UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
---------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _________________ to _________________
Commission file Number 1-4668
COASTAL CARIBBEAN OILS & MINERALS, LTD.
(Exact name of registrant as specified in its charter)
BERMUDA NONE
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
Clarendon House
Church Street
Hamilton, Bermuda HM DX NONE
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (441) 295-1422
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, par value $.12 per share Boston Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
<PAGE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
|X| Yes |_| No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
The aggregate market value of the common stock held by non-affiliates of the
registrant was approximately $43,000,000 (U.S.) at January 29, 1999.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date:
Common stock, par value $.12 per share, 40,056,358 shares outstanding as of
January 29, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy statement of Coastal Caribbean Oils & Minerals, Ltd. related to the Annual
Meeting of Shareholders for the fiscal year ended December 31, 1998, which is
incorporated into Part III of this Form 10-K.
<PAGE>
TABLE OF CONTENTS
Page
PART I
Item 1. Business 4
Item 2. Properties 9
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 16
PART II
Item 5. Market for the Company's Common Stock and Related
Stockholder Matters 17
Item 6. Selected Consolidated Financial Information 19
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 20
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 22
Item 8. Financial Statements and Supplementary Data 23
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 39
PART III
Item 10. Directors and Executive Officers of the Company 39
Item 11. Executive Compensation 39
Item 12. Security Ownership of Certain Beneficial Owners and Management 39
Item 13. Certain Relationships and Related Transactions 39
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 40
- ---------------------------
All monetary figures set forth are expressed in United States currency.
<PAGE>
PART I
Item 1. Business
(a) General Development of Business.
Coastal Caribbean Oils & Minerals, Ltd. (the "Company" or
"Coastal Caribbean"), a Bermuda corporation, is engaged through its majority
owned subsidiary in the exploration for oil and gas reserves. At December 31,
1998, Coastal Caribbean's principal asset was its subsidiary, Coastal Petroleum
Company ("Coastal Petroleum"). Coastal Petroleum's principal assets are its
nonproducing oil, gas and mineral leases and royalty interests in the State of
Florida. Coastal Petroleum has made no commercial discoveries on the lands
covered by these leases.
Coastal Petroleum is the lessee under State of Florida leases
relating to the exploration for and production of oil, gas and minerals on
approximately 3,700,000 acres of submerged lands along the Gulf Coast and under
certain inland lakes and rivers. The leases provide for a working interest in
approximately 1,250,000 acres and a royalty interest in approximately 2,450,000
acres covered by the leases. Coastal Petroleum has made no commercial
discoveries on its leaseholds.
In 1990, the State of Florida enacted legislation that
prohibits drilling or exploration for oil or gas on Florida's offshore acreage.
The law does not apply to areas where Coastal Petroleum is entitled to conduct
exploration. However, in those areas where Coastal Petroleum has only a royalty
interest, presently the law effectively prohibits production of oil and gas,
rendering it impossible for Coastal Petroleum to collect royalties from those
areas. During 1998, Coastal Petroleum exhausted its legal remedies in its
efforts to obtain compensation for the drilling prohibition on its royalty
interest acreage.
Coastal Petroleum has been involved in various lawsuits for
many years. Currently, Coastal Petroleum is a party to two actions (the "Florida
Litigation") in which two basic claims are being contested: whether Coastal
Petroleum may obtain an oil and gas exploration drilling permit and the amount
of the required surety in connection with any drilling. In addition, Coastal
Caribbean is a party to one additional action in which Coastal Caribbean claims
that certain of its royalty interests have been confiscated by the State. During
1998, the Company actively pursued the Florida Litigation. See Item 3. "Legal
Proceedings" for a more complete discussion of the litigation.
In 1998, Coastal Petroleum continued its efforts to obtain
permits to drill oil and gas exploration wells on its leases.
On April 8, 1998, a Florida Administrative Judge recommended
that Coastal Petroleum was entitled to a drilling permit with the requirement of
a $225 million surety. On May 13, 1998, the Administration Commission
("Commission") of the State of Florida rejected the $225 million surety and
remanded the proceedings to the Administrative Law Judge with instructions to
recalculate the surety amount.
<PAGE>
On May 26, 1998, the Florida Department of Environmental
Protection ("DEP") refused to issue a permit to Coastal Petroleum to drill an
offshore exploration well near St. George's Island.
Coastal Petroleum has appealed both the denial of the permit
by the DEP and the imposition of the surety to Florida's First District Court of
Appeal ("Court of Appeal"). All of the briefs in the case have been filed and
the Company expects that oral argument will be scheduled in the near future.
(b) Financial Information About Industry Segments.
Because the Company is engaged in only one industry, namely,
oil, gas and mineral exploration and development, this item is not applicable to
the Company. See Item 8 for general financial information concerning the
Company.
(c) Narrative Description of the Business.
Coastal Caribbean was organized by a special enabling act of
the Bermuda Legislature passed on January 15, 1962 which permitted the filing of
a Memorandum of Association on February 14, 1962. The Company is the successor
to Coastal Caribbean Oils, Inc., a Panamanian corporation organized on January
31, 1953 to be the holding company for Coastal Petroleum Company.
Coastal Petroleum caused oil and gas exploration to take place
on its leases prior to the onset of litigation in 1968 and has conducted more
limited exploration since 1968 until 1996 which has been sufficient to meet the
drilling requirements under the leases. In 1996, the Company initiated a program
to identify potential drilling prospects which continued into 1998. No
commercial oil or gas discoveries have been made on these properties; therefore,
the Company has no proved reserves of oil and gas and has had no production. See
"Item 2. "Properties."
(i) Principal Products.
Not applicable.
(ii) Status of Product or Segment.
Not applicable.
(iii) Raw Materials.
Not applicable.
<PAGE>
(iv) Patents, Licenses, Franchises and Concessions Held.
See Item 2. "Properties."
The acreage covered by the Company's leases is
located for the most part along offshore areas on the Gulf Coast of Florida and
in submerged and unsubmerged lands under certain bays, inlets, riverbeds and
lakes, of which Lake Okeechobee is the largest. See Item 2. The drilling
requirements and annual lease rental obligations had been suspended by order of
the Circuit Court of the Second Judicial District in Leon County; however,
Coastal Petroleum resumed the payment of annual lease rentals ($59,247) during
July 1998.
(v) Seasonality of Business.
The Company's business is not seasonal.
(vi) Working Capital Items.
The majority of the Company's current assets are in
the form of cash and cash equivalents. See Item 8. "Financial Statements and
Supplementary Data."
(vii) Customers.
Not applicable.
(viii) Backlog.
Not applicable.
(ix) Renegotiation of Profits or Termination of Contracts
or Contract or Subcontracts at the Election of the
Government.
Not applicable.
(x) Competitive Conditions in the Business.
Competition in the oil and gas industry is intense.
The Company must compete with companies which have substantially greater
resources available to them. In addition, the industry as a whole must compete
with other industries in supplying the energy needs of commerce and the general
public. Furthermore, competitive conditions may be substantially affected by
energy legislation which may be adopted from time to time. It is not possible to
predict the nature of any such legislation which may ultimately be adopted or
its effects upon the future operations of the Company.
<PAGE>
(xi) Research and Development.
Not applicable.
(xii) Environmental Regulation.
The operations of Coastal Caribbean and its right to
obtain interests in and hold properties or to do business may be affected to an
unpredictable extent by limitations imposed by the laws and regulations which
are now in effect or which may be adopted by the jurisdictions in which the
Company carries on business. Further measures that have been or might be imposed
include increased bond requirements, conservation, proration, curtailment,
cessation or other forms of limiting or controlling production of hydrocarbons
or minerals, as well as price controls or rationing or other similar
restrictions. In particular, environmental control and energy conservation laws
and regulations adopted by federal, state and local authorities may have to be
complied with by leaseholders such as Coastal Petroleum (see Florida
Litigation). It is not possible to predict the nature of any further legislation
or regulation that might ultimately be adopted or its effects upon the future
operations of Coastal Caribbean or Coastal Petroleum.
(xiii) Number of Persons Employed by Registrant.
The Company currently has three employees. The
Company relies heavily on consultants for legal, accounting, geological and
administrative services. The Company uses consultants because it is more cost
effective than employing a larger full time staff.
(d) Financial Information About Foreign and Domestic Operations
and Export Sales.
(1) Identifiable Assets.
All of the Company's assets are located in the United
States. See Item 1(a) "General Development of Business."
Since the Company is a development stage company, the
balance of the information required under this paragraph is not applicable to
the Company. See Item 8.
(2) Risks Attendant to Foreign Operations.
Not applicable.
(3) Data which are not Indicative of Current or Future
Operations.
Not applicable.
<PAGE>
The following graphic presentation has been omitted, but the following is a
description of the omitted material:
Map showing Coastal Lease Areas in the State of Florida
<PAGE>
Item 2. Properties
Properties
Coastal Petroleum, a Florida corporation, holds certain working
interests in nonproducing oil, gas and mineral leases covering approximately
1,250,000 acres, and a royalty interest in approximately 2,450,000 acres, in and
offshore the State of Florida. No commercial oil or gas discoveries have been
made on the properties covered by these leases and Coastal Petroleum has no
proved reserves of oil or gas and has had no significant production.
Coastal Petroleum caused oil and gas exploration to take place on its
leases prior to the onset of litigation in 1968 and had conducted more limited
exploration until 1996. In 1996, the Company initiated a program to identify
potential drilling projects. The amount of exploration expenditures during the
years 1998, 1997 and 1996 was $371,000, $504,000 and $282,000, respectively.
Coastal Petroleum believes all drilling and exploration obligations imposed by
Coastal Petroleum leases have been satisfied to date.
In 1941, Arnold Oil Explorations, Inc., later renamed Coastal Petroleum
Company in 1947, entered into a contract with the Trustees of the Internal
Improvement Trust Fund of the State of Florida (the "Trustees"), in whom title
to publicly owned lands in the State of Florida, including bottoms of salt and
fresh waters, is irrevocably vested, for the exploration of oil, gas and
minerals on such lands. Pursuant to an option to lease in this contract, the
Trustees and Coastal Petroleum entered into three leases between 1944 and 1946.
The acreage covered by these leases is located for the most part along offshore
areas on the Gulf Coast of Florida and in submerged lands under certain bays,
inlets, riverbeds and lakes, of which Lake Okeechobee is the largest.
In 1968, Coastal Petroleum sued the Secretary of the Army of the United
States in a dispute regarding certain mineral rights. In 1969, as part of that
litigation, the Trustees claimed that the leases were invalid and had been
forfeited. Coastal Petroleum and the Trustees settled their disagreement in
1976.
Under the terms of the 1976 settlement agreement, the two leases (224-A
and 224-B) bordering the Gulf Coast were divided into three areas, each running
the entire length of the coastline from Apalachicola Bay to the Naples area: (1)
The inner area, including rivers, bays, and harbors, extends seaward from the
Florida shoreline a distance of 4.36 statute miles (5,280 feet per statute mile)
into the Gulf, covers approximately 2.25 million acres, and is subject to a
royalty interest payable to Coastal Petroleum. This interest is a 6 1/4% royalty
on the wellhead value of all oil and gas, 25 cents per long ton on sulfur,
receivable in cash or in kind at Coastal Petroleum's option, and a 5% royalty on
production or the market value of other minerals. (2) The middle area, three
statute miles wide and covering more than 800,000 acres, was released by Coastal
Petroleum to the Trustees, and Coastal Petroleum has no further interest in the
area. (3) Coastal Petroleum presently owns a 100% working interest in the
<PAGE>
outside area, which extends seaward an additional three statute miles and
borders federal offshore acreage. This area, exceeding 800,000 acres, remains
subject to royalties payable to the State of Florida of 12 1/2% on oil and gas,
$.50 per long ton of sulfur and 10% on other minerals. The Florida legislature
has enacted statutes designed to protect the Big Bend Seagrass Aquatic Preserve,
an area covering approximately one quarter of Coastal Petroleum's working
interest area. However, the legislation and legislative history recognize and
preserve Coastal Petroleum's prior rights as granted by the leases.
Coastal Petroleum retains a 100% working interest in 450,000 acre Lake
Okeechobee which is a part of Lease 248 and which is also subject to royalties
payable to the State of Florida of 12 1/2% on oil and gas, $.50 per long ton of
sulfur and 10% on other minerals. Pursuant to its settlement with the State of
Florida in 1976, Coastal Petroleum agreed not to conduct exploration, drilling
or mining operations on Lake Okeechobee without the prior approval of the State.
As to the balance of this lease, covering approximately 200,000 acres, Coastal
Petroleum retains royalty interests of 6 1/4% on oil, gas and sulfur and 5% on
other minerals.
Under the 1976 settlement agreement with the Trustees, the three leases
have a term of 40 years beginning from January 6, 1976 and require the payment
of an annual rental of $59,247; if oil, gas or minerals are being produced in
economically sustainable quantities at January 6, 2016, these operations will be
allowed to continue until they become uneconomic. Further, the settlement
agreement provides that the drilling requirements shall be governed by Chapter
20680, Laws of Florida, Acts of 1941, and that all other drilling requirements
are waived. Under the 1941 Act, a lessee is required to drill at least one test
well on lands leased in each five year period under the term of the lease.
Coastal Petroleum believes it is current in fulfilling its drilling
requirements. The Court in the Florida Litigation had suspended Coastal
Petroleum's obligations, pending the outcome of that litigation. During July
1998, the payment of lease rentals was resumed.
In 1992 Coastal Petroleum was granted an additional geophysical permit
for seismic, gravity and magnetic work, on its offshore leases. Magnetics were
run on a large portion of 224-A. Work was suspended for a few months and the
Department of Natural Resources ruled that a new permit application would be
required to renew operations. Coastal Petroleum's new application for a
geophysical permit received approval in January 1997. The Company began the
magnetic work during January 1998 and subsequently filed for a one year
extension of time to complete the work. During 1998, the Company decided to
purchase the data because it was more cost effective than completing the
magnetic work.
See Item 3. "Legal Proceedings" for a discussion of the impact of the
current status of the Florida Litigation on exploration activities.
<PAGE>
The following charts reflect the acreage and annual rental obligations
resulting from the 1976 settlement agreement with the Trustees and the
approximate acreage under lease at December 31, 1998:
Current Current Current
Working Royalty Annual
Lease Interest Interest Rental
- ----- --------- --------- -------
224-A and 224-B 800,000 2,250,000 $39,261
248 450,000 200,000 19,986
--------- --------- -------
1,250,000 2,450,000 $59,247
========= ========= =======
Acreage under lease at December 31, 1998
Gross Acres (*) Net Acres (**)
------------------------- -------------------------
Undeveloped Developed Undeveloped Developed
----------- --------- ----------- ---------
Working interest 1,250,000 -0- 1,250,000 -0-
Royalty interest 2,450,000 -0- 153,125 -0-
--------- ----- --------- -----
Total 3,700,000 -0- 1,403,125 -0-
========= ========= ========= =========
* A gross acre is an acre in which a working interest is owned.
** A net acre is deemed to exist when the sum of fractional ownership
working interests in gross acres equals one. The number of net acres is
the sum of the fractional working interests owned in gross acres
expressed as whole numbers and fractions thereof.
Disclosure Concerning Oil and Gas Operations.
Since the properties in which the Company has interests are undeveloped
and nonproducing, items 2 through 4 of Securities Exchange Act Industry Guide 2
are not applicable.
(5) Undeveloped Acreage.
The Company's undeveloped acreage as of December 31, 1998 was as
follows:
Gross Acres Net Acres
----------- ---------
Working Interest 1,250,000 1,250,000
Royalty Interest 2,450,000 153,125
--------- ---------
Total 3,700,000 1,403,125
========= =========
<PAGE>
(6) Drilling Activity.
No drilling has taken place since May 1987 when two shallow mineral
test wells were drilled on lease 224-B.
(7) Present Activities.
The Company is continuing its program to evaluate its leases and
identify potential drilling prospects.
(8) Delivery Commitments.
None.
<PAGE>
Item 3. Legal Proceedings
Coastal Petroleum has been involved in various lawsuits for many years.
Currently, Coastal Petroleum is a party to two actions in which two basic claims
are being contested: Whether Coastal Petroleum may obtain an oil and gas
exploration drilling permit and the amount of the required surety in connection
with any drilling. In addition, Coastal Caribbean is a party to another action
in which Coastal Caribbean claims that certain of its royalty interests have
been confiscated by the State.
1. Coastal Petroleum Company v. State Department of Environmental
Protection, (Case No. 98-1998, First District Court of Appeal). Drilling Permit
Litigation.
In 1992, Coastal Petroleum applied to the Florida Department of
Environmental Protection (the "DEP") for a permit to drill an exploratory oil
and gas well off Apalachicola, Florida. The proposed well would be located in an
area included within Lease 224A. The DEP subsequently denied the application for
issuance of a drilling permit for various reasons including the requirement of a
$1.9 billion bond. Coastal Petroleum appealed the actions of the DEP to the
Florida First District Court of Appeal ("Court of Appeal"). After two decisions
by the Court of Appeal in favor of Coastal Petroleum, the Florida Supreme Court
in July 1996 denied the DEP's petition to review an April 1996 Court of Appeal
decision. The Florida Supreme Court had also refused to review an earlier Court
of Appeal decision.
On August 16, 1996, the DEP notified Coastal Petroleum that it was
prepared to issue the drilling permit subject to Coastal Petroleum publishing a
Notice of Intent to Issue ("Notice") the permit. The Notice allowed interested
parties to request administrative hearings on the permit.
On May 28, 1997, the Oil and Gas Drilling Bill (SB550) was enacted in
Florida. The legislation requires that a surety will now be based on the
projected cleanup costs and possible natural resource damage associated with
offshore drilling as estimated by the DEP and as established by the
Administration Commission (the "Commission") which is comprised of the Governor
and Cabinet. Previously, the required surety was satisfied by a payment of
$4,000 to the Mineral Trust Fund in the first year, with a maximum $30,000 per
year and a payment of $1,500 per well for each subsequent year. On September 9,
1997, the State of Florida set a new surety amount of $4.25 billion as a
precondition for the issuance of the drilling permit.
<PAGE>
During 1997, the Company published a Notice of the DEP's intent to
issue the permit. On October 20, 1997, a public hearing on the permit
application convened and concluded on November 6, 1997. The hearing included the
Company's appeal of the $4.25 billion surety requirement. On April 8, 1998, a
Florida Administrative Law Judge recommended that Coastal Petroleum was entitled
to a drilling permit with the requirement of a $225 million surety. On May 13,
1998, the Commission rejected the $225 million surety and remanded the
proceedings to the Administrative Law Judge with instructions to recalculate the
surety amount.
On May 26, 1998, the DEP refused to issue a permit to Coastal Petroleum
to drill an offshore exploration well near St. George's Island.
Coastal Petroleum has appealed both the denial of the permit by the DEP
and the imposition of the surety to the Court of Appeal. All of the briefs in
the case have been filed and the Company expects that oral argument will be
scheduled in the near future.
2. Coastal Petroleum Company v. State of Florida, Department of
Environmental Protection (DOAH Case Nos. 98-1901-1912). 12 Permit Applications.
On February 25, 1997, Coastal Petroleum filed 12 permit applications
with the DEP which were denied by the Department on March 24, 1998. On August
31, 1998, the State of Florida Division of Administrative Hearings issued a
Notice of Hearing to review the Department's denial of the permit applications.
The hearing was held on January 4-8, 1999. The parties are awaiting a decision
by the Administrative Law Judge which is expected during March 1999.
3. Cottingham v. State of Florida, (Case No. 94-768-CA-01, Circuit Court
of the Second Judicial Circuit in Leon County). Coastal Caribbean Royalty
Litigation.
The offshore areas covered by Coastal Petroleum's original leases
(prior to the 1976 Settlement Agreement) are subject to certain other royalty
interests held by third parties, including Coastal Caribbean. Several of those
third parties, including Coastal Caribbean, have instituted a separate lawsuit
against the State. That lawsuit claims that their royalty interests have been
confiscated as a result of the State's actions discussed above and that they are
entitled to compensation for that taking.
The royalty holders were not parties to the 1976 Settlement Agreement,
and the State's argument that the terms of the Settlement Agreement insulate it
from taking claims does not apply to those royalty holders. The case is
currently pending before the Circuit Court in Tallahassee.
Any recovery made in the royalty holder's lawsuit would be shared among
the various plaintiffs in that lawsuit, including Coastal Caribbean. Coastal
Petroleum would not share in any such recovery.
<PAGE>
Counsel
Mr. Robert J. Angerer of Tallahassee, Florida is Coastal Petroleum's
trial counsel in the Florida Litigation. Mr. Angerer, age 52, is a graduate of
the University of Michigan (B.S.E. 1969) and received his law degree with high
honors from Florida State University in 1974.
Fee Arrangements
In connection with the Florida Litigation against the State of Florida
described herein, Coastal Petroleum has agreed to pay the following firms, in
addition to their charges on a time spent basis, a total of 6% in contingent
fees based upon any net recovery from execution on or satisfaction of judgment
or from settlement of such lawsuit as follows:
Percent of net recovery
Robert J. Angerer 1.5
Other counsel 4.5
---
Total 6.0
===
Coastal Petroleum has also assigned 3.4% of net recoveries from the
Florida Litigation to its officers and others.
Uncertainty
No assurances can be given that Coastal Petroleum or Coastal Caribbean
will prevail on any of the issues set forth above, that they will recover
compensation for any of their claims, or that a drilling permit will be granted.
In addition, even if Coastal Petroleum were to prevail on any or all of the
issues to be decided, no assurance can be given that Coastal Caribbean or
Coastal Petroleum will have sufficient financial resources to survive until such
decisions become final or to drill any wells for which permits are received.
There is also no assurance that any wells drilled will be successful and lead to
production of any oil or gas in commercial quantities.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
None.
Executive Officers of the Company.
The following information with respect to the executive officers of
the Company is furnished pursuant to Instruction 3 to Item 401(b) of Regulation
S-K.
<TABLE>
<CAPTION>
Other Positions
Office Length of Service Held With The
Name Age Held as an Officer Company
<S> <C> <C> <C> <C>
Benjamin W. Heath 84 President Since 1953 Director
Phillip W. Ware 49 Vice President Since 1982 Director, President of Coastal Petroleum
James R. Joyce 58 Treasurer, Asst. Since 1994 Secretary-Treasurer of Coastal Petroleum
Secretary and Chief
Financial Officer
</TABLE>
All officers of the Company are elected annually by the Board of
Directors and serve at the pleasure of the Board of Directors.
The Company is not aware of any arrangements or understandings between
any of the individuals named and any other person pursuant to which any
individual named above was selected as an officer.
<PAGE>
PART II
Item 5. Market for the Company's Common Stock and Related
Stockholder Matters
(a) Market Information.
The principal market for the Company's common stock is the
Boston Stock Exchange. The quarterly high and low closing prices on that
exchange during the last two years were as follows:
- --------------------------------------------------------------------------------
1998 1st quarter 2nd quarter 3rd quarter 4th quarter
- ---- ----------- ----------- ----------- -----------
High 2 7/8 3 1/2 1 13/16 1 9/16
Low 1 1/2 1 9/16 1 1 1/16
- --------------------------------------------------------------------------------
1997 1st quarter 2nd quarter 3rd quarter 4th quarter
- ---- ----------- ----------- ----------- -----------
High 4 3/4 2 1/2 2 1/8 2 3/8
Low 2 1/16 1 9/16 1 7/16 1 5/8
- --------------------------------------------------------------------------------
(b) Holders.
The approximate number of record holders of the Company's
common stock at January 29, 1999 was approximately 12,600.
(c) Dividends.
The Company has never paid a dividend on its capital stock and
will be unable to do so until its deficit, ($26,256,000 at December 31, 1998) is
eliminated.
The Company's Memorandum of Association and Bye-Laws do not
permit the Company to repurchase or redeem shares of its common stock.
(d) Recent Sales of Unregistered Securities.
None.
<PAGE>
Foreign Exchange Control Regulations
The Company is subject to the applicable laws of The Islands
of Bermuda relating to exchange control, but has the permission of the Foreign
Exchange Control of Bermuda to carry on business in, to receive, disburse and
hold United States dollars and dollar securities under its designation as an
External Account Company. The Company has been advised that, although as a
matter of law it is possible for such designation to be revoked, there is little
precedent for revocation under Bermuda law.
Taxes
Coastal Caribbean is a Bermuda corporation. Bermuda currently
imposes no taxes on corporate income or capital gains realized outside of
Bermuda. Any amounts received by Coastal Caribbean from United States sources as
dividends, interest, or other fixed or determinable annual or periodic gains,
profits and income, will be subject to a 30% United States withholding tax. In
addition, any dividends from its domestic subsidiary, Coastal Petroleum, will
not be eligible for the 100% dividends received deduction, which is allowable in
the case of a United States parent corporation. Shares of the Company held by
persons who are citizens or residents of the United States are subject to
federal estate and gift and local inheritance taxation. Any dividends received
by such persons will also be subject to federal, State and local income
taxation. The foregoing rules are of general application only, and reflect law
in force as of the date of this report.
A convention between Bermuda and the United States relating to
mutual assistance on tax matters became operative in 1988.
<PAGE>
Item 6. Selected Consolidated Financial Information
The following selected consolidated financial information for the
Company insofar as it relates to each of the five years in the period ended
December 31, 1998 has been extracted from the Company's consolidated financial
statements.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
($) ($) ($) ($) ($)
<S> <C> <C> <C> <C> <C>
Net loss (1,155,000) (1,611,000) (1,148,000) (880,000) (719,000)
=========== =========== =========== ========= =========
Net loss per share
(Basic and Diluted)
(.03) (.04) (.03) (.03) (.02)
=========== =========== =========== ========== ==========
Cash and securities available 2,181,000 3,749,000 5,789,000 308,000 648,000
========= ========= ========= ========= =========
Cost associated with leasehold
interests in oil, gas and
mineral properties (unproved) 4,735,619 4,395,000 3,944,000 3,689,000 3,689,000
========= ========= ========= ========= =========
Total assets 7,311,050 8,462,000 10,021,000 4,128,000 4,375,000
========= ========= ========== ========= =========
Shareholders' equity:
Common stock 4,807,000 4,807,000 4,805,000 4,004,000 4,004,000
Capital in excess 28,693,000 28,693,000 28,443,000 22,395,000 21,795,000
Accumulated deficit (26,256,000) (25,102,000) (23,490,000) (22,342,000) (21,463,000)
------------ ------------ ------------ ------------ ------------
Total shareholders' equity 7,244,000 8,398,000 9,758,000 4,057,000 4,336,000
========= ========= ========= ========= =========
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
(1) Liquidity and Capital Resources
Short Term Liquidity
At December 31 1998, Coastal Caribbean had approximately $2.2 million
of cash and securities available. These funds are expected to be used for
general corporate purposes, including exploration and development and to
continue the litigation against the State of Florida.
Long Term Liquidity
The Company estimates that as much as $400,000 per year may be required
in connection with the Florida litigation. The Company expects that the Florida
litigation will continue at least through 1999, although the State may take
actions that could shorten or lengthen that period. During 1998, the Company
spent approximately $371,000 under a program to identify potential drilling
prospects. The amount of 1999 capital expenditures will depend on the outcome of
the Florida litigation.
The Company's oil and gas properties are currently unproved and
undeveloped. The Company has applied for a drilling permit from the State of
Florida to drill an exploratory well (the St. George Island prospect) in the
water near Apalachicola, Florida. The State of Florida has resisted the issuance
of a drilling permit. If the Company is successful in obtaining a state drilling
permit, then the Company must also do the following:
1. Obtain a federal drilling permit.
2. Finance drilling of the well (including the cost of the
recommended surety), which is estimated to cost approximately
$5.5 million.
