U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the quarterly period ended June 30, 1998
Commission File Number 0-17325
ENVIRONMENTAL REMEDIATION HOLDING CORP.
(Exact name of issuer in its charter)
COLORADO 88-0218499
(State of Incorporation) (IRS Employer ID Number)
3-5 Audrey Avenue
Oyster Bay, New York 11771
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (516) 922-4170
Indicate by check mark whether the registrant (1) has filed reports required to
be filed by Section 13 of 15 (d) of the Securities Exchange Act 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 ____
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Common stock, $0.0001 par value
As of June 30, 1998 was 23,965,625
Documents Incorporated by Reference:
Form 8-K filed on April 13, 1998
<PAGE>
Item 1. Financial Statements
INDEX TO FINANCIAL STATEMENTS
Page
Consolidated Balance Sheets ...............................................F-2
Consolidated Statements of Operations ......................................F-3
Consolidated Statement of Stockholders' Equity .............................F-4
Consolidated Statements of Cash Flows .....................................F-5
Notes to Consolidated Financial Statements .................................F-6
F-1
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Consolidated Balance Sheets
<TABLE>
<S> <C> <C>
September 30,
1997 June 30, 1998
----------------- --------------------
ASSETS (Unaudited)
CURRENT ASSETS
Cash $ 327,743 1,521,283
Prepaid expenses and other current assets 215,708 782,908
----------------- --------------------
Total current assets 543,451 2,304,191
----------------- --------------------
PROPERTY AND EQUIPMENT
Oil and gas properties (Successful efforts method) 515,625 1,240,175
Equipment 4,220,000 6,314,418
Deposit on purchase of equipment 136,560 208,790
----------------- --------------------
Total property and equipment before depreciation 4,872,185 7,763,383
Less: accumulated depreciation and depletion (521,000) (901,675)
----------------- --------------------
Net property and equipment 4,351,185 6,861,708
----------------- --------------------
OTHER ASSETS
Master service agreement 300 300
Investment in ST PETRO, S.A. 0 20,000
DRSTP concession fee 0 2,013,300
----------------- --------------------
Total other assets 300 2,033,600
----------------- --------------------
Total Assets $ 4,894,936 11,199,499
================= ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Stockholder loans payable $ 465,094 480,080
Note payable - bank 175,000 0
Accounts payable and accrued liabilities :
Accrued salaries 960,000 1,757,699
Accrued interest 37,228 227,630
Other 111,054 1,465,113
----------------- --------------------
Total current liabilities 1,748,376 3,930,522
----------------- --------------------
LONG-TERM LIABILITIES
Long-term bank loans 0 34,221
Convertible debt, net 0 6,274,536
----------------- --------------------
Total long term liabilities 0 6,308,757
----------------- --------------------
Total Liabilities 1,748,376 10,239,279
----------------- --------------------
Common stock issued under a repurchase agreement; issued and
outstanding 1,000,000 and 750,000 shares 2,000,000 1,500,000
----------------- --------------------
STOCKHOLDERS' EQUITY
Preferred stock, $0.0001 par value; authorized 10,000,000 shares ;
none issued and outstanding 0 0
Common stock, $0.0001 par value; authorized 950,000,000 shares ;
issued and outstanding 21,989,526 and 24,222,909 2,199 2,422
Additional paid in capital in excess of par 19,952,865 22,970,263
Additional paid in capital - warrants 0 200,000
Deficit (17,645,204) (23,556,215)
Stock subscriptions receivable (913,300) 0
Deferred compensation (250,000) (156,250)
----------------- --------------------
Total Stockholders' Equity 1,146,560 (539,780)
----------------- --------------------
Total Liabilities and Stockholders' Equity $ 4,894,936 11,199,499
================= ====================
</TABLE>
The accompanying notes are an integral part of the financial statements
F-2
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Consolidated Statements of Operations
<TABLE>
<S> <C> <C>
Nine months ended June 30,
-----------------------------------------
1997 1998
----------------- -----------------
REVENUE (Unaudited) (Unaudited)
Environmental remediation services $ 120,944 273,057
Crude oil 0 119,219
Other income 6,730 11,684
----------------- -----------------
Total revenue 127,674 403,960
----------------- -----------------
COSTS AND EXPENSES
Compensation :
Officers 93,750 893,750
Directors 1,352,981 0
Consulting fees 1,454,625 830,865
Geological data and reports 0 41,932
General and administrative expense 652,817 3,916,647
Depreciation and depletion 196,417 380,675
Interest expense 17,727 251,104
----------------- -----------------
Total costs and expenses 3,768,317 6,314,973
----------------- -----------------
Net loss $ (3,640,643) (5,911,013)
================= =================
Weighted average number of shares outstanding 6,382,302 23,497,260
================= =================
Net loss per share, basic $ (0.57) (0.25)
================= =================
</TABLE>
The accompanying notes are an integral part of the financial statements
F-3
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Consolidated Statement of Stockholders' Equity
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common Stock
-----------------------
Number APIC - Stk Subs Defr'd Accumulated TTL S/H
of Shares Amount APIC Warrants Receivable Comp. Deficit Equity
------------ ---------- ----------- ----------- ----------- --------- ------------- -------------
BEGINNING BALANCE,
September 30, 1996 3,239,374 $ 324 4,629,598 0 0 (427,500) (732,152) 3,470,270
Year ended September 30, 1997
Common stock issued for :
2/10 - S-8 services 1,600,000 160 1,099,840 0 0 0 0 1,100,000
3/4 - oil wells/leases 300,000 30 309,345 0 0 0 0 309,375
3/5 - oil wells/leases 200,000 20 206,230 0 0 0 0 206,250
3/13 - S-8 services 300,000 30 374,970 0 0 0 0 375,000
4/5 - Chevron contract 3,000,000 300 0 0 0 0 0 300
4/5 - services 1,342,981 134 1,342,847 0 0 0 0 1,342,981
4/5 - contributed to corporation (100,000) (10) (99,990) 0 0 0 0 (100,000)
4/9 - BAPCO acquisition 4,000,000 400 499,600 0 0 0 0 500,000
5/14 - S-8 services 1,500,000 150 562,350 0 0 0 0 562,500
6/19 - services 150,000 15 28,110 0 0 0 0 28,125
7/8 - cash 800,000 80 399,920 0 0 0 0 400,000
7/25 - S-8 services 2,335,000 233 6,464,798 0 0 0 0 6,465,031
7/30 - services 1,500,000 150 2,249,850 0 0 0 0 2,250,000
7/30 - cash 147,000 15 146,985 0 0 0 0 147,000
8/8 - cash 74,000 8 147,992 0 0 0 0 148,000
9/4 - services 400,000 40 307,960 0 0 0 0 308,000
9/10 - cash & stk subs receivable 727,273 73 799,927 0 (800,000) 0 0 0
9/15 - cash & stk subs receivable 473,898 47 482,533 0 (113,300) 0 0 369,280
9/30 - deferred comp amortization - 0 0 0 0 177,500 0 177,500
Net loss - 0 0 0 0 0 (16,913,052) (16,913,052)
------------ ---------- ----------- ----------- ----------- --------- ------------- -------------
BALANCE, September 30, 1997 21,989,526 2,199 19,952,865 0 (913,300) (250,000) (17,645,204) 1,146,560
Nine months ended March 31, 1998
10/97 - stock subs received in cash - 0 0 0 913,300 0 0 913,300
10/08 - Uinta acquisition 1,000,000 100 1,999,900 0 0 0 0 2,000,000
10/97 - Neuces acquisition 50,000 5 148,745 0 0 0 0 148,750
11/97 - cash, net 176,099 18 167,676 0 0 0 0 167,694
01/98 - equity in building 24,000 2 61,216 0 0 0 0 61,218
02/98 - services 104,664 10 55,648 0 0 0 0 55,658
02/98 - cash 282,000 28 180,222 0 0 0 0 180,250
03/98 - stock subs receivable 300,000 30 236,220 0 (236,250) 0 0 0
04/98 - stock subs received in cash - 0 0 0 236,250 0 0 236,250
06/98 - cash 234,200 24 135,576 0 0 0 0 135,600
06/98 - services 62,420 6 32,195 0 0 0 0 32,201
06/98 - cash - 0 0 200,000 0 0 0 200,000
6/30 - deferred comp amortization - 0 0 0 0 93,750 0 93,750
Net loss - 0 0 0 0 0 (5,911,011) (5,911,011)
------------ ---------- ----------- ----------- ----------- --------- ------------- -------------
BALANCE, June 30, 1998 (unaudited) 24,222,909 $ 2,422 22,970,263 200,000 0 (156,250) (23,556,215) (539,780)
============ ========== =========== =========== =========== ========= ============= =============
Common stock issued under a repurchase agreement
BEGINNING BALANCE,
September 30, 1996 0 $ 0 0 0 0 0 0 0
7/97 - DRSTP info 1,000,000 100 1,999,900 0 0 0 0 2,000,000
------------ ---------- ----------- ----------- ----------- --------- ------------- -------------
BALANCE, September 30, 1997 1,000,000 100 1,999,900 0 0 0 0 2,000,000
12/97 - cash repurchase (250,000) 0 (500,000) 0 0 0 0 (500,000)
------------ ---------- ----------- ----------- ----------- --------- ------------- -------------
BALANCE, June 30, 1998 (unaudited) 750,000 $ 100 1,499,900 0 0 0 0 1,500,000
============ ========== =========== =========== =========== ========= ============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements
F-4
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Consolidated Statements of Cash Flows
<TABLE>
<S> <C> <C>
Nine months ended June 30,
-----------------------------------
1997 1998
-------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES: (Unaudited) (Unaudited)
Net loss $ (3,640,643) (5,911,013)
Adjustments to reconcile net loss to net cash used for operating activities:
Amortization of deferred compensation 146,250 93,750
Stock issued for services rendered 2,876,356 87,859
Convertible debt issued for services 0 43,750
Depreciation and depletion 196,417 380,675
Other (6,730) 0
Changes in operating assets and liabilities:
(Increase) decrease in prepaid expenses and other assets 0 (567,200)
Increase (decrease) in accrued interest expense 17,726 190,402
Increase (decrease) in accrued expenses 0 1,354,059
Increase (decrease) in accrued salaries 0 797,699
-------------- ----------------
Net cash provided by (used by) operating activities (410,624) (3,530,019)
-------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
DRSTP concession fee payment 0 (2,013,300)
Investment in ST PETRO S.A. 0 (20,000)
Increase in deposits on fixed assets (126,000) (72,230)
Acquisition of property and equipment 0 (166,916)
-------------- ----------------
Net cash provided by (used by) investing activities (126,000) (2,272,446)
-------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock sold for cash 0 719,794
Common stock warrants sold for cash 0 200,000
Convertible debt sold for cash 0 6,230,786
Proceeds from bank borrowings 175,000 9,840
Payments on bank borrowings 0 (179,401)
Proceeds from loans payable to stockholders 400,529 632,076
Payments on stockholder loans payable (22,968) (617,090)
-------------- ----------------
Net cash provided by (used by) financing activities 552,561 6,996,005
-------------- ----------------
Net increase (decrease) in cash 15,937 1,193,540
CASH, beginning of period 0 327,743
-------------- ----------------
CASH, end of period $ 15,937 1,521,283
============== ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 0 11,825
============== ================
Non cash financing and investing activities: Stock issued to acquire :
BAPCO $ 500,000 0
============== ================
Equity in building $ 0 61,218
============== ================
Oil and gas properties and equipment $ 515,625 2,148,750
============== ================
Mortgage payable on building assumed $ 0 28,782
============== ================
</TABLE>
The accompanying notes are an integral part of the financial statements
F-5
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Notes to Consolidated Financial Statements
June 30, 1997 and 1998
(Unaudited)
(1) Summary of Significant Accounting Policies
The Company.
Environmental Remediation Holding Corporation, (ERHC), was incorporated
on May 12, 1986 in Colorado as Valley View Ventures, Inc., (VVV). Its
name was changed to Regional Air Group Corporation, (RAGC), on
September 20, 1988, and then to Environmental Remediation Holding
Corporation on August 29, 1996. VVV was created in 1986 as a blind pool
to seek a merger opportunity with a viable operating company. In 1988
the company acquired, via a reverse merger, Mid-Continent Airlines
which was a regional "feeder" airline operating as Braniff Express. On
September 28, 1989, Braniff Airlines filed Chapter 11 Bankruptcy. This
event proved to be catastrophic to the then operating business of the
Company. RAGC liquidated its assets and liabilities shortly thereafter
and remained dormant until its reverse merger with Environmental
Remediation Funding Corporation on August 19, 1996.
Nature of operations.
ERHC operates in the environmental remediation industry and the oil and
natural gas production industry from its corporate headquarters in
Jericho, New York, and its operating offices in Lafayette, Louisiana.
Use of estimates
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the
financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities
as of the dates of the statements of financial condition and revenues
and expenses for the years then ended. Actual results could differ
significantly from those estimates. The following summarize the more
significant accounting and reporting policies and practices of the
Company:
Principles of consolidation
The consolidated financial statements include the accounts of SSI and
BAPCO, its wholly owned subsidiaries. Intercompany accounts and
transactions have been eliminated in consolidation. The consolidated
financial statements for the nine months ended June 30, 1997 and 1998
include all adjustments which in the opinion of management are
necessary for fair presentation.
Net loss per share
Net loss per share - basic is computed by dividing the net loss by the
number of shares outstanding during the period. Net loss per share -
diluted is not presented because the inclusion of common share
equivalents would be anti-dilutive.
DRSTP geological data
In July 1997, the Company acquired substantial geologic data and other
information from an independent source in exchange for one million
shares of the Company's common stock. This data was valued at
$2,000,000 based the agreement with the seller that Company would
repurchase these shares for $2,000,000 at a rate of 25% per quarter
should the seller so choose. The Company expensed this acquisition cost
immediately.
(2) Significant Acquisitions
The Company acquired 100% of the issued and outstanding common stock of
Environmental Remediation Funding Corp., (ERFC), a Delaware
corporation, effective on August 19, 1996, in a reverse triangular
merger, which has been accounted for as a reorganization of ERFC. At
the same time the Company changed its name from RAGC. Prior to the
merger ERFC had acquired certain environmental remediation equipment in
F-6
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Notes to Consolidated Financial Statements
(2) Significant Acquisitions (Continued)
exchange for common stock. ERFC then employed the seller of this
equipment as an outside consultant in exchange for common stock.
Subsequently, ERFC was unable to enter into the environmental
remediation contracts it had hoped to and asked the consultant to
become the Chairman, President and CEO of ERFC.
At the time of the acquisition of ERFC by RAGC, ERFC owned 100% of Site
Services, Inc., (SSI). ERFC had acquired SSI from Bass Environmental
Services Worldwide, Inc., (BESW), a company controlled by the Chairman,
President and CEO of ERFC. SSI had always been an inactive company,
except for certain environmental remediation licences which it
continues to hold.
On April 9, 1997, the Company acquired 100% of the issued and
outstanding common stock of Bass American Petroleum Company, (BAPCO),
which was accounted for as a purchase. BAPCO had been an inactive
company for several years previously, however BAPCO owned a variety of
oil well production enhancing equipment, which is proprietary to, but
not patented by BAPCO. The transaction was in essence an asset
acquisition. At the time of the acquisition BAPCO was 100% owned by the
Chairman, President and CEO of ERHC. As such, the acquisition was
accounted for at historical cost. The Company has begun using BAPCO as
the operator of the various oil and natural gas leases it has acquired.
(3) Liquidity
The Company's current liabilities exceed its current assets by
$1,626,331, reflecting a possible lack of liquidity. The Company is in
ongoing negotiations to raise general operating funds and funds for
specific projects. As discussed in notes 7, 10 and 17, the Company
raised an additional $1,100,000 in October 1997, $4,300,000 in November
1997, $536,000 in April 1998, $2,011,000 in June 1998 and $1,475,000 in
July and August 1998. The Company has negotiated two lines of credit,
one for $15,000,000 and one for $5,000,000. These lines of credit
cannot be drawn upon until the Company's current registration statement
on form S-1 is declared effective. Both of these lines of credit are
convertible into shares of the Company's common stock on terms similar
to the convertible debt discussed in note 7. As discussed in note 5 and
16a, the Company has also received a letter of intent for a firm
commitment from a registered broker/dealer to raise an additional
$50,000,000 in convertible debt. However there is no assurance that
such financing will be obtained.
(4) Equipment
Environmental remediation equipment was purchased by ERFC in exchange
for common stock. The Company recorded this equipment based on the fair
value of the common stock given up. At the date of acquisition, ERFC
was a privately held company, therefore there was no market for ERFC's
stock. At the time of negotiations for this transaction, it was an arms
length transaction between unrelated parties. The parties negotiated a
value of $5 per share for a total of 744,000 shares valuing this
transaction at $3,720,000. The Company has chosen to depreciate the
equipment using the straight line method over its estimated remaining
useful life of fifteen years. Expenditures for maintenance and repairs
are charged to operations as incurred.
In the BAPCO acquisition the Company acquired ownership of all rights
to BAPCO's proprietary oil well reworking tool, "the BAPCO Tool" as
well as other oil and natural gas well reworking equipment. The control
of this proprietary tool has enhanced the Company's position to the
extent that it would not have been able to enter into the contract to
control the Utah oil fields and the reworking of the Indonesian oil
fields. The control of this tool also enabled the acquisition of the
200 Texas oil wells to be economically feasible to a greater extent.
The Company received two completed "BAPCO" tools which were ready to be
placed in service in this transaction. The Company valued the equipment
received at historical cost amounting to $250,000 each for the two
tools, totalling $500,000. BAPCO was controlled by the CEO of ERHC at
the time of the BAPCO acquisition, therefore the Company believes
historical cost is the appropriate basis for valuing the transaction.
F-7
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Notes to Consolidated Financial Statements
(4) Equipment (Continued)
The Company is depreciating this tool and technology over ten years.
Depreciation expense for the nine months ended June 30, 1997 and 1998
was $196,417and $377,080 respectively.
(5) Crude oil reserves
At September 30, 1996, the Company had no oil and gas reserves. In
March 1997, the Company acquired an undivided 7/8 interest in a 100
well lease located in the Gunsite Sand Lease in Ector, Texas, in
exchange for 300,000 shares of the Company's common stock. The Company
valued this transaction at the closing price of stock given up,
$1.03125, or a total of $309,375. The Company received an independent
evaluation of this field which reflected 1,000,000 barrels of proved
oil reserves. In March 1997, the Company acquired an undivided 7/8
interest in a 100 well lease located in the Woodbine Sand Lease Block
in Henderson County, Texas, in exchange for 200,000 shares of the
Company's common stock. The Company valued this transaction at the
closing price of the stock given up, $1.03125, or a total of $206,250.
The Company received an independent evaluation of this field which
reflected 1,500,000 barrels of proved oil reserves. These reserve
reports, as amended in March 1998, reflect values of $4,831,323 for
Gunsite and $9,504,323 for Woodbine. A separate reserve report is in
the process of being prepared, which the Company will use to adjust the
quantity of barrels of reserves if the subsequent report is materially
different.
Both acquisitions also included all existing equipment on site. The
Company has not recorded the fair market value of the equipment in
place, as all of such equipment has minimal scrap value, which is the
only valuation method available due to the non-operational status of
the wells at acquisition. The Company expects to capitalize and
depreciate repairs which are believed to extend the useful life of such
existing equipment beyond one year, as well as the cost of replacement
equipment.
On September 29, 1997, the Company entered into an agreement to acquire
22 oil, gas and mineral leases located in Uintah and Duchesne Counties,
Utah from three joint owners. The purchase agreement was closed on
October 8, 1997, at which time the the Company received the lease
assignment. The terms of the acquisition are for the Company pay
$250,000 in cash, issue 250,000 shares of the Company's common stock at
each of the following four dates: closing; December 30, 1997; March 30,
1998 and June 30, 1998. The Company also was required to guarantee that
the bid price on the date the Rule 144 restrictions lapse will be no
less than $2.00 per share or the Company is required to either issue
additional shares or to pay the difference in cash, at the Company's
option. The Company also granted the sellers a 4% gross production
receipts royalty to a maximum of $677,000. The Company is currently
evaluating the existing reserve reports and underlying data on these
leases as well as has contracted another independent appraiser to
complete new reserve reports for its use. The total valuation of this
transaction is $2,250,000 and is applied as $375,800 of oil and gas
reserves and $1,874,200 of equipment.
In October 1997, the Company entered into an agreement to acquire a 3/8
undivided interest in a natural gas well that had been plugged and
abandoned approximately 10 years ago. This agreement requires the
Company to pay the seller $200,000 and 50,000 shares of the Company's
common stock, as well as to pay the Company's proportionate share of
the costs to reenter this well. The Company is also required to carry
the seller's 1/8 proportionate share of the reentry costs until the
well is producing. The seller also owns an undivided 50% interest in
the oil and gas lease on the 49,019 acres of land contiguous to the
initial well. The agreement allows the Company to acquire a 3/8
undivided interest in this lease by paying to the seller approximately
$343,000 each April for four years. The Company received the initial
lease assignment on
F-8
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Notes to Consolidated Financial Statements
(5) Crude oil reserves (Continued)
December 1, 1997. The Company is currently evaluating the existing
reserve reports and underlying data on these leases as well as has
contracted another independent appraiser to complete new reserve
reports for its use.
Oil production
In late November 1997, test oil production amounting to approximately
444 barrels was picked up from the tanks at the Gunsite Sand lease. At
that time the Company had approximately 9 wells back on line and
pumping. In late November and early December 1997, test oil production
amounting to approximately 1,292 barrels was picked up from the tanks
at the 22 leases in Uintah and Duchesne Counties, Utah. The Company has
11 wells in production in the Utah filed which pumped approximately
6,300 barrels of oil in the third quarter. The Company is utilizing the
successful efforts method of accounting for its oil and gas producing
activities. The Company expects to regularly assess proved oil and gas
reserves for possible impairment on an aggregate basis in accordance
with SFAS 121.
Depletion
Depletion (including provisions for future abandonment and restoration
costs) of all capitalized costs of proved oil and gas producing
properties are expensed using the unit-of-production method by
individual fields as the proven developed reserves are produced.
Depletion expense for the nine months ended June 30, 1997 and 1998 was
$0 and $3,595 respectively.
(6) Master service agreement
In September 1996 Bass Environmental Services Worldwide, Inc., (BESW),
entered into a master service agreement with Chevron to plug and
abandon oil wells located in the Gulf of Mexico off the coast of
Louisiana. In April 1997, BESW assigned this contract to the Company in
exchange for 3,000,000 shares of the Company's common stock. Chevron
has reissued the contract in the Company's name. At the time of the
acquisition, BESW was controlled by the CEO of ERHC. The Company valued
this acquisition on the basis of the par value of the Company's common
stock given up, or $300, because no historical cost basis could be
individually determined and the contract has minimal value until the
Company has built or purchased the equipment to commercialize the
contract. The Company expects to begin commercializing the agreement in
late 1998.
(7) Notes payable
The Company issued two notes payable to stockholders who are also
officers and directors in exchange for cash amounting to $1,362,906.
These notes carry no stated maturity date and an 8.5% rate of interest.
The Company has repaid $881,790 on these notes, including interest on
one. The remaining note is convertible into restricted stock at 50% of
the average bid price for the month in which the loan was made. The
conversion is at the option of the noteholder. Accrued interest on
these notes is, $0 and $155,824 for the nine months ended June 30, 1997
and 1998.
In January 1997, the Company issued a note payable to a bank in
exchange for $175,000 cash. This note carried a maturity date of March
15, 1997 and a 9.6875% interest rate. The Company is in default on this
note. The default interest rate is 13.6875%. The Company and the bank
had originally expected to roll this note over into a long-term credit
facility. The Company chose not to accept the long-term facility due to
the terms offered. The Company repaid this loan in full plus accrued
interest on December 31, 1997.
In November and December 1997, the Company issued 5.5% convertible
senior subordinated secured notes due 2002 in exchange for $4,300,000
in cash. These notes are convertible into shares of the Company's
F-9
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Notes to Consolidated Financial Statements
(7) Notes payable (continued)
common stock at a conversion price to be determined by so stated
formula, but at a price no less than $1.25 per share. If all of the
notes are converted at the lowest possible price, the Company would be
required to issue 3,440,000 shares of common stock. These notes also
carried warrants for an additional 258,000 shares of common stock with
an exercise price of $3.17 per share, or total additional proceeds to
the Company of $817,860 in cash in the event all of the warrants are
exercised. The notes are secured by the Company's non- MIII oil
reserves in Utah.
In April 1998, the Company issued 12% convertible subordinated
unsecured notes due January 1999 in exchange for $300,000 cash. These
notes are convertible into shares of the Company's common stock at a
conversion price of $1.50 per share. If all of these notes are
converted, the Company will be required to issue 200,000 shares of
common stock. These notes also carried warrants for an additional
210,000 shares of common stock with an exercise price of $1.25 per
share, or total additional proceeds to the Company of $262,500 in cash
in the event all of the warrants are exercised.
In June 1998, the Company issued 12% convertible subordinated unsecured
notes due December 1999 in exchange for $425,000 cash. These notes are
convertible into shares of the Company's common stock at a conversion
price of $1.00 per share. If all of these notes are converted, the
Company will be required to issue 425,000 shares of common stock. These
notes also carried warrants for an additional 531,250 shares of common
stock with an exercise price of $0.50 per share for the first two
years, and $0.85 per share thereafter, or total additional proceeds to
the Company of $265,625 or $451,563 in cash in the event all of the
warrants are exercised.
In June 1998, the Company issued 5.5% convertible subordinated
unsecured notes due June 2000 in exchange for $1,250,000 cash. These
notes are convertible into shares of the Company's common stock at a
conversion price to be determined by so stated formula. If all of these
notes are converted, using the conversion price of the issuance date
($0.69517), the Company will be required to issue 1,798,124 shares of
common stock. These notes also carried warrants for an additional
230,000 shares of common stock with an exercise price of $0.8634 per
share, or total additional proceeds to the Company of $198,582 in cash
in the event all of the warrants are exercised.
(8) Accrued salaries
At June 30, 1997 and 1998 the Company has accrued salaries of, $0 and
$1,757,699, respectively, for three officers. These officers can, at
their option, convert these salaries into common stock of the Company
at the rate of one-half of the average bid price of the Company's
common stock for the months in which the salary was earned.
(9) Income taxes
The Company has a consolidated net operating loss carry-forward
amounting to $23,556,215, expiring as follows: $3,404 in 2010, $728,748
in 2011, $16,913,052 in 2012 and $5,911,013 in 2013. The Company has a
$9,420,000 deferred tax asset resulting from the loss carry-forward,
for which it has established a 100% valuation allowance. Until the
Company's current plans begin to produce earnings it is unclear as to
the ability of the Company to utilize these carry-forwards.
(10) Stockholders' equity
The Company has authorized 950,000,000 shares of $0.0001 par value
common stock and 10,000,000 shares of $0.0001 par value preferred
stock. On September 30, 1995, the predecessor entity, ERFC, had
1,639,450 shares issued and outstanding, which had been issued during
the month since inception as 884,407 shares for
F-10
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Notes to Consolidated Financial Statements
(10) Stockholders' equity (continued)
$88 in cash and 755,043 shares for a four year consulting agreement
valued at $500,000 with a then independent consultant who subsequently
became the Company's Chairman, President and CEO.
In October 1995, ERFC issued 744,000 shares in exchange for
environmental remediation equipment valued as discussed in note 1b at
$3,720,000. This equipment was acquired from the consultant who had
received the 755,043 shares and subsequently became the Company's
Chairman, President and CEO. In October 1995, ERFC issued 20,000 shares
for $50,000 in cash.
In August 1996, ERFC issued 20,500 shares in exchange for $42,892 in
cash. On August 19,1996, the sucessor Company issued 2,433,950 shares
of common stock to acquire 100% of the issued and outstanding common
stock of ERFC. At the time of the acquisition ERHC, then known as RAGC,
had 356,317 shares issued and outstanding as a result of a 1 for 2,095
share reverse stock split. On August 19, 1996, the Company issued
73,277 shares of common stock to a consultant in exchange for services
valued at $1.00 per share related to the merger. In August 1996, the
Company issued 10,000 shares of its common stock, valued at $70,000, to
an attorney for services to be rendered at below market rates for a
period of 4 months. In September 1996, the Company issued 55,000 shares
of its common stock under three consulting contracts previously
negotiated, valued at $385,000. In September 1996, the Company issued
320,830 shares of its common stock in exchange for $31,995 in cash
In February 1997, the Company issued 1,600,000 shares of common stock
via an S-8 registration in exchange for consulting and professional
services valued at $1,100,000. In March 1997, the Company acquired a
100 oil well lease with one million barrels of proven oil reserves in
exchange for 300,000 shares of the Company's common stock valued at
309,375. In March 1997, the Company acquired a 100 oil well lease with
one and one-half million barrels of proven oil reserves in exchange for
200,000 shares of the Company's common stock valued at $206,250. In
March 1997, the Company issued 300,000 shares of common stock via an
S-8 registration valued at $375,000 in exchange for public relations
services, of which approximately 150,000 had been earned at fiscal year
end. The balance will either be earned or returned to ERHC. In April
1997, the Company issued 3,000,000 shares of common stock in exchange
for the assignment of the Chevron P&A master service agreement, valued
at $300. In April 1997, the Company issued 1,342,981 shares of common
stock to three directors in lieu of cash compensation for services
rendered to the Company valued at $1,342,981. In April 1997, a director
contributed 100,000 shares of common stock back to the Company with a
value of $100,000. In April 1997, the Company issued 4,000,000 shares
of common stock in exchange for 100% of the issued and outstanding
common stock of Bass American Petroleum Company, (BAPCO), valued at
historical costs at $500,000. In May 1997, the Company issued 1,500,000
shares of common stock via an S-8 in exchange for consulting and
professional services valued at $562,500. In June 1997, the Company
issued 150,000 shares of common stock to two independent consultants
for services valued at $28,125. One of these consultants became an
employee of the Company in September 1997.
In July 1997, the Company issued 800,000 shares under a Section 4(2)
exemption from registration to a previously unrelated party in exchange
for $400,000 in cash. In July 1997, the Company acquired substantial
geologic data and other information from an independent source in
exchange for 1,000,000 shares of the Company's common stock. This data
was valued at $2,000,000 based the agreement with the seller that
Company would repurchase these shares for $2,000,000 at a rate of 25%
per quarter should the seller so choose. In July 1997, the Company
issued 2,335,000 shares of common stock to three independent
consultants for services valued at $6,465,031, principally relating to
the Company's acquisition of the MIII agreement
In July 1997, the Company issued 1,500,000 shares of common stock to
three directors in lieu of cash
F-11
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Notes to Consolidated Financial Statements
(10) Stockholders' equity (continued)
compensation for services rendered to the Company valued at $2,250,000.
In July 1997, the Company issued 147,000 shares of common stock under a
Regulation D Rule 506 private placement in exchange for $147,000 in
cash. In August1997, the Company issued 74,000 shares of common stock
under a Regulation D Rule 506 private placement in exchange for
$148,000 in cash. In September 1997, the Company issued 400,000 shares
of common stock to an independent consultant for services valued at
$308,000. In September 1997, the Company issued 370,898 shares of
common stock under a Regulation D Rule 506 private placement in
exchange for $407,988 in cash. In September 1997, the Company received
stock subscription agreements for $913,300 in cash under a Regulation D
Rule 506 private placement representing 830,273 shares of common stock.
The 830,273 shares of common stock were issued by the Company upon
receiving the $913,300 in cash in October 1997 which had been
subscribed for at September 30, 1997. In October and November 1997, the
Company issued 175,599 additional shares of common stock in exchange
for $183,359 in cash under the same private placement memorandum
offering in August and September 1997.
On September 29, 1997, the Company entered into an agreement to acquire
22 oil, gas and mineral leases located in Uintah and Duchesne Counties,
Utah from three joint owners. The purchase agreement was closed on
October 8, 1997, at which time the the Company received the lease
assignment. The terms of the acquisition are for the Company pay
$250,000 in cash, issue 250,000 shares of the Company's common stock at
each of the following four dates: closing; December 30, 1997; March 30,
1998 and June 30, 1998. The Company also was required to guarantee that
the bid price on the date the Rule 144 restrictions lapse will be no
less than $2.00 per share or the Company is required to either issue
additional shares or to pay the difference in cash, at the Company's
option. The Company also granted the sellers a 4% gross production
receipts royalty to a maximum of $677,000. The Company is currently
evaluating the existing reserve reports and underlying data on these
leases as well as has contracted another independent appraiser to
complete new reserve reports for its use. The total valuation of this
transaction is $2,250,000 and is applied as $375,800 of oil and gas
reserves and $1,874,200 of equipment.
In October 1997, the Company entered into an agreement to acquire a 3/8
undivided interest in a natural gas well that had been plugged and
abandoned approximately 10 years ago. This agreement requires the
Company to pay the seller $200,000 and 50,000 shares of the Company's
common stock, as well as to pay the Company's proportionate share of
the costs to reenter this well. The Company is also required to carry
the seller's 1/8 proportionate share of the reentry costs, estimated
between $250,000 and $500,000, until the well is producing. The seller
also owns an undivided 50% interest in the oil and gas lease on the
49,019 acres of land contiguous to the initial well. The agreement
allows the Company to acquire a 3/8 undivided interest in this lease by
paying to the seller approximately $343,000 each April for four years.
The Company received the initial lease assignment on December 1, 1997.
The Company is currently evaluating the existing reserve reports and
underlying data on these leases as well as has contracted another
independent appraiser to complete new reserve reports for its use
In December 1997, the Company repurchased 250,000 shares of its common
stock for $500,000 in cash. This was the first 25% quarterly repurchase
agreed to by the Company relating to the 1,000,000 shares issued to
acquire the DRSTP geological data. In January 1998, the Company issued
24,000 shares valued at $61,218 and assumed a mortgage payable of
$28,782 to acquire a small office building in Utah, valued at $90,000,
from Unita Oil and Gas. In February 1998, the Company issued 282,000
shares in exchange for $180,250 in cash and 104,664 shares in exchange
for services valued at $55,658. In March 1998, the Company issued
300,000 shares in exchange for a subscription receivable of $236,250,
which was received in cash in April 1998. In
F-12
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Notes to Consolidated Financial Statements
(10) Stockholders' equity (continued)
June 1998, the Company issued 234,200 shares in exchange for $135,600
in cash and 62,420 shares in exchange for services valued at $32,201.
Contingent issues
The Company is contingently liable to issue up to two million shares of
restricted stock to two officers and directors of the Company for their
efforts in closing the M III contract in Utah upon the joint venture
oil production level of 4,000 barrels a day being attained. This two
million shares includes the 500,000 shares the Company is to issue to
MIII. The Company is also contingently liable to issue an additional
two million shares upon the joint venture attaining production of a
total of 6,000 barrels a day.
The Company is contingently liable to issue up to three million shares
of restricted stock in total to three officers and directors of the
Company for their efforts in closing the Sao Tome & Principe contract.
These shares will be issued upon the joint venture oil production level
of 20,000 barrels a day being attained.
Warrants
In March 1998 the Company issued a warrant for 100,000 shares of common
stock with an exercise price of $1.20 per share, or total proceeds of
$120,000 in cash for the Company if all of the warrants are exercised.
This warrant was issued in conjunction with entering into the
Kingsbridge Investment Agreement.
In June 1998 the Company received $200,000 in cash in exchange for
warrants for 1,050,000 shares of common stock with an exercise price of
$ 0.75 per share, or total proceeds to the Company of $787,500 in cash
if all of the warrants are exercised.
(11) Deferred compensation
ERFC issued 755,043 shares of its common stock into escrow in exchange
for services to be rendered by a consultant under a four year contract.
These services were valued at $125,000 per year, therefore the Company
is amortizing this deferred compensation expense at a rate of $31,250
per quarter. This consultant later became ERFC's Chairman, President
and CEO.
On August 30, 1996, the Company issued 10,000 shares of its common
stock, valued at $70,000, to an attorney for services to be rendered at
below market rates for a period of 4 months. Accordingly, the Company
amortized this expense over the term of the agreement.
(12) Commitments and contingencies
The Company is committed to lease payments for 9 vehicles under
operating leases totalling $52,292 and $20,043 for the fiscal years
ended September 30, 1998 and 1999, respectively. The Company currently
leases its office space and operating facilities on a month to month
basis.
(13) Segment information
The Company has three distinct lines of business through its two wholly
owned subsidiaries, Site Services, Inc., (SSI), and Bass American
Petroleum Company, (BAPCO), and a joint venture agreement. SSI operates
in the environmental remediation industry and BAPCO will operate in the
oil and gas production industry. SSI's principal identifiable assets
consist of $3,720,000, of environmental equipment, a barge deposit of
$131,000 and the Chevron P&A master service agreement valued at $300.
Revenues of $273,057 relate to SSI. BAPCO's principal identifiable
assets consist of crude oil and natural gas reserves valued at
$1,240,175 and equipment valued at $2,570,000. Revenues of $119,219
relate to BAPCO. The Company also expects to operate in the supply
industry through a joint venture agreement to supply fuel and other
goods to ships
F-13
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Notes to Consolidated Financial Statements
(13) Segment information (Continued)
transiting the Panama Canal. The Company is in final negotiations for a
loan which would allow it to begin its operations in Panama. No
principal identifiable assets yet exist for this line of business.
(14) Sao Tome concession payment
When the Company entered into the joint venture agreement in May 1997
with the Democratic Republic of Sao Tome and Principe, (DRSTP), the
Company was required to pay a $5,000,000 concession fee to the DRSTP
goverment. In September 1997, the Company received a Memorandum of
Understanding from the
DRSTP government which allows the Company to pay this concession fee
within five days after the DRSTP files the relevant official maritime
claims maps with the United Nations and the Gulf of Guinea Commission.
In December 1997, the Company paid $2,000,000 of this concession fee to
the DRSTP from the proceeds of the convertible note offering.
(15) Letter of intent
In December 1997, the Company received a letter of intent from a
registered brokerage house which contemplates a firm commitment public
offering of approximately $50,000,000 of convertible debt securities.
This offering, if it proceeds, is contemplated for late 1998. There is
no assurance that such offering will be consummated.
In May, 1998, the Company received a letter of intent from another
registered brokerage firm as a replacement of the December 1997, letter
of intent. This new letter of intent is for the same terms and
conditions as the one it replaces.
(16) Investment in ST PETRO, S.A.
In June 1998, in anticipation of the legal formation of ST PETRO, S.A.
by the government of the DRSTP, the Company forwarded $20,000 of its
expected $49,000 initial investment in ST PETRO, S.A. Once the entire
amount is paid, ERHC will own 49% of the then total issued and
outstanding common stock of ST PETRO. ERHC will also effectively
control ST PETRO, S.A. by virtue that the CEO and President of ST PETRO
are ERHC's CFO and COO respectively.
(17) Subsequent events
a) Sao Tome concession payments
On July 2, 1998 the Company paid $1,000,000 of the concession fee to
the government of the DRSTP. On July 31, 1998 the Company paid an
additional $1,000,000 of the concession fee to the government of the
DRSTP
b) Notes payable
In July/August 1998 the Company issued 8% convertible subordinated
unsecured notes due July/August 2000 in exchange for $1,200,000 and
$275,000 cash. These notes are convertible into shares of the Company's
common stock at a conversion price to be determined by so stated
formula. If all of the notes are converted, the Company will be
required to issue 1,657,928 shares of common stock based on the formula
on the dates of closing (an average of $0.88966). Warrants were also
issued to the placement agent for an additional 132,750 shares of
common stock with an exercise price of $0.74375 and $0.73125 per share,
or total additional proceeds to the Company of $98,423 in cash in the
event all of the warrants are exercised.
F-14
<PAGE>
Item 2. Management's Discussion and Analysis and Plan of Operation.
Environmental Remediation Holding Corporation is an independent oil and gas
company engaged in the exploration, development, production and sales of crude
oil and natural gas properties with current operations focused in Texas, Utah,
and the Democratic Republic of Sao Tome and Principe in West Africa ("DRSTP").
The Company's strategy in the United States is to increase oil and natural gas
reserves, production, and cash flow through (1) the exploration of its existing
acreage position in Texas, Utah, and the DRSTP; (2) the acquisition of
additional properties in known producing areas that provide significant
development and exploratory drilling potential; (3) the exploration for oil and
natural gas reserves; (4) the maintenance of a low operating and cost structure;
and, (5) environmental remediation as it relates to the oil and gas industry.
The Company has acquired all of its oil and gas properties within the past year.
The Company's current development plans require substantial capital expenditures
in connection with the exploration, development and exploitation of oil and
natural gas properties. Although the Company has historically funded capital
expenditures through a combination of equity contribution and short-term
financing arrangements, the Company's ability to meet its estimated capital
expenditure in Fiscal year 1998 are dependent on the Company's ability to
realize the proceeds of the Company's contemplated public debt offering of $50
million.
Should the Company's contemplated debt offering not proceed as planned, the
Company will continue to seek alternative sources of funding to enable the
Company to meet its demands for cash to commercialize the various agreements it
has entered into. The Company has sought alternative sources of funding to
provide interim financing until such time as the anticipated debt offering can
be completed.
The Private Stock Offering:
In order to meet certain current operating expenses, during the period of April
1998 through June 1998, the Company received gross proceeds in the amount of
$371,850.00 from the sale of a total of 534,200 shares of the restricted stock
in the Company, $.001 par value per share (the "Restricted Stock") and received
gross proceeds in the amount of $32,200.65 from the issuance of stock for
services for a total of 62,420 shares of the Company's Restricted Stock.
The April 1998 Funding:
In order to meet the funding need of the Company, on April 9, 1998, the Company
raised proceeds of $300,000 as a bridge loan in a private placement of the
Company's (1) 12.0% convertible notes due on the earlier of January 8, 1999 or
at such time as the Company receives the first draw under the Kingsbridge
Capital Limited("Kingsbridge")Private Equity Line of Credit dated as of March
23, 1998 (the "Notes") and (2) warrants to purchase shares of Common Stock (the
"Warrants") to nine (9) investors. The shares to be issued upon conversion of
the Notes and exercise of the Warrants shall be Rule 144 restricted shares. The
maximum number of shares of Common Stock which may be issued by the Company upon
the conversion of the Notes (at a base conversion rate of $1.50 per share,
(subject to certain limitations) and the exercise of the Warrants (at an
exercise price of $1.25) is up to 200,000 shares and 210,000 respectively. The
shares covered by the conversion of the Notes and exercise of the Warrants are
entitled to piggyback registration rights and were included in Amendment No. 2
to the Form S-1 currently filed. The Notes are convertible at any time after
issuance, and the Warrants are exercisable at any time prior to April 8, 2001.
The Company used the gross proceeds to finance further production and for
working capital. As of August 19, 1998, none of the Notes have been converted
and none of the Warrants have been exercised.
The First June 1998 Funding
In June 1998, the Company raised gross proceeds of $200,000 in a private
placement of warrants to purchase Common Stock (the"June Warrants") to two
"accredited" investors. The maximum number of shares of Common Stock which may
be issued upon the exercise of the June Warrants (at an exercise price of $.75)
is up to 1,050,000 shares. The June Warrants may exercise at any time up until 5
PM Eastern Standard Time on the first business day after the fourteen (14) month
period following the date of the declaration of the effectiveness of the
Company's registration statement in which the June Warrants are registered.
In the event that a holder of the June Warrants exercises for not less than
250,000 (25,000 in the case of the 50,000 warrant holder) shares of the
Company's Common Stock within 180 days of June 1, 1998 and exercises for at
least an additional 50,000 (5,000 in the case of the 50,000 warrant holder)
shares of Common Stock within 360 days of June 1, 1998, the Company shall issue
of the June Warrants additional warrants for the purchase of a number of shares
equal to the number of shares purchased under the June Warrants within 180 and
360 days of June 1, 1998. The exercise price of these additional warrants is
equal to $2.00 per share. Such additional warrants may be exercised at any time
up until 5 PM Eastern Standard Time on the first business day after the
twenty-four (24) month period following the date of the effectiveness of the
Company's registration statement in which the additional warrants are
registered.
16
<PAGE>
In connection with the sale of the June Warrants, the Company included the
shares to be issued upon exercise of the June Warrants in Amendment No. 2 to the
Form S-1 currently filed. The Company has committed to register the additional
warrants within ninety (90) days of issuance. The Company used the net proceeds
of this financing for working capital. As of August 19, 1998, none of the June
Warrants have been exercised.
The Second June 1998 Funding
In June 1998, the Company raised gross proceeds of $425,000 in the private
placement of the Company's 12..0% subordinated convertible notes due on the
earlier of December 1999 or upon the receipt by the Company of debt or equity or
revenue from the sale of leases or other property of $4 million or more (the
"June Notes") and warrants to purchase Common Stock (the "Second June Warrants")
to a limited number of "accredited" investors. The maximum number of shares of
Common Stock which may be issued by the Company upon the conversion of the June
Notes (at a base conversion price of $1.00 per share), subject to designated
adjustments, and the exercise of the Second June Warrants (at an exercise price
of $.50 per share for the first two years and $.85 per share thereafter) is up
to 425,000 shares and 531,250 shares, respectively. As of August 19, 1998, none
of the June Notes or the Second June Warrants had been exercised.
The holders of the June Notes may convert 100% of the principal amount of the
June Notes at any time after the issuance date. The conversion rate of the June
Notes is equal to $1.00 per share. The June Notes are subordinated to any senior
debt incurred by the Company.
The holders of the Second June Warrants may exercise at any time up until 5 PM
Eastern Standard Time on June 14, 2002. The exercise price of the Second June
Warrants is equal to $.50 per share for the first two years and $.85 per share
thereafter, these prices are subject to adjustment. In the event the Company
does not register the Second June Warrants within six (6) months of issuance,
the exercise price for the entire term through June 14, 2002 shall remain at
$.50 per share. Additionally, the price of the Second June Warrants will be
adjusted downward to 50% of market when the registration statement becomes
effective, if after 90 days the share price of the Company's Common Stock falls
below $.75 per share for more than five (5) consecutive trading days or seven
(7) out of ten (10) trading days. The Second June Warrants contain cashless
exercise and anti-dilution provisions which include, but are not limited to,
anti-dilution protection against stock or management option issuances below $.50
per share.
In connection with the sale of the June Notes and the Second June Warrants, the
Company included such notes and warrants in Amendment No. 2 to the Form S-1
currently filed. The Company used the net proceeds of this financing for working
capital. As of August 19, 1998 none of the June Notes have been converted and
none of the Second June Warrants have been exercised.
The Third June 1998 Funding
In June 1998, the Company raised gross proceeds of $1,250,000 in a private
placement of the Company's 5.5% convertible notes due in 2000 (the "Second June
Notes") and warrants to purchase Common Stock (the "Third June Warrants") to one
"accredited" investor. The conversion price is calculated by formula as the
lower of (i) the average closing bid price for the five (5) days prior to the
closing or (ii) 80% of the average closing bid price for the five (5) days prior
to notice of intent to convert. In the event that the lower price were the
average closing bid price for the five (5) days prior to the closing, the
maximum number of shares of Common Stock which may be issued by the Company upon
conversion of the Second June Notes (at a base price of $.7195) is 1,798,124.
However, if 80% of the average closing bid price for the five (5) days prior to
the notice of intent to convert were the lower price, there is no way to
ascertain the maximum number of shares of Common Stock which may be issued by
the Company upon conversion of the Second June Notes at this time. Because the
conversion rate of the Second June Notes is based in part on future average
trading prices of the Common Stock, the number of shares which may actually be
issued on conversion could differ significantly. For example, in the event the
average closing bid price for the five (5) days prior to notice of intent to
convert were $.7195, 80% of such number would equal a share price of $.5756,
resulting in a total of 2,247,655 shares of Common Stock issuable upon
conversion exclusive of the exercise of any of the Third June Warrant. The
maximum number of shares of Common Stock which may be issued by the Company upon
the exercise of the Third June Warrants (at an exercise price of 120% of the
average closing bid price for the five (5) days prior to the closing which is
equal to $.8634) is 230,000 shares. As of August 19, 1998, none of the Second
June Notes had been converted and none of the Third June Warrants had been
exercised.
Under the terms of the Second June Notes, the holders thereof may convert the
original principal amount of the Second June Notes only to the extent of
one-third of such amount on and after each of July 23, 1998, August 23, 1998 and
September 23, 1998. The Second June Notes are subordinate to any senior debt
incurred by the Company.
All of the shares to be held by the Investors upon exercise of the Third June
Warrants, under the terms of the Third June Warrants, the holders thereof may
exercise at any time up until 5 PM Eastern Standard Time on June 23, 2003. The
exercise price of the Third June Warrants is equal to $.8634 per share.
17
<PAGE>
In connection with the sale of the Second June Notes and the Third June
Warrants, the Company entered into a Registration Rights Agreement with the
Selling Shareholders, pursuant to which the Company agreed to register the Third
June 1998 Funding shares under the Securities Act for resale by, and for the
benefit of, such shareholders. The Second June Notes and the Third June Warrants
were included in Amendment No. 2 to the Form S-1 currently filed. The Company
used $1,000,000 of the net proceeds as an additional concession fee payment in
connection with its Sao Tome joint venture. The balance was used for working
capital.
The July/August 1998 Funding
In July and August 1998, the Company raised gross proceeds of $1,200,000 and
$275,000 respectively in a private placement of up to $3,000,000 in two (2)
tranches of the Company's 8.0% convertible notes due in 2000 (the "July Notes")
to a limited number of "accredited" investors. The Company anticipates closing
an additional tranche representing gross proceeds of $300,000 on or before
August 18, 1998. The conversion price of the July Notes is calculated by formula
as the lower of (i) 120% of the average closing bid price per share of the
Company's Common Stock for the five (5) days preceding the closing of the
transaction or (ii) 75% of the average closing bid price per share of the
Company's Common Stock for the five (5) days preceding the date upon which
notice of conversion is given by the investor to the Company. In the event that
the lower price were the average closing bid price for the five (5) days prior
to the closing bid price for the five (5) days prior to the closing of each
tranche, the maximum number of shares of the Common Stock which may be issued by
the Company upon conversion of the July Notes (at a base price of $.74375 and
$.73125 respectively) is 1,657,928. However if 75% of the average closing bid
price for the five (5) days prior to the notice of intent to convert were the
lower price, there is no way to ascertain the maximum number of shares of Common
Stock which may be issued by the Company upon conversion of the July Notes at
this time. Because the conversion rate of the July Notes is based in part on
future average trading prices of the Common Stock, the number of shares which
may actually be issued upon conversion could differ significantly. For example,
in the event the average closing bid price for the five (5) days prior to the
note of intent to convert were $.74375, 75% of such number would equal a share
price of $.55781 resulting in a total of 2,644,257 shares of Common Stock
issuable upon conversion exclusive of the exercise of any of the warrants.
Warrants were issued to the placement agent at the close of each tranche (the
"July Warrants"). The maximum number of shares of Common Stock which may be
issued by the Company upon the exercise of the July Warrants (at an exercise
price of $.74375 and $.73125 respectively) is 132,750 shares. As of August 19,
1998, none of the July Notes had been converted and none of the July Warrants
had been exercised.
Under the terms of the July Notes, the holders thereof may convert the original
principal amount of the notes only to the extent of one-third of such amount on
and after each thirty (3) day period following the issuance date. The July Notes
are subordinate to any senior debt incurred by the Company.
Under the terms of the July Warrants, the holders thereof may exercise at any
time up until 5 PM Eastern Standard Time on July 30, 2003 and August 5, 1998
respectively. The exercise price of the July Warrants are equal to $.74375 and
$.73125.
In connection with the sale of the July Notes and the July Warrants, the Company
entered into a Registration Rights Agreement with the Selling Shareholders,
pursuant to which the Company agreed to register the July 1998 Funding shares
under the Securities Act for resale by, and for the benefit of, such
shareholders. The July Notes and the July Warrants were not included in
Amendment No. 2 to the Form S-1 currently filed. The Company used $1,000,000 of
the net proceeds as an additional concession fee payment in connection with its
Sao Tome joint venture. The balance was used for working capital.
18
<PAGE>
Operations
During the third quarter 1998, the Company focused on the funding of the
additional concession fee due to DRSTP. A substantial portion of the financing
arranged during this quarter was paid over as part of this concession fee. ERHC
continues to believe that the Sao Tome Project needs to be the primary focus of
its activities due to the extensive interest and financial commitments of the
major exploration and production companies in the Gulf of Guinea.
In April, 1998, the Government of Sao Tome granted approval to the joint venture
to proceed with the preparation and sale of leases of its oil concession rights,
which sales are expected to occur in early 1999.
On April 20, 1998, the government of DRSTP and ERHC filed the two hundred (200)
mile exclusive economic zone coordinates with the United Nations. This is the
last step necessary to establish the exclusive economic zone for international
recognition.
In June 1998, the Company and Sao Tome signed a letter of intent to award a
contract to Schlumberger Geco-Prakla to perform a marine seismic survey in
anticipation of the license round to be held in Sao Tome, and to act as the
technical advisor and coordinator of such license round. Schlumberger
Geco-Prakla is a seismic data service company located in Great Britain. The
exact number and size of the lease blocks to be offered have not yet been
determined. The Company intends to run the survey and acquire the seismic data
in late 1998 in order to proceed with the licensing round commencing in early
1999.
In July 1998, the Company closed and formed the joint venture national oil
company with DRSTP. This oil company is called the Sao Tome Principe National
Petroleum Company S.A. ("STPETRO"). STPETRO is owned fifty one percent (51%) by
DRSTP and forty nine percent (49$) by ERHC. In additional, ERHC has been granted
under the original agreement with the government a long term management
arrangement of STPETRO. On July 9, 1998, the Ministry of Cabinets and the Prime
Minister executed the STPETRO formation documents and they were promulgated into
law by the President.
During this quarter, the Company put back on line five (5) additional wells at
the Wichita Falls fields located in North Texas. These wells, and the thirteen
(13) which were previously opened, are currently producing approximately twenty
(20) barrels a day in total. ERHC has determined that with oil prices down, it
is not economically feasible at this time to continue with the redevelopment of
this field or to rework the wells for increased production. At such time as oil
prices reach $15 to $18 per barrel, the Company will reconsider its position.
At the Nueces River Project, the Company is currently meeting with potential
farm-out partners to work the project. ERHC believes Nueces River still holds
tremendous development potential; however, until such time as the Company
secures long term funding, of which there can be no assurance, it intends to
look for alternative methods to develop this project.
At the Uinta Project, ERHC continues to currently operate four (4) wells. At
such time as additional funding is available, the Company intends to rework
additional wells.
During the third quarter 1998, the Company awaited additional financing and an
increase in oil prices in order to be able to move forward with the rework and
development of the MIII project at the Uintah and Ouray Reservation, Utah.
In October 1997, the Company received a letter of intent to secure $50 million
in debt financing from Dirks & Company of New York. This transaction was not
brought to fruition for a number of reasons, but principally because certain
parties employed by such firm who would have been primarily involved with the
placement of this offering, left the firm. After several months, such parties
became employed by Security Capital Trading, Inc. During the second quarter
1998, the Company renegotiated this transaction and on May 7, 1998, Security
Capital Trading Inc. issued a letter of intent in connection with the proposed
offering of $50 million of public debt. This offering is conditioned upon filing
of a Registration Statement on Form S-1 covering the proposed debt offering. The
Company believes that until such time as its current Form S-1, as amended
becomes effective, that it is not in a position to file another Form S-1.
Accordingly the Company intends to proceed with the Security Capital Trading
Inc. debt offering immediately upon the effectiveness of its current Form S-1,
as amended.
On May 7, 1998, Security Capital Trading Inc. also issued a letter of intent to
act as the placement agent for the private placement of convertible preferred
stock of the Company(the "Preferred Stock"). The offer is for the placement of a
minimum of $2,000,000 and a maximum of $5,000,000 at an anticipated offering
price per share of Preferred Stock of $10.00. This Preferred Stock shall be
offered to accredited investors pursuant to Regulation D under the Securities
Act of 1933 in units of $50,000. Each share of Preferred Stock shall have a
liquidation value of $10.00 and shall be convertible into shares of Common Stock
at a rate which is mutually acceptable to Security Capital Trading Inc. and the
Company. The Company intends to proceed with this offering.
19
<PAGE>
The following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto referred to in "Item 1. Financial
Statements.
RESULTS OF OPERATIONS
During the third quarter of fiscal 1998 the Company incurred a net loss of
$2,781,000, compared to a net loss of $1,399,000 in the third quarter of fiscal
1997. In the third quarter of fiscal 1998 a total of $270,000 was accrued, but
not paid in cash, as compensation to three officers of the Company. Depreciation
and amortization totaled $133,000 in the third quarter of fiscal 1998 compared
to $72,000 in the third quarter of fiscal 1997. Depletion expense was $1,000 in
the third quarter of fiscal 1998 compared to $0 the prior year. The net cash
operating loss of the Company for the third quarter of fiscal 1998 was
$1,498,000 compared to $134,000 for the third quarter of fiscal 1997.
Officers compensation, professional fees, travel, consultant fees and
miscellaneous expense for the three months ended June 30, 1998 compared to the
three months ended June 30, 1997 increased dramatically because the Company had
not been funded at that time and only began its operations by December 31, 1996.
Professional fees included legal, audit and petroleum engineering and other
engineering costs.
The Company had revenues of $100,000 in third quarter of fiscal 1998, after
adjustments for misclassifications and overaccruals made in error, compared to
$84,000 in the third quarter of fiscal 1997.
CAPITAL EXPENDITURES
When the Company entered into the joint venture agreement in May 1997 with the
DRSTP, the Company was required to pay a $5,000,000 concession fee to the DRSTP
government. In September 1997, the Company received a Memorandum of
Understanding from the DRSTP government which allows the Company to pay this
concession fee within five days after the DRSTP files the relevant official
maritime claims maps with the United Nations and the Gulf of Guinea Commission.
In December 1997 the Company paid $2,000,000 of this concession fee to the DRSTP
from the proceeds of a convertible note offering.
On April 15, 1998, the Company agreed to enter into a joint venture with a
privately held Delaware corporation, AMCO Montenegro, Inc. and its related ABC
Group of companies ("AMCO") to construct and operate an "Off-Shore Logistics
Center" for the oil industry in the Gulf of Guinea, on the Island of Sao Tome.
The Company is in the process of finalizing the contracts with AMCO.
This Off-Shore Logistics Center will include a dry dock facility. Currently the
oil industry in the area utilizes a dry dock in Cape Town, South Africa. The
location of a dry dock facility on San Tome its expected to be a great benefit
to the industry, including the Company's activities, as it is expected to reduce
the down time by a minimum of four (4) days due to Sao Tome's strategic
location.
AMCO and its related ABC Group of companies, including A.B.C. AeroEngineering
Ltd. have designed, developed and constructed civilian and military airports,
airport refueling and re-fueling stations, road construction, military
facilities, hospitals, healthcare facilities, business and warehouse facilities
and various other industrial support structures. The Company has entered into
preliminary discussions with marine transport and air support companies for the
use of this logistics center. AMCO is responsible for funding this project.
The Off-Shore Logistics Center will be an on-shore based operation on Sao Tome
which can service off-shore drilling rigs and act as the central depository,
storage and service area for the drilling and oil production in the area. The
facility will be designed to provide services and supplies to support drilling
off-shore wells, including, pipe, casing and other tubular goods, fuel, water,
drilling mud facilities and supplies, rental tools and a dry dock facility. In
addition, it is intended to provide helicopter, fixed wing and marine
facilities, such as crew and transport boats and will encompass housing and
business facilities for oil company personnel.
In April 22, 1998, Jugobanks AD Podgorica of Montenegro agreed to finance
$50,000,000 for the construction the Off-Shore Logistics Center in Sao Tome. The
Company and AMCO are working with the bank on the final loan documentation.
On July 2, 1998, the Company paid an additional payment on the concession fee
due to DRSTP in the amount of $1,000,000 out of the proceeds of the Third June
1998 Financing and on July 31,1998, the Company made another additional payment
in the amount of $1,000,000 out of the proceeds of the July/August 1998 Funding.
20
<PAGE>
On September 29, 1997, the Company entered into an agreement to acquire 22 oil,
gas and mineral leases located in Uintah and Duchesne Counties, Utah from three
joint owners. The purchase agreement was closed on October 8, 1997, at which
time the Company received the lease assignment. The terms of the acquisition are
for the Company to pay $250,000 in cash, issue 250,000 shares of the Company's
common stock, valued at $2,000,000, at each of the following four dates:
closing; December 30, 1997; March 30, 1998 and June 30, 1998. The Company also
was required to guarantee that the bid price on the date the Rule 144
restrictions lapse will be no less than $2.00 per share or the Company is
required to either issue additional shares or to pay the difference in cash, at
the Company's option. The Company also granted the sellers a 4% gross production
receipts royalty to a maximum of $677,000. The Company is currently evaluating
the existing reserve reports and underlying data on these leases and has
contracted another independent appraiser to complete new reserve reports for its
use. The 250,000 shares of the Company's Common Stock due on June 30, 1998 were
issued in accordance with the agreement.
