SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report: (Date of earliest event reported) October 6, 1998
SABA PETROLEUM COMPANY
(Exact name of registrant as specified in charter)
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<S> <C> <C>
Delaware 1-12322 47-0617589
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(State or (Commission (IRS Employer
other jurisdiction File Number) Identification No.)
of incorporation)
3201 Airpark Drive Suite 201, Santa Maria, CA 93455
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (805) 347-8700
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(Former name or former address, if changed since last report) Not Applicable
Item 1 Changes in Control of Registrant
Not Applicable
Item 2 Acquisition or Disposition of Assets
Not Applicable
Item 3 Bankruptcy or Receivership
Not Applicable
Item 4 Changes in Registrant's Certifying Accountant
Not Applicable
Item No. 5. Other Material Events.
Series A Preferred Stock Transfer Agreement.
By an agreement dated October 6, 1998, Horizontal Ventures, Inc., a
company the shares of which are listed on the NASDAQ, acquired the right to
purchase from RGL International Investors, LDC ("RGC") all of the Company's
Series A Preferred Stock, save such amount not to exceed 1,000 shares as may be
necessary to permit RGL to cover its short position in the Common Stock of the
Company. On execution of the agreement, Horizontal Ventures acquired 690 shares
of the Preferred Stock for a consideration of $750,000. Horizontal Ventures has
until November 6, 1998 to complete the acquisition, but may extend that date to
December 6, 1998 by paying a $500,000 deposit which will be applied to the
purchase price should the transaction be consummated. The Preferred Stock is
subject to certain transfer restrictions. The Company consented to the transfer
to Horizontal Ventures, which agreed to convert all of the Preferred Stock into
Common Stock should it complete the acquisition at a conversion price of $2.50
per share. On conversion of the Preferred Stock, Horizontal Ventures will be
entitled to name one director to the Company's five man Board of Directors.
Common Stock Purchase Agreement.
By a Common Stock Purchase Agreement dated October 8, 1998, Horizontal
Ventures agreed to purchase and the Company agreed to sell to Horizontal
Ventures an aggregate of 2.5 million shares of the Common Stock of the Company
at a price of $3 per share. On or before November 6, 1998, Horizontal Ventures
is to purchase 333,333 shares of the Common Stock at a price of $3 and the
balance on December 4, 1998. Proceeds of the sale of the Common Stock,
aggregating $7.5 million, are to be employed to repay an indebtedness to Omimex
Resources, Inc. (approximately $4.5 million) and the balance for working
capital. On October 8, 1998, Randeep S. Grewall was appointed to the Board of
Directors which now stands at six. Should the transaction be consummated,
Horizontal Ventures will be entitled to name an additional member to the
Company's Board of Directors which will be reduced to five members, including
Mr.
Grewal..
The Common Stock Purchase Agreement prohibits the Company from taking
various actions without the consent of Horizontal Ventures, which it may not
unreasonably withhold. Basically, the prohibited actions include all actions
outside of the customary course of business of the Company. Thus, the Company is
precluded from acquiring debt, issuing securities, disposing of properties or
doing things which would alter the status of the Company. Closing of the
transaction is subject to various conditions, including the accuracy of the
warranties and representations made by the Company, the filing of a registration
statement covering the Company's Preferred Stock and a Proxy Statement
soliciting approval of the Company's shareholders for the conversion for the
conversion of the Preferred Stock.
The Company has received a copy of a Form 13 D filed by Horizontal
Ventures, Inc. during October 1998, indicating that Horizontal Ventures and an
affiliate have acquired over five percent of the outstanding Common Stock of the
Company. The stock so acquired is in addition to that which may be acquired
under the above mentioned agreements.
Potential Change of Control - Requisite Financing
Should Horizontal Ventures complete the acquisition and conversion of
the Series A Preferred Stock and the purchase of 2.5 million shares of the
Common Stock, it will be entitled to three members of the Company's five man
Board of Directors and will then be in control of the Company.
The Company understands that Horizontal Ventures has engaged an
investment banking firm to assist Horizontal Ventures in securing the financing
necessary to complete both the acquisition of the Series A Preferred Stock and
the Common Stock. Based solely upon a review of the public reports of Horizontal
Ventures, it would appear that Horizontal Ventures does not presently possess
the cash resources necessary to complete the transactions and that financing
will be required. The Company is not in a position to determine whether the
financing will be forthcoming.
Item No. 6. Resignation of Registrant's Directors
Not Applicable
Item No. 7. Financial Statements and Exhibits
Exhibits to 8-K
10.1 Preferred Stock Transfer Agreement dated October 5, 1998, by and between
RGC International Investors, LDC and Horizontal Ventures, Inc., and
consented to by the Company and filed as Exhibit 7.1 to a Schedule 13D
filed for Horizontal Ventures, Inc., and incorporated herein by reference.
10.2 Common Stock Purchase Agreement dated October 8, 1998 between Saba
Petroleum Company and Horizontal Ventures, Inc., and filed as Exhibit 7.2
to a Schedule 13D filed for Horizontal Ventures, Inc., and incorporated
herein by reference.
10.2(A) Schedules to Exhibit 10.2 Common Stock Purchase Agreement.
10.2(B) Exhibit "A" to Exhibit 10.2 Common Stock Purchase Agreement.
10.3 Letter Agreement dated October 8, 1998 by and between Horizontal Ventures,
Inc. and Saba Petroleum Company.
10.4 Press Release announcing Saba Petroleum Company's agreement on a $7.5
million private placement and conversion of its Preferred shares.
Item No. 8. Changes in Fiscal Year
Not Applicable
Item No. 9. Sales of Equity Securities Pursuant to Regulation S
Not Applicable
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SABA PETROLEUM COMPANY
Date: October 22, 1998
By:_____________________________
/s/Ilyas Chaudhary, Chief Executive Officer
Date: October 22, 1998
By: _____________________________
/s/Imran Jattala, Executive Vice President and Chief Operating Officer
Exhibit 10.2(A)
Schedule 3.1(2)(a)
to the
COMMON STOCK PURCHASE AGREEMENT
Between Saba Petroleum Company and Horizontal Ventures, Inc.
1. On January 17, 1995, the Certificate of Incorporation for Sabacol, Inc. was
filed with the Secretary of State of the State of Delaware providing for
the authorization of 100,000 shares of common stock. On February 1, 1995,
Certificate No. 1 was issued to Company for 10,000 shares of common stock,
and, other than said issuance, no other shares of common stock were issued.
On March 20, 1997, the Certificate of Incorporation for Company was amended
reducing the number of authorized shares of common stock from 100,000 to
1,000. In March, 1998, the Board of Directors of Sabacol, Inc. resolved
that the number of shares of common stock of Company issued theretofore and
stated in all certificates evidencing the issuance thereof, namely
Certificate No. 1, were thereby reduced to one percent (1%) of their face
amount as an equivalent reduction of authorized shares from 100,000 to
1,000, and further that Sabacol, Inc. would issue a new certificate
reflecting said reduced amount of shares of common stock in replace of and
upon presentation to Sabacol, Inc. of the previously issued Certificate No.
1.
2. Reference is made to Item 1 of the Annual Report on Form 10-K of Company
for the year ended December 31, 1997 which is incorporated herein by
reference. As disclosed therein, Company may have failed to abide by
requirements for cumulative voting and may have failed to accord preemptive
rights to its shareholders.
3. As of July 31, 1998, Company has outstanding options and rights under its
employee and director stock option plans and under employment contracts
with key personnel, including employees and certain present and former
consultants, covering 983,000 shares of Company Common Stock, some of which
require such shares to be registered under the Securities Act of 1933 and
listed on the Exchange. This includes 200,000 shares of deferred Company
Common Stock, the issuance of such deferred shares being contingent upon
Mr. Chaudhary remaining in the employ of 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; and 100,000 performance shares of Company Common Stock issuable if
Company meets 1998 earnings test. Stock option agreements have not been
entered into by Company with all grantees of stock options.
