<PAGE>
PROSPECTUS
12,016,907 Shares of Common Stock of
Coastal Caribbean Oils & Minerals, Ltd.
This is an offering of 12,016,907 shares of our common stock by
subscription right to our existing shareholders. For every 10 shares of common
stock held as of September 12, 2000, each shareholder will be entitled to
purchase 3 shares at a price of $1.00 per share. In addition, each shareholder
who purchases his/her full allotment of shares will be entitled to purchase
additional shares which are unsubscribed by other shareholders.
The Offering
Your Price Commission Proceeds to Coastal Caribbean
Per Share $ 1.00 $ 0 $ 1.00
----------- ---------- -----------
Total $12,016,907 $ 0 $12,016,907
----------- ---------- -----------
Our common stock is traded on the Boston Stock Exchange under the
symbol CCO. On September 8, 2000, the last reported sale price of our common
stock as reported on the Boston Stock Exchange was $1.81 per share.
The shares of common stock offered hereby involve a high degree of
risk. You should purchase shares only if you can afford a complete loss. See
"Risk Factors" beginning at page 5 for a discussion of certain factors that you
should consider before you purchase any shares of our common stock.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is September 11, 2000.
<PAGE>
TABLE OF CONTENTS
PAGE
Prospectus Summary.............................................................2
Summary Financial Data.........................................................4
Risk Factors...................................................................5
Cautionary Statement About Forward-Looking Statements.........................10
Use of Proceeds...............................................................10
Capitalization................................................................11
Dilution......................................................................12
Management's Discussion and Analysis of Financial
Condition And Results of Operations...........................................12
Market Risk Disclosures.......................................................16
Our Business and Properties...................................................16
Legal Proceedings.............................................................22
Our Management................................................................26
Certain Business Relationships................................................29
Principal Shareholders........................................................30
Description of Our Common Stock...............................................31
Price Range of Our Common Stock...............................................36
Performance Graph.............................................................37
Terms of the Offering.........................................................38
United States Tax Consequences of the Offering................................40
Legal Matters.................................................................41
Experts.......................................................................41
Where You Can Find More Information...........................................42
Index to Consolidated Financial Statements...................................F-1
* * * * *
Coastal Caribbean is incorporated in Bermuda and our principal
executive office is located at Clarendon House, Church Street, Hamilton, Bermuda
HM CX. Our telephone number at that address is (441) 295-1422. Our internet web
address is http://www.coastalcarib.com. The contents of our web site are not
incorporated into this prospectus. In this prospectus, "Coastal Caribbean,"
"we," "us," and "our" refer to Coastal Caribbean Oils & Minerals, Ltd. and its
majority owned subsidiary, Coastal Petroleum Company, unless the context
otherwise dictates. References to "dollars" or "$" are to United States dollars.
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized anyone (including any
broker or salesman) to provide you with information different from that
contained in this prospectus. If anyone provides you with different or
inconsistent information, you should not rely on it. We are offering to sell and
seeking offers to buy shares of our common stock only in jurisdictions where
offers and sales are permitted. You should assume that the information contained
in this prospectus is accurate only as of September 11 , 2000. You should not
assume that this prospectus is accurate as of any other date.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights some of the information in this prospectus. The summary
may not contain all of the information that is important to you. This prospectus
and the documents we incorporate by reference contain forward-looking statements
which involve risks and uncertainties. You should carefully read the entire
prospectus, including the risk factors which begin at page 5 and the financial
statements, before deciding whether to invest in our common stock.
The Company o Coastal Caribbean Oils & Minerals Ltd., a
Bermuda corporation, was founded in 1953.
Our principal asset is our majority owned
subsidiary, Coastal Petroleum Company. Coastal
Petroleum's principal assets are its
nonproducing oil, gas and mineral leases and
royalty interests in the State of Florida. To
date, Coastal Petroleum has made no commercial
discoveries on the lands covered by these
leases.
Our Operating History o Although we have been in business for many
years, we are still a development stage
company because our exploration for oil, gas
and minerals has not yielded any significant
revenues or reserves. We incurred a loss
of $692,000 for the six months ended June 30,
2000, a loss of $1,105,000 for the year 1999,
a loss of $1,155,000 for the year 1998 and a
loss of $1,611,000 for the year 1997.
We had an accumulated deficit of $28,053,000
at June 30, 2000. You should also see Note 1
of our financial statements regarding the
uncertainty as to our ability to continue as a
going concern.
The Offering o 12,016,907 shares of our common stock, par
value $.12 per share.
Subscription Privilege o Each shareholder will be entitled to purchase
3 shares for every 10 shares of common
stock held on the record date at a price of
$1.00 per share.
Record Date o September 12, 2000.
Expiration Date o Rights not exercised prior to 4:30 PM, Eastern
Daylight Time, on October 23, 2000 will be
void and of no value.
Oversubscription Privilege o Each shareholder who purchases the entire
guaranteed allotment of shares will be
permitted to subscribe pro rata for additional
shares not purchased by other shareholders
prior to the expiration date.
How to Exercise o If you wish to purchase shares, you should
complete the subscription card and deliver it,
accompanied by full payment of the subscription
price, prior to the expiration date to our
subscription agent.
Our Subscription Agent o American Stock Transfer & Trust Co., 59 Maiden
Lane, New York, NY 10007, Telephone:
(800) 937-5449.
Common Stock Outstanding o We had 40,056,358 shares of common stock
outstanding at June 30, 2000. If all shares
offered are sold, there will be 52,073,265
shares outstanding.
Dividends o We have never declared or paid dividends on our
common stock and do not anticipate declaring or
paying any dividends in the foreseeable future.
We plan to retain any future earnings to reduce
our accumulated deficit of $28,053,000 at June
30, 2000 and to finance our operations.
Use of Proceeds o The proceeds of the offering will be used for
general corporate purposes, including working
capital, exploration and development and to
continue the litigation against the State of
Florida.
Litigation o Coastal Petroleum is currently involved in
litigation with the State of Florida with
regard to whether the State's denial of Coastal
Petroleum's application for an oil and gas
exploration drilling permit constitutes a
taking of Coastal Petroleum's property for
which the State must compensate Coastal
Petroleum. We are also involved in litigation
with the State of Florida seeking compensation
for confiscation of certain royalty interest
acreage off the Florida coast. See "Legal
Proceedings" at page 22.
<PAGE>
SUMMARY FINANCIAL DATA
The following summary financial data for the three years in the period ended
December 31, 1999 are derived from the audited consolidated financial statements
of Coastal Caribbean Oils & Minerals, Ltd. The data should be read in
conjunction with the consolidated financial statements, related notes and other
financial information included in this prospectus. The summary financial data
for the years ended December 31, 1996 and 1995 have been derived from the
consolidated financial statements which are not included in this prospectus. The
information for the six month periods ended June 30, 2000 and 1999 is unaudited
but includes all adjustments which Coastal Caribbean considers necessary for a
fair presentation of the results of operations for those periods.
<TABLE>
Six months ended Year ended December 31,
June 30,
2000 1999 1999 1998 1997 1996 1995
($) ($) ($) ($) ($) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C>
Net loss (692,000) (578,000) (1,105,000) (1,155,000) (1,611,000) (1,148,000) (880,000)
=========== =========== ============ =========== ============ ============ ============
Net loss per share
(Basic and Diluted) (.02) (.01) (.03) (.03) (.04) (.03) (.03)
=========== =========== ============ =========== ============ ============ ============
Common stock shares
outstanding 40,056,000 40,056,000 40,056,000 40,056,000 40,056,000 37,487,000 33,364,000
=========== =========== ============ =========== ============ ============ ============
Cash and marketable
securities 496,000 1,356,000 1,042,000 2,181,000 3,749,000 5,789,000 308,000
=========== =========== ============ =========== ============ ============ ============
Cost associated with leasehold
Interests in oil, gas and
mineral properties
(unproved) 4,756,000 4,703,000 4,760,000 4,736,000 4,395,000 3,944,000 3,689,000
=========== =========== ============ =========== ============ ============ ============
Total assets 5,587,000 6,720,000 6,207,000 7,311,000 8,462,000 10,021,000 4,128,000
=========== =========== ============ =========== ============ ============ ============
Shareholders' equity:
Common stock 4,807,000 4,807,000 4,807,000 4,807,000 4,807,000 4,805,000 4,004,000
Capital in excess of par
value 28,768,000 28,693,000 28,693,000 28,693,000 28,693,000 28,443,000 22,395,000
Deficit accumulated during
development stage (28,053,000) (26,834,000) (27,362,000) (26,256,000) (25,102,000) (23,490,000) (22,342,000)
---------- ----------- ----------- ------------ ------------ ------------ ------------
Total shareholders' equity 5,522,000 6,666,000 6,138,000 7,244,000 8,398,000 9,758,000 4,057,000
=========== =========== ============ =========== ============ ============ ============
</TABLE>
The report of the independent auditors with respect to Coastal Caribbean's
consolidated financial statements as of December 31, 1999 and for each of the
three years in the period ended December 31, 1999 contains an explanatory
paragraph describing conditions that raise substantial doubt about Coastal
Caribbean's ability to continue as a going concern as described in Note 1 to the
consolidated financial statements.
<PAGE>
RISK FACTORS
An investment in our common stock involves a high degree of risk. You should
carefully consider the following risk factors and other information in this
prospectus and the documents we incorporate by reference in evaluating our
company before you purchase any shares of our common stock. If any of the
following risks actually occur, our business, financial condition or results of
operations could be materially adversely affected. In this case, the trading
price of the common stock could decline and you may lose all or part of your
investment.
RISKS RELATED TO OUR BUSINESS
We have a history of losses and anticipate further losses, which could
cause us to discontinue our business.
Our business has never had substantial revenues and has operated at a loss
in each year since our inception in 1953. We recorded a loss of $692,000 for the
six months ended June 30, 2000, a loss of $1,105,000 in the year 1999, a loss of
$1,155,000 in the year 1998 and a loss of $ 1,611,000 for the year 1997. If we
continue to sustain losses and are unable to achieve profitability, we may not
be able to continue our business and may have to curtail, suspend or cease
operations. You should also see Note 1 to our financial statements regarding the
uncertainty as to our ability to continue as a going concern.
During the past three years, we have spent approximately $ 2 million on
expenses incurred in the lawsuits against the State of Florida relating to
drilling permits and royalty interests. If we continue to incur significant
expenses and are unable to raise additional funds to meet these expenses, we may
have to cease or suspend our lawsuits and/or cease operations entirely.
In the unlikely event that we were to receive drilling permits related
to the St. George Island prospect or other exploratory wells, we would be
required to incur a significant amount of operating expenditures to commence
drilling operations and would need to generate significant revenues to achieve
profitability. We cannot assure you that we will be able to achieve or sustain
revenues, profitability or positive cash flow or that profitability, if
achieved, will be sustained.
Without additional financing, we only have enough liquid assets on hand
to continue to operate the Company for the remainder of the year 2000.
We believe that our assets on hand will be sufficient to permit us to
continue to operate through the end of the year 2000 and to pay the expenses
related to this offering which will cost approximately $300,000. After that
time, we may have to suspend or cease operations unless and until we can secure
additional financing. Effective July 1, 2000, certain of our officers and legal
counsel have agreed to defer the payment of 50% of their salaries and fees until
our financial position improves. We may seek to raise additional funds through
the issuance of debt or equity securities to investors other than our
shareholders. We currently do not have any commitments for additional financing.
We cannot be certain that additional financing will be available in the future
on acceptable terms or at all.
If ultimately the Florida courts rule that the state may deny us a
permit and not compensate us for the taking of our property, we may be
unable to continue our business.
In the event that the Florida courts determine that the State of
Florida is entitled to deny us a permit without compensation, it is likely that
we would be unable to continue our business and that shareholders would suffer a
complete loss of their investment.
We may be unable to raise the additional financing needed to cover the
substantial litigation costs of proving our properties have been taken
and their value.
Coastal Petroleum intends to file a claim with the Florida Circuit
Court that its properties have been taken by the State of Florida, and that
Coastal Petroleum is owed compensation by the State of Florida. We will need to
secure additional financing to cover the costs of this litigation, which we
estimate would require us to spend approximately $1,500,000 per year. If we are
unable to secure the additional financing adequate to fund the costs of such
litigation for a lengthy period of time, we would be unable to undertake the
litigation and might have to cease the lawsuits against the State of Florida
without any meaningful recovery.
If the amount of money we seek to recover from the State of Florida is
inadequate to cover our costs, we may suffer additional losses.
Coastal Petroleum's lawsuits against the State of Florida involve
highly specialized technical engineering and legal judgments. Any recovery that
Coastal Petroleum may receive as a result of a court judgment against the State
of Florida may be insufficient to cover the costs of prosecuting the claims at
trial. If this occurs, we may be forced to cease operations and the value of
your investment in our common stock could decline significantly, including a
total loss of your investment.
RISKS RELATED TO OUR INDUSTRY
The State of Florida has stated that its policy is not to permit oil
and gas drilling offshore Florida and the State has denied Coastal
Petroleum a permit with respect to its St. George's Island prospect.
