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SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1999
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________ to _________
Commission File Number 0-29796
MARINE SHUTTLE OPERATIONS INC.
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(Exact Name of Registrant as Specified in Its Charter)
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Nevada 91-1913992
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4410 Montrose Boulevard, Houston, Texas 77006
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (713) 529-7498
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Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock, par value $.001 per share
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(Title of class)
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES _X_ NO __
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|
The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of March 30, 2000 was approximately $22,152,246 computed
based on the average bid and asked prices of the Common stock on the OTC
Bulletin Board on such date.
There were 40,750,642 shares of the Registrant's common stock
outstanding as of March 30, 2000.
DOCUMENTS INCORPORATED BY REFERENCE:
None
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SECURITIES AND EXCHANGE COMMISSION
FORM 10-K
TABLE OF CONTENTS
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PART 1......................................................................................................... 3
ITEM 1. BUSINESS............................................................................................... 3
General................................................................................................... 3
The Market................................................................................................ 4
Decommissioning........................................................................................... 5
The Offshore Shuttle...................................................................................... 6
Business Strategy......................................................................................... 8
Strategic Alliances....................................................................................... 8
Proprietary Protection.................................................................................... 9
Competition............................................................................................... 10
Regulation................................................................................................ 10
Insurance................................................................................................. 11
Employees................................................................................................. 11
ITEM 2. PROPERTIES.......................................................................................... 11
ITEM 3. LEGAL PROCEEDINGS................................................................................... 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................................................. 12
PART II........................................................................................................ 13
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS............................................ 13
ITEM 6. SELECTED FINANCIAL DATA............................................................................. 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............... 15
General................................................................................................... 15
Results of Operations..................................................................................... 15
Business Strategy......................................................................................... 16
Rights to the Offshore Shuttle............................................................................ 17
Goodwill and Other Intangibles............................................................................ 17
Liquidity and Capital Resources........................................................................... 17
Recent Pronouncements..................................................................................... 19
Year 2000 issue........................................................................................... 19
International Operations.................................................................................. 20
Holding Company Structure................................................................................. 20
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK......................................... 21
Interest Rate Risk........................................................................................ 21
Foreign Exchange Risk..................................................................................... 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA......................................................... 22
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE................ 40
PART III....................................................................................................... 40
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS................................................................... 40
Section 16(a) Beneficial Ownership and reporting Compliance............................................... 41
ITEM 11. EXECUTIVE COMPENSATION............................................................................. 42
Summary Compensation Table................................................................................ 42
Employment Agreements..................................................................................... 42
Compensation Committee Interlocks and Insider Participation............................................... 42
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..................................... 43
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K................................... 45
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PART I
This Annual Report on Form 10-K (and any other reports issued by the
Company from time to time) contain certain forward-looking statements made in
reliance upon the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements, including statements
regarding the capabilities of an Offshore Shuttle, anticipated market size, the
Company's business strategy, and the like are based on current expectations that
involve numerous risks and uncertainties. Actual results could differ materially
from those anticipated in such forward-looking statements as a result of various
known and unknown factors including, without limitation, future economic,
competitive, regulatory, and market conditions, future business decisions, the
receipt of financing, construction delays, demand for the Company's services,
and those factors discussed below under Management's Discussion and Analysis of
Financial Condition and Results of Operations. Words such as "believes,"
"anticipates," "expects," "intends," "may," and similar expressions are intended
to identify forward-looking statements, but are not the exclusive means of
identifying such statements. The Company undertakes no obligation to revise any
of these forward-looking statements.
ITEM 1. BUSINESS
General
Marine Shuttle Operations Inc. (the "Company"), through its
majority-owned Norwegian subsidiary, Marine Shuttle Operations AS, is seeking to
become a leading player in the market for decommissioning, installing, and
transporting offshore oil and gas structures. The Company is in the development
stage, has not generated any revenues from operations, and does not expect to
generate any significant revenues from operations, until the year 2002, at the
earliest.
The Company intends to focus its initial efforts on decommissioning --
i.e., the multi-stage process of removing an offshore oil or gas installation.
Removal typically is accomplished by cutting the particular installation into
many pieces and utilizing crane ships and other support vessels to lift the
pieces onto barges or, in some instances, onto the deck of the crane ships
themselves. Although this procedure may be adequate for the small, shallow water
installations that require relatively little cutting to be removed, the
extensive cutting and lifting required with respect to the larger platforms
situated in deeper waters makes decommissioning such installations using such
procedure difficult, dangerous, time-consuming, and expensive.
Marine Shuttle Operations AS ("MSOAS"), a majority-owned Norwegian
subsidiary of the Company, has designed a new generation of vessel (the
"Offshore Shuttle") which the Company believes will be capable of lifting and
carrying most of the largest installations without extensive cutting or
dismantling.
The Company has formed strategic alliances to test, develop,
manufacture, and commercialize the Offshore Shuttle concept. In particular, the
Company will rely on Thyssen Krupp Stahlunion GmbH with respect to the marketing
of its proposed services, RC Consultants AS with respect to its engineering and
operational activities, and Schuller Industrieentsorgung AG (formerly Schuller
Industrieentsorgung GmbH) with respect to waste management, onshore dismantling,
and oil pollution prevention and cleanup.
The Company was incorporated in Nevada in May 1997 under the name
Geoteck International, Inc. On May 29, 1998, it changed its name to Marine
Shuttle Operations Inc. In 1998, the Company acquired all of the issued and
outstanding stock of MSOAS in exchange for 7,600,000 shares of the Company's
common stock, par value $0.001 per share (the "Common Stock"), and approximately
68% of the outstanding stock of Offshore Shuttle AS ("OSAS"), the holder of the
licensing and marketing rights to the Offshore Shuttle design, in exchange for
4,937,607 shares of Common Stock.
In September 1999, OSAS merged into MSOAS, resulting in the Company
owning approximately 81% of MSOAS, and MSOAS became the holder of the licensing
and marketing rights to the Offshore Shuttle. The Company currently is in the
process of acquiring an additional 8.4% of the outstanding shares of MSOAS from
two individuals in exchange for an aggregate of 1,030,002 shares of Common
Stock. There can be no assurance that such acquisition will be completed.
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The Company's principal offices in the United States are located at
4410 Montrose Boulevard, Houston, Texas 77006. Its telephone number is (713)
529-7498. Unless the context otherwise requires, the term "Company" as used
herein includes Marine Shuttle Operations Inc. and its subsidiary.
The Market
There are now more than 6,500 offshore oil and gas installations
worldwide located on the continental shelf of approximately 53 countries. Of
these, there are approximately 4,000 structures in the Gulf of Mexico, 950 in
Asia, 700 in the Middle East, 400 in Europe, and the balance are located
throughout the rest of the world. Of the European total, more than 300 are in
the North Sea and the North East Atlantic.
Many different types of installations exist, each one being uniquely
designed based on the water depth, seabed characteristics, and reservoir, wave,
and current conditions of the site of installation. Of the current installed
base of structures, the vast majority (more than 5,800) are fixed steel
installations. Although most fixed steel installations are situated in shallow
waters (i.e., less than 75 meters), there are three hundred to four hundred
fixed steel installations situated in intermediate water depths (i.e., 75 to 200
meters). These deeper water structures tend to be much larger than their shallow
water counterparts.
Fixed steel installations are comprised of two elements: the topside
and the substructure or "jacket." The topside is the above-water portion of the
installation that contains the processing, drilling, and accommodation
facilities. Topsides vary enormously in size and function. Weights range from a
few hundred tons for small topsides in the Gulf of Mexico to over 50,000 tons
for large topsides in the North Sea. Topsides may be built as separate modules,
as an integrated unit, or as a combination of the two (i.e., an integrated deck
containing process facilities topped by individual modules). The choice of
system depends on the facilities required and the method by which the topside is
installed. Topsides typically are transported offshore either on barges or on
the deck of the crane ships.
A jacket is a lattice-work of steel tubes anchored to the seabed by
piles driven up to 100 meters into the soil. They can weigh over 30,000 tons,
have a wide base (up to 120 meters across), and taper towards the top. The vast
majority of jackets are transported to their offshore site by barge. Small
jackets can be lifted off the barge and placed in the water vertically. Large
jackets, whether barge launched or crane lifted, enter the water horizontally
and are then ballasted by controlled flooding to the vertical position before
being lowered into place. Once the jacket is piled into the seabed, the topside
generally is installed by crane.
In addition to fixed steel structures, the installed base includes
concrete gravity base structures (typically found in shallow and intermediate
water depths), various types of floating structures such as tension leg
platforms, floating production platforms, spars, and floating production,
storage and offloading vessels (typically situated in deep waters -- i.e., more
than 200 meters), and subsea structures which include the equipment needed to
develop satellite fields and the seabed equipment associated with floating
installations.
The Company believes that over the next 30 years, most of the installed
base of structures will have to be decommissioned at an estimated cost of $20
billion to $40 billion. It is anticipated that a significant portion of this
amount will be spent on the three hundred to four hundred large, steel,
intermediate depth installations that are substantially more difficult to remove
using existing technology than their shallow water counterparts. This is most
evident in the North Sea and the North East Atlantic where, due to the harsh
environment and the significant number of large, intermediate depth steel
structures, the anticipated decommissioning costs are considerably greater than
in the rest of the world. Indeed, it is estimated that approximately fifty to
sixty percent of worldwide decommissioning costs will be spent in the North Sea
and the North East Atlantic, even though such regions account for just five
percent of the total number of installations. The Company's initial
decommissioning efforts will focus on these large, intermediate depth steel
structures.
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Decommissioning
Decommissioning is the multi-stage process of removing an offshore oil
or gas installation. The process includes planning and engineering the removal
of the installation, obtaining necessary regulatory approvals, removing the
installation, sealing the wells, and transporting the installation for re-use,
recycling, or disposal. Removal costs can range from $2 million for smaller
platforms in shallow waters to more than $140 million for larger ones in deeper
waters.
A number of different methods may be utilized to remove an offshore
installation. Determining which method is most appropriate for a particular
installation is a function of numerous factors, including the installation's
size, weight, construction type, and distance from shore, the water depth,
seabed characteristics, reservoir, wave, and current conditions of the site of
installation, and safety considerations. The typical method of removal involves
cutting the particular structure into many pieces. Crane ships and other support
vessels are used to lift the pieces onto barges or, in some instances, onto the
deck of the crane ships themselves. The cutting is necessitated by the limited
lifting capabilities of existing crane ships. Complications often arise,
however, in determining the maximum lift capability during decommissioning
operations. The largest cranes theoretically are capable of lifting objects up
to 14,000 tons. During an actual lift, however, various factors including safety
and operational constraints (e.g., vertical and horizontal clearance, the
required outreach and/or upreach of the crane boom, anchoring requirements, and
proximity to other facilities, subsea wellheads, and pipelines), location
characteristics, and the size and structural integrity of the pieces to be
lifted all will significantly reduce the theoretical lift capability. This is
best illustrated by the removal of the Odin jacket in Norway. Two cranes, with a
combined maximum theoretical lift capacity of 14,000 tons, were engaged to
remove a jacket that weighed approximately 10,000 tons. Despite the significant
disparity between the cranes' maximum theoretical lift capacity and the weight
of the jacket, the jacket had to be cut into four sections, each of which was
lifted separately.
Several companies have offered and/or have proposed solutions for
lifting large platforms in one piece. These involve the use of multiple barges,
twin-hull tankers, split-hull tankers, and U-shaped semi-submersibles. One such
solution, known as Versatruss, is comprised of two barges and an array of booms,
rigging, and winches. The components are assembled together to produce what is
essentially a giant scissors jack. The barges are symmetrically placed around
the platform, and the booms from each barge are placed in receptacles that have
been welded to the platform deck. The barges are pulled together sideways using
winches. This causes the angle of inclination of the booms to increase, forcing
the deck upwards. The Company believes that the utility of Versatruss and most
of these other alternative solutions will be limited to the lifting of topsides
in calm waters. Although some of such lifting systems may be capable of lifting
jackets, the Company believes that the vertical clearance limitations inherent
in each of such systems will inhibit their ability to lift the jackets onshore.
Rather, the Company believes that such systems only will be capable of towing
jackets from one installation site to another. There can be no assurance,
however, that the Company's beliefs will prove to be accurate.
Removal of a few of the larger, older jackets that are equipped with
flotation tanks may be attempted by re-floating them. During installation, the
flotation tanks were used to temporarily float the jackets. Foundation piles
were then added to fasten these structures to the seabed, the flotation tanks
were ballasted, and any temporary buoyancy aids were removed. If the flotation
tanks can be deballasted and the foundation piles can be removed or equipped
with temporary buoyancy aids, then it might be possible to refloat the
structure. Given the age of these structures, however, the condition of the
flotation tanks is questionable. Moreover, transporting the large floating
jacket would create a sizeable wake, thus limiting access to coastal locations.
Certain countries also permit the decommissioning of offshore oil and
gas structures by partially removing them or by toppling the structures and
leaving them on the seabed. Many countries, however, citing environmental and
other concerns, do not allow these forms of decommissioning in their territorial
waters.
The Company believes that the Offshore Shuttle will represent a new,
cost-effective alternative for decommissioning offshore oil and gas platforms,
particularly large, intermediate depth structures.
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The Offshore Shuttle
Operation. The Offshore Shuttle's design is based on the Archimedes
principle: putting water into a floating object will cause it to submerge, and
letting water out will cause it to rise. In essence, the Offshore Shuttle is
designed to be a large buoyancy tank that can be submerged for placement under
or adjacent to an offshore installation and then elevated to lift the
installation.
The Company envisions a typical platform removal operation commencing
with the preparation of the Offshore Shuttle at its home base and the
preparation of the platform for removal. Pre-removal preparations will include
conducting a detailed analysis and preparing a comprehensive method statement of
all of the tasks to be performed in the removal operation, adjusting the
Offshore Shuttle's lifting frame for the installation to be removed, and
equipping the topside support legs or the underside of the topside deck with
specially-prepared docking connections.
Upon completion of the pre-removal preparations, the Offshore Shuttle
will be towed (it is not a self-propelled vessel) to the offshore site by
several vessels, one of which will serve as the control center for the removal
operation.
The topside will be removed first. The Offshore Shuttle will be
partially submerged (i.e., ballasted) and guided into position under the topside
by the use of guidance tugs and/or mooring anchors. The tugs and/or the anchors
will keep the Offshore Shuttle in position while the topside is cut from the
jacket (alternatively, the Offshore Shuttle can be moved into position after
cutting the topside from the jacket). Once cut, the topside and the jacket will
be temporarily secured to each other by clamps that will be designed
specifically for the installation being removed. The Offshore Shuttle will be
deballasted, causing it to rise in the water until the lifting frame on the
Offshore Shuttle connects with the docking connections on the topside. The
temporary clamps then will be unfastened from the jacket. Once the topside is
lifted, it can be seafastened to the Offshore Shuttle for transport to another
offshore site, or to a land site for dismantling or refurbishment.
The Offshore Shuttle then will be towed by tugs to the offshore
location to perform the jacket removal. It will be maneuvered by the tugs and/or
mooring anchors into position. The Offshore Shuttle will be ballasted at one end
so that it is tilted in the water. The tugs and/or the anchors will keep the
Offshore Shuttle in place while the connection to the jacket is made. The jacket
will be connected by tension mechanisms or a lifting frame to the Offshore
Shuttle and the jacket legs will be cut at the seabed (or, for large structures,
above the foundations). Alternatively, the Offshore Shuttle can be moved into
position after partial cutting of the jacket legs. The Offshore Shuttle will
lift the jacket by deballasting into its original horizontal position. The
jacket will be seafastened to the Offshore Shuttle and transported to another
offshore site, or to a land site for dismantling or refurbishment.
The Company believes the Offshore Shuttle will be able to remove most
of the largest topsides in one piece and also will be capable of diving partly
below the water surface to remove a complete jacket in one operation. The
maximum weight of the structures which can be handled is a matter of design, but
the Company believes that the Offshore Shuttle will be capable of lifting most
of the largest structures (i.e., topsides or platforms) (up to approximately
22,000 tons) in one piece without the use of large crane barges.
Once a structure is removed, the Company believes that the Offshore
Shuttle will be able to be used as a barge for transport. It is anticipated that
the removed structure will lie in project-specific cradles on the Offshore
Shuttle to help prevent damage to the object during transportation. This is
particularly important where reuse of the marine structure is of interest. In
addition, the Company believes that it may be possible to design the Offshore
Shuttle with a cover at one end so that by ballasting it 180 degrees into a
vertical position, a very large working deck would be created 50 to 60 meters
above water level. If so, the working deck could be positioned above structures
(e.g., ships) or beneath structures (e.g., bridges) for use as a platform from
which equipment could be operated.
The cost of constructing an Offshore Shuttle is estimated to be around
$100 million to $200 million, depending on size, compared to an estimated
minimum cost of $200 million to $300 million to build a crane ship. Moreover,
the Company anticipates that approximately 20 people will be required for a
typical Offshore Shuttle decommissioning operation compared to the typical crane
ship operation that requires up to 200 people. Additional support vessels are
needed for both crane ship or Offshore Shuttle operations.
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The Company believes that the Offshore Shuttle's principal advantage
over existing decommissioning methods will be its ability to remove and carry
large structures in one piece. By eliminating the need to cut installations into
many smaller units, offshore operation time, costs, and risks will be
significantly reduced and reuse of the installation will become a more viable
alternative. The Company believes the Offshore Shuttle's anticipated versatility
will make it a unique alternative for handling marine objects both inshore and
offshore.
Dimensions. Based on current designs, each Offshore Shuttle will
consist of six longitudinal tubes, four transverse tubes, and twelve vertical
tubes. Although the dimensions of each Offshore Shuttle will vary based on the
average size installation a particular Offshore Shuttle is designed to handle,
it is anticipated that each Offshore Shuttle will be 130 to 200 meters long, 70
to 95 meters wide, and 60 meters high. The diameter of each tube will be
approximately 10 meters. Each tube will be ring-stiffened in order to resist the
hydrostatic pressure associated with installation or retrieval of marine
structures. The longitudinal tubes may be ballasted by letting water in or
deballasted by pumping water out.
There may be a fixed, 4,000 ton ballast in one of the outer transverse
tubes to ensure sufficient stability. In addition, there will be separate
ballasting compartments at one end of the two outer lower longitudinal tubes.
These compartments will enable the Offshore Shuttle to maintain a horizontal
position when the center of gravity of the object being transported or unloaded
is close to the bottom of the Offshore Shuttle.
It is anticipated that the total weight of each Offshore Shuttle will
range from 8,000 tons to 19,000 tons, depending upon the task for which it is
designed. The main dimensions (as described above) may be subject to change
depending on the Company's determination of the number and types of marine
objects which are to be installed or removed in the foreseeable future. It is
the Company's intention to have each Offshore Shuttle built for a dedicated
region.
Testing. The Company believes that the technical risks associated with
the Offshore Shuttle concept have been reduced by extensive model testing and
rigorous calculations. Using a 1:50 scale model of an Offshore Shuttle, motions
in different ballast conditions were tested; ballasting/deballasting sequences
were tested without any marine object, with a 1:50 scale model of 7,000 ton
jacket, and with a 1:50 scale model of an 8,000 ton topside; and hydrodynamics
were tested by examining the motions of the Offshore Shuttle (with and without a
marine object) in different positions and when subjected to wave forces, as well
as its towing resistance in calm water and storm. In addition, based on
engineering documentation, calculations, and model testing, Det Norske Veritas
AS, an internationally-recognized society responsible for classification and
technical inspections of merchant vessels, issued a Statement of Approval
verifying the technical feasibility of the Offshore Shuttle concept for the
transport and removal of certain offshore platform deck structures and jackets.
Despite the testing, documentation, and approval, there can be no
assurance that construction of the Offshore Shuttle will be successfully
completed or that, if constructed, the Offshore Shuttle will function properly,
will be operationally safe and environmentally friendly, or will enable the
Company to provide decommissioning, installation, and transportation services in
an effective manner or at all. In addition, it is anticipated that the Offshore
Shuttle will be equipped with an adjustable lifting frame, and
specially-prepared docking connections will be utilized during removal
operations. To date, neither the lifting frame nor the docking connections have
been engineered, and there can be no assurance such engineering will be
successfully completed. If the Company is unable to engineer the lifting frame
and/or the docking connections, it could have a material adverse effect on the
Company.
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Business Strategy
The Company is in the process of evaluating bids received from a number
of construction yards which it believes have the capacity and capability to
build an Offshore Shuttle. Although there can be no assurance that the Company
will be able to negotiate acceptable contract manufacturing arrangements, the
Company anticipates that physical construction of the first Offshore Shuttle
will start during second half 2000 and will be completed by the second half of
2002, at the earliest. Subject to the receipt of additional financing,
construction delays, market conditions, demand for the Company's services, and
other factors, construction of a second Offshore Shuttle is intended to commence
two years after ordering the first Offshore Shuttle, and a third Offshore
Shuttle is intended to commence one year after the second. There can be no
assurance, however, as to the time required to complete such construction
efforts or that such efforts can be successfully completed at all.
Subject to market demand, performance results, and other factors, the
Company anticipates that each Offshore Shuttle will conduct between two and five
operations per year. The Company does not anticipate generating any significant
revenues until the year 2002, at the earliest. There can be no assurance that
the Company's assumptions regarding the number of operations to be performed
will prove to be accurate, or that it will ever achieve commercially significant
sales. To date, the Company has not entered into any contracts for the use of
its proposed services, and no assurance can be given that any such contracts
will materialize.
