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As filed with the Securities and Exchange Commission on January 8, 1998
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
Form S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
--------------------
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
(Exact name of Registrant as specified in its charter)
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Colorado 1301 88-0218499
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer identification no.)
incorporation or organization) classification code number)
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420 Jericho Turnpike, Suite 321
Jericho, New York 11753
telephone: (516) 433-4730; facsimile: (516) 433-9229
(Address and telephone number
of principal executive offices and principal place of business)
SAM L. BASS, JR.
President and Chief Executive Officer
Environmental Remediation Holding Corporation
420 Jericho Turnpike, Suite 321
Jericho, New York 11753
telephone: (516) 433-4730; facsimile: (516) 433-9229
(Name, address and telephone number of agent for service)
--------------------
Copies of communications to:
STEPHEN A. WEISS, ESQ.
SPENCER G. FELDMAN, ESQ.
Greenberg Traurig Hoffman Lipoff Rosen & Quentel
153 East 53rd Street
New York, New York 10022
telephone: (212) 801-9200
facsimile: (212) 223-7161
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
<PAGE>
CALCULATION OF REGISTRATION FEE
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====================================================================================================================================
Proposed
Proposed Maximum
Maximum Aggregate Amount of
Title of Each Class of Amount to be Offering Price Offering Registration
Securities to be Registered Registered Per Unit (1) Price(1) Fee
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Common Stock, par value $.0001 per share............ 3,698,000 shares $ 2.06 $7,617,880 $2,247.27
====================================================================================================================================
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(1) Pursuant to Rule 457(c), the offering price and amount of registration fee
have been calculated based on the average of the quoted high and low prices
of the Registrant's Common Stock in the over-the-counter market on the
Nasdaq Stock Market's OTC Bulletin Board on January 2, 1998.
____________________
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
================================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 8, 1998
PROSPECTUS
Environmental Remediation Holding Corporation
--------------------
This Prospectus relates to an aggregate of up to 3,698,000 shares (the
"Shares") of common stock, par value $.0001 per share (the "Common Stock"), of
Environmental Remediation Holding Corporation, a Colorado corporation (the
"Company"), which may be sold from time to time by the persons and entities
listed as selling shareholders herein (the "Selling Shareholders"). The maximum
number of Shares offered hereby are issuable by the Company to the Selling
Shareholders upon the conversion of the Company's 5.5% convertible senior
subordinated secured notes due 2002 (the "Notes") and the exercise of its
warrants to purchase Common Stock (the "Warrants") held by the Selling
Shareholders. Because the conversion rate of the Notes is based in part on
future average trading prices of the Common Stock, the number of shares which
may actually be sold pursuant to this Prospectus could differ significantly. For
example, in the event a notice of election to convert all the Notes were to have
been received on January 5, 1998, the lowest applicable conversion rate would
have been $1.59 per share (80% of the average share price for the five
consecutive trading days preceding such date), resulting in a total of 2,421,522
shares of Common Stock offered hereby (including 258,000 shares into which the
Warrants are exercisable). The Selling Shareholders acquired the Notes and
Warrants in a private placement from October to December 1997. The Company will
not receive any proceeds from the sale of the Shares by the Selling
Shareholders. The Company will, however, receive the net proceeds from any
exercise of the Warrants. See "Selling Shareholders."
The Shares may be sold from time to time by the Selling Shareholders on
one or more exchanges or markets in ordinary brokerage transactions, or
otherwise, at then prevailing market prices or in privately negotiated
transactions. See "Plan of Distribution."
The Company's Common Stock is quoted in the over-the-counter market on
the Nasdaq Stock Market's OTC Bulletin Board (the "OTC Bulletin Board") under
the symbol "ERHC." The last sale price of the Common Stock, as quoted on the OTC
Bulletin Board on January 2, 1998, was $2.125 per share.
The Company will pay all the expenses, estimated to be approximately
$85,000, in connection with this offering, other than underwriting commissions
and discounts and counsel fees and expenses of the Selling Shareholders. The
Shares are being registered pursuant to a registration rights agreement, dated
as of October 15, 1997, between the Company and the Selling Shareholders.
--------------------
The Shares offered hereby involve a high degree of risk.
See "Risk Factors" beginning on page 6 hereof.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------
The date of this Prospectus is , 1998
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and related notes thereto appearing
elsewhere in this Prospectus. The Shares offered hereby involve a high degree of
risk and investors should carefully consider information set forth in "Risk
Factors." In addition, this Prospectus contains "forward looking statements"
that involve risks and uncertainties, including those described under "Risk
Factors." As used in this Prospectus, unless the context otherwise requires, the
term "Company" refers to Environmental Remediation Holding Corporation and its
wholly-owned subsidiary, Bass American Petroleum Company.
The Company
Environmental Remediation Holding Corporation (the "Company") is an
independent oil and gas company formed in 1995 to focus on acquiring and
servicing marginally-producing oil and natural gas properties which contain the
potential for increased value through workovers and secondary recovery
operations utilizing the Company's proprietary horizontal drilling tool. The
Company is also focused on providing a full range of environmental remediation
and "plug and abandonment" services to the oil and gas industry. More recently,
the Company has additionally begun to acquire interests in non-producing oil and
gas properties, particularly high potential international prospects in known
oil-producing areas, which could benefit from the Company's experienced
executive team in managing the development and exploitation of possible
reserves. In June 1997, the Company entered into an exclusive joint venture with
the Democratic Republic of Sao Tome & Principe ("Sao Tome"), a set of islands
located in the Gulf of Guinea off the coast of central West Africa, to manage
the exploration, exploitation and development of the potential oil and gas
reserves onshore and offshore Sao Tome, either through the venture or in
collaboration with major international oil exploration companies. The Company is
currently in the initial phase of project development and is conducting
geophysical, seismic, environmental and engineering feasibility studies. The
Company believes that this venture provides it with a significant foothold in
the oil-rich Gulf of Guinea, in which the venture is the largest single
concession holder in the entire Gulf.
The Company has entered into a number of recent transactions in
connection with its workover and recovery operations. In August 1997, the
Company acquired a 37.5% interest in a 49,000 acre natural gas lease, known as
the "Nueces River Prospect," in the Nueces River area of south Texas, one of the
largest producing natural gas areas in the United States. According to
independent reserve reports, it is estimated that this area contains 100 billion
cubic feet ("BCF") of natural gas per 640 acre section. In December 1997, the
Company re-entered the first of two existing shut-in wells on the property, and
expects to ultimately recover up to 5 BCF per well using 5% of the estimated
inplace reserves. The daily production rates from these wells cannot be
determined at this time until well stimulation is completed in March 1998. In
addition, the Company acquired in February and March 1997 two leases in oil
fields located in Rusk County and Wichita County, Texas. These oil fields, which
together comprise approximately 1,200 acres and 200 wells, have proven reserves
totaling 2.5 million barrels of oil as verified by an independent reservoir
engineer. The Company estimates that, after reworking the wells using various
techniques including its proprietary drilling tool, these wells could produce
from 500 to 800 cumulative barrels of oil per day. Through December 1997, the
Company had recompleted 18 oil wells and is currently producing and selling
"test" oil from the Wichita County field.
The Company also holds interests in oil and natural gas leases in Utah.
In July 1997, the Company entered into a joint venture with MIII Corporation, a
Native American oil and gas company, to workover, recomplete and operate 335
existing oil and gas wells on the Uintah and Ouray Reservation in northeastern
Utah. It is estimated that the first approximately 36 wells will be scheduled
for recompletion and stimulation in early 1998 and the Company estimates that,
after initial workover operations are completed, these wells could produce in
excess of 3,900 barrels of oil per day. Independent reserve reports indicate,
based on a study of 133 of such wells, proven and producing reserves of
approximately 5.77 million barrels of oil and 23.4 BCF of natural gas on these
sites. In September 1997, the Company acquired net revenue interests ranging
from 80% to 84% IN oil and gas properties totalling 13,680 acres, located near
the MIII fields,
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currently producing approximately 200 barrels of oil per day from eight
producing wells. As of December 31, 1997, these were the Company's only
commercially producing properties, which began realizing revenue for the Company
in November 1997. A 1997 independent reserve report indicates that the gross
recoverable reserves of these properties total approximately 2.624 million
barrels of oil and 3.302 BCF of natural gas.
Another significant aspect of the Company's current business is
providing environmental remediation services to oil and gas operators. All of
the Company's revenues during the fiscal year ended September 30, 1997 were
attributable to providing these services, which include environmental
engineering, hazardous waste (including naturally occurring radioactive
material) remediation and disposal, oil spill, soil decontamination and
non-hazardous oilfield waste cleanup, as well as "plug and abandonment" of oil
and gas wells, all in accordance with strict federal, state and local
environmental regulations. In April 1997, the Company entered into a master
service agreement with Chevron Oil Company ("Chevron") to rework, in order to
draw additional production from, approximately 400 depleting oil and gas wells
and to remediate and "plug and abandon" these and other wells when depleted, in
Chevron's oil fields in southern Louisiana along the Gulf of Mexico. The Chevron
agreement provides for a three-year work schedule, commencing upon the
completion of the Company's 140 foot "plug and abandonment" barge. The Company
has designed this specialized "plug and abandonment" barge to remediate
off shore well locations and is capable of working in coastal waters as shallow
as 19 inches. In addition, through management's extensive relationships in the
oil and gas industry, the Company has obtained a ten-year concession with the
Panama Canal Commission, through a joint venture with Centrum Marine, to supply
fuel to tankers and other commercial vessels traversing the Panama Canal. These
operations are expected to commence in mid-1998, provided adequate financing is
secured.
The Company believes that, at its current stage of development, it is
more economical and less speculative to rework and recomplete existing wells
than to drill exploratory wells in search of new oil and gas deposits. Using the
Company's proprietary horizontal drilling tool, known as the BAPCO Tool, the
Company has had, according to internal data, an 80% success ratio in increasing
the level of production from oil and natural gas wells that are suitable for
enhancement of primary recovery by use of the BAPCO tool or candidates for
secondary recovery. The Company believes that the BAPCO Tool serves as a
competitive advantage for securing new workover projects from other oil and gas
operators, for attracting joint venture partners in larger workover contracts in
the United States and internationally and for use on its own oil and gas
properties in Texas and Utah.
Beginning in the early 1990's, both secondary recovery of oil reserves
and environmental remediation of abandoned oil wells have become major items of
interest in the oil and gas industry. According to current industry statistics,
it is estimated that only 7.5% to 15% of total oil reserves are recovered in
primary drilling operations due to the significant incremental costs involved in
exploiting far-reaching reservoirs of an oil formation. Following primary
drilling operations, large independent oil companies have typically outsourced
some or all of the required "plug and abandonment" work to environmental
remediation firms, such as the Company. By conducting enhanced primary or
secondary recovery operations utilizing the BAPCO Tool on the otherwise
abandoned wells, the Company believes that it is able to effectively extend the
economic life of an oil field and increase existing oil recovery by up to 30%,
prior to formal abandonment. The Company, which provides primary and secondary
recovery, "plug and abandonment" operations and environmental remediation
services, believes that, in the United States alone, there are hundreds of oil
and natural gas fields which could benefit from these services.
The Company's goal is to maximize its value through profitable growth
in its oil and gas reserves and production. The Company has taken steps to
achieve this goal through its growth strategy of (i) acquiring
marginally-producing oil and gas properties, at favorable prices, with still
significant resource recovery potential through workovers utilizing the
Company's proprietary drilling technology, (ii) managing the exploration,
exploitation and development of non-producing properties in known oil-producing
areas, such as the Gulf of Guinea in West Africa, with industry or government
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partners, and (iii) continuing to pursue environmental remediation service
contracts for oil and gas well rework and "plug and abandonment" services in the
United States and internationally.
The Company's principal executive offices are located at 420 Jericho
Turnpike, Suite 321, Jericho, New York 11753, and its telephone number is (516)
433-4730. The Company's main operational facility is located at 1686 General
Mouton, Lafayette, Louisiana 70508, and its telephone number is (318) 264-9657.
The Offering
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Shares Offered......................................... Up to 3,698,000 shares of Common Stock.
Shares Outstanding:
Before the Offering............................... 23,458,125 shares of Common Stock.
After the Offering................................ Up to 27,156,125 shares of Common Stock, assuming the
full conversion of the Notes and exercise of the
Warrants. See "Selling Shareholders" for a description
of the conversion rate of the Notes.
Use of Proceeds........................................ Other than the exercise price of the Warrants, the
Company will not receive any proceeds from the sale of
the Shares by the Selling Shareholders.
Trading Symbol......................................... ERHC
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Risk Factors
An investment in the Shares offered hereby involves a high degree of
risk, including without limitation, the Company's limited operating history,
volatility of oil and natural gas prices, the uncertainty of reserve information
and future net revenue estimates, the Company's concentration in Texas and Utah,
substantial capital requirements, drilling and operating risks, reliance on its
Sao Tome joint venture, risks inherent in international operations, reserve
replacement risk, compliance with governmental and environmental regulations,
and competition. An investment in the Shares offered hereby should be considered
only by investors who can afford the loss of their entire investment. See "Risk
Factors."
4
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Summary Financial Information
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Fiscal Years ended September 30,
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Statement of Operations Data: 1995(1) 1996(2) 1997(3)
------------- ------------ --------------
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Revenues:
Environmental remediation services..................... $0 $0 $108,944
Crude oil sales........................................ 0 0 0
Cost of sales and expenses:
Environmental remediation.............................. 0 0 53,991
Crude oil.............................................. 0 0 0
Operating expenses..................................... 3,404 913,225 17,033,549
Other income and expenses................................... 0 60,477 (33,456)
Income before income taxes and extraordinary item........... (3,404) (913,225) (15,018,782)
Provision (benefit) for income taxes........................ 0 0 0
Net income (loss)(4)........................................ (3,404) (852,748) (17,012,052)
Net income (loss) per share................................. (0.01) (0.35) (1.62)
Weighted average Common Shares outstanding.................. 398,643 2,469,511 10,500,293
Balance Sheet Data (at end of period):
Property and equipment...................................... $0 $3,348,000 $5,226,000
Total assets................................................ 500,000 3,780,500 21,656,011
Total liabilities........................................... 3,316 6,730 1,748,376
Stockholders' equity........................................ 496,684 3,773,770 19,907,635
</TABLE>
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(1) Reflects the operations of Environmental Remediation Funding Corporation
("ERFC"), the Company's predecessor, from the date of its incorporation on
September 5, 1995. See "The Company."
(2) The Company acquired 100% of the issued and outstanding common stock of
ERFC, effective August 19, 1996, in a reverse triangular merger, which has
been accounted for as a reorganization of ERFC. See Note 1 to Notes to
Consolidated Financial Statements.
(3) On April 9, 1997, the Company acquired 100% of the issued and outstanding
common stock of Bass American Petroleum Company, which was accounted for
as a purchase. See "The Company."
(4) The net cash operating loss of the Company was $1,283,900 and $83,700 for
the fiscal years ended September 30, 1997 and 1996, respectively. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations - Results of Operations."
5
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RISK FACTORS
The Shares offered hereby involve a high degree of risk. Accordingly,
in analyzing an investment in these Shares, prospective investors should
carefully consider, along with the other matters referred to herein, the
following risk factors. No investor should participate in this offering unless
such investor can afford a complete loss of his investment.
Limited Operating History; Significant Net Loss
The Company, which was formed in September 1995, has a limited
operating history upon which investors may base their evaluation of its
performance. The Company has acquired substantially all of its oil and gas
properties within the past year. As a result of the Company's recent formation
and the brief operating history of its properties, the operating results from
the Company's operation of its properties may not be indicative of future
results that may be obtained by the Company. For the fiscal year ended September
30, 1997, the Company had total revenues of $108,944 and a net loss of
$17,012,052. As of September 30, 1997, the Company had stockholders' equity of
$19,907,635 and a working capital deficit of $1,204,925. There can be no
assurance that the Company will generate revenues or production attributable to
its oil and gas properties. In addition, in the event the Company does not
attain certain minimum production levels over specified timeframes of its oil
and gas properties, the Company could forfeit certain leases without receiving
any revenues therefrom. Any future growth of the Company's oil and natural gas
reserves, production and operations could place significant demands on the
Company's financial, operational and administrative resources.
Volatility of Oil and Natural Gas Prices
The Company's revenues, operating results, profitability and future
growth and the carrying value of its oil and natural gas properties will be
substantially dependent upon the prices received for its oil and natural gas.
Historically, the markets for oil and natural gas have been volatile and such
volatility may continue or recur in the future. Various factors beyond the
control of the Company will affect prices of oil and natural gas, including the
worldwide and domestic supplies of oil and natural gas, the ability of the
members of the Organization of Petroleum Exporting Countries ("OPEC") to agree
to and maintain oil price and production controls, political instability or
armed conflict in oil or natural gas producing regions, the price and level of
foreign imports, the level of consumer demand, the price, availability and
acceptance of alternative fuels, consumer demand, the price, availability and
acceptance of alternative fuels, the availability of pipeline capacity, weather
conditions, domestic and foreign governmental regulations and taxes and the
overall economic environment. Any significant decline in the price of oil or
natural gas would adversely affect the Company's revenues and operating income
and could require an impairment in the carrying value of its oil and natural gas
properties.
Uncertainty of Reserve Information and Future Net Revenue Estimates
There are numerous uncertainties inherent in estimating quantities of
proved oil and natural gas reserves and their values, including many factors
beyond the control of the Company. Estimates of proved undeveloped reserves and
reserves recoverable through enhanced oil recovery techniques are by their
nature uncertain. The reserve information set forth in this Prospectus
represents estimates only. Although the Company believes such estimates as to
its properties to be reasonable, reserve estimates are imprecise and should be
expected to change as additional information becomes available.
Estimates of oil and natural gas reserves, by necessity, are
projections based on engineering data, and there are uncertainties inherent in
the interpretation of such data as well as the projection of future rates of
production and the timing of development expenditures. Reserve engineering is a
subjective process of estimating underground accumulations of oil and natural
gas that are difficult to measure. The accuracy of any reserve estimate is a
function of the quality of available data, engineering and geological
interpretation and judgment. Estimates of economically recoverable oil and
natural gas reserves and of future net cash flows necessarily depend upon a
number of variable factors and assumptions, such as historical production from
the area compared with production from other producing areas, the assumed
effects of regulations by governmental agencies and assumptions concerning
future oil and natural gas prices, future operating costs, severance and excise
taxes, development costs and workover and remedial costs, all of which may in
fact vary considerably from actual results. For these reasons, estimates of the
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economically recoverable qualities of oil and natural gas attributable to any
particular group of properties, classifications of such reserves based on risk
of recovery and estimates of the future net cash flows expected therefrom may
vary substantially. Any significant variance in the assumptions could materially
affect the estimated quantity and value of the reserves. Actual production,
revenues and expenditures with respect to the Company's reserves will likely
vary from estimates, and such variances may be material.
Substantial Capital Requirements
The Company's current development plans require substantial capital
expenditures in connection with the exploration, development and exploitation of
oil and natural gas properties. Historically, the Company has funded capital
expenditures through a combination of equity contributions and short-term
financing arrangements. The Company believes that it will require a combination
of additional financing and cash flow from operations to implement future
development plans. The Company currently does not have any arrangements with
respect to, or sources of, additional financing, and there can be no assurance
that any additional financing will be available to it on acceptable terms or at
all. Future cash flows and the availability of financing will be subject to a
number of variables, such as the level of production from existing wells, prices
of oil and natural gas and success in locating an producing new reserves. To the
extent that future financing requirements are satisfied through the issuance of
equity securities, shareholders of the Company may experience dilution that
could be substantial. The incurrence of debt financing could result in a
substantial portion of operating cash flow being dedicated to the payment of
principal and interest on such indebtedness, could render the Company more
vulnerable to competitive pressures and economic downturns and could impose
restrictions on operations. If revenue were to decrease as a result of lower oil
and natural gas prices, decreased production or otherwise, and the Company had
no availability under bank arrangements or any other credit facility, the
Company could have a reduced ability to execute current development plans,
replace reserves or to maintain production levels, any of which could result in
decreased production and revenue over time.
Concentration in Texas and Utah
The Company's properties in Texas and Utah constitute all of the
Company's existing inventory of producing properties and drilling locations.
Substantially all of the Company's 1998 budget is associated with drilling in
these regions. There can be no assurance that the Company's operations in these
regions will yield positive economic returns. Failure of the properties to yield
significant quantities of economically attractive reserves and production would
have a material adverse impact on the Company's future financial condition and
results of operations.
Drilling and Operating Risks
Oil and natural gas drilling activities are subject to many risks,
including the risk that no commercially productive reservoirs will be
encountered. There can be no assurance that wells drilled by the Company will be
productive or that the Company will recover all or any portion of its drilling
costs. Drilling for oil and natural gas may involve unprofitable efforts, not
only from dry wells, but from wells that are productive but do not produce
sufficient net revenues to return a profit after drilling, operating and other
costs. The cost of drilling, recompleting and operating wells is often
uncertain. Drilling operations may be curtailed, delayed or canceled as a result
of numerous factors, many of which will be beyond the Company's control,
including economic conditions, title problems, weather conditions, compliance
with governmental requirements and shortages or delays in the delivery of
equipment and services. Future drilling activities may not be successful and, if
unsuccessful, such failure may have a material adverse effect on future results
of operations and financial condition.
Oil and natural gas operations are subject to hazards and risks
inherent in drilling for the producing and transporting oil and natural gas,
such as fires, natural disasters, explosions, encountering formations with
abnormal pressures, blowouts, cratering, pipeline ruptures and spills, any of
which can result in the loss of hydrocarbons, environmental pollutions, personal
injury claims and other damage to properties. As protection against operating
hazards, the Company currently maintains insurance coverage against some, but
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not all, potential losses. The Company may elect to self-insure in circumstances
in which management believes that the cost of insurance, although available, is
excessive relative to the risks presented. The occurrence of an event that is
not covered, or not fully covered, by third-party insurance could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Reliance on Sao Tome Joint Venture
Management of the Company expects that activities conducted pursuant to
its Sao Tome joint venture agreement and revenues therefrom will account for a
significant portion of the activities and revenues of the Company in the future.
Pursuant to the terms of the agreement, Sao Tome has the right to terminate the
agreement in the event the Company fails to make the remaining concession fee
payment of $3,000,000 at the time Sao Tome determines, and the United Nations
accepts, the 200 mile exclusive economic zone boundaries (expected to be by
March 1998) or fails to timely commence the orderly development of the national
oil and gas joint venture company. There can be no assurance that the operations
under the joint venture, even if the remaining concession fee payment is made,
as to which there can be no assurance, will be conducted on a profitable basis.
Risks Inherent in International Operations
The Company's foreign operations are subject to various risks
associated with doing business overseas, such as the possibility of armed
conflict and civil disturbance, the instability of foreign economies, currency
fluctuations and devaluations, adverse tax policies and governmental activities
that may limit or disrupt markets, restrict payments or the movement of funds or
result in the deprivation of contract rights or the expropriation of property.
Additionally, the ability of the Company to compete overseas may be adversely
affected by foreign governmental regulations that encourage or mandate the
hiring of local contractors, or by regulations that require foreign contractors
to employ citizens of, or purchase supplies from, a particular jurisdiction. The
Company is subject to taxation in many jurisdictions, and the final
determination of its tax liabilities involves the interpretation of the statutes
and requirements of various domestic and foreign taxing authorities. Foreign
income tax returns of foreign subsidiaries and related entities are routinely
examined by foreign tax authorities.
The Company has also encountered other international risks in
connection with its joint venture with Sao Tome. The Company has been informed
that each of the countries of Gabon, Equatorial Guinea and Cameroon claim a
200-mile economic zone which results in undefined borders or common areas in
which production would be shared proportionally. In 1996, agencies of the United
Nations and a multicountry commission began to study the respective countries'
border lines and common area rights, although there has been no resolution to
date. See "Business-Managing Exploratory Activities."
Reserve Replacement Risk
The future success of the Company will depend in large part upon its
ability to find, develop or acquire additional oil and natural gas reserves that
are economically recoverable. The Company's proved reserves will generally
decline as reserves are depleted, except to the extent that the Company conducts
successful exploration or development activities or acquires properties
containing proved reserves. As of December 31, 1997, approximately 65.6% of the
Company's total proved reserves were undeveloped. In order to increase reserves
and production, the Company must continue development and exploitation drilling
programs or undertake other replacement activities. Current development plans
include increasing the Company's reserve base through continued drilling,
development and exploitation of existing properties of the Company. There can be
no assurance, however, that planned development and exploitation projects will
result in significant additional reserves or that the Company will have success
drilling productive wells at anticipated finding and development costs.
Compliance with Governmental Regulations
Oil and natural gas operations are subject to extensive federal, state
and local laws and regulations relating to the exploration for, and the
development, production and transportation of, oil and natural gas, as well as
8
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safety matters, which may be changed from time to time in response to economic
or political conditions. Matters subject to regulation by federal, state and
local authorities include permits for drilling operations, road and pipeline
construction, reports concerning operations, the space of wells, unitization and
pooling of properties, taxation and alterations to the Company's development
plans could have a material adverse effect on operations. From time to time,
regulatory agencies have imposed price controls and limitations on production by
restricting the rate of flow of oil and natural gas wells below actual
production capacity in order to conserve supplies of oil and natural gas.
Although the Company believes that it is in substantial compliance with all
applicable laws and regulations, the requirements imposed by such laws and
regulations are frequently changed and subject to interpretation, and the
Company cannot predict the ultimate cost of compliance with these requirements
or their effect on operations. Significant expenditures may be required to
comply with governmental laws and regulations and may have a material adverse
effect on the Company's financial condition and results of operations. See
"Business-Governmental Regulation."
Compliance with Environmental Regulations
The Company's workover and environmental remediation services routinely
involve the handling of significant amounts of waste materials, some of which
are classified as hazardous substance. The Company's operations and facilities
are subject to numerous state and federal environmental laws, rules and
regulations, including, without limitation, laws concerning the containment and
disposal of hazardous materials, oilfield waste and other waste materials, the
use of underground storage tanks and the use of underground injection wells.
Laws protecting the environment have generally become more stringent than in the
past and are expected to continue to do so. Environmental laws and regulations
typically impose "strict liability," which means that in some situations the
Company could be exposed to liability for cleanup costs and other damages as a
result of conduct of the Company that was lawful at the time it occurred or
conduct of, or conditions caused by, others. Cleanup costs and other damages
arising as a result of environmental laws, and costs associated with changes in
environmental laws and regulations, could be substantial and could have a
material adverse effect on the Company's financial condition.
Changes in federal and state environmental regulations may also
negatively impact oil and natural gas exploration and production companies,
which in turn could have a material adverse effect on the Company. For example,
legislation has been proposed from time to time in Congress which would
reclassify oil and natural gas production wastes as "hazardous wastes." If
enacted, such legislation could dramatically increase operating costs for
domestic oil and natural gas companies, and this could reduce the market for the
Company's services by making many wells and/or oilfields uneconomical to
operate. To date, such legislation has not made significant progress toward
enactment. See "Business - Environmental Regulation and Claims."
Dependence on Key Personnel
The Company's success is highly dependent on Sam L. Bass, Jr., the
Company's President and Chief Executive Officer, and James R. Callender, Sr.,
its Chief Operating Officer, and a limited number of other senior management and
technical personnel. Loss of the services of any of those individuals could have
a material adverse effect on the Company's operations. As of December 31, 1997,
none of the Company's executive officers is covered by a long-term employment
agreement. Furthermore, demands on the time of some of its executive officers in
pursuing other businesses, while not competitive with the business of the
Company, could nevertheless reduce the time available to manage the business of
the Company. See "Management."
Control by Existing Shareholders
Sam L. Bass, Jr., the Company's President and Chief Executive Officer,
and the other officers and directors of the Company beneficially own
approximately 37.0% and 8.8%, respectively, of the outstanding Common Stock on
December 31, 1997. Accordingly, Mr. Bass and such persons would be able to
control the outcome of
9
<PAGE>
shareholder votes, including votes concerning the election of directors, the
adoption or amendment of provisions in the Company's Certificate of
Incorporation or By-laws and the approval of mergers and other significant
corporate transactions.
