U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
Commission file number 33-3492-D
EuroGas, Inc.
(Name of small business issuer in its charter)
Utah 87-0427676
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
942 East 7145 South, #101A, Midvale, Utah 84047
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (801) 255-0862
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None None
Securities registered under Section 12(g) of the Exchange Act:
None
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes / /
--
No /x/
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. /x/
State Issuer's revenues for its most recent fiscal year. The Issuer had no
revenues for the year ended December 31, 1995.
The aggregate market value of the Issuer's voting stock held by
nonaffiliates of the Issuer was approximately $125,000,000 computed at the
closing bid price as reported by the OTC Electronic Bulletin Board for the
Issuer's common stock of $4.625 as of January 27, 1997.
State the number of shares outstanding of each of the Issuer's classes of
common equity, as of the latest practicable date. The Issuer had 49,043,862
shares of its common stock, par value $0.001 per share, issued and outstanding
as of January 27, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe
them and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into
which the document is incorporated: (1) any annual report to security holders;
(2) any proxy or information statement; and (3) any prospectus filed pursuant to
rule 424(b) or (c) under the Securities Act of 1933, as amended. The list
documents should be clearly described for identification purposes (e.g., annual
report to security holders for fiscal year ended December 24, 1990). None.
Transitional Small Business Disclosure Format (check one): Yes / /
--
No /x/
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item Number and Caption Page
PART I
<S> <C> <C>
1. & 2. Description of Business and Properties 3
3. Legal Proceedings 18
4. Submission of Matters to a Vote of Security Holders 19
PART II
5. Market for Common Equity and Related Stockholder Matters 20
6. Management's Discussion and Analysis or Plan of Operation 21
7. Financial Statements 24
8. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure 24
PART III
9. Directors, Executive Officers, Promoters and Control
Persons; Compliance With Section 16(a) of the
Exchange Act 25
10. Executive Compensation 28
11. Security Ownership of Certain Beneficial Owners and
Management 31
12. Certain Relationships and Related Transactions 33
PART IV
13. Exhibits and Reports on Form 8-K 37
14. Signatures 40
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
</TABLE>
PART I
ITEMS 1. AND 2. DESCRIPTION OF BUSINESS AND PROPERTIES
TIMING OF REPORT
This report on Form 10-KSB is being filed in January 1997 by EuroGas, Inc.
(the "Company"), for its fiscal year ended December 31, 1995. The Company has
not filed any reports required to be filed pursuant to section 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), since the
quarterly 10-QSB for the Company's fiscal quarter ended March 31, 1995, except
for two interim reports on Form 8-K dated December 18, 1995, and July 12, 1996.
The Company's former year end was September 30, and the Company last filed a
report on Form 10-KSB for the year ended September 30, 1994, although it filed
reports on Form 10-QSB for the quarters ended December 31, 1994, and March 31,
1995. The Company has adopted the December 31 fiscal year end of GlobeGas B.V.
("GlobeGas"), which was determined to be the acquiring corporation for financial
reporting purposes in the reorganization between the Company, GlobeGas, and
Energy Global A.G. ("Energy Global"). (See "ITEM 6. MANAGEMENT'S DISCUSSION
AND ANALYSIS OR PLAN OF OPERATION" and Note 1 to the Financial Statements.)
This report includes audited consolidated balance sheets as of December 31,
1995 and 1994, and audited consolidated statements of operations, stockholders'
equity (deficit), and cash flows for the three years then ended, and the
discussion of financial matters herein is primarily based on such audited
financial statements. However, this report also contains certain information
about the subsequent development of the business of the Company and its current
activities through January 1997, although this subsequent information is not
based on audited financial statements since such financial statements for the
periods subsequent to December 31, 1995, have not been completed or audited.
The Company is currently seeking to complete and file its periodic reports due
for the periods subsequent to December 31, 1995.
GENERAL
The Company is engaged in the exploration for coal bed methane gas in
Poland and natural gas in Slovakia and the Czech Republic. The Company holds
hydrocarbon concessions or is a joint venturer with entities that hold
hydrocarbon licenses granted by governmental agencies in Poland, Slovakia, and
the Czech Republic. The Company's interest in Eastern Europe is based on the
encouragement provided by the national governments for the development of these
resources and the fact that natural gas generally sells in Europe at
substantially higher prices than in the United States.
In August 1991, the United States Environmental Protection Agency (the
"EPA") and the United States Agency for International Development ("AID")
published a joint study on the possibility of economic recovery of the methane
gas associated with Poland's extensive hard coal reserves. The joint study
concluded that coal bed methane was an abundant underdeveloped natural gas
resource in Poland and that the development and exploitation of this resource
would provide a much less environmentally harmful source of energy for Poland
than its extensive reliance on coal. The joint study stated that the potential
methane reserves were significant, estimating a total methane resource
associated with all coal mine concessions (both active and inactive mines) at in
excess of 1.3 trillion cubic meters. Shortly thereafter, Poland began to
solicit bids for concessions to explore for coal bed methane gas.
In January 1993, the Company's wholly-owned subsidiary, Pol-Tex Methane,
Sp. z.o.o. ("Pol-Tex"), was awarded exploration rights for coal bed methane gas
in the Upper Silesian Coal Basin in Poland (the "Pol-Tex Concession"). In
September 1993, the Company's wholly-owned subsidiary, GlobeGas, entered into a
joint venture agreement with Rybnicka Spolka Weglowa SA to form McKenzie Methane
Ribnik Sp. z.o.o. ("MMR") to exploit a second concession located in the Upper
Silesian Coal Basin. In March 1996, the Company's 85%-owned subsidiary,
McKenzie Methane Jastrzebie Sp. z.o.o. ("MMJ"), entered into a joint venture
agreement for a third concession in the same area. These three concessions (the
"Polish Concessions") cover approximately 92,000 acres in south central Poland.
The Company is currently negotiating to sell the assets associated with its Pol-
Tex Concession to Texaco. (See the discussion under "Activities in Poland"
below.)
As part of its intent to diversify and expand its interests in Europe, in
July 1996, the Company acquired Danube International Petroleum Company
("Danube") which held rights to participate in exploration for natural gas in
Slovakia and the Czech Republic. (See discussion under "History" below.) The
Company is primarily interested in developing the Slovakian project but has also
proceeded with work in the Czech Republic. Danube is a partner in a joint
venture agreement (the "Slovakian Joint Venture") with NAFTA Gbely a.s.
("NAFTA") organized for natural gas exploration and development under a license
covering 128,000 acres located in the East Slovakian Basin (see discussion under
"Activities in Slovakia" below), a northeastern extension of the Pannonian Basin
which covers large parts of Hungary and the southeastern part of Slovakia. The
joint venture now operates pursuant to an exploration permit which expires April
24, 1999. The Slovakian Joint Venture recently completed one test well and has
commenced a second test well. (See discussion under "Activities in Slovakia"
below.)
Danube also holds the right to earn a 25% to 50% interest in a joint
venture (the "Czech Joint Venture") with Moravske Naftove Doly a.s. ("MND")
which holds two licenses to explore for, develop, and produce natural gas from
an approximately 40,180 acre area located in the Zdanice area about 40
kilometers southeast of the city of Brno in the Czech Republic (see discussion
under "Activities in Czech Republic" below). Recently, certain disputes have
arisen over the operation of the Czech Joint Venture with MND. (See "ITEM 3.
LEGAL PROCEEDINGS.") Based on previous activities by others, including drilling
and testing in the license areas, management of the Company believes that
portions of this area have the potential for natural gas production.
In connection with obtaining its concessions and its interest in the joint
ventures, negotiating and completing the acquisition of businesses and related
interests, completing exploration work to date, and funding the ongoing
activities of the Company, the Company had accumulated losses of approximately
$13,900,000 and a stockholders' deficit of approximately $2,900,000 through
December 31, 1995. The Company's independent auditor's report for the year
ended December 31, 1995, contains a qualification as to the ability of the
Company to continue as a going concern. The Company anticipates that the
independent auditor's report for the year ended December 31, 1996, will contain
a similar qualification. Due to the substantial drilling and exploration
commitments of the Company, the Company expects that it will continue to incur
losses and that its accumulated deficit will increase. The Company has not had
revenues and does not currently have established production or proved reserves.
The Company has funded its cash flow requirements to date through a series of
equity and debt transactions. There can be no assurance that this source of
funding will continue to remain available to the Company. If available, there
is no assurance that it will provide the level of financing necessary for the
Company to meet its business objectives or even the Company's existing
obligations. (See "ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION.")
When used herein, the "Company" includes EuroGas, Inc., and its wholly-
owned subsidiaries, Danube and Energy Global, and the subsidiaries of each of
these subsidiaries, including GlobeGas, Pol-Tex, MMR, MMJ, Danube International
Petroleum Company B.V. ("Danube Netherlands"), Danube International Petroleum
Company, A.S. ("Danube Czech"), and Danube International Petroleum Company, A.S.
("Danube Slovakia"). (Also see the discussion under "History" below.)
FORWARD LOOKING INFORMATION MAY PROVE INACCURATE
This report on Form 10-KSB contains certain forward looking statements and
information relating to the Company and its business that are based on the
beliefs of management of the Company and assumptions made based on information
currently available to management. Such statements reflect the current views of
management of the Company and are not intended to be accurate descriptions of
the future. The discussion of the future business prospects of the Company is
subject to a number of risks and assumptions, including locating commercial
deposits of methane and natural gas on the Company's concessions and licenses,
the successful negotiation of additional licenses and permits for the
exploitation of any reserves located, the successful completion of wells, the
economic recoverability of in place reservoirs of hydrocarbons, the successful
addressing of technical problems in competing wells and producing gas, the
success of the marketing efforts of the Company, the ability of the Company to
establish required facilities to gather and transport hydrocarbons that may be
produced, and the ability of the Company to obtain the necessary financing to
successfully complete its goals. Should one or more of these or other risks
materialize or if the underlying assumptions of management prove incorrect,
actual results of the Company may vary materially from those described. The
Company does not intend to update the forward looking statements contained in
this report.
ACTIVITIES IN POLAND
General
The Company believes that Poland offers an attractive environment in which
to explore for and develop methane gas. The Republic of Poland is bordered on
the north by the Baltic Sea and Russia, on the west by Germany, on the south by
the Czech Republic and Slovakia, and on the east by Lithuania, Belarus, and
Ukraine. Poland is comprised of approximately 120,000 square miles, with a
population of approximately 40 million people. Between 1945 and 1989, Poland's
communist political and economic systems were directly influenced by the former
Soviet Union. In 1989, Poland peacefully asserted its independence, adopted a
new constitution which established a parliamentary democracy, and began its
transition to a market based economy.
Poland has one of the fastest growing economies in Eastern Europe.
According to a report published in the June 15, 1996, issue of the Economist,
Poland's gross domestic product grew by an estimated 7% in 1995, compared to 5%
for the Czech Republic, 1.5% for Hungary, and a negative 4% for Russia. One of
the most important elements of Poland's economic growth has been the country's
development of an entrepreneurial private sector. In 1993, private enterprises
employed 58.9% of Poland's work force as compared to 33.3% in 1989. Poland's
international trade has also undergone significant change since Poland gained
its independence. For example, in 1986, the former Soviet Union accounted for
33% of Poland's imports and 28% of its exports. By 1993, these figures had
decreased to 4.6% and 5.5%, respectively, while the countries of the European
Union purchased 71.3% of Poland's exports and provided 63.9% of its imports.
Foreign investments in Poland between 1989 and 1995 were approximately $6.8
billion.
Coal bed methane gas production has been occurring for some time in the
United States and has drawn attention recently in Poland due in part to the
joint EPA/AID study. The Polish Concessions were originally pursued by
management of GlobeGas as they realized that there was a growing demand in
Europe for this type of gas which is a cleaner and more efficient source of
energy than coal. The Polish government adopted the position that production of
the potential methane reserves would not only benefit the country economically
but could also significantly reduce air pollution and acid rain in the country.
Methane is a component of natural gas that is used as a fuel in various
industries and as a source of residential heating. Before natural gas is used
as a fuel, heavy hydrocarbons such as butane, propane, and natural gasoline are
separated to meet pipeline specifications. The "heavy hydrocarbons" are
typically sold separately. The remaining gas constitutes "dry gas" composed of
methane and ethane. Once produced and separated there is no substantial
difference between natural gas and methane. The demand in Europe for both
natural and methane gas has been traditionally high and the price generally runs
significantly higher than prices in the United States, although the price for
natural gas in Poland is generally lower than in the rest of the European
market. Gas production typically competes with coal and oil but is generally
considered to be a preferred product because of recent environmental concerns
expressed by governments in Europe.
According to reports published by the Polish Oil and Gas Company, Poland
imported approximately 80% of its natural gas consumption in 1994. Poland has
an extensive collection pipeline network readily accessible to it which should
facilitate the transmission and sale of any gas the Company does discover.
The Polish Concession
The Pol-Tex Concession held by the Company is located in south central
Poland, in the Rybnik Coal District in the Upper Silesian Coal Basin as shown on
the map on the following page. The map also shows the Company's proposed
drilling program for the Pol-Tex Concession, which will no longer be effective
if the proposed transaction with Texaco is completed.
[Graphic contained in original consisting of map depicting the general location
of the Pol-Tex Concession in Poland, the boundaries of the Concession, the
Rybnik Coal District, and the proposed drilling program.]
The Upper Silesian Coal Basin is a 5,800 square kilometer area located in
south central Poland which contains approximately 87% of the total coal reserves
in Poland and which dominates Poland's annual hard coal production. The joint
EPA/AID study estimated that in 1988, more than a billion cubic meters of
methane gas was liberated in connection with the coal mining activities in the
Upper Silesian Basin and that the developed deposits (active coal mines and coal
mines then under construction) contained 369 billion cubic meters of in place
resource.
The Pol-Tex Concession is reviewed by a branch of the Polish government on
an annual basis for compliance with applicable mining and other laws and the
terms of the Concession. Pol-Tex was required to spend approximately $2,918,000
on further exploration by March 31, 1997, of which approximately 80% has been
spent by the Company to date. This is in addition to approximately $7,037,244
spent by the Company through December 31, 1995, in exploration and geophysical
work on this Concession. This Concession was originally held by a joint venture
with Jastrzebska Spolka Weglowe SA, an arm of the Polish government which held a
minority interest in the Concession. The Company acquired this minority
interest in May 1996, and now holds 100% of the Concession.
Since commencing exploration work on the Pol-Tex Concession in 1991, a
total of 12 wells have been drilled to the top of the coal-bearing Carboniferous
Formation and casing set in connection with the Company's pilot program to
establish the recoverability of the methane resource. Eight additional wells
have been drilled into the coal-bearing section and production casing has been
set on these wells. Pol-Tex has also cored one well into the coal-bearing
section. One of these wells was successfully hydrologically fractured by
Halliburton, Inc., in December 1994, and continues to flow, with the methane gas
being currently flared. In addition to this well, the Company has five to six
wells that have been prepared and, in the opinion of the Company, justify the
expense of hydrologically fracturing to determine the recoverability of the
methane.
The wells in this area are drilled to a depth of approximately 4,500 feet.
The management and technical staff operating and managing the project have
significant experience in drilling and completing hydrocarbon wells. This
project has been staffed by approximately 15 professionals, geologists, and
engineers and 35 field workers.
The concession rights allow for exploration and production in Poland of
coal bed methane and the sale of any methane that might be produced both in
Poland and abroad, although the Company is required to give sales in Poland
first priority if such sales can be made at equivalent prices. The concessions
are located 20 miles south of Katowice and some 190 miles southwest of Warsaw.
All production is subject to a 6% to 9% royalty payable to the Polish
government.
Since it has not yet established production or reserves in Poland, the
Company has not negotiated contracts to sell any methane that may be produced
nor entered into agreements with the owners of pipelines to transport the
methane gas to the necessary markets. In addition, the Company has not
established the recoverability of the methane in place or the possible duration
of any production that might be established. In order to enter into production,
the Company will need to complete the necessary well head and transmission
pipeline connections. The Company will also need to establish the "lifting," or
production costs, of any recoverable methane that may be discovered. Until all
the foregoing have been resolved, the Company will not know if the exploitation
of any methane reserve that may be in place will be sufficiently economically
beneficial to justify the Company's considerable capital costs or to even
justify the production of the methane. If the Company completes a transaction
with Texaco as described below, Texaco would become the operator of the Pol-Tex
Concession and pursue exploration, recovery, and sale of gas, if warranted,
rather than the Company. The Company does intend to commence exploring the
possibilities of work on the MMJ and MMR Concessions in 1997.
As a result of the significant costs associated with establishing
commercial production, transmission, and marketing of methane gas from the
Polish coal beds and the limited financial resources available to the Company,
management decided to seek a relationship with a significant industry partner.
Pursuant to this decision, the Company is currently involved in negotiations
with Texaco Sp. z o. o. ("Texaco") regarding its coal bed methane gas interests
in Poland. Texaco is the Polish subsidiary of Texaco, Inc. The Company granted
Texaco the exclusive right to negotiate with it concerning the Poland interests
through January 31, 1997, and has recently granted an extension through February
14, 1997. Over the past few months, Texaco has performed a considerable amount
of work concerning the concessions held by Pol-Tex, including a legal review of
all documents related to Pol-Tex, a third-party commercial audit of Pol-Tex, an
environmental base line study of well locations drilled by Pol-Tex, and
extensive technical, geological, and engineering studies. In addition, Texaco
has reviewed Pol-Tex's 1996 and 1997 drilling and testing program and is
preparing cost estimates for rig refitting and upgrading. The parties have had
preliminary meetings with the Ministry of Environmental Protection of Natural
Resources and Forestry of Poland to explore the possibility of a transfer of the
concession rights to Texaco. While no agreement with Texaco has been reached,
detailed negotiations are continuing. Under the proposed terms of the
agreement, Texaco would acquire substantially all of the assets of Pol-Tex, in
exchange for a cash payment, exploration and drilling commitments, and a net
profits interest payable to the Company on production from the Pol-Tex
Concession. Texaco would become the owner and operator of the Pol-Tex
Concession and would hold a first right of refusal to acquire the Company's
other Polish concessions, in the event that the parties are able to complete
this transaction.
ACTIVITIES IN SLOVAKIA
Slovakia was until recently part of Czechoslovakia. On January 1, 1993,
the Czech Republic and Slovakia emerged as separate independent nations.
Slovakia is bounded on the north by Poland, on the east by Ukraine, on the south
by Hungary, and on the west by Austria and the Czech Republic. Slovakia has an
area of approximately 19,000 square miles and a population of approximately 5.5
million people. Slovakia has not been as quick to adopt free market reforms as
Poland and the Czech Republic and the former communist party, Party of the
Democratic Left, remains a major political force. Slovakia is a member of the
International Monetary Fund and the European Bank for reconstruction and
development and an associate member of the European Union. Bratislava is the
capital of Slovakia and its largest city.
The main economic segments of Slovakia are agricultural and manufacturing.
Various foreign companies have located manufacturing plants in Slovakia, taking
advantage of skilled, cheap professionals and other labor, as well as the close
proximity to "Western" Europe. A prime example of this is Volkswagen A.G.,
which has located manufacturing facilities in Slovakia. Energy in Slovakia is
provided by massive gas and oil imports from countries formerly a part of the
Soviet Union. Domestic production of oil and gas cover only a small percentage
of Slovakia's energy needs.
There are currently seven producing gas fields in the East Slovakian Basin,
a large geographical region in which the Company's joint venture interests are
located, although the Company does not currently have any producing wells or
reserves. Based on tested gas or gas shows over thick columns (up to 1,000
meters thick) in wells located in the south and west of the currently producing
fields near the Czech Joint Venture's interests, management of the Company
believes that large areas of the East Slovakian Basin hold the potential for a
thick column filled with tight gas similar in nature to regional gas traps in
some parts of North America.
Slovakian Joint Venture
The activities of the Slovakian Joint Venture with NAFTA are conducted
pursuant to a three year exploration permit granted on April 24, 1996. As it
continues its exploration and development on the area subject to the License,
the Joint Venture will require additional permits that have not yet been
granted. Prior to the Company acquiring its interest in the Slovakia Joint
Venture, 11 wells were drilled in the area covered by the License between 1960
and 1982. All of these wells had gas shows, though none were completed for
commercial production. The Company believes that new wells can be drilled
offsetting the old wells that, if they have similar gas shows, can be completed
with routine techniques that now exist for the recovery of gas from these types
of formations.
Maps showing the location of the Company's natural gas interests in
Slovakia and the Czech Republic and a detail of natural gas occurrence the East
Slovak Basin are set forth on the following pages.
[Graphic contained in original consisting of two maps, one depicting the general
location of the areas of mutual interest subject to the joint venture agreements
in Slovakia and the Czech Republic, and the second depicting the location of the
areas of mutual interest in Slovakia vis-a-vis existing gas fields.]
The Slovakian Joint Venture has recently drilled its initial well, Trebisov
5R, which encountered a 980 meter thickgas column subdivided into an upper
interval (appearing at 1575 meters - 2100 meters below ground level) and a lower
interval (2100 meters - 2555 meters deep). In December of 1996, after
hydrological fracturing, the upper interval tested 1 million cubic feet of gas
("MMcf") per day through a 10 millimeter choke with a flowing pressure of 450
pounds per square inch ("psi") and the lower interval tested 0.4 MMcf per day
through a 8 millimeter choke, with a flowing pressure of 275 psi. The tests
were preliminary and were conducted prior to the cleaning up of the well and
removing water from the well. The Company intends to continue testing and, if
justified, hopes to start production from this well during the spring of 1997.
The Company has commenced an additional test well, Trebisov 8, located
approximately 1.2 kilometers northwest of Trebisov 5, that is designed to test
an adjoining fault lock. Total depth on this well is targeted for approximately
2,250 meters.
Under the terms of the agreement which governs the Slovakian Joint Venture,
the Company is obligated to provide 75% ($4,980,000) of the projected initial
test phase funding of $6,640,000 and 60% ($4,080,000) of the projected capital
investment cost for the initial production phase of $6,800,000. The test phase
began in May 1996, and is intended to continue through June 1997. In addition
to the Trebisov 5R and the Trebisov 8 well, the Company is obligated to provide
funding for one additional test well during this test phase and to complete a
seismic program to collect additional geophysical data. Any funds required for
the initial test phase in excess of $6,640,000 will be paid 60% by the Company
and 40% by NAFTA.
Subject to obtaining satisfactory results during the test phase, the
Slovakian Joint Venture plans to begin the development and production phase
covering an additional seven calendar quarters during which the wells drilled by
the joint venture that are believed to be commercial will be brought on line and
four additional wells will be drilled. If the cost of development and
production exceeds $6,800,000, additional funds will be paid 50% by the Company
and 50% by NAFTA.
The Slovakian Joint Venture is managed by a joint management committee
consisting of four appointees of each of the joint venture participants. Major
decisions with respect to the development and operation of the Slovakian
Concession require the approval of the joint management committee. Action taken
by the joint management committee is required to be unanimous. The Company,
through its subsidiary, Danube, acts as the operator of the Slovakian Concession
during the initial test phase and for all subsequent drilling and testing
operations. NAFTA acts as the operator for production operations. All of the
assets acquired by the joint venture are owned 50% by each of the participants.
If one of the participants wishes to undertake any drilling, testing,
production, or exploration work on the Slovakian Concession and is unable to
obtain the approval of the joint management committee, it can proceed with the
work at its own expense and risk. Any party drilling a successful well under
such conditions is entitled to recover 200% of the direct investment in the well
if it is drilled in an existing field or 400% of the direct investment if the
well is a wildcat well.
The Slovakian Joint Venture conducts its activities pursuant to a three-
year exploration permit expiring April 24, 1999. As work continues, the
Slovakian Joint Venture will require additional permits that have not yet been
granted. The Slovakian Joint Venture has not established the extent of any
reservoir that may have been tapped by its activities to date and has not
entered into any contracts for the sale or transportation of any gas that might
be recovered. If the Slovakian Joint Venture is unable to obtain the necessary
permits or if it is unable to establish ongoing production and sell the gas at a
sufficiently high price to pay the associated production costs, provide a return
on the capital expenditures made, provide funds for ongoing activities, and
provide a profit, it may be unable to continue its exploration and development
activities or successfully produce any natural gas that may be discovered.
ACTIVITIES IN THE CZECH REPUBLIC
General
The Czech Republic is bounded on the north by Poland, on the east by
Slovakia, on the south by Austria, and on the west and north by Germany. Until
January 1993, the Czech Republic was a part of Czechoslovakia. The Czech
Republic has an area of approximately 30,450 square miles and a population of
approximately 10.5 million people. The Czech Republic has been one of the most
successful countries in making the transition from a central economy to a free
market economy, partly because it was more industrialized than many of the other
countries in eastern Europe that were formally part of the communist block. By
the mid 1990s, approximately 80% of the companies in the Czech Republic had been
privatized or had announced a strategy for transition to private ownership.
Unemployment has remained relatively low. The annual value of exports in the
early 1990s was estimated at approximately $12.6 billion and annual imports
estimated at approximately $12.4 billion. The chief trading partners of the
Czech Republic are Germany, Slovakia, Poland, Austria, Hungary, Great Britain,
and Italy.
The Czech Republic has continued to move aggressively toward a free market
economy. It is an associate member in the European Union and has signed the
Partnership for Peace Agreement with Western Nations as a precursor to becoming
a member of the North Atlantic Treaty Organization. Prague is the capital of
the Czech Republic and its largest city.
The Czech Joint Venture
The Czech Joint Venture in which the Company has the right to earn a 25% to
50% interest holds two licenses to explore for, develop, and produce
hydrocarbons from an approximately 40,180 acre area in an area known as the
Zdanice Field about 40 kilometers southeast of the city of Brno in the Czech
Republic. Based on previous activities, including drilling and testing in the
license areas, management of the Company believes that portions of the area have
the potential for natural gas production. The two exploration permits held by
the Czech Joint Venture expire in 1998 and 2000, respectively. A map showing
the location of the Czech License and existing gas pipelines is set forth on the
following page.
[Graphic in original consisting of map depicting the general location of oil and
gas pipelines vis-a-vis the areas of mutual interest in the Czech Republic.]
On January 17, 1997, MND, the Company's joint venture partner in the Czech
Republic, notified the Company that the Company is delinquent in the payment of
certain obligations under the joint venture agreement and threatened to
terminate the association. The Company does not agree with MND's assertions and
has invoked its right to arbitrate this dispute. Pending resolution of the
dispute, the Company has suspended any further work in the Czech Republic. (See
"ITEM 3. LEGAL PROCEEDINGS.")
The Czechoslovakian government drilled nine wells in the area licensed to
the Czech Joint Venture prior to the Company acquiring an interest in this area.
Six of these wells encountered gas. The initial well, Zdanice #14, was drilled
in 1987 and initially tested at 4.1 MMcf per day. Another well, the Zdanice
#132, was drilled into a Miocene formation between the top sealing Nappes and
the Paleozoic basement formation. The Miocene section contained reservoir sands
that tested at up to 5.3 MMcf per day. The extent of the reservoirs that these
wells were drilled into is currently unknown since none of the earlier wells was
completed for production of commercial gas. In addition, none of these wells
are currently connected to transportation pipelines. However there is an
existing pipeline grid located within 8 kilometers.
Recently the Company reentered Zdanice #14 well and the reservoir section
was perforated and acidized. A short-term test showed a flow rate of 2.37 MMcf
per day with a bottom hole flowing pressure of 924 psi and a bottom hole shut-in
pressure of 1009 psi. The calculated absolute open flow potential was
approximately 6.36 MMcf per day. The Zdanice #132 well was also reentered and
perforated. Initial testing of the Zdanice #132 reflected a flow rate of 1.33
MMcf per day with a bottom hole flowing pressure of 794 psi and a bottom hole
shut-in pressure of 981 psi. The absolute open hole flow potential was
calculated to be approximately 5 MMcf per day.
Under the terms of the joint venture, the Company is obligated to provide
funds for the initial test phase in the amount of $1,200,000 in exchange for a
25% working interest in the Czech License. The Company has the option to
acquire an additional percentage points of interest for each 3.28 million Czech
Crowns (approximately $120,000 per 1% interest based on the exchange rate for
Czech Crowns of 27.5 to each U. S. dollar as of January 13, 1997) in funding
provided by it up to an aggregate of 82 million Czech Crowns (approximately
$3,000,000 based on the January 13, 1997 exchange rate) for a total 50% working
interest. Subsequent to establishing production from the wells, obtaining the
necessary financing, and successfully resolving the existing dispute with MND,
the Czech Joint Venture will proceed with additional exploration work on the
remaining acreage subject to its licenses.
The Czech Joint Venture is run by an operating committee consisting of four
representatives from each of the joint venture parties. The operating committee
is charged with making all major decisions on behalf of the joint venture, which
decisions are required to be made unanimously. If the parties are unable to
come to a resolution on any matter, the proposal of the operator shall prevail.
The Company acts as operator during the initial stage for drilling, testing, and
completion of any well. MND acts as operator with respect to each well as of
the initial commercial production from that well. The operating committee is
obligated to give preference to MND's affiliates and/or local goods, equipment,
and services, provided that they are available on terms competitive with those
offered by third parties. If any party is unable to obtain the approval of the
operating committee for any work it wishes to undertake on the Czech License, it
can advance the funds for such work and receive a return on that investment, if
successful, of 500% if a well is located in an existing field and 1000% if the
well is a wildcat.
The initial work in the Czech Republic has been recently completed, and the
Czech Joint Venture does not have a contract to sell any gas that may be
produced. In addition, it has not acquired transportation rights from the
owners of pipelines nor acquired right-of-ways necessary to connect with
existing pipelines. Finally, the Czech Joint Venture is operating under short-
term licenses that will need to be extended and expanded in order to continue
exploration and, if justified, development and production.
As a result of the dispute that has arisen with MND. The Company may not
be able to benefit from its interest in the Czech Joint Venture, although it
intends to aggressively pursue its rights. (See "ITEM 3. LEGAL PROCEEDINGS.")
RISKS ASSOCIATED WITH LOCATION OF COMPANY'S INTERESTS
The operations in Poland, Slovakia, and the Czech Republic carry with them
certain risks in addition to the risks normally associated with the exploration
and development of hydrocarbons. Although recent political and socio-economic
trends in these countries and the development of a capitalistic economy provide
opportunities for foreign investment, the risks of political instability, a
change of government, renegotiation of the concessions or contracts,
nationalization, foreign exchange restrictions, and other risks must always be
taken into account when operating in Eastern Europe. The terms of the governing
agreements are subject to administration by the various governments and are,
therefore, subject to changes in the government itself, changes in government
personnel, the development of new administrative policies and practices, the
adoption of new laws, and other factors. There can be no assurance that the
laws, regulations, and policies applicable to the concessions and licenses and
thus, indirectly to the Company, will not be adversely changed at some future
date.
COMPETITION
In seeking to explore for, develop, and produce oil and gas, the Company
competes with some of the largest corporations in the world, in addition to many
smaller entities involved in this area. Amoco holds a concession for the
production of coal bed methane located in the same area of Poland as the
Company's Pol-Tex Concession. Many of the entities that the Company competes
with have access to greater financial and managerial resources than the Company.
As a result of the exclusive nature of the concessions held by the Company, to
the extent that it is able to successfully explore for, develop, and produce
hydrocarbon resources, the Company will be able to exclude any competitor from
production of the resources located on the concessions, but it cannot exclude
competitors from providing natural gas or other energy sources at prices or on
terms that purchasers deem more beneficial.
GOVERNMENTAL REGULATION
The Company's activities in Poland, the Czech Republic, and Slovakia are
subject to political, economic, social, and legal changes, including the
adoption of new laws, regulations, or administrative policies that may adversely
affect the Company or the terms of its exploration or production rights;
political instability and changes in government or public or administrative
policies; changes in export and transportation tariffs and local and national
taxes; foreign exchange and currency restrictions and fluctuations; inflation;
adoption of additional environmental regulations; and other matters. A change
in any of these areas could have a materially adverse impact on the prospects of
the Company.
As a result of the negative effect of the break up of Czechoslovakia and
the uncertain economic policies of the Slovakian government, outside investors
have not sought to invest in Slovakia to the same extent that they have in
Poland and the Czech Republic. The Slovakian government has not pushed as
significantly for market reforms and the former communist party has remained a
powerful political force. Consequently, the risk of political, economic, and
legal uncertainties may be greater in Slovakia than in Poland or the Czech
Republic. However, the stated policy of the Slovakian government is to continue
to create investment opportunities for foreign entities.
All of the Company's gas interests are subject to the mining laws in the
respective countries in which they are located. Furthermore, the Company's
concessions and licenses are often subject, either explicitly or implicitly, to
ongoing review by governmental ministries. In the event that any of the
countries elect to change such mining laws, it is possible that the government
might seek to annul or amend the governing agreements in a manner unfavorable to
the Company or impose additional taxes or other duties on the activities of the
Company. As a result of the potential for political risks in these countries,
it remains possible that the governments might seek to nationalize or otherwise
cause the interest of the Company in the various concessions and licenses to be
forfeited.
Each of the countries has, and continues to adopt, laws governing
environmental concerns and the Company's drilling and exploration activities are
required to be conducted in accordance with these laws. While these laws are
not as fully developed and detailed as similar laws that exist in the United
States, the Company is required to conduct its operations in compliance with
such laws and must prepare and submit to the appropriate agency various
operational plans, including a discussion of environmental matters, which must
be approved before the Company can proceed.
EMPLOYEES AND CONSULTANTS
As of December 31, 1996, the Company had two administrative employees
located in Salt Lake City, Utah; 50 technical and field workers in Poland; 15
technical and field workers in the Czech Republic; and 25 technical and field
workers in Slovakia. None of the Company's employees is represented by a
collective bargaining organization, and the Company considers its relationship
with its employees to be satisfactory. In addition to its employees, the
Company regularly engages technical and other consultants to provide specific
geological, geophysical, and other professional services.
OPERATIONAL HAZARDS AND INSURANCE
The Company is engaged in the drilling and production of methane and
natural gas and, as such, its operations are subject to the usual hazards
incident to the industry. These hazards include blowouts, cratering,
explosions, uncontrollable flows of gas or well fluids, fires, pollution,
releases of toxic gas, and other environmental hazards and risks. These hazards
can cause personal injury and loss of life, severe damage to and destruction of
property and equipment, pollution or environmental damage, and suspension of
activities. The Company has not as yet obtained any hazard insurance although
it has applications pending. The occurrence of a significant adverse event
that is not covered by insurance would have a material adverse effect on the
Company.
OFFICE SPACE
The Company leases the 35th floor and penthouse of the building located at
80 Broad Street, New York, New York, consisting of approximately 8,800 square
feet, under the terms of a sublease ending on August 31, 2000. The rent under
this lease is $11,025 per month and required an initial prepaid rent of $481,100
on execution. The Company received a rent allowance equal to the first four
months of the lease term commencing on September 1, 1996. The monthly lease
payments are subject to annual escalation, based on the operating expenses of
the building. The offices are currently occupied by the Company's public and
shareholder relations firm which currently provides services to the Company in
lieu of rent. The Company expects to use more of the space itself as its
operations expand.
On September 3, 1996, the Company entered into a three-year lease for
property located at 942 East 7145 South, #101A, Midvale, Utah, that provides for
monthly payments of $1,631.40. The lease provides for annual increases in the
lease payment in an amount equal to the increase in Consumer Price Index;
provided that, such annual increase shall be not less than 6% or greater than
10%.
The Company leases office space in Jastrzebie, Poland, with an option to
purchase. The Company has exercised this purchase option and paid the initial
$100,000 down payment and is currently making $3,000 a month payments against
the purchase price of $900,000. In addition, the Company's current lease
payments on this property are approximately $1,500 per month. The property
consists of a 10,000 square foot building located on a 350,000 square foot lot
(approximately 8 acres.) If the Company completes a transaction with Texaco,
this asset would be included in the sale.
The Company owns an office in Warsaw, Poland, consisting of 2,230 square
feet which is not a part of the proposed transaction with Texaco
Commencing in March of 1997, the Company intends to operate its executive
offices out of New York, New York. Paul Hinterthur, the Company's president,
will spend a substantial amount of time in that office. The Company will also
keep an administrative office in Salt Lake City, Utah headed by Hank
Blankenstein, the Company's secretary and treasurer.
Armando Ulrich, a Company consultant, provides space for the operation of
Energy Global as part of his consulting contract. (See "ITEM 9. DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS; COMPLIANCE WITH SECTION
16(a) OF THE EXCHANGE ACT: Key Consultants.")
HISTORY
The Company was incorporated in the state of Utah under the name
Northampton, Inc. ("Northampton"), on October 7, 1985. On August 3, 1994,
Northampton entered into a share exchange agreement with Energy Global, the
initial step in the Company becoming an oil and gas development stage entity,
which turned control of the company over to the former owners of Energy Global.
Energy Global had been formed as a holding company for GlobeGas, an operating
entity in which it held a minority interest. The minority interest in GlobeGas
was initially reported on the equity method on Northampton's financial
statements. The Company subsequently acquired a 100% interest in GlobeGas, and
since the operations of Energy Global and Northampton prior to the
reorganization were immaterial, the transaction has been accounted for as if
GlobeGas were the acquiring entity and the historical financial statements
included in this report are those of GlobeGas. (See Note 1 to the Financial
Statements.)
The agreement with Energy Global required that Northampton complete a stock
consolidation of one share for each twenty-four shares previously issued and
outstanding and deliver 23,900,000 post-consolidation shares of common stock to
the former owners of Energy Global, reducing the prior shareholders' interest to
approximately 10%. The former shareholders of Energy Global also received
$9,000,000 in convertible debentures which were subsequently converted into
shares of common stock. (See "ITEM 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.") Thus the former shareholders of Energy Global became the
controlling shareholders of the Company, which changed its name to EuroGas, Inc.
Merlin V. Fish and Mark Burdge of the United States, officers and directors of
Northampton, continued to act as officers and directors until December of 1995.
All of the current officers and directors of the Company have been appointed by
the foreign shareholders. (See "ITEM 11. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.")
The original asset of Energy Global was a 16% minority interest in
GlobeGas, a Netherlands corporation that held, through a joint venture,
concessions in Poland. (GlobeGas was an 85% partner with a formerly state owned
Polish coal company and held three different concessions for the exploration and
exploitation of methane coal bed gas reserves in the Upper Silesian region of
Poland.) From September of 1994 through May of 1995, the Company delivered
$3,380,963.00 in cash in exchange for additional interests in GlobeGas, which
raised the Company's participation in GlobeGas to 19.13%. In May 1995, the
Company acquired the remaining 80.87% interest in GlobeGas in exchange for
$1,150,000 in cash, the issuance of 2,256,560 shares of restricted common stock,
and the issuance of 2,391,968 shares of newly created preferred stock (the "1995
Preferred Stock"), convertible at the rate of two shares of common stock for
each share of 1995 Preferred Stock. The Company originally booked its interest
in GlobeGas as an interest in a minority-held subsidiary, but since the
acquisition of the remaining interest in GlobeGas has restated its financial
presentation to reflect the historical cost basis of the assets held by GlobeGas
rather than the Company's purchase price, substantially reducing the carrying
value of these assets on the Company's balance sheets. (See Note 1 to the
Financial Statements.)
In May of 1996, the Company acquired the 15% interest in the Pol-Tex
Concession held by the Polish state coal company in exchange for a cash payment
of $25,000 and the release of the obligation of the Polish state coal company to
reimburse GlobeGas, the Company's then wholly-owned subsidiary, approximately
$1,200,000 for drilling and related costs.
Subsequent to acquiring a 100% interest in the Pol-Tex Concession, the
Company entered into negotiations with Texaco, which resulted in an agreement in
June 1996, to give Texaco exclusive rights to negotiate with the Company
concerning Pol-Tex. This agreement was amended in October 1996 to extend the
exclusive negotiating period to January 31, 1997. The exclusive negotiating
period was further extended to February 14, 1997, on January 31, 1997. While no
agreement has yet been reached, detailed negotiations continue. As currently
proposed, Texaco would acquire substantially all of the assets of Pol-Tex,
including the Pol-Tex Concession, in exchange for a cash payment, exploration
and drilling commitments, and a net profits interest. (See "Activities in
Poland.")
In July 1996, the Company continued in its quest to acquire additional gas
interests in Eastern Europe by acquiring Danube. Danube was a participant in
joint ventures for the exploration and production of natural gas in Slovakia and
the Czech Republic. Both joint ventures are with formerly state owned gas
companies of Slovakia and the Czech Republic. Danube was acquired for
$3,000,000 in cash ($500,000 paid at closing and $2,500,000 which was due on or
before December 31, 1996, but which has not yet been paid) the issuance of
2,500,000 shares of the Company's restricted common stock, the issuance of
1,250,000 shares of a newly created preferred stock (the "1996 Preferred
Stock"), which is convertible into an aggregate of 2,500,000 additional shares
of the Company's common stock, and the issuance of warrants to purchase up to
5,000,000 shares of common stock at $3.00 per share during the five years
subsequent to the closing. (See "ITEM 3. LEGAL PROCEEDINGS.")
In connection with the transaction, the Company also issued 12,500,000
shares of common stock to Chemilabco, which held an interest in the operating
subsidiaries of Danube and options to participate in the Czech and Slovakian
operations of Danube. (The transaction was modified after the filing of the
Company's interim report on Form 8-K dated July 12, 1996, and the total amount
of shares that may be issued under all circumstances was reduced by up to
8,500,000 shares. An outside investment group holds a 5% interest in the gas
projects of Danube that it received in exchange for a $1,000,000 investment and
which was granted prior to the acquisition of Danube by the Company. As part of
the acquisition, Danube agreed to pay advisory fees to SBC Warburg, a United
Kingdom investment bank, and Moyes Newby & Company. (See "ITEM 3. LEGAL
PROCEEDINGS.")
