the SEC,
the Company shall cause such Registration Statement to become effective
within fifteen (15) business days of such SEC notification. Once declared
effective by the SEC. the Company shall cause such Registration Statement
to remain effective throughout the Registration Period.
(b) INTENTIONALLY LEFT BLANK
(c) INTENTIONALLY LEFT BLANK
3. Additional Obligations of the Company. In connection with
the registration of the Registrable Securities, the Company shall
have the following additional obligations:
(a) The Company shall keep the Registration Statement
required by Section 2(a) hereof effective pursuant to
Rule 415 under the Securities Act at all times during
the Registration Period as defined
in Section 1(d) above.
(b) The Registration Statement (including any
amendments or supplements thereto and prospectuses
contained therein) filed by the Company shall not
contain any untrue statement of a material fact or
omit to state a material fact required to be stated
therein1 or necessary to make the statements therein,
in light of the circumstances in which they were
made, not misleading. The Company shall prepare and
file with the SEC such amendments (including
post-effective amendments) and supplements to the
Registration Statement and the prospectus used in
connection with the Registration Statement as may be
necessary to keep the Registration Statement
effective at all times during the Registration
Period1 and, during such period, shall comply with
the provisions of the Securities Act with respect to
the disposition of all Registrable Securities of the
Company covered by the Registration Statement until
such time as all of such Registrable Securities have
been disposed of in accordance with the intended
methods of disposition by the sellers thereof as set
forth in the Registration Statement in the event the
number of shares of Common Stock included in a
Registration Statement filed pursuant to this
Agreement is insufficient to cover all of the
Registrable Securities, the Company shall amend, if
permissible, the Registration Statement and/or file a
new Registration Statement so as to cover all of the
Registrable Securities as soon as practicable, but in
no event more than twenty (20) business days after
the Company first determines (or reasonably should
have determined) the need therefor, the Company shall
use its best efforts to cause such amendment and/or
new Registration Statement to become effective as
soon as practicable following the filing thereof.
(c) The Company shall furnish to each Investor whose
Registrable Securities are included in the
Registration Statement (i) promptly after the same is
prepared and publicly distributed, filed with the SEC
or received by the Company, one copy of the
Registration Statement and any amendment thereto;
each preliminary prospectus and final prospectus and
each amendment or supplement thereto; and, in the
case of the Registration Statement required under
Section 2(a) above, each letter written by or on
behalf of the Company to the SEC and each item of
correspondence from the SEC, in each case relating to
such Registration Statement (other than any portion
of any item thereof which contains information for
which the Company has sought confidential treatment);
and (ii) such number of copies of a prospectus,
including a preliminary prospectus, and all
amendments and supplements thereto, and such other
documents as such Investor may reasonably request in
order to facilitate the disposition of the
Registrable Securities owned by such Investor.
(d) The Company shall use its best efforts to (i)
register and qualify the Registrable Securities
covered by the Registration Statement under such
other securities or blue sky laws of such
jurisdictions as the Investors reasonably request,
(ii) prepare and file in those jurisdictions such
amendments (including post-effective amendments) and
supplements to such registrations as may be necessary
to maintain the effectiveness thereof during the
Registration Period, (iii) take such other actions as
may be necessary to maintain such registrations and
qualifications in effect at all times during the
Registration Period, and (iv) take all other actions
reasonably necessary or advisable to qualify the
Registrable Securities for sale in such
jurisdictions. Notwithstanding the foregoing
provision, the Company shall not be required in
connection therewith or as a condition thereto to (i)
qualify to do business in any jurisdiction where it
would not otherwise be required to qualify but for
this Section 3(d), (ii) subject itself to general
taxation in any such jurisdiction, (iii) file a
general consent to service of process in any such
jurisdiction, (iv) provide any undertakings that
cause more than nominal expense or burden to the
Company, or (v) make any change in its charter or
bylaws, which in each case the Board of Directors of
the Company determines to be contrary to the best
interests of the Company and its shareholders.
(e) INTENTIONALLY LEFT BLANK
(f) The Company shall notify each Investor who holds
Registrable Securities being sold pursuant to a
Registration Statement of the happening of any event
of which the Company has knowledge as a result of
which the prospectus included in the Registration
Statement as then in effect includes an untrue
statement of a material fact or omits 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 (a "Suspension Event") The Company shall
make such notification as promptly as practicable
after the Company becomes aware of such Suspension
Event, shall promptly, but in all events within five
(5) business days after becoming aware of such
Suspension Event1 use its best efforts to prepare a
supplement or amendment to the Registration Statement
to correct such untrue statement or omission and
shall deliver a number of copies of such supplement
or amendment to each Investor as such Investor may
reasonably request. Notwithstanding the foregoing
provision, the Company shall not be required to
maintain the effectiveness of the Registration
Statement or to amend or supplement the Registration
Statement for a period (a "Delay Period") expiring
upon the earlier to occur of (i) the date on which
such material information is disclosed to the public
or ceases to be material, (ii) the date on which the
Company is able to comply with its disclosure
obligations and SEC requirements related thereto, or
(iii) thirty (30) days after the occurrence of the
Suspension Event.
(g) The Company shall use its best efforts to prevent
the issuance of any stop order or other suspension of
effectiveness of a Registration Statement and, if
such an order is issued, shall use its best efforts
to obtain the withdrawal of such order at the
earliest possible time and to notify each Investor
who holds Registrable Securities being sold (or, in
the event of an underwritten offering, the managing
underwriters) of the issuance of such order and the
resolution thereof.
(h) The Company shall permit a single firm of counsel
designated by the Investors who hold a majority in
interest of the Registrable Securities being sold
pursuant to such registration to review the
Registration Statement and all amendments and
supplements thereto (as well as all requests for
acceleration or effectiveness thereof) a reasonable
period of time prior to their filing with the SEC,
and shall not file any document in a form to which
such counsel reasonably objects. The Company shall
make generally available to its security holders as
soon as practical, but not later than ninety (90)
days after the close of the period covered thereby,
an earnings statement (in a form complying with the
provisions of Rule 155 under the Securities Act)
covering a twelve-month period beginning not later
than the first day of the Company's fiscal quarter
following the effective date of the Registration
Statement.
(i) At the request of any Investor who holds
Registrable Securities being sold pursuant to such
registration, the Company shall furnish on the date
that Registrable Securities are delivered to an
underwriter for sale in connection with the
Registration Statement (i) a letter, dated such date,
from the Company's independent certified public
accountants in form and substance as is customarily
given by independent certified public accountants to
underwriters in an underwritten public offering,
addressed to the investors; and (ii) an opinion,
dated such date, from counsel representing the
Company for purposes of such Registration Statement
in form and substance as is customarily given in an
underwritten public offering, addressed to the
underwriters and Investors.
(k) The Company shall make available for inspection by
any Investor whose Registrable Securities are being
sold pursuant to such registration, any underwriter
participating in any disposition pursuant to the
Registration Statement, and any attorney, accountant
or other agent retained by any such Investor or
underwriter (collectively, the "Inspectors"), all
pertinent financial and other records, pertinent
corporate documents and properties of the Company
(collectively, the "Records"), as shall be reasonably
necessary to enable each Inspector to exercise its due
diligence responsibility. and use its best efforts to
cause the Company's officers, directors and employees
to supply all information which any Inspector may
reasonably request for purposes of such due diligence;
provided, however, that each Inspector shall hold in
confidence and shall not make any disclosure (except
to an Investor) of any Record or other information
which the Company determines in good faith to be
confidential, and of which determination the
Inspectors are so notified, unless (i) the disclosure
of such Records is necessary to avoid or correct a
material misstatement or material omission in any
Registration Statement, (ii) the release of such
Records is ordered pursuant to a subpoena or other
order from a court or government body of competent
jurisdiction. or such release is reasonably necessary
in connection with litigation or other legal process
or (iii) the information in such Records has been made
generally available to the public other than by
disclosure in violation of this or any other
agreement. The Company shall not be required to
disclose any confidential information in such Records
to any Inspector until and unless such Inspector shall
have entered into confidentiality agreements (in form
and substance satisfactory to the Company) with the
Company with respect thereto1 substantially in the
form of this Section 3(k). Each Investor agrees that
it shall, upon learning that disclosure of such
Records is sought in or by a court or governmental
body of competent jurisdiction or through other means,
give prompt notice to the Company and allow the
Company, at the Company's expense. to undertake
appropriate action to prevent disclosure of, or to
obtain a protective order for, the Records deemed
confidential. Nothing herein shall be deemed to limit
the Investor's ability to sell Registrable Securities
in a manner which is otherwise consistent with
applicable laws and regulations.
(l) The Company shall hold in confidence and shall
not make any disclosure of information concerning an
Investor provided to the Company pursuant hereto
unless (i) disclosure of such information is
necessary to comply with federal or state securities
laws, (ii) the disclosure of such information is
necessary to avoid or correct a misstatement or
omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a
subpoena or other order from a court or governmental
body of competent jurisdiction, or such release is
reasonably necessary in connection with litigation or
other legal process or (iv) such information has been
made generally available to the public other than by
disclosure in violation of this or any other
agreement. The Company agrees that it shall, upon
learning that disclosure of such information
concerning an Investor is sought in or by a court or
Governmental body of competent jurisdiction or
through other means, give prompt notice to such
Investor and allow such Investor, at its expense, to
undertake appropriate action to prevent disclosure
of, or to obtain a protective order for, such
information.
(m) The Company shall use its best efforts to cause
all the Registrable Securities covered by the
Registration Statement to be listed on each national
securities exchange on which similar securities
issued by the Company are then listed, if any, if the
listing of such Registrable Securities is then
permitted under the rules of such exchange.
(n) The Company shall provide a transfer agent and
registrar, which may be a single entity, for the
Registrable Securities not later than the effective
date of the Registration Statement.
(o) The Company shall cooperate with the Investors who hold Registrable
Securities being sold and the managing underwriter or underwriters, if any,
to facilitate the timely preparation and delivery of certificates (not
bearing any restrictive legends) representing Registrable Securities to be
sold pursuant to the Registration Statement and enable such certificates to
be in such denominations or amounts as the case may be, and registered in
such names as the managing underwriter or underwriters if any. or the
Investors may reasonably request, and within three (3) business days after
a Registration Statement which includes Registrable Securities is ordered
effective by the SEC, the Company shall deliver, and shall cause legal
counsel selected by the Company to deliver, to the transfer agent for the
Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) instructions to the
transfer agent to issue new stock certificates without a legend and an
opinion of such counsel that the Registrable Shares have been registered.
(p) The Company shall take all other reasonable
actions necessary to expedite and facilitate
disposition by the Investor of the Registrable
Securities pursuant to the Registration Statement.
(q) At the request of any Investor, the Company shall
promptly prepare and file with the SEC such
amendments (including post effective amendments) and
supplements to a Registration Statement and the
prospectus used in connection with the Registration
Statement as may be necessary in order to change the
plan of distribution set forth in such Registration
Statement to conforming to written information
supplied to the Company by such investor for such
purpose.
(r)The Company shall comply with all applicable laws
related to a Registration Statement and offering and
sale of securities and all applicable rules and
regulations of governmental authorities in connection
therewith.
(s)INTENTIONALLY LEFT BLANK.
(t) INTENTIONALLY LEFT BLANK
4. Obligations of the Investors. In connection with
the registration of the Registrable Securities, the Investors
shall have the following obligations:
(a) it shall be a condition precedent to the obligations of the Company to
take any action pursuant to this Agreement with respect to each Investor
that such Investor shall furnish to the Company such information regarding
itself the number of Registrable Securities held by it and the intended
method of disposition of the Registrable Securities held by it as shall be
reasonably required by rules of the SEC to effect the registration of the
Registrable Securities. The information so provided by the Investor shall
be included without material alteration in the Registration Statement and
shall not be materially modified without such investors written consent. At
least ten (10) business days prior to the first anticipated filing date of
the Registration Statement, the Company shall notify each Investor of the
information the Company requires from each such Investor (the "Requested
Information") if such Investor elects to have any of such investor's
Registrable Securities included in the Registration Statement. If within
five (5) business days of such notice the Company has not received the
Requested Information from an Investor (a "Non-Responsive Investor"), then
the Company may file the Registration Statement without including
Registrable Securities of such Non-Responsive Investor. The Non-Responsive
Investor shall then have no continuing right to demand registration of
their unregistered Common Stock, but shall continue to have the right to
include the Registrable Securities in any subsequent Registration Statement
filed by the Company.
(b) Each Investor, by such Investors acceptance of
the Registrable Securities agrees to cooperate with
the Company as reasonably requested by the Company in
connection with the preparation and filing of the
Registration Statement hereunder, unless such
Investor has notified the Company in writing of such
Investors election to exclude all of such investor's
Registrable Securities from the Registration
Statement.
(c) In the event Investors holding a majority in
interest of the Registrable Securities being
registered determine to engage the services of an
underwriter, each Investor agrees to enter into and
perform such Investor's obligations under an
underwriting agreement in usual and customary form,
including, without limitation, customary
indemnification and contribution obligations, with
the managing underwriter of such offering and take
such other actions as are reasonably required in
order to expedite or facilitate the disposition of
the Registrable Securities, unless such Investor has
notified the Company in writing of such Investor's
election to exclude all of such Investor's
Registrable Securities from the applicable
Registration Statement. No Investor shall be
obligated to participate in any such underwriting.
(d) Each Investor agrees that upon receipt of any
notice from the Company of the happening of any event
of the kind described in Section 3(f) or 3(g), such
Investor will immediately discontinue disposition of
Registrable Securities pursuant to the Registration
Statement covering such Registrable Securities until
such Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by
Section 3(f) or 3(y) and, if so directed by the
Company, such Investor shall deliver to the Company
(at the expense of the Company) or destroy (and
deliver to the Company a certificate of destruction)
all copies, other than file copies, in such
Investor's possession, of the prospectus covering
such Registrable Securities current at the time of
receipt of such notice.
(e) No Investor may participate in any underwritten
registration hereunder unless such Investor (i)
agrees to sell such Investors Registrable Securities
on the basis provided in any underwriting
arrangements approved by the Investors entitled
hereunder to approve such arrangements, (ii)
completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms
of such underwriting arrangements, and (iii) agrees
to pay its pro rata share of all underwriting
discounts and commissions and other fees and expenses
of investment bankers and any manager or managers of
such underwriting and legal expenses of the
underwriter applicable with respect to its
Registrable Securities, in each case to the extent
not payable by the Company pursuant to the terms of
this Agreement.
5. Expenses of Registration. All expenses, other than
underwriting discounts and commissions and the fees and
disbursements of one counsel selected by the Initial Investors
pursuant to Section 3(e) hereof, incurred in connection with
registrations, filings or qualifications pursuant to Sections
2 and 3, including, without limitation, all registration,
listing and qualifications fees, printers and accounting fees,
and the fees and disbursements of counsel for the Company,
shall be borne by the Company.
6. Indemnification. In the event any Registrable Securities
are included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Investor who holds
such Registrable Securities, the directors, if any,
of such Investor, the officers, if any, of such
Investor, each person, if any, who controls any
Investor within the meaning of the Securities Act or
the Exchange Act any underwriter (as defined in the
Securities Act) for the Investors, the directors, if
any. of such underwriter and the officers, if any, of
such underwriter, and each person, if any, who
controls any such underwriter within the meaning of
the Securities Act or the Exchange Act (each, an
"Indemnified Person"), against any losses, claims,
damages, expenses (including legal fees in compliance
with Section 6 (c)) or liabilities joint or several
(collectively "Claims") to which any of them become
subject under the Securities Act, the Exchange Act or
otherwise, insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any
of the following statements, omissions or violations
in the Registration Statement, or any post-effective
amendment thereof, or any prospectus included
therein: (i) any untrue statement or alleged untrue
statement of a material fact contained in the
Registration Statement or any post-effective
amendment thereof or 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, (ii) any untrue statement or
alleged untrue statement of a material fact contained
in any preliminary prospectus if used prior to the
effective date of such Registration Statement, or
contained in the final prospectus (as amended or
supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the
omission or alleged omission to state therein any
material fact necessary to make the statements made
therein, in light of the circumstances under which
the statements therein were made, not misleading, or
(iii) any violation or alleged violation by the
Company of the Securities Act, the exchange Act or
any state securities law or any rule or regulation
(the matters in the foregoing clauses (i) through
(iii) being, collectively, 'Violations"). Subject to
the restrictions Set forth in Section 6(c) with
respect to the number of legal counsel, the Company
shall reimburse the Investors and each such
underwriter or controlling person for any legal fees
or other reasonable expenses incurred by them in
connection with investigating or defending any such
Claim. Notwithstanding anything to the contrary
contained herein1 the indemnification agreement
contained in this Section 6(a): (A) shall not apply
to a Claim arising out of or based upon a Violation
which occurs in reliance upon and in conformity with
information furnished in writing to the Company by
any Indemnified Person or underwriter for such
Indemnified Person expressly for use in connection
with the preparation of the Registration Statement or
any such amendment thereof or supplement thereto1 if
the prospectus contained in such Registration
Statement was timely made available by the Company
pursuant to Section 3(c) hereof, (B) with respect to
any preliminary prospectus shall not inure to the
benefit of any such person from whom the person
asserting any such Claim purchased the Registrable
Securities that are the subject thereof (or to the
benefit of any person controlling such person) if the
untrue statement or omission of material fact
contained in the preliminary prospectus was corrected
in the prospectus, as then amended or supplemented.
if a prospectus was timely made available by the
Company pursuant to Section 3(c) hereof, and (C)
shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the
prior written consent of the Company, which consent
shall not be unreasonably withheld. Such indemnity
shall remain in full force and effect regardless of
any investigation made by or on behalf of the
Indemnified Persons and shall survive the transfer of
the Registrable Securities by the Investors pursuant
to Section 9.
(b) In connection with any Registration Statement in
which an Investor is participating, each such
investor, severally and not jointly, agrees to
indemnify and hold harmless, to the same extent and
in the same manner set forth in Section 6(a), the
Company, each of its directors, each of its officers
who signs the Registration Statement, each person, if
any, who controls the Company within the meaning of
the Securities Act or the Exchange Act, its
attorneys, any underwriter and any other stockholder
selling securities pursuant to the Registration
Statement or any of its directors or officers or any
person who controls such stockholder or underwriter
within the meaning of the Securities Act or the
Exchange Act (collectively and together with an
Indemnified Person, an "Indemnified Party"), against
any Claim to which any of them may become subject,
under the Securities Act, the Exchange Act or
otherwise, insofar as such Claim arises out of or is
based upon any Violation, in each case to the extent
(and only to the extent) that such Violation occurs
in reliance upon and in conformity with written
information furnished to the Company by such Investor
expressly for use in connection with such
Registration Statement and such Investor will
promptly reimburse any legal or other expenses
reasonably incurred by them in connection with
investigating or defending any such Claim; provided,
however, that the indemnity agreement contained in
this Section 6(b) shall not apply to amounts paid in
settlement of any Claim if such settlement is
effected without the prior written consent of such
Investor which consent shall not be unreasonably
withheld. Such indemnity shall remain in full force
and effect regardless of any investigation made by or
on behalf of such indemnified Party and shall survive
the transfer of the Registrable Securities by the
Investors pursuant to Section 9 Notwithstanding
anything to the contrary contained herein4 the
indemnification agreement contained in this Section
6(b) with respect to any preliminary prospectus shall
not inure to the benefit of any Indemnified Party if
the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected
on a timely basis in the prospectus; as then amended
or supplemented.
(c) Promptly after receipt by an Indemnified Person
or Indemnified Party under this Section 6 of notice
of the commencement of any action (including any
governmental action)1 such Indemnified Person or
Indemnified Party shall, if a Claim in respect
thereof is to be made against any indemnifying party
under this Section 6, deliver to the indemnifying
party a written notice of the Commencement thereof
and this indemnifying party shall have the right to
panicipate in) and, to the extent the indemnifying
party so desires, jointly with any other indemnifying
party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to
the indemnifying parties; provided. however, that an
Indemnified Person or Indemnified Party shall have
the right to retain its own counsel, with the fees
and expenses to be paid by the indemnifying party,
if, in the reasonable opinion of counsel retained by
the indemnifying party, the representation by such
counsel of the Indemnified Person or Indemnified
Party and the indemnifying party would be
inappropriate due to actual or potential differing
interests between such Indemnified Person or
Indemnified Party and other party represented by such
counsel in such proceeding. The Company shall pay for
only one separate legal counsel for the Investors;
such legal counsel shall be selected by the Investors
holding a majority in interest of the Registrable
Securities. The failure to deliver written notice to
the indemnifying party within a reasonable time of
the commencement of any such action shall not relieve
such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this
Section 6, except to the extent that the indemnifying
party is prejudiced in its ability to defend such
action.