Competition
The Company will operate in the highly competitive areas of oil and
natural gas acquisition, exploration and production with other companies, most
of which have substantially larger financial resources, operations, staffs and
facilities. In seeking to acquire desirable producing properties or new leases
for future exploration and in marketing its oil and natural gas production, the
Company will face intense competition from both major and independent oil and
natural gas companies. Many of these competitors have financial and other
resources substantially in excess of those available to the Company. The effects
of this highly competitive environment could have a material adverse effect on
the Company. In addition, although the number of available rigs has materially
decreased over the past ten years, the workover and drilling markets remain very
competitive. The number of rigs continues to exceed demand, resulting in severe
price competition. Many of the total available contracts are currently awarded
on a bid basis, which further increases competition based on price. In all of
the Company's market areas, competitive factors also include the availability,
condition and type of equipment necessary to meet both special and general
customer needs, the availability of trained personnel possessing the required
specialized skills and overall quality of service and safety record. See
"Business - Competitive Conditions."
Acquisition Risks
The Company has grown primarily through the acquisition, development
and exploitation of oil and natural gas properties. Although the Company expects
to concentrate on current activities in the near future, the Company may
evaluate and pursue from time to time acquisitions in Texas, Utah and other
areas that provide attractive investment opportunities for the addition of
production and reserves and that meet selection criteria. The successful
acquisition of producing properties and undeveloped acreage requires an
assessment of recoverable reserves, future oil and natural gas prices, operating
costs, potential environmental and other liabilities and other factors that will
be beyond the Company's control. This assessment is necessarily inexact and its
accuracy is inherently uncertain. In connection with such an assessment, the
Company will perform a review of the subject properties it believes will be
generally consistent with industry practices. This review, however, will not
reveal all existing or potential problems, nor will it permit a buyer to become
sufficiently familiar with the properties to assess fully their deficiencies and
capabilities. Inspections may not be performed on every well, and structural and
environmental problems are not necessarily observable even when an inspection is
undertaken. The Company will generally assume preclosing liabilities, including
environmental liabilities, and will generally acquire interests in the
properties on an "as is" basis. With respect to its acquisitions to date, the
Company does not have any material commitments for capital expenditures to
comply with existing environmental requirements. There can be no assurance that
any acquisitions will be successful. Any unsuccessful acquisition could have a
material adverse effect on the Company.
Absence of Dividends on Common Stock
The Company has never declared or paid cash dividends on its Common
Stock and anticipates that future earnings, if any, of the Company will be
retained for development of its business. See "Dividend Policy."
Effect of Sales of Shares on Market Price
The Shares represent approximately 15.8% of the total number of shares
of Common Stock outstanding on December 31, 1997. Sales of substantial amounts
of Shares pursuant to this Prospectus, or otherwise, could adversely affect the
market price of the Common Stock.
10
<PAGE>
Possible Stock Price Volatility
The market price of the Common Stock and the price at which the Company
may sell securities in the future could be subject to large fluctuations in
response to changes and variations in the Company's operating results,
litigation, general market conditions, the prices of oil and natural gas, the
liquidity of the Company and its ability to raise additional funds the number of
market makers for the Common Stock and other factors. In the event that the
Company's operating results are below the expectations of public market analysts
and investors in one or more future periods, it is likely that the price of the
Common Stock will be materially adversely affected. In addition, the stock
market has recently experienced significant price and value fluctuations that
have particularly affected the market prices of equity securities of many energy
companies and that often have been unrelated to the operating performance of
such companies. General market fluctuations may also adversely affect the market
price of the Shares.
Forward-Looking Statements
This Prospectus 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 Prospectus 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, including the
risk factors discussed in this Prospectus; 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 regulations; and other
factors, most of which are beyond the control of the Company. Consequently, all
of the forward-looking statements made in this Prospectus 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. The Company assumes no
obligation to update any such forward-looking statements.
11
<PAGE>
THE COMPANY
The Company is an independent oil and gas company formed in 1995 to
focus on acquiring and servicing marginally-producing oil and natural gas
properties which contain the potential for increased value through workovers and
secondary recovery operations utilizing the Company's proprietary
fracture-enhancing horizontal drilling tool. The Company is also focused on
providing a full range of environmental remediation and "plug and abandonment"
services to the oil and gas industry. More recently, the Company has
additionally begun to acquire interests in non-producing oil and gas properties,
particularly high potential international prospects in known oil-producing
areas, which could benefit from the Company's experienced executive team in
managing the development and exploitation of possible reserves.
The Company's predecessor, Environmental Remediation Funding
Corporation ("ERFC"), was incorporated under the laws of the State of Delaware
in September 1995. In August 1996, the stockholders of ERFC exchanged all of
their shares of ERFC for 2,433,950 authorized and unissued shares of common
stock, representing 87.2% of such then outstanding shares, of Regional Air Group
Corporation ("RAIR"), a Colorado corporation. RAIR was a publicly-owned
corporation, which had ceased operations and as a result had only nominal assets
and liabilities. ERFC was then merged with and into RAIR. Following the
acquisition of control, the stockholders of RAIR approved the change in the
Company's name to Environmental Remediation Holding Corporation. The Company
currently contemplates reincorporating in the State of Delaware and changing its
corporate name to better reflect its primary focus in early 1998.
In April 1997, the Company acquired all of the outstanding capital
stock of Bass American Petroleum Company ("BAPCO"), a privately-held company
controlled by Sam L. Bass, Jr., who was then the Company's Chairman of the
Board, President and Chief Executive Officer. Through this acquisition, the
Company acquired, among other assets, ownership of all rights to the BAPCO Tool
and assignment of the Chevron master service agreement.
The 1997 Private Placement
From October to December 1997, the Company raised gross proceeds of
$4,300,000 in a private placement of the Company's 5.5% convertible senior
subordinated secured notes due 2002 (the "Notes") and warrants to purchase
Common Stock (the "Warrants") to a limited number of "accredited" institutional
investors. 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 $1.25
per share, subject to certain limited conditions) and the exercise of the
Warrants (at an exercise price of $2.83 per share) is up to 3,440,000 shares and
258,000 shares, respectively. This Prospectus covers the up to 3,698,000 total
shares of Common Stock issuable upon the conversion of the Notes and the
exercise of the Warrants. See "Selling Shareholders." The Company used a portion
of the total net proceeds of approximately $3,800,000 of the private placement
to make an initial concession fee payment of $2,000,000 in connection with its
Sao Tome joint venture. See "Business - Managing Exploratory Activities."
Proposed Public Offering
The Company is currently contemplating a public offering of debt
securities in the United States for the purpose of funding the numerous oil and
gas projects described in this Prospectus. The terms of the offering are subject
to negotiation at the time a determination to proceed with such offering is
made, although it is expected that the size of the offering will be up to
approximately $50 million. There can be no assurance that this offering will be
completed.
12
<PAGE>
USE OF PROCEEDS
All of the Shares covered by this Prospectus are issuable upon the
conversion of the Notes and the exercise of the Warrants. If all such Warrants
covered by this Prospectus are exercised in full at their stated exercise
prices, the Company will receive gross proceeds of approximately $730,140.
Expenses expected to be incurred by the Company in connection with
this registration are estimated at approximately $85,000. The Selling
Shareholders will pay all of their underwriting commissions and discounts and
counsel fees and expenses in connection with the sale of the Shares. See "Plan
of Distribution." Proceeds to the Company from the exercise of the Warrants will
be available for working capital and general corporate purposes. No assurance
can be given, however, as to when, if ever, any or all of the Warrants will be
exercised.
The Company will not receive any proceeds from the sale of the Shares
by the Selling Shareholders.
DILUTION
The net tangible book value of the Company's Common Stock as of September
30, 1997 was $0.73 per share. Since the shares are being offered by the Selling
Shareholders, there is no increase in net tangible book value per share to
existing shareholders by virtue of the sale alone. Without taking into account
any changes in net tangible book value after September 30, 1997, other than to
give effect to the conversion of the Notes and the exercise of the Warrants to
purchase up to all 27,156,125 shares of Common Stock which are being offered
hereby and the $2,000,000 Sao Tome concession fee payment, the Company will have
an aggregate of up to 27,156,125 shares of Common Stock outstanding with a net
tangible book value of approximately $0.78 per share. Assuming a sale at the
anticipated offering price set forth below, this will represent an immediate
dilution of $1.345 per share to new shareholders. The following table
illustrates this dilution per share:
<TABLE>
<CAPTION>
<S> <C> <C>
Anticipated offering price per share................................. $2.125
Net tangible book value per share
before Offering (1)......................................... $0.73
Increase attributable to the conversion of Notes
and exercise of Warrants.................................... 0.05
Net tangible book value per share after Offering
and conversion of Notes and exercise of Warrants..................... $0.78
Dilution per share to new shareholders(2)............................ $1.345
</TABLE>
- -------------
(1) Net tangible book value per share is determined by dividing the number of
shares of Common Stock outstanding into the sum of total tangible assets of
the Company less total liabilities.
(2) Dilution is determined by subtracting net tangible book value per share
after the offering from the amount paid by a new shareholder for a share of
Common Stock.
13
<PAGE>
PRICE RANGE FOR COMMON STOCK
Shares of the Company's Common Stock have been traded on the OTC
Bulletin Board under the symbol "ERHC" since August 23, 1996. The following
table sets forth the high and low sales prices of the Common Stock as quoted on
the OTC Bulletin Board for the periods indicated. The high and low sales prices
for the Common Stock below reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Fiscal Year 1996
4th Quarter (August 23 - September 30, 1996) ........................... $5-3/4 $5-1/4
Fiscal Year 1997
1st Quarter (October 1 - December 31, 1996)............................. 5-1/2 1/4
2nd Quarter (January 1 - March 31, 1997)................................ 2-1/2 5/16
3rd Quarter (April 1 - June 30, 1997)................................... 5/8 7/32
4th Quarter (July 1 - September 30, 1997)............................... 5-3/8 5/16
Fiscal Year 1998
1st Quarter (October 1 - December 31, 1997)............................. 3-3/8 1-3/8
</TABLE>
See the cover page of this Prospectus for a recent sale price of the
Common Stock as quoted by the OTC Bulletin Board.
As of December 31, 1997, there were approximately 1,967 shareholders of
record of the Common Stock.
DIVIDEND POLICY
Holders of the Company's Common Stock are entitled to such dividends as
may be declared by the Board of Directors and paid out of funds legally
available therefor. The Company has never paid any dividends on the Common
Stock. The Company intends to retain earnings, if any, to finance the
development and expansion of its business and does not anticipate paying cash
dividends in the foreseeable future. Future determinations regarding the payment
of dividends is subject to the discretion of the Board of Directors and will
depend upon a number of factors, including future earnings, capital
requirements, financial condition and the existence or absence of any
contractual limitations on the payment of dividends.
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<PAGE>
SELECTED FINANCIAL DATA
The selected financial data of the Company presented below as of
September 30, 1995, 1996 and 1997, have been derived from the Consolidated
Financial Statements of the Company, which Consolidated Financial Statements
have been audited by Durland & Company, CPAs, P.A., independent public
accountants, and are included elsewhere in this Registration Statement. The data
set forth below should be read in conjunction with the Company's Consolidated
Financial Statements, related notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
Fiscal Years ended September 30,
--------------------------------------------------------
Statement of Operations Data: 1995(1) 1996(2) 1997(3)
------------ ----------- -------------
<S> <C> <C> <C>
Revenues:
Environmental remediation services..................... $0 $0 $108,944
Crude oil sales........................................ 0 0 0
Cost of sales and expenses:
Environmental remediation.............................. 0 0 53,991
Crude oil.............................................. 0 0 0
Operating expenses..................................... 3,404 913,225 17,033,549
Other income and expenses................................... 0 60,477 (33,456)
Income before income taxes and extraordinary item........... (3,404) (913,225) (17,018,782)
Provision (benefit) for income taxes........................ 0 0 0
Net income (loss)(4)........................................ (3,404) (852,748) (17,012,052)
Net income (loss) per share................................. (0.01) (0.35) (1.62)
Weighted average Common Shares outstanding.................. 398,643 2,469,511 10,500,293
Balance Sheet Data (at end of period):
Property and equipment...................................... $0 $3,348,000 $5,226,000
Total assets................................................ 500,000 3,780,500 21,656,011
Total liabilities........................................... 3,316 6,730 1,748,376
Stockholders' equity........................................ 496,684 3,773,770 19,907,635
</TABLE>
- --------------
(1) Reflects the operations of Environmental Remediation Funding Corporation
("ERFC"), the Company's predecessor, from the date of its incorporation on
September 5, 1995. See "The Company."
(2) The Company acquired 100% of the issued and outstanding common stock of
ERFC, effective August 19, 1996, in a reverse triangular merger, which has
been accounted for as a reorganization of ERFC. See Note 1 to Notes to
Consolidated Financial Statements.
(3) On April 9, 1997, the Company acquired 100% of the issued and outstanding
common stock of Bass American Petroleum Company, which was accounted for
as a purchase. See "The Company."
(4) The net cash operating loss of the Company was $1,283,900 and $83,700 for
the fiscal years ended September 30, 1997 and 1996, respectively. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations - Results of Operations."
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations includes forward-looking statements with
respect to the Company's future financial performance. These forward-looking
statements are subject to various risks and uncertainties, including the factors
described under "Risk Factors" and other sections of this Prospectus, that could
cause actual results to differ materially from historical results or those
currently anticipated.
Overview
The Company is an independent oil and gas company engaged in the
exploration, development, production and sale of crude oil and natural gas
properties with current operations focused in Texas, Utah and Sao Tome in West
Africa. The Company's goal is to maximize its value through profitable growth in
its oil and gas reserves and production. The Company has taken steps to achieve
this goal through its growth strategy of (i) acquiring marginally-producing oil
and gas properties, at favorable prices, with still significant resource
recovery potential through workovers utilizing the Company's proprietary
drilling technology, (ii) managing the exploration, exploitation and development
of non-producing properties in known oil-producing areas, such as the Gulf of
Guinea in West Africa, with industry or government partners, and (iii)
continuing pursue environmental remediation service contracts for oil and gas
well rework and "plug and abandonment" services in the United States and
internationally.
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 contributions and
short-term financing arrangements, the Company's ability to meet its estimated
capital expenditure in the fiscal year ending September 30, 1998 are dependent
on the Company's receipt of the proceeds of the Company's contemplated debt
offering discussed below.
The following discussion should be read in conjunction with the
Consolidated Financial Statements and notes thereto appearing elsewhere in this
Prospectus.
Results of Operations
During the fiscal year ended September 30, 1997, the Company incurred a
net loss of $17,012,052, compared to a net loss of $852,748 in the fiscal year
ended September 30, 1996. In fiscal 1997, common stock was issued in lieu of
cash compensation to directors and outside consultants valued at $12,303,512. In
fiscal 1997, common stock was issued to acquire geologic data concerning Sao
Tome valued at $2,000,000, which was immediately charged to expense. In fiscal
1997, a total of $960,000 was accrued, but not paid in cash, as compensation to
three executive officers of the Company. Depreciation and amortization amounted
to $497,000. The Company's net cash operating loss for fiscal 1997 was
$1,283,900, compared to $83,700 for fiscal 1996.
The Company had revenues of $108,944 in fiscal 1997, compared to none
in fiscal 1996. Cost of sales were $53,991 in fiscal 1997 and none in fiscal
1996. All of such revenues and cost of sales were attributed to providing
environmental remediation services to oil and gas operators. Such services
included environmental engineering, hazardous waste disposal, oil spill and
non-hazardous waste cleanup.
The Company had no oil and gas production during fiscal 1997.
16
<PAGE>
Liquidity and Capital Resources
Historically, the Company has financed its operations from the sale of
its debt and equity securities (including the issuance of its securities in
consideration for services and/or products) and bank and other debt. The Company
expects to finance its operations and further development plans during fiscal
1998 primarily dependent upon receipt of the proceeds of a contemplated public
offering of $50,000,000 aggregate principal amount of 10% convertible
subordinated debentures (the "Offering") and through cash flow from operations.
Although there can be no assurance that the Offering will be completed, the
Company expects that the net proceeds to be received from the Offering will be
sufficient when aggregated with anticipated cash flow from operations to meet
the Company's expected cash needs and finance its plans for expansion for at
least the following 12 months.
Provided that the Company successfully completes the sale of the entire
principal amount of the convertible subordinated debentures, the Company
presently intends to utilize the net proceeds received from the Offering as
follows: (i) recompletion of wells in the Uinta Basin; (ii) gas drilling at the
Nueces River Project; (iii) seismic studies and fees for the Sao Tome joint
venture; (iv) purchase of refueling barge/tug for Panama Canal; (v) working of
oil fields in Texas; (vi) completion of Chevron "plug and abandonment" barge;
(vii) construction of additional BAPCO Tools; and (viii) working capital and
general corporate purposes.
Capital Expenditures
During fiscal 1997, the Company issued 500,000 shares of its common
stock to acquire two oil and gas leases in Texas comprised of 100 non-producing
wells on each lease, with proven reserves totaling 2,500,000 barrels of oil.
Later in the year, the Company began the necessary repairs and well rework to
begin placing the wells back in production.
During fiscal 1997, the Company issued 3,000,000 shares of its common
stock to acquire the Chevron master service agreement for "plug and abandonment"
work.
During fiscal 1997, the Company issued 1,000,000 shares of its common
stock to acquire geologic data concerning Sao Tome.
During fiscal 1997, the Company issued 4,000,000 shares of its common
stock to acquire BAPCO, a non-operating oil production company with significant
well rework equipment assets.
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 natural 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. 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 expects to utilize the "successful efforts" method of
accounting for its oil and gas producing activities once it has reached the
producing stage. The Company expects to regularly assess proved oil and gas
reserves for possible impairment on an aggregate basis in accordance with SFAS
No. 121.
Net Operating Losses
The Company has net operating loss carryforwards of $17,868,204, which
expire in the years 2010 through 2012. The Company has a $7,147,282 deferred tax
asset resulting from the loss carryforwards, for which it has established a
100% valuation allowance. Until the Company's current operations begin to
produce earnings, it is unclear as to the ability of the Company to utilize such
carryforwards.
17
<PAGE>
BUSINESS
Overview
The Company is an independent oil and gas company formed in 1995 to
focus on acquiring and servicing marginally-producing oil and natural gas
properties which contain the potential for increased value through workovers and
secondary recovery operations utilizing the Company's proprietary horizontal
drilling tool. The Company is also focused on providing a full range of
environmental remediation and "plug and abandonment" services to the oil and gas
industry. More recently, the Company has additionally begun to acquire interests
in non-producing oil and gas properties, particularly high potential
international prospects in known oil-producing areas, which could benefit from
the Company's experienced executive team in managing the development and
exploitation of possible reserves. In June 1997, the Company entered into an
exclusive joint venture with the Democratic Republic of Sao Tome & Principe
("Sao Tome"), a set of islands located in the Gulf of Guinea off the coast of
central West Africa, to manage the exploration, exploitation and development of
the potential oil and gas reserves onshore and offshore Sao Tome, either through
the venture or in collaboration with major international oil exploration
companies. The Company is currently in the initial phase of project development
and is conducting geophysical, seismic, environmental and engineering
feasibility studies. The Company believes that this venture provides it with a
significant foothold in the oil-rich Gulf of Guinea, in which the venture is the
largest single concession holder in the entire Gulf.
The Company has entered into a number of recent transactions in
connection with its workover and recovery operations. In August 1997, the
Company acquired a 37.5% interest in a 49,000 acre natural gas lease, known as
the "Nueces River Project,"in the Nueces River area of south Texas, one of the
largest producing natural gas areas in the United States. According to
independent reserve reports, it is estimated that this area contains 100 BCF of
natural gas per 640 acre section. In December 1997, the Company re-entered the
first of two existing shut-in wells on the property, and expects to ultimately
recover up to 5 BCF per well using 5% of the estimated inplace reserves. The
daily production rates from these wells cannot be determined at this time until
well stimulation is completed in March 1998. In addition, the Company acquired
in February and March 1997 two leases in oil fields located in Rusk County and
Wichita County, Texas. These oil fields, which together comprise approximately
1,200 acres and 200 wells, have proven reserves totaling 2.5 million barrels of
oil as verified by an independent reservoir engineer. The Company estimates
that, after reworking the wells using various techniques including its
proprietary drilling tool, these wells could produce from 500 to 800 barrels of
oil per day. Through December 1997, the Company had recompleted 18 oil wells and
is currently producing and selling "test" oil from the Wichita County field.
The Company also holds interests in oil and natural gas leases in Utah.
In July 1997, the Company entered into a joint venture with MIII Corporation, a
Native American oil and gas company, to workover, recomplete and operate 335
existing oil and gas wells on the Uintah and Ouray Reservation in northeastern
Utah. It is estimated that the first approximately 36 wells will be scheduled
for recompletion and stimulation in early 1998 and, the Company estimates that
after initial workover operations are completed, these wells could produce in
excess of 3,900 barrels of oil per day. Independent reserve reports indicate,
based on a study of 133 of such wells, proven and producing reserves of
approximately 5.77 million barrels of oil and 23.4 BCF of natural gas on these
sites. In September 1997, the Company acquired net revenue interests ranging
from 80% to 84% in oil and gas properties totalling 13,680 acres, locatednear
the MIII fields, currently producing approximately 200 barrels of oil per day
from eight producing wells. As of December 31, 1997, these were the Company's
only commercially producing properties, which began realizing revenues for the
Company in November 1997. A 1997 independent reserve report indicates that the
gross recoverable reserves of these properties total approximately 2.624 million
barrels of oil and 3.302 BCF of natural gas.
Another significant aspect of the Company's current business is
providing environmental remediation services to oil and gas operators. All of
the Company's revenues during the fiscal year ended September 30, 1997 were
18
<PAGE>
attributable to providing these services, which include environmental
engineering, hazardous waste (including naturally occurring radioactive
material) remediation and disposal, oil spill, soil decontamination and
non-hazardous oilfield waste cleanup, as well as "plug and abandonment" of oil
and gas wells, all in accordance with strict federal, state and local
environmental regulations. In April 1997, the Company entered into a master
service agreement with Chevron Oil Company ("Chevron") to rework, in order to
draw additional production from, approximately 400 depleting oil and gas wells
and to remediate and "plug and abandon" these and other wells when depleted, in
Chevron's oil fields in southern Louisiana along the Gulf of Mexico. The Chevron
agreement provides for a three-year work schedule, commencing upon the
completion of the Company's 140 foot "plug and abandonment" barge. The Company
has designed this specialized "plug and abandonment" barge to remediate
off shore well locations and is capable of working in coastal waters as shallow
as 19 inches. In addition, through management's extensive relationships in the
oil and gas industry, the Company has obtained a ten-year concession with the
Panama Canal Commission, through a joint venture with Centrum Marine, to supply
fuel to tankers and other commercial vessels traversing the Panama Canal. These
operations are expected to commence in mid-1998, provided adequate financing is
secured.
The Company believes that, at its current stage of development, it is
more economical and less speculative to rework and recomplete existing wells
than to drill exploratory wells in search of new oil and gas deposits. Using the
Company's proprietary horizontal drilling tool, known as the BAPCO Tool, the
Company has had, according to internal data, an 80% success ratio in increasing
the level of production from oil and natural gas wells that are suitable for
enhancement of primary recovery by use of the BAPCO Tool or candidates for
secondary recovery. The Company believes that the BAPCO Tool serves as a
competitive advantage for securing new workover projects from other oil and gas
operators, for attracting joint venture partners in larger workover contracts in
the United States and internationally and for use on its own oil and gas
properties in Texas and Utah.
Beginning in the early 1990's, both secondary recovery of oil reserves
and environmental remediation of abandoned oil wells have become major items of
interest in the oil and gas industry. According to current industry statistics,
it is estimated that only 7.5% to 15% of total oil reserves are recovered in
primary drilling operations due to the significant incremental costs involved in
exploiting far-reaching reservoirs of an oil formation. Following primary
drilling operations, large independent oil companies have typically outsourced
some or all of the required "plug and abandonment" work to environmental
remediation firms, such as the Company. By conducting enhanced primary or
secondary recovery operations utilizing the BAPCO Tool on the otherwise
abandoned wells, the Company believes that it is able to effectively extend the
economic life of an oil field and increase existing oil recovery by up to 30%,
prior to formal abandonment. The Company, which provides primary and secondary
recovery, "plug and abandonment" operations and environmental remediation
services, believes that, in the United States alone, there are hundreds of oil
and natural gas fields which could benefit from these services.
Growth Strategy
The Company's goal is to maximize its value through profitable growth
in its oil and gas reserves and production. The Company has taken steps to
achieve this goal through its growth strategy of (i) acquiring
marginally-producing oil and gas properties, at favorable prices, with still
significant resource recovery potential through workovers utilizing the
Company's proprietary drilling technology, (ii) managing the exploration,
exploitation and development of non-producing properties in known oil-producing
areas, such as the Gulf of Guinea in West Africa, with industry or government
partners, and (iii) continuing to pursue environmental remediation service
contracts for oil and gas well rework and "plug and abandonment" services in the
United States and internationally.
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Key elements of the Company's growth strategy include:
o Acquire and Exploit Attractive Oil and Gas Properties. The Company
has an experienced management and engineering team that focuses on
acquisitions of marginally-producing properties which meet its
selection criteria including (a) significant reserves with the
potential for increasing production through low-risk workovers,
recompletions, secondary recovery operations and other production
optimization techniques using its BAPCO Tool, (b) attractive
purchase price and (c) opportunities for improved operating
efficiencies in labor and other field level costs. This growth
strategy has allowed the Company to rapidly grow its reserves, and
its workover and recovery activities have resulted in an 80% success
ratio for improved production from wells that are suitable for
enhanced primary and secondary recovery projects.
o Manage High Potential International Prospects. The Company seeks to
manage the overall exploration activities for high potential
international prospects in known oil-producing areas. By managing
these projects, the Company seeks to share the risks inherent in
exploratory drilling with industry and government partners. The
Company's international exploration activities target significant
long-term reserve growth and value creation, such as the Company's
joint venture with Sao Tome. The Company also plans to pursue
offshore transportation and logistic support services in connection
with its international prospects.
o Pursue Additional Environmental Remediation Contracts. The Company
aggressively pursues new environmental remediation contracts in the
United States and abroad, directly and through joint ventures. The
Company believes it possesses competitive advantages including the
availability and condition of equipment to meet both special and
general customer needs, the availability of trained and licensed
personnel with the required specialized skills, the overall quality
of its service and safety record and the ability to offer ancillary
services, such as "plug and abandonment" services. The Company has
specifically targeted major oil companies with properties located in
the Gulf Coast areas of Louisiana and Texas, which require "plug and
abandonment" services for old and depleted fields.
Managing Exploratory Activities
The Company is currently managing or in the process of negotiating
several international exploratory projects which, if successful, have the
potential to increase the growth of the Company. The Company believes that its
existing project in Sao Tome has the potential to significantly increase
reserves.
Sao Tome
In June 1997, the Company entered into an exclusive joint venture with
Sao Tome, a member of the United Nations, to manage the exploration,
exploitation and development of the country's potential oil and gas reserves in
the Gulf of Guinea. Sao Tome is comprised of two principal islands which
straddle the equator in the prolific petroleum-producing region of the Gulf of
Guinea. The Sao Tome islands are located approximately 200 miles west of
mainland Gabon, and southwest of Equatorial Guinea and Cameroon, and are located
directly on a well-known geologic feature known as the "Cameroon Volcanic Line."