3. Begin drilling the well within one year of the date the state
permit is issued.
In 1997, the Company filed 12 additional applications for drilling
permits. The Company has objected to certain requests for additional data by the
State of Florida DEP and the Company has petitioned for a formal administrative
hearing to resolve the dispute which was held during January 1999. The parties
are awaiting a decision by the Administrative Law Judge.
The Company does not currently have assets sufficient to fund all the
expenditures necessary to drill the St. George Island prospect and any other
exploration wells, if all of the permits were granted. If oil and/or gas is
discovered in commercial quantities, a production program would require
additional permitting and construction of production, storage and delivery
systems. The Company would be required to seek additional financing or partners
to fund these expenditures.
<PAGE>
The Company has assessed its Year 2000 readiness and it is currently
compliant. The Year 2000 change should have no material impact on the Company's
internal operations or financial results. However, the Company will be dependent
on its suppliers and potential partners to make their systems Year 2000
compliant. Due to the limited nature of the Company's current operations, the
inability of suppliers or potential partners to be Year 2000 compliant will not
have a material impact on the Company.
(2) Results of Operations
The Company has never had substantial revenues and has operated at a
loss each year since its inception in 1953. The Company has been involved in
litigation since 1968 and its total legal expenses have been approximately
$2,279,000 during the three years ended December 31, 1998. The legal expenses
incurred related primarily to the Florida Litigation. The Company expects that
the litigation related fees will be approximately $400,000 in 1999. A
termination date of this litigation cannot be predicted with any certainty at
this time.
1998 vs. 1997
The Company recorded a loss of $1,155,000 for 1998, compared to a loss
of $1,611,000 in 1997.
Interest income and other income decreased 40% to $167,000 in 1998 from
$279,000 in 1997 because less funds were available for investment during 1998
and interest rates were lower.
Legal fees and costs decreased 52% in 1998 to $502,000 compared to
$1,047,000 in the prior year. In 1997, the Company had been involved in various
appeals and hearings in connection with the opposition by the state and others
to the issuance of a drilling permit and the taking claim regarding its royalty
interest acreage. During 1998, the level of legal activity decreased.
Administrative expenses increased 11% in 1998 to $495,000 compared to
$448,000 in 1997. The primary reason for the increase was an increase in the
amount of directors' and officers' liability insurance in 1998.
Shareholder communications decreased 29% from $188,000 in 1997 to
$133,000 in 1998. In 1997, the cost of printing and mailing was higher because
of the size of the documents and the number of mailings compared to 1998.
Exploration costs decreased from $53,000 in 1997 to $31,000 in 1998 in
connection with the Company's program to identify potential drilling prospects.
These miscellaneous exploration expenses do not include the exploration
expenditures totaling $340,000 that were capitalized in 1998 ($452,000 in 1997).
<PAGE>
1997 vs. 1996
The Company recorded a loss of $1,611,000 for 1997, compared to a loss
of $1,148,000 in 1996.
Interest income and other income increased to $279,000 in 1997 from
$192,000 in 1996 due to the funds available for investment from the May 1996
rights offering to shareholders.
Legal fees and costs increased 43% in 1997 to $1,047,000 compared to
$731,000 in the prior year. These costs increased due to (1) the various appeals
filed in connection with the State of Florida's opposition to the issuance of a
drilling permit, (2) the appeal of the adverse decision that there has not been
a taking of the Company's royalty interests, and (3) the October 1997
administrative hearing regarding the issuance of the pending drilling permit.
Administrative expenses increased 32% in 1997 to $448,000 compared to
$339,000 in 1996. The primary reason for the increase is the first time purchase
of directors' and officers' liability insurance in 1996 and an increase in the
amount of coverage in 1997 ($75,000). In addition, directors' fees increased by
$19,000 in 1997.
Shareholder communications increased 101% from $94,000 in 1996 to
$188,000 in 1997. In 1996, the Company saved the cost of printing and mailing a
separate annual report by utilizing the May 1996 rights offering prospectus in
lieu of an annual report. In addition, the cost of printing and mailing also
increased in 1997 because of the size of the documents and the number of
mailings. In 1997, the Company also mailed a special report to shareholders.
Exploration costs increased from $27,000 in 1996 to $53,000 in 1997 in
connection with the Company's program to identify potential drilling prospects.
These expenses do not include the exploration expenditures totaling $504,000
that were capitalized.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
The Company does not have any significant exposure to market risk as
the only market risk sensitive instruments are its investments in marketable
securities. At December 31, 1998, the carrying value of such investments was
approximately $2,129,000, the fair value was $2,135,000 and the face value was
$2,150,000. Since the Company expects to hold the investments to maturity, the
maturity value should be realized.
<PAGE>
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Coastal Caribbean Oils & Minerals, Ltd.
We have audited the accompanying consolidated balance sheets of Coastal
Caribbean Oils & Minerals, Ltd. (a development stage company) as of December 31,
1998 and 1997, and the related consolidated statements of operations, cash
flows, and common stock and capital in excess of par value from inception
(January 31, 1953) to December 31, 1998 and for each of the three years in the
period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Coastal
Caribbean Oils & Minerals, Ltd. at December 31, 1998 and 1997, and the
consolidated results of its operations and its cash flows from inception
(January 31, 1953) to December 31, 1998 and for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Stamford, Connecticut
January 12, 1999
<PAGE>
COASTAL CARIBBEAN OILS & MINERALS, LTD.
(A Bermuda Corporation)
A Development Stage Company
CONSOLIDATED BALANCE SHEETS
(Expressed in U.S. dollars)
December 31,
1998 1997
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 52,480 $ 316,333
Accounts receivable 52,634 77,302
Marketable securities 828,839 3,433,035
Prepaid expenses 314,280 213,840
------------ ------------
Total current assets 1,248,233 4,040,510
------------ ------------
Marketable securities 1,300,000 -
Unproved oil, gas and mineral properties (full cost
method) 4,735,619 4,395,132
Other 27,198 26,765
------------ ------------
Total assets $ 7,311,050 $ 8,462,407
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 67,299 $ 63,975
------------ ------------
Minority interests - -
Shareholders' equity:
Common stock, par value $.12 per share:
Authorized - 250,000,000 shares
Outstanding - 40,056,358 shares 4,806,763 4,806,763
Capital in excess of par value 28,693,033 28,693,033
------------ ------------
33,499,796 33,499,796
Deficit accumulated during development stage (26,256,045) (25,101,364)
------------ ------------
Total shareholders' equity 7,243,751 8,398,432
------------ ------------
Total liabilities and shareholders' equity $ 7,311,050 $ 8,462,407
============ ============
See accompanying notes.
<PAGE>
COASTAL CARIBBEAN OILS & MINERALS, LTD.
(A Bermuda Corporation)
A Development Stage Company
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
From
inception
Year ended December 31, (Jan. 31, 1953)
----------------------------------------------------- to
1998 1997 1996 Dec. 31, 1998
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Interest and other income $ 167,178 $ 279,469 $ 192,369 $ 3,673,304
----------- ----------- ----------- ------------
Expenses:
Legal fees and costs 501,708 1,046,779 730,831 11,971,611
Administrative expenses 495,161 447,622 338,594 6,864,310
Salaries 161,000 156,000 150,667 2,911,278
Shareholder communications 132,924 187,644 93,548 3,568,955
Exploration costs 31,066 52,558 26,933 783,660
Lawsuit judgments - - - 1,941,916
Minority interests - - - (632,974)
Other - - - 364,865
Contractual services - - - 2,155,728
----------- ----------- -----------
1,321,859 1,890,603 1,340,573 29,929,349
----------- ----------- ----------- ------------
Net loss $(1,154,681) $(1,611,134) $(1,148,204)
============ ============ ============
Deficit accumulated during
development stage $(26,256,045)
=============
Net loss per share based on average
number of shares outstanding during
the period:
Basic and Diluted EPS $(.03) $(.04) $(.03)
====== ====== ======
Average number of shares outstanding
(Basic and Diluted) 40,056,358 40,055,589 37,477,617
========== ========== ==========
</TABLE>
See accompanying notes.
<PAGE>
COASTAL CARIBBEAN OILS & MINERALS, LTD.
(A Bermuda Corporation)
A Development Stage Company
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
From
inception
Year ended December 31, (Jan. 31, 1953)
-------------------------------------------------- to
1998 1997 1996 Dec. 31, 1998
----------- ----------- ----------- -------------
Operating activities:
<S> <C> <C> <C> <C>
Net loss $(1,154,681) $(1,611,134) $(1,148,204) $(26,256,046)
Adjustments to reconcile net loss to net cash
used for operating activities:
Minority interest - - - (632,974)
Exploration and other - - - 755,974
Net change in:
Accounts receivable 24,668 27,813 (98,278) (52,634)
Prepaid expenses (100,440) (34,972) (53,526) (314,280)
Current liabilities 3,324 (198,447) 191,210 67,298
Other (433) (1,121) 34,063 471,709
----------- ----------- ----------- ------------
Net cash used for operating activities (1,227,562) (1,817,861) (1,074,735) (25,960,953)
----------- ----------- ----------- ------------
Investing activities:
Additions to oil, gas, and mineral
properties net of assets acquired
for common stock (340,487) (451,612) (254,952) (4,735,619)
Marketable securities (net) 1,304,196 1,910,226 (5,343,261) (2,128,839)
Reimbursement of lease rentals and
other expenses - - - 1,243,086
Purchase of fixed assets - - - (61,649)
----------- ----------- ----------- ------------
Net cash provided by (used) for investing activities
963,709 1,458,614 (5,598,213) (5,683,021)
----------- ----------- ----------- ------------
Financing activities:
Sale of common stock less expenses - - 6,356,326 26,342,205
Shares issued upon exercise of
options - 11,250 13,500 884,249
Sale of shares by subsidiary - - 750,000
Sale of subsidiary shares - 240,000 480,000 3,720,000
----------- ----------- ----------- ------------
Net cash provided by financing activities - 251,250 6,849,826 31,696,454
----------- ----------- ----------- ------------
Net increase (decrease) in cash
and cash equivalents (263,853) (107,997) 176,878 52,480
Cash and cash equivalents at
beginning of period 316,333 424,330 247,452 -
----------- ----------- ----------- ------------
Cash and cash equivalents at
end of period $ 52,480 $316,333 $424,330 $ 52,480
========= ======== ======== =========
</TABLE>
See accompanying notes.
<PAGE>
COASTAL CARIBBEAN OILS & MINERALS, LTD.
(A Bermuda Corporation)
A Development Stage Company
CONSOLIDATED STATEMENT OF COMMON STOCK
AND CAPITAL IN EXCESS OF PAR VALUE
(Expressed in U.S. dollars)
From inception (January 31, 1953) to December 31, 1998
<TABLE>
<CAPTION>
Capital in
Number of Common Excess
Shares Stock of Par Value
---------- ---------- ------------
<S> <C> <C> <C>
Shares issued for net assets and unrecovered costs
at inception 5,790,210 $ 579,021 $ 1,542,868
Shares issued upon sales of common stock 26,829,486 3,224,014 16,818,844
Shares issued upon exercise of stock options 510,000 59,739 799,760
Market value ($2.375 per share) of shares issued in
1953 to acquire an investment 54,538 5,454 124,074
Shares issued in 1953 in exchange for 1/3rd of a 1/60th
overriding royalty (sold in prior year) in nonproducing
leases of Coastal Petroleum 84,210 8,421 -
Market value of shares issued for services rendered
during the period 1954-1966 95,188 9,673 109,827
Net transfers to restate the par value of common stock
outstanding in 1962 and 1970 to $0.12 per share - 117,314 (117,314)
Increase in Company's investment (equity) due to
capital transactions of Coastal Petroleum in 1976 - - 117,025
---------- ---------- -----------
Balance at December 31, 1990 33,363,632 4,003,636 19,395,084
Sale of subsidiary shares - - 300,000
---------- ---------- -----------
Balance at December 31, 1991 33,363,632 4,003,636 19,695,084
Sale of subsidiary shares - - 390,000
---------- ---------- -----------
Balance at December 31, 1992 33,363,632 4,003,636 20,085,084
Sale of subsidiary shares - - 1,080,000
---------- ---------- -----------
Balance at December 31, 1993 33,363,632 4,003,636 21,165,084
Sale of subsidiary shares - - 630,000
---------- ---------- -----------
Balance at December 31, 1994 33,363,632 4,003,636 21,795,084
Sale of subsidiary shares - - 600,000
---------- ---------- -----------
Balance at December 31, 1995 33,363,632 4,003,636 22,395,084
Sale of common stock 6,672,726 800,727 5,555,599
Sale of subsidiary shares - - 480,000
Exercise of stock options 10,000 1,200 12,300
---------- ---------- -----------
Balance at December 31, 1996 40,046,358 4,805,563 28,442,983
Sale of subsidiary shares - - 240,000
Exercise of stock options 10,000 1,200 10,050
---------- ---------- -----------
Balance at December 31, 1997 and 1998 40,056,358 $4,806,763 $28,693,033
========== ========== ===========
</TABLE>
See accompanying notes.
<PAGE>
COASTAL CARIBBEAN OILS & MINERALS, LTD.
Notes to Consolidated Financial Statements
December 31, 1998
1. Summary of significant accounting policies
Consolidation
The accompanying consolidated financial statements include the accounts
of Coastal Caribbean Oils & Minerals, Ltd. ("Coastal Caribbean") and its
majority subsidiary, Coastal Petroleum Company ("Coastal Petroleum"),
hereinafter referred to collectively as the Company. The Company, which is
engaged in a single industry and segment, is considered to be a development
stage company since its exploration for oil, gas and minerals has not yielded
any significant revenue or reserves. All intercompany transactions have been
eliminated.
Cash and cash equivalents
The Company considers all highly liquid short term investments with
maturities of three months or less at the date of acquisition to be cash
equivalents. Cash and cash equivalents are carried at cost which approximates
market value. The components of cash and cash equivalents are as follows:
December 31,
----------------------------------
1998 1997
------- --------
Cash $52,480 $118,859
U.S. Government Obligations - 197,474
------- --------
$52,480 $316,333
======= ========
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 amounts reported in the financial statements and
accompanying notes. The outcome of the litigation and the ability to develop the
Company's oil and gas properties will have a significant effect on the Company's
financial position and results of operations. Actual results could differ from
those estimates.
Unproved oil and gas properties
The Company follows the full cost method of accounting for its oil and
gas properties. All costs, whether successful or unsuccessful, associated with
property acquisition, exploration and development activities are capitalized.
Since the Company's properties are undeveloped and nonproducing, capitalized
costs are not being amortized.
<PAGE>
The Company does not expect to amortize these costs until there is production
from the properties. Production cannot begin until several events occur because
the Company must: (1) obtain state and federal drilling permits (2) finance the
drilling of an exploratory well, either with internal resources or by securing
one or more partners in the drilling activity, (3) discover commercial
quantities of oil and/or gas, and (4) finance and begin a production program.
The Company cannot predict if or when any of these events may occur; however,
the Company expects that under the most favorable circumstances production would
not begin before 2000. If the Company obtains the permits to drill, the total
cost of drilling an exploration well is currently estimated to be approximately
$5.5 million. The Company does not currently have assets sufficient to fund all
of this cost and would be required to seek debt or equity financing from public
or private sources to drill the exploration well, if a permit were granted. If
oil and/or gas is discovered in commercial quantities, a production program
would require additional permitting and construction of production, storage and
delivery systems. The Company would be required to seek additional financing to
fund these development activities.
The Company assesses whether its unproved properties are impaired on a
periodic basis. This assessment is based upon work completed on the properties
to date, the expiration date of its leases and technical data from the
properties and adjacent areas. These properties are subject to extensive
litigation with the State of Florida. Although the property interests may be
impaired by the actions taken by the State, the likelihood of loss with respect
to the recorded costs of the leasehold interests is not probable. (See Note 5
"Litigation".) Based on the exploration activities on the properties completed
to date, the exploration and development activities of others in the Gulf of
Mexico and the laws applicable to the taking of property, the Company expects to
recover its $4.7 million of capitalized costs. However, there can be no
assurance that it will be successful and that costs associated with these
properties will be realized.
Sale of Subsidiary Shares
All amounts realized from the sale of Coastal Petroleum shares have
been credited to capital in excess of par value.
Earnings per share
Earnings per common share is based upon the weighted average number of
common and common equivalent shares outstanding during the period. In February
1997, the FASB issued Statement No. 128 Earnings per Share ("EPS"), which the
Company adopted for the year ended December 31, 1997. The Company's basic and
diluted calculations of EPS are the same because the exercise of options is not
assumed in calculating diluted EPS, as the result would be anti-dilutive (the
Company has continuing losses).
<PAGE>
Financial instruments
The carrying value for cash and cash equivalents, accounts receivable,
U.S. Government securities and accounts payable approximates fair value based on
anticipated cash flows and current market conditions.
2. Coastal Petroleum Company - Minority Interests
In 1992, Coastal Caribbean granted Lykes Minerals Corp. ("Lykes"), a
wholly owned subsidiary of Lykes Bros. Inc., an option to acquire 78 shares of
Coastal Petroleum at $40,000 per share. Lykes exercised all of its options to
purchase Coastal Petroleum shares at a total cost of $3,120,000 and at December
31, 1998 and 1997, held 26.7% of Coastal Petroleum.
The Lykes agreement provides that Lykes is entitled to exchange each
Coastal Petroleum share for 100,000 Coastal Caribbean shares, subject to
adjustment for dilution and other factors. If fully exercised, that entitlement
would leave Lykes with about 16% of Coastal Caribbean's outstanding shares.
Lykes also has the right to exchange Coastal Petroleum shares for overriding
royalty interests in Coastal Petroleum's properties. If Lykes were to exchange
its 26.7% interest in Coastal Petroleum for a royalty interest, its overriding
royalty interest in Coastal Petroleum's working-interest acreage would be 3.3%.
As of December 31, 1998, Coastal Petroleum shares were owned as
follows:
Shares %
------ -----
Coastal Caribbean 173 59.3
Lykes 78 26.7
Other 41 14.0
--- -----
292 100.0
=== =====
<PAGE>
3. Marketable Securities
At December 31, 1998 and 1997, the Company had the following marketable
securities which were expected to be held until maturity:
December 31, 1998
- --------------------------------------------------------------------------------
Maturity Amortized
Security Par Value Date Cost Fair Value
-------- --------- ---- ---- ----------
Short-term securities
Federal Home Loan Bank $ 150,000 Jan. 6, 1999 $ 147,091 $ 149,912
Federal Home Loan Bank 500,000 Feb. 22, 1999 486,422 489,938
Federal Home Loan Bank 200,000 May 11, 1999 195,326 195,550
---------- ---------- ---------
Total $ 850,000 $ 828,839 $ 835,400
========== ========== ==========
Long-term securities
Federal Home Loan Bank $1,300,000 Jan. 28, 2000 $1,300,000 $1,300,403
========== ========== ==========
December 31, 1997
- --------------------------------------------------------------------------------
Maturity Amortized
Security Par Value Date Cost Fair Value
-------- --------- ---- ---- ----------
Federal Home Loan Bank
Discounted Note $ 500,000 Feb. 11, 1998 $ 487,191 $ 493,200
U.S. Treasury Note 500,000 May 31, 1998 497,969 500,935
U.S. Treasury Note 1,500,000 Jul. 31, 1998 1,501,270 1,506,090
Federal Farm Credit Bank
Discounted Note 1,000,000 Aug. 18, 1998 946,605 953,042
---------- ---------- ----------
Total $3,500,000 $3,433,035 $3,453,267
========== ========== ==========
4. Unproved oil, gas and mineral properties
Coastal Petroleum holds three unproved and nonproducing oil, gas and
mineral leases granted by the Trustees of the Internal Improvement Fund of the
State of Florida (the "Trustees"). These leases cover submerged and unsubmerged
lands, principally along the Florida Gulf Coast, and certain inland lakes and
rivers throughout the State.
The two leases bordering the Gulf Coast have been divided into three
areas, each running the entire length of the coastline from Apalachicola Bay to
the Naples area. Coastal Petroleum has certain royalty interests in the inner
area, no interest in the middle area and has a 100% working interest in the
outside area.
<PAGE>
Coastal Petroleum also has a 100% working interest in Lake Okeechobee,
and a royalty interest in other areas. Coastal Petroleum has agreed not to
conduct exploration, drilling, or mining operations on said lake, except with
prior approval of the Trustees.
The three leases have a term of 40 years from January 6, 1976 and
require the payment of annual lease rentals of $59,247; if oil, gas or minerals
are being produced in economically sustainable quantities at January 6, 2016,
these operations will be allowed to continue until they become uneconomic. The
drilling requirements are governed by Chapter 20680, Laws of Florida, Acts of
1941. The Company is current in fulfilling its drilling requirements. During
July 1998, the Company resumed the payment of lease rentals which had been
suspended during the litigation.
The working interest areas of the three leases are subject to royalties
payable to the Trustees of 12 1/2% on oil and gas, $.50 per long ton of sulfur
and 10% on other minerals. The leases are subject to additional overriding
royalties which aggregate 1/16th as to oil, gas and sulfur and 13/600ths as to
other minerals. The Coastal Petroleum leases also are subject to a 10%
overriding royalty granted by Coastal Petroleum to Coastal Caribbean.
During 1998, the Company capitalized approximately $340,000 ($452,000
in 1997 and $255,000 in 1996) under a program to identify potential drilling
prospects. The amount of 1999 expenditures will depend on the outcome of the
Florida litigation.
A summary of the cost of unproved oil, gas and mineral properties,
accounted for under the full cost method, all of which are located in Florida.
1998 1997
---------- ----------
Lease acquisition costs $ 914,619 $ 914,619
Lease and royalty costs (principally legal fees) 591,616 591,616
Lease rentals 2,388,527 2,329,280
Dry hole costs 587,987 587,987
Other exploratory expenses 1,275,706 994,466
Salaries 466,983 466,983
---------- ----------
6,225,438 5,884,951
---------- ----------
Deduct:
Reimbursement for lease rentals and other expenses 1,243,086 1,243,086
Proceeds from relinquishment of surface rights 246,733 246,733
---------- ----------
1,489,819 1,489,819
---------- ----------
$4,735,619 $4,395,132
========== ==========
<PAGE>
5. Litigation
Florida Litigation
Coastal Petroleum has been involved in various lawsuits for many years.
Currently, Coastal Petroleum is a party to two actions in which two basic claims
are being contested: Whether Coastal Petroleum may obtain an oil and gas
exploration drilling permit and the amount of the required surety in connection
with any drilling. In addition, Coastal Caribbean is a party to another action
in which Coastal Caribbean claims that certain of its royalty interests have
been confiscated by the State.
1. Coastal Petroleum Company v. State Department of Environmental
Protection, (Case No. 98-1998, First District Court of Appeal). Drilling Permit
Litigation.
In 1992, Coastal Petroleum applied to the Florida Department of
Environmental Protection (the "DEP") for a permit to drill an exploratory oil
and gas well off Apalachicola, Florida. The proposed well would be located in an
area included within Lease 224A. The DEP subsequently denied the application for
issuance of a drilling permit for various reasons including the requirement of a
$1.9 billion bond. Coastal Petroleum appealed the actions of the DEP to the
Florida First District Court of Appeal ("Court of Appeal"). After two decisions
by the Court of Appeal in favor of Coastal Petroleum, the Florida Supreme Court
in July 1996 denied the DEP's petition to review an April 1996 Court of Appeal
decision. The Florida Supreme Court had also refused to review an earlier Court
of Appeal decision.
On August 16, 1996, the DEP notified Coastal Petroleum that it was
prepared to issue the drilling permit subject to Coastal Petroleum publishing a
Notice of Intent to Issue ("Notice") the permit. The Notice allowed interested
parties to request administrative hearings on the permit.
On May 28, 1997, the Oil and Gas Drilling Bill (SB550) was enacted in
Florida. The legislation requires that a surety will now be based on the
projected cleanup costs and possible natural resource damage associated with
offshore drilling as estimated by the DEP and as established by the
Administration Commission (the "Commission") which is comprised of the Governor
and Cabinet. Previously, the required surety was satisfied by a payment of
$4,000 to the Mineral Trust Fund in the first year, with a maximum $30,000 per
year and a payment of $1,500 per well for each subsequent year. On September 9,
1997, the State of Florida set a new surety amount of $4.25 billion as a
precondition for the issuance of the drilling permit.
<PAGE>
During 1997, the Company published a Notice of the DEP's intent to
issue the permit. On October 20, 1997, a public hearing on the permit
application convened and concluded on November 6, 1997. The hearing included the
Company's appeal of the $4.25 billion surety requirement. On April 8, 1998, a
Florida Administrative Law Judge recommended that Coastal Petroleum was entitled
to a drilling permit with the requirement of a $225 million surety. On May 13,
1998, the Commission rejected the $225 million surety and remanded the
proceedings to the Administrative Law Judge with instructions to recalculate the
surety amount.
On May 26, 1998, the DEP refused to issue a permit to Coastal Petroleum
to drill an offshore exploration well near St. George's Island.
Coastal Petroleum has appealed both the denial of the permit by the DEP
and the imposition of the surety to the Court of Appeal. All of the briefs in
the case have been filed and the Company expects that oral argument will be
scheduled in the near future.
2. Coastal Petroleum Company v. State of Florida, Department of
Environmental Protection (DOAH Case Nos. 98-1901-1912). 12 Permit Applications.
On February 25, 1997, Coastal Petroleum filed 12 permit applications
with the DEP which were denied by the Department on March 24, 1998. On August
31, 1998, the State of Florida Division of Administrative Hearings issued a
Notice of Hearing to review the Department's denial of the permit applications.
The hearing was held on January 4-8, 1999. The parties are awaiting a decision
by the Administrative Law Judge which is expected during March 1999.
3. Cottingham v. State of Florida, (Case No. 94-768-CA-01, Circuit Court
of the Second Judicial Circuit in Leon County). Coastal Caribbean Royalty
Litigation.
The offshore areas covered by Coastal Petroleum's original leases
(prior to the 1976 Settlement Agreement) are subject to certain other royalty
interests held by third parties, including Coastal Caribbean. Several of those
third parties, including Coastal Caribbean, have instituted a separate lawsuit
against the State. That lawsuit claims that their royalty interests have been
confiscated as a result of the State's actions discussed above and that they are
entitled to compensation for that taking.
The royalty holders were not parties to the 1976 Settlement Agreement,
and the State's argument that the terms of the Settlement Agreement insulate it
from taking claims does not apply to those royalty holders. The case is
currently pending before the Circuit Court in Tallahassee.
Any recovery made in the royalty holder's lawsuit would be shared among
the various plaintiffs in that lawsuit, including Coastal Caribbean. Coastal
Petroleum would not share in any such recovery.
<PAGE>
Fee Arrangements
In connection with the Florida Litigation against the State of Florida
described herein, Coastal Petroleum has agreed to pay the following firms, in
addition to their charges on a time spent basis, a total of 6% in contingent
fees based upon any net recovery from execution on or satisfaction of judgment
or from settlement of such lawsuit as follows:
Percent of net recovery
Robert J. Angerer 1.5
Other counsel 4.5
---
Total 6.0
===
Coastal Petroleum has also assigned 3.4% of net recoveries from the
Florida Litigation to its officers and others.
Uncertainty
No assurances can be given that Coastal Petroleum or Coastal Caribbean
will prevail on any of the issues set forth above, that they will recover
compensation for any of their claims, or that a drilling permit will be granted.
In addition, even if Coastal Petroleum were to prevail on any or all of the
issues to be decided, no assurance can be given that Coastal Caribbean or
Coastal Petroleum will have sufficient financial resources to survive until such
decisions become final or to drill any wells for which permits are received.
There is also no assurance that any wells drilled will be successful and lead to
production of any oil or gas in commercial quantities.
