SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 33-1381-D
EuroGas, Inc.
(Exact name of registrant as specified in its charter)
Utah 87-0427676
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
942 East 7145 South, #101A
Midvale, Utah 84047
(Address of principal executive offices) (Zip Code)
(801) 255-0862
(Registrant's telephone number, including area code)
N/A
(Former name, former address, and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by court.
Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS
As of November 9, 1998, the Issuer had 69,965,179 shares of its common
stock, par value $0.001 per share, issued and outstanding.
PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GENERAL
EuroGas, Inc. (the "Company"), files herewith unaudited condensed
consolidated balance sheets as of September 30, 1998 and December 31, 1997 (the
Company's most recent year end), and unaudited condensed consolidated statements
of operations for the three and nine month periods ended September 30, 1998 and
1997, unaudited condensed consolidated statements of cash flows for the nine
months ended September 30, 1998 and 1997, together with the unaudited condensed
notes thereto. In the opinion of management of the Company, such financial
statements reflect all adjustments necessary to fairly present the financial
condition, results of operations, and cash flows of the Company for the interim
periods presented. These financial statements should be read in conjunction
with the audited financial statements of the Company and the notes thereto
included in the Company's annual report on Form 10-KSB for the year ended
December 31, 1997.
FORWARD LOOKING INFORMATION MAY PROVE INACCURATE
This report on Form 10-Q 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 establishing beneficial
relationships with industry partners to provide funding and expertise to the
projects of the Company, 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
completing 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.
EUROGAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
1998 1997
------------- ------------
ASSETS
Current Assets
Cash and cash equivalents $12,062,482 $17,247,667
Value added tax receivables 541,071 173,691
Receivable from joint venture partner 375,100 -
Receivable from related party 1,100,000 -
Other current assets 118,985 29,370
----------- ------------
Total Current Assets 14,197,638 17,450,728
----------- ------------
Investment in securities available-for-sale 897,248 -
Property and Equipment
Oil and gas properties subject
to amortization 9,879,008 -
Oil and gas properties not subject
to amortization 25,110,037 22,723,660
Other mineral interest property 1,032,562 -
Other property and equipment 1,089,383 1,010,772
----------- ------------
37,110,990 23,734,432
Less: accumulated depreciation (770,433) (767,177)
----------- ------------
Net Property and Equipment 36,340,557 22,967,255
----------- ------------
Other Assets 639,307 336,560
----------- ------------
Total Assets $52,074,750 $40,754,543
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 2,261,643 $ 1,532,949
Accrued liabilities 3,078,272 3,420,042
Accrued income taxes 804,297 753,306
Notes payable - current portion 1,493,949 1,107,944
Notes payable to related parties -
current portion 845,868 1,270,547
------------ ------------
Total Current Liabilities 8,484,029 8,084,788
------------ ------------
Long-Term Debt
Notes payable 349,284 2,246,773
Notes payable to related parties - 911,016
------------ ------------
Total Long-Term Debt 349,284 3,157,789
------------ ------------
Stockholders' Equity
Preferred stock, $.001 par value; 3,661,968
shares authorized; 2,397,728 shares issued
and outstanding; $5,999,197 liquidation
preference at September 30, 1998 2,398 2,392
Common stock, $.001 par value; 325,000,000
shares authorized; issued and outstanding
68,430,123 shares at September 30, 1998 and
62,283,934 shares in 1997 68,430 62,284
Additional paid-in capital 82,321,462 61,659,345
Other comprehensive income (674,353) (14,749)
Accumulated deficit (38,476,500) (32,197,306)
------------ ------------
Total Stockholders' Equity 43,241,437 29,511,966
------------ ------------
Total Liabilities and Stockholders' Equity $ 52,074,750 $ 40,754,543
============ ============
The accompanying notes are an integral part of these financial statements.
EUROGAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------- -------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sale of Property Interest $ - $ 500,000 $ - $ 500,000
----------- ----------- ----------- -----------
Operating Expenses
Cost of property interest sold - 500,000 - 500,000
Impairment of mineral interests
in property - 1,972,612 - 1,972,612
Depreciation and valuation allowance 13,153 - 19,066 10,268
General and administrative expense 2,296,043 3,375,010 6,553,759 6,466,166
----------- ----------- ----------- -----------
Total Operating Expenses 2,309,196 5,847,622 6,572,825 8,949,046
----------- ----------- ----------- -----------
Other Income (Expense)
Interest income 543,653 219,558 857,615 231,808
Interest expense 36,711 (268,817) (286,128) (789,325)
Exchange gains (losses), net (57,093) 191,859 (67,507) 239,015
----------- ----------- ----------- -----------
Other Income (Expense), Net 523,271 142,600 503,980 (318,502)
----------- ----------- ----------- -----------
Net Loss (1,785,925) (5,205,022) (6,068,845) (8,767,548)
Dividends Applicable to Preferred
Shares 142,706 198,471 210,349 372,607
----------- ----------- ----------- -----------
Loss Applicable to Common Shares $(1,928,631) $(5,403,493) $(6,279,194) (9,140,155)
=========== =========== =========== ===========
Basic and Diluted Loss Per
Common Share $ (0.03) $ (0.09) $ (0.10) $ (0.17)
=========== =========== =========== ===========
Weighted Average Number of Common
Shares Used in Per Share Calculation 66,456,970 58,108,511 63,918,059 52,612,078
=========== =========== =========== ===========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
EUROGAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine Months
Ended September 30,
----------------------------
1998 1997
------------ ------------
Cash Flows From Operating Activities
Net loss $ (6,068,845) $ (8,099,715)
Adjustments to reconcile net loss to cash
provided by operating activities:
Impairment of mineral interests in properties - 1,972,612
Depreciation and amortization 19,066 10,268
Exchange loss 67,507 239,016
Issuance of stock as financing and for
services 348,625 -
Changes in assets and liabilities, net
of assets acquired:
Receivables (365,360) 84,641
Prepaid expenses (118,133) -
Accounts payable (621,443) (32,119)
Accrued liabilities (202,161) 843,527
Other 30,213 149,885
------------ ------------
Net Cash Used in Operating Activities (6,910,531) (4,831,885)
------------ ------------
Cash Flows From Investing Activities
Acquisition of subsidiaries, net of
cash acquired - (6,314,287)
Purchases of mineral interests, property
and equipment (4,130,785) (1,621,438)
Increase in deposits and prepayments (308,290) (4,000,000)
Receivable from related party (1,100,000) -
Investment in securities available-for-sale (1,408,200) -
Proceeds from sale of interest in gas property - 500,000
------------ ------------
Net Cash Used In Investing Activities (6,947,275) (11,435,725)
------------ ------------
Cash Flows From Financing Activities
Proceeds from issuance of notes payable -
related parties - 1,444,128
Principal payments on notes payable to
related parties (997,556) -
Proceeds from issuance of notes payable - (2,638,022)
Principal payments on notes payable (2,855,384) -
Proceeds from issuance of common stock, net
of offering costs 12,487,500 33,500,000
Proceeds from exercise of stock options 150,000 -
Dividends paid on preferred stock (260,141) -
------------ ------------
Net Cash Provided By Financing Activities 8,524,419 32,306,106
------------ ------------
Effect of Exchange Rate Changes on Cash
and Cash Equivalents 148,202 -
------------ ------------
Net Increase (Decrease) In Cash and
Cash Equivalents (5,185,185) 16,038,496
Cash and Equivalents at Beginning of Period 17,247,667 642,605
------------ ------------
Cash and Equivalents at End of Period $ 12,062,482 $ 16,681,101
============ ============
The accompanying notes are an integral part of these financial statements.
EUROGAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
For the Nine Months
Ended September 30,
---------------------------
1998 1997
------------ -----------
Supplemental Disclosure of Cash Flow Information
Cash paid for interest $ 300,557 $ -
============ ===========
Supplemental Schedule of Noncash Investing and Financing Activities
During the nine months ended September 30, 1998, the Company accrued
dividends on preferred shares in the amount of $210,349. During the third
quarter of 1998, shareholders converted 8,000 shares of Series B preferred
stock into 3,486,728 common shares and were issued 48,961 common shares for
accrued dividends on the Series B preferred shares in the amount of $107,144.
During March 1998, the Company exercised its option to acquire a 16% carried
interest in the Beaver River oil and gas project in British Columbia, Canada
for $300,000 and 2,400,000 shares of common stock. The acquisition was
recorded at $7,875,000.
During June 1997 the Company acquired all of the outstanding common stock of
OMV (Jakutien) Exploration Gesellschaft m.b.H., (OMVJ) for $6,252,724 cash,
expenses related to the acquisition of $75,580, a stock option to purchase
2,000,000 shares of common stock exercisable at $4.00 to $6.00 per share,
and a 5% interest in OMVJ's net profits. The fair value of the stock option
on the date granted was $1,150,000. The fair value of the OMVJ net assets
was $7,478,304.
During June 1997, long-term notes payable of $3,950,000, and accrued
interest of $102,101 were converted into 1,485,964 shares of common stock at
an average conversion rate of $2.67 per share.
During May 1997, the Company issued 15,000 shares of 1997 Series A
Preferred Stock for net cash of $13,500,000. In conjunction with the
issuance, commissions were paid in the form of 50,000 shares of common stock.
During June 1997, an option was exercised and a subscription was received
for the issuance of 2,999,999 shares of common stock at $2.50 per share.
During July 1997, $7,500,000 in cash was received for the subscription.
During June 1997, the Company issued 1,430,000 shares of common stock at
$7.00 per share for a subscription received. During August 1997, $10,010,000
in cash was received for the subscription.
During July 1997, 1,250,000 shares of 1996 Series preferred stock along with
$72,774 in related accrued preferred dividends were converted into 2,500,001
shares of common stock. In addition, 10,825.5 shares of 1997 Series
preferred stock and $156,948 of related accrued preferred dividends were
converted into 1,772,246 shares of common stock from July through September
1997.
During September 1998, the company acquired a 51% interest in Envigco S.r.o.
for $1,500,000 through a cash payment of $500,000 and by incurring a
liability for the remainder in the amount of $1,000,000.
The accompanying notes are an integral part of these financial statements.
EUROGAS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - SIGNIFICANT ACCOUNTING PRINCIPLES
CONDENSED FINANCIAL STATEMENTS - The accompanying condensed consolidated
financial statements have been prepared by the Company and are not audited.
In the opinion of management, all adjustments necessary for a fair
presentation have been included, and consist of only normal recurring
adjustments. These financial statements are condensed and, therefore, do
not include all disclosures normally required by generally accepted
accounting principles. These statements should be read in conjunction with
the Company's most recent annual financial statements included in the
Company's report on Form 10-K for the year ended December 31, 1997. The
results of operations presented in the accompanying financial statements are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1998.
LOSS PER SHARE - Basic loss per common share is computed by dividing net
loss available to common stockholders by the weighted-average number of
common shares outstanding during the period. Diluted earnings per share
during periods of income reflect potential dilution which could occur if all
potentially issuable common shares from stock purchase warrants and options
or convertible notes payable and preferred stock resulted in the issuance of
common stock. In the company's present position, diluted loss per share is
the same as basic loss per share because 18,251,746 and 13,450,000
potentially issuable common shares at September 30, 1998 and 1997,
respectively, would have decreased the loss per share and have been excluded
from the calculation.
NEW ACCOUNTING STANDARDS - During 1998, the Company adopted the following
Statements of Financial Accounting Standards (SFAS). SFAS No. 130, Reporting
Comprehensive Income, requires the components of comprehensive income to be
disclosed in financial statements. SFAS No. 131, Disclosure About Segments
of an Enterprise and Related Information, requires certain information to be
reported about operating segments on a basis consistent with the Company's
internal organizational structure and the presentation revenue and total
assets by country. These disclosures are required beginning with the
Company's annual financial statement for 1998. To the extent applicable to
interim financial statements, the required disclosures from these new
standards are provided herein.
Loss Per Share - In the fourth quarter of 1997, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share". Prior periods have been restated to conform to the requirements of
SFAS No. 128. Basic loss per common share is computed by dividing net loss
available to common stockholders by the weighted-average number of common
shares outstanding during the period. Diluted loss per share reflects
potential dilution which could occur if all potentially issuable common
shares from stock purchase warrants and options or convertible notes payable
resulted in the issuance of common stock. In the Company's present
position, diluted loss per share is the same as basic loss per share because
potentially issuable common shares would decrease the loss per share and
have been excluded from the calculation.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS 133), "Accounting for
Derivative Instruments and Hedging Activities". SFAS 133 establishes
accounting and reporting standards requiring that every derivative
instrument, including certain derivative instruments embedded in other
contracts, be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the
hedged item in the income statement, and requires that a company must
formally document, designate and assess the effectiveness of transactions
that receive hedge accounting. SFAS 133 is effective for fiscal years
beginning after June 15, 1999 and will not require retroactive restatement
of prior period financial statements. The company has not yet quantified the
impact of adopting SFAS 133 on its financial statements, but does not expect
the impact to be material.
DERIVATIVE FINANCIAL INSTRUMENTS - The Company and its international
subsidiaries occasionally incur obligations payable in currencies other than
their functional currencies. This subjects the Company to the risks
associated with fluctuations in foreign currency exchange rates. The Company
does not reduce this risk by utilizing hedging. The amount of risk is not
material to the Company's financial position or results of operations.
NOTE 2 - STOCKHOLDERS' EQUITY
During May and September 1998, the Company issued 13,500 shares of a
newly-created 1998 Series B Convertible Preferred Stock (Series B) in an
ongoing private placement. The Company has designated 30,000 shares of the
Series B shares with a par value of $0.001 per share and a liquidation
preference of $1,000 per share plus all accrued but unpaid dividends. The
Series B shares are non-voting and bear a dividend rate of 6% per annum.
Dividends may be paid in shares of the Company's common stock at its option.
Eight Thousand Series B shares were issued during May 1998 for $7,400,000,
net of finders' fees of $600,000. An additional finders' fee was also paid
by the issuance of 50,000 common shares valued at $262,500 or $5.25 per
share. Each of the 8,000 Series B shares issued during May were convertible
into common stock at the rate of $1,000 plus any accrued but unpaid
dividends through the conversion date, divided by the lesser of 125% of the
average closing price five trading days prior to issuance of the Series B
shares or 80% of the average closing price five trading days prior to
conversion. During the third quarter 1998, the 8,000 Series B shares were
converted into 3,486,728 common shares at a weighted-average price of $2.29
per share. In connection with the conversion, 48,961 common shares were
issued for $107,144 of accrued dividends on the converted Series B shares at
$2.19 per common share.
During September 1998, 5,500 Series B shares were issued to the same
investors for proceeds of $5,087,500 net of finders' fees of $412,500. The
annual dividend requirement for the Series B shares outstanding at September
30, 1998 is $330,000. These Series B shares are similarly convertible into
that number of shares of common stock at the rate of $1,000, plus any
accrued but unpaid dividends through the conversion date, divided by the
lesser of 125% of the average closing price five trading days prior to
issuance of the Series B shares, or 85% of the average closing price five
trading days prior to conversion.
The Company retains the rights to issue an additional 4,000 shares to a
maximum 16,500 Series B shares every 30 days beginning January 1, 1999 if
the common stock of the Company is trading in excess of $3.00 per share or
if the subscribers otherwise consent, at $1,000 per share less commissions
of 71/2%. The Company filed a registration statement with the U.S.
Securities and Exchange Commission relating to the common stock underlying
the Series B shares. The registration statement became effective on August
7, 1998. The Company is required to maintain the effective status of the
registration statement for the period the Series B shares remain outstanding.
The Company issued 20,500 common shares during 1998 which were valued at
$86,117 for financing fees and for services. In addition, 2,400,000 shares
were issued in 1998 in connection with the acquisition of an interest in the
Beaver River Project described in Note 3. The Company issued 100,000 common
shares during 1998 upon the exercise of stock options for $150,000.
NOTE 3 - ACQUISITIONS AND INVESTMENTS
In March 1998, the Company exercised its option to acquire a 16% carried
interest in the Beaver River Project in British Columbia, Canada in exchange
for $300,000 and the issuance of 2,400,000 shares of its common stock which
were valued at $3.16 per share. The acquisition has been valued at
$7,875,000. The interest in the Beaver River Project has been classified as
oil and gas properties not subject to amortization in the accompanying
condensed consolidated balance sheet as of September 30, 1998. The Company
retains the right to purchase back 1,900,000 of the 2,400,000 common shares
any time prior to April 15, 1999 by returning the carried interest, if the
Company determines that the results produced do not warrant the continued
holding of the carried interest.
The Company acquired 993,333 units of United Gunn Resources, Ltd. (each unit
consisting of one share of common stock and one warrant) through a private
placement subscription agreement for $962,398 during the quarter ended March
31, 1998. United Gunn Resources, Ltd. holds an approximate 12% working
interest in the Beaver River Project. During the second quarter of 1998 the
Company acquired an additional 528,500 shares of equity securities of United
Gunn through market purchases at a cost of $448,894. Through the purchase
of equity securities the Company holds 8.7% of the outstanding United Gunn
Shares as of September 30, 1998. The investment in United Gunn Resources,
Ltd. has been accounted for as a noncurrent investment in securities
available-for-sale and is carried at market value. During the second and
third quarters an unrealized loss in the amount of $514,044 on securities
available-for-sale resulted from the decline in the trading value of the
United Gunn Investment and is presented in the financial statements as a
component of other comprehensive loss.
During the third quarter of 1998, the Company posted a refundable cash bond
of $337,723 which will allow the Company to purchase an interest in an
operating oil refinery in Slovenia. If negotiations are successful, the
Company will be required to pay cash and issue common stock to complete the
acquisition. The refundable bond has been included as a long-term other
asset in the accompanying financial statements.
During September 1998, the Company acquired a 51% interest in Envigco
s.r.o., a Slovakian private company, which owns a 2,300 square kilometer
concession in the north east corner of Slovakia. The concession expires in
August 2001. The company paid $500,000 at the date of the acquisition and
has an obligation to pay $1,000,000 by December 31, 1998; however, the due
date of that payment is being renegotiated.
As further described in Subsequent Events, the Company has entered into an
agreement to acquire a 31% interest in Big Horn Resources Ltd.
NOTE 4 - MINERAL INTEREST PROPERTIES
In August 1997, the Company entered into an agreement with a subsidiary of
Texaco for the exploration and potential development of the Company's coal
bed methane gas interests held by a concession in Poland. The property
interest was transferred to Texaco in exchange for a $500,000 initial
payment and a 14% carried interest in the net profits from the property and
Texaco would pay all of the costs of the initial phase of exploration of the
property. Texaco agreed to either return the concession to the Company at
the conclusion of the initial phase or pay $2,500,000 in December 1998 and
continue with phase 2 of the exploration and development of the property.
Texaco has informed the Company that it has elected not to proceed with
phase 2 of the agreement between the companies. Texaco has stated that the
testing results from the exploration wells it has drilled do not meet the
financial criteria of Texaco. Management of the Company is currently
discussing the return of the methane gas concession with Texaco and is
evaluating the recoverability of the Company's $8,800,000 investment in the
concession. Although the evaluation has not been completed, management has
preliminarily determined that estimated net future cash flows from the
property will likely support the carrying value of the property if the
concession is returned. The Company plans to continue to pursue development
of the coal bed methane project on this property.