The Company intends to focus its initial efforts on the decommissioning
market in the North Sea, the North East Atlantic, and other regions where it
anticipates the advantages of using the Offshore Shuttle to decommission large,
intermediate depth structures will be most prominent. The Company estimates that
300 to 400 of such structures currently exist for which use of the Offshore
Shuttle would be ideal. In the North Sea alone, there are approximately 100
steel jackets in water depths greater than 75 meters. The Company ultimately
intends to provide a full range of services, including decommissioning,
installing, transporting, and recycling/disposing of various types of
structures.
Offshore decommissioning and installation activity in the North Sea and
the North East Atlantic is highly seasonal, principally as a result of weather
conditions. Historically, the greatest demand for offshore decommissioning and
installation services in such regions has been during the period from May
through September. The Company may seek to partially offset the anticipated
seasonality of its proposed operations by pursuing other potential opportunities
such as leasing the Offshore Shuttle to third parties for bridge building,
drydocking ships and floating platforms, and other uses. No assurance can be
given that such other opportunities, if successful, will result in the
anticipated offset of the seasonality of the Company's proposed operations.
Strategic Alliances
The Company's business strategy is dependent upon forming strategic
alliances and relationships with joint venture partners, contract manufacturers,
or other third parties, and upon the subsequent success of these parties in
performing their responsibilities. In this regard, MSOAS has entered into
agreements with Thyssen Krupp Stahlunion GmbH with respect to the marketing of
its proposed services, RC Consultants AS ("RCC") with respect to its engineering
and operational activities, and Schuller Industrieentsorgung AG (formerly
Schuller Industrieentsorgung GmbH, "Schuller") with respect to waste management,
onshore dismantling, and oil pollution prevention and cleanup.
Thyssen Krupp Stahlunion GmbH. Thyssen Krupp Stahlunion GmbH, ("TKSU"),
is a subsidiary of Thyssen Krupp AG. In addition to its activities in the steel
industry, TKSU offers offshore technology and services to its clients including
jacket concepts, platform abandonment/removal, and waste management. Pursuant to
the agreement with MSOAS, TKSU will market the Offshore Shuttle on a worldwide
basis to major oil companies, offshore contractors, and others as part of its
package of offshore services. In addition, TKSU shall act as a procurement
service center for the steel and equipment to be used in constructing the
Offshore Shuttle, and shall have a right of first refusal to lease the Offshore
Shuttle if TKSU is engaged in any decommissioning, transportation, or
installation project. TKSU shall receive a commission at a rate to be agreed
upon for its marketing services, and shall be precluded from promoting any
products or services competitive with those of the Company. Jurgen Ternieden, a
director of the Company is an officer and the head of the Pipes, Offshore,
Special Products Department of TKSU.
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RC Consultants AS. RCC is a Norwegian engineering company with more
than 400 skilled offshore engineers. Pursuant to a personnel agreement with
MSOAS, RCC will provide MSOAS with the engineers and technicians needed during
the design, engineering, fabrication, and operation of the Offshore Shuttle.
Sverre Hanssen, the Chairman of the Board of Directors of RCC, is Chairman of
the Board of Directors of MSOAS.
Schuller Industrieentsorgung AG. Schuller is a service company
specializing in waste management, onshore dismantling, and oil pollution
prevention and cleanup. MSOAS and Schuller have entered into a cooperation
agreement pursuant to which Schuller will provide such services to MSOAS,
subject to the execution of a written agreement on a project-specific basis.
Franz Eder, the President and Chairman of the Board of the Company, and Dr.
Hubert Besner, a director of the Company, are members of the Supervisory Board
and shareholders of Schuller.
In addition, the Company's proposed offshore decommissioning activities
may require the use of large tug boats, unloading docks, subsea specialists,
marine operators, diving support vessels, and various safety and supply boats.
The Company may seek to form strategic alliances and relationships with third
parties who provide these and other services.
The Company believes that the use of these outside parties will help
minimize the Company's fixed costs and increase its flexibility by gaining
access to qualified personnel when needed. There can be no assurance, however,
that such arrangements will be successful. If any of these arrangements are
cancelled and/or are unsuccessful, and if the Company is unable to secure new
alliances in their place, there would be a material adverse effect on the
Company.
Proprietary Protection
MSOAS has six patents regarding various aspects of the Offshore Shuttle
design and operations, and numerous patent applications are pending.
There can be no assurance that patents will issue from any of MSOAS's
patent applications or, if issued, as to the range or degree of protection the
issued patents will afford. In addition, there can be no assurance that others
will not obtain patents claiming aspects similar to those covered by the patent
applications or patents, or that such patents, if issued, will not be challenged
by third parties, invalidated, rendered unenforceable, or designed around.
Even if patents are issued from the patent applications and a
competitor were to infringe on them, the costs of enforcing the patent rights
may be substantial or even prohibitive. There can be no assurance that the
Company will be successful in any action for infringement of its technology. In
addition, there can be no assurance that the Offshore Shuttle will not infringe
on the patent rights of others, or that patents do not exist or will not be
issued in the future that would have an adverse effect on the Company's ability
to manufacture or operate the Offshore Shuttle. The Company is aware of the
existence of a Norwegian patent which claims the use of a U-shaped structure
designed for removing and/or installing topsides. Based on the opinion of the
Company's patent counsel, Bryns Patentkontor A/S, the Company believes that the
Offshore Shuttle will not infringe on this Norwegian patent because, unlike the
structure covered by the Norwegian patent, the Offshore Shuttle will not utilize
movable transverse beams mounted to its upper beams. There can be no assurance,
however, that infringement proceedings will not be brought against the Company.
-9-
<PAGE>
The Company also may desire or be required to obtain licenses from
others in order to further develop, produce, and market the Offshore Shuttle
effectively. There can be no assurance that licenses will be obtainable on
commercially reasonable terms, if at all, that the patents underlying the
licenses will be valid and enforceable, or that the proprietary nature of the
unpatented technology underlying the licenses will remain proprietary. In
addition, the Company relies on unpatented proprietary know-how and trade
secrets, and employs various methods including confidentiality agreements with
employees, consultants and marketing partners to protect its trade secrets and
know-how. These methods may not afford complete protection and there can be no
assurance that others will not independently develop trade secrets and know-how
or obtain access to them.
Competition
The Company will face competition from companies which provide
decommissioning, installation, and/or transport services using cranes and
barges. In addition, several companies have offered and/or have proposed
solutions for lifting large platforms in one piece. These involve the use of
multiple barges, twin-hull tankers, split-hull tankers, and U-shaped
semi-submersibles. Competition also may arise from vessels, processes, and/or
technologies currently in development, or developed in the future, by other
companies. The development by others of new or improved vessels, processes, or
technologies may make the services to be marketed by us less competitive or
obsolete.
Many of the Company's current and potential competitors are likely to
have substantially greater financial, managerial, and technical resources than
the Company does. No assurance can be given that the Company will be able to
compete successfully in the marketplace, if at all.
Regulation
Decommissioning of facilities is governed by national legislation
within the framework of a rigorous international and regional regulatory regime.
Although details differ, most oil and gas producing countries have adopted a
similar approach to decommissioning. All feasible options for removal and
disposal of offshore installations are assessed on a case-by-case basis. The
offshore platform operator is required to prepare a decommissioning and
abandonment plan which identifies the decommissioning and abandonment options,
evaluates the technical feasibility of each option, assesses impacts on the
environment and on society, and minimizes risks to human health and safety. The
offshore platform operator then recommends to the responsible ministry the
option which best balances the factors involved.
In 1989, the International Maritime Organization, a technical arm of
the United Nations dealing with safety of navigation, issued guidelines (the
"IMO Guidelines") dealing with the removal of offshore platforms. Recognizing
the magnitude and complexity of removal operations, the IMO Guidelines took into
account not only the size of the platforms but also the capabilities of the
removal vessels. The IMO Guidelines provide that installations weighing less
than 4,000 tons that are in less than 75 meters of water must be completely
removed, while bigger and deeper structures need be only partially removed
provided the remains are covered by an unobstructed water column at least 55
meters deep. For structures emplaced on the seabed on or after January 1, 1998,
the water depth threshold increases from 75 meters to 100 meters. In addition,
all platforms installed on or after January 1, 1998 must be designed so that
removal is feasible.
In July, 1998, the contracting parties to the Convention for the
Protection of the Marine Environment of the North East Atlantic (also known as
the "OSPAR Convention"), which include the United Kingdom, Ireland, France,
Spain, Portugal, Belgium, Germany, Denmark, Norway, Sweden, Finland, Luxembourg,
the Netherlands, Iceland, the European Union, and Switzerland, agreed to
restrictions more stringent than those set forth in the IMO Guidelines. Based on
the premise that reuse, recycling, or onshore disposal generally will be the
preferred options for decommissioning offshore platforms, the OSPAR Convention
provides for a ban, effective February, 1999, on the dumping and the leaving
(wholly or partially) in place of disused offshore installations located in the
North Sea, the North East Atlantic, and certain other regions. Permits may be
issued for alternative means of disposal if significant reasons can be shown as
to why such alternative means are preferable to reuse, recycling, or onshore
disposal.
The Company's proposed operations may be subject to and affected by
various types of national and international regulations. Determining the
applicable regulatory framework will depend, in part, on how the Offshore
Shuttles are classified (e.g., as "ships," "vessels," "installations", etc.),
whether (and if so, where) the Offshore Shuttles are registered or documented,
and where the Company's intended operations are performed. The Company may be
required to obtain certain permits, licenses and certificates with respect to
its proposed operations and to comply with rigorous safety and workplace
standards. Moreover, certain employees of the Company may be covered by laws
that operate to make liability limits, if any, established by state workers'
compensation laws inapplicable to these employees and permit the employees and
their representatives to pursue actions against the Company for job related
injuries with generally no limits on the Company's potential liability.
-10-
<PAGE>
The Company's proposed operations may be affected by numerous
international and national laws and regulations relating to protection of the
environment. The technical requirements of the various laws and regulations are
complex and stringent, and compliance is often difficult and expensive. Certain
environmental laws provide for strict liability for remediation of spills and
releases of hazardous substances and some provide liability for damages to
natural resources or threats to public health and safety. Sanctions for
noncompliance may include revocation of permits, corrective action orders,
administrative or civil penalties, and criminal prosecution.
Insurance
The Company's proposed operations will be subject to all of the
inherent risks of offshore marine activity, including accidents, environmental
mishaps, mechanical failures, and vessels colliding, capsizing, grounding, or
sinking. These occurrences can result in significant personal injury or loss of
life, severe damage to or destruction of property and equipment, pollution or
environmental damage, and suspension of the Company's proposed operations.
Moreover, litigation arising from any such occurrence may result in the Company
being named as a defendant in lawsuits asserting material claims.
The Company intends to obtain insurance against some of these types of
risks. It also anticipates that it will be adequately protected by the insurance
policies of the companies that utilize the Company's services, and it intends to
further limit its risk by capping its liability exposure in its service
contracts with such companies. There can be no assurance, however, that the
policies of such companies will cover the Company or, if they do, that such
insurance (or the insurance obtained by the Company, if any) will be sufficient
or effective under all circumstances or against all hazards to which the Company
may be subject. In addition, there can be no assurance that any contractual
limits on liability will be enforceable or will adequately and effectively limit
the Company's liability exposure, or that the companies that utilize the
Company's services will nevertheless seek to be indemnified by the Company with
respect to any and all losses or damages they suffer or incur.
Employees
The Company (including its subsidiary) employs nine people, consisting
of 4 executive officers and five administrative personnel. These employees are
not unionized or employed pursuant to any collective bargaining agreement or any
similar agreement. The Company believes its relationship with its employees is
satisfactory. The Company also utilizes the services of various consultants
during the year.
Technical Development
Technical development expenses for the year ended December 31, 1999
were $554,206. The Company did not incur technical development costs in 1998 or
1997. The Company intends to continue to devote resources and capital to
technical development so it can develop and commercialize the Offshore Shuttle.
ITEM 2. PROPERTIES
The Company's corporate headquarters in the United States are located
in approximately 500 square feet of office space in Houston, Texas. The Company
occupies these premises pursuant to a lease agreement which remains in force on
a month-to-month basis. Either party may cancel this agreement with 30 days
notice to the other. The agreement was entered into in February 2000, and had
retroactive effect from January 1, 2000. The agreement replaces an agreement
regarding the same office spaces, which was cancelled December 31, 1999. The
monthly rental was reduced from $750 to $220.
-11-
<PAGE>
MSOAS leases 938 square meters of office space in Sandnes, Norway from
RC Group ASA. The lease is for a five-year period at an average annual rent of
approximately $128,400, and expires in 2003. Sverre Hanssen, the Chairman of the
Board of Directors of MSOAS, is the principal shareholder and the President of
RC Group ASA. In addition MSOAS leases three offices in Oslo, Norway pursuant to
a 22 month lease at an annual rental of approximately $29,175 with adjustments
for increases in the consumer price index.
ITEM 3. LEGAL PROCEEDINGS
The Company currently is not a party to any material legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
-12-
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock commenced trading on the OTC Bulletin Board on
December 22, 1997 and is traded under the symbol "ZSUB". The following table
sets forth for the periods indicated the high and low bid quotations for the
Common Stock as reported on the OTC Bulletin Board. The quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not represent actual transactions.
Price Range
-----------
High Low
---- ---
Year Ended December 31, 1999
----------------------------
1st Quarter $5.0625 $1.625
2nd Quarter $2 $1.0625
3rd Quarter $4.25 $0.875
4th Quarter $1.4375 $0.6875
Year Ended December 31, 1998
----------------------------
1st Quarter $5.75 $3.50
2nd Quarter $7.3125 $5
3rd Quarter $6.5625 $3.50
4th Quarter $6.0625 $4
As of March 29, 2000, there were approximately 76 holders of record of
the Common Stock, including record holders which may hold such stock for
beneficial owners and which have not been polled to determine the extent of
beneficial ownership.
The Company has never declared or paid dividends, and does not intend
to pay any dividends in the foreseeable future on shares of Common Stock.
Earnings of the Company, if any, and are expected to be retained for use in
expanding the Company's business. The payment of dividends is within the
discretion of the Board of Directors of the Company and will depend upon the
Company's earnings, if any, capital requirements, financial condition, and such
other factors as are considered to be relevant by the Board of Directors from
time to time.
In December, 1999, the Company raised $4,930,299 in gross proceeds from
the sale of approximately 7 million shares of Common Stock in an offshore
transaction pursuant to Regulation S through Berliner Effektenbank AG, a German
investment bank, and Christiania Markets, a Norwegian investment bank.
Transaction fees totaled $490,430. The net proceeds will be used for engineering
work related to the construction of the first Offshore Shuttle, for repaying
certain indebtedness, and for working capital and general corporate purposes.
-13-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data are derived from the consolidated
financial statements of the Company. The data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated Financial Statements and related notes thereto
included herein.
<TABLE>
<CAPTION>
May 23, 1997 May 23, 1997
(inception) (inception)
Through Year ended Year ended Through
December 31, December 31, December 31, December 31,
1999 1999 1998 (1) 1997
---------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
Consolidated Statements of
Operation Data:
Operating revenues $ 121,512 $ 105,136 $ 16,376 $ -
Total operating expenses 12,973,788 7,829,051 4,979,806 164,931
Net (loss) (12,570,929) (7,363,850) (5,042,148) (164,931)
Net (loss) per share, (basic and diluted) $ (0.22) $ (0.20) $ (0.01)
Weighted average number of common
shares outstanding (basic and diluted) 33,611,545 25,720,000 18,931,982
December 31, December 31, December 31,
Consolidated Balance Sheet Data: 1999 1998 1997
-------------- -------------- ----------------
Working capital $ (2,498,097) $ (3,588,380) $ (10,931)
(deficit)
Total assets 39,245,995 37,936,227 9,015
Notes payable 2,550,000 3,605,390 -
Total liabilities 4,118,442 4,810,551 19,946
Minority interest 228,826 555,417 -
Accumulated deficit (12,570,929) (5,207,079) (164,931)
Shareholders' equity 34,898,727 32,570,259 (10,931)
</TABLE>
(1) In April 1998, the Company acquired all of the outstanding stock of Marine
Shuttle Operations AS. In December 1998, the Company acquired approximately 68%
of the outstanding stock of Offshore Shuttle AS. See further information at
Item 7.
-14-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following information contains forward-looking statements which are
subject to risks and uncertainties. Should one or more of these risks or
uncertainties materialize, actual results may differ from those expressed or
implied by the forward looking statements. The following information should be
read in conjunction with the consolidated financial statements of the Company
and the notes thereto set forth elsewhere herein.
General
The Company, through its majority-owned Norwegian subsidiary, Marine
Shuttle Operations AS ("MSOAS"), is seeking to become a leading player in the
market for decommissioning, installing, and transporting offshore oil and gas
structures.
The Company has designed a vessel, the "Offshore Shuttle," which it
believes will be capable of lifting most of the largest topsides in one piece
and also will be capable of diving partly below the water surface to remove a
complete jacket in one operation. The Company anticipates that construction of
the first Offshore Shuttle will be completed by the second half of 2002, at the
earliest. Construction of a second Offshore Shuttle is intended to commence two
years after ordering the first Offshore Shuttle, and construction of a third
Offshore Shuttle is intended to commence one year after the second.
The Company was incorporated in Nevada in May 1997 under the name
Geoteck International, Inc. On May 29, 1998, it changed its name to Marine
Shuttle Operations Inc. In 1998, the Company acquired
o all of the outstanding stock of MSOAS in exchange for 7,600,000
shares of Common Stock; and
o approximately 68% of the outstanding stock of Offshore Shuttle
AS ("OSAS"), the holder of the licensing and marketing rights
to the Offshore Shuttle design, in exchange for 4,937,607
shares of Common Stock.
To benefit from a more rational and cost efficient use of the resources
in MSOAS and OSAS, the Board of Directors of the two companies proposed to merge
the two companies. The proposed merger plan was approved by the shareholders of
both companies on May 30, 1999, and the merger became effective in September
1999. The OSAS shareholders received 1.5 MSOAS shares for each of their OSAS
shares. As a result, the Company's ownership in MSOAS became approximately 81%,
and MSOAS became the holder of the licensing and marketing rights. The Company
currently is in the process of acquiring an additional 8.4% of the outstanding
shares of MSOAS from two individuals in exchange for an aggregate of 1,030,002
shares of Common Stock. There can be no assurance that such acquisition will be
completed.
Results of Operations
The Company is in the development stage and has generated revenues to
date only from study work. Since the merger of OSAS into MSOAS, the Company's
main operations have been conducted through MSOAS. The following comparisons are
affected by the 1998 acquisitions of OSAS and MSOAS since their results of
operations are only included in the consolidated results of operations since
their respective acquisition dates.
The Company incurred net losses of $7,363,850 for 1999 compared with
$5,042,148 for 1998. The Company did not have any revenues in 1997 and total
operating expenses in 1997 were $164,931.
Operating Revenues. Operating revenues for 1999 were $105,136
compared to $16,376 in 1998. The increase was due to increased study work
performed for clients.
-15-
<PAGE>
Personnel costs. Personnel costs includes costs for both employees and
contract personnel and were $1,277,938 for 1999, an increase of $1,092,444 over
personnel costs of $185,494 in 1998. The increase in costs was a result of
increased activities and increased personnel in MSOAS.
Legal, audit and advisory services. Legal, audit and advisory services
for the year ended December 31, 1999 were approximately $472,958, a decrease of
$646,742 compared to legal, audit and advisory services of $1,119,700 in 1998.
The decrease from 1998 to 1999 was mainly due to lower consulting fees as work
was shifted from consultants to Company personnel.
Cost of cancelled financing. The cost of cancelled financing in 1998
was $606,721, which was incurred in connection with a planned public offering in
1998. The public offering was cancelled and the costs were expensed.
General and administrative expenses. General and administrative
expenses for 1999 were $1,270,413, an increase of $867,667 over the general and
administrative expenses of $402,745 in 1998. The increase was due to increased
activities in MSOAS and MSOAS moving into new offices during 1999.
Marketing. Marketing expenses for 1999 were $300,157, a decrease of
$352,333 from $652,490 for 1998. The decrease was a result of purchasing fewer
marketing materials and services in 1999, and higher costs in 1998 related to
participation in the Offshore Northern Sea Exhibition in Norway.
Technical Development. Technical development costs for 1999 were
$554,206 compared to no cost in 1998. The majority of these expenses were
incurred by OSAS, which majority-interest was acquired in December 1998.
Amortization of goodwill and intangibles. Amortization of goodwill and
intangibles for 1999 was $3,885,167, an increase of $2,002,963 over the
amortization of goodwill and intangibles of $1,882,204 in 1998. This increase is
due to amortization of goodwill and intangibles acquired in connection with the
acquisition of approximately 68% of the OSAS common stock in 1998. Goodwill of
$32,929,340 and other purchased intangibles of $3,591,615 were acquired in the
acquisition and all being amortized over 10 and 5 to 10 years, respectively.
Interest expense. Interest expense for 1999 was $23,389, which was
$69,880 below interest expenses of $93,268 in 1998. The reason for the decrease
in interest expense is that in 1999, a larger portion of the borrowings were
allocated to the construction of the Offshore Shuttle and therefore were
capitalized rather then expensed.
Future Results. Results of operations for 1999 and 1998 are not
indicative of the results expected in future periods due to increased costs to
be incurred in developing, financing and constructing the first Offshore
Shuttle, with no anticipated revenues from operation of the first Offshore
Shuttle until the second half of 2002, at the earliest.
Business Strategy
The Company is in the process of evaluating bids received from a number
of construction yards which are believed to have the capacity and capability to
build an Offshore Shuttle. Construction of the first Offshore Shuttle is
intended to start during second half 2000. The Company anticipates that the
construction of the first Offshore Shuttle will be completed by the second half
of 2002, at the earliest. Construction of a second Offshore Shuttle is intended
to commence two years after ordering the first Offshore Shuttle, and a third
Offshore Shuttle is intended to commence one year after the second.