7. Contribution. If the indemnification provided for in
Section 6 herein is unavailable to the Indemnified Parties in respect
of any losses, claims, damages or liabilities referred to herein (other
than by reason of the exceptions provided therein), then each such
Indemnifying Party, in lieu of indemnifying such Indemnified Party,
shall contribute to the amount paid or payable by such Indemnified
Party as a result of such losses, claims, damages or liabilities as
between the Company on the one hand and any Investor on the other, in
such proportion as is appropriate to reflect the relative fault of the
Company and of such Investor in connection with the statements or
Omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations,
The relative fault of the Company on the one hand and of any Investor
on the other shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material tact or
omission or alleged omission to state a material fact relates to
information supplied by the Company or by such Investor,
In no event shall the obligation of any Indemnifying Party to
contribute under this Section 7 exceed the amount that such
Indemnifying Party would have been obligated to pay by way of
indemnification if the indemnification provided for under Section 6(a)
or 6(b) hereof had been available under the circumstances.
The Company and the Investors agree that it would not be just
and equitable if contribution pursuant to this Section 7 were
determined by pro rata allocation (even if the Investors or the
underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraphs. The
amount paid or payable by an Indemnified Party as a result of the
losses, claims, damages and liabilities referred to in the immediately
preceding paragraphs shall be deemed to include, subject to the
limitations set forth above, 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
Securities Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation.
8. Public Information. With a view to making available to the
Investors the benefits of Rule 144 promulgated under the Securities Act
or any other similar rule or regulation of the SEC that may at any time
permit the Investors to sell securities of the Company to the public
without registration ("Rule 144"), the Company agrees to:
(a) File with the SEC in a timely manner and make and keep
available all reports and other documents required of the
Company under the Exchange Act at such time that the Company
becomes subject to and so long as the Company remains subject
to, such requirements and the filing and availability of such
reports and other documents is required for the applicable
provisions of Rule 144; and
(b) Furnish to each Investor so long as such Investor holds
Registrable Securities promptly upon request, (i) a written
statement by the Company that it has complied with the
reporting requirements of Rule 144 and the Exchange Act (if
and when applicable), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and
documents so filed by the Company and (iii) such other
information as may be reasonably requested to permit the
Investors to sell such securities pursuant to Rule 144 without
registration.
9. Assignment of Registration Rights. The rights to have the
Company register Registrable Securities pursuant to this Agreement
shall be automatically assigned by the Investors to transferees or
assignees of all or any portion of such securities only if:
(i) the Investor agrees in writing with the
transferee or assignee to assign such rights, and a
copy of such agreement is furnished to the Company
within a reasonable time after such assignment, (ii)
the Company is, within a reasonable time after such
transfer or assignment furnished with written notice
of the name and address of such transferee or
assignee and the securities with respect to which
such registration rights are being transferred or
assigned, (iii) following such transfer or assignment
the further disposition of such securities by the
transferee or assignee is restricted under the
Securities Act and applicable state securities laws,
(iv) at or before the time the Company received the
written notice contemplated by clause (ii) of this
sentence, the transferee or assignee agrees in
writing with the Company to be bound by all of the
provisions contained herein, (v) such transfer shall
have been made in accordance with the applicable
requirements of the Purchase Agreement and (vi) such
transferee shall be an "accredited investor" as that
term is defined in Rule 501 of Regulation D
promulgated under the Securities Act.
10. Amendment of Registration Rights Provisions of this
Agreement may be amended and the observance thereof may be waived
(either generally or in a particular instance and either retroactively
or prospectively) only with the written consent of the Company and
Investor's holding sixtyfive percent of the Registerable Securities.
Any amendment or waiver effected in accordance with this Section 10
shall be binding upon each Investor and the Company.
11. Miscellaneous.
(a) Conflicting Instructions. A person or entity is deemed to
be a holder of Registrable Securities whenever such person or
entity owns of record such Registrable Securities. If the
Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to
the same Registrable Securities, the Company shall act upon
the basis of instructions, notice or election received from
the registered owner of such Registrable Securities.
(b) Notices. Any notices required or permitted to be given
under the terms of this Agreement shall be sent by certified
or registered mail (with return receipt requested) or
delivered personally or by courier (including a nationally
recognized overnight delivery service) or by facsimile
transmission. Any notice so given shall be deemed effective
upon receipt if delivered personally, by U.S. Mail or by
courier or facsimile transmission, in each case addressed to a
party at the following address or such other address as each
such party furnishes to the other in accordance with this
Section 11(b). and;
If to the Company:
Beta Oil & Gas, Inc.
901 Dove Street, Suite 230
Newport Beach, CA 92660
Attention: J. Chris Steinhauser
Phone: (949) 752 -5212
Fax: (949) 752 -5757
With copy to:
Horwitz & Beam
Two Venture Plaza, Suite 350
Irvine1 CA 92618
Attention: Lynne Buldoc, Esq.
Phone: (949) 453-0300
Fax: (949) 453 - 9416
if to the Investors:
St. Cloud Investments, Ltd.
Dandelion Investments, Ltd.
C/O Scorpion Holdings, Inc.
505 Park Avenue1 12th Floor
New York, NY 10022
Phone: (212) 207-9020
Fax: (212) 207 - 9050
With a copy to:
Robert T. Tucker, Esq.
61 Purchase Street, Suite 2
Rye, NY 10580
Phone: (914) 967 - 5105
Facsimile: (914) 967 - 8161
(c) Waiver. Failure of any party to exercise any right or
remedy under this Agreement or otherwise, or delay by a party
in exercising such right or remedy, shall not operate as a
waiver thereof
(d) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of
California which would apply if both parties were residents of
California and this Agreement was made and performed in
California. In any legal action involving this Agreement or
the parties' relationship, the parties agree that the
exclusive venue for any lawsuit shall be in the state or
federal court located within the County of Orange, California.
The parties agree to submit to the personal jurisdiction of
the state and federal courts located within Orange County,
California.
(e) Severability. In the event that any provision of this
Agreement is invalid or unenforceable under any applicable
statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule
of law. Any provision hereof which may prove invalid or
unenforceable under any law shall not affect the validity or
enforceability of any other provision hereof.
(f) Entire Agreement. This Agreement and the Purchase
Agreement (including all schedules and exhibits thereto)
constitute the entire agreement among the parties hereto with
respect to the subject matter hereof. There are no
restrictions1 promises, warranties or undertakings, other than
those set forth or referred to herein or therein. This
Agreement supersedes all prior agreements and understandings
among the parties hereto with respect to the subject matter
hereof.
(g) Successors and Assigns. Subject to the requirements of
Section 9 hereof, this Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the
parties hereto.
(h) Use of Pronouns. All pronouns and any variations thereof
refer to the masculine, feminine or neuter, singular or
plural, as the context may require.
(i) Headings. The headings and subheadings in the Agreement
are for convenience of reference only and shall not limit or
otherwise affect the meaning hereof.
(j) Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original
but all of which shall constitute one and the same agreement.
This Agreement once executed by a party, may be delivered to
the other party hereto by facsimile transmission, and
facsimile signatures shall be binding on the parties hereto.
(k) Further Acts. Each party shall do and perform1 or cause to
be done and performed, all such further acts and things1 and
shall execute and deliver all such other agreements,
certificates, instruments and documents, as the other party
may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation
of the transactions contemplated hereby.
(l) Remedies. No provision of this Agreement providing for any
remedy to a Investor shall limit any remedy which would
otherwise be available to such Investor at law or in equity.
Nothing in this Agreement shall limit any rights a Investor
nay have with any applicable federal or state securities laws
with respect to the investment contemplated hereby. The
Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to a Investor.
Accordingly, the Company acknowledges that the remedy at law
for a breach of its obligations under this Agreement will be
inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Agreement,
that a Investor shall be entitled, in addition to all other
available remedies to an injunction restraining any breach and
requiring immediate compliance, without the necessity of
showing economic loss and without any bond or other security
being required.
(m) Consents. All consents and other determinations to be made
by the Investors pursuant to this Agreement shall be made by
investors holding sixty-five percent of the Registrable
Securities.
IN WITNESS WHEREOF, the parties have caused this
Registration Rights Agreement to be duly executed as of the date
first above written.
COMPANY:
Beta Oil & Gas, Inc.
By ______________________
/s/J. Chris Steinhauser
Its: Chief Financial Officer and Director
INVESTORS:
St. Cloud Investments, Ltd. Dandelion Investments, Ltd..
a corporation a corporation
By: ______________________ By. __________________
Its: Its:
<PAGE>
EXHIBIT B
TO NOTE AND COMMON STOCK PURCHASE AGREEMENT DATED
JANUARY 20, 1999
SECURITY AGREEMENT
This SECURITY AGREEMENT (this "Agreement') is made and entered into as of this
20th day of January, 1999, by and between Beta Oil & Gas, Inc., a Nevada
corporation ("Debtor") and St. Cloud Investments, Ltd., a _______ corporation
("St. Cloud"), and Dandelion Investments, Ltd., a ________ corporation
("Dandelion"). St. Cloud and Dandelion are referred to herein as the "Secured
Parties".
RECITALS
A. Debtor and the Secured Parties are parties to that certain Note and Common
Stock Purchase Agreement dated of even date herewith (the "Purchase Agreement").
B. As security for Debtor's obligations to the Secured Parties under Those
certain Secured Promissory Notes dated of even date herewith issued to the
Secured Parties pursuant to the Purchase Agreement (the "Secured Promissory
Notes"), Debtor has agreed to execute this Agreement granting to Secured Parties
a security interest in all of the assets of Debtor.
AGREEMENT
In consideration of the foregoing recitals and the mutual covenants and
conditions contained herein, the parties, intending to be legally bound, agree
as follows:
1. Grant of Security Interest Debtor hereby grants to Secured Parties, along
with additional secured parties to be defined at a later date in a second
tranche of like financing not to exceed $1,000,000, to secure all of Debtors
obligations under the Secured Promissory Notes, a security interest in all of
the assets of Debtor, including, without limitation, all of Debtor's presently
existing or hereafter acquired right, title and interest in and to all of
Debtor's assets, tangible and intangible, including without limitation, the
following: All equipment, inventory, accounts, instruments, documents, oil and
gas leases, productive wells, seismic data, chattel paper, general intangibles,
contracts, money and proceeds and products of the foregoing (collectively, the
"Collateral").
2. Use of Collateral in Absence of Default. Until a Default (as defined in
Section 3 below), Debtor may use the Collateral in any lawful manner not
inconsistent with this Agreement and may sell its inventory in the ordinary
course of business. Debtor will maintain the Collateral in good working order
and condition, normal wear and tear excepted, and will not cause or permit any
waste or unusual or unreasonable depreciation thereof.
3. Default by Debtor. A "Default" shall mean an Event of Default as defined in
the Secured Promissory Notes.
4. Remedies of Secured Party. Upon and after a Default, each Secured Party and
its respective assigns, shall have all of the rights and remedies of a secured
party under the Uniform Commercial Code or other applicable law in all relevant
jurisdictions, all of which rights and remedies shall be cumulative and
nonexclusive to the extent permitted by law.
5. Relationship of the Secured Parties The rights of the Secured Parties
hereunder shall rank pari passu and any action taken by any Secured Party
hereunder shall inure to the benefit of each other Secured Party, pro rata in
accordance with the aggregate amounts due and owing to such Secured Party under
the Secured Promissory Note held by such Secured Party.
6. Notice. Any notice required to be given by any Secured Party on a sale,
lease, other disposition of the Collateral or any other intended action and such
Secured Party, if given ten (10) business days prior to such proposed action,
shall constitute commercially reasonably fair notice thereof to Debtor.
7. Financing Statements. Debtor agrees to execute from time to time such
financing statements and such additional instruments as may be reasonably
required by the Secured Parties to preserve and perfect the security interests
created hereby.
8. Termination of Lien. Upon Debtor's payment in full of all amount:; due and
owing under the Secured Promissory Notes, the Secured Parties shall cause an
appropriate UCC termination statement or other instruments as required to be
filed with the appropriate government offices in all of the states, counties, or
otherwise in which financing statements or such other instruments were filed
pursuant to Section 7.
9. General Provisions
9.1 Choice of Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of California, which would apply if both
parties were residents of California and this Agreement was made and performed
in California. In any legal action involving this Agreement or the parties'
relationship, the parties agree that the exclusive venue for any lawsuit shall
be in the state or federal court located within the County of Orange,
California. The parties agree to submit to the personal jurisdiction of the
state and federal courts located within Orange County, California.
9.2 Severability. Each provision of this Agreement is intended to be severable.
Should any provision of this Agreement or the application thereof be judicially
declared to be or becomes unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the party hereto. The parties further agree to replace such
unenforceable provision of this Agreement with an enforceable provision that
will achieve, to the extent possible, the economic, business and other purposes
of such unenforceable provision
9.3 Assignability. Except in connection with a change in control or sale of
substantially all of the assets of a party, neither this Agreement nor any
interest herein shall be assignable (voluntarily. involuntarily, by judicial
process or otherwise), in whole or in part, by any party to any other entity
without the prior written consent of the other party. Any attempt at such an
assignment without such consent shall be void.
9.4 Attorneys' Fees. In any action or proceeding brought to enforce any
provision of this Security Agreement, or to seek damages for a breach of any
provision hereof is validly asserted as a defense, the successful party shall be
entitled to recover reasonable attorneys' feesin addition to any other available
remedy.
9.5 Successors and Assigns. Each of the terms, provisions and obligations of
this Agreement shall be binding upon, shall inure to the benefit of, and shall
be enforceable by the parties and their respective legal representatives,
successors and permitted assigns.
9.6 Notices. All notices, demands or other communications which are required or
are permitted to be given hereunder shall be in writing and shall be deemed to
have been sufficiently given in the manner set forth in the Purchase Agreement.
IN WITNESS WHEREOF, each of the parties has executed this Agreement as of the
date first set forth above.
"DEBTOR":
Beta Oil & Gas, Inc.
a Nevada corporation
By: ____________________
/s/ J. Chris Steinhauser
Its: Chief Financial Officer and Director
"SECURED PARTIES":
St. Cloud Investments, Ltd. Dandelion Investments, Ltd..
a corporation a corporation
By: ______________________ By. __________________
Its: Its:
<PAGE>
EXHIBIT C-1
TO NOTE AND COMMON STOCK PURCHASE AGREEMENT
DATED JANUARY 20, 1999
<PAGE>
THIS SECURED PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD OR
TRANSFERRED EXCEPT IN COMPLIANCE WITH THE ACT AND ALL APPLICABLE STATE
SECURITIES LAWS.
SECURED PROMISSORY NOTE
$ 1,200,000 Due January 20, 2000
FOR VALUE RECEIVED, the undersigned, Beta Oil & Gas, Inc., a Nevada corporation
("Maker"), promises to pay to St. Cloud Investments, Ltd., a __________
Corporation ("Payee"), the principal sum of one million two hundred thousand
Dollars ($1,200,000) (the "Principal Amount") at maturity, together with
Interest accruing on the unpaid portion of the Principal Amount from the date
hereof until maturity at the annual rate of ten percent (10%) payable monthly in
arrears.
This Secured Promissory Note (this '"Note") is one of two secured promissory
notes of like tenor issued by the Company (each, a "Note" and collectively, the
"Notes") being issued and delivered pursuant to that certain Note and Common
Stock Purchase Agreement dated of even date herewith (the "Purchase Agreement")
by and between Maker, Payee and others and is made subject to the terms and
Conditions of the Purchase Agreement. Unless otherwise set forth herein, all
capitalized terms used herein without definition shall have the meanings given
to such terms in the Purchase Agreement.
The Principal Amount and all accrued and unpaid interest thereon shall be due
and payable on the sooner to occur of January 20, 2000 or the occurrence of an
Event of Default as hereafter defined (the "Maturity Date"). Maker may prepay.
at any time or from time to time prior to the Maturity Date, any portion or all
of the amount due hereunder without penalty; provided, however, that any such
prepayment shall be applied first to the Principal Amount and the balance to
accrued but unpaid interest, in which case, interest shall cease to accrue on
the amount of the Principal Amount so paid; and provided further that, unless
the holders of all of the Notes otherwise consent in writing, unless the full
principal amount of and all accrued and unpaid interest on all of the
outstanding Notes are prepaid in full at such time, any amount paid by Maker in
prepayment of any Note shall be allocated among all outstanding Notes prorated
in accordance with the respective principal amount of and accrued and unpaid
Interest on such Notes. The Maker agrees that one-half of the original principal
amount of the Note will be due and payable prior to or at such time that Maker
receives the proceeds of its initial public offering for which Maker has filed
an S-1 Registration Statement.
It shall constitute an event of default ("Event of Default") if any one or more
of the following shall occur for any reason:
(a) A failure by Maker to pay the principal of or interest on this Note
or any portion thereof when due; or
(b) A failure by Maker to perform or observe any term, covenant or
Agreement contained in the Note and Common Stock Purchase Agreement or
the Security Agreement on its part to be performed or observed and such
failure shall continue for more than fourteen (14) days after notice of
such failure is given by Payee to Maker; or
(c) Any representation or warranty in the Note and Common Stock
Purchase Agreement or in any certificate, agreement instrument or other
document made or delivered by Maker to Payee pursuant to the Note and
Common Stock Purchase Agreement proves to have been incorrect when
made; or
(d) Maker shall fall to pay when due (or within any stated grace
period), whether at the stated maturity, upon acceleration, by reason
of required prepayment or otherwise, the principal or any principal
installment of, or any interest on, any present or future indebtedness
of Maker; or
(e) Maker Is the subject of an order for relief by a bankruptcy court,
or is unable or admits in writing its inability to pay its debts as
they mature or makes an assignment for the benefit of creditors, or
applies for or consents to the appointment of any receiver, trustee,
custodian, conservator, liquidator, rehabilitator or similar officer
for it or for all or any part of its business or Property; or any
receiver, trustee., custodian, conservator, liquidator, rehabilitator
or similar officer is appointed without the application or consent of
Maker and the appointment continues a undischarged or unstayed for
sixty (60) calendar days; or institutes or consents to any bankruptcy,
insolvency, reorganization, arrangement, readjustment of debt,
dissolution, custodianship, conservatorship, liquidation,
rehabilitation or similar proceeding relating to it or to all or any
part of its business or property under the laws of any jurisdiction; or
any similar proceeding is instituted without the consent of Maker
(including but not limited to any action taken by any Governmental
Agency that has a material adverse effect on the business, operations
or property of Maker) and continues undismissed or unstayed for sixty
(60) calendar days; or
(f) Any judgment, writ, warrant of attachment or execution or similar
process is issued or levied against all or any part of the property of
Maker end is not released, vacated or fully bonded within sixty (60)
calendar days after its issue or levy.
Maker will reimburse Payee on demand for all costs of collection before and
after judgement and the costs of preservation and/or liquidation of any
collateral (including all fees and expenses of counsel to the Payee).
All payments hereunder shall be made in lawful currency of the United States of
America at such place as Holder shall designate in writing and shall be payable
by Maker by check or wire transfer.
Maker's obligations under this Note are secured pursuant to the terms of that
certain Security Agreement of even date herewith between Maker, Payee and
others, securing all of the assets of Maker, tangible and intangible, in favor
of Payee and others.
The validity. construction and performance of this Note, and any action or claim
arising out of or relating to this Note, shall be governed by the laws, without
regard to the laws as to choice or conflict of laws, of the State of California.
The forum for disputes is Orange County, California.
Each of the terms, provisions and obligations of this Note shall be binding
upon. shall inure to the benefit of, and shall be enforceable by the parties and
their respective legal representatives, successors and permitted assigns.
IN WITNESS WHEREOF, Maker has executed this Note in favor of Payee is of the
date first set forth above.
MAKER:
Beta Oil & Gas, Inc.
a Nevada corporation
By:__________________
/s/J. Chris Steinhauser
Its: Chief Financial Officer and Director
PAYEE:
St. Cloud Investments, Ltd.
a _______ corporation
By:__________________
Its: __________________
<PAGE>
EXHIBIT C-2
TO NOTE AND COMMON STOCK PURCHASE AGREEMENT
DATED JANUARY 20, 1999
<PAGE>
THIS SECURED PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD OR
TRANSFERRED EXCEPT IN COMPLIANCE WITH THE ACT AND ALL APPLICABLE STATE
SECURITIES LAWS.
