SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
Trinity Energy Resources, Inc.
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(Name of Small Business Issuer in its charter)
Nevada 87-0431497
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(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11757 Katy Freeway, Suite 1430, Houston, Texas 77079
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(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number (281) 589-7675
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Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
__________________________________ ____________________________________
__________________________________ ____________________________________
Securities to be registered under Section 12(g) of the Act:
Common Stock, Par Value $.001
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(Title of class)
Preferred Stock, Par Value $.001
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(Title of class)
1
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TABLE OF CONTENTS
PART I PAGE
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Item 1 Description of Business 3
Item 2 Management's Discussion and Analysis or Plan of Operation 8
Item 3 Description of Property 13
Item 4 Security Ownership of Certain Beneficial Owners and Management 20
Item 5 Directors, Executive Officers, Promoters and Control Persons 21
Item 6 Executive Compensation 22
Item 7 Certain Relationships and Related Transactions 24
Item 8 Description of Securities 24
PART II
Item 1 Market Price of and Dividends on the Registrant's Common Equity
and Other Shareholder Matters 26
Item 2 Legal Proceedings 26
Item 3 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 29
Item 4 Recent Sales of Unregistered Securities 29
Item 5 Indemnification of Directors and Officers 31
</TABLE>
FINANCIAL STATEMENTS
See attached Financial Statements for the fiscal years ended December 31, 1999
and 1998
2
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
ORGANIZATION/HISTORICAL BACKGROUND
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The Company was originally incorporated in Utah in 1986 as Celebrity Limousines
Ltd. In 1990 it was redomiciled in Nevada as Limousines Limited but in November
1990 it ceased operations. The Company was dormant until July 9, 1993. On that
date Sidney W. Sers exchanged certain oil and gas assets from his wholly-owned
Texas corporation for 18,275,036 shares and control of Limousines Limited. He
then changed the name of the Company to Trinity Gas Corporation. The Company
then developed the assets (with investor contributions) and has since conducted
oil and gas operations. During the period from July, 1993 to January 1998, Mr.
Sers served as Chairman of the Board, President and CEO.
In June, 1997 the Company retained the accounting firm of Samson Robbins &
Associates, P.L.L.C. to prepare audited financial statements for the fiscal year
ended December 31, 1996. The Company's purpose in obtaining the audit was to
qualify the Company as a reporting company under the Securities Exchange Act of
1934.
On October 6, 1997 Samson Robbins resigned, citing:
- that the Company's financial statements for the years 1993, 1994 and
1995 contained material misrepresentations;
- that Mr. Sers had misused the Company's funds;
- that the Company had disseminated highly inflated oil and gas reserve
data; and
- that significant amounts of the Company's stock had been issued and
sold using questionable exemptions.
The resignation of Samson Robbins motivated one of the Company's directors,
William W. Ruth, and its recently fired Vice-President of Investor Relations,
Richard E. Guillemin, to seek the advice of outside counsel. In turn, that led
to an investigation of the Company and Mr. Sers by the Securities and Exchange
Commission. On November 6, 1997 the SEC stopped trading in the Company's stock.
On December 8, 1997 the SEC filed an enforcement action against the Company, Mr.
Sers and others in the U.S. District Court. As a result of the SEC's action,
the Court froze certain liquid assets held by a Sers related group.
On December 9, 1997 Messrs. Ruth and Guillemin filed a shareholders' derivative
action against Mr. Sers and others.
On December 23, 1997, apparently in response to the SEC enforcement action and
to the shareholders' derivative action, Mr. Sers caused the Company to file a
Chapter 11 petition. The Chapter 11 proceeding was docketed to Case No.
697-60425-JCA-11 in the United States Bankruptcy Court for the Northern District
of Texas, San Angelo Division.
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On January 12, 1998 Mr. Sers resigned as a director of the Company. On January
16, 1998 the Judge in the SEC enforcement action ordered the arrest of Mr. Sers
for violation of the Court's freeze order.
On January 9, 1998 the Bankruptcy Court appointed a Chapter 11 Trustee who
effectively took control of the Company. On February 5, 1998 the Bankruptcy
Court appointed the Official Committee of Equityholders of Trinity Gas
Corporation. Mr. Dennis Hedke, now one of the Company's directors and its
Executive Vice-President and Chief Operating Officer, was appointed Chairman of
the Committee.
During 1998 the Committee recruited new management and with that management
developed a Plan of Reorganization. The Plan, as amended, was confirmed by the
Bankruptcy Court on October 26, 1998, and the Company emerged from Chapter 11.
Upon confirmation of the Plan, the Board of Directors engaged T.C. O'Dell to
become the new Chief Executive Officer and Chairman of the Board and Michael L.
Wallace to become the new President and Chief Operating Officer of Trinity Gas
Corporation. Although both men have since resigned, the Company is continuing to
pursue numerous opportunities. On an interim basis, Dennis E. Hedke has been
appointed President and Chief Executive Officer. Interested investors may
obtain a more detailed description in the Disclosure Statement for the Third
Amended Plan of Reorganization filed in the United States Bankruptcy Court for
the Northern District of Texas, San Angelo Division on July 27, 1998. That
document appears in the Exhibits to this Filing.
BUSINESS
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The Company is involved in various energy industry projects which relate
primarily to oil and gas exploration and development in both the United States
as well as international markets. The Company is also reviewing the potential
for involvement in energy product marketing and throughput management. The
Company currently operates oil and gas wells in Texas, Colorado and Wyoming and
has an interest in an international concession in the African Republic of Chad.
It is also reviewing potential involvement in various global exploratory and
development projects related to energy resources.
We currently operate one oil and gas well in Ward County, Texas. We also
operate 24 wells in Elbert County (Colorado) and 3 in Crook and Campbell
Counties (Wyoming) through our wholly owned subsidiary, Nova Energy,
Inc.("Nova"). Dissolution of Nova occurred in early January 2000. Certain
wells in the Company's inventory are currently non-productive. A comprehensive
listing of the Company's well inventory and individual well status is given in
Item 3 below. Due to low oil prices during late 1998 and continuing through
first quarter 1999, and limited capital resources, virtually no maintenance was
accomplished at any of these production facilities. Geological and engineering
evaluations are underway to determine where capital resources should be focused
to re-establish fundamental production levels and enhance production where
feasible to do so. Wells that fail to meet minimum internal rate of return
objectives will either be converted to service wells or plugged and abandoned
according to state specifications.
4
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If market conditions are favorable, the Company may sell certain of its
properties if it is believed we can transfer such interests profitably and in
such a way as to bring appropriate short, medium or long term benefit to
shareholders.
Historically, the Company had additional producing property interests in a 15
well oil and gas production facility in Brown County, Texas, which included the
properties known as the Smith, Smith A' and Smith C' leases. The internal
rate of return on these properties was not consistent with Company objectives
and the asset has been transferred to an unrealated entity that assume
operations as of January 28, 2000.
The Company also had an interest in a gas processing and sales facility in
Coleman County, Texas. Oil and gas leases related to this facility were the
Jamison and Skelton leases. That facility has been partly disassembled, some
assets were disposed of through a sale in 1998 and the property is subject to
final plugging and abandonment by Trinity. Final action regarding this property
is expected to occur in the first quarter 2000.
We also owned an interest in a Colombia, South America concession negotiated and
acquired by Sers through a wholly-owned foreign subsidiary, Trinity Gas
Colombia, Ltd. ("Trinity-Colombia"). Four exploratory wells were ultimately
drilled and none were successful. We ceased operations when the concession was
terminated by the government of Colombia due to non-performance. Sers had
contested ownership of Trinity-Colombia, and instead of pursuing court
proceedings in Colombia, the Company obtained a $3.1 million judgment against
Trinity-Colombia in the United States. We are still attempting collection of
this judgment.
We acquired an interest as operator in an international concession in Chad,
Africa on November 15, 1998, covering 108 million acres of unproved potential
reserves in three separate areas of the country. This acreage is considered
valuable because proved reserves are to be extracted by Exxon and others on
adjacent acreage, pending planned pipeline construction. On December 27, 1999,
we assigned this interest as a farmout to Cliveden Petroleum Company, Ltd.,
("Cliveden") because we lacked the substantial resources needed to maintain
and develop the concession. Under the Cliveden farmout, we are entitled to
sunk cost recovery of $1.5 million from concession revenues pro rata as Cliveden
recovers its own costs to develop, and we may also, if economic conditions
warrant, continue to participate with up to a 5% working interest ownership.
The Company will continue to pursue opportunities both domestically and
internationally where it can find appropriate rates of return for the
shareholders. The Company believes it can compete in both arenas,
notwithstanding the fact that international operations carry certain risks that
do not apply to domestic properties. The Company believes it can operate
efficiently in the domestic market and maintain interest positions in
non-operated properties where other operators have the requisite expertise to be
competitive in their operating areas.
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The Company is in the process of evaluating opportunities related to the
accumulation of interests in oil and gas leases and concessions in various
domestic and international projects. Upon the successful conclusion of such
acquisitions, the Company will engage itself in the marketing of such interests
to interested parties, with the ultimate intent of drilling exploratory and
development wells where geological and geophysical analyses support such
activity. It is also possible that certain projects under review may involve
other market opportunities where our staff or designated independent contractors
or consultants have qualified expertise, such as natural gas futures trading.
Careful risk analysis and comprehensive market research will precede commitments
to any such endeavor.
At the present time the Company has 5 full time employees and draws upon from 3
to 5 consultants and independent contractors to assist on temporary project
needs. In the recent past, the Company had as many as 8 full time employees and
was served by a group of as many as 11 consultants and independent contractors.
Competition
The energy business is highly competitive. The Company competes with companies
which in many cases have larger staffs and financial resources than those
currently available to the Company. Nonetheless, the Company believes that due
to its ability to focus attention on relevant and achievable objectives, it will
be successful in pursuing carefully selected opportunities fit for an
organization of our present size and structure.
Marketability
Crude Oil - The marketability of the Company's crude oil, natural gas and
natural gas liquids (NGL's) or condensate has not been a problem historically.
The current Colorado and Wyoming oil production is purchased and trucked by
Equiva Trading. Contract terms call for pricing according to the basis for
geographic area, adjustment for crude oil quality and then applying a bonus to
the prevailing field posted price at the time of field pickup. On December 9,
1999, the adjusted price was $23.00 per barrel; the $1.10 bonus appropriate to
our contract yielded a net sales price of $24.10 per barrel sold on that day.
Field pricing in Colorado generally runs fairly close to the West Texas
intermediate posted price.
The Company's Ward County, Texas crude oil production is purchased and trucked
by Sunoco, Inc and sold at the prevailing field price for West Texas
Intermediate, whereby our property type was designated as "active full rate",
subject to a "temporary marketing adjustment" deduction of $1.60 per barrel.
The present contract with Sunoco was initiated November 1, 1999 and extends
month to month, unless written notice of 30 days is given by either party to
terminate the agreement. An example of recent sales activity at the Hartwich
lease on November 23, 1999, showed a purchase price of $25.35 per barrel.
6
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Oil prices are volatile and subject to significant day-to-day variations. This
volatility is beyond the Company's control and includes the following factors:
political turmoil; domestic and foreign production levels; the Organization of
Petroleum Exporting Companies (OPEC)'s ability to adhere to production quotas;
and possible governmental control or regulation. At such time as the Company's
daily oil production volumes increase significantly, it may become possible to
negotiate better purchase prices at the wellhead. As the Company's daily
production volume increases it may also become desirable to enter into futures
contracts for purposes of hedging which can provide longer term stability for
the sales of our produced hydrocarbons.
Natural gas - The Company's natural gas production in Colorado is transported by
pipeline and purchased by North American Resources Company (NARCO). The
Company's natural gas production in Ward County, Texas was last purchased by
Dynegy, Inc. At the present time, no natural gas sales are occurring due to low
production volume.
Natural Gas Liquids - The Company's condensate production in Colorado is
gathered and purchased by NARCO. Condensate production has occurred at the
Hartwich lease in Ward County, Texas when production volumes are sufficient.
When such was last the case in 1998, the product was gathered and purchased by
Dynegy, Inc.
Contracts related to the sales of natural gas and natural gas liquids in
Colorado are currently under review and are expected to be renegotiated pending
these reviews. Contract terms with Dynegy are also under review and are
expected to be renegotiated.
Business Risks
Oil and gas exploration and development drilling involves significant risk.
Exploration drilling involves the high risk drilling of wells in regions not
known to be commercially productive. Oil and gas development drilling involves
less risk, but still has a significant level of uncertainty associated with
drilling and completing oil or gas wells. Development drilling involves the
drilling of wells in areas believed to be in a high probability of petroleum
reservoir accumulation. Methods can be employed, such as three-dimensional
seismic data coverage within the Company's acreage positions, to mitigate risk,
in both exploratory and development drilling situations. It is likely that the
Company will undertake various geophysical techniques to mitigate drilling risks
in advance of contracting for the drilling of new exploratory or development
locations.
There are other risks associated with the drilling, completion, and producing of
oil and gas reservoirs. Unusual or unexpected subsurface formations or
excessive reservoir pressure are among issues that may occur during exploration
and development activities. When operating in remote locations it is also
possible that a shortage of drilling rigs, supporting materials such as casing,
drilling mud and other services necessary in the drilling and completion of oil
and gas wells may become temporarily unavailable. In contracting for such
services the Company will make every effort to mitigate or eliminate such risks,
but no assurance can be given that the Company can avoid such circumstances.
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Governmental regulation is a significant business risk of an oil and gas
company. Both domestically and internationally, new regulations promulgated
subsequent to the startup of operations in any given area may substantially
impact the economics of a project. The Company attempts to quantify these risks
to the best of its ability, but political climates and regulatory bodies are
difficult to predict. Domestically, the Company is subject to local, state and
federal laws which have an increasingly larger impact on the conduct of
business. Some of the federal laws that the Company is subject to include the
Clean Air Act, the Clean Water Act and the Endangered Species Act.
The Company may incur losses due to environmental hazards against which it
cannot insure or which it elects not to insure against because of high premium
costs or other reasons. Consequently, substantial uninsured liabilities to
third parties may arise, the payment of which could result in significant loss
to the Company. We are not currently aware of any unrecorded environmental
remediation liabilities at this time.
Environmental regulation and taxes imposed by state governments also impose
significant burdens on operations. These burdens can render uneconomic certain
properties which could have continued producing hydrocarbons had the regulations
not been imposed. The Company is vigilant in its assessment of these burdens
and the impact such regulations and taxes have on its internal rate of return.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
We entered bankruptcy on December 23, 1997. Our Plan of Reorganization was
approved October 26, 1998, and we expect to emerge from bankruptcy in February
2000. During this period, we have been under Court supervision with most of our
cash held by the Court or various trustees for payment of bankruptcy-related
legal and other costs. Only limited cash has been available to us for
operations.
We claim that Sers stole millions in assets from us during 1993 through January
1998. Court proceedings resulted in our recovering $4.3 million in cash, and an
additional judgment against Sers for $4.8 million is pending execution.
However, the bankruptcy cost us $2.3 million out-of-pocket legal and other costs
during 1998 and 1999, and preoccupied management. The producing wells were
allowed to languish and few opportunities were explored during this time.
Operating losses, net of revenues and before bankruptcy costs, were $2,010,069
and $365,166 in 1999 and 1998, respectively. The increase was due to general
and administrative costs associated with our effort to quickly ramp up
operations by establishing an infrastructure to manage various projects we
wanted to become involved in. Our new management team is trying to reduce
general and administrative expenses for 2000 to $1.2 million, while exploring
opportunities more in line with our current limited resources.
8
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We had little in the way of operations in 1998, but a bankruptcy court trustee
managed to expend over $600,000 in a very short period of time, primarily in
legal fees. Our bankruptcy counsel assisted us in preparing our Disclosure
Statement and Third Amended Plan of Reorganization. Only minimal well operating
and maintenance expenses were paid in 1998, and Company replacement management
didn't begin revival efforts until November, 1998. Our Brownwood, Texas
corporate office was shut down and moved to Houston, where recent and current
management resides. All non-operating assets existing at the bankruptcy filing
were sold for $51,455 in total during 1999 and 1998.
We utilized three methods in 1999 to raise capital for our operations, all of
which were approved by the bankruptcy court. We issued short term notes
payable with maturities of mainly 6 months, with 15% interest, netting
$1,057,721, We issued redeemable preferred stock with maturity of 1 year, with a
12% dividend, netting $1,267,500. We sold 1,705,391 shares of our Common
Stock to our existing shareholders, and netted $370,628, after $54,015 in
issuance costs.
These monies funded net operating activities in 1999 of $1,043,134, Chad
acquisition and development costs of $1,120,228, the purchase of office
furniture and equipment for $156,816, and $48,747 investigating an electricity
generation and marketing project in Costa Rica. The balance of cash raised by
the issuance of stock and notes payable during 1999 was used to pay various
bankruptcy-related costs not paid by the trustee or our bankruptcy law firm from
cash collected from Sers during 1998 and 1999.
Collections from Sers have been segregated and kept from our use until January
14, 2000, when we received a wire transfer for $2,570,184 from our bankruptcy
law firm, which is still reserving $499,668 to pay accumulated but unpaid legal
and other bankruptcy-related costs incurred in 1998 and 1999.
LIQUIDITY AND CAPITAL RESOURCES
There are several factors that will impact our liquidity during the next 12
months. Redeemable preferred stock of $1,617,500, notes payable of $707,721, and
pre-petition allowed claims, current accounts payable and accrued expenses of
$1,390,197 are all due and payable.
We owe the Internal Revenue Service $213,564 in unpaid payroll and income taxes
and related penalties for failure to file returns covering these taxes from 1993
to 1996. We believe we may still get this judgment voided, but if we have to pay
all of this amount, only $35,594 is due in 2000, with the balance due in 5
remaining annual installments. The $35,594 was included in the prior listing of
currently-due accounts payable and accrued expenses.
We have several pending or threatened lawsuits against us. Ron Lemon, a former
employee, sued us for breach of an alleged employment contract. Rudy Olschewski
threatened a lawsuit related to an alleged promise to reimburse his prior cost
on the Costa Rica project. We have a possible dispute
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concerning a $500,000 contingent sunk cost reimbursement, originally agreed to
be owed to Carlton Energy Group, LLC, subject to Trinity's review and approval
of such costs. Carlton Energy Group's chairman, our former CEO, T.C. O'Dell,
promised to forgive this obligation prior to the Chad farmout to Cliveden. The
document relating this agreement has not yet been received in writing from
O'Dell. We might have to pay something to settle these claims, but we feel we
owe nothing on them.
We owe $463,177 to 5 employees and $109,500 to 3 consultants during 2000
according to contracts we signed in 1999. In addition, we are still liable for
$182,076 in office rent during 2000. We are currently trying to renegotiate
several of these obligations.
The above obligations are substantial and daunting. However, we have a number
of opportunities available to us in 2000 to enable us to meet these obligations
and more.
We have 29 wells, most of which need varying amounts of workover investment to
sharply raise their current saleable output. In addition, certain of our oil
and gas leases are indicated to have potential for additional development
drilling. We have spent considerable time studying this in-house opportunity and
currently estimate our workover and development drilling investment could be up
to $1,436,000 in 2000. If made immediately, and if our estimated recovery
occurs, our year 2000 income net of lease operating expenses, would be
$2,175,000. However, key assumptions in this analysis are still being assessed,
and we don't yet know how much of this investment we will make. Various third
parties have also expressed interest in participating in some of these wells.
We are also seeking immediate cash flow generating opportunities with manageable
risk in both the domestic and international oil and gas exploration, development
and recovery areas.
We have an unrecovered judgment remaining against Sers for $4.8 million.
Several other possible lawsuits against other parties are pending our continued
review as to their feasibility. We might collect some of this in 2000.
We are planning additional fundraising efforts, to expand our capital budget
for 2000. These efforts can include additional stock and debt. We believe that
we can finish the year 2000 with a healthier balance sheet, all of the
bankruptcy claims forever behind us, and an active trading stock.
1997, 1998, 1999 DOMESTIC OIL, GAS AND CONDENSATE PRODUCTION STATISTICS:
Oil and gas production at various Company properties in the states of
Texas, Colorado and Wyoming is summarized as follows:
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1999 1998 1997
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Average Sales Price per Barrel of Oil $ 16.81 $10.82 $17.86
Average Sales Price per MCF of Gas $ 1.795 $1.378 $1.418
Average Production (Lifting) Cost
per Barrel Oil Equivalent $14.53(#) $10.22 $ 9.14
(#) The excessive unit lifting costs for 1999 are primarily related to an event
in the attempt to restore production at one of the Nova Wyoming properties. This
event occurred prior to Trinity's taking effective control of Nova operations.
Excepting this singular event in, lifting costs for 1999 would have been $7.11
per barrel. The Company's target for lifting costs in these properties is to be
below $5.00 per barrel by yearend 2000.
Lifting costs in 1998 were largely impaired by the then controlling Trustee who
expended significant capital toward virtually non-productive Texas assets.
Exclusive of this activity, lifting costs would have been $8.70 per barrel.
Productive Wells* Oil Gas
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Gross 29 26
Net 24.737 22.022
* Not all wells that can produce are currently producing. See Item 3.
All but three wells in the inventory produce both oil and gas.
Developed and Undeveloped Acreage:
Developed Acreage Gross 3720 acres
Net 3173 acres
Undeveloped Acreage Gross 640 acres
Net 338 acres
Drilling Activity 1999: None
Present Activity:
All properties are under review for potential workover activity. Wells that
demonstrate economic justification for such action will receive capital
attention in 2000. The Hartwich #1 is under progressive workover, beginning
November 1999. Pending final results of this workover, the potential exists for
the drilling of at least one or more offsets to this well. Other leases in the
Company's inventory also have potential for development drilling. See Item 3.
At the time of this writing, workover equipment was on location in Elbert
County, Colorado on behalf of the Company and making progress toward
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recompletion of various wells in our Comanche Creek / Deadeye field properties.
We have identified approximately seven wells that will undergo immediate
maintenance procedures. Pending results related to this effort, additional
wells may receive near term attention.
<TABLE>
<CAPTION>
Texas Property - Quito West Field, Hartwich lease, Ward County
(Unaudited)
1999 1998 1997
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Oil Production (BBLS) 0 0 841
Gas Production (MCF) 0 0 1,833
Colorado Property - Comanche Creek / Deadeye Fields, Elbert County
1999 1998 1997
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Oil Production (BBLS) 1,942 6,279 7,657
Gas Production (MCF) 6,382 24,537 32,907
Wyoming Property 1 - Davis Federal Lease, Campbell County
1999 1998 1997
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Oil Production (BBLS) 1,059 0 1,471
Wyoming Property 2 - Carey Federal Lease, Crook County
1999 1998 1997
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Oil Production (BBLS) 0 941 783
Wyoming Property 3 - Wood Field, Crook County
1999 1998 1997
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Oil Production (BBLS) 1,688 1,826 1,963
Total Oil Production(BBLS) 4,689 9,046 12,715
Total Gas Production (MCF) 5,993 24,537 34,740
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Overall Field Operations - Domestic:
(Consolidated Trinity & Nova) 1999 1998 1997
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Revenues from Oil and Gas Production $ 78,382 $ 82,786 $326,316
Lease Operating Costs 108,663 150,083 169,254
Federal, State And Local Taxes 7,283 15,265 29,316
Depletion 11,985 27,367 38,839
Total Cost of Field Operations 127,931 192,715 237,409
Net Income (Loss) from Field Operations (49,549) (111,977) 88,907
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</TABLE>
ITEM 3. DESCRIPTION OF PROPERTY
The Company owns an interest in various oil and gas wells in Colorado, Wyoming
and Texas. Some wells in the Company's inventory are currently non-productive
due to lack of maintenance and capital resources over the course of the past two
years. At the present time, all properties are under review as to economic
producibility and justification for workover processes. The following table
summarizes all proven developed producing (PDP) and proven developed
non-producing properties (PDNP) in the Company's inventory, as of December 31,
1999:
<TABLE>
<CAPTION>
Lease / Well Name Field / State Status Working Net Revenue
Interest Interest
<S> <C> <C> <C> <C>
Hartwich 1* Quito West/TX PDP 1.000 .750
Wood 14-1* Wood/WY PDP 1.000 .8550
Davis Federal 24-33* Heath / WY PDP 1.000 .902624
Carey Federal 2* Gas Draw/WY PDNP 1.000 .9570
Amoco E' 469-1* Comanche Creek/CO PDP 1.000 .8200
Amoco E' 469-2* Comanche Creek PDP 1.000 .8200
Amoco E' 469-4* Comanche Creek PDP 1.000 .8200
Amoco E' 469-5# Comanche Creek PDNP 1.000 .8200
Whitehead 4-11* Deadeye/CO PDP 0.706015 .616697
Whitehead 4-13* Deadeye PDP 1.000 .873934
Whitehead 8-9# Deadeye PDNP 1.000 .8747
Whitehead 8-15* Deadeye PDNP 1.000 .8747
Whitehead 12-1# Deadeye PDNP 1.000 .8750
Whitehead 12-7* Deadeye PDNP 1.000 .8750
Whitehead 12-16* Deadeye PDNP 1.000 .8750
Whitehead 18-04* Deadeye PDNP 1.000 .8739
Hay 4-5* Deadeye PDNP 1.000 .8600
Miller 6-7^ Comanche Creek PDNP 1.000 .8500
Miller 6-9^ Comanche Creek PDNP 1.000 .8500
Miller 6-11* Comanche Creek PDNP 1.000 .8500
Miller 6-15^ Comanche Creek PDNP 1.000 .8500
Morris 13-4* Comanche Creek PDNP 1.000 .8744
Morris 13-8^ Comanche Creek PDNP 1.000 .8744
Morris 14-8^ Comanche Creek PDNP 1.000 .8744
Morris 24-4* Comanche Creek PDNP 1.000 .8744
Morris 24-12^ Comanche Creek PDNP 1.000 .8744
Sarti 24-2* Comanche Creek PDNP 1.000 .8739
Sarti 24-6^ Comanche Creek PDNP 1.000 .8739
Sarti 24-10* Comanche Creek PDNP 1.000 .8739
<FN>
In the context of the above table, the following explanatory notes apply:
* Wells that have been included in calculating oil and gas reserves
^ Wells that have potential to be included in reserve base, pending further testing
# Wells that have been preliminarily identified for plugging and abandonment
</TABLE>
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Existing Domestic Production Interests
The Company is addressing opportunities for workover and/or development
drilling on the Hartwich lease in Ward County, where both oil and gas can be
produced and sold to a local gathering system. Engineering and geologic due
diligence reviews are underway to determine the most appropriate options for our
long term interests in this property. A detailed description of objectives in
this lease appear below.
In addition to the above, Trinity entered into an agreement in 1996 where
Trinity would effectively absorb the assets of a Casper, Wyoming based company
named Nova Energy, Inc.' The properties are located in Campbell and Crook
Counties, Wyoming and Elbert County, Colorado and are more fully described in a
section below.
Texas Property
The Company is in the process of divesting itself of a non-producing asset,
consisting of property located in Brown County, Texas, by virtue of assignment
of its "Smith" leases within the Brown County Regular Field to H & W Marketing
Company, Abilene, Texas, an unrelated company. The transaction became effective
on January 28, 2000. The transaction includes the assumption by H&W Marketing
Company of the plugging liability of 15 wells which at one time produced, and
which still may produce from the Cross-Cut Sand at approximately 1200 feet below
ground surface.
The Company is in the process of closing down operations on a non-producing
property in Coleman County, Texas where at one time natural gas was produced in
conjunction with the operation of a nitrex plant. Trinity will be plugging 19
wellbores in the "Jamison" and "Skelton"lease areas within the Coleman County
Regular and Jamison South Fields.
Delaware Basin of Greater Permian Basin Ward County,Texas
Quito West Field
Hartwich No. 1
640 acres gross, 320 acres net on 40-acre checkerboard
75% Net Revenue Interest / 100% Working Interest
A well originally drilled in 1972 and completed by Pennzoil in January, 1973,
has potential value as a workover candidate. Original total depth (TD) for the
well was 17,500 feet, with original completion accomplished in the Fusselman'
zone, flowing approximately 2.08 Billion cubic feet gas (BCFG), with no reported
water production, in about one and a half years before abandonment for unknown
reasons. Downhole complications or rapid water encroachment are suspected.
Pennzoil then moved uphole in 1975 to produce from the Delaware' at about 4850
feet, eventually producing about 7,500 barrels oil (BO), prior to abandonment of
that zone in 1977. At the time of abandonment, the well was producing 5.0
15
<PAGE>
barrels oil per day (BOPD), 11 thousand cubic feet gas per day (MCFGD) and 7.5
barrels water per day (BWPD). This zone is considered as a potential and
inexpensive re-entry candidate. Based on other nearby Delaware producing wells,
the zone could yield a minimum of 20,000 barrels (BBLS) additional primary
production. It is conservatively estimated that payout of such a workover
would range from three to six months.
In 1978 Pennzoil closed off Delaware perforations to move back downhole to
address what were then termed Wolfcamp' sand zones. Production was established
over a depth range of 10,605 to 10,786 feet. Recompletion of this zone involved
a small and, by today's standards, probably inadequate hydraulic fracture (frac)
stimulation which included the placement of 40,000 lbs sand acting as fracture
proppant (opening) material into hydraulically created fractures in the
producing formation. Initial production flowing from the zone was 22 BOPD, 66
MCFGD and 16 BWPD, from what we now know to be the Bone Spring' zone. The well
was eventually shut-in from about 1987-1990. Trinity (then Jubilee) attempted
to re-establish production, but has never had economic production from the zone.
We are currently underway with preliminary production testing to determine our
next steps toward recompletion.
Nearby and in the recent past, operators such as Enron, Pioneer Resources and
others have been successful in applying new technologies to better address the
relatively low natural permeability of the Bone Spring sands. Initial
production rates as high as 800 BOPD have been reported, with rates of 250 BOPD
not uncommon in wells placed in geologically appropriate locations. These new
generation fracs are designed to pump up to 200,000 lbs sand into as many as
five separate sand bodies. Recent estimates for the typical stimulation
procedure, including workover rig and all service company facilities are about
$125,000- $150,000.
Depending on initial production rates, the Company anticipates the procedure
should payout in from one to three months. Some nearby wells in the trend have
yielded cumulative production of over 200,000 BO (and over 0.25 BCFG) in less
than 2 years. Wireline log calculations and all pertinent geological indicators
are favorable for this re-entry. If successful, the drilling of additional
proved undeveloped locations would be warranted.
Colorado Properties
Denver Basin Elbert County, Colorado
Comanche Creek & Deadeye Fields
Acreage Block: 3,560 acres
Working Interest / Net Revenue Interest: 100% to 70.6% / 87.5% to 61.66%
Total wells drilled and completed: 24
Total wells currently producing: 3
16
<PAGE>
Producing zone @ Depth: D' & J' Sands, Cretaceous Muddy @
7500-7800 ft
Current Daily Production / Potential: 2 BOPD + 10 MCFGD / 45 BOPD + 200 MCFGD
The potential daily production indicated above should result from the judicious
application of workover funding fieldwide. The theoretical production of about
78 BOPD equivalent (natural gas energy equivalent is generally taken as 6 MCF
per barrel) would result in annual operating revenues of about $450,000,
assuming an average oil price of $22/bbl and fieldwide net revenue interest of
85%.
The increased revenue would bring back into production certain wells which are
currently shut-in, or simply down for nominal repairs. Operating expenses will
increase with these reconditioned facilities, but the property will become
profitable. Production characteristics will be monitored carefully to insure
that profit margins meet or exceed our internal requirements.
Secondary Recovery Potential
Consideration is being given to the feasibility of either a secondary recovery
effort which could involve either a waterflood or a carbon dioxide (CO2) flood
to recover additional reserves from this reservoir. To the extent of our
current knowledge, no part of the Comanche Creek / Deadeye complex has been the
subject of any type of secondary recovery pilot. The nature of sand body
distribution, porosity, permeability and other factors lead us to conclude that
the matter deserves further attention. It is possible that fieldwide in excess
of 2 million barrels oil MMBO and 2 BCFG gas could be recoverable through
secondary recovery methods. Given that the reservoir has largely been
gas-depletion driven throughout it's history, it would seem more amenable to CO2
flooding; however, this method may be cost prohibitive due to transportation
costs and other factors which have not been fully examined.
- --------------------------------------------------------------------------------
Wyoming Properties - Powder River Basin
Crook County, Wyoming Wood 14-1
Net acreage: 40 acres
Working Interest / Net Revenue Interest 100% / 85.5%
Wells producing: 1
Producing Zone @ Depth Cretaceous Dakota @ 5580 ft
Current Daily Production / Potential 5.5 BOPD / 5.5 BOPD
Development Potential: None indicated at this time.
Crook County, Wyoming 2 Carey Federal
Net Acreage: 80 acres
Working Interest / Net Revenue Interest: 100% / 95.7%, Production level
dependent
Wells producing: 1
Producing Zone @ Depth: Cretaceous Muddy @ 7300 ft
Current Daily Production / Potential: 0 BOPD / 3.0 BOPD (down for repairs)
Development Potential: Subsurface mapping supports the drilling of one
additional well, a direct offset east of the currently producing well. Such a
well should encounter structurally and stratigraphically advantageous conditions
compared to 2 Carey Federal. Reserves associated with this location should
exceed 125,000 BO. Feasibility studies relating to this potential are underway.
17
<PAGE>
DOMESTIC OIL AND GAS PROPERTY RESERVES
The future income related to the current oil and gas producing property
inventory is summarized in the following table:
<TABLE>
<CAPTION>
Net Reserves Net Revenues
Category Oil Gas Total NPV @10%
(Barrels) (MCF) Discount
<S> <C> <C> <C> <C>
Proved Developed
Producing 170,784 302,456 $2,979,531 $ 1,742,268
Non-Producing 83,475 315,637 $1,123,275 $ 606,342
--------- -------- ---------- -----------
Total Proved Developed 254,259 618,093 $4,102,806 $ 2,348,610
Proved Undeveloped 270,488 206,732 $4,914,723 $ 2,539,708
Total Proven Reserves 524,747 824,825 $9,017,529 $ 4,888,318
</TABLE>
Regarding the table above, the following definitions apply:
Proved oil and gas reserves are the estimated quantities of crude oil,
natural gas, and natural gas liquids which geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions. Proved
reserves are limited to those quantities of oil and gas which can be expected,
with little doubt, to be recoverable commercially at current prices and costs,
under existing regulatory practices and with existing conventional equipment and
operating methods.
Proved developed producing reserves are those reserves which can be expected to
be recovered from existing completion intervals now open for production in those
wells.
Proved developed non-producing reserves are:
(1) those reserves expected to be produced from existing completion
intervals in existing wells, but due to pending pipeline connections
or other mechanical or contractual requirements, hydrocarbon sales
have not yet commenced, and
(2) other non-producing reserves which exist behind the casing of existing
wells, or at minor depths below the present bottom of such wells,
which are expected to be produced through these wells in the
predictable future, where cost of making such oil and gas available
for production should be relatively small compared to the cost of
a new well.
Proved undeveloped reserves are those reserves which are expected to be
recovered from new wells on undrilled acreage or from existing wells where a
relatively major expenditure is required for recompletion. Proved reserves on
undrilled acreage are limited to those drilling units offsetting productive
units that are reasonably certain of production when drilled.
18
<PAGE>
International Initiatives
Republic of Chad:
Trinity entered into an agreement with Oriental Energy Resources, Ltd. and
Carlton Energy Group in November 1998 wherein Trinity would become 100% working
interest owner and Operator of a 108 million acre concession in the Republic of
Chad. The Chadian Ministry of Petroleum approved a Convention Agreement in
February 1999 which specified work obligations and commitments into the future.
While the project was attractive for a number of reasons, it was, from its
inception, agreed that outside party assistance would be required in order to
satisfy all ongoing obligations associated with the project. Substantial
efforts were applied by Trinity toward the goal of establishing industry
partnerships to advance the project. Eventually, a Farmout Option Agreement was
entered into between Trinity and Cliveden Petroleum Company, Ltd. ("Cliveden")
on May 5, 1999.
Our ability to market the project was significantly linked to the
expectation of the Chad Export Pipeline being approved by the World Bank as
early as September, 1999. As of the date of this report the approval has not
yet been rendered. In mid-November, Royal Dutch Shell's Chad affiliate and Elf
Aquitaine's Chad affiliate, both partners with a Consortium leading Exxon Chad
affiliate, appeared to be withdrawing their position in the pipeline project.
Confirmation and explanation of this apparent withdrawal have yet to be
announced. Nonetheless, the current makeup of the Exxon-led Consortium remains
unresolved. Given the uncertainty in the pipeline issue and economic factors,
Trinity redefined its goals as to its future position in the project.
19
<PAGE>
Trinity has entered into a Farmout Agreement with Cliveden, an unrelated
British Virgin Islands corporation, whereby Cliveden will be responsible for
funding all ongoing operations, including all exploration, drilling and
completion expenditures. This obligation includes the maintenance and
operation of the N'Djamena, Chad office opened by Trinity in June, 1999. In
exchange for this assumption of our funding and management obligations, we
anticipate receiving payment of $1.5 million pro rata with Cliveden's own
development costs, and an opportunity to participate for up to a 5% working
interest in the project after payout. The farmout agreement is pending final
approval by the Chad government.
Potential Involvement in Angola Offshore Block 6
By virtue of its relationship with Carlton Energy Group, LLC.("Carlton"),
Trinity was invited to participate for a variable interest of up to 35% in an
offshore Production Sharing Agreement, wherein Carlton Energy was charged with
assembling a Consortium for exploration of said Block. As of the date of this
document, Carlton has not been successful in presenting its plan for Consortium
action to Sonangol, the State Oil Company of Angola. By virtue of continuing
agreement clauses with Carlton, Trinity believes it has preferential rights
which may result in an ultimate position in the project. Trinity's Board was
awaiting additional information from Carlton when an agreement between the
parties expired on December 31, 1999. However, such termination date shall be
extended indefinitely as long as actual negotiations on Block 6 between the
Government of Angola (Sonangol) and Carlton Energy Group, LLC are continuing.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of January 19, 2000, information regarding
the beneficial ownership of shares of Common Stock by each person known by us to
own five percent or more of the outstanding shares of Common Stock, by each of
our Officers, by each of our Directors, and by our Officers and Directors as a
group. On December 31, 1999 there were 63,430,454 shares issued and outstanding
of record.
<TABLE>
<CAPTION>
SHARES OF PERCENTAGE
NAME & ADDRESS OF COMMON AS OF
BENEFICIAL OWNERS STOCK DECEMBER 31, 1999
- ------------------------------------- -------------- ------------------
<S> <C> <C>
Dennis E. Hedke 95,000(2,3) .1%
2002 S. Mason Road, Apt. 1311
Katy, TX 77450
Arthur C. Teichgraeber 875,000(3) 1.3%
3650 Piping Rock
Houston, TX 77027
Bruce A. Reichert 65,000(3) .1%
2703 McKeever Road
Rosharon, TX 77583
John W. Mahoney 0 0
15030 Cypress Falls Drive
Cypress, TX 77429
James E. Gallien, Jr. 0 0
4403 Adonis
Spring, TX 77373
All Executive Officers and Directors
as a group (5 persons) 1,031,000 1.6%
<FN>
- -------------------------------
(1) Based upon 63,430,454 shares issued and outstanding on December 31, 1999
without giving effect to the possible conversion of the 161,750 shares of
Preferred Stock issued and outstanding which if fully converted would result in
the issuance of 6,470,000 additional shares of Common Stock
(2) Mr. Hedke disclaims any beneficial interest in the shares owned by his
father (10,000 shares) or by his brothers (6,000 shares and 4,000 shares,
respectively) or his two children (100 shares each).
(3) Does not include options to purchase an additional 65,000 shares at $.75 per
share, being issued for services as a director.
</TABLE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Dennis E. Hedke 47 Exec. Vice-President, COO, Director
(Interim President, CEO)
Arthur C. Teichgraeber 43 Director
Bruce A. Reichert 42 Director
John W. Mahoney 45 Vice-President, Secretary, General Counsel
James E. Gallien, Jr. 52 Exec. Vice-President, CFO, Director
</TABLE>
The terms of office for the current members of the Board of Directors, excepting
James E. Gallien, Jr. commenced on October 27, 1998, upon confirmation by the
Bankruptcy Court of the Plan of Reorganization. Their terms are for a period of
one year or until their successors are duly elected and qualified. James E.
Gallien, Jr. was elected to the Board on October 27, 1999.
20
<PAGE>
At present, the Board of Directors has an Audit Committee, and Executive
Compensation Committee and a Strategic Planning Committee. The Audit Committee
consists of Messrs. Gallien, Teichgraeber and Reichert (Chairman). The
Executive Compensation Committee consists of Messrs. Teichgraeber (Chairman)
Reichert and Hedke. The Strategic Planning Committee consists of Messrs.
Teichgraeber (Chairman) and Hedke.
Biographies for the directors and significant employees are:
DENNIS E. HEDKE has, since 1986, served as an oil and gas exploration consultant
to a variety of regional firms engaged in domestic and foreign exploration and
development. His assignments have included projects in the Middle East, the
former Soviet Union, West Coast Africa, and Colombia, South America. His
responsibilities have covered deal structuring and negotiation, technical data
assessment, and economic assessment. Mr. Hedke was graduated in 1976, with a
B.S. in Geophysics, from Kansas State University and then received an M.S. in
Material Science from the University of Virginia in 1979.
A.C. TEICHGRAEBER received a degree in Production Management Engineering
Technology from Kansas State University in 1978. He is currently President and
Chief Executive Officer of Oil Quip, Inc., Houston, Texas. Immediately prior to
his present involvement, he had been President and Chief Operating Officer of
the Drilling Equipment Division of IRI International Corporation, with
responsibility for worldwide sales and manufacturing activities. From 1989 to
1997 he was President and Chief Executive Officer of Cardwell International,
Ltd., in charge of purchasing technology and licenses to manufacture the line of
Cardwell drilling, workover and well servicing rigs.
BRUCE A. REICHERT has been Vice President of Engineering for Input/Output, Inc.,
a manufacturer of equipment used in the seismic exploration for oil and gas,
where he is responsible for the development of new products while improving
existing products, since January, 1998. Before that he was an Associate
Professor of Mechanical Engineering at Kansas State University from October,
1994 to January, 1998. From May, 1989 to October, 1994 Dr. Reichert was a
Research Engineer at the NASA Lewis Research Center. Dr. Reichert was graduated
from the U.S. Naval Academy in May, 1979 with a B.S. in Mechanical Engineering.
He also holds both a Masters Degree (1987) and a PhD (1991) in Mechanical
Engineering from Iowa State University.
JOHN W. MAHONEY was associated with the law firm of Williams, Birnberg &
Andersen LLP in Houston, Texas from January, 1996 to July, 1999. Before that he
was associated with the Houston law firm of Hofheinz, Mahoney & Jones from 1993
to December, 1995. Mr. Mahoney is a 1976 graduate of Central Missouri State
University and received his J.D. from the College of Law of the University of
Tulsa in May, 1979.
JAMES E. GALLIEN, JR. is a Certified Public Accountant since 1975. After he was
graduated by Louisiana State University in 1970 with a B.S. in Finance, Jim was
in the armed forces until 1972 and then held accounting jobs until 1980. In
1980 he opened his own accounting practice which he continued until 1998. He
was CFO of Winn Fuel Systems, Inc. from January,1998 until June 30, 1999, when
he joined us.
21
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION
COMPENSATION OF MANAGEMENT - EMPLOYMENT AGREEMENTS
- -------------------------------------------------------
The Plan of Reorganization as approved by the Bankruptcy Court authorized the
execution of three-year employment agreements with Messrs. O'Dell and Wallace,
with terms consistent with those set forth in the Plan. Both employment
relationships have been terminated. Mr. Wallace resigned as President on August
24, 1999 and his Employment Agreement was replaced with a one year consulting
agreement, calling for monthly payments of $10,000 and providing for 3,000,000
stock options each exercisable for five years after vesting to purchase one
share of our Common Stock, which vest and have exercise prices as follows:
(i) one third after the nine month anniversary of the confirmation of the
Plan of Reorganization at an exercise price of $ .25 per share; and
(ii) one third after the fifteen month anniversary of the confirmation of
the Plan of Reorganization at an exercise price of $ .25 per share; and
(iii) one third upon the termination of the consulting agreement at an
exercise price of $1.50 per share.
Mr. O'Dell resigned on January 25, 2000. As part of the settlement reached with
the Company, he will receive 3,250,000 stock options, exercisable for two years
from the date of resignation to purchase one share of our Common Stock per
option at a price of $ .25 per share.
On July 1, 1999 we entered into an Employment Agreement with Mr. Mahoney. The
term of the Agreement is for two years, the salary due is $10,000 per month,
there are standard fringe benefits including a $667.00 per month car allowance,
and Mr. Mahoney received 999,000 stock options, each exercisable for a term of
five years after vesting to purchase one share of our Common Stock, which vest
and have exercise prices as follows:
(i) one third after the first anniversary of employment at $ .25 per
share; and
(ii) one third after the second anniversary of employment at a price per
share of 30% under the average of the last five trading days prior to the second
anniversary; and
(iii) one third after the second anniversary of the confirmation of the
Plan of Reorganization at a price per share of 30% under the average of the last
five trading days prior to such second anniversary.
22
<PAGE>
On September 1, 1999 we entered into an Employment Agreement with Mr. Hedke.
The term of the Agreement is for three years, the salary due is $10,000 per
month, there are standard fringe benefits, there is an agreement to pay Mr.
Hedke's relocation expenses from Kansas including temporary storage of his
personal effects until he establishes a permanent residence, and Mr. Hedke
received 1,000,000 stock options, each exercisable for a term of five years
after vesting to purchase one share of our Common Stock, which vest and have
exercise prices as follows:
(i) one third after the first anniversary of employment at $ .25 per
share; and
(ii) one third after the eighteen month anniversary of employment at a
price per share of 30% under the average of the last five trading days prior to
such anniversary; and
(iii) one third after the second anniversary of employment at a price per
share of 30% under the average of the last five trading days prior to such
second anniversary.
Also on September 1, 1999 we entered into an Employment Agreement with Mr.
Gallien. The term of the Agreement is for three years, the salary due is
$10,000 per month, there are standard fringe benefits, and Mr.Gallien received
1,000,000 stock options, each exercisable for a term of five years after vesting
to purchase one share of our Common Stock, which vest and have exercise prices
as follows:
(i) one third after the first anniversary of employment at $ .25 per
share; and
(ii) one third after the eighteen month anniversary of employment at a
price per share of 30% under the average of the last five trading days prior to
such anniversary; and
(iii) one third after the second anniversary of employment at a price per
share of 30% under the average of the last five trading days prior to such
second anniversary.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Following his retirement from Conoco Overseas Oil Company, Thomas C. O'Dell
organized Carlton Energy Group, LLC., of which he is the Chairman and Managing
Director, to pursue energy sector investments worldwide. He was approached by
members of the Shareholders' Committee in the Chapter 11 proceeding and agreed
to assume a management role in the Company. Until his resignation on January
25, 2000, he was Chairman, President and Chief Executive Officer of the Company.
On behalf of Carlton Energy Group, LLC. he has been seeking out and negotiating
oil and gas exploration, development and production contracts. Under his
employment agreement, now terminated, he had agreed to assign such contracts to
us, or to permit us to participate in consortiums which are pursuing or
exploiting such contracts. The current Chad Concession contracts are the result
of such arrangement.
ITEM 8. DESCRIPTION OF SECURITIES
At a Special Meeting of our Stockholders held on March 17, 1999, our capital
structure was changed. Our new capital structure consists of shares of
Preferred Stock and Common Stock, both having a par value of $.001 per share.
The authorized classes, and the amount or number of each which are authorized
and outstanding as of January 18, 2000, are as follows:
23
<PAGE>
<TABLE>
<CAPTION>
AUTHORIZED OUTSTANDING
----------- ---------------------------
<S> <C> <C>
Preferred Stock 50,000,000 Only 1999 Series Designated
1999 Series 1,600,000 161,750
Common Stock 300,000,000 63,430,454
</TABLE>
PREFERRED STOCK
- ----------------
The 50,000,000 shares of Preferred Stock authorized are undesignated as to
preferences, privileges and restrictions. As the shares are issued, the Board
of Directors must establish a "series" of the shares to be issued and designate
the preferences, privileges and restrictions applicable to that series. To
date, the Board of Directors has designated only one series: the 1999 Series of
Convertible Redeemable Preferred Stock, consisting of 1,600,000 shares with the
following characteristics:
Relative Seniority - The 1999 Series is senior to the Common Stock and will be
senior to all other series of the Preferred Stock which, when issued, are
designated as junior.
Voting - The 1999 Series votes as a class with the Common Stock and each share
has 40 votes.
"Put" for Repurchase - After a holding period of 12 months, a holder may put his
shares back to us for repurchase. The repurchase price is $10 (the stated
capital) plus a premium calculated as 12% per annum of the stated capital from
the date of issuance, less any dividends declared and paid.
Redemption - We have the right, exercisable after June 30, 1999, to redeem the
shares of the 1999 Series. The redemption price is $10 (the stated capital) plus
a premium calculated as 12% per annum of the stated capital, less any dividends
declared and paid.
Conversion - Each share converts into 40 shares of our Common Stock, at the
discretion of the holder, at any time after June 30, 1999.
Liquidation Preference - The holders of the 1999 Series shall receive a
preferential liquidation distribution of $10 per share, plus any dividends
declared but unpaid, before any distribution is made with respect to any junior
class or series of stock.
Preemptive Rights - The 1999 Series does not carry preemptive rights to
subscribe to future stock issuances.
COMMON STOCK
- -------------
The authorized common equity of the Company consists of 300,000,000 shares of
Common Stock, with a $.001 par value, of which 63,430,454 shares of Common Stock
are issued and outstanding as of January 18, 2000 Shareholders (i) have general
ratable rights to dividends from funds legally available therefor, when, as and
if declared by the Board of Directors; (ii) are entitled to share ratably in all
assets of the Company available for distribution to shareholders upon
24
<PAGE>
liquidation, dissolution or winding up of the affairs of the Company; (iii) do
not have preemptive, subscription or conversion rights, nor are there any
redemption or sinking fund provisions applicable thereto; and (iv) are entitled
to one vote per share on all matters on which shareholders may vote at all
shareholder meetings. All shares of Common Stock now outstanding are fully paid
and nonassessable.
The Common Stock does not have cumulative voting rights, which means that the
holders of more than fifty percent of the Common Stock voting for election of
directors can elect one hundred percent of the directors of the Company if they
choose to do so. The Company, which has had no earnings, has not paid any
dividends on its Common Stock and it is not anticipated that any dividends will
be paid in the foreseeable future. Dividends upon Preferred shares must have
been paid in full for all past dividend periods before distribution can be made
to the holders of Common Stock. In the event of a voluntary or involuntary
liquidation, all assets and funds of the Company remaining after payments first
to any creditors of the Company, and secondly to the holders of Preferred Stock,
will then be divided and distributed among the holders of Common Stock according
to their respective shares.
DIVIDEND POLICY
- ----------------
We have not had any dividends for our Common Stock. Our proposed operations are
capital intensive and we need working capital. Therefore we will be required to
re-invest any future earnings in the Company's operations. Our Board of
Directors has no present intention of declaring any cash dividends, as we expect
to re-invest all profits in the business for additional working capital for
continuity and growth. The declaration and payment of dividends in the future
will be determined by our Board of Directors considering the conditions then
existing, including the Company's earnings, financial condition, capital
requirements, and other factors.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
In October, 1997 the Securities and Exchange Commission began an investigation
into the market activity of our Common Stock, which was then traded on the OTC
Bulletin Board. On November 6, 1997 the SEC ordered a ten (10) day suspension
in trading of our stock. Following such a suspension, a company would be
required to provide new, up-dated information to its marketmakers before trading
could be resumed. That was not done, as on December 8, 1997 the SEC filed a
complaint against us, the then current President, Sidney W. Sers, and certain
nominal defendants (See Item 2, Legal Proceedings, following) and Mr. Sers
subsequently caused us to file a petition pursuant to Chapter 11 of the United
States Bankruptcy Code with the United States Bankruptcy Court for the Northern
District of Texas, San Angelo Division. Mr. Sers then resigned on January 12,
1998. Thereafter, we were under the operational control of the Chapter 11
Trustee. To date, there has been no re-filing of the data required to permit
the marketmakers to resume a trading market, as we have preferred to rely upon
25
<PAGE>
the filing of this Form 10-SB to recommence trading. Accordingly, although
there have been sporadic transactions in our Common Stock there has been no
regular trading market.
We have never had any earnings or profits and we have never paid a dividend on
our Common Stock. (See Part I, Item 8, "Dividend Policy")
ITEM 2. LEGAL PROCEEDINGS
Except as described below we are not engaged in any pending legal proceedings.
We are not aware of any legal proceedings pending, threatened or contemplated,
against any of our officers and directors, respectively, in their capacities as
such.
We were a defendant in the SEC's enforcement action (See Part I, Item 1
"Description of Business - Organization/Historical Background"). The action,
filed December 8, 1997 in the U.S. District Court, Northern District of Texas,
Fort Worth Division, Case No. 4-97CV-1018Y, is captioned Securities and Exchange
Commission v. Trinity Gas Corporation, Sidney W. Sers, et al. The SEC's
enforcement action has been settled with respect to us, by the entry of a
Consent Decree, although it is proceeding against Mr. Sers and the other
defendants. As our part of the settlement, we agreed not to violate the
securities laws and consented to the entry of an injunction against our
violation of the securities laws.
On December 9, 1997, Messrs. Ruth and Guillemin, former officers and in the case
of Mr. Ruth, a former director of the Company filed a stockholders' derivative
action. The action, filed in the United States District Court, Northern
District of Texas, Fort Worth Division is captioned Trinity Gas Corporation by
Richard E. Guillemin and William W. Ruth v. Sidney W. Sers, et al and docketed
as Civil Action No. 4-97-CV-1020Y. On February 11, 1998 the Company's Trustee
in the Chapter 11 proceeding substituted himself as the plaintiff. Neither Mr.
Sers nor the other defendants filed an answer to the complaint. On May 25, 1999
the District Court entered a final judgment against Mr. Sers in the amount of
$4,803,522 together with post-judgment interest. On May 27, 1999 the District
Court entered a default judgment against Trinity Gas Colombia, Ltd. awarding
damages to us in the amount of $3,130,000 together with post-judgment interest.
On December 23, 1997 the Company filed a Chapter 11 Petition for Reorganization,
docketed to Case No. 697-60425-JCA-11 in the United States Bankruptcy Court for
the Northern District of Texas, San Angelo Division. An official Equity
Committee was appointed by the United States Bankruptcy Trustee to represent
The Shareholders' interest in the case. During 1998 The Equity Committee
recruited new management and with that management developed a Plan of
Reorganization. The Plan, as amended (Third Amended Plan of Reorganization dated
July 27, 1998), was confirmed by the Bankruptcy Court on October 26, 1998.
On March 31, 1999 the City Bank & Trust Company of Natchitoches (Louisiana)
filed an action against certain defendants, including us, in the Louisiana state
courts. On July 9, 1999 the action was removed to the United States District
Court for the Western District of Louisiana, Alexandra Division, where it was
docketed to Civil Action No. 99-1239 . In this action the plaintiff bank seeks
to foreclose its lien and extinguish all other claims to the property known as
26
<PAGE>
the Natchitoches Hotel, and also seeks to recover approximately $2,000 from us
for ancillary discovery proceedings. Our interest in the hotel, which has been
vacant for several years and is reportedly contaminated with asbestos, arises
because Mr. Sers used corporate funds and/or stockholder funds to acquire the
hotel. On October 5, 1999 we assigned our rights in this litigation to
William W. Ruth, Trinity's former counsel, in consideration of the services
rendered by Mr. Ruth during certain litigation during the bankruptcy court
proceedings. Under the terms of the assignment, Mr. Ruth will bear all
expenses and costs of the litigation and will retain any real property rights
recovered as well as receive 95% of all gross proceeds received in the
litigation up to $100,000; we will receive 5% of all gross proceeds up to
$100,000 and all gross proceeds over $100,000. We do not expect to receive
any proceeds from this litigation.
On June 21, 1999, within the main bankruptcy proceedings, we filed an action,
docketed to Adversary No. 699-6012, against the Internal Revenue Service, Sidney
W. Sers, Patricia Sers and Amanda Sers seeking recovery of approximately
$1,000,000. Our claim is that these funds can be directly traced to the
issuance of shares of our Common Stock, without consideration, to his daughter,
Amanda Sers. After Amanda Sers sold the stock, Mr. Sers allegedly used the
proceeds to pay his personal income tax liability for 1997. The Internal
Revenue Service contends that the funds were never the Company's property and
that the funds were transferred more than one year before the filing of the
Chapter 11 petition (thus precluding recovery). In addition to the claim for
the $1,000,000 we also claim an offset against the $213,564 tax liability
currently owed by us to the Internal Revenue Service. On January 6, 2000 the
Bankruptcy Court granted summary judgment in favor of the Internal Revenue
Service both with respect to the claim to the funds and the claim for an offset.
We have appealed this decision to the U.S. District Court.
On June 30, 1999, also within the main bankruptcy court proceedings, we filed an
objection to the claimed interest of Crystal Coral, Ltd. and certain affiliates.
We sought to cancel 2,000,000 shares of our Common Stock which were issued to
Crystal Coral, Ltd. The reason for our objection and effort to cancel the
shares is that Crystal Coral, Ltd. did not pay the fair market value for the
shares, but that Mr. Sers issued the shares to Crystal Coral, Ltd., whose
principal is Dr. Robert Milton, a former business associate of Mr. Sers, without
consideration. A settlement has been reached whereby 1,100,000 shares will be
returned to us and canceled and along with an obligation of one of the
defendants to us, amounting to a $40,000 payment of a note, which is
collateralized by 750,000 shares of our Common Stock, which shall be paid by
July 1, 2000.
On December 23, 1999, also within the main bankruptcy court proceedings, we
filed a complaint against Rockcrest Capital Corporation, Rockcrest Securities,
LLC, D.W. Mitchell, Max Chapman, Jim Harris, Julie Chambers and the City of
Natchitoches, Louisiana alleging fraudulent transfers of funds to these persons
based on improper acquisition and sale of our Common Stock, and, with respect to
Mr. Chapman, breach of contract for having misrepresented his ability to perform
accounting services and for overcharging us. This suit has just commenced and
the complaints are being served. Our damages are substantially unliquidated,
but we anticipate showing that several hundred thousand dollars were
fraudulently transferred.
27
<PAGE>
On December 30, 1999 Ron Lemon filed suit, docketed to No. 1999-64074 in the
133rd Judicial District Court of Harris County, Texas alleging breach of
contract and common law fraud arising out of a purported employment contract.
It is our position that prior to the execution of the contract, which was signed
for us by Michael Wallace, our then President, both Mr. Wallace and Mr. Lemon
were instructed not to execute the contract which, in any event, was never
approved by our Board of Directors as required for all of our employment
contracts. We have just been served and have filed our answer to the suit,
which we shall vigorously defend.
During 1999 the Oil and Gas Conservation Commission of the Colorado Department
of Natural Resources undertook field inspections of our various wells in that
State. As a result, a number of "Notices of Alleged Violations" ("NOAVs") were
issued. Initially, our field staff did not notify us of these NOAVs and
attempted to resolve the problems, which included the failure to remove oil from
production pits, location of production pits in sensitive areas, and oil
spills. When the four initial NOAVs were not resolved the Commission instituted
proceedings, which ultimately called Management's attention to the problem.
Negotiation and settlement resulted in the filing of Administrative Orders By
Consent ("AOCs"). The proceedings were docketed to Nos. 9812-OV-17, 9812-OV-18,
0002-OV-05 AND 0002-OV-06 at the Commission. Those four AOCs will be heard at
the COGCCs February 14-15, 2000 meeting. The settlements resulted in the
imposition of fines totaling $14,000 in addition to the future remediation of
the problems cited. The remaining NOAVs are being resolved by Management, in
the field, and we do not expect any further proceedings to be instituted.
We have instructed our Country Manager in Chad to institute civil legal
proceedings against Mohammed Alhaji Indimi, the Managing Director of Oriental
Energy Resources, Ltd., the originator of the Chad-Carlton-Trinity consortium.
In May, 1999 we paid $350,000 to Oriental which was intended to be used for
payment fo the Chad Consortium's acreage rental for 1999. Oriental did not make
the payment and the funds were allegedly converted by Mr. Indimi.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On December 15, 1999, we dismissed our Accounting firm, Samson, Robbins &
Associates, PLLC ("Samson & Robbins"), and hired Malone & Bailey, PLLC ("Malone
& Bailey") to replace them. We had hired Samson & Robbins in July 1999 to
perform the required initial two-year audit for inclusion in this Form 10-SB as
required. We dismissed them after we discovered they had made very little
progress in conducting the audit since July, although they had charged us over
$120,000 to date and had given repeated assurances that they were almost
complete. The Board of Directors unanimously agreed with this change.
Samson & Robbins completed no prior audits for us, although they had also been
engaged in 1997 by previous management to perform the required initial two-year
audit. They had resigned in October 1997 after discovering fraud by this
previous management. See the "History" section for more discussion.
We had no disagreements with Samson & Robbins on any matter of accounting
principles or practices, financial statement disclosures, or auditing scope or
procedure which could not be resolved. Additionally, they never notified us
that required internal controls did not exist, that management's representations
were unreliable, or that they were unwilling to be associated with our financial
statements.
We did not request any answer from Malone & Bailey regarding application of
accounting principles or audit opinion type prior to engaging them to replace
Samson & Robbins.
28
<PAGE>
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
During 1997, the prior Management issued 37,619,267 shares in various
transactions claiming various exemptions from the registration provisions of the
Securities Act of 1933. These issuances were among the reasons for the
Securities and Exchange Commission's enforcement action, brought on November 6,
1997 (See Part I, Item 1, Description of the Business - Background). We have
already secured the cancellation or forfeiture of a number of such shares and we
are currently pursuing additional litigation (See Part II, Item 2, "Legal
Proceedings"). At the end of 1997 we had 94,733,211 shares of Common Stock
issued and outstanding.
During 1998, the Bankruptcy Court issued various orders with respect to our
shares of Common Stock. First, 30,542,433 shares held by the Sers family and
affiliates were ordered canceled. Second, we issued 50,000 shares in settlement
of a claim for $12,500 and 30,000 shares for a claim of $7,500. These issuances
were considered exempt from registration under Section 4(2) of the Securities
Act. Third, as provided in the Third Amended Plan of Reorganization we issued
65,000 shares of our Common Stock to each of three of our Directors (Messrs.
Hedke, Teichgraeber and Reichert) and to each of the three members of the
Advisory Board of Directors as compensation for their services. These issuances
were considered exempt from registration under Section 4(2) of the Securities
Act. Fourth, 540,000 shares, out of a total holding of 2,040,000 shares, were
ordered canceled as settlement of bankruptcy claims against the holder, leaving
him with 1,500,000 shares. As a result of these various Bankruptcy Court
orders, we had 64,120,778 shares issued and outstanding at the end of 1998.
Under the Third Amended Plan of Reorganization, the Bankruptcy Court authorized
two alternatives to existing shareholders:
(1) a so-called "Equity Option" whereby their allowed interests
permitted an exchange of their shares of Common Stock for (a) an
equal amount of shares of New Common Stock and (b) rights to
purchase an equal number of shares of New Common Stock at a price
of $ .25 per share; or
(2) a so-called "Cash Out Option" whereby their allowed
interests would liquidated by the distribution of a value to
be calculated. In addition, the Bankruptcy Court authorized an
offering, in a private placement, of up to approximately
64,000,000 shares at an offering price of $ .25 per share.
Shareholders holding a total of 569,011 shares elected the Cash Out Option. The
balance of the shareholders elected or were deemed to have elected the Equity
Option. The issuance of the New Common Stock and Rights was considered exempt
from registration by reason of Section 1145 of the Bankruptcy Code.
29
<PAGE>
Shareholders holding a total of 1,705,391 Rights exercised those Rights. The
issuance of the 1,705,391 shares of New Common Stock upon exercise of those
Rights was also considered exempt under Section 1145 of the Bankruptcy Code.
During 1999 we issued 603,296 shares in full or partial payment for services
rendered to us. Of these, 87,476 shares were issued to four consultants on the
Chad project, 94,720 shares were issued to a media consultant for work on our
website and our internet stockholder voting program, and 421,100 shares were
issued to three business and financial consultants. The services were valued on
the basis of the value of the services rendered and taking our shares at a value
of $ .25 per share. These issuances were considered exempt from registration
under Section 4(2) of the Securities Act.
During 1999 as a result of our Bankruptcy Court litigation, an additional
1,680,000 shares, including 1,100,000 shares in the Crystal Coral, Ltd./Robert
Milton litigation (See Part II, Item 2, "Legal Proceedings") were canceled.
In addition, we are holding 750,000 shares under that same litigation as
collateral for the payment of the $40,000 obligation of one of the defendants.
On December 31, 1999 we had a total of 63,430,454 shares of Common Stock issued
and outstanding.
In addition during 1999 we made an offering of our 1999 Series of Convertible
Redeemable Preferred Stock under Rule 506 of Regulation D promulgated under the
Securities Act of 1933. We issued 126,750 shares to eleven accredited
investors. These issuances were considered exempt under Rule 506 and Section
4(2) of the Securities Act of 1933.
30
<PAGE>
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The following areas of indemnification apply to our Company:
NEVADA CORPORATION LAW
- ------------------------
Section 78.7502 of the Nevada General Corporation Law contains provisions
authorizing indemnification by the Company of directors, officers, employees or
agents against certain liabilities and expenses which they may incur as
directors, officers, employees or agents of the Company or of certain other
entities. Section 78.7502(3) provides for mandatory indemnification, including
attorney's fees, if the director, officer, employee or agent has been successful
on the merits or otherwise in defense of any action, suit or proceeding or in
defense of any claim, issue or matter therein. Section 78.751 provides that
such indemnification may include payment by the Company of expenses incurred in
defending a civil or criminal action or proceeding in advance of the final
disposition of such action or proceeding upon receipt of an undertaking by the
person indemnified to repay such payment if he shall be ultimately found not to
be entitled to indemnification under the Section. Indemnification may be
provided even though the person to be indemnified is no longer a director,
officer, employee or agent of the Company or such other entities. Section
78.752 authorizes the Company to obtain insurance on behalf of any such
director, officer employee or agent against liabilities, whether or not the
Company would have the power to indemnify such person against such liabilities
under the provisions of the Section 78.7502.
31
<PAGE>
Under Section 78.751(e) the indemnification and advancement of expenses provided
pursuant to Sections 78.7502 and 78.751 are not exclusive, and subject to
certain conditions, the Company may make other or further indemnification or
advancement of expenses of any of its directors, officers, employees or agents.
Because neither the Articles of Incorporation, as amended, or By-laws of our
Company otherwise provide, notwithstanding the failure of the Company to provide
indemnification and despite a contrary determination by the Board of Directors
or its shareholders in a specific case, a director, officer, employee or agent
of the Company who is or was a party to a proceeding may apply to a court of
competent jurisdiction for indemnification or advancement of expenses or both,
and the court may order indemnification and advancement of expenses, including
expenses incurred in seeking court-ordered indemnification or advancement of
expenses if it determines that the petitioner is entitled to mandatory
indemnification pursuant to Section 78.7502(3) because he has been successful on
the merits, or because the Company has the power to indemnify on a discretionary
basis pursuant to Section 78.7502 or because the court determines that the
petitioner is fairly and reasonably entitled to indemnification or advancement
of expenses or both in view of all the relevant circumstances.
ARTICLES OF INCORPORATION AND BY-LAWS
- -----------------------------------------
Our Articles of Incorporation and By-laws empower us to indemnify current or
former directors, officers, employees or agents of the Company or persons
serving by request of the Company in such capacities in any other enterprise or
persons who have served by the request of the Company in such capacities in any
other enterprise to the full extent permitted by the laws of the State of
Nevada.
INDEMNITY AGREEMENTS
- ---------------------
To induce and encourage highly experienced and capable persons to serve as
directors and officers, our Company has entered into an Indemnity Agreement with
each director and officer presently serving the Company and will provide the
same agreement to future directors and officers as well as certain agents and
employees. The Agreement provides that we shall indemnify the director and/or
officer, or other person, when he or she is a party to, or threatened to be made
a party to, a proceeding by, or in the name of, the Company. Expenses incurred
by the indemnified person in any proceeding are to be paid to the fullest extent
permitted by applicable law. The Agreement may at some time require the Company
to pay out funds which might otherwise be utilized to further the Company's
business objectives, thereby reducing our ability to carry out our projected
business plans.
32
<PAGE>
SEC POSITION ON INDEMNIFICATION FOR SECURITY ACT LIABILITY
- -----------------------------------------------------------------
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended, may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933, as amended, and is, therefore, unenforceable. If a
claim for indemnification against such liabilities (other than the payment by
the Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy expressed in the Securities Act
of 1933, as amended, and will be governed by the final adjudication of such
issue.
OFFICERS AND DIRECTORS LIABILITY INSURANCE
- ----------------------------------------------
At present, we do not maintain Officers and Directors Liability Insurance and,
because of the anticipated cost of such insurance, we have no present plans to
obtain such insurance.
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
TRINITY ENERGY RESOURCES, INC.
Date: February 3, 2000 By: /S/ Dennis E. Hedke
-----------------------------
Dennis E. Hedke
Principal Executive Officer
/S/ James E. Gallien Jr.
-----------------------------
James E. Gallien Jr.
Principal Financial Officer
33
<PAGE>
FINANCIAL STATEMENTS
PART III
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Trinity Energy Resources, Inc.
Houston, Texas
We have audited the accompanying consolidated balance sheets of Trinity Energy
Resources, Inc. (formerly Trinity Gas Corporation) as of December 31, 1999 and
1998, and the related statements of consolidated income, stockholders' equity,
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Trinity Energy Resources, Inc.
as of December 31, 1999 and 1998, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule in footnote 15 is presented
as supplementary information not a part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the
audits of the basic financial statements and, in our opinion, fairly states in
all material respects the financial data required in relation to the basic
financial statements taken as a whole.
Malone & Bailey, PLLC
Houston, Texas
January 26, 2000
F-1
<PAGE>
<TABLE>
<CAPTION>
TRINITY ENERGY RESOURCES, INC.
(formerly Trinity Gas Corporation)
(Debtor-in-Possession)
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
ASSETS 1999 1998
------------- --------------
<S> <C> <C>
Current Assets
Cash $ 138,910 $ 105,047
Cash held by trustees 3,069,852 3,733,890
Other 36,616 20,111
------------- --------------
Total Current Assets 3,245,378 3,859,048
------------- --------------
Oil and gas properties, using successful efforts method
of accounting
Proved properties 599,537 599,537
Unproved property - Chad concession 1,173,771
Wells and related equipment and facilities 99,726 99,726
Less accumulated depreciation and depletion (103,629) (91,644)
------------- --------------
Net oil and gas properties 1,769,405 607,619
------------- --------------
Other assets
Office furniture and equipment, net of accumulated
depreciation of $8,511 148,305
Deposits and equipment held for sale 65,225 159,982
------------- --------------
TOTAL ASSETS $ 5,228,313 $ 4,626,649
============= ==============
LIABILITIES
Current Liabilities
Redeemable preferred stock payable $ 1,617,500
Notes payable 707,721
Accounts payable 776,816 $ 306,861
Liabilities subject to compromise 132,862 98,036
Due to Sers family 78,310
Accrued expenses 480,519 96,197
------------- --------------
Total Current Liabilities 3,715,418 579,404
Long-term portion of liabilities subject to compromise 177,970 213,564
------------- --------------
Total Liabilities 3,893,388 792,968
------------- --------------
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par, 50,000,000 shares authorized,
161,750 and 0 shares issued and outstanding, respectively
(reclassified to current liabilities)
Common stock, $.001 par, 300,000,000 shares authorized,
63,430,454 and 64,120,778 issued and outstanding,
respectively 63,430 64,121
Paid in capital 12,483,436 11,994,202
Retained (deficit) (11,211,941) (8,224,642)
------------- --------------
Total Stockholders' Equity 1,334,925 3,833,681
------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,228,313 $ 4,626,649
============= ==============
</TABLE>
See summary of accounting policies and notes to financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
TRINITY ENERGY RESOURCES, INC.
(formerly Trinity Gas Corporation)
(Debtor-in-Possession)
CONSOLIDATED INCOME STATEMENTS
Years Ended December 31, 1999 and 1998
1999 1998
--------------- ---------------
<S> <C> <C>
Revenue - oil and gas sales $ 78,382 $ 82,786
Expenses
Lease operating 108,663 150,083
Production taxes 7,283 15,265
Exploration expenses 0 0
Depreciation, depletion, and amortization 20,496 27,367
Interest expense 51,711 0
General and administrative 1,846,217 227,828
Rent paid to affiliates 59,500 30,000
Interest income (5,419) (2,591)
--------------- ---------------
Total expenses 2,088,451 447,952
--------------- ---------------
(Loss) before reorganization items and income tax benefit (2,010,069) (365,166)
--------------- ---------------
Reorganization items:
Loss on sales of assets (43,001)
Professional fees (1,039,192) (1,291,541)
Other costs (37,951) (158,613)
Interest earned on accumulated cash resulting from
Chapter 11 proceeding 142,914 120,684
--------------- ---------------
(977,230) (1,329,470)
--------------- ---------------
(Loss) before income tax benefit (2,987,299) (1,694,636)
Income tax benefit 4,657
--------------- ---------------
Net (loss) $ (2,987,299) $ (1,689,979)
=============== ===============
Net (loss) per common share $ (.05) $ (.03)
Weighted average common shares outstanding 62,083,720 61,056,767
</TABLE>
See summary of accounting policies and notes to financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
TRINITY ENERGY RESOURCES, INC.
(formerly Trinity Gas Corporation)
(Debtor-in-Possession)
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1999 and 1998
- - Common Stock - - Paid In Retained
Shares $ Capital (Deficit) Totals
-------------- ------------- -------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Balances
- December 31, 1997 94,733,211 $ 94,733 $ 11,846,010 $( 6,534,663) $5,406,080
Forfeitures by Sers family (30,542,433) (30,542) 30,542
Net shares (canceled)
for bankruptcy claims
settlement (460,000) (460) 20,540 20,080
Stock issued to directors
for services 390,000 390 97,110 97,500
Net (loss) (1,689,979) (1,689,979)
-------------- ------------- -------------- -------------- ----------
Balances
- December 31, 1998 64,120,778 64,121 11,994,202 (8,224,642) 3,833,681
Stock issued for
- cash 1,705,391 1,705 424,643 426,348
- less costs of equity
fundraising (54,015) (54,015)
- services 603,296 603 150,221 150,824
Shares repurchased,
pursuant to bankruptcy
"cash out" offer (569,011) (569) (34,045) (34,614)
Shares canceled by
bankruptcy court (1,680,000) (1,680) 1,680
Milton shares not yet
paid for (750,000) (750) 750
Net (loss) (2,987,299) (2,987,299)
-------------- ------------- -------------- -------------- ----------
Balances
- December 31, 1999 63,430,454 $ 63,430 $ 12,483,436 $ (11,211,941) $1,334,925
============== ============= ============== ============== ==========
</TABLE>
See summary of accounting policies and notes to financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
TRINITY ENERGY RESOURCES, INC.
(formerly Trinity Gas Corporation)
(Debtor-in-Possession)
CONSOLIDATED CASH FLOW STATEMENTS
Years Ended December 31, 1999 and 1998
1999 1998
---------------- ---------------
<S> <C> <C>
Cash flows provided (used) by operating activities
Cash received from customers $ 74,603 $ 136,192
Interest received 5,419 2,591
Cash paid to suppliers and employees (1,169,154) (10,242)
---------------- ---------------
Net cash provided (used) by operating activities
before reorganization items (1,089,132) 128,541
---------------- ---------------
Operating cash flows provided (used) by Chapter 11 reorganization:
Interest received on cash accumulated by trustees 142,914 120,684
Collections from former officer Sid Sers 4,280,921
Professional fees paid for related services rendered (1,039,191) (1,291,541)
Other bankruptcy costs (37,952) (158,614)
Net proceeds from sale of assets due to Chapter 11 proceeding 47,455 4,000
(Increase) refund of deposits made by trustee 4,300 (4,300)
---------------- ---------------
Net cash provided (used) by Chapter 11 reorganization (882,474) 2,951,150
---------------- ---------------
Net cash provided (used) by operating activities (1,971,606) 3,079,691
---------------- ---------------
Cash flows used in investing activities
Chad property acquisition and development costs (1,120,228)
Purchase of office furniture and equipment (156,816)
----------------
Net cash used in investing activities (1,277,044)
----------------
Cash flows from financing activities
Net borrowings from shareholders (post petition) and others
Redeemable preferred stock payable 1,267,500
Notes payable 1,057,721
Common stock issued, net of $54,015 issuance cost 372,333
Payment to Sers family to settle litigation (78,310)
Principal payments on prepetition debt authorized by court (769) (13,000)
---------------- ---------------
Net cash flows provided by financing activities 2,618,475 (13,000)
---------------- ---------------
Net increase (decrease) in cash and cash equivalents (630,175) 3,066,691
Cash and cash equivalents
- at beginning of year 3,838,937 772,246
---------------- ---------------
- at end of year $ 3,208,762 $ 3,838,937
================ ===============
</TABLE>
See summary of accounting policies and notes to financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
TRINITY ENERGY RESOURCES, INC.
(formerly Trinity Gas Corporation)
(Debtor-in-Possession)
CONSOLIDATED CASH FLOW STATEMENTS
Years Ended December 31, 1999 and 1998
1999 1998
-------------- ---------------
<S> <C> <C>
Reconciliation of net loss to net cash provided by
operating activities
Net (loss) $ (2,987,299) $ (1,689,979)
Adjustments to reconcile net loss to net cash provided (used)
by operating activities
Depletion and depreciation 20,496 27,367
Proceeds from sale of assets under court supervision 47,455 4,000
Loss on sale of assets 43,001
Stock issued for services 150,824 97,500
Changes in
Other current assets (16,505) 71,337
Receivable from former officer Sid Sers 4,280,921
Deposits made by trustee 4,300 (4,300)
Accounts payable 435,342 300,361
Accrued expenses 330,780 (7,515)
-------------- ---------------
Net cash provided (used) by operating activities $ (1,971,606) $ 3,079,692
============== ===============
Supplemental information
Non-cash transactions:
During bankruptcy court pendency:
Reclassification to accounts payable for shareholders
electing "cash out" option $ 34,614
Prepetition creditors agreeing to payment in stock $ 20,080
Accrued interest capitalized on unproved property development 53,543
</TABLE>
See summary of accounting policies and notes to financial statements.
F-6
<PAGE>
TRINITY ENERGY RESOURCES, INC.
(formerly Trinity Gas Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
Nature of business. Celebrity Limousines, Ltd. was incorporated in Utah in
- --------------------
1986. The name and state of incorporation were changed to Limousines Limited
and Nevada, respectively in 1989. Limousines Limited ceased operations shortly
thereafter and remained dormant until July 9, 1993. On that date Sidney W. Sers
contributed certain oil and gas assets he owned in exchange for 18,275,036
shares and control (93.48% ownership) of Limousines Limited. He changed the
corporate name to Trinity Gas Corporation and operated it until early 1998, when
he abruptly resigned and fled the country in the wake of accusations of fraud,
misrepresentation and other charges. New management changed the name to Trinity
Energy Resources, Inc. ("Company"), in Nevada, on March 17, 1999. In Texas,
the Company operates under the name of Trinity (Texas) Energy Resources, Inc.
See Note 2 for further information.
Since 1993, the Company has been and is still engaged primarily in the
acquisition, development, production, exploration for, and the sale of, oil, gas
and natural gas liquids. The Company is the operator of one property in Texas,
and is the non-operating joint working interest owner of several properties in
Colorado and Wyoming. In 1999, the Company acquired an interest as operator in
an unproved exploratory concession in Chad, Africa.
Use of estimates. The preparation of financial statements in conformity with
- ------------------
generally accepted accounting principles 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 amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Principles of consolidation. The consolidated financial statements include the
- ----------------------------
accounts of the Company and its wholly-owned subsidiary Nova Energy, Inc. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Other current assets includes minor amounts of trade accounts receivable from
- ----------------------
the sales of oil and gas and an inventory of crude oil stored on location.
Revenues are recognized when oil and gas are delivered. Inventories are stated
at the lower of cost or market.
Oil and gas properties are accounted for using the successful efforts method of
- -----------------------
accounting. Costs to acquire mineral interests in oil and gas properties, to
drill and equip exploratory wells that find proved reserves, and to drill and
equip development wells are capitalized. Costs to drill exploratory wells that
do not find proved reserves, geological and geophysical costs , and costs of
carrying and retaining unproved properties are expensed.
Unproved oil and gas properties that are individually significant are
periodically assessed for impairment of value, and a loss is recognized at the
time of impairment by providing an impairment allowance. Capitalized costs of
producing oil and gas properties, after considering estimated abandonment costs
and salvage values, are depreciated and depleted by the units-of-production
method.
F-7
<PAGE>
TRINITY ENERGY RESOURCES, INC.
(formerly Trinity Gas Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (continued)
On the sale or retirement of a complete unit of a proved property, the cost and
related accumulated depreciation and depletion are eliminated from the property
accounts, and the resultant gain or loss is recognized. On the retirement or
sale of a partial unit of proved property, the cost is charged to accumulated
depreciation and depletion with a resulting gain or loss recognized in income.
On the sale of an entire interest in an unproved property for cash, gain or loss
on the sale is recognized, taking into consideration the amount of any recorded
impairment if the property had been assessed individually. If a partial
interest in an unproved property is sold, the amount received is treated as a
reduction of the cost of the interest retained.
Capitalized interest. The Company capitalizes interest on expenditures for
- ---------------------
significant exploration and development projects while activities are in
progress to bring the assets to their intended use. Total interest incurred in
1999 was $124,030, of which $72,319 was capitalized as a development cost of the
Chad concession. There was no interest incurred in 1998.
Cash and cash equivalents includes cash in banks and cash held by the bankruptcy
- -------------------------
court and Company law firm trustees. Certificates of deposit for $65,000 held
by the states of Colorado and Wyoming as security for eventual producing well
plugging and site cleanup are included in deposits in other assets.
Long-lived assets are reviewed for impairment whenever events or changes in
- ------------------
circumstances indicate that the related carrying amount may not be recoverable.
When required, impairment losses on assets to be held and used are recognized
based on the fair value of the asset and long-lived assets to be disposed of are
reported at the lower of carrying amount or fair value less cost to sell.
Income tax expense includes taxes payable or refundable for the current year and
- ----------
deferred taxes on temporary differences between the amount of taxable income and
pretax financial income and between the tax bases of assets and liabilities and
their reported amounts in the financial statements. Deferred tax assets and
liabilities are included in the financial statements at currently enacted income
tax rates applicable to the period in which the deferred tax assets and
liabilities are expected to be realized or settled as prescribed in FASB
Statement No. 109, Accounting for Income Taxes. As changes in tax laws or rate
are enacted, deferred tax assets and liabilities are adjusted through income tax
expense.
NOTE 2 - PETITION FOR RELIEF UNDER CHAPTER 11
On December 23, 1997, the Company ("Debtor") filed a petition for relief under
Chapter 11 of the federal bankruptcy laws in the United States Bankruptcy Court
for the Northern District of Texas ("Court"). Generally under Chapter 11,
certain claims against the Debtor in existence prior to the filing of the
petitions for relief under the federal bankruptcy laws are stayed while the
Debtor continues business operations as Debtor-in-possession. These claims are
reflected in
F-8
<PAGE>
TRINITY ENERGY RESOURCES, INC.
(formerly Trinity Gas Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
NOTE 2 - PETITION FOR RELIEF UNDER CHAPTER 11 (continued)
the December 31, 1999 and 1998, balance sheets as "liabilities subject to
compromise." Additional claims (liabilities subject to compromise) might arise
but probably cannot be sustained subsequent to January 23, 2000, the date of the
auditors' report, because the Court issued its Confirmation Order on October
27, 1998, and all known claims against the Company that existed as of December
23, 1997, hav e been adjudicated. The Confirmation Order confirmed the
reorganization plan as previously submitted and amended by the Company. All
provisions of this plan have been incorporated into these financial statements.
A summary of the terms of the October 27, 1998, Confirmation Order are as
follows:
Cancellation of all Sers family stock ownership in the Company, or
30,542,433 shares, or about 32% of total shares outstanding when
the bankruptcy was filed.
Other stock certificates for 2,220,000 shares were canceled.
Two creditor claims were converted into 80,000 shares of stock.
Another 750,000 shares were specified as collateral to repay a $40,000 loan
made by the company in 1997. These shares are shown as a reduction in
shareholders'equity until such payment is received.
The Company received an exemption from security laws restrictions to sell
additional stock at $.25 per share during pendency of the filing.
1,705,391 shares were sold, yielding $372,333 after paying $54,015
in costs of the stock sales.
Issuance of 390,000 shares to 6 directors for services rendered in 1998 was
approved.
Stockholders were allowed to elect to either keep their shares or "cash
out" for the net book value of cash proceeds from Sers' asset
seizures. Holders of 569,011 shares elected to receive their share
of these proceeds, or $34,614, and this amount has been reclassified
to accounts payable.
Secured, allowed claim creditors were allowed to repossess their
collateral.
Non-productive Company equipment was sold for $51,455.
Small allowed, unsecured creditors (< $500 apiece) are to be paid in their
entirety.
All other allowed, unsecured claims are to be paid in full within 2 years
in 4 semi-annual principal payments, plus accrued interest at 7.5%
per year. The first installment was paid in July 1999. All remaining
installments are due before December 31, 2000.
By agreement, the Internal Revenue Service claim was reduced to $213,564,
which the Company is still contesting. The to-be-settled amount is
due in 6 annual installments.
Sers had managed the Company from his purchase of the Limousines Limited shares
in 1993 until early 1998. In 1997, he began the documentation process required
to take the Company public. The Company independent auditors found evidence of
improprieties and resigned in October 1997. In December 1997, Sers put the
Company into bankruptcy. Facing accusations of fraud, misappropriation and
misrepresentation, Sers fled the country shortly afterward. In early 1998, the
Court ordered seizure and subsequent sale of all Sers family assets to satisfy
the Company claim against SersDuring 1998, the Company received $4,280,921 from
seizure and court-ordered sale of Sers personal assets. Sers' wife and children
asserted their
F-9
<PAGE>
TRINITY ENERGY RESOURCES, INC.
(formerly Trinity Gas Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
NOTE 2 - PETITION FOR RELIEF UNDER CHAPTER 11 (continued)
claims to certain of these properties and settled with the Company in 1998
whereby Mrs. Sers was allowed to keep the family residence in Brownwood, Texas
and the Company returned possession of several vehicles and $78,310 in cash. In
exchange, the family dropped all claims against the Company. In 1999, the
Company received a judgment against Sers for an additional $4,803,522. The
Company also has various claims against certain other entities involved in the
improprieties and is still pursuing these claims, which are valued at $0 after
deducting a 100% allowance for uncertain collection.
The Company expects to emerge from bankruptcy by final Court approval in
February 2000.
NOTE 3 - CASH HELD BY TRUSTEES
The Court trustee managed the cash of the Company from January 9 through
December 12, 1998. By Court order, the Company's bankruptcy law firm, Andrews &
Kurth, kept as custodian Company monies collected from the Sers seizures (see
Note 2) beginning December 1998 through January 14, 2000. On that date,
$2,570,184 was transferred to a Company bank account. The difference between
that amount and the $3,069,852 shown on the balance sheet as of December 31,
1999, is $499,668, which is being retained by the law firm to pay certain legal
and other bankruptcy-related costs included in accounts payable as of December
31, 1999.
NOTE 4 - UNPROVED PROPERTY - CHAD CONCESSION
On May 7, 1998, Carlton Energy Group, LLC ("Carlton"), an entity majority-owned
by T. C. O'Dell, the former chief executive officer of the Company, entered into
an agreement with Oriental Energy Resources Limited ("Oriental"), a Nigerian
corporation, to jointly pursue acquisition of a minerals interest in Chad,
Africa, and then seek a farmout to a third party capable of acting as operator.
On July 31, 1998, Carlton and Oriental entered into a Memorandum of
Understanding with the Chad Ministry of Petroleum conveying a 5-year minerals
lease on 160 million acres of undeveloped land with unproved reserves in Chad.
On November 15, 1998, the Company entered into an agreement with Carlton and
Oriental assigning their rights to the Company in exchange for royalties
totaling 7.5% to Carlton and Oriental and up to $500,000 and $1.5 million in
prior costs reimbursement to Carlton and Oriental, respectively. The agreement
with Chad was formalized on February 23, 1999, and the initial lease bonus
payment of $341,765 was paid by the Company on June 17, 1999.
On December 27, 1999, the Company assigned its Chad working interest to Cliveden
Petroleum Co. Ltd. of Switzerland. Under this agreement, Cliveden assumes
operator status and all related obligations under the Chad agreement, subject to
final Chad government approval. In exchange, the Company retains a 5% working
interest after payout of all development costs to be incurred by Cliveden.
Trinity will also receive reimbursement of up to $1.5 million in deemed sunk
costs on a basis pro rata with Cliveden's total cost recovery from revenues to
be received. In addition, Cliveden agreed to conversion of $350,000 loaned to
the
F-10
<PAGE>
TRINITY ENERGY RESOURCES, INC.
(formerly Trinity Gas Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
NOTE 4 - UNPROVED PROPERTY - CHAD CONCESSION (continued)
Company on May 7, 1999, to Company redeemable convertible preferred stock (see
Note 6), with cash redemption at the option of Cliveden to occur on December 27,
2000.
Also, on May 7, 1999, $350,000 was advanced to Oriental to pay the initial lease
bonus payment, but this money was not paid to the Chad government. Instead,
it was kept by Oriental as a partial reimbursement of the $2 million as agreed
in the November 15, 1998, Chad lease assignment from Oriental and Carlton to
the Company. The Company disputes this, and claims that required documentation
supporting the $2 million in law-abiding, actual costs was never received and
because this documentation was a pre-condition of payment, then the $350,000 was
improperly kept by Oriental's owner, Alhaji Indimi. The Company has begun legal
proceedings in Chad to recover this money, which is currently capitalized as a
Chad property acquisition cost. No part of the $1.5 million claimed by Oriental
is accrued as a Company liability because Oriental has refused to provide
documentation as required in the contract, and because all potential liability
for this debt has been assumed by Cliveden.
The required Chad government approval of the farmout assignment to Cliveden has
not been obtained as of January 26, 2000, but such approval is expected by
management. Total costs invested in the Chad property to date are $1,173,771.
NOTE 5 - ACQUISITION OF NOVA ENERGY, INC.
Nova Energy, Inc. ("Nova") was acquired on August 22, 1996, from Nova
stockholder Don Brause and Nova major creditor Tom Getter, for 2,220,000 in
Company stock and $180,000 cash. The cash was paid in monthly installments to
Getter in late 1996 and 1997. The Company contested Brause's ownership in the
bankruptcy case, and the Court reduced Brause's ownership from 2,040,000 of the
initial total shares to 1,500,000. The Nova purchase price, as restated, is
1,680,000 shares and $180,000 cash, or $600,000. This price was allocated to
the various assets and liabilities of Nova as of 1996, and $500,832 was assigned
to the producing oil and gas properties that Nova owned.
NOTE 6 - REDEEMABLE PREFERRED STOCK PAYABLE
In March and October 1999, the Company solicited investments in Company
redeemable convertible preferred stock from investors at $10 per share. Each
share is convertible to 40 shares of Company common stock, or is redeemable
after a 12-month holding period by each investor with a 12% premium, less any
dividends paid. Holders have 40 common shares' vote with each preferred share
held. The Company may redeem shares issued under the March offering anytime
after December 31, 1999, and may redeem shares issued under the October offering
anytime after June 30, 2000. All shares issued are redeemable during 2000, and
the total amount is included in current liabilities as of December 31, 1999.
Accrued dividends are included in interest expense, as these instruments bear
more attributes of debt than of equity.
F-11
<PAGE>
TRINITY ENERGY RESOURCES, INC.
(formerly Trinity Gas Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
NOTE 7 - NOTES PAYABLE
The Company borrowed various amounts from individuals during 1999. The loans
bear interest mostly at 15% APR, and are collateralized by the Texas Hartwich
oil lease, carried on the balance sheet at cost of $70,594, but the present
value of net revenues from proven reserves is valued at $1,340,000. Most are
due 6 months after making, and all are due during 2000.
NOTE 8 - INCOME TAXES
The Internal Revenue Service ("IRS") filed a claim with the Court in excess of
$2 million for income and payroll taxes due for the periods 1993 through 1996,
plus penalties and interest. In the spirit of cooperation, the IRS prepared a
1997 federal income tax return for the Company showing a $8,784,675 net loss
after a $9,004,496 embezzlement loss deduction was allowed. After carryback of
this loss to prior years, the IRS reduced their net claim to $213,564. The
Company is obligated to pay this in six equal annual installments, beginning
2000.
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1999,
are as follows:
Deferred tax asset:
Net operating loss carryforward $2,714,743
Less: valuation allowance (2,714,743)
-----------
Net current deferred tax asset $ 0
===========
The Company has net operating loss carryforwards of about $8.0 million, which
expire in 2018 and 2019.
NOTE 9 - CONTINGENT LIABILITIES
The Company has several postpetition threatened or pending lawsuits relating to
the disputed value of services allegedly provided to the Company that the
Company has contested. Management believes the ultimate liability of the
Company in connection with its legal proceedings will not have a material
adverse effect on the Company's financial position or the results of operations
in any future period.
NOTE 10 - CAPITAL STOCK
The Company distributed rights to purchase its common stock to existing
stockholders under Court supervision. These rights entitled the holder of each
share to purchase one additional share of Company stock at $.25. During 1999,
stockholders exercised rights to purchase 1,705,391 shares, for gross proceeds
of $426,348. These rights expired on December 27, 1999.
F-12
<PAGE>
TRINITY ENERGY RESOURCES, INC.
(formerly Trinity Gas Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
NOTE 10 - CAPITAL STOCK (continued)
The Court also ordered that 750,000 shares previously issued be reserved as
collateral to enforce repayment of $40,000 loaned by the Company to Robert
Milton in 1997. As this amount has not been received as of January 26, 2000,
the 750,000 shares are deducted from total shares outstanding until this amount
is received.
NOTE 11 - EMPLOYMENT AGREEMENTS
To entice new management and consultants, the Company signed employment and
consulting contracts in 1999 still effective as of January 26, 2000, with
several individuals as follows:
<TABLE>
<CAPTION>
Totals 2000 2001 2002
---------- -------- -------- --------
<S> <C> <C> <C> <C>
Annual Compensation
Employees $1,032,179 $463,177 $397,002 $172,000
Contractors 104,000 104,000
---------- -------- -------- --------
Totals $1,136,179 $567,177 $397,002 $172,000
========== ======== ======== ========
</TABLE>
NOTE 12 - STOCK OPTIONS
Beginning at inception, the Company adopted the disclosure requirements of FASB
Statement 123, Accounting for Stock Based Compensation Plans. The Company
grants non-qualified options from time to time to employees and consultants of
the Company, pursuant to its Stock Option Plan as approved by the Court. Stock
option issuances are administered by the Board of Directors of the Company, who
have substantial discretion to determine which persons, amounts, time, price,
exercise terms, and restrictions, if any. All options are non-transferable.
The Company uses the intrinsic value method of calculating compensation expense,
as described and recommended by APB Opinion 25, and allowed by FASB Statement
123. During the years ended December 31, 1999 and 1998, no compensation expense
was recognized for the issuance of these options and warrants, because no option
prices were below market prices at the date of grant. No options were granted
during 1998 and none granted in 1999 have been exercised. Total options
outstanding at December 31, 1999, are 10,341,666, with a weighted average share
exercise price of $.40. Additional disclosures as of December 31, 1999, are:
<TABLE>
<CAPTION>
Options at
Options Options at Market
at $.25 $.75-$1.50 less 30%
------------ ---------- ---------
<S> <C> <C> <C>
Total options
Number of shares 5,641,666 2,000,000 2,699,999
Remaining life 4 years 5 years 5 years
Currently exercisable options
Number of shares 4,450,000 0 0
</TABLE>
F-13
<PAGE>
TRINITY ENERGY RESOURCES, INC.
(formerly Trinity Gas Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
NOTE 12 - STOCK OPTIONS (continued)
The Company's stock has not traded on a public market since the Securities and
Exchange Commission suspended trading in November 1997. Thus, an option pricing
model based on share trading price volatility is not applicable.
NOTE 13 - OPERATING LEASE
On July 1, 1999, the Company signed an office space sublease agreement with Aker
Engineering, Inc. to rent 9,842 square feet at $15,173 per month. This
agreement is for 60 months ending June 2004. Total annual rent expense under
this agreement before any operating expense escalations is $91,038 for 1999,
$182,076 for each of 2000, 2001, 2002, and 2003, and $91,038 for 2004.
NOTE 14 - RELATED PARTY TRANSACTIONS
The Company's former CEO, T. C. O'Dell, loaned up to $400,000 to the Company for
operating capital during 1999, with interest ranging from 8.75% - 12% and
collateralized by the Texas Hartwich oil lease. As of December 31, 1999, the
unpaid balance is $75,000 and is included in short-term notes payable.
The Company leased office space from O'Dell's company, Carlton Energy Group,
Inc., at $7,500 per month through August 1999, totaling $59,500 in 1999 and
$30,000 in 1998.
NOTE 15 - OIL AND GAS RESERVE INFORMATION (unaudited)
The following estimates of proved and proved developed reserve quantities and
related standardized measure of discounted net cash flow are estimates only, and
do not purport to reflect realizable values or fair market values of the
Company's reserves. The Company emphasizes that reserve estimates are
inherently imprecise and that estimates of new discoveries are more imprecise
than those of producing oil and gas properties. Accordingly, these estimates
are expected to change as future information becomes available. All of the
Company's reserves are located in the United States.
Proved reserves are estimated reserves of crude oil (including condensate and
natural gas liquids) and natural gas that geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions. Proved
developed reserves are those expected to be recovered through existing wells,
equipment, and operating methods.
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves, less estimated future expenditures
(based on year-end costs) to be incurred in developing and NOTE 15 - OIL AND GAS
RESERVE INFORMATION (unaudited) (continued)
F-14
<PAGE>
TRINITY ENERGY RESOURCES, INC.
(formerly Trinity Gas Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
producing the proved reserves, less estimated future income tax expenses (based
on year-end statutory tax rates) to be incurred on pretax net cash flows less
tax basis of the properties and available credits, and assuming continuation of
existing economic conditions. The estimated future net cash flows are then
discounted using a rate of 10 percent a year to reflect the estimated timing of
the future cash flows.
<TABLE>
<CAPTION>
1999 1998
----------------- ----------------
Oil Gas Oil Gas
(M Bbls) (MMcf) (M Bbls) (Mmcf)
--------- ------ -------- ------
<S> <C> <C> <C> <C>
Proved developed and undeveloped reserves
Beginning of year 530 831 539 855
Production (5) (6) (9) (24)
--------- ------ -------- ------
End of year 525 825 530 831
========= ====== ======== ======
Proved developed reserves
Beginning of year 259 624 268 648
End of year 254 618 259 624
Standardized Measure of Discounted Future
Net Cash Flows at December 31, 1999 (000's)
---------
Future cash inflows $ 16,041
Future production costs 5,588
Future development costs 1,436
Future income tax expenses 0
---------
$ 9,017
Future net cash flows
10% annual discount for estimated timing of cash flows (4,129)
---------
Standardized measures of discounted future net cash flows
relating to proved oil and gas reserves $ 4,888
=========
</TABLE>
Income tax expense shown above is calculated by including the Company's net
operating loss carryforward and properties tax bases.
The following reconciles the change in the standardized measure of discounted
future net cash flow during 1999
Beginning of year $ 3,121
Sales of oil and gas produced, net of production costs 78
Net changes in prices and production costs 1,689
---------
End of year $ 4,888
========
F-15
<PAGE>
Item 1.
INDEX TO EXHIBITS
34
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- -------- ------------------------------------------------------------------------------------------------
<C> <S>
2.1 Third Amended Plan of Reorganization and Disclosure Statement
3.1 Articles of Incorporation, 1986, Utah, Celebrity Limousines, Ltd.
3.2 Articles of Incorporation, 12/1/1989, Nevada, Limousines, Ltd.
3.3 Articles of Merger, 1/31/1999, Utah, Celebrity Limousines, Ltd. and
Nevada Limousines, Limited - Nevada Corporation, Limousines, Limited Servived.
3.4 Articles of Amendment 7/9/1993, name change from Limousines, Limited to Trinity Gas Corporation.
3.5 By-Laws of Trinity Gas Corporation.
3.6 Articles of Amendment, 3/29/1999, Nevada, to change name of corporation to Trinity Energy
Resources, Inc., authorize undesi
3.7 Certificate of Authority to Transact Business in Texas, 10/06/1999.
3.8 Assumed Name Certificate in Texas, 10/12/1999
3.9 Amended Certificate of Designation, Powers, Preferences and Rights of the 1999 Series
of Convertible Preferred Stock 1/25/2
10.1 Mr. John W. Mahoney - Employment Agreement
10.2 Mr. Dennis E. Hedke - Employment Agreement
10.3 Mr. James E. Gallien, Jr. - Employment Agreement
10.4 Mr. Michael L. Wallace - Independent Contractor Agreement
10.5 Letter Agreement between Carlton Energy Group, Oriental Petroleum Resources, Ltd.,
and Trinity Gas Corporation
10.6 Chad Convention, French Translation
35
<PAGE>
10.7 Chad Convention, English Translation
10.8 Cliveden Agreement, 5/5/1999
10.9 Cliveden Agreement, 11/29/1999
10.10 Purchase and Sale Agreement between Carlton Energy, Trinity Gas, Ian
Nordstrom and Rudy Olschewski
10.11 Aker Maritime Sublease
10.12 Cliveden Agreement, 12/27/99
10.13 Assignment to Cliveden Petroleum co., Ltd., 1/14/2000
23.1 Letters of Auditors Consent to their Inclusion of Financial Statement in 10B filing.
</TABLE>
36
<PAGE>
VAN OLIVER
STATE BAR NO. 15258700
KIRK KENNEDY
STATE BAR NO. 00794080
ANDREWS & KURTH L.L.P.
3700 BANK ONE CENTER, 1717 MAIN STREET
DALLAS, TEXAS 75201
TELEPHONE: (214) 659-4400
TELECOPIER: (214) 659-4401
ATTORNEYS FOR THE OFFICIAL
EQUITY SHAREHOLDERS COMMITTEE
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF TEXAS
SAN ANGELO DIVISION
IN RE:
TRINITY GAS CORPORATION, CASE NO. 697-60425-JCA-11
(CHAPTER 11)
DEBTOR.
THIRD AMENDED DISCLOSURE STATEMENT PURSUANT TO SECTION 1125
OF THE BANKRUPTCY CODE SUBMITTED BY THE
OFFICIAL COMMITTEE OF EQUITYHOLDERS
OF TRINITY GAS CORPORATION
--------------------------
Submitted by,
ANDREWS & KURTH L.L.P. OFFICIAL COMMITTEE OF EQUITYHOLDERS
OF TRINITY GAS CORPORATION
Van Oliver
State Bar No. 15258700 Bill Bricka, Woodstock, Georgia
Kirk A. Kennedy Roger Curtis, Casper, Wyoming
State Bar No. 00794080 Uwe Grannemann, Roswell, Georgia
1717 Main Street, Suite 3700 Donald Hanser, Houston, Texas
Dallas, Texas 75201 Dennis Hedke, Wichita, Kansas (Chairman)
Telephone: (214) 659-4400 Gary Pippin, Tulsa, Oklahoma
Facsimile: (214) 659-4401 Art Teichgraeber, El Dorado, Kansas
COUNSEL FOR THE OFFICIAL
COMMITTEE OF EQUITYHOLDERS
<PAGE>
THIRD AMENDED DISCLOSURE STATEMENT PURSUANT TO SECTION 1125
OF THE BANKRUPTCY CODE SUBMITTED BY THE OFFICIAL COMMITTEE
OF EQUITYHOLDERS OF TRINITY GAS CORPORATION
-------------------------------------------
PLEASE NOTE: THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED ON THE
ADEQUACY OR ACCURACY OF THE STATEMENTS CONTAINED HEREIN.
I. INTRODUCTION AND PLAN OVERVIEW
------------------------------
This Third Amended Disclosure Statement solicits acceptance of this Chapter
11 Plan of Reorganization proposed by the Official Committee of Equityholders of
Trinity Gas Corporation ("Shareholders' Committee") from holders of creditor
claims and stock interests under the Plan. The purpose of this Disclosure
Statement is to enable you, if you are a creditor or interest holder
(stockholder) whose claim or interest (stockholdings) is impaired and who will
receive a distribution under the Plan, to make an informed decision in
exercising your right to vote to accept or reject the Plan.
A. INTRODUCTION
------------
C. The Debtor, Trinity Gas Corporation ("Trinity" or the "Debtor"), is a
Nevada corporation and an independent oil and gas producer. The Debtor's
principal lines of business include the acquisition, drilling and operation
of oil and gas lease prospects, including both proven and unproven
properties and the drilling of both exploratory and development wells. The
Debtor owns wells and leases located in major geological basins in Texas,
Wyoming and Colorado. In addition, the Debtor claims an ownership interest
in a 368,540 acre oil and gas concession granted by Ecopetrol, the
government owned and operated oil and gas company of Colombia (the
"Colombian Concession"), to Trinity Gas Colombia, Inc. ("Trincol"), a
Cayman Island corporation that the Shareholders' Committee believes is or
should be recognized as being a wholly owned subsidiary of the Debtor. The
Colombian Concession grants Trincol certain exploratory rights to drill in
the Valle de Cauca Basin of Colombia, South America. (1)
On December 23, 1997, Trinity filed a petition pursuant to Chapter 11 of
the United State Bankruptcy Code (11 U.S.C. 101 et seq.) with the United
States Bankruptcy Court for the Northern District of Texas, San Angelo Division
(the "Bankruptcy Court"). On January 9, 1998, the Bankruptcy Court ordered the
appointment of a Chapter 11 Trustee (the "Trustee"). On February 5, 1998, the
United States Trustee appointed an Official Committee of Equity Shareholders
(the "Shareholders' Committee"). The Shareholders' Committee has prepared and
filed a Plan of Reorganization (the "Committee's Plan") that is attached hereto
as Exhibit "A" to this Third Amended Disclosure Statement (the "Committee's
------------
Disclosure Statement") in which the Shareholders' Committee is soliciting votes
from creditors of the Debtor in Classes 1-5 of the Committee's Plan and from
holders of equity interests in the Debtor ("Shareholder" or "Common
Stockholder") in Classes 6-10 of the Committee's Plan.
B. OVERVIEW OF THE PLAN
-----------------------
The overriding objectives of the Committee's Plan are to:
(1) Enable the Debtor to emerge from chapter 11 as a clean, largely
debt-free, publicly held corporation;
- ------------------
(1) Unless otherwise indicated, the terms used herein have the same
meanings as set forth in the Article I Definition Section of the
Committee's Plan of Reorganization attached hereto as Exhibit "A".
-----------
1
<PAGE>
(2) Reorganize the Debtor in the shortest time possible so that the
company with its strong slate of new management may continue oil and
gas exploration on a profitable and economically efficient basis for
the benefit of Creditors and Shareholders;
(3) Avoid the dissipation of Debtor's assets by confirming a Chapter 11
Plan that specifically curtails or eliminates the Chapter 11 Trustee's
utilization of professionals thereby reducing Chapter 11 expenses;
(4) Provide a mechanism for quick implementation of a strategic business
plan that provides for utilization of existing assets, recovery of
assets through litigation and/or negotiation, and the development of
new business opportunities; and
(5) Facilitate and effectuate a potential settlement between the
Trustee/Debtor and the SEC.
To accomplish these objectives, the Committee's Plan generally
contemplates: (i) the reorganization of the Debtor under new management and a
--------------
new board of directors with extensive experience and background in the oil and
- ------------------------
gas industry; (ii) the continuation and capitalization of current oil and gas
operations in Wyoming and Colorado; (iii) the implementation of certain
strategies so that the Reorganized Debtor can realize a return from its rights
in the Colombian Concession; (iv) the successful prosecution of pending
litigation to recover assets of the Debtor that the Committee contends were
improperly transferred by Mr. Sidney W. Sers; (v) if the SEC succeeds in its
litigation against Sidney Sers, the release of approximately $3 million
currently frozen by the Federal District Court in Fort Worth for either
stockholder reinvestment in the Reorganized Debtor or distribution of a cash out
dividend; (vi) the payment of small unsecured creditors (claims less than $500
each) on the basis of 95% of each claim in cash within sixty (60) days after the
Effective Date; (vii) the repayment of the other unsecured creditor claims
either (a) by receiving shares of New Common Stock, in an amount that when
multiplied by the average stock trading price for the immediately ten (10) days
preceding days as equals the dollar Amount of each such Allowed Claim or (b)
repayment of 100% of the Allowable Claim, plus interest at 7.5% per annum or at
a rate determined by the Court and payable in two years in semi-annual payments
beginning on the sixth (6th) month anniversary of the Plan's Effective Date.
The Committee's Plan also provides Shareholders holding both restricted and
unrestricted stock will, if they select the Equity Option, receive a number of
shares each of New Common Stock and Rights Offering equal to their current
holdings in accordance with the stock recall and reissuance mechanism set forth
in the Committee's Plan or receive a cash distribution based on the liquidation
value of the Debtor if they select the Cash Out Option. The stock of Debtor's
former president, Sidney W. Sers, and his affiliates (the "Sers Group"), and the
stock of certain insiders or commission salespersons will be subject to various
share cancellation, and modification procedures as set forth in the Committee's
Plan.
C. RECOMMENDATIONS
---------------
THE SHAREHOLDERS' COMMITTEE RECOMMENDS THAT EACH CREDITOR AND SHAREHOLDER
VOTE TO APPROVE THE COMMITTEE'S PLAN BY FOLLOWING THE VOTING INSTRUCTIONS SET
FORTH BELOW.
IN CONTRAST, THE CHAPTER 11 TRUSTEE HAS OBJECTED TO THE DISCLOSURE
STATEMENT AND INDICATED THROUGH, AMONG OTHER THINGS, THE FILING OF A MOTION TO
CONVERT THIS CASE TO A CHAPTER 7 LIQUIDATION, THAT HE OPPOSES THE PLAN AND
INSTEAD, DESIRES TO LIQUIDATE THE DEBTOR.
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION TAKES NO POSITION ON
THE PROPOSED REORGANIZATION PLAN BUT WANTS ALL SHAREHOLDERS TO KNOW THAT IT
BELIEVES THEY CAN SHARE IN THE $3 MILLION OF FROZEN FUNDS EQUALLY THROUGH THE
REORGANIZATION PLAN OR THROUGH A DIRECT DISTRIBUTION TO SHAREHOLDERS UPON
LIQUIDATION OF THE DEBTOR. IN EITHER CASE, THE SEC MUST PREVAIL IN ITS ACTION
AGAINST MR. SERS OR OTHER MEMBERS OF THE SERS GROUP (AS DEFINED IN THE PLAN) FOR
THESE MONIES TO BE AVAILABLE FOR DISTRIBUTION.
2
<PAGE>
D. VOTING INSTRUCTIONS
--------------------
A separate ballot is enclosed for use by each Creditor and Shareholder in
voting upon the Committee's Plan. A pre-addressed envelope for convenience in
voting is also enclosed for use by Creditors and Shareholders. Please indicate
on the enclosed ballot whether you accept or reject the Committee's Plan, sign
and execute the ballot, and return it in the envelope provided.
Your claims or interests are not designed to be classified in multiple
classes except for the Secured Creditors whose claims are undersecured and
Shareholders, owning exclusively either restricted or unrestricted stock. When
you vote and return your ballot, please indicate your vote in the space provided
on the ballot for the class or classes in which your claims or interests are
classified.
IN ORDER TO BE COUNTED, BALLOTS ACCEPTING OR REJECTING THE COMMITTEE'S PLAN
MUST BE COMPLETED, EXECUTED AND RETURNED SO THAT THEY ARE RECEIVED NO LATER THAN
3:30 P.M., CENTRAL DAYLIGHT TIME, ON AUGUST 25, 1998 AT THE ADDRESS SET FORTH ON
THE PRE-ADDRESSED ENVELOPE OR AT THE FOLLOWING ADDRESS:
THE OFFICIAL COMMITTEE OF EQUITY SHAREHOLDERS
ANDREWS & KURTH L.L.P.
C/O VAN OLIVER
1717 MAIN STREET, SUITE 3700
DALLAS, TEXAS 75201
THE BANKRUPTCY COURT WILL HOLD A HEARING ON CONFIRMATION OF THE
COMMITTEE'S PLAN COMMENCING AT 10:00 O'CLOCK A.M., CENTRAL STANDARD TIME, ON
SEPTEMBER 2, 1998 IN THE COURTROOM OF THE HONORABLE JOHN C. AKARD, ROOM 314,
FEDERAL BUILDING, 1205 TEXAS AVENUE, LUBBOCK, TEXAS. THE HEARING MAY BE
ADJOURNED FROM TIME TO TIME WITHOUT FURTHER WRITTEN NOTICE EXCEPT AS GIVEN IN
OPEN COURT.