Subject to market demand, performance results, and other factors, the
Company anticipates that each Offshore Shuttle will conduct between two and five
operations per year. In making the foregoing forecasts, the Company has assumed
that each commercial operation, including all pre-engineering work, will take up
to one year to complete, with the offshore portion calculated to be four weeks
on average.
-16-
<PAGE>
The Company intends to focus its initial efforts on the decommissioning
market in the North Sea, the North East Atlantic, and other regions where it
anticipates the advantages of using the Offshore Shuttle to decommission large,
intermediate depth structures will be most prominent. The Company estimates that
300 to 400 of such structures currently exist for which use of the Offshore
Shuttle would be ideal. The Company ultimately intends to provide a full range
of services, including decommissioning, installing, transporting, and
recycling/disposing of various types of structures.
Offshore decommissioning and installation activity in the North Sea and
the North East Atlantic is highly seasonal, principally as a result of weather
conditions. Historically, the greatest demand for offshore decommissioning and
installation services in such regions has been during the period from May
through September. The company may seek to partially offset the anticipated
seasonality of its proposed operations by pursuing other potential opportunities
such as leasing the Offshore Shuttle to third parties for bridge building,
drydocking ships and floating platforms, and other uses. There can be no
assurance that such other opportunities, if successful, will result in the
anticipated offset of the seasonality of the Company's proposed operations.
Rights to the Offshore Shuttle
The intellectual property rights to the Offshore Shuttle concept (the
"Rights") were transferred to MSOAS (by virtue of its merger with OSAS) by two
individuals, the developers of the Offshore Shuttle concept, pursuant to an
Agreement Regarding Intellectual Property dated March 31, 1998 (the
"Intellectual Property Agreement"). The Intellectual Property Agreement provides
that if MSOAS shall cease to actively engage in its activities relating to the
Offshore Shuttle concept, then, subject to a six-month cure period, the Rights
shall revert back to the two individuals. In such event, the Company would be
unable to obtain any value from the future sale or exploitation of the rights.
In addition, if MSOAS desires to transfer the Rights, the two individuals have a
right of first refusal with respect to such transfer. In March, 2000, an
Addendum to the Intellectual Property Agreement was signed which provide that
the two individuals shall waive their right to have the Rights transferred back
to them as well as their right of first refusal. The waiver is subject to
fulfillment of certain conditions, including that the Company receive a written
commitment for the financing of the first Offshore Shuttle, and that the Company
enter into contracts for the design, construction, and fabrication of the first
Offshore Shuttle. In consideration of the waiver, the Company shall grant each
of the two individuals, upon the satisfaction of such conditions, warrants to
purchase 125,000 shares of Common Stock at $1 per share.
Goodwill and Other Intangibles
Goodwill and other purchased intangibles arising from the acquisitions
of MSOAS and OSAS are being amortized over periods ranging from 5 to 10 years,
their estimated useful lives. Goodwill is being amortized over 10 years which is
the expected future benefit period over which cash flows will be generated to
recover the goodwill. Since the Company is a development stage company, there
can be no assurance that such cash flows will be generated. As of December 31,
1999, goodwill represented 72% of total assets and 81% of total shareholders'
equity.
Liquidity and Capital Resources
The Company's ability to continue as a going concern is dependent on
its ability to obtain significant additional financing. As of December 31, 1999
and 1998, the Company had cash and cash equivalents of $1,119,564 and $903,805,
respectively, an accumulated deficit of $12,570,929, and $5,207,079,
respectively, shareholders' equity of $34,898,727, and $32,570,259, respectively
and a working capital deficit of $2,498,097, and $3,588,380, respectively. The
Company is in the development stage with no operating assets presently
generating cash to fund its operating and capital requirements. Accordingly, the
independent auditor's report on the Company's financial statements has an
explanatory paragraph addressing the Company's ability to continue as a going
concern.
-17-
<PAGE>
In February 1999, the Company consummated a private placement of 1.15
million shares of common stock through Berliner Effektenbank AG for gross
proceeds of $5.75 million.
On March 1, 1999, the Company entered into a loan agreement with
ValorInvest, Ltd, an investment company, pursuant to which ValorInvest agreed to
lend the Company an aggregate of up to $6,000,000. The loan agreement was
amended and restated as of December 31, 1999. The loan agreement provides that
advances shall be made in increments of $250,000 and shall not exceed $500,000
in any single month unless agreed to by ValorInvest. Any monies advanced under
the loan agreement shall bear interest at the rate of 7.5% per annum and shall
be due and payable on December 31, 2000; except that if the Company raises, in
the aggregate, in excess of $2,000,000 from equity or long term debt financings
after January 1, 2000, then the loan shall be due to the extent of 25% of such
excess. As of December 31, 1999, $3,875,000 had been advanced under the loan
agreement, and $2,550,000 was outstanding under the loan agreement.
In August 1999, the Company entered into a loan agreement with Statens
naerings og distriktsutviklingsfond (the Norwegian Industrial and Regional
Development Fund, "SND"), pursuant to which SND agreed to lend the Company an
aggregate of up to NOK 4,000,000, (approximately $515,200), to finance specific
tasks within the Offshore Shuttle project. As of December 31, 1999, NOK
2,358,617 ($293,379) had been advanced under the loan agreement. The principal
is repayable over a five year period commencing two years after disbursement,
in semi-annual installments, each in the amount of NOK 400,000.
In December 1999, the Company consummated a private placement of 7.04
million shares of common stock through Berliner Effektenbank AG, and Christiania
Markets, Oslo, for gross proceeds of $4.93 million.
In February 2000, the Company entered into a loan agreement with MFC
Merchant Bank S.A, an investment company, pursuant to which MFC agreed to lend
an aggregate of up to $2,000,000, provided that advances shall not exceed
$350,000 in any single month. Any monies advanced under this loan agreement
shall bear interest at the rate of LIBOR plus 3.5% per annum and shall be due
and payable in full on February 25, 2001. As of March 30, 2000, $500,000 was
outstanding under this agreement.
The Company is seeking to obtain additional capital. In October 1998,
the Company entered into an engagement letter with MFC Merchant Bank S.A.
pursuant to which MFC shall act, on a best-efforts basis, as agent for the
Company in raising additional capital. As consideration for its services, MFC
shall receive a success fee equal to five percent of the capital raised plus DM
100,000 (approximately $54,000) per month until the completion or termination of
the MFC financing. In addition, all of MFC's out-of-pocket expenses shall be
reimbursed, and if the Company raises the necessary funds through another
source, MFC shall receive a break-up fee equal to the greater of $1,200,000 or
350,000 shares of common stock.
In September 1999, the Board of Westdeutsche Landesbank Girozentrale
(WestLB) of Dusseldorf issued its conditional approval to underwrite a U.S.
$157.5 million loan facility for the first Offshore Shuttle. Based on such
approval, the Company has mandated WestLB to act as sole arranger and
underwriter for the financing. WestLB's commitment is subject to several
material conditions, including satisfactorily completing its due diligence, the
Company's obtaining European government guarantees to secure a significant
portion of the loan facility, and its completing of an additional equity
financing. The Company is seeking to fulfill these conditions within the next
few months.
In February 2000, the Company signed a Memorandum of Understanding with
the Italian Ministry of Industry and various other Italian governmental entities
with respect to the financing of the first Offshore Shuttle, (the "Italian
Financing"). The financial support from the various governmental entities would
be in the form of equity, debt and government guarantees, and is subject to
numerous material conditions, including the satisfactory completion of due
diligence, the submission by an Italian shipyard of a competitive construction
bid with terms and conditions acceptable to the Company, the arrangement of
sufficient commercial debt financing with a major bank and the raising of
additional equity capital.
-18-
<PAGE>
There can be no assurance that the conditions to the WestLB or the
Italian Financing will be satisfied or, if satisfied, that the WestLB or the
Italian Financing will be consummated on reasonable terms or at all. If it is
not completed, the Company may be required to significantly curtail or cease our
proposed activities. Although the Company believes that the proceeds from the
WestLB or the Italian Financing, if completed, will enable the Company to
construct the first Offshore Shuttle, there can be no assurance in that regard.
Moreover, even if the WestLB or the Italian Financing is consummated, the
Company's future capital requirements could vary significantly and will depend
on certain factors, many of which are not within the Company's control. Such
factors include
o the need for cash to fund the construction of additional Offshore Shuttles;
o greater than anticipated expenses; and
o longer engineering, development, and construction times than now
contemplated.
If the Company is successful in completing the first Offshore Shuttle,
it believes it will be able to fund the construction of additional Offshore
Shuttles from its future operating cash flows and/or short or medium term debt
financing. There can be no assurance, however, that the Company's beliefs will
prove to be accurate.
Recent Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133 (SFAS 133), Accounting for Derivative Instruments and Hedging
Activities, which standardizes the accounting for derivative instruments. SFAS
133, as amended, is effective for fiscal years beginning after June 15, 2000.
The impact on the Company's financial statements has not been determined, but
the Company currently does not use derivatives to manage its exposure to foreign
exchange and interest rate risk. The Company will adopt SFAS 133 as of January
1, 2001.
Year 2000 issue
Many computer systems record years in a two-digit format. Such systems,
if not modified, will be unable to recognize and properly process information
with dates beyond the year 1999. It is possible that, even after January 1,
2000, this "Year 2000 issue" may cause problems or disruptions. The Company's
current operations utilize computer hardware and software acquired during 1997
and 1998 which manufacturers have warranted to be Year 2000 compliant.
Since the Company currently do not have any material relationships
with any suppliers or clients, no assessment can be made at this time as to the
effect third party non-compliance will have on its proposed operations. In the
future, the Company intends to verify that any suppliers or clients with whom it
may develop a material relationship are Year 2000 compliant. However, there can
be no assurance that the Company's operations will not be adversely affected by
unforeseen Year 2000 problems or third party non-compliance.
-19-
<PAGE>
International Operations
The Company intends to market its services in international markets.
International operations entail various risks, including
o political instability;
o economic instability and recessions;
o exposure to currency fluctuations;
o difficulties of administering foreign operations generally;
o reduced protection for intellectual property rights;
o potentially adverse tax consequences; and
o obligations to comply with a wide variety of foreign laws and other
regulatory requirements.
Holding Company Structure
At December 31, 1999, Marine Shuttle Operations Inc. owned
approximately 81% of the issued and outstanding capital stock of MSOAS. Based on
this ownership structure, any dividends paid by MSOAS to Marine Shuttle
Operations Inc. are subject to Norwegian withholding taxes and U.S. income taxes
(which can be offset to the extent of the Norwegian withholding taxes). Thus,
the amount of the funds that may be distributed by MSOAS to Marine Shuttle
Operations Inc. for working capital, acquisitions, investments, or other
purposes will be restricted to the extent such taxes are payable.
-20-
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
The Company's exposure to market risk for changes in interest rates
relates primarily to the Company's notes payable and long-term debt. The Company
believes its exposure to interest rate risk was not material since its current
notes payable consist of fixed rate indebtedness, and the long-term variable
rate debt obligation was not material. The fair value of the fixed rate notes
payable approximates its carrying value due to its short-term maturity.
Interest rate risk may arise if the Company is successful in obtaining
debt financing to finance the building of the first Offshore Shuttle. In such an
event, the Company will assess the extent of its interest rate risk and may
enter into hedging transactions to reduce its exposure and to ensure its ability
to service its debt.
Foreign Exchange Risk
Foreign exchange risk may arise if the Company is required to use
different currencies for various aspects of its operations. Although the
principal currency used in the offshore decommissioning industry in the U.S.
Dollar, the local expenditures of MSOAS (e.g., rent, telephone, payroll, etc.)
are likely to be paid in Norwegian Kroner, and it is possible that the contract
for construction of the first Offshore Shuttle will be denominated in a currency
other than the U.S. Dollar or the Norwegian Kroner. The Company currently has no
foreign exchange contracts.
-21-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Financial Statements of Marine Shuttle Operations Inc.:
Reports of Independent Auditors....................................................................... 23
Consolidated Balance Sheets as of December 31, 1999 and 1998......................................... 25
Consolidated Statements of Loss and Comprehensive Loss for the period from May 23, 1997
through December 31, 1997, for the years ended December 31, 1998 and 1999 and
cumulative to December 31, 1999 from date of inception, May 23, 1997............................... 26
Consolidated Statements of Cash Flows for the period from May 23, 1997 through December
31, 1997, for the years ended December 31, 1998 and 1999 and cumulative to December
31, 1999 from date of inception, May 23, 1997..................................................... 27
Consolidated Statements of Shareholders' Equity from date of inception, May 23, 1997 to
December 31, 1997, and for the years ended December 31, 1998 and 1999.............................. 28
Notes to Consolidated Financial Statements December 31, 1999, 1998 and 1997......................... 29
</TABLE>
-22-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors
Marine Shuttle Operations Inc.
We have audited the accompanying consolidated balance sheet of Marine
Shuttle Operations Inc. (a development stage enterprise) as of December 31,
1999, and the related consolidated statements of loss and comprehensive loss,
shareholders' equity, and cash flows for the year then ended, and for the period
from May 23, 1997 (inception) through December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. The financial statements as of December 31, 1998 and 1997, and for
the period May 23, 1997 (inception) through December 31, 1998, were audited by
other auditors whose report dated March 18, 1999 expressed an unqualified
opinion on those statements and included an explanatory paragraph for the going
concern uncertainty discussed in Note 2 to the financial statements. The
financial statements for the period May 23, 1997 (inception) through December
31, 1998 include total revenues and net loss of $16,376 and $5,207,079,
respectively. Our opinion on the consolidated statements of loss and
comprehensive loss, shareholders' equity, and cash flows for the period May 23,
1997 (inception) through December 31, 1999, insofar as it relates to amounts for
prior periods through December 31, 1998, is based solely on the report of other
auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors,
the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Marine Shuttle Operations Inc.
at December 31, 1999, and the consolidated results of its operations and its
cash flows for the year then ended and the period from May 23, 1997 (inception)
through December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
The accompanying financial statements have been prepared assuming that
Marine Shuttle Operations Inc. will continue as a going concern. As more fully
described in Note 2, the Company has incurred recurring operating losses and has
a working capital deficit. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 2. The financial statements do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.
[ERNST & YOUNG LLP]
Houston, Texas
March 24, 2000
-23-
<PAGE>
Independent Auditors' Report
To the Board of Directors and Stockholders of
Marine Shuttle Operations Inc.
We have audited the accompanying consolidated balance sheets of Marine Shuttle
Operations Inc. and subsidiaries (collectively, the "Company") as at December
31, 1998 and the related consolidated statements of loss and comprehensive loss,
shareholders' equity (deficiency) and cash flows for the year ended December 31,
1998, and the period from May 23, 1997 (inception) to December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform an audit
to obtain reasonable assurance 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, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 1998
and the results of operations and cash flows for the year ended December 31,
1998, and the period from May 23, 1997 (inception) to December 31, 1997 in
conformity with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company's negative working capital and deficit raises
substantial doubt about its ability to continue as a going concern. Management's
plans concerning this matter are also described in Note 2. The financial
statements do not contain any adjustments that might result from the outcome of
this uncertainty.
/s/DELOITTE & TOUCHE
Chartered Accountants
Vancouver, British Columbia, Canada
March 18, 1999
-24-
<PAGE>
MARINE SHUTTLE OPERATIONS INC.
(A development stage company)
CONSOLIDATED BALANCE SHEETS
(U.S.Dollars)
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
----------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,119,564 903,805
Restricted cash 54,478 128,535
Accounts receivables 38,619 16,254
Other current receivables 114,305 173,577
---------- ----------
Total Current Assets 1,326,966 1,222,171
---------- ----------
Pension fund - 8,018
Property, plant and equipment, net 5,980,857 2,067,287
Debt issue cost 1,109,510 -
Goodwill, net 28,096,422 31,389,355
Patents and agreements, net 2,732,240 3,249,396
---------- ----------
TOTAL ASSETS $ 39,245,995 37,936,227
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 933,817 963,908
Notes payable 2,550,000 3,605,390
Other current liabilities 341,246 241,253
---------- ----------
Total current liabilities 3,825,063 4,810,551
---------- ----------
Long Term Debt
293,379 -
Minority interests
228,826 555,417
Contingencies (Note 2)
SHAREHOLDERS' EQUITY
Authorized 75,000,000 common shares with a par value
of $0.001. Issued and outstanding 40,750,642 common
shares with a par value of $0.001 at December 31,
1999 and 32,557,607 common shares at December 31, 1998 40,751 32,558
Other paid in capital 47,684,739 37,734,263
Deficit accumulated during the development stage (12,570,929) (5,207,079)
Accumulated other comprehensive income (loss) (255,834) 10,517
------------ ----------
Total shareholders' equity 34,898,727 32,570,259
------------ ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 39,245,995 $37,936,227
============ ==========
See accompanying notes to consolidated financial statements.
</TABLE>
-25-
<PAGE>
MARINE SHUTTLE OPERATIONS INC.
(A development stage company)
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
(U.S.Dollars)
<TABLE>
<CAPTION>
Cumulative to
December 31, 1999 Period from
from date of Year ended Year ended May 23, 1997 to
inception December 31, December 31, December 31,
May 23, 1997 1999 1998 1997
-------------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
Operating revenues $ 121,512 $ 105,136 $ 16,376 $ --
OPERATING EXPENSES
Personnel costs 1,503,432 1,277,938 185,494 40,000
Legal, audit and advisory services 1,665,086 472,958 1,119,700 72,428
Cost of cancelled financing 606,721 -- 606,721 --
General and administrative expenses 1,725,661 1,270,413 402,745 52,503
Marketing expenses 952,647 300,157 652,490 --
Technical development 554,206 554,206 -- --
Depreciation 106,684 96,217 10,467 --
Amortization - goodwill and intangibles 5,767,371 3,885,167 1,882,204 --
Loss on investment 90,000 -- 90,000 --
Currency exchange loss (gain) 1,980 (28,005) 29,985 --
----------- ----------- ----------- -----------
Total operating expenses 7,829,051 4,979,806 12,973,788 164,931
----------- ----------- ----------- -----------
Interest expense, net of capitalized 116,657 23,389 93,268
Interest income (71,413) (56,864) (14,549) --
----------- ----------- ----------- -----------
Net loss before minority interest $(12,897,520) $ (7,690,440) $ (5,042,148) $ (164,931)
----------- ----------- --------- -----------
Minority interest (326,591) (326,591) -- --
----------- ----------- ----------- -----------
Net loss $(12,570,929) $ (7,363,850) $(5,042,148) $(164,931)
=========== =========== =========== ===========
Other comprehensive (loss) income:
Accumulated other comprehensive
Income (loss) (255,834) (266,351) 10,517 --
----------- ----------- ----------- -----------
Comprehensive loss $(12,826,762) $ (7,630,201) $ (5,031,631) --
=========== =========== =========== ===========
Basic and diluted loss per share $ (0.22) $ (0.20) $ (0.01)
=========== =========== ===========
Basic and diluted weighted average shares out standing 33,611,545 25,720,000 18,931,982
=========== =========== ===========
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
MARINE SHUTTLE OPERATIONS INC.
(A development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S.Dollars)
<TABLE>
<CAPTION>
Cumulative to
December 31,1999 Period from
From date of Year ended Year ended May 23, 1997
inception December 31, December 31, to December 31,
May 23, 1997 1999 1998 1997
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (12,570,929) $ (7,363,850) (5,042,148) $ (164,931)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 5,874,056 3,981,385 1,892,671 -
Minority interest (326,591) (326,591) - -
Loss on investment 90,000 90,000 -
Unrealized loss on foreign currency 39,790 7,698 32,092 -
Changes in working capital:
Accounts receivable (38,620) (22,366) (16,254) -
Other current receivables and restricted cash (168,781) (81,850) (86,931) -
Accounts payable 933,817 (30,092) 947,817 16,092
Other current liabilities 301,456 441,444 (143,842) 3,854
------------------ ------------ ------------- ----------
Net cash used in operating activities (5,865,802) (3,394,222) (2,326,595) (144,985)
------------------ ------------ ------------- ----------
INVESTING ACTIVITIES
Investments (100,000) - (100,000) -
Capital expenditures (4,874,332) (4,158,657) (715,675) -
Proceeds on sale of investment 10,260 260 10,000 -
Advance to Marine Shuttle Operations AS (249,986) - (249,986) -
Acquisition of Marine Shuttle Operations AS 416,635 - 416,635 -
Advance to Offshore shuttle AS (100,000) - (100,000) -
Acquisition of Offshore Shuttle AS 482,476 - 482,476 -
------------------ ------------ ------------- ----------
Net cash used in investing activities (4,414,947) (4,158,397) (256,550) -
------------------ ------------ ------------- ----------
FINANCING ACTIVITIES
Issuance of capital stock 10,849,050 10,679,050 - 170,000
Share issue cost (736,381) (720,381) - (16,000)
(736,381) (720,381) - (16,000)
Debt issue cost (1,109,510) (1,109,510) - -
Payment on note payable (5,875,000) (5,875,000) - -
Borrowing on note payable 8,718,379 5,218,379 3,500,000 -
------------------ ------------ ------------- ----------
Net cash provided by financing activities 11,846,537 8,192,537 3,500,000 154,000
------------------ ------------ ------------- ----------
Effect of exchange rate change on cash and cash
equivalents (446,223) (424,158) (22,065) -
Net increase (decrease) in cash and cash
equivalents 1,119,564 215,759 894,790 9,015
------------------ ------------ ------------- ----------
Cash and cash equivalents at beginning of
period - 903,805 9,015 -
------------------ ------------ ------------- ----------
Cash and cash equivalents at end of period $ 1,119,564 $ 1,119,564 903,805 9,015
================== ============ ============= ==========
Supplemental disclosure of cash flow
Information:
Cash payments for interest $ 38,562 $ 38,562 $ - $ -
Cash receipts for interest $ (71,413) $ (56,864) $ (14,549) -
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
MARINE SHUTTLE OPERATIONS INC.