Consequently, we do not believe that the State of Florida will grant
drilling permits to Coastal Petroleum with respect to its leases. In
the unlikely event that the State ever does grant Coastal Petroleum a
drilling permit, Coastal Petroleum would have to contend with other
risks.
<PAGE>
After obtaining a state drilling permit, Coastal Petroleum would have to do the
following:
o obtain a federal drilling permit;
o finance drilling of the well (including the cost of the
recommended surety), which is currently estimated to cost
approximately $5.5 million; and
o begin drilling the well within one year of the date the state
permit is issued.
We cannot assure you that we would be able to successfully obtain the
necessary federal permits and licenses or that we would be able to finance and
commence drilling operations in a timely manner.
If we fail to discover and develop sufficient oil and gas reserves, we
would be unable to generate sufficient revenues to cover our costs and might
have to curtail, suspend or cease our business operations.
Drilling activities involve numerous risks, including the risk that no
commercially productive natural gas or oil reservoirs will be discovered. The
cost of drilling, completing and operating wells is often uncertain, and
drilling operations may be curtailed, delayed or canceled as a result of adverse
conditions beyond our control. Poor results from our exploration and drilling
activities could prevent us from developing sufficient oil and gas reserves at a
commercially acceptable cost.
Compliance with environmental and other governmental regulations could
be costly.
Our operations and right to obtain interests in and hold properties or to
conduct our business might be affected to an unpredictable extent by limitations
imposed by the laws and regulations which are now in effect or which might be
adopted by the jurisdictions in which we carry on our business. We cannot
predict the nature of any further legislation or regulation that might
ultimately be adopted or its effects upon our operations.
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.
We face strong competition from larger oil and gas companies that may
impair our ability to carry on operations.
If we receive the necessary state and federal permits to conduct
operations, we would operate in the highly competitive areas of oil and gas
exploration, development and production. We might not be able to compete with,
or enter into cooperative relationships with, our potential competitors, which
include major integrated oil companies, substantial independent energy
companies, affiliates of major interstate and intrastate pipelines and national
and local gas gatherers. If we were unable to establish and maintain
competitiveness, our business would be threatened.
Many of our competitors possess greater financial, technical and other
resources than we do. Factors which affect our ability to successfully compete
in the marketplace include:
o the financial resources of our competitors;
o the availability of alternate fuel sources; and
o the costs related to the extraction and transportation of oil and
gas.
RISKS RELATED TO THE OFFERING
The price of our common stock is volatile, which could hinder your
ability to sell your stock and avoid a loss on your investment.
Our common stock has been quoted and traded in the over-the-counter
market on the "Electronic Bulletin Board" of the National Association of
Securities Dealers, Inc. under the symbol COCBF.OB and on the Boston Stock
Exchange under the symbol CCO. The market price of our common stock has
fluctuated in the past and may continue to be volatile in the future. As a
result of this volatility, you may find it more difficult to sell our stock in a
declining market and avoid a loss on your investment. This volatility is a
result of a variety of factors, including our current and anticipated results of
operations; and the anticipated outcome of our litigation with the State of
Florida.
Our Bye-laws contain provisions that may limit a shareholder's efforts
to influence our policies and prevent or delay a change in control of
our Company.
Bye-Law 1 provides that any matter to be voted on at any meeting of
shareholders must be approved not only by a simple majority of the shares voted
at such meeting, but also by a majority of the shareholders present in person or
by proxy and entitled to vote at the meeting. This provision may have the effect
of making it more difficult to take corporate action than customary "one share
one vote" provisions, because it may not be possible to obtain the necessary
majority of both votes. As a consequence, Bye-Law 1 may make it more difficult
that a takeover of the company will be consummated, which could prevent the
company's shareholders from receiving a premium for their shares. In addition,
an owner of a substantial number of shares of our common stock may be unable to
influence our policies and operations through the shareholder voting process
(e.g., to elect directors).
Our Bye-Laws also require the approval of 75% of the voting
shareholders and of the voting shares for the consummation of any business
combination (such as a merger, amalgamation or acquisition proposal) involving
our company. This higher vote requirement may deter business combination
proposals which shareholders may consider favorable.
You may face obstacles to bringing suit in Bermuda against our officers
and directors.
We are a Bermuda company and certain of our directors and officers are
residents of Bermuda and are not citizens of the United States. As a result, it
may be difficult for investors to effect service of process on us or on these
directors and officers within the United States or to enforce against these
directors and officers judgments of U. S. courts predicated on the civil
liabilities under the federal securities laws. If investors are unable to bring
such suits, they may be unable to recover a loss on their investment resulting
from any violations of the federal securities laws.
There is no precedent for, and therefore no assurance that, the courts
in Bermuda would enforce civil liabilities, whether in original actions in
Bermuda or in the form of final judgments of U. S. courts, arising under the
federal securities laws against us or the persons signing this registration
statement. In addition, there is no treaty in effect between the United States
and Bermuda providing for the enforcement of civil liabilities and there are
grounds upon which Bermuda Courts may not enforce judgments of U. S. courts. In
addition, some remedies available under the laws of U. S. jurisdictions,
including some remedies available under the federal securities laws, may not be
allowed in Bermuda courts as contrary to that nation's public policy.
Our dividend policy could depress our stock price.
We have never declared or paid dividends on our common stock and do not
anticipate declaring or paying any dividends in the foreseeable future. We plan
to retain any future earnings to reduce our accumulated deficit of $28,053,000
at June 30, 2000 and to finance our operations. As a result, our dividend policy
could depress the market price for our common stock.
We are a Bermuda corporation. Bermuda currently imposes no taxes on
corporate income or capital gains realized outside of Bermuda. However, any
dividends we receive from Coastal Petroleum are subject to a 30% United States
withholding tax. As a result, our investors may realize a smaller rate of return
on their investment in our common stock.
<PAGE>
Purchasers in this offering will experience immediate dilution and may
experience further dilution from the future exercise of stock options
or from future stock offerings.
We expect that the offering price of our common stock in this offering
will be substantially higher than the net tangible book value per share of our
outstanding common stock. Accordingly, if the offering is successful, purchasers
of common stock in the offering will experience immediate and substantial
dilution of approximately $.66 in net tangible book value per share, or
approximately 66% of the assumed public offering price of $1.00 per share.
Investors will incur additional dilution upon the exercise of outstanding stock
options and warrants. See "Dilution" at page 12 for further discussion of the
dilution that new investors will incur.
Finally, if we raise additional funds by issuing equity or convertible
debt securities, your percentage ownership may be further diluted. Any
securities issued could have rights, preferences and privileges senior to our
common stock.
<PAGE>
CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS
In this prospectus and the documents that we incorporate by reference,
we make statements that relate to our future plans, objectives, expectations and
intentions that involve risks and uncertainties. We have based these statements
on our current expectations and projections about future events. These
statements may be identified by the use of words such as "expect," "anticipate,"
"intend," "plan," "believe" and "estimate" and similar expressions. Any
statements that refer to expectations, projections or other characterizations of
future events or circumstances are forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995, and are subject to the
safe harbor created by that Act.
Forward-looking statements necessarily involve risks and uncertainties.
Our actual results could differ materially from those discussed in, or implied
by, these forward-looking statements. Factors that could contribute to such
differences include, but are not limited to, those discussed in the "Risk
Factors" section at page 5 and elsewhere in this prospectus. The factors set
forth in the Risk Factors section and other cautionary statements made in this
prospectus should be read and understood as being applicable to all related
forward-looking statements wherever they appear in this prospectus.
All subsequent written and oral forward-looking statements attributable
to us are expressly qualified in their entirety by the cautionary statements.
You are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of their dates. We undertake no obligations to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise.
USE OF PROCEEDS
The proceeds will be used for general corporate purposes, including
working capital and continuation of the Florida litigation. See "Legal
Proceedings" and "Business and Properties." Assuming all of the shares offered
by this prospectus are sold at a price of $1.00 per share, we will realize net
proceeds (after estimated expenses of the offering)of $300,000 or approximately
$11,717,000. The net proceeds of the offering would be added to our general
funds and would not be expressly designated for any particular purpose.
However, we currently expect that the net proceeds would be used for the
following purposes:
Litigation (including legal fees and experts' costs) $ 10,000,000
Administrative, accounting, legal and other expenses $ 1,717,000
Litigation expenses may vary depending on the progress of the cases in
which we are involved. If the net proceeds are substantially less than the
estimated amounts, and if we and Coastal Petroleum are unable to obtain
additional funds, Coastal Petroleum may be unable to pursue the Florida
litigation. If the gross proceeds of the offering do not exceed the costs of
this offering the excess costs over gross proceeds would be paid by us from our
current assets.
Coastal Caribbean has been making loans to Coastal Petroleum, its
majority owned subsidiary, in order for Coastal Petroleum to continue the
Florida Litigation and pay its operating expenses. At June 30, 2000, the amount
of these loans totaled $18,577,207 and the accumulated interest on the loans
totaled $3,595,173 for a total indebtedness of $ 22,172,380.
CAPITALIZATION
The following table shows our cash and cash equivalents, investments
and total capitalization:
o on an actual basis as of June 30, 2000; and
o as adjusted to reflect the sale of 12,016,907 shares of common
stock offered by this prospectus at an assumed public offering
price of $1.00 per share, after deducting the estimated offering
expenses of approximately $300,000 payable by us.
You should read this information together with our financial statements
and the notes relating to those statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Use of Proceeds"
appearing elsewhere in this prospectus.
<TABLE>
As of June 30, 2000
Actual As adjusted
<S> <C> <C>
Cash and cash equivalents $496,364 $ 12,213,271
======== ============
Marketable Securities - -
Short-Term Debt - -
Long-Term Debt - -
Minority Interests - -
Shareholders Equity:
Common stock, par value $.12 per share:
250,000,000 share authorized
40,056,358 shares outstanding
52,073,265 shares outstanding as adjusted
Common stock $4,806,763 $ 6,248,792
Capital in excess of par value 28,768,033 39,042,911
Deficit accumulated during development stage (28,053,041) $(28,053,041)
------------ -------------
Total Shareholders Equity $ 5,521,755 $ 17,238,662
============ ==============
</TABLE>
The number of shares as adjusted for this offering excludes
o 925,000 shares which may be issued upon the exercise of
outstanding options held by our directors, officers and
consultants as of June 30, 2000; and
o 7,800,000 shares which may be issued in the event that Lykes
Minerals Corp. exercises its rights to exchange Coastal Petroleum
shares for shares of our common stock.
DILUTION
You will experience immediate and substantial dilution in net tangible
book value of your common stock as a result of this offering. The following
table illustrates the per share dilution to purchasers of shares giving effect
to the sale of all of the shares in the offering at a price of $1.00 per share:
Offering price attributable to each share of common stock $1.00
Net tangible book value before the offering(1) $ .14
Increase attributable to payments for shares of common stock .20
Pro forma net tangible book value per share after the offering ----- .34
-----
Dilution to purchasers of the shares (2)(3) $ .66
=====
(1) We calculate net tangible book value per share by dividing the number of
shares of common stock outstanding into the tangible net worth of Coastal
Caribbean (tangible assets less liabilities and minority interest) outstanding
at June 30, 2000.
(2) We calculate dilution to new investors by subtracting net tangible book
value per share of common stock after the offering from the per share price
attributable to a share of common stock purchased.
(3) This estimate of dilution does not reflect the results of operations since
June 30, 2000 nor does it give any effect to the outstanding options to purchase
shares of our common stock. There are 7,800,000 shares of common stock reserved
which may be issued in exchange for 78 Coastal Petroleum shares. There are
also 980,000 shares reserved for stock options granted to our officers,
directors and consultants. Of these options, 925,000 were exercisable at
June 30, 2000. If the options to acquire the 8,725,000 shares had been exercised
at June 30, 2000, then the dilution to purchasers would be $.69 per share. The
dilution of the 7,800,000 shares does not reflect any value for the increase in
ownership of Coastal Petroleum from approximately 59% to 86%.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
The following is a discussion of certain factors affecting our results
for the six months ended June 30, 2000 and 1999 and for the three fiscal years
ending December 31, 1999 and our liquidity and capital resources. This
discussion should be read along with our consolidated financial statements and
their notes, which can be found at page F-1 of this prospectus.
<PAGE>
Liquidity and Capital Resources
Short Term Liquidity
At June 30, 2000, Coastal Caribbean had approximately $496,000 of cash
and securities and this amount should be sufficient to fund the
Company's operations in the year 2000. Effective July 1, 2000, certain of the
Company's officers and legal counsel agreed to defer 50 % of their salaries and
fees until the Company's financial position improves. These funds are expected
to be used for general corporate purposes, including any required exploration
and development and to continue the litigation against the State of Florida.
The Company's principal assets are oil, gas, and mineral leases, the
costs of which total $4.8 million at June 30, 2000. As more fully described in
Notes 1 and 5 to the consolidated financial statements, the Company has a
limited amount of working capital, has incurred recurring losses and has an
accumulated deficit. The Company has been and continues to be involved in
several legal proceedings against the State of Florida which has limited the
Company's ability to commence development activities on its unproved oil and gas
properties or obtain compensation for certain property rights it believes have
been taken. These situations raise substantial doubt about the Company's ability
to continue as a going concern. The Company's consolidated financial statements
do not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or amounts and classification of
liabilities that may result from the outcome of this uncertainty.
