SABA PETROLEUM COMPANY
3201 Airpark Drive, Suite 201
Santa Maria, CA 93455
October 30, 1998
To the Stockholders of Saba Petroleum Company:
We are pleased to inform you that Saba Petroleum Company, a Delaware
corporation (the "Company"), has entered into a Common Stock Purchase
Agreement ("the Common Stock Purchase Agreement") dated October 8, 1998
between the Company and Horizontal Ventures, Inc., a Colorado corporation
("HVI"), pursuant to which HVI has agreed to purchase by December 4, 1998 2.5
million shares of the Company's Common Stock in exchange for cash in the
amount of $7.5 million. In addition, the Company has consented to the
Preferred Stock Transfer Agreement (the "Preferred Stock Transfer Agreement")
dated October 6, 1998 between HVI and RGC International Investors, LDC
("RGC"), pursuant to which HVI has acquired from RGC 690 shares of the
Company's Series A Convertible Preferred Stock and has the exclusive right to
acquire a minimum of 6,310 shares of the remaining 7,310 shares of Series A
Convertible Preferred Stock held by RGC. Upon acquisition of the Preferred
Stock, HVI intends to convert the Preferred Stock and accrued dividends to
Common Stock at the agreed rate of $2.50 per share of Common Stock
(approximately 3,040,000 shares). HVI is engaged primarily in the business of
exploiting proven producing reservoirs by utilizing a low cost proprietary
horizontal drilling technology to increase production rates.
Under the Common Stock Purchase Agreement, the Company has appointed
Randeep S. Grewal, Chairman and Chief Executive Officer of HVI, to the Board
of Directors. In addition, the Company has agreed to upon the closing of the
Common Stock Purchase Agreement appoint a second designee of HVI to the Board
of Directors. Further, the consent letter to the Preferred Stock Transfer
Agreement signed by Saba provides that upon the closing, a third designee of
HVI shall be appointed to the Board of Directors. In connection with the
foregoing, the Company has agreed to obtain the resignations of three of its
current directors, which will result in the three HVI designees representing a
majority of seats on the Company's five-member Board of Directors.
These transactions are more fully described in the enclosed Information
Statement. You are urged to read the Information Statement carefully. You are
not, however, required to take any action.
Very truly yours,
SABA PETROLEUM COMPANY
/s/ Ilyas Chaudhary
By: _________________________
Ilyas Chaudhary, Chief Executive Officer
SABA PETROLEUM COMPANY
3201 Airpark Drive, Suite 201
Santa Maria, CA 93455
INFORMATION STATEMENT
This Information Statement dated October 30, 1998 is being mailed to the
shareholders of Saba Petroleum Company, a Delaware corporation (the
"Company"), on or about November 2, 1998. The shareholders are receiving this
Information Statement in connection with the arrangements made by the Company
with Horizontal Ventures, Inc., a Colorado corporation ("HVI"), pursuant to
which three current directors of the Company are to resign and three persons
designated by HVI (the "HVI Designees") are to be appointed by the remaining
directors to a majority of seats on the Company's Board of Directors. HVI is
engaged primarily in the business of exploiting proven producing reservoirs by
utilizing a low cost proprietary horizontal drilling technology to increase
production rates.
This Information Statement is required by Section 14(f) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule
14f-1 promulgated thereunder. You are urged to read this Information Statement
carefully. You are not, however, required to take any action.
The Company has entered into or consented to the following transactions
regarding the acquisition of its securities by HVI:
1. On October 8, 1998, the Company entered into a Common Stock
Purchase Agreement (the "Common Stock Purchase Agreement")
with HVI pursuant to which the Company will sell and issue
to HVI by December 4, 1998 an aggregate of 2,500,000 shares
of the Company's Common Stock in exchange for cash in the
aggregate amount of $7,500,000.
2. On October 6, 1998, HVI entered into a Preferred Stock
Transfer Agreement (the "Preferred Stock Transfer
Agreement") with RGC International Investors, LDC ("RGC"),
pursuant to which HVI acquired on October 6, 1998 690 shares
of the 8,000 shares of issued and outstanding Series A
Convertible Preferred Stock (the "Series A Preferred Stock")
of the Company held by RGC. Under the Preferred Stock
Transfer Agreement, HVI has the exclusive right until
November 6, 1998 to acquire from RGC a minimum of 6,310 of
the remaining 7,310 shares of the Company's Series A
Preferred Stock held by RGC, and such exclusive right can be
extended for an additional thirty days. The 690 shares of
the Company's Series A Preferred Stock acquired by HVI and
the minimum of 6,310 shares of the Company's Series A
Preferred Stock which HVI has the exclusive right to acquire
from RGC, along with the accrued but unpaid dividends
thereon, are convertible into an estimated aggregate of
3,040,000 shares of the Company's Common Stock.
Under the Common Stock Purchase Agreement, the Company has appointed Randeep
S. Grewal, Chairman and Chief Executive Officer of HVI, to the Board of
Directors. In addition, the Company has agreed to upon the closing of the
Common Stock Purchase Agreement appoint a second designee of HVI to the Board
of Directors. Further, the consent to the Preferred Stock Transfer Agreement
executed by Saba provides that upon the closing thereof a third designee of
HVI shall be appointed to the Board of Directors. In connection with the
foregoing, the Company has agreed to obtain the resignations of three of its
current directors, which will result in the three HVI Designees representing a
majority of seats on the Company's five-member Board of Directors.
As discussed above, Mr. Grewal is Chairman and Chief Executive Officer of
HVI, which is a publicly reporting company. He most recently served as the
corporate Vice President of the Rada Group. His responsibilities within Rada
were focused on a market penetration and globalization of a new high-tech
product resulting in the conversion of the Rada Group from being primarily a
defense contractor into a diversified commercial industry. He has been
involved in various joint ventures, acquisitions, mergers and reorganizations
since 1986 in the United States, Europe and the Far East within diversified
businesses. Mr. Grewal has a Bachelor of Science degree in Mechanical
Engineering from Northrop University.
HVI has advised the Company that Mr. Grewal has accepted his appointment
as a director, and that he has not during the last five years been convicted
in a criminal proceeding (excluding traffic violations and similar
misdemeanors) or was a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such
proceeding was, or is, subject to a judgment, decree or final order enjoining
future violations of, or prohibiting activities subject to, federal or state
securities laws or finding any violation of such laws.
The two HVI designees other than Randeep S. Grewal have not yet been
identified by HVI. It is expected that the second and third designees will be
identified by HVI and assume office following the closing of the Common Stock
Purchase Agreement and the Preferred Stock Transfer Agreement, respectively,
and after fulfillment of the requirements of the Exchange Act, and that upon
assuming office, the HVI Designees will thereafter constitute a majority of
the Board of Directors.
MANAGEMENT
Directors, Executive Officers, Control Persons and Key Employees
To the extent the Company's Board of Directors will consist of persons
who are not HVI Designees, the Board is expected to continue to consist of
those persons who are currently directors of the Company who do not resign.
The following table sets forth the name, age and position of each current
director, executive officer, control person and significant employee of the
Company and significant subsidiaries (references are to offices or
directorships held in the Company unless otherwise indicated):
<TABLE>
Name Age Position
<S> <C> <C>
Ilyas Chaudhary 51 Director, Chairman of the Board, and
Chief Executive Officer of the Company
Dr. Charles A. Kohlhaas 63 Director
Alex S. Cathcart 64 Director, President of Sabacol, Inc.
William N. Hagler 66 Director
Randeep S. Grewal 33 Director
Faysal Sohail 34 Director
Imran Jattala 40 Executive Vice President and Chief
Operating Officer, Chief
Financial Officer and Principal
Accounting Officer of the Company and
President and Chief Operating Officer
of Saba Petroleum, Inc.