The exclusive 25-year joint venture agreement provides for the
establishment of a national oil and gas company owned jointly by Sao Tome, the
Company and, as a junior partner, Procura Financial Consultants, c.c., a South
African corporation ("Procura"). Under the agreement, the venture has the first
right to select the oil and gas concessions it desires to explore and develop in
an area approximately 64,550 square miles in the Gulf of Guinea. On behalf of
Sao Tome, the Company has agreed to negotiate with major international oil and
gas companies to grant leases to oil and gas concessions not selected by the
joint venture. The Company is entitled to receive an overriding royalty on the
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production from those concessions. Pursuant to the terms of the agreement, Sao
Tome has the right to terminate the agreement in the event the Company fails to
make the remaining concession fee payment of $3,000,000 at the time Sao Tome
determines, and the United Nations accepts, the 200 mile exclusive economic zone
boundaries (expected to be by March 1998) or fails to timely commence the
orderly development of the national oil and gas joint venture company. The
Company is currently exploring funding sources for this payment. In November
1997, the Company made an initial $2,000,000 payment in respect of the initial
concession fee from the net proceeds of its 1997 private placement. See "The
Company - The Private Placement."
The Company is currently in the initial phase of project development
and is conducting seismic surveys, processing existing seismic data and
reviewing environmental and engineering feasibility studies. The Company has
already provided to Sao Tome initial feasibility studies including seismic
interaction, sedimentology biostatgraph, geochemistry and petrographics and
diagnostics. The Company expects to expend at least $2,300,000 in the initial
phase of this project. Following further studies, the Company anticipates
coordinating the drilling of a "test" well in late 1998. The costs associated
with drilling and testing such a well cannot be determined until the seismic
data have been processed and evaluated in mid to late 1998.
In September 1997, the Company expanded its joint venture agreement
with Sao Tome. Under the modified agreement, the venture was granted development
rights for an offshore logistics center. The projects contemplated by the
venture include a helicopter refueling station, seaport with dry dock facilities
and temporary accommodation facilities for employees and their families. The
Company believes that an offshore logistics base is essential to the development
of West Africa's oil and gas industry. The Company has not determined the
funding levels required for these projects at this time.
The Company believes that this venture provides it with a significant
foothold in the oil-rich Gulf of Guinea, in which the venture is the largest
single concession holder in the entire Gulf. The offshore oil potential of Sao
Tome has been studied by numerous oil companies, including Mobil Corp. and Elf
Aquitaine, since at least the late 1970s.
Workover and Recovery Activities
The Company concentrates its acquisition efforts on
marginally-producing properties which demonstrate a potential for significant
additional development through workovers, behind-pipe recompletions, secondary
recovery operations utilizing the Company's BAPCO Tool and other exploitation
techniques. The Company has pursued a workover and recompletion program on the
properties it has acquired and intends to commence an extensive workover and
recompletion program in the future.
"Workovers" refer to the major repairs and modifications occasionally
required by producing oil and natural gas wells. Workovers may be done, for
example, to remedy equipment failures, deepen a well in order to complete a new
producing reservoir, plug back the bottom of a well to reduce the amount of
water being produced with the oil and natural gas, clean out and recomplete a
well if production has declined, repair leaks, or convert a producing well to an
injection well for secondary or enhanced recovery projects. These extensive
workover operations are normally carried out with a well-servicing type rig that
includes additional specialized accessory equipment, which may include rotary
drilling equipment, mud pumps, mud tanks and blowout preventers, depending upon
the particular type of workover operation. The Company's two workover rigs are
designed and equipped to handle the more complex workover operations. A workover
may last anywhere from a few days to several weeks.
The kinds of activities necessary to carry out a workover operation are
essentially the same as those that are required to "complete" a well when it is
first drilled. The "recompletion" process may involve selectively perforating
the well casing at the depth of discrete producing zones, stimulating and
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<PAGE>
testing these zones and installing down-hole equipment. Independent oil and gas
production companies often find it more efficient to move a larger and more
expensive drilling rig off location after an oil or natural gas well has been
drilled and to move in a specialized well-servicing rig to perform completion
operations. The Company plans to acquire a well-servicing rig for this purpose.
The completion process may require from a few days to several weeks.
The Company's staff focuses on maximizing the value of the properties
within its reserve base. The results of their efforts are reflected in increased
production and additions to reserves.
For the fiscal year ended September 30, 1997, the Company spent
approximately $53,000 on workover and recompletion operations, involving nine
wells in Texas. The Company anticipates spending in excess of $1.825 million on
workover and recompletion operations during fiscal 1998, although there can be
no assurance it will have the funding to do so.
In connection with this focus, the Company actively pursues operating
cost reductions on the properties it acquires. The Company believes that its
cost structure and operating practices generally result in improved operating
economies.
The following is a brief discussion of significant developments in the
Company's recent workover and recompletion activities:
Nueces River Natural Gas Prospect
The Company has a 37.5% working interest in a 49,000 acre natural gas
lease, known as the "Nueces River Project," in the Nueces River area of McMullen
and LaSalle counties in south Texas, one of the largest producing natural gas
areas in the United States. A 1997 independent reserve report prepared by
Sandwood Consultants of Nacogdoches, Texas estimated that the field contains 100
BCF of natural gas per 640 acre section. In December 1997, the Company
re-entered the first of two existing shut-in wells on the property, and expects
to ultimately recover up to 5 BCF per well using 5% of the estimated inplace
reserves. The daily production rates from these wells cannot be determined at
this time until well revitalization is completed in March 1998. Following
revitalization, the Company estimates that such wells have the possibility of
producing in excess of 500 MCF (million cubic feet) of natural gas per day. A
20-inch diameter Transcontinental Gas Pipeline is located approximately three
miles from the wells to provide access to a gas market. The Company jointly
operates the field with Autry Stephens & Co., a large independent operator in
west and south Texas. The Company acquired its interest in the Nueces River
Project in October 1997 in consideration for $200,000 and the issuance of 50,000
shares of Common Stock.
In 1998, the Company intends, with its operating co-venturer, to drill
from 15 to 20 new wells at this site. The Company expects to spend approximately
$7.5 million to drill these wells, provided it receives adequate financing in
the future.
Rusk and Wichita County Oil Fields
The Company holds directly two leases on producing oil fields in Texas,
known as the Gunsite Formation in Wichita County, north Texas, and the Woodbine
Formation in Rusk County, east Texas. These oil fields together comprise
approximately 1,200 acres and 200 wells. A 1997 independent reserve report
prepared by Joseph Shoaf, P.E. estimated that proven reserves ("behind pipe")
total 2.5 million barrels of oil. Through December 1997, the Company had
recompleted 18 wells and is currently producing and selling "test" oil from the
Wichita County field. The Company anticipates moving a BAPCO Tool on site in
January 1998 and commencing an active rework and recompletion program on the
remaining wells. After reworking the fields using the BAPCO Tool and other
techniques, the Company believes that these wells could produce from 500 to 800
barrels of oil per day.
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The Company acquired the Rusk and Wichita County oil fields in February
and March 1997, respectively, in consideration for a total of 500,000 shares of
Common Stock.
MIII Project in Utah
In July 1997, the Company entered into a joint venture with MIII
Corporation ("MIII"), a Native American oil and gas company based in Fort
Duchesne, Utah. Under the agreement, the Company has agreed to workover,
recomplete and operate 335 oil and gas wells located on the 4,000,000 acre
Uintah and Ouray Reservation in northeastern Utah. It is estimated that the
first approximately 36 wells will be scheduled for recompletion and
restimulation in early 1998. After initial workover operations are completed,
the Company estimates that these wells could produce in excess of 3,900 barrels
of oil per day. A 1993 independent reserve report prepared by Richard Stephen
Shuster, P.E. indicates, based on a study of 133 of such wells, proven and
producing reserves of approximately 5.77 million barrels of oil and 23.4 BCF of
natural gas at this site. The Company's production estimates at this site are
based predominately on the multiple sandstone reservoirs of the Wasatch,
transition zone and Green River Formations that can occur at depths of 5,000 to
16,000 feet.
Under the terms of the joint venture agreement, once the production of
natural gas reaches 5,000 MCF, MIII has agreed to construct a gas gathering
plant on such site, with the Company retaining a 25% interest in the plant. As
of this date, there can be no assurance as to when, if ever, such plant will be
constructed.
The Company has a 37.762% working interest in the wells located on the
MIII property, and is entitled to receive a $2.50 per barrel operator fee on
production in the fields. The Company also has the right to receive an
additional 5% working interest in the wells after start-up costs of
approximately $1.5 million are repaid to certain original MIII investors from
overall production. The remaining working interests in the MIII property are
held by MIII, the Ute Tribe and the allotted members of the Ute Tribe. The
Company paid $55,000 and contemplates issuing 250,000 shares of Common Stock to
MIII in connection with entering into this venture. In 1998, the Company plans
to recomplete and restimulate 36 wells and to drill five to seven development
and extension wells at this site, provided adequate financing is secured.
Uinta Project
In October 1997, the Company acquired net revenue interests ranging
from 80% to 84% (and 100% working interest) in oil and gas properties totally
13,680 acres, located near the MIII fields in the Uinta Basin with 24 oil and
natural gas wells, currently producing approximately 200 barrels of oil per day
from eight producing wells and ten wells on intermittent production. As of
December 31, 1997, these were the Company's only commercially producing
properties, which began realizing revenue for the Company in November 1997. A
1997 independent reserve report indicates that the gross recoverable reserves of
these properties total approximately 2.624 million barrels of oil and 3.302 BCF
of natural gas. Wells in this field produce primarily from multiple sandstone
reservoirs of the Wasatch transition zone and lower Green River Formation at
depths ranging from 5,500 to 16,000 feet. The remaining net revenue interests in
these properties are held by the Ute Tribe.
Provided adequate financing is secured, the Company plans extensive
work in this field during 1998, including a 20 well program to develop infill
and field extension locations, a 40-acre pilot waterflood project and the
workover and recompletion of the 22 existing wells to test the viability of more
shallow formations for potential future development.
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Reserves
The following table sets forth estimates of the proved oil and gas
reserves (gross) of the Company as of December 31, 1997:
<TABLE>
<CAPTION>
Oil Equivalent
Oil Gas --------------
-------------------------------- ------------------------------- (millions of
(millions of barrels) (billion cubic feet) barrels)
Field Developed Undeveloped Total Developed Undeveloped Total Total
----- --------- ----------- ----- --------- ----------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Nueces River Project, Texas.. - - - - - - -
Rusk County Field, Texas..... 1.5 - 1.5 - - - 1.5
Wichita County Field, Texas.. 1.0 - 1.0 - - - 1.0
Uintah & Ouray Reservation,
Utah..................... - - 5.77 - - 23.407 9.673
Uinta Project, Utah.......... .222 2.402 2.624 .175 3.127 3.302 3.174
---- ----- ----- ---- ----- ------ -----
Total............. 2.722 2.402 10.894 .175 3.127 26.709 15.347
====== ====== ====== ===== ===== ====== ======
</TABLE>
Estimates of the Company's proved reserves set forth above have not
been filed with, or included in reports to, any Federal authority or agency,
other than the Securities and Exchange Commission.
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.
The reserve data set forth in this Prospectus represent only estimates.
Reserve engineering is a subjective process of estimating underground
accumulations of oil and natural 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.
For further information on the Company's oil and gas reserves and
pricing, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
BAPCO Tool
The Company's BAPCO Tool, which is used in most of its workover
operations, has two main functions: to provide a means of mechanically cutting a
hole through the casing and extending a flexible tubular pipe outward at least
fifty feet from the bore hole. The system is made up of a skid mounted surface
unit with a command module, filter system and pumping package, and a down hole
assembly. The command module, which is approximately 10 feet long, 6 feet wide
and 8 feet high, is air conditioned, contains all the necessary controls and
data recording equipment and has a special tool storage area. The down hole tool
assembly is composed of a filter and filter body that removes the unwanted
material and prevents the material from entering the control section of the
tool. There are no limitations regarding casing thickness and cement sheath when
utilizing the BAPCO Tool.
According to internal data, the Company has had an 80% success ratio in
increasing the level of production from oil and natural gas wells that are
suitable for secondary recovery. The Company believes that the BAPCO Tool serves
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as a competitive advantage for securing new workover projects from other oil and
gas operators, for attracting joint venture partners in large workover contracts
in the United States and internationally and for use on its own oil and gas
properties in Texas and Utah.
The BAPCO Tool was acquired by the Company in connection with the stock
acquisition of BAPCO in April 1997. The Company has constructed two BAPCO Tools
to date and is currently in the process of constructing a third tool. The
Company plans to construct three additional tools in 1998, provided it receives
adequate financing in the future. The BAPCO Tool has been tested on multiple
wells in a variety of formations during the past 18 months. The BAPCO Tool has
been continuously updated and modified since the tool was first designed and
developed in the early 1990s by Sam L. Bass, Jr., the Company's Chairman,
President and Chief Executive Officer.
Environmental Remediation Services
The Company provides environmental remediation services to oil and gas
operators. These services, which the Company is licensed to provide, include
environmental engineering, hazardous material (including naturally occurring
radioactive material) remediation and disposal, and oil spill, soil
decontamination and non-hazardous oilfield waste cleanup related to the
production of oil and natural gas, all in accordance with strict federal, state
and local environmental regulations. The Company also provides "plug and
abandonment" services for wells from which the oil and natural gas have been
depleted and further production has become uneconomical.
The Company's soil decontamination systems are capable of handling a
variety of different contamination problems. The Company standard Class 1-4
decontamination machines. The Class I machine is used to process soils
contaminated with gasoline and diesel and which require little or no soil
conditioning. The Class II machine offers increased temperatures to treat soil
with contaminants up to No. 6 fuel oil, lubricating oils, heavy oil residuals
and crude oils. The Class III machines are an upgrade to the Class II machines
and accommodate slightly higher temperatures and add acid gas neutralization for
handling chlorinated compounds. The Class IV machines are hazardous waste
incinerators.
The Company's staff is certified in the use of many types of products
used in tank and pit cleaning services and emergency response spill and
clean-up. The Company uses a "sludge-buster" robotic water cannon to expedite
the cleaning of tanks. The Company's staff is also experienced in the use of a
closed loop system for pit cleaning. The closed loop system separates solids
from liquids, chemically treats the liquids and solids in accordance with local
environmental standards. The Company can deliver emergency crews trained in
chemical and oil spill containment and clean-up throughout many parts of the
world.
In April 1997, the Company entered into a master service agreement with
Chevron Oil Company ("Chevron") to rework, in order to draw additional
production from, approximately 400 depleting oil and gas wells and to remediate
and "plug and abandon" these and other wells when depleted, in Chevron's oil
fields in southern Louisiana along the Gulf of Mexico. The Chevron agreement
provides for a three-year work schedule, commencing upon the completion of the
Company's 140 foot "plug and abandonment" barge. This barge will be used to
remediate offshore oil rigs and be capable of working in coastal waters as
shallow as 19 inches. A deposit of approximately $131,000 has been made by the
Company to secure the barge and additional funding is being sought to purchase
and equip the barge. It is estimated that the Company's barge would be ready to
operate 60 days following funding. The Chevron agreement was originally entered
into by BAPCO and Bass Environmental Services Worldwide, Inc. ("BEW") in
September 1996, prior to the acquisition of BAPCO by the Company in April 1997,
and was assigned to the Company with Chevron's consent at the time of the
acquisition. The Company issued 3,000,000 shares of Common Stock to BEW in
connection with the assignment of this agreement.
The Company's "plug and abandonment" services involve shutting down and
discontinuing the use of old, unsafe or marginally-producing oil or natural gas
wells, and restoring a site to its pre-drilling condition. There are many
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<PAGE>
ecological ramifications if oil and gas wells are abandoned without following
federal Environmental Protection Agency and state Department of Environmental
Quality mandated guidelines. These ramifications are caused due to aging
equipment and pipe ceilings which can lead to "blow outs," oil and gas seepage
into the water and ground water contamination. If not "plugged," these problems
can lead to major environmental problems and expensive pollution cleanup for the
well owners or operators. "Plug and abandonment" also involves delivery of test
results indicating that well closure has been completed in compliance with
applicable regulations. This information is important to the customer because
the operation is subject to future regulatory review and audits. In addition,
the information may be required on a current basis if the operator is subject to
a pending regulatory compliance order.
The Company's environmental remediation customers are major and
medium-sized independent oil and gas exploration and production companies
operating in the Gulf Coast areas of Louisiana and Texas. During the fiscal year
ended September 30, 1997, approximately 60% of the Company's revenues were
derived from three major oil companies, including Chevron. Given current market
conditions and the nature of the services involved, management does not believe
that the loss of any single customer would have a material adverse effect on the
Company. Environmental remediation services are typically performed under
short-term time and materials contracts, which are obtained by direct
negotiation or bid. As most of the company's contracts with its customers are
cancelable upon limited notice, the Company's backlog is not significant at this
time.
Offshore Logistics Services
Panama Refueling Concession
In March 1997, the Company entered into a joint venture agreement with
Centrum Marine, pursuant to which the venture obtained a ten-year concession
agreement with the Panama Canal Commission. The concession grants the joint
venture the right to supply fuel and other petroleum supplies to tankers and
other commercial vessels traversing the Panama Canal. Historically,
approximately 55 to 60 such vessels traverse the Panama Canal daily. The joint
venture is currently in negotiations to purchase a 1.5 million gallon fuel barge
and an 85 foot flat deck tugboat. These operations are expected to commence by
mid-1998, provided adequate financing is secured.
Pursuant to the terms of the joint venture agreement, the Company is
entitled to receive 51% of all net profits of the venture. In connection with
entering into such agreement with the Panama Canal Commission, the venture
received a commitment from Texaco Inc. to provide the venture with the necessary
fuel to comply with the requirements of the concession. The Company anticipates
that the venture would be able to provide a minimum of 600,000 gallons of fuel a
day.
Marketing
During the fiscal year ended September 30, 1997, the Company did not
have any sales of oil or gas. Commencing in October 1997, the Company recorded
sales of crude oil from the Uinta properties and, in November 1997, recorded
sales of "test" oil from the Wichita Falls field in north Texas. All such sales
were made on the spot market. In the future, the Company intends to sell its
crude oil and natural gas, and associated oil and gas products, on both the spot
market and under market-sensitive agreements with a variety of prospective
purchasers.
Raw Materials
The Company believes that its source of supply for any materials or
equipment used in its business are adequate for its needs and that it is not
dependent upon any one supplier. No serious shortages or delays have been
encountered in obtaining any raw materials.
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<PAGE>
Governmental Regulation
Oil and natural gas operations are subject to extensive federal, state
and local laws and regulations relating to the exploration for, and the
development, production and transportation of, oil and natural gas, as well as
safety matters, which may be changed from time to time in response to economic
or political conditions. Matters subject to regulation by federal, state and
local authorities include permits for drilling operations, road and pipeline
construction, reports concerning operations, the space of wells, unitization and
pooling of properties, taxation and alterations to the Company's development
plans could have a material adverse effect on operations. From time to time,
regulatory agencies have imposed price controls and limitations on production by
restricting the rate of flow of oil and natural gas wells below actual
production capacity in order to conserve supplies of oil and natural gas.
Although the Company believes that it is in substantial compliance with all
applicable laws and regulations, the requirements imposed by such laws and
regulations are frequently changed and subject to interpretation, and the
Company cannot predict the ultimate cost of compliance with these requirements
or their effect on operations. Significant expenditures may be required to
comply with governmental laws and regulations.
Environmental Regulation and Claims
The Company's workover and environmental remediation services routinely
involve the handling of significant amounts of waste materials, some of which
are classified as hazardous substances. The Company's operations and facilities
are subject to numerous state and federal environmental laws, rules and
regulations, including, without limitation, laws concerning the containment and
disposal of hazardous materials, oilfield waste and other waste materials, the
use of underground storage tanks and the use of underground injection wells. The
Company employs personnel responsible for monitoring environmental compliance
and arranging for remedial actions that may be required from time to time and
also uses outside experts to advise on and assist with the Company's
environmental compliance efforts. Costs incurred by the Company to investigate
and remediate contaminated sites are expensed unless the remediation extends the
useful lives of the assets employed at the site. Remediation costs that extend
the useful lives of the assets are capitalized and amortized over the remaining
useful lives of such assets. Liabilities are recorded when the need for
environmental assessments and/or remedial efforts becomes known or probable and
the cost can be reasonably estimated.
Laws protecting the environment have generally become more stringent
that in the past and are expected to continue to do so. Environmental laws and
regulations typically impose "strict liability" which means that in some
situations the Company could be exposed to liability for cleanup costs and other
damages as a result of conduct of the Company that was lawful at the time it
occurred or conduct of, or conditions caused by, others. Cleanup costs and other
damages arising as a result of environmental laws, and costs associated with
changes in environmental laws and regulations could be substantial.
Under the Comprehensive Environmental Response, Compensation and
Liability Act, also known as "Superfund," and related state laws and
regulations, liability can be imposed without regard to fault or the legality of
the original conduct on certain classes of persons that contributed to the
release of a "hazardous substance" into the environment. Changes to federal and
state environmental regulations may also negatively impact oil and natural gas
exploration and production companies, which in turn could have a material
adverse effect on the Company. For example, legislation has been proposed from
time to time in Congress which would reclassify oil and natural gas production
wastes as "hazardous wastes." If enacted, such legislation could dramatically
increase operating costs for domestic oil and natural gas companies and this
could reduce the market for the Company's services by making may wells and/or
oilfield uneconomical to operate. To date, such legislation has not made
significant progress toward enactment.
Patents and Trademarks
The Company owns or has exclusive rights to use several U.S. patents on
designs for various types of oilfield equipment and on methods for conducting
certain oilfield activities, including discrete parts of the BAPCO Tool. The
Company uses some of these designs and methods to conduct its business. The
patents expire at various times over the next five to 15 years. The Company also
27
<PAGE>
has several trademarks and service marks that it uses in various aspects of its
business. While management believes the Company's patent and trademark rights
are valuable, the expiration or loss thereof, other than parts of the BAPCO
Tool, would not have a material adverse effect on the Company's financial
condition or results of operations.
Competitive Conditions
Although the number of available rigs has materially decreased over the
past ten years, the workover and drilling industry remains very competitive. The
number of rigs continues to exceed demand, resulting in severe price
competition. Many of the total available contracts are currently awarded on a
bid basis, which further increases competition based on price. In all of the
Company's market areas, competitive factors also include the availability and
condition of equipment to meet both special and general customer needs, the
availability of trained personnel possessing the required specialized skills,
the overall quality of service and safety record, and domestically, the ability
to offer ancillary services such as "plug and abandonment" services. As an
enhancement to its competitive position, the Company has been able to establish
joint ventures in domestic and international markets.
The environmental remediation market is extremely fragmented and
composed of hundreds of small firms with one or only few regional offices.
Properties
The Company's principal executive offices are located in Jericho, New
York in approximately 1,200 square feet of leased office space. The Company
currently pays $1,200 per month in rent under its lease, which extends through
February 1998. The Company also leases approximately 7,000 square feet of its
main operational facility in Lafayette, Louisiana and pays $4,000 per month
under a lease extending through October 2002. The Company believes that
additional office and operational space will be required to accommodate planned
expansion.
Employees
As of December 31, 1997, the Company had 25 full-time employees,
including three petroleum engineers and two geologists. None of its employees is
represented by a collective bargaining unit. Management believes that the
Company's relationship with its employees is excellent.
Legal Proceedings
Piedra Drilling Company, Inc. ("PDC") commenced an action against the
Company in Denver, Colorado in July 1997. PDC brought this action to enforce a
contract for the issuance of 450,000 shares of the Company's common stock in
consideration for the sale by PDC to the Company of certain drilling equipment
and designs. The Company did not issue the shares to PDC because the necessary
equipment and designs were not delivered and/or validly assigned to the Company.
PDC obtained a default judgment in the amount of approximately $1.2 million,
which was vacated in November 1997. Colorado counsel for the Company filed an
answer, counterclaims and discovery demands in November 1997. The Company
believes it has a number of meritorious defenses and potential counterclaims and
intends to vigorously defend this action.
Other than the above legal proceeding, the Company is not a party to
any other material pending or threatened legal proceeding.
28
<PAGE>
MANAGEMENT
Directors and Executive Officers
The names and age of the directors and executive officers of the
Company, and their positions with the Company, are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Sam L. Bass, Jr............................ 63 Chairman of the Board, President and Chief
Executive Officer
James R. Callender, Sr..................... 57 Chief Operating Officer, Vice President and
Director
Noreen G. Wilson........................... 45 Chief Financial Officer, Vice President and
Director
James A. Griffin........................... 43 Secretary, Treasurer and Director
Robert McKnight............................ 62 President of BAPCO
William Beaton............................. 75 Director
</TABLE>
The principal occupations for the past five years (and, in some
instances, for prior years) of each of the directors and executive officers of
the Company are as follows:
Sam L. Bass, Jr. has been the Chairman of the Board, President and
Chief Executive Officer of the Company since September 1996. Mr. Bass also
serves as the Chief Executive Officer of Bass Environmental Waste, Inc., which
he founded in 1987, U.S. Energy, Inc., which he founded in 1984, and Bass
Stabilizers, Ltd., which he co-founded in 1978, each of which is a
privately-held company to which he devotes minimal time. From December 1993 to
September 1995, he served as President and Chief Executive Officer of Bass
Environmental World Wide Services, Inc. From January 1992 to September 1995, he
served as President and Chief Executive Officer of Bass Environmental Inc. Mr.
Bass is a pioneer in the field of downhole drilling and stabilization, and is
the inventor of seven drilling aids, many of which are being used around the
world. Mr. Bass founded a fire-fighting organization called Al-Wadhi, through
which he joined others in efforts to put out oil well fires in Kuwait,
immediately after the Gulf War, for a period of approximately 18 months in 1991
and 1992. Mr. Bass received a B.A. degree from McNeese State University in 1949
and an M.A. degree in Mechanical Engineering from Georgia Tech in 1952.
James R. Callender, Sr. has served as Chief Operating Officer and Vice
President of the Company since August 1997 and a Director since September 1996.
He has also been the President and owner of Cal-Sons Co. Inc., an ostrich farm
and cattle ranch located in Louisiana, since November 1990. From July 1997 to
August 1997, Mr. Callender served as a Consultant to the Company. From March
1997 to April 1997, he served as a Consultant to Forcenergy Inc., an independent
oil and gas company. From September 1996 to March 1997, Mr. Callender served as
a Management Consultant to Arctic Recoil, Inc., a maker of high pressure well
control units. He acted as an Investment Consultant to Coburn Inc., an oil field
construction and heavy equipment operator, from February 1996 to September 1996.
From January 1993 to December 1995, Mr. Callender served as Chief Engineer to
the Chief Executive Officer and Senior Consultant at Unocal Corp., a fully
integrated energy resources company whose worldwide operations comprise many
aspects of energy production. Until December 1992, he served as Drilling Manager
of Worldwide Operations at Unocal Corp. Mr. Callender received a B.S. degree in
Geology and Engineering from Louisiana State University in 1964.
29
<PAGE>
Noreen G. Wilson has served as Chief Financial Officer of the Company
since June 1997. She has been a Director of the Company since December 1996.
From January 1995 to the present time, Mrs. Wilson has served as President of
Supertrail Manufacturing Company, Inc., a real estate development firm located
in Aberdeen, Mississippi. Supertrail Manufacturing Company, Inc. filed for
Chapter 11 reorganization under the U.S. Bankruptcy Code in January 1995. At
that point in time, Mrs. Wilson became President, in order to guide and manage
the company through its reorganization, and she devotes minimal time in this
position. From February 1993 to December 1996, Mrs. Wilson served as an
International Consultant for the financing of American builders and contractors
overseas, primarily working through the Export/Import Bank and the World Bank.
During the same time period, Mrs. Wilson served as Vice President of Traditional
Enterprises, a financial consulting firm located in Roswell, Georgia. Ms. Wilson
is the first cousin of James A. Griffin.
James A. Griffin has been the Secretary, Treasurer and a Director of
the Company since September 1996. From April 1992 to April 1996, Mr. Griffin was
a founding and managing partner in the law firm of Griffin & Pellicane, Esq.
located in Westbury, New York. In April 1996, he formed the law firm of James A.