Objections to confirmation of the Committee's Plan should be filed with the
Clerk of the Bankruptcy Court, Lubbock Division, 306 Federal Building, 1205
Texas Avenue, Lubbock, Texas, 79401, no later than 3:30 p.m., Central Standard
Time, on August 25, 1998 and served on the Shareholders' Committee within such
time at the following address:
The Official Committee of Equity Shareholders
Andrews & Kurth L.L.P.
c/o Van Oliver
1717 Main Street, Suite 3700
Dallas, Texas 75201
Each Creditor's, Shareholder's and other interested party's vote on the
Committee's Plan is important. Although the Committee's Plan may be confirmed
notwithstanding its rejection by certain classes of Creditors and/or
Shareholders if certain requirements are satisfied, the non-acceptance by any
particular Class of Creditors or Shareholders may impede or delay confirmation
of the Committee's Plan, may postpone the emergence of the Debtor from these
chapter 11 proceedings, and will likely delay distribution of New Common Stock
or cash and implementation of the other plan provisions.
3
<PAGE>
E. DISCLOSURE STATEMENT MATTERS
------------------------------
The Committee's Disclosure Statement describes the Committee's Plan and
contains information concerning the history, business, results or operations,
management, properties, liabilities and pending litigation of the Debtor. The
Shareholders' Committee strongly urges that each recipient carefully review the
contents of the Committee's Disclosure Statement, the Committee's Plan and all
other exhibits. The Shareholders' Committee also suggests and recommends that
each Creditor and each Shareholder consult its own counsel with respect to its
rights and treatment of its Claims under the Committee's Plan.
THE COMMITTEE'S DISCLOSURE STATEMENT HAS BEEN APPROVED BY THE HONORABLE
JOHN C. AKARD, UNITED STATES BANKRUPTCY JUDGE PRESIDING OVER THE DEBTOR'S
CHAPTER 11 PROCEEDINGS ON OR ABOUT THE 23RD DAY OF JULY, 1998 AS CONTAINING
INFORMATION OF A KIND AND IN SUFFICIENT DETAIL AS IS ADEQUATE TO ENABLE A
HYPOTHETICAL, REASONABLE INVESTOR, TYPICAL OF HOLDERS OF CLAIMS OR INTERESTS IN
THE CLASSES DESIGNATED UNDER THE COMMITTEE'S PLAN AND RECEIVING THIS DISCLOSURE
STATEMENT, TO MAKE AN INFORMED JUDGMENT ABOUT WHETHER TO ACCEPT OR REJECT THE
COMMITTEE'S PLAN. THE BANKRUPTCY COURT HAS NOT, HOWEVER, PASSED JUDGMENT UPON
THE COMMITTEE'S PLAN ITSELF AT THIS POINT.
The factual information contained in this Committee's Disclosure Statement
has been largely obtained from the Debtor's records, the Chapter 11 Trustee,
members of the Shareholders' Committee, or publicly available information filed
by the Debtor, except where otherwise specifically noted or self-evident.
Neither the Chapter 11 Trustee nor the Shareholders' Committee, their attorneys,
accountants or other professionals makes any representations regarding that
information. The Company's financial records were not audited for years 1996
and 1997 and Samson, Robbins, the Debtor's auditors who resigned on October 6,
1997, stated in their resignation letter that the previously audited financials
for the years 1993-1995 would need to be restated. Exhibit "B" attached to this
-----------
Disclosure Statement sets forth a Pro Forma Balance Sheet based on "Fresh Start"
accounting principles prepared by the Committee and counsel. The Committee was
unable to utilize the services of Samson, Robbins due to the upheld objection
filed by Henry Seals, the Chapter 11 Trustee, to the Committee's request to
co-retain the accountants with the Trustee. It does not attempt, due to the
substantial cost involved, to restate the 1993-1995 audited financials for the
Debtor or propose audited financials for 1996 and 1997.
The terms and provisions used in the Committee's Disclosure Statement are
intended to have the same meaning ascribed to them in the Committee's Plan. Any
terms not defined in the Committee's Plan have the meanings ascribed to them in
the Bankruptcy Code or, if none, by common usage.
ALL REFERENCES TO AND SUMMARIES OF THE COMMITTEE'S PLAN CONTAINED IN THIS
COMMITTEE'S DISCLOSURE STATEMENT ARE QUALIFIED IN THEIR ENTIRETY BY THE
COMMITTEE'S PLAN ITSELF AND DOCUMENTS DESCRIBED THEREIN AS BEING FILED PRIOR TO
APPROVAL OF THE COMMITTEE'S DISCLOSURE STATEMENT WHICH ARE CONTROLLING. YOU ARE
URGED TO READ THE COMMITTEE'S DISCLOSURE STATEMENT AND THE COMMITTEE'S PLAN IN
THEIR ENTIRETY, INCLUDING EXHIBITS, BEFORE VOTING ON THE COMMITTEE'S PLAN.
F. VOTE REQUIRED FOR APPROVAL
-----------------------------
As a condition to confirmation, 1129(a) of the Bankruptcy Code requires
that each impaired class of claims or interest under the Committee's Plan accept
the Committee's Plan, subject to the exceptions described below with respect to
cramdown confirmation without acceptance of all impaired classes.
4
<PAGE>
Section 1126 of the Bankruptcy Code defines acceptance of the Committee's
Plan by each class of Claims as being accepted by holders of at least two-thirds
(2/3) in dollar amount and a majority (50%) in number of the allowed or
estimated Claims of that class, but only those who actually vote to accept or
reject the Committee's Plan count in determining such ratio. The Bankruptcy
Code defines acceptance of the Committee's Plan by a class of equity interest
holders (shareholders) as acceptance by two-thirds (2/3) in the amount of the
allowed interests of such class held by the holders of such interests who
actually cast votes to accept or reject the Committee's Plan. Holders of Claims
and/or interests that fail to vote are not counted as either accepting or
rejecting the Committee's Plan.
Classes of Claims and Interests that are not "impaired" under the
Committee's Plan are deemed, as a matter of law, to have accepted the
Committee's Plan and therefore are neither permitted nor required to vote on the
Committee's Plan. Under 1124 of the Bankruptcy Code, a class is "impaired"
if, under the Committee's Plan, the legal, equitable or contractual rights of
the Claims or Interest of that class are modified other than where any defaults
are being cured, maturity dates reinstated or obligations paid in full in cash.
Classes 1 through 5 and 8-10 inclusive, are impaired under the Committee's Plan
and are entitled to vote. Because Shareholders may also be impaired, they are
given a vote under Classes 6 and 7 as well.
The Bankruptcy Code contains provisions for confirmation of the Committee's
Plan even if it is not accepted by all impaired classes, provided that at least
one impaired class of Claims has accepted it (determined without including any
acceptance by any insider holding a claim of such class). In the event that any
impaired class of Creditors or Shareholders does not accept the Committee's Plan
by the majorities described above, the Shareholders' Committee will seek to have
the Committee's Plan nevertheless confirmed pursuant to the cramdown provisions
of 1129(b) of the Bankruptcy Code. The Shareholders' Committee reserves the
right to have the Committee's Plan confirmed over the objection of any impaired
class.
G. RISK FACTORS
-------------
Each Creditor and each Shareholder should analyze and evaluate the
Committee's Plan, the express and inherent risks associated therewith and all
other information set forth in this Disclosure Statement as a whole with his
advisors in determining whether to vote to accept or reject the Committee's
Plan, including the factors described below.
1. LITIGATION RISKS AND RELEASE OF FROZEN FUNDS
As outlined in Sections II and IV of this Disclosure Statement, the SEC and
Chapter 11 Trustee are currently prosecuting litigation against Mr. Sers and
others in an effort to recover property for the benefit of creditors and
Shareholders. The outcome of this litigation is not certain and it is possible
that the outcome may not be favorable to the SEC or the Trustee. Parties
entitled to vote on the Plan should be aware that outcome of the litigation
5
<PAGE>
initiated by the SEC against Sidney W. Sers (described herein as the "SEC
Enforcement Action") may adversely impact certain implementation aspects of the
Plan. The release of the approximately $3 million frozen by the Federal
District Court in the SEC Enforcement Action and currently held in the registry
of that Court ("Frozen Funds"), will not occur unless the SEC prevails in the
litigation. In addition to the SEC and Chapter 11 Trustee, claims to the Frozen
Funds are also being made by the Defendant members of the Sers Group, including
Timothy Sers. Under the Plan, and assuming a settlement can be reached with the
SEC, the Committee intends that the portion of the $3 million reinvested in the
Reorganized Company by Shareholders who elect the "Equity Option" treatment will
be used to fund and capitalize the Debtor's business reorganization and oil
drilling and exploration activities. Moreover, assuming the SEC is the
prevailing party and disgorgement of those funds is required, the timetable for
concluding the litigation and release of the Frozen Funds is not certain. The
funds may not be available to the Reorganized Company for six months to a year
or longer after Plan confirmation. Without timely access to those funds,
implementation of certain aspects of the Plan may not be promptly or fully
achieved. The Committee does believe the Plan is feasible even without access
to the Frozen Funds because there are other sources of capital available to the
Reorganized Company, including but not limited to, third party investment
capital; capital to be raised from the Rights Offering; anticipated increased
revenues from existing oil and gas properties arising after reworking of wells,
farm outs or similar developments; and transactions with industry partners
developed through the contacts of new management. Finally, there is the risk
that any judgment or court order rendered in the United States may not be
enforceable against Trincol or Mr. Sers in Colombia or any foreign jurisdiction
where Mr. Sers resides or where the Committee maintains he has transferred
assets.
2. RISKS RELATING TO THE COLOMBIAN CONCESSION
The Debtor's affiliate(2), Trincol, is believed to be presently conducting
oil exploration operations in Colombia. Foreign properties, operations or
investments may be adversely affected by local political and economic
developments, exchange controls, currency fluctuations, royalty and tax
increases, retroactive tax claims, renegotiation of contracts with governmental
entities, expropriation, import and export regulations and other foreign laws of
policies governing operations of foreign-based companies, as well as by laws and
policies of the United States affecting foreign trade, taxation and investment.
In addition, because Trincol's operations are governed by foreign laws, in the
event of a dispute, the Debtor may be subject to the exclusive jurisdiction of
foreign courts or may not be successful in subjecting foreign persons to the
jurisdiction of courts in the United States. For example, although the Debtor
has a default judgment against Trincol which states that Trincol is the Debtor's
wholly owned subsidiary, it is not clear whether courts in the Cayman Islands or
Republic of Colombia would recognize that judgment. However, the Committee is
aware that generally, under Colombian law, foreign judgments have the force
provided by treaty or, in the absence of treaty provisions, the force and legal
effect such foreign country would give to a Colombian judgment. The Committee
has not, however, at this time made a definitive determination whether the
default judgment against Mr. Sers and Trincol is enforceable in Colombia under
the facts of this case. Moreover, the legal costs of enforcing the judgment are
indeterminate at this time. The Debtor may also be hindered or prevented from
enforcing its rights with respect to a governmental instrumentality because of
the doctrine of sovereign immunity. Exploration and production activities in
areas outside the United States are also subject to the risks inherent in
foreign operations, including loss of revenue, and property and equipment as a
result of hazards such as expropriation, nationalization, war, insurrection,
political risks, and in the case of Colombia, the potentiality of
narcoterrorism.
- ------------------
(2) Trincol's status as an affiliate as the term is defined in 11 U.S.C.
101(2) is based upon a default judgment rendered against Trincol in
the United States District Court on February 11, 1998, in which the
court found that Trincol was a wholly owned subsidiary of the Debtor.
There are, however, uncertainties concerning Trincol's status as an
affiliate because (1) Sidney W. Sers, the controlling stockholder in
Trincol does not recognize the affiliate status and (2) it is
uncertain whether Trincol's territory of incorporation, the Cayman
Islands, or the Republic of Colombia, would also recognize Trincol as
an affiliate of the Debtor.
(3) The assignment referenced in this sentence is more fully discussed in
Section II of the Disclosure Statement.
6
<PAGE>
Although the Debtor claims an ownership interest in the Colombian
Concession granted to Trincol by Ecopetrol, recent actions and statements by the
Debtor's former president, Mr. Sidney W. Sers, raise doubts whether the Debtor
will be able to realize those interests in the event oil drilling operations in
Colombia are ever successful. According to the Committee, on October 3, 1997,
Mr. Sers threatened to take the Colombian Concession as his own and fulfill all
Concession obligations in the name of Trincol. More recently, in a January 19,
1998, letter to Ecopetrol, Mr. Sers refused to recognize the Debtor's claimed
interest in the Colombian Concession asserting that a previous assignment from
Trincol to the Debtor is not valid (3). Neither does Mr. Sers acknowledge the
Committee's contention that Trincol is a wholly owned subsidiary of the Debtor.
To date, settlement negotiations between the Shareholders' Committee and Mr.
Sers have been unproductive. The Committee maintains Mr. Sers' refusal to
recognize the Debtor's claimed rights and interest in the Colombian Concession
could have a material adverse effect on the Debtor's ability to realize many of
the anticipated financial benefits from the Concession if oil drilling and
production in Colombia proves economically profitable. Moreover, the Committee's
information, if correct, that Trincol has failed to "complete" the first four
(4) wells drilled on the Concession, and to pay in full at least two known oil
and gas vendors, may also jeopardize the Concession itself, regardless of
whether the Debtor or Trincol owns it. The Committee is not privy to
discussions between Trincol and Ecopetrol or the specific terms and conditions
Ecopetrol has placed on Trincol for it to continue to maintain its rights under
the Colombian Concession. There can be no assurances that Ecopetrol will not
cancel the Farallones Contract if Trincol fails to meet its obligations under
the contract or any modifications or extensions thereto. If Ecopetrol declares
Trincol in default, the Debtor may not be able to realize a return on its
investment in Trincol from the Colombian Concession, thus jeopardizing the
success of the Plan. There are no guarantees that if the contract is cancelled,
Ecopetrol would allow the Debtor to assume Trincol's rights and obligations
under the contract.
3. REGULATORY APPROVAL
The financial restructuring of the Debtor involves certain transactions
that may be subject to federal regulatory approval of the Securities Exchange
Commission ("SEC") because of the Debtor's status as an issuer of publicly
traded stock. The Shareholders' Committee is not presently seeking but may, in
the future, seek to obtain official SEC approval in connection with the
Committee's Plan. However, the Shareholders' Committee has been informed by the
SEC that certain provisions of the Plan, including the Shareholders exchanging
their existing stockholdings and rights in the $3 million Frozen Funds for the
their shares of New Common Stock and the Rights Offering may not be exempt under
Section 1145 of the Bankruptcy Code from registration under Section 5 of the
1933 Securities Act. As a result, the Committee or Reorganized Debtor will
likely seek a private no action letter pertaining to issuance and resale of the
New Common Stock and Rights Offering under the Plan as being exempt from
registration under Section 5 of the 1933 Act. Alternatively, the Committee may
decide to file a registration statement for such Stock and Rights Offering
issuances. If SEC approval is subsequently determined to be necessary, there
can be no assurance that such approval will be obtained, and the Shareholders'
Committee cannot predict the consequences of failure to obtain any such
approval. The Shareholders' Committee reserves the right to seek the Bankruptcy
Court's determination that the Bankruptcy Code Section 1145 preempts any
otherwise applicable regulatory approval that may impede, delay or otherwise
thwart implementation of the Committee's Plan.
4. PRICE VOLATILITY
The revenues generated by the Debtor are highly dependent upon the prices
of crude oil and natural gas. Fluctuations in the energy market make it
difficult to estimate future prices of crude oil and natural gas. Fluctuations
in energy prices are caused by a number of factors, including regional, domestic
and international demand, energy legislation, federal or state taxes (if any) on
sales of crude oil and natural gas, production guidelines established by the
Organization of Petroleum Exporting Countries ("OPEC"), and the relative
abundance of supplies of alternative fuel such as coal. Additionally, changing
international economic and political conditions may have a substantial impact
upon crude oil and natural gas prices. All of these factors are beyond the
control of the Debtor.
5. BUSINESS RISKS
To attain the position of a viable oil and gas exploration and production
company, the Reorganized Company must continually acquire or explore for and
develop new oil and gas reserves to replace those being depleted by production.
Without successful drilling or acquisition ventures, the Debtor's oil and gas
assets, properties and revenues derived therefrom will decline over time. In
fact, the Debtor's Wyoming and Colorado oil and gas wells are approaching the
latter stages of their primary production lifetimes, requiring new capital
expenditures to test and produce anticipated secondary reserves. To the extent
the Debtor engages in drilling activities, such activities carry the risk that
no commercially viable oil or gas production will be obtained. The cost of
drilling, completing and operating wells is often uncertain. Moreover, drilling
may be curtailed, delayed or canceled as a result of many factors, including
shortage of available working capital, title problems, weather conditions,
environmental concerns, shortages of or delays in delivery of equipment, as well
as the financial instability of well operators, major working interest owners
and drilling and well servicing companies. The availability of a ready market
for the Debtor's oil and gas depends on numerous factors beyond its control,
including the demand for and supply of oil and gas, the proximity of the
Debtor's crude oil and natural gas reserves to pipelines, the capacity of such
pipelines, fluctuations in seasonal demand, the effects of inclement weather,
and government regulation. New oil and gas wells may be shut-in for lack of a
market until a gas pipeline or gathering system with available capacity is
extended into the area.
7
<PAGE>
6. OPERATING HAZARDS AND UNINSURED RISKS
The operations of the Debtor are subject to the inherent risks normally
associated with exploration for and production of oil and gas, including
blowouts, cratering, pollution, environmental liabilities and fires, each of
which could result in damage to or destruction of oil and gas wells or
production facilities or damage to persons or property. As is common in the oil
and gas industry, the Debtor is not insured against the risks, either because
insurance is not available or because the Debtor has elected to self-insure due
to high premium costs. The occurrence of a significant event that is not
insured against could have a material adverse effect on the Debtor's financial
condition.
II. BUSINESS AND FINANCIAL CONDITION OF TRINITY GAS CORPORATION
-----------------------------------------------------------
A. HISTORY OF TRINITY GAS CORPORATION
----------------------------------
Trinity Gas Corporation ("Trinity") was initially organized by other owners
under the laws of the State of Utah in 1986 as Celebrity Limousines Ltd. On or
about January 31, 1990, Celebrity Limousines, Ltd., at that time unrelated to
Trinity, offered and sold to the public, pursuant to a Rule 504 Regulation D
offering, certain stock to shareholders in 1986 and 1987. Soon thereafter,
Celebrity Limousines Ltd. changed its corporate domicile to the State of Nevada
and its corporate name to Limousines Limited.
On November 23, 1990, Limousines Limited ceased operations. It remained
dormant until July 9, 1993, when Mr. Sidney W. Sers exchanged certain oil and
gas assets belonging to Jubilee Oil and Gas, Inc., which was Mr. Sers' wholly
owned Texas corporation ("Jubilee"), for 18,275,036 shares of authorized, but
previously unissued, stock of Limousines Limited, out of which 13,275,036 shares
were initially issued in the name of Mr. Sers. The remaining 5,000,000 shares
were issued 1,000,000 each in the names of his four children (Timothy, Michael,
Matthew and Amanda) and his wife, Mrs. Patti Sers. The oil and gas assets owned
by Jubilee were located in Brown and Coleman Counties, Texas and developed by
investor contributions of in excess of $1.3 million largely assembled by Mr.
Richard Guillemin. After acquiring Jubilee's oil and gas assets, Limousines
Limited changed its name to Trinity Gas Corporation. Over the next seven years,
Trinity or Jubilee, as the d/b/a of Trinity, conducted oil and gas operations in
Texas. At present, the Committee understands that Jubilee is a separate
corporation in good standing. In 1994 or 1995, Mr. Sers agreed to allocate
certain shares of Trinity Gas Corporation in exchange for the oil and gas
working interests and/or amounts contributed to Jubilee by the previously
referred investors. Before his resignation on January 12, 1998, Mr. Sers acted
as President of Trinity and Chairman of its three (3) member Board of Directors.
At present, Mr. Sers, his family members and Affiliates are Trinity's largest
stockholders, holding approximately 33% or 30,000,000 shares of stock in the
Company.
8
<PAGE>
During the Debtor's corporate existence, Trinity stock has been publicly
traded on the NASD Over-the-Counter Bulletin Board System (the "Bulletin
Board"). However, the Debtor has not filed a registration statement with the
Securities & Exchange Commission and has not filed the required periodic
reports. As of January 1, 1996, Trinity had approximately 35,076,051
outstanding and issued shares of common stock. As of January 1, 1997, the
Company had 52,831,264 shares of common stock issued and outstanding, without
taking into account 20 million additional shares Trinity issued to Mr. Sers or
his affiliates in August or September 1996. As of October 28, 1997, per the
Company's transfer agent records, Trinity had 94,733,211 shares outstanding and
approximately 1,675 shareholders of record. Of the 94,733,211 shares,
76,978,251 are restricted shares, 17,754,960 are unrestricted; and approximately
30 million shares are owned by Mr. Sers, his immediate family members and
Affiliates ("Sers Group").
B. DESCRIPTION OF TRINITY'S DOMESTIC PROPERTY AND OTHER ASSETS
------------------------------------------------------------------
1. CENTRAL TEXAS
Trinity purchased a 17,500 foot well initially drilled by Pennzoil on a
640-acre lease located in the Quito Fusselman Field of the Permian Basin located
in Ward County, Texas. This well, known as the Hartwich No. 1 well, tested
108,000 MCF initially, produced at the rate of 34,000 MCF per day and after five
months had sold more than 2,500,000 MCF before declining to a rate of 2,500 MCF
per day. The well was later recompleted in the Wolfcamp Formation which is
flowing minimal amounts of oil and gas today. Before the well loaded up with
oil, Warren Petroleum (Chevron subsidiary) engineers tested the gas flow from
this well at 1,500 mcf of gas per day. A 5.2 mile 8-inch pipeline was installed
in order to purchase gas from the well. Gas production from the Hartwich well
currently flows into the Warren Petroleum Pipeline with sufficient pressure to
"buck" the line pressure. Production has occurred naturally, without the need
of a compressor, for the last six (6) months and, therefore, the Estate may have
six (6) months of production proceeds coming to it. The electricity was shut
off some time around December with approximately $1,700.71 being owed to the
electrical company. The Chapter 11 Trustee is in the process of turning the
electricity back on and resuming production on the well. Two (2) tanks with
approximately 450 barrels of oil will be sold and the proceeds used to pay the
electricity bills and begin clean-up work.
2. ACQUISITION OF NOVA ENERGY, INC.
In the fall of 1996, the Debtor acquired 100% of the outstanding common
stock of Nova Energy, Inc. ("Nova") for notes and cash in the amount of
$180,000, 20,000 shares of unrestricted stock, and 2,040,000 shares of
unregistered, restricted common stock in Trinity Gas Corporation. Nova is a
Wyoming corporation that owns and operates approximately twenty-seven (27) oil
and gas wells in Wyoming and Colorado. This acquisition provided the Debtor
with the potential for increased cash flow. A July 1997 appraisal of Nova by
energy consultant, Roy C. Smith, concluded that the aggregate value of Nova's
producing wells, equipment, and certain related certificates of deposit amounted
to $1.37 million dollars.
A second reserve evaluation performed by Nelson Spradlin Engineering dated
September 24, 1997, concluded from a buyer's perspective that the value of the
"Proved Developed" oil and gas reserves for Nova is $544,628.00. Spradlin
Engineering further estimates that the value of the "Proved Undeveloped"
reserves in the Colorado Comanche Creek Field is $21,460,576.00. The
Shareholders' Committee has not evaluated fully the potential for secondary
recoveries attributable to this Proved undeveloped category of reserves but does
note Spradlin's report fails to take into account the substantial capital costs
associated with any such secondary recovery efforts.
In another report prepared by Mr. Don Brause, a significant disclaimer is
raised related to these "Proved Undeveloped" reserves, due mainly to the data
source limitations pertaining to this type of reserve estimate. Mr. Brause
noted that Spradlin calculated the amount of reserves using volumetric analysis
and indicated substantially higher primary reserves in the Comanche Creek Field
than will likely be recovered by existing wells. The volumetric primary reserve
estimates were examined in order to determine the potential for Proved
Undeveloped Reserves within the Comanche Creek Field. The Shareholders'
Committee believes that Nelson Spradlin Engineering can make no representations
or warranties with respect to third-party data interpretation. Time
constraints, however, preclude an independent verification by Nelson Spradlin
Engineering of the volumetric reserves at this time. Due to the number of
variables, reserves determined by volumetric analyses are subject to
considerable error, and any new data received can greatly impact a reserve
estimate. Keeping these qualifications in mind the third-party reserve estimates
were reviewed and no apparent reasons were found for changing the estimates
based upon the information examined.
The essence of the "Proved Undeveloped" reserve qualification relates to
the probability of establishing additional reserves pending the drilling and
completion of additional wells to more completely exploit the existing oil in
place. For example, in his evaluation of the Wyoming and Colorado properties,
Dr. James Edwards, the consultant employed by the Chapter 11 Trustee, stated his
opinion that the reserve potential "would be worth investigating if the producer
has the appropriate cash flow steam." While the Committee is studying this
issue carefully, it is uncertain whether additional drilling within the field is
justified. If further study does indicate that additional drilling is
warranted, there will most certainly be costs associated with such activities
which are not accounted for in the "Proved Undeveloped" economic analysis
provided by Spradlin.
The Comanche Creek Field is located approximately 25 miles east-southeast
of Denver, Colorado. The field was originally discovered in 1971 by Shell Oil
Company and gradually developed to encompass some ninety-five (95) wells over an
area of about 11,000 acres. The ultimate complex also includes what is termed
the Deadeye Field. Production occurs from sandstones of the Lower Cretaceous
'D' and 'J' stratigraphic interval. Nova operates leases which include
twenty-four (24) wells capable of production. Other operators currently produce
oil and gas from approximately thirteen (13) wells; more than half of originally
drilled wells have been plugged and abandoned.
Don Brause, a former officer of Nova, currently manages the oil and gas
operations for the Debtor. At present, the Committee estimates that the Nova
wells are producing approximately $15,000 monthly gross revenue, or annual
revenues of about $180,000. In numerous conversations with Mr. Brause, the
Committee has learned that significant workover and remedial actions should be
undertaken in order to more efficiently continue with primary production of the
field. A plan covering such issues (the "Nova Wells Redevelopment Plan") is
discussed more fully in Section VII of this Disclosure Statement.
The three (3) Wyoming wells produce oil from three geographically separate
fields. All production is within the Powder River Basin, generally within 50
miles of Gillette, Wyoming. The Carey Federal #2 well is located near the
southeast end of the significant 'Gas Draw Field'. The Woods 'B' 14-1 is
located within the Wood Field and the Davis 24-33 is located in the Heath Field
in west-central Crook County, approximately 18 miles northwest of Moorcroft,
Wyoming. As of September 1, 1997, Spradlin Engineering attributed net remaining
oil reserves of less than 24,000 barrels for all Wyoming properties. The
Committee has had preliminary communication with Don Brause concerning these
properties and reserves comment on future potential until more data has been
reviewed.
The Trustee's expert, Dr. James Edwards, has estimated the net value of the
Nova Energy, Inc. oil and gas wells and equipment at $345,000. This does not
account for the certificates of deposit pledged with state regulators which may
also be recovered upon a sale of those assets.
9
<PAGE>
3. OTHER ASSETS
Debtor's other assets include certain causes of action and claims to funds
and property alleged to have been improperly transferred to Sidney Sers; his
wife, Patricia Sers; or his children, Amanda Sers and Timothy Sers. This
property may include funds held in foreign offshore bank accounts and funds
traceable to real or personal property. Additional assets of the Debtor may
also include (i) the Debtor's interest in ranches purportedly owned by Sidney
Sers; (ii) the Debtor's interest in the Nakatosh Hotel and Dinner Theatre in
Natchitoches, Louisiana; (iii) the Debtor's interest in a $650,000.00 Letter of
Credit issued by City Bank & Trust in Natchitoches, Louisiana, in favor of
Ecopetrol which may have expired; (iv) the value and tax benefits derived from
Debtor's net operating loss carrybacks and carryforwards ("NOL"); and (v) the
undetermined value from the Debtor's corporate status as a publicly traded
company.
10
<PAGE>
C. INTERNATIONAL CONCESSION GRANTED TO TRINITY GAS COLOMBIA BY ECOPETROL
-------------------------------------------------------------------------
1. THE FARALLONES CONTRACT
On May 28, 1995, Trinity Gas Colombia, Ltd. ("Trincol"), a Cayman
Island corporation was awarded the exclusive right to explore for, develop and
produce oil and gas throughout the 147,417 hectares (368,540 acres) within the
Farallones area of Colombia. Farallones is located in Colombia's Cauca Basin
east of the Cauca river, immediately east of the city of Cali. A map of the
region is attached hereto as Exhibit "C". Trincol and Empresa Colombiana de
-----------
Petroleos ("Ecopetrol") entered into an Association Contract ("Farallones
Contract") which requires Trincol to conduct a seismic and exploratory drilling
program in the Farallones area over the initial six years. (A copy of the
Farollones Contract will be made available for a nominal fee to any party who
makes a request to counsel for the Committee and executes a confidentiality
agreement). Unfortunately, Trinity Gas Corporation in its press releases
publicly disclosed that it was awarded the Farallones Contract, rather than
Trincol. At the end of each of the six years in the work program, Trincol has
the option either to withdraw from the Farallones Contract or to commit to the
next year's work requirements. The Committee understands that Trincol has
committed to the third year of the work program under this contract. If Trincol
makes a commercial discovery of oil and/or gas which is approved by Ecopetrol,
the standard terms of the Farallones Contract will apply. Such terms provide
for Ecopetrol to reimburse Trincol for 50% of its successful well costs expended
up to the point of commercial discovery and to receive a 20% royalty interest
therein. Additionally, Ecopetrol and Trincol will each own a 50% working
interest out of the remaining 80% net royalty interest ("NRI"). Trincol has
negotiated several extensions of the exploratory phase of the contract and has,
it is believed, until July 28, 1998, to conduct completion operations on four
wells drilled in the Concession to date.
2. THE PARTICIPATION AGREEMENTS
In July, 1995, the Debtor and Trincol purportedly executed an
agreement (the "1995 Agreement") whereby Trincol purportedly assigned to the
Debtor all of its right, title and interest in the Colombian Concession with the
proviso that Trincol would retain title to the Concession until the Debtor
completely performed its obligations. The 1995 Agreement also required the
Debtor to assume all obligations of Trincol incurred in connection with the
Concession and required that the Debtor provide ten million dollars
($10,000,000) in funding to Trincol for the drilling of the first four wells.
The 1995 Agreement further provided that if Trincol reasonably anticipated that
--------------
the Debtor would not, or if the Debtor could not, comply with its obligations
under the Concession, Trincol could cancel the 1995 Agreement without liability.
On July 25, 1996, the Debtor and Trincol purportedly entered a second agreement
(the "1996 Agreement"). The 1996 Agreement provided that the Debtor and Trincol
--------------
would share revenue from wells funded by the Debtor. That 1996 Agreement either
replaced or amended the 1995 Agreement and was intended to grant the Debtor only
--------------
limited rights in the Colombian Concession.
The Committee believes that serious questions exist as to the validity
and appropriateness of both the 1995 and 1996 Agreements. Those questions
---- ---------------
include, among others, (a) who on behalf of the Debtor and Trincol executed
those Agreements, (b) whether the signatures are valid, (c) whether the
Agreements accurately reflect the understandings between the Debtor and Trincol,
and (d) whether they are irrelevant because Trincol is a wholly-owned subsidiary
of the Debtor, Trinity Gas Corporation. Notwithstanding, Mr. Sers has recently
claimed that he personally owns all stock of Trincol and, as a result, all
rights to the Concession itself.
11
<PAGE>
3. DRILLING OPERATIONS
In June 1997, Trincol began drilling operations on the four wells.
Photographs of Trincol's drilling and exploration efforts in Colombia are
attached hereto as Exhibit "D". To date, drilling operations on the Juga #1,
-----------
Patacore #1, Salsa #1, and Bereju #1 wells in Colombia have not yet resulted in
any known, proven, accessible oil and gas reserves. According to Dr. James
Edwards, a petroleum geologist retained by the Chapter 11 Trustee, poor hole
conditions have made it difficult to fully evaluate open hole log
characteristics of the first well drilled, the Juga #1. Data concerning the
nature and composition of fluids and gasses in the wells is also unavailable.
Nevertheless, as Trincol continues exploration efforts in the Colombian
Concession, it is possible, but by no means certain, that significant,
commercially marketable reserves may be realized. (See Discussion of Risk
---
Factors at Section I.G). As stated by Dr. Edwards in his evaluation of Trincol
dated March 11, 1998, the Colombian Concession "can be summarized as a good
concept, marginal to good location, great market possibilities, but no proven
gas at the present time." (4)
D. MANAGEMENT HISTORY
-------------------
1. BOARD OF DIRECTORS AND OFFICERS
The Debtor has undergone several changes in the past year with respect
to its officers and Board of Directors. Before his resignation on January 12,
1998, Sidney Sers served as Trinity's CEO, and President. Sers also served as
Chairman of the Board for Trinity since 1993. Mr. Scriven A. Taylor, Jr., who
first became a director in 1995, was a Vice-President and Secretary of Trinity.
The third member of Trinity's Board of Directors was Mr. William W. Ruth
("Ruth"). Mr. Ruth also served as counsel and secretary for Trinity from April
1995 and July 1996, respectively, until his termination on October 9, 1997,
which Mr. Sers, then President of Trinity, confirmed at the October 21, 1997,
meeting of the Company's Board of Directors. At the October 21, 1997 Board of
Directors meeting, Sers also terminated Trinity's Vice-President of Investor
Relations, Mr. Richard E. Guillemin ("Guillemin"). With the resignation of Mr.
Sers, the Debtor's Board then consisted of Scriven A. Taylor, Jr. and William W.
Ruth. However, since the filing of Debtor's bankruptcy and subsequent
appointment of the Chapter 11 Trustee, the named Board of Directors is no longer
in operational control of the Debtor. The Chapter 11 Trustee has been in
operational control of the Debtor since his qualification.
E. SECURITIES AND EXCHANGE COMMISSION ISSUES
---------------------------------------------
- -------------
(4) A copy of Dr. Edwards' report is available after the Court's approval
of this Disclosure Statement upon request by contacting counsel for
the Committee. A fee of $15 per copy will be charged for reproducing
and mailing the report. Additionally, all documents referenced in this
Disclosure Statement will be made available for review and inspection
at the law offices of the Committee's counsel, Andrews & Kurth, L.L.P.
in Dallas, Texas.
1. SEC FILINGS
Although the Debtor's stock has been publicly traded, the Committee
understands the Debtor has not filed a registration statement with the SEC and
has not filed the required periodic financial reports. Trinity Gas Corporation
employed Robert Yeager of Dallas and the law firm of Sheinfeld, Maley & Kay and
particularly Lee Polson of its Austin, Texas office, as its securities attorneys
to assist in having the company qualify as a reporting company within the
meaning of the 1934 Securities Act. On July 25, 1997, Lee Polson, as one of the
Company's securities attorneys prepared an information sheet required by Rule
15c-2(11)(a)(5) of the Securities Exchange Act of 1934 (the "15c-2(11)"). The
Debtor mailed approximately 20 copies of the 15c-2(11) proposed filing to
investors and brokerage firms, including Merrill Lynch, A.G. Edwards, Paine
Webber, Edward Jones, Fidelity, Charles Schwab and Oppenheimer. This document
was also sent to various brokerage firms.
12
<PAGE>
2. RESIGNATION OF DEBTOR'S ACCOUNTANTS
In June 1997, the Debtor retained the accounting firm of Samson
Robbins & Associates, P.L.L.C. ("Samson Robbins") to prepare audited financial
statements for the period ending December 31, 1996 in order to qualify the
company as a reporting company within the meaning of the 1934 Securities Act.
Many potentially questionable transactions came to light while Samson Robbins
was attempting to audit the Debtor's books for the December 1996 fiscal year.
Events climaxed when the Samson Robbins resigned as auditors on October 6, 1997,
stating in their resignation letter that in their opinion the Debtor's financial
statements for the years 1993, 1994, and 1995 contained material misstatements;
that Mr. Sers had misused Debtor's funds; that the Debtor had disseminated
highly inflated oil and gas reserve data; that significant amounts of Debtor's
stock appeared to have been issued using questionable exemptions under Rule 144
of the 1933 or 1934 Securities and Exchange Acts; and that Mr. Sers had sold a
substantial amount of unregistered stock through unlicensed and unregistered
broker-dealers. The resignation of Samson Robbins triggered Messrs. Ruth and
Guillemin to seek the advice of outside counsel and soon led to an investigation
of the Company and Mr. Sers by the SEC.
3. THE SEC INVESTIGATION AND ENFORCEMENT ACTION
In October 1997, the SEC began its investigation into the market
activity of Debtor's stock and the adequacy and accuracy of publicly
disseminated information concerning the valuation of the Debtor's assets, the
results of its oil exploration operations, and the resignation of its auditors.
On November 6, 1997, the SEC exercised its statutory authority to order a ten
(10) day trading suspension of the Debtor's stock. The suspension ended on
November 16, 1997. On December 8, 1997, the SEC filed a complaint against the
Debtor, Sidney W. Sers and other nominal plaintiffs in the U. S. District Court,
Northern District of Texas, Fort Worth Division, styled Securities and Exchange
Commission v. Trinity Gas Corporation, Sidney W. Sers, et al., Case No.
4-97CV-1018Y (the "SEC Enforcement Action"). The SEC alleged numerous
violations of the Securities Act of 1933 and the Securities Exchange Act of 1934
by Sers and the Debtor, including (i) fraud in connection with the purchase and
sale of securities; (ii) fraud in the offer and sale of unregistered securities;
and (iii) the unauthorized selling of unregistered securities.
In the SEC Enforcement Action, the SEC requested a temporary
restraining order and a preliminary injunction against the Debtor and Sers, an
order requiring the repatriation and return of all funds and of all the
defendants' assets held outside the District Court's jurisdiction, a freeze
order prohibiting the Debtor, Sers, and Sers' family, from withdrawing or
transferring monies or securities from any bank or securities brokerage account,
and an order freezing any securities of Debtor and funds received directly or
indirectly from the sale of Debtor's stock. In addition, the SEC Enforcement
Action seeks to require the Debtor to disgorge funds allegedly acquired through
the fraudulent sale of stock and seeks to impose civil penalties and fines
against the Debtor.
13
<PAGE>
From the inception of the SEC Enforcement Action, Messrs. Ruth and
Guillemin assisted the SEC by submitting affidavits to support the SEC in
obtaining a temporary restraining order and preliminary injunctive relief
("TRO") against Sidney W. Sers. Based in part on the information provided by
Messrs. Ruth and Guillemin, on December 9, 1997, Judge Terry Means issued the
TRO granting the relief requested by the SEC (except for the repatriation of
funds) and freezing of more than $3 million of assets and transferring an
additional $600,000 directly to the Chapter 11 Trustee due to Sers'
impermissible use of corporate funds to pay for personal retainers. The
remaining funds are currently held in the registry of the Federal District Court
in Fort Worth ("Frozen Funds"). In addition to the SEC and Chapter 11 Trustee,
claims to the Frozen Funds are also being made by the Defendant members of the
Sers Group, including Timothy Sers.
On January 6, 1998, the District Court entered a preliminary
injunction and ordered the repatriation of Debtor's funds that Sers caused to be
improperly transferred. Next, on January 26, 1998, U.S. District Judge Terry
Means issued a warrant for the arrest of Sers for his deliberate and intentional
violation of the December 9, 1998, TRO and the Court's January 6, 1998, order.
The basis for the issuance of the arrest warrant, among other things, was that
on December 8, 1997, Mr. Sers caused to be wire transferred $800,000 from the
checking account of Amanda Sers to a bank account of Trinity Gas Colombia in
Bermuda. Furthermore, in the SEC Enforcement Action Mr. Sers has repeatedly
asserted his 5th Amendment rights to avoid requests for information and his
testimony under oath by the SEC. Mr. Sers has remained in Colombia and has not
returned to the United States. The current status of the SEC Enforcement action
is that the SEC is actively prosecuting the case and intends to recover judgment
against Mr. Sers and the other defendants.
Assuming the SEC prevails in the Enforcement Action, it is unclear
whether the SEC will consent to release of the approximately $3.0 million in
Frozen Funds to be utilized in a chapter 11 plan. In the event of the SEC's
litigation success, it may release those funds under the terms of a potential
settlement the terms of which have been discussed by the SEC and Chapter 11
Trustee but not disclosed fully to the Committee. However, the timing for
release of those funds is indeterminant because it is difficult to predict when
the litigation will be concluded and if and when the above mentioned settlement
will be finalized, agreed to by the National Office of the SEC, approved by the
District Court, and, if necessary, the Bankruptcy Court. A more detailed
discussion of the potential settlement between the Trustee and the SEC is set
forth in Section VIII of this Disclosure Statement. The manner in which the SEC
continues to prosecute the SEC Enforcement Action and the outcome of the
litigation generally could materially affect the implementation of the Debtor's
reorganization.
F. OUTSTANDING SHARES OF STOCK
------------------------------
The Debtor's common stock is traded on the Bulletin Board. The
National Quotation Bureau Semi-Annual Stock Summary for the period ending June
30, 1997 reflects that as of October 28, 1997, the Debtor had 94,733,211 shares
outstanding and approximately 1,675 shareholders of record, not including shares
held in "street" or ""nominee" name. Of the 94,733,211 shares, 76,978,251 are
restricted shares; 17,754,960 are unrestricted. The Debtor's transfer agent is
the American Securities Transfer, Inc., P.O. Box 1596, Denver, Colorado
80201-1596.
During the Debtor's corporate existence, the Committee believes that
Mr. Sidney W. Sers caused substantial shares of the Debtor's stock to be issued
for little or no known consideration. The following is a summary of some such
stock issuances:
- In October 1997, Mr. Sers proposed a stock option grant to himself of
15 million shares of unrestricted Trinity stock. The stock option
agreement was discussed at a meeting of Debtor's board of directors
held on or about October 21, 1997. When board member William Ruth
objected to Mr. Sers' proposal, Mr. Sers had Mr. Scriven Taylor in
late October, 1997 approve a board resolution signed only by Messrs.
Sers and Taylor approving that agreement. Mr. Taylor also executed a
transmittal letter instructing the Debtor's transfer agent, American
Stock Transfer, Inc. to issue 15 million non-restricted shares to
Sers. The transfer agent, however, refused to issue the shares as
unrestricted and instead issued Mr. Sers stock bearing a restricted
legend.
14
<PAGE>
- In June 1996, Mr. Sers caused the Debtor to issue 10 million shares of
stock to the Nakatosh Hotel in Natchitoches, Louisiana. Although 7.5
million of the shares were later cancelled in August 1997, 2.5 million
of the original 10 million shares remained outstanding. Of that stock,
approximately 1.4-1.6 million shares were sold by the Nakatosh Hotel
for unknown consideration.
- In August 1996, Mr. Sers caused the Debtor to issue 5 million shares
in the names of his two cattle ranches, 2.5 million shares to his
wife, and 2.5 million shares to his son, Matthew Sers. Although Mr.
Sers cancelled 7.5 million of those shares on August 6, 1997, Mr. Sers
appears to have allowed his wife to retain 2.5 million shares.
- According to the SEC, Mr. Sers enlisted the assistance of a number of
individuals who have sold numerous shares of Mr. Sers' personal
restricted stock for an undetermined amount of compensation. Those
individuals who assisted Mr. Sers are believed to have been neither
licensed nor registered securities brokers as required by SEC Rules
and Regulations.
- In June 1996, Henry Crichlow, a registered professional engineer from
Norman, Oklahoma, prepared what was purported to be an "independent"
report concerning the Colombian Concession in exchange for one million
shares of Debtor's stock.
The following table sets forth certain information regarding
beneficial ownership of the Debtor's Common Stock as of February 18, 1998, by
(i) each person who is known by the Shareholders' Committee to own beneficially
more than one million shares of the Debtor's Common Stock, (ii) many of the
Debtor's former officers and directors, (iii) indicated recipients or
transferees of stock from Sidney W. Sers, and (iv) individuals who may have
received commissions for selling Common Stock of Trinity or the Sers Group from
January 1, 1995 to present.
<TABLE>
<CAPTION>
SHAREHOLDER RESTRICTED UNRESTRICTED
STOCK STOCK
- ----------------------------- -------------- ------------
<S> <C> <C>
(i)
Sidney W. Sers 23,437,491 22,641
Patricia Ruth Sers 2,500,000
Don Brause 1,340,000
Henry Crichlow 1,000,000
Crystal Coral LTD 1,250,000
Jay Jaroslav (5) 1,100,000
JAY JAROSLAV AND SUSAN ERONY 1,000,000
- ------------------
(5) Hold for others.
15
<PAGE>
CEDE & CO (6) 1,273,501 16,143,519
Richard Guillemin 1,105,000
(ii)
Sidney W. Sers 23,437,491 22,641
Scriven A. Taylor 127,350
William W. Ruth 830,000(7)
Richard E. Guillemin 1,273,5014(4)
Dr. James Noel 1,200,000
(iii)
Michael Wade Sers 169,667
Patricia Ruth Sers 2,500,000 5,440
Nakatosh Hotel, Inc. 140,672 167,882
(iv)
Jay Jaroslav 1,100,000
Farrell McAtee (unknown
amount)
Scott Solberg 80,000
William M. Shaughnessy
Nevada Agency & Trust Co.
</TABLE>
G. EFFORTS TO RIGHT THE COMPANY
--------------------------------
1. THE SHAREHOLDER DERIVATIVE ACTION
William W. Ruth and Richard E. Guillemin are stockholders, former
officers and in the case of William Ruth, a former director of the Debtor. Mr.
Ruth served as in-house counsel and Secretary for Trinity from approximately
April 1995 and July 1996, respectively, until October 9, 1997. Mr. Ruth had
been a director of Trinity since approximately January 1997. Mr. Guillemin
served as Vice President of investor relations of Trinity from January 1, 1997
to October 21, 1997. According to Mr. Ruth, he was dismissed by Mr. Sers on
October 21, 1997, when he refused to approve a proposal whereby Trinity would
issue Mr. Sers 15 million shares of stock through a proposed immediately
exercisable stock option grant. Contemporaneously with the dismissal of Mr.
Ruth and the resignation of Mr. Guillemin, Mr. Sers long-time secretary Juanda
Harrell also resigned from the company.
On December 9, 1997, Messrs. Ruth and Guillemin derivatively on
behalf of all Shareholders and Trinity Gas Corporation itself instituted a civil
action against Sidney W. Sers et al. in the United States District Court for the
Northern District of Texas, Fort Worth Division, styled Trinity Gas Corporation
Gas Corporation, by Richard E. Guillemin and William W. Ruth v. Sidney W. Sers,
et al; Civil Action No. 4-97-CV-1020Y (the "Shareholders Derivative Action").
- ------------------
(6) Cede & Co. acts as a clearinghouse and holding company for stock held
in "street name" or "nominee" title for investors not wanting stock
certificates to be issued to them.
(7) These figures include the Debtor's grants to William Ruth and Richard
Guillemin of 500,000 options each to purchase Common Stock in August
1997.
16
<PAGE>
The purpose of the Shareholders Derivative Action was to recover corporate
assets allegedly diverted by Mr. Sers for the benefit of all non-Sers Group
Shareholders. In the Shareholders Derivative Action, the following causes of
action were alleged against Sidney W. Sers, Trinity Gas Colombia, Ltd., Scriven
A. Taylor and the Nakatosh Hotel: (i) violations of Section 10(b) and Rule
10(b)-5 of the 1934 Securities Exchange Act (based on the issuance of Common
Stock to Sers, his affiliates, relatives, and entities under his control, on
multiple occasions, for wholly inadequate or no consideration); (ii) violations
of the Texas Securities Act (based on inadequate or no consideration for the
issuance of Common Stock to Sers on multiple occasions); (iii) Breaches of
Fiduciary Duties (based on Sers' and Taylor's misrepresentations and omissions
as constituting breaches of their fiduciary duties to the Debtor and its other
Shareholders); (iv) Common Law Fraud (based on Sers' and Taylor's failure to
disclose all material facts to the Debtor and its Shareholders); (v) State
Statutory Fraud (based on Sers' knowingly fraudulent misstatements or omissions
concerning material facts regarding the issuance of securities); (vi) Tortious
Conversion of Corporate Property (based on Sers' unauthorized withdrawal and use
of corporate funds for personal benefit); (vii) Negligent Misrepresentation
(based on Sers' and Taylor's false information for the guidance of others,
including the Debtor and its Shareholders, in their business transactions); and
(viii) Alter Ego (based on Sers causing the Debtor pay substantial amounts and
percentages of his personal expenses).
On February 11, 1998, the Chapter 11 Trustee, Henry C. Seals,
substituted himself for Messrs. Ruth and Guillemin as the plaintiff in the
Shareholders Derivative Action which is still pending in the Federal District
Court in Fort Worth. Messrs. Ruth and Guillemin effected service of process of
the lawsuit on Mr. Sers individually and as President of Trincol on January 14,
1998. Mr. Sers and Trincol did not file an answer responding to the allegations
in the lawsuit. Consequently, the District Court entered on February 11, 1998 a
default judgment against Mr. Sers individually and defendant Trincol (the "First
Default Judgment"). In the First Default Judgment, the Court ruled that Trincol
is the wholly owned subsidiary of the Debtor, Trinity Gas Corporation. On June
3, 1998, the Court entered a second default judgment against defendants Sidney
W. Sers, Scriven Taylor, and Trinity Gas Colombia, Ltd. on most remaining claims
for relief in the Shareholders Derivative Action (the "Second Default
Judgment"). The primary remaining issue to be determined in the Shareholders
Derivative Action is the amount of damages to be assessed against the
defendants. Recently, the Defendants have filed a Motion to Set Aside the
Default Judgment which initially the District Court refused to accept due to
non-compliance with certain local rules of court. The Motion to Set Aside the
Default Judgment has been refiled, but the District Court has not made a ruling.
Mr. Sers asserts that his failure to file an answer in the Shareholder
Derivative Action was because he relied on the representation of the Trustee's
counsel that if and when the Trustee decided to pursue the lawsuit, he would
notify Sers' counsel and provide him with an opportunity to file an answer. In
the event the First or Second Default Judgment is vacated, the Reorganized
Debtor will determine the appropriate litigation strategy to pursue going
forward in the Shareholder Derivative Action.
III. FACTORS LEADING TO CHAPTER 11 BANKRUPTCY
----------------------------------------
The SEC investigation of the Sers Group's activities, the SEC
Enforcement Action, and the Shareholders Derivative Action, were key
contributing factors that caused Mr. Sidney W. Sers, as Trinity's President to
seek Scriven Taylor Jr.'s support in filing for chapter 11 bankruptcy relief.
Essentially, from the Shareholders' Committee's standpoint, the Chapter 11
Petition appeared to be a defensive action intended by Mr. Sers to abort or
stall efforts by the SEC and Shareholders to recover and preserve the Debtor's
assets, including the Colombian Concession, that the Committee asserts had been
improperly diverted, transferred or claimed as being owned directly or
indirectly by members of the Sers Group.
IV. CHAPTER 11 EVENTS
-----------------
A. TRUSTEE'S ACTIONS
------------------
On January 9, 1998, Henry C. Seals was appointed Chapter 11 Trustee.
After his appointment, the Trustee continued the employment of Mr. Dave Mulcahy,
the Debtor's former office manager and friend of either Scriven Taylor, Jr. or
Sidney Sers, to manage the Debtor's business operations in its Brownwood, Texas
office. Mulcahy's signature also appears on the Debtor's Statement of Financial
Affairs filed on January 20, 1998.
The Trustee has prepared and filed monthly operating reports for
February, March, April, and May 1998. As of June 23, 1998, the Trustee had
approximately $202,676.41 in cash. On May 6, 1998, the Trustee stated in open
court that in the event of liquidation, shareholders will not receive any return
on their equity interests. The Trustee desires to liquidate the Debtor and he
recently filed a motion to convert the case to chapter 7. The hearing on the
motion to convert is scheduled for September 2, 1998. The Committee intends to
vigorously oppose that motion and is considering whether to file a motion to
terminate the Trustee under section 1105 of the Bankruptcy Code, and seek
approval to substitute the proposed new board of directors and senior management
in the Trustee's place. In the event the Committee's Plan is confirmed on that
date, the Trustee's motion to convert will become moot.
17
<PAGE>
1. HIRING OF PROFESSIONALS
Since his appointment, the Trustee has hired two accounting firms, two
law firms (one in Texas and one in Colombia), and a petroleum geologist. In the
first three months of bankruptcy, the Trustee's bankruptcy attorneys incurred
$311,020.00 in attorneys' fees and $34,164.65 in expenses. The Trustee's
attorneys incurred fees of $75,505.00 and expenses of $9,677.25 for work
performed in April, 1998, thus bringing the aggregate of fees and expenses
incurred by the Chapter 11 Trustee from January through April to $430,366.90.
Of these amounts, in excess of $300,000 has been paid to the Trustee's
professionals.
On March 20, 1998, the Trustee filed his Application to Approve
Employment of Samson Robbins & Associates, P.L.L.C. as Accountant for the
Trustee. Samson Robbins is the accounting firm which began conducting an audit
for the Debtor in 1997, but resigned when it discovered what it believed were
improprieties by Sidney W. Sers in the management and operation of Trinity.
The Shareholders' Committee filed a limited objection to the Trustee's
employment of Samson Robbins in which it requested that the Bankruptcy Court
impose a cap on fees and expenses of Samson Robbins and requested permission to
use Samson Robbins in connection with the Committee's Plan and Disclosure
Statement. The Bankruptcy Court, however, overruled the Shareholders'
Committee's limited objection and approved the Trustee's sole employment of
Samson Robbins without the cap.
2. ATTEMPTED LIQUIDATION OF MANY OF DEBTOR'S TEXAS ASSETS
The Trustee decided against trying to restart the Debtor's operation
of the Nitrex Gas Plant located in Coleman County, Texas (the "Gas Plant"). The
Trustee has relinquished the Debtor's interest in the Gas Plant back to the
lessor, UOP. UOP waived its unpaid rent claim (exceeding, according to its
calculations, $1 million) against Trinity and also assigned its claim to the
Trustee for the benefit of the Estate. On March 24, 1998, the Court entered an
order lifting the automatic stay to allow UOP to take possession of the Gas
Plant. UOP has repossessed, sold and had the Gas Plant removed to Kentucky.
The Trustee has undertaken to sell the remaining assets associated with the
operation of the Gas Plant, as well as the approximately two-acre tract of land
upon which the Gas Plant was located for in excess of $100,000 (as discussed
below). However, as explained below, Sidney W. Sers asserts this land belongs
to him personally and not Trinity. Earlier this year, the Trustee closed the
Trinity office at the NationsBank Building in Brownwood, Texas (the "Brownwood
Office") and moved all of Trinity's books and records to Dallas/Fort Worth. In
order to sell certain oil and gas related properties used in the operation of
the Gas Plant and certain office equipment and furnishings in the Brownwood
Office, the Trustee filed Motions seeking authority to do so.
3. SALE MOTIONS
On April 1, 1998, the Bankruptcy Court held a hearing on the Trustee's
Motion for Authority to Sell Property of the Estate (Certain West Texas Gas
Wells and Related Property) Free and Clear of Liens (the "Sale Motions").
However, Mr. Sers' counsel, the law firm of Haynes and Boone, filed an objection
to the Trustee's Sale Motion, notwithstanding the fact that Mr. Sers has a
warrant for his arrest in the United States and apparently remains in Colombia.
In the objection, Mr. Sers asserted that certain of the properties which the
Trustee sought to sell belonged to him personally. The Trustee noticed Mr. Sers
for his deposition with respect to this matter, but Mr. Sers informed the
Trustee he would not appear for the deposition, and thus far he has not
appeared for such a deposition asserting his Fifth Amendment rights not to
testify.
At the hearing, the Bankruptcy Court concluded that it could not sell
the property without first making a determination of property ownership in a
hearing on a motion to sell the property, and that due to Sers' assertion of
title, the true ownership of the property must be determined through an
adversary proceeding before the Bankruptcy Court could sell the property. The
Bankruptcy Court, however, entered an order allowing the Trustee to sell the
remaining property in which Sers did not claim an interest, and also the
Company's office furnishings. Those sales have been closed. Bids for all the
equipment, wells, and real property associated therewith exceeded $100,000.
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4. TRUSTEE'S LITIGATION
A. THE DECLARATORY COMPLAINT
---------------------------
Based upon the Court's rulings on April 1, 1998, the Trustee filed his
Complaint for Declaratory and Other Relief (the "Declaratory Complaint")
commencing Adversary Case No. 698-6007, styled Henry C. Seals, Chapter 11
Trustee of the Estate of Trinity Gas Corporation v. Sidney W. Sers and Patricia
Sers, in the United States Bankruptcy Court for the Northern District of Texas,
San Angelo Division, requesting that the Court declare certain disputed
property, including a 330 acre tract of land in Brown County, Texas, direct cash
transfers from the Debtor to Sidney and Patricia Sers, and numerous items of
personal property used in connection with the Gas Plant and other associated
oil, gas and mineral operations of the Debtor (to which Sers claims ownership)
to be property owned by the Estate. The Trustee has served the Declaratory
Complaint and summons upon Patricia Sers and has served such papers upon Sers in
Colombia. Mr. Sers claims that proper service has not been achieved upon him in
Colombia, and the Bankruptcy Court conducted a hearing on June 30, 1998, to
consider the Trustee's Motion to Confirm Effective Service of Process. The
Bankruptcy Court has not ruled on the Motion, but has entered an order vacating
until further notice, the trial in this lawsuit.
B. FRAUDULENT CONVEYANCE COMPLAINT
---------------------------------
The Trustee also filed a Complaint to Avoid and Recover Fraudulent
Transfers (the "Fraudulent Conveyance Complaint") on March 9, 1998, commencing
Adversary Case No. 698-6004, against Sidney Sers, Patricia Sers, Timothy Sers,
and Amanda Sers. The Fraudulent Conveyance Complaint seeks recovery of cash
payments and other assets allegedly transferred by or through Trinity to the
Sers family. The alleged Fraudulent Conveyance Complaint also seeks repayment
of losses suffered by Trinity through the improper acquisition of assets by the
defendants to the detriment of Trinity. The Trustee initially had difficulty
serving the defendants with the Fraudulent Conveyance Complaint and summonses
in this adversary proceeding (lawsuit), but has since been able to achieve
service upon Patricia, Matthew, Amanda and Timothy Sers. The Trustee entered
into an agreement with each of those defendants to extend their answer date
until May 1, 1998. Mr. Sers claims that proper service has not been achieved
upon him in Colombia, and the Bankruptcy Court conducted a hearing on June 30,
1998, to consider the Trustee's motion to Confirm Effective Service of Process.
The Bankruptcy Court has not ruled on the Motion, but has entered an order
vacating until further notice, the trial in this lawsuit.
5 TURNOVER OF TRINITY RECORDS
The Trustee requested Max Chapman & Company, P.C. (the "Chapman
Firm"), an accounting firm which was employed by Trinity in late 1997, turn over
all documents and work papers related to the Debtor. When the Chapman Firm
refused the Trustee's requests and the Trustee sought an order requiring the
Chapman Firm to turn over all Trinity documents. The Bankruptcy Court entered
its Order Granting Motion for Turnover of Property Held by Max Chapman &
Company, P.C. on February 13, 1998, but the Chapman Firm still refused to
comply. On April 8, 1998, the Trustee filed Trustee's Application for Order
Directing Max Chapman & Company, P.C. to Show Cause Why it Should Not be Held in
Civil Contempt. Since the Trustee filed the Application to Show Cause, the
Chapman Firm has turned over the documents and work papers to the Trustee, and
the Trustee has withdrawn his motion based upon the affidavit on Max Chapman
that all such documents have been delivered to the Trustee.
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<PAGE>
6. EFFORTS TO COMPEL TRUSTEE TO EXECUTE PARTICIPATION AGREEMENT
On June 25, 1998 a group of Shareholders located primarily in the
Western Region of the United States (the "West Coast Shareholders") filed a
Motion to Authorize and Direct Trustee to Enter into Participation Agreement
(the "1998 Agreement"). Essentially the 1998 Agreement proposed by the West
Coast Shareholders would require the Debtor to fund the cost of drilling,
producing, and maintaining wells pursuant to the Farallones Contract, while
allowing Trinicol and its putative president, Sidney W. Sers, to maintain
ownership, management, control, and decision making authority regarding rights
under the Farallones Contract. In exchange, the Debtor would be entitled to
receive a specified percentage from the net revenues. The 1998 Agreement is
strikingly similar and contains nearly identical terms to the 1996 Participation
Agreement which the Committee has reason to believe was executed by Sidney W.
Sers without proper authority of Trinity's Board of Directors. Under the 1998
Agreement, the Debtor shall be obligated to pay Trincol for all costs, expenses
and contractual liabilities associated with ownership, operation and maintenance
of the four wells. All decision making authority concerning operations,
drilling and general business decisions will be made by Trincol and not the
Debtor. Trincol is also entitled under the 1998 Agreement to receive an
overriding royalty interest equal to an undivided 5% of gross production
revenues from any well funded by the Debtor and drilled by Trincol pursuant to
the 1998 Agreement and the Farallones Contract. Under the 1998 Agreement,
Trincol or the Debtor could also terminate the Agreement pursuant to the liberal
termination provisions in Section 6 of the Agreement.
The Bankruptcy Court scheduled a hearing on the Motion for July 20,
1998. The Committee and Chapter 11 Trustee objected to the Motion on grounds
the 1998 Agreement is not in the best interests of the estate because it allows
Sidney W. Sers, a man the Committee contends has limited technical expertise in
oil and gas, to remain in control of the Colombian Concession. Furthermore, the
proposed 1998 Agreement does not sufficiently protect the Debtor's rights in the
Colombian Concession because, it fails, among other things, to recognize the
Committee's contention that Trincol is the wholly owned subsidiary of the
Debtor. The Bankruptcy Court denied the Motion at the July 20th hearing.
B APPOINTMENT OF SHAREHOLDERS' COMMITTEE AND EMPLOYMENT OF COUNSEL
-----------------------------------------------------------------------
On February 5, 1998, the United States Trustee appointed the Official
Committee of Equity Shareholders (the "Shareholders' Committee"). The current
members of the Shareholders' Committee are: Dennis E. Hedke, Chairman (Wichita,
Kansas); Bill Bricka (Roswell, Georgia); Roger Curtis (Casper, Wyoming); Uwe
Grannemann (Roswell, Georgia); Dr. Donald S. Hanser (Houston, Texas); Gary
Pippin (Tulsa, Oklahoma; and Art Teichgraeber (El Dorado, Kansas). As a
condition to accepting appointment as a member of the Shareholders' Committee,
each member executed a Confidentiality Agreement and agreed not to trade in
Trinity stock during the pendency of the bankruptcy case.
To assist the Shareholders' Committee in this case, the Committee
hired the law firm of Andrews & Kurth to represent it. Although the Chapter 11
Trustee and Sers objected to the Shareholders' Committee's retention of Andrews
& Kurth, the Bankruptcy Court approved Andrews & Kurth's employment as counsel
for the Shareholders' Committee on April 1, 1998. The Shareholders' Committee
has held telephonic meetings on a regular basis to monitor the progress of this
bankruptcy case and has shared information with the Trustee concerning the
status of the Colombian Concession. In addition, Committee member Dennis E.
Hedke, a geological and geophysical professional consultant, traveled to
Colombia to evaluate and report on the status of the Colombian Concession.
Hedke concluded that the Colombian Concession does have value to the estate,
which is as yet undefined because Trincol has yet to attempt to complete the
drilled wells. The Committee believes immediate efforts should be made to
secure the Debtor's interest in the Concession. Additionally, significant
contact has been made with Ecopetrol which the Committee believes can establish
a framework for future discussions.
Recently, the Committee has focused its efforts by communicating with
Shareholders and working with the new management team in proposing and obtaining
confirmation of a plan of reorganization that will enable Trinity to emerge from
chapter 11 bankruptcy as soon as possible as a commercially viable oil and gas
exploration company. To this end, the Committee has gathered available
information, investigated and attempted to evaluate the Debtor's current
business operations and has organized a new management team and board of
directors.
20
<PAGE>
V. DESCRIPTION OF THE COMMITTEE'S PLAN OF REORGANIZATION
-----------------------------------------------------------
THE STATEMENTS CONTAINED HEREIN INCLUDE SUMMARIES OF PROVISIONS
CONTAINED IN THE COMMITTEE'S PLAN, A COPY OF WHICH ACCOMPANIES THIS DISCLOSURE
STATEMENT, AND IN DOCUMENTS REFERRED TO THEREIN. THE STATEMENTS CONTAINED
HEREIN DO NOT PURPORT TO BE PRECISE OR COMPLETE STATEMENTS OF ALL OF THE TERMS
AND PROVISIONS OF THE COMMITTEE'S PLAN OR DOCUMENTS REFERRED TO THEREIN, AND
REFERENCE IS MADE TO THE PLAN AND SUCH DOCUMENTS FOR THE FULL AND COMPLETE
STATEMENT OF SUCH TERMS AND PROVISIONS. THE PLAN ITSELF AND THE DOCUMENTS
REFERRED TO THEREIN AS BEING FILED CONTEMPORANEOUS WITH THE APPROVAL OF THE
DISCLOSURE STATEMENT WILL CONTROL THE TREATMENT OF CREDITORS AND COMMON
STOCKHOLDERS AND, UPON CONFIRMATION, WILL BE BINDING UPON THEM, THE REORGANIZED
DEBTOR AND OTHER PARTIES.
A. CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS
----------------------------------------------------------
According to the Registry of Claims in this case, approximately 44 creditor
Claims were timely filed on or before the bar date of May 4, 1998. An additional
67 claims are listed in the Debtor's bankruptcy schedules as unsecured or
priority creditors claims, although those holders filed no corresponding proofs
of claim. The aggregate amount of the timely filed Claims, excluding settled
claims; claims of the Sers Group, Claims of vendors having performed work for
Trincol; Claims of taxing authorities, and late filed Claims, approximates less
than $200,000. (8) The Committee contends that more than 90% of the scheduled or
filed Claims in amount, are disputed ("Disputed Claims"), and should be
disallowed or substantially reduced as Creditor Claims. The Committee is in the
process of objecting to those Disputed Claims. Likewise, the Committee has
identified and classified certain interests that should also be disallowed or
substantially reduced ("Disputed Interests"). For purposes of Plan confirmation
and voting, the Committee, if necessary, under Bankruptcy Rule 3018(a), will
request that the Court estimate the Disputed Claims at $0.00 and preclude
Disputed Claims and Disputed Interests (primarily those of the Sers Group) from
having their votes considered. Disputed Claims and Disputed Interests to which
the Committee intends to preclude from voting on the Plan are listed in Section
V.B.2 of this Disclosure Statement. Only the votes of Allowed Claims and Allowed
Interests will be counted.
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<PAGE>
1. CLASSIFICATION
General
The Interests of Shareholders and Claims of Creditors against the
Debtor, to the extent Allowed by the Bankruptcy Court, are classified as set
forth in this Article II of the Plan. The Claims or Interests in a particular
Class are designated only to the extent that each such Claim or Interest fits
within the description of such Class and shall be a part of a different Class or
Classes to the extent that the remainder thereof or a portion thereof fits
within the description of another Class or Classes. A Claim or Interest is
entitled to the treatment provided herein only to the extent that the Claim or
Interest is an Allowed Claim or Allowed Interest in that Class and has not been
paid, released or otherwise satisfied before the Effective Date. Disputed
Claims to which the Committee intends to object and seek to have disallowed or
reduced were not included in estimating the total amount of claims in each
class. The Class 8 interests of the Sers Group has been separately classified
pursuant to the authority in 11 U.S.C. 1122 and applicable standards governing
- ----------------
(a) Settled Claims include: (i) the $4.1 million claim of Don Brause which
--------------
is being withdrawn pursuant to a settlement reached with the Committee and
incorporated in the Plan; (ii) Fomby Compressor's gas compressor rental
claim of $21,281.75 reduced by settlement to $13,000; (iii) UOP's Claim of
$1,000,000+ eliminated when the Debtor returned the Brownwood, Texas gas
plant to UOP; and (iv) Claims of William Ruth and Richard Guillemin of
$110,000 which will be withdrawn as part of the Class 10 Settlement under
the Plan;
(b) Sers Group Related Claims include, among others, (i) Trinity Gas
---------------------------
Colombia's scheduled but not filed Claim of $1,521,268.91; (ii) Scriven
Taylor's attorneys fees claim of $11,916; (iii) Sid Ser's life insurance
company's scheduled claim of $20,000; (iv) Brownwood Country Club's claim
of $219.88; and (iv) Black Swan Jet Charter's claim for $9,723.36 incurred
by Mr. Sers in visiting a Wyoming site for a prospective ranch purchase;
(c) Trinity Gas Colombia Vendors Claims include Marlin Drilling's claim of
-----------------------------------
$681,077.01 and Exploration Technologies' claim of $15,753.93; and
(d) Taxing Authorities Claims include (i) Coleman County taxes of
----------------------------
approximately $11,000 relating to UOP's gas plant equipment which the
Committee asserts UOP should pay; and (ii) the IRS claim of approximately
$3,200,000 which has no supporting documentation and the Committee asserts
was late filed.
22
<PAGE>
classification as articulated in Heartland Federal Savings & Loan Ass'n v.
Briscoe Enterprise Ltd., II, 994 F.2d 1160 (5th Cir. 1993). In particular, the
Committee asserts that the Sers Group, including primarily Mr. Sers, acquired
its stock improperly, for insufficient consideration, and/or in violation of
federal securities laws. The Sers Group also occupies a different position
than that of other stockholders because its members are named defendants in one
of more than four lawsuits: two Avoidance Actions brought by the Trustee; the
SEC Enforcement Action brought by the SEC and the Shareholders Derivative Action
brought by Messrs. Guillemin and Ruth on behalf of other Trinity shareholders.
Moreover, Mr. Sers is obligated to pay in excess of $850,000 into the registry
of the District Court and the SEC Enforcement Action. The Class 8 interests
are not substantially similar to other equityholders in Classes 6 and 7. The
Committee's Plan divides Allowed Claims of Creditors and Allowed Interests of
Common Stockholders into the following classes:
Unclassified Claims
Administrative Claims and Tax Claims are not classified under the
Committee's Plan in accordance with Section 1123(a)(1) of the Bankruptcy Code.
Administrative Claims under Section 503 of the Bankruptcy Code include expenses
of the Chapter 11 Trustee and the Committee, the fees and expenses of various
professionals, including the Trustee's attorneys, the Committee's attorneys,
Trustee's accountants, and other professionals. Administrative Claims may also
include Claims based on postpetition services rendered to the Estate including,
but not limited to, the claim of NationsBank for postpetition rent. The
estimated total of Administrative Claims is $650,000. Tax Claims (not including
the Disputed Claim of the I.R.S. for $3.2 million) total approximately $12,000
and third party lessors, as opposed to the Debtor, may be responsible for a
significant portion of those Tax Claims.
Class 1 - Priority Claims
This Class consists of all Claims entitled to priority under Section
507 of the Bankruptcy Code other than Administrative Claims and Tax Claims,
including employee wage claims under Section 507(a)(3). The Shareholders'
Committee estimates those Claims at approximately $5,000.
Class 2 - Secured Claims
This Class consists of the Secured Claims of Secured Creditors, if
any, of the Debtor, to the extent the value of the property that secures such
Claim equals or exceeds the replacement value of such Claim pursuant to Section
506 of the Bankruptcy Code, but excluding, the undersecured portion, if any, of
each such Creditor's Claim, which portion shall be classified as an Unsecured
Claim. At present, the Committee is unaware of any such Claims.
Class 3 - Convenience Class of Small Unsecured Creditors
This Class consists of the Unsecured Claims that either are owed less
than $500 each or are reduced by agreement of the holder thereof to an amount
less than $500 each, including Allowed Claims arising out of rejected Executory
Contracts. The Plan takes advantage of Section 1122(b) of the Bankruptcy Code
which expressly authorizes a plan of reorganization to classify smaller
unsecured creditor claims or those creditors willing to reduce their claims to a
stated amount. This Plan establishes a separate class of convenience creditors
for those approximately 50 such creditors with claims of $500 or less. The
Committee estimates the payment of 95% of such claims will total $15,000 or
less. Numerous courts have upheld such a classification: In re Greystone III
-------------------
Joint Venture, 995 F.2d 1274 (5th Cir. 1991), on rehearing, cert. denied 113 S.
------------ ----- ------
Ct. 72, 121 L. Ed. 2d 37; In re United Marine, Inc., 197 B.R. 942 (Bkrtcy. S.D.
-------------------------
Fla. 1996), (holding class of Claim of $1,000 or less was a permissible class);
In re Piece Goods Shops, L.P., 188 B.R. 778 (Bkrtcy. M.D.N.C. 1995) approving a
- ------------------------------
second convenience class of claims greater than $200 and less than $2,500.
- ------
23
<PAGE>
Class 4 - General Unsecured Claims
This Class consists of all Unsecured Claims exclusive of Tax Claims,
Administrative Claims, Class 1 Priority Claims, Class 2 Secured Claims, Class 3
Convenience Claims, and Class 5 Claims owed by Third Parties. The Committee
estimates that the Allowable Class 4 Claims total approximately $50,000. A
number of the Disputed Claims may have all or a portion of their Claim Allowed.
The total of those Claims range from $20,000 on the less side to $100,000 on the
high side.
Class 5 - Claims Owed by Third Parties
This Class consists of the Unsecured Claims of Creditors who have
timely filed Proofs of Claim and which, according to the books and records of
the Debtor, are owed by Trincol, members of the Sers Group or other third
parties and not the Debtor. At least two such Claims exist in this Class,
totaling approximately $700,000, including Claim No. 41 of Marlin Drilling for
$681,077.01. According to discussions with counsel for Marlin Drilling, the
legal basis for its claim may include, but is not limited to, the theory that
Trincol is an alter ego of Trinity Gas Corporation and therefore the Debtor
should be liable for its debts.
Class 6 - Interests or Common Stock Constituting Restricted Securities
This Class consists of those shares of Common Stock that are either
(a) treated for purposes of the books and records of Trinity Gas Corporation as
being Restricted Securities; (b) considered as being Restricted Securities as
defined herein or for any purpose under the 1933 and 1934 Securities Act, their
rules and regulations, including but not limited to SEC Rules 144 and 145 and
Regulations A and D; or (c) are subject to resale restrictions under applicable
rules and regulations of the SEC. As of February 18, 1998, the records of
Trinity Gas Corporation's Stock Transfer Agent reflect an aggregate of
approximately 77 million shares of Common Stock as being Restricted Securities
including approximately 30 million shares held by the Sers Group.
Class 7 - Unrestricted or Free Trading Common Stock
This Class consists of those shares of Common Stock (a) not considered
---
by the books and records of both Trinity Gas Corporation and its Stock Transfer
Agent to be Restricted Securities; (b) not otherwise considered to be Restricted
---
Securities by the SEC; and (c) not subject to any resale limitations under the
---
1933 and 1934 Securities Acts, their rules and regulations ("Unrestricted
Securities" or "Free Trading Stock"). As of February 18, 1998, the amount of
Unrestricted Securities according to the books and records of the Stock Transfer
Agent approximated 17 million shares, including less than 1 million shares held
by the Sers Group.
Class 8 - Common Stock held by Sers Group
This Class consists of the Common Stock (including both Restricted and
Unrestricted Securities) held by the Sers Group as of the Petition Date
(estimated at 30 million shares) together with any or all other Common Stock
subsequently acquired by any such member or Affiliate of the Sers Group.
Class 9 - Common Stock Issued as a Sales Commission
This Class consists of the Common Stock acquired by or issued to any
person acting in a direct or indirect capacity of selling or reselling Common
Stock of Trinity or a member of the Sers Group from January 1, 1995 to present.
The number of such Shareholders is relatively limited, estimated by the
Shareholders' Committee at between 5 and 15 Holders.
25
<PAGE>
Class 10 - Certain Insiders
This Class consists of former officers and employees of Trinity Gas
Corporation (other than the Sers Group) who acquired grants, stock options, or
year-end bonus distributions of Common Stock of Trinity Gas Corporation
including, but not limited to, Jody Day, Richard Guillemin, Juanda Harrell, and
William Ruth. The number of Shareholders in this Class is limited, estimated by
the Shareholders' Committee at four or five.
Capital Formation Through New Investor Group
As part of the Reorganized Company's capital financing strategy, the
New Investor Group being organized by proposed new management of the Reorganized
Company would have the right to purchase an amount of New Common Stock equal to
the amount represented by the Rights Offering and/or exercise any Rights not
exercised timely by shareholders for an additional period as determined by the
Board of Directors beyond the Rights Expiration Date and at a price determined
by the New Board of Directors, but not less than 25 per share. New Management
has contacted certain third party investors who have expressed interest in
providing capital to the Reorganized Company by becoming part of the New
Investor Group.
2. TREATMENT OF CLAIMS OF CREDITORS
Under the Chapter 11 Plan, no payments or distributions shall be made
on account of a Disputed Claim until such Claim becomes an Allowed Claim. As
previously stated, the Committee intends to object to and will seek to have
disallowed a substantial number of Claims which it believes are not owed by the
Debtor, thus bringing the aggregate number of Allowed Claims to a manageable
number which will be paid under the Chapter 11 Plan. The Committee also intends
to settle and compromise certain Claims, as set forth in Section V.B. of this
Disclosure Statement, including the Claim of Don and Martha Brause, the Claim of
Richard Guillemin and the Claim of William Ruth. The source of payments to
creditors under the Plan includes, but is not limited to, (1) cash in the
Debtor's estate on the Effective Date; (2) any proceeds from recoveries in the
Avoidance Actions; (3) proceeds from the sale of estate property; (4) net
revenue from the Nova Wells; (5); the Frozen Funds; and (6) capital infusion
from third party investors.
Administrative Claims
In accordance with Section 1129(a)(9) of the Bankruptcy Code, on the
Effective Date of the Plan, each holder of an Allowed Administrative Claim shall
receive, in full satisfaction of such Claim, cash equal to the Allowed amount of
such Claim, unless such holder and the Committee shall have agreed to different
treatment of such Claim. The Shareholders Committee is hopeful at arriving at
an agreement with the Trustee's Counsel and Committee's Counsel will voluntary
reduce their fees and agree to be paid a percentage of the amount owed to each
by the Bankruptcy Court on the Effective Date or date of allowance of such fee
with the remainder to be paid out of the first proceeds received from the
Avoidance Actions. The other Administrative Claims, once Allowed, will be paid
in full. The first net proceeds of the Avoidance Actions will be dedicated to
pay any outstanding amounts of Allowed Administrative Claims not otherwise paid
or funded by the Effective Date and then used to pay Class 4 Allowed General
Unsecured Claims. No Administrative Claims shall be paid unless such Claim has
been determined by the Court to satisfy the requirements under Sections 503(a)
and 507 of the Bankruptcy Code.
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<PAGE>
Tax Claims
The Allowed Claims of governmental units for taxes entitled to
priority status under Section 508(a)(8) of the Bankruptcy Code shall be paid at
the sole option of the Shareholders' Committee (a) the sole amount of their
Allowed Claim(s) in equal semi-annual deferred cash payments over a period not
exceeding six (6) years after the date of assessment of such Allowed Claim of a
value, as of the Effective Date of the Plan, equal to the amount of each such
Allowed Claim, or (b) the full amount of each such Allowed Claim, without
interest in cash, within thirty (30) days of the Effective Date, or, if later,
allowance of such Claim by Final Order, or (c) upon such other terms as may be
agreed upon by the holder of each such Allowed Claim and the Reorganized Company
or the Shareholders' Committee. (9)
Class 1: Allowed Priority Claims.
The Class 1 Allowed Claims are entitled to priority status under
section 507 of the Bankruptcy Code and shall be paid within thirty (30) days
after the Effective Date or, if later, the date of a Final Order allowing such
Claim.
Class 2: Allowed Secured Creditors.
The Holders of Allowed Secured Claims will receive in full and final
satisfaction of their Claims, at the option of the Shareholders' Committee, the
following treatment:
(a) conveyance or abandonment of the collateral, which secures each such
Claim to such Secured Creditor on the Effective Date or within fifteen
(15) days thereafter;
(b) payment of such Secured Claim in accordance with the terms and
provisions of the documents pertaining thereto or, if more, then paid
in full in annual installments equal to the net cash flow attributable
to the collateral which secures the Claim commencing on the first
anniversary of the Effective Date, with final payment of all
then-remaining amounts on the tenth anniversary of the Effective Date,
with simple interest from the later of the Effective Date and the date
such Claim is Allowed at the rate in effect under 26 U.S.C. 6621(b)(3)
on the Confirmation Date unless the Bankruptcy Court determines that a
different rate of interest should apply; or;
(c) such other treatment as the Shareholders' Committee and such
Creditor(s) shall agree to, subject to approval by the Bankruptcy
Court, after notice and hearing; or
(d) notwithstanding any contractual provision or applicable laws that
entitle the Holder of a Secured Claim to demand or receive accelerated
payment after the occurrence of a default, the legal, equitable and
contractual rights to which the Claim entitles the Holder thereof will
be left unaltered and unimpaired. If applicable any defaults that
occurred before or after the Petition Date, other than defaults of the
kind specified in section 365(b)(2) of the Bankruptcy Code, will be
cured on the Effective Date or as soon thereafter as is practicable;
the maturity of such Claim shall be reinstated as it existed before
such default; and the Holder of such Claim shall be compensated for
any damages incurred as a result of its reasonable reliance on such
contractual provision or applicable law. In the alternative, at the
option of the Shareholders' Committee or the Reorganized Company, as
the case may be, any Allowed Secured Claim may be satisfied in cash on
the later of the Effective Date and the date such Claim is Allowed, or
as soon thereafter as is practicable, in an amount equal to the
Allowed Claim, provided that the aggregate amount of all such Secured
Claims which the Shareholders' Committee or the Reorganized Company
elect to satisfy in such manner shall not exceed $5,000 without the
consent of Shareholders' Committee.
- ---------------
(9) With respect to the claim filed June 22, 1998 by the Internal Revenue
Service in the amount of $3,286,480.60, the Committee has objected to
such claim and is seeking to have such claim disallowed.
25
<PAGE>
Class 3: Allowed Convenience Creditors.
Each Holder of an Allowed General Unsecured Claim in the amount of
$500 or less or, if the amount of any such Allowed Claim is greater than $500,
but the Holder agrees to reduce its Allowed Unsecured Claim to an amount equal
to $500, such Claim shall be paid cash in an amount equal to 95% of such Claim
within thirty (30) days after the Effective Date.
Class 4: Allowed General Unsecured Claims.
The Holders of Allowed General Unsecured Claims shall be satisfied by
either (a) being paid in full by the Reorganized Company within two (2) years
in four semi-annual payments of principal, plus accrued interest at the rate of
seven and one-half percent (7.5%) per annum, or at a different rate as
determined by the Court with the initial such payment due on the sixth month
anniversary of the Effective Date or, if any such Claim has been objected to,
then six months from the date on which such Claim is determined by Final Order
to be an Allowed General Unsecured Claim or (b) will receive shares of New
Common Stock, in an amount that when multiplied by the average stock trading
price for the immediately ten (10) days preceding days as equals the dollar
Amount of each such Allowed Claim. Holders of General Unsecured Claims should
indicate their preference as to this treatment on the ballot for voting on the
Plan. With respect to those Class 4 Allowed creditors accepting the deferred
payment, the net proceeds of recovery from the Avoidance Actions and the
Shareholders Derivative Action shall, after payment of any outstanding Allowed
Administrative or Allowed Priority Claims be dedicated to retire the Allowed
Class 4 Claims that select the 100% payment treatment under the Plan. The
Reorganized Company further agrees that, if necessary, to timely pay such
Allowed Class 4 Unsecured Claims in full, the Wyoming Properties, the Colorado
Properties, and all other assets belonging to Nova Energy, Inc., will, if
necessary, be sold in whole or in part to accomplish the timely payment to such
claimants. The Reorganized Company also agrees not to dispose of or encumber
any such properties prior to the payment in full of the Allowed Class 4
Unsecured Creditor Claims in accordance with this Section 3.6.
Class 5: Creditors Holding Claims Owed by Third Parties:
Each Creditor within this Class of Claims, if determined to have an
Allowed Claim, will receive immediately on the later of (i) the date such claim
is determined to be an Allowed Claim or (ii) the date set forth in the Plan for
issuance of New Common Stock shares of New Common Stock in full and final
satisfaction of all its Claims against the Debtor, in an amount that when
multiplied by the average stock trading price for the ten (10) days preceding
days as equals the dollar Amount of each such Allowed Claim.
26
<PAGE>
3. TREATMENT OF SHAREHOLDERS
The Plan contemplates a mechanism whereby Shareholders in Classes 6
and 7 may elect one of two options for treatment of their interests/holdings of
Common Stock. The Bankruptcy Code refers to such equity holdings as "Interest".
The purpose of the option mechanism is to provide Shareholders a choice in
deciding whether they desire to participate in the reorganization process and
the opportunities offered by new management or whether they prefer limited
compensatory relief for claimed injury to their interests occurring prepetition
resulting from the acts and omissions of the Debtor's former President Sidney W.
Sers. The two options for treatment of Shareholder interests are described
below. In addition, the Plan contemplates certain release and assignment
provisions that are more fully discuss in Section V.B.3 and Section VII.B. of
this Disclosure Statement.
(a) Shareholders Voting on the Plan.
-----------------------------------
(i) Equity Option
--------------
Shareholders in Classes 6 and 7 may choose one of two options ("Plan
Options"): an Equity Option and Cash Out Option. The Equity Option generally
-------------- --------------- -------------
provides the Shareholders holding Allowed Interests to exchange their Common
Stock for (i) an equal amount of New Common Stock to be issued by the
Reorganized Company and (ii) an equal amount of rights to purchase additional
Common Stock at $.25 per share. In selecting this option, each such Shareholder
should regard the decision as being an investment in the Reorganized Company,
with the understanding that their Pro Rata Share of the Frozen Funds, if any,
will be made available to the Reorganized Company for use in the ordinary course
of its future business (the "Equity Option").
Through each of the last four months and up to July 13, 1998, the
average price of Trinity common stock calculated by averaging each day's trading
price range was 22 per share in June; 27 per share in May; and 25 per share
in April. With an estimated 60 million shares outstanding (excluding the shares
of the Sers Group), the resulting market capitalization of Trinity's stock
totals approximately $15 million. That amount far exceeds the value of the
Frozen Funds (estimated at $3.5 million) and the relatively small value of
shareholder litigation rights being transferred in exchange for New Common
Stock and Rights Offering of a clean company, with new management in the form of
the Reorganized Company. Thus, the Committee believes the applicable exemption
from registration for the issuance and resale of such securities under Section 5
of the 1933 Securities Act is permitted by Section 1145(a) of the Bankruptcy
Code. See No Action Letter issued to Bennett Petroleum Corp. in connection with
--- -----------------------
its Chapter 11 Plan of Reorganization, 1983 WL 28907. Notwithstanding, the
Committee or, if applicable, the Reorganized Company will request a no-action
letter from the SEC determine that the issuance and resale of New Common Stock
and Rights provided in the Plan is exempt from registration from Section 5 of
the 1933 Securities Act. If the SEC denies that request in its response the
Committee, or if applicable, the Reorganized Company will either file a
registration statement with the SEC, seek an alternative exemption from the SEC
or file other papers with the SEC seeking the same result before issuing such
securities.
(ii) Cash Out Option
-----------------
The second option, the Cash Out Option, provides for potential future
------ ---------------
cash distributions to Shareholders with Allowed Interests in Classes 6 and 7 who
select this option. Under this Cash Out Option, each such electing Shareholder
will receive its Pro Rata Share of (a) the Frozen Funds, if any, from the SEC
Enforcement Action and (b) any residual funds that may be available based upon
the Company's Liquidation Value calculated as if all Allowed Claims of creditors
are deemed paid in full with interest. The Cash Out Option is non-transferable
and may not be assigned; only Shareholders in Classes 6 and 7 holding Common
Stock as of the Record Date may exercise the Cash Out Option.
27
<PAGE>
As to each of Classes 6 and 7, the Shareholders' selection of either
Plan Option will be implemented on a Shareholder by Shareholder basis. There
are no restrictions on the amount and number of Shareholders that may select
either the Equity Option or the Liquidation Cash Out Option.
If the Plan is not confirmed and the Debtor is liquidated under
Chapter 7, the Shareholders would retain claims against the Frozen Funds,
assuming the SEC is ultimately successful in the SEC Enforcement Action. Unless
a settlement is reached between the SEC and the Trustee, the Trustee or
Reorganized Company would also have claims against the Frozen Funds.
In order to eliminate as many litigation claims and matters against
the Reorganized Company as possible; provide the Reorganized Company with the
best mechanism for recovering funds from the Sers Group that the SEC believes
rightfully belongs to the Shareholders and/or the Company; and to provide new
management and the new board of directors with as "clean a company" as possible,
each Class 6 and 7 Shareholder who votes to accept the Plan is deemed, in
exchange for receiving their rights and benefits under the Equity Option and
Cash Out Options to: (I) ASSIGN TO THE REORGANIZED COMPANY ANY AND ALL SUCH
SHAREHOLDER'S RIGHTS, CAUSES OF ACTION, INTERESTS IN OR CLAIMS TO OR AGAINST THE
FROZEN FUNDS, THE AVOIDANCE ACTIONS, SHAREHOLDERS' DERIVATIVE ACTIONS, SEC
ENFORCEMENT ACTION AND MISCELLANEOUS ACTIONS TOGETHER WITH ALL THEORIES AND
PROCEEDS OF RECOVERY, JUDGMENT OR SETTLEMENT, INCLUDING THOSE RELATING
SPECIFICALLY TO THE PURCHASE AND SALE OF COMMON STOCK, FOR NEGLIGENCE,
MALFEASANCE, MISFEASANCE, ACTUAL OR CONSTRUCTIVE FRAUD AND SIMILAR SUCH ACTIONS
OF THE DEBTOR, ITS AFFILIATES, SUCCESSORS, PREDECESSORS, ASSIGNS, OFFICERS,
DIRECTORS, SHAREHOLDERS, REPRESENTATIVES, ATTORNEYS AND OTHER PROFESSIONALS FOR
THE PERIOD JANUARY 1, 1993 TO THE EFFECTIVE DATE; AND (II) ANY AND ALL RIGHTS,
CLAIMS AND/OR CAUSES OF ACTIONS AGAINST THE DEBTOR'S FORMER AGENTS AND
PROFESSIONALS, THE SERS GROUP MEMBERS (AS DEFINED IN CLASS 8 OF ARTICLE IV OF
THE PLAN); CERTAIN INSIDERS OF THE DEBTOR (AS DEFINED IN CLASS 10 OF ARTICLE IV
OF THE PLAN); AND COMMISSION HOLDERS (AS DEFINED IN CLASS 9 OF ARTICLE IV OF THE
PLAN) AND AS A RESULT OF SUCH ASSIGNMENTS SPECIFICALLY AUTHORIZE THE REORGANIZED
COMPANY TO PROSECUTE, OR, IF APPROPRIATE, SETTLE OR OTHERWISE DISPOSE OF SUCH
RIGHTS, CLAIMS AND CAUSES OF ACTION, ON THEIR BEHALF FOR THE EXCLUSIVE BENEFIT
OF THE REORGANIZED COMPANY PURSUANT TO THE PROVISIONS OF THE PLAN.
ON THE BALLOT FOR ACCEPTANCE OR REJECTION OF THE PLAN, SHAREHOLDERS
WILL HAVE THE OPPORTUNITY TO ELECT WHETHER TO ASSIGN THEIR RIGHTS REFERENCED
HEREIN. THE FAILURE TO MAKE AN ELECTION WILL RESULT IN THE ASSIGNMENT OF SUCH
RIGHTS TO THE REORGANIZED COMPANY.
The ballot for voting on the Plan provides in it the right of
Shareholders to elect to retain their personal causes of action against
non-Debtor entities or persons and not have the Reorganized Company pursue them
on their behalf.
28
<PAGE>
(b) Shareholders Trust.
--------------------
The Shareholders Trust will be responsible for enforcing the rights of
Shareholders who select the Cash Out Option until the Frozen Funds are either
received by the Disbursing Agent or determined by Final Judgment to be the
rightful property of a member of the Sers Group. The Shareholders' Trust will
operate under and be governed in accordance with a Shareholders' Trust Agreement
which will be prepared by the Shareholders' Committee and the Trustee and filed
with the Bankruptcy Court within five (5) days of the Confirmation Hearing. Mr.
Seals will also act as the Trustee of the Shareholders' Trust. Upon release of
the Frozen Funds, Mr. Seals in his capacity as Disbursing Agent, will account to
the Shareholders' Trust, the Reorganized Company and to those Shareholders
having selected the Cash Out Option for all cash received and disbursed by the
Disbursing Agent. In the event Mr. Seals ceases for any reason to act as the
Disbursing Agent, the Reorganized Company will act as the Disbursing Agent and
Trustee of the Shareholders' Trust.
(c) Shareholders Voting Against the Plan
----------------------------------------
Shareholders voting against the Plan will nevertheless be entitled to
select between the Equity Option and the Cash Out Option.
(d) Record Date Controls Determination of Shareholder Rights
--------------------------------------------------------------
Determination of what Shareholders and the amount of Common Stock
entitled to vote with respect to the Plan and receive the New Common Stock and
Class 6 and 7 Rights for those Shareholders selecting the Equity Option and the
dividend rights for those Shareholders selecting the Cash Out Options offered in
Class 6 and 7 will be made as of the Record Date which, according to the Plan,
is July 20, 1998.
(e) Treatment of Shareholders Who Fail to Vote on the Plan or Who
--------------------------------------------------------------
Vote but Fail to Select an Option; Second Opportunity to
--------------------------------------------------------------
Select Plan Option
------------------
If the Plan is confirmed, then the Holders of Allowed Interests or
Common Stock who (i) fail to vote with respect to the Plan or (ii) voted on the
Plan but did not select a Plan Option prior to the voting deadline set by the
Court, will receive a written communication from the Reorganized Company that
will allow each Shareholder an additional 15 days from the date of the mailing
of such communication to select either the Equity Option or the Cash Out Option
(which 15 day period will not, however, delay the occurrence of the Effective
Date). Upon the expiration of the 15-day period, anyone receiving the written
communication who fails to select a Plan Option will be deemed to have selected
the Equity Option and will receive their Pro Rata Share of New Common Stock and
Rights as provided for in the Equity Option.
(f) Bar Date for Shareholders Filing Proofs of Interest
----------------------------------------------------------
Shareholders either (a) listed on the Stock Transfer Agents' books and
records; (b) listed with Cede & Co., stock brokerage firms, banks and similar
nominee holding companies of record for stock held in street name; and (c) those
-----
Shareholders who have cast a ballot on the Planwill be automatically recognized
- ------------------------------------------------
as having filed a Proof of Interest.
IN ACCORDANCE WITH BANKRUPTCY RULE 3003, THE PLAN ESTABLISHES THE
CONFIRMATION DATE AS THE LAST DATE FOR SHAREHOLDERS FILING A PROOF OF INTEREST
IN THIS CASE, OR INFORMING THE EQUITY COMMITTEE OF THEIR HOLDINGS OF COMMON
STOCK. SHAREHOLDERS WHO HAVE PREVIOUSLY COMMUNICATED THEIR SHAREHOLDINGS TO THE
EQUITY COMMITTEE ON THE FORMS PROVIDED BY THE EQUITY COMMITTEE, ARE RECOGNIZED
ON THE BOOKS AND RECORDS OF THE DEBTOR'S STOCK TRANSFER AGENT, LISTED WITH CEDE
& COMPANY, RECOGNIZED STOCK BROKERAGE FIRMS, BANKS AND SIMILAR QUALIFIED NOMINEE
HOLDING COMPANIES OF RECORD FOR STOCK HELD IN STREET NAME AS OF THE RECORD DATE
("NOMINEE HOLDERS") WILL HAVE SATISFIED THE REQUIREMENT FOR FILING A PROOF OF
INTEREST. SHAREHOLDERS WHO ARE NOT RECOGNIZED ON THE BOOKS AND RECORDS OF
NOMINEE HOLDERS AS BEING HOLDERS OF COMMON STOCK ON THE RECORD DATE AND WHO FILE
A PROOF OF INTEREST WITH THE COURT OR SEND IN THEIR FORM TO THE EQUITY COMMITTEE
AFTER THE CONFIRMATION DATE WILL BE BARRED FROM PARTICIPATING IN THE RIGHTS OF
- -----
CLASSES 6-10 IN THE PLAN.
29
<PAGE>
Class 6: Allowed Interests Constituting Restricted Securities:
Option A, Equity Option:
--------------------------
On the ballot for voting on the Plan, the Holders of Allowed Interests
of Restricted Securities who select or are deemed to have selected the Equity
Option shall receive in full and final satisfaction of their Claims, rights,
title and interest in and to outstanding shares of Common Stock and any Claims
against the Debtor, Frozen Funds, Certain Insiders and Commission Holders one
share of (i) New Common Stock and (ii) one Class 6 Right under the Rights
Offering to be issued and distributed by the Reorganized Company within 90 days
after the SEC Approval Date (as defined in Section 1.65 of the Plan) in exchange
for each Share of Common Stock.
Class 6: Allowed Interests Constituting Restricted Securities:
Option B, Cash Out Option:
-----------------------------
On the ballot for voting on the Plan, the Holders of Allowed Interests
of Restricted Securities who select the Cash Out Option shall receive from
either the Shareholders Trust or the Disbursing Agent their pro rata share of
both the Frozen Funds, if any, and the Company's Liquidation Value as determined
by Final Order of the Bankruptcy Court. The Disbursing Agent will account to
the SEC, the Reorganized Company and the Shareholders who selected the Cash Out
Option within sixty (60) days of receipt of the Frozen Funds of the receipt and
distributions thereof. Shareholders who select this Cash Out Option are not
entitled to receive any New Common Stock or Rights.
Class 7: Allowed Free Trading Common Stock
Option A: Equity Option:
- --------------------------
On the ballot for voting on the Plan, the Holders of Allowed Interests
of Unrestricted Securities or Free Trading Common Stock who select or are deemed
to have selected the Equity Option shall receive in full and final satisfaction
of their claims, rights, title and interest in and to outstanding shares of
Common Stock and any Claims against the Debtor, the Frozen Funds, Certain
Insiders and Commission Holders one share of (i) New Common Stock and (ii) one
Class 7 Right under the Rights Offering to be issued and distributed by the
Reorganized Company within 90 days after the SEC Approval Date in exchange for
each Share of Common Stock.
Class 7: Allowed Free Trading Common Stock
Option B: Cash Out Option:
-----------------------------
On the ballot for voting on the Plan, the Holders of Allowed Interests
of Free Trading Common Stock or Unrestricted Securities who select the Cash Out
Option will receive from either the Shareholders Trust or the Disbursing Agent
their pro rata share of both the Frozen Funds, if any, and the Company's
Liquidation Value as determined by Final Order of the Bankruptcy Court. The
Disbursing Agent will account to the SEC, the Reorganized Company and the
Shareholders who selected the Cash Out Option within sixty (60) days of receipt
of any Frozen Funds of such receipt amount(s) and distributions thereof.
Shareholders who select this Cash Out Option are not entitled to receive any New
Common Stock or Rights.
30
<PAGE>
Class 8: Common Stock Held by the Sers Group:
Unless a settlement is achieved by the Shareholders' Committee or
Reorganized Company with the Sers Group on terms acceptable to the
Shareholders' Committee, and approved by the Bankruptcy Court or other Court
having jurisdiction over such disputes, after notice and an opportunity for
hearing, the Common Stock held by the Sers Group will be cancelled automatically
thirty (30) days after the Effective Date unless extended by the Reorganized
Company in writing or unless a settlement is previously reached between the Sers
Group and the Reorganized Company. Unless a settlement is reached with the Sers
Group as provided above, the Holders of shares of Common Stock by the Sers Group
will be cancelled and they will receive nothing under the Plan.
Class 9: Common Stock Issued as Sales Commission:
This class of Holders of Common Stock acquired as a result of direct
or indirect efforts to sell or resell Common Stock obtained from Trinity Gas
Corporation or the Sers Group from January 1, 1995 to the present ("Commission
Holders") shall select either: Settlement Option (A), in which event such
-----------------------
Holders will automatically be determined to hold Allowed Interests and shall
receive New Common Stock equal to 15% of their holdings in Common Stock; or
Litigation Option (B), in which case their holdings will be disputed. If a
-------------------
determination is made by Final Order of the Bankruptcy Court that any Interest
Holder in Class 9 is an Allowed Interest, they will receive a corresponding
amount of New Common Stock equal to the amount of their judicially determined
Common Stock holdings. If on the ballot for voting on the Committee's Plan, a
Class 9 Holder selects Litigation Option B Treatment, the Reorganized Company
reserves all rights to pursue causes of action against such Holder on all legal
theories and causes of action available to the Debtor. In the event a Class 9
Shareholder selects the treatment provided by Settlement Option A, the Debtor
and Holders of Common Stock voting to accept the Plan will be deemed to have
released all Claims it or they may have or be capable of asserting against such
Class 9 Shareholders on the thirtieth (30) day after the Effective Date. As
part of the Plan, each Class 9 Holder of Common Stock having selected the
Settlement Option shall be deemed to have assigned to the Reorganized Company
any and all rights, claims, title and interest in any recovery such Class 9
Interest Holder may have or be able to assert against the Frozen Funds, the
Debtor, Certain Insiders, the Sers Group and in the Miscellaneous Actions,
Avoidance Actions, SEC Enforcement Action and Stockholder Derivative Action.
Class 10: Common Stock Held by Certain Insiders:
This class of Certain Insiders determined to be Holders of Allowed
Interests shall select either: Settlement Option (A) in which event they will
---------------------
automatically be determined to hold Allowed Interests and shall receive New
Common Stock equal to 15% of their holdings in Common Stock; or Litigation
----------
Option (B), in which event their holdings will be disputed. If a determination
- -----------
is made by Final Order of the Bankruptcy Court that any Interest Holder in Class
10 is an Allowed Interest, they will receive a corresponding amount of New
Common Stock equal to the amount of their judicially determined Common Stock
holdings. If on the ballot for voting on the Committee's Plan, a Class 10
Holder selects Litigation Option B Treatment, the Reorganized Company reserves
all rights to pursue causes of action against such Holder on all legal theories
and causes of action available to the Debtor. In the event a Class 10
Shareholder selects the treatment provided by Settlement Option A, the Debtor
and Holders of Common Stock voting to accept the Plan will be deemed to have
released all Claims it or they may have or be capable of asserting against such
Class 10 Shareholders on the thirtieth (30th) day after the Effective Date. As
part of the Plan, each Class 10 Holder of Common Stock having selected the
Settlement Option shall be deemed to have assigned to the Reorganized Company
any and all rights, claims, title and interest in any recovery such Class 10
Interest Holder it may have or be able to assert against the Frozen Funds,
Commission Holders, Sers Group and the Debtor and in the Miscellaneous Actions,
Avoidance Actions, SEC Enforcement Action, and Shareholders' Derivative Action.
Additionally, each Class 10 Holder agrees to release any claims or filed proofs
of claim against the Debtor.
31
<PAGE>
B. OTHER PLAN PROVISIONS
-----------------------
1. IMPLEMENTATION OF BUSINESS PLAN
With assistance and input from various parties and sources including
but not limited to members of the Committee, members of the proposed new Board
of Directors and Advisory Board, the Chapter 11 Trustee, and others, a business
plan has been developed that will be implemented by the Reorganized Company. An
overview and discussion of the Business Plan is contained in Section VII of this
Disclosure Statement.
2. REDUCTION OF CLAIMS AND INTERESTS
A central component of the Plan includes implementation of a process
to reduce the aggregate of claims against the estate and interests which the
Committee asserts were acquired improperly. The claims reduction process
involves a combination of claims settlement and claims objections. For example,
as outlined below, the Committee has reached a settlement with Don and Martha
Brause of their $4.1 million claim. The Trustee has settled the claim of Fomby
Compressor, thus reducing the Fomby's claim by approximately $8,000. The
Committee also intends to settle the reimbursement claims of William Ruth
($55,000) and Richard Guillemin ($55,000) in return for recognition of 15% of
their stock in accordance with the treatment provided to Class 10 Interests.
Disputed Claims may be disallowed or reduced on account of being late
filed claims, overstated claims, claims owed by third parties; previously
satisfied claims; and claims subject to reduction or elimination by offsets.
Objections have been filed against the following claims, among others: the
Internal Revenue Service ($3.2 million); Marlin Colombia Drilling, Inc.
($681,077); Trinicol ($1.6 million); Thompson Walker ($34,605); Business Wire
($10,170); GMAC ($21,948); Exploration Technologies ($15,753); Max Chapman
($17,100); Auro Kornkven ($93,600); E.W. Kornkven ($31,200); William M.
Shaughnessy ($137,863); Gold Star Land & Livestock ($31,200); Greg Franklin
($38,625); Phoenix Home Life Mutual ($20,000); Debbie Payne ($9,500); Scriven
Taylor ($11,916); Sidney Sers ($8,000); and miscellaneous claims ($20,000).
Disallowance or substantial reduction of the foregoing claims will result in a
greater return to Holders of Allowable Claims. The Committee also intends that
Disputed Claims to which the Committee has filed objections will not vote on the
Plan unless such Holder of a Disputed Claim is temporarily allowed for purposes
of Plan voting pursuant to Bankruptcy Rule 3018(a). Finally, the Committee
intends to seek to have disallowed certain Disputed Interests, including, but
not limited to, those of the Sers Group by filing an objection to such
interests.
3. SETTLEMENT WITH MR. AND MS. DON BRAUSE
Mr. Don Brause has filed a proof of claim for prepetition wages in the
amount of $42,000.00 and $4,122,000.00 for alleged damages arising from his
purchase of Trinity Common Stock. The Shareholders' Committee has settled Mr.
Brause's claim (and that of his wife) in principle by recognizing 1,500,000
shares of his and her stock as unrestricted securities within 90 days of the SEC
Approval Date that will be exchanged for a like number of shares of New Common
Stock. In return, Mr. Brause will withdraw his proof of claim and execute a
release of and assign any prepetition and postpetition claims he may have
against the Debtor.
4. RESTRICTIONS ON TRANSFER OF NEW COMMON STOCK
The Shareholders' Committee relies on Section 1145 of the Bankruptcy
Code to exempt from registration, (i) the issuance of New Common Stock under the
Securities Act of 1933, as amended, and any similar provisions of applicable
state law and (ii) that all of such securities will be freely transferable
without further registration, (except by a Person deemed to be an "underwriter"
under the 1933 and 1934 Securities Act). Prior to issuing New Common Stock and
the Rights, the Shareholders Committee or if then applicable, the Reorganized
Company will seek a No Action Letter from the SEC for a determination, among
other things that the issuance and resale of such securities under the Plan is
exempt from registration under Section 5 of the 1933 Securities Act. If the SEC
denies such no-action letter request the Shareholders' Committee or, if then
applicable, the Reorganized Company will either file a registration statement,
seek to obtain an exemption from the application of Section 5 of the 1933
Securities Act, or submit other appropriate filings or undertake other actions
with the SEC to accomplish this result, or seek a judicial determination that
Section 1145 correctly acts as an exemption from such registration.
32
<PAGE>
5. RELEASE OF FROZEN FUNDS
A component of the Committee's Plan is the release of the
approximately $3 million in Frozen Funds held in the registry of the United
States District Court in Fort Worth. Upon entry of an order authorizing the
release of the Frozen Funds, such funds shall be released to a Disbursing Agent,
who will distribute the funds within thirty (30) days of receipt of such funds
in accordance with the terms and provisions in the Plan. Except for that
portion of the Frozen Funds distributed to Shareholders under the Cash Option
Provisions more fully set forth in Article IV of the Plan and Section V.A. of
the Disclosure Statement, the balance of the approximately $3 million will be
used by the Reorganized Company to capitalize existing oil and gas operations,
fund new business opportunities, fund certain operating expenses, and generally
facilitate to successful reorganization of the Company in accordance with the
Debtor's Business Plan. It should be noted, however, that there is no guarantee
the Frozen Funds will actually be released. Moreover, the timing for the
release of Frozen Funds is also indeterminate because it is difficult to
predict if and when the SEC will prevail in litigation, which is a prerequisite
to release of the $3 million. In addition to the SEC and Chapter 11 Trustee,
claims to the Frozen Funds are also being made by the Defendant members of the
Sers Group, including Timothy Sers. Nevertheless, the Committee believes that
success or funding of the Plan is not dependent on the availability of the
Frozen Funds because of proposed new management's ability to attract financing
from third party investor groups and the likely success of the Rights Offering
in the Plan.
6. ASSIGNMENT AND RETENTION OF CLAIMS AND CAUSES OF ACTION
(a) Assignment of Personal Causes of action by Common Stockholders
--------------------------------------------------------------
In conjunction with the Plan provisions governing the treatment of
Holders of securities in Classes 6 and 7, the Committee's Plan provides that
equity holders in Classes 6 and 7 and all other holders of equity interests in
Classes 9 and 10 shall assign to the Reorganized Company all Rights, Claims and
Causes of Action in favor of the Reorganized Company against the Debtor and its
subsidiary, Trincol, the Class 9 Interests and the Debtor's former officers and
directors covered by Class 10, whether such Claims are known or unknown, and
including those based in whole or in part on any act, omission or other event or
occurrence arising from the sale or issuance of Debtor's securities whether such
cause of action arises pursuant to federal statute or state law. Such
assignment shall become effective without further order of the Bankruptcy Court
and without further act on the part of such holder on the Effective Date.
Furthermore, all equity holders shall be deemed to have assigned any such
individual Claims or potential causes of action referenced herein to the
Reorganized Company upon the Effective Date without further notice of the Court
and without further act of such holder or the Reorganized Company. The
Reorganized Company shall retain and may assert on their behalf and at its
discretion such assigned Claims of Shareholders for the sole benefit of the
Reorganized Company unless a Shareholder elects to retain such causes of action
on the Ballot.
33
<PAGE>
(b) Debtor's Retention of Cause of Action Against Robert Yeager
--------------------------------------------------------------
and Sheinfeld, Maley & Kay
----------------------------
The Debtor's claims and clauses of action against its former
securities counsel, the law firm of Sheinfeld, Maley & Kay ("Sheinfeld") and
Robert Yeager ("Yeager"), will be preserved should the Reorganized Company
decide to assert such claims. The Debtor's potential claims against Sheinfeld
and/or Yeager include, but are not limited to, claims for legal malpractice
arising in connection with Sheinfeld's and Yeager's representation of the Debtor
with respect to securities issues. Specifically, Sheinfeld and/or Yeager may
have failed to provide proper legal advice concerning Samson Robbins October 6,
1996 resignation letter and the adverse effects of failing to release that
letter into the public domain. Sheinfeld and/or Yeager may have also failed to
properly advise the Debtor regarding the use of unlicensed brokers to sell
securities in violation of federal and state securities laws and regulations.
7. NEW BOARD OF DIRECTORS
(a) From and after the Effective Date, the Board of Directors of
the Debtor shall consist of five (5) voting members, all of whom are nominated
by the Shareholders' Committee. In addition to the nomination of a new Board of
Directors, the Reorganized Company will also have an Advisory Board as more
fully set forth in paragraph 8 below. The Committee's Plan contemplates that
existing directors, William Ruth and Scriven Taylor, will be replaced. In the
event all voting members of the Board of Directors resign following confirmation
of the Plan, the Advisory Board shall have the right to nominate a slate of
directors for consideration by the Shareholders of the Reorganized Company. The
Bylaws of the Debtor will be amended to be consistent with these provisions.
(b) The new Chairman of the Board and CEO of the Reorganized
Company shall be Thomas C. O'Dell. Mr. Michael Wallace will also serve the
Reorganized Company as its new president and COO. Other board members of the
Reorganized Company will include Dennis Hedke, Michael L. Wallace, Art
Teichgraeber, and Dr. Bruce Reichert. A brief synopsis of the qualifications
and experience of each Board member is included:
Mr. THOMAS C. O'DELL has more than twenty-five years of petroleum industry
experience focused at the senior executive level. In 1993, he retired from
Conoco, Inc. as a corporate Vice President, President of Conoco Overseas Oil
Company and Chairman of Du Pont Services, B.V., the corporation's international
exploration project financing affiliate. Upon retirement from Conoco, Mr.