Bradley T. Katzung 46 Vice President-Mid-Continent Operations
of the Company, and President and Chief
Operating Officer of Saba Energy of
Texas, Incorporated and Saba Petroleum
of Michigan, Inc.
Burt M. Cormany 69 President and Chief Operating Officer
of Santa Maria Refining Company
Herb Miller 63 President Beaver Lake Resources Corp.
Susan M. Whalen 36 Secretary
</TABLE>
Each director is elected for a term of one year and the term of each director
expires in 1999.
Executive Officers and Directors
Ilyas Chaudhary has been a director of the Company since 1985 and has
served as Chairman of the Board and Chief Executive Officer from 1993 until
June 1998, when he resigned for approximately two months as Chief Executive
Officer in favor of the selection of Dr. Kohlhaas. Mr. Chaudhary has served as
President of the Company during parts of 1991, 1992 and 1993, and in 1994
through December 1997. Mr. Chaudhary also serves as Chairman of the board and
Chief Executive Officer of all subsidiaries of the Company other than Beaver
Lake Resources Corporation, Saba Petroleum (U.K.) Limited, Saba Cayman Limited
and Saba Jatiluhur Limited, and serves as Chairman of the Board of these
latter three subsidiaries. Mr. Chaudhary is a director and controlling
stockholder of Capco, the Company's majority stockholder prior to the
transactions contemplated herein whose common stock is traded on the Alberta
stock Exchange and as of September 30, 1998, owned 25.31% of the outstanding
Common Stock of the Company, and the controlling stockholder of SEDCO, which
as of September 30, 1998, owned 1.50% of the outstanding Common Stock of the
Company. Mr. Chaudhary is also a director of Meteor Industries, Inc. Mr.
Chaudhary has 25 years of experience in various capacities in the oil and gas
industry, including eight years of employment with Schlumberger Well Services
from 1972 to 1979. Mr. Chaudhary received a Bachelor of Science degree in
Electrical Engineering from the University of Alberta, Canada.
Dr. Charles A. Kohlhaas a director since August, 1998, has over 40 years
of varied experience in the oil and gas industry. He spent 17 years with Mobil
and ARCO, was a Professor of Petroleum Engoneering at the Colorado School of
Mines for many years, and was a founder of Kelt Energy, a large Paris-based
international independent oil and gas company formerly traded on the London
Exchange. He has consulted for many major and independent international oil and
gas companies, service companies, and financial institutions in North and South
America, Europe, Asia and the Middle East and managed a research consortium of
15 companies. He is director and/or officer of three Canadian junior public
shell companies. Dr. Kohlhaas received Petroleum Engineer and Ph.D. degrees
from the Colorado School of Mines.
Alex S. Cathcart has been a director of the Company since January 1997
and has served as Executive Vice President of the Company since March 1997
until his appointment in December 1997 as President in which position he
served until June 1998, when he resigned such position, Mr. Cathcart is
presently a consultant to the Company. Mr. Cathcart has served as President
and Chief Executive Officer of Beaver Lake Resources Corporation since 1993
and previously as President and Chief Operating Officer of Saba Exploration
Company from May through December 1997. He has also served as President and
Chief Operating Officer of Saba Offshore, Inc. and Sabacol, Inc., subsidiaries
of the Company, from December 1996 to August 1997 and was re-appointed to
these positions in December, 1997. From 1987 to 1993 he was the Chairman and
principal owner of Barshaw Enterprises Ltd., a family-owned consulting and
investment company operating primarily in the oil industry. Mr. Cathcart has
over 40 years experience in the oil industry. His exploration experience was
gained with Texaco Exploration Company, Francana Oil & Gas and LL&E Canada.
Since 197l he has been involved in the management of exploration programs with
Banner Petroleum, Voyager Petroleum, Natomas Exploration of Canada, Page
Petroleum and Prime Energy.
William N. Hagler is currently Chairman of the Board of Directors, CEO
and President of Intermountain Refining Co., Inc., a company he founded in
1984. Until June, 1998 Mr. Hagler was Chairman of the Board of Directors,
Chief Executive Officer and President of Unico, Inc., a company he founded in
1979. Unico is, or has been, engaged in petroleum refining, co-generation,
natural gas production and the manufacturing of methanol, a natural gas-based
petrochemical. In addition, he is President of Hagler Oil and Gas Company and
Red Hills Manufacturing Company. Prior to 1979, Mr. Hagler was Vice President
of Plateau, Inc., a Rocky Mountain oil refiner and marketer. Mr. Hagler has
served for approximately 10 years on the City of Farmington, New Mexico Public
Utility Commission. Since 1955, Mr. Hagler has been continuously engaged in
various phases of petroleum manufacturing and marketing with Exxon
Corporation, Cities Service Oil Company and Riffe Petroleum Company. Mr.
Hagler currently serves as a director of Consolidated Oil & Transportation, a
privately held company in the business of asphalt transportation and
marketing, and Petrominerals Corporation, a publicly traded company engaged in
oil production.
Randeep S. Grewal became a director of the Company on October 8, 1998.
Mr. Grewal is Chairman and Chief Executive Officer of HVI, which is a publicly
reporting company. He most recently served as the corporate Vice President of
the Rada Group. His responsibilities within Rada were focused on a market
penetration and globalization of a new high-tech product resulting in the
conversion of the Rada Group from being primarily a defense contractor into a
diversified commercial industry. He has been involved in various joint
ventures, acquisitions, mergers and reorganizations since 1986 in the United
State, Europe and the Far East within diversified businesses. Mr. Grewal has a
Bachelor of Science degree in Mechanical Engineering from Northrop University.
Faysal Sohail has been a director since May 1997 and currently serves as
Vice President and General Manager for Synopsys, Inc., a leading Silicon
Valley provider of electronic design automation tools for complex integrated
circuits, where he has been employed since 1996. He is responsible at Synopsys
for corporate strategic planning and representing this company to the
investment community. From 1990 to 1996 he worked as a senior executive and
co-founder of Silicon Architects, which is a worldwide licensor of libraries
for highly complex integrated circuits to semiconductor manufacturers.
Imran Jattala became the Chief Financial Officer and Principal Accounting
Officer in August 1998. He has been Executive Vice President and Chief
Operations Officer since June 1998 and had been appointed President and Chief
Operating Officer of Saba Petroleum, Inc., which operates the Company's
California properties, in December 1997. Mr. Jattala joined the Company in
1992 as Assistant Controller for the Company and its subsidiaries. Since that
time, Mr. Jattala had worked in various capacities for the Company, including
Administrative Manager. In addition to Mr. Jattala's educational background in
international business and banking, he has over 4 years experience in revenue
auditing.
Bradley T. Katzung has been Vice President - Mid-Continent Operations of
the Company and President and Chief Operating Officer of Saba Energy of Texas,
Incorporated and President of Saba Petroleum of Michigan, Inc. since 1994. Mr.
Katzung joined the Company in 1993 as Vice President of Operations for Saba
Energy of Texas, Incorporated, Saba Petroleum of Michigan, Inc. and Saba
Petroleum, Inc. Mr. Katzung has more than 20 years experience in the oil and
gas industry, including Vice President of Operations for Oakland Oil Company
from 1987 to 1993. The Company does not plan to renew Mr. Katzung's employment
agreement which expires on November 8, 1998 (see "Benefit Plans and Employment
Agreements - Employment Agreements").