In October 1997, the Company entered into an agreement to acquire a 3/8
undivided interest in a natural gas well that had been plugged and abandoned
approximately 10 years ago. This agreement requires the Company to pay the
seller $150,000 and 50,000 shares of the Company's common stock valued at
$148,750, as well as to pay the Company's proportionate share of the costs to
reenter this well. The Company is also required to carry the seller's 1/8
proportionate share of the reentry costs until the well is producing.
The seller also owns an undivided 50% interest in the oil and gas lease on the
49,019 acres of land contiguous to the initial well. The agreement allows the
Company to acquire a 3/8 undivided interest in this lease by paying to the
seller approximately $343,000 each April for four years. The Company received
the initial lease assignment on December 1, 1997. The Company continues to
evaluate the existing reserve reports and underlying data on these leases and
awaits another independent appraiser to complete new reserve reports for its
use.
To further penetrate the environmental remediation services market in Louisiana,
in February 1998, the Company acquired a 70% equity interest in Ven Virotek,
Inc., a Louisiana corporation ("Virotek"), from its sole shareholder, Recycling
Remedies, Inc. Virotek owns and operates a NORM solid waste disposal site in
Houma, Louisiana and holds permits from Louisiana environmental authorities to
dispose of salt water brine and naturally occurring waste products. For the year
ended December 31, 1997, Virotek had revenues, net income and total assets of
approximately $658,000, $332,000, and $1,035,000, respectively. The Company
acquired its interest in Virotek in consideration for $15,000 in cash and the
assumption of a $300,000 bank note.
In March 1998, Virotek obtained two contracts from the U.S. Department of Energy
to dispose of salt water brine from the strategic petroleum reserve located in
Houma, Louisiana. Under the contracts, it is contemplated initially that a total
of 475,000 barrels of brine will be shipped to Virotek for disposal, and Virotek
will receive $1.00 per barrel for its services. There were no further
developments with Virotek during the third quarter 1998.
RESERVES AND PRICING
Oil and natural gas prices fluctuate throughout the year. Generally higher
natural gas prices prevail during the winter months of September through
February. A significant decline in prices would have a material effect on the
measure of future net cash flows which, in turn, could impact the value of the
Company's oil and gas properties.
The Company's drilling and acquisition activities have increased its reserve
base and its productive capacity and, therefore, its potential cash flow. Lower
gas prices may adversely affect cash flow. The Company intends to continue to
acquire and develop oil and gas properties in its areas of activity as dictated
by market conditions and financial ability. The Company retains flexibility to
participate in oil and gas activities at a level that is supported by its cash
flow and financial ability. Management believes that the Company's borrowing
capacities and cash flow are sufficient to fund its currently anticipated
activities. The Company intends to continue to use financial leverage to fund
its operations as investment opportunities become available on terms that
management believes warrant investment of the Company's capital resources.
The Company is currently evaluating the existing reserve reports and underlying
data on all leases and has contracted with another independent appraiser to
complete new reserve reports.
The Company's non-producing proved reserves are largely "behind-pipe" in fields
which it operates. Undeveloped proved reserves are predominantly infill drilling
locations and secondary recovery projects.
21
<PAGE>
The reserve data set forth in this Form 10-Q represent only estimates. Reserve
engineering is a subjective process of estimating underground accumulations of
oil and gas that cannot be measured in an exact manner. The accuracy of any
reserve estimate is a function of the quality of available data and of
engineering and geological interpretation and judgment. As a result, estimates
of different engineers often vary. In addition, results of drilling, testing and
production subsequent to the date of an estimate may justify revision of such
estimate. Accordingly, reserve estimates often differ from the quantities of oil
and natural gas that are ultimately recovered. the meaningfulness of such
estimates is highly dependent upon the accuracy of the assumptions upon which
they were based.
Forward-Looking Statements
This Form 10-Q includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements, other than
statements of historical facts, included or incorporated by reference in this
Form 10-Q which address activities, events or developments which the Company
expects or anticipates will or may occur in the future, including such things as
future capital expenditures (including the amount and nature thereof), wells to
be drilled or reworked, oil and gas prices and demand, exploitation and
exploration prospects, development and infill potential, drilling prospects,
expansion and other development trends of the oil and gas industry, business
strategy, production of oil and gas reserves, expansion and growth of the
Company's business and operations, and other such matters are forward-looking
statements. These statements are based on certain assumptions and analyses made
by the Company in light of its experience and its perception of historical
trends, current conditions and expected future developments as well as other
factors it believes are appropriate in the circumstances. However, whether
actual results and developments will conform with the Company's expectations and
predictions is subject to a number of risks and uncertainties, general
economic,market or business conditions; the business opportunities (or lack
thereof) that may be presented to and pursued by the Company; changes in laws or
regulation; and other factors, most of which are beyond the control of the
Company. Consequently all of the forward-looking statements made in this Form
10-Q are qualified by these cautionary statements and there can be no assurance
that the actual results or developments anticipated by the Company will be
realized or, even if substantially realized, that they will have the expected
consequences to or effects on the Company or its business or operations.
PART II - Other Information
Item 1. Legal Proceedings.
Other than any items previously reported, the Company is not a party to any
material pending or threatened legal proceeding or claim.
Item 2. Changes in Securities
(a) There have been no changes with respect to defining the rights of the
holders of any class of registered securities or otherwise.
(b) There have been no changes with respect to materially limiting or qualifying
rights of any class of registered securities or otherwise.
(c) Recent Sales of Unregistered Securities
The Private Offering:
In order to meet certain current operating expenses, during the period of April
1998 through June 1998, the Company received gross proceeds in the amount of
$371,850.00 from the sale of a total of 534,200 shares of the restricted stock
in the Company, $.001 par value per share (the "Restricted Stock") to a limited
number of "accredited investors" in an offering conducted pursuant to Section
4(2) of the Securities Act of 1933, as amended (the "Act") and Rule 506 of
Regulation D promulgated thereunder ("Rule 506"). In addition, and the Company
received gross proceeds in the amount of $32,200.65 from the issuance of stock
for services for a total of 62,420 shares of the Company's Restricted Stock
under terms substantially similar to those offered to the investors. No
underwriter was used in connection with this offering.
22
<PAGE>
The April 1998 Funding:
In order to meet the funding need of the Company, on April 9, 1998, the Company
raised proceeds of $300,000 as a bridge loan in a private placement of the
Company's (1) 12.0% convertible notes due on the earlier of January 8, 1998 or
at such time as the Company receives the first draw under the Kingsbridge
Private Equity Line of Credit dated as of March 23, 1998 (the "Notes") and (2)
warrants to purchase shares of Common Stock (the "Warrants") to nine (9)
"accredited investors". The shares to be issued upon conversion of the Notes and
exercise of the Warrants shall be Rule 144 restricted shares. The maximum number
of shares of Common Stock which may be issued by the Company upon the conversion
of the Notes (at a base conversion rate of $1.50 per share, (subject to certain
limitations) and the exercise of the Warrants (at an exercise price of $1.25) is
up to 200,000 shares and 210,000 respectively. The shares covered by the
conversion of the Notes and exercise of the Warrants are entitled to piggyback
registration rights and were included in Amendment No. 2 to the Form S-1
currently filed. The Notes are convertible at any time after issuance, and the
Warrants are exercisable at any time prior to April 8, 2001. The Company used
the gross proceeds to finance further production and for working capital. As of
August 19, 1998, none of the Notes have been converted and none of the Warrants
have been exercised. No underwriter was used in connection with this funding.
The First June 1998 Funding
In June 1998, the Company raised gross proceeds of $200,000 in a private
placement of warrants to purchase Common Stock (the"June Warrants") to two
"accredited" investors. The maximum number of shares of Common Stock which may
be issued upon the exercise of the June Warrants (at an exercise price of $.75)
is up to 1,050,000 shares. The June Warrants may exercise at any time up until 5
PM Eastern Standard Time on the first business day after the fourteen (14) month
period following the date of the declaration of the effectiveness of the
Company's registration statement in which the June Warrants are registered.
In the event that a holder of the June Warrants exercises for not less than
250,000 (25,000 in the case of the 50,000 warrant holder) shares of the
Company's Common Stock within 180 days of June 1, 1998 and exercises for at
least an additional 50,000 (5,000 in the case of the 50,000 warrant holder)
shares of Common Stock within 360 days of June 1, 1998, the Company shall issue
of the June Warrants additional warrants for the purchase of a number of shares
equal to the number of shares purchased under the June Warrants within 180 and
360 days of June 1, 1998. The exercise price of these additional warrants is
equal to $2.00 per share. Such additional warrants may be exercised at any time
up until 5 PM Eastern Standard Time on the first business day after the
twenty-four (24) month period following the date of the effectiveness of the
Company's registration statement in which the additional warrants are
registered.
In connection with the sale of the June Warrants, the Company included the
shares to be issued upon exercise of the June Warrants in Amendment No. 2 to the
Form S-1 currently filed. The Company has committed to register the additional
warrants within ninety (90) days of issuance. The Company used the net proceeds
of this financing for working capital. As of August 19, 1998, none of the June
Warrants have been exercised. No underwriter was used in connection with this
funding.
The Second June 1998 Funding
In June 1998, the Company raised gross proceeds of $425,000 in the private
placement of the Company's 12..0% subordinated convertible notes due on the
earlier of December 1999 or upon the receipt by the Company of debt or equity or
revenue from the sale of leases or other property of $4 million or more (the
"June Notes") and warrants to purchase Common Stock (the "Second June Warrants")
to a limited number of "accredited" investors. The maximum number of shares of
Common Stock which may be issued by the Company upon the conversion of the June
Notes (at a base conversion price of $1.00 per share), subject to designated
adjustments, and the exercise of the Second June Warrants (at an exercise price
of $.50 per share for the first two years and $.85 per share thereafter) is up
to 425,000 shares and 531,250 shares, respectively. As of August 19, 1998, none
of the June Notes or the Second June Warrants had been exercised.
The holders of the June Notes may convert 100% of the principal amount of the
June Notes at any time after the issuance date. The conversion rate of the June
Notes is equal to $1.00 per share. The June Notes are subordinated to any senior
debt incurred by the Company.
23
<PAGE>
The holders of the Second June Warrants may exercise at any time up until 5 PM
Eastern Standard Time on June 14, 2002. The exercise price of the Second June
Warrants is equal to $.50 per share for the first two years and $.85 per share
thereafter, these prices are subject to adjustment. In the event the Company
does not register the Second June Warrants within six (6) months of issuance,
the exercise price for the entire term through June 14, 2002 shall remain at
$.50 per share. Additionally, the price of the Second June Warrants will be
adjusted downward to 50% of market when the registration statement becomes
effective, if after 90 days the share price of the Company's Common Stock falls
below $.75 per share for more than five (5) consecutive trading days or seven
(7) out of ten (10) trading days. The Second June Warrants contain cashless
exercise and anti-dilution provisions which include, but are not limited to,
antidilutive protection against stock or management option issuances below $.50
per share.
In connection with the sale of the June Notes and the Second June Warrants, the
Company included such notes and warrants in Amendment No. 2 to the Form S-1
currently filed. The Company used the net proceeds of this financing for working
capital. As of August 19, 1998 none of the June Notes have been converted and
none of the Second June Warrants have been exercised. No underwriter was used in
connection with this funding.
The Third June 1998 Funding
In June 1998, the Company raised gross proceeds of $1,250,000 in a private
placement of the Company's 5.5% convertible notes due in 2000 (the "Second June
Notes") and warrants to purchase Common Stock (the "Third June Warrants") to one
"accredited investor". The conversion price is calculated by formula as the
lower of (i) the average closing bid price for the five (5) days prior to the
closing or (ii) 80% of the average closing bide price for the five (5) days
prior to notice of intent to convert. In the event that the lower price were the
average closing bid price for the five (5) days prior to the closing, the
maximum number of shares of Common Stock which may be issued by the Company upon
conversion of the Second June Notes (at a base price of $.7195) is 1,798,124.
However, if 80% of the average closing bid price for the five (5) days prior to
the notice of intent to convert were the lower price, there is no way to
ascertain the maximum number of shares of Common Stock which may be issued by
the Company upon conversion of the Second June Notes at this time. Because the
conversion rate of the Second June Notes is based in part on future average
trading prices of the Common Stock, the number of shares which may actually be
issued on conversion could differ significantly. For example, in the event the
average closing bid price for the five (5) days prior to notice of intent to
convert were $.7195, 80% of such number would equal a share price of $.5756,
resulting in a total of 2,247,655 shares of Common Stock issuable upon
conversion exclusive of the exercise of any of the Third June Warrant. The
maximum number of shares of Common Stock which may be issued by the Company upon
the exercise of the Third June Warrants (at an exercise price of 120% of the
average closing bid price for the five (5) days prior to the closing which is
equal to $.8634) is 230,000 shares. As of August 19, 1998, none of the Second
June Notes had been converted and none of the Third June Warrants had been
exercised.
Under the terms of the Second June Notes, the holders thereof may convert the
original principal amount of the Second June Notes only to the extent of
one-third of such amount on and after each of July 23, 1998, August 23, 1998 and
September 23, 1998. The Second June Notes are subordinate to any senior debt
incurred by the Company.
All of the shares to be held by the Investors upon exercise of the Third June
Warrants, under the terms of the Third June Warrants, the holders thereof may
exercise at any time up until 5 PM Eastern Standard Time on June 23, 2003. The
exercise price of the Third June Warrants is equal to $.8634 per share.
In connection with the sale of the Second June Notes and the Third June
Warrants, the Company entered into a Registration Rights Agreement with the
Selling Shareholders, pursuant to which the Company agreed to register the Third
June 1998 Funding shares under the Securities Act for resale by, and for the
benefit of, such shareholders. The Second June Notes and the Third June Warrants
were included in Amendment No. 2 to the Form S-1 currently filed. The Company
used $1,000,000 of the net proceeds as an additional concession fee payment in
connection with its Sao Tome joint venture. The balance was used for working
capital.
The firm of Joseph Charles & Associates which is located at Lenox Center, 3355
Lenox Road, #750, Atlanta, GA 30326 acted as the underwriter of this placement.
The July/August 1998 Funding
In July and August 1998, the Company raised gross proceeds of $1,200,000 and
$275,000 respectively in a private placement of up to $3,000,000 in two (2)
tranches of the Company's 8.0% convertible notes due in 2000 (the "July Notes")
to a limited number of "accredited" investors. The Company anticipates closing
an additional tranche representing gross proceeds of $300,000 on or before April
15, 1998. The conversion price of the July Notes is calculated by formula as the
24
<PAGE>
lower of (i) 120% of the average closing bid price per share of the Company's
Common Stock for the five (5) days preceding the closing of the transaction or
(ii) 75% of the average closing bid price per share of the Company's Common
Stock for the five (5) days preceding the date upon which notice of conversion
is given by the investor to the Company. In the event that the lower price were
the average closing bid price for the five (5) days prior to the closing bid
price for the five (5) days prior to the closing of each tranche, the maximum
number of shares of the Common Stock which may be issued by the Company upon
conversion of the July Notes (at a base price of $.74375 and $.73125
respectively) is 1,657,928. However if 75% of the average closing bid price for
the five (5) days prior to the notice of intent to convert were the lower price,
there is no way to ascertain the maximum number of shares of Common Stock which
may be issued by the Company upon conversion of the July Notes at this time.
Because the conversion rate of the July Notes is based in part on future average
trading prices of the Common Stock, the number of shares which may actually be
issued upon conversion could differ significantly. For example, in the event the
average closing bid price for the five (5) days prior to the note of intent to
convert were $.74375, 75% of such number would equal a share price of $.55781
resulting in a total of 2,644,257 shares of Common Stock issuable upon
conversion exclusive of the exercise of any of the warrants. Warrants were
issued to the placement agent at the close of each tranche (the "July
Warrants"). The maximum number of shares of Common Stock which may be issued by
the Company upon the exercise of the July Warrants (at an exercise price of
$.74375 and $.73125 respectively) is 132,750 shares. As of August 19, 1998, none
of the July Notes had been converted and none of the July Warrants had been
exercised.
Under the terms of the July Notes, the holders thereof may convert the original
principal amount of the notes only to the extent of one-third of such amount on
and after each thirty (3) day period following the issuance date. The July Notes
are subordinate to any senior debt incurred by the Company.
Under the terms of the July Warrants, the holders thereof may exercise at any
time up until 5 PM Eastern Standard Time on July 30, 2003 and August 5, 1998
respectively. The exercise price of the July Warrants are equal to $.74375 and
$.73125.
In connection with the sale of the July Notes and the July Warrants, the Company
entered into a Registration Rights Agreement with the Selling Shareholders,
pursuant to which the Company agreed to register the July 1998 Funding shares
under the Securities Act for resale by, and for the benefit of, such
shareholders. The July Notes and the July Warrants were not included in
Amendment No. 2 to the Form S-1 currently filed. The Company used $1,000,000 of
the net proceeds as an additional concession fee payment in connection with its
Sao Tome joint venture. The balance was used for working capital.
The firm of J.P. Carey Securities, Inc. which is located at Atlanta Financial
Center, East Tower, 3343 Peachtree Road, Suite 500, Atlanta, GA 30326 acted as
the underwriter of this funding.
Exemption from Registration Claimed
While no offering memorandum was used in connection with the stock offering or
any of the fundings in this third quarter 1998, the business plan of the Company
as set forth in the Form S-1 filed on January 8, 1998 with the Securities and
Exchange Commission and in subsequent amendments thereto filed April 15, 1998
and July 24, 1998 was disclosed to each prospective investor. The additional
facts relied upon by the Company to make the federal exemption available include
the following (1) as a reporting company, the Company made available to each
potential investor the type of information required by Rule 502(b)(2)(ii); (2)
the Company made available to each purchaser at a reasonable time prior to his
purchase an opportunity to ask questions and receive answers concerning the
terms and conditions of the offering or to obtain any additional information;
(3) no general solicitation or advertising was conducted by the Company in
connection with the offering of any of the shares; (4) the Company made
reasonable inquiry to determine that the purchasers were not underwriters within
the meaning of Section 2(11) of the Act; (4) as to each purchaser who was not an
accredited investor, the Company determined that either alone or with his
purchaser representative, had such knowledge and experience in financial and
business matters that the purchaser was capable of evaluating the merits and
risks of the prospective investment, or the Company reasonably believed that
prior to making such sale, that such purchaser came within this description.
25
<PAGE>
Item 3. Defaults Upon Senior Securities.
None. A requirement of funding provided to the Company on November 15, 1997 from
Avalon Research Group, Inc. ("Avalon") was that the Company would file its
registration statement within forty-five (45) days of the funding. The Form S-1
was filed by the Company on January 8, 1998; however, this eight (8) day
lateness was waived by the Avalon investors. In addition, the Company had agreed
to use its best efforts to have its registration statement declared effective
within one hundred twenty (120) days of the November 15, 1997 closing. The
Company believes that it has used its best efforts to have its registration
declared effective. The Avalon registration rights agreement required that in
the event that the registration statement was not effective within one hundred
twenty (120) days, that the Company would pay as liquidated damages an amount
equal to three percent (3%) of the aggregate amount of the notes per month. As a
result of the delay in declaring the Form S-1 as amended effective, the Company
owes the Avalon investors $136,500 for a part of the month of March and for the
full months of April, May and June 1998 and a additional amount of $39,000 for
the month of July 1998. These outstanding amounts do not represent a default
under the convertible senior subordinated notes issued to the Avalon investors;
however do represent a debt due by the Company and a default under the
Collateral Assignment Security Agreement under which the Company granted to the
Avalon investors a security interest in the rights to certain oil and gas
reserves located in Duchesne and Uintah Counties, Utah pursuant to which the
Company and its subsidiary currently enjoys the right to exploit certain oil and
gas reserves thereon.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit
4.1 April 1998 Funding Convertible Note (1)
4.2 April 1998 Funding Warrant (1)
* 4.3 First June 1998 Funding Warrant
* 4.4 Second June 1998 Funding Note
* 4.5 Second June 1998 Funding Warrant
* 4.6 Third June 1998 Funding Securities Purchase Agreement
* 4.7 Third June 1998 Funding Note
* 4.8 Third June 1998 Funding Warrant
* 4.9 Third June 1998 Registration Rights Agreement
* 4.10 July/August 1998 Funding Securities Purchase Agreement
* 4.11 July/August 1998 Funding Note
* 4.12 July/August 1998 Funding Warrant Agreement and Warrant
* 4.13 July/August 1998 Funding Registration Rights Agreement
4.14 Security Capital Trading Inc. Letter of Intent - $50
Mio. Debt Offering (1)
4.15 Security Capital Trading Inc. Letter of Intent - $2
to $5 Mio. Preferred Stock (1)
10.1 Joint Venture Formation of the Sao Tome Principe
National Petroleum Company executed July 9, 1998, (in
original Portugese)(2)
* 10.2 Joint Venture Formation of the Sao Tome Principe
National Petroleum Company executed July 9, 1998,
(English translation)
26
<PAGE>
(b) Reports on Form 8-K - There was one filing on Form 8-K for
the third quarter 1998
Form 8-K regarding Item 2, Acquisition of Assets, filed
April 13, 1998. (3)
- ----------------
* (filed herewith)
(1) Incorporated herein by reference to the Company Second Quarterly Report
on Form 10-Q for the quarter ended March 30, 1998, as amended and filed
on June 24, 1998.
(2) Filed on Form SE.
(3) Incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunder duly authorized, this 19th day of
August, 1998.
Environmental Remediation Holding Corporation
By: /s/ Sam L. Bass, Jr., CEO
Sam L. Bass, Jr., CEO
By: /s/ Noreen Wilson, Vice President
Noreen Wilson, Vice President
EXHIBIT INDEX
EXHIBIT DESCRIPTION
4.3 First June 1998 Funding Warrant
4.4 Second June 1998 Funding Note
4.5 Second June 1998 Funding Warrant
4.6 Third June 1998 Funding Securities Purchase Agreement
4.7 Third June 1998 Funding Note
4.8 Third June 1998 Funding Warrant
4.9 Third June 1998 Registration Rights Agreement
4.10 July/August 1998 Funding Securities Purchase Agreement
4.11 July/August 1998 Funding Note
4.12 July/August 1998 Funding Warrant Agreement and Warrant
4.13 July/August 1998 Funding Registration Rights Agreement
10.2 Joint Venture Formation of the Sao Tome Principe National Petroleum
Company executed July 9, 1998 (English translation)
27
<PAGE>
EXHIBIT 4.3
THIS WARRANT AND THE SHARES OF COMMON STOCK PURCHASABLE HEREUNDER HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE LAWS. SUCH SECURITIES MAY NOT BE SOLD OR
TRANSFERRED UNLESS THE REGISTRATION PROVISIONS OF SAID ACT AND LAWS HAVE BEEN
COMPLIED WITH OR UNLESS ENVIRONMENTAL REMEDIATION HOLDING CORP. HAS RECEIVED AN
OPINION OF COUNSEL ACCEPTABLE TO IT THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT
To Purchase 500,000 Shares of Common Stock
of
ENVIRONMENTAL REMEDIATION HOLDING CORP.
Dated June 1, 1998
In consideration of the amount of One Hundred Thousand Dollars ($100,000) paid
by __________________, to Environmental Remediation Holding Corporation, a
Colorado corporation ("ERHC"), ______________________ or registered assigns
("Holder") is entitled to purchase from ERHC, at the Exercise Price of $0.75 per
share, up to Five Hundred Thousand (500,000) shares of ERHC Common Stock,
$0.0001 par value per share ("Common Stock"), subject to adjustment and upon the
terms and conditions hereinafter provided. This Warrant may be exercised in
whole or in part, but in increments of at least Fifty Thousand (50,000) shares,
at any time or from time to time after June 1, 1998 and prior to 5:00 p.m.,
Eastern Standard Time, on the first Business Day after the fourteen (14) month
period following the date of the declaration of effectiveness of ERHC's
registration statement to be filed on Form S-1 or S-3 (or their then current
equivalents) with the Securities and Exchange Commission ("SEC") in order to
register the shares of Common Stock underlying this Warrant (the "Registration
Statement"), as further described in Section 1.6 below.
Certain terms used in this Warrant are defined in Article IV.
<PAGE>
ARTICLE I
EXERCISE OF WARRANT; REGISTRATION OF WARRANT SHARES
1.1. Method of Exercise. To exercise this Warrant in whole or in part, the
Holder shall deliver, on any Business Day, to ERHC at its principal offices (a)
this Warrant, (b) a written notice in the form attached hereto as Exhibit A of
such Holder's election to exercise this Warrant, which notice shall specify the
number of shares of Common Stock to be purchased (which shall be a whole number
of shares if for less than all the shares then issuable hereunder, and shall not
be for less than Fifty Thousand (50,000 shares)), the denominations of the share
certificate or certificates desired and the name or names in which such
certificates are to be registered, and (c) payment of the aggregate Exercise
Price with respect to such shares.
Such payment of the aggregate Exercise Price may be made, at the option of the
Holder, by any combination of (1) cash, check or wire transfer in immediately
available funds to ERHC in an amount equal to the product of the Exercise Price
multiplied by the number of shares of Common Stock being purchased with the
proceeds of such cash, check or wire transfer, or (2) a written notice to the
Company that the Holder is exercising the Warrants (or a portion thereof) on a
"cashless net exercise" basis, under which ERHC shall issue and deliver the
number of Warrant Shares purchased less the number of shares of Common Stock as
shall at the time of such exercise have an aggregate Fair Market Value equal to
the applicable aggregate Exercise Price (and the shares of Common Stock so
withheld shall no longer be issuable under this Warrant). In the event Holder
exercises this Warrant in whole or in part on a cashless net basis, the Fair
Market Value of the Common Stock shall established as of the close of business
on the Business Day preceding the date that Holder's notice of election to
exercise on a cashless net basis is delivered to ERHC.
ERHC shall, as promptly as practicable and in any event within five Business
Days after receipt of such notice and payment, execute and deliver or cause to
be executed and delivered, in accordance with such notice, a certificate or
certificates representing the aggregate number of shares of Common Stock
specified in said notice. The share certificate or certificates so delivered
shall be in such denominations as may be specified in such notice, and shall be
issued in the name of the Holder or such other name or names as shall be
designated in such notice. This Warrant shall be deemed to have been exercised
and such certificate or certificates shall be deemed to have
<PAGE>
been issued, and such Holder or any other Person so designated to be named
therein shall be deemed for all purposes to have become a holder of record of
shares, as of the date the aforementioned notice and payment is received by
ERHC. If this Warrant shall have been exercised only in part, ERHC shall, at the
time of delivery of such certificate or certificates, deliver to the Holder a
new Warrant evidencing the rights to purchase the remaining shares of Common
Stock called for by this Warrant, which new Warrant shall in all other respects
be identical with this Warrant, or, at the request of the Holder, appropriate
notation may be made on this Warrant which shall then be returned to the Holder.
ERHC shall pay all expenses, taxes and other charges payable in connection with
the preparation, issuance and delivery of share certificates and new Warrants,
except that, if share certificates or new Warrants shall be registered in a name
or names other than the name of the Holder, funds sufficient to pay all transfer
taxes payable as a result of such transfer shall be paid by the Holder at the
time of delivery of the aforementioned notice of exercise or promptly upon
receipt of a written request of ERHC for payment.
1.2. Shares to be Fully Paid and Nonassessable. All shares of Common Stock
issued upon the exercise of this Warrant shall be validly issued, fully paid and
nonassessable.
1.3. No Fractional Shares Required to be Issued. ERHC shall not be required to
issue fractions of shares of Common Stock upon exercise of this Warrant.
1.4. Reservation. ERHC has duly reserved and will keep available for issuance
upon exercise of the Warrants the total number of Warrant Shares deliverable
from time to time upon exercise of all Warrants from time to time outstanding.
1.5. Expiration Date of Warrant. This Warrant shall expire at 5:00 p.m., Eastern
Standard Time, on the first Business Day (the "Expiration Date") after the
fourteen (14) month period following the date of declaration by the SEC
("Effective Date") of the effectiveness of the Registration Statement to be
filed on Form S-1 or S-3 (or their then current equivalents) with the SEC in
order to register the shares of Common Stock underlying this Warrant.
1.6 Registration of Warrant Shares. Within ninety (90) days following the
issuance of this Warrant, ERHC will file with the SEC the Registration Statement
on Form S-1 or Form S-3 (or their then
<PAGE>
equivalents) to register under the Securities Act the Common Stock issued or
issuable pursuant to the exercise of this Warrant. ERHC will thereafter, as
expeditiously as possible, (i) effect the qualification and registration of such
shares of Common Stock under the Securities Act and state securities laws, and
(ii) maintain the effectiveness for up to fourteen (14) months of such
Registration Statement. Holder agrees to provide ERHC, at ERHC's request, with
such information about Holder as it may reasonably request in order to effect
the registration under the Registration Statement. ERHC will from time to time
amend or supplement such Registration Statement and the prospectus contained
therein to the extent necessary to comply with the Securities Act and state
securities laws. ERHC will provide Holder with as many copies of the prospectus
contained in the Registration Statement as Holder may reasonably request. ERHC
shall furnish to Holder at Holder's request an opinion of counsel for ERHC,
dated the effective date of the Registration Statement, and a "comfort" letter,
signed by ERHC's independent accountants who have examined and reported on
ERHC's financial statements included in the Registration Statement, in each case
addressing such matters as are customarily covered in such opinions. ERHC shall
bear all costs and expenses of the Registration Statement and registration
procedures described in this Section 1.6.
1.7 Rule 144. ERHC covenants and agrees that it will file on a timely basis any
and all reports required to be filed by it under the Securities Act and the
Securities Exchange Act of 1934, as amended, so as to enable Holder to sell the
Warrant Shares without registration under the Securities Act within the
limitations of the exemptions provided by Rule 144 of the Securities Act, as
such Rule may be amended from time to time (or any similar rule adopted by the
SEC).
ARTICLE II
TRANSFER, EXCHANGE AND REPLACEMENT OF WARRANTS
2.1. Ownership of Warrant. ERHC may deem and treat the person in whose name this
Warrant is registered as the holder and owner hereof (notwithstanding any
notations of ownership or writing hereon made by any person other than ERHC) for
all purposes and shall not be affected by any notice to the contrary, until due
presentment of this Warrant for registration of transfer as provided in this
Article II.
2.2. Transfer of Warrant. The Holder may sell, assign, transfer, give
away or otherwise dispose of (any of the foregoing, a "Transfer") in
<PAGE>
whole or in part its Warrants or Warrants Shares to any Person, provided that
Holder shall first give ERHC written notice of such intended Transfer. ERHC
agrees to maintain at its principal offices books for the registration of
transfers of the Warrants, and transfer of this Warrant and all rights hereunder
shall be registered, in whole or in part, on such books, upon surrender of this
Warrant to ERHC, together with a written assignment of this Warrant duly
executed by the Holder or its duly authorized agent or attorney, with (if the
Holder is a natural person) signatures guaranteed by a bank or trust company or
a broker or dealer registered with the National Association of Securities
Dealers, Inc., and funds sufficient to pay any transfer taxes payable upon such
transfer. Upon surrender and, if required, such payment, ERHC shall execute and
deliver a new Warrant or Warrants in the name of the assignee or assignees and
in the denominations specified in the instrument of assignment (which shall be
whole numbers of shares only) and shall issue to the assignor a new Warrant
evidencing the portion of this Warrant not so assigned, and this Warrant shall
promptly be canceled.
2.3. Division or Combination of Warrants. This Warrant may be divided or
combined with other Warrants upon presentment hereof and of any Warrant or
Warrants with which this Warrant is to be combined, together with a written
notice specifying the names and denominations (which shall be whole numbers of
shares only) in which the new Warrant or Warrants are to be issued, signed by
the holders hereof and thereof or their respective duly authorized agents or
attorneys. ERHC shall execute and deliver a new Warrant or Warrants in exchange
for the Warrant or Warrants to be divided or combined in accordance with such
notice.
2.4. Loss, Theft, Destruction of Warrant Certificates. Upon receipt of evidence
satisfactory to ERHC of the ownership of and the loss, theft, destruction or
mutilation of any Warrant and, in the case of any such loss, theft or
destruction, upon receipt of indemnity or security satisfactory to ERHC or, in
the case of any such mutilation, upon surrender and cancellation of such
Warrant, ERHC will make and deliver, in lieu of such lost, stolen, destroyed or
mutilated Warrant, a new Warrant of like tenor and representing the right to
purchase the same aggregate number of shares of Common Stock.
<PAGE>
ARTICLE III
ANTIDILUTION PROVISIONS
3.1. Adjustment Generally. The Exercise Price and the number of shares of Common
Stock (or other securities or property) issuable upon exercise of this Warrant
shall be subject to adjustment from time to time upon the occurrence of certain
events as provided in this Article III; provided that notwithstanding anything
to the contrary contained herein, the Exercise Price shall not be less than the
current par value of the Common Stock.
3.2. Common Stock Reorganization. If ERHC after the original issuance date of
the Warrants shall subdivide its outstanding shares of Common Stock (or any
class thereof) into a greater number of shares or consolidate its outstanding
shares of Common Stock (or any class thereof) into a smaller number of shares
(any such event being called a "Common Stock Reorganization"), then (a) the
Exercise Price shall be adjusted, effective immediately after the effective date
of such Common Stock Reorganization, to a price determined by multiplying the
Exercise Price in effect immediately prior to such effective date by a fraction,
the numerator of which shall be the number of shares of Common Stock outstanding
(on a Fully Diluted Basis) on such effective date before giving effect to such
Common Stock Reorganization, and the denominator of which shall be the number of
shares of Common Stock outstanding (on a Fully Diluted Basis) after giving
effect to such Common Stock Reorganization, and (b) the number of shares of
Common Stock subject to purchase upon exercise of this Warrant shall be
adjusted, effective at such time, to a number determined by multiplying the
number of shares of Common Stock subject to purchase immediately before such
Common Stock Reorganization by a fraction the numerator of which shall be the
number of shares of Common Stock outstanding (on a Fully Diluted Basis) after
giving effect to such Common Stock Reorganization, and the denominator of which
shall be the number of shares of Common Stock outstanding (on a Fully Diluted
Basis) immediately before such Common Stock Reorganization.
3.3. Failure to File Registration Statement. In the event that ERHC shall fail
for any reason to file the Registration Statement on Form S-1 or S-3 (or their
then current equivalents) with the SEC as provided for herein on or before the
day which is ninety (90) days from the date hereof, the Exercise Price shall be
decreased by twenty percent (20%). Thereafter, the Exercise Price shall be
decreased by an additional twenty percent (20%) (calculated without giving
effect to any adjustment to the Exercise Price pursuant to the foregoing
sentence) for each additional sixty (60) day period that elapses in which said
registration statement remains unfiled after the initial ninety (90) day period.
<PAGE>
3.4. Capital Reorganizations. If there shall be any consolidation or merger to
which ERHC is a party, other than a consolidation or a merger of which ERHC is
the continuing corporation and which does not result in any reclassification of,
or change (other than a Common Stock Reorganization) in, outstanding shares of
Common Stock, or any sale or conveyance of the property of ERHC as an entirety
or substantially as an entirety, or any recapitalization of ERHC (any such event
being called a "Capital Reorganization"), then, effective upon the effective
date of such Capital Reorganization, the Holder shall no longer have the right
to purchase Common Stock, but shall have instead the right to purchase, upon
exercise of this Warrant, the kind and amount of shares of stock and other
securities and property (including cash) which the Holder would have owned or
have been entitled to receive pursuant to such Capital Reorganization if this
Warrant had been exercised immediately prior to the effective date of such
Capital Reorganization. As a condition to effecting any Capital Reorganization,
ERHC or the successor or surviving corporation, as the case may be, shall
execute and deliver to Holder and to ERHC an agreement as to the Holder's rights
in accordance with this Section 3.4, providing, to the extent of any right to
purchase equity securities hereunder, for subsequent adjustments as nearly
equivalent as may be practicable to the adjustments provided for in this Article
III. The provisions of this Section 3.4 shall similarly apply to successive
Capital Reorganizations.
3.5. Adjustment Rules. Any adjustments pursuant to this Article III shall be
made successively whenever an event referred to herein shall occur. No
adjustment shall be made pursuant to this Article III in respect of the issuance
from time to time of shares of Common Stock upon the exercise of this Warrant.
3.6. Proceedings Prior to Any Action Requiring Adjustment. As a condition
precedent to the taking of any action which would require an adjustment pursuant
to this Article III, ERHC shall take any action which may be necessary,
including obtaining regulatory approvals or exemptions, in order that ERHC may
thereafter validly and legally issue as fully paid and nonassessable all shares
of Common Stock which the Holder is entitled to receive upon exercise thereof.
3.7. Notice of Adjustment. Not less than 10 nor more than 30 days prior to the
record date or effective date, as the case may be, of any
<PAGE>
action which will require an adjustment or readjustment pursuant to this Article
III, ERHC shall give notice to the Holder of such event, describing such event
in reasonable detail and specifying the record date or effective date, as the
case may be, and, if determinable, the required adjustment and the computation
thereof. If the required adjustment is not determinable at the time of such
notice, ERHC shall give notice to the Holder of such adjustment and computation
promptly after such adjustment becomes determinable.
ARTICLE IV
DEFINITIONS
The following terms, as used in this Warrant, have the following meanings:
"Business Day" means any day excluding Saturday, Sunday and any day on
which banking institutions located in Florida are authorized by law or other
governmental action to be closed.
"Capital Reorganization" has the meaning set forth in Section 3.4.
"Common Stock" has the meaning set forth in the first paragraph of this
Warrant, subject to adjustment pursuant to Article III.
"Common Stock Reorganization" has the meaning set forth in
Section 3.2.
"Effective Date" has the meaning set forth in Section 1.5.
"Exercise Price" means $0.75 per share of Common Stock, subject to
adjustment pursuant to Article III.
"Expiration Date" has the meaning set forth in Section 1.5.
"Fair Market Value" means as to any Common Stock issuable upon the
exercise hereof, the average of the closing prices of such Common Stock's sales
on all domestic securities exchanges on which such Common Stock may at the time
be listed or quoted, including for this purpose, the NASDAQ Stock Market, or, if
there have been no sales on any such exchange on any day, the average of the
highest bid and lowest asked prices on all such exchanges at the end of such
day, or, if on any day such security is not so listed or quoted, the average of
<PAGE>
the highest bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization.
"Fully Diluted Basis" means at any time (i) as applied to any
calculation of the number of securities of ERHC, after giving effect to (x) all
shares of Common Stock of ERHC outstanding at the time of determination, (y) all
shares of ERHC Common Stock issuable upon the exercise of any option, warrant
(including the Warrant) or similar right outstanding at the time of
determination and (z) all shares of Common Stock of ERHC issuable upon the
exercise of any conversion or exchange right contained in any security (other
than Common Stock) convertible into or exchangeable for shares of Common Stock
of ERHC; and (ii) as applied to any calculation of value, after giving effect to
the foregoing securities and the payment of any consideration payable upon the
exercise of any option, warrant or similar right referred to in clause (y) above
if such option, warrant or similar right were exercisable at such time.
"Holder" has the meaning set forth in the first paragraph of this
Warrant.
"Person" means any natural person, corporation, limited partnership,
general partnership, joint stock company. joint venture, association, company,
trust, bank, trust company, land trust, business trust or other organization,
whether or not a legal entity, and any government agency or political
subdivision thereof.
"Registration Statement" has the meaning set forth in the first
paragraph of this Warrant.
"Securities Act" means the Securities Act of 1933, as amended, and
rules and regulations of the Securities and Exchange commission thereunder.
"Warrant Shares" means the shares of Common Stock issuable upon
exercise of this Warrant.
ARTICLE V
MISCELLANEOUS
5.1. Notices. Notices and other communications provided for herein shall be in
writing and may be given by mail, courier, confirmed telex
<PAGE>
or facsimile transmission and shall, unless otherwise expressly required, be
deemed given when received or, if mailed, four Business Days after being
deposited in the United States mail with postage prepaid and properly addressed.
In the case of the Holder, such notices and communications shall be addressed to
its address as shown on the books maintained by ERHC, unless the Holder shall
notify ERHC that notices and communications should be sent to a different
address (or telex or facsimile number), in which case such notices and
communications shall be sent to the address (or telex or facsimile number)
specified by the Holder.
5.2. Amendments. The provisions of this Warrant may be amended, modified or
waived with (and only with) the written consent of ERHC and the Holder.
5.3. Governing Law. This Warrant shall be construed in accordance with and
governed by the laws of the State of Florida (without regard to principles of
conflicts of law).
5.4. Covenants to Bind Successor and Assigns. The provisions of this Warrant
shall be binding upon and inure to the benefit of the Holder hereof and its
successors and assigns. All covenants, stipulations, promises and agreements in
this Warrant contained by or on behalf of ERHC or the Holder shall bind its
successors and assigns, whether so expressed or not.
5.5 Enforcement Costs. If any legal action or other proceeding is brought by for
the enforcement of the agreements contained within this Warrant, or because of
an alleged dispute, breach, default or misrepresentation in connection with any
provision hereof, the successful or prevailing party or parties shall be
entitled to recover reasonable attorneys' fees, sales and use taxes, court costs
and all expenses even if not taxable as court costs (including, without
limitation, all such fees, taxes, costs and expenses incident to arbitration,
appellate, bankruptcy and post-judgment proceedings), incurred in that action or
proceeding, in addition to any other relief to which such party or parties may
be entitled. Attorneys' fees shall include, without limitation, paralegal fees,
investigative fees, administrative costs, sales and use taxes and all other
charges billed by the attorney to the prevailing party.
<PAGE>
ARTICLE VI
ERHC'S AGREEMENT TO ISSUE A NEW WARRANT
6.1 Issuance of $2.00 Warrant. Provided the Holder exercises this Warrant for
the purchase of at least 250,000 shares of Common Stock within 180 days of the
Effective Date and at least an additional 50,000 of the remaining 250,000 shares
of Common Stock underlying this Warrant within 360 days of the Effective Date,
then ERHC shall, promptly following such exercise or subsequent exercises, issue
to ______________________ or his registered assign a new warrant or warrants
("$2.00 Warrant") for the purchase of a number of shares of Common Stock equal
to the number of shares of Common Stock so purchased by the Holder under this
Warrant within 180 and 360 days of the Effective Date.
6.2 Form of $2.00 Warrant; Adjustments. The $2.00 Warrant shall be in the form
attached as Exhibit B; provided that the number of shares underlying the $2.00
Warrant and the exercise price per share for the Common Stock underlying the
$2.00 Warrant shall be adjusted in accordance with the terms of the $2.00
Warrant, as if the $2.00 Warrant had been issued on the date of this Warrant.
IN WITNESS WHEREOF, ERHC has caused this Warrant to be executed in its corporate
name by one of its officers thereunto duly authorized, all as of the day and
year first above written.
ENVIRONMENTAL REMEDIATION
HOLDING CORP.
By:_____________________________
Its:_____________________________
Witness:
- --------------------------------
Name: __________________________
Accepted and agreed:
<PAGE>
EXHIBIT A
FORM OF NOTICE OF EXERCISE
To: ENVIRONMENTAL REMEDIATION HOLDING CORP.
Date: ___________________
Reference is made to the Warrant to Purchase Shares of Common Stock of
ENVIRONMENTAL REMEDIATION HOLDING CORP. registered in the name of the
undersigned. Terms defined therein are used herein as therein defined.
The undersigned, pursuant to the provisions set forth in the Warrant, hereby
irrevocably elects and agrees to purchase ______________ shares of Common Stock,
and makes payment herewith in full therefor at the Exercise Price of
$__________________. Payment of the aggregate Exercise Price is made as follows
[specify cash, check, wire transfer or cashless net exercise]:
================================================================================
- --------------------------------------------------------------------------------
[Include the following if applicable:] To the extent that the number of shares
specified above is less than all of the shares purchasable hereunder, the
undersigned requests that a new Warrant certificate representing the remaining
balance of the shares be registered in the name of the undersigned.
- -------------------------------
Name of Warrantholder
- ----------------------------------
Signature
- ----------------------------------
Title (if applicable)
==================================
Address
<PAGE>
EXHIBIT "B"
THIS WARRANT AND THE SHARES OF COMMON STOCK PURCHASABLE HEREUNDER HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE LAWS. SUCH SECURITIES MAY NOT BE SOLD OR
TRANSFERRED UNLESS THE REGISTRATION PROVISIONS OF SAID ACT AND LAWS HAVE BEEN
COMPLIED WITH OR UNLESS ENVIRONMENTAL REMEDIATION HOLDING CORP. HAS RECEIVED AN
OPINION OF COUNSEL ACCEPTABLE TO IT THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT
To Purchase Shares of Common Stock
of
ENVIRONMENTAL REMEDIATION HOLDING CORP.
Dated ____________, _____
In consideration of the amount of ____________________Dollars ($__________) paid
by _______________________to ENVIRONMENTAL REMEDIATION HOLDING CORP., a Colorado
corporation ("ERHC"), __________________ or registered assigns ("Holder") is
entitled to purchase from ERHC, at the Exercise Price of $2.00 per share, up to
______________________ (__________) shares of ERHC Common Stock, $0.0001 par
value per share ("Common Stock"), subject to adjustment and upon the terms and
conditions hereinafter provided. This Warrant may be exercised in whole or in
part, but in increments of at least Fifty Thousand (50,000) shares, at any time
or from time to time after _______________, _____ and prior to 5:00 p.m.,
Eastern Standard Time, on the first Business Day after the fourteen (24) month
period following the date of the declaration of effectiveness of ERHC's
registration statement to be filed on Form S-1 or S-3 (or their then current
equivalents) with the Securities and Exchange Commission ("SEC") in order to
register the shares of Common Stock underlying this Warrant (the "Registration
Statement"), as further described in Section 1.6 below.
Certain terms used in this Warrant are defined in Article IV.
ARTICLE I
EXERCISE OF WARRANT; REGISTRATION OF WARRANT SHARES
1.1. Method of Exercise. To exercise this Warrant in whole or in part, the
Holder shall deliver, on any Business Day, to ERHC at its principal offices (a)
this Warrant, (b) a written notice in the form attached hereto as Exhibit A of
such Holder's election to exercise this Warrant, which notice shall specify the
number of shares of Common Stock to be purchased (which shall be a whole number
of shares if for less than all the shares then issuable hereunder, and shall not
<PAGE>
be for less than Fifty Thousand (50,000 shares)), the denominations of the share
certificate or certificates desired and the name or names in which such
certificates are to be registered, and (c) payment of the aggregate Exercise
Price with respect to such shares.
Such payment of the aggregate Exercise Price may be made, at the option of the
Holder, by any combination of (1) cash, check or wire transfer in immediately
available funds to ERHC in an amount equal to the product of the Exercise Price
multiplied by the number of shares of Common Stock being purchased with the
proceeds of such cash, check or wire transfer, or (2) a written notice to the
Company that the Holder is exercising the Warrants (or a portion thereof) on a
"cashless net exercise" basis, under which ERHC shall issue and deliver the
number of Warrant Shares purchased less the number of shares of Common Stock as
shall at the time of such exercise have an aggregate Fair Market Value equal to
the applicable aggregate Exercise Price (and the shares of Common Stock so
withheld shall no longer be issuable under this Warrant). In the event Holder
exercises this Warrant in whole or in part on a cashless net basis, the Fair
Market Value of the Common Stock shall established as of the close of business
on the Business Day preceding the date that Holder's notice of election to
exercise on a cashless net basis is delivered to ERHC.
ERHC shall, as promptly as practicable and in any event within five Business
Days after receipt of such notice and payment, execute and deliver or cause to
be executed and delivered, in accordance with such notice, a certificate or
certificates representing the aggregate number of shares of Common Stock
specified in said notice. The share certificate or certificates so delivered
shall be in such denominations as may be specified in such notice, and shall be
issued in the name of the Holder or such other name or names as shall be
designated in such notice. This Warrant shall be deemed to have been exercised
and such certificate or certificates shall be deemed to have been issued, and
such Holder or any other Person so designated to be named therein shall be
deemed for all purposes to have become a holder of record of shares, as of the
date the aforementioned notice and payment is received by ERHC. If this Warrant
shall have been exercised only in part, ERHC shall, at the time of delivery of
such certificate or certificates, deliver to the Holder a new Warrant evidencing
the rights to purchase the remaining shares of Common Stock called for by this
Warrant, which new Warrant shall in all other respects be identical with this
Warrant, or, at the request of the Holder, appropriate notation may be made on
this Warrant which shall then be returned to the Holder. ERHC shall pay all
expenses, taxes
<PAGE>
and other charges payable in connection with the preparation, issuance and
delivery of share certificates and new Warrants, except that, if share
certificates or new Warrants shall be registered in a name or names other than
the name of the Holder, funds sufficient to pay all transfer taxes payable as a
result of such transfer shall be paid by the Holder at the time of delivery of
the aforementioned notice of exercise or promptly upon receipt of a written
request of ERHC for payment.
1.2. Shares to be Fully Paid and Nonassessable. All shares of Common Stock
issued upon the exercise of this Warrant shall be validly issued, fully paid and
nonassessable.
1.3. No Fractional Shares Required to be Issued. ERHC shall not be required to
issue fractions of shares of Common Stock upon exercise of this Warrant.
1.4. Reservation. ERHC has duly reserved and will keep available for issuance
upon exercise of the Warrants the total number of Warrant Shares deliverable
from time to time upon exercise of all Warrants from time to time outstanding.
1.5. Expiration Date of Warrant. This Warrant shall expire at 5:00 p.m., Eastern
Standard Time, on the first Business Day (the "Expiration Date") after the
fourteen (14) month period following the date of declaration by the SEC
("Effective Date") of the effectiveness of the Registration Statement to be
filed on Form S-1 or S-3 (or their then current equivalents) with the SEC in
order to register the shares of Common Stock underlying this Warrant.
1.6 Registration of Warrant Shares. Within ninety (90) days following the
issuance of this Warrant, ERHC will file with the SEC the Registration Statement
on Form S-1 or Form S-3 (or their then equivalents) to register under the
Securities Act the Common Stock issued or issuable pursuant to the exercise of
this Warrant. ERHC will thereafter, as expeditiously as possible, (i) effect the
qualification and registration of such shares of Common Stock under the
Securities Act and state securities laws, and (ii) maintain the effectiveness
for up to fourteen (14) months of such Registration Statement. Holder agrees to
provide ERHC, at ERHC's request, with such information about Holder as it may
reasonably request in order to effect the registration under the Registration
Statement. ERHC will from time to time amend or supplement such Registration
Statement and
<PAGE>
the prospectus contained therein to the extent necessary to comply with the
Securities Act and state securities laws. ERHC will provide Holder with as many
copies of the prospectus contained in the Registration Statement as Holder may
reasonably request. ERHC shall furnish to Holder at Holder's request an opinion
of counsel for ERHC, dated the effective date of the Registration Statement, and
a "comfort" letter, signed by ERHC's independent accountants who have examined
and reported on ERHC's financial statements included in the Registration
Statement, in each case addressing such matters as are customarily covered in
such opinions. ERHC shall bear all costs and expenses of the Registration
Statement and registration procedures described in this Section 1.6.
1.7 Rule 144. ERHC covenants and agrees that it will file on a timely basis any
and all reports required to be filed by it under the Securities Act and the
Securities Exchange Act of 1934, as amended, so as to enable Holder to sell the
Warrant Shares without registration under the Securities Act within the
limitations of the exemptions provided by Rule 144 of the Securities Act, as
such Rule may be amended from time to time (or any similar rule adopted by the
SEC).
ARTICLE II
TRANSFER, EXCHANGE AND REPLACEMENT OF WARRANTS
2.1. Ownership of Warrant. ERHC may deem and treat the person in whose name this
Warrant is registered as the holder and owner hereof (notwithstanding any
notations of ownership or writing hereon made by any person other than ERHC) for
all purposes and shall not be affected by any notice to the contrary, until due
presentment of this Warrant for registration of transfer as provided in this
Article II.
2.2. Transfer of Warrant. The Holder may sell, assign, transfer, give away or
otherwise dispose of (any of the foregoing, a "Transfer") in whole or in part
its Warrants or Warrants Shares to any Person, provided that Holder shall first
give ERHC written notice of such intended Transfer. ERHC agrees to maintain at
its principal offices books for the registration of transfers of the Warrants,
and transfer of this Warrant and all rights hereunder shall be registered, in
whole or in part, on such books, upon surrender of this Warrant to ERHC,
together with a written assignment of this Warrant duly executed by the Holder
or its duly authorized agent or attorney, with (if the Holder is a natural
person) signatures guaranteed by a bank or trust company or a broker or dealer
registered with the National Association
<PAGE>
of Securities Dealers, Inc., and funds sufficient to pay any transfer taxes
payable upon such transfer. Upon surrender and, if required, such payment, ERHC
shall execute and deliver a new Warrant or Warrants in the name of the assignee
or assignees and in the denominations specified in the instrument of assignment
(which shall be whole numbers of shares only) and shall issue to the assignor a
new Warrant evidencing the portion of this Warrant not so assigned, and this
Warrant shall promptly be canceled.
2.3. Division or Combination of Warrants. This Warrant may be divided or
combined with other Warrants upon presentment hereof and of any Warrant or
Warrants with which this Warrant is to be combined, together with a written
notice specifying the names and denominations (which shall be whole numbers of
shares only) in which the new Warrant or Warrants are to be issued, signed by
the holders hereof and thereof or their respective duly authorized agents or
attorneys. ERHC shall execute and deliver a new Warrant or Warrants in exchange
for the Warrant or Warrants to be divided or combined in accordance with such
notice.
2.4. Loss, Theft, Destruction of Warrant Certificates. Upon receipt of evidence
satisfactory to ERHC of the ownership of and the loss, theft, destruction or
mutilation of any Warrant and, in the case of any such loss, theft or
destruction, upon receipt of indemnity or security satisfactory to ERHC or, in
the case of any such mutilation, upon surrender and cancellation of such
Warrant, ERHC will make and deliver, in lieu of such lost, stolen, destroyed or
mutilated Warrant, a new Warrant of like tenor and representing the right to
purchase the same aggregate number of shares of Common Stock.
ARTICLE III
ANTIDILUTION PROVISIONS
3.1. Adjustment Generally. The Exercise Price and the number of shares of Common
Stock (or other securities or property) issuable upon exercise of this Warrant
shall be subject to adjustment from time to time upon the occurrence of certain
events as provided in this Article III; provided that notwithstanding anything
to the contrary contained herein, the Exercise Price shall not be less than the
current par value of the Common Stock.
3.2. Common Stock Reorganization. If ERHC after the original issuance date of
the Warrants shall subdivide its outstanding shares of Common Stock (or any
class thereof) into a greater number of shares or consolidate its outstanding
shares of Common Stock (or any class thereof) into a smaller number of shares
(any such event being called a "Common Stock Reorganization"), then (a) the
Exercise Price shall be adjusted, effective immediately after the effective date
of such Common Stock Reorganization, to a price determined by multiplying the
Exercise Price in effect immediately prior to such effective date by a fraction,
the numerator of which shall be the number of shares of
<PAGE>
Common Stock outstanding (on a Fully Diluted Basis) on such effective date
before giving effect to such Common Stock Reorganization, and the denominator of
which shall be the number of shares of Common Stock outstanding (on a Fully
Diluted Basis) after giving effect to such Common Stock Reorganization, and (b)
the number of shares of Common Stock subject to purchase upon exercise of this
Warrant shall be adjusted, effective at such time, to a number determined by
multiplying the number of shares of Common Stock subject to purchase immediately
before such Common Stock Reorganization by a fraction the numerator of which
shall be the number of shares of Common Stock outstanding (on a Fully Diluted
Basis) after giving effect to such Common Stock Reorganization, and the
denominator of which shall be the number of shares of Common Stock outstanding
(on a Fully Diluted Basis) immediately before such Common Stock Reorganization.
3.3. Failure to File Registration Statement. In the event that ERHC shall fail
for any reason to file the Registration Statement on Form S-1 or S-3 (or their
then current equivalents) with the SEC as provided for herein on or before the
day which is ninety (90) days from the date hereof, the Exercise Price shall be
decreased by twenty percent (20%). Thereafter, the Exercise Price shall be
decreased by an additional twenty percent (20%) (calculated without giving
effect to any adjustment to the Exercise Price pursuant to the foregoing
sentence) for each additional sixty (60) day period that elapses in which said
registration statement remains unfiled after the initial ninety (90) day period.
3.4. Capital Reorganizations. If there shall be any consolidation or merger to
which ERHC is a party, other than a consolidation or a merger of which ERHC is
the continuing corporation and which does not result in any reclassification of,
or change (other than a Common Stock Reorganization) in, outstanding shares of
Common Stock, or any sale or conveyance of the property of ERHC as an entirety
or substantially as an entirety, or any recapitalization of ERHC (any such event
being called a "Capital Reorganization"), then, effective upon the effective
date of such Capital Reorganization, the Holder shall no longer have the right
to purchase Common Stock, but shall have instead the right to purchase, upon
exercise of this Warrant, the kind and amount of shares of stock and other
securities and property (including cash) which the Holder would have owned or
have been entitled to receive pursuant to such Capital Reorganization if this
<PAGE>
Warrant had been exercised immediately prior to the effective date of such
Capital Reorganization. As a condition to effecting any Capital Reorganization,
ERHC or the successor or surviving corporation, as the case may be, shall
execute and deliver to Holder and to ERHC an agreement as to the Holder's rights
in accordance with this Section 3.4, providing, to the extent of any right to
purchase equity securities hereunder, for subsequent adjustments as nearly
equivalent as may be practicable to the adjustments provided for in this Article
III. The provisions of this Section 3.4 shall similarly apply to successive
Capital Reorganizations.
3.5. Adjustment Rules. Any adjustments pursuant to this Article III shall be
made successively whenever an event referred to herein shall occur. No
adjustment shall be made pursuant to this Article III in respect of the issuance
from time to time of shares of Common Stock upon the exercise of this Warrant.
3.6. Proceedings Prior to Any Action Requiring Adjustment. As a condition
precedent to the taking of any action which would require an adjustment pursuant
to this Article III, ERHC shall take any action which may be necessary,
including obtaining regulatory approvals or exemptions, in order that ERHC may
thereafter validly and legally issue as fully paid and nonassessable all shares
of Common Stock which the Holder is entitled to receive upon exercise thereof.
3.7. Notice of Adjustment. Not less than 10 nor more than 30 days prior to the
record date or effective date, as the case may be, of any action which will
require an adjustment or readjustment pursuant to this Article III, ERHC shall
give notice to the Holder of such event, describing such event in reasonable
detail and specifying the record date or effective date, as the case may be,
and, if determinable, the required adjustment and the computation thereof. If
the required adjustment is not determinable at the time of such notice, ERHC
shall give notice to the Holder of such adjustment and computation promptly
after such adjustment becomes determinable.
<PAGE>
ARTICLE IV
DEFINITIONS
The following terms, as used in this Warrant, have the following meanings:
"Business Day" means any day excluding Saturday, Sunday and any day on
which banking institutions located in Florida are authorized by law or other
governmental action to be closed.
"Capital Reorganization" has the meaning set forth in Section 3.4.
"Common Stock" has the meaning set forth in the first paragraph of this
Warrant, subject to adjustment pursuant to Article III.
"Common Stock Reorganization" has the meaning set forth in
Section 3.2.
"Effective Date" has the meaning set forth in Section 1.5.
"Exercise Price" means $2.00per share of Common Stock, subject to
adjustment pursuant to Article III.
"Expiration Date" has the meaning set forth in Section 1.5.
"Fair Market Value" means as to any Common Stock issuable upon the
exercise hereof, the average of the closing prices of such Common Stock's sales
on all domestic securities exchanges on which such Common Stock may at the time
be listed or quoted, including for this purpose, the NASDAQ Stock Market, or, if
there have been no sales on any such exchange on any day, the average of the
highest bid and lowest asked prices on all such exchanges at the end of such
day, or, if on any day such security is not so listed or quoted, the average of
the highest bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization.
"Fully Diluted Basis" means at any time (i) as applied to any
calculation of the number of securities of ERHC, after giving effect to (x) all
shares of Common Stock of ERHC outstanding at the time of determination, (y) all
shares of ERHC Common Stock issuable upon the exercise of any option, warrant
(including the Warrant) or similar right outstanding at the time of
determination and (z) all shares of Common Stock of ERHC issuable upon the
exercise of any conversion or exchange right contained in any security (other
than Common Stock)
<PAGE>
convertible into or exchangeable for shares of Common Stock of ERHC; and (ii) as
applied to any calculation of value, after giving effect to the foregoing
securities and the payment of any consideration payable upon the exercise of any
option, warrant or similar right referred to in clause (y) above if such option,
warrant or similar right were exercisable at such time.
"Holder" has the meaning set forth in the first paragraph of this
Warrant.
"Person" means any natural person, corporation, limited partnership,
general partnership, joint stock company. joint venture, association, company,
trust, bank, trust company, land trust, business trust or other organization,
whether or not a legal entity, and any government agency or political
subdivision thereof.