O'Dell formed the Carlton Energy Group to pursue energy sector investments
worldwide. Current initiatives of the companies, in which Mr. O'Dell is Chief
Executive Officer, include: the purchase and operation of substantial upstream
assets (offers, on behalf of an investor group, have exceeded $500 million); the
operation of a joint venture field revitalization project in Kazakhstan;
advisory services for two major state-owned petroleum companies; and the
development of an organization to manufacture and market an oil spill control
device and to place the related pollution liability insurance. Mr. O'Dell holds
a Bachelors Degree in Finance from Texas Christian University, a Doctor of
Jurisprudence (concentration in oil and gas, property and contract law) from
Bates College of Law, University of Houston, and a Masters Degree in Industrial
Management from the Massachusetts Institute of Technology, where he was a Sloan
Fellow.
34
<PAGE>
Mr. MICHAEL L. WALLACE is an attorney with more than twenty years experience
serving as counsel to major corporations in the area of energy transaction,
litigation, and regulations. Mr. Wallace has extensive energy transaction and
merger experience, and currently is Assistant General Counsel for American
Electric Power in Columbus Ohio, where he is legal counsel for the trading and
transactions group. In May 1998, Mr. Wallace was appointed to serve on the
Executive Board of the Gas Industry Standards Board. From 1993 to 1997, Mr.
Wallace served as General Counsel for NorAm Energy Services, Inc. in Houston
where he directed, and managed, all legal and regulatory activities of this $3.2
billion, unregulated gas and electric power marketing company. Mr. Wallace's
professional background includes: settling disputes while minimizing losses and
maximizing recoveries; analyzing pipeline and electric tariffs, including Orders
636, 888 and 889 implementation efforts; supervising outside counsel and
managing legal expenses; developing and implementing regulatory strategy and
support in federal, state and local arenas; supporting company entities while
creating new business ventures; authoring, reviewing, and revising
contracts/agreements to minimize liabilities and eliminate legal exposure; and
writing corporate policies. Mr. Wallace received his J.D. from the University of
Tulsa in 1978 and received a B.S. in Economics and Political Science from
MacMurray College in 1975.
Mr. A. C. TEICHGRAEBER has more than twenty years of experience in the oil and
gas industry with an emphasis in drilling and exploration operations.
Currently, Mr. Teichgraeber is employed as President and Chief Operating Officer
of the Drilling Equipment Division of IRI International Corporation (NYSE-IIR),
and is responsible for worldwide sales and manufacturing activities. From 1989
to 1997, he was President and Chief Executive Officer of Cardwell International,
Ltd., in charge of purchasing technology and licenses to manufacture the
complete line of Cardwell drilling, workover and well servicing rigs. From 1984
to 1989, he served as Vice-President of Manufacturing for International
Petroleum Services, Inc., where he supervised the manufacture, from fabrication
to final assembly, of 35 mobile drilling and well servicing rig division in El
Dorado, Kansas, and its subsidiary operation in Canada. Mr. Teichgraeber is
also a member of several professional organizations including the Association of
Oil Well Servicing Contractors, International Association of Drilling
Contractors, and Kansas Independent Oil and Gas Association. Mr. Teichgraeber
is a 1978 graduate of Kansas State University, where he received a B.S. in
Production Management Engineering Technology.
Mr. DENNIS E. HEDKE has more than twenty years experience as an explorationist
with a broad background in oil and gas business. Since 1986, Mr. Hedke has
served as a consultant to a variety of regional firms involved in exploration
and development work in numerous domestic oil and gas provinces, and
international projects. These assignments have included projects in the Middle
East, the former Soviet Union, West Coast Africa, and most recently Colombia,
South America. Responsibilities in these assignments have included deal
structuring and negotiation of terms on behalf of clients, as well as technical
data analysis and economic assessment. He has specialized in the development of
various facilities incorporating high technology applications in exploration and
development, including a 3D seismic analysis environment capable of handling
significant regional databases. From 1982 to 1986, Mr. Hedke served as an
exploration geologist/geophysicist for EDCO Drilling Co., Inc., where he was
responsible for prospect evaluations from external sources in their
Kansas-Oklahoma-Nebraska play areas as well as in house prospect generation. In
addition, he performed a variety of geological and engineering tasks related to
field exploitation. Prior to that time, Mr. Hedke served as a well site
supervision consultant to Cities Service Company, and in various capacities with
InterAmerican Energy Corporation and the Deltona Corporation. Mr. Hedke is a
member of the American Association of Petroleum Geologists, the Society of
Exploration Geophysicists, the Kansas Independent Oil and Gas Association, and
is the current President of the Kansas Geological Society. He graduated from
Kansas State University with a Bachelors Degree in Geophysics and from the
University of Virginia School of Engineering with a Masters Degree in Materials
Science.
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Dr. BRUCE A. REICHERT has over nineteen years of engineering practice,
education, technical leadership and project management spanning an extremely
diverse range of activities including basic research programs to improve the
understanding of physical phenomena, engineering development programs to create
new commercial products, experimental facilities, improve instrumentation,
measurement and analysis techniques, and large overseas construction programs to
build critical military and civilian infrastructure. He is the author of more
than 30 technical reports, conference papers and journal articles. Since 1994,
Dr. Reichert has been Program Manager, Exploration and Production Products,
Input/Output, Inc., Stafford, Texas, one of the world's leading provider of
seismic exploration products for oil and gas discovery and development. Dr.
Reichert responsibilities include new product development and sustaining
engineering of selected land and marine seismic product lines, totaling $120
million+ annual sales. Since 1998, Dr. Reichert has served on the faculty of
Kansas State University as Associate Professor, Department of Mechanical
Engineering. At Kansas State, he is responsible for teaching undergraduate and
graduate courses, obtaining external funding and conducting research, and
developing industrial outreach and continuing education programs in a diverse
range of mechanical engineering topics. His efforts have primarily focused on
fundamental and advanced topics relevant to the oil and gas industry. In
particular, he developed new curriculum and research program in natural gas
production with an emphasis on gas well performance, gas separation,
dehydration, compression, gathering, and main pipeline delivery and engineering
economic analysis. From 1989-1994 Dr. Reichert was a Research Engineer, with
the Internal Fluid Mechanics Division, NASA Lewis Research Center, in Cleveland
Ohio where he was responsible for conducting internal fluid mechanics research.
There, his duties included identifying, advocating, planning, and conducting
experimental research projects; designing and operating new experimental
facilities; designing fabricating and evaluating novel fluid mechanic
instruments; writing data acquisition, reduction, display, and analysis
software; authorizing technical reports, conference papers and journal articles
and preparing and delivering presentations and national and international
technical meetings. Dr. Reichert has a B.S. in Mechanical Engineering from the
United States Naval Academy; an M.S. in Mechanical Engineering, Minor Applied
Mathematics, from Iowa State University; and a Ph.D. in Mechanical Engineering
from Iowa State University.
8. ADVISORY BOARD OF DIRECTORS
The Committee has selected Mr. Kenneth Peak, Mr. Charles Canfield, and
Mr. Roger Curtis to serve initially as the members of the Advisory Board of
Directors. The members of the Advisory Board shall have no voting authority or
powers, but will consult with the Board of Directors and management as
appropriate. The Advisory Board shall remain duly constituted for a period of
one (1) year after the confirmation date. A brief synopsis of the
qualifications and experience of each Board member is included:
Mr. KENNETH R. PEAK has over twenty-five years of extensive financial and
operating experience in all segments of the oil and gas industry. Mr. Peak
currently serves on five Boards: NL Industries, Cellxion Corporation, Cheniere
Energy Corporation, Carbon Energy International and Hogan Energy. Since 1990,
Mr. Peak has been the President of Peak Enernomics, Inc., a company that
provides a variety of energy consulting services and for the last eight years
served as a consultant to Enron Corporation. Mr. Peak also has extensive
experience and expertise in all aspects of turnaround and capital formation for
private independent oil and gas companies. Since 1982, Mr. Peak has served in
senior management of several oil and gas companies including: Howard Weil,
Inc., (Managing Director and Co-Manager Corporate Finances); Foust Oil
Corporation (Vice-President of Finance); Texas International Company (President
of wholly owned subsidiary Texas International Petroleum Co.). Mr. Peak
received his B.S. Degree in Physics from the University of Miami at Ohio.
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Mr. CHARLES L. CANFIELD is the President of Canfield Oil & Gas Corp. and has
over thirty years experience in the oil and gas industry. Mr. Canfield
currently promotes and structures complex drilling transactions in the Gulf
Coast with occasional transactions in West Texas and Oklahoma. Prior to
starting C.L. Canfield Oil & Gas Corp., Mr. Canfield was employed by TXO
Production Corp. and Texas Oil & Gas Corp. for more than twenty years. From
1981 to May 1988, he served as Executive Vice President of TXO Production Corp.,
and Senior Vice President of Texas Oil & Gas Corp. TXO Production Corp. is the
exploration and production subsidiary of Texas Oil & Gas Corp. In this
position, Mr. Canfield was responsible for the exploration, production, and gas
marketing business of TXO Production Corp. in the northern half of the United
States (Northern Region). The number of wells drilled or participated in by TXO
in the Northern Region during this period ranged from 260 to 870 per year. Ten
to fifteen percent of the wells drilled were wildcats with the remainder being
development wells. From 1976 to 1981, Mr. Canfield served as Vice President,
Texas Oil & Gas Corp. and District Manager of the West Texas District, Midland,
Texas, where he was responsible for all of the exploration and production
activities in the West Texas district which included New Mexico. Mr. Canfield
is active in several professional organizations, and has served on the Board of
Directors of the Dallas Petroleum Club and the Board of Directors of the North
Texas Central Division IPAA. He is a graduate of Southern Methodist University
with a Bachelor of Science Degree in Mechanical Engineering and has done
graduate coursework at MIT.
Mr. ROGER CURTIS has extensive experience in the field of commercial lending and
banking. He has served on the Board of Directors of Mountain Plaza National
Bank in Casper, Wyoming, and he has also served as Executive Vice-President and
Director of Hilltop National Bank also in Casper, Wyoming. Mr. Curtis has
extensive experience in banking management, regulatory reporting, and financial
reporting. Mr. Curtis has a B.A. in Accounting from the University of Wyoming
and is a graduate of the Colorado School of Banking in Boulder, Colorado.
9. MANAGEMENT
The Chairman and President of Trinity Gas Corporation shall be Mr.
T.C. O'Dell, who will serve the Reorganized Company as its Chairman. Other
officers of the Reorganized Company will include Mr. Michael L. Wallace as CEO
and Mr. Dennis Hedke as its Vice President of Exploration and Development.
10. COMPENSATION OF DIRECTORS, OFFICERS, AND MANAGEMENT
(a) Overall Objectives: In order to procure the services of
-------------------
Messrs. O'Dell and Wallace, New Board and Advisory Board Members, the
Reorganized Company has structured the following compensation plan, which
includes a combination of salary and non-qualified stock options. The
Committee's compensation of O'Dell and Wallace is designed to support the
following objectives: (i) to offer compensation opportunities that attract
high-quality individuals to the Reorganized Company, motivates them to perform
at their highest levels and rewards them for outstanding achievements; (ii) to
align compensation for the board of directors with the annual long-term
performance of the Reorganized Company; and (iii) to maintain a significant
portion of board of directors' total compensation at risk, tied primarily to the
creation of stockholder value. The Committee believes that assembling a quality
and credible management team with incentives to remain with the Reorganized
Company will restore public confidence in the Reorganized Company.
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(b) O'Dell and Wallace Stock Option: The compensation
-----------------------------------
package for Messrs. O'Dell and Wallace includes the following stock options:
(i) Stock Options - The Reorganized Company shall grant
--------------
non-qualified stock options to Messrs. O'Dell and Wallace on, or as soon as
reasonably practicable after, Effective Date of approximately twenty percent
(20%) of the outstanding New Common Stock.
(A) Mr. O'Dell shall receive a total of 8,700,00 non-qualified options
to purchase the Reorganized Company's Common Stock ("New Common Stock");
2,900,000 of such options shall be exercisable for five years on and after the
nine-month anniversary of the Confirmation Date and shall have an exercise price
of $.25 per share (such options being called "Nine-Month Vested Options"); the
next 2,900,000 of such options shall be exercisable for five years on and after
the one-year anniversary of the Confirmation Date and shall have an exercise
price of $.75 per share (such options being called "One-Year Vested Options");
and the final 2,900,000 of such options shall be exercisable for five years on
and after the two-year anniversary of the Confirmation Date and shall have an
exercise price of $1.50 per share (such options being called "Two-Year Vested
Options").
(B) Mr. Wallace shall receive a total of 2,850,000 non-qualified
options to purchase the New Common Stock; 950,000 of such options shall be
Nine-Month Vested Options; the next 950,000 of such options shall be One-Year
Vested Options; and the final 950,000 of such options shall be Two-Year Vested
Options.
(C) All options and their strike price will be adjustable in the event
of a recapitalization, stock split or stock combination or exercise of the
Rights Offering by Classes 6 and 7.
(c) Summary of Stock Option Plan Provisions:
--------------------------------------------
Set forth below are certain features of the Stock Option Plan (the
"Stock Option Plan") that will govern the options discussed herein.
Available Shares
Based upon an estimated 60 million number of outstanding shares of
Common Stock and excluding those shares of the Sers Group
("Outstanding Shares"), the aggregate number of shares of New Common
Stock which may be issued under the Stock Option Plan shall equal
twenty percent (20%) of the Outstanding Shares of the Reorganized
Company and are expected to approximate 11,935,000 shares. Shares
issued under the Plan may be either authorized and unissued New Common
Stock or New Common Stock held in or acquired for the treasury of the
Reorganized Company. Any shares of New Common Stock subject to a stock
option that are not issued prior to the expiration of such options
will again be available for award under the Stock Option Plan. In the
event a settlement is reached with the Sers Group prior to the
cancellation of the Class 8 interests, the Reorganized Company may
still issue stock under the Stock Option Plan provided the number of
shares of New Common Stock to be issued thereunder shall not exceed
twenty percent (20%) of the then outstanding shares of the Reorganized
Company.
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Administration
The Stock Option Plan will provide for administration by a committee
of non-employee directors selected by the Reorganized Company's Board
of Directors (the "Stock Option Committee"). The Stock Option
Committee will have broad powers under the Stock Option Plan to, among
other things, administer and interpret the Stock Option Plan. In
addition, except as set forth below under "Amendment and Termination,"
the Stock Option Committee also will have the power to modify or waive
restrictions or limitations on the exercisability of options and to
accelerate and extend existing options.
Under the Stock Option Plan, the option price upon exercise may, to
the extent determined by the Stock Option Committee at or after the
time of grant, be paid by a participant in cash, in shares of New
Common Stock owned by the participant or by a reduction in the number
of shares of New Common Stock issuable upon the exercise of the
option. The Stock Option Committee may offer to buy an option
previously granted on such terms and conditions as the Stock Option
Committee shall establish. Options may, at the discretion of the
Committee, provide for "reloads,"whereby a new option is granted for
the same number of shares as the number of shares of New Common Stock
used by the participant to pay the option price upon exercise or to
satisfy tax withholding obligations.
Unless the Stock Option Committee determines otherwise at the time of
grant, the Stock Option Plan will provide that upon termination of
employment or directorship by reason of retirement, death or
disability or for any reason other than resignation, voluntary
termination, or discharge for cause, stock options will become fully
vested and generally will be exercisable for two years or until the
end of the option term, whichever is shorter. Unless the Stock Option
Committee determines otherwise at the time of grant or thereafter, the
Plan will provide for immediate termination of stock options in the
event of termination of employment for cause by the Reorganized
Company or by the voluntary termination by the employee.
Non-transferability of Awards
A stock option shall not be transferable otherwise than by will or the
laws of descent and distribution, and a stock option may be exercised,
during the lifetime of the optionee, only by the optionee; provided,
however, that with the approval of the Stock Option Committee, the
agreement relating to any award (including, without limitation, a
stock option) may provide that such award may be transferred to one or
more members of the immediate family of or family trust established by
the grantee of the award or to a trust for the benefit of such person
or as directed under a qualified domestic relations order or, in the
case of options otherwise to be granted to Mr. O'Dell may at his
option and direction be granted to another employee of the Reorganized
Company for exemplary services, as a basis or other reason.
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(d) Additional Compensation Provisions:
------------------------------------
(i) Board of Directors and Advisory Board - Within 30 days of the
-----------------------------------------
Confirmation Date, board members Hedke and Teichgraeber and
advisory board members Ken Peak, Roger Curtis and Charles
Canfield, shall receive (i) 65,000 shares of restricted New
Common Stock that will become vested and freely tradable upon the
one-year anniversary of the Confirmation Date and (ii) 65,000
One-Year Vested Options. Any New Common Stock received from the
exercise of such stock options shall be immediately unrestricted
and freely tradeable.
(ii) Compensation of Michael L. Wallace - Mr. Wallace will commence
-----------------------------------
employment as President of the Reorganized Company within 30 days
after the Confirmation Date under the terms of a three-year
employment agreement. Compensation for Wallace shall be set at a
rate of $10,000 per month for the first year of such term,
$12,500 per month for the second year of such term and $15,000
per month for the third year of such term; provided, however,
that Wallace shall, at his option, be entitled to receive New
Common Stock in lieu of cash salary in accordance with the
following formula:
Number of Shares of New Common Stock = Cash Salary Foregone /
Staged Stock Price where the Staged Stock Price = $.25 for the
first 9 months after the Confirmation Date, $.75 for the next
three months after the confirmation Date and $1.50 for all time
thereafter. The Reorganized Company shall be able to withhold all
amounts due in accordance with applicable law in cash from the
shares to be distributed. The Reorganized Debtor shall guarantee
the initial 12 months or $120,000 of his salary, so long as
Wallace is employed by the Reorganized Debtor. As security for
payment of Wallace's salary, Wallace shall receive a lien on the
Colorado properties to the extent of $120,000. Any monthly salary
not paid to Wallace during the first year of his employment
(other than by his election) shall accrue interest at the rate of
10% per annum.
(iii)Benefits and Miscellaneous Expenses - As part of the
-----------------------------------------
compensation package to Wallace, the Reorganized Company will pay
up to $300.00 per month toward health care benefits for Wallace
and will reimburse Wallace for the reasonable and necessary
relocation expenses incurred in relocating from Columbus, Ohio to
Houston, Texas.
(iv) Employment Contracts - The Reorganized Debtor shall execute
---------------------
three-year employment contracts with O'Dell and Wallace
consistent with the employment provisions included herein and in
the Plan and Disclosure Statement. Such contracts shall provide
for a termination payment from the Reorganized Company to the
executive, in the amount of the greater of (i) six months'
compensation or (ii) one-third of all compensation payable under
the remaining term of the contract, if the executive's employment
is terminated for any reason other than cause, death or
disability.
(v) Conflicts of Interest and Rights of First Refusal - So long as
----------------------------------------------------
Messrs. Wallace and O'Dell are employed by the Reorganized
Company, and for six (6) months thereafter they shall offer to
the Reorganized Company:
(i) any and all opportunities, whether actual, potential, direct
or indirect to invest in or to participate as a joint
venturer, partner, co-owner, acquiror or benefactor, in any
oil and gas drilling, exploration, production, acquisition,
licensing, financing or such similar arrangement that either
individual or their Affiliates becomes aware of or is
otherwise or offered available to either individual or their
Affiliates from and after the Confirmation Date;
40
<PAGE>
(ii) not perform services for any person or entity, own directly
or indirectly an Interest in any entity, directly or
indirectly competing with the Reorganized Company from and
after the Confirmation Date.
(vi) Compensation of Dennis Hedke. As Vice-President of Exploration
-----------------------------
and Development, Mr. Hedke will, subject to Board Approval, be
eligible for reasonable compensation for services provided to the
Reorganized Company. In order to preserve needed operating
capital immediately following Confirmation of the Plan, Mr.
Hedke's services will likely be limited to part-time work until
January 1, 1999. At that time, the Board may decide to elevate
this position to full-time status. Negotiation of contract terms,
including salary, benefits and any applicable options will be
conducted by the Board at that time.
(vii)Compensation of Thomas O'Dell. Mr. O'Dell will receive no paid
-------------------------------
compensation (other than his Stock Options) for his services to
the Company for at least one (1) year following the SEC Approval
Date.
11. PRIVATE RIGHTS OFFERING
(a) Rights Offering.
Assuming the Shareholders' Committee or Reorganized Company has either
obtained a No Action Letter, filed an appropriate registration statement or
obtained other relief exempting the Debtor's issuance of New Common Stock and
Rights Offerings under Section 5 of the 1933 Securities Act, on the commencement
of the Rights Exercise Period, and subject to the provisions of Article IX in
the Plan each Holder of an Allowed Interest within Class 6 and 7 who selects the
Equity Option shall receive for each share of Common Stock a corresponding Class
6 Right or Class 7 Right. Any Class 6 or Class 7 Rights distributed pursuant to
Section 9.1 of the Plan must be exercised in accordance with the provisions
herein. Holders of Class 6 and 7 Interests or Shareholders who select the Cash
Out Option in Sections 4.3 and 4.4 of the Plan shall not receive any Rights.
(b) Issuance of the Rights.
Assuming the Shareholders' Committee or Reorganized Company has either
obtained a No Action Letter, filed an appropriate registration statement or
obtained other relief exempting the Debtor's issuance of New Common Stock and
Rights Offerings under Section 5 of the 1933 Securities Act, on the commencement
of the Rights Exercise Period, the Rights shall be issued to Holders of Allowed
Interests as set forth in Article IV and Sections 9.1 of the Plan who select the
Equity Option. Each New Investor as defined in paragraph 1.39 of the Plan
will have the right, but not the obligation, to purchase New Common Stock or
exercise all Class 6 and 7 Rights not timely exercised by members of those
Classes at a price of not less than 25 per share or Right to be determined by
the Reorganized Company's Board of Directors.
(c) Cancellation of Common Stock: Surrender of Securities and
Other Documentation.
On the Effective Date, the Common Stock (whether issued and
outstanding or held in the treasury of the Debtor immediately prior to the
Effective Date) shall be deemed to be canceled, extinguished, retired and of no
further force and effect, in all events without any further action on the part
of the Debtor, the Stock Transfer Agent, Holders of Common Stock, Reorganized
Company or any other entity. The Holders of such canceled securities and other
documentation shall have no rights arising from or relating to such securities
or other documentation, or the cancellation thereof, except the rights provided
pursuant to the Plan, provided however, that no distribution under the Plan
shall be made to or on behalf of any Holder of any Allowed Interest evidenced by
such canceled securities or other documentation unless or until such securities
or documentation are received by the Reorganized Company pursuant to Article IV
of the Plan.
41
<PAGE>
(d) Procedures for Exercise of Rights.
Class 6 and 7 Rights may be exercised by the respective Holders of
Allowed Interests thereof at any time during the Rights Exercise Period. Each
Right shall entitle each such Holder of the shares of Common Stock to purchase
one share of the Rights Offering Common Stock at a price equivalent to 25 cents
per share. All rights that are to be exercised by an individual Holder must be
exercised concurrently. Any exercise of Rights shall be irrevocable after the
Rights Expiration Date except that the New Investor Group may thereafter, for a
period as determined by the New Board of Directors, purchase New Common Stock or
exercise the previously unexercised Rights at a price to be set by the
Reorganized Company at a rate not less than 25 per share.
In order to facilitate the exercise of the Rights, the Stock Transfer
Agent as the Rights Agent will mail, on the date upon which the Rights Exercise
Period commences, to each Holder of an Allowed Class 6 and 7 Interest who
selects the Equity Option, a Rights Exercise Notice together with the Exercise
Instructions (which will include instructions for the proper completion and due
execution of the Rights Exercise Notice and timely delivery thereof, together
with instructions for the payment of the applicable aggregate exercise price for
the Rights sought to be exercised, to the Rights Agent and may specify other
requirements relating to the valid and effective exercise of the Rights). All
determinations as to proper completion, due execution timeliness, eligibility
and other matters affecting the validity or effectiveness of any attempted
exercise of any Rights shall be made by the Rights Agent, whose determination
shall be final and binding. The Rights Agent in its sole discretion may waive
any defect or irregularity, or permit a defect or irregularity to be corrected
within such time as it may determine or reject the purported exercise of any
Right subject to any such defect or irregularity. Deliveries required to be
received by the Rights Agent in connection with the purported exercise of Rights
will not be deemed to have been so received or accepted until actual receipt
thereof by the Rights Agent shall have occurred and any defects or
irregularities shall have been waived or cured within such time as the Rights
Agent may determine in its sole discretion. Neither the Reorganized Company nor
the Rights Agent will have any obligation to give notice to any Holder of a
Right of any defect or irregularity in connection with any purported exercise
thereof or incur any liability as a result of any failure to give any such
notice.
(e) Effectuating Documents; Further Transactions; Exemption from
Certain Transfer Taxes.
The Chairman of the Board, Chief Operating Officer and any Executive
Vice President or Vice President of the Reorganized Company, shall be authorized
to execute, deliver, file or record such contracts, instruments, releases and
other agreements or documents and to take such actions as may be necessary or
appropriate to effectuate and further evidence the terms and conditions of the
Plan (with the written consent of the Shareholder Committee if such action would
have any effect on Shareholders within Class 6 and 7 who select or are deemed to
have selected the Equity Option). The Secretary or any Assistant Secretary of
the Reorganized Company shall be authorized to certify or attest to any of the
foregoing actions. Pursuant to section 1146(c) of the Bankruptcy Code: (1) the
issuance, distribution, transfer or exchange of the Rights; and (2) the making,
execution, delivery or recording of any instrument, in furtherance of, or in
connection with, the Plan, the Confirmation Order, or any transactions arising
out of, contemplated by or in any way related to the foregoing, and shall not
be subject to any document recording tax, stamp tax, conveyance fee,
intangibles, or similar tax, mortgage tax, stamp act, real estate transfer tax,
mortgage recording tax or other similar tax or governmental assessments, and the
appropriate state or local governmental officials or agents shall be, and hereby
are, directed to forego the collection of any such tax or governmental
assessment and to accept for filing and recordation any of the foregoing
instruments or other document without the payment of any such tax or
governmental assessment.
42
<PAGE>
(f) Distributions for Claims and Interests Allowed as of the
Effective Date.
Except as otherwise provided herein, distribution of Rights Offering
Common Stock to be made on account of Allowed Interests existing as of the
Record Date shall be made as soon as practicable after the Rights Expiration
Date.
(g) Failure to Claim Undeliverable Distributions.
Any Holder of an Allowed Interest entitled to receive Rights that does
not assert a claim for an undeliverable distribution by the Rights Expiration
Date shall be forever barred from asserting a claim for such undeliverable
distribution against the Reorganized Company. Nothing contained in the Plan
shall require the Shareholder's Committee, Trustee, Reorganized Company or any
Rights Agent to attempt to locate any Holder of an Allowed Interest.
(h) Surrender of Cancelled Securities.
A condition precedent to receiving any distribution of Rights pursuant
to the Plan on account of an Allowed Interest evidenced by the instruments,
securities or other documentation canceled pursuant to Article IX of the Plan,
the Holder of such Interest shall tender the applicable instruments, evidencing
such Interest to the Rights Agent pursuant to a letter of transmittal furnished
by the Rights Agent. Any Rights to be distributed pursuant to the Plan on
account of any such Interest shall, pending such surrender, be treated as an
undeliverable distribution pursuant to Section 5.4 of the Plan.
(i) Surrender of Securities Certificates.
Except as provided in Section 9.10 of the Plan, for lost, stolen,
mutilated or destroyed Securities certificates, each Holder of an Allowed
Interest evidenced by a Securities certificate shall tender such Securities
certificate to the Rights Agent in accordance with written instructions to be
provided in a letter of transmittal to such Holders by the Rights Agent as
promptly as practicable following the Effective Date. Such letter of
transmittal shall specify that delivery of such Securities certificates will be
effected, and risk of loss and title thereto will pass, only upon the proper
delivery of such Securities certificates with the letter of transmittal in
accordance with such instructions. Such letter of transmittal shall also
include, among other provisions, customary provisions with respect to the
authority of the Holder of the applicable Securities certificate to act and the
authenticity of any signatures required on the letter of transmittal. All
surrendered Securities certificates shall be marked as canceled and delivered to
the Reorganized Company.
(j) Lost, Stolen, Mutilated, or Destroyed Securities Certificates.
In addition to any requirements under the applicable certificate or
articles of incorporation or bylaws of the Reorganized Company, any Holder of an
Interest evidenced by a Securities certificate that has been lost, stolen,
mutilated, or destroyed shall, in lieu of surrendering such Securities
certificate, deliver to the Rights Agent: (a) evidence satisfactory to the
Rights Agent of the loss, theft, mutilation or destruction; and (b) such
indemnity as may be required by the Rights Agent to hold the Rights Agent
harmless from any damages, liabilities or costs incurred in treating such
individual as a Holder of a Securities certificate. Upon compliance with this
Section 9.10 of the Plan, a Holder of an Interest evidenced by a Securities
certificate, such Holder shall, for all purposes under the Plan, be deemed to
have surrendered the Common Stock certificate.
43
<PAGE>
(k) Issuance and Resale of New Common Stock and Rights.
The Shareholders' Committee relies on Section 1145 of the Bankruptcy
Code, for an exemption from registration under the Securities Act of 1933, as
amended, and any similar provisions of applicable state law that the New Common
Stock and Rights issued pursuant to the Plan will be freely transferable without
further registration, (except by a Person deemed to be an "underwriter" under
the 1933 and 1934 Securities Act) within the provisions of Section 1145 of the
Bankruptcy Code. Prior to issuing New Common Stock and the Rights, the
Shareholders Committee or if then applicable, the Reorganized Company will seek
a No Action Letter from the SEC for a determination, among other things, that
the issuance and resale of such securities under the Plan is exempt from
registration under Section 5 of the 1933 Securities Act. If the SEC denies such
no-action letter, request the Equity Committee or, if then applicable, the
Reorganized Company will either file a registration statement, seek to obtain an
exemption from the application of Section 5 of the 1933 Securities Act, submit
other appropriate filings or undertake other actions with the SEC to accomplish
this result.
(l) Fractional Amounts of Shares.
The Reorganized Company will not issue or distribute any fractional
shares of New Common Stock and Additional Common Stock. In lieu of any
fractional shares of New Common Stock or Additional Common Stock, the
Reorganized Company, or such other Person as the Reorganized Company from time
to time may appoint as disbursing agent, will, promptly following the Effective
Date (or the date of any subsequent distribution pursuant to Article IV of the
Plan), distribute, to each Person otherwise entitled to receive a distribution
of a fractional share of New Common Stock or Additional Common Stock at that
time, an amount of cash equal to the value of such fractional share. In lieu of
any fractional Warrants, the Reorganized Company, or such other person as the
Reorganized Company from time to time may appoint as exchange agent, on behalf
of all persons otherwise entitled to received fractional Additional Common Stock
(including, but not limited to, individual beneficial owners of shares held in
"street name"), will promptly following the Effective Date (or the date of any
subsequent distribution pursuant to Article IX of the Plan), aggregate such
fractional Additional Common Stock and sell the resulting New Common Stock for
the account of such Persons. Such Persons will thereafter be entitled to
receive their allocable portion of the net proceeds of the sale thereof. Such
sales will be effected in open market transactions on the national securities
exchange or over-the-counter market, if any, upon which the New Common Stock are
listed. All questions as to fractional amounts of Common Stock, Additional
Common Stock or New Common Stock will be determined by the Reorganized Company.
(m) Returned and Unclaimed Distributions.
(i) Returned Distributions. If a distribution of cash or
securities pursuant to the Plan to any Holder of an Allowed Claim or Allowed
Interest is returned to the Reorganized Company or its Disbursing Agent due to
an incorrect or incomplete address for the Holder of such Allowed Claim or
Allowed Interest, then the Reorganized Company or such Disbursing Agent, as the
case may be, shall use reasonable efforts to obtain an accurate address for such
Holder. If, after one (1) year following the date of distribution, such
reasonable efforts have not yielded an accurate address for such Holder, then
the property or New Common Stock to be distributed to such Holder shall be
deemed to be unclaimed distributions in respect of such Claim or Interest and
shall be treated as provided in subsection (b) below.
(ii) Unclaimed Distributions. On the second (2nd) anniversary of
the Effective Date of the Plan, any Holder of an Allowed Interest who has not
(a) surrendered such Holder's securities as set forth in Section 5.4 of the
Plan, if applicable, or (b) claimed the cash or New Common Stock to which such
Holder is entitled, will forfeit such Holder's right to receive any distribution
under the Plan. Such unclaimed distributions, together with any cash or noncash
interest earned thereon or dividends or other distributions made with respect
thereto, shall become the property of the Reorganized Company.
12. APPOINTMENT OF DISBURSING AGENT
Upon entry of a final order or judgment by U.S. District Court Judge
Means authorizing the release of the Frozen Funds held in the registry of the
United States District Court in Fort Worth, such funds shall be initially
released to the Disbursing Agent who will distribute such funds as soon as
practicable and in no event later than thirty (30) days thereafter in accordance
with the terms and provisions of the Plan to the Reorganized Company and any
Holders of Allowed Interests within Classes 6 and 7 who selected the Cash Out
Option. Under the Plan, Henry C. Seals shall serve as the initial Disbursing
Agent. In the event Mr. Seals ceases to serve as the Disbursing Agent for any
reason, the Reorganized Company will serve as the Disbursing Agent.
44
<PAGE>
The funds held by the Disbursing Agent shall be deposited and
maintained in a federally insured depository account. The Disbursing Agent
shall be compensated at a rate of either 1.5% of each authorized disbursement
made or such other amount as determined by the District Court and shall be
reimbursed for reasonable and necessary expenses incurred while serving in the
capacity of Disbursing Agent out of only the Frozen Funds, after notice and
hearing before the District Court. The Disbursing Agent will maintain accurate
records of all disbursements or other transactions and transfers of funds.
Within five (5) days written notice from the Reorganized Company or the SEC, the
Disbursing Agent shall provide an accounting of disbursements made and receipts
(if any) as of the date of the written request. Upon the distribution of all
such Frozen Funds, and in accordance with the Plan, the Disbursing Agent shall
provide a final accounting and report to the Reorganized Company, the SEC, the
District Court and any Shareholder with an Allowed Interest who selected the
Cash Out Option and that requests a copy of the final report. Within thirty
(30) days after an interim and final distribution, the Disbursing Agent will
file his final report with the District Court in Fort Worth. Because the
Frozen Funds are currently subject to the SEC Enforcement Action pending before
Judge Terry Means of the United States District Court, any disputes involving
the Disbursing Agent, the Frozen Funds held or claimed by him, and the rights of
the Reorganized Company or Shareholders having selected the Cash Out Option,
shall be subject to the exclusive jurisdiction of Judge Terry Means or his
successor. The Frozen Funds will, for purposes of the Plan, not be subject to
any trustee's fees provided for under 11 U.S.C. 326 of the Bankruptcy Code.
13. BAR DATE FOR CLAIMS AND COMMON STOCKHOLDERS BAR DATE
(a) Administrative Claims Bar Date
---------------------------------
All administrative claims, except for the claims of professionals
which are governed by the Fee Procedures Order, shall be filed with the
Bankruptcy Court on or before thirty (30) days after the Effective Date or be
barred forever. If any objections to such claims are timely filed, such
Administrative Claim shall not be allowed unless such objection is overruled by
Final Order.
(b) Government Claims Bar Date
-----------------------------
The bar date for government claims calculated in accordance with
Bankruptcy Rule 3002(c)(1) is June 21, 1998. All government claims filed after
such date will be considered untimely filed.
(c) Bar Date for Shareholders Filing Proofs of Interest
---------------------------------------------------------
Shareholders either (a) listed on the Stock Transfer Agents books and
records; (b) listed with Cede & Co., stock brokerage firms, banks and similar
nominee holding companies of record for stock held in street name; and (c) those
-----
Shareholders who have cast a ballot on the Planwill be automatically recognized
- ------------------------------------------------
as having filed a Proof of Interest.
45
<PAGE>
In accordance with Bankruptcy Rule 3003 and Section 4.1(E) of the Plan
establishes the Confirmation Date as the last date for Shareholders filing a
Proof of Interest in this case, or informing the Equity Committee of their
holdings of Common Stock. Shareholders who have previously communicated their
shareholdings to the Equity Committee on the forms provided by the Equity
Committee will have satisfied the requirement for filing a Proof of Interest.
SHAREHOLDERS WHO FILE A PROOF OF INTEREST WITH THE COURT OR SEND IN THEIR FORM
TO THE EQUITY COMMITTEE AFTER THE CONFIRMATION DATE WILL BE BARRED FROM
-----
PARTICIPATING IN THE RIGHTS OF CLASSES 6-10 IN THE PLAN.
14. TREATMENT OF DISPUTED CLAIMS OR INTERESTS
(a) No Payments on Account of Disputed Claims or Interests
---------------------------------------------------------
Notwithstanding any other provisions of the Plan, no payments or
distributions shall be made on account of a Disputed Claim or
Disputed Interest until such Claim or Interest becomes an Allowed
Claim or Interest.
(b) Resolution or Estimation of Claims
--------------------------------------
The Shareholders' Committee or Reorganized Company may, at any
time, request that the Bankruptcy Court estimate any contingent
or unliquidated Claim pursuant to Section 502(c) of the
Bankruptcy Code, irrespective of whether the Trustee or the
Shareholders' Committee has previously objected to such Claim or
whether the Bankruptcy Court has ruled on any such objection. The
Bankruptcy Court will retain jurisdiction to estimate any
contingent or unliquidated Claim at any time during litigation
concerning any objection to the Claim, including during the
pendency of any appeal relating to any such objection. All of
these Claim objections, estimation and resolution procedures are
cumulative and not necessarily exclusive of one another. In
addition to seeking estimation of Claims as provided in Section
9.12 of the Plan, the Shareholders' Committee or Reorganized
Company, as the case maybe, may resolve or adjudicate any
Disputed Claim or Disputed Interest in the manner in which the
amount of such Claim or Interest and the rights of the Holder of
such Interest would have been resolved or adjudicated if the
Chapter 11 Case had not been commenced. Claims or Interests may
be subsequently compromised, settled, withdrawn or resolved by
the Shareholders' Committee pursuant to the Plan.
(c) Distributions on Account of Disputed Claims or Interests
---------------------------------------------------------
Once They Are Allowed
------------------------
On each Distribution Date, the Reorganized Company or the
Disbursing Agent, as appropriate, shall make all distributions on
account of any Disputed Claim or Disputed Interest that has
become an Allowed Claim or Allowed Interest during the preceding
quarter. Such distributions shall be made pursuant to the
provisions of the Plan governing the applicable Class.
15. EXECUTORY CONTRACTS
(a) Listed Executory Contracts. All known Executory Contracts and
unexpired leases identified in the lists of Executory Contracts
filed by the Debtor pursuant to Bankruptcy Rule 1007(b)(1),
including, but not limited to, all oil and gas leases, to the
extent they can be considered as Executory Contracts, will be
deemed assumed as of the Confirmation Date pursuant to section
1123 (b) (2) of the Bankruptcy Code without the necessity for the
filing of a motion. Included in that list, to the extent they can
arguably be considered Executory Contracts, are the oil and gas
leases with respect to the Debtor's oil and gas properties
located in Texas, Colorado, Wyoming, and Colombia. Any Executory
Contracts or leases designated by the Shareholders' Committee and
filed with the Bankruptcy Court prior to commencement of the
Confirmation hearing, shall be deemed rejected upon Confirmation
of the Plan. The well equipment may be sold or abandoned to the
operator of the leases in satisfaction of the Debtor's
obligations to pay its proportionate share of the costs of
plugging and abandoning the wells drilled pursuant to such
leases. Assumed leases and Executory Contracts which constitute
Operating Assets shall be retained by the Reorganized Company.
Notwithstanding anything to the contrary in the foregoing, all
unexpired oil and gas leases, oil contracts, gas contracts,
farmout agreements and joint operating agreements to which any
Debtor-Subsidiary is a party will be assumed as of the
Confirmation Date.
46
<PAGE>
(b) Other Executory Contracts. In the event (i) a prepetition
agreement is not listed in the Debtor's lists of Executory
Contracts and is not otherwise rejected, assumed or assumed and
assigned, and (ii) the Bankruptcy Court determines that such
agreement is an Executory Contract, the Reorganized Company shall
file a motion within such time as the Bankruptcy Court shall
direct, seeking to assume or reject such agreement.
(c) Rejection Damages Claims. Any Person claiming damages as a result
of the rejection of an Executory Contract pursuant to the Plan
must file a proof of Claim with the Bankruptcy Court within 30
days after entry of a Final Order authorizing the Debtor's
rejection of such Executory Contract or, in the case of Executory
Contracts rejected upon Confirmation of the Plan pursuant to
Section 1.18 and Article XII of the Plan, within 30 days after
the Confirmation Order becomes a Final Order. A copy of the proof
of Claim must be served on the Reorganized Company and its
counsel at the addresses set forth in Section XI hereof. Any
Person who has a claim for damages as a result of the rejection
of an Executory Contract and who does not timely file a proof of
Claim (i) shall have its Claim discharged, (ii) shall not receive
any distribution under the Plan in respect of such Claim; and
(iii) shall be forever barred from asserting that Claim against
any of the Debtor, the Reorganized Company, any successor to the
Debtor or any property of the Estate. The Plan and the notice and
hearing with respect to the rejection of an Executory Contract
will constitute notice of the date by which proofs of Claims for
damages occasioned by the rejection of an Executory Contract must
be filed. Allowed Claims for rejection damages shall be treated
and provided for as Class 4 Claims.
(d) Survival of Indemnification Obligations. Except as set forth
below, the obligations of the Debtor to indemnify its respective
directors, officers, agents and employees, and, if applicable,
those of their subsidiaries who were serving in such capacities
as of or preceding the Petition Date pursuant to various
prepetition indemnification agreements, the charter and bylaws of
the Debtor, applicable law or otherwise, (i) shall be discharged
and not retained by Confirmation of the Plan; (ii) shall not
survive the --- reorganization contemplated by the Plan; (iii)
shall not be performed or honored --- by the Reorganized Company;
and (iv) if considered as executory contracts, such obligations
or agreements to indemnify shall be rejected as of the
Confirmation Date within the meaning of Section 365 of the
Bankruptcy Code.
47
<PAGE>
(e) Cure of Payment Defaults Under Assumed Executory Contracts. All
payments that may be required by section 365 (b) (1) of the
Bankruptcy Code to cure any default in payment under any
Executory Contract that is assumed under the Plan shall be made
by the Reorganized Company, which has assumed such Executory
Contract in one of the following ways, as elected by the
Reorganized Company: (a) a lump sum cash payment no later than 30
days following the Effective Date in the amount of any such
payment, (b) payment of such amount in equal quarterly
installments commencing on the Effective Date and continuing for
one year or (c) as otherwise agreed to by the Reorganized
Company, whichever is obligated therefor, and the other party to
such Executory Contract. In the event of a dispute regarding (i)
the amount of any such payments, (ii) the ability of the Debtor
that is a party thereto to provide adequate assurance of future
performance or (iii) any other matter pertaining to assumption,
any payments required by section 365 (b) (1) of the Bankruptcy
Code shall be made following the entry of a Final Order resolving
such dispute. In the event that the Reorganized Company, if
applicable, as successor to such Debtor, determines that the
resolution of such dispute by Final Order constitutes a material
change of circumstances that causes the Reorganized Company, as
successor to the Debtor, to alter its business judgment that an
Executory Contract should be assumed, the Reorganized Company, as
successor to the Debtor, may file a motion to reject such
Executory Contract in the manner set forth in Section 365 of the
Bankruptcy Code.
16. ADOPTION OF AMENDMENTS TO CHARTER
On the Effective Date, officers of the Reorganized Company will file
the New Charter with the Secretary of State of Nevada.
17. FILING OF ARTICLES OF MERGER OR DISSOLUTION AND CERTIFICATES
OF CANCELLATION OF PARTNERSHIP CERTIFICATES.
Pursuant to the Plan, on the Effective Date, Nova Energy, Inc. and
Jubilee Oil & Gas, Inc. shall be liquidated or merged into or with Trinity Gas
Corporation and Nova Energy, Inc. shall be terminated; and appropriate officers
of the Reorganized Company will file any necessary articles of merger or
dissolution and certificates of cancellation of partnership certificates with
the Secretary of State of Wyoming and the Secretary of State of Texas.
18. TERMINATION OF SHAREHOLDERS' COMMITTEE
Thirty (30) days after the Effective Date, the Shareholder's Committee
shall be terminated unless before such time a notice is filed with the Court
extending the term of the Shareholder's Committee for reasonable cause for a
designated period.
VI. CONSOLIDATED FINANCIAL INFORMATION
------------------------------------
A. PRO FORMA BALANCE SHEET
--------------------------
Exhibit "B" is a copy of a pro forma balance sheet and financial
------------
statement prepared by the Shareholders' Committee based upon the financial
reports and information from the Trustee as of June 30, 1998, and based on the
principles of "fresh start" accounting.
ALTHOUGH THE SHAREHOLDERS' COMMITTEE BELIEVES THAT THE FINANCIAL
INFORMATION SET FORTH IN EXHIBIT "B" IS REASONABLE IN LIGHT OF CURRENT FACTS AND
-----------
CIRCUMSTANCES KNOWN TO MANAGEMENT, THE INFORMATION IS BASED ON A NUMBER OF
ASSUMPTIONS AND IS SUBJECT TO SIGNIFICANT UNCERTAINTIES WHICH ARE BEYOND THE
CONTROL OF THE SHAREHOLDERS' COMMITTEE. ADDITIONALLY, EXHIBIT "B" HAS NOT BEEN
-----------
PREPARED WITH THE ADVICE OF AN ACCOUNTING FIRM.
B. PROJECTED OPERATING REVENUE
-----------------------------
Attached hereto as Exhibit "E" is the Trinity USA Revenue Pro Forma
-----------
projections for actual production in 1997 and projected estimates for 1998 and
1999 for the Nova Wells. The expense numbers , however, have at least two
limitations: (a) Estimates for operations and administrative expenses are based
on unaudited information provided by Don Brause; and (b) Numbers for ad valorem
taxes are based on expected valuations, not actual billings, which would be in
arrears.
48
<PAGE>
The pro forma numbers incorporate the anticipated influence of
workovers, including the costs for such activities as estimated by Mr. Brause.
Numbers for Colorado in year 1999 include some preliminary accounting for
secondary recovery feasibility (administrative costs). Although, Wyoming
production numbers are derived wholly from Mr. Brause's information, the
Committee believes the data is substantially accurate. In year 1998 the
Committee has verified with Mr. Brause that there is limited excess cash for
much needed maintenance and other capital needs. A $40,000 capital infusion is
likely to increase cash flow significantly, provided oil prices recover to
levels of about $17/BBL. The following numbers represent monthly net revenue
(pre-tax), for Colorado and Wyoming:
<TABLE>
<CAPTION>
<S> <C>
1997 $11,922.00
1998 $ 3,974.00
1999 $12,029.00
</TABLE>
VII. BUSINESS PLAN OVERVIEW
------------------------
A. INTRODUCTION
------------
The principal objective of the New Management's Business Plan is to
maximize Shareholder value in the shortest possible time by increasing the
revenue stream of the Company and, ultimately, the profitability of the Company.
Implementation will require that Trinity emerge from Chapter 11 Bankruptcy
Protection in the shortest possible time. New Management's immediate intention
is to move forward aggressively in the following four (4) areas:
1) Evaluate and make a determination as to the best utilization of the
Company's existing properties and assets including in particular the
Nova Energy properties.
2) Recapture the Colombian Concession, evaluate its potential and
determine the most appropriate path forward.
3) Conclude pending litigation and address any contemplated litigation
with regard to the Company's prior business dealings and prior
management.
4) Substantially enhance the core areas of the Company with new business
opportunities, both domestic and international.
A. SUMMARY OF BUSINESS PLAN
---------------------------
The specific components of the Business Plan consistent with the above
stated objectives are set forth below:
NOVA Wells Redevelopment Plan
The Colorado and Wyoming wells can be a commercially viable source of
net revenue for the Reorganized Company. As part of the Nova Wells
Redevelopment Plan, a preliminary objective of the Reorganized Company is to
develop the following information:
49
<PAGE>
(a) Analysis of all Nova properties to include geologic and
engineering/economic studies of all wells;
(b) Verification of work-over candidates and opportunities for field
development of potential well sites; and
(c) Feasibility study to evaluate secondary recovery potential of the
Comanche Creek Field.
In addition to the above-referenced information, to enhance production
from the Colorado wells drilled by Nova Energy (Trinity Gas), the following
immediate capital improvement and chemical treatment stimulation projects will
be undertaken following confirmation. The recovery of the costs associated with
the reworking of these wells is projected to occur in less than 120 days.
DOWN HOLE REPLACEMENT (FOUR WELLS).
--------------------------------------
At present, four wells are no longer producing due to "down hole" pump
problems. Mr. Don Brause, the operator of the wells, estimates that
approximately $3,500 per well ($14,000) for rig, pumps, trucking, and related
expenses, if incurred, can return these wells to production.
CHEMICAL STIMULATION TREATMENTS (NINE WELLS).
------------------------------------------------
Chemical stimulation treatment for nine (9) producing wells should
increase production resulting in payout in less than two months. The purpose of
the chemical stimulation program will be to enhance permeability in the
immediate vicinity of the wellbores that has occurred from scale buildup from
bacteria, emulsions, and formation solids migrating to these areas. Chemical
stimulation is a two-step application process with an estimated net cost per
well of $2,872.00. A breakdown of the cost is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Stimulation (Step 1 and Step 2): $4,632/well
9 wells selected for initial stimulation @ $4,632/well: $ 41,688
Less existing recoverable condensate, sold, and paid 2nd month: -15,840
-----------
Net cost treatment with condensate recovery $ 25,848 ($2,872/well)
</TABLE>
The chemical stimulation program needs to be enacted soon after
confirmation to take advantage of daylight hours to perform maximum number of
treatments in one day. This will result in reduced expenses.
ADDITIONAL WELLS STIMULATION PROGRAM (FIVE WELLS).
------------------------------------------------------
An additional five (5) wells should be similarly considered for
stimulation. Those wells, however, will likely also require acid washing in
addition to the chemical treatment. This treatment could result in a notable
increase in production, and it is estimated that net costs to accomplish this
procedure will be approximately $3,500 per well, for a total of $17,500.
ADDITIONAL REWORKING TO BE CONSIDERED (TWO WELLS).
------------------------------------------------------
Two (2) additional wells may benefit by undertaking significant
downhole improvements. The procedures involved may involve sidetracking from an
existing wellbore and/or replacing plunger lifts with downhole pumps. These
remedial actions are under review, but preliminary estimates indicates costs up
to about $61,600.
1. Colombian Concession Development Plan
The primary component and focus of the Reorganized Company's Business
Plan is to take aggressive and immediate action to realize the Reorganized
Company's interest in the Colombian Concession. IT SHOULD BE EMPHASIZED,
HOWEVER, THERE ARE NO GUARANTEES THAT (I) ECOPETROL WILL RECOGNIZE THE DEBTOR'S
RIGHTS OR INTERESTS IN THE CONCESSION; (II) ECOPETROL WILL ALLOW THE DEBTOR TO
ASSUME THE FARALLONES CONTRACT IN THE EVENT TRINCOL DEFAULTS OR THE FARALLONES
CONTRACT IS TERMINATED BY ECOPETROL; OR (3) THERE WILL BE COMMERCIALLY
PRODUCTIVE OIL AND GAS FROM THE FOUR WELLS. The following are integral
components of that plan:
50
<PAGE>
(a) Vigorously pursue all legal options and efforts to enforce the
Default Judgment against Mr. Sers and Trincol entered by the
United States District Court in Ft. Worth on February 11, 1998;
(b) Negotiate with Ecopetrol to reestablish control of the Concession
by the Debtor; seek to develop and establish dialogue with
Ecopetrol management in order to obtain any necessary extensions
or otherwise satisfy existing requirements pertaining to
concession protection. The Committee understands that the current
apparent date for fulfillment of well completion requirements is
July 28, 1998. Meetings with appropriate Ecopetrol officials in
Bogota would be scheduled immediately upon confirmation of the
plan.
(c) Aggressively develop a plan for completion of any wells drilled
in the Concession that have potential for commercial production
(e.g., Patacore No. 1) by arranging for the mobilization of
proper completion infrastructure to the site of the Patacore 1
location. Once on location, cased hole logging and selected
interval testing should begin. Current log analysis suggests that
oil or gas potential exists in up to eight zones. All proper
precautions will be established to fully evaluate any zone with
commercial potential. Ecopetrol officials will be duly notified
and presumably on location for all relevant zone testing.
Considering that this well was drilled to a depth of 10,396 feet
and appears to have economic potential to a depth of 9476 feet,
completion costs associated with this well will likely run a
minimum of $200,000, with the possibility that associated costs
could be as much as $450,000. Hence, a significant reserve must
be set aside to adequately evaluate all possible pay zones in
this well.
(d) Subsequent to the final cased hole and perforation activities at
the above location, the cased-hole logging unit should be moved
immediately to either of the Bereju or Salsa locations for
preliminary log analysis. Since no open-hole logs were obtained
at either of these locations, geological and engineering
reservoir studies will need to be undertaken to assess whether
any viable pay zones are indicated in either of these two
locations. Should production potential be indicated by these
analyses, proper infrastructure should be mobilized to address
such potential. Open-hole and mud-log analyses conducted to date
for the Juga 1 suggests that no commercial shows were encountered
during the drilling of this well.
(e) Acquire and re-process all seismic data originally provided by
Ecopetrol to Trinity for said purpose; and
(f) Integrate all new well control with the various existing
geophysical data bases including seismic data, gravity data, and
gamma ray survey information.
1. Relocation of Company Headquarters
Management proposes to move the Company Headquarters and all corporate
records to Houston, Texas, which is the logical location for a dynamic,
growth-oriented company that intends to be involved in energy-related
opportunities, both domestic and international.
1. Injection of Additional Capital
Management will seek an additional injection of capital into the new
Company based on the value of present assets and the potential for growth,
implementation of the private rights offering in the Plan, and the involvement
of the new Management Team.
1. Creation of Industry Partnerships
The Reorganized Company will position itself to participate in several
new international oil and gas ventures with significant upside. This will be
accomplished through initial acquisition of high potential opportunities in
areas where the industry is currently active and the Management Team has
knowledge and contacts. The plans are for the Company then to leverage its
position by farming out its interest in those new international opportunities,
bringing on industry partners on a leveraged basis.
51
<PAGE>
1. New Business Opportunities
The Reorganized Company will undertake new business opportunities in
other areas that will support the core business of the Reorganized Company and
in which the new Management Team is knowledgeable and experienced. These new
business opportunities would include the trading of hydrocarbons and electricity
to add needed cash flow to the Company and to add incremental value to the
assets of the Company.
The results of new management's Strategic Business Plan will be
dependent on the time frame required to emerge from bankruptcy and Management's
ability to raise additional capital.
VIII. SETTLEMENT, DISCHARGE, AND RETENTION OF CAUSES OF ACTION
---------------------------------------------------------------
A. POTENTIAL SETTLEMENT WITH SEC
--------------------------------
A potential settlement has been discussed between only the Trustee and
---- -----------
the SEC with respect to the SEC Enforcement Action filed on December 8, 1997
- --------
against Trinity, in a nominal capacity, Sidney W. Sers ("Mr. Sers"), Trinity Gas
Colombia ("Trinity Colombia"), Patricia Ruth Sers, Amanda Burton Sers, Timothy
Allen Sers, and the Nakatosh Hotel, Inc., as defendants in that litigation
pending before the United States District Court for the Northern District of
Texas, Fort Worth Division, Judge Terry Means presiding (the "District Court")
and has been assigned the case number of Civil Action No. 4-97-CV-1018Y (the
"SEC Enforcement Action"). Although the status of the potential settlement is
not definitive and may not be consummated, the Committee believes proceeding
with the Plan now is advisable because further delay in facilitating the
Debtor's exit from Chapter 11 is more detrimental to the Debtor and its
shareholders than waiting until some undetermined date when the Trustee and SEC
may reach settlement. This settlement does not, if finally achieved, resolve
the differences between the SEC and the Sers Group.
The complaint in the SEC Enforcement Action requested a temporary
restraining order and a preliminary injunction against Trinity and Sers, the
appointment of a temporary equity receiver for Trinity, an order requiring the
repatriation and return of all funds and of all the defendants' assets held
outside the District Court's jurisdiction, a freeze order prohibiting Trinity,
Jubilee Oil & Gas Corporation, and Mr. Sers and his family from withdrawing or
transferring monies or securities from any bank or securities brokerage account,
an order freezing any securities of Trinity and funds received directly or
indirectly from the sale of Trinity and an accounting by each defendant of any
and all securities of Trinity and all monies received from the sale of
securities of Trinity. By reason of court orders entered in the SEC Enforcement
Action, certain funds approximating $3 million purportedly belonging to various
Sers family members, Trinity Colombia and/or the Debtor have been frozen and
deposited into the District Court's registry (the "Frozen Funds"). In the
Bankruptcy Case, the SEC has filed its Proof of Claim, which has been assigned
Claim No. 15, in an unliquidated amount, based upon its pleadings in the SEC
Action, as to which the Trustee could file objections. In addition to the SEC
and Chapter 11 Trustee, claims to the Frozen Funds are also being made by the
Defendant members of the Sers Group, including Timothy Sers.
52
<PAGE>
The Committee understands the Trustee and the SEC have been
negotiating towards a settlement to be set forth in a Stipulation of Compromise
and Settlement (the "Settlement"). Any such Settlement is likely to be
conditioned upon approval by the District Court, the Bankruptcy Court and the
national office of the SEC in Washington, D.C. The Equity Committee understands
that in the event the Trustee and SEC reach a settlement, they intend to file a
Joint Motion to Approve Settlement Stipulation (the "Settlement Motion") seeking
such approval of the Bankruptcy Court and District Court. Upon the appropriate
approval of the Settlement Motion, the SEC will file appropriate papers to
withdraw Claim No. 15 in the Bankruptcy Case with prejudice.
The Equity Committee further understands that as part of the
Settlement, the Trustee, or if appropriate the Reorganized Company and/or
Shareholders' Trust, will file in the SEC Enforcement Action appropriate
pleadings to substitute for the Trustee and align the position of the Trustee,
or the Reorganized Company after the Effective Date with that of the SEC or
otherwise advising the District Court that the SEC and the Trustee are not
adverse to one another. The Estate will, under that scenario, waive any claim
it might assert that the Frozen Funds are, or ought to be, property of the
Estate. The Equity Committee also understands that the SEC, subject to final
approval of its local, regional and national offices, has agreed in principle
that the Frozen Funds shall, after entry of final judgment in favor of the SEC,
be distributed to the Holders of Allowed Interests having selected the Cash Out
Option by the Disbursing Agent or the Shareholders' Trust, net of reasonable
administrative expenses consistent with Article IV of the Plan. The SEC and the
Trustee have discussed placing the Frozen Funds as early as practicable into the
hands of the Disbursing Agent as provided in Article VIII of the Plan. It
should be noted, however, that the Disbursing Agent is not the only mechanism
for distributing the Frozen Funds to Shareholders and the SEC may utilize other
means of distribution of the Frozen Funds.
THE COMMITTEE REITERATES THAT THE POTENTIAL SETTLEMENT REFERENCED IN THIS
DISCLOSURE STATEMENT BETWEEN THE TRUSTEE AND SEC HAS NOT BEEN FINALLY AGREED TO,
FINALIZED, OR APPROVED BY THE COURT. FURTHERMORE, THERE IS NO GUARANTEE THAT IF
A SETTLEMENT IS REACHED IT WILL CONTAIN ALL THE TERMS AND PROVISIONS REFERENCED
HEREIN. FURTHERMORE, THIS SETTLEMENT WOULD NOT RESOLVE WHETHER THE SERS GROUP
IS ENTITLED TO ANY OR ALL OF THE FROZEN FUNDS.
B. GENERAL DISCHARGE AND RELEASE FROM CLAIMS AND LNTERESTS
-----------------------------------------------------------
Except as otherwise expressly provided in the Plan, (i) Confirmation
of the Plan shall be binding upon all Holders of Claims and Interests, whether
or not they accept the Plan, and (ii) the distributions and rights afforded in
the Plan shall be in complete and full satisfaction, discharge and release,
effective as of the Effective Date, of all Claims against and Interests in the
Debtor or any of its respective assets or properties of any nature whatsoever.
Commencing on the Effective Date, except as expressly provided otherwise in the
Plan, all Holders of Claims and Interests shall be precluded forever from
asserting against the Debtor or the Reorganized Company or their respective
assets or properties any other or further liabilities, Liens, obligations,
claims or interests based on any action or omission, transaction or other
activity or security, instrument or other agreement of any kind or nature
occurring, arising or existing prior to the Effective Date, that was or could
have been the subject of any Claim or Interest whether or not Allowed. As of
the Effective Date, the Debtor shall be discharged and released from, and the
Reorganized Company shall hold all the assets and properties received or
retained by it pursuant to the Plan, free of all liabilities, Liens, claims and
obligations or other claims of any nature, including, but not limited to, equity
interests, known or unknown, except any Liens, liabilities, obligations or other
claims created by or preserved under the Plan or arising after the Effective
Date. All legal or other proceedings and actions seeking to establish or
enforce liabilities, Liens, claims, equity interests or obligations of any
nature against the Reorganized Company or assets or properties received or
retained by the Reorganized Company with respect to debts and obligations, if
any, of the Estate arising before the Effective Date shall be permanently stayed
and enjoined, except as otherwise specifically provided in the Plan. As of the
Effective Date, all claims of creditors and interest holders against the Debtor,
the Trustee, and the Committee shall be released and forever discharged.
53
<PAGE>
IX. RETENTION AND ENFORCEMENT OF CLAIMS AND CAUSES OF ACTION AND INTERESTS.
------------------------------------------------------------------------
Pursuant to section 1123(b)(3) of the Bankruptcy Code, the Reorganized
Company, as successor to the Debtor, shall have the exclusive right to pursue,
enforce, abandon or compromise any and all causes of action against any Person
and rights of the Debtor that arose before or after the Petition Date,
including, but not limited to, the rights and powers of a trustee and debtor in
possession, against any Person whatsoever, including, but not limited to, all
avoidance powers granted to the Debtor under the Bankruptcy Code and all causes
of actions and remedies granted pursuant to sections 502, 510, 541, 544, 545,
547 through 551 and 553 of the Bankruptcy Code, the Miscellaneous Actions,
Shareholders' Derivative Action and Avoidance Actions. The Reorganized Company
and Shareholders' Committee will retain the right to object to Claims and
Interests after the Confirmation Date in order to have the Bankruptcy Court
estimate or determine the amount of any Allowed Claim or Allowed Interest.
I. CONDITIONS TO CONFIRMATION
--------------------------
A. CONDITIONS TO CONFIRMATION AND EFFECTIVENESS OF THE COMMITTEE'S PLAN
-------------------------------------------------------------------------
In order to confirm the Committee's Plan, the Bankruptcy Code requires
the Bankruptcy Court to make a series of determinations concerning the Plan,
including: (i) that the Committee's Plan has classified Creditor and stockholder
interests in a permissible manner; (ii) that the contents of the Committee's
Plan comply with the technical requirements of chapter 11 of the Bankruptcy
Code; (iii) that the Shareholders' Committee has proposed the Committee's Plan
in good faith; and (iv) that the Shareholders' Committee' disclosures concerning
the Committee's Plan have been adequate and have included information concerning
all payments made or promised in connection with the Committee's Plan, as well
as the identity, affiliations and compensation to be paid to all officers,
directors and other insiders of the Debtor.
In addition, the Bankruptcy Code requires that the Plan be accepted by
the requisite votes of Creditors and, if applicable, stockholders (except to the
extent that "cram down' is available under 1129(b) of the Bankruptcy Code),
that the Committee's Plan be feasible and that the confirmation of the
Committee's Plan be in the best interest of all Creditors and stockholders,
given their relative rights under state, federal and bankruptcy laws.
1. CLASSIFICATION OF CLAIMS AND INTEREST
The Bankruptcy Code requires that any plan of reorganization classify
each Creditor's claim and each stockholder's interest with other claims or
interests that are "substantially similar." The dollar amount of a claim may be
a basis upon which to distinguish it from other claims, particularly where a
separate class of claims, as in the case of the Class 3 Small Unsecured Creditor
Claims, involves lesser amounts or different contractual rights on a relative
basis and/or such treatment is reasonable and necessary for administrative
convenience or plan implementation. The Shareholders' Committee believes that
the Committee's Plan classification system meets the Bankruptcy Code's standard,
particularly as to Class 3 Creditors, as being reasonable and necessary for
administrative convenience. Again, the Shareholders' Committee believes that
reducing the size of the Creditor body through the cash payment to the Class 3
creditors serves the purposes of the Debtor.
2. PLAN FEASIBILITY
The Committee's Plan may be confirmed only if confirmation is not
likely to be followed by the liquidation or the further financial reorganization
of the Debtor. The Shareholders' Committee believes that the Committee's Plan
complies with this feasibility standard because the existing assets in the
estate, the aggregate of all cash, and the revenues generated from Nova Energy
Wells, are sufficient to allow the Debtor to fund current oil and gas
operations, specifically the operations in Colorado, Wyoming, and the Hartwich
Well in Ward County, Texas. Moreover, the Committee's Plan has three key plan
components that will enable the Reorganized Company to raise additional capital
to fund additional oil and gas exploration and to fund secondary recovery
operations on existing wells. First, the Committee's Plan includes a private
rights offering of stock. Additional capital from the Rights offering will
enable the Reorganized Company to initiate secondary recovery operations in
existing Wyoming and Colorado wells and, if appropriate, assume operational
control of well completion efforts in Colombia pursuant to the Colombian
Concession. Second, a new investor group being developed by the new management
team may also invest in the Reorganized Company through the exercise of Class 6
and 7 Rights which go unexercised by their initial Class 6 and 7 Recipients
and/or by purchasing New Common Stock at a price of not less than 25 per share.
Third, the Reorganized Company's new Board of Directors includes persons with
extensive background, experience, and credibility in the oil and gas industry.
The credibility of the new Board with potential investors will likely facilitate
the accumulation of new capital sufficient to re-capitalize the Company's oil
and gas exploration. The new Board also increases the likelihood that the
Reorganized Company will establish one or more industry partnerships with
existing entities in the oil and gas industry.
54
<PAGE>
A final issue affecting Plan feasibility is whether the Reorganized
Company will have access to the approximately $3 million dollars in Frozen
Funds. As previously disclosed, there is uncertainty when the Frozen Funds will
be available. Nevertheless, the Committee believes that once the Plan is
confirmed, new management will secure additional capital financing, if needed,
thus insuring Plan feasibility even in the absence of the $3 million. At
present, proposed new management has entered productive discussions with one or
more investor groups to obtain additional capital financing.
3. ACCEPTANCE
Classes of claims or interests that are not impaired under the
Committee's Plan are deemed to have accepted the Plan. Thus, those Creditors
and Shareholders who hold claims in Classes 1 through 10, inclusive, are
impaired and entitled to vote on the Committee's Plan.
4. CONFIRMATION WITHOUT ACCEPTANCE BY ALL IMPAIRED CLASSES
The Committee's Plan may be confirmed even if not accepted by all
impaired classes if at least one such impaired class of claims has accepted the
plan and the Committee's Plan meets the following standards:
a. NON-ACCEPTANCE BY AN IMPAIRED CLASS OF CLAIMS
---------------------------------------------------
If one or more of Classes 1 through 10 rejects the Committee's Plan,
the Bankruptcy Court may nevertheless still confirm the Committee's Plan
provided that it finds the Committee's Plan does not discriminate unfairly as to
the non-accepting class and is "fair and equitable" to that Class. A plan does
not 'discriminate unfairly" as to any non-accepting impaired class where it is
treated equally with other classes of equal rank. Discriminatory treatment may
be permitted where the following factors are considered: (1) whether that
treatment has a reasonable basis; (2) whether the Shareholders' Committee cannot
carry out the Plan without such discrimination; (3) whether the discrimination
is proposed in good faith; and (4) the extent of the difference of such
treatment,
Under 1129(b) of the Bankruptcy Code, a plan is "fair and equitable"
to a non-accepting class of unsecured creditor claims, if, among other things,
the plan provides that (i) the non-accepting class receives or retains property
of a present value equal to the allowed amount of such claims or (ii) if the
class receives or retains property of any less value than full payment, no class
junior to the non-accepting class receives or retains any property under the
plan. The Shareholders' Committee believes that the treatment provided under
the Committee's Plan to Holders of Claims in Classes 1 through 10 meet the "fair
and equitable" test.
b. NON-ACCEPTANCE BY AN IMPAIRED CLASS OF INTERESTS (STOCKHOLDERS)
---------------------------------------------------------------
If the Holders of Common Stock in Classes 6 through 10 are determined
to be impaired and reject the Committee's Plan, the Committee's Plan may still
be confirmed if it does not discriminate unfairly and is "fair and equitable" as
to Classes 6 through 10. Under 1129(b) of the Bankruptcy Code, a plan of
reorganization is "fair and equitable" to a class of holders of equity interests
if, among other things, the plan provides that (i) the Holders of equity
interests in such non-accepting impaired class receive or retain property of a
present value equal to the greatest of any fixed liquidation preference to which
the Holders are entitled, any fixed redemption price to which the Holders are
entitled, or the value of the interests, or (ii) if such class receives property
of any lesser value, no class junior to the non-accepting class receives or
retains any property under the plan. The Shareholders' Committee believes that
the distribution under the Committee's Plan to Holders of interests in Classes 6
and 7 satisfies the "fair and equitable" test in that, upon a liquidation of
Debtor, Common Stock in Classes 6 and 7 would be worthless. Because the
Committee's Plan permits a complete retention of stock in the Reorganized Debtor
by Class 6 and 7 Shareholders, the Committee's Plan clearly results in a
retention of rights that exceeds the consideration that such Holders would be
entitled to receive upon a liquidation of the Debtor.
55
<PAGE>
5. MINIMUM VALUE ABSENT ACCEPTANCE: LIQUIDATION VALUE
If any member of an impaired Class does not accept the Committee's
Plan, the Bankruptcy Court may confirm the Committee's Plan only if it provides
to each such non-accepting member a recovery that has a value that is at least
equal to the distribution which such member would receive if the Debtor was
liquidated on the Effective Date under chapter 7 of the Bankruptcy Code.
B. LIQUIDATION ANALYSIS
---------------------
1. BEST INTEREST OF UNSECURED CREDITORS
In order to confirm the Committee's Plan, the Bankruptcy Court must
also independently determine that the Committee's Plan is in the best interest
of all Classes of Creditors and stockholders. Section 1129(a)(7) of the
Bankruptcy Code requires that the Holders of Allowed Unsecured Creditor Claims
as set forth in Classes 3 and 4, and equity interest holders in Classes 6
through 10, achieve a recovery under the Committee's Plan which has a present
value at least equal to the present value of the distribution that each such
Creditor or interest holder would receive if a liquidation of the Debtor under
chapter 7 of the Bankruptcy Code were to occur.
There are several reasons why unsecured creditors and equity interest
holders will receive less in a chapter 7 liquidation than they will receive
under the Committee's Plan.
(1) If the case is converted to chapter 7, there will be an additional or
continuing layer of administrative expenses. In this case,
administrative expenses are relatively high compared to the available
assets in the estate. For example, from the petition date to the end
of April, administrative expenses in the form of professional fees of
the Trustee's counsel and counsel for the Shareholders' Committee
total $450,000 and $175,000 respectively. This amount does not include
additional fees of a Chapter 7 Trustee's accountants and other
professionals. In a chapter 7 liquidation, the Committee believes
there will be additional professional fees and Trustee's fees incurred
in distributing assets. For instance, if a chapter 7 Trustee was to
distribute the $3 million dollars held in the registry of the court in
Fort Worth, the Trustee would likely receive $150,000+ as compensation
that would not otherwise be available to Creditors.
(2) A chapter 7 liquidation could result in a shut-down of current
operations, including the Nova Energy wells, if state energy
regulations are not fully complied with. Thus, the Debtor might not be
able to realize additional cash flow from potential secondary recovery
operations and improvements to current production operations.
Moreover, a liquidation and the resulting cessation of operations
might impede the Debtor's ability to realize its interests in the
Colombian Concession if oil is discovered there. In effect, the Debtor
would not be able to conduct operations in Colombia if it is
liquidated. What this means is that unsecured creditors would be
deprived of the potential cash flow resulting from continued
operations.
56
<PAGE>
(3) The Committee believes the value of the Debtor's existing operations,
including those of its subsidiary, Nova Energy, is much higher as a
going concern than if operations are terminated. The Committee also
estimates that creditors will receive less from a liquidation sale
than they would if assets were sold as a going concern in a chapter 11
plan. Essentially, chapter 7 closes many options that would otherwise
be available in a reorganization, including the possibility of merger,
farm out, long term operations or remedial work.
(4) Distributions to creditors in a chapter 7 usually do not occur until
many months and even years after the initial chapter 7 filing. This
delay could likely mean a lower return to Creditors in terms of
present value. In this bankruptcy case, a substantial portion of
Debtor's assets are tied-up in litigation which may take years to
resolve, thus delaying a return to Creditors. Such delay reduces the
present value of the Creditors' claims. The Chapter 11 Trustee
believes a conversion and liquidation in Chapter 7 is the best way to
pay dividends to creditors. The Committee firmly disagrees, believing
the creditors will receive faster and greater payments from a
reorganized company than continuation in bankruptcy proceedings, when
the Trustee's professional fees may eliminate any such recovery.
To calculate what members of each impaired class of unsecured claims
or interests would receive if the Debtor was liquidated, the Bankruptcy Court
must first determine the dollar amount that would be generated upon such
liquidation ("Liquidation Fund"). The Bankruptcy Court would then subtract the
costs of the liquidation (including Trustee's fees and the fees of any
professionals employed by the Trustee), the unpaid expenses of the
Reorganization Case and other priority obligations, and the amount of the
allowed secured claims that would be paid out of the liquidation proceeds. It
is believed that no secured claims exist in this case. The Bankruptcy Court
would also add or subtract any augmentation or reduction to the Liquidation Fund
that is expected to result from any business operations following a conversion
to chapter 7 and pending the liquidation. The Bankruptcy Court would next
determine the amount of the unsecured claims that would likely be allowed in the
liquidation proceeding. If the Liquidation Fund (after the above-described
adjustments) was insufficient to pay in full the total amount of allowed
unsecured claims contained in Classes 3 through 4, no other class of claims or
interests, including those of Classes 6-10 would be entitled to receive any
distribution from the Debtor upon a chapter 7 liquidation.
In order to determine the amount of the Liquidation Fund that would be
available to satisfy claims against the Debtor in a liquidation, the Committee
evaluated the Debtor's current non-contingent assets that might have
identifiable value, assessing values as stated in the Pro Forma Balance Sheet
attached hereto as Exhibit "B". (Because of the uncertainty of litigation
------------
seeking to recover estate assets, any recovery of funds for the benefit of the
Estate is considered contingent, and, therefore, not included in the Liquidation
Fund. Moreover, the Frozen Funds are not included in the liquidation analysis
because the SEC does not consider such funds estate property and the
availability of such funds is contingent). The value of the existing
non-contingent assets were then discounted by 20% ("Liquidation Discount Rate")
to account for the market uncertainty and costs of sale. Set forth below is a
summary of the total projected realizable funds in the event of liquidation.
<TABLE>
<CAPTION>
Non-Contingent Assets Liquidation Value
- ------------------------------------------------------ -------------------
<S> <C>
Colorado and Wyoming Properties (Nova) Plus Equipment $ 300,000
Texas Properties 20,000
Cash 202,676.41
Total 522,676.41
Non-Contingent Assets Liquidation Value
- ------------------------------------------------------ -------------------
Less Liquidation Discount Rate (20%) 418,141.12
Less Estimated Administrative Expenses <359,000>(1)
Less Estimated Tax Claims <10,000>
Less Priority Claims <5,000>
Liquidation Fund 44,141.12
Total Estimated Claims Per Exhibit "B" $ 62,370.00(2)
- ------------------------------------------------------
Pro rata Distribution to General Unsecured Creditors
in Chapter 7 Liquidation 71%
Distribution to Equityholders 0%
</TABLE>
- ----------------------
(1) This figure for Administrative Expenses has been reduced by the
Trustee's payments to his various professionals including the law firm
of Winstead, Sechrest and Minick, Samson Robbins, and Dr. James
Edwards. This reduction in the original estimated figure of
$650,000.00 for Administrative Expenses corresponds to the reduction
of cash on hand by the same amount.
(2) This figure represents the sum of undisputed claims from the claims
register and undisputed claims on Bankruptcy Schedule "F" where a
corresponding proof of claim was not filed.
57
<PAGE>
2. SUMMARY
-------
In a chapter 7 liquidation, the Liquidation Fund would likely have
sufficient funds to pay existing Administrative and Priority Claims. There
would not, however, be sufficient funds available to pay 100% of general
unsecured claims as is provided for in the Plan. In sum, the Plan provides a
greater return to unsecured creditors and equity interest holders than each
would receive in a Chapter 7 liquidation. Therefore, the Plan satisfies the
best interest of creditors test in 11 U.S.C. 1129. Moreover, equity interest
holders would receive nothing.
X. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
----------------------------------------------------------
The following discussion is a summary of certain federal income tax
aspects of the Committee's Plan for general information only. It should not be
relied upon for purposes of determining the specific tax consequences of the
Plan with respect to a particular Holder of a Claim or Interest. This
discussion does not purport to be a complete analysis or listing of all
potential tax factors.
The following discussion is based upon existing provisions of the
Internal Revenue Code ("IRC"), existing regulations thereunder, and current
administrative rulings and court decisions. No assurance can be given that
legislative or administrative changes or court decisions may not be forthcoming
which would require significant modification of the statements expressed in this
section. Moreover, the tax consequences to Holders of the Claims and Interests
may vary based upon the individual tax circumstances of each such Holder.
Nothing herein purports to describe any state, local, or foreign tax
consequences.
NO RULING HAS BEEN SOUGHT OR OBTAINED FROM THE IRS WITH RESPECT TO ANY
OF THE TAX ASPECTS OF THE PLAN AND NO OPINION OF COUNSEL HAS BEEN OBTAINED BY
THE SHAREHOLDERS' COMMITTEE WITH RESPECT THERETO. NO REPRESENTATIONS OR
ASSURANCES ARE BEING MADE WITH RESPECT TO THE FEDERAL INCOME TAX CONSEQUENCES AS
DESCRIBED HEREIN. CERTAIN TYPES OF CLAIMANTS AND INTEREST HOLDERS MAY BE
SUBJECT TO SPECIAL RULES NOT ADDRESSED IN THIS SUMMARY OF FEDERAL INCOME TAX
CONSEQUENCES. THERE MAY ALSO BE STATE, LOCAL, OR FOREIGN TAX CONSIDERATIONS
APPLICABLE TO A HOLDER OF A CLAIM OR INTEREST WHICH ARE NOT ADDRESSED HEREIN.
EACH HOLDER OF A CLAIM OR INTEREST AFFECTED BY THE PLAN MUST CONSULT, AND REPLY
UPON, HIS OR HER OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE
PLAN WITH RESPECT TO THAT HOLDER'S CLAIM OR INTEREST. THIS INFORMATION MAY NOT
BE USED OR QUOTED IN WHOLE OR IN PART IN CONNECTION WITH THE OFFERING FOR SALE
OF SECURITIES.
58
<PAGE>
A. TAX CONSEQUENCES TO TRINITYTAX CONSEQUENCES TO TRINITY
------------------------------------------------------------
Under the IRC, a taxpayer generally must include in gross income the amount
of any discharge of indebtedness income realized during the taxable year.
Section 108(a)(1)(A) of the IRC provides an exception to this general rule,
however, in the case of a taxpayer that is under the jurisdiction of a
bankruptcy court in a case brought under the Bankruptcy Code where the discharge
of indebtedness is granted by the court or is pursuant to a plan approved by the
court, provided that the amount of discharged indebtedness that would otherwise
be required to be included in income is applied to reduce certain tax attributes
of the taxpayer. Section 108(e)(2) of the IRC provides that a taxpayer shall
not realize income from the discharge of indebtedness to the extent that
satisfaction of the liability would have given rise to a deduction. As a result
of Sections 108(a)(1)(A) and 108(e)(2) of the IRC, Trinity does not anticipate
it will recognize any income from the discharge of indebtedness through the
chapter 11 case.
B. TAX CONSEQUENCES TO CREDITORS
--------------------------------
A Creditor who receives Cash or other consideration in satisfaction of any
Claim may recognize ordinary income. The impact of such ordinary income, as
well as the tax year for which the income shall be recognized, shall depend upon
the individual circumstances of each Claimant, including the nature and manner
of organization of the Claimant, the applicable tax bracket for the Claimant,
and the taxable year of the Claimant. Each Creditor is urged to consult with
its tax advisor regarding the tax implications of any payments or distributions
under the Plan.
THE FOREGOING IS INTENDED TO BE A SUMMARY ONLY AND NOT A SUBSTITUTE FOR
CAREFUL TAX PLANNING OR CONSULTATION WITH A TAX ADVISOR. THE FEDERAL, STATE,
LOCAL, AND FOREIGN TAX CONSEQUENCES OF THE PLAN ARE COMPLEX AND, IN SOME CASES,
UNCERTAIN. SUCH CONSEQUENCES MAY ALSO VARY BASED UPON THE INDIVIDUAL
CIRCUMSTANCES OF EACH HOLDER OF A CLAIM OR INTEREST. ACCORDINGLY, EACH HOLDER
OF A CLAIM OR INTEREST IS STRONGLY URGED TO CONSULT WITH HIS OR HER OWN TAX
ADVISOR REGARDING THE FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES OF THE
PLAN.
XI. MISCELLANEOUS
-------------
A. CONDITION TO CONFIRMATIONCONDITION TO CONFIRMATION
------------------------------------------------------
Unless expressly waived in writing by the Shareholders' Committee,
effectiveness of the Plan is conditioned upon the following:
(i) the Bankruptcy Court shall have entered a Confirmation Order in
form and substance acceptable to the Shareholders' Committee as to which no stay
is in effect; and
(ii) all other documents provided for under the Plan shall have been
executed and delivered to the parties thereto.
59
<PAGE>
B. EFFECTIVE DATE CONDITIONS
---------------------------
The Effective Date of the Plan will occur, and the Committee's Plan
will take effect, on the Confirmation Date or such other date as the
Shareholders' Committee shall designate with Notice filed with the Court, but in
no event later than thirty (30) business days following the Confirmation Date.
C. DISCHARGE AND RELEASE OF LIABILITIES
----------------------------------------
AN ORDER OF THE BANKRUPTCY COURT CONFIRMING THE COMMITTEE'S PLAN WILL
ACT AS A DISCHARGE AND RELEASE OF ANY AND ALL KINDS OF LIABILITIES OF THE DEBTOR
WHICH ARE DISCHARGEABLE UNDER THE BANKRUPTCY CODE EXCEPT AS IS OTHERWISE
PROVIDED UNDER THE COMMITTEE'S PLAN.
D. EFFECT OF CONFIRMATION OF PLAN
----------------------------------
THE COMMITTEE'S PLAN, IF CONFIRMED, WILL CONSTITUTE A LEGALLY BINDING
AGREEMENT AMONG THE DEBTOR, SHAREHOLDERS' COMMITTEE AND THE HOLDERS OF CLAIMS
AND INTERESTS, INCLUDING HOLDERS WHO DO NOT ACCEPT THE PLAN. IT IS IMPORTANT
FOR YOU TO UNDERSTAND ITS PROVISIONS. HOLDERS OF CLAIMS AND INTERESTS ARE URGED
TO DISCUSS ANY QUESTIONS WITH THEIR COUNSEL, ACCOUNTANTS, OR OTHER FINANCIAL
ADVISERS.
E. CONDITIONS TO CONSUMMATION
----------------------------
In addition to the provisions of Section 1101 of the Bankruptcy Code,
a condition precedent to substantial consummation of the Plan is the Reorganized
Company's having obtained a no-action letter response determining that the
issuance and resale of New Common Stock and Rights under the Plan is exempt from
registration under Section 5 of the 1933 Securities Act or if that request is
denied filing a registration statement or obtaining other such equivalent relief
from the SEC.
60
<PAGE>
F. NOTICE
------
All notices and other communications to the Debtor or the Reorganized
Company under the Plan shall be in writing and shall be addressed as set forth
below or to such other address as the Debtor or the Reorganized Company, by
notice to the other parties in interest, may designate from time to time:
Shareholders Committee Chapter 11 Trustee SEC
- ----------------------- -------------------- ---
200 East 1st St., Suite 202 Henry C. Seals Securities & Exchange
Wichita, KS 67202 1701 River Run Road Commission
Attn: Dennis Hedke Suite 600 801 Cherry Street -
Fort Worth, Texas 76107 19th Floor
Fort Worth, Texas 76102
Attn: Chris Browne
with copies to:
Andrews & Kurth
1717 Main St., Suite 3700 Winstead, Sechrest & Minick
Dallas, Texas 75201 5400 Renaissance Tower
Attn: Van Oliver 1201 Elm St.
(214) 659-4600 Dallas, Texas 75270
(214) 659-4401 (Fax) Attn: Josiah Daniel
XII. CONCLUSION
----------
. For all of the reasons set forth in this Amended Disclosure
Statement, the Shareholders' Committee believes that Confirmation and
consummation of the Committee's Amended Plan is preferable to all other
alternatives. Consequently, the Shareholders' Committee urges all holders of
Claims and Interests to vote to ACCEPT the Committee's Amended Plan, and to duly
complete and return their ballots such that they shall be ACTUALLY RECEIVED on
or before 3:30 p.m. Central Standard Time on August 25, 1998.
61
<PAGE>
TABLE OF CONTENTS
I. INTRODUCTION AND PLAN OVERVIEW 1
A. Introduction 1
B. Overview of the Plan 1
C. Recommendations 2
D. Voting Instructions 3
E. Disclosure Statement Matters 4
F. Vote Required for Approval 4
G. Risk Factors 5
1. Litigation Risks and Release of Frozen Funds 5
2. Risks Relating to the Colombian Concession 6
3. Regulatory Approval 7
4. Price Volatility 7
5. Business Risks 7
6. Operating Hazards and Uninsured Risks 8
II. BUSINESS AND FINANCIAL CONDITION OF TRINITY GAS CORPORATION 8
A. History of Trinity Gas Corporation 8
B. Description of Trinity's Domestic Property and Other Assets 9
1. Central Texas 9
2. Acquisition of Nova Energy, Inc. 9
3. Other Assets 10
C. International Concession Granted to Trinity Gas Colombia by
Ecopetrol 11
1. The Farallones Contract 11
2. The Participation Agreements 11
3. Drilling Operations 12
D. Management History 12
1. Board of Directors and Officers 12
E. Securities and Exchange Commission Issues 12
1. SEC Filings 12
2. Resignation of Debtor's Accountants 13
3. The SEC Investigation and Enforcement Action 13
F. Outstanding Shares of Stock 14
G. Efforts to Right the Company 16
1. The Shareholder Derivative Action 16
III. FACTORS LEADING TO CHAPTER 11 BANKRUPTCY 17
IV. CHAPTER 11 EVENTS 17
A. Trustee's Actions 17
i
<PAGE>
1. Hiring of Professionals 18
2. Attempted Liquidation of Many of Debtor's Texas Assets 18
3. Sale Motions 18
4. Trustee's Litigation 19
a. The Declaratory Complaint 19
b. Fraudulent Conveyance Complaint 19
5. Turnover of Trinity Records 19
6. Efforts to Compel Trustee to Execute Participation Agreement 20
B. Appointment of Shareholders' Committee and Employment of Counsel 20
V. DESCRIPTION OF THE COMMITTEE'S PLAN OF REORGANIZATION 21
A. Classification and Treatment of Claims and Interests 21
1. Classification 22
2. Treatment of Claims of Creditors 24
3. Treatment of Shareholders 27
B. Other Plan Provisions 32
1. Implementation of Business Plan 32
2. Reduction of Claims and Interests 32
3. Settlement with Mr. and Ms. Don Brause 32
4. Restrictions on Transfer of New Common Stock 32
5. Release of Frozen Funds 33
6. Assignment and Retention of Claims and Causes of Action 33
7. New Board of Directors 34
8. Advisory Board of Directors 36
9. Management 37
10. Compensation of Directors, Officers, and Management 37
11. Private Rights Offering 41
12. Appointment of Disbursing Agent 44
13. Bar Date for Claims and Common Stockholders Bar Date 45
14. Treatment of Disputed Claims or Interests 46
15. Executory Contracts 46
VI. CONSOLIDATED FINANCIAL INFORMATION 48
A. Pro Forma Balance Sheet 48
B. Projected Operating Revenue 48
VII. BUSINESS PLAN OVERVIEW 49
A. Introduction 49
B. Summary of Business Plan 49
1. Nova 49
2. Colombian Concession Development Plan 50
3. Relocation of Company Headquarters 51
4. Injection of Additional Capital 51
5. Creation of Industry Partnerships 51
6. New Business Opportunities 52
ii
<PAGE>
VIII. SETTLEMENT, DISCHARGE, AND RETENTION OF CAUSES OF ACTION 52
A. Potential Settlement with SEC 52
B. General Discharge and Release from Claims and lnterests 53
IX. CONDITIONS TO CONFIRMATION 54
A. Conditions to Confirmation and Effectiveness of the Committee's Plan 54
1. Classification of Claims and Interest 54
2. Plan Feasibility 54
3. Acceptance 55
4. Confirmation Without Acceptance by All Impaired Classes 55
a. Non-Acceptance by an Impaired Class of Claims 55
b. Non-Acceptance by an Impaired Class of Interests (Stockholders) 55
5. Minimum Value Absent Acceptance: Liquidation Value 56
B. Liquidation Analysis 56
1. Best Interest of Unsecured Creditors 56
2. Summary 58
X. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN 58
A. Tax Consequences to Trinity 59
B. Tax Consequences to Creditors 59
XI. MISCELLANEOUS 59
A. Condition to Confirmation 59
B. Effective Date Conditions 60
C. Discharge and Release of Liabilities 60
D. Effect of Confirmation of Plan 60
E. Conditions to Confirmation 60
F. Notice 61
XII. CONCLUSION 61
iii
<PAGE>
DAL02:130755.4
VAN OLIVER
STATE BAR NO. 15258700
KIRK KENNEDY
STATE BAR NO. 00794080
ANDREWS & KURTH L.L.P.
3700 BANK ONE CENTER, 1717 MAIN STREET
DALLAS, TEXAS 75201
TELEPHONE: (214) 659-4400
TELECOPIER: (214) 659-4401
ATTORNEYS FOR THE OFFICIAL
EQUITY SHAREHOLDERS COMMITTEE
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF TEXAS
SAN ANGELO DIVISION
IN RE: |
|
TRINITY GAS CORPORATION, | CASE NO. 697-60425-JCA-11
| (CHAPTER 11)
|
DEBTOR. |
THIRD AMENDED PLAN OF REORGANIZATION SUBMITTED BY THE
OFFICIAL COMMITTEE OF EQUITYHOLDERS
OF TRINITY GAS CORPORATION
--------------------------
Submitted by,
ANDREWS & KURTH L.L.P. OFFICIAL COMMITTEE OF EQUITYHOLDERS
OF TRINITY GAS CORPORATION
Van Oliver
State Bar No. 15258700 Bill Bricka, Woodstock, Georgia
Kirk A. Kennedy Roger Curtis, Casper, Wyoming
State Bar No. 00794080 Uwe Grannemann, Roswell, Georgia
1717 Main Street, Suite 3700 Donald Hanser, Houston, Texas
Dallas, Texas 75201 Dennis Hedke, Wichita, Kansas (Chairman)
Telephone: (214) 659-4400 Gary Pippin, Tulsa, Oklahoma
Facsimile: (214) 659-4401 Art Teichgraeber, El Dorado, Kansas
COUNSEL FOR THE OFFICIAL
COMMITTEE OF EQUITYHOLDERS
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THIRD AMENDED PLAN OF REORGANIZATION SUBMITTED BY THE
OFFICIAL COMMITTEE OF EQUITYHOLDERS
OF TRINITY GAS CORPORATION
--------------------------
The Official Committee of Equityholders of Trinity Gas Corporation, a
Nevada corporation, proposes the following plan of reorganization pursuant to
section 1121 of the Bankruptcy Code (as defined herein). Reference is made to
the Disclosure Statement (as defined herein) for, among other matters, a
discussion of the Debtor's history and business operations, financial
information concerning the Debtor's results of operations and a summary and
analysis of this Plan. ALL HOLDERS OF CLAIMS AND INTERESTS (STOCK) ARE URGED TO
READ WITH CARE THIS PLAN AND THE DISCLOSURE STATEMENT IN EVALUATING HOW THIS
PLAN WILL AFFECT THEIR CLAIMS AND INTERESTS (STOCK).
1. DEFINITIONS
Unless the context otherwise requires, the following words and phrases have
the meanings set forth below when used in initially capitalized form in this
Plan. Words and phrases defined in the Bankruptcy Code and initially
capitalized but not otherwise defined in this Third Amended Plan have the
meanings set forth in the Bankruptcy Code. In addition, the rules of
construction contained in section 1102 of the Bankruptcy Code apply to the
construction of this Plan.
1.1 Administrative Claim: a Claim (as defined herein) for any cost or
expense of administration in connection with the Reorganization Case (as defined
herein) of a kind entitled to the priority afforded by sections 503(b) and
507(a)(1) of the Bankruptcy Code (as defined herein), including, but not limited
to, the actual, reasonable and necessary costs and expenses of preserving and
operating the business of the Debtor, including, but not limited to, any Claim
granted priority under section 503(b) of the Bankruptcy Code; compensation for
reasonable and necessary legal or other services and reimbursement of costs and
expenses under section 330(a) or 331 of the Bankruptcy Code, as allowed by the
Bankruptcy Court (as defined herein); and any Claim by a governmental unit for
taxes incurred after the Petition Date.
1.2 Affiliate of Trinity Gas Corporation: (1) a person that directly,
or indirectly through one or more intermediaries, controls, or is controlled by,
or is under common control with Trinity Gas Corporation. The term person, in
addition to the meaning set forth in Section 1.46 herein, shall include a person
for whose account securities are or were to have been sold in reliance of he
1993 and 1934 Acts and (i) Any relative or spouse of such person, or any
relative of such spouse, any one of whom has the same home as such person; (ii)
Any trust or estate in which such person or any of the persons specified in
paragraph (a)(2)(i) of this section collectively own 10 percent or more of the
total beneficial interest of which an of such persons serve as trustee, executor
or in any similar capacity; and (iii) Any corporation or other organization
(other than the issuer) in which such person or any of the persons specified in
paragraph (a)(2)(i) of this section are the beneficial owners collectively of 10
percent or more of any class of equity securities or 10 percent or more of the
equity interest.
1.3 Allowed: (i) with respect to a Claim, any Claim, proof of which
was timely and properly filed on or before the Bar Date (as defined herein), if
no proof of Claim was filed, any Claim that has been or hereafter is listed in
the schedules of liabilities filed by a Debtor as liquidated in amount and not
disputed or contingent and, in either case, a Claim as to which no objection has
been made or that has been allowed (and only to the extent allowed) by a Final
Order or pursuant to this Plan or (ii) with respect to an Interest, an Interest
in the Debtor, exclusive of any shares of capital stock held in treasury, that
is registered in the stock register of the Debtor and/or the records of the
Debtor's stock transfer agent, American Stock Transfer, Inc., and as to which no
objection has been made or, if an objection thereto has been filed, that has
been Allowed (and only to the extent Allowed) by a Final Order or pursuant to
this Plan if an objection thereto has been filed timely.
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1.4 Avoidance Actions: any action which may be brought under sections
544, 545, 547, 548, 549 or 533(b) of the Bankruptcy Code or which has already
been commenced by the Trustee (as defined herein) or the Shareholders'
Derivative Action (as defined herein) including (a) Henry Seals Trustee v.
Sidney W. Sers et al, Adversary Proceeding 98-6004, pending in the United States
Bankruptcy Court, Northern District of Texas, San Angelo Division; and (b) Henry
Seals Trustee v. Sidney W. Sers et al, Adversary Proceeding 98-6007, pending in
the United States Bankruptcy Court, Northern District of Texas, San Angelo
Division.
1.5 Bankruptcy Code: the Bankruptcy Reform Act of 1978, as
subsequently amended, codified at 11 U.S.C. || 101, et seq.
1.6 Bankruptcy Court: the United States Bankruptcy Court for the
Northern District of Texas, San Angelo Division, or any other court having
jurisdiction over the Reorganization Case.
1.7 Bankruptcy Rules: the Federal Rules of Bankruptcy Procedure, as
amended, and the Local Rules of the United States Bankruptcy Court for the
Northern District of Texas, San Angelo Division, together with all amendments
and modification from time to time made thereto that are applicable hereto.
1.8 Bar Date: May 4, 1998, the deadline fixed by the Bankruptcy Court
pursuant to Bankruptcy Rule 3003(c)(3) for filing proofs of Claims or Interests,
except for Claims of governmental units under Bankruptcy Rule 3002(c)(1) which
is June 21, 1998. Claims for the payment of administrative claims, including
those of professionals employed by the Trustee, the Shareholders' Committee and
the Trustee himself shall be filed on or before thirty (30) days after the
Effective Date or be barred forever.
1.9 Business Day: means any day except Saturday, Sunday or any other
day on which commercial banks in New York, New York are required or authorized
by law to be closed for business.
1.10 Case: this Chapter 11 case involving the Debtor.
1.11 Certain Insiders: as that term is used in Sections 2.12 and 4.6
of this Plan, it shall refer to certain former officers, directors, agents, and
employees of the Company, including, Jody Day, Richard Guillemin, Juanda
Harrell, and William Ruth, to the extent they own or claim to own any shares of
Common Stock or Claims against the Debtor.
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1.12 Claim: any right against the Debtor to (i) payments, whether or
not such right is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured
or unsecured or (ii) an equitable remedy for a breach of performance, if the
breach would give rise to a right to payment, whether or not such right to an
equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured,
disputed, undisputed, secured or unsecured, or otherwise defined in the
Bankruptcy Code and which was timely filed in the Case by the Bar Date.
1.13 Class: category of Holders of Claims or Interest as provided for
in Article II of this Plan.
1.14 Common Stock: the outstanding common stock of Trinity Gas
Corporation.
1.15 Concession or Colombian Concession: that certain contract entered
into between the Colombian Oil and Gas Company commonly known as Ecopetrol in
favor of Trinity Gas Colombia, Ltd., a Cayman Islands corporation and initially
covering approximately 368,540 acres in and near Cali and Palmira, Colombia.
1.16 Confirm or Confirmation: the entry of an order of the Bankruptcy
Court confirming this Plan pursuant to section 1129 of the Bankruptcy Code.
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1.17 Confirmation Date: the date upon which the Bankruptcy Court
enters the Confirmation Order.
1.18 Confirmation Order: an order entered by the Bankruptcy Court
confirming this Plan in accordance with the provisions of section 1129 of the
Bankruptcy Code.
1.19 Convenience Claims: those general unsecured creditor claims equal
to or less than $500 each or by agreement of the Holder thereof provide for the
reduction of their claim on a voluntary basis to $500.
1.20 Debtor: Trinity Gas Corporation, Inc. and its successors and
Trinity doing business as Jubilee Oil and Gas, Inc.
1.21 Debtor-Subsidiary: Trinity Gas Colombia, Ltd. a Cayman Islands
Corporation, or any successor, transferee, assignee, or Affiliate of Trinity Gas
Colombia, Ltd., doing business anywhere, including Colombia (sometimes referred
to herein as "Trincol") and Nova Energy, Inc.
1.22 Disallowed: a Claim against or Interest in the Debtor which has
not been timely filed or which has been determined to be disallowed by a Final
Order of the Bankruptcy Court and shall, as a consequence, receive or be
entitled to receive no distribution of cash, property, Rights, or New Common
Stock under this Plan.
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1.23 Disclosure Statement: the Disclosure Statement filed by the
Shareholders' Committee under section 1125 of the Bankruptcy Code to accompany
this Plan, as amended or modified from time to time in accordance with the
provisions of the Bankruptcy Code and Bankruptcy Rules.
1.24 Disputed Claim: any Claim or Interest (i) that is scheduled by a
Debtor as disputed, contingent or unliquidated; (ii) proof of which has been
filed with the Bankruptcy Court and an objection to the allowance thereof, in
whole or in part, has been or is interposed, which objection has not been
settled or determined by a Final Order; (iii) an Interest in the Debtor as to
which an objection to the allowance thereof, in whole or in part, has been or
interposed, which objection has neither been settled or determined by Final
Order; or (iv) a Claim listed as disputed in the Pro Forma Balance Sheet for the
Debtor and attached as an exhibit to the Disclosure Statement. Until such time
as a Disputed Claim or Interest becomes fixed and absolute by Final Order, by
settlement or otherwise, such Claim shall be treated as a Disputed Claim for all
purposes, including those related to estimations, allocations, payments and
distributions of cash and other property under the Shareholders' Committee's
Plan. From and after the Confirmation Date, the primary responsibility and
right to file and prosecute objections to Claims otherwise assertable by the
Debtor shall be assertable only by the Shareholders' Committee.
1.25 Disputed Claims Reserve: shall mean the segregated account
established pursuant to the provisions of the Shareholders' Committee's Plan, in
which the Reorganized Company will hold pending final resolution of all Disputed
Claims or Interests; the Pro Rata Share of each such Disputed Claim or Interest
attributable to the Cash, New Common Stock and/or other property of the Debtor
to be distributed by the Reorganized Company under this Plan. The Reorganized
Company, shall determine the amount of each Disputed Claim for purposes of
determining such Claim's pro rata share by reference to (1) the face amount of
the applicable proof of claim or records of the Stock Transfer Agent; (2) the
amount of such Disputed Claim as estimated and fixed by the Court pursuant to |
502(c) of the Bankruptcy Code or (3) the estimated amount of such Disputed Claim
as determined by agreement with the Holder of such Disputed Claim. Within the
Disputed Claim Reserve, a separate account shall be established and reserved for
the Disputed Claim of each such claimant.
1.26 Disputed Interest: to the extent not clear from the definition of
a Disputed Claim, the term Disputed Interest shall refer to the shares of Common
Stock and all rights related thereto owned or asserted to be owned by any Person
as to which an objection is filed within ninety (90) days after the Confirmation
Date and determined by Final Order should be disallowed and receive nothing
under this Plan.
1.27 Distribution Date(s): the Date(s) when New Common Stock is issued
by the Debtor or its Stock Transfer Agent pursuant to this Plan to Holders of
Common Stock determined initially as of the Record Date. The initial
Distribution Date shall occur within ninety (90) days after the SEC Approval
Date, unless extended for good cause by the Reorganized Company.
1.28 Ecopetrol: the oil and gas company representing the interests of
the country of Colombia.
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1.29 Effective Date: the first Business Day on which all conditions to
effectiveness of the Plan as provided in section 14.1 hereof have been satisfied
or as soon thereafter as is practicable, but in no event later than 30 business
days after entry of the Confirmation Order unless the Shareholders' Committee or
Reorganized Company agrees to a later date for good cause.
1.30 Estate: collectively, the estate created by the commencement of
the Reorganization Case under section 541 of the Bankruptcy Code comprised of
all the property and assets identified in section 541, wherever located and by
whomever held, including, but not limited to, all causes of action, property
recovered pursuant to any Avoidance Action, or any other personal, real,
intangible or equitable rights, liens, claims or ownership rights of the Debtor,
including the rights to the Frozen Funds and other recoveries under the SEC
Enforcement Action, Shareholders' Derivative Action, Avoidance Actions,
Miscellaneous Actions, and rights under the SEC Settlement described in Article
XI herein.
1.31 Executory Contract: an unexpired lease or executory contract,
within the meaning of section 365 of the Bankruptcy Code, in effect between or
among the Debtor and any other Persons as of the Petition Date.
1.32 Final Order: an order or judgement of the Bankruptcy Court that
has not been reversed, stayed or vacated and as to which the time to appeal,
petition for certiorari or seek reargument or rehearing has expired and as to
which no appeal, reargument, petition for certiorari or rehearing is pending or
as to which any right to appeal, reargue, petition for certiorari or seek
rehearing has been waived in writing in a manner satisfactory to the Debtor or
the Reorganized Company, or, if an appeal, reargument, writ of certiorari or
rehearing thereof has bene sought, the order or judgment of the Bankruptcy Court
has been affirmed or reversed in whole or in part by the highest court to which
the order was appealed or from which the reargument or rehearing was sought, or
by which the petition for writ of certiorari has been denied and the time to
take any further appeal or to seek certiorari or further reargument or rehearing
has expired.
1.33 Frozen Funds: those certain sums of money approximating
$3,100,000 existing in the Registry of the Court in the Northern District of
Texas, Fort Worth Division, together with all additions and accretions and
accrued interest earned with respect thereto that the SEC attached or may in the
future attach, recover or have a right to recover in the SEC Enforcement Action,
including any funds covered by the temporary restraining order entered by the
District Court on or about December 9, 1998.
1.34 General Unsecured Claims: any Unsecured Claims including, among
others, Claims of trade creditors and those pertaining to damages for the
rejection of Executory Contracts as provided in Article XII hereof.
1.35 Holder (of a Claim or Interest): the Person holding a Claim or
Interest (Common Stock) under the name, and at the address, disclosed on the
Proof of Claim or Interest filed in this Case, or if no Proof of Claim or
Interest is on file, then the last known address of such Person to Debtor, by
the Debtor or its Stock Transfer Agent, or the Person to whom such Claim or
Interest was last transferred by Final Order of the Court substituting the
transferee for the prior Holder thereof.
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1.36 Interest(s) or Shareholder Interest(s): the Interests arising from
the issued and outstanding Common Stock and any and all Claims by Shareholders
against Trinity Gas Corporation arising from or relating to their holdings of
Common Stock, including Claims for rescission of a purchase or sale of Common
Stock and for damages arising from the purchase or sale of Common Stock or
actions or inactions of Trinity Gas Corporation.
1.37 Lien: a charge against or interest in property to secure payment
of the Debtor's performance of an obligation.
1.38 Miscellaneous Actions: this term includes any and all claims,
causes of action or rights of the Debtor in any claims, cause of action, rights
or proceeds thereof relating to what the Securities and Exchange Commission may
assert, either formally or informally, in litigation, arbitration, or
administrative actions or hearings under the 1933 or 1934 Securities Act, its
rules and regulations against, including, but not limited to, the following:
former officers and directors of the Debtor; its former auditors; its outside
attorneys; its public relations firms or partners thereof; agents selling Common
Stock for the Debtor or its Affiliates, including members of the Sers Group;
stock brokerage firms and their affiliates who sold, attempted to sell, or acted
separately or in concert with members of the Sers Group, their Affiliates or the
Debtor to sell or attempt to sell Common Stock to potential investors.
Additionally, it includes any and all causes of action claims or rights of the
Debtor, its Affiliates, and Holders of Common Stock who vote in favor of the
Plan against Thompson, Walker & Co., Jim Harris; D.W. Mitchell; Scriven Taylor,
Jr.; Nakatosh Hotel, Inc.; Nakatosh Foundation; Rockcrest Securities, Inc.;
Robert Yeager and the Sheinfeld, Maley & Kay law firm and all other affiliates,
successors or assigns of such.
1.39 New Investor Group: this term refers to the group of individuals,
partnership(s) or corporation(s) which New Management brings to the Reorganized
Company which will have the right to purchase New Common Stock and exercise
previously unexercised Class 6 and 7 Rights for an additional period as
determined by the New Board of Directors following the initial Offering Rights
Expiration Date at a price determined by the New Board of Directors, but not
less than 254 per share.
1.40 Net Cash Flow: provides for any period beginning after the first
day of the month next following the Effective Date of this Plan, the proceeds of
production attributable to the Reorganized Company's oil and gas properties less
and except (i) the Reorganized Company's pro rata share of lease operating
expenses incurred in such period for operating the Reorganized Company's oil and
gas wells and in Nova Energy, Inc.; (ii) funds necessary to consummate the
Shareholder Committee's Plan post-Confirmation (not to exceed $25,000); (iii)
the general administrative costs actually incurred during such period for
providing accounting, joint interest billings and other general administrative
costs of operating the Reorganized Company --not to exceed on an average basis,
$10,000 per month; (iv) and any non-budgeted emergency expenditures for the
first three (3) months.
1.41 Non-Budgeted Emergency Expenditures: any unanticipated, unbudgeted
expenditure which results from facts, events or circumstances not within the
Reorganized Company's control, including emergency response costs, required by
applicable non-bankruptcy law, regulatory costs imposed by any third party
having jurisdiction over the Reorganized Company's direct or indirect property
or business operations; costs related to insuring health and safety compliance,
and costs responsive to natural events or emergencies.
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1.42 New Charter: the amended and restated certificate of
incorporation of the Reorganized Company in effect on the Effective Date, a copy
of which is attached to this Plan as Annex 1.
1.43 New Common Stock: the Common Stock to be issued by the
Reorganized Company, Trinity Gas Corporation, under and pursuant to this
Shareholders' Committee's Plan, after its Confirmation, in exchange for and in
cancellation of the existing Common Stock held by the Holders thereof.
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1.44 Nova Energy: that corporation formed under the laws of the State
of Wyoming, styled Nova Energy, Inc. which Trinity Gas Corporation acquired
through various exchanges of stock and pursuant to various agreements in the
1994-1995 time framework, the assets of which include but are not limited to
approximately 27 oil and gas wells and certain oil and gas leases, related
surface and down hole equipment (tank batteries, tubing, casing, pump jacks,
compressors, and other equipment located both in Campbell County, Wyoming (the
"Wyoming Properties"), and on the east bank of the Denver-Julesberg Basin)
(collectively referred to as the "Colorado Properties").
1.45 Nova Wells Redevelopment Plan: the plan to recomplete, rework or
undertake other efforts to enhance production of the Wyoming and Colorado
Properties, pursuant to the estimates for such reworking efforts, as prepared by
Don Brause and Associates, the present operator of the properties. A summary of
the Nova Wells Redevelopment Plan is contained in Article X of this Plan.
Funding for the Nova Wells Redevelopment Plan shall be paid out of the funds on
hand at Confirmation; and, to the extent not available, from either the
accumulation of available Net Cash Flow generated from such oil and gas wells
and other properties by the Reorganized Company, the proceeds of rights
offerings or other funds made available to the Reorganized Company
1.46 Person: an individual corporation, partnership, limited liability
company, association, joint-stock company, joint venture, estate, trust,
unincorporated organization, government, governmental unit or any political
substitution thereof.
1.47 Petition Date: December 23, 1997, the date on which Trinity Gas
Corporation filed a petition for relief commencing the Reorganization Case.
1.48 Plan or Shareholders' Committee's Plan: this Plan of
Reorganization, as may be amended or supplemented from time to time in
accordance with the Bankruptcy Code and the Bankruptcy Rules.
1.49 Post-Confirmation Expenses: all actual, necessary expenses
incurred by Reorganized Company after the Confirmation Date, including but not
limited to expenses incurred in the ordinary course of business, capital
expenditures, and fees and expenses of counsel, accountants, engineers and other
professionals employed by Reorganized Company on or after the Effective Date.
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1.50 Priority Claim: any Claim of a type that is entitled to priority
in payment under section 507 of the Bankruptcy Code other than an Administrative
Priority Claim or a Tax Claim defined under Section 507(a)(8) of the Bankruptcy
Code.
1.51 Pro Rata: the same portion an Allowed Claim or an Allowed
Interest in a particular Class bears to the aggregate amount of all Allowed
Claims or the Aggregate Amount of Allowed Interests in such Class.
1.52 Record Date: July 20, 1998, the date determined as the record
date for Shareholders having the rights to vote on the Plan and receive the
Shareholder treatment and benefits provided in Article IV of the Plan.
1.53 Rejection Claim: any claim arising by a rejection of claims by
the Shareholders' Committee acting on behalf of the Debtor of an executory
contract or unexpired lease pursuant to | 365 or | 1123(b)(2)of the Code and
Article XII of the Plan.
1.54 Reorganization Case: the chapter 11 case commenced by Trinity Gas
Corporation on the Petition Date, Case No. 697-60425-JCA-11 pending in the
United States Bankruptcy Court for the Northern District of Texas, San Angelo
Division.
1.55 Reorganized Company or Reorganized Debtor: Trinity Gas
Corporation, a Nevada corporation, the successor to the Debtor and Nova Energy,
reorganized pursuant to the Plan.
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1.56 Restricted Securities: shall mean either (i) Common Stock that is
acquired directly or indirectly from Trinity Gas Corporation, an affiliate of
Trinity Gas Corporation, or members of the Sers Group in a transaction or chain
of transactions not involving any public offering; (ii) Common Stock acquired
from Trinity Gas Corporation or members of the Sers Group that are subject to
the resale limitations of Regulation D under the Securities Act of 1933, or
Common Stock that are subject to the resale limitations of Regulation D and are
acquired in a transaction or chain of transactions not involving any public
offering; (iii) Common Stock acquired from Trinity Gas Corporation or the Sers
Group that are subject to the resale limitations of Regulation D (| 230.501
through | 230.506 of this chapter) or Rule 701(C) (| 230.701(C) of this chapter)
under the Act; (iv) Common Stock that is subject to the resale limitations of
Regulation D and acquired in a transaction or chain of transactions not
involving any public offering; (v) Common Sock that is acquired in a transaction
or chain of transactions meeting the requirements of Rule 144A (| 230.144A of
this chapter); (vi) Common Stock acquired from Trinity Gas Corporation or
members of the Sers Group that is subject to the resale limitations of
Regulation CE (| 230.1001); or (vii) Common Stock regarded as Restrictive
Securities by either Trinity Gas Corporation or its Stock Transfer Agent. The
aggregate amount of Common Stock representing Restricted Securities totals
approximately 77 million shares, including approximately 29 million shares of
Common Stock owned or claimed to be owned by the Sers Group.