Burt M. Cormany has been President of Santa Maria Refining Company since
July 1994. Mr. Cormany worked in various capacities for the previous owners of
the Company's Santa Maria Refinery from 1951 to 1990, including refinery
manager from 1974 to 1990. In 1991, Mr. Cormany was a consultant to the
previous owner of the refinery. He retired in 1991 and returned to work in
1994 as a consultant to the Company for several months prior to becoming
President of Santa Maria Refining Company later that year.
Herb Miller has been President of Beaver Lake since March 1998 where he
had also served as Vice President of Exploration and Land from 1993 to
February 1997. At that time, Mr. Miller was transferred to the Company's
corporate office to the position of Manager of the Technical and Drilling
Departments, and in August 1997 he was appointed President and Chief Operating
Officer of Saba Petroleum, Inc. in which positions he served through December
1997. In December 1997, Mr. Miller was appointed Vice President of the
Company's international exploration and drilling operations and President and
Chief Operating Officer of Saba Exploration Company in which he served through
March, 1998. Mr. Miller graduated from the University of Tulsa, Oklahoma with
a Bachelor of Geology degree and has 38 years of oil industry experience. Mr.
Miller's exploration experience was obtained while employed by the Pure Oil
Company and Unocal Canada Explorations. For the period 1976-1980, he was
involved in managing exploration projects with Unocal in the position of
District Geologist, Division Geologist and Exploration Co-ordinator. In 1980
he joined Westar Petroleum serving as general manager of exploration/land and
general manager exploration/engineering. Mr. Miller's experience has been
primarily in Western Canada and also includes the Northwest Territories,
Beaufort Sea, east and west coast offshore, the United States and the North
Sea. From 1991 to 1993 when he joined Beaver Lake as Vice President
Exploration and Land, he was a private consultant to the energy industry.
Susan M. Whalen became Secretary of the Company in August 1998 and was
appointed as the Company's General Counsel in July 1998. During 1997, she
practiced contract and corporate law as an independent contractor for several
clients, including the Company, before she was employed by the Company in
November 1997 as an associate legal counsel. From 1994 through 1997, Ms.
Whalen managed the administrative operations of Cranford Street, Inc. a
product and brand development, licensing, and contract manufacturing company.
From 1991 through 1994, she served as Vice President of Sales and Customer
Relations of Sassaby, Inc. a product development and marketing company. Ms.
Whalen obtained a Juris Doctor degree from Western State University - College
of Law in 1987. An uncontested petition under the Federal bankruptcy laws was
filed by Ms. Whalen for her property in 1994.
Director Compensation
The Company does not pay any additional remuneration to executive
officers for serving as directors. As of May 1997 and for each term
thereafter, non-employee directors will receive a retainer of $12,000 for the
first four Board meetings and $1,000 per meeting for the fifth and any
additional meetings, including committee meetings attended. Directors of the
Company are also reimbursed for out-of-pocket expenses incurred in connection
with their attendance at Board of Directors meetings, including reasonable
travel and lodging expenses. The Board of Directors received a total of
$47,900 in cash compensation in 1996 and $39,700 in 1997. Pursuant to the 1997
Stock Option Plan for Non-Employee Directors, each non-employee director shall
be granted, as of the date such person first becomes a director and
automatically on the first day of each year thereafter for so long as he
continues to serve as a non-employee director, an option to acquire 3,000
shares of the Company's Common Stock at fair market value at the date of
grant. For as long as the director continues to serve, the option shall vest
over five years at the rate of 20% per year on the first anniversary of the
date of grant. The Board of Directors amended the plan to provide for a one-
time grant of 15,000 shares of Common Stock, vesting 20% per year, which
amendment was approved by the shareholders on August 28, 1998. At December 31,
1997, each qualified non-employee director had been granted options to acquire
15,000 shares at an exercise price of $15.50 per share. See "Benefit Plans and
Employment Agreements Stock Option Plans."
No family relationships exist between or among any of the directors or
executive officers.
Executive Compensation
The following table sets forth certain information as to compensation of
the Chairman of the Board of the Company and the four other most highly
compensated executive officers of the Company who received salary and bonuses
of over $100,000 in any of the years 1995, 1996 or 1997.
<TABLE>
<CAPTION>
Long Term
Compensation
Name and Annual Other Securities All
Principal Compensation Annual Underlying Other
Position Year Salary Bonus Compensation Options Compensation(3)
<S> <C> <C> <C> <C> <C> <C>
Ilyas
Chaudhary 1997 $183,500 $2,885 (2) 500,000(4) $4,420
Chairman of 1996 153,000 20,000 (2) --- 4,750
the Board 1995 150,000(1) 1,731 (2) 200,000 ---
Walton C.
Vance 1997 $120,700 $2,254 (2) --- $4,009
Vice 1996 101,633 20,000 (2) --- 2,259
President, 1995 --- --- -- --- ---
Chief
Financial
Officer, and
Secretary (5)
Burt Cormany 1997 $110,040 $9,170 (2) 20,000 $1,351
President and 1996 113,386 8,330 (2) --- 5,549
Chief 1995 --- --- -- --- ---
Operating
Officer of
Santa Maria
Refining Company
Bradley T.
Katzung 1997 $77,655 $70,200 (2) --- $1,097
Executive 1996 --- --- -- --- ---
Vice
President 1995 --- --- -- --- ---
& General
Manager -- USA (6)
Rodney C.
Hill 1997 $121,636 --- -- 125,000 ---
Vice 1996 --- --- -- --- ---
President- 1995 --- --- -- --- ---
Legal
Affairs (7)
</TABLE>
__________________
(1) Includes amounts reimbursed by the Company in 1995 to SEDCO, a
corporation wholly owned by Ilyas Chaudhary, of $75,000 for management
services performed by Mr. Chaudhary.
(2) "Other Annual Compensation" was less than the lesser of $50,000 or 10%
of such officer's annual salary and bonus for such year.
(3) Represents the contributions made by the Company on behalf of these
individuals to the Company's 401(k) Plan.
(4) Consists of options covering 200,000 shares granted pursuant to the
Company's 1996 Incentive Equity Plan; 200,000 shares of deferred
Common Stock; and 100,000 performance shares issuable if the Company
meets 1998 earnings test.
(5) Resigned from all offices including Chief Financial Officer and
Secretary on July 21, 1998 and as a director on August 28, 1998.
(6) Employment Agreement expires November 8, 1998.
(7) Resigned as Vice President - Legal Affairs on December 31, 1997 and as
a director on June 6, 1998.
Option/SAR Grants In Last Fiscal Year
The following stock options were granted during 1997 by the Company to the
named executives.
<TABLE>
<CAPTION>
Potential Realized
Value At Assumed
Annual Rates of
Stock Price Alternative
Appreciation For To (f) and (g)
Individual Grants Option Term Grant Date Value
(a) (b) (c) (d) (e) (f) (g) (h)
Number of % of
Securities Total
Underlying Options/
Options/ SARs
SARs Granted to Exercise
Granted (f) Employees or Base Grant Date
(In In Fiscal Price Expiration Present
Thousands) Year ($/Sh.) Date 5%($) 10%($) Value $
<S> <C> <C> <C> <C> <C> <C> <C>
Ilyas
Chaudhary 200 33.6 15.50 5-30-07 1,454,500
Herb Miller 15 2.5 15.50 5-30-07 109,100
Alex
Cathcart 75 12.6 15.50 5-30-07 421,600
Imran
Jattala 25 4.2 15.50 5-30-07 181,800
Rod Hill (1) 125 21.0 15.50 5-30-07 909,000
Burt Cormany 20 3.4 15.50 5-30-07 89,800
Total in
1997 595
</TABLE>
Valuation Method used: Black-Scholes option pricing model:
Expected volatility -- 43.16%
Risk-free rate of return -- ranging from 6.18%-6.49%
Dividend yield -- 0%
Time of Exercise -- full vesting period of each option, ranging
from 2-5 years
(1) Resigned as Vice President - Legal Affairs on December 31, 1997
and as a director on June 6, 1998.