4. As of July 31, 1998, under its 9% Senior Subordinated Convertible
Debentures, the holders have the right to convert the existing Debentures
($3,575,000 principal amount) into approximately 817,143 shares of Company
Common Stock. If conversion of Company Preferred Stock results in a change
of control, the debentures are redeemable at 102%. The Amended and Restated
Indenture dated as of February 7, 1996 for $12,650,000 is incorporated
herein by reference as is the related prospectus.
5. The Company Preferred Stock is redeemable by Company at any time and must
be redeemed upon the occurrence of certain events. Company may redeem the
Company Preferred Stock at 115% of its stated value plus accrued dividends
and the issuance of a five year warrant to purchase 200,000 shares of the
Company Common Stock at 105% of the average closing bid price for the five
consecutive trading days preceding the date fixed for redemption. However,
the holder has the ability to convert all or any shares of the Company
Preferred Stock into Company Common Stock. The Company Preferred Stock must
be redeemed under certain circumstances. Such circumstances include the
failure of Company to obtain an effective registration statement for the
Company Common Stock underlying the Company Preferred Stock prior to June
28, 1998 (or as extended per mutual agreement), failure to maintain
American Stock Exchange listing or should the Company Preferred Stock cease
to become fully convertible as a result of such conversion resulting in the
issuance of more than 19.9% of the then outstanding shares of Company
Common Stock and Company has not, within certain time limitations, secured
shareholder approval to allow for full conversion. On June 5, 1998, Company
redeemed $2 million of the Preferred Stock, which included a 5% premium in
the amount of $100,000 and paid $51,288 to the holders for cumulative
dividends accrued through June 5, 1998 and attributable to the $2 million
redemption. In June, 1998, in connection with securing the consent of the
holders of the Series A Preferred Stock to the business combination with
Omimex Resources, Inc, the terms of the Preferred Stock redemption and
conversion were modified and said modification dated June 1, 1998 is
incorporated herein by reference along with all the terms of the the
Securities Purchase Agreement and related exhibits thereto entered into as
of Decemer 31, 1997 for the Series A Preferred Stock.
6. In November, 1997, Company entered into an agreement with Hamar II
Associates, LLC providing for Company to participate in the drilling of a
test well on the Behemoth Prospect, Glenn County, California, to bear a
proportionate part of lease acquisition and maintenance payments, and to
pay its proportionate share (30%) of a consideration of $100,000 to members
of Hamar. The terms of the transaction applicable to Company are the same
as those applicable to Amerada Hess Corporation, adjusted to the respective
interests of the parties, that of Amerada Hess Corporation being 60%. In
addition, Company orally has agreed to issue 20,000 shares of Company
Common Stock for no additional consideration should the test well drilled
on the Behemoth Prospect be productive in quantities deemed commercial by
Company.
7. A substantial portion of Company Common Stock held directly or indirectly
by Ilyas Chaudhary has been pledged to secure debt. During 1998, shares of
the Common Stock were sold by lenders as a result of Mr. Chaudhary's
inability to pay the margin debt. It is believed that such sales may have
contributed to the decline in the price of the Common Stock. At July 31,
1998, approximately 969,200 shares of Mr. Chaudhary's Common Stock were
subject to pledge to secure indebtedness of approximately $489,000. The
Company is aware of adverse comments contained in public media concerning
these sales and general comments regarding the possibility of action by
shareholders, but has received no durect written assertion of a claim
8. As of September 30, 1998, 8,000 shares (of an originally issued 10,000
shares) of Company's Series A Preferred Stock were issued and outstanding.
Each share of the Series A Preferred Stock is convertible into such number
of shares of Company Common Stock as is determined by dividing the stated
value ($1,000) of the shares of Series A Preferred Stock (as increased by
accrued but unpaid dividends as of September 30, 1998) by the then current
conversion price (which is determined by reference to the then current
market price, but in no event will the Conversion Price be greater than
$9.345). For example, if converted at August 31, 1998, based on a
Conversion Price of $1.48 (the average of closing prices for the Company
Common Stock for any three consecutive trading days during the preceding
thirty day period), the remaining 8,000 shares of the Series A Preferred
Stock would have been convertible into 6,922,817 shares of Company Common
Stock; however, without waiver by the AMEX of its rules, Company would be
permitted to issue only 2,165,898 shares of Company Common Stock without a
shareholders' vote approving the issuance of additional shares. For the
foregoing example, the lowest price averaged during such three-day period
has been used. The number of shares of Company Common Stock which may be
required to be issued could prove to be even greater in the event of
further decreases in the trading price of the Company Common Stock assuming
that the required shareholder approval is obtained. Holders of Company
Common Stock could therefore experience substantial dilution of their
investment upon conversion of the Series A Preferred Stock. The shares of
Series A Preferred Stock are not registered and may be sold only if
registered under the Securities Act or sold in accordance with an
applicable exemption from registration, such as Rule 144 or Rule 701. The
Series A Preferred Stock also contains terms that impose restrictions on
Company and may hinder Company's ability to raise additional capital. The
Company Preferred Stock bears a cumulative dividend of 6% per annum payable
quarterly in cash or, at Company's option, the dividend amount may be added
to the conversion amount. Company's Board of Directors had declared that
the cumulative dividends accrued through and payable on June 30 and
September 30, 1998 shall be added to the conversion amount and not paid in
cash.
9. Company's Debentures are convertible into Company Common Stock, at the
option of the holders of the Debentures, at any time prior to maturity at a
conversion price of $4.38 per share, subject to adjustment in certain
events. Company has reserved 3,000,000 shares of Company Common Stock for
the conversion of the Debentures. Mandatory sinking fund payments of 15% of
the original principal, adjusted for conversions prior to the date of
payments, are required annually commencing December 15, 2000. The
Debentures are uncollateralized and subordinated to all present and future
senior debt, as defined, of Company and are effectively subordinated to all
liabilities of subsidiaries of Company.
10. The purchasers of the Company Preferred Stock received warrants to purchase
224,719 shares of Company Common Stock at a price of $10.68 per share for a
period of three years from December 31, 1997. In addition, Aberfoyle
Capital, Ltd., was issued warrants to acquire 44,000 shares of Company
Common Stock as a fee in connection with the placement of the Company
Preferred Stock. These warrants are exercisable at $10.68 per share for a
three year period from December 31, 1997. The warrants issued to the
purchasers of the Company Preferred Stock and to Aberfoyle Capital, LTD.,
may be adjusted from time to time under certain anti-dilution provisions.
In June, 1998 in connection with securing the consent of the holders of the
Series A Preferred Stock to the business combination with Omimex Resources,
Inc., the terms of the warrants were modified to reduce the exercise price.
11. In connection with the issuance of the Company Preferred Stock, the
purchaser received the right to be issued warrants to acquire 200,000
shares of Company Common Stock should Company exercise its right to redeem
the Company Preferred Stock. The warrants are exercisable over five years
commencing five days after redemption of the Company Preferred Stock at an
exercise price of 105% of the price of the Company Common Stock at the time
of redemption. The warrants may be adjusted from time to time under certain
anti-dilution provisions.
12. 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
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, 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
to Capco Resources, Ltd., Company's affiliate and major shareholder, in
exchange for its receipt of 200,000 unrestricted shares of Company Common
Stock. In satisfaction of Company's obligation to Seller's successors,
Company reserves the right to grant stock options or pay a cash equivalent
of approximately $750,000 in lieu of Company Common Stock or a combination
thereof. The Company has been orally informed that the holder of the 20%
interest was seeking to acquire the Series A Preferred Stock and may assert
claims against the Company with respect to the disposition of the 20%
interest.
13. In February, 1998, Company entered into a services agreement with a
consultant to provide public and financial relations services through May
31, 1998, in exchange for reimbursement of expenses of $10,000 per month
and for a grant of 25,000 shares of fully paid Company Common Stock valued
at the closing price on the last trading day preceding May 31, 1998.
14. Reference is made to the Exhibit List of the Annual Report on Form 10-K of
Company for the year ended December 31, 1997 which is incorporated herein
by reference.
15. Reference is made to "Certain Relationships and Related Transactions" of
Company's definitive proxy statement filed on form 14A on July 16, 1998
(File No. 001-13880) which is incorporated herein by reference.