"Registration Statement" has the meaning set forth in the first
paragraph of this Warrant.
"Securities Act" means the Securities Act of 1933, as amended, and
rules and regulations of the Securities and Exchange commission thereunder.
"Warrant Shares" means the shares of Common Stock issuable upon
exercise of this Warrant.
ARTICLE V
MISCELLANEOUS
5.1. Notices. Notices and other communications provided for herein shall be in
writing and may be given by mail, courier, confirmed telex or facsimile
transmission and shall, unless otherwise expressly required, be deemed given
when received or, if mailed, four Business Days after being deposited in the
United States mail with postage prepaid and properly addressed. In the case of
the Holder, such notices and communications shall be addressed to its address as
shown on the books maintained by ERHC, unless the Holder shall notify ERHC that
notices and communications should be sent to a different address (or telex or
facsimile number), in which case such notices and communications shall be sent
to the address (or telex or facsimile number) specified by the Holder.
<PAGE>
5.2. Amendments. The provisions of this Warrant may be amended, modified or
waived with (and only with) the written consent of ERHC and the Holder.
5.3. Governing Law. This Warrant shall be construed in accordance with and
governed by the laws of the State of Florida (without regard to principles of
conflicts of law).
5.4. Covenants to Bind Successor and Assigns. The provisions of this Warrant
shall be binding upon and inure to the benefit of the Holder hereof and its
successors and assigns. All covenants, stipulations, promises and agreements in
this Warrant contained by or on behalf of ERHC or the Holder shall bind its
successors and assigns, whether so expressed or not.
5.5 Enforcement Costs. If any legal action or other proceeding is brought by for
the enforcement of the agreements contained within this Warrant, or because of
an alleged dispute, breach, default or misrepresentation in connection with any
provision hereof, the successful or prevailing party or parties shall be
entitled to recover reasonable attorneys' fees, sales and use taxes, court costs
and all expenses even if not taxable as court costs (including, without
limitation, all such fees, taxes, costs and expenses incident to arbitration,
appellate, bankruptcy and post-judgment proceedings), incurred in that action or
proceeding, in addition to any other relief to which such party or parties may
be entitled. Attorneys' fees shall include, without limitation, paralegal fees,
investigative fees, administrative costs, sales and use taxes and all other
charges billed by the attorney to the prevailing party.
IN WITNESS WHEREOF, ERHC has caused this Warrant to be executed in its corporate
name by one of its officers thereunto duly authorized, all as of the day and
year first above written.
ENVIRONMENTAL REMEDIATION
HOLDING CORP.
By:_____________________________
Its:_____________________________
Witness:
- --------------------------------
Name: __________________________
Accepted and agreed:
EXHIBIT 4.4
This Note has not been registered under the Securities Act of 1933, as amended.
No transfer of this Note shall be valid or effective except in accordance with
the applicable requirements of the Securities Act of 1933, as amended.
CONVERTIBLE NOTE
As of June 18, 1998 Palm Beach, Florida
$----------------
FOR VALUE RECEIVED, ENVIRONMENTAL REMEDIATION HOLDING CORPORATION, a Colorado
corporation (the "Company"), hereby promises to pay to the order of
_________________, or any subsequent holder of this Note (the "Payee"), at
________________________, or at such other place as may be designated by the
Payee from time to time by notice to the Company, the principal sum of
_______________Thousand and No/100 Dollars ($______________), together with
simple interest from the date hereof on the unpaid principal amount hereof at an
annual rate equal to twelve percent (12.0%) per annum. Such principal and
interest shall be paid in accordance with the terms of Section I below, in cash,
or by wire transfer to such account as the Payee shall direct, in immediately
available funds and in lawful currency of the United States of America.
1. PAYMENTS.
a) Unless previously fully converted into Common Stock of the Company as herein
provided, the unpaid principal amount of this Note shall be payable to the Payee
in cash the earlier of (i) the receipt by the Company of a sum in excess of Four
Million Dollars ($4,000,000.00) from debt or equity financing and revenue from
the sale of any leases, or (ii) on or before December 18, 1999.
b) Interest on the unpaid principal balance of this Note at the rate
<PAGE>
of twelve percent (12.0%) per annum shall accrue from the date hereof and shall
be payable to the Payee in cash semi-annually and such interest may at the
election of the Payee be payable in shares of Common Stock of the Company at 80%
of then current market value.
c) In the event that any payment of principal and/or interest hereunder becomes
due and payable on a Saturday, Sunday or other day on which commercial banks in
the State of New York are authorized or required by law to close, then the
maturity thereof shall be extended to the next succeeding business day; and
during any such extension, interest on principal amounts payable shall accrue
and be payable at the applicable rate.
2. RANKING OF NOTE.
Subject at all time to the subordination provisions set forth in Section 9
hereof, this Note shall constitute senior securities of the Company and, except
as provided below, shall rank pari passu with all other indebtedness for money
borrowed by the Company and senior to any other indebtedness for money borrowed
by the Company which, by its terms shall be made expressly subject and
subordinated to this Note.
3. PREPAYMENT OF NOTE.
a) Subject at all times to the holder's right to convert all or any portion of
this Note into Common Stock pursuant to Section 4 hereof at any time on or
before the 'Prepayment Date' (as herein defined), the principal amount of this
Note may be prepaid, at the option of the Company, in whole or in part, without
premium or penalty, at any time or from time to time from and after that date
(the "Initial Prepayment Date") which shall be the earlier to occur of (i)
eighteen (18) months following the date of the initial issuance of the Note (the
"Issuance Date"), or (ii) the date on which the Company shall register for
resale pursuant to the Securities Act of 1933, as amended (the "Act") all
"Conversion Shares" (as herein defined) issuable upon conversion of the entire
principal amount of this Note, pursuant to a Registration Statement on Form S-1
declared effective by the Securities and Exchange Commission (the "SEC").
b) Each Prepayment Notice shall specify the principal amount of this Note to be
redeemed and the applicable Prepayment Date. Each
<PAGE>
prepayment of principal of this Note shall be accompanied by the payment of all
interest accrued and unpaid to the prepayment date on the amount so prepaid.
Each such prepayment shall be made by wire transfer of immediately available
funds or by bank cashier's check payable to the Payee. Any partial prepayment of
this Note, whether optional or mandatory, shall be applied first to accrued and
unpaid interest hereon, and then to the outstanding principal amount of this
Note in the inverse order of maturity.
c) Notwithstanding anything to the contrary set forth in this Section 3, in the
event and to the extent that the Company shall provide the holder of this Note
with a Prepayment Notice, it shall simultaneously provide to the holder of this
Note evidence of the availability of funds to effect such prepayment; which
evidence of availability of funds shall include, without limitation, (i)
confirmation of cash or cash equivalent bank balances, (ii) an irrevocable bank
letter of credit, or (iii) a written commitment from a recognized lending
institution to effect the financing of such prepayment.
4. CONVERSION.
Subject at all times to the Company's right to prepay the Notes as provided in
Section 3 hereof, the holders of the Notes shall have the following conversion
rights (the "Conversion Rights"):
a) Voluntary Conversion. At any time or from time to time following the Issuance
Date, the holder of this Note may elect to convert up to one hundred (100%)
percent of the original principal amount of this Note, into shares of Common
Stock of the Company, by written notice given to the Company in accordance with
the provisions of Section 4(h) hereof (the "Conversion Notice"). In no event may
the holder of this Note effect a conversion of less than $10,000 principal
amount of this Note. Such right of Voluntary Conversion shall be effected by the
surrender of certificates evidencing the shares of Note to be converted to the
Company at any time during normal business hours at the office of the Company,
accompanied (i) by the Conversion Notice, (ii) if so required by the Company, by
instruments of transfer, in form satisfactory to the Company, duly executed by
the registered holder or by his duly authorized attorney and (iii) transfer tax
stamps or funds therefore, if required pursuant to Section 4(g) herein.
<PAGE>
b) Conversion Price. Subject to adjustment from time to time as provided in
Section 4(d) below, the term "CONVERSION Price" shall mean$1.00 per share of
Common Stock.
c) Adjustments of Conversion Price. The Conversion Price in effect from time to
time shall be, subject to adjustment in accordance with the provisions of this
Section 4(c).
(i) Adjustments for Stock Splits and Combinations. If the Company shall
at any time or from time to time after the Issuance Date, effect a stock split
of the outstanding Common Stock, the applicable Conversion Price in effect
immediately prior to the stock split shall be proportionately decreased. If the
Company shall at any time or from time to time after the Issuance Date, combine
the outstanding shares of Common Stock, the applicable Conversion Price in
effect immediately prior to the combination shall be proportionately increased.
Any adjustments under this Section 4(c)(i) shall be effective at the close of
business on the date the stock split or combination occurs.
(ii) Adjustments for Certain Dividends and Distributions. If the
Company shall at any time or from time after the Issuance Date, make or issue or
set a record date for the determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in shares of Common Stock,
then, and in each event, the applicable Conversion Price in effect immediately
prior to such event shall be decreased as of the time of such issuance or, in
the event such a record date shall have been fixed, as of the close of business
on such record date, by multiplying, as applicable, the applicable Conversion
Price then in effect by a fraction;
(A) the numerator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date; and
(B) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date plus the number of
shares of Common Stock issuable in payment of such dividend or distribution.
<PAGE>
(iii) Adjustment for Other Dividends and Distributions. If the Company
shall at any time or from time to time after the Issuance Date, make or issue or
set a record date for the determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in other than shares of Common
Stock, then, and in each event, an appropriate revision to the Conversion Price
shall be made and provision shall be made (by adjustments of the Conversion
Price or otherwise) so that the holder of this Note shall receive upon
conversions thereof, in addition to the number of shares of Common Stock
receivable thereon, the number of securities of the Company which they would
have received had this Note been converted into Common Stock on the date of such
event and had thereafter, during the period from the date of such event to and
including the Conversion Date, retained such securities (together with any
distributions payable thereon during such period), giving application to all
adjustments called for during such period under this Section 4(c)(iii) with
respect to the rights of the holders of the Note.
(iv) Adjustments for Reclassification, Exchange or Substitution. If the
Common Stock issuable upon conversion of this Note at any time or from time to
time after the Issuance Date shall be changed into the same or different number
of shares of any class or classes of stock, whether by reclassification,
exchange, substitution or otherwise (other than by way of a stock split or
combination of shares or stock dividends provided for in Sections 4(c)(i), (ii)
and (iii), or a reorganization, merger, consolidation, or sale of assets
provided for in Section 4(c)(v)), then, and in each event, an appropriate
revision to the Conversion Price shall by made and provisions shall be made (by
adjustments of the Conversion Price of otherwise) so that the holder of this
Note shall have the right thereafter to convert such Note into the kind and
amount of shares of stock and other securities receivable upon reclassification,
exchange, substitution or other change, by holders of the number of shares of
Common Stock into which such Note might have been converted immediately prior to
such reclassification, exchange, substitution or other change, all subject to
further adjustment as provided herein.
(v) Adjustments for Reorganization, Merger, Consolidation or Sales of
Assets. If at any time or from time to time after the Issuance Date there shall
be a capital reorganization of the Company
<PAGE>
(other than by way of a stock split or combination of shares or stock dividends
or distributions provided for in Section 4(c)(i), (ii) and (iii), or a
reclassification, exchange or substitution of shares provided for in Section
4(c)(iv)), or a merger or consolidation of the Company with or into another
corporation, or the sale of all or substantially all of the Company's properties
or assets to any other person, then as a part of such reorganization, merger,
consolidation, or sale, an appropriate revision to the Conversion Price shall be
made and provision shall be made (by adjustments of the Conversion Price or
otherwise) so that the holder of this Note shall have the right thereafter to
convert this Note into the kind and amount of shares of stock and other
securities or property of the Company or any successor corporation resulting
from such reorganization, merger, consolidation, or sale, to which a holder of
Common Stock deliverable upon conversion of such shares would have been entitled
upon such reorganization, merger, consolidation, or sale, to which a holder of
Common Stock deliverable upon conversion of such shares would have been entitled
upon such reorganization, merger, consolidation, or sale. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 4(c)(v) with respect to the rights of the holders of this Note
after the reorganization, merger, consolidation, or sale to the end that the
provisions of this Section 4(c)(v) (including any adjustment in the applicable
Conversion Ratio then in effect and the number of shares of stock or other
securities deliverable upon conversion of this Note) shall be applied after that
event in as nearly an equivalent manner as may be practicable.
d) No Impediment. The Company shall not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith, assist in the carrying out of all the provisions of this Section 4 and in
the taking of all such action as may be necessary or Appropriate in order to
protect the Conversion Rights of the holders of the Note against impairment.
e) Certificate as to Adjustments. Upon occurrence of each adjustment or
readjustment of the Conversion Price or number of shares of Common Stock
issuable upon conversion of the Note pursuant to this Section 4,
<PAGE>
the Company at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish notice to each
holder of such Note, a certificate setting forth such adjustment and
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based. The Company shall, upon written request of the holder of
this Note, at any time, furnish or cause to be furnished to such holder a like
certificate setting forth such adjustments and readjustments, the applicable
Conversion Price in effect at the time and the number of shares of Common Stock
and the amount, if any, of other securities or property which at the time would
be received upon the conversion of such Note. Notwithstanding the foregoing, the
Company shall not be obligated to deliver a certificate unless such certificate
would reflect an increase or decrease of at least one percent of such adjusted
amount.
f) Issue Taxes. The Company shall pay any and all issue and other taxes,
excluding federal, state or local income taxes, that may be payable in respect
of any issue or delivery of shares of Common Stock on conversion of this Note
pursuant hereto; provided, however, that the Company shall not be obligated to
pay any transfer taxes resulting from any transfer requested by any holder in
connection with any such conversion.
g) Notices and Delivery of Shares. All notices and other communications
hereunder shall be in writing and shall be deemed given (i) on the same date, if
delivered personally or by facsimile by not later than 7:00 p.m. New York time
(provided, that a copy of such facsimile shall be simultaneously sent to Donald
F. Mintmire, Esq. at (561)832-5696, or (ii) three business days following being
mailed by certified or registered mail, postage prepaid, return-receipt
requested, addressed to the holder of record at its address appearing on the
books of the Company. Not later than five (5) Business Days following receipt of
notice of conversion as provided herein (the "Delivery Date"), the Company shall
deliver to the holders of this Note, against delivery of one or more
certificates evidencing Note surrendered for conversion, certificates evidencing
all shares of Common Stock into which this Note shall be converted.
h) Fractional Shares. No fractional shares of Common Stock shall be issued upon
conversion of the Note. In lieu of any fractional shares to which the holder
would otherwise be entitled, the Company shall pay
<PAGE>
cash equal to the product of such fraction multiplied by the Conversion Price of
one share of the Company's Common Stock on the applicable Conversion Date.
i) Reservation of Common Stock. The Company shall at all times reserve and keep
available, out of its authorized but unused shares of Common Stock, solely for
the purpose of effecting the conversion of the Note, the full number of shares
deliverable upon conversion of all the Note from time to time outstanding. The
Company shall, from time to time in accordance with the Colorado General
Corporations Law, as amended, increase the authorized number of shares of Common
Stock if at any time the unused number of authorized shares shall not be
sufficient to permit the conversion of all of the Note at the time outstanding.
In such connection, the Company shall hold a special meeting of stockholders for
the purpose of authorizing additional shares of Common Stork not later than 120
days after any date in which the Company shall have insufficient shares of
Common Stock so reserved.
j) Retirement of Note. Conversion of this Note shall be deemed to have been
effected on the applicable Conversion Date. The converting holder shall be
deemed to have become a stockholder of record of the Common Stock on the
applicable Conversion Date. Upon conversion of only a portion of this Note, the
Company shall issue and deliver to such holder at the expense of the Company,
against receipt of the original note delivered for partial cancellation, a new
Note representing the unconverted portion of this Note so surrendered.
k) Regulatory Compliance.
(i) If any shares of Common Stock to be reserved for the purpose of
conversion of this Note require registration or listing with or approval of any
government authority, stock exchange or other regulatory body under any federal
or state law or regulation or otherwise before such shares may be validly issued
or delivered upon conversion, the Company shall, at its sole cost and expense,
in good faith and as expeditiously as possible, endeavor to secure such
registration, listing or approval, as the case may be.
(ii) The shares of Common Stock issuable upon the election to convert
shall be Rule 144 restricted shares (the "Restricted
<PAGE>
Securities"). After issuance of the Shares, Company agrees to use its best
efforts to assist holder in registering the Restricted Securities or to register
the Restricted Securities under the Act subject to the rules, regulations, and
other provisions of said Act.
(iii) In the event the holder elects to convert into ownership of
shares of the Company Stock, at the time of such conversation, the holder of
such shares shall have the following piggyback rights with reference:
(A) At any time that the Company proposes to file a Company
registration statement on Form S-1, including the pending Form S-1 registration
filed on January 8, 1998, under the Act (the "Registrations Statement"), the
Company shall cause to be included in such registration statement any securities
issued or subject to issuance in this transaction; provided, however, that if,
at any time after giving written notice of its intention to register any
securities and prior to the effective date of the Company Registration Statement
filed in connection with such registration, the Company shall determine for any
reason not to register or to delay registration of holder's Restricted
Securities, the Company may, at its election, give written notice of such
determination to holder and, thereupon:
(1) in the ease of a determination not to register,
shall be relieved of its obligation to register holder's Restricted Securities
in connection with such registration (but not from its obligation to pay the
registration expenses in connection therewith), and
(2) in the case of a delay in registering, shall be
permitted to delay registering holder's Restricted Securities for the same
period as the delay in registering such other securities.
(B) The Company's obligation to include Restricted Securities
in a Company's Registration Statement pursuant to Section 7(a) shall be subject
to the following limitations:
(1) The Company may elect, at its sole option and for
any reason, not to register holder's Restricted Shares, provided however, that
this right is limited to one (1) time and relative to
<PAGE>
one (1) particular Company Registration Statement.
(2) The Company shall not be obligated to include any
Restricted Securities in a registration statement filed on Form S-4, Form S-8 or
such other similar successor forms then in effect under the Securities Act.
(3) If a Company Registration Statement involves an
underwritten offering and the managing underwriter advises the Company in
writing that in its opinion, the number of securities requested to be included
in such Company Registration Statement exceeds the number which can be sold in
such offering without adversely affecting the offering, the Company shall
include in such Company Registration Statement the number of such securities
which the Company is so advised can be sold in such offering without adversely
affecting the offering, determined as follows:
(i) first, the securities proposed by the Company
to be sold for it own account, and
(ii) second, any Restricted Securities requested
to be included in such registration and any other securities of the Company in
accordance with the priorities, if and then existing among the holders of such
securities pro rata among the holders thereof requesting such registration on
the basis of the number of shares of such securities requested to be included by
such holders.
(4) The Company shall not be obligated to include
Restricted Securities in more than one (1) Company Registration Statement.
(C) To the extent holder's Restricted Securities are intended
to be included in a Company Registration Statement, holder may include any of
its Restricted Securities in such Company Registration Statement pursuant to
this Agreement only if holder furnishes to the Company in writing, within ten
(10) business days after receipt of a written request therefor, such information
specified in Item 507 of Regulation S-K under the Act or such other information
as the Company may reasonably request for use in connection with the Company
Registration Statement or Prospectus or preliminary Prospectus included therein
and in any application to the NASD. Holder as to which the Company Registration
Statement is being effected agrees to furnish promptly to the Company all
information
<PAGE>
required to be disclosed in order to make all information previously furnished
to the Company by holder not materially misleading.
l) Limitations on Amount of Conversion. Notwithstanding anything contained in
this Note to the contrary, in no event shall any holder of Note be entitled or
required to convert this Note in excess of that number of shares of Note which,
upon giving effect to such conversion, would cause the aggregate number of
shares of Common Stock beneficially owned by the holder and its affiliates to
exceed 4.9% of the outstanding shares of the Company's Common Stock immediately
following such conversion. For purposes of the foregoing proviso, the aggregate
number of shares of Common Stock beneficially owned by the holder and its
affiliates shall include the number of shares of Common Stock issuable upon
conversion of this Note with respect to which the determination of such proviso
is being made, but shall exclude the number of shares of Common Stock which
would be issuable upon (i) conversion of the remaining, unconverted Note
beneficially owned by such holder and its affiliates, and (ii) exercise or
conversion of the unexercised or unconverted portion of any other securities of
the Company (including without limitation any warrants) which are beneficially
owned by the holder and its affiliates and which are subject to a limitation on
conversion or exercise analogous to the limitation contained herein. Except as
set forth in the preceding sentence, for purposes of this paragraph, beneficial
ownership shall be calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended. Any holder of Note may waive the foregoing
limitations set forth in this paragraph by written notice to the Company upon
not less than 30 days prior notice (with such waiver taking effect only upon the
expiration of such 30-day notice period).
5. EVENTS OF DEFAULT.
The occurrence and continuance of any one or more of the following events is
herein referred to as an Event of Default:
a) If the Company shall default in converting the applicable principal amount of
this Note into Common Stock and delivering stock certificates in respect of such
conversion within ten (10) "Business Days" (defined as any days on which
national banks in the United
<PAGE>
States are open for business) from the Company's receipt of applicable notice of
conversion pursuant to the provisions hereof, whether on the-Maturity Date or
otherwise; or
b) If the Company shall default in the payment of any installment of interest on
this Note when payable in accordance with the terms thereof for more than ten
(10) calendar days after the same shall become due; or
c) If the Company shall not, at the time of receipt of a Conversion Notice
hereunder, have a sufficient number of authorized and unissued shares of its
Common Stock available for issuance to the holder of this Note upon conversion
of all or any portion of this Note in accordance with the terms hereof, and such
default shall not have been remedied within sixty (60) calendar days from the
date of such Conversion Notice; or
d) If the Company shall default in the performance of or compliance with any of
its material covenants or agreements contained herein and such default shall not
have been remedied within thirty (30) calendar days after written notice thereof
shall have been delivered to the Company by the holder of this Note; or
e) If any representation or warranty made in writing by or on behalf of the
Company in connection with the transactions contemplated thereby shall prove to
have been false or incorrect in any material respect on the date as of which
made; or
f) If the Company or any of its Significant Subsidiaries shall make an
assignment for the benefit of creditors, or shall admit in writing its inability
to pay its debts as they become due, or shall file a voluntary petition in
bankruptcy or shall have an order for relief under the Bankruptcy Act granted
against it or them, or shall be adjudicated a bankrupt or insolvent, or shall
file any petition or answer seeking for itself any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under any
present or future statute, law or regulation, or shall file any answer admitting
or not contesting the material allegations of a petition filed against the
Company or any of its Significant
<PAGE>
Subsidiaries in any such proceeding, or shall seek or consent to or acquiesce in
the appointment of any trustee, custodian, receiver or liquidator of the Company
or of all or any substantial part of the properties of the Company or any of its
Significant Subsidiaries, or the Company or its directors shall take any action
looking to the dissolution or liquidation of the Company or any of its
Significant Subsidiaries. For purposes of this Section 5(f), the term
Significant Subsidiary shall mean and include Bass American Petroleum Corp. and
any other person, firm or corporation (i) more than 50% of the common stock or
equity interests of which are owned of record by the Company or any Subsidiary
of the Company, and (ii) the net income before taxes or total assets of which
represent more than 15% of the consolidated net income before taxes or
consolidated assets of the Company and all of its Subsidiaries; of
g) If, within sixty (60) days after the commencement of any proceeding against
the Company or any Significant Subsidiary seeking any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any present or future statute, law or regulation, such proceeding
shall not have been dismissed, or if, within sixty (60) days after the
appointment, without the consent or acquiescence of the Company or any
Significant Subsidiary, of any trustee, receiver or liquidator of the Company or
any Significant Subsidiary or of all or any substantial part of the properties
of the Company or any Significant Subsidiary, such appointment shall not have
been vacated.
6. REMEDIES ON DEFAULT; ACCELERATION.
Upon the occurrence and during the continuance of an Event of Default, the
entire unpaid balance of principal and accrued interest on this Note may be
accelerated and declared to be immediately due and payable by the Payee. Unless
waived by the written consent of the Payee and other holder of any of the Note
at the time outstanding may proceed to protect and enforce the rights of such
holder by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained herein, or for
an injunction against a violation of any of the terms hereof, or in aid of the
exercise of any power granted hereby or by law. In the event of
<PAGE>
an Event of Default, the Company agrees to pay to the holder of this Note such
further amount as shall be sufficient to cover the cost and expense of
collection, including, without limitation, reasonable attorneys' fees and
expenses. No course of dealing and no delay on the part of the holder of this
Note in exercising any right, power or remedy shall operate as a waiver thereof
or otherwise prejudice such holder's rights, powers and remedies. No right,
power or remedy conferred hereby upon the holder hereof shall be exclusive of
any other right, power or remedy referred to herein nor now or hereafter
available at law, in equity, by statute or otherwise.
7. NOTICES.
All notices, requests, demands or other communications hereunder shall be in
writing and personally addressed or sent by telecopier or by registered or
certified mail, return receipt requested, postage pre-paid, addressed or
telecopied as follows or to such other address or telecopier number of which
notice has been given pursuant hereto:
If to the Company: Environmental Remediation Holding Corp.
3-5 Audrey Avenue
Oyster Bay, New York 11771
Attn: James A. Griffin, Secretary
Fax (516) 922-4312
-and-
Environmental Remediation Holding Corp.
Attn: Noreen Wilson, Vice President and
Chief Financial Officer
Fax (561) 624-1171
with copy to: Mintmire & Associates
265 Sunrise Avenue, Suite 204
Palm Beach, FL 33480
Attn: Donald F. Mintmire, Esq.
Fax (561) 659-5371
If to the Holder:
to such Holder at the address set
forth on the records of the Company.
In addition,
<PAGE>
copies of all such notices or other
communications shall be concurrently
delivered by the person giving the
same to each person who has been
identified to the Company by such
Holder as a person who is to receive
copies of such notices.
8. GOVERNING LAW.
This Note shall be governed by, and construed and interpreted in accordance
with, the laws of the State of Florida, without giving effect to conflict of law
principles.
9. SUBORDINATION TO SENIOR DEBT.
a) Payment of the principal of and interest on this Note is subordinated, to the
extent and in the manner provided herein, to the prior payment of all
indebtedness of the Company and/or all Subsidiaries of the Company, for money
borrowed or other obligations which is now or may hereafter be owed
(collectively, "Senior Debt") to any bank, commercial finance company, factor,
insurance company or other institution the lending activities are regulated by
law (individually, a "Senior Lender" and collectively, "Senior Lenders"), which
may, hereafter on any one or more occasions provide financing to the Company or
any of its Subsidiaries, secured by liens on any of the assets and properties of
the Company and/or any of its Subsidiaries (individually and collectively, an
"Institutional Borrower").
b) Upon any payment or distribution of assets or securities of the Institutional
Borrower, as the case may be, of any kind or character, whether in cash,
property or securities, upon any dissolution or winding up or total or partial
liquidation or reorganization of the Institutional Borrower, whether voluntary
or involuntary or in bankruptcy, insolvency, receivership or other proceedings,
all amounts payable under Senior Debt shall first be paid in full in cash, or
payment provided for in cash or cash equivalents, before the holder hereof shall
be entitled to receive any payment on account of principal of or interest on
this Note. Before any payment may be made by the Institutional Borrower of the
principal of or interest on this
<PAGE>
Note upon any such dissolution or winding up or liquidation or reorganization,
any payment or distribution of assets or securities of the Institutional
Borrower of any kind of character, whether in cash, property or securities, to
which the holder hereof would be entitled, except for the provisions of this
Section 9, shall be made by the Institutional Borrower or by any receiver,
trustee in bankruptcy, liquidating trustee, agent or other person making such
payment or distribution, directly to the holders of Senior Debt or their
representatives to the extent necessary to pay all such Senior Debt in full
after giving effect to any concurrent payment or distribution to the holders of
such Senior Debt.
c) Upon the happening of any default in payment of the principal of or interest
on any Senior Debt, then, unless and until such default shall have been cured or
waived or shall have ceased to exist, no direct or indirect payment in cash,
property or securities, by set-off or otherwise, shall be made or agreed to be
made by the Institutional Borrower on account of the principal of or interest on
this Note.
d) Upon the happening of an event of default (other than under circumstances
when the terms of Section 9(c) above are applicable) with respect to any Senior
Debt pursuant to which the holder thereof is entitled under the terms of such
Senior Debt to accelerate the maturity thereof, and upon written notice thereof
given to each of the Institutional Borrower and the holder of this Note by such
holder of Senior Debt ("Payment Notice"), then, unless and until such event of
default shall have been cured or waived or shall have ceased to exist, no action
shall or may be taken for collection of any amounts under this Note, and no
direct or indirect payment in cash, property or securities, by set-off or
otherwise, shall be made or agreed to be made by the Institutional Borrower an
account of the principal of or interest on this Note until such Senior Debt has
been paid in full accordance with its terms.
e) In the event than, notwithstanding the provisions of this Section 9, any
payment shall be made on account of the principal of or interest on this Note in
contravention of such provisions, then such payment shall be held for the
benefit of, and shall be paid over and delivered to, the holders of such Senior
Debt remaining unpaid to the
<PAGE>
extent necessary to pay in fall in cash or cash equivalents the principal of and
interest on such Senior Debt in accordance with its terms after giving effect to
any concurrent payment or distribution to the holders of such Senior Debt.
f) Nothing contained in this Section 9 shall
(i) impair the conversion rights of the holder hereof referred to
in Section 4 above,
(ii) impair, as between the Company and the holder of this Note, the
obligation of the Company, which is absolute and unconditional, to pay to the
holder hereof principal and interest as the same shall become due and payable,
or (iii) prevent the holder hereof from exercising all rights, powers and
remedies otherwise provided herein or by applicable law, all subject to the
express limitations provided herein.
g) Upon the occurrence of an Event of Default, if any Senior Debt shall then be
outstanding, no acceleration of the maturity of this Note shall be effective
until the earlier of (i) ten (10) days shall have passed following the date of
delivery to the Institutional Borrower by a Senior Lender(s) of written notice
of acceleration of any Senior Debt, or (ii) the maturity of any then outstanding
Senior Debt shall have been accelerated by reason of a default hereon. The
Company may pay the holder hereof any defaulted payment and all other amounts
due following any such acceleration of the maturity of this Note if this Section
9 would not prohibit such payment to be made at that time.
h) Upon payment in full of all Senior Debt, the Payee of this Note shall be
subrogated to the rights of the holder or holders of Senior Debt to receive all
payments or distributions applicable on Senior Debt to the extent of the prior
application thereto of moneys or other assets which would have been received in
respect of this Note, but for these subordination provisions, until the
principal of, and interest on, this Note shall have been paid in full.
i) The Payee, by accepting this Note
<PAGE>
(i) shall be bound by all of the foregoing subordination
provisions;
(ii) agrees expressly for the benefit of the present and future holders
of Senior Debt that this Note is subject to the foregoing subordination
provisions; (iii) authorizes such persons as shall be designated by all holders
of Senior Debt at any given time, on his or its benefit to execute and deliver
such agreements, assignments, proofs of claim and other documents appropriate to
effectuate the foregoing subordination provisions; and (iv) hereby appoints the
person so designated his or its attorney-in-fact for such purpose.
j) The foregoing subordination provisions shall be for the benefit of all
holders of Senior Debt from time to time outstanding, and each of such holders
may proceed to enforce such provisions either directly against the holder hereof
or in any other manner provided by law.
k) Notwithstanding anything to the contrary set forth in this Section 9, the
security interest of the holder of this Note (as specified in Section 10 hereof)
is subject and subordinated only to the prior first lien and security interest
of any holder of Senior Debt of the Company, unless otherwise expressly
consented to in writing by the Payee.
10. PERMITTED PAYMENTS.
Notwithstanding the provisions of Section 9 of this Note, and provided that no
default or event of default (or event which, with the passage of time or giving
of notice or both) has occurred, will occur as a result of the "Permitted
Payment" (herein defined), or will occur with the passage of time or giving of
notice or both, under any document or instrument evidencing such Senior Debt,
the Company may pay to the Payee, and the Payee may accept from the Company, the
principal payments of, and/or interest payments on, the outstanding principal
amount of this Note when due on an unaccelerated basis (herein, "Permitted
Payments"); it being understood and agreed by the Payee by accepting this Note
that neither:
a) the payment terms set forth in Section l of this Note;
<PAGE>
b) the subordination provisions contained in Section 9 of this Note,
nor
c) the provisions of this Section 10 of this Note, may be modified or
amended without the prior written consent of each and every holder of
Senior Debt.
11.SUCCESSORS AND ASSIGNS.
This Note shall be binding upon and inure to the benefit of the Company and the
holder hereof and their respective successors and assigns; provided, however,
that the Company may not transfer or assign any of its rights or obligations
hereunder without the prior written consent of the holder hereof. IN WITNESS
WHEREOF, the Company has caused this Note to be executed by its duly authorized
officers as of the date first set forth above.
ENVIRONMENTAL REMEDIATION HOLDING CORP.
By:_________________________________
Noreen G. Wilson, Chief Financial Officer
Attest:___________________________________
<PAGE>
EXHIBIT 4.5
This Warrant, and the securities issuable upon the exercise of this Warrant,
have not been registered under the Securities Act of 1933, as amended (the
"Act") or applicable state law and may not be sold, transferred or otherwise
disposed of unless registered under the Act and any applicable state act or
unless the Company is satisfied that this Warrant and the underlying securities
may be transferred without registration under the Act.
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Redeemable Common Stock Purchase Warrant
VOID AFTER 5:00 P.M., EASTERN TIME
June 18, 2002
FOR VALUE RECEIVED, Environmental Remediation Holding Corporation, a
Colorado corporation (the "Company"), promises to issue in the name of, and sell
and deliver to ___________, (the "Holder"), or the Holder's registered
transferee or assignee (also the "Holder"), a certificate or certificates for an
aggregate of _________ shares (the "Shares") of Common Stock, $0.0001 par value
per share (the "Common Stock"), of the Company, (i) at any time on or before the
later of 5:00 p.m., Eastern Time, on June 18, 2000 (the "First Exercise
Period"), upon payment therefore of $0.50 per Share in lawful funds of the
United States of America or thereafter and (ii) on or before June 18, 2002 (the
"Second Exercise Period") upon payment therefore of $0.85 per share in lawful
funds of the United States of America. In the event the Warrants and underlying
shares are not registered as provided herein on or before six (6) months from
the date hereof the Warrant exercise price for the Second Exercise Period shall
remain $0.50 for the term of the Warrant(s). And further, in the event the
shares are registered as provided herein at any time prior to June 18, 2002, and
the market price drops below $.75 after ninety (90) days from the effective date
of such registration for (i) more than five (5) consecutive trading days or (ii)
seven (7) out of ten (10) trading days, then the exercise price thereafter
during the balance of the term of this Warrant shall be equal to fifty percent
<PAGE>
(50%) of the average closing price for the ten (10) trading days immediately
preceding the Date of Exercise as defined herein.
1. Exercise of the Warrant. In case the Holder of this Warrant shall
desire to exercise this Warrant in whole or in part, the Holder shall surrender
this Warrant, with the form of exercise notice on the last page hereof duly
executed by the Holder, to the Company, accompanied by payment of the Exercise
Price per Warrant.
(a) This Warrant may be exercised in whole or in part but not
for fractional Shares. In case of the exercise in part only, the Company will
deliver to the Holder a new Warrant of like tenor in the name of the Holder
evidencing the right to purchase the number of Shares as to which this Warrant
has not been exercised.
(b) This Warrant may also be exercised by the Warrant Holder,
in whole or in part, at any time and from time to time and from time to time
during the Exercise Period by presentation and surrender of this Warrant to the
Company at its principal executive offices with a written notice of the Warrant
Holder's intention to effect a cashless exercise, including a calculation of the
number of shares of Common Stock to be issued upon such exercise in accordance
with the terms hereof (a "Cashless Exercise"). In the event of a Cashless
Exercise, the holder shall surrender this Warrant for that number of shares of
Common Stock determined by
(i) multiplying the number of Shares for which this
Warrant is being exercised by the per share warrant value as defined in Section
1(c) herein; and
(ii) dividing the product by the bid price of one
share of the Common Stock on the trading day next preceding the date of exercise
as defined in Section 1(d) hereof.
In the event that the Warrant is not exercised in full, the number of Shares
shall be reduced by the number of such Shares for which this Warrant is
exercised, and the Company, at its expense, shall forthwith issue and deliver to
or upon the order of the Holder a new Warrant of
<PAGE>
like tenor in the name of the Holder or as the Holder may request, reflecting
such adjusted number of Shares.
(c) As used herein "Per Share Warrant Value" shall mean the
difference resulting from subtracting the Exercise Price from the bid price of
one share of Common Stock on the trading day next preceding the Date of
Exercise.
(d) As used herein "Date of Exercise" shall mean the date that
the advance copy of the Form of Exercise set forth herein is sent by facsimile
to the Company, provided that the original Warrant and Form of Exercise are
received by the Company within three (3) business days. If the Warrant Holder
has not sent advance notice by facsimile, the Date of Exercise shall be the date
the original Form of Exercise is received by the Company.
2. Covenants of the Company. The Company hereby covenants and agrees
that prior to the expiration of this Warrant by exercise or by its terms:
(a) The Company shall at all times reserve and keep available,
out of its authorized and unissued share capital, solely for the purpose of
providing for the exercise, forthwith upon the request of the Holder of the
Warrants then outstanding and in effect, such number of shares of Common Stock,
as shall, from time to time, be sufficient for the exercise of the Warrants. The
Company shall, from time to time, in accordance with the laws of the State of
Florida, increase the authorized amount of its share capital if at any time the
number of shares of Common Stock remaining unissued and unreserved for other
purposes shall not be sufficient to permit the exercise of the Warrants then
outstanding and in effect.
(b) The Company covenants and agrees that all shares that may
be issued upon the exercise of the rights represented by this Warrant will, upon
issuance, be validly issued, fully paid and non-assessable, and free from all
taxes, liens and charges with respect to the issue thereof.
<PAGE>
3. Loss, Theft, Destruction or Mutilation. In case this Warrant shall
become mutilated or defaced or be destroyed, lost or stolen, the Company shall
execute and deliver a new Warrant in exchange for and upon surrender and
cancellation of such mutilated or defaced Warrant or in lieu of and in
substitution for such warrant so destroyed, lost, or stolen, upon the Holder of
such Warrant filing with the Company such evidence satisfactory to it that such
Warrant has been so mutilated, defaced, destroyed, lost or stolen and of the
ownership thereof by the Holder; provided, however, that the Company shall be
entitled, as a condition to the execution and delivery of such new Warrant, to
demand indemnity satisfactory to it and payment of expenses and charges incurred
in connection with the delivery of such new Warrant, and may demand a bond from
the Holder. Any Warrant so surrendered to the Company shall be canceled.
4. Record Owner. At the time of the surrender of this Warrant, together
with the form of subscription properly executed and payment of the Exercise
Price, the person exercising this Warrant shall be deemed to be the Holder of
record of the Common Stock deliverable upon such exercise, in whole or in part,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such securities shall not then be
actually delivered to such person.
5. Mailing of Notices, etc. All notices and other communications from
the Company to the Holder of this Warrant shall be mailed by first-class
registered or certified mail, return receipt requested, potage prepaid, to the
Holder at the address set forth in the records of the Company, or to such other
address furnished to the Company in writing from time to time by the Holder of
this Warrant.
6. Registration Under the Securities Act of 1933, as amended. Neither
this Warrant nor the Shares underlying it have been registered under the
Securities Act of 1933, as amended (the "Act"). Unless and until registered
under the Act, this Warrant and all replacement Warrants shall bear the
following legend:
This Warrant, and the securities issuable upon the exercise of this
Warrant, have not been registered under the
<PAGE>
Securities Act of 1933, as amended (the "Act") or applicable state law
and may not be sold, transferred or otherwise disposed of unless
registered under the Act and any applicable state act or unless the
Company is satisfied that this Warrant and the underling securities may
be transferred without registration under the Act.
The Shares issuable upon exercise of this Warrant shall be Rule 144
restricted shares (the "Restricted Securities"). After issuance of the
Shares, Company agrees to use its best efforts to assist Holder in
registering the Shares or to register the Shares under the Act subject
to the rules, regulations, and other provisions of said Act.
7. Piggyback Registration.
(a) At any time that the Company proposes to file a Company
registration statement on Form S-1, including the pending Form S-1 registration
filed on January 8, 1998, under the Act (the "Registrations Statement"), the
Company shall cause to be included in such registration statement any securities
issued or subject to issuance in this transaction; provided, however, that if,
at any time after giving written notice of its intention to register any
securities and prior to the effective date of the Company Registration Statement
filed in connection with such registration, the Company shall determine for any
reason not to register or to delay registration of holder's Restricted
Securities, the Company may, at its election, give written notice of such
determination to holder and, thereupon:
(i) in the ease of a determination not to register,
shall be relieved of its obligation to register Holder's Restricted Securities
in connection with such registration (but not from its obligation to pay the
registration expenses in connection therewith), and
(ii) in the case of a delay in registering, shall be
permitted to delay registering Holder's Restricted Securities for the same
period as the delay in registering such other securities.
<PAGE>
(b) The Company's obligation to include Restricted Securities
in a Company's Registration Statement pursuant to Section 7(a) shall be subject
to the following limitations:
(i) The Company may elect, at its sole option and for
any reason, not to register Holder's Restricted Shares, provided however, that
this right is limited to one (1) time and relative to one (1) particular Company
Registration Statement.
(ii)The Company shall not be obligated to include any
Restricted Securities in a registration statement filed on Form S-4, Form S-8 or
such other similar successor forms then in effect under the Securities Act.
(iii) If a Company Registration Statement involves an
underwritten offering and the managing underwriter advises the Company in
writing that in its opinion, the number of securities requested to be included
in such Company Registration Statement exceeds the number which can be sold in
such offering without adversely affecting the offering, the Company shall
include in such Company Registration Statement the number of such securities
which the Company is so advised can be sold in such offering without adversely
affecting the offering, determined as follows:
(A) first, the securities proposed by the Company
to be sold for it own account, and
(B) second, any Restricted Securities requested to
be included in such registration and any other securities of the Company in
accordance with the priorities, if and then existing among the holders of such
securities pro rata among the holders thereof requesting such registration on
the basis of the number of shares of such securities requested to be included by
such holders.
(iv) The Company shall not be obligated to include
Restricted Securities in more than one (1) Company Registration Statement.
(c) To the extent Holder's Restricted Securities are intended
to be included in a Company Registration Statement, Holder may include any of
its Restricted Securities in such Company Registration Statement pursuant to
this Agreement only if Holder furnishes to the Company in writing, within ten
(10) business days
<PAGE>
after receipt of a written request therefor, such information specified in Item
507 of Regulation S-K under the Act or such other information as the Company may
reasonably request for use in connection with the Company Registration Statement
or Prospectus or preliminary Prospectus included therein and in any application
to the NASD. Holder as to which the Company Registration Statement is being
effected agrees to furnish promptly to the Company all information required to
be disclosed in order to make all information previously furnished to the
Company by Holder not materially misleading.
8. Anti-dilution Provision. The Exercise Price in effect from time to
time shall be, subject to adjustment in accordance with the provisions of this
Section 8.
(a) Adjustments for Stock Splits and Combinations. If the
Company shall at any time or from time to time after the date hereof, effect a
stock split of the outstanding Common Stock, the applicable Exercise Price in
effect immediately prior to the stock split shall be proportionately decreased.
If the Company shall at any time or from time to time after the date hereof,
combine the outstanding shares of Common Stock, the applicable Exercise Price in
effect immediately prior to the combination shall be proportionately increased.
Any adjustments under this Section 8(a) shall be effective at the close of
business on the date the stock split or combination occurs.
(b) Adjustments for Certain Dividends and Distributions. If
the Company shall at any time or from time after the date hereof, make or issue
or set a record date for the determination of holders of Common Stock entitled
to receive a dividend or other distribution payable in shares of Common Stock,
then, and in each event, the applicable Exercise Price in effect immediately
prior to such event shall be decreased as of the time of such issuance or, in
the event such a record date shall have been fixed, as of the close of business
on such record date, by multiplying, as applicable, the applicable Exercise
Price then in effect by a fraction;
(i) the numerator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the
<PAGE>
time of such issuance or the close of business on such record date;
and
(ii) the denominator of which shall be the total number
of shares of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date plus the number of
shares of Common Stock issuable in payment of such dividend or distribution.
(c) Adjustment for Other Dividends and Distributions. If the
Company shall at any time or from time to time after the date hereof, make or
issue or set a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in other than
shares of Common Stock, then, and in each event, an appropriate revision to the
Exercise Price shall be made and provision shall be made (by adjustments of the
Exercise Price or otherwise) so that the holder of this Note shall receive upon
conversions thereof, in addition to the number of shares of Common Stock
receivable thereon, the number of securities of the Company which they would
have received had this Note been converted into Common Stock on the date of such
event and had thereafter, during the period from the date of such event to and
including the date hereof, retained such securities (together with any
distributions payable thereon during such period), giving application to all
adjustments called for during such period under this Section 8(c) with respect
to the rights of the holders of the Warrant.
(d) Adjustments for Reclassification, Exchange or
Substitution. If the Common Stock issuable upon conversion of this Warrant at
any time or from time to time after the date hereof shall be changed into the
same or different number of shares of any class or classes of stock, whether by
reclassification, exchange, substitution or otherwise (other than by way of a
stock split or combination of shares or stock dividends provided for in Sections
8(a), (b) and (c), or a reorganization, merger, consolidation, or sale of assets
provided for in Section 8(e), then, and in each event, an appropriate revision
to the Exercise Price shall by made and provisions shall be made (by adjustments
of the Exercise Price of otherwise) so that the holder of this Warrant shall
have the right thereafter to convert such Warrant
<PAGE>
into the kind and amount of shares of stock and other securities receivable upon
reclassification, exchange, substitution or other change, by holders of the
number of shares of Common Stock into which such Warrant might have been
converted immediately prior to such reclassification, exchange, substitution or
other change, all subject to further adjustment as provided herein.
(e) Adjustments for Reorganization, Merger, Consolidation or
Sales of Assets. If at any time or from time to time after the date hereof there
shall be a capital reorganization of the Company (other than by way of a stock
split or combination of shares or stock dividends or distributions provided for
in Section 8(a), (b), and (c), or a reclassification, exchange or substitution
of shares provided for in Section 8(d), or a merger or consolidation of the
Company with or into another corporation, or the sale of all or substantially
all of the Company's properties or assets to any other person, then as a part of
such reorganization, merger, consolidation, or sale, an appropriate revision to
the Exercise Price shall be made and provision shall be made (by adjustments of
the Exercise Price or otherwise) so that the holder of this Warrant shall have
the right thereafter to convert this Warrant into the kind and amount of shares
of stock and other securities or property of the Company or any successor
corporation resulting from such reorganization, merger, consolidation, or sale,
to which a holder of Common Stock deliverable upon conversion of such shares
would have been entitled upon such reorganization, merger, consolidation, or
sale, to which a holder of Common Stock deliverable upon conversion of such
shares would have been entitled upon such reorganization, merger, consolidation,
or sale. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 8(e) with respect to the rights of
the holders of this Warrant after the reorganization, merger, consolidation, or
sale to the end that the provisions of this Section 8(e) (including any
adjustment in the applicable conversion ratio then in effect and the number of
shares of stock or other securities deliverable upon conversion of this Warrant)
shall be applied after that event in as nearly an equivalent manner as may be
practicable.
9. Laws of the State of Florida. This Warrant shall be governed by,
interpreted under and construed in all respects in
<PAGE>
accordance with, the laws of the State of Florida, irrespective of the place of
domicile or residence of any party.
10. Entire Agreement and Modification. The Company and the Holder of
this Warrant hereby represent and warrant that this Warrant is intended to and
does contain and embody all of the understandings and agreements, both written
and oral, of the parties hereto with respect to the subject matter of this
Warrant, and that there exists no oral agreement or understanding, express or
implied, whereby the absolute, final and unconditional character and nature of
this Warrant shall be in any way invalidated, empowered or affected. A
modification or waiver of any of the terms, conditions or provisions of this
Warrant shall be effective only if made in writing and executed with the same
formality as this Warrant.
11. Controlling Document. Notwithstanding anything contained herein, in
the event of conflict between any provision contained herein and those contained
in a certain note of even date simultaneously delivered to Holder (the "Note"),
which Notes is incorporated herein by reference, the provisions contained in the
Note shall control.
This Warrant will become wholly void and of no effect and the rights
evidenced hereby will terminate unless exercised in accordance with the terms
and provisions hereof at or before 5:00 p.m., Eastern Time, on the Expiration
Date.
<PAGE>
FORM OF EXERCISE
The undersigned hereby irrevocably elects to exercise the purchase
rights represented by this Warrant for, and to purchase thereunder, Shares of
Common Stock, $0.0001 par value per share, of Environmental Remediation Holding
Corporation, and herewith makes payment of $
per Share, or a total of $ therefore, and
request that such Shares be issued to:
(print name)
- ---------------------------------
(address)
- ---------------------------------
(social security number)
Dated:
(signature must conform in all respects to name
of Holder as specified on the face of this Warrant)
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers unto
the right represented by this Warrant to
Shares of Common Stock, $0.0001 par value per Share of Environmental
Remediation Holding Corporation to which this Warrant relates, and appoints,
attorney to transfer said right on the books of the Company with full power of
substitution in the premises.
Dated:
(signature must conform in all respects to name
of Holder as specified on the face of this Warrant)
IN WITNESS WHEREOF, the Company, by its duly authorized officer, has
executed this Warrant this day of June, 1998.
Attest: Environmental Remediation
Holding Corporation
____________________________ By: ____________________________
Noreen Wilson CFO and
Vice President
(CORPORATE SEAL)
<PAGE>
EXHIBIT 4.6
THIS SECURITIES PURCHASE AGREEMENT, as it may be amended from time to time (the
"Agreement"), dated as of the 24th day of June 1998, is entered into by and
among ENVIRONMENTAL REMEDIATION HOLDING CORPORATION, a Colorado corporation (the
"Company"); and the persons and/or entities who have executed this Agreement on
the signature pages hereof (hereinafter referred to individually as an
"Investor" and collectively as the "Investors").
WITNESSETH:
WHEREAS, the Company desires to sell to the Investors, and the Investors desire
to purchase from the Company, certain convertible notes of the Company and
warrants entitling the Investors to purchase certain shares of capital stock of
the Company, for the respective purchase prices and upon the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual covenants herein
contained, the parties hereby agree as follows:
1. AUTHORIZATION OF ISSUE.
The Company has authorized the issuance and sale to the Investors of: (i) up to
$2,500,000 principal amount of the Company's 5.5% convertible notes due June 23,
2000 (the "Notes"); and (ii) common stock purchase warrants (the "Warrants")
entitling the holders thereof to purchase, for an amount per share to be
determined by formula, that being 120% of the average of the "Closing Bid
Price", as that term is defined in the Notes, of the Company's Common Stock on
the Closing Date (as hereinafter defined) (the "Exercise Price"), an aggregate
number of shares of Common Stock equal to ten percent (10%) of the original
principal balance of the Notes, par value $.0001 per share (the "Warrant
Shares") of the Company.
(a) The Notes shall be substantially in the form of Exhibit A annexed
hereto and made a part hereof.
<PAGE>
(b) The Warrants shall be substantially in the form of Exhibit B
annexed hereto and made a part hereof.
2. ISSUANCE OF NOTES AND WARRANTS; REGISTRATION OF CONVERSION SHARES
AND OPTION SHARES.
(a) Issuance of Notes and Warrants. On the terms and subject to the conditions
hereinafter set forth, on the Closing Date (as hereinafter defined), the Company
will issue and sell to each Investor the principal amount of Notes and the
number of Warrants set forth opposite the name of each such Investor on Schedule
I hereto and made a part hereof.
(b) Purchase Price: Payment. The purchase price for each of the Notes shall
equal 100% of the aggregate principal amount thereof and the purchase price for
each Warrant shall be one/one hundredth of one cent ($.0001), or an aggregate of
$25.00 for all Warrants. The purchase price payable by each Investor shall be
the amount set forth opposite the name of each such Investor on Schedule 1
annexed hereto. The purchase price for the Notes and Warrants shall be paid at
the Closing by wire transfer of immediately available funds or by certified or
bank cashier's checks (at the option of the Investors) payable to the order of
the Company, or otherwise as acceptable to the Company. The purchase price shall
be payable by each Investor against delivery of the Notes and Warrants being
purchased by it, all of which shall be registered in the name of the respective
Investor purchasing such Notes and Warrants.
(c) Registration of Conversion Shares and Warrant Shares. The Company shall file
with the United States Securities and Exchange Commission ("SEC") and use its
best efforts to cause to be declared effective a Form S-1 Registration Statement
or other appropriate form of registration in order to register for resale and
distribution under the Securities Act of 1933, as amended (the "Securities
Act"), all shares of Common Stock of the Company issuable upon voluntary or
mandatory conversion of all Notes (the "Conversion Shares") and all Warrant
Shares. The obligations of the Company to so register the Conversion Shares and
Warrant Shares are set forth in the registration rights agreement, dated of even
date herewith and in the form of Exhibit C annexed hereto and made a part hereof
(the "Registration Rights Agreement").
<PAGE>
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
As used in this Agreement, the term "Subsidiary" or "Subsidiaries" shall mean:
(i) the individual or collective reference to the corporations listed on
Schedule 2 annexed hereto and made a part hereof, including, without limitation,
Bass American Petroleum Corp. ("BAPCO"). The Company hereby represents and
warrants to the Investors, as follows:
(a) Organization and Good Standing. The Company and each of its existing
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation, with full corporate power
and authority to own its properties and carry on its business as now being
conducted. Each of the Company and such Subsidiaries is qualified as a foreign
corporation and is in good standing in each jurisdiction in which the conduct of
its business or the ownership of its assets requires such qualification.
(b) Capitalization of the Company. The authorized, issued and outstanding
capital stock of the Company is described on the Company's Form S-1
supplementally submitted to the Securities and Exchange Commission (the "SEC")
on January 8, 1998 (the "Form S-1"). The Company's Form S-1 and all other
documents and reports filed by the Company and/or its Subsidiaries with the SEC
since October 1, 1995 (the "SEC Documents") have been furnished to or otherwise
made available to the Investors or their representatives. The authorized, issued
and outstanding shares of capital stock of each of the Subsidiaries are
disclosed on the SEC Documents.
(c) Authorization, Execution and Effect of Agreements. The Company has all
requisite corporate power and authority to execute, deliver and perform its
obligations under this Agreement and the Registration Rights Agreement to issue
the Notes and the Warrants in the manner and for the purpose contemplated by
this Agreement, and to execute, deliver and perform its obligations under this
Agreement, the Notes, the Warrants and the Registration Rights Agreement
(collectively, the "Transaction Documents") and all other agreements and
instruments heretofore or hereafter executed and delivered by it pursuant to or
in
<PAGE>
connection with this Agreement. The execution and delivery of the Transaction
Documents and the consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action of the Company. This Agreement
and the other Transaction Documents have each been duly executed and delivered
and constitutes, and upon execution and delivery in accordance herewith each
other agreement or instrument executed and delivered by the Company pursuant
hereto, including the Notes and Warrants, will constitute, the legal, valid and
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, subject in each such case, to applicable
bankruptcy, insolvency, reorganization and similar laws affecting creditors'
rights and remedies generally and subject, as to enforceability, to general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity).
(d) Conflicting Agreements and Other Matters. The execution, delivery and
performance by the Company of this Agreement and the other Transaction
Documents, and all other agreements and instruments heretofore or hereafter to
be executed and delivered by the Company in connection with the consummation of
the transactions contemplated by this Agreement and the other Transaction
Documents, and compliance by the Company with the terms and provisions hereof
and thereof applicable to it, including the issuance and sale of the Notes and
Warrants, does not and will not (i) violate any provision of any law, rule,
regulation, order, writ, judgment, decree, administrative determination or award
having applicability to the Company or any of the Subsidiaries or (ii) conflict
with or result in a breach of or constitute a default under the Certificate of
Incorporation or By-Laws of the Company or any of the Subsidiaries, or any
indenture or loan or credit agreement, or any other material agreement or
instrument, to which the Company or any of the Subsidiaries is a party or by
which the Company or the Subsidiaries, or any of their respective properties are
bound or affected, and will not result in, or require the creation or imposition
of, any lien upon or with respect to any of the properties now owned by the
Company or any of the Subsidiaries or hereafter acquired by the Company or any
of the Subsidiaries.
(e) Financial Information. The (i) audited consolidated financial statements of
the Company for the fiscal year ended September 30, 1997 as set forth in the
Company's Form 10-K/A filed with the SEC (the
<PAGE>
"1998 Form 10-K") and (ii) the unaudited financial statements of the Company for
the nine months ended December 31, 1997 as set forth in the Company's Form
10-Q/A filed with the SEC, as amended from time to time (the "1998 Form 10Q/A"),
were prepared in accordance with generally accepted accounting principles
("GAAP") consistently applied, and fairly present the financial condition and
results of operations of the Company and the Subsidiaries for the periods
indicated therein; provided, that the unaudited financial statements do not
contain certain footnote disclosures required under GAAP for audited financial
statements and are subject to year end audit adjustments, none of which would be
material to an Investor's decision to purchase the Notes and Warrants.
(f) Litigation, Proceedings: Defaults. Except as disclosed on the SEC Reports or
on Schedule 3(f) hereto, there is no action, suit, proceeding or investigation
pending or, to the knowledge of the Company, threatened against or affecting the
Company or any of the Subsidiaries or any of their respective properties before
or by any court, governmental or regulatory authority (federal, state, local or
foreign) which either (i) relates to or challenges the legality, validity or
enforceability of this Agreement or any other document or agreement to be
executed and delivered by the Company pursuant hereto or in connection herewith,
or (ii) if determined adversely (A) would have a material adverse effect on the
condition (financial or otherwise), properties, assets, business or results of
operations of the Company or the Subsidiaries, when taken as a consolidated
whole (a "Material Adverse Effect") after giving effect to the transaction
contemplated by this Agreement, or (B) could materially impair the ability or
obligation of the Company or the Subsidiaries to perform fully on a timely basis
any obligation which it has or will have under this Agreement or the other
Transaction Documents, or any other agreement or document heretofore or
hereafter to be executed by the Company pursuant hereto or in connection
herewith. Neither the Company nor any of the Subsidiaries is in violation of its
Certificate of Incorporation or By-Laws. Neither the Company nor any of the
Subsidiaries is (i) in default under or in violation of any other material
agreement or instrument to which it is a party or by which it or any of its
properties are bound or affected, which default or violation would have a
Material Adverse Effect, (ii) in default with respect to any order of any court,
arbitrator or governmental body or subject to or party to any order of any court
or governmental
<PAGE>
authority arising out of any action, suit or proceeding under any statute or
other law respecting antitrust, monopoly, restraint of trade, unfair competition
or similar matters, or (iii) in violation of any statute, rule or regulation of
any governmental authority material to its business.
(g) Governmental Consents, etc. No authorization, consent, approval, license,
qualification or formal exemption from, nor any filing, declaration or
registration with, any court, governmental agency or regulatory authority or any
securities exchange or any other person or entity (collectively "Approvals") is
required in connection with the execution, delivery or performance by the
Company of this Agreement.
(h) Use of Proceeds. The first $1,250,000 of the proceeds to the Company from
the sale of the Notes shall be used (i) $250,000 for general working capital
purposes, and (ii) $1,000,000 to perform certain obligations under its June 1997
joint venture agreement with the Democratic Republic of Sao Tome & Principe for
the development of potential oil and gas reserves in the Gulf of Guinea of West
Africa (the "Sao Tome Project"), with the balance, if any used by the Company
for additional payments for general working capital purposes or to perform on
its obligations to the Sao Tome Project, as the Company so directs.
(i) Accuracy of all SEC Public Filings, All SEC Reports furnished to the
Investors or their representatives and all other documents and reports filed by
or on behalf of the Company with the SEC, when filed, did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The Company and
each of its Subsidiaries has filed, on a timely basis, all required forms,
reports and documents with the SEC required to be filed by it pursuant to the
Securities Act and the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), all of which complied at the time of filing in all material
respects with all applicable requirements of the Securities Act and the Exchange
Act.
(j) Absence of Certain Changes or Events. Since June 30, 1997, except as
contemplated by this Agreement, disclosed on Schedule 3(j) hereto and made a
part hereof, or disclosed in any Company SEC Report filed
<PAGE>
since June 30, 1997, the Company and the Subsidiaries have conducted their
businesses only in the ordinary course and in a manner consistent with past
practice and, in the Company's opinion, there has not been (i) any event or
events having, individually or in the aggregate, a Material Adverse Effect, (ii)
any change by the Company in its accounting methods, principles or practices,
(iii) any revaluation by the Company of any material asset (including, without
limitation, any writing down or writing up of the value of oil and gas reserves,
writing off of notes or accounts receivable or reversing of any accruals or
reserves), other than in the ordinary course of business consistent with past
practice, (iv) any entry by the Company or any Subsidiary into any commitment or
transaction material to the Company and the Subsidiaries taken as a whole,
except in the ordinary course of business and consistent in all material
respects with past practice, or (v) any declaration, setting aside or payment of
any dividend or distribution in respect of any capital stock of the Company or
any redemption, purchase or other acquisition of any of its securities.