SECURED PROMISSORY NOTE
$ 800,000 Due January 20, 2000
FOR VALUE RECEIVED, the undersigned, Beta Oil & Gas, Inc., a Nevada corporation
("Maker"), promises to pay to Dandelion Investments, Ltd., a __________
Corporation ("Payee"), the principal sum of eight hundred thousand Dollars
($800,000) (the "Principal Amount") at maturity, together with Interest accruing
on the unpaid portion of the Principal Amount from the date hereof until
maturity at the annual rate of ten percent (10%) payable monthly in arrears.
This Secured Promissory Note (this '"Note") is one of two secured promissory
notes of like tenor issued by the Company (each, a "Note" and collectively, the
"Notes") being issued and delivered pursuant to that certain Note and Common
Stock Purchase Agreement dated of even date herewith (the "Purchase Agreement")
by and between Maker, Payee and others and is made subject to the terms and
Conditions of the Purchase Agreement. Unless otherwise set forth herein, all
capitalized terms used herein without definition shall have the meanings given
to such terms in the Purchase Agreement.
The Principal Amount and all accrued and unpaid interest thereon shall be due
and payable on the sooner to occur of January 20, 2000 or the occurrence of an
Event of Default as hereafter defined (the "Maturity Date"). Maker may prepay.
at any time or from time to time prior to the Maturity Date, any portion or all
of the amount due hereunder without penalty; provided, however, that any such
prepayment shall be applied first to the Principal Amount and the balance to
accrued but unpaid interest, in which case, interest shall cease to accrue on
the amount of the Principal Amount so paid; and provided further that, unless
the holders of all of the Notes otherwise consent in writing, unless the full
principal amount of and all accrued and unpaid interest on all of the
outstanding Notes are prepaid in full at such time, any amount paid by Maker in
prepayment of any Note shall be allocated among all outstanding Notes prorated
in accordance with the respective principal amount of and accrued and unpaid
Interest on such Notes. The Maker agrees that one-half of the original principal
amount of the Note will be due and payable prior to or at such time that Maker
receives the proceeds of its initial public offering for which Maker has filed
an S-1 Registration Statement.
It shall constitute an event of default ("Event of Default") if any one or more
of the following shall occur for any reason:
(a) A failure by Maker to pay the principal of or interest on this Note
or any portion thereof when due; or
(b) A failure by Maker to perform or observe any term, covenant or
Agreement contained in the Note and Common Stock Purchase Agreement or
the Security Agreement on its part to be performed or observed and such
failure shall continue for more than fourteen (14) days after notice of
such failure is given by Payee to Maker; or
(c) Any representation or warranty in the Note and Common Stock
Purchase Agreement or in any certificate, agreement instrument or other
document made or delivered by Maker to Payee pursuant to the Note and
Common Stock Purchase Agreement proves to have been incorrect when
made; or
(d) Maker shall fall to pay when due (or within any stated grace
period), whether at the stated maturity, upon acceleration, by reason
of required prepayment or otherwise, the principal or any principal
installment of, or any interest on, any present or future indebtedness
of Maker; or
(e) Maker Is the subject of an order for relief by a bankruptcy court,
or is unable or admits in writing its inability to pay its debts as
they mature or makes an assignment for the benefit of creditors, or
applies for or consents to the appointment of any receiver, trustee,
custodian, conservator, liquidator, rehabilitator or similar officer
for it or for all or any part of its business or Property; or any
receiver, trustee., custodian, conservator, liquidator, rehabilitator
or similar officer is appointed without the application or consent of
Maker and the appointment continues a undischarged or unstayed for
sixty (60) calendar days; or institutes or consents to any bankruptcy,
insolvency, reorganization, arrangement, readjustment of debt,
dissolution, custodianship, conservatorship, liquidation,
rehabilitation or similar proceeding relating to it or to all or any
part of its business or property under the laws of any jurisdiction; or
any similar proceeding is instituted without the consent of Maker
(including but not limited to any action taken by any Governmental
Agency that has a material adverse effect on the business, operations
or property of Maker) and continues undismissed or unstayed for sixty
(60) calendar days; or
(f) Any judgment, writ, warrant of attachment or execution or similar
process is issued or levied against all or any part of the property of
Maker end is not released, vacated or fully bonded within sixty (60)
calendar days after its issue or levy.
Maker will reimburse Payee on demand for all costs of collection before and
after judgement and the costs of preservation and/or liquidation of any
collateral (including all fees and expenses of counsel to the Payee).
All payments hereunder shall be made in lawful currency of the United States of
America at such place as Holder shall designate in writing and shall be payable
by Maker by check or wire transfer.
Maker's obligations under this Note are secured pursuant to the terms of that
certain Security Agreement of even date herewith between Maker, Payee and
others, securing all of the assets of Maker, tangible and intangible, in favor
of Payee and others.
The validity. construction and performance of this Note, and any action or claim
arising out of or relating to this Note, shall be governed by the laws, without
regard to the laws as to choice or conflict of laws, of the State of California.
The forum for disputes is Orange County, California.
Each of the terms, provisions and obligations of this Note shall be binding
upon. shall inure to the benefit of, and shall be enforceable by the parties and
their respective legal representatives, successors and permitted assigns.
IN WITNESS WHEREOF, Maker has executed this Note in favor of Payee is of the
date first set forth above.
MAKER:
Beta Oil & Gas, Inc.
a Nevada corporation
By:__________________
/s/J. Chris Steinhauser
Its: Chief Financial Officer and Director
PAYEE:
Dandelion Investments, Ltd.
a _______ corporation
By:__________________
Its: __________________
<PAGE>
EXHIBIT D
TO NOTE AND COMMON STOCK PURCHASE AGREEMENT DATED
JANUARY 20, 1999
There is no Exhibit D.
<PAGE>
EXHIBIT E
TO NOTE AND COMMON STOCK PURCHASE AGREEMENT DATED
JANUARY 20, 1999
BETA OIL & GAS, INC.
QUALIFIED INSTITUTIONAL BUYER CERTIFICATE
Dear Sir or Madame:
The undersigned hereby certifies thatt it is: (Please check one)
[ ] Any of the following entities, acting for its own account or the
accounts of other qualified institutional buyers, that in the
aggregate owns and invests on a discretionary basis at least $100
million in securities of issuers that are not affiliated with the
entity: (If selecting this qualification, one of the following
qualifications must also be checked).
[ ] Any insurance company as defined in section 2(13) of the Act;
[ ]Any investment company registered under the Investment Company Act or
any business development company 119 defined in section 2(a)(48) of
that Act;
[ ] Any Small Business Investment Company licensed by the U.S. Small
Business Administration under Section 301(c) or (d) of the Small
Business Investment Act of 1958;
[ ] Any plan established and maintained by a state, its political
subdivisions, or any agency or instrumentality of a state or its
political subdivisions, for the benefit of its employees;
[ ] Any employee benefit plan within the meaning of title I of the
Employee Retirement Income Security Act of 1974;
[ ] Any trust fund whose trustee is a bank or trust company and whose
participants are exclusively plans of the types identified in
paragraph (a)(l)(i) (D) or (E) of this section, except trust funds
that include as participants individual retirement accounts or H.R. 10
plans;
[ ] Any business development company as defined in section 202(a)(22) of
the Investment Advisers Act of 1940;
[ ]Any organization described in section 301(c)(3) of the Internal
Revenue Code, corporation (other than a bank as defined in section
3(a)(2) of the Act or a savings and loan association or other
institution referenced in section 3(a)(5)(A) of the Act or a foreign
bank or savings and loan association or equivalent institution),
partnership, or Massachusetts or similar business trust; or
[ ] Any investment advisor registered under the Investment Advisors Act.
OR
[ ] Any dealer registered pursuant to section 15 of the Exchange Act,
acting for its own account or the accounts of other qualified
institutional buyers, that in the aggregate owns and invests on a
discretionary basis at least $10 million of securities of issuers that
are not affiliated with the dealer, provided, that securities
constituting the whole or a part of an unsold allotment to or
subscription by a dealer as a participant in a public offering shall
not be deemed to be owned by such dealer.
OR
[ ] Any dealer registered pursuant to section 15 of the Exchange Act
acting in a riskless principal transaction on behalf of a qualified
institutional buyer;
OR
[ ] Any investment company registered under the investment Company Act,
acting for its own account or for the accounts of other qualified
institutional buyers, that is part of a family of investment companies
which own in the aggregate at least $100 million in Securities of
issuers, other than issuers that are affiliated with the investment
company or are part of such family of investment companies. Family of
investment companies means any two or more investment companies
registered under the Investment Company Act, except for a unit
investment trust whose assets consist solely of shares of one or more
registered investment companies, that have the same investment adviser
(or, in the case of unit investment trusts, the same depositor),
provided that, for purposes of this section: (A) Each series of a
series company (as defined in Rule 18f-2 under the Investment Company
Act [17 CFR 270.1 8f-2]) shall be deemed to be a separate investment
company; and (B) Investment companies shall be deemed to have the same
adviser (or depositor) if their advisers (or depositors) are
majority-owned subsidiaries of the same parent, or if one investment
company's advisor (or depositor) is a majority-owned subsidiary of the
other investment company's advisor (or depositor).
OR
[ ] Any entity, all of the equity owners of which are qualified
institutional buyers acting for its own account or the accounts of
other qualified institutional buyers; and
OR
[ ] Any bank as defined in section 3(a)(2) of the Act, any savings and
loan association or other institution as referenced in section
3(a)(5)(A) of the Act, or any foreign bank or savings and loan
association or equivalent institution, acting for its own account or
the accounts of other qualified institutional buyers, that in the
aggregate owns and invests on a discretionary basis at least $100
million in securities of issuers that are not affiliated with it and
that has an audited net worth of at least $25 million as demonstrated
in its latest annual financial statements, as of a date not more than
16 months preceding the date of sale under the Rule in the case of a
U.S. bank or savings and loan association, and not more than 18 months
preceding such date of sale for a foreign bank or savings and loan
association or equivalent institution.
Dated:________________________ ________________________________
Signature
- --------------------------------
Print or type name
- --------------------------------
Print or type name of entity
- --------------------------------
Print or type title or position of signatory
Note: "The person signing this Ceniticate warrants, by his or her
signature above, that he or she is fully authorized and empowered
by any entity named above to make the representations contained
herein with respect to such entity.
THE SECURITIES MAY NOT BE SOLD UNLESS THE PURCHASER CERTIFIES THAT AT LEAST
ONE OF THE CRITERIA SET FORTH ABOVE IS MET BY COMPLETING AND EXECUTING THIS
CERTIFICATE
<PAGE>
EXHIBIT F
TO NOTE AND COMMON STOCK PURCHASE AGREEMENT DATED
JANUARY 20, 1999
Attorney Letterhead (Horwitz & Beam)
January 20, 1999
____________, a ________ corporation
c/o Robert Tucker, Esq.
61 Purchase Street, #2
Rye, New York 10580
Re: Beta Oil & Gas, Inc.
Ladies and Gentlemen:
We have acted as counsel to Beta Oil & Gas, Inc., a Nevada
corporation (the "Cornpany"), in connection with (i) the execution
and delivery by the Company of the Note and Common Stock Purchase
Agreement, the Secured Promissory Notes, the Security Agreement, the
Registration Rights Agreement, all dated as of January 20,1999
(collectively, the "Transaction Documents'), to which ____, a
corporation, (collectively, the "Purchasers") and the Company are
signatories and (ii) the transactions contemplated to be consummated
by the Company under the Transaction Documents on the date hereof. We
are rendering this Opinion pursuant to Section 7.l (vii) of the Note
and Common Stock Purchase Agreement. Capitalized terms used and not
otherwise defined herein shall have the same meanings as are ascribed
thereto in the various Transaction Documents.
As counsel in this capacity, we have examined the following:
(i) each of the Transaction Documents, (ii) a copy of the Articles of
Incorporation and By-laws of the Company, including any amendments
thereto to date, (iii) records of the proceedings and actions of the
Company's board of directors, (iv) certificates of the Nevada
Secretary of State (dated October 23, 1998), (v) a certificate of an
executive officer of the Company (of even date herewith), and (vi)
such other documents, records, and items as we have deemed necessary
or relevant for purposes of the opinions hereinafter expressed.
For purposes of this opinion, we have also made the following
assumptions and have not made any factual, legal, or other inquiry or
investigation with respect thereto:
(i) that the Transaction Documents have been
duly authorized, executed, and delivered by
each of the Purchasers and each other party
thereto (other than the Company);
(ii) that all persons signing the Transaction
Documents on behalf of each of the Purchasers
and each other party thereto (other than the
Company) have the legal existence, power,
authority, and right so to sign;
(iii) that each of the agreements made by
each of the parties in each Transaction
Document executed by each of the Purchasers
is authorized by all appropriate corporate or
other actions of the respective Purchasers
and each other party thereto (other than the
Company) arid is in compliance with all
applicable laws and regulations affecting the
relevant Purchasers;
(iv) the genuineness of all signatures on
documents not signed in our presence (other
than those of the officers of the Company),
and the authenticity of all documents
submitted to us as originals and the
conformity with original documents of all
documents submitted to us as copies,
(v) that (x) each Transaction Document is
enforceable against each Purchaser and each
other party thereto (other than the Company);
(y) all actions required to be taken and all
conditions and requirements required to be
fulfilled under the Transaction Documents in
order to allow each Purchaser (other than
conditions and requirements to be fulfilled
by the Company) to enforce its rights
thereunder have been fully and effectively
taken and fulfilled; and (r) each Purchaser
has complied with all laws that may be
applicable to it with respect to the
execution and delivery of the Transaction
Documents, and purchasing the Notes and the
Common Shares, and other actions taken or
that may be taken by it thereunder;
(vi) that the representations and warranties
made by each Purchaser within the Transaction
Documents are true and complete in all
material in respects. and do not fail to
state any fact or information, the statement
of which is necessary to make than not
misleading in any material respect; and
(vii) that there are no documents other than
the Transaction Documents and no agreements
other than as contained in the Transaction
Documents between the Purchasers and the
Company or others that expand or otherwise
modify the obligations of the Company with
respect to the transactions contemplated by
the Transaction Documents and would have an
affect on the Opinions Set forth below.
For purposes of this opinion we have relied upon the accuracy
of: (i) the representations and warranties of each of the parties set
forth in the Transaction Documents, but only as to questions of fact,
(ii) the representations of an executive officer of the Company in a
certificate to us, and (iii) the certificates of public officials. In
addition to the assumptions set forth above, this opinion is subject
to the following qualifications and exceptions:
(a) enforcement may be limited by (i) applicable
bankruptcy, insolvency, fraudulent conveyance,
preference, reorganization, moratorium, or other
similar laws of general application affecting
creditors' rights (including equitable
subordination) and (ii) the application of the
rules of equity, including those respecting
availability of specific performance and general
principles of public policy (regardless of
whether enforcement is sought in equity or at
law);
(b) we express no opinion as to (i) the
enforceability of the choice of California law by
a federal court or by a state court outside the
State of California, (ii) conflicts of law
principles generally, (iii) the validity, binding
effect, or enforceability of any provision of the
Transaction Documents purporting to (A) prohibit
oral amendment or waiver of such documents or
limit the effect of a course of dealing between
the parties or (B) indemnify any pawn for its own
negligence, gross negligence, or willful
misconduct or release such person from the
consequences thereof, (iv) the enforceability of
any provision in the Transaction Documents
purporting to relate to delay by any party to the
Transaction Documents to exercise any right,
remedy, or option under the provisions thereof
not operating as a waiver, (v) the enforceability
of any provisions in the Transaction Documents,
as a whole, and in the Notes specifically, in
respect of interest to be charged to, or accrued
or paid by, the Company and whether any
provisions of any of the Transaction Documents,
individually or taken as a whole, if enforced,
would constitute a violation of any
Constitutional, statutory, administrative, or
case law regarding effective interest rates
(usury), and (vi) the priority of any liens or
security interests created by any or all of the
Transaction Documents in any of the Company's
property and whether, if applicable, the
Purchasers have possession of the collateral
described in any or all of the Transaction
Documents sufficient to perfect a security
interest therein;
(c) with respect to our opinions as to the good
standing and foreign qualification of the
Company, we have relied solely on the good
standing certificates referenced above and
delivered to us by public officials from the
State of Nevada; and
(d) the qualification that any right to
indemnification and contribution contained in the
Transaction Documents may be limited by United
States federal or state securities laws or the
policies underlying such laws.
We express no opinion as to the laws of any jurisdiction other
than (i) the laws of the State of California and (ii) the federal
laws of the United States of America to the extent specifically
referred to herein. We express no opinion as to any ordinances,
administrative decisions, or the rules and regulations of counties,
towns, municipalities, and special political subdivisions
As used herein, the term "knowledge" refers only to the actual
knowledge of our attorneys who participated in our representation of
the Company in connection with the negotiation, execution, and
delivery of the Transaction Documents. Unless otherwise expressly
indicated, the phrase "to our knowledge" does not imply any
investigation or inquiry on the part of our firm or any partner or
employee thereof. As used herein, the word "including" means
"including, without limitation."
Based upon and subject to the foregoing, we are of the opinion
that:
1. The Company is a corporation validly existing and
in good standing under the laws of the State of
Nevada, and is qualified as a foreign corporation in
California to own and operate its properties and
assets and to carry on its business as presently
conducted. The Company is not qualified as a foreign
corporation to do business in any other
jurisdictions.
2. The offer and sale of the Notes and Common Shares
in conformity with the terms of the Transaction
Documents will constitute transactions exempt from
the registration requirements of Section 5 of the
Securities Act.
3. No consent, approval, or authorization of or
designation, declaration, or filing with any court,
governmental authority, regulatory agency,
self-regulatory organization. stock exchange, or
market on the part of the Company is required in
connection with (i) the valid execution and delivery
of the Transaction Documents. (ii) the offer, sale,
or issuance of the Notes or the Common Shares, (iii)
the consummation of any other transaction
contemplated by the Transaction Documents, with the
exception of (A) the filing of one or more Notices
of Sale of Securities Pursuant to Regulation D (Form
D) with the SEC, (B) the filing of appropriate
notices with state securities commjssioners (blue
sky authorities), and (C) the filing of a
Registration Statement pursuant to the Registration
Rights Agreement.
4. The Company has all requisite corporate power
and authority to execute and deliver the
Transaction Documents to carry out all of its
obligations thereunder, including the sale and
issuance of the Notes and the Common Shares, in
accordance with the terms of the Transaction
Documents.
5. Each of the Transaction Documents has been duly and
validly authorized by all necessary corporate
action, and has been executed and delivered by, and
constitutes a valid and binding agreement of, the
Company and is enforceable against the Company in
accordance with its terms
6. The authorized capital stock of the Company is as
stated in the Articles of incorporation of the
Company and in Schedule 3.3 of the Note and Common
Stock Purchase Agreement. To our knowledge, there
have not been any shares of the capital stock of
the Company issued that are not validly issued,
fully paid, and non-assessable. All issued and
outstanding shares of Common Stock of the Company
are free of any preemptive or similar rights
contained in the Articles of Incorporation or
Bylaws of the Company or, to our knowledge, in any
agreement by which the Company is bound.
7. Upon payment therefor, the Common Shares will be
validly issued, fully paid, and non-assessable, and
free of any preemptive or similar rights contained
in the Articles of incorporation or the By-laws of
the Company or, to our knowledge, of any agreement
by which the Company is bound.
8. The execution and delivery of, and compliance
with the terms of: the Transaction Documents,
including the issuance of the Common Shares, as
contemplated thereby, do not and will not conflict
with or result in a breach or default by the
Company of any of the terms or provisions of: (i)
the Articles of Incorporation or the By-laws of the
Company, (ii) to our knowledge, any existing
applicable decree, judgment, or order of any court,
federal or state regulatory body, administrative
agency, or other governmental body having
jurisdiction over the Company or any of its
properties or assets, (iii) to our knowledge,
conflict with, or constitute a default (or an event
which with notice or lapse of time or both would
become a default) under, or give to others any
rights of terminations, amendments, accelerations,
or cancellation of, any agreement, indenture, or
instrument to which the Company is a party (except
for such conflicts, defaults, termination,
amendments, accelerations, cancellations, arid
violations as would not, individually or in the
aggregate, have a Material Adverse Effect), or (iv)
federal or California State law. However, we
express no opinion on usury laws and encourage
purchaser to undertake its own investigation into
such laws.