Long Term Liquidity
The Company is currently spending approximately $400,000 annually on
the Florida Litigation and expects that the filing of a claim for compensation
with the Florida Circuit Court will necessitate spending approximately
$1,500,000 annually. In order to continue the litigation and operate the Company
beyond the year 2000, the Company believes it will be necessary for the
Company to obtain additional capital either from Coastal Caribbean's
or Coastal Petroleum's shareholders.
Since the Company's inception, it has been financing its operations
primarily from the sale of its common stock and sales of shares of Coastal
Petroleum. Although the Company has successfully financed its operations through
such offerings in the past, there is no assurance that the proposed offering
will be successful. If the offering is successful and net proceeds of
$11,717,000 are realized, then the Company expects that approximately
$10,000,000 would be used for litigation and $1,717,000 would be used for
administrative, accounting, legal and other expenses.
The Company's oil and gas properties are currently unproved and
undeveloped. The Company had applied for a drilling permit from the State of
Florida to drill an exploratory well (the St. George Island prospect) in the
waters near Apalachicola, Florida. The State of Florida resisted the issuance of
a drilling permit. On October 6, 1999, Florida's First District Court of Appeal
ruled that Florida's Department of Environmental Protection has the authority to
deny Coastal Petroleum's drilling permit for its St. George Island prospect,
provided that Coastal receives just compensation for what has been taken. The
State of Florida and certain Florida environmental groups filed on November 1,
1999 a joint motion for clarification, rehearing, or certification with respect
to that decision, asking the Court of Appeal, among other things, to clarify
that the question or whether there has been a taking of Coastal Petroleum's
leases should be determined in the Circuit Court. On June 26, 2000, the Court of
Appeal denied all of the State's motions and stated that the issue of whether
the denial of a permit constituted a "taking" was not before the Court. The
Court declined to rule on the merits of the taking issue and stated that the
issue was a matter for the Circuit Court. Coastal Petroleum intends to commence
an inverse condemnation action in the Circuit Court to be compensated for the
value of its properties. The cost of the litigation would be substantial and
would require the Company to obtain additional capital. See "Legal Proceedings"
at page 22.
In 1997, Coastal Petroleum filed 12 additional applications for
drilling permits. The Coastal Petroleum had objected to certain requests for
additional data by the State of Florida DEP. On March 26,1999, an administrative
law judge upheld the DEP's requirements. The decision of the administrative law
judge was affirmed by the First District Court of Appeal on February 29, 2000.
In order to fully permit the Apalachicola Reef Play which includes the
St. George Island prospect on October 29, 1998, Coastal Petroleum filed four
additional permit applications (1310-1313). The DEP also requested additional
data for these permits. Although these permits are still pending, Coastal
Petroleum does not believe the DEP will ever grant these permits.
In the unlikely event that any of the drilling permits are granted, the
Company would not have the assets sufficient to fund all the expenditures which
would be necessary to drill the St. George Island prospect ($5.5 million) or any
other exploration wells. 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.
Results of Operations
The Company, a development stage enterprise, 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 Florida
litigation-related expenses have aggregated approximately $2 million during the
three years ended December 31, 1999.
Six month period ended June 30, 2000 vs. June 30, 1999
The Company incurred a loss of $692,000 for 2000, compared to a loss of
$577,000 for 1999.
Interest income and other income decreased 58% from $46,000 in 1999 to
$19,000 in 2000 because less funds were available for investment during the 2000
period.
Legal fees and costs increased 25% to $254,000 in 2000, compared to
$204,000 in the prior period because the Company recorded a charge to legal
expense in the amount of $75,000 in connection with the issuance of a stock
option grant. During the 2000 period, the level of legal activity decreased. The
Company had been waiting for a decision of the Florida Court of Appeal regarding
the State of Florida's motion for a rehearing which was not rendered until June
26, 2000.
Administrative expenses increased 14% during 2000 to $286,000 compared
to $250,000 in 1999. During December 1999, the Company increased its Directors
and Officers liability insurance coverage from $6.2 million to $12.2 million
which increased insurance costs.
Salaries decreased 7% during 2000 to $76,000 compared to $82,000 in
1999. An employee who has not been replaced left the Company during the 1999
period.
Shareholder communications costs increased 17% during 2000 to $89,000
compared to $76,000 in 1999 because of increased mailing and printing costs.
Exploration costs decreased from $12,000 in 1999 to $6,000 in 2000.
These miscellaneous exploration expenses do not include exploration expenditures
totaling $3,600 that were capitalized in 2000 ($33,000 in 1999).
1999 vs. 1998
The Company recorded a loss of $1,105,000 for 1999, compared to a loss
of $1,155,000 in 1998.
Interest income and other income decreased 67% to $55,000 in 1999 from
$167,000 in 1998 because less funds were available for investment during 1999.
Legal fees and costs decreased 19% in 1999 to $405,000 compared to
$502,000 in the prior year. In 1998, the Company had been involved in various
appeals and hearings in connection with the opposition by the State of Florida
and others to the issuance of a drilling permit and the taking claim regarding
its royalty interest acreage. During 1999, the level of legal activity
decreased.
Administrative expenses decreased 4% in 1999 to $474,000 compared to
$495,000 in 1998.
Salaries decreased 2% to $158,000 during 1999 compared to $161,000
during 1998.
Shareholder communications costs decreased 23% from $133,000 in 1998 to
$103,000 in 1999. The decrease in costs during 1999 resulted from a reduction in
mailing costs to the Company's shareholders.
Exploration costs decreased from $31,000 in 1998 to $21,000 in 1999 in
connection with the Company's program to identify potential drilling prospects.
These miscellaneous exploration expenses do not include the exploration
expenditures totaling $24,000 that were capitalized in 1999 ($340,000 in 1998).
<PAGE>
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
cost of directors' and officers' liability insurance in 1998.
Shareholder communications costs 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).
MARKET RISK DISCLOSURES
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 June 30, 2000, the carrying value of such investments (including
those classified as cash and cash equivalents) was approximately $395,000, the
fair value was $396,000 and the face value was $400,000.
OUR BUSINESS AND PROPERTIES
General
Coastal Caribbean is a company organized under the laws of Bermuda,
with its principal executive offices at Clarendon House, Church Street,
Hamilton, Bermuda (telephone number: 441-295-1422). Shares of our common stock
are listed on the Boston Stock Exchange and also are traded over-the-counter on
the "Electronic Bulletin Board" marketplace of the National Association of
Securities Dealers, Inc. We rely heavily on consultants for legal, accounting
and administrative services. Our principal asset is our 59.25% owned subsidiary,
Coastal Petroleum, a Florida corporation.
Operations
Coastal Petroleum is the lessee under leases with the State of Florida
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.
Coastal Petroleum is currently involved in litigation with the State of
Florida with regard to whether the State's denial of Coastal Petroleum's
application for an oil and gas exploration drilling permit constitutes a taking
of Coastal Petroleum's property for which the State must compensate Coastal
Petroleum. 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 1999, the Company actively pursued the Florida
Litigation. See "Legal Proceedings".
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, the law effectively prohibits production of oil and gas, rendering it
impossible for Coastal Petroleum to collect royalties from those areas. Coastal
Petroleum's lawsuit on the issue is part of the Florida Litigation.
Business
Coastal Caribbean was organized in Bermuda on February 14, 1962. We are the
successor to Coastal Caribbean Oils, Inc., a Panamanian corporation organized on
January 31, 1953 to be the holding company for Coastal Petroleum.
We own 59.25% of Coastal Petroleum. We are considered to be a
development stage company since our exploration for oil, gas and minerals has
not yielded any significant revenues. Coastal Petroleum's principal assets are
its nonproducing oil, gas and mineral leases and royalty interests. Coastal
Petroleum believes that its leases have been confiscated by the State of
Florida. Coastal Petroleum also believes the leases or the potential recovery
from the State of Florida are properly considered to be assets.
Properties
Coastal Petroleum 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 beginning of litigation in 1968 but has conducted only
limited exploration since that time. Exploration expenditures during the six
months ended June 30, 2000 were $3,600 and for the years 1999, 1998 and 1997
were $45,000, $371,000 and $504,000, respectively.
In 1941, Arnold Oil Explorations, Inc., renamed Coastal Petroleum
Company in 1947, entered into a contract with the Trustees of the Internal
Improvement Trust Fund of the State of Florida, 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.
The Trustees and Coastal Petroleum entered into three leases in late 1944 and
early 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 on
January 6, 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:
>> 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 6.25% royalty on the wellhead value of all oil and gas, 25
cents per long ton on sulphur, receivable in cash or in kind at Coastal
Petroleum's option, and a 5% royalty on production or the market value of
other minerals.
>> 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.
>> Coastal Petroleum presently owns a 100% working interest in the 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 12.50% on oil and
gas, $.50 per long ton of sulphur 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 12.50% on oil and gas, $.50 per long ton of
sulphur and 10% on other minerals. Under the 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 6.25% on oil, gas and sulphur 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. Drilling requirements of Lease 224-A have been satisfied through
the five year obligation period ended August 2, 2004. The State of Florida has
refused Coastal Petroleum the right to drill on Lease 248 since August 10, 1986.
Drilling requirements of Lease 224-B have been satisfied through the five year
obligation period ended October 31, 2000. On July 21, 2000, Coastal
Petroleum filed applications for permits to drill a series of shallow test wells
on Lease 224-B which were granted on August 18, 2000.
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 June 30, 2000:
<TABLE>
Working Royalty Annual
Interest Interest Rental
<S> <C> <C> <C>
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
--------- ---------- --------
</TABLE>
<TABLE>
Acreage under lease at June 30, 2000
Gross Acres (*) Net Acres (**)
Undeveloped Developed Undeveloped Developed
<S> <C> <C> <C> <C>
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-
--------- ---------- --------
</TABLE>
* A gross acre is an acre in which a working interest is owned.
** A net acre is 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.
Employees
We currently have only two employees. We rely heavily on consultants
for legal, accounting, geological and administrative services. We use
consultants because it is more cost effective than employing a larger full time
staff.
<PAGE>
The following graphic presentation has been omitted, but the following is a
description of the omitted material:
Map showing Coastal Petroleum's Lease Areas in the State of Florida
<PAGE>
Disclosure Concerning Oil and Gas
Undeveloped Acreage
The Company's undeveloped acreage as of June 30, 2000 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
========= =========
Drilling Activity
No drilling has taken place since June 1987 when one shallow mineral
test well was drilled on Lease 224-A and one test well was drilled on Lease
224-B. On July 21, 2000, Coastal Petroleum filed applications for permits to
drill a series of shallow test wells on Lease 224-Bwhich were granted on
August 18, 2000.
Royalties and Other Interests
In addition to royalties payable to the State of Florida as set forth
above, Coastal Petroleum's leases are subject to several royalties and other
interests. The leases are presently subject to overriding royalties aggregating
1/16 as to oil, gas and sulphur and 13/600ths as to minerals other than oil, gas
and sulphur.
We also have granted to certain officers, directors, counsel and
consultants of Coastal Petroleum and Coastal Caribbean the right to receive a
percentage of the net recoveries from the Florida Litigation. See "Legal
Proceedings" at page 22 and "Certain Business Relationships" at page 29.
Mineral Rights
Coastal Petroleum's Leases 224-A, 224-B and 248 were determined by a
Florida State court in 1960 to cover not only oil, gas and sulphur, but all
other minerals. Subsequent litigation has held that these other minerals do not
embrace certain deposits of shell accumulated on water bottoms which had not yet
become mineral, and that Lake Hancock is not within the area covered by Lease
224-B. Under the 1976 settlement agreement with the State of Florida, Coastal
Petroleum retains a 5% royalty with respect to mineral production. However, it
cannot conduct mining operations in 450,000-acre Lake Okeechobee without the
prior approval of the State of Florida. Although Coastal Petroleum had conducted
limited mineral exploration activities on its leases, the courts during the
1980's limited its rights to mine minerals. Coastal Petroleum has no independent
knowledge of commercial deposits on its leases.
LEGAL PROCEEDINGS
Florida Litigation
Coastal Petroleum is currently involved in litigation with the State of
Florida with regard to whether the State's denial of Coastal Petroleum's
application for an oil and gas exploration drilling permit constitutes a taking
of Coastal Petroleum's property for which the State must compensate Coastal
Petroleum. In addition, we are 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 224-A. The DEP subsequently denied the application
for issuance of a drilling permit for various reasons and imposed 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
of Florida and the 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.
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 appealed both the denial of the permit by the DEP and the imposition
of the surety to the Court of Appeal.