Griffin, Esq., but he is currently minimally involved in the practice of law. He
received his J.D. from Touro College, Jacob D. Fuchsberg Law Center, in 1987. He
received his B.A. degree from Dowling College in 1976 and his B.S. degree at the
State University of New York at Stony Brook, School of Allied Health Sciences,
in 1979. He is admitted to practice law in the State of New York and is a member
of the American Bar Association, the New York State Bar Association and the
Nassau County Bar Association. Mr. Griffin is the first cousin of Noreen G.
Wilson.
Robert McKnight has been the President of BAPCO since August 1997.
Previously, Mr. McKnight acted as a Consultant to the Company from November 1996
until August 1997. From August 1991 until July 1996, Mr. McKnight acted as a
Consulting Engineer to Patriot Resources, an oil and gas company located in
Dallas, Texas. Mr. McKnight has 35 years of experience in supervising and
managing drilling and production operations, including reservoir and field
evaluations, reserve and cash flow determinations for property acquisitions, and
equity determinations. Mr. McKnight received his B.S. in Petroleum Engineering
from Texas A&M University in 1957.
William Beaton has been a Director of the Company since September 1996.
He currently serves as the Chairman of The Institute of Petroleum (West of
Scotland Branch) and has been in that position for more than the past five
years. He was the General Manager of Clydesdale Bank of Glasgow, Scotland until
his retirement in 1982. Since his retirement from the Bank, he has worked as a
self-employed consultant to public and smaller independent companies. He has
been involved in the international oil and gas industry for almost 30 years,
with more than 50 years of experience in management and finance.
All directors hold office until the next annual meeting of shareholders
and until their successors are duly elected and qualified, unless their office
is vacated in accordance with the Certificate of Incorporation of the Company.
Officers are elected to serve, subject to the discretion of the Board of
Directors, until their successors are appointed. Except for the relationship
between Noreen G. Wilson and James A. Griffin, who are cousins, there are no
family relationships among the directors and officers of the Company.
Advisory Board
The Company has established an Advisory Board comprised of three
members with experience in the areas of oil and gas production. The Advisory
Board meets periodically with the Company's Board of Directors and management to
discuss matters relating to the Company's business activities including
establishing commercial business alliances and working projects with
corporations and government agencies on an international basis. Members of the
Advisory Board are reimbursed by the Company for out-of-pocket expenses incurred
in serving on the Advisory Board.
30
<PAGE>
Some of the members of the Advisory Board may serve as consultants to
the Company under consulting agreements for which they will receive
compensation. To the Company's knowledge, none of its Advisory Board members or
other consultants has any conflict of interest between their obligations to the
Company and their obligations to others.
The members of the Company's Advisory Board and their primary
professional or academic affiliations are listed below:
Senator Vance Hartke has been a member of the Company's Advisory Board
since September 1996. Mr. Hartke was the United States Senator for Indiana from
1959 to 1977. While a Senator, he served on both the Finance Committee and the
Commerce Committee, two of the most powerful and prestigious committees of the
U.S. Senate. Prior to his senatorial term, he served as Mayor of the City of
Evansville, Indiana from 1956 to 1958, when he resigned to take his seat in the
U.S. Senate. Mr. Hartke's political career also includes service as a Deputy
Prosecuting Attorney, seven times as a delegate to the Democratic National
Convention, as Democratic County Chairman in Vanderburgh County, Indiana, and a
Chairman of the U.S. Senatorial Campaign Committee. He continues to practice law
at the law firm of Hartke & Hartke in Falls Church, Virginia. He currently sits
on the Board of Directors of McCrane & Co. He received his A.B. from the
University of Evansville in 1941 and his J.D. from Indiana University School of
Law in 1948, where he was Editor-in-Chief of the Indiana Law Journal.
Marvin Gibbons has been a member of the Company's Advisory Board since
September 1996. In 1990, Mr. Gibbons founded a private company seeking
investment capital for various development projects, including several Native
American India Developments. He opened a private domestic and international
import/export company, as well. During the past seven years, Mr. Gibbons became
a partner and Acting Secretary of CAL-NOR, Cal-Marine Industries, ESOP, and
Zenith Insurance Limited. He is currently involved in a number of Development
Projects both in the United States and internationally.
Ken Water has been a member of the Company's Advisory Board since
September 1996.
Committees of the Board of Directors
The Company expects to establish an Audit Committee and Compensation
Committee in early 1998, each of which will be comprised of at least two
independent directors. The Audit Committee will, among other things, make
recommendations to the Board of Directors regarding the independent auditors to
be nominated for ratification by the stockholders, review the independence of
those auditors and review audit results. The Compensation Committee will
recommend to the Board compensation plans and arrangements with respect to the
Company's executive officers and key personnel. It is contemplated that the
Audit and Compensation Committees will initially include William Beaton and
another independent director who the Company is currently in the process of
identifying. The Board of Directors does not currently have and does not intend
to establish a Nominating Committee as such functions are to be performed by the
entire Board of Directors.
Compensation of Directors
Non-employee directors of the Company currently receive no cash
compensation for serving on the Board of Directors other than reimbursement of
reasonable expenses incurred in attending meetings. The Company does not intend
to separately compensate employees for serving as directors.
31
<PAGE>
In September 1996, the Company issued to each of James R. Callender,
Noreen G. Wilson, James A. Griffin and William Beaton, directors of the Company,
500,000 shares of Common Stock in connection with their serving on the Company's
Board of Directors.
Compensation of Executive Officers
The Company did not pay cash compensation to Sam L. Bass, Jr., Noreen
G. Wilson or James A. Griffin, the President and Chief Executive Officer, the
Executive Vice President and Chief Financial Officer and the Secretary and
Treasurer of the Company, respectively, during the fiscal year ended September
30, 1997. However, compensation to Mr. Bass, Ms. Wilson and Mr. Griffin were
accrued in the respective amounts of $480,000, $360,000 and $120,000 for the
1997 fiscal year and may be paid to them at a later date, subject to the
availability of funds, or, at their option and in lieu of such payments, such
officers may convert all or part of their accrued compensation into shares of
Common Stock at a conversion price to be reasonably established by the Company's
Board of Directors.
The only executive officers who received cash compensation during the
fiscal year ended September 30, 1997 were James R. Callender, Sr., the Company's
Chief Operating Officer, who was paid a total of $100,000 in July, August and
September 1997, and Robert McKnight, the President of BAPCO, who was paid a
total of $20,000 in August and September 1997. The Company compensates Messrs.
Callender and McKnight at the current rate of $40,000 and $10,000 per month,
respectively. The Company, however, made lease payments on automobiles for each
of Sam L. Bass, Jr., Noreen G. Wilson, James A. Griffin and Mr. McKnight during
the fiscal year ended September 30, 1997, in each case of approximately $450 per
month.
In addition, in August 1996, at the time Mr. Bass joined the Company as
a consultant, he was issued, in lieu of consulting fees for the fiscal years
ended September 30, 1997, 1998, 1999 and 2000, a total of 375,000 shares of
Common Stock, vesting annually in one-fourth increments.
Proposed Employment Agreements
The Company contemplates entering into three-year employment agreements
with each of Sam L. Bass, Jr., James A. Callender, Sr., Noreen G. Wilson and
James A. Griffin to serve in their respective positions. The Company is still in
the process of determining the terms and conditions of each employment
agreement.
Proposed Stock Option Plan
The Company does not currently have a stock option plan or other
similar employee benefit plan for executives and/or other employees of the
Company, and no options have been granted or are currently outstanding.
The Board of Directors of the Company plans to approve and adopt a
proposed 1998 Stock Option Plan (the "Plan"), pursuant to which officers,
directors, key employees, and consultants of the Company will be eligible to
receive incentive stock options and non-qualified stock options to purchase
shares of Common Stock. The Plan would also provide for the grant of stock
appreciation rights, restricted stock, performance shares and performance units
at the discretion of Company's Board of Directors.
With respect to incentive stock options, the Plan would provide that
the exercise price of each such option be at least equal to 100% of the fair
market value of the Common Shares on the date that such option is granted (and
110% of fair market value in the case of shareholders who, at the time the
option is granted, own more than 10% of the total outstanding Common Shares),
and would require that all such options have an expiration date not later than
the date which is one day before the tenth anniversary of the date of the grant
of such option (or the fifth anniversary of the date of grant in the case of 10%
32
<PAGE>
or greater shareholders. However, with certain limited exceptions, in the event
that the option holder would cease to be associated with the Company, or would
engage in or be involved with any business similar to that of the Company, such
option holder's incentive options would immediately terminate. Pursuant to the
Plan, the aggregate fair market value, determined as of the date(s) of grant,
for which incentive stock options are first exercisable by an option holder
during any one calendar year will not exceed $ 100,000.
33
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as of December 31,
1997, with respect to the beneficial ownership of the Company's Common Shares by
each shareholder known by the Company to be the beneficial owner of more than 5%
of its outstanding shares, by each director of the Company, by the executive
officers named in the table below and by the directors and executive officers of
the Company as a group. Except as otherwise noted, the persons named in this
table, based upon information provided by such persons, have sole voting and
investment power with respect to all Common Shares beneficially owned by them.
None of the current directors and officers of the Company are participating in
this offering.
<TABLE>
<CAPTION>
Common Shares Beneficially Owned
---------------------------------------------
Name and Address (1) Number(2) Percentage
-------------------- --------- ----------
<S> <C> <C>
Sam L. Bass, Jr............................. 8,679,568(3) 37.0%
James R. Callender, Sr...................... 500,000 2.1
Noreen G. Wilson............................ 500,000 2.1
James A. Griffin............................ 500,000 2.1
Robert McKnight............................. 75,000 *
William Beaton.............................. 500,000 2.1
All officers and directors as a group
(six persons)............................ 10,754,568 45.8%
</TABLE>
- ------------
* Represents less than 1% of outstanding Common Shares or voting power.
(1) The address of each beneficial owner is c/o Environmental Remediation
Holding Corporation, 420 Jericho Turnpike, Suite 321, Jericho, New York
11753.
(2) Shares beneficially owned and percentage of ownership are based on
23,458,125 Common Shares outstanding as of December 31, 1997. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and generally includes voting or dispositive power with
respect to such shares.
(3) Includes shares of Common Stock beneficially owned by Mr. Bass individually
and through entities under his control.
34
<PAGE>
SELLING SHAREHOLDERS
General
From October to December 1997, the Company raised gross proceeds of
$4,300,000 in a private placement of the Company's 5.5% convertible senior
subordinated secured notes due 2002 (the "Notes") and warrants to purchase
Common Stock (the "Warrants") to a limited number of "accredited" institutional
investors. 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 $1.25
per share, subject to certain limited conditions) and the exercise of the
Warrants (at an exercise price of $2.83 per share) is up to 3,440,000 shares and
258,000 shares, respectively. This Prospectus covers the maximum of up to
3,698,000 total shares of Common Stock issuable upon the conversion of the Notes
and the exercise of the Warrants. The Selling Shareholders intend to sell the
Common Stock acquired thereby from time to time in the future upon conversion of
the Notes and the exercise of the Warrants. Based on the number of outstanding
shares of Common Stock of the Company as of December 31, 1997, the Shares
represent approximately 15.8% of the outstanding Common Stock of the Company. As
of December 31, 1997, none of the Notes had been converted and none of the
Warrants had been exercised.
All of the Shares held or to be held by the Selling Shareholders may be
offered hereunder except that, under the terms of the 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 of December 30, 1997, January 29,
1998 and February 28, 1998. The conversion rate of the Notes is equal to the
lowest of (i) $2.83, representing 100% of the average closing bid price per
share of the Common Stock as quoted on the primary market or exchange on which
it trades (the "Average Share Price") for the five consecutive trading days
immediately preceding October 15, 1997, the date of the initial issuance of the
Notes (the "Issuance Date"), (ii) 100% of the Average Share Price for the five
consecutive trading days immediately preceding October 22, 1998 or the first
anniversary of the Issuance Date, or (iii) 80% of the Average Share Price for
the five consecutive trading days preceding the applicable conversion date on
which all or part of the Notes are converted. However, the conversion price may
not be less than $1.25 per share (the "Base Price"), unless 80% of the Average
Share Price is less than the Base Price for a period of 90 consecutive calendar
days, in which case the Base Price will no longer be applicable. For purposes of
registering the maximum number of shares of Common Stock under this Prospectus,
the conversion rate is assumed to be the Base Price. Because the conversion rate
of the Notes is based in part on future average trading prices of the Common
Stock, the number of shares which may actually be sold pursuant to this
Prospectus could differ significantly. For example, in the event a notice of
election to convert all the Notes were to have been received on January 5, 1998,
the lowest applicable conversion rate would have been $1.59 per share (80% of
the Average Share Price for the five consecutive trading days preceding such
date), resulting in a total of 2,421,522 shares of Common Stock offered hereby
(including 258,000 shares into which the Warrants are exercisable). The Notes
mature, unless prepaid at any time after October 15, 1998, on October 15, 2002
and are secured by the Company's proven crude oil reserves on its properties in
Utah. The Notes do not contain any covenants that would prohibit, limit or
restrict, among other matters, the Company's ongoing business operations,
acquisitions of oil and gas properties, payment of dividends or incurrence of
additional indebtedness. The Warrant may be exercised at any time through
October 15, 2002.
In connection with the sale of the Notes and the Warrants, the
Company entered into a Registration Rights Agreement with the Selling
Shareholders, pursuant to which the Company agreed to register the Shares under
the Securities Act for resale by, and for the benefit of, such shareholders.
The public offering of the Shares by the Selling Shareholders will
terminate on the earlier of October 15, 2000 or the date on which all Shares
offered hereby have been sold by the Selling Shareholders.
Stock Ownership
The following table sets forth the names of and the number of Shares
beneficially owned by each Selling Shareholder as of December 31, 1997. Since
the Selling Shareholders may sell all, some or none of their Shares, no estimate
can be made of the aggregate number of Shares that are to be offered hereby or
the number or percentage of Shares that each Selling Shareholder will own upon
completion of the offering to which this Prospectus relates.
35
<PAGE>
<TABLE>
<CAPTION>
Shares Owned Before Shares and
the Offering (1) Percentage
-------------------------------------------- Shares to be Owned
Name of Underlying Underlying Total Sold in After the
Selling Shareholder Notes Warrants Shares the Offering Offering
- ------------------- ----- -------- ------ ------------ ---------
<S> <C> <C> <C> <C> <C>
Banque Edouard Constant SA 320,000 24,000 344,000 344,000 --
11, Cours de Rive
Case Postale 3754
1211 - Geneva
Switzerland
Elara Ltd. 600,000 45,000 645,000 645,000 --
P.O. Box 438
Tropic Isle Building
Wickhams Cay
Road Town, Tortola
British Virgin Islands
c/o Talisman Capital
1601 LaGrande Drive, Suite 100
Little Rock, AR 72211
Keyway Investments Ltd. 720,000 54,000 774,000 774,000 --
19 Mount Havelock
Douglas, Isle of Man
1M1 2QG
British Islands
c/o Midland Walwyn Capital, Inc.
BCE Place
181 Bay Street, Suite 500
Toronto, Ontario M5J 2V8
Canada
JMG Capital Partners L.P. 320,000 24,000 344,000 344,000 --
c/o JMG Capital Management Inc.
1999 Avenue of the Stars
Suite 1950
Los Angeles, CA 90067
Triton Capital Investments, Ltd. 320,000 24,000 344,000 344,000 --
c/o JMG Capital Management Inc.
1999 Avenue of the Stars
Suite 1950
Los Angeles, CA 90067
Porter Partners L.P. 320,000 24,000 344,000 344,000 --
c/o Porter Capital Management Co.
100 Shoreline Highway, Suite 211B
Mill Valley, CA 94941
EDJ Limited 80,000 6,000 86,000 86,000 --
c/o Porter Capital Management Co.
100 Shoreline Highway, Suite 211B
Mill Valley, CA 94941
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Shares Owned Before Shares and
the Offering (1) Percentage
-------------------------------------------- Shares to be Owned
Name of Underlying Underlying Total Sold in After the
Selling Shareholder Notes Warrants Shares the Offering Offering
- ------------------- ----- -------- ------ ------------ ---------
<S> <C> <C> <C> <C> <C>
Cranshire Capital, L.P. 240,000 18,000 258,000 258,000 --
3000 Dundee Road
Suite 105
Northbrook, IL 60062
Legion Fund, Ltd. 120,000 9,000 129,000 129,000 --
c/o Porter Capital Management Co.
100 Shoreline Highway, Suite 211B
Mill Valley, CA 94941
Banque Franck, S.A. 400,000 30,000 430,000 430,000 --
1, Rue Toepffer
1206 - Geneva
Switzerland
Total 3,440,000 258,000 3,698,000 3,698,000 --
</TABLE>
- -------------
(1) All Shares are beneficially owned and the sole voting and investment power
is held by the persons named.
The Company has agreed to indemnify the Selling Shareholders and the
Selling Shareholders have agreed to indemnify the Company against certain civil
liabilities, including liabilities under the Securities Act.
None of the Selling Shareholders has had any position, office or other
material relationship with the Company or any of its affiliates within the past
three years.
37
<PAGE>
CERTAIN TRANSACTIONS
The Company's predecessor, Environmental Remediation Funding
Corporation ("ERFC"), was incorporated under the laws of the State of Delaware
in September 1995. In August 1996, the stockholders of ERFC exchanged all of
their shares of ERFC for 2,433,950 authorized and unissued shares of common
stock, representing 87.2% of such then outstanding shares, of Regional Air Group
Corporation ("RAIR"), a Colorado corporation. RAIR was a publicly-owned
corporation which had ceased operations and as a result had only nominal assets
and liabilities. ERFC was then merged into RAIR. Following the acquisition of
control, the stockholders of RAIR approved the change in the Company's name to
Environmental Remediation Holding Corporation.
In April 1997, the Company acquired all of the outstanding capital
stock of BAPCO, a privately-held company controlled by Sam L. Bass, Jr., who
was then the Company's Chairman of the Board, President and Chief Executive
Officer. Through this acquisition, the Company acquired, among other assets,
ownership of all rights to the BAPCO Tool and assignment of the Chevron master
service agreement. The Company issued 4,000,000 shares of Common Stock to Mr.
Bass in exchange for the outstanding capital stock of BAPCO. In addition, the
Company issued 3,000,000 shares of Common Stock to BEW, a company controlled by
Mr. Bass, in connection with the assignment of the Chevron master service
agreement. See "Business - Environmental Remediation Services."
From time to time, Noreen G. Wilson and James A. Griffin, both
executive officers and directors of the Company, have advanced funds to the
Company in the total amount of $760,500 through December 1997, pursuant to 8.5%
demand promissory notes, of which $295,300 was repaid during the fiscal year
ended September 30, 1997, and $465,200 remains outstanding. Such notes are
convertible into Common Stock at a conversion rate per share equal to the fair
market value of a share of Common Stock at the time of the advance.
38
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
The authorized capital stock of the Company consists of 950,000,000
shares of Common Stock, par value $.0001 per share ("Common Shares"), of which
23,458,125 shares were outstanding on December 31, 1997, and 10,000,000 shares
of Preferred Stock, par value $.001 per share ("Preferred Shares"), issuable in
series, none of which are outstanding.
Common Shares
Holders of the Common Shares are entitled to one vote for each share
held of record by them. The Common Shares have no redemption, preemptive or
sinking fund rights. Holders of the Common Shares are entitled to dividends as
and when declared by the Board of Directors from funds legally available
therefor and, upon liquidation, dissolution or winding-up of the Company, to
participate ratably in all assets remaining after payment of all liabilities.
The Common Shares are not redeemable and do not have any conversion rights or
preemptive rights. All Common Shares issued and outstanding are, and those
offered hereby when issued will be fully paid and non-assessable. See "Dividend
Policy."
Preferred Shares
The Company's Certificate of Incorporation provides that the Board of
Directors of the Company has the authority, without further action by the
holders of the outstanding Common Shares, to issue up to 10,000,000 Preferred
Shares from time to time in one or more classes or series, to fix the number of
shares constituting any class or series and the stated value thereof, if
different from the par value, and to fix the terms of any such series or class,
including dividend rights, dividend rates, conversion or exchange rights, voting
rights, rights and terms of redemption (including sinking fund provisions), the
redemption price and the liquidation preference of such class or series. The
Company does not have any Preferred Shares outstanding and has no present
intention to issue any Preferred Shares.
Reports
The Company intends to furnish to its shareholders annual reports
containing audited financial statements and make available quarterly reports for
the first three quarters of each fiscal year containing unaudited interim
financial information. In addition, the Company is required to file periodic
reports on Forms 8-K, 10-Q and 10-K with the U.S. Securities and Exchange
Commission and make such reports available to its shareholders.
Limitation of Directors' Liability; Indemnification
The Company's Certificate of Incorporation limits the liability to the
Company of individual directors for certain breaches of their fiduciary duty to
the Company. The effect of this provision is to eliminate the liability of
directors for monetary damages arising out of their failure, through negligent
or grossly negligent conduct, to satisfy their duty of care, which requires them
to exercise informed business judgment. The liability of directors under the
federal securities laws is not affected. A director may be liable for monetary
damages only if a claimant can show a breach of an individual director's duty of
loyalty to the Company, a failure to act in good faith, intentional misconduct,
a knowing violation of the law, an improper personal benefit or an illegal
dividend or stock purchase.
The Company's Certificate of Incorporation also provides that each
director or officer of the Company serving as director or officer shall be
indemnified and held harmless by the Company to the fullest extent authorized by
law, against all expense, liability and loss (including attorneys fees,
judgments, fines, Employee Retirement Income Security Act, excise taxes or
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection therewith.
Listing on OTC Bulletin Board
The Common Shares are listed on the OTC Bulletin Board under the symbol
"ERHC."
Transfer Agent
The transfer agent for the Common Shares is Corporate Stock Transfer,
Inc. of Denver, Colorado.
39
<PAGE>
PLAN OF DISTRIBUTION
The sale or distribution of the Shares may be effected directly to
purchasers by the Selling Shareholders as principals or through one or more
underwriters, brokers, dealers or agents from time to time in one or more
transactions (which may involve crosses or block transactions) (i) in the
over-the-counter market, (ii) in transactions otherwise than in the
over-the-counter market or (iii) through the writing of options (whether such
options are listed on an options exchange or otherwise) on, or settlement of
short sales of, the Shares. Any of such transactions may be effected at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices, at varying prices determined at the time of sale or at negotiated
or fixed prices, in each case as determined by the Selling Shareholders or by
agreement between one or more Selling Shareholders and underwriters, brokers,
dealers or agents, or purchasers. If the Selling Shareholders effect such
transactions by selling Shares to or through underwriters, brokers, dealers or
agents, such underwriters, brokers, dealers or agents may receive compensation
in the form of discounts, concessions or commissions from the Selling
Shareholders or commissions from purchasers of Shares for whom they may act as
agent (which discounts, concessions or commissions as to particular
underwriters, brokers, dealers or agents may be in excess of those customary in
the types of transactions involved). The Selling Shareholders and any brokers,
dealers or agents that participate in the distribution of the Shares may be
deemed to be underwriters, and any profit on the sale of Shares by them and any
discounts, concessions or commissions received by any such underwriters,
brokers, dealers or agents may be deemed to be underwriting discounts and
commissions under the Securities Act.
Under the securities laws of certain states, the Shares may be sold in
such states only through registered or licensed brokers or dealers. In addition,
in certain states the Shares may not be sold unless the Shares have been
registered or qualified for sale in such state or an exemption from registration
or qualification is available and is complied with.
The Company will pay all of the expenses, estimated to be approximately
$85,000, incident to the registration, offering and sale of the Shares to the
public hereunder other than commissions, fees and discounts of underwriters,
brokers, dealers and agents. The Company has agreed to indemnify the Selling
Shareholders and any underwriters against certain liabilities, including
liabilities under the Securities Act. The Company will not receive any of the
proceeds from the sale of any of the Shares by the Selling Shareholders.
Each Selling Shareholder will, if applicable, comply with Regulation M
promulgated under the Securities Exchange Act of 1934, as amended, in connection
with any distribution by such Selling Shareholder of the Shares offered hereby.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
the Company by Greenberg Traurig Hoffman Lipoff Rosen & Quentel, New York, New
York.
EXPERTS
The Consolidated Financial Statements of the Company included in this
Prospectus and elsewhere in the Registration Statement, to the extent and for
the period indicated in their report, have been audited by Durland & Company,
independent public accountants, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and in accordance therewith, files
reports and other information with the Securities and Exchange Commission (the
"SEC"). Such reports and other information can be inspected and copied at the
public reference facilities maintained by the SEC at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. and at the following regional offices of the SEC:
New York Regional Office, 7 World Trade Center, Suite 1300, New York, New York
10048; and Chicago Regional Office, 500 West Madison Street, 14th Floor,
Chicago, Illinois 60661-2511. Copies of such material can also be obtained from
the public reference section of the SEC at 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. The SEC maintains a Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the SEC,
including the Company.
This Prospectus does not contain all of the information set forth in
the Registration Statement on Form S-1, of which this Prospectus forms a part,
and the exhibits thereto which the Company has filed with the SEC under the
Securities Act, to which reference is hereby made for further information
concerning the Company and the shares of Common Stock.
40
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants........................................ F-2
Consolidated Balance Sheets as of September 30, 1995, 1996
and 1997............................................................. F-3
Consolidated Statements of Operations for the years ended September 30,
1995, 1996 and 1997.................................................. F-4
Consolidated Statements of Stockholders' Equity for the years ended
September 30, 1995, 1996 and 1997.................................... F-5
Consolidated Statements of Cash Flows for the years ended September 30,
1995, 1996 and 1997.................................................. F-6
Notes to Consolidated Financial Statements............................... F-7
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
TO: The Board of Directors and Stockholders
Environmental Remediation Holding Corp.
Jericho, New York
We have audited the accompanying balance sheets of Environmental Remediation
Holding Corp.,(the "Company") as of September 30, 1995, 1996 and 1997 and the
related statements of operations, stockholders' equity and cash flows for the
period since inception and the two years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of September 30,
1995, 1996 and 1997 and the results of its operations and its cash flows for the
period since inception and two years then ended in conformity with generally
accepted accounting principles.
Durland & Company, CPAs, P.A.