9. To our knowledge, there is no litigation,
pending or threatened, that could or that would
impair the ability of the Company to issue and
deliver the Common Shares, or to comply with the
provisions of the Transaction Documents or
otherwise have a Material Adverse Effect.
This opinion is furnished to the Purchasers solely for their
benefit in connection with the sale and issuance of the Notes and the
Common Shares, as contemplated by the Transaction Documents, and may
not be relied upon by any other person (other than the Company) or
for any other purpose without our prior written consent. This opinion
is limited to matters expressly set forth herein and no opinion may
be inferred or implied beyond the matters expressly stated in this
opinion on the date hereof. We shall have no obligation to update any
of the matters set forth in this opinion.
We bring to your attention the fact that our legal opinions
are an expression of professional judgment and are not a guarantee of
a result.
Very truly yours,
HORWITZ & BEAM
NOTE AND COMMON STOCK PURCHASE AGREEMENT
This NOTE AND COMMON STOCK PURCHASE AGREEMENT
("Agreement") is entered into as of March 19, 1999, by and between BETA
OIL & GAS, INC., a Nevada corporation (the "Company"), with
headquarters located at 901 Dove Street, Suite 230, Newport Beach,
California 92660 and Aztore Holdings, Inc. (the "Purchaser") an Arizona
Corporation with principal offices at 3170 E. Kent Drive, Phoenix, AZ
85004 set forth on the execution pages hereof, with regard to the
following:
RECITALS
A. The Company and Purchaser are executing and
delivering this Agreement in reliance upon the exemption from
securities registration afforded by the provisions of Regulation D
("Regulation D"), as promulgated by the United States Securities and
Exchange Commission (the "SEC") under the Securities Act of 1933 as
amended (the "Securities Act").
B. Purchaser desires to purchase, upon the terms and
conditions stated in this Agreement, Secured Promissory Notes ("Notes")
and shares of the Company's Common Stock, $.001 par value (the "Common
Stock"). The shares of Common Stock issuable hereunder are referred to
herein as the Common Shares. The Notes and Common Shares are sometimes
referred to herein jointly as the "Securities."
C. Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a
Registration Rights Agreement in the form attached hereto as Exhibit A
(the "Registration Rights Agreement"), pursuant to which the Company
has agreed to provide certain registration rights under the Securities
Act, the rules and regulations promulgated thereunder and applicable
state securities laws and a Security Agreement in the form attached
hereto as Exhibit B (the "Security Agreement") and a Mortgage, Security
Agreement and Financing Statement ("Mortgage") pursuant to which the
Company has agreed and will agree to grant the Purchaser a security
interest in its assets (the "Collateral").
AGREEMENTS
NOW, THEREFORE, in consideration of their respective promises
contained herein and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Company and
Purchaser hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF NOTES AND COMMON STOCK
1.1 Purchase of Notes and Common Shares. Subject to the terms and
conditions of this Agreement, the issuance, sale and purchase of the
Notes and Common Shares shall be consummated in a "Closing". On the
date of the Closing ("Closing Date"), subject to the satisfaction or
waiver of the conditions set forth in Articles V and VII, the Company
shall issue and sell to Purchaser, and Purchaser agrees to purchase
from the Company, a Note of the Company in the amount set forth on the
signature page executed by Purchaser. The Note shall be in the form of
Exhibit C hereto.
1.2 Security Agreement. Concurrently with the sale of the Note, the
Company and the Purchaser shall execute the Security Agreement. In
addition, the Company shall take all action reasonably necessary to
cause a UCC Form 1 Financing Statement and similar documents to be
filed in all jurisdictions as necessary to cause Purchaser to have a
perfected security interest in the Collateral.
1.3 Mortgage, Security Agreement and Financing Statement. On
or before July 1, 1999 the Company shall deliver and cause to be
recorded a Mortgage, in form as approved by Purchaser, in such
jurisdiction as necessary to cause Purchaser to have a perfected
security interest in the producing oil and gas wells and related
leasehold interests in the producing oil and gas wells comprising the
Collateral and identified in Exhibit G hereto (the "Oil & Gas
Properties").
1.4 Issuance of Common Shares. Concurrently with the sale of the
Notes, the Company shall issue to each Purchaser Common Shares.
The Common Shares issuable shall be determined as provided herein.
A. Closing Date Common Shares. On the Closing Date, the
Company shall issue to Purchaser that number of Common Shares
determined by multiplying the amount of the Notes issued to Purchaser
by 10% (the "Coverage Percentage"). By way of example if Purchaser
invested $1,000,000 in Notes, Purchaser would be issued 100,000 Common
Shares ($1,000,000 x 10% = 100,000); if a Purchaser invested 250,000 in
Notes, such Purchaser would be issued 25,000 Common Shares
($250,000x10% = 25,000).
B. Additional Common Shares. If any portion of the principal
of the Note remains unpaid on the 30th, 60th, 90th, 120th, 160th,
180th, 210th, 240th, 270th, 300th, 330th and/or the 360th day following
the Closing Date, then on the day following any of such dates, the
Company shall issue to Purchaser, that number of Common Shares
determined by the above formula and a Coverage Percentage, in each
instance, of 1%. For examples, if $1,000,000 of principal remains
unpaid on the 30th day following the Closing Date, then on the
following day the Purchaser would be issued an additional 10,000 Common
Shares ($1,000,000 x 1%=10,000); if $250,000 of principal remains
unpaid on the 30th day following the Closing Date, then on the
following day the Purchaser would be issued an additional 2,500 Common
Shares ($250,000 x 1% = 2,500).
C. INTENTIONALLY LEFT BLANK.
1.4 Form of Payment. Each Purchaser shall pay the aggregate
Purchase Price for the Notes and Common Shares being purchased by such
Purchaser by wire transfer to the account designated by the Company.
1.5 Closing Date. Subject to the satisfaction (or waiver) of
the conditions set forth in Articles VI and VII below, the date and
time of the issuance, sale and purchase of the Notes and Common Shares
pursuant to this Agreement shall be at 10:00 a.m. California time, on
March 19, 1999 or when usable funds have been received by the Company,
whichever is later.
ARTICLE II
PURCHASER REPRESENTATIONS AND
WARRANTIES
Purchaser represents and warrants as of the date hereof and as
of the Closing to the Company as set forth in this Article II.
Purchaser makes bo other representations or warranties, express or
implied, to the Company in connection with the transactions
contemplated hereby and any and all prior representations and
warranties, if any, which may have been made by a Purchaser to the
Company in connection with the transactions contemplated hereby shall
be deemed to have been merged in this Agreement and any such prior
representations and warranties, if any, shall not survive the execution
and delivery of this Agreement.
2.1 Investment Purpose. Purchaser is purchasing the Securities for
Purchaser's own account for investment only and not with a view toward or
in connection with the public sale or distribution thereof. Purchaser will
not, directly or indirectly offer, sell, pledge (subject to Section 4.11)
or otherwise transfer its Securities or any interest therein except
pursuant to transactions that are exempt from the registration requirements
of the Securities Act and/or sales registered under the Securities Act.
Purchaser understands that Purchaser must bear the economic risk of this
investment indefinitely, unless the Securities are registered pursuant to
the Securities Act and any applicable state securities laws or an exemption
from such registration is available, and that the Company has no present
intention of registering any such Securities other than contemplated by the
Registration Rights Agreement. By making the representations in this
Section 2.1, Purchaser does not agree to hold the Securities for any
minimum or other specific term (except as otherwise provided herein) and
reserves the right to dispose of the Securities at any time in accordance
with or pursuant to a registration statement or an exemption from
registration under the Securities Act and any applicable state securities
laws.
2.2 Accredited Investor. Purchaser is an "Accredited Investor"
as that term is defined in Rule 501 (a) (3) of the Securities Act of
1933. Purchaser is a corporation with assets in excess of $5,000,000.
2.3 Reliance on Exemptions. Purchaser understands that the
Securities are being offered and sold to Purchaser in reliance upon
specific exemptions from the registration requirements of United States
federal and state securities laws and that the Company is relying upon
the truth and accuracy of, and Purchaser's compliance with, the
representations, warranties, agreements, acknowledgments and
understandings of Purchaser set forth herein in order to determine the
availability of such exemptions and the eligibility of Purchaser to
acquire the Securities
2.4 Information. Purchaser or its counsel have been furnished
all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Securities
which have been specifically requested by Purchaser, including without
limitation the Company's Form S-1 Registration Statement Dated November
16, 1998 filed with the Securities and Exchange Commission ("SEC") on
December 4, 1998. Purchaser has been afforded the opportunity to ask
questions of the Company and has received what Purchaser believes to be
complete and satisfactory answers to any such inquiries. Purchaser
understands that Purchaser's investment in the Securities involves a
high degree of risk, including without limitation the risks and
uncertainties disclosed in the SEC Document.
2.5 Governmental Review. Purchaser understands that no United
States federal or state agency or any other government or governmental
agency has passed upon or made any recommendation or endorsement of the
Securities.
2.6 Transfer or Resale. Purchaser understands that (i) except as provided
in the Registration Rights Agreement, the Securities have not been and
are not being registered under the Securities and/or any state
securities laws, and may not be offered, sold, pledged (subject to
Section 4.11 of this Agreement) or otherwise transferred unless
subsequently registered thereunder or an exemption from such
registration is available (which exemption the Company expressly agrees
may be established as contemplated in clauses (b) and (c) of Section
5.1 hereof); (ii) any sale of such Securities made in reliance on Rule
144 under the Securities Act (or a successor rule) ("Rule 144") may be
made only in accordance with the terms of Rule 144 and further, if Rule
144 is not applicable, any resale of such Securities without
registration under the Securities Act under circumstances in which the
seller may be deemed to be an underwriter (as that term is defined in
the Securities Act) may require compliance with some other exemption
under the Securities Act or the rules and regulations of the SEC
thereunder in order for such resale to be allowed, and (iii) neither
the Company nor any other person is under any obligation to register
such Securities under the Securities Act or any state securities laws
or to comply with the terms and conditions of any exemption thereunder
(in each case, other than pursuant to this Agreement or the
Registration Rights Agreement).
2.7 Legends. Purchaser understands that, subject to Article V
hereof, until such time as the Securities have been registered under
the Securities Act as contemplated by the Registration Rights Agreement
or otherwise may be sold by Purchaser pursuant to Rule 144 (subject to
and in accordance with the procedures specified in Article V hereof)
the certificates for the Securities will bear a restrictive legend (the
"Legend") in the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE
SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE
SECURITIES LAWS OR UNLESS OFFERED, SOLD OR TRANSFERRED
PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS. THESE SECURITIES ARE ALSO SUBJECT
TO THE TERMS OF A NOTE AND COMMON STOCK PURCHASE AGREEMENT
DATED MARCH 19, 1999 A COPY OF WHICH IS AVAILABLE FROM BETA
OIL & GAS, INC.
2.8 Authorization: Enforcement. This Agreement, the Registration Rights
Agreement and the Security Agreement have been duly and validly authorized,
executed and delivered on behalf of Purchaser and are valid and binding
agreements of Purchaser enforceable in accordance with their respective terms,
except to the extent that such validity or enforceability may be subject to or
affected by any bankruptcy, insolvency, reorganization, moratorium, liquidation
or similar laws relating to, or affecting generally the enforcement of
creditors' rights or remedies of creditors generally or by other equitable
principles of general application.
2.9 Residency. Purchaser is a resident of the jurisdiction set forth under
Purchaser's name on the signature page hereto executed by Purchaser.
2.10 No Brokers. The Purchaser has taken no action which would give rise to any
claim by any person for brokerage commission, finder fees or similar payments
relating to this Agreement or the transaction contemplated hereby.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Purchaser as of the date hereof and as of
the Closing that:
3.1 Organization and Qualification. Except as set forth on Schedule 3.1,
each of the Company and its subsidiaries is a corporation duly organized and
existing in good standing under the laws of the jurisdiction in which it is
incorporated, and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. The Company and each of its
subsidiaries is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction where the failure so to qualify or be in
good standing would have a Material Adverse Effect. "Material Adverse Effect"
means any effect which, individually or in the aggregate with all other effects,
reasonably would be expected to be materially adverse to the business,
operations, properties, financial condition, operating results or prospects of
the Company and its subsidiaries, taken as a whole on a consolidated basis or on
the transactions contemplated hereby.
3.2 Authorization; Enforcement. (a) The Company has the requisite
corporate power and authority to enter into and perform this Agreement, the
Note, the Registration Rights Agreement and the Security Agreement and the
Mortgage (collectively the "Loan Documents"), and to issue, sell and perform its
obligations with respect to the Securities in accordance with the terms hereof
and thereof; (b) the execution, delivery and performance of by the Company and
the consummation by it of the transactions contemplated hereby and thereby
(including, without limitation, the issuance of the Securities) have been duly
authorized by all necessary corporate action and, no further consent or
authorization of the Company, its board of directors, or its shareholders or any
other person, body or agency is required with respect to any of the transactions
contemplated hereby or thereby (whether under rules of the Nasdaq National
Market, the Nasdaq Small Cap Market, the National Association of Securities
Dealers, Inc. ("NASD") or otherwise); (c) the Loan Documents and certificates
for the Common Shares have been duly executed and delivered by the Company; and
(d) this Agreement, the Registration Rights Agreement, and the Secured
Promissory Notes and Common Shares constitute legal, valid and binding
obligations of the Company enforceable against the Company in accordance with
their respective terms, except (i) to the extent that such validity or
enforceability may be subject to or affected by any bankruptcy, insolvency.
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditor's rights or remedies of
creditors generally, or by other equitable principles of general application,
and (ii) as rights to indemnity and contribution under the Registration Rights
Agreement may be limited by Federal or state securities laws. The Company has
duly reserved all Common Shares from time to time issuable under the terms of
this agreement.
3.3 Capitalization. The capitalization of the Company as of the date
hereof, including the authorized capital stock, the number of shares issued and
outstanding, the number of shares reserved for issuance pursuant to the
Company's stock option plans, the number of shares reserved for issuance
pursuant to securities exercisable for, or convertible into or exchangeable for
any shares of Common Stock is set forth on Schedule 3.3. All of such outstanding
shares of capital stock have been, or upon issuance following full payment
therefor will be, validly issued, fully paid and nonassessable. No shares of
capital stock of the Company are subject to preemptive rights or any other
similar rights of the shareholders of the Company or any liens or encumbrances.
Except as disclosed in Schedule 3.3, as of the date of this Agreement, (i) there
are no outstanding options, warrants, scrip, rights to subscribe for, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exercisable or exchangeable for, any shares of capital stock
of the Company or any of its subsidiaries, or contracts, commitments,
understandings or arrangements by which the Company or any of its subsidiaries
is or may become bound to issue additional shares of capital stock of the
Company or any of its subsidiaries, and (ii) issuance of the Common shares will
not trigger antidilution rights for any other outstanding or authorized
securities of the Company, and (iii) there are no agreements or arrangements
under which the Company or any of its subsidiaries is obligated to register the
sale of any of its or their securities under the Securities Act (except the
Registration Rights Agreement and what is set forth on Schedule 3.3). The
Company has furnished to Purchaser true and correct copies of the Company's
Articles of Incorporation as in effect on the date hereof ("Articles of
Incorporation"), and the Company's By-laws as in effect on the date hereof (the
"By-laws"). The Company has set forth on Schedule 3.3 all instruments and
agreements (other than the Certificate of Incorporation and By-laws) governing
securities convertible into or exercisable or exchangeable for Common Stock of
the Company (and the Company shall provide to Purchaser copies thereof upon the
request of Purchaser).
3.4 Issuance of Shares. The Common Shares to be issued to Purchaser
under the terms of this Agreement are duly authorized and reserved for issuance,
and following full payment therefor, will be validly issued, fully paid and
non-assessable, and free from all taxes, liens, claims and encumbrances imposed
or suffered by the Company and will not be subject to preemptive rights or other
similar rights of shareholders of the Company.
3.5 No Conflicts. The execution, delivery and performance of this
Agreement, the Registration Rights Agreement and the Security Agreement by the
Company, and the consummation by the Company of transactions contemplated hereby
and thereby (including, without limitation, the issuance of the Securities) do
not and will not (a) result in a violation of the Articles of Incorporation or
By-laws or (b) conflict with, or constitute a default (or an event which, with
notice or lapse of time or both, would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of any
agreement indenture or instrument to which the Company or any of its
subsidiaries is a party, or to the best knowledge of the Company, result in a
violation of any law, rule, regulation, order, judgment or decree (including
U.S. federal and state securities laws and regulations and the rules and
regulations of NASDAQ) applicable to the Company or any of its subsidiaries, or
by which any property or asset of the Company or any of its subsidiaries, is
bound or affected (except for such possible conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect). Except as set
forth in Schedule 3.5, neither the Company nor any of its subsidiaries is in
violation of its Articles of Incorporation or other organizational documents,
and neither the Company nor any of its subsidiaries, is in default (and no event
has occurred which has not been waived which, with notice or lapse of time or
both, would put the Company or any of its subsidiaries in default) under, nor
has there occurred any event giving others (with notice or lapse of time or
both) any rights of termination, amendment, acceleration or cancellation of, any
agreements indenture or instrument to which the Company or any of its
subsidiaries is a party, except for possible violations, defaults or rights as
would not, individually or in the aggregate, have a Material Adverse Effect. The
businesses of the Company and its subsidiaries are not being conducted. and
shall not be conducted so long as purchaser owns any of the Securities, in
violation of any law, ordinance or regulation of any governmental entity, except
for possible violations the sanctions for which either individually or in the
aggregate would not have a Material Adverse Effect. Except as set forth on
Schedule 3.5, or except (A) such may be required under the Securities Act in
connection with the performance of the Company's obligations under the
Registration Rights Agreement, (B) filing of a Form D with the SEC, (C)
compliance with the state securities or Blue Sky laws of applicable
jurisdictions, and (D) as required by Nasdaq, the Company is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency or any regulatory or
self-regulatory agency in order for it to execute deliver or perform any of its
obligations under this Agreement or the Registration Rights Agreement or to
perform its obligations in accordance with the terms hereof or thereof.
3.6 SEC Documents. The Company is not presently subject to the reporting
requirements of the Securities Exchange Act of 1934 (the "Exchange Act"). The
Company has filed with the principal office of the Securities and Exchange
Commission (the "Commission") in Washington, DC, and 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. At such time that this Registration Statement becomes effective, the
Company intends to register under the Exchange Act. Upon effectiveness, 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. As of its date, the Registration
Statement complied in all material respects with the requirements of the
Securities Act and the rules and regulations of the SEC promulgated thereunder
applicable to the Registration Statement, and the Registration Statement, at the
time it was filed with the SEC, did not contain any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. None of the statements
made in the Registration Statement which is required to be updated or amended
under applicable law has not been so updated or amended except for the
disclosures which will be required as a result of this Agreement, the Company's
joint exploration agreements with Cheniere Energy, Inc., "Plain English"
Disclosures required by the SEC and any SEC legal and accounting comments and
resultant changes which will be required by the SEC upon their review of the
Registration Statement. The financial statements of the Company included in the
Registration Statement have been prepared in accordance with U.S. generally
accepted accounting principles, consistently applied, and the rules and
regulations of the SEC during the periods involved except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they do not include
footnotes or are condensed or summary statements) and present accurately and
completely the consolidated financial position of the Company and its
consolidated subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments). Except as
set forth in a manner clearly evident to a sophisticated investor in the
financial statements or the notes thereto of the Company included in the
Registration Statement, the Company has no liabilities, contingent or otherwise,
other than (i) liabilities incurred in the ordinary course of business
consistent with past practice subsequent to the date of such financial
statements and (ii) obligations under contracts and commitments incurred in the
ordinary course of business consistent with past practice and not required under
generally accepted accounting principles to be reflected in such financial
statements, in each case of clause (i) and (ii) next above which, individually
or in the aggregate, are not material to the financial condition, business,
operations, properties, operating results or prospects of the Company and its
subsidiaries. To the extent required by the rules of the SEC applicable thereto,
the Registration Statement contains a complete and accurate list of all material
undischarged written or oral contracts, agreements, leases or other instruments
to which the Company or any subsidiary is a party or by which the Company or any
subsidiary is bound or to which any of the properties or assets of the Company
or any subsidiary is subject (each a "Contract"). Except as set forth in
Schedule 3.6, none of the Company, its subsidiaries or, to the best knowledge of
the Company, any of the other parties thereto, is in breach or violation of any
Contract which breach or violation would have a Material Adverse Effect. No
event, occurrence or condition exists which, with the lapse of time, the giving
of notice, or both, would become a default by the Company or its subsidiaries
thereunder which would have a Material Adverse Effect. The Company has not
provided to any Purchaser any material non-public information or any other
information which, according to applicable law,
rule or regulation, should have been disclosed publicly by the Company but
which has not been so disclosed.