6. Common Stock
The Company's Bye-Law No. 21 provides that any matter to be voted upon
must be approved not only by a majority of the shares voted at such meeting, but
also by a majority in number of the shareholders present in person or by proxy
and entitled to vote thereon.
The Company has been financing its operations primarily from sales of
common stock and sales of shares of Coastal Petroleum (See Note 2).
During 1996, the Company sold approximately 6.7 million shares to its
shareholders at $1.00 per share. The net proceeds to the Company were $6,356,326
after deducting the $316,400 cost of the offering.
During July 1997, the shareholders of the Company approved an increase
in the authorized capital of the Company from 100,000,000 shares to 250,000,000
shares.
<PAGE>
The following represents shares issued upon sales of common stock:
Number of Capital in Excess
Shares Capital Stock of Par Value
--------- ------------- -----------------
1953 300,000 $ 30,000 $ 654,000
1954 53,000 5,300 114,265
1955 67,000 6,700 137,937
1956 77,100 7,710 139,548
1957 95,400 9,540 152,492
1958 180,884 18,088 207,135
1959 123,011 12,301 160,751
1960 134,300 13,430 131,431
1961 127,500 12,750 94,077
1962 9,900 990 8,036
1963 168,200 23,548 12,041
1964 331,800 46,452 45,044
1965 435,200 60,928 442,391
1966 187,000 26,180 194,187
1967 193,954 27,153 249,608
1968 67,500 9,450 127,468
1969 8,200 1,148 13,532
1970 274,600 32,952 117,154
1971 299,000 35,880 99,202
1972 462,600 55,512 126,185
1973 619,800 74,376 251,202
1974 398,300 47,796 60,007
1975 - - (52,618)
1976 - - (8,200)
1977 850,000 102,000 1,682,706
1978 90,797 10,896 158,343
1979 1,065,943 127,914 4,124,063
1980 179,831 21,580 826,763
1981 30,600 3,672 159,360
1983 5,318,862 638,263 1,814,642
1985 - - (36,220)
1986 6,228,143 747,378 2,178,471
1987 4,152,095 498,251 2,407,522
1990 4,298,966 515,876 26,319
1996 6,672,726 800,727 5,555,599
---------- ---------- ---------
33,502,212 $4,024,741 $22,374,443
========== ========== ===========
The following represents shares issued upon exercise of stock options:
1955 73,000 $ 7,300 $ 175,200
1978 7,000 840 6,160
1979 213,570 25,628 265,619
1980 76,830 9,219 125,233
1981 139,600 16,752 227,548
1996 10,000 1,200 12,300
1997 10,000 1,200 10,050
---------- ---------- -----------
530,000 $ 62,139 $ 822,110
========== ========== ===========
Coastal Caribbean has reserved 7,800,000 shares which may be issued in
exchange for Coastal Petroleum shares, as described in Note 2.
<PAGE>
7. Stock Option Plan
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB No. 25) and related
Interpretations in accounting for its stock options because the alternative fair
value accounting provided under FASB Statement No. 123, "Accounting for Stock
Based Compensation," requires use of option valuation models that were not
developed for use in valuing stock options. Under APB No. 25, because the
exercise price of the Company's stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
On March 7, 1995, the Company adopted a Stock Option Plan covering
1,000,000 shares of the Company's common stock. Options are normally immediately
exercisable and issued for a period of five years. The following table
summarizes stock option activity:
<TABLE>
<CAPTION>
Number of Shares Exercise Price ($)
---------------- ------------------
<S> <C> <C>
Outstanding and exercisable at December 31, 1995 320,000 1.35
Exercised (10,000) 1.35
Canceled (310,000) 1.35
Granted 372,000 1.13
-------
Outstanding and exercisable at December 31, 1996 372,000 1.13
Exercised (10,000) 1.13
--------
Outstanding and exercisable at December 31, 1997 362,000 1.13
Granted 225,000 2.625
-------
Outstanding and exercisable at December 31, 1998 587,000 1.13-2.625
=======
(1.70 weighted average)
Available for grant at December 31,1998 393,000
=======
</TABLE>
Pro forma information regarding net income and earnings per share is
required by FASB Statement No. 123, and has been determined as if the Company
had accounted for its stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model.
Option valuation models require the input of highly subjective
assumptions including the expected stock price volatility. The assumptions used
in the valuation model were: risk free interest rate - 5.45%, expected life - 5
years, expected volatility - .707 and expected dividend - 0.
<PAGE>
Because the Company's stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock options.
For the purpose of pro forma disclosures, the estimated fair value of
the stock options is expensed in the year of grant since the options are
immediately exercisable. The Company's pro forma information follows:
Amount Per Share
------ ---------
Net loss as reported - December 31, 1998 $(1,154,681) $(.03)
Stock option expense (369,000) (.01)
------------ ------
Pro forma net loss $(1,523,681) $(.04)
------------ ------
8. Income taxes
Bermuda currently imposes no taxes on corporate income or capital gains
outside of Bermuda. The Company's subsidiary, Coastal Petroleum, has U.S. net
operating loss carryforwards for federal and state tax purposes, which may be
used to reduce its taxable income, if any, during future years which aggregated
approximately $11,806,000 at December 31, 1998 and expire in varying amounts
from 1999 through 2013. For financial reporting purposes, a valuation allowance
has been recognized to offset the deferred tax assets relating to those
carryforwards. Significant components of the Company's deferred tax assets were
as follows:
1998 1997
---- ----
Net operating losses $ 4,443,000 $ 4,338,000
Deferred intercompany interest deduction 652,000 242,000
----------- -----------
Total deferred tax assets 5,095,000 4,580,000
Valuation allowance (5,095,000) (4,580,000)
------------ ------------
Net deferred tax assets $ - $ -
============ ============
9. Related parties
G&O'D INC provides accounting and administrative services and office
facilities and support staff to the Company. G&O'D INC is owned by Mr. James R.
Joyce, Treasurer and Assistant Secretary. During 1998, 1997 and 1996, G&O'D
billed fees of $160,764, $172,160 and $169,632, respectively.
During 1996, the Company agreed to reimburse Lykes Minerals Corp. for
certain legal expenses in the amount of $201,416 that Lykes had incurred in
connection with the Florida Litigation on the basis that these expenses had
directly benefited the Company. This amount is included in accounts payable and
accrued liabilities.
<PAGE>
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
PART III
For information concerning Item 10 - Directors and Executive Officers
of the Company, Item 11 - Executive Compensation, Item 12 - Security Ownership
of Certain Beneficial Owners and Management and Item 13 - Certain Relationships
and Related Transactions, see the Proxy Statement of the Company relative to the
Annual Meeting of Stockholders for the fiscal year ended December 31, 1998,
which will be filed with the Securities and Exchange Commission, which
information is incorporated herein by reference. For information concerning Item
10 - Executive Officers of the Company, see Part I.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) Financial Statements.
The financial statements listed below and included
under Item 8 above are filed as part of this report.
Page
Report of Independent Auditors 23
Consolidated balance sheets at December 31, 1998 and 1997 24
Consolidated statements of operations from inception (January 31, 1953) to
December 31, 1998 and for each of the three years in the period ended
December 31, 1998 25
Consolidated statements of cash flows from inception (January 31, 1953) to
December 31, 1998 and for each of the three years in the period ended
December 31, 1998 26
Consolidated statements of common stock and capital in excess of
par value from inception (January 31, 1953) to December 31, 1998 27
Notes to consolidated financial statements 28
(2) Financial Statement Schedules:
All schedules have been omitted since the required
information is not present or not present in amounts sufficient to require
submission of the schedule, or because the information required is included in
the consolidated financial statements and the notes thereto.
(3) Exhibits.
List of each management contract or compensatory or
arrangement required to be filed as an exhibit pursuant to Item 14(c).
None.
(b) Reports on Form 8-K.
None.
<PAGE>
(c) Exhibits.
The following exhibits are filed as part of this report:
Item Number
2. Plan of acquisition, reorganization, arrangement, liquidation
or succession.
Not applicable.
3. Articles of incorporation and By-Laws.
(a) Memorandum of Association as amended on June 30,
1982, May 14, 1985 and April 7, 1988 is filed herein.
(b) Bye-laws are incorporated by reference to Schedule
14(a) Proxy Statement filed on May 13, 1997.
4. Instruments defining the rights of security holders, including
indentures.
Not applicable.
9. Voting trust agreement.
Not applicable.
10. Material contracts.
(a) Drilling Lease No. 224-A, as modified, between the
Trustees of the Internal Improvement Fund of the
State of Florida and Coastal Petroleum Company dated
February 27, 1947 is filed herein.
(b) Drilling Lease No. 224-B, as modified, between the
Trustees of the Internal Improvement Fund of the
State of Florida and Coastal Petroleum Company dated
February 27, 1947 is filed herein.
(c) Drilling Lease No. 248, as modified, between the
Trustees of the Internal Improvement Fund of the
State of Florida and Coastal Petroleum Company dated
February 27, 1947 is filed herein.
(d) Settlement Agreement dated January 6, 1976 between
Coastal Petroleum Company and the State of Florida is
filed herein.
(e) Agreement between the Company and Coastal Petroleum
dated December 3, 1991 is filed herein.
<PAGE>
(f) Agreement between Lykes Minerals Corp. and Coastal
Caribbean and Coastal Petroleum dated October 16,
1992 is filed herein.
11. Statement re: computation of per share earnings.
None.
12. Statement re: computation of ratios.
Not applicable.
13. Annual report to security holders, Form 10-Q or quarterly
report to security holders.
Not applicable.
16. Letter re: change in certifying accountant.
Not applicable.
18. Letter re: change in accounting principles.
Not applicable.
21. Subsidiaries of the registrant.
The Company has one subsidiary, Coastal Petroleum Company, a
Florida corporation.
22. Published report regarding matters submitted to vote of
security holders.
Not applicable.
23. Consent of experts and counsel.
Consent of Ernst & Young LLP is filed herein.
24. Power of attorney.
Not applicable.
27. Financial data schedule.
Filed herein (EDGAR filing only).
<PAGE>
99. Additional exhibits.
Not applicable.
(d) Financial Statement Schedules.
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
COASTAL CARIBBEAN OILS & MINERALS, LTD.
(Registrant)
By /s/ Benjamin W. Heath
Benjamin W. Heath, President and
Chief Executive Officer
Dated: January 29, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
By /s/ Benjamin W. Heath By /s/ James R. Joyce
Benjamin W. Heath James R. Joyce
President, Director and Chief Executive Treasurer and Chief Financial and
Officer Accounting Officer
Dated: January 29, 1999 Dated: January 29, 1999
------------------------------ ------------------------------
By /s/ Graham B. Collis By /s/ John D. Monroe
Graham B. Collis John D. Monroe
Director Director
Dated: January 29, 1999 Dated: January 29, 1999
------------------------------ ------------------------------
By /s/ Phillip W. Ware By /s/ Nicholas B. Dill
Phillip W. Ware Nicholas B. Dill
Director Director
Dated: January 29, 1999 Dated: January 29, 1999
------------------------------ ------------------------------
<PAGE>
INDEX TO EXHIBITS
Exhibit No.
3. (a) Memorandum of Association as amended on June 30,
1982, May 14, 1985 and April 7, 1988
10. (a) Drilling Lease No. 224-A, as modified, between the
Trustees of the Internal Improvement Fund of the
State of Florida and Coastal Petroleum Company dated
February 27, 1947
(b) Drilling Lease No. 224-B, as modified, between the
Trustees of the Internal Improvement Fund of the
State of Florida and Coastal Petroleum Company dated
February 27, 1947
(c) Drilling Lease No. 248, as modified, between the
Trustees of the Internal Improvement Fund of the
State of Florida and Coastal Petroleum Company dated
February 27, 1947
(d) Settlement Agreement dated January 6, 1976 between
Coastal Petroleum Company and the State of Florida
(e) Agreement between the Company and Coastal Petroleum
dated December 3, 1991
(f) Agreement between Lykes Minerals Corp. and Coastal
Caribbean and Coastal Petroleum dated October 16,
1992
23. Consent of Ernst & Young LLP
27. Financial Data Schedule (EDGAR filing only)
BERMUDA
1961: No. 179
THE COASTAL CARIBBEAN OILS AND MINERALS
COMPANY ACT, 1961.
[15th January, 1962)
WHEREAS Butterfield, Dill and Company Limited has presented a petition to
the Legislature setting forth that it is desirous of forming a joint stock
company to be called "Coastal Caribbean Oils and Minerals Limited" for the
purposes therein expressed and that the petitioner is desirous of having the
said Company incorporated by an Act of the Legislature limiting the liability of
the shareholders to the amount unpaid on their respective shares and praying
that an Act may he passed to enable the said Company to become incorporated and
to confer on the said Company certain powers necessary for the carrying on of
its business, and it is deemed expedient to pass an Act for such purposes:
Be it, therefore, enacted by the Governor, Legislative Council and
Assembly of the Bermudas or Somers Islands as follows:
1. (1) If within six months after the passing of this Act a memorandum of
association is signed and filed in accordance with the provisions of the
Companies Act, 1948, the persons who shall sign such memorandum and the persons
who shall thereafter become shareholders in the Company shall he a body
corporate under the name of "Coastal Caribbean Oils & Minerals Ltd." with the
exclusive right to use that name in these Islands and under that name to have
perpetual succession with power to sue and liability to be sued in all courts,
and to have and use a common seal, with power to renew or change the same at
pleasure, and the Company may thereafter carry on its business under the powers
conferred by and in accordance with the provisions of this Act, of the Companies
Act, 1923, of the Companies Act, 1948, and of the Exempted Companies Act, 1950,
in so far as they are not in conflict with any of the provisions of this Act.
(2) If the persons referred to in the foregoing subsection become a
body corporate under the provisions of the said subsection then the succeeding
sections of this Act shall have effect in relation to that body corporate, which
body corporate is in the said succeeding sections referred to as "the Company".
<PAGE>
2. Upon the filing of the memorandum of association the Registrar-General
shall furnish to the Company a certificate stating the date when such memorandum
was filed in his office.
3. (1) The capital of the Company shall be such sum not less than five
thousand pounds as the Company may from time to time determine.
(2) The capital of the Company shall be divided into shares of a par
value of not less than one shilling.
(3) Subject to the provisions contained in the Companies Act, 1948,
with respect to the allotment of shares by provisional directors, the Company
shall have power to divide its shares into several classes and to attach thereto
respectively any preferential, deferred, qualified or special rights, privileges
or conditions.
(4) Without prejudice to the generality of the provisions of the last
preceding subsection, the Company shall have power to issue and allot preference
shares which are, or at the option of the Company, are to be liable to be
redeemed.
(5) The redemption or preference shares under the last preceding
subsection may be effected upon such terms and in such manner as may be provided
by the bye-laws of the Company.
(6) The redemption of preference shares by the Company shall not be
taken as reducing the amount of the Company's share capital.
(7) Where the Company has redeemed any preference shares it shall
have power to issue shares up to the nominal amount of the shares redeemed as if
those shares had never been issued.
(8) Without prejudice to the generality of the provisions of
subsection (3) of this section and notwithstanding the provisions of section
thirteen of the Company's Act, 1923, the Company shall have power to issue and
allot shares which do not carry any voting rights.
4. The Company shall have the following powers -
(a) to buy, exchange, contract for, lease and in any and all other
ways acquire, take, hold and own, and to deal in, sell,
mortgage, lease, or otherwise dispose of lands, mining claims,
mineral rights, oil wells, gas lands, oil and gas royalties,
and other real property outside these Islands, and rights and
interest in and to real property, and to manage, operate,
maintain, improve and develop the said properties, and each
and all of them;
<PAGE>
(b) to buy, exchange, contract for, lease and in any and all the
other ways acquire, take, hold and own, and to sell, mortgage,
lease, and otherwise dispose of, outside these Islands, all
rights of way, easements, franchises, and rights inherent
thereto, or deriving therefrom, and to deal in any manner
therewith;
(c) to buy, exchange, contract for, lease and in any and all other
ways acquire, take, hold and own personal property of any
nature and description outside these Islands and to sell,
mortgage, lease and otherwise dispose of the same;
(d) to engage in any kind of manufacturing business and to buy,
examine, contract for, lease, construct and otherwise acquire,
take, hold and own, mortgage, lease or otherwise dispose of,
manufacturing plants, and to manage, operate, maintain,
improve and develop the same outside these Islands;
(e) to buy, exchange, construct, contract for; lease and in any
and all other ways acquire, take, hold and own refineries for
the treatment of petroleum and other mineral oils and gases;
tanks and other facilities for the storage thereof; and
manufacturing plants, works, pipe lines and appurtenances for
the production, distribution and sale of petroleum, oil, gas
and of any and all refinements and by-products thereof; to
prospect for oil; to drill wells and to develop the same; to
transport oil and its products; to refine crude oil; to
improve, maintain, operate and develop, and to sell, mortgage,
lease or otherwise dispose of said properties, and to sell or
otherwise dispose of such petroleum, oil and all refinements
and by-products thereof;
(f) to enter into, maintain, operate or carry on in all its
branches the business of mining and of drilling, boring and
exploring for, producing, transporting, refining, treating,
distilling, manufacturing, handling, and dealing in, buying
and selling petroleum, oil, natural gas, asphaltum, bitumen,
bituminous rock, and any and all other mineral and hydrocarbon
substances, and any and all products or by-products which may
be derived from said substances or either of them; and for
such, or any of such purposes, to buy, exchange, contract
for, lease, and in any and all other ways to acquire, take,
hold and own, and to sell, mortgage, lease and otherwise
dispose of, and to construct, manage, maintain, deal in and
operate mines, refineries, tanks, machinery, steam, sailing
and other vessels or watercraft of any kind, type and
description, and otherwise deal in, operate, establish,
promote, carry on, conduct and manage any and all other
property and appliances that may in any wise be deemed
advisable in connection with the business of the Company or
any branch thereof, or that may be deemed convenient at any
time by the Company;
(g) to buy, exchange, construct, contract for, lease and in any
and all other ways acquire, take, hold and own pipe lines and
telegraph and telephone lines useful or necessary for its own
business, and to improve, maintain and operate same, and to
sell, mortgage, lease or otherwise dispose of the same outside
these Islands;
<PAGE>
(h) to do engineering and contracting in the designing,
construction, improvement, extension, maintenance and repair
of oil or gas plants, including pipe lines, tanks and other
appliances thereto appertaining; also in the opening,
developing and operating of petroleum, gas and oil wells, both
for the Company and others;
(i) to manufacture, buy, sell and otherwise deal in gas and oil
machinery and appliances outside these Islands; and also
lumber, stone, brick, steel, iron and other materials in
connection with the building, erection, construction,
development, improvement, extension, maintenance and repair of
the assets aforesaid enumerated, both for the Company and for
others;
(j) to purchase, exchange, or otherwise acquire, take, hold and
own, and to sell, mortgage, lease or otherwise dispose of
water rights and water supplies outside these Islands,
together with the necessary pipe lines, reservoirs, dams,
ditches and appurtenances useful or necessary for its own
business and to manage, operate, maintain, improve, extend or
develop such water supplies;
(k) to buy, exchange, contract for, construct, lease and in any
and all other ways acquire; take, hold and own, and to sell,
mortgage, lease and otherwise dispose of transportation lines
by land, air or water, useful or necessary for its own
business, and to manage, operate, maintain, improve, extend
and to develop the same;
(l) to construct, acquire, own, maintain and operate and to carry
on the business of proprietors of wharves, piers, docks,
basins, warehouses, harbours, ports, works and channels
including all appurtenances, appliances and apparatus
necessary and useful in connection therewith;
(m) to borrow money for any of the purposes of the Company and to
issue bonds, debentures, debenture stock, notes or other
obligations therefor, and to secure the same by pledge or
mortgage of the whole or any part of the property of the
Company whether real or personal, or to issue bonds,
debentures, debenture stock, notes and other obligations with
any such security;
(n) to purchase, apply for or otherwise acquire and to hold, own,
use and operate and sell, lease, assign, pledge or in any
other manner dispose of and in any manner deal with and
contract with reference to concessions in respect of oil and
mineral rights and any other concessions;
(o) to acquire any personal property including commercial
commodities and rights of any description, inventions,
patents, patent rights, copyrights and trade marks, and to
hold, exploit, sell, dispose of, mortgage, lease, let,
develop, grant licenses or rights, to the same as the Company
may from time to time determine:
<PAGE>
Provided that any such property trade or business shall
be outside these Islands but so that no prohibition shall
prevent the conduct of such business from these Islands or the
registration of any patent, copyright or trade marks in these
Islands;
(p) to invest the monies of the Company upon the security of any
real or personal property situated outside these Islands and
to sell, exchange, vary or dispose of the same as the Company
shall from time to time determine;
(q) to acquire by purchase or otherwise and hold any stocks,
shares, bonds, debentures, debenture stock obligations,
mortgages or securities created or issued outside these
Islands and to sell, exchange, vary or dispose of the same as
the Company may from time to time determine;
(r) to act as managers or agents in respect of any of the business
of the Company;
(s) to lend or advance money to persons on such terms as the
Company may deem expedient;
(t) to borrow or raise or secure the payment of money in such
manner as the Company may think fit;
(u) to develop, operate, and manage any other undertakings,
manufacturing enterprises or businesses falling within the
scope of the powers set forth in this section as the Company
may from time to time determine;
(v) to give guarantees with respect to the liabilities of third
parties, the fidelity of individuals filling or about to fill
situations of trust or confidence and such other business
guarantees as the Company may from time to time determine;
(w) to carry out all or any of the foregoing objects as principals
or agents, or in partnership or conjunction with any other
firm, association or company, or by means of any subsidiary or
auxiliary company in any part of the world.
5. The provisions of subsections (1), (2), (3) and (4) of section twenty
of the Companies Act, 1923, shall not apply with respect to the Company and the
provisional directors or the directors may allot all or any of the shares
subscribed for in the Company to which person or corporation as they may from
time to time determine, without regard to the nationality of the person or
corporation to whom any shares may be allotted.
6. Notwithstanding anything contained in the Companies Act, 1923, the
Company shall not be required to record in its register of shareholders or
elsewhere the nationality or occupation of the transferee of any shares of the
capital stock of the Company, the amount paid for the shares transferred or the
date of the acquisition of any shares, nor shall the Company be required to
allot specific share numbers or to record the same relating to the shares in its
capital stock;
<PAGE>
Provided that nothing in this Act contained shall be construed to exempt
the Company or any person or persons from the payment of any stamp duty payable
under any Act of the Legislature of these Islands.
7. Nothing in the Act contained shall be construed to affect the rights
of Her Majesty, Her heirs and successors or of any body politic or corporate or
of any other person or persons except such as are mentioned in this Act, and
those claiming by, from or under them.
================================================================================
DRILLING LEASE NO. 224-A AS MODIFIED
BETWEEN
TRUSTEES OF THE INTERNAL IMPROVEMENT FUND
OF THE STATE OF FLORIDA
AND
COASTAL PETROLEUM COMPANY
-----------
February 27, 1947
================================================================================
<PAGE>
DRILLING LEASE NO. 224-A AS MODIFIED
WHEREAS, pursuant to the provisions of Chapter 20680, Laws of Florida,
Acts of 1941, for a valuable consideration therein stated, the Trustees of the
Internal Improvement Fund of the State of Florida, as Lessor, and Arnold Oil
Explorations, Inc., a Florida corporation having its principal place of business
in Groveland, Florida, now Coastal Petroleum Company, with its principal place
of business in St. Petersburg, Florida, as Lessee, duly executed Drilling Lease
No. 224-A, dated the 27th day of December, 1944, which said lease is now in full
force and effect, and all rentals due thereon have been duly paid, and
WHEREAS, the United States of America has made claim to the title to a
large part of the areas included within said lease, and WHEREAS, the United
States of America has filed suit against the State of California, being No. 12
Original, 1945 Term, which suit involves the title to and oil rights of
Tidewater Lands of the State of California, (but may affect the title to a large
part of the areas included within the said lease) and
WHEREAS, such litigation renders the reformation of the Drilling Blocks as
described in Lease No. 224-A expedient and desirable for the purpose of
permitting immediate drilling thereunder while maintaining within such lease
provisions the areas included in such Drilling Blocks pending the outcome of
such litigation and assures to the said parties a reasonable area around each
well drilled the title to which is not question in such suit, and
WHEREAS, certain other provisions of said lease appear difficult of
construction, and require clarification as between the said parties, and
WHEREAS, it is the purpose and intent of the said parties to modify said
lease in certain particulars only to permit a practical performance thereof, but
not to extinguish said lease, nor to relieve the parties thereto of their
obligations thereunder, but to render the same more certain and explicit, and
WHEREAS, it is the purpose and intent of the said parties to ratify and
confirm, with the modifications hereinafter shown, the said Drilling Lease No.
224-A.
Now, THEREFORE, said lease is hereby modified in certain particulars only
so that the same shall now read as follows:
"THIS AGREEMENT, Made and entered into in duplicate this 27th day of
December, A. D. 1944, by and between the Trustees of the Internal Improvement
Fund of the State of Florida, hereinafter called 'TRUSTEES' or 'LESSORS', and
ARNOLD OIL EXPLORATIONS, INC., a Florida corporation having its principal place
of business in Groveland, Florida, hereinafter called 'LESSEE'.
<PAGE>
WITNESSETH
For and in consideration of the sum of Five Hundred ($500.00) Dollars per
drilling block as hereinafter described, to them in hand paid, receipt whereof
is hereby acknowledged, together with the covenants, agreements and stipulations
hereinafter contained, as well as in further reference to and in pursuance of a
certain EXPLORATION CONTRACT FOR OIL, GAS AND MINERALS AND OPTION TO LEASE,
heretofore executed between Trustees and Lessee, the same being dated the 4th
day of October, 1941, said Trustees, under authority of Chapter 20680, Laws of
Florida, Acts of 1941, have leased, and by these presents do hereby lease, unto
said Lessee for the sole and only purpose of prospecting, drilling, mining and
operating for the production of oil, gas and sulphur, laying pipe lines,
building tanks, roads, power stations and structures thereon, but not including
bulkheading and filling water bottoms except when express permission therefor
has been obtained from Trustees, as may be necessary to produce, save and take
care of said products and taking the production thereof, those certain areas
referred to in said Exploration Contract as DRILLING BLOCKS and more
particularly described as follows, to wit:
All water bottoms of the Gulf of Mexico within three leagues (10.36
statute miles) of the ordinary high water mark of the outermost shore included
within Drilling Blocks 1, 2, 3 and 4 inclusive as said drilling blocks appear
upon a map which is attached hereto and made a part of this lease.
Also all submerged lands and water bottoms of all bays, sounds and bayous
of the Gulf, and adjacent Government waterfront lots contiguous to the water
bottoms of the Gulf of Mexico herein first described in Drilling Blocks 1, 2, 3
and 4 as said drilling blocks appear upon a map which is attached hereto and
made a part of this lease.
Also the bottoms of and water bottoms adjacent to the rivers which flow
through natural channels into the Gulf of Mexico and where included in the
description of Lease 224-A prior to modification thereof.
The Lessor finds and it is agreed that Lease 224-A prior to modification
was intended to include all lands submerged and unsubmerged which are described
herein and that all lands submerged and unsubmerged which were included in Lease
224-A prior to modification including but not by way of limitation all areas
described therein, as Drilling Blocks 1-A to 13-A inclusive, the north portion
of Drilling Block 8-B and all of Drilling Blocks 9-B to 14-B inclusive are
included herein.
This lease covers the area included between the northwest boundary of
Lease 224-A prior to modification; the southern boundary of said lease prior to
modification, which is the projection westward from the shore of the township
line between Townships 25 and 26 South; the western, or off-shore boundary,
shall be a line 10.36 statute miles seaward from the outermost land; the eastern
boundary shall include the areas as described in Exploration Contract No. 224,
dated October 4, 1941.