16. In March, 1998, the legal services agreement with Rodney C. Hill, a
Professional Corporation which acts as general counsel to Company, was
amended to terminate the existing fee arrangement and limit the scope of
representation of Company to matters pertaining to the proposed business
combination with Omimex Resources, Inc. with compensation set at $100,000
upon completion of the business combination or $50,000 if such transaction
is not consummated. In April, 1998, Company's Compensation and Options
Committee resolved that the agreement was further amended to provide for
the cancellation of the grant of options to acquire 125,000 shares of
Company Common Stock and, among other consideration, the issuance of 20,000
shares of Company Common Stock, fully paid, and the grant of options to
acquire 30,000 shares of Company Common Stock at fair market value at the
time of grant that vested immediately and which expire in one year. In
addition to the foregoing, in June 1998 Company agreed to extend
representation through September 30, 1998 for a total cost of $50,000 plus
expenses to be paid at the minimum rate of $6,000 per month with the unpaid
balance due by October 31, 1998. In September, 1998, Company agreed to
extend representation through October 31, 1998 for an additional $6,000
plus expenses and to extend the excerisable term of the option granted to
acquire 30,000 shares of Company common stock and at the exercise price of
$1.50 per share.
17. In April, 1998, Company's Compensation and Options Committee, resolved
that, in recognition of the services performed by the following employees
or consultants, Company issue fully vested, paid and unconditional
performance shares at fair market value to said persons and in the amounts
set forth after their respective names in compliance with the terms of and
in the form required by Company's 1996 Incentive Equity Plan: Imran Jattala
(10,000); Burt Cormany (10,000); Irwin Kaufman (20,000); and Faysal Sohail
(20,000).
18. Employment and consulting agreements entered into by Company include those
with: Ilyas Chaudhary (CEO & President), Alex Cathcart (engineering),
Rodney C. Hill (legal counsel), Burt Cormany (President of SMRC), Herb
Miller (President of Beaver Lake Resources), Tim McPherson (Controller),
and Walton Vance (accounting). Clarification by Dr. Charles A. Kohlhaas of
his terminated agreement with Company remains outstanding.
19. Per the amendment to the 1997 Stock Option Plan for Non-Employee Directors
approved by Company shareholders at the 1998 annual meeting, non-employee
directors receive a grant of an option to acquire 15,000 shares of Common
Stock at the fair market value on the date of grant and each anniversary
and vesting pro rata over five years. On August 28, 1998, Alex Cathcart was
granted an option to purchase 15,000 shares of Company common stock,
vesting 20% per year, at an exercise price of $1.50 per share exercisable
for ten years per Company's 1996 Incentive Equity Plan.
20. Company reserves the right to grant options to key employees to acquire
Company common stock pursuant to Company's 1996 Incentive Equity Plan.
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Schedule 3.1
to the
COMMON STOCK PURCHASE AGREEMENT
Between Saba Petroleum Company and Horizontal Ventures, Inc.
1. All items on Schedule 3.1(2)(a) to the Common Stock Purchase Agreement
between Company and HVI are incorporated herein by this reference.
2. Company is qualified and licensed to transact business as a foreign
corporation in the jurisdiction of California DBA Delaware Saba Petroleum
Company. Saba Petroleum, Inc., a California corporation, is a wholly-owned
subsidiary of Company and had consented to Company's DBA in California as
Saba Petroleum Company. Company's request to the California Secretary of
State to change its DBA to Saba Petroleum Company was, however, denied for
similarity notwithstanding the wholly-owned subsidiary's consent. No
further action has been taken either with respect to the change of
Company's DBA or the implementation in California of the DBA.
3. Set forth below is a list of subsidiaries directly or indirectly owned by the
Company:
Saba Petroleum, Inc., a California corporation Santa Maria Refining Company, a
California corporation Saba Realty, Inc., a California corporation Saba Cayman
Limited, a Cayman Islands corporation Saba Petroleum of Michigan, Inc., a
Michigan corporation Saba Energy of Texas, Inc., a Texas corporation Saba
Exploration Company, a California corporation Sabacol, Inc., a Delaware
corporation Saba International Limited, a Delaware corporation Saba Jatiluhur
Limited, a Cayman Islands corporation Saba Petroleum (U.K.) Limited, a United
Kingdom corporation Beaver Lake Resources Corporation, a Canadian corporation MV
Ventures, GP Saba Acquisition, Inc., a Delaware corporation (never organization
was intended for purposes of proposed business combination with Omimex
Resources, Inc.)
4. Effective January 1, 1998 Saba Energy of Texas, Incorporated acquired the
remaining partnership interest in MV Ventures, GP, a partnership in which
Saba Energy of Texas, Incorporated was the only other partner. Pursuant to
the terms of the partnership agreement for MV Ventures, GP, Company had
determined that the partnership had dissolved, without having to wind up
and liquidate its affairs, and that the sole remaining partner, Saba Energy
of Texas, Incorporated, may continue the business of the partnership.
5. Company has a 1996 Incentive Equity Plan and a 1997 Stock Option Plan For
Non-Employee Directors, and Company's Canadian subsidiary has a Revised
Stock Option Plan.
6. In October, 1997, Company was contacted by the Federal Bureau of
Investigations which had conducted an inquiry at that time into the trading
practices of Company's Common Stock. To Company's knowledge, the inquiry
did not discover any violations executed by Ilyas Chaudhary or Company.
7. In August, 1997, the American Stock Exchange contacted Company to advise of
its routine review of transactions effected in Company's Common Stock
during a period of increased price and volume activity. In response to the
Exchange's request, Company verified whether specific parties named by the
Exchange had any affiliation or relationship with Company or any of its
officers, directors, and agents. , The Company is unaware of the result of
the inquiry but has not been advised that the inquiry did revealed any
violations of law or Exchange rules.
In August, 1998, the American Stock Exchange contacted Company to inquire about
Company's continued listing eligibility following its report of losses, bank
indebtedness, and going concern and to inquire about the independent status of
Company's outside directors. Reference is made to the Company's recent financial
statements and to the listing standards of the Exchange.es. 8. Most of Company's
oil and gas properties are held in the form of mineral leases, licenses,
reservations, concession
agreements and similar agreements. In general, these agreements do not
convey a fee simple title to Company, but rather, depending upon the
jurisdiction in which the apposite property is situated, create lesser
interests, varying from a profit a prendre to a determinable interest in
the minerals. In some jurisdictions, notably non-US jurisdictions,
Company's interest is only a contractual relationship and bestows no
interest in the oil or gas in place. As is customary in the oil and gas
industry, a preliminary investigation of title is made at the time of
acquisition of undeveloped properties. Title investigations are generally
completed, however, before commencement of drilling operations or the
acquisition of producing properties. Company believes that its methods of
investigating title to, and acquisition of, its oil and gas properties are
consistent with practices customary in the industry and that it has
generally satisfactory title to the leases covering its proved reserves.
Because most of its oil and gas leases require continuous production beyond
the primary term, it is always possible that a cessation of producing or
operating activities could result in the loss of a lease.Assignments of
interest to/from the Company may not have been publicly recorded.
9. In or about August, 1998, oil and gas leases in Nevada in which Company had
an interest had been terminated for Company's lack of rental payment.
Company is considering the reinstatement of the leases. Other oil and gas
leases in which Company has an interest may be deficient and subject to
action by Company.
10. Company may require ratifications for various leases for Vacca Tar Sand in
California. Maintenance of the Company's interest is subject to fulfillment
of drilling and other obligations contained in its agreements with the
Operator of the property. Maintenance of the leases is dependent upon
fulfillment of various drilling and producing operations over which the
Company has little if any control. Consequently, it is possible for the
Company to lose its interests in such leases through action or inaction of
the Operator. The Company understands that the leases have been essentially
non-productive for various periods of time, which fact may result in
termination of the leases. The Company does not follow operations on the
leases and consequently is not aware of whether the leases are in good
standing or may be subject to termination.