1.57 Rights: the uncertificated, nontransferable rights of existing
Shareholder Interests, exercisable by the Holders of Allowed Interests to
purchase shares of New Common Stock at a purchase price of .254 per share of New
Common Stock of the Reorganized Company or any successor for each share of
Common Stock owned by such Person or on economically equivalent terms, as set
forth more particularly in Article IX of this Plan. With respect to any Class 6
and 7 Rights not exercised by the Holders of Allowed Interests during the
initial 45 days Rights Exercise Period, the New Investor Group will have the
ability to exercise those Rights within an additional period of time as
determined by the New Board of Directors.
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1.58 Rights Agent: means either the Stock Transfer Agent or any entity
designated by the Shareholders' Committee or Reorganized Company to act as the
Reorganized Company's successor agent in either the Stock Transfer Agent in
connection with the Rights Offering.
1.59 Rights Exercise Notice: means the form of exercise notice which
will provide for the exercise of the Rights by each Holder thereof.
1.60 Rights Exercise Period: means as for Class 6 and 7 Interest
Holders, the forty-five (45) day period commencing as soon as is practicable
following the later of the Effective Date or SEC Approval Date and concluding on
the Rights Expiration Date.
1.61 Rights Expiration Date: means the date occurring 45 days after the
commencement of the Rights Exercise Period, unless extended by the Reorganized
Company by a vote of its Board of Directors. Notwithstanding the foregoing, the
New Investor Group shall have an additional period as determined by the New
Board of Directors within which to exercise the Class 6 and 7 unexercised Rights
existing as of the Rights Expiration Date.
1.62 Rights Offering: means the issuance of Rights to Holders of
certain Claims and Interests as set forth under Article IX of this Plan.
1.63 Rights Offering Common Stock: means the New Common Stock that is
subject to purchase upon the exercise of the Rights.
1.64 SEC: the Securities and Exchange Commission.
1.65 SEC Approval Date: the date when the SEC issues a response to the
Reorganized Debtor's request for a no-action letter that the New Common Stock,
Rights and the resale of such securities is exempt from registration under
Section 5 of the 1933 Securities Act or if denied by those then the date that
the SEC approves an appropriate registration statement with respect to the
issuance of New Common Stock and Rights under the 1933 Securities Act.
1.66 SEC Enforcement Action: that certain cause of action styled
Securities & Exchange Commission, Plaintiff v. Trinity Gas Corporation and
Sidney W. Sers, Defendants and Trinity Gas Colombia, Patricia Ruth Sers, Amanda
Burton Sers, Timothy Allen Sers and the Nakatosh Hotel, Inc., commenced before
the United States District Court for the Northern District of Texas, Fort Worth
Division, the Honorable Terry Means presiding (Civil Action No. 4-97CV-1018).
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1.67 Secured Claim: Allowed Claim that is considered secured under
section 506(a) of the Bankruptcy Code, including any Tax Claims of governmental
units that are entitled to such status by Final Order or Agreement with the
Shareholders' Committee, but excluding all penalties.
1.68 Securities Act of 1933: the Securities Act of 1933, as amended,
including all rules and regulations thereunder.
1.69 Sers Group: the group of individuals, partnerships, corporations
and other Persons affiliated with Sidney W. Sers, formerly of Brownwood, Texas
and presently residing in or near Cali, Colombia, including but not limited to:
the Nakatosh Hotel, Inc.; Timothy Allen Sers; Amanda Burton Sers; Patricia Ruth
Sers, Trinity Gas Colombia and Matthew W. Sers, Scriven Taylor, D. W. Mitchell,
Rockcrest Securities, Inc., Jim Harris, and any other partnerships, joint
ventures, or corporations of which Sidney W. Sers acts as a controlling partner
shareholder, officer, director, or employee.
1.70 Shareholders' Committee, Equity Committee or Committee: the
Official Committee of Shareholders appointed pursuant to section 1102 of the
Bankruptcy Code by William Parkinson of the United States Trustee's Office,
Northern District of Texas, a branch of the United States Department of Justice
on February 2, 1998 and as subsequently amended by notices dated February 9,
February 20, March 23, and April 2, 1998.
1.71 Shareholders Derivative Action: that certain cause of action
styled Trinity Gas Corporation Gas Corporation, by Richard E. Guillemin and
William W. Ruth, Shareholders Suing Derivatively on its behalf v. Sidney W.
Sers, individually and d/b/a Trinity Gas Colombia, Ltd. and d/b/a Nakatosh
Hotel, Inc.; Scriven Taylor, Jr.; and Trinity Gas Colombia, Ltd. pending in the
United States District Court, Northern District of Texas, Fort Worth Division,
Civil Action No. 4-97-CV-1020Y, Judge Terry Means presiding.
1.72 Shareholder Trust: that certain Trust in a form substantially as
that to be submitted by the Shareholders' Committee and Trustee to the
Bankruptcy Court within five (5) days of the Confirmation Hearing for the
purpose of confirming and administering rights of Holders of Common Stock in
Classes 6 and 7 who select the Cash Out Option.
1.73 Stock Transfer Agent: American Stock Transfer, Inc.,
headquartered in New York, New York, with its primary office located in Denver,
Colorado, serving the stock transfer agent needs of the Debtor, or any
subsequent replacement or substitute selected by the Shareholders' Committee or
Reorganized Company.
1.74 Tax Claims: a Claim by a governmental unit of the kind specified
in section 507(a)(8) of the Bankruptcy Code.
1.75 Trincol: Trinity Gas Colombia, Ltd. and its successors.
1.76 Trinity: The Debtor and its successors.
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1.77 Trustee: Henry C. Seals, the person appointed by the Office of
the United States Trustee for the Northern District of Texas to act as Trustee
under and pursuant to | 1104 of the Bankruptcy Code, together with any
successor, replacement or substitute.
1.78 Unsecured Claim: any Unsecured Claim that is not considered a
Class 2 Secured Claim, an Administrative Claim, a Tax Claim, a Priority Claim
or Class 5 Claim owed by Third Parties.
2. CLASSIFICATION AND IDENTIFICATION OF
IMPAIRMENT OF CLAIMS AND INTERESTS
2.1 General. The Interests of Stockholders and Claims of Creditors
against the Debtor, to the extent Allowed by the Bankruptcy Court, are
classified as set forth in this Article II. The Claims or Interests in a
particular Class are designated only to the extent that each such Claim or
Interest fits within the description of such Class and shall be a part of a
different Class or Classes to the extent that the remainder thereof or a portion
thereof fits within the description of another Class or Classes. A Claim or
Interest is entitled to the treatment provided herein only to the extent that
the Claim or Interest is an Allowed Claim or Allowed Interest in that Class and
has not been paid, released or otherwise satisfied before the Effective Date.
2.2 Unclassified Claims. Administrative Claims and Priority Claims are
not classified under the Committee's Plan in accordance with Section 1123(a)(1)
of the Bankruptcy Code. Administrative Claims under Section 503 of the
Bankruptcy Code include expenses of the Chapter 11 Trustee and the Shareholders
Committee, the fees and expenses of various professionals, including the
Trustee's attorneys, the Shareholders Committee's attorneys, Trustee's
accountants, Trustee's compensation under 11 U.S.C.| 326 and other
professionals. Administrative Claims may also include Claims based on
postpetition services rendered to the Estate. The estimated total of
Administrative Claims is $650,000. The Shareholders Committee is hopeful of
arriving at an agreement whereby the Trustee's counsel and Committee's counsel
will voluntarily reduce their fees and agree to be paid a percentage of the
amount owed to each by the Bankruptcy Court upon the Effective Date or date of
Allowance of such fees with the remainder to be paid out of the first proceeds
received from the Avoidance Actions. The other Administrative Claims, once
Allowed, will be paid in full. The first net proceeds of the Avoidance Actions
will be dedicated to pay any outstanding amounts of Allowed Administrative
Claims not otherwise paid or funded by the Effective Date and used to pay Class
4 Allowed General Unsecured Claims.
2.3 Class 1 - Priority Claims. This Class consists of all Claims
described in Section 507 of the Bankruptcy Code.
2.4 Class 2 - Secured Claims. This Class consists of the Secured
Claims of secured creditors, if any, of the Debtor, to the extent the value of
the property that secures such Claim equals or exceeds the replacement value of
such Claim pursuant to Section 506 of the Bankruptcy Code, but excluding, the
undersecured portion, if any, of each such Creditor's Claim, which portion shall
be classified as an Unsecured Claim
-14-
<PAGE>
2.5 Class 3 - Convenience Class of Small Unsecured Creditors. This
Class consists of the Unsecured Claims that either are less than $500 each or
are reduced by agreement of the Holder thereof to an amount less than $500 each,
including Allowed Claims arising out of rejected Executory Contracts.
2.6 Class 4 - General Unsecured Claims. This Class consists of all
Unsecured Claims exclusive of Administrative Claims, Tax and other Priority
Claims, Class 2 Secured Claims, Class 3 Convenience Claims, and Class 5 Claims
owed by Third Parties.
2.7 Class 5 - Claims Owed by Third Parties. This Class consists of the
Unsecured Claims of Creditors who have timely filed Proofs of Claim and which,
according to the books and records of the Debtor, are owed by Trincol, members
of the Sers Group or other third parties and not the Debtor.
2.8 Class 6 - Interests or Common Stock Constituting Restricted
Securities. This Class consists of those shares of Common Stock that are either
(a) treated for purposes of the books and records of Trinity Gas Corporation as
being Restricted Securities; (b) considered as being Restricted Securities as
defined herein or for any purpose under the 1933 and 1934 Securities Act, their
rules and regulations, including but not limited to SEC Rules 144 and 145 and
Regulations A and D; or (c) are subject to resale restrictions under applicable
rules and regulations of the SEC. As of February 18, 1998, the records of
Trinity Gas Corporation's Stock Transfer Agent reflect an aggregate of
approximately 77 million shares of Common Stock as being Restricted Securities
including approximately 29 million shares held by the Sers Group.
2.9 Class 7 - Unrestricted or Free Trading Common Stock. This Class
consists of those shares of Common Stock (a) not considered by the books and
---
records of both Trinity Gas Corporation and its Stock Transfer Agent to be
Restricted Securities; (b) not otherwise considered to be Restricted Securities
---
by the SEC; and (c) not subject to any resale limitations under the 1933 and
---
1934 Securities Acts, their rules and regulations ("Unrestricted Securities" or
"Free Trading Stock"). As of February 18, 1998, the amount of Unrestricted
Securities according to the books and records of the Stock Transfer Agent
approximated 17 million shares, including less than 1 million shares held by the
Sers Group.
2.10 Class 8 - Common Stock held by Sers Group. This Class consists
of the Common Stock (including both Restricted and Unrestricted Securities) held
by the Sers Group as of the Petition Date (estimated at 30 million shares)
together with any or all other Common Stock subsequently acquired by any such
member or Affiliate of the Sers Group.
2.11 Class 9 - Common Stock Issued as a Sales Commission. This Class
consists of the Common Stock acquired by or issued to any person acting in a
direct or indirect capacity of selling or reselling Common Stock of Trinity or a
member of the Sers Group from January 1, 1995 to present.
2.12 Class 10 - Certain Insiders. This Class consists of former
officers and employees of Trinity Gas Corporation who acquired grants, stock
options, or year-end bonus distributions of Common Stock and/or who assert
Claims of Indemnification, Rights of Contribution and Reimbursement of Unpaid
Expenses incurred for the benefit of Trinity.
-15-
<PAGE>
3. PROVISIONS FOR SATISFACTION OF CREDITOR CLAIMS
Unclassified Claims and the Allowed Claims of Creditors of Classes 1-5 as
classified in Article II hereof shall be satisfied in the manner set forth in
this Article III.
3.1 Administrative Claims. In accordance with Section 1129(a)(9) of
the Bankruptcy Code, on the Effective Date of the Plan, each holder of an
Allowed Administrative Claim shall receive, in full satisfaction of such Claim,
cash equal to the Allowed amount of such Claim, unless such holder and the
Committee shall have agreed to different treatment of such Claim. The
Shareholders Committee is hopeful at arriving at an agreement with the Trustee's
Counsel and Committee's Counsel will voluntary reduce their fees and agree to be
paid a percentage of the amount owed to each by the Bankruptcy Court on the
Effective Date or date of allowance of such fee with the remainder to be paid
out of the first proceeds received from the Avoidance Actions. The other
Administrative Claims, once Allowed, will be paid in full. The first net
proceeds of the Avoidance Actions will be dedicated to pay any outstanding
amounts of Allowed Administrative Claims not otherwise paid or funded by the
Effective Date and then used to pay Class 4 Allowed General Unsecured Claims.
No Administrative Claims shall be paid unless such Claim has been determined by
the Court to satisfy the requirements under Sections 503(a) and 507 of the
Bankruptcy Code.
3.2 Tax Claims. The Allowed Claims of governmental units for taxes
entitled to priority status under Section 508(a)(8) of the Bankruptcy Code shall
be paid at the sole option of the Shareholders' Committee (a) the sole amount of
their Allowed Claim(s) in equal semi-annual deferred cash payments over a period
not exceeding six (6) years after the date of assessment of such Allowed Claim
of a value, as of the Effective Date of the Plan, equal to the amount of each
such Allowed Claim, or (b) the full amount of each such Allowed Claim, without
interest in cash, within thirty (30) days of the Effective Date or, if later,
allowance of such Claim by Final Order, or (c) upon such other terms as may be
agreed upon by the holder of each such Allowed Claim and the Reorganized Company
or the Shareholders' Committee. (1)
- -------------------
(1) With respect to the claim filed June 22, 1998 by the Internal Revenue
Service in the amount of $3,286,480.60, the Committee has objected to such claim
and is seeking to have such claim disallowed.
-16-
<PAGE>
3.3 Class 1: Allowed Priority Claims. The Class 1 Allowed Claims are
entitled to priority status under section 507(a) of the Bankruptcy Code and
shall be paid within thirty (30) days after the Effective Date.
3.4 Class 2: Allowed Secured Creditors. The Holders of Allowed Secured
Claims will receive in full and final satisfaction of their Claims, at the
option of the Shareholders' Committee, the following treatment:
(a) conveyance or abandonment of the collateral, which secures each such
Claim to such Secured Creditor on the Effective Date or within fifteen
(15) days thereafter;
(b) payment of such Secured Claim in accordance with the terms and
provisions of the documents pertaining thereto or, if more, then paid
in full in annual installments equal to the net cash flow attributable
to the collateral which secures the Claim commencing on the first
anniversary of the Effective Date, with final payment of all
then-remaining amounts on the tenth anniversary of the Effective Date,
with simple interest from the later of the Effective Date and the date
such Claim is Allowed at the rate in effect under 26 U.S.C. |
6621(b)(3) on the Confirmation Date unless the Bankruptcy Court
determines that a different rate of interest should apply; or;
(c) such other treatment as the Shareholders' Committee and such
Creditor(s) shall agree to, subject to approval by the Bankruptcy
Court, after notice and hearing; or
(d) notwithstanding any contractual provision or applicable laws that
entitle the Holder of a Secured Claim to demand or receive accelerated
payment after the occurrence of a default, the legal, equitable and
contractual rights to which the Claim entitles the Holder thereof will
be left unaltered and unimpaired. If applicable any defaults that
occurred before or after the Petition Date, other than defaults of the
kind specified in section 365(b)(2) of the Bankruptcy Code, will be
cured on the Effective Date or as soon thereafter as is practicable;
the maturity of such Claim shall be reinstated as it existed before
such default; and the Holder of such Claim shall be compensated for
any damages incurred as a result of its reasonable reliance on such
contractual provision or applicable law. In the alternative, at the
option of the Shareholders' Committee or the Reorganized Company, as
the case may be, any Allowed Secured Claim may be satisfied in cash on
the later of the Effective Date and the date such Claim is Allowed, or
as soon thereafter as is practicable, in an amount equal to the
Allowed Claim, provided that the aggregate amount of all such Secured
Claims which the Shareholders' Committee or the Reorganized Company
elect to satisfy in such manner shall not exceed $5,000 without the
consent of Shareholders' Committee;
3.5 Class 3: Allowed Convenience Creditors. Each Holder of an Allowed
General Unsecured Claim in the amount of $500 or less or, if the amount of any
such Allowed Claim is greater than $500, but the Holder agrees to reduce its
Allowed Unsecured Claim to an amount equal to $500, such Claim shall be paid
cash in an amount equal to 95% of such Claim within thirty (30) days after the
Effective Date.
-17-
<PAGE>
3.6 Class 4: Allowed General Unsecured Claims. The Holders of Allowed
General Unsecured Claims shall be satisfied by either (a) being paid in full by
the Reorganized Company within two (2) years in four semi-annual payments of
principal, plus accrued interest at the rate of seven and one-half percent
(7.5%) per annum, or at a different rate as determined by the Court with the
initial such payment due on the sixth month anniversary of the Effective Date
or, if any such Claim has been objected to, then six months from the date on
which such Claim is determined by Final Order to be an Allowed General Unsecured
Claim or (b) will receive shares of New Common Stock in an amount that when
multiplied by the average stock trading price for the immediately ten (10) days
preceding days as equals the dollar Amount of each such Allowed Claim. Holders
of General Unsecured Claims should indicate their preference as to this
treatment on the ballot for voting on the Plan. With respect to those Holders
of Class 4 Allowed Claims accepting the deferred payment, the net proceeds of
recovery from the Avoidance Actions and the Shareholders Derivative Action
shall, after payment of any outstanding Allowed Administrative or Allowed
Priority Claims be dedicated to retire the Allowed Class 4 Claims that select
the 100% payment treatment under the Plan. The Reorganized Company further
agrees that, if necessary, to timely pay such Allowed Class 4 Unsecured Claims
in full, the Wyoming Properties, the Colorado Properties, and all other assets
belonging to Nova Energy, Inc., will, if necessary, be sold in whole or in part
to accomplish the timely payment to such claimants. The Reorganized Company
also agrees not to dispose of or encumber any such properties prior to the
payment in full of the Allowed Class 4 Unsecured Creditor Claims in accordance
with this Section 3.6.
3.7 Class 5: Creditors Holding Claims Owed by Third Parties: Each
Creditor within this Class of Claims, if determined to have an Allowed Claim,
will receive shares of New Common Stock in full and final satisfaction of all
its Claims against the Debtor, its Affiliates and Trincol in an amount that when
multiplied by the average stock trading price for the immediately ten (10) days
preceding days as equals the dollar Amount of each such Allowed Claim. Holders
of Disallowed Class 5 Claims will not be entitled to receive a distribution
under this Plan.
4. TREATMENT OF SHAREHOLDER RIGHTS AND CLAIMS:
SELECTION OF EQUITY OPTION OR CASH OUT OPTION
---------------------------------------------
-18-
<PAGE>
4.1 Plan Options.
-------------
A. General Provisions for Shareholders Voting on the Plan.
-------------------------------------------------------------
Shareholders in Classes 6 and 7 who vote on the Plan may choose one of two
options ("Plan Options"): either the Equity Option or Cash Out Option. The
Equity Option generally provides that Shareholders holding Allowed Interests
- --------------
will exchange their Common Stock for (i) an equal amount of New Common Stock to
be issued by the Reorganized Company and (ii) an equal amount of rights to
purchase additional Common Stock at $.25 per share. In selecting this option,
each such Shareholder should regard the decision as being an investment in the
Reorganized Company, with the understanding that their Pro Rata Share of the
Frozen Funds, if any, will be made available to the Reorganized Company for use
in the ordinary course of its future business (the "Equity Option").
The second option, the Cash Out Option, provides for potential future
------ ---------------
cash distributions to Shareholders with Allowed Interests in Classes 6 and 7 who
select this option. Under this Cash Out Option, each such electing Shareholder
will receive its Pro Rata Share of (a) the Frozen Funds, if any, from the SEC
Enforcement Action and (b) any residual funds that may be available based upon
the Company's Liquidation Value calculated as of the Confirmation Date and as if
all Allowed Claims of creditors are deemed paid in full with interest. The Cash
Out Option is non-transferable and may not be assigned; only Shareholders in
Classes 6 and 7 holding Common Stock as of the Record Date may exercise the Cash
Out Option.
As to each of Classes 6 and 7, the Shareholders' selection of either Plan
Option will be implemented on a Shareholder by Shareholder basis. There are no
restrictions on the amount and number of Shareholders who may select either the
Equity Option or the Cash Out Option.
In order to eliminate as many litigation claims and matters against the
Reorganized Company as possible; provide the Reorganized Company with the best
mechanism for recovering funds from the Sers Group that the SEC believes
rightfully belongs to the Shareholders and/or the Company; and to provide new
management and the new board of directors with as "clean a company" as possible,
each Class 6 and 7 Shareholder who votes to accept the Plan is deemed, in
exchange for receiving their rights and benefits under the Equity Option and
Cash Out Options to: (I) ASSIGN TO THE REORGANIZED COMPANY ANY AND ALL SUCH
SHAREHOLDER'S RIGHTS, CAUSES OF ACTION, INTERESTS IN OR CLAIMS TO OR AGAINST THE
FROZEN FUNDS, THE AVOIDANCE ACTIONS, SHAREHOLDERS' DERIVATIVE ACTIONS, SEC
ENFORCEMENT ACTION AND MISCELLANEOUS ACTIONS TOGETHER WITH ALL THEORIES AND
PROCEEDS OF RECOVERY, JUDGMENT OR SETTLEMENT, INCLUDING THOSE RELATING
SPECIFICALLY TO THE PURCHASE AND SALE OF COMMON STOCK, FOR NEGLIGENCE,
MALFEASANCE, MISFEASANCE, ACTUAL OR CONSTRUCTIVE FRAUD AND SIMILAR SUCH ACTIONS
OF THE DEBTOR, ITS AFFILIATES, SUCCESSORS, PREDECESSORS, ASSIGNS, OFFICERS,
DIRECTORS, SHAREHOLDERS, REPRESENTATIVES, ATTORNEYS AND OTHER PROFESSIONALS FOR
THE PERIOD JANUARY 1, 1993 TO THE EFFECTIVE DATE; AND (II) ANY AND ALL RIGHTS,
CLAIMS AND/OR CAUSES OF ACTIONS AGAINST THE DEBTOR'S FORMER AGENTS AND
PROFESSIONALS, THE SERS GROUP MEMBERS (AS DEFINED IN CLASS 8 OF ARTICLE IV OF
THE PLAN); CERTAIN INSIDERS OF THE DEBTOR (AS DEFINED IN CLASS 10 OF ARTICLE IV
OF THE PLAN); AND COMMISSION HOLDERS (AS DEFINED IN CLASS 9 OF ARTICLE IV OF THE
PLAN) AND AS A RESULT OF SUCH ASSIGNMENTS SPECIFICALLY AUTHORIZE THE REORGANIZED
COMPANY TO PROSECUTE, OR, IF APPROPRIATE, SETTLE OR OTHERWISE DISPOSE OF SUCH
RIGHTS, CLAIMS AND CAUSES OF ACTION, ON THEIR BEHALF FOR THE EXCLUSIVE BENEFIT
OF THE REORGANIZED COMPANY PURSUANT TO THE PROVISIONS OF THE PLAN.
-19-
<PAGE>
ON THE BALLOT FOR ACCEPTANCE OR REJECTION OF THE PLAN, SHAREHOLDERS WILL
HAVE THE OPPORTUNITY TO ELECT WHETHER TO ASSIGN THEIR RIGHTS REFERENCED HEREIN.
THE FAILURE TO MAKE AN ELECTION WILL RESULT IN THE ASSIGNMENT OF SUCH RIGHTS TO
THE REORGANIZED COMPANY.
The Shareholders Trust will be responsible for enforcing the rights of
Shareholders who select the Cash Out Option until the Frozen Funds are either
received by the Disbursing Agent or determined by Final Judgment to be the
rightful property of a member of the Sers Group. The Shareholders' Trust will
operate under and be governed in accordance with a Shareholders' Trust Agreement
which will be prepared by the Shareholders' Committee and the Trustee and filed
with the Bankruptcy Court within five (5) days of the Confirmation Hearing. The
Disbursing Agent will also act as the Trustee of the Shareholders' Trust. Upon
release of the Frozen Funds, Mr. Seals in his capacity as Disbursing Agent, will
account to the Shareholders' Trust, the Reorganized Company and to those
Shareholders having selected the Cash Out Option for all cash received and
disbursed by the Disbursing Agent. In the event Mr. Seals ceases for any reason
to act as the Disbursing Agent, the Reorganized Company will act as the
Disbursing Agent and Trustee of the Shareholders' Trust.
B. Shareholders Voting Against the Plan
----------------------------------------
Shareholders voting against the Plan will nevertheless be entitled to
select between the Equity Option and the Cash Out Option.
C. Record Date Controls Determination of Shareholder Rights
--------------------------------------------------------------
Determination of what Shareholders and the amount of Common Stock entitled
to vote with respect to the Plan and receive the New Common Stock and Class 6
and 7 Rights for those Shareholders selecting the Equity Option and the dividend
rights for those Shareholders selecting the Cash Out Options offered in Class 6
and 7 will be made as of the July 20, 1998 Record Date.
D. Treatment of Shareholders Who Fail to Vote on the Plan or Who Vote but
----------------------------------------------------------------------
Fail to Select an Option; Second Opportunity to Select Plan Option
------------------------------------------------------------------
If the Plan is confirmed, then the Holders of Allowed Interests or Common
Stock who (i) fail to vote with respect to the Plan or (ii) voted on the Plan
but did not select a Plan Option prior to the voting deadline set by the Court,
will receive a written communication from the Reorganized Company that will
allow each Shareholder an additional 15 days from the date of the mailing of
such communication to select either the Equity Option or the Cash Out Option
(which 15 day period will not, however, delay the occurrence of the Effective
Date). Upon the expiration of the 15-day period, anyone receiving the written
communication who fails to select a Plan Option will be deemed to have selected
the Equity Option and will receive their Pro Rata Share of New Common Stock and
Rights as provided for in the Equity Option.
-20-
<PAGE>
E. Bar Date for Shareholders Filing Proofs of Interest
----------------------------------------------------------
Shareholders either (a) listed on the Stock Transfer Agents' books and
records; (b) listed with Cede & Co., stock brokerage firms, banks and similar
qualified nominee holding companies of record for stock held in street name; and
(c) those Shareholders who have cast a ballot on the Planwill be automatically
------------------------------------------------------
recognized as having filed a Proof of Interest.
IN ACCORDANCE WITH BANKRUPTCY RULE 3003, THE PLAN ESTABLISHES THE
CONFIRMATION DATE AS THE LAST DATE FOR SHAREHOLDERS FILING A PROOF OF INTEREST
IN THIS CASE, OR INFORMING THE EQUITY COMMITTEE OF THEIR HOLDINGS OF COMMON
STOCK. SHAREHOLDERS WHO HAVE PREVIOUSLY COMMUNICATED THEIR SHAREHOLDINGS TO THE
EQUITY COMMITTEE ON THE FORMS PROVIDED BY THE EQUITY COMMITTEE; ARE RECOGNIZED
ON THE BOOKS AND RECORDS OF THE DEBTOR'S STOCK TRANSFER AGENT; LISTED WITH CEDE
& COMPANY, RECOGNIZED STOCK BROKERAGE FIRMS, BANKS AND SIMILAR QUALIFIED NOMINEE
HOLDING COMPANIES OF RECORD FOR STOCK HELD IN STREET NAME AS OF THE RECORD DATE
("NOMINEE HOLDERS") WILL HAVE SATISFIED THE REQUIREMENT FOR FILING A PROOF OF
INTEREST. SHAREHOLDERS WHO ARE NOT RECOGNIZED ON THE BOOKS AND RECORDS OF
NOMINEE HOLDERS AS BEING HOLDERS OF COMMON STOCK ON THE RECORD DATE AND WHO FILE
A PROOF OF INTEREST WITH THE COURT OR SEND IN THEIR FORM TO THE EQUITY COMMITTEE
AFTER THE CONFIRMATION DATE WILL BE BARRED FROM PARTICIPATING IN THE RIGHTS OF
- -----
CLASSES 6-10 IN THE PLAN.
-21-
<PAGE>
4.2 Class 6: Allowed Interests Constituting Restricted Securities:
Option A, Equity Option: On the ballot for voting on this Plan, the Holders of
---------------------
Allowed Interests of Restricted Securities who vote on the Plan and select or
are deemed to have selected the Equity Option shall receive in full and final
satisfaction of their Claims, rights, title and interest in and to outstanding
shares of Common Stock and any Claims against the Debtor, Frozen Funds, Certain
Insiders and Commission Holders one share of (i) New Common Stock and (ii) one
Class 6 Right under the Rights Offering to be issued and distributed by the
Reorganized Company within 90 days after the SEC Approval Date in exchange for
each Share of Common Stock. The New Investor Group will have an additional
period as determined by the New Board of Directors within which to purchase an
equal amount of New Common Stock and/or exercise Class 6 and 7 Rights not
otherwise exercised by members of Class 6 and 7 within the Rights Exercise
Period at a price to be determined by the Reorganized Company of not less than
254 per share or Right, as the case may be.
-22-
<PAGE>
Class 6: Allowed Interests Constituting Restricted Securities: Option B,
---------
Cash Out Option: On the ballot for voting on this Plan, the Holders of Allowed
- -----------------
Interests of Restricted Securities who vote on the Plan and select the Cash Out
Option shall receive from either the Shareholders Trust or the Disbursing Agent
their pro rata share of both the Frozen Funds, if any, and the Company's
Liquidation Value as determined by Final Order of the Bankruptcy Court. The
Disbursing Agent will account to the SEC, the Reorganized Company and the
Shareholders who selected the Cash Out Option within sixty (60) days of receipt
of the Frozen Funds of the receipt and distributions thereof. Shareholders who
select this Cash Out Option are not entitled to receive any New Common Stock or
---
Rights. The New Investor Group will have an additional period of time as
determined by the New Board of Directors within which to purchase an equal
amount of New Common Stock or exercise Class 6 and 7 Rights not otherwise
exercised by members of Class 6 and 7 within the Rights Exercise Period at a
price to be determined by the Reorganized Company of not less than 254 per share
or Right, as the case may be.
4.3 Class 7: Allowed Free Trading Common Stock: Option A: Equity
----------------
Option; On the ballot for voting on this Plan, the Holders of Allowed Interests
- ------
of Unrestricted Securities or Free Trading Common Stock who vote on the Plan and
select or are deemed to have selected the Equity Option shall receive in full
and final satisfaction of their claims, rights, title and interest in and to
outstanding shares of Common Stock and any Claims against the Debtor, the Frozen
Funds, Certain Insiders and Commission Holders one share of (i) New Common
Stock and (ii) one Class 7 Right under the Rights Offering to be issued and
distributed by the Reorganized Company within 90 days after the SEC Approval
Date in exchange for each Share of Common Stock.
Class 7: Option B: Cash Out Option: On the ballot for voting on this Plan,
-------------------------
the Holders of Allowed Interests of Free Trading Common Stock or Unrestricted
Securities who vote on the Plan and select the Cash Out Option will receive from
either the Shareholders Trust or the Disbursing Agent their pro rata share of
both the Frozen Funds, if any, and the Company's Liquidation Value as determined
by a Final Order of the Bankruptcy Court. The Disbursing Agent will account to
the SEC, the Reorganized Company and the Shareholders who selected the Cash Out
Option within sixty (60) days of receipt of any Frozen Funds of such receipt
amount(s) and distributions thereof. Shareholders who select this Cash Out
Option are not entitled to receive any New Common Stock or Rights.
---
4.4 Class 8: Common Stock Held by the Sers Group: Unless a settlement
is achieved by the Shareholders' Committee or Reorganized Company with the Sers
Group on terms acceptable to the Shareholders' Committee, and approved by the
Bankruptcy Court or other Court having jurisdiction over such disputes, after
notice and an opportunity for hearing, the Common Stock held by the Sers Group
will be cancelled and the Holders of such shares will receive nothing under this
Plan.
-23-
<PAGE>
4.5 Class 9: Common Stock Issued as Sales Commission: This class of
Holders of Common Stock acquired as a result of direct or indirect efforts to
sell or resell Common Stock obtained from Trinity Gas Corporation or the Sers
Group from January 1, 1995 to the present ("Commission Holders") shall select
either: Settlement Option (A), in which event such Holders will automatically be
---------------------
determined to hold Allowed Interests and shall receive New Common Stock equal to
15% of their holdings in Common Stock; or Litigation Option (B), in which case
---------------------
their holdings will be disputed. If a determination is made by Final Order of
the Bankruptcy Court that any Interest Holder in Class 9 is an Allowed Interest,
they will receive a corresponding amount of New Common Stock equal to the amount
of their judicially determined Common Stock holdings. If on the ballot for
voting on the Committee's Plan, a Class 9 Holder selects Litigation Option B
Treatment, the Reorganized Company reserves all rights to pursue causes of
action against such Holder on all legal theories and causes of action available
to the Debtor. In the event a Class 9 Shareholder selects the treatment
provided by Settlement Option A, the Debtor and Holders of Common Stock voting
to accept the Plan will be deemed to have released all Claims it or they may
have or are capable of asserting against such Class 9 Shareholders on the
thirtieth (30th) day after the Effective Date. As part of this Plan, each Class
9 Holder of Common Stock having selected the Settlement Option shall be deemed
to have assigned to the Reorganized Company any and all rights, claims, title
and interest in any recovery such Class 9 Interest Holder may have or be able to
assert against the Frozen Funds, the Debtor, Certain Insiders, the Sers Group
and in the Miscellaneous Actions, Avoidance Actions, SEC Enforcement Action and
Stockholders Derivative Action.
4.6 Class 10: Common Stock Held by Certain Insiders: This class of
Certain Insiders determined to be Holders of Allowed Interests shall select
either: Settlement Option (A) in which event they will automatically be
-----------------------
determined to hold Allowed Interests and shall receive New Common Stock equal to
15% of their holdings in Common Stock; or Litigation Option (B), in which event
---------------------
their holdings will be disputed. If a determination is made by Final Order of
the Bankruptcy Court that any Interest Holder in Class 10 is an Allowed
Interest, they will receive a corresponding amount of New Common Stock equal to
the amount of their judicially determined Common Stock holdings. If on the
ballot for voting on the Committee's Plan, a Class 10 Holder selects Litigation
Option B Treatment, the Reorganized Company reserves all rights to pursue causes
of action against such Holder on all legal theories and causes of action
available to the Debtor. In the event a Class 10 Shareholder selects the
treatment provided by Settlement Option A, the Debtor and Holders of Common
Stock voting to accept the Plan will be deemed to have released all Claims it or
they may have or be capable of asserting against such Class 10 Shareholders on
the thirtieth (30th) day after the Effective Date. As part of this Plan, each
Class 10 Holder of Common Stock having selected the Settlement Option shall be
deemed to have assigned to the Reorganized Company any and all rights, claims,
title and interest in any recovery such Class 10 Interest Holder it may have or
be able to assert against the Frozen Funds, Commission Holders, Sers Group and
the Debtor and in the Miscellaneous Actions, Avoidance Actions, SEC Enforcement
Action, and Shareholders' Derivative Action.
4.7 New Investor Group: The New Investor Group being organized by
proposed new management of the Reorganized Company will have the right to
purchase an amount of New Common Stock up to the amount represented by the
Rights Offering and exercise any Rights not exercised timely by shareholders for
an additional period of time as beyond the initial Rights Expiration Date and at
a price determined by the New Board of Directors, but not less than 254 per
share.
5. DESCRIPTION AND DISTRIBUTION OF NEW
COMMON STOCK
------------
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<PAGE>
5.1 Surrender and Cancellation of Outstanding Securities. As a
condition precedent to the receipt of any distribution under this Plan by the
Holder of an Allowed Interest arising from or related to any certificated debt
security, including, but not limited to, all certificates evidencing Common
Stock, such Holder must surrender to the Reorganized Company or Stock Transfer
Agent certificates evidencing such Holder's Allowed Interests within the period
prescribed by Section 5.4(b) hereof. Such certificates surrendered will be
marked "cancelled" or "paid" as appropriate. In the event of a lost or
destroyed security certificate, the Holder of such Common Stock must deliver to
the Reorganized Company an affidavit of loss or destruction as well as an
agreement to indemnify the Reorganized Company in form and substance reasonably
acceptable to the Reorganized Company in order to receive any distribution under
this Plan. On the Effective Date, certificates evidencing the existing Common
Stock will be cancelled, discharged, satisfied and expunged.
-25-
<PAGE>
5.2 Issuance and Resale of New Common Stock and Rights. The
Shareholders' Committee relies on Section 1145 of the Bankruptcy Code, for an
exemption from registration under Section 5 of the Securities Act of 1933, as
amended, and any similar provisions of applicable state law (i) with respect to
the issuance of New Common Stock and Rights and (ii) that all of such securities
will be freely transferable without further registration, (except by a Person
deemed to be an "underwriter" under the 1933 and 1934 Securities Act) within the
provisions of Section 1145 of the Bankruptcy Code. Prior to issuing New Common
Stock and the Rights, the Shareholders Committee or if then applicable, the
Reorganized Company, will submit a No Action Letter request to the SEC for a
determination, among other things, that the issuance and resale of the New
Common Stock and Rights under the Plan is exempt from registration under Section
5 of the 1933 Securities Act pursuant to Section 1145 of the Bankruptcy Code.
If the SEC denies such no-action letter request, the Shareholders' Committee or,
if then applicable, the Reorganized Company will either file a registration
statement, seek to obtain an exemption from the application of Section 5 of the
1933 Securities Act or submit other appropriate filings or undertake other
actions with the SEC to accomplish this result.
5.3 Fractional Amounts of Shares. The Reorganized Company will not
issue or distribute any fractional shares of New Common Stock. In lieu of any
fractional shares of New Common Stock, the Reorganized Company, or such other
Person as the Reorganized Company from time to time may appoint as Stock
Transfer or disbursing agent, will, promptly following the Effective Date (or
the date of any subsequent distribution pursuant to Article IV of this Plan),
distribute, to each Person otherwise entitled to receive a distribution of a
fractional share of New Common Stock at that time, an amount of cash equal to
the produce of (a) such fractional share and (b) the quotient obtained by
dividing (i) the aggregate amount of all Allowed Interest by (ii) the aggregate
number of shares of New Common Sock issuable pursuant to this Plan. In lieu of
any fractional shares of New Common Stock, the Reorganized Company, or such
other person as the Reorganized Company from time to time may appoint as its
exchange agent, on behalf of all persons otherwise entitled to receive
fractional New Common Stock (including, but not limited to, individual
beneficial owners of shares held in "street name"), will promptly following the
Effective Date (or the date of any subsequent distribution pursuant to Article
IX of this Plan), aggregate such fractional shares of Common Stock and sell the
resulting New Common Stock for the account of such Persons. Such Persons will
thereafter be entitled to receive their allocable portion of the net proceeds of
the sale thereof. Such sales will be effected in open market transactions on
the national securities exchange or over-the-counter market, if any, upon which
the New Common Stock are listed. All questions as to fractional amounts of
Common Stock, or New Common Stock will be determined by the Reorganized Company.
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5.4 Returned and Unclaimed Distributions.
(a) Returned Distributions. If a distribution of cash or securities
pursuant to this Plan to any Holder of an Allowed Claim or Allowed Interest is
returned to the Reorganized Company or its Disbursing Agent due to an incorrect
or incomplete address for the Holder of such Allowed Claim or Allowed Interest,
then the Reorganized Company or such Disbursing Agent, as the case may be, shall
use reasonable efforts to obtain an accurate address for such Holder. If, after
one (1) year following the date of distribution, such reasonable efforts have
not yielded an accurate address for such Holder, then the property or New Common
Stock to be distributed to such Holder shall be deemed to be unclaimed
distributions in respect of such Claim or Interest and shall be treated as
provided in subsection (b) below.
(b) Unclaimed Distributions. On the second (2nd) anniversary of the
Effective Date of this Plan, any Holder of an Allowed Interest who has not (a)
surrendered such Holder's securities as set forth in Section 5.1 hereof, if
applicable, or (b) claimed the cash or New Common Stock to which such Holder is
entitled, will forfeit such Holder's right to receive any distribution under
this Plan. Such unclaimed distributions, together with any cash or noncash
interest earned thereon or dividends or other distributions made with respect
thereto, shall become the property of the Reorganized Company.
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6. ACCEPTANCE OR REJECTION OF PLAN
6.1 Impairment of Classes of Claims and Interests. Classes 6 and 7 may
not be impaired under this Plan. Nevertheless, the Shareholders' Committee has
decided to solicit acceptances of the Plan from all Shareholders in Classes 6
and 7. Because all other Classes of Claims and Interests are impaired by this
Plan, the Shareholders' Committee will also solicit their vote as to the Plan.
6.2 Each Impaired Class Entitled to Vote Separately. Each Class of
Claims or Interests will be entitled to vote separately to accept or reject this
Plan.
6.3 Acceptance by a Class of Claims. A Class of Claims will have
accepted this Plan (i) if the Plan is accepted by Holders of Allowed Claims
holding more than 50% in number and at least two-thirds (2/3rds) in amount of
the Allowed Claims of such Class that have voted on this Plan, excluding any
Holders of Claims designated pursuant to section 1126 (3) of the Bankruptcy
Code, or (ii) if the Class is unimpaired by this Plan.
6.4 Acceptance by a Class of Interests. A Class of Interests will have
accepted this Plan if the Plan is accepted by Holders of Allowed Interests
holding at least two-thirds (2/3rds) in amount of the Allowed Claims of such
Class that have voted on this Plan, excluding any Holders of Claims designated
pursuant to section 1126(e) of the Bankruptcy Code, or (ii) if the Class is
unimpaired by this Plan.
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6.5 Confirmation Without Acceptance. If any Class of Claims or
Interests entitled to vote under this Plan fails to accept this Plan in
accordance with section 1126 of the Bankruptcy Code, the Shareholders' Committee
reserves the right to request the Bankruptcy Court to confirm this Plan over
such rejection in accordance with section 1129(b) of the Bankruptcy Code.
7. MEANS OF IMPLEMENTING THIS PLAN
7.1 Filing of Articles of Merger or Dissolution. Pursuant to this
Plan, on the Effective Date, or as soon thereafter as possible, Nova Energy,
Inc. and Jubilee Oil and Gas, Inc. shall be liquidated or merged into or with
Trinity Gas Corporation and Nova Energy, Inc. shall be terminated; and
appropriate officers of the Reorganized Company will file any necessary articles
of merger or dissolution and certificates of cancellation of Shareholder
certificates with the Secretary of State of Wyoming and the Secretary of State
of Texas.
7.2 Adoption of Amendments to Charter. On the Effective Date, officers
of the Reorganized Company will file the New Charter with the Secretary of State
of Nevada.
7.3 Substitution For Trustee. Upon the Effective Date, the Reorganized
Company will be substituted for or be authorized to immediately replace the
Trustee in the Avoidance Actions, Shareholders Derivative Action and SEC
Enforcement Action.
7.4 Composition of the Board of Directors and Management of the
Reorganized Company.
(a) Board of Directors. On the Effective Date, the board of directors
of the Reorganized Company will consist of five directors, all five of whom will
be nominated by the Shareholders' Committee and shall include Messrs. T.C.
O'Dell, Michael L. Wallace, Arthur Teichgraeber, Dennis Hedke and Bruce
Reichert.
(b) Management. The Chairman of Trinity Gas Corporation shall be Mr.
T.C. O'Dell, who will serve the Reorganized Company as its chairman of the board
and CEO. Other officers of the Reorganized Company will include Mr. Michael L.
Wallace as President and COO and Mr. Dennis Hedke as its Vice President of
Exploration and Development.
(c) Advisory Board of Directors. Mr. Charles Canfield, Mr. Kenneth
Peak, and Mr. Roger Curtis shall serve as members of an Advisory Board of
Directors with no voting authority or powers. They shall consult with the Board
of Directors and Management as appropriate. The Advisory Board shall remain in
existence for at least one (1) year after the Effective Date.
7.5 Compensation of Directors, Officers, and Management
(a) Overall Objectives: In order to procure the services of Messrs.
O'Dell and Wallace, New Board and Advisory Board Members, the Reorganized
Company has structured the following compensation plan, which includes a
combination of salary and non-qualified stock options. The Committee's
compensation of Messrs. O'Dell and Wallace is designed to support the following
objectives: (i) to offer compensation opportunities that attract high-quality
individuals to the Reorganized Company, motivates them to perform at their
highest levels and rewards them for outstanding achievements; (ii) to align
compensation for the board of directors with the annual long-term performance of
the Reorganized Company; and (iii) to maintain a significant portion of board of
directors' total compensation at risk, tied primarily to the creation of
stockholder value.
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(b) O'Dell and Wallace Stock Option and Salary Package: The revised
compensation package for Messrs. O'Dell and Wallace are as follows:
Stock Options - The Reorganized Company shall grant non-qualified
--------------
stock options to Messrs. O'Dell and Wallace on, or as soon as
reasonably practicable after, the Effective Date of twenty percent
(20%) of the outstanding New Common Stock.
(i) Mr. O'Dell shall receive a total of 8,700,000 non-qualified
options to purchase the Reorganized Company's Common Stock ("New
Common Stock"); 2,900,000 of such options shall be exercisable for
five years on and after the nine-month anniversary of the Confirmation
Date and shall have an exercise price of
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$.25 per share (such options being called "Nine-Month Vested Options"); the
next 2,900,000 of such options shall be exercisable for five years on and after
the one-year anniversary of the Confirmation Date and shall have an exercise
price of $.75 per share (such options being called "One-Year Vested Options");
and the final 2,900,000 of such options shall be exercisable for five years on
and after the two-year anniversary of the Confirmation Date and shall have an
exercise price of $1.50 per share (such options being called "Two-Year Vested
Options").
(ii) Mr. Wallace shall receive a total of 2,850,000 non-qualified
options to purchase the New Common Stock; 950,000 of such options
shall be Nine-Month Vested Options; the next 950,000 of such options
shall be One-Year Vested Options; and the final 950,000 of such
options shall be Two-Year Vested Options.
(iii) All options and their exercise price will be adjusted in the
event of a recapitalization, stock split or stock combination or
exercise of the Rights Offering by Classes 6 and 7.
(c) Summary of Stock Option Plan Provisions: Set forth below are
certain features of the Stock Option Plan (the "Plan") that will govern the
options discussed herein.
(i) Available Shares: Based upon an estimated 60 million number of
outstanding shares of Common Stock and excluding those shares of the Sers
Group ("Outstanding Shares"), the aggregate number of shares of New Common
Stock which may be issued under the Stock Option Plan shall not exceed 20%
of the Outstanding Shares of the Reorganized Company. Shares issued under
the Plan may be either authorized and unissued New Common Stock or New
Common Stock held in or acquired for the treasury of the Reorganized
Company. Any shares of New Common Stock subject to a stock option that are
not issued prior to the expiration of such options will again be available
for award under the Stock Option Plan.
(ii) Administration: The Stock Option Plan will provide for administration
by a committee of non-employee directors selected by the Reorganized
Company's Board of Directors (the "Stock Option Committee"). The Stock
Option Committee will have broad powers under the Stock Option Plan to,
among other things, administer and interpret the Stock Option Plan. In
addition, except as set forth below under "Amendment and Termination," the
Stock Option Committee also will have the power to modify or waive
restrictions or limitations on the exercisability of options and to
accelerate and extend existing options.
Under the Stock Option Plan, the option price upon exercise may, to the
extent determined by the Stock Option Committee at or after the time of
grant, be paid by a participant in cash, in shares of New Common Stock
owned by the participant or by a reduction in the number of shares of New
Common Stock issuable upon the exercise of the option. The Stock Option
Committee may offer to buy an option previously granted on such terms and
conditions as the Stock Option Committee shall establish. Options may, at
the discretion of the Committee, provide for "reloads,"whereby a new option
is granted for the same number of shares as the number of shares of New
Common Stock used by the participant to pay the option price upon exercise
or to satisfy tax withholding obligations.
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<PAGE>
Unless the Stock Option Committee determines otherwise at the time of
grant, the Stock Option Plan will provide that upon termination of
employment or directorship by reason of retirement, death or disability or
for any reason other than resignation, voluntary termination, or discharge
for cause, stock options will become fully vested and generally will be
exercisable for two years or until the end of the option term, whichever is
shorter. Unless the Stock Option Committee determines otherwise at the time
of grant or thereafter, the Plan will provide for immediate termination of
stock options in the event of termination of employment for cause by the
Reorganized Company or by the voluntary termination by the employee.
(iii) Non-transferability of Awards: A stock option shall not be
transferable otherwise than by will or the laws of descent and
distribution, and a stock option may be exercised, during the lifetime of
the optionee, only by the optionee; provided, however, that with the
approval of the Stock Option Committee, the agreement relating to any award
(including, without limitation, a stock option) may provide that such award
may be transferred to one or more members of the immediate family of or
family trust established by the grantee of the award or to a trust for the
benefit of such person or as directed under a qualified domestic relations
order or, in the case of options otherwise to be granted to Mr. O'Dell may
at his option and direction be granted to another employee of the
Reorganized Company for exemplary services, as a basis or other reason.
(d) Compensation of Remaining Board Members and Management.
(i) Board of Directors and Advisory Board - Within 30 days of the
-----------------------------------------
Confirmation Date, board members Hedke, Teichgraeber, and
Reichert and advisory board members Canfield, Curtis, and Peak
shall receive (i) 65,000 shares of restricted New Common Stock
that will become vested and freely tradable upon the one (1) year
anniversary of the Confirmation Date and (ii) 65,000 One-Year
Vested Options. Any New Common Stock received from the exercise
of such stock options shall be immediately unrestricted and
freely tradeable.
(ii) Compensation of Wallace - Mr. Wallace will commence employment as
-----------------------
President of the Reorganized Company within 30 days after the
Confirmation Date under the terms of a three-year employment
agreement. Compensation for Mr. Wallace shall be set at a rate of
$10,000 per month for the first year of such term, $12,500 per
month for the second year of such term and $15,000 per month for
the third year of such term; provided, however, that Mr. Wallace
shall, at his option, be entitled to receive New Common Stock in
lieu of cash salary in accordance with the following formula:
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Number of Shares of New Common Stock = Cash Salary Foregone/
Staged Stock Price where the Staged Stock Price = $.25 for the
first 9 months after the Confirmation Date, $.75 for the next
three months after the confirmation Date and $1.50 for all time
thereafter. The Reorganized Company shall be able to withhold all
amounts due in accordance with applicable law in cash from the
shares to be distributed. The Reorganized Company shall guarantee
the initial 12 months or $120,000 of his salary, so long as Mr.
Wallace is employed by the Reorganized Company. As security for
payment of Mr. Wallace's first year's salary, Mr. Wallace shall
receive a lien on the Colorado properties to the extent of
$120,000. Any monthly salary not paid to Wallace during the first
year of his employment (other than by his election) shall accrue
interest at the rate of 10% per annum.
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(iii)Benefits and Miscellaneous Expenses - As part of the
-----------------------------------------
compensation package to Mr. Wallace, the Reorganized Company will
pay up to $300.00 per month toward health care benefits for
Wallace and will reimburse Mr. Wallace for the reasonable and
necessary relocation expenses incurred in relocating from
Columbus, Ohio to Houston, Texas.
(iv) Employment Contracts - The Reorganized Company shall execute
---------------------
three-year employment contracts with Messrs. O'Dell and Wallace
consistent with the employment provisions included herein and in
the Plan and Disclosure Statement. Such contracts shall provide
for a termination payment from the Reorganized Company to the
executive, in the amount of the greater of (i) six months'
compensation or (ii) one-third of all compensation payable under
the remaining term of the contract, if the executive's employment
is terminated for any reason other than cause, death, disability
or voluntary termination.
(v) Conflicts of Interest and Rights of First Refusal. So long as
----------------------------------------------------
Messrs. Wallace and O'Dell are employed by the Reorganized
Company, and for six (6) months thereafter they shall offer to
the Reorganized Company:
(i) any and all opportunities, whether actual, potential, direct
or indirect to invest in or to participate as a joint
venturer, partner, co-owner, acquiror or benefactor, in any
oil and gas drilling, exploration, production, acquisition,
licensing, financing or such similar arrangement that either
individual or their Affiliates becomes aware of or is
otherwise or offered available to either individual or their
Affiliates from and after the Confirmation Date;
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<PAGE>
(ii) not perform services for any person or entity, own directly
or indirectly an Interest in any entity, directly or
indirectly competing with the Reorganized Company from and
after the Confirmation Date.
(vi) Compensation of Dennis Hedke. As Vice-President of Exploration
-----------------------------
and Development, Mr. Hedke will, subject to Board Approval, be
eligible for reasonable compensation for services provided to the
Reorganized Company. In order to preserve needed operating
capital immediately following Confirmation of the Plan, Mr.
Hedke's services will likely be limited to part-time work until
January 1, 1999. At that time, the Board may decide to elevate
this position to full-time status. Negotiation of contract terms,
including salary, benefits and any applicable options will be
conducted by the Board at that time.
(vii)Compensation of Thomas O'Dell. Mr. O'Dell will receive no paid
-------------------------------
compensation (other than his Stock Options) for his services to
the Company for at least one (1) year following the SEC Approval
Date.
8. APPOINTMENT OF DISBURSING AGENT
8.1 Upon entry of a final order or judgment by U.S. District Court
Judge Means authorizing the release of the Frozen Funds held in the registry of
the United States District Court in Fort Worth, such funds shall be initially
released to the Disbursing Agent who will distribute such funds as soon as
practicable and in no event later than thirty (30) days thereafter in accordance
with the terms and provisions of the Plan to the Reorganized Company and any
Holders of Allowed Interests within Classes 6 and 7 who selected the Cash Out
Option. Under the Plan, Henry C. Seals shall serve as the initial Disbursing
Agent. In the event Mr. Seals ceases to serve as the Disbursing Agent for any
reason, the Reorganized Company will serve as the Disbursing Agent.
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The funds held by the Disbursing Agent shall be deposited and maintained in
a federally insured depository account. The Disbursing Agent shall be
compensated at a rate of either 1.5% of each authorized disbursement made or
such other amount as determined by the District Court and shall be reimbursed
for reasonable and necessary expenses incurred while serving in the capacity of
Disbursing Agent out of only the Frozen Funds, after notice and hearing before
the District Court. The Disbursing Agent will maintain accurate records of all
disbursements or other transactions and transfers of funds. Within five (5)
days written notice from the Reorganized Company or the SEC, the Disbursing
Agent shall provide an accounting of disbursements made and receipts (if any) as
of the date of the written request. Upon the distribution of all such Frozen
Funds, and in accordance with the Plan, the Disbursing Agent shall provide a
final accounting and report to the Reorganized Company, the SEC, the District
Court and any Shareholder with an Allowed Interest who selected the Cash Out
Option and that requests a copy of the final report. Within thirty (30) days
after an interim and final distribution, the Disbursing Agent will file his
final report with the District Court in Fort Worth. Because the Frozen Funds
are currently subject to the SEC Enforcement Action pending before Judge Terry
Means of the United States District Court, any disputes involving the Disbursing
Agent, the Frozen Funds held or claimed by him, and the rights of the
Reorganized Company or Shareholders having selected the Cash Out Option, shall
be subject to the exclusive jurisdiction of Judge Terry Means or his successor.
The Frozen Funds will, for purposes of the Plan, not be subject to any trustee's
fees provided for under 11 U.S.C. | 326 of the Bankruptcy Code.
9. RIGHTS OFFERING
9.1 Rights Offering. On the commencement of the Rights Exercise
Period, and subject to the provisions of Article IX each Holder of an Allowed
Interest within Class 6 and 7 who selects the Equity Option shall receive for
each share of Common Stock a corresponding Class 6 Right or Class 7 Right. Any
Class 6 or Class 7 Rights distributed pursuant to this Section 9.1 must be
exercised in accordance with the provisions herein either by the members of
Class 6 and 7 holding Allowed Interests or by the New Investor Group. Holders
of Class 6 and 7 Interests or Shareholders who select the Cash Out Option in
Sections 4.3 and 4.4 shall not receive any Rights.
9.2 Issuance of the Rights. On the commencement of the Rights Exercise
Period, the Rights shall be issued to Holders of Allowed Interests as set forth
in Sections 9.1 and Article IV above who select the Equity Option.
9.3 Cancellation of Common Stock: Surrender of Securities and Other
Documentation. On the Effective Date, the Common Stock (whether issued and
outstanding or held in the treasury of the Debtor immediately prior to the
Effective Date) shall be deemed to be canceled, extinguished, retired and of no
further force and effect, in all events without any further action on the part
of the Debtor, the Stock Transfer Agent, Holders of Common Stock, Reorganized
Company or any other entity. The Holders of such canceled securities and other
documentation shall have no rights arising from or relating to such securities
or other documentation, or the cancellation thereof, except the rights provided
pursuant to the Plan, provided however, that no distribution under the Plan
shall be made to or on behalf of any Holder of any Allowed Interest evidenced by
such canceled securities or other documentation unless or until such securities
or documentation are received by the Reorganized Company pursuant to Article V
herein.
9.4 Procedures for Exercise of Rights. Class 6 and 7 Rights may be
exercised by the respective Holders of Allowed Interests thereof or, if
applicable, the New Investor Group, at any time during the Rights Exercise
Period. Each Right shall entitle each such Holder of the shares of Common Stock
to purchase one share of the Rights Offering Common Stock at a price equivalent
to 25 cents per share. All rights that are to be exercised by an individual
Holder must be exercised concurrently. Any exercise of Rights shall be
irrevocable after the Rights Expiration Date.
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In order to facilitate the exercise of the Rights, the Stock Transfer Agent
as the Rights Agent will mail, on the date upon which the Rights Exercise Period
commences, to each Holder of an Allowed Class 6 and 7 Interest who selects the
Equity Option, a Rights Exercise Notice together with the Exercise Instructions
(which will include instructions for the proper completion and due execution of
the Rights Exercise Notice and timely delivery thereof, together with
instructions for the payment of the applicable aggregate exercise price for the
Rights sought to be exercised, to the Rights Agent and may specify other
requirements relating to the valid and effective exercise of the Rights). All
determinations as to proper completion, due execution timeliness, eligibility
and other matters affecting the validity or effectiveness of any attempted
exercise of any Rights shall be made by the Rights Agent, whose determination
shall be final and binding. The Rights Agent in its sole discretion may waive
any defect or irregularity, or permit a defect or irregularity to be corrected
within such time as it may determine or reject the purported exercise of any
Right subject to any such defect or irregularity. Deliveries required to be
received by the Rights Agent in connection with the purported exercise of Rights
will not be deemed to have been so received or accepted until actual receipt
thereof by the Rights Agent shall have occurred and any defects or
irregularities shall have been waived or cured within such time as the Rights
Agent may determine in its sole discretion. Neither the Reorganized Company nor
the Rights Agent will have any obligation to give notice to any Holder of a
Right of any defect or irregularity in connection with any purported exercise
thereof or incur any liability as a result of any failure to give any such
notice.
9.5 Effectuating Documents; Further Transactions; Exemption from
Certain Transfer Taxes. The Chairman of the Board, Chief Operating Officer and
any Executive Vice President or Vice President of the Reorganized Company, shall
be authorized to execute, deliver, file or record such contracts, instruments,
releases and other agreements or documents and to take such actions as may be
necessary or appropriate to effectuate and further evidence the terms and
conditions of the Plan (with the written consent of the Shareholder Committee if
such action would have any effect on Shareholders within Class 6 and 7 who
select or are deemed to have selected the Equity Option). The Secretary or any
Assistant Secretary of the Reorganized Company shall be authorized to certify or
attest to any of the foregoing actions. Pursuant to section 1146(c) of the
Bankruptcy Code: (1) the issuance, distribution, transfer or exchange of the
Rights; and (2) the making, execution, delivery or recording of any instrument,
in furtherance of, or in connection with, the Plan, the Confirmation Order, or
any transactions arising out of, contemplated by or in any way related to the
foregoing, and shall not be subject to any document recording tax, stamp tax,
conveyance fee, intangibles, or similar tax, mortgage tax, stamp act, real
estate transfer tax, mortgage recording tax or other similar tax or governmental
assessments, and the appropriate state or local governmental officials or agents
shall be, and hereby are, directed to forego the collection of any such tax or
governmental assessment and to accept for filing and recordation any of the
foregoing instruments or other document without the payment of any such tax or
governmental assessment.
9.6 Distributions of Rights Offering Common Stock as of the Record
Date. Except as otherwise provided herein, distribution of Rights Offering
Common Stock to be made on account of Allowed Interests existing as of the
Record Date shall be made as soon as practicable after the Rights Expiration
Date. Upon the failure of Class 6 or 7 holders of Allowed Interests to exercise
their Rights within the Rights Exercise Period, the Reorganized Debtor offering
such Rights as an equivalent of New Common Stock to the New Investor Group for
an additional period of time as determined by the New Board of Directors.
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9.7 Failure to Claim Undeliverable Distributions. Any Holder of an
Allowed Interest entitled to receive Rights that does not assert a claim for an
undeliverable distribution by the Rights Expiration Date shall be forever barred
from asserting a claim for such undeliverable distribution against the
Reorganized Company. Nothing contained in the Plan shall require the
Shareholders' Committee, Trustee, Reorganized Company or any Rights Agent to
attempt to locate any Holder of an Allowed Interest.
9.8 Surrender of Cancelled Securities. Subject to the provisions of
Section 9.9 below, a condition precedent to receiving any distribution of Rights
pursuant to the Plan on account of an Allowed Interest evidenced by the
instruments, securities or other documentation canceled pursuant to Article IV
herein, the Holder of such Interest shall tender the applicable instruments,
evidencing such Interest to the Rights Agent pursuant to a letter of transmittal
furnished by the Rights Agent. Any Rights to be distributed pursuant to the
Plan on account of any such Interest shall, pending such surrender, be treated
as an undeliverable distribution pursuant to Section 5.4 above.
9.9 Surrender of Securities Certificates. Except as provided in
Section 9.10 below for lost, stolen, mutilated or destroyed Securities
certificates, each Holder of an Allowed Interest evidenced by a Securities
certificate shall tender such Securities certificate to the Rights Agent in
accordance with written instructions to be provided in a letter of transmittal
to such Holders by the Rights Agent as promptly as practicable following the SEC
Approval Date. Such letter of transmittal shall specify that delivery of such
Securities certificates will be effected, and risk of loss and title thereto
will pass, only upon the proper delivery of such Securities certificates with
the letter of transmittal in accordance with such instructions. Such letter of
transmittal shall also include, among other provisions, customary provisions
with respect to the authority of the Holder of the applicable Securities
certificate to act and the authenticity of any signatures required on the letter
of transmittal. All surrendered Securities certificates shall be marked as
canceled and delivered to the Reorganized Company.
9.10 Lost, Stolen, Mutilated, or Destroyed Securities Certificates. In
addition to any requirements under the applicable certificate or articles of
incorporation or bylaws of the Reorganized Company, any Holder of an Interest
evidenced by a Securities certificate that has been lost, stolen, mutilated, or
destroyed shall, in lieu of surrendering such Securities certificate, deliver to
the Rights Agent: (a) evidence satisfactory to the Rights Agent of the loss,
theft, mutilation or destruction; and (b) such indemnity as may be required by
the Rights Agent to hold the Rights Agent harmless from any damages, liabilities
or costs incurred in treating such individual as a Holder of a Securities
certificate. Upon compliance with this Section 9.10 by a Holder of an Interest
evidenced by a Securities certificate, such Holder shall, for all purposes under
the Plan, be deemed to have surrendered the Common Stock certificate.
9.11 Failure to Surrender Cancelled Stock Certificates. Any Holder of
a Securities certificate that fails to surrender or be deemed to have
surrendered such Common Stock certificate within one year after the Effective
Date shall have its claim for a distribution pursuant to the Plan on account of
such Common Stock forever barred from asserting any such claim against the
Reorganized Company. Rights held for distribution on account of such Interest
shall, in any event, terminate upon expiration of the Rights Exercise Period.
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9.12 Treatment of Disputed Claims or Interests
a. No Payments on Account of Disputed Claims or Interests
------------------------------------------------------
Notwithstanding any other provisions of the Plan, no payments or
distributions shall be made on account of a Disputed Claim or Disputed Interest
until such Claim or Interest becomes an Allowed Claim or Interest.
b. Resolution or Estimation of Claims
----------------------------------
The Shareholders' Committee or Reorganized Company may, at any time,
request that the Bankruptcy Court estimate any contingent or unliquidated Claim
pursuant to Section 502(c) of the Bankruptcy Code, irrespective of whether the
Trustee or the Shareholders' Committee has previously objected to such Claim or
whether the Bankruptcy Court has ruled on any such objection. The Bankruptcy
Court will retain jurisdiction to estimate any contingent or unliquidated Claim
at any time during litigation concerning any objection to the Claim, including
during the pendency of any appeal relating to any such objection. If the
Bankruptcy Court estimates any contingent disputed or unliquidated Claim, that
estimated amount will constitute either the Allowed Amount of such Claim as
determined by the Bankruptcy Court. All of these Claim or Interest objections,
estimation and resolution procedures are cumulative and not necessarily
exclusive of one another. In addition to seeking estimation of Claims as
provided in this Section 9.12, the Shareholders' Committee or Reorganized
Company, as the case maybe, may resolve or adjudicate any Disputed Claim or
Disputed Interest in the manner in which the amount of such Claim or Interest
and the rights of the Holder of such Interest would have been resolved or
adjudicated if the Chapter 11 Case had not been commenced. Claims or Interests
may be subsequently compromised, settled, withdrawn or resolved by the
Shareholders' Committee pursuant to this Plan.
c. Distributions on Account of Disputed Claims or Interests Once
-----------------------------------------------------------------
They Are Allowed
----------------
On each Distribution Date, the Reorganized Company or the Disbursing Agent,
as appropriate, shall make all distributions on account of any Disputed Claim
or Disputed Interest that has become an Allowed Claim or Allowed Interest during
the preceding quarter. Such distributions shall be made pursuant to the
provisions of the Plan governing the applicable Class.
9.13 Corporate Action. The distribution of the Company's Liquidation
Value to Shareholders with Allowed Interest who select the Cash Out Option in
Classes 6 and 7 or New Common Stock and Rights pursuant to the Plan; the
adoption, execution, delivery and implementation of all contracts, leases,
instruments, releases and other agreements or documents related to any of the
foregoing; the adoption, execution and implementation of employment, retirement
and indemnification agreements, incentive compensation programs, and other
employee plans and related agreements provided for or contemplated herein; and
other matters provided for under the Plan involving action to be taken by or
required by the Debtor or Reorganized Company, or will occur and be effective as
provided herein, and are authorized hereunder and approved in all respects and
for all purposes without any requirement of further action by stockholders,
directors of the Debtor, or Reorganized Company.
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<PAGE>
10. BUSINESS PLAN SUMMARY AND PROPOSED UTILIZATION OF
EXISTING OIL AND GAS INTERESTS
------------------------------
10.1 Nova Wells Redevelopment Plan
The Colorado and Wyoming wells can be a commercially viable source of net
revenue for the Reorganized Company. As part of the Nova Wells Redevelopment
Plan, a preliminary objective of the Reorganized Company is to develop the
following information:
(a) Analysis of all Nova properties to include geologic and
engineering/economic studies of all wells;
(b) Verification of work-over candidates and opportunities for field
development of potential well sites; and
(c) Feasibility study to evaluate secondary recovery potential of the
Comanche Creek Field.
In addition to the above-referenced information, to enhance production from
the Colorado wells drilled by Nova Energy (Trinity Gas), the following immediate
capital improvement and chemical treatment stimulation project will be
undertaken following confirmation. The recovery of the costs associated with
the reworking of these wells is projected to occur in less than 120 days.
A. Down Hole Pump Replacement (Four Wells)
--------------------------------------------
At present, four wells in the field are no longer producing due to "down
hole" pump problems. Mr. Don Brause, the operator of the wells, estimates that
approximately $3,500 per well ($14,000) for rig, pumps, trucking, and related
expenses, if incurred, can return these wells to production.
B. Chemical Stimulation Treatments (Nine Wells).
------------------------------------------------
Chemical stimulation treatment for nine (9) producing wells should increase
production resulting in payout of less than two months. The purpose of the
chemical stimulation program will be to enhance permeability in the immediate
vicinity of the wellbores that has occurred from scale buildup from bacteria,
emulsions, and formation solids migrating to these areas. Chemical stimulation
is a two-step application process with an estimated net cost per well of
$2,872.00. A breakdown of the estimated costs are as follows:
-40-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Stimulation (Step 1 and Step 2): $4,632/well
- --------------------------------------------------------------- -----------
9 wells selected for initial stimulation @ $4,632/well: $ 41,688
Less existing recoverable condensate, sold, and paid 2nd month: -15,840
-----------
Net cost treatment with condensate recovery $ 25,848 ($2,872/well)
</TABLE>
The chemical stimulation program needs to be enacted soon after
confirmation to take advantage of daylight hours to perform maximum number of
treatments in one day. This will result in reduced expenses.
C. Additional Wells Stimulation Program (Five Wells).
------------------------------------------------------
An additional five (5) wells should be similarly considered for
stimulation. Those wells, however, will likely also require acid washing in
addition to the chemical treatment. This treatment could result in a notable
increase in production, and it is estimated that net costs to accomplish this
procedure will be approximately $3,500 per well, for a total of $17,500.
D. Additional Reworking to be Considered (Three Wells).
---------------------------------------------------------
Two (2) additional wells may benefit by undertaking significant downhole
improvements. The procedures involved may involve sidetracking from an existing
wellbore and/or replacing plunger lifts with downhole pumps. These remedial
actions are under review, but preliminary estimates indicates costs up to about
$61,600.
10.2 Colombian Concession Development Plan.
An integral component of the Reorganized Company's business plan is to take
aggressive and immediate action to realize the Reorganized Company's interest in
the Colombian Concession. The following are integral components of that plan:
(a) Vigorously pursue all legal options and strategies to enforce the
Default Judgments against Mr. Sers and Trincol entered by the
United States District Court in Ft. Worth;
(b) Continue discussions with Ecopetrol to reestablish control of the
Concession by Trinity USA; Continue discussions to develop the
already established dialogue with Ecopetrol management in order
to obtain any necessary extensions or otherwise satisfy existing
requirements pertaining to concession protection. The current
apparent date for fulfillment of well completion requirements is
July 28, 1998. Future meetings with appropriate Ecopetrol
officials in Bogota should be scheduled immediately upon
confirmation of the plan.
(c) Aggressively develop a plan for completion of any wells drilled
in the Concession that have potential for commercial production
(e.g., Patacore No. 1);
-41-
<PAGE>
(d) Acquire and re-process all seismic data originally provided by
Ecopetrol to Trinity for said purpose; and
(e) Integrate all new well control with the various existing
geophysical data bases including seismic data, gravity data, and
gamma ray survey information.
11. SETTLEMENT, DISCHARGE, AND RETENTION OF CAUSES OF ACTION
11.1 Potential Settlement with SEC. A potential settlement exists as
-------------------------------
between the Trustee and the SEC with respect to the SEC Enforcement Action filed
on December 8, 1997 against Trinity, in a nominal capacity, Sidney W. Sers ("Mr.
Sers"), Trinity Gas Colombia ("Trinity Colombia"), Patricia Ruth Sers, Amanda
Burton Sers, Timothy Allen Sers, and the Nakatosh Hotel, Inc., as defendants in
that litigation which pends before the United States District Court for the
Northern District of Texas, Fort Worth Division, Judge Terry Means presiding
(the "District Court") and has been assigned the case number of Civil Action No.
4-97-CV-1018Y (the "SEC Enforcement Action"). The potential settlement is
between the Debtor's Estate and the SEC and does not resolve whether the Sers
---
Group or a member thereof is entitled to any of the Frozen Funds.
The complaint in the SEC Enforcement Action requested a temporary
restraining order and a preliminary injunction against Trinity and Sers, the
appointment of a temporary equity receiver for Trinity, an order requiring the
repatriation and return of all funds and of all the defendants' assets held
outside the District Court's jurisdiction, a freeze order prohibiting Trinity,
Jubilee Oil & Gas Corporation, and Mr. Sers and his family from withdrawing or
transferring monies or securities from any bank or securities brokerage account,
an order freezing any securities of Trinity and funds received directly or
indirectly from the sale of Trinity and an accounting by each defendant of any
and all securities of Trinity and all monies received from the sale of
securities of Trinity. By reason of court orders entered in the SEC Enforcement
Action, certain funds approximating $3 million purportedly belonging to various
Sers family members, Trinity Colombia and/or Trinity USA have been frozen and
deposited into the District Court's registry (the "Frozen Funds"). In the
Bankruptcy Case, the SEC has filed its Proof of Claim, which has been assigned
Claim No. 15, in an unliquidated amount, based upon its pleadings in the SEC
Action, as to which the Trustee could file objections.
The Committee understands the Trustee and the SEC have been negotiating
towards a settlement to be set forth in a Stipulation of Compromise and
Settlement (the "Settlement"). Any such Settlement is likely to be conditioned
upon approval by the District Court, the Bankruptcy Court and the national
office of the SEC in Washington, D.C. The Equity Committee understands that the
Trustee and SEC intend to expeditiously file a Joint Motion to Approve
Settlement Stipulation (the "Settlement Motion") seeking such approval. Upon
the appropriate approval of the Settlement Motion, the SEC will file appropriate
papers to withdraw Claim No. 15 in the Bankruptcy Case with prejudice. In the
event the Settlement is not consummated and approved by the Bankruptcy Court and
District Court before December 1, 1998, the Reorganized Company may modify the
Settlement with the consent of the SEC or terminate the Settlement.
-42-
<PAGE>
The Equity Committee further understands that as part of the Settlement,
the Trustee, or if appropriate the Reorganized Company and/or Shareholders'
Trust, will file in the SEC Enforcement Action appropriate pleadings to align
the position of the Trustee with that of the SEC or otherwise advising the
District Court that the SEC and the Trustee are not adverse to one another. The
Estate will waive any claim it might assert that the Frozen Funds are, or ought
to be, property of the Estate. The Equity Committee also understands that the
SEC, subject to final approval of its national office, has agreed that the
Frozen Funds shall, after entry of final judgment in favor of the SEC, be
distributed to the Holders of Allowed Interests having selected the Equity
Option and to the Holders of Allowed Interests having selected the Cash Out
Option by the Disbursing Agent or Shareholders' Trust, net of reasonable
administrative expenses consistent with Article IV of the Plan. The SEC and the
Trustee have agreed in principle that the Frozen Funds should be placed, as
early as practicable, into the hands of the Disbursing Agent as provided in
Article VIII of the Plan.
11.2 General Discharge and Release from Claims and lnterests. Except
as otherwise expressly provided in this Plan, (i) Confirmation of this Plan
shall be binding upon all Holders of Claims and Interests, whether or not they
accept this Plan, and (ii) the distributions and rights afforded in this Plan
shall be in complete and full satisfaction, discharge and release, effective as
of the Effective Date, of all Claims against and Interests in the Debtor or any
of its respective assets or properties of any nature whatsoever. Commencing on
the Effective Date, except as expressly provided otherwise in this Plan, all
Holders of Claims and Interests shall be precluded forever from asserting
against the Debtor or the Reorganized Company or their respective assets or
properties any other or further liabilities, Liens, obligations, claims or
interests based on any action or omission, transaction or other activity or
security, instrument or other agreement of any kind or nature occurring, arising
or existing prior to the Effective Date, that was or could have been the subject
of any Claim or Interest whether or not Allowed. As of the Effective Date, the
Debtor shall be discharged and released from, and the Reorganized Company shall
hold all the assets and properties received or retained by it pursuant to this
Plan, free of all liabilities, Liens, claims and obligations or other claims of
any nature, including, but not limited to, equity interests, known or unknown,
except any Liens, liabilities, obligations or other claims created by or
preserved under this Plan or arising after the Effective Date. All legal or
other proceedings and actions seeking to establish or enforce liabilities,
Liens, claims, equity interests or obligations of any nature against the
Reorganized Company or assets or properties received or retained by the
Reorganized Company with respect to debts and obligations, if any, of the Estate
arising before the Effective Date shall be permanently stayed and enjoined,
except as otherwise specifically provided in this Plan. As of the Effective
Date, all Claims of Creditors and Interest Holders against the Debtor, the
Trustee, and the Committee shall be released and forever discharged.
11.3 Retention and Enforcement of Claims and Causes of Action and
Interests. Pursuant to section 1123(b)(3) of the Bankruptcy Code, the
Reorganized Company, as successor to the Debtor, shall have the exclusive right
to pursue, enforce, abandon or compromise any and all causes of action against
any Person and rights of the Debtor that arose before or after the Petition
Date, including, but not limited to, the rights and powers of a trustee and
debtor in possession, against any Person whatsoever, including, but not limited
to, all avoidance powers granted to the Debtor under the Bankruptcy Code and all
causes of actions and remedies granted pursuant to sections 502, 510, 541, 544,
545, 547 through 551 and 553 of the Bankruptcy Code, the Miscellaneous Actions,
Shareholders' Derivative Action and Avoidance Actions. The Reorganized Company
will retain the right to object to Claims and Interests after the Confirmation
Date in order to have the Bankruptcy Court estimate or determine the amount of
any Allowed Claim or Allowed Interest.
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<PAGE>
12. EXECUTORY CONTRACTS
12.1 Listed Executory Contracts. All known Executory Contracts and
unexpired leases identified in the lists of Executory Contracts filed by the
Debtor pursuant to Bankruptcy Rule 1007(b)(1), including, but not limited to,
all oil and gas leases, to the extent they can be considered as Executory
Contracts, will be deemed assumed as of the Confirmation Date pursuant to
section 1123 (b) (2) of the Bankruptcy Code without the necessity for the filing
of a motion. Included in that list, to the extent they can arguably be
considered Executory Contracts, are the oil and gas leases with respect to the
Debtor's oil and gas properties located in Texas, Colorado, Wyoming, and
Colombia, as more particularly described in the Disclosure Statement. Any
Executory Contracts or leases designated by the Shareholders' Committee and
filed with the Bankruptcy Court prior to commencement of the Confirmation
hearing, shall be deemed rejected upon Confirmation of this Plan. The well
equipment may be sold or abandoned to the operator of the leases in satisfaction
of the Debtor's obligations to pay its proportionate share of the costs of
plugging and abandoning the wells drilled pursuant to such leases. Assumed
leases and Executory Contracts which constitute Operating Assets shall be
retained by the Reorganized Company. Notwithstanding anything to the contrary
in the foregoing, all unexpired oil and gas leases, oil contracts, gas
contracts, farmout agreements and joint operating agreements to which any
Debtor-Subsidiary is a party will be assumed as of the Confirmation Date.
12.2 Other Executory Contracts. In the event (i) a prepetition
agreement is not listed in the Debtor's lists of Executory Contracts and is not
otherwise rejected, assumed or assumed and assigned, and (ii) the Bankruptcy
Court determines that such agreement is an Executory Contract, the Reorganized
Company shall file a motion within such time as the Bankruptcy Court shall
direct, seeking to assume or reject such agreement.
12.3 Rejection Damages Claims. Any Person claiming damages as a result
of the rejection of an Executory Contract pursuant to this Plan must file a
proof of Claim with the Bankruptcy Court within 30 days after entry of a Final
Order authorizing the Debtor's rejection of such Executory Contract or, in the
case of Executory Contracts rejected upon Confirmation of this Plan pursuant to
Section 1.18 of this Plan, within 30 days after the Confirmation Order becomes a
Final Order. A copy of the proof of Claim must be served on the Reorganized
Company and its counsel at the addresses set forth in Section 15.2 hereof. Any
Person who has a claim for damages as a result of the rejection of an Executory
Contract and who does not timely file a proof of Claim (i) shall have its Claim
discharged, (ii) shall not receive any distribution under this Plan in respect
of such Claim; and (iii) shall be forever barred from asserting that Claim
against any of the Debtor, the Reorganized Company, any successor to the Debtor
or any property of the Estate. This Plan and the notice and hearing with
respect to the rejection of an Executory Contract will constitute notice of the
date by which proofs of Claims for damages occasioned by the rejection of an
Executory Contract must be filed. Allowed Claims for rejection damages shall be
treated and provided for as Class 4 Claims.
-44-
<PAGE>
12.4 Survival of Indemnification Obligations. Except as set forth
below, the obligations of the Debtor to indemnify its former directors,
officers, agents and employees, and, if applicable, those of their subsidiaries
who were serving in such capacities as of or preceding the Petition Date
pursuant to various prepetition indemnification agreements, the charter and
bylaws of the Debtor, applicable law or otherwise, (i) shall be discharged and
not retained by Confirmation of this Plan; (ii) shall not survive the
---
reorganization contemplated by this Plan; (iii) shall not be performed or
---
honored by the Reorganized Company; and (iv) if considered as executory
contracts, such obligations or agreements to indemnify shall be rejected as of
the Confirmation Date within the meaning of Section 365 of the Bankruptcy Code.
12.5 Cure of Payment Defaults Under Assumed Executory Contracts. All
payments that may be required by section 365 (b) (1) of the Bankruptcy Code to
cure any default in payment under any Executory Contract that is assumed under
this Plan shall be made by the Reorganized Company, which has assumed such
Executory Contract in one of the following ways, as elected by the Reorganized
Company: (a) a lump sum cash payment no later than 30 days following the
Effective Date in the amount of any such payment, (b) payment of such amount in
equal quarterly installments commencing on the Effective Date and continuing for
one year or (c) as otherwise agreed to by the Reorganized Company, whichever is
obligated therefor, and the other party to such Executory Contract. In the
event of a dispute regarding (i) the amount of any such payments, (ii) the
ability of the Debtor that is a party thereto to provide adequate assurance of
future performance or (iii) any other matter pertaining to assumption, any
payments required by section 365(b)(1) of the Bankruptcy Code shall be made
following the entry of a Final Order resolving such dispute. In the event that
the Reorganized Company, if applicable, as successor to such Debtor, determines
that the resolution of such dispute by Final Order constitutes a material change
of circumstances that causes the Reorganized Company, as successor to the
Debtor, to alter its business judgment that an Executory Contract should be
assumed, the Reorganized Company, as successor to the Debtor, may file a motion
to reject such Executory Contract in the manner set forth in Section 365 of the
Bankruptcy Code.
I. OTHER TERMS OF THE PLAN
12.6 Revesting of the Estate in the Reorganized Company. Except as
otherwise expressly provided in this Plan or in the Confirmation Order, on the
Effective Date all of the property of the Estate, including any Avoidance
Actions, Miscellaneous Actions, or the Shareholders Derivative Action, and all
rights, title and interest in the Frozen Funds and Miscellaneous Actions of
Shareholders voting to accept the Plan and who select or are deemed to have
selected the Equity Option will vest in the Reorganized Company, and any
property of the Debtor which would otherwise be subject to escheat under
applicable non-bankruptcy law will become the property of the Reorganized
Company. Subject only to any express restrictions contained in this Plan, the
New charter and bylaws of the Reorganized Company, on and after the Effective
Date, will have the unrestricted right to (i) operate its business; (ii) use,
acquire and dispose of any of its property; (iii) issue securities and incur
indebtedness; (iv) otherwise conduct any business activity to the same extent as
if the Debtor has never commenced the Reorganization Case, free and clear of any
restrictions previously imposed by the Bankruptcy Code or the Bankruptcy Court;
and (v) indemnify its officers and board of directors.
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<PAGE>
12.7 Retention of Jurisdiction. Until the Bankruptcy Court closes the
Reorganization Case pursuant to Bankruptcy Rule 3022, the Bankruptcy Court shall
retain jurisdiction to: (i) require any party in interest to perform any act
necessary for the consummation of this Plan; (ii) hear and determine all Claims
against the Debtor or property of the Estate; (iii) estimate or determine the
allowance of Claims, if any, arising from the termination of any officer or
director of the Reorganized Company as provided herein; (iv) classify a Claim or
Interest of any Holder of such Claim or Interest and reexamine Claims and
Interests that have previously been Allowed for the purpose of determining the
voting requirements for Confirmation; (v) determine any objections to Claims and
resolve all disputes with respect to the allowance, estimation, and
subordination of a Claim or Interest; (vi) issue orders for examinations and
production of documents under Bankruptcy Rule 2004 and enforce or modify such
orders; (vii) modify this Plan pursuant to the Bankruptcy Code; (viii) hear and
determine all controversies, suits and disputes that may arise in connection
with the interpretation, enforcement or consummation of this Plan and the
documents executed in connection therewith; (ix) enter any orders, including,
but not limited to, injunctions, necessary to enforce the terms of this Plan and
the rights and powers of the Debtor and the Reorganized Company, as the case may
be; (x) enter an order concluding and terminating the Reorganization Case; (xi)
correct any defect, cure any omission and reconcile any inconsistency in this
Plan necessary to carry out the purposes and intent of this Plan; (xii)
determine issues concerning federal, state and local tax reporting and
withholding questions that may arise in connection with this Plan, including,
but not limited to, the determination of any tax liabilities through the
Effective Date pursuant to section 505 of the Bankruptcy Code; (xiii) enter any
orders approving assumption or rejection of Executory Contracts not assumed or
rejected as of the Effective Date as provided herein; (xiv) determine
applications for allowance of compensation and reimbursement of expenses and
other fees and expenses authorized to be paid or reimbursed under the Bankruptcy
Code or this Plan; (xv) determine applications, adversary proceedings and
contested or litigated matters that may be pending or may be filed by the
Reorganized Company or other party in interest within one (1) year after the
Effective Date; and (xvi) determine any other matters set forth in the
Confirmation Order or as permitted by the Bankruptcy Code. If the Bankruptcy
Court abstains from exercising or declines to exercise jurisdiction over any
matter arising under, arising in or related to the Reorganization Case,
including with respect to the matters set forth above, this Section 13.2 shall
not prohibit or limit the exercise of jurisdiction by any other court having
competent jurisdiction with respect to such subject matter.
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<PAGE>
12.8 Releases or Assignments of Holders of Claims or Interests.
13.3(a) Releases by Holders of Claims. As of the Effective Date, to the
--------------------------------
fullest extent permitted by applicable law, in consideration for the obligations
of the Disbursing Agent and Reorganized Company under the Plan and the New
Common Stock Cash, Rights, contracts, instruments, releases and other agreements
or documents to be delivered in connection with the Plan, each Holder of a Claim
under the Plan will be deemed, at the sole option of the Shareholders Committee
or Reorganized Company, either to forever release, waive and discharge or assign
to the Reorganized Company all claims, demands, debts, rights, causes of action
and liabilities (other than the right to enforce the Debtor's obligations under
the Plan and the contracts, instruments, releases and other agreements and
documents delivered thereunder or right of setoff or recoupment, if any),
whether liquidated or unliquidated, fixed or contingent, matured or unmatured,
known or unknown, foreseen or unforeseen, then existing or thereafter arising,
that are based in whole or in part on any act, omission or other occurrence
taking place on or prior to the Effective Date in any way relating to their
Claims against: (i) the Debtor, (ii) the Trustee, and (iii) the Shareholders'
Committee.
13.3(b) Holders of Certain Interests. As of the Effective Date, to the
--------------------------------
fullest extent permissible under applicable law, in consideration for the
obligations of the Debtor under the Plan, the Rights, contracts, instruments,
releases or other agreements or documents to be delivered in connection with the
Plan, each entity that has held, holds or may hold an Interest classified in
Classes 6 through 10 will be deemed either to forever release, waive and
discharge all claims, demands, debts, rights, causes of action and liabilities
(other than the right to enforce the Debtor's under the Plan and the contracts,
instrument, releases and other agreements and documents delivered thereunder),
whether liquidated or unliquidated, fixed or contingent, matured or unmatured,
known or unknown, foreseen or unforeseen, then existing or thereafter arising,
that are based in whole or in part on any act, omission or other occurrence
taking place on or prior to the Effective Date in any way relating to their
Interests in the Debtor, against: (i) the Debtor, (ii) the Trustee, and (iii)
the Shareholders' Committee.
12.9 Employment, Retirement, Indemnification and Other Agreements;
Retiree Health and Welfare Benefits. As of the Effective Date , the Reorganized
Company shall have the authority to (i) enter into employment, retirement,
indemnification and other agreements with its active directors, officers and
employees and (ii) implement retirement income plans, welfare benefit plans and
other plans in which directors, officers and other active employees of the
Reorganized Company may be eligible to participate.
12.10 Designation of Officers to Implement Plan. Pursuant to Nevada
General Corporation Laws and Section 1142 of the Bankruptcy Code, either the
Shareholders' Committee or the board of directors of the Reorganized Company
will appoint certain of their executive officers as designated officers of the
Reorganized Company, and anyone so appointed is authorized and directed to carry
out this Plan and the decrees and orders of the Bankruptcy Court relative hereto
and to take any proceedings and do any act provided in this Plan or directed by
such decrees and orders without further action by the directors or stockholders
of the Reorganized Company, and such proceedings and acts shall be effective as
if taken by unanimous action of the directors and stockholders of the
Reorganized Company.
12.11 Payment of United States Trustee's Fees. On the Effective Date,
the Reorganized Company will pay all fees to the United States Trustee as
required by applicable laws of the United States.
12.12 No Liability for Certain Tax Claims. Unless a taxing authority
has filed a proof of Claim, including but not limited to those proofs of Claim,
if any, deemed filed prior to the Bar Date, no Claim of such authority will be
Allowed for taxes, penalties or interest arising out of the failure of any of
the Debtor to have filed any income tax return, or arising out of an audit of
any return, for any tax period prior to the Petition Date.
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<PAGE>
12.13 Injunction. Except as provided in the Plan or Confirmation
Order, as of the Effective Date, all entities that have held, currently hold or
may hold a Claim against or an Interest in the Debtor are permanently enjoined
from taking any of the following actions on account of such Claims, or Interests
or rights: (a) commencing or continuing in any manner any action or other
proceeding against the Debtor, the Trustee, the Shareholders' Committee, the
Reorganized Company, or their respective property; (b) enforcing, attaching,
collecting or recovering in any manner any judgment, award, decree or order
against the Debtor, the Trustee, the Shareholders' Committee, or the Reorganized
Company or their respective property; (c) creating, perfecting or enforcing any
lien or encumbrance against the Debtor or the Reorganized Company, the Trustee,
and the Shareholders' Committee; and (d) commencing or continuing any action, in
any manner, in any place that does not comply with or is inconsistent with the
provisions of the Plan. As of the Effective Date, all entities that have held,
currently hold or may hold a claim, demand, debt, right, caus of action or
liability that is released pursuant to the Plan are permanently enjoined from
taking any of the following actions on account of such released claims, demands,
debts, rights, causes of action or liabilities: (a) commencing or continuing in
any manner any action or other proceeding; (b)enforcing, attaching, collecting
or recovering in any manner any judgment, award, decree or order; (c) creating,
perfecting or enforcing any lien or encumbrance; and (d) commencing or
continuing any action, in any manner in any place that does not comply with or
is inconsistent with the provisions of the Plan. By accepting distributions
pursuant to the Plan, each Holder of an Allowed Claim and Allowed Interest
receiving distributions pursuant to the Plan will be deemed to have specifically
consented to the injunctions set forth in this Section 13.8. With respect to
the issuance of New Common Stock and Rights, this injunction provided herein is
not meant to exceed the safe harbor provisions under Section 1125(e) of the
Bankruptcy Code.
13. CONDITIONS TO CONFIRMATION AND CONSUMMATION
13.1 Conditions to Effectiveness. Unless expressly waived in writing
by the Shareholders' Committee, effectiveness of this Plan is conditioned upon
the following:
(i) the Bankruptcy Court shall have entered a Confirmation Order in
form and substance acceptable to the Shareholders' Committee as to which no
stay is in effect; and
(ii) all other documents provided for under this Plan shall have been
executed and delivered to the parties thereto.
13.2 Notice of Effectiveness of the Plan. Within ten (10) Business Days
after the Effective Date, the Reorganized Company shall file with the Bankruptcy
Court a notice of the effectiveness of this Plan.
13.3 Conditions to Consummation. As a further condition to
consummation under Section 1101 of the Bankruptcy Code and prior to the
Reorganized Company's issuance of any New Common Stock and Rights pursuant to
this Plan, the SEC will issue a no-action response to the request of the
Shareholders' Committee or, if applicable, the Reorganized Company for a
no-action letter determining that Section 1145 of the Bankruptcy Code provides
an exemption from registration under Section 5 of the 1933 Securities Act for
the issuance and resale of such securities or, if that request is denied by the
SEC, the Reorganized Company will file a registration statement, or seek to
obtain an exemption from the application of Section 5 of the 1933 Securities Act
or submit other appropriate filings or undertake other actions with the SEC to
accomplish this result.
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<PAGE>
14. MISCELLANEOUS
14.1 Headings. The headings used in this Plan are inserted for
convenience only and neither constitute a portion of this Plan nor in any manner
affect the provisions of this Plan.
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<PAGE>
14.2 Method of Notice. All notices and other communications to the
Debtor or the Reorganized Company under this Plan shall be in writing and shall
be addressed as set forth below or to such other address as the Debtor or the
Reorganized Company, by notice to the other parties in interest, may designate
from time to time:
<TABLE>
<CAPTION>
Shareholders Committee Chapter 11 Trustee SEC
- ---------------------------- --------------------------- --------------------------------
<S> <C> <C>
200 East 1st St., Suite 202 Henry C. Seals Securities & Exchange Commission
Wichita, KS 67202 1701 River Run Road 801 Cherry Street -19th Floor
Attn: Dennis Hedke Suite 600 Fort Worth, Texas 76102
Fort Worth, Texas 76107 Attn: Chris Browne
with copies to: with copies to:
Andrews & Kurth Winstead, Sechrest & Minick
1717 Main St., Suite 3700 5400 Renaissance Tower
Dallas, Texas 75201 1201 Elm St.
Attn: Van Oliver Dallas, Texas 75270
Kirk Kennedy Attn: Daniel J. Stewart
(214) 659-4600 Josiah Daniel
(214) 659-4401 (Fax)
</TABLE>
14.3 Successors and Assigns. The rights and obligations of any Person
named or referred to in this Plan shall be binding upon, and shall inure to the
benefit of, the successors and assigns of such Person.
14.4 Severability. Should any provision in this Plan be determined to
be unenforceable in whole or in part, such determination shall in no way limit
or affect the enforceability and operative effect of any or all other provisions
of this Plan.
14.5 De Minimis Distributions. No cash payment of less than $25 shall
be made by the Reorganized Company to any Holder of a Claim unless a request
therefor is made in writing by such Holder to the Reorganized Company.
14.6 Recordable Order. The Confirmation Order shall be declared to be
in recordable form and shall be accepted by any recording officer for filing and
recording purposes without further or additional orders, certification or other
supporting documents.
14.7 Transfer Taxes. Pursuant to section 1146 of the Bankruptcy Code,
the issuance of Additional Common Stock and Warrants and the making or delivery
of any instruments of transfer under this Plan shall not be taxed under any law
imposing a stamp tax, transfer tax or other similar tax, and the Confirmation
Order shall so provide.
-50-
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
<S> <C> <C>
I. DEFINITIONS 1
II. CLASSIFICATION AND IDENTIFICATION OF IMPAIRMENT OF
CLAIMS AND INTERESTS 9
III. PROVISIONS FOR SATISFACTION OF CREDITOR CLAIMS 11
IV. TREATMENT OF SHAREHOLDER RIGHTS AND CLAIMS:SELECTION OF
EQUITY OPTION OR CASH OUT OPTION 13
V. DESCRIPTION AND DISTRIBUTION OF NEW COMMON STOCK 17
VI. ACCEPTANCE OR REJECTION OF PLAN 18
VII. MEANS OF IMPLEMENTING THIS PLAN 18
VIII. APPOINTMENT OF DISBURSING AGENT
IX. RIGHTS OFFERING 23
X. BUSINESS PLAN SUMMARY AND PROPOSED UTILIZATION OF
EXISTING OIL AND GAS INTERESTS 26
XI. SETTLEMENT, DISCHARGE, AND RETENTION OF CAUSES OF ACTION 28
XII. EXECUTORY CONTRACTS 30
XIII. OTHER TERMS OF THE PLAN 31
XIV. CONDITIONS TO CONFIRMATION AND CONSUMMATION 33
XV. MISCELLANEOUS 34
</TABLE>
-51-
<PAGE>
APPROVED BY THE DIVISION OF CORPORATIONS 119064 RECEIVED
AND COMMERCIAL CODE OF THE UTAH STATE 1986 FEB - 6 PM 1:05
DEPARTMENT OF BUSINESS REGULATION
ON THE 6TH DAY OF FEB A.D. 1986. DIVISION OF CORPORATIONS
--- --- ----- STATE OF UTAH
(STAMPED) (STAMPED)
ARTICLES OF INCORPORATION
OF
CELEBRITY LIMOUSINE, LTD.
We, the undersigned natural persons acting as incorporators of the
corporation under the Utah Business Corporations Act adopt the following
Articles of Incorporation for such corporation.
ARTICLE I
Name. The name of the corporation (hereinafter called
----
"Corporation") is CELEBRITY LIMOUSINE, LTD.
ARTICLE II
Period of Duration. The period of duration of the Corporation is
--------------------
perpetual.
ARTICLE III
Purposes and Powers. The purpose for which this Corporation is
---------------------
organized is to engage in the business of limousine rental and to engage in any
and all other lawful business.
ARTICLE IV
Capitalization. The Corporation shall have the authority to issue
--------------
100,000,000 shares of stock having a par value of one mil ($.001). All stock of
the Corporation shall be of the same class and shall have the same rights and
preferences. Fully paid stock of this Corporation shall not be liable for
further call or assessment. The authorized trading shares shall be issued at
the discretion of the Directors.
6037501107 (STAMPED)
<PAGE>
ARTICLE V
Commencement of Business. The Corporation shall not commence business
---------------------------
until at least One Thousand Dollars ($1,000) has been received by the
Corporation as consideration for the issuance of its shares.
ARTICLE VI
Initial Registered Office and Initial Registered Agent. The address of
-------------------------------------------------------
the initial registered office of the Corporation is 2586 East Wren Road, Salt
Lake City, Utah 84117, and the initial registered agent of the Corporation at
such address is Andrew A. Chudd.
ARTICLE VII
Directors. The Corporation shall be governed by a Board of
---------
Directors consisting of no less than three (3) and no more than nine (9)
directors. Directors need not be stockholders in the Corporation but shall be
elected by the stockholders of the Corporation. The number of Directors
constituting the initial Board of directors is three (3) and the name and post
office address of the persons who shall serve as Directors until their
successors are elected and qualified are:
Andrew A. Chudd
2586 East Wren Road
Salt Lake City, Utah 84117
John J. Penzari
2985 South 3165 East
Salt Lake City, Utah 84124
Margaret A. Chudd
2586 East Wren Road
Salt Lake City, Utah 84117
<PAGE>
ARTICLE VIII
Incorporators. The name and post office address of each
-------------
incorporator is:
Andrew A. Chudd
2586 East Wren Road
Salt Lake City, Utah 84117
John J. Penzari
3985 South 3165 East
Salt Lake City, Utah 84124
Margaret A. Chudd
2586 East Wren Road
Salt Lake City, Utah 84117
ARTICLE IX
Preemptive Rights. There shall be no preemptive right to acquire
------------------
unissued and/or treasury shares of the stock of the Corporation.
ARTICLE X
Voting of Shares. Each outstanding share of common stock of the
------------------
Corporation shall be entitled to one vote on each matter submitted to a vote at
the meeting of the stockholders. Each stockholder shall be entitled to vote his
or its share in person or by proxy, executed in writing by such stockholder, or
by his duly authorized attorney-in-fact. At each election of Directors, every
stockholder entitled to vote in such election shall have the right to vote in
person or by proxy the number of shares owned by him or it for as many persons
as there are directors to be elected and for whose election he or it has the
right to vote, but the shareholder shall have no right
to accumulate his or its votes with regard to such election.
<PAGE>
ARTICLE XI
Declaration Of Partial Liquidating Dividends. The Board of Directors
-----------------------------------------------
shall have the authority to declare, in its discretion, any dividends permitted
by law including dividends in cash and property and shall, in addition, have
authority to declare partial liquidating dividends by the Corporation without
the consent or vote of the shareholders.
/S/ ANDREW A. CHUDD /S/ ANDREW A. CHUDD
- -------------------------------- -----------------------------
Registered Agent
/S/ MARGARET A. CHUDD
- --------------------------------
/S/ JOHN J. PENZARI
- --------------------------------
STATE OF UTAH )
:
COUNTY OF SALT LAKE )
On the 4th day of February, 1986, personally appeared before me Andrew A.
---
Chudd, Margaret A. Chudd, John J. Penzari and Andrew A. Chudd and duly
acknowledged to me that they are the persons who signed the foregoing instrument
as incorporators and registered agent, respectively, and that they have read the
foregoing instrument and know the contents thereof and that the same is true of
their own knowledge except as to those matters upon which they operate on
information and belief and as to those matters believe them to be true.
/S/ KELLIE HUMIS
------------------------------
NOTARY PUBLIC
Residing in Salt Lake City, UT
My Commission Expires:
7-26-87 (SIGNED)
--------------------
<PAGE>
FILED FILING FEE: $255.00
IN THE OFFICE OF THE DD RECEIPT #C36736
SECRETARY OF STATE OF THE NEVADA AGENCY & TRUST COMPANY
STATE OF NEVADA 50 W. LIBERTY STREET #980
DEC 01 1989 RENO, NV 89501
(STAMPED)
ARTICLES OF INCORPORATION
OF
LIMOUSINES LIMITED
* * * * * * *
The undersigned, acting as incorporator, pursuant to the provisions of the
laws of the State of Nevada relating to private corporations, hereby adopts the
following Articles of Incorporation:
ARTICLE ONE. (NAME). The name of the corporation is:
-------------
LIMOUSINES LIMITED
ARTICLE TWO. [LOCATION]. The address of the corporation's principal
------------
office is 50 West Liberty, Suite 980, City of Reno, County of Washoe, State of
Nevada 89501. The initial agent for service of process at that address is NEVADA
AGENCY AND TRUST COMPANY.
ARTICLE THREE. [PURPOSES). The purposes for which the corporation is
--------------
organized are to engage in any activity or business not in conflict with the
laws of the State of Nevada or of the United States of America, and without
limiting the generality of the foregoing, specifically:
I. (OMNIBUS). To have and to exercise all the powers now or
hereafter conferred by the laws of the State of Nevada upon corporations
organized pursuant to the laws under which the corporation is organized and
any and all acts amendatory thereof and supplemental thereto.
II. (CARRYING ON BUSINESS OUTSIDE STATE). To conduct and carry on its
business or any branch thereof in any state or territory of the United
States or in any foreign country in conformity with the laws of such state,
territory, or foreign country, and to have and maintain in any state,
territory, or foreign country a business office, plant, store or other
facility.
<PAGE>
III. (PURPOSES TO BE CONSTRUED AS POWERS). The purposes specified
herein shall be construed both as purposes and powers and shall be in no
wise limited or restricted by reference to, or inference from, the terms of
any other clause in this or any other article, but the purposes and, powers
specified in each of the clauses herein shall be regarded as independent
purposes and powers, and the enumeration of specific purposes and powers
shall not be construed to limit or restrict in any manner the meaning of
general terms or of the general powers of the corporation; nor shall the
expression of one thing be deemed to exclude another, although it be of
like nature not expressed.
ARTICLE FOUR. (CAPITAL STOCK). The corporation shall have
-------------
authority to issue an aggregate of ONE HUNDRED MILLION (100,000,000) common
shares, par value ONE MIL. ($0.001) per share, for a total capitalization of
$100,000.
The holders of shares of capital stock of the corporation shall be entitled
to pre-emptive or preferential rights to subscribe to any unissued stock or any
other securities, which the corporation may now or hereafter he authorized to
issue.
The corporation's capital stock may he issued and sold from time to time
for such consideration as may be fixed by the Board of Directors, provided that
the consideration so fixed is not less than par value.
The stockholders shall possess cumulative voting rights at all shareholders
meetings called for the purpose of electing a Board of Directors.
ARTICLE FIVE. (DIRECTORS). The affairs of the corporation
-------------
shall be governed by a Board of Directors of not less than one (3) persons. The
name and address of the first Board of Directors is:
NAME ADDRESS
---- -------
ALEXANDER H. WALKER, JR. 245 N JIMMY DOOLITTLE RD
SALT LAKE CITY, UT 84116
TIMOTHIA ANN KENT 620 18TH AVE
SALT LAKE CITY, UT 84103
ALEXANDER H. WALKER, III 3851 BIRCH DR.
SALT LAKE. CITY, UT 84109
ARTICLE SIX. (ASSESSMENT OF STOCK). The capital stock of the
------------
corporation, after the amount of the subscription price or par value has been
paid in, shall not be subject to pay debts of the corporation, and no paid up
stock and no stock issued as fully paid up shall ever be assessable or assessed.
<PAGE>
ARTICLE SEVEN. (INCORPORATOR). The name and address of the
---------------
incorporator of the corporation is as follows:
NAME ADDRESS
---- -------
AMANDA E. WALKER SUITE #980
50 WEST LIBERTY STREET
RENO, NEVADA 89501
ARTICLE EIGHT. (PERIOD OF EXISTENCE). The period of corporation
---------------
shall be perpetual.
ARTICLE NINE. (BY-LAWS). The initial By-Laws of the corporation
-------------
shall be adopted by its Board of Directors. The power to alter, amend, or repeal
the By-Laws, or to adopt new By-Laws, shall be vested in the Board of Directors,
except as otherwise may he specifically provided in the By-Laws.
ARTICLE TEN. (STOCKHOLDERS= MEETINGS). Meetings of stockholders
------------
shall be held at such place within or without the State of Nevada as may be
provided by the By-Laws of the corporation. Special meetings of the stockholders
may be called by the President or any other executive officer of the
corporation, the Board of Directors, or any member thereof, or by the record
holder or holders of at least ten percent (10%) of all shares entitled to vote
at the meeting. Any action otherwise required to be taken at a meeting of the
stockholders, except election of directors, may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by
stockholders having at least a majority of the voting power.
ARTICLE ELEVEN. (CONTRACTS OF CORPORATION). No contract or other
---------------
transaction between the corporation and any other corporation, whether or not a
majority of the shares of the capital stock of such other corporation is owned
by this corporation, and no act of this corporation shall in any way be affected
or invalidated by the fact that any of the directors of this corporation are
pecuniary or otherwise interested in, or are directors or officers of such other
corporation. Any director of this corporation, individually, or any firm of
which such director may be a member, may be a part to, or may be pecuniary or
otherwise interested in any contract or transaction of the corporation;
provided, however, that the fact that he or such firm is so interested shall be
disclosed or shall have been known to the Board of Directors of this
corporation, or a majority thereof and any director of this corporation who is
also a director or officer of such other corporation, or who is so interested,
may be counted in determining the existence of a quorum at any meeting of the
Board of
<PAGE>
Directors of this corporation that shall authorize such contract or transaction,
and may vote thereat to authorize such contract or transaction, with like force
and effect as if he were not such director or officer of such other corporation
or not so interested.
IN WITNESS WHEREOF, the undersigned incorporator has hereunto fixed her
signature at Reno, Nevada, this 20th day of November, 1989.
/S/ AMANDA E. WALKER
---------------------
STATE OF NEVADA )
: SS.
COUNTY OF WASHOE )
On the 20th day of November, 1989 before me, the undersigned, a Notary
Public, personally appeared AMANDA E. WALKER, known to me to be the person
described in and who executed the foregoing instrument, and who acknowledged to
me that she executed the same freely and voluntarily and for the uses and
purposes therein mentioned.
IN WITNESS WEREOF, I have hereunto set my hand and affixed my official seal
the day and year in this certificate first above written.
/S/ Sallee I. Calico(SIGNED)
----------------------------
NOTARY PUBLIC
RESIDING IN WASHOE COUNTY.
MY COMMISSION EXPIRES:
______(dated)_____________
<PAGE>
FILING FEE: $75.00 DF C40113
NEVADA AGENCY & TRUST CO.
50 W. LIBERTY ST., #980
RENO, NV 89501
MERGER AGREEMENT
----------------
BETWEEN
CELEBRITY LIMOUSINE, LTD.
A UTAH CORPORATION
AND
LIMOUSINES LIMITED
A NEVADA CORPORATION
WITNESS the terms of the Merger Agreement by and between CELEBRITY
LIMOUSINE, LTD., A Utah corporation, hereinafter referred to as "the Utah
corporation," and LIMOUSINES LIMITED, a Nevada corporation, hereinafter
referred to as "the Nevada corporation."
RECITALS:
1. (IDENTITY OF PARTIES)
Celebrity Limousine, Ltd., a Utah corporation, was organized in accordance
with the laws of the State of Utah on February 6, 1986 and has an authorized
capitalization of 100,000,000 shares of stock with a par value of $0.001 per
share, of which there are issued and outstanding 100,000,000 shares.
Limousines Limited, a Nevada corporation, was incorporated in accordance with
the laws of the State of Nevada on December 1, 1989, with a capitalization of
100,000,000 shares of common stock, having a par value of $0.001 per share,
which common stock is non-assessable. There are 100,000 shares of common stock
outstanding.
2. (ASSUMPTION OF ASSETS SUBJECT TO LIABILITY)
Limousines Limited, a Nevada Corporation, when this Merger Agreement shall
become effective, as is hereinafter provided, shall assume all of the assets and
all of the liabilities standing on the books and records of Celebrity Limousine,
a Utah corporation. As a result thereof, the Utah corporation shall no longer
be engaged in business, having been merged into the Nevada corporation.
<PAGE>
3. (REQUIREMENTS OF NEVADA LAW)
Pursuant to the laws of the State of Nevada, a majority of the
directors of a Nevada corporation may enter into a Merger Agreement setting
forth the terms and conditions of the proposed merger, including a statement of
the capitalization, the number of shares of Capital Stock of the surviving
Nevada corporation, a statement of the manner of conversion of the shares and
assets of the Utah corporation, a statement of the method of carrying the terms
of the Merger Agreement into effect, and such other details as may be deemed
necessary to disclose all matters effective in a merger. The laws of the State
of Nevada further provide that notice of a proposed merger shall be given by
mail to the last known address of each stockholder, not less than ten (10) days
prior to such meeting. Such notice shall contain the time and place of meeting.
The laws of the State of Nevada provide further that notice of the proposed
merger may be waived by the stockholders. By the further terms of the laws of
the State of Nevada, it is specified that if a majority of the outstanding stock
of the Nevada corporation shall be voted in favor of the merger, the Merger
Agreement shall be declared adopted. The vote thereon shall be certified on the
Merger Agreement by the President or Vice President and by the Secretary or
Assistant Secretary of the Nevada corporation. The Merger Agreement shall be
signed and acknowledged by the President or Vice President and by the Secretary
or Assistant Secretary of the Nevada corporation, whereupon the same shall be
filed in the office of the Secretary of State of Nevada. Upon the recordation in
the office of the Secretary of State of Nevada, the merger shall, insofar as
Nevada law is concerned, be deemed to be consummated.
4. (REQUIREMENTS OF UTAH LAW)
The action contemplated hereby is deemed under Utah law to be a merger. In
connection with a merger, Utah law requires that the Board of Directors of the
Utah corporation shall by resolution approve and adopt the Plan of Merger. The
Plan of Merger shall specify the names of the corporations proposing to merge.
The name of the surviving corporation, the terms and conditions of the merger,
manner and basis of converting the shares of the retiring corporation into
<PAGE>
shares of the surviving corporation, a statement of any changes in the Articles
of Incorporation of the surviving corporation, to the extent that they are the
result of such merger, and such other provisions with respect to the merger as
are deemed necessary or desirable shall also be specified in the Plan of Merger.
The statutes of the State of Utah further provide that the Board of Directors
shall by resolution direct that the Plan of Merger be submitted to a vote of the
shareholders, that written or printed notice shall be given to each shareholder
of record no less than twenty (20) days prior to such meeting, and that such
notice shall state the purpose of the meeting, as well as the place, day and
hour thereof, and shall be delivered either personally or by deposit in the
United States mail, properly addressed, postage prepaid. Utah law further
requires that a copy of or a summary of a Plan of Merger shall be included or
enclosed with such notice. The laws of the State of Utah further specify that
the Plan of Merger shall be deemed to have been approved upon receiving the
affirmative vote of the holders of at least a majority of the outstanding
shares, and such laws specify that upon such approval, Articles of Merger shall
be executed in duplicate by the President or Vice President and by the Secretary
or Assistant Secretary, and shall be verified by one of such officers. Such
Articles of Merger shall record or set forth the Plan of Merger, the number of
shares outstanding with respect to each corporation, and the number of shares
voted for and against the Plan of Merger. It is further required that such
duplicate original be delivered to the Division of Corporations and Commercial
Code of the State of Utah, and upon the subsequent issuance of a Certificate of
Merger by the Division of Corporations and Commercial Code, the corporations
party to the merger shall become a single corporation, the separate existence of
the merged corporation shall cease, and the surviving corporation shall have all
the rights, privileges, immunities, powers, properties and assets and shall be
subject to the duties, liabilities, debts and obligations of both corporations.