DRILLING BLOCK NO. 1 of said lease shall include the area as follows:
Bounded on the west by the northwest boundary of Lease No. 224-A
prior to modification; on the east by the projection southward from the
shore of the range line between Ranges 2 and 3 West; the south, or
off-shore boundary, shall be a line 10.36 statute miles seaward from
the outermost land; the north boundary shall include the area as
described in Exploration Contract No. 224, dated October 4, 1941.
<PAGE>
DRILLING BLOCK NO. 2 of said lease shall include the area as follows:
Bounded on the west by the eastern boundary of Drilling Block No.
1 as herein defined; on the southeast by the projection westward from
the shore of the township line between Townships 10 and 11 South; the
southern, or off-shore boundary, shall be a line 10.36 statute miles
seaward from the outermost land; the north boundary shall include the
area as described in Exploration Contract No. 224, dated October 4,
1941.
DRILLING BLOCK NO. 3 of said lease shall include the area as follows:
Bounded on the north by the southeast boundary Drilling Block No.
2 as herein defined; on the south by the projection westward from the
shore of the township line between Townships 16 and 17 South; the
western, or off-shore boundary, shall be a line 10.36 statute miles
seaward from the outermost land; the eastern boundary shall include the
area as described in Exploration Contract No. 224, dated October 4,
1941.
DRILLING BLOCK NO. 4 of said lease shall include the area as follows:
Bounded on the north by the southern boundary of Drilling Block
No. 3 as herein defined; on the south by the southern boundary of Lease
No. 224-A prior to modification, which is the projection westward from
the shore of the township line between Townships 25 and 26 South; the
western, or off-shore boundary, shall be a line 10.36 statute miles
seaward from the outermost land; the eastern boundary shall include the
area as described in Exploration Contract No. 224, dated October 4,
1941.
All rivers, sloughs, arms and overflow lands included in the above blocks
are to be considered a part of that particular drilling block into which the
respective river, slough, arm or overflow land drains or empties.
The lease and its subdivision into drilling blocks are shown upon a map
which is attached hereto and made a part hereof.
Each drilling block shall comprise all coastal off-shore areas of the Gulf
of Mexico, together with all bars, islands and adjacent Government waterfront
lots contiguous thereto; all bays, bayous, sounds and inlets of the Gulf,
together with all connecting sloughs, flats and/or the overflow and/or submerged
lands, all bars and islands and all adjacent Government waterfront lots
contiguous to such areas; all rivers and lakes named or described herein,
together with all connecting sloughs, arms and overflow lands located in such
waters.
It is mutually covenanted, understood and agreed by and between the
respective parties hereto that the terms of this lease be and they are as
follows:
<PAGE>
-1-
In consideration of the sum hereinbefore stated, the work herein agreed to
be performed, the royalties herein provided for, and all other agreements of
Lessee herein contained, said Trustees do hereby grant, lease and let
exclusively unto Lessee and Lessee's successors and assigns, subject to the
express permission requirements herein contained, those certain areas
hereinbefore described, for the purpose of drilling for and producing therefrom
oil, gas, sulphur, casinghead gas and casinghead gasoline, together with rights
of way and easements for roads, pipe lines, telephone and telegraph lines,
tanks, power houses, stations, gasoline plants and fixtures for producing,
treating and caring for such products, as well as any and all other rights and
privileges necessary and incident to or convenient for the economical operation
of such areas, alone or conjointly with neighboring areas, for oil, gas,
sulphur, casinghead gas and casinghead gasoline; and with the further right to
inject water, gas or oil into sub-surface strata, provided such injections in no
way damage any water or intrude any structure containing water suitable and
necessary for either present or future domestic requirements.
-2-
Subject to the other provisions herein contained, this lease shall be for
a term of five (5) years, computed from December 27, 1944, hereinafter sometimes
referred to as the primary term, and as to each DRILLING BLOCK as long
thereafter as oil, gas or other minerals are produced from such Drilling Block,
subject to renewal thereof for periods of five years each, as hereinafter
provided.
-3-
Lessee agrees to drill at least one (1) test well on each Drilling Block
within the first five year period of this lease, and to drill at least one (1)
additional well in each succeeding five (5) year renewal period hereof upon each
separate Drilling Block until the total number of wells drilled upon each
Drilling Block shall equal one-half (1/2) the number of sections of land, or
equivalent, embraced in such Drilling Block.
Lessee at the time of the drilling of each well on a Drilling Block is
commenced shall file with Trustees a written declaration describing the Drilling
Block and the sections of land thereof to which such well shall apply. If no
well shall be commenced within the first five (5) year period of this lease, all
rights to renew this lease shall become unenforceable and the entire lease shall
be void, and if during each subsequent five (5) year renewal period hereof no
well or wells be commenced as required herein, such renewal lease contract in
its entirety shall become terminated as to any area in such Drilling Block not
in a status conformable in this particular with the requirements of this lease.
The location of well or wells in each Drilling Block is at the option of
Lessee. Said well or wells shall be drilled to a depth not less than six
thousand (6,000) feet, when drilling is specified unless oil, gas or sulphur has
been found in paying quantities or igneous rock, or Paleozoic formation, or
formations not susceptible of being drilled with first-class drilling equipment
is encountered at a lesser depth.
<PAGE>
If drilling operations on the said test well are not commenced within five
years from December 27, 1944, and continued thereafter to completion with
reasonable diligence and in a workmanlike manner to discover and develop said
premises for the production of oil, gas or sulphur until such wells are
completed or abandoned, the entire lease shall be void, provided, however, that
if the Lessee shall have commenced drilling operations during the primary term,
which after completion shall comprise in the aggregate 24,000 feet of hole, all
drilling obligations herein required during the primary term shall have been met
and said lease shall be renewed for the ensuing five year period as to all of
the Drilling Blocks described herein. Thereafter, if drilling operations on a
well or wells are not commenced within each five year period, and continued
thereafter to completion with reasonable diligence and in a workmanlike manner
to discover and develop such premises for the production of oil, gas or sulphur
until such wells are completed or abandoned, the entire lease shall be void,
provided, however, that if the Lessee shall have commenced drilling operations
during the said term of five years, or any subsequent term, which after
completion shall comprise in the aggregate 24,000 feet of hole all drilling
obligations herein required during the said term shall have been met and said
lease shall be automatically renewed for the ensuing five year period as to all
of the Drilling Blocks described herein.
Notwithstanding all provisions to the contrary, it is understood that
drilling of a total of 24,000 feet in wells begun during the primary term and
drilling of a total of 24,000 feet in drilling operations begun in each five
year term thereafter shall operate to extend this lease as to all of the
Drilling Blocks described herein, for an additional term of five years. Drilling
operations commenced on any block or blocks that result in meeting the depth
requirement herein contained, shall operate to hold that block, and any excess
over 6,000 feet drilled on any block shall constitute a credit and be applied
against the footage Lessee is obligated to drill on any other drilling block in
said lease.
What is termed a core hole, or hole for formation determination, shall not
be considered a well under the terms of this lease.
The Lessor does hereby find that the plan of drilling on said Drilling
Blocks as herein set out is of advantage to the Lessor for the accomplishment of
the purpose of discovering and producing oil on the premises herein leased and
carries out the real intent and purpose of Drilling Lease 224-A prior to
modification.
-4-
The royalties to be paid Trustees are:
(a) On Oil, if paid in kind, one-eighth (1/8) of that produced
and saved from said land, the same to be delivered at the wells, or to
the credit of Trustees into the pipe line to which the lines may be
connected; Lessee shall have the right from time to time to purchase
any royalty oil in Lessee's possession, paying the market price
therefor prevailing for the field where produced, on the date of
purchase.
<PAGE>
(b) On Gas, including casinghead gas or other gaseous substances,
produced from said land and sold or used off the premises, or in the
manufacture of gasoline or other products therefrom, the market value
at the mouth of the well of one-eighth (1/8) of the gas, in its natural
state, so sold or used, provided that on gas sold at the wells the
royalty shall be one-eighth (1/8) of the amount of such sale; where
gas, from a well producing gas only, is not sold or used, Lessee must
pay as royalty One Hundred ($100.00) Dollars on such well per year, and
upon such payment it will be considered that gas is being produced
within the meaning of Paragraph 2 hereof for one five (5) year lease
period if Lessee desires the renewing privilege of said paragraph with
respect thereto.
(c) On Sulphur, the royalty shall be fifty cents ($.50) per long
ton, payable when mined.
(d) Any and all cash payments hereunder by Lessee to Trustees
shall be made by said Lessee to Trustees at Tallahassee, Florida.
(e) Lessee shall have the free use of oil, gas and water from
said lands, when used in the operation of this lease, which shall not
be subject to royalty requirements hereof.
-5-
For the purpose of examining the production therefrom, Trustees or their
authorized representatives or agents at all reasonable times shall have access
to the wells, gauge books, oil and/or gas meters, tanks, reservoirs, sump holes,
buildings, and other structures and appliances placed upon the lands by Lessee.
-6-
Lessee agrees to keep logs of any and all wells drilled upon the leased
premises, which said logs shall at all times be subject to inspection of
Trustees, their representatives or agents, and within such time as required by
law Lessee shall furnish the Trustees with a copy of said log. Lessee also
agrees to take regular samples of material encountered, at intervals not greater
than thirty (30) feet, and, as each sample is taken, to forward to the said
Trustees a portion thereof, not less than three (3) ounces in weight, within
such time as required by law, marked to indicate the Drilling Block from which
it is taken and the depth and the day the same is taken. Lessee further agrees
to keep true and correct accounts of petroleum and/or gas, or other valuable
substances from each and every well drilled on the leased premises where any
production is found and saved, which said accounts shall be open at all times to
the inspection of Trustees or their authorized representatives or agents.
-7-
The total area in said Drilling Blocks 1, 2, 3 and 4 is agreed to be
1,936,100 acres, whether the same is actually later determined to be more or
less, and the total annual rental thereon shall be $22,566.40, and which sum the
Lessor does hereby find is equal to the amount provided to be paid as rental by
the Lessee under this lease before modification. No rentals shall be paid on any
area, or the portion of any area, which Lessee has surrendered to Trustees as
herein provided, nor shall Lessee be required to pay rentals on any drilling
block wherein oil in commercial quantities is being produced.
<PAGE>
For rental purposes, each drilling block shall be deemed to be one-fourth
(1/4) of the total acreage and for any part of a drilling block at the rate
which that part bears to the whole.
The drilling of each well shall be prosecuted with due diligence as
hereinbefore required. If the first and all subsequent wells drilled on any
drilling block commenced within the terms of this lease and before the
expiration of five (5) years from this date, shall result as dry holes, then the
lease shall be extended as to such Drilling Block for an additional period of
five (5) years under the terms and conditions as herein set out for such renewal
period. The payment or tender of rental may be made by the valid check or draft
of Lessee mailed or delivered to Lessor on or before such date of payment. The
down cash payment at the time of executing this lease is consideration for this
lease according to its terms and shall not be allocated as mere rental for a
period.
This lease contemplates the reasonable development of the oil and gas
underlying the land described in this lease including the drilling of as many
wells as a reasonably prudent operator would drill under the same or similar
circumstances. In the event a well or wells producing oil or gas in paying
quantities should be brought in on adjacent land and within three hundred thirty
(330) feet of and draining the leased premises, or acreage pooled therewith,
Lessee agrees to drill such offset wells as a reasonably prudent operator would
drill under the same or similar circumstances.
-8-
On what are commonly termed coastal and tide water areas, no well shall be
begun nearer than two hundred (200) feet from the ordinary high water mark of
the shore, nor for lake and river areas, nearer than fifty (50) feet from the
ordinary high water mark, without the written consent of the owner of adjoining
upland; nor shall any well be begun within one-eighth (1/8) of a mile of the
shore line in front of any village of five (5) or more families; and where the
majority of the dwelling houses occupied by said families are each less than
three hundred (300) feet from another of such dwelling houses, without the
written consent of the owners of the water front upland situated one-fourth
(1/4) of a mile each way from a line drawn from the well to the shore line at
the nearest point; nor shall any well be begun within the corporate limits of
any municipality without the written consent of the governing authorities
thereof. No well shall be begun nearer than two hundred fifty (250) feet from
the right of way of any State Highway without the consent of Lessors. The
inhibitions of this paragraph shall not apply where producing wells shall have
been drilled on lands, not included in this lease, within two hundred fifty
(250) feet of the inhibited area.
-9-
Except as may otherwise be provided herein, Lessee shall procure all
necessary permits from the Federal Government and assume all responsibilities to
the Federal Government incident to the operations of this lease, but the Lessor
shall cooperate in securing such permits.
-10-
Lessee shall have the right at any time to remove all machinery and
fixtures placed by Lessee on said leased premises, including the right to
withdraw and remove casing.
<PAGE>
-11-
Any well, or hole, after being drilled, unless in operation, shall be
securely capped, or if casing is removed, shall be permanently and tightly
sealed to the satisfaction of Trustees in such manner and so placed as to
prevent escape of salt water or undesirable material to the surface, or its
intrusion into any sub-surface structure bearing water in sufficient quantity
and of quality suitable for domestic purposes.
-12-
Lessee shall bury his pipe line not less than fifteen (15) inches below
ground surface, or if water areas are traversed, said pipe line shall be so laid
that no obstruction to navigation or use of waterway will result therefrom.
-13-
The rights of either party hereunder may be assigned in whole or in part
only after written consent thereto from the Trustees is first obtained; and the
provisions hereof shall extend to the successors and assigns of the parties
hereto, but no change or division in ownership of land rentals or royalties,
however accomplished, shall operate to enlarge or diminish the obligations or
the rights of either party. Neither this lease nor the work to be performed
hereunder shall in any way limit the right of said Trustees to sell or dispose
of, or to lease for other purposes than those herein, any area or areas herein
described or any part thereof covered by this lease, but in case of sale,
conveyance or lease by the said Trustees, such sale, conveyance or lease shall
be subject to this lease.
In the event of any legal assignment of this lease as to a segregated
portion of the area covered thereby, the rentals payable hereunder shall be
apportionable as between the several leasehold owners ratably according to the
area of each, and deferment of rental payments by one shall not affect the
rights of other leasehold owners hereunder.
-14-
The breach by Lessee of any obligations arising hereunder shall not work
as a forfeiture or termination of this lease, nor cause a termination or
reversion of the estate created hereby, nor be grounds for cancellation hereof
in whole or in part, except as otherwise provided herein and except as
forfeitures may be imposed by laws of this State.
In the event the Trustees consider that operations hereunder are not at
any time being conducted in compliance with this lease, said Trustees shall
notify Lessee in writing of the facts relied upon as constituting a breach
hereof and Lessee, if in default, shall have thirty (30) days after the mailing
or sending of such notice in which to commence compliance with the obligations
imposed by virtue of this instrument. If Lessee is in fact not complying with
the terms of the lease and if commencement of compliance shall not have been
undertaken by Lessee within said thirty (30) days, and pursued to the
satisfaction of Trustees, said Trustees shall have the right without further
notice to declare this lease in default as to any part so affected, and
thereupon all rights of Lessee hereunder as to such part shall terminate and
cease.
<PAGE>
-15-
When drilling or other operations are delayed or interrupted by lack of
water, labor or material, or by fire, storm, flood, war, rebellion,
insurrection, riot, strike, differences with workmen, or failure of carriers to
transport or furnish facilities for transportation, or as a result of some
order, requisition or necessity of the Government, or as the result of any cause
whatsoever beyond the control of the Lessee, when notice thereof and claim
therefor shall have been given to the Trustees within twenty (20) days of the
occurrence of the excusing cause, the time of such delay or interruption shall
not be counted against Lessee, anything in this lease to the contrary
notwithstanding; EXCEPT, HOWEVER, as to requirements with respect to drilling as
provided in Chapter 20680, Laws of Florida, Acts of 1941.
-16-
Lessee shall have the right to surrender any portion of any area described
herein without in any way impairing its rights under this lease in remaining
parts or portions. In the event of surrender of any portion, Lessee shall
execute to Trustees a release of the part or parts Lessee desires to surrender.
-17-
Lessee shall not issue any stock or other securities to finance its
obligations hereunder prior to the production of gas, oil or other minerals in
paying quantities without the approval of the Trustees unless such issue meets
the requirements of the Federal Securities and Exchange Commission or the
requirements of the "BLUE SKY LAWS" of any State where such stock may be sold.
-18-
Lessee assumes responsibility for all damages caused by Lessee's
operations and will in all respects save the Trustees harmless on account of
anything growing out of this lease, the source of which is the operations of
said Lessee.
-19-
No well drilled under the terms of this lease, and capable of producing
oil, gas or sulphur in commercial quantities, may be closed and production of
oil, gas or sulphur therefrom curtailed, without the written consent of the
Trustees.
<PAGE>
-20-
Lessee agrees that it will on or before September 1, 1947, start drilling
operations on a location to be selected by it in this lease or in Lease No.
224-B, dated March 27, 1946, or in Lease No.248, dated December 19, 1944, and
that it will prosecute the drilling of such well with due diligence. The
agreements to drill this well appear in Paragraphs Twenty (20) of this lease,
Lease 224-B and Lease 248 and refer to the same well and are not to be construed
as cumulative. Lessee further agrees that it will commence drilling operations
within the primary term of this lease that will with due diligence thereafter
and upon completion accomplish the drilling of at least 24,000 feet of hole on
this lease. Lessee also agrees that thereafter at least one set of tools will be
employed continuously during the remainder of the primary term of Leases 224-B,
248 and this lease until at least 24,000 feet of hole has been drilled on this
lease, and that there will not be an interruption of over 120 days, except for
force majeure, between the completion of one well and the beginning of drilling
operations on another well on one of the said leases.
-21-
It is understood that in any of the drilling obligations with respect to
the areas covered by this lease, Lessee may acquire the right to drill and may
drill on areas contiguous thereto, in which case the said drilling operations
will be accepted as compliance with the Lessee's drilling obligations on the
areas covered by this lease as to any one Drilling Block contiguous thereto,
provided that a 1/8 royalty in the well drilled is assigned to the State without
cost to the latter.
-22-
If any sentence, paragraph, clause or provision of this Drilling Lease
Number 224-A as modified shall be held subject to any laws of the State of
Florida now in effect, and enacted subsequent to October 4, 1941, and therefore,
invalid, then in such case the rights and obligations of the Lessor and Lessee
as to the subject matter of such invalid sentence, paragraph, clause or
provision shall be governed by the terms of Drilling Lease Number 224-A prior to
modification thereof, except that any time or times fixed for performance on the
part of either of the said parties under the terms of the lease before
modification corresponding to such invalidated portions shall be extended for a
reasonable time after final adjudication of such invalidity to permit reasonable
compliance tberewith.
-23-
WHEREAS, the United States of America has made claim to the title to some
of the areas included within this lease, and
WHEREAS, the United States of America has filed suit against the State of
California, being Number 12 Original, 1945 Term, which suit involves the title
to and oil rights of Tidewater Lands of the State of California, but may affect
the title to some of the areas included within this lease, and
WHEREAS, the Trustees recognize that said claim and suit may place a cloud
on the title to some of the areas included in this lease, and
<PAGE>
WHEREAS, Lessee does hereby agree to carry out their obligations herein
contained without claiming any release from any of said obligations on the basis
of the said claim on title except as hereinafter stated, it is hereby agreed by
the Trustees that: If a decision adverse to the State of California shall be
rendered in said suit by the Supreme Court of the United States, then in that
event the Lessee is relieved from any duty to carry out its drilling obligations
assumed under this lease as to any five-year period except the first five-year
period hereof on any lands the title to which appears to be affected by such
decision, and the rentals herein provided for shall be abated proportionately to
the extent such decision appears to divest title to part of the lands hereby
affected from the State of Florida, until such time as there is a decision
rendered by the Supreme Court of the United States quietmg title in Lessor or
the State of Florida to the areas affected by any adverse decision in the said
suit against the State of California; within sixty days after title to said
areas is so quieted in Lessor or the State of Florida, Lessee must commence
operations to carry out the drilling obligations of this lease and resume
payment of the full rentals.
-24-
Lessor finds as a matter of fact that this Lease as modified is of
material advantage to the State of Florida; that within the primary term 24,000
feet of well hole must be drilled, in addition to payment of rentals, whether
the wells are drilled or not, and that it is for the best interest of the Trust
Fund administered by the Lessors that exploration for and discovery of oil be
accomplished as soon as feasibly possible, and that this lease be modified, as
well as Leases Nos. 224-B and 248, as modified, most nearly serve such interest.
-25-
The Trustees also find, and it is agreed, that the modification of this
lease is not, and is not intended to be, a new agreement or novation.
IN WITNESS WHEREOF, the Trustees of the Internal Improvement Fund of the
State of Florida, the Lessor, have hereunto subscribed their names and have
caused the seal of the Department of Agriculture of the State of Florida to be
hereunto affixed, and the Lessee has caused this instrument to be executed in
its name by its Vice President, and its corporate seal to be affixed, attested
by its Secretary, as of the date aforesaid."
<PAGE>
Executed this 27th day of February, A. D., 1947.
MILLARD F. CALDWELL (SEAL)
Governor
C. M. GAY (SEAL)
Comptroller
J. EDWIN LARSON (SEAL)
State Treasurer
__________________________________ (SEAL)
Attorney General
NATHAN MAYO (SEAL)
Commissioner of Agriculture
ACTING AS AND COMPOSING THE TRUSTEES
OF THE INTERNAL IMPROVEMENT FUND
OF THE STATE OF FLORIDA
Lessor
COASTAL PETROLEUM COMPANY
(Formerly Arnold Oil Explorations, Inc.)
By J. E. FITZ-PATRICK
Vice-President.
Lessee
Attest:
BENJAMIN W. HEATH
Secretary
Signed, Sealed and Delivered in the presence of:
J. THOMAS GURNEY
ANNIE LAURA FOSTER
Approved:
JULIUS F. PARKER
================================================================================
DRILLING LEASE NO. 224-B AS MODIFIED
BETWEEN
TRUSTEES OF THE INTERNAL IMPROVEMENT FUND
OF THE STATE OF FLORIDA
AND
COASTAL PETROLEUM COMPANY
-----------
February 27, 1947
================================================================================
<PAGE>
DRILLING LEASE NO. 224-B AS MODIFIED
WHEREAS, pursuant to the provisions of Chapter 20680, Laws of Florida,
Acts of 1941, for a valuable consideration therein stated, the Trustees of the
Internal Improvement Fund of the State of Florida, as Lessor, and Arnold Oil
Explorations, Inc., a Florida corporation having its principal place of business
in Groveland, Florida, now Coastal Petroleum Company with its principal place of
business in St. Petersburg, Florida, as Lessee, duly executed Drilling Lease No.
224-B, dated the 27th day of March, 1946, which said lease is now in full force
and effect, and all rentals due thereon have been duly paid, and
WHEREAS, the United States of America has made claim to the title to a
large part of the areas included within said lease, and WHEREAS, the United
States of America has filed suit against the State of California, being No. 12
Original, 1945 Term, which suit involves the title to and oil rights of
Tidewater Lands of the State of California, (but may affect the title to a large
part of the areas included within the said lease) and
WHEREAS, such litigation renders the reformation of the Drilling Blocks as
described in Lease No. 224-B expedient and desirable for the purpose of
permitting immediate drilling thereunder while maintaining within such lease
provisions the areas included in such Drilling Blocks pending the outcome of
such litigation and assures to the said parties a reasonable area around each
well drilled the title to which is not questioned in such suit, and
WHEREAS, certain other provisions of said lease appear difficult of
construction, and require clarification as between the said parties, and
WHEREAS, it is the purpose and intent of the said parties to modify said
lease in certain particulars only to permit a practical performance thereof, but
not to extinguish said lease, nor to relieve the parties thereto of their
obligations thereunder, but to render the same more certain and explicit, and
WHEREAS, it is the purpose and intent of the said parties to ratify and
confirm, with the modifications hereinafter shown, the said Drilling Lease No.
224-B.
Now, THEREFORE, said lease is hereby modified in certain particulars only
so that the same shall now read as follows:
"THIS AGREEMENT, Made and entered into in duplicate this 27th day of
March, A. D. 1946, by and between the Trustees of the Internal Improvement Fund
of the State of Florida, hereinafter called 'TRUSTEES' or 'LESSORS', and ARNOLD
OIL EXPLORATIONS, INC., a Florida corporation, having its principal place of
business in Groveland, Florida, hereinafter called 'LESSEE'.
<PAGE>
WITNESSETH:
For and in consideration of the sum of Five Hundred ($500.00) Dollars per
drilling block as hereinafter described, to them in hand paid, receipt whereof
is hereby acknowledged, together with the covenants, agreements and stipulations
hereinafter contained, as well as in further reference to and in pursuance of a
certain EXPLORATION CONTRACT FOR OIL, GAS AND MINERALS AND OPTION TO LEASE,
heretofore executed between Trustees and Lessee, the same being dated the 4th
day of October, 1941, said Trustees, under authority of Chapter 20680, Laws of
Florida, Acts of 1941, have leased, and by these presents do hereby lease, unto
said Lessee for the sole and only purpose of prospecting, drilling, mining and
operating for the production of oil, gas and sulphur, laying pipe lines,
building tanks, roads, power stations and structures thereon, but not including
bulkheading and filling water bottoms except when express permission therefor
has been obtained from Trustees, as may be necessary to produce, save and take
care of said products and taking the production thereof, those certain areas
referred to in said Exploration Contract as DRILLING BLOCKS and more
particularly described as follows, to wit:
All water bottoms of the Gulf of Mexico within three leagues (10.36
statute miles) of the ordinary high water mark of the outermost shore included
within Drilling Blocks 5, 6, 7 and 8 inclusive as said drilling blocks appear
upon a map which is attached hereto and made a part of this lease.
Also all submerged lands and water bottoms of all bays, sounds and bayous
of the Gulf, and adjacent Government waterfront lots contiguous to the water
bottoms of the Gulf of Mexico herein first described in Drilling Blocks 5, 6, 7
and 8 as said drilling blocks appear upon a map which is attached hereto and
made a part of this lease.
Also the bottoms of and water bottoms adjacent to the rivers hereinafter
named which flow through natural channels in the Gulf of Mexico, to wit: Myakka,
Manatee, Little Manatee, Alafia, Caloosahatchee (from its month to LaBelle
Bridge), Peace River to Township 29/30, included within said Drilling Blocks 5,
6, 7 and 8 as shown on said map.
The Lessor finds and it is agreed that Lease 224-B prior to modification
was intended to include all lands submerged and unsubmerged which are described
herein, and that all lands submerged and unsubmerged which were included in
Lease 224-B prior to modification including but not by way of limitation all
areas described therein as Drilling Blocks 14-A to 24-A inclusive, Drilling
Blocks 1-B to 7-B inclusive, the south portion of Drilling Block 8-B and all of
Drilling Blocks 1-C and 2-C are included herein.
This lease covers the area included between the northern boundary of Lease
224-B prior to modification, which is the projection westward from the shore of
the township line between Townships 25 and 26 South; the southern boundary of
said lease prior to modification, which is Latitude 26(degree) North; the
western, or off-shore boundary, shall be a line 10.36 statute miles seaward from
the outermost land; the eastern boundary shall include the areas as described in
Exploration Contract No. 224, dated October 4, 1941.
<PAGE>
DRILLING BLOCK NO. 5 of said lease shall include the area as follows:
Bounded on the north by the southern boundary of Lease No. 224-A
prior to modification, which is the projection westward from the shore
of the township line between Townships 25 and 26 South; on the south by
the projection westward from the shore of the township line between
Townships 31 and 32 South; the western, or off-shore boundary, shall be
a line 10.36 statute miles seaward from the outermost land; the eastern
boundary shall include the area as described in Exploration Contract
No. 224, dated October 4, 1941.