In July of 1996, the Company added Dr. Martin A. Schuepbach, the President
of Danube, as a director of the Company and appointed him as the Company's
president and chief executive officer. Mr. Schuepbach has recently resigned as
a director and officer of the Company and has asserted a claim based on his
employment agreement. (See "ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION" and "ITEM 3. LEGAL PROCEEDINGS.")
ITEM 3. LEGAL PROCEEDINGS
On August 1, 1995, the United States Securities and Exchange Commission
(the "SEC") issued a formal order In the Matter of EuroGas, Inc., to investigate
whether violations of applicable law may have occurred. The Company has
produced numerous documents pursuant to extensive subpoenas from the SEC and the
oral testimony of its officers and directors. The SEC has obtained similar
information from the Company's independent public accountants. The Company
cannot predict the duration or outcome of this investigation.
Kukui, Inc. ("Kukui"), acting on behalf of the Unsecured Creditors Trust of
the Bankruptcy Estate of McKenzie Methane Corporation (McKenzie Methane
Corporation was an affiliate of the former owner of Pol-Tex), had asserted
certain claims against Pol-Tex and GlobeGas in connection with lending
activities between McKenzie Methane Corporation and the management of GlobeGas
prior to its acquisition by the Company. The claim asserted that funds that
were loaned to prior management may have been invested in GlobeGas and,
therefore, McKenzie Methane Corporation might have had an interest in GlobeGas
at the time of the acquisition of GlobeGas by the Company. These claims have
been fully resolved pursuant to a settlement agreement entered into in November
1996. Under the terms of the settlement agreement, the Company issued 100,000
shares of restricted Common Stock and an option to purchase up to 2,000,000
shares of Common Stock at any time prior to December 31, 1998, to the Bishop's
Estate (Kukui's parent). The option can be exercised at $3.50 per share if
exercised within 90 days of the execution of an agreement with Texaco; $4.50 per
share if exercised prior to December 31, 1997; and $6.00 per share if exercised
prior to December 31, 1998. The Company also granted registration rights with
respect to the securities.
The Kingdom of the Netherlands has indicated it will assess a tax against
the Company's operating subsidiary, GlobeGas, even though it has significant
operating losses. The tax is the result of imputed earnings calculated on
interest-free loans made by GlobeGas. At such time as the Company receives the
assessment from the Netherlands, it intends to contest the tax. However, the
Company may be required to post a bond to contest the matter. The Company has
recorded a tax provision of $155,232 in 1995 and $140,005 in 1994 to reflect
this liability.
After the acquisition of Danube, certain problems have arisen as follows:
Moyes, Newby & Co., Inc. ("Moyes Newby"), a financial consulting firm
retained by the Company's subsidiary, Danube, prior to its acquisition by the
Company, has filed a complaint asserting a claim for $435,000 in commissions
related to a proposed financing, plus interest and attorneys' fees. The
commitment made to Moyes, Newby & Co., Inc. was made by Mr. Schuepbach and
Danube prior to any involvement by the Company. The claim appears to be based
specifically on subsequent representations made by Mr. Schuepbach which were not
authorized by the Company's current board of directors. The Company has offered
to pay Moyes Newby $50,000 as commissions and 5% of any additional amounts that
may be received by the Company in the future as a result of the efforts of Moyes
Newby. Discovery has not commenced and the Company is currently unable to
predict the outcome of this matter.
By letter dated January 14, 1997, Martin Schuepbach resigned as president
and chief executive officer of the Company and as a member of its board of
directors. Mr. Schuepbach also asserted a breach of his employment contract.
The Company denies breach of Mr. Schuepbach's contract. The Company does not
feel that the loss of Mr. Schuepbach will hinder its operations as the Company
believes that his principal expertise as an engineer is readily replaceable.
The Company is not aware of any litigation having been filed with respect to
this matter. However, Mr. Schuepbach is also owed a portion of the $2,500,000
that was to be paid December 31, 1996, as part of the consideration in the
acquisition of Danube. This amount has not been paid by the Company to date.
On January 17, 1997, MND, the Company's joint venture partner in the Czech
Republic notified the Company that it is delinquent in the payment of certain
obligations of the joint venture agreement and threatened to terminate the
association. The Company does not agree with MND's assertions and has invoked
its right to arbitrate this dispute. Pending resolution of the dispute, the
Company has suspended any further work in the Czech Republic.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the Company's fiscal year ended December 31, 1995, the Company did
not hold an annual meeting and no matters were submitted to a vote of the
security holders of the Company, through the solicitation of proxies or
otherwise.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The common stock of the Company is traded on the Bulletin Board under the
symbol "EUGS" (recently changed from "EGAS"). As of December 31, 1995, there
were 32,974,033 shares of the Company's common stock issued and outstanding.
Since December 31, 1995, the Company has issued an additional 16,069,829 shares
of common stock.
The following table sets forth the approximate range of high and low bids
for the common stock of the Company during the periods indicated. All prices
reflected herein have been adjusted retroactively to reflect the 24-for-1
reverse stock split recently approved by the Company. The quotations presented
reflect interdealer prices, without retail markup, markdown, commissions, or
other adjustments and may not necessarily represent actual transactions in the
common stock.
<TABLE>
<CAPTION>
Quarter Ended High Bid Low Bid
<S> <C> <C>
December 31, 1994 $4.25 $2.00
March 31, 1995 $4.75 $2.50
June 30, 1995 $4.875 $3.25
September 30, 1995 $4.50 $2.50
December 31, 1995 $3.625 $1.375
March 31, 1996 $3.25 $1.125
June 30, 1996 $7.875 $1.75
September 30 1996 $5.75 $2.875
December 31, 1996 $5.00 $2.875
</TABLE>
The liquidity of the common stock may be limited, and the reported price
quotes may not be indicative of prices that could be obtained in actual
transactions. On January 27, 1997, the Company's common stock was quoted in the
over-the-counter market at approximately $4.62 bid, $4.75 asked.
No dividends have been paid on the Company's securities, and the Company
does not have retained earnings from which to pay dividends. All cumulative
dividends with respect to the Company's preferred stock would be required to be
paid prior to the Company declaring or paying any dividend on its common stock.
(See "ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.") Even if the Company were to generate the necessary earnings, it
is not anticipated that dividends will be paid in the foreseeable future, except
to the extent required by the terms of the cumulative preferred stock currently
issued and outstanding.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
GENERAL
The Company is engaged in the business of acquiring rights to methane and
natural gas prospects and exploring for and developing gas reserves. The
Company does not have any significant production and is classified as an
exploration enterprise in the development stage for financial reporting
purposes. The transaction with Energy Global and its wholly-owned subsidiary
GlobeGas has been accounted for as a reorganization with GlobeGas being
considered the acquiring company for accounting purposes. (This treatment is
due primarily to the fact that it was GlobeGas and its wholly-owned subsidiary,
Pol-Tex, which held most of the Company's assets and whose interest were
represented by the now majority shareholders of the Company.)
The Company accumulated a deficit of approximately $13,900,000 through
December 31, 1995, most of which has been paid by the issuance of stock or debt
instruments, substantial portions of which were issued to related parties. (See
"ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.") Such financing
activities provided net cash of $2,927,000, $4,989,000, and $4,166,000 during
the years ended 1995, 1994, and 1993, respectively. Since December 31, 1995,
the Company has continued to rely on cash provided from financing activities to
fund its ongoing activities and expects that it will be required to continue to
do so.
The Company's principal assets consist of unproved and undeveloped gas
properties. All costs incidental to the acquisition, exploration, and
development of such properties are capitalized, including costs of drilling and
equipping wells and directly related overhead costs which include the costs of
Company owned equipment. Since the Company has no proved reserves or
established production, these properties have not been amortized. In the event
that the Company is ultimately unable to establish production or sufficient
reserves on these properties to justify the carrying costs, the value of the
assets will need to be written down and the related costs charged to operations,
resulting in additional losses.
RESULTS OF OPERATIONS
The Company has not received any revenues since inception.
Depreciation and valuation allowance decreased to $481,000, or 22%, for
1995 from approximately $620,000 for the year ended December 31, 1994, even
though the amount of property and equipment subject to depreciation increased
from December 31, 1994, to December 31, 1995.
The Company incurred general and administrative costs of approximately
$3,528,000 in the year ended December 31, 1995, as compared to approximately
$2,666,000 for the year ended December 31, 1994, an increase of approximately
32%. This increase in general and administrative expenses was due primarily to
the expansion of the office and other facilities of the Company related to
increased exploration activities. Compensation paid by the Company decreased
from approximately $1,460,000 in 1994 to approximately $1,300,000 in 1995.
Other income decreased to a loss of $700,000 for the year ended December
31, 1995, as compared to a loss of $258,000 for the previous year, primarily as
a result of increased interest expense related to substantially larger
borrowings during 1995. In addition, fluctuations in currency exchange rates
resulted in losses of $81,000 as compared to gains of $95,000 in the previous
year.
The Company's net loss applicable to common stock increased from $3,700,000
in the year ended December 31, 1994, to approximately $4,300,000 for the year
ended December 31, 1995.
Due to the highly inflationary economies of the Eastern European countries
in which the Company operates, the Company is subject to extreme fluctuations in
currency exchange rates that can result in the recognition of significant gains
or losses during any period.
As of December 31, 1995, the Company reported $7,037,000 in mineral
interests in unproved mineral properties, net of valuation allowance. These
properties are held under licenses or concessions that contain specific drilling
or other exploration commitments and that expire within one to three years,
unless the concession or license authority grants an extension or a new
concession license, of which there can be no assurance.
Under the full cost method by which the Company accounts for its mineral
interests in properties, costs of unproved properties are assessed periodically
and any resulting provision for impairment which is required is charged to
operations. The impact of such reassessment and resulting impairment charge
could be significant during any particular period. As a result of the
foregoing, the results of operations for any particular period may not be
indicative of the results that could be expected.
CAPITAL AND LIQUIDITY
Throughout its existence, the Company has relied on cash from financing
activities to provided cash required for operating and investing activities.
During 1995, operations required cash of approximately $2,356,000 as compared to
$2,449,000 for the preceding year. The slight decrease in net cash used in
operations is principally the result of the $1,389,000 increase in accrued
expenses in 1995 as compared to 1994, reflecting the shortage of cash with which
to pay ongoing expenses, which more than offset other operating items requiring
less cash in 1995 than in the previous year, including a $542,000 smaller net
loss in 1995 than in 1994. Since inception, operating activities have used net
cash of $7,463,000, principally to fund cumulative net losses of $13,858,694.
Investing activities used net cash of $1,294,000 and $1,851,000 during 1995
and 1994, respectively, and $10,397,000 since inception. Investing activities
during 1995 and 1994 as well as 1993 consisted almost exclusively of the
purchase of the mineral interests in properties in Poland, the Czech Republic,
and Slovakia on which the Company's activities are now concentrated.
Financing activities provided net cash of $2,927,000 and $4,989,000 for
1995 and 1994, respectively, and $18,196,000 from inception through December 31,
1995. During 1995 and 1994, the principal source of such cash was loans from
related parties, which provided cash, net of repayments, of $1,105,000 in 1995,
and $3,354,000 in 1994. From inception through December 31, 1995, the proceeds
from indebtedness to related parties have provided net cash of $6,406,000. (See
"ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.") Proceeds from
indebtedness to unrelated parties provided net cash of $848,000 and $174,000
during 1995 and 1994, respectively, and $1,680,000 from inception through
December 31, 1995. The Company expects that it will continue to rely
principally on the proceeds from indebtedness to related parties to finance its
activities.
At December 31, 1995, the Company had total current assets of approximately
$104,000 and total current liabilities of approximately $6,612,000, resulting in
a negative working capital ratio of 1:66. Included in current liabilities at
such date, is the current portion of the long-term debt owned to OMV
Aktiengescellschaft ("OMV"), an unaffiliated Austrian gas transmission company.
As of January 27, 1997, OMV had not sought to collect the amount of the
promissory note due to it. The Company is currently seeking to negotiate a
conversion of this note to equity in connection with the proposed agreement with
Texaco.
Since December 31, 1995, the Company has received approximately $4,400,000
from the proceeds of additional unsecured loans and approximately $2,200,000
from the proceeds of the issuance of debentures. (See "ITEM 12. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS.") On December 31, 1996, the Company
received extensions on the unsecured loans until December 31, 1999, on the
condition that the Company collateralizes the loans with mutually agreeable
collateral within the foreseeable future. As of December 31, 1996, the Company
also had a $2,500,000 obligation to the former Danube shareholders who are now
principal stockholders of the Company. (See "ITEM 12. CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS" and "ITEM 11. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.") While the Company is attempting to
negotiate for an extension of the due date on the Danube debt, it has not been
successful to date. (See "ITEM 3. LEGAL PROCEEDINGS.")
In February of 1996, the Company announced an agreement with a third-party
European finance company for the purchase of $15,000,000 of five-year
convertible debentures bearing 7-1/2 % interest per annum and convertible into
common stock at $3.00 per share. While the Company believed it would
simultaneously close that transaction, it was unable to do so principally
because it did not have current audited financial statements and was not current
in filing its periodic reports with the Securities and Exchange Commission. The
Company is continuing to work with this financing source and hopes to complete
that matter prior to June 30, 1997. To date, the financing entity has purchased
$1,000,000 of the convertible debentures. In the interim, the Company has been
financed principally through unsecured loans in the aggregate amount of
approximately $4,400,000, including $3,080,000 loaned from related parties. The
due date of these unsecured loans has recently been extended to December 31,
1999, on the condition that the Company collateralizes the loans with mutually
agreeable collateral within the near future. Most of these loans have been
arranged by the Company's primary consultant, Wolfgang Rauball, and Paul
Hinterthur. (See "ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.")
As of January 27, 1997, the Company had estimated current assets of
$100,000 and liabilities of approximately $7,000,000, including approximately
$4,400,000 on loans due December 31, 1999, $2,500,000 due the former Danube
stockholders who are now affiliates of the Company, and $1,800,000 due OMV, all
as discussed above. In addition, the Company is required to spend approximately
$584,000 by March 31, 1997, to satisfy its exploration obligation under the Pol-
Tex Concession, unless an agreement with Texaco is completed under which Texaco
would assume such obligation. (See "ITEMS 1 AND 2. DESCRIPTION OF BUSINESS AND
PROPERTIES: Activities in Poland--The Polish Concession.") The Company
estimates that it will require cash of approximately $550,000 per quarter for
operating expenses, excluding compensation to executive employees, consultants
and their affiliates. (See "ITEM 10. EXECUTIVE COMPENSATION: Employment and
Consulting Arrangements.") The Company is also required to fund drilling
commitments of the Slovakian and Czech Republic Joint Ventures.
The Company anticipates that if the proposed transaction with Texaco can be
completed, it will materially improve the Company's liquidity. The principal
terms now being negotiated with Texaco include a cash payment to the Company at
closing of $500,000 plus Texaco's assumption of all Pol-Tex concession
obligations, including the obligation to spend approximately $584,000 by March
31, 1997, for exploration. In addition, the Company believes that the
completion of an agreement with Texaco consistent with the principal terms now
being negotiated will enhance the Company's ability to attract third party debt
and equity capital. There can be no assurance, of course, that an agreement
with Texaco will actually be reached, that any agreement that is reached will be
on terms favorable to the Company, or that any financing from other sources will
be available. If the necessary funding is not available, the Company may be
unable to continue and it is unlikely that it would be able to sell its
interests for an amount sufficient to satisfy its obligations. Consequently, if
the Company is unable to continue, there will not be any value for its
shareholders.
As noted above, during 1995 and 1994 as well as subsequently the Company
has relied principally on cash provided from financing activities to provide its
cash requirements, particularly cash provided from related parties. The Company
anticipates that it will be able to continue to obtain cash from such sources in
the foreseeable future, there can be no assurance that it will be able to do so.
If the Company is unable to establish production on reserves sufficient to
justify the carrying value of its assets or to obtain the necessary funding to
meet its short and long-term obligations or to fund its exploration and
development program, all or a portion of the mineral interests in unproved
properties will be charged to operations, leading to significant additional
losses.
ITEM 7. FINANCIAL STATEMENTS
The financial statements and supplementary data are set forth immediately
following the signature page.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
In April 1996, the Company changed its accountants from Peterson, Siler &
Stevenson (currently known as Pritchett Siler & Hardy, P.C.) to Hansen Barnett &
Maxwell. The Company also retained Grant Thornton LLP to audit its wholly-owned
subsidiary, GlobeGas. These changes were approved by the board of directors of
the Company.
The report of Peterson, Siler & Stevenson on the Company's financial
statements as of September 30, 1994, and the period then ended did not contain
an adverse opinion, or a disclaimer of opinion, nor were their reports qualified
or modified as to uncertainty, audit scope, or accounting principles, other than
a qualification as to the uncertainty of the realization of the Company's
investment in an exploration stage company (GlobeGas). During the engagement of
Peterson, Siler & Stevenson, there were no disagreements on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure which disagreements, if not resolved to the satisfaction of
Peterson, Siler & Stevenson, would have caused it to make reference to the
subject matter of the disagreements in connection with its reports.
The Company was not advised by Peterson, Siler & Stevenson that internal
controls necessary for the Company to develop reliable financial statements did
not exist nor that information came to its attention that led it to no longer be
able to rely on management's representations or that made it unwilling to be
associated with the financial statements prepared by management. The Company
was not advised by Peterson, Siler & Stevenson of the need to expand
significantly the scope of the Company's audit, nor was the Company advised that
any information came to the attention of Peterson, Siler & Stevenson that on
further investigation may (i) materially impact the fairness or reliability of
either a previously issued audit report or the underlying financial statements,
or the financial statements issued or to be issued covering the fiscal period
subsequent to the date of the most recent financial statements covered by an
audit report, or (ii) cause Peterson, Siler & Stevenson to be unwilling to rely
on management's representations or be associated with the Company's financial
statements. The Company provided its former auditors, Peterson, Siler &
Stevenson with a copy of the foregoing disclosures. The Company has filed a
concurrence of the former auditors with the foregoing statements as an exhibit
to its reports filed with the Securities and Exchange Commission.
The Company did not consult Hansen Barnett & Maxwell or Grant Thornton LLP
prior to their appointment regarding the application of accounting principles to
a specific completed or contemplated transaction, the type of audit opinion, or
seeking other advice that was considered by the Company in reaching a decision
as to an accounting, auditing, or financial reporting issue. At the time of the
report of Peterson, Siler & Stevenson on the financial statements as of
September 30, 1994, the Company reflected its ownership in GlobeGas as a
minority investment in an exploration stage entity. Since that time, the
Company has acquired a 100% interest in GlobeGas and, as reflected elsewhere in
this report, the historical financial statements included herein are those of
GlobeGas. (See Note 1 to the financial statements.)
The Company and its current auditors have not disagreed on any items of
accounting treatment or financial disclosure.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Set forth below is the name and age of each executive officer and director
of the Company, together with all positions and offices of the Company held by
each and the term of office and the period during which each has served:
<TABLE>
<CAPTION>
Name Age Positions With the Company Director Since
<S> <C> <C> <C>
Dr. Reinhard Rauball 50 Director 1994 - August
Paul Hinterthur 59 Vice President and Director 1995 - December
Hank Blankenstein 55 Secretary and Director 1995 - December
Dr. Gregory P. Fontana 37 Director 1996 - January
Dr. Hans Fischer 51 Director 1996 - January
</TABLE>
A director's regular term continues until the next annual meeting of
shareholders and thereafter until his successor is duly elected and qualified.
Officers serve at the pleasure of the board of directors. There is no family
relationship among the current directors and executive officers.
Effective November 1 1996, the Company appointed an executive committee
consisting of four members, Martin Schuepbach, Paul Hinterthur, and Hank
Blankenstein, all of whom were then directors and officers of the Company
(Martin Schuepbach resigned on January 14, 1997), and J. Toni Preuss, an officer
and director of the Company's subsidiary, GlobeGas. The executive committee is
charged with overseeing the day-to-day management of the Company and with making
all significant contractual and financial decisions.
COMPANY CONTROL
Dr. Reinhard Rauball, the chairman of the board of directors, and Wolfgang
Rauball, the Company's chief consultant, are brothers. Both gentlemen have been
key figures in arranging the original transaction with Energy Global, the
acquisition of the concessions in Poland, and the later acquisition of Danube,
which holds concessions in the Czech Republic and Slovakia. From time to time,
the Rauballs, principally Wolfgang Rauball, have also arranged for equity and
debt financing for the Company through parties with whom they have previous
business and personal relationships and have directly loaned some of their own
funds to the Company. (See "ITEM 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.")
While there is no formal agreement among the Rauballs and other debt and
equity holders of Company, the practical result of the relationships is to vest
control of the Company in the Rauballs.
The following sets forth brief biographical information for each of the
foregoing.
Dr. Reinhard Rauball is a director of the Company. He has been an attorney
in Dortmund, Germany, since 1974, as well as a government appointed Notary since
1991. He was a law instructor at Bochum University from 1977 to 1979 and is the
author of numerous legal publications and books on constitutional law in
Germany. Dr. Rauball currently represents a number of prominent German
industrial companies and acts as counsel to the German government on special
projects. From 1983 to 1990, he was the chairman of the Supervisory Board of
Etienne Aigner, AG, a publicly-held company in Munich, Germany, which is a
leading international fashion concern with franchise shops in over 50 countries
around the world. He was the president of Borussia Dortmund, a leading German
soccer club, from 1979 to 1982 and 1984 to 1986.
Wolfgang Rauball has acted as an independent consultant to the European
subsidiaries of the Company since August 1994. He is president of Pol-Tex
Methane sp. z.o.o. in Poland and also acts as an alternate director of GlobeGas
B.V. Amsterdam. Mr. Rauball attended Darmstadt Technical University in Germany
from 1967 through 1971 but did not receive a degree. Thereafter, Mr. Rauball
has worked as a mining geologist in Canada from 1972 to the present date.
During the period 1976 through 1986, his consulting activities were primarily
for companies conducting exploration for gold ore bodies in Canada, the United
States, and South America. Wolfgang Rauball arranges for financing for business
enterprises, primarily public companies engaged in the mineral industry. In
1993, Wolfgang Rauball was convicted by a German court of negligently causing
the bankruptcy of a German subsidiary of a Canadian company. Mr. Rauball was a
managing director of the Canadian company. Beginning in 1987, he was involved
in a contest for control of the Canadian company. During the contest, the
German subsidiary used some of its capital to purchase restricted securities of
an unrelated company, which purchase caused the German subsidiary to become
insolvent from a balance sheet point of view. Prior to being able to solve the
problem, Mr. Rauball was deprived of his ability to participate in management of
the Canadian company (his right to participate in management was subsequently
restored by the British Columbia Securities Commission in Canada). German law
is very strict in this regard and generally holds managing directors of parent
companies responsible for either infusing additional funds to make the
subsidiary solvent or making the appropriate bankruptcy filings on behalf of the
subsidiary, neither of which was done in this case. The German court held that
Mr. Rauball was negligent in participating in the original stock purchase by the
German subsidiary. Mr. Rauball received a suspended sentence and a monetary
fine of approximately $70,000. This type of activity is not a crime in either
the United States or Canada, where Mr. Rauball then resided, and therefore, the
board of directors of the Company does not feel that this matter compromises in
any way the value of Mr. Rauball's services.
Paul Hinterthur is a director and president of the Company. He has held
executive positions with the Company since 1995. After completing studies in
Economics in Frankfurt, London and Paris, he served in executive positions for
Dresdner Bank, one of the leading banks in the world from 1965 to 1984. During
his tenure with Dresdner Bank, he served in the financial centers of Frankfurt,
London, Tokyo, and Hong Kong. After retiring from the banking business, he has
been an independent international business and finance consultant for many
years. Mr. Hinterthur speaks five languages.
Hank Blankenstein is a director and secretary/treasurer of the Company. He
has had over 30 years experience in various levels of management positions. He
served as an administrative financial officer for a large semiconductor facility
from 1973 to 1985. Prior to that, he served in a number of operational
positions for high tech industry companies, having engineering production
supervising responsibilities, in charge of a 400 person division. He has been
involved in several high tech start-up situations serving in senior management
positions. He holds a bachelor of science degree in finance and banking from
Brigham Young University that was awarded in 1966.
Dr. Gregory P. Fontana is a director of the Company. He is currently an
attending cardiothoracic surgeon at Brotman Medical Center and Cedars-Sinai
Medical Center in California. He received his M.D. in 1984 at the University of
California followed by ten years of post graduate training at Duke University
and University of California at Los Angeles. Some of his academic appointments
include Clinical Fellow in Pediatric Cardiac Surgery at Harvard Medical School
and Clinical Assistant Professor of Surgery at UCLA School of Medicine and he
has received several research grants, including a National Research Service
Award and Minimally-Invasive Cardiac Surgery Grant. He belongs to several
professional organizations, including the American Heart Association, and has
shared numerous scientific presentations and bibliographies. He is currently a
consultant to Heartport, Inc., Redwood City, California.
Dr. Hans Fischer is a director of the Company. He is currently Professor
of Radiology at the University of California, Los Angeles, Harbor-UCLA Medical
Center where he has been on the faculty since 1992. He has been a chair,
member, and designated alternate on Research, Clinical Radiology, Quality
Assurance and Ambulatory Care Committees for Harbor-UCLA Medical Center since
1990. He trained at Leibniz-Gymnasium, Dortmund West Germany, School of
Medicine, University of Muenster West Germany and School of Sociology,
University of Muenster West Germany. He received his M.D. in 1971 and Ph.D. in
1985 from University of Muenster.
KEY CONSULTANTS AND EMPLOYEES
The following sets forth biographical information for certain of the
Company's key employees and consultants.
Andrew K. Andraczke. Vice President and Secretary of Management Committee
of Pol-Tex Methane, is responsible for business development and coordination of
administrative, legal, and political aspects of the venture in Poland. He also
directs computer operations and system support of exploration and production.
Mr. Andraczke holds a B.Sc. M.Sc., and Ph.D degrees in computer science and
application from Computer Science Institute of Polytechnical University in
Warsaw where he also taught as an Associate Professor. He served as the General
Manager of the Computing Center of the Center for Geological Research in the
Central Office of Geology (Ministry of Geology) from 1972 to 1976 where he
developed and implemented Poland's first general database of geological and
mineral resources of Poland. He also implemented computer mapping systems, oil
and gas reservoir simulations and production control for mining operations.
In 1976, he moved from Poland to accept consulting contracts in France and
the United States. From 1976 to 1982, he worked for several oil and gas and
mining firms, including OTC Oklahoma Production in Tulsa, Kansas Oil
Consolidated in Tulsa, John W. Mecom Company in Houston, InteResources Group,
Inc. in Houston, and British Sulphur Corporation in London, performing reservoir
modeling of secondary and tertiary oil reservoirs, inorganic polymer floods,
underground coal gasification projects, and he developed data acquisition and
reserve balance systems for mines in the U. S., Mexico and Egypt.
He joined Oil Exploration and Production Company in Houston in 1982 and
served as an internal consultant and management advisor on computer applications
and emerging technologies. He provided technical support for large projects
including integrated exploration systems, reservoir simulation, enhanced oil
recovery, and evaluation of production. He developed and supported reservoir
models for some of Tenneco's largest oil and gas fields and authored numerous
proprietary exploration and drilling systems for Tenneco.
Armando Ulrich acts as a consultant to the Company and serves as an officer
of two of the Company's subsidiaries, Energy Global and Pol-Tex Methane. Mr.
Ulrich made the original introduction of the Company to Energy Global and
GlobeGas. From 1981 to 1988, he worked with a number of bio-chemical institutes
in the development of various bio-medical projects. He currently produces wine
and olive oil on properties he owns in Tuscany, Italy.
J. Toni Preuss serves on the executive committee of the Company and has
been the managing director of GlobeGas, a Company subsidiary since November
1995. Since 1970, he has been a representative of Idua Nova Insurance Company
in Hamburg, Germany, specializing in investment strategies. In 1980, he
established his own Sports Marketing Agency and Services Company which has an
international reputation and operations in Russia, Czech Republic, Holland,
Switzerland, and Turkey. He is the personal financial advisor for several
international soccer players and coaches.
FORMER OFFICER
On January 14, 1997, Martin Schuepbach resigned from all his positions with
the Company on the stated grounds that the Company had failed to reimburse him
for certain amounts spent by him and had breached his employment agreement. The
Company believes that his principal expertise as an engineer is readily
replaceable and does not believe that his resignation will have a material
adverse effect on the Company. (See "ITEM 3. LEGAL PROCEEDINGS.")
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company's stock is not registered under Section 12 of the Securities
and Exchange Act of 1934, as amended (the "Exchange Act"), and, as a
consequence, its officers, directors, and principal shareholders are not subject
to the reporting obligations of Section 16 of the Exchange Act.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company and its
subsidiaries for the fiscal years ended December 31, 1996, 1995, and 1994, to
the chief executive officer of the Company and the other executive officers of
the Company who received compensation in excess of $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payoffs
Other
Annual All Other
Compen- Restricted LTIP Compen-
Name and sation Stock Options/ Payouts sation
Principal Position Year Salary($) Bonus($) ($) Awards($) SARs(#) ($) ($)
<S> <C> <C>
President
Paul Hinterthur 1995 $ 0
1994 $ 0
1993 $ 0
Merlin V. Fish 1995 $115,693
1994 $724,869(1)
1993
Rolf Schlegel 1995 $ 0
1994 $194,000
1993 $237,000
</TABLE>
[FN]
(1) This includes amounts paid to MSA Mesa which the Company believes Mr. Fish
may be deemed to have controlled at the time, although Mr. Fish has
disclaimed beneficial ownership of this entity. (See "ITEM 12. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS: Relationship With Merlin V. Fish,
Former President of the Company.
The following table sets forth the information concerning the options
exercised by the named executive officers during the fiscal year ended December
31, 1995, and the value of unexercised options as of December 31, 1995.
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY End (#) FY End ($)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise (#) Value Realized ($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Merlin V. Fish 41,667(1) $146,000 0/0 N/A
</TABLE>
[FN]
(1) This option was exercised by MSA Mesa, an entity that the Company believes
Mr. Fish may be deemed to have controlled at the time, although Mr. Fish
denies beneficial ownership of this entity. (See "ITEM 12. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS: Relationship With Merlin V. Fish,
Former President of the Company.")
ARRANGEMENT WITH DR. SCHUEPBACH
The Company had an employment agreement with Dr. Martin Schuepbach. The
employment agreement with Dr. Schuepbach was entered into as of July 12, 1996,
and had a term of three years. The employment agreement required devotion of
the full business time of Dr. Schuepbach to the Company, prohibited him from
competing in any fashion with the Company during the term of the agreement and
for one year subsequent to termination, and prohibited disclosure or use by him
of trade secrets or other confidential information of the Company.
Dr. Schuepbach's employment agreement provided for compensation of $240,000
per annum. In connection with the execution of the employment agreement, Dr.
Schuepbach was granted an option to acquire 250,000 shares of common stock, at
an exercise price of $1.50 per share. Under the terms of the agreement, the
right to exercise such options was to vest in Dr. Schuepbach with respect to 20%
of the shares as of the date of grant and an additional 20% on each following
anniversary of the date of grant. The options expire if not previously
exercised on January 16, 2001. The Company was to furnish Dr. Schuepbach with
health, medical, and disability insurance.
On January 14, 1997, Dr. Schuepbach resigned his position in the Company
and has asserted a breach of his employment agreement. (See "ITEM 3. LEGAL
PROCEEDINGS.")
EXECUTIVE EMPLOYMENT AND CONSULTING ARRANGEMENTS
During 1996, the board of directors authorized the payment of an annual
salary of $200,000 to Paul Hinterthur and $180,000 to Hank Blankenstein. The
board of directors also authorized the payment of a consulting fee to the
remainder of its board of directors in the amount of $180,000 for Dr. Reinhard
Rauball, $60,000 for Dr. Hans Fischer, and $60,000 for Dr. Gregory P. Fontana.
In addition, the board of directors authorized an annual consulting fee of
$300,000 payable to Wolfgang Rauball for services rendered to Pol-Tex Methane,
including acting in the capacity of president of Pol-Tex, and $250,000 for
services rendered to GlobeGas. The board of directors also authorized an annual
consulting fee of $250,000 payable to Ulrich Consulting for services rendered to
Energy Global and $180,000 to Armando Ulrich for services rendered to Pol-Tex
Methane, including acting in the capacity of deputy president. Ulrich
Consulting is controlled by Mr. Ulrich.
The Company has not had the cash available to pay the foregoing salaries
and consulting fees and each of the individuals, other than Dr. Martin A.
Schuepbach, has agreed to accept the amount paid during the current year as
payment in full of the obligation.
The Company has principally paid for administrative services by the hiring
of consultants. During 1994, the Company paid Armando Ulrich $100,000 in
consulting fees and Merlin V. Fish (former president) $81,121 directly for
services rendered and $643,748 indirectly in cash and stock to entities the
Company now believes Mr. Fish may be deemed to have controlled. Mr. Fish denies
beneficial ownership of these entities. (See "ITEM 12. CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS.")
In 1994 and 1993, GlobeGas paid $194,000 and $237,000 to Rolf Schlegel, an
officer and director of GlobeGas, prior to its acquisition by the Company as a
wholly-owned subsidiary.
In 1995, Mr. Ulrich received $69,447 in consulting fees and expense
reimbursements and Merlin V. Fish received approximately $115,693. Neither the
Rauballs nor Mr. Hinterthur received any fees in 1995.
In 1996, the Company paid $479,166 to Wolfgang Rauball and $449,600 to
Armando Ulrich in fees and expense reimbursements. The Company paid its
officers Dr. Reinhard Rauball, Hank Blankenstein, and Paul Hinterthur $33,000,
$84,000, and $27,000, respectively, during 1996.
COMPENSATION OF DIRECTORS
The Company intends to compensate its outside directors for service on the
board of directors by payment of a monthly fee of $5,000 and reimbursement of
expenses incurred in attending board meetings. The Company does not separately
compensate its board members who are also employees of the Company for their
service on the board.
GRANT OF OPTIONS TO DIRECTORS, OFFICERS, AND OTHERS
In January 1996, the board of directors adopted the 1996 Stock Option and
Award Plan authorizing the grant of options to acquire up to 2,000,000 shares of
common stock. These options have an exercise price of $1.50 per share and a
term of five years from January 18, 1996. Options covering all of the
authorized shares have been issued to officers, directors, employees, and
consultants of the Company. (See "ITEM 11. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.")
ITEM 11. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of January 27, 1997, the number of
shares of the Company's common stock, par value $0.001, held of record or
beneficially by each person who held of record or was known by the Company to
own beneficially, more than 5% of the Company's common stock, and the name and
shareholdings of each officer and director and of all officers and directors as
a group.
<TABLE>
<CAPTION>
Common Preferred Warrants and
Name of Person or Group(1) Stock Stock(2) Options(3) Percent(4)
<S> <C> <C> <C> <C>
Principal Shareholders:
Chemilabco, B.V. 12,500,000 0 0 25.5%
Herengracht 466
1017 CA Amsterdam
Crawford 3,500,000 0 0 7.1%
Middle & Eggmont Street
Kingston, St. Vincent,
Grenada
Dobbins Capital Corporation 1,022,500 429,167 1,880,833 6.5%
Dobbins Partners LP
2651 North Harwood
Suite 500
Dallas, Texas 75201
Dr. Martin Schuepbach(5) 772,500 429,167 1,880,853 6.0%
2651 North Harwood
Suite 120
Dallas, Texas 75201
Mempo Trust 705,000 391,666 1,488,334 5.1%
2651 North Harwood
Suite 260
Dallas, Texas 75201
Directors and Controlling
Persons:
Dr. Reinhard Rauball(6) 1,000,000 0 250,000 2.5%
Wolfgang Rauball(7) 1,600,000 0 50,000 3.4%
Paul Hinterthur(8) 100,000 0 200,000 0.6%
Dr. Gregory P. Fontana 0 0 100,000 0.2%
Dr. Hans Fischer 0 0 100,000 0.2%
Hank Blankenstein 0 0 200,000 0.4%
All Officers, Directors, and
Controlling Persons 2,700,000 0 900,000 7.2%
as a Group (6 Persons)
</TABLE>
[FN]
(1) Except as otherwise indicated, to the best knowledge of the Company, all
stock is owned beneficially and of record by the listed shareholder, and
each shareholder has sole voting and investment power.
(2) Represents shares of 1995 or 1996 Preferred Stock of the Company. Each of
these shares is convertible into two shares of common stock of the Company
at the election of the holder or by the Company after a certain date. A
more complete description of the Preferred Stock is set forth immediately
following these notes.
(3) Represents warrants to acquire shares of Common Stock at an exercise price
of $3.00 per share that are all currently exercisable and options to
acquire shares of Common Stock at an exercise price of $1.50 per share,
all currently exercisable.
(4) The percentage indicated represents the number of shares of Common Stock
held by the indicated shareholder divided by the 49,043,862 shares of
Common Stock issued and outstanding as of January 27, 1997, for those
shareholders holding only Common Stock; assumes the conversion by the
individual shareholder of the Preferred Stock held (on a two-for-one
basis) and a corresponding increase in the number of shares of Common
Stock issued and outstanding for those shareholders holding Preferred
Stock; and assumes the exercise by the individual shareholder of
options and/or warrants held by that shareholder and the corresponding
increase in the issued and outstanding Common Stock for those
shareholders holding options or warrants.
(5) The 1,880,853 warrants and options shown for Mr. Schuepbach includes
250,000 shares subject to options exercisable at $1.50 per share and
1,630,883 shares subject to warrants exercisable at $5.00 per share.
(6) Prior to January of 1997, 2,053,917 shares of Common Stock were held
by Dr. Rauball as trustee for the benefit of other parties. While
Dr. Rauball remains the record owner, as trustee, of these shares,
he relinquished his trusteeship effective August 26, 1996, and
consequently, these shares are not reflected on the foregoing table.
(7) These shares are held in the name of the spouse and children of Wolfgang
Rauball. Wolfgang Rauball disclaims a direct economic interest in these
shares, but may be deemed to beneficially own such shares under the
guidelines of the Exchange Act.
(8) These shares are held in the name of the spouse of Mr. Hinterthur. Mr.
Hinterthur disclaims a direct economic interest in these shares, but
may be deemed to beneficially own them under the guidelines of the
Exchange Act.
TERMS OF PREFERRED STOCK
There are 2,391,968 shares of the Company's 1995 Preferred Stock issued and
outstanding. The 1995 Preferred Stock votes as a class with the common stock,
except to the extent required otherwise by the laws of the state of Utah. The
holders of the 1995 Preferred Stock are entitled to dividends in the amount of
$0.05 per share per annum, payable 30 days after the end of each calendar year,
with the first payment to be made on January 31, 1996. Since the Company did
not have current or retained earnings, such dividends have not yet been paid but
the dividends do accrue and the Company is prohibited from paying dividends with
respect to any other class of security until such time as all accrued dividends
have been paid. Each share of 1995 Preferred Stock is convertible into two
shares of common stock at the election of the holder. If not otherwise
converted, the 1995 Preferred Stock automatically converts two years after the
date of issuance. The Company has the right to redeem the 1995 Preferred Stock
on not less than 30 days written notice at a price of $36.84 per share, plus any
accrued but unpaid dividends.
In connection with the acquisition of Danube, the Company authorized the
1996 Series Preferred Stock consisting of 1,250,000 shares. Such shares are
entitled to cumulative cash dividends at the rate of $0.05 per annum, payable 31
days after the end of each fiscal year, with the first payment to be made
January 31, 1997. Since the Company does not have current or retained earnings
sufficient to pay a dividend, the dividend on the 1996 Series Preferred Stock
will not be paid for the 1996 year, but will accrue and be payable if and when
the Company has sufficient funds available. The 1996 Series Preferred Stock has
a liquidation preference of $5.00 per share and the Company has an option to
redeem the 1996 Series Preferred Stock at a price of $36.84 per share. The 1996
Series Preferred Stock shall automatically convert on July 3, 1997, at the rate
of two shares of common stock for each share of 1996 Series Preferred Stock.
The 1996 Series Preferred Stock is non-voting, except for those matters required
by law and any amendment of the articles of incorporation or bylaws that
adversely affects the rights of the 1996 Series Preferred Stock, any creation of
a class or series of stock that ranks senior or equivalent in the 1996 Series
Preferred Stock, any increase in the authorized amount of any shares issuable
under a class of preferred stock, or any decrease in the total number of
authorized shares of the 1996 Series Preferred Stock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior to entering into the transaction with Energy Global and GlobeGas, the
Company had a number of related party transactions, descriptions of which are
set forth in the Company's prior reports. As part of the transaction with
Energy Global, the Company disposed of all of its other assets and paid all of
its other liabilities.
Unless otherwise indicated, the terms of the following transactions were
not the result of arm's length negotiations because such transactions were
between parties that were related or had other business, professional, or
personal relationships that may have affected terms of such transactions.
REINHARD RAUBALL AND WOLFGANG RAUBALL
Reinhard Rauball, the Chairman of the Board of Directors, and Wolfgang
Rauball, the Company's chief financial advisor and primary consultant, are
brothers (sometimes referred to as the "Rauballs"). Both gentlemen have been
key figures in arranging the original transaction with Energy Global and
GlobeGas, the acquisition of the concessions in Poland, and the later
acquisition of Danube, which holds concessions in the Czech Republic and
Slovakia. From time to time, the Rauballs, principally Wolfgang Rauball, have
arranged for equity and debt financing for the Company through parties with whom
they have previous business and personal relationships and have directly loaned
some of their own funds to the Company. Dr. Reinhard Rauball is an attorney and
has from time to time provided legal services to the Company.