(A development stage company)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(U.S.Dollars)
Year ended December 31, 1999 ended December 31, 1999 and 1998, and from the
date of inception, May 23, 1997, to December 31, 1997
<TABLE>
<CAPTION>
Accumulated other
Common Shares Comprehensive Total
-------------------------- Paid-in income Accumulated Shareholders'
Shares Amount Capital (loss) (Deficit) Equity
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Issued on incorporation 10,000,000 $ 10,000 $ $ $ $ 10,000
Private placement 10,020,000 10,020 133,980 144,000
Net loss (164,931) (164,931)
---------- ---------- ----------- ------------ ----------- ----------
Balance at December 31,1997 20,020,000 20,020 133,980 -- (164,931) (10,931)
---------- ---------- ----------- ------------ ----------- ----------
Issued on acquisition of MSOAS 7,600,000 7,600 22,792,400 -- -- 22,800,000
Issued on acquisition of OSAS 4,937,607 4,938 14,807,883 -- -- 14,812,821
Net loss . -- -- -- -- (5,042,148) (5,042,148)
Other comprehensive income -
foreign currency translation
adjustments -- -- -- 10,517 -- 10,517
---------- ---------- ----------- ------------ ----------- ----------
Balance at December 31, 1998 32,557,607 32,558 37,734,263 10,517 (5,207,079) 32,570,259
---------- ---------- ----------- ------------ ----------- ----------
Private placements:
February 1999 1,149,750 1,150 5,517,650 -- -- 5,518,800
December 1999 7,043,285 7,043 4,432,826 -- -- 4,439,869
Net loss -- -- -- -- (7,363,850) (7,363,850)
Other comprehensive (loss) -
foreign currency translation
adjustments -- -- -- (266,351) -- (266,351)
---------- ---------- ----------- ------------ ----------- ----------
Balance at December 31, 1999 40,750,642 $ 40,751 $47,684,739 (255,834) $(12,570,929) $34,898,727
---------- ---------- ----------- ------------ ----------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
MARINE SHUTTLE OPERATIONS INC.
(A development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. NATURE OF OPERATIONS
Marine Shuttle Operations Inc. (the "Company"), through its
majority-owned Norwegian subsidiary, Marine Shuttle Operations AS ("MSOAS"), is
seeking to become a leading player in the market for decommissioning, installing
and transporting of offshore oil and gas structures. The Company, being in the
development stage, has not generated any significant revenues from operations
and does not expect to generate any significant revenues from operations until
the year 2002, at the earliest. There can be no assurance, however, that the
Company will ever achieve commercially significant sales. To date, the Company
has not entered into any contracts for the use of its proposed services, and no
assurance can be given that any such contracts will materialize.
In 1998, the Company acquired 100% of MSOAS, and approximately 68% of
the outstanding capital stock of Offshore Shuttle AS ("OSAS"). At the time, OSAS
held the licensing and marketing rights to the "Offshore Shuttle", a vessel
being developed to lift and carry large installations without extensive cutting
or dismantling. In September 1999, OSAS merged into MSOAS, and as a result,
MSOAS is the holder of the licensing and marketing rights to the Offshore
Shuttle, and the Company's ownership interest in MSOAS became approximately 81%.
See Note 8. Unless the context otherwise requires, the term "Company"
hereinafter includes Marine Shuttle Operations Inc. and its subsidiaries.
2. GOING CONCERN
The Company's ability to continue as a going concern is dependent on
its ability to obtain significant additional financing. As shown in the
financial statements, the Company is in the development stage and at December
31, 1999 has accumulated losses from operations amounting to $12,570,929 and a
working capital deficit of $2,498,097, with no operating assets presently
generating cash to fund its operating and capital requirements. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern. The Company is seeking to raise additional capital. There can be no
assurance that the Company will be able to raise additional capital on
reasonable terms, if at all, or that any financing transaction will not be
dilutive to current shareholders. If the Company is not able to raise additional
capital, it may be required to significally curtail or cease its operating
activities. The financial statements have been prepared assuming that the
Company will continue as a going concern, and do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in accordance with
generally accepted accounting principles in the United States and reflect the
following significant accounting principles:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its majority-owned subsidiary, Marine Shuttle Operations AS (MSOAS).
Intercompany transactions and balances have been eliminated.
ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amount of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
-29-
<PAGE>
MARINE SHUTTLE OPERATIONS INC.
(A development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
MARKETING
All marketing and advertising costs are expensed as incurred.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand, deposits in banks
and highly liquid investments with an original maturity of three months or less.
EQUIPMENT
Equipment is recorded at cost. Depreciation is charged to operations
over the estimated useful lives of the assets as follows:
Computer equipment......................... 30-35%
Office equipment........................... 20-30%
The average building period for an Offshore Shuttle is estimated to be
24 months. All direct costs including interest related to the construction of
the Offshore Shuttle are capitalized as incurred, and depreciation will commence
when the Offshore Shuttle is available for operation.
GOODWILL AND OTHER INTANGIBLES
Goodwill arising from acquisitions and other purchased intangibles are
amortized on a straight-line basis over 10 years and 5 years to 10 years,
respectively.
Patents are recorded at cost or fair value at date of acquisition less
accumulated amortization, which is calculated on a straight-line basis over
their estimated lives.
IMPAIRMENT OF LONG-LIVED ASSETS
The carrying value of long-lived assets, principally goodwill and
equipment, is reviewed for potential impairment when events or changes in
circumstances indicate that the carrying amount of such assets may not be
recoverable. For goodwill and equipment, the determination of recoverability is
made based upon the estimated undiscounted future net cash flows of the related
assets.
OPERATING REVENUE RECOGNITION
As discussed in Note 1, the Company is in its development stage and
therefore has no significant operating revenue. However, if and when the
operations for decommissioning offshore oil or gas installations begin, the
Company will recognize revenue based on contractual terms as services are
performed. Operating revenue recognized in 1999 and 1998 pertains to study work
performed on behalf of clients and was recognized as the work was performed.
-30-
<PAGE>
MARINE SHUTTLE OPERATIONS INC.
(A development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
STOCK-BASED COMPENSATION
In accordance with the provisions of the Financial Accounting Standards
Board's ("FASB") Statement of Accounting Standard ("SFAS") No. 123, Accounting
for Stock-Based Compensation, the Company has elected to follow the Accounting
Principles Board's Opinion No. 25, Accounting for Stock Issued to Employees and
the related interpretations (`APB 25") in accounting for its employee
stock-based compensation plans. Under APB 25, if the exercise price of employee
stock options equals or exceeds the fair value of the underlying stock on the
date of grant, no compensation expense is recognized.
FINANCIAL INSTRUMENTS AND RISK CONCENTRATION
The Company estimates that the carrying values of its cash and cash
equivalents, current receivables and, payables, and notes payable approximate
fair value at December 31, 1999 and 1998 due to the short-term maturity of the
balances. Financial instruments which potentially subject the Company to
concentration of credit risk are primarily cash and cash equivalents. It is the
Company's practice to place its cash and cash equivalents in time deposits at
commercial banks with high credit ratings. In foreign locations, local financial
institutions are generally utilized for local currency needs. The Company limits
the amount of exposure to any one institution and does not believe it is exposed
to any significant credit risk.
FOREIGN CURRENCY TRANSLATION
The U.S. dollar is the functional currency of Marine Shuttle Operations
Inc. MSOAS uses Norwegian Kroner ("NOK") as its functional currency.
Accordingly, MSOAS translate assets and liabilities at current rates of exchange
in effect at the balance sheet date. The resulting gains and losses from
translation are deferred and recorded as a separate component of comprehensive
income (loss) and as a component of shareholders' equity. Revenue and expense
for MSOAS is translated using the average exchange rates in effect for the
period. Foreign currency exchange gains and losses are recognized in other
income (expense) as incurred.
Revenues and expenses are translated at the average exchange rate for
the reporting period. Gains and losses arising from translation of financial
statements of subsidiaries not reporting in U.S. dollars are deferred and
recorded as a separate component of comprehensive income (loss). The exchange
rate between the NOK and U.S. dollar at December 31, 1999 was 8.0395 NOK to the
US dollar.
RECLASSIFICATIONS
Certain reclassifications have been made to prior period amounts to
conform with the current year presentation.
RECENT PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133 (SFAS 133), Accounting for Derivative Instruments and Hedging
Activities, which standardizes the accounting for derivative instruments.
SFAS 133, as amended, is effective for fiscal years beginning after
June 15, 2000. The impact on the Company's financial statements has not been
determined, but the Company currently does not use derivatives to manage its
exposure to foreign exchange and interest rate risk. The Company will adopt SFAS
133 as of January 1, 2001.
-31-
<PAGE>
MARINE SHUTTLE OPERATIONS INC.
(A development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1999
4. RESTRICTED CASH
Restricted cash includes taxes withheld from employees of the Norwegian
subsidiaries of $33,791 and $72,614, for 1999 and 1998, respectively, and rental
deposits of $20,687 and $55,921, for 1999 and 1998, respectively.
5. ACCOUNTS RECEIVABLE
Accounts receivable are recorded at net realizable value. No allowance
for doubtful account has been provided.
6. OTHER CURRENT RECEIVABLES
December 31, 1999 1998
- ----------------------------------- ------------------- -------------------
Prepaid expenses $ 35,519 $ 41,684
VAT receivable 30,162 90,775
Other current receivable 48,624 41,118
------------------- -------------------
Total other current receivable $114,305 $ 173,577
------------------- -------------------
7. LOSS ON INVESTMENT
On December 31, 1997, the Company entered into a Securities Purchase
Agreement ("Agreement") to acquire 100 shares (constituting a 50% interest) of
Kaizen Food Corporation ("Kaizen"), a Canadian private company. Pursuant to the
Agreement the Company purchased 100 shares of Kaizen for $100,000, and was
required to raise $500,000 on or before January 20, 1998 to fund Kaizen's
research and development activities. Kaizen repurchased the stock during 1998
for $10,000 in full payment of the repurchase price.
8. ACQUISITIONS
On April 14, 1998, the Company acquired 100% of the issued and
outstanding stock of Marine Shuttle Operations AS, a Norwegian company ("MSOAS
"), in exchange for 7,600,000 common shares of the Company. The 7,600,000 shares
are held by a trustee pursuant to the terms of a trust agreement. The shares
cannot be sold prior to the release from the trust. The shares are to be
released as to 10% on July 1, 2000, and an additional 30% on each of July 1,
2001, 2002, and 2003. This transaction was accounted for using the purchase
method of accounting. The excess of the purchase price over the fair value of
the net assets acquired was allocated to goodwill and is being amortized on a
straight-line basis over 10 years. The result of operations of MSOAS have been
consolidated from April 14, 1998.
In 1998, the Company acquired 3,291,738 shares of Offshore Shuttle AS
("OSAS"), a Norwegian limited company, representing approximately 68% of the
outstanding OSAS capital stock, in exchange for 4,937,607 shares of the
Company's common stock. The shares of the Company's common stock that were
issued were recorded at a deemed value of $3.00 per share based on the estimated
fair value of the net assets acquired from OSAS. This transaction was accounted
for using the purchase method. The excess of the purchase price over the fair
value of the net assets acquired was allocated to goodwill and identified
intangibles and is being amortized on a straight-line basis over 10 years. The
results of operations of OSAS have been consolidated from December 31, 1998.
In September 1999, OSAS merged into MSOAS. As a result, the Company's
ownership in MSOAS became approximately 81%, and MSOAS became the holder of the
licensing and marketing rights to the Offshore Shuttle. The merger was accounted
for in a manner similar to the pooling of interests method. Prior results were
not restated because the impact on the consolidated financial statements from
inception through September 1999 was not material.
-32-
<PAGE>
MARINE SHUTTLE OPERATIONS INC.
(A development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1999
8. ACQUISITIONS (continued)
The selected pro forma consolidated financial information for the
Company set forth below gives effect to the acquisitions of the shares of MSOAS
and OSAS, and presents the results of operations of the Company as if the MSOAS
and OSAS acquisitions were made effective May 23, 1997. The pro forma
consolidated financial statements are not intended to reflect the results of
operations or the financial position of the Company which would have actually
resulted had the acquisitions been made on May 23, 1997. Further, the pro forma
financial information is not necessarily indicative of the results of operations
or the financial position that may be obtained in the future.
<TABLE>
<CAPTION>
Cumulative from date
of inception, Period from
May 23, 1997, to Year ended May 23, 1997 to
December 31, 1999 December 31, 1998 December 31, 1997
- ------------------------------------ ------------------------ ---------------------- ---------------------
<S> <C> <C> <C>
Revenue $ 191,709 $ 29,633 $ 56,940
------------------------ ---------------------- ---------------------
Net loss $ (18,335,509) $ (6,029,096) $ (4,942,563)
------------------------ ---------------------- ---------------------
Basic and diluted loss per share $ (0.19) $ (0.16)
---------------------- ---------------------
</TABLE>
9. EQUIPMENT
December 31, 1999 1998
- ----------------------------------------- -------------- ----------------
Computer and office equipment $ 328,562 $ 247,411
Construction in progress 5,758,979 1,830,343
-------------- ----------------
6,087,541 2,077,754
Accumulated depreciation 106,684 10,467
-------------- ----------------
$ 5,980,857 $ 2,067,287
============== ================
Capitalized interest on construction in progress was $226,665 and $12,122, for
the years ending December 31, 1999 and 1998, respectively.
10. GOODWILL
December 31, 1999 1998
- ----------------------------------------- ---------------- ----------------
Total cost $ 32,929,340 $ 32,929,340
Accumulated amortization 4,832,918 1,539,985
---------------- ----------------
$ 28,096,422 $ 31,389,355
================ ================
11. PATENTS AND AGREEMENTS
December 31, 1999 1998
- ----------------------------------------- ---------------- ----------------
Total cost $ 3,666,693 $ 3,591,615
Accumulated amortization 934,453 342,219
---------------- ----------------
$ 2,732,240 $ 3,249,396
================ ================
12. OTHER CURRENT LIABILITIES
December 31, 1999 1998
- ----------------------------------------- ---------------- ----------------
Accrued salary and social security cost $ 107,180 $ 84,378
Accrued other operating expenses 234,066 156,875
---------------- ----------------
Total other current liabilities $ 341,246 $ 241,253
================ ================
- 33 -
<PAGE>
MARINE SHUTTLE OPERATIONS INC.
(A development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1999
13. NOTES PAYABLE
In March 1998, the Company entered into a loan agreement with
ValorInvest Ltd, an investment company based in Geneva, Switzerland, pursuant to
which ValorInvest agreed to lend an aggregate of up to $3,500,000 to the Company
at such times as the Company requested, provided that advances were to be made
in increments of $250,000 and were not to exceed $500,000 in any single month.
Pursuant to the loan agreement, the Company borrowed an aggregate of $3,500,000,
which amount was evidenced by three non-negotiable promissory notes bearing
interest at the rate of 7.5% per annum. In February 1999, the Company repaid all
monies due under the notes, including interest, and the loan agreement was
terminated.
On March 1, 1999, the Company entered into a loan agreement with
ValorInvest Ltd., an investment company, pursuant to which ValorInvest agreed to
lend the Company an aggregate of up to $6,000,000. The loan agreement was
amended and restated as of December 31, 1999. The loan agreement provides that
advances shall be made in increments of $250,000 and shall not exceed $500,000
in any single month unless agreed to by ValorInvest. Any monies advanced under
the loan agreement shall bear interest at the rate of 7.5% per annum and shall
be due and payable on December 31, 2000; except that if the Company raises, in
the aggregate, in excess of $2,000,000 from equity or long term debt financings
after January 1, 2000, then the loan shall be due to the extent of 25% of such
excess. As of December 31, 1999, $3,875,000 had been advanced under the loan
agreement, and $2,550,000 was outstanding under the loan agreement.
In August 1999, the Company entered into a loan agreement with Statens
naerings og distriktsutviklingsfond (the Norwegian Industrial and Regional
Development Fund, "SND"), pursuant to which SND agreed to lend the Company an
aggregate of up to NOK 4,000,000, (approximately $515,200) to finance specific
tasks within the Offshore Shuttle project. As of December 31, 1999, NOK
2,358,617 (approximately $293,379) had been advanced under the loan agreement.
The principal is repayable two years after disbursement, over five years in
semi-annually installments, each in the amount of NOK 400,000.
In October 1998, the Company entered into an engagement letter with MFC
Merchant Bank S.A. pursuant to which MFC shall act, on a best-efforts basis, as
agent for the Company in raising additional capital. As consideration for its
services, MFC shall receive a success fee equal to five percent of the capital
raised plus DM 100,000 (approximately $54,000) per month until the completion or
termination of the MFC financing. In addition, all of MFC's out-of-pocket
expenses shall be reimbursed, and if the Company raises the necessary funds
through another source, MFC shall receive a break-up fee equal to the greater of
$1,200,000 or 350,000 shares of common stock.
In September 1999, the Board of Westdeutsche Landesbank Girozentrale
(WestLB) of Dusseldorf issued its conditional approval to underwrite a U.S.
$157.5 million loan facility for the first Offshore Shuttle. Based on such
approval, the Company has mandated WestLB to act as sole arranger and
underwriter for the financing. WestLB's commitment is subject to several
material conditions, including satisfactorily completing its due diligence, the
Company's obtaining European government guarantees to secure a significant
portion of the loan facility, and its completing of an additional equity
financing. The Company is seeking to fulfill these conditions within the next
few months. The Company has deferred debt issue costs related to the financing.
14. COMMITMENTS
The Company has rental expenses for office lease of $212,167 and
$122,092 for 1999 and 1998, respectively.
MSOAS leases 938 square meters of office space in Sandnes, Norway from
RC Group ASA. The lease is for a five-year period at an average annual rent of
NOK 1,032,350 (approximately $129,000), and expires in 2003. In addition MSOAS
leases offices in Oslo, Norway pursuant to a 22 month lease at an annual rental
of NOK 234,554 (approximately $29,000). The agreement expires April 2001.
- 34 -
<PAGE>
MARINE SHUTTLE OPERATIONS INC.
(A development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1999
15. RELATED PARTY TRANSACTIONS
MSOAS is a party to a personnel services agreement with RC Consultants
AS ("RCC"), and leases office space from RC Group ASA. RCC is wholly owned
subsidiary of RC Group ASA. The Chairman of RCC is also the Chairman of MSOAS
and the President and principal shareholder of RC Group ASA. The Company paid
approximately $2,093,701 and $532,200, in 1999 and 1998, respectively, to RCC
for services under the personnel services agreement. Compensation for services
rendered under such agreement is to be based on normal trade terms. The Company
paid a total of approximately $2,336,915 and $587,995 in 1999 and 1998,
respectively, to companies within the RC Group.
MSOAS is a party to a cooperation agreement with Schuller
Industrieentsorgung AG ("Schuller") pursuant to which Schuller shall provide
waste management, onshore dismantling, oil pollution prevention, and cleanup
services. The Company paid approximately $193,309 and $127,217, in 1999 and 1998
respectively, to Schuller for marketing research and other services rendered.
The President and a director of the Company are shareholders and members of the
supervisory board of Schuller.
MSOAS has entered into an agreement with Thyssen Krupp Stahlunion GmbH
("TKSU") with respect to marketing and procurement services. The Company paid
approximately $224,217 and $65,126, in 1999 and 1998, respectively, to TKSU
under such agreement. A director of the Company is an officer and the head of
the Pipes, Offshore, Special Products Department of TKSU.
During the years ended December 31, 1999 and 1998, the Company paid
approximately $23,313 and $103,894, respectively, to a law firm, a member of
which is a director of the Company.
Under a consultancy agreement that expired December 31, 1999, the
Company paid remuneration of approximately $120,350 and $127,265 in 1999 and
1998, respectively, to a shareholder of the Company and a former Board member of
OSAS.
On March 31, 1998, MSOAS entered into an agreement with a former member
of the Board of OSAS and a former Managing Director of OSAS regarding the
exclusive transfer of the intellectual property rights relating to the Offshore
Shuttle concept (the "Rights"). The agreement provides that if MSOAS for any
reason whatsoever should cease to continue in an active manner its activities
related to the concept, the Rights could be transferred back to them against
certain compensation. In the event that MSOAS wishes to transfer the rights to a
third party, the two individuals shall have the right of first refusal with
respect to such transfer.
An addendum to the intellectual property agreement was signed in March,
2000 which provides that, subject to the fulfillment of certain conditions, the
two individuals shall waive and relinquish the right of first refusal and any
and all rights to have the Rights transferred back to them. The conditions are
related to the Company achieving a written confirmation for a financing for the
full and complete design and fabrication of the first Offshore Shuttle, and the
Company entering into such contracts as are required for the design,
construction and complete fabrication of the first Offshore Shuttle. In
consideration of the waiver of the Rights, the Company shall grant to each of
the two individuals warrants to purchase 125,000 shares of common stock of the
Company at value $1 per share. Such warrants shall be granted immediately only
upon satisfaction of the above mentioned conditions.
16. STOCK OPTION PLAN
The Company has established a Stock Option Plan for employees,
officers, directors, consultants, and advisors. Options granted under the Stock
Option Plan may be either incentive stock option or non-qualified stock options.
The Company has reserved 2,000,000 common shares for issuance under the Stock
Option Plan.
- 35 -
<PAGE>
MARINE SHUTTLE OPERATIONS INC.
(A development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1999
16. STOCK OPTION PLAN (continued)
Options granted for issuance under the Stock Option Plan generally are
not transferable, and the exercise price of incentive stock options must be at
least equal to 100% (110% in the case of optionees who own more than 10% of the
total combined voting power of all classes of stock of the Company) of the fair
market value of the common shares on the date of grant. As of December 31, 1999,
no options had been granted or were outstanding under the Stock Option Plan. See
note 20.