DRILLING BLOCK NO. 6 of said lease shall include the area as follows:
Bounded on the north by the southern boundary of Drilling Block
No. 5 as herein defined; on the south by the western projection from
the shore of the township line between Townships 38 and 39 South; the
western, or off-shore boundary, shall be a line 10.36 statute miles
seaward from the outermost land; the eastern boundary shall include the
area as described in Exploration Contract No. 224, dated October 4,
1941.
DRILLING BLOCK NO. 7 of said lease shall include the area as follows:
Bounded on the north by the southern boundary of Drilling Block
No. 6 as herein defined; on the south by the western projection of the
township line between Townships 44 and 45 South; the western, or
off-shore boundary, shall be a line 10.36 statute miles seaward from
the outermost land; the eastern boundary shall include the area as
described in Exploration Contract No. 224, dated October 4, 1941.
DRILLING BLOCK NO. 8 of said lease shall include the area as follows:
Bounded on the north by the southern boundary of Drilling Block
No. 7 as herein defined; on the south by the southern boundary of Lease
No. 224-B prior to modification, which is Latitude 26(degree) North;
the western, or off-shore boundary, shall be a line 10.36 statute miles
seaward from the outermost land; the eastern boundary shall include the
area as described in Exploration Contract No. 224, dated October 4,
1941.
All rivers, sloughs, arms and overflow lands included in the above blocks
are to be considered a part of that particular drilling block into which the
respective river, slough, arm or overflow land drains or empties.
The lease and its subdivision into drilling blocks are shown on a map
attached hereto and made a part hereof.
Each drilling block shall comprise all coastal off-shore areas of the
Gulf of Mexico, together with all bars, islands and adjacent Government
waterfront lots contiguous thereto; all bays, bayous, sounds and inlets of the
Gulf, together with all connecting sloughs, flats and/or the overflow and/or
submerged lands, all bars and islands and all adjacent Government waterfront
lots contiguous to such areas; all rivers and lakes named herein, together with
all connecting sloughs, arms and overflow lands located in such waters.
It is mutually covenanted, understood and agreed by and between the
respective parties hereto that the terms of this lease be and they are as
follows:
<PAGE>
-1-
In consideration of the sum hereinbefore stated, the work herein agreed to
be performed, the royalties herein provided for, and all other agreements of
Lessee herein contained, said Trustees do hereby grant, lease and let
exclusively unto Lessee and Lessee's successors and assigns, subject to the
express permission requirements herein contained, those certain areas
hereinbefore described, for the purpose of drilling for and producing therefrom
oil, gas, sulphur, casinghead gas and casinghead gasoline, together with rights
of way and easements for roads, pipe lines, telephone and telegraph lines,
tanks, power houses, stations, gasoline plants and fixtures for producing,
treating and caring for such products, as well as any and all other rights and
privileges necessary and incident to or convenient for the economical operation
of such areas, alone or conjointly with neighboring areas, for oil, gas,
sulphur, casinghead gas and casinghead gasoline; and with the further right to
inject water, gas or air into sub-surface strata, provided such injections in no
way damage any water or intrude any structure containing water suitable and
necessary for either present or future domestic requirements.
-2-
Subject to the other provisions herein contained, this lease shall be
for a term of five (5) years, computed from March 27, 1946, hereinafter
sometimes referred to as the primary term, and as to each DRILLING BLOCK as long
thereafter as oil, gas or other minerals are produced from such Drilling Block,
subject to renewal thereof for periods of five (5) years each, as hereinafter
provided.
-3-
Lessee agrees to drill at least one (1) test well on each Drilling Block
within the first five year period of this lease, and to drill at least one (1)
additional well in each succeeding five (5) year renewal period hereof upon each
separate Drilling Block until the total number of wells drilled upon each
Drilling Block shall equal one-half (1/2) the number of sections of land, or
equivalent, embraced in such Drilling Block.
Lessee at the time the drilling of each well on a Drilling Block is
commenced shall file with Trustees a written declaration describing the Drilling
Block and the sections of land thereof to which such well shall apply. If no
well shall be commenced within the first five (5) year period of this lease, all
rights to renew this lease shall become unenforceable and the entire lease shall
be void, and if during each subsequent five (5) year renewal period hereof no
well or wells be commenced as required herein, such renewal lease contract in
its entirety shall become terminated as to any area in such Drilling Block not
in a status conformable in this particular with the requirements of this lease.
The location of well or wells in each Drilling Block is at the option of
Lessee. Said well or wells shall be drilled to a depth not less than six
thousand (6,000) feet, when drilling is specified unless oil, gas or sulphur has
been found in paying quantities or igneous rock, or Paleozoic formation, or
formations not susceptible of being drilled with first-class drilling equipment
is encountered at a lesser depth.
<PAGE>
If drilling operations on the said test well are not commenced within five
years from March 27, 1946, and continued thereafter to completion with
reasonable diligence and in a workmanlike manner to discover and develop said
premises for the production of oil, gas or sulphur until such wells are
completed or abandoned, the entire lease shall be void, provided, however, that
if the Lessee shall have commenced drilling operations during the primary term,
which after completion shall comprise in the aggregate 24,000 feet of hole, all
drilling obligations herein required during the prilnary term shall have been
met and said lease shall be renewed for the ensuing five year period as to all
of the Drilling Blocks described herein. Thereafter, if drilling operations on a
well or wells are not commenced within each five year period, and continued
thereafter to completion with reasonable diligence and in a workmanlike manner
to discover and develop such premises for the production of oil, gas or sulphur
until such wells are completed or abandoned, the entire lease shall be void,
provided, however, that if the Lessee shall have commenced drilling operations
during the said term of five years, or any subsequent term, which after
completion shall comprise in the aggregate 24,000 feet of hole, all drilling
obligations herein required during the said term shall have been met and said
lease shall be automatically renewed for the ensuing five year period, as to all
of the Drilling Blocks described herein.
Notwithstanding all provisions to the contrary, it is understood that
drilling of a total of 24,000 feet in wells begun during the primary term and
drilling of a total of 24,000 feet in drilling operations begun in each five
year term thereafter shall operate to extend this lease as to all of the
Drilling Blocks described herein for an additional term of five years. Drilling
operations commenced on any block or blocks that result in meeting the depth
requirement herein contained shall operate to hold that block and any excess
over 6,000 feet drilled on any block shall constitute a credit and be applied
against the footage Lessee is obligated to drill on any other drilling block in
said lease.
What is termed a core hole, or hole for formation determination, shall not
be considered a well under the terms of this lease.
The Lessor does hereby find that the plan of drilling on said Drilling
Blocks as herein set out is of advantage to the Lessor for the accomplishment of
the purpose of discovering and producing oil on the premises herein leased and
carries out the real intent and purpose of Drilling Lease 224-B prior to
modification.
-4-
The royalties to be paid Trustees are:
(a) On Oil, if paid in kind, one-eighth (1/8) of that produced
and saved from said land, the same to be delivered at the wells, or to
the credit of Trustees into the pipe line to which the lines may be
connected; Lessee shall have the right from time to time to purchase
any royalty oil in Lessee's possession, paying the market price
therefor prevailing for the field where produced, on the date of
purchase.
<PAGE>
(b) On Gas, including casinghead gas or other gaseous
substances, produced from said land and sold or used off the premises,
or in the manufacture of gasoline or other products therefrom, the
market value at the mouth of the well of one-eighth (1/8) of the gas,
in its natural state, so sold or used, provided that on gas sold at the
wells the royalty shall be one-eighth (1/8) of the amount of such sale;
where gas, from a well producing gas only, is not sold or used, Lessee
must pay as royalty One Hundred ($100.00) Dollars on such well per
year, and upon such payment it will be considered that gas is being
produced within the meaning of Paragraph 2 hereof for one five (5) year
lease period if Lessee desires the renewing privilege of said paragraph
with respect thereto.
(c) On Sulphur, the royalty shall be fifty ($.50) per long ton,
payable when mined.
(d) Any and all cash payments hereunder by Lessee to Trustees
shall be made by said Lessee to Trustees at Tallahassee, Florida.
(e) Lessee shall have the free use of oil, gas and water from
said lands, when used in the operation of this lease, which shall not
be subject to royalty requirements hereof.
-5-
For the purpose of examining the production therefrom, Trustees or their
authorized representatives or agents at all reasonable times shall have access
to the wells, gauge books, oil and/or gas meters, tanks, reservoirs, sump holes,
building, and other structures and appliances placed upon the lands by Lessee.
-6-
Lessee agrees to keep logs of any and all wells drilled upon the leased
premises, which said logs shall at all times be subject to inspection of
Trustees, their representatives or agents, and within such time as required by
law Lessee shall furnish the Trustees with a copy of said log. Lessee also
agrees to take regular samples of material encountered, at intervals not greater
than thirty (30) feet, and, as each sample is taken, to forward to the said
Trustees a portion thereof, not less than three (3) omices in weight, within
such time as required by law, marked to indicate the Drilling Block from which
it is taken and the depth and the day the same is taken. Lessee further agrees
to keep true and correct accounts of petroleum and/or gas, or other valuable
substances from each and every well drilled on the leased premises where any
production is found and saved, which said accounts shall be open at all times to
the inspection of Trustees or their authorized representatives or agents.
-7-
The total area in said Drilling Blocks 5, 6, 7 and 8 is agreed to be
1,974,360 acres, whether the same is actually later determined to be more or
less, and the total annual rental thereon shall be $27,048.00, and which sum the
Lessor does hereby find is equal to the amount provided to be paid as rental by
the Lessee under this lease before modification. No rentals shall be paid on any
area, or the portion of any area, which Lessee has surrendered to Trustees as
herein provided, nor shall Lessee be required to pay rentals on any drilling
block wherein oil in commercial quantities is being produced.
For rental purposes, each drilling block shall be deemed to be one-fourth
(1/4) of the total acreage and for any part of a drilling block at the rate
which that part bears to the whole.
<PAGE>
The drilling of each well shall be prosecuted with due diligence as
hereinbefore required. If the first and all subsequent wells drilled on any
Drilling Block commenced within the terms of this lease and before the
expiration of five (5) years from this date, shall result as dry holes, then the
lease shall be extended as to such Drilling Block for an additional period of
five (5) years under the terms and conditions as herein set out for such renewal
period. The payment or tender of rental may be made by the valid check or draft
of Lessee mailed or delivered to Lessor on or before such date of payment. The
down cash payment at the time of executing this lease is consideration for this
lease according to its terms and shall not be allocated as mere rental for a
period.
This lease contemplates the reasonable development of the oil and gas
underlying the land described in this lease including the drilling of as many
wells as a reasonably prudent operator would drill under the same or similar
circumstances. In the event a well or wells producing oil or gas in paying
quantities should be brought in on adjacent land and within three hundred thirty
(330) feet of and draining the leased premises, or acreage pooled therewith,
Lessee agrees to drill such offset wells as a reasonably prudent operator would
drill under the same or similar circumstances.
-8-
On what are commonly termed coastal and tide water areas, no well shall be
begun nearer than two hundred (200) feet from the ordinary high water mark of
the shore, nor for lake and river areas, nearer than fifty (50) feet from the
ordinary high water mark, without the written consent of the owner of adjoining
upland; nor shall any well be begun within one-eighth (1/8) of a mile of the
shore line in front of any village of five (5) or more families; and where the
majority of the dwelling houses occupied by said families are each less than
three hundred (300) feet from another of such dwelling houses, without the
written consent of the owners of the water front upland situated one-fourth (14)
of a mile each way from a line drawn from the well to the shore line at the
nearest point; nor shall any well be begun within the corporate limits of any
municipality without the written consent of the governing authorities thereof.
No well shall be begun nearer than two hundred fifty (250) feet from the right
of way of any State Highway without the consent of Lessors. The inhibitions of
this paragraph shall not apply where producing wells shall have been drilled on
lands, not included in this lease, within two hundred fifty (250) feet of the
inhibited area.
-9-
Except as may otherwise be provided herein, Lessee shall procure all
necessary permits from the Federal Government and assume all responsibilities to
the Federal Government incident to the operations of this lease, but the Lessor
shall cooperate in securing such permits.
-10-
Lessee shall have the right at any time to remove all machinery and
fixtures placed by Lessee on said leased premises, including the right to
withdraw and remove casing.
<PAGE>
-11-
Any well or hole, after being drilled, unless in operation, shall be
securely capped, or if casing is removed, shall be permanently and tightly
sealed to the satisfaction of Trustees in such manner and so placed as to
prevent escape of salt water or undesirable material to the surface, or its
intrusion into any sub-surface structure bearing water in sufficient quantity
and of quality suitable for domestic purposes.
-12-
Lessee shall bury his pipe line not less than fifteen (15) inches below
ground surface, or if water areas are traversed, said pipe line shall be so laid
that no obstruction to navigation or use of waterway will result therefrom.
-13-
The rights of either party hereunder may be assigned in whole or in part
only after written consent thereto from the Trustees is first obtained; and the
provisions hereof shall extend to the successors and assigns of the parties
hereto, but no change or division in ownership of land rentals or royalties,
however accomplished, shall operate to enlarge or diminish the obligations or
the rights of either party. Neither this lease nor the work to be performed
hereunder shall in any way limit the right of said Trustees to sell or dispose
of, or to lease for other purposes than those herein, any area or areas herein
described or any part thereof, covered by this lease, but in case of sale,
conveyance or lease by the said Trustees, such sale, conveyance or lease shall
be subject to this lease.
In the event of any legal assignment of this lease as to a segregated
portion of the area covered thereby, the rentals payable hereunder shall be
apportionable as between the several leasehold owners ratably according to the
area of each, and deferment of rental payments by one shall not affect the
rights of other leasehold owners hereunder.
-14-
The breach by Lessee of any obligations arising hereunder shall not work
as a forfeiture or termination of this lease, nor cause a termination or
reversion of the estate created hereby, nor be grounds for cancellation hereof
in whole or in part, except as otherwise provided herein and except as
forfeiture may be imposed by laws of this State.
In the event the Trustees consider that operations hereunder are not at
any time being conducted in compliance with this lease, said Trustees shall
notify Lessee in writing of the facts relied upon as constituting a breach
hereof and Lessee, if in default, shall have thirty (30) days after the mailing
or sending of such notice in which to commence compliance with the obligations
imposed by virtue of this instrument. If Lessee is in fact not complying with
the terms of the lease and if commencement of compliance shall not have been
undertaken by Lessee within said thirty (30) days, and pursued to the
satisfaction of Trustees, said Trustees shall have the right without further
notice to declare this lease in default as to any part so affected, and
thereupon all rights of Lessee hereunder as to such part shall terminate and
cease.
<PAGE>
-15-
When drilling or other operations are delayed or interrupted by lack of
water, labor or material, or by fire, storm, flood, war, rebellion,
insurrection, riot, strike, differences with workmen, or failure of carriers to
transport or furnish facilities for transportation, or as a result of some
order, requisition or necessity of the Government, or as the result of any cause
whatsoever beyond the control of the Lessee, when notice thereof and claim
therefor shall have been given to the Trustees within twenty (20) days of the
occurrence of the excusing cause, the time of such delay or interruption shall
not be counted against Lessee, anything in this lease to the contrary
notwithstanding; EXCEPT, HOWEVER, as to requirements with respect to drilling as
provided in Chapter 20680, Laws of Florida, Acts of 1941.
-16-
Lessee shall have the right to surrender any portion of any area described
herein without in any way impairing its rights under this lease in remaining
parts or portions. In the event of surrender of any portion, Lessee shall
execute to Trustees a release of the part or parts Lessee desires to surrender.
-17-
Lessee shall not issue any stock or other securities to finance its
obligations hereunder prior to the production of gas, oil or other minerals in
paying quantities without the approval of the Trustees unless such issue meets
the requirements of the Federal Securities and Exchange Commission or the
requirements of the "BLUE SKY LAWS" of any State where such stock may be sold.
-18-
Lessee assumes responsibility for all damages caused by Lessee's
operations and will in all respects save the Trustees harmless on account of
anything growing out of this lease, the source of which is the operations of
said Lessee.
-19-
No well drilled under the terms of this lease, and capable of producing
oil, gas or sulphur in commercial quantities, may be closed and production of
oil, gas or sulphur therefrom curtailed, without the written consent of the
Trustees.
<PAGE>
-20-
Lessee agrees that it will on or before September 1, 1947, start drilling
operations on a location to be selected by it in this lease or in Lease No.
224-A, dated December 27, 1944, or in Lease No. 248, dated December 19, 1944,
and that it will prosecute the drilling of such well with due diligence. The
agreements to drill this well appear in Paragraphs Twenty (20) of this lease,
Lease 224-A and Lease 248 and refer to the same well and are not to be construed
as cumulative. Lessee further agrees that it will commence drilling operations
within the primary term of this lease that it will with due diligence thereafter
and upon completion accomplish the drilling of at least 24,000 feet of hole on
this lease. Lessee also agrees that thereafter at least one set of tools will be
employed continuously during the primary term of Leases 224-A, 224-B and 248
until at least 24,000 feet of hole has been drilled here-under, and that there
will not be an interruption of over 120 days, except for force majeure, between
the completion of one well and the beginning of drilling operations on another
well on one of said leases.
-21-
It is understood that in any of the drilling obligations with respect to
the areas covered by this lease, Lessee may acquire the right to drill and may
drill on areas contiguous thereto, in which case the said drilling operations
will be accepted as compliance with the Lessee's drilling obligations on the
areas covered by this lease as to any one Drilling Block conhguous thereto,
provided that a 1/8 royalty in the well drilled is assigned to the State without
cost to the latter.
-22-
If any sentence, paragraph, clause or provision of this Drilling Lease
Number 224-B as modified shall be held subject to any laws of the State of
Florida now in effect, and enacted subsequent to October 4, 1941, and therefore
invalid, then in such case the rights and obligations of the Lessor and Lessee
as to the subject matter of such invalid sentence, paragraph, clause or
provision shall be governed by the terms of Drilling Lease Number 224-B prior to
modification thereof, except that any time or times fixed for performance on the
part of either of the said parties under the terms of the lease before
modification corresponding to such invalidated portions shall be extended for a
reasonable time after final adjudication of such invalidity to permit reasonable
compliance therewith.
-23-
WHEREAS, the United States of America has made claim to the title to some
of the areas included within this lease, and
WHEREAS, the United States of America has filed suit against the State of
California, being Number 12 Original, 1945 Term, which suit involves the title
to and oil rights of Tidewater Lands of the State of California, but may affect
the title to some of the areas included within this lease, and
WHEREAS, the Trustees recognize that said claim and suit may place a cloud
on the title to some of the areas included in this lease, and
<PAGE>
WHEREAS, Lessee does hereby agree to carry out their obligations herein
contained without claiming any release from any of said obligations on the basis
of the said possible cloud on title except as hereinafter stated, it is hereby
agreed by the Trustees that: If a decision adverse to the State of California
shall be rendered in said suit by the Supreme Court of the United States, then
in such event the Lessee is relieved from any duty to carry out its drilling
obligations assumed under this lease as to any five year period except the first
five year period hereof on any lands the title to which appears to be affected
by such decision and the rentals herein provided for shall be abated
proportionately to the extent such decision appears to divest title to part of
the lands hereby affected from the State of Florida, until such time as there is
a decision rendered by the Supreme Court of the United States quieting title in
Lessor or the State of Florida to the areas affected by any adverse decision in
the said suit against the State of California; within sixty days after title to
said areas is so quieted in Lessor or the State of Florida, Lessee must commence
operations to carry out the drilling obligations of this lease and resume
payment of the full rentals.
-24-
Lessor finds as a matter of fact that this lease as modified is of
material advantage to the State of Florida; that within the primary term 24,000
feet of well hole must be drilled, in addition to payment of rentals, whether
the wells are drilled or not, and that it is for the best interest of the Trust
Fund administered by the Lessors that exploration for and discovery of oil be
accomplished as soon as feasibly possible, and that this lease, as modified, as
well as Leases 224-A and 248, as modified, most nearly serve such interest.
-25-
The Trustees also find, and it is agreed, that the modification of this
lease is not, and is not intended to be, a new agreement or novation.
IN WITNESS WHEREOF, the Trustees of the Internal Improvement Fund of the
State of Florida, the Lessor, have hereunto subscribed their names and have
caused the seal of the Department of Agriculture of the State of Florida to be
hereunto affixed, and the Lessee has caused this instrument to be executed in
its name by its Vice President, and its corporate seal to be affixed, attested
by its Secretary, as of the date aforesaid."
<PAGE>
Executed this 27th day of February, A. D., 1947.
MILLARD F. CALDWELL (SEAL)
Governor
C. M. GAY (SEAL)
Comptroller
J. EDWIN LARSON (SEAL)
State Treasurer
__________________________________ (SEAL)
Attorney General
NATHAN MAYO (SEAL)
Commissioner of Agriculture
ACTING AS AND COMPOSING THE TRUSTEES
OF THE INTERNAL IMPROVEMENT FUND
OF THE STATE OF FLORIDA
Lessor
COASTAL PETROLEUM COMPANY
(Formerly Arnold Oil Explorations, Inc.)
By J. E. FITZ-PATRICK
Vice-President.
Lessee
Attest:
BENJAMIN W. HEATH
Secretary
Signed, Sealed and Delivered in the presence of:
J. THOMAS GURNEY
ANNIE LAURA FOSTER
Approved:
JULIUS F. PARKER
================================================================================
DRILLING LEASE NO. 248 AS MODIFIED
BETWEEN
TRUSTEES OF THE INTERNAL IMPROVEMENT FUND
OF THE STATE OF FLORIDA
AND
COASTAL PETROLEUM COMPANY
-----------
February 27, 1947
================================================================================
<PAGE>
DRILLING LEASE NO.248 AS MODIFIED
WHEREAS, pursuant to the provisions of Chapter 20680, Laws of Florida,
Acts of 1941, for a valuable consideration therein stated, the Trustees of the
Internal Improvement Fund of the State of Florida, as Lessor, and Arnold Oil
Explorations, Inc., a Florida corporation having its principal place of business
in Groveland, Florida, now Coastal Petroleum Company, with its principal place
of business in St. Petersburg, Florida, as Lessee, duly executed Drilling Lease
No. 248, dated the 13th day of May, 1944, which said Drilling Lease No. 248 was
modified by a supplemental agreement entered into by the parties to said
Drilling Lease under date of December 19, 1944, which said lease, as modified by
said supplemental agreement, is now in full force and effect, and all rentals
due thereon have been duly paid, and
WHEREAS, certain provisions of said lease appear difficult of
construction, and require clarification as between the said parties, and
WHEREAS, it is the purpose and intent of the said parties to modify said
lease in certain particulars only to permit a practical performance thereof, but
not to extinguish said lease, nor to relieve the parties thereto of their
obligations thereunder, but to render the same more certain and explicit, and
WHEREAS, it is the purpose and intent of the said parties to ratify and
confirm, with the modifications hereinafter shown, the said Drilling Lease No.
248.
Now, THEREFORE, said lease is hereby modified in certain particulars only
so that the same shall now read as follows:
"THIS AGREEMENT, Made and entered into in duplicate this 19th day
of December, 1944, A. D., by and between the Trustees of the Internal
Improvement Fund of the State of Florida, hereinafter called 'TRUSTEES'
or 'LESSORS', and ARNOLD OIL EXPLORATIONS, INC., a Florida corporation,
having its principal place of business in Groveland, Florida,
hereinafter called 'LESSEE'.
WITNESSETH
For and in consideration of the sum of Five Hundred ($500.00) Dollars per
drilling block as hereinafter described, to them in hand paid, receipt whereof
is hereby acknowledged, together with the covenants, agreements and stipulations
hereinafter contained, as well as in further reference to and in pursuance of a
certain EXPLORATION CONTRACT FOR OIL, GAS AND MINERALS AND OPTION TO LEASE,
heretofore executed between Trustees and Lessee, the same being dated the 2nd
day of February, 1942, said Trustees, under authority of Chapter 20680, Laws of
Florida, Acts of 1941, have leased, and by these presents do hereby lease, unto
said Lessee for the sole and only purpose of prospecting, drilling, mining and
operating for the production of oil, gas and sulphur, laying pipe lines,
building tanks, roads, power stations and structures thereon, but not including
bulkheading and filling water bottoms except when express permission therefor
has been obtained from Trustees, as may be necessary to produce, save and take
care of said products and taking the production thereof, those certain areas
referred to in said Exploration Contract as DRILLING BLOCKS and more
particularly described as follows, to-wit:
<PAGE>
Drilling Block 9-All those water bottoms lying within the
boundaries of Lake Okeechobee.
Drilling Block 10-All those water bottoms lying within the
boundaries of the following lakes: Istokpoga-KISSIMMEE-Apopka (except
strip 500' wide along shore of South Half adjacent to Oakland, Winter
Garden and Montverde)-George-Lockloosa-Hatchineha-Louise-Panasoffkee-
Tsala Apopka-XXXXX-XXXXXX-ALSO, that part of St. Johns River, South of
Lake Puzzle.
It is mutually covenanted, understood and agreed by and between the
respective parties hereto that the terms of this lease be and they are as
follows:
-1-
In consideration of the sum hereinbefore stated, the work herein agreed to
be performed, the royalties herein provided for, and all other agreements of
Lessee herein contained, said Trustees do hereby grant, lease and let
exclusively unto Lessee and Lessee's successors and assigns, subject to the
express permission requirements herein contained, those certain areas
hereinbefore described, for the purpose of drilling for and producing therefrom
oil, gas, sulphur, casinghead gas and casinghead gasoline, together with rights
of way and easements for roads, pipe lines, telephone and telegraph lines,
tanks, power houses, stations, gasoline plants and fixtures for producing,
treating and caring for such products, as well as any and all other rights and
privileges necessary and incident to or convenient for the economical operation
of such areas, alone or conjointly with neighboring areas, for oil, gas,
sulphur, casinghead gas and casinghead gasoline; and with the further right to
inject water, gas or air into subsurface strata, provided such injections in no
way damage any water or intrude any structure containing water suitable and
necessary for either present or future domestic requirements.
-2-
Subject to the other provisions herein contained, this lease shall be for
a term of five (5) years, computed from December 19, 1944, hereinafter sometimes
referred to as the primary term, and as to each DRILLING BLOCK as long
thereafter as oil, gas or other minerals are produced from such Drilling Block,
subject to renewal thereof for periods of five years each, as hereinafter
provided.
-3-
Lessee agrees to drill at least one (1) test well on each Drilling Block
within the first five year period of this lease, and to drill at least one (1)
additional well in each succeeding five (5) year renewal period hereof upon each
separate Drilling Block until the total number of wells drilled upon each
Drilling Block shall equal one-half (1/2) the number of sections of land, or
equivalent, embraced in such Drilling Block.
<PAGE>
Lessee at the time the drilling of each well on a Drilling Block is
commenced shall file with Trustees a written declaration describing the Drilling
Block and the sections of land thereof to which such well shall apply. If no
well shall be commenced within the first five (5) year period of this lease, all
rights to renew this lease shall become unenforceable and the entire lease shall
be void, and if during each subsequent five (5) year renewal period hereof no
well or wells be commenced as required herein, such renewal lease contract in
its entirety shall become terminated as to any area in such Drilling Block not
in a status conformable in this particular with the requirements of this lease.
The location of well or wells in each Drilling Block is at the option of
Lessee. Said well or wells shall be drilled to a depth not less than six
thousand (6,000) feet, when drilling is specified unless oil, gas or sulphur has
been found in paying quantities or igneous rock, or Paleozoic formation, or
formations not susceptible of being drilled with first-class drilling equipment
is encountered at a lesser depth.