While there is no formal agreement among the Rauballs and other debt and
equity holders, the practical result of the relationships is to vest control of
the Company in the Rauballs.
ACQUISITIONS
Energy Global
On August 3, 1994, the Company issued 2,391,968 shares of preferred stock
and 17,478,259 shares of common stock to acquire all of the issued and
outstanding stock of Energy Global, which had been formed as a holding company
for GlobeGas, an operating entity in which it held a minority interest. In
connection with this share exchange, Dr. Reinhard Rauball and Wolfgang Rauball,
affiliates of Energy Global, became controlling stockholders and executive
officers and directors of the Company. (See Note 1 to the Financial Statements.)
The agreement with Energy Global required that the Company complete a stock
consolidation of one share for each twenty-four shares previously issued and
outstanding and deliver 23,900,000 post-consolidation shares of common stock to
the former owners of Energy Global, reducing the prior shareholders' interest to
approximately 10%. The Company also delivered to the shareholders of Energy
Global $9,000,000 in convertible debentures which were subsequently converted
into shares of common stock. Thus the former shareholders of Energy Global,
including Dr. Reinhard Rauball and Wolfgang Rauball, became the controlling
persons of the Company. Mr. Fish and Mr. Burdge of the United States continued
to act as officers and directors until December of 1995. All of the current
officers and directors of the Company have been appointed by the foreign
shareholders. (See "ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.")
GlobeGas
The original asset of Energy Global was a 16% minority interest in
GlobeGas, a Netherlands corporation that held joint venture concessions in
Poland. (GlobeGas was an 85% partner with a formerly state owned Polish coal
company and held three different concessions for the exploration and
exploitation of methane coal bed gas reserves in the Upper Silesian region of
Poland.) From September of 1994 through May of 1995, the Company delivered
$3,380,963.00 in cash in exchange for additional interests in GlobeGas which
raised the Company's participation in GlobeGas to 19.13%. In May 1995, the
Company acquired the remaining 80.87% interest in GlobeGas in exchange for
$1,150,000 in cash, the issuance of 2,256,560 shares of restricted common stock,
and the issuance of 2,391,968 shares of newly created preferred stock (the "1995
Preferred Stock"), convertible at the rate of two shares of common stock for
each share of 1995 Preferred Stock. The Company originally booked its interest
in GlobeGas as an interest in a minority-held subsidiary, but since the
acquisition of the remaining interest in GlobeGas has restated its financial
presentation to reflect the historical cost basis of the assets held by GlobeGas
rather than the Company's purchase price, substantially reducing the carrying
value of these assets on the Company's balance sheets. (See Note 1 to the
Financial Statements.)
In May of 1996, in an unrelated transaction, the Company, through GlobeGas,
acquired the 15% interest in Pol-Tex held by the Polish state coal company in
exchange for a cash payment of $25,000 and the release of the obligation of the
Polish state coal company to reimburse GlobeGas, the Company's then wholly-owned
subsidiary, approximately $1,200,000 for drilling and development costs.
Danube
In July 1996, the Company continued in its quest to acquire additional gas
interests in Eastern Europe by acquiring Danube and the rights to participate in
Danube. Danube was a joint venture partner in agreements for the exploration
and production of natural gas in Slovakia and the Czech Republic. Both joint
ventures are with formerly state owned gas companies of Slovakia and the Czech
Republic. (See "ITEM 2. DESCRIPTION OF PROPERTIES.") Danube was acquired for
$3,000,000 in cash ($500,000 paid at closing and $2,500,000 which was due on or
before December 31, 1996, but which has not yet been paid) the issuance of
2,500,000 shares of the Company's restricted common stock, the issuance of
1,250,000 shares of a newly created preferred stock (the "1996 Preferred Stock")
which is convertible into an aggregate of 2,500,000 additional shares of the
Company's common stock, and the issuance of warrants to purchase up to 5,000,000
shares of common stock at $3.00 per share during the five years subsequent to
the closing. The Company also issued 12,500,000 shares of common stock to
Chemilabco B.V. ("Chemilabco") which held an interest in the operating
subsidiaries of Danube and options to participate in the Czech and Slovakian
Licenses. (The transaction was modified after the filing of the Company's 8-K
dated July 12, 1996, and the total amount of shares which may be issued under
all circumstances was substantially reduced. The net effect is to provide for
the eventual delivery of up to 8,500,000 fewer shares of the Company's common
stock to Chemilabco.) An outside investment group holds a 5% interest in the
gas projects of Danube that it received in exchange for a $1,000,000 investment
and which was granted prior to the acquisition of Danube by the Company.
In July of 1996, the Company added Dr. Martin A. Schuepbach, the President
of Danube, as a director of the Company and appointed him as the Company's
president and chief executive officer. Mr. Schuepbach has recently resigned as
a director and officer of the Company and has asserted a claim based on his
employment agreement. (See "ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION" and "ITEM 3. LEGAL PROCEEDINGS.")
The 12,500,000 shares of common stock were issued to Chemilabco in exchange
for services which it had previously provided to the Company and Danube,
participation rights held by Chemilabco, $500,000 in funding it had previously
provided to Danube, and the commitment to arrange for an additional $3,500,000
in financing for the Company. The financing commitment was reduced to
$2,200,000 (which the Company has received in the form of convertible
debentures), although the number of shares issued to Chemilabco was not
correspondingly reduced.
OTHER RELATIONSHIPS WITH EUROPEAN CONSULTANTS AND SHAREHOLDERS
In addition to the Company's relationship with the Rauballs, the Company
has other related party transactions with its European advisors and shareholders
as follows:
Armando Ulrich currently acts as a consultant to the Company and is a
deputy officer of Pol-Tex. Mr. Ulrich is the person who originally introduced
the Company to the possible business transaction with Energy Global. Mr. Ulrich
also acts as an officer of Energy Global. Mr. Ulrich is affiliated with Sinbad
Ltd. which holds 715,742 shares of common stock of the Company, and Slovgold
Corporation which holds 250,000 shares of common stock. Mr. Ulrich was paid
$100,000 in cash finder's and consulting fees (including expense reimbursements)
in 1994, $69,447 in 1995, and $449,600 in 1996. (See Note 7 to the Financial
Statements and "ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT: Key Consultants.")
Herbert Zimmer, a certified accountant, holds 700,000 shares of common
stock and represents some of the Company's shareholders and debenture holders.
Mr. Zimmer has from time to time assisted the Company in completing its internal
accounting. Mr. Zimmer has received $70,000 as compensation for those services.
Ostrov Resources Ltd., a Canadian company and a shareholder of the Company
originally held the rights to participate in the Polish concession and purchase
shares in GlobeGas. Ostrov provided approximately $500,000 in funding pursuant
to those original agreements but subsequently assigned all its rights to Energy
Global. Ostrov, has also assisted the Company with short terms loans. Wolfgang
Rauball has longtime business ties with Ostrov.
The Company has received significant loans from Oxbridge Limited, the
parent of Chemilabco, the largest single shareholder of the Company. As of
December 31, 1996, the Company owed $1,720,000 to Oxbridge Limited.
In connection with the sale of Common Stock to certain European investors
in May of 1995 by the Company, a convertible debenture held in the name of Dr.
Rauball as trustee was converted to stock of the Company at the offering price
to the investors in the offering of $3.50 per share rather than the stated price
in the debenture of $5.00 per share.
RELATIONSHIP WITH MERLIN V. FISH, FORMER PRESIDENT OF THE COMPANY
Merlin V. Fish was the principal representative of the Company in
negotiating and completing the original transaction with Energy Global and
served as the Company's President until December 1995. As a fee for his
services in connection with the transaction, the Company released all of the
makers from a $215,490 receivable owed by him and his wife, Patricia Fish, and
Mr. and Mrs. Scott Waldron to the Company resulting from their previous purchase
of a subsidiary of the Company and released a $12,000 debt due from a then
affiliate of Mr. Fish.
In connection with the closing of the initial acquisition of Energy Global,
the Company issued 1,015,768 shares of common stock to MSA Mesa and its
affiliates. At the time of issuance, the Company was informed that MSA Mesa was
an unrelated third party. The Company now believes that MSA Mesa is, and was at
the time of the issuance, controlled, directly or indirectly through one or more
intermediaries, in part by Merlin V. Fish, the then president and a director of
the Company. Mr. Fish disclaims any beneficial ownership in or that he controls
MSA Mesa. As a result of the Company's conclusion that Mr. Fish's may be deemed
to control MSA Mesa, the Company has treated the issuance of shares to MSA Mesa
and its affiliates, as well as the $250,000 in cash which was paid to MSA Mesa,
as compensation paid to Mr. Fish in 1994. (See Statement of Stockholders'
Equity (Deficit) included in the Financial Statements.)
LOAN TRANSACTIONS
The Company has funded its operating requirements in part from funds
advanced from related parties. As of December 31, 1995, the Company owed an
aggregate of approximately $1,300,000 to such related parties. Since that time,
the Company has received an additional approximately $4,400,000. These advances
are evidenced by promissory notes that were due on demand and that bear interest
of 10% per annum. The due dates of these loans has recently been extended to
December 31, 1999, on the condition that the Company collateralizes the loans
with mutually agreeable collateral within the near future. As of January 27,
1997, an agreement respecting such collateral had not been reached.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
<TABLE>
<CAPTION>
SEC
Exhibit Reference
Number Number Title of Document Location
<S> <C> <C> <C>
1 (2) Exchange Agreement between Northampton, Inc., Report on Form 8-K
and Energy Global, A.G. dated August 3, 1994,
Exhibit No. 1*
2 (2) Agreement and Plan of Merger between EuroGas, Inc., Report on Form 8-K
and Danube International Petroleum Company, Inc., dated July 12, 1996,
dated July 3, 1996, as amended Exhibit No. 5*
3 (3) Articles of Incorporation Registration Statement
on Form S-18, File
No. 33-1381-D
Exhibit No. 1*
4 (3) Amended Bylaws Annual Report on
Form 10-K for the
fiscal year ended
September 30, 1990,
Exhibit No. 1*
5 (3) Designation of Rights, Privileges, and Preferences Quarterly Report on
of 1995 Series Preferred Stock Form 10-QSB dated
March 31, 1995,
Exhibit No. 1*
6 (3) Designation of Rights Privileges and Preferences Report on Form 8-K
of 1996 Series Preferred Stock dated July 12, 1996,
Exhibit No. 1*
7 (3) Articles of Share Exchange Report on Form 8-K
dated August 3, 1994,
Exhibit No. 6*
8 (4) Warrant Agreement dated July 12, 1996, with Report on Form 8-K
Danube shareholders dated July 12, 1996,
Exhibit No. 2*
9 (4) Registration Rights Agreement dated July 12, 1996, Report on Form 8-K
with Danube shareholders dated July 12, 1996
Exhibit No. 3*
10 (4) Option granted to the Trustees of the Estate of
Bernice Pauahi Bishop This Filing
11 (4) Registration Rights Agreement by and among
EuroGas, Inc., and Kukui, Inc., and the Trustees of
the Estate of Bernice Pauahi Bishop This Filing
12 (4) Convertible Debenture issued to Lux Immobilien
for $2,200,000 This Filing
13 (10) Agreement in Principle between EuroGas, Inc.,
and Chemilabco B.V., dated June 1996, This Filing
as amended November 1996
14 (10) 1996 Stock Option and Award Plan This Filing
15 (10) Settlement Agreement by and among Kukui, Inc., and
Pol-Tex Methane, sp z.o.o., McKenzie Merhane
Rybnik, McKenzie Methane Jastrzebie, GlobeGas,
B.V. (formerly known as McKenzie Methane Poland,
B.V.), and the Unsecured Creditors' Trust of the
Bankruptcy Estate of McKenzie Methane Corporation This Filing
16 (10) Employment Agreement with Martin A. Schuepbach Report on Form 8-K
dated July 12, 1996 dated July 12, 1996,
Exhibit No. 6*
17 (10) General Agreement governing the operation of Report on Form 8-K
McKenzie Methane Poland, B.V. dated August 3, 1994,
Exhibit No. 2*
18 (10) Concession Agreement between Ministry of
Environmental Protection, Natural Resources, and
Forestry and Pol-Tex Methane Ltd. This Filing
19 (10) Association Agreement between NAFTA a.s. Gbely
and Danube International Petroleum Company This Filing
20 (10) Agreement between Moravske' Naftove' Doly a.s.
and Danube International Petroleum Company This Filing
21 (10) Option to purchase shares of Northampton, Inc., in Report on Form 8-K
the name of Jill S. Holt dated August 3, 1994,
Exhibit No. 3*
22 (10) Form of Convertible Debenture Report on Form 8-K
dated August 3, 1994,
Exhibit No. 7*
23 (10) Form of Promissory Note, as amended, with attached
list of holders This Filing
24 (21) Subsidiaries This Filing
25 (27) Financial Data Schedule This Filing
</TABLE>
[FN]
*Incorporated by reference
REPORTS ON FORM 8-K
The Company did not file a report on Form 8-K during the last quarter of
its fiscal year ended December 31, 1995.
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Company has caused this report to be
signed on its behalf by the undersigned, hereunto duly authorized.
EUROGAS, INC.
Dated: January 31, 1997 By /s/ Paul Hinterthur
Paul Hinterthur, President
(Principal Executive Officer)
Dated: January 31, 1997 By /s/ Hank Blankenstein
Hank Blankenstein, Secretary/Treasurer
(Principal Financial and Accounting
Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Company and in the capacities and on the dates indicated:
Dated: January 31, 1997 By /s/ Dr. Reinhard Rauball
Dr. Reinhard Rauball, Director
Dated: January 31, 1997 By /s/ Paul Hinterthur
Paul Hinterthur, Director
Dated: , 1997 By
----------
Dr. Gregory P. Fontana, Director
Dated: , 1997 By
----------
Dr. Hans Fischer, Director
Dated: January 31, 1997 By /s/ Hank Blankenstein
Hank Blankenstein, Director
EUROGAS, INC. AND SUBSIDIARIES
(An Exploration Enterprise in the Development Stage)
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
AND
FINANCIAL STATEMENTS
December 31, 1995 and 1994
HANSEN, BARNETT & MAXWELL
A Professional Corporation
CERTIFIED PUBLIC ACCOUNTANTS
EUROGAS, INC. AND SUBSIDIARIES
(An Exploration Enterprise in the Development Stage)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets-December 31, 1995
and 1994 F-4
Consolidated Statements of Operations for the Years
Ended December 31, 1995, 1994 and 1993 and for the
Cumulative Period from June 7, 1991 (Date of
Inception) Through December 31, 1995 F-6
Consolidated Statements of Stockholders' Equity
(Deficit) for the Period June 7, 1991
(Date of Inception) Through December 31, 1995 F-7
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1995, 1994 and 1993
and for the Period June 7, 1991 (Date of
Inception) Through December 31, 1995 F-8
Notes to Consolidated Financial Statements F-10
</TABLE>
HANSEN, BARNETT & MAXWELL
A Professional Corporation
CERTIFIED PUBLIC ACCOUNTANTS
(801) 532-2200
Member of AICPA Division of Firms Fax (801) 532-7944
Member of SECPS 345 East 300 South, Suite 200
Member of Summit International Associates Salt Lake City, Utah 84111-2693
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Eurogas, Inc.
We have audited the accompanying consolidated balance sheets of Eurogas, Inc. (a
Utah corporation) and Subsidiaries (an exploration enterprise in the development
stage, referred to herein as "the Company") as of December 31, 1995 and 1994,
and the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 1995, and for the cumulative period from June 7, 1991 (date of
inception) through December 31, 1995. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits. We did not audit the consolidated financial statements of Globegas B.V.
and subsidiaries, a wholly-owned subsidiary, which statements reflect total
assets of $7,569,422 and $7,482,577 as of December 31, 1995 and 1994,
respectively, and net loss of $2,210,336, $2,204,283, and $3,363,296,
respectively for each of the three years in the period ended December 31, 1995
and $10,246,293 for the cumulative period from June 7, 1991 through December 31,
1995. Those statements were audited by other auditors whose report has been
furnished to us and included an explanatory paragraph describing conditions
which raised substantial doubt about the ability of Globegas B.V. to continue as
a going concern. Our opinion, insofar as it relates to the amounts included for
Globegas B.V. and subsidiaries, is based solely on the report of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the report of
the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements of Eurogas, Inc. and Subsidiaries referred to
above present fairly, in all material respects, the financial position of
Eurogas, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1995, and for the cumulative period from June 7, 1991
(date of inception) through December 31, 1995 in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. The Company has experienced
losses since inception as a result of its exploration activities and from
general and administrative expenses relating to its development stage
activities. As discussed in Note 1 to the consolidated financial statements,
the Company is in the process of exploring coal bed methane gas interests but
development activities or commercial production has not begun. In addition, the
future of the Company is dependent on obtaining additional financing and
compliance with its concession agreements. These factors, among others, as
discussed in Note 1 of the consolidated financial statements, raise substantial
doubt about the Company's ability to continue as a going concern. The
consolidated financial statements do not include any adjustments which might
result from the outcome of these uncertainties.
/s/ Hansen, Barnett & Maxwell
HANSEN, BARNETT & MAXWELL
Salt Lake City, Utah
October 31, 1996
EUROGAS, INC. AND SUBSIDIARIES
(An Exploration Enterprise in the Development Stage)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
December 31,
---------------------
1995 1994
--------- ---------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 72,212 $ 797,825
Other receivables 19,691 18,393
Inventory 8,251 8,284
Prepaid expenses 3,559 24,135
--------- ---------
Total Current Assets 103,713 848,637
--------- ---------
Property and Equipment
Mineral interests in unproved
properties, net of valuation
allowance 7,037,244 5,775,949
Other property and equipment 2,393,611 2,360,582
---------- ----------
9,430,855 8,136,531
Less: accumulated depreciation (1,955,074) (1,480,111)
---------- ----------
Net Property and Equipment 7,475,781 6,656,420
---------- ---------
Other Assets
Goodwill, net of amortization of $5,542
and $2,310, respectively 19,862 25,404
Deposits 81,011 69,501
---------- ---------
Total Other Assets 100,873 94,905
---------- ---------
Total Assets $7,680,367 $7,599,962
========== ==========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT
December 31,
-----------------------
1995 1994
---------- ----------
<S> <C> <C>
Current Liabilities
Accounts payable $ 327,193 $ 137,408
Accrued expenses 2,039,155 309,269
Accrued taxes 762,675 1,231,613
Notes payable - current portion 2,270,593 2,422,897
Notes payable to related parties -
current portion 1,212,007 628,618
---------- ----------
Total Current Liabilities 6,611,623 4,729,805
---------- ----------
Long-Term Debt
Notes payable 1,000,000 -
Notes payable to related parties 3,011,750 3,011,750
---------- ----------
Total Long-Term Debt 4,011,750 3,011,750
---------- ----------
Stockholders' Deficit
Preferred stock, $.001 par value,
2,391,968 shares authorized,
issued and outstanding 2,392 2,392
Common stock, $.001 par value,
325,000,000 shares authorized,
32,974,033 shares and 31,932,314
shares issued and outstanding 32,974 31,932
Additional paid-in capital 10,895,071 9,369,945
Cumulative foreign currency
translation adjustment (14,749) (14,749)
Deficit accumulated during the
development stage (13,858,694) (9,531,113)
----------- ----------
Total Stockholders' Deficit (2,943,006) (141,593)
----------- ----------
Total Liabilities and Stockholders'
Deficit $7,680,367 $7,599,962
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
EUROGAS, INC. AND SUBSIDIARIES
(An Exploration Enterprise in the Development Stage)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Cumulative
Period from June 7,
1991 (Date of
For the Years Ended Inception) through
December 31, December 31,
--------------------------------------
1995 1994 1993 1995
----------- ------------- ---------- -----------
<S> <C> <C> <C> <C>
Revenues $ - $ - $ - $ -
----------- ------------- ----------- -----------
Operating Expenses
Impairment of mineral interests in
property - - 969,101 969,101
Depreciation and valuation allowance 480,999 619,913 588,345 1,963,420
General and administrative 3,528,114 2,666,204 1,978,078 8,946,734
----------- ------------- ----------- --------------
Total Operating Expenses 4,009,113 3,286,117 3,535,524 11,879,255
----------- ------------- ----------- --------------
Other Income (Expenses)
Interest income 9,580 19,251 239,423 280,254
Interest expense (644,991) (372,815) - (1,276,603)
Exchange gains (losses), net (81,213) 95,374 72,810 (149,157)
Other income 16,184 - - 16,184
----------- ------------- ----------- --------------
Total Other Income (Expenses) (700,440) (258,190) 312,233 (1,129,322)
----------- ------------- ----------- --------------
Loss Before Income Taxes (4,709,553) (3,544,307) (3,223,291) 13,008,577
Benefit from (Provision For)
Income Taxes 468,148 (155,132) (140,005) (763,941)
----------- ------------- ----------- --------------
Net Loss (4,241,405) (3,699,439) (3,363,296) (13,772,518)
Dividends Applicable to Preferred Shares 86,176 - - 86,176
----------- ------------- ----------- --------------
Net Loss Applicable to Common Shares $(4,327,581) $ (3,699,439) $(3,363,296) $ (13,858,694)
=========== ============= =========== ==============
Net Loss Per Common Share $ 0.13 $ 0.15 $ 0.18 $ 0.61
=========== ============= =========== ==============
Weighted Average Number of Common
Shares Used In Per Share Calculation 32,459,436 25,249,825 18,356,916 22,676,060
=========== ============= =========== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
EUROGAS, INC. AND SUBSIDIARIES
(An Exploration Enterprise in the Development Stage)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Cumulative Deficit
Foreign Accumulated Total
Preferred Stock Common Stock Additional Currency During the Stockholders'
----------------- ------------------ Paid-in Translation Development Equity
Shares Amount Shares Amount Capital Adjustment Stage (Deficit)
------ ------ ------ ------ ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 7, 1991
(Date of Inception) - $ - - $ - $ - $ - $ - $ -
Cash contributed as capital
investment without issuance
of stock, prior to March 1992 - - - - 3,675,264 - - 3,675,264
Issuance of common and preferred
stock, $0.00 per share, for cash,
July 1992 2,391,968 2,392 14,494,772 14,495 6,233 - - 23,120
Net loss for the period from
Date of Inception through
December 31, 1992 - - - - - - (2,468,378) (2,468,378)
Foreign currency translation
adjustment - - - - - (382) - (382)
--------- ------ ----------- ------ ----------- ---------- ------------ -----------
Balance December 31, 1992 2,391,968 2,392 14,494,772 14,495 3,681,497 (382) (2,468,378) 1,229,624
Issuance of common stock for
cash, $3.88 per share, September
24, 1993 - - 2,983,487 2,983 3,997,017 - - 4,000,000
Foreign currency translation
adjustment - - - - - 16,563 - 16,563
Net loss - - - - - - (3,363,296)
--------- ------ ----------- ------ ----------- ------- ---------- -----------
Balance December 31, 1993 2,391,968 2,392 17,478,259 17,478 7,678,514 16,181 (5,831,674) 1,882,891
Issuance of common stock upon
reorganization with Northampton,
Inc. $0.00 per share,
August 3, 1994 - - 2,844,055 2,844 (1,858) - - 986
Issuance of common stock upon
acquisition of Energy Global
A.G., $0.00 per share,
August 2, 1994 - - 217,043 217 493 - - 710
Issuance of common stock,
for cash, $0.16 per share,
August 2, 1994 - - 10,377,189 10,377 1,450,028 - - 1,460,405
Issuance of common stock for
compensation to officer, $0.24
per share, August 3, 1994 - - 1,015,768 1,016 242,768 - - 243,784
Foreign currency translation
adjustment - - - - - (30,930) - (30,930)
Net loss - - - - - - (3,699,439) (3,699,439)
--------- ------ ----------- ------ ----------- -------- ---------- ----------
Balance - December 31, 1994 2,391,968 2,392 31,932,314 31,932 9,369,945 (14,749) (9,531,113) (141,593)
Issuance of common stock upon
exercise of stock options for
cash, $0.24 per share,
various dates - - 157,793 158 38,648 - - 38,806
Issuance of common stock for
compensation to officer upon
exercise of stock option, April
13, 1995, $0.00 per share - - 41,667 42 9,958 - - 10,000
Distribution to two shareholders
April 12, 1995 - - - - (1,150,000) - - (1,150,000)
Issuance of common stock for cash
and conversion of a $1,671,567
debenture, $3.12 per share,
net of $75,546 offering costs,
July 3, 1995 - - 842,259 842 2,626,520 - - 2,627,362
Dividends on preferred shares - - - - - - (86,176) (86,176)
Net loss - - - - - - (4,241,405) (4,241,405)
--------- ------ ----------- ------- ----------- -------- ------------
Balance - December 31, 1995 2,391,968 $2,392 32,974,033 $32,974 $10,895,071 $(14,749) $(13,858,694) $(2,943,006)
========= ====== =========== ======= =========== ======== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
EUROGAS, INC. AND SUBSIDIARIES
(An Exploration Enterprise in the Development Stage)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION> For the Cumulative
Period from June 7,
For the Years Ended 1991 (Date of
December 31, Inception) through
--------------------------------------- December 31,
1995 1994 1993 1995
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities
Net loss $(4,241,405) $(3,699,439) $(3,363,296) $(13,772,518)
Adjustments to reconcile net loss to cash
provided by operating activities:
Impairment of mineral interests in
properties - - 969,101 969,101
Depreciation and amortization 480,999 619,913 588,345 1,963,420
Compensation paid with issuance of
common stock 10,000 243,784 - 253,784
Changes in certain operating assets and
liabilities:
(Increase) decrease in receivables 11,155 10,100 9,426 121,993
(Increase) decrease in inventory 35 43,652 12,025 (7,482)
(Increase) decrease in prepaid expenses 20,675 12,052 10,728 (37,954)
(Increase) decrease in deposits (11,510) (69,501) - (81,011)
Increase (decrease) in accounts payable 177,508 (40,618) (143,284) 395,670
Increase (decrease) in accrued expenses 1,665,733 276,478 (21,815) 1,969,384
Increase (decrease) in income tax
payable (468,938) 154,656 140,004 762,675
----------- ----------- ---------- -----------
Net Cash Used in Operating Activities (2,355,748) (2,448,923) (1,798,766) (7,462,938)
----------- ----------- ---------- -----------
Cash Flows From Investing Activities
Purchases of mineral interests in
properties (1,261,295) (1,650,424) (1,951,464) (8,006,345)
Purchases of property and equipment (33,029) (204,149) (186,835) (2,393,611)
Cash received in acquisition of subsidiaries - 3,350 - 3,350
----------- ----------- ---------- -------------
Net Cash Used In Investing Activities (1,294,324) (1,851,223) (2,138,299) (10,396,606)
----------- ----------- ---------- -------------
Cash Flows From Financing Activities
Proceeds from issuance of debt - related
parties 3,398,854 3,541,802 1,516,264 10,331,523
Repayment of debt - related parties (2,293,898) (187,345) (3,665,160) (3,925,415)
Proceeds from issuance of debt 1,245,196 173,929 2,314,804 2,990,531
Principal payments on debt (397,500) - - (1,310,306)
Proceeds from sale of common stock (net
of $75,546 offering costs in 1995) 974,060 1,460,765 4,000,000 10,109,729
----------- ----------- ---------- -------------
Net Cash Provided By Financing
Activities 2,926,712 4,989,151 4,165,908 18,196,062
----------- ----------- ---------- -------------
Effect of Exchange Rate Changes on Cash
and Cash Equivalents (2,253) (57,386) (66,456) (264,306)
----------- ----------- ---------- -------------
Net Increase (Decrease) in Cash and
Cash Equivalents (725,613) 631,619 162,387 72,212
Cash and Equivalents at Beginning of Period 797,825 166,206 3,819 -
----------- ----------- ---------- -------------
Cash and Equivalents at End of Period $ 72,212 $ 797,825 $ 166,206 $ 72,212
=========== =========== ========== =============
Supplemental Disclosure of Cash Flow
Information
Cash paid for interest $ 8,025 $ 22,698 $ - $ 30,723
Cash paid for income taxes - - - -
</TABLE>
Supplemental Schedule of Noncash Investing and Financing Activities
During 1995 common stock of the Company was issued upon conversion of a
$1,671,567 convertible debenture along with accrued interest in the amount of
$20,541.
During 1995 notes payable of $1,150,000 were issued to two shareholders as a
distribution from equity. The notes were immediately repaid.
The accompanying notes are an integral part of these financial statements.
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Principles of Consolidation-Globegas B.V. was formed as
McKenzie Methane Poland B.V. on June 7, 1991 under the laws of the Netherlands.
Its name was changed to Globegas B.V. (Globegas) on August 25, 1995. Globegas
has entered into reorganization transactions with Eurogas, Inc. and Energy
Global A.G. whereby Globegas was determined to be the acquiring corporation for
financial reporting purposes, as described herein. Upon its formation in 1991,
Globegas entered into three joint venture agreements with the Polish Ministry of
Environmental Protection of Natural Resources and Forestry whereby Globegas
obtained an 85 percent interest in three 35 year coal bed methane gas
concessions located in the Upper Silesian Coal Fields of Poland (See Note 9
which discusses the subsequent acquisition of the remaining 15 percent interest
in one of the concessions). As consideration for the interests in the
concessions, Globegas committed to make annual expenditures toward exploration
and development of the concessions, as further discussed in Note 8.
Energy Global A.G. (EGA), a Liechtenstein corporation, was formed May 16, 1994
for the purpose of investing in Globegas. From its formation through August 2,
1994, EGA issued common stock for $34,000, which it expended in its development
stage activities, and borrowed $313,500, which it invested in Globegas.
Northampton, Inc., a publicly held Utah corporation, was incorporated October 7,
1985. It conducted limited business activities in prior periods; however, all
previous operations and assets were disposed of by August 2, 1994. On August
29, 1994, its name was changed to Eurogas, Inc. (Eurogas).
From August 2, 1994 through October 1995, Globegas and its stockholders entered
into agreements to sell all of the outstanding capital stock of Globegas to EGA.
The agreements ultimately resulted in 100 percent ownership of Globegas by EGA
as of October 4, 1995. On August 3, 1994, Eurogas entered into an acquisition
agreement to acquire all of EGA's capital stock. As a result of these
agreements, between August 3, 1994 and September 22, 1995, Eurogas issued
17,478,259 shares of common stock and issued 2,391,968 shares of preferred stock
on April 12, 1995 to the Globegas stockholders and to entities which held
options to acquire Globegas stock. In August 1994, Eurogas issued 10,377,189
common shares for cash in the amount of $1,460,405. Eurogas issued 217,043
shares of common stock in exchange for all of the EGA capital stock outstanding
prior to the acquisition. EGA only had nominal net assets at August 3, 1994.
Additionally, 1,015,768 Eurogas common shares were issued to an officer of
Eurogas on the date of the acquisition. In May 1995, Eurogas delivered
promissory notes to two Globegas stockholders totaling $1,150,000 which were
also paid in May 1995. These notes were issued and paid in connection with the
acquisition and have been accounted for as distributions to those shareholders.
Eurogas has also issued stock options to settle a claim associated with the
acquisition, as discussed further in Note 8.
The acquisition transactions were accounted for as a reorganization of Globegas
for accounting purposes. Prior to the reorganization, Eurogas had 2,844,055
common shares issued and outstanding. In the reorganization, the assets and
liabilities of EGA and Eurogas were recorded at their historical cost, which was
considered to be their fair value because EGA and Eurogas had no operations or
material assets. Legal and professional costs in the amount of $27,714 were
incurred in connection with the reorganization and have been recorded as
goodwill. Goodwill is being amortized over a period of five years. The
accompanying financial statements have been restated for all periods presented
to reflect the preferred and common shares issued to the Globegas shareholders.
The operations of EGA and Eurogas have been included in the accompanying
consolidated financial statements from the date of the reorganization.
Operations of EGA and Eurogas were immaterial prior to the reorganization;
therefore, pro forma operating information is not presented. Eurogas, EGA,
Globegas and its joint venture subsidiaries are collectively referred to herein
as the Company. All significant intercompany accounts and transactions have
been eliminated in consolidation.
Business Condition-The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles, which contemplates
continuation of the Company as a going concern. However, at December 31, 1995,
current liabilities exceeded current assets by $6,507,910 and the Company has
incurred losses of $13,858,694 since its inception in July, 1991. As a
development stage enterprise, the Company's activities have been limited to
exploration activities with no significant production of methane gas to date.
Realization of the amounts included in gas properties is dependent on the
Company developing sufficient quantities of proven and probable reserves of
methane gas. If exploration activities prove to be unsuccessful, all or a
portion of the mineral interests in unproved properties will be charged to
operations. These factors raise substantial doubt about the ability of the
Company to continue in its current form. In order to continue, the Company will
need to obtain additional financing sufficient to meet the short and long term
obligations of the Company and to fund the exploration and development of proven
reserves of methane gas on concessions currently held by the Company.
Management plans to obtain needed financing through issuance of equity and debt
securities. The financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts or amounts and
classification of liabilities that might be necessary should the Company be
unable to continue in existence.
Revision of Prior Financial Statements for Change in Reporting Entity-The
Company's prior financial statements were prepared assuming Eurogas, Inc. to be
the acquiring entity for financial reporting purposes. Those financial
statements presented net assets at September 30, 1994 of $7,789,232, which
included an 18 percent interest in Globegas, reported on the equity method at
$18,550,000. However, these consolidated financial statements reflect the
acquisition of 100% of Globegas and restate and revise the prior presentation to
present Globegas as the acquiring and operating entity. Accordingly, these
consolidated financial statements are prepared using the Globegas year end of
December 31, and as stated above, are restated for all periods presented for the
effect of the reorganization.
Exploration and Development Stage Activities-Since its formation, the Company's
oil and gas activities have consisted of acquisition of unproved and undeveloped
mineral interests and of exploratory drilling. At December 31, 1995, the
Company is considered to be in the exploration stage for purposes of its oil and
gas operations. However, it is considered a development stage enterprise for
financial reporting purposes.
Inventory-Inventories, consisting primarily of materials and supplies, are
stated at the lower of cost or market, cost being determined by the average cost
method.
Mineral Interests in Properties-The full cost method of accounting is used to
account for mineral interests in properties. Under this method all costs
incidental to the acquisition, exploration, and development of gas properties
are capitalized. These costs include costs of drilling and equipping wells, as
well as directly related overhead cost which include the costs of Company owned
equipment. Costs of unproved properties are assessed periodically and any
resulting provision for impairment which is required is charged to operations.
All capitalized costs of gas properties, including the estimated future costs
to develop proved reserves, if found, will be amortized using the units-of-
production method.
Other Property And Equipment-Other property and equipment are stated at cost.
Minor repairs, enhancements and maintenance costs are expensed when incurred;
major improvement are capitalized. Depreciation of property is provided on a
straight-line basis over the estimated useful lives, at the following rates:
<TABLE>
<CAPTION>
<S> <C>
Buildings 40 years
Equipment 3 to 5 years
</TABLE>
Upon retirement, sale, or other disposition of equipment, the cost and
accumulated depreciation are eliminated from the accounts, and gain or loss is
included in operations. Depreciation expense for the years ended December 31,
1995, 1994 and 1993 was $480,999, $619,913 and $588,345, respectively.
Financial Instruments -The Company considers all highly-liquid debt instruments
purchased with a maturity of three months or less to be cash equivalents. The
amounts reported as cash and cash equivalents, other receivables, accounts
payable and notes payable are considered to be reasonable approximations of
their fair values. The fair value of financial instruments is the amount at
which the instrument could be exchanged in a current transaction between willing
parties. The fair value estimates presented herein were based on market
information available to management as of December 31, 1995.
The Company had cash in Polish banks in the amount of $64,446 and $64,489 at
December 31, 1995, and 1994, respectively. The Company would incur certain
costs if the cash were to be transferred out of Poland.
Use of Estimates-The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions which effect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of expenses during
the reporting period. Actual results could differ from those estimates.
Loss Per Share-Loss per share is calculated using the weighted average number of
shares of common stock outstanding during each period with the exception that
shares issued in the reorganization have been presented as if they were
outstanding for all periods presented using the treasury stock method. Common
stock equivalents which would decrease loss per share have not been included in
the calculation.
Foreign Currency Translation Foreign currency exchange gains and losses have
been reflected in the results of operations. Due to the highly-inflationary
Polish economy in which the Polish subsidiaries operate, the financial
statements of Globegas and its subsidiaries from inception through December 31,
1993 were prepared using the Dutch Guilder as the functional currency. The
consolidated balance sheets were then translated into U.S. dollars at the year-
end rates of exchange and the consolidated statements of operations were
translated at the weighted average exchange rates during each reporting period.
The effects of translating the financial statements into U.S. dollars were
recorded as a separate component of stockholders' equity. The U.S. dollar
became the functional currency of the Company and its subsidiaries beginning in
1994. Accordingly, the 1995 and 1994 financial statements of foreign
subsidiaries have been measured in U.S. dollars using historical exchange rates
and all resulting exchange and losses have been included in the results of
operations.
Income Taxes-Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences in the balances of existing assets
and liabilities on the Company's financial statements and their respective tax
bases computed at enacted tax rates when such amounts are expected to be
realized or settled.
Effect of Recently Issued Financial Accounting Standards In March 1995, the
Financial Accounting Standards Board (FASB) issued SFAS No. 121, Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,
which will be effective for the Company in 1996. The statement requires the
recognition of an impairment loss for an asset held for use when the estimate of
undiscounted future cash flows expected to be generated by the asset is less
than its carrying amount. Measurement of the impairment loss is based on fair
value of the asset. In the past, it has been the Company's policy to evaluate
its assets for possible impairment and recognize an impairment loss if
necessary. Accordingly, the impact of adoption of SFAS No. 121 is not expected
to be material to the consolidated financial statements of the Company.
In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation, which encourages the recognition of compensation from stock
options granted to employees based on the fair value of the options at the grant
dates. However, SFAS 123 permits the continued use of the intrinsic value
method under APB Opinion 25, Accounting for Stock Issued to Employees and
related Interpretations. The Company intends to continue to account for stock-
based compensation in accordance with APB Opinion 25. The Company will be
required to disclose in its 1996 consolidated financial statements the pro forma
results of operations had compensation cost for options granted by the Company
after 1994 been determined based on the fair value of the options at the grant
dates, consistent with the method of SFAS No. 123.
NOTE 2--MINERAL INTERESTS IN UNPROVED PROPERTIES
All the Company's methane gas properties are located in Poland. At December 31,
1995, a determination was not made, nor has a determination been subsequently
made, regarding the extent of proved methane gas reserves. However, Management
evaluated the unproved properties at December 31, 1995 and subsequently, and
determined that recognition of impairment of those properties was not necessary.
No production has been obtained from the unproved properties and, consequently,
amortization of the cost of the properties has not begun. The Company expects
to begin gas production in 1997, if proved reserves are determined to exist in
commercial quantities, at which time amortization of capitalized costs will be
recognized under the units-of-production method. Due to drilling in certain
areas for which the Company did not have its concession confirmed and currently
has no rights to future production, impairment has been deemed to have occurred
and a valuation allowance equal to the costs incurred for those areas has been
recognized as a reduction in the carrying value of unproved properties and was
charged to expense in the accompanying statements of operations during the year
ended December 31, 1993.
Costs incurred for mineral interests in methane gas properties consist of the
following:
<TABLE>
<CAPTION>
Acquisition and
Exploration
Period Incurred Costs
--------------- ---------------
<S> <C>
Period from June 7, 1991 to December 31, 1991 $1,292,720
Year end December 31, 1992 1,850,442
Year end December 31, 1993 1,951,464
Year end December 31, 1994 1,650,424
Year end December 31, 1995 1,261,295
----------
$8,006,345
==========
</TABLE>
The Company had the following capitalized costs relating to methane gas
properties at December 31:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Mineral interests in unproved properties $8,006,345 $6,745,050
Less accumulated valuation allowance (969,101) (969,101)
---------- ----------
Net Capitalized Costs $7,037,244 $5,775,949
========== ==========
</TABLE>
NOTE 3--OTHER PROPERTY AND EQUIPMENT
Other property and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Land $ 13,449 $ 13,449
Buildings 240,991 240,991
Drilling rigs and related equipment 2,123,311 2,087,463
Furniture and fixtures 5,848 9,204
Office equipment 10,012 9,475
---------- ----------
2,393,611 2,360,582
Less: Accumulated depreciation (1,955,074) (1,480,111)
---------- ----------
Net Property and Equipment $ 438,537 $ 880,471
========== ==========
</TABLE>
NOTE 4--NOTES PAYABLE TO RELATED PARTIES
Loans from related parties at December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Loans from an officer and director who is acting as trustee on
behalf of others, interest at 7.5%, due on demand, unsecured $ 428,294 $ -
Loan from a company associated with an officer and director,
due on demand with interest at 7.5%, unsecured 58,286 171,525
Loan from an officer and director, due on demand, interest at
7.5%, unsecured 268,334 -
Loans from former officers, directors and employees, due on
demand with interest at 10% to 12.5%, unsecured 457,093 457,093
7.5% convertible debentures payable to an officer and director
who is acting as trustee on behalf of others, interest and
principal was due June 30, 1999, converted during 1996
into 1,003,917 shares of common stock 3,011,750 3,011,750
------------ ------------
Total Notes Payable to Related Parties 4,223,757 3,640,368
Less: Current Portion (1,212,007) (628,618)
------------ ------------
Notes Payable to Related Parties - Long-Term $ 3,011,750 $ 3,011,750
</TABLE>
NOTE 5--NOTES PAYABLE
Other loans and notes payable at December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
Loans due on demand and in July 1996, interest from
7.5% to 10% $ 468,093 $ 222,897
7% note payable to an Austrian oil and gas firm payable
$400,000 on March 31, 1995 with quarterly installments
of $260,000 plus interest due beginning July 1, 1995,
secured by drilling equipment, office equipment and
buildings. 1,802,500 2,200,000
7.5% convertible debentures, interest and principal due
June 30, 1999 converted during 1996 into 200,000 shares
of common stock 1,000,000 -
------------ -----------
Total Notes Payable 3,270,593 2,422,897
Less: Current Portion (2,270,593) (2,422,897)
------------ -----------
Note Payable - Long-Term $ 1,000,000 -
============ ===========
</TABLE>
Having not met the payment schedule for the Austrian oil and gas firm note, the
Company is now in default. Accordingly, the entire note has been classified as
current. Under the note terms the creditor has an option to purchase 25% of
Pol-Tex Methane due to the default. However, that option has not been
exercised.