11. In November 1997, Company received a letter from a property owner, and his
attorney, in California demanding compensation for the use of a gas
transfer line located on his property. Company may be subject to resolving
this issue, as well as claims related to mineral interests, working
interest, and/or surface use and rights, including without limitation (a)
four wells in REDU located on the Wardman Lease where abandonment is sought
(and may be subject to legal action instituted by surface owner and/or a
third party in interest), and (b) well #YW11 in REDU where errors in
disclosure of location, production and/or rights may have occurred by
Company.
12. In September, 1998, the holders of Company Preferred Stock had stated to
Company that it may seek legal action against Company for its failure to
timely cause the Registration Statement for the Preferred Stock to become
effective by the Securities and Exchange Commission and/or to timely cause
the special meeting of the Company shareholders to take place to vote upon
the proposed conversion. In the meantime, Company continues to incur a
penalty owed to the holders until the Registration Statement is effective.
Reference is made to the documents relating to the Series A Preferred Stock
for a description of the Company's obligations relating thereto, including
obligations which the Company has not fulfilled.
13. In 1998, two deaths occurred on Company's property in California (unknown
victim - homicide) and Colombia (employee - field accident) and were
reported to Company's insurance company.
14. Substantially all of Company's properties, including its stock in its
subsidiaries Sabacol, Inc. and Beaver Lake Resources Corporation, are
hypothecated to secure Company's current and future indebtedness to Bank
One, Texas N.A.. Company's working interest in properties may be subject to
lienholds pursuant to non-payment. Company expects liens to be filed
against its assets and to be subject to lawsuits arising out of Company's
non-payment or untimely payment of its obligations. Company's real property
owned by its subsidiary, Santa Maria Refining Company ("SMRC"), is
encumbered by a first trust deed in the amount of $1 million in favor of
the seller of the refinery and is in place to secure SMRC's performance of
environmental obligations as provided in the purchase and sale agreement
therefor which is incorporated herein by reference. Beneficiary was
contacted by Company to request the partial reconveyance of the trust deed
as it encumbers the agricultural property adjacent to the refinery with
Company's plan to sell the property unencumbered.
15. Under a current processing agreement with PetroSource, PetroSource
purchases crude oil (including crude oil produced by Company), delivers it
to the refinery, reimburses Company's out-of-pocket refining costs, markets
the asphalt and other products and generally shares any profits equally
with Company. The arrangement with PetroSource ends on December 31, 1998
and Company does not intend to renew the arrangement on its present terms.
From that time forward, Company has requested proposals from a limited
number of parties for participation in a processing agreement with SMRC.
Under the proposed terms of such an agreement, SMRC shall receive a fee for
processing while the obligation and revenue for providing the crude oil and
for transporting and marketing the refined products shall be borne by the
participant.
16. Company's approximate payment of $133,000 to a trade vendor who had
supplied equipment to Company is secured by two pumps used on Company's
producing properties located in Louisiana.
17. Statutory liens have been recorded against the Louisiana properties owned
by Company for Company's failure to pay trade payables. Preliminary actions
have been taken to proceed with foreclosure on some of these liens.
Further, lawsuits have been filed and served upon Company's subsidiaries
for the payment of trade payables. Company has contacted such categorical
claims known by it as of September 30, 1998 in the approximate amount of
$800,000 to propose and agree upon a payment plan with the vendors in
exchange for their forbearance on any further action. Company has entered,
is entering or plans to enter into payment plans agreed upon with such
vendors and any additional vendors so required.
18. In connection with various borrowings from Bank One, Texas N.A., Mr.
Chaudhary has guaranteed payment of approximately $3,000,000 of Company's
debt to such bank.
19. Burt Cormany has been the President of Company's subsidiary, SMRC, since
July 1, 1994, but Mr. Cormany had not filed a Form 3 with the Securities
and Exchange Commission until August 31, 1998, which form was filed late.
20. Weld County Oilfield Waste Disposal Operating Group v. Bordeaux Petroleum
Company - Company received notice of a claim against it based upon its
alleged disposal of oil field waste materials at a waste disposal site.
Amoco, HS Resources and Gerrity Oil and Gas, all PRP, submitted a proposed
settlement agreement in March 1997 in regards to the cleanup of the
disposal of hazardous substances hauled to WCWDI by former customers
including Company. A proposed settlement agreement and copies of EPA
Administrative Orders were delivered to Company. The settlement agreement
proposed that Company participate in the percentage of 0.05%, or $4,001 in
exchange for which Company would receive an indemnification from certain
future exposures; the indemnity was unacceptably narrow in scope and was
rejected by Company. Company counter-offered with a settlement contribution
of $2,000. The matter is still pending.
21. In its review of Company's payroll tax and information returns for the
years ended 1993-1996, the Internal Revenue Service proposed adjustments
based upon the assertions that Company misclassified as independent
contractors various persons who were employees of Company, that Company did
not withhold income taxes from payments made to such persons, and that
Company failed to file its information returns timely. In addition, the
Service proposed to impose interest and penalties on Company. As of this
date, there is no pending or threatened litigation. The matter has been
under review by Company and the Service. Company filed a protest letter
with the IRS on November 21, 1997, and an Appeals Conference was held in
June, 1998 with the Appellate Branch of the Service to resolve these
issues. The years ended 1993-1995 were settled for $93,370, and the year
ended 1996 assessed for $21,750 is yet to be settled. Company has requested
or plans to request that the penalties for the year ended 1996 be waived.
It is Company's hope that these issues can be resolved without litigation
in the U.S. Tax Court. Company anticipates that a number of the proposed
assessments will be reduced and, in some cases, such as penalties,
eliminated. Company believes that its ultimate exposure as a result of
these matters should not exceed $115,000. Based upon its assessment of the
matter, Company has made a provision for these contingencies in its year
end 1997 financial statements in the amount of $90,000.
22. Company and a non-affiliated oil and gas operator have acquired top leases
on lands in Texas. The other company believes that the underlying leases
have expired and will be filing an action in Texas to confirm that belief.
Company had authorized counsel for such company to join Company as a party
plaintiff. A settlement was reached amongst the parties whereby a $200,000
payment will be tendered to the plaintiffs in return for a release of the
top leases, pending confirmation from the court and the appeal period. The
interest of Company's subsidiary in this action is 50%.
23. Through its subsidiary, Company discharged water from its operations in
Louisiana pursuant to a compliance order issued by the Louisiana Department
of Environmental Quality ("DEQ"). The matter of overboard discharge is
controlled by the Environmental Protection Agency, but regulated by the
State of Louisiana through its DEQ. Since the initial termination date of
December 31, 1991, the DEQ had consistently granted extensions regarding
the matter of overboard discharge. The DEQ had granted Company's subsidiary
an extension of its discharge permit through January 31, 1998. In or about
September 1997, Company's subsidiary had been notified by the DEQ, however,
of its assertion that Company's subsidiary's permit had expired in
September or October, 1997. In February, 1998, Company's subsidiary was
served with a penalty assessment of approximately $31,000 for incidence of
overboard discharge of produced water, and the DEQ has agreed to accept
payment thereof in eighteen equal installments. Company's subsidiary had
been conducting its operations in compliance with the permit as it had
customarily done in the past. Company's subsidiary ceased overboard
discharge of produced water prior to the deadline set forth in the
compliance order, and it continues to inject all produced water into a
wellbore converted from an inactive production well to an injection well.
24. On its amalgamation with Capco Resources Properties, Ltd. ("CRP"),
Company's Canadian subsidiary assumed a judgment in favor of Canada
Mortgage and Housing Corporation. It was a term of the amalgamation that a
third party would satisfy the judgment and indemnify the subsidiary. The
sum of $30,000 CDN remained outstanding on the judgment as of September 30,
1998. CRP undertook to make required payments until the judgment is paid in
full.
25. Roll'n Oilfield Ltd. drilled the 5-18 horizontal well for Company's
Canadian subsidiary in August/September, 1997. Roll'n filed a statement of
claim against the subsidiary in December, 1997, for monies owed of
approximately $242,000 CDN. The subsidiary is disputing a portion of the
invoices for various reasons. Roll'n appeared in court in May, 1998, in an
attempt to receive a summary judgment, yet the motion was successfully
defended and defeated by the subsidiary. In the hearing, the judge agreed
that there was likely some money owed for services rendered; however, the
motion was set aside for trial. As of September 30, 1998, this matter was
satisfied.