<PAGE>
NOW, THEREFORE, AND IN THE CONSIDERATION OF THE FOREGOING RECITALS, AND THE
MUTUAL COVENANTS HEREINAFTER SET FORTH, LIMOUSINES LIMITED, A NEVADA
CORPORATION, AND CELEBRITY LIMOUSINE, LTD., A UTAH CORPORATION, DESIRE TO MERGE,
AS THAT TERM IS USED IN THE LAWS OF THE STATES OF UTAH AND NEVADA, DO HEREBY,
ACTING THROUGH A MAJORITY OF THE BOARD OF DIRECTORS OF EACH SUCH CORPORATION,
AGREE TO MERGE AS FOLLOWS:
5. (STATEMENT UNDER NEVADA LAW)
The terms and conditions of the proposed merger of Celebrity Limousine, Ltd., a
Utah corporation, into Limousines Limited, a Nevada corporation, shall be as
follows:
(a) The Articles of Incorporation of Limousines Limited, a Nevada
corporation, which are on file with the Secretary of State of Nevada, shall be
the Articles of Incorporation of the surviving corporation.
(b) The shares of Celebrity Limousine, Ltd., a Utah corporation, will
be exchanged on a basis of forty (40) shares of the Utah corporation
being converted into one (1) share of the Nevada corporation.
<PAGE>
6. (STATEMENT UNDER UTAH LAW) The Plan of Merger shall be as follows:
(a) The names of the corporations proposing to merge: Celebrity
Limousine, Ltd., a Utah corporation, and Limousines Limited, a Nevada
corporation, which is designated as the surviving corporation.
(b) The conversion of the shares of the Utah corporation into that of
the surviving Nevada corporation will be that forty (40) shares of the Utah
corporation will be converted into one (1) share of the Nevada corporation.
(c) The surviving corporation, Limousines Limited, agrees that it may
be served with process in the State of Utah in any proceeding for the
enforcement of any obligation to which the Utah corporation was a party with
regard to the merger into the Nevada corporation and Limousines Limited, a
Nevada corporation, further agrees that it may be served with process in the
State of Utah in any proceeding for the enforcement of the rights of a
dissenting shareholder of the Utah corporation against the Nevada corporation.
(d) Limousines Limited, a Nevada corporation, does hereby irrevocably
appoint the Director of the Division of Corporations and Commercial Code of Utah
as its agent to accept service of process in any such proceeding heretofore
described in Paragraph (c) above.
<PAGE>
(e) Limousines Limited, a Nevada corporation, agrees, as the surviving
corporation, to promptly pay to the dissenting shareholders of Celebrity
Limousine, Ltd., a Utah corporation, the amount, if any, to which those
dissenting shareholders shall be entitled under the provisions of the Utah
Business Corporation Act, with respect to the rights of such dissenting
shareholders of the Utah corporation.
(f) The assets of the Utah corporation, upon this Merger Agreement
becoming finally effective, will be the assets of the surviving Nevada
corporation.
7. (AGREEMENT TO MERGE)
The Parties hereby agree that the Utah corporation shall be merged into the
Nevada corporation, and they do hereby further specifically agree, in order to
accomplish such results, as follows:
<PAGE>
(a) Each of the parties hereto shall prepare and cause to be mailed
such notices as may be required or be desirable pursuant to the laws of the
States of Nevada and Utah. And in addition, they shall see to the mailing to
the stockholders of the parties of all information which may be reasonably
necessary or desirable in order to permit such stockholders to reach an
intelligent and informed decision with respect to the proposed merger. The
expense of all such notices, reports and information and of the mailing of the
same shall be borne by the party with respect to which the material is prepared
or to whose stockholders the material is submitted, as the case may be, save
only that neither party shall be charged by the other for the costs of preparing
any reports or documents heretofore published and available and deemed desirable
for such distribution. Each of the parties hereto shall proceed with all due
diligence, but strictly in cooperation with the other, to secure the approval of
the Merger Agreement by the requisite vote of the stockholders of the parties
and shall thereafter see to the filing of all required notices and undertakings
of every kind and character, pursuant to the laws of the States of Nevada and
Utah.
(b) Upon the completion of the final steps necessary to permit this
Merger Agreement to become effective, the same shall forthwith become effective
wherein Limousines Limited, a Nevada Corporation, shall take over all of the
assets and assume all of the liabilities of Celebrity Limousine, Ltd., a Utah
corporation, and the stockholders of the Utah corporation shall surrender their
stock certificates in exchange for Common Stock of the Nevada corporation with
forty (40) shares of the Utah corporation being exchanged for one (1) share of
the surviving Nevada corporation with the shares of the Utah corporation being
surrendered for cancellation and retirement.
8. (EXPENSES AND FEES)
The surviving Nevada corporation shall discharge all expenses in connection
with the calling and the convening of the special stockholders' meetings to
ratify and approve the Merger Agreement.
<PAGE>
9. (DIRECTORS AND OFFICERS)
(a) On the effective date of this merger, the Board of Directors of
the surviving Nevada corporation shall consist of three (3) directors. The terms
of office of such members of the Board of Directors shall be until the next
annual meeting of stockholders of the surviving corporation, after the effective
date of the merger and until their successors shall be elected and shall have
qualified. The names and addresses of such directors are as follows:
Alexander H. Walker, Jr.
245 North Jimmy Doolittle Road
Salt Lake City, Utah 84116-3730
Timotha Ann Kent
620 18th Avenue
Salt Lake City, Utah 84103
Alexander H. Walker, III
3851 Birch Drive
Salt Lake City, Utah 84109
(b) Upon the effective date of the merger, there shall be three (3)
officers of the surviving Nevada corporation, who are presently holding these
positions. These officers, each of whom shall hold office until his successor
shall be duly elected or appointed and shall have qualified, or until his
earlier death, resignation or removal, and their respective offices and
addresses are as follows:
President and Treasurer
-------------------------
Alexander H. Walker, Jr.
245 North Jimmy Doolittle Road
Salt Lake City, Utah 84116-3730
<PAGE>
Vice President
---------------
Timotha Ann Kent
620 18th Avenue
Salt Lake City, Utah 84103
Secretary
---------
Alexander H. Walker, III
3851 Birch Drive
Salt Lake City, Utah 84109
10. (DISSENTING SHAREHOLDERS)
The surviving Nevada corporation shall comply with the provisions of
applicable law, with the appraisal of and payment for stock of stockholders
objecting to the merger, and the surviving Nevada corporation agrees further
that payments for such stock and the cost of all proceedings in connection with
all matters necessary to be performed in connection therewith will be at its
expense.
11. (ABANDONMENT OF MERGER)
Anything herein to the contrary notwithstanding, this merger may be
terminated and the merger provided herein abandoned at any time prior to the
effective date of the merger, whether before or after such action of the
stockholders, pursuant to resolution adopted by the Board of Directors of either
party hereto. In the event of the termination or abandonment of this Agreement
of Merger, the same shall become wholly void and of no effect and there shall be
no liability on the part of either party hereto, or their respective Boards of
Directors or the stockholders.
<PAGE>
12. (EXECUTION)
This Agreement of Merger may be executed in any number of counterparts, all
of which together shall constitute one original Agreement of Merger.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their duly authorized officers in each case by authority of the
Board of Directors of each corporation, and have caused their seals to be hereto
affixed and a majority of the Board of Directors of each corporation have
executed this Agreement as of the day and year set forth below.
DATED this 10th day of January, 1990.
ATTEST: CELEBRITY LIMOUSINE, LTD.
a Utah Corporation
/s/ Alexander H. Walker, III /s/ Alexander H. Walker, Jr.
- ---------------------------- ----------------------------
Alexander H. Walker, III Alexander H. Walker, Jr.
Secretary President
ATTEST: LIMOUSINES LIMITED
a Nevada Corporation
/s/ Alexander H. Walker, III /s/ Alexander H. Walker, Jr.
- ---------------------------- ----------------------------
Alexander H. Walker, III Alexander H. Walker, Jr.
Secretary President
CELEBRITY LIMOUSINE, LTD LIMOUSINES LIMITED
A Utah Corporation A Nevada Corporation
Board of Directors Board of Directors
/s/ Alexander H. Walker, Jr. /s/ Alexander H. Walker, Jr.
- ---------------------------- ----------------------------
Alexander H. Walker, Jr. Alexander H. Walker, Jr.
/s/ Timotha Ann Kent /s/ Timotha Ann Kent
- ---------------------------- ----------------------------
Timotha Ann Kent Timotha Ann Kent
<PAGE>
/s/ Alexander H. Walker, III /s/ Alexander H. Walker, III
- ---------------------------- ----------------------------
Alexander H. Walker, III Alexander H. Walker, III
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
The undersigned, a Notary Public, does hereby certify that on this 10th day
of January, 1990, personally appeared before me Alexander H. Walker, Jr., who
being by me first duly sworn, declared that he is the President of CELEBRITY
LIMOUSINE, LTD., a Utah corporation; and Alexander J Walker, III, who being by
me first duly sworn, declared that he is the Secretary of CELEBRITY LIMOUSINE,
LTD., a Utah corporation: that they signed the foregoing document as President
and Secretary of the corporation, and that the statements therein contained are
true.
IN WITNESS WHEREOF I have set my hand and seal this 10th day of January, 1990.
MARY K. ERASMUS (SIGNED)
---------------------------
Notary Public
Residing in Salt Lake City, Utah
My Commission Expires:
1/12/93 (HAND WRITTEN)
- -----------------------
<PAGE>
CERTIFICATION
-------------
STATE OF UTAH )
) ss.
COUNTY OF SALT LAKE )
ALEXANDER H. WALKER, JR. and ALEXANDER H. WALKER, III, after being first
duly sworn, depose and say:
1. That Alexander H. Walker, Jr., is the duly elected and acting
President and Alexander H. Walker, III is the duly elected and acting Secretary
of CELEBRITY LIMOUSINE, LTD., a Utah corporation.
2. That on Thursday, January 11, 1990, an officer of Nevada Agency and
Trust Company, the duly appointed and acting transfer agent, caused to be mailed
to each and every stockholder of Celebrity Limousine, Ltd., a Utah corporation,
as their names and addresses appeared on the books and records of the
corporation at the close of business on Wednesday, January 10, 1990, a Notice of
a Special Meeting of Stockholders of Celebrity Limousine, Ltd., to be held and
convened on Wednesday, January 31, 1990 at 9:00 oclock a.m., local time, at 50
West Liberty Street, Suite 980, Reno, Nevada. That a Proxy and Proxy Statement
were also mailed to the stockholders.
3. That the Special Meeting of Stockholders was duly convened and held on
Wednesday, January 31, 1990 at 9:00 a.m., local time, at 50 West Liberty Street,
Suite 980, Reno, Nevada at which time there were present in person or
represented by Proxy 91,713,733 shares of the 100,000,000 shares outstanding of
---------- -----------
the common stock, par value $0.001 per share. There were 91,558,733 shares
----------
voting FOR the adoption of the resolution providing for the merger of Celebrity
Limousine, Ltd., a Utah corporation, into Limousines Limited, a Nevada
corporation, which is in excess of a majority of the outstanding stock of
Celebrity Limousine, Ltd., a Utah corporation, and 155,000 shares voted AGAINST
-------
the proposal.
<PAGE>
THEREUPON, the Merger Agreement between Celebrity Limousine, Ltd., a Utah
corporation, into Limousines Limited, a Nevada corporation, was duly adopted.
DATED: January 31, 1990.
CELEBRITY LIMOUSINES, LTD.
/s/ Alexander H. Walker, Jr.
----------------------------
Alexander H. Walker, Jr.
President
/s/ Alexander H. Walker, III
----------------------------
Alexander H. Walker, III
Secretary
Subscribed and sworn to before me this 31st day of January, 1990.
Mary Kay Erasmus (signed)
----------------------------
Notary Public
Residing in Salt Lake City, Utah
My Commission Expires:
1/12/93 (hand written)
------------------------
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
The undersigned, a Notary Public, does hereby certify that on this 10th day
of January, 1990, personally appeared before me Alexander H. Walker, Jr., who
being by me first duly sworn, declared that he is the President of LIMOUSINES
LIMITED, a Nevada corporation; and Alexander H. Walker, III, who being by me
first duly sworn, declared that he is the Secretary of Limousines Limited, a
Nevada corporation; that they signed the foregoing document as President and
Secretary of the corporation, and that the statements therein contained are
true.
IN WITNESS WHEREOF I have set my hand and seal this 10th day of January,
1990.
(signed)
----------------------------
Notary Public
Residing in Salt Lake City, Utah
My Commission Expires:
1/12/93
-------
<PAGE>
CERTIFICATION
-------------
STATE OF UTAH )
) ss.
COUNTY OF SALT LAKE )
ALEXANDER H. WALKER, JR. and ALEXANDER H. WALKER, III, after being first
duly sworn, depose and say:
1. That Alexander H. Walker, Jr. is the duly elected and acting
President and Alexander H. Walker, III is the duly elected and acting Secretary
of LIMOUSINES LIMITED, a Nevada corporation.
2. That on Wednesday, January 31, 1990, a Special Meeting of
Stockholders of Limousines Limited was duly held and convened at 9:00 a.m.,
local time, at 50 West Liberty Street, Suite 980, Reno, Nevada at which time
there were present all of the outstanding stock of the corporation, namely
100,000 shares of the capital stock of Limousines Limited. Notice of the
Special Meeting of Stockholders had been waived by the only stockholders,
Alexander H. Walker, Jr. and Cecil Ann Walker, in accordance with the provisions
of Section 78.370(6) of the Nevada Revised Statutes.
3. That at the Special Meeting of Stockholders 100,000 shares of
capital stock voted FOR the adoption of the resolution providing for the merger
of Celebrity Limousine, Ltd., a Utah corporation, into Limousines Limited, a
Nevada corporation, and -0- shares voted AGAINST the proposal.
<PAGE>
THEREUPON, the Merger Agreement between Limousines Limited, a Nevada
corporation, and Celebrity Limousine, Ltd., a Utah corporation, was duly
adopted.
DATED: January 31, 1990.
LIMOUSINES, LIMITED
/s/ Alexander H. Walker, Jr.
----------------------------
Alexander H. Walker, Jr.
President
/s/ Alexander H. Walker, III
----------------------------
Alexander H. Walker, III
Secretary
Subscribed and sworn to before me this 31st day of January, 1990.
Mary K. Erasmus (signed)
---------------------------
Notary Public
Residing in Salt Lake City, Utah
My Commission Expires:
1/12/93 (written)
- ------------------
<PAGE>
AGREEMENT OF MERGER
MERGING
CELEBRITY LIMOUSINE, LTD.
(UTAH) NOT QUAL.
INTO
LIMOUSINES LIMITED 10137-89
(NEVADA)
REQUESTED BY;
NEVADA AGENCY & TRUST COMPANY
50 W. LIBERTY ST., #980
RENO, NV 89501
FILE NUMBER: 10137-89
FILE DATE: 1/31/90
FILING FEE: $75.00
10137-89 GS FILING FEE: $75.00 DF
3 CERTS. $15.00
EXPEDITE $50.00
-------
$140.00
<PAGE>
FILED (STAMPED) FILING FEE: $75.00 DF C82440 EXPEDITE #E042459
THE OFFICE OF THE NEVADA AGENCY & TRUST COMPANY
SECRETARY OF STATE OF THE ATTN: MARGARET OLIVER
STATE OF NEVADA 50 W. LIBERTY ST., STE. 880
RENO, NV 89501
JUL 09 1993
CHERYL A. LAU SECRETARY OF STATE RENO/CARSON MESSENGER SERVICE
10137-89
--------
AMENDMENT
TO THE ARTICLES OF INCORPORATION OF
LIMOUSINES LIMITED
* * * * *
Pursuant to the provision of Section 78.385 of the Nevada Revised Statutes,
LIMOUSINES LIMITED, a Nevada corporation, adopts the following amendment to its
Articles of Incorporation:
1. The undersigned hereby certify that on the 9th day of July, 1993, a
Special Meeting of the Board of Directors was duly held and convened at which
there was present a quorum of the Board of Directors noting throughout all
proceedings, and at which time the following resolution was duly adopted by
the Board of Directors:
BE IT RESOLVED: That the Secretary of the corporation, is
hereby ordered and directed to obtain the written consent of
stockholders owning at least a majority of the voting power of the
outstanding stock of the corporation for the following purpose:
To amend Article One to provide that the name of the
corporation shall be changed from Limousines Limited to TRINITY
GAS CORPORATION.
2. Pursuant to the provisions of Section 78.320 of the Nevada Revised
Statutes, a majority of the stock-
<PAGE>
holders holding 750,000 shares of the 1,273,718 shares outstanding of Limousines
Limited gave their written consent to the adoption of the Amendment to Article
One of the Articles of Incorporation as follows:
ARTICLE ONE. (NAME). The name of the corporation
------- ---
is:
TRINITY GAS CORPORATION
IN WITNESS WHEREOF, the undersigned, being the
vice-president and assistant secretary of Limousines Limited, a Nevada
corporation, hereunto affixe their signatures this 9th day of July, 1993.
LIMOUSINES LIMITED
By Alexander H. Walker (SIGNED)
-------------------------------------
Alexander H. Walker, Jr.
President
By Cecil Ann Walker (SIGNED)
------------------------------------
Cecil Ann Walker
Secretary
RECEIVED (STAMPED)
JUL 09 1993
1:00 Diane (SUGNED)
Sescretary of State
<PAGE>
STATE OF NEVADA )
:ss
COUNTY OF WASHOE )
On the 9th dav of July, 1993, before me, the undersigned, a Notary Public,
personally appeared ALEXANDER H. WALKER, JR., President and CECIL ANN WALKER,
Secretary of Limousines Limited, a Nevada corporation, known to be the persons
described in and who executed the foregoing instrument, and who
acknowledged to me that they executed the same freely and voluntarilv and for
the uses and purposes therein mentioned.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year first above written.
Michelle R. Killgore (SIGNED
----------------------------------------
NOTARY PUBLIC
Residing in Washoe County (HAND WRITTEN)
----------------------------------------
MY COMMISSION EXPIRES:
July 16, 1995 (HAND WRITTEN)
- ------------------------------
RECEIVED (STAMPED)
JUL 0 9 1993
1:00 DIANE (HAND WRITTEN)
SECRETARY OF STATE
<PAGE>
BYLAWS
OF
TRINITY GAS CORPORATION, INC.
A NEVADA CORPORATION
(THE CORPORATION)
<PAGE>
BYLAWS
ARTICLE I.
STOCKHOLDER MEETINGS
1.1 ANNUAL MEETINGS. An annual meeting of the stockholders for the
-----------------
purpose of electing directors and for the transaction of such other business as
may be brought before the meeting shall be held at such time and place, within
or without the State of Nevada, as may be designated by the Board of Directors.
1.2 SPECIAL MEETINGS. Special meetings of the stockholders may be
------------------
called for any purpose or purposes at any time by the President, a majority of
the Board of Directors, or a majority of a committee of the Board of Directors
which has been duly designated by the Board of Directors and whose powers and
authority, as expressly provided in a resolution of the Board of Directors,
include the power to call such meetings: but such special meetings may not be
called by any other person or persons.
1.3 NOTICE OF MEETINGS. Whenever stockholders are required or
---------------------
authorized to take any action at a meeting, a written notice of the meeting
shall be given which shall state the place, date and hour of the meeting, and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called. Unless otherwise provided by law, the written notice of any meeting
shall be given, either by personal delivery or by mailing, not less than ten
(10) nor more than sixty (60) days before the date of the meeting to each
stockholder entitled to vote at such meeting. If mailed, such notice shall be
deemed to be given when deposited in the mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the Corporation. An
affidavit of the Secretary of the
-2-
<PAGE>
Corporation that the notice required by this Section has been given shall, in
the absence of fraud, be prima facie evidence of the facts stated therein.
-------------
1.4 ADJOURNMENTS. Any meeting of stockholders, annual or special,
-------------
may adjourn to another time or place. Notice of any such adjourned meeting need
not be given if the time and place thereof are announced at the meeting at which
the adjournment is taken: provided, however, that if the adjournment is for more
than thirty (30) days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting. At the adjourned
meeting the Corporation may transact any business which might have been
transacted at the original meeting.
1.5 QUORUM. At any meeting of stockholders, the presence, in person
-------
or by proxy, of the holders of shares representing majority of the entire number
of votes entitled to be case at the meeting shall constitute a quorum for all
purposes, except as otherwise provided by law, the Articles of Incorporation or
these Bylaws. In the absence of a quorum, the chairman of the meeting or the
holders of shares of stock present in person or by proxy and entitled to vote at
such meeting (determined by a majority of the votes cast) may adjourn the
meeting to another time or place. The stockholders present at a duly convened
meeting may continue to transact business until adjournment, notwithstanding the
subsequent withdrawal of stockholders leaving less than a quorum.
1.6. ORGANIZATION: ORDER OF BUSINESS. Such person as the Board of
----------------------------------
Directors may have designated or, in the absence of such a person, the President
of the Corporation or, in his absence such person as may be chosen by the
holders of shares representing a majority of the votes which could be case by
those present, in person or by proxy, and entitled to vote shall call to order
any meeting of the stockholders and act as chairman of the meeting. The
Secretary of the Corporation,
-3-
<PAGE>
if present, shall act as secretary of the meeting but in his absence, the
secretary of the meeting shall be such person as the Chairman appoints. The
chairman of any meeting of stockholders shall determine the order of business
and the procedure at the meeting, including regulation of the manner of voting
and the conduct of discussion; but the order of business followed at any meeting
at which a quorum is present may be changed by the holders of shares of stock
present in person or by proxy and entitled to vote at such meeting (determined
by a majority of the votes cast).
1.7 VOTING: PROXIES. Except as may be otherwise provided by the
-----------------
Articles of Incorporation, each stockholder entitled to vote at any meeting of
stockholders shall be entitled to vote for each share of stock held by him which
had voting power upon the matter in question. Each stockholder entitled to vote
at a meeting of stockholders may authorize another person or persons to act for
him by proxy, but no such proxy shall be voted or acted upon for a period longer
than that permitted by law. Each proxy shall be revocable unless expressly
provided therein to be irrevocable and unless made irrevocable by law. Each
proxy shall be filed with the Secretary of the Corporation prior to or at the
time of the meeting. A stockholder may revoke any proxy which is not
irrevocable by attending the meeting and voting in person or by filing with the
Secretary of the Corporation an instrument in writing revoking the proxy or
another duly executed proxy bearing a later date. Voting at meetings of
stockholders need not be by written ballot and need not be conducted by
inspectors of election unless so determined by the chairman of such meeting or
the holders of shares representing a majority of the votes that could be cast by
those present, in person or by proxy, and entitled to vote. All elections shall
be determined by a plurality of the votes cast, and except as otherwise required
by law, the Articles of Incorporation or these Bylaws, all other matters shall
be determined by a majority of the votes cast.
-4-
<PAGE>
1.8. STOCKHOLDER LIST. A complete list of the stockholders entitled
-----------------
to vote at any meeting of stockholders, arranged in alphabetical order and
showing the address of each such stockholder and the number of shares registered
in his name, shall be open to examination by any stockholder, for any purpose
germane to the meeting during ordinary business hours for such period of days,
if any, prior to the meeting as is required by law, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or if not so specified, at the place where the meeting is
to be held. The list shall also be produced and kept at the place of the
meeting throughout the entire meeting and shall be open to examination by any
stockholder who is present. The original stock ledger shall be the only
evidence as to the stockholders entitled to examine such stock ledger, the
stockholder list or the books required by this Corporation or to vote in person
or by proxy at any meeting of stockholders. Failure to comply with the
requirements of this section shall not effect the validity of any action taken
at any meeting.
1.9. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Any action which
---------------------------------------------
must or may be taken at any annual or special meeting of stockholders may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the actions so taken, shall be signed by the holders
of outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given in not less than sixty (60) days to those stockholders who have
not consented in writing.
1.10. ATTENDANCE VIA COMMUNICATIONS EQUIPMENT. Unless otherwise
-------------------------------------------
restricted by law, the stockholders may hold any meeting by means of conference
telephone or other
-5-
<PAGE>
communications equipment by means of which all persons participating in the
meeting can effectively hear each other. Such participation shall constitute
present in person at the meeting.
ARTICLE II
BOARD OF DIRECTORS
2.1. POWERS. The business and affairs of the Corporation shall be
-------
managed by the Board of Directors, which may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by law, the
Articles of Incorporation or these Bylaws directed or required to be exercised
or done by the stockholders.
2.2. NUMBER: TERM OF OFFICE: QUALIFICATIONS. The number of
-------------------------------------------
directors constituting the Board of Directors shall be determined from time to
time by resolution of the Board of Directors; provided, however; that at all
times the number of directors shall be at least one (1) and no decrease shall
have the effect of shortening the term of any incumbent director. Except as
otherwise provided herein or required by law, each director shall be elected at
each annual meeting of stockholders and shall hold office until his successor
has been duly elected and qualified. Directors need not be stockholders or
residents of the State of Nevada.
2.3. REMOVAL. Subject to Section 78.335 of the Nevada Revised
--------
Statutes, any director may be removed, either for or without cause, at any
meeting of stockholders by the holders of shares of stock representing
two-thirds of the entire number of votes entitled to be cast at an election of
directors.
2.4. RESIGNATIONS. Any director may resign at any time by written
-------------
notice to the Corporation. Such resignation shall take effect at the time
therein specified, or if no such time is
-6-
<PAGE>
specified, upon receipt by the Corporation. Unless otherwise specified, the
acceptance of such resignation shall not be necessary to make it effective.
2.5. VACANCIES. Any vacancy in the Board of Directors caused by
----------
death, resignation, removal (whether or not for cause), cause may be filled by a
majority vote of the directors then in office, though less than a quorum, or by
a sole remaining director, and the directors so chosen shall hold office until
the expiration of the term of office of the director whom he has replaced and
until his successor is duly elected and qualified.
2.6. DEATH OR RESIGNATION OF ENTIRE BOARD. In case the entire Board
-------------------------------------
of Directors shall die, resign, or be removed, any stockholder may call a
special meeting in the same manner that the president may call such meetings,
and directors, for the unexpired term or terms may be elected at such special
meeting in the manner provided for their election at annual meetings.
2.7. REGULAR MEETINGS. Regular meetings of the Board of Directors
------------------
may be held at such places within or without the State of Nevada and at such
times as shall have been established by the Board of Directors and communicated
to all directors. A notice of each regular meeting shall not be required.
2.8 SPECIAL MEETINGS. Special meetings of the Board of Directors
------------------
may be held at any time or place within or without the State of Nevada and (I)
may be called by the President, and (ii) must be called by the President or
Secretary on the written request of two directors of the sole director, as the
case may be. Unless otherwise required by law, notice of each special meeting
of the Board of Directors must be given to each director at least two hours
before the meeting if such notice is delivered personally or by means of
telegram, telex or facsimile transmission; two (2) days before the meeting if
such notice is delivered by a recognized express delivery service; and three (3)
days
-7-
<PAGE>
before the meeting if such notice is delivered through the United States mail.
Any and all business which may be transacted at a regular meeting of the Board
of Directors may be transacted at a special meeting. Neither notice of a
special meeting nor waiver of notice of a special meeting need state the purpose
of or business to be transacted at such meeting.
2.9. TELEPHONIC MEETINGS PERMITTED. Members of the Board of
--------------------------------
Directors, or any committee thereof, may participate in a meeting by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other. Such participation
shall constitute presence in person at such meeting.
2.10. QUORUM: VOTE REQUIRED FOR ACTION. A majority of the directors
---------------------------------
shall constitute a quorum for the transaction of business at any meeting of the
Board of Directors, and the act of a majority of directors present at any
meeting at which there is a quorum shall be the act of the Board of Directors,
except as may be otherwise specifically provided by law, the Articles of
Incorporation or these Bylaws. If a quorum shall not be present at any meeting,
a majority of the directors present may adjourn the meeting at another time or
place, without notice other than announcement at the meeting, until a quorum is
present. At any such adjourned meeting any business may be transacted which
might have been transacted at the meeting as originally notified.
2.11. ACTION WITHOUT MEETING. Unless otherwise restricted by the
-------------------------
Articles of Incorporation or these Bylaws, any action required or permitted to
be taken at any meeting of the Board of Directors, or any committee thereof, may
be taken without a meeting if all members of the Board of Directors or such
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
such committee.
-8-
<PAGE>
2.12. ORGANIZATION. The Board of Directors may, if it chooses,
-------------
elect a Chairman of the Board and a Vice Chairman of the Board from its members.
Meetings of the Board of Directors shall be presided over by the Chairman of the
Board, if any, or in his absence the Vice Chairman of the Board, if any, or in
his absence by the President, or in their absence by a chairman chosen at the
meeting. The Secretary of the Corporation, if present, shall act as secretary
of the meeting but in his absence the secretary of the meeting shall be the
chairman of the meeting or such person as the chairman of the meeting appoints.
2.13 COMPENSATION. The Board of Directors shall have authority to
-------------
determine from time to time the amount of compensation, if any, which shall be
paid to its members for their services as directors and as members of committees
of the Board of Directors. The directors may be reimbursed their expenses, if
any, of attendance at such Board and committee meetings. No director is
precluded from serving the Corporation in any other capacity and receiving
compensation appropriate to the value of such services rendered.
ARTICLE III.
COMMITTEES OF DIRECTORS.
3.1 ESTABLISHMENT. The Board of Directors may, by resolution passed
--------------
by a majority of the whole Board of Directors, designate from time to time one
or more committees, each committee to consist of one or more of the directors of
the Corporation. The Board of Directors may designate one or more directors as
alternate members of any meeting of the committee. In the absence or
disqualification of any member of the Committee the member or members thereof
present at any meeting and not disqualified from voting whether or not he or
they constitute a quorum, may
-9-
<PAGE>
unanimously appoint another member of the Board of Directors to act at the
meeting in place of any such absent or disqualified member.
3.2. AVAILABLE POWERS. Any such committee, to the extent provided
------------------
in the resolution of the Board of Directors establishing such committee and as
limited by the law, the Articles of Incorporation and these Bylaws, shall have
and may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize the
seal of the corporation to be affixed to all papers which may require it.
3.3. UNAVAILABLE POWERS. No committee of the Board of Directors
--------------------
shall have the power or authority to amend the Articles of Incorporation (except
in connection with the issuance of shares of stock as provided in the previous
section); adopt an agreement of merger or consolidation; recommend to the
stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets; recommend to the stockholders a dissolution
of the Corporation or revocation of such a dissolution; amend the Bylaws of the
Corporation; and, unless the resolution establishing such committee or the
Articles of Incorporation expressly so provides, declare a dividend, authorize
the issuance of stock or adopt a certificate of ownership and merger.
3.4. CONDUCT OF BUSINESS. Unless the Board of Directors provides
----------------------
otherwise, each committee designated by the Board of Directors may make, alter
and repeal rules for the conduct of its business. In the absence of such rules,
each committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article II of these Bylaws.
IV
OFFICERS.
-10-
<PAGE>
4.1. EXECUTIVE OFFICERS: TERM OF OFFICE. The Board of Directors
---------------------------------------
shall elect a President, a Secretary, and a Treasurer, and shall appoint a
Resident Agent. The Board of Directors may elect one or more Vice Presidents
(with such descriptive title, if any, as the Board of Directors shall deem
appropriate), one or more Assistant Secretaries, one or more Assistant
Treasurers, and such other officers as the Board of Directors may determine.
Vice Presidents, Assistant Secretaries and Assistant Treasurers may also be
appointed by the President as provided in Section 4.2.1. Each officer shall
hold office until his successor is elected and qualified or until his earlier
death, resignation or removal in the manner provided in these Bylaws. Any
number of offices may be held by the same person. The Board of Directors may
require any officer to give bond or other security of the faithful performance
of his duties, in such amount and with such sureties as the Board of Directors
may determine.
4.2. POWERS AND DUTIES. The officers of the Corporation shall have
-------------------
such powers and duties in the management of the Corporation as may be provided
by applicable laws, the Articles of Incorporation and these Bylaws, and as maybe
prescribed by the Board of Directors and, to the extent not so provided, as
generally pertain and are incident to their respective officers, subject to the
control of the Board of Directors. Without limiting the generality of the
foregoing, the following officers shall have the respective duties and powers
enumerated below:
4.2.1. PRESIDENT. The President shall be the chief executive
----------
officer of the corporation. He shall have the responsibility for the general
management and control of the business and affairs of the Corporation and shall
perform all duties and have all powers which are commonly incident to the office
of chief executive. The President may sign and execute, in the name of the
corporation, stock certificates, deeds mortgages, bonds, contracts or other
instruments authorized
-11-
<PAGE>
by the Board of Directors, except when signing and execution thereof shall be
expressly and exclusively delegated by the Board of Directors or by bylaws to
some other person, or shall be required by law to be signed otherwise. The
President shall also have the power to appoint Vice Presidents, Assistant
Secretaries and Assistant Treasurers as he deems necessary from time to time for
or without cause. The President shall have general supervision and direction of
all other officers, employees and agents of the Corporation. The President
shall preside at all meetings of the Board of Directors, and shall act as
temporary chairman at, and call to order, all meetings of the stockholders.
4.2.2. VICE PRESIDENTS. The Vice President, or if there be more
-----------------
than one, the Vice Presidents in the order determined by the Board of Directors
(or if there be no such determination, then in the order of their election or
appointment) shall, in the absence of the President of in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
President and shall perform such other duties and have such other powers as the
President of the Board of Directors may from time to time prescribe. The Vice
President may sign certificates evidencing shares of stock of the Corporation.
4.2.3. SECRETARY. The Secretary shall issue all authorized notices
----------
for, and shall keep minutes of, all meetings of stockholders and the Board of
Directors. He may sign certificates evidencing shares of stock of the
Corporation. He shall have custody of the corporate seal and shall have
authority to affix the seal to any instrument requiring it, and when so affixed,
it may be attested by his signature or by the signature of an Assistant
Secretary. The Secretary shall keep and account for all books, documents,
papers and records of the Corporation except those for which some other officer
or agent is properly accountable. The Secretary shall, in compliance with
Section 78.105 of
-12-
<PAGE>
the Nevada Revised Statutes, supply to the Corporation's principal office in
Nevada any and all amendments to the Corporation's Articles of Incorporation or
Bylaws and a current statement setting out the name of the custodian of the
stock ledger or duplicate stock ledger, and the present and complete post office
address, including street and number, where such stock ledger or duplicate stock
ledger is kept.
4.2.4. TREASURER. The treasurer shall be the chief accounting and
----------
financial officer of the Corporation. He shall have the custody of the
corporate funds and securities, and shall disburse the funds of the Corporation
as are authorized. He shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation, and, when requested by the
President or Board of Directors, shall render from time to time an accounting of
all such transactions and of the financial condition of the Corporation. The
Treasurer may sign certificates evidencing shares of stock of the Corporation.
4.2.5. RESIDENT AGENT. The Resident Agent shall be in charge of the
---------------
Corporation's registered or principal office in the State of Nevada, upon whom
process against the Corporation may be served and shall perform all duties as
required of his by statute.
4.2.6. ASSISTANT SECRETARY. The Assistant Secretary; or if there be
--------------------
more than one, the Assistant Secretaries in the Order determined by the Board of
Directors (or if there be no such determination, then in the order of their
election or appointment) shall, in the absence of the Secretary or in the event
of his inability or refusal to act, perform the duties and exercise the powers
of the Secretary and shall perform such other duties and have such other powers
as the President, Secretary or Board of Directors may from time to time
prescribe.
-13-
<PAGE>
4.2.7. ASSISTANT TREASURER. The Assistant Treasurer, or if there be
--------------------
more than one, the Assistant Treasurers in the order determined by the Board of
Directors (or if there be no such determination, then in the order of their
election or appointment) shall, in the absence of the Treasurer or in the event
of his inability or refusal to act, perform the duties and exercise the powers
of the Treasurer and shall perform such other duties and have such other powers
as the President, Treasurer or Board of Directors may from time to time
prescribe.
4.3 RESIGNATIONS AND REMOVAL. Any officer may resign at any time by
-------------------------
giving written notice to the Board of Directors or, if the President is not
resigning, to the President of the Corporation. Such resignation shall take
effect at the time therein specified, or if no time is specified, upon receipt.
Unless otherwise specified, the acceptance of such resignation shall not be
necessary to make it effective. All officers serve at the pleasure of the Board
of Directors; any elected or appointed officer may be removed at any time for or
without cause by the Board of Directors. Officers appointed by the President
may also be removed at any time for or without cause by the President.
4.4. VACANCIES. Any vacancy in any office because of death,
----------
resignation, removal, disqualification or any other cause shall be filled for
the unexpired term in the manner prescribed in these Bylaws for the regular
election or appointment to such office.
4.5. COMPENSATION. Salaries or other compensation of officers shall
-------------
be set from time to time by the Board of Directors. No officer shall be
prevented from receiving a salary or other compensation by reason of the fact
that he is also a director.
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<PAGE>
ARTICLE V.
STOCK AND DIVIDENDS.
5.1. CERTIFICATES. The shares of capital stock of the Corporation
-------------
shall be represented by certificates in such form as shall be approved by the
Board of Directors and consistent with the laws of the State of Nevada. Unless
and to the extent the Board of Directors by resolution provides that any or all
classes or series of stock shall be uncertificated, every holder of the capital
stock of the Corporation shall be entitled to have a certificate signed by or in
the name of the Corporation by the Chairman or Vice Chairman of the Board of
Directors, if any, or the President or a Vice President, and by the Treasurer or
an Assistant Treasurer or the Secretary or an Assistant Secretary, of the
Corporation, certifying the number of shares owned by him in the Corporation.
Any of or all the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the Corporation with the same effect as if he were such officer, transfer
agent or registrar at the date of issue.
5.2. MULTIPLE CLASSES OF STOCK. If the Corporation issues more than
--------------------------
one class of stock or more than one series of any class, a statement of the
powers, designations, preferences and relative, participating, optional or other
special rights of each class or series of stock and the qualifications,
limitations or restrictions thereof shall (unless the Board of Directors
provides that such class or series of stock shall be uncertificated) be set
forth in full or summarized on the face or back of the certificate which the
Corporation shall issue to represent such class or series of stock; provided
that, to the extent allowed by law, in lieu of such payment, the face or back of
such certificate may state that the Corporation will furnish a copy of such
statement without charge to each requesting stockholder.
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<PAGE>
5.3. PAYMENT FOR SHARES. The capital stock so insured shall be
---------------------
considered to be fully paid and nonassessable if: (1) the entire amount of such
consideration has been received by the Corporation in the form of cash, services
rendered, personal property, real property, leases of real property, or a
combination thereof; or (2) not less than the amount of the consideration
determined to be capital by the Board of Directors has been received by the
Corporation in such form and the Corporation has received a binding obligation
of the purchaser of the capital stock, in the form of a promissory note fully
secured by collateral; to pay the balance of the purchase price. In the absence
of fraud in the transaction, the judgment of the Board of Directors as to the
value of consideration received shall be conclusive.
5.4. TRANSFER OF STOCK. Shares of stock shall be transferable only
-------------------
on the books of the Corporation by the holder thereof in person or by his duly
authorized legal representative. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate or certificates representing
shares, duly endorsed or accompanied by proper evidence of succession,
assignation or authority to transfer, and of the payment by the transferor of
all taxes applicable to the transfer of such shares, it shall be the duty of the
Corporation or the transfer agent of the Corporation to issue a new certificate
or certificates to the person entitled thereto, cancel the old certificate or
certificates and record the transaction upon the corporation books. Provided,
however, that the Corporation shall not be so obligated unless such transfer was
made in compliance with applicable federal and state securities laws and with
any restrictions on transfer contained in the Articles of Incorporation, there
Bylaws or any agreement which has been filed with the Secretary of the
Corporation.
-16-
<PAGE>
5.5. TRANSFER AND REGISTRY AGENTS. The Corporation may from time to
-----------------------------
time maintain one or more transfer offices or agents and registry offices or
agents at such place or places as may be determined from time to time by the
Board of Directors.
5.6. LOST, STOLEN OR DESTROYED CERTIFICATES. The Corporation may
------------------------------------------
issue a new certificate of stock in place of any certificate previously issued
by it, alleged to have been lost, stolen or destroyed, and the Corporation may
require the owner of the lost, stolen or destroyed certificate, or his legal
representative, to give the Corporation a bond sufficient to indemnify it
against any claim that may be made against it on account of the alleged loss,
theft or destruction of any certificate or the issuance of such new certificate.
5.7. REGISTERED STOCKHOLDERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, vote and be held liable for calls and
assessments and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any person other than such
registered owner, whether or not it shall have express or other notice thereof,
except as otherwise provided by law.
5.8. DIVIDENDS, SURPLUS, RESERVES. Subject to the Articles of
-------------------------------
Incorporation and applicable law, the Board of Directors may in its absolute
discretion:
5.8.1. Declare and pay dividends or make other distributions on
the outstanding shares of capital stock in such amounts and at such time or
times as the Board of Directors deems advisable.
5.8.2. Use and apply any of the surplus of the Corporation in
purchasing or acquiring any shares of capital stock of the Corporation or
purchase warrants therefor, in accordance with law, or any of its bonds,
debentures, notes, stocks or other securities or evidences of indebtedness.
-17-
<PAGE>
5.8.3. Set aside from time to time out of any funds of the
Corporation available for dividends such sum or sums as the Board of Directors
thinks proper as a reserve or reserves to meet contingencies, for equalizing
dividends, for repairing or maintaining any property of the Corporation, or
for such other purpose as the Board of Directors shall determine to be in the
best interests of the Corporation; and the Board may modify or abolish any
such reserve in the manner in which it was created.
5.9. ADDITIONAL REGULATIONS. The issue, transfer, conversion and
------------------------
registration of shares of stock shall be governed by such other rules and
regulations as the Board of Directors may establish from time to time.
ARTICLE VI.
MISCELLANEOUS.
6.1. OFFICES. The Corporation may have, in addition to its
--------
registered office in the State of Nevada, offices and places of business at such
places, both within and without the State of Nevada, as the Board of Directors
may from time to time determine or as the business and affairs of the
corporation may require.
6.2. PLACE OF MEETINGS. All stockholders, directors and committee
--------------------
meetings shall be held at such place or places, within or without the State of
Nevada, as shall be designated from time to time by the Board of Directors or
such committee and stated in the notices thereof. If no such place is so
designated, such meetings shall be held at the principal business office of the
Corporation.
6.3. FIXED RECORD DATES. In order that the Corporation may
---------------------
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, to express consent to corporate action
in writing without a meeting to receive payment of any dividend or other
-18-
<PAGE>
distribution or allotment of any rights, to exercise any rights in respect of
any change, conversion or exchange of stock or to effect any other lawful
action, the Board of Directors may fix, in advance, a record date, which shall
not be more than sixty (60) nor less than ten (10) days prior to any such
action. In the absence of any action by the Board of Directors, the record date
shall be at the class of business on the day preceding (I) the date on which a
notice of meeting or request for consent is given, or (ii) the date the Board of
Directors adopts the resolution declaring a dividend or other distribution or
allotment or approving any change, conversion or exchange, as the case may be
shall be the record date. A record date validly fixed for any meeting of
stockholders shall be valid for any adjournment of said meeting and shall, at
the Board of Directors election, be valid for any reconventions and
readjournments of the meeting made not later than ninety (90) days after such
record date.
6.4. MEANS OF GIVING NOTICE. Unless otherwise required by these
--------------------------
Bylaws, whenever any notice is required to be given under law, the Articles of
Incorporation or these Bylaws, such notice may be given in writing and delivered
personally, through the United States mail, by a recognized express delivery
service (such as Federal Express) or by means of telegram, telex or facsimile
transmission, addressed to such director or stockholder at his address or telex
or facsimile transmission number, as the case may be. All notices shall be
deemed to be given at the time when the same shall be deposited in the mail or
with an express delivery service or when transmitted, as the case may be,
addressed or directed to the proper destination as it appears on the records of
the Corporation, with postage and fees thereon prepaid. An affidavit of the
Secretary or Assistant Secretary or of the transfer agent of the Corporation
that the notice has been given shall, in the absence of fraud, be prima facie
-----------
evidence of the facts stated therein.
-19-
<PAGE>
6.5. WAIVER OF NOTICE. Whenever any notice is required to be given
------------------
under law, the Articles of Incorporation or these Bylaws, a written waiver of
such notice, signed before or after the date of the noticed meeting or action by
the person or persons entitled to said notice, shall be deemed equivalent to
such required notice. Neither the business nor the purpose of any meeting need
be specified in such a waiver unless otherwise required. All waivers shall be
filed with the corporate records. Attendance at a meeting shall constitute a
waiver of notice of such meeting, except where a person attends for the express
purpose of objecting to the transaction of any business on the ground that the
meeting is not lawfully called or convened.
6.6. CONTRACTS AND NEGOTIABLE INSTRUMENTS. Except as otherwise
----------------------------------------
provided by law or these Bylaws, any contract or other instrument relative to
the business of the Corporation may be executed and delivered in the name of the
corporation and on its behalf by the Chairman of the Board or the President; and
the Board of Directors may authorize any other officer or agent of the
Corporation to enter into any contract in the name and on behalf of the
Corporation, and such authority may be general or confined to specific instances
as the Board of Directors may by resolution determine. All bills, notes, checks
or other instruments for the payment of money shall be signed or countersigned
by such officer, officers, agent or agents and in such manner as are permitted
by these Bylaws and/or as, from time to time, may be prescribed by resolution
(whether general or special) of the Board of Directors. Unless authorized so to
do by these Bylaws or by the Board of Directors, no officer, employee or agent
shall have any power or authority to bind the Corporation by any contract or
engagement, or to pledge its credit, or to render it liable pecuniarily for any
purpose or to any amount.
-20-
<PAGE>
6.7. FACSIMILE SIGNATURES. In addition to the provisions for use of
---------------------
facsimile signatures elsewhere specifically authorized in these Bylaws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors or a committee thereof.
6.8. FISCAL YEAR. The fiscal year of the Corporation shall be
-------------
determined, and may be changed, by resolution of the Board of Directors.
6.9. SEAL. The seal of the Corporation, if any, shall be in such
-----
form as shall from time to time be adopted by the Board of Directors. The seal
may be used by causing it or a facsimile thereof to be impressed, affixed or
otherwise reproduced.
6.10. BOOKS AND RECORDS. The Corporation shall keep correct and
--------------------
complete books and records of account and shall keep minutes of the proceedings
of its stockholders, Board of Directors and committees and shall keep at its
registered office or principal place of business, or at the officer of its
transfer agent or registrar, a record of its stockholders, giving the names and
addresses of all stockholders and the number and class of the shares held by
each.
6.11. RELIANCE UPON BOOKS AND RECORDS. Each director, each member
----------------------------------
of any committee of the Board of Directors, and each officer of the Corporation
shall, in the performance of his duties, be fully protected in relying on good
faith upon the books of account or other records of the Corporation, including
reports made to the Corporation by any of its officers, by an independent
certified public accountant, or by an appraiser selected with reasonable care.
6.12. FORM OF RECORDS. Any records maintained by the Corporation in
----------------
the regular course of its business, including its stock ledger, books of
account, and minute books may be kept on, or be in the form of, punch cards,
magnetic tape, photographs, micrographs, or any other
-21-
<PAGE>
information storage device, provided that the records so kept can be converted
into clearly legible written form within a reasonable time. The Corporation
shall so convert any records so kept upon the request of any person entitled to
inspect such records.
6.13. INSPECTION OF BOOKS AND RECORDS. Except as otherwise provided
--------------------------------
by law, the Articles of Incorporation, or these Bylaws, the Board of Directors
shall determine from time to time whether, and, if allowed, when and under what
conditions and regulations, the accounts, books, minutes and other records of
the Corporation, or any of them, shall be open to inspection by any persons.
6.14. SURETY BONDS. Such officers and agents of the Corporation as
--------------
the President or the Board of Directors may direct from time to time shall be
bonded for the faithful performance of their duties and for the restoration to
the Corporation, in case of their death, resignation, retirement,
disqualification or removal from office of all books, papers, vouchers, money
and other property of whatever kind in their possession or under their control
belonging to the Corporation, in such amounts and by such surety companies as
the President or the Board of Directors may determine. The premiums on such
bonds shall be paid by the Corporation, and the bonds so furnished shall be in
the custody of the Secretary.
6.15. INDEMNIFICATION. The Corporation shall indemnify each
----------------
director or officer of the Corporation who may be indemnified, to the fullest
extent permitted by Section 78.751 of the Nevada Revised Statutes (Section
78.751"), as it may be amended from time to time, in each and every situation
where the Corporation is obligated to make such indemnification pursuant to
Section 78.751. In addition, the Corporation shall indemnify each of the
Corporation's directors and officers in each and every situation where, under
Section 78.751, the Corporation is not obligated, but is
-22-
<PAGE>
permitted or empowered, to make such indemnification. The Corporation may, in
the sole discretion of the Board of Directors, indemnify any other person who
may be indemnified pursuant to Section 78.751 to the extent the Board of
Directors deems advisable, as permitted by such section. The Corporation shall
promptly make or cause to be made any determination which Section 78.751
requires.
6.16. INSURANCE The Corporation may purchase and maintain
---------
insurance, at its expense, to protect itself and any director, office, employee
or agent of the Corporation or of another corporation, partnership, joint
venture, trust or other enterprise against any expense, liability or loss,
whether or not the Corporation would have the power to indemnify such person
against such expense, liability or loss under the Nevada Revised Statutes.
6.17. INTERESTED DIRECTORS, OFFICERS, AND STOCKHOLDERS.
-----------------------------------------------------
6.17.1. VALIDITY. Any contract or other transaction between the
---------
Corporation and any of its directors, officers or stockholders (or any
corporation or firm in which any of them are directly or indirectly interested)
shall be valid for all purposes notwithstanding the presence of such director,
officer or stockholder at the meeting authorizing such contract or transaction,
or his participation or vote in such meeting or authorization.
6.17.2. DISCLOSURE, APPROVAL. The foregoing shall apply, however,
--------------------
only if the contract or transaction is fair to the corporation at the time it is
authorized or approved, or if the material facts of the relationship or the
interest of each such director, officer or stockholder is known or disclosed to:
-23-
<PAGE>
(1) the Board of Directors or committee thereof which
authorized or approved the contract or transaction, and the Board or committee
nevertheless authorizes or ratifies the contract or transaction by a majority of
the directors present, each such interested director to be counted in
determining whether a quorum is present, but not in calculating the majority
necessary to carry the vote; or
(2) The stockholders and they nevertheless authorize or
ratify the contract or transaction (determined by a majority of the votes cast).
6.17.3. NON-EXCLUSIVE. This provision shall not be construed to
--------------
invalidate any contract or transaction which would be valid in the absence of
this provision.
6.18. VOTING OF SECURITIES OF OTHER CORPORATIONS. The Chairman of
---------------------------------------------
the Board, the President, any Vice President or the Secretary may from time to
time appoint an attorney or attorneys or an agent or agents for the Corporation
to exercise in the name and on behalf of the Corporation, the powers and rights
which the Corporation may have as the holder of stock or other securities in any
other corporation to vote or consent in respect of such stock or other
securities, and the Chairman of the Board, the President, any Vice President or
the Secretary may instruct the person or persons so appointed as to the manner
of exercising such powers and rights; and the Chairman of the Board, the
President, any Vice President or the Secretary may execute or cause to be
executed, in the name and on behalf of the Corporation and under its corporate
seal or otherwise, all such written, proxies or other instruments as he may deem
necessary or proper in order that the Corporation may exercise such powers and
rights.
6.19. AMENDMENTS. These Bylaws may be altered, amended, repealed or
-----------
replaced by the stockholders or the Board of Directors. The fact that the Board
of Directors has such power
-24-
<PAGE>
shall not operate to divest or limit the stockholders of the power to alter,
amend, repeal or replace the Bylaws.
6.20. PRIOR BYLAWS REPEALED. These Bylaws supersede and replace all
----------------------
previously adopted bylaws and amendments thereto, and all such prior Bylaws are
hereby repealed.
Date: 2/5/97 /S/ WILLIAM RUTH
------ ------------------------------
WILLIAM RUTH, Secretary
-25-
<PAGE>
FILED (STAMPED) STATE OF NEVADA
-----------------
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE ARTICLES OF AMENDMENT TO THE
STATE OF NEVADA ARTICLES OF INCORPORATION OF
MAR 19 1999
No. C10137-89 (HAND WRITTEN) TRINITY GAS CORPORATION
- -------------------------------
Dean Heller (SIGNED)
DEAN HELLER, SECRETARY OF STATE
Pursuant to the provisions of NRS 78.3904, the undersigned corporation
adopts the following Articles of Amendment to its Articles of Incorporation:
1. The name of the corporation is:
TRINITY GAS CORPORATION
2. On March 17, 1999, stockholders holding a majority of the voting power
of the corporation, by written consent pursuant to NRS 78.320, adopted the
following amendments to the Articles of Incorporation:
A. The amendment of ARTICLE ONE to read as follows:
The name of the corporation is TRINITY ENERGY RESOURCES, INC.
B. The amendment of ARTICLE FOUR to read as follows:
The aggregate number of shares which the corporation shall have authority
to issue is Three Hundred Fiftv Million (350,000,000) shares, each having a
par value of one-tenth of a cent ($.001) per share, divided into:
50,000,000 Preferred Shares
and
---
300,000,000 Common Shares
A statement of the preferences, privileges, and restrictions granted to or
imposed upon the respective classes of shares or the holders thereof is as
follows:
A. Common Shares. The terms of the 300,000,000 Common
---------------
1
Shares of the corporation shall be as follows:
(1) Dividends. Whenever cash dividends upon the Preferred Shares of
all series thereof at the time outstanding, to the extent of the
preference to which such shares are entitled, shall have been paid in
full for all past dividend periods, or declared and set apart for
payment, such dividends, payable in cash, stock, or otherwise, as may
be determined by the Board of Directors, may be declared by the Board
of Directors and paid from time to time to the holders of the Common
Shares out of the remaining net profits or surplus of the corporation.
(2) Liquidation. In the event of any liquidation, dissolution, or
winding up of the affairs of the corporation, whether voluntary or
involuntary, all assets and funds of the corporation remaining after
the payment to the holders of the Preferred Shares of all series
thereof of the full amounts to which they shall be entitled as
hereinafter provided, shall be divided and distributed among the
holders of the Common Shares according to their respective shares.
(3) Voting rights. Each holder of a Common Share shall have one vote
in respect of each share of such stock held by him. There shall not be
cumulative voting.
B. Preferred Shares. Prior to the issuance of any of the Preferred Shares,
----------------
the Board of Directors shall determine the number of Preferred Shares to
then be issued from the Fifty Million (50,000,000) shares authorized, and
such shares shall constitute a series of the Preferred Shares. Such series
shall have such preferences, limitations, and relative rights as the Board
of Directors shall determine and such series shall be given a
distinguishing designation. Each share of a series shall have preferences,
limitations, and relative rights identical with those of all other shares
of the same series. Except to the extent otherwise provided in the Board
2
<PAGE>
of Directors' determination of a series, the shares of such series shall
have preferences, limitations, and relative rights identical with all other
series of the Preferred Shares. Preferred Shares may have dividend or
liquidation rights which are prior (superior or senior) to the dividend and
liquidation rights and preferences of the Class B Preferred Shares. Also,
any series of the Preferred Shares may have voting rights.
C. The addition of a new article, ARTICLE TWELVE, to read as follows:
ARTICLE TWELVE. [INDEMNIFICATION]
----------------
(a) This corporation shall indemnify any officer or director who was
or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil or
criminal, judicial, administrative or investigative, by reason of the
fact that he/she is or was serving at the request of this corporation
as a director or officer or member of another corporation,
partnership, joint venture, trust, or other enterprise, against
expenses (including attorneys' fees), judgments, fines, and amounts
paid in settlement, actually and reasonably incurred by him/her in
connection with such action, suit or proceeding, including any appeal
thereof, if he/she acted in good faith or in a manner he/she
reasonably believed to be in, or not opposed to, the best interests of
this corporation, and with respect to any criminal action or
proceeding, if he/she had no reasonable cause to believe his/her
conduct was unlawful. However, with respect to any action by or in the
right of this corporation to procure a judgment in its favor, no
indemnification shall be made in respect of any claim, issue, or
matter as to
3
<PAGE>
which such person is adjudged liable for negligence or misconduct in
the performance of his/her duty to the corporation unless, and only to
the extent that, the court in which such action or suit was brought
determines, on application, that despite the adjudication of
liability, such person is fairly and reasonably entitled to indemnity
in view of all the circumstances of the case. Termination of any
action, suit or proceeding by judgment, order, settlement, conviction,
or in a plea of nolo contendere or its equivalent, shall not, of
----------------
itself, create a presumption that the party did not meet the
applicable standard of conduct. Indemnification hereunder may be paid
by the corporation in advance of the final disposition of any action,
suit or proceeding, on a preliminary determination that the director,
officer, employee or agent met the applicable standard of conduct.
(b) The corporation shall also indemnify any director or officer who
has been successful on the merits or otherwise, in defense of any
action, suit, or proceeding, or in defense of any claim, issue, or
matter therein, against all expenses, including attorneys' fees,
actually and reasonably incurred by him/her in connection therewith,
without the necessity of an independent determination that such
director or officer met any appropriate standard of conduct.
(c) The indemnification provided for herein shall continue as to any
person who has ceased to be a director or officer, and shall inure to
the benefit of the heirs, executors, and administrators of such
persons.
(d) In addition to the indemnification provided for herein, the
corporation shall have power to make any other or further
indemnification, except an indemnification against gross negligence or
willful misconduct, under any resolution or agreement duly
4
<PAGE>
adopted by the Board of Directors, or duly authorized by a majority of
the shareholders.
IN WITNESS WHEREOF, the undersigned, for the purpose of amending the
Articles of Incorporation of TRINITY GAS CORPORATION pursuant to Chapter 78 of
the Nevada Corporation Laws, have hereunto duly executed these Articles of
Amendment to the Articles of Incorporation to be filed in the Office of the
Secretary of State of the State of Nevada for the purposes therein set forth
this 17th day of March, 1999.
TRINITY GAS CORPORATION
ATTEST:
By: /S/ Michael L. Wallace
----------------------------------
Michael L. Wallace, President
/S/ John W. Mahoney
- -----------------------------------
John W. Mahoney, Secretary
ACKNOWLEDGMENT
STATE OF TEXAS :
:ss
COUNTY OF HARRIS :
ACKNOWLEDGEMENT
Personally appeared before me, a notary public in and for said County and
State, Michael L. Wallace, known to me or duly proved to me, who stated that he
was the President of TRINITY GAS CORPORATION, a Nevada corporation, and he
acknowledged that he had
5
<PAGE>
executed the Articles of Amendment on behalf of such corporation for the
purposes stated therein.
/S/ Linda S. Bryant
-----------------------------------
My Commission Expires:
LINDA S. BRYANT
MY COMMISSION EXPIRES
APRIL 3, 2001
6
<PAGE>
LSM-CA
THE STATE OF TEXAS
SECRETARY OF STATE
CERTIFICATE OF AUTHORITY
OF
TRINITY ENERGY RESOURCES, INC.
CHARTER NUMBER 00128805
THE UNDERSIGNED, AS SECRETARY OF STATE OF THE STATE OF TEXAS, HEREBY
CERTIFIES THAT THE ATTACHED APPLICATION OF THE ABOVE ENTITY FOR A CERTIFICATE OF
AUTHORITY TO TRANSACT BUSINESS IN THIS STATE HAS BEEN RECEIVED IN THIS OFFICE
AND IS FOUND TO CONFORM TO LAW.
ACCORDINGLY THE UNDERSIGNED, AS SUCH SECRETARY OF STATE, AND BY VIRTUE OF
THE AUTHORITY VESTED IN THE SECRETARY BY LAW, HEREBY ISSUES THIS CERTIFICATE OF
AUTHORITY TO TRANSACT BUSINESS IN THIS STATE FROM AND AFTER THIS DATE, FOR THOSE
PURPOSES SET FORTH IN THE APPLICATION, UNDER THE NAME OF
TRINITY (TEXAS) ENERGY RESOURCES, INC.
DATED OCT. 4, 1999
EFFECTIVE OCT. 4, 1999
/s/ Elton Bomar
--------------------------------------
Elton Bomar, Secretary of State
<PAGE>
DLU-AN
The State of Texas
Secretary of State
OCT. 12, 1999
TRINITY ENERGY RESOURCES INC.
11757 KATY FREEWAY, STE 1430
HOUSTON ,TX 77079
RE:
TRINITY ENERGY RESOURCES, INC.
CHARTER NUMBER 00128805-06
ASSUMED NAME:
TRINITY (TEXAS) ENERGY RES0URCES, INC.
FILE DATE: OCT. 4, 1999
DEAR SIR OR MADAM,
THE ASSUMED NAME CERTIFICATE FOR THE ABOVE REFERENCED INCORPORATED BUSINESS OR
PROFESSION HAS BEEN FILED IN THIS OFFICE. THIS LETTER MAY BE USED AS EVIDENCE OF
THE FILING.
IN ADDITION TO FILING WITH THE SECRETARY OF STATE, CHAPTER 36 OF THE TEXAS
BUSINESS AND COMMERCE CODE REQUIRES FILING OF THE ASSUMED NAME CERTTFICATE WITH
THE COUNTY CLERK IN THE COUNTIES IN WHICH THE REGISTERED OFFICE AND THE
PRINCIPAL OFFICE OF THE CORPORATION ARE LOCATED.
VERY TRULY YOURS,
/s/ Elton Bomar
--------------------------------------
Elton Bomar, Secretary of State
<PAGE>
TRINITY ENERGY RESOURCES, INC.
First Amendment to
Certificate of Designation, Powers, Preferences and Rights
of the
1999 Series of Convertible Redeemable Preferred Stock
($.001 Par Value)
Liquidation Value $10.00 Per Share
____________________
Pursuant to Section 78.195(6) of the
Corporation Law of the State of Nevada
____________________
The undersigned, President of TRINITY ENERGY RESOURCES, INC., a Nevada
Corporation (hereinafter called the "Company") does hereby certify as required
by NRS 78.195 and 78.1955(3) that the following resolution has been duly adopted
by the Board of Directors of the Company:
WHEREAS, on March 17, 1999 the Board of Directors adopted a resolution
designating the 1999 Series of Convertible Redeemable Preferred Stock and on
such date filed a designation with the Nevada Secretary of State;
WHEREAS, it has been determined that the designation filed was a draft of
the proposed series and not the final designation, as adopted by the Board;
WHEREAS, it is desirable to amend the erroneously filed draft designation
to conform it to the final designation adopted by the Board;
1
<PAGE>
WHEREAS, the amendment of the draft designation has been approved by a
majority in interest of the holders of the 1999 Series of Convertible Redeemable
Preferred Stock as required by NRS 1955(3);
NOW, THEREFORE, BE IT RESOLVED, that pursuant to authority expressly
granted to and vested in the Board of Directors of the Company (the "Board of
Directors") by the provisions of the Certificate of Incorporation, as amended
(hereinafter the "Certificate of Incorporation") of the Company, the previously
filed designation of the 1999 Series of Convertible Preferred Stock is hereby
amended to read as follows:
1. DESIGNATION.
The designation of the said series of the Preferred Stock shall be the "The
1999 Series of Convertible Redeemable Preferred Stock" (the "1999 Series").
2. NUMBER OF SHARES; PAR VALUE; STATED CAPITAL.
The number of shares of the 1999 Series shall be limited to 1,600,000. The
shares of the 1999 Series shall be issued as full shares and shall have a par
value of $.001 per share. Notwithstanding the par value of $.001 per share, the
stated capital shall be $10.00 per share and each share thereof shall be validly
issued, fully paid and nonassessable upon receipt by the Company of legal
consideration in an amount determined by the Company's Board of Directors to be
at least equal to such stated value.
3. RELATIVE SENIORITY.
2
<PAGE>
The 1999 Series shall rank senior in all respects to shares of the
Company's single class of Common Stock and to any other class or series of
capital stock which is designated as ranking, in respect of the right to
participate in the payment of dividends or other distributions or in
distributions made upon any dissolution or other winding up of the Company's
legal existence and the associated liquidation of its assets, junior to the 1999
Series("Junior Stock").
4. VOTING.
The 1999 Series shall have voting rights. For voting purposes, such series
shall be considered part of the Common Shares and shall vote with the Common
Stock, rather than as a separate class or series of Preferred Stock. Each share
of the 1999 Series shall have forty votes per share.
5. DIVIDENDS.
The holders of the 1999 Series shall be entitled to receive, out of any
funds of the Company at the time legally available for the declaration of
dividends, an annual dividend with respect to each share owned calculated at a
rate equal to seven percent (7%) of the stated value thereof (subject to
appropriate adjustment for any stock split, whether forward or reverse, or
similar transaction with respect to the 1999 Series. Such dividend shall accrue
cumulatively, on a day-to-day basis from the date of issuance of each share, and
whether or not the dividend has been declared or there are profits, surplus or
other funds of the Company legally available for payment of dividends. Each
such dividend shall be payable on the first day of January, April, July and
October (unless such day is not a business day, in which event on the next
succeeding business day) (each a Dividend Payment Date).
6. LIQUIDATION.
3
<PAGE>
In the event of a liquidation, dissolution, or winding up of the Company,
whether voluntary or involuntary, after payment or provision for payment of the
debts and other liabilities of the Company and before any distribution shall be
made to the holders of Junior Stock, the holders of shares of 1999 Series shall
be entitled to receive out of the net assets of the Company, whether such assets
are capital or surplus of any nature, in exchange for the tender and
cancellation of each share of the 1999 Series, the sum of Ten Dollars ($10.00)
per share, and, in addition to such amount, a further amount equal to the
dividends declared but unpaid and accumulated thereon, to the date of such
distribution, and no more, before any payment shall be made or any assets
distributed to the holders of shares of Common Stock. If upon such liquidation,
dissolution, or winding up, whether voluntary or involuntary, the net assets
distributed among the holders of the 1999 Series shall be insufficient to permit
the payment to such shareholders of the full preferential amounts, then the
entire assets of the Company to be distributed shall be distributed ratably
among the holders of the 1999 Series. For purposes of this Section, the
voluntary sale, lease, conveyance, exchange or transfer, for any form of
consideration, of all or substantially all of the property or assets of Company,
or the consolidation by the Company with, or its merger with and into, one or
more corporations, shall be deemed to be a voluntary or involuntary liquidation,
dissolution, or winding up of the affairs of the Company.
7. REQUIRED REPURCHASE (PUT).
Commencing twelve (12) months from the date of issuance of each share of
the 1999 Series, the holders of the 1999 Series shall have the right to require
that the Company repurchase the shares of such 1999 Series, as provided herein.
Such right shall be exercisable at any time after such twelve months and from
time to time, subject to the following restrictions and limitations:
4
<PAGE>
(a) The repurchase price (Put price) shall be calculated as the stated
capital, Ten Dollars ($10.00) per share, plus a premium calculated as (1)
twelve percent (12%) per annum of the stated capital prorated for the
period from the date of issuance of the shares being put, less (2) any
dividend declared and paid.
(b) Shares put for repurchase shall be repurchased, within ten (10)
business days following receipt of the put. Puts shall be made by
transmittal to the Company of certificates for sufficient shares to cover
the put being made, together with a written demand specifying the number of
shares being put. The Company shall transmit the certificate(s) to the
Company's transfer agent with appropriate instructions to return to the
holder the shares in excess of those being put.
(c) The Company shall repurchase shares strictly in the order in which
repurchase demands (puts) are made, using the date and time of receipt by
the Company to determine priority.
(d) Shares of the 1999 Series which are repurchased shall, unless the Board
of Directors shall otherwise determine, become treasury stock, subject to
resale and reissuance. The Board of Directors may determine that all
certificates for the shares of the 1999 Series surrendered for repurchase
as provided herein shall resume the status of authorized but unissued
shares of Preferred Stock.
8. REDEMPTION.
5
<PAGE>
(a) At any time after June 30, 1999, the Company, at the option of the
Board of Directors, may redeem the whole of, or from time to time may redeem any
part of, the 1999 Series on any dividend date by either (i) paying in cash
therefor a sum calculated as (1) the stated capital, Ten Dollars ($10.00) per
share, plus (2) a redemption premium equal to twelve percent (12% per annum on
the stated capital calculated from the date of issuance of each share being
redeemed, less (3) any dividends declared and paid.
(b) In case of the redemption of a part only of the outstanding shares of
the 1999 Series, the Company shall designate, as the Board of Directors may
determine, the shares to be redeemed, or shall effect such redemption by lot or
pro rata. At least 30 days' previous notice by mail, postage prepaid, shall be
given to the holders of record of the shares to be redeemed. A holder of any
shares of the 1999 Series called for redemption shall have the right to convert
such shares to Common Stock upon the terms and conditions provided in Section 9,
following.
(c) All certificates for the shares of the 1999 Series surrendered for
redemption as provided herein shall resume the status of authorized but unissued
shares of Preferred Stock.
9. CONVERSION.
The shares of 1999 Series shall, after June 30, 1999, at the option of the
respective holders thereof, be convertible into fully paid and nonassessable
Common Shares of the Company, upon certain terms and conditions, at any time and
from time to time, except that any of such 1999 Series shares which have been
called for redemption shall be convertible up to and including, but not after,
the close of business on the tenth (10) day prior to the redemption date.
6
<PAGE>
(i) In order to exercise the conversion privilege, the holder of any of the
shares of the 1999 Series to be converted shall surrender the certificate
or certificates therefor to any transfer agent of the Company for such
shares, duly endorsed in blank for transfer with the signature Medallion
guaranteed, accompanied by written notice of election to convert such
shares or a portion thereof executed on the form set forth on such
certificates or on such other form as may be provided form time to time by
the Company.
As soon as practicable after the surrender of such certificates as
provided above, the Company shall cause to be issued and delivered, at the
office of such transfer agent, to or on the order of the holder of the
certificates thus surrendered, a certificate or certificates for the number
of full shares of Common Stock issuable hereunder upon the conversion of
such shares of the 1999 Series. Such conversion shall be deemed to have
been effected on the date on which the certificates for such shares of the
1999 Series have been surrendered as provided above, and the person in
whose name any certificate or certificates for Common Stock are issuable
upon conversion shall be deemed to have become on such date the holder of
record of the shares represented thereby.
(ii) The shares of 1999 Series shall be convertible into Common Shares of
the Company at a conversion price equal to Twenty-five Cents ($.25) per
share of Common Stock taking each share of the 1999 Series at Ten Dollars
($10.00) per share, so that each such share shall be convertible into forty
(40) Common Shares.
7
<PAGE>
(iii) Earned and declared but unpaid dividends on the 1999 Series shall be
convertible in the same manner and on the same terms as the stated capital
of $10.00; i.e., at the rate of $.25 per share of Common Stock. No
fractional shares or scrip shall be issued; if any interest in a fractional
share of Common Stock would otherwise be deliverable upon the conversion of
any of the declared but unpaid dividends on the 1999 Series the Company
shall make adjustment for such fractional share interest by payment to the
converting shareholder of cash in an amount bearing the same ratio to $.25
as the fractional interest to which the converting shareholder would
otherwise be entitled bears to a whole share of Common Stock. Dividends not
declared, whether or not there are any profits, surplus or other funds of
the Company legally available for the payment of dividends, earned shall be
canceled and deemed waived by the conversion.
8
<PAGE>
(iv) In case of the voluntary dissolution, liquidation, or winding up of
the Company, all conversion rights of the holders of shares of 1999 Series
shall terminate on a date fixed by the Board of Directors, but not more
than thirty (30) days prior to the record date for determining the holders
of the Common Shares entitled to receive any distribution upon such
dissolution, liquidation or winding up. The Company shall cause notice of
the proposed action, and of the date of termination of conversion rights,
to be mailed to the holders of record of shares of the 1999 Series not
later than thirty (30) days prior to the date of such termination, and
shall promptly give similar notice to each transfer agent for such
Preferred Stock and for the Common Stock.
(v) As long as any of the shares of the 1999 Series remain outstanding, the
Company shall take all steps necessary to reserve and keep available a
number of its authorized but unissued shares of Common Stock sufficient for
issuance upon conversion of all such outstanding shares of the 1999 Series,
and for issuance in exchange for all declared but unpaid dividends on the
1999 Series.
(vi) All certificates for the shares of the 1999 Series surrendered for
conversion as provided herein shall resume the status of authorized but
unissued shares of Preferred Stock.
(vii) The exercise of the conversion privilege shall be subject to such
regulations, not inconsistent with the foregoing provisions of this
paragraph, as may from time to time be adopted by the Board of Directors of
the Company.
(viii) All shares of Common Stock issued upon the conversion of the shares
of the 1999 Series shall be validly issued and outstanding, and fully paid
and nonassessable.
10. NO PREEMPTIVE RIGHTS.
9
<PAGE>
No holder of any shares of the 1999 Series, as such, shall be entitled as a
matter of right to subscribe for or purchase any part of any new or additional
issue of shares of any class or series, junior or senior thereto, or securities
convertible into, exchangeable for, or exercisable for the purchase of, shares
of any class or series, junior or senior, whether now or hereafter authorized,
and whether issued for cash, property, services, by way of dividends, or
otherwise.
IN WITNESS WHEREOF, the Company has caused this Amendment to the
Certificate of Designation to be duly executed on its behalf by its undersigned
President and attested to by its Secretary this 24th day of January, 2000.
TRINITY ENERGY RESOURCES, INC.
ATTEST:
[Corporate Seal]
By: /S/ Thomas C. O'Dell
---------------------------------
Thomas C. O'Dell, President
/S/ John W. Mahoney
- -----------------------------
John W. Mahoney, Secretary
ACKNOWLEDGMENT
STATE OF TEXAS :
:ss
COUNTY OF HARRIS :
ACKNOWLEDGEMENT
Personally appeared before me, a notary public in and for said County and
State, Thomas C. O'Dell, known to me or duly proved to me, who stated that he
was the President of Trinity Energy Resources, Inc., a Nevada corporation, and
he acknowledged that he had executed the Amendment to the Certificate of
Designation on behalf of such corporation for the purposes stated therein.
My Commission Expires:
10
<PAGE>
EMPLOYMENT CONTRACT
-------------------
By this agreement, TRINITY ENERGY RESOURCES, INC. ("Trinity"), also
referred to in this Agreement as "Employer," located in Houston, Harris County,
Texas, employs John W. Mahoney ("Mahoney"), also referred to in this Agreement
as "Employee," of Houston, Harris County, Texas, who accepts employment on the
following terms and conditions:
ARTICLE 1
TERM OF EMPLOYMENT
1.01. By this Agreement, the Employer employs the Employee, and the
Employee accepts employment with the Employer, for a period of two (2) years
beginning on the 1st day of July, 1999; however, this Agreement may be
terminated earlier, as provided in Article 9 below.
ARTICLE 2
COMPENSATION
BASE COMPENSATION
2.01. As compensation for all services rendered under this Agreement, the
Employee shall be paid by the Employer a salary of One Hundred Twenty Thousand
and no/100 Dollars ($120,000.00) payable in equal monthly installments on the
last day of each month during the period of employment. The amount paid is to be
prorated for any partial employment period.
COST OF LIVING INCREASE
2.02. The base salary set forth in Paragraph 2.01 of this Agreement shall
be adjusted annually to reflect the increase, if any, in the cost of living by
adding to such basic salary an amount obtained by multiplying the base salary by
the percentage by which the level of the Consumer Price Index for the Houston
Metropolitan Area, as reported for the last day of the calendar year by the
Bureau of Labor Statistics for the United States Department of Labor, has
increased over its level as of the date of the commencement of this Agreement.
Following the end of each year and within ten (10) days after the release by the
Bureau of Labor Statistics of the figures for such year, the Employer shall pay
to the Employee the amount of any additional compensation to which he is
entitled as a result of the adjustment described in this paragraph, or, at the
Employee's election, the Employer shall pay the amount of any additional
compensation under this paragraph by dividing the total amount of additional
compensation to be paid by the number of pay periods remaining in the calendar
year following the year for which any increase in compensation is due and
including such compensation in the Employee's monthly paycheck.
<PAGE>
VACATION PAY
2.04. Employee shall be entitled to an annual vacation leave of four
calendar weeks or thirty calendar days at full pay. The time for such vacation
shall be selected by the Employee and approved by the Employer and it must be
taken within the calendar year after its accrual, or it may be accrued until the
next calendar year. If, upon the expiration of the term of this Agreement,
Employee has accrued unused vacation time, Employee shall be paid for such time
at the full compensation rate unless the accrued time is applied and carried
forward to any contract renewal, extension or new contract with Employer.
Otherwise, the Employee shall not be entitled to vacation pay in lieu of
vacation.
HOLIDAYS
2.05. During each calendar year, the Employee shall be entitled to a
holiday with full pay on each of the following days: New Year's Day, President's
Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and the day
following, and Christmas Eve and Christmas Day or Christmas Day and the day
following at the Employer's election plus two floating holidays at the
Employee's election as a substitute for any holiday listed herein. Religious
holidays may be taken with full pay other than listed herein with no less than
ten (10) days notice to the Employer.
ARTICLE 3
DUTIES OF EMPLOYEE
DUTIES
3.01. Subject to the supervision and pursuant to the orders, advice and
direction of the Chief Executive Officer and/or the President , Employee shall
perform such duties as are customarily performed by one holding the position of
Vice-President and General Counsel in other businesses or enterprises of the
same or similar nature as that engaged in by Employer. Employee shall
additionally render such other and unrelated services and duties as may be
assigned to him from time to time by the Chief Executive Officer and/or
President.
MANNER OF PERFORMANCE
3.02. Employee shall at all times faithfully, industriously and to the
best of his ability, experience and talent, perform all duties that may be
required of and from him pursuant to the express and implicit terms hereof, to
the reasonable satisfaction of the Employer. Such duties shall be rendered at
such other place or places as Employer shall in good faith require or as the
interests, needs, business and opportunities of Employer shall require or make
advisable.
EMPLOYEE'S LOYALTY TO EMPLOYER'S INTERESTS
<PAGE>
3.03. Employee shall devote such time, attention, knowledge and skill as
are reasonably required for the business and interests of Employer, and Employer
shall be entitled to all benefits, emoluments, profits or other issues arising
from or incident to any and all work, services and advice of Employee. Employee
expressly agrees that during the term hereof he will not be interested, directly
or indirectly, in any form, fashion or manner, as partner, officer, director,
stockholder, advisory, employee or in any other form or capacity, in any other
business similar to Employer's business except as designated in Exhibit 1 to
this Agreement. Nothing in this paragraph shall be deemed to prevent or limit
the Employee's right to invest his personal funds in the capital stock or other
securities of any publicly traded or publicly owned corporation nor shall this
paragraph be deemed to prevent Employee from investing in real estate or energy
commodity futures for himself or others. Nothing in this paragraph shall be
deemed to prevent or limit Employee's right to wind up and conclude
representation of other clients in matters undertaken prior to this Agreement.
EFFECT OF EMPLOYEE'S DISABILITY
3.04. If the Employee at any time, during the term of this Agreement,
should be unable to perform his duties under this Agreement because of personal
injury or illness, the Employer may assign the Employee to other duties
compatible with such disability. The compensation to be paid during the period
of such disability shall be 100% during the first 365 days of disability and 50%
thereafter for as long as the disability continues but not beyond the date
specified herein for the end of the employment term The Employee is entitled
to disability compensation under this paragraph only upon presentation of
written medical certification of the disability by physician duly licensed by
the State of Texas at the time of the disability. If the Employee refuses to
accept the modification in duties and compensation made by the Employer, this
Agreement shall terminate 10 days after Employee's refusal.
ARTICLE 4
EMPLOYEE BENEFITS AND BONUSES
MEDICAL BENEFITS
4.01. The Employer agrees to include the Employee in any hospital,
surgical and medical benefit plan adopted by Employer during the term of this
Agreement. The Employer further agrees to pay directly or reimburse Employee
for all out of pocket expenses, subject to the limitation below, incurred by
Employee that are not covered by the Employer's plan(s) provided that such
expenses are either co-payments or deductible payments to be made by Employee
pursuant to requirements of the plan (s) or are otherwise certified by
Employee's physician as medically necessary. Employer's payment towards health
care benefits under this paragraph shall be limited to Three Hundred and no/100
Dollars ($300.00) per month. Until such time as Employer adopts such a plan,
Employer agrees to reimburse Employee the cost of Employee's COBRA medical
coverage from Williams, Birnberg & Andersen, L.L.P. or any other dependent
coverage for which Employee might be eligible.
<PAGE>
GROUP LIFE INSURANCE
4.02. The Employer agrees to include the Employee under any group term
life insurance policy which Employer may purchase during the term of this
Agreement which for Employee shall be three times his base salary.
BONUS COMPENSATION
4.03. Should Employer, in its sole discretion, award additional
compensation to Employee in the form of a bonus payment, Employee agrees that
said bonus will be payable to him entirely in cash, entirely in Trinity common
stock or in a combination of cash and Trinity stock, subject to the availability
of stock, as the Employee shall determine.
AUTOMOBILE ALLOWANCE
4.04. Employee shall receive an additional SIX HUNDRED SIXTY-SEVEN
(HANDWRITTEN) no/100 Dollars ($667.00 HANDWRITTEN) per month as an allowance for
an automobile lease or purchase, full automobile insurance coverage, maintenance
and fuel. Employee understands that by accepting this provision, he will not be
reimbursed for mileage as a business expense.
DEATH BENEFIT
4.05. In the event that the Employee should die during the employment term
specified in this Agreement, the Employer agrees to pay immediately the sum of
$250,000.00 to the Employee's daughter, Allison C. Mahoney. If the Employee
does not have a daughter surviving, this sum shall be immediately payable to the
person, persons or entity designated by the Employee in a written instrument
delivered to the Employer prior to the Employee's death. If no written
designation is made, the entire sum shall be immediately paid to the Employee's
estate.
STOCK OPTION
4.06. By this paragraph, the Employer grants the Employee an option to
purchase shares of Employer's New Common Stock as follows:
<PAGE>
Employee shall receive a total of 999,999 options of New Common Stock of
the corporation to purchase the New Common Stock of Trinity Gas Corporation;
one-third of such options shall be exercisable for five years on and after the
one year anniversary of employment with Employer and shall have an exercise
price per share of twenty-five ($ .25) (such options being called "One Year
Vested Options"); the next one-third of such options shall be exercisable for
five years on and after the two year anniversary of employment with Employer
shall have an exercise price per share of thirty percent (30%) under the average
of the last five trading days prior to the two year anniversary of employment
date (such options being called "Two Year Vested Options") and the final
one-third of such options shall be exercisable for five years on and after the
two year anniversary of the Confirmation Date and shall have an exercise price
per share of thirty percent (30%) under the average of the last five trading
days prior to the three year anniversary of employment date (such options being
called "Three Year Vested Options"). Unless the Stock Option Committee
determines otherwise, in the event that the employment term is terminated by the
Employer for reasons other than cause the stock options herein will become fully
vested and will be exercisable for two years or until the end of the option
term, whichever is shorter. Unless the Stock Option Committee determines
otherwise, in the event of termination of the Employee for cause or if Employee
should voluntarily terminate his employment with Employer, all unexercised stock
options will be immediately terminated. The options may be exercised in whole
or in part. It is agreed that the Employee shall not have any of the rights of,
nor be treated as, a shareholder with respect to the shares subject to this
option until the Employee has exercised the option, deliver of the stock
certificates for such shares has been made to the Employee, and the Employee has
become the shareholder of record of such shares. The option set forth in this
paragraph is not assignable nor transferable except as provided for by
Employer's Stock Option Plan which shall conform to the provisions of the Plan
of Reorganization.
ARTICLE 5
REIMBURSEMENT OF EXPENSES INCURRED BY EMPLOYEE
BUSINESS EXPENSES
5.01. The Employee is authorized to incur reasonable business expenses for
promoting the business of the Employer, including expenditures for meals,
lodging, entertainment, gifts, and travel.
Employer will also reimburse Employee for state bar dues and continuing legal
education courses. The Employer will reimburse the Employee for all such
expenses upon the Employee's presentation and itemized account of such
expenditures in conformance with such policies and procedures governing
reimbursement of business expenses as Employer, from time to time, shall
determine.
ARTICLE 6
PROPERTY RIGHTS
RETURN OF EMPLOYER'S PROPERTY
6.01. On the termination of employment or whenever requested by the Employer,
the Employee shall immediately deliver to the Employer all property in the
Employee's possession or under his control belonging to the Employer.
<PAGE>
ARTICLE 7
TERMINATION
TERMINATION BY EMPLOYER FOR CAUSE
7.01. The Employer may at its option terminate this Agreement by giving
written notice of termination to the Employee without prejudice to any other
remedy to which the Employer may be entitled either at law, in equity, or under
this Agreement, if the Employee:
(a) Willfully breaches or habitually neglects the duties that the Employee
is required to perform under the terms of this Agreement;
(b) Willfully violates reasonable and substantial rules governing employee
performance;
(c) Refuses to obey reasonable orders in a manner that amounts to
insubordination;
(d) Commits dishonest acts towards the Employer;
(e) Engages in acts of disruption or violence such as unprovoked fighting.
TERMINATION OF GROUNDS OTHER THAN FOR GOOD CAUSE
7.02. This agreement shall terminate immediately on the occurrence of any
of the following events:
(a) The occurrence of circumstances that make it impossible for the
business of the Employer to be continued.
(b) The death of the Employee.
(c) The loss by the Employee of legal capacity.
(d) Mutual agreement of the parties.
EFFECT OF TERMINATION
7.03. In the event of termination of this Agreement prior to the
completion of the term of employment specified herein, for any of the reasons
other than death, cause or disability, the Employee shall be entitled to the
compensation earned prior to the date of termination as provided for in this
Agreement, computed pro rata up to and including the date of termination. As
termination payment, Employee shall be paid an amount of the greater of six
months compensation or one-third of all compensation payable under the remaining
term of the contract. The Employee shall be entitled to no further compensation
and will be relieved of all duties and obligations under this Agreement as of
the date of termination.
<PAGE>
ARTICLE 8
GENERAL PROVISIONS
NOTICES
8.01. All notices or other communications required under this Agreement
may be effected either by personal delivery in writing or by certified mail,
return receipt requested. Notice shall have been deemed to have been given when
delivered or mailed to the parties at their respective addresses set forth below
or when mailed to the last known address provided in writing to the other party
by the addressee.
TRINITY ENERGY RESOURCES, INC. JOHN W. MAHONEY
952 Echo Lane, Suite 210 14310 Cypress Ridge Drive
Houston, Texas 77024 Cypress, Texas 77429
CONTRACT TERMS TO BE EXCLUSIVE
8.02. This Agreement supersedes all other agreements, either oral or in
writing, between the parties to this Agreement, with respect to the employment
of the Employee by the Employer. This Agreement contains the entire
understanding of the parties and all of the covenants and agreements between the
parties with respect to such employment. No other representations, oral or
written, shall survive the execution of this Agreement and all representations
made by and between the parties respecting the subject matter hereof are
contained in this Agreement.
WAIVER OR MODIFICATION INEFFECTIVE UNLESS IN WRITING
8.03. No waiver or modification of this agreement or of any covenant,
condition or limitation, shall be valid unless in writing and duly executed by
both parties.
GOVERNING LAW
8.04. This Agreement is fully performable in Houston, Harris County, Texas
and shall be governed and construed in accordance with the laws of the State of
Texas.
BINDING EFFECT
8.05. This agreement shall be binding on and inure to the benefit of the
respective parties and their respective heirs, assigns, legal representatives
and successors.
AGREEMENT SURVIVES INVALID PROVISIONS
<PAGE>
8.06. Should any provision of this Agreement be declared invalid, illegal
or unenforceable by any court of competent jurisdiction, the remaining
provisions of the contract shall be construed and given effect as if the
Agreement did not contain the provision(s) declared to be invalid, illegal or
unenforceable.
EXECUTED ON THIS 11TH (HANDWRITTEN) DAY OF JUNE (HANDWRITTEN), 1999.
------------------- ------------------
TRINITY ENERGY RESOURCES, INC. JOHN W. MAHONEY
T. C. O'DELL (SIGNATURE) JOHN W. MAHONEY (SIGNATURE)
- --------------------------- ---------------------------
by T. C. O'Dell, Chairman & John W. Mahoney,
Chief Executive Officer Individually
<PAGE>
EXHIBIT 1
The following disclosure is intended to comply with Section 3.03 of this
contract regarding business interests similar to Trinity Energy Resources, Inc.:
Employee has no such interests, directly or indirectly, in any such business.
<PAGE>
EMPLOYMENT CONTRACT
-------------------
By this agreement, TRINITY ENERGY RESOURCES, INC. ("Trinity"), also
referred to in this Agreement as "Employer," located in Houston, Harris County,
Texas, employs DENNIS E. HEDKE ("Hedke"), also referred to in this Agreement as
"Employee," of Houston, Harris County, Texas, who accepts employment on the
following terms and conditions:
ARTICLE 1
TERM OF EMPLOYMENT
1.01. By this Agreement, the Employer employs the Employee, and the
Employee accepts employment with the Employer, for a period of three (3) years
beginning on the 1st day of September, 1999; however, this Agreement may be
terminated earlier, as provided in Article 9 below.
ARTICLE 2
COMPENSATION
BASE COMPENSATION
2.01. As compensation for all services rendered under this Agreement, the
Employee shall be paid by the Employer a salary of One Hundred Twenty Thousand
and no/100 Dollars ($120,000.00) payable in equal monthly installments on the
last day of each month during the period of employment. The amount paid is to be
prorated for any partial employment period.
COST OF LIVING INCREASE
2.02. The basic salary set forth in Paragraph 2.01 of this Agreement shall
be adjusted annually to reflect the increase, if any, in the cost of living by
adding to such basic salary an amount obtained by multiplying the base salary by
the percentage by which the level of the Consumer Price Index for the Houston
Metropolitan Area, as reported for the last day of the calendar year by the
Bureau of Labor Statistics for the United States Department of Labor, has
increased over its level as of the date of the commencement of this Agreement.
Following the end of each year and within ten (10) days after the release by the
Bureau of Labor Statistics of the figures for such year, the Employer shall pay
to the Employee the amount of any additional compensation to which he is
entitled as a result of the adjustment described in this paragraph, or, at the
Employee's election, the Employer shall pay the amount of any additional
compensation under this paragraph by dividing the total amount of additional
compensation to be paid by the number of pay periods remaining in the calendar
year following the year for which any increase in compensation is due and
including such compensation in the Employee's monthly paycheck.
<PAGE>
VACATION PAY
2.03. Employee shall be entitled to an annual vacation leave of four
calendar weeks or thirty calendar days at full pay. The time for such vacation
shall be selected by the Employee and approved by the Employer and it must be
taken within the calendar year after its accrual, or it may be accrued until the
next calendar year. If, upon the expiration of the term of this Agreement,
Employee has accrued unused vacation time, Employee shall be paid for such time
at the full compensation rate unless the accrued time is applied and carried
forward to any contract renewal, extension or new contract with Employer.
Otherwise, the Employee shall not be entitled to vacation pay in lieu of
vacation.
HOLIDAYS
2.04. During each calendar year, the Employee shall be entitled to a
holiday with full pay on each of the following days: New Year's Day, President's
Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and the day
following, and Christmas Eve and Christmas Day or Christmas Day and the day
following at the Employer's election plus two floating holidays at the
Employee's election as a substitute for any holiday listed herein. Religious
holidays may be taken with full pay other than listed herein with no less than
ten (10) days notice to the Employer.
ARTICLE 3
DUTIES OF EMPLOYEE
DUTIES
3.01. Subject to the supervision and pursuant to the orders, advice and
direction of the President, Employee shall perform such duties as are
customarily performed by one holding the position of Executive Vice-President
for Exploration and Development in other businesses or enterprises of the same
or similar nature as that engaged in by Employer. It is contemplated that
Employee will be responsible for a variety of projects and tasks both
domestically as well as internationally, given the current commitments of the
company. Employee shall additionally render such other and unrelated services
and duties as may be assigned to him from time to time by the President.
MANNER OF PERFORMANCE
3.02. Employee shall at all times faithfully, industriously and to the
best of his ability, experience and talent, perform all duties that may be
required of and from him pursuant to the express and implicit terms hereof, to
the reasonable satisfaction of the Employer. Such duties shall be rendered at
such other place or places as Employer shall in good faith require or as the
interests, needs, business and opportunities of Employer shall require or make
advisable.
<PAGE>
EMPLOYEE'S LOYALTY TO EMPLOYER'S INTERESTS
3.03. Employee shall devote all of his time, attention, knowledge and
skill solely and exclusively to the business and interests of Employer as
Employer may deem appropriate and necessary, and Employer shall be entitled to
all benefits, emoluments, profits or other issues arising from or incident to
any and all work, services and advice of Employee performed on behalf of
Employer. Employee expressly agrees that during the term hereof he will not be
interested, directly or indirectly, in any form, fashion or manner, as partner,
officer, director, stockholder, advisory, employee or in any other form or
capacity, in any other business similar to Employer's business except as
designated in Exhibit 1 to this Agreement. Nothing in this paragraph shall be
deemed to prevent or limit the Employee's right to invest his personal funds in
the capital stock or other securities of any publicly traded or publicly owned
corporation nor shall this paragraph be deemed to prevent Employee from
investing in real estate or energy commodity futures for himself or other.
EFFECT OF EMPLOYEE'S DISABILITY
3.04. If the Employee at any time, during the term of this Agreement,
should be unable to perform her duties under this Agreement because of personal
injury or illness, the Employer may assign the Employee to other duties
compatible with such disability. The compensation to be paid during the period
of such disability shall be 100% during the first 365 days of disability and 50%
thereafter for as long as the disability continues but not beyond the date
specified herein for the end of the employment term. The Employee is entitled
to disability compensation under this paragraph only upon presentation of
written medical certification of the disability by physician duly licensed by
the State of Texas at the time of the disability. If the Employee refuses to
accept the modification in duties and compensation made by the Employer, this
Agreement shall terminate 10 days after Employee's refusal.
ARTICLE 4
EMPLOYEE BENEFITS AND BONUSES
MEDICAL BENEFITS
4.01. The Employer agrees to include the Employee in any hospital,
surgical and medical benefit plan adopted by Employer during the term of this
Agreement. The Employer further agrees to pay directly or reimburse Employee
for all out of pocket expenses, subject to the limitation below, incurred by
Employee that are not covered by the Employer's plan(s) provided that such
expenses are either co-payments or deductible payments to be made by Employee
pursuant to requirements of the plan (s) or are otherwise certified by
Employee's physician as medically necessary. Employer's payment towards health
care benefits under this paragraph shall be limited to Three Hundred and no/100
Dollars ($300.00) per month for Employee to obtain medical insurance coverage
through his current medical plan.
<PAGE>
AUTOMOBILE ALLOWANCE
4.02. Employee shall receive an additional Seven Hundred Fifty and no/100
Dollars ($750.00) per month as an allowance for an automobile lease or purchase,
full automobile insurance coverage, maintenance and fuel. Employee understands
that by accepting this provision, he will not be reimbursed for mileage as a
business expense.
GROUP LIFE INSURANCE
4.03. The Employer agrees to include the Employee under any group term
life insurance which Employer may purchase during the term of this Agreement,
which for Employee shall be two times his base salary.
BONUS COMPENSATION
4.04. Should Employer, in its sole discretion, award additional
compensation to Employee in the form of a bonus payment, Employee agrees that
said bonus will be payable to him entirely in cash, entirely in Trinity common
stock or a combination of both as Employee shall elect subject to the
availability of common stock.
DEATH BENEFIT
4.05. In the event that the Employee should die during the employment term
specified in this Agreement, the Employer agrees to pay immediately the sum of
$250,000.00 to the Employee's surviving spouse. If the Employee does not have a
spouse surviving, this sum shall be immediately payable to the person, persons
or entity designated by the Employee in a written instrument delivered to the
Employer prior to the Employee's death. If no written designation is made, the
entire sum shall be immediately paid to the Employee's estate.
STOCK OPTION
4.06. By this paragraph, the Employer grants the Employee an option to
purchase shares of Employer's New Common Stock as follows:
Employee shall receive a total of One million (1,000,000) options of New
Common Stock of the corporation to purchase the New Common Stock of Trinity
Energy Resources, Inc.; one-third of such options shall be exercisable for five
years on and after the twelve month anniversary of employment with Employer and
shall have an exercise price of $ .25 per share (such options being called
"Twelve Month Vested Options"); the next one-third of such options shall be
exercisable for five years on and after the eighteen month anniversary of
<PAGE>
employment with Employer shall have an exercise price per share of thirty
percent (30%) under the average of the last five trading days prior to the two
year anniversary of employment date (such options being called "Eighteen Month
Vested Options") and the final one-third of such options shall be exercisable
for five years on and after the two year anniversary of the employment date and
shall have an exercise price per share of thirty percent (30%) under the average
of the last five trading days after the two year anniversary of employment date
(such options being called "Twenty-Four Month Vested Options"). Unless the
Stock Option Committee determines otherwise, in the event that the employment
term is terminated by the Employer for reasons other than cause the stock
options herein will become fully vested and will be exercisable for two years or
until the end of the option term, whichever is shorter. Unless the Stock Option
Committee determines otherwise, in the event of termination of the Employee for
cause or if Employee should voluntarily terminate his employment with Employer,
all unexercised stock options will be immediately terminated. The options may
be exercised in whole or in part. It is agreed that the Employee shall not have
any of the rights of, nor be treated as, a shareholder with respect to the
shares subject to this option until the Employee has exercised the option,
deliver of the stock certificates for such shares has been made to the Employee,
and the Employee has become the shareholder of record of such shares. The
option set forth in this paragraph is not assignable nor transferable except as
provided for by Employer's Stock Option Plan which shall conform to the
provisions of the Plan of Reorganization.
RELOCATION EXPENSES
4.07. The Employer agrees to pay for all reasonable and necessary expenses
related to Employee's relocation to the Houston area provided that Employee
submits appropriate receipts in support of said expenses. Said expenses relate
to the packing of contents of Employee's office and residence, moving of said
items to Houston and temporary storage of some items while permanent residency
is established. Moving and transfer company policy requires payment C. O. D.
upon delivery in Houston. Employee will provide Employer a best estimate amount
for advance deposit, payable to Employee upon arrival in Houston and prior to
departure of moving and transfer representatives.
EMPLOYEE RESIDENCE SALE ASSURANCE
4.08. The Employee has placed his residence for sale in Wichita, Kansas.
In the event the residence is not sold by October 1, 1999, Employer agrees to
reimburse Employee, in monthly installments equivalent to the sum of the current
mortgage payment of $715.00, the estimated monthly gas and electricity bill of
$125.00, the monthly water bill of $22.00 and the monthly lawn maintenance
service of $80.00, a total of $942.00 per month. If such payments are made by
Employer to Employee, Employer shall have the exclusive right to set the sales
price of the house so long as such price insures that Employee receives, at
minimum, his equity in the residence.
ARTICLE 5
REIMBURSEMENT OF EXPENSES INCURRED BY EMPLOYEE
BUSINESS EXPENSES
<PAGE>
5.01. The Employee is authorized to incur reasonable business expenses for
promoting the business of the Employer, including expenditures for meals,
lodging, entertainment, gifts, and travel. The Employer will reimburse the
Employee for all such expenses upon the Employee's presentation and itemized
account of such expenditures in conformance with such policies and procedures
governing reimbursement of business expenses as Employer, from time to time,
shall determine.
ARTICLE 6
PROPERTY RIGHTS
RETURN OF EMPLOYER'S PROPERTY
6.01. On the termination of employment or whenever requested by the
Employer, the Employee shall immediately deliver to the Employer all
property in the Employee's possession or under her control belonging to the
Employer.
ARTICLE 7
TERMINATION
TERMINATION BY EMPLOYER FOR CAUSE
7.01. The Employer may at its option terminate this Agreement by giving
written notice of termination to the Employee without prejudice to any other
remedy to which the Employer may be entitled eithis at law, in equity, or under
this Agreement, if the Employee:
(a) Willfully breaches or habitually neglects the duties that the Employee
is required to perform under the terms of this Agreement;
(b) Willfully violates reasonable and substantial rules governing employee
performance;
(c) Refuses to obey reasonable orders in a manner that amounts to
insubordination;
(d) Commits dishonest acts towards the Employer;
(e) Engages in acts of disruption or violence such as unprovoked fighting.
TERMINATION FOR GROUNDS OTHER THAN FOR GOOD CAUSE
7.02. This agreement shall terminate immediately on the occurrence of any
of the following events:
(a) The occurrence of circumstances that make it impossible for the
business of the Employer to be continued.
(b) Reduction in force.
<PAGE>
(c) Determination by the Board of Directors to eliminate, discontinue or
reorganize all or any part of the exploration and development
business and operations of the Employer.
(d) The death of the Employee.
(e) The loss by the Employee of legal capacity.
(f) Mutual agreement of the parties.
EFFECT OF TERMINATION
7.03. In the event of termination of this Agreement prior to the
completion of the term of employment specified herein, for any of the reasons
other than death, cause or disability, the Employee shall be entitled to the
compensation earned prior to the date of termination as provided for in this
Agreement, computed pro rata up to and including the date of termination. The
Employee shall be entitled to no further compensation and will be relieved of
all duties and obligations under this Agreement as of the date of termination.
ARTICLE 8
GENERAL PROVISIONS
NOTICES
8.01. All notices or other communications required under this Agreement
may be effected either by personal delivery in writing or by certified mail,
return receipt requested. Notice shall have been deemed to have been given when
delivered or mailed to the parties at their respective addresses set forth below
or when mailed to the last known address provided in writing to the other party
by the addressee.
TRINITY ENERGY RESOURCES, INC. DENNIS E. HEDKE
11757 Katy Freeway, Suite 1430 11757 Katy Freeway, Suite 1430
Houston, Texas 77079 Houston, Texas 77079
CONTRACT TERMS TO BE EXCLUSIVE
8.02. This Agreement supersedes all other agreements, either oral or in
writing, between the parties to this Agreement, with respect to the employment
of the Employee by the Employer. This Agreement contains the entire
understanding of the parties and all of the covenants and agreements between the
parties with respect to such employment. No other representations, oral or
written, shall survive the execution of this Agreement and all representations
made by and between the parties respecting the subject matter hereof are
contained in this Agreement.
WAIVER OR MODIFICATION INEFFECTIVE UNLESS IN WRITING
<PAGE>
8.03. No waiver or modification of this agreement or of any covenant,
condition or limitation, shall be valid unless in writing and duly executed by
both parties.
GOVERNING LAW
8.04. This Agreement is fully performable in Houston, Harris County, Texas
and shall be governed and construed in accordance with the laws of the State of
Texas.
BINDING EFFECT
8.05. This agreement shall be binding on and inure to the benefit of the
respective parties and their respective heirs, assigns, legal representatives
and successors.
AGREEMENT SURVIVES INVALID PROVISIONS
8.06. Should any provision of this Agreement be declared invalid, illegal
or unenforceable by any court of competent jurisdiction, the remaining
provisions of the contract shall be construed and given effect as if the
Agreement did not contain the provision(s) declared to be invalid, illegal or
unenforceable.
EXECUTED ON THIS 11TH (HANDWRITTEN) DAY OF AUGUST (HANDWRITTEN), 1999.
------------------- --------------------
TRINITY ENERGY RESOURCES, INC. DENNIS E. HEDKE
T. C. O'DELL (SIGNATURE) DENNIS E. HEDKE (SIGNATURE)
- ---------------------------------- -------------------------------
by T. C. O'Dell, Chairman & Chief Dennis E. Hedke,
Executive Officer Individually
<PAGE>
EXHIBIT 1
Pursuant to Paragraph 3.03, the following business interests are disclosed by
Employee to Employer where the Employee has business interests similar to that
of Employer. If Employee has no such business interests, Employee should
indicate "NONE" below.
NONE.
<PAGE>
EMPLOYMENT CONTRACT
-------------------
By this agreement, TRINITY ENERGY RESOURCES, INC. ("Trinity"), also
referred to in this Agreement as "Employer," located in Houston, Harris County,
Texas, employs JAMES E. GALLIEN, JR. ("Gallien"), also referred to in this
Agreement as "Employee," of Houston, Harris County, Texas, who accepts
employment on the following terms and conditions:
ARTICLE 1
TERM OF EMPLOYMENT
1.01. By this Agreement, the Employer employs the Employee, and the
Employee accepts employment with the Employer, for a period of three (3) years
beginning on the 1st day of September, 1999; however, this Agreement may be
terminated earlier, as provided in Article 9 below.
ARTICLE 2
COMPENSATION
BASE COMPENSATION
2.01. As compensation for all services rendered under this Agreement, the
Employee shall be paid by the Employer a salary of One Hundred Twenty Thousand
and no/100 Dollars ($120,000.00) payable in equal monthly installments on the
last day of each month during the period of employment. The amount paid is to be
prorated for any partial employment period.
COST OF LIVING INCREASE
2.02. The basic salary set forth in Paragraph 2.01 of this Agreement shall
be adjusted annually to reflect the increase, if any, in the cost of living by
adding to such basic salary an amount obtained by multiplying the base salary by
the percentage by which the level of the Consumer Price Index for the Houston
Metropolitan Area, as reported for the last day of the calendar year by the
Bureau of Labor Statistics for the United States Department of Labor, has
increased over its level as of the date of the commencement of this Agreement.
Following the end of each year and within ten (10) days after the release by the
Bureau of Labor Statistics of the figures for such year, the Employer shall pay
to the Employee the amount of any additional compensation to which he is
entitled as a result of the adjustment described in this paragraph, or, at the
Employee's election, the Employer shall pay the amount of any additional
compensation under this paragraph by dividing the total amount of additional
compensation to be paid by the number of pay periods remaining in the calendar
year following the year for which any increase in compensation is due and
including such compensation in the Employee's monthly paycheck.
<PAGE>
VACATION PAY
2.03. Employee shall be entitled to an annual vacation leave of four
calendar weeks or thirty calendar days at full pay. The time for such vacation
shall be selected by the Employee and approved by the Employer and it must be
taken within the calendar year after its accrual, or it may be accrued until the
next calendar year. If, upon the expiration of the term of this Agreement,
Employee has accrued unused vacation time, Employee shall be paid for such time
at the full compensation rate unless the accrued time is applied and carried
forward to any contract renewal, extension or new contract with Employer.
Otherwise, the Employee shall not be entitled to vacation pay in lieu of
vacation.
HOLIDAYS
2.04. During each calendar year, the Employee shall be entitled to a
holiday with full pay on each of the following days: New Year's Day, President's
Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and the day
following, and Christmas Eve and Christmas Day or Christmas Day and the day
following at the Employer's election plus two floating holidays at the
Employee's election as a substitute for any holiday listed herein. Religious
holidays may be taken with full pay other than listed herein with no less than
ten (10) days notice to the Employer.
ARTICLE 3
DUTIES OF EMPLOYEE
DUTIES
3.01. Subject to the supervision and pursuant to the orders, advice and
direction of the Chief Executive Officer, Employee shall perform such duties as
are customarily performed by one holding the position of Executive
Vice-President and Chief Financial Officer in other businesses or enterprises of
the same or similar nature as that engaged in by Employer. Employee shall
additionally render such other and unrelated services and duties as may be
assigned to him from time to time by the Chief Executive Officer.
MANNER OF PERFORMANCE
3.02. Employee shall at all times faithfully, industriously and to the
best of her ability, experience and talent, perform all duties that may be
required of and from him pursuant to the express and implicit terms hereof, to
the reasonable satisfaction of the Employer. Such duties shall be rendered at
such other place or places as Employer shall in good faith require or as the
interests, needs, business and opportunities of Employer shall require or make
advisable.
<PAGE>
EMPLOYEE'S LOYALTY TO EMPLOYER'S INTERESTS
3.03. Employee shall devote such time, attention, knowledge and skill as
are reasonably required to the business and interests of Employer as Employer
may deem appropriate and necessary, and Employer shall be entitled to all
benefits, emoluments, profits or other issues arising from or incident to any
and all work, services and advice of Employee performed on behalf of Employer.
Employee expressly agrees that during the term hereof he will not be interested,
directly or indirectly, in any form, fashion or manner, as partner, officer,
director, stockholder, advisory, employee or in any other form or capacity, in
any other business similar to Employer's business except as designated in
Exhibit 1 to this Agreement. Nothing in this paragraph shall be deemed to
prevent or limit the Employee's right to invest his personal funds in the
capital stock or other securities of any publicly traded or publicly owned
corporation nor shall this paragraph be deemed to prevent Employee from
investing in real estate or energy commodity futures for himself or other.
EFFECT OF EMPLOYEE'S DISABILITY
3.04. If the Employee at any time, during the term of this Agreement,
should be unable to perform her duties under this Agreement because of personal
injury or illness, the Employer may assign the Employee to other duties
compatible with such disability. The compensation to be paid during the period
of such disability shall be 100% during the first 365 days of disability and 50%
thereafter for as long as the disability continues but not beyond the date
specified herein for the end of the employment term. The Employee is entitled
to disability compensation under this paragraph only upon presentation of
written medical certification of the disability by physician duly licensed by
the State of Texas at the time of the disability. If the Employee refuses to
accept the modification in duties and compensation made by the Employer, this
Agreement shall terminate 10 days after Employee's refusal.
ARTICLE 4
EMPLOYEE BENEFITS AND BONUSES
MEDICAL BENEFITS
4.01. The Employer agrees to include the Employee in any hospital,
surgical and medical benefit plan adopted by Employer during the term of this
Agreement. The Employer further agrees to pay directly or reimburse Employee
for all out of pocket expenses, subject to the limitation below, incurred by
Employee that are not covered by the Employer's plan(s) provided that such
expenses are either co-payments or deductible payments to be made by Employee
pursuant to requirements of the plan (s) or are otherwise certified by
Employee's physician as medically necessary. Employer's payment towards health
care benefits under this paragraph shall be limited to Three Hundred and no/100
Dollars ($300.00) per month.
<PAGE>
AUTOMOBILE ALLOWANCE
4.02. Employee shall receive an additional Seven Hundred Fifty and no/100
Dollars ($750.00) per month as an allowance for an automobile lease or purchase,
full automobile insurance coverage, maintenance and fuel. Employee understands
that by accepting this provision, he will not be reimbursed for mileage as a
business expense.
GROUP LIFE INSURANCE
4.03. The Employer agrees to include the Employee under any group term
life insurance which Employer may purchase during the term of this Agreement,
which for Employee shall be two times his base salary.
BONUS COMPENSATION
4.04. Should Employer, in its sole discretion, award additional
compensation to Employee in the form of a bonus payment, Employee agrees that
said bonus will be payable to him entirely in cash, entirely in Trinity common
stock or a combination of both as Employee shall elect subject to availability
of common stock.
DEATH BENEFIT
4.05. In the event that the Employee should die during the employment term
specified in this Agreement, the Employer agrees to pay immediately the sum of
$250,000.00 to the Employee's surviving spouse. If the Employee does not have a
spouse surviving, this sum shall be immediately payable to the person, persons
or entity designated by the Employee in a written instrument delivered to the
Employer prior to the Employee's death. If no written designation is made, the
entire sum shall be immediately paid to the Employee's estate.
STOCK OPTION
4.06. By this paragraph, the Employer grants the Employee an option to
purchase shares of Employer's New Common Stock as follows:
Employee shall receive a total of One million (1,000,000) options of New
Common Stock of the corporation to purchase the New Common Stock of Trinity
Energy Resources, Inc.; one-third of such options shall be exercisable for five
years on and after the twelve month anniversary of employment with Employer and
shall have an exercise price of $ .25 per share (such options being called
"Twelve Month Vested Options"); the next one-third of such options shall be
exercisable for five years on and after the eighteen month anniversary of
employment with Employer shall have an exercise price per share of thirty
percent (30%) under the average of the last five trading days prior to the two
year anniversary of employment date (such options being called "Eighteen Month
Vested Options") and the final one-third of such options shall be exercisable
for five years on and after the two year anniversary of the employment date and
shall have an exercise price per share of thirty percent (30%) under the average
of the last five trading days after the two year anniversary of employment date
<PAGE>
(such options being called "Twenty-Four Month Vested Options"). Unless the
Stock Option Committee determines otherwise, in the event that the employment
term is terminated by the Employer for reasons other than cause the stock
options herein will become fully vested and will be exercisable for two years or
until the end of the option term, whichever is shorter. Unless the Stock Option
Committee determines otherwise, in the event of termination of the Employee for
cause or if Employee should voluntarily terminate his employment with Employer,
all unexercised stock options will be immediately terminated. The options may
be exercised in whole or in part. It is agreed that the Employee shall not have
any of the rights of, nor be treated as, a shareholder with respect to the
shares subject to this option until the Employee has exercised the option,
deliver of the stock certificates for such shares has been made to the Employee,
and the Employee has become the shareholder of record of such shares. The
option set forth in this paragraph is not assignable nor transferable except as
provided for by Employer's Stock Option Plan which shall conform to the
provisions of the Plan of Reorganization.