Annual maturities of notes payable to related party and to others over the next
five years are as follows:
<TABLE>
<CAPTION>
Due during the year ended December 31:
--------------------------------------
<S> <C>
1996 $ 3,482,600
1997 -
1998 -
1999 4,011,750
2000 -
------------
$ 7,494,350
============
</TABLE>
NOTE 6--INCOME TAXES
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1995 1994 1993
----------- ----------- ------------
<S> <C> <C> <C>
The benefit from (provision for) income
taxes, which is all current, consists of
the following:
Foreign Taxes $ 468,148 $ (155,132) $ (140,005)
=========== =========== ============
Deferred tax assets are comprised of the
following:
Tax loss carry forwards $ 706,040 $ 485,475 $ 167,000
Less valuation allowance (706,040) (485,475) (167,000)
----------- ----------- ------------
Net Deferred Tax Asset $ - $ - $ -
=========== =========== ============
</TABLE>
The following is a reconciliation of the amount of tax (benefit) that would
result from applying the federal statutory rate to pretax loss with the
provision for income taxes at December 31:
<TABLE>
<CAPTION>
1995 1994 1993
------------- -------------- ---------------
<S> <C> <C> <C>
Tax at statutory rate (34%) $ (2,070,596) $ (1,205,064) $ (1,095,919)
Non-deductible expenses 763 2,680 -
Deferred tax asset valuation change 220,563 318,475 89,000
Effect of lower tax rates 1,381,120 1,039,041 1,146,924
------------- -------------- ---------------
Total Income Tax Provision (benefit) $ (468,148) $ 155,132 $ 140,005
============= ============== ===============
</TABLE>
The net change in the deferred tax valuation allowance was $220,565 and $318,475
for the years ended 1995 and 1994, respectively. At December 31, 1995 Pol-Tex
Methane had tax loss carry forwards of approximately $323,000 in Poland,
expiring at various dates through 1997, and had tax loss carry forwards in the
United States of $1,289,931 and $1,915,228, respectively.
Dutch Domestic income tax is assessed at various rates on foreign exchange
gains, gains on the sale of property and equipment, and interest income.
NOTE 7--RELATED PARTY TRANSACTIONS
Loans from related parties are described in Note 4.
A former manager and shareholder of the Company provided escrow services in the
reorganization described in Note 1 through a company under his control. During
the years ended December 31, 1994 and 1993 he received $194,000 and $237,000,
respectively for services provided.
A shareholder of the Company who also acts as a consultant and manager was paid
for commissions and finders fees related to the reorganization described in Note
1 through a company under his control. During the years ended December 31, 1995
and 1994 he received $69,447 and $100,000, respectively for services provided.
In contemplation of the reoganization described in Note 1, Northampton, Inc.
forgave debts from a former officer and director of $227,490. In connection
with the reorganization, the Company issued 1,015,768 shares of common stock
valued at $243,784 and paid a fee of $250,000 to entities the Company believes
he may be deemed to have controlled.
NOTE 8--COMMITMENTS AND CONTINGENCIES
The Company has entered into employment contracts for consulting services with
certain individuals, which include a former director and members of his
immediate family. The contracts have original terms that range from six months
to three years but will continue until either party to the contract gives notice
to terminate. Current future commitments under these contracts are as follows:
<TABLE>
<CAPTION>
<S> <C>
Payable in 1996 $170,400
Payable in 1997 99,400
--------
$269,800
========
</TABLE>
A regulatory agency of the Polish government requires the Company to invest
$2,918,000 by March 31, 1997 in accordance with a specific investment schedule
set out by the agency. As of December 31, 1996 the Company had met
approximately 80% of its obligations towards the 1997 deadline.
During April 1995, a former officer of the Company exercised a stock option
whereby the Company issued 41,667 shares of its common stock. The Company has
no evidence of receipt of consideration for the stock issuance. The Company
therefore considers the issuance as compensation to the officer.
The concession agreement between a subsidiary of the Company and Poland's
Ministry of Environmental Protection of Natural Resources and Forestry
stipulates once commercial production begins the Company is to make a one time
payment of $287,900 to the Ministry, as well as a yearly payment equal to 9% of
sales during the following twenty years.
The Company has not entered into agreements with the owners of the land where
drilling has taken place or where proposed drilling is to take place as to the
price for the land once commercial production commences.
The Company has been informed that it is the subject of an investigation by the
United States Securities and Exchange Commission (SEC), involving the financial
and other information set forth in the Company's periodic filings and press
releases. The Company has produced numerous documents and the oral testimony of
its officers and directors pursuant to extensive subpoenas from the SEC. The SEC
has obtained similar information from the Company's prior independent public
accountants. The Company cannot currently predict the duration or outcome of
this investigation.
Dutch law requires the annual statutory filing of financial statements of an
operating subsidiary of the Company with the Chamber of Commerce in the
Netherlands. The Company's operating subsidiary has only filed through the year
ended December 31, 1992 and as a result could incur a maximum penalty of $5,000.
The Kingdom of the Netherlands has indicated it will assess a tax against the
Company's operating subsidiary, Globegas, even though it has significant
operating losses. The tax is the result of imputed earnings calculated on
interest-free loans made by Globegas. At such time as the Company receives the
assessment from the Netherlands, it intends to contest the tax. However, the
Company may be required to post a bond to contest the matter. The Company has
recorded a tax provision of $155,232 in 1995 and $140,005 in 1994 to reflect
this contingency.
An unrelated entity filed a claim against the Company in connection with lending
activities between that entity and the management of Globegas prior to the
reorganization with Eurogas. The claim asserted that funds which were loaned to
management may have been invested into Globegas and therefore the entity might
have had an interest in Globegas at the date of the reorganization. In November
1996, Eurogas entered into an agreement which settled the claims. Eurogas
issued 100,000 shares of common stock to the entity (which have been included in
the issuance of 17,478,259 shares of common stock discussed in Note 1) and
granted the entity options to purchase 2,000,000 shares of common stock at $3.50
to $6.00 per share based upon when the options are exercised. The options were
exercisable upon issuance and are exercisable through December 1998.
In July of 1996 Dr. Martin A. Schuepbach, the President of Danube, was added to
the Board of Directors of the Company and he was appointed as the Company's
president and chief executive officer for a term of three years. On January 14,
1997, Mr. Schuepbach resigned as a director and officer of the Company and
asserted that a breach of his employment contract occurred, and that he is
entitled to monthly compensation for the remainder of the term of the contract.
The Company plans to deny any breach; to date the Company is not aware of any
litigation having been filed in this matter and cannot estimate a possible
contingent liability. (Unaudited).
On January 17, 1997 the Company's joint venture partner in the Czech Republic
notified the Company it is delinquent in the payment of certain obligations of
the joint venture agreement and threatened to terminate the association. The
Company disagrees with the assertion and has invoked its right to arbitrate this
dispute. Pending resolution, the Company has suspended any further work in the
Czech Republic. The Company is currently unable to predict the outcome or make
any estimates regarding the related loss contingency. (Unaudited).
NOTE 9--SUBSEQUENT EVENTS
Acquisition of Subsidiary (Unaudited)-Effective on July 3, 1996, the Company
completed an acquisition of Danube International Petroleum Company, Inc. and
Subsidiaries (Danube). Danube is a joint venture partner in agreements for the
exploration and production of natural gas in Slovakia and the Czech Republic.
All of the issued and outstanding common stock of Danube was acquired for
$500,000 paid at closing, an obligation to pay $2,500,000 on or before December
31, 1996, 15,000,000 shares of the Company's common stock, 1,250,000 shares of a
newly created 1996 Series preferred stock which is convertible into an aggregate
of 2,500,000 shares of common stock, and the issuance of warrants to purchase up
to 5,000,000 shares of common stock at $3.00 per share during the five years
subsequent to the closing. The promissory notes are in default. The
acquisition of Danube was accomplished by Eurogas forming a wholly-owned
subsidiary incorporated in Texas and Danube was merged into the subsidiary.
Additionally, the Company borrowed $2,000,000 from an unrelated third party of
which $1,085,000 was paid directly to the joint venture for Danube's share of
drilling costs. The acquisition was accounted for by the purchase method of
accounting with the total purchase price being $4,101,250. The preferred stock
issued was assigned a value of $1,250, which is equal to its par value, and the
common stock was assigned a value of $15,000, which is also its par value. The
purchase price was allocated to the net assets acquired based on their fair
value. No goodwill was recognized from the acquisition. The operations of
Danube will be included in the operations from July 3, 1996. The following
presents pro forma summary balance sheet information assuming the acquisition of
Danube occurred on December 31, 1995 (unaudited):
<TABLE>
<CAPTION>
<S> <C>
Current assets $ 1,840,697
Property and equipment 12,948,929
Other assets 300,873
-----------
Total Assets $15,090,499
===========
Current liabilities $ 9,538,864
Long-term debt 7,528,391
Minority interest 950,000
Stockholders' deficit (2,926,756)
-----------
Total Liabilities and Stockholders' Deficit $15,090,499
===========
</TABLE>
Summary pro forma results of operations for the year ended December 31, 1995,
assuming the acquisition occurred on January 1, 1995, are as follows
(unaudited):
<TABLE>
<CAPTION>
<S> <C>
Revenues $ -
Net loss $(5,346,775)
Net loss applicable to common shares $(5,495,451)
Net loss per common share $ (0.12)
Weighted average common shares outstanding 47,459,436
</TABLE>
A financial consulting firm was retained by Danube prior to its acquisition by
the Company to assist in raising capital in exchange for commissions based on
the capital obtained. Upon completion of the Danube acquisition by Eurogas,
the financial consultant filed a complaint asserting a claim of $435,000
in commissions plus interest and legal fees. Prior to the acquisition of
Danube the financial consulting firm was successful in raising a limited
amount of money and Eurogas has offered a settlement of $50,000, the
approximate amount it believes is due, plus additional commissions for
future financing received as a result of the consulting firm's efforts.
Acquisition of Remaining Interest in Pol-Tex Methane-On May 17, 1996 the Company
acquired the remaining 15% interest in the Company's subsidiary, Pol-Tex
Methane, from the Polish Government for a cash payment of $25,000 and the
release of the obligation of the Polish Government to fund development costs of
the Concession.
Agreement to Negotiate on Sale of Pol-Tex Methane's Assets-On June 7, 1996 the
Company entered into an agreement with a major oil and gas entity which provided
that the Company would only negotiate with such major oil and gas entity
concerning the sale of Pol-Tex Methane or the joint development of the
concessions held by Pol-Tex Methane until January 31, 1997. The agreement has
been extended until February 14, 1997. (Unaudited).
Debentures Converted-On March 11, 1996 holders of convertible debentures worth
$1,000,000 were exchanged for 200,000 shares of the Company's common stock. On
August 8, 1996, an additional $3,011,750 of debentures were converted into
1,003,917 shares of the Company's common stock. (Unaudited).
Issuance of Additional Debt-During 1996 the Company has issued debt securities
and notes payable to various sources, including related parties and private
investors in exchange for approximately $7,064,000 in cash. (Unaudited).
Lease and Purchase Commitments-During September 1996, the Company entered into a
four year lease agreement for an 8,800 square foot office facility in New York
City, New York. Lease payments for the term of the lease of $10,023 per month
were prepaid on execution of the lease agreement. Additional payments may be
required based on an annual escalation clause in the lease agreement. The
Company sub-leases a major portion of the office space to a third party. During
September 1996, the Company entered into a lease agreement for office space in
Salt Lake City, Utah. The lease payments are $1,631 per month with a minimum
escalation of six percent per year over the three year term of the lease. The
Company leases office space in Jastrzebie, Poland. Lease payments are $1,500
per month through expiration of the lease on December 31, 1996. Since the date
of the financial statements the Company has exercised an option to purchase the
facility. The purchase required a $100,000 down payment and monthly payments of
$3,000 toward the purchase price of $900,000. (Unaudited).
NOTE 10--STOCKHOLDERS' EQUITY
Date of Inception - Stock Agreement-Globegas was formed under an agreement dated
June 7, 1991. The Company was "in-formation" until the stock was formally
issued in July 1992. The June 7, 1991 agreement identified a former investor as
a 50% owner. The agreement also required the former investor to make cash
contributions up to $20,300,000 for funding of the Polish methane gas
exploration. Of the $20,300,000 required contribution, the former investor made
cash contributions prior to July 1992 of $3,675,264. When the stock was issued
in July 1992, due to the unfulfillment of the former investor's required cash
contributions, he was not issued shares of stock. Instead, the amount of the
capital contribution has been included in additional paid-in capital.
Preferred Stock-The 1995 Series Preferred Stock of the Company, issued on April
12, 1995, is non-voting and non-participating. The 1995 Series Preferred
stockholders are entitled to an annual dividend of $0.05 per share. Each share
of the 1995 series preferred stock will be converted automatically into two
shares of the Company's common stock two years from the date of its issuance.
The 1996 Series Preferred Stock of the Company, issued on July 12, 1996, is non-
voting, and junior to the 1995 Series. Stockholders of the 1996 Series stock
are entitled to an annual cumulative dividend of $0.05 per share. Each share of
the 1996 Series preferred stock will be converted automatically into two shares
of the Company's common stock on July 3, 1997. (Unaudited).
Report of Independent Registered Auditors
-----------------------------------------
To the Board of Directors of Globegas B.V.
We have audited the accompanying consolidated balance sheets of Globegas B.V.
(formerly McKenzie Methane Poland, B.V.) (a development stage enterprise) as of
December 31, 1995 and 1994, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years then
ended and for the period from June 7, 1991 (inception) through December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Globegas B.V. (a
development stage enterprise) as of December 31, 1995 and 1994 and the
consolidated results of their operations and their consolidated cash flows for
each of the three years then ended and for the period of June 7, 1991
(inception) through December 31, 1995 in conformity with accounting principles
generally accepted in the United States.
The accompanying consolidated financial statements have been prepared assuming
the Company and its subsidiaries will continue as a going concern. The Company's
subsidiaries have experienced losses since inception as a result of their
development activities. As discussed in Note B to the financial statements, the
Company's subsidiaries are in the process of developing coal bed methane gas
reserves but commercial production has not begun. In addition, the future of the
Company is dependent on obtaining additional financing and compliance with its
concession agreement with the Polish Ministry of Environmental Protection of
Natural Resources and Forestry. These factors, among others, as discussed in
Note B to the financial statements, raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ Grant Thornton
GRANT THORNTON
Warsaw, Poland
Date October 31, 1996
Globegas B.V.
(A Development Stage Enterprise)
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
December 31,
<S> <C> <C>
ASSETS 1995 1994
CURRENT ASSETS
Cash and Cash equivalents $ 71,870 $ 793,795
Sundry debtors 19,691 16,900
Material and supplies 8,251 8,284
Prepayments 2,071 22,647
---------- ----------
Total current assets 101,883 841,626
PROPERTY AND EQUIPMENT - AT COST
Gas properties not subject to amortization,
at cost using the full cost method of 8,006,345 6,745,050
accounting
Other property and equipment 2,377,751 2,341,903
---------- ----------
10,384,096 9,086,953
Less accumulated depreciation and valuation
allowance 2,916,557 2,446,002
---------- ----------
7,467,539 6,640,951
---------- ----------
$ 7,569,422 $ 7,482,577
=========== ===========
LIABILITIES AND STOCK-
HOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 312,350 $ 114,050
Current maturities of long-term debt 1,802,500 2,200,000
Accrued expenses 1,119,804 226,880
Unsecured notes payable 1,134,660 621,130
Taxes payable 762,575 1,231,613
Due to related parties 1,607,652 58,860
----------- -----------
Total current liabilities 6,739,541 4,452,533
COMMITMENTS -- --
STOCKHOLDERS' EQUITY
Common stock - $57.80 par value; authorized
2000 shares; issued and outstanding 600
shares on 1995 and 424 shares in 1994 34,680 24,507
Contributed capital 11,056,243 11,056,243
Cumulative foreign currency translation adjustment
(14,749) (14,749)
Deficit accumulated in the development stage (10,246,293) (8,035,957)
----------- -----------
Total stockholders' equity 829,881 3,030,044
----------- -----------
$ 7,569,422 $ 7,482,577
=========== ===========
</TABLE>
Globegas B.V.
(A Development Stage Enterprise)
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
Period from
June 7 1991
(inception)
through
Year ended December 31, December 31,
------------------------------------------- ------------
1995 1994 1993 1995
<S> <C> <C> <C> <C>
Revenues
Interest income $ 7,795 $ 18,562 $ 239,423 $ 277,780
Foreign exchange gains --- 83,422 72,810 211,676
Other 16,184 --- --- 16,184
---------- ----------- ---------
23,979 101,984 312,233 505,640
Costs and expenses
Impairment of gas properties --- --- 969,101 969,101
Depreciation and valuation
allowance 470,555 614,393 588,345 1,947,456
General and administrative 1,816,676 1,087,913 1,614,116 5,401,223
Foreign exchange losses, net 80,175 --- --- 370,312
Interest 315,805 316,330 258,797 890,932
Other 20,142 132,975 105,166 410,334
---------- ---------- --------- ----------
2,703,353 2,151,611 3,535,525 9,989,358
---------- ---------- --------- ----------
LOSS BEFORE TAXES 2,679,374 2,049,627 3,223,292 9,483,718
INCOME TAXES (469,038) 154,656 140,004 762,575
NET LOSS $ 2,210,336 $ 2,204,283 $ 3,363,296 $10,246,293
========== =========== ========== ==========
Net loss per share $ 4,733.05 $ 5,324.36 $ 8,408.24 $ 24,512.66
========== =========== ========== ==========
Weighted average outstanding
shares 467 414 400 418
========== =========== ========== ==========
</TABLE>
Globegas B.V.
(A Development Stage Enterprise)
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Years ended December 31, 1995, 1994, and 1993 and the period from June, 1991 (inception)
through December 31, 1995
Deficit Total
accumulated capital
Capital stock Cumulative the and
------- -----
Contributed translation development stockholders'
Shares Amount capital adjustment deficit equity
------ ------ ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June, 1991 --- $ --- $ --- $ --- $ --- $ ---
(Inception)
Contributed capital --- --- 3,675,264 --- 3,675,264
Net loss --- --- --- --- (835,015) (835,015)
--------- ----------- ------------- ------------ -------------
Balance January 1, 1992 --- --- 3,675,264 --- (835,015) 2,840,249
Issuance of capital stock 400 23,120 --- --- --- 23,120
Net loss --- --- --- --- (1,633,363) (1,633,363)
Foreign currency translation
adjustment --- --- --- (382) --- (382)
--------- ----------- ------------- ------------ -------------
Balance December 31, 1992 400 23,120 3,675,264 (382) (2,468,378) 1,229,624
Contributed capital --- 4,000,000 4,000,000
Foreign currency translation
adjustment --- --- --- 16,563 16,563
Net loss --- --- --- --- (3,363,296) (3,363,296)
--------- ---------- ------------- ------------ -------------
Balance, December 31, 1993 400 23,120 7,675,264 16,181 (5,831,674) 1,882,891
Issuance of additional shares
of capital stock 24 1,387 3,380,979 --- --- 3,382,366
Foreign currency translation
adjustment --- --- --- (30,930) --- (30,930)
Net loss --- --- --- --- (2,204,283) (2,204,283)
Balance December 31, 1994 424 $ 24,507 11,056,243 $ (14,749) $ (8,035,957) $ 3,030,044
Issuance of additional shares
of capital stock 176 10,173 --- --- --- 10,173
Net loss --- --- --- --- (2,210,336) (2,210,336)
--------- ---------- ------------- ----------- ------------ -----------
Balance December 31, 1995 600 $ 34,680 $ 11,056,243 $ (14,749) $(10,246,293) $ 829,881
========= =========== ============= ============ ============ ===========
</TABLE>
Globegas B.V.
(A Development Stage Enterprise)
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Period from
June 7 1991
(inception)
through
Year ended December 31, December 31,
-------------------------------------------------------------------
1995 1994 1993 1995
<S> <C> <C> <C> <C>
Net loss $ $ $ $
Adjustments to reconcile net loss to (2,210,336) (2,204,283) (3,363,296) (10,246,293)
net cash used in operating
activities
Impairment -- -- 969,101 969,101
Depreciation and amortization 470,555 614,393 588,345 1,947,456
Decrease (increase) in sundry debtors 9,662 11,593 9,426 121,993
Decrease (increase) in materials and
supplies 35 43,652 12,025 (7,482)
Decrease (increase) in prepayments 20,675 13,540 10,728 (36,466)
(Decrease) increase in accounts
payable 186,517 (63,616) (143,284) 381,322
Increase(decrease) in accrued
expenses 894,406 223,457 (21,815) 1,136,208
Increase (decrease) in taxes pending (469,038) 154,565 140,004 762,575
------------- ------------ ------------ -------------
Net cash used in operating
activities (1,097,524) (1,206,608) (1,798,766) (4,971,586)
Cash flows from investing activities
Payments for gas properties (1,261,295) (1,650,424) (1,951,464) (8,006,345)
Capital expenditure for other
property and equipment (35,848) (185,470) (186,835) (2,377,751)
------------- ------------ ------------- -------------
Net cash used in investing
activities (1,297,143) (1,835,894) (2,138,299) (10,384,096)
Cash flows from financing activities
Proceeds from related party
borrowings 1,548,792 286,339 1,516,264 7,152,829
Repayment of related party
borrowings -- (331,709) (3,665,160) (5,545,177)
Proceeds from issuance of long-term
debt -- -- 2,200,000 2,200,000
Proceeds from issuance of notes
payable 116,030 390,481 114,804 793,283
Proceeds from issuance of stock and
capital contributions
10,173 3,382,366 4,000,000 11,090,923
------------- ------------ ------------ -------------
Net cash provided by financing
activities 1,674,995 3,727,477 4,165,908 15,691,858
Effect of exchange rate changes on
cash
(2,253) (57,386) (66,456) (264,306)
------------- ------------ ------------ -------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (721,925) 627,589 162,387 71,780
Cash and cash equivalents at
beginning of year
793,795 166,206 3,819 --
------------- ------------ ------------ ------------
Cash and cash equivalents at end of
year $ 71,870 $ 793,795 $ 166,206 71,870
============= ============ ============ ============
Supplemental information: No interest or tax payments have been made since
inception.
Globegas B.V.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, l994, and 1993
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICES
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows.
1. Description of Business and Principles of Consolidation
-------------------------------------------------------
On August 2, 1994 MCK Development entered into an agreement with Energy Global
AG (EGA), a subsidiary of EuroGas Inc., to sell all of the outstanding shares of
Globegas B.V. The agreement provided for the acquisition to be on an instalment
basis which has resulted in 100% ownership of Globegas B.V. by EGA as of October
4, 1995. Effective August 25, 1995 Globegas B.V. changed its name from McKenzie
Methane Poland B.V.
The consolidated financial statements include the accounts of Globegas B.V. and
its three Polish subsidiaries -- Pol-Tex Methane Sp. z o.o. (PTM), McKenzie
Methane Rybnik Sp. z o.o. (MMR) and McKenzie Methane Jastrzebie Sp. z. o.o.
(MMJ). Globegas B.V. (the Company) is a Dutch holding company. PTM and MMJ
were formed with the state owned Jastrzebska Spolka Weglowa Spolka Akcjna
(JSWSA) who hold a 15% interest (Refer to Note I - Subsequent events). MMR was
formed with the state owned Rybnicka Spolka Weglowa Spolka Akcjna (RSWSA) who
hold a 15% interest. PTM has obtained a 35 year concession for exploration from
the Polish Ministry of Environmental Protection of Natural Resources and
Forestry and is in the process of developing coal bed methane gas reserves in
the Upper Silesian Coal Fields of Poland. The Company began methane gas
exploration in 1991. It is devoting substantially all of its efforts to
exploring and developing the methane gas reserves. However, proved reserves have
not been established. MMR commenced preliminary exploration activities during
the year. MMJ has no current activities. All intercompany accounts and
transactions have been eliminated on consolidation. As operating losses in PTM
applicable to the minority interest (JSWSA) exceed the minority interest's share
capital, all the losses have been charged to PTM and included in the
accompanying financial statements.
2. Use of estimates
----------------
The preparation of financial statements in conformity with United States
generally accepted accounting principles ("US GAAP") requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from these
estimates.
3. Development Stage Enterprise
----------------------------
The Company's operating subsidiary has devoted substantially all of it's efforts
to exploring for and development of coal bed methane gas reserves. Commercial
production has not commenced at December 31, 1995.
4. Gas Properties Not Subject to Amortization
------------------------------------------
The full cost method of accounting is used to account for gas properties. Under
this method of accounting all costs incidental to the acquisition, exploration,
and development of properties are capitalized and amortised using the units of
production method. These costs include costs of drilling and equipping wells,
as well as directly related overhead costs which includes the costs of company
owned equipment. At December 31, 1995, a determination cannot be made about the
extent of methane gas reserves that should be classified as proven reserves.
Consequently, the associated properties have not yet been amortized. The
Company expects to begin gas production in 1997. These costs are evaluated
periodically for impairment and if an impairment is indicated, the costs are
charged to operations. Due to drilling in certain areas for which the Company
did not have its concession confirmed and currently has no rights to future
production, impairment has been deemed to occur and the capitalised costs and
certain properties are included in costs and expenses in the accompanying
statement of operations for the year ended December 31, 1993.
Costs incurred for gas properties consist of the following:
</TABLE>
<TABLE>
<CAPTION>
Acquisition and
Period incurred Exploration
Costs
<S> <C>
Year ended December 31. 1995 $ 1,261,295
Year ended December 31. 1994 1,650,424
Year ended December 31, 1993 1,951,464
Year ended December 31, 1992 1,850,442
Period from June 7, 1991 to December 31, 1991 1,292,720
-----------
$ 8,006,345
===========
</TABLE>
All the Company's gas properties are located in Poland. The Company had the
following capitalized costs relating to gas properties at December 31,
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Unevaluated gas properties $ 7,037,244 $ 5,775,949
Proved gas properties 969,101 969,101
----------- -----------
8,006,345 6,745,050
Less accumulated valuation allowance 969,101 969,101
----------- -----------
$ 7,037,244 $ 5,775,949
=========== ===========
</TABLE>
5. Depreciation
------------
Depreciation is provided on a straight-line basis over the estimated useful
lives, at the following rates:
Buildings 40 years
Equipment and vehicle 3 to 5 years
6. Loss Per Share
--------------
Loss per share is calculated using the weighted average number of shares
outstanding during each year. Common stock equivalents result in negative
dilution and have not been included in the calculation.
7. Cash Equivalents
----------------
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. At December 31, 1995
and 1994 $64,466 and $64,489 respectively were held by banks in Poland. The
Company would incur certain costs if the cash were to be transferred out of
Poland.
8. Foreign Currency Translation
----------------------------
In the year ended December 31, 1995, the financial statements of the Company are
measured using US Dollars, as the functional currency. The consolidated balance
sheet accounts are translated into US dollars at the year-end rates of exchange
and the consolidated statements of operations items are translated at the
weighted average exchange rates for the year. Accordingly, the effect of
translating the Company's financial statements into U.S. dollars has
historically been recorded as a separate component of stockholders' equity.
Foreign exchange adjustments attributable to the financial statements of the
Company's subsidiaries, due to the highly inflationary Polish economy in which
they operate, are reflected in the operating statement.
9. Date of Inception - Stock Agreement
-----------------------------------
The Company was formed under an agreement dated June 7, 1991. The Company was
"in-formation" until the stock was formally issued in July, 1992.
The June 7, 1991 agreement identified a former investor as a 50% owner. The
agreement also required the former investor to make cash contributions up to
$20,300,000 for funding of the Polish methane gas exploration. Of the
$20,300,000 required contribution, the former investor made cash contributions
prior to March, 1992 of $3,675,264. When the stock was issued in July, 1992,
due to the unfulfillment of the former investor's required cash contributions,
he was not issued shares of stock. Instead, the amount is included as capital
contribution.
10. Income Taxes
------------
Deferred tax assets and liabilities are recognised for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases at enacted tax rates when such amounts are expected to be realised or
settled.
11. Long life assets
----------------
The introduction of FASB 121 - "Impairment of Long Life Assets" in the 1996
financial statements is unlikely to have a material impact.
NOTE B - REALIZATION OF ASSETS
At December 31, 1995, current liabilities exceeded current assets by $6,637,658
and the Company has losses of $10,246,293 accumulated since inception in July,
1991. The Company is considered a development stage company as defined by
Statement of Financial Accounting Standard No. 7, having not commenced planned
principal operations. Activities have been limited to exploration activities
with no significant production of methane gas to date. Realization of the
amounts included in gas properties is dependent on the Company developing
sufficient quantities of proven and probable reserves of methane gas. If
exploration activities prove to be unsuccessful, all or a portion of the gas
properties not subject to amortization will be charged to operations. These
factors raise substantial doubt about the ability of the Company to continue in
its current form. In order to continue, the Company will need to raise debt and
equity capital to meet the short and long term obligations of the Company and to
fund the exploration and development of proven reserves of methane gas on
concessions currently held by the Company. The financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts or amounts and classification of liabilities that might
be necessary should the Company be unable to continue in existence
NOTE C - OTHER PROPERTY AND EQUIPMENT
Other property and equipment consist of the following at:
<TABLE>
<CAPTION>
December 31.
------------
1995 1994
<S> <C> <C>
Buildings and land $ 254,440 $ 254,440
Drilling rigs and related equipment 2,123,311 2,087,463
2,377,751 2,341,903
Less accumulated depreciation 1,947,456 1,476,901
$ 430,295 $ 865,002
</TABLE>
NOTE D - LONG-TERM DEBT
Long-term debt payable at December 31, 1995 and 1994 is as follows
<TABLE>
<CAPTION>
December 31.
------------
1995 1994
<S> <C> <C>
Note payable to OMV Aktiengcsellschaft an Austrian $ 1,802,500 $ 2,200,000
Company, with interest at 7% repayable $400,000 due
March 31, 1995 and subsequent quarterly instalments of
$260,000 plus interest beginning July 1, 1995. The note is
denominated in US dollars. The note is secured by certain
drilling equipment, office equipment and land and
buildings. The note contains an option OMV can exercise
to purchase 25% of Pol-Tex Methane Sp. z o. o. should the
Company default on the repayment of the note.
1,802,500 2,200,000
Less Current Maturities (1,802,500) (2,00,000)
$ ------ $ ------
=========== ============
</TABLE>
The company has not made the quarterly repayments as required by the terms of
the note payable to OMV. As a result the Company is in default, and
accordingly, the whole amount of the note has been classified as current in the
accompanying balance sheet. OMV has not exercised their option to purchase PTM.
NOTE E - UNSECURED NOTES PAYABLE
<TABLE>
<CAPTION>
December 31
-----------
1995 1994
<S> <C> <C>
Unsecured notes payable to employee, denominated in US
dollars, payable on demand with interest rate at 12.5% $ 290,206 $ 290,206
Unsecured note payable to former director, denominated in
US dollars, payable in March 1995 with an interest
rate of 10% 108,027 108,027
Unsecured loan payable to minority shareholder of EuroGas Inc,
denominated in US dollars, payable in July 1996 with an
interest rate of 10% 245,196 ----
Unsecured loan payable to company controlled by alternate director
denominated in US dollars, payable by December 1996 with
an interest rate of 10% 268,334 ----
Other 222,897 222,897
---------- ----------
$1,134,660 $ 621,130
========== ==========
</TABLE>
NOTE F - DUE TO RELATED PARTIES
Due to related parties consist of the following at:
<TABLE>
<CAPTION>
December 31.,
-------------
1995 1994
<S> <C> <C>
Payable to holding company, EGA 1,548,792
Payable to former holding company, MCK Development 58,860 58,860
---------- ---------
$1,607,652 $ 58,860
========== =========
</TABLE>
NOTE G - INCOME TAXES
<TABLE>
<CAPTION>
December 31,
1995 1994 1993
<S> <C> <C> <C>
The provision for income tax expense,
all current, consists of the following:
Dutch Domestic Income Tax (469,038) 154,656 140,004
========== ========= =========
Deferred tax assets are comprised of the following:
Tax loss carry forwards 323,000 264,000 167,000
Less valuation allowance (323 000) (264,000) (167,000)
---------- --------- ---------
Net deferred tax asset $ -- $ -- $ --
========= ========= =========
</TABLE>
The net charge in the deferred tax valuation allowance was $59,000 and $97,000
for the years ended 1995 and 1994, respectively. At December 31, 1995 PTM had
tax loss carry forwards of approximately $323,000 in Poland, expiring at various
dates through 1997.
Dutch Domestic income tax is assessed at various rates on foreign exchange
gains, gains on the sale of property and equipment and interest income
NOTE H - RELATED PARTY TRANSACTIONS
A former stockholder and director of the Company provided various administrative
services through a company for which he is an employee. The payments for these
services in the years ended December 31, 1994 and 1993 were approximately
$194,000 and $237,000, respectively.
NOTE I - COMMITMENTS AND CONTINGENCIES
The Company has entered into employment contracts for consulting services with
certain individuals, which include a former director and members of his
immediate family. The contracts range from six months to three years and will
continue until either party to the contract gives notice to terminate.
Current Future commitments under these contracts are as follows;
<TABLE>
<CAPTION>
<S> <C>
Payable in 1996 $ 170,400
Payable in 1997 99,400
----------
$ 269,800
==========
</TABLE>
By a decision of the Ministry of Environmental Protection of Natural Resources
and Forestry dated March 19, 1996 the Company is committed to investing
$2,918,000 by December 31, 1996 in accordance with a specific investment
schedule set out by the Ministry. As at September 30, 1996 the Company has met
approximately 80% of its obligations.
The concession agreement with the Ministry of Environmental Protection of
Natural Resources and Forestry stipulates that the following payments are to be
made once commercial production commences:
i one time cost of $287,900
ii 9% of sales over a period of 20 years
The Company has not entered into agreements with the owners of land where
drilling has taken place or where proposed drilling is too take place as to the
price for the land once commercial production commences.
On August 9,1995 the Company's parent, EuroGas Inc. was served a formal order of
private investigation by the US Securities and Exchange Commission (SEC). To
date the SEC has issued a subpoena requiring the production of certain
documents. The SEC staff has advised that its inquiry should not be construed
as an indication by the SEC or its staff that any violations of law have
occurred.
Dutch law requires the annual statutory filing of financial statements with the
Chamber of Commerce in the Netherlands. The company has only filed through the
year ended December 31, 1992 and as a result could incur a maximum penalty of
$5,000.
NOTE J - SUBSEQUENT EVENT
On May 17, 1996 the Company acquired the remaining 15% interest in PTM.
On June 7, 1996 the Company entered into an agreement with a major oil and gas
entity which provided that the Company would only negotiate with such a major
oil and gas entity concerning the sale of PTM or the joint development of the
concessions held by PTM until January 31, 1997.
EUROGAS, INC.
Option to Acquire up to
2,000,000 Shares of Restricted Common Stock, Par Value $0.001
THIS OPTION WILL BE VOID
AFTER 11:59 P.M. MOUNTAIN TIME ON DECEMBER 31, 1998
This Option has not been registered under the Securities Act of 1933, as amended
(the "Securities Act"), and is a "restricted security" within the meaning of
Rule 144 promulgated under the Securities Act. This Option has been acquired
for investment and may not be sold or transferred without complying with Rule
144 in the absence of an effective registration or other compliance under the
Securities Act.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE OR OTHER
REGULATORY AUTHORITY, NOR HAS THE COMMISSION OR ANY
STATE OR OTHER REGULATORY AUTHORITY PASSED ON THE
ACCURACY OR ADEQUACY OF THIS OPTION. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
1. Grant of Option. This certifies that, for value received, THE
TRUSTEES OF THE ESTATE OF BERNICE PAUAHI BISHOP (the "Trustee" or the "Holder"),
are entitled to purchase, and receive up to 2,000,000 fully paid and
nonassessable shares of common stock, par value $0.001 (the "Option Shares"), of
EuroGas, Inc., a Utah corporation (the "Company"), at a price of (the "Exercise
Price") (i) $3.50 per Option Share if exercised prior to or on the later of (x)
the date that is 90 days subsequent to the execution of an agreement between
EuroGas and Texaco, Inc., or one of its operating subsidiaries, regarding the
concession held by Pol-Tex Methane Sp. z.o.o., in a form substantially similar
to the draft of an agreement delivered to KUKUI, INC. on or about September 20,
1996, or (y) January 31, 1997; (ii) thereafter, $4.50 per Option Share if
exercised prior to or on December 31, 1997; and (iii) thereafter, $6.00 per
Option Share if exercised prior to or on the expiration of the Option on
December 31, 1998. This Option shall be exercisable on presentation and
surrender of this Option with the purchase form attached hereto, duly executed,
at the principal office of the Company at 942 East 7145 South, #101A, Midvale,
Utah 84047, and by paying in full and in lawful money of the United States of
America by cash or cashier's check, the Exercise Price for the Option Shares as
to which this Option is exercised, all on the terms and conditions hereinafter
set forth. The number of Option Shares to be received on exercise of this
Option and the Exercise Price may be adjusted on the occurrence of such events
as described herein. If the rights represented hereby are not exercised by
11:59 p.m., Mountain Time, on December 31, 1998, this Option shall automatically
become void and of no further force or effect, and all rights represented hereby
shall cease and expire.
2. Exercise of Option. On the exercise of all or any portion of this
Option in the manner provided above, the Holder exercising the same shall be
deemed to have become a holder of record of the Option Shares for all purposes,
and certificates for the securities so purchased shall be delivered to the
Holder within a reasonable time, but in no event longer than ten days after this
Option shall have been exercised as set forth above. This Option may be
exercised in whole or in part, so long as each exercise is in increments of
100,000 shares. If this Option shall be exercised in respect to only a part of
the Option Shares covered hereby, the Holder shall be entitled to receive a
similar Option of like tenor and date covering the number of Option Shares with
respect to which this Option shall not have been exercised, and, until receipt
of same this Option shall represent the Option relating to the remaining shares
subject to this Option. On the exercise of all or any portion of this Option,
at the instruction of the Holder, the Company shall offset any amounts due by it
to Holder against payment of the exercise price for the Options.
3. Limitation on Transfer. This Option shall not be transferable without
the written consent of the Company, except to affiliates or subsidiaries of the
Trustees or to the UNSECURED CREDITORS' TRUST OF THE BANKRUPTCY ESTATE OF
MCKENZIE METHANE CORPORATION, CASE NO. 94-42758-H2-11, UNITED STATES BANKRUPTCY
COURT, SOUTHERN DISTRICT OF TEXAS (HOUSTON DIVISION), or persons entitled to
receive distributions therefrom.
4. Exchange of Options. This Option is exchangeable, on the presentation
and surrender hereof, by the Holder at the office of the Company, for a new
Option or Options of like tenor representing in the aggregate the right to
subscribe for and purchase the number of Option Shares which may be subscribed
for and purchased hereunder.
5. Fully Paid Shares. The Company covenants and agrees that the Option
Shares which will be issued on the exercise of the rights represented by this
Option will be, when issued, fully paid and nonassessable and free from all
taxes, liens, and charges with respect to the issue thereof. The Company
further covenants and agrees that during the period within which the rights
represented by this Option may be exercised, the Company will have authorized
and reserved a sufficient number of shares of its common stock, $0.001 per
share, to provide for the exercise of the rights represented by this Option.
6. Antidilution Provisions. The Exercise Price and number of Option
Shares purchasable pursuant to this Option may be subject to adjustment from
time to time as follows:
(a) If the Company shall take a record of the holders of its common
stock for the purpose of entitling them to receive a dividend in shares,
the Option Price in effect immediately prior thereto and the number of
Option Shares shall be adjusted so that the Holder of this Option shall
thereafter be entitled to receive the number of Option Shares to which the
Holder would have been entitled had such Option been exercised immediately
prior to the occurrence of such event. Such adjustment shall become
effective immediately after the opening of business on the day following
the date on which such dividend becomes effective.
(b) If the Company shall subdivide the outstanding shares of common
stock into a greater number of shares, combine the outstanding shares of
common stock into a smaller number of shares, or issue by reclassification
any of its shares, the Option Price in effect immediately prior thereto and
the number of Option Shares shall be adjusted so that the Holder of this
Option thereafter surrendered for exercise shall be entitled to receive,
after the occurrence of any of the events described, the number of Option
Shares to which the Holder would have been entitled had such Option been
exercised immediately prior to the occurrence of such event. Such
adjustment shall become effective immediately after the opening of business
on the day following the date on which such subdivision, combination, or
reclassification, as the case may be, becomes effective.
(c) If any capital reorganization or reclassification of the
Company's common stock, or consolidation or merger of the Company with
another corporation or the sale of all or substantially all of its assets
to another corporation shall be effected in such a way that holders of
common stock shall be entitled to receive stock, securities, or assets with
respect to or in exchange for common stock, then, as a condition of such
reorganization, reclassification, consolidation, merger, or sale, lawful
adequate provisions shall be made whereby the Holder of this Option shall
thereafter have the right to acquire and receive on exercise hereof such
shares of stock, securities, or assets as would have been issuable or
payable (as part of the reorganization, reclassification, consolidation,
merger, or sale) with respect to or in exchange for such number of
outstanding common shares of the Company as would have been received on
exercise of this Option immediately before such reorganization,
reclassification, consolidation, merger, or sale.