The Company has established a Stock Option Plan for employees,
officers, directors, consultants, and advisors. Options granted under the Stock
Option Plan may be either incentive stock option or non-qualified stock options.
The Company has reserved 2,000,000 common shares for issuance under the Stock
Option Plan. Options granted for issuance under the Stock Option Plan generally
are not transferable, and the exercise price of incentive stock options must be
at least equal to 100% (110% in the case of optionees who own more than 10% of
the total combined voting power of all classes of stock of the Company) of the
fair market value of the common shares on the date of grant. As of December 31,
1999, no options had been granted or were outstanding under the Stock Option
Plan. See note 20.
The Stock Option Plan may be administered by the Board of Directors or
a committee of the Board (the "Committee"). The Board of Directors or the
Committee, as the case may be, has the power to determine the terms of any
options granted thereunder, including the exercise price, the number of shares
subject to the option, and the exercisability thereof. The term of any option
granted under the Stock Option Plan may not exceed ten years. The specific terms
of each option grant shall be approved by the Board of Directors or the
Committee.
In 1997, OSAS adopted a stock option plan which provides for the
granting of incentive options to employees and board members to purchase an
aggregate of 220,000 shares of OSAS common stock at prices and terms to be
decided by the Board of Directors. Options granted under the stock option plan
may be exercisable for a period of up to three years from the date of grant. All
options granted under this plan have exercise prices equal to the fair market
value of the stock on the date of grant and increasing at a rate of one percent
per month. Upon the merger in 1999 with MSOAS, the OSAS stock option plan was
adopted by MSOAS. Options to purchase 150,000 shares of common stock in MSOAS
have been issued to employees.
The activities in relation to the stock incentive plan are summarized
as follows:
Number of
Shares
-------------------
Granted in and outstanding at December 31, 1997 135,000
Granted in 1998 45,000
Exercised in 1998 15,000
Canceled in 1998 15,000
-------------------
Outstanding at December 31, 1999 and 1998 150,000
-------------------
No stock options were granted or exercised under this plan during 1999.
The Company applies APB 25 in accounting for its stock option plans.
Accordingly, because the option price is equal to the fair market price at the
date of grant, no compensation expense has been recognized for its stock option
plans.
- 36 -
<PAGE>
MARINE SHUTTLE OPERATIONS INC.
(A development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1999
17. PENSION
MSOAS has a defined benefit retirement plan which covers all of their
employees. Plan benefits are based on years of service and final salary levels.
The plan is administrated by an insurance company. Contributions to plan are
made in accordance with Norwegian laws and regulations. Net periodic benefit
costs were $49,693 for the year ended December 31, 1999. There was no cost
recorded in the Company's consolidated financial statements in prior years.
December 31, 1999 1998
- ------------------------------------------------------------------------------
Status of pension plans reconciled to balance
sheet Defined benefit plans:
Projected benefit obligation at end of the year $ 43,671 $ 38,553
Fair value of plan assets at end of the year 42,975 46,570
----------- ------------
Funded status of the plans at end of year $ (696) $ 8,017
----------- -----------
Weighted-average assumptions at end of year
Discount rate 7 % 7 %
Expected return on plan assets 6 % 6 %
Rate of compensation increase 3 % 3 %
18. INCOME TAXES
The Company has no provision for income taxes for the year ended
December 31, 1999 because the Company generated a loss for the year which may
not be currently benefited. The Company's net operating loss carry-forwards for
U.S. and Norwegian tax purposes as of December 31, 1999 and 1998 were
approximately as follows:
December 31, 1999 1998
- ------------------------------------------------------------------
U.S. $2,758,757 $2,021,108
Norway $6,999,678 $4,050,483
---------- ----------
Total $9,758,435 $6,071,591
To the extent not used, the operating loss carryforwards will expire in
varying amounts beginning in the year 2007. Based on available evidence,
including the Company's history of operating losses, the uncertainty of future
profitability and the impact of tax laws which may limit the Company's ability
to utilize such loss carry-forwards, management has recorded a full valuation
allowance against the Company's net deferred tax assets.
- 37 -
<PAGE>
MARINE SHUTTLE OPERATIONS INC.
(A development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1999
18. INCOME TAXES (continued)
The difference between the Company's effective tax rate and the U.S.
statutory rate for income taxes was as follows:
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED YEAR ENDED MAY 23, 1997 TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------------- -------------------- ----------------------
<S> <C> <C> <C>
Statutory Rate 35.00% 35.00% 35.00%
Amortization of Goodwill -17.68% -13.07% 0.00%
Other Permanent Differences -0.03% -0.20% -0.85%
Foreign Tax Rate Differential -2.74% -1.81% 0.00%
Change in Valuation Allowance -14.55% -19.92% -34.15%
------------------- -------------------- ----------------------
Effective Rate 0.00% 0.00% 0.00%
=================== ==================== ======================
</TABLE>
Significant components of the Company's deferred tax assets and
liabilities were approximately as follows:
<TABLE>
<CAPTION>
December 31, 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Operating Loss Carry-forwards $2,934,760 $1,832,062 $57,726
Valuation Allowance ($2,934,760) ($1,832,062) ($57,726)
-----------------------------------------------------
Net Deferred Tax Asset Nil Nil Nil
</TABLE>
19. SEGMENT DISCLOSURES
The Company is currently marketing and making preparations for the
construction of its first Offshore Shuttle. In accordance with SFAS No. 131 the
Company considers its business to consist of one reportable operating segment.
All of the Company's physical assets are located in Norway.
20. SUBSEQUENT EVENTS
In February, 2000, the Company granted incentive stock options to
purchase 100,000 shares of common stock, of the Company (the "Common Stock"), at
the price of $1.00 per share (the fair market value of the Common Stock on the
date of grant), to a Vice President and Director of the Company.
In February 2000, the Company entered into a loan agreement with MFC
Merchant Bank S.A, pursuant to which MFC agreed to lend the Company an aggregate
of up to $2,000,000, provided that advances shall not exceed $350,000 in any
single month. Any monies advanced under this loan agreement shall bear interest
at the rate of LIBOR plus 3.5% per annum and shall be due and payable in full on
February 25, 2001.
- 38 -
<PAGE>
MARINE SHUTTLE OPERATIONS INC.
(A development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1999
20. SUBSEQUENT EVENTS (continued)
In February 2000, the Company signed a Memorandum of Understanding with
the Italian Ministry of Industry and various other Italian governmental entities
with respect to the financing of the first Offshore Shuttle. The financial
support from the various governmental entities would be in the form of equity,
debt and government guarantee, and is subject to numerous material conditions,
including the satisfactory completion of due diligence, the submission by an
Italian shipyard of a competitive construction bid with terms and conditions
acceptable to the Company, the arrangement of sufficient commercial debt
financing with a major bank, and the raising of additional equity capital.
Effective February 8, 2000, the Company entered into a two-year loan
out agreement with Mancorp AS for the services of Stephen Adshead. The agreement
provides that Mancorp AS shall loan out the services of Mr. Adshead who shall
devote at least 50% of his professional and business time to serve as Vice
President to the Company and shall receive a salary of $60,000 per annum.
21. COMPUTATION OF BASIC AND DILUTED LOSS PER SHARE
<TABLE>
<CAPTION>
PERIOD FROM MAY 23,
YEAR ENDED YEAR ENDED 1997 TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
--------------------------------------------------------------
<S> <C> <C> <C>
Net loss for the period attributable
to basic loss per share $ (7,363,850) $ (5,042,148) $ (164,931)
Net loss for the period attributable to diluted
earnings per share $ (7,363,850) $ (5,042,148) $ (164,931)
Weighted average shares outstanding 33,611,545 25,720,000 18,931,982
Dilutive stock options - - -
Total shares for basic and fully diluted
loss per share 33,611,545 25,720,000 18,931,982
Basic loss per share $ (0.22) $ (0.20) $ (0.01)
Diluted loss per share $ (0.22) $ (0.20) $ (0.01)
</TABLE>
- 39 -
<PAGE>
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On May 17, 1999, the Company discontinued the services of Deloitte &
Touche, L.L.P ("Deloitte & Touche") as its independent accountants. The decision
to discontinue the services of Deloitte & Touche was approved by the Company's
Board of Directors upon the recommendation of the Company's Audit Committee.
Effective June 22, 1999, the Company engaged Ernst & Young LLP as its
new independent accountants to audit the Registrant's financial statements for
the year ending December 31, 1999.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages and positions of the
executive officers and directors of the Company:
<TABLE>
<CAPTION>
Name Age Position with Company
- ---- --- ---------------------
<S> <C>
Franz Eder............................................ 39 President and Chairman of the Board
Iqbal Akram........................................... 56 Vice President and a Director
Stephen Adshead....................................... 50 Vice President and a Director
George Wilfred Norman Wareham......................... 47 Treasurer, Chief Financial Officer, and Secretary
Jurgen Ternieden(1)................................... 57 Director
Hubert Besner(1)...................................... 37 Director
</TABLE>
- -----------
(1) Member of the Audit Committee
Franz Eder has been the Company's President and Chairman of the Board
since April 14, 1998, and a director of MSOAS since December, 1997. He has been
Chairman of the Supervisory Board of Schuller Industrieentsorgung AG since May,
1998, and served as the general manager of Schuller from July, 1997 through May,
1998. From 1992 to 1997, Mr. Eder was General Manager at CETEM
Industrieentsorgung und Wiederverwertung GmbH, a German company engaged in waste
management. From 1990 to 1991, he was a consultant to several companies, and
from 1989 to 1990, he was the head of the trade finance department at AMRO
Handelsbank AG in Munich, Germany. Mr. Eder received a Masters of Business
degree from Business University of Vienna in 1985.
Iqbal Akram has been a director of the Company since April 14, 1998. He
has been Vice President since February 19, 1998 and served as a consultant to
the Company for a period of approximately two weeks prior thereto. Since 1992,
he has been the managing director and a partner in Peregrine Consultants, S.A.,
a Luxembourg management consulting firm. He also has been the sole principal of
Peregrine Consultants, United Kingdom since 1998. From February 1996 through
March 1998, he served as a Group Finance and Corporate Director of the House of
Habib, a Pakistani industrial, manufacturing, and financial services group. In
1995, he served as Group Financial Advisor to the Southern Electric Group in the
implementation of a power project in Pakistan. He is currently a Fellow of the
Institute of Directors, the Chartered Institute of Cost and Management
Accountants, and the Institutes of Chartered Accountants in England, Canada, and
Pakistan. He also is a director of Lombard Financial Investments S.A., a
Luxembourg investment holding-company and Imumed International Ltd, a Bermuda
listed company. He received a Bachelor of Science, Honour degree in Economics
from the London School of Economics and Political Science in 1965.
- 40 -
Stephen Adshead has been Vice President and a director of the Company
since February 8, 2000 and has been Managing Director and a Member of the Board
of MSOAS since December, 1997. Since February, 1998, he has been an employee and
a director of Mancorp AS, a consulting company. He has 26 years of experience in
the oil, gas and shipbuilding industry managing large projects. From 1991 to
1998, Mr. Adshead worked for Phillips Petroleum Company Norway, where he was a
member of the project management team assigned to the Ekofisk II project from
1994 to 1998. Mr. Adshead received his Honours Degree in Engineering from
Edinburgh University in 1972.
G.W. Norman Wareham has been the Company's Treasurer, Chief Financial
Officer, and Secretary since January 1998, and was a director of the Company
from January 1998 through April 14, 1998. Since May, 1996, Mr. Wareham has been
an owner and operator of Wareham Management Ltd., a management consulting and
accounting services firm servicing a number of American and Canadian public
companies, including the Company. From May 1996 to October 1998, Mr Wareham was
treasurer and a director of Intercap Resource Management Corp., an oil and gas
exploration and production company. From September 1996 to October 1998 he
served as a Vice President, Secretary, and a director of Zmax Corporation, a
company providing Y2K services. From April 1995 to April 1996, he was employed
on a contract basis as an accountant with Wanzel Sigmund & Overes, a public
practice accounting firm. From April 1993 to February 1995, he was the President
of Global Financial Corporation, an investment company located in the British
West Indies. Mr. Wareham is a director and a member of the audit and
compensation committees of ZMAX Corporation; the Secretary and a director of
Solar Energy Limited; a director and a member of the audit committee of Orko
Gold Corporation; a director and member of the audit and compensation committees
of Cybernet Internet Services International, Inc.; a director, President and
Secretary of Bullet Environmental Technologies, Inc., a director, President and
Secretary of Quantum Power Corporation, a director and Secretary of ASP Ventures
Corp., a director and the CFO of Viper Resources, Inc. and a director of ImuMed
International Ltd.., and Anthian Resources Inc. Mr. Wareham graduated from
Carson Graham High School in Vancouver, Canada in 1971, and completed a
certified general accountants course in 1976.
Jurgen Ternieden has been a director of the Company since April 14,
1998, Chairman of the Board of OSAS from March 1998 until its merger with MSOAS
in September 1999, and an officer and the head of the Pipes, Offshore, Special
Products Department of Thyssen Krupp Stahlunion GmbH since 1991. From 1981 to
1990, he was a senior sales manager and head of the Pipes Department at TKSU.
Mr. Ternieden received his intermediate high school certificate from Realschule
Muelheim in 1959.
Hubert Besner has been a director of the Company since May 6, 1998.
Since 1994, he has been a partner in the law firm of Besner Kreifels Weber,
Munich, Germany. From 1992 to 1994, he was the head of the legal department of
Schneider AG, a German real estate development company. He currently is a
director of Cybernet Internet Services International, Inc., the head of the
Supervisory Board of Cybernet Internet-Dienstleistungen AG and a member of the
Supervisory Boards of Vianet Telekommunikations AG, Cybernet Italia S.p.A,
Eclipse S.p.A., Typhoon Networks AG, start AG and IPO Beteiligungen AG. Dr.
Besner received his First State Exam in Law from Ludwig-Maximilians-Universitat
in 1986, and his doctorate magna cum laude from Ludwig-Maximilians-Universitat
in 1988.
No family relationship exists between any director or executive officer
and any other director or executive officer.
Section 16(a) Beneficial Ownership and Reporting Compliance
The Company's executive officers, directors, and beneficial owners of
more than 10% of any class of its equity securities registered pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), are required under the Exchange Act to file reports of ownership and
changes in beneficial ownership of the Company's equity securities with the
Securities and Exchange Commission. Copies of those reports must also be
furnished to the Company. Based solely on a review of the copies of reports
furnished to the Company pursuant to the Exchange Act, the Company believes that
during the year ended December 31, 1999 all filing requirements applicable to
the Reporting Persons were complied with.
- 41 -
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information with respect to the
compensation paid by the Company to the Company's Chief Executive Officer and to
each executive officer of the Company (other than the Chief Executive Officer)
who received salary and bonus payments in excess of $100,000 during the year
ended December 31, 1999 (collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------------------------- -----------------------------------------------
Awards Payouts
--------------------- -------------------------
Restricted
Other Annual Stock Options/ LTIP All Other
Fiscal Salary Bonus Compensation Award(s) SARs Payouts Compensations
Name and Principal Position Year ($) ($) ($) ($) (#) ($) ($)
- ----------------------------- -------- ----------- --------- --------------- ----------- --------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Franz Eder, Chairman of the 1999 100,000 -- -- -- -- -- --
Board and President
1998 58,333
1997 -- -- -- -- -- -- --
</TABLE>
Employment Agreements
On June 1, 1998, the Company entered into a two-year employment
agreement with Franz Eder, the President and Chairman of the Board of the
Company. Pursuant to such agreement, Mr. Eder shall devote at least 75% of his
professional and business time to the Company and shall receive a salary of
$100,000 per annum.
Effective April 14, 1998, the Company entered into a two-year
employment agreement with Iqbal Akram. The agreement provides that Mr. Akram
shall devote at least 50% of his professional and business time to the Company
as Vice President and shall receive a salary of $60,000 per annum.
On April 14, 1998, the Company entered into a two-year loan out
agreement with Wareham Management Ltd. for the services of G.W. Norman Wareham.
The agreement provides that Wareham Management Ltd. shall loan out the services
of Mr. Wareham to serve as Chief Financial Officer, Treasurer, and Secretary,
and Wareham Management Ltd. shall receive an annual fee of $32,100.
Effective February 8, 2000, the Company entered into a two-year loan
out agreement with Mancorp AS for the services of Stephen Adshead. The agreement
provides that Mancorp AS shall loan out the services of Mr. Adshead who shall
devote at least 50% of his professional and business time to serve as Vice
President to the Company and shall receive a salary of $60,000 per annum.
Compensation Committee Interlocks and Insider Participation
Compensation decisions are made by the non-employee directors of the
Company. No interlocking relationship exists between any member of the Company's
board of directors and any member of the board of directors or compensation
committee of any other company.
- 42 -
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, certain information as of March 30,
2000, regarding beneficial ownership of the Common Stock by (i) each stockholder
known by the Company to be the beneficial owner of more than five percent (5%)
of the outstanding shares of Common Stock; (ii) each director of the Company;
(iii) each Named Executive Officer of the Company; and (iv) all of the Company's
executive officers and directors as a group.
<TABLE>
<CAPTION>
Number of Shares of Common Percentage of Class
Name of Beneficial Holder Stock Beneficially Owned Beneficially Owned
- ------------------------- -------------------------- -------------------
<S> <C> <C>
Franz Eder........................................................... 7,600,000(1) 18.7%
Iqbal Akram.......................................................... 100,000(2) *
Stephen Adshead...................................................... 0 0%
Norman Wareham....................................................... 0 0%
Jurgen Ternieden..................................................... 332,499 *
Hubert Besner........................................................ 0 0%
BEG Berliner Effektenbeteiligungsgesellschaft AG (3)................. 3,950,000(4)(5) 9.7%
Kurfurstendamm
119
10711 Berlin, Germany
All officers and directors as a group (6 persons).................... 8,032,499(6) 19.7%
</TABLE>
- -----------
(1) Such shares are being held by a trustee pursuant to the terms of a pooling
trust agreement. Although the disposition of such shares is covered by an
S-1 Registration Statement declared effective by the Securities and
Exchange Commission on December 21, 1998, such shares may not be disposed
of by Mr. Eder until they are released to him by the trustee. Mr. Eder will
receive 10% of such shares on July 1, 2000 and an additional 30% of such
shares on July 1st of each of the three years thereafter. Thereafter the
trustee shall seek instructions from Mr. Eder before taking any action as a
stockholder with respect to any of the shares held in trust.
(2) Represents shares underlying currently exercisable stock options.
(3) A 40% owned subsidiary of Berliner Freiverkehr (Aktien) AG ("BFAG"). BFAG
also owns 40% of Berliner Effektenbank AG.
(4) Does not include 800,000 shares of common stock owned by BFAG.
(5) Such shares, as well as the 800,000 shares of common stock owned by BFAG,
are being held by a pooling trustee pursuant to the terms of a pooling
trust agreement and will not be released until August 3, 2001. During such
time, the trustee shall seek instructions from BEG Berliner
Effektenbeteilgungsgesellschaft AG and BFAG, respectively, before taking
any action as a stockholder with respect to any of such shares.
(6) Includes 100,000 shares underlying currently exercisable stock options.
* Less than 1%
- 43 -
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On April 14, 1998, the Company issued 7,600,000 shares of Common Stock
to Franz Eder, the President and the Chairman of the Board of the Company, in
exchange for the 999,000 shares of MSOAS capital stock (constituting all of
MSOAS's issued and outstanding capital stock) held by Mr. Eder. The stock
certificate evidencing the shares of Common Stock that were issued to Mr. Eder
is being held by a trustee pursuant to the terms of a pooling trust agreement.
Such shares may not be disposed of by Mr. Eder until they are released to him by
the trustee. Mr. Eder will receive 10% of such shares on July 1, 2000 and an
additional 30% of such shares on July 1st of each of the three years thereafter.
Thereafter the trustee shall seek instructions from Mr. Eder before taking any
action as a stockholder with respect to any of the shares held in trust.
In 1998, the Company acquired 3,291,738 shares of OSAS (approximately
68% of the outstanding OSAS capital stock) in exchange for 4,937,607 shares of
Common Stock. In connection therewith, the 221,666 OSAS shares held by Jurgen
Ternieden, a director of the Company, were exchanged for 332,499 shares of
Common Stock.
MSOAS is a party to a cooperation agreement with Schuller
Industrieentsorgung AG ("Schuller") pursuant to which Schuller shall provide
waste management, onshore dismantling, and oil pollution prevention and cleanup
services. The Company paid approximately $193,309 and $127,217, in 1999 and 1998
respectively, to Schuller for marketing research and other services rendered.
Franz Eder and Hubert Besner are shareholders and members of the supervisory
board of Schuller.
MSOAS is a party to a personnel services agreement with RC Consultants
AS. Sverre Hansen, the Chairman of RC Consultants AS, is the Chairman of MSOAS.
The Company paid approximately $2,093,701 and $592,821, in 1999 and 1998
respectively, to RC Consultants AS for these services. In addition, MSOAS leases
office space in Sandnes, Norway pursuant to a lease agreement with RC Group ASA.
The lease agreement provides for an average annual rent of NOK 1,032,350
(approximately $137,158), and expires in 2003. RC Group ASA is the sole
shareholder of RC Consultants AS, and Sverre Hanssen is the President and the
principal shareholder of RC Group ASA.
MSOAS has entered into an agreement with Thyssen Krupp Stahlunion GmbH
("TKSU") with respect to the marketing and procurement services. The Company
paid approximately $224,217 and $65,126, in 1999 and 1998 respectively, to TKSU
under such agreement. Jurgen Ternieden, a director of the Company, is an officer
and the head of the Pipes, Offshore, Special Products Department of TKSU.