If drilling operations on the said test well are not commenced within five
years from December 19, 1944, and continued thereafter to completion with
reasonable diligence and in a workmanlike manner to discover and develop said
premises for the production of oil, gas or sulphur until such wells are
completed or abandoned, the entire lease shall be void, provided, however, that
if the Lessee shall have commenced drilling operations during the primary term,
which after completion shall comprise in the aggregate 12,000 feet of hole, all
drilling obligations herein required during the primary term shall have been met
and said lease shall be renewed for the ensuing five year period as to all of
the drilling blocks described herein. Thereafter, if drilling operations on a
well or wells are not commenced within each five year period, and continued
thereafter to completion with reasonable diligence and in a workmanlike manner
to discover and develop such premises for the production of oil, gas or sulphur
until such wells are completed or abandoned, the entire lease shall be void,
provided, however, that if the Lessee shall have commenced drilling operations
during the said term of five years, or any subsequent term, which after
completion shall comprise in the aggregate 12,000 feet of hole all drilling
obligations herein required during the said term shall have been met and said
lease shall be automatically renewed for the ensuing five year period as to all
of the drilling blocks described herein.
Notwithstanding all provisions to the contrary, it is understood that
drilling of a total of 12,000 feet in wells begun during the primary term and
drilling of a total of 12,000 feet in drilling operations begun in each five
year term thereafter shall operate to extend this lease as to all of the
drilling blocks described herein for an additional term of five years. Drilling
operations commenced on any block or blocks that result in meeting the depth
requirement herein contained shall operate to hold that block and any excess
over 6,000 feet drilled on any block shall constitute a credit and be applied
against the footage Lessee is obligated to drill on any other drilling block in
said lease.
What is termed a core hole, or hole for formation determination, shall not
be considered a well under the terms of this lease.
The Lessor does hereby find that the plan of drilling on said Drilling
Block as herein set out is of advantage to the Lessor for the accomplishment of
the purpose of discovering and producing oil on the premises herein leased and
carries out the real intent and purpose of Drilling Lease No. 248 prior to
modification there.
<PAGE>
-4-
The royalties to be paid Trustees are:
(a) On Oil, if paid in kind, one-eighth (1/8) of that produced
and saved from said land, the same to be delivered at the wells, or to
the credit of Trustees into the pipe line to which the lines may be
connected; Lessee shall have the right from time to time to purchase
any royalty oil in Lessee's possession, paying the market price
therefor prevailing for the field where produced, on the date of
purchase.
(b) On Gas, including casinghead gas or other gaseous substances,
produced from said land and sold or used off the premises, or in the
manufacture of gasoline or other products therefrom, the market value
at the mouth of the well of one-eighth (1/8) of the gas, in its natural
state, so sold or used, provided that on gas sold at the wells the
royalty shall be one-eighth (1/8) of the amount of such sale; where
gas, from a well producing gas only, is not sold or used, Lessee must
pay as royalty One Hundred ($100.00) Dollars on such well per year, and
upon such payment it will be considered that gas is being produced
within the meaning of Paragraph 2 hereof for one five (5) year lease
period if Lessee desires the renewing privilege of said paragraph with
respect thereto.
(c) On Sulphur, the royalty shall be fifty cents ($.50) per long
ton, payable when mined.
(d) Any and all cash payments hereunder by Lessee to Trustees
shall be made by said Lessee to Trustees at Tallahassee, Florida.
(e) Lessee shall have the free use of oil, gas and water from
said lands, when used in the operation of this lease, which shall not
be subject to royalty requirements hereof.
-5-
For the purpose of examining the production therefrom, Trustees or their
authorized representatives or agents at all reasonable times shall have access
to the wells, gauge books, oil and/or gas meters, tanks, reservoirs, sump holes,
buildings, and other structures and appliances placed upon the lands by Lessee.
<PAGE>
-6-
Lessee agrees to keep logs of any and all wells drilled upon the leased
premises, which said logs shall at all times be subject to inspection of
Trustees, their representatives or agents, and within such time as required by
law Lessee shall furnish the Trustees with a copy of said log. Lessee also
agrees to take regular samples of material encountered, at intervals not greater
than thirty (30) feet, and, as each sample is taken, to forward to the said
Trustees a portion thereof, not less than three (3) ounces in weight, within
such time as required by law, marked to indicate the Drilling Block from which
it is taken and the depth and the day the same is taken. Lessee further agrees
to keep true and correct accounts of petroleum and/or gas, or other valuable
substances from each and every well drilled on the leased premises where any
production is found and saved, which said accounts shall be open at all times to
the inspection of Trustees or their authorized representatives or agents.
-7-
For all areas included in this lease, which it is hereby agreed covers
660,736 acres, whether the same is actually later determined to be more or less,
the annual rental shall be the sum of $19,985.92, and which sum the Lessor does
hereby find is equal to the amount agreed to be paid by the Lessee under the
provisions of this lease prior to modification thereof. No rentals shall be paid
on any area, or the portion of any area, which Lessee has surrendered to
Trustees as herein provided, nor shall Lessee be required to pay any rentals on
any drilling block wherein oil in commercial quantities is being produced.
Drilling Block 9 consists of:
Area
Lake (Acres) Amount
Okeechobee 467,200 $14,016.00
Drilling Block 10 consists of:
Area
Lake (Acres) Amount
Istokpoga 28,480 $854.40
Kissimmee 31,872 956.16
Apopka (Part) 30,272 908.16
George 46,016 1,380.48
Lochloosa 7,488 224.64
Hatchineha 8,896 266.88
Louisa 3,136 200.00
Panasoffkee 4,736 200.00
Tsala Apopka 20,480 614.40
St. Johns River 12,160 364.80
<PAGE>
The drilling of each well shall be prosecuted with due diligence as
hereinbefore required. If the first and all subsequent wells drilled on any
Drilling Block commenced within the terms of this lease and before the
expiration of five (5) years from this date, shall result as dry holes, then the
lease shall be extended as to such Drilling Block for an additional period of
five (5) years under the terms and conditions as herein set out for such renewal
period. The payment or tender of rental may be made by the valid check or draft
of Lessee mailed or delivered to Lessor on or before such date of payment. The
down cash payment at the time of executing this lease is consideration for this
lease according to its terms and shall not be allocated as mere rental for a
period.
This lease contemplates the reasonable development of the oil and gas
underlying the land described in this lease including the drilling of as many
wells as a reasonably prudent operator would drill under the same or similar
circumstances. In the event a well or wells producing oil or gas in paying
quantities should be brought in on adjacent land and within three hundred thirty
(330) feet of and draining the leased premises, or acreage pooled therewith,
Lessee agrees to drill such offset wells as a reasonably prudent operator would
drill under the same or similar circumstances.
-8-
No well shall be begun nearer than fifty (50) feet from the ordinary high
water mark, without the written consent of the owner of adjoining upland; nor
shall any well be begun within one-eighth of a mile of the shore line in front
of any village of five (5) or more families; and where the majority of the
dwelling houses occupied by said families are each less than three hundred (300)
feet from another of such dwelling houses, without the written consent of the
owners of the water front upland situated one-fourth (1/4) of a mile each way
from a line drawn from the well to the shore line at the nearest point; nor
shall any well be begun within the corporate limits of any municipality without
the written consent of the governing authorities thereof. No well shall be begun
nearer than two hundred fifty (250) feet from the right of way of any State
Highway without the consent of Lessors. The inhibitions of this paragraph shall
not apply where producing wells shall have been drilled on lands, not included
in this lease, within two hundred fifty (250) feet of the inhibited area.
-9-
Except as may otherwise be provided herein, Lessee shall procure all
necessary permits from the Federal Government and assume all responsibilities to
the Federal Government incident to the operations of this lease, but the Lessor
shall cooperate in securing such permits.
-10-
Lessee shall have the right at any time to remove all machinery and
fixtures placed by Lessee on said leased premises, including the right to
withdraw and remove casing.
<PAGE>
-11-
Any well, or hole, after being drilled, unless in operation, shall be
securely capped, or if casing is removed, shall be permanently and tightly
sealed to the satisfaction of Trustees in such manner and so placed as to
prevent escape of salt water or undesirable material to the surface, or its
intrusion into any sub-surface structure bearing water in sufficient quantity
and or quality suitable for domestic purposes.
-12-
Lessee shall bury his pipe line not less than fifteen (15) inches below
ground surface, or if water areas are traversed, said pipe line shall be so laid
that no obstruction to navigation or use of waterway will result therefrom.
-13-
The rights of either party hereunder may be assigned in whole or in part
only after written consent thereto from the Trustees is first obtained; and the
provisions hereof shall extend to the successors and assigns of the parties
hereto, but no change or division in ownership of land rentals or royalties,
however accomplished, shall operate to enlarge or diminish the obligations or
the rights of either party. Neither this lease nor the work to be performed
hereunder shall in any way limit the right of said Trustees to sell or dispose
of, or to lease for other purposes than those herein, any area or areas herein
described or any part thereof, covered by this lease, but in case of sale,
conveyance or lease by the said Trustees, such sale, conveyance or lease shall
be subject to this lease.
In the event of any legal assignment of this lease as to a segregated
portion of the area covered thereby, the rentals payable hereunder shall be
apportionable as between the several leasehold owners ratably according to the
area of each, and deferment of rental payments by one shall not affect the
rights of other leasehold owners hereunder.
-14-
The breach by Lessee of any obligations arising hereunder shall not work
as a forfeiture or termination of this lease, nor cause a termination or
reversion of the estate created hereby, nor be grounds for cancellation hereof
in whole or in part, except as otherwise provided herein and except as
forfeitures may be imposed by laws of this State.
In the event the Trustees consider that operations hereunder are not at
any time being conducted in compliance with this lease, said Trustees shall
notify Lessee in writing of the facts relied upon as constituting a breach
hereof and Lessee, if in default, shall have thirty (30) days after the mailing
or sending of such notice in which to commence compliance with the obligations
imposed by virtue of this instrument. If Lessee is in fact not complying with
the terms of the lease and if commencement of compliance shall not have been
undertaken by Lessee within said thirty (30) days, and pursued to the
satisfaction of Trustees, said Trustees shall have the right without further
notice to declare this lease in default as to any part so affected, and
thereupon all rights of Lessee hereunder as to such part shall terminate and
cease.
<PAGE>
-15-
When drilling or other operations are delayed or interrupted by lack of
water, labor or material, or by fire, storm, flood, war, rebellion,
insurrection, riot, strike, differences with workmen, or failure of carriers to
transport or furnish facilities for transportation, or as a result of some
order, requisition or necessity of the Government, or as the result of any cause
whatsoever beyond the control of the Lessee, when notice thereof and claim
therefor shall have been given to the Trustees within twenty (20) days of the
occurrence of the excusing cause, the time of such delay or interruption shall
not be counted against Lessee, anything in this lease to the contrary
notwithstanding; EXCEPT, HOWEVER, as to requirements with respect to drilling as
provided in Chapter 20680, Laws of Florida, Acts of 1941.
-16-
Lessee shall have the right to surrender any portion of any area described
herein without in any way impairing its rights under this lease in remaining
parts or portions. In the event of surrender of any portion, Lessee shall
execute to Trustees a release of the part or parts Lessee desires to surrender.
-17-
Lessee shall not issue any stock or other securities to finance its
obligations hereunder prior to the production of gas, oil or other minerals in
paying quantities without the approval of the Trustees unless such issue meets
the requirements of the Federal Securities and Exchange Commission or the
requirements of the "BLUE SKY LAWS" of any State where such stock may be sold.
-18-
Lessee assumes responsibility for all damages caused by Lessee's
operations and will in all respects save the Trustees harmless on account of
anything growing out of this lease, the source of which is in the operations of
said Lessee.
-19-
No well drilled under the terms of this lease, and capable of producing
oil, gas or sulphur in commercial quantities, may be closed and production of
oil, gas or sulphur therefrom curtailed, without the written consent of the
Trustees.
<PAGE>
-20-
Lessee agrees that it will on or before September 1, 1947, start drilling
operations on a location to be selected by it in this lease or in Lease No.
224-A, dated December 27, 1944, or in Lease No. 224-B, dated March 27, 1946, and
that it will prosecute the drilling of such well with due diligence. The
agreements to drill this well appear in Paragraphs Twenty (20) of this lease,
Lease 224-A and Lease 224-B and refer to the same well and are not to be
construed as cumulative. Lessee further agrees that it will commence drilling
operations within the primary term of this lease that will with due diligence
thereafter and upon completion accomplish the drilling of at least 12,000 feet
of hole on this lease. Lessee also agrees that thereafter at least one set of
tools will be employed continuously during the remainder of the primary term of
Leases Nos. 224-A, 224-B and 248 until at least 12,000 feet of hole has been
drilled on Lease No. 248, and that there will not be an interruption of over 120
days, except for force majeure, between the completion of one well and the
beginning of drilling operations on another well on one of said leases.
-21-
It is understood that in any of the drilling obligations with respect to
the areas covered by this lease, Lessee may acquire the right to drill and may
drill on areas contiguous thereto, in which case the said drilling operations
will be accepted as compliance with the Lessee's drilling obligations on the
areas covered by this lease as to any one Drilling Block contiguous thereto,
provided that a 1/8 royalty in the well drilled is assigned to the State without
cost to the latter.
-22-
If any sentence, paragraph, clause or provision of this Drilling Lease No.
248 as modified shall be held subject to any laws of the State of Florida now in
effect, and enacted subsequent to February 2, 1942, and therefore invalid, then
in such case the rights and obligations of the Lessor and Lessee as to the
subject matter of such invalid sentence, paragraph, clause or provision shall be
governed by the terms of Drilling Lease No. 248 prior to this modification
thereof, except that any time or times fixed for performance on the part of
either of the said parties under the terms of the lease before this modification
corresponding to such invalidated portions shall be extended for a reasonable
time after final adjudication of such invalidity to permit reasonable compliance
therewith.
-23-
Lessor finds as a matter of fact that this Lease as modified is of
material advantage to the State of Florida; that within the primary term 12,000
feet of well hole must be drilled, in addition to payment of rentals, whether
the wells are drilled or not, and that it is for the best interest of the Trust
Fund administered by the Lessors that exploration for and discovery of oil be
accomplished as soon as feasibly possible, and that this lease as modified, as
well as Leases 224-A and 224-B, as modified, most nearly serve such interest.
<PAGE>
-24-
The Trustees also find, and it is agreed, that the modification of this
lease is not, and is not intended to be, a new agreement or novation.
IN WITNESS WHEREOF, the Trustees of the Internal Improvement Fund of the
State of Florida, the Lessor, have hereunto subscribed their names and have
caused the seal of the Department of Agriculture of the State of Florida to be
hereunto affixed, and the Lessee has caused this instrument to be executed in
its name by its Vice-President, and its corporate seal to be affixed, attested
by its Secretary, as of the date aforesaid."
<PAGE>
Executed this 27th day of February, A. D., 1947.
MILLARD F. CALDWELL (SEAL)
Governor
C. M. GAY (SEAL)
Comptroller
J. EDWIN LARSON (SEAL)
State Treasurer
__________________________________ (SEAL)
Attorney General
NATHAN MAYO (SEAL)
Commissioner of Agriculture
ACTING AS AND COMPOSING THE TRUSTEES
OF THE INTERNAL IMPROVEMENT FUND
OF THE STATE OF FLORIDA
Lessor
COASTAL PETROLEUM COMPANY
(Formerly Arnold Oil Explorations, Inc.)
By J. E. FITZ-PATRICK
Vice-President.
Lessee
Attest:
BENJAMIN W. HEATH
Secretary
Signed, Sealed and Delivered in the presence of:
J. THOMAS GURNEY
ANNIE LAURA FOSTER
Approved:
JULIUS F. PARKER
IN THE UNITED STATES DISTRICT COURT
IN AND FOR THE SOUTHERN DISTRICT OF
FLORIDA, MIAMI DIVISION
NO. 68-951-CA and
69-699-Div.-CA (consolidated)
COASTAL PETROLEUM COMPANY.
a Florida corporation,
Petitioner,
v.
SECRETARY OF THE ARMY OF THE UNITED STATES OF AMERICA, et al.,
Respondent.
------------------------
MEMORANDUM OF SETTLEMENT
THIS MEMORANDUM OF SETTLEMENT is made this 6th day of January, 1976, by
and between the BOARD OF TRUSTEES OF THE INTERNAL IMPROVEMENT TRUST FUND OF THE
STATE OF FLORIDA, hereinafter called the "Trustees," and COASTAL PETROLEUM
COMPANY, a corporation organized under the laws of Florida, hereinafter called
"Coastal."
WHEREAS, the Trustees and Coastal entered into modifications of Florida
State Drilling Leases 224-A, 224-B and 248 the 27th day of February, 1947. The
location of the areas contained within Drilling Leases 224-A and 224-B consist
primarily or Florida's offshore lands approximately from Naples to Apalachicola
in the Gulf of Mexico extending 10.36 statute miles from Florida's coastline,
including all bays, inlets and rivers flowing into the Gulf in this area. The
drilling area contained within Lease 248 consists of approximately two drilling
blocks consisting of all the water bottoms lying within the boundaries to Lake
Okeechobee and all the water bottoms lying within the boundaries of the
following lakes:
Istokpoga Hatchineha
Kissimmee Louisa
Apopka (part) Panasoffkee
George Tsala Apopka
Lochloosa St. Johns River
<PAGE>
The Leases require annual rental payments and mandatory drilling requirements.
WHEREAS, certain questions have been raised involving the legality of
said Leases and the validity of certain waivers or credits granted by Trustees,
to wit: whether Coastal has complied with the drilling requirements of the
Leases, and whether the Trustees can grant waivers of those drilling
requirements, and, as a result, litigation was commenced in the United States
District Court in and for the Southern District of Florida, by Coastal seeking a
declaration inter alia as to the validity of said Leases. On April 23, 1971, a
Final Judgment was entered declaring inter alia the above Leases to be valid and
existing. The Trustees then took an appeal to the United States Court of
Appeals, for the Fifth Circuit, from said Judgment, and said appeal is now
pending in the Florida Supreme Court as a result of a certification by the Fifth
Circuit; and
WHEREAS, the Trustees and Coastal now desire to enter into various
amendments and changes of the aforesaid Leases in such manner as amicably to
clarify the rights and responsibilities of the parties thereto, and to settle,
adjust and resolve the differences between them; and
WHEREAS, the Trustees have independently determined that said
amendments, changes and clarification will be in the best interest of the State
of Florida.
NOW, THEREFORE, the Trustees and Coastal do covenant and agree as
follows:
SECTION ONE
PURPOSE
The purpose of this agreement is a compromise between the parties for
the complete and final settlement of their claims, differences and causes of
action with respect to the dispute described below.
SECTION TWO
STATEMENT OF DISPUTE
The Trustees assert that a final judgment should be entered declaring
Florida State Drilling Lease 224-A, as modified; Florida State Drilling Lease
224-B, as modified, and Florida State Drilling Lease 248, as modified,
hereinafter referred to as The Leases, each of which leases is between the
Trustees and Coastal and dated February 27, 1947, invalid and void. An appeal
has been filed in the United States Fifth Circuit Court of Appeals by the
Trustees in the case styled Coastal Petroleum Company, a Florida Corporation,
Petitioner-Appellee, vs. Secretary of the Army of the United States of America,
et al., No. 712589, asserting such claim.
<PAGE>
Coastal denies the invalidity and/or voidness of the said leases and
asks and asserts that the appeal should be denied.
The parties desire to reach a full and final compromise and settlement
of all matters and all causes of action arising out of the facts and claims as
set forth above.
SECTION THREE
GENERAL TERMS OF SETTLEMENT
In consideration of the mutual covenants set forth herein, the parties
agree as follows:
1. (A) Coastal agrees to reduce and surrender acreage and/or
economic interests in the said leases.
(B) Coastal agrees to have rental obligations of the said
leases continue on areas as to which it retains any interest.
(C) Coastal agrees to reduce its interest and have the areas
in which it retains any residual royalty interest released completely to the
Trustees at the end of 40 years from the date hereof. Coastal agrees to have the
areas in which it retains any right to explore and develop oil, gas and other
minerals released completely to the Trustees within 40 years from the date
hereof except that any operations producing oil, gas, or other minerals in
economically sustainable quantities at the end of such 40 years shall be
permitted to continue subject to the particular lease until such operations
cease.
(D) Coastal shall have no right to intervene in any land use
decisions within the areas leased other than as to the outermost three miles
retained by Coastal. Coastal's only rights as to areas other than the outer
three miles and Lake Okeechobee shall be the specified residual royalty on oil,
gas, and other minerals. The term "minerals," a used herein, shall not include -
among other things - sand gravel or unconsolidated seashells. Any use of
minerals other than oil or gas for a public purpose by the Trustees or any
government body so authorized by the Trustees may be made without Coastal's
approval and without payment of any compensation or royalties to Coastal.
2. (A) The parties agree that all claims, demands, rights and
causes of action that they have against each other with respect to the above-
described dispute are satisfied, discharged, and settled.
(B) The Trustees agree to terminate the pending appeal and
both parties agree to seek a consent decree based upon the terms hereof, but the
failure to obtain a consent decree shall not invalidate the effectiveness of
this settlement agreement.
(C) The parties agree that the first sentence of the first
paragraph of Article 13 of each of said leases shall be amended to read as
follows:
<PAGE>
"The rights of either party hereunder may be assigned in whole or in part only
after written consent thereto from the Trustees is first obtained, which consent
shall not be unreasonably withheld, and the provision a hereof shall extend to
the successors and assigns of the parties hereto, but no change or division in
ownership of land rentals or royalties, however accomplished, shall operate to
enlarge or diminish the obligations or the rights of either party."
(D) The Trustees agree that drilling obligations under Leases
224-A, 224-B and 248 (as modified) shall be governed by Chapter 20680, Laws of
Florida, Acts of 1941, and that all further drilling requirements are hereby
waived.
(E) In enforcing its residual royalty rights in any leased
lands, Coastal shall not enter suit against third parties without first
notifying the Trustees and offering the Trustees the opportunity to participate
in such action. Should the Trustees decline to participate and should Coastal
nevertheless pursue litigation that results in a monetary recovery which
benefits the Trustees, the Trustees then shall share, pro rata, in the payment
of reasonable attorneys fees and court costs, but in no event shall the Trustees
be obligated for any fees and costs in excess of their monetary recovery from
such litigation.
SECTION FOUR
SPECIFIC PROVISIONS OF SURRENDER AND RELEASE
1. Coastal hereby surrenders and releases to the Trustees, pursuant to
Article 16 contained in each of said leases, an area three statute miles wide
beginning three statute miles landward from the three league Federal-State
boundary and extending the full length of leases 224-A and 224-B.
2. Coastal hereby reduces its interest in all other areas landward of
the three statute miles surrendered and released to the Trustees, and including
all inland areas except Lake Okeechobee. In these areas, Coastal shall retain
only a residual royalty of 6 1/4% on the wellhead value of oil and gas, payable
in cash or in kind at the option of Coastal; 25 cents per long ton on sulphur;
and 5% of production or of the market value of other minerals, and shall have no
other rights whatever except those of a residual royalty right owner.
3. The Trustees simultaneously hereby waive their right to any
royalties from Coastal under the terms of leases 224-A, 224-B and 248 from areas
described in Paragraph 2 above, and retain full royalty in all other areas
subject to said leases.
4. Coastal, recognizing that Lake Okeechobee presents special problems
for preservation of its integrity as a fresh water reservoir vital to southern
Florida, agrees that no exploration or development drilling or mining of any
kind whatsoever shall be conducted thereon without the prior approval of the
Trustees.
<PAGE>
5. The current annual rental on Leases 224-A and 224-B now totals
$49,614.40. The new annual rental on Leases 224-A and 224-B shall be $39,261,
reflecting the reduction of lands leased. The annual rental requirement on Lease
248 shall remain the same, to-wit: $19,985.92.
6. Coastal shall secure permits from all appropriate State
environmental protection agencies in compliance with the then existing laws and
regulations, prior to any drilling or mining.
In all other respects, other than the amendments related herein, the
provisions of the leases remain in full force and effect.
IN WITNESS WHEREOF, the BOARD OF TRUSTEES OF THE INTERNAL IMPROVEMENT
TRUST FUND OP THE STATE OF FLORIDA, the Lessor, have hereunto subscribed their
names and have caused the seal of the State of Florida to be hereunto affixed,
and COASTAL PETROLEUM COMPANY, the Lessee, has caused this instrument to be
executed in its name by its President, and its corporate seal to be affixed,
attested by its Assistant Secretary, as of the date aforesaid.
/s/ Reubin O'D Askew
Governor
/s/ Bruce A. Smathers
Secretary of State
/s/ Robert L. Shevin
Attorney General
/s/ Gerald A. Lewis
Comptroller
/s/ Philip F. Ashler
State Treasurer
/s/ Doyle Conner
Commissioner of Agriculture
/s/ Ralph D. Turlington
Commissioner of Education
<PAGE>
ACTING AND COMPOSING THE BOARD
OF TRUSTEES OF THE INTERNAL
IMPROVEMENT TRUST FUND OF THE
STATE OF FLORIDA
LESSOR
COASTAL PETROLEUM COMPANY
By /s/ Benjamin W. Heath
President
LESSEE
ATTEST:
/s/ Harmon W. Shields
Executive Director
DEPARTMENT OF NATURAL RESOURCES
ATTEST:
/s/ C. Dean Reasoner
Assistant Secretary
Approved as to form and legal sufficiency.
ROBERT L. SHEVIN
ATTORNEY GENERAL
By: /s/ J. Kendrick Tucker
Assistant Attorney General
A G R E E M E N T
THIS AGREEMENT, made and entered into as of the 3rd day of December,
1991, by and between COASTAL CARIBBEAN OILS & MINERALS, LTD., a Bermuda
corporation with its principal office at Hamilton, Bermuda (the "CCO") and
COASTAL PETROLEUM COMPANY, a Florida corporation with its principal office at
Tallahassee, Florida ("CPC")
WITNESSETH:
WHEREAS CCO has entered into an agreement (the "Purchase Agreement") of
even date herewith with John J. D'Alessandro, M.D., F.A.C.S. (the "Purchaser")
for the sale to Purchaser of shares of CPC presently owned by CCO; and
WHEREAS the Purchase Agreement provides for the exchange by Purchaser,
at his option, of some or all of the shares of CPC purchased by Purchaser
pursuant to the Purchase Agreement for a royalty as more fully set forth in the
Purchase Agreement; and
WHEREAS CCO desires to acquire from CPC a royalty suitable for transfer
to Purchaser pursuant to the Purchase Agreement in exchange for one-half of the
gross proceeds received from Purchaser pursuant to the Purchase Agreement or
such other consideration as the parties hereto may agree; and
WHEREAS CPC desires to grant such royalty to CCO in order to obtain the
funds necessary to pursue a suitable oil and gas exploration program and to fund
CPC's other business activities;
NOW, THEREFORE, in consideration of the covenants and premises set
forth herein the parties hereby agree as follows:
<PAGE>
1. CPC shall upon demand and upon delivery of the amounts set forth in
Section 2 hereof deliver to CCO a fully executed royalty agreement substantially
in the form attached hereto as Exhibit A on each and every occasion that CCO
shall make such demand in connection with the sale by CCO of shares of CPC
common stock to Dr. John J. D'Alessandro pursuant to the Purchase Agreement.
Each royalty so delivered shall grant to CCO a royalty interest in the leases of
CPC no greater and no less than required to satisfy the obligations of CCO to
Purchaser in the event that he shall request the transfer to him of the royalty
in exchange for shares of the common stock of CPC.
2. CCO shall pay to CPC on each such occasion one-half of the gross
proceeds received from Purchaser pursuant to the Purchase Agreement, or such
other consideration as the parties hereto shall agree, in exchange for the
issuance to CCO of the royalty from CPC.