Option Exercises and Fiscal Year-End Values
The following table provides certain information with respect to options
exercised in 1997 and unexercised options to purchase Common Stock of the
Company at December 31 1997:
<TABLE>
<CAPTION>
Securities Value of
Underlying Number Unexercised In-The
of Unexercised Money Options
Options SARs at At Fiscal
Shares Fiscal Year-End (#) Year-End($)
Acquired on Value Exercisable/ Exercisable
Name Exercise($) Realized($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Ilyas
Chaudhary 20,000 $50,000 60,000/120,000 $420,000/$840,000
Walton C.
Vance (1) - - 150,000/40,000 $1,087,500/$290,000
Bradley T.
Katzung (2) - - 80,000/20,000 $570,000/$142,500
</TABLE>
(1) Resigned from all offices including Chief Financial Officer and
Secretary on July 21, 1998 and as Director on August 28, 1998.
(2) Employment Agreement expires November 8, 1998.
Compensation and Options Committee Interlocks and Insider Participation
For the year ended December 31, 1997, the following non-executive
directors of the Company served as members of the Compensation and Options
Committee of the Board of Directors: Messrs. Sohail, Ronald Ormand and Hagler.
Neither Mr. Sohail nor Mr. Ormand were formerly, nor are they currently,
officers or employees of the Company or any of its subsidiaries. Mr. Hagler,
although currently not an officer or employee of the Company or any of its
subsidiaries, was President from July 1997 through September 1997 of Capco,
an affiliate of the Company.
Benefit Plans and Employment Agreements
Employment Agreements
Ilyas Chaudhary Employment Agreement. The Company has entered into an
employment agreement with Ilyas Chaudhary for a term expiring in the year
2000, pursuant to which Mr. Chaudhary will serve as Chairman of the Board of
the Company. A relatively small portion of Mr. Chaudhary's time is spent
working for Capco and other companies. The Company is reimbursed for Mr.
Chaudhary's time spent on such other matters. The employment agreement
provided for a base salary of $150,000 in 1995, increasing 10% annually to
$219,615 in 1999. The employment agreement also provides Mr. Chaudhary with
options to purchase 200,000 shares of the Company's Common Stock, for $1.50
per share, 40,000 of which vest each year of the agreement beginning in 1996.
Of the total shares vested at December 31, 1997, 60,000 were unexercised and
20,000 have been exercised. Upon termination of Mr. Chaudhary's employment
during the term of the employment agreement for any reason other than for
"cause," Mr. Chaudhary's death or permanent incapacitation or voluntary
termination, the Company will be obligated to pay Mr. Chaudhary a lump sum
severance payment in the amount equal to Mr. Chaudhary's then current annual
base salary. In May 1997, the Company authorized the issuance to Mr. Chaudhary
of 200,000 shares of Deferred Common Stock, the issuance of such deferred
shares being contingent upon Mr. Chaudhary remaining in the employ of the
Company for a period of two years succeeding the expiration of his existing
employment contract and such shares being issuable 100,000 shares at the end
of each such succeeding year. In addition, at that time the Company authorized
the issuance to Mr. Chaudhary of 100,000 shares of the Common Stock should the
Company meet certain earnings benchmarks during 1997, which was later extended
to 1998 by the Company in December 1997.
Alex S. Cathcart Employment Agreement. The Company has entered into an
employment agreement with Alex S. Cathcart, dated March 1, 1997, for a two-
year term expiring on February 28, 1999, which can be extended for an
additional two years at the sole discretion of the Company. The employment
agreement provides for a base salary of $115,000, increasing to $123,000 in
the following years. Mr. Cathcart is granted options to purchase 50,000 shares
at fair market value as of May 31, 1997, which vest pro rata at the completion
of the year of service under the agreement to which they relate (with the
first 25,000 options vesting on March 1, 1998). In May 1997, the Company
granted to Mr. Cathcart options to purchase 25,000 shares at fair market value
as of May 31, 1997, the grant of such options being contingent upon Mr.
Cathcart remaining in the employ of the Company for an additional year
succeeding the expiration of his existing employment contract and such options
vesting at the completion of the additional year of service to which they
relate. While the employment agreement has not been formally amended, in June
1998, Mr. Cathcart and the Company agreed to change his employment to a
consulting arrangement on the same terms as those contained in the employment
agreement. In addition, Mr. Cathcart's arrangement provides for his
availability on a half-time basis to the Company at a compensation rate of 75%
($86,250) of that called for by the agreement.
Imran Jattala Employment Agreement. The Company has entered into an
employment agreement with Imran Jattala for a three-year term expiring on July
23, 2001, pursuant to which Mr. Jattala will serve as an executive officer of
the Company and its subsidiary, Saba Petroleum, Inc. The agreement provides
for an annual salary of $72,000 subject to a 10% increase on July 23, 1999 and
a 5% increase on July 23, 2000. Mr. Jattala is eligible to participate in the
stock option plan of the Company and is provided a Company automobile under
the agreement. Either party may terminate the employment with or without
cause upon thirty days' written notice; upon termination by the Company, the
agreement provides for a severance allowance in an amount equal to six months
of salary plus one month of salary for each year of employment with the
Company.
Burt Cormany Employment Agreement. Santa Maria Refining Company, a wholly
owned subsidiary of the Company, and Burt Cormany have entered into an
employment agreement for a two-year term expiring on December 31, 1998,
pursuant to which Mr. Cormany will serve as President and Chief Operating
Officer of that subsidiary. Under the agreement, Mr. Cormany is eligible to
participate in the stock option plans of the Company and will receive a base
salary of $110,000 in the first year of the agreement and $120,000 in the
second year.
Bradley Katzung Employment Agreement. The Company has entered into an
employment agreement with Bradley Katzung for a five-year term expiring on
November 8, 1998, pursuant to which Mr. Katzung will serve as an executive
officer of the Company. The employment provides for an initial annual salary
of $75,000 subject to annual reviews and which was increased to $125,000 in
January 1998. Under the agreement Mr. Katzung is eligible to participate in
the stock option plans of the Company, and is also granted options to purchase
100,000 shares of the Company's Common Stock at a strike price of $1.375 per
share, of which 80,000 shares are vested and unexercised as of December 31,
1997. The Company does not plan to renew Mr. Katzung's employment agreement.
Herb Miller Employment Agreement. Beaver Lake Resources Corporation, a
74%-owned subsidiary of the Company, and Herb Miller have entered into an
employment agreement for a two-year term expiring on March 1, 2000, pursuant
to which Mr. Miller will serve as President of that subsidiary. The employment
provides for an annual salary of $85,000 (Cdn) and the grant of options to
purchase 500,000 shares of Beaver Lake Resources Corporation's common stock at
a strike price of $0.50 (Cdn) per share to be vested fifty percent a year for
two years. During the first year of Mr. Miller's employment, the agreement
provides that either party may terminate the agreement by providing three
months' written notice thereof to the other party.
Benefit Plans
Stock Option Plans. In June 1996, the Company's stockholders approved
the Company's 1996 Incentive Equity Plan (the "Incentive Plan"). The purpose
of the Incentive Plan is to enable the Company to provide officers, other key
employees and consultants with appropriate incentives and rewards for superior
performance. Subject to certain adjustments, the maximum aggregate number of
shares of the Company's Common Stock that may be issued pursuant to the
Incentive Plan, and the maximum number of shares of Common Stock granted to
any individual in any calendar year, shall not in the aggregate exceed
1,000,000 and 200,000 shares, respectively. Options granted under the
Incentive Plan have an exercise price equal to the market value of the Common
Stock on the date of grant, and become exercisable over periods ranging from
two to five years from the date of grant. At December 31, 1997, options to
purchase 580,000 shares of Common Stock had been awarded under the Incentive
Plan.