During the period ended December 31, 1999 and 1998, the Company paid
approximately $23,313 and $103,894, respectively, to the law firm Besner,
Kreifels, Weber. Hubert Besner, a member of Besner, Kreifels, Weber, is a
director of the Company.
During January and February 1999, the Company raised $5,748,750 in
gross proceeds from the sale of approximately 1.15 million shares of common
stock in an offshore transaction pursuant to Regulation S. Berliner Effektenbank
AG received a fee of $229,950 (renegotiated from $575,000) for serving as
placement agent in connection with the transaction. In December, 1999, the
Company raised $4,928,300 in gross proceeds from the sale of approximately 7.1
million shares of common stock in an offshore transaction pursuant to Regulation
S. Berliner Effektenbank AG received a fee of $195,000 for serving as
co-placement agent in connection with the transaction. Berliner Effektenbank AG
is a 40%-owned subsidiary of Berliner Freiverkehr (Aktien) AG ("BFAG"). BFAG
also owns 40% of BEG Berliner Effektenbeteiligungsgesellschaft AG, one of our
principal stockholders.
The Company believes that the transactions set forth above were made on
terms no less favorable to the Company then could have been obtained from
unaffiliated third parties.
- 44 -
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements (included in Part II, Item 8)
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Financial Statements of Marine Shuttle Operations Inc.:
Reports of Independent Auditors..................................................................... 23
Consolidated Balance Sheets as of December 31, 1999 and 1998.................................... 25
Consolidated Statements of Loss and Comprehensive Loss for the period from May 23, 1997
through December 31, 1997, for the years ended December 31, 1998 and 1999 and
cumulative to December 31, 1999 from date of inception, May 23, 1997....................... 26
Consolidated Statements of Cash Flows for the period from May 23, 1997 through December
31, 1997, for the years ended December 31, 1998 and 1999 and cumulative to December
31, 1999 from date of inception, May 23, 1997.............................................. 27
Consolidated Statements of Shareholders' Equity from date of inception, May 23, 1997 to
December 31, 1997, and for the years ended December 31, 1998 and 1999..................... 28
Notes to Consolidated Financial Statements December 31, 1999, 1998 and 1997.................... 29
</TABLE>
3. Exhibits included herein:
See Exhibit index below for exhibits filed as part of this Form 10-K.
(b) Reports on Form 8-K. No reports on Form 8-K were filed in the last
quarter of the period covered by this report.
- 45 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
MARINE SHUTTLE OPERATIONS INC.
/s/ Franz Eder
-----------------------
Date: March 30, 2000 Franz Eder, Chairman of the Board and President
(principal executive officer)
/s/ G.W. Norman Wareham
-----------------------
G.W. Norman Wareham, Chief Financial Officer
(principal financial and accounting officer)
/s/ Kirsten O. Lima
-----------------------
Kirsten O. Lima, Finance Director MSOAS,
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
/s/ Franz Eder Director March 30, 2000
- --------------
Franz Eder
/s/ Iqbal Akram Director March 30, 2000
- -----------------
Iqbal Akram
/s/ Stephen Adshead Director March 30, 2000
- -------------------
Stephen Adshead
/s/ Jurgen Ternieden Director March 30, 2000
- --------------------
Jurgen Ternieden
/s/ Hubert Besner Director March 30, 2000
- ------------------
Hubert Besner
- 46 -
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit # Document Page
--------- -------- ----
<S> <C> <C>
2.1 Stock Purchase Agreement, dated February 19, 1998, between the Registrant and Franz Eder.
Incorporated by reference to Exhibit 2.1 to the Company's Registration on Form S-1, File No.
333-58465.
2.2 Agreement Regarding Exchange of Shares between the Registrant, SPAX Holding AS, et. al.
Incorporated by reference to Exhibit 2.2 to the Company's Registration on Form S-1, File No.
333-58465.
2.3 Form of Agreement Regarding Exchange of Shares between the Registrant and various
stockholders of Offshore Shuttle AS (including schedule of omitted documents pursuant to Item
601(a) of Regulation S-K). Incorporated by reference to Exhibit 2.3 to the Company's
Registration on Form S-1, File No. 333-58465.
2.4 Stock Exchange Agreement, dated May 20, 1998, between the Registrant and G. Foss Beheer B.V.
Incorporated by reference to Exhibit 2.5 to the Company's Registration on Form S-1, File No.
333-58465.
2.5 Stock Exchange Agreement, dated May 20, 1998, between the Registrant and Per Bull Haugs0en.
Incorporated by reference to Exhibit 2.6 to the Company's Registration on Form S-1, File No.
333-58465.
3.1 Articles of Incorporation of the Registrant, as amended. Incorporated by reference to
Exhibit 3.1 to the Company's Registration on Form S-1, File No. 333-58465.
3.2 Amended and Restated By-laws of the Registrant. Incorporated by reference to Exhibit 3.2 to
the Company's Registration on Form S-1, File No. 333-58465.
4.1 Form of Common Stock Certificate. Incorporated by reference to Exhibit 4.1 to the Company's
Registration on Form S-1, File No. 333-58465.
10.1 Head License Agreement between Marine Shuttle Operations AS and Offshore Shuttle AS dated
March 31, 1998, amended as of September 1, 1998 and as of November 20, 1998. Incorporated
by reference to Exhibit 10.1 to the Company's Registration on Form S-1, File No. 333-58465.
10.2 Co-operation Agreement between Marine Shuttle Operations AS and Schuller
Industrieentsorgung AG. Incorporated by reference to Exhibit 10.2 to the Company's
Registration on Form S-1, File No. 333-58465.
10.3 Personnel Services Contract between RC Consultants AS and Marine Shuttle Operations AS
dated February 26, 1998. Incorporated by reference to Exhibit 10.3 the Company's Registration
on Form S-1, File No. 333-58465.
10.4 Accounting Services Contract between RC Consultants AS and Marine Shuttle Operations AS
dated February 26, 1998. Incorporated by reference to Exhibit 10.4 to the Company's Registration
on Form S-1, File No. 333-58465.
10.5 Amended and Restated Loan Agreement, dated as of December 31, 1999, between the Registrant
and ValorInvest Ltd. (including promissory note dated as of December 31, 1999).
10.6 Marketing Agreement between Marine Shuttle Operations AS and Thyssen Stahlunion GmbH, dated
April 14, 1998. Incorporated by reference to Exhibit 10.6 to the Company's Registration on
Form S-1, File No. 333-58465.
10.7 The Registrant's 1998 Stock Option Plan. Incorporated by reference to Exhibit 10.7 to the
Company's Registration on Form S-1, File No. 333-58465.
10.8 Employment Agreement, dated as of June 1, 1998, between the Registrant and Franz Eder.
Incorporated by reference to Exhibit 10.8 to the Company's Registration on Form S-1, File No.
333-58465.
10.9 Employment Agreement, dated as of April 14, 1998, between the Registrant and Iqbal Akram.
Incorporated by reference to Exhibit 10.9 to the Company's Registration on Form S-1, File No.
333-58465.
10.10 Agreement, dated as of April 14, 1998, between the Registrant, Wareham Management, Ltd., and
George Wilfred Norman Wareham. Incorporated by reference to Exhibit 10.10 to the Company's
Registration on Form S-1, File No. 333-58465.
</TABLE>
- 47 -
<TABLE>
<CAPTION>
<S> <C> <C>
10.11 Lease, dated as of February 1, 1999, by and between the Registrant and 4410 Montrose
Partnership. Incorporated by reference to Exhibit 10.11 of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1998.
10.12 Loan Agreement, dated May 13, 1998, between the Registrant and Marine Shuttle Operations
AS. Incorporated by reference to Exhibit 10.12 to the Company's Registration on Form S-1,
File No. 333-58465.
10.13 Credit Agreement, dated February 17, 2000 between the Registrant and MFC Merchant Bank, S.A.
10.14 Agreement, dated as of February 8, 2000, among the Registrant, Mancorp AS, and Stephen Adshead
10.15 Addendum No. 1 to Intellectual Property Agreement among Gunnar Foss, Per Bull Haugsoen,
Marine Shuttle Operations AS, and Marine Shuttle Operations Inc.
21 List of the Registrant's Subsidiaries. Incorporated by reference to Exhibit 21 to the
Company's Registration on Form S-1, file No. 333-58465
27. Financial Data Schedule *
99.1 Statement of Approval from Det Norske Veritas AS regarding the technical feasibility of the
Offshore Shuttle concept. Incorporated by reference to Exhibit 99.1 to the Company's
Registration on Form S-1, File No. 333-58465.
99.2 Engagement letter, dated October 26, 1998, between the Registrant and MFC Merchant Bank S.A.
Incorporated by reference to Exhibit 99.2 to the Company's Registration on Form S-1, File No.
333-58465.
</TABLE>
- 48 -
<PAGE>
Exhibit 10.5
AMENDED AND RESTATED LOAN AGREEMENT
THIS AMENDED AND RESTATED LOAN AGREEMENT (this "Agreement") is dated as
of December 31, 1999, between ValorInvest Ltd., an Irish Corporation ("Lender"),
and Marine Shuttle Operations Inc. (formerly Geoteck International, Inc.), a
Nevada corporation ("Borrower").
RECITALS
WHEREAS, Borrower and Lender entered into a loan agreement dated March
1, 1999, whereby Borrower was entitled to borrow US$6,000,000 from Lender (the
"Consolidated Agreement"); and
WHEREAS, Borrower and Lender have determined to amend and restate the
Consolidated Agreement to increase the amount of time available to Borrower to
repay loans outstanding under the Consolidated Agreement and to reflect certain
other terms agreed to by the parties.
NOW THEREFORE, for and in consideration of the premises, and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. Loan. Lender will provide the Borrower with a loan in the amount of
up to US$6,000,000 (the "Loan"). Borrower and Lender agree that $3,875,000 has
heretofore been advanced under the Loan and that Schedule 1 attached hereto is a
complete and accurate statement of advances and repayment of principal of the
Loan. The Loan shall be evidenced by Borrower's amended and restated commercial
promissory note attached hereto as Exhibit A (the "Note"). Upon the satisfaction
of the conditions precedent to any advance as set forth herein, Lender will make
available the proceeds of the Loan. Advances will be made available in $250,000
increments upon ten (10) business days written notice of demand by Borrower;
provided, however, that Lender is not required to advance more than $500,000 in
any single month. Advances shall be limited in the aggregate to the stated
principal amount of the Loan; the Loan is not a revolving line of credit. The
following are conditions precedent to any advance hereunder (except to the
extent and in the manner expressly waived by Lender, and any such conditions
waived by Lender may be reimposed as a condition of subsequent advances):
(a) Borrower shall have executed and delivered the Note to the Lender.
(b) All representations and warranties made by Borrower in this
Agreement and the Note shall be true, complete and correct on and as of the date
of the making of any advance hereunder as though such representations and
warranties were made anew on such date.
(c) There shall not have occurred and be continuing any default in the
performance or observance of any of the material covenants, agreements, or
conditions to be performed or observed by Borrower under this Agreement, the
Note or in connection with any other material
<PAGE>
obligations of Borrower to Lender, nor shall there have occurred and be
continuing any event, condition, or circumstances which, with notice or the
passage of time, or both, would constitute a breach in any material respect of
any representation, covenant, or warranty by Borrower or a default under this
Agreement, the Note or in connection with any other obligations of Borrower to
Lender.
2. Interest. The Loan shall bear interest at a rate of seven and one
half percent (7.5%) per annum.
3. Repayment of Loan. The outstanding principal balance of the Loan and
accrued and unpaid interest thereon shall be due and payable as follows: (a) to
the extent the Borrower receives cash proceeds from any equity or debt
financings after January 1, 2000 which, in the aggregate, exceed $2,000,000,
then that portion of the principal balance of the Loan plus accrued and unpaid
interest on the Loan equal to (x) twenty-five percent (25%) of the total of such
excess cash proceeds received after January 1, 2000 less (y) any payments
previously made by Borrower to Lender under this clause (a) (or such lesser
amount of principal and interest as may then be outstanding under the Loan)
shall be due and payable within five (5) business days after each date on which
Borrower receives such excess cash proceeds; provided, however, that cash
proceeds from debt financings with a due date of less than one year from the
time that Borrower receives such proceeds shall not be aggregated in determining
whether Borrower has received cash proceeds in excess of $2,000,000 and (b) if
not sooner paid (whether by acceleration or otherwise), in full on December 31,
2000.
4. Representations, Warranties, and Covenants of Borrower. Borrower
represents, warrants and covenants to Lender as follows:
(a) Corporate Organization and Good Standing. Borrower is a corporation
duly organized, validly existing and in good standing under the laws of
its jurisdiction, with all requisite corporate power and authority to
own, operate and lease its properties and to carry on its business as
it is now being conducted. Borrower is qualified and in good standing
to do business in all jurisdictions where its business or ownership or
leasing of property or assets requires such qualification.
(b) Authority. Borrower has all requisite corporate power and authority
to execute and deliver this Note and to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The
execution and delivery of this Note by Borrower and the consummation by
Borrower of the transactions contemplated hereby have been duly
authorized by its board of directors or similar governing body, if
applicable, and no other corporate or shareholder proceedings on the
part of Borrower are necessary to authorize this Note or to consummate
the transactions contemplated hereby. This Note has been duly executed
and delivered by Borrower and is a valid and binding obligation of
Borrower.
(c) Contracts. All material contracts, agreements, licenses, leases for
real property or personal property, permits, arrangements, commitments,
instruments, understanding or contracts, whether written or oral,
express or implied, contingent, fixed or otherwise, to which Borrower
is a party, the breach or termination of which would have a
2
<PAGE>
material adverse effect on Borrower or its business (collectively, the
"Borrower Contracts") are in full force and effect, and there exists no
material breach or violation of or default by Borrower under any
Borrower Contract nor, to Borrower's knowledge, by any other party to a
Borrower Contract, or any event that with notice or the lapse of time,
or both, will create a material breach or violation thereof or default
under any Borrower Contract by Borrower nor, to Borrower's knowledge,
by any other party to a Borrower Contract. The continuation, validity,
and effectiveness of each Borrower Contract will in no way be affected
by the consummation of the transactions contemplated by this Note.
(d) Actions and Proceedings. There is no claim, charge, arbitration,
grievance, action, suit, investigation, bankruptcy, insolvency,
rearrangement or similar actions or proceedings, whether voluntary or
involuntary, by or before any court, arbiter, administrative agency or
other governmental authority now pending or threatened against
Borrower, or which involves any of the business, properties or assets
of Borrower that, if adversely resolved or determined, would have a
material adverse effect on Borrower. Borrower has no intention of
filing or commencing any such actions or proceedings.
(e) Advances. At the date of this Agreement, a principal balance of
$2,550,000, plus accrued and unpaid interest on all advances under the
Consolidated Note, is due and owing from Borrower to Lender under the
Consolidated Note and the Note without any offset, reduction,
counterclaim or recoupment whatsoever.
5. Notice. All notices, requests, demands and other communications
required or permitted hereunder must be in writing and shall be effective (a)
five days after being mailed by first class and certified or registered mail,
return receipt requested, with proper postage prepaid, or (b) two (2) business
days after being delivered to an established over-night delivery service, with
costs for "next day" delivery prepaid, addressed in either case to the following
addresses (or in either case to such other address as such party may from time
to time designate to the other by like written notice):
To the Borrower: Marine Shuttle Operations Inc.
Attention: Mr. Franz Eder
c/o Marine Shuttle Operations AS
Luramyrveien 29
N-4391 Sandes, Norway
Tel:
Fax:
with copy to:
Leonard J. Breslow, Esquire
Breslow & Walker, LLP
100 Jericho Quadrangle
Jericho, New York 11753
Tel: (516) 822-6505
Fax: (516) 822-6544
3
<PAGE>
To the Lender: ValorInvest Ltd.
Attention: Mr. Pierre Besuchet
29 Quai des Bergues
1201 Geneva
Switzerland
Fax: 0041-1-9238807
with copy to:
Michael H. Chanin, Esquire
Powell, Goldstein, Frazer & Murphy LLP
1001 Pennsylvania Avenue, NW., Suite 600
Washington, DC 20004
Tel: (202) 624-7235
Fax: (202) 624-7222
6. Miscellaneous.
(a) Assignment. Borrower may not assign any rights or delegate any
duties it has assumed hereunder without the prior written consent of Lender.
Lender may assign its rights hereunder or delegate its duties hereunder to
clients of Lender who are not actual, direct competitors of Borrower, without
the consent of Borrower, subject only to compliance with any applicable laws.
(b) Governing Law and Choice of Forum. This Agreement will be
governed by and construed in accordance with the laws of the State of Nevada.
The parties agree that any appropriate court located in Nevada will have
exclusive jurisdiction of any case or controversy arising under or in connection
with this Agreement and will be a proper forum in which to adjudicate such case
or controversy. The parties expressly consent to personal jurisdiction and venue
in such courts.
(c) Entire Agreement/Amendment. This Agreement embodies the entire
agreement of the parties hereto relating to the subject matter hereof and
supercedes all oral agreements, and to the extent inconsistent with the terms
hereof, all other written agreements, including that certain loan agreement
between Lender and Borrower, dated as of March 1, 1999.
(d) Severability. In the event any provision (or any part of any
provision) contained in this Agreement shall for any reason be finally held by a
court of competent jurisdiction to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision (or remaining part of the affected provision) of this Agreement;
but this Agreement shall be construed as if such invalid, illegal or
unenforceable provision (or part thereof) had never been contained herein, but
only to the extent it is invalid, illegal or unenforceable.
(e) Captions and Section Headings. Captions and section headings
used herein are for convenience only and are not a part of this Agreement and
will not be used in construing it.
4
<PAGE>
(f) Fax Execution. This Agreement may be executed by delivery of
executed signature pages by fax and such fax execution will be effective for all
purposes.
IN WITNESS WHEREOF, the parties have duly executed this Agreement
as of the date first set forth above.
VALORINVEST LTD.
BY:___________________________________
Pierre Besuchet
Director and Secretary
MARINE SHUTTLE OPERATIONS, INC.
By:___________________________________
Franz Eder
President
5
<PAGE>
SCHEDULE 1 TO
AMENDED AND RESTATED LOAN AGREEMENT
STATEMENT OF ADVANCES AND REPAYMENT OF PRINICIPAL
UNDER THE LOAN
Bridge Loan from Valorinvest
Date amount balance
- -----------------------------------------------------------
3/19/99 750,000.00 750,000.00
3/25/99 250,000.00 1,000,000.00
3/30/99 1,000,000.00
4/14/99 500,000.00 1,500,000.00
4/30/99 1,500,000.00
5/14/99 250,000.00 1,750,000.00
5/19/99 250,000.00 2,000,000.00
5/30/99 2,000,000.00
6/4/99 250,000.00 2,250,000.00
6/8/99 250,000.00 2,500,000.00
6/30/99 2,500,000.00
7/1/99 250,000.00 2,750,000.00
7/7/99 250,000.00 3,000,000.00
7/27/99 250,000.00 3,250,000.00
7/30/99 3,250,000.00
8/16/99 250,000.00 3,500,000.00
8/30/99 3,500,000.00
9/10/99 3,500,000.00
9/24/99 150,000.00 3,650,000.00
9/30/99 3,650,000.00
10/5/99 150,000.00 3,800,000.00
10/28/99 75,000.00 3,875,000.00
10/30/99 3,875,000.00
11/30/99 3,875,000.00
12/15/99 -1,325,000.00 2,550,000.00
12/30/99 2,550,000.00
6
<PAGE>
EXHIBIT A
NOTE
<PAGE>
AMENDED AND RESTATED COMMERCIAL PROMISSORY NOTE
THIS AMENDED AND RESTATED COMMERCIAL PROMISSORY NOTE (this "Note") is made as of
the date provided below by MARINE SHUTTLE OPERATIONS INC. (formerly Geoteck
International, Inc.), a Nevada corporation ("Borrower"), for the benefit of
VALORINVEST LTD. ("Lender").
RECITALS
WHEREAS, Lender made available $6,000,000 as a bridge loan to Borrower
against its promissory note dated March 1, 1999 (the "Consolidated Note"); and
WHEREAS, the principal, interest and all other sums payable under the
Consolidated Note were due and payable on December 31, 1999 (the "Consolidated
Maturity Date"); and
WHEREAS, Borrower has advised Lender that Borrower wants to extend the
Consolidated Maturity Date; and
WHEREAS, in order to induce Lender to extend the Consolidated Maturity
Date, Borrower has agreed to amend and restate the Consolidated Note.
NOW THEREFORE, for and in consideration of the premises, and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Borrower agrees as follows:
U.S. $6,000,000.00 December 31, 1999
FOR VALUE RECEIVED, Borrower does hereby promise to pay to the order of
Lender the principal sum of SIX MILLION DOLLARS ($6,000,000), together with
interest thereon as provided below.
1. Acknowledgement of Receipt of Funds. As of the date of this Note,
Borrower has received aggregate advances of $3,875,000 in principal funds (not
including interest or any other sums payable hereunder) from Lender pursuant to
the terms of this Note and originally evidenced by the Consolidated Note, of
which $1,325,000 has been repaid. This Note is a modification and complete
restatement, but not a novation, of the Consolidated Note.
2. Interest. Interest will accrue on the outstanding principal amount
of this Note at the rate of seven and one half percent (7.5%) per annum from the
date of each advance, and until all amounts outstanding under this Note have
been paid in full.
3. Late Charges; Default Interest. In the event any principal amount
and/or interest due under this Note is not actually received by Lender within
ten (10) days after the date when the same is due, Lender shall be entitled to
collect a late charge to cover the
<PAGE>
increased costs of administering the loan in an amount equal to five percent
(5%) of such overdue amount. Overdue payments of interest and/or principal
hereunder, and all sums advanced or expended by Lender for Borrower's account
and not repaid, shall bear interest during the period of any default hereunder
at the rate of eighteen percent (18%) simple interest per annum, or if such per
annum rate shall not be permitted by law, then the highest interest rate
permitted by law.