Palm Beach, Florida
December 12, 1997
F-2
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30,
---------------------------------------------
1995 1996 1997
-------- ---------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 0 $ 0 $ 327,743
Prepaid expenses and other current assets 0 0 215,708
Total Current Assets 0 0 543,451
PROPERTY AND EQUIPMENT
Equipment (note 1b) 0 3,348,000 5,226,000
Total Property and Equipment 0 3,348,000 5,226,000
OTHER ASSETS
Deposits on fixed assets 0 5,000 136,560
Crude oil reserves, net (note 1f) 0 0 12,500,000
Chevron P&A master service agreement (note 1h) 0 0 3,000,000
Deferred compensation, net (note 1d) 500,000 427,500 250,000
Total Other Assets 0 432,500 15,886,560
-------- ---------- -----------
Total Assets $500,000 $3,780,500 $21,656,011
======== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accrued expenses and other current payable $ 3,316 $ 0 $ 111,054
Stockholder loans (note 1c) 0 6,730 465,094
Accrued interest (note 1c) 0 0 37,228
Accrued salaries (note 4) 0 0 960,000
Short term bank loan (note 1c) 0 0 175,000
Total Current Liabilities 3,316 6,730 1,748,376
LONG-TERM LIABILITIES
Long-term debt 0 0 0
Total Long-Term Liabilities 0 0 0
Total Liabilities 3,316 6,730 1,748,376
STOCKHOLDERS' EQUITY
Common Stock, $0.0001 par value; authorized
950,000,000 shares: issued and outstanding
1,639,450 at September 30, 1995; 3,239,374 at
September 30, 1996 and 22,989,526 at September
30, 1997 (note 3) 164 324 2,299
Preferred Stock, $0.001 par value; authorized
10,000,000 shares; issued and outstanding 0 at
September 30, 1995, 1996 and 1997. 0 0 0
Additional paid-in capital in excess of par 499,924 4,629,598 38,686,840
Stock subscriptions receivable 0 0 (913,300)
Retained earnings (deficit) (3,404) (856,152) (17,868,204)
-------- ---------- -----------
Total Stockholders' Equity $496,684 $3,773,770 $19,907,635
======== ========== ===========
Total Liabilities and Stockholders' Equity $500,000 $3,780,500 $21,656,011
======== ========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-3
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Consolidated Statements of Operations
For the period since inception ended September 30, 1995, and the
years ended September 30, 1996 and 1997
<TABLE>
<CAPTION>
1995 1996 1997
-------- ---------- -------------
<S> <C> <C> <C>
REVENUE
Sales - environmental remediation services $ 0 $ 0 $ 108,944
Sales - crude oil 0 0 0
Total sales 0 0 108,944
COST OF SALES
Cost of sales - environmental remediation services 0 0 53,991
Cost of sales - crude oil 0 0 0
Total cost of sales 0 0 53,991
Gross profit/(loss) 0 0 54,953
OPERATING EXPENSES
Automotive expenses 0 7,257 55,864
Bank charges 0 184 421
Compensation - officers 0 147,326 1,185,000
Compensation - directors 0 0 3,492,981
Consultant fees 0 337,956 8,883,356
Depletion 0 0 0
Depreciation 0 372,000 372,000
Donations 0 0 10,500
Dues, fees, licenses and taxes 0 0 9,552
Insurance 0 0 204,099
Geological data and reports (note 1i) 0 0 2,008,848
Oil lease transfer fees 0 0 55,000
Office expenses 0 1,072 97,226
Oil well rework expenses 0 0 53,355
Professional fees 3,404 19,500 244,230
Research and development 0 0 17,000
Rent 0 8,550 45,950
Telephone 0 0 48,528
Travel and entertainment 0 19,380 235,856
Miscellaneous 0 0 13,783
Total operating expenses 3,404 913,225 17,033,549
Income(loss) from operations (3,404) (913,225) (16,978,596)
Interest expense 0 0 (40,787)
Interest income 0 0 601
Income(loss) before tax & extraordinary item (3,404) (913,225) (17,018,782)
Extraordinary item - forgiveness of debt 0 60,477 6,730
Income(loss) before taxes (3,404) (852,748) (17,012,052)
Income tax expense/(benefit) 0 0 0
Net income(loss) $ (3,404) $ (852,748) $ (17,012,052)
======== ========== =============
Weighted average number of shares outstanding 398,643 2,469,511 10,500,293
======== ========== =============
Net loss per share $ (0.01) $ (0.35) $ (1.62)
======== ========== =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Consolidated Statements of Stockholders' Equity
September 30, 1995, 1996 and 1997
<TABLE>
<CAPTION>
Number Common Preferred Stk Subs Accumulated TTL S/H
of Shares Stock Stock APIC Receivable Deficit Equity
---------- ------ --------- ----------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BEGIN BALANCE, 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
September 5, 1995
9/23 - cash 884,407 88 0 0 0 0 88
9/25 - services 755,043 76 0 499,924 0 0 500,000
Net loss -- 0 0 0 0 (3,404) (3,404)
BALANCE,
September 30, 1995 1,639,450 164 0 499,924 0 (3,404) 496,684
10/1 - equipment 744,000 74 0 3,719,926 0 0 3,720,000
10/10 - cash 20,000 2 0 49,998 0 0 50,000
8/9 - cash 20,500 2 0 42,890 0 0 42,892
8/19 - reverse merger 356,317 36 0 (243,366) 0 0 (243,330)
8/19 - S-8 services 73,277 7 0 73,270 0 0 73,277
8/30 - services 10,000 1 0 69,999 0 0 70,000
9/15 - services 55,000 6 0 384,994 0 0 385,000
9/15 - cash 320,830 32 0 31,963 0 0 31,995
Net loss -- 0 0 0 0 (852,748) (852,748)
BALANCE,
September 30, 1996 3,239,374 324 0 4,629,598 0 (856,152) 3,773,770
2/10 - S-8 services 1,600,000 160 0 1,099,840 0 0 1,100,000
3/4 - oil wells/leases 300,000 30 0 4,999,970 0 0 5,000,000
3/5 - oil wells/leases 200,000 20 0 7,499,980 0 0 7,500,000
3/13 - S-8 services 300,000 30 0 374,970 0 0 375,000
4/5 - Chevron contract 3,000,000 300 0 2,999,700 0 0 3,000,000
4/5 - services 1,342,981 134 0 1,342,847 0 0 1,342,981
4/5 - contributed to corp (100,000) (10) 0 (99,990) 0 0 (100,000)
4/9 - BAPCO acquisition 4,000,000 400 0 2,249,600 0 0 2,250,000
5/14 - S-8 services 1,500,000 150 0 562,350 0 0 562,500
6/19 - services 150,000 15 0 28,110 0 0 28,125
7/8 - cash 800,000 80 0 399,920 0 0 400,000
7/15 - DRSTP information 1,000,000 100 0 1,999,900 0 0 2,000,000
7/25 - S-8 services 2,335,000 233 0 6,464,798 0 0 6,465,031
7/30 - services 1,500,000 150 0 2,249,850 0 0 2,250,000
7/30 - cash 147,000 15 0 146,985 0 0 147,000
8/8 - cash 74,000 8 0 147,992 0 0 148,000
9/4 - services 400,000 40 0 307,960 0 0 308,000
9/10 - cash stk subs recv 727,273 73 0 799,927 (800,000) 0 0
9/15 - cash & stk subs recv 473,898 47 0 482,533 (113,300) 0 369,280
Net loss -- 0 0 0 0 (17,012,052) (17,012,052)
BALANCE,
September 30, 1997 22,989,526 $2,299 $ 0 $38,686,840 $(913,300) $(17,868,204) $19,907,635
========== ====== ====== =========== ========= ============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Consolidated Statements of Cash Flows
For the period since inception ended September 30, 1995, and the
years ended September 30, 1996 and 1997
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income(loss) $(3,404) $ (852,748) $(17,012,052)
Adjustments to reconcile net loss to net cash used for
operating activities:
Amortization of deferred compensation 0 142,500 125,000
Non-cash gain on forgiveness of debt 0 (60,477) (6,730)
Stock issued for services rendered 0 315,000 12,345,329
Stock issued for DRSTP geological data 0 0 2,000,000
Depreciation 0 372,000 372,000
Changes in operating assets and liabilities:
(Increase) decrease in prepaid expenses 0 0 (215,708)
Increase (decrease) in accrued interest expense 0 0 37,228
Increase (decrease) in accrued expenses 3,316 0 111,054
Increase (decrease) in accrued salaries 0 0 960,000
Net cash (used) provided by operating activities (88) (83,725) (1,283,879)
CASH FLOWS FROM INVESTING ACTIVITIES:
Deposits 0 (5,000) (131,560)
Net cash (used) provided by investing activities 0 (5,000) (131,560)
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock sold for cash 88 81,995 1,102,988
Payments on stockholder advances 0 (16,000) (295,287)
Funds advanced by third-parties 0 0 175,000
Funds advanced by stockholders 0 22,730 760,481
Net cash (used) provided by financing activities 88 88,725 1,743,182
Net increase (decrease) in cash 0 0 327,743
CASH, beginning of period 0 0 0
CASH, end of period $ 0 $ 0 $ 327,743
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid in cash $ 0 $ 0 $ 3,559
Non-cash financing activities:
Stock issued to acquire environmental remediation equipment $ 0 $3,720,000 $ 0
Stock issued to acquire crude oil reserves and wells 0 0 12,500,000
Stock issued to acquire Chevron master P&A service agmt 0 0 3,000,000
Stock issued to acquire BAPCO 0 0 2,250,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Notes to Consolidated Financial Statements
September 30, 1995, 1996 and 1997
(1) Summary of Significant Accounting Policies:
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 ERHC. RAGC liquidated its assets and liabilities
shortly thereafter and remained dormant until its reverse merger
with Environmental Remediation Funding Corporation on August 19,
1996. 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.
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:
(a) Basis of presentation - 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 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, but for certain environmental
remediation licenses 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. The Company has begun using BAPCO as the operator of
the various oil and natural gas leases it has acquired.
The consolidated financial statements include the accounts of SSI
and BAPCO, its wholly-owned subsidiaries. Intercompany accounts
and transactions have been eliminated in consolidation.
F-7
<PAGE>
(b) Equipment - Environmental remediation equipment was purchased by
ERFC in exchange for common stock. The fair market value of the
equipment was determined through the use of an independent third
party equipment appraiser. The then determined fair market value
was lower than the previous owners' incurred. Depreciation
expense for the period since inception ended September 30, 1995
was $0 and for cost basis, and the fair market value of the ERFC
stock exchanged was undeterminable, therefore the Company chose
to value the equipment received using the appraiser's valuation,
or $3,720,000. The Company has chosen to depreciate the equipment
using the straight line method over its estimated remaining
useful life of ten years. Expenditures for maintenance and
repairs are charged to operations as incurred. Depreciation
expense for the period since inception ended September 30, 1995
was $0 and for the years ended September 30, 1996 and 1997 were
$372,000 and $372,000.
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. The
control of this tool also enabled the acquisition of the 200
Texas oil wells to be economically feasible to a greater extent.
The fair market value of the equipment was determined through the
use of an independent third party equipment appraiser. The
Company chose to value the equipment received using the
appraiser's valuation, or $2,250,000, because at the time the
acquisition was negotiated the Company's common stock was highly
volatile in price and extremely thinly traded which led the
Company to determine that the equipment was the easier to value
under APB 16. The Company expects to depreciate this tool and
technology over five years, beginning in the first quarter of
fiscal 1998.
(c) Notes payable - The Company issued two notes payable to
stockholders who are also officers and directors in exchange for
cash amounting to $233,398 and $526,883. These notes carry no
stated maturity date and an 8.5% rate of interest. The Company
has repaid $236,787 and $58,500 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, $0 and $21,273
for the period since inception ended September 30, 1995 and for
the years ended September 30, 1996 and 1997.
In January 1997, the Company issued a note payable to a bank in
exchange for cash. This note carried a maturity date of March 15,
1997 and a 9.6875% interest rate. The Company was in default on
this note. The default interest rate was 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 has
reached an agreement with the bank regarding repayment terms.
Accrued interest on this note is $0, $0 and $15,955 for the
period since inception ended September 30, 1995 and for the years
ended September 30, 1996 and 1997.
F-8
<PAGE>
(d) 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 four months.
Accordingly, the Company amortized this expense over the term of
the agreement.
(e) Net loss per share - Net loss per share is computed by dividing
the net loss by the number of shares outstanding during the
period.
(f) Crude oil reserves - At September 30, 1996, the Company had no
oil and gas reserves. In March 1997, the Company acquired an
undivided 3/8 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 received an independent
evaluation of this field which reflected 1,000,000 barrels of
proven oil reserves. In March 1997, the Company acquired an
undivided 3/8 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
received an independent evaluation of this field which reflected
1,500,000 barrels of proven oil reserves. The Company has valued
the proven reserves at current market value, less lifting costs,
less projected well rework costs, less projected equipment
repair/replacement costs, less estimated dismantlement,
restoration and abandonment costs and less a discount of
approximately 50% to allow for potential errors in the estimated
costs and reserve reports and fluctuations in the market value of
crude oil. The Company chose to value these acquisitions on the
basis of the asset value received rather than the value of the
common stock given up as at the time of the acquisition the stock
price was highly volatile and thinly traded.
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 and for
several years prior to acquisition. The Company spent $53,000 for
the year ended September 30, 1997 on well equipment repairs and
well rework, all on the Gunsite lease. 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.
The Company expects to utilize the "successful efforts" method of
accounting for its oil and gas producing activities once it has
reached the producing stage. The Company expects to regularly
assess proved oil and gas reserves for possible impairment on an
aggregate basis in accordance with SFAS No. 121.
(g) Depletion - Depletion (including provisions for future
abandonment and restoration costs) of all capitalized costs of
proved oil and gas producing properties are expected to be
expensed using the unit-of-production method by individual fields
as the proven developed reserves are produced.
F-9
<PAGE>
(h) Chevron master P&A 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. The
Company valued this acquisition on the basis of the Company's bid
price on the date the agreement was signed, or $1 per share. The
Company expects to begin commercializing the agreement in fiscal
1998, therefore it will begin amortizing this contract value over
a five-year period beginning in fiscal 1998.
(i) 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) Income taxes:
The Company has consolidated net operating loss carry-forwards
amounting to $17,868,204, expiring as follows: $3,404 in 2010,
$852,748 in 2011 and $17,012,052 in 2012. The Company has a
$7,147,282 deferred tax asset resulting from the loss
carry-forwards, for which it has established a 100% valuation
allowance. Until the Company's current operations begin to
produce earnings, it is unclear as to the ability of the Company
to utilize these carry-forwards.
(3) Stockholders' equity:
The Company has authorized 950,000,000 shares of $0.0001 par
value common stock and 10,000,000 shares of $0.001 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 $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 by an independent
appraiser 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 successor 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.
F-10
<PAGE>
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 valued at $5,000,000 in exchange for 300,000
shares of the Company's common stock. In March 1997, the Company
acquired a 100 oil well lease with one and one-half million
barrels of proven oil reserves valued at $7,500,000 in exchange
for 200,000 shares of the Company's common stock. 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 $3,000,000. 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 BAPCO, valued by an
independent appraiser at $2,250,000. 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 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 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. 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.
F-11
<PAGE>
(4) Accrued salaries:
At September 30, 1995, 1996 and 1997 the Company has accrued
salaries of $0, $0 and $960,000, 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.
(5) Commitments and contingencies:
The Company is committed to lease payments for 9 vehicles under
operating leases totaling $52,292 and $20,043 for the years ended
September 30, 1998 and 1999, respectively. The Company paid $0,
$0 and $52,500 in vehicle lease expense for the period since
inception ended September 30, 1995 and for the years ended
September 30, 1996 and 1997, respectively. The Company currently
leases its office space and operating facilities on a month to
month basis. The Company paid $0, $8,550 and $45,950 in facility
rent for the period since inception ended September 30, 1995 and
for the years ended September 30, 1996 and 1997.
(6) Segment information:
The Company has three distinct lines of business through its two
wholly-owned subsidiaries, SSI and 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 $2,976,000 (net),
of environmental equipment, a barge deposit of $131,000 and the
Chevron P&A master service agreement valued at $3,000,000 (net).
All of the Company's 1997 revenues of $109,000 and cost of sales
of $54,000 relate to SSI. BAPCO's principal identifiable assets
consist of crude oil reserves valued at $12,500,000 and equipment
valued at $2,250,000. The Company also expects to operate in the
supply industry through a joint venture agreement to supply fuel
and other goods to ships transiting the Panama Canal. No
principal identifiable assets yet exist for this line of
business.
(7) Subsequent events:
(a) Stockholder's equity - 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.
(b) Convertible notes - 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 common stock at a
conversion price to be determined by a 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 $2.83 per warrant, or total
proceeds to the Company of $730,140 in the event all of the
warrants are exercised. The notes are secured by the Company's
non-MIII oil reserves in Utah.
F-12
<PAGE>
(c) 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 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 form the proceeds of the
convertible note offering.
(d) Utah oil wells and reserves - 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 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.
(e)Olmos Nueces River Prospect oil and natural gas lease - 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 ten years ago. This agreement
requires the Company to pay the seller $150,000 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 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.
(f) Firm commitment letter of intent - In December 1997, the Company
received a firm commitment letter of intent from a registered
brokerage house which contemplates a public offering of
approximately $50,000,000 of the Company's debt securities. This
offering, if it proceeds, is contemplated for early 1998.
(g) Test 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.
(h) Stock repurchase - 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.
F-13
<PAGE>
================================================================================
No dealer, salesperson or any other person has been authorized to give any
information or to make any representation other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or any Underwriter.
Neither the delivery of this Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information contained
herein is correct as of any date subsequent to the date hereof. This Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy any
securities offered hereby by anyone in any jurisdiction in which such offer or
solicitation is not authorized or in which the person making such offer or
solicitation is not qualified to do so or to any person to whom it is unlawful
to make such offer or solicitation.
------------------
TABLE OF CONTENTS
Page
Prospectus Summary .......................................
Risk Factors..............................................
The Company...............................................
Use of Proceeds...........................................
Dilution..................................................
Price Range for Common Stock..............................
Dividend Policy...........................................
Selected Financial Data...................................
Management's Discussion and Analysis of Financial
Condition and Results of Operations...................
Business..................................................
Management................................................
Principal Shareholders ...................................
Selling Shareholders......................................
Certain Transactions......................................
Description of Capital Stock..............................
Plan of Distribution......................................
Legal Matters.............................................
Experts...................................................
Available Information.....................................
Index to Consolidated Financial Statements................ F-1
------------------
<PAGE>
================================================================================
Environmental
Remediation Holding
Corporation
------------------
Prospectus
------------------
, 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth all costs and expenses payable by the
Registrant in connection with the sale and distribution of the securities being
registered, other than underwriting discounts and commissions. All amounts shown
are estimates except the Securities and Exchange Commission registration fee and
the NASD filing fee.
Securities and Exchange Commission registration fee................ $ 2,320.20
Accounting fees and expenses....................................... *
Legal fees and expenses............................................ *
Printing and engraving expenses.................................... *
Transfer agent and registrar fees.................................. *
Blue Sky fees and expenses......................................... *
Miscellaneous expenses............................................. *
-----------
Total $ 85,000.00
===========
- --------------------
* To be completed by amendment.
Item 14. Indemnification of Directors and Officers
Sections 7-109-103 and 7-109-109 of the Colorado Business Corporation
Act (the "CBCA") provides generally and in pertinent part that a Colorado
corporation may indemnify its directors and officers against expenses,
judgments, fines and settlements actually and reasonably incurred by them in
connection with any civil suit or action by or in the right of the corporation,
or any administrative or investigative proceeding if, in connection with the
matters in issue, they acted in good faith and in a manner they reasonably
believed to be in, or not opposed to, the best interests of the corporation, and
in connection with any criminal suit or proceeding, if in connection with the
matters in issue, they had no reasonably cause to believe their conduct was
unlawful. Sections 7-109-103 and 7-109-107 further provide that in connection
with the defense or settlement of any action by or in the right of the
corporation, a Colorado corporation may indemnify its directors and officers
against expenses actually and reasonably believed to be in, or not opposed to,
the best interests of the corporation. Sections 7-109-103 and 7-109-107 permit a
Colorado corporation to grant its directors and officers additional rights of
indemnification through by-law provisions and otherwise to the extent such
provisions do not conflict with the CBCA and to purchase indemnity insurance on
behalf of its directors and officers.
Item 15. Recent Sales of Unregistered Securities.
(a) The Company made the following unregistered sales of its securities from
September 30, 1994 through December 31, 1997:
<TABLE>
<CAPTION>
DATE
OF TITLE OF
SALE SECURITIES AMOUNT CONSIDERATION PURCHASER
- ---- ---------- ------ ------------- ---------
<S> <C> <C> <C> <C>
8/96 Common Stock 2,433,950 Acquisition of 100% of Environmental Remediation
issued and outstanding Funding Corp.
shares of ERFC
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
DATE
OF TITLE OF
SALE SECURITIES AMOUNT CONSIDERATION PURCHASER
- ---- ---------- ------ ------------- ---------
<S> <C> <C> <C> <C>
8/96 Common Stock 10,000 Legal services for a Ken Krauseman
period of four months
9/96 Common Stock 320,830 $31,995 Purchaser
3/97 Common Stock 300,000 100 oil well lease in Mytec & Associates
Texas - valued at
$5,000,000
3/97 Common Stock 200,000 100 oil well lease in Mytec & Associates
Texas - valued at
$7,500,000
4/97 Common Stock 3,000,000 Assignment of Chevron Bass Environmental
Master Service Agreement Services Worldwide, Inc.
- valued at $3,000,000
4/97 Common Stock 1,342,981 In consideration for 1. Senator James
service on the Company's Day's Trust - 500,000
Board of Directors 2. James A. Griffin - 500,000
3. Marvin Gibbons - 342,981
4/97 Common Stock 4,000,000 In exchange for 100% of Sam L. Bass, Jr. as Sole
issued and outstanding Shareholder of Bass
shares of Bass American American Petroleum Co.
Petroleum Co. (BAPCO) - (BAPCO)
valued at $2,250,000
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
DATE
OF TITLE OF
SALE SECURITIES AMOUNT CONSIDERATION PURCHASER
- ---- ---------- ------ ------------- ---------
<S> <C> <C> <C> <C>
6/97 Common Stock 150,000 Consulting Services - 1. Robert McKnight - 75,000
valued at $28,125 2. Herman Shellstead - 75,000
7/97 Common Stock 800,000 $400,000 Central Florida
Investments
7/97 Common Stock 1,000,000 Geologic data and other Christian Hellinger
information - valued at
$2,000,000
7/97 Common Stock 1,500,000 In consideration for 1. James R. Callender, Sr.
service on the Company's 2. Noreen G. Wilson
Board of Directors 3. William Beaton
(500,000 each)
7/97 Common Stock 147,000 $147,000 Purchasers in Rule 506
private placement (17
purchasers)
8/97 Common Stock 74,000 $148,000 Purchasers in Rule 506
private placement (15
purchasers )
9/97 Common Stock 400,000 Consulting Services - Senator Vance Hartke
valued at $308,000
9/97 Common Stock 370,898 $407,988 Purchasers in Rule 506
private placement (23
purchasers)
10/97 Common Stock 803,273 $913,000 Purchasers in Rule 506
private placement (14 purchasers)
10/97 Common Stock 500,000 Oil reserves 1. Uinta Oil & Gas, Inc.
and ops - value 2. Pine Valley Exploration, Inc.
undetermined 3. Coconino, S.M.A., Inc.
4. Joseph H. Lorenzo
10/97 Common Stock 105,099 $115,609.15 6 Purchasers
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
DATE
OF TITLE OF
SALE SECURITIES AMOUNT CONSIDERATION PURCHASER
- ---- ---------- ------ ------------- ---------
<S> <C> <C> <C> <C>
10/97 5.5% Convertible $4,450,000 $4,450,000 Accredited institutional
Senior principal investors (10 institutions)
Subordinated amount;
Notes convertible into
up to 3,560,000
shares of Common
Stock
10/97 Warrants to Exercisable into No additional Accredited institutional
Purchase Common 258,000 shares consideration investors (10 institutions)
Stock of Common Stock
11/97 Common Shares 63,500 $67,750 8 Purchasers
12/97 Common Shares 50,000 Gas reserves and Hinge Line, Inc.
one oil well - value
undetermined
</TABLE>
(b),(c) The above transactions were private transactions not involving
a public offering and were exempt from the registration provisions of the
Securities Act of 1933, as amended, pursuant to Section 4(2) thereof. The sale
of securities was without the use of an underwriter, and the certificates
evidencing the shares bear the restrictive legend permitting the transfer
thereof only upon registration of the shares or an exemption under the
Securities Act of 1933, as amended.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits.
Exhibit No. Description
- ----------- -----------
3.1 Articles of Incorporation of the Company, as amended.
3.2 By-Laws of the Company, as amended.
4.1 Specimen Common Stock Certificate.
5.1 Opinion of Greenberg Traurig Hoffman Lipoff Rosen & Quentel.
10.1 Master Service Order and Agreement, dated October 1, 1996,
between the Company and Chevron U.S.A. Inc.(1)
10.2 Joint Venture Agreement, dated December 12, 1996, between the
Company and Centrum Marine Services, S.A. (1)
10.3 Joint Venture Agreement, dated July 28, 1997, between the
Company and MIII Corporation. (1)
10.4 Memorandum of Agreement, dated September 30, 1997, between the
Company, the Government of the Democratic Republic of Sao Tome
& Principe, and Procura Financial Consultants, c.c. (1)
II-4
<PAGE>
10.5 Form of Securities Purchase Agreement, dated as of October 15,
1997, between the Company and each of the Purchasers listed
therein, together with forms of the 5.5% Convertible Senior
Subordinated Secured Note and Warrant to Purchase Common
Stock.
10.6 Form of Registration Rights Agreement, dated as of October 15,
1997, between the Company and each of the Purchasers listed
therein.
21.1 Subsidiaries of the Company.
23.1 Consent of Durland & Company, independent public accountants.
23.2 Consent of Greenberg Traurig Hoffman Lipoff Rosen & Quentel
(included in the opinion filed as Exhibit 5.1).
24.1 Power of Attorney (set forth on signature page of the
Registration Statement).
27.1 Financial Data Schedule.
- ------------------------------------
(1) Incorporated herein by reference from the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1997, filed on December 29,
1997.
(b) Financial Statement Schedules.
None.
Item 17. Undertakings.
1. The undersigned Registrant hereby undertakes:
(a) to file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
Registration Statement; and
(iii) to include any material information with respect to
the plan of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration Statement;
provided, however, that paragraphs (a)(i) and (a)(ii) do not
apply if the registration statement is on Form S-3 or Form S-8 and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement;
(b) that, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof; and
II-5
<PAGE>
(c) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
2. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
3. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act of 1933 and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Lafayette, State of Louisiana, on the 7th day of January 1998.
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
By: /s/ Sam L. Bass, Jr.
------------------------------------------
Sam L. Bass, Jr.
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Sam L. Bass, Jr., Noreen G. Wilson
and James A. Griffin, or either of them, as his attorney-in-fact, each with full
power of substitution for him in any and all capacities, to sign any and all
amendments to this Registration Statement, including post-effective amendments
and any and all new registration statements filed pursuant to Rule 462 under the
Securities Act of 1933 in connection with or related to the offering
contemplated by this Registration Statement, as amended, and to file the same,
with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each said attorney-in-fact or his substitute may do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Sam L. Bass, Jr. Chairman of the Board, January 7, 1998
- --------------------------- President and Chief Executive
Sam L. Bass, Jr. Officer (principal executive
officer)
/s/ Noreen G. Wilson Chief Financial Officer, January 7, 1998
- --------------------------- Vice President and
Noreen G. Wilson Director (principal financial
or accounting officer)
/s/ James A. Griffin
- --------------------------- Secretary, Treasurer and January 7, 1998
James A. Griffin Director
/s/ James R. Callender, Sr. Chief Operating Officer,
- --------------------------- Vice President and Director January 7, 1998
James R. Callender, Sr.
Director
- ---------------------------
William Beaton
II-7
<PAGE>
EXHIBIT 3.1
ARTICLES OF INCORPORATION
VALLEY VIEW VENTURES, INC.
The undersigned, Fay M. Matsukage, 1433 Seventeenth Street, Suite 300,
Denver, Colorado 80202, acting as incorporator of a corporation under the
Colorado Corporation Code, hereby adopts the following Articles of Incorporation
for such corporation:
ARTICLE I
NAME
The name of the corporation is:
Valley View Ventures, Inc.
ARTICLE II
DURATION
The corporation shall commence upon the issuance by the Colorado
Secretary of State of a certificate of incorporation and thereafter shall have
perpetual existence.
ARTICLE III
PURPOSE
The purpose for which the corporation is organized shall be to transact
all lawful business for which corporations may be organized pursuant to the
Colorado Corporation Code.
ARTICLE IV
CAPITAL STOCK
Section 1. Classes and Shares Authorized. The authorized capital stock
of the corporation shall be 500,000,000 shares of Common Stock, $.0001 par
value, and 50,000,000 shares of Preferred Stock, $1.00 par value.
Section 2. Preferred Stock. Shares of Preferred Stock may be divided
into such series as may be established, from time to time, by the Board of
Directors. The Board of Directors, from time to time, may fix and determine the
relative rights and preferences of the shares of any series so established.
Section 3. Common Stock
(a) After the requirements with respect to preferential dividends on
the Preferred Stock, if any, shall have been met, and after the corporation
shall have complied with all the requirements, if any, with respect to the
setting aside of sums as sinking funds or redemption or purchase accounts, and
subject further to any other conditions which may be fixed in accordance with
the provisions of Section 2 of this Article IV, then, and not otherwise, the
holders of Common Stock shall be entitled to receive such dividends as may be
declared from time to time by the Board of Directors of the corporation paid out
of funds legally available therefor.