26. Midwest Safety provided safety services to Company's Canadian subsidiary in
drilling the horizontal well in August/September, 1997. The subsidiary did
not pay the invoice(s) as quickly as the supplier had expected and filed a
statement of claim in December, 1997, for approximately $19,000 CDN. The
subsidiary has made partial payments on account subsequent to said filing.
As of September 30, 1998, this matter was satisfied.
27. In early 1997, Company received a letter from the office of the District
Attorney of Santa Barbara County, which threatened commencement of legal
proceedings based upon Company's failure to respond to demands that it
observe requirements of a land use permit previously issued to it
authorizing the transportation of natural gas produced from its Cat Canyon
properties to its Santa Maria refinery through a pipeline system owned in
part by Company. Company has responded to the letter and has had
discussions with representatives of the District Attorneys office and the
concerned local agencies and believes that it is in the process of
resolving the outstanding issues. The matter has been quiescent for several
months.
28. In December 1997, Company contracted with Gitte-Ten, Inc. ("GTI") to
purchase from GTI all of its surface fee and leasehold interests in certain
property located in Santa Barbara County, California. A portion of the
purchase price was paid at closing on December 31, 1997, at which time
GTI's interests were conveyed to Company. The remaining purchase price of
$350,000 was to be paid through overriding royalty payments of Company's
gross income from the leases until the balance was retired but no later
than January 1, 2003, on which date any unpaid balance was to be
immediately due and payable. To provide GTI with an assurance of Company's
payment obligation, Company executed a promissory note in the principal
amount of $350,000 which provided that said amount (less the total amount
of overriding royalties paid to GTI) was all due and payable on February
27, 1998, unless Company replaced the note by February 24, 1998, with an
irrevocable and non-cancelable surety bond or letter of credit in the then
unpaid balance. Company was unable to procure either instrument and the
note became all due and payable on February 27, 1998. Notwithstanding
attempted settlement conferences by Company with GTI, GTI filed a claim
against Company in March 1998, for breach of contract and seeks damages of
$350,000 plus interest at the rate of 13.5% per annum and attorney fees.
Company has interposed certain defenses and the matter is in discovery.
29. In July, 1998, Company was served with a lawsuit filed by Todd Allen
Schwier alleging property damage and loss of income and property (fatally
hit dog) in the amount of $6,000 resulting from a motor vehicle operated by
Company on one of its access easements. Company is represented by counsel
appointed by Company's insurance carrier pursuant to a claim submitted
under Company's automobile policy.
30. In July, 1998, Company was served with a lawsuit filed by Gary Chase
alleging personal injury in the amount of $515,000 resulting from general
negligence premises liability on one of the oil leases that Company
operates. Company is represented by counsel appointed by Company's
insurance carrier pursuant to a claim submitted under Company's general
liability policy.
31. In or about July, 1998, Company received a Notice of Hearing on joint
petition for order permitting disclosure of information and records and
protective order filed by CalResources LLC and James W. Maples, Kern County
Assessor. It is believed that Company received this Notice as a potential
person who may have provided confidential information to the Kern County
Assessor. Company had not responded to nor attended the hearing.
32. In October, 1998, Company was notified by a representative of a shareholder
of Company that an investigation of alleged violations of Section 16(b) of
the 1934 Act is underway and was requested to conduct an investigation of
Ilyas Chaudhary's trading activities from December 1997 and to account and
disgorge profits realized by Ilyas Chaudhary pursuant to certain alleged
scurities transactions. While Company is not aware of any threatened legal
proceedings other than those described in this Schedule 3.1(2)(a), Company
may be subject to legal actions that have been threatened without Company's
knowledge.
33. A $75,000 note payable is due upon demand from Allied Energy for which a
demand has not yet been made by Company.
34. There is only one worker's compensation claim that is open for Company, and
it is a claim that is under the Santa Maria Refinery which occurred on June
18, 1997 for an injury involving multiple body part burns - left hand.
35. In connection with a proposed acquisition of properties of SolvEx
Corporation, Company loaned $100,000 to SolvEx, which loan was guaranteed
by John Rendall, Chief Executive Officer and a principal shareholder of
SolvEx. SolvEx had filed for reorganization, and collection of the loan,
which was in default, from SolvEx was questionable. Company commenced an
action in Santa Barbara County Superior Court in December, 1997, to realize
upon the guarantee. Pursuant to a stipulation entered into with Mr.
Rendall, Company received the principal amount and accrued interest through
June 30, 1998 in settlement of the matter in September, 1998.
36. Franchise Taxes, local taxes and/or returns therefor are or may be
outstanding for Company and its subsidiaries, including without limitation
the following entities, in the following jurisdictions, and for the
following periods:
Entity Jurisdiction Period
Saba Petroleum Company Delaware 1997
Saba Energy of Texas, Incorporated California 1991-1997*
Saba Energy of Texas, Incorporated Louisiana, Texas 1997
Sabacol, Inc. Colombia 1997
*Discontinued business in this jurisdiction but failed to withdraw. If
this entity were to ever transact business in California again, it
would have to reinstate its qualification by paying accrued taxes and
penalties.
37. Effective March 1, 1998, Company sold its interest in oil/gas properties
located in Michigan and Alabama in July and September, 1998, respectively,
for an aggregate of $4.4 million. The terms of the sale of Michigan
included a look back period for title defects and environmental/remediation
matters. As a related party transaction, Bradley Katzung, an officer of
Company, received a bonus of 1% of the net proceeds for the timely sale of
Michigan, and Ilyas Chaudhary, Chairman, CEO, and President of Company, has
an interest in the buyer of Alabama. The accounting method to disclose the
gain on the sale of Michigan and/or Alabama may be adjusted, as required,
from methods used in prior reporting periods.
38. Company's respective subsidiaries have entered into agency agreements for
the sale of certain properties located in California and Louisiana,
Michigan, Wyoming, and Texas, respectively.
39. Company maintains a 401(k) employee benefit plan within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"). Company maintains and provides an employee health care
benefit plan that includes medical, dental, life, and disability coverage.
40. One claim is pending under Company's commercial general liability policy
pursuant to a claim caused by a subcontractor of Company. This claim will
either be paid by last year's carrier and then subrogated against the
subcontractor or will be paid directly by the subcontractor's insurance
carrier.
41. Company's execution, delivery and performance of the Agreement requires or
may require the consent of Bank One, Texas, N.A, Company's Debenture
Holders, and/or RGC International Investors, LDC.
42. In connection with the acquisitions of most of its properties, including
those in Colombia and in California, Company has agreed to indemnify the
sellers from various environmental liabilities, including those that are
associated with the sellers' prior obligations. Many of these properties
have been in production during years in which environmental controls were
significantly more lax than they are presently. While Company generally
conducts a limited environmental investigation of the properties it
acquires, it does not conduct a detailed investigation and, accordingly,
Company may be subject to requirements for remediation of environmental
damage caused by its predecessors. At the time of an acquisition, there may
be unknown conditions which subsequently may give rise to an environmental
liability. Consequently, it is difficult to assess the extent of Company's
obligation under these indemnities. Further, the oil and gas industry is
also subject to environmental hazards, such as oil spills, oil and gas
leaks, ruptures and discharges of oil and toxic gases, which could expose
Company to substantial liability for remediation costs, environmental
damages and claims by third parties for personal injury and property
damage. Because of the nature of oil and gas producing operations, it is
unlikely that operations will be totally violation-free.
Except as indicated in the public reports filed by the Company or as
disclosed herein, the Company does not know of the existence on its
operated properties of any material amounts of any toxic or hazardous
substance including, without limitation, any asbestos, PCBs or petroleum
products or byproducts in any form, or of any remedial action required by
virtue of any release of any toxic or hazardous substance, pollutant or
contaminant into the environment which now require said remediation. Many
of the Company's properties are operated by others and the Company is not
in a position to describe remedial actions which may be required on such
properties. As is common in the oil and gas industry, oil properties are
subject to the risks of contamination, which may occur without knowledge of
the executive officers of the Company. The Company is under a general
obligation to remediate its properties unpon the cessation of oil and gas
operations.