In May 1997, the Company's stockholders approved the Company's 1997 Stock
Option Plan for Non-Employee Directors (the "Directors Plan"), which provided
that each non-employee director shall be granted, as of the date such person
first becomes a director and automatically on the first day of each year
thereafter for so long as he continues to serve as a non-employee director, an
option to acquire 3,000 shares of the Company's Common Stock at fair market
value at the date of grant. For as long as the director continues to serve,
the option shall vest over five years at the rate of 20% per year on the first
anniversary of the date of grant. The Board of Directors amended the plan with
shareholder approval to provide for a one-time grant of 15,000 shares of
Common Stock vesting 20% per year. Subject to certain adjustments, a maximum
of 250,000 options to purchase shares (or shares transferred upon exercise of
options received) may be outstanding under the Directors Plan. At December 31,
1997, a total of 45,000 options had been granted under the Directors Plan.
In fiscal years 1993 through 1996, the Company issued options for 560,000
shares of Common Stock to certain employees of the Company, other than Mr.
Chaudhary. These options, which are not covered by the Incentive Stock Option
Plan or the Non-Qualified Stock Option Plan, become exercisable ratably over a
period of five years from the date of issue. The exercise price of the options
is the fair market value of the shares at the date of grant and ranges from
$1.25 to $4.38, with a weighted exercise price of $1.47. Options to acquire a
total 284,000 shares were exercisable as of December 31, 1997.
Retirement Plan. The Company sponsors a defined contribution retirement
savings plan (the "401(k) Plan"). The Company currently provides matching
contributions equal to 50% of each employee's contribution, subject to a
maximum of 4% of employee earnings. The Company's contributions to the 401(k)
Plan were $25,745 in 1995, $44,014 in 1996, and $42,016 in 1997.
Board Committees and Meetings
The Board of Directors met five times during fiscal year 1997. At
December 31, 1997, the Company had standing Executive, Audit, and Compensation
and Option Committees.
In 1997, the Executive Committee, until May 1997, consisted of Messrs.
Chaudhary, Rodney Hill, and Francis Barker, and at December 31, 1997 consisted
of Messrs. Chaudhary, Hill, and Hagler. This committee had all authority,
consistent with the Delaware Business Corporations Act, as may be granted to
it by the Board of Directors. The Executive Committee did not meet during
fiscal year 1997. The Executive Committee may have exercised all the powers
and authority of the Board of Directors in the oversight of the management of
the business and affairs of the Company, except that the Executive Committee
did not have the power (except, to the extent authorized by a resolution of
the Board of Directors) to amend the Company's Articles of Incorporation or
Bylaws, fix the designations, preferences, and other terms of any preferred
stock of the Company, adopt an agreement of merger or consolidation, authorize
the issuance of stock, declare a dividend or recommend to the Stockholders of
the Company, property and assets, a dissolution of the Company or a revocation
of such a dissolution. Additional financial limitations had been imposed upon
the authority of the Executive Committee.
In 1997, the Audit Committee, until May 1997, consisted of Messrs. Hagler
and William Hickey, with one vacancy, and at December 31, 1997, consisted of
Messrs. Sohail, Ormand, and Vance. The committee reviews the professional
services to be provided by the Company's independent auditors. The Audit
Committee held one meeting during fiscal year 1997. The Audit Committee
reviews the scope of the audit by the Company's independent auditors, the
annual financial statements of the Company and such other matters with respect
to the accounting, auditing and financial reporting practices and procedures
of the Company as it may find appropriate or as may be brought to its
attention.
In 1997, the Compensation and Options Committee, until May 1997,
consisted of Messrs. Chaudhary, Hagler and Hickey, and at December 31, 1997,
consisted of Messrs. Sohail, Ormand, and Hagler. The committee reviews
executive salaries, and approves the salaries and other benefits of the
executive officers of the Company. The Compensation and Options Committee held
two meetings during fiscal year 1997. The Compensation and Options Committee
consults with the Company's management regarding pension and other benefit
plans and compensation policies and practices of the Company. The Compensation
and Options Committee, comprised at December 31, 1997 of all non-employee
members of the Board of Directors, administers the Company's 1996 Incentive
Equity Plan, which is a qualified stock option plan, and the 1997 Stock Option
Plan For Non-Employee Directors.
Compensation and Options Committee Report on Executive Compensation
The Compensation and Options Committee of the Board of Directors
("Committee") establishes the general compensation policies of the Company,
established the compensation plans and specific compensation levels for
executive officers and certain other managers, and administers the Company's
1996 Incentive Equity Plan and 1997 Stock Option Plan For Non-Employee
directors (collectively the "Stock Option Plans"). At December 31, 1997, the
Committee consisted of three independent, non-employee directors: Messrs.
Sohail, Ormand, and Hagler.
Compensation Policies and Philosophy
The Committee has determined that the compensation program of the Company
should not only be adequate to attract, motivate and retain executives, key
employees and other individuals who the Company believes may make significant
contribution to the Company's results, but should also be linked to the value
delivered to shareholders as reflected in the price of the Company's Common
Stock.
The Committee believes that the cash compensation of executive officers,
as well as other key employees, should be competitive with other similarly
situated companies while, within the Company, being fair and discriminating on
the basis of personal performance. In general, in establishing total cash
compensation for its executives, the Committee has taken into account the
median cash compensation of the Shareholder Return Performance Graph below,
which the Committee believes represent the Company's most direct competition
for executive talent. The Committee receives recommendations from management
as to executive compensation and, in light of the Company's performance and
the economic conditions facing the Company, determines appropriate
compensation levels for recommendation to the Board of Directors. The
Committee does not assign relative weights to individual factors and criteria
used in determining executive compensation but rather employs a qualitative
approach to the compensation of senior executives.
Awards of stock options are intended both to retain executives, key
employees and other individuals who the Company believes may make significant
contributions to the Company's results and to motivate them to improve long-
term stock market performance. Generally, options are granted at or above the
prevailing market price and will have value only if the price of the Company's
Common Stock increases. Generally, options have a term of 10 years and vest
20% per year after grant. The Committee last granted stock options under the
1996 Incentive Equity Plan to certain executives and other employees at a
meeting held on May 30, 1997.
The Committee believes that annual incentive awards should be
commensurate with performance. It further believes that in order to meet this
objective, it needs to have the ability to exercise its judgment or discretion
to evaluate performance against qualitative criteria.
On April 15, 1998, the Committee reviewed the Company's 1997 financial
results and determined to await further developments in the execution of the
Company's existing business plan prior to assessing management's
accomplishments.
Company Performance and Chief Executive Officer Compensation
The Committee, in connection with determining the appropriate
compensation for Ilyas Chaudhary as Chief Executive Officer ("CEO"), took into
account the financial condition of the Company, including its liquidity
requirements. The Committee, taking into consideration the current cash
position and near-term requirements, approved an increase in Mr. Chaudhary's
salary required pursuant to the terms of his employment contract.
Compensation of Other Executive Officers
The Committee, in consultation with the CEO, applied the information and
other factors outlined above in reviewing and approving the compensation of
the Company's other executive officers. Three of the officers, other than the
CEO, were granted an increase pursuant to contractual arrangements.