4. Payments. Interest, principal and all other sums payable hereunder
(collectively, the "Obligations") shall be payable, without any offset,
reduction, counterclaim or recoupment whatsoever, in lawful money of the United
States of America which shall be legal tender in payment of all debts and dues,
public and private, at the time of payment, and shall be due and payable as
follows unless extended by the Lender:
(a) To the extent the Borrower receives cash proceeds from any equity
or debt financings after January 1, 2000 which, in the aggregate,
exceed $2,000,000, then that portion of the principal balance of the
Obligations plus accrued and unpaid interest on the Obligations equal
to (x) twenty-five percent (25%) of the total of such excess cash
proceeds received after January 1, 2000 less (y) any payments
previously made by Borrower to Lender under this clause (a) (or such
lesser amount of the Obligations and accrued and unpaid interest as may
then be outstanding) shall be due and payable within five (5) business
days after each date on which Borrower receives such excess cash
proceeds; provided, however, that cash proceeds from debt financings
with a due date of less than one year from the time that Borrower
receives such proceeds shall not be aggregated in determining whether
Borrower has received cash proceeds in excess of $2,000,000 and
(b) If not sooner paid (whether by acceleration or otherwise), in full
on December 31, 2000.
5. Advances. Advances by Lender under this Note shall be made only as
provided in and are subject to the terms and conditions in that Amended and
Restated Loan Agreement between Borrower and Lender of even date herewith (the
"Loan Agreement"). Advances are limited in the aggregate to the stated principal
amount of this Note; this is not a revolving line of credit.
6. Application of Payments. All payments shall be applied first on
account of late charges, if any, then to Lender's costs of collection
(including, without limitation, reasonable attorneys' fees and expenses), if
any, then, to accrued and unpaid interest, and the balance to the reduction of
principal. For the purposes of computing interest on the debt evidenced hereby,
interest shall be calculated on the basis of a year consisting of three hundred
sixty (360) days, and shall be charged on the basis of the actual number of
calendar days that the principal amount advanced remains unpaid to the Lender.
7. Default; Remedies. Upon the happening of any of the following
events, the Obligations, in their entirety, shall at once become due and payable
at the option of
-2-
<PAGE>
Lender without further notice and Lender may exercise any or all additional
remedies provided under this Note:
(a) if Borrower shall fail to make payment when due of any obligation
hereunder, subject to any applicable notice or grace period; or
(b) if any warranty or representation made by Borrower in this Note or
the Loan Agreement shall be false or misleading in any material adverse
respect; or any financial statement, information or certification
submitted to Lender shall be false or misleading in any material
adverse respect; or Borrower shall fail to comply with any material
term, condition or covenant contained in this Note or the Loan
Agreement, if, in each instance, the circumstances giving rise to any
false or misleading condition or such failure to comply shall continue
for a period of fourteen (14) days after Lender shall have given
Borrower written notice thereof; or
(c) if Borrower shall make a general assignment for the benefit of
creditors or call a meeting of creditors for the purpose of obtaining
any financial accommodation or concession; or if a receiver or trustee
shall be appointed for all or any portion of Borrower's assets; or if
there shall be filed by Borrower any petition or application for relief
under the Bankruptcy Code; or
(d) if there shall be filed against Borrower any petition or
application for relief under the Bankruptcy Code which is not
discharged or bonded off to the satisfaction of Lender within sixty
(60) days, or if Borrower consents to any order for relief.
Failure of the Lender to exercise the option to accelerate payment or exercise
other remedies in the event of any default shall not constitute a waiver of the
right to exercise the same in the event of any subsequent default.
8. Prepayment. The privilege is reserved to Borrower to prepay the
indebtedness evidenced hereby, in whole or in part, at any time or from time to
time, without prepayment premium or penalty, provided, however, that Borrower
shall provide prior written notice to Lender of the intent to prepay ten (10)
days in advance of such prepayment.
9. Attorney's Fees. In the event counsel is employed by the Lender to
enforce the provisions of this Note, Borrower shall pay upon demand reasonable
attorneys' fees so incurred by Lender, and all other costs and expenses
connected with such enforcement.
10. Waivers. The Borrower hereby waives presentment, protest and
demand, notice of protest and notice of dishonor of this Note.
11. Notices. All notices, requests, demands and other communications
required or permitted hereunder must be in writing and shall be effective (a)
five (5) days after
-3-
<PAGE>
being mailed by first class and certified or registered mail, return receipt
requested, with proper postage prepaid, or (b) two (2) business days after being
delivered to an established over-night delivery service, with costs for "next
day" delivery prepaid, addressed in either case to the following addresses (or
at such other addresses as will be given in writing by the parties to one
another):
To the Borrower: Marine Shuttle Operations, Inc.
Attention: Mr. Franz Eder
c/o Marine Shuttle Operations AS
Luramyrveien 29
N-4391 Sandes, Norway
with copy to:
Leonard J. Breslow, Esquire
Breslow & Walker, LLP
100 Jericho Quadrangle
Jericho, New York 11753
Tel: (516) 822-6505
Fax: (516) 822-6544
To the Lender: ValorInvest Ltd.
Attention: Mr. Pierre Besuchet
29 Quai des Bergues
1201 Geneva
Switzerland
Fax: 0041-1-9238807
with copy to:
Michael H. Chanin, Esquire
Powell, Goldstein, Frazer & Murphy LLP
1001 Pennsylvania Avenue, NW., Suite 600
Washington, DC 20004
Tel: (202) 624-7235
Fax: (202) 624-7222
12. Severability. In the event any provision (or any part of any
provision) contained in this Note shall for any reason be finally held by a
court of competent jurisdiction to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision (or remaining part of the affected provision) of this Note; but
this Note shall be construed as if such invalid, illegal or unenforceable
provision (or part thereof) had never been contained herein, but only to the
extent it is invalid, illegal or unenforceable.
-4-
<PAGE>
13. Successors and Assigns. This Note and/or rights hereunder are
assignable to clients of Lender who are not actual, direct competitors of
Borrower, without the consent of Borrower, subject only to compliance with
applicable securities laws.
14. Commercial Purpose. The Borrower warrants that the loan evidenced
by this Note is being made solely to acquire or carry on a business or
commercial enterprise, and that the Borrower is a business or commercial
organization. The Borrower further covenants that the loan evidenced by this
Note shall be construed for all purposes as a commercial purpose loan.
15. Time is of the Essence. Time is of the essence as to each and every
provision of this Note.
16. Governing Law and Choice of Forum. The validity and construction of
this Note and all matters pertaining thereto are to be determined and construed
according to the laws of the State of Nevada, excluding its conflicts of law
principles. The Borrower agrees that any appropriate court located in Nevada
will have exclusive jurisdiction over any case or controversy arising under or
in connection with this Note and will be a proper forum in which to adjudicate
such case or controversy. The Borrower expressly consents to personal
jurisdiction and venue in such courts.
17. Waiver of Jury Trial. BORROWER HEREBY WAIVES TRIAL BY JURY IN ANY
ACTION OR PROCEEDING TO WHICH BORROWER AND LENDER MAY BE PARTIES ARISING OUT OF,
IN CONNECTION WITH OR IN ANY WAY PERTAINING TO THIS NOTE. IT IS AGREED AND
UNDERSTOOD THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS
AGAINST ALL PARTIES TO SUCH ACTION OR PROCEEDINGS, INCLUDING CLAIMS AGAINST
PARTIES WHO ARE NOT PARTIES TO THIS NOTE. THIS WAIVER IS KNOWINGLY, WILLINGLY
AND VOLUNTARILY MADE BY BORROWER, AND BORROWER HEREBY REPRESENTS THAT NO
REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE
THIS WAIVER OF TRIAL BY JURY AND THAT BORROWER HAS BEEN REPRESENTED IN THE
SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL
COUNSEL, OR HAS HAD THE OPPORTUNITY TO BE REPRESENTED BY INDEPENDENT
-5-
<PAGE>
LEGAL COUNSEL SELECTED OF ITS OWN FREE WILL, AND THAT BORROWER HAS HAD THE
OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.
WITNESS the execution hereof by the Borrower on the date first
hereinabove written, with the intent that this shall be an instrument under
seal.
BORROWER:
WITNESS: MARINE SHUTTLE OPERATIONS, INC.
________________________ By:___________________________(SEAL)
Name Franz Eder
President
Bank Wiring Instructions
____________________________________________
____________________________________________
____________________________________________
-6-
<PAGE>
Summary of Proposed Terms and Conditions
Credit Agreement Between The Borrower and MFC Merchant Bank S.A.
- --------------------------------------------------------------------------------
This Summary of Terms and Conditions ("Summary") is for reference
only and shall not be considered to be exhaustive as to the
final terms and conditions which govern the transactions.
- --------------------------------------------------------------------------------
CREDIT TERMS
Borrower: Marine Shuttle Operation Inc. (collectively
the "Borrower")
Lenders' Arranger and
Agent: MFC Merchant Bank S.A. ("MFC" or the
"Agent"). MFC may arrange for a syndicate
of lenders (the "Lenders") to participate
in the Loan.
Amount: Loan in the principal amount of 2,000,000
(United States dollars) (the "Loan" or the
"Credit Facility").
Purpose: The Loan will be used for working capital
in furtherance of the Borrower's business
as conducted at the date hereof.
Availability: Committed one year term Credit Facility.
Closing Date: February 25, 2000
Repayment: Due in full on the first anniversary date of
the Closing Date (the "Maturity Date"). The
Maturity Date may be extended by the
Lenders, at their sole option, for
additional periods of twelve months per each
extension, by providing the Borrower with
written notice thereof, at least 30 days
prior to each such extension.
Voluntary Prepayments: The Borrower may, on ten
banking days' prior notice given to the
Agent, stating the proposed date and
aggregate principal amount of the
prepayment, prepay the Loan in whole or in
part. Each prepayment shall be in a
principal amount of not less than $100,000.
Security: A pledge (the "Securities Pledge") by third
parties of shares (the "Pledged
Securities"). Marketable securities
acceptable to the Lenders with a margin
component of at least 55%. If the margin
component falls below 55% on any given day,
the Lender may sell such securities and
utlize the cash as security up to the full
amount of the facility, 2,000,000 United
States dollars.
Draw Restrictions: $350,000 a month commencing February 25,
2000.
<PAGE>
Page 2
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Arrangement Fee: The Borrower shall pay to the Agent an
arrangement fee of $20,000 on the Closing
Date.
Interest Rate: Interest will be payable at the Interest
Rate.
Conditions Precedent: Customary, including but not limited to
the following.
(1) The Agent shall have received
certified copies of the Charter
Documents of the Borrower
resolutions approving the Credit
Documents and other certificates and
confirmations customary to lending
transactions of the nature
contemplated hereby.
(2) The Credit Documents shall have been
executed and delivered to the Agent,
the Pledged Securities shall have
been delivered to the Agent, and all
filings necessary or desirable to
perfect the enforceability and
priority of the Lenders' security
shall have been completed.
(3) The Agent shall have received
certified copies of the Financial
Statements of the Borrower for the
most current fiscal year, including,
the most current quarterly Financial
Statements.
(4) All of the representations and
warranties contained in the Credit
Documents shall be correct on and as
of the Closing Date, the Borrower
shall have complied with all of its
covenants and made all deliveries
required on closing and the Borrower
shall have delivered to the Agent a
certificate executed by a senior
officer of the Borrower to that
effect.
(5) The Agent shall receive such other
documents as it may reasonably
request on behalf of the Lenders.
(6) No Material Adverse Change shall
have occurred since September
30, 1999.
(7) No law, regulation, rule or policy,
or any change therein, shall be
enacted or proposed prior to the
Closing Date which may have a
Material Adverse Effect.
<PAGE>
Page 3
- --------------------------------------------------------------------------------
(8) All licenses, permits, certificates,
registrations waivers, consents,
approvals, releases, authorizations
and orders, the absence of which
would have a Material Adverse
Effect, shall have been obtained and
be in full force and effect.
Representations Customary, including but not limited to
and Warranties: the following:
(1) Organization and Corporate Power.
The Borrower is duly incorporated
and organized and is validly
subsisting and in good standing and
have full power and authority to
enter into and perform their
respective obligations under the
Credit Documents and to own and
operate their properties and to
carry on their businesses.
(2) Conflict with Other Instruments. The
execution and delivery by the
Borrower of the each of the Credit
Documents to which they are party
and the performance of their
obligations thereunder, will not
conflict with or result in a breach
of any of the terms, conditions or
provisions of: (i) their Charter
Documents; (ii) any applicable laws;
or (iii) any contractual restriction
affecting the Borrower their
properties, the breach of which
would have a Material Adverse
Effect.
(3) Authorization, Official Body
Approvals. The execution and
delivery of each of the Credit
Documents by the Borrower to which
each is a party and the performance
of their obligations thereunder will
have been duly authorized by all
necessary action on the part of the
Borrower and no authorization or
registration is necessary therefor.
(4) Execution of Binding Obligation. The
Credit Documents will constitute
legal, valid and binding obligations
of the Borrower enforceable in
accordance with their terms.
(5) Consents. The Borrower possess all
required consents and authorizations
which are necessary in connection
with the operation of their
respective businesses.
<PAGE>
Page 4
- --------------------------------------------------------------------------------
(6) No Violation of Agreements. The
Borrower is not in default under any
material indenture, mortgage, deed
of trust, agreement or other
instrument to which it is a party or
by which it or any of its property
may be bound, which default could
have a Material Adverse Effect.
(7) No Litigation. There are no actions,
suits or proceedings pending or
threatened against or affecting the
Borrower or that challenge the
validity of the transactions
contemplated by the Credit Documents
or that could have a Material
Adverse Effect.
(8) No Defaults. Neither the Borrower is
in breach of or in default under:
(i) its Charter Documents; (ii) any
applicable law; or (iii) any
contract or agreement binding on or
affecting it or its property or
assets, which breach or default
could have a Material Adverse
Effect.
(9) Financial Statements. The Financial
Statements of the Borrower present
the financial position of the
Borrower as at the dates thereof in
accordance with GAAP.
(10) Title to Pledged Securities. The
beneficial owners have good and
marketable title to, the Pledged
Securities free and clear of all
encumbrances and the Lenders'
security will constitute a first
fixed charge on the Pledged
Securities. The Pledged Securities
are fully-paid and non-assessable
and are not subject to any voting
trust, shareholder agreement or
voting agreement.
(11) No Agreements to Purchase. No person
has any agreement or right capable
of becoming an agreement for the
purchase of the Pledged Securities.
Covenants of the Customary, including but not limited to the
Borrower: following.
(1) Corporate Existence. To preserve and
maintain its corporate existence and
all qualifications to carry on its
business.
<PAGE>
Page 5
- --------------------------------------------------------------------------------
(2) Compliance with laws, etc. To comply
with all applicable laws
non-compliance with which could have
a Material Adverse Effect.
(3) Payment of Taxes and Claims. To pay
and discharge when due all taxes
except those being contested in good
faith and for which the Borrower has
maintained adequate reserves.
(4) Keeping of Books. To keep proper
books of record and account in
accordance with GAAP.
(5) Pay Obligations to Lender and
Perform Other Covenants. To make
full and timely payment of its
Obligations under the Credit
Documents and any other monies due
and comply with the terms and
covenants contained in each of the
Credit Documents.
Events of Default: Customarily, including but not limited to
the following:
(1) Payment of Principal. The Borrower
shall fail to pay the Principal Sum
or any portion thereof outstanding
when the same becomes due and
payable.
(2) Payment of Interest, etc. The
Borrower shall fail to pay in
interest in respect of the Credit
Facility when the same becomes due
and payable or the Borrower shall
fail to pay any fees or other
amounts in respect thereof when the
same becomes due and payable, and in
any such case, the failure shall
remain unremedied for a period of
three banking days following notice
from the Agent to the Borrower.
(3) Representations and Warranties
Incorrect. Any representation or
warranty made by the Borrower in the
Credit Documents or in any other
document shall prove to have been
incorrect in any material respect
when made or deemed to be made.
(4) Value of the Marketable Securities.
If the value of the marketable
securities fall below the ratio of
55% to 100% on any given day, such
securities may be sold at the
Lenders option to maintain the
ratio.
<PAGE>
Page 6
- --------------------------------------------------------------------------------
(5) Security Unenforceable. Any Credit
Document shall cease to be in full
force and effect or shall be
declared to be null and void, or the
validity or enforceability thereof
shall be contested by the Borrower.
(6) Material Adverse Effect. There
occurs any change, condition, event
or occurrence which, when considered
individually or together with all
other changes, conditions, events or
occurrences could reasonably be
expected to have a Material Adverse
Effect, provided that in such event,
the Borrower shall have 10 Business
Days to repay all of the Obligations
in full.
Reporting: The Borrower will deliver to the Agent: (I)
within 45 days of the end of each Financial
Quarter, quarterly Financial Statements;
(ii) within 90 days after the end of each
Financial Year of the Borrower and; (iii)
such other financial statements and
information respecting the Borrower as may
reasonably be requested by the Lenders from
time to time.
Expenses for the account (1) Counsel, assessment or compliance
review fees and disbursements
incurred by the Agent and the
Lenders in connection with: (I) the
development, preparation, execution
and interpretation of the Credit
Documents; (ii) advice of counsel to
the Agent and the Lenders with
respect to the administration of the
Loan and the Credit Documents; (iii)
the enforcement or preservation of
rights under or the refinancing,
renegotiation or restructuring of
Obligations under the Credit
Documents; (iv) stamp taxes and
custodian fees incurred in
connection with the Pledged
Securities, if any are charged by
third-parties to the Agent; or (v)
any requested amendments, waivers or
consents pursuant to the provisions
of the Credit Documents, including
such expenses as may be incurred by
the Agent or a Lender in the
collection of the Obligations or any
litigation, proceeding, dispute or
so-called "work-out" in any way
relating to the Obligations or the
Credit Documents.
<PAGE>
Page 7
- --------------------------------------------------------------------------------
(2) All such expenses in connection
with: (I) the Borrower's failure to
complete the Loan or to make any
payment, repayment or prepayment on
the date required; (ii) the
Borrower's failure to pay any amount
including, without limitation, any
interest or fees, due under any
Credit Document on its due date; or
(iii) the Borrower's failure to give
any notice required to be given by
it to the Agent or the Lenders.
Governing Law: Switzerland, Canton of Geneva, as
applicable.
Indemnification: Standard indemnification of the Agent and
other participating financial institutions
extending to all claims, losses or
liabilities, except as caused by their own
gross negligence or willful misconduct.
<PAGE>
Page 8
- --------------------------------------------------------------------------------
Definitions: "BBA" means British Bankers' Association.
"BBA Libor" means the three month US dollar London
Inter-Bank Offered Rate fixed daily by the BBA.
"Charter Documents" means, as the context requires,
the constating documents and by-laws of any person
thereto;
"Credit Documents" means the Credit Agreement, the
Securities Pledge, and all other documents to be
executed and delivered to the Agent, the Agent for
and on behalf of the Lenders, the Lenders or a Lender
by the Borrower relating to the Loan.
"Debt" of any person means: (I) all indebtedness of
such person for and in respect of borrowed money,
including obligations with respect to bankers'
acceptances, letters of credit and letters of
guarantee; (ii) all indebtedness of such person for
the deferred purchase price of property or services
represented by a note or other evidence of
indebtedness or other security; (iii) all
indebtedness created or arising under any conditional
sale or other title retention agreement with respect
to property acquired by such person (even though the
rights or remedies of the seller or lender under such
agreement in the event of default are limited to
repossession or sale of such property); (iv) all
obligations under leases which, in accordance with
GAAP (or accounting principles generally accepted in
the jurisdiction of incorporation or organization of
such person), are recorded as capital leases in
respect of which such person is liable as lessee; (v)
the aggregate amount at which any shares in the
capital of such person which are redeemable or
retractable at the option of the holder thereof may
be retracted or redeemed; and (vi) all Debt
guaranteed by such person.
"Financial Quarter" means, in relation to the
Borrower, a period of three consecutive months in
each Financial Year of the Borrower ending on March
31, June 30, September 30 and December 31, as the
case may be, of such Financial Year.
"Financial Statements" means, in respect of the
Borrower, as at any particular time, financial
statements prepared in accordance with GAAP,
including, without limitation, consolidated and
unconsolidated balance sheets, statements of earning
and statements of changes in financial position.
<PAGE>
Page 9
- --------------------------------------------------------------------------------
"Financial Year" means, in relation to the Borrower,
a financial year of the Borrower commencing on
January 1 of each calender year and ending on
December 31 of such calender year.
"GAAP" means, at any time, accounting principles
generally accepted in the United States, applied on a
consistent basis.
"Interest Payment Dates" means the annual interest
payment dates to be established under the Credit
Agreement.
"Interest Periods" means periods of three months, the
first such period beginning on the closing Date and
each subsequent period commencing upon the expiry of
the prior period, and "Interest Period" means any one
such period. Interest shall be calculated on the
basis of a year of 360 days and the actual number of
days (including the first day be excluding the last
day) occurring in the period for which such Interest
is payable.
"Interest Rate" means, at any time, Libor plus 3 1/2%
per cent per annum. With each successive Interest
Period the Libor shall be reset on the second banking
day prior to the commencement of the Interest Period
and there shall be a corresponding change in the rate
of interest payable under the Credit Agreement
without the necessity of prior notice thereof to the
Borrower or any other person.