On October 6, 1999, the Court of Appeal ruled that the DEP has the
authority to deny Coastal Petroleum's drilling permit for its St. George Island
prospect, provided that Coastal Petroleum receives just compensation for what
has been taken. The State of Florida and certain Florida environmental groups
filed on November 1, 1999 a joint motion for clarification, rehearing, or
certification with respect to that decision, asking the Court of Appeal, among
other things, to clarify that the question of whether there has been a taking of
Coastal Petroleum's leases should be determined in the Circuit Court. On June
26, 2000, the Court of Appeal denied all of the State's motions and stated that
the issue of whether the denial of a permit constituted a "taking" was not
before the Court. The Court declined to rule on the merits of the taking issue
and stated that the issue was a matter for the Circuit Court. Coastal Petroleum
intends to commence an inverse condemnation action in the Circuit Court to be
compensated for the value of its property.
2. Coastal Petroleum Company v. State of Florida, Department of
Environmental Protection (DOAH Case Nos. 98-1901-1912). (DCA Case
1999-2112) and Other Permit Applications.
On February 25, 1997 Coastal Petroleum filed 12 additional applications
for drilling permits. Coastal Petroleum objected to certain requests for
additional data by the Florida DEP. On March 26, 1999, an administrative law
judge upheld the DEP's requirements. The decision of the administrative law
judge was affirmed by the First District Court of Appeal on February 29, 2000.
In order to fully permit the Apalachicola Reef Play which includes the
St. George Island prospect on October 29, 1998, Coastal Petroleum filed four
additional permit applications (1310-1313). The DEP also requested additional
data for these permits. Although these permits are still pending, Coastal
Petroleum does not believe the DEP will ever grant these permits.
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 the royalty holders' 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 royalty holders contend that the terms of the Settlement Agreement do
not insulate the State from taking claims by those royalty holders. The case is
currently pending before the Circuit Court in Tallahassee. On December 2, 1999,
the Circuit Court denied the State's motion to dismiss the plaintiffs' claim of
inverse condemnation but dismissed several other claims. The case will now
proceed to trial.
On May 10, 2000, the State filed a motion for summary judgment but no
hearing date has been set for the motion. Discovery is proceeding. A case
management conference has been set by the trial judge for October 16, 2000.
Any recovery made in the royalty holders' lawsuit would be shared among
the various plaintiffs in that lawsuit, including Coastal Caribbean, but not
Coastal Petroleum.
Counsel
Coastal Petroleum has recently retained the Tampa, Florida law firm of
Gaylord Merlin Ludovici Diaz & Bain as its principal trial counsel to bring its
inverse condemnation claim against the State of Florida in Florida Circuit
Court. Mr. Cary Gaylord will be the lead attorney for Gaylord Merlin. Mr.
Gaylord, age 53, has extensive experience in eminent domain and property rights
matters. He is a 1969 graduate of the United States Military Academy and a 1974
graduate of the University of Florida Law School.
In addition, Mr. Robert J. Angerer of Tallahassee, Florida will assist
Gaylord Merlin in the litigation. Mr. Angerer, age 53, is a 1969 graduate of the
University of Michigan and received his law degree with high honors from Florida
State University in 1974.
Statutory Attorneys' Fees
Chapter 73 of Florida law provides in eminent domain proceedings
(which would include Coastal Petroleum's taking claim) that, in addition to the
award made to the property owner, the court shall award attorneys' fees based on
the difference between the final judgment or settlement and the first written
offer made to the property owner by the State in accordance with the following
schedule:
1. Thirty-three percent of any difference up to $250,000; plus
2. Twenty-five percent of any portion of the difference between
$250,000 and $1 million; plus
3. Twenty percent of any portion of the difference exceeding $1
million.
Contingency Fees
Coastal Petroleum has agreed to pay an aggregate of 8.65% in contingent
fees based on any net recovery from execution on or satisfaction of judgment or
from settlement of the Florida litigation to the following:
Holder Percentage
Reasoner, Davis & Fox 2.00
Robert J. Angerer 1.50
Benjamin W. Heath 1.25
Phillip W. Ware 1.25
Murtha Cullina LLP 1.00
Ausley & McMullen, P.A. .75
James R. Joyce .30
Arthur B. O'Donnell .30
James J. Gaughran .30
------
Total 8.65
======
In addition, Coastal Petroleum has agreed to pay Gaylord Merlin a
contingent fee equal to the greater of:
(a) approximately 90% of the statutory award of attorneys'fees (discussed
above)less the hourly fees paid to Gaylord Merlin, or
(b) ten percent of the first $100 million or portion thereof of the
compensation received by Coastal Petroleum from the State as compensation for
the taking of its property, plus five percent of such compensation in excess of
$100 million, less the hourly fees paid to Gaylord Merlin and other costs of the
litigation.
Uncertainty
At June 30, 2000, the amount of unproved oil, gas and mineral
properties totaled $4.8 million, which costs the Company expects to recover.
However, 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.
OUR MANAGEMENT
Our Directors and Executive Officers
Our board of directors includes five members, two of whom also serve as
executive officers. The board is divided into three classes, with each class
serving a term of office of three years.
<TABLE>
Name Position Biographical Information
Class of 2001
<S> <C> <C>
Nicholas B. Dill Director Mr. Dill is a member of the law firm of Conyers, Dill &
Pearman, Hamilton, Bermuda, our Bermuda counsel. Mr. Dill,
a director since 1997, is also a director of Worldwide
Securities Ltd., Bermuda Electric Light Co. Ltd.,
Watlington Waterworks Ltd. and SAL Ltd. Age sixty-eight.
Class of 2002
Benjamin W. Heath Director Mr. Heath, a director since 1962, is Chairman and also
President serves as director of Coastal Petroleum Company, Magellan
Petroleum Corporation, and Canada Southern Petroleum Ltd.
Age eighty-six.
Phillip W. Ware Director Mr. Ware, a geologist, has been President of Coastal
Vice President Petroleum since April 1985. Mr. Ware, a director since
1985, is also a director of Coastal Petroleum. Age fifty.
Class of 2003
Graham B. Collis Director Mr. Collis, a director since 1998, is a member of the law
Secretary firm of Conyers, Dill & Pearman, Hamilton, Bermuda, our
Audit Committee Bermuda counsel. Age forty.
John D. Monroe Director Mr. Monroe is a real estate broker and was formerly
Audit Committee President of a real estate brokerage and development firm
in Naples, Florida. Mr. Monroe, a director since 1981, is
also a director of our subsidiary, Coastal Petroleum.
Age seventy-three.
</TABLE>
<PAGE>
Our other executive officer is the Chief Financial Officer. All of the
officers of Coastal Caribbean and Coastal Petroleum are elected annually by the
board and report directly to it.
<TABLE>
<S> <C> <C>
James R. Joyce Treasurer, Assistant Mr. Joyce has been our Treasurer, Assistant Secretary and
Secretary and Chief Chief Financial Officer since 1994. He is also President,
Financial Officer Chief Financial Officer and a director of Magellan Petroleum
Corporation. Mr. Joyce is President of G&O'D INC, a firm that
provides accounting and administrative services, office
facilities and support to Coastal Caribbean and other clients.
Age fifty-nine.
</TABLE>
All of the named companies are engaged in oil, gas or mineral
exploration and/or development except where noted. The business experience
described for each director or executive officer above covers the past five
years.
We are not aware of any arrangements or understandings between any of
the individuals named above and any other person by which any of the individuals
named above was selected as a director and/or executive officer. We are not
aware of any family relationship among the officers and directors of Coastal
Caribbean or its subsidiary.
Committees of Our Board of Directors
Board of Directors; Committees; Attendance
The only standing committee of the Board is the Audit Committee which is
comprised of Mr. Graham B. Collis and Mr. John D. Monroe. The Audit Committee is
governed by an Audit Committee Charter which requires the committee to perform
the following functions:
(1) to recommend the particular persons or firm to be employed by
Coastal Caribbean as its independent auditors;
(2) to consult with the persons or firm so chosen to be the independent
auditors with regard to the plan of audit;
(3) to review, in consultation with the independent auditors,
their report of audit, or proposed report of audit, and the
accompanying management letter, if any; and
(4) to consult with the independent auditors (periodically, as
appropriate, out of the presence of management) with regard to
the adequacy of internal controls.
We do not presently have standing nominating or compensation committees
of the Board of Directors. The functions that would be performed by such
committees are performed by the Board of Directors. A stock option committee is
appointed periodically.
<PAGE>
Compensation Committee Interlocks and Insider Participation
The entire board of directors constitutes the compensation committee.
Benjamin W. Heath and Phillip W. Ware are directors and the Presidents of
Coastal Caribbean and Coastal Petroleum, respectively.
Compensation of Directors
For the year 1999, Messrs. Collis, Dill and Monroe each received
directors' fees of $22,500. On March 23, 2000, each of the named directors
received 10 year options to purchase 100,000 shares of our common stock at a
price of $.91 per share.
Executive Compensation
The following table sets forth certain summary information
concerning the compensation of our two executive officers. No other executive
officer earned compensation in excess of $100,000 during the year 1999. <TABLE>
------------------------------------------------------------------------------------------------------------------------
Summary Compensation Table
Annual Compensation Long Term
Compensation
Award All Other
Name and Year Salary ($) Options/SARs(#) Compensation ($)
Principal Position
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Benjamin W. Heath, President 1999 40,000 - 15,550(1)
and Chief Executive Officer 1998 40,000 45,000 12,000(1)
1997 40,000 - 12,000(1)
------------------------------------------------------------------------------------------------------------------------
Phillip W. Ware, Vice President 1999 92,000 - 13,800(2)
------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Reimbursement for office expense $9,550 in 1999, $6,000 in 1998 and 1997.
Payment to SEP-IRA pension plan $6,000 in 1999, 1998 and 1997.
(2) Payment to SEP-IRA pension plan.
Stock Options
There were no stock options granted during 1999. On March 6, 2000, five
year options to purchase 302,000 shares of our common stock expired without
being exercised. On March 24, 2000, ten year options to purchase 700,000 shares
of our common stock at $.91 per share were granted to directors, officers and
legal counsel. Messrs. Collis, Dill, Heath, Joyce, Monroe, Ware and our legal
counsel each received options to purchase 100,000 shares of our common stock.
<PAGE>
<TABLE>
-----------------------------------------------------------------------------------------------------------------------
Aggregated Option/SAR Exercises in 1999 and at December 31, 1999
Option/SAR Values
-----------------------------------------------------------------------------------------------------------------------
Shares Number of Unexercised Value of Unexercised
Acquired Value Options/SARs (#) In-The-Money
On Exercise Realized ($) at December 31, 1999 Options/SARs ($)
(#) at December 31, 1999
-----------------------------------------------------------------------------------------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Benjamin W. Heath -0- -0- 72,000 - 18,000 -
Benjamin W. Heath -0- -0- 45,000 - -0- -
-----------------------------------------------------------------------------------------------------------------------
Phillip W. Ware -0- -0- 120,000 - 30,000 -
Phillip W. Ware -0- -0- 72,000 - -0- -
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
Certain Business Relationships
G&O'D INC
During the six month period ended June 30, 2000, $79,543 ($144,495 for
the year 1999) was paid or accrued for accounting and administrative services,
office facilities and support staff provided to us by G&O'D INC, a firm that is
owned by James R. Joyce, our Treasurer and Assistant Secretary. The services
rendered by G&O'D to us include the following: preparation and filing of all
reports required by Federal and State governments, preparations of reports and
registration statements required under the Federal securities laws; preparation
and filing of interim, special and annual reports to shareholders; maintaining
corporate ledgers and records and furnishing office facilities and record
retention. G&O'D is also responsible for the investment of our available funds
and other banking relations and securing adequate insurance. G&O'D is
responsible for the preparation and maintenance of all the minutes of any
directors' and shareholders' meetings, arranging all meetings of directors and
shareholders, coordinating the activities and services of all companies and
firms rendering services to us, responding to shareholder inquiries, and such
other services as may be requested by us. G&O'D maintains and provides current
information about our activities so that our directors may keep themselves
informed as to our activities. G&O'D's fees are based on the time spent in
performing these services to us.
Royalty Interests
The State of Florida oil, gas and mineral leases held by Coastal
Petroleum on approximately 3,700,000 acres of submerged lands along the Gulf
Coast and certain inland lakes and rivers are subject to certain overriding
royalties aggregating 1/16th as to oil, gas and sulphur, and 13/600ths as to
minerals other than oil, gas and sulphur. Of the overriding royalties as to oil,
gas and sulphur, a 1/90th overriding royalty, and of the overriding royalties on
minerals other than oil, gas and sulphur, a 1/60th overriding royalty, is held
by Johnson & Company, a Connecticut partnership which is used as a nominee by
the members of the family of the late William F. Buckley. A trust, in which Mr.
Heath has a 54.4% beneficial interest, has a beneficial interest in such royalty
interest held by Johnson & Company. No payments have been made to Johnson &
Company (or to the beneficial owners of such royalty interests) in more than
forty years.
In 1990, Coastal Petroleum granted to our current officers the
following percentages of any net recovery from execution on or satisfaction of
judgment or from settlement of the lawsuit against the State of Florida
as follows:
Percent of Coastal Petroleum
Name Net Recovery Position
Benjamin W. Heath 1.25 Chairman of Board
Phillip W. Ware 1.25 President
James R. Joyce 0.30 Treasurer
PRINCIPAL SHAREHOLDERS
Security Ownership of Certain Beneficial Owners
The following table provides information as to the number of shares of
our stock owned beneficially at September 7, 2000 by each person who is known to
be the beneficial owner of more than 5% of the outstanding shares of our common
stock.