43. In February 1997, Company's rights to the Cocorna area in Colombia expired
in accordance with the terms of the governing agreement, and this property
reverted to Ecopetrol. Company and the operator were required to perform
various environmental remedial operations, which the operator advises have
been substantially, if not wholly, completed. Company and the operator are
waiting for an inspection of the Cocorna area by Colombian officials to
determine whether the government will require any further remedial work.
Based upon the advice of the operator, Company does not anticipate any
significant future expenditures associated with the environmental
requirements for the Cocorna area.
44. The party who sold the asphalt refinery in Santa Maria, California, to the
Company, agreed to remediate portions of the refinery property in a
five-year period ending June 1999. Prior to the acquisition of the
refinery, the Company had an independent consultant perform an
environmental compliance survey for the refinery. The survey did not
disclose required remediation in areas other than those where the seller is
responsible for remediation, but did disclose that it was possible that all
of the required remediation may not be completed in the five-year period.
Should the seller not complete the work during the five year period,
because of uncertainties in the language of the agreement, there is a risk
that a court could interpret the agreement to shift the burden of
remediation to the Company. Reference is made to the apposite documents to
ascertain the extent of the Company's obligations.
In addition, the Company had been advised in June 1998 by the seller's
consulting engineers that groundwater monitoring conducted in May 1998 had
revealed unacceptable levels of light hydrocarbons contamination.
Groundwater monitoring wells have not shown evidence of groundwater
contamination, with the exceptions of monitoring conducted in May 1998. The
May 1998 results indicated the presence of benzene in all four monitoring
wells which exceeds allowable limits. In addition, detectable amounts of
toluene, ethylbenzene and xylenes were reported. Historically, BTEX
compounds have not been detected in groundwater samples obtained since
1992. At the request of the Regional Water Quality Control Board (RWQCB),
the wells were resampled in July 1998. Consistent with the historical
analytical results, petroleum hydrocarbons were not detected in the July
1998 samples. The environmental contractor, who has used the same sampling
protocol since 1992, could not identify any specific reason for the
apparent inconsistency found in the May 1998 samples. The RWQCB has
requested additional monitoring wells to be placed on site and on property
directly west of the refinery perimeter. It is the Company's opinion that
the additional wells will confirm historical results from the existing
wells that ground water contamination has not occurred from past or present
operation of the refinery but there can be no assurance of this. The
Company believes that the contamination is attributable to its
predecessor's operations, since the Company does not produce the particular
contaminates at the refinery and such was produced by the Company's
predecessor. Appropriate authorities have been notified of this condition.
Ultimate responsibility for remediation of the foregoing condition depends
upon an interpretation of the contract of purchase and factual matters. The
Company has been in contact with its predecessor about the foregoing;
however, no agreement has been reached on responsibility nor has the cost
of remediation been estimated. Further, the previous owner of land
adjoining the refinery, and the seller of said property to an affiliate of
the Company, had claimed to the Company that his property had been
contaminated by underground emissions from the refinery. This condition
also creates an uncertainty as to whether remediation is the responsibility
of the Company or its predecessor in interest. Company also contacted its
predecessor with respect to this matter with no agreement on
responsibility. Should the foregoing matters not be resolved
satisfactorily, they may result in litigation. It is also possible that a
failure to resolve the matters could result in significant liability to the
Company. While the seller of the subject property retains a mortgaged
interest in the property, the Company's subsidiary that operates the
refinery has agreed to toll the statute of limitations for any claims by
the seller against the subsidiary and to obtain the seller's prior consent
prior to entering into any agreement with respect to hazardous materials on
the property.
45. In 1993, Company acquired a producing mineral interest from a major oil
company. At the time of acquisition, Company's investigation revealed that
a discharge of diluent (a light, oil-based fluid which is often mixed with
heavier grades of crude) had occurred on the acquired property. The
purchase agreement required the seller to remediate the area of the diluent
spill. After Company assumed operation of the property, Company became
aware of the fact that diluent was seeping into a drainage area which
traverses the property. Company took action to contain the contamination
and requested that the seller bear the cost of remediation. The seller has
taken the position that its obligation is limited to the specified
contaminated area and that the source of the contamination is not within
the area that the seller has agreed to remediate. Company has commenced an
investigation into the source of the contamination to ascertain whether it
is physically part of the area which the major oil company agreed to
remediate or is a separate spill area. Company also found a second area of
diluent contamination and is investigating to determine the source of that
contamination. Investigation and discussions with the seller are ongoing.
Should Company be required to remediate the area itself, the cost to
Company could be significant. Company has spent approximately $240,000 to
date on remediation activities, and present estimates are that the cost of
complete remediation could approach $750,000. Since the investigation is
not complete, Company is unable to accurately estimate the cost to be borne
by Company.
46. In 1995, Company agreed to acquire, for less than $50,000, an oil and gas
interest on which a number of oil wells had been drilled by the seller.
None of the wells were in production at the time of acquisition. The
acquisition agreement required that Company assume the obligation to
abandon any wells that Company did not return to production, irrespective
of whether certain consents of third parties necessary to transfer a
portion of the property to Company were obtained. Company was unable to
secure all of the requisite consents to transfer the property but
nevertheless may have the obligation to abandon the wells. The leases have
expired. A preliminary estimate of the cost of abandoning the wells and
restoring the well sites is approximately $1.5 million. Company has been
unable to determine its exposure to third parties if Company elects to plug
such wells without first obtaining necessary consents. The surface owner
(Exxon) of a portion of the property has requested Company to abandon the
surface facilities in lieu of a legal demand therefor. Company has
responded that it is Company's predecessor's (Shell's) obligation to
abandon the leases, as Company acquired only the right to operate the
leases on all the property until such time as the assignments were obtained
on a portion of the property. For these and other reasons, there can be no
assurance that material costs for remediation or other environmental
compliance will not be incurred in the future. These environmental
compliance costs could materially and adversely affect Company. In
addition, Company is generally required to plug and abandon well sites on
its properties after production operations are completed. No assurance can
be given that the costs of closure of any of Company's other oil and gas
properties would not have a material adverse effect on Company.
47. Set forth below without limitation is a list of each bank and other
financial institutions with which Company and its subsidiaries have an
account and the names of all persons authorized to draw thereon or to have
access thereto. If an account has more than one person authorized, any
combination of two people named may draw thereon or have access thereto:
<TABLE>
<CAPTION>
Persons Authorized
Financial Institution Entity Individually or Collectively
<S> <C> <C>
Bank One-Houston Saba Energy of Texas, Inc. W. Vance, T. McPherson,I. Jattala
Bank One-Houston Saba Energy of Texas, Inc. W. Vance, T. McPherson,I. Jattala
Bank One-Houston Saba Petroleum Company W. Vance, T. McPherson,I. Jattala
Bank One-Houston MV Ventures W. Vance, T. McPherson,I. Jattala
Bank One-Houston MV Ventures W. Vance, T. McPherson,I. Jattala
Bank One-Houston Saba Exploration Company W. Vance, T. McPherson,I. Jattala
Bank One-Houston Saba Petroleum of Michigan W. Vance, T. McPherson,I. Jattala
Wells Fargo Saba Petroleum Company W. Vance, T. McPherson,I. Jattala
Wells Fargo Saba Petroleum Company W. Vance, T. McPherson,I. Jattala
Wells Fargo Saba Energy of Texas, Inc. W. Vance, T. McPherson,I. Jattala
Interbanco Sabacol, Inc. Ernesto Olivares
Canadian Western Bank Beaver Lake Resources H. Miller, R. Denecky,K. McKnight
First Bank of San L. Obispo Saba Petroleum Company W. Vance, T. McPherson,I. Jattala
</TABLE>
48. Set forth below without limitation is a list of persons holding a power of
attorney granted by Company:
On behalf of: Sabacol, Inc. with respect to Colombia
For: qualification; agreements; properties and accounts;
and all interests of the company
By: Ilyas Chaudhary as principal legal representative or
manager
Fernando Caycedo as his First Alternate
Walton C. Vance as his Second Alternate
Meyer Ernesto Olivares as his Third Alternate
On behalf of: Saba Jatiluhur Limited with respect to Java Black
For: agreements
By: Mansoor Anjum as executive vice pres and manager of
Indonesian operations
49. Approximately $6.7 million in principal amount of bank debt matured for
payment on July 31, 1998. Additionally, as of September 30, 1998 Company
was not in compliance with the loan agreement's financial covenants. While
non-payment of principal at maturity would, amongst other breaches of the
loan agreement, automatically constitute a default of the loan pursuant to
the terms of the loan agreement, the bank has not declared the loan in
default by giving notice to Company; however, notice from the bank may not
be required. Company and its bank are in discussions to restructure the
terms of the loan agreement and extend the maturities of the short-term
loans.