3.7 Absence of Certain Changes. Since September 30, 1998, there has
been no material adverse change and no material adverse development in the
business, properties, operations, financial condition, results of operations or
prospects of the Company, except as disclosed in Schedule 3.7 or clearly evident
to a sophisticated institutional investor from the Registration Statement.
3.8 Absence of Litigation. Except as disclosed in Schedule 3.8 or as
clearly evident to a sophisticated investor from the Registration Statement,
there is no action, suit, proceeding, inquiry or investigation before or by any
court, public board, government agency, or self-regulatory organization or body
pending or, to the knowledge of the Company or any of its subsidiaries,
threatened against or affecting the Company, any of its subsidiaries or any of
their respective directors or officers in their capacities as such, which could
reasonably be expected to result in an unfavorable decision, ruling or finding
which would have a Material Adverse Effect or would adversely affect the
transactions contemplated by this Agreement or any of the documents contemplated
hereby or which would adversely affect the validity or Enforceability of, or the
authority or ability of the Company to perform its obligations under, this
Agreement or any of such other documents. There are no facts known to the
Company which, if known by a potential claimant or governmental authority, could
reasonably be expected to give rise to a claim or proceeding which, if asserted
or conducted with results unfavorable to the Company or any of its subsidiaries,
could reasonably be expected to have a Material Adverse Effect.
3.9 Disclosure. No information relating to or concerning the Company set
forth in this Agreement contains an untrue statement of a material fact. No
information relating to or concerning the Company set forth in the Registration
Statement contains a statement of material fact that was untrue as of the date
the Registration Statement was filed with the SEC. The Company has not omitted
to state a material fact necessary in order to make the statements made herein
or herein, in light of the circumstances under which they were made, not
misleading. Except for the execution and performance of this Agreement and the
Company's joint exploration agreements with Cheniere Energy, Inc., no material
fact (within the meaning of the federal securities laws of the United States and
of applicable state securities laws) exists with respect to the Company which
has not been publicly disclosed which requires such disclosure.
3.10 Acknowledgment Regarding Purchaser's Purchase of the Securities.
The Company acknowledges and agrees that Purchaser is not acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with respect to
this Agreement or the transactions contemplated hereby, that this Agreement and
the transaction contemplated hereby, and the relationship between each Purchaser
and the Company, are "arms-length", and that any statement made by Purchaser
(except as set forth in Article II), or any of its representatives or agents, in
connection with this Agreement and the transactions contemplated hereby is not
advice or a recommendation, is merely incidental to Purchaser's purchase of the
Securities and has not been relied upon as such in any way by the Company, its
officers or directors, The Company further represents to Purchaser that the
Company's decision to enter into this Agreement and the transactions
contemplated hereby have been based solely on an independent evaluation by the
Company and its representatives.
3.11 S-3 Registration. The Company is currently not eligible to
register the Common Shares on a registration statement on Form S-3 under the
Securities Act.
3.12 No General Solicitation. Neither the Company nor any distributor
participating on the Company's behalf in the transactions contemplated hereby
(if any) nor any person acting for the Company, or any such distributor, has
conducted any "general solicitation," as described in Rule 502(c) under
Regulation D, with respect to any of the Securities being offered hereby.
3.13 No Integrated Offerings. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would prevent the parties hereto from
consummating the transactions contemplated hereby pursuant to an exemption from
the registration under the Securities Act pursuant to the provisions of
Regulation D. The transactions contemplated hereby are exempt from the
registration requirements of the Securities Act, assuming the accuracy of the
representations and warranties herein contained of each Purchaser.
3.14 No Brokers. The Company and the Purchaser acknowledge that the
Company has taken no action which would give rise to any claim by any person for
brokerage commissions, finder's fees or similar payments relating to this
Agreement or the transactions contemplated hereby.
3.15 Ownership of Assets. The Company has good title to the assets comprising
the Collateral and the assets comprising the Collateral are free and clear of
liens, except for operator liens as provided for in operating agreements in the
normal course of business as disclosed in Exhibit G hereto or as clearly evident
to a sophisticated investor from the Registration Statement.
3.16 Key Employees. Each Key Employee as listed on Schedule 3.16 is
currently serving the Company in the capacity disclosed in Schedule 3.16. No Key
Employee, to the best of the knowledge of the Company and its subsidiaries, is,
or is now expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each Key Employee does not subject the
Company or any of its subsidiaries to any liability with respect to any of the
foregoing matters. No Key Employee has, to the best of the knowledge of the
Company and its subsidiaries, any intention to terminate his employment with; or
services to, the Company or any of its subsidiaries.
3.17 Rights Plan. The Company does not have in effect a shareholders
rights plan or similar plan in the nature of a "poison pill" except what is
disclosed in the Registration Statement.
ARTICLE IV
COVENANTS
4.1 Best Efforts. The parties shall use their best efforts to timely
satisfy each of the conditions described in Articles VI and VII of this
Agreement.
4.2 Securities Laws. The Company agrees to file a Form D with respect to
the Securities with the SEC as required under Regulation D and to provide a copy
thereof to each Purchaser within fifteen (15) days after the date of Closing.
The Company shall, on or prior to the date of Closing, take such action as is
necessary to sell the Securities to Purchaser under applicable securities laws
of the states of the United States, and shall provide evidence of any such
action so taken to Purchaser on or prior to the date of the Closing.
4.3 Reporting Status. The Company is not presently subject to the reporting
requirements of the Securities Exchange Act of 1934 (the "Exchange Act"). 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"). At such time that the Registration Statement
becomes effective, the Company intends to file for registration under the 1934
Exchange Act and will become subject to the reporting requirements of the
Exchange Act. For the period ending two (2) years from the Closing, (a) the
Company shall then timely file all reports required to be filed with the SEC
pursuant to the Exchange Act, and the Company shall not terminate its status as
an issuer required to file reports under the Exchange Act even if the Exchange
Act or the rules and regulations thereunder would permit such termination, and
(b) the Company will maintain its ability to register its Common Stock on Form
S-3 if, and at such time, the Company becomes eligible to use Form S-3.
4.4 INTENTIONALLY LEFT BLANK
4.5 INTENTIONALLY LEFT BLANK
4.6 Information. For the period ending two (2) years from the Closing, the
Company agrees to send the following reports to Purchaser until Purchaser
transfers, assigns or sells all of its Securities in transactions in which the
transferee is (unless such transferee is an affiliate of the Company) not
subject to securities law resale restrictions: (a) within ten (10) business days
after the filing with the SEC, a copy of its Annual Report on Form 10-K, its
Quarterly Reports on Form 10-Q, any proxy statements and any Current Reports on
Form 8-K; and (b) within one (1) business day after release, copies of all press
releases issued by the Company or any of its subsidiaries. The Company further
agrees to promptly provide to any Purchaser any information with respect to the
Company, its properties, or its business or Purchaser's investment as such
Purchaser may reasonably request; provided, however that the Company shall not
be required to give Purchaser any material nonpublic information. If any
information requested by Purchaser from the Company contains material nonpublic
information, the Company shall inform the Purchaser in writing that the
information requested contains material nonpublic information and shall in no
event provide such information to Purchaser without the express written consent
of Purchaser after being so informed.
4.7 Listing. For the period ending two (2) years from the Closing, the
Company shall use its reasonable best efforts to obtain and then continue the
uninterrupted quotation and trading of its Common Stock, including the shares to
be issued to Purchaser, on the Nasdaq SmallCap Market or the Nasdaq NMS; and, if
so quoted and traded, comply in all respects with the Company's reporting,
filing and other obligations under the By-laws or rules of the Nasdaq Small Cap
Market or the Nasdaq NMS, as applicable.
4.8 Prospectus Delivery Requirement. Each Purchaser understands that the
Securities Act may require delivery of a prospectus relating to the Common Stock
in connection with any sale thereof pursuant to a registration statement under
the Securities Act covering the resale by such Purchaser of the Common Stock
being sold, and each Purchaser shall comply with the applicable prospectus
delivery requirements of the Securities Act in connection with any such sale.
4.9 Corporate Existence. For the period ending two (2) years from the
Closing, the Company shall maintain its corporate existence, except in the event
of a merger, consolidation or sale of all or substantially all of the Company's
assets, as long as the surviving or successor entity in such transaction (i)
assumes the Company's obligations hereunder and under the agreements and
instruments entered into in connection herewith and (ii) is a publicly traded
corporation whose common stock is listed for trading on the NASDAQ, the New York
Stock Exchange, the Pacific Stock Exchange or the American Stock Exchange.
4.10 INTENTIONALLY LEFT BLANK.
4.11 Pledging and Margining. Notwithstanding anything in this Agreement to
the contrary and assuming such Common Shares are eligible to be margined under
applicable regulations, Purchaser may pledge, margin or otherwise encumber the
Common Shares unless the result of any such activity would be that such Common
Shares would be available for lending and/or borrowing in connection with short
sales of the Common Stock by any third party.
4.12 INTENTIONALLY LEFT BLANK.
4.13 Use of Proceeds. The Company will use the proceeds of the sale of the
Securities for working capital or such other purposes as management of the
Company's Board of Directors shall determine.
4.14 INTENTIONALLY LEFT BLANK.
ARTICLE V
LEGEND REMOVAL, TRANSFER AND CERTAIN SALES
5.1 Removal of Legend. The Legend shall be removed and the Company shall
issue a certificate without such Legend to the holder of any Security upon which
it is stamped, and a certificate for a security shall be originally issued
without the Legend, if (a) the sale of such Security is registered under the
Securities Act, (b) such holder provides the Company with an opinion of counsel,
in form, substance and scope customary for opinions of counsel in comparable
transactions and reasonably satisfactory to the Company and its counsel (the
reasonable cost of which shall be borne by the Company if neither an effective
registration statement under the Securities Act nor Rule 144 is available in
connection with such sale) to the effect that a public sale or transfer of such
Security may be made without registration under the Securities Act pursuant to
an exemption from such registration requirements, (c) such Security can be sold
pursuant to Rule 144 and the holder provides the Company with reasonable
assurances that the Security can be so sold without restriction or (d) such
Security can be sold pursuant to Rule 144(k). Each Purchaser agrees to sell all
Securities, including those represented by a certificate(s) from which the
Legend has been removed, or which were originally issued without the Legend,
pursuant to an effective registration statement, in accordance with the manner
of distribution described in such registration statement and to deliver a
prospectus in connection with such sale, or in compliance with an exemption from
the registration requirements of the Securities Act. In the event the Legend is
removed from any Security or any Security is issued without the Legend and the
Security is to be disposed of other than pursuant to the registration statement
or pursuant to Rule 144, then prior to, and as a condition to, such disposition
such Security shall be relegended as provided herein in connection with any
disposition if the subsequent transfer thereof would be restricted under the
Securities Act. Also, in the event the Legend is removed from any Security or
any Security is issued without the Legend and thereafter the effectiveness of a
registration statement covering the resale of such Security is suspended or the
Company determines that a supplement or amendment thereto is required by
applicable securities laws, then upon reasonable advance notice to Purchaser
holding such Security, the Company may require that the Legend be placed on any
such Security that cannot then be sold pursuant to an effective registration
statement or Rule 144 or with respect to which the opinion referred to in clause
(b) next above has not been rendered, which Legend shall be removed when such
Security may be sold pursuant to an effective registration statement or Rule 144
or such holder provides the opinion with respect thereto described in clause (b)
next above.
5.2 Transfer Agent Instructions. The Company shall or shall instruct its
transfer agent to issue certificates, registered in the name of Purchaser or its
nominee, for the Securities. Such certificates shall bear the Legend only to the
extent provided by Section 5.1 above. The Company covenants that no instruction
other than such instructions referred to in the Article V, and stop transfer
instructions to give effect to Section 2.6 hereof in the case of the Securities
prior to registration of the Securities under the Securities Act, will be given
by the Company to its transfer agent and that the securities shall otherwise be
freely transferable on the books and records of the Company. Nothing in this
section shall affect in any way each Purchaser's obligations and agreement set
forth in Section 5.1 hereof to resell the Securities pursuant to an effective
registration statement and to deliver a prospectus in connection with such sale
or in compliance with an exemption from the registration requirements of
applicable securities laws. If (a) a Purchaser provides the Company with an
opinion of counsel in comparable transactions and reasonably satisfactory to the
Company and its counsel (the reasonable cost of which shall be borne by the
Company if neither an effective registration statement under the Securities Act
nor Rule 144 is available in connection with such sale), to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption form registration or (b) a Purchaser transfers Securities to an
affiliate which is an accredited investor (within the meaning of Regulation D
under the Securities Act) and which delivers to the Company in written form the
same representations, warranties and covenants made by Purchaser hereunder or
pursuant to Rule 144, the Company shall permit the transfer, and, in the case of
the Securities, issue or promptly instruct its transfer agent to issue one or
more certificates in such name and in such denomination as specified by such
Purchaser. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to a Purchaser by vitiating the intent and
purposes of the transaction contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Article V will be inadequate and agrees in the event of a breach or threatened
breach by the Company of the provisions of this Article V, that a Purchaser
shall be entitled in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
5.3 INTENTIONALLY LEFT BLANK
ARTICLE VI
CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL
6.1 Conditions to the Company's Obligation to Sell. The obligation of the
Company hereunder to issue and sell the Securities to Purchaser at the Closing
is subject to the satisfaction, as of the Closing Date and with respect to
Purchaser, of each of the following conditions thereto, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion:
(i) Purchaser shall have executed and delivered the signature page to
this Agreement, the Registration Rights Agreement and the Security
Agreement;
(ii) Purchaser shall have wired or otherwise delivered the Purchase
Price to the account designated by the Company;
(iii) The representations and warranties of Purchaser shall be true and
correct in all material respects as of the date when made and as of the
Closing as though made at that time (except for representations and
warranties that speak as of a specific date), and Purchaser shall have
performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be
performed. satisfied or complied with by the Purchaser at or prior to
the Closing;
(iv) No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by
any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters
contemplated hereby which restricts or prohibits the consummation of
any of the transactions contemplated by this Agreement.
ARTICLE VII
CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE
7.1 The obligation of Purchaser hereunder to purchase the Securities to be
purchased by it on the Closing date is subject to the satisfaction of each of
the following conditions, provided that these conditions are for Purchaser's
sole benefit and may be waived by such Purchaser at any time in Purchaser's sole
discretion:
(i) The Company shall have executed and delivered the signature page to
this Agreement, the Registration Rights Agreement and the Security
Agreement.
(ii) The Company shall have immediately delivered to the Purchaser or
their counsel duly issued certificates for the Secured Promissory
Notes, and within 10 days delivered a copy of the instructions to the
Transfer Agent to issue Shares being so purchased by Purchaser at the
Closing.
(iii) INTENTIONALLY LEFT BLANK
(iv) The representations and warranties of the Company shall be true
and correct in all material respects as of the date when made and as of
the Closing as though made at that time and the Company shall have
performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior to the
Closing.
(v) No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by
any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement
(vi) Purchaser shall have received an opinion of Horwitz & Beam,
counsel to the Company, dated as of the Closing, in the form attached
hereto as Exhibit F.
ARTICLE VIII
GOVERNING LAW; MISCELLANEOUS
8.1 Governing Law: Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of Arizona which would apply
if both parties were residents of California and this Agreement was made and
performed in Arizona. In any legal action involving this Agreement or the
parties' relationship, the Parties agree that the exclusive venue for any
lawsuit shall be in the state or federal court located within the County of
Orange, California. The parties agree to submit to the personal jurisdiction of
the state and federal courts located within Maricopa County, Arizona.
8.2 Counterparts. This Agreement may be executed in two or more
counterparts, including, without limitation, by facsimile transmission, all of
which counterparts shall be considered one and the same agreement and shall
become effective when counterparts have been signed by each party and delivered
to the other party. In the event any signature page is delivered by facsimile
transmission, the party using such means of delivery shall cause additional
original executed signature pages to be delivered to the other parties as soon
as practicable thereafter.
8.3Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
8.4Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction
8.5Entire Agreement; Amendments. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor Purchaser makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived other than by an instrument in writing signed by
the party to be charged with enforcement and no provision of this Agreement may
be amended other than by an instrument in writing signed by the Company and
Purchaser.
8.6 Notice. Any notice herein required or permitted to be given shall be
in writing and may be personally served or delivered by nationally-recognizable
overnight courier or by facsimile machine confirmed telecopy, and shall be
deemed delivered at the time and date of receipt (which shall include telephone
line facsimile transmission). The addresses for such communications shall be:
If to the Company:
Beta Oil & Gas, Inc.
901 Dove Street, Suite 230
Newport Beach, CA 92660
Attention: Steve Antry
Phone: (949) 752-5212 Facsimile: (949) 752- 5757
With a copy to:
Horwitz & Beam
Two Venture Plaza, Suite 350
Irvine, CA 92618
Attention: Lynne Bolduc, Esq.
Phone: (949) 453-0300 Fax: (949) 453-9416
If to the Purchaser:
Attn: Aztore Holdings, Inc.
2117 So. 48th St.
Suite 105
Tempe, AZ 85282
Phone: 602-438-7333
Fax: 602-438-7392
With a copy to:
Thomas J. Morgan, Esq.
Gallager & Kennedy
2600 N. Central
20th Floor
Phoenix, AZ 85004
Phone: 602-530-8490
Fax: 602-357-9459
8.7 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and assigns. Each Purchaser
may assign its rights and obligations hereunder to any of its "affiliates," as
that term is defined under the Securities Act, without the consent of the
Company so long as such affiliate is an accredited investor (within the meaning
of Regulation D under the Securities Act) and agrees in writing to be bound by
this Agreement. This provision shall not limit Purchaser's right to transfer the
Securities pursuant to the terms of this Agreement or to assign Purchaser's
rights hereunder to any such transferee. In that regard, if Purchaser sells all
or part of its Securities to someone that acquires the Securities subject to
restrictions on transferability (other than restrictions, if any, arising out of
the transferee's status as an affiliate of the Company), Purchaser shall be
permitted to assign its rights hereunder, in whole or in part, to such
transferee.
8.8 Third Party Beneficiaries. This Agreement is intended for the benefit
of the parties hereto and their respective permitted successors and assigns and
is not for the benefit of, nor may any provision hereof be enforced by, any
other person.
8.9 Survival. The representations and warranties of the Company and the
agreements and covenants shall survive the Closing hereunder notwithstanding any
due diligence investigation conducted by or on behalf of Purchaser. The Company
agrees to indemnify and hold harmless Purchaser and each of Purchaser's
officers, directors, employees, partners, agents and affiliates for loss or
damage arising as a result of or related to any breach or alleged breach by the
Company of any of its representations or covenants set forth herein. The
representations and warranties of Purchaser shall survive the Closing hereunder
and Purchaser shall indemnify and hold harmless the Company and each of its
officers, director, employees, partners, agents and affiliates for any loss or
damage arising as a result of the breach of such Purchaser's representations and
warranties.
8.10 INTENTIONALLY LEFT BLANK.
8.11 Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
8.12 Remedies. No provision of this Agreement providing for any remedy to
a Purchaser shall limit any remedy which would otherwise be available to such
Purchaser at law or in equity. Nothing in this Agreement shall limit any rights
a Purchaser may have with any applicable federal or state securities laws with
respect to the investment contemplated hereby. The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to
Purchaser. Accordingly, the Company acknowledges that the remedy at law for a
material breach of its obligations under this Agreement will be inadequate and
agrees, in the event of a breach or threatened breach by the Company of the
provisions of this Agreement, that Purchaser shall be entitled, in addition to
all other available remedies, to an injunction restraining any breach and
requiring immediate compliance, without the necessity of showing economic loss
and without any bond or other security being required.
8.13 Final Agreement. This Agreement, the Note, the Registration Rights
Agreement, the Security Agreement and the Mortgage, when executed by the parties
hereof, shall constitute the final agreement between the parties and upon such
execution Purchaser and the Company accept the terms hereof and have no cause of
action against each other for prior negotiations preceding the execution of this
Agreement.
8.14 Expenses. Each of the Company and Purchaser shall be responsible for
its own expenses in connection with this Agreement; provided, however, that if
requested, the Company shall reimburse Purchaser, a sum not to exceed $5,000 in
connection with legal fees and expenses incurred by the Purchaser.