An oil and gas reserve report was prepared for the Company's interests in
the Trebisov oil and gas properties in Slovakia, dated May 1, 1998, which
determined that proved reserves of oil and gas exist. The cost of that
project has been classified as oil and gas properties subject to
amortization. The wells drilled on the property have been completed and a
gas gathering system is being constructed. Amortization will begin when and
if production begins from wells on that property.
In addition to the investment in Beaver River and Envigro s.r.o. as
described above, the Company increased its oil and gas investment in the
Trebisov project in Slovakia by $2,600,395 and by $1,390,218 in the Ukraine
projects.
NOTE 5 - CHANGE IN FUNCTIONAL CURRENCY OF FOREIGN SUBSIDIARIES
Effective January 1, 1998, the Company changed the functional currencies of
the subsidiaries operating in Poland and Slovakia from the U.S. dollar to
the local currencies due to those economies ceasing to be considered highly
inflationary. The change had no effect on consolidated financial position
at the date of the change or on the consolidated results of operations for
periods prior to the change. The effect of changes in exchange rates during
the nine months ended September 30, 1998, and in the future with respect to
those subsidiaries has been and will be recognized as a separate component
of comprehensive loss whereas those changes were previously recognized in
the results of operations. Where the functional currencies of foreign
subsidiaries continue to be the U.S. dollar, financial statements are
translated into U.S. dollars using historical exchange rates and net foreign
exchange gains and losses from those subsidiaries have been reflected in the
results of operations.
NOTE 6 - RELATED PARTY TRANSACTIONS
During the nine months ended September 30, 1998, notes payable to related
parties were reduced by $997,556 with cash payments. Collection of
$1,100,000 which was paid to a related party lender in error during 1998 is
anticipated during the fourth quarter of 1998. The payment has been
accounted for as a receivable from the related party at September 30, 1998.
NOTE 7-COMPREHENSIVE LOSS
The Company adopted SFAS N0 130, "Reporting of Comprehensive Income", as of
the beginning of 1998. SFAS No. 130 establishes standards for the reporting
and display of comprehensive income or loss and its components. Other
comprehensive income of the Company consists of unrealized losses on
investment in securities available-for-sale and cumulative foreign currency
translation adjustment. SFAS No. 130 does not affect the measurement of the
items included in other comprehensive income; it only affects where those
items are displayed and how they are described. Comprehensive loss is
computed as follows:
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------- -------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Loss Applicable to Common Shares $(1,928,631) $(5,403,493) $(6,279,194) $(9,140,155
Other Comprehensive Income
Net change in unrealized loss on
securities available-for-sale (56,165) - (514,044) -
Net change in cumulative foreign
currency translation adjustment (2,390) - (145,560) -
----------- ----------- ----------- -----------
Comprehensive Loss $(1,987,186) $(5,403,493) $(6,938,798) $(9,140,155)
=========== =========== =========== ===========
</TABLE>
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company's subsidiary, GlobeGas BV, has applied for a reduction in an
income tax liability of $804,297 in the Netherlands. The tax arose from the
sale of equipment at a profit by the former owner of GlobeGas to the
Company's Poland subsidiary. The Company's position is that the gain on the
sale should not have been taxable to GlobeGas. The liability will continue
to be reflected in the Company's financial statements until the proposed
reduction is accepted by the Netherlands' tax authorities.
During a prior period, a bankruptcy trustee appointed for certain former
shareholders of GlobeGas asserted a claim to the proceeds that the Company
has received and anticipated it would receive from the sale of assets to
Texaco. The trustee's claim is apparently based upon the theory that the
Company may have paid inadequate consideration for its acquisition of
GlobeGas (which indirectly controlled the Pol-Tex Methane concession in
Poland) from former shareholders and, therefore, they are the true owners of
the proceeds received from the development of the Pol-Tex Concession in
Poland. The Company is vigorously defending against the claim. The Company
believes that the claim is totally without merit based on the fact that a
condition of a prior settlement with the principal creditor of the estate
bars any such claim, that the court has no jurisdiction over Pol-Tex Methane
or its interests held in Poland, and that the Company paid substantial
consideration for GlobeGas. During September 1998, Texaco notified the
Company of its withdrawal from the project, accordingly, no further proceeds
are anticipated. The effect on this claim of Texaco's withdrawal has not yet
been determined.
During 1997, a shareholder asserted a claim against the Company based upon
an alleged breach of the settlement agreement between the shareholder and
the Company as a result of the Company's failure to file and obtain the
effectiveness of a registration statement for the resale by the shareholder
of 100,000 shares delivered to the shareholder in connection with the
settlement. In addition, the shareholder has informed the Company and the
court that it would be entering a claim for failure to register the resale
of the shares subject to its option to purchase up to 2,000,000 shares of
the Company's common stock. The Company had denied any liability and intends
to vigorously defend the claims. The Company has filed a counterclaim
against the shareholder for breach of contract concerning its joint
activities with the bankruptcy trustee appointed for certain former
shareholders of GlobeGas.
The holders of certain registration rights have requested the Company
provide it with information concerning the delay in filing a required
registration statement. While the shareholders have not asserted a specific
legal claim against the Company to date, it may elect to do so if the
Company is unable to resolve this matter.
On January 28, 1998, the Company entered into an agreement with a public
relations firm in Europe. The firm agreed to provide for dissemination of
information regarding the Company in Germany and other European countries
for a period of one year. The Company is obligated to pay the firm $9,315
per month and granted the firm an option to purchase up to 100,000
restricted shares of common stock at $6.50 per share through January 28, 2000.
Eurogas has engaged technical and business consultants for its various
projects under terms which will require minimum payments of $1,632,000 and
$1,200,000 during the years ending December 31, 1998 and 1999, respectively.
During March of 1998, the Company was notified there may be certain title
problems related to an area of mutual interest to be explored and developed
by the Slovakian joint venture. The problem area is outside of the Trebisov
area where the Company has drilled six wells and which is unaffected by the
claim. The disputed area is located in the southern portion of the property
covered by the designations contained in the Trebisov Slovakian joint
venture agreements and is subject to a competing claim of ownership by a
private Slovakian company. To the extent the Slovakian joint venture may not
have exploration rights as previously contemplated, the Company's expansion
beyond the Trebisov area may be limited. During the second quarter the
Company entered into an agreement to acquire a controlling interest in the
disputed area which is located to the south of Trebisov. The terms of the
agreement provide for the acquisition of the competing interest in exchange
for 2,500,000 shares of restricted common stock and two year warrants
providing for the purchase of 2,500,000 shares at $2.50 per share. The
division of the working interest for this territory will then be 67 1/2% for
the Company (rather than the 50% split which governs the Trebisov area)
provided that the Company carries the cost of drilling the first two wells
in the disputed area. The cost of the acquisition of the property will be
based on the fair value of the common stock and warrants on the date the
transaction is completed less any amounts recovered or recoverable from the
former shareholders of Danube. The agreements have been sent to the
Slovakian government for appropriate registration.
The Company has notified the former shareholders of Danube of a claim
against them by reason of this recent problem. The Company believes the
owners of Danube knew or should have known about the problem prior to the
acquisition of Danube and made no disclosure concerning the problem. The
Company has made a claim against the former Danube shareholders for
indemnity to the extent the Company suffers any damage by reason of the
potential title claim. It is uncertain whether the Company will be able to
recover from the former Danube shareholders.
The Company has determined that it has an obligation to a lender in
connection with loans made principally to a subsidiary from 1995 through
1997. Management is in the process of negotiating a final agreement with the
lender to settle and determine all amounts owing, but no agreement has yet
been reached. Management has estimated that the obligation will not exceed
$1 million, which amount has been included in accrued liabilities. Because
the amount of the actual obligation has not been finally established with
the lender, it could ultimately be determined to be in excess of the amount
accrued.
In March 1998, the Company acquired a controlling interest in RimaMuran
s.r.o. whose principal asset is a minority interest in a talc deposit in
eastern Slovakia. RimaMuran has the obligation to fund 43% of the projected
$12,000,000 of capital costs over the next two and one-half years. RimaMuran
does not have the assets necessary to meet this obligation, and it is
anticipated that the necessary funding will need to be provided by the
Company. To date, the Company has invested $1,032,000 in the RimaMuran project.
The Company formed a 50/50 joint venture in June with UK National Power to
develop a power generation project in Zielona Gora, Western Poland. The
venture submitted an offer to regional power company ECZG to build a
gas-fired combined heat and power plant. The proposed power plant will
deliver 180 Mwe and 80 Mwt. The total investment will be in the range of
$150 million US dollars with National Power (UK) covering 55% of total costs
and the Company will be responsible for 45% of the costs. The Company can
also include other partners in its share of the project.
During July 1998, the Company entered into agreements which grant the right
to explore prospects within the Ukraine with two Ukrainian companies. The
agreements require the Company to fund the exploration using the licenses of
the joint venture partners for a net 70% interest in the profits until costs
are recovered, then a 50% profits interest in the projects. The Company has
recently entered into a joint venture with RWE-DEA Aktiengesellschaft for
Mineraloel and Chemie AG ("RWE-DEA") to develop selected areas in the
Ukrainian properties. Under the agreement, RWE-DEA will become the operator
of the properties and will acquire 50% of the Company's interest in the
properties.
During July 1998, the Company acquired directors and officers liability
insurance for a term of one year with a commitment of $67,500.
NOTE 9 - SUBSEQUENT EVENTS
During October 1998, the Company entered into an agreement to purchase a 31%
interest in Big Horn Resources Ltd. (Big Horn), a Canadian public oil
producing company. As an interim step of the transaction, the Company loaned
$1,600,000 to Big Horn which will be converted to Big Horn shares if the
acquisition, which is subject to Big Horn shareholders approval, is
completed.
If the transaction is completed, the Company will acquire 8,500,000 shares
of Big Horn common stock for a total purchase price of approximately
$4,700,000. The Company will receive an option to acquire all of the Big
Horn shares owned by certain Big Horn shareholders and lenders who are
also shareholders and lenders of the Company. If the option is exercised, the
Company would receive an additional 18% interest in Big Horn's common stock.
On November 13, 1997, the Company issued an additional 3,500 shares of 1998
Series B preferred stock for $3,237,500, after commissions.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
EuroGas, Inc. (the "Company"), is primarily engaged in the acquisition of
rights to explore for and exploit natural gas, coal bed methane gas, and other
hydrocarbons. The Company has acquired interests in several large exploration
concessions and is in various stages of identifying industry partners, farming
out exploration rights, undertaking exploration drilling, and seeking to develop
production.
One of the Company's early projects was a coal bed methane gas concession
in Poland that was sold in 1997, with a retained net profits interest, to a
subsidiary of Texaco, Inc. ("Texaco"). Texaco drilled six wells to complete its
appraisal and evaluation of the concession, but has recently determined not to
proceed with the project. The Company is currently studying whether or not it
wishes to attempt to reacquire the concession. The Company also holds other
concessions, MMR and MMJ, which are not affected by the Texaco decision, in
Poland.
In the fall of 1997, the Company entered into an agreement with Polish Oil
and Gas Company ("POGC") to jointly explore 1.9 million acres in which POGC
holds, or has the right to acquire, interests. The Company is presently
exploring for oil and natural gas under this agreement in southeastern Poland.
The Company has recently entered into an agreement with RWE-DEA, a large
German integrated oil and natural gas concern, to undertake a 50/50 development
of projects with various Ukrainian State and private companies to be selected by
RWE-DEA. The Company has identified several possible projects and is currently
in the process of completing a plan with RWE-DEA to proceed in the Ukraine.
The Company now has four projects in Slovakia. One is a joint venture to
develop a natural gas field with NAFTA Gbely a.s. ("NAFTA"), an energy concern
that was formerly part of the national oil and gas company. The second is the
majority ownership in an adjacent concession known as Maseva. Third is a
project for the exploration for oil and gas reserves in the Carpathian Mountains
adjacent to the Polish and Ukrainian borders. And fourth is a minority interest
in development of a talc deposit; the majority interest being held by Thyssen
Schachtbau GmbH and Dorfner AG, two leading German industrial companies.
In 1997, the Company acquired EuroGas Jakutien Exploration GmbH ("EJ"),
formerly known as OMV (Jakutien) Exploration GmbH, from OMV Group ("OMV"),
Austria's largest industrial company. EJ holds a 50% interest in a joint
venture established to explore for oil and gas in the Sakha Republic in
northeastern Siberia.
The Company holds two interests in Canada. The first is a 16% interest in
the "Beaver River" natural gas project which is an attempt to reestablish
commercial production in an old Amoco field now being explored and operated by
Wascana Energy, a wholly-owned subsidiary of Canadian Occidental Petroleum
Limited. The second is the right to acquire 31% of Big Horn Resources Ltd.
("Big Horn"), a Canadian full-service oil and gas producer. Big Horn's business
is carried on primarily in western Canada, particularly in the provinces of
Alberta and Saskatchewan, and its stock is currently traded on the Vancouver and
Toronto Stock Exchanges.
The Company has been dependent to date on equity financing to meet its
funding needs and anticipates that it will continue to be so for the foreseeable
future.
RECENT DEVELOPMENTS
Poland
Texaco has informed the Company's subsidiary, Pol-Tex Methane, that it has
elected not to proceed to phase 2 of the agreement between the companies.
Texaco has stated that the testing from the wells did not meet financial
criteria of Texaco. The Company is currently negotiating with Texaco to discuss
the return of the assets and possible acquisition of Texaco's Polish subsidiary
which conducted Phase I. The other concessions held by the Company, MMR and
MMJ, are unaffected by the Texaco decision. The Company plans to continue to
pursue development of its coal bed methane projects in Poland due to the
extensive potential the Company believes to exist there.
The Company formed a 50/50 joint venture in June with UK National Power to
develop a power generation project in Zielona Gora, Western Poland. The venture
submitted an offer to regional power company ECZG to build a gas-fired combined
heat and power plant. The proposed power plant will deliver 180 Mwe and 80MWt.
The total investment will be in the range of $150 million US dollars with
National Power (UK) covering 55% of total costs and the Company will be
responsible for 45% of the costs. The Company can also include other partners
in its share of the project and is negotiating with a major German utility
company to participate as reflected in a signed letter of intent. The Company
expects that the negotiations with ECZG will be finalized before Christmas 1998.
EuroGas Polska, a wholly-owned subsidiary of the Company, executed a joint
operations agreement with Polish Oil and Gas Company. In the framework of the
agreement, a study for the Rymanow-Lesko block (southeastern Poland) was
prepared. The results of the study, based on the seismic exploration and
geological evaluation, identified substantial potential for oil and gas
accumulations exceeding 50 billion cubic meters of gas and 60 million barrels of
oil. Further studies (seismic data processing and reservoir map preparation)
are being conducted and the final report with future drilling recommendations is
expected to be completed in February 1999.
Slovakia
As previously disclosed, the Company drilled six wells on its first
Slovakian concession in the Trebisov area in a joint venture with NAFTA. The
joint venture has completed the wells drilled and is now in the process of
arranging for construction of a gas processing plant and a tie-in to a gas
pipeline. The Company had originally believed this project would be completed
by the end of the year, but the completion date has been delayed until the
spring of 1999.
The Company recently completed an agreement to acquire a majority interest
in an adjacent oil and gas concession known as Maseva which had overlapping
claims with the Company's other concessions and expects to conduct appraisal and
exploration work in that area during 1999. The Company plans to do exploration
work consisting of "Bug Survey" and 3D Seismic activities during the first six
months of 1999. The approximate cost will be $1.5 million US to $2.5 million
US. From this, a comprehensive development plan will be drafted. The terms of
the agreement provide for the acquisition of the Maseva interest in exchange for
2,500,000 shares of restricted common stock and two year warrants providing for
the purchase of 2,500,000 shares for $2.50 per share. (Adjusted from an
original $5.00 per share warrant price because of the decline of the price of
the Company's common stock.) The division of the working interest for this
territory will now be 67.5% for the Company, rather than the 50% split which
governs the adjacent Trebisov joint venture, provided that the Company carries
the cost of drilling the first two wells in the previously disputed area. All
agreements have now been sent to Slovakia for appropriate registration.
By the purchase of the Maseva concession, the Company will solve any title
problems it had with its original venture as set forth in more detail in the
Company's prior reports and acquire additional property. The Company has
notified the former shareholders of Danube of a claim against them by reason of
the requirement to pay additional consideration for concession interests
originally represented as owned by Danube.
In September of 1998, the Company acquired a 51% interest in Envigeo
s.r.o., a Slovakian private company, which owns a 2,300 square kilometer
appraisal and survey concession in the North East corner of Slovakia, referred
to as the Carpathian Flysh region, expiring in August 2001. This region extends
into Poland and Ukraine, where extensive discoveries of oil and gas have been
found. The acquisition was made from McCallan Oil and Gas GmbH of Austria. The
total price for the 51% participation is $1,500,000 US, with an initial payment
of $500,000 US which was made in September of 1998. McCallan Oil has spent over
$300,000 US in exploratory activities over the last 18 months. The Company is
currently conducting "Bug Surveys" in the above-mentioned concession. If the
survey results are favorable, the Company intends to pursue additional
exploration and, if justified, development and production.
The Company's majority owned subsidiary, RimaMuran, and the other joint
venture participants have continued to work on the talc deposit located in
Eastern Slovakia. The Company's believes the exploitation of the talc deposit
is particularly favorable due to a strong feasibility study, the willingness of
DEG, a wholly-owned financing subsidiary of the German government, to
participate, and the presence of majority partners, Thyssen and Dorfner. The
joint venture has negotiated a non-recourse financing package which would give
DEG a 10% equity participation in the project in exchange for financing of which
9% would be contributed by RimaMuran and 1% by Thyssen and Dorfner. The
completion of the loan package is subject to the receipt by DEG of a Dorfner
guarantee to purchase a portion of the mined talc. Dorfner is now completing a
market survey to determine the amount of the guarantee it is willing to offer.
During the last 90 days, the Company has advanced $801,178 to RimaMuran to fund
its participation in the project.
Ukraine
The Company has recently entered into an agreement with RWE-DEA
Aktiengesellschaft for Mineraloel and Chemie AG ("RWE-DEA") that gives RWE-DEA
the right to select the Ukrainian companies that have promising oil and natural
gas properties for further exploration and development in the joint venture.
Under the terms of the agreement, the Company and RWE-DEA will be equal owners,
although RWE-DEA will maintain administrative control and will be the operator
with respect to any proposed activities, and of any future joint ventures with
the Company. To date, the parties have identified several potential joint
ventures to proceed with in the Ukraine.
The Company has also signed two joint operation agreements with
ZahidUkrGeologyia and Chemihivnaftogasgeologyia. The joint operation agreement
with ZahidUkrGeologyia calls for study and development of a potential oil
reservoir, in the Western Ukraine, Ortinichska, with potential reserves
exceeding 70 million barrels of oil and Kamienska natural gas reservoir with
potential reserves exceeding 20 billion cubic meters.
The project with Chemihivnaftogasgeologiya calls for evaluation of two
potential reservoirs, the Selukivska oil reservoir, with potential reserves
exceeding 100 million barrels, and the Pivdinno-Berestivska oil-gas-condensate
reservoir. In addition the Company will conduct exploration works for U-
prospect in the Donetsk-Dniepr Depression. According to Russian engineering
estimates, these multiple oil and gas exploration concessions contain potential
oil reserves exceeding 1 billion barrels, in place, and potential total gas
reserves exceeding 500 billion cubic meters, in place.