<TABLE>
Amount and Nature of
Beneficial Ownership
Name and Address of Shares Held Shares Subject
Beneficial Owner Directly to Option Percent of Class
<S> <C> <C> <C>
Leon S. Gross 4,499,688 - 11.0
3900 Ford Road
Philadelphia, PA 19131
Lykes Minerals Corp. - 7,800,000* 16.3**
111 East Madison Street
P.O. Box 1690
Tampa, FL 33601
------------------------
* Lykes Minerals Corp. has purchased a total of 78 shares of Coastal Petroleum which are convertible into 7,800,000 of our
shares.
** Assumes all outstanding options are exercised to acquire our shares.
</TABLE>
<PAGE>
Security Ownership of Management
The following table provides information as to the number of shares of
our common stock owned beneficially at September 7, 2000 by each of our
directors and by all directors and our executive officers as a group:
<TABLE>
Amount and Nature of
Name of Beneficial Ownership
Individual Shares Held Percent of
or Group Directly or Indirectly Options Class
<S> <C> <C> <C>
Graham B. Collis 25,000(1) 112,000 *
Nicholas B. Dill -(2) 124,000 *
Benjamin W. Heath 20,000 145,000 *
John D. Monroe 400 136,000 *
Phillip W. Ware 3,791 172,000 *
Directors and executive officers
as a group (a total of 6 persons) 59,336 825,000 2.2%
------------------------
* Less than 1%.
(1) Director of corporation which owns 17,758 shares.
(2) Beneficiary of an estate which owns 3,355 shares.
</TABLE>
DESCRIPTION OF OUR COMMON STOCK
General
Our Memorandum of Association provides that we may issue up to
250,000,000 shares of common stock. We only have one class of stock. As of
September 7, 2000, we had approximately 9,200 shareholders of record with a
total of 40,056,358 shares of common stock outstanding. Below is a brief
description of our common stock and the rights of shareholders as determined
under Bermuda law. Neither Bermuda law, nor our Memorandum of Association or
Bye-laws impose any limitations on the rights of non-residents of Bermuda to
vote and hold our shares of common stock. Set forth below is a summary of the
principal terms of our Memorandum and Bye-laws governing our common stock.
Common Stock
Dividend Rights. The holders of common stock are entitled to receive
dividends, if and when they are declared by the Board of Directors. Each share
outstanding is entitled to share equally with every other share in every
dividend distribution. Current Bermuda law does not restrict the remittance of
dividends to Bermuda non-residents, and any dividends paid to U.S. shareholders
would not be subject to a withholding tax. We have never declared or paid
dividends on our common stock and do not anticipate declaring or paying any
dividends in the foreseeable future. We plan to retain any future earnings to
reduce our accumulated deficit of $28,053,000 at June 30, 2000 and to finance
our operations.
Classified Board of Directors. Bye-Law 81 provides that the Board of
Directors is divided into three classes. See "Our Management - Our Directors and
Executive Officers" above.
Liquidation Rights. Subject to the rights of creditors, all rights to
the assets of Coastal Caribbean available for distribution upon liquidation are
vested in the holders of common stock and each share is entitled to participate
equally with every other share in such liquidation.
Pre-emptive Rights, Conversion Rights, Redemption Provisions, Sinking
Fund and Further Assessments. The holders of common stock have no pre-emptive
rights. There are no conversion rights attached to the common stock and there
are no provisions for sinking funds or redemption of shares. Under Bermuda law
unless authorized by our Memorandum of Association or Bye-laws, we may not
repurchase our own common stock, and our Memorandum of Association and Bye-laws
do not permit us to redeem shares of common stock. The holders of outstanding
common stock are not liable to any further calls or assessments by us on their
shares.
Rights of Appraisal, Derivative Actions. Class actions and derivative
actions are generally not available to shareholders under the laws of Bermuda.
However, the Bermuda courts ordinarily would be expected to follow English case
law precedent, which would permit a shareholder to bring an action in the name
of the company, if the directors or officers are alleged to be acting beyond the
corporate powers of the company, committing illegal acts or violating the
Memorandum of Association or Bye Laws of the company. In addition, minority
shareholders would probably be able to challenge a corporate action that
allegedly constituted a fraud against them or required the approval of a greater
percentage of the shareholders' vote. The winning party generally would be able
to recover a portion of attorneys' fees incurred in bringing the lawsuit.
Taxes. Bermuda currently imposes no taxes on corporate income or capital
gains realized outside of Bermuda, nor is there any withholding tax on any
dividends that we might pay to you. Any amounts received by us from U. S.
sources as dividends, interest, or other fixed or determinable annual or
periodic gains, profits and income, will be subject to a 30% U. S. withholding
tax. In addition, any dividends from Coastal Petroleum will not be eligible for
the 100% dividends received deduction, which is allowable in the case of a U. S.
parent corporation. U. S. residents or citizens holding shares are subject to
federal estate and gift and local inheritance taxation. Any dividends received
by U. S. resident or citizens will also be subject to federal, state and local
income taxation. These rules are of general application only and reflect law in
force as of the date of this prospectus. Shareholders should seek professional
advice for the current rules applicable to their particular circumstances.
Under current Bermuda law, we are not required to pay any income tax or
capital gains tax. We have obtained from the Bermuda Minister of Finance an
assurance under The Exempted Undertakings Tax Protection Act 1966 of Bermuda, to
the effect that in the event of there being enacted in Bermuda any legislation
imposing tax computed on profits or income, or computed on any capital asset,
gain or appreciation, or any tax in the nature of estate duty or inheritance
tax, then the imposition of any such tax shall not be applicable to us or to any
of our operations, shares, debentures or other obligations until 2016. These
assurances are subject to the condition that they are not interpreted so as to
prevent the application of any tax or duty to such persons as are ordinarily
resident in Bermuda or to prevent the application of any tax payable in
accordance with the provisions of The Land Tax Act 1967 of Bermuda or otherwise
payable in relation to any property we lease. We are required to pay annual
Bermuda government fees.
Foreign Exchange Control Regulations. We have been designated as a
non-resident for exchange control purposes by the Bermuda Monetary Authority
whose permission for the issue of shares of common stock pursuant to this
Offering has been obtained. This designation allows us to engage in
transactions, or to pay dividends to non-residents of Bermuda who are holders of
our shares, in currencies other than the Bermuda Dollar.
The transfer of shares between persons regarded as resident outside
Bermuda for exchange control purposes and the issue of shares after the
completion of this offering to or by such persons may take place without
specific consent under the Exchange Control Act 1972. Issues and transfers of
shares involving any person regarded as resident in Bermuda for exchange control
purposes require specific prior approval under the Exchange Control Act 1972.
Non-Bermuda owners of our shares of common stock are not restricted in
the exercise of the rights to hold or vote their shares. Because we have been
designated as a non-resident for Bermuda exchange control purposes, there are no
restrictions on our ability to transfer funds in and out of Bermuda or to pay
dividends to U. S. residents who are holders of our common stock, other than in
respect of local Bermuda currency.
Under Bermuda law, share certificates are only issued in the names of
corporations or individuals. In the case of an applicant acting in a special
capacity (for example as a trustee), certificates may, at the request of the
applicant, record the capacity in which the applicant is acting, but we are not
bound to investigate or incur any responsibility in respect of the proper
administration of any such trust. We will take no notice of any trust applicable
to any of our shares whether or not we have notice of the trust.
As an "exempted company", we are exempt from Bermuda laws which
restrict the percentage of share capital that may be held by non-Bermudans, but
as an exempted company we may not participate in certain business transactions
including: (1) the acquisition or holding of land in Bermuda (except that
required for their business and held by way of lease or tenancy for terms of not
more than 50 years) without the express authorization of the Bermuda
legislature, (2) the taking of mortgages on land in Bermuda to secure an amount
in excess of $50,000 without the consent of the Minister of Finance, (3) the
acquisition of any bonds or debentures secured by any land in Bermuda, other
than certain types of Bermuda government securities or (4) the carrying on of
business of any kind in Bermuda, except in furtherance of their business carried
on outside Bermuda.
We will be required to comply with the provisions of the Companies Act
regulating the payment of dividends and making distributions from contributed
surplus. Pursuant to the Companies Act, a company shall not declare or pay a
dividend, or make a distribution out of contributed surplus, if there are
reasonable grounds for believing that: (1) the company is, or would after the
payment be, unable to pay its liabilities as they become due; or (2) the
realizable value of the company's assets would thereby be less than the
aggregate of its liabilities and its issued share capital and share premium
accounts.
Voting Rights. All voting rights are vested in the holders of common
stock, each share voting equally with every other share. The holders of 25% of
the total number of shares entitled to be voted at the meeting, present in
person or by proxy constitutes a quorum for the transaction of business. Bye-Law
1, provides that any matter to be voted upon at any meeting of shareholders must
be approved, not only by a simple majority of the shares voted at such meeting,
but also by a simple majority of the shareholders voting.
Bye-Law 1 provides in part that shareholder approval requires:
a resolution passed by both (i) simple majority of votes cast
by such Members as, being entitled so to do, vote in person
or, in the case of any Member being a corporation, by its duly
authorized representative or, where proxies are allowed, by
proxy and (ii) a simple majority in number of the Members
present in person or in the case of any Member being a
corporation by its duly authorized representative or where
proxies are allowed, by proxy, at a general meeting of which
not less than fourteen (14) clear days' Notice (save where a
longer period is required by these Bye-laws) has been duly
given PROVIDED THAT when shares are held by members of another
company, firm, partnership, association or other body
corporate or unincorporated and such persons act in concert,
or when shares are held by or for a group of Members who act
in concert, such persons shall be deemed to be one Member.
Bye-Law 161 requires that a resolution adopted by the holders of 75% or
more of the outstanding common stock and adopted by not less than 75% of the
shareholders is required to approve any business combination (defined as any
"arrangement, reconstruction, amalgamation, takeover, or similar business
combination") involving the Company and any other person.
Limitation of Director Liability and Indemnification
Director liability. The Companies Act imposes two basic duties on each
director and officer:
Duty of loyalty. A director or officer must act honestly and in good
faith with a view to the best interests of the company. This means that
in conflict of interest situations, a director must place the best
interests of the company above his own personal interests. It also
means that a director may not use his position as a director to make a
personal profit from opportunities that rightfully belong to the
company.
Duty of care. A director or officer must exercise the care, diligence
and skill that a reasonably prudent person would exercise in comparable
circumstances. Based on English case law precedent, this means that a
director must act reasonably in accordance with the level of skill
expected from a person of his knowledge and experience. A director must
attend diligently to the company's affairs, but is permitted to do so
on an intermittent rather than a continuous basis. A director may
delegate management functions to suitably qualified persons, although
he will not avoid his duty by delegation to others.
A Bermuda court is unlikely to interfere with decisions of directors
unless one of these two duties is breached. The court must find that the
directors acted in bad faith or that no reasonable board of directors could have
come to the decision that was reached.
Director indemnification. We may under Bermuda law indemnify our
directors and officers for any loss or liability that they may incur in their
capacity as our directors and officers. The loss or liability may result from
any law that finds them guilty of negligence, default, breach of duty or breach
of trust. A director or officer may not be indemnified for his own fraud or
dishonesty.
Legal expenses. We are required to pay all expenses, including
attorney's fees, incurred by a director in defending any legal proceeding as
they are incurred in advance of final disposition if the director agrees to
repay those amounts if it is proved by clear and convincing evidence that the
director's action or omission was undertaken with deliberate intent to cause
injury to the company or with reckless disregard for our best interests and if
the director reasonably cooperates with the corporation during the proceeding.
Bye-Laws. Our Bye-Laws provide for indemnification of our director and
officers which is coextensive with that permitted under Bermuda law.
D&O Insurance. Coastal Caribbean has purchased directors' and officers'
liability insurance coverage in the amount of $12,200,000 at an annual cost of
$192,000.
Transfer Agent and Registrar
Our transfer agent and registrar is American Stock Transfer and Trust
Company, 40 Wall Street, 46th Floor, New York, New York 10005. Telephone:
800-937-5449, or 718-921-8200. Website: http://www.amstock.com.
<PAGE>
Price Range of Our Common Stock
The principal market for our common stock is the Boston Stock Exchange
under the symbol CCO. Our common stock is also traded in the over-the-counter
market on the "Electronic Bulletin Board" of the National Association of
Securities Dealers, Inc. under the symbol COCBF.OB. The quarterly high and low
closing prices on the Boston Stock Exchange were as follows:
<TABLE>
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2000 1st quarter 2nd quarter 3rd quarter* 4th quarter
High 1.19 1.19 2.50
Low 0.88 0.53 1.00
-----------------------------------------------------------------------------
1999 1st quarter 2nd quarter 3rd quarter 4th quarter
High 1.88 2.00 1.81 2.06
Low 1.00 1.50 1.31 1.06
---------------------------------------------------------------------------
1998 1st quarter 2nd quarter 3rd quarter 4th quarter
High 2.88 3.50 1.81 1.56
Low 1.50 1.56 1.00 1.06
------------------------------------------------------------------------------
* Through September 8, 2000
</TABLE>
On September 8, 2000, the closing price of our common stock on the
Boston Stock Exchange was $1.81. On September 7, 2000, our outstanding common
stock was owned by approximately 9,200 shareholders of record.