1
<PAGE>
(b) After distribution in full of the preferential amount, if any, to
be distributed to the holders of the Preferred Stock in the event of voluntary
or involuntary liquidation, distribution or sale of assets, dissolution, or
winding-up of the corporation, the holders of the Common Stock shall be entitled
to receive all of the remaining assets of the corporation, tangible and
intangible, of whatever kind available for distribution to stockholders, ratably
in proportion to the number of shares of the Common Stock held by them
respectively.
(c) Except as may otherwise be required by law, each holder of the
Common Stock shall have one vote in respect of each share of the Common Stock
held by him on all matters voted upon by the stockholders.
Section 4. General Provisions. The capital stock of the corporation
may be issued for money, property, services rendered, labor done, cash advanced
to or on behalf of the corporation, or for any other assets of value in
accordance with an action of the Board of Directors, whose judgement as to the
value of the assets received in return for said stock shall be conclusive, and
said stock, when issued, shall be fully paid and nonassessable.
ARTICLE V
VOTING
Cumulative voting in the election of directors is not authorized.
ARTICLE VI
PREEMPTIVE RIGHTS
Shareholders of the corporation shall not have preemptive rights to
acquire unissued or treasury shares of the corporation or securities convertible
into such shares or carrying a right to subscribe to or acquire such shares.
ARTICLE VII
REGISTERED OFFICE AND AGENT
The address of the initial registered office of the corporation shall
be 1433 Seventeenth Street, Suite 300, Denver, Colorado 80202, and the initial
registered agent of the corporation at such address shall be Fay M.
Matsukage.
ARTICLE VIII
BOARD OF DIRECTORS
Section 1. Board of Directors; Number. The governing board of the
corporation shall be known as the Board of Directors, and the number of
directors may from time to time be increased or decreased in such manner as
shall be provided in the Bylaws of the corporation, provided that the number of
directors shall not be reduced to less than three unless the outstanding shares
are held of record by fewer than three shareholders, in which case there need
only be as many directors as there are shareholders.
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Section 2. Classification of Directors. The Board of Directors shall
be divided into three classes, Class 1, Class 2, and Class 3, each class to be
as nearly equal in number as possible. The term of office of Class 1 directors
shall expire at the first annual meeting of shareholders following their
election, that of Class 2 directors shall expire at the second annual meeting
following their election, and that of Class 3 directors shall expire at the
third annual meeting following their election. At each annual meeting after such
classification, a number of directors equal to the number of the class whose
term expires at the time of such meeting shall be elected to hold office until
the third succeeding annual meeting. No classification of directors shall be
effective prior to the first annual meeting of shareholders or at any time when
the Board of Directors consists of less than six members. Notwithstanding the
foregoing, and except as otherwise required by law, whenever the holders of any
one or more series of Preferred Stock shall have the right, voting separately as
a class, to elect one or more directors of the Company, the terms of the
director or directors elected by such holders shall expire at the next
succeeding annual meeting of shareholders.
Section 3. Initial Directors. The names and addresses of the persons
who are to serve as directors until the first annual meeting of shareholders or
until their successors are elected and shall qualify are:
Gordon E. Beckstead
5665 South Valley View Boulevard
Las Vegas, Nevada 89118
William E. Workman
5665 South Valley View Boulevard
Las Vegas, Nevada 89118
Richard Lassiter
5665 South Valley View Boulevard
Las Vegas, Nevada 89118
Section 4. Nomination of Directors.
(a) Nominations for the election of directors may be made by the
Board of Directors, by a committee of the Board of Directors, or by any
shareholder entitled to vote for the election of directors. Nominations by
shareholders shall be made by notice in writing, delivered or mailed by first
class United Sates mail, postage prepaid, to the Secretary of the Corporation,
not less than 14 days nor more than 50 days prior to any meeting of the
shareholders called for the election of directors; provided, however, that if
less than 21 days' notice of the meeting is given to shareholders, such written
notice shall be delivered or mailed, as prescribed, to the Secretary of the
Corporation, not later than the close of the seventh day following the day on
which notice of the meeting was mailed to shareholders.
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(b) Each notice under subsection (a) shall set forth (i) the name,
age, business address and, if known, residence address of each nominee proposed
in such notice, (ii) the principal occupation or employment of each such
nominee, and (iii) the number of shares of stock of the Corporation which are
beneficially owned by each such nominee.
(c) The chairman of the shareholders' meeting, may, if the facts
warrant, determine and declare to the meeting that a nomination was not made in
accordance with the foregoing procedure, and if he should so determine, he shall
also declare to the meeting and the defective nomination shall be disregarded.
Section 5. Certain Powers of the Board of Directors. In furtherance and
not in limitation of the powers conferred by stature, the Board of Directors is
expressly authorized:
(a) to manage and govern the corporation by majority vote of members
present at any regular or special meeting at which a quorum shall be present, to
make, alter, or amend the Bylaws of the corporation at any regular or special
meeting, to fix the amount to be reserved as working capital over and above its
capital stock paid in, to authorize and cause to be executed mortgages and liens
upon the real and personal property of the corporation, and to designate one or
more committees, each committee to consist of two or more of the directors of
the corporation, which, to the extent provided in the resolution or in the
Bylaws of the corporation, shall have and may exercise the powers of the Board
of Directors in the management of the business and affairs of the corporation
(such committee or committees shall have such name or names as may be stated in
the Bylaws of the corporation or as may be determined from time to time by
resolution adopted by the Board of Directors);
(b) to sell, lease, exchange, or otherwise dispose of all or
substantially all of the property and assets of the corporation in the ordinary
course of its business upon such terms and conditions as the Board of Directors
may determine without vote or consent of the shareholders;
(c) to sell, pledge, lease, exchange, liquidate, or otherwise dispose
of all or substantially all of the property or assets of the corporation,
including its goodwill, if not in the ordinary course of its business upon such
terms and conditions as the Board of Directors may determine; provided, however,
that such transaction shall be authorized or ratified by the affirmative vote of
the holders of at least a majority of the shares entitled to vote thereon at a
shareholders' meeting duly called for such purpose, or authorized or ratified by
the written consent of the holders of all of the shares entitled to vote
thereon; and provided, further, that any such transaction with any substantial
shareholder or affiliate of the corporation shall be authorized or ratified by
the affirmative vote of the holders of at lease two-thirds of the shares
entitled to vote thereon at a shareholders' meeting duly called for that
purpose, unless such transaction is with any subsidiary of the corporation or is
approved by the affirmative vote of a majority of the continuing directors of
the corporation, or is authorized or ratified by the written consent of the
holders of all of the shares entitled to vote thereon;
(d) to merge, consolidate, or exchange all of the issued or
outstanding shares of one or more classes of the corporation upon such terms and
conditions as the Board of Directors may authorize; provided, however, that such
merger, consolidation, or exchange shall be approved or ratified by the
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affirmative vote of the holders of at least a majority of the shares entitled to
vote thereon at a shareholders' meeting duly called for that purpose, or
authorized or ratified by the written consent of the holders of all or the
shares entitled to vote thereon; and provided, further, that any such merger,
consolidation, or exchange with any substantial shareholder or affiliate of the
corporation shall be authorized or ratified by the affirmative vote of the
holders of at least two-thirds of the shares entitled to vote thereon at a
shareholders' meeting duly called for that purpose, unless such merger,
consolidation, or exchange is with any subsidiary of the corporation or is
approved by the affirmative vote of a majority of the continuing directors of
the corporation, or is authorized or ratified by the written consent of the
holders of all of the shares entitled to vote thereon; and
(e) to distribute to the shareholders of the corporation, without the
approval of the shareholders, in partial liquidation, out of stated capital or
capital surplus of the corporation, a portion of the corporation's assets, in
cash or in property, so long as the partial liquidation is in compliance with
the Colorado Corporation Code.
(f) as used in this Section 5, the following terms shall have the
following meanings:
(i) an "affiliate" shall mean any person or entity which is an
affiliate within the meaning of Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended;
(ii) a "continuing director" shall mean a director who was
elected before the substantial shareholder or affiliate of the
corporation which is to be a party to a proposed transaction within the
scope of subsections (c) and (d) of this Section 5 because such a
substantial shareholder or affiliate of the corporation, as the case
may be, or is designated at or prior to his first election or
appointment to the Board of Directors by the affirmative vote of a
majority of the Board of Directors who are continuing directors;
(iii) a "subsidiary" shall mean any corporation in which the
corporation owns the majority of each class of equity security; and
(iv) a "substantial shareholder" shall mean any person or
entity which is the beneficial owner, within the meaning of Rule 13d-3
of the General Rules and Regulations under the Securities Exchange act
of 1934, as amended, of 10% or more of the outstanding capital stock of
the corporation.
ARTICLE IX
CONFLICTS OF INTEREST
Section 1. Related Party Transactions.
(a) No contract or transaction between the corporation and one or
more of its directors, or between the corporation and any other corporation,
partnership, association, or other organization in which one or more of its
directors or officers are directors or officers or have a financial interest,
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shall be void or voidable solely for that reason or solely because the director
or officer is present at or participates in the meeting of the Board of
Directors or committee thereof which authorizes, approves, or ratifies the
contract or transaction or solely because his or their votes are counted for
such purpose if:
(i) the material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board or committee in good
faith authorizes, approves, or ratifies the contract or transaction by
the affirmative vote of the majority of the disinterested directors,
even though the disinterested directors are less than a quorum; or
(ii) the material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the
shareholders entitled to vote thereon, and the contract or transaction
is specifically authorized, approved, or ratified in good faith by a
vote of the shareholders' or;
(iii) the contract or transaction is fair as to the
corporation as of the time it is authorized, approved, or ratified by
the board of Directors, a committee thereof, or the shareholders.
(b) Common or disinterested directors may be counted in determining
the presence of a quorum at a meeting of the Board of Directors or of a
committee which authorizes, approves, or ratifies the contract or transaction.
Section 2. Corporate Opportunities. The officers, directors, and other
members of management of the corporation shall be subject to the doctrine of
corporate opportunities only insofar as it applies to business opportunities in
which the corporation has expressed an interest as determined from time to time
by resolution of the Board of Directors. When such areas of interest are
delineated, all such business opportunities within such areas of interest which
come to the attention of the officers, directors, and other members of
management of the corporation shall be disclosed promptly to the corporation and
made available to it. The Board of Directors may reject any business opportunity
presented to it, and thereafter any officer, director, or other member of
management may avail himself of such opportunity. Until such time as the
corporation, through its Board of Directors, has designated an area of interest,
the officers, directors, and other members of management of the corporation
shall be free to engage in such areas of interest on their own. The provisions
hereof shall not limit the rights of any officer, director, or other member of
management of the corporation to continue a business existing prior to the time
that such area of interest is designated by the corporation, nor shall they be
construed to release any employee of the corporation (other than an officer,
director, or member of management) from any duties which such employee may have
to the corporation.
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ARTICLE X
INDEMNIFICATION
Section 1. Indemnification of Directors.
(a) Except as provided in paragraph (d) of this Section 1, the
corporation may indemnify against liability incurred in any proceeding an
individual made a party to the proceeding because he is or was a director if:
(i) he conducted himself in good faith;
(ii) he reasonably believed:
(A) in the case of conduct in his official capacity with the
corporation, that this conduct was in the corporation's best interests;
or
(B) in all other cases, that his conduct was at least not
opposed to the corporation's best interests, and
(iii) in the case of any criminal proceeding, that he had no
reasonable cause to believe his conduct was unlawful.
(b) A director's conduct with respect to an employee benefit plan for
a purpose he reasonably believed to be in the interests of the participants in
or beneficiaries of the plan is conduct that satisfies the requirements of
paragraph (a)(ii)(B) of this Section 1. A director's conduct with respect to an
employee benefit plan for a purpose that he did not reasonably believe to be in
the interests of the participants in or beneficiaries of the plan shall be
deemed not to satisfy the requirements of paragraph (a)(ii)(B).
(c) The termination of any proceeding by judgment, order, settlement,
or conviction, or upon a plea of nolo contendere or its equivalent, is not of
itself determinative that the individual did not meet the standard of conduct
set forth in paragraph (a) of this Section 1.
(d) The corporation may not indemnify a director under this Article X
either:
(i) in connection with a proceeding by or in the right of the
corporation in which the director was adjudged liable to the
corporation; or;
(ii) in connection with any proceeding charging improper
personal benefit to the director, whether or not involving action in his
official capacity, if he was adjudged liable on the basis that personal
benefit was improperly received by him.
(e) Indemnification permitted under this Article X in connection with
a proceeding by or in the right of a corporation is limited to reasonable
expenses incurred in connection with the proceeding.
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Section 2. Mandatory Indemnification. The corporation shall be
required to indemnify a person who is or was a director of the corporation and
who was wholly successful, on the merits or otherwise, in defense of any
proceeding to which he was a party, against reasonable expenses incurred by him
in connection with the proceeding.
Section 3. Court-Ordered Indemnification. A director who is or was
party to a proceeding may apply for indemnification to the court conducting the
proceeding or to another court of competent jurisdiction. On receipt of an
application, the court, after giving any notice the court considers necessary,
any order indemnification in the following manner.
(a) If the court determines that the director is entitled to mandatory
indemnification under Section 2, the court shall order indemnification, in which
case the court shall also order the corporation to pay the director's reasonable
expenses incurred to obtain the court-ordered indemnification.
(b) If the court determines that the director is fairly and reasonably
entitled to indemnification in view of all the relevant circumstances, whether
or not he met the standard of conduct set forth in paragraph (a) of Section 1 or
was adjudged liable in the may order such indemnification as the court deems
proper; provided, however, that the indemnification with respect to any
proceeding in which liability shall have been adjudged in the circumstances
described in paragraph (d) of Section 1 shall be limited to reasonable expenses
incurred.
Section 4. Determination.
(a) The corporation may not indemnify a director under this Article X
unless authorized in the specific case after a determination has been made that
indemnification of the director is permissible in the circumstances because he
has met the standard of conduct set forth in Section 1(a).
(b) The determination required to be made under this Section 4 shall be
made:
(i) by the Board of Directors by a majority vote of a quorum
consisting of directors not parties to the proceeding; or
(ii) if such a quorum cannot be obtained, by a majority vote
of a committee of the Board designated by it consisting of two or more
directors not parties to the proceeding; provided, however, that
directors who are parties to the proceeding may participate in the
designation of directors for the committee.
(c) If such a quorum cannot be obtained or such a committee cannot be
established, or even if such a quorum is obtained or such a committee designated
if such quorum or committee so directs, the determination required to be made by
paragraph (a) of this Section 4 shall be made:
(i) by independent legal counsel selected by a vote of the
Board of Directors or the committee in the manner specified in paragraph
(b)(i) or paragraph (b)(ii) of this Section 4 or, if a quorum of the
full Board cannot be obtained and a committee cannot be established, by
independent legal counsel selected by a majority vote of the full board;
or
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(ii) by the shareholders.
(d) Authorization of indemnification and evaluation as to
reasonableness of expenses shall be made in the same manner as the determination
that indemnification is permissible; provided, however, that, if the
determination that indemnification is permissible is made by independent legal
counsel, authorization of indemnification and evaluation as to reasonableness of
expenses shall be made by the body that selected said counsel.
Section 5. Advance of Expenses.
(a) The corporation may pay for or reimburse the reasonable expenses
incurred by a director who is a party to a proceeding in advance of the final
disposition of the proceeding if:
(i) the director furnishes the corporation a written
affirmation of his good-faith belief that he has met standard of conduct
described in paragraph (a)(i) of Section 1;
(ii) the director furnishes the corporation a written
undertaking, executed personally or on his behalf, to repay the advance
if it is determined that he did not meet such standard of conduct; and
(iii) a determination is made that the facts then known to
those making the determination would not preclude indemnification.
(b) The undertaking required by paragraph (a)(ii) of this Section 5
shall be an unlimited general obligation of the director, but need not be
secured and may be accepted without reference to financial ability to make
repayment.
Section 6. Indemnification of Officers, Employees, and Agents of the
Corporation.
(a) An officer of the corporation who is not a director shall be
entitled to mandatory indemnification pursuant to Section 2 and shall be
entitled to apply for court-ordered indemnification pursuant to Section 3 in
each case to the same extent as though he were a director; and
(b) The corporation may indemnify and advance expenses pursuant to
Section 5 to an officer, employee, or agent of the corporation who is not a
director to the same extent as though he were a director.
Section 7. Insurance. The corporation may purchase and maintain
insurance on behalf of an individual who is or was a director, officer,
employee, fiduciary, or agent of the corporation and who, while a director,
officer, employee, fiduciary, or agent of the corporation, is or was serving at
the request of the corporation or of any partnership, joint venture, trust,
other enterprise, or employee benefit plan against any liability asserted
against or incurred by his in any such capacity or arising out of his status as
such, whether or not the corporation would have the power to indemnify him
against such liability under the provisions of this Article X.
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Section 8. Reports to Shareholders. Any indemnification of or advance
of expenses to a director in accordance with this Article X, if arising out of a
proceeding by or on behalf of the corporation, shall be reported in writing to
the shareholders with or before the notice of the next shareholders" meeting.
Section 9. Definitions. As used in this Article X:
(a) "Director" means an individual who is or was a director of the
corporation and an individual who, while a director of the corporation, is or
was serving at the corporation's request as a director, officer, partner,
trustee, employee, or agent of any other foreign or domestic corporation or of
any partnership, joint venture, trust, other enterprise, or employee benefit
plan at the corporation's request if his duties to the corporation also impose
duties on or otherwise involve services by him to the plan or to participants in
or beneficiaries of the plan.
(b) "Expenses" includes attorney fees.
(c) "Liability" means the obligation to pay a judgement, settlement,
penalty, fine (including an excise tax assessed with respect to an employee
benefit plan), or reasonable expense incurred with respect to a proceeding.
(d) "Official capacity", when used with respect to a director, means
the office of director in the corporation, and, when used with respect to and
individual other than a director, means that office in the corporation held by
the officer or employment or agency relationship undertaken by the employee or
agent on behalf of the corporation
(e) "Party" includes an individual who was, is, or is threatened to be
made named defendant or respondent in a proceeding.
(f) "Proceeding" means any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or investigative
and whether formal or informal.
ARTICLE XI
ARRANGEMENTS WITH CREDITORS
Whenever a compromise or arrangement is proposed by the corporation
between it and its creditors or any class of them, and/or between the
corporation and its shareholders or any class of them, any court of equitable
jurisdiction may, on summary application by the corporation, or by a majority of
its shareholders, or on the application of any receiver or receivers appointed
for the corporation, or on the application of trustees in dissolution, order a
meeting of the creditors or class of creditors and/or of the shareholders or
class of shareholders of the corporation, as the case may be, to be notified in
such manner as the court decides. If a majority in number representing at least
three-fourths in amount of the creditors or class of creditors and/or the
holders of the majority of the stock or class of stock of the corporation, as
the case may be, agree to any compromise or arrangement and/or to any
reorganization of the corporation, as a consequence of such compromise or
arrangement, then said compromise or arrangement and/or said reorganization
shall, if sanctioned by the court to which the application has been made, be
binding upon all the creditors or class of creditors and/or on all the
shareholders or class of shareholders of the corporation, as the case may be,
and also on the corporation.
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ARTICLE XII
SHAREHOLDERS' MEETINGS
Shareholders' meetings may be held at such time and place as may be
stated or fixed in accordance with the Bylaws. At all shareholders' meetings,
one-third of all shares entitled to vote shall constitute a quorum.
ARTICLE XIII
AMENDMENT
These Articles of Incorporation may be amended by resolution of the
Board of Directors if no shares have been issued, and, if shares have been
issued, by the affirmative vote of the holders of at least a majority of the
shares entitled to vote thereon at a meeting duly called for that purpose, or,
when authorized, when such action is ratified by the written consent of all the
shareholders entitled to vote thereon.
ARTICLE XIV
SHAREHOLDER VOTE
Whenever the laws of the State of Colorado require the vote or
concurrence of the holders of two-thirds of the outstanding shares entitled to
vote thereon with respect to any action to be taken by the shareholders of the
corporation, such action may be taken by the vote or concurrence of the holders
of at least a majority of the shares entitled to vote thereon.
ARTICLE XV
DISSOLUTION
Section 1. Procedure. The corporation shall be dissolved upon the
affirmative vote of the holders of at least a majority of the shares entitled to
vote thereon at a meeting duly called for that purpose, or when authorized or
ratified by the written consent of the holders of all of the shares entitled to
vote thereon.
Section 2. Revocation. The corporation shall revoke voluntary
dissolution proceedings upon the affirmative vote of the holders of a least a
majority of the shares entitled to vote at a meeting duly called for that
purpose, or when authorized or ratified by the written consent of the holders of
all of the shares entitled to vote thereon.
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IN WITNESS WHEREOF, I have hereunto set my hand this 9th day of May,
1986.
/s/ Fay M. Matsukage
------------------------
Fay M. Matsukage
STATE OF COLORADO )
) SS.
COUNTY OF DENVER )
I, Mary E. Kumler, a Notary Public, certify that Fay. M. Matsukage
appeared before and being by me first duly sworn, declared that she is the
person who signed the foregoing document as incorporator, and that the
statements therein contained are true.
IN WITNESS WHEREOF I have hereunto set my had and seal this 9th day of
May, 1986.
My commission expires: April 25, 1989
/s/ Mary E. Kumler
--------------------------------------
Notary Public
1315 Estes, #B-10
--------------------------------------
Address
(S E A L)
Lakewood, CO 80215
--------------------------------------
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MAIL TO:
Colorado Secretary of State
Corporations Office
1575 Sherman St., 2nd Floor
Denver, Colorado 80203
(303) 866-2361
ARTICLES OF AMENDMENT
to the
ARTICLES OF INCORPORATION
Pursuant to the provisions of the Colorado Corporation Code, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the corporation is (note 3) Valley View Ventures,
Inc.
SECOND: The following amendment was adopted by the shareholders of the
corporation on February 24, 1987, in the manner prescribed by the Colorado
Corporation Code:
ARTICLE IV
CAPITAL STOCK
Section 1. Classes and Shares Authorized. The authorized capital stock
of the Corporation shall be 950,000,000 shares of Common Stock, $.0001 par
value, and 50,000,000 shares of Preferred Stock, $1.00 par value.
THIRD: The number of shares of the corporation outstanding at the time
of such adoption was 70,000,000; and the number of shares entitled to vote
thereon was 70,000,000.
FOURTH: The designation and number of outstanding shares of each class
entitled to vote thereon as a class were as follows:
CLASS (Note 1) NUMBER OF SHARES
None.
FIFTH: The number of shares voted for such amendment was 70,000,000;
and the number of shares used against such amendment was -0- .
SIXTH: The number of shares of each class entitled to vote thereon as a
class voted for and against such amendment, respectively, was:
CLASS (Note 1) NUMBER OF SHARES
For Against
None.
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SEVENTH: The manner, if not set forth in such amendment, in which any
exchange, reclassification, or cancellation of issued shares provided for in the
amendment shall be effected, is as follows:
(Note 2)
No change.
EIGHTH: The manner in which such amendment effects a change in the
amount of stated capital, and the amount of stated capital as changed by such
amendment, are as follows:
(Note 2)
No change.
VALLEY VIEW VENTURES, INC. (Note 3)
By: /s/ Richard Lassiter (Note 3)
--------------------------------
Richard Lassiter, President
and /s/ F.Rex Graham (Note 4)
-------------------------------
F. Rex Graham, Assistant
STATE OF COLORADO
COUNTY OF DENVER
Subscribed and sworn to before me this 2nd day of March, 1987. My
commission expires April 25, 1989.
/s/ Mary E. Kumler
1315 Estes, #B-10
Lakewood. CO 80215
14
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ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
VALLEY VIEW VENTURES, INC.
Pursuant to the provisions of the Colorado Corporation Code, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the corporation is Valley View Ventures, Inc.
SECOND: The following amendment was adopted by a vote of the
shareholders of the corporation on September 20, 1988, in the manner prescribed
by the Colorado Corporation Code. The number of shares voted for the amendment
was sufficient for approval.
ARTICLE I
NAME
The name of the corporation is:
Regional Air Group Corporation
ARTICLE X
INDEMNIFICATION
The corporation has the right and/or duty to indemnify a
director of the corporation to the extent provided by statute.
The corporation has the right and/or duty to indemnify any
officer, employee, or agent of the corporation who is not a director to
the extent provided by law, or to a greater extent if consistent with
law and if provided by resolution of the corporation's shareholders or
directors, or in a contract.
A director of the corporation shall not be personally liable
to the corporation or its shareholders for monetary damages for breach
of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the corporation or to its
shareholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) for
acts specified under Section 7-5-114 of the Colorado Corporation Code,
or (iv) for any transaction from which the director derived an improper
personal benefit. If the Colorado Corporation Code is amended after
this Article is adopted to authorize corporate action further
eliminating or limiting the personal liability of directors, then the
liability of a director of the corporation shall be eliminated or
limited to the fullest extent permitted by the Colorado Corporation
Code, as so amended.
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Any repeal or modification of the foregoing paragraph by the
shareholders of the corporation shall not adversely affect any right or
protection, of a direct of the corporation existing at the time of such
repeal or modification.
THIRD: The manner, if not set forth in such amendment, in which any
exchange, reclassification, or cancellation of issued shares provided for in the
amendment shall be effected, is as follows: Not applicable.
FOURTH: The manner in which such amendment effects a change in the
amount of stated capital, and the amount of stated capital as changed by such
amendment, are as follows: Not applicable.
VALLEY VIEW VENTURES, INC.
By: /s/ Richard Lassiter
----------------------------------------
Richard Lassiter, President
(SEAL)
By: /s/ Barbara B. Conrad
----------------------------------------
Barbara B. Conrad, Secretary
STATE OF COLORADO
COUNTY OF DENVER
Subscribed and sworn to before me this 20th day of September, 1988. My
commission expires: April 25,1989.
/s/ Mary E. Kumler
-------------------------------------
Mary E. Kumler, Notary Public
4582 S. Ulster Street Parkway, #201
Denver, Colorado 80237
(S E A L)
16
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ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
REGIONAL AIR GROUP CORPORATION
The undersigned, officers and directors, acting in their capacities for
this Corporation under the Colorado Business Corporation Act, adopts the
following Amended Articles of Incorporation for this Corporation:
ARTICLE I
NAME OF CORPORATION
The name of the Corporation is: Environmental Remediation Holding
Corporation.
ARTICLE II
CAPITAL
The aggregate number of shares the Corporation shall have authority to
issue is 950,000,000 shares of common stock having $.0001 par value and
10,000,000 shares of Series B Preferred stock having $.001 per share par value.
ARTICLE VIII
REGISTERED OFFICE AND AGENT
The address of the registered office and Principal Office of the
Corporation is 11059 East Bethany Drive, Suite 104, Aurora, Colorado 80014. The
name of its registered agent at such address is William R. Goings.
Amendment does not require shareholder approval.
Dated at Aurora, Colorado this 27th day of August, 1996.
/s/ James E. Logan /s/ Linda Logan
- ---------------------------- ----------------
JAMES E. LOGAN LINDA LOGAN
President Secretary
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EXHIBIT 3.2
AMENDED
BYLAWS
OF
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
(A Colorado Corporation)
ARTICLE I I
OFFICES
The principal office of the corporation shall be located in the City of
Jericho, State of New York. The corporation may have such other offices or
relocate its principal offices either within or without the state of
incorporation as the Board of Directors may designate or as the business of the
corporation may require from time to time.
The registered office of the corporation required by the Articles of
Incorporation to be maintained in the state of incorporation may be, but need
not be identical with the principal offices in the state of incorporation and
the address of the registered office may be changed from time to time by the
Board of Directors.