<PAGE>
April 15, 1998 COMPENSATION AND OPTIONS COMMITTEE
Faysal Sohail
Ronald D. Ormand
William N. Hagler
SHAREHOLDER RETURN PERFORMANCE GRAPH
Set forth below is a line graph comparing the percentage change in the
cumulative total shareholder return on the Company's Common Stock against the
AMEX market Value Index for the years 1993 through 1997, with a peer group
selected by the Company for the past five fiscal years. The peer group
consists of independent oil and gas exploration and production companies,
namely: Alta Energy Corporation; Amerac Energy Corporation (formerly
Wolverine Exploration Company); Bellweather Exploration Company; Brock
Exploration Corporation; Tom Brown, Inc.; Caspen Oil, Inc.; Chemfirst Inc.
(formerly First Mississippi Corporation); Cobb Resources Corporation; Coda
Energy, Inc.; Comstock Resources, Inc.; Crystal oil Company; DeKalb Energy
Company; Edisto Resources Company; Energen Corporation; Forest Oil
Corporation; Geodyne Resources, Inc.; Global Natural Resources, Inc.; Goodrich
Petroleum Corporation (formerly Patrick Petroleum Company) Hallador Peter
Company; Hondo Oil and Gas Company; Monterey Resources, Inc. (formerly
McFarland Energy, Inc.); MSR Exploration Limited; Numac Energy Inc.; Pacific
Enterprises; Penn Virginia Corporation; Plains Resources, Inc.; Presidio Oil;
Wainoco Oil Corporation; Wichita River Oil; and Wiser Oil Company. The
relevant information with respect to the peer group was furnished by Standard
and Poors Comustat Service. The graph assumes that the value of the investment
in the Company's common Stock and the peer group stocks were $100 on December
31, 1992 and that all dividends were reinvested.
[GRAPH OMITTED]
<TABLE>
1993 Return 1994 Return 1995 Return 1996 Return 1997 Return
<S> <C> <C> <C> <C> <C>
Saba 52.08 73.61 264.57 1,753.36 590.24
Peer Group 121.87 121.48 153.45 183.12 217.52
AMEX 119.52 108.63 137.32 146.10 171.48
</TABLE>
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires the Company's directors, its
executive (and certain other) officers, and any persons who are beneficial
owners of more than ten percent of the Common Stock to report their initial
ownership of Common Stock and any subsequent changes in that ownership to the
Commission. Specific due dates for such reports have been established, and the
Company is required to disclose in this Information Statement any failure to
file such reports by such date during fiscal 1997 and through September 30,
1998. Based solely upon a review of the forms furnished to the Company
pursuant to the rules under the Exchange Act, all Section 16(a) filing
requirements during fiscal 1997 and through September 30, 1998 were complied
with except as follows:
<TABLE>
<CAPTION>
Reporting Title of Form Number and Nature of
Person Filed Late Transactions
<S> <C> <C>
Herb Miller 3 (1) Initial Report of securities owned
Alex S. Cathcart 3 (1) Initial Report of securities owned
Rodney C. Hill 3 (1) Initial Report of securities owned
Faysal Sohail 3 (1) Initial Report of securities owned
Francis Barker 4 (1) Disposition of stock options to
purchase 10,000 shares
(2) Acquisition of 10,000 shares
Bradley T. Katzung 4 (1) Acquisition of 360 shares
William N. Hagler 4 (1) Acquisition of stock options to
purchase 3,000 shares
Ilyas Chaudhary 4 (1) Disposition of stock options to
purchase 10,000 shares
Capco Resources, Ltd. 4 (1) Disposition of 154,000 shares
(& Ilyas Chaudhary (2) Disposition of 100,000 shares
through indirect (3) Acquisition of 120,600 shares in
ownership) 18 transactions
(4) Acquisition of 207,700 shares in
48 transactions
(5) Disposition of 21,410 shares in
5 transactions
Burt Cormany 3 (1) Initial Report of securities owned
</TABLE>
Certain Relationships and Related Transactions
SEDCO and Capco owned 166,171 shares (1.50%) and 2,797,165 shares
(25.31%), respectively, of the Company's Common Stock outstanding as of
September 30, 1998.
Certain officers, directors and key employees of the Company are engaged
in the oil and gas business for their own account and have business
relationships with other oil and gas exploration and development companies or
individuals. As a result, potential conflicts of interests between such
persons and the Company may arise.
In 1997, the Company adopted a policy whereby all transactions by and
between the Company and any affiliate of the Company shall be conducted on an
arm's-length basis, and all substantial transactions shall be approved by a
majority of the Company's directors without an interest in such transactions.
In 1995, the Company borrowed $350,000 from Unico, Inc., a company
controlled by William N. Hagler, a director. The loan bore interest at 10% per
annum and was repaid in December 1995.
The Company has, from time to time, outstanding balances due to, or
receivables due from, Capco and SEDCO (or subsidiaries of such companies).
Except as indicated to the contrary, balances from and to the Company are open
accounts and are unsecured. The transactions giving rise to such matters are
as follows:
In 1995, Capco loaned $2,221,900 to the Company at 9% per annum; the
proceeds were used to acquire certain of the Company's Colombian properties.
The loans were evidenced by unsecured promissory notes. $600,000 of the
initial loan proceeds was exchanged for 150,000 shares of Common Stock at a
price of $4 per share (which exceeded market price at the time). The notes
were paid in full in 1997.
In 1995, the Company borrowed $10,500 from SEDCO on a short-term basis
and repaid such amount during 1996.
In 1995, the Company paid SEDCO $10,700 for reimbursement of prior year
charges to the Company.
In 1995, the Company received $210,100 from Capco for reimbursement of
prior year charges and advances and was charged $22,700 for interest on
advances.
In 1995, the Company remitted $92,100 to Capco and affiliates in
settlement of prior year charges.
During 1995, the Company loaned $101,700 to SEDCO, evidenced by a secured
promissory note bearing interest at 9% per annum, collateralized by Mr.
Chaudhary's vested, but unexercised, options to purchase the Common Stock of
the Company. The note principal and accrued, but unpaid, interest is due
December 31, 1998.
In 1996, the Company received $29,300 from Capco and certain affiliates
of Mr. Chaudhary for reimbursement of prior year advances and charged Capco
$9,600 for interest on such advances.
In 1996, the Company charged SEDCO $9,800 for interest on the outstanding
note receivable and was charged $5,100 by Saba Energy, Ltd. for interest due
to that company.
The Company charged SEDCO, Capco and certain affiliates of Mr. Chaudhary
$92,900 and $26,300 for administrative services provided to such companies
during 1995 and 1996, respectively. Such administrative services consisted
largely of Mr. Chaudhary's time. Of such amounts, $43,100 was unpaid at
December 31, 1996.
During 1996, a subsidiary of Capco participated in the drilling of one of
the Company's exploratory wells on the same basis as did the Company. The
Company has billed the subsidiary a total of $112,200, of which $64,700 was
outstanding at December 31, 1996.
During 1996, the Company provided a short-term advance to SEDCO amounting
to $10,000. No interest was charged on the advance.
During 1996, the Company loaned $300,000 to Mr. Chaudhary, evidenced by a
promissory note bearing interest at the rate of prime plus 0.75%. Interest is
due in quarterly installments and principal is due October 31, 1998. The note
is secured by Mr. Chaudhary's vested, but unexercised, options to acquire
Common Stock of the Company. In September 1997, the Company commenced
amortization of the note by applying twenty percent of Mr. Chaudhary's salary
thereto.
During 1996, the Company loaned $30,000 to William J. Hickey, a director
at the time. Such loan is evidenced by an unsecured promissory note, with
interest of 9.25% payable at maturity.
The Company charged SEDCO and Capco $18,600 for administrative services
provided to such companies during the year ended December 31, 1997. Such
administrative services consisted largely of Mr. Chaudhary's time.