The Company has also executed a joint operation agreement with Ukraine's
largest oil company, Ukrnafta. The agreement calls for creation of a joint
venture to rejuvenate and increase the production for three producing oil
fields: Dolina and Kohanovka (Western Ukraine) and Glinsk-Rozbyshewsk (Poltava
Basin). The Dolina field is the largest producing field in the Western Ukraine,
with estimates of oil in place exceeding 1 billion barrels. The field produced
over 120 million barrels of oil and, with use of new technology, it is expected
that the field can exceed an additional 100 million barrels. The Glinsk-
Rozbyshewsk and Kohanovka fields are also estimated to have substantial
remaining reserves which could exceed over 100 million barrels. Reservoir
evaluation studies by the Company are currently underway.
The Company formed a joint venture, EuroDonGas, with MGO (Ukrainian Mining
Company) to explore and develop coal bed methane and natural gas reservoirs in
the Donetsk Coal Basin. MGO engineering documentation places the potential
recoverable reserves in excess of 20 billion cubic meters to a depth of 1500
meters. The first exploration well in the concession area will be drilled in
the first quarter of 1999. In addition, an agreement was executed to create a
new joint venture with a private Ukrainian company, Vuhlegas. The joint venture
will drill six coal bed methane/gas wells in the area of Gorska mine (Donetsk
area) as a part of a program to be financed by Global Environmental Fund of the
World Bank. This program is expected to be completed in 1999.
Canada
The Company now has two projects in Canada. The Company's original project
was an acquisition of a minority interest in an attempt to reestablish
commercial production in a large Amoco shut-in natural gas field which was
produced during the 1960s, known as the Beaver River project. The Beaver River
project, during the 1960s, was considered to be the largest natural gas field in
Canada.
The operator, Wascana Energy Inc., a wholly-owned subsidiary of Canadian
Occidental Petroleum Ltd. (CXY-AMEX), has re-completed the B-2 well and a new
salt water disposal well next to the B-2 well. Drilling operations have moved
to the A-5 well site to complete a work-over of that well. However, once
Wascana has spent all the costs required to earn its interest, the parties will
be bearing their relative percentages of the cost. It is expected the Company's
carrying costs, directly and indirectly, will be approximately $16,000 a month
as Wascana has notified the parties that it will have spent $18,000,000 CND by
December 31, 1998, but it may take up to an additional year to determine whether
or not to commence production.
In October 1998, the Company entered into an agreement with Big Horn
Resources Limited ("Big Horn") to purchase a 31% interest in Big Horn in
exchange for $6,500,000 CDN (US $4,200,000). As an interim step, the Company
lent Big Horn $2,500,000 CDN (US $1,600,000) to complete the purchase of a
company with producing properties. Completion of the transaction for issuance
of shares is subject to Big Horn shareholder approval at a meeting currently
scheduled for November 30, 1998. Big Horn currently has production equivalent
to approximately 1,000 barrels of oil per day. As part of the transaction and
included in the $4,200,000, is payment for 1,500,000 shares to be distributed
to third parties, all of which had previous relationships with the Company, and
the Company will also pay to such parties $500,000. Those third parties
arranged the Company's participation in Big Horn and granted the Company a
first right to purchase all of their interest in Big Horn. If such rights
were exercised, the Company would own an additional 18% of Big Horn.
Slovenia
The Company has entered into an arrangement to participate in a refinery
facility in Slovenia. At present, the company that controls the refinery,
"Mapetrol," is owned by the state. In order to participate, the Company was
required to post a cash bond, $337,723 US (which cash bond is refundable if the
transaction is not completed). It is anticipated that the privatization will
take a number of months after which additional cash and stock will be required
to finance the total package, all the details of which have yet to be
negotiated. The refinery is presently producing high quality lubricating oils
that have wide distribution potential.
Recent Financing
During the third quarter, the Company received another $5,500,000 from the
sale of 1998 Series B Convertible Preferred Stock pursuant to its recent
financing arrangement with net proceeds of $5,087,500 after commission. The
Company currently has an effective registration statement covering the resale of
any common shares issuable on the conversion of these shares. In addition, the
subscribers delivered another $3,500,000 on November 13, 1998, in exchange for
3,500 shares of Preferred with net proceeds to the Company of $3,237,500.
The Company retains the right to call for an additional $4,000,000 in
funding every 30 days commencing effective January 1, 1999, up to a maximum of
$13,000,000 if the common stock of the Company is trading in excess of $3.00 per
share or the subscribers otherwise consent.
Through September 30, 1998, the subscribers have converted the original
8,000 shares of the 1998 Series B Convertible Preferred Stock purchased into
3,486,728 shares of common stock at a weighted average price of $2.29 per share.
The Company also issued 48,961 shares in lieu of accrued dividends. Since
September 30, 1998, the subscribers have converted 2,500 shares of subsequently
purchased 1998 Series B Convertible Preferred Stock into 1,525,508 shares of
common stock at a weighted average price of $1.64 per share. The Company also
issued 9,547 shares of common stock in lieu of accrued dividends.
Financial Position
The Company had an accumulated deficit of $38,476,500 at September 30,
1998, most of which has been funded out of proceeds received from the issuance
of stock or debt instruments (substantial portions of which were issued to
related parties), loan proceeds, and incurring payables. The Company's
financing activities provided net cash of approximately $31 million, $8.2
million, and $2.9 million during the years ended 1997, 1996, and 1995,
respectively, and provided net cash of approximately $8,524,000 for the nine
months ended September 30, 1998. During this same period, operating activities
used net cash of $3.2 million, $4.0 million, and $2.4 million for the years
ended December 31, 1997, 1996, and 1995, respectively, and approximately
$6,910,000 for the nine months ended September 30, 1998. The Company has also
used cash to acquire mineral interests, property and equipment, either directly
or indirectly through the acquisition of subsidiaries, with $11.7 million, $3.7
million, and $1.3 million used in investing activities for the years ended
December 31, 1997, 1996, and 1995, respectively, and approximately $6,947,000
for the nine months ended September 30, 1998.
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 not 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. The Company periodically evaluates its properties for
impairment and if a property is determined to be impaired, the carrying value of
the property is reduced to its net realizable amount.
RESULTS OF OPERATIONS
The Company has not received any revenues since inception, except for the
$500,000 received from Texaco during the quarter ended September 30, 1997. The
Company does not currently have a source of ongoing revenues.
The Company had a net loss applicable to common shares for the three months
ended September 30, 1998, and 1997, of $1,928,631 and $5,403,493, respectively.
The Company had a net loss applicable to common shares for the nine months ended
September 30, 1998 and 1997, of $6,279,194 and $9,140,155, respectively.
Due to changes in exchange rates between the U.S. dollar and currencies in
the Eastern European countries in which the Company operates, the Company is
subject to fluctuations in currency exchange rates that can result in the
recognition of significant gains or losses during any period. The Company had
an exchange loss in the amount of $57,093 for the three months ended September
30, 1998, and an exchange loss of $67,507 for the nine months ended September
30, 1998. The Company does not currently employ any hedging techniques to
protect against the risk of currency fluctuations.
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 would normally be charged to the
proved property base, if any. If there is not a proved property base, the
impairment is charged to operations. The impact of such reassessment and
resulting impairment charge could be significant during any particular period.
As a result, the results of operations for any particular period may not be
indicative of the results that could be expected for the remainder of the year.
As of September 30, 1998, the Company reported approximately $35,000,000 in
oil and gas properties. 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 or license, of which there can be no assurance.
If the Company is unable to obtain any necessary future licenses or extensions,
it could be forced to write off the carrying value of the related property.
CAPITAL AND LIQUIDITY
Throughout its existence, the Company has relied on cash from debt and
equity financing to provide the funds required for acquisitions and operating
activities.
During the nine months ending September 30, 1998 and 1997, operations
required cash of $6,910,531 and $4,831,885, respectively. Cash used in
operations during the first nine months of 1998 were used primarily to fund the
Company's general and administrative expenses of $6,553,759.
Investing activities used net cash of $6,947,275 for the nine months ended
September 30, 1998, the largest component of which was the purchase of mineral
interests, property and equipment of approximately $4,130,000. Approximately
$1,400,000 was used to purchase securities.
Of the $12,637,500 received by the Company on the issuance of additional
stock, approximately $3,850,000 was used for principal payments on notes and
approximately $260,000 on the payment of dividends on preferred stock.
Financing activities provided net cash of $8,524,419 for the nine months ended
September 30, 1998.
Cash or cash equivalents at September 30, 1998, was approximately
$12,062,000.
On September 30, 1998, the Company had total current assets of $14,197,638
and total current liabilities of $8,484,029 resulting in working capital of
approximately $5.7 million or a working capital ratio of 1.7:1. Of the
Company's current assets, $4.5 million has been devoted to the Big Horn
transaction.
As noted above, the Company has relied principally on financing activities
to meet its cash requirements. While the Company currently has sufficient cash
to meet its short-term needs particularly with the results of recent financing,
it will be required to obtain additional cash either from financing activities
or operations to meet its longer term needs. There can be no assurance that
funds will be available to the Company as and when needed by its business
activities, or at all. Obtaining additional equity financing or structuring
strategic relationships will continue to result in dilution of the percentage
ownership of the Company held by the current shareholders.
If the Company is unable to establish production or 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 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
The following exhibits are included as part of this report:
<TABLE>
<CAPTION>
SEC
Exhibit Reference
Number Number Title of Document
- - ------- --------- -----------------
<S> <C> <C>
1 (10) Acquisition Agreement by and among EuroGas, Inc., EuroGas Resources, Inc., and
Belmont Resources, Inc., dated October 9, 1998
2 (10) Non-Negotiable Promissory Note of Big Horn Resources, Ltd., in the amount of
$2,500,000 CDN dated October 26, 1998
3 (10) Subscription Agreement to Big Horn Resources, Ltd., dated October 26, 1998
4 (10) Escrow Agreement by and among Big Horn Resources, Ltd., EuroGas, Inc., and Code
Hunter Wittmann, dated October 26, 1998
5 (10) Side Agreement by and between Big Horn Resources, Ltd., and EuroGas, Inc., dated
October 26, 1998
6 (10) Security Agreement by and between EuroGas, Inc., and Big Horn Resources, Ltd.,
dated October 26, 1998
7 (10) Second Amendment to Subscription Agreement by and between EuroGas, Inc., and
Thomson Kernaghan & Co., Ltd., dated November 11, 1998
8 (27) Financial Data Schedule
</TABLE>
REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the quarter ended
September 30, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Issuer has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
EUROGAS, INC.
Dated: November 13, 1998 By /s/ Hank Blankenstein
Hank Blankenstein, Vice-President
ACQUISITION AGREEMENT
THIS ACQUISITION AGREEMENT (this "Agreement") is entered into as of the 9th
day of October, 1998, by and among EUROGAS, INC., a Utah corporation
("EuroGas"), EUROGAS RESOURCES INC., a British Columbia corporation ("Eurosub"),
and BELMONT RESOURCES, INC., a British Columbia corporation ("Belmont"), based
on the following:
Premises
A. EuroGas is a publicly-held corporation that owns an interest in
mineral deposits in Slovakia through a wholly-owned subsidiary.
B. Eurosub is a wholly-owned subsidiary of EuroGas.
C. Belmont is a publicly-held corporation traded on the Vancouver Stock
Exchange.
D. Maseva, s r.o. ("Maseva") is a privately-held entity organized under
the laws of the Slovak Republic. Maseva was awarded the rights to the
exploration territory known as "Kralovsky Chlmec" pursuant to a decision (the
"Initial Decision") of the Slovak Republic Ministry of Environment located in
Bratislava dated March 10, 1998, File No. 464/359/98-3.3 that gave Maseva the
exclusive right to explore in the area covered by the Initial Decision.
E. Belmont and Maseva formed a new company in the Slovak Republic under
the name of Maseva Gas, spol, sr.o. ("Maseva Gas") and the exploration rights
covered by the Initial Decision were transferred from Maseva to Maseva Gas.
Belmont now owns 90% of Maseva Gas.
F. EuroGas, through Eurosub, wishes to acquire, and Belmont desires to
sell, the right to explore for and exploit crude oil and natural gas in the
territory covered by the Initial Decision by the transfer of ownership of its
90% interest in Maseva Gas to Eurosub.
G. Belmont will transfer its 90% interest in Maseva Gas to Eurosub on a
tax-deferred basis pursuant to subsection 85(1) of the Income Tax Act (Canada).
Agreement
NOW, THEREFORE, based on the foregoing premises, which are incorporated
herein by this reference, and for and in consideration of the mutual covenants
and the agreements hereinafter set forth and the mutual benefit to the parties
to be derived therefrom, it is hereby agreed as follows:
Article I
Definitions
In this Agreement, the following terms shall have the meanings specified in
this Article I. Such definition shall be equally applicable to both the
singular and the plural forms. Any agreement referred to below shall mean such
agreement as amended, supplemented, or modified from time to time to the extent
permitted by the applicable provisions thereof and by this Agreement.
"Assumed Obligations" means the obligations under the contracts and
agreements which are assumed by Eurosub, all as more particularly described in
Section 2.03.
"Closing" has the meaning set forth in Section 2.05.
"Closing Date" has the meaning set forth in Section 2.05.
"Common Stock of EuroGas" means the authorized common stock of EuroGas, par
value $0.001 per share.
"Decision" means the decision of the Ministry of Environment of the Slovak
Republic in Bratislava dated July 30, 1998, File No. 1944/941/98-3.3 granting
Maseva Gas the exclusive right to explore for oil and flammable natural gas in
the territory described which covers 849.7 square kilometers.
"Due Diligence" means the 30 days after the date of delivery of the Belmont
Schedules during which time EuroGas may inspect such Belmont Schedules.
"Environmental Laws" means the central government, provincial, and local
laws and regulations governing the generation, marketing, refining, recycling,
treatment, handling, use, storage, transportation, disposal, and clean up of
hazardous, radio active, reactive, flammable, infectious, toxic, or dangerous
materials, or the protection of public health or the environment, including,
without limitation, all laws and regulation governing water resources, water
management structures, and other environmental features protected pursuant to
the Slovakian Gazette on the Protection of Nature and the Countryside and
compliance with the regulations governing forestry land reserves, national
nature reserves, and the Ministry of Environment, including all permits and
regulatory approvals required or issued thereunder.
"EuroGas Shares" means 2,500,000 shares of restricted Common Stock of
EuroGas to be held by Eurosub pursuant to the terms of this Agreement.
"EuroGas Warrant" means the transferable warrant to be held by Eurosub
pursuant to the terms of this Agreement which warrant gives the holder the
right, at the holder's election, to acquire up to 2,500,000 shares of restricted
Common Stock of EuroGas, at an exercise price of $2.50 per share, at any time
prior to October 1, 2000, a copy of which is attached hereto as Exhibit "A" and
forms a part of this Agreement.
"Eurosub Shares" means 2,500,000 Exchangeable Preferred Shares in the
capital of Eurosub to be delivered to Belmont as part of the purchase price for
the shares of Maseva Gas, each such Eurosub Share retractable by the holder in
exchange for one EuroGas Share. A copy of the special rights and restrictions
attached to the Eurosub Shares is attached hereto as Exhibit "B" and forms a
part of this Agreement.
"Eurosub Warrant" means a warrant to be delivered to Belmont as part of the
purchase price for the shares of Maseva Gas, which gives Belmont the right, at
its election, to acquire the EuroGas Warrant, in whole or in part, at any time
and from time to time until October 1, 2000, for aggregate consideration of
$25.00, a copy of which is attached as Exhibit "C" and forms a part of this
Agreement.
"Excluded Liabilities" has the meaning set forth in Section 2.04.
"Initial Decision" means the decision of the Slovak Republic Ministry of
Environment in Bratislava dated March 10, 1998, File No. 464/359/98-3.3 granting
Maseva the exclusive right to prospect for crude oil and natural gas in the
exploration territory identified in the Initial Decision covering 849.7 square
kilometers.
"Maseva" means Maseva, s r.o., an entity organized under the laws of the
Slovak Republic located in Kosice.
"Maseva Concession" means the rights granted under the Decision and now
held by Maseva Gas, including the exclusive right to prospect for crude oil and
flammable natural gas in the territory identified in the Decision and, on the
identification and location of exploitable minerals, the pre-emptive right to
determine the mining area and exploit the minerals.
"Maseva Gas" means Maseva Gas, Spol, s r.o., an entity formed under the
laws of the Slovak Republic.
"Tax Act" means the Income Tax Act (Canada).
"Voting Trust Agreement" means the voting trust agreement to be entered
into among EuroGas, Eurosub and Pacific Corporate Trust Company, a form of which
is attached to this Agreement as Exhibit "D".
"Working Interest Agreement" means the working interest agreement to be
entered into between Maseva Gas and Belmont at the time of Closing, a form of
which is attached to this Agreement as Exhibit "E".
Article II
Purchase of Shares and Assets
Section 2.01 The Purchase. On the terms and conditions set forth in this
Agreement, Eurosub shall purchase from Belmont 90% of the record and equity
ownership interest in and to Maseva Gas in exchange for the delivery to Belmont
of the Eurosub Shares and the Eurosub Warrant. In addition, at the time of
Closing, Belmont shall be assigned a 22.5% working interest in the Maseva
Concession, provided that Maseva Gas will pay the costs associated with the
22.5% working interest in connection with the drilling of the initial two new
wells on the Maseva Concession in accordance with the terms of the Working
Interest Agreement. At the Closing, EuroGas shall deliver the EuroGas Shares
and the EuroGas Warrant to Eurosub, c/o Pacific Corporate Trust Company,
Suite 830 - 625 Howe Street, Vancouver, British Columbia, V6C 3B8, pending
retraction of the Eurosub Shares and exercise of the Eurosub Warrant, to be held
by Pacific Corporate Trust Company in accordance with the Voting Trust
Agreement.
Section 2.02 Eurosub and Belmont will jointly elect in the prescribed
manner and within the prescribed time, pursuant to the provisions of
subsection 85(1) of the Tax Act, to effect the transfer of the shares of Maseva
Gas from Belmont to Eurosub at amounts, determined by Belmont, equal to
Belmont's "cost amount", as defined in the Tax Act of the transferred assets.
Section 2.03 Assumed Obligations. On the Closing Date, Eurosub and
EuroGas shall assume and agree to discharge the obligations of Belmont under the
terms of the agreements governing Maseva Gas and the Maseva Concession that are
set forth on Schedule 3.07 and that are incurred or related to any time
subsequent to the Closing Date. All costs attributable to any period of time
that encompasses the time both before and after the Closing Date shall be pro
rated between Eurosub and Belmont as of the Closing Date.
Section 2.04 Excluded Liabilities. EuroGas and Eurosub shall not assume,
be obligated to pay, be obligated to perform, or otherwise be required to
discharge any liability or obligation of Belmont, Maseva, or Maseva Gas, direct
or indirect, known or unknown, absolute or contingent, not expressly assumed by
EuroGas and Eurosub, including any liability or obligation attributable to any
time prior to the Closing Date.
Section 2.05 Closing; Closing Date. Subject to the terms and conditions
of this Agreement, the consummation of the sale and purchase of Maseva Gas as
contemplated hereby (the "Closing") shall take place at the offices of Kruse,
Landa & Maycock, L.L.C., or such other place as mutually acceptable to the
parties hereto as soon as practicable, but in any event on or before September
30, 1998. The date on which the Closing takes place shall be the "Closing
Date."