In any such case, appropriate provision shall be made with respect to
the rights and interests of the Holder of this Option to the end that the
provisions hereof shall thereafter be applicable in relation to any shares
of stock, securities, or assets thereafter deliverable on the exercise of
this Option. In the event of a merger or consolidation of the Company with
or into another corporation or the sale of all or substantially all of its
assets that results in the issuance of a number of shares of common stock
of the surviving or purchasing corporation greater or less than the number
of shares of common stock of the Company outstanding immediately prior to
such merger, consolidation, or purchase are issuable to holders of common
stock of the Company, then the Option Price in effect immediately prior to
such merger, consolidation, or purchase shall be adjusted in the same
manner as though there was a subdivision or combination of the outstanding
shares of common stock of the Company. The Company will not effect any
such consolidation, merger, or sale unless prior to the consummation
thereof the successor corporation resulting from such consolidation or
merger or the corporation purchasing such assets shall assume by written
instrument mailed or delivered to the Holder hereof at its last address
appearing on the books of the Company, the obligation to deliver to such
Holder such shares of stock, securities, or assets as, in accordance with
the foregoing provisions, such Holder may be entitled to acquire on
exercise of this Option.
(d) If (i) the Company shall take a record of the holders of its
shares of common stock for the purpose of entitling them to receive a
dividend payable otherwise than in cash, or any other distribution in
respect of the shares of common stock (including cash), pursuant to,
without limitation, any spin-off, split-off, or distribution of the
Company's assets; or (ii) the Company shall take a record of the holders of
its shares of common stock for the purpose of entitling them to subscribe
for or purchase any shares of any class or to receive any other rights; or
(iii) in the event of any classification, reclassification, or other
reorganization of the shares that the Company is authorized to issue, any
consolidation or merger of the Company with or into another corporation, or
any conveyance of all or substantially all of the assets of the Company; or
(iv) in the event of the voluntary or involuntary dissolution, liquidation,
or winding up of the Company; then, and in any such case, the Company shall
mail to the Holder of this Option, at least 30 days prior thereto, a notice
stating the date or expected date on which a record is to be taken for the
purpose of such dividend, distribution or rights, or the date on which such
classification, reclassification, reorganization, consolidation, merger,
conveyance, dissolution, liquidation, or winding up, as the case may be.
Such notice shall also specify the date or expected date, if any is to be
fixed, as of which holders of shares of common stock of record shall be
entitled to participate in such dividend, distribution, or rights, or shall
be entitled to exchange their shares of common stock for securities or
other property deliverable upon such classification, reclassification,
reorganization, consolidation, merger, conveyance, dissolution,
liquidation, or winding up, as the case may be.
(e) If the Company, at any time while this Option shall remain
unexpired and unexercised, sells shares of common stock to an affiliate of
the Company, excluding shares issued on the exercise of options issued and
outstanding as of the date hereof and shares issued to officers and
directors under stock option plans of the Company existing as of the date
hereof, at a price lower than the Exercise Price provided herein, as the
same may from time to time be adjusted pursuant to this section 5, then the
Exercise Price of these Options shall be reduced automatically to such
lower price at which the Company has sold or agreed to sell its common
stock.
(f) No fraction of a share shall be issued on exercise, but, in lieu
thereof, the Company, notwithstanding any other provision hereof, may pay
therefor, in cash, the fair value of any such fractional share at the time
of exercise.
7. Disposition of Option Shares. The registered owner of this Option, by
acceptance hereof, agrees that, before any disposition is made by the registered
owner of any Option Shares, the owner(s) shall give written notice to the
Company describing briefly the manner of any such proposed disposition. No such
disposition shall be made unless and until:
(a) the Company has received an opinion from counsel for the owner(s)
of the Option Shares stating that no registration under the Securities Act
is required with respect to such disposition; or
(b) a registration statement or post-effective amendment to a
registration statement under the Securities Act has been filed by the
Company and made effective by the Commission covering such proposed
disposition.
8. Registration of Option Shares. The Company has entered into a
Registration Agreement with the Holder with respect to the resale of the Option
Shares. The Holder shall cooperate with the Company and shall furnish such
information as the Company may reasonably request in connection with any such
registration statement hereunder, on which the Company shall be entitled to
rely.
9. Governing Law. This agreement shall be construed under and be
governed by the laws of the State of Utah.
10. Notices. All notices, demands, requests, or other communications
required or authorized hereunder shall be deemed given sufficiently if in
writing and if personally delivered; if sent by facsimile transmission,
confirmed with a written copy thereof sent by second day express delivery or
registered mail, return receipt requested and postage prepaid; if sent by
registered mail or certified mail, return receipt requested and postage prepaid;
or if sent by second day express delivery:
If to the Company, to: EuroGas, Inc.
Attn: Hank Blankenstein, Secretary
942 East 7145 South, #101A
Midvale, Utah 84047
Facsimile Transmission: (801) 255-2005
Confirmation: (801) 255-0862
With a copy to: Howard S. Landa, Esq.
Kruse, Landa & Maycock, L.L.C.
50 West Broadway, Eighth Floor
Salt Lake City, Utah 84101
Facsimile Transmission: (801) 531-7091
Confirmation: (801) 531-7090
If to the Holder
(Trustees), as follows: Kamehameha Schools Bishop Estate
c/o Nathan T.K. Aipa, General Counsel
567 South King Street, Suite 310
Honolulu, Hawaii 96813
Facsimile: (808) 537-1229
Confirmation: (808) 523-6330
With a copy to: Lee H. Henkel III
3040 Post Oak Boulevard, Suite 850
Houston, Texas 77056
Facsimile: (713) 621-1197
Confirmation: (713) 993-9973
or other such addresses and facsimile numbers as shall be furnished by any party
in the manner for giving notices hereunder, and any such notice, demand,
request, or other communication shall be deemed to have been given as of the
date so delivered or sent by facsimile transmission, three days after the date
so mailed, or two days after the date so sent by second day delivery.
11. Loss, Theft, Destruction, or Mutilation. Upon receipt by the Company
of reasonable evidence of the ownership of and the loss, theft, destruction, or
mutilation of this Option, the Company will execute and deliver, in lieu
thereof, a new Option of like tenor.
DATED this day of November, 1996.
------
EUROGAS, INC.
By /s/ Hank Blankenstein
Hank Blankenstein, Secretary
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (the "Agreement"), is entered into as of
November , 1996, by and among EUROGAS, INC., a Utah corporation ("EuroGas")
-----
on the one hand, and on the other hand, KUKUI, INC., a Texas corporation
("KUKUI"), and the Trustees of the Estate of Bernice Pauahi Bishop ("Trustees"),
based on the following:
Premises
A. Two subsidiaries of EuroGas, Pol-Tex Methane, sp z.o.o. and GlobeGas
B.V., entered into a settlement agreement with KUKUI (the "Settlement
Agreement").
B. The Settlement Agreement provides for the issuance of 100,000 shares
(the "EuroGas Common Shares") of common stock, par value $0.001 per share
("EuroGas Common Stock"), of EuroGas to KUKUI, the grant of an option to acquire
up to 2,000,000 shares of EuroGas Common Stock (the "EuroGas Option Shares") to
the Trustees, and the grant of certain registration rights with respect to the
EuroGas Common Shares and the EuroGas Option Shares. Such registration rights
are set forth in this Agreement.
C. It is contemplated that KUKUI and the Trustees may deliver a portion
of the EuroGas Common Stock or the EuroGas Option Shares to the Unsecured
Creditors' Trust of the Bankruptcy Estate of McKenzie Methane Corporation,
Bankruptcy No. 94-42758-H2-11. The rights granted under this Agreement may be
transferred to the Unsecured Creditors' Trust of the Bankruptcy Estate of
McKenzie Methane Corporation, Bankruptcy No. 94-42758-H2-11 pursuant to Section
13 contained herein.
Agreement
NOW, THEREFORE, based on the foregoing premises and in consideration of the
terms and provisions set forth herein, the mutual benefits to be gained by the
performance thereof, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. Definitions.
As used herein, the terms set forth below have the following respective
meanings:
"Commission" means the Securities and Exchange Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Holders" means KUKUI and/or the Trustees and, if applicable, any
transferees of Registrable Securities directly or indirectly (in a chain of
title) from KUKUI and/or the Trustees to whom all or a portion of their rights
under this Agreement have been assigned in accordance with Section 13 hereof.
"Registrable Securities" means the EuroGas Common Shares, the EuroGas
Option Shares, and any other securities issued or issuable with respect to any
such shares by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or
reorganization. Any Registrable Securities will cease to be such when (i) a
registration statement covering such Registrable Securities has been declared
effective by the Commission and such Registrable Securities have been disposed
of pursuant to such effective registration statement or (ii) such Registrable
Securities are distributed to the public pursuant to Rule 144 under the
Securities Act.
"Securities Act" means the Securities Act of 1933, as amended.
"Selling Holder" means a Holder who is selling Registrable Securities
pursuant to a registration statement as contemplated by this Agreement.
Each of the terms set forth below has the meaning set forth in the
provision set forth opposite such term in the following table:
Term Provision
--------------------------------- ------------
Shelf Registration Effective Date Section 2(b)
Shelf Registration Period Section 2(b)
Shelf Registration Statement Section 2(a)
Registration Expenses Section 5
SECTION 2. Shelf Registration.
(a) Prior to or on the date that is 30 days after receipt by EuroGas of
the audited year-end and interim period financial statements of EuroGas and
Danube International Petroleum Company, a Texas corporation recently acquired by
EuroGas, required in order for EuroGas to file a registration statement under
the Securities Act (but in no event later than December 31, 1996), EuroGas will
file with the Commission a "shelf" registration statement on an appropriate form
pursuant to Rule 415 under the Securities Act with respect to all of the
Registrable Securities (the "Shelf Registration Statement").
(b) EuroGas agrees to use its best efforts to cause the Shelf Registration
Statement to be declared effective under the Securities Act as promptly as
practicable after the filing thereof (the "Shelf Registration Effective Date")
and to keep the Shelf Registration Statement continuously effective for a period
ending on the third anniversary of the date on which the EuroGas Common Shares
were issued (the "Shelf Registration Period"). EuroGas further agrees to
supplement or amend the Shelf Registration Statement as promptly as practicable
in order to update from time to time any information with respect to the Holders
or their plan of distribution, if requested by the Holders or any underwriter
for the Holders, and EuroGas agrees to furnish to the Holders copies of any such
supplement or amendment promptly after it has been filed with the Commission.
EuroGas shall be permitted to register shares of EuroGas Common Stock other than
the Registrable Securities pursuant to the Shelf Registration Statement;
provided, however, that the registration and sale of any such shares shall have
no adverse effect on the rights of the Holders hereunder.
SECTION 3. Piggy-Back Registration.
(a) If, at any time prior to the end of the Shelf Registration Period,
EuroGas proposes to file a registration statement under the Securities Act with
respect to an offering for its own account or for the account of any other
person or entity of any class of its equity securities, including any securities
convertible into or exchangeable for any of its equity securities (other than
(i) a registration statement on Form S-4 or S-8 (or any substitute form for
comparable purposes that may be adopted by the Commission) or (ii) a
registration statement filed in connection with an exchange offer or an offering
of securities solely to EuroGas' existing security holders), then EuroGas shall
in each case give written notice of such proposed filing to the Holders of
Registrable Securities as soon as practicable, but in no event later than 30
days prior to the anticipated filing date, and such notice shall offer to such
Holders the opportunity to register such number of Registrable Securities as
each such Holder may request. Upon the written request of a Holder made within
20 days after receipt of such notice by the Holder, EuroGas shall include in any
registration described in the first sentence of this Section 3(a) all
Registrable Securities requested by such Holder to be included therein, subject
to the provisions of Section 3(b) hereof.
(b) In the case of a proposed underwritten offering, EuroGas shall use its
best efforts to cause the managing underwriter or underwriters of such offering
to permit all Registrable Securities requested by a Holder to be included in the
registration statement for such offering to be included on the same terms and
conditions as any similar securities of EuroGas included therein. Notwith-
standing the foregoing, if the managing underwriter or underwriters of such
offering determine in writing that the success of the offering would be
materially and adversely affected by inclusion of the Registrable Securities
requested to be included, then the securities offered for the account of the
Holders in such offering shall be reduced to the extent necessary to reduce the
total amount of securities to be included in such offering to the amount
recommended by such managing underwriter or underwriters; provided, however,
that the proportion by which the amount of Registrable Securities intended to be
offered by the Holders is reduced shall not exceed the proportion by which the
amount of securities intended to be offered by any person or entity other than
EuroGas is reduced.
(c) To the extent not inconsistent with applicable law, each Selling
Holder whose securities are included in a registration statement pursuant to
this Section 3 agrees not to effect any public sale or distribution of the
security being registered, including a sale pursuant to Rule 144 under the
Securities Act, during the 15 days prior to and during the 90-day period (or
such shorter period as may be required by the managing underwriter or
underwriters with respect to any officer or director or shareholder of EuroGas)
beginning on, the effective date of a registration statement (except, in each
case, as part of such registration), if and to the extent requested by the
managing underwriter or underwriters for an underwritten public offering.
SECTION 4. Registration Procedures.
(a) If and whenever EuroGas is required to effect the registration of any
Registrable Securities in accordance with this Agreement, EuroGas will as
expeditiously as practicable:
(i) prepare and file with the Commission such amendments and
supplements to any such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities Act
with respect to the disposition of the securities covered thereby for
(A) in the case of a registration pursuant to Section 2, the Shelf
Registration Period or (B) in the case of a registration pursuant to
Section 3, a period of at least nine months after the applicable
registration statement becomes effective (unless all of the Registrable
Securities registered thereunder have been sold or disposed of prior to the
expiration of said nine-month period);
(ii) furnish to each Selling Holder such number of copies of such
registration statement and of each amendment and supplement thereto (in
each case including all exhibits thereto) and of the prospectus included in
such registration statement (including each preliminary prospectus) and any
prospectus filed pursuant to Rule 424 under the Securities Act and of such
other documents as each Selling Holder may reasonably request in order to
facilitate the disposition of its Registrable Securities;
(iii) use commercially reasonable efforts to register or qualify
the Registrable Securities covered by such registration statement under the
securities acts or blue sky laws of such jurisdictions as the Selling
Holders shall reasonably request, keep such registration or qualification
in effect for so long as such registration statement remains in effect and
do any and all other acts and things which may be reasonably necessary or
appropriate to enable the Selling Holders to dispose of such Registrable
Securities in such jurisdictions (provided, however, that EuroGas will not
be required to (a) qualify to do business as a foreign corporation in any
jurisdiction where it would not otherwise be required to be so qualified,
(b) consent to general service of process in any jurisdiction; or (c)
subject itself to general taxation in any such jurisdiction where it would
not otherwise be subject to such taxation);
(iv) use commercially reasonable efforts to cause the Registrable
Securities to be registered with or approved by such other governmental
agencies or authorities as may be necessary to enable the Selling Holders
to dispose of such Registrable Securities;
(v) notify each Selling Holder promptly (A) when such registration
statement and any post-effective amendment thereto has become effective
under the Securities Act, (B) of any request by the Commission for an
amendment or supplement to such registration statement or the prospectus
included therein or for additional information, (C) of the issuance by the
Commission of any stop order suspending the effectiveness of such
registration statement or the initiation of any proceedings for that
purpose, (D) of the receipt of any notification with respect to the
suspension of the registration or qualification of any Registrable
Securities in any jurisdiction in which they are registered or qualified or
the initiation of any proceedings for that purpose and (E) of the
occurrence of any event as a result of which the prospectus included in
such registration statement or any document incorporated or deemed to be
incorporated by reference therein includes an untrue statement of a
material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(vi) use commercially reasonable efforts to obtain the withdrawal at
the earliest possible moment of any stop order suspending the effectiveness
of such registration statement and the lifting at the earliest possible
moment of any suspension of the registration or qualification of the
Registrable Securities in any jurisdiction in which they are registered or
qualified;
(vii) upon the occurrence of any event of specified in clause (E)
of subparagraph (v) above, promptly prepare and furnish to each Selling
Holder an amendment or supplement to the prospectus included in such
registration statement so that, as thereafter delivered to the purchasers
of the Registrable Securities, such prospectus and any document
incorporated or deemed to be incorporated therein by reference will not
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading;
(viii) otherwise use commercially reasonable efforts to comply with
all applicable rules and regulations of the Commission, and make available
to its security holders, as soon as reasonably practicable, an earnings
statement covering a period of 12 months after the effective date of such
registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act;
(ix) grant to the Selling Holders and their respective counsel and
accountants the opportunity to participate in the preparation of such
registration statement and any amendment thereof or supplement thereto, and
grant to a representative jointly appointed by all Selling Holders and
their counsel such access to EuroGas' books and records and such
opportunities to discuss the business of EuroGas with its officers and
independent public accountants as shall be necessary, in the judgment of
the Selling Holders based upon the advice of their counsel, to conduct a
reasonable investigation within the meaning of the Securities Act; and
(x) use its best efforts to cause all Registrable Securities covered
by such registration statement to be listed on any securities exchange on
which any securities of such class are then listed.
(b) If and whenever EuroGas is required to effect the registration of any
Registrable Securities in accordance with this Agreement, each Holder agrees as
follows:
(i) to cooperate with EuroGas by providing in writing such
information as EuroGas shall reasonably request in order to comply with the
applicable provisions of the Securities Act and applicable state securities
laws in connection with the disposition of Registrable Securities by such
Holder as described herein, including information regarding the identity of
the Holder effecting such disposition and the proposed method of effecting
such disposition;
(ii) In the case of an underwritten offering, enter into any agreement
(including underwriting agreements in customary form) with any underwriter
engaged to effect the distribution of the Registrable Securities; provided,
however, that the Selling Holders shall not be required to agree to any
terms or conditions more stringent than those agreed to by all other
participants in the registration;
(iii) On receipt of any notice from EuroGas of a happening of an
event described in clause (E) of subparagraph (a)(v) above, to promptly
discontinue disposition of securities pursuant to the registration
statement until such Holder is advised in writing by EuroGas that the use
of the prospectus can be resumed and has received copies of any amended or
supplemental material; provided, however, that in no event shall the
Selling Holders be required to discontinue sales pursuant to this
subparagraph (b)(iii) for a period of more than 30 consecutive days or for
more than 60 days during any calendar year;
(iv) At the end of any period during with EuroGas is required to keep
the registration statement effective, to discontinue sales of securities
pursuant to such registration statement on notice from EuroGas of its
intent to remove such securities from registration and to promptly provide
EuroGas with written confirmation of the number of securities held by the
Holder that remain unsold; and
(v) To conduct any sales pursuant to the registration statement in
accordance with the description set forth in the plan of distribution
contained in the registration statement and the limitations and conditions
imposed upon the Selling Holders by any applicable state securities laws.
SECTION 5. Registration Expenses. All expenses incident to the
performance of or compliance with this Agreement by EuroGas, including without
limitation all registration and filing fees, fees and expenses of compliance
with securities or blue sky laws (including reasonable fees and disbursements of
counsel in connection with blue sky qualifications of the Registrable
Securities), rating agency fees, printing expenses, messenger and delivery
expenses, internal expenses (including, without limitation, all salaries and
expenses of its officers and employees performing legal or accounting duties),
the fees and expenses incurred in connection with the listing of the securities
to be registered on each securities exchange on which similar securities issued
by EuroGas are then listed, and fees and disbursements of counsel for EuroGas
and its independent certified public accountants (including the expenses of any
special audit or comfort letters required by or incident to such performance),
securities acts liability insurance (if EuroGas elects to obtain such
insurance), the reasonable fees and expenses of any special experts retained by
EuroGas in connection with such registration, and fees and expenses of other
persons retained by EuroGas, in connection with each registration hereunder (but
not including any underwriting discounts or commissions or brokerage fees or
transfer taxes attributable to the sale of Registrable Securities or the fees
and expenses of any counsel, accountant or other representative retained by the
Selling Holders) (collectively, "Registration Expenses") shall be borne by
EuroGas.
SECTION 6. Indemnification; Contribution.
(a) Indemnification by EuroGas. EuroGas agrees to indemnify and hold
harmless each Selling Holder, its officers, directors, partners and agents and
each person, if any, who controls a Selling Holder within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act, from and against any
and all losses, claims, damages (whether in contract, tort or otherwise),
liabilities and expenses (including reasonable costs of investigation)
whatsoever (as incurred or suffered) arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
registration statement or prospectus relating to the Registrable Securities or
in any amendment or supplement thereto or in any preliminary prospectus, or
arising out of or based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages,
liabilities or expenses arise out of, or are based upon, any such untrue
statement or omission or allegation thereof based upon information furnished in
writing to EuroGas by such Selling Holder expressly for use therein. EuroGas
also agrees to indemnify any underwriters of the Registrable Securities, their
officers, partners and directors and each person who controls such underwriters,
on substantially the same basis as that of the indemnification of the Selling
Holder provided in this Section 6 or such other indemnification customarily
obtained by underwriters at the time of offering.
(b) Conduct of Indemnification Proceedings. If any action or proceeding
(including any governmental investigation) shall be brought or asserted against
a Selling Holder (or its officers, directors, partners or agents) or any person
controlling a Selling Holder in respect of which indemnity may be sought from
EuroGas, EuroGas shall assume the defense thereof, including the employment of
counsel selected by EuroGas in its reasonable discretion, and shall assume the
payment of all expenses. The Selling Holder or any controlling person of the
Selling Holder shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of the Selling Holder or such controlling
person unless (i) EuroGas has agreed in writing to pay such fees and expenses or
(ii) the named parties to any such action or proceeding (including any impleaded
parties) include both the Selling Holder or such controlling person and EuroGas,
and the Selling Holder or such controlling person shall have been advised by
counsel that there may be one or more legal defenses available to such Selling
Holder or such controlling person which are different from or additional to
those available to EuroGas (in which case, if the Selling Holder or such
controlling person notifies EuroGas in writing that it elects to employ separate
counsel at the expense of EuroGas, EuroGas shall not have the right to assume
the defense of such action or proceeding on behalf of the Selling Holder or such
controlling person). EuroGas shall not be liable for any settlement of any such
action or proceeding effected without its written consent, but if settled with
its written consent, or if there be a final judgment for the plaintiff or
claimant in any such action or proceeding, EuroGas agrees to indemnify and hold
harmless the Selling Holder and such controlling person from and against any
loss or liability (to the extent stated above) by reason of such settlement or
judgment.
(c) Indemnification by Selling Holder. Each Selling Holder agrees to
indemnify and hold harmless EuroGas, its directors and officers and each person,
if any, who controls EuroGas within the meaning of either Section 15 of the Act
or Section 20 of the Exchange Act to the same extent as the foregoing indemnity
from EuroGas to the Selling Holder, but only with respect to information
furnished to EuroGas in writing by such Selling Holder expressly for use in any
registration statement or prospectus relating to the Registrable Securities, or
any amendment or supplement thereto, or any preliminary prospectus. In case any
action or proceeding shall be brought against EuroGas or its directors or
officers, or any such controlling person, in respect of which indemnity may be
sought against the Selling Holder, the Selling Holder shall have the rights and
duties given to EuroGas, and EuroGas or its directors or officers or such
controlling person shall have the rights and duties given to the Selling Holder,
by the preceding paragraph. Notwithstanding the foregoing, the liability of the
Selling Holder pursuant to this Section 6(c) shall not exceed the amount by
which the total price at which the Registrable Securities of the Selling Holder
were offered to the public exceeds the amount the Selling Holder has otherwise
been required to pay by reason of this Section 6.
(d) Contribution. If the indemnification provided for in this Section 6
is unavailable to EuroGas, the Selling Holders or the underwriters in respect of
any losses, claims, damages, liabilities or judgments referred to herein, then
each such indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities and judgments (i) as between
EuroGas and the Selling Holders on the one hand and the underwriters on the
other, in such proportion as is appropriate to reflect the relative benefits
received by EuroGas and the Selling Holders on the one hand and the underwriters
on the other from the offering of the Registrable Securities, or if such
allocation is not permitted by applicable law, in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of EuroGas and the Selling Holders on the one hand and of the underwriters
on the other in connection with the statements or omissions which resulted in
such losses, claims, damages, liabilities or judgments, as well as any other
relevant equitable considerations and (ii) as between EuroGas, on the one hand,
and the Selling Holders on the other, in such proportion as is appropriate to
reflect the relative fault of EuroGas and of the Selling Holders in connection
with such statements or omissions, as well as any other relevant equitable
considerations. The relative benefits received by EuroGas and the Selling
Holders on the one hand and the underwriters on the other shall be deemed to be
in the same proportion as the total proceeds from the offering (net of
underwriting discounts and commissions but before deducting expenses) received
by EuroGas and the Selling Holders bear to the total underwriting discounts and
commissions received by the underwriters, in each case as set forth in the table
on the cover page of the prospectus. The relative fault of EuroGas on the one
hand and of the Selling Holders on the other shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by such party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The parties agree that it would not be just and equitable if contribution
pursuant to this Section 6(d) were determined by pro rata allocation (even if
the Selling Holders were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable considerations
referred to in the immediately preceding paragraph. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages, liabilities,
or judgments referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 6(d), the Selling Holders shall not be required to
contribute any amount in excess of the amount by which the total price at which
the Registrable Securities of the Selling Holders were offered to the public
exceeds the amount of any damages which the Selling Holders have otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
SECTION 7. Participation in Underwritten Registrations. No person may
participate in any underwritten registration hereunder unless such person agrees
to sell its securities on the basis provided in any underwriting arrangements
approved by the persons entitled hereunder to approve such arrangements.
SECTION 8. Rule 144 and Reports. At all times from and after the date
of the filing of the Shelf Registration Statement and prior to the expiration of
the period during which EuroGas is required to keep such registration statement
effective in accordance with Section 2(b) hereof, EuroGas covenants that it will
file any reports required to be filed by it under the Securities Act and the
Exchange Act and the rules and regulations adopted by the Commission thereunder
and that it will take such other action as any Holder of Registrable Securities
may reasonably request, all to the extent required from time to time to enable
such Holder to sell Registrable Securities without registration under the
Securities Act within the limitation of the exemptions provided by (a) Rule 144
under the Securities Act, as such Rule may be amended from time to time, or (b)
any similar rule or regulation hereafter adopted by the Commission. Upon
request of any Holder, EuroGas will deliver to such Holder a written statement
as to whether it has complied with such requirements.
SECTION 9. Notices. All notices and other communications hereunder shall
be in writing and shall be delivered in person, by United States mail (first
class and with postage prepaid thereon) or by cable, telex or facsimile
transmission to the parties at the following addresses (or at such other address
as any party shall have furnished to the others in accordance with the terms of
this Section 9):
If to EuroGas, to: EuroGas, Inc.
Attention: Hank Blankenstein, Vice-President
942 East 7145 South, #101A
Midvale, Utah 84047
Facsimile: (801) 255-2005
Confirmation: (801) 255-0862
With a copy to: Howard S. Landa, Esq.
Kruse, Landa & Maycock, L.L.C.
50 West Broadway, Eighth Floor
Salt Lake City, Utah 84101
Facsimile Transmission: (801) 531-7091
Confirmation: (801) 531-7090
If to the Trustees: Kamehameha Schools Bishop Estate
c/o Nathan T.K. Aipa, General Counsel
567 South King Street, Suite 310
Honolulu, Hawaii 96813
Facsimile: (808) 537-1229
Confirmation: (808) 523-6330
With a copy to: Lee H. Henkel III
3040 Post Oak Boulevard, Suite 850
Houston, Texas 77056
Facsimile: (713) 621-1197
Confirmation: (713) 993-9973
If to KUKUI: KUKUI, INC.
Attention: Dennis E. Fern, President
567 South King Street, Suite 310
Honolulu, Hawaii 96813
Facsimile: (808) 537-1229
Confirmation: (808) 523-6206
With a copy to: Lee H. Henkel III
3040 Post Oak Boulevard, Suite 850
Houston, Texas 77056
Facsimile: (713) 621-1197
Confirmation: (713) 993-9973
if to any other Holder, to such address as such Holder provides to EuroGas or,
if no such address is provided, to the address of such Holder reflected in the
stock transfer records of EuroGas.
All notices and other communications hereunder that are addressed as provided in
or pursuant to this Section 9 shall be deemed duly and validly given (i) if
delivered in person, upon delivery, (ii) if delivered by United States mail
(first class and with postage paid thereon), 72 hours after being placed in a
depository of the United States mails and (iii) if delivered by cable, telex or
facsimile transmission, upon transmission thereof and receipt of the appropriate
answer back.
SECTION 10. Conflicting Agreements. EuroGas agrees that it will not
grant any rights of registration under the Securities Act relating to its
capital stock or other equity securities to any person or entity other than
pursuant to this Agreement, unless the rights so granted do not limit or
restrict in any manner the rights of the Holders granted pursuant to this
Agreement (except as expressly provided in Section 3(b) hereof).
SECTION 11. Amendment; Waivers. The provisions of this Agreement may be
amended only by a written instrument executed by each of the parties hereto, and
compliance with any provision hereof may be waived only by a written instrument
executed by each party entitled to the benefits of the same. No failure to
exercise any right, power or privilege granted hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege granted hereunder.
SECTION 12. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements and understandings, whether written or oral,
between the parties with respect thereto.
SECTION 13. Binding Effect; Assignment. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns. The rights of a Holder under this Agreement may be
assigned without the consent of EuroGas to any person or entity who acquires any
Registrable Securities directly or indirectly (in a chain of title) from such
Holder if (i) such Holder executes a written instrument which expressly provides
that such person or entity shall succeed to all or a portion of the rights of
such Holder hereunder and (ii) such person or entity agrees to be bound by all
of the terms and conditions hereof.
SECTION 14. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Utah (without regard to
any conflicts of law principles that would require the application of the laws
of any other jurisdiction).
SECTION 15. Rights Cumulative. The rights of the parties under this
Agreement are cumulative and shall not preclude the assertion by any party of
any rights now or hereafter available to it under any other agreement, by law or
otherwise.
SECTION 16. Severability. If any provision contained herein is held to
be invalid, illegal or unenforceable for any reason, the invalidity, illegality
or unenforceability of such provision shall in no way affect any other provision
hereof.
SECTION 17. Specific Performance. The parties hereto recognize that the
obligations imposed on them in this Agreement are special, unique and of
extraordinary character, and that irreparable damage would occur in the event of
a breach of any of the provisions hereof. Accordingly, the parties agree that
each of them shall be entitled to seek injunctive relief to prevent breaches of
this Agreement and to obtain specific enforcement of the provisions hereof, in
addition to any other remedy now or hereafter available at law or in equity or
otherwise.
SECTION 18. Headings. The headings contained in this Agreement are for
convenience of reference only and shall in no way define, limit or extend the
scope or intent of any provisions set forth herein.
SECTION 19. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
EuroGas:
EUROGAS, INC.
By /s/ Hank Blankenstein
Hank Blankenstein, Secretary
Trustees:
TRUSTEES OF THE ESTATE OF
BERNICE PAUAHI BISHOP
By
Name:
Title:
By
Name:
Title:
By
Name:
Title:
KUKUI:
KUKUI, INC.
By /s/ Dennis Fern
$2,200,000.00 Issued July 5, 1996
DEBENTURE AGREEMENT
EUROGAS, INC.
CONVERTIBLE DEBENTURE
(Due July 5, 2001)
THE SECURITIES ISSUED PURSUANT HERETO HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES
LAWS OF ANY STATE. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY
NOT BE TRANSFERRED OR SOLD IN THE UNITED STATES IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION OR OTHER COMPLIANCE UNDER THE ACT OR THE LAWS OF THE APPLICABLE
STATE OR A "NO ACTION" OR INTERPRETIVE LETTER FROM THE SECURITIES AND EXCHANGE
COMMISSION OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER, AND
ITS COUNSEL, TO THE EFFECT THAT THE SALE OR TRANSFER IS EXEMPT FROM REGISTRATION
UNDER THE ACT AND SUCH STATE STATUTES.
This original Debenture Agreement represents your right to
payment, and it is important that you retain it in a safe
place. This original Debenture Agreement must be delivered
to the Company on payment or conversion.
EuroGas, Inc. (the "Company"), hereby promises to pay to the holder of this
debenture, Lux Immobilien, or its assigns (the "Holder"), the principal sum of
$2,200,000 on or before July 5, 2001, and interest as provided herein, subject
to the terms and conditions set forth below.
1. Payment of Principal and Interest. The Company shall pay to the
Holder of this Debenture the principal sum stated hereon, on July 5, 2001, at
the offices of the Company at 435 West Universal Circle, Sandy, Utah 84070, in
such lawful money of the United States of America as at the time of payment
shall be legal tender for the payment of public and private debt, and shall pay
semi-annually (July 31 and January 31 of each year) in lawful tender interest
thereon commencing July 5, 1996, at a rate of 7.5% per annum.
2. Conversion by Holder. The Holder of this Debenture is entitled at any
time prior to maturity, or in case this Debenture or some portion hereof shall
have been called for prepayment prior to maturity, then until 30 days after the
date of the notice of prepayment, to convert the Debenture (or any portion of
the principal amount and interest hereof at the rate of $2.70 per share), into
an aggregate of 814,815 fully paid and nonassessable shares of common stock, par
value $0.001 per share, of the Company (the "Shares"). The conversion right
shall be exercised by proper surrender of the original of the Debenture to the
Company, accompanied by written notice that the Holder hereof elects to convert
the Debenture.
3. Conversion by Company. Any time after March 1, 1998, the Company may
require the conversion of this Debenture on the terms set forth in paragraph 2
if the Company's common stock trades on NASDAQ (either national market, small
cap or bulletin board) or a national exchange at a bid price equal to or in
excess of $2.70 per share for a period of twenty-one (21) consecutive days.
4. Adjustment of Conversion Rate and Price. The conversion price, number
of Shares issuable upon conversion of the Debenture, and the trading price for
conversion set forth in paragraph 3, shall be appropriately adjusted if the
Company declares a stock dividend, split, reclassification, distribution, or
similar event.
5. Prepayment. After February 1, 1997, this Debenture is subject to
prepayment, in whole or in part, at the election of the Company at any time, on
not less than 30 days notice. During the 30 days following the date of any
notice of prepayment, the Holder will have the right to convert the Debenture
into shares of Common Stock on the terms and conditions provided in paragraph 2.
On the date fixed for prepayment, the Debenture shall cease to bear interest
with respect to the amount of principal actually paid. Upon the surrender of
the original of this Debenture to the Company for prepayment, the amount of
principal and interest then due shall be paid. Any Debenture which is prepaid
only in part shall be presented to the Company for notation thereon of such
partial prepayment.
6. Acceleration of Maturity. In the event of default on the payment of
the Debenture, the holder hereof shall have the right to accelerate the maturity
date of the Debenture and pursue all of the holder's rights and remedies under
law.
7. Events of Default. "Event of Default," when used herein, means any
one of the following events:
(a) Default in the payment of any interest on any Debenture when it
becomes due and payable, and continuance of such default of payment for a
period of 30 days; or
(b) Default in the payment of principal of any Debenture in this
series when due, whether at maturity, upon prepayment, or otherwise; or
(c) Default in the performance or breach of any covenant or warranty
of the Company in any Debenture (other than a covenant or warranty, the
breach or default in performance of which is elsewhere in this section
specifically dealt with), and continuation of such default or breach for a
period of 60 days after there has been given to the Company by registered
or certified mail by the Holder; or
(d) The entry of a decree or order by a court having jurisdiction in
the premises adjudging the Company as bankrupt or insolvent, or approving
as properly filed a petition seeking reorganization, arrangement,
adjustment, or composition of or in respect of the Company under the
Federal Bankruptcy Act or any other applicable federal or state law, or
appointing a receiver, liquidator, assignee, trustee, sequestrator (or
other similar official) of the Company or of any substantial part of its
property, or ordering the winding up or liquidation of its affairs, and the
continuance of any such decree or order unstayed and in effect for a period
of 60 consecutive days; or
(e) The institution by the Company of proceedings to be adjudicated
as bankrupt or insolvent, or the consent by it to the institution of
bankruptcy or insolvency proceedings against it, or a filing by it of a
petition or answer or consent seeking reorganization or relief under the
Federal Bankruptcy Act, or any other applicable federal or state law of
similar tenor, or appointing a receiver, liquidator, assignee, trustee,
sequestrator (or other similar official) of the Company or of any
substantial part of its property, or the making by the Company of an
assignment for the benefit of creditors, or the admission by it in writing
of its inability to pay its debts generally as they become due, or the
taking of corporate action by the Company in furtherance of any such
action.
8. Notices to Holder; Waiver. Where the Debentures provide for notice to
Holder of any event, such notice shall be sufficiently given if in writing and
sent by courier providing for delivery within 72 hours or mailed, return receipt
requested and postage prepaid, to each Holder affected by such event, at his
address as it appears in the Debenture register maintained by the Company, not
later than the latest date, and not earlier than the earliest date, prescribed
for the giving of such notice. Such notice shall be deemed given as of the date
delivered to the courier or deposited in the mail. Neither the failure to
deliver or mail such notice, nor any defect in any notice so delivered or mailed
to any particular Holder shall affect the sufficiency of such notice with
respect to the Holder of other Debentures issued in this series. Where the
Debenture provides for notice to the Company, such notice shall be sufficiently
given if in writing and mailed, return receipt requested and postage prepaid, to
the Company at its address set forth above, not later than the latest date, and
not earlier than the earliest date prescribed for the giving of such notice.
Where the Debenture provides for notice in any matter, such notice may be waived
in writing by the person entitled to receive such notice, whether before or
after the event, and any such waiver shall be equivalent to such notice.
9. Withholding. The Company shall be entitled to withhold from all
payments of principal and interest on the Debenture any amounts required to be
withheld under the applicable provisions of the United States Internal Revenue
Code of 1986, as amended, applicable state tax laws, or any other applicable law
at the time of such payments.
10. Governing Law. The Debenture shall be governed by and construed and
interpreted in accordance with the laws of the state of Utah.
11. Miscellaneous. This Debenture is subject to the following additional
terms and conditions:
(a) If this Debenture is placed with an attorney for collection, or
if suit is instituted for collection, or if any other remedy provided by
law is pursued by the registered Holder hereof, because of any Event of
Default, the undersigned agrees to pay reasonable attorney's fees, costs,
and other expenses incurred by the registered Holder hereof in so doing.
(b) Subject to the limitations on transfer imposed by United States
federal and state securities laws, this Debenture may be transferred,
subject to compliance with the provisions hereof.
EUROGAS, INC.
By /s/ Hank Blankenstein
Hank Blankenstein, Secretary/Treasurer
AGREEMENT IN PRINCIPLE
THIS AGREEMENT IN PRINCIPLE (this "Agreement") is made and entered into
this day of June, 1996, by and between EUROGAS, INC., a Utah corporation
-----
("EuroGas") and CHEMILABCO, B.V., a company registered in the Netherlands
("Chemilabco"), based on the following:
Premises
A. EuroGas is a publicly-held corporation engaged in the exploration and
development of methane gas reserves located in Poland.
B. Concurrently with the execution of this Agreement, EuroGas has entered
into an agreement in principle with Danube International Petroleum Company
("Danube") whereby EuroGas would acquire all of Danube. A copy of the agreement
in principle between EuroGas and Danube has been circulated to the parties and
is incorporated herein by reference.
C. Danube is a privately-held corporation engaged in the exploration and
development of oil and gas reserves located in the Czech Republic and Slovakia.
Attached hereto as Schedule 1 is a description of the rights held by Danube.
D. Chemilabco holds, by way of assignment, the right to acquire 51% of
Danube's interests as described in Schedule 1 and has provided $2,500,000 [U.S.]
of interim financing to EuroGas and Danube.
E. The parties have held discussions about Chemilabco exchanging its
interests and provide additional financing in exchange for EuroGas stock.
F. The parties wish to enter into this Agreement to set forth the
principal terms and conditions of the transaction.
G. The execution and delivery of this Agreement has been approved by the
Boards of Directors of EuroGas and Chemilabco.
H. The parties intend to enter into a definitive agreement with respect
to this transaction to close concurrently or simultaneously with EuroGas'
acquisition of Danube.
Agreement in Principle
1. Incorporation of Premises. The foregoing premises are incorporated by
this reference.
2. The Transaction. On the terms and subject to the conditions set forth
in the Definitive Agreement to be executed between EuroGas and Chemilabco,
Cemilabco will deliver to EuroGas $2,500,000 [U.S.] in additional financing and
assign all of its interests in the Danube project. In exchange therefore,
EuroGas shall deliver to Chemilabco:
(a) 5,000,000 shares of EuroGas restricted common stock with
registration rights as set forth below; and
(b) 1,000,000 shares of EuroGas restricted common stock for each
commercial well put into production by EuroGas in the areas described in
Schedule 1, not to exceed 16,000,000 shares in the aggregate. A commercial
well shall be defined as any oil or gas well producing revenue equal to or
in excess of the costs of operating the well, the taxes and royalties
payable thereon, and an amount reasonably necessary to amortize the cost of
drilling over the expected life of the well.
3. Restricted Nature of Securities. Chemilabco acknowledges that the
completion of the Transaction and the issuance of the consideration constitute
the offer and sale of securities as those terms are defined under the Securities
Act of 1933, as amended (the "Securities Act"), and applicable state statutes.