ARTICLE 5
REIMBURSEMENT OF EXPENSES INCURRED BY EMPLOYEE
BUSINESS EXPENSES
5.01. The Employee is authorized to incur reasonable business expenses for
promoting the business of the Employer, including expenditures for meals,
lodging, entertainment, gifts, and travel. The Employer will reimburse the
Employee for all such expenses upon the Employee's presentation and itemized
account of such expenditures in conformance with such policies and procedures
governing reimbursement of business expenses as Employer, from time to time,
shall determine.
ARTICLE 6
PROPERTY RIGHTS
RETURN OF EMPLOYER'S PROPERTY
6.01. On the termination of employment or whenever requested by the Employer,
the Employee shall immediately deliver to the Employer all property in the
Employee's possession or under her control belonging to the Employer.
<PAGE>
ARTICLE 7
TERMINATION
TERMINATION BY EMPLOYER FOR CAUSE
7.01. The Employer may at its option terminate this Agreement by giving
written notice of termination to the Employee without prejudice to any other
remedy to which the Employer may be entitled eithis at law, in equity, or under
this Agreement, if the Employee:
(a) Willfully breaches or habitually neglects the duties that the Employee
is required to perform under the terms of this Agreement;
(b) Willfully violates reasonable and substantial rules governing employee
performance;
(c) Refuses to obey reasonable orders in a manner that amounts to
insubordination;
(d) Commits dishonest acts towards the Employer;
(e) Engages in acts of disruption or violence such as unprovoked fighting.
TERMINATION FOR GROUNDS OTHER THAN FOR GOOD CAUSE
7.02. This agreement shall terminate immediately on the occurrence of any
of the following events:
(a) The occurrence of circumstances that make it impossible for the
business of the Employer to be continued.
(b) Reduction in force.
(c) Determination by the Board of Directors to eliminate, discontinue or
reorganize all or any part of the business and operations of
the Employer.
(d) The death of the Employee.
(e) The loss by the Employee of legal capacity.
(f) Mutual agreement of the parties.
EFFECT OF TERMINATION
<PAGE>
7.03. In the event of termination of this Agreement prior to the
completion of the term of employment specified herein, for any of the reasons
other than death, cause or disability, the Employee shall be entitled to the
compensation earned prior to the date of termination as provided for in this
Agreement, computed pro rata up to and including the date of termination. The
Employee shall be entitled to no further compensation and will be relieved of
all duties and obligations under this Agreement as of the date of termination.
ARTICLE 8
GENERAL PROVISIONS
NOTICES
8.01. All notices or other communications required under this Agreement
may be effected either by personal delivery in writing or by certified mail,
return receipt requested. Notice shall have been deemed to have been given when
delivered or mailed to the parties at their respective addresses set forth below
or when mailed to the last known address provided in writing to the other party
by the addressee.
TRINITY ENERGY RESOURCES, INC. JAMES E. GALLIEN, JR.
11757 Katy Freeway, Suite 1430 11757 Katy Freeway, Suite 1430
Houston, Texas 77079 Houston, Texas 77079
CONTRACT TERMS TO BE EXCLUSIVE
8.02. This Agreement supersedes all other agreements, either oral or in
writing, between the parties to this Agreement, with respect to the employment
of the Employee by the Employer. This Agreement contains the entire
understanding of the parties and all of the covenants and agreements between the
parties with respect to such employment. No other representations, oral or
written, shall survive the execution of this Agreement and all representations
made by and between the parties respecting the subject matter hereof are
contained in this Agreement.
WAIVER OR MODIFICATION INEFFECTIVE UNLESS IN WRITING
8.03. No waiver or modification of this agreement or of any covenant,
condition or limitation, shall be valid unless in writing and duly executed by
both parties.
GOVERNING LAW
8.04. This Agreement is fully performable in Houston, Harris County, Texas
and shall be governed and construed in accordance with the laws of the State of
Texas.
BINDING EFFECT
8.05. This agreement shall be binding on and inure to the benefit of the
respective parties and their respective heirs, assigns, legal representatives
and successors.
AGREEMENT SURVIVES INVALID PROVISIONS
<PAGE>
8.06. Should any provision of this Agreement be declared invalid, illegal
or unenforceable by any court of competent jurisdiction, the remaining
provisions of the contract shall be construed and given effect as if the
Agreement did not contain the provision(s) declared to be invalid, illegal or
unenforceable.
EXECUTED ON THIS 8TH (HANDWRITTEN) DAY OF SEPTEMBER (HANDWRITTEN), 1999.
----------------- -----------------------
TRINITY ENERGY RESOURCES, INC. JAMES E. GALLIEN, JR.
T. C. O'DELL (SIGNATURE) JAMES E. GALLIEN, JR. (SIGNATURE)
- --------------------------------- ------------------------------------
by T. C. O'Dell, Chairman & Chief James E. Gallien, Jr.,
Executive Officer Individually
<PAGE>
EXHIBIT 1
Pursuant to Paragraph 3.03, the following business interests are disclosed by
Employee to Employer where the Employee has business interests similar to that
of Employer. If Employee has no such business interests, Employee should
indicate "NONE" below.
NONE.
<PAGE>
INDEPENDENT CONSULTING AGREEMENT
--------------------------------
This Agreement is made by and between Trinity Energy Resources, Inc.,
hereinafter referred to as "Trinity" and Michael L Wallace, hereinafter referred
to as "Wallace" on this 24th day of August, 1999 in Houston, Harris County,
Texas.
For and in consideration of the mutual promises and obligations contained
herein, the parties agree as follows:
1. Trinity hereby engages Michael L. Wallace to provide consulting
services to Trinity on such projects and assignments as specifically assigned to
him by the Chief Executive Officer of
Trinity, but which may generally be described as regarding energy related and
corporate matters.
2. The term of this Agreement is one year, beginning August 25, 1999.
3. For services rendered in connection with this Agreement, Trinity
will pay Wallace the sum of $10,000.00 per month beginning August 25, 1999. The
amount to be paid will be prorated
for any partial month of employment. Payment will be made on the last business
day of the month.
4. Wallace shall be responsible for the payment of federal income tax,
social security and Medicare taxes related to the compensation received under
this Agreement. Wallace shall not be eligible for any Trinity benefits,
including but not limited to, insurance, bonuses, pensions, vacation pay, sick
pay and stock options.
5. Trinity shall also pay to Wallace any pre-approved business expenses
that are reasonable and necessary incident to this Agreement, to specifically
include out of town travel and entertainment expenses. Local entertainment and
meal expenses will not be reimbursed nor advanced.
6. Wallace shall be available on an "as needed" basis, not to exceed
1000 hours during the term of this Agreement, to provide services to Trinity in
accordance with this Agreement. Wallace will obtain and maintain a full
coverage insurance policy on any automobile utilized by Wallace during the term
of this Agreement and agrees to furnish a copy of the insurance policy or
certificate to Trinity upon demand at any time.
7. Wallace will submit detailed written weekly reports to the Chief
Executive Officer of Trinity on the progress and status of his assignments and
shall provide proof of performance of any obligations under this Agreement upon
request and at such intervals as shall be deemed necessary by the Chief
Executive Officer of Trinity.
8. Nothing in this Agreement shall prevent Wallace from obtaining other
employment or consulting opportunities. However, during the term of this
Agreement, Wallace shall not accept any employment or consulting opportunities
of any nature or kind, in Harris County, Texas or any adjacent county or in any
<PAGE>
locale where Trinity has an office, that would directly conflict or compete with
the business of Trinity, and, specifically, Wallace may not accept employment
with Exxon, Shell or EIf Aquitaine, said companies being direct competitors with
Trinity in the Republic of Chad. Wallace shall clear any such potential
conflict with the Chief Executive Officer.
9. Wallace agrees to retain in confidence all information and data
provided to him by
Trinity. Wallace agrees not to disclose such confidential information to third
parties without the express written consent of the Chief Executive Officer of
Trinity. All information and data furnished to Wallace in connection with this
Agreement is and shall remain the property of Trinity and may
not be retained by Wallace for his personal or other use nor furnished to any
third party by him without the express written consent of the Chief Executive
Officer of Trinity
10. The parties agree that, in the event of a breach of the duties and
obligations owed by Wallace to Trinity under paragraphs 8 and 9 of this
Agreement, irreparable injury will have occurred by such breach rendering any
remedy at law that might be sought by Trinity wholly inadequate. Therefore, the
parties further agree and consent to the entry of injunctive and other equitable
relief, by a court of competent jurisdiction, to remedy any such breach and the
non-prevailing party shall bear all costs, expenses and reasonable attorney's
fees incurred as a result of such action.
11. This Agreement can be terminated without notice if Wallace violates
any of its terms or if Trinity, in its sole judgment and opinion, determines
that Wallace is not performing his duties and obligations hereunder in a timely
and proper manner.
12. The parties agree that Wallace is not an employee, agent, servant
of, or joint venturer with Trinity, but is engaged solely to provide the
services described herein as an independent contractor. Wallace shall set the
hours of performance of his obligations under this Agreement. Wallace shall not
be required to perform work under this Agreement on Trinity's premises and shall
retain sole control over the services performed by Wallace under this Agreement,
including the details and means by which said services shall be performed.
13. Wallace shall indemnify, protect and save harmless, compensate and
release Trinity, its officers, directors and employees, both in their corporate
and individual capacities, for, from and against any and all damages, claims,
causes of action, or other liabilities whatsoever, including bodily injury to
any person or persons, including the death of any party or parties, and
including all expenses and attorneys' fees incurred in defending against
any such claims, causes of action or other liabilities, arising out of
or associated with Wallace's performance under this Agreement. This
indemnification includes claims for negligence or gross negligence asserted
against Trinity.
14. This Agreement shall be construed and interpreted under the laws of
the State of Texas and shall be performable in Houston, Harris County, Texas.
15. This Agreement is binding on and inures to the benefit of the
parties to it and their respective heirs, assigns, administrators, executors and
legal representatives.
<PAGE>
16. Should any provision of this Agreement be declared invalid, illegal
or unenforceable by a court of competent jurisdiction, this Agreement shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained therein.
17. This Agreement constitutes the sole and exclusive agreement between
Wallace and Trinity regarding the subject matter contained herein. It
supercedes any prior understandings, representations, oral or written agreements
between Wallace and Trinity regarding the subject matter contained herein.
18. No amendment or modification of this Agreement shall be valid
unless in writing and signed by Wallace and Trinity.
19. Except as provided in paragraph 10 above, in the event of any
dispute between the parties whatsoever arising under this Agreement, the parties
agree to submit to binding arbitration, to be held in Harris County, Texas.
Each party to the dispute shall appoint an arbitrator who shall be a licensed
attorney or a licensed or certified professional arbitrator, acting
independently and not as an advocate or representative of any party. The
arbitrators so selected shall appoint additional arbitrator(s) in order to have
the minimum odd number of arbitrators. The arbitrators shall utilize the Rules
of Arbitration of the American Arbitration Association for procedural guidance
but not as to costs. The final decision shall require the agreement of a
majority of the arbitrators and shall be fully binding and enforceable upon
the parties. The parties agree that any such decision of the arbitrators
shall be final and binding and shall not be appealed to any court of law in any
jurisdiction. The costs of arbitration shall be borne by the parties in the
manner determined by the arbitrators. It is understood and agreed that any
final arbitration award hereunder may be entered into any court of competent
jurisdiction forenforcement.
Signed on the day and year first above written.
TRINITY ENERGY RESOURCES, INC.
a Nevada Corporation
by: T.C. O'DELL (SIGNATURE)
- ----------------------------------------
T.C. O'DELL
Chairman of the Board
Chief Executive Officer
MICHAEL L. WALLACE
MICHAEL L. WALLACE (SIGNATURE)
- ----------------------------------------
MICHAEL L. WALLACE
An Individual
<PAGE>
LETTER AGREEMENT
AMONG
ORIENTAL ENERGY RESOURCES LTD., CARLTON ENERGY GROUP, L.L.C., AND TRINITY GAS
CORPORATION.
On the 15th November, 98 in Maiduguri, Nigeria, Trinity Gas Corporation
(Trinity) Carlton Energy Group, L.L.C., (Carlton) and Oriental Energy Resources
Ltd., (Oriental) agreed to enter into a definite joint venture agreement (JVA)
to be executed within thirty days of the signing of a Convention Agreement
between the Government of Republic of Chad and the above three named companies.
The JVA shall incorporate the following relevant points:
1. Trinity shall have 100% working interest in the convention, subject to a
5% overriding royalty to Oriental Energy Resources Ltd. And a 2.5%
overriding royalty to Carlton Energy Group, L.L.C.
2. Oriental Energy Resources Ltd. shall remain the Lead Company in regard to
interfacing and developing further relationships with the Government
of Chad.
3. Trinity shall be the concession operator under the umbrella of Oriental
Energy Resources Ltd.
4. Oriental, Carlton and Trinity shall all have representation on the
Operating Committee but Trinity's vote shall control
5. Trinity shall bear 100% of the cost and expenses of the concession and
shall be entitled to 100% of the revenue from the sale of any
and all hydrocarbons subject to the overriding royalty interest stated
above.
6. Trinity shall reimburse Oriental Energy Resources Ltd. And Carlton for
services directly related to the Chad effort so long as such costs are
submitted to and pre-approved by Trinity, in writing, acquiring the
subject convention and permit.
7. Oriental and Carlton shall be reimbursed their "sunk costs" up to a total
maximum amount of $2 million ($2,000,000) dollars. "Sunk costs"
shall be defined as those costs expended and incurred that are directly
related to the acquiring of the subject Convention and Permit H. These
"sunk costs" shall be paid no later than thirty days after submitted to
Trinity. "Sunk costs" due and owing to Carlton and Oriental shall
be paid by Trinity directly to the owed party. "Sunk cost" shall be
considered "deemed" for the purpose of this Letter Agreement following
submittal and verification to the satisfaction of Trinity.
8. Within Thirty days of final approval by the Chad Government of the
subject Convention and granting of Permit H, the parties to this
agreement shall enter into a definite Joint Venture Agreement and a
<PAGE>
Joint Operating Agreement (JOA). The JOA shall be modeled after the
Association of International Petroleum Negotiators model form.
9. The parties, shall, in good faith, and do in good faith, agree that the
concessions work schedule should be the following:
a. Establish a consortium general office in N'djamena as soon as
practicable following the approval of the convention and
granting of Permit H;
b. Commence geological and geophysical evaluation activities as
soon as practicable following the approval of the Convention and
granting of the Permit H;
c. Preparatory work for the air magnetic survey (air mag) shall
begin by April 1, 1999 and the air mag shall commence,
subject to availability of equipment and crews, on or before
August 1, 1999 or as soon as practicable thereafter.
The parties stated above hereby execute this letter agreement and agree to
perform the terms and conditions listed above to the best of their abilities.
/S/ Michael L. Wallace
-------------------------------
Michael L. Wallace
Trinity Gas Corporation
President
/S/ T. C. O'Dell /S/ Alhaji (Dr.) M. Indimi
- ------------------------------- -------------------------------
T. C. O'Dell Alhaji (Dr.) M. Indimi
Carlton Energy Group, L.L.C. Oriental Energy Resources Limited.
Chairman Chairman
<PAGE>
EXHIBIT 10.6
CONVENTION
DE RECHERCHES, D'EXPLOITATION ET DE TRANSPORT DES
HYDROCARBURES
ENTRE
LA REPUBLIQUE DU TCHAD
ET
LE CONSORTIUM ORIENTAL ENERGY RESOURCES LIMITED -
CARLTON ENERGY Group LLC. - TRINITY GAS CORPORATION, Inc.
BASSINS DES ERDIS, DU LAC TCHAD ET DU CHARI
<PAGE>
<TABLE>
<CAPTION>
SOMMAIRE
--------
<S> <C>
TITRE 1er: DISPOSITIONS GENERALES
1 Definitions
2 Objet et Duree de la Convention
3 Droits du Consortium dans la conduite des Operations Petroli res
4 Obligations generales du Consortium
TITRE II: DE LA RECHERCHE
5 Octroi du Permis de Recherches, Duree et Renouvellements
6 Rendus de surface et Renonciation
7 Obligations de Travaux de Recherche
8 Taxes Superficiaires
9 Evaluation d'une Decouverte
TITRE III: DE L'EXPLOITATION
10 Demande, Octroi et Duree d'une Concession
11 Programmes de Production
12 Gaz Naturel
13 Mesure des Hydrocarbures
14 Transport des Hydrocarbures
15 Obligation d'approvisionnement du Marche interieur
TITRE IV : DISPOSITIONS COMMUNES A LA RECHERCHE ET A
L'EXPLOITATION
16 Programmes Annuels de Travaux
17 Surveillance Administrative des Operations Petroli res
18 Informations et Rapports. Confidentialite
19 Personnel et Formation
20 Propriete des Biens
<PAGE>
TITRE V: DISPOSITIONS ECONOMIQUES ET FISCALES
21 Prix du Petrole Brut
22 Redevance sur la Production
23 Regime Fiscal
24 Exonerations fiscales
25 Comptabilite
26 Verifications
27 Importations et Exportations
28 Contr le des Changes
29 Paiements
TITRE VI: DISPOSITIONS DIVERSES
30 Droits de Cession et Contr le du Consortium35
31 Annulation du Permis, Retrait de la Concession
et Resiliation de la Convention
32 Force Majeure
33 Arbitrage
34 Droit Applicable ET STABILITE DES CONDITIONS
----------------------------------------------------------------
35 Notifications
36 Autres dispositions
ANNEXES
I. Delimitation de la Zone Contractuelle du Permis
Carte de la Zone Contractuelle
II. Programme de Travaux d'exploration et Depenses Previsionnelles
III. Procedure Comptable
IV. Liste des categories de biens devant beneficier de l'exoneration
des droits et taxes
</TABLE>
<PAGE>
CONVENTION
----------
ENTRE
-----
La Republique du Tchad, ci-apres designee " l'Etat ", representee aux presentes
par le Ministre des Mines, de l'Energie et du Petrole
d'une part,
ET
Le Consortium constitue par les societes :
- - Oriental Energy Resources Limited,
- - Carlton Energy Group LLC.
- - Trinity Gaz Corporation, Inc.
d'autre part,
ATTENDU
- - que tous les gisements et accumulations naturelles d'Hydrocarbures existant
dans le sol ou le sous-sol du territoire de la Republique du Tchad sont la
propriete de l'Etat ;
- - que la Decouverte et l'exploitation des Hydrocarbures dans le territoire de
la Republique du Tchad sont importantes pour le developpement economique du
pays et de ses habitants ;
- - que le Consortium declare posseder les capacites techniques et financieres
pour mener a bien dans la Zone Contractuelle les Operations Petrolieres
autorisees en vertu des presentes, et desire entreprendre lesdites
Operations Petrolieres dans le cadre d'une Convention fixant ses droits et
obligations ;
<PAGE>
- - que l'Ordonnance n 07/PC/TP/MH du 3 fevrier 1962, relative a la recherche,
a l'exploitation, au transport par canalisations des Hydrocarbures et au
regime fiscal de ces activites sur le territoire de la Republique du Tchad,
autorise l'octroi du Permis de recherches et de Concessions d'exploitation
sous reserve d'une Convention avec l'Etat;
CECI EXPOSE, IL EST MUTUELLEMENT CONVENU ET ARRETE CE QUI SUIT:
TITRE PREMIER
DISPOSITIONS GENERALES
ARTICLE 1 - DEFINITIONS
Les termes definis au present article auront pour l'ensemble de la Convention la
signification suivante :
1.1. Annee Civile: signifie une periode de douze (12) mois consecutifs
commencant le premier (1er) janvier et se terminant le trente et un (31)
decembre suivant.
1.2. Budget: signifie l'estimation detaillee du cout des Operations Petrolieres
prevues dans un Programme Annuel de Travaux.
1.3. Code Petrolier: signifie l'Ordonnance n 7/PC/TP/MH du 3 fevrier 1962 ainsi
que le decret du 10 mai 1967 precisant les conditions d'application de cette
Ordonnance.
1.4. Concession: signifie la concession d'exploitation d'Hydrocarbures octroyee
par l'Etat au Consortium, relative a un Gisement Commercial decouvert a
l'interieur de la Zone Contractuelle et delimitee par l'etendue dudit Gisement.
Le Ministre et le Consortium fixeront par accord mutuel la delimitation du
perimetre de la Concession avant l'octroi de celle-ci.
1.5. Consortium: signifie soit individuellement, soit collectivement, le
Consortium constitue par les societes Oriental Energy Resources Limited ,
Carlton Energy Group LLC. et Trinity Gaz Corporation, Inc. ainsi que toute
societe a laquelle serait cede un interet en application de la presente
Convention et a laquelle serait egalement cede un interet dans le Permis ou dans
les Concessions. Le terme " Consortium " n'est utilise tout au long de cette
Convention que dans un but de commodite, et ne saurait en aucun cas indiquer une
intention quelconque de la part des societes constituant le Consortium de former
entre elles une association, societe ou autre entite juridique d'apres les lois
de quelque pays ou juridiction que ce soit.
<PAGE>
1.6. Convention: signifie le present acte et ses annexes.
1.7. Date d'Effet: signifie la date d'entree en vigueur de la presente
Convention.
1.8. Decouverte: signifie une decouverte d'Hydrocarbures dont l'existence etait
inconnue jusque la, ayant entra ne en surface un debit d'Hydrocarbures mesure
conformement aux methodes d'essais de production de l'industrie petroliere
internationale.
1.9. Dollar: signifie Dollar des Etats-Unis d'Amerique.
1.10. Etat: signifie la Republique du Tchad.
1.11. Franc CFA: signifie la monnaie ayant cours legal au Tchad.
1.12. Forage d'Exploration: signifie tout forage effectue au cours des travaux
de recherches, a l'exclusion de tout Forage d'Evaluation.
1.13: Forage d'Evaluation: signifie tout forage effectue apres une Decouverte
afin d'evaluer les quantites d'Hydrocarbures du reservoir objet de ladite
Decouverte.
1.14: Gaz Naturel: signifie le gaz sec et le gaz humide, produit isolement ou en
association avec le Petrole Brut ainsi que tous autres constituants gazeux
extraits des puits.
Gaz Naturel Associe: signifie le Gaz Naturel existant dans un reservoir en
solution avec le Petrole Brut, ou sous forme de " gaz -cap " en contact avec le
Petrole Brut, et qui est produit ou pouvant etre produit en association avec le
Petrole Brut
Gaz Naturel Non associe signifie le Gaz Naturel a l'Exclusion du Gaz
Naturel Associe.
1.15: Gisement Commercial: signifie une entite geologique impregnee
d'Hydrocarbures dument evaluee, SELON LE CONSORTIUM pouvant etre developpee et
-------------------
produite dans des conditions economiques conformement aux regles en usage dans
l'industrie petroliere internationale.
1.16: Hydrocarbures: signifie petrole Brut et Gaz Naturel.
1.17. Ministre: designe a tout moment le Ministre charge du secteur des
Operations Petrolieres ou son representant qualifie, a la date de signature de
la presente Convention, le Ministre responsable est le Ministre des Mines , de
l'Energie et du Petrole.
1.18. Operations Petrolieres: signifie toutes les operations de recherche et
d'exploitation, y compris, SANS QUE CETTE LISTE SOIT LIMITATIVE, les operations
-------------------------------------
d'evaluation, de developpement, de production, de separation, tout traitement
primaire et/ ou liquefaction, de stockage, de transport, de vente et de cession
des Hydrocarbures, jusqu'au Point de Livraison, ainsi que les activites
administratives necessaires a l'execution desdites Operations mais a l'exclusion
des operations de raffinage et de distribution des produits petroliers.
1.19. Partie(s): signifie l'Etat et/ ou le Consortium.
1.20. Permis: signifie le Permis exclusif de recherches d'Hydrocarbures, dit
Permis H, dont il est fait reference au preambule de la presente Convention,
delivre au Consortium pour l'autoriser a conduire les Operations Petrolieres de
recherche dans la Zone Contractuelle, y compris les travaux d'evaluation d'une
Decouverte. Le perimetre du Permis , tel qu'il est defini a l'annexe I de la
presente Convention.
1.21. Petrole Brut: signifie huile minerale brute, asphalte, ozokerite et tous
autres Hydrocarbures liquides a l'etat naturel obtenus par condensation ou
extraction, y compris les condensats et les liquides de Gaz Naturel.
1.22. Point de Livraison: signifie le point de transfert, par le Consortium a
ses acheteurs, de la propriete des Hydrocarbures, soit au point de chargement
F.O.B. au port d'embarquement sur la cote maritime, soit a tout autre point, a
l'interieur ou a l'exterieur de la Republique du Tchad, fixe d'un commun accord
entre les parties .
1.23. Production Totale: signifie la production totale d'Hydrocarbures du
Consortium obtenue a partir de toutes les Concessions, diminuee :
- - des quantites perdues ou inutilisees, et
- - des quantites reinjectees, brulees ou utilisees pour les besoins des
operations d'exploitation, dans la mesure ou ceci est autorise conformement aux
dispositions de la presente Convention, telle qu'elle est mesuree au (x) point
(s) de mesure(s) precises a l'article 13 ci-dessous.
<PAGE>
1.24. Programme Annuel de Travaux: signifie le document descriptif des
Operations Petrolieres a realiser, prepare conformement aux dispositions de
l'article 16 ci-dessous.
1.25. Redevances: designent autres redevances percues en contrepartie des
services rendus a des usagers, destinees a l'entretien des biens necessaires a
la production de ces services.
1.26: Societe Affiliee:
a) signifie toute societe qui controle ou est controlee directement ou
indirectement par une societe partie aux presentes;
B) OU TOUTE SOCIETE QUI CONTROLE OU EST CONTROLEE PAR UNE SOCIETE CONTROLANT
---------------------------------------------------------------------------
DIRECTEMENT OU INDIRECTEMENT UNE SOCIETE PARTIE AUX PRESENTES.
--------------------------------------------------------------
Dans la presente definition, '' controle '' signifie la propriete directe ou
indirecte par une societe ou toute autre entite d'un pourcentage d'actions ou
de parts sociales suffisant pour donner lieu a la majorite des droits de vote a
l'assemblee generale d'une autre societe ou pour donner un pouvoir determinant
dans la direction de cette autre societe.
1.27. Taxes: designent tous les impots sous forme de tarifs destines a couvrir
les charges nees des structures organisationnelles etatiques, para-etatiques, ou
meme privees.
1.28. Tiers: signifie une personne qui n'entre pas dans le cadre de la
definition visee a l'article 1.26 ci-dessus.
1.29. Trimestre: signifie une periode de trois(3) mois consecutifs commencant
le premier jour de janvier, d'avril, de juillet et d'octobre de chaque Annee
Civile.
1.30. Zone Contractuelle: signifie a tout moment la superficie a l'interieur du
perimetre du Permis, apres deduction des superficies rendues par le Consortium.
Le ou les perimetre(s) des Concessions feront partie integrante de la Zone
Contractuelle pendant la duree de validite de celles-ci.
D'autres termes utilises dans cette Convention auront la signification qui leur
est normalement attribuee dans l'industrie petroliere internationale.
<PAGE>
ARTICLE 2 OBJET ET DUREE DE LA CONVENTION
2.1. La presente Convention etablit les conditions pour la conduite des travaux
d'exploration et d'evaluation du Consortium dans tout le Permis ( ainsi que sur
toutes les zones sur lesquelles le Permis sera renouvele et a l'interieur des
perimetres des Concessions qui pourraient etre octroyees au Consortium ) en vue
de confirmer l'existence des reserves d'Hydrocarbures susceptibles d'etre
commercialement exploitables et d'assurer leur mise en valeur dans les
meilleurs delais, ainsi que les conditions qui s'appliqueront aux Concessions.
2.2. La presente Convention restera en vigueur pendant vingt-et-cinq (25 ) ans
a compter de sa date de signature TANT QUE le Consortium sera titulaire du
--------
Permis ou d'une Concession; toutefois la duree de validite de la Convention
sera prolongee de plein droit une seule fois pour la meme duree aux memes
termes, si une telle prolongation est necessaire afin d'assurer que toute
Concession soit couverte par la Convention pendant toute la periode de validite
de telle Concession.
2.3. A la fin de la periode de validite du Permis, y compris toute periode de
renouvellement, si le Consortium n'a pas demande une Concession relative a un
Gisement Commercial, la presente Convention prendra fin. Ladite fin ne mettra
pas un terme aux droits et obligations nees anterieurement, y compris le droit
de resoudre tous differends y afferents CONFORMEMENT AUX DISPOSITIONS DE
----------------------------------
L'ARTICLE 33 CI-DESSOUS.
- --------------------------
Cette disposition s'appliquera egalement en cas d'annulation ou de renonciation
au Permis.
2.4. En tant que de besoin, les droits et obligations exposes dans cette
Convention s'appliqueront en outre aux sous-traitants, fournisseurs de
marchandises ou prestataires de services ou d'autres activites connexes,
employes dans la poursuite des Operations Petrolieres pour le compte du
Consortium.
L'application de cet article 2.4 doit etre strictement limitee aux seuls
sous-traitants ou prestataires de services qui travaillent pour le Consortium
dans le cadre des Operations Petrolieres. Il ne peut etre applique sous aucun
pretexte a d'autres activites qui pourraient etre entreprises au Tchad par ces
memes sous-traitants, fournisseurs ou prestataires des services.
ARTICLE 3 - DROITS DU CONSORTIUM DANS LA CONDUITE
DES OPERATIONS PETROLIERES
3.1. Dans les limites des lois et reglements en vigueur, et conformement aux
dispositions de la presente Convention et a celles du Code Petrolier.
<PAGE>
Le Consortium aura droit :
a) de rechercher les Hydrocarbures a l'interieur du perimetre du Permis;
b) d'exploiter (y compris, notamment le developpement, la production, la
separation, tout traitement primaire et /ou liquefaction, le stockage, le
transport, la vente, la cession et l'exportation ) les Hydrocarbures ainsi
que LES SUBSTANCES CONNEXES ET/OU les produits qui en deriveront par
--------------------------------
separation ou traitement provenant des gisements contenus a l'interieur du
perimetre des Concessions auxquelles ce Permis donne droit; le raffinage
proprement dit est exclu, a l'exception de celui strictement necessaire a
la realisation des Operations Petrolieres et sous reserve de l'approbation
prealable du Ministre qui ne sera pas refusee sans raison dument motivee.
Le transfert au Consortium de la propriete de la portion des Hydrocarbures
extraits a laquelle le Consortium aura droit suivant les termes de cette
Convention s'operera au point DE production a la tete de puits. Chaque
--
societe constituant le Consortium detiendra sa quote-part des Hydrocarbures
extraits, et pourra en prendre possession et en disposer separement.
c)d'acceder a l'interieur du perimetre du Permis et des Concessions
auxquelles ce Permis donne droit, afin d'y mener les Operations Petrolieres
prevues par la presente Convention;
d)de realiser toutes les installations et tous les travaux, ainsi que,
d'une facon generale, tous les actes et operations necessaires a la
conduite des Operations Petrolieres.
e) de realiser les activites administratives necessaires a l'execution des
operations prevues aux alineas a) a d) ci-dessus.
f) de decider de la maniere de conduire les Operations Petrolieres,
conformement aux pratiques de l'industrie petroliere internationale.
3.2. Selon les lois et reglements en vigueur en Republique du Tchad, le
Consortium pourra notamment:
a) utiliser les installations publiques utiles aux Operations Petrolieres y
compris les aeroports, routes, puits d'eau, chantiers et autres
installations similaires, moyennant le paiement des Redevances normalement
imposees pour une telle utilisation;
<PAGE>
b) utiliser l'eau necessaire aux Operations Petrolieres, sous reserve de ne
pas porter prejudice a l'approvisionnement en eau des habitants et des
points d'eau pour le betail;
c) utiliser les pierres, le sable, l'argile, le gypse, la chaux et autres
substances similaires necessaires a la conduite des Operations Petrolieres.
3.3. Sous reserve des autorisations prevues par le Code Petrolier QUI NE SERONT
-------------
REFUSEES SANS DUMENT MOTIVEE, le Consortium aura le droit de construire toutes
- ------------------------------
les installations necessaires aux Operations Petrolieres telles que, sans que
cette liste soit limitative, routes, pipelines, installations de stockage, tant
a l'interieur qu'a l'exterieur du perimetre du Permis ou des Concessions qui
en derivent. Lesdites autorisations peuvent etre conditionnees a l'utilisation
par des tiers titulaires de Permis H ou de Concessions d'exploitation
d'Hydrocarbures, des capacites excedentaires desdites installations, sous
reserve qu'une telle utilisation ne compromette pas les Operations Petrolieres
et que lesdits Tiers soient soumis a des conditions d'utilisation acceptables au
Consortium y compris le versement d'une compensation juste et equitable.
3.4. A cet effet, et conformement aux modalites et procedures fixees par le
Code Petrolier, le Consortium aura le droit d'occuper les terrains necessaires a
l'execution des Operations Petrolieres, et au logement du personnel affecte aux
chantiers.
3.5. L'occupation indiquee ci-dessus sera autorisee selon la procedure suivante:
apres reception de la demande d'occupation, et si cette demande est supposee
etre bien fondee, un decret pris sur proposition du Ministre autorisera
l'occupation des terrains necessaires et en specifiera les conditions selon les
modalites prevues par le Code Petrolier et la loi domaniale.
En l'absence d'accord amiable, l'autorisation d'occupation ne sera accordee:
a) qu'une fois que les proprietaires ou detenteurs des droits fonciers
coutumiers auront ete autorises par les voies administratives et dans un
delai devant etre fixe par la reglementation locale, a soumettre leur cas;
b) a cet effet, on consultera:
:
- pour les terrains detenus par des proprietaires individuels en vertu
des conditions prevues par le Code Civil ou le regime
d'enregistrement: les proprietaires;
<PAGE>
- pour les terrains detenus en vertu des droits FONCIERS coutumiers LES
-------- ---
DETENTEURS DE CES DROITS ou leurs representants competents;
--------------------------
- pour les terrains du domaine public: l'administration ou communaute
competente et le locataire actuel le cas echeant.
Au cas ou pour une raison quelconque, les procedures ci-dessus
d'enregistrement, d'enquete systematique, de verification des droits ou de
consultations des proprietaires ou detenteurs des droits fonciers coutumiers ne
seraient pas termines dans un delai de six (6) mois a partir de la date de
publication du decret ci-dessus, le Consortium pourra se dispenser de ces
procedures sur proposition du Ministre et apres paiement a un comptable public
designe, des indemnites provisoires et approximative suivantes calculees par les
autorites gouvernementales:
- si l'occupation n'est que provisoire et si le terrain peut etre
cultive un an plus tard, le dedommagement sera fixe au moins au
rendement net de la terre;
- dans les autres cas, le dedommagement sera estime a une valeur au
moins egale a celle que le terrain avait avant l'occupation.
3.6. Les frais, dedommagements et, de facon generale, tous frais relatifs a
l'application de l'article 3.5 seront a la charge du Consortium.
Si l'occupation du terrain prive le proprietaire ou le detenteur des droits
fonciers coutumiers de son emploi pendant plus d'une annee, ou si apres
achevement des travaux le terrain occupe ne convient plus a la culture, les
proprietaires ou les detenteurs des droits fonciers coutumiers pourront demander
aux detenteurs du permis d'occupation d'acheter le terrain. La partie de terrain
trop endommagee ou ayant ete depreciee sur une trop grande partie de sa
superficie devra etre achetee en sa totalite si le proprietaire ou detenteur des
droits fonciers coutumiers l'exige. Le terrain devant etre ainsi achete sera
toujours estime a une valeur au moins egale a celle qu'il avait avant
l'occupation.
3.7. II ne pourra etre fait des travaux de surface sans autorisation
prealable de l'Etat s'ils sont situes a moins de cinquante (50)metres de:
a) toute propriete entouree de murs ou cloture, villages, groupe
d'habitations, puits, edifices religieux, lieux d'inhumation ou endroits
consideres comme sacres;
a) lignes de communications, conduites d'eau et de facon generale, de tous
services publics et travaux publics.
<PAGE>
3.8. L'Etat prendra toutes les mesures necessaires et raisonnables pour
faciliter la mise en oeuvre des Operations Petrolieres et pour proteger les
biens et les droits du Consortium, ses employes, ses sous-traitants ou
prestataires de services sur le territoire de la Republique du Tchad. A la
demande motivee du Consortium, l'Etat pourra interdire la construction de
maisons ou de b timents a usage d'habitation ou professionnels a proximite des
installations d'exploitation du Consortium.
ARTICLE 4 - OBLIGATIONS GENERALES DU CONSORTIUM DANS
LA CONDUITE DES OPERATIONS PETROLIERES
4.1. Le Consortium devra se conformer scrupuleusement aux stipulations de la
presente Convention et devra respecter les lois et reglements de la Republique
du Tchad dans la mesure ou la Convention n'en dispose pas autrement.
4.2. Le Consortium devra effectuer tous les travaux necessaires a la realisation
des Operations Petrolieres avec diligence et selon les regles de l'art en usage
dans l'industrie petroliere internationale.
En particulier, le Consortium devra prendre toutes les dispositions raisonnables
pour:
a) s'assurer que l'ensemble des installations et equipements utilises dans
les Operations Petrolieres sont en bon etat et correctement entretenus;
b) assurer la protection de l'environnement et eviter que les Hydrocarbures
ainsi que la boue ou tout autre produit utilise dans les operations
PETROLIERES ne soient gaspilles ou ne polluent l'environnement;
-----------
c) placer les Hydrocarbures produits dans les stockages construits a cet
effet.
4.3. Le Consortium devra indemniser l'Etat en cas de prejudice qui lui serait
cause par l'inexecution par le Consortium, ses employes ou agents, ses
sous-traitants ou ses prestataires de services des obligations de la presente
Convention, ou par le non respect par le Consortium des regles de l'art
generalement acceptees dans l'industrie petroliere internationale.
Le Consortium devra indemniser toute personne en cas de prejudice qui lui serait
cause du fait des Operations Petrolieres ou qu'elle subirait du fait de ses
employes ou agents, de sous-traitants ou de ses prestataires de services au
cours ou a l'occasion desdites operations.
<PAGE>
Aux fins de l'application de cet alinea, l'Etat sera considere comme personne en
ce qui concerne les prejudices aux ouvrages publics, b timents et autres
constructions de son domaine.
Au cas ou la responsabilite de l'Etat serait recherchee, le Consortium
indemnisera l'Etat de toute reclamation eventuelle relative audit prejudice.
4.4. Le Consortium devra souscrire, et faire souscrire par ses sous-traitants ou
prestataires de services, une assurance en usage dans l'industrie petroliere
internationale jusqu'a la somme, et selon les pratiques habituelles aux societes
constituant le Consortium dans leurs operations petrolieres internationales,
somme et pratiques qui seront celles generalement acceptees dans l'industrie
petroliere internationale, y compris les assurances de responsabilite civile a
l'egard des tiers ET LES ASSURANCES DE DOMMAGE A LA PROPRIETE,les assurances qui
--------------------------------------------
seraient requises par les reglements en vigueur en Republique du Tchad. Le
Consortium devra fournir au Ministre les attestations justifiant la souscription
desdites assurances. A conditions equivalentes, le Consortium devra s'assurer
aupres d'une compagnie d'assurance tchadienne.
4.5. Au cas ou le Consortium serait constitue par plusieurs entites, les
obligations et responsabilites de ces dernieres en vertu de la presente
Convention seront conjointes et solidaires.
4.1. Apres signature de la presente Convention, le Consortium s'engage a
depenser cinq - cents -mille (500.000) Dollars US dans un projet
d'infrastructure au Tchad. La definition du projet d'infrastructure sera
convenue avec le Ministre.
<PAGE>
TITRE II
DE LA RECHERCHE
ARTICLE 5- OCTROI DU PERMIS DE RECHERCHE, DUREE ET
RENOUVELLEMENTS
5.1. L'Etat accordera au Consortium un Permis de recherches pour une duree de
cinq (5) ans a compter de la date d'approbation de la presente Convention.
5.2. L'Etat accordera au Consortium un renouvellement du Permis pour une duree
de trois (3) ans, (denomme dans la presente Convention ''premiere periode de
renouvellement''), et un droit a renouvellement pour une deuxieme periode de
trois (3) ans a l'issue de la premiere periode de renouvellement, droit que le
Consortium pourra exercer en adressant un preavis ecrit au Ministre accompagne
du rapport vise a l'article 18.4 c) ci-dessous au moins trois (3) mois avant la
date d'expiration de la premiere periode de renouvellement a condition que le
Consortium ait rempli les obligations de la premiere periode.
5.3. Les renouvellements du Permis sont conditionnes par le respect des
obligations de travaux.
ARTICLE 6- RENDUS DE SURFACE ET RENONCIATION
6.1. Les coordonnees geographiques de la surface initiale du Permis ainsi qu'une
carte s'y rapportant, figurent a l'annexe I de la presente Convention . A
l'expiration de la periode initiale du Permis, le Consortium rendra cinquante
pour cent (50 %) de la superficie initiale du Permis et vingt-et-cinq pour cent
(25 %) de la superficie initiale a la fin de la premiere periode de
renouvellement de trois (3) ans.
<PAGE>
6.2. Pour l'application de l'article 6.1 ci-dessus, il est entendu que:
a) les surfaces abandonnees et les surfaces deja couvertes par des
Concessions, ou pour lesquelles des demandes de Concession auront deja ete
faites dans les formes regulieres avant l'expiration du Permis, viendront
en deduction des surfaces a rendre;
b) le Consortium aura le droit de fixer l'etendue, la forme et la
localisation des perimetres de recherches qu'il entend conserver.
Toutefois, les portions rendues devront etre de forme geometrique simple,
delimitees par des lignes Nord-Sud et Est-Ouest.
c) un plan portant indication du perimetre de recherches conserve devra
etre joint au preavis de renouvellement dont il est fait reference a
l'article 5 ci-dessus.
6.3. A l'expiration de la validite du Permis, le Consortium devra rendre la
surface restante du Permis, en dehors des surfaces deja couvertes par des
Concessions et celles pour lesquelles des demandes de Concessions auront ete
faites dans les formes regulieres avant l'expiration du Permis.
Le Consortium peut renoncer a ses droits sur tout ou partie du Permis, a tout
moment pendant les premiere et deuxieme sous-periodes, a la fin de la troisieme
sous -periode et a la fin de la quatrieme sous periode d'exploration, et a tout
moment pendant les premiere et deuxieme periodes de renouvellement, lorsque les
obligations de travaux d'exploration des periodes ou sous-periodes concernees
sont remplies.
Aucune renonciation volontaire au cours d'une periode de renouvellement du
Permis ne reduira les engagements de travaux pour la periode de renouvellement
en cours.
ARTICLE 7- OBLIGATIONS DES TRAVAUX DES RECHERCHES
7.1. La duree du Permis est de cinq (5) ans, renouvelable deux (2) fois pour
une duree de trois (3) ans pour chaque renouvellement.
<PAGE>
7.2. Pendant la periode initiale de cinq (5) ans, les obligations de travaux
pour cette periode sont les suivantes:
a) durant la premiere sous periode correspondant a dix-huit (18) mois, le
Consortium s'engage a effectuer des leves de mille (1000)stations de
gravimetrie ou des leves aero-magnetiques equivalents interpretes, des
etudes geologiques et geophysiques ainsi que les activites d'ordre general
et administratif definies par l'operateur;
b) durant la deuxieme sous-periode correspondant a dix-huit (18) mois, le
Consortium s'engage a une acquisition et au traitement sismique de
mille-deux-cent-cinquante (1250) kilometres de sismique 2D;
c) durant la troisieme sous-periode correspondant a douze (12) mois, le
Consortium s'engage a forer un puits d'exploration jusqu'a une profondeur
suffisante pour tester le prospect, soit atteindre trois mille (3000)
metres de profondeur, soit atteindre le socle petrolier;
d) durant la quatrieme sous periode correspondant a douze (12) mois, le
Consortium s'engage a forer deux (2) puits d'exploration a une profondeur
suffisante pour tester deux (2) prospects distincts, soit atteindre trois
mille(3000) metres de profondeur, soit atteindre le socle petrolier.
Au cours de la troisieme et de la quatrieme sous-periodes, l'acquisition de
mille-deux-cent-cinquante (1250) kilometres de sismique 2D permettra de
determiner les prospects forables.
7.3. Durant la premiere periode de renouvellement de trois (3) ans le Consortium
s'engage a effectuer une campagne sismique et a forer trois(3) puits
d'exploration a une profondeur suffisante pour tester trois (3) prospects
distincts, soit atteindre trois mille (3000) metres de profondeur, soit attendre
le socle petrolier.
7.4. Durant la deuxieme periode de renouvellement, le Consortium s'engage a
effectuer une campagne sismique et a forer trois(3) puits d'exploration, a une
profondeur suffisante pour tester trois (3) prospects distincts, soit atteindre
trois mille (3000) metres de profondeur, soit atteindre le socle petrolier.
7.5. Les plans previsionnels correspondant aux engagements des travaux et des
depenses previsionnelles pour la periode initiale de cinq (5) ans sont exposes a
l'annexe II de cette Convention.
Le Consortium communiquera a l'Etat tout changement qu'il pourrait etre amene a
effectuer a ces plans.
<PAGE>
L'obligation de forage pour un puits donne sera consideree comme satisfaite
lorsque ce puits aura atteint son objectif geologique ou si des Hydrocarbures en
quantites potentiellement commerciales ont ete trouves avant d'atteindre cet
objectif geologique.
En cas de circonstances techniques exceptionnelles rencontrees au cours d'un
forage qui empecheraient, conformement aux pratiques de l'industrie petroliere
internationale, la poursuite dudit forage, les Parties se rencontreront en vue
de decider par accord mutuel si le puits fore est repute avoir satisfait
l'obligation de forage pour ledit puits.
In case of exceptional circumstances encountered in the course of a drilling
which prevent, in accordance with international petroleum practice, the
countinuation of the said drilling, the parties shall meet to decide by mutual
agreement if the drilling obligation has been met by the drilled well.
7.6. Si le Consortium au cours d'une periode donnee du Permis realise un nombre
de forages superieurs aux obligations minimales de forage telles que prevues a
l'article 7.2, 7.3 et 7.4. ci-dessus, les forages excedentaires ne seront pas
reportes sur la periode de renouvellement suivante et ne viendront pas en
deduction des obligations contractuelles prevues pour ladite periode.
7.7. Si au terme d'une periode donnee, ou en cas de renonciation totale ou
d'annulation du Permis au cours de ladite periode, les travaux n'ont pas atteint
les engagements minima relatifs a cette periode souscrits au present article 7,
le Consortium versera dans les trente (30) jours a l'Etat une indemnite egale a
cinq millions (5 000 000) de Dollars US par forage non realise et neuf-mille
(9.000) Dollars US par kilometre de ligne sismique non acquis.
7.8. Les representants du Ministere seront, aux frais du Consortium, associes a
tous les travaux prevus et effectues dans le territoire du Tchad, conformement a
l'article 17 ci-dessous.
A cet effet, les representants sont pris en charge pour l'hebergement, les
deplacements, la restauration, la couverture sanitaire et le perdiem
correspondant a la duree de leur sejour.
ARTICLE 8- TAXES SUPERFICIAIRES
8.1. Pendant la periode initiale de cinq (5 )ans, le Consortium versera une taxe
superficiaire annuelle d'un (1) Dollar US par kilometre carre de surface
detenue.
<PAGE>
Pendant la premiere periode de renouvellement de trois (3) ans, la taxe
superficiaire annuelle est de deux (2) Dollars US par kilometre carre; puis
portee a dix (10)Dollars US par kilometre carre pendant la deuxieme periode de
renouvellement, dont la duree est egalement de trois (3) ans.
8.2. Des l'octroi de la Concession, la taxe superficiaire annuelle de la
premiere periode de validite qui est de vingt-et-cinq (25) ans, sera de cent
(100) Dollars par kilometre carre; celle-ci sera portee a deux-cents (200)
Dollars a la deuxieme periode de production de vingt-et-cinq (25) ans,
conformement a l'article 10.1 ci-dessous.
8.3. La taxe superficiaire due au titre d'une Annee Civile, posterieure a celle
au cours de laquelle sera signe le decret confirmant l'octroi du Permis, sera
versee par avance le premier jour ouvrable de l'Annee Civile consideree.
Le versement relatif a la periode comprise entre l'octroi du Permis et la fin
de l'Annee Civile au cours de laquelle sera signe le decret confirmant la
periode initiale du Permis sera determine au prorata de la periode de ladite
Annee Civile, le versement etant effectue dans les dix (10) jours suivant la
date de signature du decret. Cette procedure s'appliquera mutatis mutandis au
premier versement lors de l'octroi des Concessions, ainsi qu'au dernier
versement relatif a chaque periode de renouvellement du Permis et a chaque
Concession.
ARTICLE 9- EVALUATION D'UNE DECOUVERTE
9.1. Au cas ou le Consortium effectuerait une Decouverte a l'interieur du
perimetre du Permis, il devra immediatement la notifier au Ministre.
9.2. Le Consortium est tenu de poursuivre, avec le maximum de diligence,
l'evaluation (y compris la delimitation) de toute Decouverte permettant de
presumer l'existence d'un Gisement Commercial.
Le Programme Annuel de Travaux, soumis conformement a l'article 16 ci-dessous,
comprendra les plans detailles d'evaluation du Consortium se rapportant a chaque
Decouverte .
Le terme ''evaluation'' signifie, pour l'ensemble de la presente Convention,
tous forages, etudes ou autres travaux necessaires, selon le Consortium, pour
determiner les reserves et la rentabilite d'une Decouverte dans le cadre d'un
projet d'exportation d'Hydrocarbures. Les elements a prendre en consideration
par le Consortium aux fins de la determination des travaux necessaires et du
moment opportun pour leur realisation comprendront notamment:
<PAGE>
- l'importance de la Decouverte;
- les caracteristiques geologiques et petrophysiques du gisement;
- l'emplacement de la Decouverte par rapport a toute autre Decouverte et
a un pipeline d'exportation, existant ou en projet;
- les informations dont dispose le Consortium; les conditions
economiques existantes.
9.3.LE CARACTERE COMMERCIAL D'UN GISEMENT SERA DETERMINE PAR LE CONSORTIUM. Si
-------------------------------------------------------------------------
le Consortium conclut au caractere commercial d'un gisement, il devra soumettre
immediatement au Ministre, pour approbation, un plan de developpement et de mise
en exploitation du Gisement Commercial. Ledit plan devra notamment comporter:
a) la delimitation precise et la superficie du perimetre de la Concession
demandee a l'interieur du Permis en vigueur pour le Gisement Commercial
concerne;
b) une estimation des reserves recuperables et du profil de production;
c) la description des travaux necessaires a la mise en exploitation du
Gisement Commercial tels que le nombre de puits et les installations
requises pour la production, le traitement, le stockage et le transport des
Hydrocarbures;
d) le programme de realisation des travaux vises ci-dessus et la date
previsionnelle de commencement de la production;
e) une estimation des depenses d'investissements et des frais
d'exploitation correspondants.
Dans les soixante (60) jours suivant la reception du plan de developpement et de
mise en exploitation, le Ministre pourra proposer des revisions ou des
modifications dudit plan, sous reserve que l'approbation de ce plan ne sera pas
refusee sans raison dument motivee et que, faute d'une telle approbation dans le
delai prevu, le plan sera repute approuve.
9.4. Au cas ou un Gisement Commercial s'etendrait au-dela des limites du Permis,
le Ministre pourra, le cas echeant, exiger que le Consortium exploite ledit
Gisement en association avec le titulaire du Permis adjacent suivant les
dispositions d'un accord dit ''d'unitisation''.
Le Consortium devra, dans un delai de douze (12) mois apres que le Ministre a
formule son exigence, soumettre a ce dernier, pour approbation, le plan de
developpement et de mise en exploitation du Gisement Commercial etabli en
association avec le TITULAIRE DU Permis adjacent. En cas de circonstances
-------------
exceptionnelles telles que l'importance ou la complexite du developpement
propose, ce delai pourra etre prolonge avec l'approbation du Ministre
,APPROBATION QUI NE SERA PAS REFUSEE SANS RAISON DUMENT MOTIVEE.
---------------------------------------------------------------
<PAGE>
9.5. Au cas ou un Gisement Commercial s'etendrait au-dela du Permis sur une
zone non encore couverte par des droits exclusifs de recherche et
d'exploitation, l'Etat pourra inclure ladite zone dans le perimetre de la
Concession relative audit Gisement.
9.6. Si le Consortium notifie au Ministre qu'un gisement qu'il a decouvert n'est
pas un Gisement Commercial, l'Etat aura le choix de faire exploiter ce gisement
par le Consortium a condition que l'Etat:
a) FOURNIT au Consortium toutes les sommes eventuellement necessaires pour
-------
couvrir les nouvelles depenses d'investissement et les frais d'exploitation
relatifs a ladite exploitation;
b) assure l'amortissement par le Consortium, aux taux prevus a l'annexe III
de la presente Convention, des installations appartenant au Consortium et
effectivement utilisees pour l'exploitation;
c) verse au Consortium une marge beneficiaire nette exoneree de toutes
redevances, impots ou Taxes prevus dans la presente Convention et dans le
Code Petrolier, egale a trois pour cent (3%) du Prix du Marche Depart-Champ
tel qu'il est defini a l'article 21 ci-dessous.
Le refus d'exploitation dans ces conditions entra nera la mutation au nom de
l'Etat du droit d'exploiter le gisement. Dans ce cas, les tubages, tetes de
puits et materiels non recuperables directement associes au gisement et dans les
limites geographiques de celui-ci, seront remis gratuitement a l'Etat, dans
l'etat requis pour la poursuite de travaux, compte tenu de l'etat de l'usure
normale.
Les autres installations de champ non directement associees au gisement, ou
n'etant pas dans les limites GEOGRAPHIQUES de celui-ci, pourront etre cedees a
-------------
l'Etat, a un prix defini en commun accord ou a dire d'experts sauf application
des dispositions de l'article 20 ci-dessous.
9.7. Sauf en cas de circonstances exceptionnelles ou imprevues appreciees de
commun accord par le Ministre et le Consortium, le Ministre peut demander au
Consortium d'abandonner la surface delimitant une Decouverte si le Consortium:
<PAGE>
a) n'a pas demarre les travaux d'evaluation de la Decouverte dans un delai
de deux (2) ans apres la date de notification au Ministre de ladite
Decouverte visee a l'article 9.2 ci-dessus, a condition que, jusqu'au
moment ou un pipeline d'exportation serait realise dans le voisinage de la
Decouverte consideree, ce delai de deux (2) ans ne commence pas a courir
tant que le Consortium effectuera des travaux d'evaluation d'autres
Decouvertes qui selon lui seraient necessaires dans le cadre des conditions
economiques prevalantes afin de lui permettre de prendre sa decision
relative audit pipeline;
b) ne considere pas la Decouverte comme etant commerciale dans un delai de
douze (12) mois apres l'achevement des travaux d'evaluation a condition que
ce delai ne commence pas a courir tant que le Consortium n'aura pas demarre
ses travaux d'installation et/ou de raccordement d'un pipeline
d'exportation dans le voisinage de ladite Decouverte.
Toute surface ainsi rendue viendra en deduction des surfaces a rendre au titre
de l'article 6 ci-dessus et le Consortium perdra tout droit sur les
Hydrocarbures qui pourraient etre extraits a partir de la ladite Decouverte.
TITRE III
DE L'EXPLOITATION
ARTICLE 10 - DEMANDE, OCTROI ET DUREE D'UNE CONCESSION
10.1. Si le Consortium conclut au caractere commercial d'un gisement
conformement a l'article 9.3 ci-dessus, le Consortium devra demander a la date
de soumission du plan de developpement et de mise en exploitation du Gisement
Commercial concerne, et aura droit a obtenir separement pour chaque Gisement
Commercial selon la procedure prevue par le Code Petrolier une Concession
portant sur l'etendue du Gisement Commercial concerne a l'interieur du Permis en
cours de validite. Cette Concession sera octroyee pour une duree de
vingt-et-cinq (25 ) ans, renouvelable une seule fois pour la meme duree dans des
termes qui seront convenus avec l'Etat.
10.2. Le Consortium devra commencer la realisation du plan de developpement et
d'exploitation relatif a un Gisement Commercial, conformement au programme
approuve a l'article 9.3 ci-dessus, au plus tard trois(3) mois apres l'octroi de
---
la Concession et devra la poursuivre avec diligence.
<PAGE>
Les resultats acquis au cours du deroulement des travaux, ou certaines
circonstances, pourront justifier des changements AU PLAN DE DEVELOPPEMENT ET
---------------------------
D'EXPLOITATION ET AU DIT PROGRAMME. Dans ce cas, apres notification au Ministre,
---------------------------------
le Consortium pourra effectuer de tels changements sous reserve que les
objectifs fondamentaux dudit plan de developpement et d'exploitation ne soient
pas modifies.
10.3. Le Consortium devra notamment, conformement aux pratiques de l'industrie
petroliere internationale:
a) appliquer a la mise en exploitation d'un Gisement Commercial les
methodes les plus appropriees pour eviter les pertes d'energie et de
produits industriels;
b) assurer la conservation du gisement et porter au maximum son rendement
economique en Hydrocarbures;
c) proceder des que possible aux etudes de recuperation assistee et
utiliser de tels procedes s'ils conduisent dans des conditions economiques
a une amelioration du taux de recuperation des Hydrocarbures.
10.4. Le Consortium pourra, a tout moment, renoncer, en tout ou partie, a une
Concession. La renonciation prendra effet a compter de la date fixee dans sa
notification par le Consortium, moyennant un preavis minimum de trois (3) mois.
En cas de renonciation d'une Concession, aucune penalite ne sera appliquee au
Consortium. Toutefois, toute renonciation, retrait ou expiration d'une
Concession ne mettra pas fin aux obligations du Consortium de verser les sommes
dues et payables a l'Etat au titre de la presente Convention se rapportant a la
periode anterieure a la renonciation, au retrait ou a l'expiration ni aux
obligations de fournir a l'Etat tous rapports et informations conformement a
l'article 18 ci-dessous.
Au moment de la renonciation, du retrait ou de l'expiration d'une Concession,
d'un commun accord avec le Ministre, le Consortium executera, a ses frais et
conformement aux pratiques de l'industrie petroliere internationale, tous les
travaux necessaires afin d'abandonner l'exploitation ou de la transferer a
l'Etat, le cas echeant. Le Consortium prendra toute precaution necessaire pour
eviter tout danger a la vie des personnes et a la propriete des Tiers. Si l'Etat
souhaite continuer l'exploitation du gisement en question apres la Date d'Effet
de la renonciation, du retrait ou de l'expiration, il pourra demander au
Consortium d'en continuer l'exploitation pendant une periode maximale de six (6)
mois a compter de la date d'effet de la renonciation ou du retrait.
<PAGE>
10.5. LA PRESENTE CONVENTION CORRESPOND A LA << CONVENTION-TYPE >>
----------------------------------------------------------------------
MENTIONNEE DANS LE CODE PETROLIER, NOTAMMENT AUX ARTICLES 22, 25, 26, 27 ET 31
- --------------------------------------------------------------------------------
DE L'ORDONNANCE N*7/PC/TP/MH DU 3 FEVRIER 1962 POUR CE QUI CONCERNE LES
- --------------------------------------------------------------------------------
CONCESSIONS OCTROYEES AU CONSORTIUM DANS LE CADRE DE LA PRESENTE CONVENTION.
- --------------------------------------------------------------------------------
ARTICLE 11 - PROGRAMMES DE PRODUCTION
11.1. Le Consortium s'engage a produire des quantites raisonnables
d'Hydrocarbures a partir de chaque Gisement Commercial selon les normes en usage
dans l'industrie petroliere internationale, en considerant principalement les
regles de bonne conservation des gisements et la recuperation optimale des
reserves d'Hydrocarbures dans des conditions economiques.
11.2. En cas de production, le Consortium devra avant le premier novembre de
chaque Annee Civile, soumettre pour approbation au Ministre le programme de
production de chaque Gisement Commercial et le Budget correspondant etablis pour
l'Annee Civile suivante. L'approbation sera accordee de droit si le programme
est conforme aux dispositions de l'article 11.1 ci-dessus.
11.3. Le Consortium s'efforcera de produire durant chaque Annee Civile, les
quantites estimees dans le programme de production defini ci-dessus.
ARTICLE 12- GAZ NATUREL
12.1. Le Consortium aura le droit d'utiliser le Gaz Associe pour les besoins
des Operations Petrolieres, y compris pour sa reinjection dans les Gisements
Commerciaux.
Toute quantite de Gaz Associe non utilisee pour les besoins des Operations
Petrolieres et dont le traitement et l'utilisation selon le Consortium, ne sont
pas economiques, devra (sous reserve du droit de l'Etat de prendre ce Gaz et
d'en disposer dans les conditions ci-apres stipulees) etre reinjectee dans le
sous-sol, ou lorsque les regles de l'art de l'industrie petroliere
internationale ne l'exigent pas pourra etre brulee avec l'approbation du
Ministre, APPROBATION QUI NE SERA PAS REFUSEE SI LE BRULAGE DU GAZ EST CONFORME
---------------------------------------------------------------------
AUX REGLES DE L'ART DE L'INDUSTRIE PETROLIERE INTERNATIONALE.
- --------------------------------------------------------------------
<PAGE>
Le Consortium devra, sauf en cas d'urgence, demander cette approbation du
Ministre au moins trois (3) mois a l'avance en fournissant les justifications
necessaires montrant notamment que tout ou partie de ce Gaz ne peut etre
utilement et economiquement utilise pour ameliorer le taux economique maximal de
reinjection suivant les dispositions de l'article 10.3 ci-dessus.
Dans le cas ou le Consortium decide de traiter et vendre le Gaz Naturel Associe,
le Consortium le notifiera au Ministre; les Parties devront alors se concerter
des que possible en vue de parvenir a un accord concernant le traitement et la
vente dudit gaz.
Lorsque le Consortium decide de ne pas traiter et vendre le Gaz Naturel Associe
non requis pour les besoins des Operations Petrolieres, l'Etat peut decider a
n'importe quel moment d'enlever tout ou partie dudit Gaz, a la sortie des
installations de separation du Petrole Brut et du Gaz Naturel. Le Gaz susvise
sera mis gratuitement a la disposition de l'Etat, sous reserve que celui-ci
supporte tous les couts additionnels necessaires au traitement et a l'enlevement
du Gaz au-dela du point ou il serait brule.
12.2. Si le Consortium fait une Decouverte de Gaz Naturel Non Associe qu'il
considere potentiellement commerciale, il le notifiera des que possible au
Ministre. Les Parties se concerteront afin de decider, au vu de l'ensemble des
informations disponibles, si la production et la vente de ce Gaz par le
Consortium sont possibles, dans ce cas , sous quelles conditions.
Si le Consortium considere qu'une Decouverte de Gaz Naturel Non Associe n'est
pas immediatement commerciale mais envisage sa commercialisation future compte
tenu de son importance et des previsions raisonnables d'evolution du marche,
l'Etat accordera au Consortium une prolongation du Permis a l'interieur de la
superficie se rapportant a ladite Decouverte. Par derogation a l'article 8.1
ci-dessus, la taxe superficiaire relative a cette prolongation sera de cent
(100,00) Dollars US par kilometre carre et par an. L'Etat et le Consortium se
mettront d'accord sur la duree de validite de cette prolongation qui tiendra
compte de la periode d'attente inevitable avant la mise en exploitation de la
decouverte. Pendant cette prolongation, l'Etat et le Consortium maintiendront
une collaboration etroite en vue d'etudier l'evolution du marche et d'accelerer
autant que possible la mise en exploitation de la Decouverte, des que les
conditions economiques le permettront.
12.3. Le prix paye pour le Gaz Naturel (''le Prix du Marche'') sera:
a) en ce qui concerne les ventes a des acheteurs independants, egal au prix
net realise obtenu pour la vente de ce Gaz Naturel;
<PAGE>
b) en ce qui concerne les ventes autres qu'a des acheteurs independants,
determines par accord entre l'Etat et le Consortium, en prenant notamment
en consideration:
- la quantite et la qualite du Gaz Naturel;
- les prix de vente du Gaz Naturel produit a partir d'autres sources au
Tchad et vendu dans des conditions de marche comparable, le cas
echeant;
- l'utilisation prevue pour le Gaz Naturel;
- le prix du marche national et international pour les energies de
substitution.
Afin de determiner le Prix du Marche Depart-Champ applicable au Gaz Naturel, ce
prix de Marche sera ajuste au point de mesure precise a l'article 13.1 en
deduisant le cout de transport, deduction faite dans les memes conditions que
celles prevues a l'article 21.3 dans le cas du Petrole Brut.
ARTICLE 13- MESURE DES HYDROCARBURES
13.1. Le Consortium devra mesurer, a la bride de sortie du reservoir de stockage
de chaque Concession, ou, en cas de Gaz Naturel, a la sortie de l'usine de
traitement ou des installations de separation ou de traitement le cas echeant,
ou a tout autre point fixe d'un commun accord entre les Parties, tous les
Hydrocarbures produits dans chaque Concession, apres extraction de l'eau et des
substances connexes, en utilisant, apres approbation du Ministre, les appareils
de procedures de mesure conformes aux methodes en usage dans l'industrie
petroliere internationale. Le Ministre aura le droit d'examiner ces mesures et
d'inspecter les appareils et procedures utilises.
13.2. Si au cours de l'exploitation, le Consortium desire modifier lesdits
appareils ou les procedures, il devra obtenir l'approbation du Ministre. Le
Ministre peut exiger qu'aucune modification ne soit faite sans la presence de
son representant dument mandate.
13.3. Le Ministre peut a tout moment exiger que les appareils de mesure soient
testes ou calibres a tels dates ou intervalles et par tels moyens qu'il
specifiera dans sa demande, conformement aux pratiques de l'industrie petroliere
internationale.
<PAGE>
13.4. Lorsque les appareils ou les procedures utilises ont conduit a une
surestimation ou a une sous-estimation des quantites mesurees, l'erreur sera
reputee exister depuis la date de la derniere calibration des appareils, a moins
que le contraire puisse etre justifie, et un ajustement approprie sera realise
pour la periode correspondante.
13.5. Si des pertes exceptionnelles d'Hydrocarbures ont eu lieu, le Consortium
soumettra un rapport au Ministre, specifiant les circonstances de ces pertes et
la quantite, si elle peut etre estimee.
En cas de pertes d'Hydrocarbures dues au non respect par le Consortium des
pratiques generalement acceptees par l'industrie petroliere internationale, le
Consortium en sera responsable, et les Parties se concerteront en vue de les
reduire ou de les eliminer.
ARTICLE 14 - TRANSPORT DES HYDROCARBURES
14.1. Conformement au Code Petrolier, le Consortium aura le droit de transporter
ou DE FAIRE TRANSPORTERen conservant la propriete, les produits de son
----------------------
exploitation vers les points de stockage, de traitement, de chargement ou de
grosse consommation, ou jusqu'au Point de Livraison.
14.2. L'Etat aura une option de participation dans tout projet de production
et/ou projet de pipeline d'exportation, a condition que l'Etat supporte toujours
les frais d'un tel projet proportionnellement a sa participation eventuelle.
Au cas ou des accords interviendraient entre l'Etat et des etats voisins pour
permettre ou faciliter la mise en exploitation du principal pipeline
d'exportation propose par le Consortium, ainsi que le transport par ce pipeline
de ses Hydrocarbures a travers les territoires de ces etats voisins, l'Etat sans
discrimination accordera au Consortium tous les avantages de ces accords, a
l'exception des avantages particuliers qui pourraient etre consentis
specifiquement a l'Etat en tant qu'utilisateur du pipeline.
Le Consortium et l'Etat negocieront les conditions qui seront applicables a
l'installation et a l'exploitation du pipeline d'exportation en collaboration
avec les gouvernements des etats voisins concernes.
14.3. L'autorisation de transport est accorde de droit sur leur demande, soit
au Consortium, soit individuellement a chacune des entites formant le
Consortium. L'approbation d'un projet de canalisation, tel que prevue par le
Code Petrolier, ne pourra etre refusee si le projet est conforme a la
reglementation en vigueur et permet d'assurer le transport des produits extraits
dans les meilleures conditions techniques et economiques.
<PAGE>
14.4. Les droits specifies a cet article 14 peuvent etre cedes individuellement
ou conjointement dans les conditions exposees dans cette Convention.
Les beneficiaires des cessions ci-dessus seront soumis aux conditions de la
presente Convention en ce qui concerne la construction et l'exploitation des
installations et pipelines concernes; ils devront en outre remplir les
conditions exigees du Consortium en vertu de cette Convention et du Code
Petrolier tant sur le plan legal qu'en ce qui concerne le controle de la
societe.
14.5. Le Consortium ou ses beneficiaires de cession ou d'autres personnes
morales peuvent conclure DES CONTRATS D'ASSOCIATION ou des contrats analogues en
--------------------------
vue de transporter conjointement les produits extraits de leurs exploitations
sous reserve des dispositions de l'article 14.6. ci dessous. Ils pourront en
outre conclure des contrats avec des tiers pour la construction et
l'exploitation des pipelines.
Tous protocoles, accords ou contrats relatifs en particulier a la construction
et a l'exploitation d'un pipeline, au partage des frais, des resultats
financiers et, en cas de dissolution de l'entreprise, de l'actif, devront,
afin de pouvoir etre agrees, etre joints a toute demande d'autorisation de
transport.
Si le Consortium est tenu par contrat de laisser a d'autres personnes morales la
disposition d'une part des produits extraits, il devra, a la demande de ces
personnes morales, assurer le transport de ces produits comme s'il s'agissait
des siens, dans les conditions specifiees a l'article 14.8 ci-dessous.
14.6. Le trace des pipelines et leurs specifications seront etablis de maniere a
assurer la collecte, le transport et l'evacuation des produits des gisements
dans les meilleures conditions techniques et economiques possibles et en
particulier de facon a assurer la meilleure valorisation globale, au depart des
gisements, de ces produits.
Afin d'assurer l'observation des dispositions de l'alinea precedent, en cas de
decouverte par des Tiers d'autres gisements exploitables dans la meme region
geographique, une decision du Ministre peut en particulier, en l'absence
d'accord mutuel, obliger les titulaires des droits miniers ou les beneficiaires
des cessions visees a l'article 14.4. ci-dessus, a s'associer a d'autres
exploitants en vue de la construction ou de l'utilisation en commun des
installations et pipelines pour tout ou partie de la production de ces
gisements. En cas de desaccord entre les parties en question, pour une telle
association, le Ministre soumettra le differend a arbitrage selon une procedure
telle que prevue dans la presente Convention.
<PAGE>
14.7. L'agrement d'un projet de pipeline par decret du Conseil des Ministres
emportera declaration d'utilite publique.
De plus, l'agrement d'un projet de pipeline comportera pour le Consortium ou
l'exploitant le droit de construire des installations et pipelines sur des
terrains greves des servitudes de passage. Le(s) proprietaire(s) des terrains
PRE-CITES devront (devra) s'abstenir de tout acte pouvant gener l'exploitation
- ---------
convenable des installations et des pipelines.
Si les installations ou pipelines genent l'utilisation normale d'un terrain, le
(s) proprietaire (s) peut (peuvent) en obtenir l'achat PAR LE CONSORTIUM sur
-----------------
simple demande. La valeur du terrain, en l'absence d'accord mutuel, sera etablie
selon la meme procedure que pour une expropriation.
Sauf cas de force majeure ou autres cas justifiant un retard, le Consortium ou
ses associes ou les beneficiaires de cessions visees a l'article 14.4.
ci-dessus, seront tenus d'entreprendre ou de faire entreprendre les travaux
proposes dans les deux (2) ans qui suivent l'agrement du projet, sous peine
d'annulation de celui-ci.
14.8. La societe chargee d'exploiter le pipeline construit conformement aux
articles 14.1, 14.2 et 14.4 ci-dessus peut, en l'absence d'accord mutuel, etre
obligee sur decision du Ministre d'accepter en plus de sa propre exploitation le
passage de produits provenant d'exploitations autres que celle ayant motive
l'agrement du projet, jusqu'a utilisation de la capacite maximale du pipeline.
Les produits de meme qualite transportes dans les memes conditions de regularite
et de debit seront soumis au meme tarif.
TOUT DIFFERENT PROVENANT DE L'APPLICATION DES DISPOSITIONS DU PRESENT ARTICLE
- --------------------------------------------------------------------------------
SERA REGLE SELON LA PROCEDURE D'ARBITRAGE PREVU A L' ARTICLE 33 DE CETTE
- --------------------------------------------------------------------------------
CONVENTION.
- -----------
14.9. Le tarif de transport sera etabli par les societes chargees du transport.
II sera soumis au controle du Ministre. A cet effet, ce tarif devra etre
presente au Ministre deux (2) mois avant le debut des operations. Notification
de toute modification ulterieure SERA donnee au Ministre avec des explications
----
appropriees, un (1) mois avant la date effective. Pendant ces delais de preavis,
le Ministre pourra s'opposer au tarif propose.
Ce tarif devra en particulier:
- comprendre un coefficient d'utilisation des installations;
<PAGE>
- tenir compte de l'amortissement des installations et pipelines;
- tenir compte des distances;
- permettre une marge beneficiaire comparable a celle habituellement
admise dans l'industrie petroliere internationale pour des installations
comparables fonctionnant dans des conditions analogues.
En cas de variation importante des elements constitutifs de tarif, de nouveau
tarif tenant compte de ces variations devront etre etablis et controles suivant
les modalites prevues ci-dessus, a la demande du Ministre.
14.10. Toute personne morale transportant des Hydrocarbures au Tchad devra, en
ce qui concerne l'implantation des installations et pipelines et leur
exploitation, se soumettre aux obligations fiscales specifiees dans la presente
Convention.
14.11. Les dispositions de l'article 14 ne seront pas applicables aux
installations et pipelines (inter champs) construits a l'interieur d'une
Concession. L'occupation des terrains necessaires a ces installations et
pipelines aura lieu conformement a la procedure exposee a l'article 3 ci-dessus
de la presente Convention.
ARTICLE 15- OBLIGATION D'APPROVISIONNEMENT DU MARCHE
INTERIEUR
15.1 Dans le cas ou l'Etat ne peut satisfaire les besoins de la consommation
interieure en Petrole Brut a partir de la part de tous les Petroles Bruts
produits dans le pays lui revenant, le Consortium s'engage sur sa production de
Petrole Brut a vendre a l'Etat par priorite la part necessaire a la satisfaction
des besoins de la consommation interieure du pays, egale au maximum au
pourcentage que la Production Totale represente par rapport a la quantite totale
de Petrole Brut produit en Republique du Tchad.
15.2. Le Ministre notifiera par ecrit au plus tard le premier octobre, la
quantite de Petrole Brut qu'il choisira d'acheter, conformement aux dispositions
du present article au cours de l'Annee Civile suivante.
15.3. Le Petrole Brut vendu a l'Etat ou a la personne designee par l'Etat, a cet
effet, au titre du present article sera paye en FRANCS CFA, et le prix du baril
----------
sera egal au prix de revient du brut Depart-Champ plus le cout de transport
jusqu'au lieu de livraison augmente de trente cents americain (US$ 0,30) sauf si
les Parties en decident autrement. Cette livraison ne sera soumise a aucune
redevance ni impot sur le benefice . Ce Petrole Brut sera livre a l'Etat a la
sortie des centres principaux de collecte des champs de production (ou le
Consortium sera tenu d'assurer le stockage de ces Petroles Bruts a ses frais)
pendant une duree d'au moins de deux (2) mois et au-dela a la charge de l'Etat,
sauf si les Parties en conviennent autrement. Les livraisons seront effectuees
selon des modalites fixees par accord entre les Parties.
<PAGE>
15.4. Toutes sommes dues au Consortium au titre de cet article seront payables
en monnaie ayant cours legal au Tchad. Au debut de chaque mois, le Consortium
facture a l'Etat pour les livraisons effectuees au cours du mois precedent.
L'Etat reglera dans les soixante (60) jours suivants. La conversion entre le
Dollar et la FRANCS CFA s'effectuera sur la base de la moyenne arithmetique des
----------
taux de change journaliers cotes, a la cloture de chaque jour ouvrable pendant
le mois de livraison, sur le marche des changes de Paris.
<PAGE>
TITRE IV
DISPOSITIONS COMMUNES A LA RECHERCHE ET A L'EXPLOITATION
ARTICLE 16- PROGRAMMES ANNUELS DE TRAVAUX
16.1. Le Consortium soumettra au Ministre, dans les trente (30) jours suivant la
Date d'Effet de la Convention, le Programme Annuel de Travaux et le Budget
correspondant pour l'Annee Civile en cours .
Deux (2) mois avant le terme de chaque Annee Civile, le Consortium soumettra au
Ministre le Programme Annuel de Travaux et le Budget correspondant prevus pour
l'Annee Civile suivante.
Le Programme Annuel de Travaux et le Budget preciseront les travaux relatifs aux
differentes activites de recherche, d'evaluation, developpement, de production
et de transport.
16.2. Le Ministre ne pourra refuser le Programme Annuel de Travaux sans raison
dument motivee. Toutefois, le Ministre pourra proposer des revisions ou
modifications au Programme Annuel de Travaux en les notifiant au Consortium dans
un delai de trente (30) jours suivant la reception de ce Programme.
Dans ce cas, le Ministre et le Consortium se reuniront des que possible pour
etudier les revisions ou modifications demandees et etablir par accord mutuel le
Programme Annuel de Travaux et le Budget correspondant dans leur forme
definitive, suivant les regles de l'art en usage dans l'industrie petroliere
internationale.
SI LE MINISTRE OMET DE NOTIFIER AU CONSORTIUM SON DESIR DE REVISION AU
- --------------------------------------------------------------------------------
MODIFICATION DANS LE DELAI DE TRENTE (30) JOURS CI-DESSUS MENTIONNE, LEDIT
- --------------------------------------------------------------------------------
PROGRAMME ANNUEL DE TRAVAUX ET LE BUDGET CORRESPONDANT SERONT REPUTES ADOPTES
- --------------------------------------------------------------------------------
PAR LE MINISTRE A LA DATE D'EXPIRATION DUDIT DELAI.
- -----------------------------------------------------------
16.3. Les resultats acquis au cours du deroulement des travaux ou certaines
circonstances pourront justifier des changements au Programme Annuel de Travaux.
Dans ce cas, apres notification au Ministre, le Consortium pourra effectuer de
tels changements sous reserve que les objectifs fondamentaux dudit Programme
Annuel de Travaux ne soient pas modifies.
16.4. Tout Programme Annuel de Travaux et le Budget correspondant soumis au
Ministre au cours des periodes de renouvellement du Permis seront, en ce qui
concerne les travaux de recherches, approuves de droit a condition d'etre
conforme aux obligations de travaux prevues a l'article 7 ci-dessus.
<PAGE>
ARTICLE 17- SURVEILLANCE ADMINISTRATIVE DES OPERATIONS PETROLIERES
17.1. Les Operations Petrolieres seront soumises au controle technique et
administratif des representants du Ministere.
Les agents dument habilites auront le droit de surveiller les Operations
Petrolieres et d'inspecter, a intervalles raisonnables, les installations et
equipements, materiels, enregistrements et registres afferents aux Operations
Petrolieres.
17.2. Le Consortium devra notifier au Ministre, avant leur realisation, les
Operations Petrolieres telles que campagne geologique ou geophysique, sondage,
essais de puits, afin que des representants du Ministere puissent assister
auxdites Operations sans pour autant causer de retard dans le deroulement normal
des operations.
Au cas ou le Consortium deciderait d'abandonner un forage, il devra le notifier
au Ministre deux (2) jours avant l'abandon, ou le cas echeant, vingt(20)jours
avant l'abandon d'un puits de production.
17.3. Le Ministre ou son representant dument designe pourra demander au
Consortium de realiser a la charge de ce dernier tous travaux juges necessaires
pour assurer la securite et l'hygiene normales pendant les Operations
Petrolieres, conformement aux pratiques de l'industrie petroliere
internationale.
17.4. Dans la conduite des Operations Petrolieres, le Consortium observera
toutes les directives ecrites faites par le Ministre conformement au Code
Petrolier, ainsi que toutes les directives donnees, les restrictions imposees ou
les injonctions faites par ecrit par un agent dument habilite a cet effet.
Toutefois, aucune directive, restriction ou injonction ne sera donnee, imposee
ou faite si elle n'est pas raisonnable ou conforme aux dispositions de la
presente Convention ou aux regles de l'art de l'industrie petroliere
internationale. Si le Consortium refuse de telles directives, restrictions ou
injonctions parce qu'il les considere comme non raisonnables ou non conforme a
la presente Convention ou aux regles de l'art de l'industrie petroliere, le
litige pourra etre soumis a l'arbitrage, conformement aux disposition de
l'article 33 ci-dessous.
17.5. L'Etat assurera que tous ses representants respecteront strictement toute
instruction des representants du Consortium relatives a la securite des
personnes et des lieux et que toute inspection se fera de facon a gener le
moins possible les operations du Consortium.
<PAGE>
ARTICLE 18- INFORMATIONS ET RAPPORTS
18.1. Conformement au Code Petrolier, le Consortium devra maintenir en tout
temps des releves et registres de toutes ses Operations Petrolieres au Tchad.
18.2. Les diagraphies, cartes et bandes magnetiques, deblais de forage,
carottes, echantillons et toutes les autres informations et donnees geologiques
et geophysiques obtenues par le Consortium a l'occasion des Operations
Petrolieres (ci-apres denommees " les Donnees Petrolieres ") sont la propriete
de l'Etat, et devront etre fournis au Ministre des que possible apres leur
obtention ou preparation sauf dispositions contraires prevues ci-dessous, et ne
pourront etre ni publies, reproduits ou faire l'objet de transaction sans
l'autorisation du Ministre.
18.3. Le Consortium pourra :
a) conserver pour les besoins des Operations Petrolieres copies des
documents constituant les Donnees Petrolieres;
b) avec l'autorisation du Ministre, qui ne sera pas refusee ou retardee
sans raison valable, conserver pour les besoins des Operations Petrolieres
les documents originaux constituant les Donnees Petrolieres, a condition
que si les documents sont reproductibles, des copies aient ete fournies au
Ministere;
c) exporter librement pour traitement, analyse ou examen de laboratoire,
les Donnees Petrolieres, a condition que les installations le permettent,
les echantillons equivalents en taille et qualite ou pour les documents
reproductibles des copies de qualite equivalente aient ete fournis au
prealable au Ministre.
En particulier le Consortium fournira au Ministre des que possible une copie des
versions definitives des rapports de mesures et d'interpretation geophysiques,
des rapports geologiques, des diagraphies et des rapports de forage.
Toutes les cartes, sections, profils et tous autres documents geophysiques ou
geologiques seront fournis au Ministre egalement sur un support transparent
adequat pour reproduction ulterieure.
Le Consortium devra fournir au Ministre ou a son representant une portion
representative des carottes, deblais de forage ou echantillons des fluides
produits pendant des tests ou essais de production.
A l'expiration ou en cas de renonciation ou resiliation de la presente
Convention, les documents originaux y compris les bandes magnetiques en cas de
demande, seront transferes au Ministre.
<PAGE>
18.4. Le Consortium fournira au Ministre les rapports periodiques suivants en
francais et en anglais :
a) un rapport quotidien sur l'avancement des forages et sur la production,
ainsi qu'un rapport hebdomadaire sur les travaux geophysiques en cours ;
b) dans les trente (30) jours suivant la fin de chaque Trimestre un rapport
relatif aux Operations Petrolieres realisees pendant le Trimestre ecoule ;
c) dans les soixante (60) jours suivant la fin de chaque Annee Civile un
rapport de synthese des Operations Petrolieres realisees pendant l'Annee
Civile indiquant entre autres informations :
- les Decouvertes effectuees par bassin, avec estimations des reserves
par gisement individuel;
- les activites d'evaluation executees au cours de l'Annee Civile et
prevues pour l'Annee Civile en cours, avec les raisons justifiant la
determination du Consortium, selon l'article 9.2 ci-dessus, concernant
les travaux necessaires ;
- les caracteristiques geologiques et petrophysiques ainsi que la
delimitation estimee de chaque gisement et les resultats des tests de
production realises;
- l'analyse technico-economique detaillee de la commercialite de
l'ensemble de ces reserves avec indication des investissements, couts,
production, sequence hypothetique de developpement de gisements ;
- les conditions concernant la viabilite economique d'un projet
d'exportation et les recommandations pour les travaux futurs
d'exploration et d'evaluation ;
- une estimation detaillee des depenses encourues et une liste du
personnel employe par le Consortium.
Le Consortium s'engage a presenter chaque annee aux representants officiels de
l'Etat en un lieu choisi par accord mutuel, le rapport susvise et a verser a
concurrence de soixante-quinze-mille (75.000) Dollars US les depenses encourues
par lesdits representants pour leur transport et sejour.
<PAGE>
18.5. La presente Convention, ainsi que toutes les informations fournies par
l'une des Parties a l'autre a l'occasion de la presente Convention, si elles
portent la mention " Confidentiel ", seront considerees comme confidentielles
jusqu'a l'abandon de la surface a laquelle l'information se rapporte, sauf:
- pour les Donnees Petrolieres etant entendu qu'aux fins du present
alinea cette expression ne comprend ni les interpretations, ni les
rapports
- d'interpretation qui ne seront confidentielles que pendant une duree
de cinq (5) ans a compter de leur obtention; et
- pour la Convention qui restera confidentielle pendant sa validite.
Toutefois, chaque Partie pourra divulguer ces informations a toute personne
employee par elle ou travaillant pour son compte, qui devra s'engager a les
traiter confidentiellement.
Le Consortium pourra egalement communiquer ces informations (y compris cette
Convention) a ses Societes Affiliees, a tous consultants professionnels et
conseillers juridiques, a tout Tiers qui, en toute bonne foi, s'interesse a
devenir une societe - membre du Consortium, a tous comptables, assureurs,
preteurs, et aux representants des gouvernements qui auront besoin d'en prendre
connaissance ou qui auront le droit d'exiger une telle revelation. Le Consortium
aura, en outre, le droit d'echanger des informations techniques avec des Tiers
conformement aux pratiques de l'industrie petroliere internationale, a condition
que le Consortium tienne l'Etat au courant de tels echanges d'information. Le
Consortium obtiendra de tout Tiers concerne un engagement ecrit, de garder
confidentielles les informations ainsi echangees.
En outre, le Ministre pourra utiliser les informations fournies par le
Consortium dans le but de preparer et de publier tout rapport requis par la loi
ainsi que tout rapport et etude d'interet general.
18.6. Nonobstant les dispositions de l'article 18.5 ci-dessus , le Ministre
pourra mettre dans le domaine public toute information relative a une zone sur
laquelle le Consortium n'a plus de droit a la suite de leur expiration, de la
renonciation, du retrait ou de la resiliation de la Convention sur ladite zone.
18.7. L'intention des Parties n'est pas d'appliquer les dispositions du present
article de facon a surcharger anormalement l'administration du Consortium. Au
cas ou, selon le Consortium, l'application d'une disposition quelconque de
l'article 18 aurait cet effet, les Parties se reuniront pour se mettre d'accord
sur un allegement approprie de l'obligation concernee.
18.8. Nonobstant toute disposition contraire de cette Convention, le Consortium
ne sera pas oblige de divulguer a l'Etat sa technologie confidentielle ou
celle de ses Societes Affiliees.
<PAGE>
ARTICLE 19 - FORMATION DU PERSONNEL ET EQUIPEMENTS
19.1. Le Consortium devra des le debut des Operations Petrolieres assurer
l'emploi en priorite, A QUALIFICATION EGAL des citoyens tchadiens et contribuer
--------------------
a la formation de son personnel afin de permettre son accession a tous emplois
d'ouvriers qualifies, d'agents de ma trise, de cadres et de Directeurs.
A la fin de chaque Annee Civile, le Consortium preparera, en accord avec le
Ministre, un plan de recrutement et un plan de formation pour parvenir a une
participation de plus en plus large du personnel tchadien aux Operations
Petrolieres.
19.2. Afin notamment de faciliter l'emploi du personnel tchadien, le Consortium
pourvoira, en vue de la satisfaction de ses besoins, a la formation et au
perfectionnement de son personnel employe pour les Operations Petrolieres. Le
Consortium s'efforcera egalement de pourvoir a la formation et au
perfectionnement des agents du Ministere charge des Mines, de l'Energie et du
Petrole .
Le Consortium organisera cette formation et ce perfectionnement, selon un plan
etabli en accord avec le Ministre, soit au sein de son entreprise, soit dans
d'autres entreprises au moyen de stage ou d'echange de personnel, tant au Tchad
qu'a l'etranger.
A ces fins, le Consortium consacrera au plan de formation du personnel tchadien:
a) A compter de la date d'approbation de la presente Convention, le
Consortium s'engage a encourir annuellement des depenses a concurrence de
soixante-quinze-mille (75.000) Dollars US, pour le renforcement des
capacites nationales et l'equipement du Ministere des Mines, de l'Energie
et du Petrole.
a) des l'octroi au Consortium de sa premiere Concession, ce montant annuel
destine a la formation et l'equipement sera porte a deux-cents mille
(200.000) Dollars US.
19.3. Le personnel etranger employe par le Consortium et ses sous-traitants pour
les besoins des Operations Petrolieres sera autorise a entrer en Republique du
Tchad. Le Ministre facilitera la delivrance et le renouvellement des pieces
administratives necessaires a l'entree et au sejour en Republique du Tchad dudit
personnel et de leurs familles.
<PAGE>
En aucune maniere, l'alinea precedent ne pourra etre interprete comme une
derogation a la legislation EN VIGUEUR concernant l'entree ou la sortie du
-----------
territoire de la Republique du Tchad, dans la mesure ou cette legislation sera
appliquee sans discrimination a toute personne arrivant en Republique du Tchad
ou la quittant.
ARTICLE 20- PROPRIETE DES BIENS
20.1.Tous les biens, meubles et immeubles acquis et possedes par le Consortium,
deviendront la propriete de l'Etat a titre gratuit, a la date d'expiration ou de
resiliation de la Convention ou d'une Concession, ou a la date de renonciation
en cas de rendu de surface pour les biens qui ne seraient pas necessaires aux
Operations Petrolieres dans les zones autres que celles rendues. Dans le cas ou
le Consortium n'aurait pas, a ladite date d'expiration, de resiliation ou de
renonciation, ete titulaire d'une Concession, cette obligation s'appliquera
seulement aux biens immeubles.
Si le Ministre decide de ne pas utiliser lesdits biens, il pourra demander au
Consortium de les enlever aux frais de ce dernier, demande qui devra etre faite
avant ladite date d'expiration, de resiliation ou de renonciation.
Le Consortium ne pourra enlever ou vendre des biens de la Zone Contractuelle
susceptibles d'etre transferes a l'Etat au titre du present article, qu'apres
l'approbation du Ministre, a l'exception du remplacement des biens qui seraient
necessaires a la poursuite normale des Operations Petrolieres.
20.2. Dans les soixante (60) jours suivant l'expiration ou renonciation a une
Concession ou son retrait, le Consortium devra remettre a titre gratuit a l'Etat
tous les puits productifs realises par le Consortium a l'interieur du perimetre
de ladite Concession, en bon etat de marche pour poursuivre l'exploitation
(compte- tenu DE L'ETAT de l'usure normale) sauf si le Ministre exige leur
----------
abandon, ou si ces puits ont deja ete abandonnes.
20.3. Pendant la duree de validite du Permis et des Concessions en resultant,
les sondages reconnus d'un commun accord inaptes, a la poursuite des recherches
ou d'exploitation, pourront etre repris a titre gratuit par l'Etat et convertis
en puits a eau. Le Consortium sera tenu a laisser en place les tubages sur la
hauteur demandee ainsi que, eventuellement, la tete de puits et d'effectuer a sa
charge, a l'occasion des operations d'abandon dudit sondage et dans la mesure du
possible du point de vue technique et economique, la completion du sondage dans
la zone a eau qui lui sera demandee.
<PAGE>
TITRE V
DISPOSITIONS ECONOMIQUES ET FISCALES
ARTICLE 21 - PRIX DU PETROLE BRUT
21.1. Le prix de vente unitaire du Petrole Brut, pris en consideration pour le
calcul de l'impot direct sur les benefices et de la redevance, sera le Prix du
Marche au Point de Livraison (" le Prix du Marche "), exprime en Dollars par
baril, tel que determine ci - dessous:
a) a la fin de chaque Trimestre a compter du commencement de la production
commerciale du Petrole Brut, un Prix du Marche pour chaque type de Petrole
Brut ou melange de Petroles Bruts, vendu sera determine.
b) dans le cas ou les ventes a des acheteurs independants representent 50%
ou plus du Petrole Brut de la Zone Contractuelle, vendu par le Consortium
au Point de Livraison au cours du Trimestre, le Prix du Marche applicable
au cours du Trimestre sera egal a la moyenne ponderee des prix obtenus au
cours dudit Trimestre par le Consortium pour le Petrole Brut de la Zone
Contractuelle dans les contrats de vente a des acheteurs independants.
c) si les ventes a des acheteurs independants representent moins de
cinquante pour cent (50%) du Petrole Brut de la Zone Contractuelle, vendu
par le Consortium au Point de Livraison au cours du Trimestre, le Prix du
Marche applicable au cours du Trimestre sera la moyenne ponderee :
1. De la moyenne ponderee des prix obtenus aupres d'acheteurs independants au
cours du Trimestre en question, si de telles ventes de Petrole Brut de la Zone
Contractuelle par le Consortium ont eu lieu ; et
2 . De la moyenne des prix auxquels des Petroles Bruts, de densite et qualite
similaires a celle du Petrole Brut de la Zone Contractuelle, ont ete vendus au
cours du Trimestre en question dans des conditions commerciales comparables
entre acheteurs et vendeurs independants. Les prix de Petroles Bruts de
reference seront ajustes pour tenir compte des differences de qualite, quantite,
transport et conditions commerciales.
<PAGE>
La moyenne ponderee susmentionnee sera determinee a partir des pourcentages en
volume dans le total des ventes a partir de la Zone Contractuelle que les ventes
faites au titre de l'alinea 1, a des acheteurs independants, ou de l'alinea 2,
represente respectivement.
d ) Au sens du present article, les ventes a des acheteurs independants excluent
les transactions suivantes:
- ventes dans lesquelles l'acheteur est une Societe Affiliee du vendeur,
ainsi que les ventes entre les entites constituant le Consortium;
- ventes sur le marche interieur tchadien;
- ventes comportant une contrepartie autre qu'un paiement en devise
(tels que contrat d'echange, ventes d 'etat a etat') ou ventes
motivees, en tout ou partie, par des considerations autres que les
pratiques economiques usuelles dans les ventes de Petrole Brut sur le
marche international.
e) tous les prix susvises seront ajustes aux points de chargement effectifs
du Consortium.
f) aux fins de cet article, les ventes pour satisfaire les besoins de la
consommation interieure en Petrole Brut de la Republique du Tchad
conformement a l'article 15 ci-dessus seront exclues de la determinationdu
Prix du Marche.
21.2. Dans les trente (30) jours suivant la fin de chaque Trimestre, le
Consortium determinera selon les stipulations de l'article 21.1 ci-dessus, le
Prix du Marche du Petrole Brut produit , applicable au Trimestre precedent et
soumettra cette determination au Ministre.
Si dans les trente (30) jours suivant cette soumission, le Ministre n'accepte
pas la determination du Consortium du Prix de Marche, le Consortium et le
Ministre se reuniront pour convenir de la determination du Prix de Marche. Si
les Parties ne parviennent pas a s'entendre sur la determination du Prix de
Marche dans quatre vingt (90) jours suivant la fin du Trimestre, le Consortium
et le Ministre pourront immediatement soumettre a un expert la determination du
Prix du Marche. Dans ce cas le Prix du Marche sera determine definitivement par
un expert de reputation internationale, nomme par accord entre les Parties, ou
a defaut d'accord, nomme par le centre international d'expertise technique de la
Chambre de Commerce Internationale, conformement au Reglement d'expertise
technique de celui-ci.
<PAGE>
L'expert devra determiner le Prix du Marche selon les stipulations de l'article
21.1 dans un delai de vingt-et-un (21) jours apres sa nomination. Les frais
d'expertise seront a la charge du Consortium et inclus dans ses couts.
21.3. Afin de preciser la valeur de la redevance a l'article 22.4. ci-dessous, "
un Prix du Marche-Depart Champ " sera calcule pour chaque Trimestre. Dans trente
(30) jours suivant la determination definitive du Prix du Marche se rapportant
au Trimestre concerne, le Consortium fera ce calcul de la maniere suivante et en
notifiera le resultat au Ministre:
- Il determinera en premier lieu, en retenant ce Prix du Marche, la
valeur des quantites totales du Petrole Brut de la Zone Contractuelle,
vendues aux Points de Livraison au cours dudit Trimestre par le
Consortium, a l'exception des quantites vendues pour satisfaire les
besoins de la consommation interieure conformement a l'article 15.3;
- Il en soustraira les couts de transport encourus par le Consortium, au
cours dudit Trimestre, entre les points de mesure precises a l'article
13 ci-dessus et les Points de Livraison.
- Il divisera le resultat par la Production Totale de Petrole Brut,
apres en avoir deduit les quantites vendues au cours dudit Trimestre
pour satisfaire les besoins de la consommation interieure conformement
a l'article 15.3 ci-dessus, les quantites de la redevance percue en
nature au titre du Trimestre en question et les quantites perdues ou
utilisees pour les besoins de l'exploitation des champs.
Le cout de transport, dont il est fait reference ci-dessus, comprendra tout
frais de transport, de manutention, de stockage, de chargement et, le cas
echeant, de traitement et tout autre frais que le Petrole Brut aura eu a
supporter depuis les points de mesure precises a l'article 13.1 ci-dessus
jusqu'aux Points de Livraison, y compris tous frais, tarifs, Taxes et autres
charges de quelque nature qu'ils soient occasionnes par le transport du Petrole
Brut dans la Republique du Tchad ainsi que dans des pays voisins.
<PAGE>
ARTICLE 22 - REDEVANCE SUR LA PRODUCTION
22.1. Le Consortium est tenu de verser a l'Etat une redevance sur la Production
Totale des Hydrocarbures, deduction faite des quantites precisees dans le
present article, a un taux de douze et demi pour cent (12,5%) dans le cas du
Petrole Brut et a un taux de cinq pour cent (5% ) dans le cas du Gaz Naturel.
22.2. La redevance sur le Petrole Brut sera payable, pour tout ou partie, soit
en especes, soit en nature. La redevance sur le Gaz Naturel sera payable
toujours en especes.
Le choix du mode de paiement de la redevance sur le Petrole Brut est notifie au
Consortium par le Ministre, au moins trois (3) mois d'avance avant la date de
demarrage de la production commerciale.
Ce choix demeurera valable aussi longtemps que le Consortium n'aura pas recu du
Ministre une nouvelle notification qui devra etre faite avec un preavis d'au
moins trois (3) mois.
Si ce choix n'est pas notifie dans les delais impartis, la redevance sera versee
dans sa totalite en especes.
22.3. Avant le dix (10) de chaque mois, le Consortium notifiera au Ministre,
avec toutes justifications utiles, un releve de la Production Totale du mois
precedent, composee des trois elements suivants:
a) Les quantites vendues au cours du mois precedent pour satisfaire les
besoins de la consommation interieure conformement a l'article 15.3
ci-dessus;
b) Les quantite de la redevance a etre percue en nature au titre du mois
precedent, et
c) Le solde, etant les quantites destinees a l'exportation. Le releve
precisera separement les quantites de Petrole Brut et de Gaz Naturel.
22.4. Lorsque la redevance est percue en especes, elle est liquidee
mensuellement a titre provisoire, et trimestriellement a titre definitif.
Le Consortium versera le montant provisoire, dans les sept (7) jours suivant la
notification du releve, sur la base des quantites precisees a l'article 22.3 c)
ci-dessus multipliees par le Prix du Marche Depart-Champ, calcule conformement
aux articles 12.3 et 21.3 ci-dessus.
Dans le cas du Petrole Brut:
<PAGE>
- dans l'attente du calcul du Prix du Marche Depart-Champ pour un
Trimestre donne, le Prix du Marche Depart-Champ provisoire applicable
a ce Trimestre sera le Prix du Marche Depart Champ le plus recent;
- suite a la notification au Ministre, conformement a l'article 21.3
ci-dessus, le calcul du Prix du Marche Depart-Champ pour le Trimestre
considere, le Ministre notifiera au Consortium l'etat definitif de
liquidation de la redevance, deduction faite des sommes versees a
titre provisionnel, et le Consortium acquittera la redevance a titre
definitif. Si le solde est negatif, son montant est jusqu'a
epuisement, deduit du montant de la redevance dont le Consortium
serait redevable ulterieurement. Si le solde est positif, le
Consortium en effectue le versement dans les trente (30) jours. Dans
le cas ou le calcul du Prix de Marche Depart-Champ pour un Trimestre
donne correspond a une valeur negative, le Prix de Marche Depart-Champ
sera repute egal a zero. Au cas ou les pertes durent, les Parties se
concerteront pour en decider autrement.
22.5. Lorsque la redevance est percue en nature, elle est liquidee
mensuellement.
Sauf accord contraire des Parties, a partir du quinze (15) de chaque mois, le
Consortium met a la disposition de l'Etat, aux points de mesure precises a
l'article 13 ci-dessus, suivant le rythme arrete en accord avec le Ministre, les
quantites de Petrole Brut dues au titre de cette redevance en nature du mois
precedent, si le Ministre le demande, et si le Consortium dispose des
installations necessaires et de la capacite necessaire dans ces installations,
le Consortium transportera et livrera lesdites quantites pour l'Etat, aux frais
de ce dernier.
L'Etat dispose d'un delai de soixante (60) jours a compter de celui ou le
Consortium a mis les produits a sa disposition, pour faire proceder a
l'enlevement de ceux-ci, delai pendant lequel le Consortium sera tenu d'assurer
gratuitement le stockage de ce Petrole Brut. Si la totalite de la redevance
mensuelle n'a pas ete enlevee a l'expiration de ce delai, le Consortium pourra
disposer librement du Petrole Brut non enleve a ce titre, a charge de verser a
l'Etat la redevance en especes pour les quantites correspondantes conformement a
l'article 22.4 ci-dessus.
ARTICLE 23- REGIME FISCAL
23.1. Les societes sont, a raison de leurs Operations Petrolieres, assujetties a
l'impot direct sur les benefices conformement a cette Convention dans les
conditions prevues par l 'article 1.6.1 de l'annexe III, et au Code General des
impots ainsi qu'au Code Petrolier, sous reserve des dispositions contraires de
la presente Convention.
<PAGE>
23.2. Les benefices nets que le Consortium retire de l'ensemble de ses
Operations Petrolieres sur le territoire de la Republique du Tchad sont
passibles d'un impot direct de cinquante pour cent (50%) calcule sur lesdits
benefices nets, taux prevu par le Code Petrolier.
[NON APPLICATION DES AUTRES DISPOSITIONS DE L'ARTICLE 65 DU CODE PETROLIER]
------------------------------------------------------------------------------
En raison du mode de determination de l'impot direct indique ci-dessus, la
redevance sur la production est consideree comme une charge d'exploitation et
non comme un credit d'impot.
Le Consortium tient par Annee Civile, en accord avec la reglementation en
vigueur au Tchad et les dispositions de la presente Convention, une comptabilite
separee des Operations Petrolieres qui permet d'etablir un compte d'exploitation
generale, un compte de pertes et profits et un bilan faisant ressortir tant les
resultats desdites operations que les elements d'actif et de passif qui y sont
affectes ou s'y rattachent directement.
23.3. Pour permettre la determination du benefice net du Consortium, doivent
etre portes au credit du compte d'exploitation generale et du compte des pertes
et profits:
a) la valeur totale des Hydrocarbures de la Zone Contractuelle, vendus par
le Consortium au Point de Livraison, en retenant le Prix du Marche
determine conformement aux articles 12 et 21 ci-dessus, a l'exception des
quantites vendues pour satisfaire les besoins de la consommation interieure
conformement a l'article 15.3
b) le cas echeant, la valeur de la quote-part de la production versee a
titre de redevance sur la production en nature, determinee suivant les
modalites prevues a l'article 22 ci-dessus.
c) une quote-part des plus-values provenant de la cession ou du transfert
d'elements quelconques de l'actif conformement au regime de taxation des
plus values de cessions.
d) tous autres revenus ou produits directement lies aux Operations
Petrolieres, notamment, le cas echeant, ceux provenant de la vente des
substances connexes, les revenus provenant du traitement, du stockage et du
transport des Hydrocarbures pour des Tiers.
e) les benefices de change realises a l'occasion des Operations
Petrolieres.
<PAGE>
23.4. Peuvent etre portes au debit du compte d'exploitation generale et du
compte de pertes et profits :
a) le cout des matieres, des approvisionnement et de l'energie employes ou
consommes, les salaires du personnel et les charges y afferentes, le cout
des prestations de services fournies au Consortium par des Tiers ou des
Societes Affiliees, a conditions que dans ce cas les couts des
approvisionnements, du personnel ou des services fournis par les Societes
Affiliees n'excedent pas ceux normalement pratiques par des Tiers pour des
prestations similaires dans l'industrie petroliere internationale.
b) les amortissements reellement effectues par le Consortium dans la limite
des taux fixes a l'annexe III de la presente Convention. Les amortissements
commenceront a la date d'utilisation des biens et se poursuivront jusqu'a
leur amortissement total.
c) les frais generaux afferents aux Operations Petrolieres, y compris les
frais d'etablissement, les frais de location de biens meubles et immeubles,
les cotisations d'assurances, et un montant relatif aux frais generaux a
l'etranger tels que definis a l'article 2.6 de l'annexe III de la presente
Convention.
d) les interets et agios des dettes contractees par le Consortium, pour
leur montant reel, dans les limites fixees a l'article 2.7 de l'annexe III
de la presente Convention. Il est entendu qu'aucun interet ne sera charge
sur les prets effectues par les Societes Affiliees concernant les depenses
d'exploration.
e) deduction faite des amortissements deja pratiques, la valeur des
materiels ou des biens detruits ou endommages et la valeur des biens
auxquels l'entreprise a renonce ou qui seront abandonnes en cours d'annee,
ainsi que les creances irrecouvrables et les indemnites versees aux Tiers
pour dommages.
f) le montant total de la redevance sur la production acquittee en especes,
et la valeur de la quote-part de la production versee a titre de redevance
sur la production en nature determinee suivant les modalites prevues a
l'article 22 ci-dessus.
g) les provisions raisonnables constituees en vue de faire face
ulterieurement a des pertes ou charges nettement precisees et que des
evenements en cours rendent probables, a l'exclusion de toutes dotations au
fond de reconstitution des gisements.
<PAGE>
h) toutes autres pertes ou charges directement liees aux operations
petrolieres y compris les pertes de change realisees a l'occasion de
celle-ci, a l'exception du montant de l'impot direct sur les benefices
determine conformement aux dispositions du present article.
i) tous autres frais que le Consortium aura eu a supporter pour le
transport des Hydrocarbures entre les points de mesure precises a l'article
13.1 jusqu'au Point de Livraison, y compris tous frais, tarifs, taxes et
autres charges de quelque nature qu'ils soient occasionnes par le transport
des Hydrocarbures dans la Republique du Tchad et dans les pays voisins,
dans la mesure ou ces frais ne seront pas inclus au titre des alineas a) a
h) ci-dessus.
23.5. Sauf dispositions contraires fixees d'accord Parties, l'impot direct sur
les benefices sera verse selon un systeme d'acomptes trimestriels, avec
regularisation annuelle apres declaration des resultats de l'Annee Civile
ecoulee. Ces acomptes devront etre verses avant la fin de chaque Trimestre et
seront egaux au quart de l'impot direct sur les benefices acquitte l'Annee
Civile precedente. Le paiement du solde de l'impot direct sur les benefices au
titre des benefices d'une Annee Civile donnee devra etre effectue au plus tard
le premier avril de l'Annee Civile suivante. Si le Consortium a verse sous forme
d'acomptes une somme superieure a l'impot dont il est redevable au titre d'une
Annee Civile donnee, l'excedent constituera un avoir fiscal a valoir sur les
versements d'impots ulterieurs.
ARTICLE 24 - EXONERATIONS FISCALES
24.1. Le Consortium, SESACTIONNAIRES ET LES SOCIETES AFFILIEES beneficiera des
-----------------------------------------
avantages fiscaux prevus par L'ARTICLE 65 DU Code Petrolier.
-----------------
A l'exception de la redevance sur la production et de l'impot direct sur les
benefices, le Consortium est exonere:
a) de tout autre impot direct sur le revenu frappant les resultats des
Operations Petrolieres et les benefices.
-DISTRIBUTIONS DE BENEFICES
-----------------------------
-IMPOTS SUR LE REVENU DES VALEURS MOBILIERES ET LA SUPPRESSION
--------------------------------------------------------------
b) de toute taxe, droit, impot ou contribution de quelque nature que ce
soit frappant la production ou la vente des Hydrocarbures, et tout revenu y
afferent ou exigible sur les Operations Petrolieres ou a l'occasion de
l'etablissement et du fonctionnement du Consortium, Y COMPRIS LA PATENTE.
--------------------
<PAGE>
L'exoneration ci-dessus est egalement applicable pour tout transfert de fonds,
achats et transports d'Hydrocarbures destines a l'exportation, SERVICES RENDUS,
-----------------
et plus generalement pour tous revenus et activites du Consortium, a condition
que les elements susmentionnes soient necessaires aux Operations Petrolieres.
Par derogation aux dispositions precedentes, les impots fonciers et les Taxes
additionnelles sont exigibles dans les conditions de droit commun sur les
immeubles a usage d'habitation.
En outre, les exonerations visees au present article, ne s'appliquent ni aux
Taxes ou Redevances percues en remuneration des services rendus, et d'une
maniere generale ni a tous les prelevements autres que ceux a caractere fiscal.
24.2 De plus, le Consortium sera exempte de tout impot sur le chiffre d'affaires
pour toutes les acquisitions de biens et services strictement et directement
necessaires a la realisation des Operations Petrolieres.
ARTICLE 25- COMPTABILITE
25.1.Le Consortium tiendra sa comptabilite conformement a la reglementation en
vigueur et selon les dispositions de la procedure comptable fixees a l'annexe
III ci-jointe qui fait partie integrante de la presente Convention.
25.1. The Consortium shall keep accounts in conformity with regulations in force
and in accordance with the provisions of the Accounting procedure set out in
Annex III which is an integral part of this Convention.
25.2. Les registres et livres de comptes seront libelles en Dollars. Ces
registres seront utilises pour determiner le revenu brut, les frais
d'exploitation, les benefices nets et pour la preparation de la declaration des
resultats du Consortium.
A titre d'information, les comptes d'exploitation generale et de pertes et
profits et les bilans seront egalement tenusEN FRANCS CFA.
----------------
25.3. les registres et livres de comptes seront justifies par des pieces
detaillees prouvant les depenses et les revenus du Consortium conformement aux
droits et obligations de la Convention.
25.3. The records and books of accounts will be supported by detailed vouchers
proving the expenses and revenues of the Consortium in accordance with the
rights and obligations of the Convention.
<PAGE>
ARTICLE 26 - VERIFICATION
26.1. L'Etat aura le droit de determiner et de verifier, par ses agents ou des
auditeurs, les registres et livres de comptes relatifs aux Operations
Petrolieres et disposera d'un delai de cinq (5) ans suivant la fin de l'exercice
considere pour effectuer cet examen ou cette verification pour presenter au
Consortium ses objections pour toutes les contradictions ou erreurs relevees
lors de l'examen ou de la verification.
Pour les besoins de telles verifications, le Consortium mettra a la disposition
des agents de l'Etat et des auditeurs, pendant les heures ouvrables, tous les
registres, livres, autres documents et informations que ces agents et auditeurs
peuvent demander.
26.2. Le defaut par l'Etat de faire une reclamation dans le delai de cinq (5)
ans vise ci-dessus mettra fin a toute objection, contestation ou reclamation de
la part de l'Etat pour l'exercice considere.
ARTICLE 27 - IMPORTATIONS ET EXPORTATIONS
27.1.Le Consortium aura le droit d'importer en Republique du Tchad pour son
compte ou pour le compte de ses sous-traitants, dans les conditions definies
ci-dessous, tous les materiaux, equipements, machines, appareils, vehicules,
automobiles, avions, pieces de rechange et matieres consommables necessaires
aux Operations Petrolieres.
Les employes etrangers et leurs familles, appeles a travailler en Republique du
Tchad pour le compte du Consortium ou de ses sous-traitants, auront le droit
d'importer en Republique du Tchad en franchise des droits et Taxes de douane
leurs effets personnels, a l'exclusion des vehicules a usage personnel en cours
d'utilisation, conformement aux dispositions du Code des Douanes en vigueur. Les
achats locaux s'effectueront toutes Taxes comprises.