ARTICLE II II
SHAREHOLDERS
Section 1. Annual Meeting. The annual meeting of the shareholders
shall be held on such date as the Board of Directors shall determine by
resolution. If the election of directors shall not be held on the day thus
designated for any annual meeting of the shareholders, or at any adjournment
thereof, the Board of Directors shall cause the election to be held at a special
meeting of the shareholders as soon thereafter as may be practicable.
Section 2. Special Meetings. Special meetings of the shareholders for
any purpose or purposes, unless otherwise prescribed by statute, may be called
by the President or by the Board of Directors and shall be called by the
President at the request of the holders of not less than one-tenth of all
outstanding shares of the corporation entitled to vote at such a meeting.
Section 3. Place of Meeting. The Board of Directors may designate any
place, either within or without the state of incorporation, as the place of
meeting of any annual or special meeting. A waiver of notice, signed by all
shareholders entitled to vote at a meeting, may designate any place, either
within or without the state of incorporation, as the place for the holding of
such meeting. If no designation is made, the place of meeting shall be the
registered office of the corporation in the state of incorporation.
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Section 4. Notice of Meeting. Written or printed notice, stating the
place, day, and hour of the meeting and, in case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered and/or
published as the laws of the state of incorporation shall provide.
Section 5. Fixing of Record Date. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or shareholders entitled to receive payment of any
dividend, or in order to make a determination of shareholders for any other
proper purpose, the Board of Directors of the corporation may fix in advance a
date as the record date for any such determination of shareholders. Such date,
in case of a meeting of shareholders, shall be not less than ten days nor more
than fifty days prior to the date on which the particular action requiring such
determination of shareholders is to be taken.
Section 6. Quorum. One-third of the outstanding shares of the
corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders. If less than one-third of the
outstanding shares are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. The shareholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough shareholders to leave less than a quorum.
Section 7. Manner of Acting. If a quorum is present, the affirmative
vote of the majority of the shares represented at the meeting and entitled to
vote on the subject matter shall be the act of the shareholders, unless the vote
of a greater proportion or number voting by classes is otherwise required by
statute or by the Articles of Incorporation or these Bylaws.
Section 8. Proxies. At all meetings of shareholders, a shareholder
may vote by proxy executed in writing by the shareholder or by his duly
authorized attorney-in-fact. Such proxy shall be filed with the secretary of the
corporation before or at the time of the meeting. No proxy shall be valid after
eleven months from the date of its execution, unless otherwise provided in the
proxy.
Section 9. Voting of Shares. Except as otherwise set forth in this
Article II, each outstanding share of common stock shall entitle the registered
holder thereof to one vote upon each matter submitted to a vote at a meeting of
shareholders.
Section 10. Voting of Shares by Certain Holders. Shares standing in
the name of another corporation may be voted by such officer, agent, or proxy of
the other corporation as the bylaws of such corporation may prescribe or, in the
absence of such provision, as the board of directors of such corporation may
determine.
Shares held by an administrator, executor, guardian, or conservator may
be voted by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without the transfer of the shares into his name.
2
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Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into his name if authority so to do
is contained in an appropriate order of the court by which such receiver was
appointed.
A shareholder whose share are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledges, and
thereafter the pledges shall be entitled to vote the share so transferred.
Neither treasury shares nor shares held by another corporation, if the
majority of shares entitled to vote for the election of directors of such other
corporation is held by the corporation, may be voted, directly or indirectly, at
any meeting or counted in determining the total number of outstanding shares at
any given time.
Redeemable shares which have been called for redemption shall not be
entitled to vote on any matter and shall not be deemed outstanding shares on and
after the date on which written notice of redemption has been mailed to
shareholders and a sum sufficient to redeem such shares has been deposited with
a bank or trust company with irrevocable instruction and authority to pay the
redemption price to holders of the shares upon surrender of certificates
therefor.
Section 11. Informal Action by Shareholders. Any action required to
be taken at a meeting of the shareholders or any other action which may be taken
at a meeting of the shareholders my be taken without a meeting, if a consent in
writing, setting forth the action so taken, shall be signed by all of the
shareholders entitled to vote with respect to the subject matter thereof.
Section 12. Voting by Ballot. Voting on any question or in any election
may be by voice vote unless the presiding officer shall order or any shareholder
shall demand that voting by ballot.
Section 13. Certification. The Board of Directors may adopt by
resolution a procedure whereby a shareholder of the corporation may certify in
writing to the corporation that all or a portion of the shares registered in the
name of such shareholder are held for the account of a specified person or
persons. Upon receipt by the corporation of a certification complying with the
procedure thus established, the persons specified in the certification shall be
deemed, for the purpose or purposes set forth in the certification, to be the
holders of record of the number of shares specified in place of the shareholder
making the certification.
ARTICLE III III
BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of the
corporation shall be managed by its Board of Directors. In addition to the
powers and authorities by the Articles of Incorporation and by these Bylaws
expressly conferred upon them, the Board may exercise all such powers of the
corporation and do all such lawful acts and things as are not by statute or by
the Articles of Incorporation or by these Bylaws directed or required to be
exercised or done by the shareholders.
3
<PAGE>
The Board of Directors shall have the power from time to time to
delegate any of its powers in the ordinary course of business of the corporation
to any standing or special committee or to any officer or agent and to appoint
any persons as agents of the corporation with such powers (including the power
to subdelegate) and upon such terms as maybe deemed fit.
Section 2. Number, Tenure, and Qualification. The number of directors
of the corporation shall be as established from time to time by resolution of
the Board of Directors. The number of directors shall not be reduced to less
than three except that there need only be as many directors as there are
shareholders in the event that the outstanding shares are held of record by
fewer than three shareholders. Subject to the provisions of Article VIII,
Section 2 of the corporation's Articles of Incorporation, each director shall
hold office until the next annual meeting of shareholders or until his successor
has been elected and qualified. Directors need not be residents of the state of
incorporation or shareholders of the corporation.
Section 3. Regular Meetings. A regular meeting of the Board of
Directors shall be held, without other notice than these Bylaws, immediately
after and at the same place as the annual meeting of shareholders. The Board of
Directors may provide, by resolution, for the holding of additional regular
meetings, without other notice than such resolution. The Board of Directors may
hold any such additional regular meetings by conference telephone or other means
of electronic communication by which all directors can hear and speak to each of
the other directors.
Section 4. Special Meetings. Special meetings of the Board of
Directors may be called by or at the request of the Chairman of the Board of
Directors, the President, or any two directors. The person or persons authorized
to call special meetings of the Board of Directors may fix any place either
within or without the state of incorporation, as the place for holding any
special meeting of the Board of Directors called by them. The Board of Directors
may hold any special meeting by conference telephone or other means of
electronic communication by which all directors can hear and speak to each of
the other directors.
Section 5. Notice. Notice of any special meeting shall be given at
least one day previous thereto by oral or written notice given or delivered
personally to each director. Any director may waive notice of any meeting. The
attendance of a director at a meeting shall constitute a waiver of notice of
such meeting, except where a director attends the meeting for the express
purpose of objecting to the transaction of any business because the meeting is
not lawfully called or convened. Neither the business to be transacted at, nor
the purpose of, any regular or special meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting. A director may
attend a regular or special meeting of the Board of Directors by conference
telephone or other means of electronic communications by which such director can
hear and speak to each of the other directors.
Section 6. Quorum. A majority of the members of the Board of Directors
shall constitute a quorum for the transaction of business at any meeting of the
Board of Directors.
4
<PAGE>
Section 7. Action by Consent of Board of Directors Without a Meeting.
Any action required or permitted to be taken by the Board of Directors under any
provision of the laws of the state of incorporation may be taken without a
meeting if all members of the Board of Directors shall individually or
collectively consent in writing to such action. Such written consent or consents
shall be filed with the minutes of the proceedings of the Board of Directors.
Such action by written consent shall have the same force and effect as a
unanimous vote of such directors. Any certificate or other document filed under
any provision of the laws of the state of incorporation which relates to an
action so taken shall state that the action was taken by unanimous written
consent of the Board of Directors without a meeting. Such statement shall be
prima facie evidence of such authority.
Section 8. Manner of Acting. The act of a majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors.
The order of business at any regular meeting or special meeting of the
Board of Directors shall be:
1. Calling the roll.
2. Secretary's proof of due notice of meeting, if required.
3. Reading and disposal of unapproved minutes.
4. Reports of officers.
5. Unfinished business.
6. New business.
7. Adjournment.
Section 9. Vacancies. Any vacancy occurring in the Board of Directors
may be filled by the affirmative vote of a majority of the remaining directors
though less than a quorum of the Board of Directors. A director elected to fill
a vacancy shall be elected for the unexpired terms of his predecessor in office.
Any directorship to be filled by reason of an increase in the number of
directors shall be filled by the affirmative vote of a majority meeting or at a
special meeting of shareholders called for that purpose. A director chosen to
fill a position resulting from an increase in the number of directors shall hold
office only until the next election of directors by the shareholders.
Section 10. Compensation. By resolution of the Board of Directors,
the directors may be paid their expenses, if any, of attendance at each meeting
of the Board of Directors and may be paid a fixed sum for attendance at each
meeting of the Board of Directors or a stated salary as a director. No such
payment shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor or from receiving compensation for
any extraordinary or unusual service as a director.
Section 11. Presumption of Assent. A director of the corporation who
is present at a meeting of the Board of Directors at which action on any
corporate matter is taken shall be presumed to have assented to the action taken
unless his dissent shall be entered in the minutes of the meeting or unless he
shall file this written descent to such action with the person acting as the
secretary of the meeting before the adjournment thereof or shall forward such
dissent by registered mail to the Secretary of the corporation immediately after
the adjournment of the meeting. Such right to dissent shall not apply to a
director who voted in favor of such action.
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<PAGE>
Section 12. Resignation of Officers or Directors. Any director or
other officer may resign his office at any time, such resignation to be made in
writing and to take effect from the time of its receipt by the corporation
unless a time be fixed in the resignation and then it will take effect from that
date. The acceptance of the resignation shall not be required to make it
effective.
Section 13. Removal. Any director or directors of the corporation may
be removed at any time, with or without cause, in the manner provided in the
applicable laws of the state of incorporation.
ARTICLE IV
OFFICERS
Section 1. Number. The officers of the corporation shall be a
President, a Secretary, and a Treasurer, all of whom shall be designated
executive officers and each of whom shall be elected by the Board of Directors.
A Chairman of the Board of Directors, one or more Vice Presidents, and assistant
officers as may be deemed necessary may be elected or appointed by the Board of
Directors. Any two or more offices may be held by the same person, except the
offices of President and Secretary.
Section 2. Election and Term of Office. The executive officers of the
corporation shall be elected annually by the Board of Directors at the first
meeting of the Board of Directors held after each annual meeting of the
shareholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as may be practicable. Each
executive officer shall hold office until his successor shall have been duly
elected and shall have qualified, or until his death, or until he shall have
resigned or shall have been removed in the manner hereinafter provided.
Administrative assistant officers shall hold office at the pleasure of the
President.
Section 3. Removal. Any officer or agent elected or appointed by the
Board of Directors may be removed by the Board of Directors whenever, in its
judgment, the best interests of the corporation would be served thereby, but
such removal shall be without prejudice to the contract rights, if any, of the
person so removed. Election or appointment of an officer or agent shall not of
itself create contract rights.
Section 4. Vacancies. A vacancy in any executive office, because of
death, resignation, removal, disqualification, or otherwise, may be filled by
the Board of Directors for the unexpired portion of the term.
Section 5. Chairman of the Board of Directors. A Chairman of the Board
of Directors may be elected by the Board of Directors. He shall preside at all
meetings of the shareholders and of the Board of Directors.
6
<PAGE>
Section 6. President. The President shall be the chief executive
officer of the corporation and, subject to the control of the Board of
Directors, shall be in general charge of the business affairs of the
corporation. He may sign, with the Secretary or any other proper officer of the
corporation thereunto authorized by the Board of Directors, certificates for
shares of the corporation, any deeds, mortgages, bonds, contracts, or other
instruments which the Board of Directors has authorized to be executed, except
in cases where the signing and the execution thereof shall be expressly
delegated by the Board of Directors or by these Bylaws to some other officer or
agent of the corporation or shall be required by law to be otherwise signed or
executed, and, in general, shall perform all duties incident to the office of
President and such other duties as may be prescribed by the Board of Directors
from time to time.
Section 7. Vice President. In the absence of the President or in the
event of his death or inability or refusal to act, the Vice President (or, in
the event there be more than one Vice President, the Vice Presidents in the
order designated at the time of their election, or, in the absence of any
designation, then in the order of their election) shall perform the duties of
the President and, when so acting, shall have all the powers of and be subject
to all the restrictions upon the President. Any Vice President may sign, with
the Secretary or an assistant secretary, certificates for shares of the
corporation and shall perform such other duties as from time to time may be
assigned to him by the President or by the Board of Directors.
Section 8. Secretary. The Secretary shall: (a) keep the minutes of
all meetings of the corporation's shareholders and of the Board of Directors in
one or more books provided for the purpose; (b) see that all notices are duly
given in accordance with the provisions of these Bylaws and as required by law;
(c) be custodian of the corporate records and of the seal of the corporation and
see that the seal of the corporation is affixed to all documents, the execution
of which on behalf of the corporation under its seal is duly authorized; (d)
keep a register of the post office address of each shareholder which shall be
furnished to the Secretary by such shareholders; (e) sign with the President, or
a Vice President, certificates for shares of the corporation, the issuance of
which shall have been authorized by resolution of the Board of Directors; (f)
have general charge of the stock transfer books of the corporation; and (g) in
general, perform all duties incident to the office of Secretary and such other
duties as from time to time may be assigned to him by the President or by the
Board of Directors.
Section 9. Treasurer. If required by the Board of Directors, the
Treasurer shall give a bond for the faithful discharge of his duties in such sum
and with such surety or sureties as the Board of Directors shall determine. He
shall: (a) have charge and custody of and be responsible for all funds and
securities of the corporation; (b) receive and give receipts for monies due and
payable to the corporation from any source whatsoever and deposit all such
monies in the name of the corporation in such banks, trust companies, or other
depositories as shall be selected in accordance with the provisions of Article V
of these Bylaws; and (c) in general, perform all the duties incident to the
office of Treasurer and such other duties as from time to time may be assigned
to him by the President or by the Board of Directors.
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<PAGE>
Section 10. Assistant Secretaries and Assistant Treasurers. The
assistant secretaries, when authorized by the President, may sign with the
President or a Vice President certificates for shares of the corporation, the
issuance of which shall have been authorized by a resolution of the Board of
Directors. The assistant treasurers shall, if required by the Board of
Directors, give bonds for the faithful discharge of their duties in such sums
and with such sureties as the Board of Directors shall determine. The assistant
secretaries and assistant treasurers, in general, shall perform such duties as
shall be assigned to them by the Secretary or the Treasurer, respectively, or by
the President.
Section 11. Salaries. The salaries of the executive officers shall
be fixed from time to time by the Board of Directors. No officer shall be
prevented from receiving such salary by reason of the fact that he is also a
director of the corporation. The salaries of the administrative assistant
officers shall be fixed by the President.
ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. Contracts. The Board of Directors may authorize any officer
or officers, or agent or agents to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances.
Section 2. Loans. No loans in excess of $5,000 shall be contracted on
behalf of the corporation, and no evidence of indebtedness in excess of $5,000
shall be issued in its name, unless authorized by a resolution of the Board of
Directors. Such authority may be general or confined to specific instances.
Section 3. Checks, Drafts, etc. All checks, drafts, or other orders for
the payment of money, notes, or other evidences of indebtedness, issued in the
name of the corporation, shall be signed by such officer or officers, or agent
or agents of the corporation in such manner as shall from time to time be
determined by resolution of the Board of Directors.
Section 4. Deposits. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the corporation
in such banks, trust companies, or other depositories as the Board of Directors
may select.
ARTICLE VI
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares. Certificates representing shares of
the corporation shall be respectively numbered serially for each class of
shares, or series thereof, as they are issued, shall be impressed with the
corporate seal or a facsimile thereof, and shall be signed by the Chairman of
the Board of Directors or by the President or a Vice President and by the
Treasurer or an assistant treasurer or by the Secretary or an assistant
secretary; provided, however, that such signatures may be facsimile if the
certificate is countersigned by a transfer agent or registered by a registrar
other than the corporation itself or any of its employees. Each certificate
shall state the name of the corporation, the fact that the corporation is
organized or incorporated under the laws of the state of incorporation, the name
8
<PAGE>
of the person to whom it is issued, the date of issue, the class (or series of
any class), the number of shares represented thereby, and the par value of the
shares represented thereby or a statement that such shares are without par
value. A statement of the designations, preferences, qualifications,
limitations, restrictions, and special or relative rights of the shares of each
class shall be set forth in full or summarized on the face or back of the
certificates which the corporation shall issue. In lieu thereof, the certificate
may set forth that such a statement or summary will be furnished to any
shareholder upon request without charge. Any restriction on transfer imposed by
the corporation shall be noted conspicuously on each certificate. Each
certificate shall be otherwise in such form as may be prescribed by the Board of
Directors and as shall conform to the rules of any stock exchange on which the
shares may be listed.
Section 2. Cancellation of Certificates. All certificates surrendered
to the corporation for transfer shall be cancelled and no new certificates shall
be issued in lieu thereof until the former certificate for a like number of
shares shall have been surrendered and cancelled, except as herein provided with
respect to lost, stolen, or destroyed certificates.
Section 3. Lost, Stolen, or Destroyed Certificates. Any shareholder
claiming that his certificate for shares is lost, stolen, or destroyed may make
an affidavit or affirmation of that fact and lodge the same with the Secretary
of the corporation, accompanied by a signed application for a new certificate.
Thereupon, and upon the giving of a satisfactory bond of indemnity to the
corporation not to exceed an amount double the value of the shares as
represented by such certificate (the necessity for such bond and the amount
thereof to be determined by the President or Treasurer of the corporation), a
new certificate may be issued of the same tenor and representing the same
number, class, and series of shares as were represented by the certificate
alleged to be lost, stolen, or destroyed.
Section 4. Transfer of Shares. Subject to the terms of any
shareholder agreement relating to the transfer of shares or other transfer
restrictions contained in the Articles of Incorporation or authorized therein,
shares of the corporation shall be transferable on the books of the corporation
by the holder thereof in person, by his legal representative who shall furnish
proper evidence of authority to transfer, or by his attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary of
the corporation, upon the surrender and cancellation of a certificate or
certificates for a like number of shares. Upon presentation and surrender of a
certificate for shares properly endorsed and payment of all taxes thereof, the
transferee shall be entitled to a new certificate or certificates in lieu
thereof. As against the corporation, a transfer of shares can be made only on
the books of the corporation and in the manner hereinabove provided, and the
corporation shall be entitled to treat the holder of record of any share as the
owner thereof and shall not be bound to recognize any equitable or other claim
to or interest in such share on the part of any other person, whether or not it
shall be express, or other notice thereof, save as expressly provided by the
statutes of the state of incorporation.
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ARTICLE VII
SEAL
The Board of Directors shall provide a corporate seal, circular in
form, having inscribed thereon the corporate name, the state of incorporation,
and the word "Seal".
ARTICLE VIII
WAIVER OF NOTICE
Whenever any notice is required to be given to any shareholder or
director of the corporation, a waiver thereof in writing, signed by the person
or persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice.
ARTICLE IX
AMENDMENTS
These Bylaws may be altered, amended, or repealed, and new Bylaws may
be adopted, by the affirmative vote of a majority of the members of the Board of
Directors represented at any regular or special meeting of the Board of
Directors.
ARTICLE X
UNIFORMITY OF INTERPRETATION AND SEVERABILITY
The Bylaws shall be so interpreted and construed as to conform to the
Articles of Incorporation and the statutes of the state of incorporation or of
any other state in which conformity may become necessary by reason of the
qualification of the corporation to do business in such foreign state, and where
conflict between these Bylaws and the Articles of Incorporation or the statutes
of the state of incorporation has arisen or shall arise, these Bylaws shall be
considered to be modified to the extent, but only to the extent, conformity
shall require. If any provisions hereof or the application thereof shall be
deemed to be invalid by reason of the foregoing sentence, such invalidity shall
not affect the validity of the remainder of the Bylaws without the invalid
provision or the application thereof, and the provisions of these Bylaws are
declared to be severable.
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ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF COLORADO
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 29406V 10 0
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF $.0001 PAR VALUE OF
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
transferable on the books of the Corporation by the holder hereof, in person
or by duly authorized attorney upon surrender of this Certificate
properly endorsed.
This Certificate is not valid unless countersigned by the Transfer Agent.
WITNESS, the fascimile seal of the Corporation and the fascimile signatures of
its authorized officers.
Dated:
SECRETARY PRESIDENT
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
CORPORATE SEAL
COLORADO
COUNTERSIGNED AND REGISTERED
CORPORATE STOCK TRANSFER INC.
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION, Corporate Stock Transfer, Inc.
Transfer Fee: $12 Per Certificate.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM -as tenants in common UNIF GIFT MIN ACT-..........Custodian for......
TEN ENT -as tenants by the entireties (Cust) (Minor)
JT TEN -as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act of.......................
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For Value Received,_____________________hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------
| |
| |
| |
| |
- ---------------------------------------
- --------------------------------------------------------------------------------
PLEASE PRINT OR TYPE NAME AND ADDRESS OF ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------Shares
of the Common Stock represented by the within Certificate and do hereby
irrevocably constitute and appoint
- ------------------------------------------------------------------------Attorney
to transfer the said stock on the books of the within named Corporation, with
full power of substitution in the premises.
Dated
----------------------------19__
<TABLE>
<CAPTION>
<S> <C>
X
---------------------------------------------------------------------
X
---------------------------------------------------------------------
SIGNATURE GUARANTEED: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THIS CERTIFICATE IN EVERY PARTICULAR.
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER.
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS)
WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM
PURSUANT TO S.E.C. RULE 17ad-15.
</TABLE>
<PAGE>
EXHIBIT 5.1
GREENBERG, TRAURIG, HOFFMAN, LIPOFF, ROSEN & QUENTEL
Citicorp Center
153 East 53rd Street
New York, NY 10022
January 8, 1998
Environmental Remediation Holding Corporation
420 Jericho Turnpike, Suite 321
Jericho, New York 11753
Dear Sirs:
We are acting as special counsel to Environmental Remediation Holding
Corporation (the "Company") in connection with the Registration Statement on
Form S-1, filed on January 7, 1998 (the "Registration Statement"), under the
Securities Act of 1933, as amended (the "Act"), covering up to 3,818,000 shares
of the Company's Common Stock, par value $.001 per share (the "Shares"), which
are being registered in connection with the proposed sale of the Shares by the
persons and entities listed as selling shareholders therein.
We have examined the originals, or certified, conformed or reproduction
copies, of all such records, agreements, instruments and documents as we have
deemed relevant or necessary as the basis for the opinion hereinafter expressed.
In all such examinations, we have assumed the genuineness of all signatures on
original or certified copies and the conformity to original or certified copies
of all copies submitted to us as conformed or reproduction copies. As to various
questions of fact relevant to such opinion, we have relied upon, and assumed the
accuracy of, certificates and oral or written statements and other information
of or from public officials, officers or representatives of the Company, and
others.
Based upon the foregoing, we are of the opinion that the Shares have
been, or when issued, delivered and paid for will be, validly issued, fully paid
and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus forming a part of the Registration Statement.
Very truly yours,
GREENBERG, TRAURIG, HOFFMAN,
LIPOFF, ROSEN & QUENTEL
<PAGE>
SECURITIES PURCHASE AGREEMENT
among
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
and
THE PERSONS WHO ARE SIGNATORIES HERETO (THE "INVESTORS")
Dated: As of October 15, 1997
<PAGE>
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of the
15th day of October 1997, is entered into by and among ENVIRONMENTAL REMEDIATION
HOLDING CORP., 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").
W I T N E S S E T H:
WHEREAS, the Company desires to sell to the Investors, and the
Investors desire to purchase from the Company, certain senior secured
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) the Company's 5.5% senior subordinated secured convertible notes due October
15, 2002 (the "Notes"); and (ii) common stock purchase warrants (the "Warrants")
entitling the holders thereof to purchase, for $2.83 per share, that number of
shares of Common Stock, par value $.0001 per share of the Company (the "Warrant
Shares") which shall be equal, in the aggregate, to six (6%) percent of
aggregate principal amount of Notes sold in this offering.
(a) The Notes shall be substantially in the form of Exhibit A annexed
hereto and made a part hereof.
(b) The Warrants shall be substantially in the form of Exhibit B
annexed hereto and made a part hereof.
2. ISSUANCE OF NOTES AND WARRANTS; REGISTRATION OF CONVERSION SHARES
AND OPTION SHARES; COLLATERAL SECURITY FOR PERFORMANCE OF CERTAIN
AGREEMENTS.
(a) Issuance of Notes and Warrants. On the terms and subject to the
conditions hereinafter set forth, on the Closing Date (as hereinafter defined),
the Company will issue and sell to each Investor the principal amount of Notes
and the number of Warrants set forth opposite the name of each such Investor on
Schedule 1 hereto.
(b) Purchase Price; Payment. The purchase price for each of the Notes
shall equal 100% of the aggregate principal amount thereof and the purchase
price for each Warrant shall be one/one hundredth of one cent ($.0001). 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
<PAGE>
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-3 Registration
Statement (or if such form is not available, a Form S-1 Registration Statement)
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").
(d) Security for Performance. As collateral to secure performance by
the Company of certain of its material covenants and agreements set forth in the
Registration Rights Agreement, the Company has granted to the Investors a
collateral assignment of certain proven crude oil reserves of the Company
described on Schedule 2 annexed hereto (the "Collateral Reserves"), pursuant to
the terms of the collateral assignment security agreement, dated as of the
Closing Date, substantially in the form of Exhibit D annexed hereto and made a
part hereof (the "Collateral Assignment Security 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, 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
10-K/A for its fiscal year ended September 30, 1996 (the "1996 Form 10-K") and
on the Company's Form 10-Q/A for the three month quarter and nine month period
ended June 30, 1997 (the "1997 Form 10-Q"), as filed with the United States
Securities and Exchange Commission ("SEC"). The Company's 1996 Form 10-K, the
1997 Form 10-Q and all other documents and reports filed by the Company and/or
its
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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, the Registration Rights Agreement, and the
Collateral Assignment Security 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, the Registration Rights Agreement and the Collateral Assignment
Security 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 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, (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, or (iii) except for the collateral assignment of the
Collateral Reserves pursuant to the Collateral Assignment Security Agreement,
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, 1996 as set
forth in the 1996 Form 10-K, and (ii) the unaudited financial statements of the
Company for the nine months ended June 30, 1997
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<PAGE>
as set forth in the 1997 Form 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 are material.
(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.
(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 (i) for general working capital purposes, and (ii) 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").
No portion of the proceeds received by the Company from the sale of the Notes
will be used to pay or reimburse any officers, directors or employees of the
Company, or any relatives or affiliates of any such persons.
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(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 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, 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, since June 30, 1997, 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 Schedule 3(k) annexed hereto, 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, with respect to employees of the Company: (i) to the knowledge of the
Company, 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 knowledge of the Company, threatened before the
National Labor Relations Board or any other comparable authority; (iii) there is
no demand for recognition made
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<PAGE>
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 knowledge of Company, 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 or such other Liens
which would not, individually or in the aggregate, have a Material Adverse
Effect. 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
all 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,
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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.
(i) Except as disclosed on Schedule 3(n) annexed hereto, 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) or where such non-compliance would not, individually or
in the aggregate, have a Material Adverse Effect.
(ii) Except as disclosed in Schedule 3(n), neither the
Company nor any of the Subsidiaries has (A) 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, (B) 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 (C) 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) annexed hereto.
(o) Brokers. No broker, finder or investment banker, other than
Joseph Charles & Associates, Inc. ("JCA") or their affiliates is entitled to any
brokerage, finder's or other fee or commission in connection with the this
Agreement and the transactions contemplated hereby. The Company has agreed to
pay JCA or their affiliates cash compensation not to exceed 10% of the face
amount of the Notes sold pursuant to this Agreement and to issue to JCA or their
affiliates warrants to purchase 10% of the aggregate number of Warrants sold in
the offering;
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which warrants shall be 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 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, and 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 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.