Section 2.06 Closing Events. At the Closing, Belmont shall execute,
acknowledge, and deliver (or shall cause to be executed, acknowledged, and
delivered) (i) the bills of sale, assignments, and other documents and
instruments of conveyance and transfer, all in form and substance reasonably
satisfactory to EuroGas and Eurosub and their counsel, necessary to vest free
and clear title in Eurosub to 90% of the equity and record ownership of Maseva
Gas; (ii) originals or copies of all of Maseva Gas' agreements, contracts, and
commitments; (iii) originals or copies of all science related to the Maseva
Concession, including surveys, reports, feasibility studies, testing reports,
seismic information, drill logs, etc.; (iv) all certificates, opinions,
schedules, agreements, resolutions, or other instruments required by this
Agreement to be so delivered prior to the Closing; (v) a representation letter
acknowledging the restricted nature of the securities delivered to Belmont as
part of the purchase price and setting forth Belmont's investment intent in form
and substance as set forth on Exhibit "F" attached hereto and incorporated
herein by this reference; and (vi) such other items as may be reasonably
requested by the parties hereto and their respective legal counsel in order to
effectuate or evidence the transactions contemplated hereby. Eurosub shall
deliver to Belmont the certificates representing the Eurosub Shares and the
Eurosub Warrant and a form T2057 election signed by Eurosub as a transferor and
a letter to Belmont authorizing it to complete the form and file it with Revenue
Canada.
Section 2.07 Registration of Common Stock. At the Closing, the parties
will execute and deliver a Registration Rights Agreement in the form and
substance as set forth on Exhibit "G" giving Belmont the right to have any
EuroGas Shares acquired upon retraction of the Eurosub Shares and the restricted
Common Stock of EuroGas issuable on exercise of the EuroGas Warrants which may
be acquired by Belmont on exercise of the Eurosub Warrant included in any
appropriate registration statement that may be filed by EuroGas within one year
of the date of Closing.
Article III
Representations, Covenants, and Warranties of Belmont
Belmont hereby represents, covenants, and warrants to EuroGas and to
Eurosub, such representations, covenants, and warranties to be made as of the
date hereof and at and as of the Closing Date and to survive the Closing and
continue in accordance with the terms hereof, as follows:
Section 3.01 Organization of Belmont. Belmont is a corporation duly
organized, validly existing, and in good standing under the laws of British
Columbia and has the corporate power and is duly authorized, qualified,
franchised, and licensed under all applicable laws, regulations, ordinances, and
public authorities to own its properties and assets and to carry on its business
in all material respects as it is now being conducted. There is no jurisdiction
in which it is not so qualified in which the character and location of the
assets owned by it or the nature of the business transacted by it requires
qualification, except when the failure to do so would not have a material
adverse affect on the business and properties of Belmont. The execution and
delivery of this Agreement does not, and the consummation of the transactions
contemplated by this Agreement in accordance with the terms hereof will not,
violate any provision of Belmont's articles of incorporation or bylaws.
Section 3.02 Organization of Maseva Gas. Maseva Gas is an entity duly
organized, validly existing, and in good standing under the laws of the Slovak
Republic, with the power and duly authorized, qualified, franchised, and
licensed under all applicable laws, regulations, ordinances, and public
authorities to own its properties and assets, including the Maseva Concession,
and to carry on its proposed business of exploring for natural gas and crude oil
on the Maseva Concession. There is no jurisdiction in which it is not so
qualified in which the character and location of the assets owned by it or the
nature of the business transacted or proposed by it, requires qualification.
The consummation of the transactions contemplated by this Agreement in
accordance with the terms hereof will not violate any provision of Maseva Gas'
governing instruments.
Section 3.03 Approval of this Agreement. The board of directors of
Belmont has authorized the execution and delivery of this Agreement and has
approved the transactions contemplated hereby. There is no requirement that the
shareholders of Belmont approve this Agreement or the transactions contemplated
hereby. This Agreement is the legal, valid, and binding agreement of Belmont
enforceable in accordance with its terms, except as such enforcement may be
limited by bankruptcy, insolvency, or other laws effecting the enforcement of
creditor's rights generally and by general principles of equity.
Section 3.04 Capitalization of Maseva Gas. The authorized capital of
Maseva Gas is as set forth in the provided copy of the Maseva Articles of
Organization. All such issued and outstanding shares have been legally issued,
and are fully paid, and nonassessable, and not issued in violation of the rights
of any other person or entity. No shares of the authorized capital of Maseva
Gas are subject to any right held by any other person or entity to require the
issuance of additional shares or acquire the issued and outstanding shares on
the exercise or conversion of options, warrants, convertible debentures,
contract rights, or other such instruments.
Section 3.05 Ownership of Maseva Gas. Belmont hereby represents and
warrants that, as of the Closing Date, it will be the sole beneficial and record
owner of 90% of the issued and outstanding record and equity ownership of Maseva
Gas. Belmont's ownership interest in Maseva Gas is held solely by Belmont, free
and clear of any and all liens, encumbrances, claims, or rights of any other
person or entity.
Section 3.06 Ownership of Maseva Concession. As of the Closing, Maseva
Gas will be the sole and exclusive holder of the Maseva Concession and all of
the rights granted under the Decision. Such ownership and the right to exploit
the Maseva Concession shall not be subject to the approval or consent of any
governmental agency or third party. No other person or entity will have any
lien, encumbrance, claim, or right with respect to the Maseva Concession.
Section 3.07 No Liabilities or Contingencies. As of the Closing, Maseva
Gas will not have and will not be liable for, any liabilities or contingencies,
whether known or unknown, except for those obligations listed on Schedule 3.07
which have accrued but which are not yet due.
Section 3.08 Material Contract Defaults. As of the Closing, Maseva Gas
will not be in default in any respect under the terms of any outstanding
contract, agreement, lease, or other commitment which is material to the
business, operations, properties, assets, or condition of Maseva Gas, and there
will be no event of default or other event which would with the notice or lapse
of time or both would constitute a default in any material respect under any
such contract, agreement, lease, or other commitment.
Section 3.09 Taxes. All tax returns, tax reports, and taxes with respect
to the formation or operation of Maseva Gas or which might be a lien or
encumbrance against Maseva Gas or its assets that is due prior to the Closing
Date will be filed on or before the Closing Date and the underlying tax
obligations paid in full.
Section 3.10 Third-Party Consents. No contract, agreement, lease, or
other commitment, written or oral, to which Belmont or Maseva Gas is, or as of
the Closing Date, will be a party, or to which any of Maseva Gas' properties or
assets are subject, require the consent of the other party in order to
consummate the transactions herein contemplated.
Section 3.11 No Conflict With Other Instruments. The execution of this
Agreement and the consummation of the transactions contemplated by this
Agreement will not result in the breach of any term or provision of, or
constitute an event of default under, any material indenture, mortgage, deed of
trust, or other material contract, agreement, or instrument to which Belmont or
Maseva Gas is a party or to which any of their properties or operations are
subject.
Section 3.12 Compliance With Laws and Regulations. Belmont and Maseva
Gas have complied with all applicable statutes and regulations of any
governmental agency with respect to the Maseva Concession. The Maseva
Concession, including all of the rights under the terms of the Decision, is in
good standing and can be fully exploited by Maseva Gas. Any and all consents
required from any governmental agency to permit Maseva Gas to exploit the Maseva
Concession will have been obtained by the Closing Date.
Section 3.13 Environmental Concerns. The Maseva Concession and Maseva
Gas are in full compliance with all Environmental Laws, including the
regulations adopted under the Gazette on Geological Operations, the Slovak
Geological Bureau, the Gazette on the Protection of Nature and Countryside, the
Forestry Land Reserves, the Protection of Agricultural Land Reserves, the
Ministry of Environment, and all local rules and regulations, and are not
subject to any environmental liabilities.
Section 3.14 Brokers' Fees. Belmont has not engaged or entered into any
agreement with any broker or finder in connection with any of the transactions
contemplated by this Agreement requiring the payment of any fee or compensation.
Section 3.15 Belmont Schedules. Belmont will deliver to EuroGas and
Eurosub within ten (10) days of the execution of this Agreement, unless
delivered previously, the following disclosure schedules that are collectively
referred to as the "Belmont Schedules":
(a) A complete copy, including all exhibits, of the Decision;
(b) A complete copy, including all exhibits, of the Contract of
Mandate between Belmont and Maseva;
(c) A complete copy, including all exhibits, of the Contract to enter
into a Future Contract between Belmont and Maseva;
(d) A copy of any other agreement, contract, or commitment to which
Maseva Gas is a party or the Maseva Concession is subject to;
(e) A schedule including all geological information with respect to
the Maseva Concession, including feasibility studies, geological surveys,
reports, development plans, seismic information, analysis, test results, or
similar matters;
(f) A copy of the complete financial records of the costs associated
with obtaining the Maseva Concession, forming Maseva and Maseva Gas, and the
negotiation and execution of the agreements between Belmont and Maseva.
(g) A schedule setting forth the information required by Section
3.07.
Article IV
Representations, Covenants, and Warranties of EuroGas and Eurosub
Section 4.01 Organization of EuroGas. EuroGas is a corporation duly
organized, validly existing, and in good standing under the laws of the state of
Utah and has the corporate power and is duly authorized, qualified, franchised,
and licensed under all applicable laws, regulations, ordinances, and public
authorities to own its properties and assets and to carry on its business in all
material respects as it is now being conducted. There is no jurisdiction in
which it is not so qualified in which the character and location of the assets
owned by it or the nature of the business transacted by it requires
qualification, except when the failure to do so would not have a material
adverse affect on the business and properties of EuroGas. The execution and
delivery of this Agreement does not, and the consummation of the transactions
contemplated by this Agreement in accordance with the terms hereof will not,
violate any provision of EuroGas' articles of incorporation or bylaws.
Section 4.02 Organization of Eurosub. Eurosub is a corporation duly
organized, validly existing, and in good standing under the laws of the Province
of British Columbia and has the corporate power and is duly authorized,
qualified, franchised, and licensed under all applicable laws, regulations,
ordinances, and public authorities to own its properties and assets and to carry
on its business in all material respects as it is now being conducted. There is
no jurisdiction in which it is not so qualified in which the character and
location of the assets owned by it or the nature of the business transacted by
it requires qualification, except when the failure to do so would not have a
material adverse affect on the business and properties of Eurosub. The
execution and delivery of this Agreement does not, and the consummation of the
transactions contemplated by this Agreement in accordance with the terms hereof
will not, violate any provision of Eurosub's articles of incorporation or
bylaws.
Section 4.03 Approval of this Agreement. The board of directors of
EuroGas and Eurosub have authorized the execution and delivery of this
Agreement and have approved the transactions contemplated hereby. There is no
requirement that the shareholders of EuroGas or Eurosub approve this Agreement
or the transactions contemplated hereby. This Agreement is the legal, valid,
and binding agreement of EuroGas and Eurosub enforceable in accordance with its
terms, except as such enforcement may be limited by bankruptcy, insolvency, or
other laws effecting the enforcement of creditor's rights generally and by
general principles of equity.
Section 4.04 No Conflict With Other Instruments. The execution of this
Agreement and the consummation of the transactions contemplated by this
Agreement will not result in the breach of any term or provision of, or
constitute an event of default under, any material indenture, mortgage, deed of
trust, or other material contract, agreement, or instrument to which EuroGas or
Eurosub is a party or to which any of their properties or operations are
subject.
Section 4.05 EuroGas Disclosure. The information concerning EuroGas and
its business and operations set forth in its reports on Form 10-K for the year
ended December 31, 1997, and Form 10-Q for the quarters ended March 31, 1998 and
June 30, 1998, does not contain any untrue statement of a material fact or omit
a material fact required to be stated therein or necessary to make the
statements contained therein not misleading. Eurosub has no material assets
except the EuroGas Shares and EuroGas Warrants and has no material liabilities.
Section 4.06 Brokers' Fees. EuroGas and Eurosub have not engaged or
entered into any agreement with any broker or finder in connection with any of
the transactions contemplated by this Agreement requiring the payment of any fee
or compensation.
Section 4.07 EuroGas Schedules. EuroGas will deliver to Belmont within
ten (10) days of the execution of the Agreement, unless provided previously, the
following disclosure schedules which are collectively referred to as the
"EuroGas Schedules":
(a) Annual report on Form 10-K for the year ended December 31, 1997;
and
(b) Quarterly reports on Form 10-Q for the quarters ended March 31,
1998 and June 30, 1998.
Article V
Conditions Precedent to the Obligations of EuroGas and Eurosub
The obligations of EuroGas to purchase the equity ownership of Maseva Gas
is subject to the satisfaction, at or before the Closing, of each of the
conditions set forth below.
Section 5.01 Performance by Belmont. Belmont shall have substantially
performed all conditions of this Agreement unless the requirement has been
waived in writing by EuroGas and Eurosub.
Section 5.02 Formation of Maseva Gas. Maseva Gas shall be duly and
lawfully formed and in existence as a legally recognized entity in the Slovak
Republic.
Section 5.03 Transfer of Decision. The Maseva Concession, including all
rights under the Decision, shall have been transferred to Maseva Gas and Maseva
and Maseva Gas shall have obtained any necessary consent of the Slovak Republic
Ministry of Environment as to such transfer and as to the ownership of Maseva
Gas by EuroGas.
Section 5.04 Payment of Existing Obligations. Belmont shall have
provided the necessary funding to Maseva or Maseva Gas to permit the payment of
all obligations which are due prior to the Closing Date, including the
obligation of Belmont to reimburse Maseva for the initial work and
organizational costs in investigating and obtaining the Maseva Concession.
Section 5.05 Due Diligence Review. EuroGas shall have favorably
completed its due diligence of the Maseva Concession and the ownership of all
rights with respect thereto by Maseva Gas.
Section 5.06 No Material Adverse Change. There shall not have been any
material change to Maseva Gas or the Maseva Concession prior to the Closing
Date.
Section 5.07 Absence of Litigation. No action, suit, or proceeding
before any court or any governmental body or authority pertaining to the
consummation of the transactions contemplated by this Agreement shall have been
instituted or threatened on or before the Closing Date.
Section 5.08 Closing Date Pro Rations. Eurosub and Belmont shall pro
rate as of the Closing Date, all charges and items of expense with respect to
the Maseva Concession with Belmont bearing the proportionate expense
attributable to the period prior to the Closing Date in accordance with the
terms of this Agreement and, and Eurosub bearing the proportion expense
attributable to the period subsequent to the Closing Date.
Section 5.09 Third-Party Consents. Belmont shall have obtained the
consents of all third-parties whose consent is required to consummate the
transactions contemplated by this Agreement, including any consents reasonably
requested by EuroGas and Eurosub.
Section 5.10 Other Agreements. The execution of a Registration Rights
Agreement, Working Interest Agreement, Warrant, and Voting Trust Agreement in
the form substantially similar to the drafts attached to this Agreement.
Section 5.11 Agreement with Maseva. The obtaining of any agreements with
Maseva (the owner of the other 10% of Maseva Gas) as Belmont and EuroGas deem
mutually advisable.
Article VI
Conditions Precedent to the Obligations of Belmont
The obligation of Belmont to sell its interest in Maseva Gas is subject to
EuroGas' and Eurosub's satisfaction, at the time of Closing, of the conditions
set out below, except for any condition which has been waived in writing by
Belmont at or prior to the Closing.
Section 6.01 Performance by EuroGas. EuroGas and Eurosub shall have
substantially performed all the conditions of this Agreement, unless the
requirement has been waived in writing by Belmont.
Section 6.02 Corporate Approval. The board of directors of EuroGas and
Eurosub shall have approved the transactions described in this Agreement and
resolutions setting forth those approvals shall have been certified to Belmont
by an officer of EuroGas and Eurosub.
Section 6.03 Other Agreements. The execution of a Registration Rights
Agreement, Working Interest Agreement, Warrant, and Voting Trust Agreement in
the form substantially similar to the drafts attached to this Agreement.
Section 6.04 Agreement with Maseva. The obtaining of any agreements with
Maseva (the owner of the other 10% of Maseva Gas) as Belmont and EuroGas deem
mutually advisable.
Article VII
Survival of Representations and Warranties
All representations and warranties made in Articles IV and V shall be
continuing and shall survive the Closing, but shall expire 24 months after the
Closing Date; provided, however, that if a claim for indemnification has been
asserted pursuant to Article VII prior to or as of the expiration date of such
24-month period, such representations and warranties shall remain in full force
and effect until full and complete resolution of such claim. Notwithstanding
the foregoing, however, the time for making a claim based upon such
representation or warranty shall expire 24 months after the Closing Date.
Article VIII
Indemnification
Section 8.01 By EuroGas, Eurosub, and Belmont. EuroGas and Eurosub, on
the one hand, and Belmont on the other hand, each hereby agrees to indemnify and
hold harmless the other against all claims, damages, losses, liabilities, costs,
and expenses (including settlement costs and any legal, accounting, or other
expenses for investigating or defending any actions or threatened actions)
reasonably incurred by the indemnified party in connection with each and all of
the following:
(a) any breach by the indemnifying party of any representation or
warranty in this Agreement;
(b) any breach of any covenant, agreement, or obligation of the
indemnifying party contained in this Agreement or any other agreement,
instrument, or document contemplated by this Agreement; and
(c) any misrepresentation contained in any statement, exhibit,
certificate, or schedule furnished by the indemnifying party pursuant to this
Agreement or in connection with the transactions contemplated by this Agreement.
Section 8.02 By Belmont. Belmont agrees to indemnify and hold harmless
EuroGas and Eurosub from any and all claims, damages, liabilities, costs, and
expenses (including settlement costs and any legal, accounting, or other
expenses for investigating or defending any actions or threatened actions)
reasonably incurred by the indemnified party in connection with each and all of
the following:
(a) any claims against, or liabilities or obligations of, Maseva
Gas, the Maseva concession, or the business or assets of Maseva Gas related to
any period of time prior to the Closing Date.
(b) any and all claims, damages, losses, liabilities, costs, and
expenses including settlement costs and any legal, accounting, or other expenses
for investigating or defending any actions or threatened actions reasonably
incurred by EuroGas or Eurosub in connection with any claim relating to Maseva
Gas' business or operations prior to the Closing Date.
Section 8.03 Claims for Indemnification. Whenever any claim shall arise
for indemnification hereunder, the party seeking indemnification (the
"Indemnified Party"), shall promptly notify, in writing, the party from whom
indemnification is sought (the "Indemnifying Party") of the claim and, when
known, the facts constituting the basis for such claim. In the event of any
such claim for indemnification hereunder resulting from or in connection with
any claim or legal proceedings by any party, the notice to the Indemnifying
Party shall specify, if known, the amount or an estimate of the amount of the
liability arising therefrom. The Indemnified Party shall not settle or
compromise any claim by a third party for which it is entitled to
indemnification hereunder without the prior written consent of the Indemnifying
Party, which shall not be unreasonably withheld, unless suit shall have been
instituted against it and the Indemnifying Party shall not have taken control of
such suit after notification thereof as provided in section 8.04 hereof.