The Transaction shall be consummated in reliance on certain exemptions from the
registration requirements of federal and state securities laws, which depend,
among other items, on the circumstances under which such securities are
acquired. at the time of execution and delivery of the Definitive Agreement,
Chemilabco will arrange for each of its stockholders to execute and deliver a
letter acceptable to EuroGas containing reasonable and customary representations
upon which EuroGas shall be entitled to rely as a basis for its determination
that the issuance of the EuroGas Common Stock is exempt from the registration
requirements of the Securities Act and similar state laws. Until such time as
such securities shall have been registered under the Securities Act as
contemplated by this Agreement, each of the certificates representing the
EuroGas Common Stock shall bear a legend in substantially the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER THE SECURITIES LAWS
OF ANY STATE. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND
MAY NOT BE TRANSFERRED OR SOLD IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION OR OTHER COMPLIANCE UNDER THE SECURITIES ACT OR THE LAWS
OF THE APPLICABLE STATE OR A "NO ACTION" OR INTERPRETIVE LETTER FROM
THE SECURITIES AND EXCHANGE COMMISSION OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE ISSUER AND ITS COUNSEL TO THE EFFECT
THAT THE SALE OR TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE
SECURITIES ACT AND SUCH STATE STATUTES.
4. Registration Rights. At the time of the consummation of the
Transaction, EuroGas will enter into an agreement with Chemilabco which will
provide as follows:
(a) On or before the later of September 30, 1996 or thirty (30) days
after receipt by EuroGas of audited and stub period financial statements of
EuroGas and Chemilabco necessary to file a registration statement, but no
later than December 31, 1996, EuroGas will file with the SEC a "shelf"
registration statement (the "Shelf Registration Statement") on an
appropriate form pursuant to Rule 415 under the Securities Act will respect
to the shares of EuroGas Common Stock issued in connection with the
Transaction (sometimes referred to as the "Registrable Securities").
EuroGas will use its best efforts to cause the Shelf Registration Statement
to be declared effective under the Securities Act as promptly as
practicable after the filing thereof until all the Registrable Securities
are sold.
The following restrictions will apply to the sales of the EuroGas
Common Stock by Chemilabco or its shareholders (the "Holders") pursuant to
the Shelf Registration Statement:
(i) During the first six months after the effective date of the
Shelf Registration Statement, the Holders will not sell an aggregate
of more than 1,000,000 EuroGas Common Shares;
(ii) During the first year after the effective date of the Shelf
Registration Statement, the Holders will not sell an aggregate of more
than 2,500,000 EuroGas Common Shares (including any securities sold in
the first six months after the consummation of such effective date);
and
(iii) During any calendar month within the first year after
the effective date of the Shelf Registration Statement, the Holder
will not sell an aggregate number of EuroGas Common Shares greater
than the higher of (A) 1% of the total number of shares of EuroGas
Common Stock outstanding at the beginning of such calendar month and
(B) the average daily trading volume of EuroGas Common Stock during
the preceding calendar month.
(b) If at any time prior to the date that is five years after the
consummation of the Transaction, EuroGas intends to file a registration
statement to register any of its securities under the Securities Act,
EuroGas will give the Holders written notice of its intention to do so.
The Holders will have 20 days subsequent to such notice to elect to have
the Registrable Securities then held by them included in such registration
statement. In the case of a proposed underwritten offering, if the
managing underwriter or underwriters determine in writing that, because of
the size of the offering intended to be made, the success of the offering
would be materially and adversely affected by inclusion of the Registrable
Securities, then the securities to be included in such offering will be
reduced to the amount recommended by such managing underwriter or
underwriters (provided, however, that the proportion by which the amount of
Registrable Securities intended to be offered by the Holders is reduced
shall not exceed the proportion by which the amount of securities intended
to be offered by EuroGas or any other person or entity is reduced). The
provisions of this paragraph shall not apply to registration statements
filed on forms S-8, S-4 or successor forms.
(c) The Holders, if requested by the managing underwriter or
underwriters for any underwritten, registered offering of the securities of
EuroGas, agree not to effect any public sale or distribution of the
Registrable Securities, including sales pursuant to Rule 144 (or any
similar provision then in force) under the Securities Act, during the 15
days prior to, and during the 90-day period commencing on the effective
date of such registration statement (except as part of such registration).
(d) EuroGas will indemnify each Holder against all liabilities
arising from any misstatements or omissions in any registration statement
covering the Registrable Securities, other than liabilities arising from
information provided by such Holder expressly for inclusion therein.
(e) The Holders will agree to cooperate with EuroGas by providing in
writing such information as EuroGas shall reasonably request in order to
comply with the provisions of the Securities Act applicable in connection
with the disposition of the Registrable Securities, including information
regarding the identity of such Holders and the intended method of
disposition of the Registrable Securities.
(f) All costs and expenses of the registration will be borne by
EuroGas, including fees and expenses of counsel and accountants for EuroGas
and all other costs and expenses of EuroGas incident to the preparation,
printing, and filing under the Securities Act and furnishing copies thereof
and of the prospectus included therein; provided, however, that EuroGas
will not bear the costs and expenses of the Holders in connection with the
sale of the securities subject to the registration statement that are
underwriting commissions related to the Registrable Securities, brokerage
fees, transfer taxes, or the fees and expenses of any counsel, accountant,
or other representative retained by a Holder.
(g) At all times on or after December 31, 1996, EuroGas will file all
reports required to be filed by it under the Securities Exchange Act of
1934, as amended, in order to permit public sales of the Registrable
Securities to be made in reliance on Rule 144 thereunder.
(h) EuroGas may include other EuroGas shares in the Shelf
Registration Statement, however, the sale of any such included shares shall
not be counted as any sale by Chemilabco or its shareholders for purposes
of calculating the amount of permissible sales set forth above.
5. Conditions to Closing. The closing of the Transaction is subject to
the satisfaction of the following conditions precedent:
(a) EuroGas and Chemilabco shall have negotiated and entered into a
Definitive Agreement and plan of merger providing for the Transaction and
the other matters contemplated hereby, which agreement shall contain
appropriate representations, warranties, covenants, and other terms and
provisions;
(b) All legal matters, instruments, and documents necessary to
complete the Transaction have been approved by legal counsel for the
respective parties.
(c) The parties have obtained all necessary governmental, regulatory,
and other third party approvals required in connection with the
Transaction.
(d) EuroGas has completed its acquisition of Danube.
6. Costs. Each of the parties shall bear its respective costs associated
with the Transaction contemplated by this Agreement, including legal fees,
accounting fees, and other costs and expenses.
7. Information. Each of the parties acknowledges that much of the
information to be furnished to it and to its representatives pursuant hereto may
consist of confidential and/or proprietary information of the furnishing party.
Accordingly, each party agrees to preserve and protect the confidentiality of
all information made available to such party or its representative hereunder,
regardless of whether such information is acquired before or after execution of
this Agreement, except to the extent that such information is available to the
public generally. Each of the parties shall ensure that all representatives,
advisors, and experts retained by such parties for the purpose of investigating
and reviewing the affairs of the other party shall agree to abide by the
foregoing confidentiality provisions.
8. Term. This Agreement will expire on September 30, 1996 if the
Definitive Agreement is not executed and delivered by such date.
9. Announcements. The parties agree that neither they nor their
respective employees, officers, directors, or agents will make any disclosure of
the existence or terms of this Agreement or any transactions contemplated
hereby, without the express written consent of the other party. Notwithstanding
the foregoing, Chemilabco acknowledges that EuroGas is subject to the disclosure
requirements of the Securities and Exchange Act of 1934, as amended, and agrees
that EuroGas can make a public announcement of the existence and terms of this
Agreement provided that it shall have delivered to Chemilabco a copy of any such
proposed announcement at least 24 hours in advance of its release to the public.
10. Definitive Agreement. This Agreement sets forth the principal terms
and conditions of the proposed Transaction between the parties as currently
contemplated. Consummation of this Transaction requires negotiation and
drafting of the Definitive Agreement setting forth terms and conditions not
inconsistent with the foregoing and other terms and conditions as are customary
and usual under the circumstances. The Definitive Agreement shall govern all
rights and obligations of the parties with respect to the completion of the
Transaction contemplated by this Agreement.
11. Execution in Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
EuroGas:
EUROGAS, INC.
By /s/ Hank Blankenstein
Duly Authorized Officer
Chemilabco:
CHEMILABCO, B.V.
By /s/
Duly Authorized Officer
FIRST AMENDMENT TO
AGREEMENT IN PRINCIPLE
THIS FIRST AMENDMENT TO AGREEMENT IN PRINCIPLE (this "Amendment") is made
and entered into this day of November, 1996, by and between EUROGAS, INC.,
-----
a Utah corporation ("EuroGas"), and CHEMILABCO, B.V., a company registered in
the Netherlands ("Chemilabco"), based on the following:
Premises
A. The parties entered into an Agreement in Principle in June 1996
pursuant to which EuroGas agreed to issue shares of its stock to Chemilabco in
exchange for providing funding for projects of EuroGas and certain rights held
by Chemilabco (the "Agreement in Principle").
B. The parties wish to amend certain of the provisions of the Agreement
in Principle.
Agreement
Now, therefore, based on the foregoing premises and for and in
consideration of the mutual covenants of the parties and the benefits to be
derived therefrom, it is hereby agreed as follows:
1. The Transaction. Paragraph 2 of the Agreement in Principle is hereby
amended to read in its entirety as follows:
2. The Transaction. On the terms and subject to the conditions
set forth in this Agreement, Chemilabco will deliver to EuroGas
$2,500,000 (U. S.) in additional financing and assign all of its
interests in the Danube project to EuroGas. In exchange therefore,
EuroGas shall deliver to Chemilabco:
(a) 5,000,000 shares of EuroGas restricted common stock
with registration rights as forth below; and
(b) 6,000,000 shares of EuroGas restricted common stock.
2. Certificate of Contingent Interest. The Certificate of Contingent
Interest delivered to Chemilabco in connection with the closing of the
transaction contemplated by the Agreement In Principle shall be null and void,
and Chemilabco shall return the original of the Certificate of Contingent
Interest to EuroGas for cancellation. Chemilabco shall have no rights under the
Certificate of Contingent Interest whether or not the original is cancelled.
3. Effect of Amendment. The changes to the Agreement in Principle set
forth in this Amendment shall be given effect as if originally contained in
Agreement in Principle and treated as having occurred at the original closing of
the transaction described in the Agreement in Principal.
4. Ratification of Agreement in Principle. Except as specifically
amended by the terms of this Amendment, the parties hereby ratify and confirm
the provisions of the Agreement in Principle.
5. Execution in Counterparts. This Amendment may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.
EuroGas:
EUROGAS, INC.
By /s/ Hank Blankenstein
Duly Authorized Officer
Chemilabco:
CHEMILABCO, B.V.
By /s/
Duly Authorized Officer
EUROGAS, INC.
1996 STOCK OPTION AND AWARD PLAN
EUROGAS, INC., a Utah corporation (the "Company"), hereby adopts this
"EuroGas, Inc., 1996 Stock Option and Award Plan" (the "Plan"), effective as of
the 18th day of January, 1996, under which options to acquire stock of the
Company or bonus stock may be granted from time to time to employees, including
officers and directors, of the Company or its subsidiaries. In addition, at the
discretion of the board of directors or other administrator of this Plan,
options to acquire stock of the Company or bonus stock may from time to time be
granted under this Plan to other individuals who contribute to the success of
the Company or its subsidiaries but who are not employees of the Company, all on
the terms and conditions set forth herein.
1. Purpose of the Plan. The Plan is intended to aid the Company in
maintaining and developing a management team, attracting qualified officers and
employees capable of assisting in the future success of the Company, and
rewarding those individuals who have contributed to the success of the Company.
It is designed to aid the Company in retaining the services of executives and
employees and in attracting new personnel when needed for future operations and
growth and to provide such personnel with an incentive to remain employees of
the Company, to use their best efforts to promote the success of the Company's
business, and to provide them with an opportunity to obtain or increase a
proprietary interest in the Company. It is also designed to permit the Company
to reward those individuals who are not employees of the Company but who are
perceived by management as having contributed to the success of the Company or
who are important to the continued business and operations of the Company. The
above aims will be effectuated through the granting of options ("Options") to
purchase shares of common stock of the Company, par value $0.01 per share (the
"Stock"), or the granting of awards of bonus stock ("Stock Awards"), all subject
to the terms and conditions of this Plan. It is intended that the Options
issued pursuant to this Plan include, when designated as such at the time of
grant, options which qualify as Incentive Stock Options ("Incentive Options")
within the meaning of section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), or any amendment or successor provision of like tenor. If
the Company has a class of securities registered under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), it is intended that Options or
Stock Awards granted pursuant to this Plan qualify for the exemption provided
for in Rule 16b-3 ("Rule 16b-3") promulgated under the Exchange Act or any
amendment or successor rule of like tenor when granted in accordance with the
provisions of such rule.
2. Shareholder Approval. The Plan shall become effective immediately on
adoption by the board of directors of the Company (the "Board") and awards under
the Plan can be made at that time or at any subsequent time. The Plan shall be
submitted to the Company's shareholders in the manner set forth below:
(a) Within twelve months after the Plan has been adopted by the
Board, the Plan shall be submitted for approval by those shareholders of
the Company who are entitled to vote on such matters at a duly held
shareholders' meeting or approved by the unanimous written consent of the
holders of the issued and outstanding Stock of the Company. If the Plan is
presented at a shareholders' meeting, it shall be approved by the
affirmative vote of the holders of a majority of the issued and outstanding
Stock in attendance, in person or by proxy, at such meeting.
Notwithstanding the foregoing, the Plan may be approved by the shareholders
in any other manner not inconsistent with the Company's articles of
incorporation and bylaws, the applicable provisions of state corporate
laws, and the applicable provisions of the Code and regulations adopted
thereunder.
(b) In the event the Plan is so approved, the secretary of the
Company shall, as soon as practicable following the date of final approval,
prepare and attach to this Plan certified copies of all relevant
resolutions adopted by the shareholders and the Board.
(c) Failure to obtain shareholder approval on or before the date that
is twelve months subsequent to the adoption of this Plan by the Board shall
not affect awards previously granted under the Plan; provided that, none of
the Options issued under this Plan will qualify as Incentive Options.
3. Administration of the Plan. Administration of the Plan shall be
determined by the Board. Subject to compliance with applicable provisions of
the governing law, the Board may delegate administration of the Plan or specific
administrative duties with respect to the Plan, on such terms and to such
committees of the Board as it deems proper. Any Option or Stock Award approved
by the Board shall be approved by a majority vote of those members of the Board
in attendance at a meeting at which a quorum is present. Any Option or Stock
Award approved by a committee designated by the Board shall be approved as
specified by the Board at the time of delegation. The interpretation and
construction of the terms of the Plan by the Board or a duly authorized
committee shall be final and binding on all participants in the Plan absent a
showing of demonstrable error. No member of the Board or duly authorized
committee shall be liable for any action taken or determination made in good
faith with respect to the Plan.
The Board's or duly authorized committee's determination under the Plan
(including without limitation determinations of the persons to receive Options
or Stock Awards, the form, amount, and timing of such Options or Stock Awards,
the terms and provisions of such Options or Stock Awards, and the agreements
evidencing same) need not be uniform and may be made by the Board or duly
authorized committee selectively among persons who receive, or are eligible to
receive, Options or Stock Awards under the Plan, whether or not such persons are
similarly situated.
4. Shares of Stock Subject to the Plan. A total of 2,000,000 shares of
Stock may be subject to, or issued pursuant to, Options or Stock Awards granted
under the terms of this Plan. Any shares subject to an Option or Stock Award
under the Plan, which Option or Stock Award for any reason expires or is
forfeited, terminated, or surrendered unexercised as to such shares, shall be
added back to the total number of shares reserved for issuance under the terms
of this Plan. If any right to acquire Stock granted under the Plan is exercised
by the delivery of shares of Stock or the relinquishment of rights to shares of
Stock, only the net shares of Stock issued (the shares of Stock issued less the
shares of Stock surrendered) shall count against the total number of shares
reserved for issuance under the terms of this Plan.
5. Reservation of Stock on Granting of Option. At the time of granting
any Option under the terms of this Plan, there will be reserved for issuance on
the exercise of the Option the number of shares of Stock of the Company subject
to such Option. The Company may reserve either authorized but unissued shares
or issued shares that have been reacquired by the Company.
6. Eligibility. Options or Stock Awards under the Plan may be granted to
employees, including officers and directors, of the Company or its subsidiaries,
as may be existing from time to time, and to other individuals who are not
employees of the Company as may be deemed in the best interest of the Company by
the Board or a duly authorized committee. Such Options or Stock Awards shall be
in the amounts, and shall have the rights and be subject to the restrictions, as
may be determined by the Board or a duly authorized committee at the time of
grant, all as may be within the general provisions of this Plan.
7. Term of Options and Certain Limitations on Right to Exercise.
(a) Each Option shall have the term established by the Board or duly
authorized committee at the time the Option is granted but in no event may
an Option have a term in excess of ten years.
(b) The term of the Option, once it is granted, may be reduced only
as provided for in this Plan or under the written provisions of the Option.
(c) Unless otherwise specifically provided by the written provisions
of the Option, no holder or his or her legal representative, legatee, or
distributee will be, or shall be deemed to be, a holder of any shares
subject to an Option unless and until the holder exercises his or her right
to acquire all or a portion of the Stock subject to the Option and delivers
the required consideration to the Company in accordance with the terms of
this Plan and the Option and then only to the extent of the number of
shares of Stock acquired. Except as specifically provided in this Plan or
as otherwise specifically provided by the written provisions of the Option,
no adjustment to the exercise price or the number of shares of Stock
subject to the Option shall be made for dividends or other rights for which
the record date is prior to the date the Stock subject to the Option is
acquired by the holder.
(d) Options under the Plan shall vest and become exercisable at such
time or times and on such terms as the Board or a duly authorized committee
may determine at the time of the grant of the Option.
(e) Options granted under the Plan shall contain such other
provisions, including, without limitation, further restrictions on the
vesting and exercise of the Option, as the Board or a duly authorized
committee shall deem advisable.
(f) In no event may an Option be exercised after the expiration of
its term.
8. Exercise Price. The exercise price of each Option issued under the
Plan shall be determined by the Board or a duly authorized committee on the date
of grant.
9. Payment of Exercise Price. The exercise of any Option shall be
contingent on receipt by the Company of cash, certified bank check to its order,
or other consideration acceptable to the Company; provided that, at the
discretion of the Board or a duly authorized committee, the written provisions
of the Option may provide that payment can be made in whole or in part in shares
of Stock of the Company that have been owned by the optionee for more than six
months or by the surrender of Options to acquire Stock from the Company that
have been held for more than six months, which Stock or Options shall be valued
at their then fair market value as determined by the Board or a duly authorized
committee. Any consideration approved by the Board or a duly authorized
committee that calls for the payment of the exercise price over a period of more
than one year shall provide for interest, which shall not be included as part of
the exercise price, that is equal to or exceeds the imputed interest provided
for in section 483 of the Code or any amendment or successor section of like
tenor.
10. Withholding. If the grant of a Stock Award or the grant or exercise
of an Option pursuant to this Plan, or any other event in connection with any
such grant or exercise, creates an obligation to withhold income and employment
taxes pursuant to the Code or applicable state or local laws, such obligation
may, such grant or award shall be subject to, and contingent on, delivery to the
Company an amount of cash equal to such withholding obligation or evidence
satisfactory to the Company that such withholding obligation has otherwise been
appropriately satisfied. The Company shall be further authorized to take such
other action as may be necessary, in the opinion of the Company, to satisfy all
obligations for the payment of such taxes.
11. Incentive Options--Additional Provisions. In addition to the other
restrictions and provisions of this Plan, any Option granted hereunder that is
intended to be an Incentive Option shall meet the following further
requirements:
(a) The exercise price of an Incentive Option shall not be less than
the fair market value of the Stock on the date of grant of the Incentive
Option as determined by the Board or a duly authorized committee based on
the closing price for the Stock as quoted on a registered national
securities exchange or, if not listed on a national exchange, the Nasdaq
Stock Market ("Nasdaq"), immediately prior to the date of grant of such
Incentive Option, or, if not listed on such an exchange or included on
Nasdaq, the closing price (or, if no closing price is available from
sources deemed reliable by the Company, the closing bid quotation) for the
Stock as determined by the Board or a duly authorized committee through any
other reliable means of determination available on the close of business on
the trading day last preceding the date of grant of such Incentive Option
and permitted by the applicable provisions of the Code.
(b) No Incentive Option may be granted under the Plan to any
individual that owns (either of record or beneficially) Stock possessing
more than 10% of the combined voting power of the Company or any parent or
subsidiary corporation unless both the exercise price is at least 110% of
the fair market value of the Stock on the date the Option is granted and
the Incentive Option by its terms is not exercisable more than five years
after the date it is granted.
(c) Incentive Options may be granted only to employees of the Company
or its subsidiaries and only in connection with that employee's employment
by the Company or the subsidiary. Notwithstanding the above, directors and
other individuals who have contributed to the success of the Company or its
subsidiaries may be granted Incentive Options under the Plan, subject to,
and to the extent permitted by, applicable provisions of the Code and
regulations promulgated thereunder, as they may be amended from time to
time.
(d) The aggregate fair market value (determined as of the date the
Incentive Option is granted) of the shares of Stock with respect to which
Incentive Options are exercisable for the first time by any individual
during any calendar year under the Plan (and all other plans of the Company
and its subsidiaries) may not exceed $100,000.
(e) No Incentive Option shall be transferable other than by will or
the laws of descent and distribution and shall be exercisable, during the
lifetime of the optionee, only by the optionee to whom the Incentive Option
is granted.
(f) No individual acquiring shares of Stock pursuant to any Incentive
Option granted under this Plan shall sell, transfer, or otherwise convey
the Stock until after the date that is both two years after the date the
Incentive Option was granted and one year after the date the Stock was
acquired pursuant to the exercise of the Incentive Option. If any
individual makes a disqualifying disposition, he or she shall notify the
Company within 30 days of such transaction.
(g) No Incentive Option may be exercised unless the holder was,
within three months of such exercise, and had been since the date the
Incentive Option was granted, an eligible employee of the Company as
specified in the applicable provisions of the Code, unless the employment
was terminated as a result of the death or disability (as defined in the
Code and the regulations promulgated thereunder as they may be amended from
time to time) of the employee or the employee dies within three months of
the termination. In the event of termination as a result of disability,
the holder shall have a one year period following termination in which to
exercise the Incentive Option. In the event of death of the holder, the
Incentive Option must be exercised within six months after the issuance of
letters testamentary or administration or the appointment of an
administrator, executor, or personal representative, but not later than one
year after the date of termination of employment. An authorized absence or
leave approved by the Board or a duly authorized committee for a period of
90 days or less shall not be considered an interruption of employment for
any purpose under the Plan.
(h) All Incentive Options shall be deemed to contain such other
limitations and restrictions as are necessary to conform the Incentive
Option to the requirements for "incentive stock options" as defined in
section 422 of the Code, or any amendment or successor statute of like
tenor.
All of the foregoing restrictions and limitations are based on the governing
provisions of the Code as of the date of adoption of this Plan. If at any time
the Code is amended to permit the qualification of an Option as an incentive
stock option without one or more of the foregoing restrictions or limitations or
the terms of such restrictions or limitations are modified, the Board or a duly
authorized committee may grant Incentive Options, and may modify outstanding
Incentive Options in accordance with such changes, all to the extent that such
action by the Board or duly authorized committee does not disqualify the Options
from treatment as incentive stock options under the provisions of the Code as
may be amended from time to time.
12. Awards to Directors and Officers. To the extent the Company has a
class of securities registered under the Exchange Act, Options or Stock Awards
granted under the Plan to directors and officers (as used in Rule 16b-3
promulgated under the Exchange Act or any amendment or successor rule of like
tenor) intended to qualify for the exemption from section 16(b) of the Exchange
Act provided in Rule 16b-3 shall, in addition to being subject to the other
restrictions and limitations set forth in this Plan, be made as follows:
(a) A transaction whereby there is a grant of an Option or Stock
Award pursuant to this Plan must satisfy one of the following:
(i) The transaction must be approved by the Board or a duly
authorized committee composed solely of two or more non-employee
directors of the Company (as defined in Rule 16b-3);
(ii) The transaction must be approved or ratified, in compliance
with section 14 of the Exchange Act, by either: the affirmative vote
of the holders of a majority of the securities of the Company present
or represented and entitled to vote at a meeting of the shareholders
of the Company held in accordance with the applicable laws of the
state of incorporation of the Company; or, if allowed by applicable
state law, the written consent of the holders of a majority, or such
greater percentage as may be required by applicable laws of the state
of incorporation of the Company, of the securities of the Company
entitled to vote. If the transaction is ratified by the shareholders,
such ratification must occur no later than the date of the next annual
meeting of shareholders; or
(iii) The Stock acquired must be held by the officer or
director for a period of six months subsequent to the date of the
grant; provided that, if the transaction involves a derivative
security (as defined in section 16 of the Exchange Act), this
condition shall be satisfied if at least six months elapse from the
date of acquisition of the derivative security to the date of
disposition of the derivative security (other than on exercise or
conversion) or its underlying equity security.
(b) Any transaction involving the disposition to the Company of its
securities in connection with Options or Stock Awards granted pursuant to
this Plan shall:
(i) be approved by the Board or a duly authorized committee
composed solely of two or more non-employee directors; or
(ii) be approved or ratified, in compliance with section 14 of
the Exchange Act, by either: the affirmative vote of the holders of a
majority of the securities of the Company present, or represented, and
entitled to vote at a meeting duly held in accordance with the
applicable laws of the state of incorporation of the Company or, if
allowed by applicable state law, the written consent of the holders of
a majority, or such greater percentage as may be required by
applicable laws of the state of incorporation of the Company, of the
securities of the Company entitled to vote; provided that, such
ratification occurs no later than the date of the next annual meeting
of shareholders.
All of the foregoing restrictions and limitations are based on the governing
provisions of the Exchange Act and the rules and regulations promulgated
thereunder as of the date of adoption of this Plan. If at any time the
governing provisions are amended to permit an Option to be granted or exercised
or Stock Award to be granted pursuant to Rule 16b-3 or any amendment or
successor rule of like tenor without one or more of the foregoing restrictions
or limitations, or the terms of such restrictions or limitations are modified,
the Board or a duly authorized committee may award Options or Stock Awards to
directors and officers, and may modify outstanding Options or Stock Awards, in
accordance with such changes, all to the extent that such action by the Board or
a duly authorized committee does not disqualify the Options or Stock Awards from
exemption under the provisions of Rule 16b-3 or any amendment or successor rule
of similar tenor.
13. Stock Appreciation Rights and Other Tandem Rights. The Board or a
duly authorized committee, at the time of granting any award under the terms of
this Plan, shall have the authority to grant stock appreciation rights or other
tandem rights with respect to all or some of the shares of Stock covered by such
award pursuant to which the holder shall have the right to surrender all or part
of such award and thereby exercise the tandem rights; provided, however, that
the holder shall not have such right to surrender and obtain payment during the
first six months of the term of the award, except in the event of death or
disability of the holder during such six-month period. Any payment under the
terms of the tandem rights may be made by the Company, at the discretion of the
Board or a duly authorized committee as set forth in the written award, in Stock
(at its fair market value on the date of the notice of exercise, as determined
by the Board or committee) or in cash, or partly in Stock and partly in cash, as
the Company may determine. Any stock appreciation rights or other tandem rights
granted under the terms of this section may be exercised only when, and only to
the extent that, the holder is entitled to exercise all or a portion of the
underlying award. The terms of any stock appreciation or other rights granted
shall, within the provisions of this Plan, be established by the Board or
committee at the time of grant, and any rights created thereby can only be
transferred in connection with the transfer of the underlying award. Stock
appreciation rights may only be exercised at a time when the fair market value
of the Stock subject to the award exceeds the exercise price of the award.
14. Stock Awards. The Board or a duly authorized committee may grant
Stock Awards to individuals eligible to participate in this Plan, in the amount,
and subject to the provisions determined by the Board or a duly authorized
committee. The Board or a duly authorized committee shall notify in writing
each person selected to receive a Stock Award hereunder as soon as practicable
after he or she has been so selected and shall inform such person of the number
of shares he or she is entitled to receive, the approximate date on which such
shares will be issued, and the Forfeiture Restrictions applicable to such
shares. (For purposes hereof, the term "Forfeiture Restrictions" shall mean any
prohibitions against sale or other transfer of shares of Stock granted under the
Plan and the obligation of the holder to forfeit his or her ownership of or
right to such shares and to surrender such shares to the Company on the
occurrence of certain conditions.) The Board or a duly authorized committee
may, at its discretion, require the payment in cash to the Company by the award
recipient of the par value of the Stock. The shares of Stock issued pursuant to
a Stock Award shall not be sold, exchanged, transferred, pledged, hypothecated,
or otherwise disposed of during such period or periods of time which the Board
or a duly authorized committee shall establish at the time of the grant of the
Stock Award. If a Stock Award is made to an employee of the Company or its
subsidiaries, the employee shall be obligated, for no consideration other than
the amount, if any, of the par value paid in cash for such shares, to forfeit
and surrender such shares as he or shall have received under the Plan which are
then subject to Forfeiture Restrictions to the Company if he or she is no longer
an employee of the Company or its subsidiaries for any reason; provided that, in
the event of termination of the employee's employment by reason of death or
total and permanent disability, the Board or duly authorized committee, in its
sole discretion, may cancel the Forfeiture Restrictions. Certificates
representing shares subject to Forfeiture Restrictions shall be appropriately
legended as determined by the Board or a duly authorized committee to reflect
the Forfeiture Restrictions, and the Forfeiture Restrictions shall be binding on
any transferee of the shares.
15. Assignment. At the time of grant of an Option or Stock Award, the
Board or duly authorized Committee, in its sole discretion, may impose
restrictions on the transferability of such Option or Stock Award and provide
that such Option shall not be transferable other than by will or the laws of
descent and distribution or pursuant to a qualified domestic relations order as
defined in the Code and that, except as permitted by the foregoing, such Options
or Stock Awards, granted under the Plan and the rights and privileges thereby
conferred shall not be transferred, assigned, pledged, or hypothecated in any
way (whether by operation of law or otherwise), and shall not be subject to
execution, attachment, or similar process. On any attempt to transfer, assign,
pledge, hypothecate, or otherwise dispose of the Option or Stock Award, or of
any right or privilege conferred thereby, contrary to the provisions thereof, or
on the levy of any attachment or similar process on such rights and privileges,
the Option or Stock Award and such rights and privileges shall immediately
become null and void.
16. Additional Terms and Provisions of Awards. The Board or duly
authorized committee shall have the right to impose additional limitations on
individual awards under the Plan. For example, and without limiting the
authority of the Board or a duly authorized committee, an individual award may
be conditioned on continued employment for a specified period or may be voided
based on the award holder's gross negligence in the performance of his or her
duties, substantial failure to meet written standards established by the Company
for the performance of his or her duties, criminal misconduct, or willful or
gross misconduct in the performance of his or her duties. In addition, the
Board or a duly authorized committee may establish additional rights in the
holders of individual awards at the time of grant. For example, and without
limiting the authority of the Board or a duly authorized committee, an
individual award may include the right to immediate payment of the value
inherent in the award on the occurrence of certain events such as a change in
control of the Company, all on the terms and conditions set forth in the award
at the time of grant. The Board or a duly authorized committee may, at the time
of the grant of the Option or Stock Award, establish any other terms,
restrictions, or provisions on the exercise of an Option or the holding of Stock
subject to the Stock Award as it deems appropriate. All such terms,
restrictions, and provisions must be set forth in writing at the time of grant
in order to be effective.
17. Dilution or Other Adjustment. In the event that the number of shares
of Stock of the Company from time to time issued and outstanding is increased
pursuant to a stock split or a stock dividend, the number of shares of Stock
then covered by each outstanding Option granted hereunder shall be increased
proportionately, with no increase in the total purchase price of the shares then
so covered, and the number of shares of Stock subject to the Plan shall be
increased by the same proportion. Shares awarded under the terms of a Stock
Award shall be entitled to the same rights as other issued and outstanding
shares of Stock, whether or not then subject to Forfeiture Restrictions,
although any additional shares of Stock issued to the holder of a Stock Award
shall be subject to the same Forfeiture Restrictions as the Stock Award. In the
event that the number of shares of Stock of the Company from time to time issued
and outstanding is reduced by a combination or consolidation of shares, the
number of shares of Stock then covered by each outstanding Option granted
hereunder shall be reduced proportionately, with no reduction in the total
purchase price of the shares then so covered, and the number of shares of Stock
subject to the Plan shall be reduced by the same proportion. Shares awarded
under a Stock Award shall be treated as other issued and outstanding shares of
Stock, whether or not then subject to Forfeiture Restrictions. In the event
that the Company should transfer assets to another corporation and distribute
the stock of such other corporation without the surrender of Stock of the
Company, and if such distribution is not taxable as a dividend and no gain or
loss is recognized by reason of section 355 of the Code or any amendment or
successor statute of like tenor, then the total purchase price of the Stock then
covered by each outstanding Option shall be reduced by an amount that bears the
same ratio to the total purchase price then in effect as the market value of the
stock distributed in respect of a share of the Stock of the Company, immediately
following the distribution, bears to the aggregate of the market value at such
time of a share of the Stock of the Company plus the stock distributed in
respect thereof. Shares issued under a Stock Award shall be treated as issued
and outstanding whether or not subject to Forfeiture Restrictions, although any
stock of the other corporation to be distributed with respect to the shares
awarded under the Stock Award shall be subject to the Forfeiture Restrictions
then applicable to such shares and may be held by the Company or otherwise
subject to restrictions on transfer until the expiration of the Forfeiture
Restrictions. In the event that the Company distributes the stock of a
subsidiary to its shareholders, makes a distribution of a major portion of its
assets, or otherwise distributes significant portion of the value of its issued
and outstanding Stock to its shareholders, the number of shares then subject to
each outstanding Option and the Plan, or the exercise price of each outstanding
Option, may be adjusted in the reasonable discretion of the Board or a duly
authorized committee. Shares awarded under a Stock Award shall be treated as
issued and outstanding, whether or not subject to Forfeiture Restrictions,
although any Stock, assets, or other rights distributed shall be subject to the
Forfeiture Restrictions governing the shares awarded under the Stock Award and,
at the discretion of the Board or a duly authorized committee, may be held by
the Company or otherwise subject to restrictions on transfer by the Company
until the expiration of such Forfeiture Restrictions. All such adjustments
shall be made by the Board or duly authorized committee, whose determination
upon the same, absent demonstrable error, shall be final and binding on all
participants under the Plan. No fractional shares shall be issued, and any
fractional shares resulting from the computations pursuant to this section shall
be eliminated from the respective Option or Stock Award. No adjustment shall be
made for cash dividends, for the issuance of additional shares of Stock for
consideration approved by the Board, or for the issuance to stockholders of
rights to subscribe for additional Stock or other securities.
18. Options or Stock Awards to Foreign Nationals. The Board or a duly
authorized committee may, in order to fulfill the purposes of this Plan and
without amending the Plan, grant Options or Stock Awards to foreign nationals or
individuals residing in foreign countries that contain provisions, restrictions,
and limitations different from those set forth in this Plan and the Options or
Stock Awards made to United States residents in order to recognize differences
among the countries in law, tax policy, and custom. Such grants shall be made
in an attempt to provide such individuals with essentially the same benefits as
contemplated by a grant to United States residents under the terms of this Plan.
19. Listing and Registration of Shares. Unless otherwise expressly
provided on the granting of an award under this Plan, the Company shall have no
obligation to register any securities issued pursuant to this Plan or issuable
on the exercise of Options granted hereunder. Each award shall be subject to
the requirement that if at any time the Board or a duly authorized committee
shall determine, in its sole discretion, that it is necessary or desirable to
list, register, or qualify the shares covered thereby on any securities exchange
or under any state or federal law, or obtain the consent or approval of any
governmental agency or regulatory body as a condition of, or in connection with,
the granting of such award or the issuance or purchase of shares thereunder,
such award may not be made or exercised in whole or in part unless and until
such listing, registration, consent, or approval shall have been effected or
obtained free of any conditions not acceptable to the Board or a duly authorized
committee.
20. Expiration and Termination of the Plan. The Plan may be abandoned or
terminated at any time by the Board or a duly authorized committee except with
respect to any Options or Stock Awards then outstanding under the Plan. The
Plan shall otherwise terminate on the earlier of the date that is: (i) ten
years after the date the Plan is adopted by the Board; or (ii) ten years after
the date the Plan is approved by the shareholders of the Company.
21. Form of Awards. Awards granted under the Plan shall be represented by
a written agreement which shall be executed by the Company and which shall
contain such terms and conditions as may be determined by the Board or a duly
authorized committee and permitted under the terms of this Plan. Option
agreements evidencing Incentive Options shall contain such terms and conditions,
among others, as may be necessary in the opinion of the Board or a duly
authorized committee to qualify them as incentive stock options under section
422 of the Code or any amendment or successor statute of like tenor.
22. No Right of Employment. Nothing contained in this Plan or any Option
or Stock Award shall be construed as conferring on a director, officer, or
employee any right to continue or remain as a director, officer, or employee of
the Company or its subsidiaries.
23. Leaves of Absence. The Board or duly authorized committee shall be
entitled to make such rules, regulations, and determinations as the Board or
duly authorized committee deems appropriate under the Plan in respect of any
leave of absence taken by the recipient of any Option or Stock Award. Without
limiting the generality of the foregoing, the Board or duly authorized committee
shall be entitled to determine (a) whether or not any such leave of absence
shall constitute a termination of employment within the meaning of the Plan, and
(b) the impact, if any, of any such leave of absence on any Option or Stock
Award under the Plan theretofore made to any recipient who takes such leave of
absence.
24. Amendment of the Plan. The Board or a duly authorized committee may
modify and amend the Plan in any respect; provided, however, that to the extent
such amendment or modification would cause the Plan to no longer comply with the
applicable provisions of the Code with respect to Incentive Options, such
amendment or modification shall also be approved by the shareholders of the
Company. Subject to the foregoing and, if the Company is subject to the
provisions of 16(b) of the Exchange Act, the limitations of Rule 16b-3
promulgated under the Exchange Act or any amendment or successor rule of like
tenor, the Plan shall be deemed to be automatically amended as is necessary (i)
with respect to the issuance of Incentive Options, to maintain the Plan in
compliance with the provisions of section 422 of the Code, and regulations
promulgated thereunder from time to time, or any amendment or successor statute
thereto, and (ii) with respect to Options or Stock Awards granted to officers
and directors of the Company, to maintain the awards made under the Plan in
compliance with the provisions of Rule 16b-3 promulgated under the Exchange Act
or any amendment or successor rule of like tenor.
ATTEST:
/s/ Hank Blankenstein
Secretary
SECRETARY'S CERTIFICATE
The undersigned, the duly constituted and elected secretary of
, hereby certifies that a duly constituted meeting of
- ---------------------------
the shareholders held on , 1996, pursuant to notice and at which
----------------
a quorum was present in accordance with the requirements of law and the
Company's articles of incorporation and bylaws, the foregoing EuroGas, Inc. 1996
Stock Option and Award Plan was approved by the affirmative vote of the holders
of a majority of the shares of Common Stock in attendance, in person or by
proxy, at such meeting.
DATED this day of , 1996.
----- -------------
/s/ Hank Blankenstein
Secretary
SETTLEMENT AGREEMENT
This Settlement Agreement ("Agreement") is entered into by and among KUKUI,
INC. ("KUKUI"), and Pol-Tex Methane, sp z.o.o., McKenzie Merhane Rybnik,
McKenzie Methane Jastrzebie, GlobeGas, B.V., formerly known as McKenzie Methane
Poland, B.V. (herein referred to collectively as "GlobeGas"), and the Unsecured
Creditors' Trust of the Bankruptcy Estate of McKenzie Methane Corporation,
Bankr. No. 94-42758-H2-11 ("Unsecured Creditors' Trust").
RECITALS
1. McKenzie Methane Corporation filed a petition for relief under Chapter
11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern
District of Texas, Houston Division (the "Bankruptcy Court"), as Case No. 94-
42758-H2-11 on April 20, 1994 ("Bankruptcy Case").
2. KUKUI proposed a plan of reorganization ("Plan") in the Bankruptcy
Case, which was confirmed by order of the United States Bankruptcy Court,
Southern District of Texas, on July 6, 1995, and which became effective on
August 29, 1995. Pursuant to the Plan, KUKUI received the right to prosecute as
a representative of the Unsecured Creditors' Trust, appointed pursuant to
Section 1123(b)(3)(B) of the Bankruptcy Code, any claims or causes of action of
the debtor's estate against Michael McKenzie, members of his family, or
insiders, agents, representatives, assignees, corporations or other businesses
related to or affiliated with the debtor, or any mediate or immediate
transferees of the same.
3. Pursuant to its rights under the Plan, KUKUI and the Unsecured
Creditors' Trust have asserted certain claims against GlobeGas with respect to
concessions it holds for the exploitation of oil and gas reserves in Poland.
GlobeGas is currently negotiating a transaction with Texaco, Inc. to further
develop the concessions. Texaco has requested that it receive a release from
KUKUI or the Unsecured Creditors' Trust of any claims as a precaution before
proceeding with further development. Therefore the parties have reached an
agreement to settle any and all claims which KUKUI or the Unsecured Creditors'
Trust may have against GlobeGas.
STIPULATION
A. In satisfaction of any and all claims which KUKUI or the Unsecured
Creditors' Trust may have against GlobeGas, GlobeGas agrees to assign and
deliver (or cause to be issued), in the aggregate, 100,000 shares of restricted
common stock of its parent company, EuroGas, Inc. to KUKUI, and an option to
purchase up to 2,000,000 shares of restricted common stock of its parent
company, EuroGas, Inc. to the Trustees of the Estate of Bernice Pauahi Bishop
and register the shares, including option shares, pursuant to a registration
rights agreement, a copy of which is attached hereto as Exhibit "A".