3. CCO may not grant, bargain, sell, convey, assign, or otherwise
transfer the royalty interest or any part thereof granted hereby to any person
without the prior written consent of CPC, except that CCO may grant, bargain,
sell, convey, assign or otherwise transfer said royalty interests to Purchaser
freely and without the consent of CPC provided that such transfers are in
accordance with the provisions of the Purchase Agreement.
4. Upon acquisition of any such royalty, CCO shall promptly file such
royalty on the appropriate land records of the State of Florida.
<PAGE>
IN WITNESS WHEREOF, CCO and CPC have caused these presents to be duly
executed by their proper officers as of the day and year first written above.
COASTAL PETROLEUM COMPANY
By: /s/Arthur B. O'Donnell
Arthur B. O'Donnell
Its Vice President
ATTEST:
/s/ James J. Gaughran
Its Secretary
COASTAL CARIBBEAN OILS
& MINERALS, LTD.
By: /s/ Phillip W. Ware
Phillip W. Ware
Its Vice President
ATTEST:
/s/ James J. Gaughran
Its Assistant Secretary
<PAGE>
EXHIBIT A
INDENTURE
THIS INDENTURE made and entered into this the ___ day of _________,
199__, by and between COASTAL PETROLEUM COMPANY, a Florida corporation with its
principal office at Gainesville, Florida (the "Grantor") and COASTAL CARIBBEAN
OILS & MINERALS, LTD., a Bermuda corporation with its principal office at
Hamilton, Bermuda (the "Grantee").
W I T N E S S E T H:
For and in consideration of the sum of Ten Dollars ($10.00) and other
good and valuable consideration in hand paid by Grantee to Grantor, the receipt
whereof is hereby acknowledged, Grantor has and does hereby grant, bargain,
sell, convey, assign, transfer, set over and deliver unto Grantee in fee simple
forever a royalty (the "Royalty") as more fully set forth below. The Royalty
shall entitle grantee to receive _______ percent (____%) of the gross amounts
received by Grantor or its successors in interest from the sale of all oil, gas,
casinghead gas or other gaseous substances and sulphur, and each of them,
produced and saved from any and all of the so-called "working interest" areas of
Grantor's Drilling Leases 224-A, 224-B and 248 executed by and between Grantor
and the Trustees of the Internal Improvement Trust Fund of the State of Florida
(the "Trustees"), all as modified and amended to the date hereof (the "Leases"),
and _______ percent (____%) of all amounts received by Grantor or its successor
in interest as a royalty ("the "Trustees' Payments") pursuant to Section 4,
Paragraph 2 of that certain Memorandum of Settlement dated January 6, 1976 by
and between the Trustees and Grantor. Copies of the Leases and said Memorandum
of Settlement are hereto attached and by this reference made a part hereof as
fully and completely as if incorporated herein, it being the intention of
<PAGE>
Grantor hereby to convey to Grantee an absolute interest in and to (i) all oil,
gas, casinghead gas or other gaseous substances and sulphur produced and saved
from said lands and premises of the Leases, and any and all extensions,
modifications or renewals of any or all of the Leases and (ii) the Trustees'
Payments. The Royalty, as it relates to such oil, gas, casinghead gas and other
gaseous substances and sulphur produced and saved from said premises shall be
made free of all burdens and costs, except the Grantee's proportionate part of
the severance or production taxes which may be assessed against said production,
and to be deposited to the credit of Grantee into the storage tanks or pipe
lines to which the wells on said premises may be connected, said tanks and pipe
line to be provided by Grantor without cost to Grantee. At the option of
Grantor, the Royalty may be paid at current market prices therefor as an
overriding royalty over and above the rents and royalties to be paid the
Trustees. Said overriding royalty shall be accounted for, paid and delivered to
Grantee, together with that portion, if any, of the Royalty that is payable with
respect to the Trustees' Payments, on or before the 15th day of January, April,
July and October for the production during the calendar quarter ended on the
last day of the immediately preceding month, it being understood that said
overriding royalty of oil, gas, casinghead gas or other gaseous substances and
sulphur, and each of them, shall be computed as to the net quantity thereof
produced and saved after deducting any that may be used as fuel for Grantor's
operations on said premises.
TO HAVE AND TO HOLD the Royalty forever, or so long as the Leases or
any extensions, modifications or renewals thereof, or any future leases covering
said lands between the Trustees and Grantor, its successors, assigns, successive
assigns, or distributees are in effect and owned by Grantor, its successors,
assigns, successive assigns or distributees, and until all products, materials,
equipment, supplies and properties shall have been salvaged and disposed of.
<PAGE>
In the event the Leases or any of them are modified to provide a
unitizing clause, then any portion of the lands covered by Leases may be pooled
or combined with a lease or portion thereof covering other lands in the same
general area and state of development, such other lands having an area not
greater than the total area of lands covered by the Leases which are included in
the unit included within a pooling agreement or agreements which may be entered
into by Coastal Petroleum Company, its successors or assigns with other persons,
firms or corporations. Grantee shall then receive on production of oil, gas,
casinghead gas, and other gaseous substances and sulphur only such portion of
the overriding royalty stipulated herein as the acreage in which Grantee has an
overriding royalty interest and which is included in such unit bears to the
total acreage so pooled in the particular unit or units so pooled. When a
pooling agreement is entered into, then within thirty days from the execution
thereof, Grantor shall provide to Grantee herein or to the representative
designated to receive quarterly statements, a copy of such pooling agreement and
within a reasonable time shall cause the same to be recorded in the County
wherein the land is situated.
Grantor is wholly responsible for the payment of all rentals to the
Trustees to be paid under the terms and provisions of the Leases or any
extensions, modifications or renewals thereof, and Grantor agrees to pay said
rentals so as not to permit any default or any forfeiture to occur as to any
drilling blocks in the Leases described on account of non-payment of rentals.
Grantee shall not be responsible for the payment of any rentals or
other performances under the Leases or any extensions, modifications or renewals
thereof.
<PAGE>
Said overriding royalty shall be payable to Grantee on the dates
aforesaid free and clear of all cost of drilling, development, operations, taxes
or otherwise, except that Grantee shall pay its proportionate part of the
severance or production taxes which may be assessed against said production.
Grantor, its successors and assigns retain the right to use the oil and
gas produced from said premises as fuel for operating the premises and for
treating and handling production therefrom, and such quantities so used shall be
deducted before said overriding royalty is computed.
Grantor agrees to provide on the 15th day of January, April, July and
October for the calendar quarter ended the last day of the immediately preceding
month to Grantee, or to its representative designated in writing, an itemized
statement or statements showing (i) the total amount of production of oil, gas,
casinghead gas or other gaseous substances and sulphur produced and saved during
the preceding calendar quarter, (ii) the gross sales price of all such oil, gas,
casinghead gas and other gaseous substances and sulphur for said calendar
quarter and the moneys due to Grantee under the terms of this instrument
computed on the basis of said quarterly statements, and (iii) amounts received
pursuant to the Trustees' Royalty during said calendar quarter.
Grantee hereunder shall have the right, but shall not be obligated to
pay any liens acquired against the interest of the Grantor, its successors and
assigns covered by the Leases and to be subrogated to the rights of the holders
of such liens.
<PAGE>
Grantor for itself, its successors, assigns and distributees, hereby
agrees to execute and deliver to Grantee at any time hereafter and from time to
time when requested by Grantee such instrument or instruments as may be
desirable in order to effectively convey and assure unto the Grantee the
absolute and full overriding royalty hereby to it conveyed and assured.
Grantee may not grant, bargain, sell, convey, assign, transfer, set
over and deliver its interest herein or any part thereof to any party prior to
December 31, 1995, except that Grantee may grant, bargain, sell, convey, assign,
transfer, set over and deliver its interest herein or any part thereof to one
John J. D'Alessandro, his heirs and assigns without the consent of the Grantor
at any time prior to December 31, 1995.
In the event title to part of the lands covered by the Leases shall, by
judicial, legislative process, or otherwise, be vested in the United States of
America, and the rights of the lessee under the Leases, or any of them, are
recognized by the United States of America through the granting of a new lease
or otherwise covering said lands, then the overriding royalty herein conveyed
and granted shall continue to apply to such lands.
This indenture extends to and is binding upon the Grantor and Grantee,
their successors, assigns, personal representatives, and heirs, respectively.
<PAGE>
IN WITNESS WHEREOF, Coastal Petroleum Company has caused these presents
to be duly executed by its proper officers and its corporate seal to be hereunto
affixed the day and year first above written.
WITNESSES: COASTAL PETROLEUM COMPANY
______________________________ By ______________________________
Its President
______________________________
ATTEST: ______________________________
Its Secretary
STATE OF FLORIDA :
:
COUNTY OF ________________ :
I HEREBY CERTIFY that on this ____ day of __________ 199__, before me,
the undersigned authority, personally appeared ________________, President of
Coastal Petroleum Company, a corporation, to me well known and known to me to be
such officer of said corporation and the individual who executed the foregoing
instrument as such officer for and on behalf of said corporation, who
acknowledged that he executed the same freely and voluntarily in his official
capacity as such officer for and on behalf of said corporation pursuant to
authority in him vested by the Board of Directors of said corporation for the
uses and purposes therein mentioned.
WITNESS my hand and official seal the date aforesaid.
------------------------------------
Notary Public
My Commission Expires:
<PAGE>
STATE OF CONNECTICUT :
:
COUNTY OF NEW HAVEN :
I HEREBY CERTIFY that on this ____ day of __________ 199__, before me,
the undersigned authority, personally appeared ________________, Secretary of
Coastal Petroleum Company, a corporation, to me well known and known to me to be
such officer of said corporation and the individual who executed the foregoing
instrument as such officer for and on behalf of said corporation, who
acknowledged that he executed the same freely and voluntarily in his official
capacity as such officer for and on behalf of said corporation pursuant to
authority in him vested by the Board of Directors of said corporation for the
uses and purposes therein mentioned.
And the said _________________, Secretary, further acknowledged that
the seal affixed to said instrument purporting to be the corporate seal of said
corporation is in truth and in fact the common corporate seal thereof and was
affixed to said instrument by him pursuant to authority in him vested by the
Board of Directors of said corporation.
WITNESS my hand and official seal the date aforesaid.
------------------------------------
Notary Public
My Commission Expires:
AGREEMENT
BETWEEN
LYKES MINERALS CORP. ("Purchaser");
and
COASTAL CARIBBEAN OILS & MINERALS, LTD. ("CCO") and
COASTAL PETROLEUM COMPANY ("CPC")
DATED OCTOBER 16, 1992
<PAGE>
TABLE OF CONTENTS
1. PURCHASE AND SALE.....................................................1
A. Initial Purchase.............................................1
B. Use of Purchase Price........................................2
2. OPTION AGREEMENT......................................................2
A. Options......................................................2
B. Use of Option Purchase Price.................................4
C. Additional Conditions Precedent..............................4
3. EXCHANGE OF SHARES....................................................4
A. Exchange Privilege...........................................4
B. Manner of Exchange...........................................4
C. Delivery of Share Certificates, Fractional Shares............5
D. Compliance With Laws.........................................5
E. Reservation of Shares........................................5
F. Exchange for Royalty.........................................5
G. Disposition of Leasehold Interest............................6
4. ANTI-DILUTION.........................................................6
A. Stock Adjustments............................................6
B. Stock in Cancellation of Indebtedness........................6
C. CCO Stock Issuance...........................................7
D. CPC Stock Issuance...........................................7
5. REPRESENTATIONS AND WARRANTIES OF CCO AND CPC.........................7
A. Organization and Good Standing...............................7
B. Capitalization...............................................7
C. Subsidiaries.................................................8
D. Execution and Effect of Agreement............................8
E. Financial Statements.........................................9
F. No Undisclosed Liabilities...................................9
G. Taxes........................................................9
H. No Adverse Change............................................9
I. Securities Law Compliance...................................10
J. Business and Properties.....................................10
L. Permits: Compliance with Laws...............................10
M. Insurance...................................................10
N. Material Obligations........................................11
O. Labor Disputes..............................................11
P. ERISA.......................................................11
Q. Share Validity and Encumbrances.............................11
<PAGE>
R. No Misrepresentation........................................11
S. Registration Rights.........................................11
T. Drilling Leases.............................................11
U. Royalty Interests...........................................12
V. Acknowledgement of Benefits.................................12
W. No Brokers or Finders.......................................12
6. INDEMNIFICATION AND SURVIVAL OF
REPRESENTATIONS, WARRANTIES AND COVENANTS............................12
A. Survival....................................................12
B. Indemnification.............................................12
7. REGISTRATION OF CCO STOCK............................................12
A. Registration Rights.........................................12
B. Agreement of Purchase.......................................13
C. Costs.......................................................13
8. ADDITIONAL COVENANTS OF CCO AND CPC..................................13
A. Settlement of Lawsuits......................................13
B. Dividends and Distributions.................................13
C. Transfer of Assets..........................................14
D. Material Investments........................................14
E. Articles and Bylaws.........................................14
F. Lines of Business...........................................14
G. Conduct of Business.........................................14
H. Financial Reports...........................................14
I. Access......................................................14
J. Representations and Warranties..............................14
K. Opt Out ofss.607.0901 and 607.0902..........................14
L. Revised Structure...........................................14
M. Intercompany Payments.......................................14
N. Right of First Refusal......................................15
O. Duration....................................................15
9. DEFAULTS AND REMEDIES................................................15
A. Defaults....................................................15
B. Remedies....................................................15
10. NOTICES..............................................................15
11. LAW GOVERNING AGREEMENT..............................................16
12. PARTIES BOUND........................................................16
<PAGE>
13. ASSIGNMENT...........................................................16
14. PUBLIC ANNOUNCEMENTS.................................................16
15. EXPENSES.............................................................16
16. FURTHER ASSURANCES...................................................16
17. AMENDMENT AND MODIFICATION...........................................16
18. COUNTERPARTS.........................................................17
19. ENTIRE AGREEMENT.....................................................17
20. SEVERABILITY.........................................................17
<PAGE>
EXHIBIT LIST
Page
Exhibit A - Opinion of Counsel 1,4
Exhibit B - Agreement with D'Alessandro 3
Exhibit C - Royalty Agreement 5
Exhibit D - Certified Articles and By-laws 7
Exhibit E - Drilling Leases 12
Exhibit F - Royalty Interests 12
Exhibit G - Confidentiality Agreement 15
Exhibit H - Public Announcement 17
<PAGE>
A G R E E M E N T
THIS AGREEMENT made and entered into as of the ________ day of October,
1992, by and between:
LYKES MINERALS CORP., a Florida corporation having its
principal office in Tampa, Florida, (hereinafter referred to
as the "Purchaser"); and
COASTAL CARIBBEAN OILS & MINERALS, LTD., a Bermuda corporation
having its principal office in Hamilton, Bermuda (hereinafter
referred to as "CCO") and
COASTAL PETROLEUM COMPANY, a Florida corporation having its
principal office in Tallahassee, Florida and majority owned
subsidiary of CCO (hereinafter referred to as "CPC").
In consideration of the sums set forth and the stated covenants and
options, the parties agree as follows:
1. PURCHASE AND SALE.
A. Initial Purchase.
(i) Subject to the terms and conditions set forth in this
Agreement and in reliance on the representations and warranties contained
herein, at the Closing (defined in Section 1.A.(iii)) CCO shall sell to the
Purchaser and the Purchaser shall purchase from CCO six (6) shares of CPC Common
Stock (defined in Section 5.B.(ii)) owned by CCO.
(ii) The purchase price (the "Purchase Price") for the six (6)
shares of CPC Common Stock shall be Two Hundred and Forty Thousand Dollars
($240,000.00) payable in cash or other immediately available funds at the
Closing.
(iii) The closing (the "Closing") shall take place at the
offices of Macfarlane Ferguson, 111 E. Madison Street, Suite 2300, Tampa,
Florida 33602, or at such other place the parties may mutually agree upon at
11:00 a.m. on or before Friday, October 30, 1992, (the "Closing Date"). At the
Closing, CCO shall deliver to the Purchaser stock certificates evidencing the
six (6) shares of CPC Common Stock, duly endorsed in blank or accompanied by
stock powers duly endorsed in blank, and shall take, or cause CPC to take, all
other actions necessary to constitute the Purchaser the owner and holder of such
shares, free and clear of any lien or encumbrance or restriction, and shall
deliver such other documents and certificates reasonably requested by the
Purchaser, including, without limitation, a certificate signed by the President
<PAGE>
of each of CCO and CPC certifying the truthfulness and correctness of the
representations and warranties contained in Section 5 hereof and the opinion of
counsel to CPC substantially in the form set forth as Exhibit A hereto and made
a part hereof. Following CCO and CPC's satisfaction of the conditions precedent
stated in the preceding sentence, the Purchaser shall deliver to CCO the
Purchase Price. In the event CCO and CPC fail to satisfy such conditions
precedent, then the Purchaser has the unconditional right to terminate this
Agreement with no liability of any kind whatsoever.
B. Use of Purchase Price. CCO shall use the Purchase Price
as follows:
(i) A minimum of One Hundred and Twenty Thousand Dollars
($120,000.00) shall be promptly advanced by CCO to CPC and shall be used by CPC
solely for the exploration and extraction of oil and other minerals on the
property subject to CPC's Drilling Leases (defined in Section 5.T) and expenses
related thereto.
(ii) The remaining portion of the Purchase Price may be used
for any proper business purposes of CCO.
For so long as the Purchaser owns any shares of CPC Common Stock (or CCO Common
Stock or the Royalty if CPC Common Stock is exchanged pursuant to Section 3
hereof), the Purchaser shall have the right to verify, through such procedures
as the Purchaser deems reasonably necessary, that the Purchase Price is used
solely as permitted by this Section 1.B. and Section 2.B.
2. OPTION AGREEMENT.
A. Options. Subject to the terms and conditions set forth in
this Agreement and in reliance on the representations and warranties contained
herein, CCO hereby grants to the Purchaser options to purchase additional CPC
Common Stock as follows:
(i) At the Closing, CCO shall grant to the Purchaser an
irrevocable first option to purchase up to an additional fifty-four (54) shares
of CPC Common Stock on the following basis:
(a) On or before May 1, 1993, up to six (6) shares for
$40,000.00 per share;
(b) On or before November 1, 1993, up to six (6) shares
for $40,000.00 per share;
(c) On or before May 1, 1994, up to six (6) shares for
$40,000.00 per share;
(d) On or before November 1, 1994, up to six (6) shares
for $40,000.00 per share;
(e) On or before May 1, 1995, up to six (6) shares for
$40,000.00 per share;
(f) On or before November 1, 1995, up to six (6) shares
for $40,000.00 per share
<PAGE>
(g) On or before May 1, 1996, up to six (6) shares for
$40,000.00 per share;
(h) On or before November 1, 1996, up to six (6) shares
for $40,000.00 per share;
(i) On or before May 1, 1997, up to six (6) shares for
$40,000.00 per share;
(j) Purchaser, in its sole discretion, may unilaterally
extend each option described in Section 2.A.(i)(a ) through Section 2.A.(i)(i)
above:
(x) for a period of up to thirty (30) days by
giving prior written notice to CCO; and
(y) for a period of up to one (1) year by
purchasing three (3) shares for $40,000 per share on or before the date stated
in each such option.
(ii) At the Closing, CCO shall grant to the Purchaser an
irrevocable second option to purchase the twenty-one (21) shares of CPC Common
Stock which are subject to a first option to purchase which CCO previously
granted to John J. D'Alessandro, M.D., F.A.C.S., ("D'Alessandro") pursuant to
that certain Agreement dated December 3, 1991, between D'Alessandro and CCO
attached hereto as Exhibit B and made a part hereof, (the "D'Alessandro
Agreement"), on the following basis:
(a) CCO shall notify the Purchaser in writing within
ten (10) days after the first to occur of either:
(x) D'Alessandro's exercise of his options; or
(y) the lapse of D'Alessandro's options.
(b) In the event D'Alessandro's options lapse, then the
Purchaser may purchase at $40,000.00 per share the shares previously subject to
D'Alessandro's options within ninety (90) days of the Purchaser's receipt of
CCO's written notice to the Purchaser pursuant to Section 2.A.(ii)(a) above.
CCO shall not amend the D'Alessandro Agreement in any manner without the prior
written consent of the Purchaser. In the event the Purchaser purchases the
shares previously subject to D'Alessandro's options, then the Purchaser, at its
option, shall be entitled to convert such shares into a royalty interest or CCO
Common Stock according to the terms and conditions of the D'Alessandro Agreement
or this Agreement.
(iii) In the event the Purchaser exercises any or all of the
options granted pursuant to Section 2.A.(i) and 2.A.(ii), the closing of the
exercise of such options (the "Option Closings") shall be at the time and place
designated by Purchaser. At each such Option Closing, the Purchaser shall
deliver to CCO the purchase price (the "Option Purchase Price") for the shares
of CPC Common Stock to be purchased by the Purchaser. At each such Option
Closing, CCO shall deliver to the Purchaser stock certificates evidencing the
shares of CPC Common Stock to be purchased, duly endorsed in blank or
accompanied by stock powers duly endorsed in blank, and shall take, or cause CPC
to take, all other actions necessary to constitute the Purchaser the owner and
holder of such shares, free and clear of any lien or encumbrance or restriction.
<PAGE>
(iv) At the Closing, CCO shall place a legend satisfactory to
the Purchaser on the stock certificates evidencing fifty-four (54) CPC shares
subject to the Purchaser's irrevocable first option and twenty-one (21) CPC
shares subject to the Purchaser's irrevocable second option.
B. Use of Option Purchase Price. CCO shall use the Option
Purchase Price as follows:
(i) A minimum of fifty percent (50%) of the Option Purchase
Price shall be promptly advanced by CCO to CPC and shall be used by CPC solely
for the exploration and extraction of oil and other minerals on the property
subject to CPC's Drilling Leases and expenses related thereto.
(ii) The remaining portion of the Option Purchase Price may be
used for any proper business purposes of CCO.
C. Additional Conditions Precedent.
(i) As a condition precedent to each purchase and sale
described in Sections 1 and 2 hereof and as a condition precedent to each
exchange described in Section 3 hereof, CCO and CPC shall reaffirm in writing
each of the representations and warranties set forth in Section 5 hereof.
(ii) As a condition precedent to each purchase and sale
described in Sections 1 and 2 hereof, and as a condition precedent to each
exchange contemplated by Section 3 hereof, CCO shall cause to be delivered to
the Purchaser an opinion of counsel to CPC substantially in the form set forth
as Exhibit A hereto and such other documents and certificates reasonably
requested by the Purchaser.
3. EXCHANGE OF SHARES.
A. Exchange Privilege. At the election of Purchaser, any share of CPC
Common Stock owned by the Purchaser may be exchanged into fully paid and
non-assessable shares of common stock of CCO ("CCO Common Stock"), on the basis
of 100,000 shares of CCO Common Stock for each share of CPC Common Stock.
B. Manner of Exchange. Any share of CPC Common Stock may be exchanged
by the Purchaser by surrender of such share (the "Exchanged Share") with a
written notice requesting an exchange pursuant to the terms hereto, duly
executed by the Purchaser to CCO at its principal office. The exchange shall be
deemed to have been effected at the close of business on the date on which the
Exchanged Share(s) shall have been surrendered to CCO, and at such time the
appropriate number of shares of CCO Common Stock shall be issued by CCO to the
Purchaser and CCO shall take all action necessary to constitute the Purchaser
the owner and holder of such shares, free and clear of any lien or encumbrance
or restriction.
<PAGE>
C. Delivery of Share Certificates Fractional Shares. As promptly as
practicable after the surrender of the Exchanged Share(s), and in any event
within 15 days thereafter, CCO at its expense (including the payment by it of
any applicable issue taxes) will cause to be issued in the name of and delivered
to the Purchaser, or delivered to such other person as the Purchaser (upon
payment by the Purchaser of any applicable transfer taxes) may direct, a
certificate or certificates representing the number of shares of CCO Common
Stock to which the Purchaser shall be entitled upon such exchange. No fractional
share of CCO Common Stock or scrip representing such fractional share shall be
issued upon exchange hereunder. If any fractional share otherwise would be
deliverable upon exchange, such fraction shall be rounded up if one-half or more
or otherwise rounded down, to the nearest whole number.
D. Compliance with Laws. Upon any such exchange, Purchaser shall
provide CCO with such customary investment representations reasonably requested
by CCO to assure that such exchange complies with applicable federal and state
securities laws.
E. Reservation of Shares. CCO shall reserve for issuance pursuant to
such exchange rights 8,100,000 shares of CCO Common Stock and shall increase or
decrease such number of CCO shares so reserved to reflect adjustments, if any,
in the total number of such shares issuable upon Purchaser's exercise of the
right to exchange shares.
F. Exchange for Royalty. The Purchaser may, at the Purchaser's option,
exchange all or any of the shares of CPC Common Stock acquired by the Purchaser
pursuant to this Agreement for an overriding royalty, in the form attached
hereto as Exhibit C and made a party hereof, (the "Royalty"), and as more fully
described below. The Royalty shall entitle the Purchaser to receive from CPC an
amount equal to the number of shares of CPC Common Stock exchanged by the
Purchaser for the Royalty divided by the total number of shares of CPC Common
Stock outstanding (the "Royalty Percentage") at the time of such exchange
multiplied by (a) the gross amounts received by CPC or its successors in
interest from the sale of oil, gas or other minerals produced from the so called
"working interest" areas of CPC's Drilling Leases 224-A, 224-B and 248, all as
modified and amended to the date hereof, divided by 8; and (b) the amounts
received by CPC or its successor in interest as an overriding royalty pursuant
to Section 4, Paragraph 2 of that certain Memorandum of Settlement dated January
6, 1976 by and between the Board of Trustees of the Internal Improvement Trust
Fund of the State of Florida and CPC. Notwithstanding anything herein to the
contrary, in the event the Purchaser exchanges all sixty (60) shares of CPC
Common Stock for the Royalty, which is the total number of shares the Purchaser
may acquire through the Purchaser's initial purchase pursuant to Section 1 and
the exercise of the options pursuant to Section 2.A.(i), such Royalty shall
entitle the Purchaser to a minimum of (a) 2.57% of the gross amounts resulting
from the sale of oil, gas or other minerals produced from the "working interest"
areas of CPC's Drilling Leases 224-A, 224-B and 248, all as modified and amended
to the date hereof; and (b) 20.55% of the amounts resulting from the overriding
royalty pursuant to Section 4, Paragraph 2 of that certain Memorandum of
Settlement dated January 6, 1976 by and between the Board of Trustees of the
<PAGE>
Internal Improvement Trust Fund of the State of Florida and CPC. Royalty
payments shall be made quarterly no later than the 15th day of January, April,
July and October of each year for the quarter ended on the last day of the
immediately preceding month. CPC shall not grant, bargain, sell, convey, assign,
transfer, set over or deliver its interest in the Royalty or any part thereof to
any party except as provided herein. Until the Royalty is acquired by the
Purchaser, CPC shall make no payment pursuant to the Royalty. Upon the
acquisition of the Royalty by the Purchaser, CPC shall make payments pursuant to
the Royalty in accordance with the terms of the Royalty.
G. Disposition of Leasehold Interest. The parties hereto acknowledge
that some or all of CPC's Florida oil, gas and mineral leasehold rights may have
been or may be voluntarily or involuntarily transferred, diminished, or
extinguished. Such transfer, diminution or extinguishment may have occurred or
may occur (i) as a result of partial, temporary or total condemnation of such
interests by governmental agencies, (ii) as a result of theft, conversion or
other unauthorized taking by one or more persons, or (iii) as a result of a
voluntary transfer or transfers by CPC. In the event that CPC receives
consideration from any source whatsoever upon or as a result of any such
transfer, diminution or extinguishment of its leasehold interests, and if
Purchaser has acquired a Royalty pursuant hereto, CPC shall promptly pay
Purchaser an amount equal to the Royalty Percentage owned by the Purchaser
multiplied by the total consideration so received by CPC. Upon such payment by
CPC to the Purchaser, the royalty rights with respect to that portion of the
leasehold rights transferred, diminished or extinguished shall terminate and be
of no further force or effect.