Section 8.04 Defense by Indemnifying Party. In connection with any claim
giving rise to indemnity hereunder resulting from or arising out of any claim or
legal proceeding by a person who is not a party to this Agreement, the
Indemnifying Party, at its sole cost and expense may, upon written notice to the
Indemnified Party, assume the defense of any such claim or legal proceeding if
it acknowledges to the Indemnified Party in writing its obligations to indemnify
the Indemnified Party with respect to all elements of such claim. The
Indemnified Party shall be entitled to participate (but not control) the defense
of any such action, with its counsel and at its own expense. If the
Indemnifying Party does not assume the defense of any such claim or litigation
resulting therefrom within 30 days after the date such claim is made:
(a) the Indemnified Party may defend against such claim or
litigation in such manner as it may deem appropriate, including, but not limited
to, settling such claim or litigation, after giving notice of the same to the
Indemnifying Party, on such terms as the Indemnified Party may deem appropriate;
and
(b) the Indemnifying Party shall be entitled to participate in (but
not control) the defense of such action, with its counsel and at its own
expense. If the Indemnifying Party thereafter seeks to question the manner in
which the Indemnified Party defended such third party claim or the amount or
nature of any such settlement, the Indemnifying Party shall have the burden to
prove by apreponderance of the evidence that the Indemnified Party did not
defend or settle such third party claim in a reasonably prudent manner.
Article IX
Specific Performance
The parties hereto agree the failure of any party to perform any obligation
or duty which each has agreed to perform shall cause irreparable harm to the
parties willing to perform the obligations and duties herein, which harm cannot
be adequately compensated for by money damages. It is further agreed by the
parties hereto an order of specific performance against a party in default under
the terms of this Agreement would be equitable and would not work a hardship on
the defaulting party. Accordingly, in the event of default by any party hereto,
the non-defaulting party, in addition to whatever other remedies are available
at law or in equity, shall have the right to compel specific performance by the
defaulting party of any obligation or duty herein.
Article X
Miscellaneous Provisions
Section 10.01 Costs. EuroGas, Eurosub, and Belmont shall each pay all of
their own costs and expenses incurred or to be incurred by each in negotiating
and preparing this Agreement and in closing and carrying out the transactions
contemplated by this Agreement.
Section 10.02 Notices. Any notice, demand, request, or other
communication under this Agreement shall be in writing and shall be deemed to
have been given on the date of service if personally served or by facsimile
transmission (if receipt is confirmed by the facsimile operator of the
recipient), or delivered by overnight courier service or on the third day after
mailing if mailed by certified mail, return receipt requested, addressed as
follows:
If to EuroGas or Eurosub, to: Hank Blankenstein, Vice-President
EuroGas, Inc.
942 East 7145 South, #101A
Midvale, Utah 84047
Fax: (801) 255-2005
Confirmation: (801) 255-0862
With copies to: Howard S. Landa, Esq.
Kruse, Landa & Maycock, L.L.C.
50 West Broadway, Eighth Floor
Salt Lake City, Utah 84101
Fax: (801) 531-7091
Confirmation: (801) 531-7090
If to Belmont, to: Vojtech Agyagos
Belmont Resources, Inc.
Suite 1180 - 666 Burrard St.
Vancouver, British Columbia
Canada V6C 2X8
Fax: (604) 683-1350
Confirmation: (604) 683-6648
With copies to: David Anfield, Esq.
Anfield, Sujir, Kennedy & Durno
16th Floor - Stock Exchange Tower
609 Granville Street
P.O. Box 10068 - Pacific Centre
Vancouver, British Columbia
Canada V7Y 1C3
Fax: (604) 669-3877
Confirmation: (604) 669-1322
or such other addresses and facsimile numbers as shall be furnished in writing
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 (if receipt is confirmed
by the facsimile operator of the recipient), three days after the date so
mailed, or one day after the date so sent by overnight delivery.
Section 10.03 Governing Law. This Agreement shall be governed by,
enforced and construed under and in accordance with the laws of the United
States of America and, with respect to matters of state law, with the laws of
the state of Utah. Venue for all actions regarding this Agreement shall be in
Salt Lake County, Utah. The parties hereby submit to the personal jurisdiction
of such court for the purpose of resolving any dispute arising under this
Agreement.
Section 10.04 Attorneys' Fees. In the event that any party institutes any
action or suit to enforce this Agreement or to secure relief from any default
hereunder or breach hereof, the breaching party or parties shall reimburse the
nonbreaching party or parties for all costs, including reasonable attorneys'
fees, incurred in connection therewith and in enforcing or collecting any
judgment rendered therein.
Section 10.05 Schedules and Exhibits; Knowledge. Whenever in any section
of this Agreement reference is made to information set forth in the exhibits or
the Belmont Schedules, such reference is to information specifically set forth
in such exhibits or schedules and clearly marked to identify the section of this
Agreement to which the information relates. Whenever any representation is made
to the "knowledge" of any party, it shall be deemed to be a representation that
no officer or director of such party, after reasonable investigation, has any
knowledge of such matters.
Section 10.06 Entire Agreement. This Agreement, together with the
documents to be delivered pursuant hereto, represent the entire agreement
between the parties relating to the subject matter hereof. There are no other
courses of dealing, understanding, agreements, representations, or warranties,
written or oral, except as set forth herein.
Section 10.07 Survival; Termination. The representations, warranties, and
covenants of the respective parties shall survive the Closing.
Section 10.08 Form of Execution; Counterparts. A valid and binding
signature hereto or any notice or demand hereunder may be in the form of a
manual execution or a true copy made by photographic, xerographic, or other
electronic process that provides similar copy accuracy of a document that has
been executed. This Agreement may be executed in multiple counterparts, each of
which shall be deemed an original and all of which taken together shall be but a
single instrument.
Section 10.09 Amendment or Waiver. Every right and remedy provided herein
shall be cumulative with every other right and remedy, whether conferred herein,
at law, or in equity, and may be enforced concurrently herewith, and no waiver
by any party of the performance of any obligation by the other shall be
construed as a waiver of the same or any other default then, theretofore, or
thereafter occurring or existing. At any time prior to the Closing Date, this
Agreement may be amended by a writing signed by all parties hereto, with respect
to any of the terms contained herein, and any term or condition of this
Agreement may be waived or the time for performance thereof may be extended by a
writing signed by the party or parties for whose benefit the provision is
intended.
Section 10.10 Waiver of Jury Trial. Each party hereby (a) knowingly,
voluntarily, intentionally, and irrevocably waives, to the maximum extent not
prohibited by law, any right it may have to a trial by jury in respect of any
litigation based hereon, or directly or indirectly at any time arising out of,
under, or in connection with this Agreement or any transaction contemplated
hereby or associated herewith; and (b) acknowledges that it has been induced to
enter into this Agreement and the transactions contemplated hereby by, among
other things, the mutual waivers and certifications contained in this section.
DATED as of the date first above written.
EuroGas:
EUROGAS, INC.
By /s/ Hank Blankenstein
Eurosub:
EUROGAS RESOURCES INC.
By /s/ Hank Blankenstein
Belmont:
BELMONT RESOURCES, INC.
By /s/ Vojtech Agyagos
NON-NEGOTIABLE PROMISSORY NOTE
PRINCIPAL SUM: CDN. $2,500,000 DUE DATE: DECEMBER 31, 1998
FOR VALUE RECEIVED, Big Horn Resources Ltd. (the "Borrower") of
Calgary, Alberta hereby promises to pay to or to the order of EuroGas, Inc. (the
"Lender"), of Salt Lake City, Utah on December 31, 1998, or on such earlier date
as herein provided, the principal sum of Two Million, Five Hundred Thousand
($2,500,000.00) Dollars in lawful money of Canada with interest thereon
calculated and compounded annually at the rate of 6.0% per annum. Interest
shall be payable by the Borrower both before and after maturity and/or Default.
Interest shall be calculated hereunder without deduction or allowance in respect
of deemed reinvestment of interest or otherwise and on the basis of the actual
number of days elapsed in a year of 365 or 366 days, as the case may be; the
rate of interest specified herein is intended to be a nominal rate and not an
effective rate of interest. Any interest payable hereunder which is not paid
when due shall become part of the principal sum and shall bear interest at the
aforesaid rate during the period in arrears.
The happening of any of the following events or conditions shall constitute
default hereunder which is herein referred to as "Default":
(a) the nonpayment when due, whether by acceleration or otherwise, of any
principal or interest owing by the Borrower pursuant to this
Promissory Note or the failure of the Borrower to observe or perform
any obligation, covenant, term, provision or condition contained in
this Promissory or any other agreement between the Borrower and the
Lender or any breach of warranty or misrepresentation made by the
Borrower in the Security Agreement granted by the Borrower to the
Lender of even date herewith (the "Security Agreement");
(b) the bankruptcy or insolvency of the Borrower; the filing against the
Borrower of a petition in bankruptcy; the making of an authorized
assignment for the benefit of creditors by the Borrower; the
appointment of a receiver or trustee for the Borrower or for any
assets of the Borrower or the institution by or against the Borrower
of any other type of insolvency proceedings under the Bankruptcy and
Insolvency Act as amended or replaced or otherwise;
(c) if any Encumbrance affecting the interests or assets of the Borrower
becomes enforceable;
(d) if the Borrower commits or threatens to commit an act of bankruptcy;
(e) if any judgment, execution, sequestration, extent or other process of
any court becomes enforceable against the Borrower or if a distress or
analogous process is levied upon the assets of the Borrower or any
part thereof; or
(f) if any statement, representation or warranty heretofore or hereafter
furnished by or on behalf of the Borrower pursuant to or in connection
with the Security Agreement, or otherwise, or as an inducement to the
Lender to advance any funds to or to enter into this or any other
agreement with the Borrower, proves to have been false in any material
respect at the time as of which the facts therein set forth were
stated or certified, or proves to have omitted any substantial,
contingent or unliquidated liability or claim against the Borrower; or
if upon the date of execution of the Security Agreement, there shall
have been any material adverse change in any of the facts disclosed by
any such representation, statement or warranty, which change shall not
have been disclosed to the Lender at or prior to the time of such
execution.
In the event of any Default by the Borrower, the Lender may, by
written notice to the Borrower, declare all amounts hereunder immediately due
and payable, whereupon the principal sum hereof plus all accrued and unpaid
interest thereon shall become immediately due and payable.
The Borrower may at any time without notice or bonus, pay all or part
of the amount outstanding under this Promissory Note.
The Borrower hereby waives presentment for acceptance and payment
including applicable grace periods, demand, notice of dishonour and protest or a
further notice of any kind and agrees that it shall remain liable in respect
hereof as if presentment, demand, notice of dishonour and protest or any further
notice of any kind had been duly made or given.
This Promissory Note is made pursuant to and is subject to the
provisions of the Side Agreement dated as of even date herewith between the
Borrower and the Lender and where inconsistent with the terms of the Side
Agreement, the Side Agreement shall govern.
This Promissory Note is non-negotiable and may not be assigned in
whole or in part to any other person or entity.
This Promissory Note shall be governed by and interpreted in
accordance with the laws of the Province of Alberta.
DATED effective October 26, 1998.
BIG HORN RESOURCES LTD.
Per: /s/ Reginald Greenslade
SUBSCRIPTION AGREEMENT
TO: BIG HORN RESOURCES LTD. (the "Corporation")
The undersigned (hereinafter referred to as the "Subscriber") hereby irrevocably
subscribes for and agrees to purchase the number of common shares (the "Common
Shares") of the Corporation (as constituted on October 26, 1998) set forth
below, at a subscription price of $0.65 (Canadian) per Common Share. This
subscription is made upon and subject to the terms and conditions set forth in
"Terms and Conditions of Subscription for Common Shares of Big Horn Resources
Ltd." dated October 26, 1998.
EUROGAS, INC. Number of Common Shares: 8,500,000
(Name of Subscriber - please print)
By: /s/ Hank Blankenstein Aggregate Subscription price:
(authorized signature) CAD. $5,525,000
Vice-President If the Subscriber is signing as agent
(Official Capacity or Title for a principal and is not a trust
- please print) company or a portfolio manager
purchasing as trustee for accounts
fully managed by it, complete the
Hank Blankenstein following:
(Please print name of individual
whose signature appears above if
different than the name of the (Name of Principal)
subscriber printed above.)
942 East 7145 South, #101A (Principal's Address)
Midvale, Utah, U.S.A. 84047
(Subscriber's Address)
801-255-0862 Delivery Instructions:
(Telephone Number)
Registration Instrucitons: (Name)
(Name) (Account Reference, if applicable)
(Account Reference, if applicable) (Contact Name)
(Address) (Address)
ACCEPTANCE: The Corporation hereby accepts the above subscription and
the Corporation represents and warrants to the Subscriber that the
representations and warranties made by the Corporation herein are true and
correct in all material respects as of this date.
October 26, 1998
BIG HORN RESOURCES LTD.
Per: /s/ Reginald Greenslade
This is the first page of an agreement comprised of 5 pages.
TERMS AND CONDITIONS OF SUBSCRIPTION FOR
COMMON SHARES OF BIG HORN RESOURCES LTD.
October 26, 1998
1. The Subscriber understands that the sale and delivery of the Common
Shares is conditional upon receipt of all regulatory approvals and upon such
sale being exempt from the requirements as to the filing of a prospectus and as
to the delivery of an offering memorandum or upon the issuance of such orders,
consents or approvals as may be required to permit such sale without the
requirement of filing a prospectus or delivering an offering memorandum.
2. By executing this subscription, the Subscriber represents, warrants
and covenants to the Corporation (and acknowledges that the Corporation and its
counsel, are relying thereon) that:
(a) it has been independently advised as to restrictions with respect to
trading in the Common Shares, imposed by applicable securities
legislation in the jurisdiction in which it resides, any applicable
hold period imposed in respect of the Common Shares imposed by
securities legislation in the jurisdiction in which it resides,
confirms that no representation has been made by or on behalf of the
Corporation with respect thereto and it is aware of the risks and
other characteristics of the Common Shares and of the fact that it may
not be able to resell the Common Shares except in accordance with
limited exemptions under applicable securities legislation and
regulatory policy until expiry of any applicable hold period and
compliance with the other requirements of applicable law and that the
Common Shares will be subject to resale restrictions;
(b) it has not received, or been provided with, nor has it requested, nor
does it need to receive, any offering memorandum, or any other
document (other than financial statements, interim financial
statements or any other document, other than an offering memorandum,
the content of which is prescribed by statute or regulation)
describing the business and affairs of the Corporation which has been
prepared for delivery to, and reviewed by, prospective purchasers in
order to assist them in making an investment decision in respect of
the Common Shares and it has not become aware of any advertisement in
printed media of general and regular paid circulation, radio or
television with respect to the distribution of the Common Shares;
(c) it is purchasing the Common Shares as principal for its own account
and not for the benefit of any other person, and not with a view to
the resale or distribution of all or any of the Common Shares;
(d) if an individual, it has attained the age of majority and is legally
competent to execute this Subscription Agreement and to take all
actions required pursuant hereto;
(e) it has executed this agreement in the United States and has
concurrently executed and delivered a Representation Letter in the
form attached hereto as Schedule "A";
(f) it has such knowledge in financial and business affairs as to be
capable of evaluating the merits and risks of its investment and it is
able to bear the economic risk of loss of its investment;
(g) if required by applicable securities legislation, regulations, rules,
policy or order or by any securities commission, stock exchange or
other regulatory authority, it will execute, deliver, file and
otherwise assist the Corporation in filing such reports,
undertakings and other documents with respect to the issue of the
Common Shares as may be required;
(h) as at the date of this subscription agreement, the Subscriber does not
own, directly or indirectly, or exercise control or direction over any
Common Shares of the Corporation;
(i) it will not resell the Common Shares or any part thereof, issued
pursuant hereto except in accordance with the provisions of all
applicable securities legislation and stock exchange rules;
(j) this subscription has been duly and validly authorized, executed and
delivered by and constitutes a legal, valid, binding enforceable
obligation of the Subscriber;
(k) the delivery of this subscription, the acceptance of it by the
Corporation and the issuance of the Common Shares complies with all
applicable laws of the subscriber's jurisdiction of residence or
domicile and all other applicable laws and will not cause the
Corporation to become subject to any disclosure, prospectus or
reporting requirements under any such applicable laws; and
(l) it is a resident of the jurisdiction set out as the "Subscriber's
Address" and it:
(A) has an aggregate acquisition cost of purchasing the Common Shares
of not less than $97,000;
(B) if it is a corporation, syndicate, partnership or other form of
unincorporated organization, it pre-existed the offering of the
Common Shares and has a bona fide purpose other than investment
in the Common Shares, or if created to permit such investment,
the individual share of the aggregate acquisition cost for each
participant is not less than $97,000; and
(C) it complies with the requirements of all applicable securities
legislation in the jurisdiction of its residence and will provide
such evidence of compliance with all such matters as the
Corporation may request.
3. The Subscriber agrees that the above representations, warranties and
covenants shall be true and correct both as of the execution of this
subscription and as of the closing of the issuance of Common Shares to the
Subscriber and will survive the completion of the issuance of the Common Shares
to the Subscriber.
4. The foregoing representations, warranties and covenants are made by
the Subscriber with the intent that they be relied upon in determining its
suitability as a purchaser of Common Shares and the Subscriber hereby agrees to
indemnify the Corporation against all losses, claims, costs, expenses and
damages or liabilities (including reasonable legal fees, costs and
disbursements) which it may suffer or incur caused or arising from reliance
thereon.
5. The Corporation represents, warrants and covenants to the Subscriber
(and acknowledges that the Subscriber and its counsel, are relying thereon)
that:
(a) the Corporation has been duly incorporated and organized, and is a
valid and subsisting company, under the laws of Canada and has
all requisite corporate power to carry on its business, as now
conducted and as presently proposed to be conducted, and to own its
assets;
(b) this subscription constitutes a binding obligation of the Corporation
enforceable in accordance with its terms subject to equitable
limitations on the availability of legal remedies and to applicable
bankruptcy, insolvency, moratorium, reorganization or other similar
laws affecting creditors rights generally;
(c) the Corporation has the full corporate right, power and authority to
execute and deliver this Agreement, and to issue the Common Shares to
the undersigned;
(d) the execution and delivery of, and the performance of the terms of,
this Agreement by the Corporation does not and will not constitute a
breach of or default under the constating documents of the Corporation
or any law, regulation, order or ruling applicable to the Corporation
or any agreement, contract or indenture to which the Corporation is a
party or by which it is bound;
(e) the Corporation has reserved a sufficient number of Common Shares to
meet its obligation under this Agreement; the Common Shares have been
duly and validly created and authorized and, when issued, will be
issued as fully paid and non-assessable;
(f) there has not been any material adverse change in the assets,
liabilities or obligations (absolute, accrued, contingent or
otherwise) of the Corporation from the position set forth in the
audited balance sheet of the Corporation dated December 31, 1997;
(g) There is no action, proceeding or investigation pending or to
the knowledge of the Corporation threatened against or affecting
the Corporation or its properties, its officers or directors at law or
in equity, or before or by any federal, provincial or other
governmental department, commission, board or agency, domestic or
foreign, which materially adversely affects the Corporation or the
condition (financial or otherwise) of the Corporation or which
questions the validity of the issuance and sale, as fully paid and
non-assessable, of all or any of the outstanding Common Shares or any
action taken or to be taken by the Corporation pursuant to or in
conjunction with this agreement;
(h) the Corporation is not in material default or breach of, and the
execution, delivery and performance of and compliance with this
agreement, will not result in any breach of, or constitute a material
default under, or create a state of facts which, after notice or loss
of time or both, would constitute a material default under, any term
or provision of the constating documents, by-laws or resolutions of
the Corporation, or any mortgage, note, indenture, contract, agreement
(written or oral), instrument, lease or other material document to
which the Corporation is a party or by which it is contractually
bound, or any judgment, decree, order, statute, rule or regulation
applicable to the Corporation, which would have a material adverse
effect on the Corporation's financial condition;
(i) The authorized capital of the Corporation consists of an unlimited
number of Common Shares of which 17,046,691 are currently issued and
outstanding as fully paid and nonassessable;
(j) No securities commission or other regulatory body has issued any order
preventing or suspending trading in the Common Shares, and the
Corporation is not in default of any requirement of the Securities Act
(Alberta) or regulations thereunder or, to the knowledge of
the Corporation, the equivalent legislation in any other jurisdiction;
(k) the information and statements set forth in any documents filed by the
Corporation with any securities commission or similar regulatory body
in Canada or the United States (the "Public Record") were true,
correct, and complete and did not contain any misrepresentation, as of
the date of such information or statement and the Corporation has not
filed any confidential material change reports which are still
maintained on a confidential basis;
(l) except as disclosed in the Public Record, there are no warrants,
calls, commitments or other rights entitling the holder thereof to
acquire any unissued Common Shares or any other securities of the
Corporation convertible into Common Shares;
(m) the Common Shares of the Corporation are listed for trading on the
Vancouver Stock Exchange; the Corporation is in compliance in all
material respects with the rules and policies of the Vancouver Stock
Exchange; the Corporation has applied for and has received conditional
approval for the listing of its Common Shares on The Toronto Stock
Exchange; and the Corporation has no reason to believe that The
Toronto Stock Exchange will decline to list the Corporation's Common
Shares.