The total share trading volume on the Boston Stock Exchange was
4,279,100 for 1999, 6,334,750 for 1998 and 7,774,500 for 1997. The total
share trading volume from January 1, 2000 to September 8, 2000 was 6,206,400.
<PAGE>
PERFORMANCE GRAPH
The graph below compares the cumulative total returns, including
reinvestment of dividends, if applicable, of our stock with the companies in the
NASDAQ Market Index Media General's Independent Oil & Gas Industry Group. The
chart displayed below is presented in accordance with SEC requirements.
Shareholders are cautioned against drawing any conclusions from the data
contained therein, as past results are not necessarily indicative of future.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
January 1, 1995 to June 30, 2000
<TABLE>
----------------------------- -------------- -------------- -------------- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998 1999 June 2000
----------------------------- -------------- -------------- -------------- ------------- -------------- -------------- -------------
Coastal Caribbean 100 161.54 430.77 269.23 176.92 169.23 146.15
----------------------------- -------------- -------------- -------------- ------------- -------------- -------------- -------------
Independent Oil & Gas 100 109.42 141.00 131.27 85.03 119.12 149.24
----------------------------- -------------- -------------- -------------- ------------- -------------- -------------- -------------
NASDAQ Market Index 100 129.71 161.18 197.16 278.08 490.46 479.98
----------------------------- -------------- -------------- -------------- ------------- -------------- -------------- -------------
</TABLE>
<PAGE>
TERMS OF THE OFFERING
In General
We are offering for sale, to our shareholders only, a total of
12,016,907 shares of our common stock. For every 10 shares that you hold on
the record date, September 12, 2000, you are guaranteed the right to purchase 3
shares for a purchase price of $1.00 per share. If you purchase all of the
shares that you are guaranteed the right to buy, you will also have the right to
purchase additional shares which are contingent on the number of shares that are
not purchased by the other shareholders. This contingent right to purchase
additional shares is limited to 3 times the guaranteed number of shares that
you are entitled to purchase.
The shares being offered for sale will first be allocated to satisfy
the shareholders' guaranteed right to purchase shares. If there are unsold
shares remaining after these allocations, then any unsold shares will be
allocated proportionately among the shareholders who exercised their contingent
right to purchase the unsold shares.
The subscription right is not transferable. The offering is not subject
to a minimum number of subscriptions.
How the Contingent Right Operates
To illustrate how the offering works, assume a shareholder owned 300
shares of common stock as of the record date. He is guaranteed the right to
purchase 90 shares. In addition, if he purchases the total 90 shares, then he
may also exercise his contingent right for up to 270 additional shares for a
total of 360 shares.
In the event that the offering is oversubscribed, we will accept
subscriptions by shareholders for the guaranteed shares first. Any remaining
shares unsold will then be allocated proportionately among the shareholders who
subscribed for the purchase of shares on a contingent basis.
For example, assume that our shareholders subscribe for a total of
14,000,000 shares, 8,000,000 shares of which are guaranteed. Under the terms of
the offering 12,016,907 shares are being offered for sale, 8,000,000 shares
would be issued to shareholders who purchased their guaranteed shares. The
remaining shares offered for sale (12,016,907 minus 8,000,000) would be
available for the shareholders who exercised their contingent right to purchase
shares on a pro rata basis. Each shareholder who exercised his contingent right
would receive 66.9% (4,016,907 available divided by 6,000,000 contingent rights)
of his contingent amount of available shares.
Subscription Cards and Termination Date
Subscription cards, which indicate the number of shares you will be
guaranteed the right to purchase, will be issued in the name and address of the
holders of common stock of record on September 12, 2000 and mailed to holders
as soon as practicable after the record date. The offering will end at
4:30 P.M. Eastern Daylight Time, on October 23, 2000. The date and time when
the offering expires is herein referred to as the "expiration date."
All subscriptions received prior to the expiration date will be held by
the American Stock Transfer & Trust Company, our subscription agent. Prior to
the formal acceptance of the subscriptions, all payments will be held by
American Stock Transfer. Subscriptions may be revoked by delivery of written
notice of revocation to us prior to the expiration date. Subscriptions will be
accepted, if at all, promptly after the expiration date by our delivery of
written confirmation of acceptance to American Stock Transfer authorizing the
issuance of the shares and the payment of any refunds, without interest, to the
extent that the offering is oversubscribed. We reserve the right to reject any
subscription, absent proof in writing from you that all terms of the offering
have been complied with on a timely basis. We will notify the subscriber
promptly of any rejection.
You may not purchase fractional shares, and only whole shares will be
issued. The purchase price will be $1.00 per share for each share and the
right to purchase shares is nontransferable. In establishing the offering price,
our directors considered recent market prices for our stock. The purchase price
is intended by the directors to be attractive to our shareholders and result in
a higher subscription rate. The purchase price does not reflect our assessment
of the actual value of our assets. All interpretations of matters relating to
the offering will be made by our management and will be final.
How to Purchase Shares
Shares may be purchased by delivering the subscription card, along with
a signed subscription agreement, together with full payment of the purchase
price for both the shareholder's guaranteed and contingent amounts. Payment of
the purchase price must be made by check, bank draft or money order payable to
the order of American Stock Transfer. Any subscriptions satisfying these
conditions will be accepted; however, subscriptions received after the
expiration date will not be honored and we will not be responsible for
subscriptions not delivered by that time. You are advised to choose a reliable
method (e.g., such as overnight courier service) for the delivery of your
subscriptions to American Stock Transfer.
You may also subscribe by delivering to American Stock Transfer before
the expiration date each of the following:
o the full purchase price, together with a signature guarantee
in writing or by facsimile from a bank or trust company or a
member firm of any U.S. registered stock exchange that a
subscription card with respect to shares subscribed for has
been or will be promptly delivered to American Stock Transfer
within three business days, and
o information setting forth the name of the subscriber and the
serial number of the subscription card. Subscriptions
satisfying these conditions will be accepted subject to prompt
receipt by American Stock Transfer of the duly executed
subscription card within three business days.
Registration of the Shares You Purchase
We have made application for the registration of the common stock being
offered under the applicable securities laws of each of the United States which
do not provide an exemption. In the event that the offering is not permitted
under the law of any state or states, or in the event that qualification of the
securities in any state or states would prove to be impracticable in the
judgment of management, we will not issue subscription cards to shareholders in
those states.
UNITED STATES TAX CONSEQUENCES OF THE OFFERING
Your receipt of your subscription rights will have certain federal
income tax consequences. The following discussion is the likely position of the
Internal Revenue Service regarding the tax consequences of the receipt of your
subscription rights. This discussion is not intended to serve as tax advice to
you, and you should consult your personal tax advisor for advice relating to
your personal tax situation.
The mere receipt of the subscription rights will not result in the
recognition of taxable income. While you will not have to report taxable income
upon the receipt of your subscription rights, you may have to allocate a portion
of the adjusted basis of your original shares to any shares that you purchase in
the offering.
If you do not exercise your subscription rights, you will not be
allowed to claim a loss, and no adjustment will be made to the tax basis of your
shares. If the subscription rights are exercised, you may be required to
allocate a portion of the basis of your original shares to the shares that you
purchase in the offering, depending on whether the fair market value of the
rights equals or exceeds 15% of the fair market value of your original shares on
the date of distribution of your rights.
If you exercise your subscription rights and the fair market value of
your subscription rights on the date of distribution is 15% or more of the fair
market value of the shares you own on that date, you must allocate to the
purchased shares that part of the basis of your original shares that is
attributable to each subscription right that you exercise. The basis of your
original shares that is allocated to your subscription rights will equal your
basis in your original shares multiplied by a fraction the numerator of which is
the fair market value of your subscription rights and the denominator of which
is the total of the fair market value of your original shares and the fair
market value of your subscription rights. The basis of your original shares that
is allocated to each subscription right that you exercise will equal the basis
of your original shares that is allocated to your subscription rights divided by
the total number of subscription rights issued to you. Accordingly, the tax
basis of each share that you purchase will equal the basis of your original
shares that is allocated to each subscription right that you exercise plus the
purchase price of each purchased share. The holding period for a share acquired
by exercise of a subscription right will begin from the date the subscription
right is exercised. The basis of your original shares will be correspondingly
reduced by the portion of the basis in your original shares that is allocated to
the purchased shares.
If you exercise your subscription rights and the fair market value of
the subscription rights on the date of distribution is less than 15% of the fair
market value of the shares you own on that date, you may elect to allocate a
portion of your current tax basis to the shares that you purchase as discussed
above. If you do not elect to allocate your tax basis, then your tax basis in
the purchased shares will be your purchase price of the offered stock.
LEGAL MATTERS
Legal matters relating to U. S. law in connection with this offering
have been passed upon by Murtha Cullina LLP, Hartford, Connecticut. All matters
relating to Bermuda law affecting Coastal Caribbean and its common stock have
been passed upon by the firm of Conyers Dill & Pearman, Hamilton, Bermuda, of
which firm Mr. Collis, a director and Secretary of Coastal Caribbean, is a
partner. Mr. Dill, a director, is also a partner of the firm of Conyers Dill &
Pearman. All matters relating to litigation in which Coastal Petroleum is
involved have been passed upon by the firm of Angerer & Angerer, Tallahassee,
Florida. Murtha Cullina LLP may rely, insofar as Bermuda law is concerned, on
the opinion of Bermuda counsel, and insofar as Coastal Petroleum's litigation is
involved, on the opinions of Angerer & Angerer.
EXPERTS
The consolidated financial statements of Coastal Caribbean Oils &
Minerals, Ltd. (a development stage company) at December 31, 1999 and 1998
and for each of the three years in the period ended December 31, 1999, appearing
in this Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon, (which contains
an explanatory paragraph describing conditions that raise substantial doubt
about Coastal Caribbean's ability to continue as a going concern as described in
Note 1 to the consolidated financial statements) appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We are a public company and file annual, quarterly and special reports
and other information with the SEC. You may read and copy and documents we file
at the SEC's Public Reference Room, 450 Fifth Street, N.W., Washington, D.C.
20549. You may obtain further information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. You can obtain copies of
this material from the Public Reference Section of the SEC, Washington, D.C.
20549, at prescribed rates. Our reports, proxy and information statements and
other information are also available to the public at the SEC's web site. The
Internet address of that site is http://www.sec.gov.
Our common stock is listed on the Boston Stock Exchange and reports,
proxy statements and other information can also be examined at that exchange.
This prospectus is only part of a registration statement on Form S-1
that we have filed with the SEC under the Securities Act and therefore omits
certain information contained in the registration statement. We have also filed
exhibits and schedules with the registration statement that are excluded from
this prospectus, and you should refer to the applicable exhibit or schedule for
a complete description of any statement referring to any contract or other
document. You may inspect a copy of the registration statement, including the
exhibits and schedules, without charge at the SEC's public reference room or
through its web site.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
Page
Reference
<S> <C>
Report of Independent Auditors F-2
Consolidated balance sheets at June 30, 2000 (unaudited), December 31,
1999 and 1998. F-3
Consolidated statements of operations for the six months ended June 30, 2000 and
1999 (unaudited), from inception (January 31, 1953) to June 30, 2000 and for
each
of the three years in the period ended December 31, 1999. F-4
Consolidated statements of cash flows for the six months ended June 30, 2000 and
1999 (unaudited), from inception (January 31, 1953) to June 30, 2000 and for
each
of the three years in the period ended December 31, 1999. F-5
Consolidated statement of common stock and capital in excess of par value from
inception (January 31, 1953) to December 31, 1999 and June 30,
2000 (unaudited). F-6
Notes to consolidated financial statements. F-7
</TABLE>
<PAGE>
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,
1999 and 1998, and the related consolidated statements of operations, cash
flows, and common stock and capital in excess of par value for each of the
three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits 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, 1999 and 1998, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As more fully
described in Notes 1 and 5 to the consolidated financial statements, the Company
has a limited amount of working capital, has incurred recurring losses and has
an accumulated deficit. In addition, the Company has been and continues to be
involved in several legal proceedings which have limited the Company's ability
to commence development activities on its unproved oil or gas properties or
obtain compensation for certain property rights it believes have been
confiscated. These situations raise substantial doubt about the Company's
ability to continue as a going concern. The consolidated financial statements do
not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or amounts and classification of
liabilities that may result form the outcome of this uncertainty.
/s/ Ernst & Young LLP
Stamford, Connecticut
January 14, 2000
<PAGE>
COASTAL CARIBBEAN OILS & MINERALS, LTD.