(k) Absence of Litigation. Except as disclosed in the Company SEC Reports or in
Schedule3(k) annexed hereto and made a part hereof, there is no claim, action,
proceeding or investigation pending or, to the Company's knowledge, threatened
against the Company or any Subsidiary, or any property or asset of the Company
or any Subsidiary, before any court, arbitrator or Governmental Authority,
which, individually or when aggregated with other claims, actions, proceedings
or investigations or product liability claims, actions, proceedings or
investigations which are reasonably likely to result from facts and
circumstances that have given rise to such a claim, action, proceeding or
investigation, would have a Material Adverse Effect. As of the date hereof,
neither the Company nor any Subsidiary nor any property or asset of the Company
or any Subsidiary is subject to any order, writ, judgment, injunction, decree,
determination or award having, individually or in the aggregate, a Material
Adverse Effect.
(l) Labor Matters. Except as set forth in Schedule 3(l) annexed hereto and made
a part hereof, with respect to employees of the Company:
(i) to the best of the Company's knowledge, no senior executive or key
<PAGE>
employee has any plans to terminate employment with the Company or any
of its Subsidiaries;
(ii) there is no unfair labor practice charge or complaint against the
Company or any of its Subsidiaries pending or, to the best of the Company's
knowledge, threatened before the National Labor Relations Board or any other
comparable authority;
(iii) there is no demand for recognition made by any labor organization
or petition for election filed with the National Labor Relations Board or any
other comparable authority which, individually or in the aggregate, would have a
Material Adverse Effect;
(iv) no grievance or any arbitration proceeding arising out of or under
collective bargaining agreements is pending and, to the best of the Company's
knowledge, no claims therefor have been threatened other than grievances or
arbitrations incurred in the ordinary course of business which, individually or
in the aggregate, would not have a Adverse Effect; and
(v) there is no litigation, arbitration proceeding, governmental
investigation, administrative charge, citation or action of any kind pending or,
to the knowledge of the Company or any of its Subsidiaries, proposed or
threatened against the Company relating to employment, employment practices,
terms and conditions of employment or wages and hours which, individually or in
the aggregate, would have a Material Adverse Effect. Except as disclosed in
Schedule 3(l), none of the Company nor any of its Subsidiaries has any
collective bargaining relationship or duty to bargain with any Labor
Organization (as such term is defined in Section 2(5) of the National Labor
Relations Act, as amended), and none of the Company nor any of its Subsidiaries
has recognized any labor organization as the collective bargaining
representative of any of its employees.
(m) Title to and Sufficiency of Assets. As of the date hereof, the Company and
the Subsidiaries own, and as of the Closing Date, the Company and the
Subsidiaries will own, good and marketable title to all of their assets
constituting personal property which is material to their business (excluding,
for purposes of this sentence, assets held under leases), free and clear of any
and all mortgages, liens, encumbrances, charges, claims, restrictions, pledges,
security
<PAGE>
interests or impositions (collectively, "Liens") except as set forth in the
Company SEC Reports or Schedule 3(m) annexed hereto and made a part hereof. Such
assets, together with all assets held by the Company and the Subsidiaries under
leases, include all tangible and intangible personal property, contracts and
rights necessary or required for the operation of the businesses of the Company.
As of the date hereof, the Company and the Subsidiaries own, and as of the
Closing Date, the Company and the Subsidiaries will own, good and marketable
title to all of their real estate, including oil and gas reserves, which is
material to such persons (excluding, for purposes of this sentence, leases to
real estate and oil and gas reserves), free and clear of any and all Liens,
except as set forth in the Company SEC Reports or in Schedule 3(m) annexed
hereto or such other Liens which would not, individually or in the aggregate,
have a Material Adverse Effect. Such assets, together with real estate and oil
and gas reserve assets held by the Company and the Subsidiaries under leases,
are adequate for the operation of the businesses of the Company, as presently
conducted. The leases to all real estate and oil and gas reserves which are
material to the operations of the businesses of the Company and the Subsidiaries
are in full force and effect and no event has occurred which, with the passage
of time, the giving of notice, or both, would constitute a default or event of
default by the Company or any Subsidiary or, to the knowledge of the Company,
any other person who is a party signatory thereto, other than such defaults or
events of default which, individually or in the aggregate, would not have a
Material Adverse Effect.
(n) Environmental Matters. For purposes of this Agreement, the following terms
shall have the following meanings:
(i) "Hazardous Substances" means
(A) petroleum and petroleum products, by-products or breakdown
products, radioactive materials, asbestos- containing materials and
polychlorinated biphenyls, and
(B) any other chemicals, materials or substances regulated as
toxic or hazardous or as a pollutant, contaminant or waste under any applicable
Environmental Law;
(ii) "Environmental Law" means any law, past, present or future
<PAGE>
and as amended, and any judicial or administrative interpretation thereof,
including any judicial or administrative order, consent decree or judgment, or
common law, relating to pollution or protection of the environment, health or
safety or natural resources, including, without limitation, those relating to
the use, handling, transportation, treatment, storage, disposal, release or
discharge of Hazardous Substances; and
(iii) "Environmental Permit" means any permit, approval, identification
number, license or other authorization required under any applicable
Environmental Law.
(A) Except as disclosed on Schedule 3(n-1) annexed hereto and
made a part hereof, the Company and the Subsidiaries are and have been in
compliance with all applicable Environmental Laws, have obtained all
Environmental Permits and are in compliance with their requirements, and have
resolved all past non-compliance with Environmental Laws and Environmental
Permits without any pending, on-going or future obligation, cost or liability,
except in each case for the notices set forth in Schedule 3(n-1) or where such
non-compliance would not, individually or in the aggregate, have a Material
Adverse Effect.
(B) Except as disclosed in Schedule 3(n-2) annexed hereto and
made a part hereof, neither the Company nor any of the Subsidiaries has (I)
placed, held, located, released, transported or disposed of any Hazardous
Substances on, under, from or at any of the Company's or any of the
Subsidiaries' properties or any other properties, other than in a manner that
would not, in all such cases taken individually or in the aggregate, result in a
Company Material Adverse Effect, (II) any knowledge of the presence of any
Hazardous Substances on, under, emanating from, or at any of the Company's or
any of the Subsidiaries' properties or any other property but arising from the
Company's or any of the Subsidiaries' current or former properties or
operations, other than in a manner that would not result in a Material Adverse
Effect, or (III) any knowledge of nor has it received any written notice (x) of
any violation of or liability under any Environmental Laws, (y) of the
institution or pendency of any suit, action, claim, proceeding or investigation
by any Governmental Entity or any third party in connection with any such
violation or liability, (z) requiring the response to or remediation of
Hazardous
<PAGE>
Substances at or arising from any of the Company's or any of the Subsidiaries'
current or former properties or operations or any other properties, (aa)
alleging noncompliance by the Company or any of the Subsidiaries with the terms
of any Environmental Permit requiring material expenditures or resulting in
material liability or (bb) demanding payment for response to or remediation of
Hazardous Substances at or arising from any of the Company's or any of the
Subsidiaries' current or former properties or operations or any other
properties, except in each case for the notices set forth in Schedule 3(n-2)
annexed hereto.
(o) Brokers. No broker, finder or investment banker, is entitled to any
brokerage, finder's or other fee or commission in connection with the this
Agreement and the transactions contemplated hereby, other than the following:
International Holding Company
Joseph Charles & Associates
(collectively the "IHC Group"). The Company has agreed to pay the IHC Group cash
compensation not to exceed ten percent (10.0%) of the face amount of the Notes
sold pursuant to this Agreement and to issue to the IHC Group notes not to
exceed three and one-half percent (3.5%) of the face amount of the total notes
sold to the Investors (the "Consultant Notes"), which Consultant Notes shall be
on substantially the same terms and conditions as the Notes offered hereby and
warrants to purchase shares of Company Common Stock in an amount equal to six
percent (6.0%) of the face amount of the Notes on substantially the same terms
and conditions as the Warrants offered hereby.
4. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS.
Each Investor hereby separately represents and warrants to the Company as
follows (such representations and warranties being made separately and only to
the extent such representations and warranties relate to such Investor):
(a) Investigation; Investment Representation. Each Investor (i) possesses such
knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of its investment hereunder; (ii) has been
afforded the opportunity to ask
<PAGE>
questions of, and receive answers from, the Company concerning the terms and
conditions of its investment, the transactions contemplated hereby and the
business and affairs of the Company; (iii) has examined, to the extent it deems
appropriate, all of the agreements and documents referred to herein or in the
schedules hereto and such other documents that it has requested; and (iv)
understands that the Notes, the Warrants and the Warrant Shares are not being
registered under the Securities Act of 1933, as amended, on the ground that the
issuance thereof is exempt from registration under Section 4(2) of the
Securities Act of 1933, as amended, as a transaction by an issuer not involving
a public offering, and the Company's reliance on this exemption is predicated in
part on the Investors' representations and warranties contained in this Section
4(a). The Investors are acquiring the Notes and Warrants and will acquire the
Warrant Shares for their own account, for investment purposes only and not with
a view to the sale or distribution thereof.
(b) Execution and Effect of Agreement. Each Investor has all necessary power and
authority to enter into this Agreement and consummate the transactions
contemplated hereby. This Agreement constitutes the legal, valid and binding
obligation of each Investor, enforceable against each Investor in accordance
with its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally
and subject, as to enforceability, to general principles of equity (regardless
of whether enforcement is sought in a proceeding at law or in equity).
5. COVENANTS.
As long as any of the Notes are outstanding, the Company agrees that, unless it
first procures the written consent to act otherwise of the holders of record of
66-2/3% of the outstanding principal amount of the Notes of record then
outstanding, it will use its best efforts to cause each of its Subsidiaries to:
(a) Promptly pay all taxes (exclusive of income taxes imposed on the Investors),
fees and charges payable, or ruled to be payable, by any federal, state or local
authority, in respect of this Agreement or the execution, delivery or issuance
of the Notes or Warrant Shares by reason of any now existing or hereafter
enacted federal, state or
<PAGE>
local statute or ordinance, and indemnify and hold the Investors harmless from
and against all liabilities with respect to or in connection with any such
taxes, fees or charges.
(b) Maintain their corporate existence and right to carry on business, duly
procure all necessary renewals and extensions thereof, and use their best
efforts to maintain, preserve and renew all necessary or desirable rights,
powers, privileges and franchises owned by them.
(c) Promptly notify the Investors of any material adverse change in the
condition (financial or otherwise), properties, assets, business or results of
operations of the Company or any of the Subsidiaries.
(d) Not cause, suffer or permit any liquidation, winding up or dissolution of
the Company or the Subsidiaries.
(e) Maintain and cause the Subsidiaries to maintain a system of accounting
established and administered in accordance with generally accepted accounting
principles.
(f) Comply with all of the covenants and agreements on the part of the Company
to be performed under the terms of the Notes, the Warrants and the other
Transaction Documents.
(g) Terminate the Private Equity Line of Credit Agreement by and between
Kingsbridge Capital Limited and the Company dated as of March 23, 1998 and not
enter into a similar agreement with Kingsbridge Capital Limited while the Notes
are outstanding.
6. FINANCIAL STATEMENTS; INSPECTION; NON-PUBLIC INFORMATION.
(a) The Company will furnish to each Investor (and their permitted transferees,
successors and assigns), as long as such Investor owns any of the Notes, copies
of all Form 10-K Annual Report and Form 10-Q Quarterly Financial Reports filed
by the Company, with the SEC.
(b) The Company will, subject to execution of appropriate confidentiality and
non- disclosure agreements, permit the Investors, as long as they own Notes,
shares of Common Stock issuable upon conversion of the Notes (the "Conversion
Shares"), Warrants or shares
<PAGE>
of Common Stock issuable upon exercise of the Warrants (the "Warrant Shares"),
or any authorized representative designated by the Investors, to visit and
inspect at the Investors' expense any of the properties of the Company and the
Subsidiaries, and to discuss its affairs, finances and accounts with officers of
the Company, all at such reasonable times and as often as the Investors may
reasonably request.
(c) The Company in no event shall disclose non-public information to the
Investors, advisors to or representatives of the Investors unless prior to
disclosure of such information the Company marks such information as 'Non-Public
Information - Confidential" and provides the Investors, such advisors and
representatives with a reasonable opportunity to accept or refuse to accept such
non-public information for review. Nothing herein shall require the Company to
disclose non-public information to the Investors or their respective advisors or
representatives, and the Company represents that it does not disseminate
non-public information to any Investors who purchase stock in the Company in a
public offering, to money managers or to securities analysts; provided, however,
that notwithstanding anything herein to the contrary, the Company will, as
hereinabove provided, notify immediately the advisors and representatives of the
Investors and, if any, underwriters, of any event or the existence of any
circumstance (without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting non-public information
(whether or not requested of the Company specifically or generally during the
course of due diligence by such persons or entities), which, if not disclosed in
the Prospectus included in the Registration Statement, would cause such
Prospectus to include a material misstatement or to omit a material fact
required to be stated therein in order to make the statements, therein, in light
of the circumstances in which they were made, not misleading. Nothing herein
shall be construed to mean that such persons or entities other than the
Investors (without the written consent of the Investors prior to disclosure of
such information) may not obtain non-public information in the course of
conducting due diligence in accordance with the terms of this Agreement and
nothing herein shall prevent any such persons or entities from notifying the
Company of their opinion that based on such due diligence by such persons or
entities, that the Registration Statement contains an untrue statement of a
material fact or omits a material fact required to be stated in the Registration
Statement or
<PAGE>
necessary to make the statements contained therein, in light of the
circumstances in which they were made, not misleading.
7. TRANSFER OF NOTES AND WARRANT SHARES.
(a) Permissible Transfers. The Investors acknowledge that the Company's
securities being issued and sold to them hereunder are being so issued and sold
in transactions which are exempt from the registration requirements of the
Securities Act of 1933, as amended. None of the Notes or Warrants, Conversion
Shares or Warrant Shares issuable upon conversion of the Notes or exercise of
the Warrants, may be distributed, transferred, or otherwise disposed of by the
Investors except pursuant to an effective Registration Statement under such Act
which is current with respect to the securities offered thereby, or pursuant to
an applicable exemption therefrom, and pursuant to applicable "Blue Sky" or
state securities laws or an applicable exemption therefrom.
(b) Legend. Unless the Conversion Shares or Warrant Shares have been registered
pursuant to an effective Registration Statement filed under the Securities Act
or held for the requisite period to be freely transferable pursuant to Rule 144
promulgated under the Securities Act and otherwise comply with Rule 144(k) (in
either such case the certificates shall bear no legend), the Company shall cause
to be set forth on the certificates representing any Conversion Shares and
Warrant Shares a legend substantially in the following form: "The shares
represented by this certificate have not been registered under the Securities
Act of 1933, as amended. No transfer of such shares shall be valid or effective
except in accordance with an effective registration statement covering such
shares or an opinion of counsel acceptable to the Company that registration of
such shares is not required pursuant to the applicable requirements of the
Securities Act of 1933, as amended."
(c) Registration of Conversion Shares and Warrant Shares, Other Exemption. The
Company shall use its best efforts to cause the Conversion Shares and the
Warrant Shares to be registered for resale or distribution under the Securities
Act, all in accordance with the terms of the Registration Rights Agreement in
the form annexed hereto as Exhibit C and made a part hereof.
<PAGE>
8. CONDITIONS PRECEDENT TO CLOSING.
(a) Conditions Precedent to Obligations of the Investors. The obligation of each
Investor to purchase the Notes and Warrants to be purchased by it at the Closing
hereunder is subject to the fulfillment on or prior to the Closing Date of the
following conditions:
(i) Such Investor shall have received an opinion, addressed to it and
each other Investor and dated the Closing Date, of counsel to the Company
acceptable to Investor, in the form of Exhibit D hereto and made a part hereof.
(ii) The representations and warranties made by the Company herein
shall be true and correct in all material respects on and as of the Closing Date
with the same effect as though such representations and warranties had been made
on and as of the Closing Date, and the Company shall have complied in all
material respects with all covenants hereunder required to be performed by it at
or prior to the Closing Date.
(iii) There shall not have occurred and be continuing any Material
Adverse Effect.
(iv) The purchase of the Notes and Warrants agreed to be purchased by
such Investor hereunder shall not be prohibited or enjoined (temporarily or
permanently) under the laws of any jurisdiction to which such Investor is
subject.
(v) The Company and the Investors shall have executed the Registration
Rights Agreement in substantially the form of Exhibit C hereto.
(vi) All legal matters incident to the transactions contemplated by
this Agreement shall have been reasonably approved by counsel to the Investors.
(vii) Not less than $____________ of the Notes offered hereby shall
have been subscribed for by Investors as at the Closing Date. Following the
Closing Date and until 5:00 p.m. (New York time) on the thirtieth (30th) day
following the Closing Date, the Company shall be entitled to continue to offer
the Notes and Warrants to additional
<PAGE>
investors, until such time as a maximum of $2,500,000 of Notes and an amount of
Warrants to be determined by formula shall have been sold; provided however,
that the Investors who have subscribed at the Closing Date shall have a first
right of refusal with reference to the additional $___________ of Notes and an
amount of Warrants to be determined by formulas during this thirty (30) day
period.
(viii) The Investors shall have received a certificate, dated the
Closing Date, and signed by the chief executive officer or chief financial
officer of the Company, stating that the conditions specified in subsections (i)
through (vii) of this Section 8(a) have been satisfied.
(b) Conditions Precedent to Obligations to the Company. The obligation of the
Company to issue and sell the Notes and Warrants to be issued pursuant to this
Agreement is subject to the fulfillment on or prior to the Closing Date of the
following conditions:
(i) The representations and warranties made by the Investors herein
shall be true and correct in all material respects on and as of the Closing Date
with the same effect as though such representations and warranties had been made
on and as of the Closing Date.
(ii) The sale of the Notes and Warrants by the Company shall not be
prohibited or enjoined (temporarily or permanently) as of the Closing Date.
(iii) The purchase of the Notes and Warrants agreed to be purchased by
such Investor hereunder shall not be prohibited or enjoined (temporarily or
permanently) under the laws of any jurisdiction to which such Investor is
subject.
(iv) All legal matters incident to the transactions contemplated by
this Agreement shall have been reasonably approved by counsel to the Company.
(v) Not less than $____________ of the Notes offered hereby shall have
been subscribed for by Investors as at the Closing Date. Following the Closing
Date and until 5:00 p.m. (New York time) on the thirtieth (30th) day following
the Closing Date, the Company shall be entitled to continue to offer the Notes
and Warrants to additional
<PAGE>
investors, until such time as a maximum of $2,500,000 of Notes and an amount of
Warrants to be determined by formula shall have been sold; provided however,
that the Investors who have subscribed at the Closing Date shall have a first
right of refusal with reference to the additional $___________ of Notes and an
amount of Warrants to be determined by formulas during this thirty (30) day
period.
9. CLOSING.
The closing hereunder (the "Closing") shall take place at 10:00 A.M. at the
offices of Greenberg Traurig Hoffman Lipoff Rosen & Quentel, 153 East 53rd
Street, New York, New York 10022 on or before June 24, 1998, or at such other
location as may be mutually agreed upon. The date of such Closing is referred to
in this Agreement as the "Closing Date".
(a) At the Closing, in addition to true copies of the other Transaction
Documents duly executed by the Company, the Company shall deliver to each
Investor in the respective amounts set forth on Schedule 1 hereto: (a) a duly
executed Note in the form of Exhibit A hereto, and (b) a duly executed Warrant
in the form of Exhibit B, representing the right to purchase the number of
Warrant Shares set forth opposite such Investor's name on Schedule 1, all
against payment of the purchase price therefor by wire transfer of immediately
available funds or by certified or bank cashier's check payable to the order of
the Company.
(b) At the Closing, each Investor shall wire transfer the purchase price for the
Notes subscribed to by such Investor to following attorneys' escrow account
established by Greenberg Traurig Hoffman Lipoff Rosen & Quentel, as counsel to
the Company, or such other location and counsel as may be mutually agreed upon.
All of such funds shall be held in escrow by such counsel until the Notes shall
have duly executed by the Company and delivered by the Company or such escrow
agent to the subject Investor or its representative.
Wire Instructions:
Citibank N.A.
153 East 53rd Street
20th floor
New York, New York 10043
ABA #021000089
Attn: Mr. James Frasier
For credit to: Greenberg Traurig Hoffman
Lipoff Rosen & Quentel
Escrow Account No. 3 7092076
Reference: Environmental Remediation Holding
Corporation: Client No. 23769.01000
<PAGE>
10. ADJUSTMENT TO TERMS OF NOTES.
In the event and to the extent that the Company shall, at any time within one
hundred and twenty (120) days following the Closing Date, issue any (a) notes,
debentures, bonds or other debt instruments which, by their terms, are
convertible into shares of Common Stock of the Company, (b) shares of preferred
stock, which, by their terms, are convertible into shares of Common Stock of the
Company, or (c) other warrants, options or rights which are exercisable for
shares of Common Stock of the Company, excluding, however, warrants or options
issued to key employees, advisors and other consultants in the ordinary course
of business, or options, warrants or stock disclosed in the Form S-1 as
effective (all of the foregoing referred to herein as "Other Common Stock
Equivalents"), in each case, and such instruments are actually converted at a
conversion price which shall be lower than the Conversion Price set forth in the
Notes offered hereby, the Conversion Price for such time period set forth in the
Notes shall be automatically adjusted and amended to be equal to the terms of
the lowest conversion price provided for in the instruments governing the
issuance of such Other Common Stock Equivalents.
11. EXCHANGE OF NOTES.
At the request of any holder of any Note and upon surrender of any such Note for
such purpose to the Company at its principal office, the Company at its expense
will issue in exchange therefor a new Note, in such denomination or
denominations and payable to the order of such payee or payees as may be
requested, dated the date to which interest has been paid on the surrendered
Note, in an aggregate principal amount equal to the principal balance of the
surrendered Note. Such new Note shall be in the form of the surrendered Note.
12. REPLACEMENT OF NOTES
Upon receipt of evidence reasonably satisfactory to the Company of the loss,
theft, destruction or mutilation of any Note and, in the case of any such loss,
theft or destruction, upon delivery of an indemnity bond by the holder in such
reasonable amount as the Company may determine, or, in the case of any such
mutilation, upon surrender and cancellation of such Note, the Company at its
expense will execute and deliver, in lieu thereof, a new Note of like tenor
dated the date to which interest on such lost, stolen, destroyed or mutilated
Note has been paid.
13. BROKERS.
(a) The Investors represent and warrant to the Company that they have not
engaged or authorized any broker, finder, investment banker or other third party
to act on their behalf, directly or indirectly, as a broker, finder, investment
banker or in any other like capacity in connection with the transactions
contemplated by this Agreement nor have they consented to or acquiesced in
anyone so acting, and they know of no claim by any person for compensation from
them for so acting or of any basis for such a claim.
(b) The Company represents and warrants to the Investors that, except for IHC
Group as disclosed in Section 3(o) hereto, neither the Company nor any of its
officers, directors or agents has engaged or authorized any broker, finder,
investment banker or other third party to act on its behalf, directly or
indirectly, as a broker, finder, investment banker or in any other like capacity
in connection with the transactions contemplated by this Agreement nor has it
consented to or acquiesced in anyone so acting, and it knows of no claim by any
person for compensation from it for so acting or of any basis for such a claim.
<PAGE>
14. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
All representations, warranties and agreements of the Company or of the
Investors contained in this Agreement or in any certificate, document, schedule
or instrument delivered pursuant hereto shall survive for a period of two (2)
years the Closing hereunder and the delivery of any and all documents and
instruments hereunder, regardless of any investigation made by or on behalf of
the Investors or the Company, respectively. All statements contained in any
certificate, schedule or other document delivered by the Company pursuant hereto
in connection with the transactions contemplated hereby shall be deemed
representations and warranties of the Company.
15. NOTICES.
Any notices or other communications required or permitted hereunder shall be in
writing and personally delivered or sent by telecopier or by registered or
certified mail, return receipt requested, postage prepaid, addressed or
telecopied as follows or to such other address or telecopier number of which
notice has been given pursuant hereto:
If to the Company: Environmental Remediation Holding Corp.
3-5 Audrey Avenue
Oyster Bay, New York 11771
Attn: James A. Griffin, Secretary
Fax: (516) 922-4312
-and-
Environmental Remediation Holding Corp.
Attn: Noreen Wilson, Vice President and
Chief Financial Officer
Fax: (561) 624-1171
With a copy to:
Greenberg Traurig Hoffman Rosen
Lipoff & Quentel
Met Life Building
200 Park Avenue
New York, New York 10166
Attn: Stephen A. Weiss, Esq.
Tel: (212) 801-9200
Fax: (212) 801-6400
-and-
Mintmire & Associates
265 Sunrise Avenue, Suite 204
Palm Beach, FL 33480
Attn: Donald F. Mintmire, Esq.
Tel: (561) 832-5696
Fax: (561) 659-5371
If to the Investors:To the addresses set
forth below the name of each Investor on
Schedule I annexed hereto and made a part
hereof.
<PAGE>
16. ENTIRE AGREEMENT: AMENDMENT ETC.
This Agreement and the Exhibits hereto represents the entire understanding and
agreement among the parties hereto with respect to the subject matter hereof.
With the written consent of the holders of 66-2/3% of the outstanding principal
amount of the Notes, the obligations of the Company and the rights of the
holders of the Notes may be waived or modified (either generally or in a
particular instance, either retroactively or prospectively and either for a
specified period of time or indefinitely), and with the same consent the
Company, when authorized by resolution of its Board of Directors ("Approved
Company Resolutions"), may enter into a supplementary agreement for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of this Agreement. Neither this Agreement nor any provision hereof
may be changed, waived, discharged or terminated orally, except by a statement
in writing authorized as aforesaid and signed by the party against which
enforcement of the change, waiver, discharge or termination is sought.
17. SUCCESSORS.
This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns.
18. SECTION READINGS.
The section headings contained in this Agreement are for reference purposes only
and shall not affect in any way the meaning or interpretation of this Agreement.
19. APPLICABLE LAW.
This Agreement shall be governed by, construed and enforced in accordance with
the laws of the State of New York, United States of America, without reference
to or application of principles of conflicts of laws.
20. SEVERABILITY.
If at any time subsequent to the date hereof, any provision of this Agreement
shall be held by any court of competent jurisdiction to be illegal, void or
unenforceable, such provision shall be of no force and effect, but the
illegality or unenforceability of such provision shall have no effect upon and
shall not impair the enforceability of any other provision of this Agreement.
21. NO WAIVER.
The failure of any party at any time or times to require performance of any
provision hereof shall in no manner affect the right at a later time to enforce
the same. No waiver by any party of any condition, or of the breach of any
provision, term, covenant, representation or warranty contained in this
Agreement, whether by conduct or otherwise, in any one or more instances shall
be deemed to be construed as a further or continuing waiver of any such
condition or of the breach of any other provision, term, covenant,
representation or warranty of this Agreement.
22. RESOLUTION OF DISPUTES.
Any dispute regarding the interpretation or application of this Agreement, the
Note, the Warrant, the Registration Rights Agreement or any of the other
Transaction Documents which cannot be settled among the parties shall be
resolved in Austin, Texas final and binding arbitration in accordance with the
then obtaining rules of the American Arbitration Association. There shall be
appointed three arbitrators, one of whom shall be selected by the Company, the
second by the Investor(s) and the third by mutual agreement of the parties or by
the American Arbitration Association. The decision of the arbitrators shall be
final and upon all Investors and the Company and may be enforced by the
prevailing party or parties in any court of competent jurisdiction. Each party
shall bear their own costs of the arbitration and shall share equally the costs
of the arbitrators.
<PAGE>
23. ATTORNEY FEES.
Investors shall be entitled to recover from the Company the reasonable
attorneys' fees and expenses (and the reasonable costs of investigation)
incurred by such Holder in connection with enforcement by such Holder of any
obligation of the Company hereunder.
24. REIMBURSEMENT FEES AND EXPENSES.
The Company shall, at the Closing, reimburse _________________ for reasonable
fees and expenses of its counsel in connection with the preparation, negotiation
and coordination of this Agreement.
25. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF the parties hereto have duly executed this Agreement as of
the date first written.
ENVIRONMENTAL REMEDIATION HOLDING
CORPORATION
By: _________________________________
James A. Griffin, Secretary
By: _________________________________
Sam Bass, Chairman
THE INVESTORS:
------------------------------------
------------------------------------
------------------------------------
------------------------------------
<PAGE>
SCHEDULE 1
Name and Address
of Investor Amount of Note No. of Warrants Purchase Price
SCHEDULE 2
Subsidiaries
There are no subsidiaries other than BAPCO.
SCHEDULE 3(f)
Litigation, Proceedings: Defaults
There is no litigation, nor are there any
proceedings or defaults that have not
been disclosed in SEC Reports.
SCHEDULE 3(j)
Absence of Certain Changes or Events
There were no changes or events which have not been disclosed in SEC
Reports
SCHEDULE 3(k)
Absence of Litigation
There is no claim, action proceeding or litigation pending or
threatened which has not been disclosed in an SEC Report
SCHEDULE 3(l)
Labor Matters
None
SCHEDULE 3(m)
Title to and Sufficiency of Assets
There are Liens which have not been disclosed in an SEC Report
SCHEDULE 3(n-1)
Environmental Matters - Notice
None
SCHEDULE 3(n-2)
Environmental Compliance - Hazardous Waste
None
EXHIBITS
EXHIBIT A - Form of 5.5% Convertible Note due June __, 2000
EXHIBIT B - Form of Warrant
EXHIBIT C - Form of Registration Rights Agreement
EXHIBIT D - Opinion of Company Counsel
<PAGE>
EXHIBIT 4.7
This Note has not been registered under the Securities Act of 1933, as amended.
No transfer of this Note shall be valid or effective except in accordance with
the applicable requirements of the Securities Act of 1933, as amended.
CONVERTIBLE NOTE
As of June 24, 1998 New York, New York
$________________
FOR VALUE RECEIVED, ENVIRONMENTAL REMEDIATION HOLDING CORPORATION, a Colorado
corporation (the "Company"), hereby promises to pay to the order of
____________________, or any subsequent holder of this Note (the "Payee"), at
__________________, or at such other place as may be designated by the Payee
from time to time by notice to the Company, the principal sum of
_______________________Thousand ($__________________) Dollars, together with
interest from the date hereof on the unpaid principal amount hereof at an annual
rate equal to five and one-half percent (5.5%) per annum. Such principal and
interest shall be paid in accordance with the terms of Section 1 below, in cash
or by wire transfer to such account as the Payee shall direct, in immediately
available funds and in lawful currency of the United States of America.
1. PAYMENTS.
(a) Unless previously fully converted into Common Stock of the Company as herein
provided, the unpaid principal amount of this Note shall be payable to the Payee
in cash on June 23, 2000 (the "Maturity Date"); provided, however, that the
Company may, at its sole option, by written notice given to the Payee at any
time prior to the Maturity Date, make payment of the entire unpaid principal
amount of this Note on the Prepayment Date (as defined herein) by delivering to
the Payee such number of shares of Common Stock of the Company as shall be
determined by dividing (i) the entire principal amount of this Note remaining
unpaid on the Prepayment Date and interest , by (ii) the Conversion Price (as
herein defined) in effect on the Prepayment Date.
(b) Interest on the unpaid principal balance of this Note at the rate of five
and one-half percent (5.5%) per annum shall accrue from the date hereof and
shall be payable quarterly on the last day of each January, April, July and
October, commencing on July 31, 1998 (each an
<PAGE>
"Interest Payment Date"), until the entire unpaid principal amount hereof shall
have been paid.
(c) In the event that any payment of principal and/or interest hereunder becomes
due and payable on a Saturday, Sunday or other day on which commercial banks in
the State of New York are authorized or required by law to close, then the
maturity thereof shall be extended to the next succeeding business day; and
during any such extension, interest on principal amounts payable shall accrue
and be payable at the applicable rate.
2. REFERENCE TO SECURITIES PURCHASE AGREEMENT.
This Note is one of the Notes of the Company originally issued pursuant to that
certain Securities Purchase Agreement, dated as of ________, 1998, by and among
the Company, the above-named Payee and certain other parties (the "Securities
Purchase Agreement"). The holder hereof is entitled to the benefits of the
Securities Purchase Agreement and all Exhibits thereto, including all
"Transaction Documents" referred to therein, and may enforce the obligations of
the Company contained in the Securities Purchase Agreement and exercise the
remedies provided for therein or otherwise available in respect thereof.
Capitalized terms, unless otherwise defined herein, have the respective meanings
ascribed to them in the Securities Purchase Agreement.
3. RANKING OF NOTE.
Subject at all time to the subordination provisions set forth in Section 11
hereof, this Note, together with the other Notes issued pursuant to the
Securities Purchase Agreement, shall constitute senior securities of the Company
and, except as provided below, shall rank pari passu with all other indebtedness
for money borrowed by the Company and senior to any other indebtedness for money
borrowed of the Company which, by its terms shall be made expressly subject and
subordinated to this Note.
4. PREPAYMENT OF NOTE.
(a) Subject at all times to the holder's right to convert all or any portion of
this Note into Common Stock pursuant to Section 5 hereof at any time on or
before the 'Prepayment Date' (as herein defined), the principal amount of this
Note may be prepaid, at the option of the Company, upon not less than ten (10)
days' prior written notice to the holder of this Note (the "Prepayment Notice"),
in whole or in part, for an amount equal to one hundred twenty percent (120%) of
the
<PAGE>
principal amount prepaid, at any time or from time to time from and after the
date of the initial issuance of the Note (the "Issuance Date").
(b) Each Prepayment Notice shall specify the principal amount of this Note and
all other outstanding Notes to be redeemed and the applicable Prepayment Date.
Each prepayment of principal of this Note shall be accompanied by the payment of
all interest accrued and unpaid to the prepayment date on the amount so prepaid.
Each such prepayment shall be made by wire transfer of immediately available
funds or by bank cashier's check payable to the Payee and shall be on a date
(the "Prepayment Date") which shall be not earlier than five (5) business days
following delivery of the Note by the holder. Any partial prepayment of this
Note, whether optional or mandatory, shall be applied first to accrued and
unpaid interest hereon, and then to the outstanding principal amount of this
Note in the inverse order of maturity. In the event the Company fails to wire
transfer funds within the time provided herein, the Company shall be required to
pay the holder a sum equal to five (5%) percent per month until such prepayment
is made.
(c) Notwithstanding anything to the contrary set forth in this Section 4, in the
event and to the extent that the Company shall provide the holder of this Note
with a Prepayment Notice, it shall simultaneously provide to the holder of this
Note evidence of the availability of funds to effect such prepayment; which
evidence of availability of funds shall include, without limitation, (i)
confirmation of cash or cash equivalent bank balances, (ii) an irrevocable bank
letter of credit, or (iii) a written commitment from a recognized lending
institution to effect the financing of such prepayment.
5. CONVERSION.
Subject at all times to the Company's right to prepay the Notes as provided in
Section 4 hereof, the holders of the Notes shall have the following conversion
rights (the "Conversion Rights"):
(a) Voluntary Conversion. At any time or from time to time commencing (i) on the
60th day following the Issuance Date, the holder of this Note may elect to
convert up to thirty three and one-third (33-1/3 %) percent of the original
principal amount of this Note, (ii) an additional thirty three and one-third
(33-1/3%) percent of the original principal amount of this Note may be converted
every thirty (30) days thereafter and (iii) on the 120th day following the
Issuance Date, the holder of this Note may elect to convert one hundred (100%)
<PAGE>
percent of the original principal amount of this Note, into shares of Common
Stock of the Company, by written notice given to the Company in accordance with
the provisions of Section 5(h) hereof (the "Conversion Notice"). In no event may
the holder of this Note effect a conversion of less than $5,000 principal amount
of this Note. Subject to the foregoing, the holder of this Note may elect to
convert (a "Voluntary Conversion") all or any portion of the principal amount of
this Note held by such person into a number of fully paid and nonassessable
shares of Common Stock equal to the quotient which results when the Conversion
Price (as defined below) in effect as of the date of the Conversion Notice is
divided into the aggregate principal amount of all or any portion of this Note
outstanding plus all accrued but unpaid interest thereof to be so converted.
Such right of Voluntary Conversion shall be effected by the surrender of the
Note to be converted to the Company within five (5) business days of
transmission of the Conversion Notice at the office of the Company, accompanied
(i) by the original Conversion Notice, (ii) if so required by the Company, by
instruments of transfer, in form satisfactory to the Company, duly executed by
the registered holder or by his duly authorized attorney and (iii) transfer tax
stamps or funds therefore, if required pursuant to Section 5(g) herein.
(b) Automatic Conversion. Prior to _______, 2000, the Company shall not have the
right to compel any holder of Note to convert such Note into Common Stock or any
other securities of the Company. Effective as of ________, 2000, to the extent
not previously converted by the holders, all remaining principal amount of this
Note, together with all accrued interest hereon, shall automatically and without
further action on the part of such holders, be converted into Common Stock of
the Company at the Conversion Price then in effect.
(c) Conversion Price. Subject to adjustment from time to time as provided in
Section 5(d) below, the term "Conversion Price" shall mean the lowest of:
(i) 100% of the average of the Closing Bid Price (as defined below) for
the five (5) consecutive trading days immediately preceding the Issuance Date
(the "Issuance Date Conversion Price"); or
(ii) the product of multiplying (A) the average of the Closing Bid
Price for the five consecutive trading days preceding the applicable date of the
Conversion Notice on which all or part of this Note shall be converted, by (B)
eighty percent (80%).
As used herein, the term 'Closing Bid Price' shall mean the closing bid price
per share of the Company's Common Stock as reported by
<PAGE>
Bloomberg, L.P. ("Bloomberg"), on any one of the following exchanges which shall
be the primary exchange on which such Common Stock shall then be quoted; namely,
(a) the AMEX, (b) the NASDAQ National Market System ("NASDAQ NMS "), (c) the
NASDAQ System (other than the NASDAQ NMS), (d) the New York Stock Exchange, or
(e) the National Quotation Bureau, Inc. for quotes on the Electronic Bulletin
Board or the "Pink Sheets", as the case may be, for the applicable number of
consecutive trading days immediately preceding the Issuance Date, the date of
the Conversion Notice, or other applicable date specified in Section 5(d), as
the case may be.
(d) Adjustments of Conversion Price. The Conversion Price in effect from time to
time shall be, subject to adjustment in accordance with the provisions of this
Section 5(d).
(i) Adjustments for Stock Splits and Combinations. If the Company shall
at any time or from time to time after the Issuance Date, effect a stock split
of the outstanding Common Stock, the applicable Conversion Price in effect
immediately prior to the stock split shall be proportionately decreased (or in
increased in the case of a reverse stock split). If the Company shall, at any
time or from time to time after the Issuance Date, combine the outstanding
shares of Common Stock, the applicable Conversion Price in effect immediately
prior to the combination shall be proportionately increased. Any adjustments
under this Section 5(d)(i) shall be effective at the close of business on the
date the stock split or combination occurs.
(ii) Adjustments for Certain Dividends and Distributions. If the
Company shall at any time or from time after the Issuance Date, make or issue or
set a record date for the determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in shares of Common Stock,
then, and in each event, the applicable Conversion Price in effect immediately
prior to such event shall be decreased as of the time of such issuance or, in
the event such a record date shall have been fixed, as of the close of business
on such record date, by multiplying, as applicable, the applicable Conversion
Price then in effect by a fraction;
(A) the numerator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date; and
(B) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date
<PAGE>
plus the number of shares of Common Stock issuable in payment of such dividend
or distribution.
(iii) Adjustment for Other Dividends and Distributions. If the Company
shall at any time or from time to time after the Issuance Date, make or issue or
set a record date for the determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in other than shares of Common
Stock, then, and in each event, an appropriate revision to the Conversion Price
shall be made and provision shall be made (by adjustments of the Conversion
Price or otherwise) so that the holder of this Note shall receive upon
conversions thereof, in addition to the number of shares of Common Stock
receivable thereon, the number of securities of the Company which they would
have received had this Note been converted into Common Stock on the date of such
event and had thereafter, during the period from the date of such event to and
including the Conversion Date, retained such securities (together with any
distributions payable thereon during such period), giving application to all
adjustments called for during such period under this Section 5(d)(iii) with
respect to the rights of the holders of the Note.
(iv) Adjustments for Reclassification, Exchange or Substitution. If the
Common Stock issuable upon conversion of this Note at any time or from time to
time after the Issuance Date shall be changed into the same or different number
of shares of any class or classes of stock, whether by reclassification,
exchange, substitution or otherwise (other than by way of a stock split or
combination of shares or stock dividends provided for in Sections 5(d)(i), (ii)
and (iii), or a reorganization, merger, consolidation, or sale of assets
provided for in Section 5(d)(v)), then, and in each event, an appropriate
revision to the Conversion Price shall by made and provisions shall be made (by
adjustments of the Conversion Price of otherwise) so that the holder of this
Note shall have the right thereafter to convert such Note into the kind and
amount of shares of stock and other securities receivable upon reclassification,
exchange, substitution or other change, by holders of the number of shares of
Common Stock into which such Note might have been converted immediately prior to
such reclassification, exchange, substitution or other change, all subject to
further adjustment as provided herein.
(v) Adjustments for Reorganization, Merger, Consolidation or Sales of
Assets. If at any time or from time to time after the Issuance Date there shall
be a capital reorganization of the Company (other than by way of a stock split
or combination of shares or stock dividends or distributions provided for in
Section 5(d)(i), (ii) and (iii), or a reclassification, exchange or substitution
of shares
<PAGE>
provided for in Section 5(d)(iv)), or a merger or consolidation of the Company
with or into another corporation, or the sale of all or substantially all of the
Company's properties or assets to any other person, then as a part of such
reorganization, merger, consolidation, or sale, an appropriate revision to the
Conversion Price shall be made and provision shall be made (by adjustments of
the Conversion Price or otherwise) so that the holder of this Note shall have
the right thereafter to convert this Note into the kind and amount of shares of
stock and other securities or property of the Company or any successor
corporation resulting from such reorganization, merger, consolidation, or sale,
to which a holder of Common Stock deliverable upon conversion of such shares
would have been entitled upon such reorganization, merger, consolidation, or
sale, to which a holder of Common Stock deliverable upon conversion of such
shares would have been entitled upon such reorganization, merger, consolidation,
or sale. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 5(d)(v) with respect to the rights
of the holders of this Note after the reorganization, merger, consolidation, or
sale to the end that the provisions of this Section 5(d)(v) (including any
adjustment in the applicable Conversion Ratio then in effect and the number of
shares of stock or other securities deliverable upon conversion of this Note)
shall be applied after that event in as nearly an equivalent manner as may be
practicable.
(vi) Adjustments after Registration Statement is Effective.
Notwithstanding any other provision contained in this Section 5(d), the
Conversion Price shall be adjusted following the effective date of the Company's
registration statement on Form S-1 or any other appropriate registration form
(the "Registration Statement") filed with the Securities and Exchange Commission
("SEC") (the "Effective Date") as follows:
(A) for conversions beginning 90 days after the Effective
Date, the Conversion Price shall be equal to the lower of (1) the Issuance Date
Conversion Price; or (2) 77.5% of the average of the Closing Bid Price for the
five (5) days trading immediately preceding the date of the Conversation Notice;
and
(B) for conversions beginning 120 days after the Effective
Date, the Conversion Price shall be equal to the lower of (1) the Issuance Date
Conversion Price; or (2) 75.0% of the average of the Closing Bid Price for the
five (5) days trading immediately preceding the date of the Conversion Notice.
(e) No Impediment. The Company shall not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer
<PAGE>
of assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms to be observed or performed hereunder by the Company, but
will at all times in good faith, assist in the carrying out of all the
provisions of this Section 5 and in the taking of all such action as may be
necessary or Appropriate in order to protect the Conversion Rights of the holder
of the Note against impairment.
(f) Certificate as to Adjustments. Upon occurrence of each adjustment or
readjustment of the Conversion Price or number of shares of Common Stock
issuable upon conversion of the Note pursuant to this Section 5, the Company, at
its expense, shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish notice to each holder of such Note,
a certificate setting forth such adjustment and readjustment, showing in detail
the facts upon which such adjustment or readjustment is based. The Company shall
furnish or cause to be furnished to such holder a like certificate setting forth
such adjustments and readjustments, the applicable Conversion Price in effect at
the time and the number of shares of Common Stock and the amount, if any, of
other securities or property which at the time would be received upon the
conversion of such Note. Notwithstanding the foregoing, the Company shall not be
obligated to deliver a certificate unless such certificate would reflect an
increase or decrease of at least one percent of such adjusted amount.
(g) Issue Taxes. The Company shall pay any and all issue and other taxes,
excluding federal, state or local income taxes, that may be payable in respect
of any issue or delivery of shares of Common Stock on conversion of this Note
pursuant hereto; provided, however, that the Company shall not be obligated to
pay any transfer taxes resulting from any transfer requested by any holder in
connection with any such conversion.
(h) Notices and Delivery of Shares. All notices and other communications
hereunder shall be in writing and shall be deemed given and effective (i) on the
same date, if delivered personally or by facsimile by not later than 7:00 p.m.
New York time (with a courtesy copy of such facsimile simultaneously sent by fax
to Counsel for the Company), or (ii) three (3) business days following being
mailed by certified or registered mail, postage prepaid, return-receipt
requested, addressed to the holder of record at its address appearing on the
books of the Company. The Company shall, immediately upon receipt of a
Conversion Notice, issue and deliver to or upon the order of such Holder,
against delivery of the Notes which have been converted, a certificate or
certificates for the number of shares of
<PAGE>
Common Stock to which such Holder shall be entitled and such certificate or
certificates shall not bear any restrictive legend; provided, (i) the Common
Stock evidenced thereby are sold pursuant to an effective registration statement
under the Securities Act, (ii) the Holder provides the Company with an opinion
of counsel reasonably acceptable to the Company to the effect that a public sale
of such shares may be made without registration under the Securities Act, or
(iii) such Holder provides the Company with reasonable assurance that such
shares can be sold free of any limitations imposed by Rule 144, promulgated
under the Securities Act. The Company shall cause such issuance and delivery to
be effected within three (3) business days and shall transmit the certificates
by messenger or overnight delivery service, or via the DWAC system, to reach the
address designated by such Holder within three (3) business days after the
receipt of such notice.
The Company acknowledges and understands that a delay in the issuance of the
Common Stock upon conversion according to the provisions hereof could result in
economic loss to the Holder of the Note. As compensation to any Holder when the
Company has failed with respect to such Holder to comply with the Company's
obligations hereunder, and not as a penalty, the Company shall pay to such
Holder liquidated damages of an amount equal to two percent (2%) of the total
principal sum of that portion of Notes of such Holder to be converted for each
thirty (30) day period after the date on which the Common Stock should have been
issued by the Company (the "Delivery Date" -- i.e., the end of the three (3)
business day period described in the preceding paragraph). Amounts payable shall
be pro-rated daily as to a periods of less than thirty (30) days. Such amounts
shall be paid to the Holder at the end of each month in which such amounts have
accrued. Payment shall be made immediately by cashier's check or wire transfer
in immediately available funds to such account as shall be designated in writing
by the Holder. Each Holder shall be entitled to an injunction or injunctions to
prevent or cure breaches of the provisions of hereof and to enforce specifically
the terms and provisions hereof, this being in addition to any other remedy to
which a Holder may be entitled by law or equity. . (i) Fractional Shares. No
fractional shares of Common Stock shall be issued upon conversion of the Note.
In lieu of any fractional shares to which the holder would otherwise be
entitled, the Company shall pay cash equal to the product of such fraction
multiplied by the last trade price of one share of the Company's Common Stock on
the applicable Conversion Date.
<PAGE>
(j) Reservation of Common Stock. The Company shall at all times reserve and keep
available, out of its authorized but unused shares of Common Stock, solely for
the purpose of effecting the conversion of the Note, the full number of shares
deliverable upon conversion of all the Note from time to time outstanding. The
Company shall, from time to time in accordance with the Colorado General
Corporations Law, as amended, increase the authorized number of shares of Common
Stock if at any time the unused number of authorized shares shall not be
sufficient to permit the conversion of all of the Note at the time outstanding.
In such connection, the Company shall hold a special meeting of stockholders for
the purpose of authorizing additional shares of Common Stork not later than 120
days after any date in which the Company shall have insufficient shares of
Common Stock so reserved.
(k) Retirement of Note. Conversion of this Note shall be deemed to have been
effected on the applicable Conversion Date. The converting holder shall be
deemed to have become a stockholder of record of the Common Stock on the
applicable Conversion Date. Upon conversion of only a portion of this Note, the
Company shall issue and deliver to such holder at the expense of the Company,
against receipt of the original note delivered for partial cancellation, a new
Note representing the unconverted portion of this Note so surrendered.
(l) Regulatory Compliance. If any shares of Common Stock to be reserved for the
purpose of conversion of this Note require registration or listing with or
approval of any government authority, stock exchange or other regulatory body
under any federal or state law or regulation or otherwise before such shares may
be validly issued or delivered upon conversion, the Company shall, at its sole
cost and expense, in good faith and as expeditiously as possible, endeavor to
secure such registration, listing or approval, as the case may be.
6. EVENTS OF DEFAULT.
The occurrence and continuance of any one or more of the following events is
herein referred to as an Event of Default:
(a) If the Company shall default in converting the applicable principal amount
of this Note into Common Stock and delivering stock certificates in respect of
such conversion by the Delivery Date; or
(b) If the Company shall default in the payment of any installment of interest
on this Note when payable in accordance with the terms thereof for more than ten
(10) calendar days after the same shall become due; or
<PAGE>
(c) If the Company shall not, at the time of receipt of a Conversion Notice
hereunder, have a sufficient number of authorized and unissued shares of its
Common Stock available for issuance to the holder of this Note upon conversion
of all or any portion of this Note in accordance with the terms hereof, and such
default shall not have been remedied within thirty (30) calendar days from the
date of such Conversion Notice; or
(d) If the Company shall default in the performance of or compliance with any of
its material covenants or agreements contained herein or in the Securities
Purchase Agreement, and such default shall not have been remedied within fifteen
(15) calendar days after written notice thereof shall have been delivered to the
Company by the holder of this Note; or
(e) If any representation or warranty made in writing by or on behalf of the
Company in the Securities Purchase Agreement or in connection with the
transactions contemplated thereby shall prove to have been false or incorrect in
any material respect on the date as of which made; or
(f) If the Company or any of its Significant Subsidiaries shall make an
assignment for the benefit of creditors, or shall admit in writing its inability
to pay its debts as they become due, or shall file a voluntary petition in
bankruptcy or shall have an order for relief under the Bankruptcy Act granted
against it or them, or shall be adjudicated a bankrupt or insolvent, or shall
file any petition or answer seeking for itself any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under any
present or future statute, law or regulation, or shall file any answer admitting
or not contesting the material allegations of a petition filed against the
Company or any of its Significant Subsidiaries in any such proceeding, or shall
seek or consent to or acquiesce in the appointment of any trustee, custodian,
receiver or liquidator of the Company or of all or any substantial part of the
properties of the Company or any of its Significant Subsidiaries, or the Company
or its directors shall take any action looking to the dissolution or liquidation
of the Company or any of its Significant Subsidiaries. For purposes of this
Section 6(f), the term Significant Subsidiary shall mean and include Bass
American Petroleum Corp. and any other person, firm or corporation (i) more than
50% of the common stock or equity interests of which are owned of record by the
Company or any Subsidiary of the Company, and (ii) the net income before taxes
or total assets of which represent more than 15% of the consolidated net income
before taxes or consolidated assets of the Company and all of its Subsidiaries;
of
<PAGE>
(g) If, within sixty (60) days after the commencement of any proceeding against
the Company or any Significant Subsidiary seeking any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any present or future statute, law or regulation, such proceeding
shall not have been dismissed, or if, within sixty (60) days after the
appointment, without the consent or acquiescence of the Company or any
Significant Subsidiary, of any trustee, receiver or liquidator of the Company or
any Significant Subsidiary or of all or any substantial part of the properties
of the Company or any Significant Subsidiary, such appointment shall not have
been vacated.
7. REMEDIES ON DEFAULT; ACCELERATION.
Upon the occurrence and during the continuance of an Event of Default, the
entire unpaid balance of principal and accrued interest on this Note may be
accelerated and declared to be immediately due and payable by the Payee. Whether
or not the Notes is accelerated or declared to be immediately due and payable by
the Payee, the Company agrees to pay the maximum rate of interest permitted
under New York law from the date any payment of principal and/or interest was
due until the date payment of such amount is actually made. Unless waived by the
written consent of persons holding 66-2/3 % or more in aggregate principal
amount of the Notes of the Company issued under the Securities Purchase
Agreement (including the Payee), the Payee and other holders of any of the Notes
at the time outstanding may proceed to protect and enforce the rights of such
holder by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained herein, or for
an injunction against a violation of any of the terms hereof, or in aid of the
exercise of any power granted hereby or by law. In the event of an Event of
Default, the Company agrees to pay to the holder of this Note such further
amount as shall be sufficient to cover the cost and expense of collection,
including, without limitation, reasonable attorneys' fees and expenses and
reasonable costs of investigation. If the holder of any Note shall give any
notice or take any action in respect of a claimed default, the Company will
forthwith give written notice thereof to the holder of this Note at the time
outstanding describing the notice or action and the nature of the claimed
default. No course of dealing and no delay on the part of the holder of this
Note or the holder of any other Note in exercising any right, power or remedy
shall operate as a waiver thereof or otherwise prejudice such holder's rights,
powers and remedies. No right, power or remedy conferred hereby upon the holder
hereof shall be exclusive of any other right, power or remedy referred to herein
nor now or hereafter available at law, in equity, by statute or otherwise.
<PAGE>
8. WAIVER OF PRESENTMENT; MAXIMUM RATE OF INTEREST
(a) The Company and each surety, endorser, and guarantor or other party liable
for the payment of any sums of money payable on this Note severally waive all
demands for payment, presentations for payment, notices of dishonor, notices of
intention to accelerate maturity, notices of acceleration of maturity, protests,
and notices of protest, to the extent required by law.
(b) It is expressly stipulated and agreed to be the intent of the Company and
the Holders of this Note at all times to comply with the applicable law
governing the maximum rate of interest payable on or in connection with all
indebtedness and transactions hereunder (or applicable United States federal law
to the extent that it permits holders of this Note to contract for, charge,
take, reserve or receive a greater amount of interest). If the applicable law is
ever judicially interpreted so as to render usurious any amount of money or
other consideration called for hereunder, or contracted for, charged, taken,
reserved or received with respect to any loan or advance hereunder, or if
acceleration of the maturity of the Note or the indebtedness hereunder or if any
prepayment by the Company results in the Company's having paid any interest in
excess of that permitted by law, then it is the Company's and Holders' express
intent that all excess cash amounts theretofore collected by holder by credited
on the principal balance of this Note (or if this Note has been or would thereby
be paid in full, refunded to the Company), and the provisions of this Note
immediately be deemed reformed and the amounts thereafter collectible hereunder
reduced, without the necessity of the execution of any new document, so as to
comply with the applicable law, but so as to permit the recovery of the fullest
amount otherwise called for hereunder. The right to accelerate maturity of this
Note does not include the right to accelerate any interest which has not
otherwise accrued on the date of such acceleration, and Holder does not intend
to collect any unearned interest in the event of acceleration.
9. NOTICES.
All notices, requests, demands or other communications under this Note shall be
given in the same manner as provided in the Securities Purchase Agreement.
10. GOVERNING LAW; RESOLUTION OF DISPUTES
(a) This Note shall be governed by, and construed and interpreted in accordance
with, the laws of the State of New York, without giving effect to conflict of
law principles.
<PAGE>
(b) Any dispute regarding the interpretation or application of this Note which
cannot be settled among the parties shall be resolved in Austin, Texas final and
binding arbitration in accordance with the then obtaining rules of the American
Arbitration Association. There shall be appointed three arbitrators, one of whom
shall be selected by the Company, the second by the Holder and the third by
mutual agreement of the parties or by the American Arbitration Association. The
decision of the arbitrators shall be final and upon the Holder and the Company
and may be enforced by the prevailing party or parties in any court of competent
jurisdiction. Each party shall bear their own costs of the arbitration and shall
share equally the costs of the arbitrators.
11. SUBORDINATION TO SENIOR DEBT.
(a) Payment of the principal of and interest on this Note and all other Notes
issued under the Securities Purchase Agreement is subordinated, to the extent
and in the manner provided herein, to the prior payment of all indebtedness of
the Company and/or all Subsidiaries of the Company, for money borrowed or other
obligations which is now or may hereafter be owed (collectively, "Senior Debt")
to any bank, commercial finance company, factor, insurance company or other
institution the lending activities are regulated by law (individually, a "Senior
Lender" and collectively, "Senior Lenders"), which may, hereafter on any one or
more occasions provide financing to the Company or any of its Subsidiaries,
secured by liens on any of the assets and properties of the Company and/or any
of its Subsidiaries (individually and collectively, an "Institutional
Borrower").
(b) Upon any payment or distribution of assets or securities of the
Institutional Borrower, as the case may be, of any kind or character, whether in
cash, property or securities, upon any dissolution or winding up or total or
partial liquidation or reorganization of the Institutional Borrower, whether
voluntary or involuntary or in bankruptcy, insolvency, receivership or other
proceedings, all amounts payable under Senior Debt shall first be paid in full
in cash, or payment provided for in cash or cash equivalents, before the holder
hereof shall be entitled to receive any payment on account of principal of or
interest on this Note. Before any payment may be made by the Institutional
Borrower of the principal of or interest on this Note upon any such dissolution
or winding up or liquidation or reorganization, any payment or distribution of
assets or securities of the Institutional Borrower of any kind or character,
whether in cash, property or securities, to which the holder hereof would be
entitled, except for the provisions of this Section 11, shall be made by the
Institutional Borrower or by any receiver, trustee in bankruptcy,
<PAGE>
liquidating trustee, agent or other person making such payment or distribution,
directly to the holders of Senior Debt or their representatives to the extent
necessary to pay all such Senior Debt in full after giving effect to any
concurrent payment or distribution to the holders of such Senior Debt.
(c) Upon the happening of any default in payment of the principal of or interest
on any Senior Debt, then, unless and until such default shall have been cured or
waived or shall have ceased to exist, no direct or indirect payment in cash,
property or securities, by set-off or otherwise, shall be made or agreed to be
made by the Institutional Borrower on account of the principal of or interest on
this Note.
(d) Upon the happening of an event of default (other than under circumstances
when the terms of Section 11(c) above are applicable) with respect to any Senior
Debt pursuant to which the holder thereof is entitled under the terms of such
Senior Debt to accelerate the maturity thereof, and upon written notice thereof
given to each of the Institutional Borrower and the holder of this Note by such
holder of Senior Debt ("Payment Notice"), then, unless and until such event of
default shall have been cured or waived or shall have ceased to exist, no action
shall or may be taken for collection of any amounts under this Note, and no
direct or indirect payment in cash, property or securities, by set-off or
otherwise, shall be made or agreed to be made by the Institutional Borrower an
account of the principal of or interest on this Note until such Senior Debt has
been paid in full accordance with its terms.
(e) In the event than, notwithstanding the provisions of this Section 11, any
payment shall be made on account of the principal of or interest on this Note in
contravention of such provisions, then such payment shall be held for the
benefit of, and shall be paid over and delivered to, the holders of such Senior
Debt remaining unpaid to the extent necessary to pay in full the principal of
and interest on such Senior Debt in accordance with its terms after giving
effect to any concurrent payment or distribution to the holders of such Senior
Debt.
(f) Nothing contained in this Section 11 shall (i) impair the conversion rights
of the holder hereof referred to in Section 5 above, (ii) impair, as between the
Company and the holder of this Note, the obligation of the Company, which is
absolute and unconditional, to pay to the holder hereof principal and interest
as the same shall become due and payable, or (iii) prevent the holder hereof
from exercising all rights, powers and remedies otherwise provided herein, in
the Securities Purchase Agreement or by applicable law, all subject to the
express limitations provided herein.
<PAGE>
(g) Upon the occurrence of an Event of Default, if any Senior Debt shall then be
outstanding, no acceleration of the maturity of this Note shall be effective
until the earlier of (i) ten (10) days shall have passed following the date of
delivery to the Institutional Borrower by a Senior Lender(s) of written notice
of acceleration of any Senior Debt, or (ii) the maturity of any then outstanding
Senior Debt shall have been accelerated by reason of a default hereon. The
Company may pay the holder hereof any defaulted payment and all other amounts
due following any such acceleration of the maturity of this Note if this Section
11 would not prohibit such payment to be made at that time.