B. In consideration of the agreements contained herein, KUKUI and the
Unsecured Creditors' Trust, hereby release and forever discharge GlobeGas and
any major oil and gas concern with whom GlobeGas may contract with respect to
certain concessions for the exploration and exploitation of methane gas in
Poland, including but not limited to Texaco, Inc., as well as their respective
successors, assigns, agents, attorneys, servants, employees, affiliates, and
subsidiaries from all claims, demands, and actions, or causes of action, or
damages, losses, costs, attorneys' fees, expenses, and other compensation.
GLOBEGAS, B.V.
DATED this day of November, 1996 By: /s/ Hank Blankenstein
----
POL-TEX METHANE, sp z.o.o.
DATED this day of November, 1996 By: /s/ Hank Blankenstein
----
MCKENZIE MERHANE RYBNIK
DATED this day of November, 1996 By: /s/ Hank Blankenstein
----
MCKENZIE METHANE JASTRZEBIE
DATED this day of November, 1996 By: /s/ Hank Blankenstein
----
KUKUI, INC.
DATED this day of November, 1996 By: /s/ Dennis Fern
----
UNSECURED CREDITORS' TRUST
DATED this day of November, 1996 /s/ Dennis Fern
----
By and Through KUKUI, INC.
CONCESSION AGREEMENT
between
THE MINISTER OF THE ENVIRONMENTAL PROTECTION,
NATURAL RESOURCES, AND FORESTRY
and
POL-TEX METHANE Ltd.
a limited liability joint venture
with foreign capital
located in Jastrzebie Zdroj
CONCESSION AGREEMENT
TABLE OF CONTENTS
DEFINITIONS
PREAMBLE
AGREEMENT
Article I The Purpose, Subject, and Scope of this Agreement
Article II Mine Utilization
Article III Compensation for Mine Utilization
Article IV Exploitation Fee [Royalty]
Article V Concession
Article VI Use of Concession [Rights]
Article VII Purchase Priority
Article VIII Employment and Training
Article IX Supervision
Article X Confidentiality
Article XI Advisory Committee
Article XII Use of Experts in Arbitration
Article XIII Announcements
Article XIV Commencement
APPENDIX "A" Map and Coordinates of the [Concession] Area
APPENDIX "B" The Project of Development
CONCESSION AGREEMENT
On this day February 9, 1993, in Warsaw, between the Minister of the
Environmental Protection, Natural Resources, and Forestry, represented by:
Dr. Michaf Wilczynski, Deputy Minister, Chief Geologist of the Country
and "Pol-Tex Methane", a limited liability joint venture with foreign capital,
located in Jastrzcbie Zdroj, represented by:
1. Stephen Jeu President of the Management Committee
2. Jan Herman Vice President of the Management Committee
agreed upon the following contract:
DEFINITIONS
1. "Parties" - identifies:
a) The Minister of the Environmental Protection, Natural Resources, and
Forestry (abbreviated as "Minister")
and
b) Pol-Tex Methane - a limited liability joint venture, located in
Jastrzebie Zdroj, registered in Commercial Registry by Local Court in Katowice,
Administrative Division VIII, on September 5, 1990, number RHIB 5508
(abbreviated as "Pol-Tex Methane")
and "Party" identifies one of the above mentioned appropriate party.
2. "Mining Law" - denotes the Mining Law statute dated May 6, 1953 (Bill of
Register: No 4, pos 12, 1978; No 35, pos 186, 1984; No 33, pos 180, 1987; No
41, pos 324, 1988; No 35 pos 192, 1989; No 14, pos 89, 1990; No 31, pos 128,
1991) and the relevant administrative regulations issued based on this statute.
3. "Geological Law" - denotes the Geological Law statute dated November 16,
1960 (Bill of Register: No 52, pos 303; No 38, pos 230, 1974; No 41, pos 324,
1988; No 35, pos 192, 1989; No 31, pos 129, 1991) and the relevant
administrative regulations issued based on this statute.
4. The "Statute for Economical Development" (abbreviated "U.D.G.") - denotes
the statute dated December 23, 1988 (Bill of Register No 41, pos 324 with
further amendments).
5. The definitions used in this agreement, in particular:
a) "mineral", b) "mineral deposits", c) "mining area", d) "mining
unit", e) "Mine Utilization", f) "concession", g) "concession organ", h)
"other definitions" as identified in the Mining Law, Geological Law, or any
binding law, will be understood only according to the meaning of the
particular law,
i) "Methane" - means hydrocarbons, occurring in a gas or liquid
state in natural ambient (atmospheric) conditions of temperature and
pressure, and in particular, methane-from coal seams, except petroleum and
natural gas from sediments deposited below Carboniferous (-age) strata,
j) "Development of the Resources" - identifies works conducted
according to the project of the Development, directed at production,
transport, and processing of Methane deposited in the mining area,
k) "Commencement of Production" - is the date of beginning of
Methane sales in commercial quantities,
l) "Well Head" - identifies the equipment installed at the outlet of
the drilling well for the purpose of connecting the producing pipes, with
seal between the conductor pipe and casing.
m) "person" - identifies a legal or physical entity, or an
organizational unit without legal status,
n) "sub-contractor". - is any person contracted by Pol-Tex Methane
to perform works under this agreement.
Editor's Note: The Polish term-of-art "Uzytkowanie Gornicze"' has been
translated as "Right to Utilize by Mining" and the English equivalent of the
Polish term-of-art equally short of specifics, "Mine Utilization." The term
corresponds to the right and permission granted to conduct all necessary
operations to utilize the natural resources which are conveyed via the related
concession. These operations generally include exploration, exploitation,
development, production, processing, distribution and sales activities. It also
includes the permission and authority to establish a mining organization to be
regulated by the mining authorities. Ownership and the right to dispose of the
natural resource is conveyed by the concession and regulated by a contract which
is signed when the concession is issued.
PREAMBLE
WHEREAS mineral deposits belong to the State Treasury (mining ownership) [and
are] administered by the Minister of the Environmental Protection, Natural
Resources, and Forestry; and,
WHEREAS on November 9, 1992 Pol-Tex Methane submitted an application for a
concession for Methane recovery in the manner and for the area described in
detail in said application;
Pol-Tex Methane, as reflected in its application dated November 9, 1992 and
[other] supplied documents, declares and assures that it has the qualifications,
expertise, technical and financial capabilities, and means to conduct
development operations directed at Methane recovery; and
The Minister, confirms that the above-mentioned application does fulfill
the requirements of the Mining Law and confirms that the submitted
qualifications are sufficient and he confirms with this contract the following:
AGREEMENT
Article I
The Purpose, Subject, and Scope of the Agreement
1. The Parties sign this agreement to define in detail the mutual rights and
obligations for:
the Minister, having the right as defined in the Mining and Geological Laws
to execute in the name of the State Treasury which owns mineral deposits and
above all performing the functions of concession organ,
Pol-Tex Methane, in receiving the right to utilize through mining [further
abbreviated as "Mine Utilization"] and a concession to conduct commercial
operations related to Methane production [recovery].
2. By this contract, Pol-Tex Methane acquires [the right to] Mine Utilization
of Methane deposits located within the boundaries of the area described in
detail in Appendix "A" to this agreement, and [receives] and a promise of [the
granting of] a concession to Pol-Tex Methane to conduct development of Methane
from this deposit.
Article II
Mine Utilization
1. As defined in Article V, Paragraph 3, Point 1, the Minister gives and
Pol-Tex Methane takes the Mine Utilization of the listed Methane deposits,
within the mining areas as defined in detail in the concession.
2. Through Mine Utilization, Pol-Tex Methane obtains the exclusive right to
recover Methane from the deposits mentioned above and to utilize the recovered
Methane with in accordance with the provisions of Article VII.
3. The right of ownership of Methane is passed to Pol-Tex Methane at the
production well head.
4. Pol-Tex Methane, as a mine operator, will utilize the rights described
above according to the laws and rules of social cooperation, considering in
particular:
a) requirements for proper exploitation [development] of the
resource [Plan of Development] as approved by the Minister;
b) protection of the environment.
5. Pol-Tex Methane will conduct Mine Utilization by itself [personally] and
this will be considered true even when [the work] is done by sub-contractors [of
Pol-Tex Methane].
6. The [right to] Mine Utilization will expire when the concession expires or
is revoked.
7. When the Mine Utilization expires, Pol-Tex Methane will return the deposit
[mining area] to a proper state in accordance with the requirements of proper
development and subject to the conditions of this agreement, and the liquidation
of the mining unit in accordance with the Mining Law.
Article III
Compensation for Mine Utilization
1. As Compensation for Issuing Mine Utilization, Pol-Tex Methane will pay one
lump sum of $8,090,000 zloty (Concession Fee).
2. The Compensation for Mine Utilization [previously referred to as a "Special
Charge" in the Ministry's model contract] will be taken as a percentage of
revenue from the sale of gas produced from the deposits under Mine Utilization.
It will be calculated as follows:
"R Factor" The Compensation for Mine Utilization
as a percentage of revenue from gas sales
R < 1.76 0
1.76 < = R <= 1.80 4.S
1.80< =R< =1.90 6.0
190 < = R < = 2.00 13.5
R > 2.00 18.0
3. The R Factor is calculated according to the formula:
R = P / K where:
P - accumulated total revenue from the sales of gas from the deposits
(under Mine Utilization) from the commencement of the contract to the end of the
fiscal year.
K - accumulated total of the following expenses from the commencement of
the contract to the end of the fiscal year:
a) the expenses incurred the production of gas from the deposits
under Mine Utilizations, in accordance with Art 15, paragraphs 1 and 2,
statute dated Feb. 15, 1992 regarding income tax from legal persons and the
amendments of certain laws regulating taxation (Bill of Register No 21, pos
86 with further changes),
b) income taxes based on the regulations of the above mentioned
statute,
c) expenses incurred in accordance with Art 16, pos 1, of the above
mentioned statute if they are incurred in the production of deposits under
Mine Utilization incurred in the tax year prior to the [respective] year
for which the special charge is calculated,
d) non depreciated part of the investment.
4. Pol-Tex Methane will submit to the Minister an estimate of the R Factor
with its calculations within thirty days of the [end of the] first month of the
year [January].
5. The final value of the R Factor will be calculated after Pol-Tex Methane's
accounts are audited and it will be submitted to the Minister within 14 days
from the date when the audit is finished.
6. Any overpayment resulting from a change in the R Factor during the year
will be credited against future payments. Any underpayment will be paid within
7 days from the date specified in Point 5 of this Article.
7. The Compensation for Mine Utilization is [estimated and] paid quarterly and
is due by the 20th day of the month following the end of the quarter.
8. The Concession Fee and the Compensation for Mine Utilization described in
Paragraph 1 and 2 will be declared by administrative decision [of the Minister].
Article IV
Exploitation Fee [Royalty]
1. Pol-Tex Methane will pay an Exploitation Fee for recovery of methane. The
Exploitation Fee is assessed by the Minister for the amount of mineral sold to
the market according to the rate described in Paragraph 3.
2. Pol-Tex Methane will submit to the Minister, within the time period and in
the manner described in appropriate regulations, the amount of produced Methane,
its price, and other conditions which may have an influence on the amount and
determination of the exploitation fee.
3. Because the Parties acknowledge that the Methane will be produced in
geological-mining conditions that are recognized [well-defined], the rate of the
Exploitation Fee will be a fixed amount of 9% of the value of sold Methane for
20 years from the commencement of sale from each individual well, unless the
conditions for the exploitation is worse than expected [for each individual
well] such that it justifies a lowering the fee to the level of the base
[statutory] fee. The decision concerning the charges will be made
administratively.
4. Pol-Tex Methane has the right to use appropriate quantities of raw or
processed Methane at without paying an Exploitation Fee.
Article V
Concession
1. According to the regulations cited in Articles I and II of this contract,
and considering that the signing of this agreement satisfies the conditions of
Article 12.c., Paragraph 1 of the Mining Law, the Minister will immediately
grant the concession to Pol-Tex Methane, after he has coordinated the required
acts [such as forming request and receipt of the opinions of the Gminy] of the
Mining Law.
2. The concession will be granted via an administrative decision.
3. The decision will in particular:
a) confirm [the right to] Mine Utilization for Pol-Tex Methane
according to Article II,
b) define the mining area in accordance with Article I, paragraph 2,
c) permit Pol-Tex Methane's to develop Methane within the boundaries
of the mining area described in point 2, and define the fundamental
conditions for these operations in accordance with Article VI,
d) define the validity period [term] of the concession for 35 years
with the option to extend [this period],
e) define the time Pol-Tex Methane has to prepare the Plan of
Development,
f) define the Exploitation Fee according to Article IV, Paragraph 3.
Article VI
Use of Concession [Rights]
1. Pol-Tex Methane will conduct commercial development as defined in the
concession tend [and in] accordance with the Mining Law, Geological Law,
regulations on the environmental protection, and other common laws, including
the decision of Article III.
2. Pol-Tex Methane is required in particular:
a) to create a "mining unit" within the joint venture,
b) to undertake the investment charges described in Appendix B,
c) to create the Plan of operation (Plan Ruchu) for the mining unit have
it approved by the appropriate organ of state mining authority,
d) to provide qualified supervision and inspection,
e) to maintain geological-mining documentation, and evidence of reserves,
f) to provide security, safety, and mining rescue, and, in case the
concession expires or is revoked,
g) to liquidate the mining unit, and
h) to deliver documentation defined by Geological and Mining Laws to the
proper organs.
Article VII
Purchase Priority
Polish interior market will have the priority to purchase Methane, with the
stipulation that commercial conditions offered will be no less favorable than if
the gas were exported. Methane which is not sold on the interior market may be
exported and the offer of the internal market must be submitted in the manner
and timing allowing its acceptance will not interfere with prior export
obligations.
Article VIII
Employment and Training
1. Pol-Tex Methane will have the freedom to employ the personnel and sub-
contractors necessary to perform the works. Pol-Tex Methane assumes Polish
nationals will be given preference in this choice based on their training,
qualifications, and expertise, and, in choosing sub-contractors, contractors
will be selected from among Polish contractors under the stipulations that they
are proficient in the areas of: creditability, quality, cost, and timeliness of
the contracted work.
2. Pol-Tex Methane will train Polish nationals employed to perform works while
the concession is in force, and it will create the appropriate fund for this
purpose.
3. The minimum value of the fund described in Paragraph 2, the expenditures of
the fund, and the training will be decided by the Parties in a separate
agreement, signed on the day of granting of the concession.
[The amount of this fund was set at USD 50,000.00 per year with the Advisory
Committee being responsible for both the disbursement of and accounting for
these funds.]
Article IX
Supervision
1. The Minister has the right to supervise commercial development of the
concession granted to Pol-Tex Methane.
2. Supervision will be exercised in the manner described in Art 22 of U.D.G.
[the above mentioned statute concerning economical development, Paragraph 4 of
Definitions].
3. The above provisions shall not limit the powers granted by law to the
supervising organs, in particular the powers of state mining authority and the
organ of environmental protection.
Article X
Confidentiality
1. All the documents, information, and data pertaining to the mining area and
concession works, which are not commonly available, will be treated by the
Parties as confidential, and will not be released to a third party, except in
instances incorporated by this agreement and with the written consent of the
Parties. The above statement will not limit Pol-Tex Methane from providing such
information and data to its employees or contractors and their [the
contractor's] employees, to the extent necessary to accomplish works. This
limitation will not forbid Pol-Tex Methane to provide banks and other financial
institutions with the appropriate information, when such statements are required
to obtain funds to finance concession works. It also pertains to the process of
obtaining expertise. The party which released restricted data to a third party
will require from it [the third party] in a written agreement that the data will
be used only for the purpose of this [concession] agreement and the
confidentiality of any information released in this manner will be maintained.
2. The confidentiality stipulation expressed in Paragraph 1 will be in force
for five years from expiration or revocation of the concession, however the
Minister will not be bound by the confidentiality of documented data defined in
Article VI, Paragraph 2, Point 7[g].
Article XI
Advisory Committee
1. The Advisory Committee composed of six members (three nominated by the
Minister and three by Pol-Tex Methane) will be created within 30 days from
granting of the Concession.
2. The meetings of the Advisory Committee will be directed alternatively by
the president elected by each party from among its members.
3. The Advisory Committee will meet at least every six months at the time
agreed upon by its members. The president will assemble the Committee on the
request of the Minister or Pol-Tex Methane. The Parties will receive a fifteen
day notice, or, on the occasion requiring urgent action, according to the
time-frame agreed to by the members. The notice will indicate time, place, and
the order of the meeting. The resolutions of the Advisory Committee may be made
by means of: correspondence, telex, fax, if all the members approve such ways to
make resolutions.
4. At least four members of the Advisory Committee must be present when the
resolution is made. The resolutions must be passed by the majority of votes,
each member will have one vote. When the votes are not settled, and in the
opinion of the Minister or Pol-Tex Methane the lack of settlement may impede the
development, efficiency, the right, or the obligation of the party, the Minister
or Pol-Tex Methane may submit the matter to the experts, in accordance with
Article XII.
5. The main tasks of the Advisor Committee are the overall supervision of the
works, providing proper communication, and cooperation between the Parties, as
long as the rights or the obligations of Pol-Tex Methane are maintained. The
Advisory Committee may consider and issue the opinion on all matters under this
contract.
Article XII
Expertise
1. The party which desires to have a problem resolved by an expert will notify
the other party and will submit the list of at least three proposed experts.
The notified party will respond to the notification within thirty days from
obtaining it and will either accept one of the proposed experts or will submit a
list of three additional experts. In this case, the party which has initiated
the dispute by requesting an expert may either accept one of the experts or
decline all of the experts proposed by the other party within thirty days. If
the party fails to submit such notification, all of the experts will be
rejected.
2. If the Parties fail to choose an expert within sixty days from delivery of
the first notification according to Article 1, both Parties may apply to the
Technical Expertise Institute by the International Chamber of Commerce (ICC) in
Paris (France) to appoint an expert according to its [ICC] rules.
3. If the expert agreed according to Article I or appointed according to
Article 2 refuses to fulfill the responsibilities, dies, or is unable to perform
his expertise in some other way, the Parties will meet without delay to appoint
a replacement expert. If the Parties fail to appoint a replacement expert
within thirty days from the meeting called by either of the Parties, then each
party may apply to the Technical Expertise Institute (ICC) to appoint a
replacement expert according to its [ICC] rules.
4. The Parties will cooperate with the expert to the fullest extend to ensure
his effectiveness and each party will furnish the services of its employees.
The expert will have an access to the data and information which the Parties or
their employees are able to provide and which, according to his opinion, may
help resolve the matter. The representatives of the Parties will have the right
to consult the expert and to provide the written materials, and the expert may
reasonably limit this right and independently evaluate the acceptability of the
data and the information.
5. All the expenses involving the selection and hiring the expert will be
incurred evenly by the Parties.
Article XIII
Announcements
1. All the announcements, declarations, requests, applications, agreements,
notifications, understandings, instructions delegations, relinquishments, and
other communications delivered, submitted, or processed for this contract by
either one of the Parties will be valid if they are written and hand delivered
to the recipient party's authorized representative, or when they are delivered
to the address of the other party or to the address expressed in a written form
by means of: special delivery, telegram, telex, fax:
to the Minister:
MINISTER OCHRONY SRODOWISKA,
ZASOBOW NATURALNYCH I LESNICTWA
ul. Wawelska 52/54
00-922 WARSZAWA
to Pol-Tex Methane:
POL-TEX METHANE spolka z o.o.
ul. Gornicza 1
44-330 JASTRZEBIE ZDROJ
2. The notifications delivered according to Paragraph 1 will be valid if
delivered during working hours on the working days. If they are received after
working hours, they will become valid on the next working day.
Article XIV
Commencement
1. The agreement becomes valid on the date of its signing except for
provisions cited in Paragraph 2.
2. The provisions of Article III of the contract will become valid when the
common tax regulations allow Compensation for Mine Utilization to be included as
a cost of producing income.
The Minister of the Environmental Protection,Pol-Tex Methane Ltd.
Natural Resources and Forestry
/s/
Stephen J. Jeu, President
/s/
Jan Herman, Vice President
ASSOCIATION AGREEMENT
between
NAFTA a.s. GBELY
and
DANUBE INTERNATIONAL
PETROLEUM COMPANY
REPRESENTED BY ITS BRANCH IN SLOVAKIA
CONTENTS
Article I. Contracting Association Members
Article II. Name And Location Of The Association
Article III. Purpose And Subject Of The Association
Article IV. Obligations Of The Association Members
Article V. Management Body Of The Association
Article VI. Procedures For Conducting Joint Activity
Article VII. Financial Administration
Article VIII. Ownership Ratio
Article IX. Training Of Local Personnel And Transfer Of Technology
Article X. Operations At Wells And Their Management
Article XI. Confidentiality Agreement
Article XII. Assignment
Article XIII. Force Majeure
Article XIV. Term Of The Agreement
Article XV. Governing Law
Article XV.a Arbitration Clause
Article XVI. Termination (Liquidation) Of The Association
Article XVII. Language Of The Agreement And Working Language
Article XVIII. Date On Which The Agreement Takes Effect
Article XIX. Temporary And Final Conditions
Attachments:
A. Exhibit A: Map Of AMI 1 And AMI 2
B. Exhibit B: Schedule of Activities
C. Definitions
D. Coordinates Of AMI 1 and AMI 2
PARTNERSHIP AGREEMENT
Pursuant to the provisions of Section 829 to Section 841 of Act no. 40/64
Zb. (Civil Code) as amended by Act no. 509/91 Zb., the complete text of which
was issued under Act no. 47/92 Zb., the contracting parties agree as follows:
Article I.
Contracting Association Members
1. NAFTA a.s. Gbely
Address: 908 45 Gbely, Slovakia
(Organization identification no.: 31409 938)
Represented by: Jan Prachar, Dipl-Ing - General Director of the Company and
Chairman of the Board of Directors
Stefan Hodan, RNDr. - Member of the Board of Directors
(Hereinafter referred to as "NG")
2. BRANCH IN SLOVAKIA OF DANUBE INTERNATIONAL PETROLEUM COMPANY
Address: Obchodna 21, Bratislava
Represented by: Mrs. Erika Csekes
(Hereinafter referred to as "DIPC")
(Hereinafter jointly the "Association Members")
Article II.
Name and Location of the Association
The Association Members will use the following name when doing business
jointly "NAI:IA - DANUBE."
The location of the Association is Gbely, Naftarska ulica 965, Slovensko.
(965 Naftarska St., Gbely, Slovakia)
Article III.
Purpose and Subject of the Association
The purpose and subject of the Association as set forth in this Association
Agreement (the "Agreement") is to develop the production of hydrocarbons in
commercial quantities on through a completed joint exploration program for the
Association Members mutual advantage and to conduct further exploration for
hydrocarbons in the two Areas of Mutual Interest ("AMI 1" and "AMI 2"
respectively, refer to Exhibit A). This involves the joint activity of the
Association Members.
DIPC will plan, design, and manage exploration and will act as operator during
the period of the Test Phase. NG will act as field operator during the period
of the first Production Phase and in subsequent Production Phases. In both
Phases, preference will be given to the use of the equipment and personnel of NG
provided the service is technically and economically competitive.
NG represents and warrants that it is the authorized and unencumbered owner of a
license (Law of Geological Work in Slovakia No. 52 Zb /1988 as it is said Nov.
6,1991 no 491 Zb, in Law no 497/91 Zb) in the AMI 1 and AMI 2. This Association
Agreement further specifies that NG exclusively, as Partner to this Agreement,
stipulates the interests that it has in the given area for the purposes and
conditions of this Agreement.
The planned capital investment for the Test Phase is US $6.64 million divided as
follows:
DIPC 75 %
NG 25 %
The planned capital investment of Production Phase 1 is US $6.8 million divided
as follows:
DIPC 60 %
NG 40 %
1. Subject to JMC approval, the program as shown in Exhibit B will be
implemented. The first quarter shall start on the fist day of the following
month after JMC approval of the schedule of activities. The Test Phase has a
duration of five quarters (see Exhibit B). An environmental base lime study
will be performed during the 1. quarter; DIPC will pay 100% of the cost. An
engineering study of the Test Phase will be performed during the 1. and 2.
quarter; DIPC will pay 100%. Trebisov well #5 (redrill) will be drilled and
tested during the 3. and 4. quarter; or no more than 180 days after the approval
of the JMC. Trebisov #2 (redrill), Lozin #1 (redrill) will be drilled and
tested during the 5. quarter. Also during the 5. quarter, a seismic program
will be completed. The total costs of the wells and seismic are $6.64 million.
The Production Phase 1 consists of 7 quarters (quarters 6-12). Three additional
wells in quarters 7, 9 and 11 will be drilled in an alternative area of AMI 1.
One well will be drilled in the AMI 2 during the 10. quarter.
2. If upon completion of the Test Phase not all the funds are used, these
remaining funds will be spent as part of the Production Phase 1 in the following
proportion:
DIPC 75 %
NG 25 %
If, however, the work program of the Test Phase exceeds Six Million Six Hundred
Thousand US Dollars (US $6.64 million), the additional funds required to
complete the program will be spent in the following proportion:
DIPC 60%
NG 40%
If upon completion of the Production Phase 1, not all funds were used, these
remaining funds will be spent in the subsequent Production Phase in the
following proportion:
DIPC 60%
NG 40%
If, however, the work program of the Production Phase 1 exceeds Six Million
Eight Hundred Thousand US Dollars ($6.8 million), the additional funds required
to complete the program will be spent in the following proportion:
DIPC 50 %
NG 50%
3. After the JMC approves the budgets, DIPC and NG will deposit their
respective funds twenty (20) days before commencement of operation. Checks,
drafts transfers etc., drawn from the mutual bank subaccount will be signed by
the operator and countersigned by the non-operator.
Deposits to the joint subaccount will be calculated in Sk/Slovak Crowns/ at
the rate in effect on the day the deposit is transferred to the joint subaccount
in compliance with the foreign exchange law.
Further Production Phases will be financed by the Association Members equally.
Article IV.
Obligations of the Association Members
(efforts to accomplish the agreed purpose)
The individual Association Members, realizing that in order to accomplish
the stated purpose and subject of the Association they must make diligent
efforts and make tangible and intangible investments, bind themselves to
accomplish the following:
1. DIPC and NG will commence oil field operations at the field within 180 days
after the Association's Joint Management Committee (or the "JMC") as the
management body of the Association has approved the work program of the
Association drawn up by the operator.
2. DIPC and NG as operators will conduct drilling and production operations
and an exploration program in accordance with the provisions of this Agreement.
3. DIPC will consult with NG concerning locations for wells. The Association
Members will select wells that have been shown to be the best, technically and
economically. After conclusion of the drilling and production operations, NG
and DIPC will see that the test phase is begun as soon as possible, and on the
basis of the results therefrom will establish the spacing of the production
wells for every economic horizon.
4. In implementing the activity of the Association, DIPC will preferentially
utilize the personnel, goods, services, equipment and servicing of NG, the
Association will also conclude if it should prove necessary to purchase goods or
lease equipment, and will also conclude contracts for oil field operations,
under the condition that the goods, equipment, and services supplied will be
competitive in terms of price, quality, and delivery and service terms.
Otherwise, all contracts may be concluded independently by each partner up to a
sum agreed upon by the JMC. The Association Member, which concludes an
agreement without JMC approval, shall bear all expenses associated with that
agreement.
Article V.
Management Body of the Association
A. The management body of the Association is the JMC. Each Partner names four
representatives to the JMC, who will constitute the JMC. Each Partner shall at
the same time appoint one of his representatives as his chief representative.
The following representatives are appointed by DIPC:
1. Dr. Martin A. Schuepbach, Ph.D.--chief representative
2. Erika Csekes-later replaced by DIPC Slovakia
Representative--vice-chief
representative
3. Dr. Frank Horvath, Ph.D.-representative
4. Randy Crawford-later replaced by DIPC--Slovakia,
Geologist/Engineering-representative
The following representative are appointed by NG:
1. Dr. Stefan Hodan--chief representative
2. Dr. Peter Ostrolucky, Ph.D.-vice-chief representative
3. Dr. Julius Magyar, Ph.D.-representative
4. Dipl. Ing. Vicent Gerthoffer--representative
1. Unless otherwise agreed between the Association Members, regular meetings
of the JMC will be held at least once every quarter, and any additional meetings
may be held as necessary at any time at the request of either of the Association
Members by notifying the other Partner by mail, telex thirty (30) days in
advance as to the time, place and matters to be discussed.
2. The JMC is empowered to:
. review, examine and approve the work programs and budgets
proposed by the operators.
. approve or confirm the following matters affecting procurement
and expenditures:
a) approve the inclusion in the budget of any assets if their price
exceeds one hundred and fifty thousand Sk (150,000 Sk), or every individual
order with a value exceeding one hundred and fifty thousand Sk (150,000
Sk).
b) approve the equipment leases or technical subcontracts or service
contracts included in the budget if the price is more than one hundred and
fifty thousand Sk (150,000 Sk).
. review and approve plans and transfer of production operations.
. discuss, review, decide, and approve other matters proposed by
either Associate Member to this Agreement or proposed by a group
of experts or the operator.
. review and examine and approve matters to be submitted to the
relevant authority of the Slovak Republic.
3. Decisions of the JMC must be, on the basis of consultation, unanimous. All
decisions adopted unanimously will be deemed official decisions and will be
equally binding on both Association
Members.
If a matter arises on which a unanimous opinion cannot be obtained, the
Association Members may convene a new meeting as soon as possible in an effort
to find a new solution to the advantage of both Association Members. The
Association Members will in all cases work diligently, constructively, and in
good faith in an effort to ensure that all decisions of the JMC are unanimous.
4. If it is urgent that a matter be resolved, or if a decision must be taken
without a meeting being called, the JMC may take a decision by means of telex,
fax, or by circulating documents.
5. The JMC may appoint a group of experts as required.
6. During the time that NG is not acting as operator, NG will be entitled to
send specialist representatives to the administrative and engineering divisions
of DIPC involved in the oil field operations to work alongside the staff of the
operator. DIPC will have the same privilege when NG is the operator.
7. Specific responsibilities and work procedures within the JMC will be
discussed and decided upon by the JMC in accordance with the relevant
stipulations of this Agreement.
8. NG will assist DIPC in handling customs formalities, in acquiring the
various permits and licenses that may be necessary in connection with this
Agreement, in procuring office space and transportation and communications
facilities and in providing the necessary resources for ensuring adequate living
and working conditions for DIPC personnel in the Slovak Republic, in contacts
and coordination with government departments (ministries), in relevant matters
arising from this Agreement in the relevant time frame, as this appears
necessary, and likewise generally provide assistance under necessary and
reasonable circumstances. All costs associated with such assistance will be
charged to the Joint Subaccount.
B. Operator
The Association Members agree that DIPC will act as operator during the
period of Test Phase and during all subsequent drilling and testing operations.
The parties agree that NG will act as operator during the period of producing
operations . NG will take over producing operations from the operator at the
conclusion of the drilling and testing period at each individual well.
1. The duties of the operator will be as follows:
. to utilize appropriate modern technology and commercially proved
experience in such a way as to carry out all oil field operations
in a rational manner, economically and efficiently and in
accordance with sound international practice.
. to draw up work programs and budgets for oil field operations
and carry out approved work programs within budget.
. to be responsible for procuring equipment and supplies and
for concluding subcontracts and contracts for services relating
to drilling-producing operations, in all cases in accord with
the approved work program and budget.
. to keep complete and accurate records of all costs and
expenditures associated with oil field operations and to
maintain the account books in good order.
. to submit reports to the JMC on the progress of the work and
on the overall situation in a timely fashion.
. to make arrangements for regular JMC meetings and to provide
this body with information relating to matters to be reviewed
and approved by the JMC.
2. In the course of conducting drilling-producing operations, the operator
will be responsible only for direct damages, if these occur due to gross
negligence or were intentionally caused by the staff (personnel) of the
operator.
3. In the course of conducting oil field operations, the operator will provide
information, specimens, and reports as provided below:
. the operator will provide the other (non-operator) Partner with
the various types of information and data required under this
Agreement.
. during the Test Phase and drilling phase-production operations,
DIPC will have the right to copy and utilize relevant data on the
wellbore and the reservoir, as well as technical information
without obtaining the consent of NG. The expenses involved in
copying materials will be the sole costs related to these
materials that NG will charge to the Joint Subaccount.
. at the request of either party to this Agreement, the operator
will provide all information relating to oil field operations
such as: information on the status of oil field operations, on
production from each well, and on the status of the production
method of the individual wells.
4. The procedure for the gradual takeover of production operations by NG will
be agreed by the JMC for each individual well. The transfer will take place at
the well within fifteen (15) days from the date on which commercial production
begins at each individual well.
Article VI.
Procedures for Conducting Joint Activity
1. The operator of the production operations must draw up a plan for producing
hydrocarbons from each well completed for Commercial Production ("CP Well") for
each calendar year based on the production profile of each well and perform
production operations according to this plan.
2. NG will be responsible for the implementation used to produce hydrocarbons
from each CP Well drilled under this Agreement and also for the transport of the
hydrocarbons to market. Thirty (30) days prior the commencement of commercial
production from each CP Well, NG will submit its procedure for the production
and sale of the hydrocarbons, which will contain the measures which the parties
to this contract will submit to the JMC for approval. All costs arising in
connection with the transport and marketing of produced hydrocarbons will be
charged to the Joint Subaccount and paid from it.
3. Sample testing and analysis of crude oil and gas.
3.1 Sample testing of extracted crude oil will be performed by both the
extractor and an independent inspection organization according to STN (State
Technical Standard) 65 6005.
3.1.1 The analysis of crude oil will be performed on the sample of both
the extracted and the control sample by the extractor for each individual
delivery in this extent:
. Density at 20 0C/kg/m3/according to STN 65 6010 and density
in API degrees.
. Viscosity at 20 .C according to STN 65 6216 c/mPa *s/.
. Distillation test according to ASTM D 86.
. Water content according to STN 65 6062, ASTM 174483 c/ %/.
. Mechanical impurities content according to STN 65 6219/ % /.
. Sulfur content according to STN 65 6127/%/.
. Oil solidification point according to STN 65 6072/. C/.
3.1.2 The control analysis will be done every quarter year (in relation
to the amount in metric tons) by an independent organization as determined by
the JMC in this extent:
. Chromatographic analysis of crude oil.
. Density at 20 .C/kg/m3/according to STN 65 6010 and density in
API degrees.
. Viscosity at 20 .C/mPa * s/.
. Point of ignition/.C/.
. Solidification point /. C/.
. Solidification point of the distillation remainder (above 330 .C)
/.C/.
. Solid paraffin content/ % of mass/.
. Asphalt-pitch substances/ % of mass/.
. Acid value/mg.KOH/g/.
. Molecule weight.
. Refractive index.
. Sulfur content/ % of mass/.
3.2 Sampling of gas will be performed in accordance with STM 38 5561 and
ISO 6712 by the producer NG and the independent organization.
3.2.1 The analysis of natural gas will be performed according to STM 38
6101 by both the
producer NG and the independent organization in this extent:
. Overall chromatographic analysis according to STN 38 5562,
from which follows also percent content of methane, ethane,
propane, i-butane, e-butane, i-pentane, sum of higher
hydrocarbons, nitrogen, and CO2.
. Dew Point according to STN 38 5573
. Burn heat, heat value, density, and relative density
according to STN 38 5572.
. Hydrogen sulfite content /mg/m2/ according to STN 38 5565
or by detection probes in the sense of STN 38 6101, Art.17.
3.2.2 The control measurement of quality will be performed once every
quarter year by an independent organization with an additional determination of
overall sulfur content.
4. Amount of Oil and Gas:
. Content of hydrocarbons extracted from each KT probe will be
measured by measurement instruments used by NG.
. Business measurements will be done by the equipment used by NG.
These will conform to STN and will be approved by the Office
for Standardization and Measurement in Bratislava.
. Measurement conditions will be included in the "Technical
Delivery Conditions" agreed to mutually by the supplier and
the buyer.
5. Setting the price of the produced hydrocarbons:
. The prices of the various types of hydrocarbons will be
calculated as the price F.O.B. place of delivery.
. The price of the oil produced from all wells under this
Agreement will be cited in Sk/ton.
. The price of gas produced from all wells under this Agreement
will be cited in Sk/m3.
6. Marketing:
. Unless the Association Members agree otherwise, the
Association will be responsible to negotiate and conclude
the marketing of all the hydrocarbons.
7. Transportation of the hydrocarbons.
. Hydrocarbons from all wells will be assigned for
transportation to the place of sale by any transport
system of NG.
8. Production of hydrocarbons:
. The Association Members will make reasonable efforts to
ensure that all wells produce the maximum efficient amount.
9. The procedure for shutting down nonproductive wells and rehabilitation
after the conclusion of commercial activity will be determined in a mutual
agreement between the Association Members.
Article VII.
Financial Administration
1. The Association Members have agreed that gross revenues and gross expenses
accounting shall be done monthly.
2. JMC shall decide on the use of the Association's free financial means.
3. All gross revenues and gross expenses are to be split equally between the
Association Members after the accounting period, which ends on Dec. 31 of that
year.
4. A double entry account is kept by the Association, pursuant to Act 563/91
Zb.
Article VIII.
Ownership Ratio
A. Property acquired by joint activity becomes the joint property of all
Association Members. The proportions for acquired property are as follows:
DIPC 50%
NG 50%
B. Financial resources, current financing of the joint project, and sole risk.
1. All financial resources required for drilling-production operations and
resources for the defined exploration program will be provided as follows:
a) during the Test Phase and the possible Production Phase 1, all
expenses will be covered by DIPC and NG as described in Article III of this
Agreement until the minimum investment allocated to the work program of the
Test Phase or Production Phase 1 is exhausted.
b) following the exhaustion of the minimum investment for the work
program of the Test Phase - as specified in Article III of this Agreement -
the two Association Members will share the financing according to the
arrangement for the Production Phase 1 as specified in Article III of this
Agreement.
c) following the exhaustion of all possible investment resources
allocated to the production program of the Production Phase 1 as specified
in Article III, the two Association Members will finance further work in
equal measure.
2. Operating costs, as well as all maintenance and repair investments, that
will be required for production operation, will be financed from the subaccount
of the Association; if there are insufficient funds in this subaccount, the
operator will determine the amount required and request financial contributions
from both NG and DIPC proportional to their commitments as described in Article
III of this Agreement. It is not permitted to commence any operation until
funds adequate to pay for it are available in the subaccount.
3. If, during the Production Phase of operations, production falls below the
level necessary to maintain commercial operation, DIPC will be entitled to
implement as soon as possible, after first obtaining the Agreement of NG, the
following decisions:
. to take other technical measures to increase production from
the CP Well; or,
. to declare that commercial production from the given CP Well
has ceased.
4 NG will administer the Association. Administration is understood to mean
maintaining the joint subaccount of the Association, and all accounting,
personnel, and inventory records. The costs associated with administration will
be charged to the Association. Association expenses also include the costs
associated with establishing the Association and with its activity (JMC meetings
and the like).
5. Any party to this Agreement may submit proposal for any drilling, testing
and production operation or exploration well to the JMC for approval. If the
JMC does not unanimously approve the operation, the Party proposing the
operation may undertake the work at its own cost and risk. If the work results
in a CP Well, that Party bearing the sole risk shall:
. Recover 200% of the direct investment in a well drilled into
an existing field from the production from the wellbore.
. Recover 400% the direct investment in a new field wildcat.
Article IX.
Training Local Personnel and Transfer of Technology
In the course of implementing this Agreement, DIPC will apply its
appropriate and modern technology and experience with management, including its
own technology, i.e., patents, know-how, or other technology. DIPC may, as
required, train NG personnel and transfer technology, know-how and experience,
as well as data or information, as the Association Members agree, to NG and its
affiliates, on the condition of appropriate confidentiality and protection of
patent rights, in accordance with Slovak regulations.
Article X.
Operations at Wells and Their Management
1. The production period of each CP Well begins on the date on which
commercial production commences from the given well and will continue until such
time as the production from the CP Well falls to a level at which production
does not cover operating costs.
2. In the event that the partners agree to temporary interruption of
production of a CP Well, the relevant period for halting production and the
organization of maintenance operations during the period of interruption will be
proposed by the operator and agreed by the JMC. If the JMC should not agree on
renewing production after the expiration of the period of the interruption as
determined by the JMC, then the partner who wishes to restore production will
have the right to carry out restoration at its own risk and expense and to the
benefit from producing the CP Well under the condition set forth in Article
VIII.B.
3. After the completion of drilling-production operations at any wellbore,
should it become evident that a level of production sufficient to be commercial
cannot be obtained from all the horizons drilled - based on joint interpretation
and agreed by the JMC - a plug will be placed in the well and the well will be
abandoned in compliance with relevant legal regulations.
Article XI.
Confidentiality Agreement
1 While the Association is active, all Association Members are obligated to
keep and protect business secrets concerning all circumstances of a commercial,
production, or technical nature associated with the Association that have actual
or even potential tangible or intangible value and are not generally known in
the relevant business circles.
2. Violation of commercial confidentiality is behavior whereby the violator of
the confidentiality agreement without authorization conveys to another person
commercial information accessible to him or to another that can be taken
advantage of by competitors and about which he has learned:
a) by being informed of the information or by becoming aware of it
from technical proposals, instructions, drawings, models, samples, studies,
and the like based on his participation in the Association, or based on
some other relationship to it,
b) or by his own or another's behavior contrary to the law.
3. Violation of these provisions on maintaining business confidentiality
constitutes the factual basis for unfair competition, and the JMC has the right
to decide on utilizing legal remedies to protect against such unfair
competition.
4. With exception of cases directly stated by Slovak Law/tax, safety and
health at work, fire, environment standards, Annual report of NG, etc./, the
Member of the Association shall not disclose any information about the
Association without prior written approval of the other
Member.