50. Effective August 15, 1998, the engagement of CIBC-Oppenheimer, Inc., an
investment banking firm, was terminated which rendered due for payment the
retainer and expenses incurred. During the following year, CIBC shall be
entitled to a fee if a sale of Company, or any part, is consummated with
any of thirty-four parties identified by CIBC and Company as having been
contacted by CIBC on behalf of Company.
51. In May, 1998, Company engaged Friedman, Billings, Ramsey & Co. Inc. to act
as financial advisor and lead underwriter for Company in connection with a
proposed public offering of secured convertible notes or other securities
of Company.
52. In March, 1998, the Louisiana Department of Natural Resources claimed to a
subsidiary of Company an audit exception for royalties paid on lease use
gas in the approximate amount of $7,000.
53. With respect to its interest in the Potash Field, Louisiana, Company's
subsidiary had suspended approximately $350,000 of royalties for unknown
royalty owners who have since been identified. One of the parties, Orleans
Levee Board had instituted legal proceedings against Company for all of the
royalties suspended and double said amount for damages and for the
dissolution of the subject leases. The Levee Board has agreed to an
extension for Company to respond pending a meeting with all identified
royalty owners and/or their geologists in an attempt to reach an agreement
regarding their respective allocations of said suspended royalties and to
create a voluntary unit. Company's subsidiary released the suspended
royalties from escrow to Company for Company's use. Company and/or its
subsidiary bears the obligation to pay the royalties with interest upon
resolution. Reference is made to La. Stats. with respect to the rights and
obligations of the Company with respect to the suspended royalties.
54. Since June 30, 1998, a late filing notice on Form 12b-25 was filed for
Company's Form 10-Q for the quarter ending June 30, 1998.
55. In or about June, 1998, Company's Canadian subsidiary sold all of its
rights, title and interest in the Wainwright property located in Canada for
$1,100,000 CDN.
56. In or about May, 1998, Company's Canadian subsidiary sold all of its
rights, title and interest in the Princess/Jenner property located in
Canada for $322,000 CDN.
57. Substantially all of the workers employed in connection with Company's and
the operator's Colombian operations belong to one of two unions. The [daily
union] is comprised of the Colombian field workers. The [monthly union]
consists of the field engineers and field office workers in Colombia.
58. Company determined in its best interest to close its offices in Irvine,
California as of September 30, 1998 and to extend the closing of its in
Edmond, Oklahoma to October 31, 1998 (except for a month-to-month office
lease).
59. All directors and officers questionnaires may not have been completed for
certain reporting purposes, such as Company's definitive proxy statement
filed on July 16, 1998 on Form 14A.
60. Oversights are reflected in Company's definitive proxy statement filed on
July 16, 1998 on Form 14A that the Company deemed to be immaterial, such as
the chart and footnotes reflecting the security ownership of certain
beneficial owners.
61. Company is in the process of establishing Department of Transportation
("DOT") programs for the (a) drug and alcohol screening for all employees
who are and have been working on DOT regulated vacuum trucks and pipelines;
and (b) pipeline operation and maintenance for the lines that are and have
been in use in by Company.
62. Saba Petroleum (U.K.) Limited, a United Kingdom company, is currently
without legal representation in the U.K. Company's subsidiary forfeited its
U.K. residence address provided by counsel for non-payment of legal fees.
The U.K. counsel also served as corporate secretary, and the subsidiary's
first annual meeting to be held in June, 1998 has not yet been completed to
Company's knowledge. Company's appointment of officers has not yet been
recorded in the minute book.
63. In September, 1998, Company and Omimex Resources, Inc. terminated the
agreement for the proposed business combination and executed mutual
releases therefrom. As a result, Company's note payable in the approximate
amount of $4.2 million to Omimex is due on or before December 14, 1998.
Failure to pay results in the conveyance of Company's interest in the
Valesquez-Galan Pipeline in Colombia ("Pipeline"). Company and Omimex will
be entering into a trust agreement with Bank One to act as escrow agent for
the respective delivery of the security and funds. In the event of the
conveyance of the Pipeline interest, the parties are negotiating a tariff,
if any, to be charged by Omimex to Company and a letter agreement providing
that Omimex shall assume all labor issues and environmental matters related
to the Pipeline at the time of conveyance. Company has not yet reported the
termination and mutual release on Form 8-K. In or about July 1998, the
Pipeline was affected by guerrilla activity. Effective October 1, 1998,
Company is negotiating with Omimex for an agreed upon payment of a portion
of the accounts payable due monthly thereafter in Colombia. Company has not
been party to the budget approval process for Colombian operations and is
considering the exercise of its right to audit the joint account for
previous fiscal years.
64. Company has not yet amended, or filed a report on Form S-8 to amend, the
1997 Stock Option Plan for Non-Employee Directors providing for a grant of
an option to acquire 15,000 shares of Common Stock at the fair market value
on the date of grant and vesting pro rata over five years, as approved by
Company shareholders at the 1998 annual meeting. The Company has not yet
issued Stock Option Agreements to the employees and consultants that are
entitled to receive option grants, but is in the process of so doing.
65. Company has not yet executed the joint operating agreement for the U.K.
prospect in which Company may acquire an interest upon its payment
therefor, which is outstanding as of September 30, 1998 in the approximate
amount of $650,000. Company had sold 50% of its interest to Omimex and a
formal assignment has not been conveyed to Omimex at its request. While
holding Omimex's interest in trust, Company may be liable if it were to
execute the joint operating agreement that provides for foreclosure upon a
working interest owner due to non-payment. Subsequent to an assignment to
Omimex of its right to an interest in the prospect, Company plans to
execute the joint operating agreement.
66. The Louisiana properties in which Company has producing oil and gas fields
were damaged by the recent Hurricane Georges. Although portions of the
properties were minimally damaged, others were considerably damaged.
Initial assessments do not indicate environmental problems; however, tanks,
piping, living quarters and other equipment have been heavily damaged,
causing delays in resuming operations. Company's insurance carrier has been
contacted to process a claim.
67. The Company has, from time to time, not filed its public reports in a timely
manner.
Exhibit 10.2(B)
EXHIBIT A
November 30, 1998
Horizontal Ventures, Inc.
630 Fifth Avenue, Suite 1501
New York, NY 10111
Attn: Mr. Randeep S. Grewal, President
Re: Common Stock Purchase Agreement (the "Purchase Agreement") Dated October
_____, 1998 Between Saba Petroleum Company, a Delaware corporation (the
"Company"), and Horizontal Ventures, Inc., a Colorado corporation ("HVI")
Dear Mr. Grewal:
I am General Counsel to the Company and as such I have
represented the Company in connection with the Purchase Agreement, pursuant to
which the Company has agreed to sell and issue to HVI an aggregate of 2,500,000
shares of its $.001 par value common stock (the "Common Stock"). In connection
with the foregoing, HVI has requested my legal opinion hereinafter set forth.
In rendering this opinion, I have reviewed the Purchase
Agreement, examined originals or copies certified to my satisfaction of all
corporate records of the Company and examined such other agreements and
documents relating to the Company and certificates of officers of the Company
and matters of law that I have deemed necessary as a basis for the opinion
hereafter expressed. Further, I have assumed the genuineness of all signatures
or documents not signed in my presence and the authenticity of all documents
submitted to me as originals and the conformity with the originals of all
documents submitted to me as copies. As to all matters of fact, I have relied
exclusively on the certificate attached hereto and upon written or oral advices
of public officials. This opinion is rendered pursuant to Section 4.1(2) of the
Purchase Agreement. All capitalized terms used but not defined herein shall have
the meanings ascribed to them in the Purchase Agreement.