(h) Upon payment in full of all Senior Debt, the Payee of this Note shall be
subrogated to the rights of the holder or holders of Senior Debt to receive all
payments or distributions applicable on Senior Debt to the extent of the prior
application thereto of moneys or other assets which would have been received in
respect of this Note, but for these subordination provisions, until the
principal of, and interest on, this Note shall have been paid in full.
(i) The Payee, by accepting this Note (A) shall be bound by all of the foregoing
subordination provisions; and (B) agrees expressly for the benefit of the
present and future holders of Senior Debt that this Note is subject to the
foregoing subordination provisions.
(j) The foregoing subordination provisions shall be for the benefit of all
holders of Senior Debt from time to time outstanding, and each of such holders
may proceed to enforce such provisions either directly against the holder hereof
or in any other manner provided by law.
(k) Notwithstanding anything to the contrary set forth in this Section 11, the
interest of the Holder of this Note (as specified in Section 12 hereof) is
subject and subordinated only to the prior first lien and security interest of
any holder of Senior Debt of the Company, unless otherwise expressly consented
to in writing by the Payee.
12. SUCCESSORS AND ASSIGNS.
This Note shall be binding upon and inure to the benefit of the Company and the
holder hereof and their respective successors and assigns; provided, however,
that the Company may not transfer or assign any of its rights or obligations
hereunder without the prior written consent of the holder hereof.
IN WITNESS WHEREOF, the Company has caused this Note to be executed by its duly
authorized officers as of the date first set forth above.
ENVIRONMENTAL REMEDIATION HOLDING
CORPORATION
By: ________________________________________
Sam Bass, Chairman
Attest:
- --------------------------------
<PAGE>
EXHIBIT 4.8
WARRANT TO PURCHASE SHARES OF COMMON STOCK OF ENVIRONMENTAL
REMEDIATION HOLDING CORPORATION
________________ Shares As of June 24, 1998 New York, New York
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT") AND SUCH SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
VOID AFTER 5:00 P.M., NEW YORK TIME
ON June 23, 2003
THIS CERTIFIES THAT for value received, _______________________, or their
registered permitted assigns (sometimes hereinafter referred to as the
"Holder"), may subscribe for and purchase, subject to the terms and conditions
hereof, from ENVIRONMENTAL REMEDIATION HOLDING CORPORATION, a Colorado
corporation (the ("Company"), an amount of shares of common stock of the
Company, par value $0.0001 per share (the "Common Stock") equal to 12.4% of the
amount of the Note, as set forth and defined in Section 1(e) hereto, at any time
during the period (the "Exercise Period") from 9:00 am. New York Time on the
Effective Date (as such term is hereinafter defined) and ending at 5:00 p.m. New
York Time, on June 23, 2003 (the "Expiration Date"), at an exercise price equal
to an amount per share to be determined by formula (the "Exercise Price"); such
Exercise Price being 120% of the average of the Closing Bid Price of the
Company's Common Stock for each of the five (5) consecutive trading days ending
on the day prior to the issuance date set forth above. The number of shares of
Common Stock purchasable upon exercise of this Warrant (the "Warrant"), the
Exercise Price, and the kind of securities purchasable upon exercise of this
Warrant, shall be subject to adjustment from time to time upon the occurrence of
certain events as set forth below. The shares of Common Stock receivable upon
exercise of this Warrant, as adjusted from time to time, are sometimes referred
to hereinafter as "Exercise Shares."
1. Exercise Price and Expiration.
(a) This Warrant may be exercised in whole or in part on any Business Day (as
such term is hereinafter defined) at any time during the Exercise Period upon
surrender to the Company, at its address for notices set forth in Section 9 of
this Warrant (or at such other office of the Company, if any, or such other
office of the Company's duly authorized agent for such purpose, as may be
maintained by the Company for such purpose and so designated by the Company by
written notice to the Holders prior to such exercise), together with the
following: (i) a duly completed and executed Notice of Warrant Exercise in the
form annexed hereto, and (ii) payment of the full Exercise Price for this
Warrant or the portion thereof then being exercised. This Warrant and all rights
and options hereunder shall expire on, and shall be immediately wholly null and
void to the extent the Warrant is not properly exercised prior to the
Expiration. As used in this Warrant the term "Business Day" shall mean the time
period between 9:00 a.m. New York, New York Time and 5:00 p.m. New York, New
York Time on any day other than any Saturday, Sunday, or other day on which
commercial banks in New York, New York are required or are authorized by law to
close.
(b) Such Exercise Price shall be paid in lawful money of the United States of
America by bank cashier's check or by wire transfer of immediately available
funds to such account as shall have been designated in writing by the Company to
the Holders from time to time.
(c) The Company shall, immediately upon receipt of a notice of exercise, issue
and deliver to or upon the order of such Holder, against delivery of the Warrant
and payment of the Exercise Price, a certificate or certificates for the number
of shares of Common Stock to which such Holder shall be entitled and such
certificate or certificates shall not bear any restrictive legend; provided, (i)
the Common Stock evidenced thereby are sold pursuant to an effective
<PAGE>
registration statement under the Securities Act, (ii) the Holder provides the
Company with an opinion of counsel reasonably acceptable to the Company to the
effect that a public sale of such shares may be made without registration under
the Securities Act, or (iii) such holder provides the Company with reasonable
assurance that such shares can be sold free of any limitations imposed by Rule
144, promulgated under the Securities Act. The Company shall cause such issuance
and delivery to be effected within three (3) business days and shall transmit
the certificates by messenger or overnight delivery service, or via the DWAC
system, to reach the address designated by such Holder within three (3) business
days after the receipt of such notice. The Holders shall be deemed to be the
Holders of record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such shares of Common Stock shall not
then be actually delivered to the Holders. If, at the time this Warrant is
exercised, a registration statement under the Securities Act is not then in
effect to register the Exercise Shares under said Securities Act the Exercise
Shares issuable upon exercise of this Warrant (together with any applicable
state securities law registrations), the Company may require the Holders to make
such representations, and may place such legends on certificates representing
the Exercise Shares, as may be reasonably required in the opinion of counsel to
the Company to permit the Exercise Shares to be issued without such
registration, unless the Company receives an opinion of counsel reasonably
satisfactory to counsel to the Company to the effect that said securities may be
freely traded without registration under the Securities Act.
(d) If the Holders shall exercise this Warrant with respect to less than all of
the Exercise Shares that may then be purchased under this Warrant, having taken
into account any prior exercise of the Warrant, the Company shall promptly
execute and deliver to the Holders a new warrant in the form of this Warrant for
the balance of such Exercise Shares.
(e) For purposes of the Warrant, the term "Effective Date" shall mean the date
that the holder of this Warrant shall have purchased from the Company $
____________ principal amount of the Company's 5.5% convertible note due June
23, 2000 (the "Note") pursuant to the Securities Purchase Agreement, dated as of
June 24, 1998 (the "Securities Purchase Agreement"). Unless otherwise defined
herein, all capitalized terms used in this Warrant shall have the same meaning
as is defined in the Securities Purchase Agreement or in the Note.
2. Anti-dilution.
If the Company shall
(a) pay a dividend or make a distribution to holders of shares of Company Common
Stock in the form of additional shares of Common Stock,
(b) subdivide or split or reverse split or consolidate the outstanding shares of
Common Stock into a larger or smaller number of shares, or
(c) effect a recapitalization which shall reclassify the outstanding shares of
Common Stock into one or more classes of common stock,
the number of shares of Common Stock issuable upon exercise of this Warrant and
the Exercise Price shall be equitably and proportionately adjusted immediately
following the occurrence of any such event, and the Holder of record of this
Warrant shall be given notice of the same at such Holder's address in the
Company's books and records. An adjustment made pursuant to this Section shall
become effective immediately after the record date in the case of a dividend or
distribution and immediately after the effective date in the case of a
subdivision, split, combination or reclassification; provided, if such record
date shall have been fixed and such dividend is not fully paid or if such
distribution is not fully made on the date fixed therefor, the exercise price
shall be recomputed accordingly as of the close of business on such record date
and thereafter such exercise price in effect shall be as adjusted pursuant to
this Section as of the time of actual payment of such dividend or distribution.
3. Reorganization and Asset Sales.
If any capital reorganization or reclassification of the capital stock of the
Company, or any consolidation or merger of the Company with another corporation,
or the sale of all or substantially all of the assets or properties of the
Company to another corporation, shall be effected in such a manner so that
holders of Company Common Stock shall be entitled to receive stock, securities
or assets with respect to or in exchange for Company Common Stock, then, and in
such event, the following provisions shall apply:
<PAGE>
(a) Not more than 90 or less than 30 days prior to the consummation of any such
reorganization, reclassification, consolidation, merger or sale (collectively,
"Reorganization Transactions"), the Company shall notify the Holders of the
Reorganization Transaction (at the same time notice of same shall be made
generally available to other holders of Company Common Stock), describing in
such notice in reasonable detail the terms of the Reorganization Transaction and
the stock, securities or assets to be received with respect to or in exchange
for Common Stock of the Company. In the event the Holders exercise the Warrant
prior to or simultaneous with the consummation of the Reorganization
Transaction, the Holders shall be entitled to receive stock, securities or
assets with respect to or in exchange for Common Stock on the same basis as the
other holders of Company Common Stock participating in the Reorganization
Transaction.
(b) The Company shall not effect any such Reorganization Transaction unless
prior to or simultaneous with the consummation thereof, the successor
corporation (if other than the Company) resulting therefrom shall assume by
written instrument executed and made available to the Holders at the last
address of the Holders appearing on the books of the Company, the obligation to
deliver to the Holders such shares of stock, securities or assets, as, in
accordance with the foregoing provisions, the Holders may be entitled to
receive, and all other liabilities and obligations of the Company hereunder. In
the event the Holders of this Warrant shall not exercise the Warrant prior to or
simultaneous with consummation of the Reorganization Transaction, such Holders
shall be entitled to receive a warrant to purchase common stock in the successor
corporation (if other than the Company) which shall be appropriately adjusted as
to exercise price, number of shares which may be purchased thereunder and other
terms, so as to equitably reflect the Reorganization Transaction and entitle the
Holder to purchase that number of shares of common stock of the successor
corporation equivalent in value to the consideration that such Holder would have
received had Holder exercised this Warrant immediately prior to or
simultaneously with such Reorganization Transaction.
(c) If a purchase, tender or exchange offer is made to and accepted by the
holders of more than 50 percent of the outstanding shares of Common Stock of the
Company, the Company shall, prior to the consummation of any consolidation,
merger or sale to or with the person, firm or corporation having made such offer
or any affiliate of such person, firm or corporation, give the Holders a
reasonable opportunity of not less than 10 days to elect to receive upon the
exercise of this Warrant, either the stock, securities or assets then issuable
with respect to the Common Stock of the Company or the stock, securities or
assets, or the equivalent, issued to previous holders of the Common Stock in
accordance with such purchase tender or exchange offer.
4. Notice of Adjustment.
Whenever the Exercise and the number of Exercise Shares issuable upon the
exercise of this Warrant shall be adjusted as herein provided, or the rights of
the Holders shall change by reason of other events specified herein, the Company
shall compute the adjusted Exercise Price and the number of adjusted Exercise
Shares in accordance with the provisions hereof and shall prepare a certificate
signed by its Chief Executive Officer, or its President, or its Chief Financial
Officer, setting forth the adjusted Exercise Price and the adjusted number of
Exercise Shares issuable upon the exercise of this Warrant or specifying the
other shares of stock, securities, or assets receivable as a result of such
changes in rights, and showing in reasonable detail the facts and calculations
upon which such adjustments or other changes are based. The Company shall caused
to be mailed to the Holders copies of such officer's certificate together with a
notice stating that the Exercise Price and the number of Exercise Shares
purchasable upon exercise of this Warrant have been adjusted and setting, forth
the adjusted Exercise Price and the adjusted number of Exercise Shares
purchasable upon the exercise of this Warrant.
5. Piggyback Registration Rights.
(a) At any time that the Company proposes to file a Company registration
statement on Form S-1 or any other appropriate registration form under the
Securities Act of 1933, as amended (the "Registrations Statement"), either for
its own account or for the account of a stockholder or stockholders, the Company
shall give the Holder written notice of its intention to do so and of the
intended method of sale (the "Registration Notice") within a reasonable time
prior to the anticipated filing date of the Company's Registration Statement
effecting such Company registration. Holder may request inclusion of any which
are issued as with restrictions on transferability ("Restricted Securities") in
such Registration
<PAGE>
Statement by delivering to the Company, within ten (10) Business Days after
receipt of the Registration Notice, a written notice (the "Piggyback Notice")
stating the number of Restricted Securities proposed to be included and that
such shares are to be included in any underwriting only on the same terms and
conditions as the shares of Common Stock otherwise being sold through
underwriters under such Company Registration Statement. The Company shall use
its best efforts to cause all Restricted Securities specified in the Piggyback
Notice to be included in the Company Registration Statement and any related
offering, all to the extent requisite to permit the sale by the Holder of its
Restricted Securities in accordance with the method of sale applicable to the
other shares of Common Stock included in such Company Registration Statement;
provided, however, that if, at any time after giving written notice of its
intention to register any securities and prior to the effective date of the
Company Registration Statement filed in connection with such registration, the
Company shall determine for any reason not to register or to delay registration
of Holder's Restricted Securities, the Company may, at its election, give
written notice of such determination to Holder and, thereupon:
(i) in the ease of a determination not to register, shall be relieved
of its obligation to register Holder's Restricted Securities in connection with
such registration, and
(ii) in the case of a delay in registering, shall be permitted to delay
registering Holder's Restricted Securities for the same period as the delay in
registering such other securities.
(b) The Company's obligation to include Restricted Securities in a Company's
Registration Statement pursuant to Section 7(a) shall be subject to the
following limitations:
(i) The Company shall not be obligated to include any Restricted
Securities in a registration statement filed on Form S-4, Form S-8 or such other
similar successor forms then in effect under the Securities Act.
(ii) If a Company Registration Statement involves an underwritten
offering and the managing underwriter advises the Company in writing that in its
opinion, the number of securities requested to be included in such Company
Registration Statement exceeds the number which can be sold in such offering
without adversely affecting the offering, the Company shall include in such
Company Registration Statement the number of such securities which the Company
is so advised can be sold in such offering without adversely affecting the
offering, determined as follows:
(A) first, the securities proposed by the Company to be sold
for it own account, and
(B) second, any Restricted Securities requested to be included
in such registration and any other securities of the Company in accordance with
the priorities, if and then existing among the holders of such securities pro
rata among the holders thereof requesting such registration on the basis of the
number of shares of such securities requested to be included by such holders.
(iii) The Company shall not be obligated to include Restricted
Securities in more than one (1) Company Registration Statement.
(c) To the extent Holder's Restricted Securities are intended to be included in
a Company Registration Statement, Holder may include any of its Restricted
Securities in such Company Registration Statement pursuant to this Agreement
only if Holder furnishes to the Company in writing, within ten (10) business
days after receipt of a written request therefor, such information specified in
Item 507 of Regulation S-K under the Act or such other information as the
Company may reasonably request for use in connection with the Company
Registration Statement or Prospectus or preliminary Prospectus included therein
and in any application to the NASD. Holder as to which the Company Registration
Statement is being effected agrees to furnish promptly to the Company all
information required to be disclosed in order to make all information previously
furnished to the Company by Holder not materially misleading.
6. Certain Representations of the Company.
Throughout the Exercise Period, the Company has
(a) all requisite power and authority to issue this Warrant and the
Exercised Shares, and
<PAGE>
(b) sufficient authorized and unissued securities of Common Stock to
permit exercise of this Warrant.
7. Certain Covenants of the Company.
(a) The Company shall take such steps as are necessary to cause the Company to
continue to have sufficient authorized and unissued shares of Common Stock
reserved in order to permit the exercise of the unexercised and unexpired
portion of this Warrant, if any.
(b) The Company covenants and agrees that all Exercise Shares issued upon the
due exercise of this Warrant will, upon issuance in accordance with the terms
hereof, be duly authorized, validly issued, fully paid and non-assessable and
free and clear of all taxes, liens, charges, and security interests created by
the Company with respect to the issuance thereof.
(c) The Company will pay all documentary stamp taxes, if any, attributable to
the initial issuance of Exercise Shares upon the exercise of this Warrant;
provided, that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issue of this Warrant or of
any certificates for Exercise Shares in a name other than that of the Holders
upon the exercise of this Warrant, and the Company shall not be required to
issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax, or shall have established to the satisfaction of the Company that such
tax has been paid.
(d) This Warrant and, when issued, the shares of Common Stock which may be
issued upon exercise of the Warrants, when so issued, will have been issued,
pursuant to an available exemption from registration under the Securities Act,
and the securities laws of the state of residency of the Holder.
(e) The Company covenants and agrees that if it fails (i) to register the
Exercise Shares as provided in a Registration Rights Agreement between the
Holders and the Company, dated of even date herewith, or (ii) issue the shares
of Common Stock upon the proper exercise of the Warrant, then, in additional to
all rights to liquidated damages set forth in the Registration Rights Agreement,
the Holders may immediately commence an action for specific performance and/or
damages. The Company agrees that any judgment entered therein shall include all
reasonable attorney's fees and costs of any kind or nature, whatsoever,
including but not limited to expert witness fees, service fees and filing fees
incurred by the Holders, in conjunction with said action, and if damages are
sought, the Holders shall be entitled to interest at the rate of 12% per annum
on any damage award from the date of exercise.
8. No Shareholder Rights.
No Holders of this Warrant shall, as such, be entitled to vote or be deemed the
holder of Common Stock or any other kind of securities of the Company, nor shall
anything contained herein be construed to confer upon the Holders the rights of
a shareholder of the Company or the right to vote for the election of directors
or upon any matter submitted to shareholders at any meeting thereof, or give or
withhold consent to any corporate action or to receive notice of meetings or
other actions affecting shareholders (except as otherwise expressly provided
herein), or to receive dividends or subscription rights or otherwise, until the
date of Holders proper exercise of this Warrant as described herein.
9. Notices.
Any notice, demand, request, waiver or other communication under this Agreement
must be in writing and will be deemed to have been duly given (i) on the date of
delivery if delivered by hand to the address of the party specified below
(including delivery by courier), or (ii) on the fifth day after deposit in the
U.S. Mail if mailed to the party to whom notice is to be given to the address
specified below, by first class mail, certified or registered, return receipt
requested, First Class postage prepaid, to the Company and to the Holder at the
addresses specified in the Securities Purchase Agreement.
With a copy sent concurrently to:
Greenberg Traurig Hoffman
Lipoff Rosen & Quentel
Met Life Building
200 Park Avenue
New York, New York 10166
Attention: Stephen A. Weiss, Esq.
Tel: (212) 801-9200
Fax: (212) 801-6400
-and-
Mintmire & Associates
265 Sunrise Avenue, Suite 204
Palm Beach, Florida 33480
Attention: Donald F. Mintmire, Esq.
Tel: (561) 832-5696
Fax: (561) 659-5371
<PAGE>
Any party may from time to time change its address for the purpose of notices to
that party by a similar notice specifying a new address, but no such change will
be deemed to have been given until it is actually received by the party sought
to be charged with its contents.
10. General.
(a) This Warrant shall be governed by and construed in accordance with the laws
of the State of New York without regard to its conflict of law provisions.
(b) Any dispute regarding the interpretation or application of this Warrant
which cannot be settled among the parties shall be resolved in Austin, Texas
final and binding arbitration in accordance with the then obtaining rules of the
American Arbitration Association. There shall be appointed three arbitrators,
one of whom shall be selected by the Company, the second by the Holder and the
third by mutual agreement of the parties or by the American Arbitration
Association. The decision of the arbitrators shall be final and upon the Holder
and the Company and may be enforced by the prevailing party or parties in any
court of competent jurisdiction. Each party shall bear their own costs of the
arbitration and shall share equally the costs of the arbitrators.
(c) Section and subsection headings used herein are included herein for
convenience of reference only and shall not affect the construction of this
Warrant or constitute a part of this Warrant for any other purpose.
(D) This Warrant may be executed simultaneously in any number of counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the Same instrument when instruments originally executed by
each party shall have been received by the Company.
IN WITNESS WHEREOF, the parties have executed this Agreement on and as of the
date first set forth above.
ENVIRONMENTAL REMEDIATION HOLDING
CORPORATION
By: ___________________________________________
James A. Griffin, Secretary
HOLDER:
-----------------------------------------------
<PAGE>
NOTICE OF WARRANT EXERCISE
TO: ENVIRONMENTAL REMEDIATION HOLDING CORPORATION:
The undersigned hereby irrevocably elects to exercise the Warrant and
to purchase thereunder _______ full shares of Common Stock issuable upon the
exercise of such Warrant. The Exercise Price for this warrant shall be paid by
delivery of $ _____________ In cash as provided for in the Warrant.
The undersigned requests that certificates for such Exercise Shares be
issued in the name of:
Name: _______________________________________________________
Address: _____________________________________________________
Employer I.D. or S. S. #
-----------------------------------------------
If such number of Warrants shall not be all the Warrants evidenced by the
Warrant document, the undersigned requests that a new document evidencing the
Warrants not so exercised issued and registered in the name of and delivered to:
------------------------------------------
Name
------------------------------------------
Address
------------------------------------------
Employer I.D. or Social Security Number
Date: _________________ __________________________________________
Signature
(Signature must conform in all respects to
name of holder as specified on the face of
this Warrant Certificate.)
<PAGE>
EXHIBIT 4.9
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS
1.1 Definitions 2
ARTICLE 2 REGISTRATION RIGHTS
2.1 Securities Subject to this Agreement 3
2.2 Shelf Registration 4
2.3 Piggyback Registration 5
2.4 Registration Procedures 7
2.5 Preparation: Reasonable Investigation 11
2.6 Certain Rights of Holders 11
2.7 Registration Expenses 12
2.8 Indemnification; Contribution 12
2.9 Participation in Underwritten Registrations 15
2.10 Selection of Underwriters 16
ARTICLE 3 RULE 144A 16
ARTICLE 4 MISCELLANEOUS
4.1 Entire Agreement 16
4.2 Successors and Assigns 16
4.3 Notices 17
4.4 Headings 17
4.5 Counterparts 18
4.6 Applicable Law; Resolution of Disputes 18
4.7 Specific Enforcement 18
4.8 Amendment and Waivers 18
4.9 Attorney Fees 18
<PAGE>
REGISTRATION RIGHTS AGREEMENT
DATED AS OF
JUNE 24, 1998
AMONG
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
AND
THE PURCHASERS LISTED ON THE SIGNATURE PAGE OF THIS
REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is dated as of
June 24, 1998 between ENVIRONMENTAL REMEDIATION HOLDING CORPORATION, a Colorado
corporation (the "Company") and each of the Purchasers of the Company's 5.5%
Convertible Notes due 2000 (the "Notes") pursuant to that certain Securities
Purchase Agreement, dated of even date herewith (the "Securities Purchase
Agreement"), whose names are set forth at the end of this Agreement
(individually, a "Purchaser" and collectively, the "Purchasers").
RECITALS
WHEREAS, it is a condition precedent to the obligations of each Purchaser under
the Securities Purchase Agreement that the Company grant registration rights to
the holders of the Company's Notes, and
WHEREAS, in connection with resales by the Purchasers of the Company's Common
Stock upon or after conversion of the Notes, the Company and the Purchasers now
desire to enter into this Agreement in order to facilitate such resales.
AGREEMENT
NOW THEREFORE, in consideration of the mutual promises and covenants contained
herein and for other good and valuable consideration, the adequacy and receipt
of which is hereby acknowledged, the parties hereto agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
1.1 Definitions. The following terms, as used herein, have the following
meanings.
"Board" means the Board of Directors of the Company.
"Business Day" means any day except a Saturday, Sunday or other day on which
banks in New York, New York are authorized by law to close.
"Closing Date" shall mean the Closing Date of the Securities Purchase Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, par value $0.0001 per share, of the
Company.
"Company" means Environmental Remediation Holding Corporation, a Colorado
corporation.
"Company Registration Statement" means the Registration Statement of the Company
relating to the registration for sale of shares of the Company's Common Stock
contemplated by Section 2.3, including the Prospectus as defined below.
"Effective Time" means the date of effectiveness of any Registration Statement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Holders" has the meaning given to it in Section 2.1(b) hereof.
"NASD" means the National Association of Securities Dealers, Inc.
"Note(s)" means the individual or collective reference to any one or more of the
5.5% Convertible Notes of the Company due June, 2000, in $___________ aggregate
principal amount.
"Person" means an individual, corporation, partnership, association, trust or
other entity or organization, including a government or political subdivision or
an agency or instrumentality thereof.
"Prospectus" means the prospectus included in any Registration Statement, as
amended or supplemented by any prospectus supplement and by all other amendments
thereto, including post-effective amendments, and all material incorporated by
reference into such Prospectus.
"Registration Statements" means the Company Registration Statement on Form S-1
or any other appropriate registration form and the Shelf Registration Statement.
"Restricted Securities" means any Securities until (i) a registration statement
covering such Securities has been declared effective by the Commission and such
Securities have been disposed of pursuant to such effective registration
statement, (ii) such Securities are sold under circumstances in which all the
applicable conditions of Rule 144 (or any similar provisions then in force)
under the Securities Act are met, or such Securities may be sold pursuant to
Rule 144(k) (or any similar provision then in force) under the Securities Act,
and are freely tradable after such sale by the transferee, (iii) such Securities
are otherwise transferred, the Company has delivered a new certificate or other
evidence of ownership for such Securities not bearing a legend restricting
further transfer and such Securities may be resold, without registration under
the Securities Act, or (iv) such Securities shall have ceased to be outstanding.
"Securities" means the shares of the Company's Common Stock issuable upon
conversion of the Notes or upon exercise of the Warrants.
"Securities Act" means the Securities Act of 1933, as amended.
"Shelf Registration Statement" means the registration statement of the Company
relating to the shelf registration for resale of Restricted Securities
contemplated by Section 2.2 herein, including the Prospectus included therein,
all amendments and supplements thereto (including post-effective amendments) and
all exhibits and material incorporated by reference therein.
"Securities Purchase Agreement" has the meaning given to it in the
recitals to this Agreement.
"Warrants" means the warrants to purchase up to _________ shares of Company
Common Stock (if all $__________ million of Notes are sold pursuant to the
Securities Purchase Agreement) at an exercise price equal to 120% of the Closing
Bid Price on the Closing Date, subject to adjustment as provided therein, which
are issuable pursuant to the Securities Purchase Agreement on the basis of
warrants to purchase 124 shares of Company Common Stock for each $1,000
principal amount of Notes purchased by a Purchaser.
As used in this Agreement, words in the singular include the plural, and in the
plural include the singular.
<PAGE>
ARTICLE 2
REGISTRATION RIGHTS
2.1 Securities Subject to this Agreement.
(a) The Securities entitled to the benefits of this Agreement are the Restricted
Securities, but only for so long as they remain Restricted Securities.
(b) A Person is deemed to be a holder of Restricted Securities (each, a
"Holder") whenever such Person is the registered holder of such Restricted
Securities on the Company's books and records.
2.2 Shelf Registration.
(a) The Company shall:
(i) as expeditiously as practicable, but no later than 30 calendar days
from the Closing Date, amend its Shelf Registration Statement on Form S-1 filed
with the Commission on January 8, 1998 pursuant to Rule 415 under the Securities
Act, which Shelf Registration Statement shall provide for resale of all
Restricted Securities the Holders of which shall have provided to the Company
the information required pursuant to Section 2.2(c) herein; and
(ii) use its best efforts to cause such Shelf Registration Statement to
be declared effective by the Commission as soon as possible but within 60
calendar days after the Closing Date.
(iii) if the Company is advised by the SEC that a Registration
Statement filed hereunder is subject to a "no-review" and such Registration
Statement is not declared effective within five (5) business days thereafter (an
"Acceleration Date") or, irrespective of the SEC review, a Registration
Statement is not declared effective by 60 calendar days after the Closing Date
(the "Target Date"), the Company shall pay Holder as liquidated damages an
amount equal to two percent (2%) of the total principal sum of the Notes for
each thirty (30) day period following the earlier of the Acceleration Date or
Target Date, as applicable, until such time as the registration statement is
declared effective. The payment set forth above shall be pro-rated daily as to
any period of less than thirty (30) days. Such payment shall be made to the
Holder by cashier's check or wire transfer in immediately available funds to
such account as shall be designated in writing by the Holder. The foregoing
amount shall be paid irrespective of the amount of Restricted Securities then
held by Holder.
(iv) if, following effectiveness of a registration, either the
effectiveness of the registration statement is suspended or a current Prospectus
meeting the requirements of Section 10 of the Securities Act is not available
for delivery by the Holder for any reason (either referred to herein as a
"suspension"), the Company shall thereupon pay to Holder as liquidated damages
an amount equal to two percent (2%) of the total principal sum of the Notes
previously purchased by Holder for each thirty (30) day period of the
suspension. The payment set forth above shall be pro-rated daily as to periods
of less than thirty (30) days. Such payment shall be made to the Holder by
cashier's check or wire transfer in immediately available funds to such account
as shall be designated in writing by the Holder, and shall be paid irrespective
of the amount of Restricted Securities held by Holder on or after the date
following the suspension.
(v) any amount payable pursuant to the foregoing provisions of this
Subsection (a) shall be delivered on or before the third (3rd) business day
following the end of the calendar month in which such payment obligation arose.
(vi) Subsections (a)(iii) and (a)(iv) are in addition to the
provisions of Section 4.7 hereof.
(b) In connection with the Shelf Registration Statement, the Company shall
comply with all the provisions of Section 2.4 below and shall
<PAGE>
use its best efforts to effect such registration to permit the sale of the
Restricted Securities being sold in accordance with the intended method or
methods of distribution thereof (as indicated in the information furnished to
the Company pursuant to Section 2.2. (c)). The Company shall use its best
efforts to keep such Shelf Registration Statement continuously effective,
supplemented and amended to the extent necessary to ensure that it is available
for resales of Restricted Securities by the Holders of Restricted Securities,
and to ensure that it conforms with the requirements of this Agreement, the
Securities Act and the policies, rules and regulations of the Commission as
announced from time to time, for a period of twenty four (24) months from the
Closing Date or such shorter period that will terminate when all the Securities
covered by the Shelf Registration Statement have been sold pursuant to the Shelf
Registration Statement or otherwise cease to be Restricted Securities. Upon the
occurrence of any event that would cause any Shelf Registration Statement or the
Prospectus contained therein (i) to contain a material misstatement or omission
or (ii) not to be effective and usable for sale or resale of Restricted
Securities during the period required by this Agreement, the Company shall file
promptly an appropriate amendment to such Shelf Registration Statement or the
related Prospectus or any document incorporated therein by reference, in the
case of clause (i), correcting any such misstatement or omission, and, in the
case of either clause (i) or (ii), use its best efforts to cause such amendment
to be declared effective and such Registration Statement and the related
Prospectus to become usable for its intended purpose(s) as soon as practicable
thereafter.
(c) No Holder of Restricted Securities may include any of its Restricted
Securities in the Shelf Registration Statement pursuant to this Agreement unless
and until such Holder furnishes to the Company in writing, within 10 Business
Days after receipt of a written request therefor, such information specified in
Item 507 of Regulation S-K under the Securities Act or such other information as
the Company may reasonably request for use in connection with the Shelf
Registration Statement or Prospectus or preliminary Prospectus included therein
and in any application to the NASD. Each Holder as to which the Shelf
Registration Statement is being effected agrees to furnish promptly to the
Company all information required to be disclosed in order to make the
information previously furnished to the Company by such Holder not materially
misleading. No "Selling Shareholder Agreement" or other similar agreement shall
be required in order to secure registration of the Restricted Securities.
2.3 Piggyback Registration.
(a) At any time that the Company proposes to file a Company Registration
Statement, either for its own account or for the account of a stockholder or
stockholders, the Company shall give the Holders written notice of its intention
to do so and of the intended method of sale (the "Registration Notice") within a
reasonable time prior to the anticipated filing date of the Company Registration
Statement effecting such Company Registration. Each holder may request inclusion
of any Restricted Securities in such Company Registration by delivering to the
Company, within ten (10) Business Days after receipt of the Registration Notice,
a written notice (the "Piggyback Notice") stating the number of Restricted
Securities proposed to be included and that such shares are to be included in
any underwriting only on the same terms and conditions as the shares of Common
Stock otherwise being sold through underwriters under such Company Registration
Statement. The Company shall use its best efforts to cause all Restricted
Securities specified in the Piggyback Notice to be included in the Company
Registration Statement and any related offering, all to the extent requisite to
permit the sale by the Holders of such Restricted Securities in accordance with
the method of sale applicable to the other shares of Common Stock included in
such Company Registration Statement.
(b) The Company's obligation to include Restricted Securities in a Company
Registration Statement pursuant to Section 2.3(a) shall be subject to the
following limitations:
(i) The Company may elect, at its sole option and for any reason, not
to register Holder's Restricted Securities; provided however, that this right is
limited to one (1) time and relative to one (1) particular Company Registration
Statement.
(ii) The Company shall not be obligated to include any Restricted
Securities in a registration statement filed on Form S-4, Form S-8 or such other
similar successor forms then in effect under the Securities Act.
(iii) If a Company Registration Statement involves an underwritten
offering and the managing underwriter advises the Company in writing that in its
opinion, the number of securities requested to be included in such Company
Registration Statement exceeds the number which can be sold in such offering
without adversely affecting the offering, the Company will include in such
Company Registration Statement the number of such Securities which the Company
is so advised can be sold in such offering without adversely affecting the
offering, determined as follows:
<PAGE>
(A) first, the securities proposed by the Company to be sold
for it own account, and
(B) second, any Restricted Securities requested to be included
in such registration and any other securities of the Company in accordance with
the priorities, if and then existing among the holders of such securities pro
rata among the holders thereof requesting such registration on the basis of the
number of shares of such securities requested to be included by such holders.
(iii) The Company shall not be obligated to include Restricted
Securities in more than two (2) Company Registration Statement(s).
(c) No Holder of Restricted Securities may include any of its Restricted
Securities in the Company Registration Statement pursuant to this Agreement
unless and until such Holder furnishes to the Company in writing, within 10
business days after receipt of a written request therefor, such information
specified in Item 507 of Regulation S-K under the Securities Act or such other
information as the Company may reasonably request for use in connection with the
Company Registration Statement or Prospectus or preliminary Prospectus included
therein and in any application to the NASD. Each Holder as to which the Company
Registration Statement is being effected agrees to furnish promptly to the
Company all information required to be disclosed in order to make all
information previously furnished to the Company by such Holder not materially
misleading.
2.4 Registration Procedures.
In connection with any Registration Statement and any Prospectus required by
this Agreement to permit the sale or resale of Restricted Securities, the
Company shall:
(a) prepare and file with the Commission such amendments and post-effective
amendments to such Registration Statement as may be necessary to keep such
Registration Statement effective:
(i) if such Registration Statement is a Company Registration Statement,
until the earlier of such time as all of such securities have been disposed of
in accordance with the intended methods of disposition by the seller or sellers
thereof set forth in such Company Registration Statement; or
(ii) if such Registration Statement is a Shelf Registration Statement,
for the applicable period set forth in Section 2.2(b) herein;
cause the Prospectus to be supplemented by any required Prospectus supplement,
and as so supplemented to be filed pursuant to Rule 424 under the Securities
Act, and to comply fully with the applicable provisions of Rules 424 and 430A,
as applicable, under the Securities Act in a timely manner; and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement during the applicable period
in accordance with the intended method or methods of distribution by the sellers
thereof set forth in such Registration Statement or supplement or the
Prospectus;
(b) respond to comments made by the SEC with respect to a Registration Statement
filed pursuant to this Agreement promptly, and use its best efforts to respond
in not more than thirty (30) days after the date of the comment letter, and
prepare and file with the SEC such amendments and supplements to such
Registration Statement and the Prospectus used in connection with such
Registration Statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
Registration Statement and immediately notify the holders of the Notes of the
filing and effectiveness of such Registration Statement and any amendments or
supplements;
(c) promptly (and in respect of events covered by clause (i) hereof, on the same
day as the Company shall receive notice of effectiveness) advise the Holders
covered by such Registration Statement and, if requested by such Persons, to
confirm such advice in writing,
(i) when the Prospectus or any Prospectus supplement or post-
effective amendment has been filed, and when the same has become
effective,
(ii) of any request by the Commission for post-effective amendments to
such Registration Statement or post-effective amendments to such Registration
Statement or post-effective amendments or supplements to the prospectus or for
additional information relating thereto,
(iii) of the issuance by the Commission of any stop order suspending
the effectiveness of any such Registration Statement under the Securities Act or
of the suspension by any state securities commission of the qualification of the
Restricted Securities for offering or sale in any jurisdiction, or the
initiation of any proceeding for any of the preceding purposes, and
<PAGE>
(iv) of the existence of any fact or the happening of any event that
makes any statement of a material fact made in any such Registration Statement
the related Prospectus, any amendment or supplement thereto, or any document
incorporated by reference therein untrue, or that requires the making of any
additions to or changes in any such Registration Statement or the related
Prospectus in order to make the statements therein not misleading.
If at any time the Commission shall issue any stop order suspending the
effectiveness of such Registration Statement, or any state securities commission
or other regulatory authority shall issue an order suspending the qualification
or exemption from qualification of the Restricted Securities under state
securities or Blue Sky laws, the Company shall use its reasonable efforts to
obtain the withdrawal or lifting of such order at the earliest possible time;
(c) promptly furnish to each Holder of Restricted securities covered by any
Registration Statement, and each underwriter, if any, without charge, at least
one conformed copy of any Registration Statement, as first filed with the
Commission, and of each amendment thereto, including all documents incorporated
by reference therein and all exhibits (including exhibits incorporated therein
by reference) and such other documents as such Holder may reasonably request;
(d) deliver to each Holder covered by any Registration Statement, and each
underwriter, if any, without charge, as many copies of the Prospectus (including
each preliminary prospectus) and any amendment or supplement thereto as such
person reasonably may request.
(e) enter into such customary agreements and take all such other reasonable
action in connection therewith (including those reasonably requested by the
selling Holders or the underwriter(s), if any) required in order to expedite or
facilitate the disposition of such Restricted Securities pursuant to such
Registration Statement, including, but not limited to, dispositions pursuant to
an underwritten registration, and in such connection:
(i) make such representations and warranties to the selling Holders and
underwriter(s), if any, in form, substance and scope as are customarily made by
issuers to underwriters in underwritten offerings (whether or not sales of
securities pursuant to such Registration Statement are to be to an
underwriter(s)) and confirm the same if and when requested;
(ii) obtain opinions of counsel to the Company (which counsel and
opinions, in form and substance, shall be reasonably satisfactory to the selling
Holders and the underwriter(s), if any, and their respective counsel) addressed
to each selling Holder and underwriter, if any, covering the matters customarily
covered in opinions requested in underwritten offerings (whether or not sales of
securities pursuant to such Registration Statement are to be made to an
underwriter(s)) and dated the date of effectiveness of any Registration
Statement (and, in the case of any underwritten sale of securities pursuant to
such Registration Statement, each closing date of sales to the underwriter(s)
pursuant thereto);
(iii) use reasonable efforts to obtain comfort letters dated the date
of effectiveness of any Registration Statement (and, in the case of any
underwritten sale of securities pursuant to such Registration Statement, each
closing date of sales to the underwriter(s) pursuant thereto) from the
independent certified public accountants of the Company addressed to each
selling Holder and underwriter, if any, such letters to be in customary form and
covering matters of the type customarily covered in comfort letters in
connection with underwritten offerings (whether or not sales of securities
pursuant to such Registration Statement are to be made to an underwriter(s));
(iv) provide for the indemnification provisions and procedures of
Section 2.6 hereof with respect to selling Holders and the underwriter(s), if
any; and
(v) deliver such documents and certificates as may be reasonably
requested by the selling Holders or the underwriter(s), if any, and which are
customarily delivered in underwritten offerings (whether or not sales of
securities pursuant to such Registration Statement are to be made to an
underwriter(s), with such documents and certificates to be dated the date of
effectiveness of any Registration Statement.
The actions required by clauses (i) through (v) above shall be done at each
closing under such underwriting or similar agreement, as and to the extent
required thereunder, and if at any time the representations and warranties of
the Company contemplated in clause (i) above cease to be true and correct, the
Company shall so advise the underwriter(s), if any, and each selling Holder
promptly, and, if requested by such Person, shall confirm such advice in
writing;
(f) prior to any public offering of Restricted Securities, cooperate with the
selling Holders, the underwriter(s), if any, and their respective counsel in
connection with the registration and qualification of the Restricted Securities
under the securities or Blue Sky laws of such U.S. jurisdictions as the selling
<PAGE>
Holders or underwriters), if any, may reasonably request in writing by the time
any Registration Statement is declared effective by the Commission, and do any
and all other acts or filings necessary or advisable to enable disposition in
such U.S. jurisdictions of the Restricted Securities covered by any Registration
Statement and to file such consents to service of process or other documents as
may be necessary in order to effect such registration or qualification;
provided, however, that the Company shall not be required to register or qualify
as a foreign corporation in any jurisdiction where it is not then so qualified
or as a dealer in securities in any jurisdiction where it would not otherwise be
required to register or qualify but for this Section 2.4, or to take any action
that would subject it to the service of process in suits or to taxation, in any
jurisdiction where it is not then so subject;
(g) in connection with any sale of Restricted Securities that will result in
such securities no longer being Restricted Securities, cooperate with the
selling Holders and the underwriter(s), if any, to facilitate the prompt
preparation and delivery of certificates representing Restricted Securities to
be sold and not bearing any restrictive legends; and enable such Restricted
Securities to be in such denominations and registered in such names as the
Holders or the underwriter(s), if any, may request at least two (2) Business
Days prior to any sale of Restricted Securities made by such underwriters;
(h) use its best efforts to cause the disposition of the Restricted Securities
covered by any Registration Statement to be registered with or approved by such
other U.S. governmental agencies or authorities as may be necessary to enable
the seller or sellers thereof or the underwriter(s), if any, to consummate the
disposition of such Restricted Securities, subject to the proviso contained in
Section 2.4(f);
(i) if any fact or event contemplated by Section 2.4(b) shall exist or have
occurred, prepare a supplement or post-effective amendment to any Registration
Statement or related Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter delivered
to the purchasers of Restricted Securities, the Prospectus will not contain an
untrue statement of a material fact or omit to state any material fact necessary
to make the statement therein not misleading;
(j) cooperate and assist in the performance of any due diligence investigation
by any underwriter (including any "qualified independent underwriter") that is
required to be retained in accordance with the rules and regulations of the
NASD, and use its reasonable efforts to cause any Registration Statement to
become effective and approved by such U.S. governmental agencies or authorities
as may be necessary to enable the Holders selling Restricted Securities to
consummate the disposition of such Restricted Securities;
(k) otherwise use its reasonable efforts to comply with all applicable rules and
regulations of the Commission, and make generally available to its security
holders with regard to such Registration Statement, as soon as practicable, a
consolidated earnings statement meeting the requirements of Rule 158 (which need
not be audited) for the twelve-month period (i) commencing at the end of any
fiscal quarter in which Restricted Securities are sold to the underwriter in a
firm or best efforts underwritten offering or (ii) if not sold to an underwriter
in such an offering, beginning with the first month of the Company's first
fiscal quarter commencing after the effective date of any Registration
Statement;
(1) provide a CUSIP number for all Restricted Securities not later
than the effective date of any Registration Statement;
(m) use its best efforts to list, not later than the effective date of such
Registration Statement, all Restricted Securities covered by such Registration
Statement on the American Stock Exchange or any other trading market on which
any Common Stock of the Company are then admitted for trading, and
(n) provide promptly to each Holder covered by any Registration Statement upon
request each document filed with the Commission pursuant to the requirements of
Section 12 and Section 14 of the Exchange Act.
Each Holder agrees by acquisition of a Restricted Security that, upon receipt of
any notice from the Company of the existence of any fact of the kind described
in Section 2.4(c)(iv), such Holder will forthwith discontinue disposition of
Restricted Securities pursuant to any Registration Statement until such Holder's
receipt of the copies of the supplemented or amended Prospectus, or until it is
advised in writing, in accordance with the notice provisions of Section 5.3
herein (the "Advice"), by the Company that the use of the Prospectus may be
resumed, and has received copies of any additional or supplemental fillings that
are incorporated by reference in the Prospectus. In the event the Company shall
give any such notice, the time period regarding the effectiveness of the Shelf
Registration Statement set forth in Section 2.2(b) shall be extended by the
number of days during the period from and including the date of the giving of
such notice pursuant to Section 2.4(c)(iv) to and including the date when each
selling Holder covered by such Registration Statement shall have received the
copies of the supplemented or amended Prospectus or shall have received (in
accordance with the notice provisions of Section 4.3) the Advice.
<PAGE>
2.5 Preparation: Reasonable Investigation.
In connection with preparation and filing of each Registration Statement under
the Securities Act, the Company will give the Holders of Restricted Securities
registered under such Registration Statement, their underwriter, if any, and
their respective counsel and accountants, the opportunity to participate in the
preparation of such Registration Statement, each prospectus included therein or
filed with the Commission, and each amendment thereof or supplement thereto, and
will give each to them access to its books and records and such opportunities to
discuss the business, finances and accounts of the Company and its subsidiaries
with its officers, directors and the independent public accountants who have
certified its financial statements as shall be necessary, in the opinion of such
Holders and such underwriters' respective counsel, to conduct a reasonable
investigation within the meaning of the Securities Act.
2.6 Certain Rights of Holders.
The Company will not file any registration statement under the Securities Act
which refers to any Holder of Restricted Securities by name or otherwise without
the prior approval of such Holder, which consent shall not be unreasonably
withheld or delayed.
2.7 Registration Expenses.
(a) All expenses incident to the Company's performance of or compliance with
this Agreement will be borne by the Company, regardless of whether a
Registration Statement becomes effective, including without limitation: (i) all
registration and filing fees and expenses (including filings made with the NASD
and reasonable counsel fees in connection therewith); (ii) all reasonable fees
and expenses of compliance with federal securities and state Blue Sky or
securities laws (including all reasonable fees and expenses of one counsel to
the underwriter(s) in any underwriting) in connection with compliance with state
Blue Sky or securities laws for up to 40 states; (iii) all expenses of printing,
messenger and delivery services and telephone calls; (iv) all fees and
disbursements of counsel for the Company; and (v) all fees and disbursements of
independent certified public accountants of the Company (including the expenses
of any special audit and comfort letters required by or incident to such
performance), but excluding from this paragraph, fees and expenses of counsel to
the underwriter(s), if any, unless otherwise set forth herein.
(b) In addition, in connection with the filing of the Shelf Registration
Statement required to be filed by this Agreement, the Company will reimburse the
Holders of the Restricted Securities being registered pursuant to any Shelf
Registration Statement for the reasonable fees and disbursements of not more
than one counsel to review such Registration Statement.
(c) Notwithstanding the foregoing, the Company will not be responsible for any
underwriting discounts, commissions or fees attributable to the sale of
Restricted Securities or any legal fees or disbursements (other than any such
fees or disbursements relating to Blue Sky compliance or otherwise as set for
the under Section 2.7(a) incurred by any underwriter(s) in any underwritten
offering if the underwriter(s) participates in such underwritten offering at the
request of the Holders of Restricted Securities, or any transfer taxes that may
be imposed in connection with a sale or transfer of Restricted Securities.
(d) The Company shall in any event, bear its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expenses of any annual audit and the
fees and expenses of any Person, including special experts, retained by the
Company.
2.8 Indemnification, Contribution.
(a) The Company agrees to indemnify and hold harmless
(i) each Holder covered by any Registration Statement,
(ii) each other Person who participates as an underwriter in the
offering or sale of such securities,
(iii) each person, if any, who controls (within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act) any such Holder or
underwriter (any of the persons referred to in this clause (iii) being
hereinafter referred to as a ("Controlling person") and
(iv) the respective officers, directors, partners, employees,
representatives and agents of any such Holder or underwriter or any controlling
person (any person referred to in clause (i), (ii), (iii) or (iv) may
hereinafter be referred to as an "indemnified Person"),
to the fullest extent lawful from and against any and all losses, claims,
damages, liabilities, judgments or expenses, joint or several (or actions or
proceedings, whether commenced or threatened, in respect thereof) (collectively,
"Claims"), to which such indemnified Person may become subject under either
Section 15 of the Securities Act or Section 20 of the Exchange Act or otherwise,
insofar as such Claims wise out of or are based upon, or are caused by any
untrue
<PAGE>
statement or alleged untrue statement of a material fact contained in any
Registration Statement or Prospectus (or any amendment or supplement thereto),
or any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading, or
a violation by the Company of the Securities Act or any state securities law, or
any rule or regulation promulgated under the Securities Act or any state
securities law, or any other law applicable to the Company relating to any such
registration or qualification, except insofar as such losses, claims, damages,
liabilities, judgments or expenses of any such indemnified Person; (x) are
caused by any such untrue statement or omission or alleged untrue statement or
omission that is based upon information relating to such indemnified Person
furnished in writing to the Company by or on behalf of any of such indemnified
Person expressly for use therein; (y) with respect to the preliminary
Prospectus, result from the fact that such Holder sold Securities to a person to
whom there was not sent or given, at or prior to the written confirmation of
such sale, a copy of the Prospectus, as amended or supplemented, if the Company
shall have previously furnished copies hereof to such Holder in accordance with
this Agreement and said Prospectus, as amended or supplemented, would have
corrected such untrue statement or omission; or (z) as a result of the use by an
indemnified Person of any Prospectus when, upon receipt of a notice from the
Company of the existence of any fact of the kind described in Section
2.4(b)(iv), the indemnified Person or the related Holder was not permitted to do
so. Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of any indemnified Person and shall survive
the transfer of such securities by such Holder.
In case any action shall be brought or asserted against any of the indemnified
Persons with respect to which indemnity may be sought against the Company, such
indemnified Person shall promptly notify the Company and the Company shall
assume the defense thereof Such indemnified Person shall have the night to
employ separate counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
the indemnified Person unless (i) the employment of such counsel shall have been
specifically authorized in writing by the Company, (ii) the Company shall have
failed to assume the defense and employ counsel or (iii) the named parties to
any such action (including any implied parties) include both the indemnified
Person and the Company and the indemnified Person shall-have been advised in
writing by its counsel that there may be one or more legal defenses available to
it which are different from or additional to those available to the Company (in
which case the Company shall not have the right to assume the defense of such
action on behalf of the indemnified Person), it being understood, however, that
the Company shall not, in connection with such action or similar or related
actions or proceedings arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys (in addition to any local counsel) at any time for
all the indemnified Persons, which firm shall be (x) designated by such
indemnified Persons and (y) reasonably satisfactory to the Company. The Company
shall not be liable for any settlement of any such action or proceeding effected
without the Company's prior written consent, which consent shall not be withheld
unreasonably, and the Company agrees to indemnify and hold harmless any
indemnified Person from and against any loss, claim, damage, liability, judgment
or expense by reason of any settlement of any action effected with the written
consent of the Company. The Company shall not, without the prior written consent
of each indemnified Person, settle or compromise or consent to the entry of
judgment on or otherwise seek to terminate any pending or threatened action
claim, litigation or proceeding in respect of which indemnification or
contribution may be sought hereunder (whether or not any indemnified Person is a
party thereto), unless such settlement, compromise, consent or termination
includes an unconditional release of each indemnified Person from all liability
arising out of such action, claim litigation or proceeding.
(b) Each Holder of Restricted Securities covered by any Registration Statement
agrees, severally and not jointly, to indemnify and hold harmless the Company
and its directors, officers and any person controlling (within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act) the Company,
and the respective officers, directors, partners, employees, representatives and
agents of each person, to the same extent as the foregoing indemnity from the
Company to each of the indemnified Persons, but only (i) with respect to actions
based on information relating to such Holder furnished in writing by or on
behalf of such Holder expressly for use in any Registration Statement or
Prospectus, and (ii) to the extent of the gross proceeds, if any, received by
such Purchaser from the sale or other disposition of his or its Restricted
Securities covered by such Registration Statement. In case any action or
proceeding shall be brought against the Company or its directors or officers or
any such controlling person in respect of which indemnity may be sought against
a Holder of Restricted Securities covered by any Registration Statement, such
Holder shall have the rights and duties given the Company in Section 2.8(a)
(except that the Holder may but shall not be required to assume the defense
thereof), and the Company or its directors or officers or such controlling
person shall have the rights and duties given to each Holder by Section 2.8(a).
<PAGE>
(c) If the indemnification provided for in this Section 2.8 is unavailable to an
indemnified party under Section 2.7(a) or (b) (other than by reason of
exceptions provided in those Sections) in respect of any losses, claims,
damages, liabilities, judgments or expenses referred to therein, then each
applicable indemnifying party (in the case of the Holders severally and not
jointly), in lieu of indemnifying such indemnified party, shall contribute to
the amount paid or payable by such indemnified party as a result of such losses,
claims damages, liabilities, judgments of expenses (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the Holder on the other hand from sale of Restricted Securities or (ii)
if such allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
Company and such Holder in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities, judgments or expenses, as
well as any other relevant equitable considerations. The relative fault of the
Company on the one hand and of such Holder on the other shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or by such Holder and the parties
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The amount paid to a party as a result of
the losses, claims, damages, liabilities judgments and expenses referred to
above shall be deemed to include, subject to the limitations set forth in the
second paragraph of Section 2.8(a), any legal or other fees or expenses
reasonably incurred by such party in connection with investigating or defending
any action or claim.
The Company and each Holder of Restricted Securities covered by any Registration
Statement agree that it would not be just and equitable if contribution pursuant
to this Section 2.8(c) were determined by pro rata allocation (even if the
Holders were treated as one entity for such purpose) or by any other method of
allocation which does not take into account the equitable considerations
referred to in the immediately preceding paragraph. Notwithstanding the
provisions of this Section 2.8(c) no Holder (and none of its related indemnified
Persons) shall be required to contribute, in the aggregate, any amount in excess
of the amount by which the dollar amount of proceeds received by such Holder
upon the sale of the Restricted Securities exceeds the amount of any damages
which such Holder has otherwise been required to pay by reason of such untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentations (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
The indemnity and contribution provisions contained in this Section 2.8 are in
addition to any liability which the indemnifying person may otherwise have to
the indemnified persons referred to above.
2.9 Participation in Underwritten Registrations.
No Holder may participate in any underwritten registration hereunder unless such
Holder (a) agrees to sell such Holder's Restricted Securities on the basis
provided in any underwriting arrangements approved by the Persons entitled
hereunder to approve such arrangements and (b) completes and executes all
reasonable questionnaires, powers of attorney, indemnities, underwriting
agreements, lock-up letters and other documents required under the terms of such
underwriting arrangements.
2.10 Selection of Underwriters.
The Holders of Restricted Securities covered by any Registration Statement who
desire to do so may sell such Restricted Securities in an underwritten offering.
In any such underwritten offering, the investment banker or investment bankers
and manager or managers that will administer the offering will be selected by
the Holders of a majority of the Restricted Securities included in such offering
if such registration is pursuant to the Shelf Registration Statement, and by the
Company if such registration is pursuant to a Company Registration Statement;
provided, however, that such investment bankers and managers must be reasonably
satisfactory to the Company or the Holders, respectively. Such investment
bankers and managers are referred to herein as the "underwriters".
<PAGE>
ARTICLE 3
RULE 144A
The Company hereby agrees with each Holder of Restricted Securities, for so long
as any of the Restricted Securities remain outstanding and continue to be
"restricted securities" within the meaning of Rule 144 under the Act, and during
any period in which the Company is not subject to Section 13 or 15(d) of the
Exchange Act, to make available to the Holders of Restricted Securities in
connection with any sale thereof, and to any prospective purchaser of Common
Stock from such Holders of Restricted Securities or beneficial owner, the
information required by Rule 144A(d)(4) under the Act in order to permit resales
of such Restricted Securities pursuant to Rule 144A.
ARTICLE 4
MISCELLANEOUS
4.1 Entire Agreement.
This Agreement, together with the Securities Purchase Agreement and the
Certificate of Determination, constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersedes all prior
agreement and understandings, both oral and written, between the parties with
respect to the subject matter hereof.
4.2 Successors and Assigns.
This Agreement shall inure to the benefit of and be binding upon the successors
and assigns of each of the parties, including without limitation and without the
need for an express assignment, subsequent Holders of Restricted Securities;
provided, however, that this Agreement shall not inure to the benefit of or be
binding upon a successor or assign of a Holder unless and to the extent such
successor or assign acquired Restricted Securities from such Holder at a time
when such Holder could not transfer such Restricted Securities pursuant to any
Registration Statement or pursuant to Rule 144 under the Securities Act as
contemplated by clause (ii) of the definition of Restricted Securities.
4.3. Notices.
All notices and other communications given or made pursuant hereto or pursuant
to any other agreement among the parties, unless otherwise specified, shall be
in writing and shall be deemed to have been duly given or made if sent by
telecopy (with confirmation in writing), delivered personally or by overnight
courier or sent by registered or certified mail (postage prepaid, return receipt
requested) to the parties at the telecopy number, if any, or address set forth
below or at such other addresses as shall be furnished by the parties by like
notice. Notices sent by telecopier shall be effective when receipt is
acknowledged, notices delivered personally or by overnight courier shall be
effective upon receipt and notices sent by registered or certified mail shall be
effective three days after mailing:
If to a Holder: to such Holder at the address set forth on the
records of the Company pursuant to the Securitie
Purchase Agreement. In addition, copies of all
such notices or other communications shall be
concurrently delivered by the Person giving the
same to each person who has been identified to
the Company by such Holder as a Person who is to
receive copies of such notice.
If to the Company: at the address set forth in the Securities
Purchase Agreement.
with copies to: Stephen A. Weiss, Esq.
Greenberg Traurig Hoffman Lipoff Rosen & Quentel
Met Life Building
200 Park Avenue
New York, New York 10166
Telephone Number: (212) 801-9200
Fax: (212) 801-6400
-and-
Mintmire & Associates
265 Sunrise Avenue, Suite 204
Palm Beach, Florida 33480
Attention: Donald F. Mintmire, Esq.
Telephone Number: (561) 832-5696
Fax: (561) 659-5371
<PAGE>
4.4 Headings.
The headings contained in this Agreement are for convenience only and shall not
affect the meaning or interpretation of this Agreement.
4.5 Counterparts.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original and all of which together shall be deemed to
be one and the same instrument.
4.6 Applicable Law; Resolution of Disputes.
(a) This Agreement shall be governed by and construed in accordance with the
internal laws of the state of New York, without giving effect to the choice law
provisions.
(b) Any dispute regarding the interpretation or application of this Agreement
which cannot be settled among the parties shall be resolved in Austin, Texas
final and binding arbitration in accordance with the then obtaining rules of the
American Arbitration Association. There shall be appointed three arbitrators,
one of whom shall be selected by the Company, the second by the Purchasers and
the third by mutual agreement of the parties or by the American Arbitration
Association. The decision of the arbitrators shall be final and upon all of the
Purchasers and the Company and may be enforced by the prevailing party or
parties in any court of competent jurisdiction. Each party shall bear their own
costs of the arbitration and shall share equally the costs of the arbitrators.
4.7 Specific Enforcement.
Each party hereto acknowledges that the remedies at law of the other parties for
a breach or threatened breach of this Agreement would be inadequate, and, in
recognition of this fact, any party to this Agreement, without posting any bond,
and in addition to all other remedies which may be available, shall be entitled
to obtain equitable relief in the form of specific performance, a temporary
restraining order, a temporary to permanent injunction or any other equitable
remedy which may then be available.
4.8 Amendment and Waivers.
The provision of this Agreement may not be amended modified or supplemented and
waivers or consents to or departures from the provisions hereof may not be given
unless the Company has obtained the written consent of Holders of a majority of
the Restricted Securities.
4.9 Attorney Fees.
Purchasers shall be entitled to recover from the Company the reasonable
attorneys' fees and expenses (and the reasonable costs of investigation)
incurred by such Purchaser in connection with enforcement by such Purchaser of
any obligation of the Company hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
By: _____________________________________________
Name: Sam Bass
Its: Chairman
THE PURCHASERS:
By: ___________________________________________
Name:
By Its:
Address:
<PAGE>
EXHIBIT 4.10
THIS SECURITIES PURCHASE AGREEMENT, as it may be amended from time to time (the
"Agreement"), dated as of the ___ day of ______, 1998, is entered into by and
among ENVIRONMENTAL REMEDIATION HOLDING CORPORATION, a Colorado corporation (the
"Company"); and the persons and/or entities who have executed this Agreement on
the signature pages hereof (hereinafter referred to individually as an
"Investor" and collectively as the "Investors").