4. ANTI-DILUTION.
A. Stock Adjustments. In the event that after the date hereof, CPC or
CCO shall have effected one or more stock splits, stock dividends, mergers,
reorganizations, consolidations, combinations or exchanges of shares,
recapitalization or similar capital adjustments, CCO shall adjust equitably the
number, kind and option price of the remaining shares of CPC Common Stock that
the Purchaser may purchase hereunder in order to avoid dilution or enlargement
of the Purchaser's rights granted under Sections 1 and 2 hereof; and CCO shall
similarly adjust equitably the exchange ratio in order to avoid dilution or
enlargement of the Purchaser's rights granted under Section 3 hereof.
B. Stock in Cancellation of Indebtedness. In the event that after the
date hereof, CPC shall issue to CCO shares of CPC Common Stock in exchange for
or otherwise in consideration of the cancellation or satisfaction of CPC's
outstanding indebtedness to CCO, then CCO shall forthwith transfer to the
Purchaser, without further consideration, shares of CPC Common Stock so that the
Purchaser's percentage ownership of CPC shares outstanding after such issuance
at least equals the Purchaser's percentage ownership of such shares immediately
prior to such issuance.
<PAGE>
C. CCO Stock Issuance. In the event that after the date hereof, CCO
shall issue shares of its common stock at a per share price less than forty
cents ($.40) or shall issue other securities convertible into shares of its
common stock where the total per share price of such common stock (based on the
purchase price of such other securities and the conversion price, if any) is
less than forty cents ($.40), then the value of each CCO share issuable to the
Purchaser pursuant to Section 3 hereof shall be reduced from forty cents ($.40)
to the lowest per share price at which CCO shall have issued shares during such
period, thereby changing the exchange ratio for the number of CCO shares
deliverable for each share of CPC Common Stock exchanged. The foregoing
notwithstanding, no such reduction in the value of each CCO share shall occur as
a result of or with respect to any issuance of shares by CCO pursuant to an
offering in which all of its then present shareholders are entitled to
participate on a pro rata basis.
D. CPC Stock Issuance. In the event that after the date hereof, CPC
shall issue shares of its common stock, CPC shall provide the Purchaser with
sixty (60) days prior written notice of the proposed stock issuance and a first
option to acquire a proportional amount of such shares necessary to maintain the
Purchaser's then current ownership percentage.
5. REPRESENTATIONS AND WARRANTIES OF CCO AND CPC. The
representations and warranties of CCO and CPC set out below are made by each
company on its own behalf and not on behalf of the other. For purposes of this
Agreement, the term "Companies" refers to CCO and CPC. The Companies represent
and warrant to the Purchaser as follows:
A. Organization and Good Standing. The Companies are corporations duly
organized, validly existing and in good standing under the laws of either
Bermuda or Florida as applicable, and have full corporate power and authority
(i) to enter into and perform their obligations under this Agreement, (ii) to
sell or issue CCO Common Stock or CPC Common Stock as the case may be, (iii) to
pay the Royalty and (iv) to own or lease their properties and to conduct their
businesses as they are now being conducted. Each of CCO and CPC is duly licensed
or qualified and in good standing as a foreign corporation in all jurisdictions
in which the conduct of its business or the ownership or lease of property by it
require such qualification. True and complete copies of the CCO's and CPC's
Certificates of Incorporation and By-Laws (together with all amendments thereto)
are annexed hereto as Exhibit D.
B. Capitalization.
(i) As of the date hereof, the authorized capital stock of CCO consists
of 100,000,000 shares of Common Stock, par value $0.12 per share, of which (A)
33,363,632 shares are presently issued and outstanding, (B) 375,000 shares are
reserved for issuance pursuant to stock options granted to certain directors and
employees of the Companies, (C) no shares are held by CCO as treasury stock, (D)
6,000,000 shares shall be reserved for issuance to Purchaser in the event
Purchaser exercises the options contained in Section 2 and the exchange rights
contained in Section 3, and (E) 2,100,000 shares are reserved for issuance
pursuant to the D'Alessandro Agreement. All of the issued and outstanding shares
of CCO Common Stock are validly issued, fully paid and nonassessable and are
free of preemptive rights. Except for this Agreement and except as set forth in
CCO's Annual Report on Form 10-K for the year ended December 31, 1991 and CCO's
<PAGE>
Quarterly Report on Form 10-Q for the quarter ended June 30, 1992 (the "Form
10-Q"), there is no existing option, warrant, call, commitment or other
agreement to which CCO is a party, and there are no convertible securities of
CCO outstanding, pursuant to which CCO may become obligated to issue any
additional shares of CCO Common Stock or other securities convertible into or
evidencing the right to purchase shares of CCO Common Stock or other equity
securities of CCO. Except as set forth in the D'Alessandro Agreement, neither
the sale of CPC Common Stock nor the exchange rights granted herein to acquire
shares of CCO Common Stock will give rise to any antidilution adjustments under
the terms of any outstanding options, warrants or convertible securities of CCO
or any agreements to which CCO is a party, or any preemptive rights.
(ii) As of the date hereof, the authorized capital stock of CPC
consists of 5,000 shares of common stock, no par value, ("CPC Common Stock"), of
which (A) 292 shares are presently issued and outstanding, (B) no shares are
reserved for issuance for specific purposes and (C) no shares are held by CPC as
treasury stock. All of the issued and outstanding shares of CPC Common Stock are
validly issued, fully paid and non-assessable and are free of preemptive rights.
There are no convertible securities of CPC outstanding pursuant to which CPC may
become obligated to issue any additional shares of CPC Common Stock or other
securities convertible into or evidencing the right to purchase shares of CPC
Common Stock or other equity securities of CPC.
(iii) The total number of CPC shares outstanding shall not exceed 292
shares; provided, however, that if CPC or CCO, upon the receipt by CPC of the
governmental permit(s) for the extraction of oil and other minerals on the
property subject to CPC's leasehold interests, requires additional equity
financing to accomplish such extraction and related activities, then CPC may
issue additional capital stock to raise the necessary capital provided that CPC
gives Purchaser the opportunity to protect its equity ownership percentage from
dilution in CPC by participating in such stock offering on the same basis as any
other persons who participate in such stock offering.
C. Subsidiaries. The Companies do not have any subsidiaries.
D. Execution and Effect of Agreement.
(i) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby (A) are within the
corporate powers of the Companies, (B) have been duly authorized by all
necessary corporate action on the part of the Companies, and (C) do not and will
not (1) violate any of the provisions of the respective Certificates of
Incorporation or By-Laws of CCO and CPC or any law, regulation, order or
judgment, (2) conflict with or result in a breach of, or give rise to a right of
termination of, or accelerate the performance required by, any term of any
agreement to which CCO or CPC is a party, or constitute a default thereunder, or
(3) result in the creation of any lien, claim or encumbrance upon any of the
assets of either CCO or CPC.
(ii) This Agreement has been validly executed and constitutes the
legal, valid and binding obligation of the Companies, enforceable against the
Companies in accordance with its terms.
<PAGE>
(iii) The Royalty, when paid and delivered in accordance with the terms
hereof and thereof, will constitute the legal, valid and binding obligation of
CPC, enforceable against CPC in accordance with its terms.
E. Financial Statements. CCO has delivered to the Purchaser true and
complete copies of (i) CCO's Annual Report on Form 10-K for the years ended
December 31, 1990 and December 31, 1991 (the "Form 10-K") containing an audited
consolidated balance sheet of CCO as at December 31, 1990 and December 31, 1991
and related audited consolidated statements of operations and cash flows of CCO
for the year then ended, (ii) the Form 10-Q containing an unaudited consolidated
balance sheet of CCO as at June 30, 1992 and related unaudited consolidated
statements of operations and cash flows for the interim period then ended, and
(iii) unaudited consolidating balance sheets as at December 31, 1990, December
31, 1991 and June 30, 1992 and related unaudited consolidating statements of
operations and cash flows for the foregoing period. The foregoing financial
statements (i) are complete, correct and in accordance with the books and
records of CCO as of the date and for the period indicated, (ii) have been
prepared in accordance with generally accepted accounting principles and in
conformity with the practices consistently applied by CCO in the immediately
preceding fiscal periods, and (iii) present fairly the financial position,
results of operations and changes in financial position of CCO as at the
respective dates thereof and for the respective periods covered thereby. For the
purposes hereof, the audited balance sheet of the Company as at December 31,
1991 is referred to herein as the "Balance Sheet," and December 31, 1991 is
referred to herein as the "Balance Sheet Date."
F. No Undisclosed Liabilities. At the Balance Sheet Date, CCO had no
material indebtedness or liability (whether accrued, absolute, contingent or
otherwise, and whether due or to become due), which is not reflected in the
Balance Sheet or the notes thereto or disclosed herein or in a schedule hereto.
Since the Balance Sheet Date, CCO has not incurred any obligation, indebtedness
or liability (whether accrued, absolute, contingent or otherwise, and whether
due or to become due), which is not reflected in the Balance Sheet or the notes
thereto or disclosed herein or in a schedule hereto or in the Company's report
on Form 10-Q for the period ended June 30, 1992.
G. Taxes. Since the Balance Sheet Date, the Companies have complied
with all tax laws in all jurisdictions in which they are or have been subject to
taxation of any nature whatsoever and have timely filed all federal, state and
local tax returns which are required to be filed by them and have paid all taxes
and interest and penalties, if any, to the extent such taxes have become due and
payable.
H. No Adverse Change. Since the Balance Sheet Date, there has been no
change in the business, prospects, properties, assets or financial condition of
CCO from that shown in the Balance Sheet, other than (i) changes shown in the
unaudited balance sheet included in the Form 10-Q, and (ii) changes occurring
subsequent to the date of such unaudited balance sheet in the ordinary course of
business or otherwise specifically disclosed in a schedule hereto, which
changes, in the aggregate, have not materially adversely affected the business,
prospects, properties, assets or financial condition of the Companies.
<PAGE>
I. Securities Law Compliance. The sale or issuance as the case may be
of CPC or CCO Common Stock and the payment of the Royalty pursuant to the terms
hereof are exempt from the registration requirements of the Securities Act of
1933, as amended (the "Securities Act"), and any state securities or Blue Sky
law. The Form 10-K, the Form 10-Q and all registration statements, reports and
documents (including exhibits) filed since January 1, 1989 by CCO with the
Securities and Exchange Commission (hereinafter the "Commission") when so filed
(i) complied in all material respects with the applicable requirements of the
Securities Act, the Securities and Exchange Act of 1934, as amended (hereinafter
the "Exchange Act") and the rules and regulations promulgated by the Commission
under the Securities Act and the Exchange Act (the "Rules and Regulations"),
(ii) contained all statements required to be stated therein by the Securities
Act, the Exchange Act and the Rules and Regulations, (iii) did not contain any
untrue statement of a material fact and (iv) did not omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
CCO has filed all reports that it is obligated to file with the Commission
through the date thereof pursuant to the Securities Act and the Exchange Act
(including current reports on Form 8-K under the Exchange Act).
J. Business and Properties. The description of CCO, its business and
properties contained in the Form 10-K is true, complete and correct.
K. Litigation. Except as set forth in the Form 10-K and the Form 10-Q
(i) there are no actions, suits, proceedings, claims or investigations pending
or, to the knowledge of the Companies, threatened against the Companies, and its
officers and directors in their capacity as such, or commenced by the Companies
and presently pending, (ii) to the best of the Companies, knowledge, there is no
basis for the commencement of any action, suit, proceeding, claim or
investigation against them and (iii) there is no outstanding order, injunction
or decree of any court or governmental agency against or affecting the
Companies, except an order of the United States District Court for the District
of Columbia dated November 2, 1981, enjoining CCO from violations of certain
federal securities laws.
L. Permits; Compliance with Laws. CPC and CCO have all necessary
permits, licenses and governmental authorizations required for, and have
complied in all material respects with all laws (including, without limitation,
the federal and state environmental laws), regulations and court and
governmental orders applicable thereto, affecting the ownership or occupancy of
their properties and assets and the carrying on of their businesses.
M. Insurance. The Companies insurance coverage is adequate and
appropriate in light of the foreseeable business risks to which they are subject
and the resources of the Companies.
<PAGE>
N. Material Obligations. Except as filed with the Commission as an
exhibit to the Form 10-K or the Form 10-Q, neither CCO nor CPC is a party to nor
is any of their property subject to or bound by any material indenture,
mortgage, deed of trust, voting trust agreement, loan agreement, bond,
debenture, note agreement or other evidence of indebtedness, lease, contract or
other instrument or document (each a "Material Contract"). The Companies have
performed in all respect all of the material obligations required to be
performed by each of them to date and are not in default in any material respect
under any Material Contract and each of the Companies do not know of any
condition or state of facts which is likely to cause or create a default or
defaults on its part to any Material Contract; provided, however, that the
Trustees of the Internal Improvement Fund of the State of Florida have claimed
that CPC has breached provisions of certain oil and gas exploration leases and
that such leases have been terminated. To the best of the Companies' knowledge,
no other party to any such Material Contract is in default in any material
respect thereunder. Except as disclosed herein or in a schedule hereto, neither
of the Companies nor any of their officers is a party to any non-competition or
similar agreement that in any way limits or restricts the Companies in the
conduct of their business.
O. Labor Disputes. There are no strikes or other labor disputes against
the Companies pending or, to the knowledge of the Companies, threatened.
P. ERISA. The Companies have no "employee benefit plan," as defined by
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended,
other than so called SEP-IRA accounts maintained for two officers of CPC.
Q. Share Validity and Encumbrances. The shares of Common Stock of CCO
and CPC to be sold or issued to the Purchaser will be validly issued and
outstanding, fully paid and nonassessable, and no personal liability will attach
to the ownership thereof. CCO is and will be, at the time of sale, the sole and
exclusive owner of all shares of CPC Common Stock sold to the Purchaser, and
such shares shall be free and clear of all pledges, liens, claims and
encumbrances.
R. No Misrepresentation. No representation or warranty of the Companies
contained in this Agreement or in any schedule hereto or in any certificate or
other instrument furnished, or to be furnished, by the Companies to the
Purchaser pursuant to the terms hereof, contains, or will contain, any untrue
statement of a material fact, or omits, or will omit, to state a material fact
necessary to make the statements contained herein or therein not misleading.
S. Registration Rights. Prior to the date hereof, except as set forth
in the D'Alessandro Agreement, CCO has not granted to any party any rights to
demand or require the registration of any securities of CCO under the Securities
Act, or to have securities of CCO included in a registration statement filed or
proposed to be filed by CCO under the Securities Act.
T. Drilling Leases. Drilling Leases 224-A, 224-B and 248, attached
hereto as Exhibit E and made a part hereof, (the "Drilling Leases") are in full
force and effect except to the extent that those leases may be altered,
modified, revoked, forfeited or otherwise rendered invalid by the State of
Florida pursuant to any actions made the subject of litigation currently pending
between CPC and other parties.
<PAGE>
U. Royalty Interests. The Royalty Interests CPC owns in 2,450,000 acres
in and offshore the State of Florida, attached hereto as Exhibit F and made a
part hereof, (the "Royalty Interests"), are in full force and effect.
V. Acknowledgement of Benefits. CCO and CPC acknowledge the substantial
benefits they will derive as a result of Purchaser's purchase of the CPC share
which benefits include not only the proceeds resulting from Purchaser's
purchase, which are necessary to fund the continued exploration relating to CPC
leasehold interests and other corporate purposes, but also that Purchaser's
involvement will enhance CCO and CPC's ability to carry out the corporate
activities relating to the leasehold interests.
W. No Brokers or Finders. Neither CCO nor CPC nor any of their
respective officers, directors or employees has employed any broker or finder or
incurred any liability for any brokerage fees, commissions or finder's fees, and
no broker or finder has acted directly or indirectly for CCO or CPC, in
connection with this Agreement or the transactions contemplated hereby.
6. INDEMNIFICATION AND SURVIVAL
OF REPRESENTATIONS WARRANTIES AND COVENANTS.
A. Survival. All representations, warranties, covenants, indemnities
and agreements included or provided in this Agreement shall survive the Closing
Date and shall thereafter remain in full force and effect for so long as the
Purchaser owns either CPC Common Stock, CCO Common Stock or the Royalty.
B. Indemnification. From and after the Closing Date, CCO and CPC shall
jointly and severally indemnify and hold the Purchaser harmless from any and all
damages, losses, costs, liabilities or expenses, including reasonable attorneys'
fees incurred by the Purchaser by reason of the incorrectness or breach of any
of the representations, warranties or covenants made by CCO or CPC in this
Agreement. From and after the Closing Date, the Purchaser shall indemnify and
hold the Companies harmless from any and all damages, losses, costs, liabilities
or expenses, including reasonable attorneys' fees incurred by the Companies by
reason of the incorrectness or breach of any of the representations made by the
Purchaser to the Companies pursuant to Section 3.D of this Agreement.
7. REGISTRATION OF CCO STOCK.
A. Registration Rights. If at any time CCO shall plan or be required to
file with the Securities and Exchange Commission a registration statement under
the Securities Act for the sale by it or by any of its investors of shares of
its Common Stock, CCO, at CCO's expense, will permit the Purchaser upon receipt
(within 25 calendar days after written notice from CCO) of a written request
from Purchaser setting forth the number of shares to be included in such
registration statement, to have such shares included in such registration
statements or to be made the subject of a separate registration statement
sufficient to permit the registration of such shares pursuant to the
requirements of Rule 415 promulgated under the Securities Act of 1933 relating
<PAGE>
to sales by selling security holders; provided, however, that (i) CCO need not
so register fewer than 1,000 shares in any such registration statement, (ii) CCO
shall not be obligated to include such shares unless Purchaser reasonably
cooperates in supplying information reasonably requested by CCO for use in the
preparation and filing of such statement, and (iii) CCO shall not be obligated
to include such shares if CCO shall agree in writing within 15 days after
receipt from Purchaser of written notice that Purchaser seeks to have such
shares registered to purchase from Purchaser at a price agreed upon by Purchaser
and CCO within said 15 days the shares which Purchaser would have included, and
(iv) CCO shall not be required to have shares of Purchaser included in or
registered with more than two registration statements under this Section 7. Any
shares to be sold by the Purchaser pursuant to a registration statement under
this Section 7 shall be subject to all the applicable terms, conditions and
restrictions, to which such registration statement and the public offering
covered thereby are subject.
B. Agreement of Purchaser. From the time it receives notice under the
foregoing Paragraph A of a proposed offering until 90 days (or such longer
period as the underwriter managing the offering may reasonably specify) after
completion thereof; Purchaser shall refrain from any registration, offer or sale
of any of its shares of CCO and CPC stock not included in the proposed offering,
unless in the opinion of the underwriter managing the offering such
registration, offer or sale would not materially adversely affect the offering.
C. Costs. Subject to the limitations contained in this Section 7, the
entire cost and expense of any registration or qualifications pursuant to this
Agreement shall be borne by CCO. The costs and expenses to be so borne by CCO
shall include, without limitation, the fees and expenses of its counsel and of
its accountants and all other costs and expenses of CCO incident to the
preparation, printing and filing under the 1933 Act of the registration
statement and all amendments (including post-effective amendments) and
supplements thereto and the cost of furnishing copies of each preliminary
prospectus, each final prospectus and each amendment or supplement thereto to
underwriters, dealers and the costs and expenses incurred by CCO in connection
with the qualification of the shares under the Blue Sky laws of various
jurisdictions.
8. ADDITIONAL COVENANTS OF CCO AND CPC. The Companies jointly
and severally covenant and agree with the Purchaser as follows:
A. Settlement of Lawsuits. Neither CPC nor CCO shall settle or agree to
settle any lawsuit to which either CPC or CCO is a party, including, without
limitation, the CPC lawsuits pending in the Circuit Court for Leon County,
Florida with the Trustees of the Internal Improvement Trust Fund of the State of
Florida, without the prior written consent of Purchaser, which consent shall not
be unreasonably withheld.
B. Dividends and Distributions. At such time as the business of CPC
permits and to the extent permitted by law after reserving an amount reasonably
necessary, consistent with good business practices, CPC shall pay dividends and
make other distributions to all the CPC shareholders on a pro rata basis on a
regular basis, but in no event less regularly than annually.
<PAGE>
C. Transfer of Assets. Except as contemplated by this Agreement, CPC
shall not sell, transfer, assign or pledge any of the material assets of CPC,
including without limitation, the Drilling Leases or interests of any kind
therein.
D. Material Investments. CPC shall not make any material investment
of any kind whatsoever outside the ordinary course of business.
E. Articles and Bylaws. Except as required by law or regulation, CPC
shall not amend its articles of incorporation or by-laws.
F. Lines of Business. CPC shall not enter into any new line of
business.
G. Conduct of Business. The Companies shall conduct their respective
businesses in, and only in, the usual, regular and ordinary course of business
consistent with past practice, and the officers and directors shall at all times
use prudent business judgment equivalent to the standard observed by a prudent
trustee dealing with property of another.
H. Financial Reports. CCO and CPC shall submit to the Purchaser such
financial and other reports and information as is requested by the Purchaser,
including, without limitation, quarterly comparative consolidated and
consolidating financial statements of CCO within forty-five (45) days of the end
of each calendar quarter and annual comparative consolidated and consolidating
financial statements of CCO within ninety (90) days of the end of each fiscal
year. The Purchaser shall execute a Confidentiality Agreement, in the form
attached hereto as Exhibit G, prior to receiving such financial reports.
I. Access. CPC shall permit the Purchaser and its agents access to all
of its properties, books, contracts, commitments and records upon request by the
Purchaser. The Purchaser shall execute a Confidentiality Agreement, in the form
attached hereto as Exhibit G, prior to receiving such access.
J. Representations and Warranties. CCO and CPC shall use their best
efforts to cause the representations and warranties contained in this Agreement
to be true and correct at all times.
K. Opt Out of ss.607.0901 and 607.0902. Upon the request of the
Purchaser, CCO and CPC shall take such corporate action as is necessary so that
Florida Statutes Sections 607.0901 and 607.0902 shall not apply to either CCO or
CPC or to the Purchaser or the shares of CPC Common Stock acquired by the
Purchaser pursuant to this Agreement.
L. Revised Structure. Notwithstanding anything to the contrary
contained in this Agreement, the Purchaser shall have the right to revise the
structure of the purchase described in Sections 1 and 2 and the exchanges
described in Section 3 provided that such revised structure shall not have a
materially adverse financial effect on CCO or CPC.
M. Intercompany Payments. CPC shall not make any payments of any kind
to CCO beyond such payments as are reasonably necessary in the ordinary course
of business.
<PAGE>
N. Right of First Refusal. CCO hereby grants the Purchaser a right of
first refusal on any and all shares of CPC Common Stock owned by CCO or
hereafter acquired. Subject to the right of first refusal, CCO shall not sell
the shares of CPC Common Stock owned by CCO unless the Purchaser is entitled to
sell the shares of CPC Common Stock owned by the Purchaser on the same terms and
conditions as CCO.
O. Duration. The foregoing terms and covenants contained in this
Section 8 remain in effect so long as the Purchaser has exercised its most
current option pursuant to Section 2.A(i).
9. DEFAULTS AND REMEDIES.
A. Defaults. Any unexcused refusal or failure by CCO or CPC to perform
any of the covenants contained in this Agreement shall be a default.
B. Remedies. Upon any default by either CCO or CPC, the Purchaser
shall be entitled to pursue all of its legal and equitable remedies including,
without limitation, the right to recover damages and the right to rescind the
purchase of shares of CPC Common Stock for which CCO and CPC shall promptly
return to the Purchaser the Purchase Price.
10. NOTICES.
All notices, requests, demands and other communications which are
required or may be given under this Agreement shall be in writing and shall be
deemed to have been duly given if delivered personally or sent by registered or
certified mail, return receipt requested, postage prepaid:
(a) If to Purchaser, to:
Lykes Minerals Corp.
111 E. Madison Street - Suite 2000
P.O. Box 1690
Tampa, Florida 33601
ATTN: Tom L. Rankin, President
With copy to: Macfarlane Ferguson
111 E. Madison Street - Suite 2300
P.O. Box 1531
Tampa, Florida 33601
ATTN: Nathan B. Simpson, Esq.
<PAGE>
(b) If to CCO or CPC, to:
Coastal Petroleum Company
P.O. Box 10387
Tallahassee, Florida 32302
ATTN: Phillip W. Ware, President
With copy to: Coastal Caribbean Oils & Minerals, Ltd.
c/o Gherardi & O'Donnell Associates
241 Main Street
Hartford, Connecticut 06103
or to such other person or address as any party shall have specified by notice
in writing to the other.
11. LAW GOVERNING AGREEMENT.
This Agreement will be governed by the laws of the State of Florida
(without giving effect to rule of law relating to conflict of laws), and the
parties shall accept the jurisdiction of the state and federal courts in the
State of Florida.
12. PARTIES BOUND.
This Agreement shall be binding upon and inure to the benefit of the
respective parties hereto, their successors and permitted assigns.
13. ASSIGNMENT. Except as permitted in this Section 13, this
Agreement shall not be assigned by any party hereto without the prior written
consent of the other party hereto. Notwithstanding anything in this Agreement to
the contrary, the Purchaser, in its sole discretion, may assign this Agreement
to a direct or indirect subsidiary of the Purchaser or direct or indirect parent
of the Purchaser.
14. PUBLIC ANNOUNCEMENTS. The parties agree that no statement or
public disclosure concerning this Agreement or the transactions contemplated by
this Agreement shall be made or released, except with the prior written consent
of the Purchaser, and except for the statement contained in Exhibit H attached
hereto and as required by law.
15. EXPENSES. Each of the parties hereto shall pay its own fees
and expenses incurred in connection with the transactions contemplated by this
Agreement.
16. FURTHER ASSURANCES. From time to time, at the request of any
party (whether at or after Closing), the other parties shall execute and deliver
such further instruments and shall take such other actions as the requesting
party may reasonably request in order to more effectively convey out the intent
of this Agreement.
17. AMENDMENT AND MODIFICATION. The parties may amend, modify or
supplement this Agreement only in the form of a written agreement signed by all
of the parties.
<PAGE>
18. COUNTERPARTS. This Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
19. ENTIRE AGREEMENT. This Agreement and other documents
specifically referred to herein which from a part hereof contain the entire
understanding of the parties in respect of the subject matter of this Agreement.
This Agreement supersedes all prior agreements and understandings between the
parties with respect to the subject matter hereof.
20. SEVERABILITY. If any provision of this Agreement is held
invalid or unenforceable by operation of law or otherwise, such circumstances
shall not have the effect of rendering any of the other provisions of this
Agreement invalid or unenforceable.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement the day and year first above written.
LYKES MINERALS CORP.
By: /s/___________________________
Name: Tom L. Rankin
Title: Chairman of the Board and President
COASTAL CARIBBEAN OILS
& MINERALS, LTD.
By: /s/___________________________
Name: Phillip W. Ware
Title: Director, Vice President
COASTAL PETROLEUM COMPANY
By: /s/___________________________
Name: Phillip W. Ware
Title: President
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8) pertaining to the Stock Option plan of Coastal Caribbean Oils & Minerals,
Ltd. of our report dated January 12, 1999, with respect to the consolidated
financial statements of Coastal Caribbean Oils & Minerals, Ltd. in this Annual
Report (Form 10-K) for the year ended December 31, 1998.
/s/ Ernst & Young LLP
Stamford, Connecticut
February 1, 1999
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
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