The Company charged Capco $23,300 for charges incurred in connection with
the Solv-Ex Corporation matter, and $93,600 for an advance and related
expenses against an indemnification provided by Capco during the year ended
December 31, 1997.
In 1997, the Company received $10,000 in repayment of a short-term
advance to SEDCO, and $61,200 from Mr. Chaudhary for accrued interest and
principal on his loan from the Company.
During the year ended December 31, 1997, the Company billed a subsidiary
of Capco a total of $18,800 and received payments of $92,000 which included
amounts billed in the prior year, in connection with the subsidiary's
participation in drilling and production activities in one of the Company's
oil properties.
During the year ended December 31, 1997, the Company charged interest to
SEDCO, Ilyas Chaudhary and William Hickey (a former director of the Company)
in the amounts of $8,800, $27,500, and $2,700, respectively, on outstanding
interest-bearing indebtedness to the Company.
During the year ended December 31, 1997, the Company incurred interest
charges in the total amount of $60,200 on the notes payable to Capco. The
Company paid Capco a total of $142,000 for such interest charges, which
included amounts charged, but unpaid, at the end of the previous year.
From time to time the Company chartered from a non-affiliated airplane
leasing service, a jet airplane acquired by Mr. Chaudhary in 1997. When
chartering the airplane, the Company paid the rate charged others by the
leasing service, less a discount, so that the rate paid by the Company was
less than that paid by others. Use of the airplane indirectly benefited
Mr. Chaudhary since it reduced the amount of time he was required to engage
the airplane. During 1997, the Company incurred usage charges of $72,800. Mr.
Chaudhary disposed of his ownership of the airplane in March, 1998.
During the six months ended June 30, 1998, the Company advanced $36,000
to Capco, evidenced by an unsecured promissory note.
During the six months ended June 30, 1998, the Company charged interest
to SEDCO, Ilyas Chaudhary, and William Hickey in the amounts of $4,400,
$13,200, and $1,500, respectively, on outstanding, interest-bearing,
indebtedness to the Company. The Company received $8,800 from Mr. Chaudhary
for accrued interest on his loan from the Company, and $28,000 from SEDCO for
accrued interest and principal on the loan to that Company.
During the six months ended June 30, 1998, the Company charged Capco
$1,500 for interest on outstanding advances to that company.
In July 1997, the Company and Solv-Ex Corporation, which owned interests
in two tar sands licenses in the Athabasca region of Alberta, Canada,
informally agreed to terms upon which the Company would acquire a 55% interest
in the licenses, related improvements and certain related technology, subject
to various conditions, including satisfactory results of a due diligence
investigation by the Company. Solv-Ex and its principal subsidiary have filed
for reorganization pursuant to the United States Bankruptcy Code and for
protection under analogous Canadian legislation. To conclude the transaction,
the Company would be required to invest approximately $15 million, largely to
pay creditors in Canada and would then undertake project development, which
could cost as much as $1 billion. In lieu of committing to the purchase, the
Company entered into an agreement with Capco by which the Company transferred
to Capco its rights under such agreements in exchange for Capco's agreement to
convey to the Company a 2% overriding royalty on the project (commencing after
the project generated $10 million in gross revenues) and granted to the
Company the right to acquire up to 25% of the interests in the project that
are acquired by Capco for the same proportion of Capco's cost of acquisition
and maintenance of the project. The option runs for two years from the date of
Capco's acquisition of the properties or the company. Neither of these events
has occurred. In the investigation and negotiations of the acquisition of the
tar sands project, the Company and Capco had agreed that the Company would
bear all costs, internal and third party, incurred by the Company prior to
August 13, 1997 and that Capco would bear the expenses incurred subsequent to
said date. Such costs include $100,000 lent to Solv-Ex as an inducement to
negotiate and execute a purchase agreement. The Company's total costs in
respect of the acquisition (excluding the loans) are approximately $60,000.
In November 1997, the Company and a large independent oil company each
entered into an agreement with Hamar II Associates, LLC, an entity in which
Rodney C. Hill, a director of the Company is a member, providing for the
Company and the large independent to acquire oil and gas leases and to
participate in the drilling of a test well in northern California, to bear a
proportionate part of the lease acquisition and maintenance payments and to
pay a proportionate share (30% in the case of the Company and 60% in the case
of the large independent) of a consideration of $100,000 to members of Hamar,
including Rodney C. Hill. The Company has orally agreed to issue 20,000 shares
of its Common Stock for no additional consideration should the test well
drilled on the Behemoth Prospect be productive in quantities deemed commercial
by the Company. Save for the issuance of the Common Stock, the terms of
participation are the same for the Company and the large independent, which
would be the operator of the project if it were successful.
Rodney C. Hill, a former director of the Company, is the sole stockholder
of Rodney C. Hill, a Professional Corporation, which acts as general counsel
to the Company. In 1997, such corporation was engaged to provide legal
services to the Company pursuant to a retainer agreement, which may be
canceled by the Company at any time, and pursuant to which such corporation
receives an annual retainer of $150,000 and reimbursement of certain expenses.
During 1997, Mr. Hill was granted options to acquire 125,000 shares of the
Common Stock of the Company at a price equal to the current fair market value
of the Common Stock at the time of grant that vest over a period of five
years. In March, 1998, the legal services agreement was amended to terminate
the existing fee arrangement and limit the scope of representation of the
Company to matters pertaining to the proposed business combination with
compensation set at $100,000 upon completion of the business combination or
$50,000 if such transaction is not consummated. The agreement was further
amended to provide for the cancellation of the grant of options to acquire
125,000 shares of Common Stock and, among other consideration, the issuance of
20,000 shares of Common Stock, fully paid, and the grant of options to acquire
30,000 shares of Common Stock at fair market value at the time of grant that
vested immediately. In June 1998, the agreement was further amended to expand
the scope of representation for a period ending September 30, 1998 for an
additional fixed fee of $50,000. The agreement was further updated by the
Company for month to month consulting services commencing October 1, 1998 for
$6,000 per month. At June 30, 1998, the Company was indebted to the
corporation controlled by Mr. Hill in an aggregate amount of $92,000,
representing accrued fees and reimbursements.
Ronald D. Ormand, who served as a director of the Company from May 1997
to July 1998, is a Managing Director of CIBC-Oppenheimer & Co., Inc., which
has rendered investment banking services to the Company. During January 1998,
the Company engaged CIBC-Oppenheimer to advise the Company with respect to
strategies and procedures to adopt in an effort to maximize shareholder
values. This engagement was terminated effectively in August, 1998.
William N. Hagler, a director of the Company, was formerly the President
of Unico, Inc. and was the President of Capco from July 1997 to September
1997.
In January 1998, the Company engaged Faysal Sohail, a director of the
Company, to render investor relations services to the Company for which Mr.
Sohail had been granted 20,000 shares of fully paid Common Stock.
Meteor Industries, Inc., of which Capco owns a majority of stock, has an
interest in Saba Power Company Ltd. ("Saba Power"), a limited liability
corporation in Pakistan which was established in early 1995 to pursue
development of a power plant project in Pakistan (the "Power Project"). On
December 27, 1996, Meteor Industries, Inc. entered into an agreement with the
Company whereby the Company participated and owns a 0.5% interest in the Power
Project. This percentage, however, could be reduced in the event that other
shareholders of Saba Power are required to make additional contributions to
equity. No such additional equity contributions have been requested.
In January, 1998, a subsidiary of the Company entered into an agreement
and made a deposit of $36,000 to purchase real property located in Santa
Maria, California for $300,000. The purchasing interest of the Company's
subsidiary was thereafter assigned to Capco in April, 1998, and the sale
closed in May, 1998. Capco had agreed to reimburse to the Company's subsidiary
the $36,000 deposit, with interest at the rate of 12% per annum, within 90
days of closing.