WITNESSETH:
WHEREAS, the Company desires to sell to the Investors, and the Investors desire
to purchase from the Company, certain convertible notes of the Company entitling
the Investors to purchase certain shares of capital stock of the Company, for
the respective purchase prices and upon the terms and conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the premises and the mutual covenants herein
contained, the parties hereby agree as follows:
1. AUTHORIZATION OF ISSUE.
The Company has authorized the issuance and sale to the Investors of: (i) up to
$3,000,0000 principal amount of the Company's 8.0% convertible notes due
______________, 2000 (the "Notes").
(a) The Notes shall be substantially in the form of Exhibit A annexed
hereto and made a part hereof.
2. ISSUANCE OF NOTES; REGISTRATION OF CONVERSION SHARES AND OPTION SHARES.
(a) Issuance of Notes. On the terms and subject to the conditions hereinafter
set forth, on the Closing Date (as hereinafter defined), the Company will issue
and sell to each Investor the principal amount of Notes set forth opposite the
name of each such Investor on Schedule I hereto and made a part hereof.
(b) Purchase Price: Payment. The purchase price for each of the Notes shall
equal 100% of the aggregate principal amount thereof. The purchase price payable
by each Investor shall be the amount set forth opposite the name of each such
Investor on Schedule 1 annexed hereto. The purchase price for the Notes shall be
paid at the Closing by wire transfer of immediately available funds or by
certified or bank cashier's checks (at the option of the Investors) payable to
the order of the Company, or otherwise as acceptable to the Company. The
purchase price shall be payable by each Investor against delivery of the Notes
being purchased by it, all of which shall be registered in the name of the
respective Investor purchasing such Notes.
(c) Registration of Conversion Shares. The Company shall file with the United
States Securities and Exchange Commission ("SEC") and use its best efforts to
cause to be declared effective a Form S-1 Registration Statement or other
appropriate form of registration in order to register for resale and
distribution under the Securities Act of 1933, as amended (the "Securities
Act"), all shares of Common Stock of the Company issuable upon voluntary or
mandatory conversion of all Notes (the "Conversion Shares"). The obligations of
the Company to so register the Conversion Shares are set forth in the
registration rights agreement, dated of even date herewith and in the form of
Exhibit B annexed hereto and made a part hereof (the "Registration Rights
Agreement").
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
As used in this Agreement, the term "Subsidiary" or "Subsidiaries"
shall mean: (i) the individual or collective reference to the
corporations listed on Schedule 2 annexed hereto and made a part
hereof, including, without limitation, Bass American Petroleum Corp.
("BAPCO"). The Company hereby represents and warrants to the
Investors, as follows:
<PAGE>
(a) Organization and Good Standing. The Company and each of its existing
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation, with full corporate power
and authority to own its properties and carry on its business as now being
conducted. Each of the Company and such Subsidiaries is qualified as a foreign
corporation and is in good standing in each jurisdiction in which the conduct of
its business or the ownership of its assets requires such qualification.
(b) Capitalization of the Company. The authorized, issued and outstanding
capital stock of the Company is described on the Company's Form S-1
supplementally submitted to the Securities and Exchange Commission (the "SEC")
on January 8, 1998 (the "Form S-1"), as amended. The Company's Form S-1 and all
other documents and reports filed by the Company and/or its Subsidiaries with
the SEC since October 1, 1995 (the "SEC Documents") have been furnished to or
otherwise made available to the Investors or their representatives. The
authorized, issued and outstanding shares of capital stock of each of the
Subsidiaries are disclosed on the SEC Documents.
(c) Authorization, Execution and Effect of Agreements. The Company has all
requisite corporate power and authority to execute, deliver and perform its
obligations under this Agreement and the Registration Rights Agreement to issue
the Notes in the manner and for the purpose contemplated by this Agreement, and
to execute, deliver and perform its obligations under this Agreement, the Notes
and the Registration Rights Agreement (collectively, the "Transaction
Documents") and all other agreements and instruments heretofore or hereafter
executed and delivered by it pursuant to or in connection with this Agreement.
The execution and delivery of the Transaction Documents and the consummation of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action of the Company. This Agreement and the other Transaction
Documents have each been duly executed and delivered and constitutes, and upon
execution and delivery in accordance herewith each other agreement or instrument
executed and delivered by the Company pursuant hereto, including the Notes, will
constitute, the legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their respective terms, subject in each
such case, to applicable bankruptcy, insolvency, reorganization and similar laws
affecting creditors' rights and remedies generally and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity).
(d) Conflicting Agreements and Other Matters. The execution, delivery and
performance by the Company of this Agreement and the other Transaction
Documents, and all other agreements and instruments heretofore or hereafter to
be executed and delivered by the Company in connection with the consummation of
the transactions contemplated by this Agreement and the other Transaction
Documents, and compliance by the Company with the terms and provisions hereof
and thereof applicable to it, including the issuance and sale of the Notes, does
not and will not (i) violate any provision of any law, rule, regulation, order,
writ, judgment, decree, administrative determination or award having
applicability to the Company or any of the Subsidiaries or (ii) conflict with or
result in a breach of or constitute a default under the Certificate of
Incorporation or By-Laws of the Company or any of the Subsidiaries, or any
indenture or loan or credit agreement, or any other material agreement or
instrument, to which the Company or any of the Subsidiaries is a party or by
which the Company or the Subsidiaries, or any of their respective properties are
bound or affected, and will not result in, or require the creation or imposition
of, any lien upon or with respect to any of the properties now owned by the
Company or any of the Subsidiaries or hereafter acquired by the Company or any
of the Subsidiaries.
(e) Financial Information. The (i) audited consolidated financial statements of
the Company for the fiscal year ended September 30, 1997 as set forth in the
Company's Form 10-K/A filed with the SEC, as amended from time to time, (the
"1998 Form 10-K"); (ii) the unaudited financial statements of the Company for
the nine months ended December 31, 1997 as set forth in the Company's Form
10-Q/A filed with the SEC, as amended from time to time (the "1998 Form 10Q/A")
and (iii) the unaudited financial statements of he Company for the quarter ended
March 31, 1998 as set forth in the Company's form 10-Q/A filed with the SEC, as
amended ("Second Quarter 1998 10-Q"), were prepared in accordance with generally
accepted accounting principles ("GAAP") consistently applied, and fairly present
the financial condition and results of operations of the Company and the
Subsidiaries for the periods indicated therein; provided, that the unaudited
financial statements do not contain certain footnote disclosures required under
GAAP for audited financial statements and are subject to year end audit
adjustments, none of which would be material to an Investor's decision to
purchase the Notes.
Included in the Form S-1 and the Amended Form S-1 filed with the SEC, the
Company disclosed the acquisition of certain assets from Mytec & Associates
(Mytec), including certain oil and gas reserves. The SEC has reviewed the
financial statements on this acquisition and has reviewed the reserve report
dated February 1997, as revised March 1998, by Dr. Joseph Shoaf, a petroleum
engineer, who estimated the reserves for these properties at $14,335,646.
<PAGE>
While there is no issue with the SEC as to the value of the reserves, Mytec did
not have three (3) years of audited financial statements for these properties.
Under the accounting principles promulgated in Regulation S-X, such audited
financials are a requirement in order to take advantage of the normal oil and
gas accounting provisions which allow for reserve valuation. Without the
advantages of the GAAP accounting provisions on these reserves, such asset may
be booked only at valuation of the consideration given. The Company paid for
this acquisition in stock which had a market value at the time of the
transaction of $515,000. Based on this lack of financial statements the Company
only had four (4) options on how the Company may handle this matter in its
Second Amended Form S-1. The alternatives and the Company's position on each are
as follows:
(i)Return the assets to Mytec - the Company does not feel that
this would be in the best interest of the Company since it has already expended
approximately $500,000 in well rework procedures and well equipment repair and
the Company would forego any recapture of that money if it returned the
properties.
(ii)Withdraw the Form S-1 and resubmit it after the December
1998 Company financials become available- the Company believes that its
obligations relative to the funding provided on November 15, 1997 by Avalon
Research Group, Inc. ("Avalon") and the Private Equity Line of Credit
established with Kingsbridge Capital Limited ("Kingsbridge")
in March 1998 preclude such alternative.
(iii)Wait to submit the Second Amendment to the Form S-1 until
three (3) years of audited financial statements can be prepared for the Mytec
properties - the Company believes that such work could not be completed until
February 1999 at the earliest, and for the same reason as set forth in 3(B)
above, that this alternative is precluded.
(iv)Restate the book value of the asset at the amount of the
consideration given to acquire the properties - the Company has elected to
accept this last alternative since it believes that the SEC requirement is an
accounting requirement which does not impact upon the underlying value of the
reserves. Accordingly, while the asset was booked previously at approximately
$14 million, it will now be carried at $515,000. That will reduce the
shareholders' equity to $1.1 million for September 1997 and $1.6 million for
March, 1998. Additionally, as the Company recovers the reserves from these
properties, it will be recording depletion expense significantly below the
industry normal because of this lower basis in the properties. The effect of
this will be that the Company will record greater profits per barrel than the
industry norm.
The Company's Second Amendment intends to incorporate the change in Paragraph
3(e)(iv).
(f) Litigation, Proceedings: Defaults. Except as disclosed on the SEC Reports or
on Schedule 3(f) hereto, there is no action, suit, proceeding or investigation
pending or, to the knowledge of the Company, threatened against or affecting the
Company or any of the Subsidiaries or any of their respective properties before
or by any court, governmental or regulatory authority (federal, state, local or
foreign) which either (i) relates to or challenges the legality, validity or
enforceability of this Agreement or any other document or agreement to be
executed and delivered by the Company pursuant hereto or in connection herewith,
or (ii) if determined adversely (A) would have a material adverse effect on the
condition (financial or otherwise), properties, assets, business or results of
operations of the Company or the Subsidiaries, when taken as a consolidated
whole (a "Material Adverse Effect") after giving effect to the transaction
contemplated by this Agreement, or (B) could materially impair the ability or
obligation of the Company or the Subsidiaries to perform fully on a timely basis
any obligation which it has or will have under this Agreement or the other
Transaction Documents, or any other agreement or document heretofore or
hereafter to be executed by the Company pursuant hereto or in connection
herewith. Neither the Company nor any of the Subsidiaries is in violation of its
Certificate of Incorporation or By-Laws. Neither the Company nor any of the
Subsidiaries is (i) in default under or in violation of any other material
agreement or instrument to which it is a party or by which it or any of its
properties are bound or affected, which default or violation would have a
Material Adverse Effect, (ii) in default with respect to any order of any court,
arbitrator or governmental body or subject to or party to any order of any court
or governmental authority arising out of any action, suit or proceeding under
any statute or other law respecting antitrust, monopoly, restraint of trade,
unfair competition or similar matters, or (iii) in violation of any statute,
rule or regulation of any governmental authority material to its business.
<PAGE>
(g) Governmental Consents, etc. No authorization, consent, approval, license,
qualification or formal exemption from, nor any filing, declaration or
registration with, any court, governmental agency or regulatory authority or any
securities exchange or any other person or entity (collectively "Approvals") is
required in connection with the execution, delivery or performance by the
Company of this Agreement.
(h) Use of Proceeds. The proceeds to the Company from the sale of the Notes
shall be used for general working capital purposes, and to perform certain
obligations under its June 1997 joint venture agreement with the Democratic
Republic of Sao Tome & Principe for the development of potential oil and gas
reserves in the Gulf of Guinea of West Africa (the "Sao Tome Project"), with the
balance, if any used by the Company for additional payments for general working
capital purposes or to perform on its obligations to the Sao Tome Project, as
the Company so directs.
(i) Accuracy of all SEC Public Filings, All SEC Reports furnished to the
Investors or their representatives and all other documents and reports filed by
or on behalf of the Company with the SEC, when filed, did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The Company and
each of its Subsidiaries has filed, on a timely basis, all required forms,
reports and documents with the SEC required to be filed by it pursuant to the
Securities Act and the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), all of which complied at the time of filing in all material
respects with all applicable requirements of the Securities Act and the Exchange
Act.
Although the Company believed that disclosures made in the Form S-1 and the
Amended Form S-1 and all SEC Reports previously filed were accurate and true at
the time made, based upon the planned revisions set forth herein to the Second
Amended Form S-1, which have required refiling of the Company's, 10-Q's and 10-K
filed since June 30, 1997, the Company believes that as currently filed, such
SEC Reports are incorrect and require amendment to the extent of the planned
revisions disclosed herein.
(j) Absence of Certain Changes or Events. Since June 30, 1997, except as
contemplated by this Agreement, disclosed on Schedule 3(j) hereto and made a
part hereof, or disclosed in any Company SEC Report filed since June 30, 1997,
the Company and the Subsidiaries have conducted their businesses only in the
ordinary course and in a manner consistent with past practice and, in the
Company's opinion, there has not been (i) any event or events having,
individually or in the aggregate, a Material Adverse Effect, (ii) any change by
the Company in its accounting methods, principles or practices, (iii) any
revaluation by the Company of any material asset (including, without limitation,
any writing down or writing up of the value of oil and gas reserves, writing off
of notes or accounts receivable or reversing of any accruals or reserves), other
than in the ordinary course of business consistent with past practice, (iv) any
entry by the Company or any Subsidiary into any commitment or transaction
material to the Company and the Subsidiaries taken as a whole, except in the
ordinary course of business and consistent in all material respects with past
practice, or (v) any declaration, setting aside or payment of any dividend or
distribution in respect of any capital stock of the Company or any redemption,
purchase or other acquisition of any of its securities.
(k) Absence of Litigation. Except as disclosed in the Company SEC Reports or in
Schedule3(k) annexed hereto and made a part hereof, there is no claim, action,
proceeding or investigation pending or, to the Company's knowledge, threatened
against the Company or any Subsidiary, or any property or asset of the Company
or any Subsidiary, before any court, arbitrator or Governmental Authority,
which, individually or when aggregated with other claims, actions, proceedings
or investigations or product liability claims, actions, proceedings or
investigations which are reasonably likely to result from facts and
circumstances that have given rise to such a claim, action, proceeding or
investigation, would have a Material Adverse Effect. As of the date hereof,
neither the Company nor any Subsidiary nor any property or asset of the Company
or any Subsidiary is subject to any order, writ, judgment, injunction, decree,
determination or award having, individually or in the aggregate, a Material
Adverse Effect.
(l) Labor Matters. Except as set forth in Schedule 3(l) annexed
hereto and made a part hereof, with respect to employees of the
Company:
(i) to the best of the Company's knowledge, no senior executive
or key employee has any plans to terminate employment with the Company
or any of its Subsidiaries;
(ii) there is no unfair labor practice charge or complaint against the
Company or any of its Subsidiaries pending or, to the best of the Company's
knowledge, threatened before the National Labor Relations Board or any other
comparable authority;
<PAGE>
(iii) there is no demand for recognition made by any labor organization
or petition for election filed with the National Labor Relations Board or any
other comparable authority which, individually or in the aggregate, would have a
Material Adverse Effect;
(iv) no grievance or any arbitration proceeding arising out of or under
collective bargaining agreements is pending and, to the best of the Company's
knowledge, no claims therefor have been threatened other than grievances or
arbitrations incurred in the ordinary course of business which, individually or
in the aggregate, would not have a Adverse Effect; and
(v) there is no litigation, arbitration proceeding, governmental
investigation, administrative charge, citation or action of any kind pending or,
to the knowledge of the Company or any of its Subsidiaries, proposed or
threatened against the Company relating to employment, employment practices,
terms and conditions of employment or wages and hours which, individually or in
the aggregate, would have a Material Adverse Effect. Except as disclosed in
Schedule 3(l), none of the Company nor any of its Subsidiaries has any
collective bargaining relationship or duty to bargain with any Labor
Organization (as such term is defined in Section 2(5) of the National Labor
Relations Act, as amended), and none of the Company nor any of its Subsidiaries
has recognized any labor organization as the collective bargaining
representative of any of its employees.
(m) Title to and Sufficiency of Assets. As of the date hereof, the Company and
the Subsidiaries own, and as of the Closing Date, the Company and the
Subsidiaries will own, good and marketable title to all of their assets
constituting personal property which is material to their business (excluding,
for purposes of this sentence, assets held under leases), free and clear of any
and all mortgages, liens, encumbrances, charges, claims, restrictions, pledges,
security interests or impositions (collectively, "Liens") except as set forth in
the Company SEC Reports or Schedule 3(m) annexed hereto and made a part hereof.
Such assets, together with all assets held by the Company and the Subsidiaries
under leases, include all tangible and intangible personal property, contracts
and rights necessary or required for the operation of the businesses of the
Company. As of the date hereof, the Company and the Subsidiaries own, and as of
the Closing Date, the Company and the Subsidiaries will own, good and marketable
title to all of their real estate, including oil and gas reserves, which is
material to such persons (excluding, for purposes of this sentence, leases to
real estate and oil and gas reserves), free and clear of any and all Liens,
except as set forth in the Company SEC Reports or in Schedule 3(m) annexed
hereto or such other Liens which would not, individually or in the aggregate,
have a Material Adverse Effect. Such assets, together with real estate and oil
and gas reserve assets held by the Company and the Subsidiaries under leases,
are adequate for the operation of the businesses of the Company, as presently
conducted. The leases to all real estate and oil and gas reserves which are
material to the operations of the businesses of the Company and the Subsidiaries
are in full force and effect and no event has occurred which, with the passage
of time, the giving of notice, or both, would constitute a default or event of
default by the Company or any Subsidiary or, to the knowledge of the Company,
any other person who is a party signatory thereto, other than such defaults or
events of default which, individually or in the aggregate, would not have a
Material Adverse Effect.
(n) Environmental Matters. For purposes of this Agreement, the
following terms shall have the following meanings:
(i) "Hazardous Substances" means
(A) petroleum and petroleum products, by-products or breakdown
products, radioactive materials, asbestos- containing materials and
polychlorinated biphenyls, and
(B) any other chemicals, materials or substances regulated as
toxic or hazardous or as a pollutant, contaminant or waste under any applicable
Environmental Law;
(ii) "Environmental Law" means any law, past, present or future
and as amended, and any judicial or administrative interpretation thereof,
including any judicial or administrative order, consent decree or judgment, or
common law, relating to pollution or protection of the environment, health or
safety or natural resources, including, without limitation, those relating to
the use, handling, transportation, treatment, storage, disposal, release or
discharge of Hazardous Substances; and
(iii) "Environmental Permit" means any permit, approval, identification
number, license or other authorization required under any applicable
Environmental Law.
<PAGE>
(A) Except as disclosed on Schedule 3(n-1) annexed hereto and
made a part hereof, the Company and the Subsidiaries are and have been in
compliance with all applicable Environmental Laws, have obtained all
Environmental Permits and are in compliance with their requirements, and have
resolved all past non-compliance with Environmental Laws and Environmental
Permits without any pending, on-going or future obligation, cost or liability,
except in each case for the notices set forth in Schedule 3(n-1) or where such
non-compliance would not, individually or in the aggregate, have a Material
Adverse Effect.
(B) Except as disclosed in Schedule 3(n-2) annexed hereto and
made a part hereof, neither the Company nor any of the Subsidiaries has (I)
placed, held, located, released, transported or disposed of any Hazardous
Substances on, under, from or at any of the Company's or any of the
Subsidiaries' properties or any other properties, other than in a manner that
would not, in all such cases taken individually or in the aggregate, result in a
Company Material Adverse Effect, (II) any knowledge of the presence of any
Hazardous Substances on, under, emanating from, or at any of the Company's or
any of the Subsidiaries' properties or any other property but arising from the
Company's or any of the Subsidiaries' current or former properties or
operations, other than in a manner that would not result in a Material Adverse
Effect, or (III) any knowledge of nor has it received any written notice (x) of
any violation of or liability under any Environmental Laws, (y) of the
institution or pendency of any suit, action, claim, proceeding or investigation
by any Governmental Entity or any third party in connection with any such
violation or liability, (z) requiring the response to or remediation of
Hazardous Substances at or arising from any of the Company's or any of the
Subsidiaries' current or former properties or operations or any other
properties, (aa) alleging noncompliance by the Company or any of the
Subsidiaries with the terms of any Environmental Permit requiring material
expenditures or resulting in material liability or (bb) demanding payment for
response to or remediation of Hazardous Substances at or arising from any of the
Company's or any of the Subsidiaries' current or former properties or operations
or any other properties, except in each case for the notices set forth in
Schedule 3(n-2) annexed hereto.
(o) Brokers. No broker, finder or investment banker, is entitled to any
brokerage, finder's or other fee or commission in connection with the this
Agreement and the transactions contemplated hereby, other than the following:
J. P. Carey, Inc.
(collectively "Carey"). The Company has agreed to pay Carey cash compensation
not to exceed seven percent (7.0%) of the face amount of the Notes sold pursuant
to this Agreement as a consulting fee, plus an amount not to exceed one percent
(1%) of the face amount of the Notes sold pursuant to this Agreement for
non-accountable expenses and to issue to Carey warrants to purchase shares of
Company Common Stock in an amount equal to nine percent (9.0%) of the face
amount of the Notes at an exercise price equal to the closing bid price on the
date of the first closing, plus the fees and expenses of its counsel, Sims Moss
Kline & Davis LLP in the amount of $15,000.
In addition, the Company agrees to pay one half of one percent (2%) per million
dollars raised over One Million Dollars prorated up to Three Million Dollars of
the net funds received by the Company from the initial lease sale which is
scheduled to occur in or about the first quarter of 1999, up to a total equal to
the amount raised by Carey. The funds shall be paid from the primary term
thereof and shall not include any delay rentals, production royalties or any
seismic data.
Furthermore, St. Petro has the right to reserve certain blocks for
exploration and development on its own account. No sale proceeds are
contemplated to be received by the Company on any of these leases,
except production payments made to it by St. Petro. Such production
payments will not be included in this transaction.
4. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS.
Each Investor hereby separately represents and warrants to the Company as
follows (such representations and warranties being made separately and only to
the extent such representations and warranties relate to such Investor):
<PAGE>
(a) Investigation; Investment Representation. Each Investor (i) possesses such
knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of its investment hereunder; (ii) has been
afforded the opportunity to ask questions of, and receive answers from, the
Company concerning the terms and conditions of its investment, the transactions
contemplated hereby and the business and affairs of the Company; (iii) has
examined, to the extent it deems appropriate, all of the agreements and
documents referred to herein or in the schedules hereto and such other documents
that it has requested; and (iv) understands that the Notes are not being
registered under the Securities Act of 1933, as amended, on the ground that the
issuance thereof is exempt from registration under Section 4(2) of the
Securities Act of 1933, as amended, as a transaction by an issuer not involving
a public offering, and the Company's reliance on this exemption is predicated in
part on the Investors' representations and warranties contained in this Section
4(a). The Investors are acquiring the Notes for their own account, for
investment purposes only and not with a view to the sale or distribution
thereof.
(b) Execution and Effect of Agreement. Each Investor has all necessary power and
authority to enter into this Agreement and consummate the transactions
contemplated hereby. This Agreement constitutes the legal, valid and binding
obligation of each Investor, enforceable against each Investor in accordance
with its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally
and subject, as to enforceability, to general principles of equity (regardless
of whether enforcement is sought in a proceeding at law or in equity).
5. COVENANTS.
As long as any of the Notes are outstanding, the Company agrees that, unless it
first procures the written consent to act otherwise of the holders of record of
66-2/3% of the outstanding principal amount of the Notes of record then
outstanding, it will use its best efforts to cause each of its Subsidiaries to:
(a) Promptly pay all taxes (exclusive of income taxes imposed on the Investors),
fees and charges payable, or ruled to be payable, by any federal, state or local
authority, in respect of this Agreement or the execution, delivery or issuance
of the Notes by reason of any now existing or hereafter enacted federal, state
or local statute or ordinance, and indemnify and hold the Investors harmless
from and against all liabilities with respect to or in connection with any such
taxes, fees or charges.
(b) Maintain their corporate existence and right to carry on business, duly
procure all necessary renewals and extensions thereof, and use their best
efforts to maintain, preserve and renew all necessary or desirable rights,
powers, privileges and franchises owned by them.
(c) Promptly notify the Investors of any material adverse change in the
condition (financial or otherwise), properties, assets, business or results of
operations of the Company or any of the Subsidiaries.
(d) Not cause, suffer or permit any liquidation, winding up or
dissolution of the Company or the Subsidiaries.
(e) Maintain and cause the Subsidiaries to maintain a system of
accounting established and administered in accordance with generally
accepted accounting principles.
(f) Comply with all of the covenants and agreements on the part of
the Company to be performed under the terms of the Notes and the other
Transaction Documents.
6. FINANCIAL STATEMENTS; INSPECTION; NON-PUBLIC INFORMATION.
(a) The Company will furnish to each Investor (and their permitted transferees,
successors and assigns), as long as such Investor owns any of the Notes or
copies of all Form 10-K Annual Report and Form 10- Q Quarterly Financial Reports
filed by the Company, with the SEC.
(b) The Company will, subject to execution of appropriate confidentiality and
non- disclosure agreements, permit the Investors, as long as they own Notes,
shares of Common Stock issuable upon conversion of the Notes (the "Conversion
Shares") or any authorized representative designated by the Investors, to visit
and inspect at the Investors' expense any of the properties of the Company and
the Subsidiaries, and to discuss its affairs, finances and accounts with
officers of the Company, all at such reasonable times and as often as the
Investors may reasonably request.
(c) The Company in no event shall disclose non-public information to the
Investors, advisors to or representatives of the Investors unless prior to
disclosure of such information the Company marks such information as 'Non-Public
Information - Confidential" and provides the Investors, such advisors and
representatives with a reasonable opportunity to accept or refuse to accept such
non-public information for review. Nothing herein shall require the Company to
<PAGE>
disclose non-public information to the Investors or their respective advisors or
representatives, and the Company represents that it does not disseminate
non-public information to any Investors who purchase stock in the Company in a
public offering, to money managers or to securities analysts; provided, however,
that notwithstanding anything herein to the contrary, the Company will, as
hereinabove provided, notify immediately the advisors and representatives of the
Investors and, if any, underwriters, of any event or the existence of any
circumstance (without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting non-public information
(whether or not requested of the Company specifically or generally during the
course of due diligence by such persons or entities), which, if not disclosed in
the Prospectus included in the Registration Statement, would cause such
Prospectus to include a material misstatement or to omit a material fact
required to be stated therein in order to make the statements, therein, in light
of the circumstances in which they were made, not misleading. Nothing herein
shall be construed to mean that such persons or entities other than the
Investors (without the written consent of the Investors prior to disclosure of
such information) may not obtain non-public information in the course of
conducting due diligence in accordance with the terms of this Agreement and
nothing herein shall prevent any such persons or entities from notifying the
Company of their opinion that based on such due diligence by such persons or
entities, that the Registration Statement contains an untrue statement of a
material fact or omits a material fact required to be stated in the Registration
Statement or necessary to make the statements contained therein, in light of the
circumstances in which they were made, not misleading.
7. TRANSFER OF NOTES
(a) Permissible Transfers. The Investors acknowledge that the Company's
securities being issued and sold to them hereunder are being so issued and sold
in transactions which are exempt from the registration requirements of the
Securities Act of 1933, as amended. None of the Notes or Conversion Shares
issuable upon conversion of the Notes, may be distributed, transferred, or
otherwise disposed of by the Investors except pursuant to an effective
Registration Statement under such Act which is current with respect to the
securities offered thereby, or pursuant to an applicable exemption therefrom,
and pursuant to applicable "Blue Sky" or state securities laws or an applicable
exemption therefrom.
(b) Legend. Unless the Conversion Shares have been registered pursuant to an
effective Registration Statement filed under the Securities Act or held for the
requisite period to be freely transferable pursuant to Rule 144 promulgated
under the Securities Act and otherwise comply with Rule 144(k) (in either such
case the certificates shall bear no legend), the Company shall cause to be set
forth on the certificates representing any Conversion Shares a legend
substantially in the following form: "The shares represented by this certificate
have not been registered under the Securities Act of 1933, as amended. No
transfer of such shares shall be valid or effective except in accordance with an
effective registration statement covering such shares or an opinion of counsel
acceptable to the Company that registration of such shares is not required
pursuant to the applicable requirements of the Securities Act of 1933, as
amended."
(c) Registration of Conversion Shares, Other Exemption. The Company shall use
its best efforts to cause the Conversion Shares to be registered for resale or
distribution under the Securities Act, all in accordance with the terms of the
Registration Rights Agreement in the form annexed hereto as Exhibit B and made a
part hereof.
8. CONDITIONS PRECEDENT TO CLOSING.
(a) Conditions Precedent to Obligations of the Investors. The obligation of each
Investor to purchase the Notes to be purchased by it at the Closing hereunder is
subject to the fulfillment on or prior to the Closing Date of the following
conditions:
(i) Such Investor shall have received an opinion, addressed to it and
each other Investor and dated the Closing Date, of counsel to the Company
acceptable to Investor, in the form of Exhibit C hereto and made a part hereof.
(ii) The representations and warranties made by the Company herein
shall be true and correct in all material respects on and as of the Closing Date
with the same effect as though such representations and warranties had been made
on and as of the Closing Date, and the Company shall have complied in all
material respects with all covenants hereunder required to be performed by it at
or prior to the Closing Date.
(iii) There shall not have occurred and be continuing any
Material Adverse Effect.
(iv) The purchase of the Notes agreed to be purchased by such Investor
hereunder shall not be prohibited or enjoined (temporarily or permanently) under
the laws of any jurisdiction to which such Investor is subject.
(v) The Company and the Investors shall have executed the Registration
Rights Agreement in substantially the form of Exhibit B hereto.
<PAGE>
(vi) All legal matters incident to the transactions contemplated by
this Agreement shall have been reasonably approved by counsel to the Investors.
(vii) Not less than $________ of the Notes offered hereby shall have
been subscribed for by Investors as at the Closing Date. Following the Closing
Date and until 5:00 p.m. (New York time) on the thirtieth (30th) day following
the Closing Date, the Company shall be entitled to continue to offer the Notes
to additional investors, until such time as a maximum of $3,000,000 of Notes
shall have been sold.
(viii) The Investors shall have received a certificate, dated the
Closing Date, and signed by the chief executive officer or chief financial
officer of the Company, stating that the conditions specified in subsections (i)
through (vii) of this Section 8(a) have been satisfied.
(b) Conditions Precedent to Obligations to the Company. The obligation of the
Company to issue and sell the Notes to be issued pursuant to this Agreement is
subject to the fulfillment on or prior to the Closing Date of the following
conditions:
(i) The representations and warranties made by the Investors herein
shall be true and correct in all material respects on and as of the Closing Date
with the same effect as though such representations and warranties had been made
on and as of the Closing Date.
(ii) The sale of the Notes by the Company shall not be prohibited or
enjoined (temporarily or permanently) as of the Closing Date.
(iii) The purchase of the Notes agreed to be purchased by such Investor
hereunder shall not be prohibited or enjoined (temporarily or permanently) under
the laws of any jurisdiction to which such Investor is subject.
(iv) All legal matters incident to the transactions contemplated by
this Agreement shall have been reasonably approved by counsel to the Company.
(v) Not less than $__________ of the Notes offered hereby shall have
been subscribed for by Investors as at the Closing Date. Following the Closing
Date and until 5:00 p.m. (New York time) on the thirtieth (30th) day following
the Closing Date, the Company shall be entitled to continue to offer the Notes
to additional investors, until such time as a maximum of $3,000,000 of Notes
shall have been sold.
9. CLOSING.
The closing hereunder (the "Closing") shall take place at 10:00 A.M. at the
offices of Greenberg Traurig Hoffman Lipoff Rosen & Quentel, 153 East 53rd
Street, New York, New York 10022 on or before __________, 1998, or at such other
location as may be mutually agreed upon. The date of such Closing is referred to
in this Agreement as the "Closing Date".
(a) At the Closing, in addition to true copies of the other Transaction
Documents duly executed by the Company, the Company shall deliver to each
Investor in the respective amounts set forth on Schedule 1 hereto a duly
executed Note in the form of Exhibit A hereto all against payment of the
purchase price therefor by wire transfer of immediately available funds or by
certified or bank cashier's check payable to the order of the Company.
(b) At the Closing, each Investor shall wire transfer the purchase price for the
Notes subscribed to by such Investor to the Bank of New York, as provided in the
Escrow Agreement attached as Exhibit D.
10. ADJUSTMENT TO TERMS OF NOTES.
In the event and to the extent that the Company shall, at any time within one
hundred and twenty (120) days following the Closing Date, issue any (a) notes,
debentures, bonds or other debt instruments which, by their terms, are
convertible into shares of Common Stock of the Company, (b) shares of preferred
stock, which, by their terms, are convertible into shares of Common Stock of the
Company, or (c) warrants, options or rights which are exercisable for shares of
Common Stock of the Company, excluding, however, warrants or options issued to
key employees, advisors and other consultants in the ordinary course of
business, or options, warrants or stock disclosed in the Form S-1 as effective
(all of the foregoing referred to herein as "Other Common Stock Equivalents"),
in each case, and such instruments are actually converted at a conversion price
which shall be lower than the Conversion Price set forth in the Notes offered
hereby, the Conversion Price for such time period set forth in the Notes shall
be automatically adjusted and amended to be equal to the terms of the lowest
conversion price provided for in the instruments governing the issuance of such
Other Common Stock Equivalents.
The parties agree that the purpose of paragraph 10 of this Agreement is to
protect the Investors under this Agreement against the Company issuing "cheap
stock" to anyone during the one hundred twenty (120) days following the closing.
Further, it is agreed that it is not the intent of paragraph 10 to preclude the
Company from seeking additional capital through the issuance of additional
equity or debt in the
<PAGE>
Company. The parties specifically agree that to the extent the Company issues
any equity or debt during such one hundred twenty (120) day period following the
closing under substantially similar terms and conditions and with substantially
similar formulae relative to conversion, that it is not the intention of this
Paragraph 10 that the Company will be required to automatically adjust the
Investor's Conversion price to a lower conversion price merely because someone
has elected to convert on a different date and has had the opportunity of a
different result by virtue of such election. The parties recognize the Company
can control the price at which it issues equity or debt or the terms and
conditions of conversion, if applicable; however the parties further recognize
that by virtue of the fluctuations in the market, both another closing date and
another election to convert date may result in a lower price, which prices are
generally outside the Company's control.
11. EXCHANGE OF NOTES.
At the request of any holder of any Note and upon surrender of any such Note for
such purpose to the Company at its principal office, the Company at its expense
will issue in exchange therefor a new Note, in such denomination or
denominations and payable to the order of such payee or payees as may be
requested, dated the date to which interest has been paid on the surrendered
Note, in an aggregate principal amount equal to the principal balance of the
surrendered Note. Such new Note shall be in the form of the surrendered Note.
12. REPLACEMENT OF NOTES
Upon receipt of evidence reasonably satisfactory to the Company of the loss,
theft, destruction or mutilation of any Note and, in the case of any such loss,
theft or destruction, upon delivery of an indemnity bond by the holder in such
reasonable amount as the Company may determine, or, in the case of any such
mutilation, upon surrender and cancellation of such Note, the Company at its
expense will execute and deliver, in lieu thereof, a new Note of like tenor
dated the date to which interest on such lost, stolen, destroyed or mutilated
Note has been paid.
13. BROKERS.
(a) The Investors represent and warrant to the Company that they have not
engaged or authorized any broker, finder, investment banker or other third party
to act on their behalf, directly or indirectly, as a broker, finder, investment
banker or in any other like capacity in connection with the transactions
contemplated by this Agreement nor have they consented to or acquiesced in
anyone so acting, and they know of no claim by any person for compensation from
them for so acting or of any basis for such a claim.
(b) The Company represents and warrants to the Investors that, except for Carey
as disclosed in Section 3(o) hereto, neither the Company nor any of its
officers, directors or agents has engaged or authorized any broker, finder,
investment banker or other third party to act on its behalf, directly or
indirectly, as a broker, finder, investment banker or in any other like capacity
in connection with the transactions contemplated by this Agreement nor has it
consented to or acquiesced in anyone so acting, and it knows of no claim by any
person for compensation from it for so acting or of any basis for such a claim.
14. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
All representations, warranties and agreements of the Company or of the
Investors contained in this Agreement or in any certificate, document, schedule
or instrument delivered pursuant hereto shall survive for a period of two (2)
years the Closing hereunder and the delivery of any and all documents and
instruments hereunder, regardless of any investigation made by or on behalf of
the Investors or the Company, respectively. All statements contained in any
certificate, schedule or other document delivered by the Company pursuant hereto
in connection with the transactions contemplated hereby shall be deemed
representations and warranties of the Company.
15. NOTICES.
Any notices or other communications required or permitted hereunder shall be in
writing and personally delivered or sent by telecopier or by registered or
certified mail, return receipt requested, postage prepaid, addressed or
telecopied as follows or to such other address or telecopier number of which
notice has been given pursuant hereto:
If to the Company: Environmental Remediation Holding Corp.
3-5 Audrey Avenue
Oyster Bay, New York 11771
Attn: James A. Griffin, Secretary
Fax: (516) 922-4312
-and-
Environmental Remediation Holding Corp.
Attn: Noreen Wilson, Vice President and CFO
Fax: (561) 624-1171
<PAGE>
With a copy to: Greenberg Traurig Hoffman Rosen Lipoff & Quentel
Met Life Building
200 Park Avenue
New York, New York 10166
Attn: Stephen A. Weiss, Esq.
Tel: (212) 801-9200
Fax: (212) 801-6400
-and-
Mintmire & Associates
265 Sunrise Avenue, Suite 204
Palm Beach, FL 33480
Attn: Donald F. Mintmire, Esq.
Tel: (561) 832-5696
Fax: (561) 659-5371
If to the Investors: To the addresses set forth below the name of
each Investor on Schedule I annexed hereto and
made a part hereof.
16. ENTIRE AGREEMENT: AMENDMENT ETC.
This Agreement and the Exhibits hereto represents the entire understanding and
agreement among the parties hereto with respect to the subject matter hereof.
With the written consent of the holders of 66-2/3% of the outstanding principal
amount of the Notes, the obligations of the Company and the rights of the
holders of the Notes may be waived or modified (either generally or in a
particular instance, either retroactively or prospectively and either for a
specified period of time or indefinitely), and with the same consent the
Company, when authorized by resolution of its Board of Directors ("Approved
Company Resolutions"), may enter into a supplementary agreement for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of this Agreement. Neither this Agreement nor any provision hereof
may be changed, waived, discharged or terminated orally, except by a statement
in writing authorized as aforesaid and signed by the party against which
enforcement of the change, waiver, discharge or termination is sought.
17. SUCCESSORS.
This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns.
18. SECTION READINGS.
The section headings contained in this Agreement are for reference purposes only
and shall not affect in any way the meaning or interpretation of this Agreement.
19. APPLICABLE LAW.
This Agreement shall be governed by, construed and enforced in accordance with
the laws of the State of New York, United States of America, without reference
to or application of principles of conflicts of laws.
20. SEVERABILITY.
If at any time subsequent to the date hereof, any provision of this Agreement
shall be held by any court of competent jurisdiction to be illegal, void or
unenforceable, such provision shall be of no force and effect, but the
illegality or unenforceability of such provision shall have no effect upon and
shall not impair the enforceability of any other provision of this Agreement.
21. NO WAIVER.
The failure of any party at any time or times to require performance of any
provision hereof shall in no manner affect the right at a later time to enforce
the same. No waiver by any party of any condition, or of the breach of any
provision, term, covenant, representation or warranty contained in this
Agreement, whether by conduct or otherwise, in any one or more instances shall
be deemed to be construed as a further or continuing waiver of any such
condition or of the breach of any other provision, term, covenant,
representation or warranty of this Agreement.
<PAGE>
22. RESOLUTION OF DISPUTES.
Any dispute regarding the interpretation or application of this Agreement, the
Note, the Warrant, the Registration Rights Agreement or any of the other
Transaction Documents which cannot be settled among the parties shall be
resolved in New York, New York final and binding arbitration in accordance with
the then obtaining rules of the American Arbitration Association. There shall be
appointed three arbitrators, one of whom shall be selected by the Company, the
second by the Investor(s) and the third by mutual agreement of the parties or by
the American Arbitration Association. The decision of the arbitrators shall be
final and upon all Investors and the Company and may be enforced by the
prevailing party or parties in any court of competent jurisdiction. Each party
shall bear their own costs of the arbitration and shall share equally the costs
of the arbitrators.
23. ATTORNEY FEES.
Investors shall be entitled to recover from the Company the reasonable
attorneys' fees and expenses (and the reasonable costs of investigation)
incurred by such Holder in connection with enforcement by such Holder of any
obligation of the Company hereunder.
24. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF the parties hereto have duly executed this Agreement as of
the date first written.
ENVIRONMENTAL REMEDIATION HOLDING
CORPORATION
By: ______________________________________
James A. Griffin, Secretary
By: ______________________________________
Sam Bass, Chairman
THE INVESTORS:
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
SCHEDULE 1
Name/Address of Investor/Amt.of Note/No. of Warrants/Purchase Price
SCHEDULE 2
Subsidiaries
There are no subsidiaries other than BAPCO.
SCHEDULE 3(f)
Litigation, Proceedings: Defaults
A requirement of the funding provided to the Company on November 15, 1997 from
Avalon was that the Company would file its registration statement within
forty-five (45) days of the funding. The Form S-1 was filed on January 8, 1998,
however, this eight (8) day lateness was waived by the Avalon investors. In
addition, the Company had agreed to use its best effort to have its registration
declared effective within one hundred twenty (120) days of the November 15, 1997
closing.
The Company believes that it has used its best efforts to have its registration
declared effective. The Avalon agreements required that in the event that the
registration statement was not effective within one hundred twenty (120) days,
that the Company would pay as liquidated damages an amount equal to three
percent (3%) of the aggregate amount of the notes per month. The initial
comments and the comments to the Amended Form S-1 have delayed registration.
While most of the comments received on the Amended Form S-1 are purely
accounting matters which the Company believes have now been resolved, as a
result of the delay in registration, pursuant to the Avalon agreements, the
Avalon investors are due $129,999 for the months of April, May and June. The
Company intends to use a part of the proceeds from this transaction to cure the
default in the payment of such liquidated damage payments.
<PAGE>
In the Kingsbridge agreements, the Company had agreed to use its best effort to
have its registration declared effective within ninety (90) days of the March
23, 1998 closing. The Company believes that it has used its best efforts to have
its registration declared effective. The Kingsbridge agreements required that in
the event that the registration statement was not effective within such ninety
(90) period, that the Company would be required to make a lump sum payment in
the amount of $10,000 within three (3) trading days of the date by which such
registration statement was required to have been declared effective. Such ninety
(90) period ended on June 21, 1998. Said sums are due and owing on or before
June 24, 1998. The Company intends to use a part of the proceeds from this
transaction to make such payment.
SCHEDULE 3(j)
Absence of Certain Changes or Events
To the extent of changes in the Company's accounting disclosure, the Company
believes that the restatement of the financial position of the Company is
material relative to all SEC reports since June 30, 1997 and that such SEC
reports must be amended to the extent of the planned revisions disclosed herein.
SCHEDULE 3(k)
Absence of Litigation
There is no claim, action proceeding or litigation pending or threatened which
has not been disclosed in an SEC Report.
SCHEDULE 3(l)
Labor Matters
None
SCHEDULE 3(m)
Title to and Sufficiency of Assets
There are Liens which have not been disclosed in an SEC Report.
SCHEDULE 3(n-1)
Environmental Matters - Notice
None
SCHEDULE 3(n-2)
Environmental Compliance - Hazardous Waste
None
EXHIBITS
EXHIBIT A -Form of 8.0% Convertible Note due _____, 2000
EXHIBIT B -Form of Registration Rights Agreement
EXHIBIT C -Opinion of Company Counsel
EXHIBIT D -Form of the Escrow Agreement
<PAGE>
EXHIBIT 4.11
This Note has not been registered under the Securities Act of 1933, as amended.
No transfer of this Note shall be valid or effective except in accordance with
the applicable requirements of the Securities Act of 1933, as amended.
CONVERTIBLE NOTE
As of ____________, 1998 New York, New York
$____________________
FOR VALUE RECEIVED, ENVIRONMENTAL REMEDIATION HOLDING CORPORATION, a Colorado
corporation (the "Company"), hereby promises to pay to the order of
______________________, or any subsequent holder of this Note (the "Payee"), at
____________________________, or at such other place as may be designated by the
Payee from time to time by notice to the Company, the principal sum of
________________Thousand ($_____) Dollars, together with interest from the date
hereof on the unpaid principal amount hereof at an annual rate equal to eight
percent (8.0%) per annum. Such principal and interest shall be paid in
accordance with the terms of Section 1 below, in cash or by wire transfer to
such account as the Payee shall direct, in immediately available funds and in
lawful currency of the United States of America.
1. PAYMENTS.
(a) Unless previously fully converted into Common Stock of the Company as herein
provided, the unpaid principal amount of this Note shall be payable to the Payee
in cash on _____________, 2000 (the "Maturity Date"); provided, however, that
the Company may, at its sole option, by written notice given to the Payee at any
time prior to the Maturity Date, make payment of the entire unpaid principal
amount of this Note on the Prepayment Date (as defined herein) by delivering to
the Payee such number of shares of Common Stock of the Company as shall be
determined by dividing (i) the entire principal amount of this Note remaining
unpaid on the Prepayment Date and interest , by (ii) the Conversion Price (as
herein defined) in effect on the Prepayment Date.
(b) Interest on the unpaid principal balance of this Note at the rate of eight
percent (8.0%) per annum shall accrue from the date hereof and shall be payable
quarterly on the last day of each January, April, July and October, commencing
on October 31, 1998 (each an "Interest Payment Date"), until the entire unpaid
principal amount hereof shall have been paid. The Company may pay interest on
this Note, when due on any Interest Payment Date, either in cash or by delivery
to the Payee or one or more additional notes, each of which shall be (i)
functionally equivalent to the terms and conditions of this Note, and (ii) in
principal amount equal to all accrued and unpaid interest due on such Interest
Payment Date (the "Additional Note"). All reference herein to the "Note" shall
mean and include each Additional Note delivered by the Company pursuant to the
provisions hereof. In addition, and in lieu or paying interest on this Note in
cash or by the issuance of Additional Notes, at the Company's option, the
Company may allow all of any portion of the interest on this Note to accrue and,
upon conversion of this Note, all such accrued and unpaid interest shall be
payable in additional shares of Common Stock at the Conversion Price in effect
on the Interest Payment Date.
(c) In the event that any payment of principal and/or interest hereunder becomes
due and payable on a Saturday, Sunday or other day on which commercial banks in
the State of New York are authorized or required by law to close, then the
maturity thereof shall be extended to the next succeeding business day; and
during any such extension, interest on principal amounts payable shall accrue
and be payable at the applicable rate.
2. REFERENCE TO SECURITIES PURCHASE AGREEMENT.
This Note is one of the Notes of the Company originally issued pursuant to that
certain Securities Purchase Agreement, dated as of ____________, 1998, by and
among the Company, the above-named Payee and certain other parties (the
"Securities Purchase Agreement"). The holder hereof is entitled to the benefits
of the Securities Purchase Agreement and all Exhibits thereto, including all
"Transaction Documents" referred to therein, and may enforce the obligations of
the Company contained in the Securities Purchase Agreement and exercise the
remedies provided for therein or otherwise available in respect thereof.
Capitalized terms, unless otherwise defined herein, have the respective meanings
ascribed to them in the Securities Purchase Agreement.
3. RANKING OF NOTE.
Subject at all time to the subordination provisions set forth in Section 11
hereof, this Note, together with the other Notes issued pursuant to the
Securities Purchase Agreement, shall constitute senior securities of the Company
and, except as provided below, shall rank
<PAGE>
pari passu with all other indebtedness for money borrowed by the Company and
senior to any other indebtedness for money borrowed of the Company which, by its
terms shall be made expressly subject and subordinated to this Note.
4. PREPAYMENT OF NOTE.
(a) Subject at all times to the holder's right to convert all or any portion of
this Note into Common Stock pursuant to Section 5 hereof at any time on or
before the 'Prepayment Date' (as herein defined), as long as no Event of Default
shall have occurred, the principal amount of this Note may be prepaid, at the
option of the Company, upon not less than ten (10) days' prior written notice to
the holder of this Note (the "Prepayment Notice"), in whole or in part without
premium or penalty at any time or from time to time from and after the date of
the initial issuance of the Note (the "Issuance Date").
(b) Each Prepayment Notice shall specify the principal amount of this Note and
all other outstanding Notes to be redeemed and the applicable Prepayment Date.
Each prepayment of principal of this Note shall be accompanied by the payment of
all interest accrued and unpaid to the prepayment date on the amount so prepaid.
Each such prepayment shall be made by wire transfer of immediately available
funds or by bank cashier's check payable to the Payee and shall be on a date
(the "Prepayment Date") which shall be not earlier than five (5) business days
following delivery of the Note by the holder. Any partial prepayment of this
Note, whether optional or mandatory, shall be applied first to accrued and
unpaid interest hereon, and then to the outstanding principal amount of this
Note in the inverse order of maturity. In the event the Company fails to wire
transfer funds within the time provided herein, the Company shall be required to
pay the holder a sum equal to two (2%) percent per month until such prepayment
is made.
(c) Notwithstanding anything to the contrary set forth in this Section 4, in the
event and to the extent that the Company shall provide the holder of this Note
with a Prepayment Notice, it shall simultaneously provide to the holder of this
Note evidence of the availability of funds to effect such prepayment; which
evidence of availability of funds shall include, without limitation, (i)
confirmation of cash or cash equivalent bank balances, (ii) an irrevocable bank
letter of credit, or (iii) a written commitment from a recognized lending
institution to effect the financing of such prepayment.
5. CONVERSION.
Subject at all times to the Company's right to prepay the Notes as provided in
Section 4 hereof, the holders of the Notes shall have the following conversion
rights (the "Conversion Rights"):
(a) Voluntary Conversion. At any time or from time to time commencing (i) on the
30th day following the Issuance Date, the holder of this Note may elect to
convert up to thirty three and one-third (33-1/3 %) percent of the original
principal amount of this Note, (ii) an additional thirty three and one-third
(33-1/3%) percent of the original principal amount of this Note may be converted
every thirty (30) days thereafter and (iii) on the 90th day following the
Issuance Date, the holder of this Note may elect to convert one hundred (100%)
percent of the original principal amount of this Note, into shares of Common
Stock of the Company, by written notice given to the Company in accordance with
the provisions of Section 5(h) hereof (the "Conversion Notice"). In no event may
the holder of this Note effect a conversion of less than $10,000 principal
amount of this Note. Subject to the foregoing, the holder of this Note may elect
to convert (a "Voluntary Conversion") all or any portion of the principal amount
of this Note held by such person into a number of fully paid and nonassessable
shares of Common Stock equal to the quotient which results when the Conversion
Price (as defined below) in effect as of the date of the Conversion Notice is
divided into the aggregate principal amount of all or any portion of this Note
outstanding plus all accrued but unpaid interest thereof to be so converted.
Such right of Voluntary Conversion shall be effected by the surrender of the
Note to be converted to the Company within one (1) business days of transmission
of the Conversion Notice at the office of the Company, accompanied (i) by the
original Conversion Notice, (ii) if so required by the Company, by instruments
of transfer, in form satisfactory to the Company, duly executed by the
registered holder or by his duly authorized attorney and (iii) transfer tax
stamps or funds therefore, if required pursuant to Section 5(g) herein.
(b) Automatic Conversion. Prior to _____, 2000, the Company shall not have the
right to compel any holder of Note to convert such Note into Common Stock or any
other securities of the Company. Effective as of _________, 2000, to the extent
not previously converted by the holders, all remaining principal amount of this
Note, together with all accrued interest hereon, shall automatically and without
further action on the part of such holders, be converted into Common Stock of
the Company at the Conversion Price then in effect.
<PAGE>
(c) Conversion Price. Subject to adjustment from time to time as provided in
Section 5(d) below, the term "Conversion Price" shall mean the lowest of:
(i) 120% of the average of the Closing Bid Price (as defined below) for
the five (5) consecutive trading days immediately preceding the Issuance Date
(the "Issuance Date Conversion Price"); or
(ii) the product of multiplying (A) the average of the Closing Bid
Price for the five consecutive trading days preceding the applicable date of the
Conversion Notice on which all or part of this Note shall be converted, by (B)
seventy-five percent (75%).
As used herein, the term 'Closing Bid Price' shall mean the closing bid price
per share of the Company's Common Stock as reported by Bloomberg, L.P.
("Bloomberg"), on any one of the following exchanges which shall be the primary
exchange on which such Common Stock shall then be quoted; namely, (a) the AMEX,
(b) the NASDAQ National Market System ("NASDAQ NMS "), (c) the NASDAQ System
(other than the NASDAQ NMS), (d) the New York Stock Exchange, or (e) the
National Quotation Bureau, Inc. for quotes on the Electronic Bulletin Board or
the "Pink Sheets", as the case may be, for the applicable number of consecutive
trading days immediately preceding the Issuance Date, the date of the Conversion
Notice, or other applicable date specified in Section 5(d), as the case may be.
(d) Adjustments of Conversion Price. The Conversion Price in effect
from time to time shall be, subject to adjustment in accordance with
the provisions of this Section 5(d).
(i) Adjustments for Stock Splits and Combinations. If the Company shall
at any time or from time to time after the Issuance Date, effect a stock split
of the outstanding Common Stock, the applicable Conversion Price in effect
immediately prior to the stock split shall be proportionately decreased (or in
increased in the case of a reverse stock split). If the Company shall, at any
time or from time to time after the Issuance Date, combine the outstanding
shares of Common Stock, the applicable Conversion Price in effect immediately
prior to the combination shall be proportionately increased. Any adjustments
under this Section 5(d)(i) shall be effective at the close of business on the
date the stock split or combination occurs.
(ii) Adjustments for Certain Dividends and Distributions. If the
Company shall at any time or from time after the Issuance Date, make or issue or
set a record date for the determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in shares of Common Stock,
then, and in each event, the applicable Conversion Price in effect immediately
prior to such event shall be decreased as of the time of such issuance or, in
the event such a record date shall have been fixed, as of the close of business
on such record date, by multiplying, as applicable, the applicable Conversion
Price then in effect by a fraction;
(A) the numerator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date; and
(B) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date plus the number of
shares of Common Stock issuable in payment of such dividend or distribution.
(iii) Adjustment for Other Dividends and Distributions. If the Company
shall at any time or from time to time after the Issuance Date, make or issue or
set a record date for the determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in other than shares of Common
Stock, then, and in each event, an appropriate revision to the Conversion Price
shall be made and provision shall be made (by adjustments of the Conversion
Price or otherwise) so that the holder of this Note shall receive upon
conversions thereof, in addition to the number of shares of Common Stock
receivable thereon, the number of securities of the Company which they would
have received had this Note been converted into Common Stock on the date of such
event and had thereafter, during the period from the date of such event to and
including the Conversion Date, retained such securities (together with any
distributions payable thereon during such period), giving application to all
adjustments called for during such period under this Section 5(d)(iii) with
respect to the rights of the holders of the Note.
(iv) Adjustments for Reclassification, Exchange or Substitution. If the
Common Stock issuable upon conversion of this Note at any time or from time to
time after the Issuance Date shall be changed into the same or different number
of shares of any class or classes of stock, whether by reclassification,
exchange, substitution or otherwise (other than by way of a stock split or
combination of shares or stock dividends provided for in Sections 5(d)(i), (ii)
and (iii), or a reorganization, merger, consolidation, or sale of assets
provided for
<PAGE>
in Section 5(d)(v)), then, and in each event, an appropriate revision to the
Conversion Price shall by made and provisions shall be made (by adjustments of
the Conversion Price of otherwise) so that the holder of this Note shall have
the right thereafter to convert such Note into the kind and amount of shares of
stock and other securities receivable upon reclassification, exchange,
substitution or other change, by holders of the number of shares of Common Stock
into which such Note might have been converted immediately prior to such
reclassification, exchange, substitution or other change, all subject to further
adjustment as provided herein.
(v) Adjustments for Reorganization, Merger, Consolidation or Sales of
Assets. If at any time or from time to time after the Issuance Date there shall
be a capital reorganization of the Company (other than by way of a stock split
or combination of shares or stock dividends or distributions provided for in
Section 5(d)(i), (ii) and (iii), or a reclassification, exchange or substitution
of shares provided for in Section 5(d)(iv)), or a merger or consolidation of the
Company with or into another corporation, or the sale of all or substantially
all of the Company's properties or assets to any other person, then as a part of
such reorganization, merger, consolidation, or sale, an appropriate revision to
the Conversion Price shall be made and provision shall be made (by adjustments
of the Conversion Price or otherwise) so that the holder of this Note shall have
the right thereafter to convert this Note into the kind and amount of shares of
stock and other securities or property of the Company or any successor
corporation resulting from such reorganization, merger, consolidation, or sale,
to which a holder of Common Stock deliverable upon conversion of such shares
would have been entitled upon such reorganization, merger, consolidation, or
sale, to which a holder of Common Stock deliverable upon conversion of such
shares would have been entitled upon such reorganization, merger, consolidation,
or sale. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 5(d)(v) with respect to the rights
of the holders of this Note after the reorganization, merger, consolidation, or
sale to the end that the provisions of this Section 5(d)(v) (including any
adjustment in the applicable Conversion Ratio then in effect and the number of
shares of stock or other securities deliverable upon conversion of this Note)
shall be applied after that event in as nearly an equivalent manner as may be
practicable.
(vi) Adjustments after Registration Statement is Effective.
Notwithstanding any other provision contained in this Section 5(d), the
Conversion Price shall be adjusted following the effective date of the Company's
registration statement on Form S-1 or any other appropriate registration form
(the "Registration Statement") filed with the Securities and Exchange Commission
("SEC") (the "Effective Date") as follows:
(A) for conversions beginning 90 days after the Effective
Date, the Conversion Price shall be equal to the lower of (1) the Issuance Date
Conversion Price; or (2) 77.5% of the average of the Closing Bid Price for the
five (5) days trading immediately preceding the date of the Conversation Notice;
and
(B) for conversions beginning 120 days after the Effective
Date, the Conversion Price shall be equal to the lower of (1) the Issuance Date
Conversion Price; or (2) 75.0% of the average of the Closing Bid Price for the
five (5) days trading immediately preceding the date of the Conversion Notice.
(e) No Impediment. The Company shall not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith, assist in the carrying out of all the provisions of this Section 5 and in
the taking of all such action as may be necessary or Appropriate in order to
protect the Conversion Rights of the holder of the Note against impairment.
(f) Certificate as to Adjustments. Upon occurrence of each adjustment or
readjustment of the Conversion Price or number of shares of Common Stock
issuable upon conversion of the Note pursuant to this Section 5, the Company, at
its expense, shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish notice to each holder of such Note,
a certificate setting forth such adjustment and readjustment, showing in detail
the facts upon which such adjustment or readjustment is based. The Company shall
furnish or cause to be furnished to such holder a like certificate setting forth
such adjustments and readjustments, the applicable Conversion Price in effect at
the time and the number of shares of Common Stock and the amount, if any, of
other securities or property which at the time would be received upon the
conversion of such Note. Notwithstanding the foregoing, the Company shall not be
obligated to deliver a certificate unless such certificate would reflect an
increase or decrease of at least one percent of such adjusted amount.
<PAGE>
(g) Issue Taxes. The Company shall pay any and all issue and other taxes,
excluding federal, state or local income taxes, that may be payable in respect
of any issue or delivery of shares of Common Stock on conversion of this Note
pursuant hereto; provided, however, that the Company shall not be obligated to
pay any transfer taxes resulting from any transfer requested by any holder in
connection with any such conversion.
(h) Notices and Delivery of Shares. All notices and other communications
hereunder shall be in writing and shall be deemed given and effective (i) on the
same date, if delivered personally or by facsimile by not later than 7:00 p.m.
New York time (with a courtesy copy of such facsimile simultaneously sent by fax
to Counsel for the Company), or (ii) three (3) business days following being
mailed by certified or registered mail, postage prepaid, return-receipt
requested, addressed to the holder of record at its address appearing on the
books of the Company. The Company shall, immediately upon receipt of a
Conversion Notice, issue and deliver to or upon the order of such holder,
against delivery of the Notes which have been converted, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled and such certificate or certificates shall not bear any restrictive
legend; provided, (i) the Common Stock evidenced thereby are sold pursuant to an
effective registration statement under the Securities Act, (ii) the holder
provides the Company with an opinion of counsel reasonably acceptable to the
Company to the effect that a public sale of such shares may be made without
registration under the Securities Act, or (iii) such holder provides the Company
with reasonable assurance that such shares can be sold free of any limitations
imposed by Rule 144, promulgated under the Securities Act. The Company shall
cause such issuance and delivery to be effected within three (3) business days
and shall transmit the certificates by messenger or overnight delivery service,
or via the DWAC system, to reach the address designated by such holder within
three (3) business days after the receipt of such notice.
(i) Fractional Shares. No fractional shares of Common Stock shall be issued upon
conversion of the Note. In lieu of any fractional shares to which the holder
would otherwise be entitled, the Company shall pay cash equal to the product of
such fraction multiplied by the average trade price of one share of the
Company's Common Stock on the applicable Conversion Date.