(A Bermuda Corporation)
A Development Stage Company
CONSOLIDATED BALANCE SHEETS
(Expressed in U.S. dollars)
<TABLE>
June 30, December 31,
2000 1999 1998
(unaudited)
ASSETS
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 496,364 $ 651,124 $ 52,480
Accounts receivable 5,399 25,583 52,634
Marketable securities - - 828,839
Prepaid expenses 241,306 352,089 314,280
-------- --------- ---------
Total current assets 743,069 1,028,796 1,248,233
-------- --------- ---------
Marketable securities - 390,941 1,300,000
Unproved oil, gas and mineral properties (full cost
method) 4,755,944 4,759,532 4,735,619
Other 87,848 27,445 27,198
-------- --------- ---------
Total assets $5,586,861 $6,206,714 $7,311,050
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 65,106 $ 68,424 $ 67,299
-------- --------- ---------
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 4,806,763
Capital in excess of par value 28,768,033 28,693,033 28,693,033
-------- --------- ---------
33,574,796 33,499,796 33,499,796
Deficit accumulated during development stage (28,053,041) (27,361,506) (26,256,045)
-------- --------- ---------
Total shareholders' equity 5,521,755 6,138,290 7,243,751
-------- --------- ---------
Total liabilities and shareholders' equity $5,586,861 $6,206,714 $7,311,050
========== ========== ==========
See accompanying notes.
</TABLE>
<PAGE>
COASTAL CARIBBEAN OILS & MINERALS, LTD.
(A Bermuda Corporation)
A Development Stage Company
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in U.S. Dollars)
<TABLE>
From
inception
(Jan. 31,
Six months ended 1953)
June 30, Year ended December 31, to
2000 1999 1999 1998 1997 June 30, 2000
------------------------------- ----------------------------------------------------- --------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Interest and other income $ 19,472 $ 45,937 $55,275 $167,178 $279,469 $3,748,051
-------- ------- ------- -------- -------- ----------
Expenses:
Legal fees and costs 254,083 203,667 405,380 501,708 1,046,779 12,631,074
Administrative expenses 285,904 250,429 474,027 495,161 447,622 7,624,241
Salaries 75,900 81,650 157,550 161,000 156,000 3,144,728
Shareholder communications 88,693 75,537 102,825 132,924 187,644 3,760,473
Exploration costs 6,427 12,148 20,954 31,066 52,558 811,041
Lawsuit judgments - - - - - 1,941,916
Minority interests - - - - - (632,974)
Other - - - - - 364,865
Contractual services - - - - - 2,155,728
-------- ------- ------- -------- -------- ----------
711,007 623,431 1,160,736 1,321,859 1,890,603 31,801,092
-------- ------- ------- -------- -------- ----------
Net loss $(691,535) $(577,494) $(1,105,461) $(1,154,681) $(1,611,134)
========== ========== ============ ============ ===========
Deficit accumulated during
development stage $(28,053,041)
=============
Net loss per share
based on average number of
shares outstanding during the
period:
Basic and Diluted EPS $(.02) $(.01) $(.03) $(.03) $(.04)
========== ========== ============ ============ ===========
Average number of shares
outstanding:
Basic and Diluted 40,056,358 40,056,358 40,056,358 40,056,358 40,055,589
========== ========== ============ ============ ===========
See accompanying notes.
</TABLE>
<PAGE>
COASTAL CARIBBEAN OILS & MINERALS, LTD.
(A Bermuda Corporation)
A Development Stage Company
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in U.S. Dollars)
<TABLE>
From
inception
(Jan. 31,
Six months ended 1953)
June 30, Year ended December 31, to
2000 1999 1999 1998 1997 June 30, 2000
-------------------------- ------------------------------------------- ---------------
(unaudited) (unaudited) (unaudited)
Operating activities:
<S> <C> <C> <C> <C> <C> <C>
Net loss $(691,535) $(577,494) $(1,105,461) $(1,154,681) $(1,611,134) $(28,053,041)
Adjustments to reconcile net loss to net cash
Used for operating activities:
Minority interest - - - - - (632,974)
Exploration and other - - - - - 755,974
Compensation recognized for stock
option grants 75,000 - - - - 75,000
Net change in:
Accounts receivable 20,184 3,758 27,051 24,668 27,813 (5,399)
Prepaid expenses 110,783 84,984 (37,809) (100,440) (34,972) (241,306)
Current liabilities (3,318) (13,499) 1,125 3,324 (198,447) 65,106
Other (60,403) 36 (247) (433) (1,121) 411,058
-------- -------- ---------- ---------- ---------- ------------
Net cash used in operating activities (549,289) (502,215) (1,115,341) (1,227,562) (1,817,861) (27,625,582)
-------- -------- ---------- ---------- ---------- ------------
Investing activities:
Additions to oil, gas, and mineral
properties
Net of assets acquired for common stock 3,588 32,725 (23,913) (340,487) (451,612) (4,755,944)
Marketable securities (net) 390,941 1,372,676 1,737,898 1,304,196 1,910,226 -
Reimbursement of lease rentals and
other expenses - - - - - 1,243,085
Purchase of fixed assets - - - - - (61,649)
-------- -------- ---------- ---------- ---------- ------------
Net cash provided by (used in) investing
Activities 394,529 1,405,401 1,713,985 963,709 1,458,614 (3,574,508)
-------- -------- ---------- ---------- ---------- ------------
Financing activities:
Sale of common stock less expenses - - - - - 26,342,205
Shares issued upon exercise of options - - - - 11,250 884,249
Sale of shares by subsidiary - - - - - 750,000
Sale of subsidiary shares - - - - 240,000 3,720,000
-------- -------- ---------- ---------- ---------- ------------
Net cash provided by financing activities - - - - 251,250 31,696,454
-------- -------- ---------- ---------- ---------- ------------
Net increase (decrease) in cash and cash
Equivalents (154,760) 903,186 598,644 (263,853) (107,997) 496,364
Cash and cash equivalents at beginning of
Period 651,124 52,480 52,480 316,333 424,330 -
-------- -------- ---------- ---------- ---------- ------------
Cash and cash equivalents at end of period $496,364 $955,666 $651,124 $52,480 $ 316,333 $496,364
========= ======== ========== ========== ========== ============
See accompanying notes.
</TABLE>
<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 June 30, 2000
(Information subsequent to December 31, 1999 is unaudited)
<TABLE>
Capital in
Number of Common Excess
Shares Stock of Par Value
Shares issued for net assets and unrecovered costs
<S> <C> <C> <C>
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, 1998, 1999 and June 30, 2000 40,056,358 $4,806,763 $28,693,033
========== ========== ===========
See accompanying notes.
</TABLE>
<PAGE>
COASTAL CARIBBEAN OILS & MINERALS, LTD.
Notes to Consolidated Financial Statements
December 31, 1999
(Information at June 30, 2000 and 1999 and for the six months
then ended is unaudited)
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 owned 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.
Unaudited Information
The information for the periods ended June 30, 2000 and June 30, 1999
is unaudited but includes all adjustments which the Company considers necessary
for a fair statement of the results for those periods. All adjustments are of a
normal recurring nature.
Continuation as Going Concern
The Company has a limited amount of working capital, has incurred
recurring losses and has an accumulated deficit. Furthermore, as discussed in
Note 5, the Company believes the State of Florida has taken its properties.
Coastal Petroleum is planning to commence an inverse condemnation action in the
Circuit Court to be compensated for the value of its properties. The cost of
that litigation would be substantial and would require the Company to obtain
additional capital. There can be no assurances that funds on hand or realized or
realizable on the sales of the Company's shares described in Note 6 will be
sufficient to allow the Company to survive until such litigation is concluded.
At June 30, 2000 and December 31, 1999, the Company had cash and
cash equivalents of approximately $500,000 and $1.1 million, respectively. These
funds are expected to be used principally to continue the litigation in which
Coastal Petroleum is involved and also to pay operating and limited exploration
expenses. Current working capital should be sufficient to finance the Company's
operations and litigation through December 31, 2000. Effective July 1, 2000,
certain of the Company's officers and legal counsel agreed to defer 50% of their
salaries and fees until the Company's financial position improves.
In order to continue the litigation and operate the Company beyond the
year 2000, the Company believes it will be necessary to obtain additional
capital. If the Company is unsuccessful in obtaining additional capital or the
time necessary to obtain such funds is unduly protracted, then the Company
will likely have insufficient funds to continue operations and the Company
will be unable to continue as a going concern.
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:
<TABLE>
June 30, December 31,
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2000 1999 1998
Cash $101,669 $ 59,061 $52,480
Short term investments 394,695 592,063 -
-------- -------- -------
$496,364 $651,124 $52,480
======== ======== =======
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Use of Estimates
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States 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.
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 2002. 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 $4.8 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. 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).
Financial Instruments
The carrying value for cash and cash equivalents, accounts receivable,
marketable securities and accounts payable approximates fair value based on
anticipated cash flows and current market conditions.
In June 1998, FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS No. 133"). SFAS No. 133 provides a
comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities. The statement requires all derivatives to be
recognized on the balance sheet at fair value and establishes standards for the
recognition of changes in such fair value. SFAS No. 133 is effective for the
Company's 2001 fiscal year. Because the Company does not currently use
derivatives, the adoption of SFAS No. 133 will not have a significant effect on
earnings or the financial condition of the Company.
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 June 30,
2000, December 31, 1999 and 1998, 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 June 30, 2000, December 31, 1999 and 1998, Coastal Petroleum
shares were owned as follows:
Shares %
Coastal Caribbean 173 59.3
Lykes 78 26.7
Others 41 14.0
--- -----
292 100.0
=== =====
Coastal Caribbean has been making loans to Coastal Petroleum in order
for Coastal Petroleum to continue the Florida Litigation and pay its operating
expenses. At June 30, 2000, the amount of these loans totaled $18,577,207 and
the accumulated interest on the loans totaled $3,595,173for a total indebtedness
of $22,172,380.
3. Marketable Securities
At June 30, 2000, there were no marketable securities with maturity
dates of more than three months. At December 31, 1999 the following marketable
securities were available for sale because of the Company's capital
requirements:
<TABLE>
Maturity Carrying
Security Par Value Date Value Fair Value
Connecticut State Serial A Taxable
<S> <C> <C> <C> <C>
Bond 6.25% $400,000 July 1, 2003 $390,941 $390,941
======== ======== ========
At December 31, 1998, the Company had the following marketable
securities held until maturity:
Maturity Carrying
Security Par Value Date Value 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
======== ======== ========
</TABLE>
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.
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 believes that it 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 13/600th as to
other minerals.
During 1999, the Company capitalized approximately $24,000 ($340,000 in
1998 and $452,000 in 1997) under a program to identify potential drilling
prospects. The amount of 2000 expenditures, if any, will depend on the outcome
of the Florida litigation.
The following is 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:
<TABLE>
June 30, December 31,
2000 1999 1998
<S> <C> <C> <C>
Lease acquisition costs $ 914,619 $ 914,619 $ 914,619
Lease and royalty costs (principally legal fees) 591,616 591,616 591,616
Lease rentals 2,447,774 2,447,774 2,388,527
Dry hole costs 587,987 587,987 587,987
Other exploratory expenses 1,236,784 1,240,372 1,275,706
Salaries 466,983 466,983 466,983
--------- --------- ---------
6,245,763 6,249,351 6,225,438
--------- --------- ---------
Deduct:
Reimbursement for lease rentals and other expenses 1,243,086 1,243,086 1,243,086
Proceeds from relinquishment of surface rights 246,733 246,733 246,733
--------- --------- ---------
1,489,819 1,489,819 1,489,819
--------- --------- ---------
Total unproved oil, gas and mineral properties $4,755,944 $4,759,532 $4,735,619
========= ========== ==========
</TABLE>
5. Litigation
Florida Litigation
Coastal Petroleum is currently involved in litigation with the State of
Florida with regard to whether the State's denial of Coastal Petroleum's
application for an oil and gas exploration drilling permit constitutes a taking
of Coastal Petroleum's property for which the State must compensate Coastal
Petroleum. 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. During 2000 and 1999, the Company actively pursued the
Florida Litigation.
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 224-A. The DEP subsequently denied the application
for issuance of a drilling permit for various reasons and imposed 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.
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 appealed both the denial of the permit by the DEP and the imposition
of the surety to the Court of Appeal.
On October 6, 1999, the Court of Appeal ruled that the DEP has the
authority to deny Coastal Petroleum's drilling permit for its St. George Island
prospect, provided that Coastal Petroleum receives just compensation for what
has been taken. The State of Florida and certain Florida environmental groups
filed on November 1, 1999 a joint motion for clarification, rehearing, or
certification with respect to that decision, asking the Court of Appeal, among
other things, to clarify that the question of whether there has been a taking of
Coastal Petroleum's leases should be determined in the Circuit Court. On June
26, 2000, the Court of Appeal denied all of the State's motions and stated that
the issue of whether the denial of a permit constituted a "taking" was not
before the Court. The Court declined to rule on the merits of the issue and
stated that the taking issue was a matter for the Circuit Court. Coastal
Petroleum intends to commence an inverse condemnation action in the Circuit
Court to be compensated for the value of its property.