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused this
Agreement to be duly executed as of the date first above written.
"COMPANY":
Beta Oil & Gas, Inc.
by ______________________
/s/Steve Antry
Its: President and Director
"PURCHASER":
Aztore Holdings, Inc.
By: ______________________
Its:
<PAGE>
SCHEDULES
TO NOTE AND COMMON STOCK PURCHASE AGREEMENT DATED
March 19, 1999
Schedule 3.1 - None.
Schedule 3.3 - Attached.
Schedule 3.5 - None.
Schedule 3.6 - None.
Schedule 3.7 - None.
Schedule 3.8 - None.
Schedule 3.16 - Attached.
<PAGE>
SCHEDULE 3.3
TO NOTE AND COMMON STOCK PURCHASE AGREEMENT DATED
March 19, 1999
CAPITALIZATION OF BETA OIL & GAS, INC.
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 429,000 shares of Common Stock in
private placements completed subsequent to December 31, 1998; and (ii) the
capitalization of the Company on a pro forma basis as adjusted to give effect,
net of estimated offering costs, to the proposed sale by the Company of a
minimum of 600,000 shares and a maximum of 1,500,000 shares of Common Stock
being offered in the initial public offering.
<TABLE>
As of December 31, 1998
-------------------------------------------------------------------------
Adjusted for Adjusted for
the Sale of the Sale of
Actual Pro Forma Minimum Offering Maximum
Offering
-------------- -------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Shareholders' Equity
Common shares, $.001 par value;
50,000,000 shares authorized;
6,725,192 shares issued and outstanding actual;
7,358,492 shares pro forma;
8,058,492 shares (Minimum Offering) and
8,958,492 (Maximum Offering) pro forma as
adjusted at December 31, 1998(1) $ 6,725 $ 7,458 $ 8,058 $ 8,958
Additional paid-in capital 15,878,386 17,872,957 21,022,357 25,881,457
Accumulated deficit (2,586,073) (2,586,073) (2,586,073) (2,586,073)
============== ============== ================= =================
Total shareholders' equity $ 13,299,342 $ 15,294,342 $ 18,444,342 $ 23,304,342
============== ============== ================= =================
<FN>
(1) Does not include 2,497,663 shares reserved for issuance on exercise of
outstanding Warrants to purchase Common Stock of the Company. All of the
presently outstanding shares of the Company and shares issuable upon
exercise of the 2,497,663 warrants have registration rights which will be
satisfied upon effectiveness of the current Registration Statement. This
does not include an additional number of shares reserved for issuance
underlying warrants equal to 10% of the number of shares sold in the
initial public offering ("underwriter's or selected dealer warrants"). In
addition, the minimum and the maximum number of shares sold in the initial
public offering may be changed at the discretion of Company's management.
Note: In addition, there may be an additional number of shares issuable pursuant
to common stock options in the event of termination without cause of Steve
Antry, President of the Company. This is pursuant to Mr. Antry's employment
contract with the Company.
</FN>
</TABLE>
<PAGE>
SCHEDULE 3.16
TO NOTE AND COMMON STOCK PURCHASE AGREEMENT DATED
March 19, 1999
Key Employee
Mr. Steve Antry is serving the Company in the capacity of President and Chairman
of the Board. Neither the Company, nor any of its subsidiaries, is aware that
Mr. Antry is, or is now expected to be, in violation of any material term of any
employment contract, confidentiality, disclosure or proprietary information
agreement, non-competition agreement, or any other contract or agreement or any
restrictive covenant, and the continued employment of Mr. Antry does not subject
the Company or any of its subsidiaries to any liability with respect to any of
the foregoing matters. Mr. Antry, to the best of the knowledge of the Company
and its subsidiaries, does not have any intention to terminate his employment
with the Company or any of its subsidiaries.
<PAGE>
EXHIBIT A
TO NOTE AND COMMON STOCK PURCHASE AGREEMENT DATED
March 19, 1999
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT dated as of March 19, 1999
(the "Agreement") is made by and between Beta Oil & Gas, Inc., a Nevada
Corporation, 901 Dove Street, Suite 230, Newport Beach, CA 92660 (the
Company"), and the undersigned investor (the "Initial Investor").
WITNESSETH:
WHEREAS, in connection with the Note and Common Stock Purchase
agreement dated March 19, 1999 among the Initial investor and the
Company the "Purchase Agreement"), the Company has agreed, upon the
terms and subject to the conditions of said Purchase Agreement, to
issue and sell to the Initial investor shares of Common Stock, $.001
par value, of the Company (the "Common Stock"). The shares of Common
Stock are referred to herein as the "Registrable Shares." In connection
with the sale of the Common Stock to the Initial investor (the
"Offering"), each of such investors will be entitled to registration
rights as set forth in this Agreement.
WHEREAS, to induce the Initial investor to execute and deliver
the Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and
the rules and regulations thereunder, or any similar successor statute
(collectively, the 'Securities Act"), and applicable state securities
laws with respect to the Registrable Shares;
NOW, THEREFORE, in consideration of the premises and the mutual
Covenants contained herein and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged1 the
Company and the Initial investor hereby agree as follows:
1. Definitions. Capitalized terms used herein and not
otherwise defined herein shall have the respective meanings set forth
in the Purchase Agreement as used in this Agreement. The following
terms shall have the following meanings:
(a) "Holders" are shareholders of the Company who, by virtue
of agreements with the Company, are entitled to include
certain of their securities in certain Registration Statements
filed by the Company.
(b) "Investors" means the initial investor and any permitted
transferee or assignee of the initial investor who agrees to
become bound by the provisions of this Agreement in accordance
with Section 9 hereof.
(c) "Registrable Securities" means the Registrable Shares,
together with any shares of Common Stock or other securities
which may be issued as a dividend or other distribution or in
exchange for Registrable Shares or common shares issued or
which may be issued pursuant to paragraph 1.3B of the Purchase
Agreement which are required to be included in a Registration
Statement pursuant to Section 2(a) below.
(d) "Registration Period" means the period between the date of
this Agreement and the earlier of (i) the date on which all of
the Registrable Securities have been sold in transactions
where the transferee is not subject to securities law resale
restrictions (or is subject to securities law resale
restrictions solely because it is an "affiliate" of the
Company under the Securities Act and the Rules and Regulations
promulgated thereunder), or (ii) the date on which the
Registrable Securities (in the opinion of Investors' counsel)
may be immediately sold without registration and free of
restrictions on transfer.
(e) "Registration Statement" means a registration statement of
the Company filed with the Securities and Exchange Commission
(the "SEC") under the Securities Act.
(f) The terms "register," "registered," and "registration"
refer to a registration effected by preparing and filing a
Registration Statement in compliance with the Securities Act
and applicable rules and regulations thereunder and pursuant
to Rule 415 under the Securities Act, and the declaration or
ordering of effectiveness of such Registration Statement by
the SEC.
2. Registration.
(a) Mandatory Registration. Subject to Section 4, the Company will
prepare and file a Registration Statement with the SEC,
registering all of the Registrable Shares for resale promptly
following 180 days after the closing date of the Company's
initial public offering (the "Closing Date"). Notwithstanding the
foregoing right of registration, the Investors shall have the
right to include the Registrable Securities in any Registration
Statement filed by the Company subsequent to the Closing Date.
However, this does not include the registration statement filed
by the Company on December 4, 1998 or any amendments or
supplements thereto. To the extent allowable under the Securities
Act and the Rules promulgated thereunder, the Registration
Statement shall include the Registrable Shares. The Registration
Statement (and each amendment or supplement thereto) shall be
provided to and subject to the reasonable approval of, the
Initial investor and their counsel. The Company shall use its
best efforts to cause such Registration Statement to be declared
effective by the SEC as soon as practicable after filing. Such
best efforts shall include, but not be limited to, promptly
responding to all comments received from the staff of the SEC.
Should the Company receive notification from the SEC that the
Registration Statement will receive no action or no review from
the SEC, the Company shall cause such Registration Statement to
become effective within fifteen (15) business days of such SEC
notification. Once declared effective by the SEC. the Company
shall cause such Registration Statement to remain effective
throughout the Registration Period.
(b) INTENTIONALLY LEFT BLANK
(c) INTENTIONALLY LEFT BLANK
3. Additional Obligations of the Company. In connection with
the registration of the Registrable Securities, the Company shall
have the following additional obligations:
(a) The Company shall keep the Registration Statement
required by Section 2(a) hereof effective pursuant to
Rule 415 under the Securities Act at all times during
the Registration Period as defined
in Section 1(d) above.
(b) The Registration Statement (including any
amendments or supplements thereto and prospectuses
contained therein) filed by the Company shall not
contain any untrue statement of a material fact or
omit to state a material fact required to be stated
therein1 or necessary to make the statements therein,
in light of the circumstances in which they were
made, not misleading. The Company shall prepare and
file with the SEC such amendments (including
post-effective amendments) and supplements to the
Registration Statement and the prospectus used in
connection with the Registration Statement as may be
necessary to keep the Registration Statement
effective at all times during the Registration
Period1 and, during such period, shall comply with
the provisions of the Securities Act with respect to
the disposition of all Registrable Securities of the
Company covered by the Registration Statement until
such time as all of such Registrable Securities have
been disposed of in accordance with the intended
methods of disposition by the sellers thereof as set
forth in the Registration Statement in the event the
number of shares of Common Stock included in a
Registration Statement filed pursuant to this
Agreement is insufficient to cover all of the
Registrable Securities, the Company shall amend, if
permissible, the Registration Statement and/or file a
new Registration Statement so as to cover all of the
Registrable Securities as soon as practicable, but in
no event more than twenty (20) business days after
the Company first determines (or reasonably should
have determined) the need therefor, the Company shall
use its best efforts to cause such amendment and/or
new Registration Statement to become effective as
soon as practicable following the filing thereof.
(c) The Company shall furnish to each Investor whose
Registrable Securities are included in the
Registration Statement (i) promptly after the same is
prepared and publicly distributed, filed with the SEC
or received by the Company, one copy of the
Registration Statement and any amendment thereto;
each preliminary prospectus and final prospectus and
each amendment or supplement thereto; and, in the
case of the Registration Statement required under
Section 2(a) above, each letter written by or on
behalf of the Company to the SEC and each item of
correspondence from the SEC, in each case relating to
such Registration Statement (other than any portion
of any item thereof which contains information for
which the Company has sought confidential treatment);
and (ii) such number of copies of a prospectus,
including a preliminary prospectus, and all
amendments and supplements thereto, and such other
documents as such Investor may reasonably request in
order to facilitate the disposition of the
Registrable Securities owned by such Investor.
(d) The Company shall use its best efforts to (i)
register and qualify the Registrable Securities
covered by the Registration Statement under such
other securities or blue sky laws of such
jurisdictions as the Investors reasonably request,
(ii) prepare and file in those jurisdictions such
amendments (including post-effective amendments) and
supplements to such registrations as may be necessary
to maintain the effectiveness thereof during the
Registration Period, (iii) take such other actions as
may be necessary to maintain such registrations and
qualifications in effect at all times during the
Registration Period, and (iv) take all other actions
reasonably necessary or advisable to qualify the
Registrable Securities for sale in such
jurisdictions. Notwithstanding the foregoing
provision, the Company shall not be required in
connection therewith or as a condition thereto to (i)
qualify to do business in any jurisdiction where it
would not otherwise be required to qualify but for
this Section 3(d), (ii) subject itself to general
taxation in any such jurisdiction, (iii) file a
general consent to service of process in any such
jurisdiction, (iv) provide any undertakings that
cause more than nominal expense or burden to the
Company, or (v) make any change in its charter or
bylaws, which in each case the Board of Directors of
the Company determines to be contrary to the best
interests of the Company and its shareholders.
(e) INTENTIONALLY LEFT BLANK
(f) The Company shall notify each Investor who holds
Registrable Securities being sold pursuant to a
Registration Statement of the happening of any event
of which the Company has knowledge as a result of
which the prospectus included in the Registration
Statement as then in effect includes an untrue
statement of a material fact or omits 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 (a "Suspension Event") The Company shall
make such notification as promptly as practicable
after the Company becomes aware of such Suspension
Event, shall promptly, but in all events within five
(5) business days after becoming aware of such
Suspension Event1 use its best efforts to prepare a
supplement or amendment to the Registration Statement
to correct such untrue statement or omission and
shall deliver a number of copies of such supplement
or amendment to each Investor as such Investor may
reasonably request. Notwithstanding the foregoing
provision, the Company shall not be required to
maintain the effectiveness of the Registration
Statement or to amend or supplement the Registration
Statement for a period (a "Delay Period") expiring
upon the earlier to occur of (i) the date on which
such material information is disclosed to the public
or ceases to be material, (ii) the date on which the
Company is able to comply with its disclosure
obligations and SEC requirements related thereto, or
(iii) thirty (30) days after the occurrence of the
Suspension Event.
(g) The Company shall use its best efforts to prevent
the issuance of any stop order or other suspension of
effectiveness of a Registration Statement and, if
such an order is issued, shall use its best efforts
to obtain the withdrawal of such order at the
earliest possible time and to notify each Investor
who holds Registrable Securities being sold (or, in
the event of an underwritten offering, the managing
underwriters) of the issuance of such order and the
resolution thereof.
(h) The Company shall permit a single firm of counsel
designated by the Investors who hold a majority in
interest of the Registrable Securities being sold
pursuant to such registration to review the
Registration Statement and all amendments and
supplements thereto (as well as all requests for
acceleration or effectiveness thereof) a reasonable
period of time prior to their filing with the SEC,
and shall not file any document in a form to which
such counsel reasonably objects. The Company shall
make generally available to its security holders as
soon as practical, but not later than ninety (90)
days after the close of the period covered thereby,
an earnings statement (in a form complying with the
provisions of Rule 155 under the Securities Act)
covering a twelve-month period beginning not later
than the first day of the Company's fiscal quarter
following the effective date of the Registration
Statement.
(i) At the request of any Investor who holds
Registrable Securities being sold pursuant to such
registration, the Company shall furnish on the date
that Registrable Securities are delivered to an
underwriter for sale in connection with the
Registration Statement (i) a letter, dated such date,
from the Company's independent certified public
accountants in form and substance as is customarily
given by independent certified public accountants to
underwriters in an underwritten public offering,
addressed to the investors; and (ii) an opinion,
dated such date, from counsel representing the
Company for purposes of such Registration Statement
in form and substance as is customarily given in an
underwritten public offering, addressed to the
underwriters and Investors.
(k) The Company shall make available for inspection by
any Investor whose Registrable Securities are being
sold pursuant to such registration, any underwriter
participating in any disposition pursuant to the
Registration Statement, and any attorney, accountant
or other agent retained by any such Investor or
underwriter (collectively, the "Inspectors"), all
pertinent financial and other records, pertinent
corporate documents and properties of the Company
(collectively, the "Records"), as shall be reasonably
necessary to enable each Inspector to exercise its due
diligence responsibility. and use its best efforts to
cause the Company's officers, directors and employees
to supply all information which any Inspector may
reasonably request for purposes of such due diligence;
provided, however, that each Inspector shall hold in
confidence and shall not make any disclosure (except
to an Investor) of any Record or other information
which the Company determines in good faith to be
confidential, and of which determination the
Inspectors are so notified, unless (i) the disclosure
of such Records is necessary to avoid or correct a
material misstatement or material omission in any
Registration Statement, (ii) the release of such
Records is ordered pursuant to a subpoena or other
order from a court or government body of competent
jurisdiction. or such release is reasonably necessary
in connection with litigation or other legal process
or (iii) the information in such Records has been made
generally available to the public other than by
disclosure in violation of this or any other
agreement. The Company shall not be required to
disclose any confidential information in such Records
to any Inspector until and unless such Inspector shall
have entered into confidentiality agreements (in form
and substance satisfactory to the Company) with the
Company with respect thereto1 substantially in the
form of this Section 3(k). Each Investor agrees that
it shall, upon learning that disclosure of such
Records is sought in or by a court or governmental
body of competent jurisdiction or through other means,
give prompt notice to the Company and allow the
Company, at the Company's expense. to undertake
appropriate action to prevent disclosure of, or to
obtain a protective order for, the Records deemed
confidential. Nothing herein shall be deemed to limit
the Investor's ability to sell Registrable Securities
in a manner which is otherwise consistent with
applicable laws and regulations.
(l) The Company shall hold in confidence and shall
not make any disclosure of information concerning an
Investor provided to the Company pursuant hereto
unless (i) disclosure of such information is
necessary to comply with federal or state securities
laws, (ii) the disclosure of such information is
necessary to avoid or correct a misstatement or
omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a
subpoena or other order from a court or governmental
body of competent jurisdiction, or such release is
reasonably necessary in connection with litigation or
other legal process or (iv) such information has been
made generally available to the public other than by
disclosure in violation of this or any other
agreement. The Company agrees that it shall, upon
learning that disclosure of such information
concerning an Investor is sought in or by a court or
Governmental body of competent jurisdiction or
through other means, give prompt notice to such
Investor and allow such Investor, at its expense, to
undertake appropriate action to prevent disclosure
of, or to obtain a protective order for, such
information.
(m) The Company shall use its best efforts to cause
all the Registrable Securities covered by the
Registration Statement to be listed on each national
securities exchange on which similar securities
issued by the Company are then listed, if any, if the
listing of such Registrable Securities is then
permitted under the rules of such exchange.
(n) The Company shall provide a transfer agent and
registrar, which may be a single entity, for the
Registrable Securities not later than the effective
date of the Registration Statement.
(o) The Company shall cooperate with the Investors who hold
Registrable Securities being sold and the managing
underwriter or underwriters, if any, to facilitate the
timely preparation and delivery of certificates (not bearing
any restrictive legends) representing Registrable Securities
to be sold pursuant to the Registration Statement and enable
such certificates to be in such denominations or amounts as
the case may be, and registered in such names as the
managing underwriter or underwriters if any. or the
Investors may reasonably request, and within three (3)
business days after a Registration Statement which includes
Registrable Securities is ordered effective by the SEC, the
Company shall deliver, and shall cause legal counsel
selected by the Company to deliver, to the transfer agent
for the Registrable Securities (with copies to the Investors
whose Registrable Securities are included in such
Registration Statement) instructions to the transfer agent
to issue new stock certificates without a legend and an
opinion of such counsel that the Registrable Shares have
been registered.
(p) The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the
Investor of the Registrable Securities pursuant to the
Registration Statement.
(q) At the request of any Investor, the Company shall promptly
prepare and file with the SEC such amendments (including
post effective amendments) and supplements to a Registration
Statement and the prospectus used in connection with the
Registration Statement as may be necessary in order to
change the plan of distribution set forth in such
Registration Statement to conforming to written information
supplied to the Company by such investor for such purpose.
(r) The Company shall comply with all applicable laws related to
a Registration Statement and offering and sale of securities
and all applicable rules and regulations of governmental
authorities in connection therewith.
(s) INTENTIONALLY LEFT BLANK.
(t) INTENTIONALLY LEFT BLANK
4. Obligations of the Investors. In connection with
the registration of the Registrable Securities, the Investors
shall have the following obligations:
(a) it shall be a condition precedent to the obligations of the
Company to take any action pursuant to this Agreement with
respect to each Investor that such Investor shall furnish to
the Company such information regarding itself the number of
Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it as
shall be reasonably required by rules of the SEC to effect
the registration of the Registrable Securities. The
information so provided by the Investor shall be included
without material alteration in the Registration Statement
and shall not be materially modified without such investors
written consent. At least ten (10) business days prior to
the first anticipated filing date of the Registration
Statement, the Company shall notify each Investor of the
information the Company requires from each such Investor
(the "Requested Information") if such Investor elects to
have any of such investor's Registrable Securities included
in the Registration Statement. If within five (5) business
days of such notice the Company has not received the
Requested Information from an Investor (a "Non-Responsive
Investor"), then the Company may file the Registration
Statement without including Registrable Securities of such
Non-Responsive Investor. The Non-Responsive Investor shall
then have no continuing right to demand registration of
their unregistered Common Stock, but shall continue to have
the right to include the Registrable Securities in any
subsequent Registration Statement filed by the Company.
(b) Each Investor, by such Investors acceptance of the
Registrable Securities agrees to cooperate with the Company
as reasonably requested by the Company in connection with
the preparation and filing of the Registration Statement
hereunder, unless such Investor has notified the Company in
writing of such Investors election to exclude all of such
investor's Registrable Securities from the Registration
Statement.