In case DIPC will request information, which is subject of state, military
or other secret as specified by Slovak law, this information will be handed over
to DIPC only after approval of the state organs.
Article XII.
Assignment
1. DIPC may concede a part or all of its rights and obligations under this
Agreement to an affiliate under the condition that NG agrees to this in advance
and in accordance with the following provisions:
a) the acquirer (company) shall provide NG with a copy of the
written Agreement relating to that portion of the rights and obligations to
be acquired.
b) the acquirer (company) shall guarantee to NG, in writing, the
performance of the acquired rights and obligations.
c) no such assignment shall interfere with the conduct of oil field
operations.
2. Any Partner, who will be DIPC, may assign a portion or all of its rights
and obligations arising under this Agreement to any other third party on the
condition that such assignment shall be reviewed and approved by NG within
thirty (30) days.
Article XIII.
Force Majeure
1. Except for the disbursement of any payments under this Agreement, no party
to this Agreement shall be deemed a Party in default in the performance of any
obligation if the impossibility of or delay thereof is due to the following
circumstances:
a) performance of any obligations under this Agreement is prevented,
delayed, or postponed due to any event or combination of events that the
affected Partner could not foresee, or having been foreseen, were beyond
his ability to control.
b) any event or combination of events is a direct cause that
prevents, delays, or hinders the affected Partner from performing its
obligations under this Agreement.
c) if, in the event of such an event or combination of events
occurring, the Partner makes every reasonable effort to deal with the cause
or causes that prevent, delay, or hinder fulfillment of its obligations,
and if the affected Partner immediately or as soon as practically possible
after cessation of these causes continues in fulfillment of its obligations
under this Agreement.
2. The affected Partner must notify the other Partner of the onset of any
instance of force majeure and its cessation. The Partner affected by the action
of force majeure must provide the other Partner, within a reasonable time, of
reports submitted to the relevant authorities, or other evidence of the action
of force majeure, if this is necessary.
3. In the event of the event of force majeure, the Association Members will
immediately begin consultations in an effort to find an appropriate solution
that will minimize the effects of the action of force majeure.
ARTICLE XIV.
Term of the Agreement
The term of the Agreement is twenty-five (25) years.
ARTICLE XV.
Governing Law
1. The validity, interpretation, and implementation of this Agreement are
governed by the law of the Slovak Republic.
2. If, however, after this Agreement becomes effective, a material change
should occur in the economic benefits to DIPC resulting from the announcement of
new laws, decrees, rules and regulations, or due to any alteration to an
applicable law, decree, rule or regulation by the government of the Slovak
Republic, then the parties to this Agreement will immediately discuss these
alterations and revise and amend the relevant provisions of the Agreement in
such a way that the economic benefits to DIPC will be preserved in a reasonable
fashion. All alterations to the Agreement are subject to unanimous approval by
the JMC.
3. All Association Members are governed by Slovak law, and Slovak legal
procedure is mandatory for them.
Article XV.a
Arbitration Clause
The Association Members have agreed, that any dispute arising from this
Agreement shall be solved by The Vienna Arbitration Court In Vienna.
Article XVI.
Termination (liquidation) of the Association
1. The Association may be terminated or liquidated:
a) by the unanimous decision of the JMC.
b) upon achieving the purpose of the Association.
c) upon expiration of the term for which the Association was established.
2. Upon termination of the Association the property acquired by joint activity
is divided equally among the Association Members. The division will be made no
later than sixty days from the date of termination of the Association and will
be made by NG. NG shall have the right to buy out the share of DIPC first, for
the market value.
Article XVII.
Language of the Agreement and Working Language
1. The text of the Agreement, its attachments and supplementary documents, if
attached to this Agreement, will be written both in Slovak and in English, with
both language versions having equal legal force and effectiveness.
2. The Association Members agree that both Slovak and English will be used as
working languages.
After the effective date of this Agreement, technical documentation and
information relating to oil field operations conducted under this Agreement
shall generally be written in English and in Slovak.
Documents and information relating to administrative matters will be
written in Slovak and in English. Production forms and other reports and
notices will be printed in both Slovak and English and will be filled out in
Slovak and English.
3. All notices related to this Agreement must be in writing and will be valid
only if received by every party to this Agreement. Notices and documents of the
Association Members must be delivered personally, or sent by mail as registered
or air mail, or must be sent by fax, telegraph, or cable to the addresses below:
NG: DIPC:
908 45 GBELY 2651 H. Harwood, Suite 120
Slovakia Dallas, TX 75201
Tel: 42801 921 112 Tel: 214-880-9035
Fax: 42801 921 103 Fax: 214-880-9608
RNDr. Stefan Hodan Mr. Martin A. Schuepbach,
Director of Geology President
Article XVIII.
Date on Which the Agreement Takes Effect
This Association Agreement shall become effective on the date on which it
is signed (the Effective Date) by both Association Members. All attachments to
this Agreement must be in writing; otherwise they are invalid. They form an
integral part of the Agreement. If there is a conflict between the Agreement
and an attachment the text of the Agreement prevails.
In other matters the Agreement is subject to provisions of the Civil Code
(Section 829 - Section 041).
Article XIX.
Temporary and Final Conditions
1. The Association Members have read the Agreement and declare that they are
signing it voluntarily and not under compulsion and not under conspicuously
disadvantageous conditions. As acknowledgment of their Agreement with its
entire contents the partners hereto set their signatures.
Each Partner shall receive two copies of the Agreement in Slovak and two
copies in English.
2. Attachments to the Agreement are as follows:
A. EXHIBIT A: MAP OF AM1 1 AND AM1 2
B. EXHIBIT B: SCHEDULE OF ACTIVITIES
C. DEFINITIONS
D. COORDINATES OF AMI I AND AMI 2
Signatures
BRANCH 1N SLOVAKIA OF
NAFTA a.s. GBELY DANUBE INTERNATIONAL
PETROLEUM COMPANY
Stamp of Nafta Gbely Represented by the Head
of the Branch in Slovakia
signature illegible signature illegible
RNDr. .tefan Hodan
member of the Board of Directors
signature illegible
Ing. Miroslav Michalek
Member of the Board of Directors
over: notarized signatures of Csekesova Erika. Ing. Hodan. Ing. Michalek
Miroslav Pavlovic LLD. Bratislava, Notary Public 13.07. 1 995
signatures of Notary's representative
AGREEMENT
TO DEVELOP CERTAIN OIL AND GAS FIELDS
AND EXPLORE AREAS FAVORABLE TO HYDROCARBON ACCUMULATION
IN THE ZDANICE WEST - MOURINOV AREAS
BETWEEN
MORAVSKE NAFTOVE DOLY a.s.
AND
DANUBE INTERNATIONAL PETROLEUM COMPANY
August 18, 1995
CONTENTS
Preamble
Article 1 Definitions
Article 2 Objective of the Agreement
Article 3 Agreement Term
Article 4 Drilling Test and Production Work Commitment
Article 5 Management Organization and its Function
Article 6 Operator
Article 7 Decision on Petroleum and Production Operations
Article 8 Operations and Management of Wells
Article 9 Preference to the Employment of MND Personnel, Goods
and Services
Article 10 Funding and Sole Risk
Article 11 Production, Lifting, Quality, Quantity, Price and
Destination of Hydrocarbons
Article 12 Gross Revenue and Net Revenue
Article 13 Allocation of Net Revenue
Article 14 Training of Local Personnel and Transfer of Technology
Article 15 Ownership of Assets and Data
Article 16 Taxation
Article 17 Assignment
Article 18 Force Majeure
Article 19 Consultation and Arbitration
Article 20 Effectiveness of This Agreement
Article 21 Environmental Baseline Study
Article 22 The Applicable Law
Article 23 Language of Agreement and Working Language
Article 24 Miscellaneous
Exhibit A Map of AMI
Exhibit B Standard Oil Analysis
Exhibit C Standard Gas Analysis
THE AGREEMENT FOR A JOINT VENTURE IN THE CZECH REPUBLIC TO DEVELOP
CERTAIN OIL AND GAS FIELDS AND EXPLORE IN AREAS FAVORABLE TO
HYDROCARBON ACCUMULATIONS IN THE ZDANICE WEST-MOURINOV AREA
This Agreement is entered into in Hodonin as of this August 18th day of 1995 by
and between Moravske Naftove Doly a.s. (hereinafter abbreviated as "MND") as one
part, and Danube International Petroleum Company (hereinafter abbreviated as
"DIPC") as the other part.
WHEREAS:
1. MND holds title to certain oil and gas Licenses identified in Exhibit A,
located in the Czech Republic (hereinafter abbreviated as the "AMI") and desires
to develop and accelerate commercial production in certain areas by using DIPC's
expertise.
2. DIPC has technical expertise in the rehabilitation, development and
exploration of oil and gas resources. DIPC desires and agrees to provide funds
as set forth in Article 10.1 and apply its appropriate, advanced technology, as
well as managerial experience to the joint venture cooperation within the AMI.
3. The Parties wish to cooperate in the redevelopment of wells and hydrocarbon
fields and explore within the AMI, through the process of applying modern tools
and techniques on the terms and conditions provided in this Agreement.
Now, therefore, in consideration of the mutual covenants contained in this
Agreement, the Parties agree as follows:
ARTICLE 1
DEFINITIONS
The following words and phrases used in this Agreement shall have, unless
otherwise specified in this Agreement, the following meanings:
1.1 "Area of Mutual Interest" ("AMI"), as set forth in Exhibit A, shall include
the economic benefit deriving from hydrocarbons contained in the stratigraphic
sections from the surface to economic basement.
1.2 "CP Well" is a well capable of commercial production.
1.3 "Date of Commencement of Commercial Production" means in respect of each
well where commercial production is established ("Commercial Producing Well" or
"CP Well"), the date of which shall commence on the date on which OPC declares
that the particular well is set to commence commercial production.
1.4 "Delivery Point" means the point where petroleum is delivered to the
selling device closest to the wellhead of any CP Well.
1.5 "Department or Unit" means the department or unit which is authorized by
the State of the Czech Republic to be responsible for administration of the
petroleum industry in the Czech Republic.
1.6 "G&G" means geological and geophysical works.
1.7 "Joint Account " means bank account or accounts set up to hold and disburse
revenues received from the Production Operations.
1.8 "Operating Committee" ("OPC") means a committee where both parties are
represented equally.
1.9 "Monthly Gross Production" means the total production of hydrocarbons
available for sale at the Delivery Point for a CP Well for one calendar month.
1.10 "Petroleum Operations" means any exploration, rehabilitation, development
operations, G&G, and other activities related to this Agreement.
1.11 "Production Operations" means operations and all activities carried out for
hydrocarbon production from any CP Well from the Date of Commencement of
Commercial Production such as production, extraction, injection, stimulation,
treatment, storage, transportation, lifting, and the like.
1.12 "Operator" means DIPC in the Petroleum Operations phase and MND in the
Production Operations phase.
1.13 "Party" means either of DIPC or MND.
1.14 "Work Program" means all types of plans formulated for the performance of
the Petroleum Operations and Production Operations.
1.15 "CZK" means Czech Crowns.
1.16 "Effective Date" means the date the Agreement is signed.
1.17 "Working Interests" represents the percentage of the ownership production
and the cost obligation of the same production.
ARTICLE 2
OBJECTIVE OF THE AGREEMENT
2.1 The objective of this Agreement is:
(a) to accelerate the development and production of hydrocarbons from
existing and new reservoirs in commercial quantities in the AMI by
employing modern development and exploration tools.
(b) to explore for hydrocarbons in the AMI.
2.2 To facilitate this objective:
(a) MND represents and warrants that it has unencumbered interests in
the Licenses and the AMI as set forth in Exhibit A. To further the
objective of this Agreement, MND contributes and dedicates exclusively all
such interests to the Parties for the purpose of this Agreement for the
term hereof.
(b) The Parties agree to provide funding for the operations within
the AMI as provided for in Article 10.1.
2.3 Petroleum Operations may be conducted in any part of the AMI during the
term of this Agreement in accordance with the provisions of this Agreement.
2.4 MND agrees that no entity other than the entity comprising DIPC will be
permitted to perform Petroleum Operations within the AMI under a joint venture
and/or any similar petroleum agreement to this one as agreed by the parties
except as set forth in Article 17.1.
ARTICLE 3
AGREEMENT TERM
3.1 The term of this Agreement shall be not less than twenty five (25) years or
as long as commercial production continues within the AMI.
ARTICLE 4
DRILLING TEST AND PRODUCTION WORK COMMITMENT
4.1 DIPC shall begin to perform on site Petroleum Operations within one hundred
and eighty (180) days after the approval by the OPC of the Work Program.
ARTICLE 5
MANAGEMENT ORGANIZATION AND ITS FUNCTION
5.1 For the purpose of the proper performance of the Petroleum Operations, the
Parties shall establish an Operating Committee (the "OPC") within thirty (30)
days from the date of execution of this Agreement.
5.1.1 MND and DIPC shall each appoint four representatives to form
the OPC, and each Party to this Agreement shall designate one of its
representatives as its chief representative at the OPC.
5.1.2 Except as otherwise agreed by the Parties, a regular meeting
of the OPC shall be held at least once a calendar quarter and other
meetings, if necessary, may be held at any time at the request of any Party
to this Agreement, upon giving reasonable notice to the other Party of the
date, time and location of the meeting and the items to be discussed. The
regular place of the OPC meetings shall be in Hodonin, except as mutually
agreed by the Parties.
5.2 The OPC shall have the power with the exception of the provisions of
Article 7, to:
5.2.1 Review and adopt Petroleum and Production Operations and
respective budgets.
5.2.2 Approve or confirm the following items of procurement and
expenditures:
(a) approve procurement of any asset within the budget with a
unit price exceeding 150,000 CZK (One Hundred and Fifty Thousand Czech
Crowns) or any single purchase order of total monetary value exceeding
150,000 CZK.
(b) approve a lease of equipment, an engineering subcontract or
a service contract within the budget worth more than 150,000 CZK.
5.2.3 Review and approve plans for transfer to Production
Operations in accordance with Article 6.5 hereof.
5.2.4 Discuss, review, decide and approve other matters that have
been proposed by either Party to this Agreement or submitted by the expert
groups or the Operator.
5.2.5 Review and examine matters required to be submitted to
relevant authorities of the Czech Republic.
5.3 Decisions of the OPC shall be made unanimously through consultation. All
decisions made unanimously shall be deemed as formal decisions and shall be
equally binding upon the Parties.
When matters arise on which agreement cannot be reached, the Parties may convene
another meeting as soon as possible in an attempt to find a new solution thereto
based on the principle of mutual benefit. The Parties shall work diligently,
constructively and in good faith throughout to reach unanimous decisions at the
OPC.
5.3.1 During Petroleum and Production Operations, the Parties
shall endeavor to reach agreement through consultation on the Work
Programs. If the Parties fail to reach agreement through consultation
within 30 days of a matter first coming up at a meeting in the Petroleum
and Production Operations phase, the Operator's proposal shall prevail.
5.3.2 If it is considered that a matter requires urgent handling
or may be decided without convening a meeting, the OPC may make decisions
through telexes, facsimiles or the circulation of documents to produce
decisions
5.4 The OPC may establish expert groups as required.
5.5 When MND does not act as the Operator, MND shall have the right to assign
professional representatives to DIPC's administrative and technical department
which are related to the Petroleum Operations, who may work alongside the
Operator's staff. DIPC shall have like privileges when MND is the Operator.
5.6 The specific responsibilities and working procedures within the OPC shall
be discussed and determined by the OPC in accordance with the relevant
provisions of this Agreement.
5.7 Subject to OPC approval, MND shall assist DIPC in customs formalities, in
acquiring the various licenses or permits that may be required under this
Agreement, in obtaining office space, transportation and communication
facilities, in facilitating DIPC's personnel living and working in the Czech
Republic, in contacting and coordinating with the government departments
concerned for relevant matters under this Agreement within the relevant time
frames as required, and to generally provide such assistance as is reasonable
and necessary in the circumstances. All expenses incurred for assistance shall
be paid and charged to the Joint Account.
ARTICLE 6
OPERATOR
6.1 The Parties agree that DIPC shall act as the Operator for the Petroleum
Operations until its transfer to MND. The Parties agree that MND shall act as
Operator for the Production Operations. The procedure in Article 6.5 shall
govern the assumption by MND of the Production Operations from DIPC.
6.2 The Operator shall have the following obligations:
6.2.1 To apply the appropriate and advanced technology and
business managerial experience to perform the Petroleum and Production
Operations reasonably, economically and efficiently in accordance with
sound international practice.
6.2.2 To prepare Work Programs and budgets related to the
Petroleum and Production Operations and to carry out the approved Work
Programs and budgets.
6.2.3 To be responsible for procurement of installations,
equipment, and supplies and entering into subcontracts and service
contracts related to the Petroleum and Production Operations, in accordance
with the approved Work Programs and budgets.
6.2.4 To maintain complete and accurate accounting records of all
the costs and expenditures of the Petroleum and Production Operations and
to keep securely the accounting books in good order.
6.2.5 To report the work progress and situation to the OPC in a
timely manner.
6.2.6 To make necessary preparation for regular meetings of the
OPC, and to submit in advance to the OPC necessary information related to
the matters to be reviewed and approved by the OPC.
6.3 In the course of the performance of the Petroleum and Production
Operations, Operator shall be responsible only for any direct damage rising out
of the gross negligence or willful misconduct of the Operator's staff.
6.4 In the course of the performance of the Petroleum and Production
Operations, Operator shall handle the information and samples of reports in
accordance with the following provisions:
6.4.1 he Operator shall provide the non-operator with various
information and data required to be provided under this Agreement. For
Petroleum Operations, DIPC shall have the right to copy and use relevant
well and reservoir data and technical information, with prior consent of
MND, such consent not to be unnecessarily withheld or delayed. The costs
incurred in copying material shall be the only costs charged by MND for
such material and such costs shall be billed to the Joint Account.
6.4.2 The Operator shall, at the request of any Party to this
Agreement, furnish that Party to this Agreement with all information
concerning the Petroleum and Production Operations.
6.5 The OPC shall decide on the approach of the assumption by MND of the
Production Operations of any CP Well. This transfer of well operation shall be
at the Date of Commencement of Commercial Production for each CP Well.
ARTICLE 7
DECISION ON PETROLEUM AND PRODUCTION OPERATIONS
7.1 During the initial investment of US $1 million and the additional
investment of CZK 82 million by DIPC, OPC shall determine and approve the
Petroleum Operations Work Program.
After the investment of US $1.0 million and CZK 82 million by DIPC, the OPC will
decide and approve the Petroleum Operations. The OPC will always decide and
approve the Production Operations.
ARTICLE 8
OPERATIONS AND MANAGEMENT OF WELLS
8.1 The Production Period of any CP Well shall commence on the Date of
Commencement of Commercial Production of such well and continue until the rate
of production of such a well has decreased so that the level of production will
not support the cost of operation.
8.2 In the event that the Parties agree to suspend temporarily the production
of a CP Well, the duration of the relevant period of production suspension and
the arrangement for the maintenance operations during the period of suspensions
shall be proposed by the Operator and shall be decided by the OPC. In the event
that the Parties fail to reach an agreement on the restoration of production by
the expiration of production suspension period decided by OPC through
discussion, the Party who wishes to restore production shall have the right to
the benefit of the revenue from such CP Well up to 500% of cost incurred by the
party who restores production.
8.3 If after the completion of the Petroleum Operations on any well, in all
reservoirs that are interpreted by the Parties to contain hydrocarbons, the
production from such well is not sufficient to sustain commercial production,
then such wells shall be plugged and abandoned.
ARTICLE 9
PREFERENCE TO THE EMPLOYMENT OF MND
PERSONNEL, GOODS AND SERVICES
9.1 The OPC shall give preference to MND and/or local goods, equipment and
service when procuring necessary goods and leasing equipment as well as entering
into subcontracts or other service contracts for the performance of the
Petroleum and Production Operations provided that these are competitive in terms
of price, quality, terms of delivery and service.
ARTICLE 10
FUNDING AND SOLE RISK
10.1 Funds required for Petroleum Operations shall be provided as follows:
(a) The initial investment of US $1.2 million by DIPC gives DIPC a
25% working interest and the rights to 25% of all production produced
within the AMI.
(b) DIPC has the option at any time to invest CZK 3.28 million or
equivalent cash payment to increase its working interest and rights to
production within the AMI by 1%, up to an additional 25%, allowing DIPC a
maximum of 50%.
(c) After the elected investment of DIPC of CZK 82 million and
therefore reaching 50%, as set forth in Article 10.1 (b), all investments
are equally split between MND and DIPC.
10.2 The operating costs, and any sustaining or maintenance capital costs,
required for the Production Operation shall be funded in proportion to the
election by DIPC under the earning rights set forth in Article 10.1, from the
Joint Account except, if there is insufficient funds in the account, then the
Operator shall determine the cash requirements and issue a cash call to MND and
DIPC to fund amounts. No operation shall commence unless there are adequate
funds on account to pay for the operation.
10.3 For the purpose of implementing this Agreement, MND agrees that DIPC may
use the reserves or revenues to be earned by DIPC as security for financing,
provided that DIPC shall notify MND in advance and provided further that the
right and interest of MND under this Agreement shall not be impaired thereby.
10.4 Any Party to this Agreement may submit a proposal for Petroleum and
Production Operations. If the OPC does not unanimously approve the operation,
the Party proposing the operation may undertake the work at its own cost and
risk. If the work results in a CP Well, that Party bearing the sole risk shall,
notwithstanding Article 13, be entitled to all revenue derived from the CP well
in question until that Party has recovered:
(a) 500% of the investment from any well resulting from the sole risk
Petroleum and Production Operations in an existing field.
(b) 1,000% of the investment from a field wildcat from the sole risk
Petroleum and Production Operations.
10.4.1 Well and seismic information from the sole risk operation in
question shall be available without delay to the nonparticipating Party,
provided that the nonparticipating Party pays the costs of copying and
delivery of such information.
ARTICLE 11
PRODUCTION, LIFTING, QUALITY, QUANTITY, PRICE AND
DESTINATION OF HYDROCARBONS
11.1 The Operator in the Production Operations phase shall, in accordance with
the production profile of each CP Well, work out a hydrocarbon production plan
for each CP Well for each calendar year and carry out hydrocarbon production
pursuant to such plan.
11.2 MND shall be responsible for lifting all petroleum produced by each CP Well
drilled pursuant to this Agreement and for the transportation and marketing of
all such petroleum. Within thirty (30) days of the Date of Commencement of
Commercial Production of each CP Well, MND shall submit a petroleum lifting and
selling procedure incorporating the arrangements as advised by the Parties in
this Agreement to the OPC for approval. All expenses incurred for
transportation and marketing shall be paid and charged to the Joint Account.
11.3 Quality of the Crude Oil
11.3.1 The quality analysis of all crude oil, gaseous hydrocarbons
and associated products produced by any wells shall be undertaken at the
Delivery Point. Such analysis shall be carried out on a sample take by the
MND laboratories.
11.3.2 The crude oil quality analysis referred to in Article 11.3.1
above shall include the standard analysis, similar to Exhibit B.
11.3.3 The gas quality analysis referred to in Article 11.3.1 above
shall include the standard analysis, similar to Exhibit C.
11.4 Quantity of the Crude Oil and Gas
11.4.1 The quantity measurement of the hydrocarbons produced from
each CP Well when being lifted shall be made at a Delivery Point, and with
measuring devices as can be agreed upon by the Parties.
11.4.2 If any Party to this Agreement believes that the measuring
devices, sampling or analysis are inaccurate or has any objection to the
results specified in the above-mentioned certificates, then on-site
investigations, technical exchanges and discussions may be conducted by the
Parties to resolve the issue in a manner satisfactory to the Parties.
11.5 Determination of the Produced Hydrocarbons Price
11.5.1 The liquid hydrocarbons shall be calculated at the Delivery
Point.
11.5.2 The price of the crude oil produced from all the CP Wells
under this Agreement shall be denominated in CZK per m3 (cubic meter).
11.5.3 The price of gas produced from all wells under this
Agreement will be cited in CZK per m3 (cubic meter).
11.6 Marketing
11.6.1 MND will be responsible for managing the sale of all
hydrocarbons unless the Parties agree otherwise.
11.7 Transportation of Crude Oil
11.7.1 Hydrocarbons shall be preferentially moved on any MND
transportation system to the point of sale.
11.8 Production of Hydrocarbons
11.8.1 The Parties shall use all reasonable efforts to produce all
CP Wells at their maximum efficient rate of production.
ARTICLE 12
GROSS REVENUE AND NET REVENUE
12.1 The Parties agree that the Monthly Gross Revenue for each CP Well shall be
determined as follows:
12.1.1 Within thirty (30) days of the end of each calendar month,
the Parties shall determine the Monthly Gross Production of hydrocarbons
for such month for each CP Well in accordance with Article 11.4.
12.1.2 The Monthly Gross Revenue for each CP Well shall be the
Monthly Gross Production for such well multiplied by the hydrocarbon price
determined in accordance with Article 11.5 converted to CZK.
12.2 The Parties agree that the Monthly Net Revenue of such CP Well shall be the
Monthly Gross Revenue for such well less the following amounts only and no
others:
12.2.1 Royalty and production and exploration areas rental as set forth
in the Czech Mining and Geological Laws.
12.2.2 The operating costs associated with producing the hydrocarbons
generating the Monthly Gross Revenue for each CP Well shall be determined by the
OPC when the Program for each CP Well is first approved under Article 5.2.1. A
maximum and minimum cost for each well shall be determined by MND prior to the
commencement of first production for each calendar year and submitted to the OPC
for approval one month prior to the OPC meeting.
12.2.3 The Parties agree that according to the Czech Mining Law and
associated Law No. 168 and 169/1993 plugging and abandonment trust fund must be
created for every CP well operated under this agreement (production, injection
and observing).
Fund must created for all wells on the field which are used in the process of
production that means also injection and observing wells.
ARTICLE 13
ALLOCATION OF NET REVENUE
13.1 Within five days of receipt of funds into the Joint Account for the sale of
Monthly Gross Production, the Operator shall distribute to MND and DIPC in
proportion to their earning right set forth in Article 10.1 in Czech Crowns.
ARTICLE 14
TRAINING OF LOCAL PERSONNEL AND TRANSFER OF TECHNOLOGY
14.1 In the course of the implementation of this Agreement, DIPC shall apply in
the Petroleum Operations its appropriate and advanced technology and managerial
experience, including its proprietary technology, e.g. patent, know-how or other
technology. DIPC may from time to time train MND personnel and transfer
technology, know-how and experience, and the data and/or information agreed by
the Parties subject to appropriate Confidentiality and Patent Agreements to MND
and its affiliates. DIPC shall propose to the OPC training programs for up to 6
man weeks per calendar year. Costs are to be covered by the Joint Account.
ARTICLE 15
OWNERSHIP OF ASSETS AND DATA
15.1 All assets purchased, installed or constructed and all data collected under
this Agreement shall be owned according to the elected earning levels of DIPC
according to Article 10.1.
ARTICLE 16
TAXATION
16.1 Each Party shall pay taxes to the Government of the Czech Republic subject
to the tax laws and regulations of the Czech Republic.
ARTICLE 17
ASSIGNMENT
17.1 Any Party under this Agreement may assign part or all of its rights and/or
obligations under this Agreement to any third party, provided that such
assignment shall be guaranteed in writing that no such assignment shall
interfere with the performance of the Petroleum and Production Operations. The
complete documentation of the assignment shall be submitted in writing to the
Parties, who shall approve the assignment within thirty (30) days of receipt.
Such an approval shall not be unreasonably withheld.
ARTICLE 18
FORCE MAJEURE
18.1 Except in respect of the making of any payments hereunder, no Party to this
Agreement shall be considered in default of the performance of any of its
obligations hereunder, and the timeframes hereunder will be suspended, if any
failure to perform or any delay in performing its obligations is in conformity
with all the events described as follows:
(a) the performance of any obligations hereunder is prevented,
hindered or delayed because of any event or combination of events which
could not be foreseen and/or which is beyond the control of such Party;
(b) any such event or combination of events is the direct cause of
preventing, delaying or hindering of such Party performance of its
obligations hereunder, and
(c) when any such event or combination of events has occurred, such
Party has taken all reasonable actions to overcome any cause that prevents,
hinders or delays performance of its obligations and shall insofar as is
practical continue to perform its obligations hereunder.
18.2 Notice of any event of force majeure and the conclusion thereof shall
forthwith be given to the other Party by the Party claiming force majeure. The
Party claiming force majeure shall within a reasonable period of time furnish to
the other Party documentation issued by the relevant authorities and/or some
other evidence of force majeure, as necessary.
18.3 In the event of force majeure, the Parties shall immediately consult in
order to find an equitable solution thereto and shall use all reasonable
endeavors to minimize the consequences of such force majeure.
ARTICLE 19
CONSULTATION AND ARBITRATION
19.1 The Parties shall make their best efforts to settle amicably through
consultation any dispute arising in connection with this Agreement.
19.2 Any dispute mentioned in Article 19.1 that has not been settled through
such consultation within thirty (30) days after the dispute arises, may be
referred to arbitration at the request of and by either Party to this Agreement.
The arbitration shall be conducted in accordance with the following provisions.
19.2.1 The ad hoc arbitration tribunal shall consist of three (3)
arbitrators. The Parties shall each appoint an arbitrator and the two
arbitrators so appointed shall designate a third arbitrator. If one of the
Parties does not appoint its arbitrator within thirty (30) days after the
first appointment, or if the two arbitrators once appointed fail to appoint
the third within thirty (30) days after the appointment of the second
arbitrator, the relevant appointment shall be made by the Arbitration
Institute of the Stockholm Chamber of Commerce, Sweden.
19.2.2 The third arbitrator shall be a citizen of a country which
has formal diplomatic relations with both the Czech Republic and the home
countries of any companies comprising DIPC, and shall not have any economic
interests or relationship with the Parties.
19.2.3 The place of arbitration shall be determined by the Parties
through consultations or, failing the agreement of the Parties within
thirty (30) days after the appointment of the third arbitrator, by the
majority of arbitrators of the ad hoc arbitration tribunal.
19.2.4 The ad hoc arbitration tribunal shall conduct the
arbitration in accordance with the arbitration rules of the United Nations
Commission on International Trade Law ("UNCITRAL") of 1976. However, if
the above-mentioned arbitration rules are in conflict with the provisions
of this Article 19, including the provisions concerning appointment of
arbitrators, the provision of this Article 19 shall prevail.
19.3 Both the Czech and English languages shall be official languages used in
the arbitral proceedings. All hearing materials, statements of claim or
defense, awards and the reasons supporting them shall be written in both Czech
and English.
19.4 Any award of the arbitration tribunal shall be final and binding upon the
Parties.
19.5 The right to arbitrate disputes under this Agreement shall survive the
termination of the Agreement.
ARTICLE 20
EFFECTIVENESS OF THIS AGREEMENT
20.1 All annexes to this Agreement shall be regarded as integral parts of the
Agreement. If there is any inconsistency between the provisions of annexes and
the main body of the Agreement, the main body of the Agreement shall prevail.
20.2 This Agreement may be terminated by either Party giving notice to the OPC
that commercial production from the AMI is no longer viable. Any Party giving
notice shall offer the assignment of its interest under this Agreement to the
other Parties.
ARTICLE 21
ENVIRONMENTAL BASELINE STUDY
21.1 An Environmental Study will be performed by DIPC to establish a baseline
for future operations of the Parties.
21.2 The study will be paid for by DIPC.
21.3 DIPC in no way shall be responsible for environmental damage or impairment
that predates the Effective Date of this Agreement. The existing environmental
damage or impairment within the AMI shall be determined from the Environmental
Study.
ARTICLE 22
THE APPLICABLE LAW
22.1 The validity, interpretation and implementation of this Agreement shall be
governed by the laws of the Czech Republic. Failing the relevant provisions of
the laws of the Czech Republic for the interpretation or implementation of the
Agreement, the principles of the applicable laws widely used in petroleum
resource countries acceptable to the Parties shall be applicable.
22.2 If a material change occurs to DIPC's economic benefits after the effective
date of the Agreement due to the promulgation of new laws, decrees, rules and
regulations or any amendment to the applicable laws, decrees, rules and
regulations made by the Government of the Czech Republic, the Parties shall
consult promptly and make necessary revisions and adjustments to the relevant
provisions of the Agreement in order to maintain DIPC's reasonable economic
benefits hereunder.
ARTICLE 23
LANGUAGE OF AGREEMENT AND WORKING LANGUAGE
23.1 The text of this Agreement, annexes and supplementary documents attached
hereto shall be written in both Czech and English languages, and both versions
shall have equal force and effect.
23.2 The Parties agree that both Czech and English shall be used as working
languages. After the implementation date of this Agreement, technical documents
and information concerning the Petroleum and Production Operations hereunder
shall, in general, be written in English except for technical documents and
information available previously and from third parties.
Unless otherwise agreed by MND, documents and information in respect of
administration shall be written in both Czech and English. Forms for production
and other reports and records shall be printed with headings in both Czech and
English and may be filled out in either Czech or English.
ARTICLED 24
MISCELLANEOUS
24.1 All notices under the Agreement shall be in writing and effective only when
received by either Party to the Agreement. The notices and documents of the
Parties shall be delivered by hand or sent by mail, registered air mail,
facsimiles, telex or cable to the address hereunder specified;
ADDRESS OF MND: SIGNATURES
Uprkora 6
695 30 Hodonin /s/ Frauf. Bednarik
Czech Republic
Tel: (42) 628 523 359 Signature
Fax: (42) 628 214 55 Name
ADDRESS OF DIPC:
Caledonia House
P. O. Box 1043 /s/ M. A. Schuepbach, President
George Town
Grand Cayman Signature
Cayman Islands Name
PROMISSORY NOTE
[Amount] [Date]
EnergyGlobal AG, a Liechtenstein corporation, with offices at 7 Staedtle, 9490
Vaduz Liechtenstein ("Maker"), for value received, hereby promises and agrees to
pay unto ("Payee"), in lawful money
------------------------------------------
of the sum of , to be repaid by the Maker in
---------- ---------------
accordance with the terms and conditions hereof.
It is understood that the principal amount set forth above is the amount which
may be drawn by Maker from Payee as repayment for earlier advance.
Payment of all sums advanced to Maker by Payee made on [date of note], and
hereunder shall be made by Maker to Payee in full on [due date]. The Maker will
make an annual interest payment of 10%, first payment due with the principal on
[due date].
Maker may prepay the amount hereunder in whole or in part at any time prior to
the above date at Maker's election.
If default is made in the payment of this Note at maturity, Maker agrees and is
also to pay to the owner and holder of this Note a reasonable amount as
attorney's or collection fees in connection with the collection efforts, if any,
by Payee hereunder.
Maker irrevocably agrees to execute a separate Loan Agreement with Payee
covering the above debt by Maker to Payee upon first demand by Payee.
EnergyGlobal AG
per:
LIST OF HOLDERS OF PROMISSORY NOTES
<TABLE>
<CAPTION>
Date of Note/
Payee Amount/Currency(1) Original Due Date Amended Due Date
<S> <C> <C> <C>
Oxbridge Limited $800,000 April 4, 1996 April 4, 2000
United States Dollars April 4, 1997
Oxbridge Limited $200,000 April 11, 1996 April 11, 2000
United States Dollars April 11, 1997
Oxbridge Limited $90,000 April 18, 1996 April 18, 2000
United States Dollars April 18, 1997
Oxbridge Limited $200,000 April 18, 1996 April 18, 2000
Canadian Dollars April 18, 1997
Oxbridge Limited $100,000 May 15, 1996 May 15, 2000
United States Dollars May 15, 1997
Rockwell International Ltd. 17,000 Swiss Francs February 15, 1996 February 15, 2000
February 15, 1997
Rockwell International Ltd. 8,500 Deutschmarks February 15, 1996 February 15, 2000
February 15, 1997
Rockwell International Ltd. 200,000 Deutschmarks March 15, 1996 March 15, 2000
March 15, 1997
Rockwell International Ltd. $120,000 March 27, 1996 March 27, 2000
Canadian Dollars March 27, 1997
Rockwell International Ltd. $100,000 April 1, 1996 April 1, 2000
Canadian Dollars April 1, 1997
Rockwell International Ltd. $137,761 May 7, 1996 May 7, 2000
Canadian Dollars May 7, 1997
Rockwell International Ltd. $220,000 June 18, 1996 June 18, 2000
Canadian Dollars June 18, 1997
Rockwell International Ltd. $10,200 February 15, 1996 February 15, 2000
United States Dollars February 15, 1997
Rockwell International Ltd. $8,500 February 15, 1996 February 15, 2000
United States Dollars February 15, 1997
Rockwell International Ltd. $8,500 February 15, 1996 February 15, 2000
United States Dollars February 15, 1997
Rockwell International Ltd. $200,000 March 3, 1996 March 3, 2000
United States Dollars March 3, 1997
Rockwell International Ltd. $12,000 April 1, 1996 April 1, 2000
United States Dollars April 1, 1997
Rockwell International Ltd. $108,000 April 2, 1996 April 2, 2000
United States Dollars April 2, 1997
Rockwell International Ltd. $500,000 June 24, 1996 June 24, 2000
United States Dollars June 24, 1997
Conquest Finance Corporation $2,000 January 12, 1996 January 12, 2000
Canadian Dollars January 12, 1997
Conquest Finance Corporation 50,000 Deutschmarks March 5, 1996 March 5, 2000
March 5, 1997
Conquest Finance Corporation 9,000 Deutschmarks March 24, 1996 March 24, 2000
March 24, 1997
Conquest Finance Corporation $853,509 July 7, 1996 July 7, 2000
United States Dollars July 7, 1997
Conquest Finance Corporation $9,000 December 12, 1995 December 12, 1999
United States Dollars December 12, 1996
W.R. Financial Consultants Ltd. $100,000 December 6, 1995 December 6, 1999
United States Dollars December 6, 1996
W.R. Financial Consultants Ltd. $30,030 December 12, 1995 December 12, 1999
United States Dollars December 12, 1996
W.R. Financial Consultants Ltd. $35,000 February 10, 1996 February 10, 2000
United States Dollars February 10, 1997
W.R. Financial Consultants Ltd. $250,000 February 10, 1996 February 10, 2000
United States Dollars February 10, 1997
W.R. Financial Consultants Ltd. $48,800 February 25, 1996 February 25, 2000
Canadian Dollars February 25, 1997
W.R. Financial Consultants Ltd. $37,354.04 February 26, 1996 February 26, 2000
Canadian Dollars February 26, 1997
W.R. Financial Consultants Ltd. $25,000 May 16, 1996 May 16, 2000
United States Dollars May 16, 1997
W.R. Financial Consultants Ltd. $25,000.50 August 16, 1996 August 16, 2000
United States Dollars August 16, 1997
W.R. Financial Consultants Ltd. $30,000 September 4, 1996 September 4, 2000
United States Dollars September 4, 1997
Sonanini Holdings Ltd. $100,000 April 29, 1996 April 29, 2000
United States Dollars April 29, 1997
Sonanini Holdings Ltd. $20,000 May 7, 1996 May 7, 2000
United States Dollars May 7, 1997
Sonanini Holdings Ltd. $20,000 July 10, 1996 July 10, 2000
United States Dollars July 10, 1997
Slovgold AG 19,000 Deutschmarks June 15, 1995 June 15, 1999
June 15, 1996
Slovgold AG 33,000 Swiss Francs June 15, 1995 June 15, 1999
June 15, 1996
Mr. Wolfgang Rauball $20,000 October 4, 1995 October 4, 1999
Canadian Dollars October 4, 1996
Mr. Wolfgang Rauball 40,000 Deutschmarks March 8, 1996 March 8, 2000
March 8, 1997
</TABLE>
[FN]
(1) According to financial reports appearing in The Wall Street Journal, as of
January 31, 1997, the currency exchange rate was $0.7021 United States
Dollars for each Swiss Franc, $0.6102 United States Dollars for each
Deutschmark, and $0.7423 United States Dollars for each Canadian Dollar.
LIST OF SUBSIDIARIES OF
EUROGAS, INC.
1. GlobeGas B.V., organized under the laws of the Kingdom of the Netherlands
2. Energy Global A.G., organized under the laws of Liechtenstein
3. Pol-Tex Methane, Sp. z.o.o., organized under Polish law
4. McKenzie Methane Ribnik Sp. z.o.o., organized under Polish law
5. McKenzie Methane Jastrzebie Sp. z.o.o., organized under Polish law
6. Danube International Petroleum Company, a Texas corporation
7. Danube International Petroleum Company B.V., organized under the laws of
the Kingdom of the Netherlands
8. Danube International Petroleum Company, A.S., organized under the laws of
the Czech Republic
9. Danube International Petroleum Company, A.S., organized under the laws of
Slovakia
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE BALANCE SHEET AS OF DECEMBER 31, 1995, AND STATEMENTS OF OPERATIONS FOR THE
FISCAL YEAR ENDED DECEMBER 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 72,212
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 8,251
<CURRENT-ASSETS> 103,713
<PP&E> 9,430,855
<DEPRECIATION> 1,955,074
<TOTAL-ASSETS> 7,680,367
<CURRENT-LIABILITIES> 6,611,623
<BONDS> 0
<COMMON> 32,974
0
2,392
<OTHER-SE> (2,978,372)
<TOTAL-LIABILITY-AND-EQUITY> 7,680,367
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 4,009,113
<OTHER-EXPENSES> 700,440
<LOSS-PROVISION> 4,709,553
<INTEREST-EXPENSE> 644,991
<INCOME-PRETAX> (4,709,553)
<INCOME-TAX> (468,148)
<INCOME-CONTINUING> (4,241,405)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,327,581)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