6. The Corporation agrees that the above representations, warranties and
covenants shall be true and correct both as of the execution of this
subscription and as of the closing of the issuance of Common Shares to the
Subscriber and will survive the completion of the issuance of the Common Shares
to the Subscriber.
7. The foregoing representations, warranties and covenants are made by
the Corporation with the intent that they be relied upon by the Subscriber
in determining whether to purchase the Common Shares and the Corporation hereby
agrees to indemnify the Subscriber against all losses, claims, costs, expenses
and damages or liabilities (including reasonable legal fees, costs and
disbursements) which it may suffer or incur caused or arising from reliance
thereon.
8. It is understood and agreed that this subscription and all monies
tendered herewith shall be held in trust pursuant to an Escrow Agreement (in the
form attached hereto as Schedule "B") by Messrs. Code Hunter Wittmann,
Barristers and Solicitors, of Calgary, Alberta, pending approval of the issuance
of the Common Shares by the shareholders of the Corporation.
9. The Corporation shall, forthwith upon acceptance of this subscription
by the Corporation, receipt of all regulatory approvals and receipt of all
required shareholder approvals at a meeting to be held on or about November 30,
1998 (the "Closing Time"), cause the Common Shares (as constituted on October
26, 1998) to be issued as fully paid and non-assessable Common Shares of the
Corporation and shall deliver such Common Shares to the Subscriber, all as per
the registration and delivery instructions on the face page hereof.
10. The contract arising out of this subscription shall be governed by and
construed in accordance with the laws of the province of Alberta and the laws of
Canada applicable therein. Time shall be of the essence hereof.
11. The Corporation shall be entitled to rely on delivery of a facsimile
copy of executed subscriptions, and acceptance by the Corporation of such
facsimile subscriptions shall be legally effective to create a valid and binding
agreement between the Subscriber and the Corporation in accordance with the
terms hereof.
12. This subscription represents the entire agreement of the parties
hereto relating to the subject matter 13hereof and there are no
representations, covenants or other agreements relating to the subject matter
hereof except as stated or referred to herein.
ESCROW AGREEMENT
THIS ESCROW AGREEMENT is made as of the 26th day of October, 1998.
AMONG:
BIG HORN RESOURCES LTD., a corporation governed by the laws
of Canada ("Big Horn")
- and -
EUROGAS, INC., a corporation governed by the laws of the
State of Utah, United States of America ("EuroGas")
- and -
CODE HUNTER WITTMANN, barristers and solicitors, a
partnership carrying on business in the City of Calgary,
Alberta (the "Escrow Agent")
WHEREAS Big Horn has agreed, subject to receipt of all regulatory and
shareholder approvals, to issue, by way of private placement, an aggregate of
10,000,000 common shares at a price of $0.65 per share;
AND WHEREAS pursuant to a share subscription agreement of even date
herewith between Big Horn and EuroGas, EuroGas has agreed to purchase an
aggregate of 8,500,000, common shares of Big Horn;
AND WHEREAS for purposes of temporary convenience, EuroGas has agreed
to advance monies in respect of the entire 10,000,000 common shares of Big Horn
to be offered by way of private placement;
AND WHEREAS it is agreed that the proceeds of the private
placement are to be held in escrow pending the receipt of the approval of the
shareholders of Big Horn to the issuance of the common shares of Big Horn in
connection with the private placement;
AND WHEREAS the recitals to this Agreement are made by the parties,
other than the Escrow Agent.
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby mutually admitted by each of the parties, the
parties hereby agree as follows:
ARTICLE 1
INTERPRETATION
1.1 Definitions - Whenever used in this Agreement, unless there is
something inconsistent in the subject matter or context, the following terms
shall have the following meanings:
(a) "Agreement" means this Escrow Agreement, including all schedules and
all instruments supplementing or amending or confirming this Agreement
and references to "Article" or "Section" mean and refer to the
specified Article or Section of this Agreement;
(b) "Authorized Person" shall have the meaning set out in Section 4.1;
(c) "Business Day" means a day other than a Saturday, Sunday or statutory
holiday in Alberta or Utah;
(d) "Common Shares" means common shares of Big Horn;
(e) "Escrow Funds" means the amount of Cdn. $6,500,000, being the
subscription funds for the Common Shares offered on the Private
Placement, or such lesser amount as may be held in trust by the Escrow
Agent pursuant to the terms of this Agreement from time to time;
(f) "Interest" shall have the meaning set out in Section 2.3;
(g) "Private Placement" means the issuance by way of private placement of
an aggregate of 10,000,000 Common Shares at a price of $0.65;
(h) "Regulatory Approvals" means any approval or consent required by any
securities regulatory body or stock exchange in Canada or the United
States which, upon the advice of the Corporation's legal counsel, may
be required in connection with the Private Placement;
(i) "Shareholder Approvals" means that shareholders holding a majority
of the shares entitled to vote at the Shareholders' Meeting have
approved of the Private Placement; and
(j) "Shareholders' Meeting" means the special meeting of the shareholders
of Big Horn to be held on or about November 30, 1998 wherein the
shareholders of Big Horn will be asked to approve of the Private
Placement;
1.2 Gender and Number - Words importing the singular include the plural
and vice versa; and words importing gender include all genders.
1.3 Headings - Article and Section headings contained in this Agreement
are included solely for convenience, are not intended to be full or accurate
descriptions of content and shall not be considered part of this Agreement.
1.4 Applicable Law - This Agreement shall be governed by and construed in
accordance with the laws of the Province of Alberta and the laws of Canada
applicable in Alberta and shall be treated, in all respects, as an Alberta
contract.
1.5 Currency - Unless otherwise indicated, all dollar amounts referred to
in this Agreement and in any notice delivered pursuant to the terms of this
Agreement are in Canadian funds.
ARTICLE 2
APPOINTMENT OF ESCROW AGENT AND INVESTMENT OF FUNDS
2.1 Appointment of Escrow Agent - Big Horn and EuroGas hereby appoint the
Escrow Agent to act as escrow agent on the terms and conditions set forth in
this Agreement and the Escrow Agent hereby accepts such appointment on such
terms and conditions.
2.2 Deposit - EuroGas hereby delivers the Escrow Funds by wire transfer of
immediately available funds to an account designated by the Escrow Agent and the
Escrow Agent, by its execution and delivery of this Agreement, acknowledges
receipt of such funds. The Escrow Agent agrees to hold the Escrow Funds in
trust and to place such funds in an interest-bearing bank account established at
The Bank of Nova Scotia in the name of the Escrow Agent.
2.3 Interest on the Escrow Funds - Any interest or other income or gains
earned on or in respect of the Escrow Funds (such net interest, income or gains
being referred to in this Agreement as "Interest") shall be accrued and retained
by the Escrow Agent and shall form part of the Escrow Funds.
ARTICLE 3
RELEASE OF FUNDS FROM ESCROW
3.1 Direction - The following provisions shall govern with respect to the
release of the Escrow Funds:
(a) Upon receipt of a written notice from Big Horn (consented to by
EuroGas) in the form attached hereto as Schedule "A" confirming that
the Shareholders' Meeting has been held and that all necessary
Shareholder Approvals and Regulatory Approvals have been obtained, the
Escrow Agent shall remit the Escrow Funds, plus any accrued interest
thereon, to Big Horn;
(b) Upon receipt of a written notice from EuroGas (provided that such
notice is not disputed by Big Horn in which case the provisions of
Section 4.3 hereof shall apply) confirming that the Shareholders'
Meeting has been held and that all necessary Shareholder Approvals and
Regulatory Approvals have not been obtained, the Escrow Agent shall
remit the Escrow Funds, plus any accrued interest thereon, to EuroGas;
(c) the Escrow Agent may, from time to time, release all or part of the
Escrow Funds upon a joint written direction from EuroGas and Big Horn;
3.2 Votes Cast at Shareholders' Meeting - The parties acknowledge and
agree that Ontario Securities Commission Policy 9.1 applies to the Private
Placement such that Oxbridge Limited ("Oxbridge"), Rockwell Limited ("Rockwell")
and Conquest Financial Corporation ("Conquest") shall each be considered to be a
"related party" to Big Horn (within the meaning of such O.S.C. Policy 9.1) and
that as a result of the application of Part VIII of O.S.C. Policy 9.1 the Common
Shares of Big Horn owned, directly or indirectly by, or under the control or
direction of, Oxbridge, Rockwell and Conquest may not be voted at the
Shareholders' Meeting.
3.3 No Claim to Released Funds - Upon the proper release of any part or
all of the Escrow Funds in the applicable Escrow Accounts in accordance with the
terms of this Agreement, the rights of Big Horn and EuroGas with respect to such
released Escrow Funds shall be terminated.
ARTICLE 4
THE ESCROW AGENT
4.1 General
(a) Each of Big Horn and EuroGas shall each file with the Escrow Agent a
certificate of incumbency setting forth the name of an individual or
individuals authorized to give instructions, directions or statutory
declarations to the Escrow Agent on their behalf (the "Authorized
Person"), together with a specimen signature of such person or
persons. Each of Big Horn and EuroGas may file further certificates
of incumbency from time to time and the Escrow Agent shall be entitled
to rely on the latest certificate of incumbency filed with it.
(b) The Escrow Agent shall be fully protected in acting upon any
instrument, certificate or paper believed by it in good faith to be
genuine and to be signed or represented by an Authorized Person and in
such event the Escrow Agent 8shall be under no duty to make
investigations or inquiry as to any statement contained in any such
writing, but may accept the same as conclusive evidence of the truth
and accuracy of the statements therein contained.
4.2 Indemnity - Big Horn and EuroGas will (in addition to any right of
indemnity by law given to the Escrow Agent) at all times jointly and severally
indemnify the Escrow Agent and its partners, employees and agents against all
taxes, liabilities, damages, losses, actions, proceedings, legal and
professional fees, costs, claims and demands in respect of any matter or thing
done or omitted by it in any way relating to this Agreement, other than taxes,
liabilities, damages, losses, actions, proceedings, costs, claims or demands
arising from the gross negligence or willful misconduct on the part of the
Escrow Agent. Notwithstanding the lapse or termination of this Agreement, this
Section 4.2 shall survive and continue for the benefit of the Escrow Agent.
4.3 Dispute - Notwithstanding any other provision of this Agreement, in
the event of a dispute as to the Escrow Funds, or any portion thereof, or any
provisions of this Agreement or the transaction between the parties, then:
(a) the Escrow Agent shall be under no obligation to act, except under
process or order of any court, or the joint direction of Big Horn and
EuroGas in resolution of such dispute and it shall sustain no
liability for its failure to act pending such process or court order
or the joint direction of Big Horn and EuroGas in resolution of such
dispute; and
(b) the Escrow Agent may, in its sole and absolute discretion, deposit the
Escrow Funds or any portion thereof, with the Clerk of a court of
competent jurisdiction in Calgary, Alberta, and interplead this
Agreement and all other relevant documents and monies and upon so
depositing such documents and monies and filing its interpleader it
shall be relieved of all liability under the terms hereof.
4.4 Return of Escrow Funds - Notwithstanding anything else in this
Agreement, if the Escrow Agent has not dispersed the Escrow Funds or received a
notice that there is a dispute as to all or a portion of the Escrow Funds by
December 31, 1998, the Escrow Agent shall be entitled, in its discretion, to
return the Escrow Funds to EuroGas, together with any interest accrued thereon
whereupon this Agreement shall terminate and the Escrow Agent shall have no
further duties or obligations in respect of the Escrow Funds.
4.5 Counsel - The Escrow Agent may employ such counsel and advisers as it
may reasonably require for the purpose of discharging its duties under this
Agreement and the Escrow Agent may act and shall be protected in acting in good
faith on the opinion or advice of or information obtained from any such counsel
or adviser in relation to any matter arising under this Agreement.
4.6 Replacement of Escrow Agent
(a) The Escrow Agent may resign and be discharged from all further duties
under this Agreement by giving ten (10) days' notice of its
resignation in writing to each of Big Horn and EuroGas.
(b) Big Horn and EuroGas may at any time on ten (10) days' joint written
notice remove the Escrow Agent and appoint a new escrow agent.
(c) In the event of the Escrow Agent resigning or being removed or being
dissolved, becoming bankrupt, going into liquidation or
otherwise becoming incapable of acting under this Agreement, Big Horn
and EuroGas shall forthwith appoint a new Escrow Agent and any Escrow
Agent so appointed shall be subject to resignation or removal in the
same manner as was the original Escrow Agent.
(d) In the event that a successor Escrow Agent has not been appointed at
the time the notice period for the Escrow Agent's resignation expires,
the Escrow Agent shall deposit the Escrow Funds with the clerk of a
court of competent jurisdiction in the City of Calgary, Alberta and
shall interplead all of the parties to this Agreement. Upon so
depositing the Escrow Funds and filing its pleadings, this Agreement
shall terminate as to the Escrow Agent.
(e) In the case of the appointment of a new Escrow Agent under this
Agreement, the predecessor Escrow Agent shall transfer the Escrow
Funds to the new Escrow Agent duly appointed and shall thereupon be
released from further duties under this Agreement.
(f) Upon its appointment, the new Escrow Agent shall be vested with the
same powers, rights, duties and responsibilities as if it had been
originally named in this Agreement as Escrow Agent, without any
further assurance, conveyance, act or deed and there shall be
immediately executed, at the expense of Big Horn and EuroGas, all such
conveyances or other instruments as may, in the opinion of counsel, be
necessary or advisable for the purpose of assuring to the Escrow Agent
a full estate in the premises.
(g) The Escrow Agent shall have no duties or liabilities except those
which are expressly set forth in this Agreement. The Escrow Agent
shall have no liability or responsibility arising under any agreement,
including any agreement referred to in this Agreement, to which the
Escrow Agent is not a party 11and shall not be bound by any notice
of a claim or demand with respect thereto, or any waiver,
modification, amendment, termination or rescission of this Agreement
unless received by it in writing, signed by Big Horn and EuroGas and,
if the duties or indemnification of the Escrow Agent herein are
thereby affected, unless it shall have given its prior written consent
thereto.
ARTICLE 5
GENERAL
5.1 Time of the Essence - Time shall be of the essence of this Agreement.
5.2 Notice - Any notice or other communication or writing required or
permitted to be given under this Agreement or for the purposes of this Agreement
(a "notice") shall be in writing and shall be sufficiently given if delivered
personally or if transmitted by facsimile transmission (with original to follow
by mail) or other form of recorded communication tested prior to transmission,
to:
(a) in the case of a notice to 701870:
Big Horn Resources Ltd.
1717, 700 - 4th Avenue S.W.
Calgary, Alberta T2P 3J4
Attention: Mr. Reg Greenslade
Fax: (403) 294-1197
(b) in the case of a notice to EuroGas:
EuroGas, Inc.
942 East 7145 South, #101A
Midvale, Utah
U.S.A. 84047
Attention: Hank Blankenstein
Fax: (801) 255-2005
(c) in the case of a notice to the Escrow Agent:
Code Hunter Wittmann
Barristers & Solicitors
Suite 1200, Scotia Centre
700 - 2nd Street S.W.
Calgary, Alberta T2P 4V5
Attention: Mr. Richard F. McHardy
Fax: (403) 263-9193
or to such other address as the party to whom such notice is to be given shall
have last notified the party giving the same in the manner provided in this
Section. Any notice so delivered shall be deemed to have been given and
received on the day it is so delivered at such address, provided that if such
day is not a Business Day then the notice shall be deemed to have been given and
received on the Business Day next following the day it is so delivered. Any
notice so transmitted by facsimile transmission or other form of recorded
communication shall be deemed to have been given and received on the day of its
confirmed transmission (as confirmed by the transmitting medium), provided that
if such day is not a Business Day then the notice shall be deemed to have been
given and received on the Business Day next following such day.
5.3 Severability - Any condition hereof that is held to be inoperative,
unenforceable or invalid in any jurisdiction shall be inoperative, unenforceable
or invalid in that jurisdiction without affecting any other condition hereof in
that jurisdiction or the operation, enforceability or validity of that condition
in any other jurisdiction, and to this end the conditions hereof are declared to
be severable.
5.4 Further Assurances - Big Horn and EuroGas will at any time and from
time to time, upon the request of another party or the Escrow Agent, execute and
deliver such further documents and do such further acts and things as may
reasonably be requested in order to evidence, carry out and give full effect to
the terms, conditions, intent and meaning of this Agreement.
5.5 No Waiver - No failure or delay on the part either of Big Horn and
EuroGas in exercising any right, power or remedy provided herein may be, or may
be deemed to be, a waiver thereof; and no single or partial exercise of any
right, power or remedy shall preclude any other or further exercise of such
right, power or remedy or any other right, power or remedy.
5.6 Amendments - This Agreement may be amended or cancelled other than
pursuant to Section 4.4 by and upon written notice to the Escrow Agent at any
time given jointly by Big Horn and EuroGas but the duties and responsibilities
and indemnification of the Escrow Agent shall not be affected without its
written consent.
5.7 Successors - This Agreement shall be binding upon and shall enure to
the benefit of the parties hereto and their successors and assigns.
5.8 Counterparts - This Agreement may be executed by the parties in
separate counterparts each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument.
IN WITNESS WHEREOF the parties have duly executed this Agreement.
BIG HORN RESOURCES LTD. EUROGAS, INC.
Per: /s/ Reginald Greenslade Per: /s/ Hank Blankenstein
CODE HUNTER WITTMANN
Per: /s/ Richard F. McHardy
SIDE AGREEMENT
THIS AGREEMENT is made as of the 26th day of October, 1998.