(c) In the event Investors holding a majority in interest of the
Registrable Securities being registered determine to engage
the services of an underwriter, each Investor agrees to
enter into and perform such Investor's obligations under an
underwriting agreement in usual and customary form,
including, without limitation, customary indemnification and
contribution obligations, with the managing underwriter of
such offering and take such other actions as are reasonably
required in order to expedite or facilitate the disposition
of the Registrable Securities, unless such Investor has
notified the Company in writing of such Investor's election
to exclude all of such Investor's Registrable Securities
from the applicable Registration Statement. No Investor
shall be obligated to participate in any such underwriting.
(d) Each Investor agrees that upon receipt of any notice from
the Company of the happening of any event of the kind
described in Section 3(f) or 3(g), such Investor will
immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering
such Registrable Securities until such Investor's receipt of
the copies of the supplemented or amended prospectus
contemplated by Section 3(f) or 3(y) and, if so directed by
the Company, such Investor shall deliver to the Company (at
the expense of the Company) or destroy (and deliver to the
Company a certificate of destruction) all copies, other than
file copies, in such Investor's possession, of the
prospectus covering such Registrable Securities current at
the time of receipt of such notice.
(e) No Investor may participate in any underwritten registration
hereunder unless such Investor (i) agrees to sell such
Investors Registrable Securities on the basis provided in
any underwriting arrangements approved by the Investors
entitled hereunder to approve such arrangements, (ii)
completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other
documents reasonably required under the terms of such
underwriting arrangements, and (iii) agrees to pay its pro
rata share of all underwriting discounts and commissions and
other fees and expenses of investment bankers and any
manager or managers of such underwriting and legal expenses
of the underwriter applicable with respect to its
Registrable Securities, in each case to the extent not
payable by the Company pursuant to the terms of this
Agreement.
5. Expenses of Registration. All expenses, other than
underwriting discounts and commissions and the fees and
disbursements of counsel selected by the Initial investor
pursuant to Section 3(e) hereof, incurred in connection with
registrations, filings or qualifications pursuant to Sections
2 and 3, including, without limitation, all registration,
listing and qualifications fees, printers and accounting fees,
and the fees and disbursements of counsel for the Company,
shall be borne by the Company.
6. Indemnification. In the event any Registrable Securities
are included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Investor who holds
such Registrable Securities, the directors, if any,
of such Investor, the officers, if any, of such
Investor, each person, if any, who controls any
Investor within the meaning of the Securities Act or
the Exchange Act any underwriter (as defined in the
Securities Act) for the Investors, the directors, if
any. of such underwriter and the officers, if any, of
such underwriter, and each person, if any, who
controls any such underwriter within the meaning of
the Securities Act or the Exchange Act (each, an
"Indemnified Person"), against any losses, claims,
damages, expenses (including legal fees in compliance
with Section 6 (c)) or liabilities joint or several
(collectively "Claims") to which any of them become
subject under the Securities Act, the Exchange Act or
otherwise, insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any
of the following statements, omissions or violations
in the Registration Statement, or any post-effective
amendment thereof, or any prospectus included
therein: (i) any untrue statement or alleged untrue
statement of a material fact contained in the
Registration Statement or any post-effective
amendment thereof or 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, (ii) any untrue statement or
alleged untrue statement of a material fact contained
in any preliminary prospectus if used prior to the
effective date of such Registration Statement, or
contained in the final prospectus (as amended or
supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the
omission or alleged omission to state therein any
material fact necessary to make the statements made
therein, in light of the circumstances under which
the statements therein were made, not misleading, or
(iii) any violation or alleged violation by the
Company of the Securities Act, the exchange Act or
any state securities law or any rule or regulation
(the matters in the foregoing clauses (i) through
(iii) being, collectively, 'Violations"). Subject to
the restrictions Set forth in Section 6(c) with
respect to the number of legal counsel, the Company
shall reimburse the Investors and each such
underwriter or controlling person for any legal fees
or other reasonable expenses incurred by them in
connection with investigating or defending any such
Claim. Notwithstanding anything to the contrary
contained herein1 the indemnification agreement
contained in this Section 6(a): (A) shall not apply
to a Claim arising out of or based upon a Violation
which occurs in reliance upon and in conformity with
information furnished in writing to the Company by
any Indemnified Person or underwriter for such
Indemnified Person expressly for use in connection
with the preparation of the Registration Statement or
any such amendment thereof or supplement thereto1 if
the prospectus contained in such Registration
Statement was timely made available by the Company
pursuant to Section 3(c) hereof, (B) with respect to
any preliminary prospectus shall not inure to the
benefit of any such person from whom the person
asserting any such Claim purchased the Registrable
Securities that are the subject thereof (or to the
benefit of any person controlling such person) if the
untrue statement or omission of material fact
contained in the preliminary prospectus was corrected
in the prospectus, as then amended or supplemented.
if a prospectus was timely made available by the
Company pursuant to Section 3(c) hereof, and (C)
shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the
prior written consent of the Company, which consent
shall not be unreasonably withheld. Such indemnity
shall remain in full force and effect regardless of
any investigation made by or on behalf of the
Indemnified Persons and shall survive the transfer of
the Registrable Securities by the Investors pursuant
to Section 9.
(b) In connection with any Registration Statement in
which an Investor is participating, each such
investor, severally and not jointly, agrees to
indemnify and hold harmless, to the same extent and
in the same manner set forth in Section 6(a), the
Company, each of its directors, each of its officers
who signs the Registration Statement, each person, if
any, who controls the Company within the meaning of
the Securities Act or the Exchange Act, its
attorneys, any underwriter and any other stockholder
selling securities pursuant to the Registration
Statement or any of its directors or officers or any
person who controls such stockholder or underwriter
within the meaning of the Securities Act or the
Exchange Act (collectively and together with an
Indemnified Person, an "Indemnified Party"), against
any Claim to which any of them may become subject,
under the Securities Act, the Exchange Act or
otherwise, insofar as such Claim arises out of or is
based upon any Violation, in each case to the extent
(and only to the extent) that such Violation occurs
in reliance upon and in conformity with written
information furnished to the Company by such Investor
expressly for use in connection with such
Registration Statement and such Investor will
promptly reimburse any legal or other expenses
reasonably incurred by them in connection with
investigating or defending any such Claim; provided,
however, that the indemnity agreement contained in
this Section 6(b) shall not apply to amounts paid in
settlement of any Claim if such settlement is
effected without the prior written consent of such
Investor which consent shall not be unreasonably
withheld. Such indemnity shall remain in full force
and effect regardless of any investigation made by or
on behalf of such indemnified Party and shall survive
the transfer of the Registrable Securities by the
Investors pursuant to Section 9 Notwithstanding
anything to the contrary contained herein4 the
indemnification agreement contained in this Section
6(b) with respect to any preliminary prospectus shall
not inure to the benefit of any Indemnified Party if
the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected
on a timely basis in the prospectus; as then amended
or supplemented.
(c) Promptly after receipt by an Indemnified Person
or Indemnified Party under this Section 6 of notice
of the commencement of any action (including any
governmental action)1 such Indemnified Person or
Indemnified Party shall, if a Claim in respect
thereof is to be made against any indemnifying party
under this Section 6, deliver to the indemnifying
party a written notice of the Commencement thereof
and this indemnifying party shall have the right to
participate in) and, to the extent the indemnifying
party so desires, jointly with any other indemnifying
party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to
the indemnifying parties; provided. however, that an
Indemnified Person or Indemnified Party shall have
the right to retain its own counsel, with the fees
and expenses to be paid by the indemnifying party,
if, in the reasonable opinion of counsel retained by
the indemnifying party, the representation by such
counsel of the Indemnified Person or Indemnified
Party and the indemnifying party would be
inappropriate due to actual or potential differing
interests between such Indemnified Person or
Indemnified Party and other party represented by such
counsel in such proceeding. The Company shall pay for
only one separate legal counsel for the Investors;
such legal counsel shall be selected by the Investors
holding a majority in interest of the Registrable
Securities. The failure to deliver written notice to
the indemnifying party within a reasonable time of
the commencement of any such action shall not relieve
such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this
Section 6, except to the extent that the indemnifying
party is prejudiced in its ability to defend such
action.
7. Contribution. If the indemnification provided for in
Section 6 herein is unavailable to the Indemnified Parties in respect
of any losses, claims, damages or liabilities referred to herein (other
than by reason of the exceptions provided therein), then each such
Indemnifying Party, in lieu of indemnifying such Indemnified Party,
shall contribute to the amount paid or payable by such Indemnified
Party as a result of such losses, claims, damages or liabilities as
between the Company on the one hand and any Investor on the other, in
such proportion as is appropriate to reflect the relative fault of the
Company and of such Investor in connection with the statements or
Omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations,
The relative fault of the Company on the one hand and of any Investor
on the other shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material tact or
omission or alleged omission to state a material fact relates to
information supplied by the Company or by such Investor,
In no event shall the obligation of any Indemnifying Party to
contribute under this Section 7 exceed the amount that such
Indemnifying Party would have been obligated to pay by way of
indemnification if the indemnification provided for under Section 6(a)
or 6(b) hereof had been available under the circumstances.
The Company and the Investors agree that it would not be just
and equitable if contribution pursuant to this Section 7 were
determined by pro rata allocation (even if the Investors or the
underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraphs. The
amount paid or payable by an Indemnified Party as a result of the
losses, claims, damages and liabilities referred to in the immediately
preceding paragraphs shall be deemed to include, subject to the
limitations set forth above, 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
Securities Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation.
8. Public Information. With a view to making available to the
Investors the benefits of Rule 144 promulgated under the Securities Act
or any other similar rule or regulation of the SEC that may at any time
permit the Investors to sell securities of the Company to the public
without registration ("Rule 144"), the Company agrees to:
(a) File with the SEC in a timely manner and make and keep
available all reports and other documents required of the
Company under the Exchange Act at such time that the Company
becomes subject to and so long as the Company remains subject
to, such requirements and the filing and availability of such
reports and other documents is required for the applicable
provisions of Rule 144; and
(b) Furnish to each Investor so long as such Investor holds
Registrable Securities promptly upon request, (i) a written
statement by the Company that it has complied with the
reporting requirements of Rule 144 and the Exchange Act (if
and when applicable), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and
documents so filed by the Company and (iii) such other
information as may be reasonably requested to permit the
Investors to sell such securities pursuant to Rule 144 without
registration.
9. Assignment of Registration Rights. The rights to have the
Company register Registrable Securities pursuant to this Agreement
shall be automatically assigned by the Investors to transferees or
assignees of all or any portion of such securities only if:
(i) the Investor agrees in writing with the
transferee or assignee to assign such rights, and a
copy of such agreement is furnished to the Company
within a reasonable time after such assignment, (ii)
the Company is, within a reasonable time after such
transfer or assignment furnished with written notice
of the name and address of such transferee or
assignee and the securities with respect to which
such registration rights are being transferred or
assigned, (iii) following such transfer or assignment
the further disposition of such securities by the
transferee or assignee is restricted under the
Securities Act and applicable state securities laws,
(iv) at or before the time the Company received the
written notice contemplated by clause (ii) of this
sentence, the transferee or assignee agrees in
writing with the Company to be bound by all of the
provisions contained herein, (v) such transfer shall
have been made in accordance with the applicable
requirements of the Purchase Agreement and (vi) such
transferee shall be an "accredited investor" as that
term is defined in Rule 501 of Regulation D
promulgated under the Securities Act.
10. Amendment of Registration Rights Provisions of this
Agreement may be amended and the observance thereof may be waived
(either generally or in a particular instance and either retroactively
or prospectively) only with the written consent of the Company and
Investor's holding sixty-five percent of the Registerable Securities.
Any amendment or waiver effected in accordance with this Section 10
shall be binding upon each Investor and the Company.
11. Miscellaneous.
(a) Conflicting Instructions. A person or entity is deemed to
be a holder of Registrable Securities whenever such person or
entity owns of record such Registrable Securities. If the
Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to
the same Registrable Securities, the Company shall act upon
the basis of instructions, notice or election received from
the registered owner of such Registrable Securities.
(b) Notices. Any notices required or permitted to be given
under the terms of this Agreement shall be sent by certified
or registered mail (with return receipt requested) or
delivered personally or by courier (including a nationally
recognized overnight delivery service) or by facsimile
transmission. Any notice so given shall be deemed effective
upon receipt if delivered personally, by U.S. Mail or by
courier or facsimile transmission, in each case addressed to a
party at the following address or such other address as each
such party furnishes to the other in accordance with this
Section 11(b). and;
If to the Company:
Beta Oil & Gas, Inc.
901 Dove Street, Suite 230
Newport Beach, CA 92660
Attention: J. Chris Steinhauser
Phone: (949) 752 -5212
Fax: (949) 752 -5757
With copy to:
Horwitz & Beam
Two Venture Plaza, Suite 350
Irvine, CA 92618
Attention: Lynne Buldoc, Esq.
Phone: (949) 453-0300
Fax: (949) 453 - 9416
if to the Investors:
Attn: Aztore Holdings, Inc.
2117 So. 48th St.
Suite 105
Tempe, AZ 85282
Phone: 602-438-7333
Fax: 602-438-7392
With a copy to:
Mr. Tom Morgan
Gallager & Kennedy
2600 N. Central
20th Floor
Phoenix, AZ 85004
(c) Waiver. Failure of any party to exercise any right or
remedy under this Agreement or otherwise, or delay by a party
in exercising such right or remedy, shall not operate as a
waiver thereof
(d) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of
California which would apply if both parties were residents of
California and this Agreement was made and performed in
California. In any legal action involving this Agreement or
the parties' relationship, the parties agree that the
exclusive venue for any lawsuit shall be in the state or
federal court located within the County of Orange, California.
The parties agree to submit to the personal jurisdiction of
the state and federal courts located within Orange County,
California.
(e) Severability. In the event that any provision of this
Agreement is invalid or unenforceable under any applicable
statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule
of law. Any provision hereof which may prove invalid or
unenforceable under any law shall not affect the validity or
enforceability of any other provision hereof.
(f) Entire Agreement. This Agreement and the Purchase
Agreement (including all schedules and exhibits thereto)
constitute the entire agreement among the parties hereto with
respect to the subject matter hereof. There are no
restrictions1 promises, warranties or undertakings, other than
those set forth or referred to herein or therein. This
Agreement supersedes all prior agreements and understandings
among the parties hereto with respect to the subject matter
hereof.
(g) Successors and Assigns. Subject to the requirements of
Section 9 hereof, this Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the
parties hereto.
(h) Use of Pronouns. All pronouns and any variations thereof
refer to the masculine, feminine or neuter, singular or
plural, as the context may require.
(i) Headings. The headings and subheadings in the Agreement
are for convenience of reference only and shall not limit or
otherwise affect the meaning hereof.
(j) Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original
but all of which shall constitute one and the same agreement.
This Agreement once executed by a party, may be delivered to
the other party hereto by facsimile transmission, and
facsimile signatures shall be binding on the parties hereto.
(k) Further Acts. Each party shall do and perform1 or cause to
be done and performed, all such further acts and things1 and
shall execute and deliver all such other agreements,
certificates, instruments and documents, as the other party
may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation
of the transactions contemplated hereby.
(l) Remedies. No provision of this Agreement providing for any
remedy to a Investor shall limit any remedy which would
otherwise be available to such Investor at law or in equity.
Nothing in this Agreement shall limit any rights a Investor
nay have with any applicable federal or state securities laws
with respect to the investment contemplated hereby. The
Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to a Investor.
Accordingly, the Company acknowledges that the remedy at law
for a breach of its obligations under this Agreement will be
inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Agreement,
that a Investor shall be entitled, in addition to all other
available remedies to an injunction restraining any breach and
requiring immediate compliance, without the necessity of
showing economic loss and without any bond or other security
being required.
(m) Consents. All consents and other determinations to be made
by the Investors pursuant to this Agreement shall be made by
investors holding sixty-five percent of the Registrable
Securities.
IN WITNESS WHEREOF, the parties have caused this
Registration Rights Agreement to be duly executed as of the date
first above written.
COMPANY:
Beta Oil & Gas, Inc.
By ______________________
/s/ Steve Antry
Its: President and Director
INVESTORS:
Aztore Holdings, Inc.
By: ______________________
Its:
<PAGE>
EXHIBIT B
TO NOTE AND COMMON STOCK PURCHASE AGREEMENT DATED
March 19, 1999
SECURITY AGREEMENT
This SECURITY AGREEMENT (this "Agreement') is made and entered into as of this
15th day of March, 1999, by and between Beta Oil & Gas, Inc., a Nevada
corporation ("Debtor") and Aztore Holdings, Inc. Aztore Holdings, Inc.
is referred to herein as the "Secured party".
RECITALS
A. Debtor and the Secured party are parties to that certain Note and Common
Stock Purchase Agreement dated of even date herewith (the "Purchase Agreement").
B. As security for Debtor's obligations to the Secured party under Those certain
Secured Promissory Notes dated of even date herewith issued to the Secured party
pursuant to the Purchase Agreement (the "Secured Promissory Notes"), Debtor has
agreed to execute this Agreement granting to Secured party a security interest
in all of the assets of Debtor.
AGREEMENT
In consideration of the foregoing recitals and the mutual covenants and
conditions contained herein, the parties, intending to be legally bound, agree
as follows:
1. Grant of Security Interest Debtor hereby grants to Secured party, along with
additional secured parties in other recent and current tranches of similar
financing in a combined amount not to exceed $3,000,000, to secure all of
Debtors obligations under the Secured Promissory Notes, a security interest in
all of the assets of Debtor, including, without limitation, all of Debtor's
presently existing or hereafter acquired right, title and interest in and to all
of Debtor's assets, tangible and intangible, including without limitation, the
following: All equipment, inventory, accounts, instruments, documents, oil and
gas leases, productive wells, seismic data, chattel paper, general intangibles,
contracts, money and proceeds and products of the foregoing (collectively, the
"Collateral").
2. Use of Collateral in Absence of Default. Until a Default (as defined in
Section 3 below), Debtor may use the Collateral in any lawful manner not
inconsistent with this Agreement and may sell its inventory in the ordinary
course of business. Debtor will maintain the Collateral in good working order
and condition, normal wear and tear excepted, and will not cause or permit any
waste or unusual or unreasonable depreciation thereof.
3. Default by Debtor. A "Default" shall mean an Event of Default as defined in
the Secured Promissory Notes.
4. Remedies of Secured Party. Upon and after a Default, each Secured Party and
its respective assigns, shall have all of the rights and remedies of a secured
party under the Uniform Commercial Code or other applicable law in all relevant
jurisdictions, all of which rights and remedies shall be cumulative and
nonexclusive to the extent permitted by law.
5. Relationship of the Secured Parties The rights of the Secured Parties
hereunder shall rank pari passu and any action taken by any Secured Party
hereunder shall inure to the benefit of each other Secured Party, pro rata in
accordance with the aggregate amounts due and owing to such Secured Party under
the Secured Promissory Note held by such Secured Party.
6. Notice. Any notice required to be given by any Secured Party on a sale,
lease, other disposition of the Collateral or any other intended action and such
Secured Party, if given ten (10) business days prior to such proposed action,
shall constitute commercially reasonably fair notice thereof to Debtor.
7. Financing Statements. Debtor agrees to execute from time to time such
financing statements and such additional instruments as may be reasonably
required by the Secured party to preserve and perfect the security interests
created hereby.
8. Termination of Lien. Upon Debtor's payment in full of all amount:; due and
owing under the Secured Promissory Notes, the Secured party shall cause an
appropriate UCC termination statement or other instruments as required to be
filed with the appropriate government offices in all of the states, counties, or
otherwise in which financing statements or such other instruments were filed
pursuant to Section 7.
9. General Provisions
9.1 Choice of Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of California, which would apply if both
parties were residents of California and this Agreement was made and performed
in California. In any legal action involving this Agreement or the parties'
relationship, the parties agree that the exclusive venue for any lawsuit shall
be in the state or federal court located within the County of Orange,
California. The parties agree to submit to the personal jurisdiction of the
state and federal courts located within Orange County, California.
9.2 Severability. Each provision of this Agreement is intended to be severable.
Should any provision of this Agreement or the application thereof be judicially
declared to be or becomes unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the party hereto. The parties further agree to replace such
unenforceable provision of this Agreement with an enforceable provision that
will achieve, to the extent possible, the economic, business and other purposes
of such unenforceable provision
9.3 Assignability. Except in connection with a change in control or sale of
substantially all of the assets of a party, neither this Agreement nor any
interest herein shall be assignable (voluntarily. involuntarily, by judicial
process or otherwise), in whole or in part, by any party to any other entity
without the prior written consent of the other party. Any attempt at such an
assignment without such consent shall be void.