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(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.
6. FINANCIAL STATEMENTS AND INSPECTION.
(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, Conversion Shares, Warrants or 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.
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. 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:
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"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 cause the shares of Common Stock issuable
upon conversion of the Notes (the "Conversion Shares") and the Warrant Shares
issuable upon exercise of the Warrants to be registered for resale or
distribution under the Securities Act of 1933, as amended (the "Securities
Act"), all in accordance with the terms of the Registration Rights Agreement
annexed hereto as Exhibit C and made a part hereof. In addition to the
foregoing, to the extent that any Investor purchasing Notes and Warrants shall
qualify as an exempt purchaser under Regulation S promulgated under the
Securities Act, the Company shall, in the event that the registration statement
referred to in the Registration Rights Agreement shall not be declared effective
within the period specified therein, deliver to such Investor an appropriate
legal opinion permitting resales of securities under such Regulation S
exemption.
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) 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.
(ii) There shall not have occurred and be continuing any
Material Adverse Effect.
(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) The Company and the Investors shall have executed the
Registration Rights Agreement in substantially the form of Exhibit C hereto and
the Collateral Assignment Security Agreement in substantially the form of
Exhibit D hereto.
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(v) All legal matters incident to the transactions
contemplated by this Agreement shall have been reasonably approved by counsel to
the Investors.
(vi) Not less than $2,000,000 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 November 30, 1997, the
Company shall be entitled to continue to offer the Notes and Warrants to
additional Investors, until such time as a maximum of $6,000,000 of Notes and
360,000 Warrants shall have been sold.
(vii) 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 of 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 $2,000,000 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 November 30, 1997, the
Company shall be entitled to continue to offer the Notes and Warrants to
additional Investors, until such time as a maximum of $6,000,000 of Notes and
360,000 Warrants 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 November 30, 1997.
The date of such Closing is referred to in this Agreement as the "Closing Date".
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(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 the following account set
forth below in this Section 9(b). Prior to such wire transfer, all Notes and
Warrants, duly executed by the Company shall have been delivered to Company
counsel to be held in escrow pending confirmation of wired funds to the account
specified below. Upon receipt of confirmation of such funds having been received
by the Company, the Company shall instruct its counsel to deliver the Notes and
Warrants to the Investor at the address designated by such Investor.
Wire Instructions:
Federal Home Loan Bank of Dallas
ABA #: 111040195
For Credit to:
Environmental Remediation Holding Corporation
Iberian Savings Bank
Account No. 2228602
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 (all of the foregoing referred to herein as
"Other Common Stock Equivalents"), in each case, at a conversion price which
shall be lower than the Conversion Price set forth in the Notes offered hereby,
the Conversion Price 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
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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 JCA as disclosed in Section 3(o) annexed 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 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:
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If to the Company: Environmental Remediation Holding Corp.
5841 Corporate Way #100
West Palm Beach, FL 33407
Attn: Noreen Wilson, Vice President
Fax: (561) 624-1171
-and-
Environmental Remediation Holding Corp.
420 Jerico Turnpike #321
Jerico, New York 11753
Attn: James A. Griffin, Secretary
Fax: (516) 433-9229
With a copy to: Greenberg Traurig Hoffman Rosen
Lipoff & Quentel
153 East 53rd Street
New York, New York 10022
Attn: Stephen A. Weiss, Esq.
If to the Investors: To the addresses set forth below the
name of each Investor on Schedule 1
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.
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<PAGE>
18. SECTION HEADINGS.
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 New York, New York by 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 binding 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. 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.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
ENVIRONMENTAL REMEDIATION HOLDING CORP.
By: /s/ Sam Bass
---------------------------------
Sam Bass, Chief Executive Officer
By: /s/ Noreen Wilson
---------------------------------
Noreen Wilson, Vice President
THE INVESTORS:
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EXHIBIT A
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 SENIOR SUBORDINATED SECURED NOTE
$__________ As of October 15, 1997
New York, New York
FOR VALUE RECEIVED, ENVIRONMENTAL REMEDIATION HOLDING CORP., a
Colorado corporation (the "Company"), hereby promises to pay to the order of
______________________________________________, or any subsequent holder of this
Note (the "Payee"), at ______________, or at such other place as may be
designated by the Payee from time to time by notice to the Company, the
principal sum of ($________) Dollars, together with interest from the date
hereof on the unpaid principal amount hereof at an annual rate equal to five and
one-half (5.5%) percent 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 October 15, 2002 (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 Maturity Date 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 Maturity Date, by (ii) the Conversion Price (as herein defined) in
effect on the Maturity Date.
(b) Interest on the unpaid principal balance of this Note at
the rate of five and one-half (5.5%) percent per annum shall accrue from the
date hereof and shall be payable quarterly on the last day of each December,
March, June and September, commencing December 31, 1997 (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 of one or more
additional notes, each of which
<PAGE>
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 of paying interest
on this Note in cash or by the issuance of Additional Notes, at the Company's
option (but subject to receipt of the prior written consent from the Payee), the
Company may allow all or 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 then in
effect.
(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 October
15, 1997, 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 9 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 of 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 thirty (30) days' prior written notice to the holder of this Note
(the "Prepayment Notice"), in whole or in part, at the premium hereinafter
specified, at any time or from time to time from and after that date (the
"Initial Prepayment Date") which shall be the later to occur of: (i) one (1)
year following the date of the initial issuance of the Note (the "Issuance
2
<PAGE>
Date"), or (ii) the date on which the Company shall register for resale pursuant
to the Securities Act of 1933, as amended (the "Securities 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 or Form
S-3 (as applicable) declared effective by the Securities and Exchange Commission
(the "SEC").
(b) In the event and to the extent that the Company shall
effect any voluntary prepayment of this Note, on each occasion that all or any
portion of this Note shall be so prepaid, the Company shall pay to the holder,
the sum of the following amounts: (i) all interest on the entire principal
amount of this Note which shall have accrued and shall be unpaid through the
date of such prepayment, (ii) 100% of the principal amount of this Note then
being prepaid, and (iii) a prepayment premium equal to 20% of the principal
amount of this Note then being prepaid.
(c) 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
thirty (30) days following delivery of the Prepayment Notice and not later than
sixty (60) days following delivery of the Prepayment Notice. 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.
(d) 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 availabilty 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 prepay the Note as
provided in Section 4 hereof, the holders of the Note 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) on the 90th day following the
Issuance Date, the holder of this Note may elect to convert up to sixty six and
two-thirds (66-2/3%) percent of the original principal amount of this Note, and
(iii) on the 120th 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
3
<PAGE>
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 such holder's written notice of
election to convert all or any portion of this Note (the "Conversion Date") is
divided into the aggregate principal amount of this Note so converted on the
Conversion Date pursuant to the Conversion Notice. 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 5(g) herein.
(b) Automatic Conversion. Prior to October 15, 2002, 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 October 16,
2002, 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 Share Price (as defined
below) for the five (5) consecutive trading days immediately
preceding the Issuance Date (the "Issuance Date Conversion
Price");
(ii) 100% of the Average Share Price (as defined
below) for the five (5) consecutive trading days immediately
preceding that date which shall be October 22, 1998, or the
anniversary of the Issuance Date (the "AnniversaryDate
Conversion Price"); or
(iii) the product of multiplying (A) the Average
Share Price for the five consecutive trading days preceding
the applicable Conversion Date on which all or part of this
Note shall be converted, by (B) eighty (80%) percent.
Notwithstanding the foregoing, subject to the adjustments provided in Section
5(d) below, in no event shall such Conversion Price be less than $1.25 (the
"Floor Conversion Price"); provided, however, that in the event that, on any one
or more occasions, eighty (80%) percent of the Average Share Price shall be less
than the Floor Conversion Price for any period of ninety (90) consecutive
calendar days (a "Below Floor Conversion Price Period"), the holder of this Note
shall thereafter have the right, exercisable at his or its sole option at any
time following the
4
<PAGE>
expiration of each such Below Floor Conversion Price Period, to convert all or
any portion of this Note into Common Stock at the Conversion Price then in
effect, without regard to any Floor Conversion Price.
As used herein, the term "Average Share Price" shall mean the
average of the closing bid price per share of the Company's shares of 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 Conversion Date, or other applicable date specified in Section 5(c) or
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.
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.
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<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 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 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,
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<PAGE>
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 for Issuance of Common Stock. If at any time
or from time to time after the Issuance Date, the Company shall issue or sell
any shares of Common Stock for a consideration per share which shall be less
than seventy-five (75%) percent of the Average Share Price per share of Common
Stock for the five (5) consecutive trading days immediately prior to the time of
such issue or sale (the "Trigger Price"), then forthwith upon such issue or
sale, the number of shares of Common Stock issuable upon conversion of the Note
in effect immediately prior to such issue or sale shall be adjusted by
multiplying the number of shares of Common Stock issuable upon conversion of the
Note in effect immediately prior to the time of such issue or sale by a
fraction:
(A) the numerator of which shall be (i) the total number of
shares of Common Stock issued and outstanding immediately
after such issue or sale, multiplied by (ii) the Trigger
Price; and
(B) the denominator of which shall be the sum of (i) the
number of shares of Common Stock outstanding immediately
prior to such issue or sale multiplied by the Trigger
Price, plus (ii) the consideration received by the Company
upon such issue or sale.
(vii) Other Adjustment Events and Provisions. For the purposes
of this Section 5, following shall also be applicable.
(A) Issuance of Rights, Warrant or Options.
(ii) In case at any time the Company shall grant,
issue or sell (whether directly or by assumption in a
merger or otherwise) any rights or warrants to
subscribe for or to purchase, or any options for the
purchase of Common Stock or any stock or securities
convertible into or exchangeable for Common Stock
(such convertible or exchangeable stock or securities
being herein called "Convertible Securities"),
whether or not such rights or warrants or options or
the right to convert or exchange any such Convertible
Securities are immediately exercisable, and the price
per share for which Common Stock is issuable upon the
exercise of such rights or warrants or options or
upon conversion or exchange of such Convertible
Securities (determined as provided below) shall be
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<PAGE>
less than the Trigger Price as of the date of
granting such rights or warrants or options as the
case may be, then the total maximum number of shares
of Common Stock issuable upon the exercise of such
rights (other than rights issued pursuant to a
stockholders rights plan adopted by the Company
pursuant to which the acquisition by any third party
of a specified percentage of shares of Common Stock
triggers the exercisability of such rights to
purchase Common Stock, for so long as no event has
occurred triggering such right to exercise) or
warrants or options or upon conversion or exchange of
the total maximum amount of such Convertible
Securities issuable upon the exercise of such rights
or warrants or options shall (as of the date of
granting of such rights or warrants or options) be
deemed to be outstanding and to have been issued for
such price per share.
(ii) No further adjustments of the number of shares
of Common Stock issuable upon conversion of this Note
shall be made upon the actual issue of such Common
Stock or of such Convertible Securities upon exercise
of such rights or warrants or options or upon the
actual issue of such Common Stock upon conversion or
exchange of such Convertible Securities.
(B) Issuance of Convertible Securities. In case of Company
shall issue (whether directly or by assumption in a merger or
otherwise) or sell any Convertible Securities, whether or not
the rights to exchange or convert thereunder are immediately
exercisable, and the price per share for which Common Stock is
issuable upon the conversion or exchange of such Convertible
Securities (determined as provided below) shall be less than
the Trigger Price determined as of the date of such issue or
sale of such Convertible Securities, then the total maximum
number of shares of Common Stock issuable upon conversion or
exchange of all such Convertible Securities shall (as of the
date of the issue or sale of such Convertible Securities) be
deemed to be outstanding and to have been issued for such
price per share; provided, however, that (a) except as
provided Section 5(d)(vii)(C), no further adjustments to the
number of shares of Common Stock issuable upon conversion of
the Note shall be made upon the actual issue of such Common
Stock upon conversion or exchange of such Convertible
Securities, and (b) if any such issue or sale of such
Convertible Securities is made upon exercise of any rights or
warrants to subscribe for or to purchase or any options to
purchase any such Convertible Securities for which adjustments
of the number of shares of Common Stock issuable upon
conversion of the Note have been or are to be made pursuant to
Section 5(d)(vii)(A), no further adjustment of the number of
shares of Common Stock issuable upon conversion of the Note
shall be made by reason of such issue or sale. For the
purposes of this Section 5(d)(vii)(B), the price per share for
which Common Stock is issuable upon conversion or exchange of
Convertible Securities shall be determined by dividing (i) the
total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the
conversion or exchange thereof, by (ii) the total maximum
number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities.
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<PAGE>
(C) Consideration for Stock. In case any shares of Common
Stock or Convertible Securities, other than the Note, or any
rights or warrants or options to purchase any such Common
Stock or Convertible Securities shall be issued or sold:
(i) for cash, the consideration received therefor
shall be deemed to be the amount received by the
Company therefor, without deduction therefrom of any
expenses incurred or any underwriting commissions or
concessions paid or allowed by the Company in
connection therewith;
(ii) for a consideration other than cash, the amount
of the consideration other than cash received by the
Company shall be deemed to be the fair value of such
consideration as determined by the Board of Directors
of the Company in good faith and in the exercise of
reasonable business judgment, without deduction of
any expense incurred or any underwriting commissions
or concessions paid or allowed by the Company in
connection therewith, which determination shall be
sent in writing by the Board of Directors to the
registered holders of Note;
(iii) in connection with any merger or consolidation
in which the Company is the surviving corporation
(other than any consolidation or merger in which the
previously outstanding shares of Common Stock of the
Company shall be changed into or exchanged for the
stock or other securities of another corporation),
the amount of consideration therefor shall be deemed
to be the fair value, as determined reasonably and in
good faith by the Board of Directors of the Company,
of such portion of the assets and business of the
nonsurviving corporation as such Board may determine
to be attributable to such shares of Common Stock,
Convertible Securities, rights or warrants or
options, as the case may be; or
(iv) in the event of any consolidation or merger
of the Company in which the Company is not the
surviving corporation or in which the previously
outstanding shares of Common Stock of the Company
shall be changed into or exchanged for the stock or
other securities of another corporation or in the
event of any sale of all or substantially all of the
assets of the Company for stock or other securities
of any corporation, the Company shall be deemed to
have issued a number of shares of its Common Stock
for stock or securities or other property of the
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<PAGE>
other corporation computed on the basis of the actual
exchange ratio on which the transaction was
predicated, and for a consideration equal to the fair
market value on the date of such transaction of all
such stock or securities or other property of the
other corporation. If any such calculation results in
adjustment of the applicable Conversion Price or the
number of shares of Common Stock issuable upon
conversion of the Note, the determination of the
applicable Conversion Price or the number of shares
of Common Stock issuable upon conversion of the Note
immediately prior to such merger, consolidation or
sale, shall be made after giving effect to such
adjustment of the number of shares of Common Stock
issuable upon conversion of the Note.
(D) Certain Issues Excepted. Anything herein to the contrary
notwithstanding, the Company shall not be required to make any
adjustment of the number of shares of Common Stock issuable
upon conversion of the Note upon:
(i) the (x) issuance after the Issuance Date of or
exercise of options or warrants or rights to purchase
restricted securities issued after the Issuance Date,
or (y) issuance after the Issuance Date of or
exercise of options or warrants or rights granted or
provided under employee benefit plans or other
written employment agreements or arrangements
relating to the acquisition of Common Stock or
rights, options or warrants with respect thereto, in
each case currently in effect or adopted after the
Issuance Date or entered into by the Company after
the Issuance Date; provided, however, that any such
issuance or grant shall be for consideration or at
the strike price, respectively, not less than the
Trigger Price on the date of grant thereof or of the
issuance of the Common Stock subject thereto, and
provided, further, that the sum of (y) the number of
shares Common Stock referred to in this clause (i) so
issued plus (z) the aggregate number of shares of
Common Stock referred to in this clause (i) issuable
upon the exercise of such options, warrants or
rights, exclusive of any options, warrants or rights
that have expired, been canceled or are for other
reasons (other than having been exercised) no longer
outstanding, shall not exceed fifteen percent (15%)
of the aggregate of (1) the total outstanding shares
of Common Stock at the Initial Date, (2) the number
of shares issuable in respect of all outstanding
warrants as of the Initial Date, (3) the number of
shares of Common Stock issuable upon conversion of
the Note; plus (4) the summation derived from clauses
(y) and (z) of this clause. The Company shall not be
required to make any such adjustment upon the
issuance of shares or the granting of any options or
warrants or rights referred to in this Section
5(d)(vii)(E) if and to the extent that the issuance
of the shares covered thereby is excepted by this
clause.
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<PAGE>
(e) No Impairment. 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 holders 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, 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.
(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 (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 Stephen A. Weiss, Esq. at (212) 223-7161 and at (203)
222-0845), 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.
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<PAGE>
(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 Share 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 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 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 governmental 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 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).
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<PAGE>
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 within ten (10) "Business Days"
(defined as any days on which national banks in the United 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 (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) 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 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
13
<PAGE>
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; or
(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. 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. 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 Secured
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. 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.
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<PAGE>
9. GOVERNING LAW.
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
laws principles.
10. 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 of character,
whether in cash, property or securities, to which the holder hereof would be
entitled, except for the provisions of this Section 10, 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 10(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
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<PAGE>
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 on 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 that, notwithstanding the provisions of this
Section 10, 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 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 10 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.
(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 10 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; (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; (C) 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 (D) hereby appoints the person so designated his or its
attoreny-in-fact for such purpose.
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(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 10, the security 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.
11. 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 1 of this Note; (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.
12. SECURITY FOR PAYMENT OF NOTE.
Subject at all times to the subordination provisions of this Note,
compliance by the Company with its obligations under the Registration Rights
Agreement is secured by a collateral assignment in favor of the Payee and the
other holders of the Notes issued under the Securities Purchase Agreement,
pro-rata as their interests may appear, of the proven crude oil reserves
described on Schedule A.
13. 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.
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<PAGE>
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 Wilson, Vice President
Witnesseth:
- ----------------------
18
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EXHIBIT B
WARRANT TO PURCHASE SHARES OF COMMON STOCK
OF ENVIRONMENTAL REMEDIATION HOLDING CORP.
________ Shares As of October 15, 1997
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 OCTOBER 15, 2002
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 CORP., a Colorado corporation
(the "Company"), ________ shares of common stock of the Company, par value
$0.0001 per share (the "Common Stock"), at any time during the period (the
"Exercise Period") from 9:00 a.m. New York Time on the Effective Date (as such
term is hereinafter defined) and ending at 5:00 p.m. New York Time, on October
15, 2002 (the "Expiration Date"), at an exercise price (the "Exercise Price")
equal to $2.83 per share; such Exercise Price being 100% of the Average Share
Price (as defined in the Note) of the Company's Common Stock for the five (5)
consecutive trading days ending immediately prior to October 17, 1997. 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 7 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
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<PAGE>
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) Upon the Holders' surrender of the Warrant and payment of the
Exercise Price as set forth above, the Company shall promptly issue and cause to
be delivered to the Holders a certificate or certificates for the total number
of whole shares of Common Stock for which this Warrant is then so exercised, as
the case may be (adjusted to reflect the effect of the anti-dilution provisions
contained in Section 2 of this Warrant, if any) in such denominations as are
requested for delivery to the Holders, and the Company shall thereupon deliver
such certificates to the Holders. 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% senior subordinated
convertible secured note due October 15, 2002 (the "Note") pursuant to the
Securities Purchase Agreement, dated as of October 15, 1997 (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
<PAGE>
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, (C) or otherwise effect an increase or decrease in the number
of shares of Common Stock without consideration, or (D) 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:
(i) 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.
(ii) The Company shall not effect any such Reorganization Transaction
unless prior to or simultaneous with the consummation thereof, the
successor corporation (if other than
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<PAGE>
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.
(iii) 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.
4
<PAGE>
5. Certain Representations of the Company.
Throughout the Exercise Period, the Company has (i) all requisite power
and authority to issue this Warrant and the Exercised Shares, and (ii)
sufficient authorized and unissued securities of Common Stock to permit exercise
of this Warrant.
6. 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 Washington.
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.
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7. 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.
8. 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
153 East 53rd Street
New York, New York 10022
Attention: Stephen A. Weiss, Esq.
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.
9. 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 laws
provisions.
b. 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.
c. 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.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on and as
of the date first set forth above.
ENVIRONMENTAL REMEDIATION HOLDING CORP.
By:
----------------------------------------
HOLDER:
------------------------------------
------------------------------------
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NOTICE OF WARRANT EXERCISE
TO: ENVIRONMENTAL REMEDIATION HOLDING CORP.:
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 10.6
REGISTRATION RIGHTS AGREEMENT
dated as of
October 15, 1997
among
ENVIRONMENTAL REMEDIATION HOLDING CORP.
and
THE PURCHASERS LISTED ON EXHIBIT A HERETO
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (the "Agreement") is dated as of
October 15, 1997 between ENVIRONMENTAL REMEDIATION HOLDING CORP., a Colorado
corporation (the "Company") and each of the Purchasers of the Company's 5.5%
Senior Subordinated Convertible Secured Notes due 2002 (the "Notes") pursuant to
that certain Securities Purchase Agreement, dated of even date herewith (the
"Securities Purchase Agreement"), whose names are set forth on Exhibit A hereto
(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
The parties hereto agree as follows:
ARTICLE 1
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 Corp., 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 included
therein, all amendments and supplements thereto (including post-effective
amendments) and all exhibits and material incorporated by reference therein.
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"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% senior subordinated convertible secured notes of the Company
due 2002, in $5,000,000 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 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.
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<PAGE>
"Securities Purchase Agreement" has the meaning given to it in the
recitals to this Agreement.
"Warrants" means the warrants to purchase up to 300,000 shares of
Company Common Stock (if all $5.0 million of Notes are sold pursuant to the
Securities Purchase Agreement) at an exercise price of $3.17 per share, subject
to adjustment as provided therein, which are issuable pursuant to the Securities
Purchase Agreement on the basis of warrants to purchase 60 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.
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 45
calendar days from the Closing Date, cause to be filed a Shelf
Registration Statement on Form S-1 or Form S-3, as applicable, pursuant
to Rule 415 under the Securities Act, which Shelf Registration
Statement shall provide for resales 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 within 120
calendar days from the Closing Date.
(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
reasonable 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 three (3) years from the Effective Time or such
longer period as required by Section 2.2(d) or such shorter period that will
3
<PAGE>
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 reasonable 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 consecutive 12 months and shall not
exceed 150 during the period specified in Section 2.2(b) of this Agreement; and
provided, further, that the 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) The Company represents that, as at the date hereof, it qualifies
for a Form S-3 Registration Statement.
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<PAGE>
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; 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 to each Holder
of Restricted Securities and, thereupon:
(ii) in the case of a determination not to register, shall be
relieved of its obligation to register any 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 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 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 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
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(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 any, 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) 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
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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, 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);
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(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.
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 underwriter(s), 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 timely
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 reasonable 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
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<PAGE>
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 2.2(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;
(l) 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(b)(iv) or the commencement of a 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 contemplated by Section 2.4(i), 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. If so directed by the Company,
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<PAGE>
each Holder will deliver to the Company all copies, other than permanent file
copies, then in such Holder's possession, of the Prospectus covering such
Restricted Securities that was current at the time of receipt of such notice. 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(b)(iv) or the
commencement of a 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 contemplated by Section 2.4(i) or shall
have received (in accordance with the notice provisions of Section 5.3) 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.
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.
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(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 arise 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 supplemented, if the Company
shall have previously furnished copies thereof 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.
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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 defence thereof. Such indemnified Person shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of the 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 defence 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).
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(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 or 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.
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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
LIQUIDATED DAMAGES
Each of the Company and the Purchasers (on behalf of themselves and
each subsequent Holder of Restricted Securities) agrees that each Holder of
Restricted Securities will suffer damages if the Shelf Registration Statement
covering all Registrable Securities is not filed with and declared effective by
the Commission and maintained in the manner and within the time period
contemplated by Article 2 hereof, and it would not be feasible to ascertain the
extent of such damages with precision. Accordingly, if (i) the Shelf
Registration Statement is not filed and declared effective by the Commission on
or prior to the date that is 120 days after the Closing Date, or (ii) the Shelf
Registration Statement is filed and declared effective but shall thereafter
cease to be effective (without being succeeded immediately by an additional
Shelf Registration Statement filed and declared effective) for a period of time
which shall exceed 120 days in the aggregate per year (defined as a period of
365 days commencing on the date the Shelf Registration Statement is declared
effective) (each such event referred to in clauses (i) and (ii) is referred to
herein as a "Registration Default"), then, for so long as such default shall
continue, the Company shall pay in cash as Liquidated Damages to each Holder of
Restricted Securities who has complied with such Holder's obligations hereunder
an amount equal to three (3%) percent per calendar month (or fraction thereof)
of the aggregate principal amount of Notes then owned of record by such Holder
under the Securities Purchase Agreement immediately following the occurrence of
such Registration Default.
ARTICLE 4
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.
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ARTICLE 5
MISCELLANEOUS
5.1 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.
5.2 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.
5.3 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
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
153 East 53rd Street
New York, New York 10022
Telephone Number: (212) 801-9253
Fax: (212) 223-7161 and (203) 222-0845
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5.4 Headings. The headings contained in this Agreement are for convenience
only and shall not affect the meaning or interpretation of this Agreement.
5.5 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.
5.6 Applicable Law. 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.
5.7 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.
5.8 Amendment and Waivers. The provisions 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.
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 CORP.
By:______________________________
Name: Sam Bass
Its: Chief Executive Officer
16
<PAGE>
THE PURCHASERS
By:_______________________
Name:
Its:
Address:
By:_______________________
Name:
Its:
Address:
By:_______________________
Name:
Its:
Address:
By:_______________________
Name:
Its:
Address:
By:_______________________
Name:
Its:
Address:
By:_______________________
Name:
Its:
Address:
By:_______________________
Name:
Its:
Address:
17
<PAGE>
EXHIBIT 22.1
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
Name of Subsidiary State of Incorporation Percentage Owned
- ------------------ ---------------------- ----------------
<S> <C> <C> <C>
Bass American Petroleum Company ("BAPCO") Louisiana 100%
Site Services, Inc. ("SSI") Louisiana 100%
</TABLE>
<PAGE>
Environmental Remediation Holding Corporation
420 Jericho Turnpike, Suite 321
Jericho, New York 11753
INDEPENDENT AUDITOR'S CONSENT
Ladies and Gentlemen:
We hereby consent to the use in this Registration Statement of Environmental
Remediation Holding Corporation on Form S-1 of our report dated December 12,
1997 on the consolidated financial statements of the company, appearing in the
Prospectus, which is part of this Registration Statement.
We also consent to the reference to our firm under the headings "Selected
Financial Data" and "Experts" in such Prospectus.
/s/ Durland & Company, CPAs, P.A.
Palm Beach, Florida
January 7, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the audited
financial statements of Environmental Remediation Holding Corporation for
September 30, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000799235
<NAME> ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 327,743
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 543,451
<PP&E> 5,970,000
<DEPRECIATION> (744,000)
<TOTAL-ASSETS> 21,656,011
<CURRENT-LIABILITIES> 1,748,376
<BONDS> 0
0
0
<COMMON> 2,299
<OTHER-SE> 19,905,336
<TOTAL-LIABILITY-AND-EQUITY> 21,656,011
<SALES> 108,944
<TOTAL-REVENUES> 108,944
<CGS> 53,991
<TOTAL-COSTS> 17,033,549
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,787
<INCOME-PRETAX> (17,018,782)
<INCOME-TAX> 0
<INCOME-CONTINUING> (17,018,782)
<DISCONTINUED> 0
<EXTRAORDINARY> 6,730
<CHANGES> 0
<NET-INCOME> (17,012,052)
<EPS-PRIMARY> (1.62)
<EPS-DILUTED> (1.62)
</TABLE>