BETWEEN:
BIG HORN RESOURCES LTD., a corporation governed by the laws
of Canada ("Big Horn")
- and -
EUROGAS, INC., a corporation governed by the laws of the
State of Utah, United States of America ("EuroGas")
WHEREAS Big Horn has agreed, subject to receipt of all regulatory and
shareholder approvals, to issue, by way of private placement, an aggregate of
10,000,000 common shares at a price of $0.65 per share;
AND WHEREAS pursuant to a share subscription agreement of even date
herewith between Big Horn and EuroGas, EuroGas has agreed to purchase an
aggregate of 8,500,000, common shares of Big Horn;
AND WHEREAS for purposes of temporary convenience, EuroGas has agreed
to advance monies in respect of the entire 10,000,000 common shares of Big Horn
to be offered by way of private placement;
AND WHEREAS the proceeds of the private placement are to be held in
escrow pending the receipt of all necessary shareholder approvals to the private
pursuant to the terms of an Escrow Agreement dated as of even date herewith
between Big Horn, EuroGas and Code Hunter Wittmann;
AND WHEREAS EuroGas has agreed to lend Big Horn the sum of $2,500,000
out of the private placement proceeds pending receipt of all necessary
shareholder approvals to the private placement;
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby mutually admitted by each of the parties, the
parties hereby agree as follows:
ARTICLE 1
INTERPRETATION
1.1 Definitions - Whenever used in this Agreement, unless there is
something inconsistent in the subject matter or context, the following terms
shall have the following meanings:
(a) "Agreement" means this Side Agreement, including all schedules and all
instruments supplementing or amending or confirming this Agreement and
references to "Article" or "Section" mean and refer to the specified
Article or Section of this Agreement;
(b) "Business Day" means a day other than a Saturday, Sunday or statutory
holiday in Alberta or Utah;
(c) "Common Shares" means common shares of Big Horn;
(d) "Escrow Agreement" means the agreement entered into among Big Horn,
EuroGas and Code Hunter Wittmann of even date herewith respecting the
Escrow Funds;
(e) "Escrow Funds" means the amount of Cdn. $6,500,000, being the
subscription funds for the Common Shares offered on the Private
Placement;
(f) "GSA" means the General Security Agreement of even date herewith
granted by Big Horn to EuroGas over all of Big Horn's present and
after acquired personal property in the form attached hereto as
Schedule "C";
(g) "Indebtedness" means the amount referred to in Section 2.1 hereof;
(h) "Joint Direction" means the direction attached hereto as Schedule "A";
(i) "Private Placement" means the issuance by way of private placement of
an aggregate of 10,000,000 Common Shares at a price of $0.65;
(j) "Promissory Note" means the promissory note in the form attached
hereto as Schedule "B";
(k) "Regulatory Approvals" means any approval or consent required by any
securities regulatory body or stock exchange in Canada or the United
States which, upon the advice of the Corporation's legal counsel, may
be required in connection with the Private Placement;
(l) "Shareholder Approvals" means those shareholders holding a majority of
the shares entitled to vote at the Shareholders' Meeting have approved
of the Private Placement; and
(m) "Shareholders' Meeting" means the special meeting of the shareholders
of Big Horn to be held on or about November 30, 1998 wherein the
shareholders of Big Horn will be asked to approve of the Private
Placement;
1.2 Definitions - All capitalized terms not otherwise defined in this
Agreement but specifically defined in the Escrow Agreement shall have the same
meaning in this Agreement as in the Escrow Agreement, unless there is something
inconsistent in the subject matter or context.
1.3 Gender and Number - Words importing the singular include the plural
and vice versa; and words importing gender include all genders.
1.4 Headings - Article and Section headings contained in this Agreement
are included solely for convenience, are not intended to be full or accurate
descriptions of content and shall not be considered part of this Agreement.
1.5 Applicable Law - This Agreement shall be governed by and construed in
accordance with the laws of the Province of Alberta and the laws of Canada
applicable in Alberta and shall be treated, in all respects, as an Alberta
contract.
1.6 Currency - Unless otherwise indicated, all dollar amounts referred to
in this Agreement and in any notice delivered pursuant to the terms of this
Agreement are in Canadian funds.
ARTICLE 2
LOAN
2.1 Loan from EuroGas to Big Horn - EuroGas hereby agrees to lend to Big
Horn and Big Horn agrees to borrow from EuroGas the principal sum of TWO MILLION
FIVE HUNDRED THOUSAND ($2,500,000) DOLLARS which principal sum shall be paid by
Borrower in the manner and upon the terms and conditions contained herein.
2.2 Debit of Escrow Funds - The parties agree that the Indebtedness shall
be advanced to Big Horn from the Escrow Funds currently deposited under the
Escrow Agreement. In this regard, each of Big Horn and EuroGas agree to execute
and deliver to Code Hunter Wittmann the Joint Direction.
2.3 Use - Big Horn covenants and agrees that it will utilize the
Indebtedness in order to assist it in purchasing all of the issued and
outstanding shares of Ironwood Petroleum Ltd. ("Ironwood") pursuant to a take-
over bid mailed by Big Horn to the shareholders of Ironwood dated October 6,
1998.
2.4 Promissory Note - As security for the Indebtedness, Big Horn agrees to
deliver to EuroGas the Promissory Note and the GSA.
2.5 Approvals to the Private Placement - The parties agree that in the
event that all necessary Shareholder Approvals and Regulatory Approvals to the
Private Placement are obtained, then the Indebtedness shall be set-off against
the amount owing to Big Horn by EuroGas in respect of the Private Placement.
EuroGas shall forthwith thereafter deliver the Promissory Note for cancellation
and shall execute all such documents as may be reasonably requested by Big Horn
to discharge any security interest registered by or on behalf of EuroGas in
connection with the Indebtedness.
2.6 Interest - The Indebtedness shall bear no interest provided, however,
that in the event that Big Horn does not receive all necessary Shareholder
Approvals and Regulatory Approvals by December 31, 1998, then the Indebtedness
shall bear interest from and after the date hereof as set out in the Promissory
Note.
2.7 Pre-Payment - Big Horn shall not be entitled to pay any or all of the
Indebtedness until such time as the Shareholders' Meeting has been concluded.
2.8 Payment - Notwithstanding anything else herein, subject to Section 2.5
hereof, the Indebtedness shall be due and payable by Big Horn on December 31,
1998.
2.9 Positive Covenants - Big Horn covenants and agrees that, from and
including the date hereof until the termination of this Agreement, it will use
reasonable commercial efforts to:
(a) comply in all material respects with its existing bank loan terms;
(b) pay, when due, all taxes and other obligation provided it is not
validly contesting same;
(c) file, in a timely manner, all documentation required to be filed by it
by law or by any securities regulatory body or stock exchange;
(d) conduct its business in the usual and ordinary course; and
(e) diligently pursue the final approval for listing of its common shares
on The Toronto Stock Exchange.
2.10 Negative Covenants - Big Horn covenants and agrees that, from and
including the date hereof until the termination of this Agreement, it shall not,
without the prior consent of EuroGas, not to be unreasonably withheld:
(a) declare or pay any dividends in respect of its shares;
(b) except in respect of its outstanding take-over bid to purchase all the
shares of Ironwood Petroleum Ltd., incur any indebtedness for borrowed
money except in the ordinary course of business;
(c) except in respect of its outstanding take-over bid to purchase all the
shares of Ironwood Petroleum Ltd., purchase any property or assets of
any other individual or entity except in the ordinary course of
business (which for the purposes of this subsection 2.10(c) shall mean
any property or assets having a purchase price in excess of
$2,000,000);
(d) make any extraordinary payments to any directors, officers or
employees; or
(e) grant, sell, pledge or agree to issue any warrants, options or other
securities convertible into common shares;
ARTICLE 3
GENERAL
3.1 Time of the Essence - Time shall be of the essence of this Agreement.
3.2 Termination - This Agreement shall automatically terminate upon the
earlier of:
(a) the date of the Shareholders' Meeting, provided all necessary
Shareholder Approvals and Regulatory Approvals have been obtained; or
(b) December 31, 1998.
3.3 Notice - Any notice or other communication or writing required or
permitted to be given under this Agreement or for the purposes of this Agreement
(a "notice") shall be in writing and shall be sufficiently given if delivered
personally or if transmitted by facsimile transmission (with original to follow
by mail) or other form of recorded communication tested prior to transmission,
to:
(a) in the case of a notice to Big Horn:
Big Horn Resources Ltd.
1717, 700 - 4th Avenue S.W.
Calgary, Alberta T2P 3J4
Attention: Mr. Reg Greenslade
Fax: (403) 294-1197
(b) in the case of a notice to EuroGas:
EuroGas, Inc.
942 East 7145 South, #101A
Midvale, Utah
U.S.A. 84047
Attention: Hank Blankenstein
Fax: (801) 255-2005
or to such other address as the party to whom such notice is to be given shall
have last notified the party giving the same in the manner provided in this
Section. Any notice so delivered shall be deemed to have been given and
received on the day it is so delivered at such address, provided that if such
day is not a Business Day then the notice shall be deemed to have been given and
received on the Business Day next following the day it is so delivered. Any
notice so transmitted by facsimile transmission or other form of recorded
communication shall be deemed to have been given and received on the day of its
confirmed transmission (as confirmed by the transmitting medium), provided that
if such day is not a Business Day then the notice shall be deemed to have been
given and received on the Business Day next following such day.
3.4 Severability - Any condition hereof that is held to be inoperative,
unenforceable or invalid in any jurisdiction shall be inoperative, unenforceable
or invalid in that jurisdiction without affecting any other condition hereof in
that jurisdiction or the operation, enforceability or validity of that condition
in any other jurisdiction, and to this end the conditions hereof are declared to
be severable.
3.5 Further Assurances - Big Horn and EuroGas will at any time and from
time to execute and deliver such further documents and do such further acts and
things as may reasonably be requested in order to evidence, carry out and give
full effect to the terms, conditions, intent and meaning of this Agreement.
3.6 Amendment - No modification, variation, waiver or amendment of any of
the provisions of this Agreement shall be made unless in writing as agreed to
between the parties.
3.7 No Waiver - No failure or delay on the part either of Big Horn and
EuroGas in exercising any right, power or remedy provided herein may be, or may
be deemed to be, a waiver thereof; and no single or partial exercise of any
right, power or remedy shall preclude any other or further exercise of such
right, power or remedy or any other right, power or remedy.
3.8 Successors - This Agreement shall be binding upon and shall enure to
the benefit of the parties hereto and their successors and assigns.
3.9 Counterparts - This Agreement may be executed by the parties in
separate counterparts each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument.
IN WITNESS WHEREOF the parties have duly executed this Agreement.
BIG HORN RESOURCES LTD. EUROGAS, INC.
Per: /s/ Reginald Greenslade Per: /s/ Hank Blankenstein
SECURITY AGREEMENT
THIS AGREEMENT made effective October 26, 1998.
BETWEEN:
EUROGAS, INC., a corporation incorporated under the laws of
the State of Utah (hereinafter referred to as the
"Creditor")
-and-
BIG HORN RESOURCES LTD., a corporation incorporated under
the laws of Canada (hereinafter referred to as the "Debtor")
WHEREAS the Debtor is indebted to the Creditor in the amount of
$2,500,000 as evidenced by a promissory note given by the Debtor to the Creditor
dated October 26, 1998 (the "Promissory Note");
AND WHEREAS pursuant to such indebtedness, the Debtor wishes to grant
a security interest in and to all of its assets to the Creditor;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the
payment of certain good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged by each of the parties hereto, the parties
hereto hereby agree as follows:
1. GRANT OF SECURITY INTEREST: As continuing and collateral security for
payment and performance of all existing obligations, indebtedness and
liabilities of the Debtor to the Creditor pursuant to the Promissory Note and
for value received, the receipt and sufficiency of which is hereby acknowledged,
the Debtor hereby grants to the Creditor, by way of mortgage, charge, assignment
and transfer, a continuing security interest (the "Security Interest") in all of
the Debtor's present and after acquired personal property and in all Proceeds
and renewals, replacements, additions, substitutions thereof, parts,
accessories, attachments and Accessions thereto (hereinafter collectively called
the "Collateral").
2. DEFINITIONS AND INTERPRETATIONS: In this Security Agreement:
(a) the defined terms used herein shall be interpreted pursuant to their
respective meanings as defined herein and in the Personal Property
Security Act of the Province of Alberta, as amended from time to time,
which Act, including amendments thereto and any Act substituted
therefor and amendments thereto is herein called the "P.P.S.A.";
(b) the term "Collateral" shall, unless the context otherwise requires, be
deemed a reference to "Collateral or any part thereof"; and
(c) the term "this Security Agreement" shall mean this Security Agreement
including any schedules hereto and the terms "herein", "hereto",
"hereof", "hereby", "hereunder" and similar terms refer to this
Security Agreement so defined and any reference to a particular
Section shall mean the appropriate Section of this Security Agreement.
3. OBLIGATIONS SECURED: The Security Interest granted by this Security
Agreement secures payment and performance of any and all obligations,
indebtedness and liability of the Debtor to the Creditor (including interest
thereon) pursuant to the Promissory Note and any unpaid amounts in respect
thereof (hereinafter called the "Indebtedness"). The grant by the Debtor of the
Security Interest in the Collateral to the Creditor in no way shall limit or
restrict the rights and remedies of the Creditor to collect and enforce
collection from the Debtor of any of the Indebtedness, and the Creditor shall
not be required or obligated to enforce its rights or remedies under this
Security Agreement before enforcing collection. When the Indebtedness and the
granting of a Security Interest by the Debtor gives rise to a purchase-money
security interest (as defined by law) in and for the Collateral (or any part
thereof), the Debtor does, without limitation, grant to the Creditor a purchase-
money security interest in the Collateral in accordance with relevant law in
force in the Province of Alberta.
4. EXCLUSION: The Security Interest granted hereby shall not extend or apply
to and the Collateral shall not include any personal property held in trust by
the Debtor and lawfully belonging to others.
5. REPRESENTATIONS AND WARRANTIES OF DEBTOR: Debtor represents and warrants
and so long as this Security Agreement remains in force and effect shall be
deemed to continuously represent and warrant that:
(a) the Collateral is genuine and owned by the Debtor free of all security
interests, mortgages, liens, claims, taxes, assessments, charges or
other encumbrances (hereinafter collectively called "Encumbrances"),
except for the Security Interest and those Encumbrances shown on
Schedule "A" or hereafter approved in writing by the Creditor, prior
to their creation or assumption;
(b) the Collateral is located in the Provinces of Alberta and Saskatchewan
unless otherwise indicated on Schedule "A"; and
(c) there is no litigation, action, suit, claim, proceeding or dispute
threatened or pending against or affecting the Debtor or the
Collateral that will materially and adversely affect the Debtor's
financial condition or affairs or impair the Debtor's ability to
perform its obligations hereunder or to pay the Indebtedness.
6. COVENANTS OF DEBTOR: The Debtor covenants and agrees that at all times the
Debtor shall:
(a) pay all costs, charges and expenses, including without limitation
legal fees on a solicitor and its own client basis of the Creditor
incurred with respect to the preparation and execution of this
Security Agreement and the taking, recovering, possessing or disposing
of the Collateral or in any other proceedings taken for the purpose of
enforcing the remedies provided herein, or otherwise in relation to
the Collateral or by reason of non-payment of the Indebtedness hereby
secured and all such costs and expenses shall bear interest at the
highest rate borne by any of the Indebtedness and shall be payable on
demand and shall be secured hereby;
(b) defend the Collateral against the claims and demands of all other
parties claiming the same or an interest therein; keep the Collateral
free from all Encumbrances, except for the Security Interest and those
shown on Schedule "A" or hereafter approved in writing by the Creditor
prior to their creation or assumption, and not sell, exchange,
transfer, assign, lease, or otherwise dispose of the Collateral or any
interest therein without the prior written consent of the Creditor;
(c) notify the Creditor immediately of:
(i) any change in the information contained and provided herein or
in the Schedule hereto relating to the Debtor, the Debtor's
affairs or the Collateral;
(ii) the details of any claims or litigation affecting the Debtor
or the Collateral;
(iii) any loss or damage to the Collateral; and
(iv) the return to, or repossession by the Debtor of any of the
Collateral;
(d) keep the Collateral in good order, condition and repair and shall
comply with and not use the Collateral in violation of the provisions
of this Security Agreement or any other agreement relating to the
Collateral or any policy insuring the Collateral or any applicable
statute, law, by-law, rule, regulation or ordinance;
(e) do, execute, acknowledge and deliver such financing statements,
financing change statements and further assignments, transfers,
documents, acts, matters and things (including further schedules
hereto) as may be reasonably requested by the Creditor of or with
respect to the Collateral in order to give effect to this Security
Agreement and to pay all costs for searches and filings in connection
therewith;
(f) pay all obligations and other charges of every nature which may be
lawfully levied, assessed or imposed against or in respect of the
Debtor or the Collateral as and when they become due and payable;
(g) permit a representative of the Creditor at any time to inspect the
Collateral and shall permit entrance into any location where the
Collateral may be situated and the Debtor shall pay the Creditor's
expenses incurred in this regard;
(h) prevent the Collateral from being or becoming an Accession or fixture
to other property not covered by this Security Agreement;
(i) deliver to the Creditor from time to time promptly upon request:
(i) any Documents of Title, Instruments, Securities and Chattel
Paper constituting, representing or relating to the
Collateral;
(ii) all files, books and all records, reports, correspondence,
schedules, documents, statements, lists and other writings
relating to the Collateral or copies thereof for the purpose
of inspecting, auditing or copying the same;
(iii) all policies and certificates of insurance relating to the
Collateral; and
(iv) such other information concerning the Collateral, the Debtor
and the Debtor's affairs as the Creditor may reasonably
request;
(j) pay duly and punctually all the Indebtedness due to the Creditor and
perform all other obligations on its part to be performed under this
Security Agreement.
7. SECURITIES: The Debtor irrevocably authorizes and appoints the Creditor as
its attorney and agent to transfer the Collateral including without limitation
Securities or any part thereof into its own name or that of its nominee(s) so
that the Creditor or its nominee(s) may appear of record as the sole owner
thereof; provided that the Creditor shall, in respect of any Securities of which
it is the owner of record and until default, deliver promptly to the Debtor all
notices or other communications received by it or its nominee(s) as such
registered owner and, upon demand and receipt of payment of any necessary
expenses thereof, shall issue to the Debtor or its order a proxy to vote and
take all action with respect to such Securities. After default, the Debtor
waives all rights to receive any notices or communications received by the
Creditor or its nominee(s) as such registered owner and agrees that no proxy
issued by the Creditor to the Debtor or its order as aforesaid shall thereafter
be effective.
8. INCOME AND INTEREST:
(a) Until default, the Debtor may receive any Money constituting income
from or interest on the Collateral and if the Creditor receives any
such Money prior to default, the Creditor may either credit such Money
against the Indebtedness or pay same promptly to the Debtor; and
(b) After default, the Debtor will not request or receive any Money
constituting income from or interest on the Collateral and if the
Debtor receives any such Money, the Debtor shall receive such Money in
trust for and shall pay the Money promptly to the Creditor.
9. ADDITIONAL INCOME:
(a) Whether or not default has occurred, the Debtor authorizes the
Creditor:
(i) to receive any increase in or profits on the Collateral
(other than Money) and to hold the same as part of the
Collateral. Money so received shall be treated as income
for the purposes of Section 8 hereof and dealt with
accordingly; and
(ii) to receive any payment or distribution upon redemption or
retirement or upon dissolution and liquidation of the issuer
of the Collateral; to surrender such Collateral in exchange
therefor; and to hold any such payment or distribution as
part of the Collateral;
(b) If the Debtor receives any such increase or profits (other than Money)
or payments or distributions, the Debtor shall receive same in trust
for and shall deliver same promptly to the Creditor to be held by the
Creditor as herein provided.