Les marchandises visees ci-dessus seront importees par le Consortium en
exoneration de tous droits et Taxes de douanes a l'exception des Taxes percues
pour service rendu dans les conditions fixees ci-apres:
a) Les materiaux destines exclusivement a la recherche et a l'exploitation
petroliere seront exoneres de tous droits et Taxes de douane;
<PAGE>
b) Les equipements-marchandises et appareils destines aux chantiers de
recherche et de l'exploitation petroliere seront places sous le regime de
l'admission temporaire NORMAL.
------
c) Les vehicules de chantiers, speciaux ou non, seront places sous le
regime de l'admission temporaire. Les vehicules automobiles du siege ou
acquis a titre personnel, seront soumis au regime du droit commun sans
aucune exoneration ; les avions et leurs pieces de rechange, les matieres
consommables necessaires a la recherche et a l'exploitation petroliere
repris en annexe seront exoneres de tous droits et Taxes de douanes.
27.2.Le Consortium et ses sous-traitants s'engagent a ne proceder aux
importations definies ci-dessus que dans la mesure ou lesdits marchandises ne
sont pas disponibles en Republique du Tchad en quantite, qualite, prix, delais
et conditions de paiement equivalents, a moins d'exigences ou d'urgences
techniques particulieres presentees par le Consortium ou ses sous-traitants.
Le Consortium et ses sous-traitants s'engagent a accorder la preference aux
entreprises tchadiennes pour tout contrat de construction, d'approvisionnement
ou de services a conditions equivalentes en terme de quantites, qualite, prix,
delais et conditions de paiement.
27.3. Le Consortium et ses sous-traitants, ainsi que leurs employes etrangers et
leurs familles, auront le droit de re-exporter hors de la Republique du Tchad en
franchise de tous droits et Taxes de sorties, les marchandises importees au
titre de l'article 27.1 ci-dessus qui ne seraient plus necessaires aux
Operations Petrolieres, sous reserve de l'application des dispositions prevues a
l'article 20 ci-dessus.
27.4. Le Consortium et ses sous-traitants auront le droit de vendre en
Republique du Tchad, a condition d'en informer au prealable le Ministre, les
marchandises qu'ils auront importees quand elles ne seront plus necessaires aux
Operations Petrolieres, sous reserve de l'application des dispositions prevues a
l'article 20 ci-dessus. Il est entendu que, dans ce cas, il incombera au
vendeur de remplir toutes les formalites prescrites par la reglementation en
vigueur et de payer tous droits et Taxes applicables a la date de transaction,
sauf si les marchandises susmentionnees sont cedees a des entreprises effectuant
des Operations Petrolieres en Republique du Tchad.
27.5. Pendant toute la duree de la presente Convention, et sous reserve des
dispositions de l'article 15 ci-dessus, le Consortium aura le droit d'exporter
librement vers la destination choisie a cet effet, en franchise de tout droit et
Taxes de sortie, la portion d'Hydrocarbures a laquelle le Consortium a droit
suivant les termes de la Convention. Cependant, le Consortium s'engage, a la
demande de l'Etat, de ne pas vendre les Hydrocarbures a des pays declares
hostiles a la Republique du Tchad.
<PAGE>
27.6. Toutes les importations et exportations aux termes de la presente
Convention seront soumises aux formalites requises par la reglementation en
vigueur en la matiere.
A la demande du Consortium, et apres agrement par les autorites tchadiennes
competentes, la liste des materiels, des materiaux et des fournitures pourra
etre completee au fur et a mesure par les biens et equipements strictement
necessaires aux Operations Petrolieres.
ARTICLE 28 CONTROLE DES CHANGES
28.1. Le Consortium sera soumis a la reglementation de la Republique du Tchad
sur les changes et les transferts. Toutefois, il est entendu que l'Etat s'engage
pendant la duree de la presente Convention a maintenir au Consortium et a ses
sous-traitants le benefice des garanties suivantes pour les operations realisees
dans le cadre de la presente Convention:
a) droit de contracter a l'etranger des emprunts ou d'autres moyens de
financement necessaires a la conduite des Operations Petrolieres,
d'encaisser et de conserver a l'etranger tous les fonds acquis ou empruntes
a l'etranger, y compris les recettes des ventes, et d'en disposer librement
dans la limite des montants excedant les besoins de leurs operations au
Tchad et de leurs obligations fiscales et contractuelles;
b) libre mouvement des fonds leur appartenant en franchise de tous droits
et Taxes entre le Tchad et tout autre pays;
c) droit de rapatrier les capitaux investis dans le cadre de la presente
Convention et de transferer leurs produits notamment les interets et
dividendes sans aucune obligation pour l'Etat de fournir des devises
etrangeres.
<PAGE>
d) libre transfert des sommes dues, ainsi que la libre reception des sommes
qui leur sont dues a quelque titre que ce soit a charge de proceder aux
declarations prevues par la reglementation en vigueur;
e) droit de payer directement a l'etranger les entreprises etrangeres
fournisseurs de biens et de services necessaires aux Operations
Petrolieres.
28.2. Pour l'execution des Operations Petrolieres, le Consortium sera autorise a
pratiquer le change de la monnaie nationale et des devises etrangeres
convertibles a des taux de change non moins favorable pour le Consortium que le
taux du jour ou que les taux generalement applicables en Republique du Tchad aux
autres firmes le jour des operations de change.
28.3. Dans les trente (30) jours, suivant la fin de chaque Trimestre, le
Consortium devra fournir au Ministre charge des finances un rapport sur les
mouvements de fonds relatifs aux Operations Petrolieres durant le Trimestre
ecoule.
28.4. Les employes expatries du Consortium auront droit, selon la reglementation
en vigueur dans la Republique du Tchad , au change libre et au virement libre
vers leur pays d'origine de leurs economies sur leurs salaires ainsi que des
cotisations aux regimes de retraite et de caisse d'epargne versees par eux-memes
ou pour leur compte, sous reserve qu'ils aient acquitte leurs impots en
Republique du Tchad.
ARTICLE 29- PAIEMENTS
29.1. Sauf dispositions contraires de la presente Convention, toutes les sommes
dues a l'Etat, ou au Consortium seront payables en Dollars ou dans une autre
devise convertible choisie d'un commun accord entre les Parties.
29.2. En cas de retard dans un paiement, les sommes dues par le Consortium
porteront interet au taux de LIBOR plus quatre-et-demi pour cent (4,5%) par an
a compter du jour ou elles auraient du etre versees.
<PAGE>
TITRE VI
DISPOSITIONS DIVERSES
ARTICLE 30- TRANSFER RIGHTS AND CONTROL OF THE CONSORTIUM
30.1.Conformement aux disposition du Code Petrolier, les droits et obligations
conjoints et solidaires resultant de la presente Convention ne peuvent etre
cedes, en partie ou en totalite par n'importe laquelle ou lesquelles des entites
constituants le Consortium, a l'exception des cessions a des Societes Affiliees,
sans l'approbation prealable du Ministre.
Si dans les soixante (60) jours suivant la notification au Ministre du projet de
cession, accompagnee en particulier du projet d'acte de cession, celui-ci n'a
pas notifie son opposition motivee, cette cession sera reputee avoir ete
approuvee par le Ministre.
Chacune des Societes constituant le Consortium peut ceder de plein droit a toute
Societe Affiliee tout ou partie quelconque des droits qui lui sont accordes par
cette Convention ou par le Permis, ou par des Concessions. De tels transferts ne
seront pas soumis a l'approbation prealable du Ministre. Toutefois, le
Consortium informera le Ministre de toute cession effectuee aux termes de cet
alinea dans un delai d'un mois suivant la signature de l'acte de cession; aucune
cession ne devra etre de nature a porter prejudice aux interets de l'Etat et aux
Operations Petrolieres, ni a reduire les capacites techniques et financieres du
Consortium.
<PAGE>
Le ou les cessionnaire (s) acquerront la qualite de Consortium et devront
satisfaire aux obligations imposees au Consortium par le Code Petrolier et par
la presente Convention a laquelle ils devront adherer, sauf en ce qui concerne
les cessions prevues a l'article 14.4 ci-dessus.
LES CESSIONS EFFECTUEES CONFORMEMENT AUX DISPOSITIONS CI-DESSUS SERONT EXONEREES
- --------------------------------------------------------------------------------
DE TOUS DROITS D' ENREGISTREMENT ET DE TIMBRE EXIGIBLES A CE TITRE.
- ------------------------------------------------------------------------------
30.2. Si le Consortium est constitue de plusieurs entites, il devrait fournir au
Ministre dans les plus brefs delais une copie de l'accord d'association liant
les entites constituant le Consortium.
30.3. Le Consortium est tenu de soumettre a l'approbation prealable du Ministre
tout changement de personne ou tout projet qui serait susceptible d'amener,
notamment au moyen d'une nouvelle repartition des titres sociaux, une
modification du controle du Consortium, a l'exception des cessions ENTRE des
-----
Societes Affiliees.
Les projets vises au present article 30.3 seront notifies au Ministre. Si dans
un delai de soixante (60) jours suivant ladite notification, le Ministre n'a pas
notifie au Consortium son opposition motivee auxdits projets, ceux-ci sont
reputes approuves.
ARTICLE 31- ANNULATION DU PERMIS, RETRAIT DE LA CONCESSION ET RESILIATION DE
LA CONVENTION
31.1. Le Permis ou , le cas echeant, une Concession pourront etre annules ou
retires, en tout ou partie sans aucune indemnite, dans les cas et selon les
procedures prevues par le Code Petrolier .
31.2.Pour l'application de ces procedures, le Ministre met en demeure par lettre
recommandee avec accuse de reception le Consortium de s'y conformer dans les
delais prevus au Code Petrolier ou a defaut dans un delai de quatre (4) mois
Faute pour le Consortium de se plier a cette injonction dans les delais
impartis, l'annulation du Permis ou le retrait de la Concession est prononce, et
la presente Convention sera automatiquement resiliee dans la mesure ou la
presente Convention s'applique au Permis ou a ladite Concession.
<PAGE>
31.3. Tout differend sur l'annulation du Permis ou le retrait d'une Concession
ou la resiliation de la Convention sera susceptible de recours a l'arbitrage
conformement aux dispositions de l'article 33 ci-dessous.
ARTICLE 32- FORCE MAJEURE
32.1. Lorsqu'une Partie est dans l'impossibilite d'executer ses obligations
contractuelles, en dehors des paiements dont elle serait redevable, ou ne peut
les executer qu'avec retard, l'execution ou le retard ne sera pas considere
comme une violation de la presente Convention s'ils resultent d'un cas de Force
Majeure, a condition toutefois qu'il y ait un lien de cause a effet entre
l'empechement et le cas de Force Majeure invoquee.
Il peut etre fait appel a l'arbitrage pour determiner, notamment, le caractere
de l'empechement invoque et son incidence sur les obligations contractuelles de
la Partie interessee.
32.2. Aux termes de la presente Convention, doivent etre entendus comme cas de
Force Majeure tous evenements imprevisibles et independants de la volonte d'une
Partie tels que cause naturelle, epidemie, tremblement de terre, incendie,
inondation, greve, emeute, insurrection, troubles civils, sabotage, faits de
guerre ou conditions imputables a la guerre. L'intention des Parties est que le
terme de Force Majeure recoive l'interpretation la plus conforme aux principes
et usages du droit international.
32.3. Lorsqu'une Partie estime qu'elle se trouve empechee de remplir ses
obligations en raison d'un cas de Force Majeure, elle doit immediatement
notifier a l'autre Partie cet empechement et en indiquer les raisons.
Elle doit prendre egalement toutes les dispositions utiles pour assurer dans les
plus brefs delais la reprise normale de l'execution des obligations affectees
des la cessation de l'evenement constituant le cas de Force Majeure.
Les obligations autres que celles affectees par le cas de Force Majeure devront
continuer a etre remplies conformement aux dispositions de la presente
Convention.
Lorsque le cas de Force Majeure dure plus d'un (1) an, les Parties pourront, par
accord mutuel, convenir de mettre fin a la presente Convention.
<PAGE>
32.4. Si, par suite d'un cas de Force Majeure, l'execution des obligations de la
Convention etait differee, la duree du retard en resultant, augmentee du delai
qui pourrait etre necessaire a la reparation de tout dommage cause par ledit
retard, serait ajoutee au delai prevu aux termes de la Convention pour
l'execution de la dite obligation, ainsi qu'a la duree de la Convention mais
seulement en ce qui concerne la region affectee par le cas de Force Majeure.
ARTICLE 33- ARBITRAGE
33.1. En cas de differend survenu entre l'Etat et le Consortium concernant
l'interpretation ou l'execution de la presente Convention ou de l'une
quelconque de ses dispositions, les Parties s'efforceront de le resoudre a
l'amiable.
Si les Parties n'arrivent pas a regler le differend a l'amiable dans un delai de
trois (3) mois, ce dernier sera tranche definitivement suivant le Reglement
d'Arbitrage de la Chambre de Commerce Internationale par trois (3) arbitres
nommes conformement a ce Reglement. La sentence arbitrale sera definitive et
obligatoire des qu'elle sera rendue, et son execution pourra etre requise devant
tout tribunal competent.
33.2. L'arbitrage aura lieu a Paris (France). La procedure d'arbitrage sera
conduite en langue francaise.
33.3. Les arbitres devront trancher tout differend en appliquant:
a) les dispositions de la presente convention;
b) sous reserve de l'application des dispositions de l'article 34
ci-dessous, les dispositions du Code Petrolier;
c) sous reserve de l'application de l'article 34 ci-dessous, les autres
lois et reglements de la Republique du Tchad et, dans la mesure ou il
serait necessaire de completer le droit tchadien, les principes generaux de
droit appliques sur le plan international.
<PAGE>
33.4. L'introduction d'un recours en arbitrage entra ne toute suspension
d'effets en ce qui concerne l'objet du litige. En revanche, l'execution par les
Parties de leurs autres obligations au titre de la Presente Convention ne sera
pas suspendue durant la periode d'arbitrage.
ARTICLE 34- DROIT APPLICABLE ET STABILISATIONS DES CONDITIONS
-----------------------------------
34.1. Les Operations Petrolieres entreprises dans le cadre de la presente
Convention sont reglees par cette Convention ainsi que par le Code petrolier et
autres lois et reglements en vigueur au Tchad;TOUTEFOIS, EN CAS DE CONTRADICTION
----------------------------------
OU INCOMPATIBILITE ENTRE LES DISPOSITIONS DE CETTE CONVENTION ET CELLES DU CODE
- --------------------------------------------------------------------------------
PETROLIER, LES DISPODITIONS DE LA CONVENTION PREVAUDRONT
- --------------------------------------------------------------
34.2. Le Consortium doit respecter les lois et reglements de la Republique du
Tchad. Toute reference a ces lois et reglements, tout au long de la presente
Convention, ne sera en aucune maniere interpretee de facon a aggraver,
directement ou par voie de consequence, les obligations et charges imposees au
Consortium par les dispositions de la presente Convention, ni de porter atteinte
aux droits et aux avantages economiques du Consortium prevus par la presente
Convention.
34.3. En cas de contradiction ou incompatibilite entre la presente Convention et
les lois et reglements de la Republique du Tchad, les dispositions de la
Convention prevaudront, sauf si les Parties en decident autrement.
34.4. PENDANT LA DUREE DE VALIDITE DES PRESENTES, L'ETAT ASSURE QU'IL NE SERA
-------------------------------------------------------------------------
PAS FAIT APPLICATION AU CONSORTIUM SANS L'ACCORD PREALABLE DES PARTIES, D'ACTES
- --------------------------------------------------------------------------------
GOUVERNEMENTAUX A VENIR AYANT POUR EFFET D'AGGRAVER, DIRECTEMENT OU PAR VOIE DE
- --------------------------------------------------------------------------------
CONSEQUENCE, LES OBLIGATIONS ET CHARGES IMPOSEES AU CONSORTIUM PAR LES
- -------------------------------------------------------------------------------
DISPOSITIONS DE LA PRESENTE CONVENTION, OU POUR EFFET DE PORTER ATTEINTE AUX
- --------------------------------------------------------------------------------
DROITS ET AUX AVANTAGES ECONOMIQUES DU CONSORTIUM PREVUS PAR LA PRESENTE
- --------------------------------------------------------------------------------
CONVENTION. CECI S'APPLIQUERA NOTAMMENT AUX ELEMENTS SUIVANTS :
- ----------------------------------------------------------------------
A) EXONERATION EN MATIERE DE DROITS, TAXES ET IMPOTS;
-------------------------------------------------
B) OBLIGATIONS EN MATIERE DE REDEVANCE ET D'IMPOT SUR LES BENEFICES;
----------------------------------------------------------------
C) DROIT DE CONSERVER ET RAPATRIER A L'ETRANGER LES FONDS ET DEVISES
------------------------------------------------------------------------
ETRANGERES;
----------
D) NON DISCRIMINATION POUR LES CHARGES AU TITRE DE SERVICES RENDUS PAR
------------------------------------------------------------------------
L'ETAT PAR RAPPORT A CELLES APPLIQUEES PAR L'ETAT POUR DES SERVICES
---------------------------------------------------------------------------
ANALOGUES FOURNIS DANS LE DOMAINE PUBLIC.
<PAGE>
DANS LE CAS OU DE TELS CHANGEMENTS SERAIENT EFFECTUES PAR LE GOUVERNEMENT DE LA
- --------------------------------------------------------------------------------
REPUBLIQUE DU TCHAD SANS L'ACCORD PREALABLE DU CONSORTIUM, LES PARTIES
- -------------------------------------------------------------------------------
CONVIENDRONT DES MODIFICATIONS NECESSAIRES AFIN D'ASSURER AU CONSORTIUM LES
- --------------------------------------------------------------------------------
MEMES CONDITIONS FINANCIERES, OBLIGATIONS ET CHARGES, AINSI QUE LES MEMES DROITS
- --------------------------------------------------------------------------------
ET AVANTAGES ECONOMIQUES, TELS QU'ILS EXISTAIENT AVANT QUE LESDITS CHANGEMENTS
- --------------------------------------------------------------------------------
AIENT LIEU.
- ------------
ARTICLE 35- NOTIFICATION
35.1.Toutes les notifications ou autres communications se rapportant a la
presente Convention devront etre adressees par ecrit et seront considerees comme
ayant ete remises des qu'elles seront portees ou delivrees sous plis affranchi
et recommande, avec accuse de reception, ou adressees par telex, telecopie a
l'election de domicile indiquee ci-dessous:
a) Pour l'Etat ou le Ministre:
Ministre des Mines, de l'Energie et du Petrole
B.P 94 N'Djamena,
Republique du Tchad
Telefax : (235) 52.25.65
(235) 52.42.48
b) Pour le Consortium
XXX
35.2. L'Etat et le Consortium peuvent a tout moment, apres notification a
l'autre Partie, changer leur representant autorise, ou modifier l'election de
domicile susmentionnee.
<PAGE>
ARTICLE 36- AUTRES DISPOSITIONS
36.1. Les titres figurant dans la presente Convention sont inseres a des fins de
commodite et de reference et en aucune maniere ne definissent, ne limitent ni ne
decrivent la portee ou le but de la Convention, ni de l'une quelconque de ses
clauses.
36.2. Les annexes I, II, III et IV ci-jointes font partie integrante de la
presente Convention.
36.3. La presente Convention ne peut etre modifiee que par ecrit et d'un commun
accord entre les Parties.
36.4. Toute renonciation de l'Etat de l'execution d'une obligation du Consortium
devra etre faite par ecrit et signee par le Ministre et aucune renonciation ne
pourra etre consideree comme un precedent si le Ministre renonce a se prevaloir
d'un des droits qui lui sont reconnus par la presente Convention.
36.5. Si le Consortium est oblige, selon les termes de cette Convention, de
demander l'approbation du Ministre, celui-ci devra notifier sa decision, faute
de delai stipule dans la Convention, dans un delai raisonnable convenu par les
Parties, etant entendu que l'intention de celles-ci est de cooperer de toutes
les manieres possibles afin d'atteindre les objectifs de la presente Convention.
L'approbation sera consideree comme tacitement accordee si elle n'est pas
expressement donnee dans le delai stipule ou convenu.
36.6. La Date d'Effet rendant la presente Convention obligatoire pour les
Parties sera la date de son approbation par Decret. La validite de cette
Convention ne sera pas mise en cause par un retard quelconque dans la signature
des decrets confirmant l'octroi ou le renouvellement des titres de recherche ou
d'exploitation.
36.7 La presente Convention abroge le Protocole d'Accord du 31 juillet 1998,
signe entre la Republique du Tchad et le Consortium.
En FOI DE QUOI, les Parties ont signe la presente Convention en quatre (4)
exemplaires.
Fait a N'Djamena, le
Pour la Republique du Tchad Pour Oriental Energy Resources
<PAGE>
Le Ministre des Mines, de l'Energie
et du Petrole
Pour Carlton Energy Group
Pour Trinity Gas Corporation, Inc
<PAGE>
ANNEXE I
---------
DELIMITATION DE LA ZONE CONTRACTUELLE DU PERMIS
Les coordonnees geographiques de la surface de trois blocs du Permis reputee
egale au total a environ 439.240 Km2, sont definies comme suit :
BASSIN DES " ERDIS " surface : 171.000 KM2
- ---------------------
<TABLE>
<CAPTION>
POINTS LONGITUDE LATITUDE
- ------ ------------------------ -----------------------
<C> <S> <C>
1 frontiere avec le Soudan 17 30'00'N
2 21 00'00"E 17 30'00"N
3 21 00'00"E 18 30'00"N
4 19 00'00"E 18 30'00"N
5 19 00'00"E frontiere avec la Libye
Le long de la frontiere avec la Libye jusqu'a la frontiere avec le Soudan et le
long de la frontiere avec le Soudan jusqu'au point
6 frontiere avec le Soudan 17 30'00"N
</TABLE>
LAC TCHAD (BASSIN DU LAC TCHAD, SURFACE: 102.640 KM2 )
- ----------
<TABLE>
<CAPTION>
POINTS LONGITUDE LATITUDE
- ------ -------------------------- -----------------------
<C> <S> <C>
1 14 04'30"E frontiere avec le Niger
Le long de la frontiere avec le Niger jusqu'a ,
2 frontiere avec le Niger 16 00'00"N
3 16 30'00"E 16 00'00"N
4 16 30'00"E 10 30'00"N
5 frontiere avec le Cameroun 10 30'00"N
Le long de la frontiere avec le Cameroun jusqu'a la frontiere avec le Nigeria ,
ensuite, le long de la frontiere avec le Nigeria jusqu'a la frontiere avec le
Niger et le long de la frontiere avec le Niger jusqu'a
6 13 44'45"E frontiere avec le Niger
7 13 44'45"E 14 29'45"N
8 13 46'45"E 14 29'45"N
9 13 46'45"E 14 27'30"N
-------------------------- -----------------------
10 14 02'30"E 14 27'30"N
-------------------------- -----------------------
11 14 02'30"E 14 20'30"N
12 13 59'15"E 14 20'30"N
13 13 59'15"E 14 11'00"N
14 14 02'45"E 14 11'00"N
-------------------------- -----------------------
15 14 02'45"E 14 01'45"N
-------------------------- -----------------------
16 13 40'45"E 14 01'45"N
17 13 40'45"E 13 51'15"N
18 13 52'45"E 13 51'15"N
19 13 52'45"E 13 57'00"N
20 14 14'15"E 13 57'00"N
<PAGE>
21 14 14'15"E 14 05'45"N
22 14 27'00"E 14 05'45"N
23 14 27'00"E 14 37'30"N
24 14 22'45"E 14 37'30"N
25 14 22'45"E 14 43'00"N
26 14 20'00"E 14 43'00"N
27 14 20'00"E 14 51'30"N
28 14 16'30"E 14 51'30"N
29 14 16'30"E 14 54'30"N
30 14 14'15"E 14 54'30"N
31 14 14'15"E 14 59'45"N
32 14 11'15"E 14 59'45"N
33 14 11'15"E 15 03'30"N
34 14 08'45"E 15 03'30"N
35 14 08'45"E 15 09'00"N
36 14 07'00"E 15 09'00"N
37 14 07'00"E 15 15'30"N
38 14 04'30"E 15 15'30"N
39 14 04'30"E identique au point n 1
</TABLE>
ZONE DU CHARI (SURFACE: 165.600 KM2 )
- ---------------
<TABLE>
<CAPTION>
POINTS LONGITUDE LATITUDE
- ------ -------------------------- ----------------------------------
<C> <S> <C>
1 frontiere avec le Cameroun 10 30'00"N
2 frontiere avec la R.C.A. 10 30'00"N
Le long de la frontiere avec la R.C.A. jusqu'a
3 20 01'15"E frontiere avec la R.C.A.
4 20 01'15"E 09 40'00"N
-------------------------- ----------------------------------
5 20 17'30"E 09 40'00"N
-------------------------- ----------------------------------
6 20 17'30"E 09 47'30"N
7 20 00'00"E 09 47'30"N
8 20 00'00"E 09 45'00"N
9 19 55'45"E 09 26'15"N
10 19 55'45"E 09 26'15"N
11 19 44'45"E 09 26'15"N
<PAGE>
12 19 44'45"E 09 21'30"N
13 19 40'30"E 09 21'30"N
14 19 40'30"E 09 18'00"N
15 19 27'30"E 09 18'00"N
16 19 27'30"E 09 21'30"N
17 19 20'30"E 09 21'30"N
18 19 20'30"E 09 33'00"N
19 19 14'15"E 09 33'00"N
20 19 14'15"E 09 29'00"N
21 19 08'00"E 09 29'00"N
22 19 08'00"E 09 25'15"N
23 18 57'15"E 09 25'15"N
24 18 57'30"E 09 21'15"N
-------------------------- ----------------------------------
25 18 51'15"E 09 21'15"N
26 18 51'15"E 09 18'00"N
27 18 43'30"E 09 18'00"N
28 18 43'30"E 09 16'00"N
29 18 32'45"E 09 16'00"N
30 18 32'45"E 09 13'00"N
31 18 28'00"E 09 13'00"N
32 19 28'00"E 09 08'15"N
33 18 19'30"E 09 08'15"N
34 18 19'30"E 09 05'45"N
35 18 10'45"E 09 05'45"N
36 18 10'45"E 09 03'15"N
37 18 07'00"E 09 03'15"N
38 18 07'00"E 09 01'30"N
39 18 05'15"E 09 01'30"N
40 18 05'15"E 09 03'30"N
41 17 57'00"E 09 03'30"N
42 17 57'00"E 08 59'15"N
43 17 50'00"E 08 59'15"N
44 17 50'00"E 08 57'00"N
45 17 31'15"E 08 57'00"N
46 17 31'15"E 08 50'30"N
47 17 22'15"E 08 50'30"N
48 17 22'15"E 08 52'15"N
49 17 08'45"E 08 52'15"N
50 17 08'45"E 08 57'00"N
51 16 12'15"E 08 57'00"N
52 16 12'15"E 09 10'45"N
53 16 09'15"E 09 10'45"N
54 16 09'15"E 09 13'30"N
<PAGE>
55 16 00'15"E 09 13'30"N
56 16 00'15"E 09 11'00"N
57 15 49'45"E 09 11'00"N
58 15 49'45"E 09 07'45"N
59 15 48'15"E 09 07'45"N
60 15 48'15"E 09 06'30"N
61 15 42'45"E 09 06'30"N
62 15 42'45"E 09 07'15"N
63 15 28'15"E 09 07'15"N
64 15 28'15"E 08 59'45"N
65 15 35'00"E 08 59'45"N
66 15 35'00"E 08 49'15"N
67 15 37'00"E 08 49'15"N
68 15 37'00"E 08 34'15"N
69 15 39'45"E 08 34'15"N
70 15 39'45"E 08 32'30"N
71 16 02'45"E 08 32'30"N
72 16 02'45"E 08 23'30"N
73 16 07'30"E 08 23'30"N
74 16 07'30"E 08 18'00"N
75 16 12'30"E 08 18'00"N
76 16 12'30"E 08 11'45"N
77 16 16'45"E 08 11'45"N
78 16 16'45"E 08 08'15"N
79 16 34'45"E 09 08'15"N
80 16 34'45"E 08 09'15"N
81 16 45'30"E 08 09'15"N
82 16 45'30"E 08 07'30"N
83 17 30'00"E 08 07'30"N
84 17 30'00"E 08 15'00"N
85 17 37'30"E 08 15'00"N
86 17 37'30"E 08 22'30"N
87 18 07'30"E 08 22'30"N
88 18 07'30"E 08 30'00"N
89 18 30'00"E 08 30'00"N
90 18 30'00"E 08 37'30"N
91 18 37'30"E 08 37'30"N
92 18 37'30"E 08 42'30"N
93 19 00'00"E 08 42'30"N
94 19 00'00"E frontiere avec la R.C.A
Le long de la frontiere avec la R.C.A jusqu'a la frontiere avec le Cameroun
,ensuite, le long de la frontiere avec le Cameroun jusqu'au point
<PAGE>
95 frontiere avec le Cameroun 10 30'00"N(identique au point N 1)
</TABLE>
Voir la Carte se rapportant aux coordonnees geographiques des points qui
figurent a l'Annexe N I.
<PAGE>
ANNEXE II
---------
<TABLE>
<CAPTION>
PROGRAMME DE TRAVAUX D'EXPLORATION
ET DEPENSES PREVISIONNELLES
Periode initiale de cinq (5) ans
<S> <C> <C>
1ere sous-Periode : Dix-huit ( 18 ) mois
leve aeromagnetique, leve geologique et
geophysique necessaire tel que determine
par l'operateur ; evaluation des donnees sismiques
et aeromagnetiques existantes
500 000 $
Activites generales et administration 200 000 $
------------
SOUS TOTAL 700 000 $
2 eme sous-Periode : Dix-huit ( 18 ) mois
1250 Km d'acquisition sismique 5 000 000 $
Activites generales et administration 300 000 $
------------
SOUS TOTAL 5 300 000 $
3eme sous-Periode : Douze ( 12 ) mois
1250 Km d'acquisition sismique 5 000 000 $
Forage d'un (1) puits d'exploration 5 000 000 $
Activites generales et administration 300 000 $
------------
SOUS TOTAL 10 300 000 $
4eme sous-Periode : Douze ( 12 ) mois
Forage de deux (2) puits d'exploration 10 000 000 $
Activites generales et administration 300 000$
------------
<PAGE>
SOUS TOTAL 10 300 000 $
TOTAL 26 600 000 $
Sommaire des depenses previsionnelles d'exploration par categories :
Leves aeromagnetiques 500 000 $
2500 Km de sismique 2D ou 3D 10 000 000 $
Trois ( 3 ) puits d'exploration 15 000 000 $
Couts des activites generales et administration 1 100 000 $
TOTAL 26 600 000 $
</TABLE>
<PAGE>
ANNEXE III
PROCEDURE COMPTABLE
ARTICLE 1. DISPOSITIONS GENERALES
1.1 Objet:
La presente Procedure Comptable sera suivie et respectee dans l'execution des
obligations de la Convention.
L'objet de la presente Procedure Comptable est d'etablir les regles et les
methodes de comptabilisation pour la determination des charges encourues par le
Consortium et necessaires selon les regles de l'art en usage dans l'industrie
petroliere internationale, a la conduite des Operations Petrolieres (ci-apres
denommes " Couts Petroliers ".
1.2. Interpretation
Les definitions figurant a l'article 1 de la Convention s'appliquent egalement
a la presente annexe.
1.3. Modification
Les dispositions de la Procedure Comptable peuvent etre modifiees d'un commun
accord entre les Parties.
Les Parties conviennent que si l'une quelconque des dispositions de la Procedure
Comptable devient inequitable a l'egard d'une Partie, elles modifieront de bonne
foi la disposition concernee.
1.4. Comptes et Releves
a) Le Consortium etablira et maintiendra dans son bureau en Republique du
Tchad, les comptes, livres, et releves complets de tous les revenus, couts
et depenses se rapportant aux Operations Petrolieres, en accord avec la
reglementation en vigueur et les regles et procedures en usage dans
l'industrie petroliere internationale.
Ces comptes, livres, releves et rapports seront a la disposition de l'Etat et
ses representants, pour leur permettre d'exercer leurs droits d'inspection,
verification et surveillance prevus a l'article 26.1 de la Convention.
b) Dans les douze (12) mois, suivant la Date d'Effet, le Consortium
soumettra au Ministre un Projet de plan comptable relatif aux comptes,
livres releves et rapports de l'entreprise. Ce plan sera conforme aux
methodes comptables generalement reconnues et acceptees, et compatible avec
les pratiques et procedures de l'industrie PETROLIERE moderne.
----------
<PAGE>
Dans les six (6) mois suivant la reception de ce projet de plan, le Consortium
et le Ministre se mettront d'accord sur un plan comptable, qui decrira en detail
les bases du systeme comptable et les Procedures a utiliser dans le cadre de la
Convention ainsi que la liste des comptes a maintenir en langue Francaise. Suite
a cet accord, le Consortium devra etablir avec diligence, et fournir au Ministre
des copies formelles des plans comptables detailles et des manuels concernant la
comptabilite, les ecritures et la presentation des comptes, ainsi que les
procedures qui devront etre observees dans l'execution de la Convention.
c) Tous les rapports et etats seront prepares selon les dispositions de la
Convention et de la reglementation de la Republique du Tchad, et, en cas
d'absence de telles dispositions, selon les usages generalement admis dans
l'industrie petroliere internationale.
a) All reports and statements will be prepared in accordance with the 1.5.
Unite de Compte
Tous les comptes, livres, releves et rapports seront libelles en Dollars sauf
dispositions contraires ou si les Parties en conviennent autrement.
1.6. Principes Comptables
Les principes comptables en matiere fiscale seront notamment les suivants:
1.6.1. Parties imposables
Dans le cas ou le Consortium comprend plus d'une Societe, l'impot direct sur les
benefices au titre de chaque Annee Civile sera assis sur la base des benefices
nets imposables de chaque Societe, et par consequent un Prix du Marche sera
calcule pour chaque societe conformement a l'article 21 de la Convention.
Toutefois, les paiements des redevances stipulees a l'article 22 de la
Convention seront dans tous les cas calcules et evalues sur la base de
l'ensemble des procedures de toutes les Societes constituant le Consortium.
1.6.2. Report des Pertes
A compter de l'Annee Civile pendant laquelle la premiere production commerciale
a lieu toutes les charges deductibles au titre des Operations Petrolieres pour
la determination de l'impot direct sur les benefices qui ne peuvent etre
apurees, seront considerees comme une perte d'exploitation et seront reportees
comme une deduction admise les Annees Civiles suivantes jusqu'a la fin de la
cinquieme annee (5eme) Annee Civile. En cas de circonstances exceptionnelles, le
Ministre et le Consortium pourront se mettre d'accord sur une prolongation
appropriee a ce delai.
<PAGE>
1.7. Comptabilisation sur la base des realisations
Tous les livres, comptes et releves seront prepares sur la base des realisations
(par opposition a la base des paiements effectifs). Les revenus seront imputes a
la periode comptable pendant laquelle ils sont acquis, et les frais et depenses
a la periode pendant laquelle ils sont encourus, sans qu'il soit necessaire de
distinguer si la somme concernant une transaction a ete effectivement encaissee
ou payee. Les frais et depenses seront consideres comme encourus:
- Dans le cas de biens, pendant la periode comptable ou le transfert des
proprietes a lieu ;
- Et dans le cas de prestations de services, pendant la periode
comptable ou ces services ont ete effectues.
La base de comptabilisation pourra etre changee par accord mutuel des Parties si
le Consortium demontre qu'un tel changement est, d'une part, equitable et
d'autre part, en accord avec les pratiques en usage dans l'industrie petroliere
internationale.
1.8. Definition des depenses d'investissement et des frais d'exploitation
Les Couts Petroliers comprendront les Depenses d'Investissement et les Frais
d'Exploitation.
1.8.1. Depenses d'investissement
Les Depenses d'Investissement representent les Couts petroliers relatifs a
l'acquisition de biens dont la duree d'utilisation excede leur annee
d'acquisition, y compris toutes depenses et frais de recherches et toutes
depenses de developpement definis aux alineas 1.8.1. a) a h) ci-dessous.
Les Depenses d'Investissement comprennent notamment les couts d'acquisition des
biens et services suivants:
a) Les b timents, installations et equipements connexes, tels que les
installations de production d'eau et d'electricite, entrepots et routes
d'acces, les installations de traitement du Petrole Brut et leurs
equipements, les systemes de recuperation secondaire, les usines de
traitement de Gaz Naturel et les systemes de production de vapeur.
<PAGE>
b) Les habitations, equipements sociaux et installations de loisirs pour
les employes, ainsi que les autres biens afferents a de tels b timents.
c) Les installations de production tels que les derricks de production (y
compris les frais de main-d' uvre, carburant, transport et fournitures pour
la fabrication, l'installation et le montage sur place des derricks, ainsi
que les couts de pose des pipelines, les equipements pour tete de puits,
les equipements de fond pour le pompage, les tubages, les tiges de pompage,
les pompages de surface, les conduites de collecte, les equipements de
collecte et les installations de livraison et de stockage.
d) Les biens meubles, tels que les outillages de production et de forage,
en surface ou au fond, les equipements et instruments, les peniches et
materiel flottant, les equipements automobiles, les avions, les materiaux
de construction, le mobilier, les agencements de bureaux et les equipements
divers.
e) Les forages de developpement et de production, y compris la main-d'
uvre, les materiels et services utilises ainsi que le reforage,
l'approfondissement et la remise en production de tels puits et les routes
d'acces eventuelles menant directement a ces puits.
f) Les forages d'Exploration et les forages d'evaluation, y compris la
main-d'oeuvre, les materiels et services utilises ainsi que les routes
d'acces eventuelles menant directement a ces puits.
g) Les leves, y compris la main-d' uvre, les materiels et services utilises
pour les leves aeriens, geologiques, topographiques, geophysiques et
sismiques, ainsi que les carottages.
h) Les autres frais de recherche, tels que les installations auxiliaires ou
temporaires ayant une duree d'utilisation n'excedant pas un an, utilisees
en recherche, l'acquisition d'informations geophysiques ou geologiques.
1.8.2. Frais d'Exploitation
Les frais d'Exploitation representent les Couts Petroliers autres que les
Depenses d'Investissement definies ci-dessus.
<PAGE>
1.9. Amortissement
Les Depenses d'Investissement definies a l'article 1.8 de la presente annexe
seront amorties aux fins du calcul de l'impot direct sur les benefices. Afin de
determiner le montant de l'amortissement admis en deduction du benefice net
imposable au titre de chaque Annee Civile, les principes suivants seront
appliques :
19.1. Les Depenses d'Investissement seront amorties lineairement aux taux
annuels suivants:
- Tous travaux de recherche, tout forage, productif ou improductif et
toute route d'acces, au taux de 100%.
- Pipelines sur le sol, au taux de 10%
- Pipelines enterres, au taux de 20%
- Tout b timent permanent au taux de 5%
- Toute autre Depense d'Investissement, au taux de 20%
1.9.2. L'amortissement de la premiere Annee Civile ou ledit amortissement est
autorise devra etre fait au prorata temporis et non pour une annee entiere.
1.9.3. L'amortissement des Depenses d'Investissement encourues sera autorise a
partir :
- de l'Annee Civile au cours de laquelle les biens sont mis en service,
ou si les Depenses d'Investissement ne concernent pas un bien ayant
une periode d'utilisation excedant l'annee de mise en service, a
partir de l 'annee Civile pendant laquelle les depenses
d'Investissement sont encourues.
- ou de l'Annee Civile pendant laquelle la premiere production
commerciale a lieu si cette annee est posterieure.
1.10. Valeur des transactions
Sauf accord contraire ecrit entre le Ministre et le Consortium, toutes les
transactions donnant lieu a des revenus, frais ou depenses qui seront credites
ou debites sur les livres, les comptes, les releves et les rapports prepares,
tenus ou a soumettre au titre de la presente Convention, seront effectuees dans
des conditions de pleine concurrence entre un acheteur et un vendeur
independants ou sur une base telle que ces revenus, frais ou depenses ne seront
ni inferieurs, ni superieurs, selon le cas, aux montants qui auraient ete
enregistres si les transactions avaient ete effectuees dans les conditions de
pleine concurrence susvisees.
<PAGE>
1.11. Depenses non deductibles
Les depenses suivantes ne seront pas incluses dans les Couts Petroliers:
a) Les frais relatifs a la commercialisation et au transport des
Hydrocarbures au-dela du Point de Livraison;
b) Les contributions et dons, excepte ceux approuves par l'Etat;
c) Les cadeaux et reductions accordes aux fournisseurs, ainsi que les
cadeaux ou commissions relatifs aux intermediaires utilises pour des
contrats de services ou de fournitures;
d) Tous les interets, amendes, ajustements monetaires ou augmentations de
depenses resultant de la faute du Consortium a remplir les obligations de
la Convention, a respecter les lois applicables ou les contrats avec les
Tiers; et
e) Toutes les autres depenses qui ne sont pas directement necessaires a la
realisation des Operations Petrolieres, et les depenses exclues par les
dispositions de la Convention et de la presente Procedure Comptable, ainsi
que par la reglementation en vigueur en Republique du Tchad.
1.12. Taux de Change
Pour permettre la conversion entre la monnaie legale du Tchad ou toute autre
monnaie, la moyenne des taux de change a l'achat et a la vente sera utilisee.
Cette moyenne sera basee sur les taux cotes sur le marche des changes de Paris a
la cloture du premier jour du mois pendant lequel les revenus, frais ou
depenses sont enregistres, sauf pour les charges d'amortissement aux fins du
calcul de l'impot direct sur les benefices, lesquelles seront converties aux
taux en vigueur a la date d'acquisition des biens par le Consortium ou a la date
de realisation des prestations de services selon le cas.
Tout benefice ou perte de change realise sera debite ou credite aux Couts
petroliers.
Un releve des taux de change utilises pour convertir la monnaie legale du Tchad
ou toute autre monnaie, en Dollars sera tenu par le Consortium.
<PAGE>
ARTICLE 2. METHODES COMPTABLES ET PRINCIPES
D' IMPUTATION DES COUTS PETROLIERS
Les Couts Petroliers encourus au titre de la presente Convention seront calcules
et comptabilises selon les principes et definitions suivants, et incluront:
2.1. Depenses de Personnel
Le montant des appointements et des salaires des employes du Consortium
directement affectes en Republique du Tchad aux Operations Petrolieres executees
au titre de la Convention, y compris le cout des jours feries, conges payes,
conges de maladies, les indemnites de subsistance et de logement, le temps de
voyage, les primes et autres indemnites accordees habituellement aux employes du
Consortium et a leur famille dans des projets similaires.
2.2. Materiels et Equipements
Le cout des equipements, materiels, machines, outils et tous autres articles de
nature similaire utilises ou consommes pour les besoins des Operations
Petrolieres sous reserve des dispositions suivantes :
a) Acquisition
Le Consortium fournira ou achetera seulement les materiels et equipements
necessaires aux besoins previsibles des Operations Petrolieres. Il evitera
l'accumulation de stocks excedentaires.
Toutefois, les stocks devront etre suffisants pour tenir compte des delais de
reapprovisionnement, des besoins urgents et d'autres considerations similaires.
b) Composition des couts
Le cout des materiels et equipements acquis par le Consortium pour les besoins
des Operations Petrolieres pourra comprendre, outre le prix d'achat facture
(apres deduction des reductions eventuellement accordees), les frais
d'expedition et de transport entre le point d'origine et le Point de Livraison
(a condition que ces frais ne soient pas deja inclus dans le prix facture), les
assurances, autres frais accessoires qui peuvent etre imputes aux materiels et
equipements importes ou achetes en Republique du Tchad.
<PAGE>
c) Comptabilisation
Le cout de ces materiels et equipements sera debite des livres de compte sur la
base de leur prix de revient.
d) Fourniture de materiels et d'equipements par les Societe Affiliees
Le cout de materiels et equipements fournis par les Societes Affiliees du
Consortium sera debite des livres de compte pour un montant n'excedant pas celui
qui serait pratique pour des materiels et equipements comparables dans des
conditions de pleine concurrence par des fournisseurs independants. Ce critere
s'appliquera a la fois aux materiels neufs et aux materiels usages.
e) Inventaires
Le Consortium tiendra un inventaire permanent en quantite et en valeur de tous
les materiels en stock, selon les usages acceptes dans l'industrie petroliere
internationale. Le Consortium procedera a un inventaire physique de tous les
materiels au moins une (1) fois par Annee Civile. L'Etat pourra egalement
proceder a des inventaires complets ou partiels quand il le jugera necessaire.
Le cout des marchandises stockees autres que des immobilisations sera debite au
compte des profits et pertes lorsque ces marchandises sortiront du stock pour
utilisation.
2.3. Cout des prestations de services technique
Le cout des prestations de services techniques necessaires aux Operations
Petrolieres sera evalue selon les dispositions suivantes:
a) Dans le cas de services techniques executes par des Tiers intervenant en
tant que sous-traitants, y compris les consultants, entrepreneurs et
services publics, le prix paye par le Consortium, a condition que ce prix
n'excede pas ceux normalement pratiques par d'autres firmes pour des
travaux ou des services identiques ou analogues; et
b) Dans le cas de services techniques executes par le Consortium, ou ses
Societes affiliees, le prix facture par le Consortium et ses Societes
Affiliees a condition que ce prix n'excede pas les prix les plus favorables
proposes, selon les methodes de repartition des couts a convenir dans le
plan comptable vise a l'article 1.4.b) de cette annexe, a d'autres Societes
Affiliees du Consortium ou a des Tiers pour des services identiques ou
analogues.
<PAGE>
2.4. Assurances et reclamations
Les primes payees pour les assurances qu'il faut normalement souscrire pour les
Operations Petrolieres, a condition que ces primes concernent une couverture
prudente des risques et qu'elles n'excedent pas celles pratiquees dans des
conditions de pleine concurrence par des compagnies d'assurances qui ne sont
pas des Societes Affiliees du Consortium. Les indemnites recues de toute
assurance ou de tout dedommagement viendront en deduction des Couts Petroliers.
Si aucune assurance n'est contractee pour la couverture d'un risque particulier,
ou en cas d'assurance insuffisante, tous les frais encourus par le Consortium
pour le reglement d'une perte, d'une reclamation, d'un prejudice ou d'un
jugement, y compris les prestations de services juridiques, afferents audit
risque, seront consideres comme Couts Petroliers, a condition que ces frais ne
resultent pas d'une faute grave ou de la negligence du Consortium.
2.5. Frais de justice et de contentieux
Frais de justice et de contentieux relatifs aux prestations de services
necessaires ou utiles pour la protection de la Zone Contractuelle. Toute
indemnite ou compensation recue, viendra en deduction des Couts Petroliers.
Les frais encourus par le Consortium au cours d'un arbitrage intente selon les
dispositions de l'article 33 de la Convention ne seront inclus dans les Couts
Petroliers que dans la mesure ou le tribunal arbitral prononce sa sentence au
profit du Consortium.
2.6. Frais generaux
Les frais generaux et les frais des services centraux (ci-apres appeles " Frais
generaux ") autres que les frais directs comprendront notamment:
a) Les frais encourus pour les prestations de services et de personnel du
Consortium a l'exterieur de la Republique du Tchad, relatifs a
l'administration, aux services juridiques, comptables, financiers, d'audit
fiscal, de planification, de gestion du personnel, d'approvisionnement et
autres fonctions necessitees pour les besoins des Operations Petrolieres au
titre de la presente Convention; et
<PAGE>
b) Les depenses raisonnables de voyage du personnel du consortium
appartenant aux categories generales et administratives visees a l'alinea
a), dont l'objet est l'inspection et la supervision des Operations
Petrolieres de la Republique du Tchad
c) Ces frais generaux seront imputes aux Couts Petroliers conformement aux
methodes en usage dans l'industrie petroliere internationale et
conformement au plan comptable.
L'imputation aux Couts Petroliers des frais generaux encourus a l'exterieur du
Tchad sera plafonnee a un pourcentage desdits Couts, pourcentage qui sera le
meme que celui applique par l'Operateur du Consortium aux autres societes
membres du Consortium pour la recuperation desdits frais. Toute modification
devra etre notifiee au Ministre.
2.7. Interets et Agios
Les interets et agios et autres charges financieres, peuvent etre imputables aux
Couts Petroliers deductibles pour la determination de l'impot direct sur les
benefices, a condition qu'ils n'excedent pas les taux commerciaux en usage dans
des conditions analogues et qu'ils se rapportent a des prets et credits obtenus
par le Consortium au titre de la presente Convention et necessites pour les
besoins de financement des operations de developpement d'un Gisement Commercial,
a l'exclusion des operations d'exploration (y compris d'evaluation).
Les details des Plans de Financement et leurs montants devront etre inclus, a
titre d'information dans chaque Programme Annuel de Travaux et Budget.
2.8. Frais de Bureau dans la Republique du Tchad
Les frais de personnel et l'entretien des bureaux principaux du Consortium dans
la Republique du Tchad, y compris le loyer, les depenses pour le telephone, le
telex, telefax et la radio ainsi que les depenses pour les installations telles
que les bases, les entrepots, l'eau, les systemes d'energie et de communication,
les routes et les ponts.
2.9. Frais divers
Tous autres frais, a l'exception de ceux encourus au titre des dispositions
precedentes de cette annexe, encourus par le Consortium et necessaires a la
conduite des Operations Petrolieres, y compris notamment les depenses de
formation prevues a l'article 19 de la Convention , les frais encourus au titre
de l'article 18.4 et les Taxes superficiaires prevues a l'article 8.
<PAGE>
ANNEXE IV
LISTE DES CATEGORIES DE BIENS DEVANT BENEFICIER
DE L'EXONERATION DES DROITS ET TAXES
1 - MATERIEL DE FORAGE ET D'ESSAI DE PUITS
1 Materiel de forage et d'essais de puits :
Appareils de forage a grande profondeur, leurs accessoires et pieces
detachees;
Sondeuses fixes et sondeuses mobiles (type Banka, Benoto, Foraki, Conrad,
Sullivan, Craelius et tous types analogues) et leurs pieces detachees ainsi
que les pontons et caissons supportant ces appareils ;
Sondeuses mobiles a air comprime ou mixtes ; Barges de forage.
a) Substructure:
Substructure : derricks, m ts de forage, elements de substructure;
Mouffles, reas, table de rotation, carre d'entra nement, tiges d'entra
nement et leurs pieces detachees;
Tetes d'injection, leur presse -etoupe, flexibles et raccords; Colonne
montante metallique et manifolds de colonne montante .
b) Equipements de plancher:
Cles de serrage de tous types pour tiges de forage et tubes de sondage et
leurs accessoires et leurs pieces detachees;
Elevateurs de tous types pour tiges de forage et tubes de sondage et leurs
groupes de commande eventuels, leurs accessoires et pieces detachees;
Treuils de plancher, tete de levage pour masse tiges, plaques de blocage
des outils de forage .
<PAGE>
c) Equipement pour la boue de forage:
Pompes a boue et leurs pieces de rechange:
Amortisseurs de pulsation , crepines, conduites, vannes, manifolds,
raccords et flexibles pour installation a boues;
Bassins et bacs pour la boue, leurs accessoires et pieces detachees; Tamis
vibrant.
d) Treuil de forage:
Treuils de forage, treuils de curage, leur transmission , leurs accessoires
et leurs pieces detachees;
C bles de forage, de curage et de mesures;
Moteurs diesel speciaux de plus de 100 CV pour appareils de forage, leur
convertisseur de couple et leurs pieces detachees;
Moteurs electro-diesel et armoires de controle, pour treuils de forage,
leurs accessoires et pieces detachees.
e) Equipement anti-eruption et de lutte contre l'incendie:
Obturateurs de tous types, leurs accessoires et leurs pieces detachees;
Commandes d'obturateur, leurs vannes, manifolds, raccords et flexibles et
leurs pieces detachees;
Buses reglables de controle d'eruption, leurs manifolds et leurs flexibles;
Vannes de securite, leurs armoires de controle, leurs accessoires et pieces
detachees;
Materiels speciaux de lutte contre l'incendie pour forages petroliers,
extincteurs d'une capacite superieure a 50 litres, dispositifs automatiques
d'aspersion d'eau, detecteurs de gaz naturel, explosimetres, leurs pieces
detachees.
f) Equipement de fond, de tubage et de cimentation :
Outils de forage de tous types, et leurs buses;
Metaux d'apport speciaux destines au rechargement des outils de forage;
Elargisseurs, carottiers de tous types et leurs pieces detachees;
Turbines de forage, leurs stabilisateurs et pieces detachees;
Tiges carres, masse tiges, tiges de forage, coulisses de battage,
stabilisateurs, centreurs, gratteurs, protecteurs;
Presses hydrauliques ou mecaniques speciales pour redressement de tiges de
forage;
Bouchons, sabots et manchons de cimentation, unites de cimentation;
Tetes de circulation et tetes de cimentation, leurs manifolds;
Equipement de repechage, overshots, tarauds, aimants, catcher sub, tubes et
fraises de surforage, fraises a ferraille.
<PAGE>
g)Equipement de mesure :
Indicateurs de poids, de debit, de niveau, manimetres, enregistreurs
multiples,
Instruments de controle pour installation de forage;
Instruments de mesure d'inclination des puits de forage, leurs accessoires,
leurs pieces detachees;
Cabines laboratoires pour surveillance geologique des sondages, leurs
equipements de mesures, d'enregistrement, de traitement des donnees, leurs
accessoires et leurs pieces detachees;
Camions et cabines laboratoires pour mesures dans les puits de forage,
leurs equipements de mesure, d'enregistrement, de traitement des donnees
accessoires et leurs pieces detachees;
Cabines laboratoires pour surveillance des boues de forage, leur equipement
de mesures, d'enregistrement, accessoires et pieces detachees.
h) Equipement des tetes de puits :
Tetes de puits et leurs equipements, adapteurs, brides, spacers, spools,
vannes manuelles ou telecommandees, leurs outils de pose, leurs accessoires
et leurs pieces detachees;
Tetes de puits sous-marines, leurs outils de pose, leurs accessoires et
leurs pieces detachees, leur equipement de television sous-marine;
Tete d'eruption (arbre de No l);
Tubes de sondage, cuvelages et tubages, leurs reductions, connecteurs et
accessoires, tubes -guide;
Materiaux speciaux pour battage des tubes -guide.
(i) Equipement de surface:
Magasins et abris monoblocs;
Silos pour stockage des produits pulverulents destines aux sondages
petroliers, leurs accessoires et leurs pieces detachees;
Equipements de teletransmission pour communications avec les sondes
petrolieres, radiobalises, radioguidages, leurs materiels annexes, leurs
accessoires et leurs pieces detachees;
Installations electriques et electroniques de sonde pour la recherche
petroliere et leurs pieces detachees;
<PAGE>
(j) Equipements d'essais de puits:
Equipements pyrotechniques de perforation des cuvelages, containers
speciaux pour explosifs, accessoires et pieces detachees;
Materiels et accessoires pour travail au c ble dans les puits, treuils et
moteurs wire-line, c bles, outils de pose, de repechage, outils de
manipulation de materiels equipant les puits en essais de production ,
materiels de pistonnage;
Materiels de securite et d'equipement de puits en essais de production,
packers, coulisses, mandrins de circulation, siege de wire -line, capteurs
de fond et de surface, separateurs, testers, bruleurs et poutres de
brulage, manifolds et conduite de surface, leurs accessoires et leurs
pieces detaches;
Materiels d'epreuve pour elements designes ci-dessus;
J) VETEMENTS INFLAMMABLES ( HABITS), VETEMENTS HYDROFUGE, VETEMENTS DE
--------------------------------------------------------------------------
SECURITE, BOTTES ET CASQUES, EQUIPEMENTS DE SECURITE, DETECTEURS DE H2S
- --------------------------------------------------------------------------------
K) CLINGUES, CORDES, GRUES, CROCHETS POUR MONTER LES CHARGES
----------------------------------------------------------------
2 Materiels specifiques pour bateaux et barges de forage :
Systemes pour positionnement dynamique, leurs accessoires et pieces
detachees ; Systemes et materiels de mesure pour positionnement des bateaux
de forage, leurs accessoires et pieces detachees;
Dispositifs de compensation de houle avec leurs accessoires et pieces
detaches;
Materiels de signalisation des puits isoles en mer et des barges de forage,
leurs accessoires et pieces detachees
Tubes prolongateurs (ou risers) avec leurs accessoires et leurs pieces
detachees;
Tuyaux flexibles pour le transfert des produits de bateaux ravitailleurs
jusqu'a la barge de forage.
II - MATERIEL DE PROSPECTION GEOLOGIQUE
a) D'usages generaux :
Cuvelages et autres materiels metalliques destines aux coffrages de puits
de recherche dont la profondeur n'excede pas 100 metres;
Appareils d'exhaure aux puits de recherche ci-dessus; Chevalement et
treuils utilises pour les puits d'une profondeur n'excedant pas 100 metres
specifies dessus:
<PAGE>
Appareils mobiles de radiosondage, leurs pieces detachees et leur
installation electrique (groupes electrogene transportable de moins de 5
KVA):
Lampe UV:
Magnetometres, gammaphones, gammametres, appareils de mesures et compteurs
electriques ou dionisation;
Gravimetres:
Appareils de mesures electriques et electroniques specialement concus pour
la prospection geographique et leurs pieces detachees;
Marteaux speciaux de prospection;
b) Special a la prospection par procede geophysique :
Explosifs et detonateurs destines a la prospection sismique et directement
importes par les entreprises de recherches geophysiques;
Appareils de mesures sismiques, telluriques, magnetiques, electriques, et
leurs pieces detachees;
C bles, films, bandes, destines aux appareillages ci-dessus:
Appareils de mesures de radio -activite (compteur geiger, tubes geiger
muller, scintillometres etc ), y compris leur enregistreurs, films, bandes
et leurs pieces detachees;
Sources sismiques non explosives, vibroseis, dinoseis, airgu, leurs
vehicules porteurs, accessoires et pieces detachees;
Materiels de traitement de l'information geophysique, centres de
traitement, accessoires et pieces detachees;
Vehicules type << Buggy >> (ARDGO, CAREY, ou autre), destines aux chantiers
geographiques, accessoires et pieces detachees;
Aeronefs et bateaux specialement equipes pour la prospection geophysique,
accessoires et pieces detachees.
c) Equipements pour les forages d'eau, equipement pour les forages du
petrole et gaz, equipement pour les tests et registre des puits,
tubulaires, revetement, tuyaux, anneaux de forages, meches, et tous les
equipements se rapportant aux forages et aux operations de production ;
carburant, graisse, outils de maintenance et pieces de rechange se
rapportant aux forages et les operations de production.
V - MATERIEL DE LABORATOIRE
P.H. metres:
Microscopes polarisants, petrographiques et metallographiques,
spectographes, polarographes
<PAGE>
Appareils a quarter les echantillons;
Numerateurs
Platines integratrices;
Loupes monoculaires et binoculaires Calcimetres;
Cantines laboratoires et instruments destines aux cases labo; Scies
diamantees;
Machines a couper les carottes de sondage;
Machines a plaques minces;
Permeametres;
Porosimetres, presse baro d, shoxlet et correcteaner;
Pmopes a vides de laboratoire et leurs pieces detachees;
Pluorimetres et leurs pieces detachees, y compris les coupelles de platine
pour attaque et fusion des pelevements a analyser;
Epiradiateurs electroniques ou a gaz en silice fondue pour calcination des
regimes echangeurs d'ions;
Oscillographes et tous appareils de mesure destines au controle des
appareils de comptage radiometrique;
Balances de precision, centrifugeuses, viscosimetres et bains
viscisimetriques, accessoires et pieces detachees;
Fours electriques et etuves laboratoires, accessoires et pieces detachees ;
Chromatographes;
Appareil pour refrigeration;
VI - PRODUITS DESTINES A LA CONSTITUTION
ET AU TRAITEMENT DES BOUES DE FORAGE
a) Viscosifiants - Reducteurs de filtrat :
Mineraux:
Bentonite;
Attapulgite;
Sepiolite
Amiante.
Organiques:
Amidon;
Gomme de guar;
CMC (caboxymethylcellulose);
HEC (hydroxethilcellulose);
Biopolimetres;
Polyacrylamides.
<PAGE>
Alourdissants:
Baryte:
Oxyde de fer;
carbonate de fer et de calcium.:
Produits chimiques;
Chaux (hydroxyde de Calcium);
Gypse (sulfate de calcium );
Carbonate de sodium;
Bicarbonate de sodium;
Soude caustique (hydroxyde de sodium);
Chromate et bichromate de potassium, de sodium;
Chlorure de calcium;
Chlorure de magnesium;
Chlorure de potassium;
Chlorure de sodium;
Hexametaphosphate de sodium;
bromure de calcium et de zinc;
d) amincisants - dispersants:
Tanins;
Lignosulfonates (FCL):
Lignite chromee (LC).
e) Produits specifiques:
Agents anti-moussants; Agents moussants;
Lubrifiants pour boues de forage;
Detergents pour boues de forage;
Produits de decoincement;
Produits pour boue a huile;
Colmatants;
Inhibiteurs de corrosion et produits de bactericides et anti-oxygene;
Produits anti-H2S.
VII - PRODUITS POUR LES CIMENTS UTILISES DANS LES FORAGES
Ciments utilises dans les puis de forage;
Reducteurs de filtrat;
Accelerateurs; Retardateurs;
Dispersants;
Allegeants
Alourdissants;
Additifs speciaux pour ciment;
Produits pour spacer.
VII - PRODUITS DE STIMULATION
Acides de stimulation et leurs additifs;
Agents de soutenement des fracturations
Additifs de fracturation;
Additifs de consolidation des sables.
<PAGE>
VIII - PRODUITS ET MATERIELS ANTI-POLLUTION
- effets d'equipements speciaux a certains emplois (personnel navigant,
personnel non navigant specialiste, effets de vol, effets de travail);
Liste des materiels et documents susceptibles d'etre admis en franchise des
droits et taxes materiel destines a la reparation, a l'entretien et au
services des aeronefs:
- moteurs d'avion, leurs parties, pieces detachees.
IX - GENERALITES
a) Equipements radio, antenne satellite et equipements, ordinateurs, modems
et tous les equipements se rapportant aux ordinateurs, ecrans, televisions,
equipements optiques, cameras, video et films, vehicules pour
l'exploitation et les operations, equipements de bureau et fournitures pour
les bureaux sur terrains et champs
b) Engins neufs ou retapes d'helicoptere incluant les pieces de rechange et
accessoires
<PAGE>
CONVENTION FOR
EXPLORATION, EXPLOITATION AND TRANSPORTATION
OF HYDROCARBONS IN CHAD
BETWEEN
THE GOVERNMENT OF THE THE REPUBLIC OF CHAD
AND
THE CONSORTIUM ORIENTAL ENERGY RESOURCES LIMITED - CARLTON ENERGY GROUP LLC. -
TRINITY GAS CORPORATION, INC.
PERMIT OF BASIN : ERDIS, LAKE CHAD AND CHARI
<PAGE>
TABLE OF CONTENTS
CHAPTER I - GENERAL DISPOSITIONS
ARTICLE 1 - DEFINITIONS
ARTICLE 2 - OBJECT AND TERM OF THE CONVENTION
ARTICLE 3 - RIGHTS OF THE CONSORTIUM IN TNE CONDUCT OF PETROLEUM OPERATIONS
ARTICLE 4 - GENERAL OBLIGATIONS OF THE CONSORTIUM
CHAPTER II - EXPLORATION
ARTICLE 5 - GRANT TERM AND RENEWALS OF THE EXPLORATION PERMIT
ARTICLE 6 - RELINQUISHMENTS AND ABANDONMENT
ARTICLE 7 - EXPLORATION WORK OBLIGATIONS
ARTICLE 8 - SURFACE AREA FEES
ARTICLE 9 - EVALUATION OF A DISCOERY
CHAPTER III - EXPLOITATION
ARTICLE 10 - APPLICATION, GRANT AND TERM OF A CONCESSION
ARTICLE 11 - PRODUCTION PROGRAMS
ARTICLE 12 - NATURAL GAS
ARTICLE 13 - MEASUREMENT OF HYDROCARBONS
ARTICLE 14 - TRANSPORTATION OF HYDROCARBONS
ARTICLE 15 - OBLIATION TO SUPPLY THE INTERNAL MARKET
<PAGE>
CHAPTER IV - PROVISIONS APPLYING BOTH TO EXPLORATION AND TO EXPLOITATION
ARTICLE 16 - ANNUAL WORK PROGRAM
ARTICLE 17 - ADMIISTRATIVE SUPERVISION OF THE PETROLEUM OPERATIONS
ARTICLE 18 - INFORMATION AND REPORTS. CONFIDENTIALITY
ARTICLE 19 - PERSONNEL AND TRAINING
ARTICLE 20 - OWNERSHIP OF ASSETS
CHAPTER V - ECONOMIC AND FISCAL PROVISIONS
ARTICLE 21 - PRICE OF CRUDE OIL
ARTICLE 22 - ROYALTY ON PRODUCTION
ARTICLE 23 - FISCAL REGIME
ARTICLE 24 - FISCAL EXEMPTIONS
ARTICLE 25 - ACCOUNTS
ARTICLE 26 - AUDITS
ARTICLE 27 - IMPORTS AND EXPORTS
ARTICLE 28 - CONTROL OF FOREIGN EXCHANGE
ARTICLE 29 - PAYMENTS
CHAPTER VI - MISCELLANEOUS PROVISIONS
ARTICLE 30 - TRANSFER RIGHT AND CONTROL OF THE CONSORTIUM
<PAGE>
ARTICLE 31 - CANCELLATION OF THE PERMIT, WITHDRAWAL OF THE CONCESSION AND
TERMINATION OF THE CONVENTION
ARTICLE 32 - FORCE MAJEURE
ARTICLE 33 - ARBITRATION
ARTICLE 34 - APPLICABLE LAW AND STABILITY OF CONDITIONS
------------------------------
ARTICLE 35 - NOTICES
ARTICLE 36 - OTHER PROVISIONS
ANNEXES
I. Map and limitation of the contractual zone of the Permit.
II. Exploration work program and provisional expenditures.
III. Accounting procedure.
IV. Agreed List of taxe exempted items.
<PAGE>
CONVENTION
----------
BETWEEN
-------
THE REPUBLIC OF CHAD, hereinafter called [the state] , represented by the
Minister of Mines, Energy and Petroleum,
of the first part,
AND
The Consortium, comprised of the following companies :
- - Oriental Energy Resources Limited,
- - Carlton Energy Group LLC.
- - Trinity Gaz Corporation, Inc.
of the second part,
WHEREAS
- - all fields and natural accumulations of Hydrocarbons existing in the
ground or subsoil of the territory of the Republic of Chad are the
property of the State ;
- - the discovery and exploitation of Hydrocarbons in the Territory of the
Republic of Chad are important for the economic development of the
country and its inhabitants ;
- - the Consortium declares that it has the technical and financial
capabilities to carry out successfully within the Contract Area the
Petroleum operations authotrized hereunder, and wishes to undertake
the said Petroleum Operations under a Convention setting out its rights
and obligations ;
<PAGE>
- - ordinance No. 7/PC/TP/MH of 3rd February 1962, relating to the
exploration, exploitation, transportation by pipeline of hydrocarbons,
and the fiscal regime of these activities within the territory of the
Republic of Chad, authorizes the grant of exploration permits and
Exploitation concessions subject to the conclusion of a Convention
with the State ;
THEREFORE, IT IS MUTUALLY AGREED AS FOLLOWS :
CHAPTER I
GENERAL PROVISIONS
ARTICLE 1- DEFINITIONS
The terms listed in this Article shall have the following meanings throughout
the Convention :
1.1. [Calendar Year] means a period of 12 consecutive months starting January
1 and ending the following December 31.
1.2. [Budget] means the detailed estimate of the cost of the petroleum
Operations as set out in Annual Work Program.
1.3. [Petroleum Code] is Ordinance No 7/PC/TP/MH of 3rd February 1962, as well
as Decree of 10 May 1967 specifying the conditions of application of this
Ordinance.
1.4. [Concession] means the exploitation concession for Hydrocarbons granted
by the State to the Consortium in respect of a Commercial Field discovered
within the Contract Area and covering the area of the said Field. The Minister
and the Consortium shall set the boundary of the Concession by mutual agreement
before the grant.
1.5. [Consortium] means, whether individually or collectively, the Consortium
comprised of the companies Oriental Energy Resources Limited, Carlton Energy
Group LLC. And Trinity Gaz Corporation, Inc. as well as any company to whom an
interest may be transferred in accordance with present convention, and to whom
an interest in the Permit or the Concessions may also be transferred. The term
[Consortium] is used for the purposes of convenience throught this Convention
<PAGE>
and is not intended to indicate an intent on the part of the companies
comprising the Consortium to form a partnership, a company or any other legal
entity under the laws of any country or subdivision thereof.
1.6. Convention : means the present act and the annexes attached hereto
1.7. Effective Date means the date on which the present Convention enters into
effect.
1.8. Discovery means a discovery of Hydrocarbons whose existence until that
moment was unknown, provided an amount of Hydrocarbons measured in accordance
with production test methods of international petroleum industry has been
brought to surface.
1.9. Dollar means United States Dollar.
1.10. State means the Republic of Chad.
1.11. CFA Franc means the legal currency in circulation in Chad.
1.12.Exploration Well means any well drilled during the course of exploration
work other than an Evaluation Well.
1.13. Evaluation Well means any well drilled after a Discovery for the purpose
of evaluating the quantities of Hydrocarbons in the discovery reservoir.
1.14 Natural Gas means dry gas and wet gas produced by itself or in association
with Crude oil as well as all other gaseous components extracted from the wells.
Associated Natural Gas means the Natural Gas in a reservoir dissolved in the
Crude Oil, or in the form of a gas cap in contact with the Crude Oil, and which
is produced or could be produced in association with the crude oil.
Non-associated Natural Gas means Natural Gas other than Associated Natural Gas.
1.15. Commercial Field means a geological entity impregnated with Hydrocarbons
which has been evaluated, and which IN VIEW OF THE CONSORTIUM can be
-----------------------------
economically developed and produced in accordance with the standards used
in the international petroleum industry.
<PAGE>
1.16. Hydrocarbons means Crude Oil and Natural Gas.
1.17. Minister is the Minister who at the given moment is responsible for the
Petroleum Operations sector or the authorized representative ; on the date of
signature the Minister responsible is the Minister of Mines, Energy and
Petroleum.
1.18. Petroleum Operations means all the Operations of exploration and
exploitation, including WITHOUT LIMITATION exploring, evaluating, developing,
-------------------
producing, separating, any primary treating and/or liquifying, storing,
transporting, selling and transferring the Hydrocarbons, as far as the Delivery
point, as well as administrative activities necessary for the carrying out of
such operations, refinery operations and distribution of petroleum products
excluded.
1.19. Party(s) means the state and/or the Consortium.
1.20. Permit means exclusive exploration permit for the Hydrocarbons, called
Permit H, reference to which is made in the preamble to the Convention, issued
to the Consortium to authorize it to conduct exploration Petroleum Operations
in the Contract Area, including evaluation work on a discovery. The perimeter of
the Permit is defined in Annex I of this Convention.
1.21. Crude Oil means crude mineral oil, asphalt, ozokerite and all other liquid
hydrocarbons in their natural state or obtained by condensation or extraction,
including Condensates and Natural Gas liquids.
1.22. Delivery Point means the point of transfer of title of Hydrocarbons from
the Consortium to its purchasers, whether at the FOB loading point at port of
embarkation at the coast or any other point, within or outside Chad, set by
agreement of the parties.
1.23. Total Production means the Consortium's total production of Hydrocabons
obtained from all the Conncessions less :
- quantities lost or not used, and
- quantities which are reinjected, flared or used for the
requirments of exploitation operations, to the extent authorized
in accordance with the provisions of the Convention, measured at the
measurement point(s) refered to in Article 13 below.
1.24. Annual Work Program means the document describing the Petroleum Operations
to be peformed prepared in accordance with the provisions of Article 16 below.
<PAGE>
1.25. Royalties means other royalties collected for services rendered to users
for maintenance of items necessary to the supply of such services.
1.26. Affiliated Company means :
a) any company which controls or is controlled directly or in directly by a
company which a party hereto ;
b) OR ANY COMPANY WHICH CONTROLS OR IS CONTROLLED BY A COMPANY DIRECTLY OR
- -- -------------------------------------------------------------------------
IN DIRECTLY CONTROLLING A COMPANY WHICH IS A PARTY HERETO.
-------------------------------------------------------------------
In this definition ''control'' means the direct or indirect ownership by a
company, or other entity, of a percentage of the shares or participation rights
which is sufficient to give the majority of the voting rights in general meeting
of another company or to give the power of decision making in the management of
this other company.
1.27. Taxes means all the taxes in the form of tariffs allocated to cover the
charges deriving from state, quasi-state or even private organizational
structures.
1.28. [Third Party] means a person not within the definition in Article 1.26
above.
1.29. [Quarter] means a period of three (3) conscutive months starting the
first day of January, April, July and october of each Calendar year.
1.30. [Contract] Area means the surface which means at any given time the
perimeter of the Permit, after subtracting the surface area relinquished by the
Consortium. The perimeter or perimeters of concessions shall be an integral part
of the Contract Area during their periods of validity.
Other words used in this convention shall have the meaning generally attributed
to them in the international petroleum industry.
ARTICLE 2 - OBJECT AND TERM OF THE CONVENTION
2.1. This Convention establishes the conditions under which the Consortium shall
conduct exploration and evaluation work on the whole of the Permit area (as well
as all areas for which the permit is renewed and within the perimeters of the
Concessions which may be granted to the Consortium), with the aim of confirming
<PAGE>
the existence of Hydrocarbons capable of being commercially exploited and
ensuring their development as soon as possible, as well as the conditions that
will apply to the Concessions.
2.2. This Convention will remain in effect for twenty five (25) years beginning
the signarure date SO LONG AS the Consortium holds the Permit or a Concession ;
----------
however, the term of this Convention shall be extended automatically on the same
terms, if such extension is necessary in order to ensure that all Concessions
are covered by this Convention during their entire validity period.
2.3. At the end of the term of the permit including its renewal periods, if the
Consortium has not applied for a concession relating to a Commercial Field, this
Convention shall terminate. This termination shall not put an end to the rights
and obligations arising previously, including the right to resolve all disputes
related there to UNDER ARTICLE 33 BELOW.
-------------------------
This provision shall also apply in case of cancellation or relinquishment of the
permit.
2.4. In so far as required, the rights and obligations provided for by this
Convention shall also apply to contractors and suppliers of goods or services or
other related activities, employed in the pursuit of the Petroleum Operations
for the account of the Consortium.
The application of this Article 2.4 shall be strictly limited to those
contractors who work for the account of the Consortium within the context of the
Petroleum Operations. In no case shall it apply to other activities undertaken
in Chad by such contractors or suppliers of services.
ARTICLE 3- RIGHTS OF THE CONSORTIUM IN THE CONDUCT OF PETROLEUM OPERATIONS
3.1. Subject to the laws and regulations in force, and in accordance with the
provisions of this Convention and of the Petroleum Code.
The Consortium shall have the right :
a) to explore for Hydrocarbons within the area of the Permit ;
b) to exploit (including in particular developing, producing, separating, any
primary treating and/or liquefying, storing, transporting, selling,
transferring and exporting) the Hydrocarbons, as well as ASSOCIATED
----------
SUBSTANCES AND/OR the products derived therefrom by separation or
-------------------
treatment, which originate from fields within the perimeters of Concessions
to which this Permit gives right ; refining in the strict sense of the word
is excluded, other than as strictly necessary for the conduct of the
petroleum operations and subject to the prior approval of the Minister,
which approval shall not be unreasonably withheld.
Title to Hydrocarbons produced to which the Consortium is entitled
hereunder shall pass to the Consortium at the point of production at the
wellhead. Each member company of the Consortium shall own and may
separately take and dispose of its part of the Hydrocarbons.
c) of access to the area of the Permit and the Concessions to which this
permit gives right for the purpose of carrying out the Petroleum Operations
provided for in this Convention ; d) to construct all installations and
carry out all work and, generally all acts and operations necessary for
conducting the Petroleum Operations ;
e) to carry out the administrative activities necessary for the conduct of
the operations set out in subparagraphs a) through d) above ;
f) to decide the way to carry out the Petroleum Operations, in accordance
with the standards of the international petroleum industry.
2.2. In accordance with the laws and regulations in force in the Republic of
Chad, the Consortium may, in particular :
a) use public installations needed for Petroleum Operations, including
airports, roads, waterwells, work camps and other such installations,
subject to paying the fees normally imposed for such use ;
b) use the water required for the Petroleum Operations, provided this
does not prejudice the water supply of the inhabitants and the water
holes for livestock ;
c) use the stones, sand, clay, gypsum, limestone and other similar
substances required for conducting the Petroleum Operations.
<PAGE>
2.3. Subject to the authorizations provided for in the Petroleum Code, WHICH
-----
SHALL NOT BE UNREASONABLY WITHHELD, the Consortium will have the right to
-----------------------------------
construct all installations which are necessary for the Petroleum
Operations such as, without limitation , roads, pipelines, storage
installations whether inside or outside the area of the Permit or of the
Concessions. Such approval may be conditional on use by Third Parties who
hold other permits H or Hydrocarbons exploitation concessions of the excess
capacity of the said installations, provided that such use does not
interfere with the Petroleum Operations and that such use by the said Third
parties shall be on the basis of conditions acceptable to the Consortium
including the payment of a fair and equitable compensation.
2.4. To this end and in accordance with the provisions and procedures set out in
the Petroleum Code, the Consortium shall have the right to occupy the land
necessary for the performance of the Petroleum Operations, and for the
housing of personnel employed on the job site.
3.5. The occupation referred to above shall be authorized in accordance with
the following procedure : after receipt of the request for occupancy assuming
such request is justified , a decree issued on the recommendation of the
Minister shall authorize the occupancy of the necessary lands and specify the
conditions of occupancy in accordance with the provisions of the Petroleum Code
and the State domain law.
In the absence of mutual agreement, occupancy shall be granted only :
a) after the landowners or those who hold real estate property rights under
customary law have been authorized to present their case through the
administrative channels within a period determined by local regulations.
b) for this purpose, the following shall be consulted :
- for land held by individual owners under the conditions provided for
by the Civil Code or the registration laws : the landowners.
- for land under real estate property rights under customary law : THE
---
OLDERS OF SUCH RIGHTS OR their authorized representatives.
------------------------
- for land in the public domain : the authorized administration or
community, and the present tenant, if any.
<PAGE>
In the event that for any reason whatever the above procedures of registration,
systematic investigation, verification of rights or consultation of landowners
or holders of real estate property rights under customary law are not completed
within a period of six (6) months from the date of publication of the above
decree, the Consortium may dispense with such procedures on the recommendations
of the Minister after payment to a designated public accountant of the following
provisionnal estimated indemnities determined by the government authorities.
- if occupancy is only temporary and if the land may be cultivated after
one year as before, the compensation shall be set at least at the net
yield of the land.
- in others cases, the compensation shall be estimated at a value at
least equal to the value of the land prior to the occupation.
3.6. The costs, the compensation and, in general, all expenses relating to the
application of Article 3.5 hereof shall be borne by the Consortium.
If the occupancy of the land deprives the landowner, or the holder of real
estate property rights under customary law of the use thereof for more than one
year, or if after completion of the works the land occupied is no longer
suitable for cultivation, the landowners or the holders of real estate property
rights under customary law may require the holder of the occupancy permit to
purchase the land. That part of the land which is too damaged or has
deteriorated over too great a part of its surface area must be purchased in its
entirety if the landowner or the holder of the real estate property rights under
customary law so demands. The land to be thus acquired shall in all cases be
assessed at a value at least equal to that it had before the occupation.
3.7. No surface works may be undertaken without the prior authorization of the
State, if they are located within fifthy meters of :
a) any property surrounded by walls or enclosures, villages, groups of
habitations, wells, religious edifices, places of burial ; or places
considered sacred ;
b) lines of communication, water conduits and generally all public
utilities and public works.
3.7. The State shall take all necessary and reasonable measures to facilitate
the carrying out by the Consortium of the Petroleum Operations and to
protect the assets and rights of the Consortium, its employees and
contractors or suppliers of services in the national territory of the
<PAGE>
Republic of Chad. On the justified request of the Consortium, the State may
prohibit the construction of houses or other buildings, whether for
dwelling or professional use, close to the Consortium's exploitation
installations.
ARTICLE 4 - GENERAL OBLIGATIONS OF THE CONSORTIUM IN THE CONDUCT OF PETROLEUM
OPERATIONS
4.1. The Consortium shall comply strictly with the provisions of this Convention
and shall respect the laws and regulations of the Republic of Chad to the
extent that this Convention does not provide otherwise.
4.2. The Consortium shall carry out all work which is necessary for the
performance of the Petroleum Operations with diligence in accordance with
the standards applied in international petroleum industry.
In particular, the Consortium shall take all reasonable measures in order to :
a) ensure that all of the installations and equipment used in the
Petroleum Operations are in good condition and properly maintained ;
b) safeguard the environment and avoid any wastage of, or pollution of
environnement by, the Hydocarbons and the mud or other products used
in the PETROLEUM Operations ;
---------
c) place the Hydrocarbons in the storage facilities constructed for this
purpose.
4.3. The Consortium shall compensate the State for any loss or damage which
the State may suffer resulting from the failure by the Consortium, its employees
or agents, its contractors or suppliers of services to carry out the obligations
under this Convention, or resulting from the non-respect by the Consortium of
the standards generally accepted in the international petroleum industry.
The Consortium shall compensate any person against any loss or damage which may
be caused to such person by the Petroleum Operations or which such person
suffers as a result of the actions of the Consortium's employees or agents its
contractors or suppliers of services during the course of or arising from the
said operations.
<PAGE>
For the application of this paragraph, the State shall be deemed to be a person
in the case of loss or damage to public installations, buildings and other
constructions which it owns.
If the responsibility of the State is alleged, the Consortium shall indemnify
the State against all claims resulting from such loss or damage.
4.4. The Consortium shall obtain, and ensure that its contractors or
suppliers of services shall obtain, any insurance in use by the international
petroleum indusry, for an amount and in accordance with the usual practices of
the companies comprising the Consortium in their international petroleum
operations, which levels and practices shall be those generally accepted in the
international petroleum industry, including third party liability, PROPERTY
--------
DAMAGE, and the insurance required by the regulations in effect in the Republic
- ------
of Chad.
The Consortium shall supply the Minister with certification of the said
insurance arrangements. All things being equal, the Consortium shall insure with
a Chadian insurance company.
4.5. If the Consortium is comprised of several entities, the obligations and
responsabilities of such entities under this Convention shall be joint and
several.
4.6. After the signature of the present Convention, the Consortium undertakes
to spend 500000 Dollars US in a infrastructure project in Chad. The nature of
the said infrastructure project will be convened with the Minister.
<PAGE>
CHAPTER II
EXPLORATION
ARTICLE 5- GRANT TERM AND RENEWALS OF THE EXPLORATION PERMIT
5.1.The State will grant the Consortium a five (5) year exploration Permit from
the approval date of the present Convention.
5.2. The State will grant the Consortium a renewal of the Permit for a three
(3) year period (described in this convention as the first renewal period ) and
the right of renewal for a second three year period at the end of the first
renewal period ; the Consortium will be able to exercise this right by giving
advance written notice to the Minister, accompanied by the report, provided for
in Article 18.4 c) below, no less than three (3) months before the date of
expiry of the first renewal period, provided that the Consortium has fulfilled
its obligations for the first period.
5.3. The renewal of permit are conditioned by the respect of the work
obligations.
ARTICLES 6- RELINQUISHMENTS AND ABONDONMENT
6.1. The geographical coordinates of the initial surface area of the Permit, as
well as a map, are set out in Annex I of the present Convention. On the expiry
of the initial period of the Permit, the Consortium will relinquish 50% of the
<PAGE>
initial surface area of the Permit and 25% of the initial surface at the end of
the first three year renewal period.
6.2. For the application of Article 6.1 above, it is understood that :
a) the areas to be relinquished shall be reduced by the surface areas
abandoned and the surface areas already covered by Concessions or over
which applications have been made in the proper manner before the expiry of
the Permit ;
b) the Consortium shall have the right to set the boundary, form and location
of the exploration perimeters which it intends to retain. However, the
parts relinquished shall be in a simple geometric form bound by north-south
and east-west lines.
c) A plan showing the exploration perimeter retained shall be attached to the
renewal notice referred to in Article 5 above.
6.3. On the expiry of the validity period of the Permit, the Consortium shall
relinquish the remaining surface area of the Permit other than the surface areas
already covered by Concessions or over which applications have been made in the
proper manner before the expiry of the Permit.
The Consortium may at any time abandon its rights to all or part of the Permit
during the first and second sub-periods, at the end of the third sub-period and
at the end of the fourth sub-period of exploration, and at any time during the
first and second renewal periods,once exploration work obligations under said
periods and sub-periods have been carried out.
In any event, no voluntary relinquishment during the course of a renewal period
shall reduce the work obligations of the said renewal period.
ARTICLE 7- OBLIGATIONS DES TRAVAUX DES RECHERCHES
Article 7-Exploration Work Obligations
7.1. The duration of the Permit is five years, renewable twice with a three year
validity period for each renewal.
7.2. During the initial five year period, the work commitments for period are
the following :
<PAGE>
a) during the first 18 month sub-period, the Consortium should realize
1000 gravity stations or equivalent interpreted air-magnetic
survey,geological and geophysical studies as well as general and
administrative activities defined by the Operator ;
b) during the second 18 month sub-period, the Consortium should acquire
and treat 1250 kilometers of 2D seismic ;
c) during the third 12 month sub-period, the Consortium should drill an
exploration well to a sufficient depth in order to test the prospect,
either to reach a depth of 3000 meters or the basement ;
d) during the fourth 12 month sub-period, the Consortium should drill two
exploration wells to a sufficient depth in order to test two
prospects, either to reach a depth of 3000 meters or the basement ;
During the third and fourth sub-periods, 1250 kilometers of 2D seismic should be
acquired in order to determine prospects to be drilled.
7.3. During the first three year renewal period, the Consortium agrees to do a
seismic survey and drill three exploration wells to a sufficient depth in order
to test three distinct prospects, either to reach a depth of 3000 meters or the
basement
7.4. During the second renewal period, the Consortium agrees to do a seismic
survey and drill three exploration wells to a sufficient depth in order to test
three distinct prospects, either to reach a depth of 3000 meters or the basement
7.5. The tentative plans corresponding to the work commitments and amounts to be
spent for the initial five year period are set out in Annex II of this
Convention.
The Consortium shall notify the State of any change which may become necessary
to this plan.
The obligation to drill a given well shall be considered satisfied when the well
has reached its geological objective or if Hydrocarbons in potentially
commercial quantities are encountered before having reached such geological
objective.
In case of exceptional circumstances encountered in the course of a drilling
which prevent, in accordance with international petroleum practice, the
countinuation of the said drilling, the parties shall meet to decide by mutual
agreement if the drilling obligation has been met by the drilled well.
<PAGE>
7.6. If the Consortium during the course of the first renewal period of the
permit drills a number of wells greater than the minimum drilling obligations
provided for in Articles 7.2, 7.3 and 7.4 above, the excees wells shall not be
carried forward into the following renewal period and shall not reduce the
contractual obligations provided for in respect of such period.
7.7. If at the end of any renewal period, or in case of total relinquishment or
withdrawal of the permit during the course of such period, the work has not
reached the minimum obligations relating to such period under Article 7 above,
the Consortium shall within 30 days pay the State the amount of five million
Dollar (US$ 5,000,000) for each well not drilled and 9000 Dollars US for each
seismic kilometer not acquired.
7.8. Representatives of the Minister will, at the expense of the Consortium, be
associated with the programed work which is carried out within Chad, in
accordance with Article 17 below.
In this effect,the Consortium will handle the housing, the transportation, the
food, the medical cover and the perdiem corresponding to such stay.
ARTICLE 8- SURFACE AREA FEES
8.1. During the initial five year period of the Permit, the Consortium will
pay an annual fee of US$ 1 for each square kilometer of surface area held.
During the first 3 year renewal period of the Permit the annual fee shall
be US$2 per square kilometer.Then it will be exended to US$10 for each
kilometer during the second renewal 3 year period of the Permit.
8.2. As soon as Concession is granted, the annual fee for the first renewal
period which the validity is twenty-five (25) year will be US$100 per square
kilometer of surface area; this will be extended to US$200 for the second
renewal twenty five year period of production in accordance with Article 10.1
above.
8.3.The surface fee due in respect of any Calendar Year subsequent to the
Calendar year in which the decree confirming the grant of the Permit is signed
shall be paid in advance on the first working day of the Calendar Year in
question.
The payment relating to the period of grant of the Permit to the end of Calendar
Year in which the decree confirming the initial period of the Permit is signed,
shall be calculated prorata for the said Calendar Year, payment being made
within ten (10) days of the date of signature of the decree. This procedure
shall apply mutatis mutandis to the first payment the grant of Concessions, as
well as to the last payment relating to each renewal period of the Permit and to
each Concession.
<PAGE>
ARTICLE 9- EVALUATION OF A DISCOVERY
9.1. If the Consortium makes a new discovery within the perimeter of the Permit,
it shall immediately notify the Minister.
9.2. The corsortium is required to persue with the maximum diligence the
evaluation (including delineation) of any Discovery which allows the existence
of a Commercial Field to be presumed.
The Annual Work Program, submitted under Article 16 below, shall include the
Consortium's detailed evaluation plans relating to each Discovery.
The term [evaluation] shall mean, thoughout this Convention, all drilling,
studies or other work necessary in the opinion of the Consortium to determine
the reserves and the commerciality of a Discovery in the context of a
Hydrocarbons export project. The elements taken into consideration by the
Consortium in deciding which work is necessary and the appropriate time for
carrying out such work will include in particular :
- the size of the Discovery ;
the geological and petrophysical characteristics of the field ;
- the location of the Discovery relative to any other Discovery and to
an existing or planned export pipeline,
- information already at the Consortium's disposal,
- The prevailing economic conditions.
9.3.THE COMMERCIAL CHARACTER OF A FIELD SHALL BE DETERMINED BY THE CONSORTIUM.
----------------------------------------------------------------------------
If the Consortium considers that a field is commercial, it shall submit a
development and exploitation plan relating to the Commercial Field to the
Minister for approval. Such plan shall include in particular :
a) the precise boundary and the surface area of the Concession requested
for the Commercial Field in question within the area of the Permit in
force ;
b) an estimate of recoverable reserves and of the production profile ;
<PAGE>
c) the description of the work necessary for the exploitation of the
Commercial Field such as the number of wells, and the installations
required for production, treatment, storage, and transportation of the
Hydrocarbons ;
d) the program carrying out the work referred to above and the forecast
date for start of production;
e) an estimate of the corresponding capital expenditures and operating
costs.
Within the period of 60 days following receipt of the development and
exploitation plan, the Minister may propose revisions or modifications to the
said plan, provided that approval of this plan shall not be unreasonably
refused. The plan will be deemed to be approved if formal approval is not given
within this time limit.
9.4. If a Commercial field extends beyond the limits of the Permit, the Minister
may, as the case may be, require the Consortium to exploit the said field
jointly with the title holder of the adjacent permit in accordance with the
provisions of a unitization agreement.
The Consortium shall, within a period of twelve (12) months following such
requirement by the Minister, submit to the Minister for approval the development
and exploitation plan for the Commercial Field which has been agreed with the
title holder of the adjacent permit. Such period may be extended with the
approval of the Minister, SUCH APPROVAL NOT TO BE UNREASONABLY WITHHELD, in
----------------------------------------------
exceptionnal cases such as the size and complexity of the development in
question.
9.5. If a Commercial Field extends outside the permit area into an area which is
not yet covered by exclusive exploration or exploitation rights, the State may
include the said area within the perimeter of the Concession relating to the
said Field.
9.6. if the Consortium notifies the Minister that a field which it has
discovered is not a Commercial Field, the State shall have the option to have
such field developed by the Consortium on the basis of the State :
a) SUPPLYING the Consortium with all amounts required to cover the new
----------
capital expenditures and the operating costs relating to the said
exploitation ;
b) guaranteeing the Consortium depreciation, at the rates provided for in
Annex III of this Convention, of the installations belonging to the
Consortium which are used for the exploitation ;
<PAGE>
c) paying the Consortium a net profit margin, exempt from all royalties,
taxes or fees provided for in this Convention and in the Petroleum
Code, equal to 3 % of the Ex-Field Market Price as defined in Article
21.
The Consortium's refusal so to carry out such development will result in the
transfer to the State of the right to develop the field. In such event, pipes,
wellhead equipment and all non-recoverable equipment directly associated with,
and within the geographical limits of, the field shall be transferred without
charge to the State in the condition required for continuing operations, taking
into consideration normal wear and tear.
The other site of installations not directly associated with the field or not
within its GEOGRAPHICAL limits may be transferred to the State at a mutually
------------
agreed price or at a price determined by an expert, subject to the application
of Article 20 below.
9.7. Unless they are exceptional circumstances, as agreed between the Minister
and the Consortium, the Minister may require the Consortium to abandon the
surface area which corresponds to a Discovery if the Consortium :
a) has not started evaluation work on the Discovery within a period of
two years after notification to the Minister of the said Discovery
under Article 9.2 above, provided that, until a pipeline is installed
in the vicinity of such Discovery, such two-year period shall not
begin to run as long as the Consortium is doing evaluation work on
other Discoveries which in its view is necessary, within the context
of the prevailing economic conditions, for the Consortium to make a
decision relating to such pipeline;
b) does not consider that the Discovery is commercial within a period of
12 months after the completion of the evaluation work, provided that
such 12-month period shall not begin to run so log as the Consortium
has not started installing an export pipeline in the vicinity of such
Discovery.
The areas to be relinquished under Article 6 above shall be reduced by the
area so relinquished, and the Consortium shall lose all right to the
Hydrocarbons which may be produced from the said Discovery.
<PAGE>
CHAPTER III
EXPLORATION
ARTICLE 10 - APPLICATION, GRANT AND TERMS OF CONCESSION
10.1. If the Consortium considers a field is commercial in accordance with
Article 9.3, the Consortium shall, on the date of submission of the development
and exploitation plan for the commercial field in question, apply for and shall
have the right to obtain in respect of each commercial field, under the
procedure provided for Petroleum Code, a Concession covering the area of the
Commercial field in question inside the Permit area. This Concession shall be
granted for a period of 25 years, renewal only one time for the same validity
period under new terms defined with the State.
10.2. The Consortium shall start implementing the development and exploitation
plan relating to a Commercial Field in accordance with the program approved
under Article 9.3 above at the latest 3 months after the grant of the Concession
---
and shall continue such implementation with diligence. Changes to the
development and exploitation plan and the said program may be justified by the
results acquired during the course of carrying out the work or in other
circumstances. In this case, the Consortium may, after notifying the Minister,
make such changes provided that the basic objective of the plan are not
modified.
<PAGE>
10.3. The Consortium shall, in accordance with the standards of the
International Petroleum industry, in particular ;
a) Apply the most appropriate methods to the exploitation of a Commercial
field in order to avoid losses of energy and industrial products ;
b) Ensure the conservation of the field and maximize the economic
production of Hydrocarbons ;
c) Initiate, as soon as practicable, studies for enhanced recovery and
use such procedures if they will result in an improvement in the
Hydrocarbons recovery rate on an economic basis.
10.4. The Consortium may at any time relinquish a Concession in whole or in
part. The relinquisment take effect from the date specified in the Consortium's
notification, provided that a minimum of 3 months'notice shall be given.
In case of relinquishment of a Concession, no penality will be applied against
the Consortium. However, any relinquishment, withdrawal or expiry shall not
relieve the Consorium of its obligations to make payments of sums due and owing
to the State under this Convention, which relate to the period before the
relinquishment, withdrawal or expiry, and its obligations to supply the State
with any information and reports under Article 18 below.
Upon relinquishment, withdrawal or expiry of a Concession, by agreement with the
Minister the Consortium shall perform at its expense all necessary activities to
terminate the exploitation or transfer it to the State , as the case may be, in
accordance with generally accepted practices in the international petroleum
industry. The Consortium shall take all necessary precautions to prevent all
danger to human life and to Third party property. If the State wishes to
continue exploitation of the field in question following the effective date of
the relinquishments, withdrawal or expiry, it may request the Consortium to
continue such exploitation for a maximum period of six months from such
effective date.
10.5. THE PRESENT CONVENTION CORRESPONDS TO THE [CONVENTION-TYPE] MENTIONED IN
--------------------------------------------------------------------------
THE PETROLEUM CODE , MADE REFERENCE TO IN ARTICLES 22, 25, 26, 27 AND 31 OF
- --------------------------------------------------------------------------------
ORDONNANCE N*/PC/TP/MH OF FEBRUARY 3, 1962 CONCERNING CONCESSIONS GRANTED TO
- --------------------------------------------------------------------------------
THE CONSORTIUM IN ACCORDANCE WITH THE PRESENT CONVENTION.
- ----------------------------------------------------------------
<PAGE>
ARTICLE 11- PRODUCTION PROGRAMS
11.1. The Consortium agrees to produce reasonable quantities of Hydrocarbons
from each Commercial Field in accordance with the normal practice of the
international petroleum industry, taking into account in particular the metods
of good conservation of the fields and the optimum recovery of the Hydrocarbons
reserves on an economic basis.
11.2. During production, the Consortium shall before 1st November of every
Calendar year submit for approval to the Minister the production program for
each Commercial Field and the corresponding Budget set for the following
Calendar Year. Such approval shall be granted automatically if the program is in
accordance with the provisions of Article 11.1. above.
11.3. The Consortium shall use its best endeavors to produce during each
calendar Year the quantities estimated in the production program referred to
above.
ARTICLE 12- NATURAL GAS
12.1. The Consortium will have the right to use the Associated Natural Gas for
the requirements of the Petroleum Operations including for reinjection into the
Commercial Fields.
Any quantity of Associated Natural Gas which is not used for the requirements of
the Petroleum Operations, and whose treatment and use in the opinion of the
Consortium are not economic, shall (subject to the right of the State to take
and dispose of such Gas under the conditions set forth below) be reinjected into
subsoil or, when such reinjection is not required by the practice of the
international petroleum industry, may be flaired with the approval of the
Minister, SUCH APPROVAL NOT TO BE REFUSED IF THE FLARING OF THE GAS CONFORMS TO
---------------------------------------------------------------------
THE PRACTICES OF THE INTERNATIONAL PETROLEUM INDUSTRY.
- ------------------------------------------------------------
The Consortium shall, except in case of emergency, request this approval from
the Minister at least three (3) months in advance providing the necessary
justifications showing in particular that all or part of this Gas cannot be
usefully and economically used to improve the maximum economical re-injection
rate in accordance with the provisions of Article 10.3 above.
If the Consortium decides to treat and sell the Associated Natural Gas, the
Consortium shall notify the Minister of this fact ; the parties shall then meet
to discuss, as soon as possible, in order to arrive at an agreement concerning
the treatment and sale of the said Gas.
<PAGE>
If the Consortium decides not to treat and sell the Associated Natural Gas which
is not required for the needs of the Petroleum Operations, the State may decide,
at any time, to offtake all or part of the said Gas at the exit point of the
installation for separating the Crude Oil and the Natural Gas. The above Gas
shall be placed at the disposal of the State without charge provided that the
State shall bear any additional costs which are necessary for treating and
offtaking the Gas beyond the point where it would have been flared.
12.2. If the Consortium makes a discovery of Non-Associated Natural Gas which it
considers potentially commercial, it shall notify the Minister as soon as
possible. The Parties shall then meet to decide on the basis of all information
available if the production and the sale of this Gas by the Consortium are
possible and if so which conditions shall apply.
If the Consortium considers that an Non-Associated Natural Gas Discovery is not
immediately commercial but at the same time foresees its commerciallity in the
future in view of the size of the discovery and in view of reasonable forecasts
of market development, the State shall grant the Consortium an extension to the
Permit within the surface area which corresponds to the said Discovery.
Notwithstanding Article 8.1 above, the surface fee relating to this extension
shall be US$ 100 per square kilometer per annum. The State and the Consortium
shall agree on the term of this extension which shall be set in light of the
inevitable waiting period before exploitation of the discovery can start. During
this extension, the State and the Consortium shall maintain close cooperation
with a view to studying the development of the market and accelerating the start
of exploitation of the Discovery as much as possible as soon as economic
conditions allow.
12.3.The price paid for the Natural Gas ([the Market Price]) shall be :
a) in the case of sales to independent purchasers, equal to net price
realized and obtained for the sale of this Natural Gas ;
b) in the case of sales other than to independent purchasers, set by
agreement between the State and the Consortium taking into account in
particular :
- the quantity and quality of the Natural Gas ;
- the prices of sales of Natural gas produced from other sources in
Chad and sold under comparable market conditions, if any ;
- the forecasat use for the Natural Gas ;
- the national and international market price for subtitute forms
of energy.
<PAGE>
In order to determine the Ex-Field Market price for Natural Gas, this market
Price shall be adjusted back to the measurement point referred to under Article
13.1 by deducting transportation costs in the same way as provided for under
Article 21.3 in the case of Crude Oil.
ARTICLE 13- MEASUREMENT OF HYDROCARBONS
13.1. The Consortium shall measure, at the outlet flange of the collection tank
of each Concession, or in the case of Natural Gas, at the outlet of the gas
treatment plant or the separation or treatment facilities as the case may be, or
at any other point set by mutual agreement of the Parties, all the Hydrocarbons
produced from each Concession after extracting the water and associated
substances, using, after approval by the Minister, measuring apparatus and
procedures which conform to those used in the international petroleum industry.
The Minister will have the right to review such measuring apparatus and
procedures and to inspect the apparatus and procedures used.
13.2. Si au cours de l'exploitation, le Consortium desire modifier lesdits
appareils ou les procedures, il devra obtenir l'approbation du Ministre. Le
Ministre peut exiger qu'aucune modification ne soit faite sans la pr sence de
son repr sentant dument mandate.
13.2. If during the course of exploitation, the Consortium wishes to modify the
said apparatus or procedures, it shall obtain the approval of the Minister. The
Minister may require that any modification be made only in the presence of his
duly authorized representative.
13.3. The Minister may, at any time, require the measurement apparatus be tested
or calibrated at dates or intervals or in ways as specified in his request, in
accordance with the standards of the international petroleum industry.
13.4. If the apparatus or procedures used result in an over or under estimation
of the quantities measured, the error shall be deemed to have existed since the
date of the previous calibration of the equipment, unless a more recent date can
be proved, and an appropriate adjustment shall be made for the corresponding
period.
13.5. If exceptional losses of Hydrocarbons have taken place, the Consortium
shall submit a report to the Minister, specifying the circumstances of the
losses and the quantity, if this can be estimated.
In the case of losses of Hydrocarbons resulting from the failure of the
Consortium to comply with the standards generally recognized by the
international petroleum industry, the Consortium shall take reponsibility, and
the Parties shall meet with a view to reducing or eliminating such losses.
<PAGE>
ARTICLE 14- TRANSPORTATION OF HYDROCARBONS
14.1. In accordance with the Petroleum Code, the Consortium will have the right
to transport or HAVE TRANSPORTED,while retaining ownership therin, any
------------------
production to the storage, treatment, loading or wholesale consumption points,
or the Delivery Point.
14.2. The State will have an option to participate in an export pipeline
project, provided that the State always pay its share of the cost of the project
proportional to its eventual participation.
If agreements are reached between the State and neighboring states to allow or
facilitate the development of the principal export pipeline proposed by the
Consortium as well as the transportation by that pipeline of its Hydrocarbons
across the territory of such neighboring states, the State shall without
discrimination grant to Consortium all benefits arising from such agreements,
excluding the particular benefits granted specifically to the State in its
capacity as a user of the pipeline.
The Consortium and the State will negotiate the conditions which will apply to
the setting up and operation of the export pipeline with the governments of the
revelant neighboring State.
14.3. The transportation authorization is granted by right, on request, either
to Consortium or on an invidual basis to each of the entities comprising the
Consortium. The approval of a pipeline project as provided for in the Petroleum
Code may not be withheld if the project conforms to the regulations in force
and ensures the transportation of production extracted under the best technical
and economic conditions.
14.4. The rights specified in this Article 14 may be transferred individually or
jointly under the conditions set out in this Convention.
The transferees shall be subject to the conditions of this Convention concerning
the construction and operation of the installations and pipelines in question.
They shall also comply with the conditions imposed on the Consortium under this
Convention and the Petroleum Code whether from a legal point of view or in
relation to control of the company.
<PAGE>
14.5. The Consortium or its transferees or other legal persons may CONCLUDE
--------
CONTRACTS OF ASSOCIATION or other similar contract with a view to joint
- --------------------------
transportation of their production subject to the provisions of Article 14.6
below.
They may also conclude contracts with Third parties for construction and
operation of pipeline.
All agreements or contracts relating in particular to pipeline construction and
operation, sharing of costs, financial returns and, in the case of
discontinuance of the business, assets, shall be submitted for approval together
with any request for a transportation authorization.
If the consortium is bound by contracts to place part of its production at the
disposal of any other legal persons, it shall, on the request of such legal
persons, provide transportation of such production as if it was its own, under
the conditions specified in Article 14.8 below.
14.6. The route and specifications of pipelines shall be set so as to ensure the
transportation and disposal of the production from the fields in the best
technical and economic conditions possible, and in particular so as to ensure
that, on an overall basis, the value of such production at the field departure
points will be maximized.
In order to ensure compliance with the provisions of the preceding paragraph, in
the case of discoveries by Third Parties of other exploitable fields in the same
geographic area, the Minister may in particular, in the absence of mutual
agreement, oblige the holders of mining titles or the transferees referred to in
Article 14.4 above to combine with other producers with a view to joint
construction or use of the installations and pipelines in respect of all or part
of the production of such fields. In the case of disagreement between the
parties in question in relation to such joint activity, the Minister shall
submit the dispute to arbitration in accordance with a procedure such as the one
set out in this Convention.
14.7. The approval of a pipeline project by decree of the Council of Ministers
shall confer on such project the status of [public utility].
In addition, approval of a pipeline project shall give the Consortium or the
pipeline company the right to construct installations and pipelines on land
burdened by right of ways.The owners OF THE ABOVE MENTIONED LAND shall not
---------------------------
commit any act that might hinder the proper operation of the installations and
pipelines.
<PAGE>
If the installations or pipelines interfere with the normal use of the land, the
owner(s) can have THE CONSORTIUM purchase the land by mere request. The value
--------------
of the land shall, in the absence of mutual agreement, be stablished in
accordance with the same procedure as for expropriation.
Except in cases of force majeure or other cases validly justifying delay, the
Consortium or its partners or transferees referred to in Article 14.4 above
shall be required to start, or have started on their behalf, the proposed work
within two years following the approval of the project, failing which such
approval may be withdrawn.
14.8. The company operating the pipeline constructed in accordance with Article
14.1, 14.2 and 14.4 above may be obliged by decision of the Mimnister, failing
mutual agreement, to accept, in addition to its own production and up to the
limits of capacity of the pipeline, production from exploitation operations
other than those in relation to which the project was approved.
Production of the same quality transported at the same rate shall be subject to
the same tariff.
ANY DISPUTE ARISING OUT OF THE APPLICATION OF THE PROVISIONS OF THIS ARTICLE
- --------------------------------------------------------------------------------
4.18 SHALL BE SUBJECT TO ARBITRATION IN ACCORDANCE WITH A PROCEDURE SUCH AS THE
- --------------------------------------------------------------------------------
ONE SET OUT IN ARTICLE 33 BELOW OF THIS CONVENTION.
- ------------------------------------------------------------
14.9. The transportation tariff shall be set by the companies responsible for
the transportation. The tariff shall be subject to the approval of the Minister.
To this end, this tariff shall be submitted to the Minister two months before
the start of operations. Notice of any subsequent change shall be given to the
Minister with any appropriate explanations one month before the effective date.
During such notice period, the Minister may raise objection to the tariff
proposed.
This tariff shall in particular :
- include a usage factor for the installations.
- take into account the depreciation of the installations and pipeline.
- Take into account distances involved.
- Allow a profit margin comparable to that customarily accepted in the
international petroleum industry for comparable installations
operating under similar conditions.
<PAGE>
In case of significant changes to any of the components of the tariff, a new
tariff will be set and approved in accordance with above procedures, on request
of the Minister, taking such changes into account.
14.10. Any legal person transporting Hydrocarbons in Chad shall, in relation to
the installations and operation of the facilities and pipeline, be subject to
the obligations set out in the present Convention.
14.11. The provisions of this Article 14 shall not apply to installations and
pipeline constructed within a concession. Occupancy of land necessary for such
installations and pipeline shall be arranged in accordance with the procedure
set forth in this Convention.
ARTICLE 15 - OBLIGATION TO SUPPLY THE INTERNAL MARKET
15.1. If the State is unable to satisfy the Chadian internal consumption
requirments for Crude Oil from all internally produced Crude Oils available to
it, the Consortium agrees to sell to the State on a prioity basis, the portion
necessary to satisfy the internal consumption needs of the country, equal up to
the percentage represented by the total production in comparison to the total
quantity of Crude Oil produced in the Republic of Chad.
15.2. The Minister shall give written notice, at the latest on the first of
October, of the quantity of Crude Oil to be purchased over the following
Calender Year in accordance with this Article.
15.3. The Crude Oil sold under this Article to the State, or to the person
designated by the State for this purpose, shall be paid for in CFA FRANCS, and
----------
the per barrel price paid shall be the ex-field cost price of the Crude, plus
the cost of transportation to the place of delivery, plus thirty United States
cents (US$ 0.30) per barrel, except if the parties otherwise agree. These
deliveries shall not be subject to any royalty or profits tax. This Crude Oil
shall be delivered to the State, unless otherwise agreed by parties, at the exit
point of the principle collection centers of the producing fields (where the
Consortium shall provide storage for this Crude Oil for a period of at least 2
months, for the account of the Consortium for the first thirty days of such
period, thereafter for the account of the State). The deliveries shall be made
in accordance with procedures set by agreement of the parties.
15.4. All sums due to the Consortium under this Article shall be payable to the
Consortium in currency legally used in Chad(CFA FRANCS). At the start of each
------------
month the Consortium shall invoice the State for deliveries made in the
preceding month. The State shall pay within 60 days . The conversion between
<PAGE>
Dollars and the currency legally used in Chad(CFA FRANCS)shall be made on the
-----------
basis of the average of the daily rate quoted by the foreign exchange market in
Paris at the closing of each working day during the month of delivery.
CHAPTER IV PROVISIONS APPLYING TO EXPLORATION AND TO EXPLOITATION
ARTICLE 16- ANNUAL WORK PROGRAM
16.1. The Consortium will submit to the Minister within thirty days following
the effective Date of the Convention the Annual Work Program and the
corresponding Budget for the current Calendar Year.
<PAGE>
Two month before the end of each subsequent Calendar Year, The Consortium shall
submit the Annual Work Program and corresponding Budget for the following
Calendar Year to the Minister.
The Annual Work Program and the Budget shall specify the different activities of
exploration, evaluation, development, production and transportation.
16.2. The Minister may not unreasonably refuse the Annual Work Program and
corresponding Budget. However, the Minister may propose revisions or
modifications to the Annual Work Program, by notice to the Consortium within a
period of thirty days following the receipt of this Program.
In this event, the Minister and the Consortium shall meet as soon as possible to
study the requested revisions or modifications and to establish, by mutual
agreement, the final form of the Annual Work Program, in accordance with good
oil-field practices as generally recognized in the international petroleum
industry.
IF THE MINISTER DOES NOT NOTIFY THE CONSORTIUM OF HIS WISH TO MAKE REVISIONS OR
- --------------------------------------------------------------------------------
MODIFICATIONS WITHIN THE ABOVE MMENTIONED THIRTY-DAY PERIOD, THE SAID ANNUAL
- --------------------------------------------------------------------------------
WORK PROGRAM AND THE CORRESPONDING BUDGET SHALL BE DEEMED TO BE APPROVED BY THE
- --------------------------------------------------------------------------------
MINISTER AT THE END OF SUCH PERIOD
- ----------------------------------------
16.3. Changes to the Annual Work Program may be justified by the results
acquired during the course of carrying out the work or in other circumstances.
In this case, the Consortium may, after notifying the Minister, make such
changes provided that the basic objectives of the said Annual Work Program are
not modified.
16.4. Any Annual Work Program and corresponding Budget submitted to the Minister
during the Permit renewal periods in relation to exploration work shall be
approved automatically on the condition that they conform to the work
obligations provided for in Article 7 above.
ARTICLE 17-ADMINISTRATIVE SUPERVISION OF PETROPEUM OPERATIONS
17.1. The Petroleum Operations are subject to technical and adminitrative
supervision by representatives from the Minitry. The duly authorized
representatives shall have the right to oversee the Petroleum Operations, and to
inspect, at reasonable intervals, the facilities, equipment, machinery, recorded
data, and records relating to the Petroleum Operations.
<PAGE>
17.2. The Consortium shall give advance notice to the Minister of all Petroleum
Operations, such as geological or geophysical campaigns, drillings, and well
tests, in order to enable the representatives of the Minister to be present
without causing delay to the normal carrying out of the operations.
If the Consortium decides to abandon a well it shall notify the Minister if the
case arises two (2) days before the abandonment, or twenty (20) days in the case
of the abandonment of production wells.