9.4 Attorneys' Fees. In any action or proceeding brought to enforce any
provision of this Security Agreement, or to seek damages for a breach of any
provision hereof is validly asserted as a defense, the successful party shall be
entitled to recover reasonable attorneys' fees in addition to any other
available remedy.
9.5 Successors and Assigns. Each of the terms, provisions and obligations of
this Agreement shall be binding upon, shall inure to the benefit of, and shall
be enforceable by the parties and their respective legal representatives,
successors and permitted assigns.
9.6 Notices. All notices, demands or other communications which are required or
are permitted to be given hereunder shall be in writing and shall be deemed to
have been sufficiently given in the manner set forth in the Purchase Agreement.
IN WITNESS WHEREOF, each of the parties has executed this Agreement as of the
date first set forth above.
"DEBTOR":
Beta Oil & Gas, Inc.
a Nevada corporation
By: ____________________
/s/ Steve Antry
Its: President and Director
"SECURED PARTY":
Aztore Holdings, Inc.
By: ______________________
Its:
<PAGE>
EXHIBIT C
TO NOTE AND COMMON STOCK PURCHASE AGREEMENT
DATED March 19, 1999
<PAGE>
THIS SECURED PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD OR
TRANSFERRED EXCEPT IN COMPLIANCE WITH THE ACT AND ALL APPLICABLE STATE
SECURITIES LAWS.
SECURED PROMISSORY NOTE
$ 1,000,000 Due March 19, 2000
FOR VALUE RECEIVED, the undersigned, Beta Oil & Gas, Inc., a Nevada corporation
("Maker"), promises to pay to Aztore Holdings, Inc., ("Payee"), the principal
sum of one million dollars ($1,000,000) (the "Principal Amount") before or at
maturity, together with Interest accruing on the unpaid portion of the Principal
Amount from the date hereof until maturity at the annual rate of ten percent
(10%) payable monthly in arrears.
This Secured Promissory Note (this '"Note") is being issued and delivered
pursuant to that certain Note and Common Stock Purchase Agreement dated of even
date herewith (the "Purchase Agreement") by and between Maker and Payee and is
made subject to the terms and Conditions of the Purchase Agreement. Unless
otherwise set forth herein, all capitalized terms used herein without definition
shall have the meanings given to such terms in the Purchase Agreement.
The Principal Amount and all accrued and unpaid interest thereon shall be due
and payable on the sooner to occur of 10 days from the close of the anticipated
Initial Public Offering or March 19, 2000 or the occurrence of an Event of
Default as hereafter defined (the "Maturity Date"). Maker may prepay. at any
time or from time to time prior to the Maturity Date, any portion or all of the
amount due hereunder without penalty; provided, however, that any such
prepayment shall be applied first to the Principal Amount and the balance to
accrued but unpaid interest, in which case, interest shall cease to accrue on
the amount of the Principal Amount so paid; and provided further that, unless
the holders of all of the Notes otherwise consent in writing, unless the full
principal amount of and all accrued and unpaid interest on all of the
outstanding Notes are prepaid in full at such time, any amount paid by Maker in
prepayment of any Note shall be allocated among all outstanding Notes prorated
in accordance with the respective principal amount of and accrued and unpaid
Interest on such Notes. The Maker agrees that the original principal amount of
the Note will be due and payable 10 days from the close of the initial public
offering for which Maker has filed an S-1 Registration Statement.
It shall constitute an event of default ("Event of Default") if any one or more
of the following shall occur for any reason:
(a) A failure by Maker to pay the principal of or interest on this Note
or any portion thereof when due; or
(b) A failure by Maker to perform or observe any term, covenant or
Agreement contained in the Note and Common Stock Purchase Agreement or
the Security Agreement on its part to be performed or observed and such
failure shall continue for more than fourteen (14) days after notice of
such failure is given by Payee to Maker; or
(c) Any representation or warranty in the Note and Common Stock
Purchase Agreement or in any certificate, agreement instrument or other
document made or delivered by Maker to Payee pursuant to the Note and
Common Stock Purchase Agreement proves to have been incorrect when
made; or
(d) Maker shall fall to pay when due (or within any stated grace
period), whether at the stated maturity, upon acceleration, by reason
of required prepayment or otherwise, the principal or any principal
installment of, or any interest on, any present or future indebtedness
of Maker; or
(e) Maker Is the subject of an order for relief by a bankruptcy court,
or is unable or admits in writing its inability to pay its debts as
they mature or makes an assignment for the benefit of creditors, or
applies for or consents to the appointment of any receiver, trustee,
custodian, conservator, liquidator, rehabilitator or similar officer
for it or for all or any part of its business or Property; or any
receiver, trustee., custodian, conservator, liquidator, rehabilitator
or similar officer is appointed without the application or consent of
Maker and the appointment continues a undischarged or unstayed for
sixty (60) calendar days; or institutes or consents to any bankruptcy,
insolvency, reorganization, arrangement, readjustment of debt,
dissolution, custodianship, conservatorship, liquidation,
rehabilitation or similar proceeding relating to it or to all or any
part of its business or property under the laws of any jurisdiction; or
any similar proceeding is instituted without the consent of Maker
(including but not limited to any action taken by any Governmental
Agency that has a material adverse effect on the business, operations
or property of Maker) and continues undismissed or unstayed for sixty
(60) calendar days; or
(e) Any judgment, writ, warrant of attachment or execution or
similar process is issued or levied against all or any
part of the property of Maker end is not released,
vacated or fully bonded within sixty (60) calendar days
after its issue or levy.
Maker will reimburse Payee on demand for all costs of collection before and
after judgement and the costs of preservation and/or liquidation of any
collateral (including all fees and expenses of counsel to the Payee).
All payments hereunder shall be made in lawful currency of the United States of
America at such place as Holder shall designate in writing and shall be payable
by Maker by check or wire transfer.
Maker's obligations under this Note are secured pursuant to the terms of that
certain Security Agreement of even date herewith between Maker, Payee and
others, securing all of the assets of Maker, tangible and intangible, in favor
of Payee and others.
The validity. construction and performance of this Note, and any action or claim
arising out of or relating to this Note, shall be governed by the laws, without
regard to the laws as to choice or conflict of laws, of the State of California.
The forum for disputes is Orange County, California.
Each of the terms, provisions and obligations of this Note shall be binding
upon. shall inure to the benefit of, and shall be enforceable by the parties and
their respective legal representatives, successors and permitted assigns.
IN WITNESS WHEREOF, Maker has executed this Note in favor of Payee is of the
date first set forth above.
MAKER:
Beta Oil & Gas, Inc.
a Nevada corporation
By:__________________
/s/ Steve Antry
Its: President and Director
PAYEE:
Aztore Holdings, Inc.
By:__________________
Its:
<PAGE>
EXHIBIT D
TO NOTE AND COMMON STOCK PURCHASE AGREEMENT DATED
March 19, 1999
There is no Exhibit D.
<PAGE>
EXHIBIT E
TO NOTE AND COMMON STOCK PURCHASE AGREEMENT DATED
March 19, 1999
There is no Exhibit E.
<PAGE>
EXHIBIT F
TO NOTE AND COMMON STOCK PURCHASE AGREEMENT DATED
March 19, 1999
Attorney Letterhead (Horwitz & Beam)
__________, 1999
Aztore Holdings, Inc.
2117 So. 48th St.
Suite 105
Tempe, AZ 85282
Re: Beta Oil & Gas, Inc.
Ladies and Gentlemen:
We have acted as counsel to Beta Oil & Gas, Inc., a Nevada
corporation (the "Company"), in connection with (i) the execution and
delivery by the Company of the Note and Common Stock Purchase
Agreement, the Secured Promissory Note, the Security Agreement, the
Registration Rights Agreement, all dated as of March 19,1999
(collectively, the "Transaction Documents"), to which Aztore
Holdings, Inc., (the "Purchaser") and the Company are signatories and
(ii) the transactions contemplated to be consummated by the Company
under the Transaction Documents on the date hereof. We are rendering
this Opinion pursuant to Section 7.l (vii) of the Note and Common
Stock Purchase Agreement. Capitalized terms used and not otherwise
defined herein shall have the same meanings as are ascribed thereto
in the various Transaction Documents.
As counsel in this capacity, we have examined the following:
(i) each of the Transaction Documents, (ii) a copy of the Articles of
Incorporation and By-laws of the Company, including any amendments
thereto to date, (iii) records of the proceedings and actions of the
Company's board of directors, (iv) certificates of the Nevada
Secretary of State (dated October 23, 1998), (v) a certificate of an
executive officer of the Company (of even date herewith), and (vi)
such other documents, records, and items as we have deemed necessary
or relevant for purposes of the opinions hereinafter expressed.
For purposes of this opinion, we have also made the following
assumptions and have not made any factual, legal, or other inquiry or
investigation with respect thereto:
(i) that the Transaction Documents have been
duly authorized, executed, and delivered by
the Purchaser and each other party thereto
(other than the Company);
(ii) that all persons signing the Transaction
Documents on behalf of the Purchaser and each
other party thereto (other than the Company)
have the legal existence, power, authority,
and right so to sign;
(iii) that each of the agreements made by
each of the parties in each Transaction
Document executed by the Purchaser is
authorized by all appropriate corporate or
other actions of the Purchaser and each other
party thereto (other than the Company) arid
is in compliance with all applicable laws and
regulations affecting the Purchaser;
(iv) the genuineness of all signatures on
documents not signed in our presence (other
than those of the officers of the Company),
and the authenticity of all documents
submitted to us as originals and the
conformity with original documents of all
documents submitted to us as copies,
(v) that (x) each Transaction Document is
enforceable against the Purchaser and each
other party thereto (other than the Company);
(y) all actions required to be taken and all
conditions and requirements required to be
fulfilled under the Transaction Documents in
order to allow the Purchaser (other than
conditions and requirements to be fulfilled
by the Company) to enforce its rights
thereunder have been fully and effectively
taken and fulfilled; and (r) the Purchaser
has complied with all laws that may be
applicable to it with respect to the
execution and delivery of the Transaction
Documents, and purchasing the Notes and the
Common Shares, and other actions taken or
that may be taken by it thereunder;
(vi) that the representations and warranties
made by the Purchaser within the Transaction
Documents are true and complete in all
material in respects. and do not fail to
state any fact or information, the statement
of which is necessary to make than not
misleading in any material respect; and
(vii) that there are no documents other than
the Transaction Documents and no agreements
other than as contained in the Transaction
Documents between the Purchaser and the
Company or others that expand or otherwise
modify the obligations of the Company with
respect to the transactions contemplated by
the Transaction Documents and would have an
affect on the Opinions Set forth below.
For purposes of this opinion we have relied upon the accuracy
of: (i) the representations and warranties of each of the parties set
forth in the Transaction Documents, but only as to questions of fact,
(ii) the representations of an executive officer of the Company in a
certificate to us, and (iii) the certificates of public officials. In
addition to the assumptions set forth above, this opinion is subject
to the following qualifications and exceptions:
(a) enforcement may be limited by (i) applicable
bankruptcy, insolvency, fraudulent conveyance,
preference, reorganization, moratorium, or other
similar laws of general application affecting
creditors' rights (including equitable
subordination) and (ii) the application of the
rules of equity, including those respecting
availability of specific performance and general
principles of public policy (regardless of
whether enforcement is sought in equity or at
law);
(b) we express no opinion as to (i) the
enforceability of the choice of California law by
a federal court or by a state court outside the
State of California, (ii) conflicts of law
principles generally, (iii) the validity, binding
effect, or enforceability of any provision of the
Transaction Documents purporting to (A) prohibit
oral amendment or waiver of such documents or
limit the effect of a course of dealing between
the parties or (B) indemnify any pawn for its own
negligence, gross negligence, or willful
misconduct or release such person from the
consequences thereof, (iv) the enforceability of
any provision in the Transaction Documents
purporting to relate to delay by any party to the
Transaction Documents to exercise any right,
remedy, or option under the provisions thereof
not operating as a waiver, (v) the enforceability
of any provisions in the Transaction Documents,
as a whole, and in the Notes specifically, in
respect of interest to be charged to, or accrued
or paid by, the Company and whether any
provisions of any of the Transaction Documents,
individually or taken as a whole, if enforced,
would constitute a violation of any
Constitutional, statutory, administrative, or
case law regarding effective interest rates
(usury), and (vi) the priority of any liens or
security interests created by any or all of the
Transaction Documents in any of the Company's
property and whether, if applicable, the
Purchaser has possession of the collateral
described in any or all of the Transaction
Documents sufficient to perfect a security
interest therein;
(c) with respect to our opinions as to the good
standing and foreign qualification of the
Company, we have relied solely on the good
standing certificates referenced above and
delivered to us by public officials from the
State of Nevada; and
(d) the qualification that any right to
indemnification and contribution contained in the
Transaction Documents may be limited by United
States federal or state securities laws or the
policies underlying such laws.
We express no opinion as to the laws of any jurisdiction other
than (i) the laws of the State of California and (ii) the federal
laws of the United States of America to the extent specifically
referred to herein. We express no opinion as to any ordinances,
administrative decisions, or the rules and regulations of counties,
towns, municipalities, and special political subdivisions
As used herein, the term "knowledge" refers only to the actual
knowledge of our attorneys who participated in our representation of
the Company in connection with the negotiation, execution, and
delivery of the Transaction Documents. Unless otherwise expressly
indicated, the phrase "to our knowledge" does not imply any
investigation or inquiry on the part of our firm or any partner or
employee thereof. As used herein, the word "including" means
"including, without limitation."
Based upon and subject to the foregoing, we are of the opinion
that:
1. The Company is a corporation validly existing and
in good standing under the laws of the State of
Nevada, and is qualified as a foreign corporation in
California to own and operate its properties and
assets and to carry on its business as presently
conducted. The Company is not qualified as a foreign
corporation to do business in any other
jurisdictions.
2. The offer and sale of the Notes and Common Shares
in conformity with the terms of the Transaction
Documents will constitute transactions exempt from
the registration requirements of Section 5 of the
Securities Act.
3. No consent, approval, or authorization of or
designation, declaration, or filing with any court,
governmental authority, regulatory agency,
self-regulatory organization. stock exchange, or
market on the part of the Company is required in
connection with (i) the valid execution and delivery
of the Transaction Documents. (ii) the offer, sale,
or issuance of the Notes or the Common Shares, (iii)
the consummation of any other transaction
contemplated by the Transaction Documents, with the
exception of (A) the filing of one or more Notices
of Sale of Securities Pursuant to Regulation D (Form
D) with the SEC, (B) the filing of appropriate
notices with state securities commissioners (blue
sky authorities), and (C) the filing of a
Registration Statement pursuant to the Registration
Rights Agreement.
4. The Company has all requisite corporate power
and authority to execute and deliver the
Transaction Documents to carry out all of its
obligations thereunder, including the sale and
issuance of the Notes and the Common Shares, in
accordance with the terms of the Transaction
Documents.
5. Each of the Transaction Documents has been duly and
validly authorized by all necessary corporate
action, and has been executed and delivered by, and
constitutes a valid and binding agreement of, the
Company and is enforceable against the Company in
accordance with its terms
6. The authorized capital stock of the Company is as
stated in the Articles of incorporation of the
Company and in Schedule 3.3 of the Note and Common
Stock Purchase Agreement. To our knowledge, there
have not been any shares of the capital stock of
the Company issued that are not validly issued,
fully paid, and non-assessable. All issued and
outstanding shares of Common Stock of the Company
are free of any preemptive or similar rights
contained in the Articles of Incorporation or
Bylaws of the Company or, to our knowledge, in any
agreement by which the Company is bound.
7. Upon payment therefor, the Common Shares will be
validly issued, fully paid, and non-assessable, and
free of any preemptive or similar rights contained
in the Articles of incorporation or the By-laws of
the Company or, to our knowledge, of any agreement
by which the Company is bound.
8. The execution and delivery of, and compliance
with the terms of: the Transaction Documents,
including the issuance of the Common Shares, as
contemplated thereby, do not and will not conflict
with or result in a breach or default by the
Company of any of the terms or provisions of: (i)
the Articles of Incorporation or the By-laws of the
Company, (ii) to our knowledge, any existing
applicable decree, judgment, or order of any court,
federal or state regulatory body, administrative
agency, or other governmental body having
jurisdiction over the Company or any of its
properties or assets, (iii) to our knowledge,
conflict with, or constitute a default (or an event
which with notice or lapse of time or both would
become a default) under, or give to others any
rights of terminations, amendments, accelerations,
or cancellation of, any agreement, indenture, or
instrument to which the Company is a party (except
for such conflicts, defaults, termination,
amendments, accelerations, cancellations, arid
violations as would not, individually or in the
aggregate, have a Material Adverse Effect), or (iv)
federal or California State law. However, we
express no opinion on usury laws and encourage
purchaser to undertake its own investigation into
such laws.
9. To our knowledge, there is no litigation,
pending or threatened, that could or that would
impair the ability of the Company to issue and
deliver the Common Shares, or to comply with the
provisions of the Transaction Documents or
otherwise have a Material Adverse Effect.
This opinion is furnished to the Purchaser solely for its
benefit in connection with the sale and issuance of the Notes and the
Common Shares, as contemplated by the Transaction Documents, and may
not be relied upon by any other person (other than the Company) or
for any other purpose without our prior written consent. This opinion
is limited to matters expressly set forth herein and no opinion may
be inferred or implied beyond the matters expressly stated in this
opinion on the date hereof. We shall have no obligation to update any
of the matters set forth in this opinion.
We bring to your attention the fact that our legal opinions
are an expression of professional judgment and are not a guarantee of
a result.
Very truly yours,
HORWITZ & BEAM
<PAGE>
EXHIBIT G
TO NOTE AND COMMON STOCK PURCHASE AGREEMENT DATED
March 19, 1999
LIST OF COLLATERAL TO BE PLEDGED UNDER THIS AGREEMENT
1. All of the Company's right, title and interest in West Cameron Block 39,
offshore Louisiana, including, but not limited to, the OCS-G 13825 #1 Well,
the OCS-G 13825 #2 Well, and the Company's leasehold interest therein.
2. All of the Company's right, title and interest in the Pressly No. 1 Well
and the applicable spacing unit surrounding the well, Jackson County,
Texas.
3. All of the Company's right, title and interest in the Wilbeck No. 1 Well
and the applicable spacing unit surrounding the well, Jackson County,
Texas.
This document replaces the Exhibit 23.2 previusly filed.
ACCOUNTANT'S CONSENT
The Board of Directors
Beta Oil & Gas, Inc.
We consent to the use of our report dated February 9, 1999, except for the
fourth and fifth paragraph of Note 8 which is as of March 19, 1999 included
herein and to the reference to our firm under the heading "Experts" in the
Prospectus.
/s/ HEIN + ASSOCIATES LLP
Orange, California
March 25, 1999
[Veazey & Associates, Inc. Letterhead]
Petroleum Consultants
4520 Jamestown Ave., Suite 4 March 18, 1999 (504)925-8059
Baton Rouge, LA 70808 FAX: 504-925-8560
Beta Oil & Gas, Inc.
901 Dove Street, Suite #230
Newport Beach, CA 90266
RE: CONSENT OF VEAZEY & ASSOCIATES, INC.
As oil and gas consultants, Veazey & Associates, Inc. hereby consent to: (a) the
use of our reserve report dated February 23, 1999 and (b) all references to our
firm included in or made a part of Beta Oil & Gas, Inc.'s Amendment to Form S-1
to be filed with the Securities and Exchange Commission.
VEAZEY & ASSOCIATES, INC.
/s/Michael J. Veazey
<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
DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JUN-06-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> 198,043 3,985,599
<SECURITIES> 0 0
<RECEIVABLES> 9,678 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 222,672 3,988,198
<PP&E> 14,853,995 5,900,794
<DEPRECIATION> 1,670,691 0
<TOTAL-ASSETS> 13,618,471 9,921,057
<CURRENT-LIABILITIES> 319,129 870,474
<BONDS> 0 0
0 0
0 0
<COMMON> 7,029 5,566
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 13,618,471 9,050,210
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 2,429,343 246,982
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (2,384,500) (201,573)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,384,500) (201,573)
<EPS-PRIMARY> (0.37) (0.05)
<EPS-DILUTED> (0.37) (0.05)
</TABLE>