10. APPLICATION OF MONEY: Subject to any applicable requirements of the
P.P.S.A., all Money collected or received by the Creditor pursuant to or in
exercise of any right it possesses with respect to the Collateral shall be
applied on account of Indebtedness in such manner as the Creditor deems best or,
at the option of the Creditor, may be released to the Debtor, all without
prejudice to the liability of the Debtor or the rights of the Creditor
hereunder, and any surplus shall be accounted for as required by law.
11. EVENTS OF DEFAULT: The occurrence of any of the following events or
conditions shall constitute default hereunder which is herein called a
"default":
(a) the nonpayment when due, whether by acceleration or otherwise, of any
principal or interest forming part of Indebtedness or the failure of
the Debtor to observe or perform any obligation, covenant, term,
provision or condition contained in this Security Agreement or any
other agreement between the Debtor and the Creditor or any breach of
warranty or misrepresentation made by the Debtor in this Security
Agreement;
(b) the bankruptcy or insolvency of the Debtor; the filing against the
Debtor of a petition in bankruptcy; the making of an authorized
assignment for the benefit of creditors by the Debtor; the appointment
of a receiver or trustee for the Debtor or for any assets of the
Debtor or the institution by or against the Debtor of any other type
of insolvency proceedings under the Bankruptcy and Insolvency Act as
amended or replaced or otherwise;
(c) if any Encumbrance affecting the Collateral becomes enforceable
against the Collateral;
(d) if the Debtor commits or threatens to commit an act of bankruptcy;
(e) if any judgment, execution, sequestration, extent or other process of
any court becomes enforceable against the Debtor or if a distress or
analogous process is levied upon the assets of the Debtor or any part
thereof; or
(f) if any statement, representation or warranty heretofore or hereafter
furnished by or on behalf of the Debtor pursuant to or in connection
with this Security Agreement, or otherwise (including, without
limitation, the representations and warranties contained herein) or as
an inducement to the Creditor to advance any funds to or to enter into
this or any other agreement with the Debtor, proves to have been false
in any material respect at the time as of which the facts therein set
forth were stated or certified, or proves to have omitted any
substantial, contingent or unliquidated liability or claim against the
Debtor; or if upon the date of execution of this Security Agreement,
there shall have been any material adverse change in any of the facts
disclosed by any such representation, statement or warranty, which
change shall not have been disclosed to the Creditor at or prior to
the time of such execution.
12. ACCELERATION: The Creditor, in its sole discretion, may declare all or any
part of Indebtedness which is not by its terms payable on demand to be
immediately due and payable, without demand or notice of any kind, in the event
of default, or, if the Creditor, in good faith, believes and has commercially
reasonable grounds to believe that the prospect of payment of the Indebtedness
or performance of this Security Agreement is or is about to be impaired or that
the Collateral is or is about to be placed in jeopardy. The provisions of this
Section are not intended in any way to affect any rights of the Creditor with
respect to any Indebtedness which may now or hereafter be payable on demand.
13. REMEDIES: In addition to those rights granted herein and in any other
agreement now or hereafter in effect between the Debtor and the Creditor and in
addition to any other rights the Creditor may have at law or in equity, the
Creditor shall have, both before and after default, all rights and remedies of a
secured party under the P.P.S.A. and the Debtor hereby grants to the Creditor
all remedies permitted to be granted to a secured party under the P.P.S.A.
including without limitation, the right to appoint a receiver or a receiver-
manager ("Receiver") and to prescribe his rights and duties and the right to
dispose of any or all of the Collateral by lease or deferred payment. The
Creditor or any Receiver appointed by it may take possession of the Collateral
wherever it may be located and by any method permitted by law and the Debtor
agrees upon request from the Creditor or any such Receiver to assemble and
deliver possession of the Collateral at such place or places as directed. The
Debtor agrees to pay all costs, charges and expenses reasonably incurred by the
Creditor or any Receiver appointed by it, whether directly or for services
rendered (including reasonable solicitors' (on a solicitor and its own client
basis) and auditors' costs and other legal expenses and Receiver remuneration),
in preparing or enforcing this Security Agreement, taking and maintaining
custody of, preserving, repairing, processing, preparing for disposition and
disposing of the Collateral and in enforcing or collecting Indebtedness and all
such costs, charges and expenses, together with any amounts owing as a result of
any borrowing by the Creditor or any Receiver appointed by it, as permitted
hereby, shall be a first charge on the Proceeds of realization, collection or
disposition of the Collateral and shall be secured hereby. The Creditor will
give the Debtor such notice, if any, of the date, time and place of any public
sale or of the date after which any private disposition of the Collateral is to
be made, as may be required by the P.P.S.A.
14. DEFICIENCY: Subject to the laws in force in the Province of Alberta, the
Debtor hereby covenants, promises and agrees to and with the Creditor that in
the event that the sum of money realized upon any disposition of the Collateral
shall not be sufficient to pay the whole of the Indebtedness of the Debtor to
the Creditor under or pursuant to this Security Agreement, the Debtor shall and
will forthwith pay or cause to be paid to the Creditor an amount equal to the
deficiency between the amount of the said Indebtedness and the sum of money
realized upon the disposition of the Collateral (the "Deficiency"). The Debtor
acknowledges and agrees that the Creditor may bring an action against the Debtor
for payment of the Deficiency. Notwithstanding any defects or irregularities of
the Creditor in enforcing its rights hereunder, the Creditor may bring an action
against the Debtor for the Indebtedness.
15. AUTHORIZATION: The Debtor hereby authorizes the Creditor to file such
financing statements, financing change statements and other documents and do
such acts, matters and things (including completing and adding schedules hereto
identifying the Collateral or any permitted Encumbrances affecting the
Collateral or identifying the locations at which the Collateral and records
relating thereto are situate) as the Creditor may deem appropriate to perfect on
an ongoing basis and continue the Security Interest, to protect and preserve the
Collateral and to realize upon the Security Interest and the Debtor hereby
irrevocably constitutes and appoints the Creditor the true and lawful attorney
and agent of the Debtor, with full power of substitution, to do any of the
foregoing in the name of the Debtor whenever and wherever it may be deemed
necessary or expedient.
16. SET OFF: Without limiting any other right of the Creditor, upon a default
or whenever Indebtedness is or is declared to be immediately due and payable,
the Creditor may, in its sole discretion, set off against Indebtedness any and
all amounts then owed to the Debtor by the Creditor in any capacity, whether or
not due, and the Creditor shall be deemed to have exercised such right to set
off immediately at the time of making its decision to do so even though any
charge therefor is made or entered on the Creditor's records subsequent thereto.
17. PERFORMANCE: Upon the Debtor's failure to perform any of its covenants,
duties and obligations hereunder, the Creditor may, but shall not be obligated
to, perform any or all of such covenants, duties and obligations, and the Debtor
shall pay to the Creditor, forthwith upon written demand therefor, an amount
equal to the expense incurred by the Creditor in so doing plus interest thereon
from the date such expense is incurred until it is paid at the highest rate
borne by any of the Indebtedness and such amounts shall form part of the
Indebtedness and constitute a charge upon the Collateral in favour of the
Creditor prior to all claims subsequent to this Security Agreement.
18. SUBORDINATION: Provided the Debtor is not in default hereunder, the
Creditor agrees, notwithstanding anything to the contrary contained in this
Agreement or any other agreement, document or instrument between the parties,
that it will agree to postpone and subordinate its Security Interest and all
obligations, debts and liabilities, present or future of the Debtor to the
Creditor in favour of Alberta Treasury Branches or any other lending institution
acting as the Debtor's principal banker from time to time.
19. EXTENSIONS: The Creditor may grant extensions of time and other
indulgences, take and give up security, accept compositions, compound,
compromise, settle, grant releases and discharges and otherwise deal with the
Debtor, debtors of the Debtor, sureties and others and with the Collateral and
other security as the Creditor may see fit without prejudice to the liability of
the Debtor or the Creditor's right to hold and realize the Security Interest.
Furthermore, the Creditor may demand, collect and sue on the Collateral in
either the Debtor's or the Creditor's name, at the Creditor's option, and may
endorse the Debtor's name on any and all cheques, commercial paper, and any
other Instruments pertaining to or constituting the Collateral.
20. WAIVER AND REMEDIES: No delay or omission by the Creditor in exercising
any right or remedy hereunder or with respect to any Indebtedness shall operate
as a waiver thereof or of any other right or remedy, and no single or partial
exercise thereof shall preclude any other or further exercise thereof or the
exercise of any other right or remedy. Furthermore, the Creditor may waive or
remedy any default by the Debtor hereunder or with respect to any Indebtedness
in any reasonable manner without waiving the default remedied or waived and
without waiving any other prior or subsequent default by the Debtor. All rights
and remedies of the Creditor granted or recognized herein are cumulative and may
be exercised at any time and from time to time independently or in combination.
21. PROTEST: The Debtor waives protest of any Instrument constituting the
Collateral at any time held by the Creditor on which the Debtor is in any way
liable and notice of any other action taken by the Creditor.
22. ASSIGNMENT: The Creditor may, without notice to the Debtor and without any
rights or equities in favour of the Debtor, at any time, mortgage, charge,
assign or grant a security interest in this Security Agreement and the Security
Interest constituted hereby. The Debtor agrees that any assignee, transferee or
secured party of the Creditor, as the case may be, shall have all of the
Creditor's rights and remedies under this Security Agreement. In any action
brought by an assignee of this Security Agreement and the Security Interest or
any part thereof to enforce any rights hereunder, the Debtor shall not assert
against the assignee any claim or defence which the Debtor now has or hereafter
may have against the Creditor.
23. ENUREMENT: This Security Agreement shall enure to the benefit of and be
binding upon the parties hereto and their respective administrators, successors,
assigns and permitted assigns in the case of the Debtor.
24. MODIFICATION: Except as hereinbefore provided and for any schedules which
may be added hereto pursuant to the provisions hereof, no modification,
variation or amendment of any provision of this Security Agreement shall be made
except by a written Agreement, executed by the parties hereto and no waiver of
any provision hereof shall be effective unless in writing.
25. NOTICE: Subject to the requirements of Section 25 hereof, whenever either
party hereto is required or entitled to notify or direct the other or to make a
demand or request upon the other, such notice, direction, demand or request
shall be in writing and shall be sufficiently given if sent by prepaid
registered mail addressed to the address serving as the Registered Office of the
party as provided by the records of the Alberta Department of Consumer and
Corporate Affairs (Corporate Registry).
26. CONTINUING SECURITY: This Security Agreement and the security afforded
hereby is in addition to and not in substitution for any other security now or
hereafter held by the Creditor and is intended to be a continuing Security
Agreement and shall remain in full force and effect until the Creditor shall
actually receive written notice of its discontinuance; and, notwithstanding such
notice, shall remain in full force and effect thereafter until all Indebtedness
contracted for or created before the receipt of such notice by the Creditor, and
any extensions or renewals thereof (whether made before or after receipt of such
notice) together with interest accruing thereon after such notice, shall be paid
and satisfied in full subject to Section 31 hereof.
27. HEADINGS: The headings used in this Security Agreement are for convenience
only and are not to be considered a part of this Security Agreement and do not
in any way limit or amplify the terms and provisions of this Security Agreement.
28. NUMBER AND GENDER: When the context so requires, the singular number
shall be read as if the plural were expressed and the provisions hereof shall be
read with all grammatical changes necessary dependent upon the person referred
to being a male, female, firm or corporation.
29. SEVERABILITY: In the event any provisions of this Security Agreement, as
amended from time to time, shall be deemed invalid or void, in whole or in part,
by any court of competent jurisdiction, the remaining terms and provisions of
this Security Agreement shall remain in full force and effect.
30. INDEMNITY: The Debtor shall indemnify and hold harmless the Creditor from
and against any and all claims, costs, losses, demands, actions, causes of
action, suits, damages, penalties, judgments and liabilities of whatsoever
nature and kind including without limitation costs and expenses on a solicitor
and his own client basis in connection with or arising out of any representation
or warranty given by the Debtor being untrue, the breach of any term, condition,
proviso, agreement or covenant by the Debtor to the Creditor, or the exercise of
any of the rights and remedies of the Creditor, or any transaction contemplated
by this Security Agreement.
31. ACKNOWLEDGEMENT: The Debtor acknowledges that value has been given and
that the Debtor has rights in the Collateral and the Security Interest created
hereby is intended to attach and be enforceable when this Security Agreement is
signed by the Debtor and delivered to the Creditor or in the case of after
acquired property when the Debtor acquires rights therein.
32. MERGER: This Security Agreement shall not operate so as to create any
merger or discharge of any of the Indebtedness, or any assignment, transfer,
guarantee, lien, contract, promissory note, bill of exchange or security in any
form held or which may hereafter be held by the Creditor from the Debtor or from
any other person whomsoever. The taking of a judgment with respect to any of
the Indebtedness will not operate as a merger of any of the terms, conditions,
covenants, agreements or provisos contained in this Security Agreement. The
release and discharge of the Security Interest constituted by this Security
Agreement by the Creditor shall not operate as a release or discharge of any
right of the Creditor to be indemnified or held harmless by the Debtor pursuant
to this Security Agreement or of any other right of the Creditor against the
Debtor arising under this Security Agreement prior to such release and discharge
nor shall it operate as a release of any unpaid Indebtedness.
33. LAW AND ATTORNMENT: This Security Agreement and the transactions evidenced
hereby shall be governed by and construed in accordance with the laws of the
Province of Alberta. For the purpose of legal proceedings, this Security
Agreement shall be deemed to have been made in the Province of Alberta and to be
performed there and the courts of the Province of Alberta shall have
jurisdiction over all disputes that may arise under this Security Agreement and
the Debtor hereby irrevocably and unconditionally submits and attorns to the
non-exclusive jurisdiction of such courts, provided that nothing herein
contained shall prevent the Creditor from proceeding at its election against the
Debtor in the courts of any other province, country or jurisdiction whatsoever.
34. SCHEDULE: Schedule "A" attached to this Security Agreement is incorporated
herein and shall form part hereof.
35. ENTIRE AGREEMENT: This Security Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and all prior
negotiations in respect thereof are superseded and there are no collateral
understandings or agreements with respect to the subject matter of this Security
Agreement and the rights of the parties hereunder except such other security
granted or issued by the Debtor in favour of the Creditor with respect hereto or
in conjunction herewith.
36. COPY OF AGREEMENT: The Debtor hereby acknowledges receipt of a copy of
this Security Agreement and the Debtor waives its right to receive a copy of any
financing statement or financing change statement registered by the Creditor or
any other statement in respect thereof filed at any time or from time to time by
or on behalf of the Creditor.
IN WITNESS WHEREOF the parties hereto have executed this Security Agreement
as of the day and year first above written.
EUROGAS, INC. BIG HORN RESOURCES LTD.
Per: /s/ Hank Blankenstein Per: /s/ Reginald Greenslade
Second Amendment to Subscription Agreement
This second amendment to Subscription Agreement is entered into 11th day of
November 1998 by and between EuroGas, Inc. (the "Company") and Thomson Kernaghan
& Co., Ltd. ("Purchaser"), agent for the beneficial subscribers to 30,000 shares
of the Company's Series B Convertible Preferred Stock ("Shares") at the price of
$1,000 per share.
Recitals
WHEREAS, on or about May 28, 1998, Purchaser purchased 8,000 Shares
pursuant to a Subscription Agreement and attached Registration Rights Agreement
which are incorporated herein by reference; and
WHEREAS, on or about August 7, 1998, and as amended on September 14, 1998,
the Company completed a Registration Statement covering the resale of common
shares issuable upon conversion of Shares by Purchaser; and
WHEREAS, the parties amended one part of the Subscription Agreement
contemporaneously with a second funding tranche of $5,500,000 for 5,500 shares
of the Shares on or about September 21, 1998;
AND WHEREAS, the parties have agreed to a second amendment to the
Subscription Agreement contemporaneously with a third funding tranche of
$3,500,000 for 3,500 of the shares to be closed through the Escrow Agent.
NOW THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. Incorporation of Recitals. The above stated Recitals are incorporated
herein by reference.
2. Amendment. Paragraph 1(a) of the Subscription Agreement is hereby
amended in its entirety to provide as follows:
The undersigned hereby irrevocably subscribes for and agrees to
purchase up to 30,000 Shares at a purchase price of $1,000.00 per Share, upon
the terms set forth in this Subscription Agreement. The funding shall be
provided as follows: $8,000,000, less placement fees, shall be paid over to the
Company upon closing on or before May 28, 1998; $5,500,000 less placement fees
shall be paid to the Company upon closing on or before September 21, 1998;
$3,500,000 less placement fee shall be paid to the Company upon closing on or
before November 17, 1998 and thereafter; the Company may request a fourth
funding tranche in the amount of not more than $4,000,000 less placement fees be
paid to the Company, within the thirty day period after the registration
statement covering the resale of the Shares is declared effective and closing of
the second funding tranche of the $5,500,000 and every thirty day period
thereafter, as long as at the time of each request, (a) the closing bid price
for the Company's common stock is at or above $3.00, (b) the daily trading
volume for the Company's common stock on the NASDAQ Electronic Bulletin Board or
a U.S. stock exchange is at or above 75,000 shares during any five trading day
period in the preceding 30 days and (c) there is no materially adverse change in
the business of the Company. The Shares shall pay a 6% cumulative dividend,
payable in arrears at the time of each conversion, in cash or in common stock of
the Company, $.001 par value ("Common Stock"), at the Company's option. If paid
in Common Stock, the number of shares of the Company's Common Stock to be
received shall be determine pursuant to Section 4(d) hereof. If the dividend is
to be paid in cash, the Company shall make such payment within 5 business days
of the conversion payment date. If the dividend is to be paid in Common Stock,
said Common Stock shall be delivered to the Purchaser, or per Purchaser's
instructions, within 10 business days of the conversion date. The Shares are
subject to automatic conversion at the end of two years from the date of
issuance at which time all Shares outstanding will be automatically converted
based upon the formula set forth in this Section 4(d). The closing for the
initial tranche of $8,000,000 shall be deemed to have occurred on the date all
$8,000,000 of the funds, less placement fees, are received by the Company (the
"Closing Date"). Each subsequent tranche will be deemed to have occurred on the
date all the funds less placement fees are received by the Company (subsequent
closing date). Each subsequent tranche shall not require the execution of
another complete Subscription Agreement and such may be done in letter or other
form acceptable to the parties and the Escrow Agent. All subsequent tranches
shall require the issuance of the requisite number of Shares by the Company to
the Purchaser.
3. Except as specifically amended herein, all other provisions of the
Subscription Agreement and Registration Rights Agreement shall remain in full
force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
The Company:
EUROGAS, INC.
By /s/ Hank Blankenstein
Hank Blankenstein, Vice President
Purchaser:
THOMSON, KERNAGHAN & CO., LTD.
By /s/ Mark Valentine
Name: Mark Valentine
Title: Executive Vice President and
Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF SEPTEMBER 30, 1998, AND STATEMENTS OF OPERATIONS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 12,062,482
<SECURITIES> 897,248
<RECEIVABLES> 2,016,171
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,197,638
<PP&E> 37,110,990
<DEPRECIATION> 770,433
<TOTAL-ASSETS> 52,074,750
<CURRENT-LIABILITIES> 8,484,029
<BONDS> 349,284
<COMMON> 68,430
0
2,398
<OTHER-SE> 43,170,609
<TOTAL-LIABILITY-AND-EQUITY> 52,074,750
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,572,825
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 286,128
<INCOME-PRETAX> (6,068,845)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,068,845)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,068,845)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