In July 1998, Bradley Katzung, an officer of the Company, earned a bonus
of one percent of the net proceeds of the sale of the Company's interest in
oil and gas properties in Michigan for approximately $3.7 million.
In connection with an Exchange Agreement entered into on March 6, 1998,
effective January 1, 1998, and closing on April 6, 1998, by a subsidiary of
the Company for its acquisition of the remaining 20% working interest in the
Potash Field located in Louisiana and an additional 10.2% working interest in
the Manila Village Field in Louisiana, the Company was obligated to tender
200,000 shares of Company Common Stock, free of all restrictions, to the
Seller, while Company was to reserve and withhold 10,000 shares thereof until
such time as certain litigation affecting the subject matter of the Exchange
Agreement is dismissed or upon written agreement by the parties. In July,
1998, Seller assigned its entire receivable from this transaction, recorded
by the Company at a cost of $750,000 based upon the closing price of the
Company's common stock on the closing date, to Capco and affiliates of Capco
in exchange for its receipt of 200,000 unrestricted shares of Company Common
Stock.
In August 1998 and for $525,000, an affiliated subsidiary of the Company
purchased property adjoining the Company's refinery, said land that had been
claimed by the predecessor as being contaminated by underground emissions from
the refinery. The affiliated subsidiary offered an option to the Company to
assume the payments of the financed balance of $450,000 plus 8.5% interest in
exchange for acquiring an interest in the property.
In August 1998 the Company sold its interest in two producing wells in
Alabama for $800,000, an approximate 20% portion of which was paid and
acquired by Mr. Chaudhary.
The Company entered into a letter of understanding that may be deemed an
employment agreement in August 1998 with Charles A. Kohlhaas, a director, and
while Dr. Kohlhaas was employed by the Company as its Chief Executive Officer
and President on an interim basis. The Company is unsure as to what rights, if
any, may be continuing under the August letter of understanding.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Common Stock by (i) each person who is either the
record owner or known to the Company to be a beneficial owner of more than 5%
of the Common Stock, (ii) each director and named executive officer of the
Company and (iii) all directors and officers of the Company as a group.
Shares Beneficially Owned and as a Percent of Common Stock are given as of
September 30, 1998, when there were 11,052,393 shares outstanding. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission, under which shares which may be acquired within 60 days
upon the exercise of options, warrants or other contracts are deemed to be
beneficially owned by the person holding such option, warrant or other
contract for the purpose of computing the percentage ownership of such person
but are not treated as outstanding for the purpose of computing the percentage
ownership of any other person.
<TABLE>
<CAPTION>
Number of Percentage
Shares Beneficially Beneficial
Owned (1) Ownership
<S> <C> <C>
Principal Stockholders:
Capco Resources Ltd. (2)
3201 Airpark Dr., Suite 201
Santa Maria, CA 93455 2,797,165 25.31%
Ilyas Chaudhary (2)(3)
3201 Airpark Dr., Suite 201
Santa Maria, California 93455 3,064,466 27.48%
Horizontal Ventures, Inc. (4)
630 Fifth Avenue, Suite 1501
New York, NY 10111 6,120,000 36.88%
Other Directors and
Named Executive Officers:
Dr. Charles A. Kohlhaas 0 *
William N. Hagler 14,000 *
Randeep Grewal (5) 0 *
Alex S. Cathcart 0 *
Faysal Sohail 51,600 *
Bradley T. Katzung 100,360 *
Herb Miller 0 *
Burt Cormany 0 *
Imran Jattala 11,500 *
Susan M. Whalen 0
All Directors and Officers
as a Group (5) 3,241,926 28.81%
</TABLE>
Rule 13d-3 under the Securities Exchange Act of 1934, involving the
determination of beneficial owners of securities, includes as beneficial
owners of securities, among others, any person who directly or indirectly,
through any contract, arrangement, understanding, relationship or otherwise
has, or shares, voting power and/or investment power with respect to such
securities; and, any person who has the right to acquire beneficial ownership
of such security within sixty days through means, including, but not limited
to, the exercise of any option, warrant or conversion of a security. In making
this calculation, options and warrants which are significantly "out-of-the-
money" and therefore unlikely to be exercised within sixty days are not
included in the calculation of beneficial ownership. For this purpose, the
Company deems options and warrants with an exercise price above $2.50 as
unlikely to be exercised within the next sixty days. Any securities not
outstanding which are subject to such options, warrants or conversion
privileges are deemed to be outstanding for the purpose of computing the
percentage of outstanding securities of the class owned by such person, but
are not deemed to be outstanding for the purpose of computing the percentage
of the class by any other person.
* Less than one percent.
(1) Except as otherwise indicated, the Company believes that the beneficial
owners of the Common Stock listed above have sole investment and voting
power with respect to such shares subject to community property laws
where applicable.
(2) Mr. Chaudhary owns of record and beneficially 1,130 shares of Common
Stock and options to acquire 380,000 shares of Common Stock of which
options to purchase 100,000 shares were exercisable as of September 30,
1998. Mr. Chaudhary owns 50% of a privately held Canadian company, which
through a subsidiary, owned 90% by it and 10% by Mr. Chaudhary, owns
1,582,126 shares of the common stock of Capco, which in turn owns
directly and indirectly through a wholly owned subsidiary, 2,797,165
shares (25.31%) of Common Stock. Mrs. Bushra Chaudhary, the wife of
Mr. Chaudhary, owns the remaining 50% of the privately held Canadian
company. Faisal Chaudhary, the adult son of Mr. and Mrs. Chaudhary, owns
905,961 shares of the common stock of Capco and Aamna Chaudhary, the
daughter of Mr. and Mrs. Chaudhary, owns 905,961 shares of the common
stock of Capco. Mr. and Mrs. Chaudhary each disclaim beneficial interest
in the shares of Capco owned by each other and in the shares held by
Faisal Chaudhary. SEDCO, a corporation wholly owned by Mr. Chaudhary,
owns 166,171 shares of Common Stock (1.50%) and 4,227,821 shares of the
common stock of Capco. As of September 30, 1998 there were 9,148,311
outstanding shares of the common stock of Capco. Shares in Capco owned
by members of his family may be deemed to be owned by Mr. Chaudhary by
reason of the attribution rules of the Securities and Exchange
Commission.
(3) Includes 2,797,165 and 166,171 shares of Common Stock of the Company
owned by Capco and SEDCO, respectively. Mr. Chaudhary, as the
controlling stockholder of such companies, is deemed to be the
beneficial owner of such shares.
(4) Consists of (i) An aggregate of approximately 3,040,000 shares of Common
Stock of the Company into which the (a) 690 shares of the Company's
Series A Preferred Stock acquired by HVI from RGC under the Preferred
Stock Transfer Agreement and (b) 6,310 shares of Series A Preferred
Stock held by RGC but which HVI has the exclusive right to acquire under
the Preferred Stock Transfer Agreement, along with the accrued but
unpaid dividends on such shares of Series A Preferred stock, are
convertible, (ii) 2,500,000 shares of Common Stock which are to be
issued to HVI under the Common Stock Purchase Agreement, (iii) 500,000
shares Saba Common Stock held by International Publishing Holding s.a.
("IPH") and subject to a presently exercisable call option by HVI under
the option agreement between HVI and IPH, with the dispositive and
voting power for such 500,000 shares being effectively shared between
HVI and IPH, and (iv) 80,000 shares of Common Stock held directly by
HVI.
(5) Mr. Grewal is an affiliate of, but does not control the Board of
Directors for, HVI.
(6) Includes 100,000 options that are exercisable within 60 days after
September 30, 1998.