Coastal Petroleum Company v. State of Florida, Department of
Environmental Protection (DOAH Case Nos. 98-1901-1912). (DCA Case 1999-2112)
and Other Permit Applications.
On February 25, 1997, Coastal Petroleum filed 12 additional
applications for drilling permits. Coastal Petroleum objected to certain
requests for additional data by the Florida DEP. On March 26, 1999, an
administrative law judge upheld the DEP's requirements. The decision of the
administrative law judge was affirmed by the First District Court of Appeal on
February 29, 2000.
In order to fully permit the Apalachicola Reef Play which includes the
St. George Island prospect on October 29, 1998, Coastal Petroleum filed four
additional permit applications (1310-1313). The DEP also requested additional
data for these permits. Although these permits are still pending, Coastal
Petroleum does not believe the DEP will ever grant these permits.
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 the royalty holders' 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 royalty holders contend that the terms of the Settlement Agreement do
not insulate the State from taking claims by those royalty holders. The case is
currently pending before the Circuit Court in Tallahassee. On December 2, 1999,
the Circuit Court denied the State's motion to dismiss the plaintiffs' claim of
inverse condemnation but dismissed several other claims. The case will now
proceed to trial.
On May 10, 2000, the State filed a motion for summary judgment but no
hearing date has been set for the motion. Discovery is proceeding. A case
management conference has been set by the trial judge for October 16, 2000.
Any recovery made in the royalty holders' lawsuit would be shared among
the various plaintiffs in that lawsuit, including Coastal Caribbean, but not
Coastal Petroleum.
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 5.25 % 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 1.50
Other counsel 3.75
----
Total 5.25
====
In addition, Coastal Petroleum has agreed to pay Gaylord Merlin Ludovici
Diaz & Bain, a Tampa, Florida law firm a contingent fee pursuant to a formula in
the event that any statutory fee which may be awarded by the court does not
exceed the agreed upon formula fee.
Coastal Petroleum has also assigned 3.4% of net recoveries from the
Florida Litigation to its officers and others.
Uncertainty
At June 30, 2000 and December 31, 1999, the amount of unproved oil, gas and
mineral properties totaled $4.8 million which costs the Company expects to
recover. But, 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. 1 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
its common stock and sales of shares of Coastal Petroleum (See Note 2).
On May 10, 2000, the Company filed a registration statement with the
Securities and Exchange Commission for a proposed offering of its common stock
to its shareholders. The costs incurred relating to the preparation of the
registration statement totaling $60,150 at June 30, 2000 are included in other
assets.
The following represents shares issued upon sales of common stock:
<TABLE>
Number of Capital in Excess
Shares Capital Stock of Par Value
<S> <C> <C> <C>
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
========== ========== ===========
</TABLE>
<PAGE>
The following represents shares issued upon exercise of stock options:
<TABLE>
<S> <C> <C> <C>
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
========== ========== ===========
</TABLE>
Coastal Caribbean has reserved 7,800,000 shares of its common stock
which may be issued in exchange for Coastal Petroleum shares, as
described in Note 2.
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.
During 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. On March 6, 2000, five year
options to purchase 302,000 shares of the Company's common stock at $1.125 per
share expired without bring exercised. On March 24, 2000, ten year options to
purchase 700,000 shares of the Company's common stock at $.91 per share were
granted to directors, officers and legal counsel of the Company. All of the
options were vested and exercisable. The Company recorded a charge to legal
expense in the amount of $75,000 in connection with the issuance of such grants.
As of June 30, 2000, options to purchase 20,000 shares of common stock have been
exercised. Options to purchase 225,000 shares of common stock expire in 2003 and
options to purchase 700,000 shares of common stock expire in 2010. The following
table summarizes stock option activity:
<PAGE>
<TABLE>
Number of Shares Exercise Price ($)
<S> <C> <C>
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
Expired (60,000) 1.13
-------
Outstanding and exercisable at December 31, 1999 527,000 1.13
Expired (302,000) .91
Granted 700,000 .94-2.625
-------
Outstanding and exercisable at June 30, 2000 925,000 (1.33 weighted average)
=======
Available for grant at June 30, 2000 55,000
=======
</TABLE>
<PAGE>
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.
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:
<TABLE>
Amount Per Share
<S> <C> <C>
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)
========== ========
</TABLE>
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 carry forwards for federal and state tax purposes, which may be
used to reduce its taxable income, if any, during future years which aggregated
approximately $12,077,000 at December 31, 1999 ($11,806,000 at December 31,
1998) and expire in varying amounts from 1999 through 2019. For financial
reporting purposes, a valuation allowance has been recognized to offset the
deferred tax assets relating to those carry forwards. Significant components of
the Company's deferred tax assets were as follows:
<TABLE>
1999 1998
<S> <C> <C>
Net operating losses $4,544,000 $4,443,000
Deferred intercompany interest deduction 1,109,000 652,000
--------- ---------
Total deferred tax assets 5,653,000 5,095,000
Valuation allowance (5,653,000) (5,095,000)
--------- ---------
Net deferred tax assets $ - $ -
========== ==========
</TABLE>
<PAGE>
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 James R.
Joyce, Treasurer and Assistant Secretary. During 1999, 1998 and 1997, G&O'D INC
billed fees of $144,495, $160,764 and $172,160, respectively. During
the six months ended June 30, 2000, G&O'D billed fees in the amount of $79,543.
<PAGE>
Prospective investors may rely only on the information contained in this
prospectus. Coastal Caribbean Oils & Minerals, Ltd., has not authorized anyone
to provide any other information. This prospectus is not an offer to sell to -
nor is it seeking an offer to buy these securities from - any person in any
jurisdiction where the offer and sale is not permitted. The information here is
accurate only as of the date of this prospectus, regardless of the time of the
delivery of this prospectus or any sale of these securities.
No action is being taken in any jurisdiction outside the United States to permit
a pubic offering of the common stock or possession or distribution of this
prospectus in any such jurisdiction. Persons who come into possession of this
prospectus in jurisdictions outside the United States are required to inform
themselves about and to observe the restrictions of that jurisdiction related to
this offering and the distribution of this prospectus.
COASTAL CARIBBEAN OILS & MINERALS, LTD.
12,016,907 SHARES
Common Stock
------------------
PROSPECTUS
------------------
<PAGE>
<PAGE>
Nontransferable Subscription Card GUARANTEED ALLOTMENT 90
COASTAL CARIBBEAN OILS & MINERALS, LTD. CONTINGENT ALLOTMENT 270
NONTRANSFERABLE
VOID UNLESS DELIVERED IN ACCORDANCE WITH THE TERMS OF THE
PROSPECTUS BEFORE 4:30 P.M., EASTERN DAYLIGHT TIME, ON OCTOBER 23, 2000
Please fill in the amount due and number of shares you wish to purchase,
which may not exceed amounts in upper right hand corner of this card. Refunds,
as set forth in the Prospectus, will be made by the subscription agent in the
event the offering is oversubscribed.
(1) (2)
---------------------------------------------
Shares Amount due
Allotment Subscribed For ($1.00 x col 1)
---------------------------------------------
---------------------------------------------
Guaranteed 90 A 90 D
---------------------------------------------
---------------------------------------------
Contingent* 270 B 270 E
---------------------------------------------
---------------------------------------------
Total 360 C 360 F
---------------------------------------------
*May not exceed three times the amount in Box A above.
BE SURE TO COMPLETE BOTH SIDES OF THIS CARD BEFORE MAILING
RETURN TO THE SUBSCRIPTION AGENT:
To exercise your subscription rights, complete both sides of this card and
return it with full payment with checks payable to American Stock Transfer &
Trust Company, 59 Maiden Lane, New York, NY 10038. Delivery must be made before
4:30 p.m., Eastern Daylight Time, New York, NY on October 23, 2000.
I (We) hereby subscribe for
the number of shares of the common
stock of Coastal Caribbean Oils &
Minerals, Ltd., as indicated in
Column (1) on the opposite side of
this subscription card and in
accordance with the terms
specified in the Prospectus
relating hereto, receipt of which
is hereby acknowledged.
........................ ........................
Signature of Shareholder Signature of Shareholder
(if jointly held)
BE SURE TO COMPLETE BOTH SIDES OF THIS CARD BEFORE MAILING
Coastal Caribbean Oils & Minerals, Ltd.
INSTRUCTIONS
FOR
PURCHASING
STOCK
<PAGE>
The following instructions are intended to assist you in completing the enclosed
SUBSCRIPTION CARD. We urge you to read the enclosed PROSPECTUS before completing
the SUBSCRIPTION CARD.
IF AFTER READING THESE INSTRUCTIONS YOU HAVE ADDITIONAL QUESTIONS ABOUT FILLING
OUT THE SUBSCRIPTION CARD PLEASE CALL MORROW AND CO. CALL TOLL-FREE
(800) 662-5200 OR (212) 754-8000.
Please refer to the Sample Subscription Card for the location of the circled
numbers that are referred to in the instructions.
STEP 1
You are entitled to purchase 3 shares for every 10 shares of common stock you
held of record at the close of business on September 12, 2000. The number of
shares you own of record, multiplied by 30%, is printed in the upper right hand
corner of the SUBSCRIPTION CARD (1). For example, if you own of record 300
shares, then the number 90 is printed as the GUARANTEED ALLOTMENT. When you
have determined the number of shares you wish to purchase from the Guaranteed
Allotment, enter that amount in Box A (2). The amount in Box A may not exceed
the amount of your Guaranteed Allotment (1).
STEP 2
If you have subscribed for the entire amount of your Guaranteed Allotment (1),
then you may also subscribe for the purchase of additional shares which are not
subscribed for by other shareholders. This Contingent Allotment may not exceed
three times the amount of the Guaranteed Allotment. The amount of the Contingent
Allotment is printed (3) under the amount of your Guaranteed Allotment. If you
wish to purchase any of these additional shares, please enter the number you
wish to purchase in Box B (4). The amount in Box B may not exceed three times
the amount in Box A. In the case of an oversubscription of the Contingent
Allotment, shares will be issued on a prorata basis, and appropriate refunds
will be made by the subscription agent.
STEP 3
Multiply the amount in Box A times $1.00 (the subscription price per
share) and enter the result in Box D (5).
STEP 4
Multiply the amount, if any, in Box B times $1.00 (the subscription
price per share) and enter the result in Box E (6).
STEP 5
Add the amount, if any, in Box D (5) and the amount due, if any, in Box E (6)
AND ENTER THE TOTAL IN BOX F (7).
STEP 6
Make check payable to American Stock Transfer & Trust Company for the amount due
in Box F (7).
STEP 7
Sign the SUBSCRIPTION CARD in the area indicated (8). All registered owners must
sign exactly as their names appear on the SUBSCRIPTION CARD (9).
STEP 8
Send the completed SUBSCRIPTION CARD and check in payment of amount due
to American Stock Transfer & Trust Company, 59 Maiden Lane,
New York, NY 10038. Properly completed SUBSCRIPTION CARDS and checks must be
received by 4:30 p.m. Eastern Daylight Time on October 23, 2000.
A postage paid REPLY ENVELOPE is provided for your convenience in returning your
SUBSCRIPTION CARD and payment.
Letter to Shareholders
C O A S T A L C A R I B B E A N O I L S & MI N E R A L S, LTD.
September 12, 2000
To: COASTAL CARIBBEAN OILS & MINERALS, LTD. SHAREHOLDERS
Dear Fellow Shareholders:
The Company is offering for sale, to its shareholders only, shares
of its common stock to fund its operating and litigation costs. For every
ten (10) shares of common stock held of record by a shareholder at the close
of business on September 12, 2000, that shareholder will be entitled to
purchase three (3) shares of common stock (the "Guaranteed Allotment") at
the subscription price of $1.00. In addition, each shareholder who purchases
the entire Guaranteed Allotment will be permitted (at the same time) to
subscribe for the purchase of additional shares which are unsubscribed for
by other shareholders (the "Contingent Allotment:").
Enclosed with this letter are:
1.) The PROSPECTUS, by which your Company is offering, to its
shareholders only, the right to subscribe to its common stock.
2.) A nontransferable SUBSCRIPTION CARD which should be completed
and returned to the subscription agent in the enclosed REPLY ENVELOPE, if
you wish to purchase shares of the Company.
3.) INSTRUCTIONS for completing the SUBSCRIPTION CARD.
THE ENCLOSED SUBSCRIPTION CARD IS VALUABLE. PLEASE NOTE,
HOWEVER, THAT YOUR SUBSCRIPTION RIGHTS WILL EXPIRE IF NOT EXERCISED PRIOR
TO 4:30 P.M., EASTERN DAYLIGHT TIME, ON OCTOBER 23, 2000.
If your shares are held in the name of your broker or nominee, you
will not receive a subscription card since the subscription agent will mail
cards only to shareholders of record; therefore, if you wish to subscribe,
please instruct your account representative as soon as possible.
Subscription information and additional copies of the offering
materials are available from Morrow and Co. Inc. Call Toll-Free
(800)662-5200 or (212)754-8000.
ON BEHALF OF THE BOARD OF DIRECTORS
/s/ Benjamin W. Heath
Benjamin W. Heath, President