17.3. The Minister or his duly designed representative, may request the
Consortium to carry out, at the Consortium's expense, any work judged necessary
to ensure normal safety and hygiene during the Petroleum Operations, in
accordance with the practices of the international petroleum industry.
17.4. In carrying out the Petroleum Operations, the Consortium shall observe all
written notices given by the Minister in accordance with the Petroleum Code, as
well as any written notices, requirements or order given by a duly authorized
agent. However, no notice, requirement or orders shall be given if it is does
not comply with the provisions of this Convention or with the standards of the
international petroleum industry. If the Consortium refuses such notices,
requirements or orders if they are not reasonable nor comply with this
Convention or with the standards of the international petroleum industry, the
dispute may be submitted to arbritation under Article 33 below.
17.5. The State will ensure that all its representatives shall strictly observe
any instuctions given by the representatives of the Consortium relating to the
safety of persons and of the site, and that any inspection shall be made in such
a way as to interfere as litle as possible with the operations of the
Consortium.
ARTICLE 18- INFORMATION AND REPORT
18.1. In accordance with the Petroleum Code, the Consortium shall maintain at
all times reports and records on all its Petroleum Operations in Chad.
18.2. The well-logs, maps, magnetic tapes, drilling cutting, cores, samples and
all other geological and geophysical information and data obtained by the
Consortium during the course of Petroleum Operations (hereafter referred to as
[Petroleum Data]) are the property of the State and shall be provided to the
Minister as soon as possible after they are obtained or prepared, unless
otherwise provided for hereunder, and may not be published, reproduced or be the
subject of any transaction without the authorization of the Minister.
18.3. The Consortium may:
a) retain for the needs of the Petroleum Operations copies of the
documents which comprise the petroleum Data ;
b) with the authorization of the Ministry, which shall not be
unreasonably refused or delayed, retain for the needs of the Petroleum
Operations the original documents which comprise the Petroleum Data,
subject to providing the Minister with copies if such documents can be
reproduced ;
c) export freely for treatment, analysis or laboratory examination, the
Petroleum Data, subject to providing the Minister, if practicable,
with sample of equivalent size and quality or, in the case of
reproductible documents, copies of equivalent quality.
In particular, the Consortium shall as soon as possible supply the Minister with
a copy of the final versions of measurement reports, geophysical
interpretations, geological reports, well-logs and drilling reports.
All maps, sections, profiles and all other geophysical and geological documents
shall be supplied to the Minister on transparent paper which is adequate for
further reproduction.
The Consortium shall supply the Minister or his representative with a
representative part of cores, cuttings and samples of fluid produced during
production tests.
At the expiry or on the relinquishment or termination of this Convention, the
original documents including magnetic tapes, if requested, shall be transferred
to the Minister.
18.4.The Consortium shall supply the Minister with periodic reports in French
and in English as follows :
a) a daily report on drilling progress and production, as well as weekly
report on geophysical works being carryied out ;
b) within thirty (30) days following the end of each Quarter, a report
relating to the Petroleum Operations carried out during that Quarter ;
c) within sixty (60) days following the end of each Calendar Year, a
summary report relating to the Petroleum Operations carried out during
that Calendar Year, indicating among other things :
<PAGE>
- discoveries made by bassin, with reserve estimates by individual
field,
- the evaluation activities carried out during the course of that
Calendar Year and the evaluation activities planned for the
current Calendar Year, with the reasons supporting the
Consortium's determination concerning the work necessary in
accordance with Article 9.2 above.
- The geological and petrophysical characteristics and the
estimated delineation of each field, and the results of any
production tests carried out,
- The detailed technical-economic analysis of the commerciality of
the total reserves, with an indication of investments, costs,
production, hypothetical sequence of development of the fields,
- The conditions relating to the economic viability of an export
project and recommendations on future exploration and evaluation
work,
- A detailed estimate of amounts spent and a list of personnel
employed by the Consortium.
The Consortium agrees to present this report annually to official
representaticves of the State, at a location mutually agreed, and agrees to
reimburse actual expenditures, up to a maximum of US$ seventy-five thousand
(75,000) for travel and reasonable living costs incurred by such
representatives.
18.5.This Convention, as well as all information marked [confidential] which is
supplied by one Party to the other by reason of this Convention, shall be
considered confidential until the relinquishment of the surface area to
which the information relates, except :
- - for the petroleum Data (it being understood that for the purposes of this
paragraph, this term does not include either interpretations or
interpretative reports) which shall remain confidential only for a period
of five years from the time the Data is obtained ; and
- - for the convention, which will reamin confidential for its term.
However, each Party may disclose this information to any person employed by it
or working on its behalf provided such person agrees to treat it as
confidential.
The Consortium may also communicate such information (including the Convention)
to Affiliated Companies, any professional consultants and legal counsel, any
third parties who have a bona fide interest in becoming a member company of the
Consortium, any accountants, underwriters and lenders, and to such
representatives of governments which need to be made aware thereof or have the
right to require disclosure. The Consortium will also have the right to make
data trades with third parties in accordance with normal practices of the
<PAGE>
international petroleum industry, subject to Consortium keeping the State
informed of such data trades. The Consortium will obtain from any relevant Third
party a written undertaking to maintain the confidentiality of information so
exchanged.
In addition, The Minister may use the information supplied by the Consortium for
the purpose of preparing and publishing any report required by law, as well as
any report and study of general interest.
18.6. Notwithstanding the provisions of Article 18.5 above, the Minister may
introduce into the public domain any information relating to an area over which
the Consortium no longer has rights following expiry, relinquishment, withdrawal
or termination of the Convention over the said area.
18.7. The intention of the Parties is not to apply the provisions of this
Article 18 in a way that abnormally overburdens the administration of the
Consortium. If, in the opinion of the Consotium, the application of any
provision whatsoever of Article 18 has this effect, the Parties shall meet to
agree an appropriate change to the relevant obligation.
18.8. Notwithstanding any provision to the contrary in this Convention, the
Consortium will not be required to disclose to the State any of its proprietary
technology or that of its Affiliated Companies.
ARTICLE 19- PERSONNEL TRAINING AND MACHINERY
19.1. The Consortium shall, from the start of Petroleum Operations, ensure that
it employs Chadian citizens preferentially, PROVIDED THEIR QUALIFICATION ARE THE
------------------------------------
SAME, and to play a part in the training of such employees so as to allow them
- -----
to accede to all work force, supervisory, professional and managerial position.
At the end of each Calendar Year, the consortium will prepare, in agreement with
the Minister, a recruitment and training plan with a view to an ever increasing
participation by Chadian personnel in the Petroleum Operations.
19.2. In order in particular to facilitate the employment of Chadian personnel,
the Consortium, in satisfying its needs, will provide for the training and
perfecting the qualifications of personnel employed for the Petroleum
Operations. The Consortium shall also use its best endeavors to train and
perfect the qualifications of the representatives of the Ministry of Mines,
Energy and Petroleum.
The Consortium shall organize such training under a plan established by
agreement with the Minister, either within its own organization or within other
organizations, by means of training assignments or exchange of personnel,
whether in Chad or abroad.
<PAGE>
To this end, the consortium shall dedicate the following to the training plan
for Chadian personnel :
a) from the approval date of the present Convention, the Consortium agrees to
spend up to US$ 75000 per annum for the reinforcement of national capacity
and the purchasing of equipment for the Ministry of Mines, Energy and
Petroleum.
b) Upon the grant to the Consortium of its first Concession, this yearly
amount allocated for the training and machinery will be increased to
US$200000.
19.3. The foreign personnel employed by the Consortium, as well as by its
- -----
contractors, for the requirements of the Petroleum Operations will be authorized
to enter the Republic of Chad. The Minister will facilitate the issue and
renewal of the administrative documents necessary for the entry and stay in Chad
of the said personnel and their families.
In no way shall the previous paragraph be interpreted as a waiver of the
legislation IN FORCE concerning entry to or exit from the territory of the
---------
Republic of Chad, provided that such legislation is applied without
discrimination to all persons entering or leaving the Republic of Chad.
ARTICLE 20-OWNERSHIP OF ASSETS
20.1. All assets, whether movable and immovable, acquired and owned by the
Consortium will become the property of the State without compensation on the
date of expiry or termination of the Convention or a Concession or, in the case
of relinquishment, on the date of relinquishment, for those assets not required
for Petroleum Operations within other areas, other than those relinquished. If,
at the date of such expiry, termination or relinquishment, the Consortium is not
a title-holder of any Concession, this obligation will apply only to immovable
assets.
If the Minister decides not to use the said assets, he may request the
Consortium to remove them at its expense, such request to be made before the
date of the expiry, termination or relinquishment.
The Consortium may not remove or sell, out of the Contract Area, any asset which
may be transferable to the State under this Article except with the approval of
the Minister, other than in the case of replacement of asset which is required
in the normal course of the Petroleum Operations.
<PAGE>
20.2. Within sixty days following expiry, relinquishment or withdrawal of a
Concession, the Consortium shall transfer to the State , without compensation,
all wells then producing which have been drilled by the Consortium within the
perimeter of the said Concession, in good working order (normal wear and tear
excepted) for the continuance of the exploitation, except if the Minister
requires their abandonment or if these wells have already been abandoned.
20.3. During the term of the Permit and the Concessions, the wells which cannot,
by agreement, be used for the pursuit of exploration or exploitation, may be
taken by the State without cost and converted to water wells. The Consortium
shall be required to leave the tubing in place at the requested level, as well
as any wellhead, and to carry out at its expense at the time of the operation of
abandoning such well and to the extent possible from a technical and economic
point of view, the completion of the well in the water zone as may be requested.
<PAGE>
CHAPTER V
ECONOMIC AND FISCAL PROVISIONS
Article 21 Price of Crude Oil
21.1. The unit sale price of Crude Oil, taken into account for the calculation
of the direct tax on profits and royalty, shall be the Market Price at the
Delivery Point [The Market Price] expressed in Dollars per barrel as
determined below :
a) At the end of each Quarter, from the start of commercial production of
Crude Oil, a Market Price of each type or blend of Crude Oil sold
shall be determined.
b) If sales to independent purchasers represent fifty percent or more of
the Crude Oil from the Contract Area, sold by the Consortium at the
Delivery point during the course of the quarter, the Market Prices
applicable for that Quarter will be equal to the weighted average of
the prices obtained during the said Quarter by the consortium, for the
Crude Oil from the Contract Area, under sales contracts with
independent purchasers.
c) If sales to independent purchasers represent less than fifty percent
of the Crude Oil from the Contract Area, sold by the Consortium at the
Delivery Point during the course of the Quarter, the Market Price
applicable for the Quarter shall be the weighted average of :
1. the weighted average of the prices obtained from independent
purchasers during the Quarter in question if there have been such
sales of Crude Oil from the Contract Area by the Consortium ;and
2. the average of the prices for which Crude Oils of similar density
and quality to the Crude Oil from the Contract Area were sold
during the course of the Quarter in question under comparable
commercial conditions by independent sellers to independent
buyers. The prices of reference Crude Oils shall be adjusted to
take account of differences in quality, quantity, transportation
and commercial conditions.
The above-mentioned weighted average shall be determined on the basis
of the percentage by volume represented by the total of sales from the
Contract Area under subparagraph 1 above to independent purchasers and
those made under subparagraph 2, respectively.
<PAGE>
d) Within the meaning of this article, sales to independent
purchasers shall exclude the following transactions :
- sales under which the purchaser is an Affiliated Company of
the seller, as well as sales between entities which comprise
the Consortium ;
- sales to the internal Chadian market ;
- sales involving any consideration other than payment in
currency (such as exchange contracts, sales between
governments) and sales the reasons for which, in whole or in
part, are considerations other than the normal economic
practices in sales of Crude Oil on the international market.
e) All the above prices shall be adjusted to the actual points of
loading of the Consortium.
f) For the purposes of this Article, sales to the internal Chadian
market under Article 15 shall be excluded from the calculation of
Market Price.
21.2. Within thirty days following the end of each Quarter, the Consortium
will determine, in accordance with Article 21.1 above, the Market Price of the
Crude Oil produced applicable to the preceding Quarter, and will submit this
determination to the Minister.
If within thirty days following this submission, the Minister does not accept
the Consortium's determination of the market price, the Consortium and Minister
will meet to reach agreement on the determination of the market price. If the
parties have not reach agreement on the determination of the market price within
ninety days following the end of the quarter, the Consortium or the Minister may
immediatelly submit the determination of the market price to an expert. In this
case the market price shall be determined finally by an expert of international
repute, appointed by agreement between the parties, or failing agreement,
appointed by the International Center of Technical Expertise of the
International Chamber of Commerce in accordance with the technical expertise
Regulation.
The expert shall determine the Market Price in accordance with the provisions of
Article 21.1 within a period of twenty one days after his appointment. The
expenses of the expert will be for the account of the Consortium and will be
included in its costs.
<PAGE>
21.3. For the purposes of determining the value of royalty under Article 22.4
below, an Ex-Field Market price will be calculated for each quarter. Within
thirty of the final determination of the Market price relating to the quarter in
question, the Consortium will make this calculation in the following manner and
will notify the result to the Minister :
It will determine in the first place the value of the total quantities of Crude
Oil from the Contract Area, sold by the Consortium at the Delivery point during
such quarter, using this Market price, the quantities sold for internal
consumption needs under Article 15.3 above being excluded ;
If will subtract therefrom the costs of transportation incurred by the
Consortium during such quarter between the measurement point specified in
Article 13 above and the Delivery points ;
It will divide the result by the Total production of Crude Oil, after having
deducted the quatities sold during that quarter to satisfy the internal
consumption needs under Article 15.3 above as well as the quantities of royalty
payable in kind in respect of the quarter in question and the lost quantities or
used for the Field exploitation needs.
The costs of transportation referred to above will include all transportation,
handling, storage, loading, and, where applicable, treatment and all other costs
which are incurred in respect of the Crude Oil between the measurement point
specified in Article 13.1 above up to the Delivery Points, including all costs,
tariffs, duties, and other charges of whatever nature resulting from
transportation through the Republic of Chad and any neighboring countries.
ARTICLE 22 - ROYALTY ON PRODUCTION
22.1. The Consortium shall pay to the State a Royalty on the Total Production of
Hydrocarbons (after deducting the quantities referred to in this Article) at
rate of 12.5% in the case of Crude Oil and 5% in case of Natural Gas.
22.2. The Royalty on the Crude will be payable, in whole or part, either in cash
or kind. The Royalty on Natural Gas is always payable in cash.
The choice of the method of payment of Royalty on Crude Oil will be notified by
the Minister to the Consortium at least three months before the start of
commercial production.
<PAGE>
This choice will remain valid until the Consortium receives a new notification
from the Minister which must be given with at least three months advance notice.
If no notification has been made within the period provided, all the Royalty
will be paid in cash.
22.3. Before tenth of each month, the Consortium will submit to the Minister,
with all necessary supporting documentation, a statement of the Total Production
of the preceding month, divided into the following three categories :
a) the quantities sold during the course of the preceding month in
satisfaction of the needs of internal consumption under Article 15.3
above,
b) the quantities of royalty to be paid in kind in respect of the
previous months, and,
c) the balance, being the quantities intended for export.
The statement shall specify separately the quantities of Crude Oil and Natural
Gas.
22.4. When the royalty is payable in cash, it will be paid monthly on a
provisional basis and quarterly on a final basis.
The Consortium will pay the provisional amount within seven (7) days following
the submission of the statement, on the basis of the quantities referred to in
Article 22.3 c) above multiplied by the Ex-Field Market Price calculated in
accordance with Articles 12.3 and 21.3 above.
In the case of Crude Oil :
- until the calculation of the Ex-Field Market Price for given Quarter,
the provisional Ex-Field Market Price applicable to the Quarter will
be the most recent Ex-Field Market Price ;
- following the notification to the Minister, in accordance with Article
21.3 above, of the calculation of the ex-Field Market Price for the
Quarter in question, the Minister will notify the Consortium of the
final amount of royalty payable, after deduction of amounts payable on
a provisional basis, and the Consortium will pay the royalty on a
final basis. If the balance is negative, the amount will be deducted
from the amount of royalty for which the Consortium is liable
subsequently until the amount is exhausted. If the balance is
positive, the Consortium will pay the amount within thirty (30) days.
<PAGE>
In case, where the calculation of the Ex-Field Market Price for a
given Quarter corresponds to a negative value, then the Ex-Field
Market Price deemed to be zero. If the losses extend on a long period,
the Parties will to find an issue.
22.5. When the royalty is payable in kind, it will be paid monthly.
Unless otherwise agreed between the parties , the Consortium will, at the
earliest the fifteenth of each month, make available to the State quantities of
Crude oil payable as royalty in respect of the preceding month at the
measurement points specified in Article 13 above at a rate agreed with the
Minister. If the Minister requests and if the Consortium has the necessary
installations, and the necessary capacity in such installations, the Consortium
will transport and deliver the said quantities for the State at the expense of
the State.
The State will have a period of sixty (60) days from the time the Consortium
makes the product available during which to carry out its offstake ; during this
time the Consortium is obliged to store this Crude Oil at no charge. If all the
monthly royalty has not been taken at the end of this period, the Consortium ,
may freely dispose of this amount of Crude Oil subject to paying to the State
the royalty in cash for the corresponding quantities in accordance with Article
22.4 above.
ARTICLE 23 - FISCAL REGIME
23.1. The Consortium is, by virtue of its Petroleum Operations, subject to
direct tax on profits provided for in this Convention, in accordance with
Article 1.6.1 of Annex III, and in the General Tax Code as well as the Petroleum
Code, subject to any contrary provisions in this Convention.
23.2. The net profits that the Consortium makes from the whole of its petroleum
Operations in the territory of the Republic of Chad are subject to a direct tax
of 50 %, CALCULATED ON THE SAID NET PROFITS, AS PROVIDED IN THE PETROLEUM CODE.
----------------------------------------------------------------------
THE OTHER PROVISIONS OF ARTICLE 65 OF THE PETROLEUM CODE ARE NOT APPLICABLE by
- -----------------------------------------------------------------------------
reason of the methods of determining the direct tax set out below, the royalty
on production being considered as a deductible exploitation cost and not as a
credit against tax.
The Consortium shall keep by Calendar Year, in conformity with the regulations
in force in Chad and the provisions of this Convention, separate accounts for
the Petroleum Operations which allow a general exploitation account, a profit
and loss account and a balance sheet to be kept setting out both the results of
<PAGE>
the said operations and the assets and liabilities relating thereto or linked
directly thereto.
23.3. In order to determine the net profits of the Consortium, the following
shall be credited to the general exploitation account and the profit and loss
account :
a) the value of the total quantities of Hydrocarbons from the Contract
Area, sold by the Consortium at the Delivery Point, determined on the
basis of the market Price dtermined in accordance with Articles 12 and
21 above, the quantities sold for internal consumption needs under
Article 15.3 above being excluded.
b) If applicable, the value of the share of production paid by way of
royalty in kind determined in accordance with the procedures set out
in Article 22 above.
c) THE SHARE OF THE CAPITAL GAINS TAXES DERIVING FROM THE ASSIGNMENT OR
----------------------------------------------------------------------
THE TRANSFER OF ANY ASSET ITEM WHATSOEVER IN ACCORDANCE WITH THE TAX
----------------------------------------------------------------------
REGIME CONCERNING THE CAPITAL GAIN ON ASSIGNMENT.
------------------------------------------------
d) Any other income or revenue directly linked to the Petroleum
Operations, in particular, from the sale of associated substances, and
from treatment, storage and transportation of Hydrocarbons for Third
Parties.
e) Foreign exchange profits resulting from the Petroleum Operations.
23.4.The following may be debited to the general exploitation account and to the
profit and loss account.
a) cost of materials, supplies and energy used or consumed, salaries of
personnel and related charges, cost of services provided to the
Consortium by Third Party or Affiliated Companies, provided that in
this case the cost of supplies, personnel, and services provided by
Affiliated Companies shall not exceed those normally charged by Third
Parties for similar services in the international petroleum industry.
b) The depreciation actually charged by the consortium up to the limit of
the rates set out in Annex III of this Convention. This depreciation
will commence on the date of use of the equipment and will continue
until the equipment is wholly depreciated.
<PAGE>
c) Genenral costs related to the Petroleum Operations including costs of
starting up business, cost of renting movable and immovable assets,
insurance premiums, and an amount relating to overhead costs from
abroad as defined in Article 2.6 of Annex III of this Convention.
d) The actual amount of interest and other charges on debts contracted by
the Consotium within the limits set in Article 2.7 of Annex III of
this Convention. It is understood that no interest will be deductible
in respect to loans made by Affiliated Companies concerning
exploration expenses.
e) After following for depreciation already charged, the value of
materials or assets destroyed or damaged, and the value of assets
which the enterprise has written off or which will be abandonned
during the course of the year, as well as unrecoverable debts and
compensation to third parties for damage.
f) The total amount of royalty on the production paid in cash, and the
value of the share of the amount of production paid by way of royalty
in kind determined in accordance with the procedures set out in
Article 22 above.
g) Reasonable reserves created for clearly specifies future losses or
charges and which current events render probable, excluding all
contributions to the fund for reconstituting the fields.
h) Any other losses or charges directly relating to the Petroleum
Operations including foreign exchange losses arising therefrom, with
the exception of the amount of direct profits tax determined in
accordance with the provisions of the present article.
i) All other losses which the Consortium has to bear for the
transportation of Hydrocarbons between the measurement points
specified in Article 13.1 and the Delivery Points, including all
costs, tariffs, duties and other charges of whatever nature arising
from the transportation of the Hydrocarbons through the republic of
Chad and through neighboring countries, to the extent that such costs
are not already included by virtue of paragraphs a) to h) above.
23.5. Subject to other provisions to the contrary agreed between the
parties, direct profits tax will be paid under a system of quartely payments
with annual settlement after declaration of the financial results for the
Calendar year in question. These advances shall be paid before the end of each
Quarter and shall be equal to one-quarter of the direct profits tax actually
paid during the course of the preceding Calendar year. The payment of the
balance of the direct of the direct profits tax for a Calendar Year shall be
<PAGE>
made at the latest on the 1st of April of the following Calendar Year. If the
Consortium has paid advances which are greater than the amount of tax for which
it is liable in respect of a given Calendar Year, the excess shall constitute an
amount to be debited from the amount of advance payments due in the future.
ARTICLE 24 - FISCAL EXEMPTIONS
24.1. The Consortium, ITS SHAREHOLDERS, AND AFFILIATED COMPANIESshall benefit
------------------------------------------
from the fiscal advantages provided for IN ARTICLE 65 of the petroleum Code.
-------------
Except for royalty on production and direct profits tax, the Consortium is
exepmpt :
a) from all other direct tax on revenue relating to the results of the
-- Petroleum Operations, the profits, and distribution of the profits,
MOVABLE ASSETS REVENUE TAX
--------------------------
b) From all taxes, duties or contributions of any nature whatsoever on
the production or sale of the Hydrocarbons and any related revenue,
and payable on the Petroleum Operations, or on the setting up and
operation of the Consortium, INCLUDING [LICENCE FEES] (LA PATENTE)
-----------------------------------
The above exemption also applies to all transfers of funds, purchases and
transportation of Hydrocarbons intented for export, SERVICES RENDERED and more
-----------------
generally to all revenue and activities of the Consortium, provided that in each
of these cases this is required for the Petroleum Operations.
As an exception to the previous provisions, [real estate taxes] (les impots
fonciers) and [additional fees] (les taxes additionnelles) are payable, on the
basis provided under the general law, on buildings intended for habitation.
In addition, the exemptions set out in this Article do not apply to. [fees
levied by way of remuneration of services rendered] (taxes ou redevances
percues en remuneration des services particuliers rendus), and generally, to all
[advance payments of non-fiscal nature] (les prelevements autres que ceux a
caractere fiscal).
24.2. In addition, the Consortium shall be exempt for any 'turnover tax' (taxe
sur le chiffre d'affaires) in respect of all acquisitions of assets or services
strictly and directly necessary to the carrying out of the Petroleum Operations.
<PAGE>
ARTICLE 25 - ACCOUNTS
25.1. The Consortium shall keep accounts in conformity with regulations in force
and in accordance with the provisions of the Accounting procedure set out in
Annex III which is an integral part of this Convention.
25.2. The records and books of accounts shall be kept in Dollars. These records
will be used to determine the gross revenue, the exploitation expenses, the net
profits and for the preparation of the declaration of accounting results of the
Consortium.
For information purposes, the general exploitation and the profit and loss
accounts and the balance sheets shall also be kept IN CFA FRANCS.
---------------
25.3. The records and books of accounts will be supported by detailed vouchers
proving the expenses and revenues of the Consortium in accordance with the
rights and obligations of the Convention.
ARTICLE 26 - AUDITS
26.1. The State will have the right to examine and verify, by its
representatives or the auditors, the records and books of accounts relating to
the Petroleum Operations and will have a period of five (5) years following the
end of the accounting period in question to carry out this examination or
verification and to present to the Consortium its objections in respect of all
inconsistencies or mistakes noted at the time of the examination or
verification.
For purposes of such verification the Consortium will place at the disposal of
the representatives of the State and the Auditors during working hours all
records, books. Other documents and information that these representatives and
auditors may request.
26.2.Failure by the State to make any claim within the five year period
referrred to above shall terminate the right of the State to object or make
any claim in respect of the accounting period in question.
ARTICLE 27 - IMPORTS AND EXPORTS
27.1. The Consortium will have the right to import into the Republic of Chad for
its own account or for the account of its contractors, under conditions set out
below, all plant, equipment, machines, appliances, vehicles, cars, airplanes,
spare parts and consumable materials necessary for the petroleum Operations.
<PAGE>
The foreign employees and their families working in the Republic of Chad for the
Consortium or its contractors will have the right to import their personal
effects into the republic of Chad free from all taxes and customs duties, except
for personal vehicles currently in use, in accordance with the provisions of the
Customs Code in force. Local purchases will be made on a tax-included basis.
The merchandise referred to above will be imported by the Consortium exempt from
all taxes and customs duties, except for 'fees levied for services rendered'
(des taxes percues pour services rendus) under the following conditions :
a) the materials intended exclusively for petroleum exploration and
exploitation will be exempt from all taxes and customs duties ;
b) equipment-merchandise and appliances-intended for the petroleum
exploration and exploitation work sites will be placed under 'NORMAL
------
temporary admission regime' (le regime de l'admission temporaire
normal) ;
c) Work site vehicles, specialized or not, will be placed under the
temporary admission regime ; the Company vehicles and vehicles for
personal use will be subject to the general legal regime '(regime du
droit commun) wihout exemption ; airplanes and their spare parts,
consumable materials required for petroleum exploration and
exploitation ,as listed in Annex , will be exempt from all taxes and
customs duties.
27.2. The Consortium and its contractors agree to effect the imports defined
above only to the extent that the said merchandise is not available in the
Republic of Chad in equivalent quantities, quality, price, time period and
payment conditions,except in the case of particular technical requirements or
emergencies presented by the Consortium or its contractors.
<PAGE>
The Consortium and its contractors agree to give preference to Chadian
entreprises for all contracts of construction, supply or services on the basis
of equivalent terms relating to quantities,quality,price, time period and
payment conditions.
27.3. The Consortium and its contractors, sa well as their foreign employees and
their families, will have the right to reexport out the Republic of Chad, free
of all exit tariffs and duties, the merchandise which has been imported under
Article 27.1 above, and which is no longer necessary for the Petroleum
Operations, subject to Article 20 above.
<PAGE>
27.4. The Consortium and its contractors will have the right to sell in the
Republic of Chad the merchandise which they have imported when no longer needed
for the Petroleum Operations, subject to Article 20 above, provided that the
Minister is informed in advance. It is understood that, in this case, the seller
will comply with all the formalities provided for by the regulation in force and
will pay all taxes and duties which apply on the date of the transaction, except
if the above mentioned merchandise is transferred to entities which are arrying
out Petroleum Operations in the Republic of Chad.
27.5. During the term of this Convention and subject to the conditions of
Article 15 above, the Consortium will have the right to export freely to any
destination, free of all exit taxes and duties, the share of Hydrocarbons to
which the Consortium is entitled under the term of the Convention. However, the
Consortium agrees, on the demand of the State, not to sell Hydrocarbons to
countries which are declared hostile to the Republic of Chad.
27.6. All imports and exports under this Convention will be subject to the
formalities required by the regulation in force.
At the request of the Consortium and after agreement of the competent Chadian
authorities, materials and supplies may be extended as Petroleum Operatipons are
carried out.
Article 28 Foreign Exchange
28.1. The Consortium will be subject to the regulations of the Republic of Chad
concerning foreign exchange and transfers. In any event, it is understood that
the State agrees, for the term of this Convention, to maintain for the
Consortium and its contractors the benefit of the following guarantees for the
operations carried out within the framework of this Convention :
a) the right to acquire abroad loans or other means of financing necessary for
the conduct of the Petroleum Operations, receive and to maintain abroad all
funds acquired or borrowed abroad including income from sales, and to
dispose therof freely in so far as such funds exceed the requirements of
their operations in Chad and of their fiscal and contractual obligations ;
b) free movement of funds belonging to them free of all taxes and duties,
between Chad and any other country ;
<PAGE>
c) the right to repatriate capital invested within the framework of this
Convention and to transfer income from such capital, in particular interest
and dividends, although the State shall have no obligation to provide
foreign currency ;
d) free transfer of amounts payable, as well as free right to receive amounts
of whatever nature which are payable to them, subject to making the
declarations required by the regulation in force ;
e) the right of direct payment abroad to foreign suppliers for supplies and
services required for the Petroleum Operations.
28.2. For the performance of the Petroleum Operations, the Consortium will be
authorized to exchange national currency against convertible foreign currencies
at rates of exchange which are no less favorable for the Consortium than the
daily rate, or the rates generally applied in the Republic of Chad to other
firms, on the day of the exchange transaction.
28.3. Within thirty days following the end of each Quarter, the Consortium shall
supply the Minister of Finance with a report on the movement of funds relating
to the Petroleum Operations during that Quarter.
28.4. The expatriate emplyees of the Consortium will have the right, in
accordance with the regulations in force in the Republic of Chad, of free
exchange and free transfer to their countries of origin of savings from salaries
and contributions to pension funds and savings accounts made by thrmselves or on
their behalf, provided they have paid their taxes in the Republic of Chad.
ARTICLE 29 - PAYMENTS
29.1. Unless otherwise provided for in this Convention, all sums due to the
State or to the Consortium will be payable in Dollars or in any convertible
currency chosen by agreement between the Parties.
29.2. In case of late payment, sums due from the Consortium shall bear interest
at rate of LIBOR plus four and half percent per annum from the day when they
should have been paid.
<PAGE>
CHAPTER VI MISCELLANEOUS PROVISION
ARTICLE 30- TRANSFER RIGHTS AND CONTROL OF THE CONSORTIUM
30.1. In accordance with the provisions of the Petroleum Code, the joint and
several rights and obligations arising under this Convention may not be
transferred in whole or in a part by any of the entities comprising the
Consortium without the prior approval of the Minister, other than in case of
transfers to Affiliated Companies.
A transfer will be deemed to be approved by the Minister if, within sixty days
of sending the notice and a copy of the draft transfer deed to the Minister, the
Minister has not refused his approval. Such approval shall not be unreasonably
withheld.
Each of the companies comprising the Consortium shall have the right to transfer
all or part of any of its rights granted under this Convention or under the
Permit or under any Concession to any Affiliated Company. Such transfers will
not be subject to the prior approval of the Minister. However the Consortium
will inform the Minister of any transfer made under this terms of the paragraph
within one month following the signature of the transfer document. No transfer
shall be such as to affect adversely the interests of the State and the
Petroleum Operations, nor to reduce technical and financial capacity of the
Consortium.
Except in the case of transfers provided for in Article 14.4 above,
transferee(s) will become part of the Consortium and shall satisfy the
obligations imposed on the Consortium by the Petroleum Code and by this
Convention, to which they shall become a party.
<PAGE>
TRANSFERS MADE IN ACCORDANCE WITH THE ABOVE PROVISIONS WILL BE EXEMPT FROM ALL
- --------------------------------------------------------------------------------
REGISTRATION AND STAMP DUTIES OTHERWISE LEVIABLE THERON.
- --------------------------------------------------------------
30.2. If the Consortium is comprised of several entities, it shall supply the
Minister as soon as possible with a copy of its Joint Venture Agreement binding
the entities constituting the Consortium.
30.3. The Consortium shall submit, for the Minster's approval, any change of
person or any proposal which could lead, in particular by way of a
re-distribution of shares, to a change in the control of the Consortium, other
than in the case of transfers between Affiliated Companies.
The proposals referred to in this Article 30.3 will be notified to the Minister.
If within a period of 60 days following the said notification the Minister has
not notified the Consortium of his refusal to approve the said proposals (such
approval not to be unreasonbly withheld), the proposals will be deemed approved.
ARTICLE 31 - CANCELLATION OF THE PERMIT, WITHDRAWAL OF THE CONCESSION AND
TERMINATION OF THE CONVENTION
31.1. The Permit or, the case arising any Concession may be cancelled or
wihdrawn, in whole or in part, without any compensation, in the cases and in
accordance with the procedures provided for in the Petroleum Code.
31.2. For the purposes of applying such procedures, the Minister will give
notice to the Consortium, by registered letter with proof of receipt, to comply
within the periods provided for in the Petroleum Code or within four months if
no such periods are provided.
If the Consortium fails to comply within the time limit provided, the
cancellation of the Permit or withdrawal of the Concession shall be declared and
this Convention will automatically terminate to the extent that this Convention
applies to the Permit or the said Concession.
31.3. Any dispute relating to the cancellation of the Permit or withdrawal of a
Concession and the termination of the Convention may be referred to arbitration
under Article 33 below.
ARTICLE 32 - FORCE MAJEURE
32.1. In the case of non-performance by any Party of its contractual
obligations, other than in the case of payments for which such Party is liable,
the non-performance or delay will not be considered a breach of this Convention
if resulting from Force Majeure, provided however there is a cause and effect
link between the impediment and the Force Majeure reason which is relied on.
<PAGE>
The Parties may submit to arbitration any dispute concerning the type of failure
involved and its effect on the contractual obligations of the Party concerned.
32.2. Under this Convention the following shall be understood as being cases of
Force Majeure, all events which are unforeseeable and independent of the will of
a Party, such as natural causes, epidemics, earthquakes, fires, floods, strikes,
riots, insurrections, civil disturbances, sabotage, the effects of war or
situations attributable to war. The intention of the Parties is that the term
Force Majeure shall be interpreted in accordance with the principles and
practices of international law.
32.3. When a Party considers it is prevented from complying with its obligation
because of Force Majeure, it shall immediately notify the other Party of such
impediment giving reasons.
It shall also take all useful steps to ensure normal resumption of compliance
with the obligations affected as soon as possible after the event of Force
Majeure has ceased.
The obligations, other than those affected by Force Majeure, shall continue to
be complied with in accordance with the provisions of this Convention.
When a case of Force Majeure lasts for longer than one (1) year, the Parties
may, by mutual agreement, agree to terminate this Convention.
32.4. If, following a case of Force Majeure, execution of obligations under this
Convention is delayed, the period provided under this Convention for carrying
out such obligation shall be increased by the period of the delay and also by
the period necessary for the repair of any damage resulting from such delay. The
term of this Convention shall also be extended, but only in respect of the area
affected by the event of Force Majeure.
33.1. In case of dispute arising between the State and the Consortium concerning
the interpretation or execution of this Convention or of any of its provisions,
the Parties shall use their best endeavors to resolve the dispute amicably.
If the Parties do not resolve the dispute amicably within a period of three (3)
months, the dispute shall be decided by arbitration before three (3) arbitrators
in accordance with the arbitration rules of the International Chamber of
Commerce. Awards shall be final and binding on the parties from the date they
are made, and judgment upon the award may be entered in any court having
jurisdiction.
<PAGE>
33.2. The arbitration shall take place in Paris (France). The procedure shall be
conducted in French language.
33.3. The arbitrors shall decide all questions on the basis of :
a) the provisions of this Convention,
b) subject to Article 34 below, the provisions of the Petroleum Code,
c) subject to Article 34 below, the other laws and regulations of Chad
supplemented where necessary by the general principles of law applied
internationally.
33.4. Recourse to arbitration shall suspend the obligation to perform the matter
in dispute. On other hand, execution by the parties of their other obligations
under this Convention shall not be suspended during the period of arbitration.
ARTICLE 34 - APPLICABLE LAW AND STABILIZATION OF CONDITIONS
----------------------------------
34.1. The Petroleum Operations undertaken within the framework of this
Convention are governed by this Convention and the Petroleum Code and other
laws and regulations in force in Chad;HOWEVER, IN CASE OF CONTRADICTION OR
------------------------------------
INCONSISTENCY BETWEEN THE PROVISIONS OF THIS CONVENTION AND THE PETROLEUM CODE,
- --------------------------------------------------------------------------------
THE PROVISIONS OF THIS CONVENTION WILL PREVAIL.
- -----------------------------------------------------
34.2. The Consortium shall respect the laws and regulations of the Republic of
Chad.Any reference to these laws and regulations, throughout this Convention,
shall not in any way be interpreted to increase, either directly or indirectly,
the obligations imposed on or the amounts payable by the Consortium under this
Convention nor to adversely affect the rights and economic benefits of the
Consortium as provided for in this Convention.
34.3. In case of contradiction or inconsistency between this Convention and the
laws and regulations of the Republic of Chad, the provisions of this Convention
shall prevail, except if the Parties decide otherwise.
34.4 DURING THE TERM OF THIS CONVENTION THE STATE GARANTEES THAT NO
- ---- -----------------------------------------------------------------------
GOVERNMENTAL ACT WILL BE TAKING IN THE FUTURE, WTHOUT PRIOR AGREEMENT BETWEEN
- --------------------------------------------------------------------------------
THE PARIES, AGAINST THE CONSORTIUM WHICH HAS THE EFFECT EITHER DIRECTLY OR
- --------------------------------------------------------------------------------
INDIRECTLY OF INCREASING THE OBLIGATIONS OR AMOUNTS PAYABLE BY THE CONSORTIUM
- --------------------------------------------------------------------------------
UNDER THIS CONVENTION OR WHICH ADVERSELY AFFECTS THE RIGHT AND ECONOMIC BENEFITS
- --------------------------------------------------------------------------------
OF THE CONSORTIUM PROVIDED BY THIS CONVENTION. THIS WILL APPLY IN PARTICULAR, TO
- --------------------------------------------------------------------------------
THE FOLLOWING :
- -----------------
<PAGE>
A) EXEMPTION FROM TAXES, FEES AND DUTIES ;
- ----------------------------------------------------
B) OBLIGATIONS RELATING TO ROYALTY AND PROFITS TAX ;
- --------------------------------------------------------------
C) RIGHT TO RETAIN ABROAD AND TO REPATRIATE TO FOREIGN COUNTRIES ANY FUNDS
- -------------------------------------------------------------------------------
AND FOREIGN CURRENCIES ;
- ---------------------------
D) NON-DISCRIMINATION INRESPECT OF CHARGES MADE BY THE STATE FOR SERVICES
- --------------------------------------------------------------------------------
RENDERED, COMPARED WITH CHARGES MADE BY THE STATE FOR SIMILAR SERVICES SUPPLIED
- --------------------------------------------------------------------------------
IN THE PUBLIC DOMAIN.
- ------------------------
IF SUCH CHANGE ARE MADE BY THE GOVERNMENT OF THE REPUBLIC OF CHAD WITHOUT THE
- --------------------------------------------------------------------------------
PRIOR AGREEMENT OF THE CONSORTIUM, THE PARTIES SHALL AGREE THE NECESSARY
- --------------------------------------------------------------------------------
MODIFICATIONS TO INSURE THAT THE CONSORTIUM IS SUBJECT TO THE SAME FINANCIAL
- --------------------------------------------------------------------------------
CONDITIONS, OBLIGATIONS AND AMOUNTS, AS WELL AS THE SAME RELATIVE ECONOMIC
- --------------------------------------------------------------------------------
RIGHTS AND BENEFITS, AS EXISTED BEFORE THE SAID TOOK PLACE.
- --------------------------------------------------------------------
ARTICLE 35 - NOTICES
35.1. All notices and other communications relating to this Convention shall be
addressed in writing and shall be considered as having been delivered as soon as
they are carried or delivered by registered mail, with confirmation of receipt,
or addressed by telex, telefax, to the address shown below :
a) for the State or the Minister :
Minister of Mines, Energy and Petroleum
PO BOX 94 N'Djamena
Republic of Chad
Telefax : (235) 52.25.65
(235) 52.42.48
<PAGE>
b) for the Consortium
Trinity Energy Resources Chad LTD
Po Box 5499 N'DjamenA
Republic of Chad
Telephone (235) 52.44.98
Telefax (235) 52.44.96
35.2. The State and the Consortium may at any time after notice to the other
Party change their authorized representative or amend the chosen address set out
above.
ARTICLE 36 - OTHERS PROVISIONS
36.1. The headings of this Convention are inserted for convenience and reference
only and in no way define, limit or describe the effect or the purpose of the
Convention nor of any of its clauses.
36.2. The Annexes I ,II.III and IV attached are in integral part of this
Convention.
36.3. This Convention may be modified only in writing by mutual agreement of the
Parties.
36.4. Any waiver by the State of the execution of any obligation by the
Consortium shall be in writing signed by the Minister. No waiver may be
considered as a precedent if the Minister waives his reliance on any of his
rights under this Convention.
36.5. If no time limit is specified in a particular case under this Convention
where the Minister's approval is required, the Parties shall agree upon a
reasonable time limit, it being understood that the intent of the Parties is to
cooperate in all possible ways to achieve the purposes of this Convention. The
approval will be deemed to have been given if express approval is not given
within the time limit stipulated or agreed.
36.6. The Effective Date from which this Convention shall be binding on the
Parties will be the date of its approval by Decree. The validity of this
Convention will not be affected by any delay whatsoever in the signature of any
decrees confirming the grant or the renewal of the permit or any Concessions.
<PAGE>
36.7. This Convention abrogates the Memorandum of Understanding, signed by the
Republic of Chad and the Consortium on July 31,1998.
IN WITNESS WHEREOF, the Parties have signed this Convention in four
(4 )copies
In N'Djamena on .....................
FOR THE REPUBLIC OF CHAD FOR ORIENTAL ENERGY RESOURCES
THE MINISTER OF MINES, ENERGY FOR CARLTON ENERGY GROUP
AND PETROLEUM
FOR TRINITY GAS CORPORATION, INC
<PAGE>
<TABLE>
<CAPTION>
ANNEX I
-------
BOUNDARIES OF THE CONTRACT AREA OF THE PERMIT
POINTS LONGITUDE LATITUDE
- ------- ---------- ----------
1 fronti re avec le Cameroun 10 30'00"N
2 fronti re avec la R.C.A. 10
30'00"N
Le long de la fronti re avec la R.C.A. jusqu'
<S> <C> <C>
3 20 01'15"E fronti re avec la R.C.A.
4 20 01'15"E 09 40'00"N
---------- ----------
5 20 17'30"E 09 40'00"N
---------- -----------
6 20 17'30"E 09 47'30"N
7 20 00'00"E 09 47'30"N
8 20 00'00"E 09 45'00"N
9 19 55'45"E 09 26'15"N
<PAGE>
10 19 55'45"E 09 26'15"N
11 19 44'45"E 09 26'15"N
12 19 44'45"E 09 21'30"N
13 19 40'30"E 09 21'30"N
14 19 40'30"E 09 18'00"N
15 19 27'30"E 09 18'00"N
16 19 27'30"E 09 21'30"N
17 19 20'30"E 09 21'30"N
18 19 20'30"E 09 33'00"N
19 19 14'15"E 09 33'00"N
20 19 14'15"E 09 29'00"N
21 19 08'00"E 09 29'00"N
22 19 08'00"E 09 25'15"N
23 18 57'15"E 09 25'15"N
24 18 57'30"E 09 21'15"N
---------- -----------
25 18 51'15"E 09 21'15"N
26 18 51'15"E 09 18'00"N
27 18 43'30"E 09 18'00"N
28 18 43'30"E 09 16'00"N
29 18 32'45"E 09 16'00"N
30 18 32'45"E 09 13'00"N
31 18 28'00"E 09 13'00"N
32 19 28'00"E 09 08'15"N
33 18 19'30"E 09 08'15"N
34 18 19'30"E 09 05'45"N
35 18 10'45"E 09 05'45"N
36 18 10'45"E 09 03'15"N
37 18 07'00"E 09 03'15"N
38 18 07'00"E 09 01'30"N
39 18 05'15"E 09 01'30"N
40 18 05'15"E 09 03'30"N
41 17 57'00"E 09 03'30"N
42 17 57'00"E 08 59'15"N
43 17 50'00"E 08 59'15"N
44 17 50'00"E 08 57'00"N
45 17 31'15"E 08 57'00"N
46 17 31'15"E 08 50'30"N
47 17 22'15"E 08 50'30"N
48 17 22'15"E 08 52'15"N
49 17 08'45"E 08 52'15"N
50 17 08'45"E 08 57'00"N
51 16 12'15"E 08 57'00"N
52 16 12'15"E 09 10'45"N
<PAGE>
53 16 09'15"E 09 10'45"N
54 16 09'15"E 09 13'30"N
55 16 00'15"E 09 13'30"N
56 16 00'15"E 09 11'00"N
57 15 49'45"E 09 11'00"N
58 15 49'45"E 09 07'45"N
59 15 48'15"E 09 07'45"N
60 15 48'15"E 09 06'30"N
61 15 42'45"E 09 06'30"N
62 15 42'45"E 09 07'15"N
63 15 28'15"E 09 07'15"N
64 15 28'15"E 08 59'45"N
65 15 35'00"E 08 59'45"N
66 15 35'00"E 08 49'15"N
67 15 37'00"E 08 49'15"N
68 15 37'00"E 08 34'15"N
69 15 39'45"E 08 34'15"N
70 15 39'45"E 08 32'30"N
71 16 02'45"E 08 32'30"N
72 16 02'45"E 08 23'30"N
73 16 07'30"E 08 23'30"N
74 16 07'30"E 08 18'00"N
75 16 12'30"E 08 18'00"N
76 16 12'30"E 08 11'45"N
77 16 16'45"E 08 11'45"N
78 16 16'45"E 08 08'15"N
79 16 34'45"E 09 08'15"N
80 16 34'45"E 08 09'15"N
81 16 45'30"E 08 09'15"N
82 16 45'30"E 08 07'30"N
83 17 30'00"E 08 07'30"N
84 17 30'00"E 08 15'00"N
85 17 37'30"E 08 15'00"N
86 17 37'30"E 08 22'30"N
87 18 07'30"E 08 22'30"N
88 18 07'30"E 08 30'00"N
89 18 30'00"E 08 30'00"N
90 18 30'00"E 08 37'30"N
91 18 37'30"E 08 37'30"N
92 18 37'30"E 08 42'30"N
93 19 00'00"E 08 42'30"N
94 19 00'00"E fronti re avec la R.C.A
</TABLE>
Le long de la fronti re avec la R.C.A jusqu'ala frontiere avec le Cameroun
,ensuite, le long de la fronti re avec le Cameroun jusqu'au point
95 fronti re avec le Cameroun 10 30'00"N(identique
au point N 1)
Voir la Carte se rapportant aux coordonnees g ographiques des points qui
figurent al'Annexe N(o) I.
ANNEX II
EXPLORATION WORK PLANS AND ESTIMATED COST
IN(US$)
Initial Period of five (5)years
First sub period : (18) months
Aero-magnettic Survey, Geological and Geopgysical study as defined by the
Operator ; evaluation of Seismic data and aero-magnetic existing. 500 000
Administration and general activities 200 000
SUB TOTAL 700 000
Second sub Period (18) months
<PAGE>
1250 Km of Seismic acquisition 5 000 000
Administration and general activities 300 000
SUB TOTAL 5 300 000
Third sub Period (12) months
1250Km of Seismic acquisition 5 000 000
Drilling of (1) Exploration well 5 000 000
Administration and general activies 300 000
SUB TOTAL 10 300 000
Fourth sub Period (12) months
Drilling of (2) Exploration Well 10 000 000
Administration and general activities 300 000
SUB TOTAL 10 300 000
TOTAL 26 000 000
Summary of provisional expenditures of Exploration in categories
Aero-magnetic Survey 500 000
2500 Seismic acquisition of 2D or 3D 10 000 000
Three (3) Exploration Well 15 000 000
Costs of administration and general activities 1 100 000
TOTAL 26 000 000
<PAGE>
ANNEX III
ACCOUNTING PROCEDURE
ARTICLE 1. GENERAL PROVISIONS
1.1. Purpose
This Accounting procedure will apply to the performance of the ovligations
under the Convention.
The purpose of this Accounting Procedure is to establish the accounting
standards and methods for determining the costs which, in accordance with the
practices of the international petroleum industry, are necessary for the
Consortium to incur in the conduct of the Petroleum Operations (hereafter
referred to as [Petroleum Costs]).
1.2. Interpretation
The definitions set out in Article 1 of the Convention shall apply to this
Annex.
IN THE CASE OF CONFLICT BETWEEN THE PROVISIONS OF THIS ACCOUNTING PROCEDURE AND
- --------------------------------------------------------------------------------
THE CONVENTION, THE PROVISIONS OF THE CONVENTION SHALL APPLY.
- ---------------------------------------------------------------------
1.3. Amendements
This Accounting Procedure may be amended by agreement between the Parties.
The Parties agree that, if any of the provisions of this Accounting Procedure
becomes inequitable for one of the Parties, they will in good faith amend the
provision in question.
1.4. Accounts and statements
a) the Consortium will set up and maintain, in its office in Chad, the
complete accounts, book and statements of all income, costs and
expenses relating to the Petroleum Operations, in conformity with
regulations in force and the practices and procedures used in the
international petroleum industry.
These accounts, books, statements and reports shall be made available, to
the State and its representatives to allow them to exercise their right of
inspection, verification and supervision provided for in Article 26.1 fo
the Convention.
b) Within twelve (12) months following the Effective Date, the Consortium
will submit to the Minister a draft accounting plan relating to the
accounts, books, statements and reports of the organization. This plan
will conform with generally recognized and accepted accounting methods
and compatible with the practices and procedures of the modern
PETROLEUM industry.
---------
Within six (6) months following receipt of this draft plan, the
Consortium and the Minister will agree the final accounting plan which
will describe in detail the bases of the accounting system and the
procedures to be used under the Convention and a list of the accounts
to be kept in the French language. Following this agreement, the
Consortium shall diligently set up, and supply the Minister with
formal copies of the detailed accounting plans and manuals relating to
the accounts, books and the form of presentation of the accounts, and
the procedures to be observed in the performance of the Convention.
<PAGE>
c) All reports and statements will be prepared in accordance with the
provisions of the Convention, and the regulations of the Republic of
Chad, and, failing such provisions , in accordance with the methods
generally accepted in the international petroleum industry.
1.5. Currency
All accounts, books, statements and reports will be expressed in Dollars
unless otherwise provided for or agreed by the Parties.
1.6. Accounting principles
The principles relating to the tax accounts will include the following :
1.6.1 Taxable parties
If the Consortium is comprised of more than one company, the direct profits
tax relating to each Calendar Year will be assessed on the basis of the net
taxable profits of each company, and for this purpose a separate Market
Price will be calculated for each company under Article 21 of the
Convention.
However, payments of the royalty provided for in Article 22 of the
convention will in all cases be calculated and valued on the basis of the
total production of all the companies comprising the Consortium.
1.6.2 Carry forward of losses
Starting from the Calendar Year during which the first commercial
production takes place all deductibles charges relating to the Petroleum
Operations which are used in determining the direct profits tax which
cannot be recovered will be considered as an exploitation loss and will be
carried forward as a deduction for the following Calendar year until the
end of the fifth (5th) Calendar year. In case of exceptional circumstances,
the Minister and the Consortium may agree on an appropriate extension of
this period.
1.7. Accounting on an accrual basis
All books, accounts and statements will be prepared on an accrual basis (as
opposed to a cash basis). Revenues will be attributed to the accounting
period in which they are earned, and costs and expenses to the accounting
period in which they are incurred, without the need to specify when the
amount is received or disbursed in connection with a particular
transaction. Costs and expenses will be deemed to have been incurred :
<PAGE>
- In the case of physical items, in the accounting period when title
thereto passes ;
- In the case of services, in the accounting period when such services
are performed.
The accounting basis may be changed by agreement between the Parties if the
Consortium demonstrates both that such change is equitable and is also in
accordance with the practices of the international petroleum industry.
1.8. Definitions of Capital Expenditures and Operating Costs
The Petroleum Costs shall consist of Capital Expenditures and Operating
Costs.
1.8.1 Capital Expenditures
Capital Expenditures represent the Petroleum Costs of assets that have
a useful life extending behing the year in which the asset wasa required,
including all exploration costs and expenditures and all development
expenditures defined in subparagraphs 1.8.1 a) through h) below.
Capital Expenditures include, but are not limited to, the acquisition
costs of the following assets and services :
a) Buildings, installations and associated equipment, such as
installations for producing water and electricity, warehouses and
access roads, installations for Crude Oil treatment and related
equipment, secondary recovery systems, Natural Gas treatment plants
and systems for producing steam.
b) Construction of houses, facilities and leisure for employees and other
property relating to such construction.
c) Production installations such as production rigs (including the costs
of labor, fuel, transportation and supplies for the fabrication,
installation and erecting in place of the rigs and the cost of
installing pipelines), wellhead equipment, sub-surface lifting
equipment, tubing, sucker rods, surface pumps, flow-lines, gathering
equipment, delivery lines and storage facilities.
<PAGE>
d) Movable property such as surface or sub-surface production and
drilling tools, equipment abd instruments, barges and floating craft,
automotive equipment, aircraft, construction equipment, furniture,
office equipment, miscellaneous equipment.
e) Development and production wells, including labor, materials services
used, as well as redrilling, deepening, and restoring production of
such wells, and access roads, if any, leading directly to these wells.
f) Exploration Wells and Evaluation Wells, including labor, materials and
services used, as well as access roads, if any, leading directly to
these wells.
g) Surveys, including labor, materials and services used for aerial,
geological, topographic, geophysical and seismic surveys, as well as
core drilling.
h) Other exploration expenses, such as auxiliary or temporary
installations with a useful life not exceeding one year used in
exploration, and exploration to acquire geophysical or geological
information.
1.8.2 Operating Costs
Operating Costs are all petroleum Costs other than Capital Expenditures
defined above.
1.9 Depreciation
Capital Expenditures as defined in Article 1.8 of this Annex will be
depreciated for the purposes of calculating direct profi tax. In order to
determine the amount of depreciation which is allowed as a deduction from
taxable net profit in each Calendar Year, the following principles will apply :
1.9.1 Capital Expenditures will be amortized on a straight lise basis at
the following annual rates :
- all exploration work, all wells, both productive and non-productive,
and all access ways at the rate of 100 %.
- Surface pipelines at the rate of 10 %.
- Buried pipelines at the rate of 20 %.
- Permanent buildings at the rate of 5 %.
- All other Capital Expenditures at the rate of 20 %.
<PAGE>
1.9.2 The depreciation in respect of the first Calendar Year for which
depreciation is allowable will be made on aproportional basis and not for
the whole year.
1.9.3 Depreciation of Capital Expenditures will be allowed with effect from
:
- the Calendar Year during which the asset is placed in service or, if
the Capital Expenditure does not relate to an asset having a period of
use exceeding the year in which it is placed in service, from the
calendar Year during which the Capital Expenditure is incurred ;
- or the Calendar Year during which the first commercial production
takes place if this year is later.
1.10. Valuation of transactions
Unless otherwise agreed in writing by the Minster and the Consortium, all
transactions resulting in income, costs or expenses to be credited or debited to
the books, accounts, statements and reports prepared, maintained or submitted
under this Convention will be made on an arm's length basis or on a basis such
that such income, costs or expenses will neither be less than nor more than, as
the case may be, the amounts which would have resulted if the transactions had
been made on an arm's length basis as mentioned above.
1.11. Non-deductible expenses
The following expenses will not be included in the Petroleum Costs :
a) Costs relating to the marketing and transportation of the Hydrocarbons
beyond the Delivery Point ;
b) Contributions and donations except those approved by the State ;
c) Gifts or rebates to suppliers and gifts or commissions to
intermediaries used for service or supply contracts ;
d) Any interests, fines, monetary adjustments or increases in expenses
due to the failure of the Consortium to comply with the obligations
under the Convention or to respect applicable law or contracts with
Third Parties ; and
e) All other expenses which are not directly necessary for the carrying
out of the Petroleum Operations, and expenses which are excluded by
provisions of the Convention and of this Accounting Procedure and by
regulations in force in the Republic of Chad.
<PAGE>
1.12. Exchange rates
For the purposes of conversion between the legal currency of Chad or any other
currency, the average of the purchase and sale exchange rates will be used. This
average will be based on the rates quoted on the foreign exchange market in
Paris on the closing of the first day of the month during which the income,
costs or expenses are booked, except for depreciation for purposes of
calculating direct profits tax which will be converted at the rate in force on
the date of acquiring asset by the Consortium or the date the service was
performed, as the case may be.
Any exchange profit or loss will be debited or credited to the Petroleum Costs.
A statement of the exchange rates used for converting the legal currency of Chad
or any other currency into Dollars will be kept by the Consortium.
ARTICLE 2 ACCOUNTING METHODS AND PRINCIPLES FOR IMPUTING PETROLEUM COSTS
2.1. Personnel expenses
The amount of wages and salaries of the Consortium's employees directly
assigned to working in the Republic of Chad on the Petroleum Operations
performed under this Convention, including the costs of holidays, vacations,
sick leave, living and housing allowances, travel time, bonuses and other
benefits customarily granted to the employees of the Consortium and their
families in similar ventures.
2.2. Materials and equipment
The cost of equipment, materials, machines, tools and any other articles of
a similar nature used or consumed for the requirements of the Petroleum
Operations subject to the following :
a) Acquisition
The consortium will only supply or purchase materials which are
required for the foreseeable needs of the Petroleum Operations. The
Consortium will avoid the accumulation of surplus stocks.
<PAGE>
However, stocks must be sufficient to take into account the time
needed for replacements, emergency needs and similar considerations.
b) Components of costs
The costs of materials and equipment acquired by the Consortium for
the needs of the petroleum Operations may include, in addition to the
invoice price(after deduction of any discount given) freight and
transportation costs between the supply point and the delivery point
(provided that such costs are not already included in the invoiced
price), insurance costs, and other related expenses which may be
charged to the materials and the equipment imported into or bought in
the Republic of Chad .
c) Accounting
The costs of such materials and equipment will be debited in the
accounts on an costs basis.
d) Supply of materials and equipment by Affiliated Companies
The materials and equipment supplied by the Affiliated Companies of
the consartium will be debited in the accounts at a level not
exceeding that which would be charged by independent suppliers on an
arm's length basis. This criterion will apply both the new and used
materials.
e) Inventories
The consortium will maintain permanent inventories by quantity Nd
value of all materials in stock in accordance with the generally
accepted practices of the international petroleum industry. The
Consortium will make a physical inventory of all materials at least
once in any Contract Year. The State may carry out complete or partial
inventory verifications when it considers them necessary. The cost of
non-capital merchandise in stock will be debited to the profit and
loss account at the time such merchandise is taken out of stock for
use.
2.3. Cost of technical services
The cost of technical services required for the Petroleum Operations
will be assessed as follow :
<PAGE>
a) in the case of technical services performed by Third Parties who are
direct contractors including consultants, contractors and public
utilities, the price paid by the Consortium provided that this price
is no higher than prices normally charged by other firms for the same
or comparable work or services ; and
b) in the case of technical services performed by the Consortium or its
Affiliated Companies, the price invoiced by the Consortium or its
Affiliated Companies, provided that this price is no higher than the
most favorable price proposed to other Affiliated Companies of the
Consortium or to Third parties for the same or comparable services, in
accordance with a methods of distribution of costs to be agreed in the
accounting plan referred to in Article 1.4 b) of this Annex
2.4. Insurance and claims
The premiums paid for insurance which, in the normal course of events, is
required for the Petroleum Oerations, provided such premiums relate to prudent
coverage of risks and that they are no greater than those charged on a
competitive basis by insurance companies which are not Affiliated Companies of
the Consortium. The indemnities received from any insurance or any claims will
be credited against Petroleum Costs.
If no insurance, or sufficient insurance, is taken out to cover a particular
risk, all the costs incurred by the consortium relating to any loss, claim,
damage or judgment, including legal services, related to such risks will be
considered as petroleum Costs provided such costs do not result from the
Contractors'gross negligence.
2.5. Legal and litigation costs
Costs of litigation and legal or related services necessary or
expedient for the protection of the Contract Area. Any damages or
compensations received will be credited against the Petroleum Costs.
Costs incurred by the Consortium in the course of an arbitration under
Article 33 of the Convention will not be included in the Petroleum
Costs except to the extent that awards may be made in favor of the
Consortium.
2.6. Overhead Costs
<PAGE>
General costs and the costs of centrally provided services (hereafter called
[Overhead Costs] ) other than direct costs will include in particular :
a) costs incurred for services and Consortium's personnel outside the
Republic of Chad relating to administration, legal, accounting,
finance, audit, tax, planning, personnel management, purchasinh and
other functions required for Petroleum Operations under this
Convention ; and
b) reasonable travel expenses for the Consortium's personnel in general
and adminitrative categories set out in paragraph a) incurred for the
purpose of inspecting and supervising the Petroleum Operations in the
Republic of Chad.
c) These Overhead Costs will be imputed to the Petroleum Costs in
accordance with methods applied by the international petroleum
industry and in accordance with the accounting plan.
The overhead costs incurred outside the Republic of Chad in each Calendar Year
will not exceed the percentage rate of the Petroleum Costs which is the same as
that charged by the operating company of the Consortium to the other member
companies of the Consortium for the recovery of the said costs. Any change shall
be notified to the Minister.
2.7. Interest and fees
Interset, fees and other financing charges may be imputed to deductible
Petroleum Costs for the determination of the direct profits tax, provided
they do not exceed the commercial rates used in similar situations and they
relate to loans and credits obtained by the Consortium under this
Convention which are required for the purposes of financing development
operations of a Commercial Field, excluding exploration (which includes
evaluation) operations.
The details of the financing plans and the level of financing will be
included in each Annual Work Plan and Budget for information purposes only.
2.8. Office cost in Republic of Chad
Personnel costs and maintenance costs for the main offices of the Consortium in
the Republic of Chad including rent, expenses for telephone, telex, fax and
radio and expenses for installations such as bases, warehouses, water, power and
communications system, roads and bridges.
<PAGE>
2.9. Miscellaneous expenditures
All other expenditures, other than those which are covered and dealt with by the
foregoing provisions of this Annex, incurred by the Consortium and necessary for
the conduct of Petroleum Operations, including expenses of training personnel
provided for under Article 19 of the Convention, expenses under Article 18.4,
and surface fees referred to in Article 8.
<PAGE>
CLIVEDEN PETROLEUM CO. LTD.
17 XXXI DECEMBRE
GENEVA 1207
SWITZERLAND
May 5, 1999
Trinity Energy Resources, Inc.
952 Echo Lane, Suite 210
Houston, Texas 77024
RE: Oriental Energy Resources Limited-Carlton Energy Group LLC - Trinity Energy
Resources, Inc. Consortium Concession signed on February 23, 1999 by the
Republic of Chad (the "Concession").
Gentlemen:
When accepted by you in the manner provided below, this letter will evidence the
agreement ("Agreement") between Cliveden Petroleum Co., a British Virgin Islands
business corporation
("Cliveden"), and Trinity Energy Resources, Inc., a Nevada corporation
("Trinity") with respect to bridge financing of certain activities related to
acquisition of the Concession and the farming out of an undivided fifty percent
(50%) interest in the Concession to Cliveden.
I.
OWNERSHIP
Trinity represents and warrants to Cliveden that it owns, or has the right to
commit to this Agreement by contract, one hundred percent (100%) of the working
interest in the Concession awarded to the Oriental Energy Resources
Limited-Carlton Energy Group LLC-Trinity Energy Resources, Inc. Consortium (the
"Consortium") pursuant to the Concession.
II.
BRIDGE FINANCING
Cliveden agrees to provide to Trinity the following financing (the "bridge
financing") for the purpose of meeting Trinity's commitments in connection with
the Concession:
The sum of Three Hundred Fifty Thousand Dollars ($350,000.00) to be
funded concurrently with the execution of this Agreement, and which
shall bear an interest rate of twelve percent (12%) per annum,
interest payable semi-annually, with all principal and accrued but
unpaid interest due on or before May 5, 2000, with no prepayment
penalty. The loan shall be represented by a promissory note in the
form attached hereto as Exhibit "A" executed by Trinity and payable to
the order of Cliveden and secured by certain collateral hereinafter
described. At Cliveden's option, all funded amounts may be
<PAGE>
converted at any time prior to principal repayment into shares of
Trinity Energy Resources, Inc. common stock at a conversion price
equal to Twenty-Five Cents ($0.25) per share.
The collateral securing any loan made hereunder is as follows:
1. A first lien covering certain producing oil and gas
properties situated in Texas, Colorado and Wyoming more
particularly described on Exhibit "B" attached hereto.
2. A subordinated security interest in certain monetary
accounts more particularly described on Exhibit "C" attached
hereto.
Should Cliveden elect to exercise its rights under the farmout provisions below,
the loan provided to Trinity under this Agreement shall be immediately cancelled
and Trinity shall have no obligation to repay said monies to Cliveden. If
Trinity has prepaid any sums towards the loan balance, including interest, upon
cancellation of the note, all such sums paid by Trinity shall be refunded.
Until such time, if ever, as Cliveden elects to accept the Assignment provided
below, Cliveden shall have the first right, but not the obligation, to provide
such additional financing as Trinity requires to meet its obligations under the
Concession and to undertake such work to develop the Concession as it may deem
necessary. Such financing shall be subject to the same terms and conditions as
herein provided for the bridge financing including the right to convert the debt
into shares of Trinity's common stock.
III.
FARMOUT
In consideration of Cliveden's agreement to assume the costs associated with the
Concession, as hereinafter provided, Trinity, on behalf of itself and the
Consortium, does hereby agree to sell and transfer to Cliveden fifty percent
(50%) of the entire working interest in the Concession owned by Trinity. This
assignment is subject to the following terms and conditions:
A. Cliveden must notify Trinity no later than November 30, 1999 that Cliveden
has elected to receive the Assignment and to assume its obligations hereunder.
B. Following such election, Trinity will promptly deliver to Cliveden an
assignment (the "Assignment"), in a form and substance satisfactory to Cliveden,
of fifty percent (50%) of 100% of the working interest in the Concession and
will seek all necessary authorizations from the Government of Chad to assure
that the rights of Cliveden to such undivided interest are recognized by said
government.
<PAGE>
C. Following receipt of the Assignment, and the approval of same by the
Government of Chad, Cliveden agrees to assume one hundred percent (100%) of
Trinity's actually and reasonably incurred and/or expended costs, from
inception, in acquiring, administering, exploring and developing the acreage
covered by the Concession until Payout (as hereinafter defined) occurs.
D. Cliveden shall receive ninety percent (90%) of all net revenue (with Trinity
receiving the remaining ten percent (10%) of such revenue) attributable to the
wells drilled on the acreage covered by the Concession until such time that
Cliveden has recovered from all sales of production, net of all royalties,
severance taxes, production taxes or similar burdens, one hundred ten percent
(110%) of all sums paid in connection with the Concession obligations assumed
hereunder including but not limited to (i) all costs heretofore incurred by
Trinity for acquisition of the Concession and rental payments in connection
therewith and (ii) all costs for third party geological and geophysical
evaluations, site preparations, drilling, reworking, deepening, sidetracking,
plugging back, surveying, staking, surface damage, road construction, logging,
fracturing and other stimulation, pipelines and pipeline concessions, testing,
completing, equipping (including equipment costs), operating, plugging and
abandoning, and producing (including overhead charges) with respect to all wells
drilled on the acreage covered by the Concession. Following Cliveden's recovery
of one hundred ten percent (110%) of such costs (herein referred to as
"Payout"), Cliveden shall be entitled to fifty percent (50%) of all net revenue
attributable to said wells and shall bear fifty percent (50%) of all costs,
risks, obligations and liabilities associated with the Concession. After
Payout, Trinity shall be entitled to fifty percent (50%) of all net revenue
attributable to said wells and shall bear fifty percent (50%) of all costs,
risks, obligations and liabilities associated with the Concession.
IV.
OPERATIONS
Prior to commencement of operations on the acreage covered by the Concession,
Cliveden, Trinity, Oriental Energy Resources Limited, and Carlton Energy Group
shall join in the formation of an operating company. All participants shall be
represented on the board of directors; provided however, that, until Payout,
Cliveden shall have exclusive control over all operating and financial decisions
in the event that the operating company's board of directors fails to reach a
unanimous decision. After Payout, each party shall have a proportionate vote on
the board of directors in the operating company in accordance with their
proportionate interest in the Concession at that time. Cliveden reserves the
right to assign to a third party any or all of its undivided interest in the
Concession and to designate a replacement operator. Such assignment and
replacement operator shall be subject to any the approval of Trinity with such
approval not to be unreasonably withheld as well as any required approval by the
government of the Republic of Chad.
<PAGE>
V.
ADDITIONAL REPRESENTATIONS BY TRINITY
Trinity represents and warrants the following:
A. Trinity, on behalf of the Consortium, has obtained the Concession in
accordance with the laws of the Republic of Chad and the applicable laws of
the United States.
B. Trinity has taken all necessary corporate action for the authorization,
execution, delivery, and performance of this Agreement and its obligations
hereunder, including, but not limited to the granting of the option to
convert the bridge financing loan into the common stock of Trinity, should
the financing be deemed a loan.
C. The proceeds of the Bridge Financing will be applied to costs directly
associated with the the Concession.
D. There is no fact which Trinity has not disclosed to Cliveden which
materially adversely affects, or insofar as Trinity can reasonably foresee
could materially adversely affect, the ability of Trinity to perform its
obligations under this Agreement.
VI.
RIGHT OF FIRST REFUSAL
During the term of this Agreement, Cliveden shall have a right of first refusal
with respect to all prospects, concessions and other exploratory arrangements
involving acreage in Africa marketed by Trinity to third party investors.
VII.
APPLICABLE LAW
This Agreement is made subject to and shall be governed by and enforced in
accordance with the laws of the State of Texas and the applicable federal laws
of the United States. This agreement is fully performable in Harris County,
Texas.
VIII.
SUCCESSORS AND ASSIGNS
The terms and provisions of this Agreement shall inure to the benefit of, and be
binding upon the parties hereto, their successors, assigns, and legal
representatives. The parties hereto agree to execute such other instruments
which may be necessary to carry out or make effective the terms and provisions
of this Agreement.
<PAGE>
IX.
PREVIOUS AGREEMENTS
It is agreed that the terms of this Agreement are final and supercede any
previous agreement, either oral or in writing, between the parties with respect
to the subject matter of this Agreement. This Agreement contains the entire
understanding of the parties and all of the covenants and agreements between the
parties with respect to the subject matter of this Agreement. No other
representations, oral or written, shall survive the execution of this Agreement
and all representations made by and between the parties respecting the subject
matter hereof are contained in this Agreement.
X.
TERM OF AGREEMENT
This Agreement shall remain in full force and effect so long as the Concession
is in effect or until a fully detailed and definitive farmout agreement is
executed by the parties, unless this Agreement is terminated or extended in
writing by mutual agreement.
XI.
NOTICES
Notices required by this Agreement shall be written and delivered by certified
U. S. Mail, Federal Express or telegram to the parties at the addresses set
forth on page 1 of this Agreement, or at such address as the parties may
subsequently designate in writing. Such notice shall be effective when received
by the addressee.
XII.
ARBITRATION
All claims, disputes or controversies arising out of, or in relation to the
interpretation, application or enforcement of this Agreement shall be decided by
resort of either party to arbitration in accordance with the Rules of the
American Arbitration Association. The arbitration shall be held in the State of
Texas. The proceedings will be held by a panel of three (3) arbitrators, with
each party having the right to select one (1) arbitrator and with the third
arbitrator being selected by the two (2) arbitrators appointed by the parties.
The decision of the panel shall be final, binding and enforceable in any court
of competent jurisdiction.
XIII.
AMENDMENTS TO BE IN WRITING
No amendments or changes to this Agreement shall be valid unless in writing and
signed by both parties.
<PAGE>
If the terms and conditions of this Agreement are satisfactory and set forth
your understanding of our agreement, please so indicate by executing and
returning the enclosed copy of this Agreement.
Very truly yours,
CLIVEDEN PETROLEUM CO. LTD.
/S/ Paul E. Vickrey,
- ----------------------------------------
by: Paul E. Vickrey, President
ACCEPTED AND AGREED BY:
TRINITY ENERGY RESOURCES, INC.
/S/ T. C. O'Dell
- ----------------------------------------
by: T. C. O'Dell, Chairman and CEO
<PAGE>
TRINITY ENERGY RESOURCES, INC.
T. C. O'DELL, CHAIRMAN,
PRESIDENT & CEO
November 29, 1999
Cliveden Petroleum Co. Ltd.
17 XXXI Decembre
Geneva 1207 Switzerland
c/o: J. Rolfe Johnson FAX NO. 713-621-2772
Dear Mr. Johnson:
This letter hereby acknowledges the agreement between Trinity Energy
Resources, Inc. ("Trinity") and Cliveden Petroleum Co. Ltd. ("Cliveden") to
extend until December 31, 1999 the time that Cliveden must notify Trinity as to
whether it has elected to exercise its rights under the Farmout provisions of
that certain agreement between Trinity and Cliveden dated May 5, 1999.
The parties further agree that neither Cliveden nor any of its principals,
employees, agents or representatives, will, for a period of two years from this
date, directly or indirectly, take any action, alone or in concert with others,
that would bypass or circumvent Trinity regarding the acreage held under its
Convention Agreement with the Republic of Chad and the associated Exploration
Permit H.
If this agreement meets with your approval, please sign below and return at
your earliest convenience to me.
Sincerely, AGREED & ACCEPTED this 29th day of
----
Nov.___________________. 1999
TRINITY ENERGY RESOURCES, INC.
CLIVEDEN PETROLEUM CO. LTD.
T. C. O'DELL (SIGNATURE)
T. C. O'Dell Friedhelm Eronat
Chairman & Chief Executive Officer ----------------------------------------
by
President
----------------------------------------
Title
- --------------------------------------------------------------------------------
11757 Katy Freeway - Suite 1430 - Houston, Texas 77079-1726
Tel: 281-589-7675 Fax: 281-589-7712
<PAGE>
PURCHASE AND SALE AGREEMENT
For good and valuable consideration, the sufficiency of which is herewith
acknowledged, this Purchase and Sale Agreement (hereinafter referred to as
"Agreement") is made and entered into effective 1 January, 1999, by and between
the following:
1) CARLTON ENERGY GROUP, LLC., a Texas Limited Liability Company, with its
principal place of business at 952 Echo Lane, Suite 210, Houston, Texas
77024 (hereinafter referred to as "CEG"); and
2) TRINITY GAS CORPORATION, a Nevada Corporation, with its principal place of
business at 952 Echo Lane, Suite #210, Houston, Texas 77024 (hereinafter
referred to as "TGC"); and
3) IAN TORSTEN NORDSTROM, an individual residing in Palma Majorca, Spain with
Swedish Passport No. 54011098 (hereinafter referred to as "ITN"); and
4) RUDOLF W. OLSCHEWSKI, an individual residing in Hamburg, Germany with
German Passport No. 1716031632 (hereinafter referred to as "RWO").
CEG, TGC, ITN and RWO and are also herein referred to individually as "Party"
and collectively as "Parties".
RECITALS
--------
WHEREAS, ITN and RWO declare and warrant that they are the owners of certain
projects for transforming organic waste into electricity and/or ethanol or other
hydrocarbon products to be undertaken immediately in different zones in Costa
Rica as set forth on Exhibit "A" attached hereto and made a part hereof (herein
referred to as "Projects"); and
WHEREAS, ITN and RWO declare and warrant that they have, in hand, authorization
from the Costa Rican Government to develop the Projects; and
WHEREAS, CEG is of the opinion that it will be able to obtain sufficient
financing, through a joint venture arrangement with TGC and/or other companies,
to develop the Projects subject to finalization of an agreement to utilize a
certain technology that will convert biowaste into electricity and/or
hydrocarbon products; and
WHEREAS, with reference to the Letter Agreement of 24 November 1998, between
CEG, ITN and RWO, CEG declares its interest in acquiring all of the rights to
the Projects and ITN/RWO declare their interest in selling the rights to the
Projects to CEG, on the terms and conditions contained herein; and
WHEREAS, the Parties herewith agree to the purchase and sale of the Projects
under the terms and conditions set forth in the Agreement.
1
<PAGE>
NOW, THEREFORE, IT IS AGREED AS FOLLOWS:
1. The objective of this Agreement is the purchase and sale of all the rights
to the Projects and such purchase and sale is herewith agreed by all
Parties under the terms and conditions contained herein with CEG/TGC being
the purchaser and ITN/RWO being the seller.
2. The purchase price for the Projects is Six Million Dollars U.S.
($6,000,000) to be paid as follows:
A) One Million Five Hundred Thousand Dollars U.S. ($1,500,000) to be paid
within sixty (60) days following the date of obtaining a signed Letter
Agreement ("Protocol") between the Government of Costa Rica, ITN, CEG
and/or TGC for all of the Projects and all required contracts,
government approvals, permits, and licenses necessary to proceed,
without delay, with the financing and development of the Projects in
the opinion of the Parties hereto. This amount represents the sunk
costs expended or incurred by ITN/RWO in structuring and developing
the Projects and ITN/RWO shall submit reasonable documentation
supporting such sunk costs.
2) One Million Five Hundred Thousand Dollars U.S. ($1,500,000) to be paid
to ITN/RWO within ninety (90) days following the payment made under
Paragraph II-A above.
3) An additional Three Million Dollars U.S. ($3,000,000) to be paid in
the form of common stock in TGC at a price of Twenty Five Cents U.S.
($0.25) per share. The commitment to issue the shares shall be
delivered at the same time as the payment set forth in Paragraph II-B
above is made and the stock certificates shall be issued as soon
thereafter as possible. In the event that the value of the shares at
the time they are committed by TGC is in excess of Four Million Five
Hundred Thousand Dollars U.S. ($4,500,000), the payment required under
Paragraph II-B above shall be eliminated and not applicable under this
Agreement.
4) TGC shall have the right to repurchase all or part of any such shares
that may be issued on a first right of refusal basis within twenty
four (24) months of the date of issue of such shares.
5) The payment of sums under Paragraph(s) II-A, II-B and II-C, if
applicable, shall be paid via wire transfer to an account number to be
provided by ITN.
2
<PAGE>
III. This Agreement is specifically conditioned upon TGC receiving Board
approval to proceed under the terms and conditions herein. In the event TGC
should fail to receive its Board approval, CEG shall attempt, on a best
efforts basis, to replace TGC with another joint venture candidate. In such
event, CEG shall pay, or cause to be paid, to ITN/RWO the sum of Three
Million Dollars U.S. ($3,000,000) amortized quarterly, at an interest rate
of ten percent (10%) per annum over a term of three (3) years, or as
otherwise mutually agreed, in order to make the Projects economically
attractive to a third party on short notice. In such event, appropriate
guarantees for fulfillment of the obligations herein shall be delivered by
CEG and/or such third party for review by the Parties.
IV The Parties mutually agree that ITN shall keep in its possession the
original of the Protocol to be signed between the Parties and the
Government of Costa Rica until the payment required under Paragraph II-A
above has been made.
5. In the event that CEG has not reached a written agreement with a third
party funding source (TGC or other) within ninety (90) days of this
Agreement, this Agreement shall terminate without any further action
required by any Party hereto with no liability whatsoever on the part of
any Party to this Agreement or between the Parties hereto.
VI. General Provisions
------------------
A) This Agreement shall be construed in accordance with, and governed by,
the laws of the State of Texas, without giving effect to the conflict
of laws provisions thereof. It is agreed that the venue of any court
action whatsoever related to any dispute under this Agreement, or the
enforcement of any arbitration award hereunder, shall be in the state
or federal courts, as the case may be, of Harris County, Texas.
B) Notwithstanding anything to the contrary contained in this Agreement,
in the event of any dispute between the Parties whatsoever arising
under this Agreement, the Parties agree to submit such dispute to
binding arbitration, to be held in Harris County, Texas. Each Party to
the dispute shall appoint an arbitrator, who shall be a licensed
attorney or licensed professional arbitrator, acting independently and
not as an advocate or representative of any Party. The arbitrators so
selected shall appoint additional arbitrator(s) in order to have the
minimum odd number of arbitrators. The arbitrators shall meet, review
all facts and circumstances related to the dispute and render their
decision as soon as reasonably possible, utilizing the Rules of
Arbitration of the American Arbitration Association for procedural
guidance, but not as to costs. No bond, guarantee or deposit shall be
required to initiate arbitration proceedings under this Agreement. The
final decision shall require the agreement of a majority of the
3
<PAGE>
arbitrators, and shall be fully binding and enforceable on the
Parties. The Parties agree that any such decision of the arbitrators
shall be final and binding, and shall not be appealed to any court of
law of any jurisdiction. The costs of the arbitration shall be borne
by the Parties in the manner as determined by the arbitrators. It is
understood and agreed that any final arbitration award hereunder may
be entered into any court of competent jurisdiction in Houston, Texas
for enforcement.
C) Both Parties agree that, in the event of any dispute hereunder,
service may be made upon the Secretary of State of the State of Texas
for purposes of service under Paragraphs (A) and (B) above, and any
such service shall be considered valid and fully binding for all
purposes whatsoever.
D) This Agreement shall be held strictly confidential and the terms
thereof shall not be disclosed to any individual or entity, other than
a Party's employees, attorneys, accountants, or consultants, without
the prior written consent of the Parties hereto. No press releases or
other statements for publication shall be made without the prior
written consent of the Parties hereto.
E) Any information obtained by any Party to this Agreement in connection
with any client, project, or investment opportunity related directly
or indirectly to that Party's activities under this Agreement shall be
held strictly confidential and shall not be disclosed to anyone, in
any manner whatsoever, without the prior written consent of the
Parties and, where required, the disclosing party. In the event that a
separate Confidentiality and/or Non-circumvention Agreement is entered
into by the Parties in regard to a client, project or investment
opportunity, the provisions of such Confidentiality and/or
Non-circumvention Agreement shall take precedence over the provisions
of this Paragraph (E) in the event of any conflict or inconsistency.
F) The relationship of the Parties under this Agreement, including all
activities related to the execution, administration and performance of
this Agreement, is that of independent principals and not of a
partnership between the Parties or the designated representatives of
the Parties in any manner whatsoever. Nothing contained in this
Agreement is intended or shall be construed as creating or giving rise
to any relationship between the Parties, or the designated
representatives of the Parties, of partnership, employer/employee,
principal/agent or otherwise.
G) This Agreement shall not be changed, modified or amended in any way
except in writing, and signed by the authorized representatives of
each of the Parties hereto.
4
<PAGE>
H) In the event any provision of this Agreement shall be determined to be
invalid or non-binding for any reason whatsoever, the remainder of
this Agreement shall continue to be valid and in effect and shall be
fully binding on the Parties.
I) In the event of a dispute, the provisions of this Agreement shall be
construed neither in favor of nor against the Party that drafted this
Agreement.
10) Each Party shall hold the others harmless from and against any and all
liabilities associated with or related to claims against such Party
prior to the effective date of this Agreement.
11) The Parties shall fully comply with all laws and regulations of Costa
Rica and the United States of America, including the Foreign Corrupt
Practices Act of the United States, in all activities related directly
or indirectly to this Agreement.
L) This Agreement shall be binding upon and shall inure to the benefit of
all Parties, their successors and assigns.
M) This Agreement may be executed by counterpart signatures and any such
counterpart execution, including facsimile execution, shall be valid
and fully binding on all Parties as well as their successors and
assigns.
AGREED AND EXECUTED THIS 13th DAY OF JANUARY 1999, EFFECTIVE AS OF
------
01 JANUARY, 1999.
CARLTON ENERGY GROUP, LLC. TRINITY GAS CORPORATION
By T. C. O'DELL (SIGNED) By MICHAEL L. WALLACE (SIGNED)
----------------------------- ------------------------------
T.C. O'Dell Michael L. Wallace
Chairman and Managing Director President
5
<PAGE>
IAN TORSTEN NORDSTROM RUDOLF OLSCHEWSKI
By IAN NORDSTROM (SIGNED) By RUDOLF W. OLSCHEWSKI (SIGNED)
------------------------ -------------------------------
Ian Torsten Nordstrom Rudolf W. Olschewski
Individual Individual
6
<PAGE>
EXHIBIT "A'
PLANTS FOR CONVERSION OF BIOWASTE-TO-ELECTRICITY AND/OR ETHANOL
---------------------------------------------------------------------
1) Guapuiles Power Plant 50 Megawatts
Limon State, Costa Rica
(Banana Waste, Palmetto )
2) Moin Power Plant 50 Megawatts
Limon State, Costa Rica
(Orange, Banana, Pineapple, Wood Waste & Sludge)
3) Sequirres Power Plant 50 Megawatts
Limon State, Costa Rica
(Banana Waste)
4) Quesada Power Plant 50 Megawatts
Alajuela State, Costa Rica
(Orange Waste)
5) Golfito Power Plant 50 Megawatts
Golfito State, Costa Rica
(Banana Waste, Pineapple & Palmetto)
7
<PAGE>
AGREEMENT FOR SUBLEASE
STATE OF TEXAS
COUNTY OF HARRIS
THIS AGREEMENT FOR SUBLEASE (the "Agreement") made and entered into as of
the 1st day of July , 1999 by and between Trinity Energy Resources, Inc., a
--- ----
Nevada Corporation ("Subtenant"), and Aker Engineering, Inc., f/k/a Aker Omega,
Inc. ("Tenant"). All defined terms used herein shall have the same meaning as
set out in the Lease (hereinafter defined) unless the context clearly requires
otherwise.
WITNESSETH:
WHEREAS, by Lease entered into as of May 1, 1994, ("Lease") Tenant leased a
certain premises known as Suite 300, Suite 390, Suite 1100, Suite 1200, Suite
1212, and Suite 1300 containing approximately 63,326 net rentable square feet
(hereinafter collectively referred to as the "Original Leased Premises") in the
building known as Kirkwood Atrium Office Park-3 (the "Building") located at
11757 Katy Freeway in Houston, Harris County, Texas 77079; and,
WHEREAS, TENANT entered into a Modification of Lease Agreement ("First
Modification") dated September 30, 1994, expanding the total Leased Premises by
5,748 net rentable square feet (the "Additional Space" and together with the
Original Leased Premises, the "Lease Premises"); and
WHEREAS, Tenant entered into a Second Modification of Lease Agreement
("Second Modification") dated April 4, 1997, relating to the Lease and Rider;
and
WHEREAS, Tenant entered into a Third Modification of Lease Agreement
("Third Modification') dated April 7, 1997, relating to the Lease and Rider; and
WHEREAS, Tenant entered into a Fourth Modification of Lease Agreement
("Fourth Modification") dated April 30, 1997, relating to Tenant's signage
rights, duties and obligations; and
<PAGE>
WHEREAS, Tenant entered into a Fifth Modification of Lease Agreement
("Fifth Modification") dated June 9, 1997, expanding the total Lease Premises by
26,394 net rentable square feet (the "Expansion Space" and together with the
Original Leased Premises and the Additional Space, the "Lease Premises"); and
WHEREAS, TENANT entered into a Sixth Modification of Lease Agreement
("Sixth Modification") dated July 22, 1997, expanding the total Lease Premises
by 1,406 net rentable square feet (the "Second Expansion Space"); and
WHEREAS, the original Leased Premises, Expansion Space, Second Expansion
Space and the additional space shall herein be referred to as the 'Lease
Premises"; and
WHEREAS, the Lease, First Modification, Second Modification, Third
Modification, Fourth Modification, Fifth Modification and Sixth Modification is
attached hereto as Exhibit "A" and shall herein be referenced to as the "Lease
Agreement"; and
WHEREAS, Tenant desires to lease to Subtenant and Subtenant desires to
lease from Tenant, upon the terms and conditions hereinafter set forth, a
portion of the rentable area of said Leased Premises.
NOW, THEREFORE, for and in consideration of the mutual covenants and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. RENTABLEAREA. Tenant hereby leases to Subtenant and Subtenant hereby leases
------------
from Tenant, in its present condition without any change or renovation,
9,842 square feet of net rentable area on the 14th floor ("Subleased
Premises") in the location indicated on Exhibit "B" attached hereto and
incorporated herein by reference for all purposes.
2. Tenant shall be responsible for all costs associated with subdividing the
Subleased Premises from Tenants portion of the Leased Premises. Tenant's
responsibility shall be limited to constructing a wall where shown on
Exhibit 'B' to match the finishes of the Subleased Premises.
3. TERM. The Sublease of the Subleased Premises evidenced hereby shall
continue for sixty (60) months commencing July 1, 1999 and continuing
through June 30, 2004, unless earlier terminated under the terms hereof.
4. BASE RENTAL.Subtenant shall pay base rental ("Base Rental") in the amount
------------
of $18.50 per net rentable square foot per year from July 1, 1999 through
June 30, 2004. The Base Rental shall be due and payable in
2
<PAGE>
monthly installments prior to the first day of each month in an amount
equal to $15,173.08 per month commencing July 1, 1999 and continuing
through June 30, 2004.
4. BUILDING OPERATING EXPENSE. Tenant and Subtenant do hereby agree that, for
--------------------------
the purpose of this Agreement, Subtenant's base year when determining
Subtenant's prorata share of the Building Operating Expense shall be based
on the calendar year 1999. In accordance therewith, Subtenant shall be
responsible for its prorata share of the Building Operating Expense which,
in any one given year, exceeds the Base Operating Expense for the base
year. Subtenants' responsibility for the Building Operating Expense, if
any, shall be paid in the same manner to which Tenant is responsible,
pursuant to the terms and conditions of the Lease. For the purposes of this
Agreement, Subtenants' proportionate share of such increase is agreed to be
10.76 percent (10.76%) ("Subtenants Pro-Rata Share").
5. USE OF PREMISES:
------------------
a. Subtenant shall have the right to use the Subleased Premises for
general office application or other pre-approved purposes which are
not prohibited by the terms of the Lease Agreement or by applicable
law.
b. With the Landlord's prior written approval, Subtenant shall have the
right to make cosmetic improvements to the Subleased Premises in
accordance with the Building decor to maintain a proper office
decorum.
c. Subtenant shall have the right to make physical improvements to the
Subleased Premises but only to the extent allowed in Exhibit "A".
However, Subtenant may not utilize any Leasehold Improvement Allowance
defined in Exhibit "A".
6. SIGNAGE. Within Building Standards, Subtenant shall have the right to place
--------
signage at the front door of the Subleased Premises and/or in the reception
area.
7. PARKING. Subtenant shall be granted thirty-four (34) unreserved parking
--------
permits and four (4) reserved parking permits from the total parking
permits allotted Tenant pursuant to Exhibit 'A' attached hereto and made a
part hereof. Tenant shall abide by all of the parking rules and regulations
as provided for in Exhibit "A" and should utilize such permits in
accordance therewith.
3
<PAGE>
8. DEFAULTS AND REMEDIES. If any default on the part of Subtenant continues
----------------------
beyond the expiration of ten (10) days following written notice to
Subtenant thereof, Tenant may at its sole discretion terminate this
Agreement (by giving Subtenant written notice thereof. In addition, Tenant
may also pursue all legal remedies available under Texas law against
Subtenant for any such default. In no event shall Tenant or Subtenant be
liable to the other for any consequential or special damages.
9. TENANTS' CONTRACTUAL SECURITY INTEREST. In addition to the statutory
-----------------------------------------
landlord's lien, Subtenant hereby grants to Tenant and Tenant shall have at
all times, a valid security interest to secure payment of all Rents and
other sums of money becoming due hereunder from Subtenant, and to secure
payment of any damages or loss which Tenant may suffer by reason of the
breach by Subtenant of any covenant, agreement or condition contained
herein, upon all goods, wares, equipment, fixtures, furniture, improvements
and other personal property of Subtenant presently, or which may hereafter
be, situated on the Subleased Premises, and all proceeds therefrom, and
such property shall not be removed without the written consent of Tenant.
Tenant shall have the rights and remedies of a secured party as set forth
in the Texas Uniform Commercial Code. Upon the occurrence of an event of
Default by Subtenant, Tenant may, in addition to any other remedies
provided herein, enter upon the Subleased Premises and take possession of
any and all goods, wares, equipment, fixtures, furniture, improvements and
other personal property of Subtenant situated on the Subleased Premises,
without liability for trespass or conversion, and sell the same at public
or private sale, with or without having such property at the sale, after
giving Subtenant reasonable notice of the time and place of any public sale
or of the time after which any private sale is to be made, at which sale
the Tenant or its assigns may purchase unless otherwise prohibited by law.
Unless otherwise provided by law, and without intending to exclude any
other manner of giving Subtenant reasonable notice, the requirement of
reasonable notice shall be met if such notice is given in the manner
prescribed in this Lease at least seven (7) days before the time of sale.
Any sale made pursuant to the provision of the paragraph shall be deemed to
have been at a public sale conducted in commercially reasonable manner if
held on the Subleased Premises or where the property is located after the
time, place and method of sale and a general description of the types of
property to be old have been advertised in a daily newspaper published in
the county in which the property is located for five (5) consecutive days
before the date of the sale. The proceeds from any such disposition, less
any and all expenses connected with the taking of possession, holding and
selling of the property (including reasonable attorneys' fees and legal
expenses), shall be applied as a credit against the indebtedness secured by
the security interest granted in this paragraph. Any surplus shall be
4
<PAGE>
paid to Subtenant or as otherwise required by law; the Subtenant shall pay
any deficiencies forthwith. Upon request by Tenant, Subtenant agrees to
execute and deliver to Tenant a financing statement in form sufficient to
perfect the security interest of Tenant in the aforementioned property and
proceeds thereof under the provision of the Uniform Commercial Code (or
corresponding state statute or statutes) in force in the State in which the
property is located, as well as any other state laws of which Tenant may at
any time consider to be applicable. Tenant and Subtenant agree that a
carbon, photographic or other reproduction of this Lease is sufficient as,
and may be filed as, a financing statement.
10. TENANTS' REPRESENTATIONS. Tenant hereby represents and warrants to
--------------------------
Subtenant that (a) there presently exists no default under the Lease
Agreement of which Tenant has given or received notice; and (b) to the full
extent required by the Lease Agreement, Tenant has obtained the consent of
Landlord to this Agreement and to the Sublease evidenced hereby.
11. TENANTS' COVENANTS. Tenant hereby covenants and agrees (a) to provide to
--------------------
Subtenant copies of any notices of default, correspondence or other
writings to and from Landlord and Tenant relating to the Lease Agreement
which affect or could affect Subtenant's tenancy of the Subleased Premises;
and (b) that it shall not amend or terminate the Lease Agreement in a
manner that changes the terms and conditions of this Agreement without
Subtenant's written consent.
12. SUBTENANTS' COVENANTS. Subtenant hereby acknowledges that this Agreement is
----------------------
subject to the terms and conditions of the Lease Agreement (attached hereto
and made a part hereof as Exhibit "A") as same now exists or as same may
hereafter be amended, and covenants and agrees to be bound by the terms
thereof. Further, Subtenant hereby covenants and agrees to timely pay all
amounts and timely perform all covenants called for under the Lease
Agreement (as it relates to the Sublease Premises), so as not to be in
default thereunder.
13. ATTORNEYS' FEES. In the event it becomes necessary for either party hereto
----------------
to bring an action for enforcement of any rights under this Agreement, the
prevailing party shall be entitled to recover from the non-prevailing party
costs of suit and reasonable attorneys' fees.
14. MISCELLANEOUS. This Agreement shall be binding upon respective heirs,
-------------
personal representatives, successors and assigns of the parties hereto, and
may not be modified except in written instrument signed by both Tenant and
Subtenant. This Agreement shall be governed by and construed in accordance
with the laws of the State of Texas. Paragraphs and their headings have
been included for ease of reference only and shall not in
5
<PAGE>
any way limit or otherwise affect the terms and provisions hereof. Any
notices required or permitted hereunder shall be in writing, shall be given
to the parties at their respective addresses set out in Section (15) of
this Agreement (unless either party gives written notice to the other of a
change of address) and shall be deemed given when actually received by the
party to whom notice is given. This Agreement is being executed in multiple
originals, each of which shall be deemed an original but all of which when
taken together shall constitute but one instrument.
Subtenant and Tenant do hereby expressly agree that Subtenant shall not
covenant and Tenant has not assigned to Subtenant any options for renewal,
expansion, or otherwise, except as specifically stated herein.
Subtenant hereby expressly agrees not to sublease, assign or hypothecate
this Agreement without the express prior written consent of Tenant.
15. HEATING AND AIR CONDITIONING. Upon written request by Subtenant, Tenant
-----------------------------
agrees to notify Landlord of Subtenant's desire to have air conditioning
and heating provided for the Sublease Premises beyond the hours set forth
in the Lease. Subtenant agrees that it will be liable for all costs and
expenses, if any, incurred by Tenant in connection with such services.
16. NOTICE. Any statement, notice or communication that Tenant and Subtenant
-------
may desire or be required to give to the other shall be in writing and
shall be deemed properly given if mailed United States Post Service, first
class, postage paid, to the following respective addressees:
Tenant: Aker Engineering, Inc.
11700 Old Katy Road, Suite 150
Houston, Texas 77079
Attn: Gunnar Nordsletten
Subtenant: Trinity Energy Resources, Inc.
11757 Katy Freeway, Suite 1430
Houston, Texas 77079
Attn: Michael Wallace
6
<PAGE>
IN WITNESS WHEREOF, Tenant and Subtenant have executed this Agreement effective
as of the date first hereinabove stated.
SUBTENANT:
TRINITY ENERGY RESOURCES, INC.
BY: T. C. O'Dell (HAND WRITTEN)
-----------------------------------------
NAME: T. C. O'Dell (HAND WRITTEN)
------------------------------------------
TITLE: Chairman & CEO (HAND WRITTEN)
-------------------------------------------
TENANT:
AKER ENGINEERING, INC., F/K/A AKER OMEGA, INC.
BY: Gunnar Nordsletten (HAND WRITTEN)
------------------------------------------
NAME: GUNNAR NORDSLETTEN
TITLE: CONTROLLER
7
<PAGE>
TRINITY ENERGY RESOURCES, INC.
AGREEMENT
================================================================================
This Agreement, made and entered into and becoming effective this ____ day of
December 1999, by and between Trinity Energy Resources, Inc., with offices
located at 11757 Katy Freeway, Suite 1430, Houston, Texas, USA, hereinafter
referred to as "Assignor", and Cliveden Petroleum Co. Ltd. (Cliveden), with
offices located at 17 XXXI Decembre, Geneva 1207, Switzerland, hereinafter
referred to as "Assignee", sets for the terms and conditions under which the
Assignors have agreed to transfer and convey to Assignee all interest in and to
the rights held by the Assignor under the Convention established between the
Assignors and the Republic of Chad, as provided in Exhibit 'A' (the
"Convention"). This Convention allows for exploration and development in an
approximate 108 million acre concession, confined by three work areas in the
northern, west-central and southern regions of the Republic of Chad, as provided
in Exhibit "B". All references to monetary exchanges in this Agreement relate
to the currency of the United States of America.
WITNESSETH
I.
Assignor represents that pursuant to said Convention and the Permit "H" issued
thereunder, Assignor retains rights to a minimum of seventy percent (70%) of the
working interest in said Convention, up to a maximum of one hundred percent
(100%) working interest, dependent upon the Government of the Republic of Chad's
acceptance or rejection of the royalty provisions in that certain agreement
dated November 15, 1998 between Carlton Energy Group ("Carlton"), Oriental
Energy Resources, Limited "(Oriental") and Assignor. In any event, regardless
of the working interest percentage, Assignor is currently designated as Operator
of the Convention.
II.
ASSIGNMENT OF WORKING INTEREST
For good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, Assignor agrees to assign, and does hereby transfer and
assign to Assignee, or its nominee, subject to any requisite approval of the
Minister of Mines and Energy of the Republic of Chad, all of its rights and
interest in and to the Convention, including the right of Assignor to be
designated as Operator of the convention (the "Assignment"); subject, however,
to the reservation and retention by Assignor of a working interest after Payout
(as hereinafter defined) equal to five percent (5%) of the total working
interest or any other interest then held and retained by Assignee, including
cash or property received by Assignee following recovery of all direct costs
heretofore or hereafter incurred by Assignee. Assignor shall assign to Assignee
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all data, technical information, maps, know-how, rights, contracts, claims, and
other assets and property, tangible or intangible, of Assignor or under its
possession or control related to, used or useful in connection with the
Convention. "Payout" shall mean the recovery from sales of production, net of
royalties, all severance taxes, production taxes, and similar burdens, and all
costs heretofore or hereafter incurred by Assignee, including third-party costs,
with respect to the Convention and production therefrom.
III.
PERFORMANCE OBLIGATIONS
In consideration of the Assignment, Assignee agrees to the following:
- Assignee shall assume and pay or arrange for payment and fulfillment
of all obligations of Assignor under the Convention, including without
limitation (i) an acreage rental payment in the approximate amount of
four hundred forty thousand dollars ($440,000) due January 1, 2000,
and annually thereafter, (ii) infrastructure development in the
Republic of Chad ("Chad") requiring a five hundred thousand dollar
($500,000) commitment due on or before June 30, 2000, and (iii)
training of Chadian officials, gathering, processing, and interpreting
geological and geophysical data, reporting requirements and the
drilling of exploratory wells, all at an estimated cost in excess o
twenty-six million dollars ($26,000,000) over the initial five (5)
year exploration period of the Convention.
- Assignee shall accept this Assignment subject to, but without recourse
to Assignee for, all costs incurred by Assignor to date in the workup
and presentation of the project, including past acreage rental
payments, startup and continuing operations of the Chad Office of
Assignor, currently located in N'Djamena, Chad (the "Chad Office"),
all properly attributed costs associated with Assignor's home office
efforts in the forwarding of concession assets, and other such costs
which relate to the protection of the concession, which the parties
agree is in the aggregate amount of one million five hundred thousand
dollars ($1,500,000) (the "Assignor Costs"). The Assignor Costs shall
be paid and reimbursed to Assignor only out of net proceeds and
receipts by Assignee or to its interest from development, assignment,
farmout, or other exploitation of the Convention ("Assignee Proceeds")
in pari passu with recovery by Assignee of its direct expenses and
costs incurred in connection with the Convention, including amounts
paid with respect to the Oriental Obligation hereinafter described
("Assignee Costs"). Assignee shall, no less frequently than annually,
provide Assignor with an accounting and report of the Assignee Costs
and any Assignee Proceeds.
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- Assignee agrees to the immediate conversion of the previously provided
amount of three hundred and fifty thousand dollars ($350,000),
together with accrued interest thereon, as more fully described in the
Agreement between the parties dated May 5, 1999, into shares of
preferred stock of Assignor which bears a preferred, cumulative
dividend and liquidation preference, price per share, conversion rate,
mandatory redemption and other terms no less favorable than the most
favorable terms now or heretofore offered by Assignor. Assignor will
be relieved of any and all obligations associated with the loan by
Assignee to Assignor in the amount of three hundred and fifty dollars
($350,000), pursuant to that certain agreement between Assignor and
Assignee dated May 5, 1999, and Assignee shall release all collateral
securing its loan.
- Assignee assumes all liability associated with outstanding and
unresolved claims against Assignor made by Oriental related to the
"Sunk Costs" as defined in the agreement amount Oriental, Carlton, and
Assignor dated November 15, 1998, up to a maximum of two million
dollars ($2,000,000) (the Oriental Obligation"), conditioned upon
Oriental's production of all appropriate documentation and
substantiation of expenses acceptable to Assignee. As a condition to
such assumption of liability by Assignee, Assignor agrees to continue
its legal efforts to recover three hundred and forty thousand dollars
($340,000) previously provided to Alhaji Indimi intended for payment
of the Chad surface rental in 1999. Should Assignor be successful in
recovering any or all of the said funds, such recovery will be
retained by Assignor and credited against the Oriental Obligation.
- Assignee agrees to reimburse Assignor for immediate future billings
anticipated as a result of seismic and geologic data copying underway
at Exxon headquarters, as provided in the relinquishment of data per
demand of the Republic of Chad. The invoiced costs associated with
this data reproduction and transfer activities is fifty thousand
dollars ($50,000), due and payable upon receipt of said data. All such
information and data shall be promptly assigned and delivered to
Assignee. Assignor may, at its option and expense, make a copy of the
tapes, support information, logs, core studies, and all such
information transferred by Exxon to Assignor for the benefit of
Assignor.
- Effective as of the date hereof, Assignee agrees to assume all costs
associated with ongoing operations of the Chad Office previously
established by Assignor. Current minimum staffing and support services
amount to approximately twenty-six thousand dollars ($26,000) per
month. Details related to wire transfer advice and timing of payments
will be made available by Assignor upon execution of this Agreement.
Assignor shall indemnify and hold Assignee harmless from and with respect to any
liabilities, obligations or claims, by or through Assignor, other than the
liabilities, obligations, and claims expressly assumed by Assignee or to be paid
to Assignor pursuant to this Agreement.
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IV.
CONDITIONS
- The government of Chad shall have approved the Assignment, if required
by the Convention.
- Assignor shall have made arrangements with Carlton to be discharged
from the obligation to pay a five hundred thousand dollar ($500,000)
success fee to Carlton related to the acquisition of the Convention by
Assignor.
V.
OPERATIONS
Prior to commencement of operations on the acreage covered by the Concession,
Assignor, Assignee, Carlton, and Oriental will make all reasonable efforts to
execute a Joint Operating Agreement (JOA) among parties with Assignee as
Operator. Until such time as a comprehensive JOA has been signed by all
parties, an Operating Committee shall be established by Assignee with at least
one (1) representative from Assignor that shall meet on a monthly basis to
establish concession strategies for dealing with obligations of the Convention.
VI.
APPLICABLE LAW
This Agreement is made subject to and shall be governed by and enforced in
accordance with the laws of the State of Texas and applicable federal laws of
the United States. This Agreement is fully enforceable in Harris County, Texas.
VII.
SUCCESSORS AND ASSIGNS
The terms of this Agreement shall inure to the benefit of, and be binding upon
the parties hereto, their successors, assigns, and legal representatives.
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VIII.
PREVIOUS AGREEMENTS
It is agreed that the terms of this Agreement are final and supercede any
previous agreement between the parties. No other representations made by and
between the parties respecting the subject matter hereof are contained in this
Agreement. However, the parties agree to execute such other instruments which
may be necessary to carry out or make effective the terms and conditions of this
Agreement.
IX.
TERM OF THE AGREEMENT
This Agreement shall remain in full force and effect so long as the Convention
is in effect, whether by virtue of the exploration phase of the Convention or in
the development or production phase of the Convention.
X.
NOTICES
Notices required by this Agreement shall be written and delivered by certified
U.S. Mail, other typical couriers, or by telegram to the parties at the
addresses set forth on page one of this Agreement, or at such address as the
parties subsequently designate in writing. Such notice shall be effective when
received either by the addressee, by a duly noted representative of the
addressee, or if no one is so appointed, then when corporate receipt is verified
by typical delivery services.
In addition to any other notice permitted or required to be given pursuant to
this Agreement, Assignee shall give at least ninety (90) days prior notice to
Assignor in the event that Assignee shall determine to abandon or relinquish its
interest in the Convention or withdraw as a member of participant in the
Convention, and Assignor shall have opportunity during such period to make an
offer or proposal to Assignee for acquisition of such interest prior to any such
withdrawal, abandonment or relinquishment; provided that (i) Assignee shall not
have any notice obligation hereunder with respect to any contemplated assignment
or other disposition of its interest for value or in connection with any
commercial transaction, (ii) Assignee shall have no obligation to accept any
proposal by Assignor, and (iii) this provision does not entitle Assignor to a
right of first refusal or other preemptive right with respect to any interest of
Assignee in the Convention. This provision is personal between Assignor and
Assignee, is not binding upon the assigns of Assignee, and does not run with or
otherwise burden the interest of Assignee in the Convention.
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XI.
ARBITRATION
All claims, disputes or controversies arising out of, or in relation to the
interpretation, application or enforcement of this Agreement shall be decided by
resort of either party to arbitration in accordance with the Rules of the
American Arbitration Association. The arbitration shall be held in Harris
County, Texas. The proceedings will be held by a panel of three (3)
arbitrators, with each party having the right to select one (1) arbitrator and
with the third arbitrator being selected by the two (2) arbitrators appointed by
the parties. The decision of the panel shall be final, binding and enforceable
in any court of competent jurisdiction. The arbitration panel may award
attorney's fees, costs and expenses to the prevailing party.
XII.
AMENDMENTS TO BE IN WRITING
No amendments or changes to this Agreement shall be valid unless in writing and
signed by both parties.
XIII.
ENFORCEABILITY OF AGREEMENT
Should a court of competent jurisdiction or an arbitration panel hold any
provision of this Agreement to be unenforceable, invalid or illegal, then the
Agreement shall be interpreted, construed and enforced as if such unenforceable,
invalid or illegal provision were not contained herein.
Accepted and Agreed by:
Trinity Energy Resources, Inc. Cliveden Petroleum Co. Ltd.
(SIGNED) (SIGNED)
- ------------------------------------- -----------------------------------
T. C. O'Dell Paul E. Vickery
Chief Executive Officer President
Attest:
(SIGNED)
- -------------------------------------
John W. Mahoney, Secretary
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ASSIGNMENT
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KNOW ALL MEN BY THESE PRESENTS:
That, in consideration of the sum of One Dollar ($1.00) and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Trinity Energy Resources, Inc., a Nevada corporation, d/b/a
Trinity (Texas) Energy Resources, Inc., hereinafter referred to as "Assignor"
hereby does, subject to the requisite approval of the Minister of Mines and
Energy of the Republic of Chad, bargain, sell, assign, transfer and convey unto
Cliveden Petroleum Co., Ltd. a British Virgin Islands corporation, its heirs,
successors and assigns, hereinafter referred to as "Assignee," all its right,
title and interest in and to the Convention, including the right of Assignor to
be designated as Operator, as well as the Permit "H" issued pursuant thereto,
entered into between Assignor et al and the Republic of Chad, covering the areas
outlined on the map, designated as Exhibit A, attached hereto and incorporated
by reference herein.
1. The respective areas identified in the referenced map covered hereby
are assigned by the Assignor and accepted by the Assignee, as is,
subject to any overriding royalties, production payments, net profits
obligations, carried working interests and other payments out of or
with respect to production which are of record and with which said
area or acreage is encumbered.
2. The Assignor hereby excepts and reserves unto itself, its successors
or assigns, a working interest after Payout (as hereinafter defined)
equal to five percent (5%) of the total working interest or any other
interest then held and retained by Assignee, including cash or
property received by Assignee following recovery of all direct costs
heretofore or hereafter incurred by Assignee in connection with the
Convention. Payout, for purposes of this assignment, shall mean the
recovery from sales of production, net of royalties, all severance
taxes, production taxes, and similar burdens and all costs heretofore
or hereafter incurred by Assignee, including third party costs, with
respect to the Convention and production therefrom.
3. This assignment is made subject to all the terms and the express and
implied covenants, working interest obligations and conditions of said
Convention, to the extent of the rights hereby assigned, which terms,
covenants and conditions the Assignee hereby assumes and agrees to
perform with respect to the areas covered hereby. Said terms,
covenants and conditions, insofar as the said areas are concerned,
shall be binding on the Assignee, and in favor of the Assignor and its
successors and assigns.
4. Assignor warrants that it has the rights and interest in the
Convention and Permit "H", referred to above, including the right to
transfer, convey and assign said rights and interests subject to the
approval of the government of the Republic of Chad and that said
rights and interests hereby assigned are free and clear of any
assignments, liens, encumbrances or burdens by and through Assignor.
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TO HAVE AND TO HOLD said lease acreage and interest in the Convention unto the
Assignee, its heirs, successors and assigns, subject to the terms and conditions
hereinabove set forth and Assignor binds itself and its successors to warrant
and defend the interests hereby conveyed unto Assignee and its successors and
assigns.
EXECUTED this _____ day of January, 2000.
TRINITY (TEXAS) ENERGY RESOURCES, INC.
DENNIS E. HEDKE (SIGNATURE)
- --------------------------------------------
Dennis E. Hedke, Chief Operating Officer &
Executive Vice-President
CLIVEDEN PETROLEUM CO., LTD.
PAUL E. VICKREY (SIGNATURE)
- --------------------------------------------
Paul E. Vickrey, President
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CONSENT OF MALONE & BAILEY, PLLC, INDEPENDENT AUDITORS
We consent to the inclusion in this Registration Statement (Form 10-SB) of our
report dated January 26, 2000, for the fiscal years ended December 31, 1999 and
1998.
MALONE & BAILEY, PLLC
Houston, Texas
February 3, 2000
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