(j) Reservation of Common Stock. The Company shall at all times reserve and keep
available, out of its authorized but unused shares of Common Stock, solely for
the purpose of effecting the conversion of the Notes, 200% of the number of
shares deliverable upon conversion of all the Note from time to time
outstanding. The Company shall, from time to time in accordance with the
Colorado General Corporations Law, as amended, increase the authorized number of
shares of Common Stock if at any time the unused number of authorized shares
shall not be sufficient to permit the conversion of all of the Note at the time
outstanding. In such connection, the Company shall hold a special meeting of
stockholders for the purpose of authorizing additional shares of Common Stock
not later than 120 days after any date in which the Company shall have
insufficient shares of Common Stock so reserved.
(k) Retirement of Note. Conversion of this Note shall be deemed to have been
effected on the applicable Conversion Date. The converting holder shall be
deemed to have become a stockholder of record of the Common Stock on the
applicable Conversion Date. Upon conversion of only a portion of this Note, the
Company shall issue and deliver to such holder at the expense of the Company,
against receipt of the original note delivered for partial cancellation, a new
Note representing the unconverted portion of this Note so surrendered.
(l) Regulatory Compliance. If any shares of Common Stock to be reserved for the
purpose of conversion of this Note require registration or listing with or
approval of any government authority, stock exchange or other regulatory body
under any federal or state law or regulation or otherwise before such shares may
be validly issued or delivered upon conversion, the Company shall, at its sole
cost and expense, in good faith and as expeditiously as possible, endeavor to
secure such registration, listing or approval, as the case may be.
(m) Limitations on Amount of Conversion. Notwithstanding anything contained in
this Note to the contrary, in no event shall any holder of Note be entitled or
required to convert this Note in excess of that number of shares of Note which,
upon giving effect to such conversion, would cause the aggregate number of
shares of Common Stock beneficially owned by the holder and its affiliates to
exceed 4.9% of the outstanding shares of the Company's Common Stock immediately
following such conversion. For purposes of the foregoing proviso, the aggregate
number of shares of Common Stock beneficially owned by the holder and its
affiliates shall include the number of shares of Common Stock issuable upon
conversion of this Note with respect to which the determination of such proviso
is being made, but shall exclude the number of shares of Common Stock which
would be issuable upon (i) conversion of the remaining, unconverted Note
beneficially owned by
<PAGE>
such holder and its affiliates, and (ii) exercise or conversion of the
unexercised or unconverted portion of any other securities of the Company which
are beneficially owned by the holder and its affiliates and which are subject to
a limitation on conversion or exercise analogous to the limitation contained
herein. Except as set forth in the preceding sentence, for purposes of this
paragraph, beneficial ownership shall be calculated in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended. Any holder of Note may
waive the foregoing limitations set forth in this paragraph by written notice to
the Company upon not less than 30 days prior notice (with such waiver taking
effect only upon the expiration of such 30-day notice period).
(n) In the event the Company does not make delivery of the certificates of
Common Stock, as instructed by a holder, within five (5) business days after the
Date of Conversion, then in such event the Company shall pay to the holder an
amount, in immediately available funds in accordance with the following
schedule, wherein "No. Business Days Late" is defined as the number of business
days beyond the five (5) business days delivery period.
Late Payment for Each
Principal Amount Being $10,000 of Notes
No. Business Days Late Converted (U.S. $)
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
11 $1,000 + $200 for
each Business Day Late
Beyond 10 days
To the extent that the failure of the Company to issue the certificates of
Common Stock pursuant to this Section 5(n) is due to the unavailability of
authorized but unissued shares of Common Stock, the provisions of this Section
5(n) shall not apply but instead the provisions of Section 5(o) shall apply. The
Company shall pay any payments incurred under this Section 5(n) in immediately
available funds within five (5) business days from the date of issuance of the
certificates of applicable Common Stock. Nothing herein shall limit a holder's
right to pursue actual damages for the Company's failure to issue and deliver
Common Stock to the holder within three (3) business days after the Date of
Conversion.
(o) If, at any time, a holder submits a Notice of Conversion and the
Company does not have sufficient authorized but unissued shares of Common Stock
available to effect, in full, a conversion of the Notes (a "Conversion Default,"
the date of such default being referred to herein as the "Conversion Default
Date"), the Company shall issue to the holder a certificate representing all of
the shares of Common Stock which are available, and the Notice of Conversion as
to any Notes requested to be converted but not converted (the "Unconverted
Notes") shall become null and void. The Company shall provide notice of such
Conversion Default ("Notice of Conversion Default" to all existing holders of
outstanding Notes, by facsimile, within one (1) business day of such default
(with the original delivered by overnight or two day courier). No holder may
submit a Notice of Conversion after receipt of Notice of Conversion Default
until the date additional shares of Common Stock are authorized by the Company.
The Company agrees to pay to all holders of outstanding Notes payments for a
Conversion Default ("Conversion Default Payments") in the amount of (N/365 x
(.24) x the initial issuance price of the outstanding Notes held by each holder
where N = the number of days from the Conversion Default Date to the date (the
"Authorization Date") that the Company authorizes a sufficient number of shares
of Common Stock to affect conversion of all remaining Notes. The Company shall
send notice ("Authorization Notice") to each holder of outstanding Notes that
additional shares of Common Stock have been authorized, the Authorization Date
and the amount of holder's accrued Conversion Default Payments. The accrued
Conversion Default shall be paid in immediately available funds, or shall be
convertible into Common Stock at the Conversion Rate, at the holder's option,
payable as follows: (i) in the event holder elects to take such payment in
immediately available funds, payments shall be made to such holder of
outstanding Notes by the fifth day of the following calendar month, or (ii) in
the event holder elects to take such payment in stock, the holder may convert
such payment amount into Common Stock at the Conversion Rate at anytime after
the 5th day of the calendar month following the month in which the Authorization
Notice was received, until the expiration of the Mandatory Conversion Date (as
defined herein).
Nothing herein shall limit the holder's right to pursue actual
damages for the Company's failure to maintain a sufficient number of authorized
shares of common stock.
<PAGE>
(p) Nothing contained herein shall require the Company to issue upon receipt of
a Notice of Conversion in excess of 20% of its issued and outstanding Common
Stock as provided in NASDAQ Marketplace Rule 4320 (e) (21) (H) (the "NASD 20%
Rule") unless and until the Shareholder Approval (as defined herein) has been
obtained by the Company. In the event the Company does not issue its Common
Stock after receipt of a Notice of Conversion because of the NASD 20% Rule, then
in such event the Company shall pay to the holder 133% of the principal balance
remaining on the Notes plus all accrued interest. Said amount shall be paid to
the holder within five (5) business days of the receipt of the faxed Notice of
Conversion from holder.
6. EVENTS OF DEFAULT.
The occurrence and continuance of any one or more of the following events is
herein referred to as an Event of Default:
(a) If the Company shall default in converting the applicable principal amount
of this Note into Common Stock and delivering stock certificates in respect of
such conversion by the Delivery Date; or
(b) If the Company shall default in the payment either in cash or Additional
Notes of any installment of interest on this Note when payable in accordance
with the terms thereof for more than ten (10) business days after the same shall
become due; or
(c) If the Company shall not, at the time of receipt of a Conversion Notice
hereunder, have a sufficient number of authorized and unissued shares of its
Common Stock available for issuance to the holder of this Note upon conversion
of all or any portion of this Note in accordance with the terms hereof, and such
default shall not have been remedied within sixty (60) calendar days from the
date of such Conversion Notice; or
(d) If the Company shall default in the performance of or compliance with any of
its material covenants or agreements contained herein or in the Securities
Purchase Agreement, and such default shall not have been remedied within thirty
(30) calendar days after written notice thereof shall have been delivered to the
Company by the holder of this Note; or
(e) If any representation or warranty made in writing by or on behalf of the
Company in the Securities Purchase Agreement or in connection with the
transactions contemplated thereby shall prove to have been false or incorrect in
any material respect on the date as of which made; or
(f) If the Company or any of its Significant Subsidiaries shall make an
assignment for the benefit of creditors, or shall admit in writing its inability
to pay its debts as they become due, or shall file a voluntary petition in
bankruptcy or shall have an order for relief under the Bankruptcy Act granted
against it or them, or shall be adjudicated a bankrupt or insolvent, or shall
file any petition or answer seeking for itself any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under any
present or future statute, law or regulation, or shall file any answer admitting
or not contesting the material allegations of a petition filed against the
Company or any of its Significant Subsidiaries in any such proceeding, or shall
seek or consent to or acquiesce in the appointment of any trustee, custodian,
receiver or liquidator of the Company or of all or any substantial part of the
properties of the Company or any of its Significant Subsidiaries, or the Company
or its directors shall take any action looking to the dissolution or liquidation
of the Company or any of its Significant Subsidiaries. For purposes of this
Section 6(f), the term Significant Subsidiary shall mean and include Bass
American Petroleum Corp. and any other person, firm or corporation (i) more than
50% of the common stock or equity interests of which are owned of record by the
Company or any Subsidiary of the Company, and (ii) the net income before taxes
or total assets of which represent more than 15% of the consolidated net income
before taxes or consolidated assets of the Company and all of its Subsidiaries;
of
(g) If, within sixty (60) days after the commencement of any proceeding against
the Company or any Significant Subsidiary seeking any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any present or future statute, law or regulation, such proceeding
shall not have been dismissed, or if, within sixty (60) days after the
appointment, without the consent or acquiescence of the Company or any
Significant Subsidiary, of any trustee, receiver or liquidator of the Company or
any Significant Subsidiary or of all or any substantial part of the properties
of the Company or any Significant Subsidiary, such appointment shall not have
been vacated.
(h) The Company shall have its Common Stock suspended or delisted from trading
on the NASDAQ SmallCap market. Then, or any time thereafter, and in each and
every such case, unless such Event of Default shall have been waived in writing
by the holder (which waiver
<PAGE>
shall not be deemed to be a waiver of any subsequent default) at the option of
the holder and in the holder's sole discretion, the holder may consider this
Note immediately due and payable without presentment, demand, protest or notice
of any kinds, all of which are hereby expressly waived, anything herein or in
any note or other instruments contained to the contrary notwithstanding, and the
holder may immediately enforce any and all of the holder's rights and remedies
provided herein or any other rights or remedies afforded by law.
7. REMEDIES ON DEFAULT; ACCELERATION.
Upon the occurrence and during the continuance of an Event of Default, the
entire unpaid balance of principal and accrued interest on this Note may be
accelerated and declared to be immediately due and payable by the Payee. Whether
or not the Notes is accelerated or declared to be immediately due and payable by
the Payee, the Company agrees to pay the maximum rate of interest permitted
under New York law from the date any payment of principal and/or interest was
due until the date payment of such amount is actually made. Unless waived by the
written consent of persons holding 66-2/3 % or more in aggregate principal
amount of the Notes of the Company issued under the Securities Purchase
Agreement (including the Payee), the Payee and other holders of any of the Notes
at the time outstanding may proceed to protect and enforce the rights of such
holder by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained herein, or for
an injunction against a violation of any of the terms hereof, or in aid of the
exercise of any power granted hereby or by law. In the event of an Event of
Default, the Company agrees to pay to the holder of this Note such further
amount as shall be sufficient to cover the cost and expense of collection,
including, without limitation, reasonable attorneys' fees and expenses and
reasonable costs of investigation. If the holder of any Note shall give any
notice or take any action in respect of a claimed default, the Company will
forthwith give written notice thereof to the holder of this Note at the time
outstanding describing the notice or action and the nature of the claimed
default. No course of dealing and no delay on the part of the holder of this
Note or the holder of any other Note in exercising any right, power or remedy
shall operate as a waiver thereof or otherwise prejudice such holder's rights,
powers and remedies. No right, power or remedy conferred hereby upon the holder
hereof shall be exclusive of any other right, power or remedy referred to herein
nor now or hereafter available at law, in equity, by statute or otherwise.
(8) WAIVER OF PRESENTMENT; MAXIMUM RATE OF INTEREST.
(a) The Company and each surety, endorser, and guarantor or other party liable
for the payment of any sums of money payable on this Note severally waive all
demands for payment, presentations for payment, notices of dishonor, notices of
intention to accelerate maturity, notices of acceleration of maturity, protests,
and notices of protest, to the extent required by law.
(b) It is expressly stipulated and agreed to be the intent of the Company and
the holders of this Note at all times to comply with the applicable law
governing the maximum rate of interest payable on or in connection with all
indebtedness and transactions hereunder (or applicable United States federal law
to the extent that it permits holders of this Note to contract for, charge,
take, reserve or receive a greater amount of interest). If the applicable law is
ever judicially interpreted so as to render usurious any amount of money or
other consideration called for hereunder, or contracted for, charged, taken,
reserved or received with respect to any loan or advance hereunder, or if
acceleration of the maturity of the Note or the indebtedness hereunder or if any
prepayment by the Company results in the Company's having paid any interest in
excess of that permitted by law, then it is the Company's and holders' express
intent that all excess cash amounts theretofore collected by holder by credited
on the principal balance of this Note (or if this Note has been or would thereby
be paid in full, refunded to the Company), and the provisions of this Note
immediately be deemed reformed and the amounts thereafter collectible hereunder
reduced, without the necessity of the execution of any new document, so as to
comply with the applicable law, but so as to permit the recovery of the fullest
amount otherwise called for hereunder. The right to accelerate maturity of this
Note does not include the right to accelerate any interest which has not
otherwise accrued on the date of such acceleration, and holder does not intend
to collect any unearned interest in the event of acceleration.
9. NOTICES.
All notices, requests, demands or other communications under this Note shall be
given in the same manner as provided in the Securities Purchase Agreement.
10. GOVERNING LAW; RESOLUTION OF DISPUTES.
(a) This Note shall be governed by, and construed and interpreted in accordance
with, the laws of the State of New York, without giving effect to conflict of
law principles.
<PAGE>
(b) Any dispute regarding the interpretation or application of this Note which
cannot be settled among the parties shall be resolved in New York, New York
final and binding arbitration in accordance with the then obtaining rules of the
American Arbitration Association. There shall be appointed three arbitrators,
one of whom shall be selected by the Company, the second by the holder and the
third by mutual agreement of the parties or by the American Arbitration
Association. The decision of the arbitrators shall be final and upon the holder
and the Company and may be enforced by the prevailing party or parties in any
court of competent jurisdiction. Each party shall bear their own costs of the
arbitration and shall share equally the costs of the arbitrators.
11. SUBORDINATION TO SENIOR DEBT.
(a) Payment of the principal of and interest on this Note and all other Notes
issued under the Securities Purchase Agreement is subordinated, to the extent
and in the manner provided herein, to the prior payment of all indebtedness of
the Company and/or all Subsidiaries of the Company, for money borrowed or other
obligations which is now or may hereafter be owed (collectively, "Senior Debt")
to any bank, commercial finance company, factor, insurance company or other
institution the lending activities are regulated by law (individually, a "Senior
Lender" and collectively, "Senior Lenders"), which may, hereafter on any one or
more occasions provide financing to the Company or any of its Subsidiaries,
secured by liens on any of the assets and properties of the Company and/or any
of its Subsidiaries (individually and collectively, an "Institutional
Borrower").
(b) Upon any payment or distribution of assets or securities of the
Institutional Borrower, as the case may be, of any kind or character, whether in
cash, property or securities, upon any dissolution or winding up or total or
partial liquidation or reorganization of the Institutional Borrower, whether
voluntary or involuntary or in bankruptcy, insolvency, receivership or other
proceedings, all amounts payable under Senior Debt shall first be paid in full
in cash, or payment provided for in cash or cash equivalents, before the holder
hereof shall be entitled to receive any payment on account of principal of or
interest on this Note. Before any payment may be made by the Institutional
Borrower of the principal of or interest on this Note upon any such dissolution
or winding up or liquidation or reorganization, any payment or distribution of
assets or securities of the Institutional Borrower of any kind or character,
whether in cash, property or securities, to which the holder hereof would be
entitled, except for the provisions of this Section 11, shall be made by the
Institutional Borrower or by any receiver, trustee in bankruptcy, liquidating
trustee, agent or other person making such payment or distribution, directly to
the holders of Senior Debt or their representatives to the extent necessary to
pay all such Senior Debt in full after giving effect to any concurrent payment
or distribution to the holders of such Senior Debt.
(c) Upon the happening of any default in payment of the principal of or interest
on any Senior Debt, then, unless and until such default shall have been cured or
waived or shall have ceased to exist, no direct or indirect payment in cash,
property or securities, by set-off or otherwise, shall be made or agreed to be
made by the Institutional Borrower on account of the principal of or interest on
this Note.
(d) Upon the happening of an event of default (other than under circumstances
when the terms of Section 11(c) above are applicable) with respect to any Senior
Debt pursuant to which the holder thereof is entitled under the terms of such
Senior Debt to accelerate the maturity thereof, and upon written notice thereof
given to each of the Institutional Borrower and the holder of this Note by such
holder of Senior Debt ("Payment Notice"), then, unless and until such event of
default shall have been cured or waived or shall have ceased to exist, no action
shall or may be taken for collection of any amounts under this Note, and no
direct or indirect payment in cash, property or securities, by set-off or
otherwise, shall be made or agreed to be made by the Institutional Borrower an
account of the principal of or interest on this Note until such Senior Debt has
been paid in full accordance with its terms.
(e) In the event than, notwithstanding the provisions of this Section 11, any
payment shall be made on account of the principal of or interest on this Note in
contravention of such provisions, then such payment shall be held for the
benefit of, and shall be paid over and delivered to, the holders of such Senior
Debt remaining unpaid to the extent necessary to pay in full the principal of
and interest on such Senior Debt in accordance with its terms after giving
effect to any concurrent payment or distribution to the holders of such Senior
Debt.
(f) Nothing contained in this Section 11 shall (i) impair the conversion rights
of the holder hereof referred to in Section 5 above, (ii) impair, as between the
Company and the holder of this Note, the obligation of the Company, which is
absolute and unconditional, to pay to the holder hereof principal and interest
as the same shall become due and payable, or (iii) prevent the holder hereof
from exercising all rights, powers and remedies otherwise provided herein, in
the Securities Purchase Agreement or by applicable law, all subject to the
express limitations provided herein.
<PAGE>
(g) Upon the occurrence of an Event of Default, if any Senior Debt shall then be
outstanding, no acceleration of the maturity of this Note shall be effective
until the earlier of (i) ten (10) days shall have passed following the date of
delivery to the Institutional Borrower by a Senior Lender(s) of written notice
of acceleration of any Senior Debt, or (ii) the maturity of any then outstanding
Senior Debt shall have been accelerated by reason of a default hereon. The
Company may pay the holder hereof any defaulted payment and all other amounts
due following any such acceleration of the maturity of this Note if this Section
11 would not prohibit such payment to be made at that time.
(h) Upon payment in full of all Senior Debt, the Payee of this Note shall be
subrogated to the rights of the holder or holders of Senior Debt to receive all
payments or distributions applicable on Senior Debt to the extent of the prior
application thereto of moneys or other assets which would have been received in
respect of this Note, but for these subordination provisions, until the
principal of, and interest on, this Note shall have been paid in full.
(i) The Payee, by accepting this Note (A) shall be bound by all of the foregoing
subordination provisions; and (B) agrees expressly for the benefit of the
present and future holders of Senior Debt that this Note is subject to the
foregoing subordination provisions.
(j) The foregoing subordination provisions shall be for the benefit of all
holders of Senior Debt from time to time outstanding, and each of such holders
may proceed to enforce such provisions either directly against the holder hereof
or in any other manner provided by law.
(k) Notwithstanding anything to the contrary set forth in this Section 11, the
interest of the holder of this Note (as specified in Section 12 hereof) is
subject and subordinated only to the first lien and security interest of any
holder of Senior Debt of the Company, unless otherwise expressly consented to in
writing by the Payee.
12. SUCCESSORS AND ASSIGNS.
This Note shall be binding upon and inure to the benefit of the Company and the
holder hereof and their respective successors and assigns; provided, however,
that the Company may not transfer or assign any of its rights or obligations
hereunder without the prior written consent of the holder hereof.
13. UNENFORCEABLE PROVISIONS.
If any provision of this Note is invalid, illegal or unenforceable, the balance
of this Note shall remain in effect, and if any provision is inapplicable to any
person or circumstance, it shall nevertheless remain applicable to all other
persons and circumstances.
IN WITNESS WHEREOF, the Company has caused this Note to be executed by its duly
authorized officers as of the date first set forth above.
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
By:
--------------------------------------------
Sam Bass, Chairman
Attest:
- --------------------------------
<PAGE>
EXHIBIT 4.12
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of _________________, 1998, between
Environmental Remediation Holding Corporation, a Colorado corporation (the
"Company"), and J.P. Carey Securities, Inc., a Georgia corporation
(hereinafter referred to as "J.P. Carey").
W I T N E S S E T H:
WHEREAS, J.P. Carey has assisted the Company in connection with the
Company's offering (the "Offering") of up to $3,000,000 in principal amount
of 8% Convertible Debentures (the "Debentures") for an aggregate purchase
price $3,000,000; and
WHEREAS, the Warrants issued pursuant to this Agreement are being issued by
the Company to J.P. Carey and/or its designees, in consideration for, and as
part of the compensation to be paid in connection with, the services of J.P.
Carey in connection with the Offering;
NOW, THEREFORE, in consideration of the premises, the agreements herein set
forth and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Grant.
J.P. Carey and/or its designees are hereby granted the right to
purchase, at any time from the date of issuance of the aforementioned Debentures
until 5:00 P.M.,Eastern Standard Time, on __________________, 2003 (the "Warrant
Exercise Term"), ___________ Shares at an exercise price (subject to adjustment
as provided in Article 7 hereof) of 100% of the Closing Bid Price (as defined in
the Company's Certificate of Designations, Preferences and Rights filed by the
Company in connection with the Offering) of the Company's Common Stock, par
value $.0001 per share on the last business day immediately prior to the date of
closing of the Offering, which is equal to $0._____ per share (the "Initial
Exercise Price").
2. Warrant Certificates.
The warrant certificates (the "Warrant Certificates) delivered
and to be delivered pursuant to this Agreement shall be in the form set forth as
Exhibit A, attached hereto and made a part hereof, with such appropriate
insertions, omissions, substitutions and other variations as required or
permitted by this Agreement.
3. Exercise of Warrants.
3.1 Cash Exercise. The Exercise Price may be paid in cash or by check
to the order of the Company, or any combination of cash or check, subject to
adjustment as provided in Article 7 hereof. Upon surrender of the Warrant
Certificate with the annexed Form of Election to Purchase duly executed,
together with payment of the Exercise Price (as hereinafter defined) for the
Shares purchased, at the Company's executive offices currently located at Suite
321, 420 Jerico Turnpike, Jerico, New York 11753, the registered holder of a
Warrant Certificate ("Holder" or "Holders") shall be entitled to receive a
certificate or certificates for the Shares so purchased. The purchase rights
represented by each Warrant Certificate are exercisable at the option of the
Holder hereof, in whole or in part (but not as to fractional shares of the
Common Stock). In the case of the purchase of less than all the Shares
purchasable under any Warrant Certificate, the Company shall cancel said Warrant
Certificate upon the surrender thereof and shall execute and deliver a new
Warrant Certificate of like tenor for the balance of the Shares purchasable
thereunder.
3.2 Cashless Exercise. At any time during the Warrant Exercise Term,
the Holder may, at its option, exchange this Warrant, in whole or in part (a
"Warrant Exchange"), into the number of Shares determined in accordance with
this Section 3.2, by surrendering this Warrant at the principal office of the
company or at the office of its transfer agent, accompanied by a notice stating
such Holder's intent to effect such exchange, the number of Shares to be
exchanged and the date on which the Holder requests that such Warrant Exchange
occur (the "Notice of Exchange"). The Warrant Exchange shall take place on the
date specified in the Notice of Exchange or, if later, the date the Notice of
Exchange is received by the Company (the "Exchange Date"). Certificates for the
Shares issuable upon such Warrant Exchange and, if applicable, a new warrant of
like tenor evidencing the balance of the Shares remaining subject to this
Warrant, shall be issued as of the Exchange Date and delivered to the Holder
within seven (7) business days following the Exchange Date. In connection with
any Warrant Exchange, this Warrant shall represent the right to subscribe for
and acquire the number of Shares (rounded to the next highest integer) equal to
(i) the number of Shares specified by the Holder in its Notice of Exchange (the
"Total Number") less (ii) the number of Shares equal to the quotient obtained by
dividing (A) the product of the Total Number and the then existing Exercise
Price by (B) the current market value of a share of Common Stock.
<PAGE>
4. Issuance of Certificates.
Upon the exercise of the Warrants, the issuance of certificates for the
Shares shall be made forthwith (and in any event within five business days
thereafter) without charge to the Holder thereof including, without limitation,
any tax which may be payable in respect of the issuance thereof, and such
certificates shall be issued in the name of, or in such names as may be directed
by, the Holder thereof; provided, however, that the Company shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of any such certificates in a name other than that
of the Holder and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the Shares
shall be executed on behalf of the Company by the manual or facsimile signature
of the present or any future Chairman or Vice Chairman of the Board of
Directors, Chief Executive officer or President or Vice President of the Company
under its corporate seal reproduced thereon, attested to by the manual or
facsimile signature of the present or any future Secretary or Assistant
Secretary of the Company. Warrant Certificates shall be dated the date of
execution by the Company upon initial issuance, division, exchange, substitution
or transfer.
The Warrant Certificates and, upon exercise of the Warrants, in part or
in whole, certificates representing the Shares shall bear a legend substantially
similar to the following:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"), and may not
be offered or sold except (i) pursuant to an effective registration
statement under the Act, (ii) to the extent applicable, pursuant to
Rule 144 under the Act (or any similar rule under such Act relating to
the disposition of securities), or (iii) upon the delivery by the
holder to the Company of an opinion of counsel, reasonably satisfactory
to counsel to the issuer, stating that an exemption from registration
under such Act is available.
5. Price.
5.1 Adjusted Exercise Price. The adjusted Exercise Price shall be the
price which shall result from time to time from any and all adjustments of the
Initial Exercise Price in accordance with the provisions of Article 7 hereof.
5.2 Exercise Price. The term "Exercise Price" herein shall mean the
Initial Exercise Price or the adjusted Exercise Price, depending upon the
context.
6. Registration Rights.
6.1 Registration Under the Securities Act of 1993.
The Warrants and the Shares have not been registered for purposes of public
distribution under the Securities Act of 1933, as amended ("the Act").
6.2 Registrable Securities. As used herein the term "Registrable
Security" means each of the Warrants, the Shares and any shares of Common Stock
issued upon any stock split or stock dividend in respect of such Shares;
provided, however, that with respect to any particular Registrable Security,
such security shall cease to be a Registrable Security when, as of the date of
determination, (i) it has been effectively registered under the Securities Act
and disposed of pursuant thereto, (ii) registration under the Securities Act is
no longer required for the immediate public distribution of such security or
(iii) it has ceased to be outstanding. The term "Registrable Securities" means
any and/or all of the securities falling within the foregoing definition of a
"Registrable Security." In the event of any merger, reorganization,
consolidation, recapitalization or other change in corporate structure affecting
the Common Stock, such adjustment shall be made in the definition of
"Registrable Security" as is appropriate in order to prevent any dilution or
enlargement of the rights granted pursuant to this Article 6.
6.3 Piggyback Registration. If, at any time during the five years
following the date of this Agreement, the Company proposes to prepare and file
any registration statement or post-effective amendments thereto covering equity
or debt securities of the Company, or any such securities of the Company held by
its shareholders (in any such case, other than in connection with a merger,
acquisition or pursuant to Form S-8 or successor form), (for purposes of this
Article 6, collectively, a "Registration Statement"), it will give written
notice of its intention to do so by registered mail ("Notice"), at ten (10)
business days prior to the filing of each such Registration Statement, to all
holders of the Registrable Securities. Upon the written request of such a holder
<PAGE>
(a "Requesting Holder"), made within ten (10) business days after receipt of the
Notice, that the Company include any of the Requesting Holder's Registrable
Securities in the proposed Registration Statement, the Company shall, as to each
such Requesting Holder, use its best efforts to effect the registration under
the Securities Act of the Registrable Securities which it has been so requested
to register ("Piggyback Registration"), at the Company's sole cost and expense
and at no cost or expense to the Requesting Holders; Notwithstanding the
provisions of this Section 6.3, the Company shall have the right at any time
after it shall have given written notice pursuant to this Section 6.3
(irrespective of whether any written request for inclusion of such securities
shall have already been made) to elect not to file any such proposed
Registration Statement, or to withdraw the same after the filing but prior to
the effective date thereof.
6.4 Demand Registration.
(a) At any time, commencing ninety(90) days from the date that
the Company becomes a reporting company under the Securities and Exchange Act of
1934, as amended, and during the Warrant Exercise Term, any "Majority Holder"
(as such term is defined in Section 6.4(d) below) of the Registrable Securities
shall have the right (which right is in addition to the piggyback registration
rights provided for under Section 6.3 hereof), exercisable by written notice to
the Company (the "Demand Registration Request"), to have the Company prepare and
file with the Securities and Exchange Commission (the "Commission"), on one
occasion, at the sole expense of the Company, a Registration Statement and such
other documents, including a prospectus, as may be necessary (in the opinion of
both counsel for the Company and counsel for such Majority Holder), in order to
comply with the provisions of the Act, so as to permit a public offering and
sale of the Registrable Securities by the holders thereof, for nine (9)
consecutive months.
(b) The Company covenants and agrees to give written notice of
any Demand Registration Request to all holders of the Registrable Securities
within ten (10) days from the date of the Company's receipt of any such Demand
Registration Request. After receiving notice from the Company as provided in
this Section 6.4(b), holders of Registrable Securities may request the Company
to include their Registrable Securities in the Registration Statement to be
filed pursuant to Section 6.4(a) hereof by notifying the Company of their
decision to include such securities within twenty (20) days of their receipt of
the Company's notice.
(c) In addition to the registration rights provided for under
Section 6.3 and subsection (a) of this Section 6.4, at any time during the
Warrant Exercise Term, any Majority Holder (as defined below in Section 6.4(d))
of Registrable Securities shall have the right, exercisable by written request
to the Company, to have the Company prepare and file with the Commission, on one
occasion in respect of all holders of Registrable Securities, a Registration
Statement so as to permit a public offering and sale of such Registrable
Securities for nine (9) consecutive months, provided, however, that all costs
incident thereto shall be at the expense of the holders of the Registrable
Securities included in such Registration Statement. If a Majority Holder shall
give notice to the Company at any time of its or their desire to exercise the
registration right granted pursuant to this Section 6.4(c), then within ten (10)
days after the Company's receipt of such notice, the Company shall give notice
to the other holders of Registrable Securities, advising them that the Company
is proceeding with such registration and offering to include therein the
Registrable Securities of such holders, provided they furnish the Company with
such appropriate information in connection therewith as the Company shall
reasonably request in writing.
(d) The term "Majority Holder" as used in this Section 6.4
shall mean any holder or any combination of holders of Registrable Securities,
if included in such holders, Registrable Securities are that aggregate number of
Shares (including Shares already issued and Shares issuable pursuant to the
exercise of outstanding Warrants) as would constitute a majority of the
aggregate number of Shares (including Shares already issued and Shares issuable
pursuant to the exercise of outstanding Warrants) included in all of the
Registrable Securities.
6.5 Covenants of the Company With Respect to Registration. The
Company covenants and agrees as follows:
(a) In connection with any registration under Section 6.4
hereof, the Company shall file the Registration Statement as expeditiously as
possible, but in no event later than thirty (30) business days following receipt
of any demand therefor, shall use its best efforts to have any such Registration
Statements declared effective at the earliest possible time, and shall furnish
each holder of Registrable Securities such number of prospectuses as shall
reasonably be requested.
<PAGE>
(b) The Company shall pay all costs, fees and expenses
(excluding fees of holders for their counsel, transfer taxes and underwriting
discounts or commissions) in connection with all Registration Statements filed
pursuant to Sections 6.3 and 6.4(a) hereof including, without limitation, the
Company's legal and accounting fees, printing expenses, and blue sky fees and
expenses. The holders of Registrable Securities included in any Registration
Statement filed pursuant to Section 6.4(c) hereof will pay all costs, fees and
expenses in connection with such registration.
(c) The Company will take all necessary action which may be
required in qualifying or registering the Registrable Securities included in a
Registration Statement for offering and sale under the securities or blue sky
laws of such states as are requested by the holders of such securities.
(d) The Company shall indemnify any holder of the Registrable
Securities to be sold pursuant to any Registration Statement and any underwriter
or person deemed to be an underwriter under the Act and each person, if any, who
controls such holder or underwriter or person deemed to be an underwriter within
the meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange
Act of 1934, as amended ("Exchange Act"), against all loss, claim, damage,
expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which any
of them may become subject under the Act, the Exchange Act or otherwise, arising
from such Registration Statement to the same extent and with the same effect as
the provisions pursuant to which the Company has agreed to indemnify the
purchasers of the Company's Debentures contained in the Registration Rights
Agreement dated of even date herewith.
(e) Any holder of Registrable Securities to be sold pursuant
to a Registration Statement, and its successors and assigns, shall severally,
and not jointly, indemnify, the Company, its officers and directors and each
person, if any, who controls the Company within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act, against all loss, claim, damage or
expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, arising
from information furnished in writing by or on behalf of such holder, or its
successors or assigns, for specific inclusion in such Registration Statement to
the same extent and with the same effect as the provisions pursuant to which
purchasers of the Company's Debentures have agreed to indemnify the Company
contained in the Registration Rights Agreement dated of even date herewith.
(f) Nothing contained in this Agreement shall be construed as
requiring any Holder to exercise his Warrants prior to the initial filing of any
Registration Statement or the effectiveness thereof.
(g) If the Company shall fail to comply with the provisions of
this Article 6, the Company shall, in addition to any other equitable or other
relief available to the holders of Registrable Securities, be liable for any or
all incidental, special and consequential damages sustained by the holders of
Registrable Securities, requesting registration of their Registrable Securities.
(h) Except as otherwise provided to the contrary herein, the
Company shall not permit the inclusion of any securities other than the
Registrable Securities to be included in any Registration Statement filed
pursuant to Section 6.4 hereof, or permit any other registration statement to be
or remain effective during the effectiveness of a Registration Statement filed
pursuant to Section 6.4 hereof, without the prior written consent of the
Majority Holders, which consent shall not be unreasonably withheld.
(i) The Company shall deliver promptly to each holder of
Registrable Securities participating in the offering requesting the
correspondence and memoranda described in this Section 6.5(i) and to the
managing underwriter, if any, copies of all correspondence between the
Commission and the Company, its counsel or auditors and all memoranda relating
to discussions with the Commission or its staff with respect to the Registration
Statement and permit each holder of Registrable Securities and underwriters to
do such investigation, upon reasonable advance notice, with respect to
information contained in or omitted from the Registration Statement as it deems
reasonably necessary to comply with applicable securities laws or rules of the
National Association of Securities Dealers, Inc. Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as any such holder
of Registrable Securities or underwriter shall reasonably request.
<PAGE>
(j) If the Company shall enter into an underwriting agreement
with the managing underwriter selected for such underwriting, such agreement
shall be satisfactory in form and substance to the Company, each holder of
Registrable Securities and such managing underwriter, and shall contain such
representations, warranties and covenants by the Company and such other terms as
are customarily contained in agreements of that type used by the managing
underwriter. The holders of Registrable Securities shall be parties to any
underwriting agreement relating to an underwritten sale of their Registrable
Securities and may, at their option, require that any or all the
representations, warranties and covenants of the Company to or for the benefit
of such underwriter shall also be made to and for the benefit of such holders of
Registrable Securities. Such holders of Registrable Securities shall not be
required to make any representations or warranties to or agreements with the
Company or the underwriter except as they may relate to such holders of
Registrable Securities and their intended methods of distribution.
7. Adjustments of Exercise Price and Number of Shares.
7.1 {LEFT INTENTIONALLY BLANK}
7.2 Options, Rights, Warrants and Convertible and Exchangeable
Securities. Except in the case of the Company issuing rights to subscribe for
shares of Common Stock distributed to all the shareholders of the Company and
Holders of Warrants pursuant to Section 7.8 hereof, if the Company shall at any
time after the date hereof issue options, rights or warrants to subscribe for
shares of Common Stock, or issue any securities convertible into or exchangeable
for shares of Common Stock, (i) for a consideration per share less than (a) the
Exercise Price in effect immediately prior to the issuance of such options,
rights or warrants, or such convertible or exchangeable securities, or (b) the
Market Price, or (ii) without consideration, the Exercise Price in effect
immediately prior to the issuance of such options, rights or warrants, or such
convertible or exchangeable securities, as the case may be, shall be reduced to
a price determined by making a computation in accordance with the provisions of
Section 7.1 hereof, provided that:
(a) The aggregate maximum number of shares of Common Stock, as
the case may be, issuable under all the outstanding options, rights or warrants
shall be deemed to be issued and outstanding at the time all the outstanding
options, rights or warrants were issued, and for a consideration equal to the
minimum purchase price per share provided for in the options, rights or warrants
at the time of issuance, plus the consideration (determined in the same manner
as consideration received on the issue or sale of shares in accordance with the
terms of the Warrants), if any, received by the Company for the options, rights
or warrants, and if no minimum price is provided in the options, rights or
warrants, then the consideration shall be equal to zero; provided, however, that
upon the expiration or other termination of the options, rights or warrants, if
any thereof shall not have been exercised, the number of shares of Common Stock
deemed to be issued and outstanding pursuant to this subsection (a) (and for the
purposes of subsection (v) of Section 7.1 hereof) shall be reduced by such
number of shares as to which options, warrants and/or rights shall have expired
or terminated unexercised, and such number of shares shall no longer be deemed
to be issued and outstanding, and the Exercise Price then in effect shall
forthwith be readjusted and thereafter be the price which it would have been had
adjustment been made on the basis of the issuance only of shares actually issued
or issuable upon the exercise of those options, rights or warrants as to which
the exercise rights shall not have expired or terminated unexercised.
(b) The aggregate maximum number of shares of Common Stock
issuable upon conversion or exchange of any convertible or exchangeable
securities shall be deemed to be issued and outstanding at the time of issuance
of such securities, and for a consideration equal to the consideration
(determined in the same manner as consideration received on the issue or sale of
shares of Common Stock in accordance with the terms of the Warrants) received by
the Company for such securities, plus the minimum consideration, if any,
receivable by the Company upon the conversion or exchange thereof; provided,
however, that upon the termination of the right to convert or exchange such
convertible or exchangeable securities (whether by reason of redemption or
otherwise), the number of shares deemed to be issued and outstanding pursuant to
this subsection (b) (and for the purpose of subsection (v) of Section 7.1
hereof) shall be reduced by such number of shares as to which the conversion or
exchange rights shall have expired or terminated unexercised, and such number of
shares shall no longer be deemed to be issued and outstanding and the Exercise
Price then in effect shall forthwith be readjusted and thereafter be the price
which it would have been had adjustment been made on the basis of the issuance
only of the shares actually issued or issuable upon the conversion or exchange
of those convertible or exchangeable securities as to which the conversion or
exchange rights shall not have expired or terminated unexercised.
(c) If any change shall occur in the price per share provided
for in any of the options, rights or warrants referred to in subsection (a) of
this Section 7.2, or in the price per share at which the securities referred to
in subsection (b) of this Section 7.2 are convertible or exchangeable, the
options, rights or warrants or conversion or exchange rights, as the case may
<PAGE>
be, shall be deemed to have expired or terminated on the date when such price
change became effective in respect of shares not theretofore issued pursuant to
the exercise or conversion or exchange thereof, and the Company shall be deemed
to have issued upon such date new options, rights or warrants or convertible or
exchangeable securities at the new price in respect of the number of shares
issuable upon the exercise of such options, rights or warrants or the conversion
or exchange of such convertible or exchangeable securities.
7.3 Subdivision and Combination. In case the Company shall at any time
subdivide or combine the outstanding shares of Common Stock, the Exercise Price
shall forthwith be proportionately decreased in the case of subdivision or
increased in the case of combination.
7.4 Adjustment in Number of Shares. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Article 7, the number of
Shares issuable upon the exercise of each Warrant shall be adjusted to the
nearest full Share by multiplying a number equal to the Exercise Price in effect
immediately prior to such adjustment by the number of Shares issuable upon
exercise of the Warrants immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
7.5 Reclassification, Consolidation, Merger, etc. In case of any
reclassification or change of the outstanding shares of Common Stock (other than
a change in par value to no par value, or from no par value to par value, or as
a result of a subdivision or combination), or in the case of any consolidation
of the Company with, or merger of the Company into, another corporation (other
than a consolidation or merger in which the Company is the surviving corporation
and which does not result in any reclassification or change of the outstanding
shares of Common Stock, except a change as a result of a subdivision or
combination of such shares or a change in par value, as aforesaid), or in the
case of a sale or conveyance to another corporation of the property of the
Company as an entirety, the Holders shall thereafter have the right to purchase
the kind and number of shares of stock and other securities and property
receivable upon such reclassification, change, consolidation, merger, sale or
conveyance as if the Holders were the owners of the shares of Common Stock
underlying the Warrants immediately prior to any such events at a price equal to
the product of (x) the number of shares issuable upon exercise of the Warrants
and (y) the Exercise Price in effect immediately prior to the record date for
such reclassification, change, consolidation, merger, sale or conveyance as if
such Holders had exercised the Warrants.
7.6 No Adjustment of Exercise Price in Certain Cases. No adjustment
of the Exercise Price shall be made:
(a) Upon the issuance or sale of shares of Common Stock upon
the exercise of the Warrants; or
(b) Upon (i) the issuance of options pursuant to the Company's
employee stock option plan in effect on the date hereof or the issuance
or sale by the Company of any shares of Common Stock pursuant to the
exercise of any such options, or (ii) the issuance or sale by the
Company of any shares of Common Stock pursuant to the exercise of any
options or warrants previously issued and outstanding on the date
hereof; or
(c) Upon the issuance of shares of Common Stock pursuant to
contractual obligations existing on the date hereof; or
(d) If the amount of said adjustment shall be less than 2
cents (2(cent)) per Share, provided, however, that in such case any
adjustment that would otherwise be required then to be made shall be
carried forward and shall be made at the time of and together with the
next subsequent adjustment which, together with any adjustment so
carried forward, shall amount to at least 2 cents (2(cent)) per Share.
7.7 Dividends and Other Distributions with Respect to Outstanding
Securities. In the event that the Company shall at any time prior to the
exercise of all Warrants declare a dividend (other than a dividend consisting
solely of shares of Common Stock or a cash dividend or distribution payable out
of current or retained earnings) or otherwise distribute to its shareholders any
monies, assets, property, rights, evidences of indebtedness, securities (other
than shares of Common Stock), whether issued by the Company or by another person
or entity, or any other thing of value, the Holder or Holders of the unexercised
Warrants shall thereafter be entitled, in addition to the shares of Common Stock
or other securities receivable upon the exercise thereof, to receive, upon the
exercise of such Warrants, the same monies, property, assets, rights, evidences
of indebtedness, securities or any other thing of value that they would have
been entitled to receive at the time of such dividend or distribution. At the
time of any such dividend or distribution, the Company shall make appropriate
reserves to ensure the timely performance of the provisions of this Subsection
7.7.
<PAGE>
7.8 Subscription Rights for Shares of Common Stock or Other Securities.
In the case the Company or an affiliate of the Company shall at any time after
the date hereof and prior to the exercise of all the Warrants issue any rights
to subscribe for shares of Common Stock or any other securities of the Company
or of such affiliate to all the shareholders of the Company, the Holders of the
unexercised Warrants shall be entitled, in addition to the shares of Common
Stock or other securities receivable upon the exercise of the Warrants, to
receive such rights at the time such rights are distributed to the other
shareholders of the Company.
8. Exchange and Replacement of Warrant Certificates.
Each Warrant Certificate is exchangeable without expense, upon the
surrender hereof by the registered Holder at the principal executive office of
the Company, for a new Warrant Certificate of like tenor and date representing
in the aggregate the right to purchase the same number of Shares in such
denominations as shall be designated by the Holder thereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of any Warrant Certificate, and,
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
9. Elimination of Fractional Interests.
The Company shall not be required to issue certificates representing
fractions of shares of Common Stock and shall not be required to issue scrip or
pay cash in lieu of fractional interests, it being the intent of the parties
that all fractional interests shall be eliminated by rounding any fraction up to
the nearest whole number of shares of Common Stock.
10. Reservation and Listing of Securities.
The Company shall at all times reserve and keep available out of its
authorized shares of Common Stock, solely for the purpose of issuance upon the
exercise of the Warrants, such number of shares of Common Stock as shall be
issuable upon the exercise thereof. The Company covenants and agrees that, upon
exercise of the Warrants and payment of the Exercise Price therefor, all shares
of Common Stock issuable upon such exercise shall be duly and validly issued,
fully paid, nonassessable and not subject to the preemptive rights of any
shareholder. As long as the Warrants shall be outstanding, the Company shall use
its best efforts to cause all shares of Common Stock issuable upon the exercise
of the Warrants to be listed on or quoted on the electronic bulletin board, by
NASDAQ or listed on such national securities exchanges as requested by the
Placement Agent.
11. Notices to Warrant Holders.
Nothing contained in this Agreement shall be construed as conferring
upon the Holder or Holders the right to vote or to consent or to receive notice
as a shareholder in respect of any meetings of shareholders for the election of
directors or any other matter, or as having any rights whatsoever as a
shareholder of the Company. If, however, at any time prior to the expiration of
the Warrants and their exercise, any of the following events shall occur:
(a) the Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or distribution
payable otherwise than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or
(b) the Company shall offer to all the holders of its Common Stock
any additional shares of capital stock of the Company or securities convertible
into or exchangeable for shares of capital stock of the Company, or any option,
right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company (other than
in connection with a consolidation or merger) or a sale of all or substantially
all of its property, assets and business as an entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
shareholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, options or warrants, or entitled
to vote on such proposed dissolution, liquidation, winding up or sale. Such
notice shall specify such record date or the date of closing the transfer books,
<PAGE>
as the case may be. Failure to give such notice or any defect therein shall not
affect the validity of any action taken in connection with the declaration or
payment of any such dividend or distribution, or the issuance of any convertible
or exchangeable securities or subscription rights, options or warrants, or any
proposed dissolution, liquidation, winding up or sale.
12. Notices.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly made when delivered,
or mailed by registered or certified mail, return receipt requested:
(a) If to a registered Holder of the Warrants, to the address of such
Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3 of this
Agreement or to such other address as the Company may designate by notice to the
Holders.
13. Supplements and Amendments.
The Company and the Placement Agent may from time to time supplement or
amend this Agreement without the approval of any Holders of Warrant Certificates
in order to cure any ambiguity, to correct or supplement any provision contained
herein which may be defective or inconsistent with any provisions herein, or to
make any other provisions in regard to matters or questions arising hereunder
which the Company and the Placement Agent may deem necessary or desirable and
which the Company and the Placement Agent deem not to adversely affect the
interests of the Holders of Warrant Certificates.
14. Successors.
All the covenants and provisions of this Agreement by or for the
benefit of the Company and the Holders inure to the benefit of their respective
successors and assigns hereunder.
15. Termination.
This Agreement shall terminate at the close of business on August 4,
2003. Notwithstanding the foregoing, this Agreement will terminate on any
earlier date when all Warrants have been exercised and all the Shares issuable
upon exercise of the Warrants have been resold to the public; provided, however,
that the provisions of Article 6 shall survive such termination until the close
of business on August 4, 2003.
16. Governing Law.
This Agreement and each Warrant Certificate hereunder shall be governed
by and interpreted in accordance with the laws of the State of Colorado without
regard to the principles of conflict of laws. Any dispute or controversy between
the parties arising in connection with this Agreement or the subject matter
contemplated by this Agreement shall be resolved by arbitration before a
three-member panel of the American Arbitration Association in accordance with
the commercial arbitration rules of said forum and the Federal Arbitration Act,
9 U.S.C. 1 et seq., with the resulting award being final and conclusive. Said
arbitrators shall be empowered to award all forms of relief and damages claimed,
including, but not limited to, attorney's fees, expenses of litigation and
arbitration, exemplary damages, and prejudgment interest. The parties further
agree that any arbitration action between them shall be heard in Atlanta,
Georgia, and expressly consent to the jurisdiction and venue of the Superior
Court of Fulton County, Georgia, and the United States District Court for the
Northern District of Georgia, Atlanta Division for the adjudication of any civil
action asserted pursuant to this Paragraph.
17. Benefits of This Agreement.
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Placement Agent and any other
registered holder or holders of the Warrant Certificates, Warrants or the Shares
any legal or equitable right, remedy or claim under this Agreement; and this
Agreement shall be for the sole and exclusive benefit of the Company and the
Placement Agent and any other holder or holders of the Warrant Certificates,
Warrants or the Shares.
18. Counterparts.
This Agreement may be executed in any number of counterparts and each
of such counterparts shall for all purposes be deemed to be an original, and
such counterparts shall together constitute but one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
ENVIRONMENTAL REMEDIATION HOLDING
CORPORATION
By:______________________________________
Name: James Griffin
Title: Secretary/Treasurer
Attest:___________________________
Name: ___________________________
Title:_____________________________
J.P. CAREY SECURITIES, INC.
By:______________________________________
Name:
Title:
Attest:___________________________
Name: ___________________________
Title:_____________________________
<PAGE>
EXHIBIT A
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE,
PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO
THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE
ISSUER, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., EASTERN STANDARD TIME, _____________, 2003
No.__ _________ Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that J.P. Carey Securities, Inc.
("J.P. Carey") or registered assigns, is the registered holder of
____________Warrants to purchase, at any time from __________, 1998, until 5:00
P.M. Eastern Standard Time on ______________, 2003 ("Expiration Date"), up to
__________ shares ("Shares") of fully-paid and non-assessable common stock, par
value $.0001 ("Common Stock"), of Environmental Remediation Holding Corporation,
a Colorado corporation (the "Company"), at the Initial Exercise Price, subject
to adjustment in certain events (the "Exercise Price"), of $_______ per Share
upon surrender of this Warrant Certificate and payment of the Exercise Price at
an office or agency of the Company, but subject to the conditions set forth
herein and in the warrant agreement dated as of ______________, 1998, between
the Company and J.P. Carey (the "Warrant Agreement"). Payment of the Exercise
Price may be made in cash, or by certified or official bank check in New York
Clearing House funds payable to the order of the Company, or any combination of
cash or check.
No Warrant may be exercised after 5:00 P.M., Eastern Standard Time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to in a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain
events, the Exercise Price and/or number of the Company's securities issuable
thereupon may, subject to certain conditions, be adjusted. In such event, the
Company will, at the, request of the holder, issue a new Warrant Certificate
evidencing the adjustment in the Exercise Price and the number and/or type of
securities issuable upon the exercise of the Warrants; pro vided, however, that
the failure of the Company to issue such new Warrant Certificates shall not in
any way change, alter, or otherwise impair, the rights of the holder as set
forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferees) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax, or other governmental charge
imposed in connection therewith.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated: _______________, 1998 ENVIRONMENTAL REMEDIATION HOLDING
CORPORATION
By:________________________________________
Name:______________________________________
Title:_____________________________________
Attest:____________________________
Name: ____________________________
Title:_____________________________
<PAGE>
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ____________ Shares and
herewith tenders in payment for such Shares cash or a certified or official bank
check payable in New York Clearing House Funds to the order of
_____________________ in the amount of $_______________, all in accordance with
the terms hereof. The undersigned requests that a certificate for such Shares be
registered in the name of ________________________whose address
is__________________________________________________, and that such Certificate
be delivered to ___________________________________________, whose address is
- ---------------------------------------------------------------.
Dated: Signature:_________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
- ------------------------------------
- ------------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder desires to transfer the
Warrant Certificate.)
FOR VALUE RECEIVED ___________________________________________ hereby
sells, assigns and transfers unto
- ----------------------------------------------------------------------------
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint
___________________________________, Attorney, to transfer the within Warrant
Certificate on the books of the within-named Company, with full power of
substitution.
Dated: Signature:_________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate)
- -------------------------------------
- -------------------------------------
(Insert Social Security or Other
Identifying Number of Assignee)
<PAGE>
EXHIBIT 4.13
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS................................................... 2
1.1 Definitions........................................... 2
ARTICLE 2 REGISTRATION RIGHTS........................................... 3
2.1 Securities Subject to this Agreement........................... 3
2.2 Shelf Registration ........................................... 4
2.3 Piggyback Registration......................................... 6
2.4 Registration Procedures........................................ 7
2.5 Preparation: Reasonable Investigation......................... 12
2.6 Certain Rights of Holders..................................... 12
2.7 Registration Expenses......................................... 12
2.8 Indemnification; Contribution ................................ 13
2.9 Participation in Underwritten Registrations.......... 16
2.10 Selection of Underwriters............................ 16
ARTICLE 3 RULE 144A.................................................... 17
ARTICLE 4 MISCELLANEOUS................................................ 17
4.1 Entire Agreement..................................... 17
4.2 Successors and Assigns............................... 17
4.3 Notices.............................................. 17
4.4 Headings............................................. 18
4.5 Counterparts......................................... 18
4.6 Applicable Law; Resolution of Disputes............... 18
4.7 Specific Enforcement................................. 19
4.8 Amendment and Waivers................................ 19
4.9 Attorney Fees........................................ 19
<PAGE>
REGISTRATION RIGHTS AGREEMENT
DATED AS OF
___________, 1998
AMONG
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
AND
THE PURCHASERS LISTED ON THE SIGNATURE PAGE OF THIS
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is dated as of
_________, 1998 between ENVIRONMENTAL REMEDIATION HOLDING CORPORATION, a
Colorado corporation (the "Company") and each of the Purchasers of the Company's
8.0% Convertible Notes due August 4, 2000 (the "Notes") pursuant to that certain
Securities Purchase Agreement, dated of even date herewith (the "Securities
Purchase Agreement"), whose names are set forth at the end of this Agreement
(individually, a "Purchaser" and collectively, the "Purchasers").
RECITALS
WHEREAS, it is a condition precedent to the obligations of each Purchaser under
the Securities Purchase Agreement that the Company grant registration rights to
the holders of the Company's Notes, and
WHEREAS, in connection with resales by the Purchasers of the Company's Common
Stock upon or after conversion of the Notes, the Company and the Purchasers now
desire to enter into this Agreement in order to facilitate such resales.
AGREEMENT
NOW THEREFORE, in consideration of the mutual promises and covenants contained
herein and for other good and valuable consideration, the adequacy and receipt
of which is hereby acknowledged, the parties hereto agree as follows:
1
<PAGE>
ARTICLE I
DEFINITIONS
1.1 Definitions. The following terms, as used herein, have the
following meanings.
"Board" means the Board of Directors of the Company.
"Business Day" means any day except a Saturday, Sunday or other day on which
banks in New York, New York are authorized by law to close.
"Closing Date" shall mean the Closing Date of the Securities Purchase Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, par value $0.0001 per share, of the
Company.
"Company" means Environmental Remediation Holding Corporation, a Colorado
corporation.
"Company Registration Statement" means the Registration Statement of the Company
relating to the registration for sale of shares of the Company's Common Stock
contemplated by Section 2.3, including the Prospectus as defined below.
"Effective Time" means the date of effectiveness of any Registration Statement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Holders" has the meaning given to it in Section 2.1(b) hereof.
"NASD" means the National Association of Securities Dealers, Inc.
"Note(s)" means the individual or collective reference to any one or more of the
8.0% Convertible Notes of the Company due __________, 2000, in $____________
aggregate principal amount.
"Person" means an individual, corporation, partnership, association, trust or
other entity or organization, including a government or political subdivision or
an agency or instrumentality thereof.
2
<PAGE>
"Prospectus" means the prospectus included in any Registration Statement, as
amended or supplemented by any prospectus supplement and by all other amendments
thereto, including post-effective amendments, and all material incorporated by
reference into such Prospectus.
"Registration Statements" means the Company Registration Statement on Form S-1
or any other appropriate registration form and the Shelf Registration Statement.
"Restricted Securities" means any Securities until (i) a registration statement
covering such Securities has been declared effective by the Commission and such
Securities have been disposed of pursuant to such effective registration
statement, (ii) such Securities are sold under circumstances in which all the
applicable conditions of Rule 144 (or any similar provisions then in force)
under the Securities Act are met, or such Securities may be sold pursuant to
Rule 144(k) (or any similar provision then in force) under the Securities Act,
and are freely tradable after such sale by the transferee, (iii) such Securities
are otherwise transferred, the Company has delivered a new certificate or other
evidence of ownership for such Securities not bearing a legend restricting
further transfer and such Securities may be resold, without registration under
the Securities Act, or (iv) such Securities shall have ceased to be outstanding.
"Securities" means the shares of the Company's Common Stock issuable upon
conversion of the Notes or upon exercise of the Warrants.
"Securities Act" means the Securities Act of 1933, as amended.
"Shelf Registration Statement" means the registration statement of the Company
relating to the shelf registration for resale of Restricted Securities
contemplated by Section 2.2 herein, including the Prospectus included therein,
all amendments and supplements thereto (including post-effective amendments) and
all exhibits and material incorporated by reference therein.
"Securities Purchase Agreement" has the meaning given to it in the recitals to
this Agreement.
As used in this Agreement, words in the singular include the plural, and in the
plural include the singular.
3
<PAGE>
ARTICLE 2
REGISTRATION RIGHTS
2.1 Securities Subject to this Agreement.
(a) The Securities entitled to the benefits of this Agreement are the Restricted
Securities, but only for so long as they remain Restricted Securities.
(b) A Person is deemed to be a holder of Restricted Securities (each, a
"Holder") whenever such Person is the registered holder of such Restricted
Securities on the Company's books and records.
2.2 Shelf Registration.
(a) The Company shall:
(i) as expeditiously as practicable, but no later than 15 calendar days
from the Closing Date, amend its Shelf Registration Statement on Form S-1 filed
with the Commission on January 8, 1998 pursuant to Rule 415 under the Securities
Act, which Shelf Registration Statement shall provide for resale of all
Restricted Securities the Holders of which shall have provided to the Company
the information required pursuant to Section 2.2(c) herein; and
(ii) use its best efforts to cause such Shelf Registration Statement to
be declared effective by the Commission as soon as possible but within 60
calendar days after the Closing Date.
(iii) if the Company is advised by the SEC that a Registration
Statement filed hereunder is subject to a "no-review" and such Registration
Statement is not declared effective within ten (10) business days thereafter (an
"Acceleration Date") or, irrespective of the SEC review, a Registration
Statement is not declared effective by 60 calendar days after the Closing Date
(the "Target Date"), the Company shall pay Holder as liquidated damages an
amount equal to .0986% of the total principal sum of the Notes for the first
thirty (30) day period following the earlier of the Acceleration Date or Target
Date as applicable and .1844% per day thereafter, until such time as the
registration statement is declared effective. The payment set forth above shall
be pro-rated daily as to any period of less than thirty (30) days. Such payment
shall be made to the Holder by cashier's check or wire transfer in immediately
available funds to such account as shall be designated in writing by the Holder.
The
4
<PAGE>
foregoing amount shall be paid irrespective of the amount of Restricted
Securities then held by Holder.
(iv) if, following effectiveness of a registration, either the
effectiveness of the registration statement is suspended or a current Prospectus
meeting the requirements of Section 10 of the Securities Act is not available
for delivery by the Holder for any reason (either referred to herein as a
"suspension"), the Company shall thereupon pay to Holder as liquidated damages
an amount equal to two percent (2%) of the total principal sum of the Notes
previously purchased by Holder for each thirty (30) day period of the
suspension. The payment set forth above shall be pro-rated daily as to periods
of less than thirty (30) days. Such payment shall be made to the Holder by
cashier's check or wire transfer in immediately available funds to such account
as shall be designated in writing by the Holder, and shall be paid irrespective
of the amount of Restricted Securities held by Holder on or after the date
following the suspension.
(v) any amount payable pursuant to the foregoing provisions of this
Subsection (a) shall be delivered on or before the third (3rd) business day
following the end of the calendar month in which such payment obligation arose.
(vi) Subsections (a)(iii) and (a)(iv) are in addition to the provisions
of Section 4.7 hereof.