"Libor" means BBA Libor or, if no such published rate
is then available, the rate of interest calculated by
the Agent, as being the arithmetic average (rounded
up, if necessary, to the nearest full multiple of
1/16 of one percent) at which, in accordance with its
normal practice, would be prepared to offer to
leading banks in the London interbank market for
delivery on the first day of the particular Interest
Period and for a period equal to such Interest Period
based on the number of days comprised therein,
deposits in US funds of amounts comparable to the
Principal Sum or the balance outstanding thereof
during such Interest Period, at or prior to 11:00
a.m. London, England, local time on the second
banking day prior to the Closing Date and thereafter
on the second banking day prior to the commencement
of each subsequent Interest Period.
"Material Adverse Change" means any change,
condition, event or occurrence which, when considered
individually or together with all other changes,
conditions, events or occurrences could reasonably be
expected to have a Material Adverse Effect.
<PAGE>
Page 10
- --------------------------------------------------------------------------------
"Material Adverse Effect" means: (i) a material adverse effect
on the property, assets or businesses or the Borrower taken as
a whole; (ii) a material adverse effect on the capital
structure or condition or prospects, financial or otherwise,
of the business or the Borrower; (iii) a material adverse
effect on the ability of the Borrower to perform and comply
with the Credit Agreement or to pay or perform any of the
Obligations under the Credit Documents; (iv) a material
adverse effect on the priority, effectiveness or performance
of all other obligations, liabilities and indebtedness of the
Credit Documents or with respect to the Loan and all fees,
costs, expenses and indemnity obligations thereunder.
"Outstanding Amount" means, in respect of the Loan, on any
day, an amount calculated and expressed in U.S. Dollars equal
to the Principal Sum less any repayment or prepayment made or
credited to the Borrower as at such date.
"Principal Sum" means amount borrowed.
Date ________________________ Date ________________________
- ---------------------------- ------------------------------
Marine Shuttle Operation Inc. MFC Merchant Bank S.A.
<PAGE>
AGREEMENT
THIS AGREEMENT made effective as of the 8th day of February,
2000, by and between Marine Shuttle Operations Inc., a Nevada corporation (the
"Corporation"), Mancorp AS ("MAS"), and Stephen Adshead ("Adshead").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Adshead is an employee, director, and principal
stockholder of MAS;
WHEREAS, (a) the Corporation desires to engage Adshead as a
Vice President of the Corporation, (b) MAS desires to lend out to the
Corporation the services of Adshead, and (c) Adshead desires to serve as a Vice
President of the Corporation, upon the terms and conditions hereinafter set
forth;
NOW THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, the parties, intending to be
legally bound, agree as follows:
I. Engagement; Term. Subject to the terms and conditions of this
Agreement, MAS hereby agrees to loan out the services of Adshead to the
Corporation, the Corporation hereby engages Adshead as a Vice President, and
Adshead hereby agrees to serve as a Vice President of the Corporation for the
period commencing on the date hereof (the "Effective Date") and ending on the
second anniversary of the Effective Date (the "Engagement Period"), unless
sooner terminated as hereinafter provided.
2. Scope of Adshead's Duties. Adshead shall serve as a Vice President
subject to the direction and control of the Corporation's Chief Executive,
President, and Board of Directors (the "Board"). In such capacity, Adshead shall
have the customary powers, responsibilities and authority of vice presidents of
corporations of the size, type, and nature of the Corporation as it exists from
time to time. Adshead shall undertake such other duties as the Chief Executive
Officer, President, or Board from time to time shall reasonably designate,
including, without limitation, serving as a consultant to affiliates of the
Corporation and serving on the Board.
3. Time to be Devoted to by Adshead. Adshead shall devote so much (but
not less than 50%) of his professional and business time, attention, and
energies to his duties and responsibilities hereunder as is reasonable to insure
the Corporation's proper conduct. In performing such services, Adshead shall use
his best efforts to promote the interests of the Corporation pursuant to and in
accordance with reasonable business policies and procedures, as fixed from time
to time by the Board. Adshead covenants and agrees that he will faithfully
adhere to and fulfill such policies, consistent with this Agreement, as are
established from time to time by the Chief Executive Officer, the President, or
the Board. Nothing contained herein shall prevent or be construed as preventing
Adshead from holding or purchasing up to five percent (5%) of any class of stock
or securities of a corporation which is listed on a national securities exchange
or regularly traded in the over-the-counter market, or making other investments
or participating in business ventures not involving decommissioning, installing,
and/or transporting offshore oil or gas
<PAGE>
structures, provided that such investments and business ventures do not conflict
with his duties or obligations to the Corporation as provided in this Agreement.
4. Fee. As total consideration for lending out the services of Adshead
and the rendering of such services during the Engagement Period, MAS shall
receive a fee of Sixty Thousand Dollars ($60,000) per annum (the "Fee"), which
shall be paid semi-monthly in arrears or on such other basis as Corporation and
MAS shall agree.
5. Reimbursement of Expenses. The Corporation shall reimburse Adshead
for all reasonable expenses incurred in connection with the services to be
rendered hereunder, including expenses for travel, entertainment, and similar
expenses incurred by Adshead on the Corporation's behalf; provided, however, no
such reimbursement shall be made except upon the presentation of an itemized
account or other evidence of those expenses for which reimbursement then is
being sought, all in form reasonably satisfactory to the Corporation.
6. Termination. This Agreement shall terminate upon Adshead's
resignation or death, and may be terminated by the Board on account of Adshead's
Disability (as defined below), for Cause (as defined below), or without Cause.
(a) If Adshead dies during the term of this Agreement, the
Corporation shall be obligated to pay to MAS all earned but unpaid Fees through
the date of his death.
(b) If Adshead shall become physically or mentally disabled
("Disability") during the term of this Agreement such that (i) in the Board's
good faith judgement, he is permanently incapable of properly performing each of
the duties customarily performed by him hereunder, or (ii) such Disability lasts
for a period of 60 consecutive days or for 90 days in any six-month period and
the Corporation elects to treat such Disability as being permanent in nature,
then the Corporation shall be obligated to pay to MAS all earned but unpaid Fees
due to MAS hereunder through the date of such termination.
(c) If Adshead is terminated by the Corporation without Cause,
then, provided that Adshead has not breached the provisions of Sections 7, 8, or
9 hereof, MAS shall be entitled to receive the Fee in equal monthly installments
for the twelve-month period from the date of such termination or for the
remainder of the Engagement Period, whichever is shorter.
(d) If Adshead is terminated for Cause or Adshead resigns, MAS
shall be entitled to receive the Fee only through the date of termination.
(e) As used herein, "Cause" shall mean:
i) the willful failure by Adshead to
substantially perform his duties hereunder
(including, without limitation, Adshead's
refusal to carry out the directives of the
Board), for reasons other than death or
Disability;
2
<PAGE>
ii) a material breach of this Agreement by
Adshead (including, without limitation, the
breach of any provision of Sections 8 and/or
9 hereof);
iii) the willful engaging by Adshead in
misconduct materially injurious to the
Corporation;
iv) a breach of Adshead's duty of loyalty to the
Corporation or any act of dishonesty or
fraud with respect to the Corporation; or
v) the commission of a felony, a crime
involving moral turpitude or other act
causing material harm to the Corporation's
standing and reputation.
7. Disclosure of Information.
(a) All memoranda, notes, records, and other documents made or
compiled by Adshead or made available to Adshead during the term of this
Agreement concerning the business of the Corporation or any affiliate of the
Corporation (for purposes of this Section 7, the "Corporation"), shall be the
Corporation's property and shall be delivered to the Corporation on the
termination of this Agreement. Adshead shall not use for himself or others, or
divulge to others, any proprietary or confidential information of the
Corporation obtained by him as a result of his engagement hereunder, unless
authorized by the Corporation. For purposes of this Section 7, the term
"proprietary or confidential information" shall mean all information which is
known only to Adshead, or to Adshead and the employees, former employees,
consultants, or others in a confidential relationship with the Corporation, and
relates to specific matters such as trade secrets, customers, potential
customers, vendor lists, pricing and credit techniques, research and development
activities, private processes, business plans, technical information, books and
records, and any other information which the Corporation is obligated to keep
confidential pursuant to the Corporation's contractual obligations to third
parties, as they may exist from time to time, which Adshead may have acquired or
obtained by virtue of work heretofore or hereafter performed for or on behalf of
the Corporation, or which he may acquire or may have acquired knowledge of
during the performance of said work, and which is not in the public domain.
(b) In the event of a breach or a threatened breach by Adshead
of the provisions of this Section 7, the Corporation shall be entitled to an
injunction, without being required to post any bond, restraining Adshead from
disclosing, in whole or in part, the aforementioned proprietary or confidential
information of the Corporation, or from rendering any services to any person,
firm, corporation, association, or other entity to whom such proprietary or
confidential information, in whole or in part, has been disclosed or is
threatened to be disclosed. Nothing contained herein shall be construed as
prohibiting the Corporation from pursuing any other remedies available to the
Corporation for such breach or threatened breach, including the recovery of
damages from MAS and/or Adshead.
3
<PAGE>
8. Restrictive Covenants.
(a) In light of the unique and valuable services it is
expected Adshead will render to the Corporation, Adshead's knowledge of the
business of the Corporation and proprietary information relating to the business
of the Corporation and similar knowledge regarding the Corporation it is
expected Adshead will obtain during the course of his engagement by the
Corporation, and in consideration of this Agreement and the Fees to be paid by
the Corporation hereunder, Adshead agrees that for so long as this Agreement is
in effect and for a period of one year thereafter (the "Covenant Period"), he
will not compete, directly or indirectly, with the Corporation or any of its
subsidiaries now owned or hereafter acquired (for purposes of this Section 8,
the "Corporation") or, directly or indirectly (except as permitted by Section 3
hereof), own, manage, operate, control, loan money to, or participate in the
ownership, management, operation or control of, or be connected with as a
director, officer, employee, partner, consultant, agent, independent contractor
or otherwise, or acquiesce in the use of his name in, any other business or
organization which competes, directly or indirectly, with the Corporation, in
any geographical area in which the Corporation is then conducting business or
any geographical area in which, to the knowledge of Adshead, the Corporation
plans to conduct business within a six (6) month period.
(b) During the Covenant Period, Adshead will not, directly or
indirectly, either individually or on behalf of any other person or entity (i)
solicit customers, suppliers, or other business relations of the Corporation for
the purpose of interfering with or encouraging them to terminate their
relationship with the Corporation, or (ii) encourage other employees (full-time
or part-time) of the Corporation to terminate their employment with the
Corporation.
(c) It is acknowledged and agreed that the restrictions
contained in this Section 8, including, without limitation, the time periods and
the geographical areas of the restrictions, are fair and reasonable and do not
place any undue hardship on Adshead, and are reasonably required for the
protection of the goodwill, the business, and the interests of the Corporation
and its officers, directors, and other employees.
(d) It is the desire and intent of the parties that the
provisions of this Section 8 shall be enforced to the fullest extent permissible
under the laws and public policies applied in each jurisdiction in which
enforcement is sought. Accordingly, if any particular provision of this Section
8 shall be adjudicated to be invalid or unenforceable, such provision shall be
deemed amended to delete therefrom the portion thus adjudicated to be invalid or
unenforceable. Such deletion shall apply only with respect to the operation of
such provisions of this Section 8 in the particular jurisdiction in which such
adjudication is made. In addition, if the scope of any restriction contained in
this Section 8 is too broad to permit enforcement thereof to its fullest extent,
then such restriction shall be enforced to the maximum extent permitted by law,
and Adshead hereby consents and agrees that such scope may be judicially
modified in any proceeding brought to enforce such restriction.
4
<PAGE>
(e) In the event of a breach or threatened breach by Adshead
of the provisions of this Section 8, the Corporation shall be entitled to an
injunction and such other equitable relief as may be necessary or desirable to
enforce the restrictions contained herein. Nothing herein contained shall be
construed as prohibiting the Corporation from pursuing any other remedies
available for such breach or threatened breach or any other breach of this
Agreement.
9. Representations.
(a) MAS and Adshead each represent and warrant to the
Corporation that (i) the execution, delivery and performance of this Agreement
by does not and will not conflict with, breach, violate or cause a default under
any contract, agreement, instrument, order, judgment or decree to which MAS or
Adshead is a party or by which MAS or Adshead is bound, and (ii) upon the
execution and delivery of this Agreement by MAS and Adshead, this Agreement
shall be the valid and binding obligation of MAS and Adshead, respectively,
enforceable against each of them in accordance with its terms.
(b) Adshead represents and warrants to the Corporation that
Adshead is not a party to or bound by any employment agreement, non-compete
agreement or confidentiality agreement with any other person or entity.
(c) The Corporation represents and warrants to MAS and Adshead
that (i) the execution, delivery, and performance of this Agreement by the
Corporation does not and will not conflict with, breach, violate or cause a
default under any contract, agreement, instrument, order, judgment or decree to
which the Corporation is a party or by which it is bound, and (ii) upon the
execution and delivery of this Agreement by the Corporation, this Agreement
shall be the valid and binding obligation of the Corporation, enforceable
against it in accordance with its terms.
10. Miscellaneous.
(a) Notices. All notices required or permitted to be given
under the provisions of this Agreement shall be in writing and delivered
personally or by certified or registered mail, return receipt requested, postage
prepaid, to the following persons at the following addresses, or to such other
persons at such other addresses as any party may request by notice in writing to
the other party to this Agreement.
If to MAS or Adshead:
Gauselstubben 3
4032 Stavanger, Norway
5
<PAGE>
If to the Corporation:
c/o Marine Shuttle Operations AS
Luramyrveien 29
N-4391 Sandnes, Norway
Attn: Franz Eder, President
(b) Successors and Assigns. This Agreement shall be binding
upon the successors and assigns of the Corporation, and shall inure to the
benefit of and be enforceable by and against its successors and assigns. This
Agreement is personal in nature and may not be assigned or transferred by
Adshead or MAS without the prior written consent of the Corporation.
(c) Entire Agreement. This instrument contains the entire
understanding and agreement between the parties relating to the subject matter
hereof, and neither this Agreement nor any provision hereof may be waived,
modified, amended, changed, discharged, or terminated, except by an agreement in
writing signed by the party against whom enforcement of any waiver,
modification, change, amendment, discharge, or termination is sought.
(d) Counterparts. This Agreement may be executed
simultaneously in counterparts, each of which shall be deemed an original, and
all of which counterparts shall together constitute a single agreement.
(e) Illegality. If any one or more of the provisions of this
Agreement shall be invalid, illegal, or unenforceable in any respect, the
validity, legality, and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
(f) Captions. The captions of the sections hereof are for
convenience only and shall not control or affect the meaning or construction of
any of the terms or provisions of this Agreement.
(g) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Nevada, without giving any
effect to any doctrine pertaining to the conflict of laws. The parties hereto
irrevocably (i) submit to the jurisdiction of any Nevada state or federal court
in any action or proceeding arising out of or relating to this Agreement, (ii)
agree that all claims with respect to such action or proceeding shall be heard
and determined in such a Nevada state or federal court, and (iii) waive, to the
fullest extent possible, the defense of an inconvenient forum. The parties
hereby consent to and grant any such court jurisdiction over the persons of such
parties and over the subject matter of any such dispute and agree that delivery
or mailing of process or other papers in connection with any such action or
proceeding in the manner provided in Section 10(a) hereof or in such other
manner as may be permitted by law, shall be valid and sufficient service
thereof.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have set their hands and
executed this Agreement on the day and year first above written.
MARINE SHUTTLE OPERATIONS INC.
By:_______________________________
Franz Eder, CEO
MANCORP AS
By:_________________________________
Stephen Adshead, Director
____________________________________
Stephen Adshead
7
<PAGE>
Exhibit 10.15
ADDENDUM NO. 1 TO AGREEMENT REGARDING INTELLECTUAL PROPERTY RIGHTS
by and between:
Gunnar Foss, a Norwegian citizen resident in Mezenplei 11, 2566 Z6, den
Haag, The Netherlands (hereinafter referred to as Foss); and Per Bull
Haugsoen, a Norwegian citizen, residing at Risalleen 53, 0377 Oslo
(hereinafter referred to as Haugsoen)
on the one hand,
and
Marine Shuttle Operations AS, a Norwegian Company having its registered
office at Lyramyrveien 29, 4301 Sandnes; and Marine Shuttle Operations
Inc, a company organized and existing under the laws of Nevada, USA,
having its principle place of business at 4410 Monterose Boulevard,
Houston, Texas 77006, USA; (hereinafter jointly and individually
referred to as MSO)
the following Addendum No. 1 to The Agreement Regarding Intellectual Property
has today been entered into:
1. Background
1.1 On March 31, 1998, Foss and Haugsoen entered into an Agreement
Regarding Intellectual Property (the "Original Agreement") with
Offshore Shuttle AS (hereinafter referred to as OSAS). Under the
Original Agreement, which is enclosed herewith as Exhibit 1, Foss and
Haugsoen transferred to OSAS all Rights (as defined in the Original
Agreement) pertaining to the Offshore Shuttle Concept, subject to the
conditions and qualifications contained in the Original Agreement.
1.2 Subsequent to the execution of the Original Agreement, OSAS (and its
successor by merger, MSO) has actively pursued the further development
of the Offshore Shuttle Concept as contemplated by the Original
Agreement.
1.3 During the Winter and Spring of 1999, the development of the Offshore
Shuttle concept has reached a level where detailed negotiations for
award of contracts for the design, construction and fabrication of the
first Offshore Shuttle are ongoing in parallel with negotiations with
credit institutions for procurement of the corresponding finance
facility.
2. Waiver of Rights - Transfer of Rights under Patent Applications
Subject to the fulfilment of the conditions contained in Article 3
hereof, Foss and Haugsoen agree, individually and collectively, to
forever waive and relinquish any and all rights to have the Rights
transferred back to them, individually or collectively, in accordance
with Article 2, 2nd paragraph of the Original Agreement.
1
<PAGE>
Foss and Haugsoen further agree, individually and collectively, to
forever waive and relinquish any and all rights of first refusal in the
event of assignment of the said Rights to any Third Party as provided
in Article 5 of the Original Agreement.
Except as provided for in Article 3 of this Addendum, the waiver of
rights as contained in the foregoing paragraphs hereof is irrevocable
and unconditional and shall be contingent upon no other circumstance or
condition.
Upon completion of those conditions as specified in Article 3 hereof,
Foss and Haugsoen undertake, individually and collectively, to execute
any such document(s) which may be requisite or proper in order to more
effectively waive and relinquish the Rights, such that all rights to
the Offshore Shuttle Concept are vested in MSO.
3. Conditions Precedent
The waiver of rights as contained in Article 2 hereof shall only become
effective upon satisfaction of the following conditions:
o The receipt by MSO, or any company or entity controlled directly or
indirectly by MSO, of a written commitment for a financing (debt,
equity or other) for the full and complete design and fabrication
of the first Offshore Shuttle.
o The entering into by MSO, or any company or entity controlled
directly or indirectly by MSO, of such contracts as are required
for the design, construction and complete fabrication of the first
Offshore Shuttle.
o Completion of the Stock Exchange Agreements referred to below under
Article 5.1 of this Addendum No. 1.
The conditions in this Article 3 shall all be fulfilled within 24
months from the execution of this Addendum No. 1, or otherwise this
Addendum No. 1 shall be null and void.
4. Consideration
In consideration of the waiver of the Rights as provided herein MSO
shall grant to each of Foss and Haugsoen warrants to purchase 125,000
(one hundred and twenty five thousand) shares of common stock of Marine
Shuttle Operations Inc at value 1 - one - U.S. Dollar per share. Such
Warrants are enclosed herewith as Exhibits 2 and 3, respective, and
shall be granted immediately only upon satisfaction of the conditions
defined in Article 3 hereof.
5. Various
5.1 The parties agree that the Stock Exchange Agreements entered into in
April, 1998 between Marine Shuttle Operations Inc. and respectively
Foss and Haugsoen shall be closed without any undue delay. In this
respect, Marine Shuttle Operations Inc. undertakes to take such
actions, hereunder submitting the appropriate letter of
2
<PAGE>
instructions to the Transfer Agent as to the names in which the share
certificates should be registered and where the certificates should be
sent. Additionally, Marine Shuttle Operations Inc. will cause a legal
opinion by counsel to be submitted to the Transfer Agent regarding the
issuance of the shares under applicable securities laws. Such actions
shall be taken by Marine Shuttle Operations Inc. no later than 10 days
following the execution of this Addendum No. 1, and Marine Shuttle
Operations Inc. further undertakes to use its best effort to insure the
diligent and timely completion of the stock exchange.
5.2 Foss and Haugsoen each agree that in connection with any future
underwritten public or private offering of Marine Shuttle Operations
Inc. common stock, upon request of Marine Shuttle Operations Inc. or
the principal underwriter managing such public offering, the shares of
common stock of Marine Shuttle Operations Inc. then held by each of
them may not be sold, offered for sale, or otherwise disposed of
without the prior written consent of Marine Shuttle Operations Inc. or
such underwriter, as the case may be, for a specific period, at least
90 days after the effectiveness of the registration statement filed in
connection with such offering (or such longer period of time as the
Marine Shuttle Operations Inc. Board of Directors may determine),
provided that all of the Company's executive officers (inclusive of
Directors and leading personnel) of Marine Shuttle Operations Inc. and
Marine Shuttle Operations AS, agree to be similarly bound. The
obligations under this Section shall remain effective for five (5)
years after the date hereof.
5.3 The parties agrees that this Addendum No. 1 shall be interpreted and
construed in accordance with the laws of The Kingdom of Norway.
***
This Addendum No. 1 has been executed in 4 - four - counterparts; one to each of
the parties and one to Marine Shuttle Operations Inc.
Oslo, Norway this ________ , 2000
Marine Shuttle Operations Inc.
- --------------------------- -------------------------------
Per Bull Haugsoen
Marine Shuttle Operations AS
- -------------------------- -------------------------------
Gunnar Foss
Enclosures
3
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