Based upon and subject to the foregoing, I am of the opinion
that:
<PAGE>
Horizontal Ventures, Inc.
November 30, 1998
Page 26
1. The Company is a corporation duly organized and validly
existing and in good standing other than with respect to its non-payment of
Franchise Tax, under the laws of the State of Delaware. It has all requisite
corporate power and authority to carry on its business as now being conducted,
to enter into the Purchase Agreement and to carry out and perform the terms and
provisions of the Purchase Agreement. The Company is duly qualified to do
business and is in good standing in each jurisdiction in which the failure to be
so qualified would have a material adverse effect on the condition (financial or
otherwise), business, net worth, assets (including intangible assets),
properties or operations ("Material Adverse Effect") of the Company.
2. The Company is duly and lawfully authorized by its
Certificate of Incorporation, as amended, to issue 150 million Shares of Common
Stock, of which _____________ Shares are issued and outstanding. Additionally,
the Company is authorized to issue 50 million shares of preferred stock of which
8,000 shares are designated Series A Convertible Preferred Stock and are issued
and outstanding. The Company has no treasury stock and no other authorized
series or class of stock. All the outstanding shares of Common Stock and Series
A Convertible Preferred Stock have been duly authorized and validly issued and
are fully paid and nonassessable and, subject to the qualification noted in the
Company's Report on Form 10-K for the year 1996, free of preemptive rights.
Except as listed on Schedule 3.1(2)(a) attached to the Purchase Agreement, the
Company is not obligated to issue any additional common or preferred stock as a
result of any options, warrants, rights, conversion rights, obligations upon
default, subscription agreements or other obligations of any kind. All Shares to
be issued pursuant to the Purchase Agreement to HVI have been duly authorized by
all other necessary corporate action, validly issued, fully paid, nonassessable,
issued in compliance with state and federal securities laws and based upon the
representations of HVI in the Purchase Agreement in compliance with the
exemptions promulgated under the Securities Act of 1933, as amended.
3. The execution, delivery, and performance of the Purchase
Agreement has been duly authorized by all requisite corporate action. The
Purchase Agreement constitutes a valid and binding obligation of the Company
enforceable in accordance with its terms (except as limited by bankruptcy,
insolvency, other laws affecting the enforcement of creditors' rights and
matters of public policy). The execution, delivery and performance of the
Purchase Agreement will not conflict with any provision of the Certificate of
Incorporation and any amendments thereto, Bylaws and any amendments thereto, or
any contract of which I am aware to which the Company is a party or otherwise
bound.
4. Except as disclosed in the Financial Statements or in
Schedule 3 attached to the Purchase Agreement, there are no legal actions,
suits, arbitrations, or other legal or administrative proceedings pending or
threatened in writing of which I have knowledge against the Company which would
reasonably be expected to have a material adverse effect upon it, its
properties, assets, or business..
<PAGE>
This is a legal opinion. I am relying on the factual
representations made by officers of the Company and representations of the
Company contained in the Purchase Agreement, and I make no representation of
fact herein. This opinion is solely for the benefit of HVI in connection with
the transactions referred to herein and may not be relied on by, in whole or in
part, nor may copies be delivered to, any other person or entity without my
prior written consent.
The opinions expressed herein are qualified by the matters disclosed in
the Company's publicly filed reports. Knowledge as I have used the term herein,
means actual knowledge of the fact or circumstance imparted to me in writing.
This opinion is limited to matters occurring up to the date hereof. I undertake
no obligation to supplement this opinion for matters occurring after the date
hereof.
Very truly yours,
Exhibit 10.3
October 8th, 1998 Randeep S. Grewal
Chairman & CEO
Mr. Ilyas Chaudhary
Chairman of the Board
Saba Petroleum Company
3201 Airpark Drive Suite 201
Santa Maria CA 93455
Re: Preferred Series A Stock
Dear Ilyas,
In view of our various discussions relating to Horizontal Ventures Inc (HVNV)
acquiring the referenced stock from Rose Glen, we hereby confirm the following:
1. Following the acquisition of the 7000 shares. or greater, of Series A
Preferred Stock by HVNV from Rose Glen, HVNV will convert all of the Saba
Preferred Series A Stock acquired by it, into common Saba stock at a price
of $2.50 per share. The total value of the conversion will be equal to the
price HVNV pays Rose Glen inclusive of all accrued interest and dividends.
Such conversion will take place on or before December 30th 1998.
2. Upon conversion, Saba will provide one seat on the Board in a Board not to
exceed five.
3. At conversion, HVNV will waive all defaults in existence that would have
been acquired by it. Additionally HVNV waives any future defaults that may
result from any action or inaction from HVNV
4. Counsel to HVNV will file any required Proxy and Registration Statement.
Saba will diligently provide all required assistance documents and make
available counsel as required.
We look forward to a long -term partnership with all the fellow shareholders and
yourself.
Best Regards,
/s/ Randeep Grewal
ON BEHALF OF SABA PETROLEUM COMPANY
ACCEPTED AND AGREED TO
On this 8th day of October, 1998
By: /s/ Ilyas Chaudhary
Chairman and CEO
Exhibit 10.4
News Release For Immediate Release
Oct. 13, 1998
For more information, please contact: Sultan Mahmud (805) 347-8700 ext. 205
Saba Agrees on a $7.5 Million Private Placement at $3.00 Per Share and
Conversion of Its Preferred Shares at $2.50 Per Share
Santa Maria, California: Saba Petroleum Company (AMEX:SAB) announced
today that its Board of Directors has consented to two transactions whereby
Horizontal Ventures, Inc., (Nasdaq: "HVNV") will acquire 5.5 million shares or
approximately 33% of Saba's Common Shares.
HVNV will acquire $7.5 million worth of Saba's Series A Preferred Stock
currently held by RGC International Investors, LDC ("RGC"). When acquired by
HVNV, the Preferred Stock is convertible at $2.50 per share. Conversion of all
of the Preferred Stock is subject to obtaining or waiving various approvals. RGC
will retain a limited number of shares which it has agreed to convert pursuant
to the agreement regarding the purchase of Series A Preferred Stock by HVNV.
Certain of HVNV obligations are subject to financing.
In addition to the above transaction, Saba and HVNV have entered into
an agreement whereby HVNV has agreed to purchase an aggregate of 2.5 million
shares of Saba's Common Stock at $3.00 per share in a private placement. The
proceeds from the sale of equity will be used to reduce debt and provide working
capital.
Under the terms of the agreements, a total of three persons designated
by HVNV will become members of Saba's 5-member Board of Directors. The first of
the three directors was appointed to the board of Saba effective October 9,
1998. It is expected that the closing will occur by mid-December 1998.
Ilyas Chaudhary, President and CEO commented, "The transaction with
HVNV will improve Saba's financial situation and strengthen its ability to
proceed with plans to enhance shareholder value through oil and gas development,
refining and exploration activities."
Saba Petroleum Company is an independent energy company with oil and
gas production and development activities in North America and Colombia. In the
United States, the Company's primary areas of activity are California, Louisiana
and New Mexico. The Company also has large land positions and exploration
options on exploratory projects in the U.S.A., Indonesia and the United Kingdom.
Safe Harbor for Forward Looking Statements
Except for historical information contained herein, the statements in this
Release are forward-looking statements that are made pursuant to the safe harbor
provision of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve known and unknown risks and uncertainties
which may cause the Company's actual results in future periods to differ
materially from forecasted results. These risks and uncertainties include, among
other things, volatility of oil prices, product demand, market competition,
risks inherent in the Company's international operations, imprecision of reserve
estimates, the availability of additional oil and gas assets for acquisition on
commercially reasonable terms, and the Company's ability to replace and exploit
its existing oil and gas reserves. These and other risks are described in the
Company's Annual Report on Form 10-K and in the Company's other filings with the
Securities and Exchange Commission.