(b) In connection with the Shelf Registration Statement, the Company shall
comply with all the provisions of Section 2.4 below and shall use its best
efforts to effect such registration to permit the sale of the Restricted
Securities being sold in accordance with the intended method or methods of
distribution thereof (as indicated in the information furnished to the Company
pursuant to Section 2.2. (c)). Subject to Section 2.2(d) the Company shall use
its best efforts to keep such Shelf Registration Statement continuously
effective, supplemented and amended as required by the provisions of Section
2.2(d) to the extent necessary to ensure that it is available for resales of
Restricted Securities by the Holders of Restricted Securities, and to ensure
that it conforms with the requirements of this Agreement, the Securities Act and
the policies, rules and regulations of the Commission as announced from time to
time, for a period of twenty four (24) months from the Closing Date or such
longer period as required by Section 2.2(d) or such shorter period that will
terminate when all the Securities covered by the Shelf Registration Statement
have been sold pursuant to the Shelf Registration Statement or otherwise cease
to be Restricted Securities. Upon the occurrence of
5
<PAGE>
any event that would cause any Shelf Registration Statement or the Prospectus
contained therein (i) to contain a material misstatement or omission or (ii) not
to be effective and usable for sale or resale of Restricted Securities during
the period required by this Agreement, the Company shall file promptly an
appropriate amendment to such Shelf Registration Statement or the related
Prospectus or any document incorporated therein by reference, in the case of
clause (i), correcting any such misstatement or omission, and, in the case of
either clause (i) or (ii), use its best efforts to cause such amendment to be
declared effective and such Registration Statement and the related Prospectus to
become usable for its intended purpose(s) as soon as practicable thereafter.
(c) No Holder of Restricted Securities may include any of its Restricted
Securities in the Shelf Registration Statement pursuant to this Agreement unless
and until such Holder furnishes to the Company in writing, within 10 Business
Days after receipt of a written request therefor, such information specified in
Item 507 of Regulation S-K under the Securities Act or such other information as
the Company may reasonably request for use in connection with the Shelf
Registration Statement or Prospectus or preliminary Prospectus included therein
and in any application to the NASD. Each Holder as to which the Shelf
Registration Statement is being effected agrees to furnish promptly to the
Company all information required to be disclosed in order to make the
information previously furnished to the Company by such Holder not materially
misleading.
(d) Notwithstanding anything to the contrary contained herein, if (x) the Board
determines in good faith that the registration and distribution of Restricted
Securities (or the use of such Shelf Registration Statement or the Prospectus
contained therein) would interfere with any proposed or pending material
corporate transaction involving the Company or any of its subsidiaries or would
require premature disclosure thereof or would require the Company to disclose
information that the Company has not otherwise made public and that the Company
reasonably determines is in the best interests of the Company not to disclose at
such time, and (y) the Company notifies the Holders in writing not later than
three (3) days following such determination (such notice a "Blackout Notice"),
the Company may (A) postpone the filing of such Shelf Registration Statement or
(B) allow such Shelf Registration Statement to fail to be effective and usable
or elect that such Shelf Registration Statement not be usable for a reasonable
period of time, but not in excess of 30 days (a "Blackout Period"); provided,
however, that the aggregate number of days included in all Blackout Periods
shall not exceed 90 during any
6
<PAGE>
consecutive 12 months and shall not exceed 150 during the period specified in
Section 2.2(b); and provided further, that such period referred to in Section
2.2(b) during which the Shelf Registration Statement is required to be effective
and usable shall be extended by the aggregate number of days during which the
Shelf Registration Statement was not effective or usable pursuant to the
foregoing provisions.
(e) In the event the number of shares available under a Registration Statement
filed pursuant to this Agreement is insufficient to cover all of the Registrable
Securities, the Company shall amend the Registration Statement, or file a new
Registration Statement (on the short form available therefor, if applicable), or
both, so as to cover all of the Registrable Securities, in each case, as soon as
practicable, but in any event within fifteen (15) days after the necessity
therefor arises (based on the market price of the Common Stock and other
relevant factors on which the Company reasonably elects to rely). The Company
shall use its best reasonable efforts to cause such amendment and/or new
Registration Statement to become effective as soon as practicable following the
filing thereof. For purposes of the foregoing provision, the number of shares
available under a Registration Statement shall be deemed "insufficient to cover
all of the Registrable Securities" if at any time the number of Registrable
Securities issued or issuable upon conversion of the Notes is greater than the
quotient determined by dividing (i) the number of shares of Common Stock
available for resale under such Registration Statement by (ii) 2.0; provided
that in the case of the initial registration of the Registrable Securities
pursuant to Section 2(a), the Company shall be required to register at least
__________________ shares of Common Stock for resale. For purposes of the
calculation set forth in the foregoing sentence, any restrictions on the
convertibility of the Notes shall be disregarded and such calculation shall
assume that the Notes are then convertible into shares of Common Stock at the
then prevailing Conversion Price (as defined in the Notes).
2.3 Piggyback Registration.
(a) At any time that the Company proposes to file a Company Registration
Statement, either for its own account or for the account of a stockholder or
stockholders, the Company shall give the Holders written notice of its intention
to do so and of the intended method of sale (the "Registration Notice") within a
reasonable time prior to the anticipated filing date of the Company Registration
Statement effecting such Company Registration. Each holder may request inclusion
7
<PAGE>
of any Restricted Securities in such Company Registration by delivering to the
Company, within ten (10) Business Days after receipt of the Registration Notice,
a written notice (the "Piggyback Notice") stating the number of Restricted
Securities proposed to be included and that such shares are to be included in
any underwriting only on the same terms and conditions as the shares of Common
Stock otherwise being sold through underwriters under such Company Registration
Statement. The Company shall use its best efforts to cause all Restricted
Securities specified in the Piggyback Notice to be included in the Company
Registration Statement and any related offering, all to the extent requisite to
permit the sale by the Holders of such Restricted Securities in accordance with
the method of sale applicable to the other shares of Common Stock included in
such Company Registration Statement; provided however, that if, at any time
after giving written notice of its intention to register any securities and
prior to the effective date of the Company Registration Statement filed in
connection with such registration, the Company shall determine for any reason
not to register or to delay registration of such securities, the Company may, at
its election, give written notice of such determination of each Holder of
Restricted Securities and, thereupon:
(i) in the ease of determination not to register, shall be relieved of
its obligation to register any Restricted Securities in connection with such
registration, and
(ii) in the case of a delay in registering, shall be permitted to delay
registering any Restricted Securities for the same period as the delay in
registering such other securities.
(b) The Company's obligation to include Restricted Securities in a Company
Registration Statement pursuant to Section 2.3(a) shall be subject to the
following limitations:
(i) The Company may elect, at its sole option and for any reason, not
to register Holder's Restricted Securities; provided however, that this right is
limited to one (1) time and relative to one (1) particular Company Registration
Statement.
(ii) The Company shall not be obligated to include any Restricted
Securities in a registration statement filed on Form S-4, Form S-8 or such other
similar successor forms then in effect under the Securities Act.
(iii) If a Company Registration Statement involves an underwritten
offering and the managing underwriter advises the Company
8
<PAGE>
in writing that in its opinion, the number of securities requested to be
included in such Company Registration Statement exceeds the number which can be
sold in such offering without adversely affecting the offering, the Company will
include in such Company Registration Statement the number of such Securities
which the Company is so advised can be sold in such offering without adversely
affecting the offering, determined as follows:
(A) first, the securities proposed by the Company to be sold
for it own account, and
(B) second, any Restricted Securities requested to be included
in such registration and any other securities of the Company in accordance with
the priorities, if and then existing among the holders of such securities pro
rata among the holders thereof requesting such registration on the basis of the
number of shares of such securities requested to be included by such holders.
(iii) The Company shall not be obligated to include Restricted
Securities in more than two (2) Company Registration Statement(s).
(c) No Holder of Restricted Securities may include any of its Restricted
Securities in the Company Registration Statement pursuant to this Agreement
unless and until such Holder furnishes to the Company in writing, within 10
business days after receipt of a written request therefor, such information
specified in Item 507 of Regulation S-K under the Securities Act or such other
information as the Company may reasonably request for use in connection with the
Company Registration Statement or Prospectus or preliminary Prospectus included
therein and in any application to the NASD. Each Holder as to which the Company
Registration Statement is being effected agrees to furnish promptly to the
Company all information required to be disclosed in order to make all
information previously furnished to the Company by such Holder not materially
misleading.
2.4 Registration Procedures.
In connection with any Registration Statement and any Prospectus required by
this Agreement to permit the sale or resale of Restricted Securities, the
Company shall:
(a) prepare and file with the Commission such amendments and post-effective
amendments to such Registration Statement as may be necessary to keep such
Registration Statement effective:
9
<PAGE>
(i) if such Registration Statement is a Company Registration Statement,
until the earlier of such time as all of such securities have been disposed of
in accordance with the intended methods of disposition by the seller or sellers
thereof set forth in such Company Registration Statement; or
(ii) if such Registration Statement is a Shelf Registration Statement,
for the applicable period set forth in Section 2.2(b) herein;
cause the Prospectus to be supplemented by any required Prospectus supplement,
and as so supplemented to be filed pursuant to Rule 424 under the Securities
Act, and to comply fully with the applicable provisions of Rules 424 and 430A,
as applicable, under the Securities Act in a timely manner; and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement during the applicable period
in accordance with the intended method or methods of distribution by the sellers
thereof set forth in such Registration Statement or supplement or the
Prospectus;
(b) respond to comments made by the SEC with respect to a Registration Statement
filed pursuant to this Agreement promptly, and use its best efforts to respond
in not more than thirty (30) days after the date of the comment letter, and
prepare and file with the SEC such amendments and supplements to such
Registration Statement and the Prospectus used in connection with such
Registration Statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
Registration Statement and immediately notify the holders of the Notes of the
filing and effectiveness of such Registration Statement and any amendments or
supplements;
(c) promptly (and in respect of events covered by clause (i) hereof, on the same
day as the Company shall receive notice of effectiveness) advise the Holders
covered by such Registration Statement and, if requested by such Persons, to
confirm such advice in writing,
(i) when the Prospectus or any Prospectus supplement or post-effective
amendment has been filed, and when the same has become effective,
(ii) of any request by the Commission for post-effective amendments to
such Registration Statement or post-effective amendments to such Registration
Statement or post-effective amendments or
10
<PAGE>
supplements to the prospectus or for additional information relating thereto,
(iii) of the issuance by the Commission of any stop order suspending
the effectiveness of any such Registration Statement under the Securities Act or
of the suspension by any state securities commission of the qualification of the
Restricted Securities for offering or sale in any jurisdiction, or the
initiation of any proceeding for any of the preceding purposes, and
(iv) of the existence of any fact or the happening of any event that
makes any statement of a material fact made in any such Registration Statement
the related Prospectus, any amendment or supplement thereto, or any document
incorporated by reference therein untrue, or that requires the making of any
additions to or changes in any such Registration Statement or the related
Prospectus in order to make the statements therein not misleading.
If at any time the Commission shall issue any stop order suspending the
effectiveness of such Registration Statement, or any state securities commission
or other regulatory authority shall issue an order suspending the qualification
or exemption from qualification of the Restricted Securities under state
securities or Blue Sky laws, the Company shall use its reasonable efforts to
obtain the withdrawal or lifting of such order at the earliest possible time;
(c) promptly furnish to each Holder of Restricted securities covered by any
Registration Statement, and each underwriter, if any, without charge, at least
one conformed copy of any Registration Statement, as first filed with the
Commission, and of each amendment thereto, including all documents incorporated
by reference therein and all exhibits (including exhibits incorporated therein
by reference) and such other documents as such Holder may reasonably request;
(d) deliver to each Holder covered by any Registration Statement, and each
underwriter, if any, without charge, as many copies of the Prospectus (including
each preliminary prospectus) and any amendment or supplement thereto as such
person reasonably may request.
(e) enter into such customary agreements and take all such other reasonable
action in connection therewith (including those reasonably requested by the
selling Holders or the underwriter(s), if any) required in order to expedite or
facilitate the disposition of such Restricted Securities pursuant to such
Registration Statement,
11
<PAGE>
including, but not limited to, dispositions pursuant to an underwritten
registration, and in such connection:
(i) make such representations and warranties to the selling Holders and
underwriter(s), if any, in form, substance and scope as are customarily made by
issuers to underwriters in underwritten offerings (whether or not sales of
securities pursuant to such Registration Statement are to be to an
underwriter(s)) and confirm the same if and when requested;
(ii) obtain opinions of counsel to the Company (which counsel and
opinions, in form and substance, shall be reasonably satisfactory to the selling
Holders and the underwriter(s), if any, and their respective counsel) addressed
to each selling Holder and underwriter, if any, covering the matters customarily
covered in opinions requested in underwritten offerings (whether or not sales of
securities pursuant to such Registration Statement are to be made to an
underwriter(s)) and dated the date of effectiveness of any Registration
Statement (and, in the case of any underwritten sale of securities pursuant to
such Registration Statement, each closing date of sales to the underwriter(s)
pursuant thereto);
(iii) use reasonable efforts to obtain comfort letters dated the date
of effectiveness of any Registration Statement (and, in the case of any
underwritten sale of securities pursuant to such Registration Statement, each
closing date of sales to the underwriter(s) pursuant thereto) from the
independent certified public accountants of the Company addressed to each
selling Holder and underwriter, if any, such letters to be in customary form and
covering matters of the type customarily covered in comfort letters in
connection with underwritten offerings (whether or not sales of securities
pursuant to such Registration Statement are to be made to an underwriter(s));
(iv) provide for the indemnification provisions and procedures of
Section 2.6 hereof with respect to selling Holders and the underwriter(s), if
any; and
(v) deliver such documents and certificates as may be reasonably
requested by the selling Holders or the underwriter(s), if any, and which are
customarily delivered in underwritten offerings (whether of not sales of
securities pursuant to such Registration Statement are to be made to an
underwriter(s), with such documents and certificates to be dated the date of
effectiveness of any Registration Statement.
12
<PAGE>
The actions required by clauses (i) through (v) above shall be done at each
closing under such underwriting or similar agreement, as and to the extent
required thereunder, and if at any time the representations and warranties of
the Company contemplated in clause (i) above cease to be true and correct, the
Company shall so advise the underwriter(s), if any, and each selling Holder
promptly, and, if requested by such Person, shall confirm such advice in
writing;
(f) prior to any public offering of Restricted Securities, cooperate with the
selling Holders, the underwriter(s), if any, and their respective counsel in
connection with the registration and qualification of the Restricted Securities
under the securities or Blue Sky laws of such U.S. jurisdictions as the selling
Holders or underwriters), if any, may reasonably request in writing by the time
any Registration Statement is declared effective by the Commission, and do any
and all other acts or filings necessary or advisable to enable disposition in
such U.S. jurisdictions of the Restricted Securities covered by any Registration
Statement and to file such consents to service of process or other documents as
may be necessary in order to effect such registration or qualification;
provided, however, that the Company shall not be required to register or qualify
as a foreign corporation in any jurisdiction where it is not then so qualified
or as a dealer in securities in any jurisdiction where it would not otherwise be
required to register or qualify but for this Section 2.4, or to take any action
that would subject it to the service of process in suits or to taxation, in any
jurisdiction where it is not then so subject;
(g) in connection with any sale of Restricted Securities that will result in
such securities no longer being Restricted Securities, cooperate with the
selling Holders and the underwriter(s), if any, to facilitate the prompt
preparation and delivery of certificates representing Restricted Securities to
be sold and not bearing any restrictive legends; and enable such Restricted
Securities to be in such denominations and registered in such names as the
Holders or the underwriter(s), if any, may request at least two (2) Business
Days prior to any sale of Restricted Securities made by such underwriters;
(h) use its best efforts to cause the disposition of the Restricted Securities
covered by any Registration Statement to be registered with or approved by such
other U.S. governmental agencies or authorities as may be necessary to enable
the seller or sellers thereof or the underwriter(s), if any, to consummate the
disposition of such Restricted Securities, subject to the proviso contained in
Section 2.4(f);
13
<PAGE>
(i) if any fact or event contemplated by Section 2.4(b) shall exist or have
occurred, prepare a supplement or post-effective amendment to any Registration
Statement or related Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter delivered
to the purchasers of Restricted Securities, the Prospectus will not contain an
untrue statement of a material fact or omit to state any material fact necessary
to make the statement therein not misleading;
(j) cooperate and assist in the performance of any due diligence investigation
by any underwriter (including any "qualified independent underwriter") that is
required to be retained in accordance with the rules and regulations of the
NASD, and use its reasonable efforts to cause any Registration Statement to
become effective and approved by such U.S. governmental agencies or authorities
as may be necessary to enable the Holders selling Restricted Securities to
consummate the disposition of such Restricted Securities;
(k) otherwise use its reasonable efforts to comply with all applicable rules and
regulations of the Commission, and make generally available to its security
holders with regard to such Registration Statement, as soon as practicable, a
consolidated earnings statement meeting the requirements of Rule 158 (which need
not be audited) for the twelve-month period (i) commencing at the end of any
fiscal quarter in which Restricted Securities are sold to the underwriter in a
firm or best efforts underwritten offering or (ii) if not sold to an underwriter
in such an offering, beginning with the first month of the Company's first
fiscal quarter commencing after the effective date of any Registration
Statement;
(1) provide a CUSIP number for all Restricted Securities not later than the
effective date of any Registration Statement;
(m) use its best efforts to list, not later than the effective date of such
Registration Statement, all Restricted Securities covered by such Registration
Statement on the American Stock Exchange or any other trading market on which
any Common Stock of the Company are then admitted for trading, and
(n) provide promptly to each Holder covered by any Registration Statement upon
request each document filed with the Commission pursuant to the requirements of
Section 12 and Section 14 of the Exchange Act.
14
<PAGE>
Each Holder agrees by acquisition of a Restricted Security that, upon receipt of
any notice from the Company of the existence of any fact of the kind described
in Section 2.4(c)(iv), or the commencement of the Black Out Period, such Holder
will forthwith discontinue disposition of Restricted Securities pursuant to any
Registration Statement until such Holder's receipt of the copies of the
supplemented or amended Prospectus, or until it is advised in writing, in
accordance with the notice provisions of Section 5.3 herein (the "Advice"), by
the Company that the use of the Prospectus may be resumed, and has received
copies of any additional or supplemental fillings that are incorporated by
reference in the Prospectus. In the event the Company shall give any such
notice, the time period regarding the effectiveness of the Shelf Registration
Statement set forth in Section 2.2(b) shall be extended by the number of days
during the period from and including the date of the giving of such notice
pursuant to Section 2.4(c)(iv) or the commencement of the Black Out Period to
and including the date when each selling Holder covered by such Registration
Statement shall have received the copies of the supplemented or amended
Prospectus or shall have received (in accordance with the notice provisions of
Section 4.3) the Advice.
2.5 Preparation: Reasonable Investigation.
In connection with preparation and filing of each Registration Statement under
the Securities Act, the Company will give the Holders of Restricted Securities
registered under such Registration Statement, their underwriter, if any, and
their respective counsel and accountants, the opportunity to participate in the
preparation of such Registration Statement, each prospectus included therein or
filed with the Commission, and each amendment thereof or supplement thereto, and
will give each to them access to its books and records and such opportunities to
discuss the business, finances and accounts of the Company and its subsidiaries
with its officers, directors and the independent public accountants who have
certified its financial statements as shall be necessary, in the opinion of such
Holders and such underwriters' respective counsel, to conduct a reasonable
investigation within the meaning of the Securities Act.
2.6 Certain Rights of Holders.
The Company will not file any registration statement under the Securities Act
which refers to any Holder of Restricted Securities by name or otherwise without
the prior approval of such Holder, which consent shall not be unreasonably
withheld or delayed.
15
<PAGE>
2.7 Registration Expenses.
(a) All expenses incident to the Company's performance of or compliance with
this Agreement will be borne by the Company, regardless of whether a
Registration Statement becomes effective, including without limitation: (i) all
registration and filing fees and expenses (including filings made with the NASD
and reasonable counsel fees in connection therewith); (ii) all reasonable fees
and expenses of compliance with federal securities and state Blue Sky or
securities laws (including all reasonable fees and expenses of one counsel to
the underwriter(s) in any underwriting) in connection with compliance with state
Blue Sky or securities laws for up to 40 states; (iii) all expenses of printing,
messenger and delivery services and telephone calls; (iv) all fees and
disbursements of counsel for the Company; and (v) all fees and disbursements of
independent certified public accountants of the Company (including the expenses
of any special audit and comfort letters required by or incident to such
performance), but excluding from this paragraph, fees and expenses of counsel to
the underwriter(s), if any, unless otherwise set forth herein.
(b) In addition, in connection with the filing of the Shelf Registration
Statement required to be filed by this Agreement, the Company will reimburse the
Holders of the Restricted Securities being registered pursuant to any Shelf
Registration Statement for the reasonable fees and disbursements of not more
than one counsel to review such Registration Statement.
(c) Notwithstanding the foregoing, the Company will not be responsible for any
underwriting discounts, commissions or fees attributable to the sale of
Restricted Securities or any legal fees or disbursements (other than any such
fees or disbursements relating to Blue Sky compliance or otherwise as set for
the under Section 2.7(a)) incurred by any underwriter(s) in any underwritten
offering if the underwriter(s) participates in such underwritten offering at the
request of the Holders of Restricted Securities, or any transfer taxes that may
be imposed in connection with a sale or transfer of Restricted Securities.
(d) The Company shall in any event, bear its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expenses of any annual audit and the
fees and expenses of any Person, including special experts, retained by the
Company.
16
<PAGE>
2.8 Indemnification, Contribution.
(a) The Company agrees to indemnify and hold harmless
(i) each Holder covered by any Registration Statement,
(ii) each other Person who participates as an underwriter in the
offering or sale of such securities,
(iii) each person, if any, who controls (within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act) any such Holder or
underwriter (any of the persons referred to in this clause (iii) being
hereinafter referred to as a ("controlling person") and
(iv) the respective officers, directors, partners, employees,
representatives and agents of any such Holder or underwriter or any controlling
person (any person referred to in clause (i), (ii), (iii) or (iv) may
hereinafter be referred to as an "indemnified Person"),
to the fullest extent lawful from and against any and all losses, claims,
damages, liabilities, judgments or expenses, joint or several (or actions or
proceedings, whether commenced or threatened, in respect thereof) (collectively,
"Claims"), to which such indemnified Person may become subject under either
Section 15 of the Securities Act or Section 20 of the Exchange Act or otherwise,
insofar as such Claims wise out of or are based upon, or are caused by any
untrue statement or alleged untrue statement of a material fact contained in any
Registration Statement or Prospectus (or any amendment or supplement thereto),
or any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading, or
a violation by the Company of the Securities Act or any state securities law, or
any rule or regulation promulgated under the Securities Act or any state
securities law, or any other law applicable to the Company relating to any such
registration or qualification, except insofar as such losses, claims, damages,
liabilities, judgments or expenses of any such indemnified Person; (x) are
caused by any such untrue statement or omission or alleged untrue statement or
omission that is based upon information relating to such indemnified Person
furnished in writing to the Company by or on behalf of any of such indemnified
Person expressly for use therein; (y) with respect to the preliminary
Prospectus, result from the fact that such Holder sold Securities to a person to
whom there was not sent or given, at or prior to the written confirmation of
such sale, a copy of the Prospectus, as amended or
17
<PAGE>
supplemented, if the Company shall have previously furnished copies hereof to
such Holder in accordance with this Agreement and said Prospectus, as amended or
supplemented, would have corrected such untrue statement or omission; or (z) as
a result of the use by an indemnified Person of any Prospectus when, upon
receipt of a Black Out Notice or a notice from the Company of the existence of
any fact of the kind described in Section 2.4(b)(iv), the indemnified Person or
the related Holder was not permitted to do so. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
any indemnified Person and shall survive the transfer of such securities by such
Holder.
In case any action shall be brought or asserted against any of the indemnified
Persons with respect to which indemnity may be sought against the Company, such
indemnified Person shall promptly notify the Company and the Company shall
assume the defense thereof Such indemnified Person shall have the night to
employ separate counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
the indemnified Person unless (i) the employment of such counsel shall have been
specifically authorized in writing by the Company, (ii) the Company shall have
failed to assume the defense and employ counsel or (iii) the named parties to
any such action (including any implied parties) include both the indemnified
Person and the Company and the indemnified Person shall-have been advised in
writing by its counsel that there may be one or more legal defenses available to
it which are different from or additional to those available to the Company (in
which case the Company shall not have the right to assume the defense of such
action on behalf of the indemnified Person), it being understood, however, that
the Company shall not, in connection with such action or similar or related
actions or proceedings arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys (in addition to any local counsel) at any time for
all the indemnified Persons, which firm shall be (x) designated by such
indemnified Persons and (y) reasonably satisfactory to the Company. The Company
shall not be liable for any settlement of any such action or proceeding effected
without the Company's prior written consent, which consent shall not be withheld
unreasonably, and the Company agrees to indemnify and hold harmless any
indemnified Person from and against any loss, claim, damage, liability, judgment
or expense by reason of any settlement of any action effected with the written
consent of the Company. The Company shall not, without the prior written consent
of each indemnified Person, settle or compromise or consent to the entry of
judgment on or otherwise seek to terminate any
18
<PAGE>
pending or threatened action claim, litigation or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not any
indemnified Person is a party thereto), unless such settlement, compromise,
consent or termination includes an unconditional release of each indemnified
Person from all liability arising out of such action, claim litigation or
proceeding.
(b) Each Holder of Restricted Securities covered by any Registration Statement
agrees, severally and not jointly, to indemnify and hold harmless the Company
and its directors, officers and any person controlling (within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act) the Company,
and the respective officers, directors, partners, employees, representatives and
agents of each person, to the same extent as the foregoing indemnity from the
Company to each of the indemnified Persons, but only (i) with respect to actions
based on information relating to such Holder furnished in writing by or on
behalf of such Holder expressly for use in any Registration Statement or
Prospectus, and (ii) to the extent of the gross proceeds, if any, received by
such Purchaser from the sale or other disposition of his or its Restricted
Securities covered by such Registration Statement. In case any action or
proceeding shall be brought against the Company or its directors or officers or
any such controlling person in respect of which indemnity may be sought against
a Holder of Restricted Securities covered by any Registration Statement, such
Holder shall have the rights and duties given the Company in Section 2.8(a)
(except that the Holder may but shall not be required to assume the defense
thereof), and the Company or its directors or officers or such controlling
person shall have the rights and duties given to each Holder by Section 2.8(a).
(c) If the indemnification provided for in this Section 2.8 is unavailable to an
indemnified party under Section 2.7(a) or (b) (other than by reason of
exceptions provided in those Sections) in respect of any losses, claims,
damages, liabilities, judgments or expenses referred to therein, then each
applicable indemnifying party (in the case of the Holders severally and not
jointly), in lieu of indemnifying such indemnified party, shall contribute to
the amount paid or payable by such indemnified party as a result of such losses,
claims damages, liabilities, judgments of expenses (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the Holder on the other hand from sale of Restricted Securities or (ii)
if such allocation provided by clause (i) above is not permitted by applicable
law, in such
19
<PAGE>
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company and such
Holder in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities, judgments or expenses, as well as any
other relevant equitable considerations. The relative fault of the Company on
the one hand and of such Holder on the other shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or by such Holder and the parties
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The amount paid to a party as a result of
the losses, claims, damages, liabilities judgments and expenses referred to
above shall be deemed to include, subject to the limitations set forth in the
second paragraph of Section 2.8(a), any legal or other fees or expenses
reasonably incurred by such party in connection with investigating or defending
any action or claim.
The Company and each Holder of Restricted Securities covered by any Registration
Statement agree that it would not be just and equitable if contribution pursuant
to this Section 2.8(c) were determined by pro rata allocation (even if the
Holders were treated as one entity for such purpose) or by any other method of
allocation which does not take into account the equitable considerations
referred to in the immediately preceding paragraph. Notwithstanding the
provisions of this Section 2.8(c) no Holder (and none of its related indemnified
Persons) shall be required to contribute, in the aggregate, any amount in excess
of the amount by which the dollar amount of proceeds received by such Holder
upon the sale of the Restricted Securities exceeds the amount of any damages
which such Holder has otherwise been required to pay by reason of such untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentations (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
The indemnity and contribution provisions contained in this Section 2.8 are in
addition to any liability which the indemnifying person may otherwise have to
the indemnified persons referred to above.
20
<PAGE>
2.9 Participation in Underwritten Registrations.
No Holder may participate in any underwritten registration hereunder unless such
Holder (a) agrees to sell such Holder's Restricted Securities on the basis
provided in any underwriting arrangements approved by the Persons entitled
hereunder to approve such arrangements and (b) completes and executes all
reasonable questionnaires, powers of attorney, indemnities, underwriting
agreements, lock-up letters and other documents required under the terms of such
underwriting arrangements.
2.10 Selection of Underwriters.
The Holders of Restricted Securities covered by any Registration Statement who
desire to do so may sell such Restricted Securities in an underwritten offering.
In any such underwritten offering, the investment banker or investment bankers
and manager or managers that will administer the offering will be selected by
the Holders of a majority of the Restricted Securities included in such offering
if such registration is pursuant to the Shelf Registration Statement, and by the
Company if such registration is pursuant to a Company Registration Statement;
provided, however, that such investment bankers and managers must be reasonably
satisfactory to the Company or the Holders, respectively. Such investment
bankers and managers are referred to herein as the "underwriters".
ARTICLE 3
RULE 144A
The Company hereby agrees with each Holder of Restricted Securities, for so long
as any of the Restricted Securities remain outstanding and continue to be
"restricted securities" within the meaning of Rule 144 under the Act, and during
any period in which the Company is not subject to Section 13 or 15(d) of the
Exchange Act, to make available to the Holders of Restricted Securities in
connection with any sale thereof, and to any prospective purchaser of Common
Stock from such Holders of Restricted Securities or beneficial owner, the
information required by Rule 144A(d)(4) under the Act in order to permit resales
of such Restricted Securities pursuant to Rule 144A.
21
<PAGE>
ARTICLE 4
MISCELLANEOUS
4.1 Entire Agreement.
This Agreement, together with the Securities Purchase Agreement and the
Certificate of Determination, constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersedes all prior
agreement and understandings, both oral and written, between the parties with
respect to the subject matter hereof.
4.2 Successors and Assigns.
This Agreement shall inure to the benefit of and be binding upon the successors
and assigns of each of the parties, including without limitation and without the
need for an express assignment, subsequent Holders of Restricted Securities;
provided, however, that this Agreement shall not inure to the benefit of or be
binding upon a successor or assign of a Holder unless and to the extent such
successor or assign acquired Restricted Securities from such Holder at a time
when such Holder could not transfer such Restricted Securities pursuant to any
Registration Statement or pursuant to Rule 144 under the Securities Act as
contemplated by clause (ii) of the definition of Restricted Securities.
4.3. Notices.
All notices and other communications given or made pursuant hereto or pursuant
to any other agreement among the parties, unless otherwise specified, shall be
in writing and shall be deemed to have been duly given or made if sent by
telecopy (with confirmation in writing), delivered personally or by overnight
courier or sent by registered or certified mail (postage prepaid, return receipt
requested) to the parties at the telecopy number, if any, or address set forth
below or at such other addresses as shall be furnished by the parties by like
notice. Notices sent by telecopier shall be effective when receipt is
acknowledged, notices delivered personally or by overnight courier shall be
effective upon receipt and notices sent by registered or certified mail shall be
effective three days after mailing:
If to a Holder: to such Holder at the address set forth on
the records of the Company pursuant to the
22
<PAGE>
Securities Purchase Agreement. In addition
copies of all such notices or other
communications shall be concurrently
delivered by the Person giving the same to
each person who has been identified to the
Company by such Holder as a Person who is
to receive copies of such notice.
If to the Company: at the address set forth in the Securities
Purchase Agreement.
with copies to: Stephen A. Weiss, Esq.
Greenberg Traurig Hoffman Lipoff Rosen &
Quentel
Met Life Building
200 Park Avenue
New York, New York 10166
Telephone Number: (212) 801-9200
Fax: (212) 801-6400
-and-
Mintmire & Associates
265 Sunrise Avenue, Suite 204
Palm Beach, Florida 33480
Attention: Donald F. Mintmire, Esq.
Telephone Number: (561) 832-5696
Fax: (561) 659-5371
4.4 Headings.
The headings contained in this Agreement are for convenience only and shall not
affect the meaning or interpretation of this Agreement.
4.5 Counterparts.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original and all of which together shall be deemed to
be one and the same instrument.
23
<PAGE>
4.6 Applicable Law; Resolution of Disputes.
(a) This Agreement shall be governed by and construed in accordance with the
internal laws of the state of New York, without giving effect to the choice law
provisions.
(b) Any dispute regarding the interpretation or application of this Agreement
which cannot be settled among the parties shall be resolved in New York, New
York final and binding arbitration in accordance with the then obtaining rules
of the American Arbitration Association. There shall be appointed three
arbitrators, one of whom shall be selected by the Company, the second by the
Purchasers and the third by mutual agreement of the parties or by the American
Arbitration Association. The decision of the arbitrators shall be final and upon
all of the Purchasers and the Company and may be enforced by the prevailing
party or parties in any court of competent jurisdiction. Each party shall bear
their own costs of the arbitration and shall share equally the costs of the
arbitrators.
4.7 Specific Enforcement.
Each party hereto acknowledges that the remedies at law of the other parties for
a breach or threatened breach of this Agreement would be inadequate, and, in
recognition of this fact, any party to this Agreement, without posting any bond,
and in addition to all other remedies which may be available, shall be entitled
to obtain equitable relief in the form of specific performance, a temporary
restraining order, a temporary to permanent injunction or any other equitable
remedy which may then be available.
4.8 Amendment and Waivers.
The provision of this Agreement may not be amended modified or supplemented and
waivers or consents to or departures from the provisions hereof may not be given
unless the Company has obtained the written consent of Holders of a majority of
the Restricted Securities.
4.9 Attorney Fees.
Purchasers shall be entitled to recover from the Company the reasonable
attorneys' fees and expenses (and the reasonable costs of investigation)
incurred by such Purchaser in connection with enforcement by such Purchaser of
any obligation of the Company hereunder.
24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.
ENVIRONMENTAL REMEDIATION HOLDING
CORPORATION
By: ________________________
Name: Sam Bass
Its: Chairman of the Board
THE PURCHASERS:
By:___________________________________________
Name:
Its:
Address:
By:___________________________________________
Name:
Its:
Address:
By:___________________________________________
Name:
Its:
Address:
By:___________________________________________
Name:
Its:
Address:
By:___________________________________________
Name:
Its:
Address:
25
<PAGE>
EXHIBIT 10.2 - TRANSLATED FROM ORIGINAL PORTUGESE
(Democratic Rep. of Sao and Principe Decree-Law Ner.: 27/98, on Establishment of
STPETRO, S.A., Saotomean National Oil Company; First Addendum to official
Journal Ner.:5/98, Published on July .., 1998. Entry into force: on July..,
1998).
DECREE-LAW Ner: 27/98
FIRST ADDENDUM TO OFFICIAL JOURNAL Ner: 5/98
Published on July.... and entered
into force on July.... July, 1998.
Whereas the exploration and exploitation of natural resources, namely, the
hydrocarbons reveal to be as a relevant addition to the production of national
wealth that is needed to the development of the Country, as well as to the
establishment of welfare to the Saotomean citizen;
Whereas the establishment of a company whose business activity will be
exploration and exploitation of hydrocarbons is the needful condition to meet
this purpose,
Whereas, moreover, it is advisable the contribution from the internationally
experienced foreign companies to assure technical and financial co-partnership
to materialize this business activity, Now therefore,
The Government of the Democratic Republic of Sao Tome and Principe under the
article 99, sub-paragraph d) of the Constitution enacts and I promulgate as
follows:
Article 1
It is hereby established Sao Tome and Principe National Petroleum Company, a
public company, shortly named "STPETRO, S.A."
Article 2
It is hereby approved the Statute of STPETRO, S.A. that is attached to
this diploma.
1
<PAGE>
(Democratic Rep. of Sao and Principe Decree-Law Ner.: 27/98, on Establishment of
STPETRO, S.A., Saotomean National Oil Company; First Addendum to official
Journal Ner.:5/98, Published on July .., 1998. Entry into force: on July..,
1998).
Article 3
This decree-law enters into force under legal terms.
Approved by the Council of Ministers on June 16th, 1998.
The Prime Minister and Head of the Government
(Illegible Signature)
-----------------------
Raul Braganca Neto
The Minister of Justice, Labor
and Public Administration
(Illegible Signature)
--------------------------------
Amaro Pereira de Couto
On behalf of the Minister of Foreign Affairs
and Communities
(Illegible signature)
----------------------------------
Homero Jeronimo Salvaterra
The Minister of Defense
and Interior
(Illegible Signature)
------------------------------
Joao Quaresma Viegas Bexigas
On behalf of the Minister of Planning
and Finance
2
<PAGE>
(Democratic Rep. of Sao and Principe Decree-Law Ner.: 27/98, on Establishment of
STPETRO, S.A., Saotomean National Oil Company; First Addendum to official
Journal Ner.:5/98, Published on July .., 1998. Entry into force: on July..,
1998).
(Illegible Signature)
---------------------------------------------
Acacio Elba Bonfim
The Minister of Education, Culture
and Sports
(Illegible Signature)
--------------------------
Albertino Homem dos Santos
Sequeira Braganca
The Minister of Social Equipment
and Environment
(Illegible Signature)
---------------------------
Arlindo Afonso de Carvalho
On behalf of the Minister of Agriculture
and Fisheries
(Illegible Signature)
------------------------------
Hermenegildo de Assuncao
Sousa e Santos
On behalf of the Minister of Wealth
3
<PAGE>
(Democratic Rep. of Sao and Principe
Decree-Law Ner.: 27/98, on Establishment
of STPETRO, S.A., Saotomean National Oil
Company; First Addendum to official Journal
Ner.:5/98, Published on July .., 1998.
Entry into force: on July.., 1998).
(Illegible Signature)
----------------------------------------
Eduardo do Carmo Ferreira de Matos
The Minister of Commerce, Industry
and Tourism
(Illegible Signature)
--------------------------------
Cosme Bonfim Afonso Rita
It has been promulgated on July 9th, 1998.
Be Published.
The PRESIDENT OF THE REPUBLIC
(Illegible Signature)
---------------------------------------
Miguel ANJOS DA CUNHA, LISBOA TROVOADA
4
<PAGE>
(Democratic Rep. of Sao and Principe Decree-Law Ner.: 27/98, on Establishment of
STPETRO, S.A., Saotomean National Oil Company; First Addendum to official
Journal Ner.:5/98, Published on July .., 1998. Entry into force: on July..,
1998).
STATUTE OF
SAO TOME AND PRINCIPE
NATIONAL PETROLEUM COMPANY
A PUBLIC COMPANY NAMED
"STPETRO, S.A. "
CHAPTER I
ESTABLISHMENT, HEADQUARTERS AND
COMMERCIAL ACTIVITIES
ARTICLE I
ESTABLISHMENT AND DURATION
1. There is hereby established a public company incorporated under the Laws of
the Democratic Republic of Sao Tome and Principe, pursuant to relevant
provisions of the applicable laws and regulations to sharing companies, that is
named Sao Tome and Principe National Petroleum Company, shortly, "STPETRO, S.A."
2. STPETRO, S.A., is an oil company established between the Government of the
Democratic Republic of Sao Tome and Principe (herein after referred to as the
"Government") and Environmental Remediation Holding Corporation (herein after
referred to as the ERHC), under the terms and conditions set up in the Agreement
between the aforementioned parties dated May 27, 1997.
3. STPETRO, S.A., is established for an indefinite time period from the date of
registration of this Statute with the Notary Public in the Democratic Republic
of Sao Tom6 and Principe.
ARTICLE 2
COMMERCIAL ACTIVITIES
1. The main commercial activities of STPETRO, S.A., are petroleum and gas
exploration and exploitation, petroleum refining, gas processing and sale of
petroleum and petroleum products as well as, securing financing, development and
procurement of petroleum and gas related activities and facilities.
2. STPETRO, S.A., shall carry on any and all the activities connected or related
to the petroleum and gas industry, as well as any other commercial activity that
is not in a collision course with its main commercial activities.
5
<PAGE>
(Democratic Rep. of Sao and Principe Decree-Law Ner.: 27/98, on Establishment of
STPETRO, S.A., Saotomean National Oil Company; First Addendum to official
Journal Ner.:5/98, Published on July .., 1998. Entry into force: on July..,
1998).
ARTICLE 3
HEADQUARTERS AND BRANCHES
1. The headquarters of STPETRO, S.A., are located in Sao Tome City in the
Democratic Republic of Sao Tome and Principe (herein after referred to as
"DRSTP", and its Administrative Council may deliberate the transfer thereof to
any place in the Saotomean territory.
2. STPETRO, S.A., through its Administrative Council, will have the authority to
open branches, agencies and representative offices thereof at any time as it
deems necessary at any place in the Saotomean territory and/or elsewhere abroad.
3. The Administrative Council of STPETRO, S.A., may establish at a time it deems
necessary affiliated companies abroad.
4. STPETRO, S.A., is interdicted to establish affiliated banks in the territory
of the DRSTP; however, it may acquire shares of the banks operating therein.
ARTICLE 4
(ENVIRONMENTAL PROTECTION)
STPETRO, S.A., shall comply with the laws, regulations, and compulsory rules on
environmental protection on carrying on its commercial activities
ARTICLE 5
(NATIONALITY)
STPETRO, S.A., and its branches, agencies and representative offices based
and/or registered in the DRSTP shall hold the Saotomean nationality.
ARTICLE 6
(LEGAL PERSONALITY AND CAPACITY)
1. STPETRO, S.A., shall have legal personality and capacity to perform under its
name and its commercial activities.
6
<PAGE>
(Democratic Rep. of Sao and Principe Decree-Law Ner.: 27/98, on Establishment of
STPETRO, S.A., Saotomean National Oil Company; First Addendum to official
Journal Ner.:5/98, Published on July .., 1998. Entry into force: on July..,
1998).
2. STPETRO, S.A., is a legally autonomous private entity and shall enjoy,
therefore, the complete and absolute managing and financial autonomy in legal
course of its commercial activities through its competent bodies.
ARTICLE 7
(CAPITAL STOCK CONTRIBUTION)
1. The initial capital stock contribution for STPETRO, S.A., is one hundred
thousand (Us$100, 000.00) Dollars of the United States of America.
2. The capital stock may be increased up to the proportional amount that is
deemed to meet in the best way its commercial activities, according to the
decision of the General Assembly of shareholders taken by majority of the votes
cast.
3. Any new shares may be submitted to the public subscription upon approval of
majority shareholders and subject to the provisions set forth herein.
4. In case of failure of subscription of new shares by the Treasury, the
Saotomean State shall appoint one or more state-owned entities to perform such
subscription on its behalf, in order that, at least, to preserve the
proportionality of capital stock that it owns.
ARTICLE 8
(SHARES)
1. The initial capital stock is divided into ten thousand (10,000) shares each
having a face value of ten (USD10.00) Dollars of the United States of America.
2. All these shares shall have been fully paid up prior to their issuance.
7
<PAGE>
(Democratic Rep. of Sao and Principe Decree-Law Ner.: 27/98, on Establishment of
STPETRO, S.A., Saotomean National Oil Company; First Addendum to official
Journal Ner.:5/98, Published on July .., 1998. Entry into force: on July..,
1998).
ARTICLE 9
(SUBSCRIPTION OF INITIAL SHARES)
The initial shares shall be subscribed and fully paid up by the
founders-shareholders as follows:
(A) The Government or state-owned entity appointed by the former: five
thousand one hundred (5,100) shares, the equivalent of fifty-one (51%) percent
of the initial capital stock, and
(B) Environmental Remediation Holding Corporation: four thousand nine
hundred (4,900) shares the equivalent of forty-nine (49%) percent of the initial
capital stock.
ARTICLE 10
(TYPE OF SHARES)
1. The shares hereby created shall be issued as bearer shares with transfer
restrictions as set forth in the Article 15.
2. STPETRO, S.A., may issue nominative or special shares or other types thereof
at any time as it deems necessary and convenient, pursuant to the deliberations
of the General Assembly taken by the majority of the votes cast.
3. STPETRO, S.A., may issue certificates in combination of five, ten, fifty,
hundred and thousand shares.
ARTICLE 11
(STOCK REGISTRATION)
1. All types of shares shall be registered and numbered under the name of the
buyer or subscriber in the appropriate registry or database maintained by
STPETRO, S.A.
2. The registry or database of shareholders shall also include the domicile and
address of each shareholder or share subscriber
8
<PAGE>
(Democratic Rep. of Sao and Principe Decree-Law Ner.: 27/98, on Establishment of
STPETRO, S.A., Saotomean National Oil Company; First Addendum to official
Journal Ner.:5/98, Published on July .., 1998. Entry into force: on July..,
1998).
ARTICLE 12
(SHARE DEPOSIT)
1. The shareholder has the faculty to take physical possession whether of the
share or the original of the share certificates; provided that the former shall
be maintained on deposit at the headquarters of STPETRO, S.A.. If the
shareholder elects to take physical possession of the shares, the original of
share certificates shall not be issued.
2. If the share certificate remains on deposit with STPETRO, S.A., the
shareholder shall receive a share receipt acknowledging said deposit.
3. Said share receipts may be transferred, but said receipts will have no legal
value until said transfer is recorded in the registry or database of STPETRO,
S.A.
ARTICLE 13
(SHARE CERTIFICATES)
1. STPETRO, S.A., grants the Administrative Council authority to issue
certificates representing five, ten, fifty, hundred and thousand shares.
2 The Administrative Council may only issue such certificates after full payment
of the price of total number of shares that have been subscribed.
3. All shares and bonds, as well as the documents in which they are combined and
their respective certificates, shall be jointly signed by the President of the
Administrative Council and another member thereof, as appointed by the
Administrative Council, whose signatures shall be certified by the Secretary of
the Administrative Council and shall set the embossed seal of STPETRO, S.A.
4. The signatures referred to in the provision paragraph "3" herein above may be
reproduced mechanical means.
ARTICLE 14
(BONDS)
1. STPETRO, S.A., may issue any type of bonds according to the decision of the
Administrative Council, pursuant to the relevant provisions of applicable Laws.
9
<PAGE>
(Democratic Rep. of Sao and Principe Decree-Law Ner.: 27/98, on Establishment of
STPETRO, S.A., Saotomean National Oil Company; First Addendum to official
Journal Ner.:5/98, Published on July .., 1998. Entry into force: on July..,
1998).
2. STPETRO, S.A., may issue certificates representing five, ten, fifty, hundred
and thousand bonds as well as documents that combine this same amounts.
3. The Administrative Council may only issue such bond certificates after full
payment of the number of bonds that has been subscribed.
4. The General Assembly may grant powers to the Administrative Council on bond
issuing.
ARTICLE 15
(PRIORITY RIGHT)
1. There is hereby conferred a priority right on the subscription and purchase
of new shares or bonds to the bearer on any type shares or bonds, as the case
may be, according to the proportionality of the owned shares and/or bonds.
2. Any shareholder or holder of bonds of record is required to offer for sale or
transfer in priority to any shareholder or bond holder of record prior to
offering such shares to any individual or business entity. Notice of a
shareholder or holder of bonds intent to sell, shall be given to STPETRO, S.A.,
in accordance with the procedures to be established by the Administrative
Council.
3. Any shares or bonds which have not been subscribed by other shareholders or
holders of bonds, may be publicly subscribed.
CHAPTER II
THE RULING BODIES OF STPETRO, S.A.
ARTICLE 16
(THE RULING BODIES OF STPETRO, S.A.)
STPETRO, S.A., is ruled by the following bodies:
(A) The General Assembly of the Shareholders,
(B) The Administrative Council, and
(C) The Council of Auditors.
10
<PAGE>
(Democratic Rep. of Sao and Principe Decree-Law Ner.: 27/98, on Establishment of
STPETRO, S.A., Saotomean National Oil Company; First Addendum to official
Journal Ner.:5/98, Published on July .., 1998. Entry into force: on July..,
1998).
Section I
GENERAL ASSEMBLY OF THE SHAREHOLDERS
ARTICLE 17
(POWERS OF THE GENERAL ASSEMBLY)
1. The General Assembly is composed of all the shareholders with the right to
vote, and the shareholders without the right to vote may attend its sessions
under the terms of this Statute.
2 The Board of General Assembly is composed by one Chairman, one Vice-President
and one Secretary, elected by the General Assembly.
3. All shareholders, other ruling bodies of STPETRO, S.A. and members thereof,
are bound to all actions of the General Assembly taken according to the
applicable Laws and Regulations.
4. The General Assembly shall:
(A) Appoint and dismiss the Chairman, the Vice-President and the Secretary
of the General Assembly, for a five-year term, eventually renewable,
(B) Appoint and dismiss the members of bodies, fix their wages and
privileges, other ruling bodies, fix their wages and privileges,
(C) Approve or disapprove the annual report and balance sheet of the
Administrative Council and the annual report of Council of Auditors,
(D) Adopt any amendments to this Statute,
(E) Deliberate on strategy and general options for the development of the
commercial activities of STPETRO, S.A., that shall be proposed by the
Administrative Council, and
(F) Deliberate on dividend distribution, the constitution of reserves or
any subject in the agenda.
11
<PAGE>
(Democratic Rep. of Sao and Principe Decree-Law Ner.: 27/98, on Establishment of
STPETRO, S.A., Saotomean National Oil Company; First Addendum to official
Journal Ner.:5/98, Published on July .., 1998. Entry into force: on July..,
1998).
ARTICLE 18
(RIGHT TO VOTE)
1. The shareholder has the right to attend the meeting of the General Assembly
as voter.
2. However, only the bearer of at least one hundred (100) voting shares may
exercise the right to vote.
3. The buyer of voting shares is compelled to give notice to STPETRO, S.A., on
such, acquisition two (2) months prior to any meeting of the General Assembly to
enable the shareholder the authority to exercise the right to vote.
4. A bearer of bonds, authorized and issued by STPETRO, S.A., may attend the
meeting of the General Assembly only as observer, without the right to vote.
ARTICLE 19
(NOTICE OF THE MEETING)
1. The General Assembly shall be convened by its Chairman on his/her own
initiative or under compulsory request within a minimum of thirty (30) days
notice prior to the date of the meeting by the shareholders owning at least
twenty-five (25%) percent of the capital stock.
2. The Chairman of the General Assembly shall give notice of any meeting of the
General Assembly to the shareholders at least twenty (20) days prior to such
meeting and stating the day, time, location of the meeting and the agenda.
3. Whenever possible, the location of the meeting shall be at the headquarters
of STPETRO, S.A.
4. Without prejudice to the provision of the paragraph 11211 herein above,
notices of the meeting shall be given through the mail, mass
12
<PAGE>
(Democratic Rep. of Sao and Principe Decree-Law Ner.: 27/98, on Establishment of
STPETRO, S.A., Saotomean National Oil Company; First Addendum to official
Journal Ner.:5/98, Published on July .., 1998. Entry into force: on July..,
1998).
media and posted at the headquarters, agencies, branches and representative
offices of STPETRO, S.A.
ARTICLE 20
(QUORUM)
1. A quorum of any meeting of the General Assembly shall be the majority of the
voting capital stock and at least two shareholders' attendance.
2. However, in the case of an insufficient quorum for a meeting of the General
Assembly, a second notice shall be given for such meeting and, accordingly, the
General Assembly shall be convened and all deliberations and actions taken shall
be valid, enforceable and effective whatever the number of shareholders'
attendance and the capital stock that has been represented.
ARTICLE 21
(ATTORNEY-IN-FACT)
Any shareholder may grant powers of attorney to anyone to act on his
behalf at the General Assembly provided he has addressed and delivered the
appropriate document to the Chairman of the General Assembly ten. (10) days
prior to the meeting.
ARTICLE 22
VOTES
1. A group of one hundred (100) fully paid up shares equals one (1) vote.
2. Without prejudice to the provision of paragraph "I" herein above and other
provisions of this statute, the shareholder will be
13
<PAGE>
(Democratic Rep. of Sao and Principe Decree-Law Ner.: 27/98, on Establishment of
STPETRO, S.A., Saotomean National Oil Company; First Addendum to official
Journal Ner.:5/98, Published on July .., 1998. Entry into force: on July..,
1998).
entitled to exercise the right to vote if the shareholder has registered the
shares under his/her/its name on the registry or database of STPETRO, S.A., at
least thirty (30) days prior to the meeting
Section II
THE ADMINISTPATIVE COUNCIL
ARTICLE 23
(COMPOSITION AND RUNNING OF THE
ADMINISTRATIVE COUNCIL)
1. The Administrative Council shall be composed of five Administrators, elected
by the General Assembly, two being the President and the Chief Executive
officer.
2. If the President of the Administrative Council is absent or unable to act and
during the vacancy he will be replaced by the Chief Executive Officer.
3. If the President of the Administrative Council is absent or unable to act for
a period of thirty (30) days or more, and a new President has not been elected,
the Chief Executive Officer may select his temporary substitute to serve on the
Administrative Council until such position is filled or the President returns to
active duty.
4. The Administrators may also act as Managing Directors.
ARTICLE 24
(POWERS OF ADMINISTRATIVE COUNCIL)
1.Without prejudice to the powers and functions vested in it by other provisions
of this Statute, applicable Laws and Regulations, the Administrative Council
shall:
(A) Adopt the rules of procedures on general managing of STPETRO, S.A.,
(B) Define the rules of managing of the manpower,
14
<PAGE>
(Democratic Rep. of Sao and Principe Decree-Law Ner.: 27/98, on Establishment of
STPETRO, S.A., Saotomean National Oil Company; First Addendum to official
Journal Ner.:5/98, Published on July .., 1998. Entry into force: on July..,
1998).
(C) Authorize the realization operations and transactions, of all
extraordinary operations and transactions,
(D) Decide to establish representatives' offices, branches, agencies
and represenatives' offices,
(E) Make the necessary arrangements with other entities as it deems
convenient to STPETRO, S.A.,
(F) Adopt the internal rules of procedures,
(G) Appoint and dismiss the Managing Directors and fix their wages and
privileges, as the case may be, and
(H) Purchase, sell or mortgage property of STPETRO, S.A., as well as,
according to the deliberation of the General Assembly.
2. The Administrative Council may delegate some of its powers and functions to
the President of the Administrative Council or to the Chief Executive officer.
ARTICLE 25
(POWERS OF THE PRESIDENT OF ADMINISTRATIVE COUNCIL, S.A.)
Without prejudice to the powers and functions stated in other
provisions of this Statute, applicable Laws and Regulations, the President of
Administrative Council of STPETRO, S.A. is specially vested in the powers of:
(A) Acting on behalf of STPETRO, S.A., separately or jointly with
Chief Executive Officer or with another member of
Administrative Council, in any and all transactions related to
the commercial activities of STPETRO, S.A., and he/she may
delegate some of his/her powers,
(B) Coordinating and controlling the realization of all the
services of STPETRO, S.A., and deciding as he/she deems
necessarily on all the subjects in order to perform the
commercial purposes of STPETRO, S.A., and
15
<PAGE>
(Democratic Rep. of Sao and Principe Decree-Law Ner.: 27/98, on Establishment of
STPETRO, S.A., Saotomean National Oil Company; First Addendum to official
Journal Ner.:5/98, Published on July .., 1998. Entry into force: on July..,
1998).
(C) Review, recommend and inspect policies and/or procedures in
any departments, branches, agencies or representatives'
offices, as the case may be.
ARTICLE 26
(AUTHORIZED SIGNATURES)
1. STPETRO, S.A., shall be only bound upon signatures of:
(A) jointly the President of the Administrative Council and
the Chief Executive Officer,
(B) jointly the General Manager and another member of the
Administrative Council,
(C) Any member of the Administrative Council and attorney-
in-fact under specific power of attorney and
recognized by the Administrative Council, and
(D) An attorney-in-fact, recognized by the Administrative Council
and attorney-in-fact under specific power of attorney
accordingly entitled to bind STPETRO, S.A..
2. In addition, the President may authorize members of the Administrative
Council, the Managing Directors, officers and/or employees to sign daily
documents related to normal course of operation of STPETRO, S.A. Such
authorization shall be granted and recorded in the Corporate Minutes of STPETRO,
S.A. Copy of said Minutes shall be distributed to each person to which such
authority has been granted.
16
<PAGE>
(Democratic Rep. of Sao and Principe
Decree-Law Ner.: 27/98, on Establishment
of STPETRO, S.A., Saotomean National Oil
Company; First Addendum to official Journal
Ner.:5/98, Published on July .., 1998.
Entry into force: on July.., 1998).
Section III
THE COUNCIL OF AUDITORS
ARTICLE 27
(COMPOSITION AND OPERATION)
1. STPETRO, S.A., shall be subjected to quarterly internal audits.
2. The internal audit will be carried out by the Council of Auditors consisting
of at least three (3) members.
3. The President of the Council of Auditors shall convene and lead one meeting
at least every three (3) months or whenever he deems necessary and convenient.
4. The members of Council of Auditors shall be appointed by the General Assembly
for five (5) year terms, eventually renewable, and its actions shall be taken by
the majority of votes.
5. The General Assembly shall appoint one of the auditors to act as the
President of the Council of Auditors.
6. The Council of Auditors may procure an external and independent accounting
company whenever it deems convenient, being the charges arising thereby paid by
the STPETRO, S.A.
ARTICLE 28
(FUNCTIONS OF AUDITORS)
1. Without prejudice to the powers and functions stated in other provisions of
this Statute, applicable Laws and Regulations, the Council of Auditors is
specially vested with powers of:
(A) Auditing the administration and management of STPETRO, S.A.'s,
checking account and inspecting any and all acts at any time as it
deems it necessary and convenient,
(B) Checking the accomplishment of the applicable Laws, Regulations,
this Statute and other relevant rules and instructions,
17
<PAGE>
(Democratic Rep. of Sao and Principe Decree-Law Ner.: 27/98, on Establishment of
STPETRO, S.A., Saotomean National Oil Company; First Addendum to official
Journal Ner.:5/98, Published on July .., 1998. Entry into force: on July..,
1998).
(C) Auditing the accuracy of books, accounting registry and documents
related thereto,
(D) Checking the cash account, amount of funds, cash reserves,
hydrocarbon reserves and other values and assets,
(E) Checking the accuracy of annual Balance Sheet and Report,
(F) Elaborating its report on its activities,
(G) Presenting its judgment on main managerial documents, namely, the
the annual budget, Balance Sheet, inventory and annual accounts and
agreements,
(H) Causing the Administrative Council to take into consideration any
subject related to commercial activities and operation of STPETRO,
S.A.,
(I) Attending any meeting of the Administrative Council whenever it
deems necessary, and
(J) Causing an audit of the annual Balance Sheet and Report by an
independent and reputable Certified Accounting Firm.
CHAPTER III
ALLOCATION OF PROCEEDS
ARTICLE 29
(DIVIDEND AND RESERVES)
The General Assembly shall hold an ordinary meeting no later than the 31st
of March in each year to deliberate and act an the proposals from the
Administrative Council concerning the application of the results of the previous
year in conformity with the following requirements:
(A) A minimum of twenty (20%) of the income of STPETRO, S.A., to be
affected to the legal reserve. The Administrative Council shall
recommend the maximum amount which shall be maintained in such
legal reserve,
(B) The earnings when approved by the Administrative Council to be
distributed as dividends to the shareholders, and
(C) The earnings to be distributed to redeem bonds.
18
<PAGE>
(Democratic Rep. of Sao and Principe Decree-Law Ner.: 27/98, on Establishment of
STPETRO, S.A., Saotomean National Oil Company; First Addendum to official
Journal Ner.:5/98, Published on July .., 1998. Entry into force: on July..,
1998).
CHAPTER IV
SETTLEMENT OF DISPUTES
ARTICLE 30
(SETTLEMENT OF DISPUTES)
All the disputes between STPETRO, S.A., and its shareholders, their
heirs or representative arising from this Statute shall be settled, in priority,
according to the procedures of the Arbitration procedure to be established by
the Administrative Council.
CHAPTER V
FINAL PROVISIONS
ARTICLE 31
(DISSOLUTION)
STPETRO, S.A., shall cease its legal existence according to the
provision of applicable Laws and pursuant to the deliberation and action of the
General Assembly taken by a majority of voting shares representing seventy-five
(75%) percent of the total amount of the voting capital stock.
ARTICLE 32
(MODIFICATION)
This Statute may be modified by the General Assembly of Shareholders by
a majority of seventy-five (75%) percent of the total amount of the voting
capital stock.
ARTICLE 33
(NOTICES)
All notices and other communications shall be in writing and shall be
deemed to have been given if delivered in person or sent by prepaid first class
registered or certified mail, return receipt requested to the last known address
of any party hereto.
19
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS OF ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
FOR JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000799235
<NAME> Environmental Remediation Holding Corporation
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1997
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1.000
<CASH> 1,521,283
<SECURITIES> 0
<RECEIVABLES> 450,779
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,304,191
<PP&E> 7,763,383
<DEPRECIATION> (901,675)
<TOTAL-ASSETS> 11,199,499
<CURRENT-LIABILITIES> 3,930,522
<BONDS> 6,274,536
0
0
<COMMON> 2,422
<OTHER-SE> (542,202)
<TOTAL-LIABILITY-AND-EQUITY> 11,199,499
<SALES> 392,276
<TOTAL-REVENUES> 403,960
<CGS> 0
<TOTAL-COSTS> 6,063,869
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 251,104
<INCOME-PRETAX> (5,911,013)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,911,013)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,911,013)
<EPS-PRIMARY> (0.25)
<EPS-DILUTED> (0.25)
</TABLE>
